Managing Customs: Efforts Under Way to Address Management Weaknesses
(Letter Report, 03/16/95, GAO/GGD-95-73).

This report discusses the U.S. Customs Service's efforts to address
weaknesses GAO identified in a 1992 report (GAO/HR-93-14) and during
subsequent reviews.  Although these efforts reflect a significant
commitment, much remains to be done to better ensure that Customs
detects trade violations in imported cargo; collects applicable duties,
taxes, fees, and penalties; controls its financial resources; and
reports on its financial operations. Therefore, GAO will continue to
monitor the agency's progress.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-95-73
     TITLE:  Managing Customs: Efforts Under Way to Address Management 
             Weaknesses
      DATE:  03/16/95
   SUBJECT:  Customs administration
             Law enforcement
             Trade regulation
             Financial management
             Risk management
             Information resources management
             Internal controls
             Debt collection
             Federal agency reorganization
             Computer security

             
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Cover
================================================================ COVER


Report to the Commissioner
U.S.  Customs Service

March 1995

MANAGING CUSTOMS - EFFORTS UNDER
WAY TO ADDRESS MANAGEMENT
WEAKNESSES

GAO/GGD-95-73

Management Weaknesses

(264428)


Abbreviations
=============================================================== ABBREV

  ACE - Automated Commercial Environment
  ACS - Automated Commercial System
  CDC - Customs Distributed Computing
  NAFTA - North American Free Trade Agreement
  NCAP - National Customs Automation Program
  SDLC - Systems development life cycle (guidelines)

Letter
=============================================================== LETTER


B-259118.2

March 16, 1995

The Honorable George J.  Weise
Commissioner
U.S.  Customs Service

Dear Mr.  Weise: 

In 1992, we issued a report on management weaknesses in the U.S. 
Customs Service.\1 That report was part of our special effort to
review and report on federal government program areas that we
considered "high risk." This report presents the results of our
analysis of the U.S.  Customs Service's efforts to address the
weaknesses that we identified in 1992 and during subsequent reviews. 
While these efforts reflect a significant commitment, much remains to
be done to better ensure that Customs detects trade violations in
imported cargo; collects applicable duties, taxes, fees, and
penalties; controls its financial resources; and reports on its
financial operations.  Therefore, we will continue to monitor
Customs' progress. 

In December 1992, we reported that Customs had major weaknesses in
(1) mission planning; (2) financial, information, and human resource
management; and (3) its organizational structure.  Customs has taken
action in each of these areas, and some of the more significant
efforts include the following: 

  -- Customs has revised its 1993 5-Year Plan to clarify and set
     priorities for its trade enforcement objectives, including fully
     automating its transaction processing and establishing
     performance accountability measurements for achieving its trade
     enforcement goal. 

  -- It has improved controls over the identification and collection
     of duties, taxes, fees, and penalties.  Specifically, Customs
     has developed a program intended to reliably measure the trade
     community's compliance with trade laws through inspections of
     statistically valid random samples of imported goods and
     examination of related import documents. 

  -- It has reorganized its debt collection unit, formalized its
     collection procedures, and aggressively pursued collection of
     delinquent receivables. 

  -- It has embarked on a reorganization plan to correct
     institutional problems related to cooperation and coordination
     among its programmatic units and to ensure consistency in policy
     implementation. 

Additional efforts will be needed in Customs' financial and
information systems modernization programs.  For instance, years of
inadequate financial management leadership have led to deficient
financial management systems that do not facilitate financial
reporting and control.  Recognizing this, Customs stated that it has
recently begun to take steps to adopt practices that leading private
and public organizations have successfully used to manage their
information resources.  We will continue to monitor Customs' progress
in this area. 

Finally, our recent audits of Customs' financial statements disclosed
that Customs had improvement efforts under way but had not yet fully
resolved many of the financial management problems that we reported
in 1992.  Also, these audits identified two areas that we had not
identified in our 1992 report.  One concerns Customs' inability to
detect and prevent duplicate or excessive claims for refunds of
duties and taxes paid on imported goods that are subsequently
exported or destroyed.  The other relates to Customs' inability to
prevent or detect unauthorized access and modifications to critical
and sensitive data and computer programs. 

Customs has a wide assortment of plans and a broad reorganization
under way that are intended to correct identified management
weaknesses, including the additional problem areas.  Many of these
efforts are in the early stages of development.  While we believe
that Customs' planned improvement efforts are appropriately focused,
it is important that Customs' top and mid-level management provide
the continuing support needed to ensure that these important actions
are properly implemented and that the related problems do not recur. 
Further, we believe that there are additional actions that Customs
can take in the short term, such as (1) improving guidance and
oversight to ensure that agency staff understand and comply with
existing procedures--that is, that they are properly performing
fundamental reconciliations and supervising and approving routine
transactions; (2) implementing new control procedures for
reconciliations and approvals; and (3) properly analyzing data to be
included in financial management reports.  Other improvements, such
as obtaining more useful information on unreported duties, taxes, and
fees, will require longer term system changes. 


--------------------
\1 Managing the Customs Service (GAO/HR-93-14, Dec.  1992). 


---------------------------------------------------------- Letter :0.1

In doing our analysis, we met with Customs officials and reviewed
documentation related to the corrective action that Customs has
taken.  See appendix I for a detailed discussion of our analysis of
the management weaknesses, including the actions Customs has taken
and future action to be taken.  We discussed the contents of this
report with Customs officials.  They agreed with the issues discussed
in the report and provided clarification and technical corrections,
which we included in the report, where appropriate. 

We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Governmental Affairs; the
Senate Committee on Finance; the House Committee on Government Reform
and Oversight; and the House Committee on Ways and Means.  We are
also sending copies to the Secretary of the Treasury, the Director of
the Office of Management and Budget, and other interested parties. 
Copies will be made available to others upon request. 

Major contributors to this report are listed in appendix II.  If you
need any additional information or have any further questions, please
contact me on (202) 512-8777. 

Sincerely yours,

Laurie E.  Ekstrand
Associate Director, Administration
  of Justice Issues


DETAILED ANALYSIS
=========================================================== Appendix I


   BACKGROUND
--------------------------------------------------------- Appendix I:1

The American public relies on the U.S.  Customs Service to enforce
trade laws and policies designed to prevent importation of foreign
goods that threaten our health and safety.  Customs also collects
duties, fees, and taxes that have totaled about $20 billion annually
in recent years, and Customs is the initial source of trade
statistics used in formulating and monitoring our nation's foreign
trade policies. 

To carry out its responsibilities, Customs has developed processes
and systems to document, inspect, and account for the movement and
disposition of imported goods and collect and account for the related
revenues.  However, this is an increasingly challenging task.  The
volume of imports has more than doubled since 1980, making it
impractical for Customs to inspect all shipments.  Also, recent trade
agreements, such as the North American Free Trade Agreement (NAFTA),
have increased the number and complexity of trade provisions that
Customs must enforce.  Further, U.S.  and foreign businesses have
become more interdependent, and Customs faces increased pressure to
facilitate and avoid delaying the movement of goods across U.S. 
borders. 

In our December 1992 high-risk report on the Customs Service, we
identified a number of problems that could hinder Customs' ability to
meet the challenges of the changing world trade environment.  At that
time, Customs did not have an effective strategic management process
for guiding its operations and establishing accountability for
performance.  Although it had a 5-Year Plan, the plan did not set
clear objectives or priorities for its trade enforcement activities
or adequately set forth a means of fully automating Customs'
transaction processing.  Further, Customs did not have a means of
measuring its success in ensuring compliance with trade laws, and
there were significant weaknesses in its financial and other
information management systems.  We also reported deficiencies in
Customs' human resource management and organizational structure. 

In a January 1994 letter to the Chairman and Ranking Minority Member
of the Senate Governmental Affairs Committee and to the Chairman and
Ranking Minority Member of the House Government Operations Committee,
we stated that Customs was in the early stages of initiating
appropriate efforts to correct these problems. 


   IMPROVEMENTS TO STRATEGIC
   PLANNING FOR OPERATIONS HAVE
   BEEN INITIATED
--------------------------------------------------------- Appendix I:2

In 1992, we reported that Customs' 5-Year Plan for managing its trade
enforcement activities was not effective in guiding operations and
establishing accountability for performance.  As a result, Customs
revised its 5-Year Plan to clarify and set priorities for its trade
enforcement objectives.  This included plans to fully automate its
transaction processing, establish performance accountability
measurements for achieving its trade enforcement goal, and initiate a
statistically based standard for measuring trade compliance.  These
initiatives have only recently been implemented, so it is too soon to
assess their effectiveness. 


      FIVE-YEAR PLAN
------------------------------------------------------- Appendix I:2.1

In September 1993, Customs issued a revised 5-Year Plan as part of
its overall planning framework.  The plan is intended to ensure that
projects and activities are consistent with Customs' mission--to
ensure that all goods entering and exiting the country do so in
accordance with applicable U.S.  laws and regulations.  The plan
consists of Customs' mission, the goals to achieve that mission,
objectives to describe how to achieve each goal, projects and
activities to translate the goals into results, and performance
measurements to assess how well the implementation of the goals are
achieving Customs' mission.  Customs also prepared an annual plan
that translated the broad goals of its 5-Year Plan into specific
activities for each year.  Customs' annual plan for July 1994 to June
1995, issued in April 1994, included detailed activities to carry out
each of the objectives in the 5-Year Plan. 

The plan states that Customs' trade goal is to maximize trade
compliance through a balanced three-part program.  First, field
officials are conducting trade briefings for importers and brokers to
explain how compliance measurement testing will be done and to
discuss testing results.  Second, Customs is targeting potential
high-risk transactions and trade law violations.  Third, Customs is
trying to ensure that cargo that is in compliance with the trade laws
is processed efficiently. 


      TRADE OBJECTIVES ARE
      ARTICULATED AND PRIORITIES
      ESTABLISHED
------------------------------------------------------- Appendix I:2.2

Customs' current 5-Year Plan contains six priority trade enforcement
objectives that are supported by action plans: 

  -- improving the targeting of trade law violations by developing
     and refining automated systems and integrating trade information
     and import statistics to identify high-risk countries,
     transactions, and commodities;

  -- enhancing collection, analysis, and dissemination of commercial
     intelligence and trade information;

  -- encouraging voluntary compliance within the trade community;

  -- increasing trade enforcement investigations, prosecutions, and
     major penalty collections;

  -- increasing the level of international compliance and
     cooperation; and

  -- emphasizing the importance of its trade enforcement priorities
     through improved accountability. 


   EFFORTS TO INCREASE TRADE
   COMPLIANCE
--------------------------------------------------------- Appendix I:3

Customs is currently improving its methods for targeting examinations
of imported goods and related documentation by refining its selection
criteria to better focus on high-risk shipments.  In addition, during
fiscal year 1993, Customs began conducting examinations of randomly
selected samples of import shipments to develop statistically valid
estimates of trade compliance for individual commodity groups
arriving at selected ports. 

Although some of the goods were found to be highly compliant with the
specific requirements of trade laws and regulations, some types of
goods, such as automobile parts, were determined to be much less
compliant than Customs had previously assumed.  Because these tests
covered relatively few commodities, the results cannot be used to
estimate overall compliance.  However, they were useful in
demonstrating to Customs the value of accurately measuring compliance
rather than relying on perceptions of compliance.  Also, they
provided Customs a means of refining its sampling and testing
methodology and served as a means of training Customs personnel at
the district and port levels for future testing efforts. 

Tests of random samples were expanded during fiscal year 1994 to
cover the accuracy of the carrier's list of arriving cargo
(manifest).  Nationwide tests of all commodity groups are under way
and will continue throughout fiscal year 1995.  In addition, Customs
plans to expand tests of manifest accuracy for fiscal year 1995.  If
properly implemented, these more comprehensive tests should provide a
reliable indication of overall trade compliance nationwide and assist
efforts to target high-risk shipments. 


      INCREASED AUTOMATED
      TRANSACTION PROCESSING
      PLANNED
------------------------------------------------------- Appendix I:3.1

An integral part of Customs' efforts to improve trade enforcement is
its planned increased use of automated transaction processing. 
Although many of Customs' processes are already automated and many
import documents are being submitted electronically, a significant
segment is still not automated.  For example, according to Customs,
during fiscal year 1993, about 77 percent of sea shipment manifests
were submitted electronically, while less than 20 percent of air
shipment manifests were submitted in this manner.  Customs recognizes
that increased automation is essential to facilitate the import
process, including the selection of shipments for inspection. 


   CONTROLS OVER CUSTOMS'
   RESOURCES HAVE IMPROVED, BUT
   SERIOUS WEAKNESSES REMAIN
--------------------------------------------------------- Appendix I:4

In 1992, we reported that Customs needed to improve controls over (1)
identification and collection of revenue, (2) accounting for and
reporting of accounts receivable and collection of delinquent debt,
and (3) accountability for property.  We noted that the problems in
these areas were exacerbated by weak financial management systems
that did not provide managers with the management information they
needed.  In accordance with the Chief Financial Officers Act, we
audited Customs' fiscal years 1992 and 1993 financial statements and
related internal controls.  However, we were unable to express an
opinion on the reliability of these statements because of unreliable
financial information, inadequate financial systems and processes,
and an ineffective internal control structure. 

Customs has taken steps to address these problems.  It has made the
most progress in the areas of accounting for and reporting of
accounts receivable and collecting delinquent debt.  Many of the
problems will require long-term efforts by Customs to effectively
plan and implement solutions that will address the long-standing root
causes, such as systems that were designed primarily to monitor
program activity and that lack sufficient emphasis on financial
reporting.  Consequently, the benefits of actions in these areas are
only beginning to be realized. 


      EFFECTIVENESS OF REVENUE
      CONTROLS IS STILL UNCLEAR
------------------------------------------------------- Appendix I:4.1

To help ensure that all appropriate duties, fees, and taxes are paid,
Customs is improving its procedures for verifying the accuracy and
completeness of import entry documentation.  During fiscal year 1994,
Customs undertook efforts to better monitor manifest accuracy and
improve controls over brokers held by bonded warehouse operators or
moved to other ports prior to their release by Customs.  Also,
Customs' efforts to improve its cargo and entry selectivity methods,
described earlier in this report, are an important part of these
improvements because they should help Customs determine which
controls are effective and which are not.  The limited compliance
measurement tests conducted to date have had mixed results, showing
that compliance is high in some areas and not in others.  The more
comprehensive tests that Customs plans to perform during fiscal year
1995, if carried out successfully, may allow Customs to determine to
what extent it is assessing all of the revenue due on imported goods. 


      ACCOUNTS RECEIVABLE AND DEBT
      COLLECTION IMPROVEMENTS
------------------------------------------------------- Appendix I:4.2

For fiscal year 1993, Customs was able to report on its accounts
receivable more accurately because it had developed policies and
methodologies for more reliably determining the validity, and
estimating the collectibility, of these assets. 

Also, to better manage its receivables, Customs reorganized its debt
collection unit to optimize staff resources and formalized its
collection procedures.  Customs is also trying to reduce the number
of old receivables.  As of September 30, 1993, Customs reported that
these efforts had resulted in the collection of $31.6 million of the
$165 million in debt that was more than 3 years old. 

In addition, Customs took steps intended to reduce future losses due
to insufficient surety bonds.  Customs requires trade participants to
obtain surety bonds to ensure that Customs will be paid in the event
that the participants cannot pay amounts that they owe.  At the
beginning of fiscal year 1993, Customs implemented an automated bond
liability system that allows Customs personnel to annually reassess
the sufficiency of most types of bonds.  Further, early in fiscal
year 1994, Customs established a task force to review the entire
bonding process and recommend further improvements. 


      GREATER ACCOUNTABILITY FOR
      PROPERTY
------------------------------------------------------- Appendix I:4.3

During fiscal years 1993 and 1994, Customs took several steps to
improve accountability for its property.  Customs conducted a
physical inventory of equipment recorded in its Property Information
Management System, which accounts for approximately 83 percent of the
recorded value of property.  Also, Customs conducted a comprehensive
study of replacement costs for all property categories, which enabled
it to project the timing and expected cost of replacing such items. 

However, unresolved discrepancies among property records, a problem
that we identified in our 1992 report, continued during fiscal year
1993 and severely limited Customs' ability to reliably report on
these assets in its financial statements.  To resolve this problem,
during fiscal year 1993, Customs initiated monthly reconciliations
between its accounting and logistical records.  However, it could not
fully reconcile the two systems as of September 30, 1993. 


      FUNDAMENTAL DEFICIENCIES IN
      AUTOMATED SYSTEMS HAMPER
      RELIABLE FINANCIAL REPORTING
------------------------------------------------------- Appendix I:4.4

Although Customs has improved the reliability of its financial
records and reports in several areas, the automated systems
deficiencies that we reported in 1992 still impede Customs' ability
to develop reliable summary information in a timely manner. 

Customs' systems have not been designed to provide the complete
information needed for financial reports, and subsidiary systems are
not integrated with Customs' general ledger.  For example, Customs
took almost 6 months to finalize its financial statements for fiscal
years 1992 and 1993 because special computer programs had to be
developed to extract needed information and some data had to be
compiled manually.  Also, Customs made adjustments, some of which
could not be adequately supported, totaling billions of dollars. 

Many of these difficulties stem from unintegrated systems that were
designed primarily to monitor program activity and that lacked
sufficient emphasis on financial reporting.  However, problems also
occurred because Customs' day-to-day processes and internal controls
did not efficiently and promptly identify discrepancies that required
investigation and adjustments to the accounting records. 

For example, because its automated systems were not designed to
categorize and report needed information, Customs' efforts to
identify valid receivables and determine their collectibility were
time-consuming and cumbersome.  Also, discrepancies in Customs'
property records occurred, in part, because these records were not
integrated with the related logistical records.  Further, the
discrepancies were difficult to resolve because they were not
promptly investigated. 


      POOR CONTROLS OVER DRAWBACKS
------------------------------------------------------- Appendix I:4.5

Our audits of Customs' fiscal year 1992 and 1993 financial statements
disclosed a high-risk weakness related to drawbacks that was not
highlighted in our December 1992 report.\1 Drawbacks are refunds for
duties and taxes paid on imported goods that are subsequently
exported or destroyed.  Customs cannot reliably detect and prevent
duplicate and excessive drawbacks because its automated systems
cannot link drawbacks claims to related import entries.  Customs also
cannot maintain a cumulative record of the amount of duty refunded
and goods exported or destroyed for each entry.  During fiscal year
1993, Customs processed about 49,000 drawback claims, totaling
approximately $482 million, using manual procedures that did not
ensure the validity of these claims.  These deficiencies also
precluded us from determining if all such payments made during fiscal
year 1993 were appropriate. 

As part of its Automated Commercial System (ACS) redesign efforts,
Customs plans to develop the automated capabilities needed to control
drawback payments effectively.  However, the drawback segment of this
effort is in the early design stage and not likely to be implemented
for several years.  Customs has planned interim solutions that should
provide some assurance that drawbacks are appropriate.  However,
Customs will not be able to adequately determine the appropriateness
of all claims until a comprehensive nationwide database is available. 


--------------------
\1 Also, our recent audits of Customs' financial statements
identified a high-risk area related to Customs' inability to control,
manage, and report the results of its seizure efforts, including
accountability and stewardship over tons of illegal drugs and
millions of dollars in cash and other property seized. 


   IMPROVEMENTS IN INFORMATION
   RESOURCE MANAGEMENT HAVE BEEN
   MADE, BUT PROGRESS IS SLOW
--------------------------------------------------------- Appendix I:5

In 1992, we reported that Customs had not managed its information
resources effectively.  We specifically noted that because Customs
did not adhere to systems development guidelines, the availability of
information that Customs personnel needed for effective program
execution and oversight was limited.  Customs has now developed
formal systems development life cycle (SDLC) guidelines.  In
addition, to address known deficiencies in trade compliance and the
needs of a modernized Customs Service, Customs is now in the midst of
a major redesign of ACS.  The redesign of ACS is now called the
Automated Commercial Environment (ACE).  Customs is taking steps to
adopt "best practices" of leading public and private organizations
outlined in our May 1994 report on improving mission performance.\2

Customs plans to use these "best practices" as a foundation for more
effectively managing its information resources.  We will continue to
monitor Customs' progress. 

Our recent audits of Customs' financial statements identified
weaknesses in computer security as a new high-risk area. 
Specifically, Customs' controls to prevent or detect unauthorized
access and intentional or inadvertent unauthorized modifications to
critical and sensitive data and computer programs were ineffective. 


--------------------
\2 Executive Guide:  Improving Mission Performance Through Strategic
Information Management and Technology--Learning From Leading
Organizations (GAO/AIMD-94-115, May 1994). 


      SYSTEMS DEVELOPMENT
      IMPROVEMENTS
------------------------------------------------------- Appendix I:5.1

In March 1994, Customs issued systems development guidelines that
were based on federal information systems guidelines.  Customs'
guidelines included feasibility studies, cost benefit analyses,
better identification of user needs, and implementation planning. 

Customs is attempting to follow these SDLC guidelines in its current
systems development efforts.  For example, the draft project plans
for the target and analysis system project (Selectivity) and the
revenue accounting project (Customs Automated Revenue Accounting)
incorporate the activities required by the guidelines. 

Also, consistent with SDLC, Customs is deferring any decision on a
technological solution for ACE until the information requirements for
ACE are defined.  Specifically, the Customs Distributed Computing
(CDC) 2000 hardware and software purchases are not being made with
the expectation that the equipment will be used to support ACE
information needs. 


      PLAN NEEDED BEFORE CUSTOMS
      CAN MOVE FORWARD WITH
      MODERNIZATION
------------------------------------------------------- Appendix I:5.2

As part of its modernization, Customs is beginning a major
reorganization and preparing to meet its legislative requirements
related to Title VI of NAFTA.  Title VI of NAFTA legislation requires
issuance of an overall program plan for a National Customs Automation
Program (NCAP).  In response to the legislated requirements for
establishing an automated and electronic system for processing
commercial importations, Customs is attempting to define commercial
operations for the future.  It issued an initial concept description
of the future ACE on December 30, 1993.  Implementation of ACE is
planned for fiscal years 1998 and 1999.  Without a detailed plan for
ACE, Customs will neither be able to effectively proceed with its
system modernization nor fulfill the requirement to transmit to
Congress an overall program plan for NCAP.  Thus, Customs has already
missed the requirement to submit the overall plan within 180 days of
December 8, 1993, the date of enactment of the legislation. 


      WEAK COMPUTER SECURITY
------------------------------------------------------- Appendix I:5.3

Our audit of Customs' fiscal year 1993 financial statements
identified serious weaknesses in Customs' ability to prevent or
detect unauthorized access and modifications to critical and
sensitive data and computer programs.  Thousands of users had
inappropriate access because Customs improperly implemented
off-the-shelf access control software, and some elements of Customs'
data communications were inadequately protected.  In addition,
Customs did not (1) establish formal procedures for analyzing and
investigating apparent computer security violations, (2) implement a
mechanism for routine independent assessments of its computer
security program, or (3) develop a comprehensive disaster recovery
plan. 

Such system security problems jeopardize the security and reliability
of the operations that are central to Customs' mission, including
those used to (1) monitor the payment of duties, fees, and taxes; (2)
identify high-risk import shipments; and (3) account for seized goods
and drugs and law enforcement operations.  In addition, inappropriate
disclosure of sensitive importer information could occur. 

Customs took immediate action to mitigate these problems shortly
after we identified them.  However, Customs estimated that the work
needed to fully implement appropriate access restrictions would not
be completed until about March 1995.  We and the Department of the
Treasury's Office of Inspector General, which is currently auditing
Customs' fiscal year 1994 financial statements, plan to monitor the
implementation of Customs' corrective actions and assess the
effectiveness of these improvement efforts. 


   IMPROVEMENTS IN HUMAN RESOURCE
   MANAGEMENT ARE BEING
   IMPLEMENTED
--------------------------------------------------------- Appendix I:6

In 1992, we reported that Customs' human resource management problems
diminished its ability to effectively enforce trade laws and improve
organizational performance.  Customs' human resource problems stemmed
from (1) an appraisal system not based on actual performance, (2)
inadequate processes for dealing with ineffective managers, and (3)
inadequate training programs for staff.  Customs did not have a
comprehensive human resource plan that supported organizational
goals.  Customs also did not routinely analyze information for
evaluating key management resource issues. 

Customs' major effort to address its human resource management
problems was discussed in its 1994 reorganization report.  Customs
elevated its Office of Human Resources to the Assistant Commissioner
level and redesigned the Office to allow for the development of an
agencywide human resource management program.  The reorganization
report also called for improvements in Customs' performance appraisal
system and staff training program.  The human resource initiatives in
the reorganization plan also support the goals and objectives of
Customs' 5-Year Plan's management goal to redesign training so that
it could more effectively combine both formal and on-the-job
components.  Because these initiatives have not yet been fully
implemented, we cannot determine their effectiveness in addressing
Customs' human resource problems. 


      APPRAISAL SYSTEM
------------------------------------------------------- Appendix I:6.1

In its reorganization plan, Customs said that it will establish more
flexible performance management and reward systems that will reflect
employee contributions to process improvement, teamwork, and customer
service goals.  Specifically, Customs plans to (1) develop a
performance appraisal system for each senior executive, manager, and
employee to reflect contributions; and (2) ensure that Customs'
reward system recognizes teamwork, customer satisfaction, and the
accomplishment of mission goals.  Further, Customs plans to link the
objectives in its 1993 5-Year Plan with its performance appraisal
system for senior executives and managers.  According to Customs,
this will enable it to establish performance accountability and
establish a means to evaluate ineffective managers. 


      TRAINING PROGRAM
------------------------------------------------------- Appendix I:6.2

Customs' 5-Year Plan and annual plan for the period ending in June
1995 provided detailed actions to improve its staff training program. 
The management goal of Customs' 5-Year Plan is to create a work
environment that enables Customs employees to make their maximum
contribution to Customs' mission.  One of the objectives of that goal
is to redesign training content and to more effectively combine
formal and on-the-job components.  The plan identified training as an
integral function of Customs in that it is the single activity where
the requirements of all of the other goals converge.  Specifically,
Customs officials said that their employees need training in data
analysis and the use of sophisticated detection devices to improve
their ability to identify trade violations. 

Customs plans to link training design and delivery more closely with
other goals.  For example, Customs plans to conduct systematic job
task analyses to determine the skills and the types of training
needed to achieve its trade enforcement goal of maximizing trade
compliance.  Customs also plans to establish a training evaluation
program to continually monitor the quality and appropriateness of
training.  To implement this objective, Customs' annual plan for the
period July 1994 to June 1995 calls for the use of business process
improvement techniques to enhance its ability to identify gaps
between existing and required skill levels. 

In its annual plan, Customs stated that it will develop an analytic
method to determine the most cost-effective way to deliver training. 
Customs also plans to utilize postgraduation surveys of trainees and
their supervisors to assess training effectiveness.  These techniques
are to be used to identify the specific training employees need to
achieve Customs' mission and to determine whether needs are being
met. 


      CUSTOMS' OFFICE OF HUMAN
      RESOURCES HAS INITIATED A
      PLAN TO SUPPORT
      ORGANIZATIONAL GOALS
------------------------------------------------------- Appendix I:6.3

Customs recognized the need to institute a human resource management
program that identifies agencywide workforce issues, establishes
measurable goals, develops implementation plans, and monitors and
evaluates progress toward achieving these goals.  Specifically,
according to Customs, the Office of Human Resources has completed a
human resource management plan for four Customs occupations:  (1)
inspector, (2) import specialist, (3) auditor, and (4) criminal
investigator.  Customs said that this plan provides the framework for
addressing workforce and occupational trends with a focus on future
program and recruiting needs.  According to Customs, it will now be
able to evaluate key management issues more effectively.  Customs has
initiated studies of its recruitment activities and workforce
database needs, and it has contracted for an external review of its
training programs. 


   CUSTOMS' REORGANIZATION PLAN
   ADDRESSES PROBLEMS THAT
   INHIBITED ITS MISSION
--------------------------------------------------------- Appendix I:7

To address organizational-related problems, Customs' reorganization
study team issued a report in September 1994.  The report addresses
the issue of how Customs will reorganize the agency to correct
institutional problems, such as those related to cooperation and
coordination among its programmatic units.  The report also addresses
replacement of Customs' field structure with one that is more
conducive to ensuring consistency in policy implementation. 

The plan recommended specific organizational changes: 

  -- Regions and districts should be replaced with 20 Customs
     management centers to provide training, evaluation, and
     oversight of ports and port processes.  The 20 centers are to
     oversee execution of the core business processes at the ports
     within their areas.  Their most important function is to ensure
     that Customs delivers uniform high-quality service at their
     ports.  The centers' employees are to work with headquarters to
     develop workable policies for the field and will work with port
     directors to achieve national goals. 

  -- Special Agents in Charge should be collocated with the Customs
     management centers to foster the development of integrated
     strategies for improving service to customers. 

  -- Customs headquarters should be restructured to provide an
     agencywide focus to reduce the number of issues requiring
     resolution by the Office of the Commissioner, facilitate the
     process management system, and provide the framework for
     pursuing a significant reduction in headquarters staffing.  For
     example, the goal is to reduce headquarters staff from 1,800 to
     1,200 permanent full-time positions.  The reorganization report
     described this goal as "ambitious" because it depends heavily on
     the implementation of National Performance Review
     recommendations relating to this reduction.  The reduction goal
     is based on the premise that Customs headquarters should be
     focused on policy formulation and oversight, not on day-to-day
     operational issues. 


   TAKING FURTHER ACTION
--------------------------------------------------------- Appendix I:8

Customs has plans or actions under way to address most of the major
problems we have identified in our prior reports.  Some of these
actions can be implemented relatively quickly, while other
improvements will take years.  While we believe that Customs' planned
improvement efforts are appropriately focused, it is important that
Customs' top management provides the continuing support needed to
ensure that these important actions are properly implemented and that
the related problems do not recur.  Further, we believe that there
are additional actions that Customs can take in the short term, such
as (1) improving guidance and oversight to ensure that agency staff
understand and comply with existing procedures--that is, properly
performing fundamental reconciliations and supervising and approving
routine transactions; (2) implementing new control procedures for
reconciliations and approvals; and (3) properly analyzing data to be
included in financial management reports.  Other improvements, such
as obtaining more useful information on unreported duties, taxes, and
fees, will require longer term system changes. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

James M.  Blume, Assistant Director, Administration of Justice Issues
Wendy C.  Graves, Evaluator-in-Charge

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

Jean L.  Boltz, Assistant Director
Antionette Cattledge, Assistant Director
Gary T.  Engel, Assistant Director


RELATED GAO PRODUCTS
============================================================ Chapter 0

Financial Audits:  CFO Implementation at IRS and Customs
(GAO/T-AIMD-94-164, July 28, 1994). 

Financial Audit:  Examination of Customs' Fiscal Year 1993 Financial
Statements (GAO/AIMD-94-119, June 15, 1994). 

Financial Management:  Control Weaknesses Limited Customs' Ability to
Ensure That Duties Were Properly Assessed (GAO/AIMD-94-38, Mar.  7,
1994). 

GAO High-Risk Program (GAO/AIMD-94-72R, Jan.  27, 1994). 

Financial Management:  Customs' Accounting for Budgetary Resources
Was Inadequate (GAO/AIMD-94-23, Dec.  14, 1993). 

Financial Management:  Customs' Accountability for Seized Property
and Special Operation Advances Was Weak (GAO/AIMD-94-06, Nov.  22,
1993). 

Financial Management:  Customs Did Not Adequately Account For or
Control Its Accounts Receivable (GAO/AIMD-94-5, Nov.  8, 1993). 

Financial Management:  Customs' Self-Assessment of Its Internal
Controls and Accounting Systems Is Inadequate (GAO/AIMD-94-8, Oct. 
27, 1993). 

Financial Management:  Customs Lacks Adequate Accountability Over Its
Property and Weapons (GAO/AIMD-94-1, Oct.  18, 1993). 

Financial Management:  First Financial Audit of Customs Revealed
Serious Problems (GAO/T-AIMD-94-3, Oct.  5, 1993). 

Financial Management:  First Financial Audits of IRS and Customs
Revealed Serious Problems (GAO/T-AIMD-93-3, Aug.  4, 1993). 

Financial Audit:  Examination of Customs' Fiscal Year 1992 Financial
Statements (GAO/AIMD-93-3, June 30, 1993). 

Managing the Customs Service (GAO/HR-93-14, Dec.  1992). 

Customs Service:  Trade Enforcement Activities Impaired by Management
Problems (GAO/GGD-92-123, Sept.  24, 1992). 

Financial Management:  Customs Needs to Establish Adequate
Accountability and Control Over Its Resources (GAO/AFMD-92-30, Aug. 
25, 1992). 


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