Federal Trade Commission: Information on Proposed Regional Restructuring
Effort (Letter Report, 02/16/99, GAO/GGD-99-25).

Pursuant to a congressional request, GAO reviewed the Federal Trade
Commission's (FTC) proposal to restructure its regional operations,
focusing on: (1) FTC's rationale for proposing the regional
restructuring; (2) the process FTC followed in developing its
restructuring proposal; (3) factors FTC used and could have used in
deciding how to restructure; (4) other options to the proposed
restructuring identified in prior FTC studies or by Boston and Denver
regional officials; and (5) the views of selected stakeholders regarding
the impact the proposed restructuring could have in the areas covered by
the Boston and Denver regional offices.

GAO noted that: (1) FTC's rationale for developing its proposal to
restructure its regional operations was to address its growing concerns
about an increased and more complex workload in the face of limited
staffing resources; (2) the proposal was to accommodate increased and
more complex workloads for both its competition and consumer protection
missions; (3) FTC's decisionmaking process for developing its proposal
consisted of deliberations among headquarters officials during the early
months of 1998; (4) the process for developing the current proposal did
not include discussions with staff or managers in its Boston and Denver
offices or with external stakeholders that work with these regions; (5)
in its strategic plan, FTC identified some of these stakeholders as
partners in helping to carry out its mission; (6) after FTC developed
the restructuring proposal, but prior to submitting it to the
Commissioners for approval, FTC consulted with concerned Members of
Congress and officials of the Department of Justice's Antitrust Division
about the proposal; (7) according to FTC's proposal, the decision to
close the Boston and Denver regional offices and to retain the remaining
eight offices was based on three factors--population, gross state
product, and the percentage of consumer fraud cases FTC filed in federal
courts within each region; (8) according to FTC headquarters officials,
FTC also considered staff expertise and geographic location as factors
for retaining offices; (9) FTC officials said that FTC used geographic
location as a principal factor in deciding where it would locate the
three antitrust centers; (10) FTC staff from the Boston and Denver
offices and GAO's review of FTC documents identified other
factors--productivity, future population growth, and cost--that FTC
could have used in making its decision to restructure regional
operations; (11) FTC presented a single approach for restructuring its
regional operations because it considered other options to be
impractical or unrealistic; (12) concerning consumer protection matters,
most of the external stakeholders who expressed a view said that they
believed the closures would have a negative impact; (13) their primary
concerns were: (a) FTC staff from different regions of the country would
not be able to devote the time to or did not have knowledge of regional
issues; and (b) FTC would not be able to adequately replace the service
and assistance provided by the FTC Boston and Denver regional offices;
and (14) Boston and Denver FTC officials said they believed consumer
protection and competition matters would be negatively affected.

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

 REPORTNUM:  GGD-99-25
     TITLE:  Federal Trade Commission: Information on Proposed Regional 
             Restructuring Effort
      DATE:  02/16/99
   SUBJECT:  Federal downsizing
             Consumer protection
             Reductions in force
             Federal agency reorganization
             Decision making
             Personnel management
             Human resources utilization
             Interagency relations

             
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Microsoft Word - yrq01!.PBF FEDERAL TRADE COMMISSION

Information on Proposed Regional Restructuring Effort

United States General Accounting Office

GAO Report to Congressional Requesters


February 1999 

GAO/GGD-99-25

February 1999   GAO/GGD-99-25

United States General Accounting Office Washington, D. C. 20548

General Government Division

B-281687

Page 1 GAO/GGD-99-25 FTC's Proposed Restructuring

GAO February 16, 1999 The Honorable James M. Jeffords The
Honorable John F. Kerry The Honorable Olympia J. Snowe United
States Senate

The Honorable Scott McInnis The Honorable Diana DeGette The
Honorable Joel Hefley The Honorable Bob Schaffer The Honorable
Edward J. Markey House of Representatives

This report responds to your request that we review the Federal
Trade Commission's (FTC) June 1998 proposal to restructure its
regional operations. FTC is responsible for administering a
variety of statutes that focus on two areas. First, through its
consumer protection activities, it seeks to protect the public
from unfair and deceptive acts and practices in the marketplace.
Second, through its competition or antitrust activities, FTC seeks
to promote competition in the marketplace. FTC's consumer
protection and competition activities are currently carried out in
its headquarters office in Washington, D. C., and in its 10
regional offices in Atlanta, Boston, Chicago, Cleveland, Dallas,
Denver, Los Angeles, New York City, San Francisco, and Seattle.

In June 1998, FTC Commissioners approved a proposal to restructure
FTC's regional operations to include (1) reconfiguring the 10
existing regional offices to 8 offices in 7 regions; (2) closing
the Boston and Denver regional offices and shifting responsibility
for the states covered by those offices to other regional offices;
(3) merging the management and administration of the 2 California
offices (Los Angeles and San Francisco) under 1 director, located
in San Francisco; (4) allowing all staff in the closing offices to
transfer to other offices; (5) transferring the 33 staff positions
from the 2 closing regions to other regional offices and
headquarters; and (6) focusing FTC's regional work on competition
or antitrust matters in 3 proposed regional antitrust centers most
probably located in San Francisco, Cleveland, and New York City
with the other regions continuing to perform this work only on a
limited basis. FTC suspended plans to implement its restructuring
proposal, pending the completion of this report. FTC's proposed
regions and their corresponding offices would be the Northeast
Region (New York City), East Central Region (Cleveland), Southeast
Region (Atlanta), Midwest Region

B-281687 Page 2 GAO/GGD-99-25 FTC's Proposed Restructuring

(Chicago), Southwest Region (Dallas), Northwest Region (Seattle),
and Western Region (San Francisco and Los Angeles). Figures I. 1
and I. 2 in appendix I show FTC's current and proposed regional
structures.

As agreed, the objectives of this report are to provide
information on (1) FTC's rationale for proposing the regional
restructuring, (2) the process FTC followed in developing its
restructuring proposal, (3) factors FTC used and could have used
in deciding how to restructure, (4) other options to the proposed
restructuring identified in prior FTC studies or by Boston and
Denver regional officials, and (5) the views of selected
stakeholders regarding the impact the proposed restructuring could
have in the areas covered by the Boston and Denver regional
offices.

FTC's rationale for developing its proposal to restructure its
regional operations was to address its growing concerns about an
increased and more complex workload in the face of limited
staffing resources. Specifically, according to FTC officials, the
proposal was to accommodate increased and more complex workloads
for both its competition and consumer protection missions.
Headquarters officials said that they believed staff resources
were not allocated efficiently to regions that is, regions were
too small for efficiently carrying out FTC's mission given its
workload. Boston and Denver regional officials disagreed that
regions were too small to effectively contribute to FTC's
competition and consumer protection missions and said that regions
have made significant contributions to these missions.

FTC's decisionmaking process for developing its proposal consisted
of deliberations among headquarters officials during the early
months of 1998. Although FTC officials said they had previously
alerted regions to the possibility of a restructuring, the process
for developing the current proposal did not include discussions
with staff or managers in its Boston and Denver offices. In
addition, FTC's process for developing the proposal did not
include discussions with external stakeholders that work with
these regions. In its strategic plan, FTC identified some of these
stakeholders as partners in helping it carry out its mission.
According to FTC officials, after FTC developed the restructuring
proposal, but prior to submitting it to the Commissioners for
approval, FTC consulted with concerned Members of Congress and
officials of the Department of Justice's (DOJ) Antitrust Division
about the proposal. These officials also said FTC contacted other
external stakeholders concerning the proposal after the
Commissioners had voted on and approved the proposal. Results in
Brief

B-281687 Page 3 GAO/GGD-99-25 FTC's Proposed Restructuring

According to FTC's proposal, the decision to close the Boston and
Denver regional offices and to retain the remaining eight offices
was based on three factors population, gross state product (GSP),
and the percentage of consumer fraud cases FTC filed in federal
courts within each region. According to FTC headquarters
officials, FTC also considered staff expertise and geographic
location as factors for retaining offices in San Francisco and
Seattle. In addition, FTC officials said that FTC used geographic
location as a principal factor in deciding where it would most
likely locate the three proposed regional antitrust centers. FTC
staff from the Boston and Denver offices and our review of FTC
documents identified other factors productivity, future population
growth, and cost that FTC could have used in making its decision
to restructure regional operations. FTC officials said they
considered these factors but decided not to use them for a variety
of reasons. For example, FTC officials said that they did not use
productivity because, among other things, it is difficult to
measure. Likewise, they said they did not use future population
growth because they did not believe it would have changed the
relative ranking of regions by population.

FTC presented a single approach for restructuring its regional
operations because, according to FTC officials, it considered
other options to be impractical or unrealistic. Our review of a
prior FTC restructuring study and discussions with the Boston and
Denver regional officials identified 10 possible options that FTC
could have considered, such as closing different offices, shifting
all regional competition resources to headquarters, seeking
additional resources from Congress, or maintaining the status quo.
FTC officials said that they considered several of these options
but did not deem them to be acceptable or realistic because they
either (1) did not sufficiently balance FTC's dual mission of
consumer protection and competition, (2) were more disruptive of
FTC's regional operations than the proposed restructuring, (3)
called for additional resources that FTC did not believe would
likely be forthcoming, or (4) did not sufficiently address the
underlying rationale for undertaking the current restructuring
effort.

Stakeholders' views about the potential effects of FTC office
closures were mixed. Some of the external stakeholders we
contacted refrained from commenting on the potential effect of the
closures of the Boston and Denver regional offices. Concerning
consumer protection matters, most of the external stakeholders who
expressed a view said that they believed the closures would have a
negative impact. These views primarily involved concerns that (1)
FTC staff from different regions of the country would not be able
to devote the time to or did not have knowledge of regional issues
and (2) FTC would not be able to adequately replace the service
and

B-281687 Page 4 GAO/GGD-99-25 FTC's Proposed Restructuring

assistance provided by the FTC Boston and Denver regional offices.
However, of those external stakeholders who had views on
competition matters, opinions were more varied. Some stated that
they supported the proposal, whereas others said that competition
matters would be negatively affected. In addition, Boston and
Denver FTC officials said they believed consumer protection and
competition matters would be negatively affected. In September
1998, FTC headquarters officials provided us with plans for
continuing services in the New England and Rocky Mountain areas.
These officials said they believed these plans would mitigate the
perceived negative impacts on both consumer protection and
competition matters.

Congress established FTC in 1914 as an independent administrative
agency. FTC is responsible for enforcing federal statutes to
protect the public against unfair and deceptive acts and practices
and to promote competition. 1 The Commission is composed of five
members, all of whom are appointed by the President and confirmed
by the Senate to staggered 7year terms. No more than three
Commissioners may be from any one political party. One
Commissioner is designated by the President as Chairman of the
Commission and is responsible for its administrative management.

FTC carries out its mission through the work of three bureaus. The
Bureau of Competition (BC), FTC's antitrust arm, works to promote
competition by preventing anticompetitive mergers and other
anticompetitive business practices. 2 BC investigates alleged
violations of law and when appropriate, recommends that FTC take
formal enforcement action. If FTC decides to take action, BC may
take such action through litigation in federal district court or
before agency administrative law judges. BC is also responsible
for reviewing certain mergers and acquisitions under the Hart-
ScottRodino (HSR) Antitrust Improvements Act of 1976. 3 In
general, parties to mergers or acquisitions covered by the act
must file their proposals with FTC and the Antitrust Division of
the DOJ prior to consummating the

1 FTC was established under the FTC Act of 1914, as amended (15 U.
S. C. 41- 58). FTC is responsible for enforcing section 5 of the
act, which prohibits unfair or deceptive acts or practices in or
affecting commerce, unfair methods of competition in or affecting
commerce, and the Clayton Act. Congress has also enacted over
time, a number of other special statutes relating to consumer
protection and trade regulation, which FTC also enforces.

2 BC shares its mission with DOJ's Antitrust Division. According
to FTC, the two agencies consult before opening any case in order
to prevent duplication of effort. In general, the Antitrust
Division concentrates on such matters as price fixing that may
warrant criminal prosecution, and on certain specific industries
that are not within FTC's jurisdiction.

3 15 U. S. C. 18a. Background

B-281687 Page 5 GAO/GGD-99-25 FTC's Proposed Restructuring

transaction. 4 The two agencies generally are allowed up to 30
days to request additional information from either or both
parties. This request extends the waiting period for a specified
period of time, generally 20 days, and allows FTC or DOJ to
determine whether it will challenge the merger. Appendix II
provides additional information on the HSR Act and FTC's
associated responsibilities.

Another FTC bureau, the Bureau of Consumer Protection (BCP), works
to protect consumers through the prevention of deceptive and
unfair practices in the marketplace. BCP enforces a variety of
consumer protection laws enacted by Congress. BCP actions include
individual company and industrywide investigations, administrative
and federal court litigation and rulemaking proceedings, and
consumer and business education. The third FTC bureau, the Bureau
of Economics (BE), provides economic analyses and support to
consumer protection and antitrust casework and rulemaking;
analyzes the impact of government regulation on competition and
consumers; and, when requested, provides Congress and the
executive branch with economic analyses of various aspects of the
American economy. BE supports BC and BCP in carrying out FTC's
competition and consumer protection work.

FTC's regional offices are to conduct investigations and
litigation, provide advice to state and local officials, recommend
cases, provide local outreach services to consumers and
businesspersons, and coordinate activities with federal, state,
and local officials. The regional offices also are to sponsor
conferences for small businesses, local officials, and consumer
groups. Although regional consumer protection and competition
activities are to be cleared through FTC's bureaus BCP and BC in
Washington, D. C., regional offices report to FTC's Office of
Executive Director (OED). FTC has reorganized its regional
structure numerous times since FTC was established. The current
10- region structure has been in place since 1978. However, since
then, FTC has twice considered regional restructuring before the
1998 effort once in the early 1980s and again in 1987. The 1987
effort culminated in an extensive study of resource allocation
issues. Appendix III provides greater detail on FTC's analyses of
restructuring during the 1980s, including FTC's 1987 resource
allocation study.

FTC is largely self- financed by fees that companies must pay when
they file required merger notification documentation in compliance
with the

4 Whether a certain acquisition or merger is subject to HSR Act
requirements depends on the value of the acquisition and the size
of the parties as measured by their sales and assets.

B-281687 Page 6 GAO/GGD-99-25 FTC's Proposed Restructuring

HSR Act. Even though FTC is largely self- financed by fees, it
must receive congressional authorization to spend its revenues.
For fiscal year 1998, FTC received budget authority of about
$106.5 million, of which $88 million resulted from filing fees.
FTC was authorized 960 full- time equivalent (FTE) 5 positions, 6
of which 502 were dedicated to carrying out FTC's consumer
protection mission. The remaining 458 FTEs were dedicated to the
competition mission. In fiscal year 1998, FTC allocated 792 FTEs
to headquarters and 168 FTEs to its 10 regional offices.

To gather the information required to meet our objectives, we
obtained and reviewed FTC statutes relating to its authority, FTC
reports, Commission internal correspondence, and congressional
appropriation hearings for FTC; the proposed regional
restructuring plan and supporting FTC data and analyses; and
documentation related to FTC's mission, goals, and objectives. We
interviewed FTC headquarters officials in Washington, D. C., and
regional officials in the Boston and Denver offices. We also
interviewed officials in the regional offices that are slated to
take over the responsibilities of the Boston and Denver regions
Chicago, New York, San Francisco, and Seattle. In addition, we
interviewed external stakeholders in selected federal, state, and
local organizations that work with the Boston and Denver regions
and selected organizations that work with FTC headquarters. We did
not verify information provided by FTC officials or information
provided by representatives of other organizations we contacted.
We did not draw any conclusions about whether FTC's proposal was
necessary or appropriate or based on sound management because
there are no established criteria regarding federal office
restructuring. 7 We did our work in Washington, D. C., Boston,
Denver, and Dallas between June 1998 and January 1999, in
accordance with generally accepted government auditing standards.
Appendix IV discusses our objectives, scope, and methodology in
greater detail.

5 An FTE generally consists of one or more employed individuals
who collectively complete 2, 080 work hours in a given year.
Therefore, either one full- time employee or two half- time
employees equal one FTE.

6 The authorized level of FTEs referred to by FTC is the level of
FTEs approved by the Office of Management and Budget, and not
necessarily a level of FTEs set in law or committee report. 7 In
our report entitled Facilities Location Policy: GSA Should Propose
a More Consistent and Businesslike Approach (GAO/GGD-90-109, Sept.
28, 1990), we noted that while there were several laws and
executive branch orders that frame the government's general policy
on location decisions, there was no consistent and cost- conscious
federal location policy. We recommended that General Services
Administration (GSA) develop such a policy for congressional
consideration. In March 1997, GSA issued an interim rule
concerning the physical location of facilities and space in urban
areas. The rule did not address internal agency organization and
restructuring issues. Scope and

Methodology

B-281687 Page 7 GAO/GGD-99-25 FTC's Proposed Restructuring

We requested comments on a draft of this report from FTC's
Chairman. These comments are discussed near the end of this letter
and are reprinted as appendix VIII. We also verified with the
federal, state, and local organizations we contacted that we had
properly characterized their views.

FTC's rationale for developing its proposal to restructure its
regional operations was to address its growing concerns about an
increased and more complex workload in the face of limited
staffing resources. Specifically, according to FTC officials, the
proposal was to accommodate increased and more complex workloads
for both competition and consumer protection matters. Headquarters
officials said they believed staff resources were not allocated
efficiently to regions that is, regions were too small for
efficiently carrying out FTC's mission given its workload. Boston
and Denver regional officials disagreed that the size of the
regions prevented them from contributing effectively to FTC's
competition and consumer protection missions and said that regions
have made significant contributions to both areas of work.

One reason FTC proposed the regional restructuring was to better
manage its large and complex merger workload under the HSR Act.
According to BC officials, its current regional allocation of
competition resources 5 FTEs in each of the 10 regional offices
did not meet its needs. BC officials said that they needed more
resources in headquarters and a sufficient number of experienced
staff located in fewer regions to best manage these potentially
large and complex HSR merger cases. They said that the proposal to
shift most of the regional competition resources either to
headquarters or to three regional antitrust centers most probably
located in San Francisco, Cleveland, and New York City would allow
FTC to assign more of the HSR workload currently performed by
headquarters staff to the regions. The proposal, according to the
BC Director, would enable FTC to have a critical mass of
experienced staff to work on resource- intensive and deadline-
sensitive HSR merger cases in the three regions. According to BC
officials, having fewer regions involved in competition work would
better enable FTC to manage the workload and would also reduce the
amount of BC resources needed to manage the regions.

Although FTC has not finalized its plans for reallocating regional
resources, the Executive Director said that she had prepared a
draft resource allocation plan to implement the restructuring
proposal. She said that as of January 1999, the draft plan had not
been presented to or approved by FTC's Commissioners. Under this
plan, some of the 33 staff FTC's Rationale Was to

Manage Its Workload More Efficiently

FTC Intended Its Proposal to Address an Increased Competition
Workload

B-281687 Page 8 GAO/GGD-99-25 FTC's Proposed Restructuring

positions or FTEs from the Boston and Denver regions would shift
to BC in headquarters, and the remaining FTEs would shift to the
three regions designated as having antitrust centers. In the draft
allocation plan, the number of FTEs at the 3 proposed antitrust
centers would increase from 5 to as many as 11, while BC
headquarters staff allocation would increase by 13 FTEs. The
resource allocation plan would reduce the amount of competition
work performed by the remaining regions, with the number of
competition FTEs in the remaining regions each decreasing from
five to one. According to FTC officials, the one remaining FTE in
each of the regions that are not designated as having an antitrust
center would be assigned to perform activities such as monitoring
competition issues in those regions, alerting the antitrust
centers to potential anticompetitive activities, and maintaining
contact with the state attorneys general. Table 1 shows the
current and proposed allocation of competition resources by
regional office as of July 1998.

Competition FTEs Regional office Current Proposed a

Atlanta 5 1 Boston 5 b Chicago 5 1 Cleveland c 5 10 Dallas 5 1
Denver 5 b Los Angeles d 5 0 New York c 5 10 San Francisco c 5 11
Seattle 5 1

Total 50 35 e

Note: As discussed earlier, the names of the regions would change
under the proposed restructuring. For purposes of this table,
however, we present the current regional office names. a Proposed
as of July 1998. OED officials said that the FTC Commissioners
have not yet approved this

draft allocation of FTEs. b Under the proposed restructuring, the
Boston and Denver regional offices would be closed.

c Designated as having an antitrust center under the FTC
restructuring proposal. According to BC officials, to staff the
antitrust centers, it is likely that FTC will need to hire from
the outside and also allow staff currently working in regions not
designated as having antitrust centers to transfer to the regions
having antitrust centers. d Under the proposed restructuring, the
Los Angeles office would report to the Western region, located

in San Francisco. e The proposed reallocation would transfer 13
competition FTEs in the regions to BC headquarters. In

addition, it would transfer 2 competition FTEs in the regions to
consumer protection in the regions, leaving a total of 35 regional
competition FTEs.

Source: OED, FTC.

FTC officials said that one of the reasons for transferring
competition resources was to address the increased number of HSR
merger filings given its relatively flat resources. FTC provided
data that showed that the

Table 1: Current and Proposed Allocation of Regional Competition
FTEs

B-281687 Page 9 GAO/GGD-99-25 FTC's Proposed Restructuring

number of competition FTEs has fluctuated between 312 and 343 FTEs
over fiscal years 1991 to 1998. Over the same period, HSR merger
filings more than tripled from 1,529 in fiscal year 1991 to 4,728
in fiscal year 1998. FTC officials consider this growth to be part
of an increase in merger activity that began after a decline of
such activity in the early 1990s. According to an FTC press
release, the United States is in the midst of the largest merger
wave ever, with the value of mergers exceeding $1 trillion in
fiscal year 1998. A BE official said that she could not predict
whether mergers would continue to increase at their current pace
because merger activity is a function of numerous factors,
including technological changes to domestic and global markets.
Nonetheless, the official said that she expects the general trend
in merger activity and FTC's HSR filing caseload to be on the
rise. Appendix II provides information on FTC's responsibilities
under the HSR Act, overall merger activity and its
unpredictability, and the cyclical variations in HSR merger
filings for fiscal years 1979 through 1998.

However, increases or decreases in the number of HSR merger
filings alone may not be a good indicator of changes to FTC's HSR
workload. In a 1992 hearing before FTC's House Appropriations
Subcommittee, the FTC Commissioner stated that

In the Commission's experience, there does not appear to be an
absolute correlation between the number of HSR filings and the
number of merger investigations. Thus, the overall number of
filings is not an accurate predictor of the number of merger
investigations that will be undertaken.

To illustrate the Commissioner's point, we compared HSR filings in
2 separate years. Of the 4, 728 HSR merger filings in fiscal year
1998, FTC initiated 46 in- depth investigations, or second
requests for information. In contrast, in fiscal year 1995, of the
2,816 HSR merger filings, FTC initiated 58 second requests. FTC
officials said, however, that a decrease in second requests is not
necessarily indicative of a smaller workload. These officials said
that FTC invests a considerable amount of work in preliminary
merger investigations prior to deciding to issue a second request.

FTC officials said that the increased complexity of mergers was
another reason for transferring competition resources under the
restructuring proposal. They said that merger transactions in
general have become more complex and the volume and complexity of
information associated with merger filings has increased. At the
same time, federal courts that deal with merger cases have an
increasing need for more sophisticated analyses, which in turn has
forced FTC to adopt a more complex and

B-281687 Page 10 GAO/GGD-99-25 FTC's Proposed Restructuring

rigorous approach to merger analyses. Thus, FTC officials stated
that FTC needs more data, more evidence, and significantly more
sophisticated analyses of merger information. They stated that
this complexity increases FTC's workload in that FTC needs more
resources for investigations and litigation than it did in the
past. FTC's strategic plan for fiscal years 1997 to 2002
recognizes the increased workload in HSR merger filings. According
to the strategic plan, the continued growth of the merger wave and
of competitive forces for change in important sectors of the
economy strain the agency's ability to meet its goal of
maintaining competition.

Although FTC points to the volume and complexity of merger filings
as key reasons for developing its proposal, OED officials said
they would continue to move forward with their proposal even if
the number of mergers were to decline. The officials said they
believe that regional offices are not currently configured to make
the best use of limited resources. The BC Director said that
headquarters staff perform most of the HSR merger work because
this is the only location where FTC has sufficient numbers of
experienced staff to manage HSR cases. The director said that
headquarters divisions responsible for reviewing HSR mergers,
which each consisted of about 30 staff, have the flexibility to
handle the resource- intensive and deadline- sensitive HSR work.
However, he also said that, in some cases, he must assign staff
from other areas of FTC to handle the workload during the second
request phase. The director said that with the increased HSR
merger workload, headquarters staff are currently under continuous
stress and must frequently work beyond normal working hours to
handle the workload.

Although regional offices each have about five competition FTEs
allocated to them, the director said that this level is not
sufficient to successfully manage large HSR merger cases. As a
result, according to the director, BC can only assign regional
offices a few small and less complex HSR merger cases and
nonmerger work, such as investigations of anticompetitive
behavior. He also said that the small number of competition FTEs
allocated to each region has resulted in regional offices not
being able to develop sufficient experience and expertise in
conducting large HSR merger cases.

As discussed earlier, as proposed, each of the three regional
antitrust centers would have as many as 11 FTEs to perform
competition work. According to the BC Director, 9 to 11 FTEs are
needed in a location to manage HSR merger cases. While FTC has not
performed any formal study of what it refers to as the critical
mass necessary to perform work at each proposed antitrust center,
BC officials said that having 9 to 11 FTEs

B-281687 Page 11 GAO/GGD-99-25 FTC's Proposed Restructuring

at each center would allow the agency to annually assign each
regional antitrust center as many as 2 to 3 HSR merger cases that
progress to the second request stage. According to BC officials,
this would reduce the workload currently carried out by BC
headquarters staff and would allow staff in the three antitrust
centers to develop the expertise needed to perform HSR work. The
proposed restructuring would also shift 13 regional FTEs to BC
headquarters, which, according to BC officials, would better
enable FTC to manage the large HSR workload. Also, according to
these officials, reducing the number of regions that BC manages
from 10 to 3 would reduce the amount of administration and
management resources needed to be spent by BC officials.

FTC headquarters officials said that if the restructuring is
implemented, it would probably take FTC a few months, perhaps a
year, to fully staff the three antitrust centers, and a few years
to gradually phase out the merger work currently performed by the
other regional offices. The BC Director said that FTC would likely
need to hire from the outside to staff the Cleveland and New York
offices, but he said that FTC should have enough transfers from
other regions and other offices for staffing the San Francisco
office. BC officials acknowledged that staff performing
competition work in the regions not designated as having antitrust
centers may not be content with the gradual phase- out of
antitrust work at those locations. However, BC officials said that
staff interests can change and staff can transfer.

Boston and Denver regional staff disagreed with FTC headquarters
officials' position that regions were currently too small to
perform a significant amount of HSR merger work. They also
questioned headquarters officials' position that the current
structure did not enable regions to develop sufficient expertise.
In particular, the Boston and Denver staff said that they believe
a larger number of staff, or a critical mass, is not necessary for
regional offices to fully participate in conducting HSR merger
work. Boston officials said that HSR merger work can be
successfully accomplished with the five FTEs allocated to each
region to do competition work and that regional offices have
successfully settled large merger cases, including the Boston
office, which recently settled a case. The officials further
stressed the contribution of other regional offices that have
litigated merger cases, including Denver, which has litigated one
case and assisted another region in litigating one case.

Further, the Boston officials said that regional offices generate
their own nonmerger cases and review essentially all regional
health care mergers. Boston officials said that regional offices
are valuable in that they generate Boston and Denver FTC Staff

Disagreed With FTC About the Number of Regional Staff Needed to
Work on HSR Merger Cases

B-281687 Page 12 GAO/GGD-99-25 FTC's Proposed Restructuring

non- HSR merger work, including investigations of small, local
mergers and other anticompetitive activity. Boston officials said
they spent approximately 40 percent of their time in fiscal year
1998 on competition matters primarily mergers. Denver regional
officials also said that in the period July 1997 through June
1998, Denver staff conducted five HSR merger investigations, four
non- HSR merger investigations, and three nonmerger
investigations. Further, they stated that Denver is one of only
two regional offices to have litigated a preliminary injunction
action in a federal court. The Denver officials told us that
regional offices spend more of their competition resources on
nonmerger cases, which is an area that they believe BC
headquarters has not devoted many resources to. Appendix V
contains information on the number of HSR, non- HSR, and nonmerger
cases that regions and headquarters managed in fiscal years 1993
through 1998.

Another reason FTC developed the regional restructuring proposal
was to address its increasing consumer protection workload.
According to BCP officials, the proposed restructuring would
concentrate slightly more consumer protection resources in fewer
regional offices. In their view, having a larger number of
consumer protection staff in each of the remaining regions would
better enable the regions to work on larger, more labor- intensive
consumer protection cases. Furthermore, these officials said that
by focusing the regional competition work primarily in three
antitrust centers, as discussed earlier, regional consumer
protection resources would be better insulated from the demands of
the timesensitive HSR work.

The Executive Director's proposed resource allocation plan to
implement FTC's regional restructuring proposal would increase
consumer protection resources in the remaining eight offices by as
many as seven FTEs and the total number of consumer protection
FTEs in the regional offices by two. According to the Executive
Director, these two FTEs would be reallocated from regional
competition FTEs. Table 2 shows the current and proposed
allocation of consumer protection FTEs by regional office as of
July 1998. FTC Intended Its Proposal

to Address Increased Consumer Protection Workload

B-281687 Page 13 GAO/GGD-99-25 FTC's Proposed Restructuring

Consumer protection FTEs Regional office Current Proposed a

Atlanta 12 19 Boston 12 b Chicago 12 17 Cleveland 12 13 Dallas 12
16 Denver 11 b New York 12 16 Los Angeles c 11 12 San Francisco 12
11 Seattle 12 16

Total 118 120 d

Note: As discussed earlier, the names of the regions would change
under the proposed restructuring. For purposes of this table,
however, we present the current regional office names. a Proposed
as of July 1998. OED officials said that FTC Commissioners have
not yet approved the

draft allocation of FTEs. b Under the proposed restructuring, the
Boston and Denver regional offices would be closed.

c Under the proposed restructuring, the Los Angeles office would
report to the Western region, located in San Francisco. d The
proposed reallocation would transfer 2 competition FTEs in the
regions to consumer protection in

the regions, increasing the total regional FTEs dedicated to
consumer protection to 120. Source: OED, FTC.

According to the BCP Director, FTC's consumer protection workload
has increased just as the competition workload has increased. She
said that increases have occurred because of (1) the explosive
growth of the Internet with associated increases in deception,
privacy violations, and spam; 8 (2) the globalization of commerce,
with increasing incidence of international fraud, and a growing
international concern about privacy and electronic commerce; and
(3) changes in telecommunications, specifically deregulation and
cramming. 9 According to FTC officials, unlike BC's workload of
HSR merger filings, BCP's workload is less easily measured.
However, an OED official said that through November 1998, FTC had
undertaken 41 Internet cases. FTC resources for Internet work have
increased from 4 percent of BCP FTEs in fiscal year 1996 to an
estimated 17 percent in fiscal year 1998. According to the BCP
Director, these factors have increased BCP's workload and strained
its staff. FTC headquarters

8 Spam is unsolicited commercial electronic mail over the
Internet. 9 Cramming is the practice of companies billing
consumers on their telephone bills for services the consumers did
not order or use.

Table 2: Current and Proposed Allocation of Regional Consumer
Protection FTEs

B-281687 Page 14 GAO/GGD-99-25 FTC's Proposed Restructuring

provided data that showed actual consumer protection FTEs were 339
in fiscal year 1995 and 375 in fiscal year 1998.

According to the BCP Director, the restructuring proposal will
enable FTC to shift to the regions some of the work that is
currently being performed in BCP headquarters. She said that
currently, BCP headquarters staff perform work that inherently
must be performed in Washington, D. C., such as rulemaking,
preparing testimony and special reports to Congress, developing
centralized consumer protection databases, and developing and
organizing nationwide consumer education and outreach programs. In
addition, she said that headquarters staff are often required to
participate in work that is more conducive to regional operations,
such as conducting investigations and initiating enforcement
actions, especially on larger, more labor- intensive cases.

The BCP Director said that under the restructuring, she envisions
being able to assign regions responsibility for managing specific
consumer protection issues thus freeing up BCP headquarters staff
from these responsibilities. She suggested, for example, that one
regional office could be assigned to focus on consumer credit
rules. Furthermore, she said that reducing the number of regions
responsible for consumer protection work would enable FTC to
reduce the number of headquarters staff needed to manage the
regions.

According to the BCP Director, recent technological innovations
FTC's Internet web site, a consumer complaint handling center, and
a related consumer fraud database reduce FTC's need to have 10
regional offices spread across the country. According to FTC
officials, its consumer education materials were accessed through
the Internet over a million times over the past year. The FTC's
consumer complaint handling center, located in headquarters,
consists of staff who receive calls from consumers across the
nation concerning complaints or requests for educational
materials. The officials said that a toll- free telephone number,
anticipated as being functional in the spring of 1999, and
additional personnel will make the center more effective. The BCP
Director told us that a consumer fraud database, using data
compiled from the consumer complaint handling center as well as
from federal, state, and local law enforcement agencies and
offices in the United States and Canada, will assist BCP in better
targeting its limited resources.

According to BCP officials, the proposed restructuring is
compatible with BCP efforts to strategically plan its consumer
protection work. These officials said that BCP developed a
strategic plan that attempts to

B-281687 Page 15 GAO/GGD-99-25 FTC's Proposed Restructuring

prioritize, plan, and allow BCP to centrally manage the consumer
protection work to be undertaken each year by both headquarters
and regional offices. They said that such central planning and
management would allow the agency to address its most pressing
consumer protection issues and use its limited resources more
efficiently.

Boston and Denver regional officials said they believe that
regions overall have made significant contributions to FTC's
consumer protection mission. They told us that regions have
accounted for a greater percentage of consumer redress and civil
penalties and a greater share of consumer protection enforcement
work than headquarters, given regional staffing levels. Denver
regional staff provided data that showed, for fiscal year 1998,
regions and headquarters accounted for about the same number of
cases in which there was at least a proposed settlement and that
regions accounted for about 70 percent of the total redress and
civil penalties during this same time period. They said that both
the case with the largest amount of consumer redress$ 60 million
and the case with the largest civil penalty$ 800, 000 were handled
by regional offices. FTC headquarters officials said that the
Chicago and San Francisco regions, respectively, handled these
cases.

Boston regional staff also provided data that showed that,
although regions only accounted for about 35 percent of the
consumer protection FTEs during the period January 1997 through
June 1998, regions handled 59 percent of the consumer protection
enforcement actions. According to FTC headquarters officials,
breaking down regional and headquarters accomplishments in this
manner does not reflect the fact that much of FTC's consumer
protection work is collaborative. Appendix V presents information
the Boston regional office provided on the number of enforcement
actions filed by regions and headquarters and the percentage of
consumer protection FTEs used, respectively, for January 1997
through June 1998. Appendix V also presents the same type of
information for fiscal years 1993 through 1998, as provided by FTC
headquarters officials.

FTC's decisionmaking process for developing its proposal consisted
of deliberations among headquarters officials, including the
Commissioners, Executive Director, and officials from BC and BCP
during the early months of 1998. However, although FTC officials
said they had previously alerted regions to the possibility of a
restructuring, the process for developing the current proposal did
not include discussions with staff or managers in its Boston or
Denver offices. In addition, FTC's process for developing its
proposal did not include external stakeholders that work with
these regions. In its strategic plan, FTC identified some of these
Boston and Denver Staff Said

They Believe Regions Have Contributed Significantly to FTC's
Consumer Protection Mission

FTC's Decisionmaking Process Did Not Include Coordination With
Regions and External Organizations

B-281687 Page 16 GAO/GGD-99-25 FTC's Proposed Restructuring

stakeholders as partners in helping it carry out its mission.
According to FTC officials, after FTC developed the restructuring
proposal but prior to submitting it to the Commissioners for
approval, FTC briefed concerned Members of Congress and officials
of DOJ's Antitrust Division about the proposal. FTC officials also
said FTC contacted other external stakeholders concerning the
proposal after the Commissioners had voted on and approved the
proposal.

According to FTC's Executive Director, in January 1998, the
Chairman directed that she study how to better integrate regional
resources into FTC's overall mission. 10 In response to the
Chairman's directive, the Executive Director held internal
discussions between January and March 1998 with the BCP and BC
Directors as well as their staff. These discussions focused on the
nature and type of work, the respective workloads of the two
bureaus, regional office workloads, regional strengths and
weaknesses, and possible options for restructuring regional
operations.

The Executive Director, after discussion with senior officials and
Commissioners, decided on which factors to use as a basis for
restructuring regional operations and developed a proposal that
included closing the Boston and Denver regional offices and
transferring the associated resources to other regions and
headquarters. According to FTC officials, after developing the
proposal in March 1998 but prior to submitting it to the
Commissioners for approval, FTC officials briefed concerned
Members of Congress, including staff and/ or Members of FTC's
Appropriations and Authorization Committees and selected senators
and representatives from states in the Boston and Denver regions,
as well as officials from DOJ's Antitrust Division, about the
proposal.

On June 1, 1998, the FTC Commissioners approved a nine- page
proposal four pages of narrative and five pages of charts and
graphics for restructuring regional operations. Other than some
analyses of state population, GSP, and consumer protection fraud
cases used in developing the proposal, OED officials said that
they had no other formal documentation or analyses reflecting
FTC's deliberations in arriving at the proposal. In developing the
restructuring proposal, FTC did not contact federal, state, or
local organizations that work with the Boston and Denver

10 According to FTC officials, the current proposal was part of an
effort FTC began in 1995 to streamline its operations. As a result
of that effort, (1) OED reduced 15 percent of its FTEs and
transferred them to BCP and BC, (2) BC converted lawyer positions
into more cost effective paralegal and investigator positions, and
(3) BCP transferred consumer contact representatives from various
headquarters units to FTC's consumer complaint handling center.

B-281687 Page 17 GAO/GGD-99-25 FTC's Proposed Restructuring

regions, some of which FTC identified as partners in its strategic
plan for fiscal years 1997 to 2002. These partners include
organizations such as the state attorneys general and the American
Association of Retired Persons (AARP). After the Commissioners
voted on the proposal, however, according to FTC officials, FTC
contacted concerned Members of Congress, representatives of the
American Bar Association's Antitrust Law Section, and officials in
almost all of the affected offices of state attorneys general.

FTC also did not request information from its Boston and Denver
regions in developing the restructuring proposal. According to the
Executive Director, FTC management had alerted all the regional
offices about the possibility of FTC's restructuring regional
operations, in light of FTC's overall effort to improve agency
efficiencies, as early as March 1997. The Executive Director said
that FTC management reinforced this message during meetings held
with regional officials in the fall of 1997 and again in the
spring of 1998. OED officials said that while FTC management
originally had intended to include regional officials in
deliberations on restructuring FTC operations, management was
concerned about (1) the morale of all regional employees and the
impact on regional productivity if regions were actively involved
in deliberations over potential regional office closings and (2)
the inability of regional office personnel to objectively
contribute to discussions about whether their own or other
individual offices should be closed. Furthermore, OED officials
said that FTC formed a task force a few years ago to brainstorm
the best use of regional resources but that no permanent solutions
were developed as a result of that effort. These officials also
said that the former Executive Director had understood from
regional liaisons that regions did not want to play a role in
discussions about which regional offices should be closed.

The acting regional directors in both the Boston and Denver
regions said that they were aware of FTC's efforts to become more
efficient and reorganize operations. However, they said that FTC
management did not clearly communicate its desire to close any
regional offices. They also said that they were not aware of the
regional restructuring proposal effort until mid- May 1998.
According to a Boston regional official, not only was FTC
management unclear about its intentions, FTC management sent mixed
signals about its intentions concerning the possible closure of
regional offices. For example, in October 1997, FTC management
advertised to fill vacant regional director positions in four
regional offices, including Boston and Denver. These announcements
did not close until December 1997 a month before the Chairman's
directive to develop a regional restructuring proposal.

B-281687 Page 18 GAO/GGD-99-25 FTC's Proposed Restructuring

According to FTC's proposal, the decision to close the Boston and
Denver regional offices and to retain the remaining eight offices
was based on three factors population, GSP, and the percentage of
consumer fraud cases FTC filed in federal courts within each
region. According to FTC headquarters officials, FTC also
considered staff expertise and geographic location as factors for
retaining offices in San Francisco and Seattle. In addition, FTC
officials said that FTC used geographic location as a principal
factor in deciding where to locate the three proposed regional
antitrust centers. Discussions with FTC staff from the Boston and
Denver offices and our review of FTC documents identified other
factors productivity, future population growth, and cost that FTC
could have used in making its decision. FTC officials said they
considered these factors but decided not to use them for a variety
of reasons. For example, FTC officials said that they did not use
productivity because, among other things, it is difficult to
measure. Likewise, the officials said they did not use future
population growth because they did not believe it would have
changed the relative ranking of regions by population.

FTC's initial nine- page proposal cited three factors population,
GSP, and the number of consumer fraud cases FTC filed in federal
courts within each region as the key factors in deciding which
offices to close and retain. 11 On the basis of its analysis of
these factors, FTC concluded that the Boston and Denver regions
represented disproportionately low levels of population and GSP
and that those regions did not have a high number of consumer
protection fraud cases filed in federal courts as compared with
the other regions. For example, the Boston and Denver regions each
included approximately 5 percent of the U. S. population, while
the other regions, except for San Francisco and Seattle, included
substantially more, as of July 1997. Table 3 shows the U. S.
Census Bureau estimates of the population and percentage of
population for each of FTC's 10 regional offices as of July 1997
that FTC used in its analysis.

11 The narrative in FTC's restructuring proposal refers to Gross
National Product (GNP) as one factor that FTC used in determining
how to restructure its regional operations. The proposal also
refers to Gross Domestic Product and Gross State Product, which
are similar to GNP. In addition, the charts in FTC's restructuring
proposal included data that showed the percent of geographic area
for each of FTC's current and proposed regions relative to the
total U. S. geographic area. The narrative proposal did not
include a discussion of how FTC used these data in deciding how to
restructure regional operations. FTC Based its Decision

on Three Factors and Could Have Used Others

Population, GSP, and the Percentage of Consumer Fraud Cases Filed
by FTC Were Central to FTC's Decision

B-281687 Page 19 GAO/GGD-99-25 FTC's Proposed Restructuring

(Population in thousands)

Region Population Percent of population

Atlanta 52,477 19.6 Cleveland 41,151 15.4 Chicago 39,778 14.9
Dallas 31,361 11.7 New York 26,190 9. 8 Los Angeles 26,067 9. 7
San Francisco 13,620 5. 1 Boston 13,379 5. 0 Denver 12,942 4. 8
Seattle 10,672 4. 0

Total 267,637 100.0

Source: FTC analysis of Estimates of the Population of States:
Annual Time Series, July 1, 1990, to July 1, 1997, U. S. Census
Bureau, Department of Commerce.

Similarly, FTC concluded that both the Boston and Denver regions
accounted for relatively low levels of GSP in comparison to most
other regions. Specifically, Boston accounted for approximately 6
percent of total GSP in 1994, while Denver accounted for
approximately 5 percent of GSP. Table 4 shows the Department of
Commerce GSP data for 1994 and FTC's analysis of GSP for its 10
regions.

(Dollars in millions)

Region GSP Percent of GSP

Atlanta $1,154,783 17.7 Cleveland 997,849 15.3 Chicago 957,544
14.7 New York 786,920 12.1 Dallas 706,927 10.8 Los Angeles 645,406
9. 9 Boston 369,654 5. 7 San Francisco 354,273 5. 4 Denver 294,705
4. 5 Seattle 251,758 3. 9

Total $6,519,819 100.0

Source: FTC analysis of total GSP using chained (1992) dollars as
reported by the Regional Economic Analysis Division, Bureau of
Economic Analysis, Department of Commerce.

Finally, FTC's restructuring proposal also showed that 5 percent
and 3 percent of FTC's consumer fraud cases were filed in federal
courts in the Boston and Denver regions, respectively. FTC's
restructuring proposal did not specify the period for which these
percentages were calculated, but an OED official said the period
was fiscal year 1979 through the second

Table 3: Population and Percent of Population for FTC's 10 regions
as of July 1997

Table 4: GSP and Percent of GSP for FTC's 10 regions as of 1994

B-281687 Page 20 GAO/GGD-99-25 FTC's Proposed Restructuring

quarter of fiscal year 1998 March 31, 1998. Table 5 presents the
number of consumer fraud cases filed in federal courts in each of
FTC's regions and the related percentages as presented in FTC's
restructuring proposal.

Region Cases filed in the region a Percent of cases filed in the
region

Atlanta 182 24 Los Angeles 140 18 Cleveland 82 11 Chicago 76 10
San Francisco 75 10 New York 66 9 Dallas 63 8 Boston 36 5 Seattle
27 4 Denver 20 3

Total 767 100 b

Note: FTC's restructuring proposal presented the percentages of
consumer fraud cases filed in each FTC region, but did not specify
the period for which the percentages were calculated. An OED
official said the period covered was fiscal year 1979 through the
second quarter of fiscal year 1998. Furthermore, the proposal did
not present the numbers of cases filed in each region, as shown in
this table. FTC officials provided supporting documentation that
showed how they arrived at the percentages included in the
proposal, but noted that the data they used were not complete
because of an incomplete database. These officials said they knew
that some cases were missing from the database but believed the
missing data would not materially affect the percentages. These
officials later provided data that they stated were complete. The
data showed a larger number of cases filed, but the percent of
cases filed in each region was essentially the same as shown in
this table.

a A case may be filed by FTC officials in the region in which the
court is located or by FTC officials from another region or
headquarters office. b FTC's percentages for the regions do not
add to 100 percent due to rounding.

Source: OED, FTC. FTC officials acknowledged that the Seattle
region ranked as the lowest region with respect to both population
and GSP and ranked as the second to the lowest region with respect
to number of consumer fraud cases filed in courts in that region.
However, these officials said that the Seattle regional office was
not selected as one that should be closed instead of Boston or
Denver because (1) of its past and continuing consumer protection
efforts and (2) it contained the largest geographic area of any
FTC region. According to FTC officials, telemarketing fraud
involving companies located in Canada that call and defraud U. S.
citizens has become a growing problem. These officials also told
us that joint FTCCanadian law enforcement efforts have become an
important tool in fighting cross- border fraud. They said they
decided to keep the Seattle office open because FTC Seattle
regional officials have developed good working relationships with
Canadian law enforcement officials.

Table 5: Number and Percent of Consumer Fraud Cases Filed by FTC
in Federal Courts in Each FTC Region for Fiscal Year 1979 Through
the Second Quarter of Fiscal Year 1998

B-281687 Page 21 GAO/GGD-99-25 FTC's Proposed Restructuring

While the Executive Director also acknowledged that the San
Francisco region was relatively low in population and percentage
of GSP, she said that staff in the San Francisco office had
developed a level of expertise in high- technology issues and was
close to Silicon Valley. She also said FTC wanted to further
develop this expertise. In addition, she stated that, by combining
the management of the San Francisco and Los Angeles offices, the
population and GSP of the combined region would match those of the
other larger FTC regions. OED officials said they decided to
retain the Los Angeles office instead of closing it and having
only one office in California because, according to these
officials, the Los Angeles region has covered an area in which
fraudulent companies have typically tended to locate.
Consequently, these officials said FTC has filed a large
percentage of its consumer fraud cases in federal courts located
in that area. FTC's proposal states that approximately 15 percent
of the consumer fraud cases that FTC filed in fiscal year 1997
were filed in the Southern and Central Districts of California,
which have been covered by FTC's Los Angeles region. According to
OED officials, even though staff from offices other than the Los
Angeles office have filed some of these cases, the Los Angeles
office needed to remain open because the Los Angeles regional
officials (1) had knowledge of the local courts and were familiar
with local court officials and (2) could assist with cases filed
by other regions to ensure that the cases progressed smoothly
through the courts.

Our interviews with Boston and Denver regional officials indicated
that they believed the selective factors FTC used to justify
retaining other regions could have been used to justify retaining
their offices. For example, Boston regional officials stated that
they believed their region has more experience in dealing with
Internet fraud issues than other FTC regional offices and has
experience with health care mergers in the New England area. OED
officials disagreed with the Boston regional officials' claims of
Internet fraud experience and noted that Boston has worked on two
of FTC's Internet- related cases. As discussed earlier, as of
November 1998, FTC had undertaken 41 Internet- related cases.

Boston regional officials also said that the Boston region
accounted for the fourth largest number of FTC consumer protection
fraud filings for the period January 1997 through June 1998 and
that Boston regional officials were responsible for filing seven
of the eight FTC cases in New England courts during that period.
12 Denver officials said that Denver staff were

12 FTC's proposal showed that the Boston region ranked eighth out
of the 10 FTC regions in terms of the percentage of FTC consumer
fraud cases filed in federal courts in those regions. An OED
official said that in calculating the percentages in the proposal,
FTC used cases filed in fiscal years 1979 through the second
quarter of fiscal year 1998.

B-281687 Page 22 GAO/GGD-99-25 FTC's Proposed Restructuring

also familiar with the fraud and privacy issues challenging FTC in
dealing with the Internet and other high- technology industries.
These officials said that many high- technology industries are
located in Denver, and regional office staff have worked closely
with those industries to help them formulate a program of self-
regulation. In addition, Denver regional officials said they also
have expertise in numerous areas such as franchise and business
opportunity fraud, telemarketing, advertising, funeral rule
enforcement, and antitrust cases in the health care area.

Concurrent with FTC's decision to close the Boston and Denver
regional offices, FTC officials determined that FTC should retain
antitrust work in selected regional offices and used geographic
location as a principal factor in selecting which offices should
have regional antitrust centers. According to OED officials, FTC
decided to retain a regional presence for antitrust work to
address some local issues and to continue to work with state
attorneys general.

According to the BC Director, FTC decided to maintain a regional
presence by creating three antitrust centers one on the West
Coast, one on the East Coast, and one near the middle of the
country. FTC proposed San Francisco, New York City, and Cleveland
as the most likely locations for the antitrust centers. The BC
Director told us that San Francisco was selected because, as noted
earlier, the San Francisco regional officials had experience with
high- technology issues, given San Francisco's proximity to
Silicon Valley, and FTC officials considered San Francisco a
business hub with many antitrust attorneys located there. New York
City was also selected, according to BC officials, because it was
considered a business hub with many of the law firms FTC routinely
works with located there. According to BC officials, the Cleveland
office was selected because of its location in the U. S. interior
and also because FTC recognized it could fill the existing vacancy
for Regional Director in the Cleveland region with an individual
having considerable antitrust experience.

FTC officials from the Boston and Denver regional offices and our
review of FTC documents identified other factors productivity,
future population growth, and cost that FTC could have used in
making its decision to restructure regional operations. FTC
officials said that they considered these factors but decided not
to use them for a variety of reasons.

FTC officials in the Boston and Denver regional offices said they
believed that FTC should have used productivity in determining
whether to restructure operations. FTC's proposal did not contain
analyses of (1) FTC Used Geographic

Location to Select Which Regions Would Be Antitrust Centers

FTC Could Have Used Other Factors

Productivity

B-281687 Page 23 GAO/GGD-99-25 FTC's Proposed Restructuring

consumer protection and competition cases filed by regional
offices and headquarters or (2) consumer education and outreach
activities by those offices and headquarters. OED officials said
that they deliberately avoided using hard- to- quantify factors,
such as productivity, in determining which offices to close.
Further, they chose not to use productivity as a factor because
they were concerned that it might have a negative impact on staff
morale, both in the regions and in headquarters, now and in the
future. They added that problems with using productivity as a
factor in deciding which offices to close include (1) selecting an
appropriate measure of productivity, such as the number of cases
or investigations an office recommends for filing or the impact a
case might have; (2) deciding whether, and if so how, to adjust
for differences in the complexity of cases an office undertakes;
(3) accounting for any assistance provided by other FTC offices,
such as BC assistance on regional office cases or regional
assistance on BC cases; and (4) adjusting for other factors, such
as the impact that unfilled positions or employees' extended leave
might have on productivity. Furthermore, OED officials said that
FTC attempted to use data, such as the number of enforcement cases
filed by a region or a bureau, to measure performance under the
Government Performance and Results Act of 1993, 13 but neither the
regions nor the BC or BCP staff supported such use.

FTC's 1987 Resource Allocation Study also discussed the issue of
productivity as a factor to allocate resources. Among other
things, the study showed that using productivity was problematic
because any number of factors, such as FTEs, enforcement
activities, and the complexity of cases, could be used to conclude
either that regions were more productive than headquarters or that
headquarters was more productive than regions. Furthermore, the
study pointed out that headquarters and regional staff have
collaborated on various issues, making it difficult to distinguish
who deserves credit for accomplishments. Appendix V contains more
detailed information on the productivity issue discussed in the
1987 Resource Allocation Study.

Denver regional officials said that FTC could have used future
population growth as a factor in deciding whether it should
restructure its regional operations. They stated that even though
the Denver region's current population ranked among the lowest of
the regions, with the general westward shift of population over
the last 2 decades, a large part of the region has experienced
explosive growth. Between 1990 and 1997,

13 The act requires agencies to set goals, measure performance,
and report on the degree to which their goals are met. Future
Population Growth

B-281687 Page 24 GAO/GGD-99-25 FTC's Proposed Restructuring

according to Denver regional officials, the five fastest growing
states in the country have been either located in or bordered on
the area served by FTC's Denver Regional Office. The officials
said these states include Arizona, Colorado, Idaho, Nevada, and
Utah. Further, regional officials stressed that the region serves
eight of the U. S. counties classified as the fastest growing
counties in the United States between the years 1990 and 1997.

OED officials said that they considered using future population
growth as a factor in determining which regional offices to close
because they were aware that the population in the United States
is shifting from the northeast to the south and southwest. They
said that FTC decided not to use future population growth as a
factor because some FTC regions were currently so low in
population that even spectacular growth over the next 10 to 15
years would not significantly change the regional percentage of
total U. S. population relative to other FTC regions. Subsequent
to our discussion about future population growth with headquarters
officials, the Executive Director asked BE to make population
projections based on growth. FTC's projections showed that,
whereas the Denver region included 4.84 percent of the population
in 1997, it was expected to grow to 4.94 percent by the year 2002
and to 5.03 percent in 2007. The FTC estimates showed that the
Boston region would be expected to shrink from 5 percent of the
total population in 1997 to 4.82 percent in 2002 and 4.65 percent
in 2007.

Our review of FTC documents showed that another factor FTC could
have used was cost. FTC's 1987 Resource Allocation Study was done
to focus on two issues: (1) the distribution of resources between
the enforcement bureaus and the regional offices, given the then-
current budget context, and (2) options for regional office
structure. The study indicated that when closing regional offices,
FTC would have realized nonpersonnel cost savings such as office
space rent and telecommunications and equipment costs associated
with the closings. However, although the study recognized that
there would be costs associated with a significant redeployment of
personnel in consolidating or closing offices, according to OED
officials, FTC did not fully analyze the implications of these
costs.

We asked FTC officials if they considered cost to be a factor in
developing their current restructuring plan. The officials said
they considered cost but believed the restructuring would
essentially be budget neutral in fiscal year 1999 and beyond. To
cover possible fiscal year 1998 costs, in June 1998 FTC requested
$365,000 in unobligated carryover funds from its Appropriations
Subcommittee to pay for, according to OED officials, Cost

B-281687 Page 25 GAO/GGD-99-25 FTC's Proposed Restructuring

moving costs for any Boston and Denver regional staff who wished
to move during the summer of 1998. FTC's estimates showed that, at
that time, it could have cost about $1.4 million to move an
estimated one- third of the staff from Boston and Denver to other
locations and sever the remaining two- thirds of the staff who may
not have chosen to move. 14 While FTC estimated that it would have
saved about $188,000 in office rent in Boston and Denver if it
closed the offices on December 1, 1998, as it originally had
planned, it did not consider the cost of additional office rental
space for the remaining larger regional offices. FTC estimates
also did not consider the increased travel costs that might be
incurred by other regional offices whose geographic coverage would
be increased by the restructuring.

FTC presented a single approach for restructuring its regional
operations because, according to FTC officials, it considered
other options to be impractical or unrealistic. Our review of
FTC's 1987 Resource Allocation Study and discussions with the
Boston and Denver regional officials identified 10 possible
options that FTC could have considered. These options were as
follows: (1) transfer all competition work to headquarters, (2)
shift staff from BCP to BC, (3) request increased funding to
address the increased workload, (4) limit resources to more
traditional competition work, (5) maintain the status quo and
allow regional offices to pool resources, (6) increase the number
of staff in each regional office, (7) redistribute consumer
protection and competition resources within regional offices, (8)
relocate BCP headquarters staff to the regions, (9) keep Boston
and Denver regions open at reduced staffing levels, and (10) adopt
a regional structure with fewer offices.

FTC officials said they considered several of the identified
options. However, the officials said that they did not deem them
to be acceptable or realistic because the options (1) did not
sufficiently balance FTC's dual mission of consumer protection and
competition, (2) were more disruptive of FTC's regional operations
than the proposed restructuring, (3) called for additional
resources that FTC did not believe would likely be forthcoming, or
(4) did not sufficiently address the underlying rationale for
undertaking the current restructuring effort. FTC officials had no
documentation to show that they considered these other options.

Appendix VI contains a discussion of the 10 options and FTC's
comments about each.

14 This latter cost would include severance pay and any
accumulated annual leave for those employees who do not transfer
to another federal government agency. FTC Considered Other

Options to Be Impractical or Unrealistic

B-281687 Page 26 GAO/GGD-99-25 FTC's Proposed Restructuring

Stakeholders' views about the potential effects of FTC office
closures were mixed. Some of the external stakeholders we
contacted refrained from commenting on the potential effect of the
closures of the Boston and Denver regional offices. Concerning
consumer protection matters, most of the external stakeholders who
expressed a view said that they believed the closures would have a
negative impact. These views primarily involved concerns that (1)
FTC staff from different regions of the country would not be able
to devote the time to or have the knowledge of regional issues and
(2) FTC would not be able to adequately replace service and
assistance provided by the FTC Boston and Denver regional offices.
However, of those external stakeholders who had views on
competition matters, opinions were more varied. Some stated that
they supported the proposal, whereas others said that competition
matters would be negatively affected. In addition, Boston and
Denver FTC officials said they believe consumer protection and
competition matters would be negatively affected. FTC headquarters
officials said they have plans that would mitigate the perceived
negative impacts on both consumer protection and competition
matters.

Officials from the offices of the Better Business Bureau (BBB),
AARP, and Federal Bureau of Investigation (FBI) responsible for
Boston and Denver and 7 of the 14 offices of state attorneys
general, located in the states covered by the Boston and Denver
FTC offices, said that the effect of the office closures on
consumer protection would be negative. Among other things, the
officials who told us that there would be a negative impact on
consumer protection said that they doubted that FTC staff from
different regions of the country would be able to provide the same
level of service the regional staffs were currently providing.
Officials from the AARP Midwest and West regional offices, the
National Association of Attorneys General (NAAG), and the
remaining offices of state attorneys general either declined to
comment, were neutral, or stated that consumer protection issues
would not be negatively affected. Many of these officials said
they had not worked extensively with either the Boston or Denver
FTC office. Table 6 presents a summary of the comments obtained
from the external stakeholders we contacted. Stakeholders' Views
on

the Potential Effects of Office Closures Were Mixed

Most External Stakeholders Who Expressed Opinions Said Office
Closures Would Negatively Affect Consumer Protection

B-281687 Page 27 GAO/GGD-99-25 FTC's Proposed Restructuring

Stakeholders Number of contacts Made no

prediction a Predicted no negative effect Predicted

negative effect

AARP 4 b 1 1 2 BBB 2 0 0 2 FBI 2 0 0 2 NAAG 1 1 0 0 State
attorneys general New England 6 1 1 4 Rocky Mountain 8 4 1 3
Subtotal 14 5 2 7

Total 23 7 c 3 13

a External stakeholders who made no prediction either had no
comment or were neutral about the effect of FTC's regional
restructuring proposal. b The Boston and Denver FTC regional
offices cover states that fall into four AARP regional offices.

c Includes four external stakeholders who had no comment and three
who were neutral concerning FTC's proposal to restructure regional
operations. Source: GAO analysis of external stakeholder views.

One of the primary concerns expressed by external stakeholders
centered on whether FTC regional staff from more distant locations
could provide the same level of service currently provided by
Boston and Denver staff. For example, BBB officials in Boston and
Denver said that the closure of the FTC offices in those two
cities and the transfer of responsibility for them to locations
outside the New England and Rocky Mountain areas would likely
result in a lower level of service for the two regions. Boston BBB
officials said that they work closely with the Boston FTC office
in sharing information and pursuing possible fraudulent
activities. They said that because their organization lacks
enforcement capability, they forward relevant complaints, cases,
and research on possible fraudulent companies to the Boston FTC
office. They stated that this working relationship has been
particularly important because the state attorneys general cannot
generally follow cases outside their state borders; as a result,
many fraudulent companies set up operations in one state to reach
consumers in another state in order to avoid prosecution. Boston
BBB officials said that FTC is unique among locally based agencies
because state borders do not constrain its enforcement
capabilities; and thus it is able to pursue fraudulent companies
whose businesses transcend state lines.

Boston BBB officials also said that if the Boston FTC office were
to close, they did not believe that FTC's New York office would
have the resources to pursue New England- based complaints because
they would give priority to New York cases. Similarly, an official
from the Denver BBB said he believed it would be unlikely for San
Francisco FTC staff to be as

Table 6: External Stakeholder Views on Effect of FTC Regional
Office Closures on Consumer Protection

External Stakeholders Believed That More Distant FTC Regional
Offices May Not Be Able to Provide the Same Level of Service

B-281687 Page 28 GAO/GGD-99-25 FTC's Proposed Restructuring

responsive to consumer fraud problems in Colorado as the Denver
FTC staff have been. This official said that the BBB had built a
personal working relationship with FTC Denver staff and that the
benefits of this relationship would be lost because the San
Francisco office would not be likely to have the financial
resources or time to continually send someone to the Rocky
Mountain area.

Officials from AARP expressed similar views. An AARP Southwest
regional official said that her office is concerned about the
distance between San Francisco and Denver and the different
character of the two regions. She emphasized Colorado's high
population growth rate and the need for FTC to maintain a local
presence, both to assist law enforcement in combating fraud and to
continue providing education and outreach. The AARP Southwest
official emphasized the Denver FTC office's importance as a member
of a local seniors advocacy group. According to the official, this
group meets regularly to exchange information on fraudulent
activities, holds public outreach conferences, and produces
educational materials for distribution.

AARP Northeast regional officials also expressed their views that
senior citizens in Boston would be less likely to contact their
new FTC office in New York City concerning their complaints or
questions. These officials said that they believed this was due,
in part, to regional differences and the long distance between
Boston and its newly designated FTC office. AARP Northeast
officials also pointed out that they do not believe that New York
staff can provide the working knowledge of the New England region
as well as the Boston FTC staff. They said that FTC's Boston
regional staff have a special role, bank of knowledge, and
expertise and that AARP frequently refers consumers directly to
the Boston FTC office.

The Boston FBI official we spoke with told us that he works
closely with the Boston FTC office, sharing information and
jointly investigating cases. He said that it is unlikely that he
will be able to work as closely with New York FTC staff because
the New York FTC office will be busy with New York consumer
protection cases. The Denver FBI official said that he also works
closely with the Denver FTC office in investigating cases and
sharing information and that he believed there would be a negative
impact if the Denver office were to close.

We also contacted officials from the state attorneys general
offices covered by the Boston and Denver FTC regions. Of the 14
state attorneys general offices in these 2 regions, 5 were not
willing to comment or were neutral on the issue; and 2 stated that
there would be no negative impact

B-281687 Page 29 GAO/GGD-99-25 FTC's Proposed Restructuring

on their states. The remainder generally recognized the importance
of FTC's presence in the region for consumer protection. For
example, officials from New England state attorneys general
offices emphasized the importance of the regular meetings with
their offices that the FTC Boston office coordinates. One of these
officials said she would not be able to attend these meetings if
they were to be held in New York City because of the travel time
and cost involved. Two of the officials from the offices of state
attorneys general in the New England area also said that it is
unlikely that staff in the New York office would be as
knowledgeable of issues in New England as staff in the Boston
office. Similarly, state attorney general officials from two
states that work with the Denver FTC office said that the Rocky
Mountain region is very different from the FTC regions that are
designated to assume the Denver FTC region's responsibilities
(Midwest, Western, and Northwest). Several state attorneys general
officials from states in the Denver FTC region also said that they
did not believe that these other offices would be able to serve
the Rocky Mountain area consumers as well as the Denver FTC region
has done.

FTC's proposal emphasizes technological developments and recent
innovations, including the consumer complaint handling center and
the FTC Internet site, which, according to FTC's proposal, would
allow FTC to reach and respond more easily to consumers across the
country and would lessen the need for multiple regional offices.
Many of the external stakeholders that we spoke with, however,
expressed the view that these technologies and innovations would
not be adequate replacements for FTC regional officials in Boston
and Denver.

For example, Boston and Denver BBB officials emphasized that it is
their opinion that the FTC's Internet site cannot be considered as
a replacement for a local FTC office because many consumers who
are victims of fraud do not have access to computers or the
Internet. Furthermore, AARP Northeast officials said that they
believed it is not realistic to expect most senior citizens to
call a telephone center and attempt to negotiate an automated
telephone tree. They said that it is their opinion that these
consumers and others would prefer to speak to a local contact that
is knowledgeable about local businesses and regional matters and
who can offer more personalized advice immediately. Certain
officials from the offices of state attorneys general in both
regions expressed similar concerns that FTC's consumer complaint
handling center, the Internet web site, and a proposed toll- free
telephone number would not be an adequate External Stakeholders
Said They

Believed That Technological Developments Cannot Replace FTC
Regional Office Staff

B-281687 Page 30 GAO/GGD-99-25 FTC's Proposed Restructuring

replacement for the knowledge and services provided by local FTC
officials. 15

The external stakeholders we spoke with who work with FTC on
competition matters and were willing to express an opinion had
mixed views on the impact of the office closures. These
stakeholders included officials from the offices of state
attorneys general in the states under the jurisdiction of the
Boston and Denver FTC offices, NAAG, the DOJ Antitrust Division,
and the American Bar Association.

Officials from three of the six offices of state attorneys general
covered by the Boston FTC region and from two of the eight such
offices covered by the Denver FTC region predicted that
competition matters would be negatively affected. The remaining
offices of state attorneys general either made no prediction or
stated that competition issues in their state would not be
negatively affected by the FTC's regional office restructuring
proposal. Most of those officials that did not foresee a negative
impact for their state said they typically did not work closely
with either the Boston or Denver FTC office on competition issues.
An official from NAAG declined to give an opinion on the FTC's
restructuring proposal, stating that it was an internal FTC
matter. Table 7 presents a summary of the comments obtained from
the external stakeholders we contacted.

Stakeholders Number of contacts Made no

prediction a Predicted no negative effect Predicted

negative effect

State attorneys general New England 6 2 1 3 Rocky Mountain 8 5 1 2

Subtotal 14 7 2 5 NAAG 1 1 0 0 DOJ Antitrust Division 1 0 1 0 ABA
Chair of Antitrust Law 1 0 1 0

Total 17 8 b 4 5

a External stakeholders who made no prediction either made no
comment or were neutral about the affect of FTC's regional
restructuring proposal. b Includes five external stakeholders who
had no comment and three who were neutral concerning

FTC's proposal to restructure regional operations. Source: GAO
analysis of external stakeholder views.

15 After our conversations with these stakeholders, Congress
passed FTC's fiscal year 1999 appropriations, which provided $3. 9
million more than the $112. 8 million requested by the President.
The FTC Executive Director said that the agency plans to use a
portion of the additional funds to establish a toll- free
telephone number for the consumer complaint handling center, which
was included in FTC's 1999 conference report that accompanied its
appropriation. The Executive Director said the toll- free
telephone number would be operational in the spring of 1999.
External Stakeholders Who

Expressed an Opinion Had Mixed Views on the Effect of Office
Closures on Competition Matters

Table 7: External Stakeholder Views on Effect of FTC Regional
Office Closures on Competition

B-281687 Page 31 GAO/GGD-99-25 FTC's Proposed Restructuring

Some of the officials from the offices of state attorneys general
who believed there would be a negative impact if the FTC offices
were to close said that they valued a local FTC presence because
of the informationsharing opportunities that it provided. They
stated that a local FTC office afforded them the opportunity to
meet with FTC staff and take advantage of their knowledge of
regional issues and companies. These officials expressed concern
that this relationship would be lost if, for example, FTC
responsibility for New England were to be transferred from the
Boston to the New York office. In addition, an official from one
of the New England area offices of state attorneys general pointed
out that the New York office of the DOJ Antitrust Division, which
covers New England as well as New York, concentrates on what is
nearer to its office. Consequently, he suspected a similar result
from a New York FTC office with responsibility for New England.

Certain external stakeholders who work on antitrust matters rather
than consumer protection matters expressed their support for the
proposal. For example, officials from the DOJ Antitrust Division
stated that FTC's proposal would not affect DOJ's operations but
that FTC's competition work will likely benefit by creating the
antitrust centers, as opposed to having the FTEs spread out. They
emphasized the importance of having a critical mass of attorneys
working on merger enforcement cases. However, the DOJ Antitrust
Division officials said that most of the DOJ merger work is
performed in headquarters and not in its regional offices.

The Chair of Antitrust Law at the American Bar Association
expressed his personal view that the proposal will positively
affect FTC's antitrust work. He told us that he had worked on
merger cases that were headed by regional offices and that the
regional staff in some instances did not have sufficient
experience or particularized expertise in merger matters. He
commented that the consolidation of FTC's antitrust work into
three centers is sensible, in that the expertise and experience of
the attorneys working in each center would likely be enhanced. He
also said that he believed that three centers would be easier to
manage. In addition, the American Bar Association published a
report in 1989 stating that FTC may have disproportionately
allocated resources to its regional offices in the past and that
the Commission should have the ability to reduce the number of its
regional offices to prevent an undue drain on agency resources.

B-281687 Page 32 GAO/GGD-99-25 FTC's Proposed Restructuring

Boston and Denver FTC officials said they believed the
restructuring proposal would negatively affect both consumer
protection and competition matters in New England and in the Rocky
Mountain areas. According to these officials, with the closure of
the two offices, consumers would have to rely on more distant FTC
offices to address their concerns. The officials said that by not
having a more closely aligned regional presence, FTC would lose
its capability to (1) address regional consumer protection issues
and regional characteristics, (2) partner with local law
enforcement agencies on enforcement efforts, (3) network and share
mutual concerns and law enforcement information with other local
and regional organizations, (4) provide consumer outreach and
education, and (5) monitor and investigate regional competition
issues.

The Boston officials said that they believed the restructuring
proposal would decrease FTC's attention to New England consumer
protection cases and did not take into account differences in
regional cultures. They said that they believed it is unlikely
that FTC's New York regional office, even with an increase in
staff, would view New England consumer protection cases as a
priority, given the consumer protection workload in New York and
New Jersey. They also said they believed the New England area,
specifically eastern Massachusetts and southern New Hampshire, is
a highly concentrated, emerging area of business and technology
and that not having an FTC office in Boston would hamper efforts
to protect consumers. Likewise, Denver officials told us they did
not believe that Rocky Mountain residents would be likely to call
Washington, D. C., San Francisco, Seattle, or Cleveland to lodge
consumer complaints or to request information. They also said that
they believed it would be unlikely that elderly residents in their
region would feel comfortable calling someone unfamiliar with the
Rocky Mountain area or that such residents would use the Internet.
OED officials provided data that showed that about 50 percent of
the consumers in the states covered by FTC's Boston regional
office that telephoned FTC during the period January 1 through
July 18, 1998, telephoned offices other than the Boston regional
office; however, about 27 percent of the consumers in the states
covered by FTC's Denver regional office telephoned FTC through
offices other than the Denver regional office.

Officials from both regions said they believed that the
restructuring proposal would reduce FTC's ability to partner
effectively with local law enforcement agencies. Boston officials
said that enforcement efforts, such as its recent work with one
state attorney general office on compliance with its credit repair
rules, could suffer under the proposed restructuring. Boston and
Denver

Regional Officials Believed Closures Would Have a Negative Impact
on Both Consumer Protection and Competition Matters

B-281687 Page 33 GAO/GGD-99-25 FTC's Proposed Restructuring

These officials said they did not believe that a more distant FTC
region or FTC headquarters could work as effectively.

In addition, Boston and Denver officials said they believed that
networking and information sharing with law enforcement agencies
as well as other local organizations would be negatively affected
by the restructuring proposal. For example, Boston officials said
that because of transportation and logistical difficulties, they
believed it is unlikely that the New York FTC office would
continue holding the quarterly meetings that the Boston office has
held with state attorneys general officials in the Boston region.
They said the reorganization could affect the close working
relationships that the Boston region has developed with state
attorneys general in the region and other law enforcement and
consumer protection organizations. Denver officials also said they
believed that the closures would cause FTC to lose its ability to
network locally. They said that these networks are invaluable in
providing information on potential consumer fraud issues.

The Boston and Denver FTC officials also said they believed that
consumer education and outreach efforts in their respective
regions would suffer if the two regional offices were closed. They
also said that officials from their regions have participated in
numerous local speaking engagements and educational events and
that they did not believe another region would assign staff to
attend these engagements. Appendix V contains a summary of recent
consumer education and outreach activities as reported by Boston
and Denver regional officials.

Lastly, Boston and Denver officials stated that non- HSR merger
work in their respective regions would also be negatively affected
by closing the two offices. For example, Denver officials said
that they review small, local mergers and investigate
anticompetitive behavior, such as price fixing, and the fact that
they live in the region and the community allows them to hear
about and become aware of such cases. Similarly, the Boston
officials stated that having a local presence allows them to
become aware of anticompetitive practices in the Boston area.
Further, they said that they investigate mergers of local or
regional hospitals or health maintenance organizations.

FTC officials said they believed they would be able to mitigate
the concerns about the regional office restructuring plan cited by
many of the stakeholders we contacted. In September 1998, FTC
officials presented us with written implementation plans for the
continuation of services for both the New England and Rocky
Mountain states. These plans call for outreach to the law
enforcement community; consumers, consumer organizations, FTC
Headquarters Officials

Believed Their Plans Would Address Stakeholders' Concerns

B-281687 Page 34 GAO/GGD-99-25 FTC's Proposed Restructuring

and the media; and the business community and bar associations in
the states affected by the closures. Among other things, this
outreach, which FTC said affirms its commitment to continuing
services, is to take the form of

 news releases, speaking engagements, and media appearances;

 town meetings, meetings with federal and state agencies and
industry groups, and meetings with consumer advocacy groups; and

 formal and informal meetings with officials from the offices of
state attorneys general.

Under the plans, the regional offices that are slated to assume
responsibility for the Boston and Denver regions the Northeast
region in New York City, the Midwest region in Chicago, the
Western region with offices in San Francisco and Los Angeles, and
the Northwest region in Seattle are to hold the quarterly meetings
with the offices of state attorneys general from the states under
their respective jurisdictions. Although not specifically stated
in the plan, FTC officials said the new Northeast Region would
hold the quarterly meetings in New England rather than in New York
City. In addition, these officials said they have designated the
Assistant Regional Director in the current New York regional
office to be the New England Coordinator for the new Northeast
Region. According to the officials, this individual is to serve as
a contact point for the New England states.

Despite FTC's efforts to articulate its commitment toward a
continuation of services to the New England and Rocky Mountain
states, it is unclear how the restructuring effort will be managed
by the offices that are to take on the consumer protection
responsibilities currently managed by the Boston and Denver
regions. For example, we spoke with the regional directors of the
New York, Chicago, San Francisco, and Seattle FTC offices under
the condition that we do so in the presence of an FTC BCP
headquarters official. These directors said they had not developed
any formal plans to prepare for the increased consumer protection
workload that would result from the acquisition of the new states.
The New York and San Francisco regional directors said that this
was because the regional restructuring was on hold, pending the
outcome of our review. 16

16 According to OED officials, the Chairman asked regional
directors in a June 10, 1998, memorandum to develop a transition
plan to evaluate their current resources and propose ways to
handle their new responsibilities. The OED officials also said the
effort to develop, review, and implement these transition plans
was put on hold in deference to our review.

B-281687 Page 35 GAO/GGD-99-25 FTC's Proposed Restructuring

Nonetheless, FTC Chicago, San Francisco, and Seattle regional
officials said they had previously participated in conferences
with offices of state attorneys general from the affected states
and had developed contacts with officials in these states. In
addition, officials from FTC's New York office said they plan to
meet with the state attorneys general from the New England states,
both to foster a working relationship and to get their assessments
of important enforcement issues in New England. Their preliminary
ideas for establishing a presence in the region include making
themselves available to the local media, taking multiple purpose
trips to New England, and subscribing to New England's prominent
newspapers in order to gauge local issues and monitor
advertisements for potential fraud cases.

The San Francisco regional official said his office would have to
become more efficient because under FTC's restructuring plan, no
additional resources are proposed for the increased consumer
protection workload resulting from the new responsibilities. Under
the proposed restructuring, his region would also include Colorado
and Utah and provide administration and management for the
responsibilities of the Los Angeles office, which covers southern
California and Arizona. To compensate, he said that FTC might have
to leverage resources. For example, the official stated that the
San Francisco office could partner with state and local agencies
and reach constituents through the consumer complaint handling
center and the FTC Internet web site.

The Chicago regional official said he planned to visit each of the
new states that would fall under the office's jurisdiction, which
include North Dakota, South Dakota, Kansas, and Nebraska. He said
that the Chicago regional office has already worked with the
offices of state attorneys general in Kansas, North Dakota, and
South Dakota on antitrust issues. In addition, according to this
official, the Chicago region has previously collaborated with the
AARP Midwest office.

An official with the Seattle regional office stated that the
outreach strategy for the incoming states of Wyoming and Montana
would involve a combination of travel and communication by
telephone, with the type of outreach varying by state. He said the
office would make an effort to develop a close relationship with
the state attorneys general and consumer organizations in these
states.

B-281687 Page 36 GAO/GGD-99-25 FTC's Proposed Restructuring

One of the concerns stakeholders expressed during our review
centered on FTC's reliance on recent technological innovations,
such as FTC's Internet web site, a consumer complaint handling
center, and a related consumer fraud database, to compensate for
the potential effect of the proposed office closures. In
particular, stakeholders voiced concern that individuals 65 years
of age and older and low- income citizens might not be equipped to
use FTC's Internet web site.

Recent studies and reports on Internet usage include information
on the extent of individuals who are 65 years of age and older who
use the Internet. According to a 1997 study by Baruch College-
Harris Poll conducted for Business Week, about 21 percent of the
individuals in the United States who are 18 years of age and older
use the Internet, the World Wide Web, or both. Using the Baruch
College- Harris Poll and Census population numbers, we found that,
of those individuals between the ages of 18 and 50, more than 25
percent use the Internet. Our analysis of these data also showed
that about 15 percent of individuals who are 50 to 64 use the
Internet. However, only about 6 percent of individuals who are 65
years of age and older use the Internet, making this age group the
lowest proportion of Internet users.

We were able to find only limited information on low- income
individuals' use of the Internet. According to a 1997 Business
Week article, adult Internet users are more affluent than the U.
S. population as a whole. For example, the article stated that
more than 42 percent of adult Internet users have household
incomes that are greater than $50,000, compared with 33 percent of
the population as a whole. The Business Week article also stated
that 18 percent of individuals who access the Internet have
incomes of $25,000 or less. However, it pointed out that because
the lower income category probably includes many students, it may
have overstated Internet participation by the nation's low- income
households.

While FTC officials told us that its Internet web site has been
very successful with over one million accesses to the site over
the past year they also said FTC plans to reach out to seniors and
low- income individuals in a variety of ways, many of which do not
depend on any particular level of income or technological
sophistication.

First, FTC officials said they expect the level of service FTC
provides to all consumers to improve with the approval of fiscal
year 1999 funds to establish a toll- free telephone number for its
consumer complaint handling center. As of November 1998, according
to FTC officials, they had already obtained a toll- free telephone
number and plan to make it available to FTC Said It Reaches Out to

Seniors and Low- Income Citizens in a Variety of Ways

B-281687 Page 37 GAO/GGD-99-25 FTC's Proposed Restructuring

consumers by the spring 1999. These officials said they were
drafting a request for proposals for call center providers to
assist in handling this work and that by January 1999, they plan
to expand the physical call center space at FTC headquarters from
18 work stations to 32.

Second, FTC officials said FTC has repeatedly partnered with a
wide variety of other law enforcement organizations to coordinate
efforts to combat a variety of scams targeting seniors and low-
income people, such as bogus prize promotions, credit repair
scams, and advance fee loan frauds. According to FTC officials
this coordinated approach draws media attention to the problems
addressed, thereby educating the public through radio, television,
and newspapers on how to protect themselves. In addition, FTC
officials said FTC has partnered with organizations throughout the
United States to leverage its impact in educating consumers. These
officials said FTC did so under the premise that no headquarters
or regional office acting alone has even a fraction of the impact
that FTC can have by using other organizations to amplify its
message.

Finally, FTC officials said that they have communicated consumer
information materials in a variety of formats-- brochures,
bookmarks, flyers, radio public service announcements, posters,
bumper stickers, and postcards. They added that they distribute or
communicate this material broadly and, in their view, often
creatively and unconventionally. For example, they said that by
working with a range of organizations FTC has placed its messages
in locations such as grocery stores, bookstores, and
delicatessens; billing statements and community, professional, and
trade association newsletters; classified advertising sections of
newspapers throughout the country; as well as on the Internet.

We received written comments on a draft of this report from the
FTC Commissioners in a letter dated January 8, 1999 (see app.
VIII). In their comments, the Commissioners clarified their
position on five points related to the restructuring plan. First,
the Commissioners pointed out that the regional office
restructuring plan is responsive to where they and their
stakeholders say markets and mergers are today and where they will
be in the foreseeable future. Second, the Commissioners stated
that the regional office restructuring is part of a broader FTC-
wide effort to efficiently and effectively deploy limited staff
resources to make FTC's operations more responsive to consumer's
needs. Third, the Commissioners said that fewer regional offices
will not diminish FTC's effectiveness in addressing consumer
problems in any region of the country and stated that they believe
the restructuring will provide FTC the opportunity to better serve
Agency Comments and

Our Evaluation

B-281687 Page 38 GAO/GGD-99-25 FTC's Proposed Restructuring

consumers through its partnerships with various law enforcement
organizations throughout the country. Fourth, the Commissioners
stated that the restructuring will improve FTC's ability to handle
its antitrust workload. Finally, the Commissioners pointed out
that, to the extent possible, the plan takes into account human
costs of such changes and does not call for anyone to be
terminated.

Concerning the first point, we have no basis to agree or disagree
with where FTC and its stakeholders believe markets and mergers
are today and will be in the foreseeable future. We do not dispute
that FTC may have considered the views of a wide range of
stakeholders in the context of hearings and workshops on the
emerging global high tech marketplace held at the FTC in 1995.
However, as pointed out in our report, FTC did not obtain or
consider the views of stakeholders that work with the Boston and
Denver offices as it developed its proposal to restructure its
regional offices.

Concerning the second point, in our report we characterize FTC's
restructuring proposal as part of an effort FTC began in 1995 to
streamline its operations, which is consistent with FTC's
comments. Concerning the third point, we have no basis to judge
how the proposed restructuring will affect FTC's effectiveness in
addressing consumer protection problems in any region. In this
report, we provide the opinions of FTC stakeholders that worked
with the Boston and Denver regional offices concerning this
matter, but their views varied; also there is no empirical basis
on which to assess future consumer protection performance. In
regard to the fourth point, we have no basis to judge the effect
restructuring will have on FTC's ability to handle its antitrust
workload. In regard to the final point, our report states that
FTC's June 1998 restructuring proposal calls for transferring 33
staff positions from the Boston and Denver regions and allows all
staff in the offices that are proposed to close to transfer to
other regional offices and headquarters.

We also obtained written and oral technical comments from FTC's
Executive Director and her staff. We made changes to the report on
the basis of these comments as appropriate.

As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days from the date of this letter. At that time, we will
send copies to the Chairman of the Federal Trade Commission; the
Chairmen and Ranking Minority Members of the Senate and House
Appropriations Subcommittees on Commerce, Justice, State, the
Judiciary, and Related Agencies; the Chairman and

B-281687 Page 39 GAO/GGD-99-25 FTC's Proposed Restructuring

Ranking Minority Member of the House Commerce Subcommittee on
Telecommunications, Trade and Consumer Protection; and the
Chairman and Ranking Minority Member of the Senate Commerce
Subcommittee on Consumer Affairs, Foreign Commerce and Tourism. We
will also make copies available to other interested parties upon
request.

Please contact me at (202) 512- 8676 if you or your staff have
questions. Major contributors to this report are listed in
appendix IX.

Laurie E. Ekstrand Associate Director Federal Management

and Workforce Issues

Page 40 GAO/GGD-99-25 FTC's Proposed Restructuring

Contents 1 Letter 44 Appendix I Current and Proposed FTC Regional
Structures

46 The HSR Act's Requirements and FTC's Process to

Address HSR Act Work 46

HSR Mergers Have Increased 47 Merger Activity and Associated HSR
Filings Occur in

Unpredictable Waves 48 Appendix II

FTC's Hart- ScottRodino Work

51 Appendix III FTC's Prior Analyses of Regional Restructuring

53 Appendix IV Objectives, Scope, and Methodology

57 Boston and Denver Officials Believe Regions Are More

Productive Than BCP in Filing Enforcement Actions 58

Boston Regional Officials Said They Believe Regions Have
Contributed to FTC's Competition Work

59 Boston and Denver Regional Officials Believe They Have

Made Significant Contributions to Consumer Education and Outreach

62 Appendix V

Productivity and Workload of FTC Regions and Headquarters

69 Option 1 - Transfer All Competition Work to

Headquarters 69 Appendix VI

Other Possible Restructuring Options Option 2 - Shift Staff From
BCP to BC 69

Contents Page 41 GAO/GGD-99-25 FTC's Proposed Restructuring

Option 3 - Request Increased Funding to Address the Increased
Workload

70 Option 4 - Limit Resources to More Traditional

Competition Work 70

Option 5 - Maintain the Status Quo and Allow Regional Offices to
Pool Resources

71 Option 6 - Increase the Number of Staff in Each Regional

Office 71

Option 7 - Redistribute Consumer Protection and Competition
Resources Within Regional Offices

71 Option 8 - Relocate BCP Headquarters Staff to the

Regions 72

Option 9 - Keep Boston and Denver Regions Open at Reduced Staffing
Levels

72 Option 10 - Adopt a Regional Structure With Fewer

Offices 72

73 FTC Officials Said Their Proposal Was About Efficient

Use of Resources and Not About Funding 73 Appendix VII

Selected Information on FTC's Funding and FTE History

76 Appendix VIII Comments From the Federal Trade Commission

82 Appendix IX Major Contributors to This Report

Table 1: Current and Proposed Allocation of Regional Competition
FTEs

8 Table 2: Current and Proposed Allocation of Regional

Consumer Protection FTEs 13 Tables

Table 3: Population and Percent of Population for FTC's 10 regions
as of July 1997

19

Contents Page 42 GAO/GGD-99-25 FTC's Proposed Restructuring

Table 4: GSP and Percent of GSP for FTC's 10 regions as of 1994

19 Table 5: Number and Percent of Consumer Fraud Cases

Filed by FTC in Federal Courts in Each FTC Region for Fiscal Year
1979 Through the Second Quarter of Fiscal Year 1998

20 Table 6: External Stakeholder Views on Effect of FTC

Regional Office Closures on Consumer Protection 27

Table 7: External Stakeholder Views on Effect of FTC Regional
Office Closures on Competition

30 Table II. 1: Selected HSR Merger Statistics, 1979- 1998 47
Table V. 1: FTC Consumer Protection Enforcement

Actions Taken and Percentage of Consumer Protection FTEs Used by
Regions and Headquarters, January 1997- June 1998

58 Table V. 2: Percentage of Enforcement Actions (EA)

Taken and Consumer Protection FTEs Used by FTC Regions and
Headquarters, Fiscal Years 1993- 1998

59 Table V. 3: Number of FTC Competition Cases Handled

by Regions and Headquarters, Fiscal Years 1993- 1998 61

Table V. 4: Percentage of Competition FTEs Used by Regions and
Headquarters, Fiscal Years 1993- 1998

61 Table VII. 1: FTC's FTE Budget Data, Fiscal Years 1995 1999

75 Figure I. 1: Current FTC Regional Structure 44 Figure I. 2:
Proposed FTC Regional Structure 45 Figure II. 1: Trend in HSR
Filings, Fiscal Years 1979- 1998 49 Figures

Contents Page 43 GAO/GGD-99-25 FTC's Proposed Restructuring
Abbreviations

AARP American Association of Retired Persons BBB Better Business
Bureau BC Bureau of Competition BCP Bureau of Consumer Protection
BE Bureau of Economics BRO Boston Regional Office DOJ Department
of Justice DRO Denver Regional Office EA enforcement actions FBI
Federal Bureau of Investigation FTC Federal Trade Commission FTE
full- time equivalent GSP gross state product HSR Hart- Scott-
Rodino ICC Internet Chamber of Commerce IRS Internal Revenue
Service NAAG National Association of Attorneys General OED Office
of Executive Director SAFE Seniors Against Fraud and Exploitation
SEC Securities and Exchange Commission

Appendix I Current and Proposed FTC Regional Structures

Page 44 GAO/GGD-99-25 FTC's Proposed Restructuring

Seattle Region (plus Alaska)

San Francisco Region (plus Hawaii)

Los Angeles Region

Denver Region Dallas Region

Chicago Region Atlanta Region

Cleveland Region New York

Region Boston

Region

Figure I. 1: Current FTC Regional Structure

Appendix I Current and Proposed FTC Regional Structures

Page 45 GAO/GGD-99-25 FTC's Proposed Restructuring

Figure I. 2: Proposed FTC Regional Structure

Appendix II FTC's Hart- Scott- Rodino Work

Page 46 GAO/GGD-99-25 FTC's Proposed Restructuring

Part of the Federal Trade Commission's (FTC) rationale for its
regional restructuring proposal was to address an increased
workload in the Bureau of Competition (BC) as a result of FTC's
responsibilities under the Hart- Scott- Rodino (HSR) Antitrust
Improvements Act of 1976. This appendix provides information on
the act's requirements and the process FTC is to follow to address
this work, selected statistics on FTC's HSR merger work, and a
discussion of the nature of HSR merger filings.

The HSR Act requires that companies file a notification of certain
proposed acquisitions of stock or assets to FTC and the Department
of Justice's (DOJ) Antitrust Division before such transactions are
completed. The parties must then wait a specified period, usually
30 days (15 days in the case of a cash tender offer) before they
may complete the transaction. Whether a particular acquisition is
subject to these requirements depends on the value of the
acquisition and the size of the parties, as measured by their
sales and assets. Certain acquisitions involving small parties and
other classes of acquisitions that are less likely to raise
antitrust concerns are excluded from the HSR Act's coverage.

The primary purpose of this premerger notification is to provide
FTC and DOJ the antitrust enforcement agencies with the
opportunity to review mergers and acquisitions before they occur.
The premerger notification program, with its filing and waiting
period requirements, provides the two agencies with the time and
the information necessary to conduct this antitrust review.
According to FTC officials, some information that is necessary for
the two agencies to review the proposed transaction is included in
the notification filed by the merging parties. These officials
said that when there appears to be a competition problem with the
merger, FTC staff obtain clearance from DOJ to conduct a more
extensive review during the initial waiting period. In obtaining
clearance, the two agencies must decide which of them will review
the transaction. The FTC officials also said that FTC staff
contact as many customers and competitors of the merging parties
as possible to obtain information and to discuss the likely impact
of the merger on competition.

If either agency determines during the waiting period that further
inquiry is necessary beyond the waiting period, it is authorized
to request additional information or documentary materials from
either or both of the parties to a reported transaction. This
further inquiry is known as a second request. A second request
extends the waiting period, usually for 20 days (10 days in the
case of a cash tender offer), after all parties have complied with
the request. According to the BC Director, the second request
process often involves hundreds of boxes of documents and computer
data, and the The HSR Act's

Requirements and FTC's Process to Address HSR Act Work

Appendix II FTC's Hart- Scott- Rodino Work

Page 47 GAO/GGD-99-25 FTC's Proposed Restructuring

compressed time frame of a second request means that the
investigating staff must devote considerable resources to
preparing the case. FTC officials said they may need to assign
extra staff to the case to ensure that all documents are reviewed
within the required time frames. The additional time provided for
the second request gives the agency doing the review the
opportunity to analyze the information and to take appropriate
action before the transaction is completed. If FTC or DOJ believes
that a proposed transaction may violate the antitrust laws, it may
seek an injunction in federal district court to prohibit the
consummation of the transaction.

According to FTC officials, while the number of HSR Act merger
filings has increased in recent years, the number of FTC resources
for competition work has remained relatively flat. The number of
FTC second requests and FTC merger enforcement actions, however,
have varied. Table II. 1 presents the number and dollar value of
HSR Act merger filings, the number of second requests, the number
of FTC merger enforcement actions, and the number of competition
resources FTC has dedicated to the program from fiscal year 1979
to 1998.

Fiscal year a Number of

competition FTEs b

Number of HSR Act

filings Value of

HSR filings (dollars in

billions) c Number of

FTC second requests

Number of FTC merger enforcement

actions d

1979 594 861 e 63 29 1980 584 784 e 31 16 1981 567 996 e 34 13
1982 507 1,203 74.0 a 39 16 1983 445 1,093 80.6 a 12 4 1984 421
1,340 153.3 a 25 9 1985 408 1,603 189.6 24 13 1986 376 1,949 e 32
7 1987 342 2,533 577.9 18 12 1988 335 2,746 350.7 39 24 1989 304
2,883 503.5 35 19 1990 307 2,262 302.6 55 35 1991 343 1,529 168.7
33 24 1992 328 1,589 165.4 26 14 1993 324 1,846 222.3 40 21 1994
317 2,305 372.0 46 28 1995 322 2,816 508.9 58 43 1996 314 3,087
677.4 36 27 1997 312 3,702 776.6 45 27 1998 337 4,728 1,436.1 46
34 a According to FTC, the value of HSR filings for 1979 through
1984, are available only on a calendaryear

basis.

HSR Mergers Have Increased

Table II. 1: Selected HSR Merger Statistics, 1979- 1998

Appendix II FTC's Hart- Scott- Rodino Work

Page 48 GAO/GGD-99-25 FTC's Proposed Restructuring

b According to FTC, actual competition FTEs for fiscal years 1979
through 1990 are not available. FTC estimated competition FTEs for
those years based on the average ratio (34 percent) of actual
competition to actual total FTEs between fiscal years1991 and
1997. c According to FTC, the dollar amounts were tallied from
information submitted on the premerger

notification form submitted by reporting parties. The dollar value
of mergers shown in the table is for a lesser, adjusted number of
transactions than are shown in the table. The adjusted
transactions eliminate transactions: (1) reported under section
(c)( 6) and section (c)( 8), involving certain regulated
industries and financial businesses; (2) followed by separate
notification for one or more additional transactions between the
same parties during the fiscal or calendar year; (3) found to be
nonreportable; (4) found to be incomplete transactions (only one
party in each transaction filed a compliant notification); or (5)
withdrawn before or during the initial waiting period. d Merger
enforcement includes preliminary injunctions authorized, consents
accepted for comment,

administrative complaints, and premerger filings withdrawn. e
According to FTC, these data are not available.

Source: Office of the Executive Director, FTC.

During the twentieth century, there have been several merger waves
in which the number of mergers increased, reached a peak, and
declined. In more recent years, since the passage of the HSR Act,
the United States has experienced two waves that resulted in
fluctuations in the number of HSR filings received by FTC and DOJ.
During the 1980s, merger activity and associated HSR filings
generally increased from the start of the decade to a peak of
about 2,900 HSR filings during 1989. After declining in the early
1990s, HSR filings rose again, this time to a record level of
4,728 HSR filings in fiscal year 1998. Figure II. 1 shows
fluctuations in HSR filings since 1979, 3 years following passage
of the HSR Act. Merger Activity and

Associated HSR Filings Occur in Unpredictable Waves

Appendix II FTC's Hart- Scott- Rodino Work

Page 49 GAO/GGD-99-25 FTC's Proposed Restructuring

Source: Office of the Executive Director, FTC.

According to an FTC press release, the United States is in its
largest merger wave and FTC recently reported mergers exceeding $1
trillion over the past 12 months. Although FTC expects the trend
toward increased merger activity to continue, the FTC Associate
Director for Special Projects in the Bureau of Economics (BE)
would not predict whether merger activity and corresponding HSR
filings will increase, decrease, or remain the same because merger
activity is heavily influenced by unpredictable events in the
economic and regulatory environment. In addition, the BE official
said that the various waves of mergers have been caused by
structural changes in the economy, such as technological changes
in domestic and global markets.

Despite the recent increase in HSR filings, the BE official would
not predict future levels of such filings because the underlying
events that cause merger waves or the underlying general level of
merger activity is uncertain. Academic research on previous merger
waves shows that these waves have been caused by changes in the
economic or regulatory

Figure II. 1: Trend in HSR Filings, Fiscal Years 1979- 1998

Appendix II FTC's Hart- Scott- Rodino Work

Page 50 GAO/GGD-99-25 FTC's Proposed Restructuring

environment. 1 Unless it were possible to accurately predict
future changes in either of these environments and how such
changes would affect the level of merger activity, the future
level of merger activity cannot be predicted, except in the most
general terms. Some research has shown that merger waves tend to
be self- sustaining. According to this research, a change in the
economic or regulatory environment that causes a merger wave is
likely to cause higher than normal merger levels for several years
before tailing off. For example, the merger wave of the 1980s was
sustained for several years. Merger activity has again increased,
but it is difficult to predict whether such activity will continue
or decline, whether or when a future decrease in HSR filings might
occur, or the level to which merger activity will revert.

1 For a further discussion, see, for example, Waves and
Persistence in Merger and Acquisition Activity, an academic
working paper by John T. Barkoulas, Christopher F. Baum, and
Atreya Chakraborty or Merger Waves and the Structure of Merger and
Acquisition Time- Series, by R. J. Town as published in the
Journal of Applied Econometrics, 7 (1992).

Appendix III FTC's Prior Analyses of Regional Restructuring

Page 51 GAO/GGD-99-25 FTC's Proposed Restructuring

The Federal Trade Commission's (FTC) basic 10- region structure
has been in place since 1978. Since that time, FTC has analyzed
its regional structure twice before the current effort once in the
early 1980s and again in 1987. However, neither of these efforts
resulted in any major restructuring. The following briefly
discusses both of these efforts.

In October 1981, FTC's Commissioners voted to consolidate FTC's
10office regional operations into a 6- office regional
configuration based on 150 total staff years. Under this plan, the
Boston, Denver, Los Angeles, and Seattle offices would have been
closed. The Commissioners also directed the Executive Director to
analyze how FTC could manage its workload under this scenario. The
Executive Director subsequently developed a study that, among
other things, (1) described past and then current functions
performed by regional offices and provided data on the allocation
of regional resources in years prior to the analysis; (2)
discussed a model for future resource use, including a discussion
of the skill mix needed to carry out regional office functions in
the six regions; (3) presented proposed geographic boundaries for
a six- office structure based on an analysis of census data in
relation to potential FTC enforcement workload; and (4) explored
the potential cost savings resulting from such a change.

According to an FTC document on regional restructuring
initiatives, the Commission's decision to adopt a six- office
regional structure resulted in numerous discussions between FTC
and Congress. According to FTC, several senators and
representatives corresponded with FTC about its decision to
restructure regional operations, and the Subcommittee on Commerce,
Consumer, and Monetary Affairs, House Committee on Government
Operations held a hearing on the subject. By February 1983, after
receiving advice from its House and Senate Appropriations
Committees, FTC's Commissioners decided to retain the 10- office
regional structure with a total of 169 staff years.

In January 1987, the FTC Chairman directed the Executive Director
to undertake a study pertaining to the allocation of resources in
the enforcement bureaus the Bureau of Competition and the Bureau
of Consumer Protection. The study was to focus on two areas the
distribution of resources between these bureaus and the regional
offices, given the budget context, and options for regional office
structure. In April 1987, the Executive Director completed the
study, which, among other things, (1) provided information on FTC
enforcement and related activity and presented data on FTC's
budget, (2) analyzed statistics on demographic factors relative to
regional operations, and (3) discussed the FTC's Analysis of a
SixRegion

Structure in the Early 1980s

The 1987 Resource Allocation Study

Appendix III FTC's Prior Analyses of Regional Restructuring

Page 52 GAO/GGD-99-25 FTC's Proposed Restructuring

views of regional and enforcement bureau directors on the major
accomplishments of their organizations and articulated their
perspectives on a number of management issues bearing on the
organization of FTC's enforcement resources. The study did not
argue for any particular outcome. Instead, it presented possible
scenarios or observations for organizing FTC's regional
operations.

For example, the 1987 study concluded that a minimal regional
office configuration would include five regions covering the
following areas of the country: the Northeast, the Mid- continent
area, the West Coast, the Southeast, and the Southwest. The report
stated that logical locations for these offices would be New York
City, Chicago, California (either Los Angeles or San Francisco),
Atlanta, and Dallas (or possibly Houston). The study also stated
that an advantage of a five- office regional scenario would be
that FTC could then significantly increase the resources devoted
to each office, giving each about 30 workyears, while providing
adequate coverage across the country. According to the study,
staffing regional offices at this level would provide significant
opportunities for specialization, thus increasing the
effectiveness of the offices. The study also pointed out that
there would be significant costs associated with a shift from 10
to 5 offices. 1 Under this scenario, several dozen employees in
offices that would have been closed under the five- region
structure Boston, Cleveland, Denver, Los Angeles and Seattle would
have been affected, either by relocations or reductions in force.
In addition, the fiveoffice configuration would have nearly
doubled the size of the remaining offices.

The 1987 study pointed out that FTC regional offices needed a
minimum of 18 to 25 staff to do both consumer protection and
competition work. The study concluded that, given FTC's budget
situation at the time, FTC could retain 8 offices of approximately
the same size, each containing about 18 to 20 workyears. The study
recommended that FTC consolidate its 10office structure into no
more than 9 regions, with the staff years from its Denver office
reallocated to other regions. It further suggested that FTC
strongly consider an eight- office regional configuration whereby
staff years from Denver and Seattle would be reallocated among the
remaining regional offices. However, FTC decided to retain all 10
of its regional offices but closed its only remaining field
station, which was located in Honolulu and staffed with 1 person.

1 The report noted that closing five regional offices could also
produce annual nonpersonnel cost savings of as much as $875, 000.
However, the report also notes that this figure is probably
overstated because it does not consider the likely need for
additional office space in the remaining regional offices to
accommodate higher staffing levels.

Appendix IV Objectives, Scope, and Methodology

Page 53 GAO/GGD-99-25 FTC's Proposed Restructuring

The objectives of this report are to provide information on (1)
the Federal Trade Commission's (FTC) rationale for proposing the
regional restructuring, (2) the process FTC followed in developing
its restructuring proposal, (3) factors FTC used and could have
used in deciding how to restructure, (4) other options to the
proposed restructuring identified in prior FTC studies or by
Boston and Denver regional officials, and (5) the views of
selected stakeholders regarding the impact the proposed
restructuring could have in the areas covered by the Boston and
Denver regional offices. On September 18, 1998, we briefed your
offices on the results of our work. On October 2, 1998, you
requested that we provide additional information. We agreed to
provide additional information and to summarize the results of all
of our work on FTC restructuring in this report.

In general, to meet our objectives, we obtained and reviewed FTC
statutes relating to its authority, FTC reports, FTC internal
correspondence, and congressional appropriations hearings for FTC;
the proposed regional restructuring plan and supporting FTC data
and analyses; and documentation related to FTC's mission, goals,
and objectives. We interviewed officials in FTC's Office of the
Executive Director (OED), Bureau of Consumer Protection (BCP),
Bureau of Competition (BC), and Bureau of Economics (BE) and the
Boston and Denver regional offices. We also interviewed officials
at the regions which FTC proposed to take over the
responsibilities of the Boston and Denver regions. However, the
Executive Director allowed us to interview officials from these
regions Chicago, New York, San Francisco, and Seattle only in the
presence of a BCP headquarters official. In addition, we
interviewed external stakeholders in selected federal, state, and
local organizations that work with the Boston and Denver regions
and, at the request of OED officials, selected organizations that
work with FTC headquarters offices.

To obtain information on the rationale FTC used for initiating a
project for restructuring its regional operations, we obtained and
reviewed the regional restructuring proposal and supporting FTC
data and documentation related to FTC's mission, goals, and
objectives. We interviewed OED, BCP, BC, and BE officials to
obtain their views on the rationale for developing the proposal
and on the issue of productivity of FTC headquarters and regional
offices. In addition, we obtained and reviewed data on the Hart-
Scott- Rodino (HSR) Antitrust Improvements Act of 1976 and merger
filings under the act. We also interviewed FTC Boston and Denver
regional officials to obtain their views on FTC's rationale for
the restructuring proposal and on the issue of productivity of FTC
headquarters and regional offices.

Appendix IV Objectives, Scope, and Methodology

Page 54 GAO/GGD-99-25 FTC's Proposed Restructuring

To provide information on the process that FTC followed in
developing its May 1998 proposal, we interviewed officials in OED,
BCP, and BC and in the Boston and Denver regional offices. We also
collected and examined pertinent documents provided by these
officials.

To provide information on the factors that FTC used in deciding
how to restructure, we interviewed OED, BCP, and BC officials and
obtained and reviewed supporting FTC data. To identify other
factors that FTC could have used in deciding how to restructure,
we reviewed prior FTC restructuring efforts and interviewed Boston
and Denver regional officials. To provide information on using
productivity as a factor in determining how to restructure and on
the difficulties in measuring and comparing consumer education,
outreach, and enforcement activities, we (1) interviewed OED and
Boston and Denver regional officials; (2) reviewed prior FTC
restructuring efforts; (3) gathered data on the number of consumer
protection enforcement actions and competition cases worked on by
headquarters and regional offices, for fiscal years 1993 through
1998; and (4) gathered data on recent consumer education and
outreach activities in which the Boston and Denver regional
officials said they had participated.

To provide information on other options that FTC might have used
in lieu of the proposed restructuring, we obtained and reviewed
prior FTC regional restructuring documents, interviewed officials
in Boston and Denver regional offices, and reviewed documents they
provided us. In addition, we asked OED, BCP, and BC officials why
they did not select these other options for their restructuring
proposal, and we obtained and reviewed any documentation related
to FTC's consideration of these other options. We also gathered
information from OED on FTC's past use of its funded full- time
equivalent (FTE) positions and on FTC's recent requests for
additional funding. In addition, we interviewed the Director on
how FTC would use possible future increases in FTEs and whether or
not an increase in funding or FTEs would change FTC's proposal to
restructure its regional operations.

To provide information on the impact that stakeholders said the
proposed restructuring could have on consumer protection and
competition matters, we interviewed officials from selected
organizations that work with the Boston and Denver regional
offices. We contacted representatives of the Boston and Denver
chapters of the Better Business Bureaus (BBB); the Northeast,
Southwest, Midwest, and West regions of the American Association
of Retired Persons (AARP); the Boston and Denver offices of the
Federal Bureau of Investigation (FBI); and offices of the state

Appendix IV Objectives, Scope, and Methodology

Page 55 GAO/GGD-99-25 FTC's Proposed Restructuring

attorneys general for which the Boston and Denver regions cover.
We selected the BBB and AARP offices because officials from both
the Boston and Denver regional offices said they work with these
organizations and because these organizations are widely
recognized consumer protection groups that cover consumers in both
Boston and Denver regions. We interviewed officials from the FBI
because officials in both Boston and Denver regions said they work
with this agency. We selected the offices of the state attorneys
general because of your offices' particular interest that we
interview these officials. At the request of FTC's Executive
Director, we also interviewed officials from the Department of
Justice's Antitrust Division, the National Association of
Attorneys General, the Council of Better Business Bureaus, and the
American Bar Association Antitrust Law Section.

We also interviewed officials in FTC's Boston and Denver regional
offices to obtain their views on the impact that the restructuring
proposal could have on consumer protection and competition. To
obtain information on plans FTC might have in addressing concerns
raised by stakeholders, we interviewed officials in OED, BCP, and
BC in FTC headquarters and officials in the Chicago, New York, San
Francisco, and Seattle regional offices. We specifically
questioned FTC headquarters officials about how greater reliance
on recent technological changes at FTC would impact senior and
low- income citizens. We also gathered available statistics on the
demographics of Internet usage by senior and low- income citizens.

We did not draw any conclusions about whether FTC's proposal was
necessary and appropriate or based in sound management because of
the lack of established criteria regarding federal office
restructuring. 1 We were not able to project the likelihood that
the number of HSR mergers would continue to increase in the
future. We did not verify information, including budget
information, provided by FTC officials or information provided by
representatives of other organizations we contacted regarding
FTC's proposal. Because of limited time and as agreed with your
offices, we did not contact all organizations with which the FTC
Boston and Denver regions partner. We did not conclude whether
FTC's restructuring proposal was likely to improve or maintain the
level of FTC services in the New England and Rocky Mountain areas
or whether the implementation plans that FTC has developed will
address the concerns of the state attorneys general.

1 Facilities Location Policy: GSA Should Propose a More Consistent
and Businesslike Approach (GAO/GGD-90-109, Sept. 28, 1990).

Appendix IV Objectives, Scope, and Methodology

Page 56 GAO/GGD-99-25 FTC's Proposed Restructuring

We conducted our work in Washington, D. C., Boston, Denver, and
Dallas between June 1998 and January 1999, in accordance with
generally accepted government auditing standards.

Appendix V Productivity and Workload of FTC Regions and
Headquarters

Page 57 GAO/GGD-99-25 FTC's Proposed Restructuring

While considering regional restructuring in 1987, the Federal
Trade Commission (FTC) conducted a study, which, among other
things, addressed the issue of regional and headquarters
productivity. The 1987 study compared regions and headquarters by
examining productivity or workload measures, such as the number of
administrative complaints, consent orders, final litigated orders,
court actions, and initial and full phase investigations. The
study stated that any attempt to compare the workload data of
bureaus and regional offices is compromised by a number of
measurement difficulties. The study stated that depending on how
adjustments were made to staff years to account for, among other
things, complexity of cases and consumer impact, one could either
conclude that the regional offices were more productive than
headquarters or that headquarters was more productive than the
regions. The study did not conclude which the regions or
headquarters was more productive. Rather, the study stated that
both headquarters and the regions contribute significantly to
FTC's accomplishments and any observed differences in the
workloads of the different organizations were not, of themselves,
sufficient to compel a reallocation of resources.

During our review, FTC headquarters officials told us that because
of the difficulties in measuring productivity, such as those
discussed earlier, and because of the impact it could have on
morale, they chose not to use productivity in deciding how to
restructure operations. However, Boston and Denver regional
officials said they believe that productivity should have been
used in determining how to restructure operations. They also said
that the regions have been productive with regard to consumer
protection enforcement, competition activities, and consumer
education and outreach activities, and they provided data
supporting their views.

We did not verify information provided by FTC headquarters or
regional officials.

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