U.S. Customs Service: Budget Authorization Issues (Testimony, 04/13/99,
GAO/T-GGD-99-79).

Pursuant to a congressional request, GAO discussed the Customs Service's
efforts to interdict drugs, combat corruption, and comply with the
Government Performance and Results Act. GAO also discussed the basis for
the $163-million access fee to be charged to nongoverment organizations
for the use of Customs' automation systems.

GAO noted that: (1) to balance the facilitation of trade through ports
and the interdiction of illegal drugs being smuggled into the United
States, Customs initiated and encouraged its ports to use several
programs to identify and separate low-risk shipments from those with
apparently higher smuggling risks; (2) the Line Release Program was
designed to expedite cargo shipments that Customs determined to be
repetitive, high volume, and low risk for narcotics smuggling; (3) in
1996, Customs implemented the Land Border Carrier Initiative Program,
which required that the Line Release shipments across the Southwest
border be transported by Customs-approved carriers and driven by
Customs-approved drivers; (4) after the Carrier Initiative Program was
implemented, the number of Southwest Border Line Release shipments
dropped significantly; (5) the Three Tier Targeting Program--a method of
targeting high-risk shipments for narcotics inspection--was used at the
three Southwest border ports GAO visited; (6) according to officials at
the three ports, the Three Tier program had two operational problems
that contributed to their loss of confidence in the program's ability to
distinguish high- from low-risk shipments; (7) Customs suspended this
program until more reliable information is developed for classifying
low-risk importations; (8) the Automated Targeting System is designed to
assess shipment entry information for known smuggling indicators and
thus enable inspectors to target high-risk shipments more efficiently;
(9) since the establishment of the Customs Aviation Program in 1969, its
basic mandate to use air assets to counter the drug smuggling threat has
not changed; (10) until 1997, Customs also used an air threat index as
an indicator of its effectiveness in detecting illegal air traffic; (11)
Customs has discontinued use of this indicator, as well as selected
other performance measures, because Customs determined that they were
not good measures of results and effectiveness; (12) Customs plans to
spend more than $1 billion over the next few years to modernize its
systems environment for certain core missions, including facilitating
international trade, enforcing laws governing the flow of goods across
the borders, and assessing and collecting about $22 billion annually on
imported merchandise; and (13) to pay for the development and
implementation of new automated systems, the President's budget for
fiscal year 2000 proposes a Customs automation system access fee to be
charged to nongovernment organizations using the system, which should
generate an estimated $163 million in revenue per year.

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

 REPORTNUM:  T-GGD-99-79
     TITLE:  U.S. Customs Service: Budget Authorization Issues
      DATE:  04/13/99
   SUBJECT:  Customs administration
             Smuggling
             Internal controls
             Agency missions
             Interagency relations
             Performance measures
             Presidential budgets
             User fees
             Drug trafficking
             Management information systems
IDENTIFIER:  Customs Service Line Release Program
             Customs Service Three Tier Targeting Program
             Customs Service Land Border Carrier Initiative Program
             Customs Service Carrier Initiative Program
             Customs Service Automated Targeting System
             Customs Service Aviation Program
             
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GG99079t U. S. CUSTOMS SERVICE Budget Authorization Issues

Statement of Norman J. Rabkin Director, Administration of Justice
Issues General Government Division

United States General Accounting Office

GAO Testimony Before the Subcommittee on Trade

Committee on Ways and Means House of Representatives

For Release on Delivery Expected at 11: 00 a. m. EDT on Tuesday
April 13, 1999




GAO/T-GGD-99-79

  GAO/T-GGD-99-79

Statement U. S. Customs Service: Budget Authorization Issues

Page 1 GAO/T-GGD-99-79

Mr. Chairman and Members of the Subcommittee: I am pleased to be
here today at this Customs oversight hearing to discuss work we
have done, mostly for this Subcommittee, addressing Customs'
efforts to interdict drugs, combat corruption, and comply with the
Results Act. 1 For the most part, our testimony is based on
products we have issued on each of these subjects since 1997. You
also asked us to discuss the basis for the $163 million access fee
to be charged to nongovernment organizations for the use of
Customs' automation systems as included in the President's fiscal
year 2000 budget. Our discussion of the user fee is based on
interviews with the Office of Management and Budget (OMB), the
Department of the Treasury, and Customs officials and a review of
sections of the President's fiscal year 2000 budget.

Created in 1789, the U. S. Customs Service is one of the federal
government's oldest agencies. Customs is responsible for
collecting revenue from imports and enforcing customs and related
laws. Customs collects revenues of about $22 billion annually
while processing an estimated 15 million import entries and 450
million people who enter the country. A major goal of Customs is
to prevent the smuggling of drugs into the country by creating an
effective drug interdiction, intelligence, and investigation
capability to disrupt and dismantle smuggling organizations.
Customs' workforce totals almost 20,000 employees at its
headquarters, 20 Customs Management Centers, 20 Special Agent- in-
Charge (SAC) offices, and 301 ports of entry around the country.

Our work on Customs' efforts to interdict drugs has focused on
four distinct areas: (1) internal controls over Customs' low- risk
cargo entry programs; (2) the missions, resources, and performance
measures for Customs' aviation program; (3) the development of a
specific technology for detecting drugs; and (4) Customs drug
intelligence capabilities.

In July 1998, at the request of Senator Dianne Feinstein, we
reported on Customs' drug- enforcement operations along the
Southwest border of the United States. 2 Our review focused on
low- risk, cargo entry programs in use at three ports Otay Mesa,
California; Laredo, Texas; and Nogales, Arizona. To balance the
facilitation of trade through ports and the interdiction of
illegal drugs being smuggled into the United States, Customs
initiated and encouraged its ports to use several programs to

1 Government Performance and Results Act of 1993, P. L. 103- 62. 2
Customs Service Drug Interdiction: Internal Control Weaknesses and
Other Concerns With Low- Risk Cargo Entry Programs (GAO/GGD-98-
175, July 31, 1998). Drug Interdiction

Low- Risk Cargo Entry Programs

Statement U. S. Customs Service: Budget Authorization Issues

Page 2 GAO/T-GGD-99-79

identify and separate low- risk shipments from those with
apparently higher smuggling risk. The Line Release Program was
designed to expedite cargo shipments that Customs determined to be
repetitive, high volume, and low risk for narcotics smuggling. In
1996, Customs implemented the Land Border Carrier Initiative
Program, which required that the Line Release shipments across the
Southwest border be transported by Customs- approved carriers and
driven by Customs- approved drivers. After the Carrier Initiative
Program was implemented, the number of Southwest Border Line
Release shipments dropped significantly. We identified internal
control weaknesses in one or more of the processes used at each of
the three ports we visited to screen Line Release applicants for
entry into the program. These weaknesses included (1) an absence
of specific criteria for determining applicant eligibility at two
of the three ports, (2) incomplete documentation of the screening
and review of applicants at two of the three ports, and (3) lack
of documentation of supervisory review and approval of decisions.
During our review, Customs representatives from northern and
southern land- border cargo ports approved draft Line Release
volume and compliance eligibility criteria for program applicants
and draft recertification standards for program participants.

The Three Tier Targeting Program a method of targeting high- risk
shipments for narcotics inspection was used at the three Southwest
border ports that we visited. According to officials at the three
ports, the Three Tier program had two operational problems that
contributed to their loss of confidence in the program's ability
to distinguish high- from lowrisk shipments. First, there was
little information available in any database for researching
foreign manufacturers. Second, local officials doubted the
reliability of the designations. They cited examples of narcotics
seizures from shipments designated as low- risk and the lack of a
significant number of seizures from shipments designated as high-
risk. Customs suspended this program until more reliable
information is developed for classifying low- risk importations.

One low- risk entry program the Automated Targeting System was
being pilot tested at Laredo. It was designed to enable port
officials to identify and direct inspectional attention to high-
risk shipments. The Automated Targeting System is designed to
assess shipment entry information for known smuggling indicators
and thus enable inspectors to target high- risk shipments more
efficiently. Customs is evaluating the Automated Targeting System
for expansion to other land- border cargo ports.

Statement U. S. Customs Service: Budget Authorization Issues

Page 3 GAO/T-GGD-99-79

In September 1998, we reported on Customs' aviation program
missions, resources, and performance measures. 3 Since the
establishment of the Customs Aviation Program in 1969, its basic
mandate to use air assets to counter the drug smuggling threat has
not changed. Originally, the program had two principle missions:

 border interdiction of drugs being smuggled by plane into the
United States and

 law enforcement support to other Customs offices as well as other
federal, state, and local law enforcement agencies.

In 1993, the administration instituted a new policy to control
drugs coming from South and Central America. Because Customs
aircraft were to be used to help carry out this policy, foreign
counterdrug operations became a third principal mission for the
aviation program. Since then, the program has devoted about 25
percent of its resources to the border interdiction mission, 25
percent to foreign counterdrug operations, and 50 percent to other
law enforcement support.

Customs Aviation Program funding decreased from about $195 million
in fiscal year 1992, to about $135 million in fiscal year 1997
that is, about 31 percent in constant or inflation- adjusted
dollars. While available funds decreased, operations and
maintenance costs per aircraft flight hour increased. Customs
Aviation Program officials said that this increase in costs was
one of the reasons they were flying fewer hours each year. From
fiscal year 1993 to fiscal year 1997, the total number of flight
hours for all missions decreased by over one- third, from about
45,000 hours to about 29,000 hours.

The size of Customs' fleet dropped in fiscal year 1994, when
Customs took 19 surveillance aircraft out of service because of
funding reductions. The fleet has remained at about 115 since
then. 4 The number of Customs Aviation Program onboard personnel
dropped steadily, from a high of 956 in fiscal year 1992 to 745 by
the end of fiscal year 1997. 5

3 Customs Service: Aviation Program Missions, Resources, and
Performance Measures (GAO/ GGD- 98186, Sept. 9, 1998). 4 Customs'
fleet will increase because additional aircraft were funded in the
Fiscal Year 1999 Omnibus Consolidated and Emergency Supplemental
Appropriations Act, P. L. 105- 277, 112 Stat 2681- 553, 2681- 583.

5 Staffing for the Aviation program is expected to grow to 817 in
fiscal year 2000, according to Customs' latest budget
justification. Aviation Program

Statement U. S. Customs Service: Budget Authorization Issues

Page 4 GAO/T-GGD-99-79

Customs has been using traditional law enforcement measures to
evaluate the aviation program (e. g., number of seizures, weight
of drugs seized, number of arrests). These measures, however, are
used to track activity, not measure results or effectiveness.
Until 1997, Customs also used an air threat index as an indicator
of its effectiveness in detecting illegal air traffic. 6 However,
Customs has discontinued use of this indicator, as well as
selected other performance measures, because Customs determined
that they were not good measures of results and effectiveness.
Having recognized that these measures were not providing adequate
insights into whether the program was producing desired results,
Customs says it is developing new performance measures in order to
better measure results. However, its budget submission for fiscal
year 2000 contained no new performance measures.

The pulsed fast neutron analysis (PFNA) inspection system is
designed to directly and automatically detect and measure the
presence of specific materials (e. g., cocaine) by exposing their
constituent chemical elements to short bursts of subatomic
particles called neutrons. Customs and other federal agencies are
considering whether to continue to invest in the development and
fielding of this technology.

The Chairman and the Ranking Minority Member of the Subcommittee
on Treasury and General Government, Senate Committee on
Appropriations, asked us to provide information about (1) the
status of plans for field testing a PFNA system and (2) federal
agency and vendor views on the operational viability of such a
system. We are issuing our report on that work today. 7

Customs, the Department of Defense (DOD), the Federal Aviation
Administration (FAA), and Ancore Corporation the inspection system
inventor recently began planning to field test PFNA. Because they
are in the early stage of planning, they do not expect the actual
field test to begin until mid to late 1999 at the earliest.
Generally speaking, agency and vendor officials estimated that a
field test covering Customs' and DOD's requirements will cost at
least $5 million and that the cost could reach $8 million if FAA's
requirements are included in the joint test. Customs officials
told us that they are working closely with the appropriate
applicable congressional committees and subcommittees to decide

6 The air threat index used various indicators, such as the number
of stolen and/ or seized aircraft, to determine the potential
threat of air drug smuggling. 7 Terrorism and Drug Trafficking:
Testing Status And Views on Operational Viability of Pulsed Fast
Neutron Analysis Technology (GAO/GGD-99-54, Apr. 13, 1999). Pulsed
Fast Neutron

Analysis Inspection System

Statement U. S. Customs Service: Budget Authorization Issues

Page 5 GAO/T-GGD-99-79

whether Customs can help fund the field test, particularly given
the nofederal- cost language of Senate Report 105- 251. 8 In
general, a complete field test would include (1) preparing a test
site and constructing an appropriate facility; (2) making any
needed modifications to the only existing PFNA system and its
components; 9 (3) disassembling, shipping, and reassembling the
system at the test site; and (4) conducting an operational test
for about 4 months. According to agency and Ancore officials, the
test site candidates are two seaports in California (Long Beach
and Oakland) and two land ports in El Paso, Texas.

Federal agency and vendor views on the operational viability of
PFNA vary. While Customs, DOD, and FAA officials acknowledge that
laboratory testing has proven the technical feasibility of PFNA,
they told us that the current Ancore inspection system would not
meet their operational requirements. Among their other concerns,
Customs, DOD, and FAA officials said that a PFNA system not only
is too expensive (about $10 million to acquire per system), but
also is too large for operational use in most ports of entry or
other sites. Accordingly, these agencies question the value of
further testing. Ancore disputes these arguments, believes it can
produce an operationally cost- effective system, and is proposing
that a PFNA system be tested at a port of entry. The Office of
National Drug Control Policy has characterized neutron
interrogation as an emerging or future technology that has shown
promise in laboratory testing and thus warrants field testing to
provide a more informed basis for deciding whether PFNA has
operational merit.

At the request of the Subcommittee on National Security,
International Affairs, and Criminal Justice, House Committee on
Government Reform and Oversight, 10 in June 1998 we identified the
organizations that collect and/ or produce counterdrug
intelligence, the role of these organizations, the federal funding
they receive, and the number of personnel that support this
function. 11 We noted that more than 20 federal or federally
funded organizations, including Customs, spread across 5 cabinet-
level departments and 2 cabinet- level organizations, have a
principal role in

8 Senate Report 105- 251 (July 1998) on the fiscal year 1999
Treasury and General Government Appropriations bill directs the
Commissioner of Customs to enter into negotiations with the
private sector to conduct a field test of the PFNA technology at
no cost to the federal government.

9 The existing (prototype) PFNA system is located at the vendor's
plant in Santa Clara, CA. 10 This is now the Subcommittee on
National Security, Veterans' Affairs, and International Relations
of the House Committee on Government Reform. 11 Drug Control: An
Overview of U. S. Counterdrug Intelligence Activities (GAO/NSIAD-
98-142, June 25, 1998). Federal Counterdrug

Intelligence Coordination Efforts

Statement U. S. Customs Service: Budget Authorization Issues

Page 6 GAO/T-GGD-99-79

collecting or producing counterdrug intelligence. Together, these
organizations collect domestic and foreign counterdrug
intelligence information using human, electronic, photographic,
and other technical means.

Unclassified information reported to us by counterdrug
intelligence organizations shows that over $295 million was spent
for counterdrug intelligence activities during fiscal year 1997
and that more than 1,400 federal personnel were engaged in these
activities. The Departments of Justice, the Treasury, and Defense
accounted for over 90 percent of the money spent and personnel
involved.

Among its many missions, Customs is the lead agency for
interdicting drugs being smuggled into the United States and its
territories by land, sea, or air. Customs' primary counterdrug
intelligence mission is to support its own drug enforcement
elements (i. e., inspectors and investigators) in their
interdiction and investigation efforts. Customs is responsible for
producing tactical, operational, and strategic intelligence
concerning drug- smuggling individuals, organizations,
transportation networks, and patterns and trends. In addition to
providing these products to its own drug enforcement elements,
Customs is to provide this information to other agencies with drug
enforcement or intelligence responsibilities. Customs is also
responsible for analyzing the intelligence community's reports and
integrating them with its own intelligence. Customs' in- house
collection capability is heavily weighted toward human
intelligence, which comes largely from inspectors and
investigators who obtain information during their normal
interdiction and investigation activities.

On March 30, 1999, we issued a report to the Chairman of the
Senate Caucus on International Narcotics Control on the efforts of
Customs and the Immigration and Naturalization Service to address
employee corruption on the Southwest border. 12 We said that both
agencies could do more to prevent drug- related employee
corruption. The following reflects our findings and
recommendations relative to Customs and Customs' response to our
report.

Customs has policies and procedures designed to ensure the
integrity of its employees. These policies and procedures consist
mainly of mandatory background investigations for new staff and 5-
year reinvestigations of employees, as well as basic integrity
training. As required, Customs

12 Drug Control: INS and Customs Can Do More to Prevent Drug-
Related Employee Corruption (GAO/GGD-99-31, Mar. 30, 1999).
Corruption

Statement U. S. Customs Service: Budget Authorization Issues

Page 7 GAO/T-GGD-99-79

generally had completed background investigations for new hires by
the end of their first year on the job. However, reinvestigations
were typically overdue, in some instances by as many as 3 years.
Customs officials said that the basic training that new employees
are to receive includes integrity training. Agency records for 88
of 100 randomly selected Customs employees on the Southwest border
showed that they received several hours of integrity training as
part of their basic training. According to Customs officials, the
remaining employees likely received basic training, but it was not
documented in their records.

However, Customs was not taking full advantage of these policies
and procedures, as well as the lessons it should have learned from
closed corruption cases, to address fully the increased threat of
employee corruption on the Southwest border. Some Customs
employees on the Southwest border have engaged in a variety of
illegal drug- related activities, including waving drug loads
through ports of entry, coordinating the movement of drugs across
the Southwest border, transporting drugs past Border Patrol
checkpoints, selling drugs, and disclosing drug intelligence
information. Customs' Office of Internal Affairs is required to
formally report internal control weaknesses identified from closed
corruption cases, but has not done so. Our review of nine cases
involving Customs employees assigned to the Southwest border who
were convicted of drug- related crimes between fiscal years 1992
and 1997, revealed internal control weaknesses that were not
formally reported and/ or corrected. 13 These weaknesses included
instances where

 drug smugglers chose the inspection lane at a port of entry,

 employees did not recuse themselves from inspecting individuals
with whom they had close personal relationships, and

 employees disclosed drug intelligence information. Also, Customs
had not formally evaluated its integrity procedures to determine
their effectiveness. For example, we determined that financial
information required for background investigations and
reinvestigations was not fully reviewed. 14

13 If employees entered guilty pleas, we considered them to have
been convicted of the crime. 14 The Department of the Treasury's
Office of Professional Responsibility published a report on
corruption with findings that are consistent with ours. See An
Assessment of Vulnerabilities to Corruption and Effectiveness of
the Office of Internal Affairs, U. S. Customs Service (Feb. 1999).

Statement U. S. Customs Service: Budget Authorization Issues

Page 8 GAO/T-GGD-99-79

We recommended that Customs

 evaluate the effectiveness of integrity assurance efforts,
including training, background investigations, and
reinvestigations;

 comply with policies that require employment reinvestigations to
be completed when they are due;

 document that policies and procedures were reviewed to identify
internal control weaknesses in cases where an employee is
determined to have engaged in drug- related criminal activities;

 strengthen internal controls at Southwest border ports of entry;
and

 fully review financial disclosure statements to identify
financial issues, such as cases in which employees appear to be
living beyond their means.

Customs generally concurred with our recommendations and indicated
that it is taking steps to implement them. However, Customs
requested that we reconsider our recommendation that it fully
review the financial disclosure statements provided by employees
as part of the background and reinvestigation process. Customs
indicated that implementing this recommendation may violate the
provisions of the Computer Matching Act. 15 Our recommendation
expects Customs to make a more thorough examination of the
financial information it collects to determine whether employees
appear to be living beyond their means. We leave it to Customs'
discretion to determine the type of examination to be performed.
Since implementing the recommendation does not require
electronically matching financial disclosure information with
other data, the Computer Matching Act would not apply.

In the past 18 months, we have reported on Customs' compliance
with provisions of the Government Performance and Results Act. We
have also reported on how it has determined its need for
inspectors and how it has allocated inspectional positions to
ports around the country.

Under the Results Act, executive agencies are to develop strategic
plans in which they, among other things, define their missions,
establish resultsoriented goals, and identify strategies they plan
to use to achieve those goals. In addition, agencies are to submit
annual performance plans covering the program activities set out
in the agencies' budgets (which

15 The Computer Matching and Privacy Protection Act of 1988, P. L.
100- 503, generally requires that agencies engaging in computer
matching must do so pursuant to written matching agreements that
state such things as the purpose and legal authority of the match,
the justification for the matching program, its anticipated
results, a description of the records to be matched, as well as
other information on the program. Strategic Planning

Performance Planning

Statement U. S. Customs Service: Budget Authorization Issues

Page 9 GAO/T-GGD-99-79

began with plans for fiscal year 1999); and the plans are to
describe the results the agencies expect to achieve with the
requested resources and indicate the progress the agency expects
to make during the year in achieving its strategic goals.

The strategic plan developed by the Customs Service addressed the
six requirements of the Results Act. Concerning the elements
required, the mission statement was results oriented and covered
Customs' principal statutory mission ensuring that all goods and
persons entering and exiting the United States do so in compliance
with all U. S. laws and regulations. The plan's goals and
objectives covered Customs' major functions processing cargo and
passengers entering and cargo leaving the United States. The plan
discussed the strategies by which Customs hopes to achieve its
goals. The strategic plan discussed, in very general terms, how it
related to annual performance plans. The plan discussed some key
factors, external to Customs and beyond its control, that could
significantly affect achievement of the strategic goals, such as
the level of cooperation of other countries in reducing the supply
of narcotics. Customs' strategic plan also contained a listing of
program evaluations used to prepare the plan and provided a
schedule of evaluations to be conducted in each of the functional
areas.

In addition to the required elements, Customs' plan discussed the
management challenges it was facing in carrying out its core
functions, including information and technology, finance, and
human resources management. However, the plan did not adequately
recognize Customs' need to improve

 financial management and internal control systems,

 controls over seized assets,

 plans to alleviate Year 2000 problems, 16 and

 plans to improve computer security. 17 We reported that these
weaknesses could affect the reliability of Customs' performance
data.

16 Customs has established effective Year 2000 program management
controls, including structures and processes for Year 2000
testing, contingency planning, and Year 2000 status reporting. See
Year 2000 Computing Crisis: Customs Has Established Effective Year
2000 Program Controls (GAO/AIMD-99-37, Mar. 29, 1999).

17 See Customs Service: Comments on Strategic Plan and Resource
Allocation Process (GAO/ T- GGD- 9815, Oct. 16, 1997) and Results
Act: Observations on Treasury's Fiscal Year 1999 Annual
Performance Plan (GAO/GGD-98-149, June 30, 1998).

Statement U. S. Customs Service: Budget Authorization Issues

Page 10 GAO/T-GGD-99-79

Further, our initial review of Customs' fiscal year 2000
performance plan showed that it is substantially unchanged in
format from the one presented for 1999. Although the plan is a
very useful document for decisionmakers, it still does not
recognize Customs' need to improve its internal control systems,
control over seized assets, or plans to improve computer security.

Regarding Customs' resource allocation process, in April 1998 we
reported on selected aspects of the Customs Service's process for
determining its need for inspectional personnel such as inspectors
and canine enforcement officers for its commercial cargo or land
and sea passengers at all of its 301 ports. 18

Customs officials were not aware of any formal agencywide efforts
prior to 1995 to determine the need for additional cargo or
passenger inspectional personnel for its 301 ports. However, in
preparation for its fiscal year 1997 budget request and a new drug
enforcement operation called Hard Line, 19 Customs conducted a
formal needs assessment. The needs assessment considered (1) fully
staffing all inspectional booths and (2) balancing enforcement
efforts with the need to move complying cargo and passengers
quickly through the ports. Customs conducted two subsequent
assessments for fiscal years 1998 and 1999. These assessments
considered the number and location of drug seizures and the
perceived threat of drug smuggling, including the use of rail cars
to smuggle drugs. However, all these assessments were

 focused exclusively on the need for additional personnel to
implement Hard Line and similar initiatives,

 limited to land ports along the southwest border and certain sea
and air ports considered to be at risk from drug smuggling,

 conducted each year using generally different assessment factors,
and

 conducted with varying degrees of involvement by Customs'
headquarters and field units.

We concluded that these limitations could prevent Customs from
accurately estimating the need for inspectional personnel and then

18 Customs Service: Process for Estimating and Allocating
Inspectional Personnel (GAO/GGD-98-107, Apr. 30, 1998); Customs
Service: Inspectional Personnel and Workloads (GAO/GGD-98-170,
Aug. 14, 1998); and Customs Service: Inspectional Personnel and
Workloads (GAO/T-GGD-98-195, Aug. 14, 1998).

19 Operation Hard Line was Customs' effort to address border
violence and drug smuggling through intensified inspections,
improved facilities, and advances in technology. Resource
Allocation

Statement U. S. Customs Service: Budget Authorization Issues

Page 11 GAO/T-GGD-99-79

allocating them to ports. We further concluded that, for Customs
to implement the Results Act successfully, it had to determine its
needs for inspectional personnel for all of its operations and
ensure that available personnel are allocated where they are
needed most.

We recommended that Customs establish an inspectional personnel
needs assessment and allocation process, and it is in the process
of responding to that April 1998 recommendation. Customs awarded a
contract for the development of a resource allocation model.
Customs officials told us that the model was delivered in March
1999 and that they are in the early stages of deciding how to use
the model and implement a formal needs assessment system.

Customs plans to spend more than $1 billion over the next few
years to modernize its systems environment for certain core
missions, including facilitating international trade, enforcing
laws governing the flow of goods across the borders, and assessing
and collecting about $22 billion annually on imported merchandise.
To pay for the development and implementation of new automated
systems, the President's budget for fiscal year 2000 proposes a
Customs automation systems access fee to be charged to
nongovernment organizations using the system generally, importers
or their brokers. As currently proposed by the administration, the
fee will amount to $1.80 per 1,000 bytes of information processed
by Customs for commercial users and should generate an estimated
$163 million in revenue per year. Collection of this fee is
tentatively scheduled to start in fiscal year 2000 and to continue
for at least the following 4 or 5 years.

You asked us to discuss the basis for the $163 million estimate.
According to Treasury officials, the estimate is based on the
following three assumptions:

 Customs will develop and implement the Automated Commercial
Environment (ACE) over a 4- year period (from fiscal year 2001 to
fiscal year 2004) at a total cost of over $1 billion. 20

 Treasury will develop and implement its new International Trade
Data System (ITDS) over the same period at a cost of about $256
million.

 The federal government and the trade community will share the
cost of these systems. Therefore, the $325 million annual cost ($
1.3 billion / 4 years, the period to develop and implement the two
systems) would be split$ 162.5 million each.

20 In 1997, Customs developed a $1. 05 billion estimate to
develop, operate, and maintain ACE over the 15- year period from
1994 to 2008, and it is still Customs' current official life cycle
cost estimate. Proposed Automated

Systems User Fee

Statement U. S. Customs Service: Budget Authorization Issues

Page 12 GAO/T-GGD-99-79

In addition to the $163 million generated by the user fee,
additional funds would be needed from other sources, including
direct appropriations, in each of the four fiscal years beginning
in 2001. OMB and Treasury officials told us that additional
appropriated funds already in the budget base will be directed to
the development and implementation of the systems. These officials
also said that current estimates are preliminary and are likely to
change when a contract to develop the systems is awarded.

Customs projected that it will process about 90.5 billion bytes of
data annually for commercial users of its system. Dividing the
$163 million annual cost proposed to be borne by the trade
community by the expected volume yields a charge of $1.80 per
1,000 bytes of information.

Mr. Chairman, this completes my statement. I would be pleased to
answer any questions.

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