U.S. CUSTOMS

SERVICE

OR&R Needs to

Resolve Timeliness

and Data Problems

Involving

Headquarters Rulings

United States General Accounting Office

GAO Report to the Chairman

Subcommittee on Trade

Committee on Ways and Means

House of Representatives

September 2000

GAO/GGD-00-181

United States General Accounting Office General Government Division

Washington, D.C. 20548

Page 1 GAO/GGD-00-181 OR&R's Headquarters Rulings

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September 7, 2000

The Honorable Philip M. Crane

Chairman, Subcommittee on Trade

Committee on Ways and Means

House of Representatives

Dear Mr. Chairman:

This letter responds to your request that we examine the timeliness with

which the U.S. Customs Service Office of Regulations and Rulings (OR&R)

issues rulings on such things as the proper classification and valuation of

imported goods. OR&R issues rulings to advise importers of Customs

regulations and assist importers in making marketing and pricing

decisions. In March 1997, we testified before your Subcommittee that

OR&R (1) had not met its timeliness requirements as established in a 1989

directive on classification rulings; (2) was not aware of whether it had met

its timeliness requirement because it was not using its automated

database—the Legal Case Inventory System (LCIS)—to control the

timeliness of rulings, and (3) had not consistently applied its own guidance

for measuring timeliness, thereby rendering LCIS data inaccurate. We also

testified that delayed rulings regarding such things as the proper

classification of goods can negatively affect importers, particularly those

importing seasonal goods, holiday items, or merchandise subject to

fashion trends and fads.1 In fiscal year 1999, the value of goods entering the

United States was over $977 billion.

For this report, our objectives were to (1) determine OR&R’s response

time for issuing headquarters rulings on imported goods and, if delays

occurred, reasons why they occurred, and (2) examine whether LCIS is an

effective tool for measuring the timeliness of OR&R’s headquarters rulings.

As agreed with your office, we focused on prospective rulings–-those

requested by an importer on goods that are proposed for entry into U.S.

markets—that were (1) completed by OR&R’s headquarters office in

Washington, D.C., and (2) opened and closed by OR&R between January 1,

1997, and October 26, 1999, covering the classification, valuation, marking,

1

U.S. Customs Service: Office of Regulations and Rulings Has Yet to Establish Performance Measures

(GAO/T-NSIAD-97-115, Mar. 7, 1997).
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and drawbacks of imported goods.2Although OR&R processes most of its

rulings in its New York office, our work focused on the more complicated

headquarters rulings that are expected to take longer than 30 days to

complete.

OR&R headquarters did not issue the majority of its prospective rulings in

a timely manner. Our review of a random sample of 70 hard-copy case

files representing approximately 610 rulings showed that about two-thirds

of the rulings that were requested and issued between January 1, 1997, and

October 26, 1999, were not completed within OR&R’s 120-day benchmark

for those rulings. We estimated that about 16 percent of the rulings took

longer than 365 days to process and issue. Available records and

discussions with OR&R officials did not always enable us to determine

why OR&R’s turnaround time exceeded 120 days, but some rulings may

have taken longer to issue than the benchmark time frame because (1)

OR&R sent the product to a laboratory for analysis or obtained additional

information or (2) the request was not properly handled by OR&R or the

requesting importer. OR&R acknowledged problems with the timeliness of

headquarters rulings, and attributed many of these problems to staffing

shortages and competing workload demands.

Although OR&R uses LCIS to track the progress of its prospective rulings,

LCIS is not an effective tool for measuring the timeliness of headquarters

rulings because it does not contain accurate and reliable data. Our

comparison of data from the hard-copy case files with data on those files

in LCIS showed that most of the cases had missing or incorrect data in

LCIS. We were not always able to determine why LCIS data were

inaccurate, but factors that affected accuracy included data entry errors

and differences in the way OR&R staff interpreted guidance for data entry

and used the system to track cases. In the past, OR&R has acknowledged

problems with LCIS and, in May 1998, redesigned the system and revised

system guidance. However, problems with LCIS continue because, in

addition to the previously cited factors, users cannot readily distinguish

between different types of cases, such as prospective rulings and internal

advice memorandums, among other problems.

This report contains recommendations to the Assistant Commissioner,

OR&R, regarding actions needed to address problems with LCIS data and

2

Classification rulings involve the classification of goods within the U.S. Harmonized Tariff Schedule;

valuation rulings involve the valuation of goods; rulings on marking are those concerning country of

origin issues, including the clarity of the marking of goods so that buyers can find out where products

are made; and drawback rulings are those involving refunds on duties of imported merchandise when

they are subsequently exported.

Results in Brief
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improve OR&R’s performance. In commenting on a draft of this report,

Customs officials discussed actions they intend to take to implement each

of our recommendations. While most of the actions proposed by Customs

appear to be steps in the right direction, they may not fully resolve the

timeliness and data problems addressed in this report.

The U.S. Customs Service is a key agency for enforcing the nation’s trade

laws and policies, including collecting duties on imported merchandise.

OR&R plays an important role in carrying out Customs’ trade mission by

providing legal and technical support for payment of duties to Customs

officers at the ports and at headquarters, and guidance to the trade

community on Customs regulations and related laws.

OR&R carries out its principal mission by (1) drafting regulations

implementing U.S. trade laws; (2) issuing rulings on the proper

classification, valuation, and marking of imported goods in response to

requests from importers and others; and (3) providing guidance to the

trade community and other Customs units on their compliance duties

under Customs regulations and related laws. OR&R informs the trade

community through various mechanisms, including rulings, that establish

the duty an importer will pay.3

These rulings advise importers on how they

can stay in compliance with Customs laws and help them make marketing

and pricing decisions by providing information on the cost of importing

their goods. For example, OR&R’s prospective classification rulings give

both the requesting importer and importers of similar goods vital

information to help them determine the amounts of the duties and fees

they will be charged when they eventually enter their merchandise at a

port. Customs established a Web site to disseminate information on

completed rulings to the trade community, and Customs officers at any

port will accept the merchandise under the classification contained in the

ruling. Importers can use duty information to help decide whether to

import a new line of merchandise.

Under the Customs Modernization and Informed Compliance Act of 1993

(title VI of P.L. 103-182), responsibility was shifted from Customs to

importers for ensuring that shipments are in compliance with Customs’

classification, duty, and reporting requirements.4

Because of this

additional responsibility, importers are relying more than ever on OR&R’s

3

According to OR&R, it also informs the trade community through compliance publications, a valuation

encyclopedia, and an Internet Web site.

4

Informed compliance attempts to maximize importers’ voluntary compliance with Customs laws and

regulations by keeping them clearly and completely informed of their legal obligations.

Background
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rulings and educational activities. Under the act, importers are expected

to use reasonable care to enter, classify, and value imported merchandise

and submit any information necessary for Customs to properly assess

duties.

OR&R is headed by an Assistant Commissioner and has offices in

Washington, D.C., and New York. Its staff of about 250 consists mainly of

attorneys and specialists in commodity classification. ORR has about 125

staff at headquarters, about 86 of whom, as of October 1999, were

attorneys.5

OR&R also has about 125 staff in the New York Office,

approximately 100 of whom were national import specialists, often called

commodity specialists by OR&R. For fiscal year 1999, out of Customs’

total budget of about $2 billion, OR&R’s budget was almost $20 million.

OR&R issued about 12,600 rulings in fiscal year 1999, most of which were

relatively routine classification cases that, according to OR&R officials,

usually take 30 days or less to process out of its New York office. OR&R’s

headquarters office in Washington, D.C., processes more complicated

cases that are expected to take longer than 30 days to complete.

Headquarters issued 1,260 rulings for fiscal year 1999, including those that

(1) provided advice to internal customers, such as Customs ports-of-entry;

(2) reconsidered or revoked existing rulings; and (3) were requested by

external customers, such as importers. As mentioned earlier, our review

focused on the latter category— rulings requested by importers. (See

appendix I for additional information.)

OR&R uses its automated database, LCIS, to internally track cases,

including rulings, pending before OR&R. According to OR&R’s LCIS user

guide, the system was designed as a management tool and was to serve as

the principal means for recording and monitoring the progress and history

of individual cases. According to an OR&R official, LCIS was first

introduced as a prototype in 1977, and became OR&R’s principal case

tracking system in 1983. The system has been updated several times,

including one upgrade in 1987, during which new data fields and new

categories of codes were added, and another in 1998, during which LCIS

was modified to track staffs’ non-case time, such as that devoted to

training and responding to Freedom of Information Act (FOIA) requests, as

well as drafting regulations. Although LCIS was originally intended as an

internal database, since 1998, OR&R has used it for additional purposes,

such as for providing information to the Department of Treasury and

5

According to OR&R, the number of headquarters attorneys was 80 as of August 2000. In its

comments, the Customs Service stated that the rulings discussed in this report are processed by

approximately 40 attorneys in 4 branch offices at headquarters.

LCIS and Ruling Timeliness
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Congress, as well as providing information on completed rulings to the

trade community on Customs’ Web site.

A 1989 Customs directive entitled Expansion of the Binding Classification

Rulings Program states that LCIS will be the backbone for controlling the

timeliness of rulings. This directive, which applied solely to classification

rulings, stated that, among other things, rulings that were referred to

OR&R headquarters—that is, those that were deemed the most complex

and sensitive—were to be issued within 120 days of the date of receipt by

the Customs Service. The directive went on to say that a ruling may be

delayed for only one of two reasons—a laboratory analysis is required, or

OR&R needs to consult with others.

Although OR&R does not have a directive concerning the other types of

rulings headquarters processes, it does maintain the 120-day benchmark

extended to all rulings. In fact, OR&R uses the 120-day benchmark when it

communicates with importers about rulings they have requested.

Specifically, when OR&R attorneys receive a request for a ruling, they can

use a form letter to tell importers that they will make every endeavor to

complete their review and prepare a response within 120 days of receipt.

To meet our objectives, we did our work at OR&R’s headquarters in

Washington, D.C. As agreed with your office, we focused on prospective

rulings–-those requested by an importer on goods that are proposed for

entry into U.S. markets—that were (1) completed by OR&R’s headquarters

office in Washington, D.C., and (2) opened and closed by OR&R between

January 1, 1997, and October 26, 1999, covering the classification,

valuation, marking, and drawbacks of imported goods.

To determine OR&R’s response time to requesters’ rulings processed by

OR&R headquarters, we conducted a hard-copy file review of a random

sample of 192 rulings opened and closed between January 1, 1997, and

October 26, 1999.6

The 192 rulings represented a population of 1,650 cases

that were opened and closed, and entered into LCIS, during this period. Of

these 192 cases, 70 were requests by importers for prospective rulings on

classification, valuation, marking, or drawback issues. These 70 cases

represented about 610 prospective rulings that were opened and closed

6

We conducted some preliminary analysis of LCIS, but we resorted to a hard-copy file review because

the system did not distinguish between cases involving importers’ requests for prospective rulings and

other types of cases.

Scope and

Methodology
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during the period.7Because hard-copy files did not always contain the

date OR&R received the importer’s request—the date OR&R is supposed

to use to measure against its 120-day benchmark—we used the date of the

requester’s letter to OR&R as our base line for measuring timeliness.

Based on the data that were available in the files, we estimated that the

difference between when the importer dated the letter and when it was

received by OR&R was, on average, 5.5 days.8

This difference does not

materially affect our results.

To assess whether LCIS is an effective tool for measuring the timeliness of

OR&R’s headquarters rulings, we compared data from the hard-copy case

files with data about those cases that had been entered into LCIS.

Customs supervisors verified all data we collected from the file review and

answered questions about any discrepancies we found between the hardcopy file review and LCIS data. In addition, we interviewed OR&R

officials, including OR&R’s Special Assistant to the Assistant

Commissioner; the Director, Operational Oversight; the LCIS Systems

Administrator; and OR&R supervisors. Appendix I discusses our

objectives, scope, and methodology in greater detail and provides

information about our sampling. We did our audit work between August

1999 and July 2000 in accordance with generally accepted government

auditing standards.

We requested comments on a draft of this report from the Customs

Service. Customs’ comments are discussed near the end of this letter and

are reprinted as appendix II. Customs also provided technical comments

that were incorporated in the report.

OR&R headquarters did not issue the majority of prospective rulings in a

timely manner. Our review of a random sample of 70 hard-copy case files,

representing approximately 610 rulings showed that about two-thirds of

the rulings that were requested and issued between January 1, 1997, and

October 26, 1999, were not completed within OR&R’s 120-day benchmark

for those rulings. We estimated that about 16 percent of the rulings took

longer than 365 days to process and issue.

7

Because our estimate of the number of prospective rulings is based on a sample, the number is

subject to sampling error. In this instance, the estimate of 610 prospective rulings is surrounded by a

95 percent confidence interval that extends from about 504 to 716 rulings.

8

The estimate of 5.5 days is based on 66 of the sampled 70 rulings for which both dates were available.

This estimate is surrounded by a 95 percent confidence interval that extends from 3.8 to 7.2 days.

OR&R Headquarters

Did Not Issue the

Majority of Prospective

Rulings Within Its

Timeliness Goal
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Table 1 shows our estimates of the time it took to complete the estimated

610 cases from the date of the letter requesting the ruling to the time

OR&R issued its ruling. Approximately one-third of the rulings were

issued within OR&R’s goal for timeliness of 120 days or less.

Approximately one-third took between 121 days and 199 days to process,

and about one-third were completed in 200 days or more.

Number of days in processaPercentage

120 days or less 33%

121-199 days 31

200-365 days 20

366 days or more 16

Total 100%

a

Our analysis covers time from the date of the importer’s letter to the date OR&R issued the ruling.

We used the date of the importer’s letter because OR&R files were not always clear as to when the

letter was received by OR&R. Based on our analysis of available data in case files and discussions

with OR&R staff, we estimated that the average delay between when the letter was sent by the

importer and when it was received by OR&R was about 5.5 days. This difference does not materially

affect our results. The estimate of 5.5 days is based on 66 of the sampled 70 rulings for which both

dates were available. This estimate is surrounded by a 95 percent confidence interval that extends

from 3.8 to 7.2 days.

The estimates of percentages in this table are based on a random sample of 70 prospective rulings

and are subject to sampling error. The 95 percent confidence intervals for the estimates vary but are

not greater than 12 percentage points higher or 11 percentage points lower than the estimate.

Source: GAO analysis of a random sample of 70 OR&R case files representing about 610 cases.

OR&R’s case files did not always indicate why OR&R took more than 120

days to process importers’ requests for prospective rulings. However, we

estimated that, in about 36 percent of the cases that exceeded the 120-day

benchmark, OR&R either had to send the product to a laboratory for

analysis or needed to consult with others, such as the importer or the

importer’s attorneys, before it could issue the ruling. We noted that, in

some of these cases, the delay did not seem to be influenced by the need to

send the product to a laboratory or to gather additional information. For

example, an importer requested that OR&R issue a ruling about the proper

classification of white paper. About 7 weeks later, OR&R received the

results of a sample of the paper that had undergone a laboratory test.

OR&R issued the ruling 294 days after the importer wrote the request, and

243 days after it received the results of the lab test.

In other cases, it appeared that the laboratory analysis or information

gathering could have influenced the delay. For example:

• An importer requested a ruling on the proper classification of women’s

shoes. About 5 months later, OR&R received additional information

necessary for the issuance of the ruling from the importer’s attorney.

Table 1: Estimate of the Timeliness of

Prospective Ruling Cases Opened and

Closed Between January 1, 1997, and

October 26, 1999
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OR&R issued the ruling 181 days after the importer wrote the request

letter, and 29 days after the additional information was received.

• Another importer requested a ruling on the proper classification of

Hanukkah lights. About 5 months later, OR&R obtained additional

information to complete the ruling. OR&R issued the ruling 175 days after

the request letter was written, and 6 days after the additional information

was received.

We also noted that some rulings were not timely because of delays on the

part of OR&R and/or the importer. For example:

• In one instance, an importer’s original request was sent to OR&R’s New

York Office. Once it was determined that OR&R headquarters should

handle the request, New York did not send it to OR&R headquarters in a

timely manner. Rather than within the required 30 days, the request was

sent 5 months later. The ruling was issued 199 days after the request letter

was written.

• In another instance, an importer wrote Customs to apologize for his delay

in not getting back to Customs with information needed to complete the

ruling. The importer sent OR&R the information approximately 11 months

after he wrote the request for the ruling. The ruling was issued 366 days

after the request was written, and 32 days after OR&R received the

additional information necessary to issue the ruling.

The Special Assistant to the Assistant Commissioner of OR&R and the

Director, Operational Oversight, told us that two key factors—limited

staffing resources and competing work priorities—contributed to OR&R’s

inability to issue headquarters rulings in a timely fashion. With regard to

limited staffing resources, they said that OR&R has had problems hiring

and retaining attorneys in its headquarters office because many attorneys

are recruited by private-sector firms offering higher salaries than those in

the federal government. As of October 1999, 86 attorneys were assigned to

OR&R headquarters. By June 2000, 14 attorneys had left OR&R, and 6

replacements had been hired.

With regard to competing workload demands, OR&R officials told us that

the organization has had to adjust to changes in OR&R responsibilities. As

a result, more and more of the time that used to be devoted to developing

rulings is now being devoted to other tasks and responsibilities. They said

that, whereas OR&R attorneys used to focus most of their efforts on

rulings, as of fiscal year 1999, they spent less than half of their time on

them. In fact, an OR&R report for fiscal year 1999 showed that 55 percent

of OR&R attorneys’ time is spent on other activities, such as providing

OR&R Officials Attributed

Timeliness Problems to

Limited Staffing and

Competing Work Priorities
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guidance and training to its internal and external customers and drafting

regulations. For example, OR&R attorneys provided field and

headquarters support on such matters as penalties, intellectual property,

and FOIA requests. They also assisted the United Nations, the State

Department, and the World Trade Organization in developing international

agreements and training foreign customs officers, prepared educational

pamphlets on informed compliance, provided numerous educational

seminars and panels, and created educational videos for importers and

U.S. and foreign customs officers.

OR&R has acknowledged that it has had problems in processing

headquarters rulings in a timely manner. In a written response to

questions from the Senate Finance Committee dated May 13, 1999, OR&R

stated that it was proud that it was able to complete the bulk of its

rulings—those to be processed in 30 days by its New York office—in a

timely fashion. However, OR&R said that its goal to process headquarters

rulings in 120 days was frequently not met. OR&R acknowledged that

improvements in timeliness would be desirable, but stated that timeliness

problems were the result of the aforementioned staffing problems and

competing work priorities.

OR&R’s acknowledgment of a timeliness problem has done little to stem

the concerns of the trade community. In January 2000, the Subcommittee

on OR&R of the Commercial Operations Advisory Committee (COAC), a

private sector group composed of those affected by Customs’ operations,

issued a report on the structure, staffing, and performance of OR&R.9 The

Subcommittee analyzed OR&R data for the fiscal year ending September

1999, and found that the average times for issuing headquarters rulings

were not short enough to accommodate the needs of businesses seeking

(1) advice in advance of importation or production or (2) resolution of

disputes with Customs over the treatment of imports. COAC

recommended that OR&R’s diminished resources and increased workload

should be addressed through budget increases and reassignment of other

responsibilities. In addition, COAC stated that Customs should

• explore ways to reduce the number of requests made of it,

• explore more efficient ways to issue headquarters rulings, and

• institutionalize a system that measures performance and establishes

targets to be achieved through its performance plan.

9 COAC is an advisory committee sponsored by the Treasury Department.

Trade Community

Expressed Concerns About

the Timeliness of

Headquarters Rulings
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The Special Assistant to the Assistant Commissioner, OR&R, told us that

OR&R has not responded formally to COAC’s recommendations because it

was not asked to do so. However, he said that he would expect that OR&R

would continue to take the position that factors beyond OR&R’s control—

staffing problems and competing work demands—were the key factors

that affect the timeliness of headquarters rulings. In August 2000, the

Special Assistant to the Assistant Commissioner told us that the COAC

Subcommittee continued to be concerned about the timeliness of

headquarters rulings and planned to further discuss OR&R’s headquarters

timeliness during a September 2000 meeting.

Although OR&R uses LCIS to track the progress of its prospective rulings,

LCIS is not an effective tool for measuring the timeliness of headquarters

rulings because it does not contain accurate and reliable data. Our

comparison of data from the hard-copy case files with data on those case

files in LCIS focused on four key dates:

• the “inquiry date”—the date the importer dated the request letter to

Customs;

• the “date received”—the date OR&R received the letter, which, according

to OR&R procedures, is supposed to be (1) stamped on the

correspondence by OR&R when it is received and (2) used by OR&R to

measure the timeliness of classification rulings;

• the “assigned” or “adjusted assigned date”—the date OR&R (1) either

initially assigned the case to the attorney or received additional

information crucial to the case and (2) used to measure its own timeliness;

and

• the “date closed”—the date OR&R issued the ruling.

Table 2 shows our estimates of the extent to which key data in LCIS

matched, did not match, or were not verifiable with dates in individual

hard-copy case files.

Date Percent matcha

Percent no

match

Percent not

verifiablebTotal

Inquiry date 89% 11% 0% 100%

Date received 70 24 6 100

Date assigned 36 23 41 100

Date closed 99 1 0 100

Note: The estimates in this table are based on a sample of 70 prospective rulings and are subject to

sampling error. The 95 percent confidence intervals for these estimates vary but are not greater than

12 percentage points on either side of the estimate.

a

We defined a match as any date for which the date recorded in LCIS was within 5 days before or 5

days after the date recorded in the hard-copy file.

LCIS Is Not an

Effective Tool for

Measuring the

Timeliness of OR&R

Headquarters Rulings

Table 2: Comparison of Dates in HardCopy Files With Dates in LCIS for

Prospective Ruling Cases Opened and

Closed Between January 1, 1997, and

October 26, 1999
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b

Not verifiable means that data were missing from the hard-copy files.

Source: GAO analysis of a random sample of 70 OR&R hard-copy and LCIS case files representing

about 610 cases.

We could not always identify the reasons data in LCIS did not match the

data contained in the hard-copy files. However, our review of the files and

discussions with OR&R officials did provide some insights into why

inaccuracies may have occurred. One factor may simply be data entry

errors by the individual entering the data and the failure of managers to

correct those errors. The Director, Operational Oversight, acknowledged

that errors occurred but told us that, when errors are found in LCIS, they

are not corrected because OR&R has more important things to do than

correct these errors. An OR&R supervisor also acknowledged that errors

occurred but said that, if there were a choice between fixing dates in LCIS

and working on new rulings, he would work on new rulings.

Another factor may be OR&R’s definition of “assigned date” and the ability

of OR&R staff to change the “assigned date” in LCIS, thereby erasing the

history of the case in LCIS. Currently, OR&R calculates timeliness or

“days in process” from the LCIS “assigned date”—the date the case was

assigned to an attorney—to the LCIS “closed date”—the date the ruling

was issued.10 As part of this calculation, OR&R officials can consider

certain events beyond OR&R’s control that could delay the issuance of the

ruling, such as a required laboratory analysis or new information affecting

the case. Accordingly, OR&R officials can change or adjust the LCIS

“assigned date” to reflect a new assigned date (e.g., the date OR&R

received the lab analysis or the new information). However, when this

occurs, the original “assigned date” is erased from LCIS. This means that

the information needed to track the entire history of the ruling using

LCIS—from the original assigned date—is lost.

A related problem centers on whether OR&R staff are properly

interpreting the definition of “assigned date” and, accordingly, entering the

appropriate date. Although some OR&R officials may be entering the new

or adjusted “assigned date” when uncontrollable delays occur, others are

not. For instance, one supervisor told us that he deliberately did not adjust

the “assigned date” date so that he could track the history of a case from

the point when it was originally assigned to an attorney, rather than from

when a laboratory test result was received.

Another factor may be the differences in the ways various OR&R officials

generally enter data into LCIS. We found, for example, that, in some

10 According to the Assistant Commissioner of OR&R, the “date received” in the first Customs office

and the “assigned date” were originally intended to be the same.
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instances, cases that had been transferred to headquarters from the

Customs office in New York were recorded in LCIS using the “date

received” as the date New York received the request. In other cases, the

date recorded in LCIS was the date the request was received at

headquarters, even though the case was initially received in New York on

some other date.

In its Strategic Plan and Objectives for Fiscal Years 1998 and 1999, OR&R

articulated a goal to create a joint management/employee working group

to, among other things, redesign LCIS so that OR&R could ensure accurate

measurement and tracking of tasks. According to the plan, OR&R initiated

this effort to carry out its obligation under the Government Performance

and Results Act of 1993 (GPRA) and to adopt a more business-like

approach consistent with strategic planning initiatives that had been

adopted by the Customs Service. In May 1998, OR&R introduced revisions

to LCIS that were designed to differentiate between importers’ requests for

rulings and other types of cases, such as reconsiderations of an existing

ruling. However, we found that it is still difficult to distinguish one type of

ruling from another.

For example, during the preliminary stages of our review, we attempted to

use LCIS to isolate importers’ requests for rulings from other types of

cases that were contained in LCIS. However, we were unable to do so

because many of the codes that OR&R used in the earlier version of LCIS

had not been retired. Instead, they were given new labels, and, as a result,

we were unable to differentiate between prospective rulings and other

types of cases. We had to rely on OR&R’s LCIS System Administrator or

supervisors to go through the files manually and separate importers’

requests for rulings from other products. As a result of this effort, we

found LCIS cases that were incorrectly coded. OR&R officials told us that

the revised database for the 4-month period beginning May 1, 1998, would

be expected to contain errors because of adjustments made during this

period. Nonetheless, when we examined 65 cases that were opened after

this 4-month adjustment period, we found that 20, or about 31 percent,

were incorrectly coded.11

OR&R also revised LCIS guidance, but, in some cases, the revisions were

inadequate because definitions were either missing or did not include key

information that would help staff interpret guidance the same way each

time they entered data. For example, OR&R officials responsible for

inputting data into LCIS told us that, under the old system, they did not

11 These 65 cases were a part of our random sample of 192 LCIS cases that is discussed in appendix I.

OR&R Has Taken Steps to

Enhance LCIS, but

Problems Remain
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Page 13 GAO/GGD-00-181 OR&R's Headquarters Rulings

have to change the LCIS case code when a ruling case was terminated as

“administratively closed.” However, they said that, under the revised LCIS,

they had been orally instructed to recode administratively closed cases as

“internal advice memorandums.” We examined the new LCIS guidance

and found that it did not include a definition of “administratively closed,”

nor did it contain information on changing codes when closing cases.

Thus, individuals who entered data on administratively closed cases using

the new guidance, especially those without the benefit of the same oral

instructions, ran the risk of not entering the appropriate code when

terminating a case.

OR&R officials told us that they did not take steps to ensure that new

codes were systematically applied by OR&R staff. Although OR&R

established a team of supervisors to monitor the database, team members

reported to us that the monitoring program was put on hold because,

among other things, the team members had neither the time nor the

resources to carry out the program.

Our review found that OR&R continues to have significant problems

issuing the majority of headquarters rulings within the 120-day goal it has

set as a benchmark for issuing timely rulings. Specifically, our review

showed that about two-thirds of the approximately 610 prospective rulings

that were requested by importers and issued between January 1, 1997, and

October 26, 1999, were not completed within OR&R’s 120-day benchmark

for those rulings. OR&R files on individual rulings did not always show

why delays occurred, but it appears that a variety of factors, including the

need for additional information when processing rulings and the

mishandling of requests by OR&R and its customers, contributed to at

least some of these delays. OR&R acknowledged that it has had problems

issuing headquarters rulings on a timely basis and attributed these

problems to staffing shortages and competing workload demands.

Although OR&R uses LCIS as its primary tool for tracking and monitoring

the progress and history of cases and developing reports for Congress,

LCIS is not an effective tool for measuring timeliness of headquarters

rulings because data in the system are not reliable and accurate. OR&R

has initiated some steps to correct problems with LCIS so that it can more

accurately measure and track cases that are entered into LCIS. However,

OR&R’s revisions did not correct the problems they were designed to fix,

and many of the errors that occurred before OR&R made the changes

continue to plague the system.

Conclusion
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Given that OR&R uses LCIS as a management tool and to provide

information to Congress and other stakeholders, it is especially important

that the system contain data that are accurate and reliable. More accurate

and reliable data would provide greater assurance that the LCIS-based

information OR&R provides to stakeholders—Congress, the Department of

Treasury, and the trade community—is accurate, meaningful, and credible.

It would also give OR&R a basis for evaluating the time needed to develop

and complete rulings and enable it to systematically establish formal

benchmarks for measuring the timeliness of all types of rulings. This is

consistent with the performance and results based standards of GPRA.

Formal benchmarks would also facilitate better communication with

importers that request rulings because, by consulting these benchmarks,

they would have more realistic expectations about when OR&R could

reasonably be expected to complete a particular type of ruling.

We recommend that the Assistant Commissioner, OR&R, take steps to

• modify LCIS to enable the system to record and retain key data so that

managers can more readily monitor and track the history of cases;

• provide clear and complete guidance to ensure that staff that use LCIS

understand and consistently interpret the guidance, as well as train staff

on any modifications to LCIS;

• establish an ongoing LCIS monitoring system to ensure the quality and

integrity of the data entered and maintained in the system;

• evaluate data on the timeliness of headquarters rulings; and

• establish reasonable goals, benchmarks, and performance measures for

improving OR&R’s performance.

In written comments on a draft of this report dated August 7, 2000,

Customs discussed actions it proposed to take to implement each of our

recommendations (see appendix II). While most of the actions proposed

by Customs appear to be steps in the right direction, we have concerns

that they may not fully resolve the timeliness and data problems addressed

in this report. Specifically, with respect to our recommendation that LCIS

be revised to record and maintain key data, Customs officials stated that

LCIS will be modified to either calculate process duration using “date of

inquiry” and “date closed” or “standardize entry requirements for existing

fields.” Although it is ultimately Customs’ responsibility to decide which

dates to use to measure timeliness and manage headquarters rulings, both

actions, especially if taken together, could be viewed as steps toward

ensuring that Customs has more accurate LCIS data. However, in our

view, Customs managers would be better positioned to monitor and track

Recommendations

Agency Comments and

Our Evaluation
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the histories of headquarters cases if LCIS retained key interim dates, such

as the “date assigned.”

With respect to our recommendation concerning the clarity and

completeness of LCIS guidance and training on modifications to LCIS, the

steps proposed by Customs appear to be a reasonable starting point

toward helping staff understand their responsibility toward consistently

interpreting the guidance. However, it may also be advantageous to

provide training to all employees—not just new employees—who enter

data into LCIS so that each employee has a common understanding of

LCIS data requirements. Regarding our recommendation to establish an

ongoing LCIS monitoring system to ensure the quality and integrity of data

entered and maintained in LCIS, Customs said it would (1) establish a

series of data edits to prevent users from, among other things, entering

nonexistent or expired codes, and (2) change some of the LCIS reports to

better identify data integrity issues. While data edits could enhance the

accuracy of LCIS data and changes to reports could provide additional

information on data integrity problems, neither of these actions constitute

an ongoing monitoring effort that would help OR&R systemically identify

and resolve data quality and integrity problems.

With respect to our recommendation that OR&R evaluate data on the

timeliness of headquarters rulings, Customs stated its intent to use LCIS

reports on timeliness for certain monthly meetings, managers’

performance appraisals, and the agency wide self-inspection program.

While this might focus management attention on the timeliness of

headquarters rulings, a formal evaluation of ruling timeliness could help

assure that (1) the underlying causes for ruling delays are fully assessed

and (2) the most appropriate corrective actions are taken. This evaluation

could also set the framework for establishing goals, benchmarks, and

ultimately, performance measures.

In response to our recommendation that OR&R establish reasonable goals,

benchmarks, and performance measures for improving OR&R's

performance, Customs stated that it intends to revise the directive on

rulings to reflect the reorganized rulings program and incorporate realistic

time frames. Although these actions might better communicate to the

trade community the time Customs takes to develop and complete rulings,

they do not address the overall issue of improving OR&R’s performance.

By establishing the aforementioned goals, benchmarks, and performance

measures, OR&R would then be better positioned to (1) measure its

timeliness against standards with a view toward improving its overall
B-284784

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performance and (2) enhance its responsiveness to the timeliness

concerns expressed by the trade community.

In addition, Customs commented that the title and initial pages of our draft

report were misleading because they suggested that the problems

identified in this report were “global problems,” not headquarters rulings

that were the subject of our review. Customs also commented that our

review was distorted because the scope of the work did not include (1)

rulings issued by OR&R’s New York office, which, according to Customs,

issues 90 percent of OR&R rulings within 30 days, and (2) the percentage

of headquarters work devoted to non-rulings.

We have revised the title and other sections of the report to further clarify

that our work and the problems we identified pertain to headquarters

rulings. With respect to the scope of our work, we focused on

headquarters activities because, according to OR&R, these ruling are more

complex to process and because headquarters activity was the main

interest of our requestor. We agree, as Customs’ comments pointed out,

that the timeliness of the more routine rulings processed by OR&R's New

York office was beyond the scope of our review. Therefore, we cannot

confirm or refute OR&R's claim that most of these rulings were, in fact,

processed in the requisite 30 days. Our report focused on the timeliness

problems associated with headquarters rulings—problems that both OR&R

and the trade community have previously recognized and the same

problems that could inhibit OR&R’s customers from making timely

economic decisions affecting their livelihood.

Customs also provided five other comments about particular aspects of

the draft report. First, Customs commented that it would have been useful

to know what percentage of rulings that took longer than the benchmark

were due to delays caused by the requesting importer. As we pointed out

in our report, we could not always determine why delays occurred, and we

were only able to ascertain the cause for delays when information was

available either in the hard-copy files or through discussions with

supervisors responsible for the cases. We would hope, however, that any

future evaluation of timeliness by OR&R would incorporate an analysis of

reasons for delays so that OR&R could better identify internal problem

areas and take appropriate corrective actions.

Second, Customs indicated that our statement that “OR&R informs the

trade community primarily through its rulings, which establish the duty an

importer will pay” was incomplete and stated that it attempts to use means

other than rulings to inform the trade community. Although we discussed

General Comments
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Page 17 GAO/GGD-00-181 OR&R's Headquarters Rulings

some of these other methods in the draft, we have modified the sentence

in question and inserted a footnote to clarify that rulings are one of several

ways OR&R informs the trade community.

Third, OR&R confirmed that it has a staff of about 250 employees, but

commented that we did not discuss the number of attorneys in the

particular units responsible for the headquarters rulings. Customs stated

that approximately 125 of the 250 employees are located in the New York

office, whose activities were not within the scope of our review. For our

part, we intended that our discussion of the 250 employees and their roles

would provide background and context for the size and composition of

OR&R as a whole. Nevertheless, we revised the report to identify the

numbers and types of staff located in the headquarters and New York

offices. Custom’s non-ruling activities were discussed in the report.

Customs fourth comment related to our finding that about 36 percent of

the cases that exceeded the 120-day benchmark were cases in which

OR&R sent the product to a laboratory or consulted with others. Customs

stated that it “seems unfair” to say those rulings exceeded the benchmark,

since the directive allows for those types of delays. It is important to

reiterate that we were not always able to determine why delays occurred.

However, in our report, we provided examples in which some of the delays

seemed to be caused by additional information gathering while others did

not, even though a laboratory or outside party was consulted in both

instances. In any event, we estimate that about two-thirds of the cases in

which delays occurred exceeded the benchmark for reasons other than a

laboratory analysis or consultation with others.

Fifth, Customs disagreed with our assessment that the entire history of the

ruling from the original assigned date is lost when an assigned date is

changed. Customs also commented that LCIS was not intended to track

the entire history of the ruling. We have changed the text to clarify that

our discussion of the history of the case pertains only to LCIS. However,

as discussed in our report, OR&R uses LCIS to calculate timeliness and

does so from the “assigned date” to the LCIS “closed date.” We pointed out

that using the “assigned date” becomes problematic from a historical

perspective if the “assigned date” can be changed or adjusted based on a

particular event. The problem worsens if LCIS data understates delays as

a result of these adjustments—which could occur with each subsequent

adjustment. Although the original intent of LCIS may have been only to

provide data needed by management, it is now used to provide information

for Congress and others and therefore should be as accurate and reliable

as possible. As previously mentioned, we found the information on
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Page 18 GAO/GGD-00-181 OR&R's Headquarters Rulings

headquarters rulings contained in LCIS was, in many instances, incomplete

or inaccurate.

In addition to the above comments, Customs made technical comments

related to this report, which we incorporated as appropriate.

As agreed with your office, 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 of the report to

Senator William V. Roth, Senator Daniel P. Moynihan, Senator George V.

Voinovich, Senator Richard J. Durbin, Senator Ben Nighthorse Campbell,

Senator Byron L. Dorgan, Representative Sander M. Levin, Representative

Bill Archer, Representative Charles B. Rangel, Representative Jim Kolbe,

Representative Steny H. Hoyer, Representative Steve Horn, and

Representative Jim Turner in their capacities as Chairman or Ranking

Minority Member of Senate and House Committees and Subcommittees.

We are also sending copies of this report to the Honorable Jacob J. Lew,

Director, Office of Management and Budget; the Honorable Lawrence H.

Summers, Secretary of the Treasury; and the Honorable Raymond W.

Kelly, Commissioner of Customs. We will also make copies available to

others upon request.

The major contributors to this report are acknowledged in appendix III. If

you have any questions, please contact me or John F. Mortin, Assistant

Director, at (202) 512-8777.

Sincerely yours,

Laurie Ekstrand

Director

Administration of Justice Issues
Page 19 GAO/GGD-00-181 OR&R’s Headquarters Rulings
Page 20 GAO/GGD-00-181 OR&R’s Headquarters Rulings

Contents

1 Letter

Appendix I 22

Objectives, Scope, and

Methodology

Appendix II 25

Comments From the

U.S. Customs Service

Appendix III 30

GAO Contacts and

Staff

Acknowledgments

Table 1: Estimate of the Timeliness of Prospective Ruling

Cases Opened and Closed Between January 1, 1997,

and October 26, 1999

7

Table 2: Comparison of Dates in Hard-Copy Files With

Dates in LCIS for Prospective Ruling Cases Opened

and Closed Between January 1, 1997, and October 26,

1999

10

Tables
Page 21 GAO/GGD-00-181 OR&R’s Headquarters Rulings
Appendix I

Objectives, Scope, and Methodology

Page 22 GAO/GGD-00-181 OR&R's Headquarters Rulings

Our objectives were to (1) determine the Office of Regulations and

Rulings’ (OR&R) response time for issuing headquarters rulings on

imported goods and, if delays occurred, reasons why they occurred, and

(2) examine whether the Legal Case Inventory System (LCIS) is an

effective tool for measuring the timeliness of OR&R’s headquarters rulings.

To meet our objectives, we did our work at OR&R headquarters in

Washington, D.C. As agreed with your office, we focused on prospective

rulings--that is, those requested by an importer on goods that are proposed

for entry into U.S. markets–that were (1) completed by OR&R’s

headquarters office in Washington, D.C., and (2) opened and closed by

OR&R between January 1, 1997, and October 26, 1999, and covered the

classification, valuation, marking, or drawbacks of imported goods.

To determine OR&R’s response time for issuing headquarters rulings and,

if delays occurred, the reasons for those delays, we did a hard-copy file

review of a random sample of 192 rulings that were opened and closed at

OR&R headquarters between January 1, 1997, and October 26, 1999. The

192 rulings represented a population of 1,650 cases entered into LCIS that

we expected to fit our criteria for prospective classification, valuation,

marking, or drawback rulings. We used LCIS to draw our original sample

and identify individual cases. However, as we examined cases, we

determined that we could not use LCIS to measure the timeliness of

rulings because we could not readily distinguish between types of cases,

such as internal advice memorandums, reconsiderations of existing

rulings, and prospective rulings. Therefore, after we selected our original

sample, we relied on OR&R’s hard-copy files to gather data on

headquarters ruling timeliness.1

However, before collecting data from

OR&R hard-copy case files, we asked the LCIS System Administrator or

supervisors to confirm that the codes for type of ruling (such as internal

advice memorandums and prospective rulings) and category of ruling

(such as classification or valuation rulings) in LCIS were correct for the

cases in our sample. This verification process provided assurance that the

case files we reviewed were rulings as defined by OR&R.

Once we selected our sample, we developed and applied a data collection

instrument to review OR&R’s hard-copy ruling files. The data collection

instrument focused on key variables, such as “type” and “category” of

ruling, as well as “inquiry date,” “received date,” “assigned date,” and “date

closed.” We pretested the data collection instrument prior to initiation of

1

We originally selected a random sample of 194 cases, but OR&R could not locate hard-copy files for 2

of the cases. Thus, our sample covered 192 cases that were entered into LCIS over the period.
Appendix I

Objectives, Scope, and Methodology

Page 23 GAO/GGD-00-181 OR&R's Headquarters Rulings

our case file review and revised the instrument accordingly to reflect the

information in the files.

After we tested the data collection instrument, our review of OR&R case

files proceeded through several phases of data collection and verification.

First, we collected data from the case files and copied the relevant

information onto our data collection instrument. Second, we verified our

review of the case files and the recording of relevant information with the

responsible OR&R supervisor. We asked the supervisor to discuss reasons

for any discrepancies, to explain data missing from the hard-copy files, and

to consider any aspects of the case file contents that may have been

overlooked or misinterpreted (e.g., case type, case category, or one or

more dates that did not match). After we completed the data collection

and verification process, we determined that 70 of the 192 cases actually

involved prospective classification, valuation, marking, or drawback

rulings that could be analyzed.2 On the basis of this analysis, we estimate

that OR&R processed approximately 610 similar cases during the time

period under study. (Because this estimate is based on the sample results,

the estimate of 610 cases is surrounded by a 95 percent confidence interval

that extends from approximately 504 to 716 cases.)

Next, we measured OR&R’s timeliness using the 120-day benchmark

OR&R had established for measuring the timeliness for headquarters

rulings. Because hard-copy files did not always contain the date OR&R

received the importer’s request—the date OR&R is supposed to use to

measure against its 120-day benchmark—we used the date the requester

sent the letter to OR&R (“inquiry date”) as our base line for measuring

timeliness. Based on the data that were available in the files, we estimated

that the difference between when the date the importer dated the letter

and when it was received by OR&R was, on average, 5.5 days.3

This

difference did not materially affect our results.

To assess whether LCIS is an effective tool for measuring the timeliness of

OR&R’s headquarters rulings, we compared data from the 70 hard-copy

case files with data from those cases that had been entered into LCIS. We

defined a match as any date for which the date recorded in LCIS was

2

While reviewing the 192 cases, we found 1 additional case that was a prospective ruling that fit our

criteria. Thus, we determined that 71 cases were prospective rulings. However, after we collected and

recorded the data from the hard-copy file, and before we asked the supervisor to verify our

recordation, OR&R misplaced the file and could not find it for the verification process. As a result, we

did not include this case in our ruling sample.

3

The estimate of 5.5 days is based on 66 of the sampled 70 rulings for which both dates were available.

This estimate is surrounded by a 95 percent confidence interval that extends from 3.8 to 7.2 days.
Appendix I

Objectives, Scope, and Methodology

Page 24 GAO/GGD-00-181 OR&R's Headquarters Rulings

within 5 days before or 5 days after the date recorded in the hard-copy file.

We did this because OR&R officials reported to us that the dates in the

hard-copy and LCIS files were often off by a few days due to the time it

took to enter data in LCIS. As mentioned earlier, Customs supervisors

verified all data we collected from the file review and answered questions

about any discrepancies we found between the hard-copy file review and

LCIS data.

In doing our work, we also interviewed key OR&R officials about their use

of LCIS, changes to the database over time, definitions of fields in the

database, and problems with the database. We also reviewed pertinent

documents, such as a 1989 Customs directive regarding classification

ruling decisions, and LCIS guidance, including documentation on

components of the system, how data is coded and entered into the system,

and the relevant coding schemes for rulings.

Because we followed probability selection procedures to draw our random

sample of rulings, our sample is only one of a large number of samples that

we might have drawn. Since each sample could have provided different

estimates of the characteristics of the rulings, we express our confidence

in the precision of our particular sample's results as a 95 percent

confidence interval. This is the interval that would contain the actual

population value for 95 percent of the samples we could have drawn.

We also interviewed OR&R officials, including the Special Assistant to the

Assistant Commissioner; the Director, Operational Oversight; the LCIS

System Administrator; and OR&R supervisors, to discuss OR&R

performance measures and the reasons why most rulings were taking

more than their benchmark of 120 days. Furthermore, we discussed

OR&R’s efforts to improve its ability to measure Customs’ response time to

importers’ requests for rulings, and we also reviewed relevant reports on

OR&R and OR&R operations, including our previous testimony and a

report on OR&R prepared by the Commercial Operations Advisory

Committee (COAC).

We did our audit work between August 1999 and July 2000 in accordance

with generally accepted government auditing standards.

We requested comments on a draft of this report from the Customs

Service. Customs’ comments are discussed near the end of the letter and

are reprinted as appendix II. We made changes in the report as

appropriate.
Appendix II

Comments From the U.S. Customs Service

Page 25 GAO/GGD-00-181 OR&R's Headquarters Rulings

See p. 16.

See p. 16.
Appendix II

Comments From the U.S. Customs Service

Page 26 GAO/GGD-00-181 OR&R's Headquarters Rulings
Appendix II

Comments From the U.S. Customs Service

Page 27 GAO/GGD-00-181 OR&R's Headquarters Rulings

See pp. 14-15.

See p. 15.

See p. 15.
Appendix II

Comments From the U.S. Customs Service

Page 28 GAO/GGD-00-181 OR&R's Headquarters Rulings

See p. 15.

See pp. 15-16.

Now on p. 2.

See p. 16.

Now on p. 3.

See pp. 16-17.

Now on p. 4.

See p. 17.
Appendix II

Comments From the U.S. Customs Service

Page 29 GAO/GGD-00-181 OR&R's Headquarters Rulings

Now on p. 7.

See p. 17.

Now on p. 11.

See pp. 17-18.

Corrections made; see

pp. 2-14.
Appendix III

GAO Contacts and Staff Acknowledgments

Page 30 GAO/GGD-00-181 OR&R's Headquarters Rulings

Laurie E. Ekstrand (202) 512-8777

John F. Mortin (202) 512-8777

In addition to those named above, Brenda Bridges, Nancy Briggs, James

Fields, Charity Goodman, Mary Catherine Hult, Jan Montgomery, Michelle

Sager, and Jerome Sandau made key contributions to this report.

GAO Contacts

Acknowledgments
Page 31 GAO/GGD-00-181 OR&R’s Headquarters Rulings
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