Testimony

Before the Subcommittee on Trade,

Committee on Ways and Means,

House of Representatives

United States General Accounting Office

GAO

For Release on Delivery

Expected at 10 a.m. EDT

Tuesday July 17, 2001 U.S. CUSTOMS SERVICE

Observations on Selected

Operations and Program

Issues

Statement of Laurie E. Ekstrand

Director, Justice Issues

GAO-01-968T
Page 1 GAO-01-968T Customs Operations

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss (1) an update of our work on the

Automated Commercial Environment (ACE), which is intended to be

Customs’ new import processing system, (2) findings from our report on

the timeliness of Customs’ Office of Regulations and Rulings (OR&R)1

 in

issuing headquarters rulings on such things as the proper classification

and valuation of imported goods, and (3) findings from our recent report

on the effects of proposed legislation (H.R. 1833, sections 123 (a) and (b),

106th Cong.) on Customs officers’ night pay.2

 Our report on Customs

officers'3

 night pay was requested by Senator Grassley as Chairman of the

Senate Caucus on International Narcotics Control.4

 At the close of fiscal

year 2000, Customs had a permanent work force of about 20,000

employees, including about 8,000 officers.

In summary, on our first issue, concerning ACE, a more capable import

processing system designed to replace Customs’ current aging and errorprone system, we concluded that Customs’ plan constituted a reasonable

first step on a complex, long-term modernization program. Pursuant to our

obligation to review ACE expenditures, we plan to continue monitoring

Customs’ ongoing modernization efforts. Second, we found that OR&R

headquarters did not issue the majority of its rulings in a timely manner.

Third, we found that if proposed legislation on Customs officers’ night pay

had been in effect during fiscal year 1999, the officers would have received

about $6 million in night differential pay—about $5 million less than what

they actually received during that year. Further, across the five ports we

reviewed, the impact on officers’ pay varied widely because of the

differences in shift patterns.

 1

U.S. Customs Service: OR&R Needs to Resolve Timeliness and Data Problems Involving

Headquarters Rulings (GAO/GGD-00-181, Sept. 7, 2000).

2

Customs Service: Effects of Proposed Legislation on Officers’ Pay (GAO-01-304, Jan.

2001).

3

For the purposes of this testimony, when we used the term Customs officers, we are

referring to both inspectors and canine enforcement officers.

4

The Caucus has been concerned for some time about the manner in which Customs

provides compensation to its officers, who are on the front line of the nation’s drug

interdiction efforts. Customs’ responsibilities include preventing the smuggling of drugs

into the United States.
Page 2 GAO-01-968T Customs Operations

Let me start by updating you on the progress of Customs’ ACE. As we have

previously testified, the need for Customs to modernize its import

processing is undeniable.5 In the face of burgeoning trade workload

forecasts, a commensurate increase in Customs’ human capital resources

is neither planned nor the appropriate solution. Moreover, Customs’

current system for import processing, the Automated Commercial System,

is paper-intensive, error-prone, transaction-based, and out of step with the

just-in-time inventory practices of the trade community. To address this

challenge, and consistent with our prior recommendations on ACE,

Customs plans to incrementally acquire and invest in a more capable

import processing system known as the Automated Commercial

Environment, or ACE, and retire its existing system. Also consistent with

our past recommendations, Customs plans to acquire on behalf of the

many federal agencies that collect, use, and disseminate trade data, a

system known as the International Trade Data System, or ITDS, that is to

provide importers with a single interface into the federal government.

For fiscal year 2001, the Congress appropriated $130 million and $5.4

million as the first installments on the ACE and ITDS investments,

respectively.6

 In the act appropriating these funds, the Congress also

stated that the ACE funds may not be obligated until Customs submits to

the Congress for approval an ACE expenditure plan that meets a number

of management and oversight requirements, including review by us.

Customs submitted its first expenditure plan seeking release of $45 million

on March 26, 2001. On April 23, 2001, we provided the results of our review

of the plan to the Customs’ appropriations subcommittees.7

 In sum, we

reported that Customs’ expenditure plan satisfied the appropriations act’s

conditions and was consistent with our open recommendations

concerning ACE, and we thus concluded that the plan constituted a

reasonable first step on a complex, long-term modernization program.

However, we also reported that (1) opportunities for improving

modernization management existed because the expenditure plan

excluded relevant ITDS investment activities and allowed these activities

to proceed outside of the scope of the modernization program without

 5

U.S. Customs Service: Observations on Selected Operations and Program Issues

(GAO/T-GGD/AIMD-00-150, Apr. 20, 2000).

6

The Consolidated Appropriations Act, 2001 (P.L. 106-554, Dec. 21, 2000).

7

Customs Service Modernization: Results of Review of First Automated Commercial

Environment Expenditure Plan (GAO-01-696, June 5, 2001).

Customs Is Taking a

Reasonable First Step

on Long-Term ACE

Modernization

Program
Page 3 GAO-01-968T Customs Operations

justification for doing so and (2) the plan provided for conflicting roles

and responsibilities for the modernization program’s independent

verification and validation agent.8

Accordingly, we recommended that Customs (1) transfer responsibility

and accountability for the ITDS pilot to the ACE modernization program

manager; (2) include further ITDS investment plans and supporting

information in the next ACE expenditure plan; and (3) clarify the roles and

responsibilities of the ACE modernization IV&V contractor to ensure

independence. Customs agreed with our recommendations, and to date

has either implemented or is in the process of implementing these

recommendations. Currently, Customs is working with its recently

selected modernization integration contractor to define the initial contract

task orders, which the $45 million is to fund. In fall 2001, Customs plans to

submit its second expenditure plan seeking release of funding to carry the

program through its next increment. Pursuant to our obligation to review

ACE expenditure plans, we are currently monitoring Customs ongoing

modernization efforts.

Last year, we responded to your Committee’s request that we examine the

timeliness with which Customs’ 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.

We found that OR&R headquarters did not issue the majority of its

prospective rulings—those requested by an importer on goods that are

proposed for entry into U.S. markets—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.

 8

The purpose of independent verification and validation is to provide an independent

review of system processes and products to ensure that quality standards are being met.

The use of independent verification and validation is a recognized best practice for large

and complex system development and acquisition projects, like ACE.

OR&R Headquarters

Did Not Issue the

Majority

of Its Prospective

Rulings Within Its

Timeliness Goal
Page 4 GAO-01-968T Customs Operations

OR&R acknowledged problems with the timeliness of headquarters

rulings, and attributed many of these problems to staffing shortages and

competing workload demands. We made several recommendations

regarding actions to address the problems and improve OR&R’s

performance. In commenting on a draft of the report, Customs officials

discussed actions they intended to take to implement each of our

recommendations. We concluded that while most of the actions proposed

by Customs appeared to be steps in the right direction, they may not fully

resolve the problems discussed in our report.

In January 2001, we reported on the extent that Customs officers’ night

differential9

 pay would be increased or decreased by proposed legislation

introduced by this Subcommittee. Specifically, our report focused on the

effects of sections 123 (a) and (b) of Subtitle C of H.R. 1833,10 introduced

in the 106th Congress, which would change how Customs officers’ night

differential pay is calculated.

We compared current law to proposed changes in H.R. 1833 and analyzed

Customs data nationally and at five ports of entry.11 Section 123 (a) would

have prohibited Customs officers who are scheduled for night shifts from

receiving night differential pay when they take annual, sick, or other leave.

Section 123 (b) would have changed the times and reduced the number of

hours in a day that Customs officers could earn night differential pay.

Night differential pay would be limited to hours worked on a midnight-to-8

a.m. shift, and for all other shifts, hours worked between 6 p.m. and 6 a.m.

Table 1 below shows the decreases, and to a lesser extent increases, in the

number of available hours that Customs officers could earn night

differential pay for various 8-hour shifts in a day if the proposed change

was enacted.

 9

Night differential pay for Customs officers consists of a 15- or 20-percent differential

above the basic hourly rate.

10An Act to authorize appropriation for the United States Customs Service, and for other

purposes. In May 1999, the House of Representatives passed H.R. 1833 that contained

amendments to change Customs officers’ night pay. In August 1999, the Senate passed

another version of H.R. 1833, which did not contain the pay amendments.

11We judgmentally selected, based on the number of air and land passengers processed,

three large airports, one medium airport/seaport, and one large land border crossing. The

ports selected were John Fitzgerald Kennedy International Airport (JFK), Los Angeles

International Airport (LAX), Miami International Airport, Baltimore-Washington

International Airport and Seaport, and San Ysidro land border crossing near San Diego.

Most Customs

Officers Would

Receive Less Night

Differential Pay

Under Proposed

Changes
Page 5 GAO-01-968T Customs Operations

Table 1: Comparison of the Number of Night Differential Hours Currently Available

and as Proposed

Night differential hours available

8-hour shift starting

and ending time Current law

Proposed

changes

Increase

under

proposed

changes

Decrease

under

proposed

changes

12 noon to 8 p.m. 8 2 6

1 p.m. to 9 p.m. 8 3 5

2 p.m. to 10 p.m. 8 4 4

3 p.m. to 11 p.m. 8 5 3

4 p.m. to 12 midnight 8 6 2

5 p.m. to 1 a.m. 8 7 1

6 p.m. to 2 a.m. 8 8

7 p.m. to 3 a.m. 8 8

8 p.m. to 4 a.m. 8 8

9 p.m. to 5 a.m. 8 8

10 p.m. to 6 a.m. 8 8

11 p.m. to 7 a.m. 8 7 1

12 midnight to 8 a.m. 8 8

1 a.m. to 9 a.m. 8 5 3

2 a.m. to 10 a.m. 8 4 4

3 a.m. to 11 a.m. 8 3 5

4 a.m. to 12 Noon 0 2 2

5 a.m. to 1 p.m. 0 1 1

6 a.m. to 2 p.m. 0 0

7 a.m. to 3 p.m. 0 0

8 a.m. to 4 p.m. 0 0

9 a.m. to 5 p.m. 0 0

10 a.m. to 6 p.m. 0 0

11 a.m. to 7 p.m. 0 1 1

Source: GAO analysis of current law—U.S.C. 267 (b) (1)—and proposed changes—section 123 (b) of

H.R. 1833.

Our analysis of Customs data showed the extent to which sections 123 (a)

and (b) of H.R. 1833 would affect Customs officers’ pay. Nationwide, our

analysis of the Customs data showed that 6,510 Customs officers received

about $13.5 million in night differential pay in fiscal year 1999. Over 80

percent of the $13.5 million in night differential pay was concentrated in

six shifts, which generated $11 million in night differential pay (see table 2

below). Had sections 123 (a) and (b) of H.R. 1833 been in effect for these

six shifts during fiscal year 1999, Customs officers would have received

about $6 million in night differential pay, about $5 million less than what

they actually received that year.
Page 6 GAO-01-968T Customs Operations

Table 2: Total and Average per Officer Amount of Night Differential Pay Under Current Law and Under H.R. 1833 Sections 123

(a) and (b) for the Six Top “Differential Earning” Shifts Nationwide During Fiscal Year 1999

Total Average per shift, per officer

Shift hours

Current law

(actual)

Proposed

(estimate)

Difference

(decrease)

Current law

(actual)

Proposed

(estimate)

Difference

(decrease)

4 p.m. to 12 a.m. $4,087,828 $2,584,188 $1,503,640 $22.25 $16.56 $5.69

1 p.m. to 9 p.m. 2,059,029 643,686 1,415,343 23.87 8.89 14.98

12 a.m. to 8 a.m.a 1,956,775 1,706,846 249,929 29.80 29.69 0.11

12 p.m. to 8 p.m. 1,310,974 276,381 1,034,593 23.18 5.76 17.42

2 p.m. to 10 p.m. 972,762 410,872 561,890 22.66 11.27 11.39

3 p.m. to 11 p.m. 654,615 346,833 307,782 22.69 14.07 8.62

Total $11,041,983 $5,968,806 $5,073,177

a

This shift, 12 a.m. (midnight) until 8 a.m., is preserved in H.R. 1833 so that officers working this shift

would continue to earn 8 hours of night differential. Therefore, any reduction because of the proposed

legislation is attributable to section 123 (a) eliminating payment of night differential while officers are

on leave.

Source: GAO analysis of Customs data.

Our analysis of the Customs data for five selected ports showed that

nearly all (97 percent) of the 1,377 Customs officers receiving night

differential pay at these ports would have received less night differential

pay had the proposed changes been in effect. Customs officers working at

ports with shifts starting in the early afternoon, such as those at JFK,

would have had the largest pay decreases.

The amount of pay decreases and number of Customs officers affected

varied across the five ports we analyzed, as shown in table 3 below. For

example, of the 464 Customs officers who received night differential pay at

JFK, 148 (32 percent) as shown in the shaded areas of the table, would

have had their night differential pay decreased by over $3,000 had the

proposed changes been in effect. In contrast, the proposed changes would

not have had as much of an impact on Customs officers working at the

Baltimore-Washington International Airport and Seaport, a smaller port

with fewer officers earning night differential pay. Of the 53 Customs

officers who received night differential pay at the Baltimore-Washington

International Airport and Seaport, 44 (83 percent) would have had their

pay decreased by $500 or less if the pay provisions in H.R. 1833 had been

enacted. None would have had a pay decrease of over $3,000.

Extent of Night

Differential Pay

Reductions Varied by Port
Page 7 GAO-01-968T Customs Operations

Table 3: Potential Night Differential Pay Reductions Had Sections 123 (a) and (b) of H.R. 1833 Been in Effect in Fiscal Year

1999 at Five Selected Ports

Officers at each port

JFK LAX Miami Balto.-Wash. San Ysidro border

Potential pay

reductions No. % No. % No. % No. % No. %

$500 or less 97 21 99 42 186 51 44 83 93 43

$501 to $1,000 41 9 41 17 89 25 3 6 34 16

$1,001 to $2,000 87 19 63 27 74 20 5 9 55 26

$2,001 to $3,000 91 20 19 8 12 3 1 2 22 10

$3,001 to $4,000 83 18 11 5 2 1 0 0 8 4

$4,001 to $5,000 48 10 3 1 0 0 0 0 1 <1

$5,001 and over 17 4 1 <1 0 0 0 0 1 <1

Total 464 237 363 53 214

Note: Percentages may not sum to 100 due to rounding.

Source: GAO analysis of Customs data.

In contrast, but to a lesser extent, 122 officers at four of the five selected

ports would have received net increases in night differential pay totaling

$16,943 by the end of fiscal year 1999 had the proposed changes been in

effect. The net increases primarily would have resulted from early morning

shifts.

Mr. Chairman, this concludes my prepared statement. I would be pleased

to answer any questions you may have.

For further information regarding this testimony, please contact Laurie E.

Ekstrand at (202) 512-8777 or Darryl Dutton at (213) 830-1000. GAO Contacts

(440071)