S. HRG. 105–757

Senate Hearings

Before the Committee on Appropriations

Treasury and

General Government

Appropriations

Fiscal Year 1999

105th CONGRESS, SECOND SESSION

H.R. 4104/S. 2312

DEPARTMENT OF THE TREASURY

EXECUTIVE OFFICE OF THE PRESIDENT

NONDEPARTMENTAL WITNESSES

U.S. POSTAL SERVICE
1

Treasury and General Government Appropriations, 1999

(H.R. 4104/S. 2312)
U.S. GOVERNMENT PRINTING OFFICE

46–121 cc WASHINGTON : 1998

S. HRG. 105–757

TREASURY AND GENERAL GOVERNMENT

APPROPRIATIONS FOR FISCAL YEAR 1999

HEARINGS

BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON APPROPRIATIONS

UNITED STATES SENATE

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

ON

H.R. 4104/S. 2312

AN ACT MAKING APPROPRIATIONS FOR THE TREASURY DEPARTMENT,

THE UNITED STATES POSTAL SERVICE, THE EXECUTIVE OFFICE OF

THE PRESIDENT, AND CERTAIN INDEPENDENT AGENCIES FOR THE

FISCAL YEAR ENDING SEPTEMBER 30, 1999, AND FOR OTHER PURPOSES

Department of the Treasury

Executive Office of the President

Nondepartmental witnesses

U.S. Postal Service

Printed for the use of the Committee on Appropriations

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate

For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0–16–057868–X
(II)

COMMITTEE ON APPROPRIATIONS

TED STEVENS, Alaska, Chairman

THAD COCHRAN, Mississippi

ARLEN SPECTER, Pennsylvania

PETE V. DOMENICI, New Mexico

CHRISTOPHER S. BOND, Missouri

SLADE GORTON, Washington

MITCH MCCONNELL, Kentucky

CONRAD BURNS, Montana

RICHARD C. SHELBY, Alabama

JUDD GREGG, New Hampshire

ROBERT F. BENNETT, Utah

BEN NIGHTHORSE CAMPBELL, Colorado

LARRY CRAIG, Idaho

LAUCH FAIRCLOTH, North Carolina

KAY BAILEY HUTCHISON, Texas

ROBERT C. BYRD, West Virginia

DANIEL K. INOUYE, Hawaii

ERNEST F. HOLLINGS, South Carolina

PATRICK J. LEAHY, Vermont

DALE BUMPERS, Arkansas

FRANK R. LAUTENBERG, New Jersey

TOM HARKIN, Iowa

BARBARA A. MIKULSKI, Maryland

HARRY REID, Nevada

HERB KOHL, Wisconsin

PATTY MURRAY, Washington

BYRON DORGAN, North Dakota

BARBARA BOXER, California

STEVEN J. CORTESE, Staff Director

LISA SUTHERLAND, Deputy Staff Director

JAMES H. ENGLISH, Minority Staff Director

SUBCOMMITTEE ON TREASURY AND GENERAL GOVERNMENT

BEN NIGHTHORSE CAMPBELL, Colorado, Chairman

RICHARD C. SHELBY, Alabama

LAUCH FAIRCLOTH, North Carolina

TED STEVENS, Alaska

ex officio

HERB KOHL, Wisconsin

BARBARA A. MIKULSKI, Maryland

ROBERT C. BYRD, West Virginia

ex officio

Professional Staff

PATRICIA A. RAYMOND

TAMMY PERRIN

LULA EDWARDS

BARBARA A. RETZLAFF (Minority)

ELIZABETH BLEVINS
(III)

CONTENTS

THURSDAY, FEBRUARY 26, 1998

Page

Department of the Treasury:

Bureau of Alcohol, Tobacco and Firearms ...................................................... 1

U.S. Secret Service ........................................................................................... 1

U.S. Customs Service ....................................................................................... 1

Internal Revenue Service ................................................................................. 75

Federal Law Enforcement Training Center ................................................... 75

Financial Crimes Enforcement Network ........................................................ 75

THURSDAY, MARCH 5, 1998

Department of the Treasury: Internal Revenue Service ...................................... 163

THURSDAY, MARCH 12, 1998

Department of the Treasury: Office of the Secretary ........................................... 269

THURSDAY, MARCH 26, 1998

Executive Office of the President: Office of National Drug Control Policy ......... 313

THURSDAY, APRIL 30, 1998

Department of the Treasury: U.S. Customs Service ............................................. 361

Material submitted subsequent to the conclusion of the hearing ........................ 391

THURSDAY, MAY 7, 1998

Executive Office of the President: Office of Administration ................................ 393

Nondepartmenal witness ........................................................................................ 415

Material submitted subsequent to the conclusion of the hearing ........................ 423

THURSDAY, MAY 14, 1998

Department of the Treasury: Bureau of Alcohol, Tobacco and Firearms ............ 465

Nondepartmental witnesses ............................................................................... 465, 485

Material submitted by independent agency not appearing for formal hearings ........................................................................................................................ 519

Nondepartmental witnesses .................................................................................... 523
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TREASURY AND GENERAL GOVERNMENT

APPROPRIATIONS FOR FISCAL YEAR 1999

THURSDAY, FEBRUARY 26, 1998

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

The subcommittee met at 1:35 p.m., in room SD–124, Dirksen

Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)

presiding.

Present: Senators Campbell, Faircloth, and Kohl.

DEPARTMENT OF THE TREASURY

STATEMENT OF RAYMOND W. KELLY, UNDER SECRETARY, LAW ENFORCEMENT DIVISION

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

STATEMENT OF JOHN W. MAGAW, DIRECTOR

U.S. SECRET SERVICE

STATEMENT OF LEWIS C. MERLETTI, DIRECTOR

U.S. CUSTOMS SERVICE

STATEMENT OF SAMUEL H. BANKS, ACTING COMMISSIONER

OPENING REMARKS

Senator CAMPBELL. The Treasury Subcommittee will be in order.

Good afternoon. Today is the first hearing on the fiscal year 1999

budget for the Subcommittee on Treasury and General Government. We are focusing on the law enforcement component of the

Department of the Treasury, 40 percent of all the Federal law enforcement moneys within Treasury.

There are some new faces with us this morning. Lew Merletti

was appointed Director of the Secret Service in June of last year.

We welcome him. Sam Banks is Acting Commissioner of the Customs Service, until the President’s nominee can be confirmed by

the Senate. Ralph Basham took over at the helm of the Federal

Law Enforcement Training Center just this month, and William

Baity is with us representing the Financial Crimes Enforcement

Network.

As you can tell from the witness list this afternoon, the Treasury

Law Enforcement Bureau will cover a very wide scope.
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As some of you know, I was in law enforcement myself years ago

as a deputy sheriff and a volunteer counselor in a Federal penitentiary, and I was the head of the board of directors for a halfway

house years ago back in Sacramento. I have perhaps a little broader outlook on what we should be doing in law enforcement, and it

is just as difficult now as it was back then for law enforcement officers who face many new threats. The technology that is coming online is getting more and more expensive.

Today, we will hear from the agencies on the front lines about

their needs for fiscal year 1999. Some of them will have new initiatives for consideration, while others are requesting funding just to

continue current operations.

On our first panel today, they are already seated, are Mr. Raymond Kelly, Mr. Magaw, Mr. Banks, and Mr. Merletti.

PREPARED STATEMENT

I know that my colleague, Senator Kohl, has to open another

hearing in a little while. So I am going to put my total statement

in the record, and I will just go ahead and yield to you, Senator.

[The statement follows:]

PREPARED STATEMENT OF SENATOR CAMPBELL

Good afternoon. Today is the first hearing on the fiscal year 1999 budget for the

Subcommittee on Treasury and General Government. We are focusing on the law

enforcement component of the Department of the Treasury—40 percent of all Federal law enforcement is within Treasury.

There are some new faces with us this morning. Lew Merletti was appointed Director of the Secret Service in June of last year.

Sam Banks is Acting Commissioner of the Customs Service until the President’s

nominee can be confirmed by the Senate.

Ralph Basham took over the helm at the Federal Law Enforcement Training Center just this month. And William Baity is with us representing the Financial Crimes

Enforcement Network.

As I mentioned before, 40 percent of all Federal law enforcement is part of the

Department of the Treasury. As you can tell from our witness list this afternoon,

the Treasury law enforcement bureaus cover a wide scope.

As some of you know, I have been in law enforcement myself. I was a deputy sheriff and a volunteer counselor at Folsom. I was head of the board of directors of a

halfway house in Sacramento. As difficult as it was back then, our law enforcement

officers face many new threats now—and the technology to fight crimes is getting

more and more expensive.

Today we will hear from the agencies on the front lines about their needs for fiscal year 1999. Some of them have new initiatives for consideration while others are

requesting funding just to continue current operations.

On our first panel today will be Treasury Under Secretary Raymond W. Kelly.

This position was created only a few years ago as a way to emphasize the importance of law enforcement within Treasury. Mr. Kelly oversees the Treasury law enforcement bureaus and agencies, with the exception of the IRS Criminal Investigation Division. As a side note, Mr. Kelly has been nominated by the President to be

the new Commissioner of the Customs Service.

With us again this year is John W. Magaw, Director of the Bureau of Alcohol,

Tobacco and Firearms. Most people think of ATF in terms of guns, but they have

many other responsibilities. ATF collects about $13 billion per year in alcohol and

tobacco taxes as well as firearms and explosives fees. They regulate wine, beer, and

distilled spirits to protect the American public.

We welcome the new Director of the Secret Service, Lewis C. Merletti. Most people think that the Secret Service just provides protection for the President and Vice

President. But, they have many more responsibilities—counterfeiting and securities

forgery investigations, electronic fund transfer fraud, debit and credit card fraud,

and computer fraud.

Representing the Customs Service is Samuel Banks, Acting Commissioner. Customs is the primary border enforcement agency, responsible for making sure that
3

importers properly label their goods and pay the correct fees—the Customs Service

generates $23 billion per year. They protect Americans by stopping the import of

counterfeit goods and they are the primary drug interdiction agency.

Leading off panel two is Ted F. Brown, Assistant Commissioner of the IRS for

Criminal Investigation. Most people forget that IRS has a law enforcement function.

IRS CID is responsible for enforcing criminal statutes relating to violation of the

Internal Revenue laws and the Bank Secrecy Act. CID investigates suspected fraud

and recommends prosecution in some cases. Then, they assist in the preparation

and trial of criminal tax cases. CID also investigates money laundering schemes associated with narcotics organizations.

Ralph Basham is the new Director of the Federal Law Enforcement Training Center, known as FLETC. There are two permanent locations—Glynco, Georgia and

Artesia, New Mexico. FLETC provides comprehensive and consistent basic training

for Federal law enforcement personnel. Currently about 70 Federal agencies send

their employees to FLETC for training, either basic or specialized advanced, or in

some cases both. FLETC estimates that this consolidated training saves the Federal

Government approximately $160 million per year.

William Baity is representing the Financial Crimes Enforcement Network, commonly called FinCEN. FinCEN is a central collection point for financial information

used in the investigation of money laundering. FinCEN receives activity reports

from banks and other financial institutions which are included in a database for

easier access by investigators—Federal, State, and local law enforcement.

It should be an interesting afternoon. Senator Kohl, do you have an opening statement?

STATEMENT OF SENATOR KOHL

Senator KOHL. That is very kind of you. Thank you very much,

Senator Campbell.

Gentlemen, over the past year, I have had the pleasure of meeting with many of you on numerous occasions to discuss the critical

role that the Federal Government plays in protecting the public.

The agencies represented here are crucial to the success of this effort, and we know that we must help all of you to do the important

work that you do by identifying and funding those programs that

keep our streets safe, and especially when those efforts are protecting our most important resource, obviously our young people.

Mr. Chairman, as you know, I come from the business world

which focuses on practical solutions to real problems, solutions that

can be measured day in and day out. I also know that long-term

investments can have significant payoffs. So, when we review these

budget requests, we need to make sure that the taxpayers’ investment is being well spent, and we must also take a long-term view,

keeping in mind that investments in young people can and do pay

off in many years.

Fortunately, the agencies before us today have a proven track

record in combating crime, and through last year’s appropriations,

we together made a strong commitment to investing in the young

people of our country.

For example, this subcommittee provided increased funding for

the youth crime gun interdiction initiative, a program that brings

Federal and local law enforcement agencies together to trace guns

used in crimes, shut down gun traffickers, and get guns out of the

hands of our young people.

Over the last 2 years, this program has stopped gun traffickers

throughout the country, including my own town of Milwaukee. In

one Milwaukee case, a few handguns were recovered from juvenile

crime scenes and then, thanks to the ATF, were traced to a security guard at a shopping mall. Apparently, he did not take his secu-
4

rity work very seriously. He was illegally selling handguns to kids

from the trunk of his car.

The youth crime initiative gave Milwaukee law enforcement officers the Federal help they needed to trace more than 25 weapons

to this one security guard. Most importantly, they were able to get

him and his guns off our streets.

Due to an increase in funding for this initiative last year, ATF

is now able to add 10 cities to the original 17 cities in the youth

crime initiative. It is my hope that we can continue to expand this

initiative so that more cities and more hometowns can get help in

fighting against juvenile crime.

Last year, the subcommittee also provided full funding for an important investment in our young people, the Gang Resistance Education and Training Program [GREAT]. This promising education

program provides children with information they need to make decisions about their future.

It is my hope that we will continue to invest in this and other

youth-oriented crime prevention programs, programs that provide

our young people with positive incentives that will assist them in

making the right choices throughout their lives.

I know that each of these agencies has valuable law enforcement

initiatives to discuss with us. I look forward to hearing from them,

and I am glad that we are giving them this opportunity to tell us

what is working and what we need to keep funding and what will

help keep criminals off the streets.

So we are happy to have you with us here, gentlemen, and we

look forward to our discussion with you.

Thank you, Mr. Chairman.

PREPARED STATEMENT

Senator CAMPBELL. Before we start, with the unanimous consent

to be included for the record a statement by Senator Coverdell, who

wanted to be here with us, but could not today.

[The statement follows:]

PREPARED STATEMENT OF SENATOR COVERDELL

Chairman Campbell, members of the Subcommittee, and guests, I appreciate the

opportunity to submit testimony as you consider the fiscal year 1999 Treasury Postal Appropriation bill. Although I would very much like to deliver these remarks in

person, I am unable due to a scheduling conflict.

As you are aware, I am currently chairing the Foreign Relations Subcommittee

on the Western Hemisphere. Part of this Subcommittee’s jurisdiction, which I have

made as one of my highest priorities, is to reignite the nation’s drug interdiction

efforts, as well as protect our citizens from terrorist activities. Through this Chairmanship, I have had the opportunity to obtain direct feedback from our nation’s law

enforcement officers on what they feel is needed in their day-to-day activities in protecting our borders and citizens. Although they have mentioned several immediate

needs, the one that is continually brought to my attention is the deployment of more

federal law enforcement officers.

As you know, Congress has committed to increase the number of federal agents

on the job. As we move forward in this effort, we must also fulfill our obligation

to the U.S. taxpayers by making sure these new agents are properly trained in the

most cost-effective manner.

As you know, prior to 1970, training of our federal law enforcement agents was

divided between respective agencies. After the completion of two studies, the federal

government came to the realization that this fragmented system had discrepancies

in training, duplication in efforts, and inefficient use of funds. As a result, Congress

authorized the creation of the Consolidated Federal Law Enforcement Training Cen-
5

ter, whose purpose was to create high quality, standardized, and cost-effective training for our federal officers.

This new organization was temporarily headquartered in Washington, D.C. until

1975 when, after much study, a permanent location was found at the former Naval

Air Station in Brunswick, Georgia. Since then, the Consolidated Federal Law Enforcement Training Center has been renamed the Federal Law Enforcement Training Center [FLETC], and has been training and graduating the many men and

women who continue to fight for our safety.

As you consider your bill, I would like to express my support for the agency’s appropriation request of $100,283,000. As you know, this request not only includes the

administrative cost in running FLETC, but also includes training and construction

funds for the 70 federal agencies, including the INS and Border Patrol, whose roles

are currently expanding, that utilize the facility.

I would also like to bring to your attention the need to complete the master construction plan at FLETC and express my support for the agency’s appropriation request of $13 million to be applied towards the completion of this plan. Approximately 51 percent of the master plan has been completed and additional appropriations would allow FLETC to again move closer toward its goal of being the centralized training center for our federal agencies.

Whether traveling in my home state of Georgia, or chairing a Subcommittee hearing on drug interdiction, as I am today, the need to address the crisis we face with

drugs and crime is constantly brought to my attention. Through continued funding

and support of the Federal Law Enforcement Training Center we will be able to

take the necessary steps to achieve this goal for all Americans.

Once again, thank you for allowing me to testify today and for all you and your

colleagues on the Subcommittee are doing for our country.

STATEMENT OF RAYMOND W. KELLY

Senator CAMPBELL. We will start in the order that I mentioned

them. So, if Under Secretary Kelly would start, we will get going.

Mr. KELLY. Thank you, Mr. Chairman.

Senator CAMPBELL. And, by the way, all of your complete testimony will be included in the record. So, if you want to abbreviate

your comments, that will be fine.

Mr. KELLY. Yes, sir.

Mr. Chairman, Senator Kohl, it is, indeed, a pleasure to be with

you today to speak about the fiscal year 1999 budget request for

Treasury’s law enforcement functions.

As you said, Mr. Chairman, I have submitted my testimony for

the record, and I request that it be inserted.

Senator CAMPBELL. Without objection, it will be.

Mr. KELLY. We in the Treasury Department greatly appreciate

the support this committee has given Treasury law enforcement. I

am here today with all of our bureau heads, some at the table and

some who will be testifying at the next panel.

As you said, we have two new Directors since we appeared before

the committee last year, Lew Merletti, who took over as the head

of the Secret Service and Ralph Basham, who is our new Director

of the Federal Law Enforcement Training Center.

As the members of this committee know well, Treasury has wideranging law enforcement responsibilities, from protecting the President and other public figures to preventing the flow of drugs into

the country, enforcing Federal firearms laws, investigating violent

crimes such as the bombing in Atlanta at the Olympics, enforcing

the tax laws, and investigating financial crimes, counterfeiting and

money laundering. The men and women who serve the public in

these law enforcement capacities, and who often place their lives

in danger by doing so, do an extraordinary job.
6

To strengthen these critical efforts for fiscal year 1999, the President is requesting $3.204 billion, an increase of $172 million, or 5.7

percent above last year, for Treasury law enforcement bureaus.

We need this increase to meet certain mandatory costs, to enhance initiatives in combating narcotics trafficking, to reduce illegal firearms trafficking to young people, to improve Presidential

protection and White House security, to investigate financial

crimes, and to train law enforcement officers.

The heads of each of the law enforcement agencies can provide

more detail on these budget requests, but I just want to take a moment to highlight a few items.

DRUG INTERDICTION INITIATIVE

First, we are requesting additional resources to help the Customs

Service with the critical mission of drug interdiction. In cooperation

with the Office of National Drug Control Policy, the U.S. Customs

Service has formulated a 5-year technology plan, which is designed

to deploy an array of technologies to enable Customs to effectively

fulfill both of its missions, preventing the illegal contraband coming

into the country—particularly drugs—and processing the massive

flow of trade that plays a central role in our economy.

Funding for implementation of the first phase of this plan has

been requested for fiscal year 1999. As you know, Mr. Chairman,

it is critically important to constantly monitor the integrity functions of law enforcement, especially in an era when the criminal

environment is awash in narcotics money.

It raises the stakes and the corruption potential everywhere, posing a threat to every nation’s interdiction efforts. That is why we

are also seeking an additional $6 million in the 1999 budget for the

internal affairs functions at the Customs Service.

Customs is on the frontline of narcotics interdiction. That is why

we want to make certain that Customs gets all the training, equipment, and case management support it needs to make its internal

affairs’ capabilities second to none.

MONEY LAUNDERING

Second, a major priority at Treasury is to combat money laundering. Our antimoney laundering efforts provide a unique vantage

point for getting at the leadership of organized crime and drug

lords by going after their Achilles’ heel, the profits from their illegal activities.

In addition, since money laundering poses a real economic danger by affecting markets and undermining financial systems, especially in developing countries, our promotion of stronger measures

internationally will strengthen those systems.

Money laundering is a very sophisticated business that is international in nature and utilizes state-of-the-art technology. To be effective, our efforts need to be international and to use state-of-theart technology as well.

FinCEN is applying the latest technology to tracing flows of

money that are exceedingly complex. Its budget includes an initiative for the Gateway Program to coordinate the Federal, State, and

local efforts.
7

We need these resources to stay on the cutting edge of this effort

by using more innovative technologies and techniques and fostering

better international cooperation. This is particularly important

since money laundering is increasingly difficult to detect and enforce due to constantly evolving techniques and the fluidity and organization of capital markets.

YOUTH CRIME GUN INTERDICTION

Third, we are asking for resources to support an effort that the

Department and ATF have led over the past 2 years to prevent violent firearms crime by our Nation’s youth.

The youth crime gun interdiction initiative is a collaborative law

enforcement effort between ATF, local police departments, and

prosecutors. Its goal is to develop and share better information

about how juveniles and gang offenders are illegally obtaining firearms, thereby reducing the illegal supply of firearms to youth by

investigating, arresting, prosecuting, and incarcerating illegal gun

traffickers. A preliminary analysis indicates this program shows

significant promise.

With these resources, ATF will be able to expand its initiative to

27 cities and potentially to more cities in the following years. It

will also permit ATF to field new agents in each of these cities to

work with police departments to arrest the illegal traffickers supplying firearms to juveniles, gang offenders, and other violent

criminals in those jurisdictions.

2000 PRESIDENTIAL CAMPAIGN

Fourth, in fiscal year 1999, the Secret Service must begin to

build its capacity to protect candidates and nominees for the Presidential election in the year 2000. Additional funds have been requested to meet this mandatory workload increase, in addition to

ongoing White House security and other protection initiatives.

FEDERAL LAW ENFORCEMENT TRAINING CENTER

Finally, we are asking for additional resources to support the

Federal Law Enforcement Training Center in its critical work.

Over the last 2 years, FLETC has seen an unprecedented increase in its workload. Current projections indicate that this increase will continue for the foreseeable future. We need to move

forward on construction of FLETC facilities in order to meet this

need.

OFFICE OF ENFORCEMENT

Before I conclude, I want to mention the status of some activities

in my Office of Enforcement. We have moved forward, certainly not

as quickly as we would have liked, with the filling of the OPR slots

authorized by this committee. About one-half of the positions are

now filled, including the slot focussing on internal affairs issues

across the bureaus. As I mentioned earlier, this is a key enforcement area that we must vigilantly monitor.
8

PREPARED STATEMENT

Mr. Chairman, again, I want to thank you for the opportunity to

appear today and will be happy to answer any questions that you

have.

[The statement follows:]

PREPARED STATEMENT OF RAYMOND W. KELLY

Chairman Campbell, Senator Kohl, Members of the Committee, it is a pleasure

for me to be here before you today to highlight the fiscal year 1999 budget request

for Treasury’s law enforcement bureaus and offices. With me today are the heads

of the Treasury law enforcement bureaus, several of whom are new additions to the

Treasury team since the last appropriations hearing: Lewis Merletti, Director of the

U.S. Secret Service (USSS), who was appointed by Secretary Rubin on June 6, 1997;

Samuel Banks, Acting Commissioner of the U.S. Customs Service (USCS); and

Ralph Basham, Director of the Federal Law Enforcement Training Center (FLETC),

our newest Director. We are pleased to have these new Directors joining today with

John Magaw, Director of the Bureau of Alcohol, Tobacco and Firearms (ATF), William Baity, Deputy Director of the Financial Crimes Enforcement Network

(FinCEN), and Ted Brown, Assistant Commissioner for Internal Revenue Service

Criminal Investigation (IRS/CID).

Each year, Treasury’s mission grows in complexity, scope and importance. Treasury Enforcement performs a critical role in serving the nation’s law enforcement priorities. Treasury bureaus protect our leaders, safeguard our financial institutions

from money launderers and fraud, and collect taxes. Treasury agents and inspectors

protect our borders from drug traffickers and every day our agents fight to protect

our streets from the threat of bombs, arson and gun violence.

To ensure excellence in achieving these missions, and in keeping with the spirit

of the National Performance Review and the Government Performance and Results

Act, Treasury engaged in a thorough strategic management process. The Treasury

Strategic Plan, which was submitted to Congress last fall, is the capstone of this

planning and analysis process. The purpose of this plan, and of our other efforts,

is to improve the results which we deliver to the American people.

Treasury’s strategic plan provides an overview for the Department as a whole. In

addition, each of Treasury’s bureaus developed its own strategic plan for its operations in support of the overall plan. Collectively, these strategic plans describe

what the Department intends to accomplish over the next five years and how we

will accomplish it. Our bureaus’ and offices’ fiscal year 1999 budget submissions provide a program level description of the annual resources and actions needed to

achieve these goals. The fiscal year 1999 President’s budget seeks $3.2 billion for

26,580 direct FTE Treasury Enforcement personnel, strategic investments, and

other operational costs. This does not include the Internal Revenue Service Criminal

Investigation Division (IRS/CID). IRS/CID, however, plays an integral role in Treasury law enforcement efforts with their fiscal year 1999 $373 million request for

4,103 law enforcement personnel. We believe the Treasury law enforcement budget

request strikes an appropriate balance permitting Treasury to contribute substantially towards balancing the federal budget while supporting new and more effective

approaches to law enforcement. I would like to note that Treasury enforcement’s

$3.2 billion request will allow us to combat crime while making a $33 billion revenue deposit to the U.S. Treasury. By all counts, this is a tremendous return on investment. The budget submissions also set specific annual performance goals for

each of our programs and report on our achievements against prior year goals.

Treasury’s Office of Enforcement has developed a five-part mission statement

which describes the purposes of our broad law enforcement functions. We are committed to ensuring that this strategic plan is a living document. We will use it to

guide our operations, and will continue to update and revise it periodically to make

certain it remains relevant. Our plan was developed with the active involvement of

officials throughout Treasury, and we have sought input from many of our stakeholders in Congress, elsewhere in the government, and in the private sector. We

continue to welcome input from all of our stakeholders.

The following describes the goals of our strategic plan, in a format designed to

highlight our bureaus’ specific expertise, activities and budget requests, as well as

our cross-cutting expertise on financial crimes matters. Thereafter, I will discuss the

important role that is played by the Office of Enforcement in enabling our bureaus

to meet their goals and fulfill their missions.
9

GOAL: REDUCE THE TRAFFICKING, SMUGGLING AND USE OF ILLICIT DRUGS

Treasury brings essential counter-narcotics and money laundering expertise to the

implementation of all aspects of the President’s comprehensive anti-drug strategy.

Our anti-smuggling efforts at the border and our substantial air support to interdict

illegal narcotics at the source places Treasury in a leading role in the fight against

illicit drugs. For example, this anti-narcotics role is pursued through anti-money

laundering measures, reduction of narcotics-related violent crime, and demand reduction programs.

U.S. Customs Service

The Customs Service has the primary role for the Treasury Department and one

of the primary roles for the U.S. in interdicting drugs and other contraband at the

border, and ensuring that all goods and persons entering and exiting the United

States do so in accordance with the law. The Customs Service discovers or seizes,

on average, more than half of the narcotics seized by all Federal authorities in the

United States each year.

Customs has tremendous responsibilities. We need to recount some of what Customs must confront in order to put the drug interdiction challenge into perspective:

Last year, Customs processed over 442 million people, 118 million vehicles, 320,000

rail cars, and $854 billion worth of merchandise. Customs performed the initial

checks, processes, and enforcement functions for over 40 Federal agencies and applied hundreds of laws and regulations. It performed these tasks by servicing more

than 300 ports of entry sprawled across 7,000 miles of land border. It also provided

air support to the U.S. Government’s source control efforts in South and Central

America. Customs pursued all of these enforcement missions while collecting approximately $23 billion in revenue for the United States in the form of duties, taxes,

and fees.

Customs constantly strives to improve its ability to stem the flow of drugs while

dealing with the increasing volumes of cargo and passengers into and out of the

United States. Indeed, the number one operational priority for the Customs Service

is preventing the smuggling of narcotics into the United States. It pursues this mission through interdiction, intelligence and investigative capabilities that disrupt and

dismantle smuggling organizations. Although Customs seized nearly one million

pounds of illegal drugs in fiscal year 1997, through programs such as Operation

Hard Line at the Southwest border and Operation Gateway in the Caribbean, the

quantity of cocaine seized last year dropped 12 percent. To counter this decline, Customs recently embarked upon a program to utilize innovative approaches and will

focus on the most high-risk ports of entry.

Customs will continue to develop the capabilities to meet the ongoing smuggling

threats, on our southwest land borders, in the Caribbean, and at all borders and

ports of entry across the country. Customs actively participates in multi-agency

criminal investigations, and will continue to strengthen its partnerships with the

private sector, cooperative foreign governments and other Federal agencies in order

to continue its active role to counter narcotics smuggling.

Customs’ budget proposal for fiscal year 1999 includes increases for drug smuggling and money laundering enforcement, integrity awareness, non-intrusive inspection technology and automation, all of which will help us achieve our goal of reducing the trafficking, smuggling and use of illicit drugs.

In addition to Customs many and varied contributions to the drug fight, we also

are proud of such efforts as ATF’s campaign against armed narcotics traffickers

through its Achilles Program, the work of all of our bureaus on HIDTA and ICDE

task forces, the use of our financial crimes expertise to attack the financial

underpinnings of the drug trade, and valuable prevention such as ATF’s GREAT

program.

GOAL: COMBAT FINANCIAL CRIMES AND MONEY LAUNDERING

One of the most important missions of the Treasury law enforcement bureaus is

the investigation of financial crimes and money laundering. Treasury’s unique structure permits us to use both our regulatory and investigatory expertise to follow the

money trail and thus undermine criminal enterprises. We intend to strengthen the

capability of our bureaus to fight money laundering and will continue our international efforts to promote stronger anti-money laundering laws abroad. As advances in technology and the removal of barriers allow money to move with increasing speed among nations, an effective, long term anti-money laundering strategy

will require other nations to adopt strong anti-money laundering measures in the

legal, regulatory, and law enforcement areas. We will also seek to improve our regulatory functions to protect financial systems from illicit assets.
10

Additionally, we are developing anti-counterfeiting strategies that employ all appropriate technological and investigatory methods to combat designers and traffickers in counterfeit currency and instruments. Working with the State Department,

we are expanding our overseas presence to more effectively combat the burgeoning

international criminal threat to our financial systems. We are also enhancing our

leadership role by continuing to develop partnerships with the financial community

and others in the private and public sectors.

Treasury is working in a number of ways to engage both the public and private

sectors in a common effort to deny money launderers access to legitimate avenues

of finance and commerce. We are continuing to emphasize the importance of interagency cooperation to pool resources and share experiences and information. The

Committee is aware of the successes achieved by the El Dorado Interagency Task

Force and FinCEN which were responsible for implementing the Geographical Targeting Orders (GTO’s) directed towards Colombian and Dominican Republic drugrelated money laundering operations.

Treasury held two conferences over the last year, along with representatives from

the Department of Justice, which brought together the experts from both our Departments—prosecutors, regulators, and law enforcement agents, all sharing their

insights into the problem. Additional conferences are planned both at the national

and regional level in order to further shut down the avenues available to money

launderers.

The Customs Service, Secret Service, the Financial Crimes Enforcement Network,

and the Internal Revenue Service Criminal Investigation Division all play a vital

role in accomplishing our money laundering and financial crimes goals. The Office

of Enforcement will seek to enhance the individual and collective work of these bureaus through completion of a Departmental financial crimes review, which is currently being undertaken jointly with the Treasury bureaus and offices.

The following are some of our bureaus’ individual efforts in the current fight

against money laundering and financial crimes.

Customs Service

In addition to its substantial efforts to counter illicit drugs, Customs also plays

a vitally important role in combating money laundering. During fiscal year 1997,

Customs’ money laundering investigations resulted in 1,054 arrests and 905 criminal indictments. Its investigative strategy is focused on disrupting two key business

functions that are necessary for sophisticated international money laundering operations to function: laundering profits and investing the proceeds of their criminal

activity. Customs’ money laundering coordination center will become operational in

1998 and will coordinate Customs’ nationwide undercover money laundering operations and follow-up investigations.

Secret Service

The Secret Service is the nation’s lead agency in investigating counterfeiting, forgery, and access device fraud. As the nation’s counterfeiting expert, the Secret Service has investigated fictitious financial instruments, counterfeit currency and credit

card schemes both domestically and internationally. United States currency is counterfeited around the globe. Indeed, approximately 70 percent of all counterfeit currency detected domestically is of foreign origin. Therefore, it is only prudent that

the Secret Service devotes a large portion of its investigative resources to battling

international counterfeiting issues.

The Secret Service has learned through experience that the best method to manage this problem is to address counterfeit issues at their source, with the permanent

stationing of Secret Service agents in foreign posts. In addition, the Secret Service

leverages its resources by enlisting international law enforcement agencies to identify counterfeit currency and suppress counterfeiting plates. These efforts, primarily

carried out through counterfeit detection seminars, have promoted a cooperative

international law enforcement effort to detect, suppress and prosecute counterfeit

violations.

Moreover, to prevent financial fraud schemes, the Secret Service has developed

and implemented longstanding and effective partnerships with private industry to

better understand various financial systems and combat significant losses. Assisting

the industry and their financial systems with ‘‘systemic fixes,’’ aggressive analysis,

and proactive security enhancement measures has increased the overall security of

these financial systems. Proactive joint initiatives with the industry, such as public

awareness campaigns, media programs, speeches, seminars, and security training

are having a positive impact. These partnerships have reduced the ability of criminal organizations to target financial institutions.
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FinCEN

While Customs, Secret Service and IRS-CID are the financial crime investigators,

FinCEN serves as Treasury’s principal support arm for such investigative efforts.

As its name states, FinCEN is a network, a link between the law enforcement, financial, and regulatory communities. It brings together government agencies and

the private sector, in this country and around the world. It works to maximize information-sharing among these communities thereby furthering efforts to prevent and

detect money laundering activities. The intelligence derived from the GTO’s and

other efforts has also contributed to the work of an interagency coordinating group

(ICG) which is located at FinCEN. The group includes the Internal Revenue Service,

the Customs Service, the Drug Enforcement Administration, the Federal Bureau of

Investigation, and the U.S. Postal Service. The ICG has been building on knowledge

which its members, especially the Criminal Investigation Division of the IRS and

the Customs Service, have developed about a highly complex money laundering system used by the Colombian Cartel, known as the Black Market Peso Exchange.

The initiatives in FinCEN’s budget request will strengthen the quality of the support that it provides to law enforcement.

IRS-CID

I want to say a few words about the important contribution to Treasury’s law enforcement efforts made by IRS-CID. Fighting financial crime is a job well suited for

the special agents of IRS-CID. They are known for their ability to ‘‘follow the money

trail’’ and stop the criminal when no one else can. IRS-CID agents are financial experts in combating money laundering and tax evasion. Their expertise is sought in

investigations of all types of financial crimes, including health care fraud, pension

fraud, insurance fraud, bankruptcy fraud, telemarketing fraud, gaming, narcotics,

and public corruption.

Today, IRS-CID is combating the increased use of computers for committing financial crimes with its latest weapon * * * a new type of special agent known as the

Computer Investigative Specialist (CIS). Through IRS-CID’s national Computer Investigative Specialist Program, the CIS continuously receives training in cutting

edge investigation automation and evidence seizure and data recovery methods.

Combining its unique financial expertise with advanced computer skills permits

IRS-CID to optimize its ability to investigate and solve computer based and computer related financial crimes. IRS-CID is taking the lead in providing this specialized computer investigative training to agents from the other Treasury bureaus.

GOAL: FIGHT VIOLENT CRIME

Treasury is working to fight violent crime by arresting the most violent armed

offenders, denying criminals and juveniles access to firearms, reducing the risk of

violent crime in our communities, safeguarding the public from arson and explosive

incidents and strengthening our capability to fight terrorist threats to the United

States. To enhance our efforts to reduce and prevent violent crime with firearms,

Treasury has fully supported the Administration’s and Congress’ efforts to prevent

criminals, gang offenders, and juveniles from illegally obtaining firearms. These efforts have been built on three foundations: implementation of the first phase of the

Brady law, to stop felons and other prohibited persons from buying handguns from

licensed dealers; reform of the firearms dealer licensing systems to ensure a high

level of commercial integrity and compliance with local laws; and a tough, focused

illegal firearms trafficking program aimed at stopping trafficking to criminals, gang

offenders, and juveniles. Additionally, we are working to maintain appropriate firearms importation and international illegal firearms trafficking policies and to share

crime gun tracing and anti-smuggling expertise with the international community

in order to combat the illegal firearms trafficking.

To safeguard the public from arson and explosives incidents, we will maintain the

highest standards of investigative expertise and state-of-the-art technology to most

effectively respond to those incidents. Our studies on the use of tracer elements in

explosives materials will continue and we will enhance the national repository for

arson and explosives information to assist in the investigation of explosives incidents. We will endeavor to prevent criminal misuse of explosives in crimes of arson

through enforcement, regulation, and community outreach and investigate thefts

and illegal diversion of explosives.

ATF

The Bureau of Alcohol, Tobacco, and Firearms (ATF) plays the leading role for

Treasury, indeed the entire Federal government, in the fight against armed violent

crime. ATF is responsible for enforcement of the Federal firearms laws as well as

for regulation of the firearms and explosives industries. It investigates some of the
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most destructive, dangerous, and controversial crimes in the United States, including bombings of abortion and family planning clinics, church arson, firearms crimes

and illegal trafficking, and firearms and explosives violations.

In an effort to reduce armed violent crime, ATF focuses its investigative efforts

on armed violent criminals, career criminals, armed narcotics traffickers, violent

gang offenders, and domestic and international firearms traffickers that supply the

illegal firearms market. It strives to deny criminals, gang offenders and juveniles

access to firearms, safeguard the public from bombings and arson, and imprison violent criminals.

Through its Violent Crime Coordinators (VCC’s), ATF is focusing its investigations on armed recidivist and violent career criminals. The VCC’s will continue to

assist in removing the armed criminals that pose the greatest threat to society by

identifying and investigating the most violent offenders, analyzing the best route to

prosecution and working closely with the United States Attorneys’ Offices to maximize the effectiveness of our investigative efforts.

Through its Youth Crime Gun Interdiction Initiative (YCGII), which began as a

small pilot effort in 1996, ATF is working to further reduce the illegal trafficking

of firearms to gang offenders and juveniles. Due to the positive reception of the program in the 17 pilot cities and to ATF’s first comprehensive trace analysis report

designed for agents and police departments, the President confirmed his support by

announcing that 10 additional cities would be included in fiscal year 1998. We are

grateful for the support you have already provided to this program, which is designed to supplement and strengthen ATF’s illegal firearms trafficking program.

Through YCGII, ATF is developing new methods of identifying the illegal sources

of firearms being supplied to gang offenders, juveniles, and criminals and to prosecute the traffickers responsible for providing these guns. ATF will work with the

nation’s police departments to provide comprehensive crime gun tracing, illegal market analysis, investigative information and training to the 27 cities. To break the

chain of illegal supply of crime guns to violent gang offenders and juveniles, we will

hire more than 160 agents to collaborate with U.S. Attorneys and police departments in investigating and arresting the illegal firearms traffickers.

ATF is also renowned for its expertise in the areas of arson and explosives.

Through its certified fire investigators, National and International Response Teams,

accelerant and explosives detection canine program, its accredited laboratory, its

arson and explosives repository, and numerous other programs, ATF maintains its

role as the leader and innovator in these areas. Its expert work on the National

Church Arson Task Force has helped produce a 33 percent clearance rate for the

arsons under investigation, a rate that is more than twice the average rate for arson

crimes in general. ATF assists State and local authorities with arson investigations

falling under Federal jurisdiction and having a significant impact on their community, particularly when the nature or extent of the problem extends beyond the

available resources or expertise of the locale involved. ATF also provides training

to other Federal, State, and local enforcement agencies in the detection and investigation of arson, particularly arson-for-profit, and post-blast bombing investigation.

As Director Magaw will explain in greater detail, the additional funds requested

in ATF’s budget for the VCC’s and YCGII will permit it to better fulfill the goal of

countering violent crime.

GOAL: PROTECT OUR NATION’S LEADERS AND VISITING WORLD LEADERS

Treasury is striving to manage the ever changing nature of threats by developing,

acquiring and deploying necessary countermeasures. One aspect of this proactive

approach is developing a formal risk assessment-based decision making process to

enhance protective capabilities. Toward this end, we will identify emerging technologies that pose a threat to those we are entrusted with protecting and develop

defenses against them. We will also exploit technology that can be used to lower

risk to protectees and ensure their safety. To help fulfill the vital protective mission

and to provide the safest possible environment for all protectees, we will continue

to develop partnerships between the law enforcement agencies inside and outside

Treasury.

Secret Service

As you know, the United States Secret Service has the critical responsibility of

protecting the President, Vice President, and other specially designated protectees.

It accomplishes this protective and investigative mission effectively in an increasingly hostile society. During the past fiscal year, the Service successfully managed

protective security for several major events, as well as the implementation of numerous, ongoing security enhancements at the White House complex and the Vice

President’s residence. The Secret Service’s White House Emergency Plan was re-
13

vised to include enhanced procedures in the event of a crisis situation at the White

House complex. The Service also continued its efforts to combat the increasing

threats from chemical/biological weapons. To respond to this threat, the Service has

formulated a chemical/biological detection and protective program which combines

multiple systems: fixed detectors, collective protection systems, and portable detection equipment for deployment at critical protective sites. Additionally, the Service’s

ultimate goal is to provide immediate chemical/biological detection, mitigation and

decontamination support for all Presidential movements.

During fiscal year 1999, the Service begins the build-up for the Presidential campaign of the Year 2000. As it begins planning for the Presidential campaign and the

inauguration of January 2001, the Secret Service’s budget request will further advance its ability to maintain the highest level of physical protection possible for its

protectees through the effective use of human resources, protective intelligence, risk

assessment and technology.

GOAL: PROVIDE HIGH QUALITY TRAINING FOR LAW ENFORCEMENT PERSONNEL

Assuring the excellence of training of Federal law enforcement is of vital importance to the future effectiveness of our law enforcement efforts. As the training

agent for the majority of all Federal law enforcement agencies, we currently have

70 Federal agencies participating in training programs at the FLETC. We are committed to enhancing basic and in-service training programs to meet the changing

needs and increasing demands of Federal law enforcement as we combat increasingly sophisticated, technologically advanced and globally linked crime. Our objective is to develop and operate state-of-the-art facilities and systems responsive to

interagency training needs.

To meet the goal of quality training within a limited budget, to meet current

training needs and to prepare for the future, we will maintain and improve FLETC’s

physical plant by implementing the master plan to guide the expansion of facilities

to meet projected training needs. We will also develop alternative training delivery

systems, such as distance learning capabilities, thereby effecting long term cost savings. Additionally, we will expand the use of advanced technology in training and

support, especially in the areas of computer-based training and simulation, to provide not only state-of-the-art training but long-term budget savings as well. We will

also provide international training in support of the International Law Enforcement

Academy (ILEA) in Budapest and the ILEA being developed for Latin America

(ILEA South).

FLETC

One of the reasons that Treasury law enforcement is so successful is the quality

of training that its agents and inspectors receive at the Federal Law Enforcement

Training Center (FLETC). Since its establishment by a memorandum of understanding in 1970, FLETC has built a reputation for providing high quality, cost effective

law enforcement training. As you know, there are many advantages to consolidated

training for Federal law enforcement personnel, not the least of which is an enormous cost savings to the Government. Seventy agencies in 200 different training

programs now train at FLETC. Additionally, FLETC has been involved in providing

law enforcement training overseas for over 20 years and has trained more than

5,000 foreign law enforcement officials from more than 102 different countries. We

expect this growth to continue as more agencies recognize the many benefits of consolidated training.

Over the last two years, the FLETC has seen an unprecedented increase in its

workload. Current projections indicate continued workload growth through fiscal

year 1999 and beyond. During fiscal year 1997, the FLETC provided training to

23,329 students representing 109,116 student-weeks of training, the largest workload in the history of the Center. In fiscal year 1998 the workload is expected to

grow to 32,404 students. The majority of this growth is attributable to recent Congressional and Administration initiatives to control immigration along our Nation’s

borders and to provide a safe workplace for Federal employees.

To permit FLETC to train the law enforcement agents in the skills needed for the

future, it has continued to implement its master plan for facilities. This plan was

first introduced in 1989 and when fully implemented will permit FLETC to achieve

its goal of further developing, operating, and maintaining state-of-the-art facilities

and systems responsive to interagency training needs. Indeed, a major portion of

FLETC’s budget request is the continued implementation of the facilities master

plan for new construction at FLETC’s two centers in Glynco and Artesia. This funding will ensure that less efficient temporary facilities, now relied upon to meet workload requirements, are phased out as soon as possible. Since early 1996, FLETC has

been operating at full capacity and we expect that this workload will continue
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through fiscal year 1999. To accommodate this increasing demand, FLETC has been

utilizing temporary buildings and contracted or licensed facilities. In addition, some

Border Patrol training is occurring at a temporary facility in Charleston, South

Carolina. As FLETC’s capacity increases, the need for a temporary site at Charleston can be phased out.

In addition to its domestic training responsibilities, the FLETC is also being

called upon to play a larger and more important role in support of the Administration’s and Congress’ foreign policy initiatives involving the training of foreign law

enforcement officials. We estimate that there will be a 36 percent increase in

FLETC’s fiscal year 1998 international training workload as compared with fiscal

year 1997. A key provision in the FLETC’s fiscal year 1999 budget request and central to FLETC’s ability to meet these increased training needs is the ILEA South

initiative.

At the San Jose Summit on May 8, 1997, President Clinton announced that an

international law enforcement training academy would be created in Latin America

(i.e., ILEA South) before the end of 1997. Patterned after ILEA Budapest, the goals

of ILEA South are to expand relationships with and among foreign law enforcement

officials from Latin America and the Caribbean, support democracy by stressing the

rule of law in international and domestic police operations, foster international cooperation and raise the professionalism of law enforcement judicial officials.

The Department of State selected the Department of the Treasury as the lead

agency to establish ILEA South. In turn, the Department is relying on the FLETC

to provide operational management oversight and administrative support to guide

program development for ILEA-South. The first ILEA South training program was

recently conducted in Panama City, Panama, during November and December 1997.

Thirty-two students from eight Central American countries attended the program.

The program was extremely well received and was considered by all those involved

to be a great success.

OFFICE OF ENFORCEMENT

We recognize that the work of our law enforcement bureaus can only be enhanced

through the oversight and support provided at the Departmental level. In this regard, I am pleased to report that the Office of Enforcement has worked diligently

over the past year to fulfill these responsibilities, and has a plan in place for maximizing such efforts over the next year. This Committee’s support in the creation of

an Office of Professional Responsibility (OPR) will help us meet these goals. Since

receiving funds in last year’s appropriations, we have developed a precise staffing

and hiring plan for the OPR positions to provide direct oversight on such important

matters as internal affairs, training, and inspection issues. The process included extensive outreach to expand the pool of qualified applicants, as well as thorough reviews of applications and several rounds of interviews for select candidates, including interviews with our bureau heads. While the process continues, we have selected

a number of impressive members of the OPR team. They are on board, and we are

confident that they will help our bureaus perform their missions as safely, professionally, and well as possible. On one issue in particular—integrity—Treasury and

its bureaus share the Committee’s strong commitment, and have made it a priority

for OPR.

The Office of Enforcement also has taken other measures to enhance its support

and oversight missions. Among other activities, we worked closely with Customs,

ONDCP, and others to ensure close cooperation on anti-narcotics matters; solidified

the Department’s vital role on anti-money laundering issues through such activities

as the geographic targeting orders and the anti-money laundering conferences

hosted jointly with the Justice Department; coordinated all enforcement-related

strategic planning activities for Treasury as it fulfilled its GPRA responsibilities;

maintained a lead role within the Administration on the National Church Arson

Task Force, as well as international money laundering and financial crime issues;

performed a complete management assessment at FLETC by working with an outside consultant, expanded the Youth Crime Gun Interdiction Initiative to 10 additional cities; and established ILEA South in conjunction with the State Department

and others.

CONCLUSION

In summary, the Treasury Department is proud of the contributions that its law

enforcement bureaus have made and continue to make to this nation. Treasury and

its bureaus have defined goals and objectives to ensure our excellence in protecting

our borders, fighting violent crime, protecting our nation’s leaders, defeating financial crimes, and training our law enforcement agents for the challenges of counter-
15

ing increasingly sophisticated criminals. This budget request will enable Treasury’s

law enforcement bureaus to meet the current challenges and to begin preparations

for the challenges of the 2lst century. I am confident you will find this to be a responsible budget, as it considers the growing demands of the law enforcement in a

constrained budget environment.

With your permission Mr. Chairman, I would like to ask the Directors of the

Treasury law enforcement bureaus to describe in more detail those strategies and

goals we see as playing a key role in the coming fiscal year, as well as our recent

accomplishments. After which we would be pleased to answer any questions you or

Members of this Committee may have. Thank You.

CONGRATULATIONS ON PENDING NOMINATION

Senator CAMPBELL. Thank you. I appreciate that, Mr. Kelly, and

congratulations on your pending nomination.

Mr. KELLY. Thank you.

Senator CAMPBELL. Good luck on protecting the Presidential candidates for the year 2000. There should be about 40 of them, and

2 of them are not here, however, are they?

Before we go on to the next person, I would like to also welcome

the people in the back of the room, the youngsters who are from

Closeup. I am sorry we do not have enough chairs for you, but I

hope your visit here in the Capitol and this committee is enjoyable,

and educational, too. We are glad you are here.

We will just go in that order. Next is John Magaw, please.

John, nice to see you.

STATEMENT OF JOHN W. MAGAW

Mr. MAGAW. Nice to see you, too.

Thank you, Mr. Chairman and Senator Kohl.

I am pleased to represent all the men and women of ATF. They

are outstanding in their abilities and in their dedication.

Once again, I have asked the ATF executive staff to be here

today. We find that it helps for them to hear your questions and

comments firsthand so that we can all better respond to your concerns.

ATF BUDGET REQUEST

ATF’s 1999 budget request is $586,324,000 and 4,038 full-timeequivalent positions. This budget includes $32 million for the relocation of Bureau headquarters, which is essential for the protection

of our employees and our customers. The other major increases are

found in the $16 million and 81 FTE’s to expand the President’s

Youth Crime Gun Interdiction Program, and $2 million to expand

our Violent Crime Coordinator Program.

ATF STRATEGIC PLAN

Our request and the 1999 performance plan for this Bureau are

directly linked to the elements of our strategic plan to include protecting the public, reducing violent crime, and collecting the revenue.

As we implement our key programs, we will utilize the full array

of enforcement tools to carry out our interwoven mission. That

blends tax and regulatory and criminal investigation functions. Not

only does this unique mix serve ATF’s own operational responsibil-
16

ities, but it allows us to provide otherwise unavailable expertise to

State and local and other Federal agencies.

YOUTH CRIME GUN INTERDICTION INITIATIVE

The youth crime gun interdiction initiative typifies the driving

collaborative spirit behind our strategic plan of partnership and

technology that merge together to provide maximum value for the

citizens that we serve. Twenty-seven major cities are employing

ATF’s expertise in resources to trace firearms used by juveniles in

crime, to identify sources and patterns of illegal firearms trafficking, and to develop strategies to reduce the flow of weapons to the

youngest and the most volatile members of our society.

VIOLENT CRIME COORDINATOR PROGRAM

ATF’s Violent Crime Coordinator Program, for which we are also

requesting additional funding, is yet another collaborative effort,

but one that concentrates on the most hardened members of our society. Because many Federal firearms laws contain provisions for

mandatory extended sentences, ATF strives to increase State and

local awareness of the available Federal prosecution under these

statutes.

ATF’s violent crime coordinators will work closely with local

prosecutors and the U.S. Attorney’s Office to provide the investigative component to the Department of Justice Triggerlock Program.

We will focus on ensuring that the violent career criminals are appropriately matched to the criminal charges that will remove them

from our communities for the longest period of time.

PERSONNEL LEVELS

While the demands on ATF have increased dramatically, it is of

special note that we are only 100 people above the personnel levels

of 25 years ago. Moreover, in the past 3 years, our special agent

population has decreased by over 200. This puts an enormous

strain on our personnel and limits the incidents that we can respond to with State and local enforcement. While we descended

from roughly 2,000 agents to 1,800, a case could be made that we

should have been increasing to approximately 2,600. Also, our inspector ranks have a shortfall of approximately 250 personnel.

Few days pass that we do not receive pleas from U.S. attorneys

or State and local law enforcement for additional ATF agents. The

2,600 figure would put only a few more agents in each city.

You can be confident as we move along that ATF is able to fully

account for the funding that you have provided. I am pleased to report that for the third consecutive year, we have received the highest possible rating on the annual inspector general audit of our finances and our internal controls. The audit this year was conducted by Price Waterhouse.

Mr. Chairman, that concludes my statement.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Mr. Magaw. I am proud that

somebody is watching the money around here. We will insert your

prepared statement in the record.
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[The statement follows:]

PREPARED STATEMENT OF JOHN W. MAGAW

Thank you Mr. Chairman, Senator Kohl, and members of the Subcommittee. I

welcome this opportunity to appear before this subcommittee and further acquaint

you with ATF and the value we bring to the American public. I am here today to

support the Bureau’s fiscal year 1999 budget request of $586,324,000 and 4,038 fulltime equivalent positions (FTE). When compared to fiscal year 1998, this request

represents a net increase of $22,947,000 and 100 FTE’s. This increase consists primarily of $32,000,000 for the relocation of the Bureau headquarters and $16,000,000

with 81 FTE’s for the President’s Youth Crime Gun Interdiction Initiative.

With me today are my executive staff members:

Mr. Bradley Buckles, Deputy Director; Mr. William Earle, Assistant Director for

Management and Chief Financial Officer; Mr. Andrew Vita, Assistant Director for

Field Operations; and Mr. Jimmy Wooten, Assistant Director for Firearms, Explosives and Arson; Mr. Arthur Libertucci, Assistant Director for Alcohol and Tobacco;

Mr. Stephen McHale, Chief Counsel; Ms. Gale Rossides, Assistant Director for

Training and Professional Development; Mr. Patrick Schambach, Assistant Director

for Science and Technology and Chief Information Officer (CIO); Mr. Patrick Hynes,

Assistant Director for Liaison and Public Information; Ms. Marjorie Kornegay, Executive Assistant for Equal Opportunity;

PROGRESS IN STRATEGIC PLANNING

As you are aware, starting in 1997, the Government Performance and Results Act,

commonly referred to as ‘‘GPRA’’ requires us to: publish strategic plans covering at

least 5 years, publish annual performance plans that include measurable goals, and

report on actual performance.

With our fiscal year 1999 budget, we are including a performance plan and a set

of performance targets for each of our three major activities. We have made progress

in developing meaningful, quantifiable measures for our programs and will continue

to look for improvements. We welcome Congress’ feedback on measures we have

submitted.

During fiscal year 1996, ATF aligned its planning and budget structure to conform to the three major activities identified in the 5 year Strategic Plan that the

Bureau published in March 1995. During fiscal year 1997, ATF’s Strategic Management Team revised the Strategic Plan and enhanced the planning and budget structure based on the results of interviews and surveys of our customers and stakeholders regarding their expectations and needs. The revised activities are:

Activity 1: Reduce Violent Crime.—Effectively contribute to a safer America by reducing the future number and costs of violent crimes, complement enforcement with

training and prevention strategies through community, law enforcement, and industry partnerships.

Key Indicators: Crime Related Costs Avoided; Future Crimes Avoided; Number of

Persons Trained/Developed (non-ATF); Number of Firearms Traces; Number of Inspections (Explosives); and Percent Population Inspected (Firearms).

Activity 2. Collect Revenue.—Maintain a sound revenue management and regulatory system that continues reducing taxpayer burden, improves service, collect the

revenue, and prevents illegal diversion.

Key Indicators: Taxes and Fees Collected from Alcohol, Tobacco, Firearms, and

Explosives Industries; Ratio of Taxes and Fees Collected vs. Resources Expended to

Collect; and Burden Hours Reduced.

Activity 3. Protect the Public.—Protect the public and prevent consumer deception

in ATF’s regulated commodities.

Key Indicators: Response to Unsafe Conditions and Product Deficiencies Discovered (Explosives); and Number of Commodity Seminars Conducted.

ATF is committed to defining its Federal role, setting long term strategic and annual performance goals, managing our resources and investments to achieve those

goals, instituting measures, and reporting annually on our performance. ATF will

continue to work throughout fiscal year 1998 to make sure our measures for success

are carefully defined and tracked.

ATF’S UNIQUE PROGRAMS

ATF is a law enforcement organization within the United States Department of

the Treasury with a combination of responsibilities dedicated to reducing violent

crime, collecting revenue, and protecting the public. We use our jurisdiction, skills,

and assets to assist Federal, State, and local law enforcement in the fight against
18

crime and violence. We accomplish this through an integrated approach of effective

enforcement of the Federal firearms, explosives, and arson laws.

Year after year, ATF works to make America a safer place for all of us by fighting

violent crime. ATF’s position of being vested with the enforcement and regulation

of the Federal firearms and explosives laws as well as the regulation of those industries puts it at the forefront of violent crime enforcement.

The statutes ATF enforces involve a blend of tax, regulatory, and criminal investigation functions that the Treasury Department is suited to handle. Treasury law

enforcement functions have always involved criminal laws inseparably linked to revenue laws and regulatory controls, whether in the enforcement of tax or trade law,

currency protection, or firearms regulations. In the case of the firearms and explosives industries, the criminal investigative responsibilities cannot effectively be separated from the tax and regulatory responsibilities because they are so technically

and practically interwoven.

ATF achieves tax compliance by focusing inspections on production facilities offering the greatest risk to revenue based on the volume of operations, history of violations, poor internal controls, or questionable financial conditions. Teams of ATF special agents, inspectors and auditors perform complex investigations of interstate and

international criminal violations of the Federal Alcohol Administration Act and sections of the Internal Revenue Code and the Contraband Cigarette Act. In the past

five years, we have noted a marked increase in the diversion of alcohol and tobacco

products by organized criminal groups.

ATF inspectors maintain regulatory oversight of the legal explosives industry, including 10,548 explosives licensees and permitees. ATF’s jurisdiction and specialized

expertise provide invaluable services to the public through enforcement, regulation,

and cooperative industry partnerships.

ATF provides a wide range of services to local communities to investigate explosives incidents and arson. For instance, our National Response Teams (NRT’s) include special agents, certified fire investigators, explosives technicians, fire protection engineers, and forensic scientists who respond to major incidents within 24

hours of a request to assist in large-scale fire and explosives scene investigations.

Additionally, ATF: 1) has been at the forefront as a leader in the Church Fire Investigations, 2) uniquely trains canines in accelerant-detection and explosives detection,

3) is the catalyst and principal engineer of several ongoing explosives studies, 4)

provides the only Federal investigative expertise in solving arson-for-profit schemes,

and 5) is seeking to enhance the level of expertise of all fire investigators through

an innovative CD ROM virtual reality training tool that is being developed.

In the area of firearms, our mission is simple—to reduce gun violence and to fairly and effectively regulate the legitimate firearms industry. Our targets are criminals who illegally use and/or supply guns to other criminals or our children. The

almost daily acts of firearms violence reported in the media remind us of the dangerous times in which we live. Our National Tracing Center provides 24-hour assistance to Federal, State, local and foreign enforcement agencies in tracing guns used

in crimes. It is the only facility of its kind in the world. To enhance ATF’s ability

to trace crime guns, the National Tracing Center is partnering with members of the

gun wholesale firearms industry through electronic linkups that are greatly enhancing trace completion time, while at the same time saving the firearms industry

money. This joint government/industry partnership is helping to fight crime nationally.

FISCAL YEAR 1997 HIGHLIGHTS

I would like to share with the Committee those successes in fiscal year 1997 that

demonstrate ATF’s mission accomplishments and our efforts for more effective government. During our 25th anniversary as a Bureau, we:

—Refined ATF’s strategic plan based on an environmental assessment survey

issued to customers, stakeholders, and ATF personnel.

—Developed an illegal firearms trafficking guidebook that is the definitive reference for ATF special agents and conducted firearms trafficking schools and

interstate nexus schools to provide firearms trafficking training for Federal,

State, local and international law enforcement personnel.

—Received four Hammer Awards for Innovation in Government from the Vice

President’s National Performance Review. The awards were given to the Partnership Formula Approval Process Team, CEASEFIRE Team, Out-of Business

Records Management Team, and Project LEAD Team. The ‘‘Disarming the

Criminal Program,’’ ATF’s firearms trafficking enforcement effort, was a finalist

in the Innovations in American Government Awards Program sponsored by

Harvard University’s Kennedy School of Government.
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—Established the Arson and Explosives National Repository which will serve as

a statistical data base for arson and explosives incidents and as a valuable investigation tool for other Federal, State and local law enforcement agencies. The

information will be available to authorized Federal, State and local agencies.

—Published the Department of the Treasury ‘‘Odor Recognition Proficiency Standard’’ for explosives detecting canines. This is the first Federally Published

standard for these types of canines.

—The National Church Arson Task Force issued a report to the President outlining the accomplishments of its second year.

—Deployed Integrated Ballistic Identification System (IBIS) technology in eight

new sites to further strengthen the ability of State and local law enforcement

to reduce violent crime through technological innovations that help target the

violent offender.

—Traced over 37,000 recovered crime guns involved with the Youth Crime Gun

Interdiction Initiative.

—Began the development of a joint explosives detection canine pilot program with

the Federal Aviation Administration for use at Washington National Airport

and Dulles International Airport.

—Initiated a major effort to hire special agents and inspectors for our Office of

Field Operations. ATF received, screened, and processed approximately 4,334

special agent applications and 1,072 inspector applications. ATF is currently

conducting interviews with plans to hire over 100 special agents and inspectors.

We are committed to remaining on a regular hiring schedule, due in part to a

significant number of expected retirements, and to prevent the loss of critical

expertise.

—Significantly increased the number of crime gun traces (190,000); continued to

develop Project LEAD, the illegal firearms trafficking information system; deployed new trace related hardware to more field offices; developed comprehensive, community-based crime gun trace analysis as a new strategic tool for Federal, State, and local law enforcement; and piloted it in 17 sites through the

Youth Crime Gun Interdiction Initiative.

—Expanded Project LEAD, a state-of-the-art computer software program which

analyzes firearms trace data maintained by the National Tracing Center.

—Established the National Revenue Center in Cincinnati. We have reduced from

five to three the regional Technical Services centers in which ATF employees

perform tax and permit functions; consolidated resources; and improved the consistency of work products and services.

—Hosted an international conference on fire research that was attended by 65

world experts on the subject. The ideas and information exchanged will enhance

our development of the ATF Fire Investigation Research and Education Center

in partnership with the academic community.

—Conducted 22 ‘‘train-the-trainer’’ classes with 665 police officers participating

from across the United States in ATF’s Gang Resistance Education and Training Program (G.R.E.A.T.). The program curriculum, designed to decrease gang

violence across the nation, is taught by trained, uniformed police officers and

ATF special agents to children in the sixth, seventh and eighth grades. In fiscal

year 1997, 471 State and local agencies sponsored G.R.E.A.T. classes for over

314,000 school children.

—Continued development and deployment of a fully integrated state-of-the-art information technology infrastructure via our Enterprise System Architecture

which in fiscal year 1997 deployed 1,049 desktop and notebook personal computers to six of twenty three field operations divisions, a total of 58 field offices.

All hardware and software meets Enterprise System Architecture standards designed to fulfill our critical business requirements. This is a part of our preparation for the year 2000 requirements.

—Created the Diversion Branch to deal with diversion of cigarettes and distilled

spirits across State and national borders in violation of law. The new branch

combines investigative, regulatory and intelligence gathering expertise to combat loss of revenue in partnership with State, international and other Federal

agencies.

—Designed and commissioned the construction of a Rapid Response Laboratory,

a mobile crime laboratory, that provides the versatility required for the uniqueness of each crime scene and will facilitate field analysis.

—Standardized and distributed hand held portable radio units to all special

agents for the first time in ATF’s history; procured and outfitted two self sustaining mobile radio communications platforms with secure communications capability to support critical incident responses.
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—Redesigned and implemented the third generation of our Internet World Wide

Web service and ATF homepage, (http://www.atf.treas.gov). ATF web offerings

were expanded to include secure Internet services such as a search engine,

news groups, and downloadable electronic forms for internal use by our customers and work force.

—Completed the first phase of a procurement subsystem (Procurement Desktop

and Program Office Desktop) with the intention of creating an electronic desktop environment for processing all future requisitions.

—Provided 15,893 training opportunities for ATF employees and 34,824 training

opportunities for other Federal, State, local, and foreign law enforcement officers, as well as industry personnel.

—Initiated a partnership with the American Re-Insurance Company, U.S. Fire

Administration, and the National Fire Protection Association to develop a CD–

ROM virtual reality training tool which will raise the base level of knowledge

of fire investigators nationwide.

THE YEAR IN PROGRESS

ATF and its predecessor agencies have rendered honorable and effective service

for generations. As with all organizations, we have gone through changes. Effective

organizations continuously re-examine the way they do business. Over the last several years, we have sought to improve internal controls, accountability, management

training and operational processes and systems. These changes have provided the

framework for making ATF a stronger more effective organization. With the strong

support and encouragement of the Committee, we have begun to make significant

strides in these areas.

When I appeared before this subcommittee last year, I talked about implementing

a series of operational changes. I feel we have made substantial progress in implementing these changes. As part of our continued work to build a sound and safer

America through innovation and partnerships, we face several important issues

throughout fiscal year 1998 and into fiscal year 1999:

Headquarters Relocation.—ATF has been pursuing a suitable, secure site to relocate its headquarters, that will provide a safe environment for its employees and

mission.

Restoration of Base Budget (Direct Appropriation).—ATF’s base budget had a disproportionate share of pay, fixed and operational resources. ATF has made strides

to correct this problem in fiscal year 1997 and 1998. We appreciate the Committee’s

support. With the Committee’s continued support, ATF will meet its goal of continuing to correct this problem in fiscal year 1999.

Percent—

1997 1998 1999

Pay .................................................................................................. 69.58 64.74 60.46

Fixed ............................................................................................... 16.17 16.62 15.91

Operational ..................................................................................... 14.25 18.64 23.63

Total .................................................................................. 100.00 100.00 100.00

Construction of ATF’s National Laboratory Center With the Addition of the Fire

Investigation, Research and Education (FIRE) Center.—ATF received approval for

funding for site acquisition, design and construction. Implementation anticipates

that the site and development planning, design, architecture, and a large percentage

of the engineering will be completed in fiscal year 1998. In addition, the private development partner through GSA will begin site development activities.

Implement GPRA.—During fiscal year 1997, the Bureau identified some outcome

oriented performance measures for fiscal year 1998, integrated its strategic plan

with the budgeting process, and refined its budget activity structure to accommodate its business strategies. In fiscal year 1998, the Bureau will continue to develop

systems and collect data to report on these performance measures.

Canine Explosives Detection Program.—The Bureau has initiated the infrastructure necessary to provide training for up to 100 canines for State, local and Federal

agencies annually.

Increase Number of Annual Explosives Inspections.—ATF’s goal is to increase the

annual inspection coverage to 65–70 percent of all explosive storage facilities and

to this end will add 26 new inspectors.
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National Arson and Explosives Repository.—The Bureau expects to complete the

second year requirements for systems development, hardware requirements, and

field office on-line access to this information.

Illegal Firearms Trafficking.—A strategy to expand Project LEAD from a personal

computer/local area network to a nation wide network by linking the local area networks via a wide area networks is being deployed as part of the Enterprise System

Architecture. This should be completed by mid fiscal year 1998.

Continuation of G.R.E.A.T. Program.—The partnership originally established between ATF, the Phoenix Police Department and the Federal Law Enforcement

Training Center has been expanded to include the Portland, Oregon Police Department, the Philadelphia, Pennsylvania Police Department, and the Orange County

Florida Sheriff’s office. The expanded partnership will allow for regional management of the program while continuing to utilize the expertise of each agency to provide gang resistance and anti-violence instruction to children in a classroom setting.

ATF will provide funding to approximately 74 different law enforcement agencies

through cooperative agreements to support their participation in this community

outreach program.

Youth Crime Gun Interdiction Initiative.—ATF’s goal is to ensure and support

comprehensive tracing in 10 new police departments, to provide a mid year report

on city based crime gun trace analysis for all 27 participating sites, and to continue

to develop collaborative enforcement strategies and operations against illegal gun

traffickers supplying juveniles, gang offenders, and criminals.

FISCAL YEAR 1999 RESOURCE REQUEST

Before I move to more details of our program activities, I will highlight the following key budget changes for fiscal year 1999 which will move us closer to reaching

our strategic goals, strengthening the management infrastructure, as well as providing the tools necessary to carry out our unique missions.

In addition to $47,373,000 for maintaining current service levels, our salaries and

expenses appropriation request includes the following:

President’s Youth Crime Gun Interdiction Initiative: $16,000,000

The President’s Youth Crime Gun Interdiction Initiative (YCGII), a component of

ATF’s illegal firearms trafficking program, includes ATF’s firearms records, tracing,

and reporting system, associated equipment and training, and additional agents to

follow up on investigative information generated by this system. Specifically, ATF

is requesting funds to break the chain of illegal supply of crime guns to youth and

minors. The initiative proposes to expand the successful pilot program now in 17

cities to a total of 27 cities, including six agents for each of the 27 YCGII field cities

(a total of 162 agents). Additionally, the funding is included to:

—Provide comprehensive crime gun tracing by State and local law enforcement;

—Provide rapid high volume crime gun tracing and crime gun market analysis

by the National Tracing Center (NTC); and

—Train ATF, State and local law enforcement personnel.

Violent Crime Coordinators: $2,000,000

This project consists of Violent Crime Coordinators (VCC’s) to address effectively

investigations of recidivist and violent career criminals. The VCC’s will assist in ridding American society of those armed criminals that pose the greatest threat to its

well being by successfully identifying the best route for prosecution of a case involving firearms violations. Additionally, in support of the effective enforcement of the

Federal firearms laws, the VCC’s will be able to work closely with representatives

from the U.S. Attorney’s Office to identify and assist in processing initiatives that

are instituted by the Department of Justice, e.g., Triggerlock. Numerous representatives from various U.S. Attorney’s offices around the country have met with ATF

management requesting these positions and highlighting their importance.

Headquarters Relocation: $32,000,000

ATF’s current primary headquarters locations do not meet the security guidelines

as described in the Department of Justice’s (DOJ) Vulnerability Assessment, dated

June 28, 1995. The President directed that ‘‘* * * each Federal Facility shall, where

feasible, be upgraded to the minimum security standards recommended for security

level by DOJ’s study.’’ The existing lessor is unable to implement the changes necessary to meet the enhanced security requirements. Therefore, ATF must be moved

to a new location to ensure adequate security for ATF employees, pursuant to the

President’s Directive.

Our fiscal year 1999 budget is the cornerstone for creating a sound, fully balanced

Bureau. It balances our pay, fixed and operational costs, while at the same time en-
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sures we have acquired the necessary tools to face the law enforcement challenges

of the twenty first century.

REDUCE VIOLENT CRIME ACTIVITY

Firearms, explosives, and arson play a prominent role in violent crimes, ATF—

with primary enforcement jurisdiction for Federal firearms, explosives, and arson

laws—enforces provisions of the Gun Control Act of 1968, the National Firearms

Act, the Brady Law, and the Violent Crime Control and Law Enforcement Act of

1994 to combat these types of crimes.

Many Federal laws contain provisions for mandatory extended sentences, and

ATF strives to increase State and local awareness of available Federal prosecution

under these statutes. To accomplish all of this, ATF pursues an integrated enforcement strategy through four major programs supporting the Reduce Violent Crime

activity: Deny Criminals Access to Firearms, Safeguard the Public from Arson and

Explosives Incidents, Remove Violent Offenders from our Communities, and Prevent

Violence Through Community Outreach. Each of these programs is supported by

projects detailed in the following discussion.

DENY CRIMINALS ACCESS TO FIREARMS PROGRAM

The Deny Criminals Access to Firearms program involves projects and services

that identify, deter, and stop the sources of and participation in illegal firearms trafficking.

Illegal Firearms Trafficking

ATF reduces the availability of illegal firearms to criminals by identifying illegal

sources of firearms and prosecuting illegal firearms traffickers. Overall goals include

recommending for prosecution the most active illegal firearms traffickers, preventing future firearms crimes, and reducing crime-associated costs by incarcerating illegal firearms traffickers who supply firearms to criminals, gang offenders, and juveniles. In fiscal year 1997, ATF accomplished the following in support of the nationwide illegal firearms trafficking strategy:

—traced over 190,000 crime guns to supply investigative leads about illegal traffickers;

—developed an illegal firearms trafficking guidebook that is the definitive reference for ATF special agents, as well as State and local investigators, to use

during the course of illegal firearms trafficking investigations;

—held illegal firearms trafficking schools for a total of 245 ATF students and 22

State, local and other Federal law enforcement students;

—conducted basic firearms interstate nexus schools and advanced firearms interstate nexus schools for a total of 53 ATF students;

—provided onsite refresher training to field divisions for approximately 450 ATF

students; and

—conducted a joint Canadian/ATF firearms school for 35 ATF employees and 55

Canadian law enforcement officers.

Youth Crime Gun Interdiction Initiative

The Youth Crime Gun Interdiction Initiative is a focused component of ATF’s nationwide Illegal Firearms Trafficking Program which identifies and investigates the

illegal sources of guns to youths and juveniles. In response to increased crimes involving America’s youth, ATF developed and deployed the Youth Crime Gun Interdiction Initiative in fiscal year 1996. In fiscal year 1997, the Youth Crime Gun

Interdiction Initiative was deployed in 17 cities including Atlanta, Georgia; Baltimore, Maryland; Birmingham, Alabama; Boston, Massachusetts; Bridgeport, Connecticut; Cleveland, Ohio; Inglewood, California; Jersey City, New Jersey; Memphis,

Tennessee; Milwaukee, Wisconsin; New York, New York; Richmond, Virginia; St.

Louis, Missouri; Salinas, California; San Antonio, Texas; Seattle, Washington; and

Washington, DC. Eighty-six criminal investigations were initiated in the 17 sites

which resulted in the recommendation of 90 defendants for prosecution, 61 arrests,

and 15 sentencings. Many of these investigations are ongoing. A major goal of the

Youth Crime Gun Interdiction Initiative is to trace all recovered crime guns in order

to identify illegal firearms sources. This goal was met in fiscal year 1997 with approximately 37,000 recovered crime guns traced in the 17 cities.

In July 1997, due to the successful tracing efforts, 17 comprehensive trace analysis reports were produced and released for use by law enforcement to develop community level enforcement strategies. Also in July 1997, the President of the United

States announced the expansion of the Youth Crime Gun Interdiction Initiative to

10 additional cities. Efforts in those cities will begin in fiscal year 1998. A more detailed description of the focus and resource request is outlined on page 9 of this
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statement. On January 30, 1998, the President confirmed his support for ATF’s trafficking program announcing to the US Conference of Mayors that he was requesting

$28 million to crack down on illegal firearms trafficking, to trace more crime guns,

and hire up to 162 law enforcement personnel to arrest those who illegally supply

guns to gangs and juveniles.

National Tracing Center

The ATF National Tracing Center is the only operation of its kind in the world.

This facility traces firearms associated recovered by Law enforcement in any Federal, State, local or foreign law enforcement agency. A firearms trace result is frequently the crucial piece of evidence that can link a criminal to a firearms-related

crime and allow law enforcement officials to make an arrest. Firearms trace information also provides investigators with leads on illegal sources of the crime-related

firearms in their investigations. The Tracing Center is also the only repository for

all Federal firearms licensee out-of-business records, where millions of records are

currently stored. Specific goals for fiscal year 1997 were to increase the number of

trace requests responded to through efficiency improvements involving increased

electronic access to the tracing center. All specific National Tracing Center goals for

fiscal year 1997 were accomplished, to include the following:

—increased electronic access to the National Tracing Center for State, local, and

other Federal law enforcement agencies by establishing electronic batch

downloading in six cities and ensuring 18 States placed a crime gun trace request screen on the National Law Enforcement Telecommunications System;

—increased by 60 percent the number of crime gun trace requests received at the

National Tracing Center as a result of increased electronic access;

—developed and deployed a new crime gun trace request form, Crime Gun Information Referral/Request Form (ATF F 3312.1), which serves as a trace request,

suspect gun entry, stolen firearms information referral, and firearms with obliterated serial number information referral; and

—deployed a new crime gun trace results form which provides the trace requester

with enhanced value by supplying an intelligence information in addition to

trace results.

Stolen Firearms

The Stolen Firearms initiative seeks to reduce thefts of firearms from Federal

firearms licensees and interstate carriers transporting firearms. This initiative is an

aggressive enforcement effort determined to reduce the number of stolen firearms

from interstate carriers and Federal firearms licensees, which by their very nature

are destined to become crime guns.

SAFEGUARD THE PUBLIC FROM ARSON AND EXPLOSIVES INCIDENTS PROGRAM

As an integral part of the Bureau’s overall violent crime reduction strategy, ATF’s

arson and explosives projects are directed toward preventing the criminal misuse of

explosives and the crime of arson, as well as providing effective post-incident response. ATF evaluates its success, in part, by the amount of savings to the public

resulting from proactive investigations. This is particularly true with arson-for-profit schemes where ATF’s efforts have produced tremendous financial savings for the

insurance industry, and ultimately the American public, by exposing millions of dollars in fraudulent claims annually.

Prevent Criminal Misuse of Explosives

Through this program, ATF provides resources to identify and pursue those who

criminally misuse explosive materials in bombings and arson fires.

ATF maintains the Explosives Incidents System, which is a computerized repository for historical and technical data on reported arson and explosives incidents that

is helpful in determining motives, trends, and similarities. Statistical data is available in ATF’s annual Arson and Explosives Incidents Report and Arson Case Briefs

publications. In addition, ATF is the only agency through which other Federal,

State, and local law enforcement agencies can initiate traces of explosives in order

to determine their source. This capability is also applicable to foreign commercial

and military explosives, ordnance, and munitions.

In ATF resides the only Federal cadre of explosives technology specialists with

unique capabilities in the explosives, bomb disposal and arson fields. They construct

facsimiles of explosive and incendiary devices; prepare destructive device determinations for court purposes; conduct render safe procedures on destructive devices, improvised incendiary and explosives devices and booby traps; provide expert analyses

of intact and functioning explosive/incendiary devices; provide onsite technical investigative assistance during tactical operations, and bombing and arson scene exami-
24

nations; issue classifications for new explosives and incendiary devices and materials; and keep abreast of the latest technology related to explosives.

In addition, ATF Inspectors, Special Agents and Explosives Enforcement officers

provide technical advice on Federal explosives storage regulations; provide training

and instruction in all aspects of explosives handling, storage, and destruction for

Federal, State, local, and foreign law enforcement officers, and members of the explosives and pyrotechnics industries; participate as explosives origin and cause experts in all National Response Team and International Response Team activations;

conduct explosives threat assessments; and assist the Department of State and the

Diplomatic Security Service in conducting antiterrorism capability assessments outside the continental United States.

In fiscal year 1997, ATF experts provided onsite technical investigative assistance

on 300 incidents; conducted explosive device or booby trap render safe procedures

in connection with 25 investigations; prepared 232 written expert witness explosive

device determinations; participated in Department of State antiterrorism capability

assessments in 14 foreign countries; and provided instruction on explosives investigative and regulatory matters to other Federal, State, local, and foreign law enforcement officers, and members of the explosives and pyrotechnic industries.

Church Fires

ATF established a church fire major case team during 1996 in response to a dramatic increase in church arsons nationwide. The team maintained a central repository for collecting, analyzing, and disseminating information while coordinating and

monitoring all aspects of each investigation. This team became the foundation for

the President’s National Church Arson Task Force. In June 1997, the task force consisting of ATF, Federal Bureau of Investigation, Federal Emergency Management

Agency, Community Relations Service, Department of Housing and Urban Development, and Department of Justice, completed its first year of operation and prepared

its first year’s report for the President outlining the year’s accomplishments.

ATF and its major case team were instrumental in the success of the task force

and the accomplishments achieved during the first year. ATF was asked to determine the origin and cause of each church fire incident investigated by the task force

because of its expertise in arson and explosives investigations. The major case team

was asked to provide investigative oversight to ensure each investigation received

the necessary resources and priorities. The task force has coordinated the efforts of

Federal, State and local law enforcement agencies investigating church fires. By the

conclusion of the first year, the task force had opened 429 arson and bombing investigations that occurred at houses of worship. Federal, State and local authorities

have arrested 199 suspects since January 1995, in connection with 150 of the 429

investigations. The task force has a 35 percent solution rate, a rate that is more

than double the 16 percent solution rate for arson in general.

ATF continues to promote church arson awareness and arson prevention by making outreach presentations to community leaders, churches, and organizations

throughout the country. In addition to the outreach activities, the task force distributes the Church Threat Assessment Guide which contains valuable information on

the steps that can be taken to prevent fires at houses of worship; the steps to follow

after an incident has occurred; and the toll-free numbers to call with information

1–888–ATF–FIRE and 1–888–ATF–BOMB. Originally developed and distributed by

ATF, the Task Force has adopted the guide and now distributes it nationwide. The

guide continues to be accessible to the public on the ATF web site (http://

www.atf.treas.gov). ATF and the task force continue to investigate and recommend

prosecution of those responsible for burning our Nation’s houses of worship.

Canines

In 1989, ATF and the Connecticut State Police began a formal training program

for accelerant-detecting canines to support State and local jurisdictions (accelerantdetecting canines search for liquid catalysts that can be used to speed up the spread

of fire). Through fiscal year 1997, a total of 56 accelerant-detecting canines have

been trained and certified by ATF for State and local agencies. In fiscal year 1997,

ATF recertified 44 canine teams. In March 1998, six additional accelerant detection

canine teams will be trained by ATF at the Canine Enforcement Training Center

in Front Royal, Virginia.

In 1990, ATF entered into an agreement with the U.S. Department of State, Office of Antiterrorism Assistance to train explosive detection canines for foreign countries. ATF has trained 150 canine teams for the program, which are deployed in

eight countries worldwide. In fiscal year 1997, ATF trained 35 canine teams and

eight canine trainers for the Department of State, Office of Antiterrorism Assistance. ATF continues to perform assessments of additional foreign countries for
25

placement in this program. ATF has eight special agent/canine teams stationed in

Atlanta, Chicago, Dallas, Miami, Los Angeles, San Francisco, and two teams stationed in Washington, DC.

ATF has developed a national odor recognition proficiency standard for explosives

detection canines, published by the Department of the Treasury. ATF will continue

to work in conjunction with other Federal agencies employing explosives detection

canines to validate and test this standard over the next year. The report of the

White House Commission on Aviation Safety and Security, dated September 12,

1997, recommended that ATF continue to work on developing Government-wide

standards for canine teams.

Further, the House Committee on Appropriations requested that ATF and the

Federal Aviation Administration conduct a joint explosives detection canine pilot

program at Washington National Airport and/or Dulles International Airport. ATF,

the Federal Aviation Administration and the Metropolitan Washington Airport Authority (MWAA), have signed a cooperative agreement that will allow this canine

pilot program to be conducted at Washington National and Dulles International Airports. The goal of the agreement is to allow for the successful execution of a joint

agency evaluation of explosives detection canines trained in different ways for use

in the airport environment. The pilot program will last from 1 to 2 years and will

involve the use of four handler/canine teams.

ATF has trained one special agent handler/canine team and one MWAA handler/

canine team to participate in this pilot.

Research Initiatives

In fiscal year 1997, in conjunction with the U.S. Army Corps of Engineers, the

National Security Council, and the Defense Nuclear Agency, ATF continued to participate in and direct a project known as Dipole Might. Its objective is to create a

computer data base and investigate protocol to assist investigators when processing

large car bomb scenes. Several tests were performed in fiscal year 1997.

Currently, ATF has two full-time fire protection engineers, making it the only

Federal enforcement agency that employs this level of expertise in conjunction with

the CFI program. ATF’s fire protection engineers are dedicated solely to the analyses of origins and dynamics of fire as it pertains to criminal investigations.

In fiscal year 1996, President Clinton signed the Anti-terrorism and Effective

Death Penalty Act which authorized the Department of Treasury, who has delegated responsibility to ATF, to conduct a study of explosive detection devices. ATF

continues to use an Explosive Study Group to study the tagging of explosive materials for purposes of detection and identification; the feasibility and practicability of

rendering common chemicals used to manufacture explosive materials inert; the feasibility and practicability of imposing controls on certain precursor chemicals used

to manufacture explosives materials; and State licensing requirements for the purchase and use of commercial high explosives. An interim report has been prepared

and is currently under review.

In fiscal year 1996, Congress approved funding for the construction of a new National Laboratory Center and Fire Investigation, Research and Education Center.

ATF is currently involved in site negotiations and programming for the facility. This

stage should be completed by April 1998. The building design is expected to be completed between April 1998 and April 1999. Both buildings will be fully operational

by 2001.

Effective Post-Incident Response

ATF has proven through years of practical application that a coordinated and

rapid deployment of highly trained and well-equipped individuals and related support functions is critical to the investigation of any arson or explosives incident. This

ATF developed ‘‘team approach’’ is the basis for our National Response Team (NRT),

Our International Response Team (IRT), division response teams, and arson task

forces and is so highly successful that the FBI and other State and local authorities

are modeling their teams efforts after ATF’s concept. ATF’s NRT can respond within

24 hours to major bombing and fire scenes anywhere in the United States. In fiscal

year 1997, the team provided effective post-incident response in 36 activations a 60

percent increase from fiscal year 1996. These incidents resulted in $243.2 million

in damages, 54 deaths, and 107 injuries. The NRT also provided continued assistance in the investigation of the Olympic Centennial Park bombing, the TWA Flight

800 crash, and most recently, the Birmingham, Alabama abortion clinic bombing.

In fiscal year 1997, ATF issued a customer satisfaction survey to users of the NRT

that year. To date, ATF has received 19 of the 28 surveys, all of which have been

positive. When all surveys are received, ATF will tabulate the data and use it as

a tool to determine the effectiveness of the NRT.
26

ATF also maintains the IRT formed as a result of an agreement with the Department of State has been deployed to such countries as Peru, Argentina, Pakistan, El

Salvador, and Macedonia. Since its inception in 1991, the IRT has been activated

13 times for incidents involving explosives and fires. In fiscal year 1997, the IRT

was activated to Suriname to assist in the investigation of an explosion in Paramaribo, believed to be the result of a package bomb.

ATF provides vital resources to local communities in the wake of arson and explosives incidents. ATF pioneered the development of local multi-agency task forces designed to pool resources and expertise in areas experiencing significant arson problems. In fiscal year 1997, ATF led formal arson task forces in 15 major metropolitan

areas throughout the United States, and participated in several others. In fiscal

year 1997, ATF responded to 763 arson incidents that were responsible for 78

deaths and 166 injuries.

Most recently, ATF is participating in a D.C. Task Force with the DC Fire Investigation Unit. Fire Investigations Unit personnel will have arrest authority after

they are trained by the police academy. ATF will be providing investigative support

until all personnel are fully trained.

A certified fire investigator and a certified explosives specialist are critical to the

success of a comprehensive post-incident response. ATF’s certified fire investigators

are the only investigators trained by a Federal law enforcement agency to qualify

as expert witnesses in fire cause determinations. In fiscal year 1997, 48 of these investigators were stationed throughout the United States. Twenty-nine certified fire

investigator candidates are scheduled to complete training in January 1998 and

thirteen are scheduled to complete training in April 1999. This will provide strategic

placement of these investigators throughout the country to investigate Federal

arson crimes and assist Federal, State and local agencies with fire origin and cause

determinations and training.

Because many arson crimes involve insurance fraud, these investigations often require complex financial analysis. ATF also brings comprehensive forensic science

services, financial auditing services, information systems and equipment, and highspeed data communications to these investigations. This includes Internet access to

facilitate the research and exchange of national and international technical data

and intelligence.

In fiscal year 1997, there were four certified explosives specialist (CES) training

classes through which 96 CES’s were fully certified. As of fiscal year 1997, ATF employed a total of 270 CES’s.

REMOVE VIOLENT OFFENDERS FROM OUR COMMUNITIES PROGRAM

Imprison Violent Offenders

The Imprison Violent Offenders program involves projects and services to investigate, arrest and recommend for prosecution, the most violent criminals who use

firearms and explosives in furtherance of their criminal activity. The Violent Crime

Coordinators (VCC) project is one such program. A more detailed description of the

focus and resource request for VCC’s is outlined on page 9 of this statement.

Achilles

The Achilles program uses specific Federal firearms laws that mandate extended

mandatory periods of incarceration to remove the most dangerous armed career

criminals and armed drug traffickers from the streets. ATF’s Achilles project is the

primary foundation and source of the Department of Justice’s & U.S. Attorney’s

‘‘TRIGGERLOCK’’ prosecution. Firearms use and possession by these violent criminals becomes their ‘‘Achilles heel’’ as they are exposed to lengthy prison sentences

under these Federal laws. The firearms they possess yield valuable information regarding their previous criminal acts and criminal associates. Further, the illegal

firearms sources for these violent criminals are investigated under ATF’s Illegal

Firearms Trafficking project.

A major goal is to incarcerate armed violent criminals for long periods of time to

prevent future crimes of violence and the costs of those crimes to the American public. An indication of ATF’s success in focusing limited resources against only the

most violent armed criminals can be seen in the increases in the average length of

sentence. The average length of sentence received by defendants under 924(e), the

armed career criminal statute, went from 18 years in fiscal years 1992 through

1995, to 19 years in fiscal years 1996 and 1997. The average length of sentence received by defendants under 924(c), the armed crime of violence statute went from

6 years in fiscal years 1992 through 1995, to 7 years in fiscal year 1996, and to 11

years in fiscal year 1997. The sentence received by a defendant is due, in part, to

the defendant’s criminal history or level of violence during the actual offense. Sen-
27

tences have substantially increased because ATF special agents have more effectively focused on the most dangerous and violent armed criminals. ATF is putting

the most violent criminals in prison for longer periods of time.

Violent Offender

In fiscal year 1992, ATF initiated the Violent Offender Program. This program is

an aggressive, proactive approach to identify, investigate, and recommend prosecution of the most violent career criminals nationwide. The program was designed to

work as an early safety warning and notification system for law enforcement officers

in the field. Information concerning violent career criminals, who meet certain criteria and are currently free in society is entered, into the National Crime Information Center (NCIC) system. If any law enforcement official encounters one of these

individuals, and queries the NCIC, the officer will receive a safety advisory that the

person is a career offender. If the offender is in possession of a firearm, the officer

is advised to contact ATF.

There are currently 1,000 individuals identified as most violent offenders in the

NCIC violent offender file. In fiscal year 1996, each violent offender encountered

with a firearm had an average of 5.7 prior felony convictions and 30.4 years in prior

prison sentences. In addition, 8 of the 17 subjects had previously received life sentences, but were released or paroled early. In fiscal year 1997, each violent offender

encountered with a firearm had an average of 4.88 prior felony convictions and

33.29 years in prior prison sentences. In addition, 1 of the 18 subjects had previously received a life sentence, but was released or paroled early. When convicted,

these criminals receive mandatory sentencing of 15 years to life in prison, without

the possibility of probation or parole.

In fiscal year 1997, based on the above statistics, ATF began to evaluate the violent offender program to determine if modifications were needed or to identify a

more efficient method of accomplishing the same desired outcome. To assist in this

evaluation process, the Office of Inspector General has completed an independent

audit and review at the request of ATF. ATF looks forward to the forthcoming findings and recommendations contained in the final report.

CEASEFIRE

The CEASEFIRE project is centered around the use of state-of-the-art ballistics

technology. This technology, the Integrated Ballistic Identification System (IBIS),

consists of ‘‘Bulletproof’’ which examines projectiles, and ‘‘Brasscatcher,’’ which examines shell casings. The overall CEASEFIRE project goals are to increase the efficiency of firearms examiners, reduce costs associated with the hiring of additional

firearms examiners, and to identify those criminals who repeatedly use the same

firearm in multiple crimes. Program goals for fiscal year 1997 were to deploy the

IBIS technology to eight new sites and increase the use of the technology. Both

goals were accomplished.

In an effort to unify Federal resources to deploy ballistics technology, there is an

existing proposal to combine IBIS and the Federal Bureau of Investigation’s

Drugfire System into a federally sponsored program called the National Integrated

Ballistics Information Network (NIBIN). The two systems will not be combined into

one platform but will make data from the two systems inter-changeable. As proposed, the National Integrated Ballistics Network will create a partnership between

ATF, the Federal Bureau of Investigation, and State and local law enforcement that

makes the most efficient use of all available resources in reducing firearms-related

violent crime. This combined network will be directed by a three-member board,

which is currently being formed.

PREVENT VIOLENCE THROUGH COMMUNITY OUTREACH PROGRAM

Community Outreach

This program focuses on community efforts designed to encourage and participate

in the prevention of violence.

G.R.E.A.T.

The Gang Resistance Education and Training (G.R.E.A.T.) is a school-based gang

and violence prevention program taught by uniformed law enforcement officers to

elementary and middle school children. ATF administers the program in partnership with the Phoenix Police Department, National Sheriffs’ Association, International Association of Chiefs of Police, and Federal Law Enforcement Training

Center.

ATF has provided funding to 74 different agencies to support their participation

in the G.R.E.A.T. program. Over 800 different localities are currently receiving the

G.R.E.A.T. curriculum in classrooms around the country.
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This program has been highly successful in educating young children about the

dangers of gangs and violence. A cross-sectional evaluation conducted by the University of Nebraska in Omaha was completed in 1996 and concluded that the

G.R.E.A.T. program has had a significant, positive impact on the participants.

COLLECT THE REVENUE

The goal of the Collect Revenue activity is to maintain efficient and effective revenue management and regulatory system that continues to reduce taxpayer burden

and Government oversight, and collects the revenue due under Federal laws administered by ATF. Under this activity, there are three major programs: Collect Revenue Rightfully Due, National Revenue Center, and Use Electronic Commerce.

COLLECT ALL REVENUE RIGHTFULLY DUE PROGRAM

Using processes and systems designed to effect maximum revenue collections while imposing minimum taxpayer burden, ATF collected $12.7 billion, before refunds and credits, in taxes, interest, penalties, and fees in fiscal year 1997. Ninetyeight percent of collections are derived from alcohol and tobacco excise taxes. Onsite inspections of those who pay alcohol, tobacco, firearms, and ammunition taxes

are focused on facilities offering the greatest risk to the revenue based on the volume of operations, history of violations, relative strength of internal controls, and

financial condition. Enhanced computers (ESA) and access to National Revenue

Center (NRC) record systems will give on-line access to all permittee and license

records to field inspectors conducting tax or other compliance inspections. These

same systems will allow NRC employees to analyze industry reports and make more

accurate projections and trend analyses to identify taxpayers for future inspections.

ATF employees continuously monitor tax collections by auditing tax returns and

assessments; initiating enforced collection action; analyzing required reports; and

accounting for tax payments, licensing fees, and related refunds and credits. ATF

also reviews and approves or disapproves applications and surety bonds submitted

by companies that produce or sell alcohol or tobacco products.

When criminal conduct is suspected—as with diversion or label fraud cases—

teams of ATF special agents, auditors, and inspectors conduct complex investigations of violations of the Federal Alcohol Administration Act and the Internal Revenue Code. ATF also investigates domestic trafficking in contraband tobacco products. This trafficking deprives states of needed tax revenue and violates Federal

law. Also, certain direct shipments of alcohol beverages to consumers without payment of taxes are in violation of both State and Federal laws.

ATF instructed foreign tax police on the U.S. alcohol and tobacco licensing and

taxation system. In fiscal year 1997, 203 students from Russia, Ukraine, Belarus,

and the Baltic States received this training in order to assist them in combating the

spread of organized crime.

NATIONAL REVENUE CENTER

ATF’s revenue management program includes a variety of functions based on the

processing, auditing, and recording of tax returns and monthly operating reports, as

well as the accounting for all deposits and payments for taxes, licenses, permits, and

fees from the alcohol, tobacco, firearms, ammunition, and explosives industries.

Effective management of taxpayer accounts and proper receipt of tax returns and

payments ensure accurate collections and reporting of all receivables. ATF’s collection systems include work by the technical services staffs located in the districts and

the Tax Processing Center in Cincinnati. The principal activities of these entities

are office audits of tax returns and reports, audits of claims, collection actions, review and approval of applications for permits, registration of plants and surety

bonds, and processing and custody of official case files.

During fiscal year 1997, ATF continued efforts to reduce the number of technical

services offices, ultimately leading to a single NRC which will process all tax and

permit matters nationwide from Cincinnati. The Atlanta office will be closed by the

end of fiscal year 1997 and much of the work from the remaining Philadelphia and

San Francisco offices has already been transferred to Cincinnati. All functions of the

Tax Processing Center will be absorbed into the NRC by the end of fiscal year 1998.

In fiscal year 1997, in the process of centralizing and streamlining the NRC, ATF

implemented various technological improvements. Document imaging operations

commenced, which will reduce the volume of paper files stored and improve accessibility of information. ATF also began fully automating the processing and analysis

of industry operational reports. ATF is working with industry members to provide

more timely industry statistics and to provide increased use of electronic commerce

for filing and compiling monthly reports at the NRC. A full time customer service
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representative position was also created to provide a channel for resolving problems

and getting customer input and buy-in on the new changes taking place.

Diversion and Smuggling

ATF is engaged in an ongoing endeavor to reduce the rising trend of illegal diversion activities involving cigarettes and distilled spirits.

Criminal violations committed in these diversion schemes include violations of the

Internal Revenue Code record keeping requirements, Federal Alcohol Administration Act permit requirements, Trafficking in Contraband Cigarettes Act, wire and/

or mail fraud, money laundering, and conspiracy. ATF’s goal is to achieve compliance with U.S. laws that will greatly reduce the illegal diversion of alcohol and tobacco products.

Diversion activities may defraud the United States of tax revenues, such as when

non-tax-paid cigarettes and distilled spirits are fraudulently claimed for export markets (for which there is no tax liability) when in fact they may be illegally diverted

back into the U.S. domestic market for sale where taxes should apply.

ATF pursues tax assessments against any domestic producer where the documentation offered to ATF to support the tax-free exportation of these products often

is either counterfeit or absent. ATF considers administrative action or criminal prosecution against retailers, wholesalers, and manufacturers who knowingly supply

smuggling organizations.

ATF participates in joint investigations with the Internal Revenue Service, U.S.

Customs Service, Revenue Canada, and State and local law enforcement. These investigations focus on significant tobacco and distilled spirits-related criminal diversion activities in the United States and Canada. ATF is developing a Northeast border strategy to stop the large-scale diversion of alcohol, tobacco, and firearms to

Canada.

The seizure of alcohol beverages and tobacco products by ATF agents and inspectors in 1997 has resulted in over $1.1 million being credited to the Treasury Forfeiture Fund. Through our efforts, several members of organized crime groups have

been successfully prosecuted. Also, in fiscal year 1997, ATF accepted $405 thousand

from distilleries and wholesalers to settle cases involving in illegal activity. There

are currently 114 open diversion cases.

Illegal commerce also occurs when alcohol and tobacco are trafficked from States

with a low excise tax to States with a high excise tax. As a result of this activity,

ATF has experienced an unprecedented increase in alcohol and tobacco investigations. During fiscal year 1997, ATF recommended 70 defendants for prosecution.

The possible Tobacco lawsuit settlement currently pending implementation, could

include a significant tax increase on tobacco products. Such a tax increase could further exacerbate the tobacco diversion problems by increasing the profit to be made

from excise tax evasion schemes.

In an effort to combat the widespread problem of alcohol and tobacco products diverted from legal destinations to illegal destinations, ATF created the Diversion

Branch. Its responsibilities are to coordinate the national Alcohol and Tobacco Diversion and Trafficking Enforcement programs; set policies; monitor investigations;

track intelligence; provide assistance to field personnel; assist in determining targets; seek assistance from Chief Counsel; maintain liaisons with foreign governments; coordinate with FINCEN to track and identify financial transactions generated by illegal activity; and to work closely with other law enforcement agencies.

Alcohol Trade Issues

The solidification of the European Union, the emergence of new Pacific Rim economies, and the movement of former Soviet States to market economies have had a

major influence on the world economy. While this global economy provides new opportunities for U.S. producers of alcohol beverages, the changing political economic

landscape also produces discriminatory trade barriers that limit market access to

U.S. manufacturers.

ATF assists U.S. businesses in overcoming trade barriers through direct intervention with foreign governments by supporting the United States Trade Representative in negotiations concerning the North American Free Trade Agreement, and

with the European Union and deliberations with the World Trade Organization.

ATF also monitors and analyzes changes in foreign trade and political policies to

anticipate and overcome potential barriers to U.S. interests. ATF represents the

U.S. wine and brandy interests through membership and participation in the International Organization of Vine and Wine.

ATF assists the governments of these developing world market economies to establish effective revenue collection models through training courses offered in cooperation with the Department of State.
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USE ELECTRONIC COMMERCE PROGRAM

In fiscal year 1997, many ATF applications and other forms were made available

to the public on the Internet, as well as information, facts and statistics about ATF

and the Regulated industry operations. Imaging operations were launched at the

National Revenue Center to reduce storage and manual processing by ATF and to

make statistical information more accessible to the public on-line.

In fiscal year 1998, we anticipate commencing the imaging of label approval files.

ATF will also explore the feasibility of Optical Character Recognition forms for returns. Streamlined processing of industry reports and returns paves the way for

more electronic submissions by ATF’s customers.

PROTECT THE PUBLIC

ATF’s Protect the Public activity includes goals to complement enforcement with

training and prevention strategies through law enforcement and industry partnerships, and reduce public safety risk and consumer deception on regulated commodities. This is accomplished through three major programs: Assure the Integrity of

the Products, People, and Companies in the Marketplace; Ensure Compliance With

Laws and Regulations Through Education, Inspection, and Investigation; and Inform the Public.

ASSURE THE INTEGRITY OF THE PRODUCTS, PEOPLE, AND COMPANIES IN THE

MARKETPLACE

This program ensures that commodities meet safety and product identity standards, and also focuses on keeping ineligible or prohibited persons out of the regulated industries.

Assuring Alcohol Product Integrity

ATF conducts a full range of regulatory functions in the alcohol beverage industry. The Federal Alcohol Administration Act, passed shortly after the repeal of Prohibition, coupled with certain Internal Revenue Code provisions, authorizes ATF to

fully regulate the industry and to provide protection to consumers of alcohol beverages.

Each year, through the market basket sampling program, ATF collects thousands

of alcohol products from the marketplace for several analyses by ATF laboratories.

If any problems or unsafe conditions are found, they are investigated by ATF inspectors. ATF’s laboratories work closely with counterparts at the U.S. Food and Drug

Administration and with regulatory agencies in many foreign countries. The laboratories exchange information on existing and new analytical methods and on product

contamination or adulteration issues discovered by governmental laboratories, both

domestic and foreign. This level of cooperation enhances ATF’s proactive stance to

ensure that contaminated or adulterated products do not reach the U.S. marketplace. In 1997, ATF issued an advisory to consumers sensitive to alcohol that certain ginseng products contain alcohol.

Certificates of Label Approval

ATF is charged with protecting the consumer by preventing false or misleading

claims on beverage labels and in advertising. The Bureau enforces the Government

Health Warning Statement requirements, prohibits unbalanced and unsubstantiated

health claims or misleading and deceptive claims, monitors industry advertising,

and conducts investigations of suspected label fraud. ATF is working with industry

to develop guidelines under which beverage alcohol products labels will contain consumer advisories to consult with an appropriate authority concerning the health effects of alcohol consumption. With limited exceptions, ATF issues Certificates of

Label Approval for every alcohol beverage offered for sale in the United States.

There are currently more than 1.5 million approved labels on file.

The Bureau remains strongly committed to customer service standards for label

approval processing. At the end of fiscal year 1996, ATF mailed approximately 1,400

customer satisfaction surveys to industry members. In fiscal year 1997, the survey

results were tabulated and the feedback provided will be used to streamline the efficiency of the label approval process. ATF and industry are working together to

streamline the process by which flavoring ingredients used in beverage alcohol products are reported.

Deny Prohibited or Ineligible Persons Entry into Regulated Industries

Alcohol producers and wholesalers and other users of bulk alcohol are required

to obtain a Federal permit. ATF reviews applications, bonds and other documents,
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checks on the applicants’ background, and conducts field investigations to determine

eligibility.

The Gun Control Act of 1968 mandates that every manufacturer, importer, or

dealer firearms obtain a Federal firearms license. ATF conducts inspections of applicants for Federal firearms licenses. During these inspections, ATF inspectors explain the Federal firearms laws and regulations, and determine if the applicants are

bona fide candidates for a license. Where inspection reveals conflicts with State laws

and local ordinances, inspectors make referrals to the appropriate regulatory agency; such as a zoning, occupancy, fire code, or law enforcement agency.

ATF recognizes the value of averting accidents and keeping explosives from the

hands of those who are prohibited from possessing them. ATF enforcement provides

a system of industry regulation, emphasizing a proactive approach to the problem.

Similar to the firearms industry, all manufacturers, importers, and dealers are required to obtain a Federal license from ATF to conduct business and certain users

of explosives are required to obtain a Federal permit.

ENSURING COMPLIANCE WITH LAWS AND REGULATIONS THROUGH EDUCATION,

INSPECTION, AND INVESTIGATION

Once a person or entity is licensed or obtains a permit to conduct a regulated

business, ATF monitors and enforces compliance. Inspections of firearms licensees

focus on assuring that firearms are properly accounted for. In the explosives industry, the emphasis is on safe and secure storage of explosives as well as accountability. Alcohol and tobacco inspections check on compliance with product and trade

practice provisions. Education initiatives such as industry seminars are utilized in

all industries.

Federal Firearms Licenses and Inspections

Once a licensee is engaged in business, inspectors ensure the licensee’s compliance

with Federal laws and specific record keeping regulations. ATF enforces the licensing provisions of the Gun Control Act of 1968 by conducting on-premises inspections.

ATF implemented procedures for routinely providing the Chief Law Enforcement

Officer in each jurisdiction information on the status of Federal Firearms Licensees

in that area. Working in partnership with State and local law enforcement officials,

ATF can effectively address licensing and illegal firearms trafficking problems.

Explosives Licenses/Permits and Inspections

ATF maintains a regular program of on-site inspections to ensure that explosives

are stored in approved facilities, which are secure from theft and located at prescribed distances from inhabited buildings, railways, and roads. These inspections

ensure that the licensees and permits keep accurate records of the receipt and disposition of explosive material which are verified through actual inventories of explosives in storage. Unusual discrepancies in records are referred immediately to the

appropriate office for further investigation. Inspectors also conduct ‘‘forward trace’’

inquiries on persons who purchase explosives without benefit of a license or permit

for ‘‘same day use with no overnight storage.’’

ATF initiated a program that requires each regulatory enforcement area office to

notify the local fire department of licensees/permits storing explosive materials and

the location of the storage. This was done to aid in minimizing accidental injury to

fire officials fighting fires in buildings or structures that may house explosive materials.

Alcohol Industry Inspections

ATF inspects alcohol plants to assure that products are manufactured in keeping

with approved formulas and processes, which assure that the actual product fulfills

labeling and advertising claims. ATF investigates anti-competitive business practices between alcohol beverage suppliers and retailers to preserve the retailers’ economic independence. Attention has focussed recently on the allegations of illegal

wholesale payments to retailers to place their products on retailer shelves. The Bureau also investigates consumer complaints or tainted of adulterated alcohol beverages.

Industry Seminars

ATF conducts seminars for firearms and explosives permits and licensees, providing current information on the laws and regulations pertaining to these commodities. Through these seminars, ATF has fostered partnerships with firearms and explosive industry members to prevent tragedies stemming from the illegal use of firearms and explosives. Seminar attendees include industry officials, licensees, permits, and State and local law enforcement officials.
32

ATF also conducts seminars for alcohol and tobacco permits. These seminars focus

on current market trends, compliance concerns, changes in laws, regulations or Bureau policies, and industry-raised issues. In partnership with the States, the seminars are conducted jointly with the State alcohol beverage control agencies to provide the total compliance enforcement picture to those in attendance. In fiscal year

1997, ATF conducted seven seminars reaching approximately 500 attendees. These

seminars will continue throughout 1998 and the future.

National Firearms Act

The National Firearms Act requires that certain firearms be registered in what

is known as the National Firearms Registration and Transfer Record. The firearms

required to be registered are machine guns, silencers, short-barreled rifles, destructive devices, and certain concealable weapons classified as ‘‘any other weapons.’’

ATF processes all applications to make, export, transfer, transport, and register National Firearms Act firearms, as well as notices of the National Firearms Act firearms manufactured or imported.

ATF’s firearms technology experts provide expert technical support to ATF in all

matters relating to the technical aspects of firearms and their classification under

Federal laws. Most workload is devoted to supporting law enforcement investigations and programs. The remaining operations focus on technical support to regulatory operations, Chief Counsel, Office of Liaison and Public Information, other

Federal agencies, State and local law enforcement, the firearms industry, and the

general public.

Firearms and Ammunition Importation

ATF regulates the importation of firearms, ammunition, and other defense-related

articles through the issuance of import permits.

ATF maintains close liaison with the Department of State to ensure that the permits it issues do not conflict with the foreign policy and national security interests

of the United States. At the direction of the Department of State, ATF lifted the

arms trade restrictions imposed against the Russian Federation. Additionally, the

Department of State subsequently directed ATF to lift the arms trade restrictions

imposed against the Ukraine, Georgia, Kazakstan, Kyrgyztan, Moldova,

Turkmenistan, and Uzbekistan.

ATF is currently studying modified semiautomatic assault weapons to determine

whether they are importable under the statutory sporting purpose test defined by

the 1994 assault weapons law and the standards developed in 1989 by the ATF

Working Group. Both the 1989 standards and the 1994 law identify semiautomatic

assault rifles by their military features.

INFORM THE PUBLIC

This program publicizes information on ATF policies and regulations, product

safety and theft prevention using the Internet, trade publications, seminars, and industry meetings. Such educational efforts promote field understanding and voluntary compliance with regulations. The program also works in partnership with

others to better inform, advise, and educate the public.

Industry and State Partnerships

The Industry and State Partnerships Program focuses on working with the industry to help educate the public on ATF’s regulated commodities.

The Bureau continues to expand partnerships with regulated industries and State

governments. For example, the Office of Science and Technology initiated the Partnership Formula Approval Process, which was instituted for all beverage and flavor

manufacturers after a successful trial program. This new business process was a result of a joint effort of ATF, the alcohol beverage industry, and the flavor industry.

The result of this collective effort was a dramatic reduction in the average approval

time required for flavored beverage alcohol products from eight weeks to less than

two weeks. ATF and industry are currently working together to further streamline

the process by which flavor ingredients used in beverage alcohol products are reported.

ATF established liaison with several governmental agencies working toward a

common goal of public safety in the explosives industry. The Department of Transportation is supplying ATF with a list of its product approval numbers for use in

determining the appropriate classification of explosive materials entering into commerce either through domestic production or through importation.

ATF furthered its relationship with industry associations such as the Institute of

Manufacturers of Explosives and the American Pyrotechnic Association to develop

an Advanced Explosives Training class for all ATF inspectors. The Institute of Man-
33

ufacturers of Explosives and the American Pyrotechnic Association have been instrumental in providing instruction to inspectors at ATF’s training sessions. All

classes are conducted at Ft. McClellan, Alabama. Since June 1997, ATF has trained

approximately 71 inspectors. More training classes are scheduled for calendar year

1998.

ATF established relationships with the Federal Aviation Administration to explore the mutual regulatory oversight required in the interaction of commercial site

operators for commercial space launchers. Launch site operators may include State

government agencies, State-chartered entities, State sponsored entities, and commercial entities. At the request of the Federal Aviation Administration, ATF has

been inspecting explosive storage magazines at specified major airports. ATF has established a relationship with the Consumer Products Safety Commission to more effectively regulate the fireworks industry. The Consumer Products Safety Commission and Department of Transportation have also been instrumental in providing instruction at the Advanced Explosives Training sessions. The Bureau is also exploring refinement of its relationship with the Mine Safety and Health Agency to further share information regarding explosives and the coal mining industry.

Because of the nature of Federal/State alcohol regulation rooted in the TwentyFirst Amendment, ATF works closely with counterpart State liquor control and taxation agencies and industry groups. Current cooperative efforts focus on making

ATF a center for industry-related information by making a wide range of data, including pictures of approved alcohol beverage labels, available through automated

systems. The goal is to enable States to decrease parallel requirements and systems,

to provide more efficient and timely access to data, and to reduce delays to industry

in marketing new products. ATF continues to benefit from the cooperation of many

State agencies in notifying retail liquor dealers of the liability for payment of Special Occupational Tax. Special Occupational Tax collections totaled $107 million for

fiscal year 1997. The 60-year-old Pittman-Robertson Act levies a 10 percent excise

tax on handgun sales and long guns and ammunition. In fiscal year 1997, ATF collaborated with the Department of the Interior to distribute $149 million from this

tax to States for wildlife restoration projects.

INVESTMENTS IN INFORMATION TECHNOLOGY

In fiscal year 1995 and fiscal year 1996, ATF commissioned external reviews of

our data communications network, information systems security, and ATF’s overall

information technology (IT) infrastructure. The studies, several of which were conducted by personnel from the National Security Agency, confirmed to ATF’s Strategic Management Team the pressing need for investments supportive of upgrades in

our IT environment.

In fiscal year 1996, ATF’s Chief Information Officer (CIO), working with the membership of ATF’s Information Resources Management (IRM) Council and with ATF’s

Information Technology Advisory Board, developed a concept for the acquisition and

deployment of an Enterprise Systems Architecture (ESA). In fiscal year 1997, ATF

created and staffed an ESA Program Office to work with the Information Technology Standards Working Group, a subcommittee of the IRM Council, in evaluating

IT hardware and software offerings in order to define standards for ESA.

In early fiscal year 1997, the IRM Council endorsed and the Strategic Management Team in its role as ATF’s Investment Review Board, funded the CIO’s recommendation to implement Frame Relay Service for ATF’s nation-wide ‘‘backbone’’

data communications network. The ESA Program Manager was able to identify and

solicit bids for a ‘‘lease to purchase’’ acquisitions vehicle using an existing GSA contract. ATF was able to end operation of its mainframe at the National Data Center

in Falling Waters, WV. Also, ATF, using the ESA hardware and software standards,

was able to purchase and deploy 1,049 ‘‘ESA-compliant’’ personal computers to employee workstations in Bureau Headquarters and six of twenty-three Field Operations division offices in 58 city locations nationwide. In early fiscal year 1998, ATF

awarded the ESA contract which calls for full deployment by mid-fiscal year 1998.

The Enterprise Systems Architecture is a mix of hardware and software that

forms the infrastructure on which a suite of continually evolving application services

will be installed to support ATF’s Firearms, Arson and Explosives, Intelligence, Integrated Ballistics Identification, Collections, Financial Management, and Personnel

and Performance Measurement systems.

The infrastructure consists of:

—a ‘‘backbone’’ communications network capable of transmitting and sharing data

instantaneously within and among organizational segments via local, metropolitan, and wide area networks;
34

—deployment of a mix of desktop and notebook personal computers with simultaneous delivery of training in their use to ATF’s approximately 4,000 employees;

—a standardized suite of software consisting of operating systems, telecommunications software, database management systems, applications development

tools; and

—upgrades to ATF’s mainframe computer so that it can continue to be the host

platform for legacy applications, provide a base for client/server applications,

and provide archival data storage for recovery purposes for all servers in the

configuration.

In fiscal year 1998, ATF will be able to:

—Complete the deployment of the Enterprise Systems Architecture to over 4,000

employee workstations located in Bureau Headquarters and the remaining seventeen Field Operations division offices in 170 city locations nation-wide.

—Provide a standardized office suite, secure electronic mail service, virus detection, encryption, and secure transmissions of data communication via a nationwide area network supporting 228 ATF office locations.

—Provide authorized users secure electronic access to existing Bureau information

systems as well as new Year 2000 date compliant systems in development or

pilots.

—Provide a means of gathering, transmitting, collecting, analyzing, and sharing

intelligence data nation-wide.

Another mission-critical part of ATF’s information technology infrastructure is the

Tactical Radio Communications Program. With supplemental funding authorized in

fiscal year 1997, we were able to replace 900 mobile radios out of an inventory of

2,500 and 122 fixed stations out of an inventory of 410 nationwide.

TRAINING ACTIVITIES

With the support of This Committee, the Bureau has undertaken a number of new

training initiatives and enhancements to existing training programs. We have allocated significant resources to support our training efforts and have focused primarily on arson, explosives, and firearms trafficking training projects.

One of our greatest assets is our ability to share that knowledge worldwide with

law enforcement and industry personnel. We continue to offer a number of postblast and general explosives proficiency training courses for both ATF personnel and

State, local and international law enforcement personnel. In addition to these activities, the Bureau has developed, under the auspices of the Vice President’s White

House Committee on Aviation Security and in Concert with the Federal Aviation

Administration, a series of four training videos on bomb threat management and

improvised explosive device recognition. These videos will assist State, local, and

other Federal, and airline industry personnel in improving airline security and airport safety throughout the country. With the support of the Department of State,

we continue to conduct post-blast and firearms trafficking training for international

law enforcement officers in both Eastern Europe and Latin America.

In fiscal year 1998, ATF has planned for regional training exercises in crisis management. These exercises will consist of realistic crisis scenarios and will allow us

to refine the training provided to manage crisis situations.

In concert with the President’s Youth Crime Gun Interdiction Initiative (YCGII),

ATF has expanded its firearms trafficking training activities with a specific emphasis on agents and local law enforcement in the cities involved in the YCGII program.

During fiscal year 1998, we will develop and conduct training on firearms trafficking

for each of these sites as well as training on interstate nexus and prosecution issues.

In addition to our classroom activities, we continue to pursue a number of systemic changes designed to improve the quality and effectiveness of our training programs. Our training management database system now provides us with an unprecedented level of information on the amount and type of training provided to each

ATF employee. We have undertaken a review of the training provided to new professional employees upon entering on duty with ATF. This review has led to a revised

curriculum for training agents, inspectors and other professionals that emphasizes

the complimentary and cooperative nature of the work these employees will be doing

at ATF. We continue to pursue the instructor development system and the enhancement of the skills and techniques of ATF instructors which elevates the quality of

the training courses ATF delivers. We recognize that training is an ongoing process,

and are implementing systems designed to ensure that process is meaningful, effective, supports ATF’s mission and will advance the ATF’s efforts and those with

whom we partner.
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EQUAL EMPLOYMENT OPPORTUNITY

Career Development

ATF has continued to make progress in providing career development opportunities for women and minorities. Over the past ten years, ATF has seen significant

increases in the representation of women and minorities throughout the work force.

In 1987, women held 5.4 percent of GS 13–15 positions in ATF; in 1997, that figure

was 17 percent. In 1987, minorities held only .01 percent of all GS 13–15 positions;

in 1997, that figure was 19 percent. Minorities and women are also gaining greater

representation in the SES arena. While they currently hold 18 percent of the SES

positions, minorities and women comprise 34 percent of the SES candidate pool.

Recruitment and Hiring

The development of a strong and effective recruitment process is a top priority.

For the first time in many years, ATF is in a hiring mode in order to backfill vacancies and keep pace with anticipated retirements. In fiscal year 1997, ATF launched

an extensive recruitment program to attract highly qualified applicants reflecting

the nation’s diversity. Our announcements generated more than 6,000 applications.

The first selections began in fiscal year 1997, and will continue into fiscal year 1998.

We expect to be in a hiring mode for the next several years to fill these and other

critical positions within ATF.

To provide our new employees with a firm footing in ATF, a new two-week orientation training program has been instituted, focusing on the various aspects of

our work and mission, as well as ethics, equal opportunity, and diversity.

ATF Early Complaint Resolution Program (ECRP)

The Early Complaint Resolution Program was introduced in December, 1996, as

an 18 month pilot program. The program employs outside mediation at the informal

stage of the EEO complaint process to help employees and management resolve

their differences quickly and efficiently in a non-adversarial setting. It offers an alternative to the traditional Equal Employment Opportunity formal process, which

is often lengthy, costly, and contentious. From January 1997 to January 1998, eight

cases have been referred for mediation. Five were resolved successfully. As word of

the program’s advantages spreads, we hope to draw a greater percentage of cases

into mediation at the early stage of the complaint process. We have also trained approximately 20 ATF managers, attorneys, labor and employee relations specialists,

and equal employment opportunity officials in mediation techniques to enable them

to better perform their jobs and assist others in resolving disputes.

PROFESSIONAL REVIEW BOARD AND ATF/NTEU PARTNERSHIP

Illustrating our commitment to ensuring a fair and equitable workplace for our

employees, ATF established a Professional Review Board (PRB) and the ATF/NTEU

Partnership Council.

The PRB addresses issues of timeliness and consistency in disciplinary actions for

all non-bargaining unit employees. Working with the Employee and Labor Relations

Branch and Chief Counsel, the PRB (composed of senior Headquarters managers

representing a cross section of the Bureau) determines and issues proposals for disciplinary and adverse actions resulting from Office of Inspection investigations.

The ATF/NTEU National Partnership Council, which meets on a quarterly basis,

provides a forum to address and resolve issues of mutual concern between ATF

management and the National Treasury Employees Union. In the almost 3 years

since its inception, the National Council has worked together in reaching solutions

to Bureau-wide issues. Feedback received from the facilitator who works with our

Council, as well as those of other Federal agencies, indicates that ATF’s partnership

is one of the most productive and successful organizations of its type. Due largely

to the success of the ATF/NTEU Partnership Council in headquarters, a local Partnership Council will also be established within the new National Revenue Center

in Cincinnati, Ohio.

MANAGEMENT AND ADMINISTRATIVE EFFORTS

The Executive Staff and I chartered a group comprised of Headquarters and field

senior managers to re-evaluate our identity as an agency, our mission, and how we

work. The Focus Group also assessed our field structure and identified core processes. Most of the group’s recommendations are being implemented in some form,

and serve as a basis for a recent field restructuring proposal geared toward achieving a more effective and unified agency.

Further, as a result of information obtained from our stakeholders and customers,

every directorate is now in the process of reviewing all services provided. This in-
36

volves looking for ways to improve programs, services, and several delivery processes. In addition, a ‘‘vulnerabilities review team’’ was formed to recommend ways

to minimize the risk of critical weaknesses which could severely harm or destroy

ATF, our employees, or others due to an oversight, inaction, or improper action. To

their credit, the team identified (among other findings) inadequate controls and

safeguards surrounding dynamic entries by ATF agents of residences or other facilities. Treasury’s Office of Inspector General concurred with every team recommendation in a report of their independent review of our dynamic entry procedures and

controls. Several other administrative and management initiatives are noteworthy.

They are in the areas of security, field structure, accountability, and customer service plans.

As a result of the Oklahoma bombing, ATF was provided funding to enhance

physical security, both in the field and at Bureau Headquarters. Immediate steps

were taken to safeguard employees, and plans are underway to relocate Bureau

Headquarters so that we may have more control over our security. In addition, after

completion of a security needs study, a number of security enhancements have been

implemented in our field installations. ATF has:

—Purchased and installed X-ray machines in 5 facilities where large volumes of

mail and deliveries are processed;

—Provided additional guard service and upgraded CCTV coverage at the Headquarters building; and

—Upgraded security equipment at more than 70 field installations.

We will continue to upgrade security equipment at field installations. More than

20 upgrade projects are scheduled for completions during the next fiscal year.

ATF will also continue its drive to become a customer focused organization, which

is directly in line with the guiding principles of our strategic plan:

—We created a new position in the Office of the Ombudsman to develop, support,

and oversee a problem resolution program for external customers.

—We established the new position of Customer Service Specialist at the Firearms

and Explosives Licensing Center in Atlanta and Technical Services in Cincinnati.

—Annually, we publish customer satisfaction reports telling our customers how

well we did in meeting our previously published service standards.

—Several groups within ATF, including our labeling section, have sent their customers surveys, the results of which are used to improve service.

Other management support accomplishments include:

—continuing aggressive efforts to maintain an unqualified opinion on financial

statements and to successfully address the Office of Inspector general fiscal

year 1997 reportable conditions. To date, ATF has received three unqualified financial audit opinions;

—continuing refinement of the budget activity structure that has resulted in a

stronger and clearer alignment with the ATF’s strategic plan;

—assisting with the development of bureau-wide performance measures in accordance with the requirements contained in the Chief Financial Officers Act of

1990 and Government Performance and Results Act of 1993;

—renewing an agreement with the Department of Defense to access the automated Injury and Unemployment Compensation Tracking System, which will

continue to yield new efficiencies and cost savings for the Bureau;

—continuing to meet the Prompt Payment standard of paying 98 percent of all

invoices within 30 days;

—ending the fiscal year with a record number of contract actions completed and

the dollars saved;

—starting the planning process for implementing a cost accounting system; and

—effectively converting administrative systems to support Headquarters restructuring.

This completes my statement. I will be happy to answer any questions you may

have and I would like to express my sincere appreciation of the support that the

Committee has provided us. I look forward to working with the Committee to further our mutual goals of safeguarding the public and reducing violent crime.

STATEMENT OF SENATOR FAIRCLOTH

Senator CAMPBELL. Before we continue, I think Mr. Merletti was

next, Senator, do you have an opening statement?

Senator FAIRCLOTH. I do, if I may, please, Senator Campbell.

Senator CAMPBELL. Senator Faircloth, go ahead.
37

Senator FAIRCLOTH. Mr. Chairman, I want to thank you for the

leadership you have given to this Treasury Appropriations Subcommittee, and I look forward to working with you in the years to

come.

Mr. Chairman, as you know, I have very strong feelings about

one of the agencies testifying before us this afternoon, the Internal

Revenue Service.

I understand that Commissioner Rossotti will testify at a later

date about the IRS budget as a whole, but given that Mr. Brown

of the IRS Criminal Investigation Division is here today to discuss

a part of the IRS budget, I want to take this opportunity to announce legislation I plan on offering to reduce the size of the IRS

staff and, correspondingly, increase in size the Drug Enforcement

Administration.

Later today, I will introduce the American Priorities Act to restructure these two agencies. It is my intention, Mr. Chairman, to

offer a similar bill as a rider to this year’s Treasury appropriation

bill.

First, and most importantly, this bill corrects a serious imbalance in our national priorities by transferring one-third of the enforcement agents at the Internal Revenue Service to the Drug Enforcement Administration by January 1999, and, second, by the

same date, the bill establishes a Cabinet-level department to marshal the resources necessary to adequately fight a real war on

drugs. By so doing, we would affirm our resolve to the American

people and those people abroad that this is a war we intend to win.

Over the last 5 years, drug use, which slowed in the 1980’s and

early 1990’s, has increased with a vengeance. Particularly hard hit

have been children. Schools are not safe. Children are born addicted to crack and other hard drugs, which are now cheap and

plentiful throughout our Nation.

Drug-related violent crime is soaring. Most troubling of all has

been the creation of a class of violent drug-addicted youth predators who terrorize our citizens with almost irrational and depraved

violent crimes, from car-jacking in shopping malls to drive-by

shootings on city streets and gang violence in schools.

Yet, what is the administration’s reaction? It claims the so-called

war on drugs cannot be easily won; that it will take 10 or more

years to even begin to control the drug trade.

Such a piecemeal application of resources is not a recipe for victory. We need a bold and dramatic shift in Federal resources to end

the drugs taking over our young people, and that is simply what

is happening. If this is to be a true war on drugs, then we need

a Desert Storm, not a Vietnam.

Where expertise has been developed within the IRS to fight

drugs, that expertise will be retained, but shifted to an agency

whose mission is fighting the war on drugs, not waging a war on

law-abiding taxpayers. The IRS has over 100,000 employees, 46,000

of whom are enforcement officials.

Recently, congressional oversight has revealed the agency has excess enforcement resources which are not serving the public interest. Now, this is a congressional oversight committee. Instead,

these excess resources are being engaged in the bullying of lawabiding American citizens, and it is no wonder that with over
38

100,000 employees, 46,000 of which are enforcement agents, the

IRS is running out of things to do.

By contrast, the DEA, which is at the forefront of stemming the

drug trade, has only 8,500 personnel, only one-half or less of whom

are special agents, or about 4,000 DEA special agents as compared

to 46,000 in enforcement in the IRS.

If the war on drugs is to be won, we need to radically reallocate

our natural resources. I would suggest that moving about one-third

of the IRS enforcement agents to the DEA is a good first step.

Further, as a member of the Treasury and General Government

Appropriations Subcommittee, I plan to offer a version of this bill

as a rider to this year’s budget.

Mr. Chairman, I held hearings last December on IRS abuses. I

can tell you from my own conversations with hundreds of North

Carolina taxpayers that the American people live in fear of the IRS

like no other agency. I only wish that the drug traffickers who

plague our nations were as frightened.

Mr. Chairman, it is time that the Federal Government start investigating drug dealers as intensely and with equal intensity as

the IRS investigates American taxpayers.

Thank you, Mr. Chairman.

Senator CAMPBELL. We will now proceed.

Director Merletti, since you are here to testify on behalf of the

Secret Service and not the IRS, I think you are safe to proceed.

[Laughter.]

Go.

STATEMENT OF LEWIS C. MERLETTI

Mr. MERLETTI. Thank you.

Mr. Chairman, Senator Kohl, Senator Faircloth, I am privileged

to come before you today for the first time in my capacity as Director of the U.S. Secret Service.

Present with me today is my executive staff. Among them are my

Deputy Director, Bruce Bowen; and my newly appointed Assistant

Director for Administration, Jane Vezeris.

While this is my first appearance as Director, my career in the

Secret Service spans 23 years, and I am well aware of the historically strong relationship between this committee and the Secret

Service. This committee has been most supportive of the agency’s

people and their mission, and I intend on continuing my agency’s

tradition of working with all of its members, cooperatively and honestly.

As you know, my agency is charged with the vital mission of protecting the President, the Vice President, foreign heads of state,

and others. It also contributes to the protection of the Nation’s financial stability by ensuring the integrity of the Nation’s currency,

financial obligations, and institutions.

Having worked as a special agent in three field offices, and as

a supervisor on the protective details of Presidents Ronald Reagan,

George Bush, and Bill Clinton, I know firsthand that the protective

and investigative missions appear distinct, but are, in fact, inseparable.

The skills developed by agents during their investigative and

protective assignments are invaluable to both missions. Most, if not
39

all, of our training carries with it dual applicability. The Service’s

unique forensic and technical capabilities are also applied regularly

to both our investigative and protective missions.

The Secret Service will work vigorously to meet the unique challenges posed by our protective and investigative missions. The fiscal year 1999 budget request totals $612.8 million and provides the

funding necessary to meet those challenges.

New technologies present sophisticated threats to our protectees,

and we continue to meet those challenges by developing and applying appropriate countermeasures to detect and neutralize those

threats.

By studying assassination attempts worldwide, the Secret Service can assess an assassin’s method of attack, weapons of choice,

and motivations. These assessments influence our training, resource allocation, security methods, and equipment needs.

In fact, on February 9, 1998, just 17 days ago, a group of terrorists attacked a motorcade of President Shevardnadze of the Republic of Georgia. Within 3 days, a Secret Service team was dispatched

to Tbilisi, Georgia, to evaluate that attack. The team returned this

past weekend with information which will prove invaluable to our

armored limousine project.

As a matter of fact, just made available to me were some photographs which we brought back from that assessment, and I offer

these photos, if you would like to take a look at them.

Senator CAMPBELL. Why don’t we have those brought up here

while you are continuing your testimony.

Mr. MERLETTI. Further, our trip enforced our belief that we must

stay current in technology, equipment, and training in order to deal

with these threats.

Protection-related initiatives in our 1999 budget request are driven predominantly by three major factors. First, we must be continually vigilant in uncovering and investigating threats through a

comprehensive intelligence program. New methods of attack and

the emergence of new terrorist group demands additional resources

to address this problem.

Second, as previously mentioned, we must combat the new

threats with new technology. This will require not only acquiring

the new technology itself, but also hiring the employees to operate

it.

Third, and perhaps most significant, we must ensure that our

agents are properly trained and are at their optimum physical and

mental capacities.

This past year, agents working on permanent protective details

were working hours the equivalent of one and one-half agents. Incredible work demands resulted in these agents often working

weekends and weeks without days off, and longer periods without

training. For the safety of both the protectees and agents, it is absolutely essential that protective details are properly staffed.

In fiscal year 1999, we must begin to prepare for the Presidential

campaign in the year 2000. Absent an incumbent candidate, we anticipate, as you said, Mr. Chairman, a far greater number of candidates.

Our investigative mission is also being challenged. With the development of highly innovative technologies related to financial
40

transactions such as electronic banking, the Internet, and wireless

telecommunications, there has emerged new methods of defrauding

financial institutions, commercial enterprises, and individuals.

Here, too, in the investigative arena, we make every effort to

study emerging technological trends in criminal activity in an effort

to accurately assess the adequacy of our resources. We had hoped

for the inclusion of several investigative initiatives, but we recognized that hard decisions had to be made by others, and, hopefully,

we can address those initiatives in the future.

As an agency, we will meet our investigative and protective challenges, as we have throughout our 133-year history. We have been

conducting criminal investigations since our inception in 1865 and

have provided protection to the Presidents and others for nearly a

century.

During the past 8 months that I have served as Director, I have

become stronger in my long-held belief that the strength of the U.S.

Secret Service lies in its people.

The Secret Service personnel are career civil servants. They

carry out their duties with commitment, dedication, professionalism, and competence, day in and day out, in the United States and

throughout the world. They take great pride in their agency’s history and mission. For that, I am proud of them.

I again wish to thank this committee for its support and, as the

Director, pledge my continued commitment and cooperation.

PREPARED STATEMENT

Mr. Chairman, with your permission, I am submitting a more detailed statement for the record and would be glad to answer your

questions.

Senator CAMPBELL. Your complete statement will be included in

the record.

[The statement follows:]

PREPARED STATEMENT OF LEWIS C. MERLETTI

Mr. Chairman and members of the Subcommittee, I am pleased to be here today.

This is my first appearance before this Subcommittee as Director of the Secret Service and I want to let you know that my colleagues and I pledge to continue the

forthright, effective, and cooperative working relationship that exists between the

Subcommittee and the Service.

With me today, Mr. Chairman, are Bruce J. Bowen, Deputy Director; Jane E.

Vezeris, Assistant Director for Administration; Brian L. Stafford, Assistant Director

for Protective Operations; Stephen M. Sergek, Assistant Director for Protective Research; Kevin T. Foley, Assistant Director for Investigations; Stephen V. Iannucci,

Deputy Assistant Director for Inspection; Charles N. DeVita, Assistant Director for

Training; Terrence Samway, Assistant Director for Government Liaison and Public

Affairs; and John Kelleher, Chief Counsel.

FISCAL YEAR 1999 APPROPRIATION REQUEST

The Service’s fiscal year 1999 funding request totals $612.8 million and 5,042

FTE’s, and is comprised of three separate appropriation accounts: the Salaries and

Expenses account; the Acquisition, Construction, Improvement and Related Expenses account; and the Violent Crime Reduction Trust Fund account. In addition,

funding is to be made available from the Department’s Asset Forfeiture Fund. Together, the total funding requested is $23.3 million, or 4.0 percent, above the level

of funding the Service received this fiscal year.

With this funding, the Service expects to further advance the attainment of its

two mission goals, which are: to maintain the highest level of physical protection

possible through the effective use of human resources, protective intelligence, risk
41

assessment, and technology; and to protect the integrity of the nation’s financial systems through aggressive criminal investigations and assessing trends and patterns

to identify preventive measures to counter systemic weaknesses.

SALARIES AND EXPENSES (S&E)

The Service’s Salaries and Expenses appropriation request for fiscal year 1999 totals $606,357,000 and 5,042 FTE positions, of which $11,700,000 shall be derived

from the Violent Crime Reduction Trust Fund (VCRTF). This is an increase of

$25,676,000 and 42 FTE’s over the fiscal year 1998 appropriated level of

$580,681,000 and 5,000 FTE’s. This request includes: $6,973,000 and 35 FTE’s in

program increases; $19,552,000 in upward adjustments necessary to maintain current program performance levels; a net increase of $323,000 transferred from the

Acquisition, Construction, Improvement and Related Expenses (ACIRE) account;

$7,732,000 in mandatory workload changes; 27 FTE’s and $7,864,000 for initiative

annualization; and $3,427,000 for a base program initiative. These increases are

partially offset by $20,195,000 and 20 FTE’s in non-recurring costs.

S&E PROGRAM CHANGES

The Service is requesting $5,049,000 and a total of 25 special agents for assignment to the Presidential, Vice Presidential, and Former Presidential Protective Divisions, and the Special Services Division. The threat of terrorist activity directed at

the United States and its interests continue to be a significant concern to the Secret

Service. As a result, the Service’s security measures are continually reviewed and

enhanced as necessary.

The Service is also requesting $1,924,000 and 10 FTE’s for critical support in providing Protective Intelligence (PI) Advances required for protection of the President

when he travels; the Foreign/Domestic Counterterrorism Program; and the Exceptional Case Study Project in direct support of the risk assessment strategy. These

additional positions will enable the Intelligence Division to achieve its goal of conducting all Presidential PI advances, domestic and abroad.

ACQUISITION, CONSTRUCTION, IMPROVEMENT, AND RELATED EXPENSES (ACIRE)

The Service’s fiscal year 1999 request for the Acquisition, Construction, Improvement, and Related Expenses (ACIRE) account is $6,445,000; a reduction of

$2,354,000 from the fiscal year 1998 appropriation of $8,799,000.

Of this amount, $3,145,000 is required for technical support services, dual operations, moving services, Computer Aided Drawing and Design-Computer Aided Facility Management, building operations contractor support, health and fitness services, and lease-to-own copiers relative to the Service’s headquarters relocation.

Funding for these fiscal year 1999 requirements is the responsibility of the Service,

and is not covered with the construction of the building through the GSA’s Federal

Buildings Fund.

Also budgeted under this account is $3,300,000 required for operations and maintenance of the physical plant of the Service’s James J. Rowley Training Center.

RESULTS ACT

The Performance Report for fiscal year 1997 is included in the fiscal year 1999

budget request. This report presents actual fiscal year 1997 performance results.

Fiscal year 1997 was an extremely productive and demanding year for the Secret

Service. The total number of trips for all protectees was higher than the number

estimated. Although permanent protectee travel was slightly under that which was

estimated, protection of foreign dignitaries was significantly higher. In addition to

the normal demands of protection, other significant protection activities during the

past fiscal year included the Presidential Inauguration, the Environmental Summit

in New York City, the Denver Economic Summit, and the United Nations General

Assembly.

With resources being redirected from last fiscal year’s Presidential Campaign protective activities back to investigative areas, the Secret Service closed nearly 5,000

more criminal cases during fiscal year 1997 than in fiscal year 1996 for a total of

32,430 criminal cases closed. Continued emphasis on significant cases resulted in

13,649 arrests, an all-time high for the Secret Service. Further, the Secret Service

Uniformed Division reported an additional 1,019 arrests.

In accordance with overall Treasury Department goals, the Secret Service continues to place an emphasis on the investigation of financial crime. These cases have

a significant impact upon the public and financial institutions. During fiscal year
42

1997, a total of 2,462 financial institution fraud cases and 2,497 access device fraud

cases were closed.

For fiscal year 1996, the dollar value of counterfeit money passed per million dol- lars of genuine currency was $88. For fiscal year 1997, the volume of counterfeit

money passed dropped to $77 per million dollars of genuine currency. This drop

means a substantial savings in dollars lost to counterfeiting for the American public.

We continue to focus our efforts to curb the counterfeiting of U.S. currency in for- eign countries. A total of $2,938,170 in counterfeit currency was passed and

$61,130,551 was seized in foreign countries during fiscal year 1997. This level of

counterfeit currency passed is 52 percent below the level of last year.

PROTECTIVE PROGRAM

The Secret Service protective operations program provides security for the President, the Vice President and other dignitaries and designated individuals, as well

as the protection of the White House complex and foreign missions within the Washington, D.C. area.

The President and Mrs. Clinton, and Vice President Gore, continued their extensive domestic travel schedules. The President’s international travel included visits

to 13 countries and Mrs. Clinton visited 10. The Vice President visited five countries

last year. In addition, there were 87 foreign trips completed by the former Presidents and their spouses.

With the tremendous support and outstanding work performed by all of the staff

within the Service, the Office of Protective Operations successfully coordinated a

number of major protective events. The Presidential Inauguration in January 1997

is an excellent example of how the strong working relationships developed by the

Service with other federal and local agencies ensured a safe and memorable day for

the entire country. The Secret Service also provided security for 168 protectees at

a number of major events such as the Caribbean Conference, Volunteer Summit,

America’s Summit, Economic Summit, Environmental Summit, and the 52nd annual

United Nations General Assembly. These events take significant planning, deployment of resources, and coordination with local law enforcement to be successful.

To address the threats of international and domestic terrorism, each of these

events required that the Service develop a comprehensive security plan. This placed

a tremendous burden on the Service’s resources. The Service’s preparatory efforts

contributed to the success of each and every event. Nevertheless, technological advances throughout the world only enhance the opportunities for terrorists activity.

To meet these challenges, the Secret Service must continue its aggressive approach

to integrating the latest developments in technology. The compromise of Presidential security is not an option for this agency or the nation.

The Secret Service was faced with a unique situation this past year when First

Daughter Chelsea Clinton began her freshman year at Stanford University in California. The effort to provide appropriate and necessary security for Ms. Clinton

under these circumstances is an ongoing challenge for the Service.

Progress was made on several projects that are underway for the White House

complex, including the new White House Access Control system, construction of

booths and barriers along Pennsylvania Avenue, and the installation of additional

ballistic windows. At the Main Treasury Building and Annex, additional security

cameras were installed to assist with alarm assessment. New perimeter alarms

were installed at the New Executive Office Building. Additional security lighting

was installed at the Vice President’s residence at the Naval Observatory. Additionally, a new Service command post with enhanced security has been constructed at

Vice President Gore’s Carthage, Tennessee, residence. Currently, a new middle perimeter fence, a guard booth, and an upgraded alarm system are also being installed

at this residence.

The Office of Protective Operations is also continuing a process to obtain stateof-the-art primary armored vehicles in support of the protective mission. A contractor has been selected to work with the Service on this effort.

During fiscal year 1999, the Service will commence planning for the 2000 Presidential Campaign and subsequent Inauguration which will take place in January

2001.

PROTECTIVE RESEARCH PROGRAM

The Office of Protective Research has oversight of the Service’s protective intelligence, technical security, communications, and information technology resource

management support for both the protective and investigative missions.

Protective intelligence serves a critical role in the Secret Service’s protective mission. The Intelligence Division develops threat assessments in support of protectee
43

visits to domestic and foreign settings; provides warning indicators for specific and

generalized threat environments; maintains liaison with the mental health, law enforcement, and intelligence communities; and conducts operational studies that are

needed to stay at the forefront in the effort to predict the likelihood of danger.

The recently-completed Exceptional Case Study Project (ECSP) will enhance the

Secret Service’s ability to identify, assess, and manage persons who might pose a

risk of violence toward its protectees. The ECSP also developed information relevant

to the Service’s risk assessment procedures, physical protection techniques and

training methodologies. The study analyzed the thinking and behavior of persons

known to have attacked, or approached with a weapon, a prominent public official

or figure in the United States since 1949.

The Service continued to upgrade its Protective Intelligence Information Systems.

This will enhance our capability to search text and report protective intelligence activity. Completion of the upgrade is scheduled for this fiscal year.

The technical security program was instrumental in completing the construction

of the U.S. Secret Service Joint Operations Center and the Emergency Operations

Center. The facility provides a centralized command, control, and communications

center of all physical and electronic security for protection of the White House complex. The Emergency Operations Center provides a single coordination site for multiple-agency response during catastrophic or other emergency situations. This center

includes a computerized radio communications system, emergency notification system, multiple-site monitoring of perimeter security systems, video teleconferencing,

electronic event recording system, and event data collection and dissemination.

The Service has made significant progress in converting its information technology systems to ensure Year 2000 compliance. A major effort was completed with

the conversion of the Financial Management and Accounting System. Also, conversion of 85 percent of all other major mainframe applications was completed. A Year

2000 compliant version of the Service’s mainframe operating system is on target for

completion by March 1998. The Service will soon establish a Year 2000 compliant

mainframe test environment, and begin final certification of all mainframe systems.

The Year 2000 compliance issue is the highest priority for the Service’s Chief Information Officer (CIO).

The Service is in the final phase of transferring its wide area communications network to the Treasury Communications System (TCS) network. The TCS network architecture is designed to support the Service’s planned future information technology architecture. All domestic field offices have been transitioned to TCS. Headquarters and overseas offices are scheduled to be completed by May 1998.

INVESTIGATIVE PROGRAM

The Secret Service’s primary investigative mission is the safeguarding of the payment and financial systems of the United States. Historically, this has been accomplished through the enforcement of counterfeiting statutes to preserve the integrity

of the United States’ currency, coin, and financial obligations, and subsequently in

enforcement efforts directed at ensuring the integrity of alternative payment and financial devices supplanting currency.

In modern day society, electronic and computer technologies facilitate many essential activities of everyday life. Their importance to the United States and global financial infrastructures is an illustration of just how dependent society has become

on these innovations.

The world’s economies continue to merge into one borderless and seamless web,

powered by the development of impressive technologies like electronic banking and

commerce, electronic payment systems, smart cards and digital currencies. Consequently, all facets of this nation’s economy will become inextricably linked.

The Secret Service believes that its primary enforcement jurisdictions will continue to be crucially important in the 21st century. Thus, it has adopted a proactive

approach to monitoring the development of powerful new technologies, and has continued to develop partnerships with industry to identify potential vulnerabilities to

financial systems.

The Secret Service routinely encounters a number of ‘‘non-traditional’’ organized

criminal groups operating on a transnational basis. These diversified criminal

groups emanate from the West African, Asian, Middle Eastern, Central/South American, and Eastern European populations. The use of the computer has given these

criminals a means to expand globally, coordinating their illicit activities and generating counterfeit and fictitious financial obligations such as Federal Reserve Notes,

commercial checks, traveler’s checks and credit cards. In his National Security

Strategy for a New Century, President Clinton, recognized international organized
44

crime as a threat to vital national economic interests and pledged that the U.S.

would use whatever means are necessary to secure its vital interests.

With the emerging technology and popularity of the Internet, the Secret Service

has seen an alarming increase in identity fraud. Accordingly, the Internet will continue to have vulnerabilities which can allow confidential business information and

sensitive personal information to be compromised. It is well known that the major

Internet Service Providers (ISP’s) are constantly updating security measures and

have been receptive in establishing liaison with law enforcement in an effort to preserve the integrity of the Internet. Discussions are currently underway between the

law enforcement and ISP communities to establish an association designed to share

concerns and discuss security issues.

According to the President’s Commission on Critical Infrastructure Protection, the

U.S. financial system is central not only to domestic and global commerce but also

to 10 million jobs and the daily lives of virtually all Americans. That system processes $3 trillion in daily payment transactions, represents $4.5 trillion of bank holdings and $8 trillion in capital and investments. It is increasingly dependent upon

various telecommunication systems. Private industry is interested in utilizing the

Internet to conduct electronic commerce. This may revolutionize the way business

is conducted and continue to promote a more global economy. By the year 2000,

there could be one billion users on the Internet. This equates to one billion potential

customers. A number of banks are utilizing the Internet to offer on-line banking

services. In addition, many retailers are using the Internet to allow customers access to goods and services in exchange for payment by credit card. Such transactions

result in the electronic transfer not only of credit card numbers, but also of the subscriber’s personal information.

Unfortunately, ‘‘hackers’’ have demonstrated an ability to access and download

this information for account takeover schemes and other similar fraud. A criminal

can literally take over someone’s credit card or bank account, without the victim’s

knowledge. A criminal’s fraudulent use of an individual’s personal information to

perpetrate a separate fraud can ruin the victims’s credit history as well as thwart

law enforcement’s ability to investigate such activities. As a result, banks and credit

card associations have been developing methods of encrypting credit card numbers

and customer personal identification information to facilitate secure Internet payments. These precautionary measures notwithstanding, identify fraud remains a

problem to the degree that persons with unauthorized knowledge of Internet access

codes can still penetrate computer infrastructures.

The Secret Service, through its partnership with private industry, is examining

new vulnerabilities associated with ‘‘smart cards.’’ In Europe, smart cards used for

pay telephones have already been counterfeited. A laptop computer was used to reprogram phone card chips to allow unlimited free calls. This type of chip manipulation is of serious concern to the Secret Service as we move closer to global implementation of this technology in the international financial arena.

Nigerian Advance Fee Fraud has arguably become the most lucrative financial

crime committed by Nigerian criminals worldwide. Conservative estimates place the

annual financial loss associated with these frauds in the hundreds of millions.

The Secret Service hosts an annual International Nigerian Crime Conference. The

most recent conference held in Atlanta, Georgia, was attended by more than 700

representatives of law enforcement (including police officials from more than 20

countries) and the private sector. This typifies the ‘‘success through partnerships’’

philosophy adopted by law enforcement agencies to combat Nigerian and other organized criminal groups. The Secret Service operates under the belief that investigation, interdiction, public education, and partnerships are the building blocks for suppressing criminal activity.

As I mentioned earlier, United States currency is the currency of choice throughout the world. Maintaining confidence in the integrity of the U.S. Federal Reserve

Note is of paramount importance to the nation.

Today, thanks in part to the Service’s efforts, U.S. currency enjoys worldwide confidence and acceptance. The Federal Reserve estimates that of the $380 billion of

U.S. currency circulating, about two-thirds ($250 billion) circulates abroad. GAO testified, before the House, that the willingness of foreigners to hold U.S. currency represents an interest free loan of over $10 billion annually to America’s taxpayers. I

am very proud of the key role the women and men of the Secret Service play in

upholding that confidence and generating that savings.

Counterfeiting production methods have evolved over the years, from the traditional method of offset printing to color copiers and, more recently, to scanners, computers and inkjet printers. Today’s counterfeiter with little training, skill or experience, can produce counterfeit currency with computer skills obtained through trial
45

and error and public information. Counterfeiters using computers could transmit

quality images of U.S. currency anywhere, via the internet.

Of the domestic counterfeit currency printing operations suppressed during fiscal

year 1997, 73 percent were inkjet in nature, as compared to 19 percent in fiscal year

1995. Currency counterfeiting through the use of computers is likely to increase,

since these instruments of production are readily available and continue to improve.

The Secret Service’s strategy in combating this counterfeiting trend is threefold.

The first concerns legislative proposals. Secretary Rubin has asked the Justice Department to join Treasury in working with the United States Sentencing Commission to review the guideline ranges of imprisonment for counterfeiting cases. The

Department will also address the issue of providing the Secret Service administrative forfeiture authority related to instrumentalities of counterfeiting.

The second part of the strategy involves cooperation with computer-related industries to suppress computer-generated counterfeiting of U.S. currency. A meeting

with industry representatives is planned to discuss this issue to develop a working

plan to identify technological solutions. The Secret Service sees this meeting as the

first step in maintaining a continuing dialogue with computer hardware and software manufacturers.

The third part of the strategy involves a public education campaign highlighting

the security features in the new currency. In addition, the importance of the public’s

scrutiny of the currency they receive, as well as the detection of counterfeit currency, will be stressed. We expect to undertake this campaign in conjunction with

the introduction of the new $20 Bill.

ROWLEY TRAINING CENTER

The Service’s Office of Training has consolidated the construction of the Administration and Classroom Buildings at the Rowley Training Center into a single, costeffective project that will be presented for competitive bids this March. The anticipated construction start date is this summer, with completion expected next fall.

A state-of-the art close quarters tactical range building (shoot house) has been

planned, designed, and approved. It will be offered for competitive construction bids

early this spring.

The Service continues to utilize state-of-the-art modeling software for the Security

and Incident Modeling Laboratory (SIMLAB) necessary for the development of realistic protective scenarios for training purposes. The Service has begun the SIMLAB

pilot training programs for the Presidential Protective Division and the Vice Presidential Protective Division. A major benefit of the SIMLAB program is its utility

in the risk assessment process. SIMLAB will ultimately enable the Service to tailor

protective manpower to protective threats and to equip detail personnel with protective equipment that matches the expected threat.

The Secret Service has entered into a formal partnership with Johns Hopkins

University to pursue cooperative projects that will enhance and validate the efficiency and effectiveness of the Service’s law enforcement training. Faculty from

Johns Hopkins will participate with the staff of the Rowley Training Center to provide comprehensive instruction in the most innovative police management principles

and techniques. This partnership will have a direct impact on curriculum review

and will result in modifications to the basic agent training course.

The Office of Training, in cooperation with the American Bankers Association, has

designed and developed a pilot financial crimes training course for special agent personnel. In addition, two financial crimes seminars were presented exclusively to

U.S. Attorneys from around the nation. Also, six Dignitary Protection Seminars

were presented to command level police personnel from various agencies. All of

these classes served to enhance investigative and protective cooperation throughout

the law enforcement community. In addition, in cooperation with the U.S. Customs

Service, the Secret Service has expanded its Counter Assault Team training program to include air interdiction training to accomplish our protective mission.

SECRET SERVICE HEADQUARTERS CONSOLIDATION

Work on the Service’s new headquarters building is proceeding on schedule, with

construction expected to be complete in the summer of 1999; occupancy is expected

to begin shortly thereafter. Concrete slab and column construction is complete to the

7th floor, with the building expected to reach its full height of 110′ this spring. Once

the concrete structure is in place, the addition of glass window panels and exterior

brick will commence. Interior systems and drywall work will immediately follow the

completion of the building’s exterior. We are very much looking forward to having

our own facility.
46

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

questions that you or other members of the subcommittee may have.

STATEMENT OF SAMUEL H. BANKS

Senator CAMPBELL. And, last, Mr. Banks, if you would continue.

Mr. BANKS. Thank you, Mr. Chairman.

It is a pleasure to be here today before this subcommittee with

Under Secretary Kelly and my colleagues.

The fiscal year 1999 budget request for the Customs Service totals $1.8 billion and 16,766 FTE’s. This is an increase of about

$125 million and 111 FTE’s over the current year. About one-half

of that increase is dedicated primarily to maintaining current levels of operation. The other one-half, $68 million and 31 FTE’s, is

going to be focused in the areas of narcotics, money laundering, integrity enhancement, child labor enforcement, and narcotics detection technology.

Customs’ foremost priority continues to be narcotics interdiction.

This agency is the first line of defense against drug smuggling into

the United States, and the opportunities for smuggling are

daunting.

Each and every day, Customs processes 1.2 million people at our

ports. That is almost twice the population of the District of Columbia. Each year, we check 18 million commercial shipments and 4.5

million sea containers.

A truck crosses the Southwest border into the United States

every 5 seconds. We enforce a myriad of trade laws on those people

and goods coming into the country, and, incidentally, we collect

over $22 billion in revenue, a 15-to-1 return on our S&E budget.

We will also match our enforcement record against anyone, seizing

982,000 pounds of narcotics, $240 million in currency and negotiable instruments, and over 20,000 arrests last year.

How do we face such an enormous workload without a doubling

in size? Basically by trying to make careful investment decisions.

With our proposed budget for 1999, $54 million will enable us to

continue implementing our 5-year technology plan. That will deploy

narcotics enforcement technology at high-risk sea and land border

ports. We are going to expand our automated targeting system, a

computerized system to help us focus in on those high-risk shipments, and to install large-scale mobile x rays and gamma ray

equipment to help sort through and inspect the 129 million conveyances and the 850 billion dollars’ worth of trade that crosses our

border.

In fiscal year 1999, we will add 54 agents, intelligence analysts,

and marine enforcement officers to target and interdict drug smuggling cells and enhance money laundering operations. This modest

increase in resources will be focused only on the most high risk and

high impact areas.

The sum of $6 million will be dedicated to implement the Integrity Assurance Program, which includes revamping our recruitment

screening process, conducting polygraphs, running more undercover

operations, and, last, $3 million is to initiate a child labor enforcement program. Mr. Chairman, we believe this is a modest, reasonable, responsible budget, and it will help us to ensure that the Nation’s borders are protected.
47

If you talk to our officers in the field, I think you will find them

to be incredibly dedicated and committed to the mission. We need

to support them with the right tools, the automation, and the technology to sort through the massive cargo and humanity, to find

those violators without impeding legitimate traffic. It is a big job,

but not an impossible one.

We will do our best to ensure the money appropriated to us is

well spent and that we give you and the American taxpayer the

highest return on your investment.

Thank you very much.

PREPARED STATEMENT

Senator CAMPBELL. I thank you for your testimony, Mr. Banks.

We will insert your complete statement in the record.

[The statement follows:]

PREPARED STATEMENT OF SAMUEL H. BANKS

Good afternoon, Mr. Chairman and Members of the Subcommittee. I am pleased

to be here today and present to you Customs successes from the past year, the current strategies we are undertaking to accomplish our multi-faceted mission, and our

fiscal year 1999 budget request. It is our goal over the next year to continue to build

upon the excellent working relationship we have with this Committee. Your strong

support of the Customs Service has been vital to our success as one of the Nation’s

primary border interdiction agencies.

While much of our past year’s success is the direct result of the ingenuity, dedication and hard work of Customs employees, we have also enjoyed many successes

working cooperatively with other Federal, state, and local law enforcement agencies,

the trade community, and foreign governments. We will look to strengthen these important partnerships further in the future.

NARCOTICS ENFORCEMENT

Similar to past years, Customs remains in the forefront of our Nation’s narcotics

interdiction and investigative efforts. Our foremost priority continues to be narcotics

interdiction. In fiscal year 1997, Customs nearly matched its all time high seizure

record set in fiscal year 1996, by seizing 982,815 pounds of narcotics.

In order to meet the challenge of policing the Nation’s borders against drugs, Customs has continued to develop and wed new technologies with conventional

inspectional and investigative techniques. Last fiscal year, over 118 million automobiles, 9.3 million trucks, 321,000 railcars, and 4.5 million sea containers entered

the United States creating an enormous window of opportunity for drug smugglers

and a massive drug enforcement dilemma for Customs. Each year, drug smugglers

probe for and exploit weaknesses in Customs enforcement shield in, around, over

and under our air, land, and sea ports of entry. Drug Smuggling Organizations continue to diversify their smuggling routes and have increased the sophistication of

their smuggling techniques. They have established elaborate front companies, both

foreign and domestic, to facilitate the movement of illicit drugs; conspired with dock

workers and baggage handlers to form internal conspiracies to circumvent the Customs inspection process; deployed stealth boats and sophisticated air drop procedures to go around established ports of entry; and established sizable spotter networks in and around our ports of entry to ‘‘pick and choose’’ smuggling times and

routes.

In fiscal year 1997, Customs continued its efforts to fight smuggling along the

Southern Tier of the U.S., including Puerto Rico and the Virgin Islands. Through

Operations HARD LINE and GATEWAY, which were made possible with this Committee’s support, we have hired, trained, and placed 677 new employees along the

Southern border and Caribbean Basin.

In fiscal year 1997, Southwest border seizures under Operation HARD LINE were

33,106 pounds of cocaine, 602,549 pounds of marijuana, and 197 pounds of heroin.

Operation GATEWAY, the multi-staged operation designed to address the air and

maritime threat in Puerto Rico, the Virgin Islands, and their surrounding waters,

also continued to show positive results. Since the start of the second year of operation, March 1, 1997, through January 31, 1998, GATEWAY has resulted in the sei-
48

zure of $3.4 million in currency, 16,693 pounds of cocaine, 376 pounds of marijuana,

and 92 pounds of heroin.

Customs has developed an investigative strategy that focuses activity and resources in those areas where it is estimated the majority of the illegal drugs enter

the U.S. The strategy also targets those areas where our intelligence indicates Drug

Smuggling Organizations’ ‘‘command and control’’ structures are centered. The approach is designed to enhance both internal and external cooperation and intelligence sharing, while maximizing the unique investigative and interdiction capabilities of Customs.

Industry partnerships

To assist in deterring narcotics smuggling, Customs developed and deployed a

number of innovative programs and detection technologies that act as force multipliers to meet our enforcement goals. Customs continues to expand its Carrier Initiative Program (CIP) with the truck industry and with Southwest border railroads

as well. This program is a joint effort by Customs and the transportation industry

to reduce smuggling in commercial conveyances. Presently, 3,900 carriers (875 land,

110 air, and 2,915 sea) have signed agreements with Customs. Building on the CIP,

Customs established the Business Anti-Smuggling Coalition (BASC) with Southwest

border importers. In fiscal year 1997, information from these two programs resulted

in 74 seizures totaling 12,700 pounds of narcotics. We believe these partnerships

play an important role in combating narcotics smuggling. Last year alone, 43 percent of the cocaine seizures that were made by Customs as a result of prior intelligence, came from information that was provided to Customs by the trade community.

Building on the success of these programs, Customs has developed the Americas

Counter Smuggling Initiative (ACSI), which will expand our anti-narcotics security

programs with industry and government throughout Central and South America.

This initiative is designed to: strengthen cooperative efforts with legitimate businesses involved in international trade; increase actionable intelligence on narcotics

and contraband interdiction; increase participation in CIP and BASC; prevent narcotics from entering the U.S. via commercial cargo and conveyances; increase narcotics seizures throughout the region; disrupt smuggling by an aggressive attack on

internal conspiracies; and force smugglers to use riskier methods such as air drops

and speed boats. Beginning in January 1998, the Offices of Field Operations, Investigations, International Affairs, and Intelligence began detailing Customs officers to

South America to assist exporters, carriers, manufacturers, and other businesses.

These employees will perform security site surveys, develop and implement security

programs, conduct post-seizure analyses, foster information exchange and follow up

activities, and provide guidance on technology deployment and application to safeguard legitimate trade from being used to smuggle narcotics. Target countries include Venezuela, Colombia, Peru, Ecuador, Panama, Costa Rica, and Mexico.

Operation BRASS RING

Although Customs seized nearly 1 million pounds of illegal drugs in fiscal year

1997, more than all other Federal agencies combined, the quantity of cocaine seized

nationwide dropped 12 percent and the amount of cocaine seized in Southwest border cargo dropped significantly last year. To address this, Customs is undertaking

a tough, new approach in fiscal year 1998 to combat narcotics smuggling called Operation BRASS RING.

BRASS RING builds upon the enforcement momentum Customs has generated

through the use of technology, information systems, and trained personnel. Fortytwo high risk ports of entry along the Southern Tier and high threat airports and

seaports have developed and begun implementing 180-day action plans which incorporate innovative approaches such as mobile blitz teams, cargo movement from

small to larger locations which have x-ray technology, railroad inspections, and antismuggling spotter initiatives. BRASS RING is also innovative in that it was developed by field personnel and in partnership with the National Treasury Employees

Union.

Technology

Technology plays an important role in all Customs counterdrug activities. It provides new capabilities to allow inspections to keep up with changing smuggling techniques, acts as a force multiplier, increases enforcement effectiveness and efficiency

and allows us to cope with growing trade and traffic.

With the support of the Administration, Customs has developed a comprehensive

and structured 5-year plan to deploy counterdrug technology to the ports of entry,

subject to budget resources, to significantly increase the smugglers’ risk of detection

along the entire Southern Tier of the U.S. This technology includes: non-intrusive
49

technologies (e.g., fixed and mobile truck x-ray systems, gamma-ray inspection systems for trucks and railcars, and higher energy heavy pallet x-ray systems) to

counter the entry of narcotics along the Southern Tier; technology for outbound currency and weapons at ports along the Southern tier; dedicated commuter lanes

which depend on technologies such as voice recognition, biometric identification,

‘‘smart cards’’ (a chip on a credit card-sized card which stores information about the

individual), and vehicle movement control technologies along the Southwest border;

investigative, intelligence, and encrypted, digital, voice communications technology;

and automated targeting systems. In addition, over the next five years, we intend

to deploy similar non-intrusive inspection technology to high-risk airports and seaports which are not located along the Southern Tier, such as John F. Kennedy International Airport in New York and the Newark Seaport. Recent accomplishments in

the development of new and larger-scale non-intrusive inspection systems will provide Customs with the opportunity for unprecedented improvement in the intensity

and quantity of inbound inspections of cargo and conveyances.

Customs currently operates four truck x-ray systems in El Paso and Pharr, Texas

and Otay Mesa and Calexico, California. In addition, one prototype mobile truck xray system and one prototype gamma-ray system are in place at Laredo and El

Paso, Texas, respectively. The prototype gamma-ray system uses gamma-ray radiation to penetrate the structure of heavier-bodied trucks, such as propane tankers,

to allow Customs to examine both the conveyance and some cargoes for the presence

of contraband. Since the first truck x-ray system became operational in August

1995, this system, and the three others that have become operational since March

1997, have been involved in 150 drug seizures totaling over 38,000 pounds of narcotics. By December of 1998, Customs will have four additional fixed site truck x-ray

systems operational in El Paso, Laredo, and Brownsville, Texas; and Nogales, Arizona.

We believe this type of technology is invaluable in enhancing Customs narcotics

enforcement capabilities without impeding the flow of legitimate commercial traffic.

The fixed site truck x-ray and mobile truck x-ray systems can inspect approximately

eight full size tractor-trailer trucks per hour. The gamma-ray system can inspect

12–15 tractor-trailer trucks per hour. Both of these systems can inspect any vehicle

that is legal for operation on public roadways.

Air and Marine Programs

In fiscal year 1997, the Customs Air Program contributed to the seizure of 51,908

pounds of cocaine, 64,595 pounds of marijuana and 50 pounds of heroin. It also continued assistance to Mexico in the air transit zone and to South American countries

in the narcotics source zone.

Since the implementation of HARD LINE and the strengthening of the ports of

entry, the marine threat has risen dramatically from its previous levels. Over the

past few years, the Marine Program has been scaled back to focus Customs efforts

on other methods of deterring narcotics smuggling. In fiscal year 1997, the Customs

Marine Program contributed to the seizure of 31,538 pounds of cocaine, 25,040

pounds of marijuana, and 39 pounds of heroin. It is imperative to sustain this successful program.

The Customs National Marine Strategy places an emphasis on intelligence-driven

interdiction operations and investigations. Smuggling methods have changed from

the very simplistic (boats with bulk marijuana thrown on the decks or in cabins)

to the very sophisticated (cleverly engineered hidden compartments, as well as air

drops). The contraband has also changed from large, easily detectable cargoes of

marijuana to smaller loads of cocaine. Customs future air and marine interdiction

successes will be based on a flexible response in meeting new external challenges

like those mentioned above.

Railroad inspections

In fiscal year 1997, Customs processed more than 320,000 rail cars at eight major

crossings along the Southwest border—Laredo, Brownsville, Eagle Pass, Presidio

and El Paso, Texas; Nogales, Arizona; and Calexico and San Ysidro, California. Approximately half this volume crossed at Laredo, Texas. In response to the emerging

threat of narcotics smuggling via rail, Customs is increasing its intensive inspections of railroad equipment and is testing non-intrusive technology on railcars. Customs recently completed successful tests of the Vessel and Container Inspection System (VACIS), a gamma-ray imaging system that has been modified for use in the

rail environment. Customs also plans to deploy 47 positions to increase rail inspections by Contraband Enforcement Teams, add rail inspection training to its existing

Southern Border Interdiction Training course, and perform joint operations with

other agencies.
50

Recently, Customs and Border Patrol officials met to coordinate joint inspection

operations on Southwest border railcars. Since the summer of 1997, joint operations

have been held at each of the eight major rail crossings with successful results. To

date, these efforts have produced several marijuana seizures totaling more than 700

pounds as well as the discovery of 17 railcars with false compartments. Custom is

also an active participant in a multi-agency working group formed by Attorney General Reno to address the threat of narcotics smuggling via rail.

MONEY LAUNDERING

Fiscal year 1997 was one of dynamic change in the investigative approach taken

in the area of money laundering investigations and initiatives. As a result of the

programs implemented in fiscal year 1997, Customs money laundering strategy is

now more focused on the disruption and incapacitation of the two key business functions that are the lifeblood of most sophisticated international criminal organizations: laundering and investing the proceeds and profits of their criminal activity.

Asset Removal Teams, undercover operations, training foreign counterparts, and the

establishment of the Money Laundering Coordination Center, discussed below, have

all contributed to improving our money laundering strategy.

In fiscal year 1997, our money laundering efforts resulted in seizures of $257 million in monetary instruments, most of which were related to narcotics trafficking.

The Customs-led El Dorado Task Force in New York met with tremendous results

in disrupting money laundering in the wire remitter industry. Using a combination

of undercover operations and regulatory interventions, such as Geographic Targeting Orders (GTO’s), the task force targeted 12 remitters that sent over $1.2 billion

a year to South America—$800 million of it to Colombia. Their efforts have reduced

the amounts remitted to Colombia by over 30 percent, driving the drug proceeds out

of this system and contributing to the overall rise in the cost of laundering drug

money.

On legislative and regulatory matters, Customs worked closely with the Department of Treasury and the Financial Crimes Enforcement Network, which resulted

in several notices of proposed rule making for enhanced reporting for money services

businesses, wire transfer record keeping requirements, and currency and monetary

instruments reporting on foreign bank drafts.

For fiscal year 1998, our money laundering strategy will build upon the successes

from the previous year. Our Money Laundering Coordination Center will become

operational in fiscal year 1998 and will coordinate Customs nationwide undercover

money laundering operations and follow-up investigations. Customs also plans to expand the use of covert undercover money laundering operations and continue to increase the use of non-traditional law enforcement methods, such as GTO’s, in coordination with the Internal Revenue Service, the Department of Justice, the Financial

Crimes Enforcement Network, and state and local law enforcement.

INTEGRITY

While there is no systemic problem of corruption at Customs, it is necessary to

develop a strong integrity assurance program to counter perceived and potential

threats of corruption. In fiscal year 1997, Customs began an enhanced integrity program to address these issues and redirected resources to strengthen the Office of

Internal Affairs (IA). Of the 45 positions identified for this critical program, 35 have

been filled or selections made. These employees will be devoted to the new Computer Analysis Division (which will perform forensics, analysis, and assessments of

the integrity of automated systems), special operations, inspection and audit, and

other similar functions. Activities, such as inspections and audits, will also increase

current employee awareness of integrity issues.

Pending funding availability requested for fiscal year 1999, IA will also develop

ways to complete background investigations more quickly with a higher degree of

reliability, expand its own polygraph capability to address internal investigations of

alleged misconduct, and acquire the specialized hardware and software to accommodate the FBI’s change to electronic fingerprint technology. Working in concert with

the State Department, IA plans to continue to accommodate other countries’ requests for integrity and internal investigative training. This effort fosters better coordination with other countries’ customs services, and the development of initiatives

of mutual benefit in thwarting international corruption of law enforcement personnel. Customs is exploring changes to its hiring mechanisms to ensure that the highest level of integrity in its work force is maintained.
51

AUTOMATION

Customs has embarked on an aggressive strategy to improve its management of

information technology in response to legislative mandates, such as the ClingerCohen Act and Government Performance and Results Act, the Federal Acquisition

Streamlining Act, and guidance from OMB and GAO. Over the past year, Customs

has developed an investment management process that considers the risks, costs

and benefits associated with potential information technology (IT) investments. This

provides a systematic process within which Customs Investment Review Board

(IRB) can make funding decisions and exercise oversight of Customs IT projects. The

process instills discipline by making the business sponsors responsible for IT

projects, by integrating business and technical risk considerations, and by ensuring

adherence to Customs systems development guidelines.

In addition, major Customs IT projects are under ongoing review by the Treasury

IRB in order to ensure that these investments meet the criteria of the ClingerCohen Act and the goals and strategies of the Treasury Department. One such

project, the Automated Commercial Environment (ACE) is reviewed by the Treasury

IRB every month. The Treasury IRB evaluates the project’s progress against established milestones and performance measures, reviews and approves Customs IRB’s

ACE funding release requests, approves every status report that is sent to GAO and

Congress, and ensures that ACE, as well as Customs enterprise architecture follows

GAO’s best practices.

Also during the past year, Customs has undertaken an extensive self-examination

of how its IT operations support business needs. This effort has enabled Customs

to establish the foundation for developing both an enterprise architecture, which defines how information systems and applications support business needs, as well as

a technical architecture describing the components of the IT infrastructure. As a result of this effort, Customs has strengthened its ability to develop comprehensive

and integrated IT infrastructure assessments and budget proposals. Further, Customs is proceeding with an effort to more fully develop an enterprise architecture

and a process for renewing that architecture in conformance with Treasury guidelines and industry best practices.

Finally, Customs is intensively attacking the problem of Year 2000 compliance.

Customs recognizes the gravity of the situation of our automated trade and enforcement systems, on which the trade and other law enforcement agencies depend, if

our systems are not ready for the Year 2000. Customs is devoting considerable attention and has shifted resources to support the necessary renovation and testing

of IT systems; the replacement of IT software, hardware and telecommunications

that is not capable of operating in the Year 2000; and in addressing Year 2000 problems in such non-IT areas as laboratory equipment, x-ray machines, and building

infrastructure.

While much work needs to be done and many problems can be anticipated, the

Year 2000 conversion effort is meeting with some success. As of January, Customs

is slightly ahead of schedule for ensuring that mainframe mission critical trade, enforcement and administrative systems are renovated and tested by October 1998.

Further, these efforts are currently within budget, although Customs remains concerned about the rising costs of IT professionals in the current tight labor market.

TRADE COMPLIANCE

Through a complete redesign of the trade process and a focus on key industries

and importers, Customs has made good progress toward attaining its goal of 90 percent overall compliance and 95 percent compliance for Primary Focus Industries

(PFI). PFI’s are industries which are of sufficient trade sensitivity to warrant a

heightened degree of attention by Customs with respect to imported goods. The

agency also has been able to sustain a close to 99 percent duty collection rate.

However, with the substantial growth in world trade, coupled with limited resources, it is becoming clear that Customs ability to meet or sustain all of the goals

for trade compliance is increasingly challenged. Customs is continuing to move forward by constantly refocusing its resources on the vital industries and imports, but

has adjusted its performance targets to reflect limited resources.

For fiscal year 1998, Customs has set forth an ambitious agenda. In the trade

compliance area, Customs will initiate a number of positive initiatives. Included are:

an initial prototype of elements of the modernization of Customs automated commercial operations at three land border ports; finalizing and implementing new

drawback regulations to tighten control over this program (which was previously

identified as a Federal Managers Financial Integrity Act weakness); instituting

multi-port compliance efforts focused on three compliance areas (bearings, production equipment, and gloves) to see if greater organizational focus will result in high-
52

er levels of compliance sooner; continuing the informed compliance program with

more focus on high impact areas; and continuing efforts to improve Customs compliance measurement program. Trade Compliance also plans to expand the account

based-approach to 150 accounts; initiate over 100 compliance assessments of companies; develop a similar compliance approach for Mexican and Canadian NAFTA

goods; increase focus on our international cooperation efforts with other countries,

the World Trade Organization, and the World Customs Organization; and finally

continue improvement of our commercial financial systems to improve compliance

with the Chief Financial Officers (CFO) Act. The $11 million appropriated to the

Department of Treasury’s Automation Enhancement account in fiscal year 1998,

and subsequently transferred to Customs, will continue efforts to modernize Customs automated commercial operations.

Account Management

Customs has prototyped the concept of Account Management. The Account Manager is assigned an account (importer) or group of accounts and is responsible for

overseeing the efficient application of Customs processes to the account(s). By viewing import practices from a corporate or account level, Customs can craft strategies

to maximize compliance which are reflective of developing business practices. The

importer benefits by having a single point of contact within Customs.

In fiscal year 1997, Customs had 25 full-time National Account Managers in place

and a growing list of accounts participating in the program. In addition, the prototype of Port Account Management was implemented. The Port Account concept also

focuses on major accounts—importers with annual trade value in excess of $10 million. Successful prototyping has led to a January 1998 expansion of the program

which now numbers 120 accounts, and further expansion is planned for later in

1998. The Account Management approach, as exemplified by these programs, is the

cornerstone for the future of the trade compliance process. While analysis of trade

patterns and determination of compliance levels for industries and countries of origin will remain critical for effective operations, an account focus is the means for

implementing strategies resulting from such analysis. Customs believes that the

vast majority of companies who import goods wish to do so in compliance with laws,

rules, and regulations. The Account approach enables Customs to assist compliant

companies to maintain compliance, while better using its resources and processes

to focus on non-compliant activities. Such a focus will enable Customs to maximize

the enforcement of laws and further develop risk management.

PASSENGER

In fiscal year 1997, the performance target of 60 percent of the arriving flights

providing Customs advance passenger information was met, and Customs continued

to attain a 5 minute or less processing rate for 95 percent of arriving air passengers.

Informed compliance projects continued with the establishment of additional selfservice informational kiosks at 12 airport departure lounges, production of brief television public service announcements for 8 airport television networks, and AM radio

loops at the land borders.

Passenger targeting and identification were enhanced through continued airport

analytical unit training, additional automation improvements to the Advance Passenger Information System (APIS), and improvements to APIS primary processing

screens. Port Quality Improvement Committees (PQIC’s), which are multi-agency,

empowered teams established to increase coordination on local passenger processing

issues, are in place at numerous land border ports and airports, and are used to

coordinate operations between government agencies and industry.

Over the next year, improvements will be made to the passenger compliance

measurement program in the commercial air program area. Customs will continue

efforts to obtain advance passenger information for 65 percent of all international

flights. This will be accomplished by working with various airlines and the Immigration and Naturalization Service.

Customs will also continue to expand automated targeting capabilities; test or install several new technologies, such as automated license plate readers, at the land

borders; and continue efforts to increase the compliance levels of non-willful violators. Most arriving persons choose to be compliant when information for compliance

is easily available. If the number of inadvertent violations can be significantly reduced, inspectional resources can focus more fully on serious violators.

OUTBOUND

In fiscal year 1997, the Outbound Process made significant outbound interdictions

of currency, stolen vehicles, and Exodus violations. Outbound seized more than $55
53

million in undeclared outbound currency. The majority of undeclared currency going

out of the U.S. involved proceeds from illicit activities, with the majority being proceeds from narcotics smuggling into the U.S. Outbound also recovered 2,119 stolen

vehicles worth an estimated $35.3 million. In fiscal year 1997, Customs Exodus Program, an intensified enforcement program intended to intercept illegal exportation

of strategic technology and data, interdicted 1,034 shipments of weapons, munitions,

and critical technology illegally leaving the United States, valued at more than $59

million.

Customs will continue to enforce a wide range of international laws related to illegal trafficking in materials and technologies which threaten U.S. national and economic security and impact on U.S. foreign policy.

To the extent that funds are available, Customs will work to improve the compliance measurement program started last year; continue to work with the trade community to address their concerns in conjunction with the development of the Automated Export System (AES) which will capture all export information; initiate an

automated export license system in AES; standardize used car export procedures;

and further a number of initiatives to deal with willful violators (e.g., test new outbound examination facilities funded by increased appropriations). Outbound will

also evaluate new technologies; support Department of Defense and Department of

Energy foreign export control programs; evaluate a stolen vehicle initiative started

in the Port of Miami; work with our intelligence units to improve outbound currency

interdictions; and continue efforts to implement a credible antiterrorism program in

conjunction with the airlines, airport authorities and with the other Federal agencies tasked with this responsibility.

Antiterrorism

In fiscal year 1997, Customs received $62.3 million for antiterrorism initiatives

to be used to meet the recommendations issued by the White House Commission

on Aviation Safety and Security. To date, Customs has filled 137 of the 140 positions (100 inspectors, 33 agents, 6 intelligence analysts, and 1 technical support position) authorized under the antiterrorism legislation. One hundred inspectors and

10 special agent positions have been assigned to 14 of the largest international airports. In addition, 20 special agents and the intelligence research specialists are

working jointly with the Federal Bureau of Investigation and the Central Intelligence Agency at both field and Headquarters locations.

To support efforts to screen baggage and cargo at international airports, $35 million was specifically authorized to purchase equipment under this appropriation. Of

this amount, $26.4 million has been designated to purchase joint-use equipment

that can be shared with airports, airlines and cargo authorities. Equipment procurement will be accomplished over a three year period. Planned use of the funding includes the acquisition of: mobile x-ray vans with explosive and radiation detection

technology; tool trucks; mail x-ray systems; explosive particle detectors; and radiation detection pagers. Also, for joint-use with airport entities, the heavy cargo pallet x-ray will be tested in July 1998 in Miami, Florida.

An additional $16 million is available to further develop the Automated Targeting

System (ATS) to identify cargo shipments that may pose terrorist threats. A prototype test of this system is scheduled to take place at New York’s JFK Airport in

June 1998.

Since October 1, 1997, Customs made many significant interdictions that support

aviation safety and security at 17 international airports that have received resources under this initiative. Customs has assisted in three terrorist related arrests,

made 65 firearm seizures in baggage and cargo, and made 56 seizures of violative

shipments of hazardous materials and dangerous goods that would have been placed

on aircraft.

FISCAL YEAR 1999 BUDGET REQUEST

Customs proposed appropriation for fiscal year 1999 totals $1,804,025,000 and

16,766 Full Time Equivalent (FTE) positions.

Budget Highlights

Our Narcotics and Money Laundering Strategy will provide essential resources

which will enhance our investigative and intelligence capabilities while enabling

Customs to better anticipate and respond to changes in drug smuggling behavior.

The $5 million and 27 FTE requested will provide us with additional personnel and

investigative assets needed to exploit seizures made at the border and effectively

identify and disrupt the transportation and distribution cells of Drug Smuggling Organizations (DSO’s) within the U.S.
54

The Customs Integrity Assurance Program (CIAP) Initiative of $6 million requested for fiscal year 1999 will allow Customs to conduct more special operations

in partnership with other Federal agencies, place a much stronger emphasis on intelligence and the analysis of investigative data, and increase contract and computer

fraud investigations. In addition, Customs will change the process for hiring law enforcement officers by requiring increased emphasis on pre-employment screening.

The quality recruitment component of the initiative will insure that applicants of

the highest quality and integrity are hired by using written tests, suitability assessments, structured interviews, and the redesigned pre-employment process. Customs

will use the requested funds to develop ways to expedite background investigations

with a higher degree of reliability, expand polygraph capability in order to address

internal investigations of alleged misconduct, and acquire specialized hardware and

software to accommodate the FBI’s change to electronic fingerprint technology.

In order to fully implement an effective child labor enforcement plan, Customs is

requesting $3 million and 4 FTE (7 positions) to fund the three main components

of the Child Labor Enforcement Initiative:

The first component is the establishment of the Child Labor Command Center

which will be located at Customs headquarters and staffed by two special agents

and two intelligence research specialists. The Command Center will act as a clearinghouse for information and provide 24 hour ‘‘hotline’’ telephone service to a wide

variety of audiences in order to provide a venue for allegations about prohibited importations. The second component is the increase in crucial foreign staffing by assigning three additional special agents to areas where forced child labor is the most

common. The third component is Customs engagement in outreach programs with

the trade, government, and non-government organizations, taken in concert with inhouse programs, to achieve successful enforcement of the Sanders amendment to

Customs fiscal year 1998 appropriations act (Public Law 105–61, 111 Stat. 1316).

Our fiscal year 1999 budget request also includes a $54 million Non-Intrusive Inspection Technology Initiative for land and sea ports. As growth in trade and traffic

volumes increase, tools to rapidly screen and comprehensively inspect arriving conveyances and cargo must be deployed. This technology will allow Customs to effectively target and detect high-risk traffic without impeding the flow of legitimate

commercial traffic. This funding will allow Customs to acquire two higher energy

container inspection systems for sea-going containers ($10 million), 12 automated

targeting systems for Land and Sea Ports ($3.4 million), and multiple technologies

for the Southern land border ($40.6 million). This investment in proven technologies

is essential and critical for enabling Customs to blend state-of-the-art equipment

with law enforcement intelligence, thereby enhancing counter-narcotics capability.

Congress’ fiscal year 1998 enactment of $9.5 million for the Land Border Automation Initiative is recurred in this budget. This will have the ancillary benefit of improving targeting of arriving vehicles for enforcement purposes. This is the second

phase of a joint initiative with INS which began in fiscal year 1998. The automated

targeting systems, license plate readers, and Treasury Enforcement Communications System replacement program, will free up inspectors to do more careful visual

screening and questioning of vehicle occupants for enforcement purposes, thereby resulting in increases in detections of violations and subsequent seizures and arrests.

In addition, Customs is requesting $7.252 million and 80 FTE as part of base resources in response to several mandates. The National Performance Review (NPR)

goal to clear most travelers on the southern border in 30 minutes or less and on

the northern border in 20 minutes or less by the year 2000 for land border travelers

by vehicle, and the legislative mandate contained in the Illegal Immigration Reform

and Immigrant Responsibility Act (IIRIRA) of 1996 account for $4.185 million and

46 FTE. The NPR customer service goal is a joint initiative with the Immigration

and Naturalization Service (INS) and the Department of Agriculture. The Immigration law authorizes Customs and INS to cover all primary lanes during peak processing hours and in equal numbers. This staffing and the staffing requested for the

new border crossings, ($2.706 million/30 FTE) will help to support both requirements. Finally, the adjustments reflect the completion of resource levels for the requirement to staff an additional dedicated commuter lane in El Paso, Texas ($0.361

million/4 FTE).

While we have much to be proud of, Customs is still keenly aware of the importance of continuing to explore new and innovative strategies for improving its performance in protecting our Nation’s borders. This concludes my statement for the

record. Thank you again for this opportunity to appear before the Committee.
55

OFFICE OF PROFESSIONAL RESPONSIBILITY

Senator CAMPBELL. Let me ask a few questions, and I think we

may have some that we will submit, if you could answer them for

the record if we do not get to all of them.

Secretary Kelly, the Office of Professional Responsibility was created by Congress as a way for the Department to maintain oversight over the Treasury law enforcement bureaus. Funding was

provided in the fiscal year 1997 and again in 1998 for this office,

and I am told that it has been somewhat slowgoing. Could you tell

me the current status of that Office of Professional Responsibility?

Mr. KELLY. Yes, Mr. Chairman; we have brought six people on

board to date, two administrative personnel and four professionallevel people.

Again, the process was certainly much slower than we wanted it

to be. It was partly as a result of receiving a very large number

of applications. We had over 400 applications for the positions that

we advertised for. So just processing those——

Senator CAMPBELL. What was the total manpower you were

going to include?

Mr. KELLY. A total of 13.

Senator CAMPBELL. Thirteen.

Mr. KELLY. We are underway now. Hopefully, we will have all

of the positions filled by the end of the fiscal year.

Senator CAMPBELL. During consideration of the fiscal year 1998

bill, you requested and received additional statutory authority to

allow the Department to become involved in the International Law

Enforcement Training Academies. And how is that effort going?

Mr. KELLY. Yes, Mr. Chairman; I think it is going well.

We have established ILEA South, we call it, which is in Panama.

We had our first class in Panama started in November. Thirty-two

midlevel law enforcement personnel from Central America attended the course. The feedback was very positive. I went to the

graduation, and I was very much impressed with the quality of the

personnel and their enthusiasm.

Senator CAMPBELL. How long was the course?

Mr. KELLY. The course was 6 weeks, I believe.

Senator CAMPBELL. Is there mostly American instructors?

Mr. KELLY. American instructors from both Justice and the

Treasury Department.

We are now going to have another class starting March 9. It is

also going to be in Panama. It is going to be in a hotel. We are

looking still for a permanent home. We hope to have the facility located at Howard Air Force Base, which, of course, is in a transition

stage now.

It is contingent on negotiations between the Department of State,

DOD, and Panama to get a central antinarcotics training center located there as well, but we are asking for an additional five FTE’s

for ILEA South because the FLETC staff is, quite frankly, thin,

and we believe we need that type of permanent cadre to be in place

as far as ILEA South is concerned.

We also look to staff the Deputy Director’s position in ILEA Budapest. We have an agreement with both the State Department

and the Justice Department to have kind of rotating positions in
56

the two current ILEA’s and a third one proposed for Thailand. So

we think that those positions would be necessary to help us move

this initiative forward.

Senator CAMPBELL. If we could name the Panama Center the

Noriega Center, there would be some poetic in that, wouldn’t there?

I am just kidding.

OFFICE OF FOREIGN ASSETS CONTROL

The Office of Foreign Assets Control falls also under your jurisdiction, and you are requesting additional employees for that function. Could you tell me where they will be located and primarily

what they will be doing?

Mr. KELLY. Yes, Mr. Chairman; their workload has gone up significantly in the last 2-year period. They are particularly involved

in the specialty-designated narcotics traffickers initiative coming

out of Colombia. We look to put at least two OFAC personnel in

Colombia to help do on-the-ground research——

Senator CAMPBELL. These would be Americans?

Mr. KELLY. Yes, sir.

And, in general, to address investigations and research that has

to be in the area of narcotics-trafficking.

Senator CAMPBELL. You are getting good cooperation with the

Colombian authorities and not too much danger to the agents?

Mr. KELLY. No; and this has been very much supported by the

Ambassador and the DCM there. They are looking for OFAC involvement.

DEATH OF CUSTOMS AGENT

Senator CAMPBELL. During the first week of January, there was

a very unfortunate accident that ultimately resulted in the death

of a U.S. Customs agent. I do not know if that question should be

for you, but perhaps you can answer it.

I understood that the agent was unable to get critical medical attention in a timely manner. Can you comment on that?

Mr. KELLY. Yes; I can. I actually responded to the scene, and

Commissioner Banks and I went to the funeral of Manny Zurita,

who was the senior special agent.

The accident occurred about 8:30 at night off the coast of the Virgin Islands. The boat ran into a rock, and three agents were seriously injured. Two others were injured attempting to rescue them.

They ultimately made their way to shore, through other boats, on

the Virgin Islands. There was a determination made there that the

most seriously injured agent, Agent Zurita, should be medivaced to

Puerto Rico. He was, in fact, medivaced. This took, of course, a period of time, several hours, and he was not medivaced until about

11:30 at night.

He went to Central Medical Hospital in San Juan, PR. That hospital is a trauma center, but it has a very high volume of patients

to deal with. It is the only trauma center on the island of Puerto

Rico.

As a result, a certain triage regime was in place when they arrived, and there was some delay in giving adequate medical attention.
57

We arrived the next day. Agent Zurita had been treated, but one

of the other agents who had a compound fracture of his arm had

not yet been treated. That was about 4 o’clock in the afternoon. So

it was an area of concern for us.

Senator CAMPBELL. Was the area where they were picked up an

isolated location, too?

Mr. KELLY. Yes; it was an isolated location. Again, it was in the

dark of night. They had to be brought back to the Virgin Islands

and then medivaced by helicopter to Puerto Rico.

They did not arrive at the hospital until about 2 o’clock in the

morning. This is roughly a 6-hour period of time where they were

not in an adequate medical facility, and then, again, they ran into

the triage issue.

Senator CAMPBELL. Well, they are dangerous jobs. That is for

sure, and we certainly appreciate the courage of people that put

their life on the line for us in doing that.

Let me ask a couple of questions. From that experience, have you

learned anything that would help in a future operation, if we have

any future agents hurt like that or injured in firefights and so on?

Mr. KELLY. I think one of the things that we have to look at is

having adequate medical personnel close by during all operations.

These are dangerous operations by their very nature, being out on

the water in high-speed boats at night, for instance, and I think Secret Service and ATF, they do a fine job in having medical personnel available.

One of the things—all the time, when they are doing, say, tactical operations—I think one of the areas that we want to explore

is having, let us say, Customs personnel trained as emergency

medical technicians, a certain ratio.

Senator CAMPBELL. As it is now, do the other members of these

teams have training in anything other than pure first aid?

Mr. KELLY. To the best of my knowledge, no. There may be some

that are trained, but not as a result of a program.

Senator CAMPBELL. Let me go on to Mr. Magaw.

GANG RESISTANCE EDUCATION AND TRAINING PROGRAM

I am aware of the Gang Resistance Education and Training Program [GREAT]. It has been very successful in Colorado, but we

have some questions about how local jurisdictions can get involved

with that.

Mr. MAGAW. Well, local jurisdictions that are interested in the

program—and we do spread the information around so that there

would not be any major jurisdictions or even minor jurisdictions

unaware—would be aware of the GREAT Program, and they make

application. There is a set of guidelines because there are only a

reasonable number——

Senator CAMPBELL. So you notify them first that there are applications available——

Mr. MAGAW. Yes, sir.

Senator CAMPBELL [continuing]. And that they can get involved

in it?

Mr. MAGAW. Yes, sir; and we are forwarding those out almost

daily upon request, and it is being passed along by instructors.
58

There are almost 3,000 officers trained throughout the country

and some in every State, and, as you know, last year we had

trained quite a few in your State.

Senator CAMPBELL. Sure.

Mr. MAGAW. And as a result, the word spreads.

Historically, GREAT was in Phoenix and in FLETC where police

officers were trained. And now, because of the demand, we are

spreading to three other areas in the country. We are going to go

to a regional approach. There will be a unit in Oregon, one in

Philadelphia, in Orange County, FL, and then the ones that we

have now. We hope to continually meet those needs. Some of those

cities are funded by their own funds, and then others are funded

by the Federal moneys.

Senator CAMPBELL. As you know, there is sort of an exodus of

some of the inner-city gangs going out on Indian reservations that

are in the proximity of the cities. We have talked about that before.

Are tribal groups also aware of the GREAT Program, and can

they avail themselves to the GREAT Program?

Mr. MAGAW. Are you talking about on an Indian reservation, sir?

Senator CAMPBELL. Yes; on Indian reservations.

Mr. MAGAW. Yes, sir; in fact, we are in the process of arranging

for and training Indian police officers to perform just that task.

Senator CAMPBELL. Thank you.

FEDERAL FIREARMS LICENSE SECURITY MEASURES

At the January ATF briefing to the firearms industry in Las

Vegas, the ATF representatives said at that time that they were

preparing some recommendations to license firearms dealers regarding acceptable security measures. When will the committee be

able to get a copy of that, and when would it be available to the

industry?

Mr. MAGAW. I know it is fairly near final preparation. It will go

to the Office of Enforcement and Treasury within a short period of

time and be out. I cannot put weeks or months on it, but it is not

going to be very long. I would say 60 to 90 days.

Senator CAMPBELL. Sixty to ninety, perhaps. OK. I would appreciate it if the committee could get a copy of that when it is done.

Mr. MAGAW. Yes, sir.

Senator CAMPBELL. Thank you.

Was the industry involved in helping develop those guidelines?

Mr. MAGAW. The industry is conferred with in this particular

matter and has been conferred with in the 4 years since I have

been here on virtually every firearms or explosive or alcohol study

that we are doing.

Senator CAMPBELL. So these are basically guidelines, but not necessarily mandatory recommendations. Is that the way you see it?

Mr. MAGAW. That is right. They are basically guidelines, not

mandatory.

They are being drawn up from our experience in collecting information from police departments and others as to how these weapons are being stolen and what are some of the security things that

they can take.

Senator CAMPBELL. All right. Thank you.
59

Perhaps I should ask Under Secretary Kelly. Does the Department of the Treasury have plans to impose mandatory security requirements on firearms dealers or other industry entities?

Mr. KELLY. Not to my knowledge. Obviously, we await recommendations from ATF, but, to my knowledge, there is no such

plan.

Senator CAMPBELL. Thank you.

YEAR 2000 PROGRAM

Also, Mr. Magaw, funding was provided last year to deal with

costs associated with the year 2000 transition problem. Currently,

it is called Y2K. Could you tell me a little bit about that conversion

in your agencies?

Mr. MAGAW. Well, the Y2K program is actually very rigid and

strict. A timeline program has been set up by Treasury looking at

all of their bureaus and units, and we have been involved from the

very beginning with that. There are schedules to meet, and we are

meeting each one of those schedules. We anticipate that we will

meet every requirement in preparation for that Y2K.

REVENUE COLLECTION

Senator CAMPBELL. Most people think of ATF only in terms of

guns or tobacco, I guess, but there are a lot of responsibilities. I

know you are more aware of them than I am, including the collection of alcohol and tobacco taxes, how much revenue was generated

by the ATF in fiscal year 1997, and do you have a projection for

fiscal year 1998?

Mr. MAGAW. In fiscal year 1997, there was $12.7 billion.

Senator CAMPBELL. $12.7 billion?

Mr. MAGAW. Yes; and we expect that this year, it will go slightly

up to about $12.8 billion.

Senator CAMPBELL. Thank you.

BIRMINGHAM BOMBING

This question, you might not be able to speak about in public,

but in your responsibility for the investigations of bombings—I

read the newspaper like everybody else, and the recent incident in

Birmingham, the man that was identified, it appears that he was

the bomber. I know there is pretty much a nationwide search for

him. Is there anything you can share with the committee in dealing

with that search?

Mr. MAGAW. What I can share, clearly, is that all of the law enforcement entities are working very, very close together. We are

using different units of ATF, different units of local police departments, and the FBI. There are over 3,000 leads that have come in.

Senator CAMPBELL. Are there calls that they think they saw him

or things of that nature?

Mr. MAGAW. Well, bits and pieces of information, and as they are

pieced together and as places are located where this individual and

maybe some others involved, where they lived, where they stored

things, and as we have probable cause to get search warrants—and

when I say we, I am talking all of law enforcement as a team——

Senator CAMPBELL. Sure.
60

Mr. MAGAW [continuing]. And those searches take place, additional evidence is showing up. So that, the case is progressing very,

very well.

Senator CAMPBELL. Thank you.

I would like to go to Mr. Merletti now. This is your first appearance here before the committee. I am sure you have had an interesting first few months in your new appointment.

Your budget request includes a significant amount of additional protection and protective intelligence, $7 million and 35 new employees, for about a 2-percent increase. These, I assume, are very

necessary, and you have looked into that. Can you justify those?

Mr. MERLETTI. Yes, Mr. Chairman; staffing on both the Presidential and Vice Presidential protective divisions has been increased due to operational changes necessary to meet an increased

threat level.

We in the Secret Service continually reexamine ourselves, and

look at how we do our business. We compare ourselves to other

worldwide security agencies, and we take a look at what the threat

level is.

We found that on the President and Vice President’s details,

every employee, every FTE, was working the equivalent of one and

one-half FTE’s. This was having an impact in our ability to train.

It was also having an impact as far as our overall effectiveness.

We actually had agents that would go for 30 days out of district,

away from home, often in foreign countries, without a day off, return and go back out for a few more weeks. We believe that the

impact was largely felt in the area of training.

The training that we provide to the protective details, we term

as ‘‘perishable training’’; if you are not continually redoing these

phases of training they will not be second nature.

We ask our agents to do things that may really go against what

all natural instinct would be when having to step in the line of fire.

So those perishable skills are necessary, and the repetitive nature

of training is absolutely essential.

Senator CAMPBELL. Perishable skills, that is an interesting way

to describe it.

Was that an American car?

Mr. MERLETTI. That is a Mercedes Benz. That is an armored

limo.

Senator CAMPBELL. That was armored, and it blew up? I mean,

it got torn apart that——

Mr. MERLETTI. I would like to explain a bit about that particular

photograph. As you can see, there was quite a bit of damage done

to the front end of the limousine.

Senator CAMPBELL. Yes; right under the hood. It looks like something was set directly under the hood.

Mr. MERLETTI. Well, what actually happened, it was struck with

two rocket-propelled grenades, two antitank devices, and the limousine was immediately crippled. It burst into flames.

Senator CAMPBELL. This is a different car. Was this in the entourage?

Mr. MERLETTI. That was the security vehicle, and as you can see,

it has been impacted with hundreds of rounds of small arms fire.

Senator CAMPBELL. Small arms.
61

ARMORED LIMOUSINES

Mr. MERLETTI. But the pertinent point on the limousine is that

the limousine failed. That is a commercially available limousine,

and they are produced as any normal car is off the assembly line,

and then armored subsequent to production.

Our limousines are built differently. Ours are made from the

ground up, and that allows us to add extra mass, extra armament.

Also, because we build them from the ground up, we are able to

protect the critical electronic components that keep a car running.

That particular car, that is what happened there. The electronics

were knocked out, and the engine failed.

We are able to relocate those critical electronic compartments

into our armored compartment. Our vehicle probably would have

survived that attack and would have driven away.

Senator CAMPBELL. You order them from the factory with certain

specifications, and they build them at the factory for you?

Mr. MERLETTI. Right. There is quite a bit of R&D that goes into

it. In fact, it is years of R&D, and then we work as a team in partnership with the corporation that wins the contract and build the

vehicle in that manner, but it takes years.

Four vehicles that we are in the process of designing now, the

first one will be delivered in the year 2000, and the other three will

be delivered in 2001.

Senator CAMPBELL. These limos, we appropriated the moneys in

1997 and 1998 for that R&D that you talked about for the new

technology that is going to go into them, in the manufacture of the

cars, and we are going to provide additional money in 1999. Will

that complete the project for these new series of cars?

Mr. MERLETTI. No; that will not complete the project. There is a

shortfall in total funding required of about $3 million. It is a

unique funding situation, and we are working with the Treasury

Department to resolve that issue.

Senator CAMPBELL. I am inclined to think that costs a little more

than your average car, wouldn’t you?

Mr. MERLETTI. A few dollars more.

TRAVEL BUDGET

Senator CAMPBELL. Last year, there was a problem with closing

out the Secret Service travel account. I know you guys have it

tough, particularly in a Presidential year when you have everybody

running and you have to change your plans almost hourly because

of late commitments. I know the difficulty of doing that, and I admire you for trying to keep up with it, but that resulted in the need

to transfer funds from other accounts to cover those expenses.

Your staff has been very forthright about the need for change

and to more closely account for the travel expenses. Having heard

that already, it is already clear that we might not be providing

enough money this year. Would you like to comment on that?

Mr. MERLETTI. Yes; we are looking at a possible shortfall this

year, also, and we have——

Senator CAMPBELL. What is your estimate for the shortfall?

Mr. MERLETTI. At this time, I would say about a $13 million

shortfall.
62

I would like to address that issue a little further. Right after I

became Director, I personally came to visit with you, and we did

discuss that I would see that we put into effect certain mechanisms

that would have better accountability and sooner notification. In

this instance, we certainly have come to you right when we noticed

a problem.

Senator CAMPBELL. Yes; you have.

Mr. MERLETTI. The increase in travel is due not to one particular

set of circumstances, but a convergence of circumstances.

No. 1, we are doing business differently. There are new threats

that we have developed new countermeasures for. This new technology requires that we send the people out that have the expertise

to implement this technology as we travel on our protective assignments. So we do have an increase in the number of people going

out on our stops.

There is also an overall increase in the number of protectee

stops, and that is due to a number of factors.

We see that a number of foreign heads of states have been visiting the United States, and we have been trying to get an idea as

to why that is occurring. Some of the poignant factors that are

coming back to us are that the United States is now the sole superpower. Also, the strength of our economy is such that foreign leaders want to visit the United States in order to enter into business

ventures in order to boost economies. It is now a global economy.

They are also coming in order to foster international cooperation,

and a number of them come here to take advantage of our medical

treatment.

So these foreign heads of state that visit our country, we do protect them, and they travel throughout the United States. We have,

again, no control of them coming or the number of times that they

come.

Eighty percent of our travel budget is directly in support of protection. Twenty percent is nonprotective, and we are certainly able

to have total control of it, but the 80 percent is really not within

our control.

It is the convergence of those factors that impact us, as well as

increased costs that are associated with travel, such as hotel rates

and car rentals.

For example, we took a look at the hotel rates in New York City,

a place visited by the majority of our protectees, especially foreign

heads of state. Last year, we found that the hotel rates increased

by approximately 20 percent. So it is factors such as this, all of the

added expenses that go into travel, that are all coming together,

and are causing a the shortfall in our budget.

PRIVILEGE FOR NOT GIVING TESTIMONY

Senator CAMPBELL. This may be somewhat rhetorical, but you

have been pretty much unwavering in your position that Secret

Service agents should not be compelled to testify with what they

may or may not have seen on duty.

I am certainly a big supporter of the Secret Service, and it brings

to mind, what kind of protections they would have if they did and

how far we should go with that. Should an agent remain silent, for

instance, if he saw a crime being committed while he was on duty?
63

Do you have any comments about where you fall out on that, when

they should and should not testify?

Mr. MERLETTI. Absolutely, Mr. Chairman.

The word that is being used, is ‘‘privilege’’—I like to use the word

‘‘confidentiality.’’ I firmly believe that we should have a privilege or

confidentiality. However, that would not apply when it comes to a

crime. We are not talking about crime.

What we are discussing is everyday activity and conversations

that we overhear or see because of our proximity to our protectees.

Proximity is the heart and soul of our protective mission. We are

there, as I said earlier, to step into the line of fire. If we would be

moved away from our protectees, that would have a critical impact

upon our ability to perform our mission.

MEXICO’S NEW DRUG FORCE

Senator CAMPBELL. Thank you.

Mr. Banks, in today’s Washington Post, there is an article that

talks about the training of Mexico’s new drug force, which once

trained in the United States. They will then return to Mexico to

become a force in that country’s counternarcotics efforts. What is

your view on that? Do you think that is going to be successful?

Mr. BANKS. Well, I think it can be successful. I read it this morning, Mr. Chairman, and I think it could become a force in that

country’s counternarcotics efforts.

We have actually worked with the military. I went down to

Camp Lejeune with the military, and we worked with a number of

countries in Central and South America to kind of look at coordinating and integrating both their military and police organizations

so that they are prepared to interact not just within one nation,

but even across borders. I have to say that I was fairly well impressed by the efforts being made to integrate those operations.

CUSTOM’S WEAPONS RESTRICTIONS IN MEXICO

Senator CAMPBELL. What is the disposition of our agents carrying weapons in Mexico?

Mr. BANKS. We still cannot carry weapons in Mexico.

Senator CAMPBELL. Still cannot do it?

Mr. BANKS. No, sir.

NONINTRUSIVE INSPECTION TECHNOLOGY

Senator CAMPBELL. There is a $54 million request in your budget

for 1999 on nonintrusive inspection technology. I have seen some

of these things, and I will tell you what, they are marvelous.

ONDCP, I have seen a number of them.

I was talking to somebody today that said they have developed

one that does not measure particles in the air and it does not do

it by x ray, but it has a way of—you have to be a scientist just to

understand this thing, but, apparently, all chemicals when they are

subjected to some kind of rays, gamma rays, whatever it is——

Mr. BANKS. Gamma rays.

Senator CAMPBELL [continuing]. Leaves a signature of what that

chemical is, and these people who are developing this have a way

of measuring, for instance, what is inside of a landmine, what kind
64

of chemicals are in there. It sounds like something we ought to look

into.

Mr. BANKS. It is astounding. We are even looking at a potassium40 reader because marijuana has large amounts of potassium in it.

You can actually gauge that chemically.

There is a lot of spectrograph type——

Senator CAMPBELL. It has got some dope in it, too, huh?

Mr. BANKS. Yes; it does.

NARCOTICS AND MONEY LAUNDERING STRATEGY

Senator CAMPBELL. OK, because I know the traffickers are very

good at identifying our resources. More power to us.

There is also a $5 million request for narcotics and money laundering strategy to enhance this Customs investigation and intelligence capabilities. Can you describe that a little bit to us?

Mr. BANKS. We are trying to put the agents heavily into money

laundering efforts and some undercover narcotics areas. There is

also a piece for intelligence research specialists, and what we have

done is establish what we call intelligence collection and analysis

teams, especially along that Southwest border to try to integrate

tactical intelligence. So they are going there.

And then the last piece of it is on the marine program, and you

mentioned what happened in the Virgin Islands with the marine

program. The work is dangerous, difficult.

The threat is increasing significantly in the Small Boat Program.

The Coast Guard and Customs have really done a decent job of

stopping a lot of commercial traffic into Puerto Rico, but now we

are getting lots of small boats in from Haiti and the Dominican Republic. So it is a real growth area in terms of the threat.

SEIZURE RATE

Senator CAMPBELL. Mr. Kelly’s testimony mentioned that 1 million pounds of illegal drugs were seized in fiscal year 1997 through

programs like Hard Line and Gateway, but, as I understand it, the

seized cocaine has dropped by 12 percent. Do you have any reasoning for that?

Mr. BANKS. Our numbers in 1997 did indeed drop by 12 percent

nationally, and it actually dropped in the Miami area. That is,

south Florida is where we saw the drop.

Senator CAMPBELL. Yes.

Mr. BANKS. A lot of people have read the article and think that

our cocaine seizures dropped on the Southwest border, and that is

not the case. They changed where the traffickers were moving the

drugs.

Senator CAMPBELL. Yes; they flow like water. The land of least

resistance is where they move to.

Mr. BANKS. That is absolutely correct.

Now, in south Florida, the concern we have is that they are moving into smaller, deeper concealed loads. We are seeing that.

Some of it is in Coast Guard seizures. Their seizures tripled last

year in the transit zone. This is actually where we would like to

have the seizures happen. We would like to take the drugs before

they ever get to the U.S. shores, and we have got our air program
65

and marine program working in tandem with the Coast Guard. So

they have done a dynamite job.

So there is no question. The flux is changing continually.

METHAMPHETAMINE SEIZURES

Senator CAMPBELL. Well, I live in the Southwest, and one of the

things we are seeing is a huge increase of methamphetamines, as

you probably know, and it is also in small lots and apparently very

small, movable labs, and all the problems. Are you seizing more of

the chemicals along the border that go into the manufacture of

meth, or are you seeing more methamphetamines that have already been concocted?

Mr. BANKS. Actually, we are seizing more of both.

Senator CAMPBELL. Both.

Mr. BANKS. This year, we seized more in the first 4 months than

we seized all of last year in both methamphetamine and ephedrine,

which is the precursor to make methamphetamine, and it is not

huge amounts. So far, this year, we have made 154 seizures of 655

pounds. Most of it——

Senator CAMPBELL. Say that again?

Mr. BANKS. 655 pounds.

Most of it is in California; however, we have seized some in New

Mexico and some, the smallest amount, in Arizona.

Senator CAMPBELL. The border States.

Mr. BANKS. It is primarily toward the border States and toward

the West. Yes, sir.

Senator CAMPBELL. OK, I thank you.

Senator Kohl, did you have some additional questions?

Senator KOHL. Yes; thank you, Mr. Chairman.

Senator CAMPBELL. I may have touched on a few already, but

feel free.

CHILD LABOR ENFORCEMENT

Senator KOHL. I just want to ask a few Customs questions, if I

may.

I was pleased to work last year with Senator Harkin on a provision that requires Customs to include forced or indentured child

labor and its interpretation of section 307 of the Smoot-Hawley

Tariff Act of 1930.

Senator Harkin had hoped to be here today to ask some questions about child labor enforcement and the new proposal to establish a child labor command center, but he had to be in South

Korea. So I have included some of his questions with my own.

It is my understanding that Customs is requesting $3 million

and four employees to establish a child labor command center.

Would you please explain what services this center will provide

and how the center will be staffed?

Mr. BANKS. Senator Kohl, first of all, I would like to say this is

going to be a very difficult issue to enforce, since it is so difficult

to try to determine what products entering the United States are

made by child labor. I do not want to underestimate the complexity

and the difficulty of doing this job.

The way that we are trying to approach this is in a very collaborative way, especially where there are a lot of advocacy groups out
66

there that have information in terms of where child labor products

might exist.

The first thing that we are setting up is the child labor command

center in Washington. We have two intelligence research specialists, and we are setting up a hotline to be able to get basic information to do research. For instance, we were provided some information about hand-knotted rugs, especially out of central Asia. We are

trying to do analysis with that information to see if we can trace

it down to find an actual violation that we can take legal action on

in the United States.

The second thing that we are looking to do with that money is

we would like to station three agents overseas to specifically work

on trying to identify factories, products, and locations where child

labor occurs, so that we can attempt to work with overseas countries on this issue to see if we can gain their support.

And then, last, we will try to build a coalition with labor groups,

and with child protection groups. It is kind of like trying to deal

with the clothing and the wearing apparel that is made by groups.

You cannot do it through law enforcement alone. This has got to

be a coalition of groups trying to do this, and there has got to be

a lot of education on it. There has to be a lot of communication and

building support on a broad basis if we are truly going to impact

this issue of products being made by child labor coming into this

country.

Senator KOHL. All right. Well, then——

Mr. BANKS. I can provide you a more detailed breakdown in

terms of exactly our strategy and our tactics for approaching this

issue.

[The information follows:]

CHILD LABOR COMMAND CENTER

The Child Labor Command Center will be staffed by two Special agents and two

Intelligence Research analysts. In addition, verification teams drawn from the field

offices will be used to travel to suspect countries and examine suspect child labor

facilities to confirm information as it is developed by the command center. The command center will also conduct conferences within the government and with private

industry to sensitize these groups to this issue and to facilitate the development of

information. Confidential sources will be used in connection with the development

of information about criminal involvement in child labor. In addition, the foreign offices covering countries suspected of exporting forced child labor made products to

the United States will receive additional staffing.

An outreach program is planned in order to build support on a broad based initiative to identify violative sources of merchandise. This program is also expected to

support United States importers’ efforts to preempt such merchandise from reaching

the United States. A public relations effort will involve various media. Including

international and national websites, foreign and domestic toll-free numbers, advertisements in the Asian Wall Street Journal and other foreign public service announcements.

Senator KOHL. What can Customs agents actually do in the

event that they identify forced child labor?

Mr. BANKS. What we can actually do is detain the products, and

then if we can prove that the products were made by forced labor,

then we can take action to seize those products.

CUSTOMS AUTHORITY

Senator KOHL. Is there a need to expand the authority of Customs?
67

Mr. BANKS. I think that our first point on this is we would like

to gain better experience in trying to work with coalitions to prove

the case so that we can do something about it. We would like to

make sure we can operate effectively in this area before we would

ask for additional resources.

CHILD LABOR HOTLINE

Senator KOHL. All right. Let us talk about the hotline in the

United States for the public to report child labor importation violations. How will consumers be able to identify goods purchased with

forced child labor?

Mr. BANKS. Well, it is going to be very difficult for consumers to

specifically identify it.

One of the things that we are talking about, obviously, is to meet

with manufacturers and to get them to perhaps tag their goods to

say that this is not made with child labor. If we can, we will try

to get them to label some of their products and get those manufacturers to take a stronger measures, because they actually do factory visits for quality control and a variety of other things. We

would like them to go out and check to ensure that those factories

that they are buying their products from are not using child labor

to manufacture those products.

Senator KOHL. Well, on that point, don’t we already have documentation of goods produced with forced child labor entering the

U.S. market?

For example, in the case of hand-knotted carpets, shouldn’t we

be focusing our efforts on preventing these goods from entering the

U.S. market in the first place?

For example, does Customs plan on communicating with the

hand-knotted carpet importers about abusive child labor in their

industry?

Mr. BANKS. Yes, sir.

Senator KOHL. What do you——

Mr. BANKS. That is precisely part of what we need to do: an education effort.

The difficulty is in trying to convert a generic allegation into actual evidence that we can take a legal action on. That has been the

most difficult part of this whole enforcement area.

CONFISCATING FORCED CHILD LABOR PRODUCTS

Senator KOHL. What kind of additional information does Customs need to bring a case against importers who violate the law

or to issue a detention order on goods made with forced child labor?

Mr. BANKS. The first issue is that we have to prove the case that

it was made by forced labor, which is very difficult to do. As soon

as we have our people go out and start going into factories, they

disappear.

We go out and we do this kind of work on textile transshipment.

We can go in and take a look at the types of equipment that they

have, and we can look at their employment records and even their

payroll records, but with child labor, you cannot just do that. It is

even more complex.

When we have put our agents out on the ground overseas, the

word spreads unbelievably quickly, and they just scatter on us.
68

Trying to come up with the actual hard evidence so that we have

a case that we can take action on is very difficult to do.

IMPORTATION OF CHILD LABOR GOODS

Senator KOHL. Senator Harkin has been particularly concerned

about the past reluctance of Customs to block the import of goods

produced with child labor. Do you believe that the Harkin provision

is a reasonable interpretation of section 307? Is child labor enforcement an appropriate task for Customs?

Mr. BANKS. Yes, sir; I think that it is an action that, obviously,

the Congress wants us to take, that we should take. We want to

be able to ensure that we can deliver on this requirement.

CHILD LABOR AND OTHER FORCED LABOR

Senator KOHL. Well, how does child labor differ from the forced

labor found in Chinese prison camps and Customs efforts to prevent goods made by prison labor from reaching U.S. markets?

Mr. BANKS. Well, some of it is the same in terms of the reluctance of some of the countries to let us into the factories. In that

case, it is the same.

Some of the differences with the forced labor is if you can actually get to the factory, they are there. You can see them. You can

see who is working. You can check them.

There are also other indicators in terms of, if you go into a prison

labor environment, shaved heads. There are a lot of telltale signs

that you can see.

The difficulty of walking into a factory overseas that is using

child labor is they just scatter the kids that are underage. As soon

as they know you are in the area, they scatter those kids. They either go out of business or they just have other workers there. That

is where it gets much more difficult, when you actually get on the

ground and try to do this enforcement work.

CHILD LABOR REGULATIONS

Senator KOHL. When can we expect additional regulations relating to child labor enforcement, or do existing regulations for section

307 apply?

Mr. BANKS. We would like to continue to work with this package

that you have provided us. We would like to come back with some

experiences that we have run into, brief you in terms of the

progress that we are making on this and what we can deliver, and

then jointly decide where we should take it.

Senator KOHL. Mr. Banks, on November 5, 1997, the International Labor Rights Fund filed a complaint with Customs seeking enforcement of a ban on hand-knotted carpets made with child

labor in south Asia. The complaint was based on data from the

U.S. Department of Labor’s report on child labor. Yet, it is my understanding that there has been no response to the complaint.

What is the status of this complaint, and why has it taken so long

now for Customs to respond?

Mr. BANKS. Well, it is still a lot of the things that we have talked

about in terms of being able to come up with the hard evidence and

which shipments have been made by child labor.
69

We have had a lot of discussions of whether we should go forward with a general ban on all hand-knotted carpets; whether that

is equitable and fair to people legitimately trying to bring goods

into the country or whether to go with a specific ban or try to get

it nailed down in terms of which manufacturers could be involved;

is there any complicity on the part of the U.S. importers involved

in this, et cetera. These are the difficulties of trying to chase this

thing down.

Senator KOHL. Can you give us some hope as to when we can see

a resolution of this particular complaint, Mr. Banks?

Mr. BANKS. I would rather have a private briefing with you in

terms of exactly where we are with that investigation.

CHILD PORNOGRAPHY DETECTION

Senator KOHL. All right. I would like to ask some questions on

the child pornography detection. Customs enforces the Child Protection Act and investigates trafficking in child pornography into

and throughout the United States. Through the use of the Customs-established Child Pornography Investigation and Coordination Center, special agents assist the field offices with cases and coordinate Customs efforts to combat child pornography. Can you explain how Customs gets brought into these cases?

Mr. BANKS. I would be happy to.

Actually, there is a variety of ways that we can be brought into

a child pornography case. One of the ways it has traditionally been

done in the past is we actually intercepted the mail coming into the

country. We would intercept magazines and videotapes of child pornography, and I believe we seized last year 325 or so items that

came in that were child pornography, either by videotape or by

magazine, but the bulk of the work today is actually on the Internet.

We have got 300-plus investigations going on today on Internet

child pornography cases. We had 145 arrests last year of people engaging in child pornography—some were family physicians, some

were police officers. We have a whole variety of people that are involved in youth programs around the country.

We have set up, as you said, our International Child Pornography Investigation Center in Washington. It is staffed with five

agents. We receive tips through a variety of sources. We use confidential informants. We do a lot of the cyber-smuggling-type work

through the Internet and then they support field agents around the

country to actually work these cases.

We are also working with the National Center for Missing and

Exploited Children and have supported their cyber tipline. When

this thing gets up and running, the estimate is that we can get between 300 to 400 leads a day. It is being supported by both the FBI

and ourselves. FBI handles mostly the domestic cases. We handle

mainly the international cases, the ones across the border.

Senator KOHL. What is your level of funding for these activities,

Mr. Banks?

Mr. BANKS. I am not sure if I could give you a precise level of

funding. I would have to research that a little bit for you further,

sir, because of the investigative hours in the field. I would have to

give you that for the record, if I could.
70

[The information follows:]

CHILD PORNOGRAPHY AND EXPLOITATION

Customs has approximately 50 Special Agents in the field dedicated to Child Pornography investigations along with non-personnel costs of $100,000 for fiscal year

1996, $190,000 for fiscal year 1997 and $327,000 for fiscal year 1998. The Customs

Child Pornography Enforcement Center has a current staffing level of eight Special

Agents which coordinate the investigative activities of the field offices as well as liaison with other federal, state and local law enforcement agencies.

In addition, Customs fiscal year 1998 appropriation included $275,000 for the National Center for Missing and Exploited Children to promote public awareness of the

child pornography tipline ($75,000) and to train retired law enforcement officers to

assist in the investigation of unsolved missing children cases nationwide (Project

Alert) ($200,000).

CHILD PORNOGRAPHY TIPLINE

Senator KOHL. OK. Mr. Banks, funding has been provided since

1995 to promote the child pornography tipline. In fiscal year 1999,

funds were also requested to coordinate Customs efforts with the

National Center for Missing and Exploited Children, the U.S. Postal Service, the U.S. Secret Service, and the GSA.

Obviously, the tipline is an effort that we and the House support.

Have additional resources for the tipline been requested in fiscal

year 1999, and if not, why not? Isn’t this something that Customs

considers important?

Mr. BANKS. Yes, sir; we consider it extremely important, and

there were some requests made for this. We did not receive those

requests. We did receive in fiscal year 1998 the $25,000 which we

gave to the Center for Missing and Exploited Children to help

them, and that amount, along with the $50,000 level prior to fiscal

year 1998, is recurred in fiscal year 1999 for a total of $95,000 for

the tipline.

As a matter of fact, they just recently had an event up on the

Hill advertising some of the public education campaign, and along

with Under Secretary Kelly, we participated with them in that effort, but, no, sir, we do not have anything added to the $75,000

base in our fiscal year 1999 budget to further enhance our enforcement efforts on child pornography.

Senator KOHL. What is the status of the effort to coordinate Customs efforts on child pornography with the other Government and

non-Government entities?

Mr. BANKS. Again, we work with everyone. We work with other

law enforcement agencies, including State and locals. They have

been really wonderful.

We just had an Internet case in Spokane, where a physician actually engaged in a conversation with an undercover police officer

about his desire to have sex with a minor. We got the Spokane policewoman to volunteer to act as the mother in this particular effort, and she did a wonderful job and we made the arrest.

We get tremendous support from State and local police. We get

tremendous support working in tandem with the FBI. We have gotten the Postal Service involved. The Secret Service has also been

involved in some of these cases.

So this is one area where—when you come up with a specific

case—almost everyone is willing to pitch in.
71

WHITE HOUSE SECURITY CLEARANCE PROCESS

Senator KOHL. OK. Mr. Merletti, I would like to ask you a question.

Last year, when visiting the White House with a staffer, we were

ushered into the White House without showing any identification.

When I later asked about this, I was told the White House was expecting me. I guess they were also expecting my staff.

Last week, I read that Alice Rivlin, Vice Chairman of the Federal

Reserve, was ushered into the White House complex without going

through any security clearance. When she questioned why this occurred, she was told that the guards were expecting her, Donna

Shalala.

There have been numerous requests to acquire additional security measures around the White House. What good is it to acquire

these security devices if people are allowed into the complex without going through the security clearance process?

Mr. MERLETTI. Senator Kohl, we do attempt to facilitate a member and staff of the Senate coming into the White House. We would

want to make sure that you were there for your appointment and

received a welcome and were easily processed into the White House

complex. That really does not impact our security in that we are

looking for those that would be attempting to enter to attempt

some type of physical harm, and present a danger to the President

or to the White House.

The circumstances you referred to regarding Donna Shalala, I

am not familiar with the facts. It would be difficult for me to comment on that, but did you say that she came into the complex?

Senator KOHL. Alice Rivlin entered without any security clearance, and then she was told that the guards were expecting her,

Donna Shalala.

Mr. MERLETTI. I see. I would have to look into that set of circumstances.

Senator CAMPBELL. Senator Kohl, I think it has something to do

with the vehicle you go over there on. I went over there on my motorcycle one time, and I had to answer a whole lot of questions. I

will tell you, I thought I was going to be spread-eagle from you

guys, but if you are in a big, black Town car, you are probably a

little safer.

Senator KOHL. If I were in your situation, I would be worried

stiff that something awfully sinister could happen, just in the way

in which we are discussing it, and it would be so inexcusable, with

all the money and all the security that we have to protect our

President, and the White House, of all places, that security systems

and regulations would not be the toughest anywhere in the world,

and I think everybody in this room would expect security at the

White House to be the toughest anywhere in the world.

When you have an experience like mine, as I say, my staff and

I got through, and we were simply told that they were expecting

us. And then, Alice Rivlin goes through security and—and does not

go through security, but is told that it is fine because we were expecting you, Donna Shalala; that that would be—and there must

be other incidents that that would be a huge red flag to the Secret
72

Service with respect to security around the White House. What is

your thought?

Mr. MERLETTI. Well, Senator, I do not want to have misinterpreted what I said as a lack of concern about security at the White

House.

Senator KOHL. I do not. I do not.

WHITE HOUSE SECURITY CLEARANCE PROCESS

Mr. MERLETTI. I am extremely sensitive to all security at the

White House. We will always continue to look at new methods and

new technology.

If there was a mistake made, we will find out about that very

soon, and I will get the details of that.

However, we do try to have a balance between members of Congress coming up and just someone that would be showing up unexpectedly. We really do quite a bit of training. I mean, training is

critical to our mission, and we train our personnel to show proper

respect for those that, as we said, are coming for a proper appointment with the President or other members of the administration.

However, if a mistake took place, it is unacceptable and we will

look into it and make the necessary adjustments. As I said, I am

not aware of that set of circumstances, but I do know about when

you came to visit, because after I had visited with you after becoming the Director you had mentioned this, and I did check into that,

and we do have photographs of all Senators and Members of the

House of Representatives. If you are on the schedule, or if you are

coming and we receive a call from the Capitol Police, we do want

to expedite your entry.

Now, the other set of circumstances, I will have to look into that.

Senator CAMPBELL. Capitol Police have photographs like that,

and I think they are required to memorize the new Senators and

Congressmen coming in. Do you have a book like that over

there——

Mr. MERLETTI. Yes; we do.

Senator CAMPBELL [continuing]. That you have at the gates so

people can recognize you before you came through?

Mr. MERLETTI. Absolutely. We require our people to look at these

photographs and try to memorize them.

Actually, I am very glad you brought this up today because, normally, what I am being addressed on is that someone was held up

maybe 5 minutes and they did not like being held up when, in fact,

they did have an appointment, and people were saying, ‘‘Well, can’t

you make this process faster? I have an appointment.’’ It is refreshing to hear the other side of this, that someone is actually concerned about our security. So I do thank you for that, sir.

Senator CAMPBELL. Would you put glasses and a helmet on my

picture so I do not get any more hassles over there?

Mr. MERLETTI. Yes, sir, Mr. Chairman; we will do that.

Senator CAMPBELL. OK. Well, I have no further questions. Senator Kohl, do you?

Senator KOHL. No.
73

Senator CAMPBELL. OK. With that, I appreciate your appearance

to this whole panel, and, Under Secretary Kelly, we will be looking

forward to working with you and all of your other divisions.

Thanks for coming.

(75)

INTERNAL REVENUE SERVICE

STATEMENT OF TED F. BROWN, ASSISTANT COMMISSIONER, CRIMINAL INVESTIGATION

FEDERAL LAW ENFORCEMENT TRAINING CENTER

STATEMENT OF W. RALPH BASHAM, DIRECTOR

FINANCIAL CRIMES ENFORCEMENT NETWORK

STATEMENT OF WILLIAM BAITY, DEPUTY DIRECTOR

INTRODUCTION OF WITNESSES

Senator CAMPBELL. We will now move right along here. I have

another commitment. So, hopefully, this next panel can move along

a little quicker.

Panel II will be Ted Brown, Assistant Commissioner for Criminal

Investigation with the Internal Revenue Service [IRS]; Ralph

Basham, Director of the Federal Law Enforcement Training Center

[FLETC]; and William Baity, Director of the Financial Crimes Enforcement Network [FinCEN].

All right. If we can move right along.

Were you also staying with this panel, Under Secretary Kelly?

Mr. KELLY. Yes, Mr. Chairman.

Senator CAMPBELL. Did you want to make any additional statements?

[No response.]

We will just go on, then, with Assistant Commissioner Brown.

Then we will go to Ralph Basham and William Baity.

We are running out of time a little bit. We have about 30 or 45

minutes in here. So you might like to abbreviate your comments.

All the testimony will be included in the record, and we will study

it copiously.

STATEMENT OF TED F. BROWN

Mr. BROWN. Thank you, Mr. Chairman. My name is Ted Brown.

I am the Assistant Commissioner with IRS Criminal Investigation.

Senator CAMPBELL. You are safe, too, by the way. Our colleague

from the Carolinas is not here now.

Mr. BROWN. Yes, sir; I did not expect the target to be painted on

me quite that fast.

IRS CRIMINAL INVESTIGATION

I appreciate the opportunity to be here today to discuss the

Criminal Investigation Division of the Internal Revenue Service.

We have unique financial investigative skills which allow us to

meet criminal tax enforcement challenges in support of the overall

IRS mission. I also welcome this opportunity to describe the con-
76

tributions which the fine agents and employees of the Division

make to the Federal law enforcement community.

For over 79 years, IRS Criminal Investigation has been solving

financial crimes. Our investigations take us to corporate boardrooms, as well as crackhouses. This is because IRS Criminal Investigation special agents fill a unique niche in the law enforcement

community, that of financial investigators. The special agent’s combination of accounting and law enforcement skills are essential

qualities in conducting investigations which have led to the conviction of high-profile criminals who commit sophisticated financial

crimes.

It has been our experience that whenever greed leads to crime,

whether income tax evasion or international money laundering,

IRS Criminal Investigation should be involved.

Further, the success of our investigations enhances voluntary

compliance with the tax system, increasing confidence of the American taxpayers in that administration, as well as deterring others

from similar conduct.

There is a great demand for the expertise of my agents by other

Federal law enforcement agencies and by the offices of the U.S. attorneys. Therefore, it is incumbent upon us to marshal our resources to ensure that our law enforcement program is balanced,

not only to protect the revenue and our tax administration system,

but to combat financial crime. We deliver this balanced law enforcement program through three mutually supportive strategies:

tax gap, money laundering, and international.

TAX GAP STRATEGY

The tax gap strategy enables CI to pursue comprehensive financial investigations that have the greatest impact on narrowing the

tax gap. That is a phrase that we have coined to describe the difference between the amount of tax owed and the amount paid. The

income tax gap was last estimated to be in excess of $127 billion,

and our tax gap investigations encompassed the entire spectrum of

legitimate industries.

Voluntary compliance with the tax laws relies heavily on the deterrent effect of successful prosecutions. It is critical for Criminal

Investigation to identify and investigate cases which would generate the maximum deterrent effect and, thus, have the most impact on voluntary compliance. Our objective in this strategy is to

increase the rate of voluntary compliance, which will reduce the

tax gap.

MONEY LAUNDERING STRATEGY

In our money laundering strategy and in concert with our mission of increasing voluntary compliance, we are responsible for enforcing title 31 of the United States Criminal Code and using its

financial investigative expertise to investigate the most complex

types of money laundering. By doing this, we financially disrupt

and dismantle criminal organizations in cooperation with other

Federal law enforcement agencies. Our objective is to identify, investigate, and prosecute the most significant tax, currency, and

money laundering offenders, and to pursue the assets of those of-
77

fenders both domestically and internationally for tax and asset forfeiture purposes.

Due to our limited resources and the increasing need for our expertise, CI prioritizes its efforts in currency reporting and money

laundering enforcement to address investigations whose size, scope,

and complexity require the value-added expertise of our agents.

INTERNATIONAL STRATEGY

Recognizing that financial crimes do not stop at the U.S. border,

our international strategy places special agents in strategic foreign

countries. These agents are responsible for developing financial information obtained from host governments relating to U.S. income

tax violations or money laundering schemes.

The placement of these agents allows us flexibility to gather evidence to support ongoing domestic investigations with international

implications. With State and Treasury Department approval, IRS

special agents are permanently placed in Mexico, Colombia, Germany, Canada, and Hong Kong. The international strategy enables

special agents to work more closely with our foreign counterparts.

Working within these three strategies, we devote our resources

to two major programs. The first one described is the fraud program. It encompasses a broad range of illegal activity primarily involving legitimate industries. All statutes under our jurisdiction

may be utilized in these investigations. This includes not only

criminal provisions of the Internal Revenue Code, but also violations of the Bank Secrecy Act and the Money Laundering Control

Act.

FRAUD PROGRAM

The fraud program consists of investigations relating to tax violations, such as failure to file, tax evasion, and money laundering. In

this area, we work investigations involving general tax crimes, excise tax violations, illegal tax protestors, illegal return preparers,

and questionable refunds. Other fraud programs involving tax and

money laundering violations include bankruptcy fraud, financial institution fraud, illegal gaming, health care fraud, insurance fraud,

telemarketing fraud, and public corruption.

NARCOTICS PROGRAM

Our other major program is narcotics. The first IRS narcotics investigation was a tax case completed in 1920 when an opium grower failed to claim the income earned from his product. Today, we

utilize all available statutes within our jurisdiction to dismantle or

disrupt the financial operations of targeted narcotics organizations.

Part of the narcotics program includes our participation in the Organized Crime Drug Enforcement Task Force. In fact, in fiscal year

1997, we were a principal partner in nearly 56 percent of all

OCDETF investigations nationwide, a level of participation second

only to the Drug Enforcement Administration.

During fiscal year 1997, 87 percent of all narcotics investigations

initiated by CI involved money laundering or currency crime violations. The quality of the investigations conducted by my agents was

evident during fiscal 1997, with 84 percent of our cases resulting
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in prosecution recommendations and 89 percent of those with convictions being sentenced to prison.

I will be glad to take your questions when you are ready, sir.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Mr. Brown. We have your complete statement and it will be made part of the record.

[The statement follows:]

PREPARED STATEMENT OF TED F. BROWN

Mr. Chairman and Distinguished Members of the Subcommittee:

I appreciate the opportunity to be here today to discuss the Internal Revenue

Service Criminal Investigation Division’s mission and its ability to meet criminal

tax enforcement challenges in support of the overall IRS mission. I also welcome

this opportunity to demonstrate the unique contributions which the Criminal Investigation Division makes to the federal law enforcement community.

For over 79 years IRS Criminal Investigation has been solving financial crimes.

And for nearly that long, IRS Criminal Investigation has been answering the question, ‘‘Why is IRS Involved?’’

Our investigations take us to corporate boardrooms as well as crack houses. This

is because IRS Criminal Investigation special agents fill a unique niche in the law

enforcement community: that of financial investigators. The special agent’s combination of accounting and law enforcement skills are essential qualities in conducting

investigations which have led to the conviction of high profile criminals who commit

increasingly sophisticated financial crimes. It has been our experience that whenever greed leads to crime, whether income tax evasion or international money laundering, IRS Criminal Investigation is likely to be involved. Further, the success of

our investigations enhances voluntary compliance, increasing confidence in the federal tax system and deterring others from engaging in similar conduct.

There is a great demand for the expertise of IRS special agents by other Federal

law enforcement agencies and by the offices of the United States Attorneys. Therefore, it is incumbent upon us to marshal our resources to ensure that our law enforcement program is balanced to not only protect the revenue but to combat worldwide financial crime. We deliver this balanced law enforcement program through

three mutually supportive strategies: tax gap, money laundering, and international.

TAX GAP STRATEGY

The Tax Gap Strategy enables Criminal Investigation to pursue comprehensive financial investigations that have the greatest impact on narrowing the tax gap. The

TAX GAP is a phrase coined to describe the difference between the amount of tax

owed on all sources of income and the amount paid. The Income Tax Gap is estimated to be in excess of $127 billion.

Tax Gap investigations encompass the entire spectrum of legitimate industries.

The focus of these investigations is to detect violations of all statutes under Title

26 of the Internal Revenue Code and Title 18, Sections 286, 287, and 371 of the

United States Criminal Code.

Voluntary compliance with the tax laws relies heavily on the deterrent effect of

successful prosecutions. It is critical for Criminal Investigation to identify and investigate cases which will generate the maximum deterrent effect and thus, have the

most impact on voluntary compliance.

Criminal Investigation’s objective in this strategy is to increase the rate of voluntary compliance which will reduce the tax gap. We can best achieve this through

high impact tax fraud investigations.

MONEY LAUNDERING STRATEGY

In concert with our mission of increasing voluntary compliance with the tax laws,

IRS Criminal Investigation is responsible for enforcing Title 31 of the United States

Criminal Code and using its financial investigative expertise to investigate the most

complex types of money laundering. By doing this, we financially disrupt and dismantle criminal organizations in cooperation with other federal law enforcement

agencies.

Our objective is to identify, investigate and prosecute the most significant tax,

currency and money laundering offenders and to pursue the assets of those offenders both domestically and internationally for tax and asset forfeiture purposes.
79

Due to our limited resources and the increasing need for the financial investigative expertise of our special agents, Criminal Investigation prioritizes its efforts in

currency reporting and money laundering enforcement to address investigations

whose size, scope and complexity require the value-added expertise of our special

agents.

INTERNATIONAL STRATEGY

Recognizing that financial crimes do not stop at the United States border, Criminal Investigation’s International Strategy places special agents in strategic foreign

countries. These special agents are responsible for developing financial information

obtained from host governments relating to U.S. income tax violations or money

laundering schemes. The placement of these special agents allows us flexibility to

gather evidence to support ongoing domestic investigations with international implications. With State and Treasury Department approval, IRS special agents are permanently placed in Mexico, Colombia, Germany, Canada and Hong Kong.

The International Strategy enables special agents to work more closely with their

foreign counterparts. The obvious benefit of such relationships is to stop the infusion

of money from illegal financial crimes into the global economy. The movement of

such funds creates a major concern regarding the underground economy in America

as well as in foreign economies.

As a result of our International Strategy, we have been able to help some foreign

governments in the drafting of money laundering laws that will assist the entire

international law enforcement community in its money laundering investigative efforts. This type of close working relationship, coupled with our money laundering

and financial investigative training efforts at the International Law Enforcement

Academies, has led to an increase in international cooperation and understanding

of the complexities surrounding money laundering activities.

CRIMINAL INVESTIGATION PROGRAMS

Working within these three strategies, Criminal Investigation devotes its resources to two major programs: Fraud and Narcotics.

THE FRAUD PROGRAM

The Fraud Program encompasses a broad range of illegal activity, primarily involving legitimate industries. In this area we work investigations involving; General

Tax Crimes, Excise Tax, Illegal Tax Protesters, Return Preparers and Questionable

Refunds. Other fraud programs involving tax and money laundering violations include: Bankruptcy Fraud, Financial Institution Fraud, Gaming, Health Care, Insurance, Telemarketing, and Public Corruption. All statutes under Criminal Investigation’s jurisdiction may be utilized in these investigations; this includes the criminal

provisions of the Internal Revenue Code as well as violations of the Bank Secrecy

Act (also known as the Bank Records and Foreign Transactions Act) and the Money

Laundering Control Act (also known as the Anti-Drug Abuse Act which included

substantive amendments to Title 31).

NARCOTICS PROGRAM

The mission of the IRS Criminal Investigation narcotics law enforcement program

is to identify, investigate, and assist in prosecuting members of significant narcotics

organizations and related enterprises. In fact, the first IRS narcotics investigation

was a tax case completed in 1920 when an opium grower failed to claim the income

earned from his product.

IRS Criminal Investigation utilizes all available statutes within its jurisdiction to

dismantle or disrupt the financial operations of the targeted organizations. Part of

the Criminal Investigation Narcotics program includes Organized Crime Drug Enforcement Task Force (OCDETF) investigations. Criminal Investigation Special

Agents are a principal partner in nearly 56 percent of all OCDETF investigations

nationwide, second only to the Drug Enforcement Administration (DEA).

During fiscal year 1997, 87 percent of all narcotics investigations initiated by

Criminal Investigation involved money laundering or currency crimes violations.

The quality of investigations conducted by Criminal Investigation was evident during fiscal year 1997, with 84 percent of our narcotics cases resulting in prosecution

recommendations and almost 89 percent of those convicted of narcotics crimes being

sentenced to prison.
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TRAINING, EXPERTISE AND WORK FORCE

IRS Criminal Investigation is very much aware of consequences of rapidly changing technology, particularly in the field of information systems. Therefore, our training for IRS special agents continues to evolve so that their skills as computer investigative specialists keep their pursuit of financial evidence on the cutting edge of

technology. It is interesting to note that with the support of the Under Secretary

for Enforcement at Treasury, Criminal Investigation initiated a program to share

our expertise in this area with the other Treasury Enforcement Bureaus.

Our Financial Investigative Techniques Course is taught at Treasury’s Law Enforcement Training Center in Brunswick, Georgia. The unique investigative techniques utilized in conducting financial investigations make our training in high demand by Federal, state, local and even international law enforcement agencies.

Other courses taught to state and local law enforcement agents include: Special

Agent Basic Training and Special Agent Investigative Techniques.

We also recognize that the well-rounded law enforcement officer of the future

must have the ability to follow a financial trail. This, coupled with our need to recruit a diverse work force, prompted IRS Criminal Investigation to develop a college

curriculum course geared toward the college sophomore to pique his/her interest in

law enforcement and the investigation of financial crimes. This course is currently

being taught in over 20 colleges throughout the United States.

We accomplish our mission with nearly 3,200 special agents and 1,500 support

personnel. Some of these special agents and support personnel assist our field

agents through forensics at our National Forensic Laboratory in Chicago; through

our two permanent employees at INTERPOL; our Trial Illustration Team in Kentucky; the Detroit Computing Center where our Currency Transaction Reports and

Forms 8300 are filed and analyzed; and through our Criminal Investigation employees stationed at the El Paso Intelligence Center (EPIC), the Financial Crimes Enforcement Network (FinCEN) and at the Federal Law Enforcement Training Center

(FLETC) in Brunswick, Georgia.

CONCLUSION

This brief overview of our strategies and programs provides some insight into the

role of the Internal Revenue Service Criminal Investigation Division.

Thank you Mr. Chairman for this opportunity to brief you and the members of

the subcommittee on the important role of Internal Revenue Service Criminal Investigation. I will be glad to answer any questions you might have.

STATEMENT OF W. RALPH BASHAM

Senator CAMPBELL. OK. We will continue with Mr. Basham,

please.

Mr. BASHAM. Mr. Chairman, Senator Kohl, I am pleased to be

here today to report on the current operations and performance of

the Federal Law Enforcement Training Center and to support our

appropriations for fiscal year 1999.

Even though I am new to this position, I am well aware of the

outstanding reputation this organization has acquired over nearly

three decades of delivering high-quality training to law enforcement officers from across the country and around the world, and

I assure you that I will continue to preserve and build on that reputation.

I would also like to acknowledge my predecessor, Charlie

Rankovich. Under Mr. Rankovich’s leadership, the Center experienced tremendous growth and came to be recognized as the Nation’s premier law enforcement training organization.

While he was at the Center, FLETC grew into a partnership of

over 70 participating agencies providing the best law enforcement

training available anywhere in the world. Mr. Rankovich leaves behind an organization with a highly motivated and talented staff

dedicated to the mission of providing quality, cost-effective training

for law enforcement professionals.
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I would like to express my deep respect and sincere appreciation

for the outstanding and selfless leadership provided by Mr.

Rankovich over the last 15 years.

Under the leadership of Secretary Rubin and Under Secretary

Kelly, the Center has received strong support and active assistance

for carrying out its responsibilities, and throughout the Center’s

28-year history, this committee has also been most supportive in its

funding of consolidated training and discerning in its oversight

role. The success enjoyed by the Center and the success of the consolidated training concept are directly attributable to this committee’s strong and consistent support.

Today, I am prepared to discuss the initiatives in our request,

which include mandatory workload increases, master plan staffing,

the International Law Enforcement Academy, and master plan implementation.

MANDATORY WORKLOAD INCREASES

The Center continues to face an unprecedented increase in its

training workload. Last year, the Center delivered more student

weeks of training than any other time in its history. The majority

of the increase in training workload results from initiatives by the

administration and Congress to improve the effectiveness of INS

and protecting our Nation’s borders. Other factors contributing to

the Center’s increased workload are security enhancements at Federal facilities, new Federal prisons coming online, and a significant

increase in the workload of the Bureau of Indian Affairs.

The initiatives outlined in our request are targeted at increasing

the Center’s training capacity in response to this growing workload,

and they tie directly to the goals outlined in the Center’s current

strategic plan. As you are aware, I have only been Director for a

few days, and, therefore, I have not had sufficient time to review

and assess all the goals and measures in the plan. I will be looking

at the plan over the next few weeks, and I will be asking the Department, OMB, and this committee for input and support in determining the future of FLETC as we move into the new millennium.

I would like to take a few minutes and discuss in more detail two

of the initiatives I mentioned earlier, the master plan and the

International Law Enforcement Training Academy for the Latin

American and Caribbean region, otherwise known as ILEA South.

MASTER PLAN CONSTRUCTION

To meet the dramatic rise in this training workload, the Center

is moving forward on its master plan construction program to increase capacity at both Glynco and Artesia. Through 1998, the Congress has appropriated nearly $83 million for master plan construction projects. By necessity, the master plan has been updated several times over the last few years, and copies of these updates have

been furnished to this committee.

It should be recognized, however, that the cost of fully implementing the master plan has increased over time because of inflation and changes necessary to meet the training requirements of

our customers. I want to assure you that the FLETC will continue

to work through Treasury, OMB, and Congress in dealing with any

additional master plan changes.
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In the past 2 fiscal years, the Center has completed construction

on two additions to the main classroom building at Glynco and has

expanded the driver training complex. Additionally, construction is

underway on a new dormitory and administration building at

Glynco, and a contract was recently awarded for the construction

of a new dormitory in Artesia.

Our 1999 request includes just over $16 million to continue implementation of the plan. These funds will be used to construct another dormitory and classroom building at Glynco and for expansion of the cafeteria, construction of a laundry facility, and infrastructure improvements at Artesia. These additional facilities are

vital if the closure of the temporary facility in Charleston is ultimately to be realized. However, I must tell you that workload projections have increased since the submission of our budget, and we

are now in the process of further analyzing facility requirements to

meet this additional workload increase.

INTERNATIONAL LAW ENFORCEMENT TRAINING ACADEMY

Our request for ILEA South is aimed at building strong and lasting relationships with and among law enforcement officials from

Latin America and the Caribbean. Current demand for training assistance for the international community resulting from congressional administrative initiatives already exceed the FLETC’s available resources. That demand coupled with the added responsibility

for management oversight and administrative support of ILEA

South make it essential that additional resources be provided.

Mr. Chairman, men and women of the Federal Law Enforcement

Training Center are proud of the contribution that they make in

providing our Nation’s law enforcement officers the training necessary to carry out their vital mission.

I look forward to working with you in the future, and that concludes my comments.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Mr. Basham. We have your complete statement and it will be made part of the record.

[The statement follows:]

PREPARED STATEMENT OF W. RALPH BASHAM

Mr. Chairman and Members of the Committee, I am pleased to be here today to

report on the current operations and performance of the FLETC and to support our

appropriations request for fiscal year 1999. As you know, Secretary Rubin appointed

me as Director of the FLETC effective February 15, 1998. I am honored by this appointment. While I am new to this position, I can report to you that I am very well

aware of the outstanding reputation this organization has acquired over nearly

three decades of providing high quality training to law enforcement officers across

the country and around the world. My 27 years with the U. S. Secret Service as

an Agent, Special-Agent-In-Charge of several field offices, Deputy Assistant Director

for Training and most recently as Assistant Director for Administration, have

helped prepare me for this challenging assignment. I consider myself most fortunate

to have had a long career with a great organization, the U. S. Secret Service, and

now the opportunity to lead another great organization, the FLETC, into the next

century.

The Center has seen tremendous growth since its establishment in 1970 when a

handful of agencies joined together and established the Consolidated Federal Law

Enforcement Training Center. The Department of Treasury has been the lead agency for the United States Government in providing the administrative oversight and
83

day-to-day direction for the FLETC since its creation. Under the leadership of Secretary of the Treasury Robert E. Rubin, and Under Secretary for Enforcement Raymond W. Kelly, the FLETC has received strong support and active assistance for

carrying out its responsibilities. This Committee, Mr. Chairman, is owed a debt of

gratitude. Throughout the Center’s 28 years of service to Federal law enforcement,

this Committee has been most supportive in its funding of consolidated training and

insightful in its oversight role. Although I have been at the Center for only a short

time, it is obvious to me the strong and active role you have played in the success

of the Center, and I am looking forward to working with you in the future.

There are now 70 agencies which train at the Center and we expect this growth

to continue as more agencies recognize the many benefits of consolidated training,

not the least of which is a tremendous cost savings to participating agencies and

the Government. Congress can be proud of the quality of the training being provided

at the FLETC and the savings realized through consolidation. FLETC’s success is

the direct result of the strong support we have received from Treasury leadership,

this Committee and our participating organizations.

Today, I am prepared to discuss a number of our initiatives outlined in the President’s fiscal year 1999 budget. The Center’s fiscal year 1999 request is for a Salaries

& Expenses (S&E) appropriation of $71,923,000 and 553 FTE, an increase of

$6,260,000 and 27 FTE from the fiscal year 1998 level. Our request for Acquisition,

Construction, Improvements & Related Expenses (ACI&RE) is $28,360,000, a decrease of $4,188,000 from the fiscal year 1998 level. The S&E and ACI&RE funding

requested will support four important initiatives: Mandatory Workload Increase

($1,614,000 and 10 FTE); new construction support ($1,400,000 and 12 FTE); an

International Law Enforcement Academy for the Southern hemisphere ($1,500,000

and 5 FTE); and new construction pursuant to our facilities Master Plan

($13,000,000).

In addition to our budget request, the Department of the Treasury will provide

the FLETC with $900,000 from the Asset Forfeiture Fund for the purchase of 30

front-wheel-drive driver training vehicles. This is the beginning of a five year

phased initiative that will convert our driver training vehicle fleet from rear-wheel

drive sedans to front-wheel drive sedans and is necessary to meet the training needs

of our participating agencies. I will discuss this and the other initiatives in more

detail later in my testimony.

The S&E and ACI&RE request represents an increase of $2,072,000 over the fiscal year 1998 level. Coupled with $900,000 from the Asset Forfeiture Fund and

$29,000,000 in funds to be reimbursed to us by our agencies for training related

services, our total budget for fiscal year 1999 is $130,183,000.

Before providing this Committee with an overview of Center operations and discussing each of our initiatives in more detail, I would like to take a moment and

address progress being made in complying with the requirements of the Government

Performance and Results Act (GPRA). As you know the GPRA requires agencies to

publish strategic plans covering five years, publish annual performance plans which

include measurable goals, and, after the year is completed, to report on actual performance.

In the Center’s testimony last year, it was mentioned that the Center embraced

GPRA early. At that time the FLETC was working with the Department and the

Office of Management and Budget (OMB) to ensure that the Center’s strategic plan,

development of which began in 1994, was in full compliance with GPRA requirements. Since that time the Center’s plan has been shared with this Committee and

comments made by this Committee, OMB and the Department to improve the plan

have been addressed. Our plan is a part of the Department of the Treasury’s strategic plan and was submitted to Congress on September 30, 1997 in accordance with

GPRA requirements.

Performance plans required by GPRA are now an integral part of the budget documents sent to you each year. In our fiscal year 1998 budget request last year, we

incorporated measures of program performance in addition to the traditional outputoriented workload measures. As you know, good measures of program performance

are not always available. Ours are not perfect. However, we are making progress

in developing meaningful, quantifiable measures for our programs. As we gain more

experience, we hope to improve on the performance measures we use, and we would

welcome your continued feedback and suggestions in this area.

Included in our budget request this year is a report on whether or not we

achieved each of the targets we proposed for the most recently completed fiscal year

(fiscal year 1997). The performance measures used for law enforcement training in

fiscal year 1997 included: (1) results of our student quality of training survey, (2)

number of student-weeks trained, (3) number of students trained, and (4) variable
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unit cost per basic student-week of training funded. Plant operations performance

measures include results of our student quality of services survey.

The student quality of services survey and student quality of training survey performance measures are outcome measures. The overall student quality of training

index is based on a six point scale, and the overall student quality of services index

is based on a five point scale. Both indices are computed using evaluations completed by students attending Center programs. The variable unit cost per basic student-week of training funded is also an outcome measure and is based on training

dollars divided by funded student-weeks of training. The final two measures—students trained and student-weeks of training—are output measures and show the

student workload at the Center.

I am pleased to report that the Center’s performance against established targets

was excellent overall. The index for the most critical performance measure in our

plan, the student quality of training survey measure, was ‘‘5.4’’. This exceeded the

Center’s existing standard and performance plan target of ‘‘5.0’’. The student quality

of services actual performance index was ‘‘4.0’’ which equals our performance target

measure of ‘‘4.0’’. Additionally the FLETC’s training costs were below the cost figure

established for the variable unit cost per basic student-week of training.

The performance targets for students trained and student-weeks trained as shown

in the performance plan were not met. While the workload conducted was somewhat

less than the initial projections and the targets in our performance plan, the FLETC

did conduct 100 percent of the basic training requested by our agencies in fiscal year

1997. Because workload estimates used in the performance plan are based on

Spring 1995 estimates of our customers, it is not surprising to find that there is a

variance between the targets and actual workload. The budget process requires that

the Center’s participating agencies provide these estimates well in advance of funding actions by the Congress and Administration. Although estimates are based on

the best available data and the agencies’ best guess at the time, changes in Congressional and Administration policy and initiatives that occur in the interim can and

do have a dramatic impact on the outcome of actual workload. Therefore, the best

measure of the FLETC’s performance in this area is whether the Center provided

100 percent of the basic training requested, which in this case we did.

As stated earlier and in the Center’s testimony last year, the FLETC will continue

to refine existing performance measures and/or identify new performance measures

in an effort to more accurately reflect its performance. In the fiscal year 1999 budget

request you will find that the Center has revised and added to its performance

measures to ensure better linkage between the performance measures being used

and the Center’s strategic goals. This is part of our continuing effort to provide this

Committee with the information it needs to make informed budget decisions.

I believe that this system—setting strategic goals and strategies for the long term,

setting annual targets, managing to achieve those targets, and reporting on annual

performance—will help all of us manage the Center’s programs more efficiently and

effectively.

In reviewing our request, and later in our discussions today, I am sure you will

find that there is a strong and direct relationship between our budget initiatives

and the mission and goals outlined in the Center’s Strategic Plan. That mission is

to provide quality, cost effective training for law enforcement professionals. It is a

vitally important mission and is essential if we are to equip our law enforcement

personnel with the skills necessary to deal with increasingly sophisticated and violent crimes.

Four key strategic goals guide the Center in fulfilling its mission. They are:

—Provide high quality training for law enforcement;

—Develop, operate, and maintain state-of-the-art facilities and systems responsive

to interagency training needs;

—Effectively organize, develop, and lead FLETC’s personnel in support of the

Center’s mission; and,

—Strengthen partnerships among participating organizations and the FLETC.

The initiatives outlined in our fiscal year 1999 request directly support the mission of the Center and can be tied to one or more of the goals in the Center’s strategic plan. Equipment and FTE’s requested under S&E for mandatory workload, Master Plan implementation, and the International Law Enforcement Training Academy, are essential if the Center is to provide quality training that is responsive to

the needs of its customers. Failure to fund these initiatives could result in a degradation of the services and jeopardize training, putting the Center in a position

where it could not meet its customers’ training requirements.

For example, if the FTE requested in the mandatory workload initiative are not

provided, the Center will not have the instructor resources required to meet the

basic training requirements projected by our customers.
85

Funding requested in the ACI&RE account will allow the Center to continue implementation of its Master Plan. Continued implementation of the Master Plan is

necessary if, in the future, we are to avoid the need to invest in costly temporary

facilities to meet the training needs of our customers during periods of peak demand. Additionally, temporary facilities adversely impact on the quality of training

provided and the quality of life of the student, even though we take steps to mitigate that impact as much as we can. I will discuss this issue more fully, later in

my testimony.

OVERVIEW OF OPERATIONS

Now Mr. Chairman, I would like to provide the Committee with a brief overview

of the operations of the Federal Law Enforcement Training Center.

The Center was established by a Memorandum of Understanding in 1970 and has

experienced tremendous growth over the last 28 years. We currently conduct basic

and advanced training for the majority of the Federal Government’s law enforcement personnel. We also provide training for state, local and international law enforcement personnel in specialized areas and support the training provided by our

participating agencies that is specific to their needs. Currently, 70 Federal agencies

participate in more than 200 different basic and advanced training programs at the

Center.

There are entry level programs in basic law enforcement for police officers and

criminal investigators along with advanced training programs in areas such as marine law enforcement, anti-terrorism, financial and computer fraud, and white-collar

crime. Training is conducted at either the main training center in Glynco, Georgia,

our training center in Artesia, New Mexico, a temporary training facility in Charleston, South Carolina, or on an export basis at sites across the country.

The temporary training site in Charleston was established in fiscal year 1996 to

accommodate an unprecedented increase in the demand for basic training by the

participating agencies, particularly that of the Immigration and Naturalization

Service (INS) and United States Border Patrol (USBP). Charleston is the direct result of recent Administration and Congressional initiatives to control illegal immigration along the United States borders. Cost for the site’s operation and facility

maintenance are being funded by the INS.

In addition to the training conducted on-site at one of the FLETC’s residential facilities, some advanced training, particularly that for state, local and international

law enforcement, is exported to regional sites to make it more convenient and/or

cost efficient for our customers. The tremendous demand for basic training over the

next four years will increase the FLETC’s reliance on export training sites to meet

these advanced training requirements. The Center’s driver, firearms and physical

techniques training facilities cannot accommodate all of the training being requested. Therefore, much of the advanced training requiring the use of special training facilities will have to be accommodated elsewhere.

Realizing that a short-term solution was needed to meet the advanced training

needs of our customers until additional facilities are completed under the Master

Plan, the FLETC began to identify state and local facilities that could be used to

accommodate this training. Several sites have now been identified, and the Center

will seek this Committee’s permission to enter into agreements with these non-Federal organizations for the use of their facilities on a reimbursable basis. No funding

of the FLETC will be used to make capital improvements at the sites. Essentially,

FLETC will serve as a ‘‘broker’’ in setting up training arrangements with select nonFederal sites that can accommodate only training that cannot otherwise be conducted at a FLETC site. If approved, the Center will be able to assist its customers

in meeting their advanced training needs by facilitating the scheduling of their

training at one of these sites. At the same time, with the Center serving as the

mechanism for the use of these facilities, the concept of consolidated training

through the FLETC will be protected. Additionally, continued implementation of the

Master Plan will eventually allow this advanced training to be returned and conducted at the Glynco and Artesia training centers.

Over the years, the FLETC has become known as an organization that provides

high quality and cost efficient training with a ‘‘can do’’ attitude and state-of-the-art

programs and facilities. There are many substantial advantages of consolidated

training for Federal law enforcement personnel, not the least of which is an enormous cost savings to the Government. Consolidated training avoids the duplication

of overhead costs that would be incurred by the operation of multiple agency training sites. Furthermore, we estimate that consolidated training will save the Government $114 million in per diem costs alone during fiscal year 1999. This estimate

is based on projected fiscal year 1999 workload and per diem rates in Washington
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and other major cities of $152/day versus the cost of housing, feeding, and agency

miscellaneous per diem of $29.95/day for a student at Glynco. Consolidation also ensures consistent high quality training and fosters interagency cooperation and camaraderie in Federal law enforcement.

FLETC and consolidated training can be viewed as a National Performance Review concept ahead of its time. Quality, standardized, cost-effective training in

state-of-the-art facilities, interagency cooperation, and networking are indisputable

results of consolidation. However, the concept of consolidated training is fragile and

needs constant nourishment and support if it is to remain intact.

WORKLOAD

As I mentioned earlier, the Center is facing an unprecedented increase in its

training workload that began in fiscal year 1996 and is projected to continue

through fiscal year 2002. The majority of the increase in training workload is the

result of the fiscal year 1995 initiative by the Administration and Congress to increase the effectiveness of the Immigration and Naturalization Service (INS) in controlling our borders by increasing the number of INS and United States Border Patrol (USBP) law enforcement personnel. Other factors contributing to the increase

include security enhancements at Federal facilities and new Federal prisons coming

on-line. Additionally, the Bureau of Indian Affairs (BIA) is also projecting a dramatic increase in the number of students it will need trained beginning in fiscal

year 1999.

During fiscal year 1997 the Center graduated 23,329 students, representing

109,116 student-weeks of training. This total included 16,628 students who were

trained at Glynco, Georgia, 2,962 students trained at Artesia, New Mexico, 861 students trained at Charleston, South Carolina, and 2,878 students trained in export

programs conducted at various locations throughout the United States. There were

10,741 basic students, 9,226 advanced students, 2,562 state and local students, and

800 international students trained, equating to an average resident student population (ARSP) of 2,098. Although the total number of students and student-weeks

trained were below the performance targets established for fiscal year 1997, the

Center did provide 100 percent of the basic training requested by its customers. The

performance targets established for fiscal year 1997 were based on Spring 1995 projections of the 70 agencies we serve. These projections are made in advance of appropriations. Because of circumstances beyond the control of the agencies or the

FLETC, the projections changed by the start of the fiscal year, and fewer training

requests materialized. This performance measure has been revised in the fiscal year

1999 budget submission and now is based on FLETC providing 100 percent of the

basic training requested by the participating agencies.

The Center has seen enormous growth in the training demanded by its participating agencies over the past decade. We have been able to accommodate many, but

not all, of these increased training demands by being innovative and undertaking

extraordinary measures.

To accommodate training during fiscal year 1985 and again in fiscal year 1989,

the Center had to temporarily expand its capacity for housing, dining, classroom,

office space, storage, and special training facilities by using temporary buildings and

contracted or licensed temporary facilities. Further, the Center has not always had

space to accommodate all of our students in on-Center housing and has used contractual arrangements with local motels to house our overload. Many of the temporary measures taken to meet these training demands were costly, and they adversely impacted the Center’s operations.

As you are aware, a temporary training facility was established in Charleston,

South Carolina, during 1996 because our current facilities do not have the capacity

to accommodate all of the training being requested. Principally used to conduct

USBP training that cannot be accommodated at the Glynco and Artesia training

centers, this facility will be closed once requirements for the Border Patrol buildup

are completed. We expect that in fiscal year 2000, sufficient capacity will exist at

Glynco and Artesia to meet most or all of the projected training requirements of our

participating agencies and Charleston can be closed.

This is the third time since fiscal year 1985 that FLETC has taken extraordinary

measures to meet the training demands of its participating agencies. More importantly, it is the second time in the last nine years that a temporary training facility

has had to be established. A temporary training facility was established at Ft.

McClellan, Alabama, in 1989 to meet a similar increase in the USBP training workload.

Opening temporary training facilities is a time-consuming and expensive process.

Capital improvements must be made to bring the facility on line and, unlike capital
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improvements made at Glynco or Artesia, there is no permanent return on that investment. The dollars expended are lost when the facility is closed. It also impacts

on the cost effectiveness of the training provided and on the student’s quality of life

and overall training experience. However, as was done in 1989, the Center is taking

steps to mitigate any impact the temporary training facility might have on the quality of training provided. We are extremely proud of our reputation for providing

high quality, cost effective training and will take the steps necessary to ensure that

the quality of training provided at Charleston remains high.

FACILITIES MASTER PLAN

Now, Mr. Chairman, if I may, I would like to brief you and the other Committee

members on progress being made in expanding the FLETC’s facilities. The Master

Plan, presented to Congress in June 1989, provided a basis for the efficient and orderly development of the Center’s land and facilities resources. It was and is a comprehensive blueprint to guide the expansion of the Center so that it can more effectively support the present training workload as well as the workload projected for

the future. The original plan called for a total investment of $86,010,000.

The Center has recently completed an update of the Master Plan. The update,

which is being reviewed by the Department and the Office of Management and

Budget, will be provided to the Congress when that review is completed. Through

fiscal year 1998, Congress has appropriated $82,717,000 for Master Plan construction. Of this amount $66,960,000 was for Glynco projects and $15,207,000 was for

Artesia projects.

At Artesia, major projects that have been completed include: rehabilitation of the

cafeteria/student center complex and main classroom building; construction of a

physical training complex, completed in October 1991; interim driver/firearms

ranges, completed in 1991; a much needed road and sidewalk network at the Artesia

main campus, completed in 1992; permanent firearms ranges, completed in 1993;

and a driver/firearms administrative support/classroom building, completed in 1996.

At Glynco, completed projects include: a dormitory, completed in April 1993; an expansion of the indoor firearms range complex, completed in August 1993; consolidation/expansion of the physical techniques facility, completed in October 1993; an expansion of the cafeteria, completed during 1994; construction of two 25 firing point

outdoor ranges completed in 1994; an addition to the Steed classroom building (two

state-of-the-art classroom buildings), completed in May 1996; and an expansion of

our driver training complex (the addition of control tower, defensive driving and

highway response ranges), completed in February 1997.

In addition to those MP projects already completed, construction recently began

on a new dormitory and an administrative building at Glynco. These projects are

expected to be completed in fiscal year 1999. A contract was also awarded in late

January for construction of a dormitory in Artesia. Construction on this project will

begin in early March and should be completed in early fiscal year 2000.

The Center’s fiscal year 1999 ACI&RE request is in the amount of $28,360,000

and includes $16,124,000 to continue implementation of the Master Plan. The remaining funds in the ACI&RE account are for environmental projects necessary to

comply with laws and regulations and to support the minor construction and maintenance projects necessary to protect the Government’s investment. Additionally a

small amount of the S&E appropriation is used to meet certain facility maintenance

requirements.

The $13,000,000 in Master Plan funds requested in our fiscal year 1999 initiative

will provide funding to construct a classroom building and a dormitory at Glynco.

These facilities are necessary to support the increased basic training workload of the

participating agencies. Except for a small amount ($308,000) that will be used for

a classroom at Glynco, the remaining $3,124,000 contained in the base will be used

for expansion of the cafeteria, a commercial laundry and infrastructure improvements at the Artesia center.

Our Master Plan initiative directly supports goal two in FLETC’s strategic plan.

That goal is to develop, operate, and maintain state-of-the-art facilities and systems

responsive to interagency training needs. Funding is required if the Center is to

meet the training needs of its customers. Not funding these initiatives will result

in the continued reliance on the more costly method of establishing temporary training facilities to meet training requirements. It also endangers the concept of consolidated training as the larger agencies look at alternatives, such as individual agency

sites, to meet their training requirements.

The Center continues to consult closely with its participating agencies so that the

design features of each project will meet current and future needs. This close consultation sometimes prolongs the period it takes to design and construct facilities;
88

however, we feel the time and effort are well spent because it ensures that funds

are efficiently and wisely used.

Obviously, changing events have and will continue to dictate modifications to the

various projects outlined in the Master Plan. For example, the Center’s unprecedented workload has resulted in adjustments to the priority and the reprogramming

of funds between some of the projects at Glynco to ensure that the temporary facility in Charleston is closed as soon as possible. However, I want to assure you that

the FLETC will continue to work through the Treasury Department, Office of Management and Budget, and the Congress in dealing with these changes.

Mr. Chairman, I want to thank you and members of the Subcommittee for the

support given the Center in its Master Plan development and implementation. We

are pleased and grateful that Congress has seen fit to appropriate the funds necessary to expand our facilities and better equip the Center to meet the training

needs of our customers. Only by doing so is the concept of consolidated training nurtured and strengthened.

Now, if I may, Mr. Chairman, I would like to take this opportunity to further discuss the four remaining initiatives in the Center’s fiscal year 1999 budget request

which I briefly referred to earlier in my testimony.

MANDATORY BASIC TRAINING WORKLOAD INCREASE

In our fiscal year 1999 request the Center is asking for $1,614,000 and 10 FTE

to support the direct cost of basic training resulting from workload increases. As I

discussed in some detail already, the Center is faced with an unprecedented increase in its workload. This initiative will allow the Center to fund 100 percent of

the direct cost of the discounted projected basic training in fiscal year 1999 (excluding recently updated projections in INS/BIA’s workload) and supports goal one in

FLETC’s strategic plan—to provide high quality law enforcement training.

Our request is in accordance with the current Treasury/FLETC policy that requires funding of the direct cost of basic training. The participating agencies do not

request funding for these costs in their budget submissions and are fully expecting

and relying upon the FLETC to provide that funding.

MASTER PLAN FTE

As I touched on in my testimony earlier, the Center is requesting $1,400,000 and

12 FTE in support of the Master Plan implementation. Master Plan construction

funding provided in fiscal year 1998 and that contained in our fiscal year 1999 request totals nearly $35,000,000. Because FLETC’s current administrative staff, including engineering and procurement specialists, are already fully utilized on existing Master Plan and minor construction and maintenance projects, we need additional resources to ensure the prompt processing and completion of these projects.

The Master Plan FTE contained in this request will give the Center the additional

support personnel necessary for management and oversight of these projects from

design through construction and will ensure their timely completion.

This initiative supports goal two of the FLETC’s strategic plan which is to develop, operate, and maintain state-of-the-art facilities.

INTERNATIONAL LAW ENFORCEMENT ACADEMY

The FLETC has been involved in foreign training for more than 20 years. Since

1979 the FLETC has provided training to more than 4,000 foreign law enforcement

officials from more than 102 countries.

The Center’s Office of State, Local and International Training (OSI) serves as the

focal point for all foreign training requests received by the FLETC. OSLI, originally

established in 1982 by the President to provide much needed training for state and

local law enforcement agencies, has proven to be the ideal conduit for FLETC’s

international training efforts. Since its inception, the OSLI has received broad support from the Federal, state, and local law enforcement communities. They provide

subject matter experts for course and program development as well as instructional

services. The same network and support structure in place to assist state and local

agencies in meeting their training needs made the OSLI a logical focal point for

international training at the FLETC.

Two Administration and Congressional initiatives, the Freedom Support Act and

the Support for Eastern European Democracies Act, are responsible for much of the

upswing in foreign training. As you know, these acts provide law enforcement technical assistance in combating organized crime, financial crime, and narcotics trafficking to Russia, the newly independent states of the former Soviet Union, and

other eastern European countries.
89

The majority of recent training has been provided under the sponsorship of the

Department of State’s Office of Antiterrorism Assistance and Bureau for International Narcotics and Law Enforcement Affairs. During the last three years programs have been conducted in Russia, Poland, Hungary, Romania and Moldavia. In

addition to this training, the FLETC also provides instruction in financial crimes

to students attending each session of the program conducted at the International

Law Enforcement Academy (ILEA) in Budapest, Hungary.

Requests for training have grown substantially in the last few years, with student

weeks of training increasing by more than 200 percent since 1994. During fiscal

year 1997 the Center trained 800 foreign students, representing 1,300 studentweeks of training.

In fiscal year 1998 the Center expects to train 1,132 students, representing 2,084

student-weeks of training. The growth in foreign training has been so explosive that

FLETC now finds it must deny or delay in responding to some of these requests

because facilities or staff to support the request are not available.

Adding to this already heavy international training workload are other Congressional and Administrative initiatives also aimed at increasing international cooperation in combating crime. These initiatives are out pacing FLETC’s resources and its

ability to support training in the international arena.

In 1995, as part of Congress’ and the Administration’s objective to enhance cooperation and strengthening international law enforcement efforts, the Department

of State established the ILEA in Budapest, Hungary. Drawing on the expertise of

U.S. law enforcement agencies and participating nations, ILEA has proven to be a

successful model. Although FLETC does not have the lead responsibility for ILEA,

FLETC has been actively involved in supporting the training requirements of ILEA

since its inception, providing instructional and program development support.

The ILEA in Budapest has enhanced cooperation and strengthened international

law enforcement efforts. The great success of the ILEA model has encouraged the

Administration to expand on this concept by establishing international law enforcement academies in Latin America and the Far East. At the San Jose Summit on

May 8, 1997, President Clinton announced that an international law enforcement

training academy would be created in Latin America (ILEA-South) before the end

of 1997. Patterned after ILEA-Budapest, the goals of ILEA-South are to expand relationships with and among foreign law enforcement officials from Latin America

and the Caribbean, support democracy by stressing the rule of law in international

and domestic police operations, foster international cooperation and raise the professionalism of law enforcement judicial officials.

The Department of State selected the Department of the Treasury as the lead

agency to establish ILEA-South. In turn, the Department, at the request of the

Under Secretary for Enforcement, selected the FLETC to provide management oversight, administrative support, and guide program development for ILEA-South.

The FLETC will serve as the coordinator for this effort on behalf of all the Treasury law enforcement bureaus who are joined together in support of ILEA. A pilot

training program, the Criminal Justice Managers Training Program (CJMTP), was

recently conducted in Panama City, Panama, during November and December 1997.

Thirty-two students attended the first program offering of the CJMTP. The program was well received and was considered by all those involved to be a great success. Countries represented by students included Belize, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Panama.

Our fiscal year 1999 request includes $1,500,000 and 5 FTE for the management

of the ILEA-South. Current demand for training assistance from the international

community already exceeds the FLETC’s available resources. That demand coupled

with the added responsibility for management oversight and administrative support

of ILEA-South makes it critical that additional resources be provided.

The ILEA-South initiative contained in our request supports goal one in FLETC’s

strategic plan. That goal is to provide high quality training for law enforcement.

CONVERSION OF THE FLETC DRIVER TRAINING VEHICLE FLEET

Now, Mr. Chairman, I would like to brief this Committee on the need to begin

conversion of FLETC’s driver training vehicle fleet from rear-wheel drive to frontwheel drive sedans. Although not part of the Center’s budget request, this $900,000

initiative will allow the Center to purchase 30 front-wheel drive police package

training vehicles and begin the conversion of its driver training vehicle fleet. It will

be funded from the Department of Treasury’s Asset Forfeiture Fund.

Over the last few years American automobile manufacturers have slowly converted their production from rear-wheel drive to front-wheel drive vehicles. Because

of this change, U.S. manufactured police package automobiles are now predomi-
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nantly based on front-wheel drive car platforms. As agency fleets age, older rearwheel drive vehicles are now being replaced by the newer front-wheel drive vehicles.

Nearly half of FLETC’s 20 on-site participating agencies have started to convert

their vehicle fleets to front-wheel drive vehicles, and GSA advises that 96 percent

of the cars they purchased in 1996 were front-wheel drive cars.

Since front-wheel drive cars handle differently from rear-wheel drive cars, the

FLETC must begin to update its fleet if it is to meet the training needs of the participating agencies. Students must be trained with the same type of equipment they

will use when they graduate. This is the only way they can master skills that are

essential for them to perform well in their jobs. Failure to provide this training will

increase the potential that accidents may occur because the officers were not trained

using the appropriate vehicle.

With the funding requested the FLETC will purchase 30 vehicles in fiscal year

1999. Smaller numbers of front-wheel drive vehicles cannot be added to the driver

training fleet, as a class cannot have mixed vehicle types during evaluation exercises that require different reactions based on the vehicle type. Thirty is the minimum number of vehicles needed to integrate a different type vehicle into the training and provide continuity as a class rotates through the various special driving

ranges.

Currently there are approximately 150 driver training vehicles in the FLETC

fleet, and by fiscal year 1999 the average age of these vehicles will be nine years

old. This is a five-year initiative with a total cost of $4,500,000.

The FLETC’s heavy workload, the addition of two new driving ranges, the aging

of the FLETC’s driver training vehicle fleet, and the need to train students with the

same type of equipment they will use in the field makes it imperative that FLETC

begin the conversion of its driver training vehicles from rear-wheel drive to frontwheel drive in fiscal year 1999. This initiative directly supports FLETC’s strategic

plan goal one which is to provide high quality law enforcement training.

Now, Mr. Chairman, if I may, I would like to take a moment and briefly update

the Committee on activities of our satellite training center in Artesia, New Mexico,

and the activities of our National Center for State, Local and International Training.

ARTESIA OPERATIONS

The Artesia center was purchased and became operational in 1989. Training facilities at Artesia include a 164-room dormitory (of which 4 rooms are utilized as

a library and snack bar), a cafeteria capable of serving 275 students per sitting, two

auditoriums—one with seating for 166 and the other with seating for 85, and a

physical training complex. There are 23 general purpose classrooms which will accommodate up to 740 students. Special purpose classrooms include a 24-person computer classroom and a 24-person fraudulent document lab. Other specialized facilities at Artesia include practical exercise areas, a mock courtroom, 3 matted rooms

for physical techniques training, driver training and firearms ranges, an obstacle

course, 36 breakout rooms, a heliport and a rappelling tower.

The Department of Interior’s Bureau of Indian Affairs (BIA) Indian Police Academy moved to Artesia during 1993. In addition to the BIA training that is conducted, Artesia also serves as an advanced training site for students posted in the

western United States. Additionally, because of its diverse special training facilities,

it can accommodate overflow basic training that cannot be done at Glynco due to

space limitations. Artesia is playing and will continue to play an important role in

meeting the training requirements of the BIA and INS over the next few years.

During fiscal year 1997, the Center trained 2,962 students at Artesia. In fiscal

year 1998 we expect to train 4,493 students based on April 1997 and later projections of our participating agencies and we estimate that 5,791 students will be

trained at Artesia in fiscal year 1999. The majority of the increase in the fiscal year

1999 training workload is due to the advanced training requirements of the INS,

USBP, and Bureau of Prisons.

Other users of Artesia in addition to those already mentioned above include the

Bureau of Land Management, National Marine Fisheries Service, and the FLETC’s

National Center for State, Local and International Training.

The expansion of the Artesia center as authorized by the Congress is continuing

essentially as planned. As I mentioned earlier in my testimony when discussing the

Master Plan, many of the Artesia Master Plan projects have been completed and

are in use. Nine modular buildings have also been installed to accommodate the increase in training workload resulting from the INS buildup and a contract for the

expansion of the Artesia dormitory to add an additional 76 rooms was awarded in

January of this year. In fiscal year 1998, the Center received Master Plan funding
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for expansion of the Physical Training Complex, construction of an Office Building

and the balance of funds needed for a Classroom/Practical Exercise Complex. Initial

planning for those projects is underway.

NATIONAL CENTER FOR STATE, LOCAL, AND INTERNATIONAL TRAINING

Mr. Chairman, earlier in my testimony I discussed Glynco’s National Center’s role

in supporting the Administration’s and Congress’ international training initiatives.

However, we must not forget the important role played by OSLI in meeting the

training needs of State and local law enforcement agencies. If I may, I would like

to take a few minutes and brief this Committee on OSLI’s state and local training

activities.

As I mentioned previously the National Center was established in 1982 by the

President to provide much needed training for state and local law enforcement agencies. Since its inception, the National Center has received broad support from the

Federal, state, and local law enforcement communities. They provide subject matter

experts for course and program development as well as instructional services.

In addition to its international training responsibilities, the National Center is

charged with training personnel from state and local agencies in advanced topics designed to develop specialized law enforcement skills.

By combining the staff expertise of the participating agencies and the FLETC

with the specialized training facilities already available at the FLETC, the Center

is able to provide participants with instruction in advanced programs meeting their

specific needs. In most cases the training enables these agencies to be more supportive of Federal agencies and their missions.

During fiscal year 1997, there were 2,562 state and local students trained through

the National Center in more than 40 advanced training programs. In fiscal year

1998 we project that 1,812 state and local students will receive training through the

National Center.

Because of the success of the National Center, many of these programs are being

conducted on an export basis at sites across the country, including our Artesia center. This has proven to be a cost effective method to provide training to state and

local agencies. Additionally, exporting training to state and local academies and

other locations throughout the country increases the Center’s visibility and leads to

improved cooperation between the Center and state and local agencies.

In fiscal year 1998, the Center received $1,000,000 and 3 FTE for its Rural Drug

Training initiative. The initiative provided funding for the delivery of training programs to state, local, suburban and rural jurisdictions to enhance their effort in

combating the flow and sale of illicit narcotics. These programs, the Small Town and

Rural Training Series (STAR) were developed in response to an identified need for

low cost or no cost training to be provided to small town and rural law enforcement.

Originally the STAR series consisted of four programs: Airborne Counterdrug Operations Training Program, Advanced Airborne Counterdrug Operations Training

Program, Drug Enforcement Training Program, and Rural Crime and Drug Enforcement Task Force Training Program. However, in keeping with the original intent

of the initiative and as crimes associated with the flow, sale, and use of illicit narcotics continue to grow in numbers and complexity, the STAR series has been expanded to address the many varied elements that contribute to these types of

crimes. Programs added to the STAR series by the National Center include: Community Policing Training Program, First Response Training Program, Gangs in Indian Country, and Hate and Bias Crimes Training Program.

I am pleased to report that the Center will conduct approximately 57 STAR series

programs and reach approximately 1,500 students during fiscal year 1998. These

numbers are even more significant since STAR programs are train-the-trainer programs. They are directed toward either managers or trainers/facilitators who upon

completion of a program are capable of replicating the training in their local jurisdictions using the techniques and the materials provided. This has the effect of substantially reducing the cost of training to local jurisdictions and increasing the number of people reached by the training—a multiplier effect.

CLOSING

Mr. Chairman, I am committed to the mission of the Center to provide high quality training at the lowest possible cost. Substantial savings are being realized

through the operation of the Center as a consolidated training facility. I look forward to the continued support of this Committee as the FLETC strives to remain

a partnership committed to excellence.

I am available to answer any questions you may have concerning this appropriation request.
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STATEMENT OF WILLIAM BAITY

Senator CAMPBELL. Mr. Baity.

Mr. BAITY. Thank you, Mr. Chairman, Senator Kohl.

On behalf of the men and women of FinCEN and especially our

Director, Stan Morris, who as you know will be retiring this Friday

after 30 years of Federal service, we want to thank you for the opportunity to discuss the mission and our fiscal year 1999 budget request of the Financial Crimes Enforcement Network [FinCEN].

FISCAL YEAR 1999 BUDGET REQUEST

The fiscal year 1999 budget request of $24 million continues

FinCEN’s support to law enforcement investigations, regulatory efforts, and international coordination. In addition, we are proposing

that the violent crime reduction trust fund support three program

initiatives, $500,000 to produce a statistically based model to measure the magnitude of money laundering, $200,000 to continue

training for State and local law enforcement under our Gateway

program, and $300,000 to more effectively analyze reports filed by

banks and other financial institutions under our regulatory program.

As its name states, FinCEN is a network, a link between the law

enforcement, regulatory, and the financial communities. Our strategy, therefore, is to maximize information sharing among our partners in these communities and to foster cost-effective and efficient

measures to address the complex problem of money laundering.

As you have heard us before describe to this committee, FinCEN

provides case support to more than 150 Federal, State, and local

law enforcement agencies. Using advanced technology, specialized

analysis, and a variety of data sources, FinCEN links together various elements of the crime, helping investigators find the missing

pieces of the criminal puzzle.

To perform this analysis, FinCEN accesses a variety of data

bases, one of the largest repositories of information available to law

enforcement in this country. Critical information collected in these

data bases comes from the financial community, another part of

FinCEN’s network.

BANK SECRECY ACT

The Bank Secrecy Act, known as the BSA and administered by

FinCEN, requires banks and other financial institutions to report

and keep records on certain financial transactions.

To further close off avenues to money launderers, FinCEN has

ongoing efforts to bring nonbank financial institutions, known as

NBFI’s, under the umbrella of the Bank Secrecy Act. NBFI’s include casinos, broker/dealers, money transmitters, and other financial service providers.

By necessity, FinCEN’s network extends to the international

community. Building international cooperation, both in the private

and public sector, is imperative for two reasons. First, the Federal

law enforcement cases involving international crime that we support frequently spill over into multiple national jurisdictions. The

only way we can adequately assist our Federal law enforcement

counterparts in following the trail of the multinational money
93

launderer is through linkages through multinational arrangements,

such as the G–7 financial action task force and building alliances

with financial intelligence units [FIU’s], organizations similar to

FinCEN that have been established throughout the world.

Second, criminals seek out countries with weak money laundering controls; if antimoney laundering laws are strong in one country, criminals run to another one with weaker links. Organizations

like FATF and the FIU’s help establish and strengthen laws

against money laundering. Building a global consensus in this area

is essential.

MAGNITUDE OF MONEY LAUNDERING

FinCEN’s program initiatives of fiscal year 1999 will further support its network capabilities and strategies. The first initiative

under the proposed fiscal year 1999 budget request is to construct

a viable model for measuring the magnitude of money laundering.

This will provide information that is indispensable for measuring

our performance. We will know whether we are making a difference. With adequate measures of the extent of the problem, it

also becomes easier for the Congress, law enforcement authorities,

and international organizations to determine the amount and allocation of resources which should be devoted to antimoney laundering and to identify where it fits in national and international enforcement and regulatory agendas.

Although attempts have been made over the years by a number

of countries and organizations to estimate the extent of money

laundering, these studies have only exposed the lack of sufficient,

available data and highlighted the need to develop a model or models for using this data. FinCEN’s overriding objective over the next

few years, therefore, will be to construct a viable model for measuring the magnitude of money laundering.

GATEWAY PROGRAM

A second initiative addresses one of our most important networking functions, our Gateway Program. State and local enforcement agencies, working with the designated State coordinators,

trained on FinCEN-designed software, have direct access to BSA

reports, information not readily available from any other source.

Gateway also saves investigative time and money because user

agencies can conduct their own research and not rely on the resources of intermediary agencies to obtain BSA reports. All States

and the District of Columbia are now online with this system.

In addition, Gateway enables FinCEN to assist State and local

agencies in coordinating their investigations among themselves and

with Federal agencies through information sharing and exchange of

case data.

FinCEN has worked diligently to make this system accessible to

as many people as possible. The Gateway training initiative will

enable FinCEN to respond to the increasing number of requests it

receives each month from State and local law enforcement. It also

furthers our goal of leveraging FinCEN’s resources to more efficiently and effectively serve our customers.
94

MONEY LAUNDERING

The third initiative addresses the importance of technology in

our efforts to combat money laundering. As you have heard us say

before, the world of money laundering is complex and ever-changing. Five years ago, the BSA concentrated on the reporting of currency being deposited in banks. Today, money laundering methods,

as well as the financial sector itself, are undergoing constant and

dramatic changes. Needless to say, the Government’s resources

dedicated to this fight have not increased at the same rate. Therefore, we have to do more with what we have and adopt innovative

uses of technology.

Our initiative in this area will support the use of advanced technology, often referred to as data-mining. The combination of software and hardware uses a variety of automated and analytical

tools to discover patterns and relationships in the data that would

otherwise not be found. Taking artificial technology to its next

level, data-mining will help make use of very large volumes of data

bringing to the surface meaningful groups of information. Hidden

activities and interrelationships previously unknown will be discovered. It is using technology at its best.

FinCEN’s fiscal year 1999 budget request continues the programs which enable it to support law enforcement investigation,

regulatory efforts, and international coordination. The three program initiatives, which we are respectfully proposing be funded

from the violent crime trust fund are modest in terms of dollars

and cents, but each initiative serves to enhance FinCEN’s mission.

The ability to produce a statistically based model to explain and

measure the magnitude of money laundering will not only provide

law enforcement with indispensable information, but will be cost

effective in the long run. The funding for Gateway will improve

tools and information for law enforcement in the fight against

money launderers.

We appreciate the committee’s consideration of our request and

the time you have given us today, and we look forward to answering any questions.

Thank you very much, Mr. Chairman.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Mr. Baity. We have your complete statement and it will be made part of the record.

[The statement follows:]

PREPARED STATEMENT OF WILLIAM F. BAITY

Mr. Chairman and members of the Subcommittee, thank you for this opportunity

to discuss the mission and fiscal year 1999 budget request of the Financial Crimes

Enforcement Network (FinCEN).

FinCEN works to make the prevention, detection, and prosecution of money laundering and other financial crimes more effective by adding to the knowledge and resources that law enforcement and the regulatory agencies can use to fight them.

The fiscal year 1999 budget request of $24 million continues FinCEN’s support

to law enforcement investigations, regulatory efforts, and international coordination.

In addition, under FinCEN’s appropriation, we are proposing that the Violent Crime

Reduction Trust Fund support three program initiatives: $500,000 to produce a statistically-based model to measure the magnitude of money laundering; $200,000 for

continued training for state and local law enforcement as part of the Gateway pro-
95

gram; and $300,000 to more effectively analyze reports filed by banks and other financial institutions under our regulatory programs.

COMPLEXITY OF THE PROBLEM

To better understand FinCEN’s strategies in combating money laundering, it is

important to provide an explanation of the complexity of the problem. Money laundering is the fuel for drug dealers, terrorists, arms dealers, and other criminals to

operate and expand their enterprises. In order to unravel their illegal activities, law

enforcement must be able to ‘‘follow the money trail’’ made by criminal enterprises.

And ultimately, following the money leads to the top of the criminal organization,

and thus the dismantling of these enterprises.

The problem of money laundering is enormous and extends far beyond hiding narcotics profits. The dimensions of the problem increase rapidly when one considers,

for example, trade fraud and tax evasion. Bank, medical, and insurance fraud also

adds billions of dollars to the criminal’s profits.

FINCEN’S NETWORK AND STRATEGIES

As its name states, FinCEN is a network—a link between the law enforcement,

regulatory, and financial communities. Our strategy, therefore, is to maximize information sharing among our partners in these communities and to foster cost-effective

and efficient measures to address the complex problem of money laundering.

As you have heard us describe before, FinCEN provides case support to more than

150 federal, state and local law enforcement agencies. Using advanced technology,

specialized analysis, and a variety of data sources, FinCEN links together various

elements of the crime, helping investigators find the missing pieces of the criminal

puzzle. To perform this analysis, FinCEN accesses a variety of data bases—one of

the largest repositories of information available to law enforcement in the country.

Critical information collected in these databases comes from the financial community, another part of FinCEN’s network. The Bank Secrecy Act (BSA), administered

by FinCEN, requires banks and other financial institutions to report and keep

records on certain financial transactions. This requirement serves as a means to

deter money laundering and as a way to create a financial trail for investigators

to follow criminals and their assets. BSA records include information not only on

large currency transactions, but information related to transactions that the banks

believe are suspicious; currency transactions at casinos; international movements of

currency; and foreign bank accounts. FinCEN puts the rules in place that banks and

others must follow to prevent and detect money laundering and also is one of the

primary users of the information collected. To further close off avenues to money

launderers, FinCEN has ongoing efforts to bring non-bank financial institutions

(known as NBFI’s), under the umbrella of the BSA. NBFI’s include casinos, broker/

dealers, money remitters and other financial service providers.

By necessity, FinCEN’s network extends to the international community. The proceeds of crime generated in the U.S. move quickly across national boundaries and

into the world’s financial systems. International crime is just that—international.

Building international cooperation, both in the private and public sector, is imperative for two reasons.

First, the federal law enforcement cases involving international crime that

FinCEN supports frequently spill over into multiple national jurisdictions and the

web of global financial services. The only way we can adequately assist our federal

law enforcement counterparts in following the trail of the multinational money

launderer is through linkages with multi-national arrangements such as the G–7 Financial Action Task Force (FATF) and building alliances with the Financial Intelligence Units (FIU’s)—organizations like FinCEN—established around the world.

Second, criminals seek out countries with weak money laundering controls; if

anti-money laundering laws are strong in one country, criminals run to another

with weaker ones. Organizations like FATF and the FIU’s help establish and

strengthen laws against money laundering, leaving fewer avenues for money

launderers. Building a global consensus is essential.

FinCEN’s program initiatives for fiscal year 1999 will further support its network

capabilities and strategies.

INITIATIVE: MEASURING THE MAGNITUDE OF MONEY LAUNDERING

No assessment of an agency’s or government’s anti-money laundering programs

can be a true gauge of its effectiveness, unless it is based on an understanding of

the breadth of the problem being addressed. The first initiative under our proposed

fiscal year 1999 budget request will help leverage limited law enforcement resources

by providing information on where anti-money laundering efforts would best be di-
96

rected. I would also stress that this initiative is the foundation for our strategic

planning and at the heart of measuring our performance. If we are able to construct

a viable model for measuring the magnitude of money laundering, FinCEN will be

able to review all of its objectives in a more meaningful way. We will know whether

we are making a difference.

We believe the ability to measure the magnitude of money laundering will add

value in four key areas:

Understanding the magnitude of the crime.—With adequate measures of the extent of the problem, it becomes easier for the Congress, law enforcement authorities,

and international organizations to determine the amount of resources which should

be devoted to anti-money laundering and where it fits in national and international

enforcement and regulatory agendas.

Understanding the effectiveness of counter-money laundering efforts.—Without a

baseline, it is difficult to measure how—and whether—efforts to prevent and detect

money laundering are working. The absence of scales for measurement, in turn,

makes evaluation of particular programs or approaches problematic. It hampers the

efficient allocation of resources among various enforcement functions or regions. And

it hinders effective justification for (sometimes costly) regulatory measures designed

to deter money launderers.

Understanding the macro-economic effects of money laundering.—A central justification for counter-money laundering, especially international counter-money

laundering programs, is the adverse effects of money laundering on financial institutions and economies. The International Monetary Fund, in studies of this problem,

has indicated a number of possible effects:

—changes in demand for money;

—exchange and interest rate volatility;

—heightened risks to the safety and soundness of financial institutions;

—adverse effects on tax collection and, ultimately, on fiscal policy projections; and

—contamination effects on particular transactions or sectors and behavioral expectations of market actors.

Without reliable data or models that measure the degree of money laundering, it

is impossible to prove the fact or gauge the size of these effects.

Understanding the components of money laundering.—Money laundering is often

misunderstood. It is not one act or kind of transaction; it can take many different

forms, and the proceeds of various crimes are laundered in different ways. Trying

to measure the magnitude of the problem forces us to focus on these distinctions

and on the different components of the crime we call money laundering.

Although attempts have been made over the years by a number of countries and

organizations to estimate the extent of money laundering, these studies have only

exposed the lack of sufficient, available data and highlighted the need to develop

a model or models for using the data which has been collected.

FinCEN’s overriding objective over the next few years, therefore, will be to construct a viable model for measuring the magnitude of money laundering.

INITIATIVE: NETWORK FOR STATE AND LOCAL GOVERNMENTS

FinCEN’s second initiative addresses one of its most important networking functions—the Gateway Program. The Gateway network extends to state and local governments in order to ensure the widest possible anti-money laundering effort.

State and local law enforcement agencies, working with designated state coordinators who are trained on the special FinCEN-designed software, have direct access

to over one hundred million reports filed under the Bank Secrecy Act, the largest

currency transaction reporting system in the world. These investigators also have

access to the Suspicious Activity Reporting System which contains reports filed by

banks on transactions that appear to represent attempts to launder funds or violate

the banking laws. This information often provides invaluable assistance for investigators because it is not readily available from any other source.

The Gateway system saves investigative time and money because subscribing

agencies can conduct their own research and not rely on the resources of an intermediary agency to obtain BSA reports. All states and the District of Columbia are

now on-line with the system. In fiscal year 1997, Gateway processed 57,663 queries

from 50 states. As of February 1, 1998, there were approximately 400 active users

of the system.

During the research and analysis process, Gateway electronically captures the information gathered on incoming inquiries and automatically compares this information to subsequent and prior queries from Gateway customers. Over 25,000 subjects

have been identified through Gateway.
97

In addition, Gateway users ask FinCEN to match about 600 new subjects each

month against its other databases to identify potential parallel investigations. This

technique enables FinCEN to assist state and local agencies in coordinating their

investigations among themselves, and with federal agencies through the sharing

and exchanging of case data. (In other words, FinCEN has the ability to ‘‘alert’’ one

agency that another has an interest in their subject.) In fiscal year 1997, 460

‘‘alerts’’ were given to agencies that had an interest in the same investigative subject. In just the past four months, 240 ‘‘alerts’’ were issued.

Since the inception of Gateway in 1993 , almost 650 representatives of state and

local law enforcement (including state attorneys general offices) have been trained

on Gateway. In fiscal year 1997, 166 investigators or analysts from 33 states were

trained on the Gateway system.

FinCEN has worked diligently to make this system accessible to as many people

as possible. The need for training, however, continues to increase. FinCEN is currently receiving 12 to 15 new training requests each month. The training initiative

in FinCEN’s fiscal year 1999 budget request is a result of two factors: turnover in

positions held by state financial investigators and an increase in the overall number

of investigators who are requesting use of the system. Since fiscal year 1996, there

has been a 46 percent increase in training requests.

This initiative will further FinCEN’s goal of leveraging its resources to more efficiently and effectively serve its customers.

INITIATIVE: GREATER USE OF TECHNOLOGY

The world of money laundering is complex and ever-changing. Five years ago, the

BSA concentrated on the reporting of currency being deposited into banks. Today,

money laundering methods, as well as the financial service sector, have changed

dramatically. Our success at deterring and identifying large currency deposits has

forced criminals to use alternative and more sophisticated methods to gain access

to the financial systems. As a result, we have had to employ more sophisticated

counter measures. Now financial services are provided by hundreds of thousands of

entities ranging from traditional depository institutions to broker dealers, state and

Indian casinos, check cashers, currency exchangers, issuers and sellers of money orders and travelers checks as well as money transmitters.

Needless to say the government’s resources dedicated to this fight have not increased at the same rate. Therefore, we have had to do more with what we have.

As indicated earlier, we have done this by developing partnerships with the affected

industries that share our mission, as well as with other nations. And we have found

another weapon in our arsenal—innovative uses of technology. In this area, FinCEN

analysts are pioneers. They use state-of-the-art technology not only to strengthen

their own capabilities, but also to improve the means by which they provide investigative support and analysis to law enforcement.

Our initiative in this area will support the use of advanced technology—data mining. This combination of software and hardware uses a variety of automated analytical tools to discover patterns and relationships in data that may otherwise be overlooked. Taking Artificial Intelligence technology to its next level, data mining helps

make use of very large volumes of data—bringing to the surface meaningful groups

of information.

Let me offer a very simplistic explanation as it relates to the retail industry. Data

mining has been used for several years in the retail industry to try and predict the

buying habits of consumers. For instance, in what is called the ‘‘shopping cart phenomenon,’’ supermarkets use data mining techniques to analyze the buying patterns

of shoppers—which in turn help them decide which grocery items should be in close

proximity to each other in the shopping isles.

I see FinCEN’s application of data mining in a very similar way, not using consumer data—but the data that we already require from banks and other financial

institutions. As described earlier, FinCEN uses a variety of information for its analysis—including Currency Transaction Reports; Suspicious Activity Reports; Reports

of International Transportation of Currency or Monetary Instruments; Currency

Transaction Reports filed by Casinos; and, in the future, reports filed under the proposed Money Services Businesses regulations. Through the implementation of data

mining techniques, our analysts would be able to bring to the surface hidden activities and interrelationships that were previously unknown between these various

data sources.

For instance, let’s assume a business—XYZ Corporation—is under investigation

by law enforcement authorities for money laundering violations. After examining

the pattern of XYZ’s financial activity, we can apply this suspicious activity pattern

to the rest of the data bases—and ‘‘mine’’ for other businesses which match the pro-
98

file we have created. Much like the supermarket trying to determine its customer’s

buying habits, we also want to predict activity—of potential money launderers. Data

mining will allow us to do just that. It’s technology at its best.

CONCLUSION

FinCEN’s fiscal year 1999 Budget request continues the programs which enable

it to support law enforcement investigations, regulatory efforts, and international

coordination. The three program initiatives which we are respectfully proposing be

funded from the Violent Crime Reduction Trust Fund are modest in terms of dollars

and cents, but each initiative serves to enhance FinCEN’s mission.

The ability to produce a statistically-based model to explain and measure the

magnitude of money laundering will not only provide law enforcement with indispensable information but will be cost effective in the long term. The funding for

Gateway, along with our technology efforts, improves the tools and information for

law enforcement in its fight against money launderers. We appreciate the Committee’s consideration of our request and the time you have given us today to illustrate

key aspects of FinCEN’s mission.

MONTANA SECRET BANKING PROPOSAL

Senator CAMPBELL. I would like to yield to Senator Kohl, if he

has some questions.

Senator KOHL. All right. Well, I will ask Mr. Baity a question

and keep it to that.

Mr. Baity, we keep hearing about the Montana secret banking

proposal. Last month, they developed regulations that would establish the State as an offshore banking haven to allow special depositories for overseas clients seeking privacy.

Would an overseas client receive any benefit from placing their

money in Montana as opposed, for example, to the Cayman Islands

or Switzerland? First question.

Mr. BAITY. Well, if I could, Senator, to put it in context, as we

understand it, the Montana Foreign Currency Depository Act, as

they call it, allows only foreign citizens to invest in a newly created

depository institution.

When they first announced their intent to enact this statute, we

along with the Department of Justice, met with them and actually

testified to ensure that our concerns, especially from the money

laundering aspect, would be met. In fact, we did get compliance

from Montana. They included in their legislation that any such depository institution would be subject to the Bank Secrecy Act.

We are of the opinion that any depository charter that they

would give would clearly be subject to the BSA including all of the

reporting requirements.

Senator KOHL. Are there other States that have shown any interest in establishing such an operation?

Mr. BAITY. Yes, sir; in fact, Hawaii is in the process of actually

studying the possibility of creating a similar act.

I would point out, to date there has been no charter granted to

any institution in Montana, but there remains several issues that

we intend to keep monitoring. As you know, when a foreigner or

foreign institution wants to open a bank in the United States, a supervisory regulatory agency has the ability to ensure that those

persons are not suspected of any criminal activity.

We are concerned with Montana that there is no such provision

in place, and we are under discussions with them to ensure that

before they move forward, a vetting process will exist, as well as
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an ability to train their people for compliance. So we are carefully

paying attention to that.

Senator KOHL. I thank you, and I thank you, Mr. Chairman.

SUBMITTED QUESTIONS

Senator CAMPBELL. I have a number of questions to submit to

each one of you, and if you could, get those back in writing as soon

as you can. We will keep the record open for about 2 weeks, if you

could answer those questions for me.

[The following questions were not asked at the hearing, but were

submitted to the Department for response subsequent to the hearing:]

QUESTIONS SUBMITTED BY SENATOR CAMPBELL

UNDER SECRETARY FOR ENFORCEMENT

Question. Based upon the protective travel shortfalls in the Secret Service budget,

what specific recommendations is the Treasury Department considering to address

this problem for the long term?

Answer. The Department is carefully reviewing this situation to first determine

exactly what is causing the Service’s need for increased protective travel funding,

and second to identify ways to address it. Once we determine whether the increased

level of costs relative to protective travel are expected to continue, and are not simply the result of a temporary and extraordinary jump in protective workload, the

Department may consider proposing changes to the Service’s fiscal year 1999 Budget Request.

Question. In light of the fact that the Secret Service expects to have a $13 million

shortfall in their protective travel budget for fiscal year 1998, how does the Treasury Department plan on providing funds for such shortfalls—now and in the future?

Answer. The Department is considering several options for addressing the Service’s protective travel shortfall this fiscal year and will be discussing these options

with the Committee.

Question. The fiscal year 1998 Treasury appropriations included a directive to the

Office of Professional Responsibility to conduct a study to assess the vulnerability

of U.S. Customs Service personnel. Please provide an update on this study. Has the

difficulty in hiring staff for the Office of Professional Responsibility delayed or impacted the study?

Answer. We share the Committee’s concern regarding potential corruption issues

at the U.S. Customs Service and we appreciate your support for the Office of Professional Responsibility (OPR) which will allow us to more closely examine and propose

integrity initiatives. Because we did not have the OPR staff on board we hired an

individual to conduct a preliminary assessment of Customs’ Office of Internal Affairs. This individual is extremely experienced in this area and served as a Federal

prosecutor and as the head of the New York City Police Department’s Office of Internal Affairs. He has submitted a final draft report to my office, which serves as

the starting point of OPR’s review.

Unfortunately, it did take longer than anticipated to hire our OPR staff. We received a very large number of applications and the Federal personnel rules made

review of those applications cumbersome. We did an extensive review of the applications, which included interviews of candidates conducted by a number of senior officials including myself and the law enforcement bureau heads. As a result of this

thorough process, we have hired four professional staff and two support staff for

OPR. One of our new hires is a highly qualified Internal Affairs Advisor who has

reviewed our consultant’s draft report and is now commencing the study requested

by the Committee.

GOVERNMENT PERFORMANCE AND RESULTS ACT OF 1993

Agencies were required by the Government Performance and Results Act of 1993

to submit their performance plans with the fiscal year 1999 budget request. The

performance of agencies during fiscal year 1999 in meeting their strategic plans will

play a large role in the budget decisions made in fiscal year 2000.

Question. Does each account and program activity for the Office of Enforcement

have performance measures associated with it?
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Answer. While we do not classify the measures by account and program activity,

we do have specific performance measures for each of the office’s missions.

Question. Does your plan include performance measures for which reliable data

are not likely to be available until March 2000?

Answer. No, we currently expect to have sufficient information.

Question. Do you have the technological capability of measuring and reporting

program performance throughout the year on a regular basis, so that the agency can

be properly managed to achieve the desired results?

Answer. We currently believe that technological capabilities will not restrict our

capability to measure program performance.

Question. Throughout the development of the fiscal year 1999 performance plan,

what overlapping functions or program duplications were identified?

Answer. No significant overlapping functions or program duplications were identified as part of the performance plan development for the Office of Enforcement.

Question. Did those duplicative programs receive funding in the fiscal year 1999

budget?

Answer. Not applicable. No significant overlapping functions or program duplications were identified as part of the performance plan development for the Office of

Enforcement.

Question. What do you believe will be the most difficult performance goal for the

Office of Enforcement to reach in fiscal year 1999?

Answer. While we currently feel it is attainable, annual goal 1 will probably be

the most challenging. It incorporates the establishment of a new office and the myriad issues that are encountered in such an effort: staffing, organization, operating

procedures, etc. in addition to the achievement of the office’s goals for the year.

Question. Have you redirected resources to that particular goal?

Answer. Yes. As noted above, this goal involves the creation of a new office within

Enforcement, and includes the additional staffing and resources required to meet

this goal.

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

VIOLENT CRIME COORDINATORS

Question. The Administration is requesting $2 million for ‘‘violent crime coordinators’’. It is my understanding that these folks will be assigned to work directly with

the U.S. Attorneys, at their request, to build cases involving firearms violations.

Will the Justice Department assist in funding this program?

Answer. The Justice Department will not assist in funding this program.

EXPLOSIVES INSPECTIONS

Question. You have received funding in fiscal year 1998 for additional explosives

inspectors. When those folks are all on board, what percentage of explosives storage

locations will be inspected each year?

Answer. Once all staff are hired, trained, and performing inspections, ATF plans

that 80 percent of explosives storage locations will be inspected annually.

VEHICLES

Question. Your fiscal year 1999 Budget includes a request of $3,700,000 for vehicle replacement. This is in addition to the planned $4,000,000 disbursement from

the Treasury Forfeiture Fund in fiscal year 1999 for vehicles and radios. In fiscal

year 1998, ATF received $4,500,000 from the Violent Crime Reduction Trust Fund

(VCRTF) for vehicle replacement. This is a total of $12,200,000. ATF currently has

3,894 employees, and is hoping to increase that to 4,038 in fiscal year 1999. That

is over $3,000 per employee, including part-time and temporary employees, for vehicles over two years. How do you justify this level of expenditure?

Answer. The average price of an equipped sedan is actually over $20,000 and special purpose vehicles such as special response team vans or mobile laboratories cost

much more. Additionally, each ATF employee is not issued a government vehicle.

ATF’s fleet has an average mileage rate of over 67,000 miles per vehicle. The average replacement cycle should be three years if the fleet is to remain up to GSA

standards. The funding request maintains a direct base so that a regular replacement cycle can be maintained, rather than have sporadic purchases from other

funding sources.
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GSA SURCHARGE FOR SECURITY REQUIREMENTS

Question. The General Services Administration has decided that they will no

longer foot the bill for security enhancements at locations housing Federal agencies.

As a result, those increased costs are being billed to the agencies themselves, and

funding is requested in fiscal year 1999 Budget for this increase. ATF headquarters

is currently leased space and the owner refuses to allow installation of additional

security, which is part of the reason why ATF is requesting funding for a new building. However, if GSA is not supplying additional security at headquarters, what is

the $1,221,000 increase in GSA rent for?

Answer. The $1,221,000 is not for headquarters nor is it for GSA rent. These

funds are for security requirements at our field facilities and are considered a GSA

surcharge. GSA is requesting reimbursement for annualized operating costs associated with security enhancements.

YOUTH CRIME GUN INTERDICTION INITIATIVE

Question. The expansion of the Youth Crime Interdiction Initiative into an additional 10 cities also envisions hiring six agents for each of the 27 YCGII cities for

a total of 162 agents. The actual tracing of the crime guns is conducted by the National Tracing Center. Will additional resources be necessary to handle the increased number of guns which you hope will be traced as a result of this expansion?

Answer. The additional agents will improve ATF’s ability to follow up on investigative leads produced through increased tracing. As far as the National Tracing

Center is concerned, we believe that the present staffing levels are sufficient for

handling the additional trace requests we anticipate as a result of the YCGII expansion. As the service expands to meet the demands of law enforcement in the long

term, we will re-evaluate space and other issues as they become relevant.

GREAT

Question. ATF is requesting $10,000,000 from the VCRTF for grants to State and

local jurisdictions for Gang Resistance Education and Training (GREAT) Program.

This is the same amount that was appropriated in fiscal year 1998. Will this be sufficient to accommodate all state and local entities who have expressed an interest

in participating in GREAT?

Answer. No. ATF has received applications for funding which exceeds the current

appropriation by $8,000,000.

Question. If not, what funding level would be necessary in order for all interested

parties to participate?

Answer. To meet the current demand for funding, an additional $8,000,000 would

be needed.

AMENDMENT TO THE FEDERAL FIREARMS REGULATIONS—NPRM

Question. You will recall that the Department published a notice of proposed rule

making on August 27, 1997 concerning an amendment to the Federal firearms regulations. This amendment would require federal firearms licensees to not only post

a sign on their premises, but to also provide written notification with each handgun

that they sell. This notification would, for example, advise each firearms purchaser

about the dangers of a handgun and how to handle one safely. I am sure that the

Bureau received many comments on the proposed rule making, Where do we stand

on that proposed rule making?

Answer. Over 62 comments were received and evaluated in response to ATF’s notice of proposed rulemaking. The final rule and poster are now in review within ATF

and should be published in the near future.

Question. What does the Department intend to require in these notices?

Answer. The notice will advise that it is illegal to transfer handguns to juveniles,

provide possible penalties for transferring a handgun to a juvenile, state that handguns contribute to juvenile violence, and indicate that safe storage of handguns is

advisable. The Bureau is currently evaluating the comments received regarding the

notice and will incorporate any appropriate changes in the final rule.

RECLASSIFICATION OF CONVENTIONAL SHOTGUNS—NRA CONCERNS AND REGISTRATION

Question. It has come to my attention that ATF sent letters last summer to a

number of Federal firearms licensees regarding ATF rulings concerning the reclassification of conventional shotguns, such as the Striker 12, the Streetsweeper, and the

USAS–12, as destructive devices under the National Firearms Act. These rulings

were made by the Secretary of the Treasury in 1994. It appears that the letters sent
102

last summer is the beginning of efforts by ATF to implement the rulings through

a voluntary compliance initiative.

I have been told that the National Rifle Association has written to ATF on this

matter, offering to widely publish and disseminate information about how owners

of these particular firearms can voluntarily comply with the National Firearms Act.

The NRA has not yet received a written response. What action is ATF currently taking to address the NRA’s concerns and the information dissemination offer with regard to the rulings?

Answer. In August 1997, ATF began to notify Federal firearms licensees of the

need to effect registration of certain destructive devices, Striker 12, Streetsweeper,

and the USAS–12, under the National Firearms Act. On August 21, 1997, Ms.

Tanya Metaksa, Executive Director of the Institute for Legislative Action of the

NRA, wrote a letter to Director Magaw regarding this initiative. In its letter, the

NRA offered to assist the Bureau in informing the general public on this issue by

working with ATF on an article for publication in American Rifleman. We apologize

for the delay in our response and are in the process of finalizing our reply.

Question. I understand that ATF is not requiring that a tax be paid to register

the shotguns under the National Firearms Act, and that ATF is not trying to obtain

the law enforcement certification for registration purposes. However, it will be difficult for the public to respond without any general awareness that they need to do

so. What is ATF doing to make the gun owning public aware of this compliance matter?

Answer. The tax situation is only applicable to the registration of the Striker 12,

the Streetsweeper and the USAS–12. When an entity or individual attempts to register one of these weapons, on an ATF Form 1, Application to Make or Register a

Firearm, ATF does not require the payment of tax or the law enforcement certification. ATF’s efforts towards making the public aware of this matter are noted

above.

YOUTH CRIME GUN INTERDICTION INITIATIVE

Question. You have asked for an additional $16 million for the Youth Crime Gun

Interdiction Initiative and 81 FTE’s to go with it. Realistically speaking, how many

of those FTE could be hired in fiscal year 1999?

Answer. ATF will hire 162 positions which will equate to the 81 FTE requested

in the fiscal year 1999 President’s budget request.

Question. Is there any intention to take the funds that would be allocated for salaries and expenses in this additional $16 million and use it to pursue measures that

would present additional obstacles or requirements for law abiding citizens to own

firearms?

Answer. ATF will not take funds allocated for salaries and expenses in the additional $16 million and use it to pursue measures to present additional obstacles or

requirements for law abiding citizens to own firearms.

Question. Is the use of the funds restricted solely to efforts to target the unlawful

diversion of firearms to gangs and criminals?

Answer. Yes. All Youth Crime Gun Interdiction Initiative funding is to be used

to address the problem of illegal diversion of firearms to juveniles, youth gang offenders, and criminals.

GOVERNMENT PERFORMANCE AND RESULTS ACT—ATF’S PERFORMANCE PLAN

Question. Agencies were required by the Government Performance and Results

Act of 1993 to submit their performance plans with the fiscal year 1999 Budget request. The performance of agencies during fiscal year 1999 in meeting their strategic plans will play a large role in the Budget decisions made in fiscal year 2000.

Does each account and program activity at ATF have performance measures associated with it?

Answer. Each activity at ATF has performance measures associated with it as

outlined in the table below:

Program activity Performance measures

Reduce violent crime ... Crime related costs avoided.

Future crimes avoided.

Number of persons trained/developed (non-ATF).

Number of Traces.

Average Trace response Time (in working days).
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Program activity Performance measures

Collect the revenue ...... Taxes/fees collected from alcohol, tobacco, firearms, and

explosives industries (dollars in billions).

Ratio of taxes and fees collected vs. resources expended to

collect.

Burden hours reduced.

Protect the public ......... Response to unsafe conditions and product deficiencies

discovered. (Explosives).

Commodity seminars held.

More detailed definitions of our performance measures may be found on pages

AFT–34 through 36 of the Department of the Treasury Budget.

Question. Does your plan include performance measures for which reliable data

are not likely to be available until March 2000?

Answer. All data is either available now, or under development and will be readily

available by March 2000

Question. Do you have the technology capability of measuring and reporting program performance throughout the year on a regular basis, so that the agency can

be properly managed to achieve the desired results?

Answer. We are in the process of designing and implementing tracking and reporting systems, compatible with our Enterprise Systems Architecture (ESA), which

will capture the results of key projects and programs.

Question. Throughout the development of the fiscal year 1999 performance plan,

what overlapping functions or program duplication were identified?

Answer. ATF has contributory goals with the Department of the Treasury and the

Office of National Drug Control Policy (ONDCP) in that ONDCP’s success in meeting its ten year goals, relies on implementation of Treasury’s and ATF’s goals on

drug interdiction and reduction of violent crime.

ATF’s Integrated Ballistics Identification System (IBIS) project is somewhat duplicated by FBI’s Drugfire program, but the National Integrated Ballistic Network

Board (composed of representatives from ATF, the FBI, and the National Institute

of Standards and Technology) is working to interlace the two systems. No other program overlaps were identified during the development of the fiscal year 1999 performance plan.

Question. Did those duplicative programs receive funding in the fiscal year 1999

Budget?

Answer. No other program overlaps were identified during the development of the

fiscal year 1999 performance plan.

Question. What do you believe will be the most difficult performance goal for ATF

to reach in fiscal year 1999?

Answer. The performance goals associated with the Reduce Violent Crime activity

will likely be the most difficult.

Question. Have you redirected resources to that particular goal?

Answer. Yes. The Bureau has moved the Gang Resistance Education and Training

(GREAT) Program from the Protect the Public activity to the Reduce Violent Crime

activity.

Question. The fiscal year 1997 performance plan was based upon goals of specific

performance percentages, some of which were exceeded and others which were not

met. For example, the goal for firearms applications was that 84 percent would be

processed within 60 days, was not met. However, the number of traces conducted

by the National TRACING Center far exceeded the goal of 150,000. Do you also

have similar detailed goals for fiscal year 1999?

Answer. We are in the process of developing a set of performance measures and

indicators which will reflect the outcome, or results, of ATF’s work at the project,

program and activity levels. We will continue to track output measures in our

records, but future performance measures will be more reflective of outcome oriented results.

U.S. CUSTOMS SERVICE

NON-INTRUSIVE INSPECTION TECHNOLOGY

Question. You have mentioned in your testimony that Customs has developed a

five-year technology plan. What did Customs use as its guideline during the development of this plan?

Answer. Customs has briefed Administration and Congressional staffs on this

plan between December 1997 and February 1998. Several factors guided us in the

development of this plan. These included:
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—Our own extensive experience in developing and deploying effective new technologies for non-intrusive inspection, covert tracking and surveillance, communications, and vehicle processing.

—Technical advice and assistance from several agencies, but principally from the

DOD Counterdrug Technology Development Program, the ONDCP Counterdrug

Technology Assessment Center (CTAC), and the FAA Aviation Security R&D

Program.

—The workload volumes, smuggling opportunities, commodity characteristics, and

operational constraints at each port included in the plan.

—Knowledge of the new and emerging technologies that will provide effective,

timely, and affordable support to our requirements.

Question. Does the five year plan implement a five year replacement cycle for all

of Customs’ technology?

Answer. We hope that these technologies would have a useful life closer to 10

years rather than five. The plan includes funding for the maintenance, repairs,

spare parts, and other logistics support that will keep the new equipment useful

through this time period. The plan does not provide a five year replacement cycle

or any logistics support for our current technologies that are now in the field.

Question. There is $54 million requested in your fiscal year 1999 budget for nonintrusive inspection technology. Would you characterize this equipment as mobile or

stationary? Answer. These funds will provide a variety of inspection technology including $41 million of new equipment for the Southwest Border, $10 million for equipment at

high-risk seaports (2 systems), and $3 million for Automated Targeting System modules for both sea and land ports (12 systems).

A potential array of technology to be procured could be itemized as follows:

The Mobile Truck X-ray Systems (7 systems) are just that; they can travel over

any roads to reach a port, can operate in any area wide enough for two trucks to

pass, and can be set up or taken down within minutes.

The Gamma-ray Imagers (11 systems) for trucks and sea containers are easily relocated; they require less than half a day to set up or take down and are easily

transported in a small truck between ports.

The Heavy Cargo Pallet X-ray System (7 systems) can be transported to another

site when necessary, but will require several days to assemble or disassemble. This

is a large system, as it must be to handle cargo weighing up to 10,000 pounds and

up to 8 feet wide and high.

The Rail Car Examination System (4 systems) we are currently considering is a

variation of the Gamma-ray Imager for trucks; it also would be easily relocated between rail sites, although some prior site preparation may be necessary.

Customs, in partnership with DOD, ONDCP, OMB, and the Congress, will continue to evaluate new technologies as they evolve to determine if they would meet

our mission requirements. If such technology is found to better fulfill Customs requirements, current plans would be modified to take advantage of this development.

Question. What will be the approximate annualization of maintenance costs for

the $54 million of technology requested in fiscal year 1999?

Answer. We expect the annual recurring maintenance costs for this equipment to

be approximately $5–$8 million. This includes preventive maintenance, repairs,

spare parts, initial and recurring training of operators, compilation of service and

performance records, and other logistics support throughout the life cycle of the

equipment.

Question. Are there any research and development costs included in the $54 million technology request?

Answer. The requested funding is for the acquisition of proven technology that

was developed and evaluated under previous programs by Customs, DOD, or

ONDCP. Therefore, there are no R&D costs included in this request. We know that

we must remain alert to changing operational requirements and technological capabilities, but expect that any necessary R&D would occur from sources other than

this request.

Question. In last year’s information submitted as part of the record, Customs listed those technologies which were the most effective, are those same technologies included in the five year plan?

Answer. The technologies we listed last year were the large-scale truck X-ray system, mobile truck X-ray system, transportable gamma-ray imaging system, X-ray

vans and pallet X-ray machines, and various hand held devices such as Busters,

laser range finders, and contraband detection kits.

The five year plan includes a large number of mobile truck X-ray and gammaray imaging systems; the plan also includes an eventual up-grade of the current

large scale truck X-ray systems.
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The five year plan also includes three inspection technologies that were not fielded or fully defined last year; these are the heavy cargo pallet X-ray, the sea container X-ray, and rail examination systems.

DETECTION TECHNOLOGY

Question. Is there currently technology available to Customs which could be used

for the different aspects of the Customs mission, specifically the detection and monitoring of air, land and marine operations?

Answer. There is no single technology or multiple-use system that we are aware

of that could detect and monitor targets for all air, land, and maritime activities.

However, there are several types of satellite-based electronic tagging and tracking

systems that could monitor suspect air, land, or marine movements once the target

plane, vehicle or boat has been detected and a tracking device covertly installed.

There are some radar systems currently deployed that either are, or can be, capable of detecting and monitoring most air and maritime targets of interest to Customs. These include the airborne radars in Customs P–3 AEW aircraft and the DOD

aerostats that can detect targets up to 150 miles away, and the radars in the Customs Citations and other Customs, Coast Guard, or military aircraft that can detect

targets up to several miles away.

The land-based DOD Relocatable Over-the-Horizon Radar (ROTHR) can detect

and monitor air targets, and ultimately marine targets, that are several hundred

miles away.

Cost benefit analyses for the effectiveness of the P–3, aerostat, and ROTHR were

conducted in the early development and cost justification days of these programs.

They concluded that each was effective for the multi-agency applications for which

they were being used (e.g., Customs, Coast Guard, INS, and DEA enforcement activities, and DOD early warning missions).

INFORMATION TECHNOLOGY

Question. Why did Customs propose a User Fee to fund the ACE program?

Answer. Customs is proposing legislation to increase to the Merchandise Processing Fee (MPF) to generate the revenue necessary to fund the development of the

Automated Commercial Environment (ACE) and an enterprise architecture. The

funds generated from the MPF increase would be directly available to Customs solely for this purpose. The current automated system is over 14 years old, costly to

maintain, and does not provide the flexibility and efficiency required in today’s environment. It is widely recognized that Customs must modernize its automated commercial operations in order to meet the needs of the trade community and to comply

with various legislative requirements, such as the Customs Modernization and Informed Compliance Act (MOD Act) and the Chief Financial Officers Act.

While some appropriated funding will be required in lieu of MPF collections for

costs associated with processing merchandise from countries exempted under

NAFTA, the remaining costs for modernization cannot be absorbed from base funds.

The Administration sought alternative ways to fund this high priority initiative. The

MPF increase was chosen because it attributes the costs directly to those who will

benefit the most, and it can consistently generate the funds required over the time

needed for deployment.

Question. How will Congress and Treasury be able to maintain its oversight responsibilities of the program if a User Fee is enacted?

Answer. Customs proposal to increase the Merchandise Processing Fee (MPF) is

strictly a mechanism to generate additional funding for the modernization of Customs automated commercial operations. It is not intended to circumvent any oversight responsibilities of Congress or the Treasury. If Customs proposal is enacted,

the legislation would provide funding through a ‘‘current’’ and ‘‘indefinite’’ appropriation. This would mean that Customs would have to request authority from the

Appropriators each year to use the offsetting receipt funds generated by an MPF

increase. In addition, Customs would still be accountable for the controls set forth

in the Clinger-Cohen Act and Congress would continue to maintain an important

oversight role on this project.

In addition, the proposal would not have any impact on Treasury oversight responsibilities. Customs currently provides monthly updates and milestone revisions

to the Treasury Investment Review Board (TIRB), and conducts regular working

group meetings with Treasury Management and Chief Information Officer (CIO)

staff. Moreover, Customs provides periodic briefings to OMB to ensure compliance

with ‘‘Raines Rules.’’ The OMB apportionment process and Treasury’s TIRB oversight role provide additional assurance that resources will be responsibly used. Cus-
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toms does not anticipate any diminishment in the oversight responsibilities within

the Administration or the Congress if the MPF increase is approved.

CUSTOMS INTEGRITY ASSURANCE INITIATIVE

Question. Customs integrity is a continuing hot-button issue, and there is a new initiative this year for $6 million which would allow Customs to conduct more special operations with other Federal agencies and increased emphasis in integrity

throughout the hiring process. What impact will this new initiative have on the vulnerability of Customs Service personnel?

Answer. Customs plans to use the requested funding to reduce the vulnerability

to integrity problems of Customs employees. Customs will also revise the pre-employment screening process, thereby reducing the likelihood that unsuitable personnel are hired. Elements of the initiative which will decrease Customs vulnerability

include:

Special Operations.—Undercover operations are essential to the successful investigation of allegations of criminal misconduct and corruption by Customs employees.

(Corruption investigations are those involving bribery, smuggling, and narcotics.)

These operations have special approval mechanisms, in accordance with the Department of the Treasury guidelines, and allow for use of covert activities in accordance

with the provisions of Title 19 USC. Customs requires additional funding to conduct

additional special operations. During fiscal year 1997, the Office of Internal Affairs

conducted 5 undercover operations. These operations cost approximately $425,000,

and resulted in 20 arrests, including 5 Customs employees; in addition, 3 Customs

employees resigned in lieu of prosecution.

Polygraph Examinations.—Upon OPM approval, pre-employment polygraph examinations will be given to all applicants for criminal investigator positions. This

action will reduce the potential of hiring candidates at risk for integrity problems.

Polygraphs are presently used as an aid in the investigation of possible criminal activity by employees. During fiscal year 1997, 18 polygraph examinations were used

in these investigations: 3 revealed no deception; 10 indicated deception, which resulted in 2 admissions of guilt; 2 were inconclusive; and 3 employees exercised their

right to decline participation.

Quality Recruitment Initiative.—Corruption vulnerabilities in the recruitment and

hiring process for law enforcement occupations will also be addressed through a revised screening process. This process will consist of a series of ‘‘hurdles,’’ including

automated prescreening, a test of reasoning skills, suitability assessment tests, and

structured interviews. The automated prescreening process will allow use of a touchtone telephone to answer questions concerning OPM minimum qualifications and

general suitability requirements, such as previous or current drug use.

Electronic Fingerprint Technology.—The FBI processes fingerprint checks as a required part of the background investigations performed on all applicants for Customs positions. Background investigations reduce the potential of hiring at risk candidates, thereby improving the integrity of the Customs work force. The FBI has

implemented an automated system and expects all Federal agencies to do likewise.

Electronic transmission and processing is more efficient and less costly than the use

of manual fingerprint cards.

Investigative Support Equipment.—Technical surveillance equipment, communications equipment, forensic equipment and similar items are essential to the successful conduct of additional criminal investigations of Customs employees.

BASE FUNDING AND PROGRAMS

Question. In your fiscal year 1999 request you continued base funding for the

Softwood lumber, child pornography investigations, and Project Alert, please list the

amount of funding each program will receive as part of your fiscal year 1999 budget.

Please elaborate on the Customs’ money laundering coordination center, which is to

be in operation in 1998, where it is located, and its purpose.

Answer. In addition to standard trade compliance and inspection operations, the

President’s fiscal year 1999 Budget requests continued base funding for these items

as indicated below:

Enforcement of the Softwood Lumber Agreement .............................. $2,000,000

Child Pornography Investigations ........................................................ 75,000

Project Alert ........................................................................................... 200,000

Total ............................................................................................. 2,275,000

The Money Laundering Coordination Center (MLCC) was created in 1996 for the

purpose of supporting money laundering investigations within the Office of Inves-
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tigations (OI). The MLCC, which is located at the Financial Crimes Enforcement

Network (FinCEN), serves as the centralized clearinghouse for both domestic and

international money laundering pickup operations within OI. All money laundering

pickup information collected by the MLCC is collated and stored in the MLCC data

base for the purpose of identifying relationships, methods, and trends that exist between past, current, and future money laundering investigations.

MONEY LAUNDERING COORDINATION CENTER

Question. How will the Money Laundering coordination center work or interact

with FinCEN?

Answer. The MLCC will work with FinCEN to utilize its resources. FinCEN’s Suspicious Activity Reports (SAR’s) and artificial intelligence will be utilized to identify

money laundering trends that the Office of Investigations field offices are encountering and provide real time intelligence to the field.

BASE FUNDING LEVEL

Question. Is your base fully funded?

Answer. The Custom’s Service fiscal year 1999 budget fully funds the necessary

cost adjustments for continuing the fiscal year 1998 enacted level of service and the

corresponding number of staff years. In the passenger environment, this also includes added full time equivalent (FTE) positions to address statutory requirements

for keeping existing lanes open longer and opening newly required crossing points.

Question. How many FTE positions are unfilled?

Answer. Based on the ‘‘Explanation of fiscal year 1998 Increases and Decreases’’

portrayed in the budget as the enacted starting point for building the fiscal year

1999 request, all FTE positions for fiscal year 1999 are funded. Customs’ budgeted

staffing is expressed in a staff year measurement generally referred to as full time

equivalent (FTE) positions. Each budget request, including the current proposal, attempts to identify as accurately as possible the number of FTE that can be ‘‘realized’’ or achieved with the level of funding being requested. ‘‘Realized’’ FTE reflect

the conversion into staff years of the aggregate number of positions encumbered for

the full year, or shorter periods of time, and other factors such as the number of

part time positions. The actual number of positions encumbered at any given point

during the year will vary, based on attrition and accession patterns. As a fiscal year

progresses, hiring scenarios are fine-tuned so that total realized FTE do not exceed

the available budget authority to pay for their labor and support costs, nor the number of FTE that were estimated in the budget. The full number of FTE for a fiscal

year is not achieved or known until the fiscal year is completed. Contingencies, such

as rent costs for new border crossings in fiscal year 1997, can result in fewer FTE

being realized than were proposed.

There is no articulation of authorized versus unfilled positions in the budget.

However, each organization uses its own position authorization process as an internal management tool that aims to achieve the FTE usage proposed in the budget.

Over a multi-year period, the number of actual or realized FTE is a good approximation of the average positions that were authorized over the course of the year. The

number of FTE in the Salaries and Expenses (S&E) appropriation actually realized

in fiscal year 1997 was 16,722; the number planned for fiscal year 1998 is 16,655;

and the fiscal year 1999 request is 16,766 FTE.

Question. What would it take to fill those positions?

Answer. Although there are no unfilled positions presented in the fiscal year 1999

budget, the cost of realizing any more FTE, by means of establishing new positions,

varies greatly with the type of position being funded. Moreover, all of the support

costs (e.g., rent, equipment, training, supplies) are a necessary component of new

position costs. By way of example, the cost of filling new positions to achieve a higher FTE realization than proposed in the budget would have the same initial cost

range as the 111 FTE that are proposed in the budget. For all of the FTE being

proposed, the assumption is that the hiring stream would result in an average start

date of April 1, meaning that twice as many positions would be filled as FTE realized (i.e., 221 positions are being proposed to realize 111 FTE). In fiscal year 2000,

the budget will have to reflect the cost of the average one-half year additional compensation cost for each of these positions, although there will also be a substantial

downward adjustment for non-recurring costs such as vehicles, investigative and

communications equipment, training, etc.

Question. Is the amount requested to maintain current levels accurate? Please

provide a breakout for this funding.

Answer. The maintaining current levels (MCL’s) amounts are accurate. All of

these amounts, except for the rent and security figures, are generated centrally by
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Treasury using standardized factors and methodology, based on the economic policy

assumptions contained in the President’s budget. Customs is requesting a total of $60.6 million to meet its increasing obligations

due to pay raises, benefits, agency contributions to the civil service retirement

funds, and other expected increases in the cost of operations. Of the total amount, the budget request provides for a $32.2 million increase to

pay for the fiscal year 1999 pay raise for three-quarters of a year and annualize the

fiscal year 1998 pay raise. This includes $24.2 million requested for the 3.1 percent

increase in the fiscal year 1999 pay raise and $8.0 million requested for the

annualization of the fiscal year 1998 2.8 percent pay raise. Customs is also requesting an increase of $7.8 million for benefits to pay the regular increases in the cost of retirement and health benefits, permanent changes of

station, and worker’s compensation. Finally, Customs is requesting $10.2 million that is needed to fund other expected non-pay increases in the cost of Customs operations. Customs is requesting $6.5 million for additional General Services Administration (GSA) rent charges for new border inspection facilities, and $3.8 million for additional GSA physical security costs

at Customs facilities related to efforts to reduce the threat of violence at Federal

properties. GSA has provided an agency-by-agency breakdown of these costs.

AIR/MARINE OPERATION AND MAINTENANCE

Question. Is there level staffing of the Air/Marine branches across the Southern

Tier of the United States?

Answer. Customs attempts to deploy staff in such a way to best address the smuggling threat. Response flexibility may be limited by the high cost of relocating enforcement personnel. Within that context, the following statistics are relevant.

—Currently, the Air Interdiction Division has 718 personnel onboard.

—Depending on the level of need, air crews from all the Aviation Branches are

deployed from the Southern Tier to foreign assignments in the transit and

source zones. —In February 1998, the Table of Organization (TO) for the Air Interdiction Division was changed to address the high-threat areas along the Southern Tier.

—The Air Interdiction Division is currently recruiting and hiring new personnel

to fill existing vacancies in response to the current threat.

For the Marine Enforcement Program, the following statistics are relevant.

—Currently, there are 70 Marine Enforcement Officer positions in the Customs

Marine Enforcement Program, which are augmented by 80 Special Agents. The

Special Agents are not all assigned to marine enforcement on a full-time basis.

—Beginning in 1995, there was a marked increase in the amount of drugs seized

along the Southern tier by the marine enforcement personnel.

—Through Operation Gateway, staffing for the Marine Enforcement Program in

Puerto Rico increased by 23 positions.

—Customs is in the process of recruiting and hiring personnel to fill the funded

vacancies in the Marine Enforcement Program along the Southern Tier.

Question. How does Customs determine the location of assets and staffing along

the Southern tier of the United States?

Answer. Customs determines its staffing and asset distribution based on several

factors including workload (both in terms of amount and type of workload (e.g., passenger, cars, trucks, rail, etc.)), smuggling threat, intelligence, and investigative

workload.

These factors are used to determine the distribution of Customs available resources to a given port, the job skills those individuals need, and the equipment and

information required. Asset distribution is driven by the level of staffing and the

nature of the specific threat encountered at a given location.

STATUS OF ACQUISITION OF CUSTOMS P–3 AEW AIRCRAFT

Question. What is the current status of the retrofitting of the P–3 AEW aircraft

and the anticipated delivery date to Customs?

Answer. Customs completed negotiations with the prime contractor, Lockheed

Martin Aeronautical Systems (LMAS), in September 1997, and the contract was

signed in late October. The Customs Service expects delivery of the first P–3 AEW

aircraft in August 1999 and the second in March 2000.

MODERNIZATION OF CUSTOMS P–3 AEW AIRCRAFT

Question. Is there a need to modernize the first four P–3 AEW aircraft so that

their systems are standardized with those P–3 AEW anticipated for delivery over

the next two years?
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Answer. The Customs Aviation Program has been reviewing the modernization of

its existing P–3 AEW fleet for some time. Currently, all four P–3 AEW’s are configured with the APS–138 radar. This system was originally used in the Navy’s E–2C

Advanced Radar Processing System (ARPS) aircraft. The Navy is updating all E–

2C’s to an APS–145 Group II configuration. The APS–138 is no longer in production

and the Navy’s intermediate level support for this system will be withdrawn by the

year 2000. Since Customs P–3 fleet represents a relatively small part of the overall

P–3 population, spare parts (to the extent available after 2000) will likely become

more costly as economies of scale are lost to the manufacturers. This situation is

likely to create delays in the availability of the aircraft for counterdrug missions.

Customs is waiting to take delivery of two additional P–3 AEW’s over the next

2 years. Both of these aircraft will be configured with the newer APS–145 radar.

The cost to retrofit the four existing P–3 AEW’s depends on the configuration, but

it is estimated at approximately $40–50 million in total.

Question. What would the cost be to standardize the equipment of the first four

P–3’s in the Customs’ inventory, and what would it entail to modernize these aircraft?

Answer. The procurement cost of the new APS–145 radar is approximately $10

million. Current Customs P–3 AEW aircraft are configured with a compatible antenna and dome. Integration of the APS–145 radar would depend on the computer

and display that is chosen. An E–2C suite with the new mission computer and display package would cost approximately $15 million installed. We estimate that the

APS–145 systems can be built up from the current APS–138 systems on the four

existing P–3 AEW’s for $40–50 million in total.

The upgrading of Customs current P–3 AEW’s to the newer AEW configuration

would require the following:

—The replacement of numerous circuit boxes in the radar suite.

—Installation of a variable speed hydraulic motor and rotary coupler.

—Installation of a new mission computer, monitors and associated ducting hardware.

—Installation of a second satellite communication (SATCOM) radio.

Question. Would standardization require the aircraft to be out of service for any

length of time?

Answer. It is estimated that modernizing the current P–3 AEW’s from the current

APS–138 to the APS–145 configuration in the newer P–3 AEW’s will take approximately 3 to 4 months for each aircraft during which time they will be out of service.

Question. What benefits and cost savings would Customs have as a result of modernizing the four aircraft?

Answer. The current Customs P–3 AEW’s use the APS–138 radar system. The

U.S. Navy is in the process of modifying their E–2C aircraft to the APS–145 radar

system. This program will limit the supportability for the APS–138 system by the

year 2000 because many parts to the APS–138 may not be available after that date,

creating delays in the availability of the aircraft for counterdrug missions.

It is difficult to estimate the cost savings of modernizing the P–3 AEW fleet. However, it is believed that the savings would be significant because support for maintenance and supply to one radar system would be much less expensive than for two

different systems.

Lastly, the APS–145 radar system offers improved over land search capabilities.

Also, the system is capable of processing a significantly larger number of targets

without overloading.

RESOURCES DEDICATED TO INSPECTION

Question. What percentage of resources and manpower does Customs devote to inbound inspection and outbound inspection, respectively?

Answer. The Customs Service has 7,814 employees devoted to inspections, of

which 353, or 5 percent, are dedicated to outbound.

GOVERNMENT RESULTS AND PERFORMANCE ACT

Question. Does each account and program activity of Customs have performance

measures associated with it?

Answer. Both of our major budget accounts (S&E and O&M) have performance

measures associated with them. They account for over 99 percent of our appropriations. The other small accounts involve functions which are already captured in the

S&E performance measures.

Question. Does your plan include performance measures for which reliable data

are not likely to be available by March 2000?
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Answer. We do not anticipate any difficulties at this time, as long as our recently

developed narcotics and money laundering outcome enforcement measures are acceptable to all external stakeholders (e.g., authorizing and appropriating committees, GAO, OMB, and the public) and the methodology for providing the data is acceptable. Initial feedback has been positive, but more consultation and development

is needed.

Question. Do you have the technological capability of measuring and reporting

program performance throughout the year on a regular basis, so that the agency can

be properly managed to achieve the desired results?

Answer. The Customs Service has the technological capability to provide all of its

measurement data on a regular basis, except for its enforcement outcome measures,

e.g., the narcotics and money laundering outcome measures. Customs is actively

working to develop methodologies to capture data for these measures (drug smuggling organization transportation costs and the cost for criminal organizations to

launder money) and will provide these figures when this development is complete.

The normal enforcement output data associated with narcotics, money laundering,

and other areas, e.g. seizures, arrests, indictments, etc. will be available on a regular basis.

Question. Through the development of the fiscal year 1999 performance plan,

what overlapping functions or program duplications were identified?

Answer. The Customs Service during its reorganization review aligned its organization along core process and mission support process lines. In addition, it created

two enforcement strategies—narcotics and money laundering. The strategies were

subsequently combined with several smaller ones under an Enforcement Systems

umbrella. This process/system approach ensures that roles and responsibilities are

defined to avoid duplication and overlap.

Question. Did those duplicative programs receive funding in the fiscal year 1999

request?

Answer. There are no duplicative programs in our fiscal year 1999 funding request.

U.S. SECRET SERVICE

2000 PRESIDENTIAL CAMPAIGN

I note that in fiscal year 1999 the Service will begin to gear up for the 2000 elections. Requested is $7.7 million for this preparation year, but I am told that this

is the tip of the iceberg.

Question. Why is preparation for presidential candidate protection so expensive.

Answer. Every four years the Secret Service provides protection for major presidential and vice-presidential candidates, nominees and their spouses. Although

there is no candidate/nominee protection the year before the campaign begins, there

are significant costs associated with preparing for the campaign.

In the year before the campaign, training on campaign procedures must be provided to Service and other Treasury Law Enforcement Bureaus’ agents and, due to

procurement lead times, equipment for use during the campaign must be leased/purchased.

Question. Why can’t equipment purchased for the 1996 campaign be used again

in 2000?

Answer. New equipment is purchased for each presidential campaign. Storage of

equipment between campaigns is not practical because it would require storage

space and become outdated. Therefore, upon the conclusion of a campaign, residual

useful equipment and supplies are used to replace old outdated equipment at field

offices and protective divisions throughout the country.

Question. Why can’t the Secret Service agents use the radios they have now?

Answer. When possible, Secret Service agents do use their issued radios when on

candidate/nominee protection assignments. However, Uniformed Division personnel

and other support personnel are not issued radios. When on campaign assignments,

these personnel must be temporarily issued this equipment. The Service does not

have enough radios in inventory for use by all of the personnel involved in candidate/nominee protection. Once the campaign is over, the campaign radios will become part of the Service’s radio inventory and used to replace old obsolete equipment.

Question. Why can’t the officers from the other Treasury bureaus use their own

radios?

Answer. When possible, agents from other Treasury bureaus will use their issued

radios when on candidate/nominee assignments. However, not all of these agents
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are allowed to bring their issued radio with them on candidate/nominee assignments

due to their bureau’s own operational needs. Also, some of the other bureaus’ radios

are not frequency compatible, and cannot be retro fitted for communications within

the Secret Service radio infrastructure.

INTERNATIONAL COOPERATIVE ADMINISTRATIVE SUPPORT SERVICES (ICASS) FUNDING

A transfer of $602,000 from the fiscal year 1998 Department of State budget has

been provided to the Secret Service to use in support of International Cooperative

Administrative Support Services (ICASS). That function has been absorbed in the

salaries and expenses budget.

Question. What is the fiscal year 1999 request for that purpose?

Answer. The base level of funding in the fiscal year 1999 budget for use in support of International Cooperative Administrative Support Services, including

$602,000 that will remain as part of the base funding, is $1.250 million.

THE CLOSING OF PENNSYLVANIA AVENUE

On February 11, 1998 an editorial appeared in The Hill, one of the two newspapers which specifically cover Capitol Hill and read by members and staff alike.

That editorial called for the reopening of Pennsylvania Avenue, in part because

presidents should live ‘‘. . . close to the people who give them their strength.’’ Although the decision to close that major thoroughfare was made, in part, by the previous Director, we understand that Director Merletti concurs with this decision and

would be opposed to reopening this street.

Question. How do you respond to critics of this decision?

Answer. The re-opening of Pennsylvania Avenue has continued to be an issue

since its closure on May 20, 1995. As in the past, the Service will cooperate with

any inquiry and continue to seek alternative approaches to mitigate any issue

viewed as a detrimental effect of the closure.

The Secret Service remains opposed to reopening Pennsylvania Avenue to vehicular traffic. The risk of an attack directed at the White House Complex has not lessened, but rather seems greater with the level and nature of terrorist activity worldwide.

The closure of Pennsylvania Avenue to vehicular traffic eliminates the opportunity for an individual or terrorist group to interject an explosive laden vehicle into

the secured perimeters of the White House. Secret Service security decisions for

keeping the avenue closed and protecting the White House are based on empirical

data concerning White House vulnerabilities to such an attack. These decisions are

reinforced by the unique and unparalleled symbolic value to terrorists for targeting

and successfully carrying out an attack on the White House. That reality must be

recognized, particularly in view of the continuing acts of terrorism and related activities in the United States and abroad.

CLONING OF CELLULAR TELEPHONES

Question. In light of the recent passage of House legislation regarding the cloning

of cellular telephones and other electronic crimes, what initiatives, if any, is the Secret Service considering to combat these emerging criminal activities?

Answer. When the recently passed Wireless Protection Act was being drafted, the

Secret Service recommended the removal of ‘‘intent to defraud’’ from the language

in 18 U.S.C. 1029 only as it pertains to the possession and use of the hardware and

software configured to alter telecommunications instruments. This will enable the

enforcement of section 1029 to stop the manufacture and distribution of this fraud

equipment, for which there is no legitimate purpose.

The Secret Service has aggressively investigated fraudulent activity on U.S. telecommunications systems since the passing of the Omnibus Crime Control Act of

1984. In 1994, the addition of telecommunication-specific language to 18 U.S.C.

1029 enhanced the ability of the Secret Service and federal prosecutors to address

the type of criminal activity associated with telecommunication crimes.

In anticipation of final passage of legislation that would remove the ‘‘intent to defraud’’ element from Title 18 U.S.C. 1029 as it pertains to the possession of cloning

equipment, a nationwide operation has been formulated in cooperation with the

FCC and the Department of Justice Computer Crime Section to locate, identify and

potentially arrest individuals and companies that continue to market such items.
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PROTECTIVE TRAVEL FUNDING SHORTFALL

Question. Based upon the protective travel shortfalls in your budget, what specific

recommendations are the Secret Service and the Treasury Department considering

to address this problem for the long term?

Answer. The Department and the Secret Service are reviewing this situation carefully to first determine exactly what is causing the Service’s need for increased protective travel funding, and second to identify ways to address it.

ARMORED LIMOUSINE PROGRAM

Question. The Committee has been supportive of the Secret Service’s armored limousine program since its inception. With the significant investments made to date,

is the fiscal year 1999 request adequate to complete this project?

Answer. No, funding received to date and anticipated through fiscal year 1999 for

this project will not be sufficient to complete this program.

MISSING AND EXPLOITED CHILDREN

Question. The Service did not request funding for the Missing and Exploited Children initiative. Can you explain why there was no request?

Answer. The Secret Service has received funding for this initiative since fiscal

year 1995. For fiscal year 1999 however, budgetary constraints required highest priority be given to the Service’s base mission program.

Question. Would you please provide the Committee with some details on the geographic locations where assistance has been provided by the Secret Service to state

and local jurisdictions, as well as some details describing the success of this program to date?

Answer. The following is a geographic list of polygraph examinations conducted

during the last two fiscal years in support of the Missing and Exploited Children

initiative: Arizona (6), California (8), Delaware (1), Illinois (3), Maine (1), Michigan

(5), Missouri (5), New Hampshire (2), Texas (7), and Vermont (1).

A sampling of some of our polygraph successes include:

Houston, Texas.—In June 1997, the Houston Police Department requested Secret

Service polygraph assistance in a child abuse investigation. The previous April a

nine-month-old child was admitted to a local hospital with serious injuries of a suspicious origin. The stepmother of the child was suspected of causing the injuries but

denied any involvement when interviewed by local police officials. On August 13,

1997, the stepmother submitted to a polygraph examination at the Service’s Houston Field Office. The results of the polygraph indicated that the woman was deceptive to the relevant questions. She subsequently confessed to slamming the child repeatedly against the floor in an attempt to keep the child quiet, causing all of the

child’s injuries. Houston Police immediately arrested her.

Oceanside, California.—In February 1996, the Oceanside, CA Police Department

requested Secret Service polygraph assistance in the investigation of sexual assault

on four juvenile female runaways residing at a State licensed juvenile detention center in San Diego. The girls, ages twelve to sixteen years, alleged that they were coerced to engage in various sexual acts by one of the Center’s counselors, a twentyeight year old male.

The counselor denied the allegations to Oceanside Police and counter-alleged that

the girls were making false accusations because of his strict demeanor at the Center. He was administered a Secret Service polygraph examination, which indicated

deception on the relevant questions concerning sexual abuse. During the ensuing interrogation, the counselor confessed to engaging in various degrees of sexual assault, including sodomy and rape, against the complaining victims. He was removed

from the Casa de Amparo Juvenile Center pending criminal prosecution.

Phoenix, Arizona.—In January 1996, local authorities near Phoenix requested

that the Secret Service conduct a polygraph examination as part of an investigation

into the suspected sexual assault of an eight-year-old girl by her stepfather. The

suspect denied the allegation and agreed to submit to a polygraph examination in

the Service’s Phoenix Field Office to verify his denial. The examination disclosed the

suspect to be deceptive to the relevant questions. During the ensuing interrogation,

he confessed to sexually molesting his stepdaughter as well as another seven-yearold girl over a several year period. He was arrested.

Sacaton, Arizona.—On November 1995, local authorities in Sacaton, Arizona requested Secret Service polygraph assistance as part of an investigation of an alleged

sexual assault of a 14-year-old girl by her natural father. The girl alleged that her

father had touched her private parts in a sexual manner. The father and mother

are estranged, but he had custody of three children. The man denied ever touching
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his daughter in a sexual manner. He stated that he believed his daughter fabricated

the allegation as an excuse to move to her mother’s home. The polygraph examination revealed no signs of deception and the criminal investigation was subsequently

terminated.

A sampling of the Service’s Forensic Services Division’s efforts in audio/video tape

enhancements and voiceprint analysis includes:

In February 1996, it received a request from the Port Orange Police Department

in Jacksonville, Florida to conduct audio enhancement of a taped confession of a

suspect admitting to molesting his 10-year-old granddaughter.

In July 1996, it received a request from the Chicago Police Department to conduct

a voice comparison of several suspected child abductors and an unknown caller who

claimed to be a Las Vegas Police Officer in possession of the missing victim.

In December 1996, it received a request from the Omaha, Nebraska Police Department to conduct audio and video enhancement of a tape of a female soliciting a male

to sexually assault her children in order to educate them about sexuality.

In June 1997, it received a request from the National Center for Missing and Exploited Children to conduct a video enhancement to determine if a male captured

in a video molesting a young girl was wearing a mask or if special lighting was used

to obscure his face.

TREASURY COMMUNICATIONS SYSTEM

I understand that the Secret Service’s communications system will be shut down

this Spring due to the current contractor’s inability to provide continued service.

Question. Is there adequate funding in the fiscal year 1998 budget to start the

transition to the Treasury Communications System (TCS)?

Answer. No. The funding in the fiscal year 1998 budget will be adequate to cover

the Service’s financial obligations for participating in the Treasury Communications

System. The Service and the Department of the Treasury are attempting to identify

a means of covering the shortfall using fiscal year 1998 funds. The Service’s transition to TCS began in fiscal year 1997 and will be completed in fiscal year 1998.

Question. Is the fiscal year 1999 budget submission adequate to complete the

transition?

Answer. The funding for TCS in fiscal year 1999 is adequate to cover the Secret

Service’s financial requirements for this program. As you know, $3.7 million for this

program will be derived from super surplus balances in the Treasury Forfeiture

Fund as indicated in the fiscal year 1999 budget submission.

GOVERNMENT PERFORMANCE AND RESULTS ACT OF 1993

Agencies were required by the Government Performance and Results Act of 1993

to submit their performance plans with the fiscal year 1999 budget request. The

performance of agencies during fiscal year 1999 in meeting their strategic plans will

play a large role in the budget decisions made in fiscal year 2000.

Question. Does each account and program activity at the Secret Service have performance measures associated with it?

Answer. The Secret Service has taken the position that each core program should

have a set of performance measures. The core programs include physical protection,

uniformed security, protective intelligence, and criminal investigations. Taken together, program measures for these core programs cover more than 90 percent of

the Secret Service’s positions and operating budget.

Question. Does your plan include performance measures for which reliable data

are not likely to be available until March 2000?

Answer. The current performance plan and performance report for the Secret

Service includes only well established performance measures that have proven to be

consistent, valid, and reliable. The Service has resisted efforts to include untested

measures. However, we are continuously examining ways to refine our performance

plan, performance goals, and performance measures. In particular, we are in the

process of developing additional, more outcome oriented measures to estimate the

impact of Secret Service law enforcement efforts for inclusion in the fiscal year 1998

performance report. Currently, a project is underway which examines offenders arrested by the Secret Service for financial crime violations. Baseline statistics are

being collected to determine the extent of their financial crime prior to their arrest.

Given this data, a follow up activity is planned to develop and validate a statistical

model to estimate the average annual losses for different types of financial crimes,

and the losses prevented due to Secret Service intervention.

Question. Do you have the technological capability of measuring and reporting

program performance throughout the year on a regular basis, so that the agency can

be properly managed to achieve the desired results?
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Answer. The Secret Service is in a good position for measuring and reporting performance measures throughout the organization. The Service’s performance measurement system has evolved over a long period of time using a multi-dimensional

data base model. This is important because the information from the performance

management system can be structured as needed to satisfy information needs at different levels of the organization. Operational, functional, and strategic decisions are

supported by altering the dimensions of the data base in ways that tailor the information to specific decisions.

Further, the primary consideration for determining the value of performance

measures was whether they had utility for internal organizational decision making.

The impact of this approach is that the measures used to satisfy the Government

Performance and Results Act reporting requirement are also used for internal management purposes such as individual performance evaluations, assessment of office

productivity, allocation of resources, determination of career development needs, and

evaluation of program effectiveness.

At present, a new online component to the performance management system is

being developed and implemented to bring the contents of the multi-dimensional

data base directly to the decisionmakers workstation, rather than on paper. This

component allows the decisionmaker to easily select the specific information needed,

both in table and graphic form, and apply basic analytical tools.

Question. Throughout the development of the fiscal year 1999 performance plan,

what overlapping functions or program duplications were identified?

Answer. A review of the Secret Service’s core processes found that there were no

overlapping functions or program duplications. The Secret Service is organized along

functional lines, with specific responsibilities delineated by program.

Question. Did those duplicative programs receive funding in the fiscal year 1999

budget?

Answer. There are no overlapping core programs within the Secret Service. Therefore, funding duplicative programs is not an issue.

Question. What do you believe will be the most difficult performance goal for the

Secret Service to reach in fiscal year 1999.

Answer. Due to an internal realignment of resources the Service’s most difficult

challenge will be to achieve performance goals for criminal investigations. With increased emphasis being placed on current and new protection responsibilities, the

financial crime performance goals for fiscal year 1998 and fiscal year 1999 probably

will be the most difficult to achieve.

Question. Have you redirected resources to that particular goal?

Answer. Increased demands to provide support to protective details have resulted

in resources being redirected from the investigative mission, and this could result

in a difficulty in reaching investigative performance goals. This redirection of resources, while necessary, may limit the Service’s effectiveness and its ability to address the burgeoning areas of computer-generated counterfeiting and other financial

crimes.

FEDERAL LAW ENFORCEMENT TRAINING CENTER

RURAL DRUG TRAINING

Question. I fully supported funding for the rural drug training program last year,

and I am glad to note that this program will continue under your budget proposal.

Rural police officers face so much more drug activity now and they need all the

training they can get to be able to handle it. For the record, can you explain a bit

more about this program?

Answer. In an era where State and local law enforcement is suffering from diminishing resources and additional responsibilities, the FLETC is focusing its limited

resources on reaching the largest number of customers in the most cost-effective

manner. Two years ago, following an extensive research study, the FLETC determined that 91 percent of the State and local law enforcement agencies in this country have fewer than 50 officers. To meet the needs of these small town and rural

agencies which comprise the vast majority of the customers, the FLETC created the

Small Town and Rural (STAR) training series. The STAR series is currently comprised of the following programs: Airborne Counterdrug Operations Training, Advanced Airborne Counterdrug Operations Training, Community Policing Train-the

Trainer, Drug Enforcement Train-the-Trainer, First Response Training, Gangs in

Indian Country, Hate and Bias Crimes Train-the-Trainer, and Rural Crime and

Drug Enforcement Task Force Train-the-Trainer.
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Each of the STAR programs is directed toward either managers or trainer/

facilitators who can return to their jurisdictions with all the materials necessary to

replicate the training and techniques in their agencies and surrounding jurisdictions. This approach creates a multiplier effect which will expand the effectiveness

of criminal investigations throughout the United States. This multiplier effect is accomplished with a funding investment that is a fraction of the cost that would be

necessary if each individual benefited by this training initiative were to be trained

directly. In fact, the second level training will permit hundreds of Federal, State,

and local law enforcement agencies to benefit at little or no cost.

The FLETC has a two-year schedule to deliver the STAR series programs to law

enforcement officers. The target audience is small town and rural law enforcement

officers (including tribal police) who typically lack training in these areas. Participants in STAR series Train-the-Trainer programs receive serially numbered instructor graduation certificates. Those who commit to delivering training to small town

and rural agencies are then eligible to become FLETC-certified STAR instructors.

This process creates a multiplier effect which provides great benefit for a relatively small fiscal commitment. For instance, if training were provided during the

first year for 30 students in 5 delivers of each of the 4 STAR series Train-the-Trainer programs, 600 training facilitators potentially would be prepared to share that

training in their geographical areas. If each of those facilitators subsequently provided training for a class of 30, then 18,000 officers throughout the United States

would benefit from the funded training.

CONSTRUCTION

Question. You have requested $13 million to construct two new facilities in

Glynco—a classroom building and a 233-bed dormitory. If funded, when would these

building be completed?

Answer. The classroom building should be completed in July 2000 and the dormitory in March 2000.

CHARLESTON TRAINING CENTER

Question. As you know, the Border Patrol is currently training most of their new

employees at a temporary facility in Charleston, South Carolina—although some do

still get their training at Glynco, I understand. What is the current status of plans

to close down the Charleston site? Is there a specific closure date?

Answer. The current plan is to close Charleston as soon as the FLETC can accommodate the total Border Patrol training workload, which includes both basic and advanced training. While no specific closure date has been agreed upon, the FLETC

plans to conduct all of the Border Patrol basic training requirements at Glynco by

mid-fiscal year 2000. This target is admittedly very ambitious and presumes that

fiscal resources are forthcoming and that no delays are experienced with construction schedules.

Question. What happens if the Charleston facility doesn’t close. Will there still be

a need for new construction projects requested in your fiscal year 1999 budget?

Answer. The facilities being constructed are a part of the facilities Master Plan,

which is designed to assure quality law enforcement training in a consolidated environment. Given the current training needs and the future anticipated growth, the

facilities being constructed at Glynco will be fully utilized to meet future demands.

INTERNATIONAL LAW ENFORCEMENT ACADEMY

Question. Funding has been requested both in the FLETC budget and in the Departmental Offices budget for International Law Enforcement Academy (ILEA) operations. Exactly what would these five new FLETC staff be doing? Will they be stationed in Georgia or at ILEA South?

Answer. The new staff will be coordinating logistics and administrative support

for ILEA South from the United States point of central management. They will also

provide the same kind of support ‘‘in country’’ when programs are in session. Secondarily, the same staff will provide support for the FLETC’s role in ILEA Budapest. It is also anticipated that this support will extend to ILEA Bangkok and any

other ILEA’s that come on line. The staff will be stationed in Georgia, and travel

to ILEA South during sessions.

BUREAU OF INDIAN AFFAIRS TRAINING

Question. I am told that the Bureau of Indian Affairs expects a significant increase in their training needs between now and the year 2002. They are currently
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training exclusively at Artesia, New Mexico. What steps are you taking to make

sure that there are sufficient facilities in Artesia to accommodate this increase?

Answer. The Bureau of Indian Affairs (BIA) has submitted training projections

which significantly increase the amount of training at Artesia during fiscal years

1999 through 2002. In fiscal year 1999, the increase will be about 4,000 studentweeks; and in each of fiscal years 2000, 2001, and 2002, the increase is about 6,000

student-weeks. In addition, the advanced training projections will increase about

1,000 student-weeks each year.

To accommodate the increased training projections from the BIA and other agencies, the FLETC is continuing to construct under Master Plan projects which are

designed to expand Artesia’s capability to address the needs of its customers. Currently, a 76-room dormitory is under construction, with completion scheduled for

early 1999. In addition, a Driver Training Range project has been designed and

scheduled to begin construction during mid-1998, with completion scheduled for

mid-1999. Other funded projects now in design, with tentative completion dates in

late 1999 or early 2000, are: Physical Training Building expansion, Classroom/Practical Exercise Laboratory Building, Office Building, and a Security Building.

In addition to the above, the FLETC has identified other facilities required to conduct the increased training. These additional facilities requirements are: 233-room

dormitory, two firearms ranges, an ammunition bunker, and a firearms training office building.

It is anticipated that the BIA basic training projections can be accommodated

with existing, current and planned construction projects. The BIA advanced training

projections should also be accommodated, but will be considered along with the advanced training projections of FLETC’s other agency customers.

Question. The justification for your budget request includes information on the

savings resulting from the consolidation of Federal law enforcement training—you

state that this cost savings/avoidance is estimated to be $160 million annually. However, the Administration is requesting the deletion of continuing language contained

in the Title VI General Provisions, Section 616 in the fiscal year 1998 bill, which

prohibits Executive Branch agencies from buying, constructing, or leasing facilities

for Federal law enforcement training without the advance approval of Congress.

This just doesn’t make sense to me. Can you explain the rationale behind this request?

Answer. This provision is not needed as the Executive Branch has the authority

to control decision-making by agencies affecting the construction of training facilities.

GOVERNMENT PERFORMANCE AND RESULTS ACT

Agencies were required by the Government Performance and Results Act of 1993

to submit their performance plans with the fiscal year 1999 budget request. The

performance of agencies during fiscal year 1999 in meeting their strategic plans will

play a large role in the budget decisions made in fiscal year 2000.

Question. Does each account and program activity at the FLETC have performance measures associated with it?

Answer. Yes. Both the Salaries and Expenses and the Acquisition, Construction,

Improvements, and Related Expenses accounts contain performance measures which

link to the applicable goals of the FLETC Strategic Plan—fiscal years 1197–2002.

Question. Does your plan include performance measures for which reliable data

are not likely to be available until March 2000?

Answer. We currently have data for each of our performance measures, however,

some of our measures are being reevaluated and will likely be revised.

Question. Do you have the technological capability of measuring and reporting

program performance throughout the year on a regular basis, so that the agency can

be properly managed to achieve the desired results?

Answer. Yes. The majority of the data is captured through automated systems.

Question. Throughout the development of the fiscal year 1999 performance plan,

what overlapping functions or program duplications were identified?

Answer. None were identified, however, we are continuing to analyze the performance plan.

Question. Did those duplicative programs receive funding in the fiscal year 1999

budget?

Answer. Not applicable.

Question. What do you believe will be the most difficult performance goal for the

FLETC to reach in fiscal year 1999? Have you redirected resources to that particular goal?
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Answer. Providing 100 percent of actual basic training requested will be the most

difficult goal to achieve. Over the last few years, the FLETC has seen an unprecedented increase in its workload. There were 23,329 student graduates representing

109,116 student-weeks of training in fiscal year 1997. Based on the projections of

our participating agencies, this workload will grow to more than 140,000 studentweeks of training in by fiscal year 1998 and fiscal year 1999 and it is expected to

remain at approximately the same level through fiscal year 2002.

Question. In reviewing the fiscal year 1997 plan and actual performance, the

FLETC exceeded expectations in some areas, such as customer satisfaction with

service, and did not meet the plan in others. Some of the goals, such as the number

of student-weeks of training, are not totally within the FLETC’s control. They fiscal

year 1999 plan has discontinued some of the fiscal year 1997 goals and in some

cases stated that a new measure is being developed. What lessons have you learned

and what changes are you planning?

Answer. It is extremely difficult to measure the FLETC’s actual impact, i.e., the

impact the FLETC training has on officers of each of the over 70 participating organizations. In a long standing effort to provide the highest quality of service, the

FLETC has for several years maintained various program evaluation and feedback

mechanisms to ensure customer requirements are met. Many of these mechanisms

have been based on responses to agency training needs vs. the budgetary cycle. It

has been challenging to continue to manage responsiveness to agencies needs while

developing processes which essentially provided for the collection of the same types

of data either more or less frequently in order to comply with GPRA. The FLETC

is currently examining its entire performance measurement process to ensure a

clear linkage to the strategic goals and objectives and to ensure the most appropriate and reliable performance data is collected.

FINANCIAL CRIMES ENFORCEMENT NETWORK (FINCEN)

STATE AND LOCAL LAW ENFORCEMENT

Question. During fiscal year 1998 Congress provided funding for the ‘‘Secure Outreach’’ program which was to provide secure Internet capabilities to Treasury’s law

enforcement bureaus, what’s the status of this program?

Answer. FinCEN has long been an advocate of developing a secure network to enhance the ability of Treasury law enforcement personnel to communicate sensitive

case-related intelligence and to access financial data base systems key to their investigations. FinCEN has been allocated $1,000,000 of Crime Bill funds to develop

this Secure Outreach Network.

The program will provide on-line communication and information sharing among

all the Treasury bureaus. Based on secure Internet access, the security of the system will feature state-of-the-art capabilities in computer, communication, and

encryption technology and will be accredited by federal and private experts in the

field.

Phase I: Requirements Analysis, system design and specifications, acquisition of

network components (circuit, hardware, software), development and testing.

FinCEN has obligated $500,000 of the funds for this phase of the project and has

hired the SAIC Corporation to assist us. The effort began in February 1998 with

the process of establishing a Secure Outreach working group. The Working Group,

comprised of representatives from FinCEN and all the Treasury law enforcement

agencies, will address the initial Network requirements with the contractor and follow-up on all stages of development.

Phase II: System Deployment and Technical Support: This phase entails linking

approximately 300 Treasury law enforcement officials to the Secure Outreach Network, updating the web content regularly, and providing system and security administration support. FinCEN has obligated $400,000 for this effort. FinCEN plans

to allocate an additional $100,000 to perform a study on how to make enhanced BSA

data available to Treasury law enforcement agencies via the Secure Outreach Network.

Question. Could this program be expanded to include state and local entities without compromising the Treasury’s law enforcement bureaus?

Answer. It is too early to determine if and how the system could benefit state and

local entities which in some cases require specialized information. However, based

on our experience with the Secure Outreach Network and the secure web site for

foreign financial intelligence units (FIU’s), FinCEN and the National Association of

Attorneys General are currently discussing the possibility of developing a separate

secure web site to support state and local law enforcement efforts. As the two sys-
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tems are further defined, FinCEN will be exploring ways in which the two could

be linked together.

Question. During fiscal year 1998, FinCEN provided responses to questions for the

record indicating that FinCEN was anticipating the initiation of a ‘‘week-long course

covering in-depth applications in financial investigations’’ offered to Gateway’s State

Coordinators, what is the status of this program and what are the total resources

devoted to this effort?

Answer. Because FinCEN has never received funding in its base for the Gateway

program, it has been necessary to set priorities in order to accommodate as many

of its customers as possible. Thus, FinCEN is delaying, in part, the development of

a special intermediate training program designed for experienced Gateway users,

and instead is focusing on ensuring all of its customers have the basic training required to use the system. As a result, no resources have been devoted to this effort.

The need for this basic training continues to increase for two reasons: turnover in

positions held by state financial investigators and an increase in the number of investigators who are requesting use of the system.

In fiscal year 1997, 166 investigators or analysts from 33 states were trained on

the Gateway system. However, state officers and analysts tend to be rotated from

one job assignment to another every two to three years, and when new people move

into these positions, FinCEN is called on to again provide training.

Second, states have been increasing the number of people within their organizations who need to have access to Gateway. When the program first began four years

ago, FinCEN trained two persons per state. Now that the system has proven its usefulness, some states have 25–30 users.

Question. The fiscal year 1997 and fiscal year 1998 Senate bills included language

which expressed the Committee’s concern that there were not sufficient resources

devoted to assisting state and local law enforcement to make use of FinCEN’s resources. How has FinCEN responded to the Committee’s desire to see more resources devoted to state and local law enforcement?

Answer. FinCEN has been very successful at leveraging its own limited resources

by encouraging and facilitating greater state and local participation in attacking

criminal proceeds. FinCEN staff have also made a number of visits to state and

local agencies explaining the range of financial transaction data available and how

it can be used to support the financial aspects of criminal investigations.

In addition, FinCEN staff has provided basic Gateway training classes and has

worked with the states in keeping them up to date with FinCEN capabilities. Since

the inception of Gateway in 1993, almost 650 representatives of state and local law

enforcement (including state attorney general offices) have been trained on Gateway. In fiscal year 1997, 166 investigators or analysts from 33 states were trained

on the Gateway system. As a result, Gateway inquiries in fiscal year 1997 were up

20 percent from fiscal year 1996. FinCEN has also been instrumental in assisting

several states in creating financial investigation units.

CURRENT ISSUES

Question. During the last fiscal year, many new Financial Intelligence Units

(FIU’s) were created. How are those newly created FIU’s assisting FinCEN in its

work?

Answer. In the past five to ten years, governments have begun to realize that addressing the complex issue of money laundering requires people with unique and

multiple skills—including financial analysts, criminal investigators, regulators and

computer scientists. Increasingly, they have chosen to bring together these critical

anti-money laundering skills within analytical agencies that have become known,

over time, as financial intelligence units (FIU’s)—counterparts to FinCEN. Using information provided by banks and other sources, FIU’s use innovative analytical

methods and tools to process this information and increase its value before providing it to law enforcement and other appropriate authorities.

In June 1995, FinCEN, in cooperation with its Belgian counterpart, brought together a group of FIU’s at the Palais d’Egmont-Arenberg in Brussels. These FIU’s

agreed to meet regularly to find ways to cooperate, especially in the areas of information exchange and the sharing of expertise, and has now become known as the

Egmont Group.

One of the Egmont Group’s key achievements was to develop a definition of what

exactly constitutes an FIU and then, in June 1997, to promulgate this definition in

the Egmont Group’s Statement of Purpose. Having an FIU definition facilitates cooperation among units at all levels by providing a common, baseline assumption

about the functions of the unit—that they are analytical intermediaries working to
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support national anti-money laundering programs—and is potentially the first step

in creating a worldwide network of such units.

At the time the Statement of Purpose was adopted in 1997, 28 agencies participating in the Egmont Group met the FIU definition; just two years before, only 14

units would have met the definition. Currently, there are some twelve ‘‘candidate’’

FIU’s that are being studied by the Group to see whether they meet the Egmont

definition. At least half of these units became operational since January 1997. There

remain another two dozen jurisdictions throughout the world that are in various

stages of developing or establishing an FIU. With the establishment of these units,

there came a need to develop relationships and find additional ways for the FIU’s

to interact. FinCEN has taken the lead in this effort.

Since its creation, the Egmont Group has also developed a model memorandum

of understanding for the exchange of information and has laid the groundwork for

an FIU training program. Another extremely significant accomplishment of the

Egmont Group has been the creation of a secure Internet web site. The Egmont Secure Web—developed primarily by FinCEN—is intended to facilitate international

cooperation and foster increased international communications and mutual assistance in combating financial crime among the FIU’s of the Egmont Group.

It is hoped that the Egmont Secure Web specifically and the growing informal network of FIU’s known as the Egmont Group generally will play an ever more critical

role in the support of anti-money laundering investigations. Just as FinCEN is able

to assist federal, state, and local law enforcement from various regions of the United

States by bringing disparate pieces of information and individual (but related) investigations together, so FinCEN can reach out through the Egmont Group to other

FIU’s to obtain information that might prove critical to a U.S. federal, state, or local

investigation.

In fact, FinCEN has been able to support a number of federal investigations by

gathering information from its FIU counterparts. This is information that might

only be obtained with difficulty or not at all through other channels. As a participant in this worldwide ‘‘network,’’ FinCEN can likewise assist certain foreign jurisdictions in providing them the critical anti-money laundering information they need

to investigate a case.

Question. There have been articles recently in the papers regarding the advent

of gambling over the Internet to locations where gambling is permitted. How does

this new trend of cybergambling affect FinCEN’s work?

Answer. Internet gaming, like Internet banking operations, provides a unique and

new challenge for law enforcement. Many of our traditional investigative and regulatory authorities will be tested if this industry begins to gain greater acceptance

in the marketplace.

It is clear that FinCEN lacks the ability to require the adoption of adequate safeguards on this new industry by reliance on domestic laws and programs alone. Most

of these businesses are located off-shore, beyond our legal and regulatory reach.

FinCEN has been engaged in a dialogue with this new industry, domestic and foreign casino regulators and law enforcement to encourage the development of programs to deter and detect money laundering transactions occurring over these new

systems.

For example, last July, the Caribbean Financial Action Task Force, known as

CFATF, and FinCEN co-sponsored a two-day conference involving senior government officials from the Caribbean and South America, addressing the critical components of anti-money laundering programs affecting casinos, including internet casinos. This conference provided concrete, pragmatic measures that both the private

and public sector can take in order to discourage illicit uses of these operations.

A more specific meeting of the CFATF will be held this May at which the threat

of Internet gaming will be discussed and at which the CFATF is expected to make

recommendations for prospective consideration and adoption by its members.

It should be noted that Internet gaming raises a host of law enforcement and regulatory issues that are independent of our general anti-money laundering concerns.

These include consumer protection issues, the right of states to prohibit or regulate

the manner in which their citizens can conduct gambling activities, and the ability

of state governments to investigate and license gaming operations in their state.

While these areas overlap to some extent with our anti-money laundering programs, our chief interest is in ensuring that internet gaming operations—like those

conducted at traditional casinos—are subject to effective anti-money laundering controls such as accurate and retrievable audits trails, rules requiring the identification

of customers, suspicious activity reporting, and the adoption of industry programs

to ensure compliance with applicable anti-money laundering laws and regulations.
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BASE FUNDING

Question. Is your base fully funded?

Answer. The base is not fully funded to cover current operating levels.

Question. How many FTE positions remain unfilled?

Answer. We are projecting 16 unfilled FTE in fiscal year 1998.

Question. What would it take to fill those positions?

Answer. It would require an additional $1,120,000.

Question. Is the amount requested to maintain current levels accurate? Please

provide a breakout of those funds.

Answer. The budget includes: Mandatory cost increases, $835,000; and adjustment for contractor support to maintain the base, $330,000.

GOVERNMENT RESULTS AND PERFORMANCE ACT

Question. Does each account and program activity of FinCEN have performance

measures associated with it?

Answer. Yes, each program activity has measures.

Question. Does your plan include performance measures for which reliable data

are not likely to be available by March 2000?

Answer. Yes, we anticipate reliable data for all measures.

Question. Do you have the technological capability of measuring and reporting

program performance throughout the year on a regular basis, so that the agency can

be properly managed to achieve the desired results?

Answer. Yes, we have the capability of measuring and reporting program performance.

Question. Through the development of the fiscal year 1999 performance plan,

what overlapping functions or program duplications were identified?

Answer. We did not detect any overlapping functions or program duplications.

Question. Did those duplicative programs receive funding in the fiscal year 1999

request?

Answer. There were no duplicative programs.

QUESTIONS SUBMITTED BY SENATOR SHELBY

UNDER SECRETARY FOR LAW ENFORCEMENT

STATUS OF VARIOUS STUDIES

Question. Late last year, the President ordered the suspension of certain semiautomatic firearms and announced that a study would be conducted by the Treasury

Department to determine whether the importation of these weapons were consistent

with the sporting purposes test established under 18 U.S.C. Sec. 9259(d)(3). What

is the current status of this study? Will it be completed within the 120-day review

period undertaken by the Treasury Department?

Answer. We are very close to completing the review. We expect to have the review

completed shortly.

Question. I have significant concerns with the implications of this study and,

therefore have keen interest in knowing whether the Treasury Department has already made any preliminary findings with regard to this review. Has the Treasury

Department made preliminary findings to date?

Answer. The review is not yet complete. Given that fact, and the need to ensure

that all possible options are considered, it would be inappropriate for me to comment. We look forward to sharing the review’s findings when it is completed.

Question. It is my understanding that a draft report on the use of taggants in general explosives has been provided to the Main Treasury by the Bureau of Alcohol,

Tobacco and Firearms (ATF). What is the status of this report? When is a final version expected to be completed?

Answer. A draft of this report was submitted by Treasury to the Committee on

March 4, 1998. ATF will issue another progress report in 1998, and a final report,

as mandated by law, within 30 days after conclusion of the study.

Question. Does this draft report on the use of taggants in general explosives include any fertilizer findings made pursuant to Treasury’s consultation with nonprofit fertilizer research centers relating to the regulation and use of fertilizer as

a pre-explosive material?

Answer. Based upon the ATF Explosives Study Group’s work to date, and the report submitted by the International Fertilizer Development Center, the Progress Report states that current information suggests there is no current way to render am-
121

monium nitrate inert and still have it retain its properties as a fertilizer. However,

there is ongoing research in this area. Additional work also will continue on the ‘‘Be

Aware for America’’ program conducted by the Fertilizer Institute in conjunction

with ATF.

Question. A separate study to be conducted by a panel of five experts appointed

by the National Academy of Sciences was authorized on black and smokeless powder. What is the status of this study?

Answer. The National Academy of Sciences has a study on black and smokeless

powders underway.

Question. Have any results of the study been provided to you?

Answer. During the week of March 2, 1998, National Academy of Sciences held

public meetings on black and smokeless powders. There are no results as of this

date.

Question. When do you expect the study to be completed?

Answer. The National Academy of Sciences expects that the study on black and

smokeless powders will be completed in September 1998.

Question. Would you please provide a copy of that report when it is completed?

Answer. The National Academy of Sciences is writing and producing the report.

However, when they release the study, ATF would be pleased to provide the Committee a copy.

Question. Is it true that the ATF plans a follow on fertilizer study that may be

conducted with the International Fertilizer Development Center (IFDC) in Muscle

Shoals, Alabama?

Answer. Yes. ATF is in the process of finalizing a second contract with IFDC.

Question. If so, would ATF make any recommendation for including plastic

taggants in pre-explosive materials until such a follow-on fertilizer study or any

other pending studies were completed?

Answer. ATF does not currently expect to propose such recommendations for including plastic taggants or any other taggants in ammonium nitrate fertilizer until

all follow-on pertinent studies are completed.

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

ATF REORGANIZATION

Question. With regard to the new reorganization in progress at ATF that would

place 1811’s as the ultimate supervisors of field compliance staffs, will these criminal enforcement agents be trained to be sensitive to the needs of the gun industry,

the gun collecting community and others who must regularly interact with ATF for

compliance service needs?

Answer. ATF management is committed to ensuring that the special agents in

charge have a full understanding of these relationships and associated issues. This

would be a continuing area of focus, both during our process of preparing for the

reorganization and after implementation.

In order to give the special agents in charge (and certain District office staff members) an initial exposure to dealing with industry members from a regulatory perspective, the District Directors are coordinating briefing/training sessions. We have

already conducted one prototype briefing/training session for the special agents in

charge and their staffs in the northeastern part of the country. Four other sessions

are planned in the next two months to cover the special agents in charge and staffs

in the remaining parts of the country. Included in these sessions are discussions of

the regulatory role in dealing with firearms industry members.

In May, we are holding a senior management conference in Cincinnati. Included

in the agenda for that conference are sessions on program issues from a regulatory

perspective.

As an on-the-job training initiative, the special agents in charge would be expected to familiarize themselves with the industries through visits to various industry members. The Special Agents in Charge would also be responsible for maintaining liaison with industry representatives and trade associations.

This reorganization is currently pending departmental and OMB approval.

Question. When will the reorganization become effective, and to what extent has

it already been implemented?

Answer. The proposed implementation date for the field reorganization is October

1, 1998. As with any major organizational action, there will be long term implementation steps, such as satisfying the space requirements of all offices. We are awaiting final approval from the Department and OMB before commencing implementation.
122

Question. Please provide a copy of the ATF’s reorganization efforts showing a field

office by field office breakdown and organizational directory.

Answer. Please see Attachments.

[The information follows:]

Field divisions State(s) Field offices

Special

agents/inspectors

Atlanta Georgia Division ............................................................................

Atlanta I (F/A trafficking) ................................................

Atlanta II (Arson) .............................................................

Atlanta III (Achilles) ........................................................

Atlanta IV (Gangs) ...........................................................

Macon ..............................................................................

Savannah .........................................................................

Southeast DO ...................................................................

Atlanta AO .......................................................................

10

10

8

6

9

9

9

10

10

Total ................................................................... 81

Baltimore Delaware

Maryland

Division ............................................................................

Baltimore I (Arson) ..........................................................

Baltimore II (HIDTA) .........................................................

Baltimore III (Achilles) .....................................................

Baltimore IV (HIDTA) ........................................................

Hyattsville ........................................................................

Wilmington .......................................................................

Baltimore AO ....................................................................

6

7

5

6

6

10

6

10

Total ................................................................... 56

Boston Connecticut

Maine

Massachusetts

North New York

New Hampshire

Rhode Island

Vermont

Division ............................................................................

Boston I (Arson) ...............................................................

Boston II (Achilles) ..........................................................

Boston IV .........................................................................

Burlington ........................................................................

New Haven/Hartford .........................................................

Portland/Concord .............................................................

Providence ........................................................................

Worcester/Springfield .......................................................

Buffalo .............................................................................

Albany ..............................................................................

Syracuse ...........................................................................

Hartford AO ......................................................................

Boston AO ........................................................................

Bath POD .........................................................................

Albany POD ......................................................................

Buffalo AO .......................................................................

Syracuse POD ...................................................................

11

8

9

9

6

9

7

3

5

10

6

5

10

13

1

2

7

2

Total ................................................................... 123
123

Field divisions State(s) Field offices

Special

agents/inspectors

Charlotte North Carolina

South Carolina

Division ............................................................................

Charlotte I ........................................................................

Charlotte II .......................................................................

Charleston (Achilles) .......................................................

Columbia ..........................................................................

Fayetteville/Wilmington ....................................................

Greensboro .......................................................................

Raleigh .............................................................................

Greenville .........................................................................

Charlotte AO ....................................................................

Greensboro POD ...............................................................

Fayetteville POD ...............................................................

Columbia POD ..................................................................

8

8

11

9

7

10

8

9

8

9

4

1

3

Total ................................................................... 95

Chicago Illinois Division ............................................................................

Chicago I (OCDETF) .........................................................

Chicago II (F/A trafficking) .............................................

Chicago III .......................................................................

Chicago IV (Arson) ...........................................................

Oakbrook I ........................................................................

Oakbrook II .......................................................................

Oakbrook III (Explosives) .................................................

Springfield ........................................................................

Fairview Heights ..............................................................

Midwest DO ......................................................................

Fairview Heights POD ......................................................

Oakbrook POD ..................................................................

Peoria POD .......................................................................

13

12

9

11

11

11

10

9

7

8

12

5

10

2

Total ................................................................... 130

Columbus Ohio

Indiana

Division ............................................................................

Cleveland I .......................................................................

Cleveland II ......................................................................

Cincinnati ........................................................................

Columbus .........................................................................

Toledo ...............................................................................

Youngstown ......................................................................

Fort Wayne .......................................................................

Indianapolis .....................................................................

Merrillville ........................................................................

Cincinnati AO ...................................................................

Cleveland AO ...................................................................

Columbus POD .................................................................

Indianapolis POD .............................................................

South Bend POD ..............................................................

....................

10

10

9

8

6

6

5

10

11

11

8

2

3

2

Total ................................................................... 101
124

Field divisions State(s) Field offices

Special

agents/inspectors

Dallas North Texas

Oklahoma

Division ............................................................................

Dallas II (Arson) ..............................................................

Dallas III (F/A trafficking) ...............................................

Dallas IV (Achilles) ..........................................................

Fort Worth ........................................................................

Lubbock ............................................................................

Oklahoma City .................................................................

Tulsa ................................................................................

Tyler ..................................................................................

El Paso .............................................................................

Southwest DO ..................................................................

El Paso POD .....................................................................

Lubbock POD ....................................................................

Oklahoma City POD .........................................................

10

6

11

9

8

7

10

9

7

8

21

1

2

3

Total ................................................................... 112

Detroit Michigan Division ............................................................................

Detroit I ............................................................................

Detroit II (Arson) ..............................................................

Detroit IV ..........................................................................

Detroit V (Achilles) ..........................................................

Flint ..................................................................................

Grand Rapids ...................................................................

Detroit AO ........................................................................

Flint POD ..........................................................................

Grand Rapids POD ...........................................................

Kalamazoo POD ................................................................

11

14

11

12

12

11

14

11

1

1

2

Total ................................................................... 99

Houston South Texas Division ............................................................................

Houston I .........................................................................

Houston II (Achilles) ........................................................

Houston III (Arson) ...........................................................

Houston IV (OCDETF) .......................................................

Houston V ........................................................................

Austin ...............................................................................

Beaumont .........................................................................

Corpus Christi ..................................................................

McAllen .............................................................................

San Antonio .....................................................................

Houston AO ......................................................................

Beaumont POD .................................................................

San Antonio AO ................................................................

8

9

9

4

4

8

12

6

6

7

11

11

1

5

Total ................................................................... 101
125

Field divisions State(s) Field offices

Special

agents/inspectors

Kansas City Iowa

Kansas

Missouri

Nebraska

Division ............................................................................

Kansas City II ..................................................................

Kansas City III (Arson) ....................................................

Omaha .............................................................................

Des Moines ......................................................................

Wichita/Kansas City I ......................................................

Springfield/Cape Girardeau .............................................

St. Louis I ........................................................................

St. Louis II .......................................................................

Kansas City AO ................................................................

St. Louis AO .....................................................................

Des Moines POD ..............................................................

Omaha POD .....................................................................

11

9

7

9

8

10

8

7

8

9

10

2

3

Total ................................................................... 101

Los Angeles South California Division ............................................................................

Los Angeles I (Metro) ......................................................

Los Angeles II (Achilles) ..................................................

Los Angeles III (Arson) ....................................................

San Diego I ......................................................................

San Diego II .....................................................................

Santa Ana ........................................................................

Van Nuys ..........................................................................

Riverside ..........................................................................

Los Angeles AO ................................................................

San Diego POD ................................................................

Santa Ana AO ..................................................................

Van Nuys POD ..................................................................

9

12

13

8

10

8

12

9

11

13

2

7

2

Total ................................................................... 116

Louisville Kentucky

West Virginia

Division ............................................................................

Louisville ..........................................................................

Bowling Green ..................................................................

Charleston/Wheeling, WV .................................................

Lexington/Ashland ............................................................

Bardstown POD ................................................................

Frankfort AO .....................................................................

Louisville AO ....................................................................

Owensboro POD ................................................................

Charleston POD ................................................................

Falling Waters POD ..........................................................

13

9

5

9

7

2

5

9

1

3

1

Total ................................................................... 64
126

Field divisions State(s) Field offices

Special

agents/inspectors

Miami South Florida

Puerto Rico

Division ............................................................................

Miami I ............................................................................

Miami II ...........................................................................

Miami IV (Achilles) ..........................................................

Miami V ...........................................................................

Fort Lauderdale ................................................................

West Palm Beach ............................................................

Puerto Rico ......................................................................

Miami AO .........................................................................

Puerto Rico Operations (RE) ............................................

10

8

10

9

9

8

8

9

9

8

Total ................................................................... 88

Nashville Alabama

Tennessee

Division ............................................................................

Birmingham/Huntsville ....................................................

Mobile ..............................................................................

Montgomery ......................................................................

Nashville ..........................................................................

Chattanooga ....................................................................

Knoxville ...........................................................................

Memphis ..........................................................................

Birmingham AO ...............................................................

Mobile POD ......................................................................

Nashville AO ....................................................................

Winchester POD ...............................................................

12

13

7

6

11

9

10

11

6

2

6

1

Total ................................................................... 94

New Orleans Arkansas

Louisiana

Mississippi

Division ............................................................................

New Orleans II .................................................................

New Orleans III ................................................................

Baton Rouge ....................................................................

Little Rock ........................................................................

Shreveport ........................................................................

Gulfport ............................................................................

Jackson/Oxford .................................................................

Little Rock POD ................................................................

New Orleans AO ...............................................................

Shreveport POD ................................................................

Jackson POD ....................................................................

7

10

11

7

9

7

5

7

5

5

1

1

Total ................................................................... 75
127

Field divisions State(s) Field offices

Special

agents/inspectors

New York New York (Metro)

North New Jersey

Division ............................................................................

New York I .......................................................................

New York II ......................................................................

New York III (Arson) .........................................................

New York IV (F/A trafficking) ..........................................

New York V (HIDTA) .........................................................

New Jersey II ....................................................................

New Jersey (Arson) ...........................................................

Fairfield AO ......................................................................

Melville POD .....................................................................

North Atlantic DO ............................................................

Melville POD .....................................................................

White Plains POD .............................................................

8

10

11

14

13

10

13

7

10

5

21

2

1

Total ................................................................... 125

Philadelphia Pennsylvania

South New Jersey

Division ............................................................................

Philadelphia I (F/A trafficking) .......................................

Philadelphia II (Arson) .....................................................

Philadelphia III (Achilles) ................................................

Pittsburgh I (F/A trafficking) ...........................................

Pittsburgh II (Arson) ........................................................

Camden/Atlantic City .......................................................

Trenton .............................................................................

Harrisburg ........................................................................

Reading ............................................................................

Kingston POD ...................................................................

Lansdale AO .....................................................................

Pittsburgh AO ..................................................................

Trenton POD .....................................................................

10

8

8

8

7

6

7

5

7

3

3

12

8

4

Total ................................................................... 96

Phoenix Arizona

Colorado

New Mexico

Wyoming

Utah

Division ............................................................................

Phoenix I ..........................................................................

Phoenix II (Achilles) .........................................................

Tucson I ...........................................................................

Tucson II ..........................................................................

Albuquerque .....................................................................

Denver I ...........................................................................

Denver II ..........................................................................

Colorado Springs .............................................................

Cheyenne ..........................................................................

Salt Lake City ..................................................................

Phoenix AO .......................................................................

Tucson POD ......................................................................

Denver AO ........................................................................

Albuquerque POD .............................................................

Salt Lake City POD ..........................................................

9

9

9

8

6

11

9

8

7

5

7

4

2

7

2

3

Total ................................................................... 106
128

Field divisions State(s) Field offices

Special

agents/inspectors

St. Paul Minnesota

Montana

North Dakota

South Dakota

Wisconsin

Division ............................................................................

St. Paul I .........................................................................

Fargo/Sioux Falls .............................................................

Billings/Helena .................................................................

Milwaukee ........................................................................

St. Paul AO ......................................................................

Helena POD ......................................................................

Fargo/Sioux Falls .............................................................

Milwaukee AO ..................................................................

8

12

8

7

9

12

....................

....................

9

Total ................................................................... 65

San Francisco North California

Nevada

Division ............................................................................

San Francisco I (F/A) .......................................................

San Francisco II (Arson) ..................................................

Fresno/Bakersfield ...........................................................

Oakland (Achilles) ...........................................................

Sacramento ......................................................................

San Jose ...........................................................................

Reno .................................................................................

Las Vegas ........................................................................

Fresno POD ......................................................................

Modesto POD ....................................................................

Napa POD ........................................................................

Oakland POD ....................................................................

Sacramento AO ................................................................

Western DO ......................................................................

San Jose AO .....................................................................

Santa Rosa POD ..............................................................

Reno POD .........................................................................

10

8

9

9

9

12

7

4

10

5

1

2

2

13

19

8

5

1

Total ................................................................... 134

Seattle Alaska

Guam

Hawaii

Idaho

Oregon

Washington

Division ............................................................................

Seattle ..............................................................................

Anchorage ........................................................................

Boise ................................................................................

Guam ...............................................................................

Honolulu ...........................................................................

Portland I (Arson) ............................................................

Portland II (F/A-Achilles) .................................................

Spokane ............................................................................

Yakima .............................................................................

Anchorage POD ................................................................

Boise POD ........................................................................

Portland AO ......................................................................

Seattle AO ........................................................................

8

13

5

5

2

6

10

6

8

4

1

1

12

9

Total ................................................................... 90
129

Field divisions State(s) Field offices

Special

agents/inspectors

Tampa North Florida Division ............................................................................

Jacksonville ......................................................................

Orlando .............................................................................

Pensacola .........................................................................

Tallahassee ......................................................................

Tampa ..............................................................................

Jacksonville POD ..............................................................

Tampa AO ........................................................................

Winter Haven ...................................................................

Fort Myers ........................................................................

10

8

10

6

8

11

3

8

2

1

Total ................................................................... 67

Washington District of

Columbia

Virginia

Division ............................................................................

Falls Church I (Arson) .....................................................

Falls Church II .................................................................

Washington I (HIDTA) ......................................................

Washington II (Cease Fire) ..............................................

Washington III (HIDTA) ....................................................

Bristol ..............................................................................

Norfolk ..............................................................................

Richmond .........................................................................

Roanoke ...........................................................................

Falls Church POD ............................................................

Norfolk POD ......................................................................

Richmond AO ...................................................................

Roanoke POD ...................................................................

Washington POD ..............................................................

9

8

9

8

7

7

5

8

10

7

3

1

7

1

....................

Total ................................................................... 90
130
131

Question. What steps will be taken to communicate this to the public and to give

the public guidance as to who they can interact with at ATF?

Answer. Considering the industry and their trade associations as the major part

of the public who interact with ATF, our top headquarters and field managers have

already attended several industry meetings to respond to questions about the restructuring proposal. We have reached out to not only the national trade associations, but also trade associations in the States, which are comprised of local industry members. We will continue this effort.

This restructuring also would require changes in several publications that list our

office addresses. Modifications to those publications are in our long-term plans.

Local field offices would be responsible for making any necessary adjustments to

local information directories.

Question. Are you considering doing a special guide?

Answer. There are several possibilities under consideration to communicate our

organizational changes to the public. These include publication of the changes in the

Federal Register, and standardized brief articles for media and trade association

publications.
132

U.S. CUSTOMS SERVICE

RETROFITTING PROGRAM FOR CUSTOMS P–3 AEW AIRCRAFT

Question. In the report that accompanied the fiscal year 1998 appropriations for

the Customs Service, this Committee requested that a report be submitted by January 31, 1998 on the status of the P–3 retrofitting program. What is the status of

this report?

Answer. The Customs Aviation Program report was completed on February 6,

1998. The report was sent to the Committee on February 25, 1998. A copy is attached.

STUDY ON THE ASSETS NEEDED TO CONDUCT INTERDICTION OPERATIONS IN THE

TRANSIT ZONE

Question. I understand that the U.S. Interdiction Coordinator’s (USIC) Office is

in the final stages of preparing a study on the assets needed to conduct interdiction

operations in the transit zone and its recommendations being formulated for executive review. Do you know when the report will be issued and are you aware of the

recommendations of the Customs Service? Have the draft versions of this study been

used to formulate the fiscal year 1999 budget request in terms of the assets needed

for drug interdiction?

Answer. Customs believes the USIC’s report is scheduled for release in the next

several weeks. The Aviation Program provided a great deal of input in the development of the report.

Customs will consider the study recommendations in its future budget requests.

MODERNIZATION OF CUSTOMS P–3 AEW AIRCRAFT

Question. I understand that there is a need to modernize the first four P–3 AEW

aircraft to standardize the systems with the aircraft that will be delivered over the

next two years. Is the Customs Service reviewing this and what are the costs associated with such an effort?

Answer. The Customs Aviation Program has been reviewing the modernization of

its existing P–3 AEW fleet for some time. Currently, all four P–3 AEW’s are configured with the APS–138 radar. This system was originally used in the Navy’s E–2C

Advanced Radar Processing System (ARPS) aircraft. The Navy is updating all E–

2C’s to an APS–145 Group II configuration. The APS–138 is no longer in production

and the Navy’s intermediate level support for this system will be withdrawn by the

year 2000. Since Customs P–3 fleet represents a relatively small part of the overall

P–3 population, spare parts (to the extent available after 2000) will likely become

more costly as economies of scale are lost to the manufacturers. This situation is

likely to create delays in the availability of the aircraft for counterdrug missions.

Customs is waiting to take delivery of two additional P–3 AEW’s over the next

2 years. Both of these aircraft will be configured with the newer APS–145 radar.

The cost to retrofit the four existing P–3 AEW’s depends on the configuration, but

it is estimated at approximately $40–50 million in total.

DETECTION TECHNOLOGY

Question. The Administration requested funding for additional border patrol

agents and for technology that would assist Customs inspectors. Is there technology

that could be used that would provide capabilities that could be used for interdiction

activities that would assist a multitude of efforts, such as detection and monitoring

air, land and maritime activities?

Answer. There is no single technology or multiple-use system that we are aware

of that could detect and monitor targets for all air, land, and maritime activities.

However, there are several types of satellite-based electronic tagging and tracking

systems that could monitor suspect air, land, or marine movements once the target

plane, vehicle or boat has been detected and a tracking device covertly installed.

There are some radar systems currently deployed that either are, or can be, capable of detecting and monitoring most air and maritime targets of interest to Customs. These include the airborne radars in Customs P–3 AEW aircraft and the DOD

aerostats that can detect targets up to 150 miles away, and the radars in the Customs Citations and other Customs, Coast Guard, or military aircraft that can detect

targets up to several miles away.

The land-based DOD Relocatable Over-the-Horizon Radar (ROTHR) can detect

and monitor air targets, and ultimately marine targets, that are several hundred

miles away.
133

Cost benefit analyses for the effectiveness of the P–3, aerostat, and ROTHR were

conducted in the early development and cost justification days of these programs.

They concluded that each was effective for the multi-agency applications for which

they were being used (e.g., Customs, Coast Guard, INS, and DEA enforcement activities, and DOD early warning missions).

QUESTIONS SUBMITTED BY SENATOR FAIRCLOTH

UNDER SECRETARY FOR ENFORCEMENT

Question. Mr. Secretary, Section 809 of the Antiterrorism and Effective Death

Penalty Act, Public Law 104–32 mandated that the Department of the Treasury

conduct a study, which would assess the threat to law enforcement officers from the

misuse of firearms and ammunition. What is the status of that report, and what

is its expected completion date?

Answer. The report has been drafted and submitted to an appropriate review

process by ATF. We anticipate the report will be completed in the next few weeks.

Question. ATF was directed by both Houses of Congress in 1998 to cooperate with

State and local law enforcement to ensure the prompt return of recovered firearms

to their legal owners. Has ATF complied with this request? If so, could you provide

the Congress with supporting documentation?

Answer. Yes. ATF has complied with this request by complying with existing

laws. ATF works with State and local law enforcement by identifying the purchaser

of record for a firearm that has been used in a crime. However, ATF cannot make

the determination to contact the known firearm owner since that contact could jeopardize an ongoing criminal investigation and possibly endanger lives. Since a firearm is sometimes the only key to many crimes, the integrity of a criminal investigation may be violated if ATF were to adopt any other policy than furnishing only the

firearms trace requestor with the purchaser of record for a firearm.

Stolen firearms that come into ATF’s possession during the course of an investigation are returned to the lawful owners at the conclusion of the investigation, in compliance with existing laws and as long as no insurance claim has been paid.

PROMPT RETURN OF RECOVERED FIREARMS

Question. ATF was directed by both Houses of Congress in 1998 to cooperate with

State and local law enforcement to ensure the prompt return of recovered firearms

to their legal owners. Has ATF complied with this request. If so, could you provide

the Congress with supporting documentation?

Answer. Yes. ATF has complied with this request by complying with existing

laws. ATF works with State and local law enforcement by identifying the purchaser

of record for a firearm that has been used in a crime. However, ATF cannot make

the determination to contact the known firearm owner since that contact could jeopardize an ongoing criminal investigation and possibly endanger lives. Since a firearm is sometimes the only key to many crimes, the integrity of a criminal investigation may be violated if ATF were to adopt any other policy than furnishing only the

firearms trace requestor with the purchaser of record for a firearm.

Stolen firearms that come into ATF’s possession during the course of an investigation are returned to the lawful owners at the conclusion of the investigation, in compliance with existing laws and as long as no insurance claim has been paid.

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

AVERAGE VIOLATIONS PER INSPECTION FOR FIREARMS

Question. Director Magaw, in ATF’s Budget justifications, ATF stated in its summary performance report for fiscal year 1997, under average violations per inspection for firearms, that .61 violations were identified per inspection, as oppose to 1.6

as anticipated. Are these results due to better than expected compliance?

Answer. The performance results for average violations per inspection of firearms

licensees were as we had anticipated. In fiscal year 1997, we completed 6,258 firearms compliance inspections and cited 3,824 violations. This represents an average

occurrence of .61 violations per inspection. The average number of violations per inspection had remained relatively constant over the past three years.

The 1.6 violations per inspection in the material that was referenced, was the result of an error in the percentages calculation that was not detected before the performance plans were forwarded. The data was taken from fiscal year 1995 results,
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which were the latest available at the time. That year, the Bureau completed 13,141

inspections and found 8,126 violations for an average of 0.61837 valuations per inspection, not the higher erroneous percentage.

Question. Why was better than expected compliance noted as an explanation for

explosives performance, but not to firearms?

Answer. The compliance level for Federal firearms licensees has remained relatively constant during the past 3 fiscal years.

COMMUNITY BASED STRATEGIC TRACE ANALYSIS AND DATA BASES

Question. Director Magaw, what is meant by ATF’s proposal to provide more community based strategic trace analysis to support collaborative ATF/local law enforcement activity?

Answer. In order to uncover illegal firearms traffickers and enable cities to reduce

violent crimes by decreasing the amount of illegally sold firearms to their communities, ATF is attempting to achieve comprehensive crime gun tracing among all law

enforcement agencies nationwide.

There are two reasons for seeking to achieve comprehensive tracing. First, it

maximizes the number of leads that can be developed for illegal trafficking. Second,

it provides cities with information about the guns used in crimes, thereby allowing

law enforcement for the first time to analyze patterns of crime gun characteristics.

Examples of information include how many crime guns are being recovered from juveniles and how many crime guns are originally sold within state where they are

recovered. For the Youth Crime Gun Interdiction Initiative cities, ATF is analyzing

the crime gun traces and providing reports about the types and sources of crime

guns by age group. Providing trace information and community crime gun patterns

to State and local law enforcement allows for targeted and efficient uses of limited

resources. These reports for local officials are known as ‘‘strategic trace analysis,’’

to distinguish them from Project LEAD. Project LEAD provides investigative trace

analysis aimed at individual cases rather than strategic enforcement.

Question. What information will ATF share from the Federal Trace System (FTS)

data base with the local law enforcement community?

Answer. ATF is mandated to support local and State law enforcement in their

fight against violent crime. To accomplish this mission, ATF has formed a close

working relationship with State and local law enforcement. In this regard, ATF has

made its FTS data base available to State and local law enforcement. This also includes Project LEAD, the Bureau’s innovative computer software program for analyzing crime gun trace data.

The Youth Crime Gun Interdiction Initiative cities are working closely with ATF

to develop more rapid, efficient methods of submitting trace requests and receiving

trace results. The lessons learned from these efforts will eventually be applied to

law enforcement agencies nationwide.

Question. Are there any data bases being developed by ATF or which ATF is helping to develop for use by local law enforcement?

Answer. ATF is not in the process of developing any new data bases for use by

ATF or by State and local law enforcement. ATF is in the process of further enhancing our Project LEAD software which performs analysis of crime gun trace data in

the existing firearms tracing system data base. Project LEAD is used by ATF and

is shared with State and local law enforcement who are working with ATF to identify illegal sources of crime guns. ATF has also developed a set of standardized trace

analysis reports that support local law enforcement collaboration with ATF, by providing a summary picture of the crime guns recovered and traced in a particular

jurisdiction.

The existing firearms tracing system/crime gun information data base maintained

by the National Tracing Center has been audited by the U.S. General Accounting

Office (GAO) to ensure that ATF is maintaining the records in an efficient manner

and in accordance with the law, as well as ensure that systems being used to track

the records are not to computerized firearms registrations which would be against

Federal law. The GAO audit conclusion stated that ATF is effectively managing the

information and acting within the guidelines proscribed by Federal law.

U.S. CUSTOMS SERVICE

ENFORCEMENT OF THE SOFTWOOD LUMBER AGREEMENT WITH CANADA

Question. Last year, Congress directed an additional $2 million to Customs for enforcement of the 1996 U.S.-Canada Softwood Lumber Agreement, to make the reconciliation of import and export data necessary for effective enforcement of the
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Agreement more prompt and accurate. First, I would like to know what has happened to this $2 million? How was it utilized? Second, I would like to know what

is needed to ensure that enforcement of the U.S. Canada Softwood Lumber Agreement and future reconciliation under the Agreement is prompt and fully effective?

Answer. Customs allocated the $2 million for personnel at Northern Border ports,

the Office of Field Operations (headquarters), the Office of Strategic Trade, and the

Office of Regulations and Rulings. The remainder of this funding was used to support increases in travel and contractual support costs related to the enforcement efforts described below.

Customs is fully committed to enforcing the Agreement. To do so Customs has established local criteria (cargo targeting of lumber shipments on suspected companies

or classification) and conducted intensive examinations of lumber mill works followed by detailed questions of importers, as appropriate, concerning the classification, and the validity of province of first manufacture in an attempt to detect circumvention of the Agreement. Customs has referred some questionable transactions

for review by Canada in accordance with the terms of the Agreement.

Customs has devoted considerable resources in the area of reconciliation and conducts quarterly reconciliation of U.S. imports with Canadian exports with the Department of Foreign Affairs International Trade (DFAIT). Two meetings were held

in Ottawa and one in Washington, D.C. during which Canadian and U.S. officials

committed to complete the reconciliation cycle 6 to 12 months after a given quarter

has taken place. An additional meeting is scheduled for the end of March in Chicago. Customs has developed an improved data extraction technique and will continue to streamline and automate the many steps required to perform an accurate

and timely reconciliation. However, timely reconciliation is not only dependent on

U.S. Customs, but also relies on the Canadian’s response to their own data reviews.

Question. I understand that a potential loophole in the U.S. Canada Softwood

Lumber Agreement has been created by a U.S. Customs decision that Canadian

lumber which has a hole drilled into it by Canadian companies is no longer considered ‘‘lumber’’ subject to the Lumber Agreement. Canadian firms are openly advertising drill presses as a means to use this loophole and avoid the agreement. First,

what is being done about this? Second, how do you justify your agency’s request for

increased authority to enter into trade agreements with an apparent inability to enforce agreements already in place?

Answer. Customs continues to dedicate significant resources to its field ports to

inspect and question suspect shipments of drilled lumber to determine its actual

use, and requests documentation to include commercial billing invoices, proof of payment and purchase orders.

A ruling was issued by the National Commodity Specialist Division in New York

in February, 1997, which held that for Customs classification purposes, stud lumber

which was pre-drilled for electrical wiring fell under Harmonized Tariff Schedule

classification subheading 4418. Since this classification subheading is outside the

scope of the Softwood Lumber agreement with Canada, concern was expressed that

the agreement was being circumvented. In October, 1997, a Federal Register Notice

was published soliciting comments regarding commercial uses of such studs to assist

Customs in determining the correct classification. Over 5800 comments were received in response to the notice. Customs is working expeditiously to issue a decision in the near future.

Customs has not requested increased authority to enter into trade agreements;

that is the role of the United States Trade Representative. What Customs has requested, is to be included in trade agreement negotiations because enforcement of

international trade agreements is a responsibility of the Customs Service. Customs

is currently responsible for the enforcement of some 15 international trade agreements and is of the view that active involvement when future trade agreements are

being reached will ensure that provisions negotiated are legally, commercially and

operationally enforceable.

RETROFITTING PROGRAM FOR CUSTOMS P–3 AEW AIRCRAFT

Question. In the report that accompanied the fiscal year 1998 appropriations for

the Customs Service, this Committee requested that a report be submitted by January 31, 1998 ‘‘on the status of the P–3 retrofitting program, including an assessment

of the current operational requirements and the potential impact on interdiction effectiveness were the fleet to be expanded by one or two additional P–3 AEW aircraft.’’ What is Customs response to this request?

Answer. The Aviation Program completed its report on February 6, 1998. The report was submitted to the Committee on February 25, 1998. A copy is attached.
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MODERNIZATION OF CUSTOMS P–3 AEW AIRCRAFT

Question. I understand that there is a need to modernize the first four P–3 AEW

aircraft to standardize the systems with the aircraft that will be delivered over the

next two years. Once the aircraft are standardized in the fleet, operating and maintaining the aircraft will be much more cost effective. Is Customs reviewing this, and

what are the costs associated with such an effort?

Answer. The Customs Aviation Program has been reviewing the modernization of

its existing P–3 AEW fleet for some time. Currently, all four P–3 AEW’s are configured with the APS–138 radar. This system was originally used in the Navy’s E–2C

Advanced Radar Processing System (ARPS) aircraft. The Navy is updating all E–

2C’s to an APS–145 Group II configuration. The APS–138 is no longer in production

and the Navy’s intermediate level support for this system will be withdrawn by the

year 2000. Since Customs P–3 fleet represents a relatively small part of the overall

P–3 population, spare parts (to the extent available after 2000) will likely become

more costly as economies of scale are lost to the manufacturers. This situation is

likely to create delays in the availability of the aircraft for counterdrug missions.

Customs is waiting to take delivery of two additional P–3 AEW’s over the next

2 years. Both of these aircraft will be configured with the newer APS–145 radar.

The cost to retrofit the four existing P–3 AEW’s depends on the configuration, but

it is estimated at approximately $40–50 million in total.

QUESTIONS SUBMITTED BY SENATOR KOHL

UNDER SECRETARY FOR ENFORCEMENT

Question. This past January a Customs agent, Manny Zurita, died while providing

protective assistance to the President. There is some question whether his 2 school

age children can continue to attend the DOD school since they are no longer dependents of a Federal employee. What is the status of this issue?

Answer. This is an issue that is of great concern to me. We have asked the Department of Defense to evaluate current authorities to permit the Zurita children

to continue their schooling until their education is complete. While we have not received a formal response, we have been told that authority does not exist to waive

the dependency requirement. We have learned that for the current school year, the

Zurita children will be permitted to finish out the term. However, the matter of

their long-term education is more difficult due to the current law. The children are

currently ages 9 and 11. The DOD schools are the only affordable English-language

schools in Puerto Rico for the dependents of Federal personnel. Senator Grassley

has introduced legislation which would permit the Zurita children to attend the

DOD schools for the remainder of their education. His bill is very comprehensive

and addresses all of the restrictions currently in place which place a burden on Customs families. I am hopeful the legislation will pass prior to the end of this school

year.

Question. At the last House Law Enforcement Hearing, the Under Secretary said,

‘‘We are never going to arrest our way out of the drug problem.’’ He went on to say

that an important component in reducing drug demand is education. Do the funding

levels for Treasury law enforcement agencies include adequate resources for this

type of education?

Answer. While the missions of the Treasury law enforcement bureaus do not focus

as directly on demand reduction as certain other agencies, we do make important

contributions. One of our principal efforts is ATF’s Gang Resistance Education and

Training (GREAT) Program, which educates youths about the dangers associated

with membership in gangs, including drug use. The fiscal year 1999 budget includes

$10 million to support this program. In addition, whether the problem is counterfeiting, collection of import and other taxes, bank-related financial crimes, or firearms

and explosives violations, our bureaus seek to educate and inform the industries involved to reduce the number and kind of violations. By doing this, we can focus

criminal investigations on major violations. When we see a new and threatening

problem, we try to respond with preventive measures. For instance, Customs noticed

an increase in complaints about Rohypnol abuse in Florida and Texas. This led to

Customs’ enforcement of FDA’s law barring importation of unapproved drugs. We

believe this has stopped a problem, affecting mainly a few states, from spreading

further. Funding for these types of activities is sufficient, but with additional funding we could establish more GREAT programs across the country.

Question. The fiscal year 1999 budget request includes $800 thousand and eight

employees for new enforcement policies and programs including Enhancing Southwest Border and Caribbean Policy Development and Oversight. The Washington
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Post recently ran a series on the rapid expansion of drug trafficking throughout the

Caribbean. That article also addressed a decrease in U.S. aid to Caribbean nations.

Does this economic aid have an impact on drug trade? Is it a better expenditure

of funds than trying to stem the increasing tide of drug trafficking? Is this something the office will be reviewing as part of the Caribbean Policy development?

Answer. The Caribbean region and the Southwest border remain major transit

points for illegal narcotics entering the U.S. As to both areas, therefore, we must

ensure full implementation of Treasury Enforcement bureaus’ counter-narcotics activities; the active support of other nations; and the oversight and policy roles

played by the Office of Enforcement. As to the first element, we have taken strong

measures in recent years, particularly through Customs’ Operations Hard Line and

Gateway.

As to the work of other nations, we believe that technical and economic aid provided to the Caribbean and other areas leads to better counter-drug activity. Direct

counter-narcotics training, assistance, and funding allows other nations to strengthen their own interdiction and investigations in response to drug traffickers and

money launderers. Treasury bureaus and offices provide vital assistance in the Caribbean and other points in all such areas. In addition, assistance provided by the

U.S. government and individual agencies allows for institution building in other nations that makes them less vulnerable on a long term basis to narcotics trafficking.

Finally, as part of its Caribbean and Southwest border policy development, the

Office of Enforcement places a high priority on ensuring full implementation of bureau counter-narcotics efforts and participation in the formulation of policies and

issues relating to cooperation provided by other nations. In fact, we view such oversight and policy development roles as essential to the short- and long-term success

of our counter-drug efforts.

Question. This funding level also provides funding and personnel required to meet

the workload demands related to International training. The Federal Law Enforcement Training Center is also requesting funds for this initiative. Please explain

what the status is of the international training program and what these and the

FLETC resources will provide?

Answer. As crime becomes increasingly international in nature, law enforcement’s

efforts to combat crime must also extend beyond the borders of the United States.

U.S. law enforcement needs the assistance of foreign law enforcement agencies in

fighting crime. Therefore, it is in our best interest to assure that foreign law enforcement agencies receive appropriate training. In recognition of this, the first

International Law Enforcement Academy (ILEA) was established in Budapest approximately two years ago under the direction of the FBI. It has proven to be very

successful.

To help combat drug trafficking and other crime problems in the region, in August

1997, it was agreed that Treasury would develop an ILEA for Latin America, known

as ILEA South. FLETC is taking the lead for Treasury in providing management

oversight, administrative support, and guiding program development for ILEA

South. Treasury and FLETC moved quickly to name a Director, select a staff, and

develop a core curriculum. The first ILEA South training program was held in Panama City, Panama, during November and December 1997. Thirty-two students from

eight Central American countries attended the program. The program was extremely well received and was considered by all those involved to be a great success.

The signing of a permanent agreement with Panama regarding ILEA South has

been delayed by the need to first conclude the negotiations for the Multilateral

Counter-narcotics Center (MCC), which is also to be located in Panama. We are

hopeful that the MCC negotiations will be concluded in the near future so that an

ILEA agreement can then be finalized. In the interim, a second ILEA South course

is now in progress in Panama.

As the professional law enforcement training agency within the Federal government, FLETC is the proper agency to oversee the development of ILEA South. The

success of the first training course, which included instructors from both the Treasury and the Justice law enforcement agencies, is a tribute to FLETC’s ability to

bring together instructors from diverse agencies and develop a cooperative team relationship. This team approach reinforces one of the messages we are trying to convey to the Latin American countries—the importance of law enforcement agencies

working together cooperatively.

To permit FLETC to continue its outstanding ILEA training efforts, the fiscal

year 1999 budget requests an additional 5 FTE and $1.5 million. These FTE are

necessary because currently FLETC’s staffing is stretched very thin. FLETC has

only been able to develop ILEA South because the other Treasury bureaus have detailed employees there to provide assistance. Keeping employees on long-term details for this purpose is not cost efficient. The FBI devotes significant resources to
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the support of ILEA Budapest. For the ILEA developed by Treasury to be equally

successful, we must have adequate resources to support it.

Treasury has also requested 2 FTE’s to oversee international training efforts.

These positions do not duplicate the positions at FLETC, but rather are intended

to compliment them. By agreement between the Departments of State, Justice, and

the Treasury, each ILEA is to be run by a Director and a Deputy Director. These

positions will alternate between the Departments of Justice and the Treasury. For

example, the current Director of ILEA South is from Treasury, and the Deputy Director is from Justice. To permit Treasury to staff these Director or Deputy Director

positions, additional positions are needed. When Treasury is selecting a Director or

Deputy Director, it will pick the best candidate from among the candidates nominated by the various Treasury bureaus and assign him/her to the Treasury position.

Since the Director or Deputy Director will not always be selected from the same

Treasury bureau, it is necessary to place the FTE’s for these positions within the

Treasury Department.

Question. The Office of Foreign Assets Control is requesting resources to expand

anti-narcotic and counter-terrorism activities. A portion of the funding will be used

to develop and track activities related to approximately 300 companies that provide

fronts for drug trafficking activities. Explain this activity and the long term costs

of the initiative?

Answer. In addition to sanctions against the principal figures identified in Executive Order No. 12978, the Order blocks property and interests in property of foreign

persons determined to (a) play a significant role in international narcotics trafficking centered in Colombia, or (b) materially assist in or provide financial or technological support for, or goods or services in support of those designated. Furthermore,

it blocks all property and interest in property subject to U.S. jurisdiction of additional persons, such as front companies and individuals, determined to be owned or

controlled by, or to act for or on behalf of those designated as ‘‘Specially Designated

Narcotics Traffickers’’ or ‘‘SDNT’s’’.

As the result of OFAC’s collection, investigation, and analysis of financial, business, and other information from a wide variety of sources, 424 businesses and individuals have now been identified as SDNT’s. This has had the significant impact

of denying the designated businesses and individuals access to U.S. financial and

commercial markets. More specifically, OFAC has determined that one-third of the

SDNT businesses have gone into liquidation. Because of OFAC designations, three

Colombian banks have closed about 300 accounts of SDNT individuals. One of the

largest SDNT commercial entities, with an annual income exceeding $136 million,

has been reduced to operating on a cash basis.

The funding requested for OFAC anti-narcotics efforts in fiscal year 1999 is needed to continue the research and identification of additional SDNT entities, prepare

evidentiary documentation for designation of new SDNT’s, closely track activities of

current SDNT’s to transform themselves into new front companies and designate

the transformed entities, acquire information resources, establish electronic data

systems, and provide foreign country administrative support for OFAC personnel assigned to Bogota, Colombia. The additional staff requested would conduct SDNT

program operations in Washington, D.C. and Bogota, and also include financial and

commercial compliance personnel to ensure sanctions enforcement and to administer

blocking of assets. We expect costs for these personnel and activities to continue

through the duration of the program.

Question. The Office of Enforcement keeps open the lines of communications with

other law enforcement agencies, such as the agencies housed in the Department of

Justice. What efforts are made to facilitate increased communication?

Answer. The Office of Enforcement plays an important role in coordinating and

facilitating communications between Justice and Treasury. It provides one focal

point for providing information, analysis and policy determinations. Cooperation between the Departments of Justice and the Treasury has improved dramatically over

the last few years. While there is always room for additional improvement, I believe

that cooperation is currently at an all-time high. This is a result of the frequent

communication and close coordination between the two Departments.

The Office of Enforcement works with the Department of Justice on a daily basis.

I speak to and attend meetings with the Attorney General, Deputy Attorney General, and heads of the Justice law enforcement bureaus regularly. Members of my

staff speak to their counterparts at Justice on a daily basis.

Additionally, the Office of Enforcement coordinates closely with Justice on all significant law enforcement matters. A variety of working groups meet regularly on important issues, such as the Southwest border, white collar crime, money laundering,

and terrorism.
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Question. Who determines which law enforcement agency will take the lead in an

investigation? In other words, how is it determined that the law enforcement agency

with the greatest expertise coordinates the enforcement effort?

Answer. The Federal law enforcement agencies each have unique areas of expertise and jurisdiction. When an investigation involves a matter that is clearly within

the jurisdiction of one agency, that agency will take the lead and work with other

agencies as needed.

In those circumstances where there is overlapping jurisdiction, memorandums of

understanding have been developed which detail the responsibilities of the respective agencies. Despite these efforts to ensure clear lines of authority, situations do

develop where two agencies may claim jurisdiction over an investigation. In those

instances, the Special Agents in Charge of the field office of the respective agencies

attempt to resolve the question. If this is not possible, further discussions between

the senior managers of the agencies will occur in Washington. The Departments of

Justice and the Treasury become involved in these discussions, as necessary.

Question. Do the Treasury law enforcement agencies have adequate resources to

conduct parallel operations with the Department of Justice, such as Customs and

INS Border Patrol activities?

Answer. Treasury law enforcement bureaus have unique areas of expertise which

complement those of other law enforcement agencies. For example, INS and Customs work together on cases and task forces involving illegal narcotics and other

contraband smuggling. Since INS and Border Patrol staffing continues to increase,

we anticipate that we will be called upon to participate in even more joint investigations. The current budget request for Treasury law enforcement for fiscal year 1999

includes funds for increasing Customs capabilities both through human resources

and technology so that Customs personnel can more efficiently and intelligently

carry-out their responsibilities. Additional Customs funding and resources would enhance Treasury’s ability to respond to growing workloads at our nation’s ports of

entry.

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

YOUTH CRIME GUN INTERDICTION INITIATIVE

Question. ATF is requesting an additional $16 million for the Youth Crime Gun

Interdiction Initiative. This brings the fiscal year 1999 request to over $28 million.

This extra funding will expand the program to an additional 10 cities and will hire

additional staff, but how will the increased funding reduce youth violence?

Answer. The additional $16 million for the Youth Crime Gun Interdiction Initiative will assist in breaking the chain of illegal supply of crime guns to youths and

minors. This can be accomplished by additional staffing (81 FTE’s) to follow up on

investigative information; comprehensive crime gun tracing by State and local law

enforcement; rapid high volume crime gun tracing and crime gun market analysis

by the National Tracing Center; and training of ATF, State, and local law enforcement personnel.

Question. The program, which started as a two-year research project, has been operating for over a year. Have there been any successes the committee should be

aware of?

Answer. Since the inception of the Youth Crime Gun Interdiction Initiative, more

than 36,000 firearms have been traced in the 17 pilot cities. During fiscal year 1997,

a total of 86 criminal investigations involving individuals illegally trafficking in firearms to youths/juveniles (and adults), as well as armed violent crimes being committed by youths/juveniles, have been initiated in 16 of the 17 YCGII sites. Many of

these are multi defendant investigations, and many involve the illegal trafficking of

firearms to street gangs comprised of youths and juveniles. In these cases, 90 defendants have been recommended for prosecution, 61 have been arrested, and 1 has

been sentenced. In addition, the standardized, community based trace analysis reports produced by ATF provide Federal, State, and local law enforcement with a

new tool for developing local crime reduction strategies.

GREAT

Question. The Gang Resistance Education and Training Program, or GREAT program, ties education to law enforcement and provides training in over 50 locations.

Please provide an evaluation of its success.

Answer. The GREAT program currently provides training in over 1,400 communities throughout the United States. The table below summarizes the progress

through fiscal year 1997:
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Fiscal year Appropriation Funded agencies (States) 1

Cities sending officers

for training 2

Police officers

trained

Students

trained

1992 .......................................... $800,000 4(1) 74 536 ....................

1993 .......................................... 2,400,000 12(3) 149 289 ....................

1994 .......................................... 7,500,000 21(8) 310 536 ....................

1995 .......................................... 16,000,000 43(18) 244 498 3 500,000

1996 .......................................... 10,700,000 40(18) 364 601 221,000

1997 .......................................... 11,000,000 74(22) 471 665 324,291

1 Represents law enforcement agencies that have received congressional funding each year—not cumulative.

2 Not cumulative.

3 Through fiscal year 1995, law enforcement agencies did not fully report the number of students who graduated. A

conservative calculated estimate puts the number at 500,000 from fiscal year 1992 to fiscal year 1995. The current reporting system relies on law enforcement agencies requesting graduation certificates for their students.

At the beginning of the 1994–95 school year, a national evaluation of the GREAT

Program was launched by the University of Nebraska at Omaha. The primary objective of the evaluation was to assess the effectiveness of GREAT in terms of attitudinal and behavioral consequences. The second objective of the evaluation was to assess the instruction of GREAT officers. In fiscal year 1997, preliminary results of

the evaluation indicated the positive impact that GREAT has on children. A preliminary analysis of the cross sectional evaluation of students completing the GREAT

Program found that students reported lower levels of delinquency, impulse behavior,

risk-taking behavior and approval of fighting as well as HIGHER levels of self-esteem, parental monitoring, parental attachment, commitment to positive peers, antigang attitudes, perceived educational opportunities and positive school environment.

The preliminary results of the evaluation of the instruction of the GREAT officers

found that the strongest aspect of GREAT training is the talented and dedicated

group of individuals that comprise the National Training Team. A copy of the cross

sectional evaluation report is attached.

[CLERK’S NOTE.—The evaluation report does not appear in the hearing record but

is printed in the November 1997 issue of the National Institute of Justice Research

in Brief printed by the U.S. Department of Justice.]

The five-year longitudinal study, the third part of the evaluation, continues into

its second year. The University of Nebraska evaluators will provide a status report

after they have evaluated the data collected after the first year.

Question. Why are no additional funds being requested to expand this program?

Answer. Due to budgeting constraints, no increased funding is requested for the

GREAT program. However, other programs like the Youth Crime Gun Interdiction

Initiative and the Violent Crime Coordinators complement and enhance the efforts

of the GREAT program indirectly.

Question. If additional funds were provided, could ATF expand the program to

provide summer programs?

Answer. Yes. National studies show that over 80 percent of youth violent crime

is committed when the juveniles are on summer break or after school before their

parents return from work.

Current Cooperative Agreements require communities to present the program in

three phases: 1) Teach the core programs, 2) provide a Summer Component, and 3)

provide a Parent Program.

Most communities who receive GREAT funds have well developed summer programs which reinforce the lessons presented to the youths during the classroom exercises.

Additional funds would permit ATF to offer more communities money.

Question. How would the summer camp program be set up?

Answer. The communities could be required to demonstrate the commitment by

the police department, school district, parks & recreation department; local businesses; local colleges or universities; and/or other community based programs to collaborate in providing healthy environments for youths to develop and grow.

VIOLENT CRIME COORDINATOR

Question. ATF is requesting $2 million and 15 FTE for Violent Crime Coordinator

to ensure a greater success rate in cases presented for prosecution under the Justice

department’s ‘‘Project Triggerlock.’’ Please explain ATF’s connection with ‘‘Project

Triggerlock.’’

Answer. The Department of Justice’s Project Triggerlock primarily focuses on

prosecuting firearms violations that will fall within the jurisdiction of ATF. ATF de-
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veloped the Achilles Program, which focuses upon the aggressive identification of

criminals who are vulnerable to the sentencing enhancements found under 18

U.S.C. section 924 ( c)and (e). The primary objective of the Achilles Program is to

incapacitate armed drug traffickers, violent street gang members, and armed career

criminals who terrorize our neighborhoods and account for a disproportionate percentage of criminal activity. Another objective of the Achilles Program is to increase

State and local awareness of the two Federally enhanced penalty statutes in order

to better coordinate law enforcement resources and efforts and to augment existing

State or local firearms laws or a lack thereof. These Federal cases are prosecuted

by U.S. attorneys through the Department of Justice’s Project Triggerlock.

Question. Please explain what the violent crime coordinators will do.

Answer. The violent crime coordinators (VCC), who are senior agents, must successfully accomplish the following tasks to fulfill the requirements of the job: establish threshold prosecution levels with the U.S. attorney’s office to ensure only those

cases which the U.S. attorney’s office will prosecute federally are pursued; evaluate

all firearms-related cases referred for prosecution by local , State, or other Federal

agencies and determines which judicial system is best suited for that case based on

the threshold levels of prosecution previously determined; establishes effective liaison and working relationships with the various State, local, and other Federal agencies in the VCC’s jurisdiction; maintain the integrity of the Gun Control Act and

the National Firearms Act by ensuring that each State or local officer, referring a

case in Federal court has met all the elements of proof; gather and exchanges intelligence derived from observed trends and from defendant interviews; ensure firearms from all referred cases are traced, thus enhancing the ability of Project LEAD

to generate information on illegal firearms trafficking; in cities with CEASEFIRE

Projects capabilities, ensures firearms from all referred cases are test fired and that

the shell casings and projectiles are subjected to Integrated Ballistic identification

Systems (IBIS) testing, thus enhancing the IBIS data base and increasing the likelihood of ballistic matches; and participates in, or coordinates, numerous interviews,

reports, and trials which require a great deal of investigative and courtroom experience. Additionally, the VCC performs the full range of criminal investigative duties,

e.g., extensive planning and coordination of complex investigations involving major

conspiracies, multiple jurisdictions, multiple defendants, etc. The VCC will interact

directly with State and local law enforcement officers and other Federal agencies to

establish a method to pre-identify armed violent offenders and determine the most

effective avenue for prosecution.

NATIONAL REVENUE CENTER

Question. Consolidating the National Revenue Center in Cincinnati will cost approximately $2.6 million. That funding will complete the consolidations and relocate

the employees. What savings are projected as a result of consolidating these services?

Answer. Current estimates show that once it is complete, savings in cost of space,

communications (voice and data), and personnel will eventually be $2.7 million per

year. The savings arise from going from six locations to one location and from reducing the overall number of personnel needed by eliminating duplication of effort at

the multiple sites.

JOINT EXPLOSIVES DETECTION CANINE DETECTION PILOT PROGRAM WITH FAA

Question. The fiscal year 1997 House report requested ATF set up a joint explosives detection canine pilot program with FAA at National or Dulles Airports. ATF

has recently signed a memorandum of understanding with FAA and the Metropolitan Washington Airport Authority to conduct this program. Why has it taken so

long to get this program underway?

Answer. The pilot program is underway. Explosives detection canines and handlers were selected during fiscal year 1997. Two ATF-trained and certified explosives detection canines were assigned to participate in the pilot program in October

1997. A memorandum of understanding was signed with FAA in November 1997.

FAA and ATF canine teams have been training at Dulles airport. Recently, contracts were finalized with two independent outside firms to conduct actual canine

testing and to evaluate the personnel impact of the two different programs.

Question. How will the pilot program be conducted?

Answer. A contracting firm was hired by the FAA to study the overall impact each

program has on its personnel participating in the pilot. Another contracting firm

was hired by FAA to develop and conduct the actual testing of the explosives detection canines in the airport environment.

Question. Other than ATF and FAA, will any other agencies participate?
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Answer. The participation of the Metropolitan Washington Airport Authority

(MWAA) has been a vital part of the pilot program. MWAA is supplying canine handlers and the facilities in which to train and test the canine teams. The pilot will

be utilizing both the Ronald Reagan Washington National Airport and Dulles International Airport.

Question. How long will the pilot last?

Answer. The pilot program is scheduled to last 1–2 years. The actual canine testing portion is divided into 3 phases and is scheduled to last 15–18 months. All details prior to the actual canine testing are being finalized by ATF and FAA.

Question. How will the results be reported?

Answer. The results of the pilot program will be reported in a joint report signed

by ATF and FAA.

CANINE EXPLOSIVES DETECTION PROGRAM

Question. The fiscal year 1998 appropriation provided $3.9 million and 17 employees for the Canine Explosives Detection Canine Program. The fiscal year 1999 Budget indicates the funding is reduced. What is in the ATF base for Canine? Answer. ATF will have $3,968,000 and 23 FTE in the fiscal year 1999 base for the canine explosives detection program. This does not include $1,000,000 expected

from the Treasury Asset Forfeiture Fund in fiscal year 1999.

Question. Why has the funding level reduced? Answer. ATF expects $1,000,000 in funding for the canine program in fiscal year

1999 from the Treasury Asset Forfeiture Fund (TAFF). This program also competes

for funding—as do many programs—with other Administration priorities. Therefore,

the canine program was reduced from $7,942,000 to $4,968,000.

Question. How will this impact the program?

Answer. The reduction will obviously mean that ATF will be able to train fewer

canines for State and local law enforcement than it otherwise would have been able

to train.

Question. How many ATF explosives detection dogs are operating in the United

States?

Answer. ATF currently has 8 ATF-trained and certified canines working throughout the United States with ATF Special Agent/canine handlers. ATF has also

trained and certified a canine working in conjunction with the pilot program. This

canine is being handled by a local MWAA police officer.

INTERNATIONAL ENFORCEMENT BRANCH AND ARMS DIVERSION

Question. Is arms diversion allied with counter terrorism?

Answer. In certain cases, arms diversion and terrorism may be allied. ATF has

known that decreasing the availability of illicitly trafficked firearms to the international illegal market will deter their use by terrorist groups, narcotics traffickers,

and the criminal elements operating in foreign countries.

Question. Where does the International Enforcement Branch (IEB) have field offices?

Answer. The International Program and Policy Section, which was formerly

known as the International Enforcement Branch, currently has field offices located

in Bogota, Columbia; Mexico City, Mexico; and Ottawa, Canada.

Question. What can the IEB do to reduce the flow of weapons across the borders?

Answer. The International Programs and Policy Sections, in conjunction with the

National tracing Center, is attempting to have all U.S.-source firearms that are recovered abroad traced through the National Tracing Center. With foreign law enforcement providing the description of crime guns recovered in their locale, ATF is

able to identify non-licensed individuals, as well as any Federal firearms licensees,

who are illegally supplying arms to foreign markets. Information developed is forwarded to ATF field divisions where international trafficking investigations are conducted.

The International Programs and Policy Section, in conjunction with ATF’s training and Professional Development Directorate, conducts illegal firearms trafficking

assessments and training for foreign countries. The assessments and training serve

to identify and address problem areas related to firearms in the respective countries.

Question. If there is international government involvement in the firearms diversion, what steps can be taken to limit the activities?

Answer. One way that the United States can prevent firearms diversion is by encouraging other nations to mark firearms at the time of manufacture and import,

as well as by establishing or maintaining a system of import, export, and in-transit

licenses or authorizations to govern the legal commerce in firearms. These two prin-
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ciples are part of the OAS Convention to Combat Illicit Manufacturing of and Trafficking in Firearms, Ammunition, Explosives and Related Materials signed last year

at OAS Headquarters in Washington, which will soon be sent to the U.S. Senate

for ratification. The U.S., together with its Group of Eight partners, will also attempt to seek the adoption of a similar instrument in the context of a planned UN

Convention on Transitional Organized Crime. The U.S. believes that agreements

such as the OAS Convention will go farther in securing international cooperation

to prevent legally traded firearms from being diverted into criminal hands and, were

diversion to occur, secure other nations’ cooperation to investigate, prosecute, and

incarcerate those guilty of this crime.

Question. What is the involvement of revolutionary groups in arms trafficking.

Answer. Revolutionary groups are a way that those involved in arms trafficking

obtain weapons of war. Their ability to acquire arms legitimately is, for obvious reasons, very limited. So they look toward trafficking to obtain this much needed commodity for their revolution.

Arms trafficking for these groups depends on many factors: the size of the group,

its location, its finances, its goals, etc. One group may be involved in the trafficking

of arms such as tanks from the former Soviet Union and another may be purchasing

firearms one or two at a time and then mailing them home to a compatriot to use

in the cause.

In the past, ATF has had many investigations involving groups that were trafficking firearms and explosives in support of their cause. The types of arms ranged from

one or two firearms to hundreds of firearms. The explosives ranged from black powder to hundreds of pounds dynamite.

DATA BASES RELATED TO GUN TRACING INFORMATION

Question. Are there legislative restrictions that complicate or reduce ATF’s abilities to collect or to create data bases related to gun tracing information?

Answer. ATF has had to be very careful and sensitive to the guidelines established under current appropriations’ restraints and yet, supplies all State, and Federal law enforcement agencies with the crime gun tracing in support of their investigations. However, ATF’s National Tracing Center continues to strive for more efficient analytical capabilities without establishing a national firearms registry.

INTERNAL REVENUE SERVICE

CRIMINAL INVESTIGATIONS (CI)

Question. CI has been involved in some tax gap cases that involved National Basketball Association referees and travel budgets. What was this all about and how

did the IRS identify there was a potential problem?

Answer. The IRS cannot discuss on-going investigations. However, within the past

year, four NBA referees have pled guilty to filing false tax returns charges.

Question. There are a number of militia groups interested in developing a separate government. They are taking opportunities to distribute their own financial

notes to avoid paying debts to financial institutions. These groups, like other tax

protesters, try to develop fraudulent procedures for claiming tax exemptions. Please

explain what the IRS can do to ensure that these individuals are paying their fair

share of taxes.

Answer. Tax protesters are not a recent phenomena. During the past two decades

CI has helped convict thousands of illegal tax protesters for tax and money laundering violations.

Currently, CI is devoting approximately 4 percent of its total resources to tax protester investigations. At any given time CI has approximately 200 tax protesters

under active investigation. During fiscal year 1997, CI initiated 176 investigations

of tax protesters, 117 indictments were returned and 89 convictions were obtained,

with many cases awaiting trial. Of those tax protesters sentenced to prison (82.3

percent), the average prison sentence was 31 months.

Some of our most significant successes in the past few years were against the

leadership of the ‘‘Freeman’’ movement. The Freeman and Republic of Texas movements are notorious for using the type of bogus financial instruments about which

you are inquiring. Leroy Schweitzer, head of the Freeman, was sentenced to two

years in prison for failing to file Federal income tax returns. Schweitzer and his followers still await trial on a multitude of charges arising from their efforts to create

worthless monetary instruments and other criminal activity which culminated in

the standoff in Justus, Montana.
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Elizabeth M. Broderick, a hairstylist from California, attended a seminar organized by Freeman Leroy Schweitzer where she learned how to create worthless monetary instruments and market them to others. Broderick became prominent in the

Freeman movement by hosting numerous seminars in California. These seminars

ultimately resulted in the creation of over $800 million in phony warrants. Many

citizens were defrauded through the use of these warrants. Unsuspecting individuals who believed they could discharge their debts using these instruments were financially ruined. Broderick realized over $1.2 million from these schemes. She was

charged with 28 felony violations, including money laundering. At trial, the selfstyled ‘‘Queen of Liens’’ was convicted on 25 counts and sentenced to more than 16

years in prison.

In Iowa, seven members of the ‘‘We the People’’ organization were convicted of 41

counts of mail fraud and conspiracy to commit money laundering. These individuals

engaged in a plan to promote a scheme which offered millions in ‘‘damages’’ from

a Colorado court case against the Federal Government if a $300 filing fee was paid

to the defendants. Scott E. Hillenbrand, the group’s leader, was convicted and sentenced to 188 months in prison. Other members of his group received sentences

ranging from 37 to 87 months.

These are just a few examples of the cases in which CI has been involved. Tax

protest investigations are a high investigative priority because illegal tax protest activity adversely affects not only voluntary compliance with the tax laws but the lives

of many citizens as well.

Question. The Tax Gap, or the difference between the amount of tax owed and the amount paid, is estimated to be approximately $130 billion. To have the greatest

deterrent on non-tax compliance the CI identifies and investigates cases that will

generate the most publicity. How does IRS determine which cases to take on?

Answer. IRS Tax Gap criminal investigations consist of tax investigations involving legal industries.

CI is focusing enforcement activities on tax gap investigations that reduce the tax

gap and increase voluntary compliance. During fiscal year 1997, 1,252 individuals

were sentenced on tax gap charges and 74 percent of those sentenced were sent to

prison.

For IRS Criminal Investigation, the tax gap encompasses our ‘‘Fraud Program.’’

The Fraud program covers a broad range of illegal activity, primarily involving legitimate industries. All statutes under Criminal Investigation’s jurisdiction may be

used in these investigations. This includes not only Title 26 of the Internal Revenue

Code but also violations of the Bank Secrecy Act and the Money Laundering Control

Act. During the last several years, the national priorities relating to the Fraud Program have been investigations concerning Bankruptcy Fraud, Healthcare Fraud,

Unscrupulous Return Preparers and Illegal Tax Protesters. Additionally, we invested substantial resources in the investigation of Excise Tax Fraud, Financial Institution Fraud, Gaming Fraud, Public Corruption, Telemarketing Fraud, Questionable Refund Fraud and General Tax Fraud.

In addition, CI has identified significant areas of noncompliance which have been

brought about by changing economic, political and social conditions. These ‘‘emerging issues’’ consist of Foreign and Domestic Trusts, Pension Fraud and Entitlement

and Subsidy Fraud (Non Healthcare).

The CI field offices consider the above priorities and emerging issues in expending

investigative resources and balance the investigative attention given to each area.

Further, the overall deterrent impact which can be made in an industry, geographic

area and occupation caused by an investigation and subsequent prosecution are also

considered. Also, the sentencing guidelines are considered in the selection process

because in these times of scarce resources, the single most important factor is the

deterrent effect that can be achieved by a prosecution. Absent unusual circumstances, the investigation will not be opened unless the actions of the target are

serious enough to warrant incarceration upon conviction.

The concept of voluntary compliance is dependent upon changing the behavior of

those who would evade taxes through fraud and deceit. This can only be achieved

through seeking out, prosecuting and informing the public about those who are benefiting the most from fraud schemes; those who are innovators in perpetrating

fraud; and those who by their behavior lure others to evade taxes.

Question. Does the agency look at cases that will provide the greatest ‘‘bang for

the buck’’ in terms of bringing in revenue?

Answer. CI does not pursue an investigation solely because that individual case

may result in the collection of substantial additional tax dollars. Instead, CI recommends prosecution of those who violate the tax laws to demonstrate the IRS commitment to ensuring that all taxpayers pay their fair share of taxes: It is a matter

of public trust for those who are honest, and it is a matter of a warning for those
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who attempt to evade their taxes or commit a currency crime. To accomplish this,

we institute investigations and recommend prosecution across a broad geographic,

economic and occupational spectrum. The resultant publicity, therefore, serves the

dual purpose of ensuring public confidence and deterring fraud. However, absent

unusual circumstances, a case will not be opened unless the actions of the target

are serious enough, (for example involve enough omitted income) to warrant incarceration under the sentencing guidelines upon conviction.

Question. Please explain how the Questionable Refund Program operates. Do the

analysts review random returns or are the returns flagged by another procedure?

Answer. The Questionable Refund Program (QRP) is a nationwide multifunctional

program established by IRS in January 1977. The purpose of this program is to detect and identify fraudulent returns, stop the payment of the false refunds and refer

QRP Schemes to District Office Criminal Investigation (CI). Returns with questionable civil issues are referred to other Service Center functions.

The program’s major detection operations occur in the ten Service Centers. Questionable Refund Detection Teams (QRDT’s) conduct preliminary pre-refund reviews

of millions of questionable returns identified by manual and computerized screening

techniques. False return schemes meeting specific criteria are referred to field offices for possible criminal investigation. The false returns not meeting criminal referral criteria are retained by the applicable QRDT. Duties performed by QRDT personnel include, but are not limited to, scanning returns, verification of income

claimed on suspicious returns, placing Master File CI controls on false returns, monitoring all QRP/CI controlled Master File accounts, developing the full scope of identified QRP schemes, referring QRP Schemes to District Office CI, utilizing the

Treasury Enforcement Communications System (TECS) for transmitting scheme information to other QRDT’s, providing QRP support for district office CI personnel,

handling QRP court ordered restitution cases, and responding to taxpayer refund inquiries pertaining to QRP controlled MF accounts, etc.

The QRDT’s do not review returns on a random basis. The main source of returns

selected for the QRP involves elaborate computer programs that apply weighted criteria against every refund return (individual returns, e.g., 1040, 1040A, 1040EZ,

1040PC, TeleFile, on line returns, etc.) that is processed. The criteria are developed

and refined yearly based upon the profile of fraudulent returns previously discovered and compared against a known sample representative of all returns that are

filed. These computer programs are capable of modification or data insertion when

schemes are identified, to allow for expansion of the total extent of the filings. Other

computer runs monitor the addresses of returns and identify significant trends of

filings.

Throughout the year, as schemes are developed, the QRDT’s utilize the resources

of numerous other service center functions to assist in identifying the totality of the

schemes. The QRDT’s receive assistance from Returns Processing, Information System Management, Electronic Filing, Internal Audit personnel, Adjustments, Notice

Review, etc. In addition, referrals are received from return preparers, informants,

banks, and the Secret Service.

The program relies to a great extent on the labor intensive scrutiny of paper documents for indications of fraud. The advent of Electronic Filing (ELF) and direct deposit refunds have provided ever increasing challenges. The amount of refund fraud

increased dramatically in conjunction with the implementation of ELF and increased Earned Income Tax Credit. Accordingly, the need for more sophisticated

fraud detection methods became critical.

The Electronic Fraud Detection System (EFDS) is the major fraud detection tool

for ELF returns. EFDS was developed by Research Division, the Los Alamos National Laboratory, Criminal Investigation Branch and the Electronic Filing Branch

at the Cincinnati Service Center (CSC). EFDS gained support and priority due to

both internal and external concern over the tax system’s vulnerabilities to fraud.

During the 1994 Filing Season, EFDS was prototyped at the CSC Criminal Investigation Branch. In the 1995 Filing Season, limited functionalities (Prescan &

Query) were rolled out to the other ELF Center QRDT’s. For the 1996 Filing Season, additional workload management features were included and the system was

further rolled out to the NON-ELF Center QRDT’s.

We continually pursue EFDS improvements as well as various other avenues in

order to thwart the attempts of fraudsters and to protect the revenue.

Question. Does the Program utilize the Revenue Protection Strategy?

Answer. Yes. The Revenue Protection Strategy was built on a four-pronged approach to the problem of fraudulent or questionable claims:

—Research.—Conduct statistically valid and other data analysis of abuse areas to

identify the nature of the problem and develop appropriate responses.
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—Prevention.—Design up-front validations of return information to prevent fraudulent or questionable claims from entering the filing system.

—Detection.—Develop improved detection systems to identify multiple-return

fraud schemes and patterns of abuse among groups of taxpayers.

—Enforcement.—Where appropriate, pursue criminal investigation and prosecution of fraudulent refund claims. In addition, select appropriate returns for prerefund examination of claims to ensure only valid claims are paid.

Since inception and implementation, the main focus of the QRP has been to protect the revenue. Due to its very nature, QRP has been, and continues to be, on the

cutting edge of detecting all types of tax abuse. QRP has been responsible for the

identification of substantial tax related issues existent in other programs within the

Service, resulting in hundreds of millions of dollars in savings, e.g., Illegal Tax Protesters, Abusive Tax Shelters, Earned Income Tax Credit abuse.

The Service believes that the Revenue Protection Strategy can reduce the Service’s vulnerability to fraud and abuse and prevent the issuance of substantial dollars

in false or inflated claims. Thus, the service needs to continue to focus our efforts

to identify questionable claims for refundable credits such as the Earned Income

Tax Credit.

Question. Criminal Investigation prioritizes its efforts in currency reporting and

money laundering to ensure its resources are used for those cases that require the

financial expertise provided by your staff. Please explain how you prioritize your

cases.

Answer. Due to its limited resources and specialized expertise, CI has prioritized

its efforts in currency reporting and money laundering enforcement, concentrating

on those investigations whose size, scope, and complexity require the financial investigative expertise of its special agents. Selection and prioritization of targets for

investigation are made in accordance with minimum standards set by the Assistant

Commissioner (CI), and in furtherance of the mission of CI. National Office review

and management oversight ensure compliance with these concepts.

Question. What percentage of cases does Criminal Investigation turn down?

Answer. The percentage of cases turned down by CI cannot be determined because

cases which are not pursued are not tracked.

U.S. CUSTOMS SERVICE

DRUG SMUGGLING IN THE MIDWEST

Question. Customs is requesting an additional $50 million in fiscal year 1999 to

acquire non-intrusive inspection technology for land and sea ports. And, we are

aware of the continuing problem of drugs coming across our border, particularly the

Southwest Border and Miami. But, there are drugs coming into the international

airports across the country. What is being done in the Midwest to combat increased

drug activities? For example: What efforts or resources are Customs employing at

the Chicago International airport to stem the increase of heroin that is flowing into

Milwaukee?

Answer. Most major airports have Customs Passenger Analysis Units (PAU’s) assigned, which employ the latest in information and information technology, to select

high-risk passengers for examination, in advance of their arrival. The PAU uses Advance Passenger Information (API), which is an electronic passenger manifest sent

to Customs by air carriers in advance of the flight’s arrival, to conduct extensive

name checking against several data bases of known and suspect violator information. In addition, PAU’s use non-suspect information to identify passengers who, although they have no previous records, may be traveling for the purposes of violating

the law. Through performance measurement, Customs has determined that PAU’s

are about 55 times more effective than simple random inspections.

Customs also employs highly trained roving inspectors, whose sole purpose is to

identify narcotics smugglers. This elite force has proven to be an effective tool to

combat drug trafficking, and is used as a model for many foreign customs agencies.

Customs Chicago O’Hare airport PAU and rover inspectional units are a highly

trained and motivated interdiction force employing the latest in information and information technology, along with training in observational behavioral analysis, in an

effort to identify the few narcotics smugglers from among the 3.2 million air passengers arriving each year. In addition, nine canine enforcement officer teams are

employed at Chicago O’Hare, and are used to locate narcotics in cargo, baggage, and

among passengers.

Chicago O’Hare also employs a new concept in Customs tactical targeting, known

as the ICAT, or Information Collection and Analysis Team. The ICAT employs Cus-
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toms inspectional, intelligence, and investigative resources, in a single cohesive unit.

The ICAT provides inspectors with tactical targets from arriving passengers.

Chicago is also home to the Combined Agency Border Interdiction Network or

CABINET. This unit, formed in the 1980’s, includes resources from among Customs,

six other Federal agencies, and foreign customs agencies. Its sole purpose is to use

available information on aliens to target for drug smugglers, with a specialty of

West African heroin smugglers. As a result of its close proximity, a special relationship exists with inspectors at Chicago O’Hare airport.

AUTOMATIC LICENSE PLATE READERS

Question. Funding was provided in fiscal year 1998 for automatic license plate

readers. Is this initiative now being funded in the base? How many license plate

readers were acquired with the fiscal year 1998 funding? Where are these readers

being used?

Answer. Funding was provided in fiscal year 1998 for license plate readers as part

of the first phase of the Land Border Automation initiative, which also contained

funding for the replacement of Interagency Border Inspection System primary terminals and Automated Permit Port/Remote Video Inspection technology. Congress’

fiscal year 1998 enactment of $9.5 million for this initiative is recurred in the Crime

Bill base for fiscal year 1999.

The Customs Service, in cooperation with the Immigration and Naturalization

Service, has placed license plate readers in Southern California and Blaine, Washington. The priority for installation of license plate reader equipment for the Federal

Inspectional Service agencies is the southern border. Customs expects that by the

end of fiscal year 1998, installation will be underway at Nogales, AZ; El Paso, Laredo, and Brownsville, TX. Customs will continue the nationwide deployment of

automatic license plate readers, Automated Permit Port/Remote Video Inspection

technology, and the replacement of Interagency Border Inspection System primary

terminals with the funds requested in fiscal year 1999.

DETECTION TECHNOLOGY

Question. The Customs Service has a strong presence on the U.S. Mexican border.

The Administration has requested additional funding for border patrol agents and

for technology that would assist Customs inspectors. Is there technology available

that would serve multiple efforts such as detection, monitoring air, land, and maritime activities? If such technology exists has a cost benefit analysis of its effectiveness been conducted?

Answer. There is no single technology or multiple-use system that we are aware

of that could detect and monitor targets for all air, land, and maritime activities.

However, there are several types of satellite-based electronic tagging and tracking

systems that could monitor suspect air, land, or marine movements once the target

plane, vehicle or boat has been detected and a tracking device covertly installed.

There are some radar systems currently deployed that either are, or can be, capable of detecting and monitoring most air and maritime targets of interest to Customs. These include the airborne radars in Customs P–3 AEW aircraft and the DOD

aerostats that can detect targets up to 150 miles away, and the radars in the Customs Citations and other Customs, Coast Guard, or military aircraft that can detect

targets up to several miles away.

The land-based DOD Relocatable Over-the-Horizon Radar (ROTHR) can detect

and monitor air targets, and ultimately marine targets, that are several hundred

miles away.

Cost benefit analyses for the effectiveness of the P–3, aerostat, and ROTHR were

conducted in the early development and cost justification days of these programs.

They concluded that each was effective for the multi-agency applications for which

they were being used; i.e., Customs, Coast Guard, INS, and DEA enforcement activities, and DOD early warning missions.

U.S. SECRET SERVICE

SECURITY OF SECRET SERVICE PROTECTEES

Last year in response to a question for the record concerning ‘‘* * * the level of

security the Service would feel comfortable with * * *’’, the Secret Service responded ‘‘* * * the Service is comfortable with the level of security that we are currently providing to our protectees’’. The Service went on to say that ‘‘* * * the level

of threats to the president have remained constant over the past four years.’’ However, the fiscal year 1999 budget requests an additional 25 employees and $5 million
148

for assignment to the Presidential, Vice Presidential, and Former President protection details.

Question. Why are additional personnel requested?

Answer. The Service is comfortable with the level of security that is currently

being provided to protectees. However, in order to provide this level of security,

Service personnel assigned to protective details are currently working inappropriate

levels of overtime, approximately 19 percent more than agents assigned to the Service’s five largest field offices. Also, due to operational needs, the protective details

do not have the staffing necessary to ensure that regular training is achieved. The

additional staffing will ease this situation and enhance the operational effectiveness

of the protective details.

Question. What has changed since the Service responded to these questions last

spring?

Answer. Nothing has changed. The Service is comfortable with the level of security that is currently being provided to protectees. The issue is the level of overtime

that is being worked by detail personnel, and our inability to schedule regular training for these employees.

Question. Will this request fund anything other than personnel?

Answer. This request will fund personnel and their concomitant equipment and

training only.

PROTECTIVE TRAVEL FUNDING SHORTFALL

The fiscal year 1999 budget requests less funding for travel and related costs than

the Service received in fiscal year 1997. The fiscal year 1997 travel allocation may

not have been sufficient to cover the actual cost accrued.

Question. Is the fiscal year 1999 request sufficient to meet the projected travel

needs in that year?

Answer. The Service is currently in the process of re-evaluating funding requested

for travel expenses.

The Service is reviewing some of its assumptions regarding the annual level of

protective travel costs. The actual costs of travel, including hotel and per diem costs,

have increased beyond what had been anticipated. Also, both the level of protectee

travel and the nature of that travel, especially for the President and foreign heads

of state and government visiting this country, have changed. The President’s level

of foreign travel is beyond what was anticipated, and the number of foreign dignitary visits to this country has increased significantly. Finally, the Service has also

made changes to the way protection is provided to its protectees when travelling,

especially the President. Greater use is being made of technologically sophisticated

equipment. New threats continue to be identified that necessitate the development

and deployment of new counter-measures. Deploying these new counter-measures

requires increasing the number of specially trained personnel that must travel with

the President. All of these factors are being weighed as we re-evaluate both fiscal

year 1998 and fiscal year 1999 travel needs.

Question. Are there some projections on the level of travel a second term President conducts toward the end of the term?

Answer. The Service does not make a zero-based projection of its annual travel

expenses each year. Development of the annual travel budget is not founded on differing yearly assumptions regarding the upcoming travel schedules of the President

and other protectees. The information regarding protectee travel plans is simply not

available for use in making annual projections when preparing the fiscal year budget. Rather, the travel budget simply reflects the assumption that, except for major

extraordinary events, e.g., an economic summit held in this country, a visit by the

Pope, or a presidential campaign, travel activity and travel costs, adjusted for anticipated inflation, will remain constant. There are no assumptions made, nor costs projections rendered, relative to the second term, or for that matter, any period of time

for the incumbent President.

Question. What systems are in place to ensure that travel costs can be accommodated by the allocation requested?

Answer. There is nothing the Service can do to absolutely ensure that its travel

allocation is adequate. Approximately eighty percent of its travel budget is spent on

fulfilling its mandated protective responsibility, and is therefore effectively controlled not by the Secret Service, but by those individuals that we protect. However,

having said this, the Service can ensure that it carefully monitors its travel budget,

and knows where spending stands vis-a-vis this budget at any given time. Having

current travel costs information, along with knowing the future travel plans of

protectees as soon as possible, will allow the Service to make budget adjustments

and, depending on the magnitude of any unexpected increase in travel costs, propose
149

to the Congress a reprogramming of funds from elsewhere in the budget to cover

any shortfall.

The Service has made some changes in its operating procedures to ensure that

it has the best and most timely information possible regarding its travel expenditures. It has re-emphasized the importance of obtaining trip and itinerary information from the protectee details as soon as possible. New cost accounting procedures

to provide domestic and foreign travel costs in a more timely and detailed manner

have been established. Finally, the Service has a working group that continues to

analyze travel data and costs-tracking issues.

MISSING AND EXPLOITED CHILDREN

In recent years the subcommittee has provided funding so that the Secret Service

could expand some of their unique forensic resources as they apply to Child Exploitation Cases. Since many State and local law enforcement agencies are experiencing

limited budgetary resources, initiatives such as this one could prove invaluable in

investigations into child victimization cases.

Question. Please provide the committee your brief assessment of the Service’s involvement into child victimization cases.

Answer. During the last two fiscal years, the Service’s forensic support for the

Center for Missing and Exploited Children (CMEC) has included polygraph examinations, handwriting examinations, voiceprint comparisons, audio and video enhancements, age progressions/regressions, and fingerprint research and identification. Of the 39 polygraph examinations involving missing and exploited children,

twenty-five (25) subjects were found to be deceptive. Of these, twenty-two confessed

to the allegations of sexual/child abuse. A suspect in one of these examinations,

which was conducted in Houston, TX, admitted that she critically injured her one

year-old son by intentionally running over the child’s head with the wheels of her

automobile. Another suspect in Schereville, Illinois admitted helping his girlfriend

drown her eight-year-old stepdaughter in the family’s bathtub.

Three of the more noteworthy handwriting examinations conducted by the Service

involved child assaults and homicides. In one, a handwriting examination was conducted for the Chicago Police Department with handwritten notations left on the abdominal area of an unidentified, unconscious young girl who had been beaten and

raped. The markings were made with a marking pen and were compared against

the handwriting specimens of a number of suspects. This comparison resulted in implicating an individual. The suspect was confronted with this and other evidence

and admitted to the assault. The case was highly publicized in the Chicago area and

was dubbed the Girl X case. The second investigation involved a handwriting examination conducted for the U.S. Attorneys Office, in Washington, D.C. in the matter

of the homicide of a 12 year-old boy. The Service examined letters that were purportedly gang letters written by gang members referencing the slaying of this youth.

An incarcerated suspect was identified as having written some of the letters to other

gang members. The third involved handwriting and ink analysis examinations, as

well as audio enhancement, for the Boulder, CO Police Department investigating

the JonBenet Ramsey homicide.

We have also obtained all of the known handwriting specimens from the pedophile

files managed by the CMEC and entered them into the Forensic Information System

for Handwriting (FISH), the Service’s unique automated handwriting recognition

computer application. Interestingly, the first identification that FISH made for the

CMEC was the author of an anonymous threat directed at the Center itself.

Our network of connectivity with most of the state and local Automated Fingerprint Identification Systems (AFIS) has allowed us to process requests received from

local police seeking missing children, kidnappers, and serial rapists. We also received a request from the U.S. Customs Service to develop latent fingerprints on

pornographic materials recovered in the search of the residence of a Florida State

Patrol Officer. This officer had been identified as a suspect in a case involving improper advances directed at a seventeen year-old male victim. The officer’s prints

were subsequently developed on the submitted materials. Our pending acquisition

of a state-of-the-art vacuum metal deposition device will permit us to provide an

outstanding means of developing latent fingerprints on non-porous surfaces, many

of which are common in homicide investigations. Use of a first generation device,

which is now inoperable, allowed us to develop fingerprints of murder suspects on

plastic garbage bags recovered in two homicide investigations.

The U.S. Secret Service has deliberately focused its research efforts to improve

the process of developing children’s latent fingerprints. These efforts began when

scientists from the Oak Ridge National Laboratory (ORNL) asked chemists from the

Service’s Forensic Services Division to act as scientific/forensic advisors for their
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project involving the analysis of children’s fingerprint residues. ORNL had been requested to assist a local police department with a child abduction case. When investigators were unable to find any of the abducted child’s prints in the suspect’s car

(despite witnesses placing the child in the suspect’s car), ORNL performed instrumental analysis methods to see if there were chemical differences between adult and

child prints. Preliminary results from their limited initial study indicated that there

were differences.

The U.S. Secret Service, after obtaining funding through the Technical Support

Working Group (TSWG), contracted with the Pacific Northwest National Laboratory

(PNNL) in Richland, Washington to follow up and expand beyond the data obtained

at ORNL. PNNL’s work, which just recently began, will focus not only on a rigorous

analysis of latent print residues, but will also address how these residues change

with time (up to 6–9 months), an aspect not investigated by ORNL. Samples will

be obtained from both male and female subjects of varying ages and analyzed using

some of the most advanced and sensitive analytical instrumentation available. Particular emphasis will be focused on the results obtained from the analyses performed on children and adolescent print residues. It is hoped that once a comprehensive understanding of both the organic and inorganic components of children’s prints (and how these compounds are modified with time) is obtained, that

further research efforts could be focused on creating new processes for visualizing

the more stable compounds identified in this study. Using the currently existing

processes, it is difficult to recover children’s prints from crime scenes after a day

or so. Therefore, it is hoped that the results from this research will assist law enforcement agencies worldwide in investigating and prosecuting cases involving missing and exploited children.

The Service also utilized its Triggerfish technology, which tracks cellular phone

communications, to locate a known child abductor and two kidnapped children in

Miami, Florida.

The Service now has three graphic artists who can support the CMEC with requests for age progression and regression, as well as two audiovisual forensic scientists who can enhance audio and video tapes and conduct voiceprint analysis. In

January 1998, the Forensic Services Division also produced a public service announcement videotape featuring the Director of the National Center for Missing and

Exploited Children.

Since initiating the Children’s Identification System (KIDS), which provides parents with a printed document that contains the thumbprints and a photograph of

their child, the Service has processed more than seven thousand children at different sights across the country. The Service utilizes Livescan fingerprint equipment

and digital cameras to produce the documents. Frequently, KIDS support is provided at events hosted for local and state law enforcement personnel where the

Service publicizes the availability of the forensic support described above to the investigators actually tasked with suppressing these heinous crimes.

Question. Please explain why funding was not requested in fiscal year 1999.

Answer. The Secret Service has received funding for this initiative since fiscal

year 1995. For fiscal year 1999 however, budgetary constraints required that limited

funds be targeted to the Service’s core mission responsibilities.

FINANCIAL CRIMES

At last year’s hearing there was a discussion on 4–1–9 or ‘‘Advanced Fee Fraud’’

cases. At that time over 350 businesses and individuals in Wisconsin had been sent

solicitation letters.

Question. Please provide an explanation of the types of fraud you have detected.

Answer. Advance fee frauds emanating from Nigeria are targeting citizens

throughout the world, and have resulted in financial losses in the hundreds of millions of dollars. The U.S. Secret Service initiated a pilot program dubbed ‘‘Operation

4–1–9’’ designed to assess the financial losses to U.S. citizens, and to combat advance fee fraud through bi-lateral and multi-lateral operations with our foreign law

enforcement counterparts.

Financial losses reported to the Secret Service by American citizens have exceeded

$100 million dollars. Experience has shown that many victims are often reluctant

to report their losses due to fear or embarrassment, and it is likely that the actual

financial losses far exceed the reported figures.

Investigations have also shown that the proceeds of these advance fee frauds are

being diverted into other types of criminal activities, including the trafficking of narcotics.

The Secret Service has developed a data base consisting of over 80,000 advance

fee fraud letters. Using this data base the Service has identified the locations of sus-
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pected fraudsters in Lagos, Nigeria. Agents of the Secret Service, acting in an advisory capacity, have accompanied Nigerian law enforcement authorities in the execution of a number of search warrants, resulting in the arrests of advance fee

fraudsters in Lagos.

Secret Service agents have accompanied a number of U.S. victims of advance fee

fraud to London where, in conjunction with the London Metropolitan Police, they

have participated in a number of ‘‘lure operations’’ resulting in the capture of Nigerian criminals.

Investigative information, in the form of telephone/facsimile numbers and bank

accounts known to be associated with the receipt of the illicit proceeds of advance

fee frauds, has been passed through our overseas offices to law enforcement authorities in Canada, France, Germany, Hong Kong, Malaysia, Monaco, the United Kingdom, and other countries.

Advance Fee Fraud (AFF) letters and faxes are confidence schemes and appear

as various proposals from ‘‘officials’’ of Nigerian Government ministries or existing

companies, or involving Nigerian Government contracts. The letters and faxes contain official-looking stationery with appropriate government seals, stamps, and signatures. Names and addresses of potential victims are obtained through various

trade journals, business directories, magazine and newspaper advertisements, chambers of commerce, and the Internet. These criminals do not target a single company,

but rather send out mailings en masse.

All AFF proposals share a common thread. The proposals are unsolicited, emphasize the urgency and confidentiality of the deal, and require the victim to pay various government and legal fees and taxes before receiving what turns out to be nonexistent money.

Part of the criminal’s ruse is to have the victim travel to Nigeria (either directly

or via a bordering country) to meet with a Nigerian Government ‘‘official(s)’’ to complete the transaction. Once in Nigeria, these criminals will attempt to solicit more

money from the victim, either by continuing the elaborate ruse, or, if that fails,

physical intimidation.

Advance Fee Fraud confidence schemes usually fall into the following categories:

Transfer of Funds from Over-Invoiced Contracts; Contract Fraud (C.O.D. of Goods

and Services); Conversion of Hard Currency (Black Money); Sale of Crude Oil at

Below Market Prices; Purchase of Real Estate; and Disbursement of Money from

Wills (Benefactor of a Will).

Transfer of Money From Over-Invoiced Contracts

About 90 percent of AFF are over-invoiced contract scams. The scam involves an

offer to transfer large sums of money into an overseas bank account owned by a foreign company. The money comes from over-invoiced contracts from a Nigerian company or one of the Nigerian Government ministries (that is, Central Bank of Nigeria, Nigerian National Petroleum Corporation). The author of the letter claims to

be a government or bank official who is willing to pay the victim a generous commission of up to 30 percent for assisting in the transfer of the funds. Initially, the

victim is asked to provide company letterhead and bank information to initiate the

transfer of funds. The victim soon finds out that he or she is required to pay various

‘‘transaction fees’’ before the money can be released. The victim can be strung along

for months or years paying various fees and taxes before realizing that the money

does not exist.

Conversion of Hard Currency (Black Money)

The letter or fax entices the victim with a ‘‘chance of a lifetime’’ offer. Once the

victim agrees to allow the criminals to obtain a visa for him or her and meet them

in Nigeria, (or a neutral country) the following scenario occurs:

The victim will be shown a suitcase allegedly full of U.S. currency in $100 bill

denominations that was temporarily defaced with a black waxy material (Vaseline

and iodine) to mask their origin. The criminals tell the victim that there is $40 million dollars in the suitcase. However, in order to remove the material and restore

the notes, the victim must purchase a special solution (commercial cleaning fluid).

The cost of this ‘‘special’’ solution ranges from $50,000 to $200,000. The victim will

receive 40 percent of the $40 million as his or her ‘‘commission.’’

The criminals will wash one of the bills with the special solution restoring the

U.S. currency to its original form. In an effort to alleviate any doubts the victim

may have, the victim will be asked to pick out another $100 bill at random to be

cleaned. Before the criminal cleans the bill, the victim is momentarily distracted by

one of the criminal’s accomplices. During that split second, the criminal using slight

of hand, will pull out a real $100 bill from his sleeve and clean it in front of the

victim. The ‘‘treated’’ notes are given to the victim to take to a bank for verification.
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In some instances, as a sign of good faith, the victim will be able to keep the suitcase for a short time, until the victim gets the money to buy the solution. To prevent

the victim from opening the suitcase, the victim is told that exposure to the air will

cause the black substance to ruin the money. Ammonia is placed inside the suitcase

in the event the victim opens the suitcase giving the impression that the money is

disintegrating.

The criminals walk away with the victim’s money, and the victim ends up with

a suitcase full of blank paper.

Sale of Crude Oil at Below Market Prices

The victim is offered special crude oil allocations at lower than the market rate.

As in other AFF business proposals, the victim is required to pay special registration and licensing fees to acquire crude oil at below market price, only to find that

the ‘‘sellers’’ have disappeared once the fees have been paid.

Purchase of Real Estate

This fraud involves an offer to purchase real estate using the services of a real

estate broker or a ‘‘well established’’ business executive. Once a home is located, the

broker or person acting on behalf of the home buyer is required to pay certain fees

to complete the transaction in return for receiving a normal commission.

Disbursement of Money from Wills

In this variant of the money transfer fraud, charities, religious groups, universities, and nonprofit organizations receive a letter or fax from a mysterious benefactor interested in the group’s cause and wishing to make a sizable contribution.

Before the contribution can be released, the recipient must first pay an inheritance

tax or various government fees and taxes. The victim also may be requested to travel to Nigeria and/or a bordering country to collect the ‘‘gift.’’

Question. How is the Secret Service dealing with these scam artists?

Answer. The Secret Service has undertaken a three pronged approach: (1) education, (2) interdiction, and (3) investigation, to combat this growing problem. The

Secret Service is the lead agency in twelve task forces throughout the United States

whose focus is the investigation of financial crimes committed by Nigerian criminals. Membership in the task forces includes representatives from the Department

of State-Diplomatic Security Service, the Drug Enforcement Administration, the

Federal Bureau of Investigation, the Immigration and Naturalization Service, the

U.S. Customs Service, the U.S. Postal Inspection Service, and numerous local and

state law enforcement agencies.

The President’s International Crime Control Strategy, and other initiatives such

as Presidential Decision Directive (PDD) 42 recognize the global threat posed by organized criminal groups. The Secret Service has established liaison with both the

Department of Justice, Office of International Affairs, and the Department of State

regarding prosecutorial guidelines, extradition, and coordination of international advance fee fraud activity. Secret Service agents occasionally perform temporary duty

assignments in Lagos to assist the Nigerian Special Frauds Unit in the investigation of these crimes. The Secret Service is involved in bi-lateral and multi-lateral

initiatives with law enforcement agencies throughout the world, to include the Metropolitan Police in London, the Bundeskriminalamt in Germany, and the Royal Canadian Mounted Police in Toronto, Canada. The Secret Service is the lead agency

in the G–8’s U.S. Delegation to the Law Enforcement Project Sub-Group for the

Project Based Initiative on West African Fraud.

American citizens are losing their life savings, and more, to these fraudulent

schemes. At least two Americans have lost their lives after traveling to Lagos in

pursuit of an advance fee scheme. The Secret Service is working with the Department of State, Department of Commerce, Department of Justice, Better Business

Bureaus, and others as part of a comprehensive public awareness campaign which

has successfully prevented large numbers of American citizens from falling victim

to these crimes. The Secret Service has given countless national print, radio and television interviews on the subject.

The Secret Service has added a section on advance fee fraud to its home page on

the Internet. Public response to this web page, via telephone, mail, and e-mail has

revealed more than $100,000,000 in losses incurred by victims of this type of fraud.

Several other visitors to this site have reported being solicited for funds for apparent advance fee schemes. Gaining information via this web site has prevented some

of these individuals from becoming victims of this crime, while others have been

able to avoid additional losses. Investigative leads obtained from victims throughout

the world have identified Nigerian criminals, and in some instances, non-Nigerian

accomplices, resulting in the arrest of these criminals, and the seizure of millions

of dollars in illicit proceeds.
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DETECTION OF COUNTERFEIT U.S. CURRENCY

Question. What is the status of the Secret Service overseas program?

Answer. Since 1994, the Service has requested an additional 33 overseas positions.

Question. How many positions does the Secret Service currently have overseas?

Answer. The Secret Service currently has a total of 36 agent positions and 14 support positions, assigned to its 13 overseas offices.

Question. How does this relate to the number of positions requested?

Answer. Of those requested positions, 25 positions have been approved. Positions

which have not received Chief of Mission approval include three positions in Moscow; three positions in Mexico City; and one position each in Bogota and Manila.

Question. Have you worked with the State Department to create offices where

needed?

Answer. Although the Service currently is not pursuing the Manila position, it

continues to work closely with the State Department and appropriate Chiefs of Mission in obtaining approval for the other requested positions.

According to the summary performance report the Service anticipated better results in the number of counterfeit notes seized and closing of credit card and financial institution fraud cases. Now it appears the Service has reduced its targets for

fiscal year 1998/1999.

Question. Why are the performance targets reduced?

Answer. The change to financial crime performance goals for fiscal year 1998 and

fiscal year 1999 was due primarily to an internal realignment of priorities and resources. Specifically, a greater emphasis is being placed on current and new protection responsibilities. The effect of this change will likely be that the overall quantity

of cases closed and arrests will drop slightly.

Although the number of credit card/access device fraud cases closed was somewhat lower than anticipated, most of the other investigative program performance

goals were either met or exceeded during fiscal year 1997. Both measures of case

quantity and quality improved during fiscal year 1997. The total number of financial

crime cases closed, the percentage of high priority cases, and the percentage of cases

resulting in prosecution at the Federal level all increased. In addition, a record

number of arrests for financial crime violations and corresponding indictments were

reported during fiscal year 1997.

Question. What problems did you experience in 1997 that resulted in not meeting

the projected goals?

Answer. A change in the means by which counterfeit currency is produced goes

a long way toward explaining why performance goals were seemingly not met. The

level of counterfeit notes passed to the public tends to change from year to year.

However, the amount of counterfeit currency seized is more volatile and often fluctuates. These fluctuations depend on the number and aggressiveness of counterfeiting plant operations, the type of counterfeiting processes used to produce the counterfeit notes, and whether the operation is located domestically (or in a cooperative

foreign country), or in a country with an uncooperative government.

Recently, there has been a shift in the technology used to produce counterfeit currency. The current pattern moves away from using the older offset printing techniques to using the new high quality laser and ink jet printers. This shift means

that counterfeiters no longer need to produce large stocks of counterfeits during a

single production run for distribution at a later time. With the new laser and ink

jet technology it is as efficient to produce only that which is being passed or sold

at that time as it is to produce a large volume. As a result, there are smaller inventories of counterfeit notes on hand to be seized when these operations are suppressed.

Question. Were fewer counterfeit notes passed?

Answer. As noted above, the amount of counterfeit U.S. currency passed varies

slightly from year to year. In fiscal year 1997, a total of $34.7 million in counterfeit

U.S. currency was passed worldwide. This figure represents a 3 percent drop from

the previous fiscal year.

Question. How do you know the number of notes that were passed?

Answer. Counterfeit notes passed come to the attention of the Secret Service in

two ways. First, a citizen, merchant or local bank may discover what they believe

is a counterfeit note and report it directly to the local Secret Service office. An expert in counterfeit detection will determine if the note is genuine or counterfeit. If

counterfeit, it will remain in the possession of the Secret Service, be inventoried for

possible use as evidence, and reported for statistical purposes. Counterfeit notes of

better quality may remain in circulation until they reach a Federal Reserve Bank.

Notes detected at the Federal Reserve are turned over to the local Secret Service
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office. These notes are also inventoried and reported for statistical purposes. In theory, and empirically demonstrated, virtually all counterfeit notes placed in circulation will ultimately be detected and reported to the Secret Service.

FEDERAL LAW ENFORCEMENT WIRELESS USERS GROUP

Continued funding is requested for the Federal Law Enforcement Wireless Users

Group (FLEWUG). FLEWUG was established to provide radio inter-operability.

Question. Is there currently a Treasury-wide effort that requires all the law enforcement agencies to acquire radio and communications systems that are inter-operable. Could alternative efforts be developed that would provide for inter-operability outside of FLEWUG?

Answer. It has always been the goal of the FLEWUG not to reinvent or duplicate

efforts by other federal, state, or local agencies in achieving interoperability. Rather,

the FLEWUG views its role as a facilitator and repository of the various techniques

that public safety agencies are currently utilizing to link radio systems with different technologies and different radio frequencies to achieve interoperability. More

importantly, the FLEWUG brings a national level focus to the problems faced by

the public safety community as a whole, and this visibility encourages the development of more efficient solutions to this problem. The FLEWUG seeks both hardware

and software solutions in developing interconnectivity between the numerous land

mobile radio systems currently in use, and those being planned. This means focusing on land mobile radio systems that are both vendor specific and vendor neutral,

using both analog and digital technology. Additionally, the FLEWUG is positioned

to take a more global view of the situation and has undertaken a number of feasibility studies that underscore the magnitude of the problem. To a great extent the

FLEWUG envisions the Public Safety Wireless Network (PSWN) as being the network of networks in linking independently developed federal, state, and local networks together. The FLEWUG plans to follow its feasibility studies with a number

of proofs of concept tests that will demonstrate cost effective technology solutions.

Question. Are efforts being made to work with state and locals to achieve interoperability over time?

Answer. This Federal effort has a very aggressive program working with its state

and local counterparts. A complete, bottom-to-top analysis of federal, state, and local

public safety use of land mobile radio systems in the San Diego Imperial Counties

of Southern California and a multi-state, multi-county study with the metropolitan

Washington DC area Council of Governments is currently being conducted. These

analyses will provide the first complete picture of regional communications systems

and will form the foundation for proof of concept testing for achieving seamless inter

and intra governmental wireless communications systems. In these two studies

alone, the FLEWUG has contacted over 400 public safety officials. Three symposiums that focus on the key issues facing the public safety community in developing

shared radio systems have been sponsored by the FLEWUG. The symposiums were

conducted in Charlotte, North Carolina; Harrisburg, Pennsylvania; and Sacramento,

California. Attendance at symposiums continues to increase as word of these symposiums has spread through the public safety community. Over 200 people attended

the most recent symposium in Sacrament, California.

Question. How does radio spectrum impact on these efforts?

Answer. The FLEWUG continues to support the findings of the Public Safety

Wireless Advisory Committee (PSWAC) report that identified the public safety need

for a total of 97.5 MHz of spectrum over the next 15 years. Additionally, the PSWAC

report recommended the allocation of 2.5 MHz of spectrum for interoperability from

new or existing allocations. The FLEWUG is working with the Federal Communications Commission (FCC) and the National Telecommunications and Information Administration (NTIA) to identify spectrum for interoperability purposes in all radio

bands used by the public safety community. At the same time the FLEWUG is also

looking at possible regulatory impediments to sharing radio spectrum between federal, state, and local agencies, and ways to improve public safety radio spectrum

management between the FCC and NTIA.

FEDERAL LAW ENFORCEMENT TRAINING CENTER

STATE AND LOCAL TRAINING

Question. What Law Enforcement training do you provide state and local enforcement officials, and how do you determine who will receive this training?

Answer. The FLETC offers more than 50 training programs in advanced topical

areas for personnel from State and local law enforcement agencies. These programs
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develop specialized law enforcement skills through training not readily available

from other sources. Since 1983, the FLETC has delivered training to over 40,000

State and local law enforcement officers throughout the United States.

FLETC Directive 30–01.P ‘‘Policy Governing the Sponsorship and Selection of

State and Local Students for Center Advanced, In service, Refresher, and Specialized, (CAIRS) and State and Local Training Programs’’ has been in place since June

1984. Generally, this directive indicates that training slots will be distributed on the

basis of date and time receipt on a first-come, first-served basis. When the number

of applications for a particular program exceeds the number of training slots available, the applications are divided according to geographic region and allocations are

made by region on a first-come, first-served basis. For instructor training programs,

additional criteria are applied: those agencies requiring FLETC certification will receive first priority based on date and time of application receipt, and agencies with

broader training impact (students to be trained) will receive second priority based

on time and date of application receipt. In all cases, however, students must meet

the eligibility requirements of the specific program to which they are applying.

These requirements vary by program.

In an era where State and local law enforcement is suffering from diminishing

resources and additional responsibilities, the FLETC is focusing its limited resources on reaching the largest number of customers in the most cost-effective manner. Two years ago, following an extensive research study, the FLETC determined

that 91 percent of the State and local law enforcement agencies in this country have

fewer than 50 officers. To meet the needs of these small town and rural agencies

which comprise the vast majority of our customers, the FLETC created the Small

Town and Rural (STAR) training series. The Star series is currently comprised of

the following programs: Airborne Counterdrug Operations Training, Advanced Airborne Counterdrug Operations Training, Community Policing Train-the-Trainer,

Drug Enforcement Train-the-Trainer, First Response Training, Gangs in Indian

Country, Hate and Bias Crimes Train-the-Trainer, and Rural; Crime and Drug Enforcement Task Force Train-the-Trainer.

Each of the STAR programs is directed toward either managers or trainer/

facilitators who can return to their jurisdictions with all the materials necessary to

replicate the training and techniques in their agencies and surrounding jurisdictions. This approach creates a multiplier effect which will expand the effectiveness

of criminal investigations throughout the United States. This multiplier effect is accomplished with a funding investment that is a fraction of the cost that would be

necessary if each individual benefited by this training initiative were to be trained

directly. In fact, the second level training will permit hundreds of Federal, State,

and local law enforcement agencies to benefit at little or no cost.

The FLETC has a two-year schedule to deliver the STAR series programs to law

enforcement officers. The target audience is small town and rural law enforcement

officers (including tribal police) who typically lack training in these areas. Participants in STAR series train-the-trainer programs receive serially numbered instructor graduation certificates. Those who commit to delivering training to small town

and rural agencies are then eligible to become FLETC-certified STAR instructors.

This process creates a multiplier effect which provides great benefit for a relatively small fiscal commitment. For instance, if training were provided during the

first year for 30 students in deliveries of each of the 4 STAR series train-the-trainer

programs, 600 training facilitators potentially would be prepared to share that

training in their geographical areas. If each of those facilitators subsequently provided training for a class of 30, then 18,000 officers throughout the United States

would benefit from the funded training.

Question. The local law enforcement agencies are responsible for covering the

costs associated with traveling to and from the FLETC to acquire the training. Is

the FLETC aware of any grants or other Federal programs that local law enforcement agencies could utilize to increase their access to these programs?

Answer. Not only are State and local law enforcement officers responsible for covering the costs associated with traveling to and from the FLETC, they also must

fund their per-diem and lodging during training. Additionally, those programs without funding from other sources to cover tuition costs, must also pay for their tuition

costs. The FLETC actively pursues funding from a variety of sources to help offset

the cost of training for State and local officers. However, other than those listed

below, the FLETC is not aware of any other Federal programs that provide funds

to attend this training.

Through Crime Bill initiatives, $1 million has been designated to offset tuition

cost for Rural Drug training, which has become part of the STAR training series.

In addition, the FLETC partnered with the Department of Justice, Office of Community Oriented Policing Services, to deliver the STAR community Policing Train-the-
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Trainer Program. Over 25 training programs will be delivered during the next two

years at export training sites across the country. The training is tuition-free. Participants must fund their own travel, meals, and lodging. The Environmental Protection Agency (EPA) funds all the cost of the training, including tuition, travel to and

from the FLETC, and per-diem and lodging during training for State and local enforcement and regulatory personnel.

To reduce travel costs for officers, the FLETC delivers training at multiple sites

through export and telecast training to regional small town and rural areas.

In addition to the training conducted on-site and one the FLETC’s residential facilities in Georgia, New Mexico, and the temporary facility in South Carolina, the

FLETC also utilizes State and local training facilities that could be used to accommodate increases in training. Using these available sites can make it more convenient and cost efficient for customers to acquire required training.

Question. Could using these facilities give the FLETC greater ability to accommodate increases in training? Don’t these facilities provide greater opportunities for

State and local law enforcement agencies to participate? Is the FLETC pursuing

greater flexibility in developing these remote locations?

Answer. Arrangements have been made with a number of academies, law enforcement agencies, and colleges with criminal justice programs to enable them to serve

as sites for repeated training deliveries for State and local law enforcement. The delivery of this training primarily as export makes it more accessible and cost-effective

for State and local law enforcement, since it reduces their travel costs.

Recent research conducted by the FLETC documents that these small town and

rural agencies do not have the financial resources to send officers great distances

to training, nor are they able to spare officers for long periods of time. However,

because they form the vast majority of police agencies in this country, these agencies’ contributions to combating drugs and hate and bias crimes is essential to the

Federal government’s ability to deal with these crises. From the information presented above, it can be concluded that there is a definite need for low cost or no

cost training to be provided to small town and rural area law enforcement—training

that meets their documented needs and training that is delivered to the crossroads

of America, right to the doorsteps of these officers. The FLETC has responded to

his need by developing pertinent training and designing an appropriate delivery system.

FINANCIAL CRIMES ENFORCEMENT NETWORK (FINCEN)

The Gateway System provides state and local law enforcement agencies direct, online access to Currency Transaction Reports and Suspicious Activity Reports filed

under the Bank Secrecy Act.

Question. What can Wisconsin expect to get out of having access to these data

bases? Can the State and local organizations have access to these data bases without receiving the training?

Answer. Through the Gateway system, state and local law enforcement agencies,

including those in Wisconsin, have direct, on-line access to reports filed under the

Bank Secrecy Act, the largest currency transaction reporting system in the world.

BSA reports contain information such as large cash transactions, casino transactions, international movements of currency, and foreign bank accounts. Investigators utilizing the Gateway system also have access to the Suspicious Activity Reporting System which contains reports filed by banks on transactions that appear

to represent attempts to launder funds or violate the banking laws. This information

often provides invaluable assistance for investigators because it is not readily available from any other source. It has proven very useful to state and local agencies

in financial crime investigations as well as other kinds of cases.

Using FinCEN-designed software, the Gateway system saves investigative time

and money because subscribing agencies can conduct their own research and not

rely on the resources of an intermediary agency to obtain BSA records. All states

and the District of Columbia are now on-line with the system. Analysts at the Wisconsin Department of Justice have been trained on the Gateway program, and use

the system in support of case work. In fiscal year 1997, Wisconsin performed 229

Gateway queries.

During the research and analysis process, Gateway electronically captures the information gathered on incoming inquiries and automatically compares this information to subsequent and prior queries from Gateway customers. FinCEN is then able

to electronically match these new subjects against its other data bases to identify

potential parallel investigations. This technique enables FinCEN to assist state and

local agencies in coordinating their investigations among themselves, and with fed-
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eral agencies, through the sharing and exchanging of case data. (In other words,

FinCEN has the ability to ‘‘alert’’ one agency that another has an interest in their

subject.)

As part of its outreach effort and as resources permit, FinCEN has been enhancing its support to the states through on-site training for Gateway users. Such briefings include a discussion of how other states are successfully using the BSA data;

how the data can be used to support various financial aspects of cases; and unique

ways to attack criminal proceeds. Wisconsin also could benefit from this expanded

BSA training, including use of the alert system as described above. FinCEN provided such demonstrations to the Wisconsin Gateway users in 1995; additional

training is planned in fiscal year 1998.

Relative to training, state and local enforcement authorities are not permitted access to the data without the benefit of training. Training is imperative to successful

use of the system and understanding its capabilities. Equally important to understanding the complexities of the system is the need to ensure that each user understands the security procedures in place to protect against the misuse of the system,

as well as the legal agreements and disclosure rules that must be made clear to

each participant prior to using the system.

Question. Could this training be placed on line for automatic access? Or is there

anyway that the training for this equipment could be standardized, such as through

FLETC?

Answer. FinCEN has been exploring various options in the development of training alternatives including ‘‘training modules.’’ However, none have yet been finalized. The training alternatives under discussion include sites such as the Federal

Law Enforcement Training Center and the FBI training facility in Quantico, VA.

However, it is important to note that components of FinCEN’s training program

involve security procedures, key stroke instruction, the recognition of the value of

the information, its application to investigations, legal agreements and the disclosure procedures. One-on-one training, as opposed to on-line training, allows each

training component to be tailored to the individual participants.

We are all aware of FinCEN’s international responsibilities and the need to make

the world of international finance aware of FinCEN’s existence.

Question. What activities and resources, other then those dedicated to the Gateway Training Initiative, are being requested to assist State and Local financial

crime enforcement activities?

Answer. The $300,000 request for additional funding for the improvement of the

analysis capabilities of Suspicious Activity Reports (SAR’s) through data mining

would be extremely beneficial to state and local enforcement. SAR’s provide enforcement authorities at all levels with valuable intelligence information which could be

used to assist on-going investigations and aid in the development of new investigations. The results of this improved ability to analyze these highly effective reports

would be passed along to our state and local partners.

Federal officials estimate the money launderers in New York City funnel more

than $1.5 billion to Colombia and $500 million to the Dominican Republic.

Question. Stopping those transactions at home would be an area to focus on,

wouldn’t it? What could be done to stop the transactions before the money got to

Colombia or the Dominican Republic?

Answer. As the committee knows, Treasury has employed a Geographic Targeting

Order (‘‘GTO’’) to target the flow of laundered funds through money transmitters in

the New York metropolitan area to Colombia and the Dominican Republic. A GTO

is a device that enables the Treasury to impose additional reporting and recordkeeping requirements where necessary to carry out the purposes, and prevent evasions, of the BSA.

Money launderers use legal channels for illegal purposes; that is true when they

use the banking system, and it’s true when they use the money remittance system

operated by non-banks. Our strategies have been to make it more difficult for illegal

transactions to take place within these channels. To keep illegal users of the system

away, Treasury has employed a combination of special regulatory rules; vigorous

surveillance and auditing in the wake of those rules; and swift prosecutions when

criminal activity is revealed as part of these strategies.

In August 1996, a GTO (the ‘‘Colombian GTO’’) was put in place in the New York

metropolitan area with respect to cash-purchased remittances to Colombia. As a result of the Colombian GTO and the criminal enforcement of its terms, the flow of

laundered funds through the targeted transmitters in the New York metropolitan

area dropped dramatically; in fact, several of those transmitters have stopped remitting funds to Colombia altogether.

In addition, during the operation, currency seizures increased dramatically. For

example: during the first six months of the GTO, $50 million was seized from var-
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ious sources along the eastern seaboard. This figure is approximately four times

higher than it has been in prior years. The dramatic increase in currency seizures

attributable to the GTO, as well as information from various undercover operations,

indicates that the GTO has forced money launderers to resort to bulk currency

smuggling to move their money.

The Colombian GTO was renewed several times before finally expiring in October

1997.

In September 1997, additional GTO’s (the ‘‘Dominican GTO’s’’) were put in place

both in the New York metropolitan area and Puerto Rico, with respect to cash-purchased remittances to the Dominican Republic. As of this date, the Dominican

GTO’s are still in effect. One of the largest transmitters in this market—Remesas

America Oriental (‘‘RAO’’)—has pled guilty to felony money laundering and structuring charges, and has had its license revoked by the New York State Banking Department.

A longer-term regulatory approach to protecting the industry from money

launderers is now being finalized. Under three BSA rules proposed last May, all

money services businesses would be required to register with the Treasury; money

remitters and sellers of traveler’s checks and money orders would be required to report suspicious activity; and money transmitters nationwide would be subject to reporting and recordkeeping requirements similar to those imposed by the Colombian

and Dominican GTO’s.

Question. What is the status of FinCEN’s Non-bank Financial Institutions Regulations? Is any funding being requested in fiscal year 1999 to insure these regulations

can be implemented?

Answer. Based on the Colombian GTO and other initiatives, it became clear that

a nationwide approach, which went beyond currency reporting, was needed for

money services businesses (MSB’s). FinCEN’s study of the industry, undertaken by

Coopers and Lybrand, helped to further profile and define this group of diverse businesses. Proposed rules were announced in May 1997 to respond to vulnerabilities in the

MSB industry as well as to implement the requirement of the Money Laundering

Suppression Act of 1994 that the Treasury register this group of businesses.

The first proposed rule would require that MSB’s—which include money transmitters or remitters, money order issuers and sellers, travelers check issuers and sellers, retail currency exchangers and check cashers—register with the Department of

the Treasury. A second proposal would extend suspicious activity requirements to

money transmitters and issuers, sellers and redeemers of traveler’s checks or money

orders. The third proposal would require money transmitters to report currency

transactions of $750 or more that involve the transmission of funds to any person

outside the United States.

FinCEN held five public meetings last summer to elicit comments on the proposed

rules. The written comment period ended on September 30. FinCEN has reviewed

the comments and is finalizing the proposed rules based on industry concerns,

where appropriate.

Treasury has indicated it will allocate $2.5 million from Treasury Super Surplus

balances in the Treasury Forfeiture Fund to FinCEN for MSB implementation fiscal

year 1999. This amount would be used for guidance, interpretive advice, oversight,

coordination and data analysis.

Question. Has the IRS requested the funding necessary for the information systems and data processing required to get this initiative started? What was the substance of the comments you received during the public comment period?

Answer. The IRS has indicated that they are requesting $14 million, which includes funding for information systems and data processing; examination resources;

and notice and outreach to diverse retail and financial communities.

The MSB Rules have attracted significant attention and controversy, and generated enormous effort, both by FinCEN and representatives of the affected industries. Eighty-two comments on the Rules are under review; approximately 30 of the

comments are detailed ones, some running to more than 50 pages of text. We are

still in the process of analyzing the comments and will provide the Committee under

separate cover a summary of the comments we have received from the industry.

Question. What type of security activity would be identified as suspicious activity.

Is a review of that activity already subject to Security and Exchange Commission

review?

Answer. Securities broker dealers are already subject to currency transaction reporting requirements—and all other reporting and recordkeeping requirements—

under the BSA.

In addition, FinCEN has developed in close cooperation with the SEC and the industry, a proposed regulation that will require securities broker dealers to report
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suspicious activity to FinCEN. The suspicious activity required to be reported will

include money laundering, for which there is no existing system of reporting.

A draft rule should be published this spring.

Question. What steps can FinCEN take that the SEC would not be authorized to

take?

Answer. While FinCEN is not in a position to delineate the SEC’s full range of

authority, FinCEN has been explicitly provided very specific and important statutory authority to prevent, detect and deter money laundering. Moreover, FinCEN

has an infrastructure in place to provide for the processing and dissemination, with

appropriate safeguards, of reports of suspicious transactions.

Question. Please explain what Card Clubs are and how they are used to provide

for money laundering activities? What regulations has FinCEN issued that impact

card clubs?

Answer. In order to close a gap identified by federal and state law enforcement,

FinCEN has brought card clubs, which are responsible for nearly $9 billion of yearly

wagering activity, under anti-money laundering requirements.

The regulation, which was issued in its final form on January 13 of this year, goes

into effect on August 1, 1998 and affects those card clubs with more than $1 million

in gross annual gaming revenue.

Most frequently found in California, card clubs typically offer facilities for gaming

by customers who bet against one another, rather than against the establishment.

Card clubs are at least as vulnerable to use by money launderers as other gaming

establishments, both because of their size and because those institutions often lack

the controls found at casinos.

Under the final rule, card clubs—including those operated on tribal lands—would

be treated in the same manner as casinos (i.e., subject not only to currency transaction reporting rules but to the full set of provisions to which casinos in the United

States are subject—a comprehensive recordkeeping system and a compliance program containing anti-money laundering safeguards.)

QUESTIONS SUBMITTED BY SENATOR MIKULSKI

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

BALTIMORE OFFICE STAFFING

Question. Two years ago, I was given an assurance by the Deputy Director that

the Baltimore Office of the ATF would not suffer any loss of manpower as a result

of ATF’s reorganization and consolidation. I have recently discovered that contrary

to the commitment I was given by the Deputy Director, there has been a loss of

manpower in the Baltimore Office. Why has this commitment not been fulfilled?

Answer. Staffing reductions in the Baltimore field office are due to attrition.

There have been several key retirements throughout the agency. For the first time

in many years, ATF is in a hiring mode in order to backfill vacancies and keep pace

with anticipated retirements. In the past 3–4 years, ATF has seen a 14 percent reduction in its overall special agent population.

In fiscal year 1997, ATF launched an extensive recruitment program that generated more than 6,000 applications. The first selections began in fiscal year 1997,

and will continue into fiscal year 1998.

Question. When will the manpower in the Baltimore Office be restored to its previous levels?

Answer. We expect to be in a hiring mode for the next several years to fill these

and other critical positions within ATF.

PETITIONS FOR RULEMAKING

Question. After ATF receives a petition for rule making, could you outline the procedure ATF follows in obtaining comments, formal or otherwise, and how the petition would be considered by ATF until this process is completed? How long does this

process usually take?

Answer. After ATF receives a petition, an ATF Specialist is assigned to analyze,

research and evaluate it for completeness and for compatibility with the law. Once

this process is complete, we prepare a Notice of Proposed Rulemaking for publication in the Federal Register in order to afford the public and those concerned with

the industry an opportunity to comment. Prior to publication, rulemaking documents are thoroughly reviewed and vetted by various ATF and Treasury offices. Petitions are treated as internal matters up until the point of publication. Depending
160

on the complexity of the issue or issues involved, the entire process could take up

to a year or even more before publication of a rulemaking document.

Question. How many petitions does ATF receive each year?

Answer. Each year, ATF receives approximately 20 formal petitions to change the

regulations. Requests for interpretations of, rulings on, and variances from the regulations are much more numerous. In addition, most regulatory changes that occur

do not arise from petitions. Regulatory reform efforts, law and policy changes, and

improvements developed and proposed by ATF are the reasons for many of the

changes implemented.

Question. What types of petitions are received?

Answer. Petitions to ATF request amendments or revisions to alcohol, tobacco,

firearms or explosives regulations. A large majority deal with alcohol matters, as

these regulations are more detailed and complex, involving both tax and regulatory

issues.

Question. What percentage are approved/denied?

Answer. The approval rate is approximately 75 percent.

QUESTIONS SUBMITTED BY SENATORS GORTON AND MURRAY

U.S. CUSTOMS SERVICE

INTELLECTUAL PROPERTY RIGHTS

Question. The Customs Service first issued proposed regulations liberalizing the

release of information on seized and detained goods to intellectual property rights

owners in 1993. Now, five years later, final regulations have still not been issued,

and Customs still operates under outdated, ineffective regulations. The existing regulations cripple the ability of IP rights holders to pursue private remedies. Do you

agree this is an acute problem? What is keeping Customs from promptly issuing

final, comprehensive regulations liberalizing the release of such information?

Answer. New Customs regulations to provide intellectual property rights (IPR)

owners sample merchandise and disclose information regarding the identity of persons involved with importing infringing goods, will be published on March 11, 1998,

and will become effective 30 days later. The change will assist Customs in making

infringement determinations and enable IPR owners to more expeditiously proceed

to enforce their property rights by means of appropriate judicial remedies.

Question. We understand that disclosure policy differs port-to-port. Don’t we need

a uniform, nationwide policy?

Answer. Customs has reconciled any field inconsistencies in disclosure which have

come to Headquarters’ attention. We do need a uniform nationwide policy on disclosing information and samples in intellectual property rights cases, and the new regulations should ensure assistance in this effort. The IPR disclosure regulations will

be effective the second week of April. In order to ensure uniform application of the

new disclosure regulations, Customs internal IPR committee will discuss monitoring

at its March 1998 meeting. The IPR committee consists of representatives from all

concerned Customs offices.

Question. Piracy of intellectual property rights of Americans is estimated to cost

our economy and trade balance billions of dollars annually. In our view, private industry and the federal government must work together to attack this problem. Promulgating final regulations providing for greater release of information is a critical

first step. What else can Customs do to aid IP rights holders?

Answer. During the last five years, Customs has seized over $230 million worth

of merchandise involving IPR violations. Besides implementation of the new disclosure regulations, Customs constantly conducts ‘‘in house’’ IPR training programs,

provides speakers to industry groups such as the International Anticounterfeiting

Coalition (IACC) and the International Trademark Association (INTA), and cooperates with IPR holders through border enforcement ‘‘interventions’’ such as those recently done for Underwriters Laboratories and the golf club industry.

SUBCOMMITTEE RECESS

Senator CAMPBELL. I thank this subcommittee. As I mentioned,

the record will stay open for about 2 weeks. I thank you for appearing.

With that, this subcommittee is recessed.
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[Whereupon, at 3:24 p.m., Thursday, February 26, the subcommittee was recessed, to reconvene at 1:32 p.m., Thursday,

March 5.]

(163)

TREASURY AND GENERAL GOVERNMENT

APPROPRIATIONS FOR FISCAL YEAR 1999

THURSDAY, MARCH 5, 1998

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 1:32 p.m., in room SD–124, Dirksen

Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)

presiding.

Present: Senators Campbell, Shelby, Faircloth, Stevens, and

Kohl.

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

STATEMENT OF CHARLES O. ROSSOTTI, COMMISSIONER

ACCOMPANIED BY:

ARTHUR GROSS, CHIEF INFORMATION OFFICER

JOHN DALRYMPLE, DEPUTY CHIEF OPERATIONS OFFICER

OPENING REMARKS

Senator CAMPBELL. The Treasury and General Government Subcommittee hearing will be in order. Senator Kohl has said he may

or may not be able to attend today. He has a conflict, and we will

probably have a few drifting in and out.

I want to welcome you today, Mr. Rossotti, and I understand that

Mr. Arthur Gross is going to be with you?

Mr. ROSSOTTI. Yes.

Senator CAMPBELL. I welcome everyone to this second hearing of

the Treasury and General Government Appropriations Subcommittee.

This afternoon we will be discussing the fiscal year 1999 budget

request of the Internal Revenue Service. I do not need to tell you,

as you know, just being new to the job, that the IRS is probably

not, in the eyes of many constituents, the most favored agency in

the U.S. Government, and your mail runs as mine does so you are

aware of that.

But clearly, as a result of some of the testimony in recent

months, particularly on the House side, I think we have been given

an opportunity to really do some major reforms that will be looked

at with a little better judgment by the constituents and taxpayers

of this country. That bill did pass the House and is currently under

consideration in the Senate Finance Committee, as you know.
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As a matter of fact, Senate Majority Leader Lott has indicated

that it will be his intention to bring that bill before the full Senate

by the end of the month.

This is a critical period for the IRS and I certainly compliment

you on taking on a very, very tough job in facing a myriad of problems that you have to deal with. But it is a good step forward to

resolving some of the conflicts.

Conversion of all of the agency’s computers is certainly going to

be recognized and the year 2000 must be some of the highest priorities that you face. Certainly it is not going to be cheap, and we

have to do it relatively soon.

The IRS collected $1.5 trillion in taxes in fiscal year 1997 and

expects to collect that much plus probably another $750 million in

fiscal year 1998. Tax collections is a necessary function, sometimes

called a necessary evil, too, but it is something we are all faced

with. It is also, I think, a recognized fact that over 80 percent of

American taxpayers are voluntary taxpayers, not trying to get

away with something. They are doing their duty, and civic duty as

good citizens. The IRS certainly needs to work with them and not

against them.

Taxpayers of this country are demanding that the IRS provide

reliable customer assistance instead of functioning as an adversary.

The Federal agencies I think, and IRS included, can learn a great

deal from the private sector, in which many people who, if they

need assistance and they talk to the first person, that first person

if he does not have the answer will try to find it from another person. Unlike some of the experiences they have had with the IRS

where the first person they deal with seems to be a judge and jury

in their problems.

The IRS is requesting a total of almost $7.9 billion for operating

expenses and an additional $323 million for information technology

investments in fiscal year 1999. A total of over one-half of a billion

dollars more than fiscal year 1998.

This committee must determine whether the IRS needs that level

of funding and, if not, what programs can be reduced or cut or

streamlined so that we do not have that outlay.

With that, Senator Kohl, I am glad you are here. I just made an

excuse for you, saying that you might be a little late. I would yield

to you.

STATEMENT OF SENATOR KOHL

Senator KOHL. Thank you very much, Senator Campbell.

Much has happened over the past year, since the last time we

held this hearing. The Internal Revenue Service has appointed a

new Commissioner with a strong background in management and

information technology. Congress is considering passing sweeping

new legislation to restructure the IRS. Plans are being developed

to realign the IRS along customer service lines. And hopefully a request for a proposal to hire a prime contractor for the tax modernization effort will be released shortly.

I know we will be discussing all of these changes during this

hearing, but before we get into those issues I want to briefly say

a few words about the need to change the culture at the IRS.
165

Last fall, as we recall, most of us were very upset by the abuse

of taxpayers that the Senate Finance Committee hearings laid before the country. Many of these problems were not caused by rogue

agents acting without knowledge of their supervisors. Instead,

many of these abuses resulted from IRS employee performance

measures that demanded more collections without regard to fairness or common decency.

In other cases, it appears the IRS employees were intoxicated

with a ‘‘I am from the IRS and I can make your life difficult’’ attitude.

We here in Congress have a responsibility to drive these problems out of the IRS, and I know the Commissioner shares this goal.

He has already moved to fix these problems with the development

of new performance standards and with a new focus on customer

service throughout the IRS.

But the question is when will these taxpayers actually see

changes and how much is it going to cost them to be treated fairly.

Entire Federal agencies are run with the kind of money that the IRS is requesting for customer service improvements, over $950

million. For this type of investment this committee and the country

should expect to see an immediate turnaround in customer service.

Immediate changes and not a series of reports of discussions. Instead, what we need are results.

Finally, calling for increased customer service and requiring an

elimination of IRS taxpayer abuse does not require elimination of

the agency. That would be like killing the patient in order to cure

him. As much as no one wants to admit it, we need a national revenue collection agency. None of us likes to pay taxes but we all want

to maintain a strong national defense, educate our children, get

help saving for retirement, keep our streets safe, secure our borders, protect our environment, and much, much more.

Now these services cost money and so there is no such thing as

a free lunch. Instead of wasting time on a who hates the IRS more

debate, I urge all of us in Congress, the IRS, and the country to

work together to make our tax collection system work.

Again, I am happy that we have this opportunity to talk with the

new Commissioner and discuss various options for improving the

Internal Revenue Service.

Thank you much, Mr. Chairman.

Senator CAMPBELL. With that, Mr. Rossotti, if you would like to

go ahead, all of your testimony will be included in the record so you

can ad lib or abbreviate, whatever you would like to do.

STATEMENT OF CHARLES O. ROSSOTTI

Mr. ROSSOTTI. I would like to just summarize some of the testimony and the rest will be in the record.

Thank you very much, Mr. Chairman and Senator Kohl.

What I really want to discuss today is how we can use the fiscal

year 1999 budget to begin the transformation to the kind of agency

that both of you, in your opening statements, said we should be.

As I would state it, our goal is to make the agency provide a far

better level of service to the taxpayers and be a service agency.

And I, by the way, believe we can do that while continuing to reduce the size of the agency in relation to the American economy.
166

I think another way to put this is that we need to shift the focus

of the agency from just its own internal operations to become an

agency that views its whole job as helping taxpayers comply with

the tax laws that are on the books.

To accomplish that, both our service and our compliance goals

are going to have to change a lot of things at the IRS. We are going

to have to modernize our business practices, our organization, and

our technology. This is going to require a period of investment over

the next several years in both the organization and the technology.

What I see in the fiscal year 1999 budget is the foundation for

this. I think it is absolutely essential that we begin this now, as

Senator Kohl said, and some of this will play out longer. But it is

also important that we deliver some key service improvements to

the taxpayers in fiscal year 1999. I will discuss some of those, as

to how we expect to do that specifically in the near term.

But I would like to just take a moment, if I could, to summarize

some of the long-term goals and changes that I think we need to

really get the level of service up to what it should be for taxpayers.

There are really five key elements to this concept.

BUSINESS PRACTICES

The first one is that we have to rethink all of our business practices, from customer education, the way filing is done, the way collection is done, the way compliance is done. And each of those has

great promise to improve by taking advantage of things that are

known in the private sector, and even in the IRS. But the common

theme is to turn it around and focus on understanding and solving

problems from the taxpayer point of view.

One of the keystones of doing that is that we have to understand

that not all taxpayers have the same kind of problems. A college

student who can file with a small return and a phone call is different from say a senior citizen that may have Social Security income, and very different from a small business that has a more

complex relationship. So one of the things we need to do is to tailor

our services to the needs of each particular group of taxpayers.

ORGANIZATION STRUCTURE

The second major area of change is the organization structure.

The current organization structure of the IRS which has evolved

over the last 45 years is really outdated. It is no longer capable of

allowing the managers in the structure to really take the actions

they need to to help taxpayers in the appropriate way. Nor, I believe, is it really capable of providing the right foundation to modernize the technology.

In the testimony, in chart 4, I have outlined what I believe is the

logical way for the IRS to be organized in the future, which is very

similar to the way many private sector companies are organized

into lines of business, each one of them aligned with serving a particular group of taxpayers.

The four units would each be responsible for serving one group

of taxpayers. Individual taxpayers that are wage and investment

income primarily, small businesses in another category, large businesses, and then finally your whole tax-exempt sector. With this
167

concept each of these units would be completely responsible for

serving from end to end each of these groups of taxpayers.

I think what is important is that the management teams in each

of these groups would then be able to become much more knowledgeable about the particular problem, say of a small business, and

be able to take action on those and to be held accountable, which

is one of the criticisms of the IRS today, you cannot hold anybody

accountable. Partly that is because of the way the place is organized.

MEASURES OF PERFORMANCE

Another point that is very important, which I think that both

Senator Campbell and Senator Kohl alluded to in your opening

statements is the idea of having measures of performance that are

really appropriate to what we are trying to accomplish. The key

here is to have measures from the customer or the taxpayer’s point

of view as well as from the business results, and also measuring

our productivity and our employee’s point of view.

The key here is to make sure that we are measuring what we

want to, which is to provide the right kind of service to taxpayers

while ensuring the compliance is fair, but not cause inappropriate

behavior toward taxpayers, or to provide incentives that would undermine our service approach. We are working on those measures

right now.

NEW TECHNOLOGY

The final element, of course, is new technology because we absolutely need to replace the obsolete base of technology in the agency.

The recently issued technology blueprint that my colleague here,

Mr. Gross, was the primary author of and the new organization

that is being built under the CIO, will provide the basis for managing this evolution of technology. But in addition, it is extremely important that we make the organizational and business changes that

I outlined because building computer systems to fit old business

practices and a complex organization will not work.

So those are the long-term concepts. I think they hold great prospect for improvement over a period of time.

But during this time, we also must make some step-by-step improvements and, in addition, we must handle the mandatory

changes that you outlined are required for the century date change,

the so-called year 2000 problem.

YEAR 2000 DATE CHANGE PROBLEM

To just outline how we expect to do this in fiscal year 1999, we

have organized it into five major initiatives during fiscal year 1999.

The first one is completing the century date change. This is one of

the most critical elements in our budget and our most pressing priority.

COMPLETING THE CENTURY DATE CHANGE

But the beginning of the 1999 filing season, less than 1 year from

now, most of our system changes that are required for the century

date change must be completed. And then during the remainder of
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1999, after the filing season, the principal task will be final testing

and complete certification, which is still a very large estimate.

The entire cost in 1999 in the budget is $234 million and, of

course, that is absolutely essential in order to avoid what would be

disastrous consequences if we do not correct this problem.

CUSTOMER IMPROVEMENTS

The second major priority in the 1999 budget is to make nearterm improvements for the customer, much as Senator Kohl said

we must do. We are going to try to do this through a very focused

problem of near-term changes which include improving the clarity

of the notices we send out to taxpayers as well as the forms and

publications, better telephone service so you will be able to get

through easier, better walk-in service for those taxpayers who like

to deal face to face, expanded electronic filing, improved training

of our customer service representatives so they will have the right

information to give to the taxpayers, some strengthened support for

small businesses, increased staffing for the taxpayer advocate’s office, which is one of the most important in resolving issues, and a

new initiative creating what we call our citizen advocacy panels

which will be an outreach effort with common citizens to help them

connect better with the IRS.

It shows in chart 5 in my testimony, the total incremental cost

of all these initiatives in fiscal year 1999 is $105 million.

TECHNOLOGY IMPROVEMENTS

The third major program, and what is going to be necessary to

ensure that customer service remains on the up trend, will be some

nearer term technology improvements. These are really necessary

for the size of agency we have just to maintain an acceptable level

of service.

The major ones in fiscal year 1999 are the completion of a call

routing system to route our phone calls, deployment of computers

to field collectors who currently have no computers at all, and replacement of some computers used by field agents who depend on

them for examinations.

And finally, the last item is an increase in what is called product

assurance, which is an essential way of testing software before it

is put back into the tax system so that changes do not result in

errors that could result in problems for taxpayers. There is a chart

in the testimony, chart 6, which summarizes these.

TECHNOLOGY INVESTMENTS

The fourth item, which is shown in chart 7, is that during 1997,

and this current year, we are making careful preparation for the

longer term technology investments we must make, which will involve replacing the really obsolete base of technology we have in

the agency today.

The beginning of this was the publication of the modernization

blueprint, the establishment of a systems life cycle which is a

methodology to manage our technology, and the publication of a

draft RFP which we hope to complete soon.
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In fiscal year 1999 we will continue this process by strengthening

the internal IRS system’s management capabilities and go ahead

with the award of the prime contract. The initial task on the prime

contract will be focused on completing the methodology life cycle

that we need in order to manage this technology and on implementing the first two subreleases, which are just particular

projects within the technology modernization blueprint. These are

aimed at providing better telephone service and other communication capabilities which are essential capabilities that underlie everything else we do.

Chart 8 shows these longer-term investments.

MODERNIZATION OF THE ORGANIZATION

Finally, the fifth one is an item currently listed as $25 million

to support the modernization of the organization. This is the transition to the new customer focused organization structure. We are

currently engaged in a study with the aid of a management consulting firm to better define exactly how we will implement this

new organization and we will come back to the committee with

more detail on exactly how this $25 million would be used to help

us transition to this new organization when we complete this study

this summer.

BUDGET OUTLOOK

Finally, just to summarize the budget picture, let me go over for

just a moment the historical perspective as I inherited it. This is

pretty well summarized in a couple of charts, charts 9 and 10 in

my written testimony. I think what these simply show is that the

IRS budget over the last 3 years, when you take out the extra costs

of the century date change piece, has actually gone down about 7

percent.

Of course, the workload of the IRS does grow every year because

the economy grows and collections grow. We have increased the

number of returns about 8 percent and the dollars collected about

24 percent over this period.

I also have to note that the recent tax act, the Taxpayer Relief

Act of 1997, added about 800 changes to the Tax Code and these

are all reflected not only in the computer programs, but they ripple

through the IRS, requiring new forms, new publications, and of

course, new training of the employees so that they can talk to the

taxpayers intelligently about the new tax law.

So these have been some difficult conflicting trends with which

we are presented as we begin to modernize the agency. I do want

to stress to the committee, though, that I personally am not one

who believes that budget dollars are the solution to everything at

the IRS. That is not what I believe.

We obviously need the dollars to do the specific things, but simply throwing money at them will not solve them. We have to do all

the changes in an orderly way, that I outlined—better business

practices, organization structure, roles and responsibilities that

stress accountability for management, new measurement system,

as well as new technology.

If we can use the money effectively as an investment to do those

things, then I think we can accomplish our goals.
170

So I just want to conclude by saying that I believe that there is

a new day at the IRS. I took the job because I think we can transform the agency into a place that actually helps taxpayers and is

on their side, with the exception of the very small number of people

that do not willingly comply. Then we need our enforcement powers. But most of the taxpayers are there to comply. We should be

there to help them do it.

I also believe that we can do this while shrinking the IRS as a

fraction of the economy. I think it could become a smaller percentage of the economy as time goes on by taking advantage of some

of these improvements. We cannot do that overnight, and it will

take some investments in order to modernize our approach. But

with the support of Congress, I believe it can be done.

Thank you very much, Mr. Chairman.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Mr. Rossotti. We have your complete statement and it will be made part of the record.

[The statement follows:]

PREPARED STATEMENT OF CHARLES O. ROSSOTTI

Mr. Chairman and Distinguished Members of the Subcommittee: In my testimony

today, I would like to set forth how the IRS budget for fiscal year 1999 can be used

to begin the transformation of the IRS into an agency that provides a far greater

level of service to taxpayers than it does today while continuing to reduce its size

in relation to the U.S. economy.

Today, the IRS does its basic job of collecting with integrity 95 percent of the

funds of the Federal government, while processing returns from 125 million individual taxpayers and 7 million businesses. Over the last two years, much study and

attention has been given to the IRS, by the Treasury Department and the Restructuring Commission, by the National Performance Review, by the GAO and Congressional committees. From this work a broad consensus has formed that the IRS must

shift its focus from its own internal operations to become an agency that helps taxpayers comply with the tax laws by understanding and solving problems from the

taxpayer’s point of view. The budget before you sets the stage for this long-term

shift in focus and direction at the IRS.

From the taxpayer’s point of view, the IRS provides service in two ways.

First, the IRS serves each taxpayer, one at a time. These interactions range from

the routine, such as providing forms or information about refunds, to more complex

interactions such as when additional money may be due because of an audit. As

shown in Chart 1, of the IRS’s 100,000 FTE’s, approximately 64,000 work directly

in contact with taxpayers in these kinds of interactions. In fiscal year 1998, the IRS

will answer over 120 million phone calls, provide walk-in service to nearly 9 million

taxpayers, and will examine nearly 1.3 million individual returns. These activities

have an enormous impact on the lives of most Americans.

Despite recent improvements, the IRS today does not meet the public’s legitimate

expectations of service from the IRS. Our goal must be to provide prompt, accurate

and professional treatment of taxpayers each time they deal with the IRS based on

what we know to be their specific needs. The measures in this budget are important

steps towards meeting this goal.

Second, the IRS provides service to all taxpayers by ensuring that compliance is

fair. Our tax system depends on each person who is voluntarily complying having

confidence that his or her competitor or neighbor is also complying. While the overall compliance level is estimated to be 87 percent, there is significant unevenness

of compliance and our estimates of compliance are incomplete and out of date. A

decrease of even one half of 1 percent in compliance would more than equal the entire budget of the IRS. Our goal should be to increase the fairness as well as the

overall level of compliance.

I believe that the IRS can accomplish these goals for increased service with the

work force that we have, which is dedicated and competent but handicapped by outdated practices, structures and technology. In other words, I believe that the IRS

can handle the ever increasing workload generated by a rapidly growing economy
171

while greatly improving service to taxpayers without significantly increasing the

size of the work force.

If we can accomplish this ambitious productivity goal, our objective will be to continue to shrink the size of the IRS in relation to the economy while increasing productivity faster than private sector financial institutions.

In order to accomplish these service and productivity goals, we must modernize

the IRS business practices, organization and technology. This will require sustained

investments for a period of years in technology and organizational modernization.

The fiscal year 1999 budget we are requesting is absolutely essential to begin this

long-term transformation. At the same time, it is designed to allow us to deliver

some key service improvements to taxpayers in some important areas during fiscal

year 1999.

Before I discuss the specific elements of our fiscal year 1999 budget request, let

me first outline the long term direction we must pursue to modernize the IRS. Then

I will describe the strategy for accomplishing this long term change while delivering

improvements to taxpayers step by step.

MODERNIZING THE IRS

To accomplish the goals we seek for the IRS, we must make fundamental changes

which will take time but are essential for the IRS to meet the public’s legitimate

expectations for service from its tax agency. Let me lay out my concept of how we

can modernize the IRS. The modernization concept includes a renewed mission with

emphasis on service and fairness to taxpayers and practical goals and guiding principles which define the path forward. It is designed to enable us to answer the basic

question: how can the IRS shift its focus and become the customer oriented agency

it must become?

I should also note that this concept was developed after the details of the budget

before you were completed. Thus, much of what I will discuss here does not have

a specific corollary in our fiscal year 1999 submission. Nonetheless, the budget priorities that I will discuss later are perfectly consistent with the concept and five key

elements discussed below, and represent an essential first step toward a modern Internal Revenue Service.

FIVE KEY ELEMENTS

We will reach our goals of service to each and to all taxpayers through changes

in five key areas, each complementing the others. These five areas, along with the

goals and guiding principles are summarized on Chart 2.

Revamped IRS business practices that will focus on understanding, solving and preventing taxpayer problems

Each of the IRS’s business practices, from customer education to filing assistance

to collection, holds great promise for improvement by our gaining a greater understanding of the particular problems that taxpayers have and focusing continuously

on solving them. In most cases, there are very close parallels in the private sector

that we can draw on.

For example, our business practices should make filing easier for all taxpayers by

providing easily accessible high quality assistance to those taxpayers who need help

in filing and by having more returns filed electronically. Just as companies develop

very particular marketing programs to reach customers with differing needs, we can

help taxpayers more effectively by tailoring our publications, education, communications and assistance programs to taxpayers with particular needs. College students

who often can file with a simple 1040EZ form and a 10 minute phone call have very

different needs from senior citizens with social security and investment income who

may be best served through a network of volunteers who specialize in the needs of

seniors.

This principle of tailoring our services to the needs of particular groups of taxpayers is a cornerstone of how we can dramatically improve our service to taxpayers

as well as our internal productivity.

As another example, some of our most difficult interactions with taxpayers occur

when additional money may be due and collection activity is required. Today, 90

percent of the active collection activity by the IRS telephone and field collectors is

on accounts that are more than 6-months old, and most are much older than that.

This is the reverse of practices in the private sector. The proven keys to effective

collection are to identify as promptly as possible customers who may present risk

of non-payment and to work out a payment program that addresses the particular

payment problem of that customer. This helps the customer as well as the collecting

agency and minimizes the need for enforcement actions.
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Organizational structure built around taxpayer needs

The IRS organizational structure no longer enables its managers to be knowledgeable about and take action on major problems affecting taxpayers nor is it capable

of modernizing the business practices and technology needed to achieve our goals.

The principal IRS organization today, as shown in Chart 3, is built around 33 districts and 10 service centers. Each of these 43 units is charged with the mission

of serving every kind of taxpayer, large and small, with simple or complex problems,

in a defined geographical area. If a taxpayer moves, the responsibility moves to another geographical area. Further, every taxpayer is served by both a service center

and a district and sometimes more than one. Service centers and districts each perform customer service, collection and examination activities for the same taxpayer.

For example, in the collection area, there are three separate kinds of organizations, spread over 43 organizational units, that use three separate computer systems

to support collection. Each of these three types of units collects from every kind of

taxpayer, from small businesses to wealthy individuals.

There are 8 intermediate levels of staff and line management between a front line

employee and the Deputy Commissioner, who is the only manager besides the Commissioner who has full responsibility for service to any particular taxpayer. Although important improvements have been made in this structure over the last few

years, notably the reduction in the number of districts, the fundamental problem remains: the structure is far too complex and accountability is weak.

Fortunately, there are solutions to this organizational problem which are widely

used in the private sector and may enable us to better serve the American taxpayer.

The approach I am discussing today is to organize around the needs of our customers, the taxpayers. Just as many large financial institutions have different divisions that serve retail customers, small to medium business customers, and large

multinational business customers, the taxpayer base falls rather naturally into similar groups. This fact simply reflects the structure of the U.S. economy.

Therefore, as shown in Chart 4, one logical way to organize the IRS is into four

units, each charged with end-to-end responsibility for serving a particular group of

taxpayers with similar needs. These units could replace the four regional offices and

a substantial part of the national office, allowing the national office to better fulfill

its responsibilities of oversight and broad policy rather than operations. As I noted

at the outset, this is a concept—a concept that will require outside validation. I am

initiating a review of this concept because I believe we need to refocus and realign

the efforts of the IRS toward our customers—the American taxpayers. Of course,

during and after the review, we may need to revise this proposal, depending on the

results.

By organizing in this way, the management teams for each unit could learn a

great deal about the needs and particular problems that affect each group of taxpayers. The tax code is extremely complex but most of it does not apply to each

group of taxpayers.

There are 100 million filers, comprising about 140 million taxpayers, who have

only wage and investment income. For this very large group, almost 80 percent of

all taxpayers, the primary needs are improved assistance in filing or in getting information about an account or a refund. Collection problems are relatively limited

since most of their taxes are paid through withholding by employers. Compliance

problems are concentrated in the area of dependent exemptions, credits, filing status, and deductions, many of which can be addressed in part by better education

of taxpayers with the assistance of volunteer groups and preparers. Improved phone

service and more walk-in ‘‘retail’’ sites where taxpayers can get quick, in-person assistance are also important.

Another very important group of taxpayers is small businesses, including sole proprietors and small business corporations. There are about 25 million filers in this

category. Compared to other individual taxpayers, this group has much more frequent and complex filing requirements and pays much more directly to the IRS, including tax deposits, quarterly employment returns and many other types of income

tax returns and schedules. Providing good service to this group of taxpayers is more

difficult than wage and investment filers, and compliance and collection problems

are also much greater. Small start-up businesses in particular need special help. By

dedicating a fully responsible unit to providing all IRS services for the self employed

and small business, this unit will be able to work closely with industry associations,

small business groups and preparers to solve problems for the benefit of all.

Larger businesses, although few in number, pay a substantial share of their tax

in the form of withholding, employment and excise taxes, and corporate income

taxes. Complex tax law, regulatory and accounting questions, including many issues

arising from international activities, dominate the work of the IRS in serving this
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group. A management team and unit dedicated to serving these taxpayers will be

able to understand and solve these problems more effectively than at present.

Finally, the tax exempt sector, including employee plans, exempt organizations

and state and local governments, represents a large economic sector with unique

needs. Although generally paying no income tax, this sector pays over $190 billion

in employment taxes and withholding for employees and manages $5 trillion in tax

exempt assets. This huge sector will benefit from a dedicated unit that understands

its special problems.

Management roles with clear responsibility

Since each unit will be fully responsible for serving a set of taxpayers with like

needs, the management teams responsible for each of these units will be able to become knowledgeable about the needs and problems of their customers, and be held

fully accountable for achieving specific goals in serving them. Furthermore, having

learned about problems, managers can cut dramatically the time required to communicate with the work force and implement solutions. Because the organization

would be ‘‘flatter,’’ there would be fewer layers of management. Front-line employees

and first-line managers would have a much closer identification and communication

channel to people with general management responsibility.

For each unit, a cohesive management team will be established which will be able

to organize internally in ways that are appropriate to the particular needs of the

taxpayers they are serving. I believe that highly qualified managers, from internal

or external sources, will be far more attracted to these kinds of management jobs

than those in today’s complex structure.

Balanced Measures of Performance

It is essential to have measures of organizational performance that balance customer satisfaction, business results, employee satisfaction and productivity. It is

particularly important that performance measures do not directly or indirectly cause

inappropriate behavior toward taxpayers, and that they provide incentives for service-oriented behavior.

The establishment of management teams with clear responsibility for serving

large groups of taxpayers with reasonably common characteristics and needs will

help make it possible for the first time to develop realistic and meaningful measures

of organizational performance in the areas of customer satisfaction and overall compliance on a continuing basis. This will help eliminate the problem that has plagued

the IRS for decades, namely the use of ‘‘enforcement’’ results as a key measure of

success.

New Technology

One of the limiting factors in our ability to modernize our business practices at

the IRS today is our computer systems, which are extremely deficient in their ability to support our missions and goals. But computer systems essentially represent

a detailed codification of the business practices and organization structure that

exist. Building new computer systems to support the old business practices and complex organization structure will not work.

The recently issued technology modernization blueprint and the new CIO organization provide an outstanding and professional basis for managing the evolution of

our technology. The revamped business practices and rationalized organizational

structure I discussed earlier will provide a sound basis for completing and implementing the modern systems envisioned in the blueprint.

The management teams in each unit will be able to act as knowledgeable and responsible business owners to work with the centralized professional information systems organization and outside contractors. For the first time, this will establish all

the critical elements needed to manage a large-scale technology/modernization program successfully.

STRATEGY FOR MODERNIZATION AND SERVICE IMPROVEMENT IN FISCAL YEAR 1999

While there is great potential to improve the IRS service and productivity, it will

require a period of years to achieve the major changes outlined above. During this

period, we must make improvements step by step. In addition, mandatory requirements for change must be met, notably the large project required to update computer systems for the Century Date Change. To accomplish all this change in an

orderly fashion, during fiscal year 1999 our budget effort is focused on five major

initiatives.

1. Completing the Century Date Change program.—Preparing for the Century

Date Change is one of the most critical elements of our 1999 budget. By the beginning of the 1999 filing season, nearly all of the systems changes required for the
174

Century Date Change must be completed. During the remainder of fiscal year 1999,

the principal tasks will be the completion of testing and certification, still a large

effort that will cost $234 million in fiscal year 1999. In addition to the year 2000

project expenditures, this includes the cost of completing the mainframe consolidation and integrated submission and remittance processing systems replacement. I

cannot stress enough the importance of this effort. The funds I am requesting here

are vital to ensure that we will be able to meet our commitment to providing essential service to each and every taxpayer and to avoid the potentially disastrous effects of an uncorrected Century Date Change problem.

2. Making near-term improvement to service for taxpayers.—The second critical

component of the budget is a set of specific activities designed to improve service

to taxpayers in the coming year. As we proceed with our long-term efforts to modernize the agency, we must also take some actions that can be implemented now.

During fiscal year 1999, we will pursue a highly focused initiative to improve service

to taxpayers through improved clarity of notices, forms and publications, better telephone service, more walk-in service, expanded electronic filing, improved training of

customer service representatives, strengthened support for small businesses, increased staffing for the taxpayer advocate’s office and the creation of Citizen Advocacy panels. Chart 5 shows estimated incremental costs of $103 million related to these essential near term service improvements for fiscal year 1999.

3. Investing in essential near term technology.—Because of the greatly increased

financial demands of the Century Date Change during the past two years (fiscal

year 1997 and fiscal year 1998), nearly all investment in basic hardware and software to support current operations was eliminated. In an agency in which twothirds of the employees deal directly with taxpayers based on information in the

agency’s computer systems, this lack of investment results directly in lowered service to taxpayers as well as lowered morale of employees who are doing their best

to serve taxpayers. In order to ensure that customer service remains a top priority

as we move toward the year 2000, this budget includes investments that are necessary to enable us to just maintain an acceptable level of service.

The major near term investments for fiscal year 1999 are completion of a call

router system, funding for which is included in improved service to taxpayers, deployment of computers to field collectors who currently have no computers, and replacement of computers used by field agents who depend on them for examinations.

In addition, increases in product assurance are essential for adequate testing of

changes to tax systems before they are put in production to keep records on millions

of taxpayers.

Chart 6 shows fiscal year 1999 near term investments in technology.

4. Investing in long term technology modernization.—As shown in Chart 7, the

IRS existing base of technology is extremely old and deficient in its ability to support the mission of the agency. We must replace it. In fiscal year 1997 and 1998

careful preparation for this major and difficult task began through the publication

of the modernization blueprint, the beginnings of an establishment of an internal

systems life cycle management process, and publication of a draft RFP. We expect

to issue a final RFP before April 1, 1998.

In fiscal year 1999, the process of long term modernization will continue with the

strengthening of the IRS internal systems management capabilities and processes

and the award of the Prime contract. The initial tasks on the Prime contract will

be focused on completing the systems management life cycle and on developing the

first two subreleases of the technology modernization blueprint, which provide telephone and other communications capabilities that are basic functions essential to

support all IRS operations. Let me stress that they are independent of a specific organizational structure and are fully compatible with the modernization concept I

outlined earlier. In fact, the two subreleases will also provide a practical way of testing and refining the management processes of the IRS and the Prime before proceeding to more challenging projects that are more closely tied to more detailed

modernization business requirements.

Additional subreleases of the blueprint will be very carefully planned and coordinated with modernization of the business processes and organization before they are

allowed to proceed.

Chart 8 shows the fiscal year 1999 budget for longer term technology modernization, in two parts: IRS capabilities for managing and supporting modernization, including funding of the integrated support contract, as well as funding for the Information Technology Investment account for the Prime contractor.

5. Organizational Modernization.—The fiscal year 1999 budget includes $25 million to support the long term modernization of the organization described earlier.

These funds will be used to provide for a number of activities relating to the mod-
175

ernization concept discussed earlier and, though not yet fully specified, will include

recruiting, relocation and retraining of people as well as preparation of detailed

plans for reorganization. Greater details on the use of these funds and organizational plans will be available when the initial study is complete in early summer

of 1998.

HISTORICAL PERSPECTIVE

Before summarizing the fiscal year 1999 budget, let me review what has actually

happened over the last few years.

As shown in Charts 9 and 10, over the last three years the IRS budget, net of

costs for the Century Date Change, has actually declined by 7 percent, while dollars

collected have gone up by 24 percent, returns processed have increased by 8 percent

and the Taxpayer Relief Act of 1997 has added about 800 changes to the tax code.

These increases in volume of activity and in changes in the code ripple through the

IRS, requiring new forms and publications, training of employees and updating of

technology.

The net effect of these conflicting trends presents us with new challenges as we

move to modernize the agency. However, I strongly believe that budget dollars alone

will not solve the problems facing the IRS—these challenges will only be solved

through revamping business practices, realigning the organizational structure, redefining roles and responsibilities for management, creating a balanced measurement

system, and investing in technology that supports a modernized IRS.

The work force has been reduced through attrition and buyouts resulting in a less

than optimal deployment. Fast growing economic areas of the country—those with

the highest demands for IRS employees’ skills have seen the largest reductions in

the work force. In places where the demand for IRS employees was weakest, the

opposite has been true.

Workers across the board lack adequate professional training to keep up with the

tax laws and regulations, impairing their ability to serve taxpayers. Past reductions

in the training budget have not been fully restored. This factor shows up markedly

in employee surveys and is a critical factor we need to address as we strive to ensure proper treatment of taxpayers.

Because nearly all available technology investment funding in fiscal year 1997

and fiscal year 1998 was diverted to the Century Date Change, there was minimal

replacement of basic hardware and software to support front line workers, leading

to an erosion of an already seriously deficient technology base.

RECAP OF FISCAL YEAR 1999

In fiscal year 1999, we have prepared a budget that supports the beginning of the

transformation of the IRS which we have outlined above. It allows us to continue

current operations while working on the five initiatives that form the strategy for

near term improvement and long term modernization. It also sets the stage for the

kinds of productivity improvements we will need to provide good customer service

within the budget constraints under which we must necessarily operate. Our total budget request for fiscal year 1999 is $8.196 billion and 99,829 FTE.

This covers funding of the Processing Assistance and Management, Tax Law Enforcement, Information Systems and Information Technology Investment Appropriations. In addition, we are requesting $143 million and 2,184 FTE in funding outside

the caps for the EITC. The total budget request includes a net increase of $529 million and 1,232 FTE over the fiscal year 1998 level, as shown in Chart 11. Of this increase, $176 million represents part of the cost that would be needed

simply to maintain the current level of operations, taking into account inflation and

mandatory pay increases. This $176 million level is less than the full cost of maintaining current levels. We have absorbed as much of the difference as possible without diminishing service to the taxpayer.

The remaining increases from fiscal year 1998 levels are for the priorities discussed above (less a $2 million reduction in our Information Technology Investment

Account):

—Improved near term customer service ($103 million);

—Near term and long term technology investments (net of $227 million); and

—Organizational modernization ($25 million).

CONCLUSION

In conclusion, I believe that there is a new day at the IRS. I believe we can transform the IRS into an agency that helps taxpayers meet the obligations imposed by

the tax laws while ensuring that compliance is fair. We can do this while increasing

productivity and shrinking the size of the IRS in relation to the economy. This will
176

take time and investments to modernize technology, business practices and organization. But, with the support of the Congress, it can be done.

CHART 1.—IRS EMPLOYMENT BREAKDOWN

FTE—

Full time Seasonal

OTFTP Total Percent offull time

Percent of

total

Direct Taxpayer Contact

Customer service .............................................. 15,722 4,735 20,457 18.3 20.3

Taxpayer advocate ............................................ 383 5 388 0.4 0.4

Walk-in service ................................................. 830 331 1,161 1.0 1.2

Customer education .......................................... 217 44 261 .3 .3

Underreporter .................................................... 1,357 355 1,712 1.6 1.7

Exam .................................................................. 20,906 376 21,282 24.3 21.1

Collection .......................................................... 10,537 117 10,654 12.2 10.6

Criminal ............................................................. 3,881 159 4,040 4.5 4.0

Appeals .............................................................. 2,042 19 2,061 2.4 2.1

EP/EO ................................................................ 1,755 41 1,796 2.0 1.8

Total customer contact ....................... 57,630 6,182 63,812 67.0 63.5

Submission processing ..................................... 7,386 7,175 14,561 8.6 14.4

Information systems ......................................... 7,165 175 7,340 8.3 7.3

Forms distribution ............................................. 246 362 608 .3 .6

Inspection .......................................................... 1,162 6 1,168 1.3 1.2

International ...................................................... 432 41 473 .5 .5

Counsel .............................................................. 2,511 72 2,583 2.9 2.6

Management and support ................................ 9,541 413 9,954 11.1 9.9

Total ..................................................... 86,073 14,426 100,499 100.0 100.0

Notes:

1. Included all people in N.O. and R.O. in Management and Support.

2. Used fiscal year 1998 financial plan, as of January 31.

3. Management Support Includes: SOI, Research, Mgt. Services, DSS, Finance, HQ, Procurement, Communications, CTR,

Bldg. Del. and IS–EITC.

4. Direct taxpayer contact numbers include non-SES managers below District level.
177
178
179
180

CHART 5.—Enhance Customer Service

Initiatives

Improve clarity of notices, forms, pubs ................................................ $5,000,000

Provide better telephone service ........................................................... 50,000,000

Make it easier to get answers in person .............................................. 6,000,000

Expand electronic filing ........................................................................ 3,000,000

Strengthen support for small business ................................................ 1,000,000

Shift how performance is measured ..................................................... 1,000,000

Improve customer service training ....................................................... 23,000,000

Strengthen Taxpayer Advocate’s Office ............................................... 10,000,000

Create citizen advocacy panels ............................................................. 5,000,000

Total ............................................................................................. 1 103,000,000

1 Includes $42 million contained in the Information Systems Appropriation.

CHART 6.—Near-Term Technology Investments

Fiscal year 1999

increase 1

(IS appropriation)

Business lines investments:

Integrated collection system .......................................................... $61,000,000

Field agent exam computers .......................................................... 33,000,000

Integrated personnel system ......................................................... 14,000,000

Other systems ................................................................................. 17,000,000

Subtotal ........................................................................................ 125,000,000

Other investments:

Enhance customer service (Includes $19 million for call routers) ............................................................................................... 42,000,000

Operational systems (Includes $16 million for product assurance) ............................................................................................. 33,000,000

Organizational modernization ....................................................... 6,000,000

1 Refer to Chart 11 for further details.

CHART 7.—IRS PRINCIPAL SYSTEMS

Computer systems Vintage Technology platform

Master files (Taxpayer records) .................................................. 1965 ........................ IBM—tape files

Integrated data retrieval (On-line access/customer service) .... 1978 ........................ UNISYS

Automated collection system (Telephone collections) ................ 1985 ........................ IBM

Field agents’ exam computers .................................................... 1990/1991 .............. DOS laptops

Revenue officers’ personal computers ....................................... 1/3 paper, 2/3

1996/1997.

UNIX laptops

Customer service rep. tax law information ................................ Paper ....................... 3-ring binders

Telephone system: Manual call routing; no screening voice response unit; limited voice messaging; circuitry bottlenecks

due to design flaws; minimal systems management capability; and no predictive dialing.

CHART 8.—LONGER TERM TECHNOLOGY INVESTMENTS

Fiscal year 1999 (IS appropriation)

Budget Increase

Modernization Program:

Program management/architecture and engineering ........................... $31,000,000 ........................

Security .................................................................................................. 17,000,000 $17,000,000

Systems life cycle and performance measures .................................... 18,000,000 18,000,000

Phase I blue print implementation ....................................................... 13,000,000 13,000,000

Architecture/engineering/infrastructure ................................................. 21,000,000 21,000,000

Subtotal ............................................................................................. 100,000,000 69,000,000

Investment account: Information technology investment .............................. 323,000,000 ........................
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CHART 8.—LONGER TERM TECHNOLOGY INVESTMENTS—Continued

Fiscal year 1999 (IS appropriation)

Budget Increase

Total longer term technology investment ......................................... 423,000,000 1 69,000,000

1 Refer to Chart 11 for further details.

CHART 10.—IRS BUDGETS

[Dollars in millions]

Fiscal year appropriations—

1995 1996 1997 1998

Processing, assistance and management .......................... $1,704 $1,724 $2,882 $2,926

Tax law enforcement ........................................................... $4,390 $4,097 $3,036 $3,144

Information systems ............................................................ $1,388 $1,527 $1,287 $1,272

Total operating appropriations .............................. $7,482 $7,348 $7,205 $7,341

Less: Y2K costs 1 ................................................................. ................ ................ $175 $384

Total operating appropriations less Y2K:

Nominal dollars ............................................. $7,482 $7,348 $7,030 $6,957

Constant dollars ............................................ $7,482 $7,195 $6,716 $6,478

Workload:

Net revenue collected ................................................. $1.270T $1.376T $1.504T $1.575T

Primary returns processed ......................................... 193.3M 196.2M 202.6M 208.4M
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CHART 10.—IRS BUDGETS—Continued

[Dollars in millions]

Fiscal year appropriations—

1995 1996 1997 1998

Information system investment ............................................. ................ ................ ................ $325

Total IRS appropriations .......................................... $7,482 $7,348 $7,205 $7,666

Earned income tax credit ...................................................... ................ ................ ................ $138

1 Includes mainframe consolidation, DSP/ RPS and product assurance related to Y2K.

CHART 11.—INTERNAL REVENUE SERVICE FISCAL YEAR 1999 BUDGET

[Dollars in millions]

Processing,

assistance

and management

Tax law

enforcement

Information

systems

Information

technology

investments

Total

Fiscal year 1998 base ...................................... $2,926 $3,144 $1,272 $325 $7,667

1. Maintaining current levels (MCL) ................ 91 108 44 ................ 242

Less:

Nonrecurring costs ................................... ................ ................ ¥14 ................ ¥14

Absorbed w/in base ................................. ¥28 ¥17 ¥8 ................ ¥52

Net MCL’s ............................................ 63 91 1 23 ................ 176

2. Enhance Customer Service ........................... 58 3 2 42 ................ 103

3. Information systems:

Operational systems ................................ ................ ................ 3 33 ................ 33

(Balance of increases/decreases not included in Nos. 1, 2, 4 and 6)

Modernization program ............................ ................ ................ 69 ................ 69

Business line investments ....................... ................ ................ 125 ................ 125

Subtotal information systems ............. ................ ................ 227 ................ 227

4. Organizational modernization ....................... 16 3 6 ................ 25

5. Decrease in information technology investments ............................................................ ................ ................ ................ ¥2 ¥2

6. TIMIS (payroll) transfer ................................ 29 ................ ¥29 ................ ................

7. Realignments ................................................ 70 ¥70 ................ ................ ................

Subtotal, increases .............................. 236 1 26 1 269 ¥2 529

Fiscal year 1999 ............................................... 3,162 1 3,170 1 1,541 323 8,196

1 Totals do not add due to rounding.

2 Includes $19 million for call routers.

3 Includes $16 million for product assurance.
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ADDITIONAL COMMENTS

Senator CAMPBELL. Mr. Gross, did you have additional comments?

Mr. GROSS. No, Mr. Chairman.

Senator CAMPBELL. I notice that you are going to be leaving us

on April 1. It will be your last chance to impart some wisdom with

the U.S. Senate.

Mr. GROSS. I just want to thank the committee. The committee

has been extraordinarily supportive of all of our efforts to properly

fund the critically important programs that the Commissioner has

just outlined.

Senator CAMPBELL. Before we go to any questions, we have had

some Senators come in. Senator Faircloth, did you have a statement?

STATEMENT OF SENATOR FAIRCLOTH

Senator FAIRCLOTH. I do, and I will make it brief, Mr. Chairman.

Mr. Chairman, I thank you for holding this hearing. I think it

is important and I think it gives us an opportunity to welcome the

new Commissioner, Chairman Charles Rossotti, to speak to the

committee and tell us what he plans to do.

Mr. Rossotti is the first businessman to head the IRS since

World War II. I certainly welcome him and what he plans to do.

I had a visit with Mr. Rossotti and I was quite impressed with his

plans and what he wants to do.

He has taken on maybe one of the worst jobs around. If he were

looking for a more difficult one, he could have taken the District

of Columbia or maybe the FAA but I am glad that he has taken

it.

As we all know, the very mention of the word Internal Revenue

Service simply frightens the life out of most people. I could not help

but laugh, somebody said that—I believe it was you, Mr. Rossotti—

that the Internal Revenue Service is here to help you. That is the

oldest joke in the book, that I am from the Internal Revenue Service and I am here to help you. That is not usually what most people

relate to having the IRS call on them.

We had some public hearings and I will not go into that, in the

time here, but just some of the most atrocious things came out of

the public hearings, just ludicrous things. One lady that the IRS

recommended very strongly she go into bankruptcy and she is still

in business and has gotten rich 10 years later, she did not go in

bankruptcy.

One young man, working for Wal-Mart at $6 an hour, got a bill

for $300,000,028.15 from the Internal Revenue Service. He did not

pay it.

But the Internal Revenue Service is in need of reform as much

as any governmental agency ever did. As we all know, they went

into an equipment buying spree over a period of 6 or 7 years, and

put somewhere near 3.5 billion taxpayer dollars in new equipment

that turned out to be a total fiasco. As I understand it, and I have

not had anybody—if there is anybody from Revenue knows better,

that it is pretty much a total loss down the drain, and got to go

back to ground zero and start again.
184

Now that type of thing would never happen in the private sector.

If it did, the company would be broke. But it would not just have

gone on, repeated mistakes and things done wrong.

So I am here to say that, to the new Commissioner, he has a tremendous job. He comes to it with an excellent background and

knowing how to run things and knowing how to make them work.

And not only that, his background centers somewhat strongly on

the technological or the computer aspect of it.

Mr. Commissioner, we welcome you and we look forward to having more hearings. I wish you well and we intend to observe your

changes and improvements. Thank you.

Senator CAMPBELL. Senator Shelby.

STATEMENT OF SENATOR SHELBY

Senator SHELBY. Mr. Chairman, I will try to be brief, I was a little late getting here.

First of all, I want to congratulate you, on you undertaking this

task and it is a task, and I wish you well. I want to pledge to you,

I am going to do what I can to help you succeed.

But I do not think it is any mystery what my view is of the IRS.

I chaired this subcommittee for several years and I made it very

clear that I believe the agency is too big and bloated and it has too

much power over the lives of our citizens.

I want to commend you for what I believe, from you, that you

are a well-intentioned man and you have good intentions to try to

fix the problem. But at the end of the day, I believe what you can

do to address the problems is limited. The complexity of the Tax

Code is creating the environment that we have at the IRS.

I am an advocate of a total overhaul of our tax system, a flat tax.

I know that is something that Congress will have to speak to.

In the meantime, I wish you well in your endeavors. Thank you.

Senator CAMPBELL. Senator Stevens.

STATEMENT OF SENATOR STEVENS

Senator STEVENS. Mr. Chairman, I just dropped by to welcome

Mr. Rossotti, also. I do think that the problem in IRS is one of attitude, not legality and not the existing laws and not the complexity

of the code, but attitude. The attitude that has built up in recent

years with the personnel of IRS is that the average taxpayer is

guilty before he has even been investigated. I think that gets reflected to us every time we go home.

Our people really, as Senator Shelby said, fear the IRS now rather than look to them for assistance in honestly paying their bills.

I think you have a big job ahead of you, and I wish you well.

Senator CAMPBELL. We will go ahead and trade off on the questions and do two or three rounds, Mr. Rossotti. I will ask the first

one.

CITIZENS ADVOCACY PANELS

The IRS recently announced the launching of their citizens advocacy office, or panels, I guess they were. I do not think you have

set up offices, yet. There have been a number of them, Milwaukee,

Brooklyn, Seattle.
185

I wanted to ask you two questions along that line. First of all,

they apparently are volunteer panels. First all, the Brooklyn, Milwaukee, Seattle, I noticed there was none in mid-America or the

Rocky Mountain area. That is the first question.

The second question I would like to ask you, what is their purpose going to be?

Mr. ROSSOTTI. First of all, you are right, Senator. We did have

the idea of starting with four but eventually, as soon as we learn

enough about them, we will spread them to the other parts of the

country. The purpose of starting with these initial four was just to

get some experience before we roll them out to the rest of the country.

Of course, it is a new idea, which is one of the reasons we want

to be careful about figuring it out.

The purpose of it is to work with the taxpayer advocates in the

local offices and to essentially advise the taxpayer advocate from

the average citizen’s point of view about how the kind of problems

that the average citizen is having complying with the tax load can

be dealt with. Of course, the taxpayer advocate program is where

the people who are having trouble with the IRS can get some help.

This has been around for a long time but one of the immediate

things that we are doing is really trying to strengthen this program

a great deal. I think it has much more potential to help taxpayers

than has been realized so far.

We are increasing the staffing of these taxpayer advocates but

the citizen advocacy panels will be an additional way. What we will

do is have a small group of ordinary volunteer citizens work with

the taxpayer advocate. They will not be able to deal with individual

taxpayer cases, of course, but the taxpayer advocate will report to

them on the kinds of problems that taxpayers are having in that

local area and will seek their input and their advice as to how

these problems can be resolved.

As we get it rolled out, I think it has the potential of identifying

from the average citizen’s point of view what the kind of problems

are that people really want us to work on. And then, in the annual

report that the taxpayer advocate gives to Congress, we can provide suggestions for tax law changes if necessary.

Senator CAMPBELL. How many people are going to be on these

panels?

Mr. ROSSOTTI. I think that we are going to have fewer than 10,

small enough and with people who would be on for a limited period

of time so they could rotate.

Frankly, we are still experimenting. I mean, this is a brand new

thing and that is why we do not want to start with the whole country all at once. But we are going to start——

Senator CAMPBELL. Then you will reimburse them for the time

they have to——

Mr. ROSSOTTI. No; they would be just totally volunteers.

Senator CAMPBELL. Just voluntary?

Mr. ROSSOTTI. Just volunteers.

Senator CAMPBELL. And they would basically be a committee

that recommends things to IRS?

Mr. ROSSOTTI. Exactly. And also try to be an outreach, to make

the taxpayer advocate program more visible.
186

One of the things we find is there are a lot of taxpayers who

have problems that could be solved or helped by the taxpayer advocate. But partly due to our inability to make this program known

well enough, people do not know they have this channel. So we are

hoping this will be another way of making it known.

Senator CAMPBELL. Thank you.

IRS EMPLOYEE BROWSING

Last year, I am sure you are aware that we did a hearing on the

issue of IRS employees doing what was called browsing, just arbitrarily going through taxpayers’ files without any probable cause,

without any reason to do so. At the time, the IRS acknowledged—

this was before you came on board—but they did acknowledge at

the time they had a lot of security measures that were lacking in

the current system to provide sufficient protection for the taxpayer

files.

Could you give the committee an update on what has happened,

on perhaps not only the employees who were caught browsing, but

also on the systems you are going to put in place to try to prevent

that?

Mr. ROSSOTTI. Yes; actually, this is something about which there

was considerable action before I got to the agency, and the law was

changed last August to make it a potential misdemeanor and require removal of employees who are caught.

But internally within the agency, there was quite an extensive

program that started about a year ago and a lot of it has already

been implemented. We call it UNAX for unauthorized access. The

motto is stop UNAX in its tracks. We have gotten every employee

in the IRS to be required to take a training program, and to sign

a certification that they have had this training program.

We have also done some technical things to try to identify,

through our computer systems, cases of unauthorized access. And

finally, I have assigned to the inspection service, which is our internal investigative group, the responsibility for investigating all cases

and to adjudicate these on a central basis.

From the early returns on this, it looks as though there has been

a drop of at least one-half, if not more, in the number of cases. But

there are still cases and we are not going to be satisfied until we

get them down to zero.

Senator CAMPBELL. I know that some were recommended for

some counseling or retraining or so on, but there were a few that

I very frankly thought should have just been flat fired, if they could

have been.

Mr. ROSSOTTI. There were 153 that were fired in fiscal year 1997,

flatout separated.

Senator CAMPBELL. Good.

Mr. ROSSOTTI. Of course, there are still due process rules that

employees have to——

Senator CAMPBELL. I understand.

PROBLEMS OF SMALL BUSINESSES

I came from the private sector where I was a small businessman

before I was elected to Congress, and I know that small businessmen need a great deal of assistance. The forms they get and the
187

things that they have to go over are very, very complicated, and I

am sure you agree with that.

Perhaps you could tell us, in your new plans, how you are going

to address some of the problems small businesses have that private

citizens do not.

Mr. ROSSOTTI. First of all, let me just say, Senator, I totally

agree with you. In fact, Senator Faircloth and I were talking about

this in his office this morning. I think that of all the segments of

the taxpaying population, the IRS does the poorest job in serving

small business.

It is partly, not so much because it does not want to, but it is

more complex for small business and often the small businessperson does not have the full-time accountants and other people to

help them.

I think the biggest thing in the long term that we are going to

do is to basically organize an entire unit to work strictly with small

business. We can then have all the services that small business

needs in one place, and have people brought in, including people

who have worked in small business, to help run this agency.

That is the long-term solution, and that will enable us to really

understand, case by case, the particular problems of different kinds

of small businesses and work with them.

In the meantime, we are doing some things to try to improve

service, as we are doing in other areas. We are trying to make

some of the filing easier. For example, one of the things that just

came out relates to the 941, which is something that all small businesses with employees have to file quarterly. We have now tested

that and people will be able to file through a simple telephone call.

We are also going to try to work to provide better assistance to

small businesses throughout the districts when they need help.

But I think the long-term solution is that this is such a huge and

important sector of the economy that we really need to not just

have it be a side issue but to be sort of a major focus of an entire

unit, with the right kind of people focused on solving their problems. I think that will ultimately go a long way.

Senator CAMPBELL. May I also recommend that when you set up

your volunteer advocacy programs, you have somebody on there

who understands small business or knows what it is to go through

that.

Mr. ROSSOTTI. Oh, we most certainly will. We most certainly will.

Senator CAMPBELL. Since we have a number of people here, I will

go ahead and yield to Senator Kohl. If we could keep our questions

down to maybe about 5 minutes or so, it will give everyone an opportunity.

NONCUSTODIAL PARENTS

Senator KOHL. Thank you. I would like to talk about noncustodial parents who claim child tax benefits for just a minute, Mr.

Rossotti. There are several tax benefits in our current Internal

Revenue Code that go to taxpayers who have dependent children.

These include head of household filing status, the earned income

tax credit, the tax exemption for dependent children, the dependent

care tax credit, and the new $500 per child tax credit.
188

In 1996 the Health and Human Services Inspector General found

that many noncustodial parents were incorrectly claiming these

benefits, even though by law they can only go to the custodial parent. HHS Inspector General estimated that at least $200 million

and possibly $1.5 billion in tax losses may result annually from

noncustodial parents incorrectly claiming child-related tax benefits.

The inspector general of HHS recommended that information

that is or will soon be available on State child support registries

could easily form the basis of an antifraud initiative. HHS will

share information on custodial parents with IRS for information on

who is claiming child-based tax benefits resides. An initiative that

I sponsored to allow this sort of data exchange was passed as part

of last year’s tax bill.

I understand that there are some problems with the States collecting the data HHS needs to make this antifraud program work.

But I also understand that HHS and IRS are confident that those

State child support systems will be up and running soon.

So my question is what steps are you taking to move this effort

forward? Have you been in consultation with HHS? And in your

opinion, when will we begin to see results from this program?

Mr. ROSSOTTI. I would like to ask my colleague, Mr. Dalrymple,

to answer that question for me, if that is OK.

Mr. DALRYMPLE. Senator, we have been working closely with

HHS around this issue, and we actually helped them design the

way some of the information would be gathered to make sure that

it is more helpful. And notwithstanding that fact, we do understand that they have had some problems gathering the data from

the States, as you mentioned.

I do not know that we actually have an exact timeline in place

yet, but I would be more than happy to provide information for the

record later, to determine exactly when that is going to be. But, as

you said, we expect this to be extremely beneficial to the Service

in combating this potential area of fraud or abuse and expect to

work quite closely with HHS. In fact, part of the initiative that we

had on the EITC funding that we got last year, was to go directly

to HHS, or I should say is funneled through us to go to HHS to

help build that data base.

Senator KOHL. My office is very interested in trying to see to it

that we get this program not only underway but up and running

so that we can save this money. I would appreciate it if you will

take it as a matter of priority.

Mr. DALRYMPLE. It is an absolute priority with us.

Senator KOHL. I thank you.

TAX COUNSELING FOR THE ELDERLY

The fiscal year 1999 budget requests $3.7 million for the Tax

Counseling for the Elderly Program. Since this program was first

authorized in 1978 it has grown to include 53 sponsors assisting

more than 1.6 million elderly taxpayers.

I would like to ask you, Mr. Rossotti, to describe what kind of

assistance is actually provided to the elderly, who provides the assistance, how they are compensated, whether or not we are reaching all elderly who require the assistance, and how much money is

needed to ensure that every elderly person who requires assistance
189

would receive it? Would you describe the program and how it is

going?

Mr. ROSSOTTI. Let me once again ask Mr. Dalrymple to give the

details, but I just want to say one general point because I think

this is an important one. I think that one of the opportunities we

have to provide better service to many segments of the population,

including especially the elderly but others including various small

businesses, is by taking advantage of partnerships and relationships with various kinds of associations and volunteer groups.

I have met with several of these, including AARP, and they are

very anxious to work with us, if we can only get out and provide

some support to them.

I personally want to tell you that I think this is in keeping with

what people in the private sector do. You do not try to do it all

yourself. You go out and try to work with others to help you. This

is a very, very promising area.

As far as the specific tax counseling, I will ask Mr. Dalrymple

to give a few more details.

Mr. DALRYMPLE. As you mentioned, we have spent up to $3.7

million last year and we are going to spend up to that amount this

year. We also supplemented this with computer equipment and

some other equipment, in addition, from our offices. We helped 1.5

million taxpayers in fiscal year 1997 and expect to do somewhat

more than that this year.

There were 53 sponsors for the program. The largest, of course,

was AARP as Mr. Rossotti just mentioned.

This really is a very important program for us and one with

which we have had a very long history. In fact, my mother uses

TCE and has for a number of years. She lives in Iowa and, in fact,

I was home a few years ago and asked her if she would like me

to do her tax return, and actually she somewhat politely told me

that she only trusts the folks at the TCE counseling center, with

whom she could make appointments to do that for her.

So I recognize how important this is to folks, because they become quite dependent on it. We are going to strive to make this

much more available.

We have gone out this year for the first time on our Internet site

and asked for more sponsors, and we are getting quite a response

from that. This will be for the 1998 tax year, 1999 filing season.

CENTURY DATE CHANGE

Senator KOHL. Good. One last question, century day change. Mr.

Commissioner, as you indicated in your statement, century day

change or year 2000 is one of the most critical elements of the fiscal year 1999 budget. We understand that the IRS is also requesting funds in fiscal year 1998.

How is the IRS going to cover the costs of these requirements?

What happens if the year 2000 is not funded, particularly if your

requests for the telecommunications systems is not funded?

Mr. ROSSOTTI. Well, I think that whatever happens, we simply

have to make these changes. I think that we do need the funding

to make these changes. If we do not get the funding, we will have

to find something to solve this problem, because we cannot allow

these systems not to be updated.
190

I do think that we are getting a much closer control over what

we need to do than was the case even 6 months or 1 year ago. This

is simply the fact that we have been working very hard to identify

all of the individual components that we have to update. This is

something that every large business in America is going through.

In the case of the IRS, it is a gigantic task because we have, for

example, about 90,000 individual application programs. We have

hundreds of thousands of pieces of hardware and software products

that we have to identify.

We are now getting to the point where all of the high-priority

ones have been identified. We are getting to the still essential but

slightly less priority ones, and I think we are very close to having

them all identified.

I have spent considerable time on this program. It was one of the

first things that I looked at when I got into office. My own assessment of this program is that while there still is considerable risk

as there would be for anything this huge, I do believe that we have

identified those risks and we have got some actions in place to

manage those. And, assuming we can get funding and that we can

continue on, I do not think we are going to have a catastrophic failure here.

There could be problems, given the magnitude of it, but I think

we can manage those at this point, assuming we can get the funding.

Senator KOHL. Thank you. Thank you, Mr. Chairman.

Senator CAMPBELL. Senator Faircloth.

Senator FAIRCLOTH. Thank you, Mr. Chairman.

NEW INFORMATION TECHNOLOGY SYSTEMS

Commissioner Rossotti, I do not mean to pursue the—and I know

you had absolutely no hand in this absolutely—equipment mess up

from word one. I mean, you were out working up the money to pay

for it.

But maybe what is the IRS budget annually?

Mr. ROSSOTTI. The total IRS budget?

Senator FAIRCLOTH. Yes, sir.

Mr. ROSSOTTI. This year we are asking for about $7.9 million

plus the investment, the $300 million investment, for the information technology.

Senator FAIRCLOTH. For the what?

Mr. ROSSOTTI. For the new systems, the new information technology.

Senator FAIRCLOTH. I am trying to comprehend how the new system is roughly $300 million. How could we waste at least 11 times

that much on a system that did not work, was not working? It is

just mind-boggling how it—and if somebody is there with you that

could explain how you could do that?

Mr. ROSSOTTI. Let me try to do the best I can. First of all, unfortunately, we are just beginning the replacement effort of the new

system. Mr. Gross has been working for about 2 years to outline

a plan for it, and we are just ready to begin. The money that we

are asking, the $300 million, unfortunately is not going to be just

for 1 year. I mean, we are going to be working at this probably for

another 10 years, I would say, or at least 7 to 10 years. I do not
191

know that it would be that amount of money per year, but this is

a very, very big program.

The IRS has one of the most enormous information technology

systems anywhere in the world, so we are not talking about something small here.

As to your question of how did it fail? Of course, I was not there

but I have studied it a little bit, not in detail. I will tell you, I think

that in the private sector large technology programs do fail, also.

The difference is that the failures are identified earlier, as you

noted, and you do not go so far down the road.

Senator FAIRCLOTH. That really was my question.

Mr. ROSSOTTI. And so I do not know entirely why it was not identified earlier. But I think if we look at what are the things that

need to be done, that we are putting in place here to make sure

that it does not fail again, there is a whole series of them.

One of them is simply having professional management of the information technology function. Unfortunately, Mr. Gross is leaving

us but he has brought some new people in and he has built the beginnings of a real professional organization. He has also agreed to

continue to consult with us after he leaves, fortunately, and I am

committed to recruiting a person from the private sector who is a

professional person to be the overall manager.

Second, we are going to use the best contractors, outside contractors. In this day and age you do not try and do these things yourself, not only to buy the hardware but to actually put it all together

and to integrate it. So we are going to do that.

The third thing that is very important is that technology does

not stand by itself in business. It has to work with the people who

are using it to design it. That has been a problem, as well. Part

of my concept here in the future would be to have a much closer

or clearer sense of ownership of these new systems by the people

actually in the agency and using it.

And finally, I have spent 28 years in this business, I am just

committing myself here to try to oversee this thing, to try to make

it successful. But it is going to take time and there are risks associated with it.

That is the best answer I can give, not having been here during

the period when it was done.

Senator FAIRCLOTH. At least we do not plan to repeat the mistakes of the last one?

Mr. ROSSOTTI. Not if I can help it.

SECTION 6103

Senator FAIRCLOTH. You might not be familiar with this, certainly in 4 months you probably have not. But there is one section

of the Tax Code, section 6103, that was put in and intended to protect the taxpayers’ privacy, was the purpose of it. But now it is

being used by the IRS and IRS attorneys to shield the inner workings of the IRS from the scrutiny of Congress in many ways and

many times.

Do you, or is someone accompanying you, what ideas do they

have for opening up the IRS for better congressional oversight?
192

Mr. ROSSOTTI. Senator, let me just say, that is one section of the

code I have learned, even though I am not a tax lawyer. I learned

6103 even before I was confirmed.

I believe that there is a lot more disclosure and a lot more information that we can give to Congress, as well as the public, without

violating 6103. In my confirmation hearing before the Senate Finance Committee and Senator Roth back in October, that was one

of the things that I said that I thought was going to be my policy,

to help improve the agency.

I do not believe that you can solve problems until you have acknowledged honestly that they exist. And so from the very first day

that I was in office, I sent out a memo and an e-mail and a voice

mail to every employee saying that open communication and honest

acknowledgement of problems was going to be something that we

were going to have to face up to and do.

I do not know that we will succeed in that instantly, but in every

way that I can I am pursuing that policy.

I do not really think that 6103 is that much of an obstacle to it.

All it says is that you cannot release a specific taxpayer’s information. But if you look, for example, at the internal audit reports and

the GAO reports that are done, which are many, very little of them

have reference to individual taxpayer information. We are now

sending all of our internal audit reports over to the committee

here, and as far as I am concerned we will continue to follow that

practice and try to respond every way we can.

I am committed to acknowledging problems and solving them,

not trying to cover them up.

Senator FAIRCLOTH. Thank you. One other quick question, if I

may, Mr. Chairman.

INTERNAL ETHICS PROBLEMS

Could you provide the committee with any statistics or with statistics on internal ethics problems within IRS employees? I would

like a breakdown on how many employees have been disciplined

over the past 3 years.

Not names, of course, but how many have been disciplined over

the last 3 years, and for what offenses and what type of punishment was merited.

Mr. ROSSOTTI. We can do that. I do not have it with me, but I

would be glad to get back to you on that.

Senator FAIRCLOTH. I am sure you do not, but if somebody could

get that.

Mr. ROSSOTTI. We will get you that, Senator.

Senator FAIRCLOTH. Thank you so much.

[The information follows:]

For 1996, 1997, and thus far in 1998, employees have been disciplined for the following offenses that relate to ethical issues: general conduct matters; Taxpayer Bill

of Rights II violations; and employee tax matters. Punishment ranged from admonishment, reprimand, suspension, up to removal.

Employees

Category disciplined

General conduct matters ................................................................................. 1,895

Taxpayer Bill of Rights II ............................................................................... 64

Employee tax matters ..................................................................................... 501

Total ....................................................................................................... 2,460
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DISPROPORTIONATE AUDITS OF SOUTHERNERS

Senator CAMPBELL. Senator Shelby.

Senator SHELBY. Thank you, Mr. Chairman.

I would like to get into a story that surfaced recently about the

IRS disproportionate audits of southerners, being a southerner. I

think Senator Coverdell asked the General Accounting Office for a

study there. I am sure you are familiar with it.

When the General Accounting Office study conducted for Senator

Coverdell found that 47 percent of taxpayers audited at random reside in 1 of the 11 Southern States. These States, including my

State of Alabama, account for just 29 percent of the population.

How do you explain that? Is this just seeking out people? Is that

getting into the auditing of the investment tax credit? Or what is

it? And is not 47 percent a pretty disproportionate share of socalled audits?

Mr. ROSSOTTI. Let me just say, Senator, first of all I am still

learning myself where these audits are.

Senator SHELBY. Sure, I know you are.

Mr. ROSSOTTI. And how they are done. I am continuing to work

to try to find out, because I certainly do not believe that it is our

job to target anybody unless there is a real good reason to do it.

I do have the study and I have had a little bit of time to look

at it. It does appear that, in this particular study, the real reason

was that 84 percent of these particular audits were really designed

to study the EITC program, which is a program which has had, as

I understand it, some significant problems with money being

claimed that was not owed. And there was actually encouragement

by Congress to study this.

Senator SHELBY. I will be the first one to tell you, we do not

want anybody to cheat the system, game the system, on anything.

But on the other hand, when 47 percent of the audits come out,

that is sort of troublesome.

So you have got to have a good reason for it, and I know you

were not there.

Mr. ROSSOTTI. I think that in this particular case the principal

reason was not any deliberate targeting but simply the fact that it

was mostly a study of EITC problems. Eighty-four percent of it was

the EITC, and it happened that there are more EITC recipients in

some of the Southern States than there are in other places. I think

that was the reason why, in this particular case, that came out

that way.

But more generally, I just want to try to assure you, I have not

studied all this yet, but we are going to do the best we can to try

to make sure that the whole process is absolutely fair and that nobody is unfairly targeted. The sole purpose of doing audits is to encourage compliance.

BUDGET REQUEST

Senator SHELBY. It is my understanding in the budget request

that the IRS is asking for $143 million and 2,184 FTE, full-time

equivalent, positions for the EITC appropriation. Can you explain

that in detail? That is a lot of money, $143 million.
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Mr. ROSSOTTI. Let me just say that this was the money that I

think was specifically added by the Congress last year, to request

the IRS to do this. So this was requested by the Congress, as I understand it, but Mr. Dalrymple can tell you exactly what we are

going to do with this money.

Mr. DALRYMPLE. This last year we were given $138 million and,

you are right, in the 1999 budget——

Senator SHELBY. Mr. Dalrymple, could you pull the microphone

up?

Mr. DALRYMPLE. Too far away? Maybe it is not on. OK. At any rate, we were given $138 million in this last budget year and I think the 1999 budget reflects $143 million, as you mentioned.

That was a direct result of a lot of concerns. They were basically

twofold. One, that we make sure we reach all of the people who

need to be reached. And two, that we get as much of the overclaim

rate out of the system as possible.

What we have done in 1998, and we will continue in 1999, is basically on one hand, to ensure that everyone who should be eligible

is claiming, we have sent informational letters to the top 100 employers, most likely to employ taxpayers who would be eligible. We

sent notices to over 6 million EITC recipients, informing them of

the advanced earned income credit, because we know that people

are much more compliant who use the advanced earned income

credit. We sent approximately 2.5 million notices to taxpayers who

did not claim the credit but appear eligible for the credit.

And we also worked with the Social Security Administration to

send out a document in their reporter which reaches over 6 million

employers, to give them information about this.

We are also providing toll-free telephone assistance for EITC

questions 24 hours a day, 7 days a week on a special line.

On the other side of the ledger, because we want to make sure

that we have also reduced as much of the overclaim rate as possible here, we also expect to protect over $1.2 billion this year

through our math error operations, which Congress gave us authority to use in this area, and through additional examinations this

year.

EARNED INCOME TAX CREDIT

Senator SHELBY. Mr. Dalrymple, do you know how the earned income tax credit works? Do you know the mechanics of it?

Mr. DALRYMPLE. I generally know, yes.

Senator SHELBY. How is that? It is not a credit against what you

earn, it is a check if you do not earn a certain amount of money,

is it not?

Mr. DALRYMPLE. It is a refundable credit, you are right.

Senator SHELBY. For example, if I earn x dollars and I was supposed to pay taxes, would I get my taxes back? In other words, if

I qualified for that, or would I get my taxes back plus a subsidy,

a welfare check?

Mr. DALRYMPLE. You could get more than the taxes.

Senator SHELBY. I would get more back than I ever paid in; is

that right?

Mr. DALRYMPLE. You could, at certain incomes.
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Senator SHELBY. So that is a misnomer, is it not, when you say

it is an earned income tax credit? You are really giving a subsidy

out, are you not? You are giving a check out for me that I did not

earn; is that correct?

Mr. DALRYMPLE. Senator, you are now asking questions of someone who administers the law, versus someone who——

Senator SHELBY. I am just asking you mechanically. Let us say

I earned $25,000 and I was cut so much taxes, would I get that

money back if I qualified, plus other money that I never earned?

Do you see what my question is?

Mr. DALRYMPLE. It really depends on your circumstances.

Senator SHELBY. I understand that, but that is not what I am

asking you. I am asking you that you do not just get your tax

money back, you get a welfare check back; is that right?

Mr. DALRYMPLE. Well, you can get a credit over and above your

tax.

Senator SHELBY. Now do you get a credit or do you get a check?

Mr. DALRYMPLE. You get a check.

Senator SHELBY. That is right. A lot of difference, is there not?

Mr. DALRYMPLE. You get a check back.

Senator SHELBY. So why do they call it a credit?

Mr. DALRYMPLE. I really cannot answer that.

Senator SHELBY. Congress did that, did they not?

That is a big thing. I think a lot of people do not realize in America what that is. It is a big handout. I know you did not create the

program, and neither did I.

Tax Code complexity, the Tax Code is very complex; is it not?

Mr. ROSSOTTI. Yes, sir.

Senator SHELBY. In addition to being a nightmare for most taxpayers, including this one here, the Tax Code’s complexity obviously poses very substantial problems for your agency with regard

to administration. Would that be a given?

Mr. ROSSOTTI. Certainly.

CHANGES IN THE TAX CODE

Senator SHELBY. You have noted, in your prepared testimony,

that there were about 800 changes made to the Tax Code that ‘‘ripple through the IRS, requiring new forms and publications, training of employees, and updating of technology.’’

Obviously, this ultimately ends up costing more money for compliance and administrative costs; am I right, sir?

Mr. ROSSOTTI. Yes, sir.

Senator SHELBY. Can you give me a better idea of what is triggered when Congress makes significant changes to the Tax Code?

Or have I already said it?

Mr. ROSSOTTI. I think you just said it.

Senator SHELBY. I think it was alluded to, the employee disciplinary procedures that might not be there, I am not sure. In April

of last year the subcommittee held hearings regarding the issue of

IRS employees browsing or snooping at taxpayers’ files, which most

Americans thought were confidential, you know, that they were

dealing with the IRS and they had a right of privacy there, and so

forth. And I believe they do. At that time, it was expressed that
196

serious concerns about holding employees accountable through severe disciplinary actions.

MISTREATMENT OF TAXPAYERS

A common theme throughout your prepared testimony today is

the goal of making the IRS perform more like a private financial

institution. Last fall Senate Finance Committee brought to light severe mistreatment of taxpayers by employees of the Internal Revenue Service, people that you are their superior.

The private sector has a very simple solution to those kind of

problems and you know about it, you have been there. It fires people. You cannot put up with that kind of stuff.

Do you know how many people have lost their jobs as a result

of the misconduct outlined in the Finance hearings last fall? And

in addition, how has the agency changed its policies to expedite the

termination of rogue employees, employees at the IRS that snoop

and disseminate information that is confidential for the average

American taxpayer?

Mr. ROSSOTTI. That is a very, very good question, Senator.

Let me address the issue that has been an issue longer, which

is the unauthorized access. I think I summarized this in answer to

a previous question, but with the help of Congress we did get a

new law, a change in the law in August, which made it much easier to discipline employees, made it clear that losing your job or

even criminal prosecution would be a consequence of unauthorized

access.

And we also, as I said, have put in some significant programs to

make it clear that this is going to happen. We call it unauthorized

access [UNAX], and every employee has now gone through a required training program, has signed a certification, and we have

added a special central way of processing these cases.

Senator SHELBY. Let me ask you this, as a new boss over there,

I certainly wish you well, and I believe you have a great attitude

and I hope you will retain it as you delve into the problems there.

Mr. ROSSOTTI. Thank you.

Senator SHELBY. If you find out, and you are the head man, that

people are snooping into taxpayer’s files and disseminating this information—I am talking about the average American taxpayer—

are you going to fire those people, are you going to pension them

off, or what are you going to do? Reassign them? I think that is

important.

Mr. ROSSOTTI. We have got the authority——

Senator SHELBY. No, sir; what are you going to do? You are going

to set the tone.

Senator CAMPBELL. If the Senator would yield, he did testify earlier that they had fired, what was it, 140?

Mr. ROSSOTTI. 153 in fiscal year 1997.

Senator CAMPBELL. 153 you have fired.

Senator SHELBY. That is good.

Mr. ROSSOTTI. I mean, it does not happen in all cases because

there are some cases where there are mitigating circumstances.

Even in private business, I did not just fire everybody the first time

that somebody did something wrong. So you do want to have due
197

process for people, and it is a little longer I have found in the Federal Government.

Senator SHELBY. Too long, is it not?

Mr. ROSSOTTI. Well, it is longer, but I think if you pursue it you

can still make it happen.

Senator SHELBY. Do you believe that the American taxpayers

who file their taxes should have the benefit of confidentiality with

the Internal Revenue Service?

Mr. ROSSOTTI. Oh, most definitely.

Senator SHELBY. And should that be one of the highest orders at

the agency?

Mr. ROSSOTTI. Yes, sir; absolutely. And I think that, in this area,

most of this was done, I have to say, before I got here. There is

a very aggressive program to do this, and we have better technology to detect when people are doing it, and the number of incidents has dropped dramatically.

It is still too high. We still need to go down to zero, or as close

to zero, but I think there are some real programs in place to make

this happen.

Senator SHELBY. Mr. Chairman, I have one last question, if you

will permit me.

TAXPAYER SERVICE

Taxpayer service is very important, and you probably went into

it earlier and I did not get here at the beginning. Taxpayer service,

when someone contacts the IRS should they not be able to rely

upon the advice they get from the IRS? Or if they cannot, why give

the advice at all? Because a lot of people in America are frustrated

with the advice they have gotten from the IRS, to rely on what

they get.

Would it not be better not to give advice than to give erroneous

advice that frustrates the process, frustrates the people, and destroys the respect they have for your agency?

Mr. ROSSOTTI. Yes; that is right. It would be better to not give

advice than give erroneous advice. And this area of customer service has been really acknowledged to be quite deficient.

There are significant improvements in this filing season, at least

in the quantity certainly, of being able to get through, and the

measurements of quality. I do not think we are still at an acceptable level of quality, but we are measuring it. We are measuring

it better.

All I can say is we are not going to be satisfied until we get—

we will never get to 100 percent, I do not believe, but we can certainly improve significantly.

Senator SHELBY. Thank you. Thank you, Mr. Chairman.

INFORMATION ACCURACY RATE

Senator CAMPBELL. If I might add something to Senator Shelby’s

comments and questions, it is my understanding that the IRS initiated a toll-free number in order for taxpayers to get information on

how to comply with a particular tax law and how to fill out certain

tax forms. In 1997, according to the IRS statistics, the accuracy

rate for the taxpayer inquiries were 96.1 percent, which is great except for the 3.9 percent that did not. And they relied on informa-
198

tion provided by the IRS but then learned later that it was wrong

information. When the IRS demanded additional taxes and fines,

of course it created some real problems.

My question, in addition to Senator Shelby’s question, is how are

they going to be able to rely on information? You may never get

to 100 percent, but is there an appeals process they have to go

through when they have gotten bad information?

Mr. ROSSOTTI. I think that there is a number of solutions here.

Probably the most important solution is 96 percent is certainly better than it was, but that is still 3.5 percent and that is not good

enough.

I think in many businesses, one of the things that you have

found is that you set a goal, you get to a certain point, and you

find OK, now we can take that 3.5 percent, and if we cut it in half

that is 1.7 percent, that will be a big improvement. That is one of

the most important things, to just give the best advice in the first

place.

I think one of the things that we have in this 1999 budget is

some additional money. It is in customer service, but it is really for

training the employees. One of the reasons, of course, that you do

not give the right advice is you do not train the employees with the

right information. In 1999 that is going to be particularly important because we have all these tax law changes.

I can tell you the employees are very frustrated when they do not

have the right training and then they get into a phone call with

a client, with a taxpayer. I am still calling them clients because

that was what I used to call them on my previous job.

Senator CAMPBELL. There is a lot of money in the training. You

also have a request to provide better telephone service for over $50

million. I will tell you, I do not know of anything more frustrating

than calling a Federal agency now and you cannot find a live,

warm body. What you get is a recording, press one for so and so,

press two for so and so, you know the routine.

If we are going to add $50 million to this, can we anticipate some

kind of improvements where people can talk to human beings?

Mr. ROSSOTTI. The point is to be able to have more people on the

phones, No. 1; and to schedule them when people call. One of the

biggest things about calling is just simply scheduling. In other

words, for the average person, there is a pattern of calling. People

call in the evenings, for example, when they are free. They do not

necessarily call at 10 o’clock in the morning when they are working, so we are extending the hours of service.

Senator CAMPBELL. And Saturdays, as I understand.

Mr. ROSSOTTI. And Saturdays, we are open Saturdays. Those are

the kind of things that we need to do.

We also need better technology to put the calls across the Nation

in the right place where the people are. So those are some of the

things that we are trying to do, and we will be working on. I think

in 1999 we can make some significant progress.

Senator CAMPBELL. Let me go on to a couple of other short ones,

before I yield to Senator Kohl.
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TAX LAW ENFORCEMENT SECTION

In fiscal year 1998 there were more employees in the tax law enforcement part of the IRS than there are in processing and assistance. Given the fact that over 80 percent of the taxpayers are voluntarily paying and have no problems at all, why do we need so

much of the budget in the enforcement section?

Mr. ROSSOTTI. There are a significant number of people in the

compliance functions. That is correct, Senator. I think that the biggest single category of people in that category are simply the people

doing examinations. A lot of those people are doing examinations

of corporations as well as individuals. There are a lot of corporations that pay a lot of taxes in this country.

The actual examination rate for individual taxpayers is a little

over 1 percent, and it is really in the nature of a spot check, as

I would see it, to make sure that the people who are fairly paying

are not victimized by the small percentage of people who do not

pay. And it does take quite a few people even to do 1 percent examinations of those returns.

But let me just say that, longer term as we go forward here,

what we can do is handle more returns but we can maintain the

level of compliance without adding to the number of people. I

think, in other words, we can shrink the number of people in the

IRS in all the functions as a fraction of the economy.

We cannot do that overnight, because it takes reorganization and

it takes technology, but I do think over time it can shrink.

MANAGEMENT OF PURCHASING PROCESSES

Senator CAMPBELL. Last question before I yield, we are being

asked to put an awful lot of money into purchasing new high technology equipment. I was interested in how you purchase things.

No. 1, since you have offices all over the country, is there going

to be some kind of management control so that field offices are not

purchasing something that simply cannot be hooked up or utilized?

What is the process by which you intend to do some of the purchasing?

Mr. ROSSOTTI. Yes, sir, Senator. That is one of the big changes

over what was done in the past. We are centralizing not just the

purchasing—that is just one part of it—but the entire management

process for all the information technology in the central group here

that would be headed by the chief information officer.

That is partially done today and we are moving more in fiscal

year 1999. As part of the year 2000 we are centralizing more. But

I think within a few years we will have it almost completely centralized in terms of its management.

The other big change is that most of the development of the new

systems, including new equipment, will be managed through one

major prime contract where the single contractor will be the integrator and will make sure all this fits together, which is the way

it is done, for the most part, in the private sector.

Senator CAMPBELL. Senator Kohl.
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ELECTRONIC FILING

Senator KOHL. Thank you, Senator Campbell. I will just ask one

question, Mr. Rossotti.

Would you talk about electronic filing for a bit? What the percentage of taxpayers are who file electronically now and how you

intend to progress on this, what your timetable is, and what the

American taxpayer can look forward to by way of electronic filing?

Mr. ROSSOTTI. Yes; well, this year we have some pretty good

news in the early filing season. I think we are up, John what is

it, about 20——

Mr. DALRYMPLE. We are over 24 percent above where we were

last year across the board.

Senator KOHL. How many Americans file electronically now?

Mr. DALRYMPLE. So far this year, we have had approximately 17

million people file electronically this year. In all of the last filing

season we did about 19 million, just a fraction over 19 million. So

we are running substantially ahead of where we were last year, to

the tune of about 20 to 24 percent ahead of last year.

Mr. ROSSOTTI. It is still though, to get to your question, there are

still many more that are filing by paper. I think it is about 80 percent or so paper, still. We will have to see how it comes out by the

end of the year.

But of course, if we continue to grow, what is happening is that

the number of returns on paper is gradually going down and the

number of electronic returns is going up very rapidly. So if you extrapolate over the next 4 or 5 years, we will cross these lines.

However, it is not going to happen just by our standing by and

watching it. There are some very aggressive things that we have

to do. We really do not have as good of an electronic filing program

as we need to have. There is still too much paper involved even in

some of the electronic filing. Even though you file electronically

there is still, in some cases, some paper you have to send in which

really does not make a lot of sense. That is because of some of the

problems with having signatures that are authorized.

We are working very aggressively right now to come up with an

improved electronic filing system for next year, for fiscal year 1999,

that would eliminate some of these problems and accelerate the

trend toward electronic filing.

Senator KOHL. As we look out the next 3, 4, 5, 6, 7, 10 years,

what is your estimate of what the percentage of Americans filing

electronically will do?

Mr. ROSSOTTI. Well, I do not know what the exact percentage is,

but I think if you just extrapolate the trends that we are on and

we do some other things, it will not be too long before it will be

certainly the majority. And ultimately you will never get to 100

percent—well, I will not say never, but it may take quite a while

before you get to 100 percent.

But certainly the predominant form of filing in the future, and

it will not be too far into the future, will be electronic.

Senator KOHL. Thank you, Mr. Chairman.
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YEAR 2000

Senator CAMPBELL. The year 2000, and I keep hearing that, that

year is the time when all of the computers, what, do they go crazy

or something?

Mr. ROSSOTTI. Yes.

Senator CAMPBELL. As I understand it, they will not be able to

recognize between a six-digit bar code and an eight, or something.

I know that the IRS has worked very hard on that, to try to get

ahead of the curve, but could you give me just a little nontechnical

overview about how you are moving forward to prevent this doomsday effect that we keep hearing about?

Mr. ROSSOTTI. Yes; I will. In simple terms, there are two things

that you have to do. In some of the computer programs you have

to do what is called renovate them, which is just make some

changes to them so they can accommodate the century date.

And the other thing you have to do on some of the products that

you have bought from the outside, is to get new versions of them,

new pieces of hardware and software. These are the two basic

things you have to do.

The final thing you have to do, after you do that, is test it all

to make sure it works.

Basically in terms of the first two, the renovation and replacement, our plan is to have most of that done, almost all of it done,

at the end of this calendar year, 1998, before we start next year’s

filing season. There may be some that would hang over, but for the

vast majority of it we would have it done. And we have an enormous amount of management time going in to making that happen.

What would happen during next year, calendar 1999, is the final

testing of all this to make sure it works. It is a very big program.

The whole thing all together, over 3 years, is more than a $900 million program, which is really enormous in terms of management in

any business.

But fortunately, mostly due to work that Mr. Gross did before I

ever got here, it is a well-organized program. That is not to say

there are not risks associated with it, but I think we understand

where those risks are.

Senator CAMPBELL. Well, I do not know, frankly, what it is going

to mean to the average mom and pop out on the farms paying their

taxes if something does not work, but hopefully it will be ironed out

by then.

MISPRINTED BAR CODES

It was recently discovered that an IRS contractor misprinted the

bar codes on about 1 million address labels. As I understand that,

unless that is fixed, the completed tax returns will actually go back

to the taxpayer rather than the IRS. They will get their own mail

back.

I would really like to know what steps you are taking to try to

correct that? Is there something going to be done before April 15,

so these people will not be in jeopardy of missing the deadline?

Mr. DALRYMPLE. Yes; in fact, we have already begun mailing letters out to the taxpayers, informing them of that, with additional

bar coded envelopes so that they can mail their returns properly.
202

We have identified exactly who they are. The vendor who was responsible for that took responsibility for mailing out these corrected

ones.

Senator CAMPBELL. When something like that happens, what actions do you take against the vendor? Do you just not deal with

them anymore? Is there some kind of a bonding system or a penalty or how do you deal with it?

Mr. DALRYMPLE. Each year, of course, when we contract with

vendors we look at their past performance. We deal with a number

of vendors in terms of mailing out forms and publications.

Part of the penalty phase would be looking at whether we are

going to use this particular vendor again. We traditionally have

one or two problems during the filing season because of the volumes involved. The vendors are supposed to have very careful quality controls in place.

In this particular situation it was unacceptable to us because

from what we thought would have happened with that vendor, they

would have caught this much earlier because their quality control

would have been much sooner than having as many of these documents go out as did.

Senator CAMPBELL. Are the vendors responsible for the additional cost of correcting the mistake?

Mr. DALRYMPLE. Yes; they are.

Senator CAMPBELL. OK. Do you have any additional comments?

EITC PROGRAM

Mr. DALRYMPLE. Can I just clarify one thing for the record?

Senator CAMPBELL. Sure.

Mr. DALRYMPLE. When Senator Shelby was asking earlier about

the EITC taxes, I think it is important to get on the record that

those also were intended to refund the payroll taxes in addition to

the income taxes, and I do not think I made that perfectly clear

in an earlier statement.

Senator CAMPBELL. He might not hear the tape. You might wish

to drop him a line and correct that so he will be aware of that.

Mr. DALRYMPLE. I will. I absolutely will.

PREPARED STATEMENT

Senator CAMPBELL. Before we adjourn, with unanimous consent

to be included for the record a statement by Senator Coverdell, who

wanted to be here with us, but could not today.

[The statement follows:]

PREPARED STATEMENT OF SENATOR COVERDELL

Chairman Campbell, members of the Subcommittee, and guests, I appreciate this

opportunity to submit testimony as you consider fiscal year 1999 funding for the Internal Revenue Service (IRS) in the Treasury/Postal Appropriations legislation. Although I would very much like to have delivered these remarks in person, I am prevented by an unavoidable scheduling conflict.

As you may be aware, I released earlier this week a General Accounting Office

(GAO) report regarding the use of random audits by the IRS. The finding that the

IRS has targeted low-income taxpayers was shocking, but not unexpected. In my

travels throughout Georgia, invariably I have been approached by individuals who

found themselves within the sights of the IRS, and they were scared to death.

More and more, I saw a pattern. The Georgians who approached me were not

wealthy nor were they CEO’s of big corporations. They were ordinary, law abiding
203

taxpayers who earn a wage or run a small business or operate a family farm. Some

were struggling just to make ends meet. Many were frankly confused as to what

they had done WRONG to deserve the attention of the IRS. Thanks to the GAO report on IRS random Audits, now we know that many of them had done NOTHING

to warrant such attention.

Low income taxpayers are defenseless when confronted by the IRS, and I suspected that is exactly why they had been targeted. It is troubling to know that my

suspicions have been confirmed. Now is the time to do something about it. It is important to mention again that these are audits of taxpayers whose returns indicated

NO WRONG DOING. Of all the random audits of returns filed by individual taxpayers in this Nation from 1994 to 1996, over 90 percent were conducted on taxpayers earning LESS than $25,000. This is unconscionable.

The incredible Finance hearings last Fall brought to the Nation’s attention the

abuses the IRS has inflicted upon taxpayers. I want to quote from one witness, Jennifer Long, who is a field agent with the IRS. She said, ‘‘As of late, we seem to be

auditing only the poor people. The current IRS Management does not believe anyone

in this country can possibly live on less than $20,000 per year, insisting anyone

below that level must be cheating by understating their true income.’’

Moreover, at a recent field hearing of the Senate Committee on Small Business,

the Director of the Georgia State University Tax Clinic testified that when confronted by the IRS, low-income taxpayers end up paying more tax than they actually

owe. I believe the IRS knows this.

When its campaign of random audits against the poor was uncovered, the IRS

made the outrageous claim that it is only responding to a congressional mandate

to root out fraud in the Earned Income Tax Credit (EITC) program. This is just one

more instance of the lengths the IRS will take to misdirect congressional and public

scrutiny from its shameful activity. In fact, Congress has passed no mandate, no

edict, instructing the IRS to target poor taxpayers with random audits.

After uncovering these very troubling facts, the question remains, what should be

done to put a stop to this practice? First, I believe we must prohibit the practice

of random audits. We must remove this brutal tool from the hands of the IRS and

put a stop to this indiscriminate targeting. In addition to legislation I will be introducing soon to prohibit random audits, I believe it is critical that restrictions be

placed upon the appropriations Congress allocates to the IRS. Specifically, I refer

to the $716 million in funding through 2002 authorized in the Balanced Budget Act

of 1997 to support the EIC Compliance Initiative of the IRS.

Congress provided $138 million in fiscal year 1998 to the IRS and trusted it to

use that money appropriately. Since that time, we have learned of the IRS’ outrageous use of random audits as a tool of its EIC Compliance Initiative and of its

attempt to misdirect the responsibility for that action. Clearly, the IRS cannot be

given free reign in this matter without inviting abuse of low income taxpayers.

The Subcommittee and Congress has before it the opportunity to protect these low

income taxpayers who are otherwise defenseless when confronted by the IRS. As you

consider funding for the IRS’ EIC Compliance Initiative in fiscal year 1999, authorized at $143 million, I urge you to prohibit these funds from supporting the practice

of random audits.

Once again, thank you for allowing me to testify today and to express my deep

concerns.

SUBMITTED QUESTIONS

Senator CAMPBELL. I appreciate you being here and I have several other questions that I am going to submit. If you would answer those in writing, I would certainly appreciate it.

[The following questions were not asked at the hearing, but were

submitted to the Department for response subsequent to the hearing:]

QUESTIONS SUBMITTED BY SENATOR CAMPBELL

Question. Mr. Rossotti, the Senate Majority Leader has announced that he expects

to have an IRS reform bill before the Senate this month. I am sure you have been

in almost constant contact with Senator Roth, Chairman of the Senate Finance committee, to discuss this issue. Based upon the bill you expect to see emerge from the

Finance Committee, do you believe that your operating expenses will decrease or increase.
204

Answer. The IRS reform bill is very consistent with the direction of organizational

modernization that we have proposed and in fact directs some organizational and

procedural changes. Some of the taxpayer bill of rights provisions will require significant changes to computer systems. The Senate Finance Committee is working

with us to develop effective dates for these provisions that are feasible in light of

Century Date Change and other tax law requirements. Assuming that mutually acceptable dates can be worked out, we should be able to make the changes envisaged

by the restructuring bill within the limits of the fiscal year 1999 budget as now submitted. The restructuring bill does, however, make it even more essential that the

amounts requested for technology and customer service improvements, as well as

the $25 million requested for organizational modernization, be approved.

Question. What efforts have been made to include taxpayers in these reform discussions?

Answer. The IRS’ Office of Public Liaison and Small Business Affairs maintains

a very active liaison relationship with the practitioner and small business communities, the Tax Executives Institute, Inc., Federation of Tax Administrators, American Association of Retired Persons, the payroll community, and the Commissioner’s

Advisory Group (CAG). This program enables IRS to maintain an interactive and

frequent communication system to share information about the new concept of operations and request stakeholder feedback. These organizations represent nationwide

practitioners and stakeholders. Through their members’ daily interaction with taxpayers and IRS employees, these organizations are perfectly suited to assist us in

our assessment of our customers’ (the taxpayers) needs and concerns.

The Deputy Commissioner or I have personally briefed these groups about my

proposal to modernize the IRS.

The CAG, composed of representatives from major market segments, has undertaken an in-depth study of the proposal. Members will convene in working sessions

to discuss scenarios based on the currently proposed organizational structure and

the implications this could have on taxpayers and practitioners. In addition, the

CAG will also work with Booz-Allen & Hamilton to provide feedback about the new

concept of operations. The CAG will present formal recommendations about their

findings during upcoming public meetings.

Booz-Allen & Hamilton will also meet with the various practitioner, small business, and stakeholder groups to discuss their constituencies’ key issues and concerns.

Question. The fiscal year 1999 budget requests a total of $25 million from three

accounts for organizational modernization. However, the budget justification provides no details about this proposed reorganization or modernization, other than a

breakout of the requested funding by object class. Your testimony before this Committee included information about a reform plan you are investigating. However, I

am told that this is still in the development stage. Exactly what organizational modernization is envisioned which will cost $25 million? If it is your own reform plan,

which divides the organization along business lines, how were you able to determine

the cost of a plan which has not yet been finalized?

Answer. The $25 million requested for organizational modernization will support

my proposal to move the IRS to a more customer-focused organization. These funds

will be used to begin implementation of the organizational changes described in the

modernization concept, including training, relocating, or retiring portions of our

work force, as well as using the services of professional consulting firms who specialize in reorganizing organizations. This cost is a rough estimate of the funds

needed in the short term to begin the modernization efforts; the consultants conducting the validation study will also provide a more accurate estimate of the total

cost of implementation. We will provide more detail to the Committee staff.

Question. Does each account and program activity for the Internal Revenue Service have performance measures associated with it?

Answer. In our budget submission, there are performance measures associated

with every account and program activity. IRS has three levels of key measures to

focus the energies of the organization on attaining the mission: the mission-level indicator, the objective-level measures, and the budget-level measures. The measures

appear in the fiscal year 1998 President’s Budget, dated February 2, 1998. These

measures are all being reviewed in light of our goal of transforming the IRS from

an internally focused organization to one which views itself from the taxpayer perspective and in light of the elimination of use of all enforcement statistics for measuring organizational performance. We have a task force working on this problem

and plan to get the assistance of expert outside consultants. We expect to have interim results to use for measuring performance during fiscal year 1999. These measures will build on some of the measures included in the budget submission.
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Question. Does your plan include performance measures for which reliable data

are not likely to be available until March 2000?

Answer. The reality is that the IRS at this moment has very few performance

measures that are meaningful, reliable, and appropriate. There are very few measures of customer satisfaction and the business measures traditionally used have

largely been eliminated. It will be a major job to develop new ones and at best in

fiscal year 1999 we will have an interim set of measures.

In addition, the IRS today has no reliable measures of overall compliance . The

figures generally cited are extrapolations of 10-year-old data. Furthermore, we have

at present no proposal or plan to solve this problem. It is essential that this problem

be solved, but we do not have an acceptable solution.

Question. Do you have the technological capability of measuring and reporting

program performance throughout the year on a regular basis, so that the agency can

be properly managed to achieve the desired results?

Answer. Yes, the Service has a longstanding tradition of measuring and reporting

program performance in order to achieve its desired results. Our cyclical Strategic

Management Process establishes long-range goals which drive the creation of nearterm goals with their associated measures and targets. The near-term measures and

targets are reflected in the Annual Performance Plan and used throughout the year

to track and report on program performance. The last step in the cycle is a summary assessment of accomplishments known as Business Review, the results of

which are used to update the long-range goals. The Service uses the Executive Management and Support System (EMSS), an automated management information system, to facilitate the monitoring of program performance.

However, these measures are all being reviewed in light of our goal of transforming IRS from an internally focused organization to one that views itself from the

taxpayer perspective and in light of the elimination of the use of all enforcement

statistics for measuring organizational performance. We have a task force working

on this problem and we expect to engage expert outside consultants to assist in this

task. We expect to have interim results to use for measuring performance during

fiscal year 1999. These measures will build on some of the measures included in the

budget.

Question. Throughout the development of the fiscal year 1999 performance plan,

what overlapping functions or program duplications were identified?

Answer. Any changes to the mission or function of our current organization at the

division level (‘‘Division’’ applies to all organizations two levels below the Commissioner, regardless of official title) and above are subject to the approval of the senior

executives and a multi-functional review. At times, lower level changes affect division level mission or function; when they do, these procedures apply to them as well.

This safeguards against programmatic overlaps or duplications, while facilitating

the creation of cross-functional programs such as Electronic Tax Administration

(ETA). ETA’s purpose, to ‘‘revolutionize how taxpayers transact and communicate

with the IRS,’’ requires that they draw from multiple IRS organizations such as Tax

Forms and Submission Processing, Information Systems Modernization, the Office

of Public Liaison, and others.

Question. Did those duplicative programs receive funding in the fiscal year 1999

budget?

Answer. In the framework of the current organizational structure, there is a specific reason for each organizational unit and program. However, in the course of reviewing the entire structure of the organization as part of our organizational modernization study, we will be looking carefully at how we can streamline the structure. In fact, this is the only way that the IRS will be able to meet the increased

demands of service to taxpayers and the increased workload from a growing economy without adding to overall staffing levels.

Question. What do you believe will be the most difficult performance goal for the

IRS to reach in fiscal year 1999?

Answer. Two of the most important customer service measures for IRS to achieve

in fiscal year 1999 are Toll Free Level of Access and Tax Law Accuracy Rate for

Taxpayers. For Toll Free Level of Access, we plan to increase the level of access

from 70 percent in fiscal year 1998 to 86 percent in fiscal year 1999. This is a substantial increase given that we had previously planned an fiscal year 2002 goal of

80 percent for this measure. Equally important is maintaining a high level of accuracy for the responses provided to taxpayers and that target for fiscal year 1999 will

be 96 percent.

Question. Have you redirected resources to that particular goal? Answer. Yes, the IRS requested budget increases of $103 million to be directed

to all of the customer service goals, especially the two critical goals: Toll Free Level

of Access, and Tax Law Accuracy Rate for Taxpayers.
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CUSTOMER SERVICE

Question. There are provisions within your fiscal year 1999 budget which focus

on enhancing customer service. Overall, this increase is only 1 percent compared to

your fiscal year 1998 budget and I believe that we would all place a greater emphasis on the need for the improvement of customer service within the IRS. I know that

you only came to the IRS late in this budget cycle so I would only ask what you

believe is a reasonable percentage the IRS should be spending on customer service?

Answer. While the increase as a percentage of our total budget may be small, in

terms of the budgets for each of the individual service oriented activities of toll free

telephones, walk-in service and taxpayer education, the increases are larger. The

toll free increase in fiscal year 1999 is actually 13 percent over fiscal year 1998 and

the walk-in increase is 5 percent. Taxpayer Education was increased by 20 percent

in fiscal year 1998. So, there is significant emphasis on those program areas that

we feel is appropriate at the present time and is consistent with our ability to measure short term change.

However, there remains a great deal of improvement required before the IRS

reaches an acceptable level of service to each taxpayer who needs it. As noted in

the answer to the above question, we will need to modernize both the organization

and the technology in order to free up the resources and to have the management

structure needed to meet this service deficit and meet increased workload without

significantly increasing overall staffing levels.

TELEPHONE ACCESS

Question. Mr. Rossotti, one initiative in your fiscal year 1999 budget request is

to provide better telephone service for $50.3 million. Today, what is the percentage

of calls that the IRS is actually answering and I’m not talking about people actually

getting into the queue, but the percentage of calls that actually get answered by a

real person at the IRS?

Answer. As of 3/14/98, 75 percent of the calls attempted to the various IRS tollfree telephone lines this filing season were answered by an assistor. This represents

an improvement over the 56 percent of all calls that reached an assistor during the

same period last year.

FILING SEASON SERVICE LEVEL COMPUTATION

[As of March 14, 1998]

Filing season Calls to IRS

(attempts)

Calls

answered

Service

level

(percent)

1998 ................................................................................... 32,160,816 24,187,669 75

1997 ................................................................................... 41,697,669 23,210,084 56

Question. What percentage of improvement does the IRS anticipate as a result of

this additional $50.3 million?

Answer. We anticipate significant improvement with the roll out of the intelligent

call router, expanded hours and better scheduling and forecasting of the workload.

Question. What would it take to have the IRS answering close to 100 percent of

the calls that come in?

Answer. One challenge for the IRS in providing service to 100 percent of its customers is that the telephone calls are not equally balanced over the course of the

year. In fact, the greatest number of calls are received over a five month window

of time beginning in early February and ending in late June. Consequently, additional staff and equipment resources need to be allocated accordingly. The establishment of the Customer Service organization is a step in that direction. By making

use of a diverse work force that has the appropriate training and skills to shift from

one type of work (i.e., responding to correspondence or working the Automated Collection System inventory to front line telephone service) to another where a peak

demand is occurring has resulted in the higher level of service that has been provided in 1998. We must continue to refine our ability to do this as well as improving

our systems to route calls without human intervention. It is possible eventually to

reach a 90–95 percent level—which is a private sector standard, but this will take

several years.

Question. How long is the average wait-time a taxpayer is on hold before getting

someone to talk to?
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Answer. Wait-time is calculated at the local site level based on individual application (type of question). Local management uses wait-time as a tool to determine

where to place staff and when to have traffic transferred to another site. Some of

the nearly 500 applications are very heavily used and some are rarely used. The

sites provide staff to the applications based on historical data and move staff when

it appears necessary. However, in 1999, with the full roll-out of the call router, telephone traffic becomes a corporate asset and wait-times will be available on a national level.

Question. How will this improve with the additional $50 million?

Answer. With the roll out of the intelligent call router and the implementation

of better scheduling and forecasting techniques, wait-time will decrease. Calls will

be directed to a location where the caller will have the best chance for the least

amount of wait-time where staff has been scheduled for phone work based on improved forecasting techniques.

TAXPAYER ACCESS

Question. Mr. Rossotti, another initiative in this year’s request is to make it easier for taxpayers to get answers in person. IRS is requesting an additional $5.6 million

to extend the hours of district offices and having them open on Saturdays. With this

$5.6 million, how many of the district offices will be open longer? Answer. $2.5 million of the $5.6 million will be used to expand our Saturday Service. Currently, selected walk-in offices are open for six Saturdays starting March 7,

1998, and ending April 11, 1998. In fiscal year 1999, Saturday service will start on

January 23, 1999 and continue through April 10, 1999 for a total of 12 Saturdays.

We expect to have over 150 offices open on any given Saturday. The remaining $3.1

million will be used to conduct Problem Solving days. Each district office will conduct a minimum of one Problem Solving day per month.

Question. How long before we can see this change?

Answer. Problem Solving days will start in October and expanded Saturday Service will start in January.

Question. How do you intend to accommodate those taxpayers which do not live

near a district office?

Answer. The toll-free telephone line is one of the best ways of receiving IRS service. Information is available on our systems about the various services we provide

and the telephone number for the services. IRS has commissioned a task force to

perform an analysis of the service IRS does provide to taxpayers to determine what

gaps in service exist. The task force will develop recommendations on effective

methods for filling those gaps.

SMALL BUSINESS

Question. Mr. Rossotti, an additional initiative is focused on strengthening support for small business, for $1.1 million. It is my understanding that small businesses are the taxpayers which have the most difficulty complying with the tax law.

What else are you proposing to improve service to small business?

Answer.

—Develop easy to read and understand forms, publications and notices.

—Reduce the burden for reporting, filing and recordkeeping.

—Provide more easily accessible, correct service the first time.

—Apply fair treatment consistent with the law.

—Expand the roles of our Compliance employees to include education of start-up

and existing small businesses, particularly when a deposit or a penalty for failure to file is assessed.

—Establish a small business tax assistance hotline.

—Mail the taxpayer a Your Business Tax Kit, a Tax Tips Calendar and other pertinent information when they apply for an EIN.

—Expand marketing to small business outlets to make them aware of IRS products and services.

—Continue partnership with SBA to have IRS products available at their various

locations, i.e., Business Information Centers, Small Business Development Centers, Women’s Entrepreneurial Networks.

—Ensure that Districts are more uniform in the outreach efforts with the small

business community.

—Apply ‘‘softer’’ penalties for first time offenders in major programs, i.e., EFTPS.

—Partner with other federal, state and local agencies to inform and educate, i.e.,

licensing offices.

—Develop avenues for open communications with the small business community,

i.e., e-mail, specific mailing address, VMS mailbox.
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—Develop multi-agency small business CD–ROM.

—Develop small business kits and publications in Spanish and other languages.

—Focus more outreach efforts to Hispanic and other ethnic outlets.

—Continue expansion of small business information provided on the IRS Homepage using plain language to explain regulations, procedures and tax information.

Question. Although I know you do not track your budget this way currently, how

much would you estimate of IRS’ budget is in some way supporting the small business community beyond the $1.1 million requested in this year’s budget?

Answer. We do not separately track time spent supporting the small business

community within our financial systems. However, significant portions of our various Servicewide customer service programs support small business. These programs

include the Problem Resolution Program (PRP), Customer Service, and Taxpayer

Education.

Question. As a person who has just come from the private sector, what do you

think it would take to address their needs?

Answer. The new IRS focus on helping people comply with tax laws while ensuring fairness and uniformity of compliance will address all taxpayers’ needs including

those of the small business community. The IRS must become fundamentally committed to customer service. We must shift our focus, as many large companies have

already done, from expecting our customers, the taxpayers, to understand and navigate the IRS according to our internal operations, to thinking about everything from

the taxpayer’s point of view. Revamped IRS business practices will focus on understanding, solving, and preventing taxpayer problems. Our work will be designed and

organized around major taxpayer groups with similar needs and compliance requirements. The majority of taxpayers fall into one of four customer groups: individual

taxpayers with wage and investment income; small business and self-employed taxpayers; large business taxpayers; and, employee plans, exempt organizations, and

state and local governments. By dedicating a fully responsible unit to providing all

IRS services for the self-employed and small business communities, we will be able

to work closely with industry associations, small business groups, and preparers to

solve problems for everyone’s benefit. This is the long term solution to provide adequate service to small businesses.

IRS EMPLOYEE TRAINING

Question. Mr. Rossotti, we have all heard about the horror stories highlighted in

the Senate Finance Committee’s hearing. Within your fiscal year 1999 budget, there

is $22.5 million requested to improve customer service training. What is the total

amount that the IRS spends each year on customer service training for its employees?

Answer. In fiscal year 1997, we spent $49 million in training. In fiscal year 1998,

the amount is planned at $43.5 million.

Question. Who does that training?

Answer. Recognizing that we need to improve the development and delivery of

training, IRS has begun to use outside contractors, affiliated with colleges and universities, to provide skills development to Customer Service employees. These

courses include communications, listening, decision making, analysis, and ‘customer

service’ skills. This training is being provided to employees while concurrent managerial classes are provided on coaching and skills reinforcement techniques to support the training objectives. However, generally, instructors are IRS employees and

managers who have successfully completed Basic Instructor Training and possess

the skills and technical knowledge necessary for a Customer Service Representative.

Question. Do you intend to do a review of how the IRS currently trains its employees with regard to how it treats the taxpayer?

Answer. A memorandum dated January 2, 1998, requests that each regional office

provide a monthly report on the training curriculum that was delivered, period delivered in, area trained, number of employees trained and hours expended to train.

A critical part of our training program is the emphasis that is placed on providing

professional, accurate, and fair treatment to every taxpayer.

I intend to charge our soon-to-be-selected executive for IRS Training with the responsibility to conduct a thorough review on the training development and delivery

systems within the IRS. How IRS treats taxpayers will be one element of this review, which will also include the required leadership, expertise, funding, and technology necessary to ensure an effective training program within the IRS. With regard to specific training to improve treatment of taxpayers, IRS is developing and

will deliver the following two courses for frontline employees:

—Interviewing Techniques for Revenue Officers; and
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—Establishing and Maintaining Quality Public Service in the IRS.

Question. Do you believe that with the additional $22.5 million plus the total

funds the IRS is spending on training IRS employees for customer service that we

can turn around the customer service the IRS delivers?

Answer. We believe we can make a significant improvement that will have a direct effect on the ability of our employees to assist taxpayers accurately. However,

the 1999 filing season will be a much more difficult filing season than in recent

years because of the many complex changes to the tax law that are effective in tax

year 1998 and because of the massive technology changes required to comply with

the Century Date Change. Thus, increased training effectiveness will be required to

prepare our employees to even an adequate level. Furthermore, the IRS lacks a fully

effective and modern training preparation and delivery strategy and organization.

Therefore, as with many dimensions of the IRS, it will take several years and major

structural change to reach the desired level of training.

TAXPAYER ADVOCATE OFFICE

Question. There is $10 million to strengthen the Taxpayer Advocate’s Office. How

will this help the taxpayer and what will this provide them that they do not already

have?

Answer. There are four areas in which increased funding for the Taxpayer Advocate will have a direct and beneficial effect on taxpayers:

—A second Problem Resolution Program position is being restored to each of the

former district offices that were downsized as a result of IRS restructuring.

Each of these 30 offices has been authorized at least two full-time PRP employees, who report to the taxpayer advocate in their district headquarters, yet are

available to handle local taxpayers’ needs in person.

—The local telephone numbers of all of the district taxpayer advocates are being

published in directories for the first time, which will make direct access to PRP

far easier for taxpayers. Taxpayers will have a distinct listed number for PRP,

instead of being directed to call the standard toll-free ‘‘1040’’ number. Additional

PRP staff will be required to handle the increased phone traffic.

—A new nationwide toll-free number is being created specifically for PRP. Taxpayers will be able to seek resolution of problems, without charge, and without

first having to call the existing Customer Service ‘‘1040’’ number. The toll-free

PRP calls will be routed to centralized locations where trained assistors will

deal, on-line, with the less complex incoming issues. More complicated tax cases

will be forwarded to the taxpayer advocates in taxpayers’ local offices for resolution.

—Additional staff will be added to the district taxpayer advocates’ offices, in order

to handle the anticipated increase in Applications for Taxpayer Assistance Orders (ATAO’s). These requests (Forms 911) for hardship relief can only be acted

upon by taxpayer advocates, and it is assumed that applications in fiscal year

1999 will increase after the IRS begins including the form in all Collection-related notices issued by service centers. The result for the taxpayer is that there

will be a greater opportunity to apply for and, if warranted, receive relief from

impending compliance actions.

Question. In your fiscal year 1999 request there is mention to increase the Taxpayer Advocate’s powers. Can you outline for the Committee how you anticipate increasing this office’s powers?

Answer. One specific change is that the Taxpayer Advocate has been given authority to issue Taxpayer Advocate Directives, which have the effect of mandating

administrative or procedural changes, on a Servicewide basis, within other IRS

functional areas. In this way, the Taxpayer Advocate may enforce systemic changes

that he/she believes are necessary and in the best interest of taxpayers. The Taxpayer Advocate’s role in IRS will also be expanded through ensuring the full exercise of his or her statutory powers, the selection of a Taxpayer Advocate from outside the IRS, a reiteration of the independence of all the local taxpayer advocates

and the endorsement by the Commissioner and the Secretary of the Treasury to

support in very visible ways their desire to buttress this independence and expansion of the use of powers. In addition, internal commitments to give the Taxpayer

Advocate more staff to carry out the mission, establishing a new ‘‘800’’ number to

provide direct access to the program, and undertaking a professionally developed

major publicity campaign to advertise the program will all aid in the accomplishment of the above.
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MODERNIZATION

Question. Mr. Rossotti, your fiscal year 1999 budget contains a request for $323

million which is to be utilized for ‘‘capital asset acquisition’’. Last year this subcommittee had the same request for an advance appropriation by IRS, but part way

through the year, IRS then changed its mind and decided that it ‘‘may need to

spend the funds’’. Although you were not part of last year’s cycle, I did want your

intentions for this seed money for the record.

Answer. The funding requested for the Information Technology Investment Account for fiscal year 1999 provides the ‘‘seed money’’ to support Modernization and

begin implementation of much needed improvements in the area of Customer Service. In fiscal year 1997 and fiscal year 1998 careful preparation for this difficult task

began with the publication of the Modernization Blueprint, the initial stages of establishing an internal systems life cycle management process, and the publication

of a Request for Proposals for the Prime Systems Integration Services Contractor.

In fiscal year 1999, long term modernization will continue with the strengthening

of IRS internal systems management capabilities and the award of the PRIME contract. The initial task of the PRIME contract will be to complete the systems management life cycle and to develop the first two subreleases of the Modernization

Blueprint, which provide telephone and other communications capabilities that are

basic functions to support all IRS operations. All technology projects involve a significant degree of risk and changes as they proceed, but good management can manage change to produce ever improving results. Finally, I want to assure you that

no money will be spent on any subreleases beyond these first two without my personal review and judgment that adequate business cases and control of risk factors

exist.

TAXPAYER BURDEN

Question. In IRS’ strategic plan submitted last year, there is mention that the IRS plans to ‘‘contain the growth of taxpayer burden cost for the IRS to collect $100 at

$10.48 compared to $9.38 for fiscal year 1996’’. If I am reading this right, what this

says to me is that the IRS is increasing the cost for the taxpayer burden with the

$10.48 target. Can you comment?

Answer. It is possible to calculate and define taxpayer burden as we have in the

past, limiting the definition to include paperwork burden, consistent with Paperwork Reduction Act requirements. This accounts for time taken by taxpayers in the

following four activities: 1) record keeping beyond what they would normally be required to do; 2) learning about a tax law or form; 3) preparing the form; and 4) copying, assembling, and sending the form to the IRS. One wage rate is used for both

businesses and individuals when hours are converted into taxpayer cost in terms

of dollars. For the strategic plan to which you refer, we employed an alternate accounting method. This recomputation includes not only paperwork burden, but also

post-filing contacts taxpayers have with IRS including audits, responding to notices,

and complying with collection activities. We also utilized different wage rates for individuals and businesses. Since the strategic plan was written, IRS has decided to

calculate burden consistent with prior years, until more formal estimates can be

made. Regardless of which accounting method is used, taxpayer burden cost to collect $100 is increasing. The anticipated increase is explained in the next question.

IRS recognizes that the current method of calculating taxpayer burden has significant weaknesses. The model covers only the burden of IRS tax forms and regulations ignoring post-filing burden, is unable to capture changes in burden due to alternative filing methods (e.g., on-line filing, tax preparation software, and electronic

filing), is based on outdated estimates, and does not differentiate wage rates for different types of taxpayers.

Question. Mr. Rossotti, we need to be decreasing the taxpayer’s burden, not increasing it, and we need to focus on making it easier not harder for the taxpayer

to voluntarily comply. What will the IRS do to decrease the amount of time and effort it takes for the taxpayer to voluntarily comply?

Answer. This year the IRS has taken several steps to make it easier for taxpayers

to file their tax returns and help them voluntarily comply with the tax laws. For

example, telephone assistance is now available 16 hours a day, 6 days a week for

taxpayers to get answers to their account and tax law questions. We expanded walkin service to six Saturdays beginning March 7, 1998 through mid April, and taxpayers wishing to call our tax form toll-free line for tax forms and publications can

do so 16 hours a day 6 days a week. Internet services on our IRS Homepage also

offer access to tax forms, answers to frequently asked questions, and taxpayers can

E-mail us and receive general answers to tax law questions. We have also made it

easier for taxpayers to file their returns. Results so far this filing season indicate
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that electronic filing increased 24 percent over the same period last year, and

TeleFile is up 26 percent.

Future initiatives: This spring, small businesses nationwide will be able to file

Form 941, Employer’s Quarterly Federal Tax Return, over the telephone, and we

expect over 1.2 million returns to be filed using this option. Next year, we will continue to make it easier for taxpayers to file their tax returns by expanding telephone

assistance to 24 hours a day, 7 days a week. We also plan to introduce new payment

options, allowing taxpayers who file their returns electronically to pay their taxes

with a direct withdrawal from their bank accounts.

The President’s budget for fiscal year 1998 showed basically static funding for IRS

through fiscal year 2002. Faced with that scenario, IRS said that staffing levels

would decline and most programs would suffer, with enforcement programs receiving the greatest reductions.

Question. In your fiscal year 1999 submission, the IRS performance target for tax- payer burden is $8.55, up from $8.52 in fiscal year 1997, in essence each year the

cost to the taxpayer is increasing. Can you explain? Answer. Taxpayer Burden Cost to Collect $100 is composed of two elements: Bur- den Cost and Revenue. The anticipated increase in Burden Cost to Collect $100

from $8.52 in fiscal year 1997 to $8.55 in fiscal year 1999 is driven by Burden Cost

which we anticipate will increase slightly faster than Revenue. Burden Cost is composed of burden hours multiplied by wage rate. Burden hours are expected to rise

approximately 1–2 percent per year as the filing population increases and as wage

rates are expected to increase 3 percent each year. Overall, between fiscal year 1997

and fiscal year 1999, we anticipate Burden Cost will increase 10 percent while Revenue estimates provided by Treasury’s Office of Tax Analysis will increase only 9 percent. Higher burden hours also result from more accurate filing figures as well as

complexities associated with the Small Business Job Protection Act, the Taxpayer

Relief Act, and additional lines on several tax forms. IRS continues to promote burden reduction efforts including electronic filing which help contain the rise in Burden Cost to Collect $100.

SUBMISSION PROCESSING

The IRS fiscal year 1999 budget request includes $888.4 million and 15,113 FTE

for Submission Processing, a budget activity within the Processing, Assistance, and

Management appropriation. The following questions relate to that budget activity.

PROCESSING TAX PAYMENTS

Question. Given the extra cost to the Government, and the lack of conclusive evidence on burden, why does IRS continue to have taxpayers send their tax returns

to the lockbox banks?

Answer. IRS considers it too burdensome to require taxpayers to mail their Form

1040 return separate from their payment and voucher. IRS is conducting focus studies to measure individual taxpayers’ reactions to the different payment mailing concepts. FMS and IRS are planning a study to compare lockbox and service center

processing. Once the data is compiled, a decision will be made on whether or not

to continue directing Form 1040 returns/payments to the lockbox banks.

Question. What, if anything, does IRS plan to do to develop more conclusive evidence on burden?

Answer. IRS is conducting focus studies to measure individual taxpayers’ reactions to the different payment mailing concepts. FMS and IRS are planning a study

to compare lockbox and service center processing. Once the data is compiled, a decision will be made on whether or not to continue directing Form 1040 returns/payments to the lockbox bank.

Question. How much did the government pay banks in fiscal year 1997 to handle

individual income tax returns?

Answer. FMS reports that from October 1996 to June 1997, they paid the lockbox

banks approximately $8.3 million for individual income tax return handling. FMS

has not completed the calculation of lockbox costs for the entire year. In fiscal year

1996, FMS paid lockbox banks $10.8 million.

Question. How much does it expect to pay banks for that service in fiscal 1998?

Answer. Presently the cost is unknown. FMS is currently negotiating 1998

lockbox costs and since costs are tied to the Consumer Price Index, they cannot increase more than 2.2 percent.

Question. Why are these costs paid by FMS rather than IRS?

Answer. FMS is the U.S. government’s financial manager. It manages Federal

payments and collections, promote sound financial management practices by Federal

agencies, oversee the Government’s central accounting and reporting systems, pro-
212

vide information for investment decisions and manage the Government’s relationship with commercial and Federal Reserve Banks. As a part of its role, FMS designates Financial Agents of the government, and monitors the daily deposit flows

to the U.S. Treasury. The use of lockbox technology for collection of taxes is one

mechanism managed by FMS for Federal agencies. FMS pays all IRS lockbox processing costs except those connected with the processing of installment agreement

user fees. IRS reimburses FMS for these costs.

Question. Since the proposed FMS study could have a significant impact on IRS

operations what does IRS know about the study’s status?

Answer. FMS has advertised in the Commerce Business Daily to offer public vendors an opportunity to bid on the float study. FMS hopes to award the contract soon.

The study will be conducted during the April peak to compare the service center

and lockbox processing. This study should indicate any and all savings that are realized through the use of lockboxes.

Question. Assuming the study is done and shows that it is not cost effective to

process Form 1040 payments at lockboxes, will IRS return this workload to its service centers?

Answer. If the study shows that is not cost effective to continue processing Form

1040 payments at lockbox, IRS will use this and other information in determining

if the workload should be returned to the service centers.

Question. Is the new remittance processing system being sized to handle the additional workload if IRS should decide it is more cost effective to process the remittances in-house? If not, why not?

Answer. We are conducting a pilot of the new remittance processing system. The

results of this pilot will be used to validate the hardware needs at each site. We

will also determine what additional equipment, if any, will be needed to process the

lockbox 1040 returns/payments if the work is returned to the centers.

PROCESSING TAX RETURNS

Question. What does it cost IRS to process an individual income tax return filed

on paper? Please break out the cost by type of return (i.e., 1040, 1040A, 1040EZ,

1040PC) and explain what type of costs are included and what are not. What does

it cost IRS to process an individual income tax return electronically (not including

those filed by telephone)? Please break out the cost by type of return (i.e., 1040,

1040A, 1040EZ) and explain what type of costs are included and what are not. What

does it cost IRS to process an individual income tax return filed via telephone (i.e.

TeleFile? Please explain what type of costs are included and what are not.

Answer. The IRS recently calculated the fiscal year 1996 fully-burdened cost of

submission processing in the Service Centers. This study is almost completed and

will be published shortly. ‘‘Submission processing’’ is defined as that portion of tax

return processing from receipt of a tax return at the service center to the point

where the return data is ready for posting to the IRS computer master file. ‘‘Fullyburdened’’ means that we have attributed an appropriate portion of overhead and

support costs to submission processing, using activity based costing concepts. The

cost information currently available is the full amount obligated in fiscal year 1996

that is attributed to each type of return, including the full cost of capital investments made in 1996. Note: While we plan to revise the treatment of capitalized assets to amortize them over their useful life, the results of this revised approach are

not yet available.

TOTAL FISCAL YEAR 1996 COST OF SUBMISSION PROCESSING

Based on the results of this study, we determined that the fiscal year 1996, fullyburdened cost of submission processing in the Service Centers was $827 million.

This represents 11 percent of the IRS budget. The main cost components of this

$827 million are labor, rent, computer and headquarters support, and overhead.

Note: As a result of these costs being fully-burdened, these costs are larger by definition than those associated with returns processing in budget submissions. Of the

$827 million, $72 million was the cost of processing electronic returns (e.g., 1040,

1040A, 1040EZ, 1040EZ TeleFile, 941, 5500, 5500–R, 5500–C). The remaining $755

million is the cost of processing all other returns, whether submitted on paper, tape

or by other means.

The costs below include the following: labor and non-labor (e.g., rent, supplies,

etc.) costs within the Service Centers which directly or indirectly support the processing of returns from receipt to good tape plus the unpostables operation; appropriate Information Systems costs; direct headquarters support and oversight; and

support services host site and headquarters overhead costs (e.g. budgeting, accounting, personnel management, training, etc.). Capital investments obligated in fiscal
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year 1996 are included in full. Capital investments obligated prior to fiscal year

1996 are not included. Costs incurred upstream of the data capture processing (e.g.,

design, printing and distribution of tax forms and instructions) and downstream of

data capture processing (e.g., archiving and retrieval of tax returns, compliance activities) are not included.

COST OF PROCESSING 941 AND 1040 RETURNS FILED ELECTRONICALLY

Return type

Fiscal year 1996

volume of returns filed

Fiscal year

1996 fully

burdened cost

per return 1

1040 ELF ............................................................................................................. 6,074,986 $4.69

1040A ELF ........................................................................................................... 4,560,478 4.69

1040EZ ELF ......................................................................................................... 1,499,356 4.63

1040EZ TeleFile .................................................................................................. 2,840,973 2 5.11

1040EZ TeleFile .................................................................................................. 2,840,973 3 3.58

941 ELF ............................................................................................................... 272,000 2.61

1 Including full fiscal year 1996 obligations for capitalized assets.

2 Includes fiscal year 1996 one-time TeleFile investment costs.

3 Excludes fiscal year 1996 one-time TeleFile investment costs

COST TO PROCESS AN INDIVIDUAL INCOME TAX RETURN FILED VIA TELEPHONE (I.E.

TELEFILE)

Based on the results of this study, we determined that the fiscal year 1996, fullyburdened cost of submission processing of an individual return filed via TeleFile was

$5.11 per return when fiscal year 1996 one-time TeleFile investment costs are included. This cost would be $3.58 per return if fiscal year 1996 one-time TeleFile investment costs were excluded. In addition to the previous description of costs included in this answer, the TeleFile costs include the one-time TeleFile investment

cost of equipment to expand our capacity to receive TeleFile calls (included in the

$5.11) and the costs of an average of two toll-free calls per TeleFile return filed.

COST OF PROCESSING INDIVIDUAL RETURNS FILED ON PAPER

Return type

Fiscal year 1996

volume of returns

filed

Fiscal year

1996 fully

burdened cost

per return 1

1040 Other-than-full-paid (i.e. refund or balance due) ............................... 44,561,449 $4.07

1040 Full-paid (i.e. with remittance) ............................................................ 15,500,170 5.35

1040A Other-than-full-paid ............................................................................ 16,561,316 3.35

1040A Full-paid .............................................................................................. 2,284,331 5.12

1040EZ Other-than-full-paid .......................................................................... 7,851,986 2.40

1040EZ Full-paid ............................................................................................ 1,025,330 4.44

1040PC Other-than-full-paid ......................................................................... 5,778,103 3.05

1040PC Full-paid ............................................................................................ 1,258,056 5.13

1 Including full fiscal year 1996 obligations for capitalized assets.

POTENTIAL SAVINGS FROM ELECTRONIC FILING

To understand the cost tradeoffs between electronic and paper returns filings requires an understanding of the fixed and variable components of these costs at various points of the electronic/paper filing mix. The IRS has begun a new study to determine this. Until that study is complete we will not have a definitive answer.

However, at this point we can get some idea of this by looking at certain known

costs for fiscal year 1996 for the Form 1040 family of returns and making preliminary judgments.

In fiscal year 1996 the cost per return for electronically filed Form 1040 family

of returns was $4.76, while the cost for paper filings was $4.49 (not including upstream/downstream costs). The small differentiation in cost between paper versus

electronic processing is encouraging, as electronic filing expenses are amortized

across 15 million Form 1040 family of returns versus the 95 million for paper Form
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1040 family of returns. Also, it is clear that much of the paper filing costs in fiscal

year 1996 are related to labor, which results in high variable costs, while most of

the electronic filing costs were fixed costs. Also, there may be other non-financial

reasons (such as reduced taxpayer burden) that would compel an aggressive pursuit

of electronic returns.

If these data hold up in our study, this means that as electronic returns increase

we will have substantial opportunity for savings in our variable (labor) costs. However, this data is preliminary. We do not yet know whether any additional fixed cost

investments will be necessary to support increased electronic filing. It seems clear

though, that the cost differences in variable costs favor increased electronic filing,

and will result in labor savings.

ELECTRONIC FILING STRATEGY

Electronic filing is the primary component of IRS’ Electronic Tax Administration

(ETA) program whose overall mission is to revolutionize how taxpayers transact and

communicate with the IRS. One of the key strategies for ETA is to make electronic

filing, payment and communication so simple, inexpensive and trusted that taxpayers will prefer these to calling and mailing. Although the IRS has been continually expanding the electronic filing program over the past several years, some

forms and schedules are still not accepted which prevents certain taxpayers from

participating. In addition, paper, in terms of the signature jurat, W–2’s and other

forms, is still part of the electronic filing system. The IRS recognizes that steps

must be taken to simplify the system and to make it more convenient and easier

to use. Initiatives are already underway to move toward a truly paperless system

beginning with a pilot of electronic signature alternatives in 1999. In addition, next

year for the first time, taxpayers filing balance due returns will be able to pay using

an Automated Clearing House debit payment as part of the electronic return.

The IRS is currently in the process of developing a comprehensive Strategic Plan

for Electronic Tax Administration which will clearly articulate ETA’s mission, strategies and business goals, as well as the tactical initiatives to achieve those goals.

Additionally, the Strategic Plan will describe the substantial market segments that

exist for ETA, as well as the significant challenges that must be addressed if electronic filing, payment and communication are to become the preferred and most convenient means of taxpayers’ interaction with the IRS.

Question. What is the status of the electronic commerce strategy?

Answer. A draft version of the Strategic Plan for Electronic Tax Administration

is expected to be made available for public comment later this spring

Question. When can the Committee expect to see a final product?

Answer. The Committee will be receiving a draft version of the plan later this

spring when it is released for public comment. The plan will be issued in final after

the comments have been received, reviewed and/or incorporated into the plan.

Question. What key factors have contributed to the delays in completing the strategy?

Answer. Ownership and accountability are two key factors which affected completing the strategy. In the past, the Administration, Congress and other external

stakeholders have been frustrated by the lack of a focal point for Electronic Tax Administration activities within the IRS. Last year, the IRS took an important step

toward clarifying the responsibilities for Electronic Tax Administration by establishing a new organization headed by an Assistant Commissioner devoted exclusively

to the management of existing and planned programs. Bob Barr, the new Assistant

Commissioner for Electronic Tax Administration, who joined the IRS last fall has

made the development the strategic plan one of his top priorities.

GENERAL

It is our understanding that the National Performance Review (NPR) made over

200 recommendations on how IRS can improve its customer service. Likewise, the

National Commission on Restructuring IRS made recommendations aimed at improving customer service. The Commissioner has stated that improving customer

service is one of his highest priorities. Also, earlier this year, the Commissioner outlined a plan for improving customer service by reorganizing IRS into four major operating units, each serving a group of taxpayers with like needs.

Question. Which of the many NPR and Commission recommendations have been

implemented or are targeted for implementation?

Answer. The Commissioner established the Taxpayer Treatment and Service Improvements Program to bring discipline and rigor to the setting and tracking of priorities of those changes which have the most direct and lasting impact on the treatment of and service to taxpayers. A steering committee comprised of senior Treasury
215

and IRS executives has been providing active oversight of the program. More than

245 NPR and Commission recommendations have been catalogued by the Taxpayer

Treatment and Service Improvements Program staff. Analysis and implementation

of the recommendations are in an early stage, since the final NPR report was issued

very recently.

Six recommendations with significant immediate impact have been implemented:

—Ban the use of measures such as enforcement statistics to rank districts and

to set dollar goals for districts and service centers.

—Open district offices on Saturdays during the busiest weekends of the filing season.

—Expand the number of taxpayers who are eligible to use TeleFile, the telephone

filing system. Nearly three million additional TeleFile packages were sent to

taxpayers for the 1998 filing season.

—Increase the number of forms that can be filed electronically, and educate customers about the benefits of electronic filing. In 1998 two additional forms are

being accepted electronically as well as returns with an Individual Taxpayer

Identification Number and an Adoption Taxpayer Identification Number. All

other forms and schedules not currently accepted electronically are being analyzed. In conjunction with an advertising agency, IRS launched a public education campaign on electronic filing benefits. Through February, conventional

electronic filing had increased by 20 percent over last year.

—Expand telephone service to 6 days a week, 16 hours a day since January 2,

1998.

—Establish a new full time position of a ‘‘notices gatekeeper’’ who has the authority and accountability to manage the entire notice process.

Three other recommendations are presently being carried out. They are the

monthly Problem Solving Days which started on November 15, 1997; the tracking

and reporting of the status of cases identified as a result of Problem Solving Day

activities; and expansion of the TeleFile program to let many small businesses use

their telephones to file Form 941 and report their employment taxes starting in

April 1998.

Another 71 recommendations are in the process of being implemented. These are

primarily ones which are planned to be completed within the next 18 months. The

recommendations cover the following areas: the contents of notices; clarity and

issuance criteria; further expanding telephone service; improving the availability of

forms and publications; expanding services available through the Internet, electronic

mail and CD–ROM; expanding availability of services in languages other than

English, further expanding electronic filing and other electronic services; improving

service to small businesses; reviewing the fairness and effectiveness of all penalties;

improving handling of undelivered mail and updating taxpayer addresses; improving

the system for handling non master file cases; improving the resolution of taxpayer

problems; developing a balanced scorecard of measures to evaluate the IRS and its

employees; and improving employee training in customer service.

Although specific action plans have not yet been developed for the remaining recommendations, the vast majority of them are targeted for implementation within

the next 19 to 24 months.

Question. Which, if any, NPR or Commission recommendations does IRS not plan

to implement, and why?

Answer. There are no NPR or Commission recommendations which IRS does not

currently plan to implement. However, the timeframes of implementation are still

being considered.

Question. Which, if any, of the recommendations would no longer be valid in light

of the Commissioner’s reorganization plans?

Answer. Both the recommendations and the current reorganization plans are focused on improving service to the taxpaying public. However, the reorganization

plan is currently at a high-level conceptual stage, while the recommendations are

focused at a more specific program and functional level. Although the overall concepts behind the recommendations would remain valid, is it apparent that recommendations in several areas could be subject to modification as a result of the

new concept for modernizing the IRS. Examples of such areas are the design of telephone systems for serving specific taxpayer segments, the nature and location of

walk-in services, the design and content of training packages for employees directly

serving taxpayers, and the nature of employee programs at various locations.

TAXPAYER SERVICE

Questions. How many FTE’s from across the agency does IRS plan to devote to

true taxpayer assistance (e.g., answering the phones, responding to correspondence,
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providing walk-in service, conducting education programs, providing forms and publications, working problem resolution cases) in fiscal year 1999? How does that plan

compare to the actual number of FTE’s devoted to those activities in fiscal year 1997

and number expected in 1998? Please break those numbers down by the type of assistance (e.g., the number of FTE’s devoted to answering the phones).

Answer:

IRS FTE’S DEVOTED TO SPECIFIC PROGRAM ACTIVITIES

Program activity 1

Fiscal year—

1997 1998 1999

Telephone:

Toll free operations 2 ......................................................................... 6,582 6,955 7,868

Automated collection systems .......................................................... 3,095 3,240 3,240

Subtotal, telephone ....................................................................... 9,677 10,195 11,108

Correspondence:

Adjustments/taxpayer relations ......................................................... 5,019 4,576 4,576

Service center collection branch ....................................................... 2,849 2,699 2,703

Service examination branch .............................................................. 3,044 3,222 3,227

Document matching .......................................................................... 1,897 1,682 1,682

Subtotal correspondence .............................................................. 12,809 12,179 12,188

Other:

Walk-in—Face-to-face ...................................................................... 1,080 1,191 1,248

Taxpayer education ........................................................................... 247 297 297

Problem resolution program .............................................................. 418 437 628

Forms and publications .................................................................... 90 90 103

Customer service reserve .................................................................. ................ 216 ................

Subtotal, other .............................................................................. 1,835 2,231 2,276

Total .............................................................................................. 24,321 24,605 25,572

1 Includes activities in all IRS Appropriations.

2 The 226 FTE for the fiscal year 1999 Customer Service training initiative has been included in the Toll Free Operations pending finalization of training plans within the correspondence functions to determine an optimal allocation.

CUSTOMER SERVICE

The IRS’ fiscal year 1999 budget request includes a program increase of $103.0

million and 1,024 FTE to enhance customer service. As described in IRS’ budget estimates, that money will be used, among other things, to improve taxpayer service,

strengthen the Taxpayer Advocate’s Office, and pay for additional Problem Solving

Days.

Question. In response to a question from this Committee last year, IRS provided

a breakdown of the FTE’s being requested for the Telephone and Correspondence

budget activity. The breakdown showed the number of FTE’s included in that budget activity for (1) the Problem Resolution Program, (2) Toll Free Operations, (3) Adjustments/Taxpayer Relations, (4) Service Center Collection Branch, (5) Automated

Collection System, and (6) Service Center Examination. Please provide the same

breakdown for fiscal year 1999.

Answer:

IRS FTE’S FOR TELEPHONE AND CORRESPONDENCE ACTIVITIES

Program

Fiscal year—

1997 1998 1999

Problem resolution ..................................................................................... 418 437 628
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IRS FTE’S FOR TELEPHONE AND CORRESPONDENCE ACTIVITIES—Continued

Program

Fiscal year—

1997 1998 1999

Toll-free phones ......................................................................................... 6,582 6,955 7,868

Adjustments/TP relations ........................................................................... 5,019 4,576 4,576

Collection branch—Correspondence .......................................................... 2,849 2,699 2,703

Automated collection system—Phones ..................................................... 3,095 3,240 3,240

Service center examination ........................................................................ 3,044 3,222 3,227

Note.—Fiscal year 1998 figures for the Telephone and Correspondence activity were taken from the Financial Plan. Fiscal year 1999 figures are taken from the fiscal year 1999 President’s Budget.

Question. How many FTE’s from across the agency does IRS plan to devote to true

taxpayer assistance, e.g., answering the phones, responding to correspondence, providing walk-in service, conducting education programs, providing forms and publications, working problem resolution cases, in fiscal year 1999? How does that plan

compare to the actual number of FTE’s devoted to those activities in fiscal year 1997

and the number expected in 1998? Please break those numbers down by the type

of assistance, e.g., the number of FTE’s devoted to answering the phones. In response to a question from this Committee last year, IRS provided a breakdown of

the FTE’s being requested for the Telephone and Correspondence budget activity.

The breakdown showed the number of FTE’s included in that budget activity for (1)

the Problem Resolution Program, (2) Toll Free Operations, (3) Adjustments/Taxpayer Relations, (4) Service Center Collection Branch, (5) Automated Collection System, and (6) Service Center Examination. Please provide the same breakdown for

fiscal year 1999.

Answer:

Program

Fiscal year—

1997 1998 1999

Toll free—Phones ...................................................................................... 6,582 6,955 7,868

Adjustments/taxpayer relations—Correspondence .................................... 5,019 4,576 4,576

Automated collection system—Phones ..................................................... 2,869 3,231 3,231

Collection branch—Correspondence .......................................................... 2,850 2,699 2,703

Examination branch—Correspondence ...................................................... 3,044 3,222 3,227

Total, customer service activity ................................................... 20,364 20,683 21,605

Document matching underreporter—Correspondence ............................... 1,669 1,682 1,682

Document matching SFR—Correspondence .............................................. 228 ................ ................

Total, document matching activities ........................................... 1,897 1,682 1,682

Walk-in ....................................................................................................... 1,112 1,191 1,248

Taxpayer education .................................................................................... 198 297 297

Problem resolution ..................................................................................... 418 437 628

Customer service activity ........................................................................... ................ 20,683 21,605

Not included above:

Customer service reserves ................................................................ ................ 216 ................

Information systems for customer service ....................................... ................ 9 9

Total, customer service ................................................................ ................ 20,908 21,614

The Customer Service training initiative included in the National Performance

Review of 226 FTE has been included within the Toll Free component of Customer

Service pending finalization of training plans within the correspondence functions

to determine an optimal allocation.

Question. How does IRS decide on how much to spend on the different customer

service programs? Please provide information showing how much IRS spent or plans
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to spend and the number of full-time equivalent staff years allocated to the different

programs for fiscal years 1997, 1998, and 1999. Please include in these figures any

costs/staff years associated with detailees from other functions, such as Exam staff

who are detailed to help answer telephone calls. Also, provide information on the

number of taxpayers served or expected to be served by the different programs during those years.

Answer. Actual and estimated expenditures by program follow:

FTE

Program

Fiscal year—

1997 1998 1999

Toll free ...................................................................................................... 6,541 6,944 7,694

Taxpayer education .................................................................................... 247 297 297

Walk-in ....................................................................................................... 1,112 1,191 1,248

Total .............................................................................................. 7,900 8,432 9,239

Note.—The Taxpayer Education and Walk-in figures include Information Systems resources.

Program

Fiscal year—

1997 1998 1999

Toll free .............................................................................. $259,519,000 NA NA

Taxpayer education ............................................................ 13,036,000 $15,902,000 $17,540,000

Walk-in ............................................................................... 112,509,000 51,671,000 54,014,000

Total ...................................................................... 385,064,000 67,573,000 71,554,000

See note above.

Due to the consolidation of Customer Service management activities into one activity in fiscal year 1998, dollar breakouts for Toll Free are not available for fiscal

years 1998 and 1999 since our planning models are geared to FTE’s.

SERVICE DATA BY PROGRAM

Program

Fiscal year—

1997 1998 1999

Toll free calls answered ..................................................... 116,972,333 127,600,000 132,406,000

Walk-ins served .................................................................. 6,400,000 9,900,000 9,900,000

Taxpayers served through volunteers, taxpayer education,

and outreach activities ................................................. 3,799,151 3,395,382 3,463,290

Question. What is your accessibility goal for fiscal year 1998 and how are you

doing in relation to that goal?

Answer. IRS set an accessibility goal for fiscal year 1998 at no less than a 70 percent level of access. As of March 14, 1998, using the level of access measure agreed

upon between IRS and GAO (calls answered ∂ abandoned calls divided by total attempts), the fiscal year cumulative level of access for all Customer Service toll-free

telephone lines is 89 percent. The filing season cumulative, as of the same date, is

91 percent.

Question. Please provide information on your actual and expected accessibility

rates, staffing and hours of operation for fiscal years 1997, 1998 and 1999. With the

expanded hours of operation in 1998, how many more taxpayers have you been able

to serve?

Answer. The accessibility goal for fiscal year 1998 is 70 percent, and 86 percent

for fiscal year 1999. As of February 28, 1998, the fiscal year cumulative level of access is 88 percent. In fiscal year 1997, a different formula was used to compute level

of access. Thus, the goal and actual access rates are not comparable to fiscal year

1998 and fiscal year 1999. Staffing for 1997 and 1998 is 6,664 FTE’s and 7,229

FTE’s respectively. The IRS plans to provide customer service seven days a week,
219

24 hours a day (7×24) in fiscal year 1999. We are currently in the process of determining the staffing required to meet this goal and for the expansion of our hours

of operation to 7 days a week and 24 hours a day (7×24). Hours of Operation for

fiscal year 1997 were 7:30 a.m. to 5:30 p.m. on the general information (1040) number and from 7:30 a.m. through 9:00 p.m. on the notice and refund numbers. Since

January 1998, the hours of service were permanently expanded to six days a week,

16 hours a day, Monday through Saturday (7:00 a.m. through 11:00 p.m.). As of

February 28, 1998 the IRS answered 26.5 million calls compared to 26.3 million as

of a comparable period in fiscal year 1997. Although the number of calls answered

in fiscal year 1998 is relatively the same as that answered in fiscal year 1997, the

impact of the additional staffing is evident in the reduction in busy signals and the

increase in the level of access. By having the staffing available to answer the call

the first time the customer calls, we have decreased overflows (busy signals) by over

70 percent.

Question. Does IRS plan to continue detailing employees from other functions during peak periods to telephone assistance as was done in fiscal year 1997? If not,

where will the necessary staffing come from? How does the detailing of employees

affect the performance of their home units?

Answer. Yes, historically, Examination and Collection provided employees to help

with answering phone calls and working in walk-in during periods of high volume.

This fiscal year we are also detailing employees from Automated Collection sites and

from other areas of the service centers to supplement existing staff. Examination

staff is also being utilized to answer specific topics where the taxpayer is asked to

leave a message for call back. This process, commonly referred to as ‘‘Call Back Messaging’’ provides personal call back assistance while drawing upon the IRS’ highly

skilled technical staff, who are often not co-located with telephone operations/systems. At this point, it is too early to assess the impact on the other operations providing support to answer telephones.

Question. What has been your experience with the interactive applications during

fiscal years 1997 and 1998?

Answer. By the end of calendar year 1997, the following 10 interactive telephone

applications were operational nationwide. Overall 30 million calls were received by

the Telephone Routing Interactive System (TRIS) in fiscal year 1997. Of those 30

million, 24 million were routed to Customer Service Representatives, 3 million abandoned, and 3 million completed in (TRIS). The number of calls completely automated by each application in fiscal year 1997 is shown in the answer to the next

question. Fiscal year 1998 information is not yet available. TRIS completed over 3

million calls in fiscal year 1997. Since fiscal year 1998 will be the first year that

TRIS will be available at all sites with a larger variety of applications, we estimate

that TRIS will complete twice as many calls (or 6 million) in fiscal year 1998. For

the future, we are currently piloting two additional TRIS applications—Refund Release and Refund Trace. Refund Release allows the caller to provide information

needed to release a refund being held due to discrepancies such as name changes,

name misspellings, or transposed or incorrect social security numbers. Refund Trace

allows the caller to file a claim for a lost, stolen, or destroyed refund check, or sends

Form 3911 for the caller’s use in making a claim if the caller is not eligible to process the claim over the phone. An application to assist callers with questions regarding the earned income credit is currently being planned.

Question. What are your expectations for fiscal year 1999 and beyond?

Answer. From now through 2000, TRIS is in an enhancement and maintenance

phase. Future TRIS applications are prioritized in the modernization blueprint with

rollout scheduled to begin in 2002. Until then, we will be analyzing management

information data to determine and implement improvements to the existing applications.

Question. Please describe each application and provide information on the number

of taxpayers who accessed, abandoned and completed the different applications.

Answer:

Refund Inquiry—after the caller enters the Taxpayer Identification Number,

(TIN), he/she can obtain the status of his/her refund, filing and expected refund

amount (2.7 million calls completely automated in fiscal year 1997).

Location—allows the caller to get the mailing address for filing return or making

payment (66,083 calls completely automated in fiscal year 1997).

Voice Balance Due—allows eligible callers to set up a payment plan or receive a

30- or 60-day extension of time to pay (200,570 calls completely automated in fiscal

year 1997).

VPPIN—provides security and authentication solution for applications providing

tax account information. Each caller establishes a unique PIN before accessing
220

interactive applications that provide account information. This replaces the disclosure interview performed by Customer Service Representative.

Payoff—provides caller with account payoff balance as of the call date or as of a

date up to 120 days in the future (25,280 calls completely automated in fiscal year

1997).

Transcript—allows caller to request account transcript, return transcript, or Form

4506 to order photocopy of return. Generates a cover letter and requested item to

a caller’s address of record (61,652 calls completely automated in fiscal year 1997).

Credit View—provides a caller with the status of a selected payment or list of up

to last six payments made. (Call data not yet available. Application did not become

operational until February 1998.)

Debit View—provides a caller with detail or summary on account for a chosen tax

year. (Call data not yet available. Application became operational February 1998.)

Survey—offers statistical sample of callers the option to participate in customer

satisfaction survey. Asks maximum of three questions regarding automated service

received (12,000 surveys completed).

Call Referral—asks for the phone numbers of certain callers to account applications who have a need to speak with Exam, Collection, or Special Procedures. Generates a daily report of phone numbers for follow-up by the various areas. (Call data

not yet available. Application became operational February 1998.)

Question. Have you solicited taxpayers’ views on the interactive applications, particularly those taxpayers who abandoned their calls? If no, why not? If yes, what

have you learned, and what actions have you taken as a result?

Answer. Our automated survey application (see description in response above)

surveys a sample of callers who completed the applications. Response data compiled

from fiscal year 1997 indicates that 12,448 callers were offered the survey and 8000

of those agreed to participate. The majority of callers who participated found the

applications easy to use, were satisfied with the service offered, and found it convenient.

Customer satisfaction surveys on toll-free and Automated Collection System will

be administered by a contractor during 1998 and will include a question regarding

customer’s level of satisfaction with automated service. Results will be tabulated

quarterly. In addition, a more comprehensive automated survey is expected to be

in place by next filing season that would have the capability of asking callers more

detailed, directed questions (for example, why they defaulted out of automated service). We are also continuing to analyze our TRIS management information system

data, which provides details about where in TRIS applications callers are defaulting

so we can make improvements such as clarifying messages, increasing response

times allowed, and adjusting business eligibility rules where possible to increase the

number of callers who can use the system successfully.

Question. How many interactive applications do you plan to implement and what

is the schedule for development and implementation?

Answer. By the end of calendar year 1997, the following 10 interactive telephone

applications were operational nationwide. We are currently piloting two additional

TRIS applications—Refund Release and Refund Trace. An application to assist callers with questions regarding the earned income credit is now in planning stage. Future TRIS applications are prioritized in the modernization blueprint with rollout

scheduled to begin in 2002. Until then we will be analyzing management information data to determine and implement improvements to the existing applications.

Question. By fiscal year, how much have you spent on interactive applications and

what are your future spending plans?

Answer:

Fiscal year 1997 actual expenditures:

Labor ................................................................................................ $4,049,000

ADP (hardware/software purchases and maintenance) .............. 617,000

Contractor services ......................................................................... 3,038,000

Telecommunications (purchase and maintenance) ...................... 918,000

Other (travel, overtime, awards, supplies) ................................... 394,000

Total ............................................................................................. 9,016,000

Fiscal year 1998 spending plan projections:

Operational activities ..................................................................... 6,422,000

Deployment activities ..................................................................... 40,000
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EITC application activities ............................................................ 820,000

Total ............................................................................................. 1 7,282,000

Fiscal year 1999 spending plan projection .......................................... 7,700,000

∂38 FTE

Fiscal year 2000 spending plan projection .......................................... 6,619,000

∂38 FTE

1Does not include Y2K $$ for Y2K activities (app. $2M).

Question. What are the return on investment and other expected benefits from

use of interactive applications?

Answer. TRIS will help move work from correspondence to telephones. Resolution

over the phone will take minutes rather than days as required via correspondence.

TRIS reduces burden by increasing IRS business hours, thereby allowing for increased taxpayer access. It also allows taxpayers the flexibility to resolve certain

issues themselves, which may reduce stress levels for taxpayers who are anxious

about talking to IRS employees. TRIS provides easy access to procedural and account information such as refund inquiries. Taxpayers need not wait in queue for

available Customer Serve Representatives (CSR’s). Once in the system, assistance

begins immediately. The technology enables CSR’s to improve productivity and resolve more issues using fewer resources.

The projected benefits from TRIS over the 10 year period (1996–2005) total

$814.9M. This is comprised of FTE benefits of $781.5M and telephone savings of

$33.4M.

Question. Why did IRS change its call-back goal for 1998 from 2 business days

to 3?

Answer. In order to optimize customer access, an initiative was put in place in

fiscal year 1997 and fiscal year 1998 whereby taxpayers can leave a message containing their questions on designated technical tax topics. These questions are then

answered by technical Compliance professionals who are not necessarily co-located

with the telephone operations/systems. In fiscal year 1998, the recording that taxpayers hear when leaving a message was changed to indicate that calls will be returned within three business days (fiscal year 1997 recording was two business

days). The recording was changed at the beginning of this filing season in anticipation of an increase in message workload and because allowing an extra day to try

to contact the taxpayer would increase the probability that we would be able to

reach the taxpayer by phone (callers who cannot be contacted by phone are sent a

letter.) In order to provide the same level of assistance in fiscal year 1998 as was

provided in fiscal year 1997 to these taxpayers and because anticipated workload

increases have not materialized, we have continued to maintain our internal goal

to answer within two business days.

Question. In 1997, what percent of the calls received on the voice messaging system were returned within 2 business days?

Answer. During fiscal year 1997, data on the success rate of Call Back Messaging

callbacks was not captured nationally. For fiscal year 1998, a more formalized process for quality review of the Call Back Messaging program has been established.

Question. So far this year, how many taxpayers left a message and how often did

you meet your goal of returning the taxpayers’ call within 3 business days?

Answer. As of the week ending March 7, 1998, taxpayers left 707,473 requests for

information through customer messaging. Based on information to date, captured

through the Quality Review process, 100 percent of the taxpayers who left usable

messages were contacted within two business days. (A usable message is one that

contains sufficient information for a call back such as the name or telephone number).

Question. For those that were not returned within 3 days, why were not they?

Answer. Based on information to date, captured through the Quality Review process, 100 percent of the taxpayers who left usable messages were contacted within

two business days. (A usable message is one that contains sufficient information for

a call back such as the name or telephone number).

Question. How does IRS ensure that a taxpayer’s call is actually returned?

Answer. Quality reviews administered at the local level ensures that the calls are

returned timely.

Question. Can IRS tell us the extent to which persons who are told to leave a message decide not to?
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Answer. Of the 845,019 opportunities for customer messaging, 707,473 customers

left messages and 137,546 elected not to leave a message. This represents 16.3 percent of the total.

Question. How, if at all, has IRS changed its position on the importance of/need

for walk-in service?

Answer. IRS recognizes and supports the view that walk-in services are an important product line for serving taxpayers. Although most of the services performed in

walk-in offices can be obtained elsewhere, some taxpayers trust and rely on the personal interaction of the walk-in situation.

Question. How many full service walk-in sites (defined to exclude sites that merely distribute forms) were open during the 1998 filing season, and how does that

compare to the 1996 and 1997 filing seasons?

Answer. Currently, the are 403 open walk-in sites. In 1996, there were 448 open

offices, and in 1997, there were 418.

Question. To what extent, if at all, does IRS plan to increase the number in 1999?

Answer. IRS is currently reviewing the service provided by the existing walk-in

sites and has commissioned a task force to make recommendations regarding what

should be done to improve existing service, including a review of the number of

walk-in offices.

Question. What information and services are available to taxpayers via IRS’ web

site?

Answer. Below are examples of IRS Digital Daily Services (all items are updated

and current; bolded items are new this year)

Over 600 statistical reports and/or databases

—Tax topics, short explanations of approximately 150 tax subjects

—News releases

—An electronic tax calendar with individual, business, and excise tax dates

—The Internal Revenue Bulletin, issued weekly; contains Revenue Rulings and

Procedures, Treasury Decisions, Notices and other items of general interest

—Almost 200 frequently asked tax questions and answers

—Tax regulations and plain English summaries

—The capability to comment officially on proposed regulations

—Sign-up for the Digital Dispatch, an E-mail newsletter of the latest tax news

—Market Segment Specialization Audit Techniques Guides, training tools which

describe how we handle certain industry-specific tax issues; currently 17 guides

are available on industries as diverse as pizza restaurants, clergy, musicians,

and Alaskan commercial fishing

—Coordinated Issues Papers, over 80 documents which describe IRS’ current

thinking on industry-specific tax issues

—Customer service standards

—Thousands of tax forms, publications, and instructions; tax year 1992 to current;

—Portions of the Internal Revenue Manual

—Local news from field offices

—On-line want ads for IRS jobs

—A Tax Professionals’ Corner with news and information geared specifically for

this customer base

—A series of 26 interactive ‘‘Tax Trails’’ which allow taxpayers to click yes or no

to a few questions and get the tax answers they need to complex tax issues

—IRS Year 2000 program information, of particular interest to our electronic

trading partners

—Advance Notices; prior to issuance in the Internal Revenue Bulletin, these public notices provide late breaking tax news; the notices are widely used by tax

research services

—Disaster relief kits to assist customers who may need to apply for loans and obtain copies of prior year returns; links to FEMA

—Information on electronic tax payment and filing options

—Free downloadable tax software

—Capability to answer tax law (no account) questions via E-mail

—Links to related information and government sites such as state tax forms

—Information on other electronic information services such as fax and CD–ROM

—Extensive contact information such as where to file and key IRS phone numbers

—A variety of exempt organization information such as how to apply, forms, educational materials, frequently asked questions and answers, a tax kit, a database of exempt organizations and types of exemptions

—Small business tax information such as Work Opportunity Credit details, an

electronic Your Business Tax Kit for businesses just starting out, a Tax Tips

Calender geared just for small business, and information on employee versus

independent contractor issues
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—Third party processor information (lock boxes)

—Special notices on important tax news such as the Taxpayer Relief Act

—Taxpayer Bill of Rights; related training materials and reports to Congress on

taxpayer rights

—Taxpayer Advocate Program information, including a directory for Problem Resolution and the 911 form for emergency relief

—International Tax Forum, a newsletter for tax professionals

—Tax Supplement, a compendium of articles normally used by news media to

help spread the word on tax changes

—Collection Financial Standards

—Promotional kits for electronic return preparers

—Information on educational materials, conferences and exhibits.

Question. What additional services do you have planned for the web site?

Answer. Our Internet site is updated daily. Thousands of pages of tax information

were added just last month. Local news is also available from our field offices such

as calendars of small business tax workshops.

Tax professionals play a vital role in helping serve American taxpayers as well.

To help them help others, we developed a tax professionals’ corner on our web site

which provides information on workshops, tax research materials, certifications, and

how to become an electronic return preparer. We could not have been as successful

without the help of industry to define its needs and help in the planning and development. Members of the IRS Commissioner’s Advisory Group helped develop the

Tax Pro Corner. We will expand this area based on recommendations and input

from tax practitioners and the Commissioner’s Advisory Group.

We are currently testing a few Fill-in-the-Blank Tax Forms, available via the Net.

We plan to make at least 250 of the most popular forms available for taxpayers to

fill in on-line this year. Users can download forms from the IRS home page or the

IRS Federal Tax Forms CD–ROM, fill in the blanks on their own computers, and

print them out. Feedback thus far has been extremely positive and the majority of

those customers who do comment request more fillable forms.

Expand Tiered Distribution of Electronic Information (1998–2002).—Two key programs will be developed. The Corporate Partnership Program provides CD–ROM’s

of IRS tax products to large businesses. The companies place the CDS on their internal networks and provide free access to their employees. Other federal and state

government entities may also join this program. This program will be expanded

through 2002. The second key area is the Library program which currently provides

IRS CD–ROM’s to public libraries. In 1999 we will add web-based and E-mail services for librarians to assist them in distributing tax information. For example, the

status of arrival dates for tax forms and CD shipments for filing season and back

ordered materials would be important to this audience. This program will be expanded in 2000 to libraries which are not ‘‘public’’ (such as those in private colleges).

For taxpayers, this will result in increased accessibility.

Develop On-Line Learning Lab (1998–1999), Expand (2000–2002).—We are improving our taxpayer education program, particularly for first time taxpayers, students aged 13–18 who learn about taxes in school. We are developing an on-line

learning lab which will cover, among many topics, the reasons we pay taxes and

how they can meet their tax obligations. Particularly important is availability of

electronic filing options and teaching electronic filing by electronic filing. The webbased education program will also have a companion CD product. Interactive games

and activities will make taxes—almost fun! First time taxpayers will learn electronic filing methods rather than paper filing and learn to interact electronically

with IRS. The initial web site will be available in May 1998, with the first school

year availability for 1999. Additional services for other customer groups will be

added during the years 2000–2002 (for example, on-line practitioner workshops,

small business workshops, tutorials for updates in specialized tax fields such as estate and gift tax).

Note: the draft opening screen is available now. A poster size image can be made

available with two days notice. The lab will be an on-line ‘‘Zine,’’ part of the Digital

Daily. The Zine is called Taxi, short for Tax Interactive.

Expand CD–ROM, Fax, and Internet Service Capacity and Products, Add Media

(1998–2002).—More IRS products will be added to all media, particularly products

which promote electronic filing and payments. For example, in 1999 we plan to add

locator services on the Internet for electronic return preparers. Taxpayers will be

able to put in a zip code or city and get a list of certified ERO’s near them. We

plan to add DVD services in 2000. Additional services currently being examined include undelivered refunds, employment information, job announcements and position descriptions via fax-on-demand. Better tax research bases will be available because we will use ‘‘intelligent’’ text information which is accessible through a normal
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Internet browser interface and will provide significantly increased search capabilities.

Expand Cross-Government Initiatives for One-Stop Service.—This year, IRS began

the first project to develop a cross-government CD–ROM for start-up businesses.

The CD will be useful for anyone who is starting a new business and will provide

information from a variety of government agencies. The CD will be available in

1999. Additional cross-government services will be deployed through 2002. We expect this to be our first fully blended Web/CD project. In certain topic areas the CD

would automatically go to a selected web site for updates, combine the updated information with the CD information, and present the most current combined information in a single interface.

Question. Are their security concerns or other reasons that limit services you provide on the web site?

Answer. Our choices for Internet services have primarily been driven by customer

needs and usage rather than security concerns. Yes, we do have security concerns,

but so do our customers in private industry. Very few citizens currently do their

banking on the Internet. Certainly, we expect that to change shortly as industry and

government security standards for Internet evolve. We are prepared to add new, secure services as our customers move to using secure Internet services.

Question. What data, other than the number of ‘‘hits’’, does the IRS have to indicate how its web site is being used?

Answer. Although predictive indicators such as hit counts, downloads, fax transmissions are useful to gauge taxpayer response, we will continue to use and expand

on additional measures which provide better information on customer service improvements (increased availability, improved quality, faster service, improved accommodations for persons with disabilities, and more convenient hours) and business results (reduced waste, reduced distribution costs, improved production rates,

improved time to market, lower cost per customer served) . Currently, for example,

we code a sampling of forms so we know where they came from. Separate codes are

used for Internet, fax, and CD services. Last year, 6 percent of forms sampled in

submission processing sites came from Internet. Another example is the cost per

form distributed. Via Internet the cost is about one penny compared to telephone

orders at about $3. The time it takes to mail forms to international taxpayers is

about two weeks or more and via fax or Internet, taxpayers get what they need in

minutes. Even within the U.S. it takes 7–10 working days to deliver forms by mail.

We constantly examine the most popular Internet products and ensure that taxpayers can get to this information with a minimum number of clicks from anywhere

in the site.

Question. To what extent, if at all, has use of the web site reduced the demand

on other sources of assistance, including telephone and walk-in sites?

Answer. Last year we know that more than 19 percent of tax forms submitted as

tax returns came from the tax packages we mailed out. Approximately 6 percent of

the tax forms submitted came from Internet. In 1996, the first year of operations

for our Internet services, 2 percent of the forms sampled were from our Internet

site. So, in one year we saw a tripling from this one source. The percentage of forms

submitted that come from tax packages has decreased over the past two years since

we have provided Internet service. Two years ago more than 30 percent of the forms

we sampled came from tax packages. Likewise, the percentage of forms coming from

our toll-free number for tax forms distribution centers and from walk-in centers has

decreased. Similarly, we have seen, for the first time ever, a small decrease in the

number of callers who try to reach us by telephone. By tracking and analyzing these

trends we can plan resources to meet our customers’ changing needs.

Our goal is to make it more convenient for people to get the tax information they

need. That is why we provide a broad range of choices for taxpayers. For some that

may be Internet. For others it may be telephone services or a visit to their local

library. The number of Americans with Internet access is increasing dramatically

and we want to meet that service need.

This is a difficult area to quantify however, telephone demand has decreased in

the past two years, even though we have answered more calls.

As for walk-in, part of the way we gauge the results of various channels for distributing tax information is to track the number of tax forms submitted back to us

from various sources. We code forms in order to track the effectiveness of our distribution channels for our customers. Forms coming from the Internet have a different code than those in public libraries or from our distribution centers, for example.

Question. Have you surveyed taxpayers to get their view on the services you provide via the web site? If not, why not? If so, what have you learned from the taxpayers, and what actions have you taken on what you have learned?
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Answer. Yes, we have surveyed taxpayers to get their views. We have learned

much not only about the needs of taxpayers but about the impact of our Internet

services are having on other IRS services. We have found that surveys alone, however, do not provide the detailed input we need. As just a few examples, there are

numerous products that have been added based on taxpayer feedback from a variety

of sources. Based on taxpayer E-mail received, we added Applicable Financial Rates

to our site in less than two weeks. We added more searchable publications and fillin-the-blank forms based on feedback from E-mail as well. Our Public Liaison Office

arranged for us to meet with representatives of the small business community and

we added a recommended reading list for small businesses. Our trading partners

wanted a tax professional’s area and we worked with representatives from that

arena to design and implement that section of our web site. We work closely with

the IRS Public Liaison Office and the Commissioner’s Advisory Group to track user

needs and gather input. We have also found through survey that 98 percent of taxpayers who use Internet to ask tax law questions would have gone to our phone system. This is incredibly useful information which also tracks with the trend we have

seen—a decrease of traffic into our phone sites. This also says that the Internet can

help us in our efforts to provide better phone service by diverting some traffic.

Our budgeting for different customer service alternatives is based primarily on

trends in customer demand. For example, over the past two years we have seen a

dramatic rise in customer demand for electronic services. Taxpayers are increasingly

using convenient electronic media such as Internet, fax, and CD–ROM services to

get the tax information they need. Another example of our responsiveness to changing customer needs is our IRS TaxFax system. Taxpayers can retrieve tax forms and

information any time of day or night. We have found that some of the most popular

IRS TaxFax products, as we predicted, are products for new or small businesses.

One half million fax orders were filled this January and February—just two months.

This figure is well over double last year’s total at that time.

Question. How, if at all, does IRS’ Annual Performance Plan (APP) for fiscal year

1998 differ from its fiscal year 1997 Plan as it relates to customer service?

Answer. In the fiscal year 1997 Annual Performance Plan, IRS began moving toward a budget structure consistent with its major business lines—Customer Service,

Submission Processing, Compliance and the Support Functions (including Human

Resources and Information Systems). In fiscal year 1997, the Customer Service business line included non-face-to-face responses (telephones, automated systems or

written) to taxpayers on tax law and tax account issues and early resolution of less

complex collection and examination cases. This business line also included the Problem Resolution Program, an independent complaint-handling system to assure that

taxpayers’ problems which have not been resolved through normal channels, are

promptly and properly handled. In fiscal year 1998, the Customer Service business

line broadened to include the Automated Collection System and the Document

Matching Program (which enables IRS to identify and follow up on income reporting

discrepancies) as well as the programs listed for fiscal year 1997.

Greater resources, both in terms of dollars and staffing, were directed to customer

service in fiscal year 1998 as compared to fiscal year 1997 (assuming the same list

of programs is compared in both years). In fiscal year 1997, approximately $717 million and 18,978 full-time employees supported customer service [figures were obtained from the fiscal year 1997 Annual Performance Plan, dated December 4, 1996,

and the draft fiscal year 1998 Annual Performance Plan, dated February 27, 1998].

In fiscal year 1998, these resources increased to $827 million and 20,255 employees.

This redirection of resources is consistent with the emphasis on customer service.

In fiscal year 1998, IRS began working with a contractor in the development of

IRS-wide customer satisfaction surveys for all business lines which interact with the

public (e.g., telephone assistance, walk-ins, compliance, etc.). The surveys will provide statistically valid samples of customers who actually had contact with IRS.

Data from the surveys will allow a detailed analysis of taxpayers’ opinions relative

to specific IRS business lines. Moreover, the data will lead to improved business

practices that meet taxpayers’ expectations.

Question. Without comparable measures for the different programs, how can IRS

be assured that it is getting the greatest return on its overall investment in customer service?

Answer. Your question assumes that a single scale or measure is appropriate for

all of our customer service programs and that Return on Investment is the best

measure for customer service. We believe that gauging the return on our various

customer service initiatives requires a number of different measures because the

services themselves are very different and do not lend themselves to a single scale

or measure. For example, programs that deliver telephone service, walk-in service

and taxpayer education differ substantially and cannot be compared with a single
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measurement tool. Rather, we prefer to remain committed to supporting all of our

customer service lines, and study them from the perspective of customer satisfaction.

For many years, IRS has conducted customer satisfaction research to assess how

taxpayers value different programs and attributes of the tax processing system. Historically, we have conducted surveys of small businesses, individuals and tax practitioners. The analysis of survey data includes identification of trends based on previous survey results, and an identification of program strengths and areas for improvement. Summary reports from the surveys are distributed throughout the organization. For fiscal year 1998, IRS plans to utilize the recently completed customer

satisfaction survey to help better assess the effectiveness of our investment in customer service. Based on the results of these surveys, we plan to direct resources in

a manner that increases the aggregate level of customer satisfaction.

Question. What plans does IRS have to develop measures for all of its customer

service programs that will enable it to compare their effectiveness, measure the

quality of services provided, and obtain the views of taxpayers?

Answer. New measures of customer satisfaction are a critical part of the development of the balanced scorecard for IRS. During September 1997, the IRS began

working with a contractor in the development of Servicewide customer satisfaction

surveys for all business lines which interact with the public (e.g., telephone assistance, walk-ins, compliance, etc.) Phase I of the surveys was implemented in March

1998, and includes surveys for Collection, Examination, Employee Plans/Exempt Organizations, Customer Service (Toll Free, Automated Collection System, Service

Center Examination, and Walk-ins) and Appeals. Phase II, a detailed analysis of the

survey results, will be implemented by December 1998. The results of Phase II will

enable us, with the assistance of a contractor, to develop better measures of customer satisfaction for all of our programs, including Compliance and Appeals.

Question. How, if at all, can management and Congress use IRS’ performance

measures to evaluate resource allocation decisions? For example, a decision to detail

compliance staff to help answer the telephone will likely reduce compliance results

and increase the level of telephone access (both of which would probably be reflected

in IRS’ measures), but how can one determine the overall impact of that decision

on IRS’ mission effectiveness?

Answer. IRS’s existing measurement system is able to detail the direct impact on

performance of some of our resource allocation decisions like the one mentioned in

the question—detailing compliance staff to answer phone calls during the filing season. These measures are all being reviewed in light of our goal of transforming the

IRS from an internally focused organization to one which views itself from the taxpayer perspective and in light of the elimination of use of all enforcement statistics

for measuring organizational performance. We have a task force working on this

problem, and we expect to engage expert outside consultants to assist in this task.

We expect to have interim results to use for measuring performance during fiscal

year 1999. These measures will build on some of the measures included in the budget submission.

PROBLEM SOLVING DAYS

Question. How much did it cost IRS to hold the initial national problem solving

day on Saturday, November 15, 1997?

Answer. The estimated cost is $1.5 million, based on the average spending for 4

months of problem solving days (PSD). A precise number for a given month’s events

is not available for two principal reasons. First, the PSD expenditures are being

‘‘flagged’’ via use of a new code in IRS’ accounting system, and employees are to use

this code for time spent planning PSD’s, dealing with taxpayers during PSD’s, and

also working the cases that result from PSD’s. Therefore, at any given time, the

staff hours being reported may represent past, present and future PSD’s, with no

means of differentiating among them. In addition, when an employee earns compensatory time or credit hours for off-hour PSD work, the time is not reported in the

payroll system as PSD time until the employee actually uses the comp time or credit

hours, which might be weeks or months later.

Question. What were the major components (e.g., employee salaries, overtime, office space, utilities, etc.) of these costs?

Answer. The major spending categories, over the course of 4 months, have been:

salaries and benefits (67 percent), overtime (21 percent), travel (4 percent) and utilities and guard services (4 percent). The other 4 percent consisted of a variety of support items.

Question. How much did it cost IRS to hold subsequent problem solving days in

December 1997 and January and February 1998?
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Answer. For the reasons stated in response to another question, the best estimate

for individual monthly PSD expenses is to take an average of spending for all PSD’s

conducted to date. The average monthly cost after four scheduled PSD’s is $1.5 million.

Question. How many taxpayers visited IRS with problems during the problem

solving days in November 1997 through February 1998?

Answer. The number of taxpayers who visited problem solving days is as follows:

Number of

Month Taxpayers

November, 1997 ..................................................................................................... 8,418

December, 1997 ...................................................................................................... 4,257

January, 1998 ......................................................................................................... 4,125

February, 1998 ....................................................................................................... 3,065

Total ............................................................................................................. 19,865

Question. How many of those taxpayers had their problems resolved as a result

of IRS’ problem solving day initiative?

Answer. For November, 90 percent of the taxpayers’ cases have been closed; for

December, 80 percent of the cases have been closed and for January, 70 percent of

the cases have been closed. A taxpayer’s problem (case) is not considered closed

until it is fully resolved. However, closing a case does not necessarily mean that the

resolution is what the taxpayer has requested or wanted. The rationale for the resolution is explained to the taxpayer, along with any follow-up action that could be

taken.

Question. How many were resolved in the taxpayer’s favor?

Answer. In general, IRS does not keep statistics about in whose favor the decision

is made. We have groups studying the problems that cause the most taxpayers problems. For example, audit reconsiderations caused taxpayers the most problem solving day cases. Of the cases studied, approximately 60 percent of the cases were resolved with full or partial abatement of the additional tax assessed. These cases

were certainly resolved in favor of the taxpayers.

Question. What kind of follow-up is IRS doing to ensure that problems are being

resolved and that corrective actions agreed to during the face-to-face meetings actually happen? Assuming there has been some follow-up, what has IRS learned?

Answer. Procedures are in place to ensure that no case is considered closed until

all case issues are addressed, fully resolved and all corrective actions are accomplished. IRS management reviews all cases, verifying that all necessary actions have

been taken to resolve the taxpayer’s problems. Only at this point is a case considered to be closed. Quality review is then done for a statistically valid sample of the

closed cases to further verify that the proper actions have been taken to resolve the

case.

IRS has learned that there are many benefits to both taxpayers and employees

in having face-to-face contact on these problem solving days. Having all the functional areas and management levels represented at the problem solving days, working in a team effort, really expedites resolution of taxpayer problems. The problem

solving days embody the ideal of ‘‘one stop service’’ for taxpayers.

Question. How much does IRS estimate this initiative will cost in fiscal year 1998,

considering costs already incurred and anticipated costs for the rest of the year?

Answer. Based on costs incurred through February, the IRS estimates that Problem Solving Days for all of fiscal year 1998 will cost between $12–$15 million. Most

of these costs will be employee salaries and benefits which are not an incremental

cost; they were already budgeted before the Problem Solving Days initiative was implemented.

Question. How many taxpayers does IRS project will visit IRS as a result of the

problem solving day initiative in fiscal year 1998?

Answer. IRS has made no projections because this is a new program. However,

based on current receipts, if the taxpayers continue to visit PSD’s at an average of

5,400 per month, it is projected that approximately 59,000 taxpayers will visit IRS

during the eleven month period from November, 1997 through September, 1998 (the

end of fiscal year 1998).

Question. How many of those taxpayers does IRS project will have their problems

resolved?

Answer. All cases are worked to resolution and subjected to management review

prior to closure. Resolving a case does not necessarily mean that the solution is

what the taxpayer may desire or request, but the outcome and rationale are explained to the taxpayer, along with other steps that may be taken.
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Question. What actions has IRS taken to hold down the costs of the problem solving day initiative?

Answer. On a Servicewide basis, we have decided to hold more coordinated national events than in the months since November, 1997. After that first national

Problem Solving Day (PSD), we encouraged our 33 district directors to rotate their

events among various cities and towns within their geographic areas and also allowed them to select the days and times for themselves. More recently, we have chosen to be more structured, by fixing two or three days only during a month, from

which the various offices must choose their PSD’s. This approach reduces publicity

expenditures somewhat, but more importantly, limits the amount of time during

each month when we must maintain access to our tax databases. In turn, that reduces the money spent on the computer specialists who must keep systems up and

maintained during off-hours, as well as trimming hardware/software maintenance

fees and utilities charges. We have also begun holding PSD’s on weekdays, with

hours extended into the evening, rather than hosting the events only on weekends.

In March, 1998, two-thirds of the PSD’s were held on weekdays which, while still

affording taxpayers the opportunity to obtain help and deal with IRS face-to-face,

reduced our overtime expenditures considerably.

At the district level, as the offices have gained experience in hosting several

PSD’s, they have found ways to more efficiently plan for resource usage. They now

know better how many taxpayers to expect at a given site and time, and can arrange their staffing and other support services (e.g., guards and utilities) accordingly to meet, but not exceed, the expected demand.

Question. Has IRS identified systemic problems as a result of the issues raised

by taxpayers during the problem solving day initiative? What are the major systemic problems identified; what actions has IRS taken or does it plan to take to address these problems in the future?

Answer. Study groups commissioned by the Taxpayer Advocate are focusing on

four areas that cause a majority of taxpayer problems: audit reconsiderations, offersin-compromise, installment agreements, and penalty issues. These study groups are

gathering data and analyzing these problem areas in depth. They are making recommendations to correct the underlying problems, often expanding outside the

realm of the problem solving day cases to get a complete understanding of the systemic and procedural problems.

Question. Recognizing that IRS already has a Problem Resolution Program in

place, what actions will IRS take to direct taxpayers having problems to that program rather than to a separate problem solving day initiative?

Answer. IRS has recognized that it needs to improve publicity about, and access

to, the Problem Resolution Program (PRP). We expect that these actions should reduce the need for taxpayers to participate in the Problem Solving Day program, and

instead provide ongoing access to the PRP program itself, so that taxpayers do not

need to wait for a local PSD opportunity. Nevertheless, because of the evident benefit to certain taxpayers, IRS does intend to make the Problem Solving Day initiative

a permanent feature operated under the auspices of the local Taxpayer Advocates.

Question. How, if at all, has workload generated by Problem Solving Days affected

the ability of the Taxpayer Advocate to handle the regular Problem Resolution Program workload?

Answer. On a nationwide basis the workload has increased to the levels of two

years ago. While in certain offices there are special workload burden issues, overall

the workload is manageable. However, because of this program and planned increases in workload from new publicity efforts, additional staffing is being allocated

to all offices to assure that all workload can be managed without compromising

quality standards.

Question. What are IRS’ current plans with respect to future Problem Solving

Days?

Answer. IRS plans to conduct 12 problem solving days in every district office in

1999, and has made the Problem Solving Days a permanent ongoing program available for taxpayers.

Question. Does IRS expect to continue having such days past fiscal year 1999?

Answer. Yes. We see this as an ongoing program.

CONTROLS TO ENSURE FAIR TREATMENT OF TAXPAYERS

Question. What is the status of IRS efforts to develop a management information

system to ensure that taxpayer abuse is identified and addressed and to prevent its

recurrence?

Answer. To help develop management information on complaints IRS receives

from taxpayers, a three-part definition of a taxpayer complaint was developed. The
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first category is complaints about employee behavior which violate specific statutes

or the Code of Conduct. This activity is tabulated by the Chief Inspector and included in the semi-annual report of the Inspector General. The second category is

complaints about IRS system failures or problems. These are reported in the statutorily mandated annual report (fiscal year basis) of the Taxpayer Advocate. The

third category is complaints about employee behavior which is inappropriate in carrying out official business, e.g., rudeness or overzealousness. This behavior is reported in the Customer Feedback System in an annual report (calendar year basis)

mandated by Congress.

Question. What is the status of efforts to change the current information systems

maintained by IRS, the Treasury Inspector General, and Justice to include specific

data elements for taxpayer abuse?

Answer. While we cannot comment on those systems not under the control of IRS,

within IRS we are now reviewing the Customer Feedback System to see if it can

be improved.

Question. What is the status of the needed changes to this system that are required to ensure accurate and objective data?

Answer. The Customer Feedback System (CFS) was implemented to collect the

data needed to prepare the annual report on taxpayer complaints required by

TBOR2. Managers complete Form 10004, Customer Feedback Record, when a taxpayer complains to them about the conduct of one of their employees. As part of the

IRS’ review of correspondence for the fourth quarter of fiscal year 1997, every Form

10004 prepared during that period was reviewed. To date we have not identified any

weaknesses with the accuracy and objectivity of the data collected however, we continue to be concerned with the consistency of participation in CFS. The number of

10004’s prepared varies significantly from site to site and function to function. We

have taken and continue to take actions to increase awareness of the program and

encourage completion of the 10004’s as required. These actions include: articles in

management publications (Leaders Digest and A Manager’s Tool Kit); recertification

for all managers as part of the filing season readiness review; program reviews; reviews of data by function; top level management emphasis on the program and

many local initiatives to raise the profile of the CFS program.

Question. How can IRS meet the mandate in the Taxpayer Bill of Rights 2, which

requires the IRS to file an annual report on taxpayer complaints, if the Customer

Feedback System does not contain accurate and objective data?

Answer. We believe the data reported is accurate and objective. Our concern is

to insure that all instances of taxpayer complaints are reported on Form 10004 and

we are continuing to emphasize the importance to managers of their participation.

Ongoing reviews and publicity have contributed to an increase in volumes reported

in recent months.

INFORMATION SYSTEMS—CENTURY DATE CHANGE EFFORT (YEAR 2000)

Question. What progress has IRS made in completing unfinished assessments and

identifying funding for these areas? How will the $42 million be spent?

Answer. The assessment of how we propose to spend the $42 million is complete.

We have specific approved line items for expenditure of the entire $170 million appropriated in fiscal year 1998 for Year 2000 conversion work. Consistent with the

notification sent to Congress on February 9, 1998 (as part of our quarterly Appropriations report), IRS plans to spend the $170 million as follows (including realignment of the $42 million).

Congressional category Congressionally

enacted New alignment Increase/de- crease

Conversion and testing ...................................................... $79,000,000 $84,000,000 ∂$5,000,000

Telecommunications ........................................................... 23,000,000 51,000,000 ∂28,000,000

ADP equipment ................................................................... 13,000,000 21,000,000 ∂8,000,000

Operating system S/W ........................................................ 17,000,000 9,000,000 ¥8,000,000

CDC project office/program management ......................... 9,000,000 14,000,000 ∂5,000,000

Certification ........................................................................ 7,000,000 11,000,000 ∂4,000,000

Contingency ........................................................................ 42,000,000 ........................ ¥42,000,000

Offset within IRS budget ................................................... ¥20,000,000 ¥20,000,000 ........................

Totals .................................................................... 170,000,000 170,000,000 ........................
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It must also be noted that significant additional needs have been identified for

fiscal year 1998, and that some areas are still under assessment. IRS expects that

its Tier 2 (minicomputer) and telecommunications costing will be complete by the

end of July 1998. Tier 3 (microcomputer) systems, needs identified through systems

integration testing, and the non-information technology (non-IT) area may take

longer to finalize. Some of these areas will have fiscal year 1999 implications. Also

note that areas of uncertainty and identification of new needs will continue into fiscal year 1999.

Question. What is IRS’ latest estimate of its additional funding needs for fiscal

year 1998? Has IRS identified potential funding sources to cover its needs? If yes,

what are they?

Answer. The latest estimate of additional funding needs in fiscal year 1998 is

about $64 million for year 2000 conversion work (a revision to our estimate of $90

million contained in the January Report to Congress). IRS has tentatively identified

a source for $50 million of this need, but this will require Congressional approval

to re-program certain expired unobligated balances.

The President submitted a fiscal year 1998 Supplemental request for a number

of agencies on February 20, 1998. Included in that supplemental was a request for

the Department of Treasury to have authority to transfer up to $250 million among

Department accounts for Y2K requirements, subject to advance notice to the House

and Senate. Also included was a request for authority to make unobligated fiscal

year 1998 balances available through September 30, 1999, subject to advance notice

to the House and Senate. There was no request for additional funds for IRS in the

supplemental. With this authority, the IRS should be able to cover any remaining

unfunded Y2K needs, including those which will be identified later. In addition,

Treasury has recently committed to fund the Treasury Communications System

(TCS) conversion, which should free up the majority of the $29 million IRS has previously reserved for that purpose.

Question. Please explain how IRS can consider the assessment for its mission critical systems complete. Why are contingency funds necessary if the mission critical

systems have been fully assessed?

Answer. The IRS considers its assessment of mission critical systems complete because all have been analyzed for year 2000 impact and committed to a conversion

phase. For each mission critical system an executive has made a commitment to

convert it and has allocated technical resources to complete the conversion. Furthermore, the agency is conducting a weekly progress oversight process and I receive

a monthly progress report.

Some unresolved issues remain, however, especially in the areas of telecommunications, Tiers 2 and 3 infrastructure, vendor products, and externally exchanged

files. Contingency funds are required to cover any unforeseen Y2K impacts, or problems that are likely to be discovered in some areas. It has been our experience that

additional needs are uncovered as we progress through the conversion process. IRS

has established several mechanisms to identify additional needs or problems early:

(1) systems integration testing; (2) the Risk Analysis process; (3) the Contingency

Management process; and (4) External Trading Partner Risk Analysis. Nine internal

audits have commenced to address the adherence to standards and the efficacy of

the implementation of the Y2K conversion efforts.

Question. How do the areas still under assessment impact mission critical operations?

Answer. The IRS expects minimal impact on its mission critical operations resulting from areas still under analysis. Issues and potential problems will be discovered

through the processes put in place for early detection of such items, and this identification will occur either prior to or in fiscal year 1999. The Risk Assessment and

External Trading Partner outreach programs are in place, and systems integration

testing will begin in January, 1999 and is scheduled to be completed by October,

1999. The Contingency Management process for applications is in place, with the

COTS and external trading partner portions to be implemented soon. As new products or requirements are identified, they will be evaluated and solutions will be integrated into the Year 2000 Project Master Plan for tracking progress. The budget will

also be adjusted accordingly to include any additional requirements.

In addition, we have ongoing processes in place that will help us ensure that Telecommunications provides the essential infrastructure to allow the Mainframe Consolidation systems to operate.

Question. What progress has IRS made in converting its systems to date? Please

provide this information in terms of the names of mission critical systems that have

had their applications, systems software, and hardware converted and tested.
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Answer. Of 126 Mission Critical applications systems, 75 have been renovated, 60

tested, and 59 systems have been implemented into production as of Phase 3. Please

see the attached list of systems for specific names.

These counts address our applications programs. These systems also rely on commercial software and hardware, telecommunications systems, electronic data from

sources outside IRS, and to some extent, on equipment generally outside the scope

of information technology, for example, building security systems and environmental

controls.

The IRS has established detailed conversion plans for each area and dedicated resources have been assigned to execute the plans. Progress in each area is monitored

on a weekly basis and corrective actions are taken to ensure the progress is on

schedule.

Question. Are there any areas for which IRS is at risk of not meeting this goal?

What is IRS’ plan for addressing those areas that it may not be able to convert on

time? Given that IRS has less than 2 years to fix and test all of its systems, what

contingency plans is IRS prepared to implement in each of the following scenarios:

(1) funds are not available to convert all mission critical systems by 2000, (2) there

is not enough time to convert all mission critical systems by 2000, or (3) unexpected

system failures occur for a variety of possible reasons including unassessed areas,

conversion oversights, or incomplete testing? Does IRS have Year 2000 contingency

plans for those systems that are critical to the collection of $1.4 trillion in annual

revenues? If no, why not?

Answer. The IRS has identified four potential risk areas that could affect the IRS’

not being fully Year 2000 compliant. They are Telecommunications, Tier 2 hardware

and software, Tier 3 hardware and software, and External Trading Partners Data

Exchange.

IRS has established detailed conversion plans for each area and dedicated resources have been assigned to execute the plans. Progress in each area is monitored

on a weekly basis and corrective actions are taken to ensure the progress is on

schedule.

I chair a monthly Executive Steering Committee meeting to address immediately

the critical issues and risks associated with the Year 2000 efforts. In addition, I frequently communicate with selected IRS and other stakeholders on an individual

basis to monitor the progress of specific components of the Year 2000 effort. I have

met with the General Accounting Office and the IRS’ Internal Audit function to ensure an independent view of the situation. I also met with Booz-Allen & Hamilton

on their Independent Validation and Verification risk assessment.

Given the scope of the IRS program and its critical importance to both the nation’s economy and its taxpayers, it is imperative that the IRS’ mission critical systems continue to function properly in the new millennium. Because the risks are

significant, despite the progress made, the IRS has developed feasible contingency

plans to neutralize any adverse impacts of a less than fully successful century date

program. These contingency plans reflect the IRS functions as well as those of our

data exchange partners. The overall IRS contingency planning strategy is to focus

our efforts on planning for only those aspects of the program that may not be completed timely and/or fully successfully.

The IRS has scheduled for conversion of all its application systems by January

1999, allowing the remainder of 1999 for integration testing, system level testing,

and certification, and to address any unexpected conversion items. Contingency procedures will be developed and implemented for products if they become dangerously

behind schedule. The IRS’ Year 2000 Contingency Management Plan tracks Y2K remediated progress and allows us to create specific contingency plans when a need

arises.

With over 41,000 components and approximately 47 percent of mission critical

systems converted and implemented as of January 1998, the IRS conducted a postimplementation (Phase 3) Review. As a result of this review, the IRS identified several lessons learned which were applied to all systems. Specific technical solutions,

standards implementation and testing procedures were modified to reflect these lessons learned. In preparation for a similar review process after Phases 4 and 5, the

IRS has instituted additional metrics. During fiscal year 1999 the IRS will implement an end-to-end test or systems integration testing of all systems. If a failure

or problem occurs in the systems integration testing, an existing requirement for a

contingency plan will be invoked.

Question. What is IRS’ fiscal year 1999 budget request for each of the following

areas:

a. Mainframe consolidation?

b. Integrated Submission and Remittance Processing System?

c. Year 2000 conversion efforts (i.e., those activities not covered by ‘‘a’’ and ‘‘b’’?).
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Answer. IRS refers to its non-infrastructure related Year 2000 efforts as Year

2000 ‘‘conversion’’ work.

a. The IRS’ fiscal year 1999 budget request for the Service Center Mainframe Consolidation is $76 million.

b. The IRS’ fiscal year 1999 budget request for the Integrated Submission and Processing System is $18 million. c. IRS’ fiscal year 1999 budget request for Year 2000 conversion activities is $140

million.

Question. How much of the request for mainframe consolidation is attributed to

the need to make IRS’ mainframe computers Year 2000 compliant? How much is

attributed to non-Year 2000 data center consolidation efforts?

Answer. As a result of the business alternatives analysis for mainframe consolida- tion, of the total investment required for Mainframe Consolidation initiative, $265

million represented the minimal cost required to achieve Y2K compliance through

upgrading the existing legacy environment. The analysis to break this cost down by

year has not been completed.

OVERVIEW OF COST AND DOLLAR BENEFITS (FISCAL YEARS 1997 TO 2006)

[Dollars in thousands]

Delivery alternative

Contract costs Total life

cycle funding Cost savings

Investment O&M

Stay-in business .................................................... $265.0 $357.2 $1,815.2 ....................

Consolidation (with Lease To Purchase) ............... 321.4 222.8 1,311.2 $503.9

The mainframe consolidation program has four parts. Two of these—the Communications Replacement System (CRS) and the replacement of desktop devices, with

the associated telecommunication infrastructure—are mandatory for Y2K compliance. The CRS cannot be upgraded and must be completely replaced. The Terminal

Replacement Project replaces approximately 17,000 desktop workstations which cannot be otherwise modified or upgraded. The proprietary telecommunications infrastructure supporting connectivity between mainframes, as well as workstations at

approximately 700 sites, requires significant modification or replacement. These

projects are currently on schedule to be completed by December 1998.

The other two parts of the mainframe consolidation program involve the replacement of existing IBM and UNISYS mainframe computers, in each of the ten service

centers, with mainframe computers in the Martinsburg and Memphis Computing

Centers. The Consolidation project is driven principally by the requirement to ensure Year 2000 compliance for all mainframe platforms. The benefit/cost analysis

provided within the current Consolidation Business Case indicates that the chosen

solution provides the greatest return on investment versus a ‘‘pure’’ Year 2000 solution upgrading antiquated equipment in place, and offers a cost savings of $503.9

million over a ten-year period. There are a number of additional benefits, as described within the business case, which provide standardization, satisfy other business requirements and position the IRS for subsequent modernization activities.

These include:

—Reduced IRS Information Systems Operations and Maintenance Costs

—Improved IRS taxpayer data quality

—Improved Disaster Recovery and Business Resumption capabilities.

Question. Has IRS identified any additional Year 2000 funding needs for fiscal

year 1999 since the budget request was submitted to Congress? If so, what are those

needs?

Answer. IRS requested $50 million in Year 2000 contingency funds for fiscal year

1999. At this time, we have additional needs estimates for several area of conversion

work, totaling approximately $39 million in fiscal year 1999. The majority of these

needs occur in the areas of non-IT ($19 million), Tier 3 hardware ($11 million), and

human resources retention allowances ($6 million). IRS plans to meet these needs

out of the $50 million Contingency portion of the fiscal year 1999 President’s Budget

request. Also, the Service Center Mainframe Consolidation (SCMC) Project is reevaluating its fiscal year 1999 needs and impacts, and may require additional funding as a result of schedule delays, and modified capacity and disaster recovery requirements. IRS is conducting further capacity analysis due to recent changes to its

level of service (e.g., 6 by 16 hours of operations for Customer Service) as well as

the additional functionality and the increase in locations for the Integrated Collection System. IRS is also reviewing modified disaster recovery requirements which
233

call for more backup capabilities and shorter time frames for recovery operations.

If the requested Treasury reprogramming authority is approved, it should yield sufficient flexibility to address unforeseen problems.

Question. What has IRS done to ensure that its current budget provides sufficient

resources to modify and test its systems to address these changes at the same time

it is modifying and testing its systems for its century date change effort?

Answer. The work required to accomplish Year 2000 conversion is competing for

the same resources as the work required for the other efforts to which IRS is committed in this time frame, and this is a concern. In response to this, I have established the monthly Executive Steering Committee meetings to address Year 2000

impacts and 1999 filing season issues together in an integrated fashion. All aspects

of these areas, including testing and resource requirements are addressed and follow-up actions assigned. I have asked that all potential additional needs be flagged

and evaluated to monitor their resource and schedule impacts and risks through the

monthly meetings.

When Year 2000 resource shortfalls are identified, IRS assesses its priorities and,

when feasible, realigns funding from less critical activities. If there are still unfunded Year 2000 needs, IRS works with Treasury and OMB to identify funding

sources or request additional funding as appropriate. Our requests for contingency

funds are one way of ensuring that all necessary resources are available as, and

when needed.

One of the major areas we have requested funding for is contractor support to leverage our internal resources, especially in the area of systems testing and certification. In some areas, such as new hardware or operating environments (systems

software), contractor expertise has been added to get the new systems rolling and

allow internal staff to come up to speed. Also, many requests for systems enhancements are not being honored during this period and will accumulate for later implementation. The effects of accumulated attrition are also a factor in IRS’ level of concern about its ability to do everything the IRS needs to do in this time frame. The

Commissioner recently sponsored a six-part human resources initiative which

should help in this area, especially with the retention of IRS experienced computer

personnel and the recruitment of additional systems development and testing personnel to backfill behind significant attrition.

MAINFRAME CONSOLIDATION

Question. Is the data center consolidation proceeding according to its original

schedule?

Answer. The Terminal Replacement and Communications Replacement Systems

components, which need to be replaced to become Y2K compliant, are proceeding according to plan and are on track. Augmentation activities associated with Service

Center legacy systems have begun in the initial five sites to be cut-over and are proceeding slightly behind schedule based upon training and operational issues. The

Service Center Replacement System and the Integrated Collections System/Automated Collections System/PRINT projects are proceeding behind schedule based

upon requirements to conduct much more thorough and exhaustive testing of new

technologies and systems beyond what was originally envisioned when the project

plan was first developed. IRS has developed several contingency options is currently

reviewing them to assess impacts to the project critical path and business case due

to schedule delays, and modified capacity and disaster recovery requirements. IRS

is conducting further capacity analysis as a result of recent changes to its level of

service (e.g., 6 by 16 hours of operations for Customer Service) as well as the additional functionality and the increase in locations for the Integrated Collection System. IRS is also reviewing modified disaster recovery requirements which call for

more backup capabilities and shorter time frames for recovery operations. A decision

regarding which option will be selected will be made by early June 1998, at which

time we will provide an updated status assessment and the impacts on funding

needs and the business case.

Question. If not, what problems has IRS encountered and what are IRS’ plans to

address them?

Answer. The challenges facing consolidation are typical of any large and complex

information systems project. It is also true that the risks associated with the project

are increased as a result of requirements to achieve Year 2000 compliance in a rapid

time frame. Impacts experienced to date include:

(1) Programmatic issues, such as the scope and duration of testing required to

verify the capacity and performance of new systems and architectures. Several contingency options have been developed and are under review which provide more

comprehensive verification and validation of new products within the IRS processing
234

environment. To mitigate these risks, additional testing will be required to support

capacity and performance, Disaster Recovery, Security, and Business Resumption

planning and analysis.

(2) Operational issues associated with the development of new standard operating

procedures (SOP’s) and inter-organizational service level agreements (SLA’s). Interdisciplinary teams composed of Service Center, Computing Center, and Business

personnel have been created to address modifications required to over 400 SOP’s

based upon new technologies and the improved telecommunications infrastructure.

A Business Project Manager, reporting to the Executive Officer for Service Center

Operations as a matrix partner within the Project Management Office, has been

charged with developing and coordinating all required SLA’s. These will define the

new working relationships between the computing and service centers, as well as

the support to be provided between information systems organizations within the

service centers and their local business area partners.

(3) Personnel issues associated with staffing, training, and relocating personnel

within very aggressive timeframes. Extended negotiations with the National Treasury Employees Union contributed to a later than expected implementation of the

consolidation staffing plan. This has placed pressure upon the project critical path

in regards to staffing ramp-up within the consolidated computing centers, as well

as the associated relocation and retraining timeframes necessary to ensure successful filing season operations. The IRS is committed to taking whatever steps necessary to retain key expertise within the IRS and has provided a number of retraining and relocation incentives to employees electing to pursue careers within the consolidated computing centers. For those employees who remain within the Service

Centers, several options are under evaluation for providing remote access support,

temporary or long-term details to other computing or service centers, or retraining

and assimilation within other areas in the IRS organization.

(4) Technical issues associated with the delivery sequence of both commercial and

IRS developed applications. Given the myriad of thousands of technology components, the interdependencies between individual systems and projects are enormous.

The IRS is pursuing very aggressive management and oversight of all supporting

vendors and organizations to ensure timely and quality delivery of products and

services. Although there have been some impacts to the critical path, these have

been mitigated through alternative testing schedules and options, as well as

through interim manual procedures.

Question. What are IRS’ current cost/savings estimates for mainframe consolidation and how have they changed from the initial estimates?

Answer. The cost savings adjusted to remove investment costs, normal business operating costs, and revenue benefits are $503.9 million. This cost reflects projected

life-cycle dollar savings resulting from consolidation. As a result of the on-going

schedule contingency analysis, it is expected that these figures will change and updated information will be provided as it becomes available. However, given the initial very strong return on investment (ROI) results outlined within the Consolidation Business Case (330 to 350 percent), it is expected that any option will continue

to support a positive ROI.

Question. What accounts for the changes, if any?

Answer. As has been previously stated, changes in the cost/savings estimates are

under review as part of the overall contingency analysis and will be made available

as this process is completed in early June 1998.

Question. What impact have schedule slippages, if any, had on projected costs/savings?

Answer. The IRS is currently reviewing potential schedule modifications. The impact of schedule changes on cost is being analyzed. Several issues as previously described (e.g., capacity and disaster recovery) are driving potential modifications. The

IRS will take appropriate measures to update its business case and inform the Senate of any significant modifications once the contingency analysis is complete.

Question. What specific aspects of this consolidation are required to help IRS

achieve Year 2000 compliance?

Answer. Communications Replacement System (CRS) cannot be upgraded for Y2K

compliance and must be completely replaced. The Terminal Replacement Project replaces approximately 17,000 workstations which cannot be otherwise modified or

upgraded for Y2K compliance. The proprietary telecommunications infrastructure

supporting connectivity between mainframes, as well as workstations at approximately 700 sites, requires significant modification or replacement for Y2K compliance. These components are currently on schedule and are scheduled to be completed by December 1998. The SCRS and ICS/ACS/PRINT projects achieve Year

2000 compliance while satisfying additional business requirements, as opposed to a

‘‘pure’’ Year 2000 solution upgrading antiquated equipment in place. The Consolida-
235

tion business case identified alternative solutions for achieving Year 2000 compliance and determined that the current approach offered the best ROI.

Question. In the event that aspects of this consolidation fall behind schedule, what

parts, if any, could be delayed without jeopardizing Year 2000 compliance?

Answer. The mainframe consolidation program has four separate parts. Two of

these, the Communications Replacement System and the replacement of desktop devices, are mandatory for Year 2000 because the systems they are replacing cannot

be made Y2K compliant. These two projects are currently on schedule and are

scheduled to be completed by December 1998. The other two parts of the program

involve the replacement of current IBM and UNISYS mainframe computers in each

of the 10 Service Centers, with the new mainframe computers in the Martinsburg

and Memphis Computing Centers. This aspect of the consolidation provides substantial annual cost savings and standardization, and positions the IRS for subsequent

implementation of the modernization blueprint. It will also eliminate the need for

upgrade of some vendor products and for testing and certification for Y2K compliance at each of the Service Centers. However, it is not mandatory to complete conversion of all Service Centers to the new technology to achieve Y2K compliance.

Currently, one of the Service Centers has been converted to the new technology and

is operating successfully. If the schedule for the mainframe consolidation components slips, the IRS has the option of remediating the legacy platforms in the nonconsolidated service centers for Y2K compliance. Contingency plans are under development which address the requirement to pursue remediation of the legacy SCRS

and ICS/ACS/PRINT environments in the event that some Service Centers operations cannot be migrated prior to January 1, 2000.

Question. What portion of the total cost estimate is attributed to the need to make

systems Year 2000 compliant?

Answer. As a result of the business alternatives analysis for mainframe consolidation, of the total investment required for Stay-in Business, $265 million represented

the minimal cost required to achieve Y2K compliance through upgrading the existing legacy environment. The analysis to break this cost down by year has not been

completed.

The consolidation solution offered the best return on investment for achieving

Year 2000 compliance as well as satisfying other business requirements. The business case outlines the following figures. In this case, the Stay-in Business alternative represents the cost of upgrading and operating legacy technologies in-place

to achieve Year 2000 compliance. However, it does not include the additional investment necessary to position the IRS for future modernization, which is inherent within the Consolidation alternative.

OVERVIEW OF COST AND DOLLAR BENEFITS (FISCAL YEARS 1997 TO 2006)

[Dollars in thousands]

Delivery alternative

Contract costs Total life

cycle funding Cost savings

Investment O&M

Stay-in business .................................................... $265.0 $357.2 $1,815.2 ....................

Consolidation (with Lease To Purchase) ............... 321.4 222.8 1,311.2 $503.9

Question. What has IRS done to independently verify actual costs against projected costs?

Answer. Several steps are initiated as part of the overall budget and program

management methodology. Vendor Invoices received against task orders/delivery orders are forwarded to the relevant Project Manager and COTR to validate that

goods and services were received in accordance with the established work and cost

breakdown structures. These are then reviewed within the context of the project and

overall Consolidation Resource Management and Spending plans to ensure actual

costs are were within projections and identified in accordance with the baseline

Master Plan. Costs are ultimately reconciled with the consolidation business case

and the initial contractor Program proposal to verify actual costs against projected

costs. This method ultimately ensures that both positive and negative cost impacts

are identified and addressed as quickly as possible.

By utilizing a contracting paradigm which establishes fixed-prices for hardware

and software products, while managing services under a time-and-materials arrangement, vendor risk is mitigated more effectively versus a fix-priced ‘‘for everything’’ approach. This ultimately yields significant cost savings to the Government
236

for services, and at the same time builds a greater level of accountability into the

management process.

Question. What impact has this had on projected savings?

Answer. Because we have not yet defined the contract’s parameters, the impacts

of our costs verification are not known at this time. IRS anticipates that, as a result

of its efforts to build a greater level of accountability into the management process

and once contract parameters have been defined, it will achieve cost savings in services and lower hardware and software prices. However, the project is likely to incur

cost increases as a result of changes in requirements for security, disaster recovery,

and the scope and duration of testing which will impact the schedule completion and

result in a continuation of some service center operations. As soon as the net impacts of the cost increases and decreases are finalized, we will provide the Senate

with updated information.

Question. How much has been obligated to each of the major consolidation contractors?

Answer. For the period July 1997 through March 19, 1998, the IRS has obligated

the following to each of the major consolidation contractors:

Contractor Actual obligations 1

Expenditures 2

(based on invoices paid)

UNISYS 3 .......................................................................................................... $130,705,373 4 $12,576,453

IBM 3 ............................................................................................................... 40,595,088 ........................

TRW Telecom ................................................................................................... 27,877,000 5 2,940,000

Total .................................................................................................. 199,177,461 15,516,453

1 The $199 million in obligations reserves funding for the entire fiscal year 1998 contract costs. The remaining balance

(approximately $7 million) will be used to cover maintenance for terminals and mainframes. 2 The $15.5 million currently expended does not reflect our efforts to assess contractor’s cost proposals and define

costs, or our efforts to negotiate the fixed-price components of the contract. Once these actions and our assessment of

the modifications to the schedule are completed, we will provide updated cost and business case information to the Senate.3 Includes the cost of other, less prominent, subcontractors.

4 Unisys/IBM as of March 19, 1998.

5 As of January 1998.

Question. How does this compare to planned obligations?

Answer. Planned obligations for each of the major consolidation contractors for

the period July 1997 through year-to-date March 1998 are as follows:

Contractor Planned obligations

UNISYS 1 ................................................................................................ $121,665,896

IBM 1 ....................................................................................................... 35,360,192

TRW Telecom ......................................................................................... 49,641,350

Total ............................................................................................. 206,667,438

1 Includes the cost of other, less prominent, subcontractors.

Question. Is the contractor responsible for doing all system testing for mainframe

consolidation?

Answer. The contractor and the IRS jointly conduct evaluations and tests supporting functional, capacity and performance, Security, and Disaster Recovery capabilities, as well as mutual implementation of the five-step process of testing, verification and validation associated with the migration of individual Service Center operations.

Question. If so, is IRS undertaking any independent assessment of the testing to

help ensure the results are reliable?

Answer. The IRS provides coordination and oversight to all vendor-related testing.

IRS technical personnel conduct independent assessments of all vendor testing, to

include review of documented test plans and procedures, observation of the test activities within secure test environments, and the evaluation of pre- and post-test

baseline data to determine if results are consistent with testing objectives. These

results are also evaluated against current legacy and historical IRS systems profiles

to determine if new baseline results are consistent with the minimum operational

capabilities. In addition, Y2K certification must be performed by the IRS Product

Assurance organization. Upon completion of these activities, the contractor submits

individual systems to the Government as Ready For Use (RFU), at which point the

Government accepts the systems and enters them into operation.
237

In addition, the IRS is in discussion with its Federally Funded, Research and Development Center to conduct an independent review of its performance and capacity

testing and overall test plans.

Question. With the heavy dependence on contractors to complete consolidation in

a very short time frame, how does IRS plan to monitor contractor efforts?

Answer. At the individual project level, Government Project Managers and

COTR’s monitor day-to-day performance in accordance with work-and cost-breakdown structures associated with individual task/delivery orders. These are further

monitored at the Program level and summarized for initial executive review as a

standard weekly report. Program management includes a Configuration Control

Board with project, business, and vendor representation, supported by an issues

tracking system and database; a Risk Management Committee which maintains

contingency plans for each project issue; and an executive committee with first-line

representation from both the vendor and IRS communities. In addition, I have implemented an executive steering committee which convenes monthly to review ongoing status and the project implementation strategy. This committee includes representatives from the Treasury, and NTEU, as well as the IRS information systems

and business sponsors.

Question. Given IRS’ past difficulties in developing clear business requirements

for contractors, what types of activities did IRS undertake to help ensure that the

contractor was provided a clear set of business requirements for mainframe consolidation.

Answer. The overall scope for technical and functional requirements for Consolidation was first identified during the development of the Consolidation Business

Case. Initial project implementation required the vendor to develop and deliver a

comprehensive Project Master Plan which was based upon Government Furnished

Information validated by the IRS at the time of writing. The Project Management

Plan is then updated on a quarterly basis with oversight through a joint TreasuryIRS executive steering committee. All IRS organizations provide updated input in

coordination with the Project Management Office. These updates are then controlled

within the Project Management Office through the Configuration Control Board,

which evaluates each modification as a Basic Change Request. The results of these

actions are quantified in terms of cost, schedule, and risk impacts, and forwarded

to the Program Manager, and ultimately the Program Executives, for review and

final action.

SYSTEMS MODERNIZATION

Question. Does IRS plan to postpone further work on the details of the May 1997

modernization blueprint until implementation plans for the revised organizational

structure have been developed? When are those plans expected to be complete?

Answer. The IRS is actively engaged in Modernization and is not postponing further work on the details of the May, 1997 Blueprint until plans are in place for the

revised organization structure.

Specifically, the IRS issued the Request for Proposals for a Prime Systems Integration Services Contractor on March 26, 1998. The Prime Contractor will partner

with the IRS and its contractors (i.e., Integration Services Contractor TRW and the

Federally Funded Research and Development Center) to develop and deploy the Systems Life Cycle, develop the requisite program management capabilities and continue work on the first two subreleases for Modernization, Primary Telephone Call

Routing and Management and Enhanced Secondary Telephone Call Routing and

Management, respectively. The current estimated implementation date for these

subreleases is December, 1999 and November, 2000. The IRS views the technology

modernization as defined in the Blueprint as an enabler of the organizational modernization.

The anticipated completion date for plans for the organizational modernization

structure will be made available as soon as it is known. The IRS has begun detailed

analysis with Booz-Allen and anticipates providing timeframes and implementation

strategies in the near future.

Question. Could the proposed reorganization also affect IRS’ current effort to consolidate all data processing in 2 centers? If so, how?

Answer. It is not anticipated that the proposed IRS reorganization would affect

the mainframe consolidation activities, which are scheduled to be completed in 1999.

Question. In light of the Commissioner’s reorganization plans, the CIO’s resignation, and the RFP’s delay, how have IRS’ plans for completing each component of

the modernization blueprint (system life cycle, architecture, requirements, and sequencing plan) and commencing modernization changed?
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Answer. The IRS is moving forward with acquisition of the Prime Systems Integrated Services Contractor for Modernization and the first two subreleases of Phase

I/Release 1 as planned. Any future Modernization activity would be performed consistent with and in support of the organization modernization and approved by internal and external oversight including the Commissioner, Treasury and Office of

Management and Budget. As previously stated, we believe that technology modernization, defined in the Blueprint, enables organizational modernization. Attached

for your information is a description of longer-term technology investments associated with the fiscal year 1999 budget.

Question. Why was release of the RFP delayed, and what is the current status?

Does IRS still plan to award the Prime contract by October 1, 1998?

Answer. The Request for Proposals (RFP) for a Prime Systems Integration Services Contractor was originally scheduled for release on January 15, 1998. The

issuance of the RFP was delayed to provide the newly appointed Commissioner an

opportunity to perform due diligence related to content and scope of the document.

The RFP was released on March 26, 1998 with an award date by December 1998.

Question. With so many other major efforts on its plate-a major reorganization,

century date change, mainframe consolidation, and the replacement of IRS’ primary

returns processing and remittance processing systems—how does IRS expect to

move forward with an award for a prime contractor?

Answer. The single most important priority for the IRS is the Y2K program which

is managed by IRS technical staff and supported by contractors other than the

PRIME offeror teams. This team is solely dedicated to Y2K activities. Likewise, all

activities for mainframe consolidation and the Integrated Submissions and Remittance Processing System are supported and managed by IRS and contractor teams

other than the PRIME offerors.

However, the IRS recognizes that although these critical programs need to

progress, there is an immediate need for the PRIME to arrive and bring with it the

requisite technical and management capabilities for the IRS to proceed with Modernization and implement much needed improvements in the area of Customer

Service.

The first two subreleases of Modernization will be managed by IRS and PRIME

contractor staff who are not involved in the activities mentioned above. Additionally,

the scope of these subreleases was crafted to ensure minimal design impact on IRS

legacy systems which are the focus of the Y2K effort, mainframe consolidation and

Integrated Submissions and Remittance Processing System.

Question. Has the Commissioner agreed to the mainframe-centric blueprint that

the CIO and his team created? If not, how will his disagreement affect future plans?

Answer. As defined in the Commissioner’s Statement before the Senate Finance

Committee on January 28, 1998, the Organizational Modernization is based on five

key elements, as follows:

—revamped IRS business practices that will focus on understanding, solving and

preventing taxpayer problems;

—organizational structure built around taxpayer needs;

—management roles with clear responsibility;

—balanced measures of performance; and

—new technology.

The new CIO organization, the Modernization Blueprint and the recently released

request for proposals for a Prime Contractor provide an outstanding and professional basis for managing the evolution of our technology. The revamped business

practices and Organizational Modernization will provide a sound basis for completing and implementing the modernized systems envisioned in the Modernization

Blueprint, including the mainframe centric solution and centralized databases, and

will be tied to the development of lower level requirements for design and development through the Prime Contractor.

ENFORCEMENT—EXAMINATION

Question. What plans does IRS have to use dollars collected to help measure and

report audit results?

Answer. IRS did not agree that the collection rate, as used by GAO, should be

used as the sole measurement of the effectiveness or productivity of our audit program for large corporations. There are various actions outside of the control of the

Examination function which can occur after an audit has closed. Items such as Net

Operating Loss and Credit Carrybacks, as well as post closure abatements, can have

a significant impact on the amount ultimately collected. The current budget does not

include a collection rate as a measure of audit results.
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Many of the measures which IRS used in the past were business results measures

involving IRS’ tax law enforcement activities. While some of these business results

measures tracked items such as cycle times and case dispositions, many were essentially productivity indicators that recorded dollar revenue per FTE for particular enforcement activities. Neither extensive external (customer) information nor employee satisfaction information has been used in evaluating organizational performance. Thus many managers and employees have focused primarily on productivity.

To address this imbalance, the IRS has established a task force, the New Measures Task Force (NMTF). The ultimate aim of the NMTF is the development of a

new, balanced measurement system for the IRS that is equal to the ‘‘best in class’’

in private industry. Such a system would reflect the new organizational structure

of the IRS (to be aligned with major taxpayer groups) and would measure how well

the IRS is meeting its strategic goals by incorporating measures of customer satisfaction and employee satisfaction with measures of business results and compliance.

In the nearer term, however, the goal of the NMTF is to develop, in partnership

with a contractor, an interim set of balanced measures that would move the IRS

toward this ultimate goal. This task shall include the identification of measures for

customer satisfaction, employee satisfaction, and key activity/productivity and quality measures. Specifically, one of the sub-tasks will be to develop and determine

quality measures for each area. This is likely to require substitute measures for the

cycle time and dollar revenue per FTE measures previously used in Examination

and Collection. As part of the substitute measures, and building on ongoing IRS

work in this area, the NMTF and the contractor will work to develop more qualitative measures of the quality of case work for Examination and Collection (including timeliness, accuracy, resources used, and assistance to the taxpayer to remain

in compliance).

Among other things, IRS’ Employee Plans/Exempt Organizations (EP/EO) Division monitors employee pension plans and exempt organizations and examines returns filed by those plans and organizations. According to IRS’ fiscal year 1999

budget estimates: ‘‘Because of the size, complexity, and resources of exempt organizations, and the large sums invested in employee benefit plans, the potential for

abuse is great * * *’’. Despite that potential for abuse, IRS data show that the number of EP/EO employees has steadily declined from 2,448 at the end of fiscal year

1992 to 2,194 at the end of fiscal year 1996. Likewise, although the number of returns filed by exempt organizations and employee plans increased from about

1,654,000 in 1992 to about 1,750,000 in 1995, the number of such returns examined

decreased from about 42,000 in fiscal year 1993 to about 25,200 in fiscal year 1996.

IRS’ budget request for fiscal year 1999 calls for the same number of full time equivalent staff years as in fiscal year 1998 with a slight decrease in funding.

Question. What factors govern IRS’ decision that an apparent discrepancy on a tax

return should be handled through service center correspondence rather than a faceto-face audit by the district office?

Answer. Generally, the complexity of the issue(s) involved determines which office

or type of employee is assigned an audit. Returns with the fewest and simplest

issues are performed in our service centers. As the issues become more complicated,

they are more likely to be assigned to a district office. The IRS tries to use the technique which is the least intrusive and least burdensome method for the taxpayer

while still adequately resolving potential discrepancies.

Question. Does IRS have plans to shift any district office audit workload to service

centers? If so, what types of workload will be shifted, how will the service centers

be prepared to handle the new workload, and when will the shift occur?

Answer. IRS is involved in preliminary discussions about the feasibility of shifting

some work from the district offices to the service centers. The work we would consider is primarily 1040A returns with total positive income below $25,000 and possibly some non-1040A returns with total positive income below $25,000. District Office Examination has had preliminary conversations with the Service Center Examination Division on the potential transfer of workload. We are considering the shift

of this work in conjunction with our Examination Occupational Study project on Tax

Auditors and Revenue Agent positions. However, because this is at a conceptual

stage, we have not addressed specific issues including how the service centers will

handle the workload and the timeframes when the shift will occur.

Question. How do district audits compare to service center audits in terms of traditional audit results (e.g., percent of audits that resulted in no recommended

change in tax liability, amount of recommended tax change per audit, and direct

hours invested per audit)?

Answer:
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No change

(percent)

Recommended

dollar change

per return

Hours per

return

Revenue agent individual .................................................................. 10 $19,330 22

Revenue agent corporate ................................................................... 24 58,562 58

Tax auditor ......................................................................................... 14 3,447 4

Service center ..................................................................................... 14 3,247 1

Data is fiscal year 1997. Data does not include Coordinated Examination Program results.

Question. How often do taxpayers request a reconsideration of the results of a district office audit compared to the results of a service center audit?

Answer. In fiscal year 1997, approximately 74,000 returns examined in district offices were appealed to the IRS’ Appeals function. For the service centers, approximately 8,000 returns were appealed.

Question. For both district office and service center audits, how does IRS ensure

quality during the audit and measure quality after the audit?

Answer. Ensuring Quality During The Audit.—Auditing Standards Examination

has auditing standards which define the technical quality of completed casework.

The standards address concepts of scope, audit techniques, technical conclusions,

workpaper preparation, reports, and time management. Each standard is composed

of key elements describing specific components of an examination which are present

if a quality examination is conducted. The Auditing Standards describing case quality parallel the Critical Elements used to evaluate employee performance.

Managerial Oversight Group managers are responsible for the procedural and

technical quality of the work produced by examiners under their supervision. Management practices, appropriate for the individual examiner, are selected to provide

oversight and quality control. For example, managers may choose on-the-job visitations, in-process case reviews, or workload reviews as a method of direct involvement for examiners. Experienced examiners with reputations for strong technical

skills would require less ‘‘hands-on’’ supervision. Branch Chief oversight ensures

that the appropriate tools are selected and are used with sufficient regularity.

These are not the only management practices used to control and improve technical case quality. Managers may use the Individual Development Program (IDP)

to identify an examiner’s specific needs, determine corrective action, and monitor

success. Examiners have access to technical expertise through the Industry Specialization Program (ISP) and Market Segment Specialization Program (MSSP) and each

district provides continuing professional education (CPE).

Measuring Quality After the Audit.—Examination Quality Measurement System

(EQMS) is used to collect data regarding examination results and the examination

process. IRS conducts post-audit reviews of randomly selected cases to determine

compliance with the Auditing Standards and collect process measures. A Customer

Satisfaction survey is also sent to every taxpayer selected for an EQMS case evaluation. The survey addresses concepts such as the fairness of the examination, if the

taxpayer was treated with respect, and whether the taxpayer was satisfied by the

services provided. The data from the case evaluation and the taxpayer’s response

are associated to provide a more complete and accurate picture of the examination

process.

Question. How valid are the DIF formulas for returns being filed in 1998?

Answer. Existing DIF Formulas were derived from data of the last TCMP surveys,

1987 returns for corporations and 1988 returns for individuals. Certain revisions of

DIF Formulas resulting from major changes in the tax laws are implemented between TCMP surveys as needed to reflect the impact of law changes on the relative

ranking of returns. These formula revisions are not considered updates of the DIF

Formulas. Only data from examinations of randomly selected returns can serve as

the basis for DIF Formula updates.

Question. As the formulas age, has IRS noticed any differences in the returns

being selected through DIF and/or in the results of audits done on DIF-selected returns?

Answer. The results of audits done on DIF selected returns has remained relatively stable. Since we believe that these formulas do deteriorate over time, these

stable results could be caused by more selective screening of returns and/or a drop

in voluntary compliance.

Question. What plans, if any, does IRS have to update DIF with statistically valid

research data or to replace DIF with some other objective selection method(s)?

Answer. Until such time as the IRS has access to statistically valid research data,

such as that collected through a TCMP-type compliance survey, we will continue to
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be unable to update DIF. IRS has conducted research on alternatives for developing

workload selection systems as a replacement for DIF and will continue its research

in this area. However, none of the techniques that have been investigated performed

better than, or even as well as, DIF.

Question. Please explain how the Market Segment Workplan works. Is its use negating the need for DIF?

Answer. Each region is presently participating in a test to convert the traditional

Examination Plan to a market segment based plan. The test districts are North

Florida, New Jersey, Illinois and Pacific-Northwest. The method that was developed

allows a district to re-sort the traditional Activity Code workplan to determine the

fallout of returns by market segment by district and post-of-duty. Feedback from the

test indicates the primary benefit of the market segment plan is in determining the

placement and assignment of market segment examiners.

The market segment workplan does not negate the need for DIF because it is not

a return selection process. The system for the ordering and delivery of returns is

still based on DIF scored returns.

Question. What is the status of the IRS’ effort to collect data on taxpayer satisfaction with the audit process, and how will IRS use the data?

Answer. Examination Divisions in each of our 33 district offices have received responses from taxpayers who received survey letters. Quarterly data from October–

December 1997 has been compiled.

The responses received from the taxpayers will be coupled with the data collected

from our internal reviewers on the quality of closed examinations. This data will

be used to identify systemic improvements to the audit process. In addition, districts

will be monitored based on a customer service index tied to fairness, respect and

satisfaction with the audit process.

Question. GAO reported in its High Risk Report on IRS that the inventory of tax

debts at the end of fiscal year 1996 was $216 billion. (GAO/HR–97–8, Feb. 1997).

What was the inventory at the end of fiscal year 1997? Please provide a detailed

breakdown of these receivables by their collection status at the end of fiscal year

1997. And please identify how much of this inventory represents valid financial receivables versus compliance assessments and how much IRS expects to eventually

collect.

Answer. The Gross Accounts Receivable Dollar Inventory as of September 30,

1997, was $236 billion. The attached charts show the collection status of the entire

inventory, and a breakdown of the Currently Not Collectible inventory by condition.

As the GAO stated in its report on our audited financial statements, IRS’ unpaid

assessments balance after auditor adjustments was about $214 billion. These adjustments arose primarily to eliminate the double counting from the trust fund recovery

penalties assessed against officers and directors of businesses who were involved in

the non-remittance of federal taxes withheld from their employees. The related unpaid assessments of those businesses are reported as tax receivables, but the IRS

may also recover portions of those businesses’ unpaid assessments from any and all

individual officers and directors against whom a trust fund recovery penalty is assessed.

This unpaid assessments balance has historically been referred to as IRS’ taxes

receivable or accounts receivable. However, a significant portion of this balance is

not considered a receivable and a substantial portion is largely uncollectible.

Of the $214 billion of unpaid assessments, $76 billion represents writeoffs. Writeoffs principally consist of amounts owed by bankrupt or defunct businesses, including many failed institutions resolved by the Federal Deposit Insurance Company

(FDIC) and the former Resolution Trust Corporation (RTC). In addition, $48 billion

of the unpaid assessment balance represents amounts that have not been agreed to

by either the taxpayer or a court. Due to this lack of agreement, these compliance

assessments are likely to have less potential for future collection than those unpaid

assessments that are considered federal taxes receivable or financial receivables.

The remaining $90 billion of unpaid assessments represents financial receivables.

About $28 billion of the $90 billion financial receivables balance is estimated to

be collectible. Components of the collectible balance include installment agreements

with estates and individuals, as well as relatively newer amounts due from individuals and businesses who have a history of compliance. The remaining $62 billion

of the financial receivables balance is estimated to be uncollectible due primarily to

the taxpayer’s economic situation, such as individual taxpayers who are unemployed

or have other financial problems. However, IRS may continue to collect for 10 years

after the assessment or longer under certain conditions. Thus, these accounts may

still have some collection potential if the taxpayer’s economic condition improves.
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Question. Is that report now available? If it is, can IRS tell us the amount of new

receivables identified in the past 3 years and the collection outcome of these receivable? If the report is not available, when will it be?

Answer. IRS’ Enforcement Revenue Information System (ERIS) tracks dollars collected on accounts that become delinquent from the date of assessment until the account is resolved or until the statute expires. The IRS can provide the amount the

IRS has collected on assessments that were made during fiscal years 1997, 1996,

and 1995, but cannot provide detailed information on collections specific to existing

unpaid assessments in the inventory as we report them in our reports on the Gross

Accounts Receivable Dollar Inventory.

The report that will show the dollars collected from new receipts versus dollars

collected is not yet available. This report is being developed to support the information we report in our financial statements for the gross accounts receivable dollar

inventory. This report is not yet available because the IRS has had to make changes

in how we report on this unpaid inventory to comply with the standards defined in

the Statement of recommended Accounting Standards Number 7, Accounting for

Revenue and other Financial Sources and Concepts for Reconciling Budgetary and

Financial Accounting. It has also been delayed due to Year 2000 programming. This

report should be available by 9/30/99.

Question. How soon after the April 15 filing deadline did IRS send out its nonfiler

and underreporter notices for tax year 1996?

Answer. We scheduled tax year 1996 notices for various intervals after the April

15th filing deadline. The first batches of notices were mailed to taxpayers during

November, 1997 and February, 1998. Additional batches have been scheduled for

May and August, 1998.

Question. Does IRS expect any changes to those time frames for tax year 1997?

Answer. We are continually evaluating the timing of these notices. It is our goal

to get the notice to taxpayers, with accurate information, as quickly as possible. The

schedule for tax year 1997 notices has not been finalized.

Question. GAO testified at the Senate Finance Committee hearings in September

1997 that the IRS did not have the information systems necessary to identify the

extent to which its collection enforcement tools—liens, levies, seizures—may have

been used inappropriately. What steps has the IRS taken to develop information

systems needed to determine the extent to which liens, levies and seizures are used

appropriately?

Answer. We do not believe that information systems can be developed that can

adequately determine the extent to which liens, levies, and seizures are used appropriately. Case files contain a number of forms, documents and case history about

the tax delinquent case. Some of the documents include hand written case history

entries, correspondence, financial analysis decisions, hardship determinations, steps

taken to locate assets, and investigation results relating to the equity in the asset.

An analysis of all of these documents are necessary to determine if the lien, levy,

or seizure was appropriate. We believe that the best way to identify the appropriateness of an enforcement action is a review of the case by reviewing officials. Because

a review of the case file is necessary, and an analysis must be made as to the appropriateness of an action, we do not believe a systemic, information systems approach

would be feasible.

There are, however, a number of non-systemic initiatives in use, and some initiatives under way, which track inappropriate enforcement actions. Currently, there

are a number of review systems, independent of Collections, that are able to identify

instances of inappropriate Collections actions. These include the Collections Appeals

Program, Problem Resolution Program, and results from the Problem Solving Days

initiative. Collections uses this information to determine seizure and sale trends.

Historically, these systems show minor activity, usually in the 4 percent range. Collections is also recommending increased regional oversight of seizure cases and

tracking the number of seizures denied by approving officials. The reasons for denial

will be loaded on a newly designed seizure and sale tracking system.

The appropriateness of lien filings must also be measured by taxpayer contact and

managerial case review. The Automated Lien System (ALS), which generates Notices of Federal Tax Liens and their releases, allows for the insertion of a code designated for an ‘‘Erroneous’’ Lien situation. However, an analysis of the facts and circumstances of those cases shows that more often than not, these errors are the result of employees inputting incorrect entity information (such as incorrect name

spelling, address, etc.), rather than an inappropriate judgment that a lien should

be filed.

Question. What additional controls, if any, over the use of these enforcement tools

have been incorporated since these hearings?
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Answer. Since the Senate Finance hearings, a number of additional controls and

taxpayer safeguards against abuse have been placed on the use of enforcement tools

incorporated into collection procedures. Here is a list of some of the changes:

—The District Director or Assistant Director must approve all seizures of principal residences and their contents (even if it is the residence of someone other

than the taxpayer, e.g. a taxpayer’s tenant). Also, the Director or Assistant Director must approve all seizures of perishable goods.

—Procedures have been revised to require revenue officers to give the taxpayer

an opportunity to file a corrected return before enforced collection proceeds

when a liability is based on a substitute for return. (Under substitute for return

provisions, the IRS prepares a tax return based upon third party information

after the taxpayer has been afforded the right to file a tax return voluntarily,

but neglects or refuses to file a tax form.)

—Publication 594, ‘‘Understanding the Collection Process,’’ which is mailed with

all Notices of Intent to Levy, is being revised to make it more useful to taxpayers. In addition, a ‘‘tear-off’’ copy of Form 911, ‘‘Application for Taxpayer Assistance Order,’’ is being added to the Publication.

—District and Service Center Directors review all complaint correspondence and

confirm to the Taxpayer Advocate that all cases have been properly resolved.

—District management met with all Compliance employees to correct any misunderstandings about the employees’ responsibilities when dealing with taxpayers.

—Revenue Officers are required to refer to the Taxpayer Advocate any instances

when the taxpayer says that collection action will cause a hardship.

—Deputy Commissioner Michael Dolan has assigned an executive to conduct a review of the lien and notice of levy processes and recommend legislative and procedural changes that will balance the rights of taxpayers and the IRS’ responsibility to collect the correct amount of tax.

Question. In fiscal year 1996, IRS issued over 3 million levies compared to 750,000

liens and 10,000 seizures. Given the relatively large volume of levies, please explain

how this enforcement tool is used in the collection process and what controls exist

to ensure it is used appropriately.

Answer. Generally, a notice of levy is used when someone other than the taxpayer

has the taxpayer’s property and can turn it over by merely writing a check. This

usually involves bank accounts, wages, commissions, or accounts receivable of a contractor. On the other hand, seizure generally involves property or rights to property

in the hands of a taxpayer such as vehicles, buildings, and business property. The

Internal Revenue Code lists the types of property and income that are exempt from

notices of levy and seizures. Policy statements also limit what IRS can levy.

Generally, employees initiate levies as a follow-up action when the taxpayer has

not responded to a Notice of Intent to Levy, or taxpayers may be contacted and then

miss deadlines for providing needed information or have broken a promise to pay

or some other commitment.

Frequently, the levy elicits responses from taxpayers who have not responded to

calls and/or letters in addition to collecting dollars. Generally, the levy is released

if the taxpayer responds before proceeds are sent. The taxpayer contact provides financial or other information to resolve the case, most often by granting an installment agreement, but also through short-term payment arrangement, a currently not

collectible determination under hardship provisions, or a tax adjustment.

The levy must be released if an installment agreement is granted unless the

agreement specifically allows for the levy, or if the levy is causing an economic hardship, or for other reasons specified in the Internal Revenue Manual.

Procedures involving levy releases apply both before and after levy proceeds are

received. As a result of TBOR2, the IRS now has the means to return the proceeds

of a levy to a taxpayer even after the IRS has processed the payment.

The Taxpayer Bill of Rights also added provisions to the IRC that allow taxpayers

to sue the government for damages, based on actions or inactions of IRS employees.

If an IRS employee disregards the provisions of the IRC and its regulations in the

course of his or her duties, the taxpayer may bring an action against the IRS to

recover damages under IRC 7433.

Safeguards are built into our billing system to ensure that taxpayers are systemically notified of their rights. The taxpayer is advised in our notices and publications

about how to question the liability if it is wrong, how to get help if a levy would

cause a hardship, and how to appeal collection actions. If the taxpayer questions the

liability, the IRS’ Policy P–5–16 is to withhold collection of any liability that is in

doubt. Before a notice of levy is issued, taxpayers are sent at least two notices asking them to pay the amount owed. These are the ten day notice and demand (which

includes Publication 1, Your Rights as a Taxpayer) and the thirty day notice of in-
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tent to levy (which includes Publication 594, The Collection Process). Often, there

are more notices sent when individual income tax is owed. There is also an active

Collection Appeals Program (CAP) which enables taxpayers to appeal proposed or

executed liens, levies, seizures and termination of installment agreements. Other information is available to taxpayers regarding the Collection Appeals Program in

Publication 1660, Collection Appeal Rights for Liens, Levies, Seizures and Termination of Installment Agreements. The reverse of Form 9423, Collection Appeal Request, also provides information to the taxpayer on how to file an appeal. The procedures also require that Publication 1660 for a Collection Appeal will be included

with the Notice of Seizure.

Question. What actions has IRS taken regarding the employees found to have violated taxpayer rights and/or the spirit and intent of Taxpayer Bill of Rights legislation?

Answer. I have requested the Chief Inspector to conduct a comprehensive audit

of general policy as well as investigate specific allegations. The reports will also

focus on executive and senior management responsibility for issuing written guidance to the field on the use of enforcement statistics. As reports are completed, we

are committed to fairness, objectivity, and consistency in reviewing the findings,

taking corrective actions and deciding appropriate administrative actions. In this respect, we have devised a two-step decision making process. The first step consists

of a panel that includes executives inside and outside the IRS who will review the

results of the investigations. Members of this panel are: Doug Browning, Customs

Assistant Commissioner for International Affairs; Steven Colgate, Assistant Attorney General for Administration; and Dave Mader, IRS Chief Management and Administration. This panel will propose corrective and/or administrative actions. The

second step of the process is for situations where the proposed corrective and/or administrative action(s) requires a reply and final decision by another official. For actions requiring the second step, Kay Frances Dolan, Deputy Assistant Secretary of

Treasury (Human Resources) has been designated. Deputy Assistant Secretary

Dolan will make the final decisions on any adverse actions resulting from the first

panel. This two-step process will continue as additional investigations are completed.

Question. If IRS no longer uses ‘‘dollars collected’’ as a performance measure, how

will it evaluate the performance of its collection employees?

Answer. Collection employees should never have been evaluated on the measure

of ‘‘dollars collected.’’ Nonsupervisory collection employees performing collection activities continue to be evaluated based on meeting, exceeding, or failing to meet the

critical elements and performance standards of the position they occupy as outlined

in their position descriptions. The critical elements and performance standards for

these employees should not have contained in the past and do not currently contain

numerical measures of performance or statistics such as ‘‘dollars collected.’’ The immediate supervisors of nonsupervisory employees are evaluated on their ability to

meet their critical elements and performance standards, not on numerical measures

of performance or statistics such as ‘‘dollars collected.’’ Although ‘‘dollars collected’’

as a performance measure has been used organizationally, it is not to be used at

any time in a way that would identify the product or performance of any individual

collection employee.

Question. Without a ‘‘dollars collected’’ measure, will IRS collections staff be more

inclined to defer collection action or consider delinquent accounts uncollectible? Is

there a possibility that collections on delinquent accounts will decrease while the

size of the accounts receivable inventory increases significantly?

Answer. The possibility always exists that Currently Not Collectible (CNC) action

will be used as an inventory control device resulting in fewer dollars collected and

increased accounts receivable. The quality of the determination is the key to limiting this possibility. National Office reviews concentrate on the quality of case actions taken in the CNC case. The Regions are also expected to include CNC quality

in their reviews of district operations. The Collection Quality Management System

reviews a sample of hardship and operating corporation CNC’s to determine the

quality of actions taken. Collection is also studying other post action review possibilities to minimize inappropriate CNC determinations.

Question. IRS’ fiscal 1999 budget estimates include funding for further development of the Inventory Delivery System. This system will centralize collection case

processing and use automated methods to evaluate delinquent accounts for collectibility so that the most productive accounts receive priority attention. What is the

status of the system, and how many IRS field locations are using it?

Answer. The Inventory Delivery System (IDS) is being developed in three phases,

with the first release scheduled for pilot early in 1999. No field locations are currently using the system.
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Question. Has IRS evaluated the results of the system? If so, what do those results show?

Answer. Results derived from the system will be evaluated during each of the

three pilots and prior to implementation of each release. However, we are currently

analyzing a sample of approximately 800 cases processed by an earlier test of the

Financial Analysis Program (FAP) piece of the functionality. FAP provides for upfront identification and systemic closure of ‘‘hardship’’ cases and will be delivered

early in 1999, as part of the first pilot. We have not yet completed this analysis,

but the goal is to find any weaknesses in the FAP process and fix them prior to

the upcoming pilot.

Question. What is the current status of ICS, and where is it being used? Once

ICS is rolled out of these 13 sites, will all field offices have it? If not, how many

offices remain?

Answer. As of April 1, 1998, the Integrated Compliance System (ICS) is fully installed and operational in all Collection offices in 21 of the IRS’ 33 districts. The

remaining 12 districts plus A/C (International) which do not have ICS, are scheduled for implementation in calendar year 1999. Once ICS is installed in these remaining 13 ‘‘sites,’’ no other offices remain.

Question. Why was ICS not rolled out to the 13 sites in 1998? If IRS was appropriated funds for this rollout in 1998, how were these funds used?

Answer. Although ICS requested funds to complete its rollout in 1998, none were

included in the IRS’ final budget for fiscal year 1998. Instead, the IRS directed all

available deployment funds to its top priorities, the Century Date Change and the

Service Center Mainframe Consolidation initiatives. To complete the roll out, $60.7

million has been included in the IRS’ budget request for fiscal year 1999. The current plan to complete ICS rollout assumes that the requested funds will be available.

Question. Many of IRS’ functions, in particular the management and disposition

of assets seized from delinquent taxpayers, are extremely labor and paper intensive.

How much of the paperwork associated with asset seizures is affected by ICS? Has

ICS made revenue officers more productive in controlling managing, and disposing

of seized assets?

Answer. ICS provides automation to the issuance of the forms and letters that

revenue officers are required to complete before taxpayer assets can be seized and

sold. ICS has made revenue officers more productive in controlling, managing and

disposing of seized assets by reducing the time it takes to prepare these forms and

letters.

Question. Several years ago Collection adopted new procedures using Collection financial analysis in the development of payment schedules. Collection financial analysis applies national and local expense standards to help ensure that taxpayers are

not inflating their expenses and to help IRS obtain maximum payment. How have

these new procedures affected IRS’ ability to obtain maximum payment?

Answer. The Collections financial analysis standards were instituted to ensure

fairness and consistency in determining a taxpayer’s ability to pay a delinquent tax

liability. The standards limit excessive expense claims, but they also provide national allowances for basic expenditures which were often overlooked in the previous

system.

Although difficult to quantify from available reports, we believe from interviews

with revenue officers and group managers that the Collections financial analysis

procedures are increasing dollars collected from higher-income taxpayers while increasing the likelihood that lower-income taxpayer accounts will be reported as currently not collectible.

Question. What has been the effect of IRS classifying delinquent cases as currently not collectible? About half the delinquent cases in IRS receivable inventory

were so classified in 1996.

Answer. The overall percentage of currently not collectible (CNC) showed a slight

decline for fiscal year 1997. The number of tax periods reported currently not collectible due to hardship (the category to which the new collection financial analysis

procedures apply) decreased 11.2 percent from fiscal year 1996 to fiscal year 1997,

and dollars collected on taxpayer delinquent accounts increased 2.6 percent. However, we cannot definitively say this occurred due to the collection financial analysis

procedures.

The Collections Financial Analysis (CFA) standards have no impact on defunct

corporation or bankruptcy CNC’s, as payment from continuing income is not an option in those cases.
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COMPLIANCE RESEARCH

Question. In the absence of TCMP, what statistically valid data does IRS have to

measure overall tax compliance as well as compliance among particular types of taxpayers?

Answer. Since the completion of the last TCMP survey we do not have any new

statistically valid data to measure taxpayer compliance.

Question. Does IRS have any plans for improving these data or to find such data

for use in measuring tax compliance?

Answer. Following the cancellation of the proposed survey in 1995, the IRS decided to bring in an outside expert (Price Waterhouse) to look at the IRS’ needs for

compliance data and to recommend what alternatives exist for obtaining these data.

Price Waterhouse has issued a final report that the IRS is still considering before

making any decisions.

Question. What is the current compliance level [Total Collection Percentage]? How

confident is IRS about the reliability of that estimate?

Answer. Our most recent estimate of the Total Collection Percentage (TCP), the

total amount of income and employment taxes paid voluntarily and timely or collected through enforcement in a given fiscal year, expressed as a percentage of the

corresponding true tax liability for that year, is 87.3 percent for fiscal year 1997.

That estimate relies on compliance data that are 10 or more years old.

Question. Does IRS believe that it can attain 90-percent compliance by 2001? If

not, what is its revised goal?

Answer. We are no longer setting specific goals for increasing the Total Collection

Percentage. We do not yet know for sure how much of an increase IRS can realistically induce, since we do not have an effective way of monitoring changes in overall

compliance.

Question. Whatever the goal, what help does IRS need from Congress?

Answer. We are currently considering recommendations made by Price

Waterhouse in its report on the Taxpayer Compliance Measurement Program. In

order to perform its mission, the IRS will eventually need some way to measure

compliance on an ongoing basis.

Question. What is the status of the Compliance Research and Planning Approach,

and how is IRS assessing its effectiveness?

Answer. The IRS created the Compliance Research and Planning approach in

1993 to merge the Compliance 2000 philosophy with a rigorous compliance research

system. The Compliance 2000 envisioned using non-enforcement efforts to correct

unintentional noncompliance and reserving enforcement efforts for intentional noncompliance.

The National Office Research and Analysis (NORA) function was established in

the Research Division and 33 District Office Research and Analysis (DORA) functions were established in the IRS District Offices. NORA serves as the central organization providing support to the DORA’s. The DORA’s:

—develop measures of national and district compliance levels,

—profile potentially noncompliant market-segments,

—perform studies and tests to research any issues arising from these profiles, and

—develop treatments to address these noncompliance issues.

There are currently 12 measures projects, 34 profiles, 34 studies and tests, and

3 test treatments underway. These projects are guided under the auspices of various

Cooperative Strategy Working Groups (CSWG). These CSWG’s are composed of

managers from both NORA’s and DORA’s.

The three treatment studies are the Duplicate SSN, Self-Employment Tax, and

Electronic Transfer Projects. These have all progressed from the profiling and testing phases to the treatment phase. All the treatments are using non-enforcement

efforts to address unintentional noncompliance and raise the level of compliance.

These measures projects provide the baseline data to determine the effectiveness of

the new approach. Planning for fiscal year 1999 has started to determine the best

studies and test projects to pursue into the treatment phase.

Question. How is IRS ensuring that the necessary data on compliance can be collected and tracked?

Answer. The Collection Research Information System (CRIS) was started early in

the establishment of the Research and Planning Approach to provide compliance

data for DORA research and provide measures of noncompliance. CRIS has evolved

(and is evolving) through several stages:

—CRIS Working File—CRIS was used in fiscal years 1994 and 1995 for training

DORA staff. It had 75 data elements limited to one market segment.
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—Interim CRIS was delivered to all DORA’s in the winter of 1996. It expanded

to 800 data elements and samples of individual and business filers for all market segments.

—Final CRIS is currently undergoing final validation with training for all DORA’s

to begin this spring. It includes over 2,500 data elements on a sample of seven

to ten million individual filers with more than 3 years of data.

CRIS also contains measures of noncompliance developed by the DORA’s. As various treatments are implemented, the effectiveness of these treatments can be

tracked by applying these measures to the compliance data contained in CRIS. It

should be noted, however, that the CRIS measures of reporting compliance are

based on the latest available Taxpayer Compliance Measurement Program (TCMP)

results.

Question. How does IRS know/decide on which compliance issues to research?

Answer. The DORA’s first profile a potentially noncompliant market segment

using data from CRIS. The purpose of the profiling is to identify any potential compliance issues for further research. Profiling is guided by the Market Segment and

Profiling CSWG.

After profiling, the results are evaluated by the Compliance Studies and Tests

CSWG to determine which compliance issues are researched further in the studies

and tests phase. The final results are then reviewed for potential development of

treatments.

Question. How will IRS use the research results to (1) plan compliance workload

and allocate resources across programs and (2) link to IRS various measures, goals,

and strategic objectives?

Answer. (1) The ‘‘Compliance Research and Planning Approach’’ is intended to

identify more efficient, effective, and economical ways of treating taxpayer noncompliance. Tested treatments or programs, which exhibit successful results, are

evaluated against current programs, which encumber existing resources. This evaluation is part of the Operations Planning Process which leads to the development

of the Operations Plan—a multi-year, multi-functional, data-driven planning document which allocates all Operations resources to specific programs for a given year.

Research programs that appear to employ a more efficient, effective or economic

strategy for combating noncompliance are incorporated into the Operations Plan and

are allocated resources. These resources are taken from less efficient and effective

existing noncompliance programs. The ultimate goal of the Operations Plan is to attain an optimal level of resources in each program to maximize the impact on compliance. The Office of Compliance Research, in conjunction with the Operations

functions and an outside contractor, is currently developing a model to assist in

achieving this optimal resource allocation.

(2) Before new strategies or programs are incorporated into the Operations Plan,

strategy owners (typically two IRS executives—one in National Office and one in the

Field—assigned to oversee development, implementation, and review) are required

to submit documentation. This documentation details the project’s purpose/description, resource impacts, benefits, goals, and performance measures. These goals and

measures must link to the broader strategic objectives of Operations and the overall

mission and objectives of the IRS. Failure to provide any portion of this required

information could prevent a strategy from receiving resources and being implemented at a nationwide level.

As the Operations Plan is developed each year, it directly supports the development of the Service’s overall strategic planning document—IRS Strategic Plan and

Budget (SPB).

EMPLOYEE PLANS/EXEMPT ORGANIZATIONS

Question. Given the ‘‘great potential for abuse,’’ how does IRS justify the downward trend in EP/EO staffing and examinations?

Answer. Beginning with the fiscal year 1996 Appropriation, the EP/EO FTE level

has declined as the IRS absorbed budget reductions.

However, for several years, the level of staffing available to EP/EO within the appropriated budget has resulted in a decrease in EP/EO’s ability to maintain the

most effective oversight of a growing universe and has increased the potential that

EP/EO may be unable to fulfill its Congressional mandate of ensuring that tax-exempt entities comply with the requirements for exemption and that benefits for employees in qualified retirement arrangements are preserved.

The ultimate punishment for violation of tax exempt laws is revocation of a tax

exempt organization’s charter to operate. This is a time-consuming process for IRS

staff and a disruptive process for the tax exempt organization. ‘‘Taxpayer Bill of

Rights 2’’ (Public Law 104–168) provided for other measures that IRS could take in
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lieu of revoking an organization’s charter. Specifically, the law provided for a series

of excise taxes and penalties if certain charitable organizations failed to meet qualification requirements. These ‘‘intermediate actions’’ give the IRS a new tool that

should deter abuse and improve enforcement.

Question. What steps has IRS taken to ensure that the new excise taxes and penalties are being assessed where appropriate? How many organizations were assessed

taxes and/or penalties in fiscal year 1997 and how much was collected that year?

How much does IRS expect to collect in fiscal years 1998 and 1999? What are the

most prevalent violations for which charitable organizations were penalized?

Answer. The IRS is working with the Treasury to develop regulations to provide

guidance concerning the new excise taxes. Promulgation of the regulations in proposed form is a priority on the 1998 Business Plan. In the interim, the IRS has

taken several steps to inform IRS personnel and tax exempt organizations about the

new requirements. We issued Notice 96–46, 1996–2 C.B. 212, to advise tax exempt

organizations of the new requirements and invite public comments for the IRS to

consider in drafting future guidance. We also advised IRS exempt organizations personnel of the new requirements through memoranda and our Continuing Professional Education program, and encouraged our exempt organizations examination

personnel to consult with National Headquarters staff when they encounter potential excess benefit transactions during examinations of exempt organizations. However, we do not yet have the capability to identify excise taxes paid under section

4958 from the total amount of excise taxes paid by exempt organizations. Excise

taxes under section 4958 are reported on Form 4720, which is the form that has

been used to report private foundation excise taxes under Chapter 42 of the Code

and which was easily adaptable to section 4958 excise taxes. The computer programming necessary to identify Forms 4720 reporting section 4958 taxes will not be completed until 1999. We do not, however, expect to collect substantial amounts of tax

under section 4958, as we anticipate that the provision will have a very positive effect on compliance by tax exempt organizations with the prohibition against

inurement of the earnings of tax exempt organizations.

Question. How, if at all, has the availability of penalties and excise taxes reduced

the need to revoke charters?

Answer. The primary effect of the section 4948 provisions will be to ease the IRS’

administrative burdens in promoting compliance. We do not anticipate that the excise tax provisions will substantially reduce the need to revoke exempt status (we

should note that issuing and revoking charters is a function of the states) because

they will most often be applied in situations in which under prior law the IRS was

reluctant to revoke because of the potential harm to a charitable organization’s

beneficiaries. Historically, the IRS has revoked the tax exempt status of few organizations, usually around 20 per year. IRS practice was to attempt to resolve the compliance problems through a closing agreement so that the organization’s charitable

work could continue. This often unwieldy process will be eased by the availability

of section 4958 sanctions, which are targeted at the transgressors, not the objects

of an organization’s charitable mission. The section 4958 sanctions will not, however, eliminate the need to revoke tax exempt status in egregious cases, such as the

situation in the recently decided Tax Court case, United Cancer Council v. Commissioner. Treasury had proposed that the gross receipts threshold for determining if

an exempt organization has to file be raised from $25,000 to $40,000.

Question. What would be the rationale for changing the filing threshold? How

would this affect EP/EO’s workload?

Answer. The proposal to raise the filing threshold was made by Internal Audit

after a study of the exempt organization return-filing universe. The rationale is that

since the $25,000 threshold was established in 1982, inflation has made many small

organizations subject to the filing requirement. We are currently studying the proposal and requested input from the public as well as other users of Form 990. There

is a question whether an increase by the IRS would substantially reduce the burden

on small organizations because many of the 33 states that accept Form 990 in fulfillment of state filing requirements are reluctant to raise the threshold. Also, it is

not clear that raising the threshold would significantly reduce the IRS’ return-processing workload. We are also considering whether to increase the threshold for filing

Form 990-EZ, which is currently available to organizations with less than $100,000

in gross receipts and less than $250,000 in assets.

GAO’s report on not-for-profit hospital conversions (GAO/HEHS–98–24, Dec. 16,

1997) raises issues of interest to IRS. GAO reviewed 14 such conversions and found

that nearly $1 billion in net proceeds from the conversions was provided to foundations, most of which had broadly defined missions that focused primarily on health

and wellness. The foundations, in turn, awarded grants to a variety of health-related activities as well as a tutoring program, an adult care giver training program,
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and a summer remediation program. Other grants supported arts, public safety, and

community development. For two conversions, proceeds totaling $115 million were

not directed to charitable purposes. The Internal Revenue Manual does not directly

address how the distribution of proceeds from hospital conversions to charitable activities should be done. There is a presumption that the nonprofit hospital’s charter

to provide charitable care—the basis of its tax exempt status—will be transferred

to a tax exempt foundation to continue charitable activities.

Question. Does IRS see the need to clarify current regulations so that the distribution of these charitable assets is done consistently on a national basis?

Answer. Current law addresses distribution of assets upon dissolution of a tax exempt organization, which is a responsibility that is divided between the IRS and the

states. The IRS’ primary concern in a takeover of a charitable organization by a forprofit entity is that the charity receive fair market value in the transaction, and

that those proceeds are used for charitable purposes. The IRS’ tools to carry out this

responsibility are the authority to revoke, retroactively, the exempt organization

status, or apply the section 4958 excise taxes on excess benefit transactions, and in

the case in which the sale proceeds are transferred to a newly-created organization,

the authority to determine whether the new organization is organized and operated

exclusively for charitable purposes. The authority to seek a specific application of

the sale proceeds rests with the State of incorporation through its ability to enforce,

at equity, the terms of the dissolution provisions of the exempt organization’s governing instrument. This joint authority is made possible by the requirement in section 501(c)(3) that an organization be organized and operated for charitable purposes to qualify for exemption. Section 1.501(c)(3)–1(b)(4) specifically provides that

an organization does not satisfy the organizational test unless its assets are dedicated to an exempt purpose, so that upon dissolution, its assets would be distributed, either pursuant to a provision in the organization’s articles or by operation

of law, to one or more exempt purposes.

Of the 14 GAO case studies, 3 involved joint operating agreements between notfor-profit and for-profit ventures. IRS has raised questions about the tax implications of such arrangements. Specifically, the operation of the joint venture might result in charitable assets being used for private benefit, thereby creating a basis for

revoking the tax status of the charitable entity. In its December 1997 report, GAO

referred to a forthcoming IRS ruling that was expected to clarify these concerns.

Question. What is the status of the ruling? What impact will it likely have on joint

ventures as they currently operate? How widespread is the use of such joint operating agreements in the health care field?

Answer. On March 4, 1998, the IRS released Rev. Rul. 98–15, 1998–12 I.R.B. 6

(March 23, 1998). It describes two situations involving joint ventures in which an

organization that operates an exempt hospital described in section 501(c)(3) of the

Internal Revenue Code forms a limited liability company (LLC) with a for-profit corporation and then contributes its hospital and all of its other operating assets to

the LLC. The revenue ruling applies a facts and circumstances analysis and holds

that in one situation the organization continues to qualify for exemption because the

activities of the joint venture further the organization’s charitable purpose and, in

the second situation, the organization no longer qualifies because the activities of

the joint venture do not further the organization’s charitable purpose and confer impermissible private benefit on for-profit partners. We hope this recent guidance will

be helpful to the public. In addition, there is currently pending before the Tax Court

Redlands Surgical Services v. Commissioner which involves issues in this area.

We do not have precise data on the scope of the use of joint ventures in the health

care field but instead customarily look to a variety of public sources for information

on transactions in this area.

SPECIAL AGENT RETIREMENTS

Question. How many of those eligible to retire in fiscal year 1997 did retire that

year?

Answer. In Criminal Investigation, there were 167 special agent retirements during fiscal year 1997. In addition, 30 special agents left through normal attrition.

Question. Does IRS still believe that about 550 special agents will have retired

by the end of fiscal year 2000?

Answer. Yes, in fact, we now believe that an average of 200 special agents will

retire each year through fiscal year 2000. Added to the 167 that retired during fiscal

year 1997, a total of 767 will have retired from fiscal year 1997 through fiscal year

2000.

Question. Last year, in discussing its plans for overcoming the potentially adverse

effects of a high turnover of special agents, IRS told this Committee that it would
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reduce its commitment to the ‘‘War on Drugs’’ and concentrate on ‘‘Tax Gap’’ investigations. IRS also said that its support of narcotics and money laundering investigations would be limited to the resources provided by the Organized Crime Drug

Enforcement Task Force of Justice, which would be a 50 percent reduction from

then-current levels. According to IRS this reduction would seriously curtail its ability to participate in multi-agency drug task forces sponsored by local U.S. Attorneys

and would significantly reduce the amount of funds flowing into the Treasury Asset

Forfeiture Fund from IRS investigative forfeitures. Did IRS follow through on the

plans described above?

Answer. The IRS received the President’s fiscal year 1998 Budget Request. Therefore, IRS has not found it necessary to significantly reduce its commitments to other

Federal agencies, multi-agency task forces, and United States Attorneys Offices to

provide its expertise in financial investigations, which is usually required for the

successful prosecution of narcotics-related violations.

Question. If not, what did it do differently, and why?

Answer. Approval of the President’s budget for fiscal year 1998 has enabled the

agency to maintain program delivery relatively consistent with last year’s results,

despite some reduction in full-time equivalents (FTE) realized. During fiscal year

1997, the IRS increased its percentage of enforcement efforts in ‘‘Tax Gap’’ investigations related to legal industry income. The direct investigative time (DIT) for

‘‘Tax Gap’’ investigations was 59.7 percent, a slight increase from the prior two fiscal years; DIT in fiscal year 1995 was 56.8 percent and DIT in fiscal year 1996 was

59.4 percent.

While DIT on ‘‘Tax Gap’’ investigations has increased slightly, the DIT on narcotics-related investigations has remained relatively the same, although FTE on narcotics-related investigations has decreased commensurate with the agency’s realized

FTE.

Question. Have the consequences suggested by IRS come true?

Answer. Seized property pending forfeiture has declined due to non-budgetary reasons. Question. For example, has there been a noticeable effect yet on the amount of

funds flowing into the Forfeiture Fund?

Answer. The value of property seized for forfeiture significantly decreased during fiscal year 1997. Seizures during fiscal year 1997 total $56.6 million, as compared

to fiscal year 1996 seizures of $71.7 million. The value of property forfeited, particularly judicial forfeiture actions, often lags behind the value of property seized for forfeiture. The agency, therefore, anticipates that the amount forfeited and deposited

to the Treasury Forfeiture Fund will continue to decrease, subsequently reflecting

the amounts seized for forfeiture. However, due to the judicial processes required,

the actual forfeiture of property seized in fiscal year 1997 may occur as early as two

months and as long as three or four years after seizure.

The amount forfeited during fiscal year 1997, and subsequently transferred to the

Treasury Forfeiture Fund, has increased over the prior fiscal year. During fiscal

year 1997, $72.6 million was forfeited, as compared to fiscal year 1996 forfeitures

of $42.1 million; however, one single forfeiture of $32 million skews the fiscal year

1997 total. Seizures, totaling $32 million, related to a health care fraud investigation, were forfeited during fiscal year 1997 and are being returned to governmental

victims of the fraud as restitution. Absent that one forfeiture, the actual dollars forfeited would have decreased $1.5 million.

Question. How, if at all, will the fiscal year 1999 budget request change existing

circumstances, either for better or worse?

Answer. Receipt of the full fiscal year 1999 President’s budget request will allow

IRS to provide approximately the same level of commitment to the ‘‘War on Drugs’’

as in fiscal year 1998. IRS has been revamping its special agent basic training program, which it expected to complete in time to train special agents being hired for

fiscal year 1999.

Question. What is the status of this effort?

Answer. The Special Agent Basic Training (SABT) redesign effort is on schedule

and will be implemented with the next class of students scheduled to arrive for orientation on May 19, 1998. Three additional classes have already been scheduled before the end of this fiscal year (July, August and September); additional classes,

commencing approximately six weeks apart, are anticipated during fiscal year 1999

and beyond.

Question. Does this effort represent a shift to on-the-job training versus the developmental form of training used in the past?

Answer. No. The overriding goal of the redesigned program is to graduate new

agents with decision making/problem solving skills equivalent to the experience

level of an agent with two years field experience, thereby substantially reducing on-
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the-job training efforts by the field. As detailed below, the redesign effort represents

a substantial change in the methods used to present the developmental training material to our students.

The SABT redesign effort has resulted in the development of a three-phased

learning process at the National Criminal Investigation Training Academy (NCITA):

1. The first phase of training is a one-week orientation or Pre-Basic Training Program that became essential with the implementation of the new centralized hiring

process that will also be implemented with our May 19, 1998 class. During this

week long program, all personnel and administrative matters relating to new hires

formerly accomplished at the district level will be completed at the NCITA. In addition, students will receive training in the Investigative Thought Process, Professionalism, Time Management and Core Values which includes IRS policies relating

to ethics, diversity, quality and sexual harassment. The students will also be tested

on their knowledge of federal tax law and familiarized with the computers and computer systems assigned to them upon their arrival at NCITA.

2. The second phase of SABT training is the nine-week Criminal Investigator

Training Program (CITP) that is sponsored by the Federal Law Enforcement Training Center (FLETC). This course, which has remained unchanged, is comprised of

criminal investigators (special agents) from Treasury Department, Justice Department and other Federal agencies. The course includes blocks of instruction in criminal law, criminal court procedures, rules of evidence, defensive tactics, arrest techniques, weapons familiarization and other courses of common interest to Federal

criminal investigators.

3. The third phase and heart of the redesigned SABT program is the Special

Agent Investigative Techniques (SAIT) course. This 12 week course has been completely revamped and is presented in a highly interactive, facilitative adult learning

environment. The overall course presentation has been modeled, to a large degree,

after the internationally acclaimed Royal Canadian Mounted Police (RCMP) recruit

training program.

SAIT students are placed in an office environment with facilitators (on-the-job instructors (OJI’s) for every six to eight students, as well as a group manager advisor

responsible for the overall evaluation of each student’s performance. The students

are exposed to over 40 courses that are presented to them in a facilitative mode as

they complete two separate investigations. The courses are presented ‘‘just in time’’

for the students to implement their newly acquired skills in a problem solving approach to maximize their learning experience and complete their assignments. During each step in the problem solving process, students are challenged to critically

examine their actions in light of IRS mission statements, policies, customer needs,

and core values. In addition to the numerous practical exercises, classroom exercises, and case studies, we have also produced approximately 40 videos which serve

to advance the case story line and to visually depict special agents interacting in

the proper manner with witnesses, third parties and subjects of an investigation.

The overriding goal of this interactive training environment is to achieve results

in line with documented RCMP successes graduating new agents with an approximate equivalent experience level of two years in the field. Consequently, the redesigned SABT program will place much less of a burden upon the field for OJI activities, as field experiences are duplicated within the NCITA to enhance and reinforce

the learning experiences of its trainees. These more experienced trainees will be

able to work cases with minimal direction and guidance, rather than having their

field OJI lead the new agent through the investigative process. Under this new

model, the OJI will become more of a mentor than an instructor.

Question. What are its advantages and disadvantages, if any, compared to past

training?

Answer. The primary advantages of the use of the facilitative problem solving approach to training are threefold:

1. The NCITA will supply to the new field agents decision making/problem solving

skills equivalent to an agent with two years field experience. The increase of the

equivalent experience level of our trainees is critical to our mission due to the aging

of our work force. We are currently losing more agents to retirement than we can

hire and train to replace them. The experienced agents remaining in the work force

will be hard pressed to accomplish program goals, even without the additional burden of training a new generation of agents. The prior SABT program was an instructor focused, OJI intensive process. The redesigned SABT process is learner focused and will greatly reduce the demands upon the field to develop our new agents

to their full working level.

2. The facilitative, problem solving approach used in the redesigned SABT program provides us with a vehicle to teach and reinforce investigative thinking skills

and to critically evaluate proposed actions in light of IRS mission statements, poli-
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cies, customer needs, and core values. On almost a daily basis, trainees will be challenged to develop an action plan during their problem solving exercises to accomplish their investigative goals. In each and every instance, the trainees will be required to critically evaluate their action plan to be certain that it is consistent with

all IRS mission statements, policies, customer needs, and core values, thereby reinforcing the investigative thought process once the agents are placed in the field.

3. Our new program will incorporate not only technical skill development, but will

enhance critical people/behavioral skills, such as presentation skills, leadership

skills, and active listening skills, etc., as well as instill in each agent the desire to

become a life long learner. This new program extensively uses practical exercises

and role playing. The trainees are required to successfully resolve situations and circumstances involving people from diverse social, economic, and cultural backgrounds. With the additional emphasis we place on these types of skill development,

the trainee will return to the field much better equipped to perform tasks requiring

these skills, whether dealing with peer agents, managers, other IRS Divisions, other

agencies, and most importantly, the general public.

Question. Are there cost savings from reduced relocation costs, less formal training, or training overhead?

Answer. The redesigned SABT Program does not impact relocation costs relating

to the students trained at the NCITA, nor are training overhead costs materially

affected.

The 22-week redesigned SABT Program includes a one-week orientation/pre-basic

training program, a nine-week CITP course and a 12-week SAIT course. The 21-

week prior SABT program included a two week Tax-CI course, the nine-week CITP

course and a nine week SAIT course. Personnel matters relating to new hires, as

well as other administrative details, certifications and orientation were handled in

the district offices prior to the trainee reporting to the NCITA. Consequently, the

difference in length of the old and new versions of the SABT course is minimal.

The new program requires the participants to attend 22 consecutive weeks of

training. The previous program included a break between the CITP and SAIT segments, requiring Government funded round trip transportation for all participants

between the Federal Law Enforcement Training Center and each participant’s post

of duty. These mid-course transportation costs are eliminated in the redesigned program, resulting in cost savings to the IRS.

The advantages of the redesigned program in sending new agents to the field with

an equivalent experience level of two years on the job places a significantly lighter

burden upon the field for OJI responsibilities and will result in the new agents becoming productive in a much shorter period of time. Substantial savings are realized

by minimizing the burden placed upon experienced field personnel for OJI duties,

thereby allowing those experienced agents to concentrate on direct investigative responsibilities. Additional savings are realized as our new agents will become productive in a much shorter period of time.

Question. Are training programs for other employees, such as revenue agents and

revenue officers, also being revamped?

Answer. A team from Corporate Education and the Assistant Commissioner (Examination) has been formed to review all levels of basic recruit training for revenue

agents and tax auditors. The team will review the course material for the appropriate use of financial status audit techniques and for the inclusion of modules that

specifically address the professional treatment of taxpayers.

There have been some improvements in revenue officer training. A course in ‘‘Interest Based Interviewing Techniques’’ is mandatory for Continuing Professional

Education in fiscal year 1998. This course is the first step in our commitment to

delivering Conflict Management to Collection employees. The course presents the

use of conflict management principles as a method of conducting taxpayer interviews to enhance taxpayer/revenue officer interactions, reduce the level of stress,

and help to promote a customer service-oriented atmosphere for employees.

Question. If so, please provide details, including information on specific subjects

or job dimensions that IRS has identified as needing more emphasis during either

classroom or on-the-job training.

Answer. In addition to the ongoing review of basic recruit training, a separate but

related activity is our work on Occupational Competency Models (OCM’s) for revenue agent and tax auditor occupations. We will be matching competencies identified

for successful performance with existing course material to identify additional training needs.

A course focusing on the principles of customer service and fair treatment of taxpayers is being developed during fiscal year 1998. This course is the beginning of

a Public Service curriculum for Collection, which will contain courses in active lis-
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tening, interpersonal skills, etc. We expect that this course will be available for delivery in fiscal year 1999.

DISPUTE RESOLUTION

Dispute Resolution

Every year, IRS must attempt to resolve thousands of disputes with taxpayers

over tax liabilities. Traditionally, IRS has done this through its Office of Appeals.

Resolving disputes through the Office of Appeals takes a long time and is costly to

both IRS and the taxpayer. Since the early 1990’s, IRS has been attempting to implement various alternative dispute resolution methods, such as early referral and

mediation, to improve the cost-effectiveness of dispute resolution within IRS and to

reduce the burden and cost imposed on taxpayers, particularly corporations.

Question. For each alternative dispute resolution method used in fiscal year 1997,

please provide data on how often it was used, what type of taxpayers were involved

(e.g., individuals, corporations), and the results.

Answer. The Appeals organization has a track record of independence and impartiality.

1. Its mission is to resolve tax controversies without litigation on a basis that is

fair and impartial to both the Government and the taxpayer.

2. Its organizational placement within IRS ensures separation from both the enforcement and litigating functions. The National Director of Appeals reports directly

to the Deputy Commissioner and has line authority over Appeals operations

throughout the nation.

3. Its history since formation in 1927 repeatedly shows its effectiveness in resolving disputes. Most taxpayers who disagree with adjustments choose to come to Appeals without docketing their case in the Tax Court. Each year, Appeals reaches

agreement on 85 percent to 90 percent of the cases that come before it. For the fiscal

year 1997, Appeals received almost 77,000 cases and disposed of just under 72,000

cases. In comparison, about 1,200 tax cases a year are resolved in the courts.

Appeals Initiatives to Resolve Disputes (See Attachment 1 at end of Senator

Campbell’s questions for a description of each program.)

Early Referral.—The early referral process, including employment tax, has been

used in 54 cases, involving approximately $7.8 billion in proposed adjustments, and

thus far has resulted in approximately $3.6 billion in agreed adjustments.

Mediation.—Sixteen mediation requests have been made, of which nine were denied because they did not meet the mediation criteria. One mediation case involving

$70 million in disputed adjustments was successfully resolved. This resulted in $37

million in agreed adjustments. One case involving approximately $1.9 billion in disputed adjustments was successfully resolved after the agreement to mediate was

signed, but prior to any mediation session. This resulted in approximately $1.3 billion in agreed adjustments. Two cases involving approximately $46 million did not

resolve. Three cases involving approximately $114 million are in process.

Simultaneous Appeals/Competent Authority.—Eleven simultaneous Appeals/competent authority cases have been completed and one taxpayer withdrew from the

process. There are sixteen other cases in process, involving over $800 million in proposed adjustments.

Collection Appeals Program (CAP).—For the fiscal year 1997, Appeals received

1,479 CAP cases and closed out 1,461 cases. Of those cases closed, Collection’s action

was fully supported in 1,054 cases, Collection was partially reversed in 207 cases

and fully reversed in 200 cases. It is important to note that a CAP appeal requires

that taxpayers discuss their dispute with the IRS employee’s manager to attempt

resolution before coming to Appeals. Most CAP cases are actually resolved at the

management level.

Question. Were there any significant developments/changes in the use or availability of alternative dispute resolution methods in 1997 and the first half of fiscal year

1998? Last year, for example, IRS told this Committee that it anticipated expanding

mediation to cases or issues involving at least $1 million in dispute. Has that step

been taken? If no, why not? If yes, what have been the results?

Answer. Bankruptcy Appeals Process.—With the issuance of Announcement 97–

111 on November 6, 1997, Appeals began testing a new Bankruptcy Appeals dispute

resolution program. We anticipate conducting a review of this program at the end

of June 1998. The purpose of this process is to eliminate litigation in Bankruptcy

Court on certain IRS related issues by providing an administrative forum within

Appeals to settle these disputes. There are numerous benefits to this process. It provides taxpayers with a no-cost, risk-free opportunity to resolve disputes. Taxpayers

who are not satisfied with the proposed resolution are free to litigate the matter in

Bankruptcy Court. Furthermore, in all instances where a resolution is reached, this
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process also provides benefits to all entities related to this process: the IRS, the taxpayer’s estate, and the Bankruptcy Court. The IRS will not expend resources incident to litigation, the taxpayer’s estate likewise will not expend such resources and

this will increase the estate’s value to creditors, and congestion in Bankruptcy Court

calendars will be reduced.

International Penalties.—Appeals is considering extending the concept of the early

referral procedures contained in Rev. Proc. 96–9 by providing for an expedited appeal of the following penalties: I.R.C. Sections 6038(b), 6038A(d), 6038B(b) and

6038C(c), which are not subject to deficiency procedures. This expedited referral procedure will allow taxpayers an administrative appeal prior to the payment of the

penalty. We expect to publish a Revenue Procedure by June 1998.

Appeals Request For Review.—Appeals is developing a form for taxpayers to request an administrative appeal, along with a customized Publication 5 that explains

the Appeals process, which taxpayers and their representatives have told us would

facilitate the Appeals process. We expect to begin testing this form in a Service Center in May 1998. This form will significantly reduce the time span to resolve these

cases in Appeals and the taxpayer burden in using the Appeals process.

Mediation.—Mediation is currently limited to Coordinated Examination Programs

(CEP) cases assigned to Appeals Team Chiefs. The initial one-year mediation test

period concluded in October 1996 and Announcement 97–1 extended the test of the

mediation procedure set forth in Announcement 95–86 for an additional one-year period that concluded in January 1998. We have recently completed our review of the

mediation procedure and we are considering expanding the mediation process to include more cases or issues. We expect to publish an announcement on the new mediation program in April 1998.

Employment Tax.—Announcements 96–13 and 97–52, allow taxpayers whose returns are being examined to request early referral of one or more employment tax

issue(s) from district compliance functions to Appeals. The purpose of early referral

for employment tax issues is to resolve them more expeditiously through simultaneous action by the District and Appeals. These Announcements are part of the IRS’

strategy designed to improve employment tax administration for all taxpayers, including those who are small business owners. We expect to publish a Revenue Procedure with the final procedures when the two-year test concludes in May 1998.

Question. What specific goals and measures—both qualitative and quantitative—

does IRS use to assess whether each of the alternative methods works? What have

these measures shown to date about how well the various methods meet their

goal(s)?

Answer. TRACES: Appeals has initiated a review of Appeals functions and processes to come up with new, key performance indicators that will foster continuous

improvement and provide improved customer satisfaction. These key performance

indicators are known as ‘‘TRACES’’ were developed for: Timely, Responsive, Accurate, Complete Service, Education, and Sustention Rate. These key factors focus on

providing better products and services by reducing cycle/lapse time, providing

prompt hearings for taxpayers and making settlements that are fair, impartial,

technically and procedurally correct.

Customer Satisfaction Surveys: ADR Programs.—Through the recently established

evaluation programs, Appeals encourages taxpayers using dispute resolution programs to comment on the procedures. Evaluation is the key to determining whether

Appeals is successfully meeting its goals. Evaluation can also be used to assess the

need for changes in administering the program and in determining what our customers value. In 1996, the Office of Management and Budget approved taxpayer

customer satisfaction surveys for the early referral, simultaneous Appeals/Competent Authority and mediation programs.

The responses to our customer satisfaction surveys reveal that both the early referral and simultaneous Appeals/competent authority procedures help taxpayers resolve their cases more quickly than using the standard procedures. Also, taxpayers

responded that they saved money by using mediation instead of having to litigate

the issues.

Appeals ADR initiatives offer prompt and less expensive methods for taxpayers

to resolve their disputes after good faith negotiations have failed in Appeals or

agreement cannot be reached with Compliance. When any of these programs enable

the taxpayer and the IRS to reach agreement, burdens and costs to both of them

are reduced.

Appeals Process.—As part of its on-going evaluation of dispute resolution programs, the Office of the National Director of Appeals conducted a Customer Satisfaction Survey in June 1997 to collect feedback from taxpayers about the Appeals

process. Of the 6,800 taxpayers and tax practitioners who were mailed a two-page

survey, 43 percent chose to participate in the survey.
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The survey was designed to capture information about the taxpayers’ knowledge

and understanding of the Appeals process. Key elements of the survey were the taxpayers’ ratings for their level of satisfaction in nine facets of the Appeals process,

including:

—How long it took:

—to get a case to Appeals;

—for Appeals to schedule a conference; and

—to get a case through Appeals

—Correct application of the law to the facts of the case

—Appeals fairness and impartiality in resolving the case.

The survey captured other data relating to how well the Appeals officer explained

the Appeals process and the outcome of the appeal.

Some of the findings are:

—84 percent of respondents would use Appeals again

—70 percent satisfied (completely or somewhat) with Appeals fairness and impartiality

—70 percent satisfied (completely or somewhat) with the overall Appeals process.

Future customer surveys.—The IRS announced in IR–98–7 that in a new series

of upcoming surveys, taxpayers who have dealt with the IRS will be asked to complete questionnaires to rate the service they received. A private contractor will conduct customer satisfaction surveys of all IRS functions, beginning in March 1998.

In that announcement, the IRS stated, ‘‘For the first time, we’re looking at specific

services through our customers’ eyes.’’ Appeals has endeavored to adopt this focus

since 1995 with its TRACES measures noted above. Appeals will use results from

these new taxpayer surveys, along with those from the 1997 survey, to improve the

administrative Appeals process, make sure it is more customer friendly and achieve

a high quality product by striving for continuous improvement and customer satisfaction.

Collection Appeals Program.—Our goal on CAP cases is to provide an expedited

decision (within 5 days) that is the most appropriate resolution for the dispute. To

measure numbers we track of how many cases we received and how cases are closed

by type of appeal (i.e. lien, levy, seizure, or termination of installment agreement)

and whether decisions are timely.

We measure quality by CAP caseload reviews. We have completed two reviews.

The first was a 100 percent review of all CAP cases closed during the first 90 days

of the program. The second was done as part of the Nationwide Appeals Review Program, which reviews selected issues or types of cases when they are closed. Our program reviews have shown that generally case decisions are being made appropriately. The numeric data indicates that CAP is being used and decisions are generally timely, i.e. within the 5 days.

PERFORMANCE MEASUREMENT

Question. What progress has been made in developing an overall balanced measurement process?

Answer. The IRS is in the process of analyzing and redesigning its entire measurement system from the development of corporate measures to how the measures

are used and interpreted by management and employees. The redesign effort will

consist of two phases. Phase I comprises a near-term goal to develop a set of practical, interim measures which are aligned with the IRS’ current organization structure and can be used in fiscal year 1999 to measure IRS district and service center

performance. Phase II of this effort, which will build on the results of Phase I, will

entail the development of a new measurement system that is equal to the ‘‘best in

class’’ in private industry and that is aligned with the IRS’ modernized organizational structure.

In late 1997, the IRS established a task force, the New Measures Task Force

(NMTF) to lead the effort of developing a balanced measurement system. This task

force includes IRS executives, managers, and technical experts, as well as representatives of the National Treasury Employees Union (NTEU), Treasury, and the Office

of Management and Budget (OMB). The NMTF has outlined an action plan for moving the IRS from its current measurement system to one with a more balanced approach and is working to integrate a number of ongoing projects involving customer

and employee satisfaction surveys, exam and collection quality measurement systems, and other measures refinement activities into its overall approach. The IRS

is in the process of selecting a contractor to work with the NMTF in developing the

balanced set of measures.

Question. Are the five measures cited by Internal Audit still being used as measures? If so, how?
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Answer. The five measures cited by Internal Audit were: (1) dollars collected, (2)

dollars collected per full time equivalent, (3) total dollars collected as a percentage

of current year receivables, (4) average cycles per Taxpayer Delinquent Account

(TDA)/Taxpayer Delinquent Investigation (TDI) disposition, and (5) TDA/TDI average hours per entity disposition. Of these measures, measure No. 1, dollars collected, will continue to be tracked at the national level, because it is a budgetary

measure. Measures No. 2, 3 & 5 have been dropped from the Annual Performance

Plan and will not be used for purposes of business review evaluations. Measure No.

4, average cycles per Taxpayer Delinquent Account (TDA)/Taxpayer Delinquent Investigation (TDI) disposition, is a Budget level measure, so results will be used for

reporting purposes, but the measure will not be used in business review evaluations.

Data for these measures is still available on our Management Information Systems,

but a district will only be able to access information about its own results and the

composite Servicewide results.

Question. In light of recent testimony on over-zealous collection activity and IRS

reliance on enforcement statistics, how does IRS plan to meet this mandate in the

future? (mandate refers to requirements of the Government Performance and Results Act—GPRA)

Answer. These measures are all being reviewed in light of our goal of transforming the IRS from an internally focused organization to one which views itself from

the taxpayer perspective and in light of the elimination of use of all enforcement

statistics for measuring organizational performance. We have a task force working

on this problem, and we expect to engage expert outside consultants to assist in this

task. We expect to have interim results to use for measuring performance during

fiscal year 1999. These measures will build on some of the measures included in the

budget submission.

Question. What plans, if any, does IRS have to improve the reliability of this performance measure?

Answer. We do not have any plans currently.

Question. What are IRS’ plans to ensure that its strategic plan contains results

oriented measures that can be used to assess how well its strategic goals are being

met for the Customer Service and Compliance business lines?

Answer. The IRS recognizes that many of its existing measures are output-oriented. The New Measures Task Force will work with private sector experts to address that imbalance and identify results-oriented measures for all its business

lines. These measures will be included in the IRS’ strategic plan and will be used

to monitor success in meeting strategic goals.

OTHER

Question. Given the additional resources provided in fiscal year 1998 for the

Earned Income Credit initiative and the President’s budget request for fiscal year

1999, how, if at all, has IRS’ long-range outlook changed?

Answer. Out-year budget estimates included in the fiscal year 1998 budget request were based on OMB assumptions that agencies would be required to absorb

inflationary increases (including annual pay raises). Given the labor-intensive nature of the IRS’ budget and the compelling need for technology investments (e.g.,

Century Date Change) long-range resource forecasts suggested steadily declining

FTE levels.

The fiscal year 1998 budget, enacted by the Congress, provided the first ‘‘real dollar’’ increases to the IRS’ budget since fiscal year 1995. While FTE levels during

that three-year period had fallen by more than 10 percent (from 112,000 to fewer

than 102,000), the fiscal year 1998 budget allowed IRS to stabilize its work force

at nearly 101,000 FTE. The IRS’ fiscal year 1999 request includes 1,462 additional

FTE—primarily for enhanced customer service in connection with the National Performance Review. The agency’s renewed commitment to customer service and organizational modernization is based—in part—on maintaining these FTE levels during

the next five to seven years. It should be noted that although the Earned Income

Tax Credit initiative is designed to combat noncompliance and reduce overclaim

rates, most of the FTE and dollar investments are in customer service staffing in

the service centers (e.g., correspondence examinations and Questionable Refund Detection Teams), education and outreach, and compliance research—not traditional

enforcement programs that have been most directly affected by prior year budget

cuts.

Question. Is it not fair to say that any anticipated decline in enforcement programs is due not so much to inadequate funding but rather to a conscious decision

to emphasize customer service?
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Answer. The loss of the fiscal year 1995 Compliance Initiative funding and the

recent emphasis on customer service have contributed to a long-term reduction in

traditional, face-to-face enforcement programs. Prior year reductions in core Compliance programs such as Examination, Criminal Investigation and Collection were accomplished largely through attrition, early-out retirements and buyouts. Losses in

key employment categories (e.g., revenue agents, special agents and revenue officers) in a tight labor market make recruitment of new hires difficult and technical

training expensive. Beyond FTE cuts, disproportionate reductions to support costs

such as training, supplies and automation have strained managers’ ability to ‘‘do

more with less.’’ The fiscal year 1999 budget request would partially restore prior

year cuts and help stabilize funding for these critical activities.

Question. How many employees are in these so called temporary customer service

type jobs? What type of work are they doing? What is the likelihood that IRS will

continue to keep these employees in their current positions?

Answer. There is a total of 114 Customer Service employees in temporary positions. They range in grade from GS–4 to GS–13 and include employees in Walk-in

offices, the automated collection system, toll free telephones, in addition to clerical

and analyst positions. IRS plans to evaluate the sites in April 1999 to determine

the next step to take regarding these positions.

Question. In March 1997, GAO reported that IRS did not have well-defined procedures for requesting and processing innocent spouse claims (GAO/GGD–97–34, Mar.

12, 1997). GAO recommended that IRS (1) develop new or modify existing publications to better inform and educate taxpayers about the availability of and criteria

for innocent spouse relief, (2) develop a tax form and procedures for requesting and

either granting or denying such relief, (3) provide additional guidance to IRS employees to better insure consistency in processing innocent spouse cases, (4) establish a cost-effective process for monitoring consistency, and (5) update regulations

to reflect current requirements. What steps has IRS taken to implement each of

GAO’s recommendations?

Answer. (1) New Publication 971, Innocent Spouse Relief, is under development

and we expect to make it available early in April 1998. (2) New Form 8857, Request

for Innocent Spouse Relief, is in the final stages of review and we expect to make

it available for distribution early in April 1998. However, we expect the form to be

available on the IRS Web page by the end of March. (3) Pipeline processing instructions have been updated to ensure proper processing of Form 8857. Cincinnati Service Center will be the central location to process Form 8857. Receipt and Control,

Code and Edit, ERS, and Rejects will route Form 8857 to the Examination function

for review. In addition to pipeline processing, Files instructions have been completed

and updated accordingly.

Question. What has IRS done to implement each of the recommendations in the

cited GAO report?

Answer. The IRS currently has a program in place to reconcile all Form 8610’s

and supporting documents, i.e., Form 8609’s and Carryover Allocation Contracts. All

state agencies have been reconciled for 1995 and 1996. This process will be improved with electronic filing, which we are currently testing.

The revised Form 8610 was made available to the public January 1, 1998. However, Form 8609 has not been revised to date since a ‘‘Carryover Allocation’’ document will also require a regulation change. This has been discussed with Chief

Counsel. An effective date of January 1, 1999 is expected.

The IRS is generating a semiannual extract report which provides information on

taxpayers claiming the Low Income Housing Credit on business tax returns. This

information is run against the Low Income Housing Database of Forms 8609’s filed

by the states which give the amount of the credit allocated.

Form 8823 (Low Income Housing Credit Agencies’ Report of Noncompliance) was

revised and made available to the public effective January 1, 1998. It clarifies the

types of noncompliance State Housing Agencies must report to the IRS.

We continue to identify projects with audit potential using classification specialists to evaluate Forms 8609 and 8823 against filed returns. In conjunction with

State Housing Agencies, we are expanding a selection process which focuses on the

developers of projects.

Question. What is the status of IRS’ actions on NARA’s recommendations? Has

the backlog of uninventoried records been removed?

Answer. In his letter dated December 1, 1997, Michael Miller, Director of the

Records Management Program at NARA, advised David A. Mader, Chief Management and Administration, how pleased NARA is with the progress IRS has made

in implementing their recommendations. Mr. Miller also stated NARA agrees that

IRS has successfully implemented all but one of the 58 recommendations. The one

outstanding recommendation deals with records created by the Philadelphia Service
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Center during the 1985 filing season; NARA urged IRS to make another attempt

to locate these records. As a result, representatives of the Service Center and the

records management staff conducted an in-depth inventory, and recently uncovered

approximately 2 cubic feet of records. This information was reported in our final status report to NARA on March 31, 1998. Closure of this last recommendation will

mean that all 58 were implemented within 2 years of the submission of our initial

action plan on March 6, 1996. NARA has stated that this is a record that no other

agency has achieved.

Our work has resulted in the submission of Records Control Schedules for all

uninventoried backlogs. Each schedule identified the unique management and policy

records of the organization. Several major schedules are still awaiting action by

NARA; however, others have been approved and are being implemented, i.e., schedules covering records of the former Historian; former Commissioners, as well as the

current Commissioner; Chief Counsel; Information Systems; Communications; and

Legislative Affairs.

Question. It is my understanding that the IRS is losing the potential to collect

hundreds of millions of dollars in overdue taxes due to problems in determining

which accounts are collectible and which are not. What action is the IRS taking to

develop information on written-off accounts to determine whether cost-effective collection measures can be developed and applied?

Answer. The Inventory Delivery System, a system under development, will centralize collection case processing and use automated methods to evaluate delinquent

accounts for collectibility so that the most productive accounts receive priority attention. The system has three releases planned. The first release containing Financial

Analysis Profile and basic core functions to support case assignments and data base

updates is scheduled for pilot in February 1999. The second release with Telephone

Number Research is scheduled for August 1999 with a third release containing Address Research in 2000.

Question. What is the status of IRS efforts funded through the new Earned Income Credit Compliance Account?

Answer. This year, the IRS has taken a number of proactive efforts as part of the

Earned Income Credit Initiative, including:

—Sent notices to over 6 million EITC recipients informing them of the advance

EIC payment option.

—Sent an informational letter to the top 100 employers most likely to employ taxpayers who would be eligible for the credit.

—Sent notices to approximately 2.5 million taxpayers who did not claim the credit

but appear eligible for the credit.

—We are providing toll-free assistance for EITC questions 24 hours per day 7

days a week.

—We expanded outreach efforts to service EITC eligible low income and elderly

taxpayers by providing tax information and return preparation during the last

three Saturdays beginning March 28.

—We designated March 28 as EITC Awareness Day, where walk-in sites provided

taxpayers with up-to-date information regarding the new tax laws and the penalties associated with intentional noncompliance, and assisted EITC eligible

taxpayers with return preparation.

—Informational products such as stuffers, posters, employee and employer brochures were provided to local offices to use in partnering efforts with groups

and agencies.

—As of March 19, 1998 we have issued 47,730 EIC Math Error Notices for Invalid/Missing Social Security Numbers.

[ATTACHMENT 1]

DESCRIPTION OF APPEALS ADR PROCEDURES

Early Referral

Early referral procedures, contained in Revenue Procedure 96–9, expedite Appeals

consideration of key issues that are ‘‘unagreed’’ (the taxpayer does not agree with

the proposed examination adjustment). Appeals officers begin reviewing the

unagreed issue while the examination of other issues continues, allowing for the

possible settlement of key unagreed issues, and possibly closing the entire case in

the Examination function, reducing costs for the taxpayer and the IRS.

Early Referral—Employment Tax

Although the early referral program was initially limited to Coordinated Examination Program cases, in Announcement 96–13 the IRS extended the early referral
259

provisions to employment tax issues on a one-year test basis. Announcement 97–52

extends the test of the procedures for early referral of employment tax issues for

an additional one-year period beginning on May 27, 1997.

IRS examiners now consider the taxpayer’s eligibility for employment tax relief

under section 530 of the Revenue Act of 1978 before initiating any examination of

the relationship between a business and a worker. Taxpayers that disagree with the

District’s determination regarding the application of section 530 have the option of

immediately requesting early referral of the issue from the District to Appeals.

Effective August 5, 1997, section 1454 of the Taxpayer Relief Act of 1997 added

a new section 7436 to the Internal Revenue Code. Section 7436, as amended, provides new judicial review rights concerning certain employment tax determinations.

Generally, Code section 7436 applies to employment tax cases in which the IRS has

determined that at least one worker should be reclassified as an employee and/or

that the taxpayer is not entitled to relief under section 530 of the Revenue Act of

1978. The law requires that any employment tax that depends upon such determinations cannot be assessed unless the taxpayer has been given an opportunity to

file a petition for Tax Court review of the IRS’ determinations on those two issues.

If, during the course of the employment tax examination, the taxpayer and Examination are unable to agree on worker classification and/or section 530 issues, the

taxpayer will be strongly encouraged to request early referral of these unagreed

issues from Examination to Appeals. The enactment of I.R.C. § 7436 does not change

the early referral procedures.

Mediation

The IRS, in Announcement 97–1, extended the test of the mediation procedure set

forth in Announcement 95–86. Mediation is used later in the administrative process,

after good faith negotiations have failed to produce resolution. Factual issues, such

as valuation and transfer pricing issues, are appropriate for mediation. Appeals is

considering expanding the mediation program. Cases over $10 million in dispute

that currently qualify for mediation account for only 1 percent of the inventory in

Appeals, but 88 percent of the dollars in dispute. Cases over $1 million in dispute

are 4 percent of the inventory, but 95 percent of the dollars. Mediation is a negotiation between the parties assisted by an objective and neutral third party mediator

who has no authority to impose a decision. Mediators can come from Appeals or outside the IRS. Co-mediators can also be used.

Appeals process.—The mediation procedure in Appeals is specifically designed to

be used at the end of the administrative process, as a final attempt to resolve a dispute before litigation. Appeals has built a strong record of success through our

standard techniques of dispute review and conferencing. Most tax controversies are

resolved through the time-tested successful negotiation process of the Appeals conference. Very few cases are litigated—about 1,200 in any given year. The vast majority of cases are successfully resolved without the need for any additional resources. While there are relatively few taxpayers using the ADR initiatives, these

cases involve a significant amount of the dollars in Appeals inventory. As a result,

Appeals ADR processes initially focused on the cases that involve the majority of

disputed dollars coming into Appeals.

Relationship to early referral.—Taxpayers presently can use the mediation procedure in conjunction with early referral. By combining the two procedures, taxpayers

may be able to expedite their resolution. After early referral negotiations are unsuccessful, taxpayers are able to then request mediation if the early referral issue satisfies the mediation criteria. However, early referral currently has a broader application and is available for all CEP cases; by expanding mediation, all early referral

cases could be covered.

Simultaneous Appeals/Competent Authority

Section 8 of Revenue Procedure 96–13 allows a taxpayer who has filed a request

for competent authority assistance to also request simultaneous Appeals consideration of the competent authority issue. The procedure encourages taxpayers to request competent authority assistance and the participation of Appeals while a case

is under Examination jurisdiction.

Collection Appeals Program

The Collection Appeals Program (CAP) started in April 1996 and allows taxpayers

to appeal lien, levy or seizure actions proposed by or made by the IRS. Before this

time, the only opportunity a taxpayer had to appeal these actions was through the

Collection manager and up through Collection’s chain of command. This is the first

time in the history of U.S. taxation that an appeal on these Collection actions

through an independent organization such as Appeals was possible. In January

1997, appeals of installment agreements proposed for termination were added to the
260

program. This installment agreement appeal right was provided for in the Taxpayer

Bill of Rights 2 and the IRS decided to add it to CAP.

Any taxpayer may request an appeal and we expect to reach a decision in 5 days.

This ensures taxpayers a quick decision and that collection activities will not be delayed unnecessarily.

QUESTIONS SUBMITTED BY SENATOR SHELBY

AUDITS OF SOUTHERNERS

Question. One explanation the IRS has given in its defense for auditing a disproportionate number of southerners, is that a disproportionate number of people

from these states file for the Earned Income Tax Credit which has been targeted

because it is known to be an area where compliance is a problem. Can you tell me

if this correlation can fully explain why so many of my constituents were targeted? Answer. There appears to be a large number of workers earning less than $29,290

and claiming EITC qualifying children in the southern states. Historically, southern

states have had the largest percentage of returns claiming EITC. Where there is a

larger population of tax return filers claiming EITC, there is a high potential for

abusive and erroneous EITC claims. The returns we focus on have the same characteristics nationwide, but the fall-out is greater in the South.

Question. In the fiscal year 1999 budget request, the IRS is asking for $143 million and 2,184 FTE positions for the EITC compliance initiative. Can you please

submit a formal plan to the subcommittee outlining the program’s goals and the initiatives that will be used to accomplish them?

Answer. A formal plan for fiscal year 1999 will be completed and submitted to

the subcommittee by the end of May, 1998.

Question. In the plan please explain in detail what tasks these FTE positions will

perform and how specifically the appropriated funds will be allocated with the program.

Answer. A formal plan for fiscal year 1999 will be completed and submitted to

the subcommittee by the end of May, 1998.

FINANCIAL MANAGEMENT

Question. On several occasions, the GAO has found that it could not conduct reliable audits of the IRS because the agency’s financial statements were in such disarray. I have said in the past and continue to believe now that it is ironic, to say

the least, that the IRS requires more of taxpayers than it does of itself. The IRS

requires taxpayers to keep receipts for several years to justify their deductions while

the IRS cannot reliably account for billions of dollars worth of tax revenues. Having

said that, in a report to Congress provided by the GAO in December on the financial

audit for the fiscal year 1996 custodial financial statements there is a table that

lists recommendations that GAO has made in the past and the degree of progress

that has been made. Unfortunately, the body of the report and the table in Appendix 1 provide very little detail as to the response of the IRS to these recommendations. Can you have your staff provide the subcommittee with detailed and concise

written explanation as to what specifically the agency has done thus far in order

to implement the GAO recommendations?

Answer. In response to the statement that ‘‘the GAO has found that it could not

conduct reliable audits of the IRS because the agency’s financial statements were

in such disarray,’’ the IRS is pleased to report that on February 26, 1998, the GAO

has given an unqualified—or ‘‘clean’’—opinion on the reliability of the IRS’ fiscal

year 1997 Custodial Financial Statements. The statements audited by GAO were

IRS reports on taxes collected and refunds paid during fiscal year 1997. GAO also

can attest to and has assured Congress and the American people that our reports

on $1.6 trillion in revenue collected and $28 billion in accounts receivable are reliable. This GAO opinion means it could reconcile the total revenue reported to the

total taxpayer account records IRS maintains, substantiate the amounts for various

types of taxes collected and determine that accounts receivable estimates were reliable.

While we recognize that the IRS needs additional work to assure that its financial

house is in order, we believe this February, 1998 GAO Report is a significant step

in this right direction.

In response to the question—the GAO has made 59 recommendations through

their financial statement audits for the last six fiscal years, which have improved

financial management at the IRS. The attached IRS detailed action plan, developed

in cooperation with GAO, addresses corrective actions and tracks the progress to-
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ward correcting deficiencies and implementing GAO recommendations. Of the 59

recommendations, 51 have been closed. Of the remaining eight recommendations,

IRS and GAO have mutually agreed that no action was required for one, and we

anticipate closure of the remaining seven (six by September 30, 1998, and one by

November 1, 1998). The IRS is committed to working with GAO to resolve these recommendations and believes that through mutual cooperation and effort this goal

will be achieved.

TAXPAYER SERVICE

Question. One of the reoccurring problems that I hear about from my constituents

is that when they call the IRS they often cannot get through. Once they do, they

are transferred around multiple times until they find the ‘‘right’’ person. Then after

getting the run-around, they often receive erroneous information from IRS officials.

Under current law, taxpayers can only be relieved of responsibility of bad advice

from the IRS when they have received it in writing. In other words, there has to

be a paper trail. I know you have outlined some of your plans to deal with this problem, but do you think it would be reasonable to have the IRS provide advice in writing to taxpayers when requested so we can avoid these kinds of problems?

Answer. Taxpayers can currently send their questions in writing to the IRS and

request and receive a response in writing. The IRS will also respond in writing

when a taxpayer calls for assistance and requests a written response. Section 6404

(f) provides for abatement of penalties and additions to tax that result from erroneous written advice by the Service. However, in order to qualify for relief, both the

request for advice from the taxpayer and the IRS’ response must be in writing. Requiring that both the request and the response be in writing allows a proper evaluation of whether the taxpayer provided sufficient information on which correct advice

could have been based. Most taxpayers requesting tax assistance call the IRS rather

than write, and this is the most effective way for the taxpayers to get information

and for the IRS to provide it. Based on the volume of individuals calling the IRS

for tax assistance, it would require substantial resources to have taxpayers ask all

their questions in writing and have the IRS respond in writing.

EMPLOYEE DISCIPLINARY PROCEDURES

Question. In the summary of the IRS fiscal year 1999 budget request there is a

section that outlines the disciplinary action which resulted from unauthorized accesses of taxpayer files by IRS employees. It indicates that ‘‘161 employees were removed/separated from the IRS.’’ Does this mean that they were fired and are in no

way, shape, or form working for the American Taxpayer any more?

Answer. Employees who are accused of committing an unauthorized access are accorded due process rights prior to being removed. An employee can resign without

prejudice at any time during an investigation as long as the departure occurs prior

to issuance of proposed disciplinary action. If eligible, the employee may retire. Such

an employee could be hired by another Federal agency and IRS would not know

about it. If they resign or retire after notification of a proposed action, a record is

placed in their Official Personnel Folder (OPF) and is available to any prospective

government employer. Similarly, a removal is documented in the OPF. It is unlikely

another agency would choose to hire such a person. IRS would not rehire anyone

for whom an investigation had been opened and it appeared that the charges would

be substantiated.

Question. Were they given incentives to leave?

Answer. The IRS Buyout program specifically excluded paying incentives to anyone for whom a proposed disciplinary action had been initiated. If someone was

under investigation but the case had not reached a point where misconduct was substantiated, then it was possible for a buyout to have been paid.

Question. One taxpayer that my staff has worked closely with reported that an

IRS official told her to ‘‘get a real job’’ in order to help pay off her husband’s tax

liability. This sort of flippancy is obviously uncalled for and very inappropriate.

Many financial institutions monitor incoming phone calls to ensure that customers

are being treated politely by customer service personnel when they call in. Does the

IRS have any similar system in place to monitor the conduct of its employees?

Answer. Yes. In addition to a nationally managed Quality Measurement Program,

IRS managers evaluate their employees through telephone monitoring to ensure

that our customers are treated in a courteous, professional manner as well as to ensure that the information we provide is complete and accurate. The Customer Service Organization redesigned the Critical Job Elements (CJE) and Standards for the

Customer Service Representatives. These are used to evaluate Customer Service

Representative performance and will be implemented nationally on May 1, 1998.
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The redesigned CJE’s reflect a strong customer focus. The most important job element is Customer Service. When managers evaluate their employees on this element they consider specific standards including Customer Focus, Interpersonal Sensitivity, Oral Communication and Listening, and Influencing and Negotiating. The

results of the monitoring are documented and shared with the employees and are

used in the Performance Appraisal Process.

We also agree that a comment like the one described in your question is completely unacceptable. We believe the implementation of our new performance standards for Customer Service Representatives will help assure such comments are not

made.

QUESTIONS SUBMITTED BY SENATOR KOHL

GENERAL

Question. The IRS is setting up Special Disciplinary Panels to provide objective

assessments regarding allegations of taxpayer abuse. The panel will have authority

to impose sanctions against employees when warranted. These sanctions could lead

to dismissal. Are you proposing legislation to provide these executives outside the

Federal Government with the authority to fire a Federal employee?

Answer. The Special Review Panel consists of executives from Customs, IRS, and

Treasury. The panel is receiving assistance from a small staff of IRS and Treasury

employees representing Counsel and management, and will have IRS technical experts available to provide guidance or clarification as needed. Adverse or disciplinary actions, if warranted, will be decided by the Deputy Assistant Secretary of

Treasury (Human Resources). No legislation is currently proposed to delegate authority for these types of personnel actions.

Question. Are the Taxpayer Advocate Panels and Problem Solving Forums working together to share information to develop a unified approach to deciding how to

work with Taxpayers?

Answer. Yes. The Taxpayer Advocates are now responsible for the Problem Solving Day program, including assuring that cases are completely worked, that case

data are analyzed, and systemic problems and possible solutions are identified. In

addition, in the future when Citizen Advocacy Panels become operational, the Taxpayer Advocates will be responsible for integrating data flowing from the panels into

their advocacy efforts and assuring the inclusion of such data where appropriate in

the Taxpayer Advocate’s report to the Congress.

Question. Are the groups working with the Special Disciplinary Panels? And, what

about the contractor that is putting together the plan to restructure the IRS along

customer service lines?

Answer. The special disciplinary panel, which includes individuals from outside

the IRS, was established to provide fairness, objectivity, and consistency in reviewing the findings of Inspection reports, recommending corrective actions and appropriate administrative actions. As an independent panel, it will not be working with

the Taxpayer Advocate Panels (officially known as the Citizen Advocacy Panels), individuals working on Problem Solving Days, or the contractor that is conducting the

validation study of the modernization concept. However, any lessons learned from

the work of the disciplinary panels will be shared with the Taxpayer Advocate, the

CAP’s, and the contractor.

ELECTRONIC FILING

Question. I know the IRS agrees that by the year 2007 no more than 20 percent

of all returns should be filed on paper. Has the IRS estimated the number of returns

that could be filed electronically with existing equipment?

Answer. As would be required by the pending IRS reform legislation, the IRS is

currently in the process of developing a Strategic Plan for Electronic Tax Administration which is designed to eliminate barriers, provide incentives and use competitive market forces to make significant progress towards the overriding goal that 80

percent of all tax and information returns be filed electronically by 2007. As part

of this effort, the IRS will be clearly articulating the strategic objectives and business goals for 2007 that it is proposing for Electronic Tax Administration.

Furthermore, the IRS believes that it has sufficient capacity to process the projected electronic filing volumes. However, as part of its strategic planning process

for Electronic Tax Administration, the IRS will be re-assessing its current technical

infrastructure to ensure that it is positioned to handle the expected demands of the

future. Not only does the IRS expect a significant increase in the number of Electronic Return Originators who transmit returns for taxpayers, but it also envisions
263

developing additional products and services which will enable individual taxpayers

and businesses to transact and communicate directly with the IRS.

Question. What percentage of all taxes filed are filed electronically?

Answer. The following chart provides the projected volumes for 1998.

PROJECTIONS FOR 1998 1

Form Total volume Total ETA Percent of

total

1040 ........................................................................................... 123,950,600 2 20,979,700 17

941 ............................................................................................. 24,109,600 3,521,000 15

1041 ........................................................................................... 3,517,800 1,032,100 29

1065 ........................................................................................... 1,745,800 ........................ ................

5500 ........................................................................................... 1,215,700 14,400 1

1 Source of data: Document 6194, Calendar Year Return Projections for Districts & Regions (Rev. 1–98) except for Form

941 Total ETA volume which includes the Form 941 mag tape volume. 2 Includes TeleFile returns.

Question. I know we have discussed this, but could you tell me once again what

the estimated savings are from filing electronically?

Answer. A study was recently initiated by the IRS to better understand the cost

tradeoffs between electronic and paper filings which will involve further analysis of

the fixed and variable components of these costs at various points in the electronic/

paper filing mix. Until this study is completed, we do not have a definitive answer

to this question. However, at this point, we can get some idea of this by looking

at certain known costs for fiscal year 1996 for the Form 1040 family of returns and

making preliminary judgments.

In fiscal year 1996 the cost per return for electronically filed Form 1040 family

of returns was $4.76, while the cost for paper filings was $4.49. Capital investments

obligated in fiscal year 1996 are included in full. Capital investments obligated prior

to fiscal year 1996 are not included in the costing process. Costs incurred upstream

of the data capture processing (e.g. design, printing, and distribution of tax forms

and instructions) and downstream of data capture (e.g., archiving and retrieval of

tax returns, compliance activities) are not included. The small differentiation in cost

between paper versus electronic processing is encouraging, as electronic filing expenses are amortized across 15 million Form 1040 family of returns versus the 95

million for paper Form 1040 family of returns. Also, it is clear that much of the

paper filing costs in fiscal year 1996 are related to labor, which results in high variable costs, while most of the electronic filing costs were fixed costs. Also, there may

be other non-financial reasons (such as reduced taxpayer burden) that would compel

an aggressive pursuit of electronic returns.

If this data holds up in our study, this means that as electronic returns increase

we will have substantial opportunity for savings in our variable (labor) costs. However, this data is preliminary. We do not yet know whether any additional fixed cost

investments will be necessary to support increased electronic filing. It seems clear

though that the cost differences in variable costs favor increased electronic filing,

and will result in labor savings.

Question. Can the IRS make any additional incremental changes or investments

that would increase the electronic filing such as leveraging the existing Third Party

filing program?

Answer. Yes. The IRS has a number of initiatives underway for leveraging the

existing Third Party filing program. To begin with, the IRS recognizes that it needs

to do a better job of informing and educating taxpayers and practitioners about the

benefits of electronic filing and plans to build on its 1998 Filing Season Public Service Campaign which was developed in conjunction with its advertising agency,

Emmerling Post. This year’s campaign, which introduced a new name and logo, IRS

e-file, promoted the use of electronic filing options with primary emphasis on practitioner electronic filing. This year’s campaign also included an evaluation component

consisting of third party preparer surveys, an attitude and awareness survey among

taxpayers, and an analysis of paid media tests. In addition, a quantitative market

research survey was conducted by Russell Marketing Research, Inc. from March 13,

1998 through March 27, 1998. The final report which is due in May will provide

demographic and psychographic data that will assist IRS in targeting taxpayers

within markets more efficiently. Furthermore, the IRS recognizes that tax practitioners authorized to electronically file tax returns to the IRS (Electronic Return

Originators) must be recognized, managed and motivated as ETA product and serv-
264

ice distributors. Much as the private sector employs store front operations (whether

independent, franchise or corporate owned), the IRS depends upon tax practitioners

to promote electronic filing and payment to taxpayers. In support of this vital channel, the IRS will seek to support ERO’s with national advertising, promotional kits,

education and training, secure communications, management information systems

and various product and service incentives available depending upon an ERO’s success in marketing Electronic Tax Administration products and services.

Question. $2.5 million is requested to expand electronic filing including electronic

taxpayer ‘‘authentication’’ that eliminates the need for them to issue a separate

written document. Where are you in terms of providing electronic authentication?

Answer. Electronic Tax Administration prepared a Draft IRS Electronic Authentication Principles and Strategy document in late January, 1998. The document will

be used as a starting point to develop and publish an authentication policy. The policy will be subject to public review and the Internal Revenue Manual procedure before becoming an official IRS policy.

The intent of the policy will be to establish a frame work for the selection, implementation, and use of alternative methods of signature. A strategy and tactical plan

will be developed to support the electronic authentication policy.

For 1999, the IRS will work toward an authentication pilot(s) as a means of increasing electronically filed returns. The pilot will use an alternative method of signature to replace the paper Form 8453. In addition, a waiver will be requested to

eliminate the need for submission of paper W–2, W–2G, and 1099R attachments by

pilot participants.

Our preference is to accept private sector proposals through ETA’s Request for

Proposal (RFP), which will require minimal IRS involvement for the 1999 authentication pilots. However, as a parallel activity, we are developing a Request for Information Services for an IRS-built pilot to be used in the event that no acceptable

proposals are received through the RFP.

In addition, the Office of Chief Counsel is analyzing the paper attachments which

are currently required by statute and regulations. Chief Counsel’s analysis will identify those attachments which may be received electronically rather than as a paper

attachment. Based on the analysis, Electronic Tax Administration will determine,

from a business perspective, how IRS e-file will be expanded to include attachments

identified by Chief Counsel. For example, this expansion could be done through additional programming or through a request to waive the requirement to send the

attachment.

Question. Does the IRS have the systems in place to continue electronic communication with the taxpayer. How would you ensure the system provides sufficient

privacy?

Answer. The IRS has been answering general tax law questions submitted over

the Internet since 1996. These questions submitted over the Internet are held by

a Fedworld server until downloaded into an E-mail processing system for review

and response. Currently, the questions must be downloaded one at a time. Within

the processing system, the answer is entered into a response box and sent (with the

original question) back to Fedworld to be sent to the E-mail address provided by

the customer. The IRS employee must have Internet access and a login and password to have access to the questions.

Beginning in March, 1998, questions will be automatically downloaded (every 15

minutes) to a server that is within the ‘‘Treasury firewall’’. When the questions are

answered, the server will reformulate the response into an E-mail to be sent to the

customer.

The IRS is not currently accepting specific tax account questions through the

Internet. Customers are told on the site that we will not answer such questions and

they should not provide personal identifying information.

Question. IRS’ date for preparing an electronic commerce strategy has slipped several times. When can we expect to see a final product and what factors contributed

to delays?

Answer. As would be required by the pending IRS reform legislation, the IRS is

developing a Strategic Plan for Electronic Tax Administration. This effort is headed

by Bob Barr, the new Assistant Commissioner for Electronic Tax Administration,

who joined the IRS last fall and who has made the development of the strategic plan

one of his top priorities. A draft version of the strategic plan is expected to be made

available for public comment later this spring.

Ownership and accountability are two key factors which affected completing the

strategy. In the past, the Administration, Congress and other external stakeholders

have been frustrated by the lack of a focal point for Electronic Tax Administration

activities within the IRS. Last year, the IRS took an important step toward clarifying the responsibilities for Electronic Tax Administration by establishing a new or-
265

ganization headed by an Assistant Commissioner devoted exclusively to the management of existing and planned programs.

EARNED INCOME TAX CREDIT

Question. Given that there are already high error rates in filing the EITC—half

of which are honest mistakes—have you considered a new communications effort to

ensure that these individuals are made aware of their eligibility for the EITC and

that they file correctly for it?

Answer. The IRS has taken a number of proactive efforts to inform and educate

taxpayers about the Earned Income Credit. These efforts include:

—Sending notices to over 6 million EITC recipients informing them of the advance EIC payment option;

—Sending an informational letter to each of the top 100 employers most likely to

employ taxpayers who would be eligible for the credit; Sending notices to the

approximately 2.5 million taxpayers who did not claim the credit but appear eligible for the credit;

—Providing toll-free assistance for EITC questions 24 hours per day, seven days

a week;

—Expanding outreach efforts to service EITC eligible low income and elderly taxpayers by providing tax information and return preparation during the last

three Saturdays of the filing season beginning March 28, 1998;

—Designating March 28, 1998 as EITC Awareness Day, where walk-in sites provided taxpayers with up-to-date information regarding the new tax laws and the

penalties associated with intentional noncompliance, and assisted EITC eligible

taxpayers with return preparation; and

—Providing informational products such as stuffers, posters, employee and employer brochures to local offices to use in partnering efforts with groups and

agencies.

Question. GAO’s review of the IRS audit techniques has determined that the IRS

is focusing its resources on audits of taxpayers claiming the EITC? Why?

Answer. District Examination is focusing a very small part of its resources on

EITC returns. As of February 20, 1998, there were 1,506,173 returns in inventory.

Of these returns, 38,207 were identified as having EITC as an audit issue. This represents less than three percent of returns. Resources are focused on EITC because

of the high degree of concern over error rates in EITC filing.

Question. What is the IRS’ return on investment in these cases?

Answer. The IRS has not conducted a study on return on investment for EITC

cases. Resources are devoted to EITC because it is a recognized area of noncompliance.

Question. Has the IRS conducted a study to determine that these types of cases

provide the greatest return on investment?

Answer. No. However, return on investment is not the sole criterion used to select

returns. A system based solely on return on investment would omit issues such as

the indirect impact of examining returns and insuring that all classes of returns are

subject to examination.

INFORMATION SYSTEMS

Question. Does the language on Page 9 of your statement: ‘‘Additional sub-releases

of the blueprint will be very carefully planned and coordinated with modernization

of the business processes and organization before they are allowed to proceed’’ indicate that there may be a change in the modernization plan for totally integrated

and secured data bases and infrastructure as detailed in the modernization blueprint?

Answer. No. As defined in the Commissioner’s Statement before the Senate Finance Committee on January 28, 1998, the Organizational Modernization is based

on five key elements, as follows:

—revamped IRS business practices that will focus on understanding, solving and

preventing taxpayer problems;

—organizational structure built around taxpayer needs;

—management roles with clear responsibility;

—balanced measures of performance; and

—new technology.

The new CIO organization and the recently issued Modernization Blueprint and

the Request for Proposals for a Prime Systems Integration Services Contractor, provide an outstanding and professional basis for managing the evolution of our technology. The revamped business practices and Organizational Modernization will provide a sound basis for completing and implementing the modernized systems envi-
266

sioned in the Modernization Blueprint including the mainframe centric solution and

centralized databases, and will be tied to the development of lower level requirements for design and development through the PRIME contractor.

Question. It is my understanding that in the past field offices have purchased systems and equipment without worrying about its integration with the existing IRS

systems. How can IRS ensure complete continuity and commitment to the modernization efforts and to the Integration Support contractor?

Answer. Several active steps have been taken to ensure that newly purchased systems and equipment are approved only if they are consistent and compliant with

existing systems, the Modernization Blueprint architecture and sequencing plan.

With the issuance of the Modernization Blueprint in May, 1997, a Standards Profile

was issued. All purchases must be technically consistent with the Standards Profile.

To ensure consistency across the board, effective October, 1997, the Office of Procurement no longer accepts paper requisitions. Requisitions are only accepted electronically using a Request Tracking System. Within this system, the appropriate approvals are required from the Chief Information Officer organization. Requisitions

for more than $100,000 require the approval of the Director, Government Program

Management Office, who is responsible to ensure consistency with the Modernization plan and compliance with the technical standards. In addition, a Project Office

has been established to centralize procurement of key infrastructure components

and ensure workstation and system standardization in the field.

The Request for Proposal for a PRIME Systems Integration Services Contractor,

issued March 26, 1998, demonstrates our strong commitment to the modernization

effort and to the existing Integration Support Contractor. The IRS and the PRIME

must ensure the continuity and commitment of the Integration Support Contractor

to provide for the near-term completion of process improvement projects and the

longer term engineering and architecture service. As part of the proposals, the

PRIME Offerors must ensure continual involvement of our existing Integration Support Contractor.

Question. As it relates to Y2K efforts, where is the IRS in terms of its inventory

of the computer code comprising IRS’ Core Business Systems?

Answer. IRS’ inventory has been completed and is maintained on the IRS Integrated Network & Operations Management System (INOMS). IRS inventory includes all applications developed either by IRS employees or contractors, all commercial-off-the-shelf (COTS) products, telecommunications systems and Tiers 1, 2 &

3 hardware. IRS created an application inventory for Y2K. We are working to ensure we can keep it accurate and current. IRS has had an inventory of hardware

and commercial software but to be useful to Y2K we have had to upgrade it to make

it more of a management tool. The upgrade has included a four-month effort to insure every product has an industry standard name and appropriate management

control assigned. IRS has had telecommunication products in several separate inventories, some controlled by IRS, some by vendors, and some by Treasury. We are

acting to consolidate these inventories.

Question. When do you expect to complete the Code Remediation Phase and be

ready to enter into the test and evaluation phase and who will actually conduct this

phase?

Answer. The test and evaluation phase has begun for the majority of IRS applications. Year 2000 conversion is being done in five phases between January 1997 and

January 1999. Each phase involves code remediation and testing prior to production. Code remediation and testing are complete for all programs that were implemented through January 1998 (Phase 3). All code remediation is scheduled to be

completed prior to January 1999.

IRS tracks data by component (e.g., application program, job control language),

system (consisting of one to many components), and lines of code. As of February

27, 1998, a total of 66.5 percent of IRS mission critical applications were Y2K compliant and tested. Certification of these applications will be completed no later than

October 1999. A total of 46.8 percent of our systems have had all of their applications software converted to be Y2K compliant and are in production.

Inventory tracking category Total To be

retired

Mission critical

Converted Tested Implemented

Number Percent Number Percent Number Percent

Components (application program

and COTS software) ....................... 84,857 11,689 56,789 78.64 48,016 66.49 41,474 57.43

System ................................................. 127 1 75 59.52 60 47.61 59 46.82
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Inventory tracking category Total To be

retired

Mission critical

Converted Tested Implemented

Number Percent Number Percent Number Percent

Lines of code (million) ........................ 49.8 13.1 23 66.09 17.8 51.12 16.6 47.78

Unit and compatibility testing are done by the programmer in the development

organization. After unit and compatibility testing, the application is sent for Systems Acceptability Testing (SAT), which is primarily conducted by the Product Assurance Division, with the assistance of contractors, for Information Systems applications. Field and Customer applications will be SAT tested locally using guidelines

developed by the Product Assurance Division. Certification is being done by the

Product Assurance Division or by the field organizations using guidelines prepared

by the Product Assurance Division and will be completed by October 1999.

CUSTOMER SERVICE

Question. I have been in touch with the IRS in the past about the need to improve

customer service and I am pleased that the IRS has increased the number of days

and hours during which taxpayers can call for information, but we are not there yet.

Beyond all the training, what additional steps are you taking to improve customer

service?

Answer. In fiscal year 1999, on the toll-free telephone lines, the IRS plans to further expand its service to provide telephone assistance seven days a week, 24 hours

a day. Also, in fiscal year 1999, IRS plans to provide its customers with an 86 percent Level of Access and decreased queue times. The level of telephone access

through the month of February, 1998 was 90 percent. This compares with a 68 percent level of access at the same time during 1997, and shows a marked improvement in customer service at the IRS. In the walk-in program, IRS will expand Saturday service from six Saturdays in 1998 to 12 Saturdays in 1999.

Question. Are you aware that many callers’ efforts to get answers to questions are

being routed to a voice mail system that only offers to call them back within 2 to

3 days. What alternatives are you considering to this situation?

Answer. In order to optimize customer service when demand far exceeds the existing staffs’ and telephone systems’ capability to handle the volume, we are asking

the taxpayer to leave a message on specific tax topics for callback. We are then utilizing Examination staff to respond to these messages. This process, commonly referred to as ‘‘Compliance Messaging’’ provides personal call back assistance while

drawing upon the Service’s highly skilled technical employees who are often not colocated with telephone operations/systems. Because our efforts to increase the taxpayer access to our assistors have had very good results in 1998, and because we

expect greater improvement in 1999, we are reviewing the policy of Compliance

Messaging and will probably not need to use this callback method to respond to taxpayer inquiries next year.

Question. Many individuals who have been assessed tax penalties often ask if they

can be abated once payment of the tax has been arranged for. There are numerous

categories of ‘‘reasonable cause’’ on which a decision to abate penalties can be based,

but they do seem to lend themselves to varying interpretations by different staff in

different offices. What can be done to ensure that everyone has an equal chance to

have a penalty abated and determinations are more consistent?

Answer. Internal Revenue Manual (21)000, Customer Service, was published and

distributed to the field on October 31, 1997. The purpose of this IRM and IRM

(20)000, Penalties, is to provide instructions and guidelines for Customer Service

Representatives in responding to all taxpayer inquiries (including requests for penalty abatement for reasonable cause). In combining the work processes of various

functions to achieve a greater degree of initial contact resolution, this IRM is a tool

that will allow the assistor to provide more responsive customer service in a consistent and fair manner.

QUESTIONS SUBMITTED BY SENATOR COVERDELL

Question. In the GAO report entitled ‘‘IRS’ Use of Random Selection in Choosing

Tax Returns for Audit’’ and in recent press reports, the IRS claims it is engaging

in random audits pursuant to congressional instruction. Please explain in specific

detail how the IRS supports the notion that the Congress of the United States mandated the IRS engage in random audits.
268

Answer. The IRS does not support the statement that Congress mandated random

audits. Because Congress specifically asked the IRS to study the compliance level

of EITC filers, a scientific statistical sample of that filing population was examined.

This statistical sample limited the inconvenience to the taxpaying public by limiting

those affected to the 2,472 returns examined. The report does state that, ‘‘Traditionally, the only IRS program using widespread random selection has been the Taxpayer Compliance Measurement Program (TCMP).’’

Question. Please comment on the appropriateness of the IRS using random audits

when more than ninety percent of random audits of individuals from 1994 to 1996

are employed against low income taxpayers earning less than $25,000 as reported

in the GAO report entitled ‘‘IRS’ Use of Random Selection in Choosing Tax Returns

for Audit.’’

Answer. The population of EITC filers is approximately 20 million taxpayers. The

IRS conducted a compliance study of that filing population. A scientific statistical

sample needed to be employed to efficiently perform that study. Using this technique, 2,472 returns were examined which represented a very small percentage (approximately 0.01 percent) of that filing population. Those who claim EITC are typically low income and earn less than $25,000; therefore, we were sampling lower income taxpayers.

Question. Please comment on the appropriateness of the IRS confining random audits within individual states when conducting an information gathering project or

compliance initiative, for example focusing on small business in Georgia that simultaneously file Schedule C losses and qualify for EIC benefits.

Answer. As previously stated by GAO in ‘‘IRS’ Use of Random Selection in Choosing Tax Returns for Audit,’’ ‘‘During fiscal years 1994 through 1996, IRS did not

randomly select returns for audit from either the population of all taxpayers or all

returns . . . IRS audit sources do not rely on random selection from the population

of all returns but rather IRS selects returns having characteristics indicative of potential noncompliance.’’

This information gathering project identified a population of returns having characteristics of potential noncompliance. Available resources would not permit the examination of all returns in this population to determine the level of noncompliance

within this population. Therefore, a sample of this population was examined by the

Georgia District which initiated the project.

The Information Gathering Project is a tool that is used to identify and measure

the level of noncompliance. It usually involves a relatively small sample of returns

in a limited geographical area. Based on the results of the sample, the enforcement

action may be expanded to other taxpayers with similar return characteristics within or outside the sample geographical area, action other than enforcement may be

taken (taxpayer education or seeking legislative change), or no further action may

be deemed necessary.

To summarize, if an information gathering project uncovers a significant area of

noncompliance, the enforcement or non-enforcement action taken will not be confined to an individual state.

SUBCOMMITTEE RECESS

Senator CAMPBELL. With that, I appreciate you being here and

this subcommittee is recessed.

[Whereupon, at 2:48 p.m., Thursday, March 5, the subcommittee

was recessed, to reconvene at 10:17 a.m., Thursday, March 12.]
(269)

TREASURY AND GENERAL GOVERNMENT

APPROPRIATIONS FOR FISCAL YEAR 1999

THURSDAY, MARCH 12, 1998

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

The subcommittee met at 9:35 a.m., in room SD–192, Dirksen

Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)

presiding.

Present: Senators Campbell, Faircloth, and Kohl.

DEPARTMENT OF THE TREASURY

OFFICE OF THE SECRETARY

STATEMENT OF HON. ROBERT E. RUBIN, SECRETARY

ACCOMPANIED BY NANCY KILLEFER, ASSISTANT SECRETARY FOR

MANAGEMENT

OPENING REMARKS

Senator CAMPBELL. The Treasury Subcommittee will be in session. Good morning. Today, we will be reviewing the fiscal year

1999 budget request for the Department of the Treasury. With us

this morning is Secretary of the Treasury, Robert Rubin, and he

will be accompanied by his assistant secretary for management,

Nancy Killefer.

The Treasury Department is our Nation’s tax administrator, revenue collector, law enforcer, and financial manager. For example,

the IRS collected $1.5 trillion in taxes last year, the Customs Service collected almost $20 billion, and the ATF collected almost $13

billion last year alone. The Department’s law enforcers include the

Secret Service, the IRS enforcement arm, ATF, Customs, and

FinCEN. It also includes FLETC, which provides consistent training for law enforcement, not only for Federal agencies but for

States and locals as well.

However, there is much more to the Department of the Treasury

than just the law enforcement and collecting of taxes and fees. For

example, there is someone actually responsible for keeping track of

how much money the Government spends and receives every single

day. The savings bond program is part of the Bureau of the Public

Debt, which encourages the country to invest and save.

The Comptroller of the Currency protects American citizens by

making sure that our local banks comply with the law. The Bureau

of Engraving and Printing which prints our paper money and the
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U.S. Mint which makes our coins are part of the Treasury Department also. In addition, if there is a monetary crisis somewhere in

the world, such as in Mexico or Asia, it is the International Affairs

Office that develops recommendations for how this country should

respond.

In short, the Department of the Treasury is responsible for making, protecting, and tracking our Nation’s money.

Perhaps one of the biggest problems facing the Department right

now is the year 2000 century date change conversion. The Treasury

Department has identified almost $174 million in additional costs

in fiscal year 1998 to make sure that when January 1 in the year

2000 rolls around that the Department’s computers do not crash.

This is an addition to the funds provided during the regulatory fiscal year 1998 budget cycle.

I want to welcome you, Mr. Secretary. And with that, I would

ask Senator Kohl if he has an opening statement.

STATEMENT OF SENATOR KOHL

Senator KOHL. I thank you, Mr. Chairman. I have just a few

brief remarks.

As usual, Secretary Rubin, it is a pleasure to have you before us.

We appreciate you taking the time to meet with us here today, especially since we know that you are busy with the International

Monetary Fund and the Asian governments.

As you know, the Treasury agencies involved in the Asian crisis

are not within the jurisdiction of this subcommittee. However, I

hope that we will have an opportunity to discuss some of these

issues during the course of the hearing, even if it is just to get you

to tell us whether or not this is the time to invest in an Asian

emerging market stock fund. [Laughter.]

In terms of appropriations, let me say that I have enjoyed working with you on a number of Treasury issues this past year. I especially appreciate all the help that you gave us in getting my child

care tax credit included in the President’s budget and I hope that

we can get it done this year.

I look forward to working with you on this year’s appropriation

for the Department of the Treasury. I know that you have a number of priorities that you want to see funded in fiscal year 1999.

I am not sure whether we will be able to accommodate all of them,

but I very much hope that we will be able to fund those departments and those programs that will help you carry out your vision

of the Department of the Treasury.

Thank you, Mr. Chairman.

Senator CAMPBELL. Senator Faircloth, do you have any comments before we start?

STATEMENT OF SENATOR FAIRCLOTH

Senator FAIRCLOTH. Thank you, Mr. Chairman. Thank you for

holding this hearing. I welcome our two witnesses this morning.

Thank you, Secretary Rubin and Ms. Killefer.

The President is requesting $12.3 billion in fiscal 1999 for the

Treasury Department, which is an increase of a little over 7 percent. The funding, as we all know, supports a wide range of things
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including banking policy, law enforcement, domestic economic policy, tax policy, and tax administration.

Mr. Chairman, as you well know, I have a particular concern

over one of the agencies involved, and that is the Internal Revenue

Service. I was pleased to have a very good meeting with Mr.

Rossotti, the new Commissioner of Revenue last week, and he readily said that much had to be done to reform the IRS. It was a very

good meeting. I would also note that Secretary Rubin has said that

many things needed to be done to change the IRS.

IRS OVERSIGHT BOARD

I have introduced legislation that I think will do the job. It is an

oversight board composed entirely of private citizens with authority

to oversee the Internal Revenue Service and to delve into—pretty

much a free hand to delve into whatever is going on in the Internal

Revenue Service. I think it has become such an in-house unit and

that the commissioners have only been there for a very short time.

I mean, I cannot quote them specifically, but the history of people that have served as head of the Internal Revenue Service, their

tenure has been very, very short. So it has become an entrenched

group of people who simply have run it as they saw fit without any

real oversight from the rest of the Government really.

The $4 billion they wasted on a failed computer system is just

the ultimate in how not to run a business. So in my view, the board

needs to be totally separate from the influence of anyone; a total

civilian board. And this legislation also gives the board explicit authority to delve into such areas as audits, collection, and procurement, which have been the subject of much of the abuse.

Mr. Chairman, I thank you for holding the hearing and I look

forward to working with you and, Mr. Secretary, also with you. I

thank you.

Senator CAMPBELL. Thank you.

Mr. Secretary, if you would like to proceed?

STATEMENT OF SECRETARY RUBIN

Secretary RUBIN. Thank you very much, Mr. Chairman. Let me

say that we are delighted to be here. Nancy Killefer is our Assistant Secretary for Management and Chief Financial Officer.

As you said, we are requesting an appropriation of $12.3 billion,

which is an increase of 7.2 percent. But we have gone over this

very carefully. It has been developed in a manner consistent with

the administration’s focus on fiscal discipline and getting to a surplus. Basically, the increase is necessary to maintain current operations by supporting mandatory cost increases as well as increased

workload. We also feel it is extremely important to invest in critical

capital improvements and important program enhancements.

As you said, Mr. Chairman, Treasury plays a key role in an extraordinarily wide range of the core functions of Government, from

tax collection, law enforcement, financial management, tax policy,

banking policy, and very importantly, international economic policy, and domestic economic policy. We have focused very hard, with

such a broad portfolio, on both the question of customer service and

greater efficiency—that is to say, reducing the cost of what we do.
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Our budget was designed in a manner consistent with and pursuant to a Treasury strategic plan. We have performance plans for

each of our missions. We have taken the GPRA, this planning requirement that had come from Congress, with great seriousness,

and we have tried to conduct, and I believe have conducted it in

a way that makes it not just a bureaucratic exercise but a living

part of our thinking about Treasury today and in the years ahead.

We have provided the committee with a detailed presentation of

our 1999 request. I would like to, if I may, just focus on, or highlight I should say, four areas: departmental offices, the IRS, law

enforcement, and then the area you mentioned, Mr. Chairman, the

year 2000 issue.

Let me start with departmental offices, if I may, because it is

something that I think is very often overlooked in the budget discussion and yet is exceedingly important to the contribution the

Treasury makes to the affairs of our country. Departmental offices

contain policy groups that have experienced enormously increased

challenges this year. Tax policy through regulation implementing

the tax changes that were made last year in 1997—that is, the tax

cuts, loophole closures, and simplifications. They have an enormously expanded workload as a consequence.

International economic policy area is providing leadership not

just for this country, but I think it would be fair to say in some

fair measure for the world in dealing both with the immediate crisis in Asia, and I would say equally importantly with the question

of modernizing the architecture of the global financial system.

Economic policy, which is deeply involved in international areas

as well, is very much focused on entitlement issues that the President raised, particularly Social Security, in the State of the Union

Address.

And law enforcement, which has both expanded policy objectives

and also expanded oversight objectives.

We also have in departmental offices our centralized management functions for the whole of Treasury, and we have had a very

strongly enhanced focus on management at Treasury over the last

few years. The consequence is an expanded workload focusing particularly on human resources and technology; this focus will not

only maintain the excellence of Treasury now but create the Treasury of the future.

In addition, our budget request has a 5-year restoration repair

program for our historic building. The total cost is expected to be

$130 million over 5 years. As you know from having visited our

building, it is really a marvelous building. It is a historic gem. At

the same time, it is one of those rare historic gems that is a good

working building. But it is in desperate need of repair.

Second, let me turn to the Internal Revenue Service which Senator Faircloth raised. I would say it was not longer than a month

or two after I became Secretary of the Treasury that I became

aware of—say 2, 3 months—of the serious problems at the IRS—

in some measure, I might say, as a result of the work of this committee and your companion committee on the House side.
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IRS REFORM

Over the last 21⁄2 years, Senator, we have been involved in a

highly intensified focus on reform and change at the IRS. This has

led to dramatic change in certain areas. Technology is on a different path, and I think now on a constructive path, though there

is an enormous amount of work to do going forward. There has

been increased electronic filing. There has been increased telephone access, and we have very substantially strengthened the taxpayer advocate.

Perhaps as importantly as anything, we have brought in a new

type of Commissioner, as you know. A man who instead of being

a tax person, had been a CEO of a large private sector company

and happens to also have very substantial computer expertise. You

all have met with Charles Rossotti, who I must say, is off to an extremely good start.

We have lost our Chief Information Officer, as you know, who

made a tremendous contribution and we are very energetically involved in a search for a new CIO. Meanwhile, Charles Rossotti,

who has great expertise in this area, is himself spending a lot of

time on this.

While a great deal, I believe, has been accomplished, there is also

an enormous amount, far more to do I would say going forward

than we have done in the past, although I do think this 21⁄2 years

has been a period of really very substantial change and very important change. These problems took a long time to develop and they

are going to take a long time to resolve.

Our budget request includes a whole series of measures that we

think will help move forward the reform of the IRS. Let me just

mention a few, if I may. First, we asked for additional resources

for customer service, including increasing and improving the quality of telephone access, the rewriting of notices and forms, expanding the taxpayer advocate staff, and implementing citizen advocacy

panels.

Second, our request would position the IRS to move forward with

implementing the modernization blueprint. I do not think there is

any question that modernizing technology is absolutely requisite to

accomplishing improvements in customer service, efficiency, tax

compliance, and financial reporting.

On a broader front, as you all know, Commissioner Rossotti has

a broad organizational concept for changing the structure of the

IRS, and we requested funding to move forward with that. And I

might add, it is a very constructive plan.

Finally, our request includes important restoration funding for

essential business line investments. What has basically happened

is over the last couple of years we have deferred and reallocated

what would have been our business line investment into the critical

Y2K project. But the result is that our frontline people are using

a tremendous amount of outmoded computer equipment. We believe that any good business that had diverted funds to these

issues, they would provide money to replace that equipment. I will

return to Y2K in just a moment.
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LAW ENFORCEMENT

On the law enforcement side we have, as Mr. Chairman said, extensive and critical law enforcement responsibilities. We request an

increase of 5.7 percent, or $172 million, to a total of $3.2 billion for

law enforcement. That requested increase goes to meet mandatory

cost increases and also to fund increased activities in dealing with

narcotics trafficking, illegal firearms—including the youth crime

gun interdiction initiative, a special program we have with respect

to reducing trafficking of illegal firearms to young people—and

then Presidential protection and improving White House security.

There will also be increases with respect to fighting financial

crime, particularly counterfeiting and money laundering, and for

training law enforcement officers, which as you know, we do for

most of the agencies in the Federal Government.

Let me say, if I may, on law enforcement that we have enormous

pride in both the quality and the esprit of our bureaus. I spend

time on this on a regular basis, on an ongoing basis. We have been

extremely supportive of our law enforcement bureaus at Treasury.

For example, we have supported Secret Service’s decision to enhance White House security, protected the ATF against strident attacks, and assisted all the bureaus in the securing of appropriate

funding. At the present time, we are moving forward with initiatives on new threats with respect to counterfeiting.

YEAR 2000

Finally, let me say a word or two about the issue you raised, Mr.

Chairman, and one that I do believe—I agree with you—is of pressing importance to our Nation, which is the question of Y2K. As you

know, many computer systems only have two digits, the two zeroes,

because that was the way of shortcutting with respect to programming, which was fine and dandy except we are now getting to the

year 2000 and the two zeroes will come up as 1900, which is not

optimal. The consequence is many computers will not be able to

perform their functions.

We are an agency with massive computer activities; the second

most, I believe, in the Federal Government after the Department

of Defense. Year 2000 compliance is an exceedingly high priority

with us. I meet biweekly with our Assistant Secretary, and also

with our highly respected Treasury CIO to track progress to try to

identify problems.

Our fiscal year 1999 budget includes $253 million to address the

Y2K problem. We have also submitted a supplemental request for

close to—I think the supplemental request is actually $250 million,

and we have identified close to $200 million, I think in the neighborhood of $175 million actually, that we currently see as needing

for 1998, this year. We look forward to working with you very

closely on the Y2K funding, and as I say it is absolutely critical

that this get done, and tested, and implemented in time.

In both the public sector and the private sector, the cost estimates and timelines on Y2K compliance have exceeded expectations. In order to make sure, or do everything we possibly can to

make sure that we meet the challenges on time, what we are focusing on is our critical missions. It is an enormous challenge but we
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have made great progress. I think it would be fair to say that we

are on schedule for almost everything. Not everything, but almost

everything, with respect to our mission critical systems.

Let me conclude on one personal note if I may, Mr. Chairman.

When I became Secretary I went to dinner with a friend of mine

who had been in two administrations at Treasury. What he said

was that any Secretary will be faced with an enormous array of

issues, including a multitude of policy issues and you have to decide what your priorities are. He said having served in the Treasury Department in two administrations that in his judgment your

No. 1 priority should be continuing the excellence of a truly extraordinary institution.

I think he was absolutely right. We have a terrific group of people at Treasury and we are trying to do everything that we can to

make sure this continues to be an outstanding institution to serve

the American people. We very much look forward to working with

this committee, as we have had a very good working relationship

with in the past, toward meeting this objective.

Thank you very much. Ms. Killefer and I would be delighted to

respond to anything you would like to ask us.

PREPARED STATEMENT

Senator CAMPBELL. Thank you very much, Mr. Secretary. We

have your complete statement and it will be made part of the

record.

[The statement follows:]

PREPARED STATEMENT OF ROBERT E. RUBIN

Mr. Chairman, members of the Committee, I appreciate the opportunity to testify

on the Treasury Department’s fiscal year 1999 budget request. With me today is

Nancy Killefer, our Assistant Secretary for Management and Chief Financial Officer.

Treasury is requesting $12.3 billion in fiscal year 1999, an increase of 7.2 percent

over fiscal year 1998. This increase is necessary to maintain current operations by

supporting mandatory cost increases and meeting anticipated workload requirements in fiscal year 1999; to invest in critical capital improvements for future efficiencies and program improvements and for addressing future workload growth; and

to accomplish important program enhancements.

Our request is critical to supporting Treasury’s important and wide-ranging mission. The Treasury plays a key role in the core functions of government, including

tax administration, revenue collection, law enforcement, financial management, tax

policy, banking policy, international economic policy and domestic economic policy.

As just a few examples, we fight narcotics trafficking and money laundering through

Customs and other agencies, and manage the federal government’s debt structure

at the Bureau of Public Debt. We manufacture and protect the nation’s currency,

process the federal paychecks for millions of Americans, and help develop policies

related to the budget, the nation’s tax structure, international economic matters,

and inner city economic development.

With such a broad portfolio, we take very seriously the notion that we must continually seek new ways to improve services and lower costs. Towards meeting these

purposes, our budget request supports Treasury’s Strategic Plan and provides a performance plan for each of Treasury’s primary missions and we, and I as Secretary,

have worked to make GPRA not a required exercise, but rather a live, integral part

of our thinking to improve how we fulfill our many missions. More broadly, we believe that we must not do anything that threatens the fiscal discipline so many have

worked so hard to restore in this country, and which has been critical to the strong

economic conditions of the past five years.

We’ve already provided the Committee detailed presentation material on the extent of our fiscal year 1999 request. Let me now highlight four areas—Departmental

offices, the IRS, law enforcement, and the year 2000 problem.
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First, let me discuss Departmental Offices. Departmental Offices contain the policy groups that are meeting greatly increased challenges in the current environment: tax policy, which is developing the regulations to implement the tax cuts,

loophole closers and simplifications of last year’s budget; international economic policy, which is providing leadership for the United States and the world in response

to the short and long-term issues of financial instability in the global economy; economic policy, which is deeply involved in international economic issues, entitlement

reform, and the economic initiatives in the President’s budget; and law enforcement,

which has expanded policy and oversight objectives. Departmental Offices also contain the central management functions for all of Treasury, and in furtherance of our

very serious focus on management, human resources, and technology, these functions are being enhanced.

In addition, our budget request includes funding for a five year restoration and

repair program of the historic Treasury Department building. Part of this funding—

which totals $130 million over five years—is needed for our ongoing restoration of

areas damaged by the fire in 1994, and part is needed for general restoration. The

Treasury building is one of the gems of our government, as well as being a workplace. It is important to maintain this historically significant and beautiful building

for future generations.

Second, let me turn to the Internal Revenue Service.

Shortly after I first became Secretary, I became aware of serious problems at the

IRS. In many cases, those problems came to my attention as a result of the work

and diligence of this Committee. Over the last two and a half years we have been

engaged in a highly intensified process of change and reform at the IRS that has

led to dramatic change with respect to technology—though that is just the beginning

of getting to where we need to go—increased electronic filing, improved telephone

service and a greatly strengthened Taxpayer Advocate. Perhaps most importantly,

and symbolizing our commitment to thoroughgoing change, we brought on board a

new type of Commissioner, Charles Rossotti, who had extensive experience as a

CEO in the private sector, with expertise in computer systems. And, let me just add,

we are looking very hard to find a new CIO to replace Art Gross, who has done such

an outstanding job in that position.

However, while important steps have been taken, the great bulk of the challenges

lie ahead. Just as these problems took a long time to develop, it is going to take

a great deal of time and effort by all of us to build the kind of IRS that the taxpayers deserve. We are committed to working with you to accomplish that goal. Our

budget request includes a series of items to advance this effort.

First, our request includes additional resources to improve customer service, including increasing and improving the quality of telephone access, rewriting of notices and forms, expanding the Taxpayer Advocate staff, and implementing Citizen

Advocacy Panels.

Second, our request positions the IRS to move forward with implementing the

Modernization Blueprint, which is absolutely a requisite to improvements in customer service, efficiency, tax compliance and financial reporting. On a broader front,

the budget provides seed funding as the Service moves more fully to implement its

new organizational concept.

Finally, our request includes important restoration of funding for essential business-line investments. This funding has been deferred and reallocated over the past

two years to address immediate Year 2000 requirements, about which I will say a

few words in a moment. However, significant needs still exist for these investments

in order to replace critical items such as aging computer equipment for front-line

examination personnel. This investment is essential to our goal of providing efficient

compliance operations and effective service to taxpayers.

Let me turn now to our budget request for Treasury’s law enforcement activities.

As this committee well knows, Treasury has extensive and critical law enforcement responsibilities executed by Customs, the Secret Service, Alcohol, Tobacco and

Firearms, the IRS, FinCEN, and the Federal Law Enforcement Training Center. To

strengthen these critical efforts, the President’s fiscal year 1999 budget for Treasury

law enforcement bureaus totals $3.204 billion, an increase of $172 million or 5.7

percent above last year. We need this increase to meet certain mandatory cost increases, and to enhance our activities in combating narcotics trafficking, reducing

illegal firearms trafficking to young people, improving Presidential protection and

White House security, investigating financial crimes, and training law enforcement

officers.

Mr. Chairman, we at Treasury have enormous pride in the quality and esprit of

our law enforcement bureaus, and of the men and women who serve in them, often

putting their lives on the line. I spend time on an on-going basis on law enforcement

issues, and we at Treasury are committed to fully supporting the efforts by the law
277

enforcement bureaus to do their jobs, as in the Secret Service decision to enhance

White House security, ATF’s reforms and its defense against strident attacks, and

the securing of appropriate funding.

Finally, Mr. Chairman, let me say a word about an issue of pressing importance

to our nation and one on which we are keenly focused at Treasury: the Year 2000

date change problem. As you know, many computer systems rely on two digit dates

as a result of a short cut computer programmers widely used until recently. The

year 2000 would be entered as ‘‘00’’ but interpreted as ‘‘1900.’’ As a result, these

computers will not be able to execute many required functions properly as of January 1, 2000. As an agency with massive computer system activities second only to

the Defense Department in the Federal government, this issue is one of the highest

priorities to us. I meet bi-weekly with Assistant Secretary Nancy Killefer and our

highly respected Treasury CIO to track progress and focus on problems.

Our fiscal year 1999 budget includes $253 million to address this problem at

Treasury. Treasury’s date change needs are also part of the Administration’s fiscal

year 1998 Supplemental Budget Request. We have identified close to $200 million

in additional needs in the current year that must be funded if we are to complete

the fixes in time, but the supplemental proposed by the Administration includes additional flexibility of up to $250 million in order to fund these requirements. To

date, we have identified new requirements of approximately $175 million that need

to be addressed this fiscal year. We look forward to working together with the Committee in addressing these critical requirements.

In both the private and public sectors, cost estimates and time lines on Y2K compliance have exceeded expectations. So that we can meet this challenge in time,

Treasury is focussing on only those systems most critical to its mission. The challenge is enormous, but we have made significant progress thus far and continue to

be on schedule for almost all our mission critical systems.

Mr. Chairman, let me conclude on a personal note. Throughout my experience in

government, which includes two years at the National Economic Council, and three

years at Treasury, I have been continually impressed by the intelligence, professionalism and dedication of the people with whom I’ve had the opportunity to work.

A Secretary of any Department faces a lot of challenges, including a multitude

of policy issues, and has to make judgments about priorities. When I was first nominated to be Treasury Secretary I had dinner with a former Treasury official who

had served with two administrations and who advised me that my highest priority

should be to focus on maintaining and building on the excellence of this institution.

He was absolutely right. We have been intensely focused on management issues in

my tenure and it is in that spirit that I ask you to approve our budget request. Let

me also say that I have been continually impressed by the capability, the professionalism, and the commitment of the people at Treasury and the Bureaus, and they

deserve our support on their work to fulfill their wide range of responsibilities in

serving the American people. I also feel that in my time at Treasury this Committee

has made a major contribution to the management of Treasury through its constructive and knowledgeable analysis and review, and through its support for funding.

Thank you very much and I look forward to working with all of you in the future

as we face our challenges.

YEAR 2000

Senator CAMPBELL. Ms. Killefer, do you have any additional comments?

Ms. KILLEFER. No; I do not.

Senator CAMPBELL. Priorities, we have some around here too, as

you know, Mr. Secretary. You talked at length about the Y2K problem. We are going to do our best, but clearly we have some limited

resources too, as you know. I was going to ask you, between the

Y2K and funding for the IRS modernization do you see the Y2K as

a priority? I know they are somewhat hooked together.

Secretary RUBIN. That is a good question, Mr. Chairman. I think

the problem that we have had is the problem that you are correctly

raising. On the one hand, Y2K is imperative. We cannot come to

the year 2000 and not have the IRS and FMS and the other parts

of Treasury have computers that are ineffective. On the other
278

hand, it is for exactly that reason that for the last 2 years we have

not invested in upgrading equipment.

I think what we have got to do, and we did—what the administration did—was to weigh all of our priorities and everything else.

We did not request money for a lot of things we would love to do,

but anything that you see in our request was a result of triage. It

was a result of a lot of things dropping off the table.

So I think we must have the Y2K money. But I also think we

need to continue our modernization if we are going to have a modern IRS, and I think we have to replace this outmoded business

equipment.

Senator CAMPBELL. What is the total estimated cost for the Y2K

problem?

Secretary RUBIN. Overall? About $1.4 billion over 4 or 5 years.

And we have spent some of that already. We are expecting to spend

about $600 million this year, if I remember correctly, and about

$400 million next year.

Senator CAMPBELL. So is it your belief that we are on track to

be able to complete all the necessary changes by January 1, 2000?

Secretary RUBIN. Let me give you a first answer and let me ask

Nancy Killefer to follow up, if I may. I think it is fair to say,

though I think you really should get Nancy Killefer’s comment on

this, that we are on schedule with virtually everything. I think in

FMS, the part of FMS that has to do with accounting—not payments, not Social Security checks or things of that sort, but

intragovernmental accounting, I think that we are behind where

we would like to be. Nancy.

Ms. KILLEFER. That is correct. We do view ourselves on track for

all our major mission critical systems, with the exception of the

GOALS Program at FMS which deals with intragovernmental accounting. So it will not affect payments to the American citizen.

Our concern in FMS, which is slightly behind where we would like

them to be, is that we have prioritized the systems to deal first

with those systems that affect the American citizen, to ensure that

they get their Social Security payments on time, all of their payments. Those systems are actually well on track.

Senator CAMPBELL. It sounds like a really complicated system to

me, so I assume you do not just turn on the switch on January 1,

2000. Is there a testing process that you have to go through?

Ms. KILLEFER. Yes.

Senator CAMPBELL. And some way of measuring the mistakes,

the normal discord you have from mistakes?

Ms. KILLEFER. Absolutely. The systems are already being put in

production and tested as we speak. Our desire for 1998 money is

to ensure that we get all of the systems completed by the end of

this fiscal year and are in a testing mode in 1999, correcting any

problems before we go live in 2000. So we have test sites and contingency plans in place. You are exactly right, it is not an easy

process.

Senator CAMPBELL. It is not an easy one to understand for me

either. When you are testing—this is maybe off the subject a little

bit—while you are testing you have the backup systems still in

place that cross-check with the tests?
279

Ms. KILLEFER. We actually have separate test sites, so that we

are not testing on the production systems as they are working. We

are testing in the same environment with which they work, but it

does not affect our ongoing operations. One of the challenges will

be bringing it all live so that we check every interface.

IRS CHIEF INFORMATION OFFICER

Senator CAMPBELL. Thank you. I am glad you did mention Mr.

Rossotti. I met with him too, as Senator Kohl has, and Senator

Faircloth has too, and I am impressed, to say the least, with his

energy and his thoughtfulness and his determination to try and

correct an awful lot of problems that we hear about from our own

constituents. I just think he is a terrific addition to the IRS.

In light of Arthur Gross’ departure, I would think that the importance of not delaying the search for the prime contractor to fill his

shoes is very important. How is that going?

Secretary RUBIN. There are two separate issues there I think,

Mr. Chairman. One is getting his replacement, and we are very energetically involved in doing so. It is not an easy task but we are

extremely focused. I can tell you that Commissioner Rossotti is extremely focused on it because right now he is doing a lot of that.

He knows he wants to get the right person in there so he does not

have to do it as much as he is doing it. So I can assure you we

are focused on that.

On the question of a prime contractor which is a slightly different question, I think our RFP has gone out—no, it is in draft

form. Where do we stand on that?

Ms. KILLEFER. It has gone out for comment. We have already received comments back from the two primes that they are able to

respond, and we expect to have it out by the end of the month for

them to then submit bids. So we are on track with that.

Senator CAMPBELL. My own personal view is that to get really

top, qualified people in the IRS when they are taking such a beating nationwide is not an easy thing to do. I think a lot of people

that would normally consider serving in a Government office would

think twice about taking on that job.

Secretary RUBIN. You are right and yet I think there is—you are

absolutely right on the one hand. On the other hand, this is a sort

of two-sided coin. This is why Charles Rossotti came with us, because he saw something that had a lot of problems and he felt, and

I think rightly felt, that he had a leadership at Treasury that was

committed to change. And he said, here is an opportunity to really

do something. We need to find somebody now to be CIO who has

exactly the same feeling.

Senator CAMPBELL. If he makes the kind of changes and improvements that are necessary over there before he leaves we will

have to talk to them about printing up a special medal for him.

Secretary RUBIN. We can put him on the dollar bill or something.

[Laughter.]

IRS CUSTOMER SERVICE

Senator CAMPBELL. The IRS is requesting $103 million for improved customer service based upon national performance review
280

recommendations. Has the IRS begun implementation of any of

those recommendations?

Secretary RUBIN. Yes, and I think with effect. The problem solving days have turned out to be very successful. I went to the first

one, and it was very interesting. You see people there and they

come and they meet with people from the IRS. It is really an opportunity to get access to people and get problems solved.

Another thing that struck me about it, I think maybe that struck

me most about it was the IRS people wanted to be of service. They

felt good about being of service to the people who came. So I think

that has been very successful. They have started now opening their

offices, on March 6, for what 6 days a week now?

Ms. KILLEFER. Actually, many of those things have been implemented. I had the opportunity to cochair that task force and we

have implemented many of the changes. As you know, starting last

Saturday, we opened the IRS offices on Saturdays. There are over

150 locations to help people prepare their forms, in order to get out

in front of April 15. We have extended already the access to the

telephone system to 6 days a week, 16 hours a day, and we are

going to 24 hours a day beginning in 1999. We have started rewriting the notices. We have instituted problem solving days.

We have banned measurements that we thought led to potentially unfair treatment of taxpayers.

Senator FAIRCLOTH. I am sorry, you have banned what?

Ms. KILLEFER. We have banned measurements that we thought

were detrimental to our service to the taxpayers. We have and are

launching this month a customer service survey that will be used

as a measurement system to truly understand customer satisfaction.

So there are an enormous number of the recommendations that

are already being implemented. We do need additional funding to

continue to support all of the many measures that I think will

make a very meaningful difference to the American taxpayer.

Secretary RUBIN. Could I say one other thing, Mr. Chairman?

Senator CAMPBELL. Yes.

Secretary RUBIN. I think people are seeing the effect—we had

dinner about 3 or 4 weeks ago with a group of Senators on a totally

different subject; nothing to do with any of this. But we were sitting around having drinks before dinner—one drink each or something. But anyway, sitting around having drinks before dinner.

[Laughter.]

Senator CAMPBELL. That is on the tape.

Secretary RUBIN. It was interesting. A number of them said that

constituents had told them that there was a noticeable difference

in the atmosphere at IRS offices. So I think this is not only doing

exactly what Nancy just said, but I think it is starting to affect the

culture and the way people behave.

Senator CAMPBELL. I commend you for that. I had an opportunity

last year to visit the IRS office in Colorado Springs that had just

been firebombed a few days before. I do not even know if they have

caught that guy yet. He did leave some clues around there that the

ATF got a hold of.

Senator FAIRCLOTH. Was it a bad audit? [Laughter.]
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Senator CAMPBELL. I do not know. To my knowledge, they have

not caught him yet.

Senator FAIRCLOTH. I thought you got an audit.

Senator CAMPBELL. I did get an audit, but I did not go to that

extreme. I know that some people are just at their wits ends and

literally take up arms against the IRS. If we can make an improvement to try to make sure people feel they are being treated fairly,

I think that they would rather come to us and talk to us about it

than just getting the fire out and going straight to the IRS at

nighttime.

INTERFACE BETWEEN INTERNATIONAL AFFAIRS AND LAW

ENFORCEMENT

Mr. Secretary, most, if not all the Treasury law enforcement bureaus are impacted by events that are really in an international

arena. The counterfeiting of money is an example, and international drug trade and so on. Is there any overlap or formal cooperation internally of the Treasury law enforcement bureaus and

the international affairs division of Treasury?

Secretary RUBIN. Yes; I would say it is both formal and informal.

It is informal in the sense that everything reports into the Deputy

Secretary and myself, so we will bring people together as needed

on issues. But it has also been formalized in quite a number of

areas. For example, there are very important issues with respect

to the application of sanctions. OFAC applies sanctions against terrorist groups, narcotics groups, and the like. They now review their

activities with people from the international area because there are

overlapping concerns, as you correctly say.

On sanctions policy for the administration there is now an interagency process. But within Treasury we have an intraoffice process, if you will, that meets on a regular basis. Areas like money

laundering and counterfeiting, which are both law enforcement and

international. There is a great deal of formalized interface. So the

answer is yes.

RENOVATION OF TREASURY BUILDING

Senator CAMPBELL. You talked about the importance of $16.5

million for renovation and modernization of the main Treasury

Building. Is that the total estimated cost, and what is the completion date if we can fund that?

Secretary RUBIN. The total estimated cost at this time is about

$130 million. When is the completion?

Ms. KILLEFER. It is a 5-year program.

Senator CAMPBELL. Thank you.

Senator Kohl, do you have some comments or questions?

Senator KOHL. Thank you, Mr. Chairman.

IMF

Secretary Rubin, as we understand it, the U.S. participation in

the IMF does not increase the Federal budget. Our current core

contribution to the IMF now totals approximately $36 billion and

the administration is asking that we increase that contribution by
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approximately $15 billion more. That would be $50 billion committed to IMF’s core funding.

Now many people perceive this money to be another form of foreign aid. We may say it is still ours, but I and others say that we

will probably never see that money again. So can you explain in

simple terms how this works?

Secretary RUBIN. Sure. Let me start by saying, Senator, that I

think it is imperative that we do it and we do it quickly. We live

in a very dangerous world right now. Hopefully it is a world that

will not—hopefully it is a world in which we will work our way

through the Asia crisis, and other things will not ignite, and a reasonable degree of stability will remain. But there is a risk. I think

a low probability risk, but a risk.

Senator Faircloth has heard Chairman Greenspan and me address this in another committee. He said the exact same comment

I have. Low probability, but nevertheless there is always risk that

the kind of thing that we have seen happen in Asia could expand

out and envelop developing countries around the world. If that happened, that could have severe impacts on us, on our economy, our

workers, our businesses, and our farmers.

The IMF is badly underfunded right now. So every day that it

goes on being underfunded we do not have the capacity to deal

with that problem, should it develop. The consequence is, we believe it is imperative to get funding and get it now.

In terms of your direct question, what we do is we—we are ask- ing for, as you correctly said, another $14.5 billion of what is called

quota money. What happens is, it is a commitment. If the IMF

draws it down, then without going through all the technicalities,

the bottom line of it is that we put up cash at the IMF and we get

back a claim against the IMF. And the IMF is a rock, solid credit.

The Congressional Budget Office will score that at zero effect. So

there is no effect on the deficit. It is a little bit like a credit union

or a bank. When the IMF is finished using that money, our commitment remains. Think of it as a line of credit in a sense from a

bank. Maybe that is the way to think about it. When the IMF is

finished using it, they will give us the money back but they still

have the right to take it down from us again.

If we want to cancel that right, if we actually want the money

back permanently, we have the right to say we need it for balance—we can get it back. We have the absolute right to get it back.

But what we have to do is say we need it for balance of payments

purposes, in which case it is then ours again, not theirs.

Senator KOHL. I understand. But in reality, is it not fair to say

that the money that we contribute to the IMF is money that we

are not likely to ever see again?

Secretary RUBIN. No; I do not think I would agree with that actually. I think my reaction would be slightly different. I presume

what we will do is make a practical judgment as time goes on what

best serves our economic and national security interests. Unlike

foreign aid, once you have given foreign aid to a country, it is gone.

Senator KOHL. Legally gone.

Secretary RUBIN. You cannot get it back. You have not loaned it

to them. You have given it to them.

Senator KOHL. Right.
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Secretary RUBIN. This is a situation where we, in effect, have

loaned it to the IMF or put it on deposit, if you will, and we can

get it back as long as we assert—and there is nobody who has a

right to overrule our assertion—as long as we assert that we need

it for balance of payment purposes. So 5 years from now, or 10

years from now, or whatever, if the U.S. Government decides it

wants the money back, unlike foreign aid, it just says we need it

for balance of payments purposes and they get it back.

Senator CAMPBELL. Senator, would you yield just for one comment?

Senator KOHL. Yes, go ahead.

Senator CAMPBELL. You talked about risk. Let me tell you, we

face some risk too. When you go home and tell constituents that

you want to increase America’s share of the IMF and they read

every day in the paper stories like the President of Indonesia,

Suharto, who they say is worth $40 billion whose whole government is just rife with nepotism and cronyism and literally everything else, and they know many times in our past history, whether

it was Bautista, or Rhee, or Peron or whoever, so much money has

been siphoned off to put in Swiss bank accounts, believe me it is

a hard sell at home. You should understand that.

Secretary RUBIN. Senator, I totally relate to that. I do understand it. Let me say, as far as I am concerned, I do understand

that and I think that is what makes it such a difficult issue in this

body. And our judgment is a judgment based on only one thing and

one thing only, and it is what Chairman Greenspan and I have testified to now before a number of committees. That is our economic

interest. That is the sole—and our national security interest. Our

economic and national security interest.

But this is one of those very difficult things, politically difficult,

but I think economically imperative.

Senator CAMPBELL. Thank you, Senator.

Secretary RUBIN. Could I just add one other thing, if I may, Senator? What you said is absolutely right. On the other hand, it is

interesting, we have had the Farm Bureau strongly supporting

what we are doing and very actively supporting us. The Business

Roundtable is very actively supporting us, the Chamber of Commerce is very actively supporting us, the National Association of

Manufacturers is very actively supporting us. These are not groups

that have automatically supported this administration on all of our

initiatives. But they are all not only——

Senator CAMPBELL. I think they understand that the ripple effect

of lost exports to that country could be in the long term more detrimental than putting the money in the IMF. I understand that,

too. But to talk to the average person on the street in your hometowns, they have real problems.

Secretary RUBIN. You are right. It is a difficult issue.

Senator CAMPBELL. Senator Kohl.

Senator KOHL. Just to go on in connection with that. We have

heard that there is criticism that the IMF should focus more on

being an effective force in working with countries that receive credit to ensure that they are aware of steps that they must take to

demonstrate political and economic progress. Is this a role that you

believe the IMF should focus more resources on?
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Secretary RUBIN. Let me divide it in three pieces, if I may, Senator. It is obviously a very important question. I think that for all

kinds of reasons, political pluralism, human rights, and similar

kinds of issues are issues that we should pursue. They are our traditional values as a country.

There was a little piece in the Washington Post today about

Thailand. It was very interesting. They quoted the new Prime Minister of Thailand as saying that because he has a democracy it was

easier, or they could more readily adopt the kind of reforms they

need to come back. I do believe that democracy, over the long term

at least, is a better form of government economically. That is in the

interest of these countries and also in our interest. So I think that

we should pursue these objectives in all possible fora.

Now having said that, in the programs that are designed to deal

with financial instability that take place in a time of crisis and

where wrenching changes have to be made very quickly, there are

practical limits on how much you can do—these are extremely difficult to get done. I have now lived through a few of them. They

are very difficult to get done.

I think that in those kinds of programs what you need to do, at

least I think, is to limit yourself, or the IMF needs to limit itself

I should say, to the reforms that will help reestablish financial stability and confidence, because that itself requires wrenching change

and is extremely difficult to do. But I think we need to pursue

these other objectives in all ways that are practical.

Now in these reform programs there are very often measures

that do address some of what you are talking about.

Senator KOHL. All right. What do you think, Mr. Secretary, of establishing a formal IMF advisory committee that would oversee

IMF lending decisions?

Secretary RUBIN. If you mean oversee them in the sense of before

they are made, I think that that is probably not practical. These

decisions tend to get made in a very short period of time. In the

case of Korea I think it would be fair to say that there were three

or four critical days, and if the IMF and the international community had not moved with dispatch, that there was a very realistic

chance that the banking sector in Korea might have been in default

with untold possible consequences for our country because of the

possible ripple effects and so forth.

If you are talking about some sort of a review process, I think

those are the kind of things that are realistic and worth considering.

BUDGET SURPLUS

Senator KOHL. Mr. Secretary, there has been a lot of discussion

on the budget surplus. It is my understanding that the Federal

Government as we know will spend over $1.7 trillion in 1999 and

yet our revenues will exceed the outlays. Do you believe we are entering into a new era of surplus which will be longlasting? Are you

concerned about whether that, in fact, is a conversation that will

not become reality? And if we do have surplus, what should we be

doing with our surplus?

Secretary RUBIN. It is obviously a very important question you

raise. The Office of Management and Budget and the CBO both
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project surpluses that go on for a long time. And I know in the case

of OMB because I was involved in it, the assumptions are, I think

it would be fair to say, quite conservative.

Senator KOHL. Let me just ask this question.

Secretary RUBIN. But I must say, life——

Senator KOHL. Just a couple years ago we were seeing deficits

as far as the eye can see. What has changed?

Secretary RUBIN. One thing certainly changed. In 1993, you had

a powerful debt reduction program put in place that had I think—

not I think, it did have very dramatic effects. That in turn spurred

a recovery. Then the recovery reduced the deficit further. You had

a healthy interaction between deficit reduction policy and a strong

economy. That I think has really dramatically changed the fiscal

position of the United States and economic conditions in this country. And I think as a consequence we are for the first time in a

long, long time a nation with its economic house in order.

Having said that, going forward all that I said about these conservative assumptions notwithstanding, your point is also correct,

or at least the implicit point, which is life sometimes has some surprises and can take turns one had not expected. So I think one

needs to be very prudent about how one thinks about this surplus.

I think the President had it exactly right. By addressing Social Security we are dealing with the long-term fiscal position of the country, and I think his idea of not doing anything with this surplus

until we address Social Security is a fiscally sound thing to do in

an uncertain world.

TAX CODE

Senator KOHL. Mr. Secretary, some people say we should sunset

the IRS, or that we should replace the income tax with a sales tax,

or perhaps we should go to a simplified flat tax. Mr. Secretary,

what do you think about these proposals? How do you respond

when people say that we should eliminate the IRS or that we can

eliminate income taxes?

Secretary RUBIN. You could eliminate income taxes but you are

still going to have some expenditures. So I think you need some

revenues. I did not go to business school, but I sort of picked this

stuff up when I was on Wall Street. [Laughter.]

Senator KOHL. I just want to make the point that some of those

people who talk about eliminating the IRS, eliminating income

taxes then do not say what you just said.

Secretary RUBIN. I will give you a more serious answer. I think

that the idea of sunsetting—I have said this before and probably

I will say it again—I think the idea of sunsetting the Tax Code

without having a fully developed alternative that you can evaluate

is a genuinely terrible idea. Because I think the problem is that if

you ever enacted such a thing, you create an uncertainty that could

undermine our economy.

If you do not know what a house is worth because you do not

know whether the mortgage interest is deductible—I know you are

very involved with business, Senator. If you do not know how to

evaluate investment because you do not know how depreciation is

going to be treated, it seems to me the uncertainty could truly undermine our economy. So I think it is a genuinely terrible idea.
286

Senator KOHL. So you would say some of the discussion I have

heard in the House about taking a vote to sunset the IRS in and

of itself, standing all by itself, is ludicrous?

Secretary RUBIN. Sunsetting the Tax Code I think is ludicrous.

Not ludicrous, I just think that it—yes, it is in the neighborhood

of ludicrous. It is in that neighborhood, I think. If you get rid of

the IRS you are going to have to have somebody else perform

that—if you are talking about the IRS as an administrative unit,

then you have to eliminate that IRS and immediately create a new

IRS to enforce the Tax Code. So I do not think that that is a particularly practical idea.

IRS COLLECTIONS

Senator KOHL. Mr. Secretary, it is my understanding that the

IRS is losing the potential to collect hundreds of millions of dollars

in overdue taxes due to the problems in determining which accounts are collectible and which are not collectible. What action is

the IRS taking to develop information on written-off accounts to determine whether cost-effective collection measures can be developed

and applied?

Secretary RUBIN. We have a 10-year writeoff rule if I remember

correctly.

Ms. KILLEFER. Yes; that is correct.

Secretary RUBIN. I am not quite sure what that question goes to.

There are a lot of questions about collection. For example, Commissioner Rossotti feels that the IRS should move more quickly on collections than it does today, and that it will get a higher collection—

a better result in terms of collections as a consequence. But beyond

that—Nancy?

Ms. KILLEFER. A couple of things. I am not quite sure of the

ramifications of all your questions. In looking at business practices

at the IRS I think it is very clear to the Commissioner, and I would

agree with that, that many of them, in addition to our technology,

need to be modernized. Collections is clearly an area—my background is all in the private sector—that suggests that we need to

make some major changes.

Private sector collection practices specialize in getting to the delinquent person very early in the process—literally within the first

60 days—and dealing with them. They tend to come in three

groups: the people that want to pay that just have to figure it out

and are able to pay, the people that also want to pay but are unable to financially and you work out a payment system with them,

and the people that will not pay and those you use enforcement activities on.

We believe very strongly that the IRS needs to modernize its collection processes today. We do not get tax debts until they are virtually 180 days old, which is not the time to be dealing with them.

It is going to take systems modernization to get those records earlier in the process. So really it is a very long term change. But I

do think collection practices need to be modernized.

In addition, you may be referring to a couple of programs now

that deal with taxpayers who want to pay but are financially unable. One is called the Offers in Compromise Program, and then

there is an appeal program. We are actually looking at the Offers
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in Compromise Program now. There are two study groups working

on improving it, and the Commissioner is part of that. The appeals

process has actually been a very successful program at the IRS.

Senator KOHL. That is good. Thank you.

Thank you, Mr. Chairman.

IMF

Senator CAMPBELL. Before I ask Senator Faircloth, there was one

thing that came across my mind when you were talking about the

IMF, and that is how much we actually pay into the IMF fund.

What is our contribution to the IMF?

Secretary RUBIN. As a percentage?

Senator CAMPBELL. As a percentage and a dollar amount?

Secretary RUBIN. I think Senator Kohl had it right, we have $36 billion of commitment of which about $18 billion has been drawn

down and $18 billion is——

Senator CAMPBELL. $36 billion commitment?

Secretary RUBIN. Yes; of which $18 billion has been drawn down.

Senator CAMPBELL. How often?

Senator KOHL. That is total.

Secretary RUBIN. It gets drawn down as needed. The last time

you actually increased the commitment, which may be what you

are driving at, was in 1992. As was true then, so is true now, the

rest of the world was ready to go. We were the only ones who were

holding back. When Congress approved the increase in 1992, the

rest of the world completed their approval process, I think, within

6 days.

Senator CAMPBELL. Is our commitment the largest of any of the

contributors to the IMF?

Secretary RUBIN. Sure. We also have the largest economy. We

have about 18 percent of the votes and we put up about 22 percent

of the money, which just so happens is about our percentage of

world GDP.

Senator CAMPBELL. Thank you.

Senator Faircloth.

Secretary RUBIN. Which does internationalize the burden, because it means the rest of the world has put up 78 percent or

thereabouts. I may be off by a percent or two.

Senator FAIRCLOTH. Thank you, Mr. Chairman.

TAX CODE

Mr. Secretary, I do want to give praise in bringing Mr. Rossotti

and being able to bring that type of man into the Internal Revenue

Service. He is, as you mentioned or you alluded to, his expertise

is running a major corporation. Not only he ran it, he put it together and made it run, and it is in electronic data processing. So

he sounds like exactly what we need.

Ms. Killefer, are you with the IRS?

Ms. KILLEFER. No; I am not, sir. I am the Assistant Secretary for

Management with Treasury, but I do work closely with Commissioner Rossotti.

Senator FAIRCLOTH. We hear over and over, the biggest complaints we get in the office are private citizens and IRS problems.

Some of them—I have held a couple of hearings and people come
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that are just appalling stuff. You could not believe it, but yet it

proves to be true in many cases.

I must say that I have been in business all of my life since I was

18 and have had many, many audits by the IRS and have all been

very satisfactory. I have never felt abused or put upon or anything

else. But I see these people come in. And the thing that really bothers me, they are usually very small taxpayers. In fact we have

never had what I would consider a major taxpayer that had a competent auditing firm call us or bother us. It is always a mom-andpop type thing, and usually the amounts involved are just not that

much money.

You said to sunset the code is a mistake. And we all know that

income has ultimately got to meet outgo, so we have to collect the

taxes. But what happens to the boondoggle of 17,000 stacked up

pages, the incomprehensible code that we have today?

Now I think anybody would know that that is as bad as—what

do you do? How do you get rid of 15,000 of those pages?

Secretary RUBIN. Let me try and take it in two pieces, if I may,

because you said something that I think, Senator, we very strongly

identify with. So let me, if I may just comment on that. I think you

correctly have a concern about the people who have been abused

or have not been treated properly by the IRS, something we very

much agree with. I think as much as any of us agree, Commissioner Rossotti agrees even more, and his commitment is to try to

change that.

One of the things that he is doing is putting in place a program—his reorganization plan involves having a unit that will deal

with small business. In addition, the NPR made some similar, or

the NPR/Treasury/IRS Customer Service Task Force made some

similar suggestions of having special capabilities to deal with the

problems of small business. So I think your point is well taken.

But the code is overcomplicated. We have tried to—not tried to,

we have introduced and then had enacted a number of simplifications as we have gone along. But it is still too complicated and I

think all of us need to focus on simplification every way we can.

I think we can have good debates about different simplification

measures, whether we should do them or not do them.

But what I was saying was that having a debate on a simplification measure, or even debating the progressive tax system versus

the flat tax—I do not happen to think flat tax is a good idea. But

that is a legitimate debate it seems to me reasonable people can

have, and Congress can decide one way or the other. All I was saying was that to simply do away with the code and not have a fully

developed alternative seems to me to have enormously serious and

negative implications.

Senator FAIRCLOTH. We have to collect taxes, and if the code is

called the law—there is nobody foolish enough to think that——

But I am still saying that the 17,000 pages, how do we simplify

it to a process that most citizens, or the intelligent people can understand it? As it is today even CPA’s do not understand it.

Secretary RUBIN. You are right. It got complicated because an

awful lot of people wanted to accomplish an awful lot of economic,

social, and other purposes. I think that the only way it is going to

get simplified is if Congress and the administration work together
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on trying to reduce its complexity. As I said, we had something

like—I apologize for not remembering the number, Senator, but

something like 40 or 45 or 50 simplification measures that were enacted in 1997, some of which were quite meaningful. Some of them

were relatively small. And we continue working along those lines.

But we do have a complex economy and a complex society, and

that is reflected in our Tax Code. But I totally agree with you. I

think we should work toward simplification, but I think that, as I

said a moment ago, I think sunsetting is, for the reasons I said,

a very undesirable idea.

Senator FAIRCLOTH. If the Congress simplifies anything, the leopard will have shed his spots.

Secretary RUBIN. The what?

Senator FAIRCLOTH. If the Congress simplifies anything, the leopard will have shed his spots, because simplification is not what we

usually do.

Secretary RUBIN. I think there is a bit of truth to that, but that

is part of the problem. Both Congress and the administration

have—not necessarily this administration, all administrations have

a lot of problems as they try to simplify the Tax Code. But I agree

with you, I think simplification is a very important objective.

I might add, I do think, Senator, that there are measures that

one could take that could make this Tax Code simpler for the great

preponderance of people, the people of relatively simple economic

situations, and I think that is something we can all work on. For

example, last year we made profits on homes not subject to tax if

they were under $500,000. That actually makes a difference for a

lot of people.

IMF

Senator FAIRCLOTH. I was being a little flippant, but usually

when we get into it it gets more complex rather than simpler.

The IMF problem that bothers me, the core of the problem is

this. In the new arrangement for borrowing, the use of the stabilization fund, is it not inevitable that we are encouraging highrisk loans, high-interest loans around the world? Now we have all

seen the buildings that were built in Asia that were not needed,

that were not financially feasible. They just built a building. No.

1, as a monument to the building or the financier, because his

building was higher than somebody else’s building. And the propensity of international bankers to lend pretty freely; very freely.

We have seen all sorts of harebrained projects throughout the

world, but now we are looking at them in Asia. The International

Monetary Fund, by whatever method it does it, is bailing these

banks out. It props up the country, it props up the economy. One

way or another, the money is funneled back to stabilize a loan that

should never have been made. That is what bothers me about the

monetary fund.

Would you comment on what I said, or is it totally wrong?

Secretary RUBIN. No; I do not think it is totally wrong. You and

I have discussed this before. I think it is a legitimate and serious

concern. It is one that, as you know, we share. I think the problem

that we have, as we have discussed before, Senator, is that the

kind of financial instability that we are now trying to deal with in
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Asia—and that is an extremely complicated, difficult situation that,

although some countries are on better footing than they were, is

still a very complex situation with a lot of work lying ahead and

a fair bit of uncertainty.

These situations create an enormous threat to our economic wellbeing. It is because of that that we have the view, and Chairman

Greenspan and I have testified on a number of occasions that our

view is that, while what you say is a serious concern and a byproduct of these programs, what we need to do is to work to restore financial stability, strengthen the IMF so that we can do that and

at the same time, try to improve the architecture so that in the

longer run we can deal with this problem. I think that is the answer.

Now having said that, in Asia—and I think I take some comfort

from this and I suggest you might as well—there have been and

will be enormous losses by creditors. Creditors and investors have

been very badly hurt in Asia, and I think that is actually a salutary effect. I also think, and I have spoken to a lot of people in the

international banking world, and Chairman Greenspan said the

same thing in an open hearing, I do not think that bankers have

been influenced in their judgments by an expectation that the IMF

would be available to provide support if trouble developed.

I think there was overlending. But I think what happened is

what you always see in markets, or virtually always, which is markets tend to go to extremes. I think as the years went on and people were doing well, they started to forget about risk.

So do I think we need to deal with the problem that you have

raised? Yes; but do I think that we have an overwhelming imperative to have a strong IMF that can protect our interests while we

are trying to improve the architecture to deal with this problem

better? The answer would also be yes.

Senator FAIRCLOTH. What was that word that I know we discussed at one time, moral?

Secretary RUBIN. Moral hazard. That is precisely the issue. We

agree.

IMF PROPOSED REFORMS

Senator FAIRCLOTH. There is much talk we are hearing in the

Congress about reforming the—reforms, imposing reforms and constraints on the IMF. Has the Treasury come up with any proposed

reforms of IMF?

Secretary RUBIN. We have not formally submitted proposed reforms. Let me say, there are two types of reforms that are being

discussed. One are reforms of the IMF. We have been working with

members in both parties and in both houses on——

Senator FAIRCLOTH. I know Chuck Hagel is——

Secretary RUBIN. Exactly, precisely. We have been working with

Senator Hagel. He has taken the lead in it. We have been trying

to help as he has worked his way through this.

There is another set of reforms which are, I think in a larger

sense maybe even more significant. In fact, I do think they are

more significant, which are the changes that need to be made in

the architecture of the international financial system. Those are

going to take longer to put in place.
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But they all revolve around the same kinds of things: greater

transparency and disclosure, which can be helpful in preventing

crises and can be helpful in terms of providing public awareness of

how the IMF functions; mechanisms that relate to the problem you

just mentioned, which is how do we bring the private sector in

more so they bear as fully as possible the consequences of their actions; reforms that go to the question that Senator Kohl raised of

what the content of these programs are, although I think we have

to recognize the realistic limitations on that. Those are the kinds

of things that we are talking about.

Senator FAIRCLOTH. Thank you, Mr. Secretary.

Secretary RUBIN. Thank you, Senator.

Senator CAMPBELL. Do you have anything further?

Senator KOHL. No.

Senator CAMPBELL. I think we are done grilling you for the

morning, Mr. Secretary. We certainly appreciate you being here

and wish you the best.

Secretary RUBIN. Thank you, Mr. Chairman. We look forward to

working with you.

SUBMITTED QUESTIONS

Senator CAMPBELL. Mr. Secretary, we have additional questions

for the Department and we would ask that you respond as quickly

as possible.

[The following questions were not asked at the hearing, but were

submitted to the Department for response subsequent to the hearing:]

QUESTIONS SUBMITTED BY SENATOR CAMPBELL

FISCAL YEAR 1999 BUDGET REQUEST

Question. Mr. Secretary, Treasury has two distinct functions—fiscal management

and law enforcement. How do you balance the needs of these two functions?

Answer. These functions are equally important within the Department as is demonstrated by the equal under secretary capacity they both hold within the Department. Treasury, in both its program direction and in resource allocation, looks carefully at the individual issues all across the Department in an effort to direct proper

attention to all essential functions. At any particular time, it may appear that one

area has more attention than another, however, over time, all areas are balanced

as part of the senior policy deliberations in the Department.

Mr. Secretary performance goals for the Department have been included with the

budget request for the past three years. In some cases, the Department has done

very well in reaching stated goals. Sometimes though the agency just doesn’t quite

make it.

Question. Based on your experience of the past three years, what lessons has the

Department learned about setting realistic goals? How does the Department develop

performance goals for agencies who are totally dependent on others to reach those

goals?

Answer. As you point out, Treasury has made a serious and sustained effort to

base its resource requests on quantitative performance goals, to manage to achieve

those goals, and to report on achievements to Congress and the public. This has

been a difficult process for our programs. In many cases, we have struggled to identify appropriate performance measures for programs where results are inherently

difficult to measure. However, we are committed to continuing to use performance

measures to manage our programs because of their great promise to help us achieve

the best possible mission results.

Once measures have been identified, goal achievement has often been impacted

by unpredictable changes in external factors (e.g. shifts in demand, crises such as

terrorist incidents which affect priorities). As we gain more experience with measurement, our ability to forecast and set realistic, but challenging, targets will con-
292

tinue to improve. However, there clearly will always be some limits to our ability

to set the right goals.

Question. Mr. Secretary, what is the status of the search for a new Treasury Inspector General? Are you looking for an auditing or law enforcement background in

your search for a new I.G.?

Answer. The IG is appointed by the President and confirmed by the Senate. We

are looking for the best qualified candidate consistent with the statutory obligations

of the office, particularly, as it relates to investigations and financial audits. We are

moving on a expedited basis.

Question. Although Secretary Albright’s report is not due to Congress until later

this month, I would be interested to know the current status of your participation

in this task force. Are there any preliminary thoughts you wish to share on what

the Justice Department can do to help countries reduce and prevent crime?

Answer. Although The Department of Treasury cannot address Department of

Justice efforts in the international crime realm, Treasury’s law enforcement bureaus—including the Bureau of Alcohol, Tobacco, and Firearms (ATF); the Customs

Service; the Internal Revenue Service (IRS); the Secret Service; the Financial

Crimes Enforcement Network (FinCEN), and the Federal Law Enforcement Training Center (FLETC)—have numerous initiatives to help other nations prevent and

combat crime in their societies that may impact U.S. citizens, our economy, and institutions.

Treasury’s law enforcement personnel stationed abroad work closely with their

foreign counterparts to pursue violations involving trade; smuggling of contraband

such as drugs, alcohol, tobacco, firearms, stolen vehicles, wildlife, and child pornography; and financial crimes including money laundering, counterfeiting, and electronic access device schemes. Treasury currently has 115 agents stationed in foreign

countries. In fiscal years 1996–1997, the Customs Service handled more than 5,664

international cases, the Secret Service closed over 3,200 cases abroad, and the Internal Revenue Service’s Criminal Investigation Division (CID) handled more than 230

foreign cases.

Treasury has implemented extensive bilateral training programs for foreign counterparts to improve their abilities to collect, analyze, and share financial and other

law enforcement information. Treasury has taken the lead in creating a new International Law Enforcement Academy (ILEA) for Latin America. The ILEA promotes

regional cooperation against crime and forges valuable working relationships between U.S. and overseas law enforcement officers. U.S. and foreign law enforcement

officers utilize techniques learned at the academy and participate in investigations

leading to the dismantling of organized crime syndicates. Treasury law enforcement

bureaus are also active participants in the training provided to eastern European

countries at the ILEA in Budapest, Hungary. For example, agents from the IRS’s

CID present instruction covering basic financial investigative techniques designed to

provide the students with an understanding and appreciation of financial crimes.

By strengthening its presence abroad and establishing domestic and foreign programs, the U.S. Secret Service is a forerunner in combating counterfeiting, advance

fee and credit card fraud, and other financial crimes that cost consumers, financial

institutions, and governments billions of dollars each year.

IRS’s CID continues to emphasize State Department initiatives under the Freedom Support Act (FSA) and the Support for Eastern European Democracies (SEED).

Emphasis is also placed on South and Central American countries as well as Caribbean nations. These areas represent CID’s primary international concern because

they are areas that most impact the U.S. in financial crime matters, including

money laundering and other financial crimes.

Another example of the Treasury Department’s strategic goal of fighting crime

and violence internationally is the role ATF plays in support of the Office of National Drug Control Policy (ONDCP) in its international war on drugs. ATF participates in ONDCP projects such as Achilles and Gang Resistance Education and

Training (GREAT) and with both the High Intensity Drug Trafficking Area (HIDTA)

and Organized Crime Drug Enforcement Task Force (OCDETF) enforcement efforts.

Beyond OCDETF support, ATF’s International Response Team directly responds to

international bombing incidents and provides training to international law enforcement officers on post-blast and improvised explosives investigative techniques.

ATF’s International Trafficking in Arms (ITAR) expertise is of interest in United

Nations and Organization of American States negotiations to curb the illegal manufacture and trafficking of arms, as is ATF’s training of international investigators

on firearms identification and tracing. Additionally, in the strategy of prevention of

criminal exploitation of international trade, ATF works with the Office of the United

States Trade Representative and through oversight of the regulated industries to
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prevent illegal diversion of regulated commodities (e.g., beverage alcohol and firearms).

Another component of prevention is coordination between federal agencies and

private sector organizations that operate overseas. For example, the Customs Service has implemented two industry partnership programs—the Carrier Initiative Program (CIP) and the Business Anti-Smuggling Coalition (BASC) that involve foreign

and domestic importing, manufacturing, distribution, and carrier communities in

anti-drug efforts. These and other programs, such as the Americas Counter Smuggling Initiative, have strengthened cooperative efforts with the international trade

community, increased awareness of contraband trafficking in the commercial environment, and disrupted internal conspiracies.

Treasury is actively engaged in negotiating with other governments to eliminate

financial safe havens. These cooperative efforts include providing assistance in

drafting money laundering laws and regulations, assisting in the establishment of

anti-money laundering institutions, and providing training in civil and criminal financial crimes enforcement.

With Treasury’s support, for instance, Mexico has enacted anti-money laundering

regulations that impose large currency transaction and suspicious activity reporting

requirements on Mexican financial institutions. Treasury has assisted Mexico in creating a Financial Intelligence Unit (FIU) to collect and analyze financial investigative information. FinCEN, the U.S. FIU, is recognized as a leader in the field and

has supported the development of FIU’s throughout the world. There are currently

28 FIU’s worldwide.

Treasury, in conjunction with our counterparts in the United States, works with

other countries to develop and promote anti-money laundering standards through

multilateral efforts such as the Summit of the Americas, the Financial Action Task

Force, the Caribbean Financial Action Task Force, the Inter-American Drug Control

Commission, the Egmont Group (of FIU’s), and others. Through these processes,

Treasury supports a system of common standards, the cooperation of FIU’s, and

asset forfeiture and sharing. It also participates in mutual evaluations of other

countries’ compliance with international anti-money laundering standards and recommended improvements.

Multilateral efforts have contributed to the enactment of anti-money laundering

laws and regulations in several countries. In Europe, for example, since January

1994, Austria, Finland, Greece, Ireland, Monaco, the Netherlands, and Spain have

implemented new money laundering legislation ranging from the criminalization of

money laundering to the creation of monetary transaction reporting systems.

The Treasury Department has worked with more than a dozen countries especially vulnerable to money laundering to encourage them to address their deficiencies through a two-pronged approach of assistance with anti-money laundering

programs and warnings about the consequences of inaction. In cooperation with our

counterparts in the Departments of Justice and State, Treasury has contributed to

maximizing the efforts of foreign police forces, prosecutors, and judges through

training and technical assistance programs.

Treasury has also actively participated in the negotiation of bilateral treaties and

other arrangements with other nations. One example has been to effect the recovery

and return of stolen vehicles taken abroad by criminal gangs operating in the U.S.

Additionally, through Presidential Executive Order 12978 issued under the International Emergency Economic Powers Act (IEEPA), the Treasury Department has

identified businesses and individuals acting as fronts and middlemen for significant

narcotics traffickers centered in Colombia. Through the IEEPA economic sanctions

that the Executive Order imposed against the Colombian narcotics cartels, those

fronts and middlemen known collectively as Specially Designated Narcotics Traffickers (SDNT’s), are prevented from doing business with U.S. persons anywhere in the

world and are denied access to the U.S. financial system.

These SDNT’s have been denied access to banking services not only in the U.S.,

but also in Colombia by Colombian financial institutions. For example, the Treasury

agency that administers the IEEPA sanctions, the Office of Foreign Assets Control

(OFAC), has identified nearly 400 closed Colombian bank accounts affecting nearly

200 SDNT’s; and anecdotal evidence points to hundreds more closed accounts affecting SDNT’s. In addition, SDNT’s have been forced out of business or are suffering

financially. Over 40 SDNT companies, with estimated combined annual sales of over

$200 million, were liquidated or were in the process of liquidation by February 1998.

These effects are in addition to the as yet unquantified, but very real, costs to the

SDNT companies and individuals of being denied access to the U.S. financial and

commercial systems.
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Economic sanctions under IEEPA directed against non-state foreign national security threats are a powerful weapon that is being used against not only drug traffickers but also certain Middle East terrorists.

As outlined above, the Treasury Department and its bureaus are taking a

proactive approach to help other countries reduce and prevent crime. We plan to

continue sharing our knowledge and experience with foreign law enforcement officials and believe that we will continue to reap many benefits from doing so, both

domestically and abroad.

THE PERFORMANCE PLAN

On September 30 of last year, agencies submitted their first strategic plans as required by the Government Performance and Results Act, popularly known as the

Results Act. With this year’s budget justifications, agencies are submitting their

first annual performance plans under the Results Act. To its credit, the Treasury

Department has voluntarily done performance plans and reports at its own initiative for several years. Therefore, Treasury already has some experience under its

belt.

Question. In general, how satisfied are you with Treasury’s performance goals and

measures in the law enforcement area? For example, are they as results-oriented

as they could be? Do they target and measure the right outcomes? Do they set the

bar neither too low nor too high?

Answer. I am pleased with the progress Treasury has made to date in developing

performance measures for its many and varied programs, but I also recognize that

much more work is needed—particularly in the law enforcement arena—to institute

an effective performance management system throughout the Department.

Over the last several years we have moved from limited reporting of traditional

workload statistics to a planning and reporting process based on a mixture of workload, quality, customer service, and outcome measures. But, as you know, measuring the true impact of government programs is rarely a straight-forward exercise.

We cannot normally use established private sector measures like return-on-investment. Measuring results is especially challenging for our law enforcement programs.

We are working within the Department to address this issue and we have begun

discussions with Justice on creating a performance measures working group. Treasury personnel are rising to this challenge, and with their continued hard work combined with feedback from our stakeholders (Congress, customers, partners, etc.) we

will continue to improve our capacity to define and measure program success.

Question. Are you confident that the law enforcement components have reliable

data sources, information and financial management systems, and other resources

needed to set realistic performance goals and measure actual accomplishments

under these performance goals?

Answer. The Department—including our law enforcement bureaus—has made

substantial progress in the last several years in improving the data systems which

support our financial and performance reporting. You can see this progress in the

dramatic improvements in our audit results. As our measurement systems evolve

and change over the next several years, we will continue to focus on data validity

and reliability. In addition, in our performance plans and reports we will seek to

provide the reader with a full description of each performance measure, including

its definition, data sources, and the reliability of the data (e.g., confidence intervals

for statistical data).

Question. Does your plan include any performance measures for which reliable

data are not likely to be available in time for your first Results Act performance

report in March 2000? If so, what steps are you taking to improve the reliability

of these measures?

Answer. We recognize that improving the reliability and validity of performance

data is a major challenge to the efforts by both Congress and this Administration

to successfully use performance management to maximize our program results. We

are working with Departmental, bureau, and Inspector General staff to improve the

quality of our data. As noted above, we believe in ‘‘truth-in-reporting’’ and will seek

to provide the reader with a full description of each performance measure, including

its definition, data sources, and the reliability of the data (e.g., confidence intervals

for statistical data).

Question. Based on your fiscal year 1999 performance plan, do you see a need for

revisions to the strategic plan you issued on September 30, 1997? If so, what revisions are needed and when do you plan to make them?

Answer. No. We currently do not plan to engage in an early revision of the Department-wide strategic plan. We want to make use of the strategic thinking and

direction that evolved during last year’s planning process to craft our fiscal year
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2000 budget request and to improve our performance measures. Some Treasury bureaus may revise their individual strategic plans during 1998. If so, they will consult with Congress and other stakeholders during their plan revision processes as

required under the Results Act.

Question. The IRS hearings last Fall highlighted the familiar principle that you

get what you measure, and demonstrated how the wrong performance measures can

give the wrong incentives to federal employees. Balanced performance measures

that take into account to citizens as well as other objectives are particularly important in law enforcement. What are you doing to ensure that your performance measures do not cause unintended consequences or undesirable effects on employee behavior?

Answer. Feedback from the National Performance Review/IRS/Treasury Customer

Service Task Force, recent congressional hearings, and Internal Audit reports indicated that the IRS performance measures used in fiscal year 1997 did not strike a

proper balance between customer service and fair enforcement of tax laws. As a result, the IRS has designated a task force to develop a balanced scorecard of performance measures. During fiscal year 1998, the IRS will be working with OMB, Treasury, and the National Treasury Employees Union and a contractor to develop this

balanced scorecard that will evaluate the IRS on: customer satisfaction, employee

satisfaction, and business results. A primary goal of this balanced scorecard measurement system will be to ensure that IRS treats all taxpayers fairly, while emphasizing quality customer service and respect for their rights.

More generally, the Department is very sensitive to the fact that inadequate

measures—for law enforcement and other programs—can result in undesirable behavior. Our common challenge is to continue to refine and improve our measures

for all of our programs, making certain that a proper balance is maintained and

that unintended consequences are avoided. Congress is encouraged to help us in this

effort by giving us feedback on our recently submitted performance plan, especially

where there is a sense that the current set of measures may lead to improper results.

Question. What have you done to ensure accountability within your agency for

achieving performance goals? Is achieving performance goals tied directly to your

systems for evaluating and rewarding agency managers?

Answer. I have designated a senior Treasury policy official as the lead official responsible for implementing each objective in the Treasury-wide strategic plan. These

objectives are supported by bureau strategic goals and objectives. The bureau goals

and objectives in turn are supported by the individual annual performance targets

in our performance plan. I intend to hold these lead officials responsible for achieving their objectives. I expect them to manage their subordinates accordingly.

Our current performance evaluation process for evaluating agency managers is

not tied directly to the Department’s strategic and performance plans. However, we

are currently studying how to strengthen the connection between these evaluations

and our plans.

Question. How were your performance measures chosen? How did the agency balance the cost of data collection and verification with the need for reliable and valid

performance data?

Answer. Treasury’s current performance plan has evolved over the last several

years. Measures are prosed by individual programs which make changes in response

to their own experiences in using their measures to manage, and in response to

feedback Treasury, OMB, Congress and other stakeholders. Our measures are in the

process of being evolved from traditional output indicators to a balanced set of customer satisfaction, employee satisfaction and business results measures. For each

new measure which involves new data collection efforts, program managers need to

balance the cost of collection against the usefulness of the measure. In many cases,

significant investments in data collection are justified by the ability of managers to

run their programs more efficiently using the new data.

MANAGEMENT PROBLEMS

GAO has identified 25 ‘‘high-risk’’ areas within the federal government that are

particularly vulnerable to fraud, waste and error. Two of these areas are specific to

Treasury law enforcement operations: Customs Service financial management and

Treasury forfeited asset management. Based on an initial reading, your performance

plans don’t appear to significantly address these problems. The only reference I

found was a goal to ‘‘focus on internal controls of the asset forfeiture program to

eliminate weaknesses in the program that can result in lost revenue.’’ However, this

goal is very general and is not accompanied by any performance measures.
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Question. Your performance plans include specific goals, measures, and timetables

to resolve your two high-risk areas? If not, why not?

Answer. The ways in which these GAO high risk issues are addressed in the fiscal

year 1999 Treasury performance plan are detailed below.

Forfeited Assets Management.—The Forfeiture Fund chapter of the performance

plan addresses this issue and the GAO’s concerns (page TFF–17) but does not include a specific performance target on the subject.

Customs Service Financial Management.—Treasury’s performance plan includes a

goal to achieve an unqualified audit opinion on the Department-wide consolidated

financial statement for fiscal year 1999 (page DO SE–43). Achieving this goal will

require an unqualified opinion on the Customs financial statement. Customs

achieved an unqualified opinion for fiscal year 1997 on its financial statement. However, despite this opinion, Customs continues to have material weaknesses which

the Department is committed to correcting. Customs has specific action plans and

timetables in place to address its material weaknesses.

Question. Are you willing to amend the performance plans to do this?

Answer. My staff would be happy to work with Congressional staff on how we can

refine the performance plan to make it more useful to Congress. They are available

to discuss how these management issues are addressed and any other areas where

Congress believes improvements can be made.

GAO has indicated that a key factor in resolving high-risk areas is a real sense

of commitment and accountability on the part of agency managers. At least one

agency has adopted a specific performance measure of getting off the GAO high-risk

list by a date certain.

Question. Are you prepared to revise your plans to include performance measures

making such a commitment for your high-risk areas and establishing such accountability for you and your managers?

Answer. The ways in which the GAO’s high risk list is addressed in the fiscal year

1999 Treasury performance plan are detailed below.

Forfeited Assets Management.—The Forfeiture Fund chapter of the performance

plan addresses this issue and the GAO’s concerns (page TFF–17) but does not include a specific performance target on the subject.

Customs Service and IRS Financial Management.—Treasury’s performance plan

includes a goal to achieve an unqualified audit opinion on the Department-wide consolidated financial statement for fiscal year 1999 (page DO SE–43). Achieving this

goal will require unqualified opinions on the Customs and IRS financial statements.

Both of these bureaus achieved unqualified opinions for fiscal year 1997 on their financial statements. However, despite these opinions, they continue to have material

weaknesses which the Department is committed to correcting. Both Customs and

the IRS have specific action plans and timetables in place to address their material

weaknesses.

Collection of IRS Tax Receivables and IRS Filing Fraud (Particularly Earned Income Credit (EIC) Claims).—The IRS chapter of the performance plan addresses accounts receivables (page IRS, SD–11) and includes a number of performance measures related to its compliance activities. However, as noted in other answers, feedback from the National Performance Review/IRS/Treasury Customer Service Task

Force, recent congressional hearings, and Internal Audit reports indicated that the

IRS performance measures used in fiscal year 1997 did not strike a proper balance

between customer service and fair enforcement of tax laws. As a result, the IRS has

designated a task force to develop a balanced scorecard of performance measures.

During fiscal year 1998, the IRS will be working with OMB, Treasury, and the National Treasury Employees Union and a contractor to develop this balanced scorecard that will evaluate the IRS on: customer satisfaction, employee satisfaction, and

business results. Consequently, the current plan for the IRS is an interim plan, and

may be changed as the balanced scorecard measurement system is developed.

IRS Tax Systems Modernization.—The IRS’s plans to ensure the effective use of

its information technology investment resources are discussed in the IRS chapter of

the plan on pages IRS, IS–1–25 and IRS, IT–1–8.

Year 2000.—Treasury’s performance plan includes a goal to have all ‘‘Mission

Critical’’ information technology systems Year 2000 compliant in fiscal year 1999

(page DO SE–43).

Information Security.—GAO’s information security concerns and IRS’s security

plan are discussed in the IRS chapter of the fiscal year 1999 Treasury Performance

Plan (page IRS SD–11). In addition, information security for the Department as a

whole is addressed with the goal ‘‘Regularly review those Treasury bureau security

programs, for compliance with national and departmental policy, that have been established to ensure security of Treasury’s vital assets.’’ In fiscal year 1999, the goal

is to review four of these programs (page DO SE–41).
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My staff would be happy to work with Congressional staff on how we can refine

the performance plan to make it more useful to Congress. They are available to discuss how these management issues are addressed and any other areas where Congress believes improvements can be made.

With respect to the forfeited assets fund, GAO recommended that Treasury and

Justice achieve greater efficiency by working together on the management and disposition of property from their parallel but separate forfeited asset inventories. Yet,

neither agency appears willing to do so.

Question. This seems like an easy thing to do. Why can’t the two agencies cooperate here?

Answer. The two agencies are working together. Last fall, the Director of Treasury’s Executive Office for Asset Forfeiture and the head of the Marshals Service’s

asset forfeiture office met with GAO representatives to explore the best way to help

get federal seized property programs off GAO’s high risk list. Following that meeting, Treasury and marshals have taken practical steps to achieve greater efficiencies

through cooperation. In December and January, real property auctions conducted by

Treasury’s seized property management contractor, EG&G Services, for the first

time included properties in the forfeited inventory of the Marshals Service. Not only

did the auction results far exceed the expectations of the Marshals property managers but the January sale in Puerto Rico brought in 112 percent of fair market

value.

Our cooperation and search for greater efficiencies has not stopped with this one

initiative. Treasury and Marshals are also underwriting a series of joint conferences

as part of an extensive training initiative to focus attention on the management of

the forfeiture program and, particularly, its seized property component. These conferences are geared toward mid-level managers from Treasury and Justice law enforcement bureaus as well as U.S. Attorneys’ Offices. Our first conference was held

in early April in Miami with several more planed for the balance of the year in

those districts with the greatest volumes of seized property.

Question. If Treasury and Justice are unwilling or unable to cooperate on something as straightforward as this, what does it say about their ability to work together on more complex law enforcement activities?

Answer. Seized property management issues are but one segment of the very

broad area in which Treasury and Justice law enforcement organizations cooperate

every day. Reverse asset sharings are those monies deposited in the Treasury Forfeiture Fund as a result of equitable sharing with Treasury law enforcement bureaus based on their contributions to other federal, mostly Department of Justice,

investigations. Such reverse asset sharings have gone from just under $3 million in

fiscal year 1995, to almost $10 million in fiscal year 1996 and to over $11 million

in fiscal year 1997. Clearly, Treasury and Justice law enforcement organizations are

cooperating not only in the seized property arena, but also on operational matters

of increasing scope, complexity and value.

Question. Can we have your commitment to follow up on this issue and report

back to the Subcommittee?

Answer. We appreciate the Subcommittee’s concern with this matter as it reflects

our own desire to make seized property management as efficient as possible so that

savings realized there will be available to directly strengthen law enforcement

through the other payment authorities of the federal forfeiture funds. We will be

glad to keep you apprised of our progress in this area.

In addition to the agency-specific high-risk areas, two other government-wide

high-risk areas are particularly serious at Customs: the Year 2000 computer conversion problem and information security. Treasury’s Inspector General also has identified these areas as among the Department’s 10 most serious management problems.

Question. Do your plans contain specific goals, measures, and timetables to resolve these problems? If not, why not? If so, what are they? Are you confident that

these goals and measures are sufficient to resolve the problems? If not, what more

can you add to get the job be done?

Answer.

High-Risk Area—Year 2000:

The Year 2000 problem is the most important information technology issue facing

the Department of the Treasury today. If not addressed and resolved, this issue

could have a substantial impact on our critical mission systems and the delivery of

essential government services. Continuous executive level involvement in this matter is essential to our success. The high priority of this issue is reflected in the

Treasury Strategic Business Plan for fiscal years 1997–2002 in which Ensuring Year

2000 compliance is a major objective to achieve the goal of improving management

operations. The specific Year 2000 goal is to accomplish the century date change to
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ensure that Treasury systems will operate properly in the Year 2000. Treasury has

an aggressive overall Year 2000 program in place that actively involves senior executives across the Department and bureaus, and incorporates metrics reported at

least monthly to ensure that sufficient resources and efforts are applied to resolve

the problem. For those mission critical systems requiring repair or replacement, the

milestones are completion of renovation or development by October 1998 and implementation by December 1998. Treasury is on target to complete the conversion, testing, validation, and implementation of all mission critical systems to ensure continuous operation in the year 2000 and beyond.

High-Risk Areas—Information Security:

Information security for the Department as a whole is addressed with the goal,

‘‘Regularly review those Treasury bureau security programs, for compliance with national and departmental policy, that have been established to ensure security of

Treasury’s vital assets. In Fiscal 1999, the goal is to review four of these programs

(page DO SE–41).

Reviews of these programs highlight areas for program improvement. We are confident that the compliance review program is sufficient to resolve the problems.

Customs Service problems with ACE:

Customs’ new Automated Commercial Environment (ACE) system for handling

import data has been under development for some time and has experienced many

problems. This Subcommittee, other Congressional committees, GAO, and the Treasury Inspector General all have pointed out the problems with this troubled system.

Question. Do your plans contain specific goals, measures, and timetables to resolve the problems with the ACE System? If not, why not? If so, what are they?

Answer. The development of ACE is being monitored on an ongoing basis under

the auspices of the Department’s Chief Information Officer (CIO) and the Treasury

Investment Review Board (TIRB). The development of ACE is underway in phases

and the CIO, with the concurrence of the TIRB, has instituted a review process of

weekly progress reports from the ACE Team, monthly reports to the TIRB, and

quarterly reports to the Congressional appropriation committees. These reports include tracking of expenditures, milestones, and identification of project problems.

Customs is reporting specific performance measures on the development phase of

ACE, while operational performance results await the outcome of the operation of

the upcoming NCAP prototype, a major part of ACE.

The GAO concerns related to ACE are primarily associated with problems regarding the establishment of Customs information systems architecture. The architecture has been reviewed recently by the Private Sector Council, composed of CIO’s

from major private sector companies, and an independent review of that architecture has been completed as well. Based on these reviews, plans and a schedule are

in place to refine the IT architecture to make it a ‘‘best practice’’ in conformance

with the Treasury Information Systems Architecture Framework.

Question. Are you confident that these goals and measures are sufficient to resolve the problems? If not, what more needs to be done?

Answer. We are confident that the processes in place at the Customs Service and

at the Department to manage ACE development, and to resolve the architecture

issues as they affect ACE, are sufficient to ensure success of the ACE project. Customs has made significant improvements in its development approach with respect

to major projects such as ACE and in the establishment of its information architecture. The attention being devoted to ACE and the Customs architecture efforts by

the Treasury CIO office and the TIRB will provide that assurance. The Treasury

CIO office will continue to keep the Congressional staff informed as to the progress

and problem resolutions with respect to ACE, and will ensure that the concerns of

GAO and the Congressional committees are addressed.

In a letter to Majority Leader Armey dated January 16, 1998, the Treasury Office

of Inspector General described what they consider to be the 10 most serious management problems within the Department.

Question. I would like to submit this letter for the record, and I request that you

submit for the record a response that describes what specific goals and measures

in your performance plan, if any, address each of these 10 areas.

Answer. The ways in which these issues are addressed in the fiscal year 1999

Treasury performance plan are detailed below.

Information Technology Investment Management.—Treasury’s performance plan

includes a goal to have Clinger-Cohen compliant investment controls in place in all

bureaus in fiscal year 1998 (page DO SEE–42).
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Year 2000 Compliance.—Treasury’s performance plan includes a goal to have all

‘‘Mission Critical’’ information technology systems Year 2000 compliant in fiscal year

1999 (page DO SEE–43).

Data Security at IRS, FMS, and USCS.—GAO’s information security concerns

and IRS’s security plan are discussed in the IRS chapter of the fiscal year 1999

Treasury Performance Plan (page IRS SD–11). In addition, information security for

the Department as a whole is addressed with the goal ‘‘Regularly review those

Treasury bureau security programs, for compliance with national and departmental

policy, that have been established to ensure security of Treasury’s vital assets.’’ In

fiscal year 1999, the goal is to review four of these programs (page DO SEE–41).

FMS’s Ability to Produce Government-Wide Financial Statements.—The FMS section of the Treasury Performance Plan contains a preliminary statement ‘‘To comply

with the Government Management Reform Act (GMRA), FMS will prepare a Government-wide Audited Consolidated Financial Statement in Spring 1998.’’ Specific

performance measures address the percentage of agency reports for the consolidated

financial statement (CFS) processed by FMS within the established standard accuracy range, and the decrease in unresolved prior year recommendations and audit

findings that prevent a clean opinion on the audit of the Consolidated Financial

Statement (page FMS–34). To enhance the systems to collect data, it also has a

measure regarding enhancement to the Government On-line Accounting Link System (GOALS) (page FMS–34 and 35).

Treasury’s Ability to Produce Consolidated Financial Statements.—Treasury’s performance plan includes a goal to achieve an unqualified audit opinion on the Department-wide consolidated financial statement for fiscal year 1999 (page DO SEE–

43).

Financial Management at IRS.—As noted above, Treasury’s performance plan includes a goal to achieve an unqualified audit opinion on the Department-wide consolidated financial statement for fiscal year 1999 (page DO SEE–43). Achieving this

goal will require an unqualified opinion on the IRS financial statement. The IRS

achieved an unqualified opinion for fiscal year 1997 on its financial statement. However, despite this opinion, the IRS continues to have material weaknesses which the

Department is committed to correcting. The IRS has specific action plans and timetables in place to address their material weaknesses.

Department’s Debt Collection Initiatives.—The FMS chapter of the performance

plan contains the following Performance Goal: ‘‘By fiscal year 2002, FMS manages

a consolidated debt management function that will concentrate all Federal delinquent debt collection efforts and produce improved results.’’ Specific measures monitoring achievement include the percentage increase over fiscal year 1997 baseline

of FMS-managed Government-wide collected delinquent debt, percentage of current

market share of Federal Program Agencies (FPA’s) with debt servicing requirements

which have referred their debts in compliance with the Debt Collection Improvement Act (DCIA) of 1996, and increased Government-wide delinquent non-tax debt

collections over fiscal year 1995 baseline (page FMS–31 and 32).

Electronic Fund Transfer (EFT)/Electronic Benefits Transfer (EBT).—The FMS

section of the performance plan dealing with payments contains the following performance goal: ‘‘By fiscal year 2000, there is a world-class delivery of all Federal

government payments and associated information to their ultimate destination.’’

Success indicators of this goal include the dollar savings by reducing the number

of check payments, the percentage of transmissions of value (payments) and associated information made electronically, the number of states in which direct Federal

EBT is available, and the percentage of planned EBT systems implemented (page

FMS–23 and 24).

The FMS section dealing with collections contains the Performance Goal: ‘‘By fiscal year 2002, the Federal Government’s cash management environment has integrity, meets customer requirements and results in a lower cost of Federal Government.’’ This goal is supported with measures of electronic collections as a percentage

of total collections, the percentage of corporate withholding taxes collected electronically, the percentage increase over prior year in transmissions of value (collections)

and associated information made using financial Electronic Data Interchange (page

FMS–28).

Protecting Taxpayer Rights and Compliance Activities and Revenue Protection.—

The IRS chapter of the performance plan addresses accounts receivables (page IRS,

SD–11) and includes a number of performance measures related to its compliance

activities. However, as noted in other answers, feedback from the National Performance Review/IRS/Treasury Customer Service Task Force, recent congressional hearings, and Internal Audit reports indicated that the IRS performance measures used

in fiscal year 1997 did not strike a proper balance between customer service and

fair enforcement of tax laws. As a result, the IRS has designated a task force to
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develop a balanced scorecard of performance measures. During fiscal year 1998, the

IRS will be working with OMB, Treasury, and the National Treasury Employees

Union and a contractor to develop this balanced scorecard that will evaluate the IRS

on: customer satisfaction, employee satisfaction, and business results. Consequently,

the current plan for IRS is an interim plan and may be changed as the balanced

scorecard measurement system is developed.

Implementing the Government Performance and Results Act.—Treasury’s performance plan includes a goal to achieve full compliance with GPRA for the Department

and its bureaus in fiscal year 1998 (page DO SEE–43).

SPECIFIC PERFORMANCE GOALS AND MEASURES

Customs’ goals and measures for its drug interdiction efforts focus on activities

and outputs, such as quantities of illegal drugs seized. While these may be useful,

they do not measure the effectiveness of drug interdiction efforts in achieving their

ultimate objective: reducing the supply of illegal drugs in the United States.

Question. In order to better comply with the Results Act, have you considered

more outcome-oriented goals and measures?

Answer. Yes we have. In fact, we have adopted outcome measures for narcotics

and money laundering in our fiscal year 1999 Annual Performance Plan. They are:

1. Drug Smuggling Organizations’ transportation costs,

2. Changes in smuggling behavior,

3. Costs for Criminal Organizations to launder money, and

4. Money laundering systems disrupted.

Initial feedback on the use of these measures as outcomes has been very favorable. fiscal year 1998 will be the year baseline data is developed for these measures.

Although we have adopted these new measures, we will continue to monitor and

report traditional enforcement measures, i.e. seizures, arrests, and indictments, because they help in the analysis of our overall impact on the supply reduction problem. In addition, they along with other performance measures complement the

ONDCP measurement approach.

Question. For example, aren’t there indicators that do reflect the availability of

illegal drugs in the community.

Answer. Unfortunately, indicators such as ‘‘street price’’ are used solely, at times,

to provide an assessment. That is why the ONDCP measurement approach complemented by our internal measures may be more useful. It recognizes that a number of indicators common to several agencies taken in combination have the potential to provide more meaningful information than attempting to look solely at individual agency performance.

In the ONDCP measurement scheme, Customs, along with other federal, state

and local interdiction (supply reduction) agencies reports its performance on a variety of measure, including number of incidents and seized quantities of both drugs

and currency. We believe that this comprehensive approach, once fully refined and

accepted, will provide more meaningful information to assess individual agency performance in the context of overall performance.

In the area of Reducing Violent Crime, ATF includes as performance measures:

‘‘Crime related costs avoided’’ and ‘‘Future crimes avoided.’’ Specifically, its proposed

measures for fiscal year 1999 are $1 billion in future crime related costs avoided

and 450,000 future crimes avoided. These certainly are outcome-oriented measures,

but I wonder how reliable they are.

Question. How did you arrive at these goals and measure?

Answer. This performance measure was designed to show the program’s beneficial

financial impact to the public as required by the Government Performance and Results Act (GPRA). The average number of crimes committed by an armed career

criminal in one year (×) the average of years an armed career criminal is sentenced

(in other words, the number of crimes which will not be committed while the armed

career criminal is incarcerated) (×) the average cost of a crime (¥) the cost of incarceration over the length of sentence (=) the total cost savings to the public in firearms related crime costs avoided. (See Attachments)

[The information follows:]

FEDERAL FIREARMS LICENSE (FFL) INSPECTION PROGRAM PERFORMANCE MEASURE

This Performance Measure focuses on the crimes and crime-related cost prevented

due to the effective regulation of the firearms industry through compliance inspections. This measure encourages RE to focus their inspections on Federal firearms

licensees with the highest volume of crime gun traces attributed to them because

this is where the problems are and this is where the most impact can be achieved.

This measure is currently under development.
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During a study recently performed for ATF by Northeastern University, the researchers did some preliminary work to determine the effect that a little attention

from ATF had on an FFL who had a high frequency of crime gun traces. They found

that an FFL who had a large number of crime guns traced back to them would go

into a lull after having received added attention in the form of trace request contacts from the NTC.

Along those lines, it is presumed that if attention in the form of a compliance inspection were focused on an FFL with high mime gun trace requests, there would

be an even larger lull/impact in the deterring this situation. To measure this, Program Officials would identify high crime gun trace request FFL’s for inspection and

compare the number of crime gun trace requests for a one year period before the

inspection to the number of crime gun trace requests on firearms sold during a one

year period after the inspection to show the impact/reduction. The total number of

crime gun trace requests not received is the total number of crimes prevented in

that year due to effective compliance producing a deterrent effect. The crime costs

could be figured in the same manner as they are under the Achilles program and

Trafficking Program. The crimes and crime-related costs prevented by the RE inspection program could then be rolled forward with all the other programs which

report their impact in the same manner.

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

ACHILLES PROGRAM

Achilles Program/Protecting America Performance Measure

Average number of crimes committed by an armed career criminal in one year (×)

the average number of years an armed career criminal is sentenced (in other words,

the number of crimes which will not be committed while the armed career criminal

is incarcerated) (×) the average cost of a crime (¥) the cost of incarceration over

the length of sentence (=) the total cost savings to the public in firearms related

crime costs avoided.

Beneficial Financial Impact

This performance measure is designed to show the program’s beneficial financial

impact to the public as required by the Government Performance Results Act

(GPRA).

ATF ACHILLES PROGRAM PERFORMANCE MEASURE

ATF believes the Achilles Program, with its task forces and Violent Offender Program elements, are focused in the right areas. According to the Protecting America

study completed by ATF, long-term incarceration, and thus the removal of the violent habitual offender from society, is a realistic and cost effective approach to reducing violent crime. Long-term incarceration is, in its truest sense, the best deterrent to crime. This study showed that the average career criminal commits about

three criminal acts a week, or about 160 crimes a year.

The National Institute of Justice conducted a study that estimated the cost per crime in the United States to be, on average, $2,600. This equates to at least

$432,000 in crime-related costs per year for allowing a career criminal to remain

at large, not including the physical and psychological damages and associated medical costs inflicted on the victims of these crimes. When comparing this to the National Institute of Justice’s estimate of $45,000 per year to house an inmate, mandatory minimum penalties, and, in kind, ATF’s Achilles Program strategy are on target for reducing crime and its related economic costs.

Using the above-developed statistics, and the fact that the average sentence under

18 U.S.C. § 924(e) is 18 years’ imprisonment, the Achilles Program’s beneficial financial impact to the public can be measured. This performance measure meets the performance measure standards required by the Government Performance Results Act

of 1993. The following is a breakdown of the financial aspects of this incarceration:

Cost Analysis—Per Defendant

Average sentence (years) ................................................................................. 18

Incarceration cost per year ............................................................................. $45,000

Total cost for incarceration ............................................................................. $810,000

Cost per crime .................................................................................................. $2,600

Crimes avoided per year ................................................................................. 160

Savings for crimes avoided (1 year) ............................................................... $416,000

Crimes avoided over 18 years ......................................................................... 2,880

Savings for crimes avoided ............................................................................. $7,488,000
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Total savings from a 1 year incarceration ..................................................... $371,000

Total savings from an 18 year incarceration ................................................. $6,678,000

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS—ACHILLES PROGRAM

Armed Career Criminal Annual and Cumulative Benefits (Cost Savings and Crimes Prevented)

Fiscal year

Defendants incarcerated Crimes prevented Savings to public

Fiscal year Cumulative Fiscal year Cumulative Fiscal year Cumulative

1988 ............................................... 92 92 14,720 14,720 $34,132,000 $34,132,000

1989 ............................................... 122 214 19,520 34,240 45,262,000 79,394,000

1990 ............................................... 157 371 25,120 59,360 58,247,000 137,641,000

1991 ............................................... 217 588 34,720 94,080 80,507,000 218,148,000

1992 ............................................... 367 955 58,720 152,800 136,157,000 354,305,000

1993 ............................................... 305 1,260 48,800 201,600 113,155,000 467,460,000

1994 ............................................... 265 1,525 42,400 244,000 98,315,000 565,775,000

1995 ............................................... 205 1,730 32,800 276,800 76,055,000 641,830,000

1996 ............................................... 160 1,890 25,600 302,400 59,360,000 701,190,000

1997 ............................................... 119 2,009 19,040 321,440 44,129,000 745,339,000

1998 ............................................... ................ ................ .................... .................... ........................ ........................

Note:

Number of Crimes committed prevented per defendant, per year is 160. This figure was developed through ATF’s Protecting America research project which involved a sampling of incarcerated armed career criminals.

In determining the cost savings to the public, a figure of $2,600 is used as the average cost per crime. This figure was developed

through research by the National Institute of Justice (NIJ) and does not include victim hospitalization costs. An annual cost savings per defendant is realized by multiplying 160 (the average annual number of crimes committed by a career criminal left free in society) times the

$2,600 cost per crime figure and then subtracting the annual cost of Federal incarceration which NIJ reports to be $45,000.

Each defendant is sentenced to an average of 18 years in Federal prison as an armed career criminal. The annual cost savings produced

by this program will grow each year until the 18th year of the program when the program’s first year defendants will begin to be released.

In the 18th year the program’s cost savings will reach their highest level and remain fairly constant throughout the future life of the program.

Question. Are they premised on baseline or trend data of past performance, or on

bench marking against other organizations that perform similar activities?

Answer. No. The performance measures are based upon studies performed by the

Federal Government relating to incarceration and cost of crimes; National Institute

of Justice (NIJ) study; Cost and Benefits of Sanctions: A Synthesis of Recent Research, June 1992.

Question. What experiences do you have in applying these measures?

Answer. ATF has been using these measures in the Achilles Program area since

1991, and we are also incorporating this methodology to other firearms strategy

areas.

Question. Are you confident that reliable data exist to support these measures?

Answer. Yes. ATF has drawn upon independent research, National Institute of

Justice (NIJ). ATF has also conducted its own study, Protecting America study. Additionally, ATF has developed computer systems to capture/track this data.

PERFORMANCE MEASURES FOR CROSS-CUTTING FUNCTIONS

Treasury is, of course, engaged in law enforcement activities that involve many

other federal agencies as well. Some obvious examples are drug interdiction, border

security, intelligence, border security, intelligence and other investigative activities,

and anti-terrorism efforts.

Question. How has Treasury coordinated with other federal agencies in developing

the law enforcement portions of its strategic and performance plans?

Answer. Treasury coordinates on a day-to-day basis with a great variety of Federal and non-Federal entities in accomplishing our mission. In addition, in the development of our strategic plan we sought input from Congress, Treasury’s unions,

more than 600 non-Federal stakeholders, the general public (through the Internet),

and other Federal agencies. Our strategic plan was influenced by input—received

formally through the planning process and informally through years of coordination—from these stakeholders and partners. Our performance plan reflects out strategic plan.

Question. In particular, how have you worked with ONDCP on drug control strategies, goals and measures, and with what results?

Answer. Treasury worked closely with ONDCP on all cross cutting issues that affect the Department. For example, Treasury participated in the development and review process on ONDCP’s 1998 Ten Year National Drug Control Strategy. Specifically, Treasury provided input to Goal 4 in the strategy, ‘‘Shield America’s Air,

Land, and Sea Frontiers from the Drug Threat,’’ and the four objectives that support
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the goal. In addition, Treasury participated in the development and review of

ONDCP’s recently released Performance Measures of Effectiveness document. This

document will serve as the tool for evaluating the progress of the Nation’s drug control efforts. As a result of working with ONDCP in the development of these documents a very useful and important step was taken in what will be a long term,

iterative process of developing improved cooperation and measurement capabilities

across the government.

Question. What efforts have you taken to make your strategic objectives, performance goals, and performance measures complement those of other agencies carrying

out similar programs and activities?

Answer. Treasury coordinates on a day-to-day basis with a great variety of Federal and non-Federal entities in accomplishing our mission. In addition, in the development of our strategic plan we sought input from Congress, Treasury’s unions,

more than 600 non-Federal stakeholders, the general public (through the Internet),

and other Federal agencies. Our strategic plan was influenced by input—received

formally through the planning process and informally through years of coordination—from these stakeholders and partners. Our performance plan reflects our strategic plan.

Question. Do the objectives, goals and measures for your programs and activities

in fact complement those of other federal agencies with similar functions?

Answer. We recognize the necessity to make certain that our goals, objectives and

performance measures complement those of related agencies, and we are working

to make certain that they do. The following are some examples of efforts to-date in

this area. First, as detailed in other questions, Treasury has coordinated extensively

with ONDCP. In addition, Treasury’s Office of International Affairs worked in conjunction with the State Department to develop the ‘‘U.S. International Affairs Strategic Plan.’’ Treasury’s international goals and measures correspond to this common

plan. Also, Treasury, Justice, and Agriculture share a common goal in the Government-Wide performance plan to reduce passenger wait times at land and air ports

(page 243). Finally, Treasury participates in the Results Act Banking Regulatory

Working Group which is seeking to increase coordination between banking regulators on GPRA implementation. As we continue to evolve in the Results Act implementation process, cross-government coordination will be strengthened through efforts like the various inter-agency groups mentioned above.

Question. Can more be done to promote consistency among cross-cutting law enforcement programs and activities? What more do you plan to do?

Answer. Treasury and other agencies are in the process of learning how to use

Results Act to help improve our program results. We have dedicated our efforts todate largely to crafting useful strategic plans and performance measurement systems. We see improvements in interagency coordination as the next step in this implementation process. As part of this next step, Treasury and Justice have begun

discussions on creating a performance measures working group to explore developing even more effective cross-cutting performance measures.

Question. In your efforts to coordinate and reconcile cross-cutting programs and

activities, did you identify any unnecessary duplication or redundancy? If so, what?

Did you identify a need for legislative changes to deal prim any unnecessary duplication or redundancy?

Answer. To-date in our Results Act implementation efforts, we have not identified

any unnecessary duplication or redundancy.

Question. There have been past indications of serious duplication and fragmentation among federal law enforcement agencies in intelligence activities, particularly

in the area of drug interdiction. Do you believe this is a problem today? If so, what

can be done about it?

Answer. The Office of Enforcement plays an important role in coordinating and

facilitating communications, and in providing a focal point for information, analysis

and policy determinations. Cooperation between the Departments of Justice and the

Treasury has improved dramatically over the last few years. While there is always

room for additional improvement, I believe that cooperation is currently at an alltime high. This is a result of the frequent communication and close coordination between the two Departments.

The Office of Enforcement works with the Department of Justice on a daily basis.

The Under Secretary for Enforcement speaks to and attends meetings with the Attorney General, Deputy Attorney General, and Heads of the Justice law enforcement

bureaus regularly. Members of the staff speak to their counterparts at Justice on

a daily basis.

A variety of working groups meet regularly on important issues, such as the

Southwest border, white collar crime, money laundering, and terrorism. The Federal

law enforcement agencies each have unique areas of expertise and jurisdiction.
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When an investigation involves a matter that is clearly within the jurisdiction of

one agency, that agency will take the lead and work with other agencies as needed.

In those circumstances where there is overlapping jurisdiction, memorandums of understanding have been developed which detail the responsibilities of the respective

agencies. Despite these efforts to ensure clear lines of authority, situations do develop where two agencies may claim jurisdiction over an investigation. In those instances, the Special Agents in Charge of the field office of the respective agencies

attempt to resolve the question. If this is not possible, further discussions between

the senior managers of the agencies will occur in Washington. The Departments of

Justice and the Treasury become involved in these discussions, as necessary.

Treasury law enforcement bureaus have unique areas of expertise which complement those of other law enforcement agencies. For example, INS and Customs

work together on cases and task forces involving illegal narcotics and other contraband smuggling. Since INS and Border Patrol staffing continues to increase, we anticipate that we will be called upon to participate in even more joint investigations.

The current budget request for Treasury law enforcement for fiscal Year 1999 includes funds for increasing Customs capabilities both through human resources and

technology so that Customs personnel can more efficiently and intelligently carryout their responsibilities. Additional Customs funding and resources would enhance

Treasury’s ability to respond to growing workloads at our nation’s ports of entry.

QUESTIONS SUBMITTED BY SENATOR KOHL

BANKING AND REGULATIONS

Question. What kind of regulations is Treasury proposing to ensure that the taxpayers will be treated fairly while conducting business in the next millennium?

Answer. Treasury maintains and manages regulations governing the Government’s use of electronic funds transfer, in particular the use of the Automated

Clearing House. These regulations address liabilities and responsibilities of the Government and financial institutions in processing electronic transactions, and they

would apply to the use of EBT to deliver Federal benefit payments. Currently, the

Government’s processing of electronic funds transfer transactions is conducted in a

highly secure environment using the Federal Reserve as Treasury’s processor for

most of these transactions. New technologies, such as smart cards and e-money,

present questions and challenges that are currently under review. The Comptroller

of the Currency has led a task force within Treasury to look at these issues, and

is expected to issue a report shortly that will address security, privacy, and cost regarding new approaches to doing business.

At present, Treasury’s Financial Management Service relies on a comprehensive

security architecture covering systems, personnel, and physical security in its Electronic Funds Transfer disbursement operations. This security architecture includes

protections for data networks and host systems, disbursing officers and systems administrators, and regional disbursing centers. This network security architecture is

probably the most robust and secure among the civilian agencies.

FMS does not use the Internet in any way as part of its disbursing infrastructure.

FMS has a small pilot planned for late 1998 to use cryptographic Internet e-mail

in support of vendor payments, but it will likely be at least several years before the

Internet is relied on to deliver Federal payments.

FMS currently relies on two private networks to generate and deliver Federal

payments. First, it administers its own network, FMSnet, which connects FMS with

the over 600 Federal agencies, bureaus, and offices for whom it disburses payments.

This is a protected network which is not connected to the Internet. Federal agencies

use this network to deliver payment instructions files to FMS using a secure hardware-based messaging system designed in conjunction with and approved by the

General Accounting Office.

Second, FMS relies on FedNet, the Federal Reserve’s network, to deliver Government payments to the banking system. This network is also a private, access controlled network which has no direct gateways to the Internet. In addition to relying

on network access controls and physical security of network sites, all data transmissions on both networks are generated out of tamper resistant hardware

encryption devices, in accordance with Federal Information Processing Standard

Publication 140–1, ‘‘Security Requirements for Cryptographic Modules.’’

The Administration and Congress have been working on legislative plans as part

of the financial modernization legislation. One plan is to limit housing related government sponsored enterprises to a single regulator.
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Question. Can you explain the pros and cons of having a single regulator and

share with us your views on this plan?

Answer. We are not aware of any Administration proposal to merge the housing

government-sponsored enterprise (GSE) regulators. In recent years, Congress has

held hearings on this issue.

Both the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (FHFB) regulate GSE’s that are in basically the same

line of business. Therefore, from the narrow perspective of safety and soundness

merging regulatory responsibility under one entity might result in a more efficient

use resources through a reduction in duplicative functions.

However, the current regulatory responsibilities of OFHEO and the FHFB are not

equal. OFHEO is the safety and soundness regulator of Fannie Mae and Freddie

Mac, while HUD is the mission related regulator. The FHFB, is both the safety and

soundness and the mission related regulator of the FHL Bank System.

Any merging of OFHEO and the FHFB would likely have to address these institutions’ different regulatory responsibilities. Under a framework of equal regulatory

responsibility either: (1) OFHEO would have to become responsible for Fannie Mae’s

and Freddie Mac’s mission regulation—making the new merged regulator a joint

safety and soundness and mission regulator; or (2) the mission regulation of the

FHL Bank System would have to be transferred to HUD—making the new merged

regulator only a safety and soundness regulator.

The Treasury Department has taken no position on merging the two housing GSE

regulators.

MANAGEMENT PERSONNEL AND DEPARTMENT OF TREASURY REPAIRS

Question. The Committee understands you have requested the first increment of

funding needed to restore the Historic Department of Treasury Building. What is

the total cost of the restoration and is this restoration going to renew and restore

the systems and physical structure to meet the 21st century requirements?

Answer. The total cost of renovating the Main Treasury building is estimated at

$132,246,000. All systems will be replaced with energy efficient, state-of-the art

equipment. The external physical structure will be weatherproofed and windows replaced with energy saving glass. The internal structure will be restored to provide

a balance between the historic fabric of the facility and the needs of a modern office

building.

There have been discussions in the past about the Inspector’s General’s oversight

and supervisory authority as it relates to the Law Enforcement agencies. The IG

has responsibility for internal audit, however, the law enforcement units retain

their internal investigative units.

Question. Is this something you are considering changing under a new IG?

Answer. While the law enforcement units retain their internal investigative units,

the OIG has the authority to perform any investigations in these bureaus. Under

current policy the OIG investigates allegations against high-level officials (grade 15

and higher). Also, the OIG has oversight authority over the operations of bureau

internal investigative units.

At this time, there are no changes being considered. We are in the process of identifying appropriate candidates for possible nomination by the President, for the Department and, at that time, there may be some review of current operations.

Question. What about the IRS where are the audit and investigative functions retained by the IRS Chief Inspector?

Answer. IRS Inspectors are law enforcement officers who investigate allegations

of illegal and improper acts which include violations of the privacy provisions of the

Internal Revenue Code. Inspection Service inspectors derive their law enforcement

authority from the Internal Revenue Code section 7608(b). This section authorizes

Inspection Service personnel whom the Secretary of Treasury has charged with the

duty of enforcing criminal laws related to tax administration to execute and serve

search warrants, make arrests, and make seizures of property. These authorities are

essential in the protection of IRS employees in the investigation of individuals who

attempt to bribe, intimidate or impede IRS employees in the performance of their

duties. Without law enforcement authority, inspectors can not provide the necessary

protection to cooperating employees during bribery, and threat and assault investigations. Treasury’s I.G. does not have this law enforcement authority and, absent

an additional change to the Internal Revenue Code and the Inspector General Act,

the Treasury I.G. could not assume some of the functions currently performed by

the IRS’s Inspection Service.

An understanding of the mission of the Inspection Service can be seen within the

framework of the overall operation of the IRS. The IRS is a large, complex and geo-
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graphically dispersed organization which employs over 100,000 people to collect over

$1.4 trillion in tax revenues and to fairly enforce the tax laws. Considering the significant amount of the money involved, the discretionary authority of enforcement

personnel, the size of the staff, the massive processing operations, and the scope of

taxpayer contacts taking place daily throughout the country, it is easy to see the

inherent risks associated with IRS operations and the need for a continuous audit

and investigative presence.

The Inspection Service provides this necessary presence and emphasizes coverage

of IRS activities that most directly relate to the collection of tax revenues, enforcement of tax laws, processing of returns and other information, and the protection

of IRS employees. Using their knowledge and expertise of these operations, their unrestricted access to IRS personnel, tax information and IRS computer systems, and

their law enforcement authorities, Inspection Service personnel can act promptly

and decisively to mitigate concerns by concentrating coverage on national and local

IRS operations with the highest degree of risk. IRS Inspection Service auditors and

investigators, who are deployed throughout the country and work under the supervision of the Chief Inspector, can initiate independent audits and investigations

based on their professional assessment of the risk or allegation.

The placement of the Inspection Service within the IRS also provides the Commissioner the opportunity to direct internal audit and investigative coverage to vital

areas such as evaluating the implementation of tax laws or investigating sensitive

allegations. For example, the Inspection Service’s reporting of concerns directly to

the Commissioner related to computer security resulted in the agency taking prompt

and definitive actions to strengthen operations.

I do not feel that my ability to manage the internal audit resources in the Treasury is compromised by the current arrangement. I have a good working relationship

with the IRS Chief Inspector and value the expertise that is regularly exhibited by

IRS Inspection Service auditors. The Chief Inspector and I discuss audit and investigative matters almost daily and meet frequently to review the status of significant

audits and investigations. Our staffs are in constant contact and freely exchange information.

As specified by Section 8C of the Inspector General Act, I can initiate, conduct

and supervise internal audits of the IRS. In fact, my audit staff has conducted audits of IRS activities that did not involve the IRS Inspection Service auditors. My

authority to conduct any review in the IRS that I deem appropriate has never been

challenged. IRS Inspection Service auditors continually coordinate their work with

my staff on audits that involve multiple Treasury bureaus. Further, Treasury Order

114–01 gives me the authority, if a need arises, to detail personnel from the IRS

Inspection Service to conduct audits or investigations under my direct supervision.

RESTRUCTURE THE IRS

Last year the Commission to Restructure the IRS recommended placing certain

IRS management decisions under the control of an independent board. Recently, the

CIO of the IRS, Art Gross announced he was leaving. And, there has been talk that

the Modernization procurement and the architecture requirements may change.

As a result, I’m wondering if the Commission’s recommendation to create an independent board doesn’t have some validity.

Question. Isn’t it true that having a board oversee the development and implementation of long range procurement could provide greater stability?

Answer. As you know, this has been a hotly debated topic. We have always supported the notion that the IRS receive outside advice.

The proposed Oversight Board would have specific responsibilities for IRS strategic plans, and reorganization plans. It has the right to let the Congress have its

views on the IRS budget request. And, Treasury would retain responsibility for tax

policy and for general budget and management supervision. We think this relationship can and will work.

The idea of establishing a full-time Board of Governors, as some have suggested,

raises a different set of questions. Our response would depend on the specifics of

the proposal. If such a Board had a proper organic connection with the Treasury

and satisfied the overall objective of making tax administration fairer and more efficient, we would be happy to discuss it.

Question. It is my understanding that the IRS is losing the potential to collect

hundreds of millions of dollars in overdue taxes due to problems in determining

which accounts are collectible and which are not. What action is the IRS taking to

develop information on written-off accounts to determine whether cost-effective collection measures can be developed and applied?
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Answer. The Inventory Delivery System, a system under development, will centralize collection case processing and use automated methods to evaluate delinquent

accounts for collectibility so that the most productive accounts receive priority attention. The system has three releases planned. The first release containing Financial

Analysis Profile and basic core functions to support case assignments and data base

updates is scheduled for pilot in February 1999. The second release with Telephone

Number Research is scheduled for August 1999 with a third release containing Address Research in 2000.

YEAR 2000 (CENTURY DATE CHANGE)

We are currently reviewing your request to reprogram funds within the Department to meet Year 2000 requirements. Of course having the Department Year 2000

compliant is only one part of the equation.

Question. First are you confident that all Treasury systems including the IRS and

the Financial Management Service will be compliant?

Answer. Yes, I am confident that Treasury has a strong program in place to address this challenge and has made significant progress to date. For our mission critical systems, Treasury is on schedule to meet the implementation milestone date of

December 1998 with the exception of the IRS phase system applications and Financial Management Services Government On-Line Accounting Link System (GOALS).

The IRS systems will be completed by January 1999 in accordance with the IRS

Year 2000 program plan, which calls for implementing renovated systems in 6

month phases, each January and July, through January 1999. This implementation

strategy was created to accommodate tax processing season considerations. The Department is working closely with Financial Management Service to determine actions that can be taken to accelerate the GOALS schedule.

Question. What do you know about the other financial institutions such as banks,

money management firms and credit card companies?

Answer. The Office of the Comptroller of the Currency (OCC) and the Office of

Thrift Supervision (OTS), with regulatory oversight of the banks and thrift institutions respectively, have been working in concert with the Federal Financial Institutions Examination Council (FFIEC), in issuing guidelines and advisory letters for

addressing the Year 2000 issue. Year 2000 compliance has been incorporated as a

priority within the examination procedures for financial institutions by all FFIEC

regulatory agencies, including OCC and OTS.

GENERAL MANAGEMENT

Question. Last year GAO identified Customs Financial Management and IRS financial management as high risk areas. What actions have you taken to ensure that

systems are in place and that we will see improvements?

Answer. As noted above, Treasury’s performance plan for Customs Service and

IRS Financial Management includes a goal to achieve an unqualified audit opinion

on the Department-wide consolidated financial statement for fiscal year 1999 (page

DO SE–43). Both of these bureaus achieved unqualified opinions for fiscal year 1997

on their financial statements. However, despite these opinions, they continue to

have material weaknesses which the Department is committed to correcting. The

IRS is aggressively pursuing the closure of its 7 GAO financial management recommendations. Customs has successfully closed two of 11 material weaknesses during fiscal year 1997 . Both Customs and the IRS have specific action plans and timetables in place to address their remaining material weaknesses.

This past December I received a copy of the January 1997 report on the Department’s Personnel System. The Report included three recommendations: Train and

hold managers accountable; revitalize the Personnel Resources Division; and reform

the personnel structure and strategy to support a high performing organization.

Question. What steps have you taken to implement these recommendations?

Answer. Some of the highlights of actions taken include:

Managers

We issued to managers and supervisors a Managers’ Handbook on Human Resources. The Handbook also is available through the Department’s intranet.

Most managers in Departmental Offices attended two days of training in 1997 on

performance management and conflict resolution.

We required all managers and supervisors to complete the performance evaluation

process and tracked and reported on their progress in doing so.

Personnel Resources Division

We are investing in the professional development of the Personnel Resources staff

through on-site workshops, off-site seminars, and college course work.
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We have filled critical vacancies with experienced and talented personnel specialists.

We have instituted a client service director concept to improve customer service

and strategic focus on critical problems.

High Performing Organization

A Performance Management Advisory Panel, composed of key Departmental Office (DO) executives, has worked with the human resources staff to revise the performance management system for DO. The new system will focus on setting clear

and challenging expectations, providing ongoing feedback, recognizing excellent performance, dealing with poor performance, and providing appropriate development.

This year all employees in DO will receive training on the new performance management system.

The new DAS(HR) has formed a Human Resource Advisory Council, which will

develop this year a Treasury strategic plan for human resource management.

Question. Could you highlight for the committee the background behind your request for additional personnel for Departmental Offices?

Answer. The Office of the Deputy Assistance Secretary for Human Resources

(DAS(HR)) requires 3 FTE to meet performance goals and statutory requirements

within prescribed time frames. Specifically, additional resources are required to improve our capacity to recruit, develop, and retain high caliber employees; improve

performance management; and reengineer human resource systems to provide better support to Treasury missions.

Last year the Assistant Secretary (Management) and Chief Financial Officer conducted a reorganization and established new positions of DAS(HR) to implement a

new vision for Human Resource Management in the Department. All human resource functions were placed under the DAS(HR), who is responsible for leading, directing, and managing an innovative and comprehensive human resource program

that serves to frame and advance the Department’s missions.

The three critical positions will be focused on continuing to implement the recommendations of the January 1997 report on the Department’s personnel system by

providing leadership in the Departmental Office operating personnel office and in

emerging human resource initiatives across the Department, e.g., reengineering

human resource systems and dealing with critical staff shortages such as in information technology. If not funded the DAS(HR) would be seriously limited in her

ability to carry out in a timely manner Treasury’s strategic goals of recruiting, developing, and retaining a high caliber, diverse work force, and to reengineer the

human resource systems to more effectively and efficiently support Treasury’s missions.

STATE TRADING ENTERPRISES

One of President Clinton’s major campaign issues was to step up enforcement actions against foreign companies doing business in the United States. The President

estimated during his initial campaign that an additional 50 billion dollars could be

collected by the enforcement of the tax laws against foreign companies operating in

the United States.

Question. How do the monopoly subsidiaries of the State Trade enterprises operate? How do they affect competition in the importing countries?

Answer. These questions do not touch on issues under the Treasury Department’s

purview. They should probably be directed to the Department of Commerce or the

Office of the U.S. Trade Representative.

Question. What is Treasury doing to monitor and collect taxes in regards to ‘‘State

Trading Enterprises’’ and their subsidiaries operating in the United States?

Answer. State trading companies and their subsidiaries operating in the United

States are subject to the same tax statutes and regulations as any other foreign

companies operating in the United States. The are subject to IRS audit to see if

their transactions with related parties abroad are in accordance with the very comprehensive and newly revised transfer pricing rules. They must file a Form 5472

that gives information on transactions with any related party offshore. Section

6038A of the Internal Revenue Code requires foreign-controlled U.S. companies to

furnish data to the Treasury that is necessary for the IRS to verify the proper treatment of transactions with parties offshore. Failure to comply results in severe penalties.

Foreign-controlled companies are also subject to ‘‘earning-stripping’’ rules that

may reduce their allowable deductions for interest expense if they have high debtasset ratios and pay interest to related parties offshore.

Question. How does the New Zealand Dairy Board (NZDB) or any other State

Trading Enterprise do business and must each be profitable?
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Answer. The operation of foreign state trading enterprises are not under the

Treasury Department’s purview. This issue should probably be directed to the Department of Commerce, The Department of Agriculture or the Office of the U.S.

Trade Representative.

Question. Do export monopolies benefit their own farmers? How does the return

to the New Zealand dairy farmer compare to the return to the U.S., EU, and Australian dairy farmer? What is the operating cost of the New Zealand Dairy board?

How much do the farmers pay to maintain it? Would they be better off without it?

Answer. These questions do not touch on issues under the Treasury Department’s

purview. They should probably be directed to the Department of Commerce or the

Department of Agriculture.

Question. What are the advantages of a State Trading Enterprise being able to

totally control supply and price? How do the STE’s pay taxes in the countries in

which they operate?

Answer. These questions do not touch on issues under the Treasury Department’s

purview. They should probably be directed to the Department of Commerce or the

Office of the U.S. Trade Representative.

Question. Does the monopoly structure allow them to avoid taxes around the

world?

Answer. It is difficult to determine whether their monopoly structure provides

State Trading Enterprises with a greater opportunity to avoid taxes around the

world. As noted above, they are subject to the same relatively stringent tax rules

that apply to all foreign-controlled companies operating in the United States. If they

have exclusive control over all transactions with their home country, it may be difficult to find an ideal comparable uncontrolled price as a basis for determining the

appropriate transfer price. But the Section 482 regulations specify various other

methods and adjustments that can be used to establish the arm’s length price in

the many cases when an ideal comparable uncontrolled price is not available.

Question. Does this give STE’s additional funds which are then used to cross-subsidize?

Answer. The operation of foreign state trading enterprises are not under the

Treasury Department’s purview. This issue should probably be directed to the Department of Commerce, The Department of Agriculture or the Office of the U.S.

Trade Representative.

YOUTH CRIME PREVENTION PROGRAMS

Question. Can you provide additional information about Treasury’s programs to

combat gang and youth violence programs?

Answer. The Gang Resistance Education and Training (GREAT) Program has had

tremendous results in teaching the nation’s children the dangers of gangs, guns and

drugs. While most of the nation experiences a decrease in violent crimes, there are

some areas of the United States that are, unfortunately, bucking this trend.

The GREAT Program currently provides training in over 1,400 communities

throughout the United States. Of these, only 74 communities receive federal funding

through the GREAT Program. At the beginning of the 1994–95 school year, a national evaluation of the GREAT Program was launched by the University of Nebraska at Omaha in conjunction with the National Institute of Justice (NIJ) and

ATF. The five-year longitudinal part of the study will be completed in the year 2000.

In November of 1997, results of the cross-sectional part of the study were published

by NIJ after an intensive peer review process. The study found that students completing the GREAT Program reported lower levels of delinquency, impulse behavior,

risk-taking behavior and approval of fighting, as well as higher levels of self-esteem,

parental monitoring, parental attachment, commitment to positive peers, anti-gang

attitudes, perceived educational opportunities and positive school environment.

Dr. Finn-Aage Esbensen wrote that these results are promising, and that the longitudinal study will also provide a better assessment of the program’s effectiveness,

as well as allowing for an examination of the long-term effects of the program. He

also wrote in his study that gang members reported living in single parent homes

more frequently (40 percent) than non-gang youths (30 percent). Gang members’

mothers, fathers, or both were more likely not to have finished high school (20 percent for gang members, 11 percent for non-gang youths). Dr. Esbensen wrote that

these demographic characteristics suggest there may be qualitative differences in

the living situations between gang and non-gang youths. If the GREAT Program

continues to have a positive effect/impact, over the long term the communities that

are teaching GREAT should continue to benefit from the program. One of these benefits, again, would be a lower level of delinquency and violence.
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EARNED INCOME TAX CREDIT COMPLIANCE ACCOUNT

Question. What is the status of IRS efforts funded through the new Earned Income Credit Compliance Account?

Answer. This year, the IRS has taken a number of proactive efforts as part of the

Earned Income Credit Initiative, including:

—Sent notices to over 6 million EITC recipients informing them of the advance

EIC payment option.

—Sent an informational letter to the top 100 employers most likely to employ taxpayers who would be eligible for the credit.

—Sent notices to approximately 2.5 million taxpayers who did not claim the credit

but appear eligible for the credit.

—We are providing toll-free assistance for EITC questions 24 hours per day 7

days a week.

—We expanded outreach efforts to service EITC eligible low income and elderly

taxpayers by providing tax information and return preparation during the last

three Saturdays beginning March 28.

—We designated March 28, as EITC Awareness Day, where walk-in sites provided

taxpayers with up-to-date information regarding the new tax laws and the penalties associated with intentional noncompliance, and assisted EITC eligible

taxpayers with return preparation.

—Informational products such as stuffers, posters, employee and employer brochures were provided to local offices to use in partnering efforts with groups

and agencies.

—As of March 19, 1998 we have issued 47,730 EIC Math Error Notices for Invalid/Missing Social Security Numbers.

NON-BANK REGULATION

Question. The Money Laundering Suppression Act of 1994 requires the registration of Non-Bank Financial Institutions that includes a methodology for reporting

suspicious financial activity. Where is Treasury in registering non-banks and what

regulations are in place to control non-bank reporting of suspicious activity?

Answer. Proposed rules were announced in May 1997 to respond to vulnerabilities

in the money services business (MSB) industry as well as to implement the requirement of the Money Laundering Suppression Act of 1994 that the Treasury register

this group of businesses.

The first proposed rule would require that MSB’s—which include money transmitters or remitters, money order issuers and sellers, travelers check issuers and sellers, retail currency exchangers and check cashers—register with the Department of

the Treasury. A second proposal would extend suspicious activity requirements to

money transmitters and issuers, sellers and redeemers of traveler’s checks or money

orders. The third proposal would require money transmitters to report currency

transactions of $750 or more that involve the transmission of funds to any person

outside the United States.

FinCEN held five public meetings last summer to elicit comments on the proposed

rules. The written comment period ended on September 30. FinCEN has reviewed

the comments and is finalizing the proposed rules based on industry concerns,

where appropriate.

Treasury has indicated it will allocate $2.5 million from Treasury Super Surplus

balances in the Treasury Forfeiture Fund to FinCEN for MSB implementation fiscal

year 1999. This amount would be used for administration of the new programs, including guidance, interpretive advice, oversight, coordination and data analysis.

FinCEN projects publication of the final rules by early-mid summer, with full implementation of all three new requirements no sooner that year’s end. These rules will

impose new requirements on a very diverse set of businesses, including convenience

stores, travel agencies, groceries and other small retail businesses that offer these

services as a convenience to their customers. We anticipate providing the MSB community with ample time for implementation of the rules.

It should be noted that while there are currently no federal regulations requiring

MSB’s to set up programs to detect and report suspicious activity, virtually all of

the national MSB businesses, such as Western Union, American Express, and the

U.S. Postal Service, have already begun to establish such programs and are voluntarily filing suspicious activity reports today.
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SUBCOMMITTEE RECESS

Senator CAMPBELL. This hearing is recessed. The subcommittee

is recessed until Thursday, March 26.

[Whereupon, at 10:35 a.m., Thursday, March 12, the subcommittee was recessed, to reconvene at 9:35 a.m., Thursday, March 26.]

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TREASURY AND GENERAL GOVERNMENT

APPROPRIATIONS FOR FISCAL YEAR 1999

THURSDAY, MARCH 26, 1998

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 9:35 a.m., in room SD–192, Dirksen

Senate Office Building, Hon. Lauch Faircloth, presiding.

Present: Senators Campbell, Faircloth, and Kohl.

EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF NATIONAL DRUG CONTROL POLICY

STATEMENT OF GEN. BARRY R. McCAFFREY, DIRECTOR

OPENING REMARKS

Senator FAIRCLOTH. The subcommittee will come to order. The

chairman of the subcommittee, Senator Campbell, has been detained briefly this morning but will be joining us in a very short

while. I would like to begin with a few brief remarks and then turn

to the ranking member, Senator Kohl, for any opening statement

he may wish to make.

First, I want to welcome General McCaffrey, the White House

National Drug Policy Director, or more simply, the drug czar. He

is here to present the administration’s budget for the Office of National Drug Control Policy for fiscal year 1999. We welcome you,

General.

General MCCAFFREY. Yes, sir.

Senator FAIRCLOTH. General, I must say, from our perspective,

the Nation is losing the war on drugs. It certainly seems so. Now

I know that you have been working hard and diligently to fight the

current trends of increasing drug use, but frankly this seems to be

a lone voice crying out in the wilderness. It appears to be getting

worse.

But I think you are commended for your efforts, but I do think

it is disingenuous for this administration to continually compare

current drug use rates with the year 1979, perhaps the worst period ever we had. A much better comparison, and one I hope you

will focus on or elaborate on is comparing current drug use statistics with the year 1992, when President Clinton was first elected.

I realize that that is not the most comfortable situation or question

for the administration, but the news is almost entirely bad.
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General, according to your testimony, cocaine initiation rates, or

the number of people trying cocaine for the first time are increasing. Heroin initiation rates are up markedly. Drug use trends

among young people, to quote you, remain especially troubling.

General, I saw that your winter 1997 pulse check recently made

the disturbing announcement that heroin and methamphetamine

drug usage is increasing.

General, I have introduced a bill to transfer up to one-third of

the IRS enforcement positions to the Department of Drug Enforcement because I believe the IRS is waging a war on the American

taxpayers that is unnecessary while we are losing the war on

drugs. My view is that we must change the priorities of this administration and put the necessary resources behind an effort to get

drugs out of the schools and the life of our young people certainly.

With that, I turn to Senator Kohl for any statement he wishes

to make.

STATEMENT OF SENATOR KOHL

Senator KOHL. Thank you, Senator Faircloth.

General McCaffrey, we welcome you to the subcommittee today

and we very much appreciate having another opportunity to discuss our concerns about drugs and their impact on our society. As

we discussed last year, we have invested some $150 billion in drug

control activities since 1987. However, drug abuse costs the taxpayers an additional $70 billion a year by fueling such things as

domestic abuse, accidents, the spread of disease, and crime.

We have seen some improvements, we are not seeing the steady

decrease in drug abuse and drug trafficking that we were anticipating, given that level of funding. In 1997, you told this subcommittee that you were going to provide results and not rhetoric. That

is what we need, concrete examples of successes.

We cannot continue to provide funds without proof that the programs that you advocate are working. We need to show some evidence of success. We need to show some incremental improvements. We need to show something that will indicate that taxpayer

dollars are making a difference in what our citizens describe as the

most serious problem facing our children in America today. As a result, we should at least continue to fund prevention programs with

proven successes such as the GREAT Program and the high-intensity drug trafficking programs.

We also need to make sure that we are providing treatment to

incarcerated individuals who test positive for drugs. And we need

to make sure that communities have programs available to those

that want a better way of life; namely, a drug-free life.

Thank you, Mr. Chairman.

Senator FAIRCLOTH. Thank you.

General McCaffrey, we are delighted to hear your statement.

STATEMENT OF GENERAL MC CAFFREY

General MCCAFFREY. Thank you very much, Senator. Let me

thank you and your colleagues, those who will come later, particularly Chairman Campbell, and all of you——

Senator FAIRCLOTH. General, if you do not mind, would you move

the microphone a little closer to you there?
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General MCCAFFREY. Yes, indeed. Let me again say I thank you

for your opening comments and for Chairman Campbell and the

rest of your support during the past year. I probably ought to congratulate you specifically for having been named one of the top five

zealots in the war on pot smokers by NORML. I think it is a title

you ought to be proud of.

Senator FAIRCLOTH. I did not know I had been named.

General MCCAFFREY. We are very pleased with you taking that

visible role.

Let me, if I may, Senator, tell you straight-out that I share your

uneasiness and your concern on the magnitude of this problem. It

is simply atrocious, and I will try and sketch that out very quickly.

INTRODUCTION OF GUESTS

With your permission, let me call to your attention that I am

really honored to have here in the room with me several people

who are enormously important to us. Many of our HIDTA directors

were able to come in—the ones that are close enough to drive—Joe

Peters from Philadelphia HIDTA, Dave Knight from Gulf Coast,

and Tom Carr from Washington-Baltimore HIDTA.

We also have Nelson Cooney, the acting president of the Community Antidrug Coalitions of America, arguably the most important

group I work with; more than 4,000 community coalitions all over

the country. And this Portman-Grassley bill will assist us, as you

know, in building we hope 14,000 coalitions in the next 5 years.

We have Linda Wolf Jones here from Therapeutic Communities

of America, Sue Thau who is with the Community Antidrug Coalitions of America, Kathleen Sheehan with the National Association

of State Alcohol and Substance Abuse Directors. And two very important people that I think are known to both of you, Dick Bonnet

and Mike Townsend from Partnership for a Drug-Free America.

They have done really the bulk of the creative work on this national youth media strategy that we will talk about some more.

So I thank all of them because their participation has helped us

outline our strategy and what we are doing.

1998 NATIONAL DRUG CONTROL STRATEGY

Let me run through some charts very quickly. First of all, to

again reiterate that we are working off a strategy. Senator, let me

just note that there are four documents that are in this strategy,

all of them by law something that I must submit each year. The

first is the document, ‘‘A 10-Year Perspective,’’ that was created

with the assistance of more than 4,000 individuals and entities who

wrote me advice on how to go about this problem. We think this

is extremely well received throughout the country. It makes sense.

It is a way to organize it.

Senator, for the first time in history we submitted a 5-year drug

budget. Frank Raines and I worked with the nine appropriations

bills that form the more than $17 billion in the 1999 budget request, and it is now in a document. I do not think it is all that

good, but it is our first shot at it and we are now looking for congressional oversight on how should we shape the coming 5 years.

I really welcome your attention to this effort. We are proud that

we got it on the table and we are listening for your ideas.
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PERFORMANCE MEASURES

A very controversial document and I think an important one, Dr.

John Carnevale out of my shop has been leading a yearlong effort

to create the ‘‘Performance Measures of Effectiveness.’’ It is 141

pages. We have a modest estimate on how good it will be, but we

said 10 years from now what are the 12 outcomes we want to

achieve. Then we describe 82 targets we have to achieve to get to

those 12 outcomes. I will show you a chart that summarizes it.

Now in the coming year I have to develop annual targets so that

you can hold us accountable every year when we come down here,

not only for explaining the 5-year budget we are arguing for, but

what did we accomplish in the last year. That is what this is intended to do.

The numbers we can change. If you have other studies or experts

or a different viewpoint, I will, of course, be respectful of your

thinking. But I would like us to embrace the idea of accountability,

and that it will be a 10-year program to get a new generation of

America drug free.

CLASSIFIED STRATEGY

Finally, this is a classified document. It is classified secret, limited distribution. It is available, of course, for you to look at. It is

the ‘‘Strategic Annex to the Strategy.’’ It gives guidance to our intelligence services, et cetera.

Good morning, Mr. Chairman. Mr. Chairman, I just began to

make comments and I outlined the four documents that comprise

the totality of the strategy.

DRUG USE DATA

Let me quickly run through some other charts. This is where we

are going. This is our target. It is a little bit hard to read, but let

me just tell you that currently drug use is at 6 percent in this

country, and when you look at the young kids 12 to 17 it is about

9 percent use. That went down last year for the first time in 6

years. It was 10.6 percent. It dropped to 9 percent.

Donna Shalala, whose study gives us this data, and I say that

is statistically not significant. But what is significant is for the first

time in 6 years it went down, not up. Now down below is where

we say we are going. The 10-year goals are 3 percent of the population using drugs, and when you look at the kids, 4.5 percent.

We can get there over the coming decade—we believe this is

achievable. Many think it is too ambitious. If we can get there,

they will be the lowest rates of drug use in our society since we

began keeping data. That would be before my two shiny, new

grandsons hit the eighth grade. And that is our commitment.

Now we can get more ambitious. We can achieve more of it earlier. I am listening to your own viewpoints. But that is what 200-

some-odd experts and the Federal agencies involved have come up

with. I respectfully submit that to you as a pretty decent unifying

goal. I think next year when you get me back here, instead of saying the decrease in drug use was statistically insignificant, I believe next year I am going to come back and tell you we had a definite drop in drug use rates among children.
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Now here is the cost. Senator, this is why I essentially buy your

entire statement. One hundred thousand dead in the 1990’s alone.

Look at the cost: a $70 billion hit on our society and 1.5 million

Americans arrested a year. The dominant cause of problems in our

hospital emergency rooms, if you talk to a doctor, relates to drugs.

And you can go on down the list.

We have now revised our estimates on who is addicted to heroin;

810,000 Americans. Only 2 percent of the world’s demand for heroin is in this country, but 810,000 Americans are compulsive heroin

users. We say probably a little under 4 million Americans are

chronically addicted to some illegal drug, primarily cocaine, then

heroin, then other drugs. So this is a pretty big challenge to us.

Now, are we making any progress? Absolutely—if you look at

1979, the worst time in modern America. Although that was probably not as bad as just prior to 1916, when we passed these modern

laws and it was worse with both cocaine and opiates. But if you

go back to 1979, we have come down by one-half. Cocaine use has

come down by 75 percent.

We hit the low probably around 1992, but around 1990 we saw

values among kids start going bad on us. The disapproval rate of

drugs and the fear of drugs personally went the wrong way in 1990

and 1991. In 1992, drug use rates went up and they increased

every year until last year when they went down.

Meth use, which is one of the worst drugs that we ever have encountered in this Nation——

Senator FAIRCLOTH. What drug did you say?

General MCCAFFREY. Methamphetamine. Chemically produced.

Go get a $100 bill, the recipe off the Internet, get a high school laboratory level of equipment and you can make the poor man’s cocaine. Six to sixteen hours of dangerous drug-induced highs. It is

destructive physically, mentally, and spiritually. It is horrendously

dangerous to our law enforcement personnel.

Yet as that thing has spread, maybe—maybe Attorney General

Janet Reno and I, with a new strategy, and you having given us

new legislation, maybe last year we got in front of this. This should

not become the crack cocaine epidemic of the 1990’s. As you remember, in 1985 that almost killed American cities. And meth is

out there, and it is not just in the cities either. It is in rural Georgia, Kansas, Missouri, Arizona, Idaho, Hawaii, and southern California. But we think we may be in front of it.

Cocaine production is down. The facts are we finally have started

to bite into it. Except for poor Colombia where it is a disaster. In

Peru the production of coca is down 40 percent in 2 years. It is

down 9 percent in Bolivia. It is astonishing the progress we have

made. That is just the beginning, but at least we are starting to

turn the corner.

United States spending on drugs is down and some aspects of

drug-related crime are down. It is hard to tell that to a police officer, dealing with the impact of drug-related violence. We have a

man in the room whose son was almost murdered as a Maryland

State police officer by drug dealing. So the violence is still out

there. But if you look at the gross numbers, it has come down—

thank God—dramatically.
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This is another, I find, bit of encouraging news. One of the four

major studies we do every year, federally funded, is Monitoring the

Future, by Dr. Lloyd Johnson up at the University of Michigan.

Since the 1960’s they have been watching what kids say about

their values, including drugs. Last year, his data showed 12th

graders’ drug use still going up. But if you look at the eighth graders and their values relating to cigarettes, alcohol, pot, and other

drugs, apparently they have started to turn around. Let us watch

that. That is our goal: to take eighth grade drug use rates and run

them down.

Our kids now are drug free when they finish the DARE program

in the fifth and sixth grade. In the 8th, 9th, 10th, 11th, and 12th

grade they encounter drugs, so by the time they are seniors one out

of five are regularly using an illegal drug. Ten years from now,

those kids will produce the next generation of compulsive drug

users. That is why we have to focus on middle school kids, and

high school kids, and keep them from smoking pot and abusing alcohol and using cigarettes.

NATIONAL YOUTH MEDIA CAMPAIGN

The National Youth Media Strategy that you funded as part of

the ONDCP budget is starting to pay off. We are so proud of what

not only the Partnership for a Drug-Free America, but also the

Quad A, the Annenberg School of Journalism, the Advertising

Council of America, and the entertainment industry. I have a report which hopefully is in your packet that gives you our initial

feedback on the 12 pilot cities. In June we will go nationwide. By

the fall, PDFA will have our new generation of ads coming out.

Our key is that by the time December rolls around, we will have

messages on radio, local billboards, and local TV, as well as national programs that sound like your district, your State: Native

American, Hispanic-American, African-American, Southern, Northeast corridor. The work we are doing right now has produced a

wave of phone calls to coalitions that we find very encouraging.

Finally, I would just sort of show you this. Here is the next step

to all of this. Although paid advertising is the heart and soul of it,

and the Partnership for a Drug-Free America is really our dominant partner in that area, there’s also partnerships with private industry. We are working with the industry council. We are going to

get on the Internet. Right now it is dominated by prodrug forces.

We are going to make sure we have interactive capacity to deal

with young kids as well as high school kids.

DRUGS AND PRISONS

Yesterday we finished a 2-day conference cochaired by Attorney

General Janet Reno and Secretary Donna Shalala. We brought in

a couple hundred experts from all over the country on drugs and

prisons. I do not need to tell this committee, we have 1.7 million

people behind bars; more than any other nation on the face of the

Earth. It is probably going to go up 25 percent in the coming years.

It is a national nightmare.

It helps to keep the violent criminals off the streets. Somewhere

between 50 and 80 percent of those incarcerated are compulsive

drug users. So we know—and we have learned this from Attorney
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General Reno and Secretary Shalala’s studies and their experience—that we have to provide effective drug treatment, and then

we have to put people back in the halfway houses with drug testing. And when they predictably fall off the wagon, we have to have

a tough love approach where we reincarcerate them for 21 days or

14 days—and we have a judge running this system—instead of allowing them to go back to a life of addiction.

We are going to work on that. By next December we are going

to bring in the country’s law enforcement and correction specialists

and try and give them some solutions on all of this. But I think

it is a very encouraging situation, and some of those in the room

are helping us design that.

HIDTA

Final one, let me just mention the HIDTA program which I am

very grateful for your support on that. We now have 20 HIDTA’s,

three of which have funds appropriated and are pending obligation.

Those are moving along the right way. The 20 HIDTA’s include five

Southwest border partnerships. All along that border now, 2,000

miles with Mexico, we have a high-intensity drug trafficking area

with Federal funding allowing State, local, Federal cooperation on

this drug issue.

We are getting a tremendous amount of good out of this. There

are probably more HIDTA’s that deserve consideration. By this

summer I will have a study done and we will come back to Congress and to this committee and recommend an expansion of that

program. But I think there is every reason to be very proud of the

way prosecutors and law enforcement have come together on this

issue.

BUDGET

Mr. Chairman, with that, let me, if I may, just say that I think

we have an aggressive, balanced fiscal year 1999 budget proposal

in front of you, for the ONDCP element of the drug control effort,

which is really the smallest piece of it. It is a $17 billion overall

program in nine different bills of which our ONDCP salaries and

budget are a pretty small piece of it: a little over $19 million. There

is $162 million in the HIDTA program, $1 million in there for

ONDCP research, and then $251 in the so-called special forfeiture

fund.

The big ticket items are the media campaign, the drug-free communities program, and then also a hardcore user study and some

other assorted activities that I would be honored to talk you

through.

PREPARED STATEMENT

With your permission, Mr. Chairman, I would submit for the

record a written statement that we have pulled together which includes the best judgments we have in response to your own interests.

Senator CAMPBELL. Without objection, it will be included in the

record.
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General MCCAFFREY. Sir, I look forward to answering your own

questions and listening to your own ideas.

[The statement follows:]

PREPARED STATEMENT OF BARRY R. MCCAFFREY

Chairman Nighthorse Campbell, Senator Kohl and members of the Committee,

thank you for the opportunity to testify on the Office of National Drug Control Policy’s budget. The Office of National Drug Control Policy (ONDCP) appreciates your

longstanding support, as well as the guidance and leadership of the Committee. The

Strategy we have presented to the Congress, developed in close consultation with

the members of this Committee and the Congress as a whole, reflects the strength

of our enduring bipartisan commitment to focus our efforts to diminish America’s

drug problem on realistic results. We appreciate your good counsel on setting our

sights on aggressive, but plausible, targets.

Much of our current progress results from the fact that you have enabled us to

reinvigorate the Office of National Drug Control Policy. Mr. Chairman and Senator

Kohl, I want to particularly thank each of you for your wise judgments and tireless

efforts in this regard. Through the support of this Committee, we now have an

ONDCP that is ready for the task ahead.

The importance of your bipartisan support in the success of this effort is evident

from one of the most significant programs we are now undertaking: the National

Anti-Drug Youth Media Campaign. Mr. Chairman and Senator Kohl, your efforts to

ensure the success of the National Youth Media Campaign are now paying off; in

twelve pilot cities we are reaching out to our young people with a simple, yet vital

message: ‘‘drugs are wrong, and they can kill you and your dreams.’’ Absent the support of you and this committee, this program would not exist today. The other efforts of Committee members, such as Senator Mikulski’s support of the Baltimore

HIDTA and Senator Shelby’s efforts on the intelligence review, are also vital to our

success. Let me congratulate Senator Faircloth on being designated one of the ‘‘Top

Five Zealots in the War on Pot Smokers’’ by NORML.

Our common efforts have had a direct and substantial impact on the success

America has enjoyed in reducing drug use. Over the past seventeen years, this bipartisan partnership has contributed to a 50 percent overall reduction in the number of Americans using drugs and a 70 percent reduction in the number of Americans using cocaine. But we can and must do more. If unchecked, America’s drug

abuse problem will kill 140,000 Americans and cost our society $700 billion over the

coming decade. Our progress must be steady; we cannot afford to lose a moment’s

time or spare any effort in significantly reducing the threats of drug use in America.

We welcome the opportunity at this hearing is to put forward the fiscal year 1999

budget for ONDCP. However, to provide a framework for understanding this budget,

this testimony must begin with an analysis of current drug use trends in America,

and an overview of the 1998 National Drug Control Strategy.

When you considered my appointment as Director of ONDCP in February 1996,

I pledged to forge a coherent counter-drug strategy that would substantially reduce

illegal drug use and protect our youth and our society. The 1998 National Drug Control Strategy reflects ONDCP’s ongoing commitment to this goal. This Strategy is

a ten-year plan to reduce drug use in America by half—to the lowest levels in the

past thirty years. The following table offers examples of the progress that will be

attained if this plan is fully implemented by all sectors of American society:

Measure Current figure 10-year goals 30-year lows/highs

Current drug use (all ages) ............................... 6.1 percent ........ 3 percent ........... 5.8 percent (low).

Marijuana initiates ............................................. 2.37 million ....... 1.18 million ....... 1.37 million (low).

Age of initiation (marijuana) .............................. 16.7 years ......... 20 years ............ 20.1 years (high).

Current use of illicit drugs (among 12–17 year

olds).

9.0 percent ........ 4.5 percent ........ 5.3 percent (low).

Let us be clear on this: never before has America had so solid a commitment to

a long-term counter-drug strategy, which is determined to achieve such an ambitious a goal in fighting drugs. The Strategy is backed by a system of Performance

Measures of Effectiveness by which this Congress and the American people can hold

us accountable to achieve these ends. However, whether the issue was balancing the

budget, defeating Nazi Germany, or ensuring civil rights to our citizens, we have

triumphed as a nation only when we have worked together without regard to party
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or politics. If we lose the bipartisan anti-drug cooperation and momentum we currently have, it could take us up to three additional years to begin to meet our goals.

We need a partnership among the Administration, members of Congress, community

coalitions, and state and local governments to achieve our purpose. The National

Drug Control Strategy is sound; our task is to work together to successfully achieve

the defined outcomes for all five of our goals with their 32 supporting objectives.

I. DRUG USE TRENDS—THE THREAT IS GREAT, BUT WE ARE MAKING SOLID PROGRESS

Illegal Drug Use Places a Tremendous Burden on America.—The social costs of

drug use in America total over $67 billion per year, including $46 billion in crime,

$6.3 billion in AIDs-related costs and $8 billion in illness-related costs. Cocaine initiation rates—the number of people trying the drug for the first time—have begun

to increase. Heroin initiation rates are up markedly. Drug use trends among young

people remain especially troubling. Drug-use rates among youth, while still well

below the 1979 peak of 16.3 percent, remain substantially higher than the 1992 low

of 5.3 percent. One in four twelfth graders is a current illegal drug user, while for

eighth graders, the figure is approximately one in eight. Elevated drug-use rates are

a reflection of pro-drug pressures and drug availability. Almost one in four twelfth

graders say that ‘‘most or all’’ of their friends use illegal drugs. A Columbia University Center on Addiction and Substance Abuse survey reported that 41 percent of

teens had attended parties where marijuana was available, and 30 percent had seen

drugs sold at school.

Illegal Drug Use Rates are 50 Percent Lower Than 1979’s Historic High Level.—

In 1996, an estimated thirteen million Americans (6.1 percent of the U.S. household

population aged twelve and over) were current drug users. This figure is roughly

half the number in 1979 when twenty-five million (or 14.1 percent of the population)

were current users.

Illegal Drug Use Has Begun to Level off Among Youth.—The University of Michigan’s 1997 Monitoring the Future (MTF) study and SAMHSA’s 1996 National

Household Survey on Drug Abuse (NHSDA) indicate that youth drug use rates seem

to be leveling off, and in some cases are declining. The MTF found that, for the first

time in six years, the use of marijuana and other illegal drugs stabilized among

eighth graders. Use of marijuana and other illegal drugs among tenth and twelfth

graders also appears to have leveled off. The NHSDA reported that current drug

use among twelve to seventeen-year-olds declined between 1995 and 1996 from 10.9

percent to 9 percent. The MTF study also reported that attitudes regarding drugs,

which are key predictors of use, began to reverse in 1997 after seven years of erosion.

Crack Use is Declining.—The most recent data from the Drug Use Forecasting

Program, which monitors arrestees, show a coast-to-coast decline in crack use (from

a 29 percent decline in Washington, D.C., from 1988 to 1996, to 15 percent decline

in San Jose, from 1989 to 1996)—a good indication that the crack epidemic that

began in 1987 continues to abate.

Good News on Methamphetamine.—Meth use, as reflected by the Drug Use Forecasting Program’s testing of arrestees, is down in the eight cities that had been suffering the highest increases in use: 52 percent drop in Dallas; 20 percent drop in

San Jose; 19 percent in San Diego; 34 percent in Portland; and over 40 percent in

Denver, Omaha and Phoenix.

Cocaine Production Down Sharply.—Indications are that cocaine production in the

Andean region—the primary producing area—may be down as much as 100 tons

from last year.

Spending on Drug Consumption is Down.—The most recent data shows the

amount Americans spend buying illegal drugs is down roughly 37 percent from 1988

to 1995—a total per annum decline of $34.1 billion reinvested in American society.

Drug-Related Crime is in Decline.—In 1989, according to the FBI, there were

1,402 murders related to narcotic drug laws. In 1992, that number dropped to 1,302.

By 1996, that number hit a low of 819.

Drug-Related Medical Emergencies May Have Peaked but Remain Near Historic

Highs.—SAMHSA’s Drug Abuse Warning Network (DAWN) reported that drug-related episodes dropped 6 percent between 1995 and 1996, from 518,000 to 488,000.

Heroin-related episodes declined slightly, the first decline since 1990. Methamphetamine-related incidents decreased 33 percent to 10,787, the second year of decline

since the 1994 peak of 17,665.

Drug Offenders Crowd Our Prisons and Jails.—In June 1997, the nation’s prisons

and jails held 1,725,842 men and women—an increase of more than 96,000 over the

prior year. More Americans were behind bars than on active duty in the Armed

Forces. The increase in drug offenders accounts for nearly three-quarters of the
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growth in the federal prison population between 1985 and 1995, while the number

of inmates in state prisons for drug-law violations increased by 478 percent over the

same period.

Public Awareness About the Dangers of Drugs is Increasing.—A 1997 Harvard

University poll found that adults believe the number one problem facing America’s

children is drug abuse. A 1997 study by the Center on Addiction and Substance

Abuse found that over half of our young people support drug testing in their schools

and say they are willing to report a drug user to school officials.

II. THE 1998 NATIONAL DRUG CONTROL STRATEGY

A. Highlights of the Strategy

The 1998 Strategy focuses on expanding programs that work and building targeted new initiatives designed to directly attack the problem of drug use. Highlights

of this comprehensive, balanced, ten-year plan include:

A Ten-Year Strategy to Reduce Drug Use and its Consequences by Half

—First-ever, comprehensive ten-year plan to reduce drug use and its consequences by half.

—This ten-year plan is backed by a five-year budget projections, and Performance

Measures of Effectiveness to improve accountability and efficacy.

—Supported by the largest counter-drug budget ever presented: $17.1 billion.

—Dynamic and comprehensive: focuses on results not programs; each element

supports all the other initiatives.

Providing the Resources Necessary to Make a Difference

—The $17.1 billion recommended drug control budget for fiscal year 1999 represents a $1.1 billion increase (6.8 percent) over the fiscal year 1998 enacted

level.

—The fiscal year 1999 budget includes an increase of $491 million for treatment

and prevention programs and $602 million for supply reduction programs.

—The fiscal year 1999 recommended drug budget is 43 percent larger than the

fiscal year 1992 enacted budget.

—Prevention efforts in the fiscal year 1999 budget are provided $.7 billion more

than in fiscal year 1992; treatment programs are provided $3.5 billion more

than in fiscal year 1992; domestic law enforcement efforts are provided $3.7 billion more than in fiscal year 1992.

Protecting America’s Young People

—The Strategy’s first goal is educate children and adolescents to enable them to

reject drugs.

—This Strategy builds on programs that work and launches new initiatives:

National Youth Anti-Drug Media Campaign ($195 million)—will ‘‘go national’’

in June.

School Drug-Prevention Coordinators Initiative ($50 million)—providing prevention professionals to 6,500 middle schools nationwide.

President’s Youth Tobacco Initiative ($146 million)—preventing behavior with a

relation to future drug use.

The Civic Alliance—helping 33 national civic and service groups, representing

55 million people, to fight youth drug use.

Youth Drug Research—expanding understanding of youth drug use and addiction.

—Largest percentage budget increases—15 percent or $256 million—for youth

programs.

Strengthening Communities and Workplaces

—Launches the Drug-Free Communities Program, a five-year, $140 million effort

that will strengthen the existing 4,000 community-based anti-drug coalitions,

and build 10,000 new coalitions across the nation.

—Works with 22 million small businesses to initiate drug-free workplaces.

Reinforcing Our Borders

—Launches a $105 million Port and Border Security Initiative.

—Puts 1,000 new Border Patrol agents, and increases barriers along the Southwest Border.

—Deploys new technologies, such as advanced X-rays and remote video surveillance, along the Southwest Border—including $41 million for nonintrusive inspection technologies.

—Strengthens oversight over federal Southwest Border drug control efforts.
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Strengthening Law Enforcement

—Focuses on full implementation of the Community Oriented Policing Services

(COPS) program. —Expands DEA’s counter-heroin initiative: $12.9 million and 95 new agents.

—Expands anti-methamphetamine initiative: $24.5 million including 100 new

DEA agents. —Expands DEA’s Caribbean Corridor Initiative: $9.8 million and 56 new agents.

Breaking the Cycle of Drugs and Crime

—Provides treatment to nonviolent first-time offenders in the criminal justice system to free them from the addictions that drive their actions. Punishment alone

cannot diminish drug-related crime; it is necessary to break the cycle of drugs,

crime and prisons. —Provides $85 million in funding and other support to help state and local governments implement drug testing, treatment, and graduated sanctions for drug

offenders.

Reducing the Supply of Drugs and Enhancing Multinational Cooperation

—In 1997, Andean cocaine production dropped by as much as 100 tons less than

the prior year.

—Despite this overall progress, Colombian coca production is up 56 percent over

the last two years, with much of the expanded capacity occurring in guerrilla

or paramilitary held territories.

—The Strategy adds $75.4 million in Department of Defense support to U.S., Andean, Caribbean and Mexican interdiction efforts.

—Adds $45 million to support Andean nation counter-drug efforts, including interdiction, crop replacement, and support to law enforcement.

—Continues to build multinational cooperation against drugs, focusing on USMexico bilateral efforts, the Caribbean Initiative, and the upcoming Santiago

Summit and U.N. General Assembly Special Session.

Closing the Treatment Gap

—The number of people who require drug treatment but who are not in treatment—the ‘‘gap’’—is estimated at 1.7 million.

—Provides an added $200 million in Substance Abuse Block Grants to States to

assist in closing the gap, increasing the total funding to $1.5 billion.

B. Goals and Objectives of the 1998 Strategy

The goals of the 1998 Strategy remain unchanged from the 1997 Strategy; reflecting both the need for consistency and the importance of sticking to those programs

that make sense and are working. The thirty-two drug control objectives are aligned

with the Performance Measures of Effectiveness and outline the specific accomplishments this Strategy is designed to achieve. The objectives are aggressive. The Administration is committed to meeting these goals, as well as to continually examining and refining the targets set forth in the performance measures system. There

will be an annual review during the budget process to determine the relationship

between the goals and the level of available federal and nonfederal resources.

Goal 1: Educate and enable America’s youth to reject illegal drugs as well as alcohol

and tobacco.

Drug abuse is preventable. If boys and girls reach adulthood without using illegal

drugs, alcohol, or tobacco, they probably will never develop a chemical-dependency

problem. To this end, the Strategy focuses on educating children about the real dangers associated with drugs. ONDCP seeks to involve parents, coaches, mentors,

teachers, clergy, and other role models in a broad prevention campaign. The Strategy encourages businesses, communities, schools, the entertainment industry, and

coaches to join these anti-drug efforts. In addition, we must limit drug availability

and treat young substance abusers.

Objectives.—The Strategy’s mid-term objectives are to reduce the prevalence of

past-month drug use among youth by 20 percent and increase the average age of

first use by twelve months before the year 2002. The long-term objectives are a 50

percent reduction in current drug use and an increase of thirty-six months in the

average age of first use by the year 2007.

Goal 2: Increase the safety of America’s citizens by substantially reducing drug-related crime and violence.

The social ruin caused by drug-related crime and violence mirrors the tragedy

that substance abuse wreaks on individuals. A large number of the twelve million

property crimes committed each year are drug- related as is a significant proportion
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of nearly two million violent crimes. The nation’s 3.6 million chronic drug users contribute disproportionally to this problem, consuming the majority of cocaine and heroin on our streets.

Drug-related crime can be reduced through community-oriented policing, which

has been demonstrated by police departments in New York and numerous other cities where crime rates are plunging. Cooperation among federal, state, and local lawenforcement agencies and operations targeting gangs, trafficking organizations, and

violent drug dealers are making a difference. Equitable enforcement of fair laws is

a must. Punishment must be perceived as commensurate with the offense. Finally,

the criminal justice system must do more than punish. It should use its coercive

powers to break the cycle of drugs and crime through linkage of the criminal justice

system to effective treatment programs.

Objectives.—The Strategy’s mid-term objective is to reduce drug-related crime and

violence by 15 percent by the year 2002. The long-term objective is a 30 percent reduction by the year 2007.

Goal 3: Reduce health and social costs to the public of illegal drug use.

Drug dependence is a chronic, relapsing disorder that exacts enormous costs on

individuals, families, businesses, communities, and the nation. Addicted individuals

have lost their ability to resist drugs, which results in self-destructive and criminal

behavior. Effective treatment can manage addiction and lower the cost of chronic

drug use to society.

Providing effective drug treatment for America’s 3.6 million chronic drug users is

both prudent public policy and a sound investment. For example, a recent study by

the National Institute on Drug Abuse found that outpatient methadone treatment

reduced heroin use by 70 percent, cocaine use by 48 percent, and criminal activity

by 57 percent. It also increased employment by 24 percent. Long-term residential

treatment had similar success.

Objectives.—The Strategy’s mid-term objectives are to reduce use by 25 percent

and health and social consequences by 10 percent by the year 2002. The long-term

objectives are a 50 percent reduction in drug use and 25 percent reduction in consequences by the year 2007.

Goal 4: Shield America’s air, land, and sea frontiers from the drug threat.

The United States is obligated to protect its citizens from the threats posed by

illegal drugs crossing our borders. Interdiction in the transit and arrival zones disrupts drug flow, increases risks to traffickers, drives them to less efficient routes

and methods, and prevents significant amounts of drugs from reaching the United

States. Interdiction operations also produce intelligence that can be used domestically against trafficking organizations.

Each year, more than sixty-eight million passengers arrive in the United States

aboard 830,000 commercial and private aircraft. Another eight million individuals

arrive by sea, and a staggering 365 million cross our land borders each year driving

more than 115 million vehicles. More than ten million trucks and cargo containers

and ninety thousand merchant and passenger ships also enter the United States annually, carrying some four hundred million metric tons of cargo. Amid this voluminous trade, traffickers seek to hide more than 300 metric tons of cocaine, thirteen

metric tons of heroin, vast quantities of marijuana, and smaller amounts of other

illegal substances.

Objectives.—The Strategy’s mid-term objective is to reduce the amount of illegal

drugs entering the United States by reducing trafficker success rates through the

transit and arrival zones 10 percent by the year 2002. The long-term objective is

a 20 percent reduction in trafficker success rates by the year 2007.

Goal 5: Break foreign and domestic drug sources of supply.

The rule of law, human rights, and democratic institutions are threatened by drug

trafficking and consumption. International supply reduction programs not only reduce the volume of illegal drugs reaching our shores, they also attack international

criminal organizations, strengthen democratic institutions, and honor our international drug-control commitments. The U.S. supply reduction strategy seeks to: (1)

eliminate illegal drug cultivation and production; (2) dismantle drug-trafficking organizations; (3) interdict drug shipments; (4) encourage international cooperation;

and (5) safeguard democracy and human rights. Additional information about international drug-control programs is contained in a classified annex to this Strategy.

Objectives.—The Strategy’s mid-term objectives are a 15 percent reduction in the

flow of illegal drugs from source countries and a 20 percent reduction in domestic

marijuana cultivation and methamphetamine production by the year 2002. Longterm objectives include a 30 percent reduction in the flow of drugs from source coun-
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tries and a 50 percent reduction in domestic marijuana cultivation and methamphetamine production by 2007.

C. Assessing Performance

The Strategy’s supporting performance-measurement system establishes the interrelationship between outcomes, programs, and resources. The performance measurements detailed in a companion volume to the Strategy—Performance Measures of

Effectiveness: A System for Assessing the Performance of the National Drug Control

Strategy—will gauge progress toward that end using five and ten-year targets. The

heart of the system consists of twelve impact targets that define strategic end-states

for the Strategy’s five goals. Eighty-two supporting performance targets establish

outcomes for the Strategy’s thirty-two objectives. These targets were developed by

federal drug-control agencies working with ONDCP and were reviewed by state and

local agencies and drug-control experts.

While the drug-control performance measurement system can offer valuable information on program effectiveness, it will not determine federal budgets. No responsible level of federal spending alone can bring about a 50 percent reduction in America’s illegal drug use problems. State and local governments, the private sector, communities, and individuals must all embrace the commitment to reduce demand by

50 percent over the next ten years. However, by providing clear benchmarks of our

progress, the performance measures will assist policy makers, legislators, and managers in considering the adequacy of specific drug-control programs and increase accountability; these measures will assist in a considered review of whether we are

achieving the maximum impact for the resources being used . In turn, we will gauge

whether the performance targets need to be adjusted to reflect new or changing circumstances.

Progress will be measured using both existing and new survey instruments. The

Monitoring the Future survey and the National Household Survey on Drug Abuse,

for example, estimate risk perception, current use rates, age of initiation, and lifetime use for most illegal drugs, alcohol, and tobacco. The Arrestee Drug Abuse Monitoring system and Drug Abuse Warning Network provide indirect measures of consequences. The principal measuring device for international progress is the International Narcotics Control Strategy Report. This annual State Department document provides country-by-country assessments of initiatives and accomplishments.

It summarizes drug cultivation, eradication, production, seizures, arrests, destruction of laboratories, drug flow and transit, and criminal justice efforts. The Office

of National Drug Control Policy’s Advisory Committee on Research, Data, and Evaluation will consider additional instruments and measurement processes needed to

address the demographics of chronic users, domestic cannabis cultivation, drug

availability, and other drug-policy data shortfalls. (Because our performance assessments depend on the quality of the data developed, improved and expanded research

will contribute greatly to this effort.) Annual progress reports will be submitted to

Congress.

III. THE ONDCP BUDGET

ONDCP’s fiscal year 1999 budget request of $449.449 million includes:

—$19.442 million for salaries and expenses to support ONDCP’s 154 positions

(124 full time employees and 30 detailees)

—$162.007 million for the High Intensity Drug Trafficking Area (HIDTA) program.

—$251 million for the Special Forfeiture Fund to support a National Youth AntiDrug Media Campaign ($195 million); a Drug-Free Communities Program ($20

million); a Hardcore Users Study ($10 million); and discretionary funding to enhance drug control activities and address emerging drug threats ($26 million).

—$16 million for the Counterdrug Technology Assessment Center (CTAC).

—$1 million for ONDCP-coordinated policy research.

A. The Capacity to Lead the Fight Against Illegal Drugs: $19.442 Million for

ONDCP Salaries and Expenses.

The $19.442 million for ONDCP salaries and expenses is the smallest programmatic component of the ONDCP budget. However, this funding is the linchpin

for all the other programs funded through the ONDCP budget. Without a fully

staffed and funded ONDCP, none of these other initiatives can be carried out.

ONDCP serves as the President’s primary Executive Branch support for drug policy development and program oversight. ONDCP advises the President on national

and international drug control policies and strategies, and works to ensure the effective coordination of drug programs within the Federal Agencies and Departments.

ONDCP responsibilities include:
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—Developing an annual National Drug Control Strategy.

—Developing a consolidated National Drug Control Budget for presentation to the

President and the Congress (including budget certifications and quarterly reprogramming reports).

—Certifying the budgets of programs, bureaus, agencies and departments.

—Issuing Funds Control Notices—ONDCP may direct that all or part of an

amount appropriated to a national drug control agency be obligated by months,

fiscal year quarters, or other time periods, as well as activities, functions,

projects, or object classes. This authority is discretionary.

—Evaluating Program Effectiveness—ONDCP is required to include in each National Drug Control Strategy an evaluation of the effectiveness of Federal drug

control during the preceding year. This assessment must include the following

elements: (1) changes in drug use, including estimates of drug prevalence and

frequency of use in Federal, state, and local surveys, as well as special studies

of high-risk populations and drug use in the workplace; (2) changes in drug

availability as measured by the quantities of illicit drugs available and the

amounts entering the United States, in addition to the interdiction efforts and

their effectiveness; (3) changes in drug use consequences, which must encompass ONDCP’s estimation of the burdens drug users place on national and other

social services, including the resulting drug-related crimes and criminal activity,

in addition to the contribution of drugs to the underground economy; and (4)

drug treatment capacity by assessing total public and private treatment slots’

efficiency and effectiveness within each state.

—Coordinating and overseeing Federal anti-drug policies and programs involving

approximately 50 Federal agencies and the programs they administer.

—Encouraging private-sector, state, and local drug prevention and control programs.

—Conducting policy analysis and research to determine the effectiveness of drug

programs and policies in addressing the Strategy’s goals, priorities, and objectives.

—Designating High Intensity Drug Trafficking Areas (HIDTA’s) and providing

overall policy guidance and oversight for the award of resources to Federal,

state, and local law enforcement partnerships in these areas.

—Developing and overseeing a National Youth Anti-Drug Media Campaign that

will be a multi-faceted communications campaign that harnesses the energies

of parents, mass media, corporate America, and community anti-drug coalitions.

This campaign will emphasize that prevention can work and will seek to empower parents to discuss this critical subject with their children.

—Operating CTAC to serve as the central counterdrug enforcement research and

development center for the Federal Government.

—Overseeing the Drug-Free Communities Program, which will serve as a catalyst

for increased citizen participation in our efforts to reduce substance abuse

among our youth and provide community anti-drug coalitions with much needed

funds to carry out their important missions.

ONDCP is an organization of 154 committed professional men and women. It will

have 124 full-time employees (FTE’s) and 30 detailees once hiring has been completed. The fiscal year 1999 request for $19.442 million represents a $1.426 million

increase over the enacted fiscal year 1998 total of $18.061 million. Major expenses

include:

—$9.180 million for compensation of 124 FTE’s. This represents an increase of

$457,000 over the fiscal year 1998 enacted total of $8.723 million.

—$2.020 million for total personnel benefits.

—$4.218 million for guard services, professional services contracts, maintenance

services, and related costs. Combating the threat of drugs is not without its

risks. For example, in 1997, 152 law enforcement officers were killed in the line

of duty. Over the last year, we have taken prudent steps to increase the security of both our personnel and sensitive information within the office’s purview.

—$2.170 million for rental payments to GSA.

—$734,000 for travel and transportation costs. The bully pulpit is one of the most

valuable tools ONDCP has at its disposal in the fight against drugs. Since taking office, I have traveled to 33 of the 50 United States, touching over 60 cities,

countless towns and communities—ranging from New York City to Las Cruces,

New Mexico—and meeting with hundreds of thousands of people. These efforts

are vital to helping Americans of all ages hear the message that drugs are

wrong and can kill you. Additionally, by getting out into the field and walking

the frontlines of our struggle against drugs, we ensure that our policies and programs respond effectively to the realities of life beyond the Beltway.
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Similarly, through foreign travel to 13 nations, I have personally pressed the

vital counter-drug foreign policy objectives of the United States. By building

face-to-face understandings and common strategies we are making real progress

internationally. For example, coca production in the Andean region is down as

much as 100 tons below last year’s production level.

—$821,000 for communications, utilities, printing, reproduction, and related miscellaneous costs.

—$299,000 for equipment, supplies and materials, and representational funds.

B. Educating America’s Young People, Empowering Communities, and Advancing

Our Understanding of America’s Drug Problem: $251 Million for the Special

Forfeiture Fund

($195 million) National Youth Anti-Drug Media Campaign

ONDCP, with the assistance of the Partnership for a Drug-Free America (PDFA)

and the Ad Council, is implementing a multifaceted communications campaign involving parents, mass media, corporate America, and anti-drug coalitions. The National Youth Anti-Drug Media Campaign will counteract media messages and images that glamorize, legitimize, normalize, or otherwise condone drug use. Youth

aged nine to seventeen, and the adults who influence them, will be targeted by the

campaign. Campaign messages will accurately depict drug use and its consequences

and encourage parents to discuss drug abuse with children.

Congress appropriated $195 million for the campaign last year, making it one of

the largest paid advertising efforts ever undertaken by government. Over the past

year, ONDCP has consulted with hundreds of communications and marketing professionals, educators, prevention and treatment experts, public health specialists,

and public officials to design the campaign’s development process. Anti-drug ads for

phase I of a pilot program began airing in Atlanta, Baltimore, Boise, Denver, Hartford, Houston, Milwaukee, Portland (OR), San Diego, Sioux City, Tucson, and Washington, D.C. in January.

This summer, in phase II, ONDCP will expand the anti-drug advertising component nationwide, using national and local television (both broadcast and cable),

radio, the Internet, and print media. In the fall, during phase III, a fully-integrated

campaign will reach target audiences through TV, radio, print, Internet, and other

media outlets. The campaign’s advertising component is currently estimated at $150

million. (The remaining monies will be used to support the campaign through corporate sponsorships, interactive media, evaluation processes, and other appropriate

efforts.) This figure was determined based on ONDCP’s goal of reaching on average

90 percent of the target audiences at an average frequency of four exposures per

week. ONDCP contracted with experts in the fields of media planning and buying,

and held consultations with a wide range of other experts, to develop a prototype

national media plan that meets these goals. The projected breakout of expenditures

by media category for the national advertising component of the overall media campaign is as follows:

—television and radio: 72 percent

—print (magazines and newspapers): 11 percent

—other (e.g., in-school, cinema, online, billboards): 17 percent

The campaign’s reach will be extended through corporate sponsorship, cooperation

with the entertainment- industry, programming changes, and media matches (for

example, contributions to cover public-service time and space). Prevention experts

believe this public-private campaign will influence attitudes of youths towards drugs

within two to three years.

($20 million) Drug-Free Communities Program

Whether the challenge is to prevent young people from using drugs, or to take

our nation’s streets back from drug dealers, strong communities are vital to fighting

drugs in America. Presently, there are an estimated 4,000 community anti-drug coalitions in America. The Drug-Free Communities Act of 1997 recognizes that the

problem of illegal drugs must be addressed at the community level. The Drug-Free

Communities Act authorizes $143.5 million in matching grants over the next five

years to support these existing coalitions and expand the number of coalitions by

ten thousand. The Act authorizes the President to establish a Commission on DrugFree Communities to advise ONDCP concerning matters related to the program. We

expect the President to name the members of this Commission this Spring.

ONDCP will award grants to community coalitions of representatives of youth,

parents, businesses, the media, schools, youth organizations, law enforcement, religious or fraternal organizations, civic groups, health care professionals, State, local,

or tribal government agencies, and other organizations.
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In carrying out the Program, the Director of ONDCP will: (1) make and track

grants to grant recipients; (2) provide for technical assistance and training, data collection and dissemination of information on state-of-the- art practices that the Director determines to be effective in reducing substance abuse; and, (3) provide for the

general administration of the Program.

($10 million) Hardcore Users Study

This amount will assist with the research and development of a national estimates of the size and composition of the hardcore dug user population. A pilot

project for this research conducted in Cook County, Illinois, concluded that hardcore

users are significantly under-counted in current surveys.

($26 million) Director’s Discretion

This amount would be available at the discretion of the Director of ONDCP to use

to enhance drug control activities and address emerging drug threats.

C. Strengthening Law Enforcement: $162.007 Million for the High Intensity Drug

Trafficking Area Program

The HIDTA program facilitates coordination of anti-drug activities and investigations of federal, state, and local law enforcement agencies. The HIDTA program designates geographic areas to which federal resources are allocated to link local, state,

and federal drug enforcement efforts. Properly targeted, HIDTA’s offer greater efficiency in countering illegal drug trade in local areas. HIDTA programs are based

on a logical, comprehensive methodology for prioritizing needs and working with

other initiatives.

Specific counties in 20 areas have been designated as HIDTA’s: Southwest Border

(which contains the five partnerships of the California Border, Arizona, New Mexico,

West Texas, and South Texas), Los Angeles, Houston, Miami, and New York (designated in 1990); Washington D.C./Baltimore and Puerto Rico/U.S. Virgin Islands

(designated in 1994); Atlanta, Chicago, Philadelphia/Camden (designated in 1995);

Rocky Mountain, Northwest, Lake County (Indiana), Midwest, and Gulf Coast (designated in 1996); Southeast Michigan and San Francisco Bay (designated in 1997);

and, counties in three areas have received official designation by the Director of

ONDCP in fiscal year 1998: Central Florida; Kentucky/West Virginia/Tennessee;

and Milwaukee.

This fiscal year 1999 request for $162,007,000 for the HIDTA program is the same

as the fiscal year 1998 enacted HIDTA budget. At least half of the resources will

go to state and local participants to support more than 250 task forces and initiatives. HIDTA funding is primarily used for intelligence, investigation, and enforcement activities. A small percentage of HIDTA funding supports prevention and

treatment initiatives. Included in the fiscal year 1998 enacted budget was $8.8 for

methamphetamine funding, of which $1.5 million is for the Rocky Mountain HIDTA

and the remaining $7.3 million is for a national methamphetamine reduction program.

Decisions regarding the allocation of the discretionary fiscal year 1999 HIDTA

funds have not yet been made. However, as in fiscal year 1998, at least half of the

resources will go to state and local participants.

D. Deploying Advanced Technologies to Fight Drugs: $16 Million for the Counterdrug Technology Assessment Center

The development and deployment of advanced technologies is vital to the Strategy’s primary objective of reducing drug use in America by half over the next ten

years. For example, new nonintrusive detection technologies are needed along the

Southwest Border to ferret out illicit drugs from the steady and growing exchange

of commerce that greatly benefits both the United States and Mexico. Similarly,

technological advances in understanding the process of addiction offer the promise

of new treatments to free people from the grip of illegal drugs.

The Counterdrug Technology Assessment Center was created to serve as the central counterdrug research and development center for the federal government. The

CTAC budget provides minimum, but crucial, funding for special research not covered by other agencies. This budget also provides significant support for infrastructure needed to demonstrate technical feasibility and measure the effectiveness of

proposed innovations of emerging technology in realistic environments. CTAC funding also supports an outreach program to: assess the technology available, identify

the best research from all sources, and assist law enforcement and demand reduction agencies in bringing these advanced technologies into their operations.

The CTAC supply reduction development program consists of: (1) cargo inspection

technology; (2) information technology research; and, (3) tactical technologies. CTAC

will continue outreach to the community through technology conferences and
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symposia, benchmark testing, and technical assessments of competing technologies

and systems under consideration for development or procurement. CTAC has

worked with the Science and Technology Committee to prepare a fiscal year 1999

budget which conforms with the five-year technology research and development

strategy.

In the non-intrusive cargo inspection initiative, CTAC will work with Customs,

the Federal Aviation Administration, and the Navy to develop an operational testbed for testing transportable and fixed systems for non-intrusive inspection of cargo

containers along the Southwest border. The program will address operational constraints and cost factors associated with customs inspection.

The CTAC demand reduction initiatives are focused on the crucial national problems of finding therapeutic drugs to counteract or block the effects of cocaine abuse,

developing more effective treatment modalities with a special emphasis upon youth

between the ages of 15–17, and developing a national scoreboard to monitor the effectiveness of all substance abuse treatment. CTAC’s demand reduction technology

program has been coordinated with NIDA.

The goals of CTAC’s therapeutic cocaine medications development and facility

support program are to have an effective treatment for cocaine addiction by the year

2000 and to fully develop a family of therapeutic drugs by 2003. The programs’ goals

fall within the ten-year time horizon established by the National Drug Control

Strategy to reduce the harm of drug abuse in America.

E. Expanding Our Understanding of the Problem: $1 Million for ONDCP-Coordinated Policy Research

ONDCP conducts research to inform the policy process, identify and detail changing trends in the supply of and demand for illegal drugs, monitor trends in drug

use, identify emerging drug problems, assess program effectiveness, and improve the

sources of data and information about the drug problem. This $1 million will support the activities, such as:

Pulse Check.—This is a report on current drug use and emerging trends, based

on qualitative information from the police, ethnographers, and epidemiologists working in the drug field, and providers of drug treatment services across the country.

This project is one of the most important sources of current intelligence and data

on drug use.

Retail Value of Drugs Sold in the United States.—This is an annual project to determine how much Americans spend on illegal drugs. The report focuses on the retail sales value of cocaine, heroin, marijuana, and other illegal drugs. It provides

ONDCP’s estimates of the size of the hardcore user population.

Drug Market Analysis.—Working with the National Institute on Justice, ONDCP

is using the Drug Use Forecasting system as a research platform to analyze drug

markets. This project will provide information on drug dealing and the drug/crime

connection.

Price of Illicit Drugs.—This yearly project generates quarterly and annual illicit

drug prices and purities for the United States and selected cities. Results of the

project are used to monitor market trends and support other research projects related to the illicit drug market. Statistical models based on data from the DEA are

used to estimate typical prices for standardized purchases of heroin, cocaine, and

marijuana. The paper includes price trends for these standardized purchases over

time.

Federal Grant Directory.—The Directory assists state and local governments, community coalitions, researchers, and others in identifying and applying for Federal

grants by cataloging Federal programs that award drug-related grants. It also provides information on how to identify and contact private foundations that also may

provide valuable resources in the field. The third edition of the Directory is currently being prepared.

IV. A COMMON EFFORT TOWARD REAL PROGRESS

The Office of National Drug Control Policy’s budget request of $449.449 million

is a small component of the requested $17.1 billion federal drug control budget.

However, the importance of this funding cannot be overstated. This support will provide ONDCP the resources necessary to ensure the successful implementation of the

1998 National Drug Control Strategy, which will have broad reaching, positive impacts on this nation and its citizens.

The 1998 Strategy provides this nation with a ten-year plan to reduce drug use

and its consequences in America by half—to the lowest levels in the past thirty

years. The Strategy is: backed by a $17.1 billion budget. This is the largest counterdrug budget ever presented to ensure that the federal government can do its part

in meeting this goal. The budget is accompanied by a set of well-defined perform-
330

ance measures to improve efficacy and ensure accountability. The Strategy is a plan

for victory in the fight against drugs.

However, we can only defeat drugs if we are united in our efforts. The bipartisan

support this Committee and Congress has provided to ONDCP has been vital to our

successes over the past decade in reducing overall drug use, stabilizing use among

our young people, and building at home and abroad the institutions and advancing

the policies needed for progress. Your continued support as we move ahead in implementing this Strategy is critical. By providing ONDCP the funding necessary to

move ahead, and by uniting our efforts behind this Strategy we can forge a safer,

healthier and more productive nation. America deserves no less.

Thank you for this opportunity to lay out ONDCP’s fiscal year 1999 budget request. We solicit your feedback and guidance in the coming months.

STATEMENT OF SENATOR CAMPBELL

Senator CAMPBELL. I apologize for being late. I had to be on the

Senate floor, so I do not know what has already transpired. Had

you already asked some questions?

Senator FAIRCLOTH. No; we have not asked—we have both had

opening statements.

PREPARED STATEMENT

Senator CAMPBELL. I see. I am going to submit mine for the

record and get right to a few questions.

[The statement follows:]

PREPARED STATEMENT OF SENATOR CAMPBELL

This morning the Subcommittee on Treasury and General Government will be reviewing the fiscal year 1999 budget request for the Office of National Drug Control

Policy. I would like to welcome Mr. Barry McCaffrey, Director of ONDCP.

Mr. McCaffrey, your office has the responsibility of coordinating anti-drug policies

and programs of approximately 50 Federal agencies, assessing the drug situation in

this country, supporting promising anti-drug research and technology and developing the National Drug Control strategy which is the Administration’s response to

the drug problem.

Drugs do not choose a specific race or financial background and they impact every

part of our society, a fact we all too often overlook. The current estimated number

of children, from ages 12 to 17, that claim to have ever used drugs is almost 5 million.

Our responsibility here, along with Mr. McCaffrey, is to be able to reach each and

every one of these children to discourage them from using drugs. These are children

with a wide variety of backgrounds and an even wider variety of values. We have

to reach out to them by trying a wide variety of approaches through television ads,

in school programs, in movies, with parents and peers. When you look at it this

way, attacking the drug problem in this country seems overwhelming.

However, I think that we can and must work to make a difference. I am a true

believer that if we can save one child from drugs, there should be no question about

the need for the investment. Unfortunately, we have limited resources and I also

think we cannot buy our way out of the problem. What we have to do is empower

our parents, teachers, communities, and most importantly our children with the

skills to make the right decisions when confronted with drugs.

We have to equip not only children with the right skills, but anyone who may be

faced with the choice of whether or not to use drugs.

So, Mr. McCaffrey, you are the Subcommittee’s means to determine whether or

not what we’re doing is working and how well, not only through your own budget

but through the budgets of the other federal agencies that you certify, including the

recently released drug strategy. You are also our means to finding out what is or

is not working so we can make improvements.

Within these limitations, we have to find the right mix of resources, programs and

initiatives to enable us to reach out to each of the user populations and give them

an alternative to drug use.

Mr. McCaffrey, I know you wrestle with these concerns, and I look forward to

your testimony on your Office’s efforts in addressing these problems and the

progress we’ve made.
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MEDIA CAMPAIGN

Senator FAIRCLOTH. Excuse me, Mr. Chairman. I have to go to

a savings and loan meeting. I will look forward to following up on

what we do.

Senator CAMPBELL. Thanks for opening the hearing.

I am personally very encouraged by your charts, General. I think

that you are right, maybe we have turned the corner. I wanted to

ask you a few questions dealing with them. First of all, do you have

those in eight-by-tens so I could have a set of those?

General MCCAFFREY. Yes, sir; they should be in your packet.

Senator CAMPBELL. I appreciate that. I believed, as you have, I

am sure, that if we can do such wondrous things in this Nation as

fly to the Moon, certainly we can convince our youngsters to leave

drugs alone. The collective wisdom, the energy, and the determination that seem to be pulling together now through ONDCP is welcome, at least from this Senator’s standpoint.

I wanted to ask a couple of questions. First of all, the media campaign that we funded, there were some concerns on the part of the

committee, as you remember, that if we put that much paid advertising into a media that perhaps the public service announcements

dealing with the same thing would go down and they would kind

of look at it as a cash cow. Have you noticed any reduction in voluntary public service announcements dealing with drugs since you

initiated your media campaign?

General MCCAFFREY. We are really delighted with the way this

has worked out. We have a very skillful group, Zenith. We borrowed the DOD advertising contract until we put out our own request for proposal. They are out negotiating in each market. And

part of their guidance, since I am responding to the law, is that

they have to sustain the public service component. We are at least

achieving match, and in some market areas more than achieving

it.

In addition, we are finding some places, Congressman Latham’s

district jumps out, and also Boise, ID, where the money we are

paying for the funded component, the news media are turning it

around and using it to buy other public service or supporting coalitions. So it is a very impressive response by news media.

Senator CAMPBELL. Your media campaign has been out now

about one-half of a year; is that right?

General MCCAFFREY. Yes.

Senator CAMPBELL. These are encouraging statistics, do you

think those drops in numbers are directly correlated with the advent of that campaign?

General MCCAFFREY. No; I think those numbers were from last

year. That is really 1997 data being seen in 1998. I think that was

a function of increased general news media focus on the subject

and increased coalition activity. A lot of the people in this room,

the CADCA in particular, but also NASADAD and the civic alliance

we put together, 56 million Americans now have their association,

33 of them have signed up to work the drug issue with us: Kiwanis,

100 Black Men, YMCA, Rotary, Elks. Elks has been tremendously

involved. There is just a lot of people that are now working on this

issue.
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Senator CAMPBELL. That is good. That reaffirms my belief that

you cannot do it all from here. If you do not have local community

help for good willed people in all the towns across the country

those numbers are not going to go down.

METHAMPHETAMINE LABS

You talked quite a bit about HIDTA, and I appreciate you doing

that, and a little bit about CTAC too. Let me ask you a couple of

questions. You mentioned a reduction of the methamphetamine

labs. I guess they will always be there. It is a constant war. What

would you think the next step would be in trying to reduce the

number of labs out there, and bring the people to justice that have

them?

General MCCAFFREY. There is a lot to be learned from both the

DEA and California narcotics officers in particular about aggressive law enforcement in this area. The labs are not only a threat

to those who are buying methamphetamines—the single, white

male, early twenties, addicted, becomes unemployable, paranoid,

dangerous—but also a lot of these labs have children involved

around the lab. The labs, one out of six, the California police tell

us, in a given year explode or burn. So they have now passed a

State law that essentially says, if we find children in the lab area,

you have endangered them, and increased the sentencing component.

DEA has been extremely aggressive in going after these structures. The numbers are so high they are almost beyond belief. We

are up over, for example, 1,200 labs seized in California last year,

a lot of them these mom and pop operations, a few ounces.

Senator CAMPBELL. 1,200 seized?

General MCCAFFREY. They are cooking their own meth and selling it to their friends.

Senator CAMPBELL. We used to have mom and pop grocery

stores. Now we have mom and pop labs.

General MCCAFFREY. Yes; and it is pretty dangerous. We have also put $8.8 million, thanks to your 1998 funding, into

methamphetamine add-ons. We went to the DEA and asked them

for density of trafficking and use studies and we have passed out

that money. I think that is going to make a big difference, too.

CTAC

Senator CAMPBELL. Let me speak a little bit about CTAC. I attended several of the information meetings, one in Phoenix which

you were at, and one in, I think it was Minneapolis, if I remember

correctly. But I thought that was a very good program. You did not

request that to be funded this year in 1999 I understand.

General MCCAFFREY. Which program, Senator?

Senator CAMPBELL. The CTAC transfer to State and locals some

of this wonderful sophisticated equipment that ATF has now.

General MCCAFFREY. We’ve got $13 million in the 1998 budget

for CTAC technology transfer. I asked for $15 million from OMB

in the 1999 budget and did not get it. I appealed and was denied

the appeal.

Senator CAMPBELL. Did they give you a reason why? I thought

it was a pretty effective program.
333

General MCCAFFREY. There is certainly a very strong argument

that all over America we have law enforcement officers who are on

the line and who need this kind of equipment, some of which is——

Senator CAMPBELL. How is it working so far? I hear from local

police departments that are very interested in it in our State.

General MCCAFFREY. Of course, I come to this with a belief that

if you want to increase the effectiveness of an institution you do

not necessarily increase manpower, you give them more effective

tools to do their job. This is the kind of approach I think we need

to study very closely. I would look forward to your own thinking

on this.

Senator CAMPBELL. Part of the Counterdrug Technology Assessment Center [CTAC], there was a provision for this technology

transfer that we are talking about. I know in my own hometown

that they have problems with drugs and all the stuff related to it.

I do not know the disposition of it, but I know that it is a small,

poor town. They do not have video cameras in the cars. And I know

they had made an application to CTAC to try and help defray the

cost of putting some video cameras in the cars because they feel

that if they could have it on film, they are going to have a much

better case when they go to court with it. So I am a little disappointed that that was not included in your budget.

GAO REPORT ON CTAC

Can you respond to the GAO’s recent comments that CTAC, for

all intents and purposes, does not get any feedback from the field

in determining the need of State and local agencies?

General MCCAFFREY. Does not get feedback from the field in?

Senator CAMPBELL. Feedback from the field about determining

the needs of local agencies.

General MCCAFFREY. It is something I ought to take aboard as

a challenge to us to make sure that we are not only effectively listening to local law enforcement, but they also believe that that is

the case. I think we have a pretty good tool using the HIDTA organization now, 20 HIDTA’s which are all over the country. In our

March meeting we are going to have a discussion of this pilot program, and before the HIDTA directors leave—and several of them

are in this room—they will become our spokesmen and our agents

to listen to local law enforcement.

I think your criticism is a good one, Senator. Let me see if we

can improve on this.

HIDTA

Senator CAMPBELL. I am a big supporter of the HIDTA’s, as you

know. We have talked about them a number of times. But I know

in our State, a number of communities tell me now that they are

having difficulties getting HIDTA funds and difficulties getting any

requests approved at all.

Some of those are not in the big metropolitan areas, but, in fact,

some of those smaller communities are where the drugs are moving, the places where there aren’t lots of law enforcement, lots of

officials, lots of surveillance on the highways and so on. You know

as well as I do, these guys are going to go to the backroads and

the quiet landing strips, the places where there is not much en-
334

forcement. It would seem to me that some of those communities

should be equally important when they are applying for help from

the HIDTA’s.

I know Steamboat Springs, Cortez, CO, and a couple of counties

out in the southeast part of the State have all told me that they

have problems getting any help from HIDTA. So I would appreciate

it if you could kind of pass that message on to local HIDTA’s for

me.

General MCCAFFREY. Senator, the Rocky Mountain HIDTA has gotten a little over $3 million to date. We will give them an additional $2.89 million prior to the end of March. Then the Rocky

Mountain HIDTA will also get about $1.5 million of our national

methamphetamine reduction appropriated money. So help is on the

way.

I might also add that the Senate has now confirmed, and Attorney General Janet Reno has sworn him in, Chief Bob Warshaw,

who is a police chief up in Rochester, NY, and has been chief in

three departments. He is a nationally recognized law enforcement

professional. I think this HIDTA program will better achieve our

purpose in the coming years.

MEDIA CAMPAIGN

Senator CAMPBELL. I understand that you are going to have some

feedback on your pilot media program around July; is that correct?

General MCCAFFREY. Exactly. We have gotten interim feedback

that is in your packet right now. But we will have an evaluation

component formally done.

Senator CAMPBELL. So you will use that to make decisions on

your next request I assume.

General MCCAFFREY. We have already factored in the evaluation

component. We had Annenberg School of Journalism put their own

money into it, and we have a pretty decent set of focus groups and

questionnaires, and we are trying to incorporate that into the next

generation of ads, yes.

Senator CAMPBELL. Good. In the fiscal year 1998 bill there was

language that required quarterly reports on the obligations of

funds relating to the media campaign. When do you expect to give

us a complete report on——

General MCCAFFREY. Actually, I am surprised that the law said

quarterly reports. I thought we did not have that in there. But one

way or the other, we will comply with any reporting requirements

that are involved in it.

We do have a budget. We do know how we are spending the

money. It is, as far as I can see, pretty well controlled.

Senator CAMPBELL. In addition to that, as I remember we also

asked for a monthly accounting of the obligation of funds to the

campaign so we could keep track of that, and I do not remember

getting that either.

General MCCAFFREY. Let me go find out. We will be, of course,

responsive, not only to the law but to your own interest. If I could

underscore though, that there is a danger with this tiny group of

people we have managing this operation—five folks—that I do not

want to run this program with four sets of Senate and House

staffs. There are four committees involved and I really need to be
335

held accountable, but to do the management and the creative work

as best we can.

Senator CAMPBELL. They tell us we are going to have to be over

on the Senate floor in about 20 minutes or a little bit after and I

certainly do not want to monopolize all the time, so let me just ask

one more question. I am going to submit several more questions to

you in writing, if you would get back to us on those.

DIRECTOR’S SECURITY

Does your fiscal year 1999 budget request include anything about

the 1998 appropriated amounts for your own personal security? I

remember reading something in the paper that there was, when

you went to Mexico there was some discussion——

General MCCAFFREY. Let me give you a piece of paper. There is

probably a substantial increase. There is a one-time purchase of an

armored vehicle. We have added now a chase car. I am a little reluctant to sketch out the whole security.

I had a series of reasonably credible threats last August. We are

trying to respond to that to ensure I can do my job and not get

whacked.

Senator CAMPBELL. I understand. We would not want that to

happen either. But you travel around so much by plane, how would

you get the—if security requires an armored car and a chase vehicle, how are you going to get that around?

General MCCAFFREY. Again, without detailing how we do it, the

biggest protection I have is to be careful on what I release in public

in advance. Fortunately, I am protected by the Federal Marshal

system. I have never met a more professional group in my life. And

they, of course, have national representatives, so when I go a place

it is the local marshals and the local police force that provides security.

Again, I do not want to detail too much of this. I travel under

an assumed name. I am in hotels under a cover name, et cetera.

So we are trying to ensure that I am——

Senator CAMPBELL. I frankly do not even need to know about

that or do not particularly want it on the record. I was just concerned in terms of heavy equipment.

General MCCAFFREY. I do not take armored vehicles. The armored vehicle in the Washington area is on predictable travel,

home to work, and return.

Senator CAMPBELL. I see.

General MCCAFFREY. Coming to the Hill.

Senator CAMPBELL. Not if you are out in the field somewhere

when you have to go to San Francisco or something like that.

General MCCAFFREY. Yes; it has been my experience in the

past—I have been under personal security for three of my assignments, in NATO, in Latin America, and the single cheapest thing

to do is get an armored vehicle. It then makes it just about impossible to get you without car bombs or RPG’s. So we have gone that

route. We just have to be sensible in what we are up to.

Senator CAMPBELL. Are you sure you want this job?

General MCCAFFREY. To be honest, Senator, it is the same way

I started life, carrying a gun.

Senator CAMPBELL. I understand.
336

Senator Kohl, do you have some questions?

Senator KOHL. Thank you, Senator Campbell.

PERFORMANCE MEASURES OF EFFECTIVENESS

General McCaffrey, the program measures that you developed to

evaluate the media campaign as we understand it will start in

2002. But by then Congress may well have committed close to $1

billion to this media campaign. Should we not get a clear evaluation before 2002 with respect to how this program is working?

General MCCAFFREY. Senator, you sure should. I think there has

been a misconception. The performance measures of effectiveness

began with twelve 10-year targets. Then we were able in the interagency debate to get 5-year targets. I might add, there were 200

or more outside experts that helped us articulate those numbers.

What we do owe you is to break it now into annual targets. We

will do that in the year to come, in my view. One of the things we

could do is straightline it. But we absolutely should be held accountable each year for achieving something.

Now the other ones though, the National Youth Media Campaign

has a series of measures, many of which, fortunately, exist already.

Others exist in a form where if we slightly modify them we will get

measures and some new ones that we will create. But there will

be a rigorous picture, as well as we can do it, on what impact are

we having with this $195 million. And by the way, we need to draw

that evaluation screen wide enough to not miss things that we did

not think of.

That is one of the reasons that I am so pleased to see this cascade of phone calls to community coalitions. Donna Shalala’s people

have had to add all sorts of personnel to respond to requests for

these pamphlets on parents talking to their kids about marijuana.

And in many cases we do not even have the numbers down there,

they are just searching now for information.

So I can assure you that we are going to give you, not in 2002,

but you have the first response already in front of you, and this

summer we will get an even better look at how it is going. It is

going pretty good.

Senator KOHL. All right. General McCaffrey, it is my understanding that you will use data from the National Household Survey of

Drug Abuse and Monitoring the Future to evaluate youth drug

usage. This is the same data that you have been using to determine drug use patterns. Do you believe that these teenage surveys

provide realistic information on usage? Do you not think that teens

and their parents may be reluctant to provide completely truthful

responses?

PERFORMANCE MEASURES OF EFFECTIVENESS

General MCCAFFREY. I think in almost every one of these cases

it is useful to be skeptical of the data, to understand how they collect it, and what the limitations are. MTF could have some builtin doubts. On the other hand, it is consistent. It has been collected

since 1968. So when you see a number go up or go down, you

should assume there has been a change. Now maybe it was actually all along higher or lower. That is one reason we are pretty con-
337

fident, for example, last year that when MTF said drug use rates

among eighth-graders went down, that in fact it did.

But there are other ways to get at that data, and household survey comes at it from a different population. Then there are different data, for example, the DAWN and DUF. You can go after

youthful arrest rates, who tested positive for drugs. Then we have

other sources of studies done in the civilian institutions like Joe

Califano’s work which he just released.

So there are a whole set of measurements and we ought to look

at all of them. And then we ought to be skeptical of what we are

hearing. I agree with you.

Senator KOHL. These surveys show an increase in the use of

marijuana by children in certain age groups. We are hearing some

members question whether we should continue to fund these efforts

with respect to marijuana use. How do you respond to people who

raise these questions?

General MCCAFFREY. When I am asked, what is the most dangerous drug in America, it is tempting to say it is methamphetamines, it is heroin addiction, it is PCP, it is MDMA, it is

these horrendous drugs that have addicted more than 3.6 million

Americans. My normal response is, the most dangerous drug in

America is a 12-year-old to about 16-year-old regularly smoking

pot. Because when we look at the numbers, and every one of these

adolescents who are at risk—and a 12-year-old using drugs is at

risk—is potentially a $2 million tax on our society, which is the

cost of dealing with an addicted adult.

So hands down, if there is a priority in the National Drug Strategy it has to be through a series of mechanisms to persuade young

Americans, do not smoke dope or use heroin, LSD, inhalants, et

cetera. Delay the onset of this behavior. If we can get you to age

19, you are home free. You will never be one of these 4 million suffering Americans. So Donna Shalala and I are adamantly opposed

to the use of marijuana in general, and fearful of its consequences

on young people.

HIDTA

Senator KOHL. Good. General McCaffrey, let me thank you for

selecting the city of Milwaukee as a new high-intensity drug trafficking area. Our legislation did not obligate you to select Milwaukee as one of the new HIDTA cities, although it certainly did encourage you to give Milwaukee serious consideration and I appreciate that choice.

The HIDTA in Milwaukee is already paying dividends. Inspired

by this initiative, a task force was convened in Milwaukee which

has expanded the antidrug strategy to the whole problem of youth

violence. The plan that we have developed will attack drugs and

violent crimes with aggressive enforcement, give children and teens

safe places to go to after school and on weekends, and keep community residents informed and involved.

We in Milwaukee are committed to an ambitious $7 million a

year program, and the $3 million that the HIDTA provides is a big

part of it. We believe the success of HIDTA and our task force that

we have convened are intertwined.
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General, will the duties and responsibilities of the Milwaukee

HIDTA coordinator include taking an active role with our youth violence and crime task force?

General MCCAFFREY. I am sure that that executive director up

there will work in support of what I hope is an 18-member executive committee comprised of local, State, and Federal officials. He

is really their servant. I hire them. I will approve the budgets. I

will provide oversight. But that strategy ought to come out of those

18 women and men in law enforcement, prosecution, prevention,

and treatment. So the answer will be, yes, he will be supportive of

that effort.

Senator KOHL. All right. What criteria will you use to determine

whether or not the HIDTA is a success?

General MCCAFFREY. It seems to me we owe you, through these

performance measures of effectiveness, a way of assessing what

they are achieving. We did get all the HIDTA’s in the country now

to write a threat assessment. Although we have different formats

to it, we are going to try and get a common threat assessment. We

are using the National Drug Intelligence Center to help us with

that.

We have asked each HIDTA to develop a strategy which includes

what do you say you are trying to achieve, and put a number on

it. I think we ought to learn from this. It is possible that they will

say they are trying to achieve things that they cannot get to, and

they may find that some things are easier to measure than others.

I am a little uncomfortable. Sometimes I get them saying, I am

going to break apart seven criminal organizations out of 15 in the

coming year. Well, six of them may be tiny organizations and one

may be a level II international criminal group. So sometimes numbers can be deceptive.

But we are going to have them write developmental standards,

and then we are going to hold them accountable for it. I think one

of the things I have to do is not have Congress—and I would ask

for your support on this—instruct me on where to put this money

by category by HIDTA, and let me as a manager put money where

they are achieving successes and take away money where they are

not achieving results.

DRUG-FREE PRISON ZONE DEMONSTRATION

Senator KOHL. All right. General, last year the committee provided ONDCP $6 million to fund a drug-free prison zone demonstration project. Can you tell us what the status of that project

is?

General MCCAFFREY. We had a wonderful 2-day session with the

prison drug treatment experts of America. I announced that as one

of three initiatives in this field at the end of yesterday’s conference.

We are signing an MOU with the National Institute of Corrections.

There is a lot of work going on in it.

It will have, as I remember, three major components. It will commence in Federal prisons within 6 months and selected State prisons by next year. It will have a training component and a new

technology component. We have to get serious about this. I know

this is a program that you have sponsored. It is a great contribution to what we are trying to do.
339

How can we possibly lower drug use rates in America if we cannot keep drugs out of our prison system? So we are appreciative

of your support on this.

Senator KOHL. General, ONDCP and the National Institute of

Justice are developing a memorandum of understanding to start a

break-the-cycle campaign aimed at incarcerated drug users. Could

you explain this program? How will it be implemented and how

will you evaluate its results, General?

General MCCAFFREY. The second of three initiatives we announced to the press yesterday included this $6 million program.

But I have to tell you, it is in the context of Janet Reno having

put $85 million into that break-the-cycle program. So she really

stood behind this effort.

As you may be aware, we tested this in Birmingham, AL. It is

now in its second year. It is achieving, we think, superb results.

When we announced the initiative we said we would now expand

it to two additional testing sites, and we will create three juvenile

programs.

That is a second thing we have simply got to do, we have to get

at these kids who are addicted criminals and put them on a separate track and break them out of this pattern. So we think there

has been tremendous payoff in the test and we are about to expand

it dramatically in the coming year.

PRISON DRUG TREATMENT

Senator KOHL. OK. General, do you have other programs that

provide drug treatment in prisons?

General MCCAFFREY. Yes; there are. I would probably better

serve your interest by providing you an answer for the record. The

last 3 days of sitting there listening to these absolutely wonderful

people in corrections and treatment, both Secretary Shalala and

the Attorney General, but particularly this Mr. Jeremy Travis, National Institute of Justice, have a series of initiatives.

And the Federal prison system, we ought to be proud of, it is the

premier effort in the country. Several States are doing a wonderful

job, too. But the Federal system, Kathleen Hawk has really leaped

out in front on it. So I think you are going to—but let me provide

you a response. There are many programs going on and several of

them are probably starting to work.

One of them is drug testing. You have to tell people in prison,

you are going to get drug tested while you are in here. The Federal

prison system has started that, and the President’s initiative on

State prison systems, I think, comes on line this year.

HARDCORE DRUG USERS

Senator KOHL. OK. Last question, General. As we know, it is

very important to estimate as accurately as we can the number of

hardcore drug users in this country. Without an accurate estimate

of the hardcore drug users it is difficult to evaluate the effectiveness, among other things, of our illegal drug reduction efforts. Are

you satisfied that we have a methodology that will give us an accurate estimate on the number of hardcore drug users in this country?
340

General MCCAFFREY. I think we are dissatisfied. Trying to put

hard numbers on drug abuse is enormously challenging. The stigma, the shame, the denial of drug abuse, not among individuals

but among families and communities is simply staggering. We got

some excellent support out of the city of Chicago, Mayor Rich Daley

and his health people and law enforcement. Dr. John Carnevale

and Dr. Al Brandenstein in my shop have ended up with the first

look at it where we revise the Cook County hardcore users from

what we previously would have said at 117,000 up to 333,000 hardcore users.

We put some money now into trying to go to other regions. We

do not think we can extrapolate from that study, and we are going

to try and get a better handle on what this problem is. So I think

what we are seeing is a serious undercounting of the chronic, compulsive drug user, and this study will get at it.

Senator KOHL. Yes; I just want to emphasize what you said. In

Cook County, they found that the estimate that we were using was

wildly off; that the real number was vastly more than what that

estimate—what we were using or what we thought the number

was.

General MCCAFFREY. Yes; that was our study, right.

Senator KOHL. It seems to me that if we are going to succeed in

this project we have to be using numbers in terms of the people

that are accurate, and then work off those numbers. And the seemingly great inaccuracy of the count that we are now using I would

argue is something that needs to be looked at and corrected, as

soon as we can, General, so that we work off of numbers in terms

of hardcore users of drugs that are accurate in this country. If we

do not work off of those numbers that are accurate, we are not

going to be able to evaluate any kind of progress, is that not true?

General MCCAFFREY. I could not agree with you more. Nor can

we sensibly allocate resources or determine successes correctly. I

think you are quite correct.

Senator KOHL. Thank you.

Thank you, Senator Campbell.

Senator CAMPBELL. I have no further questions, General, except

the ones I will submit that I would like you to answer in writing.

But I would remind you, the committee would like to get some

feedback on your pilot program, and some accounting of the obligated funds that you have obligated so far. If you could do that for

us, I would appreciate it.

PRISON DRUG TREATMENT

I would like to just say though that I am particularly interested

in this break-the-cycle program. Having been a prison counselor

myself at one time, or a volunteer counselor, I was convinced that

all the counseling and drug testing and all that stuff, that is all

good, but unless there is some kind of education and job skills that

go along with it, it is pretty hard to keep them from falling back

in.

I know I have worked with gang members after they have gotten

out and that is the single thing they tell me the most, is when they

got out they could not get a job. They did not know how to do anything. Even though counseling may encourage them to leave the
341

drugs alone, some of them find it is the only way they can make

some money again. So they fall back into it.

I know that is not really in your bailiwick, but I would like to

pass that on to you. Until we realize there is a real place for prison

industries and getting a convict to get a high school diploma or

some graduate degrees other than street skills, the counseling by

itself, I think, reaches a point where it does not do any good after

they are out. They have to earn a living. They have to have a job

as an alternative to going back into prison.

Senator CAMPBELL. I know you are aware of that and I know

that is not the primary focus of your mission being the drug czar.

But I just wanted you to know that is a big concern to me.

General MCCAFFREY. Senator, I agree. But I think it is a primary

focus. So Attorney General Reno and I both have the same viewpoint, that we have to do precisely the kinds of things you are saying. I had Joe Califano brief his Columbia University CASA data

on prisons and drugs 3 days ago to the opening of our conference.

And he makes a powerful point.

We have 1.2 million Americans behind bars with a compulsive

drug use problem. And you have already got them there at $24,000

or more a year that you spend to lock them up. Why would you not

be willing to spend potentially $3,000 to $6,000 a year to ensure

you do not get them back in. And then to have a follow-on component with indeterminate sentencing where the judge can lock you

back up of your drug test goes hot. We have to do just that, and

part of that is a job.

Senator CAMPBELL. No further questions, Senator?

Senator KOHL. No, thank you, Senator.

SUBMITTED QUESTIONS

Senator CAMPBELL. We have additional questions that will be

submitted in writing to be answered for inclusion in the record.

[The following questions were not asked at the hearing, but were

submitted to the Department for response subsequent to the hearing:]

QUESTIONS SUBMITTED BY SENATOR CAMPBELL

Question. ONDCP’s publication, ‘‘The National Drug Control Strategy, 1998’’,

mentions an investigation where the U.S. seized $200 million from a Swiss bank

that was the illegal profit made by a cocaine trafficker.

What amount of assets are normally seized from high level ‘‘source’’ drug traffickers, and what happens to the seized legal proceeds?

Answer. It is difficult to answer the question of normal seizures as there are no

‘‘normal’’ seizures. Each investigation and asset forfeiture operation is unique in

that factors such as amount of assets, location of assets, cooperation of foreign countries, and subsequent disposition are all variable.

Major criminals often hide their illicitly generated proceeds outside the United

States. For the last several years, the United States has placed development of

international forfeiture cooperation among its top priorities. Bilateral and multilateral agreements, which provide for mutual forfeiture assistance, attest to the emergence of forfeiture as an international law enforcement sanction. The United States

has operative mutual legal assistance treaties (MLAT’s) with a number of countries,

including Switzerland.

Where the United States cooperates with a foreign government in identifying drug

proceeds in a foreign country, it is possible that the funds will be forfeited under

that country’s laws and not be repatriated to the United States. In such cases, the

primary goal of forfeiture is achieved because criminals are deprived of the proceeds

of their crime. In other cases, a foreign government will act on information provided
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by the United States, seize the funds, and repatriate the funds to the United States

for forfeiture. Upon forfeiture, the U.S. may share as much as 50 percent of the net

proceeds with the cooperating government.

When funds are repatriated to the United States, they are placed in the Seized

Asset Deposit Fund (SADF) and held until the forfeiture proceeding is completed.

If monies are already forfeited and a portion is shared with the United States, they

are deposited into the Department of Justice Assets Forfeiture Fund (AFF) and are

subject to the statutory controls on use of those monies. The Assets Forfeiture Fund

statutory authority is found at 28 U.S.C. SS 524 (c).

The AFF is the repository for the proceeds of forfeiture cases, both domestic and

international, in which an agency Fund member (see below) participated. The Fund

is a self-sustaining working fund with a revenue and expense side. Funds may be

used for six general categories of expense as enumerated The Attorney General’s

Guidelines on Seized and Forfeited Property, dated July 1990. The six expense categories are (1) asset management expenses, (2) case-related expenses, (3) payment

of qualified third party interests, (4) equitable sharing payments, (5) program management expenses, and (6) investigative expenses. Funding for investigative expenses is authorized by Congress in the annual appropriations act for the Department of Justice. In fiscal year 1999, $23 million is available for these costs.

To the extent excess funds are available once the fiscal year is closed, the authorizing statute provides for disposition by the Attorney General for any federal law

enforcement, litigative/prosecutive, and correctional activities, or any other authorized purpose of the Department of Justice.

As noted earlier, the United States does not ‘‘seize’’ funds held in foreign banks. The $200 million dollars referenced in the Drug Strategy represents a combination

of funds deposited in several Swiss bank accounts, interest earned on same, and real

estate holdings in Switzerland. The deposits and real estate holdings were those of

Sheila Miriam Arana de Nasser, a Colombian charged with money laundering.

Arana de Nasser is the ex-spouse of notorious drug trafficker Julio Nasser-David,

who is a fugitive in Colombia. Arana de Nasser pleaded guilty in 1995 to numerous

money laundering offenses. As part of the plea agreement, Arana de Nasser agreed

to forfeit her right, title, and interest to funds and property. To date, none of these

monies have been repatriated to, or shared with, the United State. Thus, these

funds have not been used.

(Note: Member agencies of the Justice Assets Forfeiture Fund include the Federal

Bureau of Investigation, the Drug Enforcement Administration, the Immigration

and Naturalization Service, the U.S. Marshals Service, the Justice Department’s

Criminal Division, the U.S. Attorney’s Office, the U.S. Postal Inspection Service, the

U.S. Park Police, the Food and Drug Administration’s Office of Criminal Investigations, and the U.S. Department of Agriculture Inspector General.)

The Treasury asset forfeiture program has four primary goals: (1) to punish and

deter criminal activity by depriving criminals of property used in or acquired

through illegal activities, (2) to be cognizant of the due process rights of all persons,

(3) to enhance cooperation among foreign, Federal, State, and local law enforcement

agencies through the equitable sharing of assets recovered through this program;

and, as a by-product, (4) to produce revenues to enhance forfeitures and strengthen

law enforcement.

Property which has been civilly or criminally forfeited can be retained or transferred.

Approximately $200 million per year is placed into the Treasury Forfeiture Fund.

Fiscal year 1997 was a banner year with about $240 million entering the fund. This

money is from both the seizure and forfeiture of cash, and the seizure, forfeiture

and sale of property (land, buildings, vehicles, etc.).

Question. According to the fiscal year 1999 budget request ONDCP is conducting

an overarching review of the Federal drug interdiction efforts along the southwest

Border. Is this review providing a comprehensive review of supply coming across the

borders as well as the success of interdiction efforts: Which agencies are cooperating

in this review and do you have their agreement on the measures you should use

to determine if the Federal efforts are successful? Will the review include recommendations on interdiction efforts? When will the results of the review be made

public?

Answer. Working with the Departments of Justice and Treasury and other agencies ONDCP has formed a Southwest Border Interagency Working Group. Sub-working groups are analyzing the following areas: Improved management and coordination; technology and infrastructure development and deployment; and border staffing. The group expects to present a report to the President by early summer of 1998.

In the intelligence area the White House Task Force on Intelligence Architecture

is presently collecting data worldwide and will present its plan for an overall
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counterdrug intelligence architecture in June of 1998. As a component of this report

the group has been asked to review and analyze the Southwest Border intelligence

network.

Current estimates of cocaine coming through Mexico are developed by the Interagency cocaine movement process. As part of the development of the Interagency Assessment of Cocaine Movement publication process, the participants are looking at

better ways to assess the amount of all drugs coming into the U.S. including the

Southwest Border.

Question. Special Forfeiture Fund requests $26 million to be available at your discretion to enhance drug control activities and address emerging drug threats. What

types of projects are you targeting with this money?

Answer. While events in the upcoming months might require modification to the

list of projects to be funded, the following are examples of the types of projects we

are considering with a discretionary funding amount of $26 million:

Chronic User Study ($5 million).—We have requested an earmark of $10 million

for a study to build on recent study in Cook County, IL. to develop a methodology

to estimate the size of the hardcore, drug using population. Additional funding will

be required to support the regional expansion of the study. Our original request to

OMB was for $15 million to fully fund this project, but it was decided that more

resources should be allocated for the Director’s discretion.

Domestic Heroin ($10 million).—These resources will supplement those requested

by the Departments of Justice and Treasury to target heroin trafficking, production,

and distribution networks operating in the United States. The focus will be metropolitan area most affected by heroin trafficking.

Expand Break the Cycle ($5 million).—These resources will supplement those requested by the Department of Justice to provide technical assistance to local jurisdictions, including the development of information systems to track data on participants in the program. This will expand the Break the Cycle program to new sites

and include a plan to transition these sites to local support after the initial Federal

funding.

Modeling Drug Trafficking Flows ($1 million).—These resources would allow continuation of the development of a model to estimate the flow of illegal drugs into

the United States. The plan is to estimate the flow from production through transit

and U.S. ports of entry and on to final consumption.

Intelligence Architecture ($5 million).—These resources will support the development of a drug intelligence system for national drug control agencies that provides

timely and comprehensive information at all levels—foreign and domestic

counterdrug strategy development, operational planning, and tactical execution. Will

use results of a fiscal year 1998 review being conducted of the national drug intelligence architecture.

Question. The Director’s opening statement before this subcommittee indicates

that cocaine production may be down by as much as 100 tons from last year. What

is the level of cocaine production last year? What is the basis of your estimates that

production is down 100 tons?

Answer. Potential cocaine HCL production fell last year to the lowest level this

decade—from an estimated 760 metric tons in 1996 to an estimated 650 metric tons

in 1997. Significant declines in Peru’s production potential coupled with small declines in Bolivia’s production potential were largely responsible.

Peru’s potential cocaine HCL production fell sharply in 1997 to a record low of

325 metric tons—production in 1996 was estimated at 435 metric tons. Production

potential has dropped over 40 percent since 1992.

Bolivia’s finished cocaine production potential declined for a third year in a row,

dropping some 22 percent from 1994 levels, to an estimated 200 metric tons in 1997.

Estimates of potential cocaine HCL production are based on three scientific-based

building blocks: US government imagery-based surveys of Andean coca crop, estimates of coca leaf yields, and leaf-to-cocaine conversion ratios. The same scientific

methodology is repeated every year, resulting in a reliable trend assessment.

Leaf yields and processing efficiencies have been scientifically researched and

evaluated in Peru and Bolivia. Similar research is now underway for Colombian

coca yields.

STATEMENT

The Director’s opening statement before this subcommittee indicates the campaign advertising component is currently estimated at $150 million. The additional

$45 million requested is to support the campaign through corporate sponsorships,

interactive media, evaluation processes and other appropriate efforts.

Question. Why is ONDCP paying for corporate sponsorships?
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Answer. ONDCP is not paying for corporate sponsorships. We have budgeted ap- proximately $1 million for development of a logo, campaign identity, and other marketing ‘‘equity’’ of value to corporations who would themselves pay for the right to

sponsor the campaign. This is similar to the way in which a company might sponsor

the Olympics, pay for the right to use the logo and to associate with Olympics activities. Similar arrangements have been made with companies that have sponsored activities of the Smithsonian Institution and renovation of the Statue of Liberty. We

have engaged the advice of the leading ‘‘cause marketing’’ consulting firm in the

country to advise on how to maximize the campaign’s ‘‘equity’’ and negotiate successful agreements with major corporations. This takes careful preparation, for

which we expect to develop a detailed strategy, and we anticipate that when we

enter the fully integrated Phase 3 of the campaign, this will generate substantial

return from the private sector.

Question. Originally ONDCP discussed receiving matching funds for the campaign. What level of ‘‘match’’ has ONDCP received for the campaign?

Answer. ONDCP has established aggressive negotiating standards for its media

buyers to seek a 100 percent match for media purchases. To date, we have been

highly successful in receiving media matches with a dollar value very near this goal.

The negotiation with any single commercial media vendor is proprietary and should

not be disclosed in order not to compromise the position in negotiation with other

vendors, but overall amount and ‘‘prime time’’ placement and other value for pro

bono Public Service Announcements (PSA) has been exceptional and highly praised

by The Ad Council, who have agreed to serve as a clearinghouse for the PSA match

component of the campaign. As the campaign matures in Phase 3, we expect even

greater returns from multi-media conglomerates who represent a number of different media companies and outlets. In those cases, simple match of time or space

(‘‘bonus weight’’) will be enriched by companies offering in-kind communications,

such as event sponsorship, that will reach our target audiences.

Question. What do you mean by appropriate efforts outside the advertising campaign and other media events?

Answer. The National Youth Anti-Drug Media Campaign seeks to employ media

tools for one purpose: dramatically reduce the risks of drug use for America’s youth,

their families and communities. In order to do this, we have consulted hundreds of

experts in professional media, health communications and drug prevention. We have

studied how other ‘‘social marketing’’ efforts have achieved success, and especially

studied how major corporations conduct strategic marketing to national markets.

The result is now published in a series of documents that present paid advertising

as the central component integrated with an array of related marketing and communications tools. Based on clear goals cited in our Communication Strategy Overview,

we have laid out the campaign in a Paid Media Plan for paid advertising and the

related Integrated Communication Plan for additional measures involving use of

interactive media, entertainment industry collaboration, news media, community

partnerships and corporate participation. This ensures that the campaign has depth

and follow-up—reaching our target audiences with messages reinforcing each other

in many parts of our culture.

These carefully integrated plans ensure that the campaign goals of advertising

‘‘reach and frequency’’ on the basis of which the initial advertising budget was estimated are, in fact, achieved. In addition, they ensure that ONDCP achieves the legislative objectives of not supplanting current anti-drug community based coalitions,

and further, uses the power of the media to stimulate development of infrastructure

that can translate mass media messages into community action.

Question. What is ONDCP’s current staffing level including full time employees

and detailees?

Answer. Of the 154 authorized positions, 138 positions have been filled, including

five detailees and 24 military assignees.

Question. At the fiscal year 1997 hearing before this committee the Director said

ONDCP owes Congress ‘‘results not rhetoric’’ and you said you would demonstrate

in concrete ways what ONDCP has achieved with the money Congress has provided.

Answer. The performance measures detailed in the 1998 Strategy are the foundation of an ongoing interagency effort to implement the first ever government-wide

performance measures for counter drug efforts. In the meantime, our yardsticks for

measuring progress on are national surveys such as the Drug Abuse Warning Network, Drug Use Forecasting system, MTF and NHSDA. The latest surveys suggest

that good progress is being made. The six-year trend of increasing drug use among

12–17 year olds has been halted. Drug-related emergency room episodes did not increase in 1996. Methamphetamine use plummeted among arrestees. And thanks, in

part, to bipartisan support of cooperative hemispheric counterdrug programs, coca

cultivation in Peru declined 40 percent in the past two years.
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At present, 51 percent of our 94 performance targets are measurable from primary data sources or represent milestones that do not require a data set. As the

performance measurement system is implemented, annual targets formulated, and

new data become available later this year, more information will be available on the

results of the Nation’s drug control efforts. We look forward to keeping the Congress

informed of our progress in this area.

Question. The Members need to clearly explain to the taxpayers in their districts

how ONDCP will reduce illegal drug use with the $17 billion requested in fiscal

year 1999. This is [sic] to put in writing ONDCP’s efforts in terms of reducing drug

use.

Answer. The President’s record fiscal year 1999 budget request for the National

Drug Control Strategy will support a ten-year plan to reduce drug use and its consequences by 50 percent. The following table demonstrates the progress we will

achieve if this Strategy is fully funded:

Measure Current figure 10-year goals 20-year lows/highs

Current drug use (all ages) ............................... 6.1 percent ........ 3 percent ........... 5.8 percent (low).

Marijuana initiates ............................................. 2.37 million ....... 1.18 million ....... 1.37 million (low).

Age of initiation (marijuana) .............................. 16.7 years ......... 20 years ............ 20.1 years (high).

Current use of illicit drugs (among 12–17 year

olds).

9.0 percent ........ 4.5 percent ........ 5.3 percent (low).

In total, funding recommended for fiscal year 1999 is $17.1 billion, an increase

of $1.1 billion (6.8 percent) over the fiscal year 1998 enacted level. Specific requests

include:

Defense.—The fiscal year 1999 budget for the Department of Defense (DOD) would

increase by a net of $35.1 million from the fiscal year 1998 enacted level. The total

fiscal year 1999 DOD drug budget includes an increase of $75.4 million to support

counterdrug activities in the Andean Ridge region ($60.8 million), operations in the

Caribbean ($8.5 million), training of Mexican counterdrug forces ($4.0 million), and

a transfer of funds for air reconnaissance missions ($2.1 million). The request also

includes an additional $15 million for the National Guard.

Education: School Drug-Prevention Coordinators ($50 million).—This initiative

will fund about 1,300 paid drug-prevention coordinators. Each coordinator will develop and direct drug-prevention programs in five middle schools. In total, this initiative will provide prevention services for 6,500 middle schools.

Health and Human Services:

SAMHSA.—A top priority in this budget is the federal government’s efforts to mobilize resources to increase substance-abuse treatment services nationwide.

SAMHSA’s $200 million increase in budget authority for the Substance Abuse Prevention and Treatment Performance Partnership Grant will support efforts to close

the treatment gap.

FDA & CDC—Youth Tobacco Initiative ($146 million).—In fiscal year 1999, this

initiative provides an additional $100 million for the Food and Drug Administration

(FDA) and $46 million for the Centers for Disease Control and Prevention. This program will target cigarette smoking by underage youth, which has been identified as

a gateway behavior for drug use. As part of this effort, FDA will expand its enforcement activities and CDC will conduct further research on the health risks of nicotine, additives, and other potentially toxic compounds in tobacco.

NIH—Drug and Underage Alcohol Research ($50 million).—This initiative will

allow NIH (NIDA and NIAAA) to expand research on drug and underage alcohol

use. Research on underage alcohol and drug addiction among children and adolescents, as well as chronic drug users, will enhance prevention and treatment program effectiveness.

Justice:

DEA—Methamphetamine Initiative ($24.5 million).—This initiative provides DEA

with 223 positions, including one hundred special agents, to address the growth of

methamphetamine trafficking, production, and abuse across the United States. New

funding for DEA in fiscal year 1999 also includes a Heroin Initiative ($14.9 million).

This program combats heroin trafficking, production, and distribution networks operating in the United States and increases U.S. investigative presence in countries

involved in the trafficking of drugs from Southeast and Southwest Asia. This enhancement includes 155 positions, including one hundred special agents.
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Office of Justice Programs (OJP)—Drug Testing and Intervention Program ($85

million).—This new program seeks to break the cycle of drug abuse and violence by

assisting state and local governments, state and local courts, and Native American

tribal governments to develop and implement drug testing, treatment, and graduated sanctions for drug offenders. Because considerable drug use has been documented among people within the criminal-justice system, this program will provide

guidance and resources to help eligible jurisdictions institute policies that support

testing and treatment for drug offenders.

Border Patrol ($163.2 million, $24.5 million drug-related).—This enhancement includes one thousand new Border Patrol agents, primarily for the southwest border.

These new resources will continue expansion of the Border Patrol’s strategy of ‘‘prevention through deterrence’’ along the southwest border. Also included is funding

to continue deployment of the Integrated Surveillance Intelligence System and Remote Video Surveillance (ISIS/RVS) equipment. ISIS/RVS will enable the Border Patrol to allocate agents more efficiently based on current information regarding illegal

alien traffic. Funding is also included to erect and maintain border barriers and expand infrastructure that will improve enforcement between ports-of-entry.

ONDCP: Special Forfeiture Fund ($34 million).—The net increase for fiscal year

1999 includes $10 million for a Chronic User Study, which will generate national

estimates of the size and composition of this population. A pilot project for this research, conducted in fiscal year 1997 in Cook County, Illinois, concluded that chronic users are significantly under-counted in current surveys. Fiscal year 1999 funding

for the Special Forfeiture Fund includes $20 million for grants that continue implementation of the Drug-Free Communities Act of 1997. This figure is an increase of

$10 million over fiscal year 1998.

State: International Country Support ($45 million).—Included in this increase are

funds to build on fiscal year 1998 support for Andean Ridge nations involved in

interdiction and counterdrug law-enforcement operations. This effort will expand

crop eradication and alternative-development programs to reduce illicit coca cultivation.

Transportation: U.S. Coast Guard ($35.7 million).—Most of the drug-related increase ($32.8 million) requested in fiscal year 1999 will provide for capital improvements to enhance the Coast Guard’s interdiction capabilities, particularly in the

Caribbean. The fiscal year 1999 request includes funding for improved sensors on

C–130 aircraft, additional coastal patrol craft, and expansion of the Coast Guard’s

deep water assets.

Treasury: U.S. Customs Service ($66.4 million).—Customs’ fiscal year 1999 request includes a total increase of $66.4 million for counterdrug operations. Of this

total, $54.0 million is requested for non-intrusive inspection technologies. The request supports two seaport X-ray systems as well as $41.0 million for non-intrusive

inspection systems like mobile and fixed-site X-ray systems for land border portsof-entry along the southwest border.

Question. The report on the Cook County hardcore drug user’s study states the

study findings should be treated with caution because the error of estimate has not

been determined nor has the sensitivity of the results been explored. Shouldn’t

ONDCP document the accuracy of the Cook County study methodology prior to committing additional funds?

Answer. The caution that is urged in interpreting the findings applies to the actual point estimates for the number of hardcore users determined by the three different models, rather than the study methodology. Because these are estimates

based on a sample, there is always some statistical error associated with them,

meaning that they have a certain ∂ or ¥ factor. At this time, this level of error

has not been calculated. Likewise, we have not explored the sensitivity of the results

to alternative specifications of the models that were used to estimate event rates

(for example arrests, treatment episodes, or visits to homeless shelters)—it is possible that alternative specifications might raise or lower the estimates by small

amounts.

While the estimates for Cook County are of interest in and of themselves, the primary purpose of the Cook County study was as a pilot test of a methodology for

estimating the size and characteristics of the hardcore user population, and not developing precise estimates of the size of the problem in Cook County. The results,

as reported in the study, indicate that this is a very sound methodology. During development, the methodology underwent a rigorous peer review by academic and Federal government experts. The draft report also received a rigorous review prior to

publication.

In order to further refine and develop the methodology, it is necessary to apply

it to a larger geographic area to confirm the findings achieved in the pilot study.
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Question. The household study determined there are 2.7 million hardcore drug

users. This level has been the same since 1987. The Cook county study indicates

the numbers for that region were off by two thirds. If that is true nationally it

would mean there are approximately 7 million hardcore drug users. So far ONDCP

has requested $12.5 million to determine the correct number. How many hardcore

drug users could receive treatment for $12.5 million and can you explain why that

wouldn’t be a better way to spend the money?

Answer. NIDA and SAMHSA acknowledge that the Household Survey does not do

a very good job at estimating the number of hardcore users. These individuals are

difficult to sample with a household survey because they often do not reside in traditional households and those few who do are reluctant to participate in such surveys. This problem was the motivation for conducting the Cook County study, which

attempted to determine whether it was feasible to estimate the size and characteristics of this population based upon a methodology that interviewed hardcore users

in locations where they are most likely to be found in substantial numbers—booking

facilities, treatment centers, and homeless shelters.

It is not methodologically appropriate to use the findings from a single site—Cook

County—to estimate the size of the U.S. hardcore user population. To do so would

assume that Cook County is fully representative of the United States. This is why

ONDCP seeks to apply the proven methodology from the Cook County study to a

larger, more representative region of the country. The bottom lines is that this nation’s drug policy could be refined with better estimates of the size and characteristics of this population.

According to a 1994 Rand Corporation report, the average cost to treat an ad- dicted person is $1,740. With the $2.4 million spent on the pilot study and the $10

million requested for the next phase of the hard core user study, we could treat a

maximum of 7,126 addicted individuals. This is approximately one-tenth of one percent of the 5.4 million drug users in 1994 who either needed treatment or received

it.

Spending the $12.4 million on a study that will provide a more accurate and reliable estimate of the size and characteristics of the hardcore user population is, we

believe, a supportable and better one-time use of these funds.

Question. Will ONDCP provide opportunities for members of the Milwaukee

HIDTA to work and communicate with other HIDTA’s? For example, will Milwaukee and Chicago have an opportunity to work together on Chicago’s High Drug

Interdiction Project? How can you facilitate that?

Answer. The Milwaukee HIDTA will have a variety of opportunities to work and

communicate with other HIDTA’s through conferences, technical assistance, joint intelligence sharing and coordination. The HIDTA program is designed to improve coordination and cooperation between HIDTA regions like Chicago and Milwaukee.

Through intelligence sharing, connectivity and established linkages, the HIDTA program establishes improved communication and cooperation. HIDTA’s are required

to report outcomes which include activities beyond the HIDTA. Chicago and Lake

County have agreed to share intelligence through their intelligence centers. It is anticipated that Milwaukee will also participate once it becomes operational. Chicago

Highway Drug Interdiction Project will offer training and post-interdiction investigation cooperation with Milwaukee.

Question. The fiscal year 1999 request for $10 million is for a 2-year study of

other hardcore drug users in areas of the United States. What criteria will ONDCP

use to decide where the study should be conducted? Will we see a request for a National study in the future? If so, how long will a national study take and how much

will it cost?

Answer. We anticipate that a number of criteria will be used in selecting the

areas for the next phase of the Hardcore User Study, including demographic profile

(e.g., age, race/ethnicity), urban vs. rural concentration, and the willingness of state

and local authorities to participate. Our goal is to select a more representative sample than was possible with the pilot study, which focussed on just one site.

We may submit a request for a National study upon completion of the regional

phase of the study. From the beginning, our concept for developing a methodology

for estimating the size and characteristics of the hardcore user population called for

a three-phase approach, which included a single-site feasibility or pilot study, a larger regional validation study, and finally, a full national study. This was the process

that was peer-reviewed and approved by OMB. We have not yet done a full costing

of the National study nor do we have an estimate of how long it will take. We are

taking each phase one step at a time. The cost and time estimates for the regional

study are based upon lessons learned from the pilot study. Similarly, we will base

cost and time estimates for the National study upon lessons learned in the regional

study.
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Question. President Clinton’s directive to ‘‘cut inmate drug use’’ proposes that the

Justice Department draft legislation that would allow States to spend the Federal

money earmarked for prison construction to instead provide drug treatment for the

prisoners. Has that legislation been drafted? And, what limits will be placed on

using prison construction funds for testing and treatment? Are there other programs

that provide drug treatment programs in prisons?’’

Answer. H.R. 3606, Drug Testing, Intervention, and Trafficking Reduction Within

Prisons Act of 1998, was introduced in the House March 31, 1998. Under this Act,

to be eligible for funding under the Violent Offender Incarceration and Truth in

Sentencing Grants Program, States must: have a program of testing, interventions,

and sanctions in place by September 1, 1998; implement policies that provide for

the recognition of victim’s rights, within 18 months of enactment; and have a system

of sanctions and penalties that address drug trafficking within and into correctional

facilities, beginning in fiscal year 2000.

No other limits are placed on the use of funds for testing, intervention, and the

development of a baseline study of the prison drug abuse problem.

Other programs that can fund prison treatment:

—To a limited extent, the Department of Health and Human Services’ (HHS) Substance Abuse Treatment and Prevention block grant to the states can be used

to provide treatment to drug dependent offenders in prison. However, treatment

of incarcerated populations is limited by law to the level of such funding in fiscal year 1991.

—The Department of Justice’s (DOJ) Bryne Anti-Drug formula grant to the states

can be used to provide treatment to drug dependent offenders in prison.

—DOJ’s prison Residential Substance Abuse Treatment program is designed precisely to treat drug-dependent offenders. Unfortunately, the law does not permit

funding for transitional or post-incarceration treatment services, although the

research strongly suggests that such services are essential to stable recovery.

H.R. 3606 will correct this, allowing states with established in-prison programs

to fund post-incarceration services.

—DOJ’s Bureau of Prisons provides treatment to all eligible Federal Prisoners.

Question. Mr. McCaffrey, the IRS, with approximately 100,000 employees and daily interaction with the taxpayer, is requesting $25,000 for official representation

expenses. ONDCP with 124 employees is requesting $20,000. When you do the

math, that 150 percent increase is approximately $161 per employee. Mr. McCaffrey, you know the budget situation as well as I do, so help me understand. Why

should this account receive such an increase when accounts like HIDTA’s, which directly impact our communities, are not slated for an increase this year? In other

words, can you tell me why this subcommittee should be paying for parties when

we could be using that money for fighting drugs? Answer. The $20,000 representational request is essential to ONDCP to fulfill the

inherent responsibility of furthering the mission of the office through consultative

efforts, not parties. Under the provisions of the ONDCP authorizing statute, specifically 21 U.S.C. 1504(a)(3)(A), the Director is required to consult with ‘‘heads of National Drug Control Program Agencies * * * Congress * * * State and local officials

* * * [and] private citizens with experience and expertise in demand reduction

* * * [and] supply reduction’’ to help him develop the National Drug Control Strategy.

Therefore, the Director must host the representational event therefore, a per person comparison to IRS would not be appropriate. A true comparable would be the

amount of policy development involved, and the interactions with various communities and stakeholders for any effort to be a success.

Clearly, the representation monies are an assistance to defining the scope of the

common threat we face and strategies to defeating the threat worldwide. The work

that is involved with the fight against drug use is a collaborative process through

consultations with Congress, the more than 50 Federal agencies and departments,

the law enforcement agencies, and stakeholders—mayors, doctors, clergy, civic leaders, parents, and youth—drawn from all segments of our society. Further, this enhanced cooperation within the hemisphere and worldwide is an important tool to

use to begin to be able to win the fight against drugs.

Since its inception, ONDCP received $8,000 in representation funds each year.

Question. Mr. McCaffrey, I would like to state that I firmly support our efforts

to fight against drugs. As a former law enforcement officer, I have seen first hand

how drugs destroy our children and communities. However, I must state that I believe in many instances your budget is not necessarily what it appears. Overall, it

appears that you are asking for a modest increase in your bottom line, but upon

further inspection, you are slashing and burning some accounts like the

Counterdrug Technology Assessment Center to make up for the difference, You are
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asking for the following increases: 17 percent for travel, 21 percent for transportation, 61 percent for communications and miscellaneous costs, 50 percent for printing, 75 percent for supplies and materials , just to name a few. Can you explain,

specifically, what these cost increases are attributed to, remembering that inflation

for fiscal year 1999 for non-pay related costs is 2.2 percent.

Answer. ONDCP, over the past several years, has received permission by the

Committee on numerous occasions to reprogram funds. This reprogramming was

necessary to accomplish the mission of the organization. A part of the reprogrammings were due to the staggered personnel growth stage, as well as the fact

that ONDCP funds were improperly categorized by object class. This fiscal year represents a true picture of the needs of the office. Bar any unusual situations, based

upon this budget, ONDCP will not require a reprogramming action in the coming

fiscal year.

With regard to what appears to be dramatic increases in several object classes,

there are also essentially corresponding dramatic decreases in several object classes,

for a modest total increase of less than 5 percent. Specifically, the following is a description of the increases by object class and what the increase is attributed to:

—The increase in travel is a part of the required amount to support the mission

of ONDCP. This is most evident in the fact that fiscal year 1999 will be the

first year ONDCP will be fully staffed at 154 FTE, to include all political appointees. The National Drug Control Strategy document is a comprehensive approach which contemplates involvement of State and local authorities and nongovernmental organizations. Outreach to these groups is essential to success. As

well, international travel is an important component for cooperation and coordination in the interdiction effort.

—The increase in Rents, Communication, and Utilities is due to the requirements

for the additional staff with regard to space and communications.

—The increase in printing and reproduction is due to the increased visibility of

ONDCP creating more demand for all materials, including the National Drug

Control Strategy, the Budget Summary, and the Performance Measures of Effectiveness.

—The increase in supplies is directly related to the increasing number of staff.

—The increase in Other Services is primarily connected to the protective services

for the Director of ONDCP, a conference budget, and the increase of staff creating more demand on contractor support of ADP maintenance and telecommunications services.

Question. Mr. McCaffrey, last year you requested that the subcommittee reprogram funds to provide for your security in a letter dated September 24, 1997. At

the time, the committee staff asked if there had been a threat assessment conducted

to justify the need for 24 hour security and an armored limo, a cost you estimated

at $1.66 million a year. Due to the lack of justification of this request, the committee

chose to deny it. What is the status of the threat assessment and does it differentiate between domestic and international threats? Who have you contacted to conduct the threat assessment?

Answer. The United States Marshals Service (USMS) provides protective services

for the Director of ONDCP. A threat assessment was performed by the USMS on

behalf of ONDCP. Based upon several documented threats received against the Director of ONDCP in 1997, the USMS identified a moderate threat level in the

United States and a high threat level while on foreign travel. (The classifications

of this threat assessment are as follows: No Threat, Low Threat, Moderate Threat,

and High Threat.) In summary, the USMS notes that as always, specific travel or

events should be assessed independently as threat levels could change dramatically.

Question. You intend to launch Phase II of the campaign before getting the feedback from Phase I, which is due in July. What is the justification for moving forward to Phase 2 without feedback from Phase 1?

Answer. ONDCP has received highly encouraging feedback from community coalitions about Phase 1 and believes it is critical to continue the momentum of this

campaign during the summer months when youth are out of school, have unsupervised time, and need to hear the message about the dangers of drug use.

By using the 10-year experience of the Partnership for a Drug-Free America

(PDFA), ONDCP is not creating a completely untested and speculative campaign,

but is relying on PDFA’s experience which we have validated in Phase 1. We are

using an approach similar to responsible commercial firms who rely on real-time

market feedback in addition to longer-term, formal evaluations. While we have

budgeted for more than $10 million in rigorous impact analysis and research, we

are also receiving immediate market feedback through arrangements with the Community Anti-Drug Coalitions of America (CADCA) and others to be coordinated

through the Substance Abuse and Mental Health Services Administration
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(SAMHSA). Commercial media planning and buying experts have also advised that

we must make national purchases during the June time frame or lose the opportunity to achieve the prices and placements that ensure achieving our campaign

strategy of reaching 90 percent of our target audiences at least four times per week.

Question. So, if we don’t receive the feedback from the pilot until July, how will

we be able to use that feedback to make decisions on your fiscal year 1999 request?

Answer. ONDCP will immediately provide early process measures and feedback

from the anti-drug community in the pilot markets. Local coalition and community

prevention leaders bring years of experience and have seen first-hand the effect of

the campaign. We will also provide data from the national drug clearinghouses and

others who are seeing increased public response due to the campaign. ONDCP can

also provide early anecdotal feedback from the Phase 1 contractors conducting the

impact evaluation. This feedback has been positive about raising community awareness, which is the initial expected goal of the campaign. The evaluation contractor’s

extensive qualitative and quantitative assessments are proceeding and will be available in a draft report in early September before we begin the fully integrated Phase

3 of the campaign in October. For reference, the second round of site visits for the

Phase 1 evaluation took place in April. The contractor is currently preparing the report on these visits; the final releasable version of this report probably won’t be

ready until near the end of June. The contractor is currently collecting the final

wave of data for Phase I. They are surveying students in schools and parents via

telephone, as well as conducting a third wave of site visits. These data will be presented to us in a draft report by early September as we have previously reported

to the Congress.

Question. Mr. McCaffrey, can you share some of the anecdotal feedback resulting

from the 12 city pilot?

Answer. CSR, Inc., our Phase 1 evaluation contractor polled community representatives in each of the 12 target markets eight weeks after the campaign had been

initiated. Their preliminary results include the following:

Almost all of those interviewed (97 percent) reported they were seeing the ads and

they showed high awareness of increased ad frequency, better placement in ‘‘prime

time’’ or other matters due to the campaign. Specific comments included:

—Business leader in Portland: the ads are ‘‘much improved, more frequent and

widely shown.’’

—School official in Tucson: ads in newspapers are very powerful, especially those

targeting adults.

—Community organizer in Sioux City: ‘‘frequency of advertising has been quite

impressive * * *’’

Eighty percent of community representatives polled reported that people in their

community are talking about the ads, a very encouraging result given the short time

frame of the campaign:

—Police sergeant in Baltimore: kids in D.A.R.E. classes are talking about the new

ads.

—Community coalition leader in Denver: reported that about 90 percent of parents attending PTA meeting had seen ads and responded favorably.

—Drug prevention worker in Atlanta: witnessed an upswing of requests for presentations to parent groups as a result of the campaign and noted that this has

brought the problem of inhalants newly to the attention of many parents.

—Prevention worker in Milwaukee: supported ads featuring mentoring as this

supports the ongoing focus on building resiliency skills among youth.

Community representatives were asked about other results due to the campaign:

—Washington, D.C., program coordinator: agency’s new hotline number was included in ad and saw calls go from one or two per day to about 15 calls per

day.

—CADCA representative in San Diego: campaign has supported extension of a

community-based campaign on methamphetamines.

The National Clearinghouse on Alcohol and Drug Information (NCADI) has experienced marked increases in calls and requests for information. After ads run, calls

have increased more than 25 percent. State clearinghouses are also reporting increased requests for information—some more than 300 percent—as well as requests

for treatment referrals.

At a recent conference conducted by the PDFA for national alliance coordinators,

speakers from local anti-drug coalitions, including Portland, Denver, Sioux City,

Milwaukee, and Tucson, spoke in highly complimentary terms about the campaign.

They reported that despite initial uncertainties about how this would affect their

communities, they are receiving offers of corporate support, increased volunteerism,

offers of local media participation, requests for presentations to community groups,

and increased dialogue between prevention and treatment groups.
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Question. Mr. McCaffrey, can you tell us when we can expect a change in attitudes and behavior toward drug use resulting from the Media Campaign?

Answer. We do not expect to see changes in attitudes for 1 to 2 years, and

changes in behavior for 2 to 3 years. The authorizing legislation recognized this

when stipulating that ONDCP would report to Congress on campaign effectiveness

within two years.

Experts in social change continue to advise us that we should expect a sequence

of changes: changes in awareness first, followed by changes in attitudes and behavior. Unlike simple purchase of a consumer product, youth drug use reflects a complex of influences, and we cannot reasonably expect to see significant behavior

change sooner than that. Nevertheless, earlier ‘‘social marketing’’ campaigns, such

as for the National Cancer Institute and for seat belt use, have given ample evidence that such campaigns can work. This is reinforced by observing that the extensive awareness built by PDFA during the drug crisis of previous decades was then

paralleled by dramatic declines in overall drug use. Conversely, just as diminished

risk perception and increasing acceptance of drug use as ‘‘normal’’ behavior among

youth was then followed by marked increases in drug use, we may expect that reestablishment of truthful understanding about drug harmfulness and social

unacceptability, as well as reengagement of parents and other adult care givers, will

lead to reversals in these trends.

Question. This committee provided a total of $8.8 million for anti-methamphetamine efforts. Can you tell us how this money was spent?

Answer. The trafficking and abuse of the destructive and addictive synthetic drug

methamphetamine is a growing national problem. A resurgence in its use can be

traced to two developments: (1) more efficient manufacturing processes for domestically produced methamphetamine; and (2) the growth of Mexican polydrug organizations and use of established distribution systems to funnel the drug. The drug appears to be spreading eastward from the traditional bases in the U.S. west and

southwest to the Midwest. Seizures have been climbing steadily over the last few

years (at the Southwest Border, for example, seizures have gone from 6.5 kilograms

in 1992 to 653 kilograms in 1995) while the price has remained relatively constant

($50 to $150 per gram). All indications (e.g. seizures, emergency room treatment,

clandestine laboratories seizures) are that methamphetamine production and trafficking have grown in the United States and Mexico.

The methamphetamine appropriation was enacted in October. Since that time the

HIDTA’s have spent a substantial amount of effort in developing initiatives that

would correspond to the Congress’ intent to address the rising methamphetamine

problem. As a result, funding will be allocated to initiatives in regions of the country

that are seriously affected by the meth problem. A small proportion will also be used

for developing the clandestine lab database at EPIC and for transfer of ‘‘best practices’’ in the field through mobile meth training teams to affected areas. The primary areas to develop new initiatives funded by the appropriation are Los Angeles,

Midwest HIDTA, Southwest Border (Arizona and California Border Alliance known

as CBAG), Rocky Mountain, Southwest Border (National Clandestine Laboratory),

and San Francisco. The HIDTA Assistance Center will provide training and support

throughout the nation. A description of these initiatives will be sent to the committee.

Question. Have you seen an improvement in the meth situation since Congress

appropriated this money?

Answer. Funding for counterdrug activities related to methamphetamine has already improved coordination of law enforcement activities. Many HIDTA’s have

studied the problem in their regions as part of the process of submitting proposals

for new initiatives. Distribution of funding is pending. Once more information is reported from the HIDTA’s concerning activities, ONDCP will brief staff later this

summer on results.

Question. Can you provide me with an update on the Rocky Mountain HIDTA’s

meth efforts as a result of fiscal year 1998 funding?

Answer. A new Rocky Mountain Methamphetamine task force will be supported

by the $1.5 million in additional funding. It will consist of a total of 61 members

collocated in two states (Utah and Colorado). Their objectives will be to dismantle

120 clandestine labs in Utah and 25 in Colorado. Among other activities, they will

target the greater Casper area for a 50 percent reduction in methamphetamine. Approximately 160 law enforcement officers will receive meth-related courses. At least

5 meth trafficking organizations will be disrupted or dismantled, and at least three

sources of precursors and chemicals for meth will be identified and dismantled.

Question. Can you tell us what the Southwest Border HIDTA and your agency are

doing about the meth problem and interdicting meth precursors?
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Answer. Our strategy includes working with Mexico to target methamphetamine

production and distribution organizations, a national training program for prosecutors and agents, more concerted intelligence operations to expose the production and

distribution systems, the targeting and prosecution of rogue chemical companies

supplying precursor chemicals interstate, tougher penalties and sentencing guidelines for both methamphetamine and precursor trafficking, and an education and

prevention program to alert the American people as to the serious dangers of methamphetamine abuse.

Battling the diversion of precursor chemicals for the illicit production of methamphetamine is a difficult and complex task both on the domestic and international

fronts. Our concerted international effort to curtail the diversion of ephedrine and

pseudoephedrine has impacted the traffickers’ activity. But they respond by shifting

to other chemical substitutes, and they have begun using phenylpropanolamine

(PPA) instead of ephedrine and pseudoephedrine (although the end product is actually amphetamine not meth). Although PPA is a list 1 chemical under U.S. law, it

is not a controlled chemical internationally (i.e. under the Vienna Convention). Additionally, wholesale distributors are dealing almost exclusively in pseudoephedrine

tablets to recipients on the West Coast. But in October 1997, we were able to close

the last major regulatory loophole that now makes control of pseudoephedrine commensurate with controls on ephedrine. DEA now has the ability to target these

‘‘rogue’’ distributors who knowingly peddle large amounts to the operators of clandestine laboratories. Over-the-counter pseudoephedrine products—sold at the retail

level—are currently exempt from the chemical provisions of the Controlled Substances Act, and these OTC drugs are turning up in clandestine laboratory seizures.

Our current response is to seek voluntary cooperative efforts with the retail industry to prevent such diversion.

The Southwest Border (California) will build upon five existing initiatives by adding one new initiative, the CBAG Methamphetamine initiative. The Southwest Border HIDTA is composed of five partnerships covering 41 counties in the states of

California, Arizona, New Mexico and Texas. The Southwest Border is the preferred

corridor for cocaine, marijuana, methamphetamine and heroin. The mission of the

Southwest Border’s (California) methamphetamine initiatives is to reduce the impact of methamphetamine trafficking, manufacturing and use within San Diego and

Imperial Counties. The California Precursor Committee is a collaborative effort of

the DEA, California Bureau of Narcotics Enforcement (BNE), U.S. Attorney’s Office

and 20 local agencies to develop measures to reduce the availability of chemical precursors. The Clandestine Lab Enforcement Group targets chemical precursor

sources and major meth traffickers. The San Diego Violent Crime Task Force, North

County Gang Task Force, and San Diego Methamphetamine Strike Force will also

counteract meth production and trafficking.

The Southwest Border (Arizona) will strengthen the Maricopa County HIDTA

Methamphetamine Task Force to target methamphetamine trafficking organizations

and clandestine laboratory production statewide. By combining the available resources of enforcement, prosecution, disposal and education in an overall comprehensive statewide plan, the task force addresses a number of problems associated

with the spread of methamphetamine production. The DEA, Arizona Department of

Public Safety and local law enforcement will provide personnel and expertise to respond to clandestine labs. Since its inception in October 1996, over 310 clandestine

labs have been dismantled statewide and over 472 lab violators have been arrested

by various enforcement components of this initiative.

The Los Angeles HIDTA Methamphetamine Regional Strike Force will attack the

sources of precursor chemicals, develop an information network concerning suspicious sales of precursor chemicals and enhance and consolidate current efforts of

many agencies that are attacking the problem. The task force will operate from two

sites to target major methamphetamine organizations, investigate and seize meth

labs, and target companies that sell equipment or precursor chemicals to meth producers.

One solid example of our success is shown by Operation META, a joint-task force

law enforcement operation centered in the Southern California Drug Task Force

(Los Angeles HIDTA). It is designed to take down multiple organizations dealing in

methamphetamine and cocaine on a large scale. Charges were filed in Los Angeles,

CA; Dallas, TX; and Greensboro, NC. A Los Angeles-based organization was responsible for the importation from Mexico of the chemicals needed to manufacture the

drug, the manufacturing and distribution at the wholesale level. Since the inception

of Operation META in May of 1997, more than 80 persons have been charged with

offenses related to the manufacture and distribution of methamphetamine. 133

pounds of methamphetamine, 90 gallons of methamphetamine solutions, as well as

cocaine and marijuana were seized. Additionally, Operation dismantled three clan-
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destine laboratories and seized chemical solutions capable of producing more than

500 pounds of methamphetamine.

Mexican officials reported the arrest and incarceration of Adan Amezcuas

Contreras, the youngest of the three brothers, who are allegedly the ‘‘world’s largest’’ suppliers of methamphetamine. The Amezcuas allegedly supply ‘‘meth’’ and the

precursor ‘‘ephedrine’’, to Mexico’s top drug cartels, and have a network stretching

to China and India.

Chemical diversion control is a straightforward counter narcotics strategy: regulate trade in the chemicals most necessary for the drug manufacture to ensure that

only legitimate end-use is achieved. It is complicated by the nature of the chemicals

involved and the widespread international commerce in them. National control systems alone cannot prevent diversion. The challenge is to develop multilateral mechanisms for the exchange of information necessary for the implementation of effective

chemical control laws. In 1997, we made considerable progress to achieve this goal.

The July 7–9, 1997 meeting of the U.N. Commission on Narcotic Drugs resulted

in a draft of a comprehensive paper detailing measures governments should take

to control precursor chemicals. This paper will be considered by the June 1998 Special Session on Narcotics.

At the operational level, India continues voluntarily to advise DEA of any proposed export transactions in ephedrine and pseudoephedrine. Hong Kong has established a sound system of chemical control.

Finally, Mexico is directing increased regulatory and investigative resources to

deal with major chemical smugglers and methamphetamine traffickers.

In 1997, work began on the Multilateral Chemical Reporting Initiative (MCRI).

This is an informal mechanism to promote the exchange of information necessary

for chemical control. It was launched in 1997 in two meetings co-hosted by the DEA

and European Commission. In general, countries have been most supportive where

chemical control is considered a law enforcement issue. In countries where its considered a regulatory issue and administered by trade or commerce agencies, these

countries have been more cautious. This year, DEA will begin implementing the

MCRI by requesting information from participants and inviting their cooperation.

Other initiatives include chemical diversion training and technical assistance programs of the U.N. International Drug Control Program (UNDCP) to aid countries

in the establishment of legal and regulatory structures needed for chemical control;

and the Inter-American Drug Abuse Control Commission (CICAD) of the Organization of American States has developed a program which measures—through mathematical modeling—the estimated quantities of these chemicals required for legitimate domestic industrial use and beyond that, those quantities which may be diverted to the production of illegal drugs. The system is under evaluation in one OAS

member state (which?) And is likely to be used by other members in the future.

Question. Does your office currently have a bureau dedicated to State and local

law enforcement? If not, how do you assist Sheriffs and smaller agencies coming to

ONDCP for information or assistance?

Answer. Yes. Functional responsibility for interaction with the criminal justice

community, including State and local law enforcement agencies, is vested in

ONDCP’s Bureau of State and Local Affairs (BSLA). This component is led by Presidential Appointee, Robert S. Warshaw, our Associate Director, who was unanimously confirmed by the U.S. Senate on February 11, 1998. Mr. Warshaw is the

former Chief of Police of Rochester, New York and counts three former police officers among his staff. The full personnel complement now serving in BSLA resents

an aggregate of 150 years of Federal, State and local law enforcement experience.

Question. It is the Subcommittee’s understanding that military personnel have an

integral role in the current Technology Transfer program, how are they able to

uniquely assist in liaison with local police?

Answer. The current approach to managing the Technology Transfer program

places the lead role for liaison with local police onto regional experts chosen from

state and local law enforcement organizations to advise CTAC. These experts are

the Chief of the Buffalo Police Department (New York), Chief of Field Operations

Los Angeles County Sheriff’s Department (California), a senior member of the Chesterfield County Police Department (Virginia), Pima County Sheriff (Arizona),

Arapahoe County Sheriff (Colorado), Director of Michigan State Police, Assistant

Administrator Drug Enforcement Administration, Executive Director of Public Safety (Massachusetts), Brownsville Chief of Police (Texas), Hillsboro County Sheriff

(Florida), St. Louis Metropolitan Police Chief (Missouri), El Segundo Police Chief

(California), and several former police chiefs located in Seattle, Washington and

Kansas City, Missouri. CTAC relies upon these experts to use their professional

judgment to determine the best match of technology to specific police organizations.
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The role of the U.S. Army Electronic Proving Ground (AEPG) at Ft. Huachuca,

AZ, is to serve as the technical, program management, and contracting agent for the

technology transfer program. AEPG is not involved with the decision process. AEPG

supports the administrative and logistics functions of the implementation side of the

program. The AEPG program manager is a Captain in the National Guard who is

supported by civilian scientists, engineers and contracting specialists from AEPG.

These personnel have been supporting CTAC since 1993 with technical, program

management and contracting support to the counterdrug research and development

program. The same personnel have been engaged in the Technology Transfer program to assist in purchasing, delivering and installing technology systems selected

for transfer under the program.

In preparation for the Technology Transfer program, AEPG has provided significant administrative support to the CTAC one-day workshop series. AEPG’s firsthand knowledge of the products available for transfer (gained during its support to

the 10 CTAC one-day workshops held over the past 18 months) combined with its

contracting expertise and ability to rapidly procure and deliver these systems place

AEPG in a unique and valuable role to the Technology Transfer program:

—AEPG is contracting with the individual vendors to pay for the purchase, installation and training costs necessary for most of these systems.

—AEPG’s role also includes developing complete budgets for follow-on logistics

and life cycle costs that can be expected with each transfer.

—The initial set of surveys for the Technology Transfer program were sent by

AEPG to the 330 state and local law enforcement organizations who attended

the CTAC workshops.

—AEPG personnel are collating the responses to the surveys and providing a

summary of requirements to the regional state and local experts selected from

state and local law enforcement organizations to advise CTAC on the best approach to implement the Technology Transfer program.

Question. What specific actions have you taken to address the growing problem

of drug gangs, and what assistance has your office provided to local agencies in this

regard?

Answer. ONDCP, through promulgation of the National Drug Control Strategy,

encourages initiatives targeting gangs and violent crime, as a means of helping localities to reduce drug trafficking. These initiatives include, but are not limited to,

Federal, State and local task force efforts such as the FBI’S Safe Street Task Forces

and ATF’s Achilles Program.

In addition, the Bureau of State and Local Affairs (BSLA), our agency component

focused on domestic drug enforcement policy, interacts with State and local law enforcement both directly and through entities such as the National Youth Gang Center and the National Gang Consortium. Both are led by the Office of Juvenile Justice and Delinquency Prevention, U.S. Department of Justice.

It is noteworthy that BSLA recently took part in a working group led by the National Drug Intelligence Center (NDIC), U.S. Department of Justice, aimed at the

establishment of a permanent mechanism that will ultimately improve NDIC’s drug

gang intelligence products.

On those occasions when localities contact BSLA for assistance re gang matters,

our response most often takes for form of a referral to the appropriate body of Federal, State or local government.

Question. ATF operates a well known gang program, GREAT. How has your office

coordinated with the Treasury Department on the gang issue?

Answer. The National Drug Control Strategy acknowledges GREAT as an example of education as a means to discourage gang proliferation.

ONDCP coordinates with the Treasury Department on the gang issue, through

our administration of the High Intensity Drug Trafficking Area (HIDTA) program.

In fiscal year 1998, for example, we are funding fourteen ATF anti-gang initiatives

in eight HIDTA’s with a total of $4,242,798.

Question. According to the February 1998 GAO report, CTAC has made virtually

no use of the Science and Technology Committee designed to keep it informed of

agency needs and efforts. For example, the report notes that CTAC did not systematically consider and fund the counterdrug technology needs of state and local agencies as part of its process for selecting and funding projects. Can you tell us what

specific actions you are taking to correct these deficiencies in the GAO report?

Answer. For the past fifteen months, the Science and Technology (S&T) Committee, under CTAC’s leadership, has been concentrating its efforts on virtually one

task, the preparation of the ONDCP Ten-Year Counterdrug Technology Plan and

Development Roadmap. The GAO report states on page 11, that ‘‘between December

1996 and August 1997,’’ the CTAC Chief Scientist met 10 times, with ‘‘the Technology Coordination Working Group, which is an S&T Committee working group.’’
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The S&T Committee has been intimately involved and the Technology Coordination

Working Group members were the virtual authors of the ten-year counterdrug technology plan. This plan is based on agency scientific and technological needs and supports fully the five goals of the National Drug Control Strategy and the national

technology performance outcome targets. The plan was published in June. Although

the GAO report recognizes the importance of creating, for the first time, a ten-year

technology plan, it overlooks that it constituted a total commitment by CTAC and

the S&T Committee to complete the task of preparing the plan. The technology plan

and development roadmap covers, in some detail, the test and evaluation and transfer of advanced technology which could benefit state and local agencies.

As the S&T Committee long range planning effort began to address the ten year

needs and priorities of Federal law enforcement, it became clear that, if the state

and local agencies were to benefit, a direct outreach through one-day workshops

could make the 17,000 police departments aware of advanced drug technologies

which could be transferred. Since the spring of 1996, CTAC has hosted 10 one-day

regional technology workshops across the country to make state and local agencies

systematically aware of CTAC and DOD sponsored counterdrug technology projects

which could benefit them. The workshop locations were: Austin Texas (April 1996),

St. Louis, Missouri (July 1996), Bloomington, Minnesota (October 1996), Portland,

Oregon (December 1996), Tucson, Arizona (March 1997), Atlanta, Georgia (April

1997), San Diego, California (July 1997), Denver, Colorado (October 1997), Bedford,

New Hampshire (November 1997), and Phoenix, Arizona (January 1998).

The projects of importance to the state and local agencies include technologies to

advance drug crime investigative information processing, surveillance and tracking,

communications interoperability, and communications. The workshops have been attended by more than one thousand law enforcement technical operations officers,

Chiefs of Police, state’s attorneys and Sheriffs. The attendees took part in handson demonstrations given by other law enforcement officials who are currently using

these technologies. The approach of using law enforcement officials speaking to

other law enforcement officials has been a very effective way to get realistic assessments of the worth of the technologies to state and local agencies. Following each

one-day workshop, the attendees evaluated the projects. The one-day workshop series has led to a systematic approach to deriving the needs of state and local law

enforcement and a pilot program to support the transfer of advanced drug crime

technology directly to state and local law enforcement.

Question. Although CTAC has developed what it terms a priority listing of

counterdrug R&D needs, there seems to be more items on the list than can be funded. There is no ranking of needs, relevance, or usefulness to agencies. CTAC appears to have no way to ensure that projects it funds reflect the most current and

highest priority needs. What is CTAC’s role if it is not setting priorities and keeping

supported agencies informed?

Answer. The federal law enforcement agencies have identified under CTAC leadership a total of 132 law enforcement scientific and technological (S&T) needs.

These needs were ranked by the following technology areas or thrusts: tactical technology (80 needs), non-intrusive inspection (24 needs) and wide area surveillance (28

needs). The needs then were ranked within technology thrust by priority operational

need versus S&T requirements, and then the S&T requirements within each technology thrust were ranked by time frame (short, medium and long-term). CTAC has

issued four Counterdrug R&D Blueprint Updates which provide a complete listing

of needs ranking in the appendix to each issue. The following is a summary of the

current ranking:

Technology thrust Operational

priority needs

Scientific and technological requirements—

Short Medium Long-term

Tactical Technology ............................................... 20 45 9 6

Non-Intrusive Inspection ....................................... 3 13 7 1

Wide Area Surveillance .......................................... 3 20 4 1

It should be noted that the February 1998 GAO report addressed only CTAC and

not the total national counterdrug R&D program. The total counterdrug R&D expenditure by federal agencies was $676 million in fiscal year 1998 with a request

of $722 million in fiscal year 1999. CTAC’s annual budget of $16 million is 2.3 percent of the total expenditure.

The list of counterdrug S&T needs are certainly more than CTAC alone can fund.

A CTAC-maintained data base of ongoing federal law enforcement agency R&D
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projects was mapped onto the entire set of 132 S&T federal law enforcement needs

and all but 11 needs were being addressed, in part, by at least one R&D project

being sponsored by CTAC or a federal law enforcement agency. Currently, efforts

are being taken to ascertain the priority, relevance and usefulness of the remaining

unaddressed needs.

CTAC’s role has been to identify and pursue those highest priority projects that

transcend the needs of any single agency. Consequently, CTAC has focused only on

innovative solutions to technology gaps which address the highest priority needs of

more than one agency.

For example in demand reduction, the highest priority need is to develop an effective medication for cocaine addiction, and to understand the status, trends and efficacy of substance abuse treatment. CTAC responded to these needs by sponsoring

a high risk, innovative project to develop artificial enzymes which offer the promise

of producing cocaine antibodies in the bloodstream which could effectively immunize

addicts in treatment against the effects of cocaine. A computer-based, real-time

treatment effectiveness system was also developed under CTAC sponsorship which

links treatment centers with research scientists. This national network provides

real-time information to researchers and providers on the most effective drug treatment modalities.

In supply reduction, advanced technologies and systems for non-intrusive inspection of cargo and conveyances for hidden drugs are needed at our ports-of-entry.

Special emphasis has been placed on the U.S. Southwest border. CTAC has sponsored engineering tradeoff studies to assess the technical feasibility of those advanced technical approaches available today to inspect cargo for drugs. CTAC also

sponsored the successful development of a gamma-ray system now being considered

by U.S. Customs Service to be deployed operationally along the Southwest border

to inspect tanker trucks, empty containers and moving trains. Currently, a technology and infrastructure study is being sponsored by CTAC specifically to address

the needs of the Southwest border for advanced inspection technologies. This technology study is being done in conjunction with U.S. Customs Service and Immigration and Naturalization Service.

CTAC is also sponsoring projects to improve communications interoperability

among state and local law enforcement organizations. Innovative computer algorithms to analyze trends in financial transactions and identify money laundering activities are being developed hand-in-hand with several U.S. Attorneys’ offices. Systems to improve digital recording and processing of wiretap information have been

developed under CTAC sponsorship to fill high priority needs of several sheriffs’ offices.

Question. In fiscal year 1998 this committee provided $13 million for a new program to transfer anti-drug technology to those who need it the most, state and local

law enforcement. Can you give us an update on this program and how it’s working?

Answer. The technology transfer program is being well received and progressing

very well. Requests have been received from over 128 state and local law enforcement agencies for transfer of technologies and products totaling $14.6 million. These

costs include installation, training and support needed to fully implement the system or product with each agency.

The U.S. Army Electronic Proving Ground (AEPG), the CTAC contracting agent

for the pilot program, provides the engineering and contracting support. AEPG has

developed a survey questionnaire and catalog of products available for transfer. This

catalog has been sent to interested state and local organizations across the country,

including representatives who attended one of our technology symposia or one-day

workshops, organizations involved with one of the High Intensity Drug Trafficking

Areas, or law enforcement personnel who participated in technology evaluations at

one of the CTAC-sponsored state and local testbeds.

A panel of regional experts from state and local organizations have agreed to

serve as advisors for the implementation of the potential transfer actions. These experts are the Chief of the Buffalo Police Department (New York), Chief of Field Operations Los Angeles County Sheriff’s Department (California), a senior member of

the Chesterfield County Police Department (Virginia), Pima County Sheriff (Arizona), Arapahoe County Sheriff (Colorado), Director of Michigan State Police, Assistant Administrator Drug Enforcement Administration, Executive Director of Public

Safety (Massachusetts), Brownsville Chief of Police (Texas), Hillsboro County Sheriff

(Florida), St. Louis Metropolitan Police Chief (Missouri), El Segundo Police Chief

(California), and several former police chiefs located in Seattle, Washington and

Kansas City, Missouri. The success of the pilot program relies upon these experts

and their professional judgment to determine the best match of technology to specific police organizations.
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Question. Part of the Counterdrug Technology Assessment Center, or CTAC, mission is to help state and local agencies battle drugs through technology. In fiscal

year 1998’s bill there was a provision for technology transfer to state and local entities. Outside of this effort, do you systematically identify and consider state and

local needs?

Answer. Yes. CTAC sponsors two activities that serve to systematically identify

and consider state and local needs: (1) testbeds to evaluate new and emerging law

enforcement technology, and (2) an outreach program of regional one-day technology

workshops.

CTAC sponsored technology testbeds are performed in conjunction with state and

local law enforcement organizations to evaluate the impact of inserting new technology into the daily law enforcement operations. The participating state and local

operational personnel work directly with the testbed scientists and engineers. These

projects serve as pilot programs to develop technology appliques specific to a unique

state and local need. Some examples of technology testbeds include: a wide-band,

high-speed, regional information network in conjunction with Pinellas County Sheriff’s Office (Florida); a digital recording and processing system for wiretap information in conjunction with the Pima County Sheriff’s Office (Arizona); a digital GPSbased tracking and surveillance system in conjunction with Yonkers (New York) Police Department Narcotics Squad; a cellular phone analysis system in conjunction

with the New York State Organized Crime Task Force; and a GPS-based miniaturized geolocation command and control system which included an airborne applique

with the Fillmore County Sheriff’s Office and the Mayo Clinic (Minnesota).

Many of the products from these testbeds are now available for transfer to other

state and local organizations under the $13 million pilot program for transferring

technology to state and local organizations.

The outreach program includes regional one-day technology workshops held across

the nation to inform state and local law enforcement organizations of advancements

in technology which are available for use by their agencies. CTAC has sponsored

10 regional one-day workshops over the past 18 months: Austin Texas (April 1996),

St. Louis, Missouri (July 1996), Bloomington, Minnesota (October 1996), Portland,

Oregon (December 1996), Tucson, Arizona (March 1997), Atlanta, Georgia (April

1997), San Diego, California (July 1997), Denver, Colorado (October 1997), Bedford,

New Hampshire (November 1997), Phoenix, Arizona (January 1998).

Question. How many total ONDCP staff are former State and local law enforcement officers?

Answer. A total of four ONDCP staff have former experience as (only) State or

local law enforcement officers. This number does not include former Federal law enforcement officers, military police, and/or prosecutors.

Question. Does each account and program activity of ONDCP have performance

measures associated with it?

Answer. Each key activity area has performance measures associated with it.

Areas such as Strategy Budget, Coordination, etc., have milestones that indicate

performance. The four programs, where ONDCP has direct administration have

multiple performance measures.

Question. Does your plan include performance measures for which reliable data

are not likely to be available by March 2000?

Answer. The HIDTA Program falls under Goal 2, Objective 2 of the NDCS, ‘‘Improve the ability of High Intensity Drug Trafficking Areas (HIDTA) to counter drug

trafficking.’’ The HIDTA Program’s long-term effectiveness will be better defined as

the PME system is implemented, the following constitute their fiscal year 1999 targets and sufficient data exists to ensure the ability to measure this program.

—Each HIDTA will meet at least one additional step of the HIDTA Developmental Standards in at least one category.

—Each HIDTA will disrupt, dismantle, or render ineffective 5 percent of the targeted drug trafficking organizations identified in its threat assessment.

—Each HIDTA will disrupt, dismantle, or render ineffective 5 percent of targeted

money laundering organizations.

—Each HIDTA will achieve a 5 percent reduction in specified crimes (homicides,

robberies, assaults, and crimes against property as reported by FBI UCR).

CTAC activities fall under the Research Objective addressed in the last Objective

of each NDCS Goal. The CTAC’s long-term effectiveness will be better defined as

the PME system is implemented, the following constitute their fiscal year 1999 targets and sufficient data exists to ensure the ability to measure this program.

—Conduct three regional workshops and one major technology symposium.

—Coordinate and support 85 counterdrug research programs with Customs, DEA,

DOD, Coast Guard, FBI, Agriculture, and NIDA.
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—Develop and field five technology prototypes to address counterdrug law enforcement and drug treatment requirements. These prototypes will support improvements to inspection capabilities for trucks and rail cars (2), low cost, efficient

communications interoperability (1), surveillance tools (1), and a means to

evaluate and monitor substance abuse treatment programs in real time (1).

—Increase by 20 percent, the rate at which new systems are acquired by Federal,

state and local agencies.

The Media Campaign falls under Goal 1, Objective 2, ‘‘Pursue a vigorous advertising and public communications program dealing with the dangers of drug, alcohol,

and tobacco use by youth.’’ While the campaign has recently been authorized and

is now fully operational, the development of meaningful internal process measures

is still ongoing.

—Ensure target audience exposure to anti-drug advertisements averages four

times per week reaching 90 percent of the target audience.

Drug-Free Communities support Goal 1, Objectives 1, 3, and 6; Objective 1: ‘‘Educate parents or other care givers, teachers, coaches, clergy, health professionals, and

business and community leaders to help youth reject illegal drugs and underage alcohol and tobacco use,’’ Objective 3: ‘‘Promote zero tolerance policies for the use of

illegal drugs, alcohol, and tobacco use by youth within the family, school, workplace,

and community,’’ Objective 6: ‘‘Encourage and assist the development of community

coalitions and programs in preventing drug abuse and underage alcohol and tobacco

use.’’ This program’s long-term effectiveness will be better defined as the PME system is implemented. The following constitute fiscal year 1999 targets as process

measures.

—Success in granting the $20 million, minus administrative costs, to qualified

coalitions through a system that is user friendly.

—Provide funds to qualified coalitions within three months of the initial request.

Question. Do you have the technological capability of measuring and reporting

program performance throughout the year on a regular basis, so that the agency can

be properly managed to achieve the desired results?

Answer. HIDTA’s have been in existence for a number of years and their collection processes are well established. CTAC is also a mature program with the capability to measure and report performance throughout the year. The Media Campaign

is not yet fully operational to the extent that there are meaningful internal process

procedures, but these are being developed. The new Drug-Free Communities Program is developing the capability to measure and report the progress.

Question. Through the development of the fiscal year 1999 performance plan,

what overlapping functions or program duplications were identified?

Answer. None. The nature of ONDCP functions and the specific assignment areas

within the offices are individualized and preclude duplication or overlap in key program areas. For instance, the Bureau of State and Local Affairs has the lead for

Domestic Law Enforcement and while CTAC provides certain technical and evolutionary support in this area they do not have the lead.

Question. Did those duplicative programs receive funding in the fiscal year 1999

request?

Answer. N/A.

Question. What ONDCP programs did you have to eliminate or scale back as a

result of utilizing your performance plan?

Answer. None.

Question. The Grand, Routt and Moffat Narcotics Enforcement Team, or

GRAMNET, have applied for HIDTA recognition have been recommended for denial

by the Regional HIDTA director, Tom Gorman. Although they appear to have met

all of the other statutory requirements for the inclusion into the Rocky Mountain

HIDTA, GRAMNET was told that they cannot receive designation as part of the

Rocky Mountain HIDTA because of a technical matter of whether a judicial district

can be designated as a HIDTA member. Please provide the Committee an update

on this particular application and any justification for its denial, when in fact it appears to qualify under the basis of a ‘‘multi-agency collocated task force.’’

Answer. GRAMNET is not located in a designated HIDTA county. This is a process used since the beginning of the program in 1990. As has been done in other

HIDTA’s, additional counties can be considered for inclusion. In the case of the

Rocky Mountain HIDTA, the Executive Committee makes the decision to seek inclusion based on the threat level and requests the ONDCP Director to include. ONDCP

reviews the request. The review includes an analysis whether the counties meet

statutory criteria and whether they are recommended through consultation with the

Attorney General, Treasury, Health and Human Services and the Governor.
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QUESTIONS SUBMITTED BY SENATOR THOMAS

Question. ONDCP relies heavily upon DEA statistics and data in determining the

‘‘most critical areas’’ within HIDTA designated project areas. However, because the

vast majority of DEA personnel are assigned to major metropolitan areas it is only

natural that DEA figures reflect more drug enforcement activity in those areas.

What steps might the ONDCP take to correct this inherent flaw in the process?

Shouldn’t the ONDCP diversify its sources of data to eliminate the distortion that

accompanies such a reliance on facts and figures solely from the DEA? What consideration does the ONDCP currently give to drug enforcement figures supplied to it

by state and local law enforcement entities which might paint a better picture of

the degree of activity that is occurring in rural areas?

Answer. ONDCP does not rely solely on data from DEA. A major source of information is the threat assessments from the HIDTA. HIDTA threat assessments rely

on a variety of data sources: state and local, emergency room reports, FBI, and

other Federal statistics.

For example, the transmittal memorandum for the Methamphetamine Addendum

to the Program Guidance, indicates that the most critical areas were determined by

considering:

—Threat assessments, strategies, and initiatives from the HIDTA’s (these include

State and local data and actions to address the methamphetamine problem).

—DEA study of the most significant methamphetamine production/distribution regions.

—California Bureau of Narcotics Enforcement report dated October 1997 (to provide information on the most critical areas within California which is the epicenter for methamphetamine).

Question. Concern has been expressed that ONDCP plans call for wholly independent HIDTA task forces to be created to deal with the methamphetamine problem rather than complement existing task forces with an infusion of HIDTA funds.

In many rural states it is not reasonable to create separate HIDTA task forces. Do

you agree that in rural states the HIDTA money would be best spent enhancing existing operations?

Answer. The addendum to the Program Guidance emphasizes: ‘‘The Program will

intensify and network the efforts of existing HIDTA task forces focused on methamphetamine reduction.’’

The HIDTA program includes extensive rural areas including the Southwest Border States, Gulf Coast States, and Midwest States. Experience indicates that even

in rural areas, the best return on tax payer dollars that HIDTA funds are best used

for joint Federal, State, and local initiatives rather than mere add-ons to individual

agencies.

HIDTA supports Wyoming initiatives: the Natrona Task Force and the Wyoming

SW Enforcement team. Their objective include dismantling 2 meth trafficking organizations, to reducing the availability of meth in the greater Casper area and to interrupt sources of precursors and chemicals for meth.

SUBCOMMITTEE RECESS

Senator CAMPBELL. I appreciate your appearance, General.

Thank you and this subcommittee is recessed.

General MCCAFFREY. Thank you, Senator.

[Whereupon, at 10:34 a.m., Thursday, March 26, the subcommittee was recessed, to reconvene at 10 a.m., Thursday, April 30.]

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TREASURY AND GENERAL GOVERNMENT

APPROPRIATIONS FOR FISCAL YEAR 1999

THURSDAY, APRIL 30, 1998

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 10 a.m., in room SD–124, Dirksen Senate Office Building, Hon. Ben Nighthorse Campbell (chairman) presiding.

Present: Senators Campbell, Faircloth, and Kohl.

DEPARTMENT OF THE TREASURY

U.S. CUSTOMS SERVICE

STATEMENT OF SAMUEL H. BANKS, ACTING COMMISSIONER

ACCOMPANIED BY:

GENE WEINSCHENK, HEAD, CYBERSMUGGLING CENTER

JOHN MAC KINNON, SENIOR SPECIAL AGENT

ERNEST E. ALLEN, PRESIDENT AND CHIEF EXECUTIVE OFFICER,

NATIONAL CENTER FOR MISSING AND EXPLOITED CHILDREN

OPENING REMARKS

Senator CAMPBELL. The Subcommittee on Treasury will be in

session. Today we will be dealing with the question of pornography

on the Internet. The Internet is a tool which can deliver a world

of information on computer screens at our fingertips. Many parents

are unaware that this also means that along with the positive side

there is a down side. That is what we are here to discuss today,

and that is child pornography on the Internet.

The purpose of this hearing is to demonstrate to the public the

volume of this activity on the Internet and how simple it is to get

this information into the households of America even when you are

not looking for it, as well as what Government is doing about the

offenders and to protect children. With us today is the U.S. Customs Service which has the responsibility for overseeing and regulating international commerce of which the Internet is a part.

Within Customs, there is a division responsible for tracking and arresting people engaging in child pornography on the Internet,

which is not as simple as it sounds.

Acting Commissioner of Customs, Sam Banks, is with us today.

I understand you have to leave a little bit early to testify in another committee. Commissioner Banks, you are here with Ernie

Allen, the director of the National Center for Missing and Exploited
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Children. We will hear your statements and then I understand you

will have to leave.

Following your statements there will be a demonstration of what

there is on the Internet. I think many people would be surprised,

as I was, about how easily these things can be pulled up on the

Internet. I am certainly not a computer expert, but I know my son

who is, has demonstrated a couple of times how easy it is to get

literally every kind of information that you want or would not want

your children to see on the Internet.

I know this is a difficult issue to discuss but I believe we owe

it to our families in America and our children certainly to talk

about the consequences of pornography on the Internet. With that,

I will yield to Senator Kohl for an opening statement.

STATEMENT OF SENATOR KOHL

Senator KOHL. Thank you, Senator Campbell. Today we are very

interested in hearing from Customs on what can be done to reduce

or eliminate child pornography and sexual exploitation. It is critical

that the Federal Government work harder than ever before to develop the necessary technology to fight this growing problem.

Today we are here to listen to Customs explain how the use of

the Internet has resulted in a vast increase in the distribution of

child pornography. We must have the technology necessary to track

down the perpetrators of these crimes because the Internet now

provides child pornographers a safe place to conduct criminal activity.

The Internet is relatively anonymous, rapid, and unsupervised.

Once the materials are downloaded they can be retransmitted or

reproduced continuously. Ultimately what this means is that the

pornographer is no longer relegated to the back room of bookstores.

Instead he can comfortably acquire the materials over his or her

home computer through numerous sites for viewing or even engaging in online chat room conversations.

As a result, child pornography via the Internet provides the purveyors and consumers of this material a society: something that

was not previously available. The validation of pornographic activity is not the direction in which civilized society should move.

The Customs Service has been working to prevent the illegal

trafficking and distribution of child pornography both in and

throughout the United States before 1977. With the development

of the International Child Pornography Investigations and Coordination Center in 1996, Customs has increased its ability to provide

support to international and domestic agents working on these

cases. Hopefully this hearing will give us an opportunity to understand the complexity of the cases and Customs’ ability to respond

to these crimes.

Thank you very much, Senator Campbell.

Senator CAMPBELL. Yes; Sam, if you would like to proceed?

STATEMENT OF SAMUEL H. BANKS

Mr. BANKS. Yes, sir; thank you very much, Mr. Chairman, Senator Kohl. I am pleased to appear before the subcommittee. With

me today is Gene Weinschenk, to my right, who is the head of our
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CyberSmuggling Center, and John MacKinnon, who is a senior special agent with Customs.

Customs obviously has the traditional role of protecting our borders, and historically we have even protected our borders against

pornography of all sorts including child pornography. Traditionally

it has been through the mails and through videos. The advent of

the Internet has radically changed the dynamics of the child pornography enforcement issue for us.

It has also changed dynamics in terms of intellectual property

rights. One cannot believe the amount of counterfeiting that goes

on, and the amount of narcotics information that is on the Internet.

Even trafficking weapons of mass destruction and money laundering are going on on the Internet.

But today, specifically we want to talk about two of the most

cruel and damaging crimes, and these are child pornography and

child sexual exploitation. Our authority and our enforcement role

came with the Child Protection Act of 1984, and then in 1988 our

enforcement authorities against child pornography were extended

to child pornography transmitted via computers.

Customs immediately went to work trying to focus our enforcement efforts on the computer issue and the Internet. In 1989, we

were the first Federal law enforcement agency to initiate investigations into child pornography on computers. Today we spend thousands of investigative man-hours in order to focus in on this terrible problem. We work with State, Federal, and local law enforcement on these issues. We work internationally. We work with both

law enforcement and other governments in order to try to expand

the legal authorities to deal with this problem internationally as

well as domestically.

Last fall we initiated the CyberSmuggling Center which we call

C 3. It has a core staff of eight people that are really driving this.

With the advent of the Internet—and the international network is

what Internet means—there has been a tremendous increase in

violations. The reason there has been an increase is because, really,

all it takes is a PC. In fact, today you can even access it through

your television screen, you can hook up. A simple modem and a

telephone line give you immediate access not just to computer files

domestically but computer files worldwide.

Equally important is, you can remain relatively anonymous when

you are dealing through the Internet. The saddest thing of all is

it provides an opportunity for these violators to actually find other

support groups out there that are engaged in the same sort of activities.

It is really a fairly simple matter. You get an Internet service

provider, AOL, Erol’s; there is a whole variety of them. Some of the

service providers actually protect some of their own chatrooms. But

once you are on the Internet, once you access it, you basically can

roam free anywhere through a whole variety of different chatrooms

and discussion points.

The thing that we see the most is that people are accessing the

Internet Relay Chats, and it is really almost like a CB radio on

which people with common interests get together and share information. There are news groups out there that actually post articles
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and post images on the bulletin boards that people can access. So

it really is fairly simple for them to gain access to this information.

One of the other things that we have seen on the Internet is violators that are actually arranging international travel and international meetings in order to actually conduct child sexual exploitation through the use of the Internet. This is probably one of the

things that recently has frightened us the most.

Our accomplishments, since fiscal year 1992: we have arrested

515 people and we have convicted 442. Either they have been convicted or they have pled guilty. This year so far we have arrested

65 individuals and we have 57 convictions. The astounding part of

this thing is the type of people involved in this activity. We have

teachers, we have truckdrivers. We have policemen, we have pediatricians. Some of the situations that you are going to hear about

today and the instances that you are going to hear about are not

only astounding, they are just terribly depressing.

Part of our enforcement work has been training hundreds of

State and local law enforcement officers in the United States, in

virtually every State in the country. We also have gone out and

trained law enforcement officials in 50 other countries around the

world. We have worked with these other countries in order to try

to build the necessary legislation so that enforcement can be conducted, so we can take enforcement actions against these people,

and conduct international investigations.

We have also linked up with the National Center for Missing and

Exploited Children. We have worked with them for the last 12

years. It has been a very productive relationship. They even provide us with tips on where to search for this.

The real trick is for us to try to stay ahead of the curve. The

technology in this area is changing rapidly, and the violators are

finding new and different ways in order to try and conceal their

trail and their activities. So that is one of the major challenges that

is facing us in the future.

I am very proud of the special agents in the Customs Service

that have launched this effort and that have attacked this problem.

I think that the U.S. Customs Service is recognized worldwide as

one of the leading law enforcement authorities on child pornography being transmitted by computer.

I appreciate the opportunity to be here, and what I would like

to do is leave you in the hands of our real experts that will be able

to show you a demonstration and just how easy it is to access this.

Thank you very much.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Mr. Banks. We have your complete statement and it will be made part of the record.

[The statement follows:]

PREPARED STATEMENT OF SAMUEL H. BANKS

INTRODUCTION AND OVERVIEW

Good morning, Mr. Chairman and Members of the Subcommittee. I am here this

morning to give you an overview of the U.S. Customs Service CyberSmuggling Center and, in particular, to tell you about Customs work in investigating two of the

most cruel and damaging crimes that Customs investigates: international child por-
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nography and international child sexual exploitation. Both of these crimes endanger

our nation by damaging our future, by damaging our children.

Customs has always been the front line of defense against the illegal trafficking

in and distribution of child pornography in and throughout the United States. Before 1977, Customs seized child pornography entering the U.S. under obscenity

laws. In 1977, Congress enacted the first anti-child pornography law, and in 1984,

Congress enacted the Child Protection Act of 1984, which gives the Customs Service

the authority to investigate any cases which involve the receipt, transmission, manufacture or possession of child pornography which has been shipped internationally.

In 1988, Congress passed a law outlawing the use of a computer to transmit, manufacture or possess child pornography which has been shipped internationally, thus

opening the door to Customs computer investigations.

In 1989, the U.S. Customs Service became the first federal law enforcement agency to initiate an investigation into child pornography on computers, opening an investigation into computer bulletin boards in Denmark that contained child pornography. One significant result of this investigation was the drafting of the first federal search warrant used to search computers that contained child pornography.

Customs investigations into child pornography on computers, and later on the

Internet, set the worldwide standard for both child pornography and computer investigations. We have trained thousands of state and local law enforcement officials

from every state in the Union; we have trained hundreds of foreign law enforcement

officials in more than 50 countries around the globe. We work with our law enforcement and legislative counterparts in foreign countries in developing investigative

procedures and legislative remedies to the problem of child pornography and computer crimes. We conduct investigations of individuals worldwide who produce and

traffic in child pornography, pursuing those in this country and turning over information on those in foreign countries—and the problem is universal, from Australia

to Zimbabwe—to appropriate law enforcement officials.

In our investigations into child pornography on the Internet, we have seen evidence of the growth of other criminal activity in cyberspace as well. From pirated

copies of copyright-protected audio recordings and computer software that threaten

the intellectual property rights of the music and software industries of this country,

to traffic in illegal arms and weapons of mass destruction, criminals have moved

into cyberspace to conduct their business—and the U.S. Customs Service has pursued them there. We have done so with a staff of eight people dedicated full-time

to pursuit of Internet crime, and a few other agents who work on these types of

cases as part of their already-full and diverse caseloads.

Response to these international cybersmuggling threats is coordinated from the

Customs CyberSmuggling Center, or C3 as it is more commonly known. We established the C3 in August 1997 to begin Customs foray into combating international

Internet crime.

CHILD PORNOGRAPHY AND EXPLOITATION ON THE INTERNET

This morning I am here to discuss a principal investigative focus of the C3—international child pornography and international child sexual exploitation. These two

problems are pervasive and the lasting damage caused by them is widespread.

Child pornography is a crime in progress; it does not end with the click of a camera shutter. Every time someone makes another copy of that picture or launches it

out internationally over the Internet, a crime is again committed.

Child pornography, however, is not just ‘‘looking at dirty pictures.’’ Child pornography is the permanent record of the abuse of a child that will not only live forever

in the mind of that child but will be repeated every time someone views that picture.

Unfortunately, I must report to you that the instances of international child pornography and international child sexual exploitation are rising dramatically. The

quantum increase in the availability of inexpensive home computers and the ease

of accessing the Internet has opened whole new worlds to people across the globe—

and have opened whole new venues for exploitation of children. Almost 100 million

people world-wide can access the Internet, and a number of them are children. Unfortunately, others are child sexual predators.

All of the child pornography cases we investigate are terrible and heartwrenching.

One particularly gruesome case was of a suspect located in Colorado who made contact with a Customs undercover agent on the Internet and asked how to get child

pornography. During his conversation with the agent, the suspect expressed a sadomasochistic interest in young boys. The suspect later admitted that he was a channel operator (like a director) of a ‘‘boy torture’’ channel on the Internet. He transmitted to our agent several images of young boys being tortured. It turned out that he
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had a record for previous child pornography violations, and in July 1996 he was arrested. A search of his computer revealed more child pornography images on his

computer, including a motion picture file of a prepubescent girl having sex with an

adult man.

The Internet is a tool for research, for education, for entertainment. Sadly, like

most tools, its benefits can also be used to inflict harm. Pedophiles and child molesters use the Internet to create, transmit, and traffic internationally in child pornography, child sexual exploitation, and child sex tourism. The relative anonymity and

instantaneous world-wide reach of cyberspace appeal to these sick individuals who

engage in international child sex crimes, giving them the instant gratification they

crave as well as giving them validation in the company of other sexual predators.

The dark side of the Internet is its use to perpetrate violent and vicious acts that

can, and often do, change the course of someone’s life forever. Frequently, that

‘‘someone’’ is a child.

Child sex crimes committed over the Internet are even more insidious than other

Internet crimes. The number of potential victims who could be lured into dangerous

situations via the Internet and the accessibility to these children is virtually unlimited. Trafficking in child pornography is a crime that recognizes no boundaries or

borders nor do the traffickers respect the sanctity of the home or the age of the victims. In fact, the U.S. Customs Service has evidence of the world-wide trafficking

of child pornography in which the victims are believed to be only a few months old.

The Internet reaches everywhere. Crimes involving international sexual exploitation of children occur in big cities and small, in good neighborhoods and bad, everywhere there is the will and desire to exploit children. All it takes is a computer,

a telephone line, and a person who wants to exploit a child.

And these predators have many faces: faces of teachers and policemen. Faces of

judges and doctors. People who live down the street or even next door. We in the

United States may want to think that international child pornography and child

sexual exploitation are invasions of our borders by foreign offenders. Sometimes that

is true, but the laws covering these crimes have outbound as well as inbound provisions. Criminals in the United States are also molesting children and distributing

the graphic evidence of their crimes world-wide via the Internet.

Just to give you an example of the pervasive nature of these crimes, one of our

investigations involved a town in Texas so small that it wasn’t even shown on our

map of the state. That case involved a member of the town’s school board, a school

administrator, and a teacher—all of whom were using the school’s computer system

to traffic in international child pornography while they were teaching that town’s

children. Horribly, our investigation showed that this child pornography had also

been shown to students in the school system.

These are truly international problems with far-reaching consequences. Allowing

a child unsupervised access to the Internet is similar to dropping a child off in the

middle of a large city without adult supervision: there are wonderful and educational experiences to be had, but there is also great potential for great harm—

or even death—for that child.

SCOPE OF THE PROBLEM

Before I go further, I would like to give you a thumbnail sketch of the cybersmuggling environment. The Internet is a collection of interconnected computers

which serves as a network for the transfer of data. Commercial online services, like

America OnLine (AOL), or Internet Service Providers, like Erols, only provide access

to the Internet and a familiar, easily understood method to navigate through this

network. These services are NOT the Internet themselves, as many people believe.

Anyone with a computer, or even a television equipped with the appropriate computer software, can establish a link to the Internet using any Internet Service Provider. Many libraries and schools also have access to the Internet.

When someone connects to the Internet, through whatever means, access is worldwide. The open nature and direct communication afforded by the Internet means

that anyone, regardless of age, can access just about anything that is available

there.

Although many online services and Internet service providers provide safe, monitored chat rooms and services, these protections are not inherent to the Internet

itself. Connection to the Internet also makes available to the user direct and

unmediated access to services such as Internet Relay Chat (IRC) and Newsgroups.

Internet Relay Chat (IRC), another source available on the Internet, is a lot like

channels on a CB radio. Anyone can join in the real-time conversation on these

channels—and there is a shocking amount of trafficking in child pornography going

on in that ‘‘talk.’’ In fact, most of the trafficking in child pornography goes on in
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the IRC, since the IRC gives people the capability to allow access to their computers

to anyone else in the IRC channel. Child pornographers can then trade privately,

one-to-one, without having to attach those pornographic files to a potentially traceable e-mail.

Newsgroups are a collection of articles ‘‘posted’’ or sent to the Newsgroup area,

much like articles are posted to a bulletin board. There are hundreds of Newsgroups

on every imaginable topic—and there are numerous Newsgroups dedicated to child

pornography and child exploitation at any given time. These Newsgroups can contain graphic images of child sexual abuse that anyone may access—even a child.

While many of the Internet service providers and Online service providers do filter

those newsgroups to exclude those obviously indulging illegal habits such as child

pornography, banned Newsgroups can be accessed through other computers on the

Internet.

CUSTOMS RESPONSE TO THE PROBLEM

No one alone can control and eliminate international child pornography trafficking and child exploitation; law enforcement, legislators, industry, and families must

work together in a concentrated, world-wide effort to protect our children from this

plague.

The U.S. Customs Service has established the C3 to coordinate and focus its activity in the investigation of international child pornography and child exploitation, as

well as other cybersmuggling crimes.

Over the last two years, the U.S. Customs Service has averaged close to one arrest every other day for international child sex crime-related activities.

Though these numbers may be surprising, even more shocking are the jobs held

by some of these violators. I am saddened to report to you that the persons arrested

are from all walks of life. We have arrested teachers and truck drivers, pastors and

choir masters, police officers and pediatricians.

One recent arrestee is a family physician who was certified as a forensic pediatrician at an Indian Health Service Hospital in New Mexico. He was arrested for trafficking internationally in child pornography and for traveling to Spokane, Washington for the purpose of having sex with an eight year old girl. It was his intention

to record his sexual molestation of this young girl and to make those images available world-wide over the Internet. Fortunately, this child sexual predator’s ‘‘prey’’

turned out to be a U.S. Customs Service undercover agent.

Child sex tourism is not a rarity. The numbers of predators using the Internet

to arrange international travel for the purpose of molesting a child in another country is on the rise. It also is not unusual for these predators to record these child

molestations and to later make them available over the Internet.

The rise in the number of arrests by the U.S. Customs Service for international

child sexual predator crimes has risen in parallel with the rise in Internet usage.

As more people became home computer users with the drop in price, increase in

availability and ease of access to the Internet, use of the Internet rose dramatically

after 1995. During the same time frame, U.S. Customs Service arrests for Internetrelated international child sexual crimes rose 183 percent from 48 in fiscal year

1995 to 136 in fiscal year 1996. Just this year alone, we have arrested 65 individuals, and have had 57 convictions. Since fiscal year 1992, the U.S. Customs Service

has arrested 515 individuals for child sexual exploitation-related offenses, and 442

have been convicted of or pled guilty to these charges. The U.S. Customs Service

has never lost a case that has gone to the judicial process; all of those individuals

have either pled guilty or have been convicted.

The U.S. Customs Service is recognized by international law enforcement as the

world’s leading law enforcement authority on computer child pornography investigations. I mentioned earlier our training programs for federal, state, local and foreign

law enforcement officials. We also maintain the world’s largest reference collection

of child pornography materials, and are consulted regularly by federal, state, local

and international law enforcement colleagues on child pornography and child exploitation investigations. We have had a very close working relationship with the National Center for Missing and Exploited Children for 12 years. In fact, the National

Center has used Customs as its principal point of referral for the Center’s Child

Pornography Tipline. Leads from the TipLine have led to over 50 arrests.

Pursuing international investigations into child sexual exploitation can be difficult

because of the differing laws world-wide regarding children and also regarding computer communications. As we have done in the past with other international crimes

such as money laundering, Customs works with foreign governments and law enforcement entities in addressing the problems of computer and Internet crime, as
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well as crimes of child sexual exploitation, through legislative, investigative, and

educational means.

Computer and Internet investigations are new territory for law enforcement, and

require new and innovative solutions, both from the investigative and legislative

standpoints.

Computer criminals are computer-savvy—and are able to invest large amounts of

time and money in remaining a step ahead of law enforcement in utilizing cuttingedge technology. The technological advances in computing, such as data encryption,

data encoding, computer-booby-traps, and computer networking put law enforcement at a disadvantage unless we are able to invest the intensive amounts of time

and labor to keep up. Keeping up with the latest technology is a large, hidden, but

necessary expense if we are to enforce laws in cyberspace as well as in real space.

Computer crime is also relatively new territory for lawmakers. The U.S. Customs

Service stands ready to work with Congress and all law enforcement entities to help

find solutions to address these burgeoning crimes.

Mr. Chairman, thank you for the opportunity to appear before the Subcommittee

today. I would be happy to answer any questions and then demonstrate our

cybersmuggling operations.

OCCUPATIONS OF OFFENDERS

Senator CAMPBELL. Sam, I appreciate you being here. I might

say, while you were talking I was looking at your chart over here.

I am absolutely amazed at that list of occupations of the offenders.

Do you have some type of a breakdown of these 515 arrests, 442

convictions? A breakdown that you can give to the subcommittee

about these different occupations of the offenders and how they fit

some of the convictions?

Mr. BANKS. Yes, sir.

Senator CAMPBELL. Is there a larger number of a certain category of offenders than another?

Mr. BANKS. No, Mr. Chairman; one of the common threads is,

these people work with children on a regular basis. They have activities that put them close to children.

Senator CAMPBELL. Yes; pardon the language, but I think the

bastards ought to all be put in jail, frankly.

Mr. BANKS. I am with you.

Senator CAMPBELL. I know you have to leave.

Senator Kohl, do you have any questions that you would like to

ask Sam before he has to run?

LIMITATIONS

Senator KOHL. Yes; I wanted to ask you, Mr. Banks, what are

the limitations that prevent you from doing a much, much better

job with respect to arresting these people, convicting them, and

putting them in jail? Are there things that we can do to help you

do your job much better than you are able to do it right now?

Mr. BANKS. There is always a staffing issue in terms of the number of people that you can bring to bear on this issue. One of the

things that we have got to do is we also need very particular skill

sets. We need people that know how to manipulate computers in

a very sophisticated fashion. So that is a big issue.

One of the things that is always a problem is trying to stay current with the latest technology in order to be able to access the

Internet and be able to try and trace back, in investigative fashion,

the people who are involved.
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LEGISLATION TO EXTEND EXISTING AUTHORITIES

Mr. WEINSCHENK. We also need some fine-tuning of legislation to

extend our existing authorities to the Internet. We are working on

developing that.

Senator KOHL. I guess how I feel, and I am sure how Senator

Campbell and Senator Faircloth feel is that this is a problem that

we should be using as much of our expertise as is available and

possible to bring this to a minimum in terms of its perpetration.

I have the feeling that we can do a lot better if we will work together in every way to be sure that we bring to bear the resources

and the technology that we have to see to it that this kind of activity is kept to an absolute minimum. It is obviously very serious and

it should command all the attention that we need to give it to bring

it down to its lowest possible activity level.

Mr. BANKS. Yes, sir; I totally agree with you. One of the other

things that we need to continue to do is to work internationally,

because you cannot solve this problem just domestically. We need

to make sure that some of these other countries, in particular, the

countries that are the sources for some of this child pornography,

have the necessary legislation to be able to do their work. We need

to make sure that we are linked with their law enforcement authorities so that we can take strong action against the people who

are involved in this.

Mr. WEINSCHENK. To bring that into perspective, Senator, there

are approximately six countries around the world that have sufficient legislation on the books already to combat this; 6 out of 190-

plus.

Senator KOHL. And we are not one of them?

Mr. WEINSCHENK. We are.

Senator KOHL. We are one of them.

Mr. WEINSCHENK. We have the legislation; however, we just have

to fine-tune some of it to where we can begin our work.

Mr. BANKS. Last year we arrested 145 people engaged in this effort. So we have the legal authorities to be able to do this work.

Senator KOHL. Are there constitutional prohibitions that keep

you from doing this work as effectively as you would like?

Senator CAMPBELL. Like first amendment rights or something of

that nature.

Mr. WEINSCHENK. There are a lot of contentions of first amendment right violations, but the Supreme Court has basically ruled

that child pornography is not included within the first amendment

rights.

What we have to do, because this is such an international problem, is have other countries develop parallel law because it is going

in and out of our country. So we have to be able to work with them.

If they do not have the authority to do this, we are really at a loss.

Senator CAMPBELL. He has to testify at another hearing, Senator

Faircloth. Do you have anything you want to ask him before he

runs to his next commitment?

Senator FAIRCLOTH. Just if I could ask one quick question. How

many people do you have working in Customs specifically on child

pornography?
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Mr. WEINSCHENK. We have eight at the center and we have at

least one in every office. It would be about another 144 at the moment, but they are working it part time.

Senator FAIRCLOTH. So you have——

Mr. WEINSCHENK. Eight full time.

Senator FAIRCLOTH. Eight full time and——

Mr. WEINSCHENK. And roughly 144 part time, giving any variation of hours to it.

Senator FAIRCLOTH. Thank you.

Mr. BANKS. Mr. Chairman, could I introduce someone very quickly?

Senator CAMPBELL. Yes, please do.

PROTECTION OF CHILDREN

Mr. BANKS. This is tied to the protection of children. We have a

supervisory Customs inspector from San Diego here, Inspector Al

Morales. A week ago Monday there was a high-speed chase of a

suspect from Los Angeles all the way down to the Mexican border.

In that car was a 2-year-old infant. When they got to the border

and we boxed them in, the suspect actually pulled a knife, grabbed

the kid, held the knife to the child’s throat. It ended up being his

child as well, although he was taking him from the mother. But

held the knife to the boy’s throat.

Our supervisory inspector basically talked him through this

whole situation, calmed him down. He was surrounded by a considerable number of police. Walked him out through this situation, actually walked him over toward the border. And as the suspect

started fleeing for Mexico, our inspector grabbed the 2-year-old infant. So the infant was unharmed, and has been returned to his

mother. The Mexican authorities returned that person back to us.

We are involved in protecting children on all sorts of fronts. So,

Al, if you would stand up for a moment I would like to introduce

you to the chairman and the members of the subcommittee.

Senator CAMPBELL. Thanks for being here.

I am the chairman of the Indian Affairs Committee and we are

getting a lot of information from Interior, Indian Health Service,

and Bureau of Indian Affairs that child pornography, child molestation and so on, all that is on the rise on Indian reservations. Do

you have anybody that is specifically assigned to work with the reservations?

Mr. WEINSCHENK. Senator, the pediatrician listed on that chart

there was the pediatrician for the Indian nations in New Mexico

and he had himself put into a position where he would be responsible for doing the forensics on any child who had been molested.

We arrested him both for trafficking in international child pornography and for traveling to Spokane, WA, to molest what he thought

was a 7-year-old child. The agent who conducted that investigation,

Marcus Lawson, is right here.

Basically there is really no way we can focus on something like

that. We have to deal with whatever we come up with on the net

and then work with it.

Senator CAMPBELL. Sure; I understand.

Mr. WEINSCHENK. But there is a perfect example of it.

Senator CAMPBELL. I thank you. Sam, thank you for appearing.
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Mr. BANKS. Thank you, Mr. Chairman.

Senator CAMPBELL. I might tell you that we are going to have a

slide presentation after Mr. Allen’s comments and I understand it

is pretty explicit. If anybody in the audience prefers not to see it,

you are welcome to leave the room.

Mr. WEINSCHENK. Senator, if I might. We are going live online.

It is not going to be a slide presentation. We are actually going to

pull it up as anyone could go in and get it.

Senator CAMPBELL. All right; fine. In any event, if there is anybody in the room that does not wish to see this, you are welcome

to leave.

Mr. Allen.

STATEMENT OF ERNEST E. ALLEN

Mr. ALLEN. Thank you, Mr. Chairman. I am Ernie Allen. I am

the president of the National Center for Missing and Exploited

Children which is a nonprofit organization mandated by Congress.

I am here today really for two reasons. One is because of our long

partnership with the U.S. Customs Service which Commissioner

Banks mentioned, to speak in support of their efforts on child sexual exploitation, child pornography.

Second, to thank you and this subcommittee. This subcommittee

has been a great champion for children. We are proud of the relationship that we have built with Customs and with the Postal Inspection Service and with the U.S. Secret Service. It was this subcommittee that funded our new exploited child unit which is targeting the sexual exploitation of children in the same way that we are

searching for missing children. So great progress is being made.

In Senator Kohl’s questions and your questions, a couple of key

points came out. I wanted to emphasize to the committee that we

are aggressive supporters of the Internet and the use of the Internet in many ways. However, about 4 years ago we began to look

at the risks posed by the Internet and we tried to address those

risks through a three-part strategy.

One is through aggressive public education. There are a lot of

parents out there who have a false sense of security. My kid is at

home, he is on his PC, he is doing something good and positive for

his future. And a lot of parents do not really know what their kids

are doing and what they are into. So we have tried to address that.

We have done publications, including our child safety on the information highway which has gone into now 3 million American

homes providing positive information, usable information, and tips.

Our data indicates that the kids at greatest risk on the Internet

are teenagers. So we have done a separate initiative targeting teen

safety on the information highway, trying to reach out to kids in

ways that they can relate to.

Through the leadership of this committee, and in partnership

with the Customs Service and the Postal Inspection Service and

the FBI, we have actually done mouse pads with safety tips that

we are trying to take into America’s schools. Our goal as a nation

is to wire every school in America for the Internet by the year

2000. What we are trying to do is to make sure that every one of

those schools, at every one of those PC’s, has the kind of positive,

supportive information that can keep kids safe.
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So working with private sector leaders as well as this committee

and the Congress, we are trying to put a mouse pad at every one

of those PC’s in every school in the United States. So education and

prevention has been a goal.

Second, we have worked with leaders in the computer industry

to try to develop technology tools, access controls that give parents

the kinds of ability to limit the access of their kids to certain areas.

But really the third prong of that strategy, the third key point

and we think the most important is aggressive enforcement. Mr.

Chairman, you made the point that this is not protected speech. In

the 1980’s, the Supreme Court of the United States in a case called

Ferber v. New York said that child pornography is not protected

speech. It is child abuse. So what we have tried, working with the

U.S. Customs Service, is to send the message that there should be

zero tolerance for child pornography, for child sexual exploitation

on the Internet.

The problem has been that, as with many issues, law enforcement technology has lagged the technology of those who would misuse it for unlawful purposes. I guess 80 years ago—I heard this

story that when the automobile was first introduced, law enforcement leaders opposed it saying that only the crooks will have the

cars and we will be chasing them on horseback and on foot. Well,

in many ways, that is where we are today, and we are trying to

catch up.

The leader in this effort of using technology to attack this problem has been the Customs Service. We are proud at the National

Center, as Commissioner Banks mentioned, for 12 years we have

been the partner of the Customs Service in this effort. We have operated the National Child Pornography Tip Line providing leads

from the general public about the manufacture and distribution of

child pornography. That has led to many of the convictions that

Commissioner Banks talked about.

But there are some challenges here. One is that there were some

positive effects of that Supreme Court decision in the 1980’s. The

primary effect was to eradicate, by and large, commercially produced child pornography from the shelves of adult bookstores. Law

enforcement, it was clear, there was no longer a debate about

whether this is obscenity or not. It was not protected speech. And

the result was that it disappeared from adult bookstores.

Through the aggressive efforts of the Postal Inspection Service

we have made great progress on cracking down on the use of the

mails for the distribution of child pornography. However, with the

advent of cyberspace, with the advent of the Internet, what has

happened is that a virtual sanctuary was created: a place where

pedophiles and others trading in child pornography could achieve

virtual anonymity. So what was necessary was an aggressive law

enforcement assault on that effort.

As the Commissioner mentioned, now for more than 4 years the

Customs Service has been out front on that. We work very closely

with Customs, with the FBI, with the Postal Inspection Service,

and as this subcommittee may be aware, only last month we just

launched our new CyberTipline, which provides a vehicle to report

child pornography, child enticement, various sexual crimes against

children online in addition to via our telephone hotline.
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So to show you that there is a huge potential for reaching out

to the public to get the kind of information that we need for law

enforcement purposes, in barely 1 month we have already received

732 leads over that CyberTipline, which are being worked by Customs and the FBI and the Postal Service. Of those leads, 472 of

them relate to child pornography; 168 of them relate to the enticement or luring of children online through chatrooms for illegal purposes; 62 of them relate to direct reports of child molestation.

So our belief is that by and large this is still a problem of hidden

victims. We need to do a great deal more. I am not an employee

of the Federal Government or the U.S. Customs Service. I know the

Commissioner probably could not answer Senator Kohl’s question

as directly as I would like to. But in my judgment as a child advocate and a citizen, they need more resources. They need more people. They need more tools.

The impact that they have had with eight people, and eight people really working on multiple issues, not just on this issue but

that whole range of cyber crimes, I think is extraordinary and is

really one of the great success stories of the Federal Government.

But our view is, the law enforcement needs, the law enforcement

challenges that we face in this issue require greater attention,

greater resources, and it would be my plea to this committee that

you look for ways to do more.

I guess the final point I would like to make, Mr. Chairman, to

sort of illustrate the breadth of this problem and how in the words

of one police official, the only way not to find it is simply not to

look. In our judgment, America has begun to look. Law enforcement is becoming more sensitive, more sophisticated, more effective

in this area, but we need a lot more to do. We looked at just the

last month in terms of the States of the members of this committee. In every State there has been a significant arrest or prosecution related to this issue within the last 30 days.

For example, Mr. Chairman, in your State on April 15, the Boulder County sheriff arrested a 44-year-old man on charges of sexual

exploitation of children involving the Internet. Senator Kohl, in

Milwaukee on March 22 there was a child pornography related arrest by the sheriff’s department. Senator Faircloth, in Charlotte on

April 9 in Catawba County, actually related to a murder in Catawba County, the Catawba County officials found child pornography and have related it to that offense.

This is a problem that is happening in every community in every

State, and in our judgment, while we have made great progress

there is a lot more to do. Thank you, Mr. Chairman.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Mr. Allen. We have your complete statement and it will be made part of the record.

[The statement follows:]

PREPARED STATEMENT OF ERNEST E. ALLEN

Mr. Chairman and members of the Committee, as President of the National Center for Missing and Exploited Children (NCMEC), I am honored to have the opportunity to submit testimony on behalf of the United States Customs Service’s International Child Pornography Investigation and Coordination Center (ICPICC).
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I would like to first take a brief moment to thank this committee in a broader

way for your long-standing leadership and support for the National Center for Missing and Exploited Children, specifically your support for our new Exploited Child

Unit (ECU).

This special division at NCMEC provides information and technical assistance

specifically in cases of sexual exploitation, providing the same kind of assistance to

families and law enforcement in sexual exploitation that NCMEC provides in missing child cases. The ECU is developing technology and other resources to assist law

enforcement in all areas of child sexual exploitation, including emerging issues such

as international child sex tourism, Internet-related child sexual exploitation and sex

offenders. It serves as a primary point of contact on these issues and provides informational support to local, state, and federal investigators, as well as to victims and

other concerned citizens.

On March 9, we launched our new CyberTipline, www.missingkids.com/cybertip.

The tipline was created for parents to report incidents of suspicious or illegal Internet activity, including the distribution of child pornography online or situations involving the online enticement of children for sexual exploitation. Since its unveiling

less than two months ago, the CyberTipline has received 732 ‘‘leads’’ pertaining to

child pornography, child prostitution, child sex tourism and online enticement of

children for sexual acts. ECU staff is available seven days per week, 24 hours per

day, to handle these leads, and then distribute them to the appropriate law enforcement agencies, including U.S. Customs. The CyberTipline is our newest and brightest star, and we are excited and enthusiastic about improving our services in this

vital area.

Long before the launch of the CyberTipline, the National Center for Missing and

Exploited Children and the U.S. Customs Service have been working together in the

fight against child pornography and child sexual exploitation on the Internet. In

1987, Customs was the first federal law enforcement agency to agree to be the contact point for tips and leads from NCMEC’s toll-free Child Pornography Tipline.

Since then, Customs has established a strong working relationship with NCMEC. For the past four years, Customs has provided more than $215,000 to the tollfree Child Pornography Tipline and other NCMEC operations. This funding has

been used for promotional brochures, public service announcements, and a current

campaign designed to educate teenage girls about the risks they may encounter and

ways to stay safer from crime, called ‘‘Know the Rules.’’

On many occasions, NCMEC has asked Customs Agents to provide training

around the country to state and local law enforcement on investigative methods and

techniques to combat child pornography violations. Locally, Customs Agents have

trained NCMEC Hotline Operators to become familiar with the types of leads that

we are now receiving via the CyberTipline. This includes child pornography and exploitation methodologies, terms and nomenclature. NCMEC and U.S. Customs have

had a successful ten-plus years combating child pornography, but unfortunately,

much, much more needs to be done.

Child pornography, all but eradicated from adult bookstores and aggressively targeted in connection with the use of the mails in the 1980’s, has resurfaced with a

vengeance, thanks to computer technology. Although, sexually oriented materials

are still available and prevalent, this illegal activity has flourished on the Internet—with child pornography being traded freely in chat rooms, news groups and

private e-mail. Pedophiles, child molesters and other purveyors of child pornography

now have instant access to explicit photographs in the privacy of their own homes

and offices. Hidden behind their PC’s, they brazenly trade pictures and videos, using

technology to transmit an unprecedented number of images around the world,

broadening the audience for child pornography and victimizing a new generation of

children. And they taunt law enforcement that does not have the manpower or resources to hunt them down. The risks to children, particularly teenagers, in cyberspace include:

1. Use by predatory adults to entice children to leave home for purposes of child

sexual exploitation; and

2. Exposure to child pornography and other unlawful sexual content on the Internet.

These two types of cases are now being reported and investigated almost everywhere. It is a problem in virtually every community. For example, in the past few

months, there have been major cases reported in every state represented on your

committee:

—April 15 in Boulder, CO: Sheriff’s detectives are looking for victims of a man

they say had pornographic pictures of children stored on his computer files.

Teddy Mark Long, 44, was arrested March 25 on charges of sexual exploitation

of children.
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—March 22 in Milwaukee, WI: William Harry Kucharek was accused in the complaint of having ‘‘numerous boxes of child pornography, including pictures, videotapes, dolls and other sexual devices’’ among his belongings when Sheriff’s

Department deputies and movers arrived to evict him.

—March 29 in Gunterville, AL: A Marshall County Sheriff’s Department jailer

was arrested and charged with possession of child pornography. Authorities confiscated about 98 computer disks containing pornographic images of children

from various sites.

—April 25 in New York City: An aerospace engineer with ties to the U.S. Department of Defense pleaded guilty yesterday to using the Internet to induce two

16-year-old girls in Maryland to engage in sexual acts with him, federal prosecutors in New York said.

—April 9 in Charlotte, NC: On the same day the sexually tortured body of a

Maryland woman was found in a shallow grave in Catawba County, the man

accused of killing her possessed child pornography, federal prosecutors say.

It is clear that this is not an isolated problem, it is widespread and growing. An

encouraging development is the growing number of specialized units at the federal,

state and local level targeting these offenses. One of the most successful is the Customs Service’s ICPICC unit.

The U.S. Customs Service established the International Child Pornography Investigation and Coordination Center (ICPICC) in April 1996. Part of Customs’ new

CyberSmuggling Center, and staffed by Special Agents with expertise in both child

pornography cases and computers, the primary objectives of the ICPICC are to:

—more effectively assist the field in the investigation of the increasing number

of child pornography cases;

—provide guidance and support to the field in the investigation of complex cases

involving child pornography violations; and

—spearhead the U.S. Customs Service international effort to combat child pornography.

Since being established in April 1996, ICPICC has overseen seven operations, recording 247 arrests, 238 indictments, 240 convictions and 653 seizures. And just

since Oct. 1997, Customs Special Agents arrested 65 individuals in the United

States for trafficking in or possessing child pornography—of those, 57 persons were

convicted. But clearly, one of Customs’ biggest success stories is the ‘‘Tholian Web’’

operation.

A joint state-federal operation, ‘‘Tholian Web,’’ has been credited by law enforcement as the most successful sting of its kind in the nation. The 18-month dragnet

uncovered child pornography traffickers throughout the United States, and as far

away as Germany, Switzerland and Great Britain. The sting has so far resulted in

over 120 prosecution referrals and at least 32 convictions nationwide.

As a result of the probe, investigators have amassed over 200,000 child porn images—possibly the largest collection of child porn in the world—and seized over

$137,000 in home computer equipment. Although Customs’ vigor in targeting child

pornography traffickers has been successful and yielded tremendous dividends,

much more needs to be done.

The National Center for Missing and Exploited Children believes that Congress

should adequately direct federal resources toward attacking the problem of child exploitation over the Internet. The U.S. Customs Service has long been recognized by

law enforcement and the international community for its knowledge and skill in investigating cases of child pornography and child exploitation. And the close relationship we have fostered with the Customs Service has allowed the National Center

for Missing and Exploited Children to maintain our aggressive posture in this important child protection area.

The best way to protect the positive, unfettered uses of the Internet is to ensure

that it not be allowed to become a sanctuary for pedophiles, child pornographers and

others who prey upon children. The United States Customs Service has long shared

that commitment, and it deserves this committee’s full support. Thank you.

ONLINE DEMONSTRATION

Senator CAMPBELL. Should we go ahead with the demonstration?

Mr. WEINSCHENK. What we would like to do, Senator, if you

would like, is to actually go online and show you how quickly we

can get into these areas, as anyone can, any child, and also to show

you what is going on out there.

Senator CAMPBELL. All right.
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Did you have an opening statement that you wanted to make before we see this demonstration?

Senator FAIRCLOTH. I do have an opening statement, if I may.

Senator CAMPBELL. Go ahead, Senator.

STATEMENT OF SENATOR FAIRCLOTH

Senator FAIRCLOTH. Thank you, Mr. Chairman. I just want to

thank you for holding this important meeting. I have just recently—being older, maybe I have just become aware of the problems that are out there. But as most any parent can tell you, children seem to have a better ability to use computers than their parents or grandparents do and can get into the computer system.

In just a few years the Internet has gone from being a novelty

known only to computer experts to a part of everyday life. More

and more computers are in our homes, they are in our classrooms,

and children are among the most frequent and sophisticated users.

This is a tremendous tool for education, but as has been well said

here today, it opens a doorway through which the most deviate of

child molesters can have direct access to children and grandchildren. And this is an international problem, not a national problem, as has been well said here. Child molesters from virtually any

country in the world can come in contact with vulnerable children

in this country as easily as they could if they were across the

street. And this is more of the problem.

I introduced legislation last October to prohibit Internet service

providers from providing accounts to sexually violent predators because of my concern that the Internet is becoming an open market

for the most twisted kinds of child pornography. I want to talk with

the chairman to increase resources for the cybersmuggling program

and what we can do to stop it.

Thank you, Mr. Chairman.

Senator CAMPBELL. OK, if you would like to proceed.

Mr. WEINSCHENK. This is John MacKinnon, special agent with

U.S. Customs assigned to the C3 center. We will show you what we

bump into on a daily basis.

STATEMENT OF JOHN MAC KINNON

Mr. MACKINNON. Thank you. Good morning, Mr. Chairman, Senator Faircloth, Senator Kohl. My name is John MacKinnon. I have

been a Customs agent for 10 years and the past 6 years I have

been involved in and conducted child pornography investigations,

most of which involve the Internet. I have also been fortunate to

have been involved in the training of 3,000 law enforcement officers, not only here in the United States, but in numerous countries

abroad.

One of the things I have found useful in instructing not only law

enforcement officers but law enforcement officers who were parents

and teachers themselves, is the use of analogies in understanding

the basic but crucial concepts of the Internet.

There are several different areas of the ether of the Internet. The

terms are bandied about, semantics are interchanged. You have

commercial online services. This is an example of one of the online

services, America Online. Microsoft Network, Prodigy, AT&T
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Worldnet. A citizen will pay a monthly fee to have access to this

nationwide computer club.

I put this up here for several reasons because—I know the purpose and the scope of this hearing is to discuss the downside of the

Internet and the evil that exploits the net. But an example here

on the things that we can see that are offered by all the online

services and other services in other parts of the Internet, are the

good parts that are available, the good things that are available on

the Internet. Sports, news, games, health, lifestyles, shopping. You

can make airline reservations, you can check the weather, so on

and so forth.

You pay your monthly fee. You are given a telephone number locally that you can dial up with your computer and your modem to

connect. You connect inside this nationwide computer club and you

can do many or all of these things. You can also exchange things

on the commercial online service. You can exchange files. You can

exchange thoughts. You can exchange pictures. You can do that

through electronic mail.

I know you are familiar with the mail service that you use here

in the Capitol. Within the commercial online service you can send

electronic mail in real time, or you can send it to be read at a later

time. The mail can be a message containing any thoughts. It can

be egregious. It can be seductive to a child. Or the mail message

could contain pictures. For our purposes, child pornography pictures. Or from within this closed nationwide, or actually international computer service, you can reach out to other people in

other parts of the Internet.

What I am going to do now is just get right to it and we will connect. Can you see that?

Senator CAMPBELL. We only have two options, and that is this

light or no light at all, turning the whole thing off. We cannot just

dim them, so we will just have to go with this. But we can see the

large print.

ONLINE DEMONSTRATION

Mr. MACKINNON. To reiterate our disclaimer here, I am not going

to display child pornography. There may be a small amount of offensive language, and that is the risk we take by going live.

Senator CAMPBELL. OK.

Mr. MACKINNON. This is the World Wide Web, another section

of the Internet, separate and distinct from our online services. The

service, the access to the World Wide Web you get from an Internet

service provider. America Online or Microsoft also provide service

to the Internet in addition to their closed club. An Internet service

provider like IBM or AT&T, and up to 4,000 other Internet service

providers in the United States, will collect from the user $20, $25

a month, give you a phone number to access their big computers

which interconnect with the Internet.

The World Wide Web became very user friendly, very appetitive

for the nontechie, the noncomputer person just in the past few

years. Why? Point and click. Instead of using arcane computer commands and having to learn them, it is very graphical. You take

your arrow, you point on something, like this enforcement activities

in the U.S. Customs Service, and you go to another section of this
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World Wide Web site. The majority of the World Wide Web sites

are legitimate. There is a small minority, an unscientific estimate

of 1, 2, 3, 4, 5 percent of World Wide Web sites that are illegal,

unlawful.

We conduct our investigations in several different ways. We conduct reactive investigations. We receive tips from Mr. Allen’s National Center for Missing and Exploited Children CyberTipline, an

online World Wide Web realtime forum to receive information to

forward to law enforcement. We have our World Wide Web page

ourselves, and a computer citizen will click on. If they come and

visit our site and they have information that they want to report,

they can simply send us an e-mail and a complaint.

We receive tips from our 24-hour-a-day, 7-days-a-week, everyday-of-the-year telephone hotline, tips and information. We collect

this information from computer citizens and we try to do something

with it. We try to validate it through other investigative techniques.

We also conduct investigations in a proactive sense.

Mr. WEINSCHENK. If I may, Mr. Chairman. We receive anywhere

between 200 and 400 tips a week from our own tipline on the page.

Senator CAMPBELL. 400 tips a week and you only have eight fulltime people to deal with them?

Mr. WEINSCHENK. Yes, sir; 200 to 400.

Mr. MACKINNON. And that is just from our own tipline. We receive information from other avenues which compounds it.

ONLINE DEMONSTRATION

Now the World Wide Web offers preferential child molesters and

traffickers of child pornography a global forum to meet other violators. It is unsophisticated to create web pages. The problem for law

enforcement is that the use of the Internet is becoming easier and

easier for a greater amount of people.

This is an example of a web site put up by somebody, we believe

maybe overseas. There are the initials, NL, which is Internet parlance for the Netherlands. On this web site—and I was showing

the majority staff director this the other day, and also the minority

clerk—is a compendium of places on the net to learn about

pedophilia, child pornography. I use this to instruct law enforcement officers as well, and here is a pretty good place to start to

learn about the milieu that we have to deal with.

Each phrase in blue is what we call a hyperlink. That just

means—I am sorry for the technical terms. You put your arrow on

it, your cursor, you click on that and you are going to go somewhere else on the Internet. Now FreeSpirits site, FreeSpirits is this

pedophile organization that has concocted this web site, and they

have on this web site several different subsections, as you will see

by subtopic. Message boards related to boy love, other major resources for boy lovers, sites hosted by individual boy lovers.

Message boards, think of the bulletin boards that you would see

in the squadroom of a police station or in the anteroom of your office. You could post notes. You can pull down notes. It can be

realtime or it can be looked at and viewed later. It is a place to

exchange thoughts.
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Boys viewpoints, community involvement, the written word,

news groups. Another section, in addition to our online services in

the World Wide Web, of which this is, are the news groups which

have upward of 40,000 separate titles. Each title of each group is

a unique topic area. Motorcycles, basketball, pedophilia. This will

list the news groups that are focusing on pedophilia.

Free speech and censorship issues, privacy and security Internet.

Mr. Chairman, these two areas here, especially the last one, when

posted to these pedophilia sites give me and my colleagues concern.

Because what the offenders are doing is trying to educate other offenders on how to evade detection. In this particular law enforcement arena where technology is paramount to either avoiding detection or being detected, is one of our challenges. It is not only just

staying up with the technology, but trying to keep up with the

techniques that are circulated.

Mr. WEINSCHENK. Mr. Chairman, if I may, we made copies this

morning—John was perusing the net while we were waiting for

you. We found a web site which instructs the pedophile how to

undo what parents are doing. What parents are telling their children to be aware of, that site tells them, here is how you get

around that. Here is how you can bring down the child’s defenses.

It is available on a site just like that.

Mr. MACKINNON. Mr. Chairman, Senator Kohl, further down in

this section are other major resources, including one that Mr.

Weinschenk just alluded to. This also shows the international aspects of what we are dealing with. Danish Pedophile Association,

European Boy Lover home page, Montreal Ganymede Collective,

NAMBLA, which is an acronym for North American Man Boy Love

Association, Pedophile Liberation Front, which we will click on and

visit. This is another World Wide Web site that is interconnected

with the previous one.

Mr. WEINSCHENK. If you look at their heading, ‘‘Do something on

the 25th.’’ They want to celebrate. You can imagine what they want

you to do.

Mr. MACKINNON. Which is Pedophile Pride Day. Now what is

listed here on the top and on the side are other options, other links,

other connections for this subject area. It lists members’ home specific web sites. Let us go to Reconsidering Pedophilia.

Mr. WEINSCHENK. One of the questions that is always asked of

us is, do we know how many pedophiles or molesters? We are not

sure because we do not know how many pedophiles are out there.

But we do have an educated guess that as many as 70 or 80 percent of the molesters are pedophiles.

Senator CAMPBELL. Is it also gender skewed, more men than

women? That would be my guess.

Mr. WEINSCHENK. I would say probably more men than women,

but there are sites, mother-daughter sites.

Senator CAMPBELL. Let me ask you a couple things, moving

along here. You talked about the ability to evade detection. I noticed one up there that you said was at the top of the list and it

said Free Spirit. Do you have a way of tracking just who that is,

where they are coming from, where they live?

Mr. MACKINNON. Yes.
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Senator CAMPBELL. If you make phone calls, there are ways of

tracking where the phone call came from. Do you have a way of

tracking who actually is putting it up on the web?

Mr. MACKINNON. Yes; with all due respect, given that this is a

public hearing, we have numerous investigative techniques that we

employ. Given that there are commonly available Internet tools

that anyone can use to initially identify what computer this person

who is using the name, TheSlurp, or the other person, Free Spirits,

are using to connect to the Internet.

ONLINE DEMONSTRATION

Senator CAMPBELL. Is there some type of fingerprint or signature

or something on these different—I am speaking from a total layman’s standpoint. Is there a print that can be tracked to determine

where that computer or where the access was made? I am not quite

sure even how to phrase that question.

Mr. MACKINNON. You are in the right ballpark. On top of someone’s user name, like gene@ibm.net, that is up here. You can

change that. But what is sitting underneath it are other things

that are more difficult to change. Think about VIN number on an

automobile, or DNA in a human body. That DNA stays.

Senator CAMPBELL. So that is like a fingerprint for that——

Mr. MACKINNON. Now the corresponding analogy is a thing

called the Internet protocol address, or an IP address. That is a

number that sits—that is similar to the DNA or the VIN number.

That stays with your Internet account wherever you traverse the

Internet. Now there are ways of faking that but it is real, real difficult. So there are easy ways to determine, any citizen, computer

user can identify realtime, possibly, that IP number. And then for

us the tracking begins.

Mr. WEINSCHENK. Also what happens on here, Senator, is different than phones. As you mentioned earlier, if someone makes a

phone call, you can track-back on the phone. They have what is

called anonymous remailers where my computer goes through your

computer, goes through your computer, changing names and identifiers as it goes, and you can send it through any number of these

different computers. Ultimately, we can find out who it is, but it

is a process of going back through remailer, through remailer,

through remailer.

Senator CAMPBELL. Do I understand that these groups, like

Slurp or these other things, subscribe—to be on, for instance, on

America Online, do they pay some type of fee to be on there or can

they just log on?

Mr. MACKINNON. There is a difference with—what we are looking at here is the World Wide Web, and that is largely unregulated.

America Online is a closed commercial business like Microsoft and

Prodigy. There is interaction but it is informal.

Mr. WEINSCHENK. Most of these folks opt to not go through the

America Onlines because they are filtered, they are monitored.

They go other avenues which are unregulated and they can do

whatever they want totally without restriction.

Senator CAMPBELL. Do these groups like America Online, try to

limit these things or do they have any responsibility in this action

to reduce it?
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Mr. WEINSCHENK. America Online has been very, very conscientious in what they do. We have worked with them on a number of

occasions. We have identified sites where we found that pictures of

preteens were being circulated, and we went to America Online

and they went right to it and put filters in which knocked those

rooms out. They have been very, very good.

The problem that we have here in the United States is that we

seem to think of the Internet as the America Onlines or the Erol’s.

That is only a very small piece of the total picture. Roughly there

are 100 million people accessing the Internet, of which America

Online has 20 million. You can see the percentage, the difference.

The people that we are talking about here stay away from the

America Onlines. They may go in there to identify, if they are looking to identify a child or someone they want to target, and they can

draw them from America Online over to—you know, I will contact

you through e-mail or go through a different direction. They will

go in there to hunt for targets and prey, but they will do their trading in other than the AOL’s of the world.

Senator CAMPBELL. Mr. Allen, you said you thought Customs

needed more resources. I think so too, frankly, when I hear that

they only have eight full-time people working on this. I think most

of the members of the committee would be more than willing to try

to work some stronger legislation or put additional resources into

it. We need some direction on what we can do to help.

What would you suggest that we do from the standpoint of additional legislation?

Mr. ALLEN. I think the Commissioner made the point earlier that

I think there is pretty good law. I think the primary challenge is

enforcing it. Clearly there are some things that are unique about

the Internet. For example, I think Senator Hatch in the last Congress introduced legislation that dealt with the whole question of

what an image is. Can you manipulate an image so it is not a real

child but that there is still a sexual act conveyed?

Clearly, pedophiles are using this content in a lot of ways. They

use it to access other kids. They use it to break down a child’s inhibitions. They use it for commercial purposes. So I think laws that

enhance penalties, laws that—Gene mentioned making the law

more uniform so that there is greater consistency in the law State

to State and nation to nation would be very key.

But in our judgment, the single most important thing we need

is just more law enforcement, more officers, more agents working

on this.

Senator CAMPBELL. Which requires additional resources in terms

of money, obviously.

Mr. ALLEN. Exactly. And probably improved technology. Mr.

MacKinnon talked about the fact that we have evolving tools to

track these people down. But the whole nature of the Internet is,

these communications bounce off servers and go through multiple

avenues. It is not as simple as tracking down a telephone call. So

law enforcement technology has to improve, law enforcement technology has to catch up in many instances with what the bad guys

are doing. And the Customs Service has really been at the forefront

of that.
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Senator CAMPBELL. My computer skills are pretty limited, but

how difficult is it for a youngster to find this information? Is it kind

of rudimentary skills to be able to find this information?

Mr. ALLEN. It is not difficult at all. One of the reasons is that

these guys are clever. You notice in some of the descriptors on the

screen some very generic terms like boy and girl. And things like

that lead you, when you search those terms, to a whole host of options, some of which are legitimate and useful and some of which

are not. So our experience has been particularly computer-savvy

kids, whether intentionally or otherwise, do not have any problem

finding the darker sides of the Internet.

Senator CAMPBELL. Apparently they use a lot of code things that

would appeal to people looking at this information. I mean, everyone wants friends, and children all tend to like to keep secrets and

things of that nature, and they play on that, do they not?

Mr. ALLEN. They do. The other thing is, there seems to be an

emerging category of people on the net who are purposefully using

very attractive sounding web sites to bring people unwittingly. For

example, whitehouse.com is a porn site.

Senator CAMPBELL. White House?

Mr. ALLEN. Whitehouse, one word. Now obviously, the whole intent of that—to the best of our knowledge it is not a child porn site,

but it is a pornographic site. So if you enter whitehouse.com what

you get, other than information about art and history and the U.S.

Government, is you get pornography. And there are a host of those

where people, kids, and otherwise, are being attracted unknowingly

and unwittingly to sites in order to try to exploit for commercial

reasons or other reasons.

Mr. WEINSCHENK. Those sites can then trap that child’s screen

name and feed back info to them unsolicited.

In answer to another part of your question, Senator, we are not

realizing the problem now, but we will very shortly. We know that

with pedophiles, they have an urge that they want to see this stuff

now. So they do not encrypt because it takes too long for a file to

decrypt. It takes a very long time to do that, and their urges are

such that they do not want to wait.

Internet II which the Vice President announced a few weeks ago,

is going to speed up the speed of the net by 100 times. That means

that they can now encrypt and decrypt and still get them in a very,

very rapid time period, which is going to change the face of what

we are doing radically. Because we as law enforcement will get an

encrypted file and we will not even know what we have. So we

have a problem. It is going to be very, very shortly—a problem with

encryption.

Senator CAMPBELL. Senator Kohl, we are moving along here, do

you have some comments or questions?

RESOURCES

Senator KOHL. Thank you, yes. Is there a dimension to the kinds

of resources that you need to bring this activity down to its absolute minimum? We say, if we have more resources we can do a

much better job. Could you put that into some kind of a perspective

that we could understand what you are saying?
383

Mr. WEINSCHENK. In general numbers, I could easily use—I have

eight. I could use 80.

Senator KOHL. If you had 80, what would happen?

Mr. WEINSCHENK. We are barely scratching the surface of what

is out there, because this is 24 hours a day, 7 days a week. One,

we can identify more. We are at the present time running approximately six undercover operations, strictly on the net, strictly doing

child pornography on the net. We would be able to expand those.

We would be able to put more time in.

Senator KOHL. I know. But if you had 800 would you do an even

better job? If you had 8,000? Do you know about—could you tell us,

if you had x, you could accomplish x?

Mr. WEINSCHENK. I can probably figure that out for you, Senator.

I do not know if I could give you a precise answer at the moment,

but I can get back to you with that answer.

Senator KOHL. Do you have some comment on that, Mr. Allen?

Mr. ALLEN. By way of contrast, we aggressively supported the

FBI’s request in the last appropriation to dramatically expand the

Innocent Images Task Force, which is 2 years old, also doing great

work. The Innocent Images effort at the FBI and the work at the

Customs Service really meshes. There are differences in terms of

the approach. The FBI is probably targeting more the online enticement, the chatroom issue, while the Customs Service probably

plays a more dominant role in traditional child pornography and

the use of the Internet for child pornography.

In the last Congress your Appropriations Committee, CJS, gave the Innocent Images an additional $10 million. So they have expanded—I do not know what the number of agents is, but they too

are playing catchup. I do not know what the magnitude of the increase ought to be, but in my judgment, having eight people trying

to deal with an issue of this magnitude is just woefully inadequate.

I think it certainly needs to be substantially greater.

COMPUTER FORENSICS

Mr. WEINSCHENK. There is another facet to this too that you

have to realize, and that is what we call computer forensics. Obviously, the people that we are dealing with are dealing with computers. We have to develop the expertise, which we have. We have

schools constantly going. When we go in and we execute a search

warrant and make an arrest, there are computers there. These people are cognizant enough to know how to boobytrap them so that

if we turn them off the wrong way or we do the wrong thing, it

erases everything.

So we have to develop a second arm that goes out and—to be

able to recover the evidence, to make sure we have it all, we preserve it and we are able to use it for trial. That is a parallel expense to us and a parallel cost, which we are now doing, training

people.

CHILD SEX TOURISM

Senator KOHL. What is child sex tourism? Could you explain that

phrase to us?

Mr. WEINSCHENK. Sure. Child sex tourism is unfortunately a

growing international problem. There are individuals around the
384

world who are contacting, for lack of a better term, a travel agent

type Internet site. And they are telling that site, I am interested

in traveling to country x and I am looking to find a 5-year-old girl

and I intend to have anal, vaginal, straight, whatever, sex. I want

to film it. And these people make the arrangements.

That person then travels to that country. They are met at the

airport with the child, and are on their way. They do what they intend to do.

Senator KOHL. Is this prevalent in the United States?

Mr. WEINSCHENK. Yes; it is. Yes; we have—one of our undercover

operations is targeting it in the United States at the moment, and

we are very successful with it.

Mr. ALLEN. It is our sense, Senator, that probably historically,

probably the best known examples of this have been literally travel

tours to Thailand and to the Philippines, places like that, where it

is literally marketed for pedophiles as part of tour packages, that

a key element of the tour package is you get to have sex with children.

Mr. WEINSCHENK. We are hearing from the Department of the

Interior that there is also a problem over in Saipan and Tinian

where young children are being brought out of mainland China, allegedly to work in the factories there, but, in fact, they are being

brought over as part of the sex tourism operations.

Senator KOHL. Thank you, Mr. Chairman.

Senator CAMPBELL. Senator Faircloth.

Senator FAIRCLOTH. Just a couple of brief questions. Did you say

this same activity takes place in the United States?

Mr. WEINSCHENK. Yes, sir; the arrangements are being made in

the United States. They are contacting sites here in the United

States to make the arrangements.

Senator FAIRCLOTH. With children in this country?

Mr. WEINSCHENK. I do not have clear evidence of that, but we

understand that is happening. It is more prevalent in a developing

country where—I hate to use this term, Senator, believe me—but

there are throwaway children. Where there are children who are

orphaned, who are on the streets, 3, 4, 5, 7 years old. They have

no papers. No one even knows they are there. Those children are

more readily available for these type of predators. But they want

everything set up so that when they come in they can just go and

do what they want to do.

Senator FAIRCLOTH. And, of course, if the children were killed I

guess nobody would know the difference.

Mr. WEINSCHENK. We understand that is even a request at

times. They refer to it as ‘‘snuff.’’ That when they are done with

the sex act they do kill the child.

CONVICTIONS

Senator FAIRCLOTH. I see the arrest, indictments, and convictions. What does a conviction amount to in terms of time or penalty

normally?

Mr. WEINSCHENK. That all depends, Senator.

Senator FAIRCLOTH. I understand that.

Mr. WEINSCHENK. As an example, we have one now that is being

negotiated, and 78 months would be—6 years, 6 months.
385

Senator FAIRCLOTH. In a Federal prison?

Mr. WEINSCHENK. Federal.

Senator FAIRCLOTH. They would see that as the maximum?

Mr. WEINSCHENK. Yes; I would think so, sir.

Mr. ALLEN. Let me say, Senator, that that is substantially greater than prior history. Our experience has been, it is very difficult

to get significant time for a child molester, a sexual offender

against children, for a variety of reasons. One is that prosecutors

oftentimes are reluctant to use the child as a witness, to put the

child through the process. The experience has been in child sexual

abuse cases that probably one-half do no time at all and that the

normal sentence, actual time served is probably a year or less.

I do think penalties are improving and I think penalties, obviously, need to be a significant focus of what we are talking about

here.

Mr. WEINSCHENK. I have just been informed that the average is

between 15 and 20 months.

Senator FAIRCLOTH. Fifteen and twenty months. You could almost get that for a speeding ticket.

Mr. WEINSCHENK. Yes, sir.

Senator FAIRCLOTH. But a more diabolical crime I cannot think

of.

Mr. WEINSCHENK. I agree.

Senator FAIRCLOTH. Thank you, Mr. Chairman.

Senator CAMPBELL. When these people get time for this, my view

is that they are pretty sick. I mean, they are emotionally sick people that would do this in the first place. Do those sentences usually

include some kind of medical help or do they just put them away

for a few months and let them back out on the streets?

Mr. WEINSCHENK. At the Federal level there is one prison in the

United States where they are sent to, and there is a treatment program in there. But the experts tell us that the odds are pretty good

when they get out they will——

Senator CAMPBELL. What about the incidence of repeat offenders

that you mentioned, the 515,432 figure. Have some of them been

repeats?

Mr. WEINSCHENK. Yes, sir; in fact, some of the cases that we

were going to tell you about, one of the individuals we just arrested

in Washington State within the last month, had been arrested as

a child molester and also as a child murderer. He had strangled a

6-year-old boy who he was molesting. Back out on the street and

we got him again.

Senator CAMPBELL. We do have a 15-minute call to vote and I

have no further questions. Do you, Senator Kohl?

Senator KOHL. Thank you, it has been very informative—I have

to say this, Senator Chairman, I hope that we can follow this

through——

Senator CAMPBELL. Yes; me, too. We will.

Senator KOHL. We will try to provide some additional resources,

as much as we can. What you are saying, I believe, very clearly is

that you can do a much better job if we can provide you with additional resources.

Mr. WEINSCHENK. Absolutely, sir.
386

Senator KOHL. This will not be simply a case of throwing money

at a problem and not getting very much by way of results. That is

not the case here, and we are relying on what, I believe, we are

hearing from you. Is that right, Senator Campbell?

Senator CAMPBELL. Yes; and I think, considering the limited resources you have, I think you are doing a terrific job. I want to add

my voice to Senator Kohl’s and tell you that we are going to help

you all we can, whether it is strengthening of legislation or additional money going to additional manpower.

Mr. WEINSCHENK. Mr. Chairman, Senator Kohl, I want to assure

you, I have been a Customs agent for 29 years. The people who are

doing this work and doing these jobs, I have never seen anyone

more dedicated to, more intense at what they are doing. I think we

are doing the best we can with what we have.

Senator CAMPBELL. I think they, like us, have the additional incentive that they are parents in many cases and it could be their

children.

LATEST TECHNOLOGY

Mr. WEINSCHENK. Absolutely. One more thing before you go, Senator. I want to show you both something that is kind of really diabolical. This is what they call a see-you-see-me cue ball. What it

is is a camera, the latest technology, what the sexual predators are

doing.

You set this on top of your computer, you plug it in, anybody that

is out there in the same room with you, as John has demonstrated,

the latest thing what they are doing is they are bringing in a child,

filming the molestation. And the other people in the chatroom,

what they are doing is saying, OK, we want you to do A, B, C to

the child. The person with this on their computer does it. That

image is sent out to the rest of the people in the room. So they are

molesting on demand. Something as small as this.

People who we arrested in, and who traveled into, the United

States from Switzerland, had 90,000 child pornographic images on

one of these; 90,000. That is the size of what we are talking about.

The technology is there to do things like——

Senator CAMPBELL. The problem is a lot larger magnitude than

I had ever understood.

Mr. WEINSCHENK. Very much so. The cost of this is under $300.

Senator CAMPBELL. I thank you for being here, and we certainly

appreciate your testimony.

Mr. WEINSCHENK. Thank you, Mr. Chairman, Senator.

SUBMITTED QUESTIONS

Senator CAMPBELL. We have additional questions that will be

submitted in writing to be answered for inclusion in the record.

[The following questions were not asked at the hearing, but were

submitted to the agency for response subsequent to the hearing:]
387

QUESTIONS SUBMITTED BY SENATOR CAMPBELL

U.S. CUSTOMS SERVICE

CHILD PORNOGRAPHY ON THE INTERNET

Question. What was your fiscal year 1999 request for cybersmuggling, as child

pornography on the Internet is commonly known?

Answer. The President’s fiscal year 1999 budget request for the U.S. Customs

Service did not include specific funds for cybersmuggling activities. Customs currently assigns eight positions to the Customs CyberSmuggling Center, funded out

of base appropriations for smuggling activities.

Question. Can you explain the difference between your jurisdiction and FBI’s in

the area of child pornography?

Answer. The U.S. Customs Service has jurisdiction over the investigation of the

smuggling of prohibited articles into the United States. This includes the use of the

Internet to transmit child pornography materials from foreign locations to points

within the U.S.

In fact, Customs had been investigating the smuggling of child pornography even

before the first child pornography legislation was enacted in 1977.

Following the enactment of the computer-related child pornography statute in

1988, Customs broke new ground by becoming the first Federal agency to conduct

those Internet-based investigations. Customs conducts proactive investigations on

every major facet of the Internet, which includes the World Wide Web (WWW), the

Internet Relay Chat (IRC) channels, and the News Groups.

The Internet is an international medium, a medium used extensively throughout

the world for international trafficking. It is also a medium that recognizes neither

sovereignty nor borders.

Since most of the materials used in the production and distribution of child pornography as well as the child pornography itself have traveled in foreign commerce,

Customs has primary jurisdiction in these investigations.

Customs is also mandated by the Violent Crime and Law Enforcement Control

Act of 1994, 18 U.S.C. 2423, to investigate foreign travel by U.S. citizens and/or resident aliens for the purpose of having sex with a minor.

The FBI’s jurisdiction lies principally in the domestic, interstate transportation of

child pornography, including the use of the Internet to transmit child pornography

materials between domestic locations; and domestic, interstate travel for the purpose of putting children at risk through sexual exploitation.

Question. What is Customs currently doing to inform parents and children about

child pornography on the Internet?

Answer. The U.S. Customs Service works very closely with the National Center

for Missing and Exploited Children (NCMEC) to inform both parents and children

of the dangers lurking on the Internet.

Together, Customs and NCMEC have published and distributed literature and

computer accessories that alert both parents and children to the many traps and

methods used by sexual predators.

Customs is working with State and local agencies such as Education and Library

Associations in an outreach program dedicated to informing parents as to the areas

of concern on the Internet.

To date, Customs has provided training to thousands of Federal, State, local, and

international law enforcement officers as well as to countless members of non-law

enforcement persons, most of whom are themselves parents.

Customs has also been invited by members of Congress to participate in Statewide informational meetings set up to inform their constituents on issues related

to the Internet.

Question. Can you tell some of your recent successes in your efforts against child

pornography on the Internet?

Answer. Since October 1, 1995, the U.S. Customs Service has successfully conducted several undercover and special operations targeting individuals and businesses that use computers to transmit and receive international child pornography.

These investigations have resulted in the arrest of more than 500 persons for such

pornography-related violations in the United States. This is an average of an arrest

every other day since fiscal year 1996.

Case No. 1

Customs recently arrested a pediatrician from New Mexico for trafficking internationally in child pornography via the Internet and for soliciting an undercover

Customs agent to have sex with a seven-year-old girl, whom the pediatrician believed was the undercover agent’s daughter.
388

The pediatrician was, at the time of his arrest, the designated pediatrician for the

Native American Nations in the New Mexico area. The pediatrician recently had

himself appointed as the forensics physician designated to investigate child sexual

molestations.

At the time of his arrest, the pediatrician had in his possession some of his medical tools, including a speculum, and a digital camera capable of taking 99 digital

images. It was his stated intention to molest the seven-year-old girl and to take digital images of the molestation, which he then intended to post on the Internet.

Case No. 2

In another matter, Customs arrested a Swiss husband and wife who were international commercial distributors of child pornography.

The couple had traveled to the U.S. from Switzerland, along with their two-yearold daughter, with over 90,000 child pornography images contained on one computer

drive. The couple had negotiated with an undercover Customs agent to make and

distribute CD–ROM’s of the images throughout North America. It is believed that

the Swiss couple made over $2,000 per day from child pornography distribution.

Case No. 3

In a Customs undercover operation being run out of Salt Lake City, a Canadian

citizen and resident of Bridal Falls, British Columbia (Canada), offered to sell the

undercover Customs agent images of child pornography which he claimed to be producing himself in his home town.

The violator advised that he produced the pornography while babysitting children

under 10 years of age. The violator indicated that he would be babysitting next

week and would be molesting more children and, as before, filming the molestation

as he did it.

Because of the nature of the violator’s comments, the Customs agent immediately

contacted the Coordinated Law Enforcement Unit (CLEU) in Vancouver, Canada. As

a result, the CLEU arrested the violator the next morning and conducted a search

of his residence. The search resulted in the seizure of a substantial amount of child

pornography, including over 300 videos, 60 rolls of undeveloped film, and digitized

child pornography images.

The violator had previously been convicted for the sexual exploitation of a twoyear-old girl and is the prime suspect in a number of other sexual assaults involving

children and animals.

On December 19, 1997, the violator was convicted of having sexual contact with

three separate children, bestiality, and possession and distribution of child pornography. More importantly, another child was saved from molestation by a sexual

predator.

Case No. 4

In July 1997, a subject made contact with an undercover Customs agent and requested information pertaining to child pornography. In January 1998, the subject

placed an order through a certified Customs undercover operation requesting video

tapes containing child pornography.

Subsequent investigation disclosed the subject had a 1975 conviction for seconddegree murder which involved the strangulation of a six-year-old boy. A review of

that case revealed that the subject had molested several children, including the

murder victim. The subject had been paroled in 1980.

In 1985, the subject had been rearrested and charged with having sexual contact

with a minor and returned to prison.

A controlled delivery of the requested child pornography video tapes was executed

by Customs agents to the subject at his residence. A search warrant was also served

and the subject was subsequently arrested for violations of child pornography laws.

Case No. 5

Information from Canada Customs indicated that an individual using the screen

name ‘‘Joker’’ was distributing child pornography over the Internet, through a file

transfer protocol (FTP) site, to individuals in Canada, the United Kingdom, Germany, Japan and the U.S.

During undercover meetings on the Internet, the subject—who was a computer

engineer with a secret clearance—transmitted over 100 child pornography images

electronically, and sent computer diskettes containing over 800 images to the undercover Customs agent.

The subject was subsequently arrested by Customs agents at his home in Aurora,

Colorado.
389

Case No. 6

In April 1998, an undercover Customs agent was contacted by an individual who

wanted to trade child pornography via the Internet. The subsequent investigation

identified the violator as a U.S. Army Green Beret Master Sergeant assigned in a

key military intelligence position in Germany.

Working in cooperation with the Department of Defense, the violator was arrested

while on duty at his intelligence post in Germany as he was trafficking child pornography with the undercover Customs agent.

SUBCOMMITTEE RECESS

Senator CAMPBELL. With that, this hearing is recessed and the

subcommittee will recess until 9:30 a.m., Thursday, May 7.

[Whereupon, at 11:04 a.m., Thursday, April 30, the subcommittee

was recessed, to reconvene at 9:31 a.m., Thursday, May 7.]

(391)

MATERIAL SUBMITTED SUBSEQUENT TO

CONCLUSION OF HEARING

[CLERK’S NOTE.—The following statement was not presented at

the hearing, but was submitted to the subcommittee for inclusion

in the record subsequent to the hearing:]

PREPARED STATEMENT OF CONGRESSMAN NICK LAMPSON

Mr. Chairman. Members of the Subcommittee. As Chairman of the Congressional

Missing and Exploited Children’s Caucus, I appreciate the opportunity to testify on

what has become an issue that I unfortunately know too much about—the exploitation of children.

Child pornography was a worldwide industry that was all but eradicated in the

1980’s. Unfortunately, it has resurfaced with a vengeance, thanks to computer technology. Although the smutty magazines and photographs ordered from back page

ads in adult magazines are still prevalent, this illegal activity has flourished on the

Internet—with child pornography being traded freely in chat rooms, news groups

and private e-mail. Pedophiles, child molesters and other purveyors of child pornography now have instant access to explicit photographs in the privacy of their own

homes and offices. Hidden behind their PC’s, they brazenly trade pictures and videos, using technology to transmit an unprecedented number of images around the

world, broadening the audience for child pornography and victimizing a new generation of children. And they taunt law enforcement that does not have the manpower

or resources to hunt them down.

I represent part of Houston. During one week in March 1998, the Houston Chronicle reported that U.S. Customs agents—who are charged with investigating Internet crimes against children—seized computers from a home and church, saying the

equipment was used to send and receive child pornography through the Internet.

Apparently this was not the only seizure of child porn that week. A man was accused of possessing and distributing pornographic images of children on the Internet. A subsequent search of his home revealed thousands of pornographic images

on his computers, including at least 150 illegal pornographic images of children as

young as 6.

Allow me to tell you a true and chilling story. In February, a South Houston teenager ran away from home to Baytown to see someone she had never met. That

night, the 22-year-old man sexually assaulted her. Why did she leave home to meet

a stranger? They met each other on the Internet.

I will be introducing legislation in the next few days that will authorize funds for

the U.S. Customs Service Child Pornography Enforcement program—the International Child Pornography Investigation and Coordination Center (ICPICC).

To help combat the problem of child pornography through computer technology,

the U.S. Customs Service established the International Child Pornography Investigation and Coordination Center (ICPICC) in April 1996. Staffed by Special Agents

with expertise in both child pornography cases and computers, the primary objectives of the ICPICC are to:

—more effectively assist the field in the investigation of the increasing number

of child pornography cases;

—provide guidance and support to the field in the investigation of complex cases

involving child pornography violations; and

—spearhead the U.S. Customs Service international effort to combat child pornography.

There is a need to adequately direct federal resources toward attacking the problem of child exploitation over the Internet. The U.S. Customs Service has long been

recognized by law enforcement and the international community for its knowledge

and skill in investigating cases of child pornography and child exploitation. The establishment of the ICPICC has enhanced the ability of the Customs Service to main-
392

tain its aggressive posture in this investigative arena. Since fiscal year 1995,

ICPICC’s investigations have resulted in 329 arrests.

Properly funding the ICPICC will allow the Customs Service to continue its worldwide leadership in the prevention of the sexual exploitation and abuse of children

in the United States and abroad.

My concern with the lack of funding provided for the U.S. Customs Service Child

Pornography Enforcement program is obvious. Ever mindful of the widespread benefits which the Customs Service provides, I am greatly discouraged that the fiscal

year 1999 budget request does not provide adequate funding for this program.

I have led a number of my colleagues in writing to Chairman Kolbe and Ranking

Member Hoyer (both members of the Congressional Missing and Exploited Children’s Caucus) to request proper funding.

I urge my colleagues to take this issue seriously and fund the $2 million necessary

to help protect our children from victimization. Mr. Chairman, I am sure you’ll

agree that this is a small price to pay to reduce the exploitation of our children.
(393)

TREASURY AND GENERAL GOVERNMENT

APPROPRIATIONS FOR FISCAL YEAR 1999

THURSDAY, MAY 7, 1998

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 9:31 a.m., in room SD–192, Dirksen

Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)

presiding.

Present: Senators Campbell and Kohl.

EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF ADMINISTRATION

STATEMENT OF ADA LOUISE POSEY, DIRECTOR

ACCOMPANIED BY:

MARK LINDSAY, CHIEF OF STAFF AND GENERAL COUNSEL

LAURA CRABTREE, SENIOR TECHNICAL ADVISOR, INFORMATION

TECHNOLOGY MANAGEMENT TEAM

OPENING REMARKS

Senator CAMPBELL. Good morning. The hearing on the Treasury

Subcommittee will be in session.

I would like to welcome Ada Posey this morning, the Director of

the Office of Administration, and thank you for appearing today. I

see you are joined by Ms. Crabtree and Mr. Lindsay.

Finally, I would ask that any responses that we submit to you

in writing, you could get the answers back to us by the 21st of

May, I would appreciate that.

I convened this hearing this morning for basically two reasons.

The first is to discuss the fiscal year 1999 budget request of the Executive Office of the President, which includes approximately 12

smaller agencies, including the Office of Administration. The Executive Office of the President’s fiscal year 1999 request primarily focuses on funding to maintain current levels, except for an increase

relating to the Office of Administration’s computer technology program.

The second reason I called this hearing is to provide the members and the taxpayers with an opportunity to gain a better understanding of the duties of the Executive Office of the President and

the work the White House attorneys are paid for with appropriated

funds. I know that you testified in the House regarding this issue

but I have had some questions from my own colleagues here in the
394

Senate and I, therefore, wanted to provide the members with the

opportunity to hear your testimony again.

Throughout the course of this hearing, I want to address the

public concerns, part of them brought about by news-related articles, about the issues of the President’s legal defense, both public

and private. Many would agree that there needs to be a bright line

between the advice the legal staff must provide as part of their responsibilities relating to the office of the Presidency as an institution, and the personal legal matters of a sitting President.

I believe that by working with the Executive Office of the President we can address these concerns. I fully understand the White

House’s needs for attorneys to provide legal assistance to the President on all matters relating to legislation, regulations, nominations, and inquiries of Congress. Yet still, I believe that the public

deserves some accountability and some answers to questions of

where that bright defining line is.

I hope today, Ms. Posey, you can shed some light on this issue

and provide a better understanding to the members of the subcommittee.

As an example, I understand the current Department of Justice

rules, taxpayer funded attorneys cannot be used to defend a President in personal civil lawsuits, but clearly if these lawsuits prompt

inquiries from Congress then those same attorneys are obligated to

respond to those inquiries. That is the point I want to get to, where

that defining line is, and where the gray areas are.

With that, Senator Kohl, if you have an opening statement, I

would yield to you.

STATEMENT OF SENATOR KOHL

Senator KOHL. I will be brief, Mr. Chairman.

This hearing has been scheduled to explore the Executive Office

of the President’s fiscal year 1999 budget request. One outstanding

issue is whether Federal funds provided by taxpayers, are being

used by the White House for official or for private legal purposes.

The role of the White House Counsel’s Office is to provide legal

representation to the White House employees in their official capacity. The President, in his official role as President, is their chief

client.

However, the President must acquire private legal counsel to

deal with personal legal issues. I think everyone agrees that the

President cannot seek the advice of Federal employees being paid

Federal funds when responding to private and personal legal

issues.

Thank you, Mr. Chairman.

Senator CAMPBELL. Ms. Posey, I understand you wanted to testify, answer some questions, and then leave; is that correct?

Ms. POSEY. Yes.

Senator CAMPBELL. Why don’t you go ahead and proceed.

STATEMENT OF ADA LOUISE POSEY

Ms. POSEY. I do have an opening statement that is about 12

pages, but I will abbreviate that.

Senator CAMPBELL. That will be fine. Without objection, we will

include your complete testimony in the record.
395

Ms. POSEY. Thank you.

Good morning, Mr. Chairman, and Senator Kohl. It is an honor

to appear before you to present the fiscal year 1999 budget request

for the nine Executive Office of the President accounts. Joining me

today is Mark Lindsay, our Chief of Staff and General Counsel for

the Office of Administration, and also Laura Crabtree, who is our

Senior Technical Advisor for the Information Technology Management Team.

I am thankful that I have the opportunity to serve in the EOP

and to enable the EOP to face the challenge and seize the opportunities presented to us by these ever-changing times caused by daily

advances in technology associated with the information age. Such

challenges remind me of my grandmother, Mrs. Ada Berryman,

who was recently recognized by this Congress in the Congressional

Record when the Honorable Louis Stokes acknowledged her as the

first African-American to be appointed to the Ohio State Housing

Board.

She was born in 1910 in Troy, AL. When she was young, her

family fled to Ohio to escape the segregation of the South.

Throughout her life she was faced with the dynamics of this changing country and she sought to make a difference. She challenged

segregation. She challenged the political system. And she challenged our society. As my grandmother led my family into the industrial age, I now find myself in a position to help lead the EOP

into this dynamic information age.

EXECUTIVE OFFICE OF THE PRESIDENT INFORMATION TECHNOLOGY

INFRASTRUCTURE

The EOP must adapt to this radically changing world and economy. The explosion in computer technology, especially the rise of

the Internet and e-mail, are transferring Government and the way

it responds to the American people. At the same time, the new information technology poses new challenges from the year 2000

problem, to the shear inundation of the Executive Office of the

President system, the EOP.

Frankly, our information technology infrastructure has not been

able to keep up with the ever-increasing demands of change. As a

result, our infrastructure has been unable to support all of the information technology needs of the President and his staff. While we

maintain service in an environment of ever-increasing needs, we

must also meet the challenge of the year 2000 problem and of fixing our information technology so that the EOP survives and

thrives in the millennium.

ALLEGATIONS OF IMPROPER USE OF LEGAL COUNSEL BY THE EOP

Let me move on to the other question at hand. Before we turn

to questions about the rest of the budget, I would like to briefly address the recent allegations that appropriated funds are being used

for the private legal defense of the President.

I can assure you that appropriated funds are not being used for

this or any other nonofficial purpose. As Charles Ruff, Counsel to

the President, made clear in his letters to this subcommittee on

March 19 and April 30, the White House Counsel’s Office represents the President in his official capacity, and the Office of the
396

President as an institution. There is no personal work being performed by the lawyers in the White House Counsel’s Office or any

office within the Executive Office of the President.

EOP BUDGET SUBMISSION

Beyond that question and with regard to all of our budget submissions today, the EOP will continue to maximize its resources

and implement cost savings and measures. Yet it is also imperative

that the EOP be adequately funded to provide the quality of support required as we move into the next millennium and necessary

to support the increasing information demands of the American

people.

It is crucial that the EOP maintain and improve upon its existing infrastructure and plan for future investments in personnel and

information technology now and into the future.

I thank you very much, Mr. Chairman, for allowing me to share

those opening statements.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Ms. Posey. We have your complete statement and it will be included in the hearing record.

[The statement follows:]

PREPARED STATEMENT OF ADA L. POSEY

Good morning Mr. Chairman and members of the Subcommittee. It is an honor

to appear before you to present the fiscal year 1999 budget request for the following

nine Executive Office of the President (EOP) accounts: Compensation of the President, the White House Office, Special Assistance to the President, the Official Residence of the Vice President, the Office of Administration, the Office of Policy Development, the National Security Council, the Council of Economic Advisers, and Unanticipated Needs.

I want to start by telling you why I am so thankful that I have the opportunity

to serve in the EOP, and to enable the EOP to face the challenges and seize the

opportunities presented to us by these ever changing times caused by daily advances

in technology associated with the Information Age. Such challenges remind me of

my grandmother, Mrs. Ada Berryman, who was recently recognized by this Congress in the Congressional Record when the Honorable Louis Stokes acknowledged

her as the first African-American to be appointed to the Ohio State Housing Board

in the 1940’s. She was born in 1910 in Troy, Alabama. When she was young, her

family fled to Ohio to escape the segregation of the South. She resided in Warren,

Ohio for 45 years and is credited with founding the Warren Chapter of the NAACP,

as well as serving as president of the Warren Urban League Board, and as member

of the Trumbull County Welfare Board. Throughout her life, she was faced by the

dynamics of this changing country and she sought to make a difference. She challenged segregation, she challenged the political system, and she challenged our society.

And as my grandmother led my family into the Industrial Age, I now find myself

in a position to help lead the EOP into this dynamic Information Age. The EOP

must adapt to this radically changing world and economy. The explosion in computer technology—especially the rise of the Internet and e-mail—are transforming

government and the way it responds to the American people. As the seat of executive authority, the White House is in a position to use the new information technology to involve the American people in their government, in real time, in a way

that was never possible before. At the same time, the new information technology

poses new challenges—from the ‘‘Year 2000’’ problem to the sheer inundation of the

EOP system.

In all of 1993, the President received 68,784 e-mail messages—this January alone,

he received nearly 100,000 (99,256). The number of hits to our website is increasing

exponentially. Before June 1996, we received an average of 1,500 hits per day—we

are now up to an average of 8,787 hits per day. In 1994, the number of records captured by our Automatic Records Management System (ARMS) was 1.7 million—in
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1997, it was 4.1 million, and we estimate that by the year 2000, we can expect to

be managing 30 million records in ARMS, consuming 210 GB of storage space.

And while we have witnessed these exponential increases, our information technology infrastructure has not been able to keep up with the ever increasing demands of change. As a result, our infrastructure has been unable to support all of

the information technology needs of the President and his staff. Already, we are experiencing systems failures and crashes due to the dramatic increases in e-mail traffic. While we maintain services in an environment of ever increasing needs, we must

also meet the challenge of the Year 2000 (Y2K) problem, and of fixing our information technology so that the EOP survives and thrives in the Millennium.

In order to provide the EOP with the tools necessary to most effectively represent

the American public, I now present you with the EOP’s budget for fiscal year 1999.

The total for the nine accounts is $112.494 million. Since the most significant increase is related to the EOP’s $12.2 million Capital Investment Plan, which is critical toward taking the EOP into the next century, I will address this first. In order

to understand where we are going, however, it is necessary to understand where we

are, and where we have been.

The Office of Administration has engaged in a methodical plan to revitalize its

information technology, a plan begun by my predecessor, Frank Reeder, when he

formed the EOP’s Information Technology Advisory Board (ITAB) in 1995, and

began immediately to develop a five-year plan—internally and without the benefit

of outside consultants or additional resources. Mr. Reeder then submitted the Office

of Administration’s first ever Five Year Information Technology Plan to Congress in

September of 1996.

In fiscal year 1997, however, we endured a level of hardship imposed through the

fencing of our funds from which we are still recovering. In hindsight, we appreciate

the concern and oversight of the Chairman and this Subcommittee, which led us to

create a more detailed EOP Information Technology Architecture (ITA) and to form

an Information Technology Management Team (ITMT). Prior to the events of fiscal

year 1997, each EOP agency acted independently in procuring information technology with not enough regard to redundancy, interchangeability or support requirements—and an inadequate overall, common, EOP vision. We now understand the

importance of working together, and the ramifications to our infrastructure when

we do not.

With the rapid advancement of information technology in the past twenty (20)

years spanning several administrations, EOP agencies were independently constructing custom, redundant, inconsistent, incompatible, and inaccessible systems.

The result is the EOP’s current infrastructure—heterogeneous, diverse and difficult

to maintain. For example, applications have been developed to run under six different operating systems on a dozen hardware platforms using few Computer Aided

Software Engineering tools or automated configuration management tools. The current set of applications software is difficult to maintain, and requires technology

skills that are often difficult to keep on staff. More importantly, in an effort to sustain these diverse applications, we have devoted most of our resources to maintaining the status quo rather than infusing new technologies.

I am pleased to report, however, that on July 18, 1997, the Office of Administration submitted to Congress the Logicon Information Technology Architecture Plan,

a document that built upon the Five Year Information Technology Plan of September 1996. The Logicon Plan set forth a vision and framework to guide the EOP’s

information technology investments for the next five years. In its plan, Logicon observed that ‘‘[w]e believe that the EOP is caught in a double bind—it has too many

legacy systems that cannot be shut down without a functional replacement; and it

does not have the budget to maintain the status quo in the face of escalating maintenance support costs while attempting to accomplish strategic improvements.’’

In an effort to keep up with technological changes, improve the quality of services

and ensure cooperation concerning information technology management within the

EOP, we also established the EOP Information Technology Management Team

(ITMT), as the successor to the Information Technology Management Board (ITAB).

The ITMT is comprised of representatives from each of the EOP agencies. Members of the ITMT include an executive board comprised of EOP agency heads and

their representatives in addition to several advisors. This management structure

was established with the goals of:

—Identifying the functional requirements for information systems throughout the

EOP;

—Ensuring that adequate integrated computer systems are in place throughout

the EOP to meet ongoing and future workload requirements;

—Ensuring appropriate exchange of information technology among EOP agencies

so that experiences and standards can be effectively shared;
398

—Reviewing and recommending funding for information technology initiatives

that are common to all EOP agencies; and

—Ensuring a strong customer service focus for information technology delivery.

The ITMT’s mandate is to advise the Director of the Office of Administration and

other EOP agency heads on common information technology matters.

Over the course of the last twelve months, I believe we have made significant

progress. While we have been performing necessary repairs and sustaining outdated, and obsolete systems, we no longer simply seek to maintain the status quo.

Recognizing the past lack of vision with regard to information technology and in

order to stabilize our IS&T Division, we have added to our leadership a new Deputy

Director for IS&T and a new Associate Director for IS&T, both of whom bring to

the EOP significant experience from the private sector in implementing systems architectures. In addition, we have awarded a contract to Northrop Grumman as our

new facilities contractor for information technology management and services, replacing the incumbent of over twenty years. We are confident that, with their Software Engineering Institute (SEI) level-three certification and business processes reengineering methodology, Northrop Grumman will be an invaluable asset to the

EOP.

With our new information technology leadership, we have built upon the EOP’s

Y2K strategy identified in the Logicon report, and have selected the highly-respected Northrop Grumman/James Martin team to complete the assessment of our

Y2K exposure so that we can renovate and test all of the EOP’s custom applications

and legacy systems. We have developed an EOP-wide Y2K Newsletter in order to

educate our customers on the Y2K problem, and have engaged the ITMT to actively

participate in developing and implementing the EOP’s Y2K strategy. Already, they

have identified their critical systems, and have agreed on the criteria to be used in

prioritizing EOP systems for renovations. As such, the ITMT will continue to play

a pivotal role in determining what systems will be renovated/replaced and in what

sequence based on priority.

On February 20, 1998, with the full concurrence of the ITMT, we delivered a refined ITA to Congress that represents a continuation of the information technology

dialogue that we have had with the Subcommittee since 1996. We have been encouraged by the active interest the Subcommittee has shown in the evolution of this

matter. In combination with our budget, this ITA contains a milestone schedule for

the development and implementation of all projects included in the systems architecture plan, an estimate of the funds required to support the fiscal year 1999 capital investments associated with the plan, and describes an overall strategy and priority setting system for activities. Furthermore, the initiatives outlined in the plan

identify the functional requirements for information systems throughout the EOP,

and ensure that adequate integrated computer systems will be in place throughout

the EOP to meet ongoing and future workload requirements.

OA’s fiscal year 1999 $12.2 million dollar Capital Investment Plan (CIP) represents a significant step in our efforts to address the perils of the Year 2000 problem and update our information technology infrastructure. It is essential that the

EOP continue to develop improved strategies to address our information technology

needs. Our architecture supports our plan to spend about $1.2 million in fiscal year

1998 to continue to resolve our Year 2000 problems. In addition, of the $12.2 million

requested for fiscal year 1999 in the CIP, over 90 percent is earmarked for the Year

2000 effort. Despite the fact that the majority of the CIP will be consumed by resolving Year 2000 problems, our ITA promotes significant performance upgrades to our

systems. Our ‘‘two for one’’ strategy is an efficient means of transforming the Year

2000 problem into our Year 2000 opportunity. Therefore, our ITA design for the future not only addresses the Year 2000 problem, but also uses this situation as the

opportunity to upgrade our system in such a way as to make the EOP more responsive to the growing technological demands of the American people.

The improvements that will result with the infusion of the fiscal year 1999 CIP

represent a major step forward in bringing the EOP closer to current government

standards. This is not ‘‘Whiz-Bang’’ stuff. What we are doing, we must do in order

to maintain basic services and cost effective operations. Examples of how this

change will manifest itself can be found in the following examples:

Improved Information Access.—System upgrades contemplated in this new architecture would significantly stabilize and enhance the EOP’s ability to readily disseminate and store vast amounts of information. Enhancements in Internet access,

in addition to significant improvements in Intranet technology, will allow EOP computer users to conduct research, communicate with colleagues, or present information to the world.

Help Desk: Virtual Desktop.—With advances in technology there will always be a

need to enhance our help capabilities. With virtual desktop access to users’ comput-
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ers, our skilled technicians will be able to investigate, evaluate and repair user

problems remotely. This will increase the efficiency of our technicians and provide

our users with the immediate attention they deserve.

Stabilized Network Integrity.—Our overall network integrity would be stabilized

and enhanced by the implementation of a new network tracking system. This system would allow us to maintain higher levels of EOP network activity and permit

us to upgrade our systems less expensively and with less disruption to our end

users. This would result in fewer network failures, and the maintenance of a more

stable system design.

Strengthened Continuity.—In addition, the new information technology architecture contemplated in the CIP would allow the EOP to maintain a more homogeneous array of computer systems. This acquisition of more similar equipment diminishes maintenance costs, improves system compatibility and helps improve the

overall vitality of the EOP computer network.

A More Secure Computer Network.—With the acquisition of upgraded Year 2000

compliant computer security systems we will be able to greatly enhance the security

integrity of our EOP network. Not only will the new systems make our network less

susceptible to external intruders, and internal intruders, it will also help automate

our efforts and the United States Secret Service’s efforts to track down anyone who

may attempt to violate our systems.

I believe that it is incumbent on us to seize the opportunity the Year 2000 problem presents by ensuring that we continue to improve the quality of information

technology services we provide the entire EOP.

Before I turn to the remaining EOP budgets for fiscal year 1999, I would briefly

like to address recent allegations that appropriated funds are being used for the private legal defense of the President. I can assure you that appropriated funds are

not being used for this or any other non-official purpose. As Charles Ruff, Counsel

to the President, made clear in his letters to this Subcommittee on March 19, 1998

and April 30, 1998, the White House Counsel’s Office represents the President in

his official capacity and the Office of the President as an institution. There is no

personal work being performed by the lawyers in the White House Counsel’s Office

or any office within the Executive Office of the President.

With regard to the remaining budgets, we are requesting an average increase of

only 3.17 percent. In developing these budgets, we adhered to the following parameters. First, to align our budget submission with actual expense history and demonstrated need. Second, to include an estimated 3.1 percent increase to cover locality

and pay adjustments for the EOP’s many General Schedule employees effective 1/

1/99. Third, to include a 3 percent increase to cover increases in GSA rents anticipated in fiscal year 1999. Fourth, to cover the EOP’s balloon payment required by

our telephone switch contract in fiscal year 1999. And fifth, and finally, to request

funding for overtime and compensatory time mandated by the Fair Labor Standards

Act, and applicable to the EOP effective October 1, 1998 pursuant to the Presidential Executive Office Accountability Act (PEOAA).

Operating within austere budgets over the years has been challenging. During the

past five years, the EOP has met this challenge by identifying cost saving measures,

shifting resources, and deferring or delaying purchases. Inflationary cost increases

and mandated pay raises for the EOP’s many General Schedule employees were absorbed in the past. Agencies whose staffs are mostly or entirely in administratively

determined positions, such as the White House Office, Vice President’s Office, and

Office of Policy Development, held salary levels nearly static, delayed implementing

hiring decisions, and brought in new hires at lower levels.

The EOP will continue to maximize its resources and implement cost saving

measures. Yet, it is also imperative that the EOP be adequately funded to provide

the quality of support required as we move into the next millennium, and necessary

to support the increasing information demands of the American people. It is crucial

that the EOP maintain and improve upon its existing infrastructure, and plan for

future investments in personnel and information technology, now and into the millennium.

OFFICE OF ADMINISTRATION CAPITAL INVESTMENTS

Senator CAMPBELL. Let us start with the technology part, first.

Your fiscal year 1999 budget request includes $12.2 million for

a capital investment program. Can you provide some nontechnical

layman’s description, please, of that request and the problems you

are hoping to address with that increase in money?
400

Ms. POSEY. I certainly can. Again, I have brought along Laura

Crabtree, who is a technical person but has a wonderful way of

breaking down technical things into layman’s terms for me and everybody else. But first, let me say, Mr. Chairman, that the $12.2 million request, 90 percent of that is going to be utilized for fixing our year

2000 difficulties within the EOP. The rest of the moneys we hope

to utilize to infuse new technologies within the Executive Office of

the President.

We are woefully behind the eight ball when it comes to our infrastructure. We are operating with six software operating systems,

10 hardware platforms, and it is very difficult for us to use the

technologies of today to have a stable environment and a stable

network. And this has happened over a period of 20 years. We have

never had an information technology architecture that allows us to

have the type of discipline to infuse new technologies within the

EOP.

This $12.2 million means that we are getting our act in order

and we are setting the Executive Office of the President straight

in terms of preparing for the future. These are basic, basic things

that we are doing, and Laura might want to speak to some of the

types of projects that we are working on.

Senator CAMPBELL. Does this increase include basically hardware, or is this also a manpower increase?

Ms. POSEY. This is hardware, this is software, and this is manpower in terms of contract support to do the renovation and the

testing and the validation of our year 2K difficulties.

Senator CAMPBELL. Did you want to add something to that, Ms.

Crabtree?

Ms. CRABTREE. Certainly. Thank you. To add some level of specificity to what is included in the $12.2

million, there are significant projects that we are embarking on in

order to meet a twofold objective that we have set out for ourselves.

The first, and most important, is the fact that we must meet our

Y2K initiatives and resolve the problems that are associated with

the year 2000 issue.

In addition to that, as Ms. Posey mentioned, we are focusing as

well on those projects that not only will benefit our Y2K initiative,

but will also bring us the basic foundational improvements within

our infrastructure that are necessary to be able to start to build the

house upon which we will add additional technologies of the future.

Specific projects within that $12.2 million include, as Ms. Posey

mentioned, hardware and software. Specifically, there are funds set

aside for software in particular because current software applications that are running across our heterogeneous network environment, our environment that has multiple different platforms talking multiple different protocols. And in that environment, those

software items are not Y2K compliant. Nor are they current products that are supported by industry.

So as a result, items such as our word processing software need

to be replaced because it is not Y2K compliant, nor does the vendor

of the product anticipate future support of the item itself. So that

is included as part of the software upgrade, to give you some sense

of what those items are.
401

In addition to that, we have a help desk renovation project included within those funds. The reason being is because our current

help desk system which is essentially the lifeblood of how we get

our customer focus into our IT environment. In other words if

someone has a problem, they need help, they call our help desk and

we dispatch and/or repair the problem over the phone with the

user.

The system that we use to accomplish this, not only the interactions with the user, the recording of the problem, the resolution

of the problem, that software is not Y2K compliant. In addition to

it not being Y2K compliant, it is a legacy application that was developed in-house back around circa 1983, using the mainframe

technology of the time which is no longer being supported by industry.

So we are faced with not only the challenge to become Y2K compliant, but also placing into order the necessary projects that will

provide us the foundation to start to add additional technology improvements over the next 5 years within the EOP.

EOP INFORMATION TECHNOLOGY PLANNING AND COORDINATION

Senator CAMPBELL. You know, I am not a real high-technology

person, but I have to tell you, your testimony sounds quite similar

to the IRS testimony and problems they are having with their technology. Something escapes me on this, when we purchase all this

equipment that apparently does not talk to each other very well.

I will not get into that, because I will get lost.

There are approximately 12 different smaller agencies under the

White House. How do you manage that wide variety of computer

needs while trying to streamline it functionally and keep up with

the workload?

Ms. POSEY. That is a good question. Now what we have done,

Senator Campbell, is we have formulated the information technology management team. This actually was formally formulated in

September 1997. This structure, this management structure is the

first in the history of the Executive Office of the President, where

we have representatives of each of the agencies, heads of the agencies, who formulate an executive board. This executive board is responsible for making decisions based on business functions, information technology needs for the entirety of the EOP.

That, frankly Senator Campbell, was a problem in years past in

the EOP because we had independent decisions being made in all

of the different agencies about the types of technologies that they

would be using. So we have ended up with the kind of system and

infrastructure that we have today that we need to fix and put together.

Senator CAMPBELL. So then you had some overlapping functions

or duplications with different systems?

Ms. POSEY. Actually, not anymore. What we have always had,

Senator Campbell, is an e-mail system where everybody was connected to that particular system and there was common support

provided by the Office of Administration for common software, like

word processing, like spread sheets. But in terms of unique applications, that say, for example, OMB might use, or the Council of Eco-
402

nomic Advisors might use, they have their own unique applications

and work, of course.

But we did not necessarily make sure that the software and the

hardware that they were bringing onto the campus linked smoothly

with the entire network and the infrastructure. That is what

makes things so difficult. And of course, we are not the only Federal agency that has experienced this problem. But it makes it actually more dynamic when you have separate functions that are so

unique in each of the particular agencies.

Senator CAMPBELL. In some of your programs you are dealing

with, are they receiving funding in your 1999 request?

Ms. POSEY. Excuse me?

Senator CAMPBELL. Some of the functions that seem to be duplicated, and I am not sure that is the right word or not, are they

receiving funding in your 1999 request?

Ms. POSEY. There are information technology requests in other

budgets, but those are specifically for the replacement of their own

software and hardware that is unique to them within their agencies. There is a replacement program for computers, PC’s and other

peripherals that the agencies are responsible for themselves. So

that is what those dollars are dedicated to in their own particular

budgets.

ACTIVITIES OF EOP LEGAL COUNSEL

Senator CAMPBELL. Let us get into some questions about these

attorneys. I have read all kinds of different numbers, as you probably have, in local newspapers, from 49 or 89 or something, counting their support staff. I have heard some numbers going up to

100. But I have never found any absolute proof of that, but that

is what I read in the paper, for whatever that is worth.

Of the 20 detailed attorneys, are they provided to the Executive

Office of the White House Counsel’s Office? Is this done on a reimbursable basis? These are the 20 that I am referring to, who are

outlined in Mr. Ruff’s letter sent to me on March 19.

Ms. POSEY. Let me share with you the numbers. There are 34

regular staff within the White House Counsel’s Office at this point.

There are 15 detailees as of the date, Mr. Chairman, that Mr. Ruff

provided you with that information.

The 15 detailees do two things. First, to help with the judicial

nominations, vetting of those judicial nominations, and also vetting

and review of Presidential appointees. That is what they do. They

usually are there for a 3- to 6-month period and they are not reimbursable at the time. Their agency is providing that assistance to

the White House Office, but they do go back to their agencies after

their assignment is finished.

Senator CAMPBELL. We have had requests for additional money

for different agencies for attorneys. Let me ask you this, if agency

attorneys are hired to perform a mission in the Department of the

Interior, Department of Agriculture, or whatever, they are hired to

perform a duty. I do not suppose they hire them to sit around and

stare at the wall.

They are hired to perform some kind of a mission and then they

are detailed somewhere else like to the White House. Who is doing

the job that they were hired to do?
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Ms. POSEY. That is a very good question, Mr. Chairman. We have

found, as other administrations have found, and it has been traditional, that detailees come from other offices, other agencies, to the

White House for the specific role of vetting and reviewing nominations and appointments because it is in the agency’s best interest

to be involved with the process.

In fact, it is their appointees, in fact, that are being reviewed and

vetted through this process at the White House Office. We find that

the way we do this is effective and efficient and it provides a value

added, not only for the White House but is a value added for the

rest of the agencies.

These terms of their assignments, again, are 3 to 6 months.

Senator CAMPBELL. When they are originally hired, is there anything in the job description determining that they may be on loan

to other agencies and that they might not be performing whatever

it is they are hired for?

Ms. POSEY. Again, Mr. Chairman, I would say to you that this

is a practice that happens throughout the Federal Government frequently. Again, it is important that we utilize the skill, the expertise of other Federal agencies, that we might want to have in vetting and reviewing these nominees for appointments.

Senator CAMPBELL. Who pays their salaries when they come

from Justice or another agency? Are they kept on the budget of

Justice or is there some offset compensation by the White House

budget?

Ms. POSEY. No; if they are there for less than 180 days, their salaries are paid by their home agencies. If they are there for longer

than 180 days, then they become a reimbursable employee and the

White House is responsible for paying their salaries.

Senator CAMPBELL. How do you handle it, if they are assigned

to the White House, when they are doing some screening as you

said, perhaps for nominees or something, how do you handle a potential conflict of interest?

Ms. POSEY. What we do is we do not have specifically, say for the

Department of the Interior, we do not have Department of the Interior detailees working on appointments and nominations for the

Department of the Interior. We would have another detailee working on the Department of the Interior. Just to make sure that the

process is fair and equitable and that we, again, bring in the expertise of a wide variety of detailees.

Senator CAMPBELL. Maybe I used the wrong, maybe the nominee

is not the example I would have used. Do they work on anything,

when they are detailed to the White House, do they work on anything that could be construed as a conflict of interest with the

agency they came from?

Ms. POSEY. No, certainly the counsel, the White House Counsel

and the Deputy Counsel would make sure that that did not happen.

Senator CAMPBELL. You said that there are 15 there now?

Ms. POSEY. There are 15 there now, as of April 20.

Senator CAMPBELL. Their salaries are in what range?

Ms. POSEY. Their salaries are in the ranges, I believe that that

is a question that might have come up and been provided in our
404

questions for the record to the House. I would not want to yell out

the specifics, Mr. Chairman, but I can find those for you.

Senator CAMPBELL. If you could provide that, but they must be

in the $80,000 range or something. Attorneys do not come free.

Ms. POSEY. Thereabouts.

Senator CAMPBELL. So we are talking about well over $1 million

a year for just their salaries that their agencies have to pick up

while they are detailed to the White House.

Ms. POSEY. There are also cost figures in here, with regard to the

cost of detailees from year to year for White House Counsel’s Office, and we can point that out and provide specific information on

that.

Senator CAMPBELL. When they are detailed to the White House,

are they supervised in any way at all from their agency, or are

they just totally separate from the agency and supervised totally by

the White House?

Ms. POSEY. No; there is permanent regular staff that supervises

the process of judicial nominations and Presidential appointments.

We have approximately three or four people on staff who are regular staff people who actually supervise that process with the

detailees.

Senator CAMPBELL. How do you pick them? How do you choose

them?

Ms. POSEY. I do not know the answer to that question, Mr.

Chairman, but I certainly can——

Senator CAMPBELL. When the White House wants the attorneys

transferred, do they ask for a certain type or a person with certain

skills? Or do they just get whoever they happen to send over from

the agencies?

Ms. POSEY. I would be sure that they would ask for people who

have a specific expertise and skill and experience in looking at potential nominees and appointees. I am sure that that is what

Charles Ruff looks for, because we do not want to reinvent the

process. We want the process to be, again, efficient. So that is why

we bring on these people who have that kind of expertise previously.

Senator CAMPBELL. While they are gone, you may not be able to

answer it, but who is doing their job? Who picks up their responsibilities in the 6 months they are at the White House?

Ms. POSEY. I would not be able to answer that question, but certainly if—again, this is a benefit, Mr. Ruff believes, both to the

agency and to the White House. There is experience that is garnered from that particular detailee joining the White House for

that 3- to 6-month period. And I think, just as I would send my

staff to training and development type of exercise or experience,

there is a benefit to the agency when they get back.

Senator CAMPBELL. Let us say the President gets sued in a civil

lawsuit and you have all these detailees over there working. And

because of the civil lawsuit the Congress asks questions that they

would like some answers for. How and who determines what those

detailees will be able to do, where the fine line is about what they

can provide in working with private attorneys that would be working on a civil lawsuit for the President?
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Ms. POSEY. Well, detailees do not work on any investigative matter at all, Mr. Chairman.

Senator CAMPBELL. Then how do they know if somebody from the

Hill here asks some questions? How do they know what to answer?

Ms. POSEY. Again, the detailees would not be working on any investigative matters. They are aside from——

Senator CAMPBELL. They would not work on investigative matters so they would not have any knowledge of it. How do they answer any questions that would come from the Senate or the House

relating to it?

Ms. POSEY. They would not be asking or answering any of those

questions. It would be the regular staff of the White House Counsel.

Senator CAMPBELL. That would still, even if it is the regular staff

of the White House, those are still taxpayer paid jobs.

Ms. POSEY. Yes.

Senator CAMPBELL. Where is the defining line between the regular staff attorneys, of what they can get involved in with answering

legitimate questions from Congress, and yet not cross over the line

in coordinating or working with the lawyers who are dealing with

a civil lawsuit?

Ms. POSEY. Certainly the question came up in the House and has

been a question that has come up before. I would refer to our questions for the record, our responses, that we provided to the Subcommittee for Treasury and Postal Service for the House.

There is an official nexus between the Independent Counsel investigations, the congressional investigations, because congressional inquiries, subpoenas, are asking for records of the White

House Office, and it is the responsibility of the White House Counsel not only to coordinate that particular process of gathering those

documents but it is their strong role to make sure that all of the

documents are responsive, that they review the documents, and

that is basically their role.

Senator CAMPBELL. In that role of coordinating, does that mean

that they are then working with the private attorneys who would

be involved in the civil suit?

Ms. POSEY. It is clear, again, let me read from the questions for

the record because I think that Mr. Ruff actually responded quite

succinctly and quite deliberately to that particular question.

There have been, as we well know, allegations where a matter

focused on the alleged conduct of the President during his tenure

in office with respect to a White House employee. The Independent

Counsel has served the White House with subpoenas calling for the

production of documents, has made informal requests for information, and has interviewed or acquired the testimony of some 40 current and former White House employees.

The Counsel’s Office is responsible for responding on behalf of

the White House to these demands, for assisting the White House

personnel in responding to the OIC, and for determining whether

or not the testimony sought from these personnel may implicate

confidentiality concerns.

Beyond those duties, the Counsel’s Office is responsible for responding and assisting other senior White House staff to respond

to the avalanche of press inquiries that flow from the OIC’s inves-
406

tigations every day, including determining whether a response is

appropriate and, if so, in what form and collecting the information

necessary to respond.

So bottomline, there is an official nexus connection or link between the Independent Counsel’s investigation and the constitutional, statutory, and ceremonial responsibilities of the President

and the Office of the President. It is obvious and undeniable.

Senator CAMPBELL. I just want you to know that I am not trying

to focus on conduct of anybody, including the President. I am trying

to focus on the cost to the taxpayers.

Ms. POSEY. I understand that.

Senator CAMPBELL. From my own perspective, I am sick to death

of reading the newspapers every morning about conduct.

Let me just ask you one last question and I will turn it over to

Senator Kohl.

Since the Justice Department now has a rule that you cannot use

taxpayer-funded money for attorneys for private suits, I have to

paraphrase that because I do not have it right in front of me,

would you have a problem with putting that in statute since it is

already in rule? And I guess then complied with, hopefully?

Ms. POSEY. I think that that would be a question that I would

refer to White House Counsel staff to respond to that, Senator

Campbell. Basically, that is something that they should respond to

I would be glad to take that back.

Senator CAMPBELL. Thank you. Senator Kohl.

Senator KOHL. Thank you, Senator Campbell.

Senator CAMPBELL. I apologize, too. I am just told that we will

have a vote pretty soon, so you should get in as much as you can.

GSA FIRE, LIFE, AND SAFETY REPAIRS AND RENOVATIONS OF THE OLD

EXECUTIVE OFFICE BUILDING

Senator KOHL. I will be brief.

Ms. Posey, your office manages the Executive Office of the President’s office space and you act as the principal liaison with the

GSA on facility repairs and restoration. We understand that the

GSA is requesting over $25 million in fiscal year 1999 budget for

repairs to the Old Executive Office Building. Can you tell us what

will be done with these funds?

Ms. POSEY. These funds are to be used for fire/life/safety projects

within the Old Executive Office Building. When I talk about fire/

life/safety, we are talking about basically the elevators being accessible, the stairs being accessible, and also the restrooms being accessible, too. It is the responsibility of GSA to make sure whenever

they undergo any kind of renovation or modification of a building,

upkeep, that they make sure that ADA and OSHA requirements

are taken care of as they move along, as you well know.

We feel very strongly that the Executive Office of the President,

particularly the Old Executive Office Building, needs to be a model,

an example, of keeping up with ADA and OSHA requirements. We

have a responsibility, through the Presidential Executive Office Accountability Act, to make sure that those things are done within

the White House complex.

Senator KOHL. Is a full systems modernization plan being designed by the GSA for this building?
407

Ms. POSEY. Actually, the modernization plan for the Old Executive Office Building is probably going to be, as I understand from

GSA folks, a step-by-step process because the entirety of the modernization for the Old Executive Office Building, of course, which

was built in 1870-something, needs a lot of work. There are tens

of millions of dollars that need to be done to that building.

I am sure Senator Kohl, if you have an opportunity, or Mr.

Chairman, if you have an opportunity to come over to the Old Executive Office Building, you will see some wiring and cabling that

might be a little bit disturbing. It is a beautiful building but, of

course, it does not have the type of accommodations that we need

to have today for ADA or even wiring or cabling.

That is something that GSA has decided to bite off segment by

segment. Otherwise, we would be looking at actually replacing

quite a few people in the Old Executive Office Building for several

years.

Senator KOHL. Will this $25 million request result in the building being in full compliance with health and safety codes?

Ms. POSEY. It is getting closer to full compliance but not complete full compliance.

Senator KOHL. Will this be, when you finish with this modernization program, this $25 million program, will the building then be

in full compliance with health and safety codes?

Ms. POSEY. Again, I would say it would be closer. It would not

be in complete compliance. There are other things that need to be

done, Senator Kohl, throughout the Old Executive Office Building,

but it is a matter of taking care of fire/life and safety, ADA, and

OSHA issues first, the primary priority projects first.

WHITE HOUSE COMMUNICATIONS AGENCY AGREEMENT WITH THE

WHITE HOUSE

Senator KOHL. Ms. Posey, can you explain the services provided

under the memorandum of understanding between the White

House Communications Agency and the White House Office?

Ms. POSEY. Yes, Senator; the White House Communications

Agency provides audiovisual services for the President principally,

and for the Vice President when they have an opportunity. Those

are things like lighting and microphones at official events. They

provide stenographic services and they also provide all kinds of

things, even the podium that they call the Blue Goose, for the

President when he goes to official events and speaks at official

events.

Senator KOHL. What are the costs associated with these services?

Ms. POSEY. In the White House budget for fiscal year 1999 we

are looking at $10.1 million for those particular services. Of course,

this is when the President travels, not only in this country but outside of this country. The Africa trip was very, very interesting in

that I understand in Uganda the White House Communications

Agency was required to actually build an infrastructure for communication there.

Now that is communication costs, which is something that is

picked up by DOD. But the complexity of providing these types of

equipment, audiovisual equipment for historical purposes, gets

pretty harried sometimes when you go to countries that do not
408

have the type of infrastructure and sophistication that other countries do.

Senator KOHL. Last question. What is the bill payment procedure

between the White House and the White House Communications

Agency?

Ms. POSEY. On a monthly basis, the White House Communications Agency provides to the White House Office a specific bill that

lists expenses category by category from audiovisual equipment,

film, tape, whatever that is used. The White House goes over those

to verify and validate the bills, and then it is prepared for reimbursement to WHCA, as we call it.

In other situations, billings are presented to the White House Office and other EOP agencies on a quarterly basis. Because this is

the first time that WHCA has—we are providing for these audiovisual services within the White House budget, as opposed to DOD,

it was very important for us to place very strong management controls, in terms of billing and costs, within what we did. We need

to make sure that all the procedures are followed with regard to

billing and reimbursement. One of those things is to make sure

that we have a monthly billing process, a monthly review process.

Senator KOHL. Good. Thank you. Thank you, Mr. Chairman.

SUBMITTED QUESTIONS

Senator CAMPBELL. I thank you, Ms. Posey, and your colleagues

for appearing this morning. We will submit additional questions to

be answered for the record. We have a vote on now so, with that,

we will recess for 10 minutes and then take Mr. Gray’s testimony.

Thank you.

[A brief recess was taken.]

[The following questions were not asked at the hearing, but were

submitted to the Office for response subsequent to the hearing:]

QUESTIONS SUBMITTED BY SENATOR CAMPBELL

LOGISTICS OF PRIVATE VERSUS PUBLIC LEGAL ACTIVITY

Question. Does the White House have any role in determining whether or not a

legal issue is private or public in nature?

Answer. The vast majority of matters coming to the Office of White House Counsel are, on their face, purely official—e.g., legislation, ethics, legal policy, pardons,

etc. As particular matters arise on which the advice of the White House Counsel’s

office is sought and which may relate to private, rather than official, responsibilities,

Counsel to the President and the Deputy Counsels are responsible for determining

whether the advice relates to the official functions of the person requesting it and

can, therefore, appropriately be provided by the Counsel’s Office. If the matter is

personal, in whole or in part, Counsel’s Office will so advise the person making the

request and suggest that he or she retain private counsel to deal with any personal

issues.

Question. Can you tell us what the specific legal nexus is for the White House

lawyers to be handling anything related to Ken Starr’s investigation, which is private in nature?

Answer. The allegations in the Lewinsky matter focused on the alleged conduct

of the President during his tenure in office with respect to a White House employee.

The Independent Counsel served the White House with subpoenas for the production of documents, made informal requests for information, and interviewed or required the testimony of more than 40 current and former White House employees.

The Counsel’s Office has been responsible for responding, on behalf of the White

House, to these demands, for assisting White House personnel in responding to the

OIC, and for determining whether the testimony sought from these personnel may

implicate confidentiality concerns.
409

The Counsel’s Office has also been responsible for responding, and assisting other

senior White House staff to respond to the many press inquiries that flowed from

the OIC’s investigation every day, including determining whether a response is appropriate and, if so, in what form, and collecting the information necessary to respond. Similarly, Counsel’s Office has been responsible for advising and assisting

the President in his dealings with the press on these issues. In these settings, and

others relating to the operation of the Office of the President, it is the responsibility

of the Counsel’s Office to advise both the senior staff and the President, concerning

the status of the investigation and any expected developments, and to help ensure

that the President continues to be able to perform his duties effectively. Further,

as is evident from the recent judicial decisions and pleadings, Counsel’s Office must

advise the President concerning issues relating to potential claims of governmental

attorney-client and executive privileges, including litigation arising out of those

claims.

Question. It is my understanding that, according to the Counsel’s office, there is

only a small part of the staff devoted to issues relating to investigations, therefore,

can you tell me their specific tasks and will you provide the subcommittee the supporting documentation?

Answer. During 1997 and most of 1998, the Counsel’s Office staff has been devoted to issues relating to investigations is headed by Special Counsel Lanny Breuer

and has consisted of six (6) other lawyers and three (3) paralegals. The lawyers are

generally responsible for responding to subpoenas and requests for documents and

information from congressional committees, various independent counsels, and the

Department of Justice, as well as from private parties who are in litigation against

the White House. The paralegals assist the lawyers by conducting the necessary

document searches, organizing and numbering the documents and preparing them

for production, and otherwise gathering information for use in responding to requests.

Typically, each lawyer is responsible for a particular matter or set of matters, encompassing dealings with particular investigating entities or, in the case of a more

broad-ranging congressional investigation, particular subjects covered by that investigation. There are, however, frequently situations in which lawyers are assigned to

other matters as the need for additional resources arises—e.g., new document

searches that require expedited response. Under the supervision of Mr. Breuer, the

lawyer generally has responsibility for communicating with the staff of the investigating entity, organizing the search for documents or the compilation of information requested by that entity, and producing the documents. The lawyer is also responsible for identifying issues of privilege or other legal issues that arise out of a

request for information and for consulting with Mr. Breuer and with Mr. Ruff or

Ms. Mills to determine whether a claim of privilege or some other legal action is

appropriate.

There is no formal documentation assigning these tasks to individual lawyers

other than the routine correspondence between the investigating entity and a particular lawyer on the subject of the assignment or internal memoranda to and from

lawyers reflecting substantive discussion of, and advice concerning, issues related to

the assignment.

Question. Is there a specific procedure in place, which all affected parties are fully

aware of, which takes you through a step-by-step procedure for relaying a private

legal matter to the President’s private attorneys outside the White House?

Answer. As indicated in the response to the first question, responsibility for identifying matters that are personal in nature and should be referred to private counsel

rests with the Counsel and Deputy Counsels. No formal procedure is required for

such referrals beyond informing the individual seeking advice, or his or her private

counsel, that the Counsel’s Office will not be able to provide assistance in the matter.

EDUCATION OF STAFF

Question. Is there an employee handbook, which explains to staff the Office of

Government Ethics’ and other government regulations which spell out the ethical

standards of official time and that official work only, not personal or non-official

work, may be conducted on the clock?

Answer. Human Resources provides the Executive Office of the President employees with a copy of the Standards of Ethical Conduct for Executive Branch Employees when they arrive. In addition, the White House has a staff manual which also

addresses the ethical obligations of federal employees.

Question. If there is a handbook, does it provide specific guidelines for how an employee is to handle the incoming information or inquiry if it is personal in nature?
410

Answer. The Standards of Conduct provide guidance regarding employees’ obligations regarding the performance of official, as opposed to non-official, activities.

Question. Is there additional training or seminars that the Executive Office of the

President and White House Counsel’s office conduct in order to educate the staff on

these matters?

Answer. Yes. The Counsel’s office conducts annual ethics training for White House

employees as well as providing additional ethics briefings in response to requests

from the various White House offices.

YEAR 2000

Question. How far along is the White House with making its computers Year 2000

compliant?

Answer. The status of our Year 2000 effort is as follows:

A. An agency-wide status of the total number of mission-critical systems.

Total number of mission-critical ........................................................................... 86

Number compliant ................................................................................................. 1

Number to be replaced .......................................................................................... 25

Number to be repaired .......................................................................................... 30

Number to be retired ............................................................................................. 30

NOTE.—Of the mission critical systems, 39 percent are mainframe-based and the remaining

61 percent are desk-top based.

B. The status of the mission-critical systems being repaired.

Milestones Percent

completed

Assessment .............................................................................. April 1998 ....................... 100 percent.

Renovation ................................................................................ December 1998 ............... .....................

Validation ................................................................................. March 1999 ..................... .....................

Implementation ........................................................................ March 1999 ..................... .....................

There are two systems that are excluded from these milestones:

—FAMIS: Federal Accounting Management Information System.

—Document/Correspondence Management Systems used by:

—Office of Presidential Correspondence

—Office of Presidential Records

—Office of Presidential Personnel

C. Description of Progress.

(1) Status of Mission Critical System.—On April 28, 1998, the EOP received the

final assessment document from our Year 2000 assessment contractor. This document provided not only an enterprise assessment data base, but an identification

of EOP wide mission critical systems. Per an ITMT meeting which occurred in

March, a decision was made to concentrate in fiscal year 1998 on mainframe based

infrastructure systems. This decision occurred because of two major concerns, severe

budget constraints and the criticality of the mainframe systems to the continued operation of the EOP.

Fiscal year 1998 budgets available for the replacement/renovation of systems are

severely limited and few dollars remain to effect a complete renovation solution of

these systems. We also have several mission critical systems such as payroll/personnel, financial management, security tracking etc. that reside on the mainframe and

are written in legacy code such as Model 204, COBOL, etc. The remaining dollars

in 1998 will be focused on the renovation of those systems.

These mainframe systems have been identified and assessed in terms of their respective Year 2000 issues. Some of these mainframe systems, such as payroll and

personnel, are being renovated in terms of their ranked priority and we will continue to do this, system by system, subject to funding.

(2) Status of Non-Mission Critical Systems.—Non-mission critical systems have

been identified and assessed. Due to budget constraints, non-mission critical systems will not be renovated prior to the receipt of the fiscal year 1999 budget. From

a priority perspective, non-missions critical system renovations are scheduled to

begin in mid to late fiscal year 1999, after the renovation of mission critical systems.

(3) Data Exchanges.—Within the EOP, data exchanges have been identified as

part of our Year 2000 assessment. Some of these data exchanges are in our payroll

and personnel system, financial management, cabinet affairs network, and in MAX

or the President’s Budget system. We have identified two mechanisms to assure

Year 2000 compliance; these are: (1) Interagency Agreements; and (2) Year 2000
411

check software. For payroll and personnel, etc., we have signed or are signing IAG’s

to ensure Year 2000 compliance. With respect to some other systems such as MAX,

the Year 2000 assessment contractor has recommended the insertion of certain software code which will check external data for Year 2000 compliance. We are investigating the proper placement of this software at either the application level or as

part of an enhanced firewall.

(4) Contingency Planning.—In general, we are putting in place an interagency

agreement (IAG) with an alternate facility to provide a backup or contingency to our

test environment strategy. We are currently undergoing a mainframe vs. Enterprise

server cost/benefit/risk analysis, and this activity will be completed in September.

At this point, we will understand the target platform for our mission critical mainframe applications. Through the IAG, we will contract with this facility to provide

a shadow configuration to our chosen platform, with appropriate communications.

In addition, each application will have contingency plans identified at the system

level. We have begun to meet with mission critical system owners to determine the

main strategies and to formulate appropriate contingency plans. Such plans are

tracked and driven by published schedules, enhanced by meetings, to gain consensus and understanding as events change or the schedule unfolds. For example, with

the payroll/personnel system, we have weekly meetings to discuss key events. A contingency plan was in place throughout that implementation.

Question. Are you focusing on the non-technology aspects of your Year 2000 problems, like elevators, etc?

Answer. Yes. The General Services Administration (GSA) is the landlord for our

building complex and is responsible for the maintenance and update of the buildings. They have assessed what is needed for the HVAC, utilities, elevators, etc., and

are taking the steps necessary to implement any changes that might be needed.

Although these systems are not our direct responsibility, we nonetheless monitor

the progress of GSA in this matter. At the May 1998 ITMT meeting, a representative from GSA reported that its Y2K efforts are progressing in a satisfactory and

timely manner.

Question. Do you anticipate that your fiscal year 1999 request will be sufficient

to cover your Year 2000 costs?

Answer. With proper and timely funding, we anticipate the fiscal year 1999 budget request to be sufficient to cover Year 2000 costs.

COMPUTER ARCHITECTURE

Question. Last year, the conference report included language about your computer

architecture and the need for its development, which your office submitted in late

February. Can you provide us with an update on the architecture and how it is assisting in your computer management?

Answer. The recently completed assessment of our software and hardware for

Year 2000 compliance is now permitting further refinement of the ITA as a technology baseline. EOP has adopted a three-phase integrated strategic management

approach. The first phase was the Strategic Analysis of EOP’s environment, expectations, objectives, culture, and resources. This lead to the Strategic Choice phase,

which generated options, evaluation of the options, and selection of a strategy—the

Strategic Plan. The EOP Year 2000 Strategic Plan document was subsequently finalized by the ITMT in July 1998. The third, and current phase, is Strategy Implementation, which produces tactical plans for improving processes, upgrading or replacing technology, and developing the people resources required to move EOP

ahead. The ITMT will assure that all system changes proposed in the EOP Strategic

Plan and Budget submission truly support the strategic objectives of the EOP. The

Team will also continue to provide oversight of the implementation of the new technologies to assure that they deliver the promised business improvements. The ITA

is assisting us and is the guideline for these efforts.

GOVERNMENT PERFORMANCE AND RESULTS ACT

Question. With respect to GPRA, or the Performance Act, do you have the technological capability of measuring and reporting program performance throughout the

year on a regular basis, so each agency within EXOP can benchmark their performance against their goals?

Answer. In its role as the provider of EOP administrative services, the Office of

Administration since 1996 has compiled and distributed monthly performance statistics covering a range of OA services. Although OA is not covered by GPRA, our

intention is to comply fully with the spirit of GPRA by continually refining and updating the performance measures. OA does not manage a GPRA effort for other

agencies within the EOP.
412

Our intention is to use performance measures as a management tool to aid agency

staff in the allocation of agency resources, to ensure that OA services are responsive

to customer concerns, and to focus management attention on the agency’s effectiveness in achieving its objectives. We are working now to improve those measures,

with our primary focus on measures regarding the effectiveness of the Information

Systems and Technology division.

Statistics currently collected include:

Facilities: processing of alterations/repairs/moves; distribution of space allocation/

rent bills.

Financial Management: processing of travel vouchers, imprest fund claims, requisitions, and accounting transactions delivery of monthly accounting reports.

General Services: delivery of interoffice mail, high-priority and courier, and certified mail, air express, and small packages; cost of print jobs; timeliness of composition/design graphics; office supply order fulfillment; timeliness procurement order

timeliness.

Human Resources: timeliness and accuracy of personnel transactions; timeliness

of vacancy announcements, certificates.

Information Systems and Technology: timeliness of help desk calls.

Library/Research Svcs: timeliness of research services; timeliness of periodical

processing; timeliness of book/CD–ROM processing interlibrary; loan request timeliness acquisitions of books, subscription renewals, dissemination of publications.

Question. Does your office oversee the compliance to GPRA of all agencies within

EXOP?

Answer. OA does not manage a GPRA effort for other agencies within the EOP.

Question. Through the development of the fiscal year 1999 performance plan,

what overlapping functions or program duplications were identified?

Answer. We have not completed a plan for fiscal year 1999. Nevertheless, we are

studying areas such as the costs of information management services from both the

data center and the libraries to identify potential duplicative or superfluous funding.

Teams of staff have also identified work process improvement projects to reduce

costs or maximize the efficiencies in the print shops and the mailrooms.

Question. Did those duplicative programs receive funding in the fiscal year 1999

request?

Answer. The savings which have been identified (or are under study) are not separate line items in the fiscal year 1999 budget proposal, but rather small portions

of the overall cost categories identified in the budget. Nevertheless, the cost for discontinued duplicative programs would not be incorporated into future budget requests.

TRAVEL

Question. The President’s budget request anticipates a more demanding travel

schedule in fiscal year 1999 and, therefore, requests an increase in funding for travel. Please detail the amount of travel costs/expenses incurred by the offices of the

President and Vice President, respectively, over the past ten years. If information

is not readily available on previous Administrations’ travel, please provide only

those travel costs incurred by the Office of the President and Vice President over

the past six years.

Answer.

Fiscal year—

1993 1994 1995 1996 1997

White House Office ....................... $857,491 $910,541 $838,627 $826,684 $892,345

Office of Vice President ................ 289,522 252,292 253,914 285,647 326,363

Question. Please identify, for both the Office of the President and the Office of the

Vice President, the various accounts used for official and campaign related travel

(e.g. 21.0, 99.0). Please also provide the Subcommittee with a break down of those

expenses related to official business from those related to campaign-related travel

for the past ten or six years.

Answer. The account used for official travel expenses is 21.0. ALL travel costs

from this account are Official in nature. The WHO cannot and does not pay for any

political-related expenditures with regard to travel costs.

Question. How are travel expenses related to campaign activity reimbursed by the

office of President and Vice President, respectively?
413

Answer. The account used for official travel expenses is 21.0. ALL travel costs

from this account are Official in nature. The WHO cannot and does not pay for any

political-related expenditures with regard to travel costs.

Question. How do requirements for travel differ for the President and the Vice

President?

Answer. We are not aware of differences with respect to the requirements governing Presidential and Vice Presidential travel.

Question. What are the reimbursement requirements for campaign related travel?

Are there written requirements with regard to how costs associated with campaignrelated travel are paid? If so, please provide them with your response.

Answer. The reimbursement requirements for campaign-related travel by a Presidential candidate are set forth in 11 C.F.R. § 9004.7.

Question. If a trip is both official business and campaign-related, how are costs

allocated between official and campaign related activities?

Answer. The requirements for allocating costs between campaign and non-campaign-related travel are set forth in 11 C.F.R. § 9004.7(b)(2).

(415)

NONDEPARTMENTAL WITNESS

STATEMENT OF C. BOYDEN GRAY, WILMER, CUTLER & PICKERING,

AND FORMER WHITE HOUSE COUNSEL TO PRESIDENT BUSH

INTRODUCTION OF WITNESS

Senator CAMPBELL. The subcommittee will be back in order. I

would like to welcome Mr. C. Boyden Gray, the former White

House Counsel to President Bush. I have asked him here today to

provide some perspective and insight into the general operations of

the counsel’s office, based on his past experience.

Mr. Gray, thank you very much for coming. Did you have a statement?

OPENING STATEMENT OF C. BOYDEN GRAY

Mr. GRAY. I have a prepared statement, which you have, which

I hope will be in the record.

Senator CAMPBELL. It will.

Mr. GRAY. I will just summarize it for a few minutes and then

hopefully answer any questions you have.

Sitting behind me is my former deputy, John Schmitz, so if you

have any really truly difficult questions, I will be able to answer

them with his help.

Senator CAMPBELL. Sitting behind me is my staff, who will also

answer the difficult questions.

WHITE HOUSE COUNSEL RESPONSIBILITIES

Mr. GRAY. The job of White House Counsel is an absolutely terrific opportunity for any lawyer. One of my predecessors, Fred

Fielding, said it is the best little law firm in town. I think that is

a very accurate description.

As for its obligations, I have set out in my statement, the five

areas that we operated in. The first was the vetting of nominees,

which you heard about a little bit this morning, both for cabinet

level appointments and the second category for judicial nominations.

In connection with the second category, working on judicial nominations, the Department of Justice, especially the Office of Legal

Counsel in the Bush administration, provided most of the legwork

for that. That is, most of the detail investigatory work. It was more

of a management job from our perspective, and very, very important help came from the Department in that regard.

The third category dealt with war powers. We had problems in

the Philippines, obviously. We had Panama. And then of course,

the gulf war. There were many other little operations that required

our attention. I was chairman of a thing called the War Powers

Group, which included officials from State, Defense, Treasury, and

the Justice Department again, of course.
416

This was quite, as you can well imagine, quite an active obligation during the 4 years.

The fourth category had to do with separation of powers issues

regarding the independent counsel statute, which is a well-known

statute by now. Also, executive privilege, another very important

area of topical concern. And issues involving vetoes, as well as the

appointments power.

The fifth category was just legal policy, legal issues that came up

in the context of other disciplines, environment, labor law, regulatory policy, which was one of my personal interests when I

worked for Vice President Bush in the Reagan administration.

Those issues frequently involved questions of Presidential power

and executive privilege, and so we did get involved from time to

time in those areas. But most of these issues were organized or led

out of different departments or different agencies within the White

House Executive Office of the President.

COMMONSENSE VIEW OF PUBLIC AND PRIVATE ACTIVITIES OF THE

BUSH WHITE HOUSE COUNSEL’S OFFICE

As my statement details, we had a fairly commonsensical view

about the difference between representing the office and representing the person. We did not have detailed guidelines about it. It was

fairly straightforward. We did not do taxwork. We did not do blind

trust work for the first family.

When investigations came along, which we did, we had our share

to be sure—we do not like to talk about it, but we did—we tried

to distinguish between representing the President in his official capacity, representing the Oval Office, and staff members in their individual capacity. When an investigation looked like it was steering

away from looking at a staff member in his or her capacity as a

potential witness into that person’s potential liability as a target,

we would tell them—with obviously great difficulty—we think you

need to get your own attorney.

Those were not always easy decisions to make, and they were

even more difficult to convey to the individual involved, but of

course we had to do it, both to meet our obligations to the President and to protect the individual involved. Our obligations were

to the President and to the Government and we did not want, for

example, to endanger any attorney-client privilege that the staff

member might be entitled to.

WHITE HOUSE COUNSEL STAFF SIZE

As for the size of our staff, it was fairly small. We had eight core

staff and about six or seven detailees, which included ethics specialists who helped with the nominations especially in the first year

of the Bush term. Listening to the testimony this morning, it appears that we had 8 compared to their 20, if you will, 8 core compared to their 20 core. And we had about 6 or 7 detailees compared

to their 15.

That is the way I can sort of understand the numbers. We were

very reliant on the Office of Legal Counsel, as I said earlier, for

both research work and for advice. I cannot imagine doing that job

without the help of the Office of Legal Counsel. They were absolutely superb. They frequently said no, which is what a lawyer has
417

to do sometimes. A no which we then conveyed to our client, our

clients. But they were an absolutely indispensable part of the operation of our White House and the White House Counsel’s Office

that belonged to my predecessors.

I do not know about the relationship between OLC and the current White House Counsel’s Office, but it was indispensable to that

office in years past.

That ends what I would say, Mr. Chairman. I would be happy

to answer any questions you might have.

PREPARED STATEMENT

Senator CAMPBELL. Thank you. We appreciate that. We will insert your complete statement in the hearing record.

[The statement follows:]

PREPARED STATEMENT OF C. BOYDEN GRAY

Mr. Chairman, I appreciate the opportunity to testify about the operations of the

White House Counsel’s office during the Bush Administration when I served as

Counsel to President Bush. Before providing information about staffing levels, I

would like to take a couple of minutes to give an overview of the duties of the office.

During my tenure, we viewed the White House Counsel as having duties in five

main areas. The first category was ethics and nomination clearances. With the assistance of the Office of Government Ethics (‘‘OGE’’) and the designated ethics officers (‘‘DEO’s’’) of the Departments, we had the responsibility for coordinating compliance with the ethics obligations of the Executive Branch and for clearing nominations for Presidential appointments and senior White House Staff. This included

processing both financial disclosure and FBI clearances, and we had responsibility

for dealing with the FBI field investigations and the reports summarizing them. As

you can probably imagine, this occupied most of my time and that of my staff in

the first year of the Bush Administration.

The second category was the related one of clearing nominees for the federal judiciary, including the Supreme Court. I served as Chairman of the Judicial Selection

Committee, which consisted of representatives from the Department of Justice,

which did most of the research, and the officers of the Chief of Staff, Legislative

Affairs, and Intergovernmental Affairs (the small White House office that dealt with

the governors and mayors). Unlike the Cabinet clearance process, judicial selection

was an ongoing duty that never diminished in intensity over the four-year period.

The third category encompassed issues relating the use of military force and the

War Powers Resolution. I was Chairman of the so-called War Powers Group, which

included representatives from the office of the Secretary of Defense, the Joint

Chiefs, the State Department, the Justice Department and also the Treasury Department on occasion. This group was fairly active over the four years.

The fourth category was a catchall designed to watch out for the prerogatives of

the Executive Branch generally and the Oval Office specifically in the context of the

Separation of Powers. This category included dealing with Executive Privilege, the

Independent Counsel statute, and various legislative matters involving the interrelationship between Congress and the White House, such as enforcement of the

Chadha decision, reviewing budget rescission issues, and addressing questions relating to vetoes and appointments.

The fifth category included legal policy decisions where the lead was often taken

by other offices within the Executive Branch or the White House itself, such as civil

rights (usually lead by the Department of Justice or the EEOC), the environment,

labor law (such as enforcement of the Beck decision regarding use of union dues for

political purposes), and regulatory and administrative law generally (where the lead

usually rested with OMB).

There was, obviously, a great deal of interplay between the various categories.

Regulatory issues, for example, frequently involved questions of Presidential authority, and on occasion also raised Executive Privilege issues, although President Bush

actually invoked the Privilege only once in a procurement matter. Our backup at

all times was the Office of Legal Counsel (‘‘OLC’’) in the Department of Justice, an

extraordinary group of nonpartisan professionals who both provided the leg work for

our efforts and gave us unfailingly independent advice. With our small staff, we

simply could not have discharged our obligations to the President without the exten-
418

sive backup, and institutional memory, of OLC. There were times when I wanted

to strangle numerous OLC officials when they said no to something we wanted to

do, but in retrospect I could not have done without their staffing or their good judgment.

Now, what about the size of our lean staff? Beside myself and my Deputy, John

Schmitz, we had five so-called commissioned officers, who automatically carried the

title Associate Counsel, and one slot for a more junior assistant counsel. In addition,

we had up to four detailees, that is, lawyers who worked full time for me but who

were paid by other Departments. In other words, I had a maximum standing staff

of twelve professional lawyers, including myself. In addition, of course, there were

secretaries and clerical help for us and Jane Dannenhauer, who was the keeper of

the FBI files and clearance process. Finally, especially during the very intensive initial 1989 vetting of Presidential appointees, I had one or two highly dedicated agency ethics lawyers who would stay for three to six months to help with nominations.

Questions have been raised over the years and especially recently about the dividing line between representing the Office and the President in his private capacity.

We did not think twice about not doing private legal work for the first family. Their

blind trust and tax returns, for example, were done by private counsel who occasionally consulted with us but never relied on us for any heavy lifting. Similarly, one

of the son’s issues with the S&L regulators was handled privately, as were a couple

of ethical questions raised about private business matters.

More difficult, of course, were issues arising out of investigations of official conduct, such as Iran Contra or Iraqgate. Our general rule was that investigations of

institutional conduct of the Presidency could be addressed by us using taxpayer

funds, but that if the investigation began to focus on an individual as a potential

target rather than as a mere witness, we would advise the individual to get his or

her own counsel. Where an investigation involved only a staff member without implicating the Presidency, we would recommend that the staff member seek private

assistance. Decisions here were not always easy to make and were never easy to

convey, but we felt we had to be careful both for the protection of the individual

as well as for the limits of our staffing. For example, providing legal advice to a

potential target could both compromise the target’s attorney-client privilege as well

as constitute an abuse of taxpayer funding.

Also difficult was dealing with issues where our advice was not sought, or even,

in some circumstances, was studiously avoided. There is an old saying that the only

meetings the White House counsel has to attend are the ones he is not invited to.

Accordingly, we always had to maintain enough flexibility to bird dog the end runs

(to mix a couple of metaphors). My general advice to everyone was, ‘‘If you are really

having fun, then you’d better stop what you are doing.’’ I would like to think, for

example, that we would have early on learned about and shut down the coffee fundraisers in the White House. The White House Counsel cannot spy on everything,

obviously, but something as pervasive as the coffee program should not have gone

unnoticed.

It has recently come to my attention that the current White House Counsel’s office has about three times the number of attorneys we had. Naturally I am curious

about what they have been doing, given the fact that the First Family also has two

very large and capable law firms on retention, that there do not appear to be any

burning issues of legal policy pending in the agencies or in Congress, and that the

investigation of White House fundraising was shut down. As someone who is interested in regulatory reform, I would take some comfort if some of these forty lawyers

were assisting OMB in trying to achieve EPA compliance with the White House Executive Order on regulation. But it is not clear they are doing that, and I think the

public is entitled to know generally what they are doing.

PUBLIC VERSUS PRIVATE ACTIVITIES IN THE BUSH WHITE HOUSE

COUNSEL’S OFFICE

Senator CAMPBELL. While you were the White House Counsel for

President Bush, was it possible to draw that fine line between the

public versus private legal aspects, or was that somewhat realistic?

Mr. GRAY. No; I think we were able to draw it. I hope we did.

I mean, someone could be critical, someone could question some of

the judgments we made. But I never thought at the time that they

were especially difficult to make, and I do not think we were criticized at any time for the decisions that we did make.
419

Senator CAMPBELL. During your tenure, were there any times in

which there were civil lawsuits ongoing that had a tail over here

in Congress, where you would have to respond to some congressional inquiries about those civil lawsuits?

Mr. GRAY. No; nothing like the Paula Jones case. The closest I

think that you would come, that we came to this, was the litigation, some of it private and some of it of course governmental, involving one of the sons involved in the S&L crisis. That was something we had virtually nothing to do with. I was aware of it more

from reading the papers than from any information from the family.

It was something that was painful for me to have to avoid because one always wants to help, but it was something that I had

to resist. And of course, I did not have the staff anyway, so it was

not all that difficult.

Senator CAMPBELL. You said that you had, as you remember,

about eight detailees from the agencies?

Mr. GRAY. Well, we had, as I understand it, about four permanent detailees that were reimbursable and then two to three that

came on a 3- to 6-month basis that were not reimbursable. So six

to seven.

Senator CAMPBELL. So the four there, their salaries were reimbursed by the White House to the agencies and the rest were not?

Mr. GRAY. That is correct.

INTERNAL CONTROLS FOR DISTINGUISHING BETWEEN PUBLIC AND

PRIVATE ACTIVITIES

Senator CAMPBELL. In your opinion, what kind of internal controls or procedures should the White House have in place to more

clearly define the private versus the public interest in the President’s life or a President’s tenure in office?

Mr. GRAY. Well, I do not know how you have controls if you do

not know what, in fact, is happening or has happened. I am not

aware of all of the details so it would be hard for me to give an

opinion.

Senator CAMPBELL. We do not know and may never, but I was

concerned a little bit that the Justice Department has tried to find

in their rules that you cannot use taxpayers’ money for attorneys’

fees to defend in private lawsuits. I asked the former panel if they

thought that would be objected to if we put that in statute. How

would you view that? Do you think that ought to be statutory or

just a rule?

SKEPTICAL OF STATUTORY ATTEMPT TO ESTABLISH INTERNAL

CONTROLS FOR COUNSEL’S OFFICE

Mr. GRAY. As someone who has obviously worked in the White

House, I am skeptical of trying to put too much in statutory language to micromanage what happens within the White House. I

think that is a separation of powers problem potentially and I

think you should be careful about that, in my humble opinion, even

though of course I am from a different party.

But sooner or later Republicans will get back in the White House

and might perhaps regret that kind of micromanagement.
420

I do, on the other hand however, think it is perfectly appropriate

for you to ask questions about how the money is being spent. There

may be objections to providing answers, but I was just struck listening here and thinking about it, 15 detailees to do vetting. Maybe

they are doing work that we had done by the Office of Legal Counsel for us, but I do not know what I would have done with 15 people. I would have spent most of my time managing them and not

doing substantive work.

So I am curious as to what all those 15 detailees were doing. We

are way past the first year crunch of any administration when you

have an avalanche of nominees to clear. The problem never goes

away because people are constantly turning over, but the big

crunch comes in the first year and it diminishes quite significantly

thereafter.

Senator CAMPBELL. Do you remember if you had any procedures

in place or any printed guidelines in your office to make sure those

attorneys, whether they were detailees or not, were not handling

private legal matters internally?

Mr. GRAY. Well, we had pretty good controls on what they were

doing. We were constrained as to staff. There were things that everybody wanted to do that we could not do because we were so constrained, and I was—either I or John Schmitz—was pretty acutely

aware of almost everything they were doing. They were not doing

private legal work.

We could not afford, given the time constraints.

Senator CAMPBELL. Did they report pretty much directly to Mr.

Schmitz or to you?

Mr. GRAY. Yes; either. John did most of the managing of the core

staff on judicial nominations. Lee Lieberman Otis, who is now a

staffer here in the Senate, managed the judicial nomination process

for me, not as a deputy but that was her responsibility.

Senator CAMPBELL. They reported to you and it was a smaller

crowd, that is for sure. Did you make them aware of the need that

they should not be involved in any private legal matters? Or was

that just sort of accepted and everybody knew that.

Mr. GRAY. I think that was accepted. The only time I think the

questions called for tricky legal judgment involved the first lady.

She had a literacy project, as some of you are aware. She was very

keen on that aspect of her charitable work. And we encouraged the

hiring of a private lawyer to handle the legal affairs of those operations. I suppose that required some thought, but it was not like

a big issue.

EXECUTIVE PRIVILEGE

Senator CAMPBELL. During your tenure, did you ever get involved in the extent that we have now of using executive privilege

for Secret Service, staff, or family members, or all of the other

things that we are hearing about?

Mr. GRAY. Well, this has been in the press. A question of Secret

Service privilege did come up in the context of the October Surprise

investigation, which posited—the theory behind it was that somehow Candidate Bush, Vice President-Elect Bush, had flown to Paris

to help complicate the hostage release. It was a very fanciful the-
421

ory. To this day I still cannot believe so much money and time was

spent tracking it down.

At one point they even had him flying a Blackbird, CIA Blackbird back from Paris, since there were no——

Senator CAMPBELL. Himself?

Mr. GRAY. Himself, yes. He was a pilot, after all.

Senator CAMPBELL. President Bush was a pilot.

Mr. GRAY. He was a pilot. This was something he could do. They

wanted to show that he had attended a meeting in Paris. We were

able to show that, through the use of Secret Service logs which

they did not want to release and we argued that they should be released, to prove that he was, in fact, having lunch with Justice

Stewart’s widow which, in fact, he was, and Dick Moore and some

other people on that particular Sunday.

We were able to convince the investigators that he could not

have come back from Paris on the Concorde because it does not fly

on Sunday. That was when the Blackbird entered into the debate.

But we did release those records.

The question of Secret Service privilege is a very tricky one. You

certainly do not want the Secret Service protected from testifying

about criminal activity. On the other hand, the President does need

to have the confidence that they are not going to gossip about his

family life or his private political views.

BUSH AND CLINTON COUNSEL’S OFFICES COMPARED

Senator CAMPBELL. Given your tenure in the White House, do

you see any major differences of how the attorneys functioned during the Bush administration and how they are functioning now? I

know you are not involved in the inner workings of it, but just from

general observations of things you have read and seen?

Mr. GRAY. Well, I have two sort of general observations. One is

they have a staff that appears to be nearly three times the size of

ours, and they do not appear to be doing any of what I would call

the fun things of the office, the fun legal policy issues that all of

my staff loved to do, it is how I enticed them to come work for me,

vetting judicial nominees or vetting cabinet nominees. Reading FBI

files is not what anyone considers to be especially fun. That was

the meat-and-potatoes work of the office.

And if you got that done right, and you did not make mistakes

and get embroiled in subsequent controversies, then you were able

to work on civil rights or the environment or trade or other issues

that involved legal issues that were more fun.

I do not see this White House Counsel’s staff’s fingerprints on

any of those fun legal policy issues. I think it is too bad for their

own benefit. But it does raise the question well, if they are not

doing that, what are they doing?

For example, and this is a personal interest of mine, as I said

earlier, regulatory reform. We did come in on a number of occasions to assist OMB and the Council of Economic Advisors to try

to put the reins on some of the agency’s more expansionistic tendencies, especially the Environmental Protection Agency.

I see very little evidence of that today, and I do think the White

House has a constitutional obligation to try to constrain the agencies from exceeding their authority. That is not something just the
422

Senate does or something the House does or something the judiciary does. The White House has the same obligation.

That was something that we enjoyed doing and I do not see the

current White House Counsel’s Office engaging in that activity.

THE SIZE OF THE COUNSEL’S OFFICE DURING THE BUSH AND REAGAN

ADMINISTRATIONS

Senator CAMPBELL. You alluded to one of my questions, which

was who is doing the work that they were originally hired to do in

the agencies if they are not there? That has been a concern of mine

and I do not think I ever got a definitive answer of who covers it

while they are gone.

But let me ask you one last question. You might not be qualified

to answer this, but I was interested in the comparative number

that the Reagan administration might have, the number of attorneys. Do you happen to know that?

Mr. GRAY. I do not but I think it is comparable to ours. There

was a period, of course, during the peak of the Iran contra document discovery phase when the staff ballooned in size, maybe doubled in size, to deal with the document production which involved

many, many agencies and a great deal of declassification work. It

was a very difficult period.

But the staff slimmed down after the brunt of that was done,

maybe 6 or 8 months later. And when I came in, the transition, my

predecessor, A.D. Colehouse, had a staff that was basically the size

that I had, or I inherited from him basically the same size staff.

Senator CAMPBELL. I see. OK, thank you for appearing, Mr.

Gray. I have no further questions, but, if I could submit them in

writing. Some of the other members of the committee, who are not

here this morning, may also have questions.

Mr. GRAY. I will be glad to answer any questions.

SUBCOMMITTEE RECESS

Senator CAMPBELL. We will keep the record open for 2 weeks, if

there is anybody else that has any input that they would like to

have inserted in the record.

With that, I thank you very much for your appearance. This subcommittee is recessed.

[Whereupon, at 10:45 a.m., Thursday, May 7, the subcommittee

was recessed, to reconvene at 9:40 a.m., Thursday, May 14.]
(423)

MATERIAL SUBMITTED SUBSEQUENT TO THE

CONCLUSION OF THE HEARING

[CLERK’S NOTE.—The following questions and answers were submitted to the House Appropriations Subcommittee on Treasury,

Postal Service, and General Government to accompany the transcript from the March 12, 1998, hearing before that subcommittee.

This information is included in the hearing record at the request

of Senator Campbell.]

QUESTIONS SUBMITTED FOR THE RECORD BY CONGRESSMAN JIM KOLBE

USE OF GENERAL COUNSEL FOR PRIVATE DEFENSE OF THE PRESIDENT

Question 1. Recent press articles have indicated that staff within the Executive

Office of the President are being used in the defense of the President as it relates

to the Independent Counsel’s investigation. In testimony before this Subcommittee

in fiscal year 1995, your predecessor indicated that ‘‘no White House staff—specifically attorney’s as it related to the Whitewater Investigation—were acting as lawyers for the President and First Lady where there is no official nexus.’’ Is there an

official nexus between Ken Starr’s current investigation of the President in the matter of Monica Lewinsky as it relates to the President’s constitutional, ceremonial or

statutory responsibilities? Specifically define that nexus.

Answer. Before responding to the Committee’s specific questions, we want to

make it clear that the lawyers in the Counsel’s Office represent the President in

his official capacity and the Office of the President. Any suggestion that the Counsel’s Office represents the President in his personal capacity is false, and reliance

on ‘‘reports in the press’’ to the contrary gives unwarranted credence to baseless

speculation.

First, the allegations in the Lewinsky matter focus on the alleged conduct of the

President during his tenure in office with respect to a White House employee. The

Independent Counsel has served the White House with subpoenas calling for the

production of documents, has made informal requests for information, and has interviewed or required the testimony of some 40 current and former White House employees. The Counsel’s Office is responsible for responding, on behalf of the White

House, to these demands, for assisting White House personnel in responding to the

OIC, and for determining whether the testimony sought from these personnel may

implicate confidentiality concerns. Beyond these duties, the Counsel’s Office is responsible for responding, and assisting other senior White House staff to respond,

to the avalanche of press inquiries that flow from the OIC’s investigation every day,

including determining whether a response is appropriate and, if so, in what form,

and collecting the information necessary to respond. Thus, the ‘‘official nexus’’ between the Independent Counsel’s investigation and the constitutional, statutory and

ceremonial responsibilities of the President and the Office of the President is obvious and undeniable.

More importantly, investigations like this consume an extraordinary amount of

public, press and political attention and, therefore, place a significant burden on the

President’s ability to perform his constitutional and statutory duties. To allow him

to strike the appropriate balance in these circumstances, the President is entitled

to the most knowledgeable, candid and expert advice attainable. His senior advisors,

including the staff of the Counsel’s Office, must address how the President can best

meet all his official obligations while also dealing with the demands on his time that

flow from the investigation. They must prepare him for the press questions that

come with virtually every public appearance and formal press conference, including,

for example, the inquiries during press conferences with foreign leaders. One need

only look to the period immediately following the disclosure of the investigation to

see the extent to which the press made such inquiries during the President’s press
424

conferences with Prime Minister Netanyahu, Prime Minister Blair, and Secretary

General Annan.

On the domestic front, less than one week after the disclosure of the investigation,

it was the President’s constitutional obligation to deliver the State of the Union Address, and his senior advisors, including the Counsel’s Office, were required to advise him how, if at all, to deal with the issue in that setting. More broadly, in the

legislative area, there have been any number of comments by leaders of both

Houses, complaining about the adverse effect that the investigation is allegedly having on the business of the Congress—comments that highlight the interplay between

the Lewinsky matter and the President’s official duties. The senior staff of the

White House must advise the President on how best to manage the legislative process in these, and other, circumstances.

In all of these settings, and others, it is the responsibility of the Counsel’s Office

to advise both the senior staff and the President concerning the status of the investigation, its expected course, the demands it can be expected to place on him, and

the legal implications of any staff proposals or presidential decisions. More specifically, with respect to the ongoing investigation, the Counsel’s Office must advise the

President concerning issues relating to potential governmental attorney-client and

executive privileges.

Question 2. Current law provides that funds may only be used for the ‘‘official’’

expenses of the White House Office. Are there procedures in place to enforce this

requirement? Specifically, what are those procedures?

Answer. The Counsel’s Office devotes its resources to performing official functions,

including the representation of the President in his official capacity and of the Office

of the President. Thus, as is the case with other professional offices in the executive,

congressional and judicial branches of government, no special procedures are necessary to ensure that funds are used for ‘‘official’’ expenses.

Question 3. When work comes in to the Counsel’s office, is this work reviewed to

determine whether it is official or personal? How is that determination made? Who

makes it?

Answer. Work assignments, apart from routine matters for which a particular

lawyer is generally responsible—e.g., pardons, travel, nominations, ethics—are generally made by the Counsel or the Deputy Counsels, as those determinations are

necessary.

Question 4. How many current staff are within the office ‘‘Counsel to the President’’? How many of these staff are ‘‘Counsel’’? Within the White House Office, are

there detailees from the Department of Justice? How many? How many serve as

‘‘Counsel’’? What are the specific responsibilities of the DOJ detailees?

Answer. See Answer 2, Questions of Chairman Istook. See also, Exhibit 1.

Question 5. In fiscal year 1994, the operating budget for the Office of General

Counsel was $1,913,092. What is the fiscal year 1998 operating budget for this office? What is the request for fiscal year 1999? For the record, provide total obligations, expenditures and FTE for the White House Office for fiscal years 1995–1999.

Request by department (e.g. Chief of Staff, Legislative Affairs, Counsel’s Office, Public Liaison, etc.). Include a separate line for detailees (reimbursable and nonreimbursable) for each year.

Answer. See Answer 2, Questions of Chairman Istook. With respect to the White

House Counsel’s Office, the anticipated number of employees and anticipated expenditures for fiscal year 1999 are not likely to change significantly from the two

previous fiscal years.

Question 6. How are workloads tracked within the Office of Counsel to the President’? Do the attorneys use something comparable to what is used in the private

sector such as ‘‘billable hours?’’

Answer. The White House Counsel and the Deputy Counsels assign work as the

need arises and supervise the conduct of that work, either directly or, in the case

of investigative matters and nominations, through intermediate supervisors. Since

there are fewer than 20 lawyers on the regular staff of the Office, supervision is

accomplished through regular personal contact with the lawyer involved, often daily

or even more frequently. There is no need for staff to track the hours devoted to

the tasks they perform as part of their official duties.

INFORMATION TECHNOLOGY ARCHITECTURE (ITA)

Question 7. Although the EOP has submitted an Information Technology Architecture (ITA) for the modernization of EOP’s information resources, the ITA is still

missing a great deal of detail. For instance, it is not clear if there are standard procedures in place to define each of the 11 EOP organization’s technology require-
425

ments. Are there any such procedures in place? What are they? How have they been

implemented? Who is responsible for implementing them?

Answer. The EOP is currently employing procedures called for by Clinger-Cohen,

OMB, and GAO in the conduct of our work. See Exhibit 10 for an illustration of

these procedures. We have begun work on the standards process and standards repository. We are collecting best practices for this process, looking at work done in

other Federal agencies and researching materials we have gathered from the internet, GAO, GSA, and NIST. The final procedures/standards is targeted for adoption

by July, 1998. Volume 2 on the figure will be an ITA Management and Implementation Plan. The procedures for updating the ITA will be spelled out in that companion document. Work has begun on developing the procedures, using small project

teams. A description of the current teams can be found on page 1–7 of the ITA. The

ITMT will have responsibility for overseeing the implementation of the new procedures.

Question 8. How were the information requirements of the individual organizations within EOP determined and validated?

Answer. The initial information requirements described in the ITA were determined through a comprehensive assessment completed in July, 1997. They were documented in the Executive Office of the President Information Processing Requirements Document and related documents and inventories.

We are currently in the process of completing an assessment of all of our software

and hardware for Year 2000 compliance. The information gathered will permit a further refinement of the ITA ‘‘as is’’ technology baseline. A comprehensive inventory

of hardware, COTS, GOTS, and custom applications is part of the Y2K assessment.

The Y2K team used the Requirements Document as the jumping off point for their

inventory, hence, the inventory of requirements is being validated. The Information

Technology Management Team will validate the final, combined inventory and will

determine when and what systems can be added to the inventory, that is, the ITMT

will fill the role of prioritizing the future application portfolio.

Question 9. What process is in place to ensure that information requirements are

being driven by EOP’s overall strategic plan?

Answer. EOP has adopted an integrated strategic management approach which

is composed of three thrusts. The first is Strategic Analysis of EOP’s environment,

expectations, objectives, culture, and resources. This leads to Strategic Choice,

which generates options, evaluation of the options, and selection of a strategy—the

Strategic Plan. The third phase is Strategy Implementation, which produces tactical

plans for improving processes, upgrading or replacing technology, and developing

the people resources required to move EOP ahead. The ITMT will assure that all

system changes proposed for the EOP Strategic Plan and Budget submission truly

support the strategic objectives of the EOP. The Team will also provide oversight

of the implementation of the new technologies to assure that they deliver the promised business improvements.

Question 10. Are there specific procedures in place to prioritize individual

projects? What are they?

Answer. As mentioned above, the ITMT will prioritize projects across the EOP.

Small efforts unique to a single agency will continue to be funded and managed by

that agency. The ITA Management and Implementation Plan will contain procedures for submission of the agency-specific technology descriptions for inclusion in

the overall EOP inventory database. The prioritization procedures mentioned in the

previous questions are being documented and will be available shortly.

INFORMATION TECHNOLOGY ARCHITECTURE—ANNUAL AND TOTAL COSTS

Question 11. In a letter to the Committee last year, you stated that the architecture would identify budgetary baselines. I am concerned because there is a noticeable lack of cost data included in the ITA submitted to the Committee on February

20th. I note that you provided a 5 year table on February 28th. The price tag of

this modernization effort over the next 5 years is $39.3 million. Is this the total

cost? How were these costs developed? Have they been validated?

Answer. The estimated costs reflect the total investment portfolio needed to move

the EOP from the current heterogeneous infrastructure with its myriad of systems

to the planned architecture and infrastructure cited in the ITA with one exception.

The costs that are excluded are those funds needed to upgrade the EOP’s physical

cable plant and communications infrastructure. This upgrade is required in order

to support the future voice and data communications needs of the EOP. The reason

for this particular exclusion is due to the fact that the buildings are owned by GSA.

GSA is expected to forward a request for the communications and physical cable

plant upgrade under a separate budget request.
426

The costs were developed using historical procurement data, published contractor

labor rates for the Washington, D.C. metropolitan area, informational vendor

quotes, and industry standards for formulating Basis For Estimates (e.g. average

cost per line of code).

The costs for 1999 were validated first by establishing the initial baseline estimate, and second, by conducting an independent review of those data to verify the

accuracy of the baseline. The data needed to begin the validation process for the

Years 2000–2003 will become available upon conclusion of the Year 2000 assessment phase. The first step will be to validate the baseline estimate, then a second

review will be performed to verify the baseline. The completion of the Year 2000

assessment phase is targeted for the end of April, 1998.

Question 12. It appears that the $12.2 million being requested for fiscal year 1999

is a compilation of projects recommended in the Logicon report. That report, by its

own admission, was unable to validate the direct and indirect costs of individual

systems. Does the ITMT act as an investment review board? Has the Information

Technology Management Team reviewed and approved the individual projects proposed in the 1999 Capital Investment Plan? Did they validate the costs of the individual systems? For the record, provide any documentation on the review, approval

and validation of individual systems and their costs.

Answer. Yes. As required by its Charter, the ITMT approves new information

technology investments and evaluates existing projects and operational systems to

create an IT investment portfolio that best supports the EOP agencies’ missions and

program delivery processes.

The ITMT discussed and reached a consensus on the ITA projects considered to

be high priority, that is, those projects specified in the 1999 Capital Investment

Plan. The reason for the identification of those specific projects is because they are

considered to have the most significant impact on both the infrastructure and the

Year 2000 problem. The priority projects were agreed upon by the ITMT as being

the critical efforts the EOP should focus its efforts on during fiscal year 1999 on

December 18, 1997.

Two cost validation efforts, one to establish the initial baseline estimate and one

to validate the baseline, were conducted for the projects cited in the 1999 Capital

Investment Plan.

The first effort was conducted by the Office of Administration to establish the

baseline estimate. Historical procurement data, published contractor labor rates for

the Washington, D.C. metropolitan area, informational vendor quotes, and industry

standards for formulating Basis For Estimates (e.g. average cost per line of code)

were used to establish the initial baseline estimate for the 1999 Capital Investment

Plan projects.

The second cost validation effort was conducted by an independent contractor,

James Martin Government Consulting. The results of the second cost validation

cited a project total of $14.8 million (which included $1.8 million funded from the

fiscal year 1998 Capital Investment Plan and $500K funded from the 1998 sustaining budget). The cost difference between the initial baseline and second validation

effort was $300K, or 2.4 percent of the total amount estimated for 1999 Capital Investment Plan. Therefore, the EOP anticipates a 97.6 percent accuracy rate in the

costing data for the funds requested in the 1999 Capital Investment Plan.

FISCAL YEAR 1999 CAPITAL INVESTMENT PLAN

Question 13. Your fiscal year 1999 request includes $6,986,000 for generic ‘‘EOP

Information Technology’’. This is further defined as critical tasks necessary to assess, renovate or replace, and test mission critical applications. What are the specific projects associated with this request?

Answer. The projects to be renovated consist of 85 Mission Critical Custom Applications and their associated hardware and software utilized by the Executive Office

of the President agencies in performance of their daily mission and activities. Thirty-nine percent (39 percent) of these systems are mainframe based applications and

consist of legacy applications written in COBOL, MODEL 204, etc. The remainder

of the systems are more modern and desktop based.

Question 14. Of this amount, $4.4 million is being requested for ‘‘ADP Contract

Labor’’. This seems fairly high. How was this contractor selected and hired? Is it

only one contractor? Are these costs fair and reasonable?

Answer. Final contractor selection for the renovation and testing phases of the

Y2K effort has not occurred. However, in September 1997, Northrop Grumman (NG)

was competitively awarded a contract to act as the EOP’s facilities management

contractor with the responsibility for providing information technology support to

the EOP. The competition was conducted under the Department of Transportation’s
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ITOP Contract, and Northrop Grumman was selected as the offeror which provided

the best value to the Government giving appropriate consideration to the factors of

Technical, Past Performance and Price.

As the EOP’s facilities management contractor, Northrop Grumman (‘‘NG’’) has

the responsibility for providing maintenance support for all hardware and software

resident on the EOP computer systems. Should the EOP decide to fund NG to provide renovation services, it would be with the recognition that the software and

hardware renovated by them would also be supported by them for the next three

years. This should further incentivize them to ensure that the software and hardware were correctly modified given that the support of these systems would be their

responsibility.

We are also in the process of selecting an Independent Validation and Verification

(IV&V) contractor to ensure that the renovated software works properly and testing

results are in accordance with testing plans.

Government estimates for the labor are based on rates in place for current information technology support contractors which are representative of labor expense in

the Washington DC area. In addition, industry estimates for lines of code conversion/renovation were used to develop the labor hours required to support the renovation/conversion. Some of the EOP legacy systems utilize languages, such as Model

204 and Easytrieve that historically are more expensive to renovate or convert. In

addition, the skill mix required for personnel are more difficult to procure; hence,

higher rates.

Question 15. The justification materials state that these projects are ‘‘high priority’’. What criteria are used to define a project as high or low priority?

Answer. For the fiscal year 1999 Capital Investment Program, Critical Priority

projects are those projects that have a Y2K implication. For example, these projects

include the replacement of either hardware or software that is not Y2K compliant

and cannot be made Y2K compliant. Custom applications, such as the Electronic

Requisition System utilize non-Y2K compliant software, and the cost to bring the

existing system to compliance would be more than acquiring a new Commercial Off

the Shelf (COTS) package.

Question 16. The Administration is also requesting $862,000 for ‘‘information support tools for on the road/trip requirements’’—basically portable computers and software used by the White House Communications Agency while on travel with the

President. Why is this a priority replacement this year? If this equipment is not replaced this year, what are the impacts on WHCA? Would communications be hampered in fiscal year 1999?

Answer. The computers and software that are currently being used were purchased 5 to 8 years ago. They are not Y2K compliant and cannot be economically

upgraded to be Y2K compliant (286 generation technology). Cannibalization of parts

to keep the equipment running began 2 years ago, and the original manufacturer

(GRID Computers) has since ceased manufacturing replacement parts. As a result

of the cannibalization, the inventory is decreasing and unless new equipment is purchased, the equipment will cease to function. We need 6–8 months to integrate new

hardware and software into the trip packages and train personnel. The EOP will

not be able to meet the OMB mandate for conversion of mission critical applications

by 3/99 unless the funding for the On the Road/Trip Requirements is funded in fiscal year 1999. In addition, the software running on this equipment is not Y2K compliant. As we work to evolve to a Y2K compliant, common software environment,

the software required for this project should be a subset of, and purchased with, the

Common Software we are developing for deployment EOP-wide.

FIVE YEAR STRATEGIC PLAN

Question 17. The ITA states that a 5 year ADP Strategic Plan is necessary to support the Capital Investment Plan yet this strategic plan is still in the development

stage. What is the status of EOP’s 5 Year ADP Strategic Plan? Will this Strategic

Plan identify, by fiscal year, the component pieces of the architecture?

Answer. The EOP’s Five Year Strategic Plan is under development. This strategic

plan will in turn be incorporated as part of the ITA, and will tie to the levels identified in the initial submittal of the architecture. See also Answer 7.

Question 18. Is there a five year ADP strategic plan that supports the request of

$12.2 million for the fiscal year 1999 phase of EOP’s modernization effort? What assurances do we have that the request to fund these specific projects fits in to the

5 Year Strategic Plan if that plan has not been developed?

Answer. Detailed analysis has gone into the budget request for the $12.2 million

for fiscal year 1999. The base document was the Roadmap document submitted to

Congress in July of 1997. The base criteria for selection was either a project directly
428

in support of our Y2K effort or critical to the support of our infrastructure. The

projects included in the fiscal year 1999 request are not technologically complex;

rather they are basic, simple projects such as Common Software which are critical

to support an organization undergoing transition. These projects will be cornerstones of the five year strategic plan.

Question 19. Absent a strategic plan, what factors went in to the sequencing of

projects? In other words, how was it determined that some projects would be funded

in fiscal year 1999 and that others would be delayed to the outyears?

Answer. As discussed above, the base criteria for selection was either a project

directly in support of our Y2K initiative or critical to the support of our infrastructure. By this criteria, only those projects that were the most critical such as Common Software, Help Desk, or Electronic Document Management strategy were selected. These are very basic projects, and not complex from a technology standpoint,

but need to be in place as the building blocks for mission survival and the cornerstones for the next fiscal year’s activities.

ARCHITECTURAL COMPLIANCE ACROSS EOP AGENCIES

Question 20. In addition to the $12.2 million being requested through the Office

of Administration, other EOP agencies are requesting funds for computer software

and hardware—both upgrades and maintenance. In total, other agencies are requesting $1.5 million for these efforts in fiscal year 1999. Are these maintenance

activities and upgrades consistent with the architectural blueprint?

Answer. Yes.

Question 21. Who ensures compliance with the architecture across the EOP?

Answer. The Information Technology Management Team (ITMT).

Question 22. Have these proposed equipment purchases—both upgrades and

maintenance—been reviewed by the ITMT?

Answer. Yes. On December 18, 1997, the ITMT discussed and reached a consensus on the ITA projects considered to be high priority. The reason for the identification of those specific high priority projects (which comprise the $12.2 million being

requested) is because they are considered to have the highest impact on both the

infrastructure and the Year 2000 problem. Since completion of the priority projects

is essential to establish the foundation needed to implement Year 2000 solutions

while affecting critical infrastructure changes needed to stabilize the processing environment, the priority projects cited in the 1999 Capital Investment Plan were

agreed upon by the ITMT as being the critical efforts the EOP should focus its efforts on during fiscal year 1999.

Question 23. Why is the Vice President’s office requesting funds for ‘‘the next generation of technology’’ outside of the appropriation for the Capital Investment Plan?

Answer. The estimated cost under object class 31, equipment, allows for the 25

percent life-cycle replacement of old ADP equipment The 25 percent replacement

cycle per year is in keeping with the EOP’s overall strategy to ensure the timely

replacement of equipment that is not Year 2000 compliant. The Office of the Vice

President has over 100 Personal Computers (PCS). A 25 percent replacement cycle

of 25 PCS per year is expected with an average acquisition cost of $2,800.00 per

unit. The Office of the Vice President also has peripheral equipment that cannot

support the TCP/IP standard protocol suite cited in ITA, Technical Reference Model

(Appendix C, Section 1.10 Network Services). Therefore, replacement of the antiquated devices is essential to maintain network printing services for the OVP while

the EOP implements the 1999 Capital Investment Plan projects.

YEAR 2000—MANAGEMENT OVERSIGHT AND COST

Question 24. Even though the Y2K problem is one based on technology, making

sure the computers get fixed in time is a management issue. As it specifically relates to the position ‘‘Director, Office of Administration:’’ What is your role in resolving Y2K problems in the EOP?

Answer. The Program Manager for the EOP Year 2000 effort is the Deputy Director for Information Management. The program team, which consists of dedicated

government personnel and contractors, has daily meetings and provides the Deputy

Director with daily status reports which contain information on activities completed

and activity planned for the following day. As the ultimate responsibility for Year

2000 activities reside within the Office of Administration, the Director is kept informed, and provides direction in cross agency issues or problems. In addition, as

the Chair of the Information Technology Management Team (ITMT), the Director

provides the high level business strategy for the prioritization of OA systems, and

holds the budget for the Year 2000 renovation and assessment.

Question 25. How often, and with whom, do you review status reports?
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Answer. In addition to the above daily activities, weekly status reports are provided to the Director. The Director is also briefed prior to any major deliverable in

the assessment schedule. Briefing parties may consist of the Deputy Director or the

Y2K team itself.

Question 26. Do these status reports provide you insight into which of your core

business functions may be in jeopardy?

Answer. Yes; the EOP is currently completing the assessment phase of its custom

application programs. These reports have been valuable in providing information to

the EOP about its enterprise, and have served to identify not only the physical inventory, but system owners and other critical system data. As the renovation efforts

begin, we will continue to highlight areas of concern and success.

Question 27. How confident are you that the EOP will be ready by OMB’s date

of March 1999 or by the time it is critical to EOP’s operations -which may be before

January 1, 2000?

Answer. With proper funding levels, we are confident that the EOP mission critical systems will be operational by March of 1999.

Question 28. Have you prioritized the systems supporting the EOP’s mission and

core business functions? Have you reviewed the renovation and/or replacement

schedules to see if they are reasonable? Has the ITMT approved your priority list?

Answer. The EOP prioritized the systems that support mission critical and core

business functions at the March 31st meeting of the ITMT. Based on that

prioritization, renovation/replacement schedules are being developed and will be reviewed with the ITMT for validation and reasonableness of schedule. The ITMT has

approved the priority list.

The EOP is currently completing the assessment phase of its custom application

programs. These reports have been valuable in providing information to the EOP

about its enterprise, and have served to identify not only the physical inventory, but

system owners and other critical system data. As the renovation efforts begin, we

will continue to highlight areas of concern and success.

Question 29. What is the total estimate for Y2K for the EOP?

Answer.

Fiscal year Cost

1996 ......................................................................................................... $100,000

1997 ......................................................................................................... 500,000

1998 ......................................................................................................... 2,500,000

1999 ......................................................................................................... 12,800,000

2000 ......................................................................................................... 500,000

Total ............................................................................................. 16,400,000

[Dollars in millions]

Fiscal year Contractor

studies

Capital investment

plan

Deducated

FTE 1

Salary/benefits cost Total cost

1996 .................................................................. ................ N/A 0.8 $0.1 $0.1

1997 .................................................................. $0.4 N/A 1.5 .1 .5

1998 .................................................................. ................ $2.0 6.0 .5 2.5

1999 .................................................................. ................ 12.2 8.3 .6 12.8

2000 .................................................................. ................ 0.3 4.0 .2 .5

Totals ................................................... .4 14.5 N/A 1.5 16.4

1 ‘‘FTE’’ refers to the number of full-time-equivalent staff working on the Y2K issue during that fiscal year.

Contractor studies refers to consulting contracts for Y2K-related studies funded

from the Office of Administration current-services-level appropriation (instead of

being funded through the Capital Investment Plan; it is anticipated that most, if

not all, fiscal year 1998–fiscal year 2000 Y2K contract funding will emanate from

the CIP). During fiscal year 1997, OA funded two studies from its current-serviceslevel appropriation: (1) a $319,337 study to develop a proposed architectural blueprint—the first stepping-stone from which we have launched subsequent Y2K efforts; and (2) a $44,016 Y2K-related inventory of the EOP’s commercial off-the-shelf

software.

Capital investment plan refers to the funds appropriated which provide ‘‘for the

modernization of the information technology architecture.’’ The CIP exists for the

first time in fiscal year 1998, with a funding level of $2.0 million; the EOP’s request
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for fiscal year 1999 is $12.2 million. Our plan is that all of these funds will be targeted directly to Y2K issues during fiscal year 1998 and fiscal year 1999. Although

we have not yet formulated our fiscal year 2000 budget request, our current expectation is for approximately $0.3 million during fiscal year 2000 for Y2K wrap-up of

non-mission-critical systems. We do anticipate other fiscal year 2000 CIP needs unrelated to the Y2K issue.

Dedicated FTE refers to the number of work-years from Information Systems and

Technology and other OA staff who are working on Y2K issues.

Estimated salary/benefits costs is an approximation of the cost to the government

of staff time dedicated to the Y2K effort. The current funding allocated for IST staff

is $3,171,902; with full staffing of 44 persons, assuming a 4 percent vacancy rate

gives an anticipated FTE of 42.2. Thus, the average salaries/benefits cost is $75,164.

Assuming the following numbers of staff dedicated to Y2K efforts per year, here are

the specific cost estimates multiplying the dedicated FTE times the average salary/

benefits of $75,164: Fiscal year 1996, 3 staff at 25 percent of their time (0.8 FTE); $60,131.

Fiscal year 1997, 3 staff at 60 percent of their time (1.8 FTE); $135,295.

Fiscal year 1998, 8 staff at 75 percent of their time (6.0 FTE); $450,984.

Fiscal year 1999, 11 staff at 75 percent of their time (8.3 FTE); $623,861.

Fiscal year 2000, 4 staff at 75 percent of their time (3.0 FTE); $225,492.

Total cost is a summation of all known cost categories related to the Y2K effort.

NOTE.—Section 43 of OMB Circular A–11 addresses ‘‘Cost of the year 2000 activities;’’ it states, in part, ‘‘Do not include obligations for upgrades or replacements

that would otherwise occur as part of the normal system life cycle.’’

Question 30. What do you expect from the recently announced President’s Council

on the Year 2000? To date, what has your interaction with the Council been?

Answer. The President’s Council provides government-wide guidance to our Y2K

initiative in much the same manner as the Council provides guidance other federal

agencies. Since its inception in March, the Director and the Deputy Director have

met with the head of the President’s Council, and expect to continue our cooperative

relationship and dialogue on a bi-monthly basis.

YEAR 2000—‘‘EXCHANGE PARTNERS’’

Question 31. Even if the EOP completes the renovation of application systems in

its portfolio, the systems may not be operable because agreements on sharing data

with processing partners both within and outside the Federal government may not

be in place. If agencies cannot process each others data, then the business operations stop. Has the EOP identified its critical processing partners with whom it

will exchange data information? Has the EOP signed any agreements with these

partners regarding the exchange of data?

Answer. The EOP is in the process of completing its custom application assessment, and as part of that process all critical processing partners and external interfaces will be identified. However, as part of this ongoing initiative, some critical

partners have already been identified. One is the DOD Financial Accounting Center

located in Pensacola, Florida; this is the entity which will process our payroll and

personnel system. An interagency agreement (IAG) has already been signed.

The second critical interface requirement already identified resides in the President’s Budget System or MAX. While MAX has many components, the data entry

piece or the A11 System has external interfaces to all Federal agencies, as this is

the system which provides the mechanism to input budget data. As part of the renovation phase of MAX, language for an IAG will be included for dissemination to

all user agencies.

As the assessment phase within the EOP completes, part of the discovery will include the identification of all critical processing partners and external interfaces.

Recommendations and/or remedies will be suggested for all identified.

Question 32. How will the EOP ensure that erroneous data from outside systems

do not contaminate your files?

Answer. With respect to external interfaces, we are developing a solution which

ties an enhanced firewall with Y2K software which will check for non-Y2K compliant data.

WHITE HOUSE COMMUNICATIONS AGENCY

Question 33. The White House Communications Agency has been criticized for its

lack of accountability and management problems. In order to establish some measure of accountability for the operations of this group, the Committee directed the

White House to develop a system for verifying and tracking all reimbursements

made to WHCA. Has the interagency agreement between the White House and
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WHCA allowing for reimbursable services been signed? Please provide a copy for the

record.

Answer. Yes. See Exhibit 8.

Question 34. Have you signed a Memorandum of Understanding (MOU) outlining

the categories of services to be provided by WHCA? Please provide a copy for the

record.

Answer. Yes. See Exhibit 9.

Question 35. The budget justification materials include an estimate of $642,000

for capital improvements in fiscal year 1998 and a request of $785,000 for capital

improvements in fiscal year 1999. Specifically, what are these capital improvements?

Answer. Capital Improvements totaling $642,000, included in fiscal year 1998

budget submission: Audio/Video Equipment, $542,000; Photo Equipment, $100,000.

Capital Improvements totaling $785,000, included in fiscal year 1999 budget submission: Audio/Video Equipment, $731,000; Staging Equipment, $54,000.

Question 36. For the record, describe the specific audio-visual services by category:

Presidential Travel, Mission Support, and Photo Lab.

Answer. Audio-Visual services by category:

Presidential Travel (Presidential Audiovisual Events (PAE) Production)

—Provides a PAE coordinator to oversee quality, planning and execution;

—Audio/video recording of events for archiving/historical purposes;

—Teleprompter;

—Video recording/playback of news and other programs;

—Audio feeds to White House Press Office and Press Filing Center;

—Public Address support;

—Lighting for Presidential events; and

—Cable television distribution.

Mission Support

—Personnel training;

—Facility leases;

—Utilities; and

—Facility maintenance.

Photo Lab

—Provides film processing of prints and mounts still black and white and color

photographs.

QUESTIONS SUBMITTED FOR THE RECORD BY CONGRESSMAN ROBERT L. LIVINGSTON

OFFICE OF THE COUNSEL TO THE PRESIDENT

Question 1. Could you provide a list of names and titles of all personnel employed

by, or detailed or in any other manner attached to, the Executive Office of the President who are working on any matter involving an investigation by any component

of the Department of Justice, or any Independent Counsel? For each employee, could

you please state their salary and indicate whether such salaries are paid out of appropriations to the Executive Office of the President or other Department or Agency

accounts.

Answer. The following members of the Counsel’s Office staff, all of whom are paid

from EOP appropriations, currently spend some portion of their time on matters involving investigations by the Department of Justice or one or more Independent

Counsel. In addition, the Counsel and Deputy Counsels are responsible for supervising this work, as they do all the work of the Office. Pursuant to the July 1, 1998

Report on White House Office Personnel, pursuant to Section 6, Public Law 103–

270, the information is as follows:

Special Counsel Lanny Breuer ....................................................................... $107,500

Associate Counsel Dimitri Nionakis .............................................................. 92,000

Special Associate Counsel Sally Paxton ........................................................ 92,000

Associate Counsel Michelle Peterson ............................................................. 92,000

Associate Counsel Karl Racine ....................................................................... 92,000

Associate Counsel Michael Imbroscio ............................................................ 75,000

Paralegal Dimitra Doufekias .......................................................................... 33,000

Paralegal Deborah Falk .................................................................................. 33,000

Paralegal Erin Green ...................................................................................... 33,000

Assistant/Paralegal Brian Smith .................................................................... 33,000
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Question 2. Is any attorney in private practice retained by the President or the

First Lady receiving any compensation from any component of the Federal government? If yes, could you please provide a listing of those receiving the compensation,

the amount, and the services being compensated. Are any of the attorneys participating in a joint defense agreement?

Answer. No.

Question 3. Have persons employed by, or detailed or in any other manner attached to the Executive Office of the President consulted with the private attorneys

retained by the President or the First Lady or their respective law firms? If yes,

could you please list such consultations, including the date, time, duration and subject matter. Did the consultation take place on Federal property?

Answer. See Answer 7, Questions for the Record, The Honorable Ernest Istook.

Question 4. Are the salaries of volunteers in the Executive Office of the President,

in whole or part, being paid by the law firm of any attorney retained by the President or the First Lady?

Answer. No.

QUESTIONS SUBMITTED FOR THE RECORD BY CONGRESSMAN STENY HOYER

Question 1. Can you provide for the Committee information on the following: number of personnel in the Legal Counsels’ office; breakdown of lawyers and staff in the

Legal Counsels’ office; and, overall staffing of the Executive Office of the President

broken down by office.

Answer. See Exhibits 1 and 7.

Question 2. What was the fiscal year 1996, fiscal year 1997, and fiscal year 1998

operating budget for the Counsels’ office?

Answer. See Answer 2, Questions for the Record, The Honorable Ernest Istook.

QUESTIONS SUBMITTED FOR THE RECORD BY CONGRESSMAN ERNEST ISTOOK

OFFICE OF THE WHITE HOUSE COUNSEL

Question 1. Please provide an organizational chart of the office of the White House

Counsel. This chart should include: the names of all staff in the office of the White

House Counsel; titles; job responsibilities; supervisors; where they are stationed;

and lines of authority.

Answer. See Exhibit 1.

Question 2. Please provide a history of the staffing and expenses for the office of

the White House Counsel, by fiscal year, since January 20, 1993, to the present, including the names of all people who have worked in the office of the White House

Counsel; titles; job responsibilities; dates when working for the office of the White

House Counsel; where they were stationed; and the total amount spent by the office

of the White House Counsel for salaries and expenses. For expenses, please itemize

the list.

Answer. Most White House Office obligations and expenditures are made through

a central account for the common support costs of WHO operations (e.g., telephone

service; copier costs, etc.). Only those costs directly attributed to a particular office—

such as salaries and travel costs—are generally allocated to specific offices within

the White House Office.

For the White House Counsel’s Office, the current number of employees and the

current expenditures for fiscal year 1998 are not significantly different from those

of the two previous fiscal years. The following is a summary of the major categories

of obligations and/or expenditures that are attributable to the Counsel’s Office, by

fiscal year:

Fiscal year

Number of

employees 1

Personnel expendituresBenefit expenditures

Detailee obligations/expendituresTravel obligations/expenditures

1994 .............................................. 28 $1,464,706 $328,789 $85,213 $7,878

1995 .............................................. 29 1,829,950 423,500 38,274 11,259

1996 .............................................. 33 2,232,343 503,314 ( 3 ) 9,758
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Fiscal year

Number of

employees 1

Personnel expendituresBenefit expenditures

Detailee obligations/expendituresTravel obligations/expenditures

1997 .............................................. 32 2,193,468 497,844 ( 3 ) 14,553

1998 2 ............................................ 34 1,262,741 283,415 ( 3 ) 10,776

1 Data calculated as of April 20th or thereabouts of each fiscal year.

2 The fiscal year 1998 costs are those actual costs that have been incurred as of April 20, 1998. Note: The above

costs have not been adjusted for inflation. 3 Detailee obligations/expenditures are now made through a central account, and are no longer attributed to specific offices.

For the individuals or positions in which individuals have served in the White

House Counsel’s Office, see Exhibits 2 & 3.

Question 3. Please provide any opinions which have been written by or for the office of the White House Counsel which outline what is an acceptable activity when

determining whether legal work is of an official or private nature.

Answer. In 1994, at the time of the appointment of an independent counsel to investigate matters related to the President that preceded his term of office, the Counsel’s Office reviewed the nature of its role in relation to such an investigation,

though it did not prepare or publish a formal opinion. As is the case for every government legal office with respect to its agency and agency head, the role of the

White House Counsel’s Office is to provide legal representation to the White House

and its many officers and employees in their official capacity. Consistent with the

District of Columbia Rules of Professional Conduct, the Counsel’s Office represents

the White House acting through its ‘‘duly authorized constituents’’—its officers and

employees. As the officer who directs the official activities of all White House officers and employees, the President is the ultimate ‘‘client’’ of the Counsel’s Office.

The President is ‘‘client’’, however, only in his official capacity as President. Thus,

for matters that are entirely personal to the President for which he requires legal

advice, he must retain private counsel, as would be the case for any other federal

employee. Many matters, including independent counsel investigations, have both

official and personal aspects that require the attention of both official and private

lawyers. The Counsel’s Office examines each issue as it arises to ensure that it addresses only those that relate to the performance of official duties of the President,

White House officers and White House employees—that is, issues that have an official nexus.

Question 4. What mechanism is in place for tracking the work of staff of the

White House Counsel. Please describe how this mechanism works. Please provide

a sample copy of the mechanism. Are there periodic work reports while tasks are

underway? When tasks are finished? Please describe the periodic reports. Please

provide a sample copy of a work report.

Answer. See Answer, Question 4, Questions for the Record.

Question 5. For the period beginning January 20, 1993, through the present, identify all individuals and/or witnesses whom your office has been involved in debriefing or interviewing regarding their actual or pending testimony before any Arkansas

grand jury; Washington, DC, grand jury; or any California grand jury. For each individual and/or witness, please provide the following information: the date of the debriefing or interview; the location where the debriefing or inter-view took place; the

person(s) present at the debriefing or interview; the general subject matter of the

debriefing or interview.

Answer. This question is identical to one put to the Office of White House Counsel

by Chairman Burton of the Committee on Government Reform and Oversight. This

question constitutes an inappropriate inquiry into the work of the Counsel’s Office.

It is entirely proper for lawyers—in the public or private sector—to speak with witnesses, or their counsel, both before and after their testimony, whether before a congressional committee or any other investigative body. Indeed, that practice is universally recognized to be a necessary part of any lawyer’s effective representation

of his client, and has been followed by Counsel to Republican and Democratic Presidents. Moreover, the Independent Counsel, the Justice Department, and, indeed, the

investigating committees of the Congress have been fully apprised of the fact that

Counsel’s Office speaks with witnesses and their lawyers.

To begin with, as a rule, all government employees look first to agency counsel

for representation in matters related to their official duties. Where such representation is not available, either because a congressional committee has decided that it

will not permit White House Counsel to represent the employee, or because preliminary discussion with the employee suggests that there may be some ethical or legal

impediment to the representation, or because the employee chooses not to be rep-
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resented by the Counsel’s Office, it is the duty of White House Counsel to assist the

employee to secure personal counsel if the employee wishes that assistance.

Discussion with a witness or a witness’s counsel may then occur in any number

of different settings, all of which are typically treated as confidential. Of course,

where the Counsel’s Office represents an employee-witness, we have the same discussions that would occur in any attorney-client relationship. Where an employee

or former employee is represented by private counsel, Counsel’s Office typically begins by determining whether the witness’s testimony may give rise to special confidentiality or privilege concerns and whether the witness has, or knows of the existence of, documents that have been subpoenaed. Counsel’s Office must then communicate to the witness’s counsel, especially when a representative of the Office is not

permitted to be present for the testimony, whatever guidance may be necessary on

issues of privilege. In addition, counsel for a witness, particularly if the witness is

a current or former employee, often will speak with us in order to obtain information to ensure his client is fully prepared. Finally, we often speak with either the

witness or counsel, or both, after the witness has testified for the purpose of gathering the information necessary to represent our client, the Office of the President.

Beyond the aforementioned concerns, it would be virtually impossible to respond

to the Committee’s request. There are no records that would reflect all contacts with

witnesses or their counsel during the five-plus years and in the multiple forums covered by the request. Moreover, a search for any records that did exist would be extraordinarily difficult and time consuming. Nonetheless, to the extent that it may

be relevant to the Committee’s concerns to have on the record a formal statement

that Counsel’s Office has spoken, and continues to speak, with witnesses or their

lawyers during the period January 1993 to the present, this will serve as our acknowledgment of that practice, as described above.

Question 6. For the period beginning January 20, 1993, through the present, identify all individuals with whom the White House has a joint defense agreement. For

each such individual, please provide the following information: the date of the agreement; the parties to the agreement; the general subject matter covered by the agreement; the reason necessitating that the White House enter into this agreement.

Answer. We know of no such agreements.

Question 7. For the period January 1, 1994, through the present, please provide

the Committee with a log of all attorney work product, including, but not limited

to, letter and memoranda, produced by any White House attorney and shared with

David Kendall, Robert Bennett, or any other personal attorney representing the

President or First Lady. Regarding any such document, please provide the following

information: the author(s) of the document; the date the document was created; the

recipient(s) of the document; a description of the general subject matter discussed

in the document; the reason necessitating that the White House share this work

product with non-governmental attorneys.

Answer. Again, this question is identical to one put to the Office of White House

Counsel by Chairman Burton.

This inquiry appears to seek information unrelated to the appropriations process.

Moreover, it would be extremely difficult and unreasonably burdensome to identify

and collect the materials outlined in the question.

To carry out its duties, Counsel’s Office is in regular contact with the President’s

personal counsel to discuss matters in which the President’s official responsibilities

intersect with his responsibilities to address any private litigation in which he may

be involved. Any listing of the sort the Committee seeks would, of necessity, implicate confidential communications among lawyers who represent the private and official interests of the very same client.

For example, in the midst of civil litigation like Jones v. Clinton, it would be of

considerable interest to plaintiff’s counsel to learn when Mr. Bennett and White

House Counsel communicated and on what subjects. Putting aside the confidentiality interests the Counsel’s Office must protect, such a disclosure would impinge directly on the President’s personal attorney-client privilege and on his attorney’s

work product.

So that the record is clear, though, let us state again that the Counsel’s Office

does not represent the President in his personal capacity. The work product that

the Office creates is in fulfillment of our responsibility to advise the President in

his official capacity. The Office’s communications with the President’s private counsel, including the transmission of any work product, are for the purpose of addressing the common interests that underlie the representation of a unique client—one

whose constitutionally assigned duties are daily affected by the burdens of personal

litigation.

Question 8. Please list all non-governmental attorneys hired since January 1,

1994, for the purpose of assisting your office with issues regarding assertions of ex-
435

ecutive, attorney-client, attorney work product, spousal, or other privilege the White

House has asserted or may assert. For each such individual, please provide the following information: the name of the attorney’s law firm; the date the attorney(s)

were hired; the compensation rate of the attorney; the amount paid to date to outside attorneys assisting in such matters.

Answer. This question is also identical to one put to the Office of White House

Counsel by Chairman Burton. The information is as follows:

a. W. Neil Eggleston, Howrey & Simon, was appointed a special government employee in August, 1995, and more recently on February 18, 1998. Because counsel

is retained by the Department of Justice on behalf of the White House, all matters

regarding compensation are handled by the Department.

b. Andrew Frey, Mayer, Brown & Platt, was appointed a special government employee in September, 1996. Because counsel is retained by the Department of Justice on behalf of the White House, all matters regarding compensation are handled

by the Department.

Question 9. Please provide the names of any nongovernmental attorney hired to

assist your office responding to any matter under investigation by the Department

of Justice or Independent Counsel. For each such individual, please provide the following information: the name of the attorney’s law firm; the date the attorney(s)

were hired; the compensation rate of the attorney; the amount paid to date to outside attorneys assisting in such matters; the general subject matter upon which any

such attorney worked.

Answer. This question is also identical to one put to the Office of White House

Counsel by Chairman Burton.

There are no attorneys responsive to this question other than those listed in response to the preceding question.

Question 10. Please provide a copy of talking points, memos, minutes of meetings,

and E-mail used to prepare Ms. Posey for questions about the use of the White

House Counsel.

Answer. See Exhibit 4.

PREVIOUS INFORMATION COMPILED BY THE WHITE HOUSE

Question 11. A December 13, 1994 ‘‘Task List’’ memo created by Jane Sherburne

lists several items which could be questionable expenditures of federal funds. To be

fully informed as to why the White House expended taxpayer funds to create these

documents, I request the ‘‘binder with summary and key documents’’ for the following items from the December 13, 1994 memo: Cisneros, Brown, Hubbell, Ickes,

Stephanopoulos, State Department (passport file), Archives (abuse of personnel systems), SBA (improper electioneering), GSA (Roger Johnson), FEC Audit, PIC surplus, Mena Airport, ADFA, Use by Governor Clinton of loans to further legislative

initiatives, Commodities, Paula Jones, Troopers.

Answer. During the course of various congressional and other investigations regarding the entities, individuals, and topics described above, the Counsel’s Office

undoubtedly has had occasion to create, receive and produce materials related to

some of these areas. We are not aware, however, that Ms. Sherburne, or any other

member of the Counsel’s Office, created any ‘‘binder’’ or ‘‘key documents’’ for her

task list. Rather, it is our understanding that Ms. Sherburne’s task list was generated based upon newspaper and other media accounts.

Question 12. For the above question, please include the following information: who

created the documents; when they were created; has the White House shared this

information with anyone? If so, who? When? The reason necessitating that the

White House compile this information?

Answer. See Answer to Question 11, immediately above.

Question 13. The same December 13, 1994 memo lists, under item No. 21, ‘‘interview Kendall/review Kendall documents.’’ Please provide a copy of this interview

and related documents.

Answer. See Answer to Question 11, above.

ADMINISTRATION OF THE EXECUTIVE OFFICE OF THE PRESIDENT

Question 14. Please provide a breakdown of the funding, since January 20, 1993,

for the White House Office (WHO) for salaries and expenses by fiscal year. This list

should breakout each of the WHO offices (White House Counsel, Legislative Affairs,

etc.) including the number of FTE, volunteers, and detailees in each of the WHO

offices.

Answer. See Exhibit 5.

Question 15. Please provide a breakdown of the number of detailees, since January 20, 1993, within the White House Office by fiscal year. This list should include
436

the following information: the supplying agency; where the detailees were stationed;

their title; the length of time they were detailed to the WHO; who they worked for

in the WHO (White House Counsel, Legislative Affairs, etc.).

Answer. See Exhibit 3.

Question 16. What contracts in excess of $100,000 has the Executive Office of the

President entered into since January 20, 1993? This list should include the following

information: the name of the contracting individual/company; the purpose of the

contract; the duration of the contract; the size, in dollars, of the contract.

Answer. See Exhibit 6.

Question 17. The White House IS&T office has the task of keeping all electronic

records within the White House due to the Armstrong case. Please describe the situation created by the Armstrong case in the White House IS&T office. Since the Armstrong case began, what has the White House expended on this electronic record

keeping? How many electronic storage tapes has the White House accumulated

since the Armstrong case began? How many storage tapes does the White House fill

up per day? What is the cost per storage tape? It is my understanding that in the

future the cost of storage tapes will increase. If so, to what amount? It is my understanding that the White House has reached an agreement to begin transferring

these storage tapes to the National Archives. Please describe this agreement. At

what rate is the White House able to convert data to be able to transfer it to the

National Archives? At this rate, when will the White House totally convert the backlog of tapes stored within the IS&T office?

Answer. The Armstrong Court mandated that the Executive Office of the President (EOP) establish an automated records management system to preserve all electronic mail records and electronic communications (such as Internet mail). IS&T initially spent approximately 18 months developing the Automated Records Management System (ARMS) to perform this function.

Subsequently, IS&T expended another 6 months developing an interface between

ARMS and the EOP’s new E-mail platform, Lotus NOTES. The EOP generates approximately 250,000 electronic records each month. All of these records are collected

and managed by the ARMS system and have been kept on-line since July 14, 1994.

White House Expenditures for Electronic Record-Keeping Since Armstrong

Since July 1994, the EOP has expended $8,108,956 in equipment, contractor services, space, communications, utilities and supplies to implement the Armstrong

mandate. Salaries for government personnel supporting this effort exceed

$1,400,000, and have been paid for by the EOP’s sustaining budget. In addition, the

EOP anticipates having to procure new computer hardware before the end of the

Administration. The current hardware configurations used to support this effort

were purchased between 1990 and 1993, and failures of the older equipment or the

equipment’s monthly maintenance will become so excessive that the EOP will be

forced to purchase new hardware to replace these aging and much-used systems.

Number of Stored Electronic Tapes Since Armstrong

The EOP IS&T office has 25,850 tapes stored either at the IS&T Data Center or

at an off-site facility. These tapes have an average shelf life between 4 and 7 years.

To ensure that the tapes remain useable, the EOP conducts an annual sample survey of 384 tapes.

Storage Tapes Usage

The ARMS system is currently generating approximately 130 tapes per week,

averaging 20 per day. Historically, since 1994 the EOP has seen a 700 percent increase in the number of tapes created each week.

Weekly Tapes Created for ARMS: 1994, 18 per week; 1995, 25 per week; 1996,

46 per week; 1997, 81 per week; and 1998, 130 per week—Estimate EOP will purchase 6,760 tapes for 1998.

Projections based on current growth factors: 1999—180 per week, 9,360 for the

year; and 2000—249 per week, 12,948 tapes for the year.

Current storage costs

Current storage costs are estimated at $20,280. In addition, storage of these tapes

will require more tape racks which will require additional floor space (at $55/sq. ft.)

for an additional expense of approximately $5,000/year. As the tape volume increases, additional manpower will be required to handle the creation of storage of

these tapes (estimated to be an additional FTE at an expense of $50–60,000 per

year).
437

Future storage costs

With the growth in the volume of electronic mail and the quantity of servers required to support the E-mail and electronic correspondence systems, the EOP anticipates having to use faster and larger tapes to handle the increase in volume. The

new tapes will hold 9 gigabytes of data each, and cost $80–90 each depending on

the quantity purchased. If we migrate to the new tape drives are purchased at an

anticipated cost of $15,000, it will still cost the EOP $18,720 for tapes at $90.00

each.

National Archives Agreement

The EOP has an agreement with NARA for the reconstruction of electronic

records from November 1991 to July 1994. Reconstruction of these records, which

are stored on 15,500 tapes, has recently been initiated, and the EOP will proceed

with reconstructing the records and producing tapes for NARA for electronic mail

for the older E-mail system (All-in-One) that was used during this time frame. This

project is expected to be completed in early 1999.

The EOP does not have an agreement in place with NARA for the transfer of

ARMS tapes representing the period July 14, 1994 to the present. The ARMS system produces tapes that conform to the letter of the NARA regulations, and NARA

can both read and understand them. However, negotiations continue with NARA

over technical aspects of the contents of these tapes and until such time as NARA

and the EOP can agree, the EOP continues to produce tapes daily. The inventory

of tapes is in excess of 10,000 for the ARMS electronic records. At the end of the

Administration, we expect to deliver tapes to NARA. However, if NARA delays or

changes the tape formats, the EOP will not be able to deliver the approximately

40,000 tapes we expect to produce.

Conversion Rate of Data for National Archives

The EOP can only transfer data to the National Archives at the end of an Administration in the case of a single term, or at the end of the second term. For example,

NARA will not accept any Clinton Administration material at this time.

As stated previously the EOP is reconstructing electronic mail records for the period 11/91 to 7/94 and will deliver tapes covering the period 11/91 to 1/93.

Anticipated Completion of Conversion of Backlog Tapes

If NARA requires the EOP to reformat the ARMS tapes, another significant reconstruction project will have to be implemented. To convert the existing 10,000 tapes

and produce new tapes will require new software and operations staff to conduct

the reformatting and production of new tapes. EOP estimates that it will take approximately 18 months to reconstruct and generate the tapes for the period 7/94 to

1/98. The longer NARA delays in establishing a new acceptable format, the larger

the reconstruction process will be. Since the EOP’s historical data shows a 38 percent increase between 1997 and 1998, if one were to project the same 38 percent

growth, by the year 2000 we will produce almost 13,000 tapes.

WHITE HOUSE COUNSEL OFFICE

Question 18. Do any of the following people have workstations, office space, or administrative support, within the Executive Office of the President, including the

White House: Robert Bennett, Mickey Kantor, David Kendall, Harry Thomason,

James Carvell, Harold Ickes. If so, what federal government interest is served by

this?

Answer. No.

IRA MAGAZINER/HEALTH CARE TASK FORCE LAWSUIT

Question 19. During the Health Care Task Force, (HCTF) White House lawyers

engaged in deceptive and misleading characterizations of the people staffing the

HTCF. Please provide the following information: a list of all White House attorneys

who prepared the briefs filed in the HCTF case, by brief filed. If these lawyers are

still employed within the EOP, where are they employed?

Answer. The Department of Justice represented the White House Office in this

litigation; hence, attorneys from the Department, and not the White House, filed all

of the briefs in this matter.
438

QUESTIONS SUBMITTED FOR THE RECORD BY CONGRESSWOMAN ANNE M. NORTHUP

WHITE HOUSE INTERNS

Question 1. How many interns are accepted on staff at any one time? How many

are paid? How many are volunteers?

Answer. The White House Intern Program typically has more than 200 interns

each session. All interns are volunteers and thus are not compensated for their service.

Question 2. During the past 4 years, how many interns have investigated full time

positions at the White House?

Answer. We do not know the number of interns who have sought full-time positions at the White House because the Intern Office does not track that type of information.

Question 3. During the past 4 years, how many of these interns were successful

in acquiring full time positions in the White House?

Answer. Informal surveys show that it is not uncommon for support staff positions

to be filled by former White House interns. The White House does not systematically track information on the number of interns who gain full-time employment at

the White House; thus, we do not know the number of current White House staff

members who have also served as interns.

WHITE HOUSE PROTOCOL

Question 4. Does the White House have an employee handbook?

Answer. Yes.

Question 5. Is there a section on employee fraternization, dating and/or sexual

harassment? If not, are there regular federal employee procedures in effect?

Answer. The White House Office Staff Manual, most recently re-issued in 1997,

includes information about the White House Office’s policy on discrimination and

sexual harassment. This information summarizes the EOP’s ‘‘Sexual Harassment

Prevention Policy’’ that was published by the Assistant to the President for Management and Administration in October of 1995. Additionally, the EOP’s Office of Administration’s Human Resources Management Division distributes a booklet entitled

‘‘Preventing and Addressing Sexual harassment.’’ Finally, periodic training sessions

on this topic have been held for EOP employees.

Question 6. Is there a regular employee evaluation for paid staff. After joining the

staff, when does first evaluation take place?

Answer. While many managers and supervisors elect to provide regular evaluations for their staff, under Title 3 of the United States Code, the White House Office

is not required to perform regularly scheduled evaluations for staff members.

Question 7. The President of NOW has called on all elected federal officials to sign

a form committing to personally restraining themselves and all employees from having a sexual relationship with interns. Do you expect the White House to sign that

form?

Answer. We have not yet had occasion to review or consider the aforementioned

proposal.

YEAR 2000

Question 8. Now that the EOP has an information technology architecture, what

is the projected time frame for when the EOP computer systems will be prepared

for the year 2000?

Answer. All mission critical systems are expected to be operational by March 31,

1999.

INFORMATION TECHNOLOGY ARCHITECTURE

Question 9. Prior to 1997 each EOP agency acted independently in procuring information technology without considering redundancy, interchange ability or support requirements. Funding has been fenced until an architectural blueprint was

submitted. The blueprint was submitted in February 1998. What type of information

is included in this new system?

Answer. The initial EOP architecture, or roadmap document, was first submitted

in July of 1997. The EOP Information Technology Architecture model refined and

submitted in February of 1998, provides a comprehensive description of the current

technical infrastructure that supports information processing of the EOP. In addition, it provides a future technical infrastructure that reflects current and emerging

user requirements, as well as provides a recommended path or ‘‘roadmap’’ for getting from the current technical infrastructure to the future technical architecture.
439

1The persons designated with an asterisk (*) are Justice Department detailees who assist in

providing general legal advice (1 attorney) and in reviewing potential judicial nominees (currently 1 attorney, 1 paralegal).

Question 10. Is all of the information available on the system available to all personnel?

Answer. A copy of all architecture information is available to all EOP personnel.

GOVERNMENT PERFORMANCE AND RESULT ACT (GPRA)

Question 11. What measures has the EOP taken to ensure that the EOP is operating efficiency and effectively?

Answer. In its role as the provider of EOP administrative services, the Office of

Administration (OA) has compiled and distributed monthly performance statistics

covering a range of its services since 1996. Although OA is not covered by GPRA,

our intent is to comply fully with the spirit of GPRA by continually refining and

updating the performance measures. We intend to use performance measures as a

management tool to aid agency staff in the allocation of agency resources, to ensure

that OA services are responsive to customer concerns, and to focus management attention on the agency’s effectiveness in achieving its objectives.

Statistics currently collected include:

Facilities: processing of alterations/repairs/moves; distribution of space allocation/

rent bills.

Financial Management: processing of travel vouchers, imprest fund claims, requisitions, and accounting transactions; delivery of monthly accounting reports and

financial analyses.

General Services: delivery of interoffice mail; delivery of high-priority ‘‘red tag’’

and courier mail; delivery of certified mail, air express, and small packages delivery/

cost of print jobs; timeliness of composition/design graphics work; office supply order

fulfillment and timeliness; procurement order timeliness (small purchases, contracts, federal supply schedules).

Human Resources: timeliness and accuracy of personnel transactions; timeliness

of vacancy announcements, certificates.

Information Systems and Technology: timeliness of help desk calls.

Library and Research Services: timeliness of research services; timeliness of periodical processing; timeliness of book/CD–ROM processing; interlibrary loan request

timeliness; acquisitions of books; subscription renewals; dissemination of publications.

[EXHIBIT 1]

OFFICE OF COUNSEL TO THE PRESIDENT AS OF APRIL 20, 1998

Counsel to the President, Charles F.C. Ruff

Deputy Counsel to the President, Bruce R. Lindsey

Deputy Counsel to the President, Cheryl D. Mills

General Matters

Associate Counsel—Meredith Cabe

Associate Counsel—Dawn Chirwa

Special Counsel—Edward Correia

Associate Counsel—Lisa Hertzer * 1

Associate Counsel—William Marshall

Special Counsel—Michael Waitzkin

Senior Counsel—Robert Weiner

Nominations

Senior Counsel—Mark Childress

Attorney-Advisor—Michael O’Connor * (Judicial Nominations)

Staff Attorney—Stacy Reynolds

Financial Review and Ethics

Associate Counsel—Virginia Canter

Investigations and Litigation

Special Counsel—Lanny Breuer

Associate Counsel—Michael Imbroscio

Associate Counsel—Dimitri Nionakis

Special Associate Counsel—Sally Paxton
440

Associate Counsel—Michelle Peterson

Associate Counsel—Karen Popp

Associate Counsel—Karl Racine

Press and Public Inquiries

Special Advisor—James Kennedy

Special Associate Counsel—Adam Goldberg

Support Staff

Executive Assistant to the Counsel—Ora Theard

Executive Assistant to the Deputy Counsel—Melissa Prober

Executive Assistant to the Deputy Counsel—Melissa Murray

Executive Assistant—Edward Hughes

Staff Assistant—Douglas Band

Paralegal—Jonathan Becker *

Staff Assistant—Alissa Brown

Paralegal—Dimitra Doufekias

Paralegal—Deborah Falk

Paralegal—Erin Green

Paralegal—Rochester Johnson

Staff Assistant—Tanya Miller

Paralegal—Suzanne Moreno

Assistant/Paralegal—Brian Smith

Job Responsibilities.—As of April 20, 1998, the number of regular staff was 34,

including 19 attorneys performing legal work, 13 assistants or paralegals, and 2

staff (one of whom is a lawyer by training) responsible for responding to press and

other public inquiries that come to our Office. The White House Counsel and the

two Deputy Counsels are responsible for the overall management of the Office. Of

the remaining 16 regular attorneys, 7 were assigned on an ongoing basis (together

with 4 paralegals) to congressional, Independent Counsel, and Justice Department

investigative matters, and to litigation in which the Executive Office of the President (‘‘EOP’’) or EOP officials are parties. Six staff lawyers (and one detailee from

the Justice Department) were responsible for providing general legal advice to

White House staff on a wide range of matters, including legislation, pardons, ethics,

privilege, misuse of the President’s name and image, appropriations, travel, political

activity, and other areas related to the Office of the President.

The Senior Counsel for Nominations supervises the background clearance process

for presidential nominations and appointments, including both judicial and nonjudicial nominees; one staff attorney assists the Senior Counsel; and, one Associate

Counsel supervises the financial and conflicts of interest clearance process for presidential nominees.

To assist in the clearance of presidential nominees, agencies have historically detailed attorneys to work in the Counsel’s Office for terms typically ranging from 3

to 6 months; the number of detailees varies based upon the volume of candidates

to be processed. As of April 20, 1998, there were six (6) detailees performing the

review of the background and financial information on potential presidential appointees to assist in making recommendations regarding their suitability for service.

None of these detailees works on any investigative matter. These detailees were

from the following agencies: Department of Health and Human Services, Department of Labor (1), Department of Navy (1), Department of Transportation (1), Department of Veterans’ Affairs (1), and the National Labor Relations Board (1).

Lastly, it has been the practice in this Administration for the Justice Department

to detail lawyers and paralegals to the Office to assist in the review of potential judicial nominees. One lawyer and one paralegal were assigned for this purpose as

of April 20, 1998.

Stations.—Counsel’s Office staff are located in the White House or the Old Executive Office Building.

Lines of Authority.—Lawyers listed under the heading ‘‘Investigations and Litigation’’ report through Special Counsel Breuer to the Front Office. Staff responsible

for nominations and financial review reports to the Front Office through the Senior

Counsel for Nominations and through the Associate Counsel handling the financial

and conflicts of interest clearance process. Finally, the lawyers listed under the

heading ‘‘Other Matters’’ report directly to the Front Office.

Summary.—As of April 20, 1998, the staff of the Counsel’s Office consisted of the

following:

Regular Staff:

Attorneys ......................................................................................................... 19

Press/public inquiry staff ............................................................................... 2
441

Assistants/paralegals ...................................................................................... 13

Detailees:

Attorney (detailed from Justice Department—general legal advice) ......... 1

Attorney (detailed from Justice Department—judicial nominations) ......... 1

Attorneys (detailed from various agencies—nominations clearance) ......... 6

Paralegal (detailed from Justice Department—judicial nominations) ....... 1

Total ............................................................................................................. 43

EXHIBIT 2.—EMPLOYEES OF THE WHITE HOUSE COUNSEL’S OFFICE FROM 1/20/93 THROUGH THE

PRESENT

[As of 4/20/98]

Name/title Start date End date

Allen, Susan, Paralegal .......................................................................................... 7/28/97 3/20/98

Band, Doug, Staff Assistant .................................................................................. 5/20/96 ....................

Bohn, Catherine, Staff Assistant ........................................................................... 9/26/96 3/01/97

Breuer, Lanny, Special Counsel to the President .................................................. 2/18/97 ....................

Brown, Alissa, Staff Assistant ............................................................................... 8/18/97 ....................

Bueno, Edgar, Paralegal ......................................................................................... 2/05/93 8/04/94

Burke, Elayne, Staff Assistant ............................................................................... 4/15/93 5/21/93

Cabe, Meredith, Associate Counsel to the President ............................................. 10/06/97 ....................

Canter, Virginia, Associate Counsel to the President ............................................ 5/12/97 ....................

Castello, James, Deputy Counsel to the President ................................................ 3/13/95 3/18/96

Castleton, Thomas, Special Assistant to the Counsel and Document Manager ... 6/16/93 9/19/94

Cerda, Clarissa, Assistant Counsel to the President ............................................ 1/20/93 7/15/95

Cerf, Christopher, Associate Counsel to the President .......................................... 12/07/94 4/26/96

Champagne, Florence, Legal Secretary .................................................................. 2/05/93 2/17/95

Childress, Mark, Senior Counsel for Nominations ................................................. 3/17/98 ....................

Childs, Mary, Security Assistant ............................................................................ 10/02/84 2/13/93

Chirwa, Dawn, Associate Counsel to the President ............................................... 9/05/95 ....................

Connaughton, Jeffrey, Special Assistant ................................................................ 10/03/94 11/14/95

Correia, Edward, Special Counsel to the President for Civil Rights ..................... 2/03/98 ....................

Cutler, Lloyd, Special Counsel to the President .................................................... 3/27/94 9/30/94

Dannenhauer, Jane, Assistant to the Counsel ....................................................... 1/21/81 3/01/93

Davis, Lanny, Special Counsel to the President .................................................... 12/10/96 1/30/98

Demille Wagman, Deborah, Assistant Counsel to the President ........................... 10/01/94 12/16/94

Denbo, Jonathan, Security Assistant ...................................................................... 9/19/95 7/30/96

Doufekias, Dimitra, Paralegal ................................................................................ 3/25/97 ....................

Dudley, Jennifer, Executive Assistant to the Deputy Counsel to the President .... 7/17/95 11/08/97

Eggleston, W. Neil, Associate Counsel to the President ........................................ 9/27/93 9/08/94

Erichsen, Peter, Associate Counsel to the President ............................................. 3/16/97 11/07/97

Fabiani, Mark, Special Associate Counsel to the President .................................. 4/03/95 12/09/96

Falk, Deborah, Paralegal ........................................................................................ 3/10/97 ....................

Fein, David, Associate Counsel to the President ................................................... 2/13/95 12/21/96

Fielder, J. David, Special Assistant Counsel to the President .............................. 10/29/95 3/15/96

Special Assistant Counsel ............................................................................. 4/14/96 7/12/96

Foster Jr., Vincent, Deputy Assistant to the President and Deputy Counsel ........ 1/20/93 7/20/93

Goldberg, Adam, Special Associate Counsel .......................................................... 12/11/96 ....................

Gorham, Deborah, Staff Assistant to the Deputy Counsel .................................... 3/08/93 11/19/93

Green, Erin, Paralegal ............................................................................................ 3/31/97 ....................

Holliday, Kimberly, Secretary to the Special Counsel to the President ................. 1/04/95 3/29/96

Hughes, Edward, Executive Assistant .................................................................... 4/12/94 ....................

Imbroscio, Michael, Associate Counsel to the President ....................................... 3/03/97 ....................

Johnson, Kari, Staff Assistant, Security Office ...................................................... 7/30/90 2/16/93

Johnson, Rochester, Paralegal ................................................................................ 3/20/95 ....................

Kagan, Elana, Associate Counsel to the President ............................................... 7/10/95 1/05/97

Kaplan, Eloise, Researcher ..................................................................................... 11/17/93 8/13/94

Kelly, Erin, Legal Assistant .................................................................................... 1/04/96 7/26/96
442

EXHIBIT 2.—EMPLOYEES OF THE WHITE HOUSE COUNSEL’S OFFICE FROM 1/20/93 THROUGH THE

PRESENT—Continued

[As of 4/20/98]

Name/title Start date End date

Kennedy, James, Special Advisor to the Counsel .................................................. 2/01/98 ....................

Kennedy, William, Associate Counsel to the President .......................................... 2/10/93 11/21/94

Klain, Ronald, Associate Counsel to the President ............................................... 1/20/93 2/12/94

Klein, Joel, Deputy Counsel to the President ......................................................... 12/01/93 4/01/95

Kopp, Jonathan, Law Clerk ..................................................................................... 10/18/93 12/10/93

Krislov, Marvin, Assistant Counsel to the President and Special Counsel for Information Policy ................................................................................................. 2/27/94 3/30/96

Lehane, Christopher, Special Assistant to the Special Counsel to the President .................................................................................................................... 7/17/95 1/09/97

Lindsey, Bruce, Assistant to the President and Deputy Counsel to the President .................................................................................................................... 10/03/94 ....................

Lister, Susan, Staff Assistant to the Counsel ....................................................... 1/20/93 2/26/93

Livingstone, D. Craig, Assistant to the Counsel to the President (Security) ........ 2/08/93 6/26/96

Luna, David, Special Assistant .............................................................................. 9/11/96 3/15/97

Madsen, Marna, Staff Assistant ............................................................................ 3/27/95 9/14/96

Markman, Natalie, Staff Attorney ........................................................................... 10/18/93 2/26/94

Marshall, William, Associate Counsel to the President ......................................... 1/15/97 ....................

Massey, Michael, Paralegal/Legal Assistant .......................................................... 2/27/96 3/21/97

Mauton Jr., Clifford, Paralegal ............................................................................... 10/27/93 8/02/97

Mikva, Abner, Counsel to the President ................................................................. 10/01/94 11/01/95

Miller, Jennifer, Assistant to the Associate Counsel ............................................. 1/28/93 4/25/94

Miller, Tanya, Staff Assistant ................................................................................. 3/02/97 ....................

Mills, Cheryl, Deputy Assistant to the President and Deputy Counsel ................. 1/20/93 ....................

Mixell, Julie, Assistant to the Deputy Counsel ....................................................... 12/01/93 4/01/95

Moreno, Suzanne, Paralegal ................................................................................... 3/25/98 ....................

Murray, Melissa, Staff Assistant ............................................................................ 5/01/95 3/03/97

Executive Assistant to the Deputy Counsel .................................................. 11/05/97 ....................

Nemetz, Miriam, Associate Counsel to the President ............................................ 1/04/95 3/14/97

Neuwirth, Stephen, Associate Counsel to the President ........................................ 1/20/93 7/22/96

Nionakis, Dimitri, Associate Counsel to the President .......................................... 3/04/97 ....................

Nolan, Beth, Associate Counsel to the President .................................................. 2/02/93 7/25/95

Nussbaum, Bernard, Assistant to the President and Counsel .............................. 1/20/93 4/05/94

O’leary, Ann, Executive Assistant to the Deputy Counsel ...................................... 11/14/94 7/15/95

Pappas, Peter, Assistant Counsel .......................................................................... 1/20/93 1/15/94

Pascale, Joseph, Researcher .................................................................................. 3/01/94 2/10/95

Paxton, Sally, Special Associate Counsel ............................................................... 3/07/96 ....................

Peterson, Michelle, Associate Counsel to the President ........................................ 2/09/97 ....................

Pond, Betsy, Staff Assistant .................................................................................. 3/22/93 9/04/95

Poole, Cheryl, Executive Assistant to the Special Counsel to the President ........ 3/27/94 10/01/94

Popp, Karen, Associate Counsel to the President .................................................. 12/22/96 ....................

Prober, Melissa, Executive Assistant to the Deputy Counsel ................................ 10/06/97 ....................

Quinn, John, Counsel to the President ................................................................... 10/25/95 2/17/97

Racine, Karl, Associate Counsel to the President ................................................. 5/27/97 ....................

Radd, Victoria, Associate Counsel to the President .............................................. 12/01/93 2/09/98

Rapp, Jason, Assistant to the Associate Counsel ................................................. 4/25/94 3/10/95

Reynolds, Stacy, Researcher ................................................................................... 4/06/94 ....................

Rosenberg, David, Researcher/Writer ..................................................................... 7/06/93 10/29/93

Ruff, Charles, Counsel to the President ................................................................ 2/09/97 ....................

Schroeder, Robert, Associate Counsel to the President ......................................... 10/01/95 8/08/97

Sherburne, Jane, Special Associate Counsel to the President .............................. 4/25/94 10/15/94

Special Counsel to the President .................................................................. 1/04/95 1/11/97

Sloan, Clifford, Associate Counsel to the President .............................................. 6/14/93 3/10/95

Smith, Brian, Assistant/Paralegal .......................................................................... 3/10/97 ....................

Stucke, Dorothy, Staff Assistant ............................................................................ 2/15/93 9/20/93
443

EXHIBIT 2.—EMPLOYEES OF THE WHITE HOUSE COUNSEL’S OFFICE FROM 1/20/93 THROUGH THE

PRESENT—Continued

[As of 4/20/98]

Name/title Start date End date

Sweitzer, Cheryl, Executive Assistant to the Counsel to the President ................. 12/19/94 2/11/97

Theard, Ora, Executive Assistant to the Counsel to the President ....................... 2/23/97 ....................

Tripp, Linda, Executive Assistant to the Counsel to the President ....................... 1/30/94 8/21/94

Waitzkin, Michael, Special Counsel to the President ............................................ 4/14/97 ....................

Walker, Odetta, Executive Assistant to the Deputy Counsel to the President ...... 3/20/95 7/26/97

Wallman, Kathleen, Deputy Counsel to the President ........................................... 11/13/95 11/14/97

Warren, Renee, Assistant to the Associate Counsel .............................................. 4/03/95 5/28/96

Weider, Sara, Assistant to the Special Counsel .................................................... 6/24/96 7/05/97

Weiner, Robert, Senior Counsel .............................................................................. 2/18/97 ....................

Wetzl, Lisa, Executive Assistant ............................................................................. 8/15/93 9/13/95

Whalen, Kathleen, Associate Counsel to the President ......................................... 2/27/94 4/30/97

White, Wendy, Associate Counsel to the President ................................................ 2/14/96 3/31/97

Willey, Kathleen, Staff Assistant ............................................................................ 4/20/94 10/22/94

Williams, Natalie, Associate Counsel to the President .......................................... 6/19/95 2/28/96

Yarowsky, Jonathan, Special Associate Counsel to the President ......................... 4/03/95 3/31/98

EXHIBIT 3.—WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR

Title Home agency Office assignment Start date End date

FISCAL YEAR 1993

Assistant Counsel to the President .. Justice ................................ General Counsel ................. 3/1/93 4/15/93

No title .............................................. Labor .................................. Political Affairs .................. 3/9/93 9/4/93

No title .............................................. Transportation .................... Presidential Personnel ....... 3/1/93 4/23/93

No title .............................................. General Accounting Office.Presidential Personnel ....... 2/23/93 9/30/93

Director of Correspondence ............... Veterans Affairs ................. Correspondence .................. 2/24/93 3/26/93

Special Counsel ................................ Justice ................................ General Counsel ................. 8/23/93 2/26/94

Search Manager ................................ No agency .......................... Presidential Personnel ....... 2/19/93 9/30/93

Security Assistant ............................. Defense .............................. General Counsel ................. 8/18/93 2/18/94

Assistant to the Special Assistant ... Labor .................................. Political Affairs .................. 3/9/93 9/25/93

Search Manager ................................ Merit Systems Protection

Board.

Presidential Personnel ....... 8/16/93 2/16/94

No title .............................................. U.S. Senate ........................ Presidential Personnel ....... 2/19/93 9/30/93

Personal Assistant to the Chief of

Staff.

Commerce .......................... Chief of Staff ..................... 5/27/93 9/30/94

Executive Assistant ........................... Justice ................................ General Counsel ................. 1/27/93 7/27/93

Director, White House Photo Office .. Defense Information Agency.Management and Operations.2/1/93 12/31/93

No title .............................................. Federal Labor Relations

Board.

Presidential Personnel ....... 1/2/93 9/30/93

Assistant to the Deputy Director ...... Office of Personnel Management.Presidential Personnel ....... 9/14/93 1/7/94

Staff Assistant .................................. Office of Government Ethics.General Counsel ................. 9/27/93 12/13/93

Associate Director ............................. Equal Employment Opportunity Commission.Presidential Personnel ....... 7/12/93 3/30/94

No title .............................................. General Services Administration.Travel and Telegraph Service.5/24/93 11/22/93

Attorney ............................................. Education ........................... General Counsel ................. 10/5/92 3/31 /93

Staff Assistant to the Associate

Counsel to the President.

Merit Systems Protection

Board.

General Counsel ................. 2/24/92 3/31/93

Attorney ............................................. Housing and Urban Development.General Counsel ................. 4/13/92 3/31/93

Special Counsel ................................ Labor .................................. General Counsel ................. 4/26/93 10/22/93

Asian Outreach ................................. Justice ................................ Presidential Personnel ....... 6/14/93 9/30/93
444

EXHIBIT 3.—WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR—Continued

Title Home agency Office assignment Start date End date

No title .............................................. National Science Foundation.Administrative Office ......... 2/24/93 4/1/93

Special Counsel to the President ..... U.S. Information Agency .... General Counsel ................. 3/1/93 9/5/93

Special Counsel to the President ..... Commerce .......................... General Counsel ................. 7/6/93 1/14/94

Special Counsel to the President ..... Justice ................................ Scheduling and Advance ... 2/1/93 4/2/93

Special Counsel to the President ..... Environmental Protection

Agency.

General Counsel ................. 3/30/92 9/1/93

Director of Correspondence ............... Internal Revenue Service ... Correspondence .................. 2/24/93 3/26/93

No title .............................................. Health and Human Services.Presidential Personnel ....... 1/21/93 7/21/93

No title .............................................. Commerce .......................... Environmental Policy ......... 3/1/93 3/1/95

Assistant Counsel to the President .. Justice ................................ General Counsel ................. 2/1/93 9/30/93

No title .............................................. General Services Administration.Presidential Personnel ....... 8/2/93 9/30/93

No title .............................................. Defense .............................. Presidential Personnel ....... 2/18/93 9/30/93

Counsel to the President .................. Justice ................................ General Counsel ................. 3/1/93 4/15/93

No title .............................................. General Services Administration.Travel and Telegraph Service.5/24/93 11/22/93

No title .............................................. General Services Administration.Travel and Telegraph Service.5/24/93 11/22/93

Staff Assistant .................................. Justice ................................ General Counsel ................. 6/14/93 9/30/94

FISCAL YEAR 1994

Attorney Advisor ................................ Transportation .................... General Counsel ................. 7/11/94 10/11/94

Special Counsel to the President ..... Defense .............................. General Counsel ................. 1/19/94 4/19/94

Security Assistant ............................. Defense .............................. General Counsel ................. 8/18/93 2/18/94

Search Manager ................................ Merit Systems Protection

Board.

Presidential Personnel ....... 8/16/93 2/16/94

Health Care Spokesperson ................ Labor .................................. Communications ................ 1/31/94 11/30/94

Personal Assistant to the Chief of

Staff.

Commerce .......................... Chief of Staff ..................... 5/27/93 9/30/94

Correspondence Review/Edit ............. State ................................... Correspondence .................. 2/28/94 12/31/94

Special Counsel to the President ..... Defense .............................. General Counsel ................. 2/1/94 6/1/94

Special Counsel ................................ Defense .............................. General Counsel ................. 6/1/94 9/30/94

Attorney Advisor ................................ Justice ................................ General Counsel ................. 7/25/94 9/30/94

Special Counsel ................................ Justice ................................ General Counsel ................. 11/10/93 9/30/94

Assistant to the Deputy Director ...... Office of Personnel Management.Presidential Personnel ....... 9/14/93 1/7/94

Special Counsel ................................ Defense .............................. General Counsel ................. 10/20/93 3/24/94

Staff Assistant .................................. Office of Government Ethics.General Counsel ................. 9/27/93 12/13/93

Attorney Advisor ................................ Federal Trade Commission.General Counsel ................. 3/11/94 9/2/94

Associate Director ............................. Equal Employment Opportunity Commission.Presidential Personnel ....... 7/12/93 3/30/94

Staff Assistant .................................. Energy ................................ Intergovernmental Affairs .. 8/8/94 9/30/94

No title .............................................. General Services Administration.Travel and Telegraph Service.5/24/93 11/22/93

Search Manager ................................ Defense .............................. Presidential Personnel ....... 4/18/94 3/30/95

Assistant to the Deputy Director ...... Office of Personnel Management.Presidential Personnel ....... 1/10/94 4/29/94

Staff Assistant .................................. Office of Personnel Management.Presidential Personnel ....... 1/18/94 6/18/94

Presidential Advance ........................ Commerce .......................... Scheduling and Advance ... 4/25/94 8/8/94

Special Counsel ................................ Commerce .......................... General Counsel ................. 11/2/93 12/10/93

Assistant to the Chief of Staff ......... Office of Management and

Budget.

Chief of Staff ..................... 7/18/94 9/6/94

Assistant to the Chief of Staff ......... Office of Management and

Budget.

Chief of Staff ..................... 7/18/94 8/31/94

Special Counsel to the President ..... Defense .............................. General Counsel ................. 3/14/94 6/10/94

Correspondence Specialist ................ Federal Trade Commission.Correspondence .................. 7/25/94 12/31/94

Financial Manager Analyst ............... Housing and Urban Development.Travel Office ....................... 9/1/94 3/1/95
445

EXHIBIT 3.—WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR—Continued

Title Home agency Office assignment Start date End date

Special Counsel ................................ Labor .................................. General Counsel ................. 4/26/93 10/22/93

Staff Assistant .................................. General Services Administration.General Counsel ................. 1/18/94 3/31/95

Special Counsel to the President ..... Commerce .......................... General Counsel ................. 7/6/93 1/14/94

Attorney-Advisor ................................ Interstate Commerce Commission.General Counsel ................. 4/25/94 10/4/94

Staff Assistant .................................. Justice ................................ General Counsel ................. 12/1/93 9/30/94

Personnel Specialist .......................... Commerce .......................... Presidential Personnel ....... 7/13/94 10/13/94

Assistant to the Chief of Staff ......... Office of Management and

Budget.

Chief of Staff ..................... 7/18/94 9/6/94

Attorney Advisor ................................ Justice ................................ General Counsel ................. 7/18/94 10/18/94

Attorney Advisor ................................ Agriculture .......................... General Counsel ................. 6/20/94 12/20/94

Assistant Counsel to the President .. Securities Exchange Commission.General Counsel ................. 1/3/94 4/1/94

Staff Assistant .................................. Office of Personnel Management.Presidential Personnel ....... 9/30/93 3/30/94

Advisor to Director ............................ Energy ................................ Legislative Affairs .............. 8/17/94 10/31/94

Special Counsel ................................ Defense .............................. General Counsel ................. 10/25/93 2/24/94

Special Counsel ................................ Defense .............................. General Counsel ................. 4/20/94 10/15/94

Special Counsel ................................ Defense .............................. General Counsel ................. 11/15/93 1/10/94

Special Assistant Counsel to the

President.

State ................................... General Counsel ................. 6/17/94 9/30/94

Paralegal Specialist .......................... Securities Exchange Commission.General Counsel ................. 8/1/94 2/1/95

Senior Program Analyst .................... Agriculture .......................... Travel ................................. 10/1/93 9/9/94

Special Counsel to the President ..... Justice ................................ General Counsel ................. 1/12/94 7/8/94

Search Manager ................................ Equal Employment Opportunity Commission.Presidential Personnel ....... 6/27/94 12/27/94

Search Manager ................................ Agriculture .......................... Presidential Personnel ....... 6/13/94 3/30/95

Office Manager ................................. Energy ................................ Political Affairs .................. 8/24/94 12/31/94

Interim National AIDS Policy Coordinator.Health and Human Services.Domestic Policy Council ..... 8/3/94 11/12/94

Assistant to the Chief of Staff ......... Office of Management and

Budget.

Chief of Staff ..................... 7/18/94 9/15/94

Deputy Director of Scheduling .......... Energy ................................ Scheduling and Advance ... 2/22/94 12/31/94

No title .............................................. General Services Administration.Travel ................................. 5/24/93 11/22/93

No title .............................................. General Services Administration.Travel ................................. 5/24/93 11/22/93

Search Advisor .................................. Agriculture .......................... Presidential Personnel ....... 11/8/93 3/30/95

Staff Assistant .................................. Justice ................................ General Counsel ................. 6/14/93 9/30/94

Special Counsel to the President ..... Defense .............................. General Counsel ................. 5/9/94 8/9/94

Search Manager ................................ Merit Systems Protection

Board.

Presidential Personnel ....... 4/8/94 10/7/94

Special Counsel ................................ Justice ................................ General Counsel ................. 8/23/93 2/26/94

Special Counsel ................................ Defense .............................. General Counsel ................. 3/14/94 6/11/94

FISCAL YEAR 1995

Staff Assistant .................................. Justice ................................ General Counsel ................. 12/01/93 11/30/94

Special Assistant to the President ... Interior ................................ Legislative Affairs .............. 6/14/95 3/30/96

Attorney-Advisor ................................ ICC ..................................... General Counsel ................. 4/25/94 6/30/95

Staff Assistant .................................. General Services Administration.General Counsel ................. 1/18/94 2/10/95

Scheduling the First Lady ................. Education ........................... Scheduling and Advance ... 2/13/95 8/13/95

Financial Manager Analyst ............... Housing and Urban Development.Travel Office ....................... 9/1/94 4/5/95

Staff Assistant (Scheduler) .............. Agriculture .......................... Scheduling and Advance ... 8/15/95 2/15/96

Attorney Advisor ................................ Justice ................................ General Counsel ................. 7/26/95 1/24/96

Executive Assistant ........................... Labor .................................. Cabinet Affairs ................... 3/8/95 3/8/96

Correspondence Specialist ................ Federal Trade Commission.Correspondence .................. 7/25/94 10/2/94

Attorney-Advisor ................................ Nuclear Regulatory Commission.General Counsel ................. 11/1/94 1/27/95

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 3/22/95 9/15/95
446

EXHIBIT 3.—WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR—Continued

Title Home agency Office assignment Start date End date

Staff Assistant .................................. Labor .................................. Chief of Staff ..................... 10/17/94 1/7/95

Special Assistant to the President

and Presidential Scheduler/Coordinator.

Education ........................... Scheduling and Advance ... 8/2/95 10/7/95

Attorney-Advisor ................................ Interstate Commerce Commission.General Counsel ................. 10/14/94 12/20/94

No Title (Press Scheduler) ................ Interior ................................ Press Secretary .................. 1/9/95 1/5/96

Search Manager ................................ Defense .............................. Presidential Personnel ....... 4/18/94 12/11/94

Attorney-Advisor ................................ Labor .................................. General Counsel ................. 6/12/95 9/9/95

Special Counsel ................................ Justice ................................ General Counsel ................. 11/10/93 10/5/94

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 7/25/94 10/14/94

Executive Assistant ........................... Interior ................................ General Counsel ................. 5/8/95 10/14/94

Attorney ............................................. U.S. Attorney’s Office ......... General Counsel ................. 2/6/95 8/4/95

Search Manager ................................ Office of Personnel Management.Presidential Personnel ....... 9/5/95 3/1/96

Correspondence Review/Edit ............. State Dept .......................... Correspondence .................. 2/28/94

7/27/95

12/31/94

3/29/96

Secretary/Office Manager .................. Surface Mining ................... General Counsel ................. 4/12/95 11/10/95

Attorney-Advisor ................................ Treasury .............................. General Counsel ................. 4/17/95 9/1/95

Confidential Assistant to the Counselor.Commerce .......................... Counselor to the President.5/27/93 12/20/95

Health Care Spokesperson ................ Labor .................................. Communications ................ 1/31/94 7/30/94

Attorney-Advisor ................................ Transportation .................... General Counsel ................. 7/11/94 3/31/95

Associate Counsel to the President .. Justice ................................ General Counsel ................. 12/12/94 6/9/95

Attorney ............................................. FCA ..................................... General Counsel ................. 2/6/95 5/5/95

Scheduler for the First Lady ............. Interior ................................ Scheduling and Advance ... 10/15/94 2/1/95

Gift Analyst ....................................... State ................................... Gift Unit ............................. 6/19/95 10/6/95

Search Manager ................................ Merit Systems Protection

Board.

Presidential Personnel ....... 4/8/94 10/21/94

Staff Assistant .................................. Justice ................................ General Counsel ................. 6/14/93 10/1/94

Search Manager ................................ Office of Personnel Management.Presidential Personnel ....... 7/25/95 12/29/95

Search Manager ................................ Agriculture .......................... Presidential Personnel ....... 11/8/93 11/23/94

Executive Assistant ........................... Education ........................... Scheduling and Advance ... 10/27/94 1/10/95

Search Manager ................................ Commission on Civil

Rights.

Presidential Personnel ....... 10/24/94 4/24/95

Attorney-Advisor ................................ Housing and Urban Development.General Counsel ................. 3/6/95 6/4/95

Attorney Advisor ................................ Justice ................................ General Counsel ................. 10/5/94 12/31/94

Deputy Director of Scheduling .......... Energy ................................ Scheduling and Advance ... 2/22/94 3/31/94

Press Office Assistant ...................... Bank of the US .................. Chief of Staff ..................... 12/1/94 12/16/94

Interim National AIDS Policy Coordinator.Health and Human Services.Domestic Policy Council ..... 8/3/94 11/12/94

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 1/17/95 7/14/95

Staff Assistant .................................. Justice ................................ General Counsel ................. 12/12/94 6/9/95

Special Assistant to the President

and Scheduler/Events Coordinator.

Small Business Administration.Scheduling and Advance ... 4/24/95 7/30/95

Office Manager ................................. Energy ................................ Political Affairs .................. 6/13/94 9/30/95

Special Assistant to the President

and Associate Director.

Agriculture .......................... Presidential Personnel ....... 6/13/94 9/30/95

Spokesperson, Summit of Americas.Bank of U.S ........................ Chief of Staff ..................... 12/1/94 12/16/94

Legal Secretary ................................. Federal Trade Commission General Counsel ................. 10/3/94 3/31/95

Search Manager ................................ Equal Employment Opportunity Commission.Presidential Personnel ....... 6/27/94 11/4/94

Paralegal Specialist .......................... Securities and Exchange

Commission.

General Counsel ................. 8/1/94 3/31/95

Accountant ........................................ Housing and Urban Development.Travel Office ....................... 11/4/94 3/31/95

Special Counsel ................................ Defense .............................. General Counsel ................. 4/20/94 10/15/94

Search Manager ................................ Agriculture .......................... Presidential Personnel ....... 6/12/95 3/30/96

Advisor to Director ............................ Education ........................... Legislative Affairs .............. 8/17/94 10/31/94

Attorney ............................................. Securities and Exchange

Commission.

General Counsel ................. 5/15/95 11/30/95
447

EXHIBIT 3.—WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR—Continued

Title Home agency Office assignment Start date End date

Attorney-Advisor ................................ Agriculture .......................... General Counsel ................. 8/7/95 2/7/96

Attorney-Advisor ................................ Agriculture .......................... General Counsel ................. 6/2/94 12/20/94

Event Coordinator (Presidential

Schedules).

Interior ................................ Scheduling and Advance ... 10/13/94 1/14/95

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 7/18/94 1/18/95

Special Assistant to the President ... Labor .................................. Cabinet Affairs ................... 6/22/95 9/30/95

Attorney ............................................. Merit Systems Protection

Board.

General Counsel ................. 10/3/94 12/31/94

Personnel Specialist .......................... Commerce .......................... Presidential Personnel ....... 7/13/94 10/13/94

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 7/10/95 10/13/95

Deputy Director ................................. Health and Human Services.Intergovernmental Affairs .. 6/5/95 12/23/95

FISCAL YEAR 1996

Assistant Deputy Director ................. U.S. Agency for International Development.Presidential Personnel ....... 5/13/96 9/30/96

Special Assistant to the President ... Interior ................................ Legislative Affairs .............. 6/14/95 9/30/96

Attorney-Advisor ................................ Education ........................... General Counsel ................. 2/4/96 5/3/96

Attorney-Advisor ................................ Commerce .......................... General Counsel ................. 5/13/96 5/24/96

Staff Assistant (Scheduler) .............. Agriculture .......................... Scheduling and Advance ... 8/15/95 1/26/96

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 7/26/95 2/26/96

Executive Assistant ........................... Labor .................................. Cabinet Affairs ................... 3/8/95 4/14/96

Presidential Scheduler ...................... Agriculture .......................... Scheduling and Advance ... 10/30/95 12/8/95

Detailee to the Office of Scheduling.Education ........................... Scheduling and Advance ... 8/5/96 3/8/97

Special Assistant to the President

and Presidential Scheduler/Coordinator.

Education ........................... Scheduling and Advance ... 8/2/95 10/7/95

Special Assistant to the Deputy

Chief of Staff.

Labor .................................. Deputy Chief of Staff for

Policy.

6/27/96 9/23/96

Senior Press Advance ....................... Interior ................................ Press Secretary .................. 1/9/95 1/5/96

Special Assistant to the Deputy

Chief of Staff.

U.S. Information Agency .... Deputy Chief of Staff for

Policy.

4/22/96 9/30/96

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 9/3/96 11/15/96

Attorney-Advisor ................................ Labor .................................. General Counsel ................. 5/13/96 8/23/96

Search Manager ................................ Occupational Safety and

Health Administration.

Presidential Personnel ....... 4/9/96 9/5/96

Staff Assistant .................................. Agency for International

Development.

Scheduling and Advance ... 1/18/96 7/31/96

Search Manager ................................ Office of Personnel Management.Presidential Personnel ....... 10/2/96 11/8/96

Attorney-Advisor ................................ Treasury .............................. General Counsel ................. 3/4/96 8/2/96

Correspondence Review/Edit ............. State ................................... Correspondence .................. 7/27/95 3/25/96

Attorney-Advisor ................................ Federal Trade Commission.General Counsel ................. 10/23/95 4/19/96

Secretary/Office Manager .................. Surface Mining ................... General Counsel ................. 4/12/95 11/3/95

Special Assistant to the Deputy Director.Agriculture .......................... Presidential Personnel ....... 4/1/96 9/30/96

Confidential Assistant to the Counselor.Commerce .......................... Counselor to the President.10/2/95 9/30/96

Director .............................................. U.S. Information Agency .... Public Liaison .................... 11/29/95 12/15/95

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 2/26/96 6/6/96

Search Manager ................................ Office of Personnel Management.Presidential Personnel ....... 3/28/97 5/30/97

Attorney-Advisor ................................ Transportation .................... General Counsel ................. 11/6/96 5/3/96

Staff Assistant .................................. State ................................... Gift Unit ............................. 7/16/96 3/28/97

Special Assistant .............................. Commerce .......................... Cabinet Affairs ................... 2/1/96 9/30/96

Gift Analyst ....................................... State ................................... Gift Unit ............................. 6/19/95 3/31/96

Attorney-Advisor ................................ Federal Trade Commission.General Counsel ................. 2/12/96 4/19/96

Special Assistant to the President ... Treasury .............................. Legislative Affairs .............. 2/28/96 5/31/96

Logistical Management Specialist .... State ................................... Administrative Office ......... 2/28/96 4/28/96

Staff Assistant .................................. Justice ................................ General Counsel ................. 6/3/96 9/30/96

Staff Assistant .................................. Transportation .................... General Counsel ................. 10/30/95 4/19/96
448

EXHIBIT 3.—WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR—Continued

Title Home agency Office assignment Start date End date

Search Manager ................................ U.S. Arms Control .............. Presidential Personnel ....... 8/28/96 3/28/97

Associate Counsel to the President .. Justice ................................ General Counsel ................. 1/16/96 3/15/97

Special Assistant to the President

and Associate Director.

Agriculture .......................... Presidential Personnel ....... 10/1/95 10/1/96

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 6/12/96 12/31/96

Search Manager ................................ Agriculture .......................... Presidential Personnel ....... 6/12/95 11/26/95

Attorney-Advisor ................................ Federal Highway Administration.General Counsel ................. 5/13/96 9/20/96

Attorney-Advisor ................................ Defense Information Systems Agency.General Counsel ................. 6/10/96 9/30/96

Attorney ............................................. Securities and Exchange

Commission.

General Counsel ................. 5/15/95 12/1/95

Attorney-Advisor ................................ Energy ................................ General Counsel ................. 11/1/95 3/8/96

Search Manager ................................ Agriculture .......................... Presidential Personnel ....... 12/11/96 6/9/97

Search Manager ................................ Agriculture .......................... Presidential Personnel ....... 3/8/96 9/30/96

Deputy Director ................................. Health and Human Services.Intergovernmental Affairs .. 10/1/95 12/23/95

Attorney-Advisor ................................ Agriculture .......................... General Counsel ................. 8/7/95 3/22/96

Scheduler, First Lady ........................ Housing and Urban Development.Scheduling and Advance ... 2/5/96 9/27/96

Attorney-Advisor ................................ Agriculture .......................... General Counsel ................. 6/20/94 3/29/96

Special Assistant to the President ... Labor .................................. Cabinet Affairs ................... 6/22/95 12/20/95

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 7/10/95 12/29/95

FISCAL YEAR 1997

Assistant Deputy Director ................. U.S. Agency for International Development.Presidential Personnel ....... 5/13/96 3/28/97

Special Assistant to the President ... Interior ................................ Legislative Affairs .............. 6/14/95 3/31/98

Correspondence Director ................... Veterans Affairs ................. Presidential Personnel ....... 2/4/97 7/30/97

Staff Assistant, Correspondence ...... Labor .................................. Presidential Personnel ....... 12/9/96 4/21/97

Transition Search Manager ............... U.S. Information Agency .... Presidential Personnel ....... 12/9/96 6/6/97

Staff Assistant .................................. Treasury .............................. Chief of Staff ..................... 1/14/97 9/30/98

Detailee to the Office of Scheduling.Education ........................... Scheduling and Advance ... 8/5/96 3/14/97

Attorney-Advisor ................................ Veterans Affairs ................. General Counsel ................. 11/21/96 5/16/97

Special Assistant .............................. Labor .................................. Public Liaison .................... 2/13/97 9/30/98

Search Manager ................................ Agriculture .......................... Presidential Personnel ....... 1/6/97 7/3/97

Deputy National Security Advisor

and Deputy Assistant to the

President for National Security

Affairs.

State ................................... National Security Affairs .... 12/23/96 4/19/97

Special Assistant to the Deputy

Chief of Staff.

Labor .................................. Deputy Chief of Staff for

Policy.

6/27/96 9/23/96

NSC Assistant ................................... U.S. Agency for International Development.National Security Affairs .... 3/2/97 3/14/97

Special Assistant to the Deputy

Chief of Staff.

U.S. Information Agency .... Deputy Chief of Staff for

Policy.

4/22/96 1/20/97

Transition Search Manager ............... Justice ................................ Presidential Personnel ....... 12/9/96 5/9/97

Search Manager ................................ State ................................... Presidential Personnel ....... 5/7/97 11/30/97

Staff Assistant .................................. Agriculture .......................... Presidential Personnel ....... 8/22/97 3/27/98

Staff Assistant for Special Projects Labor .................................. Presidential Personnel ....... 9/17/97 9/30/97

Scheduler .......................................... Justice ................................ Scheduling and Advance ... 6/30/97 7/12/97

Search Manager ................................ Federal Highway Administration.Presidential Personnel ....... 10/3/96 3/28/97

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 9/3/96 11/15/96

Attorney-Advisor ................................ Treasury .............................. General Counsel ................. 11/27/96 5/23/97

Attorney-Advisor ................................ Housing and Urban Development.General Counsel ................. 10/15/96 4/15/97

Search Manager ................................ Office of Personnel Management.Presidential Personnel ....... 10/2/96 11/8/96

Office Manager ................................. Equal Employment Opportunity Commission.Presidential Personnel ....... 12/6/96 5/16/97

Assistant for APA Outreach .............. Education ........................... Presidential Personnel ....... 1/3/97 7/1/97

Staff Assistant .................................. Agriculture .......................... Presidential Personnel ....... 12/9/96 5/30/97
449

EXHIBIT 3.—WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR—Continued

Title Home agency Office assignment Start date End date

Transition Search Manager ............... Commerce .......................... Presidential Personnel ....... 12/16/96 5/30/97

Special Assistant for Correspondence.Labor .................................. Presidential Personnel ....... 3/12/97 9/5/97

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 2/18/97 9/19/97

Lead Search Manager ....................... Small Business Administration.Presidential Personnel ....... 2/27/97 8/22/97

Attorney-Advisor ................................ Federal Trade Commission.General Counsel ................. 11/25/96 5/23/97

Attorney-Advisor ................................ National Archives ............... General Counsel ................. 11/18/96 3/14/97

Attorney-Advisor ................................ Navy ................................... General Counsel ................. 11/15/96 12/13/96

Attorney-Advisor ................................ Agriculture .......................... General Counsel ................. 11/18/96 5/23/97

Special Assistant to the Chief of

Staff.

Environmental Protection

Agency.

Chief of Staff ..................... 9/8/97 9/8/98

Attorney-Advisor ................................ Labor .................................. General Counsel ................. 9/8/97 11/26/97

Staff Assistant .................................. Education ........................... Presidential Personnel ....... 6/23/97 1/9/98

Special Assistant to the Deputy Director.Housing and Urban Development.Presidential Personnel ....... 8/4/97 3/27/98

Attorney-Advisor ................................ Agriculture .......................... General Counsel ................. 6/4/97 8/22/97

Senior Advisor ................................... Office of Science and

Technology Policy.

Chief of Staff ..................... 6/2/97 9/12/97

Attorney-Advisor ................................ Navy ................................... General Counsel ................. 11/20/96 4/22/97

Search Manager ................................ Agriculture .......................... Presidential Personnel ....... 2/4/97 6/2/97

Special Assistant to the Deputy Director.Agriculture .......................... Presidential Personnel ....... 4/1/96 3/28/97

Transition Search Manager ............... Commerce .......................... Presidential Personnel ....... 12/16/96 6/9/97

Search Manager ................................ Office of Personnel Management.Presidential Personnel ....... 3/28/97 5/30/97

Attorney-Advisor ................................ Labor .................................. General Counsel ................. 11/21/96 5/14/97

Attorney-Advisor ................................ Commerce .......................... General Counsel ................. 3/24/97 3/27/98

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 1/5/97 2/13/97

Staff Assistant .................................. State ................................... Gift Unit ............................. 7/16/96 3/28/97

Search Manager ................................ U.S. Agency for International Development.Presidential Personnel ....... 12/23/96 5/12/97

Staff Assistant .................................. Justice ................................ General Counsel ................. 2/18/97 8/15/97

Attorney-Advisor ................................ Treasury .............................. General Counsel ................. 11/19/96 3/31/97

Director of Special Projects.Labor .................................. Cabinet Affairs ................... 10/17/96 9/30/97

Assistant for Information Systems ... Merit Systems Protection

Board.

Presidential Personnel ....... 5/27/97 11/19/97

Staff Assistant for Special Projects Health and Human Services.Presidential Personnel ....... 9/23/97 9/30/97

Executive Assistant ........................... Labor .................................. Public Liaison .................... 4/23/97 10/31/97

Staff Assistant .................................. Veterans Affairs ................. Presidential Personnel ....... 6/17/97 3/27/98

Scheduler .......................................... Treasury .............................. Scheduling and Advance ... 7/2/97 3/25/98

Attorney-Advisor ................................ Social Security Administration.General Counsel ................. 5/28/97 12/31/97

Attorney-Advisor ................................ National Archives and

Records Administration.

General Counsel ................. 9/8/97 9/8/98

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 9/4/97 3/27/98

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 7/25/97 3/27/98

Transition Search Manager ............... Federal Labor Relations

Board.

Presidential Personnel ....... 12/9/96 4/25/97

Staff Assistant .................................. Justice ................................ General Counsel ................. 6/3/96 1/17/97

Transition Search Manager ............... Defense .............................. Presidential Personnel ....... 12/9/96 5/30/97

Search Manager ................................ Federal Emergency Management Agency.Presidential Personnel ....... 1/13/97 5/21/97

Search Manager ................................ Office of Personnel Management.Presidential Personnel ....... 1/15/97 7/1/97

Scheduler for the President .............. Interior ................................ Scheduling and Advance ... 3/25/97 4/18/97

Scheduling Desk, Office of First

Lady.

Education ........................... Scheduling and Advance ... 11/12/96 6/13/97

Search Manager ................................ U.S. Arms Control .............. Presidential Personnel ....... 8/28/96 3/28/97

Assistant for African-American Outreach.Agriculture .......................... Presidential Personnel ....... 12/23/96 3/14/97
450

EXHIBIT 3.—WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR—Continued

Title Home agency Office assignment Start date End date

Associate Counsel to the President .. Justice ................................ General Counsel ................. 1/16/96 3/15/97

Special Assistant to the President

and Associate Director.

Agriculture .......................... Presidential Personnel ....... 11/18/96 5/19/97

Staff Assistant .................................. Energy ................................ Presidential Personnel ....... 11/18/96 5/19/97

Search Manager ................................ National Transportation

Safety Board.

Presidential Personnel ....... 12/18/96 4/12/97

Staff Assistant .................................. Labor .................................. Presidential Personnel ....... 1/24/97 4/13/97

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 11/25/96 3/21/97

Search Manager ................................ U.S. Information Agency .... Presidential Personnel ....... 2/12/97 8/1/97

Staff Assistant .................................. Office of Personnel Management.Presidential Personnel ....... 5/12/97 1/9/98

Search Manager ................................ Justice ................................ Presidential Personnel ....... 5/13/97 12/31/97

Search Manager ................................ Defense .............................. Presidential Personnel ....... 8/4/97 2/6/98

Associate Counsel to the President .. Justice ................................ General Counsel ................. 7/7/97 5/1/98

Attorney-Advisor ................................ Transportation .................... General Counsel ................. 6/2/97 12/31/97

Staff Assistant for Special Projects Agriculture .......................... Presidential Personnel ....... 9/23/97 9/30/97

Attorney-Advisor ................................ Veterans Affairs ................. General Counsel ................. 4/21/97 10/24/97

Senior Advisor for AIDS Policy .......... Health and Human Services.Domestic Policy Council .... 2/19/97 7/1/97

Attorney-Advisor ................................ Energy ................................ General Counsel ................. 6/10/97 3/27/98

Search Manager ................................ National Transportation

Safety Board.

Presidential Personnel ....... 6/16/97 9/12/97

Staff Assistant for Special Projects U.S. Agency for International Development.Presidential Personnel ....... 9/19/97 12/5/97

Search Manager ................................ U.S. Agency for International Development.Presidential Personnel ....... 6/5/97 8/1/97

Staff Assistant .................................. Education ........................... Scheduling and Advance ... 10/1/96 11/21/96

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 6/12/96 2/3/97

Attorney-Advisor ................................ Labor .................................. General Counsel ................. 11/20/96 5/14/97

Search Manager ................................ National Endowment for

the Arts.

Presidential Personnel ....... 1/6/97 6/2/97

Assistant for Asian Pacific Outreach.Justice ................................ Presidential Personnel ....... 12/9/96 5/16/97

Attorney-Advisor ................................ Defense Information Systems Administration.General Counsel ................. 6/10/96 3/28/97

Attorney-Advisor ................................ Securities and Exchange

Commission.

General Counsel ................. 11/14/96 5/11/97

Attorney-Advisor ................................ Energy ................................ General Counsel ................. 11/18/96 2/1/97

Transition Search Manager ............... Agriculture .......................... Presidential Personnel ....... 12/11/96 6/9/97

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 11/25/96 5/23/97

Attorney-Advisor ................................ Treasury .............................. General Counsel ................. 11/19/96 5/23/97

Office Manager ................................. Housing and Urban Development.Presidential Personnel ....... 12/9/96 5/30/97

Special Assistant to the President ... Labor .................................. Cabinet Affairs ................... 6/22/95 9/30/97

Transition Search Manager ............... Defense .............................. Presidential Personnel ....... 12/9/96 3/31/97

Attorney-Advisor ................................ Navy ................................... General Counsel ................. 3/12/97 6/16/97

Attorney-Advisor ................................ U.S. Customs ..................... General Counsel ................. 6/23/97 12/31/97

Staff Assistant for Special Projects.Commerce .......................... Presidential Personnel ....... 9/24/97 9/30/97

Placement Assistant ......................... Labor .................................. Presidential Personnel ....... 8/14/97 9/30/98

Assistant for Correspondence ........... Housing and Urban Development.Presidential Personnel ....... 5/13/97 12/31/97

Attorney-Advisor ................................ Housing and Urban Development.General Counsel ................. 6/2/97 3/27/98

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 6/2/97 3/27/98

Attorney-Advisor ................................ Health and Human Services.General Counsel ................. 5/14/97 9/30/97

FISCAL YEAR 1998

Special Assistant to the President

for Legislative Affairs.

Interior ................................ Legislative Affairs .............. 6/14/95 3/31/98

Attorney-Advisor ................................ National Labor Relations

Board.

General Counsel ................. 2/9/98 6/12/98

Search Manager ................................ State ................................... Presidential Personnel ....... 5/7/97 11/30/97
451

EXHIBIT 3.—WHITE HOUSE OFFICE DETAILEES, BY FISCAL YEAR—Continued

Title Home agency Office assignment Start date End date

Staff Assistant .................................. Treasury .............................. Chief of Staff ..................... 1/14/97 9/30/98

Executive Assistant to the Director .. Labor .................................. Public Liaison .................... 2/13/97 9/30/98

Staff Assistant .................................. Agriculture .......................... Presidential Personnel ....... 9/3/97 3/27/98

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 12/22/97 3/27/98

Associate Director for Education Policy.Education ........................... Domestic Policy Council .... 3/9/98 7/18/98

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 6/2/97 11/17/97

Attorney-Advisor ................................ Labor .................................. General Counsel ................. 9/8/97 11/26/97

Special Assistant to the Chief of

Staff.

Environmental Protection

Agency.

Chief of Staff ..................... 9/8/97 9/30/98

Attorney-Advisor ................................ Veterans Affairs ................. General Counsel ................. 1/20/98 5/22/98

Attorney-Advisor ................................ Transportation .................... General Counsel ................. 1/16/98 5/8/98

Scheduling Desk ............................... Education ........................... Scheduling and Advance ... 2/9/98 5/9/98

Staff Assistant .................................. Education ........................... Scheduling and Advance ... 6/23/97 1/9/98

Special Assistant to the Deputy Director.Housing and Urban Development.Presidential Personnel ....... 8/4/97 3/27/98

Assistant for Information Systems ... Merit Systems Protection

Board.

Presidential Personnel ....... 5/27/97 11/19/97

Attorney-Advisor ................................ Social Security Administration.General Counsel ................. 5/28/97 12/10/97

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 6/2/97 3/27/98

Staff Assistant .................................. Education ........................... Scheduling and Advance ... 2/17/98 5/19/98

Attorney-Advisor ................................ Commerce .......................... General Counsel ................. 3/24/97 3/27/98

Attorney-Advisor ................................ National Archives and

Records Administration.

General Counsel ................. 9/8/97 11/6/97

Staff Assistant for Special Projects.Justice ................................ Presidential Personnel ....... 10/29/97 11/13/97

Staff Assistant .................................. Veterans Affairs ................. Presidential Personnel ....... 6/17/97 3/27/98

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 9/4/97 3/27/98

Executive Assistant to the Director .. Labor .................................. Public Liaison .................... 4/23/97 10/31/97

Staff Assistant .................................. Office of Personnel Management.Presidential Personnel ....... 5/12/97 1/9/98

Scheduler .......................................... Treasury .............................. Scheduling and Advance ... 7/2/97 3/25/98

Director of Special Projects .............. Labor .................................. Cabinet Affairs ................... 10/17/96 4/3/98

Search Manager ................................ Justice ................................ Presidential Personnel ....... 5/13/97 12/31/97

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 7/25/97 3/27/98

Associate Counsel to the President .. Justice ................................ General Counsel ................. 7/7/97 5/1/98

Attorney-Advisor ................................ Transportation .................... General Counsel ................. 6/2/97 10/31/97

Search Manager ................................ Defense .............................. Presidential Personnel ....... 8/4/97 2/6/98

Attorney-Advisor ................................ Veterans Affairs ................. General Counsel ................. 4/21/97 10/24/97

Search Manager ................................ Justice ................................ Presidential Personnel ....... 12/29/97 6/26/98

Attorney-Advisor ................................ Energy ................................ General Counsel ................. 6/10/97 3/27/98

Special Assistant to the President

and Associate Director.

Agriculture .......................... Presidential Personnel ....... 10/1/95 9/30/98

Staff Assistant for Special Projects.U.S. Agency for International Development.Presidential Personnel ....... 9/19/97 12/5/97

Attorney-Advisor ................................ U.S. Customs ..................... General Counsel ................. 6/23/97 10/31/97

Attorney-Advisor ................................ Navy ................................... General Counsel ................. 1/15/98 7/10/98

Placement Assistant ......................... Labor .................................. Presidential Personnel ....... 8/14/97 9/30/98

Scheduler .......................................... Energy ................................ Scheduling and Advance ... 3/9/98 3/9/99

Assistant for Correspondence ........... Housing and Urban Development.Presidential Personnel ....... 5/13/97 1/9/98

Attorney-Advisor ................................ Labor .................................. General Counsel ................. 10/28/97 4/24/98

Staff Assistant .................................. Justice ................................ General Counsel ................. 12/15/97 6/12/98

Attorney-Advisor ................................ Housing and Urban Development.General Counsel ................. 6/2/97 3/27/98

Special Assistant to the President ... Labor .................................. Cabinet Affairs ................... 6/22/95 5/9/98

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 6/2/97 3/27/98

Search Manager ................................ Commerce .......................... Presidential Personnel ....... 3/30/98 9/30/98

Attorney-Advisor ................................ Health and Human Services.General Counsel ................. 4/6/98 4/9/99

Attorney-Advisor ................................ Justice ................................ General Counsel ................. 4/8/98 9/30/98
452

1The Commercial Appeal, June 10, 1997.

2 Newsday, February 7, 1998.

3St. Petersburg Times, March 7, 1997.

4The New York Times, April 7, 1997.

5The Commercial Appeal, June 10, 1997.

6 Arkansas Democrat-Gazette, November 1, 1997.

7 Newsday, February 7, 1998.

8 USA Today, November 14, 1997.

[EXHIBIT 4]

TALKING POINTS

Staff in the Counsel’s Office devote their time to addressing the legislative, constitutional, and policy agenda of the President, in addition to the daily counseling

responsibilities for the White House.

The Counsel’s Office is obligated to ensure compliance with numerous requests for

documents and information from various investigative entities, including congressional committees, independent counsel offices, the Justice Department, private litigants, etc. Since 1995, the Counsel’s Office has had a team of up to 6 attorneys and

3 paralegals devoted to responding to requests from investigative entities. The other

attorneys and staff in the office handle the routine matters of the Counsel’s Office.

Investigating Entities

The House and Senate earmarked more than 16M to investigate the President in

1997,1 while OIC (Starr) has spent more than 40M looking into Whitewater and recent allegations.2 Five congressional committees, a federal grand jury and the Justice Department have investigated, and in some instances continue to investigate,

campaign finance matters.3

Budgets of some of the investigative bodies:

Burton: 3.8M budget exclusively for campaign finance investigation (1997); 7.9M

reserve fund for investigation (1997); and 11.7M regular budget for Committee operations.4

Thompson: 4.5M budget exclusive for campaign finance investigation (1997).5

Justice Dept.: Unlimited budget (annually).6

OIC (Starr): 40M already spent 7 and an unlimited budget.8

FACTS REGARDING CONGRESSIONAL INVESTIGATIONS AND THE WHITE HOUSE

COUNSEL’S OFFICE

In 1997 alone, the White House responded to nearly 600 requests for documents

and other information made by the Thompson and Burton committees.

In fulfilling those requests, the White House turned over close to a quarter-million

pages of material to the two committees.

Nearly 60 current and former White House employees were made available for

interview and deposition testimony before the Thompson Committee. Nearly 60 such

employees were available to the Burton Committee.

Other congressional investigations involving the White House have included those

headed up by:

—Congressman Leach;

—Congressman McIntosh (where 40,000 documents were turned over, and 20 current and former White House employees were made available to the committee);

and

—Senator D’Amato (49 subpoenas issued, 60 days of hearings over 14 months).

In this 105th Congress, no fewer than 26 congressional investigations into Democratic activities have been completed, are underway, or are planned. Only one investigation examined Republican abuses.

All of these inquiries were presaged in 1994 when, according to the Washington

Post (9/20/96), ‘‘a month before the 1994 elections that made him House speaker,

Newt Gingrich summed up in one word the time-tested power that he and his Republican oversight committees would bring to bear on the Clinton Administration:

subpoena. And subpoena they did, hauling hundreds of government officials before

investigative panels . . . .’’ And an April 1996 memorandum to Republican committee chairmen urged them to compile information on ‘‘examples of dishonesty or ethical lapses in the Clinton administration.’’ In that same year, Newt Gingrich’s press

secretary said the presidency could be ‘‘severely crippled’’ by such inquiries and by

Ken Starr (Washington Post, 9/20/96).

Meanwhile, most staff members of one of the committees investigating the President—the House Government Reform and Oversight Committee—saw their pay in-
453

crease during 1997 by at least 50 percent. By year’s end, the Committee was spending money at a rate of $1 million a month, compared to $400,000 a month at the

beginning of 1997 (yet, only eight hearings were held during the year).

The House Government Reform and Oversight Committee has access to $11.7 million ($3.8 million budget, $7.9 million reserve fund). It has a staff of more than 50

Republican investigators. The Senate Governmental Affairs Committee has a budget

of $4.3 million for its campaign finance investigation, and they spent $3.5 million.

It has a staff of 60 Republican investigators.

GAO AUDIT

GAO Audit.—Apart from the personal records of the President relating to guests,

GAO has had complete access to all records and materials, including all overtime

records. The audit is proceeding and GAO has indicated to us that it hopes to complete traditional audit of the Executive Residence this month.

Overnights.—GAO has indicated that, despite its inability to discern any costs associated with overnight guests, the Chairman’s specifically requested GAO to verify

the names of guests who spent the night at the White House. GAO requested to

interview people to determine if there were records apart from personal records that

could be used. GAO learned through these interviews that none of the Executive

Residence staff had such non-personal records.

Interviews.—The White House committed to providing GAO with the opportunity

to interview staff to inquire regarding overnight guests and has fulfilled that commitment: Pursuant to GAO’s request, the White House arranged interviews with,

and GAO interviewed: Chief Usher, Administrative Officer, Maitre’d, Social Secretary, and Head Housekeeper.

USSS.—Pursuant to GAO’s requests, we checked with the USSS regarding their

records and they indicated they did not retain any records reflecting overnight

guests and we conveyed this information to GAO in January.

Personal Records—GAO indicated that it was not seeking the personal materials

of the First Family. We informed GAO that we would review the personal records

to determine how to assist in the Chairman’s request for GAO to verify the individuals who spent the night at the White House as guests of the First Family.

As recently as one week ago, we informed GAO that we were making progress

and expected to be able to address their needs by next week.
454

26 CONGRESSIONAL INVESTIGATIONS INTO DEMOCRATIC ACTIVITIES

[Only one examined GOP abuses]

Member Body Committee Subcommittee, if any Subject of investigation

Thompson, Fred 1 ................... Senate .......... Governmental Affairs .......................... ................................................................... General investigation.

Hatch, Orrin ............................ Senate .......... Judiciary .............................................. ................................................................... DOJ’s investigation.McCain, John .......................... Senate .......... Commerce ........................................... ................................................................... Commerce Department, Franklin Haney & Portals

Bldg (Wash. Post, 2/27/98).

Shelby, Richard ...................... Senate .......... Intelligence ......................................... ................................................................... CIA involvement, FBI overlooking Chinese intelligence reports.Collins, Susan 1 ...................... Senate .......... Governmental Affairs .......................... Investigations ........................................... General investigation.

Burton, Dan 1 ......................... House ........... Government Reform and Oversight .... ................................................................... General investigation.

Hyde, Henry ............................ House ........... Judiciary Committee ........................... ................................................................... Impeachment proceedings.McIntosh, David 1 ................... House ........... Government Reform and Oversight .... National Economic Growth, Natural Resources and Regulatory Affairs. WHODB.

Hoekstra, Peter 1 .................... House ........... Education and the Workforce ............. Oversight and Investigations ................... Teamsters scandal.

Barton, Joe 1 ........................... House ........... Commerce ........................................... Oversight and Investigations ................... Molten Metal.

Kolbe, Jim1 ............................ House ........... Appropriations ..................................... Treasury, Postal Service and General

Government.

Use of White House for political events.

Solomon, Gerald ..................... House ........... Rules ................................................... ................................................................... Investigating Clinton’s meetings with a Russian

arms dealer, whether Huang leaked documents,whether a special committee should be formed.

Livingston, Robert .................. House ........... Appropriations ..................................... ................................................................... Investigating WH spending on scandal press, legal

office (Wash. Times, 3/9/98).

Livingston, Robert .................. House ........... Appropriations ..................................... ................................................................... Investigating if the INS was used for political purposes.Mica, John .............................. House ........... Government Reform and Oversight .... Civil Service .............................................. Possible violations of Hatch Act involving Ickes

and Gore.

Gilman, Ben ........................... House ........... International Relations ....................... ................................................................... Role of China and Indonesia.Goss, Porter ............................ House ........... Intelligence ......................................... ................................................................... Whether intelligence information was compromised

by Huang and whether foreign governmentshave tried to influence U.S. elections.

Leach, Jim .............................. House ........... Banking and Financial Services ......... ................................................................... WH coffee involving banking regulators and bankers.
455

Bliley, Thomas ........................ House ........... Commerce ........................................... ................................................................... Commerce Department trade missions.Talent, James ......................... House ........... Small Business ................................... ................................................................... Controversies at Commerce.Hansen, James 1 ..................... House ........... Resources ............................................ National Parks and Public Lands ............ Grand Staircase—Escalante, Hudson dog track

(Mnpls. Star-Trib., 1/6/98).

Specter, Arlen ......................... Senate .......... ............................................................. ................................................................... Chairman Burton said Specter would examine allegations FBI agent Wickham resigned rather than

turn over his confidential sources on China(Hrgs., 12/10/97).

Murkowski, Frank ................... Senate .......... Energy ................................................. ................................................................... Politicization of Interior Department (USA Today,

12/11/97).

Stook, Ernest .......................... House ........... Appropriations ..................................... Treasury and Postal Service ..................... Political activities of DNG’s White House ‘‘volunteers.’’Everett, Terry 1 ........................ House ........... Appropriations ..................................... Veterans Affairs ........................................ Arlington Cemetery.

Faircloth, Lauch ..................... Senate .......... Appropriations ..................................... Foreign Operations ................................... Travoltagate—whether President pushed actor John

Travolta’s pet project on Scientology in exchangefor favorable portrayal in ‘‘Primary Colors’’ (NYPost, 3/2–6/98).

1 Investigation or hearings in progress or completed.
456

[CLERK’S NOTE.—The article from The Hill titled ‘‘Burton Hikes Salaries of Staff’’

could not be printed in the hearing record.]

[EXHIBIT 5]

Two attachments are included as part of Exhibit 5:

(1) A copy of the already transmitted report on fiscal years 1993 and 1994 expenditures—as of January 31, 1995; and

(2) A report on fiscal years 1995, 1996, 1997, 1998 expenditures and fiscal year

1999 request—as of March 31, 1998.

White House Office Obligations and Expenditures—December 31, 1994

Fiscal year 1993

Security Office ........................................................................................ $4,025,171.82

Immediate Office of the President ........................................................ 599,969.86

Chief of Staff .......................................................................................... 764,891.51

Domestic Policy ...................................................................................... 1,150,263.41

National Security Affairs ...................................................................... 356,415.64

Communications .................................................................................... 2,412,984.38

Intergovernmental Affairs .................................................................... 651,003.36

Cabinet Affairs ....................................................................................... 248,409.21

Legislative Affairs .................................................................................. 1,564,153.05

Press Secretary ...................................................................................... 311,404.34

Staff Secretary ....................................................................................... 3,429,216.08

Scheduling .............................................................................................. 1,553,858.20

Counsel’s Office ...................................................................................... 1,317,406.81

Special Activities & Initiatives ............................................................. 1,085,034.89

Management & Administration ............................................................ 15,912,186.88

Office of the First Lady ......................................................................... 990,485.13

Presidential Personnel .......................................................................... 4,389,918.69

Issue Analysis ........................................................................................ 25,000.00

National Economic Council ................................................................... 374,223.12

Public Liaison ......................................................................................... 762,540.92

Political Affairs ...................................................................................... 394,710.71

National Service ..................................................................................... 439,192.50

Grand Total ................................................................................. 42,758,440.51

Fiscal year 1993 total includes one-time supplemental funding for Presidential transition.

Fiscal year 1994

Immediate Office of the President ........................................................ $1,083,546.55

Chief of Staff .......................................................................................... 1,126,570.56

Domestic Policy ...................................................................................... 746,554.10

National Security Affairs ...................................................................... 408,130.59

Communications .................................................................................... 3,704,508.62

Intergovernmental Affairs .................................................................... 746,359.54

Cabinet Affairs ....................................................................................... 473,578.63

Legislative Affairs .................................................................................. 1,588,985.31

Staff Secretary ....................................................................................... 1,864,270.35

Scheduling & Advance .......................................................................... 2,088,170.81

Counsel’s Office ...................................................................................... 1,913,092.41

Management & Administration ............................................................ 13,578,250.99

Office of the First Lady ......................................................................... 946,239.30

Presidential Personnel .......................................................................... 1,666,247.03

National Economic Council ................................................................... 569,004.35

Public Liaison ......................................................................................... 1,229,465.48

Political Affairs ...................................................................................... 605,348.83

National Service ..................................................................................... 4,046.38

Correspondence ...................................................................................... 4,271,642.39

The President ......................................................................................... 25,025.00

Grant Total .................................................................................. 38,639,037.22

Please note: Functions and organizations change throughout the year as needs arise.
457

White House Office Obligations and Expenditures—as of March 31, 1998

Fiscal year 1995

Immediate Office of the President ........................................................ $765,336

Detailees .......................................................................................... 34,470

Subtotal, Immediate Office of the President ............................ 799,806

Chief of Staff .......................................................................................... 1,853,178

Communications .................................................................................... 1,733,486

Cabinet Secretary .................................................................................. 387,816

Detailees .......................................................................................... 3,640

Subtotal, Cabinet Secretary ....................................................... 391,456

Scheduling and Advance ....................................................................... 1,980,248

General Counsel ..................................................................................... 2,265,332

Detailees .......................................................................................... 38,274

Subtotal, General Counsel ......................................................... 2,303,606

Management and Administration ........................................................ 15,809,025

Presidential Personnel .......................................................................... 1,246,500

Detailees .......................................................................................... 61,576

Subtotal, Presidential Personnel ............................................... 1,308,076

Correspondence ...................................................................................... 3,077,869

National Security Affairs ...................................................................... 414,145

National Economic Council ................................................................... 581,161

Legislative Affairs .................................................................................. 1,660,029

Staff Secretary ....................................................................................... 1,778,045

Public Liaison ......................................................................................... 1,308,522

Intergovernmental Affairs .................................................................... 721,211

Political Affairs ...................................................................................... 702,394

Office of the First Lady ......................................................................... 1,024,394

Domestic Policy ...................................................................................... 994,752

Office of the Press Secretary ................................................................. 986,287

Grand Total ................................................................................. 39,427,690

Fiscal year 1996

Chief of Staff .......................................................................................... $1,971,306

Communications .................................................................................... 1,316,184

Scheduling and Advance ....................................................................... 1,901,728

General Counsel ..................................................................................... 2,757,239

Management and Administration ........................................................ 13,971,693

Detailees .......................................................................................... 322,292

Subtotal, Management and Administration ............................. 14,293,985

Presidential Personnel .......................................................................... 1,124,130

Correspondence ...................................................................................... 2,944,959

Oval Office Operations .......................................................................... 887,489

National Security Affairs ...................................................................... 433,152

National Economic Council ................................................................... 672,501

Cabinet Affairs ....................................................................................... 418,291

Legislative Affairs .................................................................................. 1,759,033

Staff Secretary ....................................................................................... 2,009,699

Public Liaison ......................................................................................... 1,445,450

Intergovernmental Affairs .................................................................... 716,869

Political Affairs ...................................................................................... 865,869

Office of the First Lady ......................................................................... 1,106,543

Domestic Policy ...................................................................................... 1,096,171

Office of the Press Secretary ................................................................. 1,539,757

Grand Total ................................................................................. 39,260,355
458

Fiscal year 1997

Chief of Staff .......................................................................................... $1,765,532

Scheduling and Advance ....................................................................... 1,980,039

General Counsel ..................................................................................... 2,706,055

Management and Administration ........................................................ 14,667,705

Detailees .......................................................................................... 338,815

Subtotal, Management and Administration ............................. 15,006,520

Presidential Personnel .......................................................................... 1,201,564

Correspondence ...................................................................................... 2,958,161

Oval Office Operations .......................................................................... 803,824

National Security Affairs ...................................................................... 544,408

Strategic Planning and Communications ............................................ 1,451,109

National Economic Council ................................................................... 651,414

Cabinet Affairs ....................................................................................... 457,772

Legislative Affairs .................................................................................. 1,846,511

Staff Secretary ....................................................................................... 2,014,497

Public Liaison ......................................................................................... 1,419,835

Intergovernmental Affairs .................................................................... 684,515

Political Affairs ...................................................................................... 681,409

Office of the First Lady ......................................................................... 1,217,974

Domestic Policy ...................................................................................... 1,059,595

Office of the Press Secretary ................................................................. 1,544,144

Office of the Special Envoy ................................................................... 180,942

Grand Total ................................................................................. 40,175,820

Fiscal year 1998 1

Chief of Staff .......................................................................................... $902,346

Scheduling and Advance ....................................................................... 1,226,115

General Counsel ..................................................................................... 1,458,291

Management and Administration ........................................................ 10,219,222

Detailees .......................................................................................... 459,031

Subtotal, Management and Administration ............................. 10,678,253

Presidential Personnel .......................................................................... 591,557

Correspondence ...................................................................................... 1,451,588

Oval Office Operations .......................................................................... 344,835

National Security Affairs ...................................................................... 235,896

Strategic Planning and Communications ............................................ 779,696

National Economic Council ................................................................... 257,065

Cabinet Affairs ....................................................................................... 222,352

Legislative Affairs .................................................................................. 846,575

Staff Secretary ....................................................................................... 988,760

Public Liaison ......................................................................................... 659,743

Intergovernmental Affairs .................................................................... 350,549

Political Affairs ...................................................................................... 382,198

Office of the First Lady ......................................................................... 574,804

Domestic Policy ...................................................................................... 577,389

Office of the Press Secretary ................................................................. 733,763

Office of the Special Envoy ................................................................... 186,458

Special Activities and Initiatives .......................................................... 13,315

WHCA Non-Telecommunication Support ............................................ 9,494,000

Grand Total ................................................................................. 32,955,548

1Fiscal year 1998 reflects data through 3/31/98.

Fiscal year 1999 2

Management and Administration ........................................................ $42,244,000

WHCA Non-Telecommunication Support ............................................ 10,100,000

Grand Total ................................................................................. 52,344,000

2 Consistent with prior years, fiscal year 1999 was prepared as a single budget. Costs are allocated to respective departments as they arise in connection with assigned activities and projects.
459

[EXHIBIT 6]

Contracts listed by agency/vendor Purpose Period of performance Total estimated cost

Office of National Drug Control Policy (ONDCP):

Gallup ........................................................... Survey Data ................................. 09/11/95–11/11/95 $118,000

Evidence Based Research ............................ Statistical Research .................... 07/03/95–09/03/95 150,000

Heritage ........................................................ Guard Service .............................. 10/01/95–09/30/00 2,900,000

Porter-Novelli ................................................ Consulting Service ....................... 09/16/97–09/16/99 929,000

National Academy of Sciences .................... Research ...................................... 04/22/97–12/31/98 897,000

TWD .............................................................. ADP Support Services .................. 01/01/97–12/30/98 3,000,000

Carrpark ....................................................... Parking Spaces ............................ 01/01/98–12/31/00 167,000

National Academy of Sciences .................... Research ...................................... 02/04/98–06/01/00 1,400,000

Office of Management and Budget (OMB):

Computech ................................................... ADP Support Services .................. 09/20/96–09/21/01 6,000,000

IMC ............................................................... ADP Support Services .................. 11/01/95–11/02/00 3,000,000

Kinetic Technology ....................................... ADP Support Services .................. 07/03/97–07/03/02 1,000,000

Office of Administration (OA):

Sand Creek ................................................... Employee Assistance Program .... 03/31/95–09/30/98 125,000

Chrysler ........................................................ Vehicle Lease ............................... 01/01/95–09/30/97 265,000

SAS ............................................................... Software License ......................... 10/01/94–09/30/97 154,000

IMC ............................................................... ADP Services ................................ 02/26/96–02/25/01 3,000,000

Desktop Data ............................................... Wire Service ................................. 10/01/96–09/30/98 188,000

Northrop-Grumman ...................................... ADP Facility Operations ............... 10/01/97–09/30/02 50,000,000

Chrysler ........................................................ Vehicle Lease ............................... 10/01/97–09/30/02 ......................

Digital Equipment ........................................ Lease of ADP Facility .................. 01/24/96–05/28/97 937,000

Pulsar Data Systems ................................... ADP Hardware .............................. 02/09/93–09/30/96 6,500,000

IBM ............................................................... ADP Hardware .............................. 01/21/93–02/21/93 173,000

Anderson & Assc .......................................... Telephone Consultant .................. 05/01/93–05/01/94 117,500

AT&T ............................................................. Telephone System ........................ 07/01/93–06/30/03 6,400,000

Bell Atlantic ................................................. Telephone Service ........................ 07/01/93–06/30/03 6,800,000

Innovative Interfaces ................................... Library Automation ...................... 09/30/93–03/31/99 332,000

Advanced Integrated Tech ........................... ADP Maintenance ........................ 03/01/94–09/30/95 371,000

Subsystem Tech ........................................... Help Desk Support ....................... 03/29/94–09/30/98 2,300,000

United States Trade Representative (USTR):

Computer Dynamics ..................................... ADP Support Services .................. 10/01/94–04/15/95 255,000

TWD .............................................................. ADP Support Services .................. 06/01/96–05/30/01 3,000,000

Deloitte & Touche ........................................ Trade Consultant ......................... 09/09/93–02/28/94 483,000

Desktop Data ............................................... Wire Service ................................. 10/01/96–09/30/98 131,000

White House (WH):

US Newswire ................................................ Wire Service ................................. 04/01/95–05/01/98 566,000

ISI ................................................................. Software Maintenance ................. 02/01/96–09/30/98 327,000

Resumix ........................................................ Automated Personnel System ...... 02/04/93–09/30/95 349,500

ABR Assoc .................................................... Mailing Services .......................... 08/12/93–02/11/94 326,000
460

EXHIBIT 7.—EXECUTIVE OFFICE OF THE PRESIDENT 1997 AND 1998 STAFFING LEVELS

[Target versus onboard]

Agency/account

Fiscal year 1997 target/auth. September 30, 1997, onboard Fiscal year 1998 target/auth. April 21, 1998, onboard

Onboard

personnel

Other government

employees

Total onboard Onboard personnel Other gov- ernment employees Total on- board Onboard personnel Other gov- ernment employees Total on- board Onboard personnel Other gov- ernment employees Total on- board

White House Office .................................................................... 400 30 430 391 63 454 400 30 430 396 38 434Office of Administration ............................................................ 192 ................ 192 174 ................ 174 192 ................ 192 174 2 176Special Assistant to the President ........................................... 21 11 32 20 5 25 21 11 32 21 8 29Special Residence of the Vice President .................................. 1 ................ 1 1 ................ 1 1 ................ 1 1 ................ 1Office of Policy Development .................................................... 31 8 39 29 6 35 31 8 39 29 6 35Council of Economic Advisers ................................................... 35 ................ 35 29 4 33 35 ................ 35 32 3 35National Security Council .......................................................... 60 88 148 41 115 156 60 88 148 43 111 154

Subtotal ........................................................................ 740 137 877 685 193 878 740 137 877 696 168 864

Council on Environmental Quality ............................................. 19 3 22 18 1 19 23 3 26 19 ................ 19Executive Residence at the White House .................................. 89 ................ 89 88 ................ 88 89 ................ 89 88 ................ 88Office of National Drug Control Policy ...................................... 124 30 154 102 30 132 124 30 154 114 30 144Office of Science and Technology Policy .................................. 39 ................ 39 31 4 35 39 ................ 39 33 2 35

Total, Cumulative ......................................................... 1,011 170 1 1,181 924 228 1,152 1,015 170 2 1,185 950 200 1,150

1 Fiscal year 1997 target, 1,181; fiscal year 1997 average, 1,118.2 Fiscal year 1998 target, 1,185; fiscal year 1998 average (as of 4/21/98), 1,151.
461

[EXHIBIT 8]

WHITE HOUSE OFFICE INTERAGENCY AGREEMENT FISCAL YEAR 1998

Agreement No.: I8BWCAB01A0

Agreement between White House Communications Agency (hereinafter Servicing

Agency) and White House Office (hereinafter Customer Agency):

Authority.—This agreement is entered into under the authority of the National

Defense Authorization Act for fiscal year 1997, Public Law 104–201, Section 912,

110 Stat. 2422, 2623 (codified at 10 U.S.C. section 111 nt); 31 U.S.C. section 1346(b);

601 of the Economy Act of 1932, as amended, 31 U.S.C. SS 135–36; and the authorizing legislation of these two agencies.

Services to be Performed.—The Servicing Agency agrees to provide services as reflected herein, as requested by the Customer Agency. Services performed are in accordance with the Memorandum of Understanding between the White House Communications Agency and the White House Office. The initial estimated amount of

this agreement is as follows.

Stenographic Services Support ............................................................. $306,000

Newswire Services Support .................................................................. 635,000

Audiovisual Services Support ............................................................... 3,553,000

Total ............................................................................................. 4,494,000

Period of Agreement.—This agreement will commence on October 1, 1997 and will

remain in effect until terminated by both parties. The paragraphs delineate the understanding and terms of this agreement. The agreement will remain in effect as

long as the availability of funds is provided to the Servicing Agency. This agreement

may be modified with the consent of all participating units.

Financial Provisions.—The Customer Agency has established an estimated amount of $4,494,000 for services provided under this agreement. The Office of Administration, Financial Management Division, has assigned a document control

number to this agreement. Payment for services will be made on a monthly basis,

or as agreed upon by the parties herein.

Termination.—If termination of services is desired prior to the expiration of this

agreement the Customer Agency will request, in writing, deactivation of the account, citing the appropriate account numbers and date of termination.

Delegation of Authority.—The Customer Agency hereby authorizes the Servicing

Agency to provide services on a reimbursable basis. The Servicing Agency will provide the services and be reimbursed by the Customer Agency. The Customer Agency

will reimburse the Servicing Agency for any non-telecommunications support provided to the White House by the Servicing Agency that results in additional cost

to the Servicing Agency. Costs associated with common use infrastructure are nonreimbursable, except for support provided solely for the benefit of the White House.

Billing Instruction.—Cost transfers are done transferring charges from WHCA’s

Direct to Reimbursement accounts. A voucher for Transfer between Appropriations

and/or Funds (SF 1080 billing) is prepared based on the cost transfers by the Defense Finance and Accounting Services (DFAS) and forwarded to the White House

for information only. Costs will automatically be charged to the accounting classification provided by WHO thru DFAS.

Accounting Classification.—The accounting classification is to be provided by the

Customer Agency to the servicing Agency at the beginning of each fiscal year.

Accounting Classification to charge is as follows:

Agency Location Code: 11010001

Appropriations No.: 1180110

Index Code: B115A

Object Class: 251103

Fiscal year 1998 Interagency Agreement between: the White House Office (hereinafter Customer Agency) and the White House Communication Agency (hereinafter Servicing Agency)

To: Reimburse the Department of Defense for Military Personnel

Authority.—This agreement is entered into under the authority of the National

Defense Authorization Act for fiscal year 1997, Public Law 104–201, Section 912,

110 Stat. 2422, 2623 (codified at 10 U.S.C. section 111 nt); 601 of the Economy Act

of 1932, as amended, 31 U.S.C. SS 1535–36; and the authorizing legislation of these

two agencies.

Services to be Performed.—This agreement establishes the financial arrangements

between the White House Office (WHO) and the White House Communication Agen-
462

cy (WHCA) to reimburse the Department of Defense for the military personnel costs

associated with providing non-telecommunications services to WHO through the

WHCA.

Services performed are in accordance with the Memorandum of Agreement between the Department of Defense and the White House Office. The initial estimated

amount of this agreement is as follows:

Military Personnel, Army ...................................................................... $2,100,000

Military Personnel, Navy ...................................................................... 1,700,000

Military Personnel, Marine Corps ........................................................ 100,000

Military Personnel, Air Force ............................................................... 1,100,000

Total ............................................................................................. 5,000,000

Period of Agreement.—This agreement will commence on October 1, 1997, and will

remain in effect until September 30, 1998. The paragraphs of this agreement delineate the understandings and terms of this agreement. This agreement may be modified with the consent of all participating parties to this agreement.

Financial Provisions.—The Customer Agency has established an estimated

amount of $5,000,000 for services provided under this agreement. The Office of Administration, Financial Management Division, has assigned a document control

number to this agreement. Payment for services will be made on a monthly basis,

or as agreed upon by the parties herein.

Termination.—If termination of services is desired prior to the expiration of this

agreement the Customer Agency will request, in writing, deactivation of the account, citing the appropriate account numbers and date of termination.

Billing Instructions.—This document grants Defense Finance and Accounting

Services Operating Location Pensacola (DFAS–PE) authority to charge the White

House Office (WHO) accounting classification below monthly for non-telecommunications military personnel assigned to White House Communications Agency

(WHCA). At the end of the month, the White House Communications Agency will

provide DFAS–PE and the White House Office with a monthly report listing all personnel assigned to reimbursable positions. DFAS–PE will bill WHO monthly based

upon monthly actual non-telecommunications-related personnel strength reports

generated from WHCA.

DFAS–PE will prepare vouchers for Transfer Between Appropriations (SF1080

billing) based on monthly detailed reports of non-telecommunication personnel assigned to WHCA at the end of each month. The SF1080 forms should be forwarded

to the White House Office for information only. DFAS–PE may automatically charge

the accounting classification below without prior approval from WHO. Upon review

of either party, payments may be adjusted to correct errors.

Accounting Classification.—The accounting classification is to be provided by the

Customer Agency to the Servicing Agency at the beginning of each fiscal year.

Accounting Classification to charge is as follows:

Agency Location Code: 11–01–0001

Appropriations Code: 1180110

Index Code: B125A

Object Classification: 253200

[EXHIBIT 9]

MEMORANDUM OF UNDERSTANDING BETWEEN THE WHITE HOUSE OFFICE (WHO) AND

THE DEPARTMENT OF DEFENSE (DOD)

1. Authority: This Memorandum of Understanding (MOU) is entered into under

the authority of the National Defense Authorization Act for fiscal year 1997, Public

Law 104–201, Section 912, 110 Stat. 2422, 2633 (codified at 10 U.S.C., section 111

nt); Section 601 of the Economy Act of 1932, as amended, 31 U.S.C. §§ 1535–1536;

and the authorizing legislation of these two agencies.

2. Purpose: This MOU outlines the agreement involving non-telecommunications

support services to be provided by the White House Communications Agency

(WHCA) to the White House Office (WHO)for which WHO will reimburse WHCA

and military personnel appropriations.

3. Compliance Oversight: WHCA will execute WHO funds and maintain Government property in accordance with governing DOD policies, instructions, standards,

and any applicable statutes.

4. Reimbursable Costs:
463

a. WHCA will provide non-telecommunications support services to WHO on a reimbursable basis. The WHO will reimburse WHCA for all actual costs incurred by

WHCA for non-telecommunications support services provided to WHO. The mechanism for identifying these costs is covered in Paragraph 8a and 8b of this MOU.

b. Military personnel costs incurred by the DOD in providing non-telecommunications support services will be charged using the annual military standard composite pay rates determined by the Military Departments. The military composite

standard pay rates will be computed in accordance with Chapter 6, Appendix I,

‘‘Military Composite Standard Pay’’ of the DOD Financial Management Regulation,

Volume 11A. Military fringe benefits (that is, other personnel support costs) will be

charged on the basis of a percentage of military pay costs and billed as part of direct

costs. The applicable percentage will be in accordance with Chapter 6, Appendix I,

‘‘Military Composite Standard Pay’’ of the DOD Financial Management Regulation,

Volume 11A.

5. Categories of Support Provided: WHCA will provide the following categories of

support:

a. Presidential Audiovisual Events (PAE) Production Support;

b. Photographic Lab and Services Support;

c. Stenographic Services: WHCA will provide service through March 31, 1998,

when the stenographic contract expires. On April 1, 1998, the WHO will issue the

stenographic contract directly;

d. Newswire Services: WHCA will provide service through September 30, 1998,

when the Newswire contracts expire. On October 1, 1998, the WHO will issue the

newswire contracts directly;

e. Other Non-telecommunications Support: Other similar non-telecommunications

support services appropriate to further the statutory, constitutional, and ceremonial

duties of the President and Vice President.

6. Requests for Services: For all routine non-telecommunications tasks performed

by WHCA, WHO may provide WHCA with verbal requests. For other similar nontelecommunications support (paragraph 5e, above), the WHO will provide WHCA

with advance notice, additional information, and/or written confirmation of the request to enable WHCA to adequately plan for those tasks and to track both services

and funds expended in accomplishing those tasks.

7. Period of MOU: This MOU will commence on October 1, 1997, and will remain

in effect until either party provides the other a 1-year termination of services notification. The paragraphs of this MOU delineate the understandings and terms of this

MOU and may be modified with the consent of both parties. Each party to the MOU

will review the terms and conditions annually in concert with the interagency agreements (IAG) referenced below.

8. Financial Provisions: The financial provision of the MOU will address the following two categories:

a. Budget: The WHO will request non-telecommunications support services and

approve annual funding levels to the WHCA for non-telecommunications support

services during the normal DOD and WHCA budget cycle. The WHO will provide

WHCA with projections of future non-telecommunications support requirements so

that WHCA can develop reimbursable estimates. Each year before July 31, WHCA

must provide a budget estimate for the cost of these non-telecommunications support services for the upcoming President’s Budget. Included in this estimate will be

any new initiatives, system upgrades, and major projects.

b. Funding: At the beginning of each fiscal year, WHO will establish IAG’s with

WHCA and/or DOD to cover the actual costs of procurement, operations, and personnel related to non-telecommunications support services for that fiscal year. If additional funds are needed, the IAG’s can be amended to provide the additional funding. WHCA and DOD will notify WHO of projected unused funds by August 1 of

the fiscal year and will return the funds before the end of the fiscal year.

c. The IAG’s will define billing and payment procedures.

9. Property Accountability: WHCA will retain accountability and responsibility for

the inventory of all equipment, supplies, and materials purchased to support WHO.

WHCA will maintain property in accordance with DOD property management and

accountability policies and instructions.

10. Documentation: WHCA will maintain a complete file of all cost and service reports, all written requests for services, and detailed cost support data.

11. Reporting Requirements: Each month WHCA will provide a report to WHO detailing monthly costs and services by each category of support.

12. Management Controls: Both WHCA and WHO will implement internal management control procedures to ensure resources are executed in full compliance with

governing public laws and DOD policies and with a minimum of risk of fraud,

waste, and abuse of these resources.
464

13. Approvals: David J. Kelley, Lieutenant General, Director, Defense Information

Systems Agency; John R. Dankowski, White House Office.
(465)

TREASURY AND GENERAL GOVERNMENT

APPROPRIATIONS FOR FISCAL YEAR 1999

THURSDAY, MAY 14, 1998

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

The subcommittee met at 9:40 a.m., in room SD–192, Dirksen

Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)

presiding.

Present: Senators Campbell, Faircloth, and Kohl.

DEPARTMENT OF THE TREASURY

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

STATEMENTS OF:

JOHN W. MAGAW, DIRECTOR

GALE ROSSIDES, ASSISTANT DIRECTOR, TRAINING AND PROFESSIONAL DEVELOPMENT

NONDEPARTMENTAL WITNESSES

STATEMENTS OF:

EDWARD N. KONDRACKI, CHIEF, LA CROSSE POLICE DEPARTMENT, LA CROSSE, WI

CHIEF DEPUTY SHERIFF CUYLER WINDHAM, CUMBERLAND COUNTY SHERIFF’S OFFICE, FAYETTEVILLE, NC

OPENING REMARKS

Senator CAMPBELL. Good morning. The Treasury Subcommittee

will be in session. I apologize for being a little late. We have a

bunch of conflicts today, the usual set of circumstances here, as my

Senator colleagues know.

Today we will learn more about a program sponsored by the Bureau of Alcohol, Tobacco and Firearms [ATF] to help States and

local communities educate our youngsters about alternatives to

gangs. Unfortunately, gang activity has increased in our country in

recent years. The ATF has developed a program to give our children the tools they need to be able to resist the temptation to belong to a gang.

The Gang Resistance Education and Training [GREAT] Program

is only 6 years old, but has already grown from a pilot program in

Arizona to classrooms all over the United States. There are GREAT

programs now in Puerto Rico, Canada, and overseas military bases.

I certainly want to thank the ATF for responding to this subcommittee’s recommendation that they expand the GREAT Pro-
466

gram into Indian country where there’s been an increase steadily

in gang activity over the past 10 years.

The ATF estimates that about 1 million children are receiving

GREAT training. According to the National Institute of Justice, the

GREAT Program is having a positive effect on student activities

and behaviors and is deterring them from involvement in gangs. As

a side benefit of that program, of course, the graduates seem to be

doing a better job in communicating with their parents, their

teachers, and getting better grades.

Last year, Congress appropriated $13 million for the GREAT

Program, $2 million more than the President requested. Of that,

$10 million goes to State and local agencies in the form of grants

to assist them in providing the offices and the officers to conduct

this training in local classrooms.

With us this morning are John Magaw—nice to see you, Mr.

Magaw—Director of the ATF, along with Gale Rossides, the ATF

Assistant Director for Training and Professional Development.

They will tell us more about the GREAT Program and how local

communities can participate.

We will also hear from Edward Kondracki, the Chief of the La

Crosse, Wisconsin Police Department. The chief has been involved

in the GREAT Program for a number of years and can speak from

firsthand experience on how well the program works.

In addition, Chief Deputy Sheriff Cuyler Windham of the Cumberland County, NC, Sheriff’s Office will express his interest and

desire that the GREAT Program be expanded into his area.

And last, but most certainly not least, we will have an opportunity to listen to youngsters who have graduated from the GREAT

programs and some of their instructors, too. I will introduce them

as they come to the second panel. I also would like to acknowledge

that we have many visitors, including parents and supporters of

these youngsters, in our audience today and we certainly welcome

them here, too, and thank them for the support they have given to

our law enforcement agencies and certainly the youngsters themselves.

We will also, although they will not be a panel, I understand we

have a GREAT class here from the city of Baltimore with four of

their instructors and we welcome you to this hearing, too.

With that, I yield to Senator Kohl for an opening statement.

STATEMENT OF SENATOR KOHL

Senator KOHL. Thank you, Mr. Chairman, for your continued appreciation for and commitment to crime prevention programs. We

have worked hard in the past to preserve these programs and to

educate our colleagues about the value of a balanced anticrime

strategy. I look forward to working closely with you again this year

to give prevention the investment it deserves, both through the

GREAT Program and the Commerce, Justice, State, and judiciary

bill.

I would like to take this opportunity to welcome our guests from

La Crosse, WI, who have come to share their GREAT experiences

with us today. I especially want to thank La Crosse Police Chief

Ed Kondracki for joining us today. Chief Kondracki is to be com-
467

mended for his work to combat youth violence in the La Crosse

area.

Chief Kondracki is a strong supporter of boys’ and girls’ clubs,

and 2 years ago, we created a new community police center. It is

unique because the building that now houses community policing

programs is a former warehouse that was used for various criminal

activities in the past.

There is no better example of how you can turn a neighborhood

around and make a difference in the community. We know La

Crosse is a potential candidate for consideration as a future Midwest training facility. Given the success of their efforts, I urge

members of the decisionmaking committee to reward La Crosse for

their work.

Just a few brief points about GREAT. First, it sends the right

message: Stop gang violence. It is the type of violence that intentionally separates children from their parents at a time in their

lives which demands the closeness and patience of parental guidance. It is the type of violence that creates gun-toting 10-year-old

children, quick on the draw, and showing no remorse when they

kill.

It is the type of violence that has spread beyond our big cities

to smaller areas like La Crosse and Green Bay, WI, and the

Menomonee Indian Reservation in northeastern Wisconsin.

Second, GREAT uses the right messenger, law enforcement officers themselves who often tell us, ‘‘We need more prevention.’’

Through their enthusiastic participation in GREAT, they put their

words into action.

And third, GREAT works. Preliminary studies show that it reduces delinquency, gang membership, and drug use. These ongoing

evaluations provide a good model for further investments in prevention that are both responsible and worthwhile. Mr. Chairman,

programs like GREAT add balance to ATF’s mission.

I look forward to hearing about GREAT’s accomplishments and

what we can do to support it in the future. Thank you, Mr. Chairman.

Senator CAMPBELL. Thank you. Senator Faircloth.

STATEMENT OF SENATOR FAIRCLOTH

Senator FAIRCLOTH. Thank you, Mr. Chairman, for holding this

hearing. I think it is necessary to hold it because the GREAT Program is a wonderful proactive program designed to discourage our

young people from becoming involved in gangs.

Surveys show that violence in our schools is the No. 1 educationrelated concern, and we have shown that we have been losing the

war on school violence. Just last month, the Washington Post reported that nearly twice as many teenagers reported gangs in their

schools in 1995 as they did in 1989, a 50-percent increase, when

no increase is acceptable.

School administrators from my home State have found that

gangs and violence go hand-in-hand. When the young couple gangs

and violence with drug use and weapons, we have a total formula

for disaster. An example of this was the shooting in Jonesboro, AR.

A 13-year-old who was accused of shooting down four students and

a teacher was said to have belonged to a so-called blood gang,
468

which clearly indicates this is not a problem confined to the major

cities. You cannot get much rural than Jonesboro, AR. So it is all

over.

Fortunately, programs like the GREAT Program have educated

our children about the perils of gangs and offer alternative ways

to resolve conflicts rather than through violence. Four communities

in North Carolina, my home State, have participated in GREAT so

far, Asheville, Winston-Salem, Wilmington, and Salisbury. I commend them for their leadership in the area.

Some may say that small involvement in the GREAT Program

means there is little gang activity in their State. I believe we

should not wait until there is evidence of a gang before we start

using GREAT in a school district. We must continue to be proactive

and educate our young people about the dangers of gangs. If we

wait until there is a problem, it is too late. We could be facing the

Arkansas-type situation.

Thank you, Mr. Chairman. I would also like to recognize Deputy

Cuyler Windham from Fayetteville, NC, who is testifying here

today. I welcome him here and look forward to his testimony and

that also of the other members testifying. Cuyler, thank you for

being here.

Mr. WINDHAM. Thank you, Senator.

Senator CAMPBELL. With that, we will start in the order that I

introduced you with Director Magaw first and Gale Rossides second, Chief Kondracki and Sheriff Windham last. John, go ahead.

STATEMENT OF JOHN W. MAGAW

Mr. MAGAW. Mr. Chairman, I appreciate the opportunity to discuss the merits of our school-based gang prevention program

known as GREAT. With me is our Assistant Director for the Office

of Training and Professional Development, Gale Rossides, whose office oversees the GREAT Program within ATF.

We will be very short in our comments because the most important witnesses are the young people and their instructors.

Since the inception of the GREAT Program in 1991, over 3,300

police officers from over 1,400 agencies have been trained to teach

the core curriculum in the classroom. These uniformed officers

have taught well over 1 million children in 50 states, the District

of Columbia, Puerto Rico, and Guam. They have taught America’s

children about the critical concepts of gang resistance, successful

conflict resolution, self-esteem, dealing with peer pressures, and

quality of life expectations.

There is a GREAT national policy board which consists of the police chief in Phoenix, AZ; the Director of the Federal Enforcement

Training Center; and the Director of ATF. We have recently expanded that national board to include the sheriff of Orange County,

FL; the police commissioner of Philadelphia, PA; and the chief of

police in Portland, OR. As Senator Kohl referred, we will be adding

a Midwest representative at our meeting next month in Phoenix.

These agencies will set up and administer regional training sites

while bringing added value to our national policy considerations because of the variation of their cities’ size and population. This composition will better service the expansion needs of areas all over

the country.
469

The board also actively seeks relationships with organizations

that are already in position such as the boys’ and girls’ clubs, the

Boy Scouts of America, the National Youth Sports Program, the Police Athletic League, and I could go on with others.

GREAT offers a meaningful opportunity to literally save lives,

the life of the young person who may be at risk of going down the

wrong path, if you will, and the lives of his or her potential victims.

Researchers at the University of Nebraska have studied the effectiveness of GREAT among 5,900 children in 11 communities.

Their preliminary results indicate that the graduates of GREAT

show lower levels of delinquency and risk-taking behavior and

higher levels of self-esteem, perceived educational opportunities, of

antigang attitudes.

In a continuing effort to verify that this program is doing what

we think it is, the study is continuing now on a longitudinal basis.

The men and women of ATF are proud of our association with

the students of GREAT and the law enforcement officers who make

the program work. Mr. Chairman, that concludes my statement.

Assistant Director Rossides also has a short statement.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Mr. Magaw. We will insert your

prepared statement in the hearing record.

[The statement follows:]

PREPARED STATEMENT OF JOHN W. MAGAW

Mr. Chairman, permit me to thank you and the distinguished Members of this

Subcommittee for the consistent support you have provided the Gang Resistance

Education and Training Program, known as GREAT, and for the present opportunity to discuss the merits of this school-based gang prevention initiative.

With me is our Assistant Director for the Office of Training and Professional Development, Ms. Gale Rossides, whose office oversees the GREAT program for ATF.

Since the inception of GREAT in 1991, over 3,300 police officers from over 1,400

agencies have been trained to teach the core curriculum in the classroom.

These uniformed officers have taught well over one million children in 50 States,

the District of Columbia, Puerto Rico, and Guam—the critical concepts of gang resistance, successful conflict resolution, self-esteem, dealing with peer pressure, and

quality of life expectations.

During this fiscal year, ATF is funding 33 law enforcement agencies that previously did not receive Federal assistance for GREAT. This funding was made possible by the $2 million added by Congress for direct support of local GREAT programs.

GREAT’s National Policy Board, consisting of the Police Chief of the Phoenix, Arizona Police Department, the Director of the Federal Law Enforcement Training

Center, and the Director of ATF—has recently expanded to include the Sheriff of

Orange County, Florida; the Police Commissioner in Philadelphia, Pennsylvania;

and the Chief of Police in Portland, Oregon.

We will be adding a Mid-West representative as well.

These agencies will set up and administer regional training sites while bringing

added value to national policy considerations for the program. This composition will

better service the needs of all areas of the country.

The Board also actively seeks relationships with organizations such as the Boys

and Girls Club, the Boy Scouts of America, the National Youth Sports Program, and

the Police Athletic League.

Additionally, we have created a National Quality Assistance Network to ensure

the continued integrity of GREAT; and created an Internet-based Clearinghouse to

provide a single source for assistance and referral.

GREAT offers a meaningful opportunity to literally save lives—the life of the

young person who may be at risk of going down the wrong path—and the lives of

his or her potential victims.
470

Researchers at the University of Nebraska studied the effectiveness of GREAT

among 5,935 children in 11 communities. Their preliminary results indicated that

the graduates of GREAT show lower levels of delinquency and lower levels of risktaking behavior—and higher levels of self-esteem, perceived educational opportunities, and anti-gang attitudes.

In a continuing effort to verify the data and results, the study is continuing on

a longitudinal basis.

AFT takes great pride in our association with the graduates and officers present

today and the many more fine individuals they represent.

Mr. Chairman, that concludes my statement. Ms. Rossides will now present a

brief history and discuss the curriculum and how it is managed. Thank you.

STATEMENT OF GALE ROSSIDES

Senator CAMPBELL. Gale, if you’d like to proceed?

Ms. ROSSIDES. Good morning. The Gang Resistance Education

and Training Program began as a partnership between local law

enforcement and ATF who developed the nine-lesson middle school

curriculum. Since then, a shorter third and fourth and fifth and

sixth grade curriculum, as well as a summer component, have been

developed.

The program involves training officers to become successful classroom instructors. The instructional format for the officers’ training

provides a spirit of cooperation from modeling each lesson of the

curriculum and requires officers to present a lesson through the

use of role plays and group exercises.

Some of the topics that the students are presented include an introduction which allows a student to develop a rapport with the officer and learn about the program, and other topics, including

crime and victims, cultural sensitivity, conflict resolution, and goalsetting. Each lesson builds upon the previous lesson and reinforces

the concepts of reducing gang involvement and youth violence.

For a moment, I will describe some of the structure in managing

the program. The national policy board sets the overall direction

for the program. Then below that body is the national training

committee. Each agency board member has a subordinate assigned

to this committee who meets to deal with the day-to-day issues involved in the operation of the GREAT training.

ATF’s roles include the responsibility for managing the cooperative agreements to fund local communities and pay for the evaluation of the program and the delivery of officer trainings. GREAT

is designed to strengthen the effectiveness of its classroom lessons

at the end of the school year.

With cooperation from the community, parents, law enforcement

agencies, we supplement the GREAT curriculum with a summer

program. In addition to a well-rounded and structured environment

during the summer, the children enjoy recreational games, outings,

and community service projects.

In summary, the success of the GREAT Program is founded on

the mutual commitment of law enforcement and education agencies

who unite to provide children with accurate knowledge about gang

involvement, to provide them with the skills necessary to resolve

conflicts peacefully, and to understand the need to set goals.

The dedication of the parents, the police, and the school agencies

is an essential part to the program’s success, and the Bureau and

its partners are thoroughly committed to this program. Again, I
471

thank you for the support that you’ve provided for the GREAT Program.

We would like to show you an excerpt of a video taken in a classroom setting. It is an excerpt of a role-play exercise. The GREAT

officer is actually playing the role of the student and the student

is acting as the principal. At the end, a student in the class summarizes his experiences with GREAT.

Following this panel, it will be our pleasure to have you hear

from the officers and students who have traveled here to give testimony about their GREAT experiences.

[Videotape played.]

Senator CAMPBELL. I know that did not show the whole thing,

but because of time constraints, we would like to spend a little

more time with the youngsters when they have their panel, so we

will just end with that part of the presentation.

Ms. ROSSIDES. Thank you.

Senator CAMPBELL. Did you have further comments, Gale?

Ms. ROSSIDES. No, sir; I did not.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Ms. Rossides. We will insert your

prepared statement in the hearing record.

[The statement follows:]

PREPARED STATEMENT OF GALE D. ROSSIDES

Thank you Director Magaw. Good morning, Mr. Chairman and members of the

Subcommittee.

The Gang Resistance Education and Training (GREAT) program began in fiscal

year 1992 as a partnership between police officers and ATF special agents, who developed a nine-lesson middle school curriculum, with the goal of reducing gang involvement and youth violence. Since then, a shorter third/fourth and fifth/sixth

grade curriculum, as well as a summer component, have been developed.

The GREAT Program helps children become responsible members of their communities. The Program involves training officers to become successful classroom instructors by ensuring a supportive learning environment that causes students to become enthusiastic.

The instructional format for the officers’ training provides a spirit of cooperation

for modeling each lesson of the curriculum and requires officers to present a lesson

which is the keystone to the Program’s success. Other strengths of the training program include its use of role-play technique and group exercises.

Now, let me review briefly some of the topics that are presented to the students.

The first class is an Introduction, which allows the students to become acquainted

with the program and the officer. Other classes include: ‘‘Crime/Victims’’ which covers the impact that crime has on victims and neighborhoods; ‘‘Cultural Sensitivity’’

is where students examine their own cultures and learn to appreciate cultural differences and how they impact the community; ‘‘Conflict Resolution’’ is taught as a

six-step process in two sessions; and ‘‘Goal Setting’’ encourages students to realize

the importance of setting goals in life.

Each lesson builds upon the previous lesson and reinforces the concepts of reducing gang involvement and youth violence.

Now, let me describe the structure of the Program and how it is managed.

The National Policy Board meets to review recommendations and set the direction

of the program. Below that body is the National Training Committee. Each agency

board member has a subordinate assigned to this Committee who meets to deal with

the day-to-day issues regarding GREAT Officer Training, the curriculum, and the

effectiveness of the program.

ATF’s roles include responsibility for managing Cooperative Agreements that

serve to fund communities; and we pay for the evaluation of the program and the

delivery of officer trainings.

GREAT is designed to strengthen the effectiveness of its classroom lessons at the

end of the school year. In cooperation with the community, law enforcement agen-
472

cies can supplement the GREAT curriculum with a summer Program. In addition

to a well-rounded and structured environment, youth enjoy recreational games, outings and community service projects.

In summary, the success of the GREAT Program is founded on the mutual commitment of law enforcement and education agencies to unite in common goals: To

provide children with accurate knowledge about gang involvement; to provide children with the skills necessary to resolve conflicts peacefully; and to understand the

need to set goals.

The dedication of the police and school agencies is an essential ingredient to the

Program’s success. The Bureau and its partners are thoroughly committed to this

innovative, comprehensive gang and violence prevention program.

Again, thank you for the support that you have provided for the GREAT Program.

Now, we will show you an excerpt of a video taken in a classroom setting for a roleplay exercise. The GREAT Officer is playing the role of the student and the student

is acting as the principal. At the end, a student summarizes his GREAT experience.

Following this panel, it will be our privilege to have you hear from the officers

and students who have traveled here to give testimony about their experiences with

GREAT.

STATEMENT OF EDWARD N. KONDRACKI

Senator CAMPBELL. OK. Chief, if you would like to proceed?

Mr. KONDRACKI. Senator Campbell, members of the subcommittee, Senator Kohl and Senator Faircloth——

Senator FAIRCLOTH. Chief, if you don’t mind, would you pull the

microphone a little closer to you?

Mr. KONDRACKI. All right.

Senator FAIRCLOTH. Thank you.

Mr. KONDRACKI. Thank you for this opportunity to talk to you

about this important issue of gangs. As you could see in the film

and the comments by the young man, gangs, drugs, and violence

are a concern to our young people in our classrooms across the

country.

I have had the opportunity to be the chief of police in the city

of La Crosse for the last 5 years, and that is a city of 53,000 people.

We have 94 sworn police officers. Prior to that, I spent 28 years

in the city of Milwaukee Police Department, which is the 10th largest municipal police agency in the country, employs 2,800 employees, and polices a community of about 1 million.

I also teach community policing around the country for Northwestern University and I have taught police administration at

Marquette University. All of this has given me the opportunity to

personally see the gang situation evolve both in large and small

communities.

What I have seen is quite disturbing. The Office of Juvenile Justice Assistance predicts that if current trends continue, violent

crime by young people is expected to double in this country by the

year 2010.

After 33 years in policing in both medium and large-sized police

departments, I am convinced that any effort to reverse this disturbing trend requires a partnership between schools, the police, the

community, parents working together. I have provided you with a

handout of the city of La Crosse’s gang strategy and in it, it emphasizes community, education, alternatives, and enforcement.

Enforcement is only one-quarter of our strategy since we feel

that that is about how much time we spend enforcing the law and

we need to look at the other aspects of a communitywide approach.
473

The GREAT Program is a cornerstone of the city of La Crosse’s

antigang strategy. It is that kind of a program. We call it community policing. Community policing is sweeping the country. The

GREAT Program truly differs from any other program that I have

had the occasion to see.

It has three major components. One is a parent component. The

other is a school component. It pertains to a classroom curriculum.

The third component is a summer program. In La Crosse, we are

providing 300 students each day for 5 weeks with an alternative

opportunity. We are addressing parents through our Another Way

Program.

Senators, I can tell you that parents, with tears streaking down

their faces, have told me that they have never seen a program as

effective as the three components of GREAT when they are working together.

In our community, we saw a 45-percent increase in juvenile arrests over the course of 3 years. We saw a 15 percent annual increase in juvenile arrests. I am happy to say that since the beginning of the GREAT Program, we have reversed that trend and, in

fact, arrests have begun to decline.

We have been involved in GREAT now since 1994. We have also

noticed that the number of young people who claim to be gang

members in La Crosse has gone down. We have seen the presence

of graffiti, which is considered the most obvious sign of gang activity, decrease in our city. We have also seen gang-related shootings

decrease in our city.

After teaching community policing around the country for the

last 10 years, I have never seen a more effective program than the

GREAT Program. I am concerned, however. I am concerned about

the fact that only 5 percent of the police departments in the United

States employ more than 100 employees. That means that 95 percent of the police departments in our country have less than 100

police officers, most have less than 50, and many have less than

10.

Policing in the United States is about small agencies. What we

are seeing is a migration of gangs. The national trend is for gangs

to move from larger communities to smaller communities. They are

doing it primarily to escape crime. The irony is that many families

moving to cities like La Crosse and other small and medium-sized

communities are bringing young people with them who have already been integrated into the gang philosophy.

Our challenge then for the 95 percent of our smaller agencies is

to see to it that we address that gang philosophy and mentality

early on. I believe that is why we have been as successful as we

have in La Crosse.

I applaud Director Magaw of the ATF and his staff for their leadership. Without the GREAT Program and without their leadership,

none of this, I believe, would be possible.

I would like to take this opportunity to encourage you to expand

funding for the GREAT Program. There is no more cost-effective

program. When we consider the $33 billion that has been set aside

in the crime bill, I think we need to be more proactive in funding

programs like GREAT. The ATF needs sufficient funding to assist

police agencies of all sizes across our country.
474

We can reverse this trend, the trend toward youth violence.

GREAT is already doing it. Now we need to bring this program to

every community, large and small, in the country.

Senators, at times, I feel a little bit like a voice crying in the wilderness, if you will. My message is a simple one. Community policing works. GREAT is community policing at its best. The challenge

to law enforcement nationally is that of meeting increased demands

with limited and often diminishing resources.

I would encourage you to fund this program so that police agencies of every size can bring the GREAT Program to their communities, and that is only possible by increasing the amount of funding that is going to ATF and the GREAT Program. Thank you.

Senator CAMPBELL. Thank you. Sheriff, if you would like to continue.

STATEMENT OF CUYLER WINDHAM

Mr. WINDHAM. Thank you, Mr. Chairman, Senator Faircloth,

Senator Kohl. I am here today to basically ask that funding be allowed so my department can continue the school program that we

have. In Cumberland County, NC, we are basically charged with

protecting the schools. We have the school resource officers and we

also teach DARE in the schools.

About 2 years ago, we started trying to identify if we had a gang

problem. Much to our amazement, we determined we had 25 to 30

different types of gangs in our county. Some of these are small

community gangs. Some of them refer to nationally known gangs

such as the Crips and the Bloods I think everybody has heard

about.

They may belong to them or they may not. It does not make any

difference if they are gang members or if they are wanna-be gang

members. We refer to people that do not belong to a national gang

a lot of times as wanna-bes. But if they consider themselves a part

of a gang or if they consider themselves a local gang and if they

hurt somebody or they kill somebody, you are just as dead as if

they belonged to the Crips and the Bloods.

So we have set out to try to do something about gang activity in

our county. The people that we have assigned to the schools, we do

not have the GREAT Program at this point, but the officers that

we have assigned to our schools have come to us, the sheriff who

is here today supporting this, and myself as the chief deputy and

asked us to try to get some training in GREAT. That is our intention in the future.

Now, you have before you, I think, some photographs of gang

graffiti that we have taken in the county. Some of it is on the

streets and some of it are actually from the schools, high schools,

and middle schools. You also have before you a paper that was put

out February 27, 1998, by one of the schools in our county.

One of the things that kind of touches on me from this paper and

in this paper, on the last page, they refer to interviewing an individual by the name of T.C. T.C. says, ‘‘I feel people are safer when

they are in gangs than they do when they are on their own or in

their own family. I also feel that a gang is a real family, look out

for each other.’’
475

Unfortunately, that is what we are finding a lot when we are

studying the gang problem in our county. A lot of the young people

feel like they are safer. They feel like they have more of a family

with gangs than they do at home and that is why they are turning

to gangs.

That is why I think the GREAT Program would be such a great

program for us in trying to teach the young people to stay away

from gangs and the dangers of gangs. I have one other thing I’ll

mention.

On February 6 of this year, of 1998, we received a letter to Sheriff Butler, and it is addressed, ‘‘Dear Sheriff Butler’’—and this is

a letter pertaining to a gang that we know that operates in our

county.

I am writing this letter seeking help for families living—

And I am going to leave out names and addresses.

Living on a certain street in our county. On Sunday, May 3, 1998, I was visiting

my mother. She lives with another daughter who is her caretaker. Mama is bedridden. She is recovering from a recent heart attack.

About 3:30 p.m. Sunday, the phone rang. It was a neighbor calling and was telling

me that a group of young white male skinheads had come to her home on a certain

street and terrorized her family by spray-painting devil symbols on the trees in her

yard and throwing handfuls of white powder dust in her front yard.

We were not physically harmed and they moved on. Just as I was telling the nature of the phone call is when we heard what sounded like a platoon of soldiers.

We looked out the front window and saw three white male skinheads running

through Mama’s front yard. They were wearing white short-sleeved shirts and white

t-shirts and dark trousers.

They were all clean-cut and wore no hats or no disguises. The men did not come

to the door nor harm us. One threw a handful of what appeared to be white powder

dust in the driveway in front of Mama’s cars. They did not damage the two cars

parked in the yard. They were moving real fast.

The next few minutes, they left Mama’s house and had gone down the driveway

to another road. There two men sprayed white painted signs on the shoulder of the

road by Mama’s mailbox in white spray paint. The signs by the mailbox look like

this.

And she gives in this letter a symbol that is for skinheads.

The symbol drawn on the pavement near the mailbox looked like this.

Which is also another one.

They did not stop there. They kept going on to another street.

The point I want to make with this letter is, I do not know if

these people belong to national skinheads or whether they are just

wanna-bes in our community, but this lady says in this letter, ‘‘We

were terrified. When we dialed 911, the phone operator asked several questions,’’ and so forth.

But she made a point in this letter. ‘‘Sheriff Butler, I am counting on you and your deputies to come out and talk with myself,’’

and she gives names, ‘‘and the other God-fearing people who live

in that neighborhood of Cumberland County. I will testify in court

when you find these young men and charge them that terrified our

community and bring them to court for defacing our property.’’

Again, I just point out the fact that how terrorizing gangs are becoming. I know we read a lot about it in a lot of the larger areas.

Our county is approximately 300,000 people. We are about 30 miles

down the road from Senator Faircloth.
476

Basically, I am here to point out that we have a problem. We

think GREAT would be a good program for us to integrate with our

DARE Program and our school resource officers to try to teach the

young people to stay out of the gang situation. I thank you very

much for being here today.

PREPARED STATEMENT

Senator CAMPBELL. Thank you, Mr. Windham. We will insert

your prepared statement in the hearing record.

[The statement follows:]

PREPARED STATEMENT OF CUYLER L. WINDHAM, SR.

GANGS IN THE CUMBERLAND COUNTY AREA

In the Cumberland County North Carolina area, gangs are loosely organized.

Some are part of larger structures known as Gangster Disciples, which are

networked nationwide. But, most are loosely knit groups with several leaders. Most

of them are non-traditional gangs and ‘‘wanna-be’s’’, however, these gangs are the

hardest to track because of their untraditional behavior. These gangs change their

gang name and rules. They do not pattern their conduct to the gangs that we are

aware of, such as the ‘‘Crips’’, ‘‘Bloods’’, ‘‘People’’, and ‘‘Folk Nations’’, et cetera.

That’s what makes it difficult to work gangs in our area. We have crimes committed

that we’re sure are gang related, however it is difficult to prove.

The spread of gangs in our area can be attributed to at least four factors. First,

parents desiring to protect their gang-culture-saturated children from the hometown

gang’s influence, send them to reside with relatives across the country. Occasionally

this strategy works, but many times it merely transplants the gang culture into a

new community. Secondly, contributing to the gang activity in Cumberland County

is Fort Bragg, with its numerous military transfers from all over the country into

our area. As a result, Cumberland County ends up with gang members from other

areas who start their gang activity here. Children who were introduced into the

gang lifestyle by association, end up starting gangs or gang ‘‘wanna-be’s’’ in our

area. The third contributing factor would be the illegal drug market, this being due

to the fact that we are easily accessible from I–95 and I–40. Drugs, weapons and

stolen property are the biggest moneymaker for gangs. Fourth, the news media,

movies and music industries contribute largely to the gang problem in our area as

well as throughout the nation.

Graffiti is one of the first signs of gang activity. Cumberland County has located

gang style graffiti on walls in our high schools, middle schools, on businesses,

streets, and vacated buildings. Gang style graffiti has also been discovered in many

of our neighborhoods. The neighborhoods which have been targeted are primarily

low and middle income areas. The gang graffiti helps us identify different gangs,

their territory and their rivals. In some cases gang graffiti has enabled us to know

what a particular gang has done or is planning to do. Gang graffiti often times

shows gang members by their monikers or nicknames. This occasionally aids us in

identifying various gang members. The graffiti that has been discovered in the Cumberland County area, which includes Fort Bragg, Fayetteville, Hope Mills, Spring

Lake, Stedman and the townships of Linden, Godwin, and Falcon has enabled us

to identify ‘‘Crip’’ sets, ‘‘Blood’’ sets, ‘‘Latin Kings’’, ‘‘Gangsters’’ ‘‘Disciples’’,

‘‘LaFamilia’’, and other non-traditional gangs which associate themselves with the

‘‘Folk Nation’’ and ‘‘People Nation’’.

Some communication by gang members is done through graffiti, hand signs or signals, tattoos, various colored bandannas, phonic alphabet, and by the use of gang

slang terms.

There are many identifiers of gang affiliation. For example, clothing, colors, hand

signs, and tattoos. All of these gang identifiers have been found in the Cumberland

County area, in our schools, on the streets and in our neighborhoods.

Gangs are creating problems in many of our neighborhoods by illegal drug sales,

damage to property, assaults, personal robberies, break-in’s, larcenies and intimidation of residents.

Several of our schools are experiencing problems with suspected and self-admitted

gang members. The problems that most often occur are trespassing, assaults, intimidations, defacing school property and disruption of school functions.

Most of the ‘‘wanna-be’’ gang members hang out at our skating rinks, Putt-Putt

Miniature Golf Courses, shopping malls and shopping center parking lots. The hard-
477

core gang members hang around streets and street corners of known or suspected

illegal drug dealing areas in our county. Mobile home parks also experience problems related to gang activity.

Several of the homicides committed in Cumberland County have had numerous

reported gang members as possible suspects. Fort Bragg Military Police have made

drug related arrests where the suspects were gang affiliated. They have confiscated

drugs, weapons and vehicles on several occasions. There have been assaults, larcenies, robberies, home invasions, drive and walk-by shootings that were believed

to be drug related, however ‘‘street talk’’ has given credit to these offenses being

gang related. It is difficult to obtain information on the hard-core gangs because of

the code of silence and unfortunately, citizens are fearful of giving information to

law enforcement on these gangs. Hard core gang members would rather go to jail

for a crime they didn’t commit, rather than tell on anyone from their gang. Within

the last year, we have noticed a behavior change in most of our gangs. Their behavior has turned more low-key, in order not to attract attention to themselves. This

allows them to conduct their business without interference from law enforcement.

We believe that this behavior change is due to the fact that gang members from

larger known gang affiliated cities are educating our local gangs.

Numerous street gangs have been identified in Cumberland County through information received by other law enforcement agencies, the local community, and selfadmitted gang members. Those gangs identified are as follows:

Gangster Disciples

Black Gangster Disciples

Eight Trey Gangsters

21st Street Crips

212 Crips

Rollin 60’s

East Side Crips

Deep Creek Road Boys

West Side

LaFamilia

Old Shaw Crips

Latin Kings

Deuces

The Brownside Bloods

Insane 60’s

Eight Ball Nation

Folk

Hoover 107

Locos Latinos

Evergreen Posse

Bloods

Village Green Posse

Hoover 8 Ball

Hoover Gangster Crips

Vice Lords

Folk Nation

Skinheads

The Seabrook Bloods

Frats

Latin 57

Blue Devil 64

Little Mafia

Insane Gangster Disciples

Crips

Sunset Posse

Hell’s Angels

Outlaws

We have encountered numerous juveniles who have branded themselves with

gang related symbols by using coat hangers or wire. They formed the design with

the material, heated the metal, and then burned the design into their skin. Some

have homemade tattoos. Information has been received from some parents and selfadmitted members about severe ‘‘beat-ins’’. ‘‘Beat-ins’’ are used in most gangs to initiate new persons into the gang, however, there are reported cases where females

are sexed into the gang to avoid beatings. There are other ways to obtain gang

membership. Occasionally, gangs may require persons interested in gang membership to commit a crime of the gang’s choosing in order to become a member.

Not all gangs are involved in drug trafficking and violence. Some steal vehicles

and other items to make money for the gang.

The Cumberland County Gang Intervention Unit works closely with the Fayetteville and Hope Mills Police Departments and military authorities to identify gang

activity in the Cumberland County area. Presently we are working with the Violent

Crimes Task Force in the attempt to target the larger gangs at work in our area.

CHARACTERISTICS OF THE GREAT PROGRAM

Senator CAMPBELL. Thank you, all of you. I have a couple of

questions. I am sure my colleagues do, too.

Chief, I was looking through this book, as all of us were, and I

was really interested in some of the facts and descriptions. Let me

just read a couple things that I just jotted down while I was looking through that book and listening to testimony.

If we were to describe a group of people that had regular meetings; that had stable leadership with some adults involved; that

paid dues; mostly males; had a similar language; they had a similar dress code, including colors, in parentheses; they had similar interests; they were involved in that group for recognition or stature

or love or understanding or respect or so on, we could be describing
478

Boy Scouts or we could be describing a football team or something

of that nature, but we are describing gangs.

Clearly, one has a positive image and one has a negative image

and it is, I guess, all our duty as Americans to try to substitute

the positive for the negative in terms of leadership and uniform, all

that kind of stuff.

I would just be interested in your feedback from that observation, that there are so many similarities between good groups when

you are trying to define criteria or characteristics, and bad groups.

Mr. KONDRACKI. Senator, one of the three components of our

GREAT Program is the Another Way Program, and that is designed to involve parents and it is also an effort to get kids out of

gangs. It is reactive. We hear so much today about proactive programs and other ways designed to help those kids who are already

in gangs.

One of the ways that program evolved is when one of our gang

officers, frankly, said he had a dream. He said he dreamt that he

heard a gang organizer attracting young people by promising them

that they would have safety, that they would have respect, and

that they would have love. He said, ‘‘You know, why can’t we do

the same thing?’’ Unfortunately, kids join gangs for all the right

reasons. That is, those are very positive things you have pointed

out.

GREAT tends to fill the gap as an extended family. The Eisenhower Commission pointed out that the causes of crime were a

breakdown in the family, a breakdown in employment, and a

breakdown in the neighborhoods. If that is true, GREAT is filling

a void by operating as an extended family and by helping to teach

kids the self-respect and the problemsolving skills and giving them

the peer recognition that they so much need, but however, in a

very positive, positive way.

One of the people you are going to hear today, Sue Yang, who

is one of our GREAT graduates, will tell you personally how her

participation completely reversed her life for her and how positive

GREAT has been in her particular situation.

Senator CAMPBELL. Well, the reason I mentioned that is because

you do not know me and my background, but I can tell you that

the kids who are going to be testifying, I was one of those youngsters, high school dropout on the streets running with bad groups

that ended up in reformatories and so on.

It was because of sports and a number of other positive replacement symbols and activities, I think I got my life straightened out.

So I know it can be done, except it certainly has to come from adult

leadership and community involvement.

I noticed also in your book you mentioned some of the groups

that you work with, NYSP, DARE, and so on. Does your police department also work with the Police Athletic League? It was not

listed in here.

Mr. KONDRACKI. We did in Milwaukee. We find that the National

Youth Sports Program in our community is addressing those very

same kinds of issues, and what we are doing, through a partnership with the University of Wisconsin in La Crosse, we are reaching out to some 300 at-risk kids for a 5-week period every single

day during the summer.
479

I think that the Police Athletic League is a very important program and I am happy to say, though, that the National Youth

Sports Program is filling that void in our community.

FUNDING CRITERIA

Senator CAMPBELL. Thank you. Director Magaw, any positive

program gets more and more requests to expand it with certain justification. We appropriated $10 million last year for grants to communities who need to participate in GREAT. Will that amount be

sufficient to meet all the criteria of participation and requests?

Mr. MAGAW. Well, it is growing so fast, Mr. Chairman, that those

funds do not meet the requests. We had 198 requests from cities

all over America and we have been able to fund 33 additional of

those.

Senator CAMPBELL. This was 198 additional requests?

Mr. MAGAW. Yes; and we were able to fund 33 additional ones

over the ones last year. We fund 107 programs right now, but that

leaves 165 of those requests that we were unable to fund.

Senator CAMPBELL. It is really unfortunate that we do not see

the bigger picture of those community activities that we cannot

fund for those youngsters, some day we may be funding more in

terms of prison cells. I know you have a feeling about that, as Senator Kohl and I both.

The ATF has established criteria for who want to receive these

Federal funds so they can offer the GREAT training. Apparently it

talks about percentage of subcategories, scores, and so on. What

does that mean in simple, laymen’s terms?

Mr. MAGAW. Well, 4 years ago when I came to ATF, Mr. Chairman, there really were no criteria, and this is our first cut at criteria to try to be fair across the country with the limited amount

of resources. How many gang members do you have in relationship

to your population? What do you say the gang problem is? These

forms are filled out by the communities that come in.

We attach points to each one of the particular areas of judgment,

and then when those points are totaled up, depending on the number of points, is the amount of funds that can be allotted to that

community under these criteria. Every community that applied, the

198 that applied, a certain amount of funds were, by using this criteria, approved, but at 33, we ran out of money.

GREAT INSTRUCTORS

Senator CAMPBELL. We will try to help with that. When you look

for people that participate as instructors, officers/instructors, do

you look for a certain kind of an individual? Is it just basically

screened from volunteers that want to do that, or do you go out and

try and recruit special people that you think would have a sensitivity to youngsters and an ability to work with them?

Mr. MAGAW. There is so much interest in the communities, for

instance, in your State of Colorado, the Colorado State Patrol.

There is more interest in their ranks, there is way more interest

than they have slots to fill, and the quality of those instructors

coming out of there.

Not all who enter the program pass this instructor program, and

so, there is a filtering at the department level, for instance, the
480

Colorado State Patrol, and then when they come to the training

program, there is additional filtering.

There is a double filtering in the actual training program and

that filtering is, No. 1, let’s say you had four or five Colorado State

patrolmen in there and one was not measuring up, they would then

take care of that usually themselves; otherwise, the program would

take care of it. I just use that example with the Colorado State officers.

Senator CAMPBELL. For the instructor officers, is it part of the requirement that they live in the area where they are instructing?

Mr. MAGAW. That is up to the individual communities. For instance, if you would take Portland, OR, for example, the chief there

felt that this program was so important that he gave up more officers to the training program than he could really afford.

What he does now is he works them 2 months in a particular

school doing the training program, and then the two units rotate.

A group comes in off the street in that same community and comes

into the school, so that when they see these youngsters on the

street, they not only see them in the classroom, they then see them

on the street.

In the videotape that you just saw, the officer had a jacket on,

but underneath that was his Prince George’s County, MD, uniform,

and that is so important to have these youngsters see that a police

officer is warm, they are caring.

Senator CAMPBELL. I think it would be important not only to see

them in a structured classroom, but off duty or at least outside of

that classroom, too, as a working human being.

Mr. MAGAW. The closest to that that I am specifically aware of

is Portland, OR.

Senator CAMPBELL. Thank you. Senator Kohl, did you have some

questions?

FISCAL YEAR 1999 REQUEST

Senator KOHL. Thank you, Mr. Chairman. Director Magaw, in

fiscal year 1998, the GREAT Program received $3 million for administrative expenses and $10 million for dispersements through

grants to local governments for the GREAT Program. Director

Magaw, what is being requested for fiscal year 1999?

Mr. MAGAW. In 1999, the funding of the budget that is in there

now is $10 million in grants and $3 million in the administrative

costs. The total for 1999 is $15 million. It was $15 million and it

was reduced at OMB by $2 million.

Senator KOHL. Well, as I understand it, in 1998, the program got

$13 million, $3 million for administrative expenses and $10 million

for dispersements. For 1999, is it the same number or are you requesting more?

Mr. MAGAW. In 1999, we requested $2 million more. And again,

Senator, it is not what this program needs, but in a budget year

where the whole government is trying to reduce and trying to have

a practical application, I only put forward what I think I have an

opportunity to receive under the circumstances.

We increased it by $2 million for 1999 and that was rejected. But

my initial response is I would ask for $40 or $45 million, but I
481

know the end result, so I try to be practical so that the rest of my

budget is accepted as being practical.

YOUTH GUN CRIME INTERDICTION

Senator KOHL. All right. Director Magaw, I also want to take a

moment to ask about another program targeting youth violence

that is yielding some solid results. Yesterday, 13 indictments were

handed down in Milwaukee against individuals allegedly involved

in setting up nearly $1 million in drug deals.

The accused are members of a Los Angeles-based street gang

with operatives in Milwaukee. What is interesting about these indictments is that they stem from joint work by the ATF and the

Milwaukee Police Department through a Federal program, the

youth gun crime interdiction initiative. This program has used Federal resources to help local police track guns to their source and,

in this case, led to further charges against these individuals.

Director Magaw, I would like to hear your perspective on this

program and how do you think it is working in Milwaukee and

throughout the United States? How do you think we can replicate

these types of success stories like we had in Wisconsin yesterday?

Mr. MAGAW. I think the secret, Senator, is the combined coordination and that is what has happened here in Milwaukee, not only

with the Milwaukee Police Department, but the surrounding communities and counties. Also, the gun dealer in Milwaukee suspected that something was wrong here in this initial purchase last

August, called ATF.

We immediately involved the local police departments, started an

investigation, and it went from Milwaukee to Los Angeles to Winston-Salem, NC, to Minneapolis to San Diego to Utah, and drugs

were being transported throughout that segment of the country and

then dispersed even more there.

As you know, just a day or two ago, there were a number of arrests made all over the country at the same time. All of our agents

all across the country go into local law enforcement and say, ‘‘How

can we help?’’

We understand that that is our charge from not only the Senate,

but also the House. So this is how these cases are made, bringing

the best of all resources together and that is what has happened

here in the communications networks with ATF and other agencies.

ATF was able to be helpful with the national net of communication to help tie it together from California to Utah to North Carolina and that is where we think our expertise is helpful and that

is where we try to spend our resources.

PARENTAL INVOLVEMENT

Senator KOHL. All right, thank you. Ms. Rossides, I would like

you to describe the nature of parental involvement, the extent to

which there is parental involvement, how they learn, how they participate, and what kind of an impact they have on the GREAT Program.

Ms. ROSSIDES. Well, the involvement of the parents is an essential part of the success of the program and from the beginning, the

officers who are going to teach in the particular class spend time,
482

as an orientation, with the parents, telling them exactly what the

program is going to cover.

They actually involve the parents in a lot of the homework. The

homework gets the children in touch with their families, their extended families, their community issues, and the parents are encouraged to participate in those.

At any given time, the parents are welcomed in the classroom to

observe. They participate in the graduation and it really is a total

involvement of the parent, even siblings for some of the children,

even siblings are with the children today.

Senator KOHL. You say they participate in graduation. What is

the length of this program?

Ms. ROSSIDES. It is 9 weeks and then the graduation is usually—

each community does it differently, but it is held as a real celebration.

Senator KOHL. How much time is spent during these 9 weeks?

Ms. ROSSIDES. The classroom session is usually 1 hour and

that——

Senator KOHL. One hour a week?

Ms. ROSSIDES. Right, while they are in the school classroom.

Senator KOHL. And it is taught by a police officer?

Ms. ROSSIDES. That is right.

Senator KOHL. The same police officer throughout the 9 weeks?

Ms. ROSSIDES. Yes.

GREAT PROGRAM ACCOMPLISHMENTS

Senator KOHL. Chief Kondracki, would you state once again why

you think the GREAT Program is successful, why you think it deserves our funding? Have you had an opportunity to check back

with graduates of the GREAT Program to confirm your conviction

that it is a program that deserves our continuing funding?

Mr. KONDRACKI. Senator Kohl, we have seen a drastic reduction

in gang activity in La Crosse, and two of our students are here, two

of the graduates, to talk personally with their own testimonials

about that success. When I entered law enforcement in 1965, my

father had spent 33 years with the Milwaukee Police Department

and had retired as a police captain.

We talked about the hazards of policing. In 1965, you could not

remember when the last police officer had been killed. Today you

cannot remember all their names. I think as we look at Law Enforcement Memorial Day, that we have to remember how gangs

and drugs and violence have played into that escalation.

When I came to La Crosse, they had never heard of a drive-by

shooting. We have experienced those drive-by shootings and, frankly, they have been reduced with the inception of GREAT. We have

funded our program in part through a grant from the Office of Refugee Resettlement and that grant is running out.

Frankly, I think the more appropriate source of funding would be

the crime bill. As our grant from the Refugee Resettlement runs

out, I am concerned that we are going to lose our program. We

have done bake sales and chile cookoffs and everything like that.

When I hear Director Magaw mention that if the world could be

the way you would want it, that $40 or $45 million would fund this

kind of program nationally, I think, if I can be so bold as to state
483

that $40 or $45 million, I believe, is a drop in the bucket, with all

due respect, when we look at the $33 billion set aside for the crime

bill.

As a practitioner who has been in the field for 33 years, I cannot

tell you how cost effective it is and the direct results that we are

seeing from GREAT. It is community policing at its best, so I would

urge you to consider whatever funding possible so that every community can combat this problem.

To fight gangs only in the large communities when we see this

migration, by dealing with it in the surrounding communities, we

can stop its spread. It is like fighting a forest fire. You prevent the

spread of it and ultimately put out the fire.

Senator KOHL. Thank you. Thank you, Chief Kondracki. Thank

you, Mr. Chairman.

Senator CAMPBELL. Senator Faircloth.

DISSEMINATION OF INFORMATION TO THE SCHOOLS

Senator FAIRCLOTH. Thank you, Mr. Chairman. Mr. Magaw, how

are we disseminating the information to the schools so they can become a part of the GREAT Program? How can schools find out

about it and are they finding out about it? How do we do it?

Mr. MAGAW. I think there are probably very few schools throughout the country that are not aware of it, and basically it is spread

by local law enforcement, and through national conferences that

the ATF attends for both educators and law enforcement officers.

So that is the way it is spread. We do not have a national advertisement program. We do have some booklets that we put out and

we send them to the different States and the communities, but we

have done no major videotapes that are sent to all the schools and

law enforcement agencies.

The reason that we are now just expanding and want to expand

to all regions of the country is that only, in the last 2 years, has

the program begun to get the kind of support throughout the country that it should.

It was a brand new program. We wanted to test phase it. We

wanted to make sure that it did work. We wanted universities to

study it and look at it. So it is really right now to the point where

it is ready to explode throughout the country. In order to be prepared to handle that, should the Congress approve such expansion,

we expanded our GREAT board to represent all the regions of the

country.

GREAT PROGRAM IN NORTH CAROLINA

Senator FAIRCLOTH. I notice there were only four towns in North

Carolina that were participating and I was just wondering if they

were aware of what it could do and what it might do.

Mr. MAGAW. The sheriff may be better able to answer that question.

Senator FAIRCLOTH. Sheriff, how did you all find out about it?

Mr. WINDHAM. Senator, we have known about the GREAT Program for, I do not know, 2 or 3 or 4 years. One of the problems

we had and probably the way some of the other departments look

at it also, is that we already have programs in the schools, the
484

DARE Program and the school resource officer, which ties up a

pretty good percentage of our manpower.

Until recently, I did not realize that we could use those officers

to also teach this program, and I think most of us were looking at

the fact that we just did not have the manpower to institute new

programs. But the 1 hour a week, we hope, can be taught by that

school resource officer who is in the school for a full schoolday

every day, unless he really has a busy schedule, and we hope that

he or she will be able to teach 1 hour a week to teach the GREAT

Program.

Our problem now is finding the funding to send these people

away somewhere to get them trained. The original training center,

I think for the Southeastern United States, is in Orlando, FL. So

we have probably got, if we try to institute it in all of our high

schools and middle schools, 25 to 30 people that we are going to

have to have trained, or either we are going to have to try to bring

the training to Fayetteville.

Senator FAIRCLOTH. Thank you, Mr. Chairman. I see my time is

up.

Senator CAMPBELL. I thank you and appreciate this panel being

here. John, nice to see you again.

Mr. MAGAW. Nice to see you, sir. Thank you.
(485)

NONDEPARTMENTAL WITNESSES

STATEMENTS OF:

SARAH MARIE BARAY, STERLING, CO

SGT. SCOTT FRIEND, COLORADO STATE PATROL, STERLING, CO

OFFICER WILL BAKER, MESA COUNTY SHERIFF, GRAND JUNCTION, CO

JOSH HALBERT, GRAND JUNCTION, CO

OFFICER ROGER BARNES, LA CROSSE POLICE DEPARTMENT, LA

CROSSE, WI

SUSAN YANG, LA CROSSE, WI

CHRISTOPHER HENDERSON, LA CROSSE, WI

SGT. DAREN SIMEONA, NAVAJO INDIAN TRIBAL POLICE, WILLOW

ROCK, AZ

GABRIEL TOWNE, WILLOW ROCK, AZ

BERNELL YAZZIE, WILLOW ROCK, AZ

INTRODUCTION OF WITNESSES

Senator CAMPBELL. We will now hear from our stars of the day.

The second panel will be comprised of Sarah Marie Baray of Sterling, CO, along with Sergeant Scott Friend of the Colorado State

Police. We will hear from Josh Halbert of Grand Junction, CO,

with Officer Will Baker of the Mesa County Sheriff’s Office.

We will hear from Susan Yang and Christopher Henderson of La

Crosse, WI, and Officer Roger Barnes of the La Crosse Police Department. We will hear from Gabriel Towne and Bernell Yazzie of

Willow Rock, AZ, along with Sgt. Daren Simeona of the Navajo Indian Tribal Police. I thank you for appearing. You might have to

pull a few more chairs up there. Please do that and then we will

proceed.

We are very happy to see you youngsters and the officers, too,

today. I happen to be a person who believes that you can do anything you want in America if you are inclined to believe in it. For

you youngsters, this may be your first time visiting Washington,

probably the first time visiting the Senate.

You may not know how it works, but I think I can speak for all

of the Senators on this panel. We were not born Senators. We come

from many, many different lifestyles and different kinds of childhoods. Mine, as some of my friends know, was not too good.

I want to tell you of a poem I learned when I was 18 years old

when I decided I did not want any more trouble with the law. That

poem has stuck me with me since I was 18, Senator, and it goes

like this. ‘‘Young people, as you pass by, as you are now so once

was I. As I am now, so you shall be. Prepare your path and follow

me.’’

And it means if you see things that you think that you may not

have a chance of ever becoming, maybe a police officer, maybe a

teacher, maybe a college instructor or a scientist, you can do it. You

can do it. If you are really concerned and you really want to, you
486

can do it with the help of the adults that are sitting behind you

there at the panel. I know you can do it.

Let’s start first with Sarah Marie Baray and we will just proceed

and I will call your name and if you would like to go ahead and

make a statement, do not be uncomfortable. We do have a little bit

of a time limit because we are supposed to be out of here by noon

and we want to ask you some questions, too. So, Sarah, if you

would go ahead? You need to pull that microphone right over in

front of you and speak directly into the microphone.

STATEMENT OF SARAH MARIE BARAY

Ms. BARAY. Dear Senators. My name is Sarah Baray and I am

14 years of age and I live in Sterling, CO. I have lived in this rural

community all my life.

Senator CAMPBELL. Pull it over a little closer, please, Sarah.

Ms. BARAY. I am sorry. I am glad I had the chance to be a part

of the GREAT Program. When I started this class in March, Sergeant Friend noticed my name, Baray. The sergeant knew some

history about my family. Some of my cousins and family members

do not have the best reputation in my community and I felt embarrassed.

This program made me think about the right choices I need to

make for myself and I know I want a good reputation in my community. The main thing I learned from the GREAT Program was

about choosing good friends and knowing when to think for myself.

During class, Sergeant Friend set up situations where we would

have to decide if we were faced with a problem.

We practiced working out problems and came up with different

steps to use if somebody asked us to do something wrong. It also

helped me learn how to choose friends and what to look for in a

person. I am learning to choose friends that are better for me to

be hanging around with.

I think I could use the steps I learned from the GREAT Program

because I could use the methods when I get into a problem. I can

work myself through the steps of the GREAT Program and make

the right choice. As I get these steps in my head, I think I could

teach my family and friends to make the right choices.

The program needs to continue because other students need to

learn what we have learned. All the students need to learn to make

the right choices. Thank you.

Senator CAMPBELL. Sergeant Friend, I think I did that in reverse. I think I was supposed to call on you first, but nevertheless,

we are glad you are here. Go ahead and if you have some comments, make them.

STATEMENT OF SCOTT FRIEND

Sergeant FRIEND. Good morning, Senators. The Colorado State

Patrol is fairly new to the GREAT Program. Under the direction

of my chief, Colonel Westfall, we started about a year ago and have

built our program to 28 instructors statewide. Our program is a

partnership with seven law enforcement agencies.

This year we will teach between 5,000 and 6,000 children this

GREAT curriculum. I was instrumental in getting GREAT started

within our organization and was given the opportunity to coordi-
487

nate it statewide. From the onset, I was impressed with the

GREAT Program. I listened to the overview of GREAT from the

Bureau of Alcohol, Tobacco and Firearms and I knew the Colorado

State Patrol needed to be involved.

Even more strongly, I felt a personal calling to do this program.

I called around the United States and talked with current GREAT

instructors and tried to learn all that I could. I was increasingly

impressed with GREAT the more I investigated. I was ecstatic the

day I learned that the Colorado State Patrol was receiving funding.

I would like to tell you about what GREAT has done for our officers, for our agencies, for our communities, and most of all, for our

youth. First of all, what are the benefits to the law enforcement officer?

The officer goes through 2 weeks of instructor training. He is

taught the art of instruction, classroom management, public speaking, and numerous other essentials that ensure every officer’s success in the classroom. The most important gift taught to an officer

is the feeling he can make a difference in a child’s life.

The officer is graduated from the instructor’s school and he

leaves there feeling truly empowered. He knows that what he has

can and will make a difference in the life of someone’s daughter,

someone’s brother, someone’s neighbor. No longer do our officers

only react and respond to calls for service when they are on duty.

Now they have an opportunity to make a difference on the front

end to help prevent problems before they occur in our communities.

Essentially what we have done is given officers another weapon,

one that they do not wear on their belts. The teachers in Sterling,

where I am from, recognize now the impact the GREAT Program

wields. It was not always this way. Before we started to teach, the

middle school teachers were reluctant to give up their precious

teaching time to another program.

We were only allowed into the seventh grade. By the time we

were halfway done, however, the sixth and eighth grade teachers

were begging us to teach their students, also. This is how it is all

over Colorado. The demand for this curriculum in the classroom is

far greater than what our few instructors can provide.

What has GREAT done for law enforcement agencies? GREAT

has put us back in touch with our communities. The problems our

society faces, the devastation of youth violence and drug abuse are

just that. They are society’s problems. They are not just law enforcement’s problems.

This program has given various law enforcement agencies the opportunity to build partnerships with each other, with schools, with

businesses, and with the community as a whole. We take advantage of every opportunity to give an overview of the program to

civic organizations, businesses, and others. GREAT shows the community that law enforcement officers truly do care and that they

are willing to invest their hearts and souls in leaders of tomorrow.

How has GREAT helped our communities? From almost the first

days of our country’s history, our strength has come from our cultural diversity. It is only when we recognize and embrace this belief that our communities can live up to their potential.

GREAT enables the students to see the constructive power that

can come from embracing cultural diversity and the destructive
488

power that can come from prejudice. What better way to bring our

communities together than teach the benefits of diversity.

Even though the GREAT Program is just finishing up its first

year in Sterling, CO, we have already seen an impact on crime.

One surprising statistic is that vandalism is down by 34 percent

the first quarter of 1998. It is, however, the individual who stands

to gain the most from the GREAT Program. This program has so

much to offer. Who among us does not need to have the skills of

conflict resolution or goal-setting? I doubt there is anyone here

today who has not had to use these skills on a daily basis, and yet,

so many of our youth do not possess these skills.

GREAT teaches them the necessary skills to resolve the inevitable conflicts that they will encounter. It is only by overcoming the

hurdles of conflict that they can then go on to the empowering skill

of goal-setting. GREAT helps the individual take a look at his life’s

dream and assists him in striving for and reaching that dream.

I can personally attest to the incredible feeling that comes when

I have seen a student come alive with hope when he knows that

his life dream is attainable. It is that hope, that hope of something

better, something more, something higher that keeps us reaching.

Hope is our society’s bridge to a brighter tomorrow.

If we stop teaching GREAT today, I can honestly say that we

have made a difference and that we have been a success. I have

brought along with me a student to whom I have taught the program. Her name is Sarah Baray. I do not have enough time to tell

you Sarah’s story, but she has been here to tell you what the

GREAT Program has given her. There are thousands of other

Sarah’s out there and if GREAT can help Sarah, it can help others,

too.

When we look back 25 years from now, it will not matter what

car we drove or how much money was in our bank accounts. What

will matter is that we have made a difference in a child’s life. I

know the GREAT Program can accomplish this. Thank you so

much for this opportunity.

Senator CAMPBELL. Thank you, Sergeant. Very nice statement.

We will go to Officer Baker of the Mesa County Sheriff’s Department before we hear from his student. You will have to pull that

microphone over pretty close to you, Officer Baker.

Before you start, I did want to introduce the group that is in our

audience. I did earlier, but they had a late bus and they did not

get here. Will all the youngsters from the Baltimore GREAT class

wearing the green T-shirts stand up so you can be recognized? [Applause.]

We are very happy you are here. Officer Baker.

STATEMENT OF WILL BAKER

Mr. BAKER. Thank you, Senator. I would like to start by thanking the members of the Senate that are present today, the Bureau

of Alcohol, Tobacco and Firearms, the Colorado State Patrol, and

the Mesa County Sheriff’s Department for allowing me to come to

Washington, DC, to speak in this forum.

My name is Will Baker and I have been a deputy with the Mesa

County Sheriff’s Department for about 2 years. I have been a cer-
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tified GREAT instructor for about 6 months, and as of June 1, I

will have graduated 400 students from the GREAT Program.

When I was first approached with the opportunity to teach the

GREAT Program, I jumped at the chance. It fit in really well with

what I was doing in the school district. I grew up in the Denver

area around the time that gang involvement got really high, so I

had a fascination with gangs.

I have also always wanted to teach and I have been doing workshops for teachers in School District 51 in Grand Junction. After

one of the workshops, I was approached by one of the teachers

about presenting the information to students. I was really tentative

about doing that because I wanted to be sure that if I went into

the classroom, that I had information for the students that was not

going to make gangs even more appealing.

Shortly after talking to those teachers, I was approached by one

of my administrators about the prospect of being involved with the

GREAT Program. He told me that it was a school-based program

and that it puts uniformed officers in the classroom. Well, that was

all I needed to know to get me interested.

When I went to the training, I was blown away. I was sold on

the program for three reasons. No. 1, it is proactive in nature; No.

2, it can work in any school; and No. 3, it reinforces positive skills

without stressing negatives.

In my opinion, juvenile intervention is the single-most proactive

policing effort that a law enforcement officer can be involved in.

The GREAT Program promotes juvenile intervention and puts cops

and kids together. It helps bridge the large gap between kids and

the police which can be blamed on a number of things including

negative law enforcement contacts and the media’s portrayal of law

enforcement.

Whenever I start teaching in a new school, this negativity is very

apparent. I hear things from the kids like, ‘‘Take me to jail,’’ ‘‘arrest me,’’ ‘‘shoot me,’’ not things like, ‘‘Thanks for driving around

my neighborhood last night,’’ or ‘‘thanks for finding my little brother.’’

This is because these kids see cops in a negative light on TV and

when they do have law enforcement contact, it is because of the nature of the job and usually someone has been taken from their

home or possibly from their neighborhood.

When I first went into the school that I am teaching at right

now, I got a good idea about this negativity. The first day I taught

the first half of the school. Then when lunch came around, I bought

a school lunch and sat down at the table with a group of fourth

graders. I did not know any of the kids at the table and I did not

have any of them in class at the time.

There was a group of four of them at the table and when I sat

down, all but one of them said, ‘‘Hi,’’ and that one kid just stared

at me. As we started to eat, the kids began to make small talk with

me, asking about why I was at the school and asking me about

things on my duty belt. The one kid just continued to stare at me.

After a few minutes, I asked him if he was OK. He just looked at

me and said, ‘‘I’m shaking.’’

I looked at him and I could see that he was visibly shaking. He

was holding his hand out. I asked him, ‘‘Well, why are you shak-
490

ing?’’ He said, ‘‘Because I have never been this close to a cop without being in trouble.’’ I told him, ‘‘I am just here to hang out,

maybe teach you something.’’ I remember thinking to myself, ‘‘A

fourth grader should not feel that way about law enforcement.’’

This same kid is getting ready to graduate in 2 weeks from my

fourth grade curriculum class. He is one of the most talkative kids

in the class, and I guarantee you, when I got into the lunchroom,

he is waving, he is waving me over to sit with him. Those are the

kind of things I am talking about. I am sure each and every one

of the officers that are here and the officers from Baltimore can attest to the same thing.

The second reason I support the GREAT Program is because I

feel that it can work in any school whether it is a rural area or

any inner-city area with lots of gang problems. This program fits.

The GREAT Program teaches lessons that anyone can use to be

successful in life.

This can be seen just by looking at the names of some of the lessons: Cultural sensitivity, meeting basic needs, conflict resolution,

goal-setting. These are all things that we use to get along with

each other and to be successful in life. These skills provide students with the blueprints for being successful. They do have an advantage over ones who have not been through the program.

The third reason I support the program and I feel that it works

is because the program reinforces positives without dwelling on

negatives. The program does not glorify the ideas of crime and violence, but addresses them while also giving skills for dealing with

these problems on their own. The program teaches positive alternatives to crime and violence.

In closing, the GREAT Program works for three reasons:

Proactive juvenile intervention, it can work in any school, and it reinforces positives without stressing negatives. Thank you. I would

like to introduce Josh Halbert. He is a seventh grader at Mount

Garfield Middle School in Clifton, CO. Josh.

Senator CAMPBELL. Josh, go ahead. Pull that microphone directly

over in front of you.

STATEMENT OF JOSH HALBERT

Mr. HALBERT. Senator, my name is Joshua Ryan Halbert. I am

14 years old and I am attending Mount Garfield Middle School in

Clifton, CO. I have recently graduated from the Gang Resistance

Education and Training Program, otherwise known as the GREAT

Program.

Many of the problems that I see today are featured in this 9-

week course. Problems like respecting others and confidence in

yourself along with ideas like goal-setting and sticking with them

were taught to me in seven lessons. The impact toward others, including myself, can be described in one word: Great.

Everything has a special meaning to each individual. Thoughts

and ideas are kept easily, but only if the person is willing to learn.

Conflict resolution in lesson four has six steps. These, I know for

a fact, really work. These steps are: Identify the problem, what

might happen, what are my choices, which is best, make that

choice, and then evaluate afterward.
491

I am a conflict mediator for Mount Garfield Middle School. A

conflict mediator is a person who tries to solve a quarrel before it

ends up into a physical fight. These lessons from the GREAT Program have been very useful to me. I have now been able to get to

the bottom of a lot of conflicts.

The lesson that I thought was most useful was lesson seven, responsibility. This lesson was shown effectively by a skit. The scenario was an adult posing as a kid who had skipped school. Four

other kids were asked to join in the scenario posing as adults. Four

kids were asked to take one of these four roles, a teacher, a principal, a parent, and a police officer.

Each adult asked the child why he had skipped school. In turn,

the child would give a remark such as, ‘‘So, what do you care,’’ or,

‘‘You’re not my boss.’’ In this lesson, I learned when an adult tries

to do his or her job but a child refuses to listen to them, it becomes

harder for the adult to show them the best way to avoid trouble.

Another lesson that has stuck with me is lesson five. This lesson

is about meeting basic needs, which was again shown by using a

skit. This time the entire class was involved. The way it was started was by a trooper asking all of us to come to the middle of the

room.

He then proceeded by telling us that we were stuck on a desert

island. There were no adults to supervise us. We were told that

what we had was what was in our pockets and that we had to find

a way off that island or we were all going to die.

From this lesson, I learned that we all have certain needs and

leadership qualities. During this 9-week course, lesson three, cultural sensitivity, or lesson six, drugs in the neighborhood, have an

important meaning to me.

In conclusion, I would like to thank the Senate, the Bureau of

Alcohol, Tobacco and Firearms, and the Colorado State Patrol, and

Mesa County Sheriff’s Department for the chance to become aware

of how my actions and those around me affect each other. I feel

that this course is helping me today and will help me in whatever

tomorrow brings. Also, that anyone who has the chance to go

through this course can only better his or her opportunities in their

lifetime. Thank you again.

Senator CAMPBELL. That is nice testimony, Josh. One time when

I was your age, I had a teacher tell me I was a menace to society.

Now here I am a U.S. Senator and some people are still telling me

the same thing. [Laughter.]

I am glad you are here.

Officer Barnes, if you would like to proceed before we hear from

your youngsters?

STATEMENT OF ROGER BARNES

Mr. BARNES. Thank you, Senators. Thank you for the opportunity

to be here today, Senators. Although La Crosse, WI, is just a

midsized community, we are not immune to the effects from gangs,

drugs, and violence. I have been in the classroom for 9 years, the

last 5 teaching the GREAT Program at both fourth and sixth

grade.

I have also been working with approximately 250 to 300, 10- to

16-year-old at-risk students in our summer component where we
492

have partnered with the National Youth Sports Program and have

called it the NYSP/GREAT summer component.

I can confidently report that we have made a difference in the

lives of many young people and in our community. What sets

GREAT apart from other programs is its emphasis on life skills,

sense of community, cultural diversity, and the summer component. The facts and theories are learned in the classroom, but are

practiced during the summer program.

This creates a community of young people who make good

choices, embrace diversity, and return back to the community. This

is reflected in the fact that juvenile referrals declined anywhere

from 7 to 28 percent during our summer component, according to

our human services department.

The fact that the students have fun is obviously evidenced by the

increase of returnees each year, from 36 percent in 1994 to practically 50 percent in 1997. During the summer program in 1994,

one of our projects involved painting over graffiti on public property. We had enough work for each of our six groups to spend an

entire afternoon painting.

At one of our locations, we had several suspected gang members

observing our activities. While our group took a break, the observers approached one of our officers and asked what was going on.

He explained our goal and asked them if they’d like to help. They

did so enthusiastically. That site, which previously had been a

weekly target of graffiti, remained graffiti-free for over 1 year. Last

year, we only had enough graffiti in the entire city for one group

to paint.

Of all the life skills learned in GREAT, one of the most important is the decisionmaking processes taught in the conflict resolution lesson. Over the years, there have been many cases where students have told me they have been approached and pressured to

join a gang, but having been armed with the decisionmaking skills

learned in GREAT, they were able to stand firm.

I have also had students tell me that these skills have helped

them make other important decisions regarding such things as use

of tobacco, alcohol, or other drugs, early sexual activity, crime and

violence.

I recently had a high school student that I had taught in elementary and middle school come up to me in the high school parking

lot. I had not seen her in a couple of years, but she wanted to

thank me for the lessons I had taught her. I asked what she remembered most and she quoted a statement that I use in most of

my lessons: The choices you make today will affect your future in

every way.

She said she got really sick and tired of hearing it in the classroom so much, but was really glad that she remembered it because

it did help her avoid some disastrous decisions. These are just but

a few examples of how GREAT makes a difference.

I have brought with me today two of my students, past students.

I have with me Ms. Susan Yang, who is a sophomore at Central

High School. She is a past graduate of the middle school curriculum. She is also a graduate of our summer curriculum and has returned as a junior counselor in our summer curriculum. I also have

Mr. Chris Henderson, who is an eighth grade student at Lincoln
493

Middle School. He is a graduate of both the fourth and the middle

school curriculum and he has been with our NYSP/GREAT summer

component as well. Thank you, Senators.

Senator CAMPBELL. Susan, would you like to proceed?

STATEMENT OF SUSAN YANG

Ms. YANG. Nyob Zoo. That means hello in Hmong. First of all,

I would like to thank you, Senators, for giving me this wonderful

opportunity to come to Washington, DC, and speak to you for the

benefit of other people. As a young Hmong woman, I have had to

overcome many obstacles such as learning how to deal with living

between two cultures, the Hmong culture and the American culture.

A lot of Hmong teenagers do not know how to deal with this

problem, so they join gangs as a result of their confusion and loneliness in life. Some of them are now serving time for their unwise

decisionmaking skills. But you see, Senators, because of the

GREAT and NYSP Program, I did not choose that pathway for myself, but I was on the edge of choosing too.

Being around a lot of my Hmong friends, I extremely faced daily

peer pressure, media pressure, and a lot of stress with myself for

being the way they wanted me to be. I made many unwise choices

in my life such as smoking, drinking, doing drugs, stealing, and

running away from home.

It was due to those tough experiences that the GREAT and

NYSP Program really helped me change my life for the better.

GREAT was the light of the dark, lonely, and long tunnel in my

life. But that light was only the beginning for the change in my

pathway to the future.

The director of the NYSP and GREAT Program called me out of

the blue one day and asked me if I would be a junior counselor for

the GREAT and NYSP summer program. I thought to myself, ‘‘Why

would they want me as a junior counselor? Am I even worthy to

have kids look up to me after all the unwise decisions that I made

in my life?’’

That great wonderful opportunity in itself was a turning point in

my life. The GREAT and NYSP Program reemphasized all the reasons why one should stay away from drugs and one should stay

away from gangs, and the dangers around them and the dangers

of being around with them and the strength to resist them.

I know that the time spent in the classroom is small compared

to the hours kids spend with their peers and that is why I believe

a combination of programs and continued contact with the kids is

so important. From my experience, the knowledge learned from the

GREAT and NYSP/GREAT Program really helped me make better

and wiser choices in my life, but that was after I made mistakes.

Without this knowledge ever, I may have not realized my mistakes until too late. Failure is a seed to success. I know I have

turned all my mistakes into a strong point with the help of GREAT

and that in itself is a great success to me.

Again, I would like to thank all of you, Senators, for graciously

giving me this wonderful opportunity to benefit the lives of our future, the youth, and I would like to especially thank God for blessing me with this life and helping and benefiting others for the bet-
494

ter. If you really care about the future of the youth, then I believe

you can do this by supporting the GREAT Program.

I would like to leave you with a thought. If you can touch the

life of just one youth, you can make a big difference in the future,

our youth.

Senator CAMPBELL. Thank you, Susan, very nice. Christopher.

STATEMENT OF CHRISTOPHER HENDERSON

Mr. HENDERSON. Good morning, Senators. Thank you very much

for the opportunity to be here today to share my GREAT experience with you. GREAT has been an important program for me and

many of my friends in La Crosse. The GREAT Program has given

me confidence in my decisionmaking skills. I feel good about myself

when people ask me to smoke or drink and I can say no to them

without worrying about what they will say.

I feel especially good about being able to make decisions about

who my real friends are. I have learned that real friends accept me

for who I am and what I do and respect me as an individual. I do

not need gangs to tell me what to do and when to do something.

I can make my own decisions.

GREAT has taught me how to recognize dangerous situations

and how to avoid them. The combination of being able to recognize

these dangerous situations and being able to make the right

choices let me be my own person. Because I like sports so much

and other recreational activities so much, I especially like the summer NYSP/GREAT program at the university.

It allows me to really do what I have learned in the classroom

during the school year. I see that it is more than just reading books

and listening to my teachers. The summer program lets me practice my decisionmaking skills in a safe and fun place.

If I were not in the summer program, I would not be making

such good decisions. The summer program gets me involved with

many new kids from other neighborhoods and kids from all different races and ethnic backgrounds. GREAT is important to me

and my friends. If more GREAT programs were started, they could

help other kids like me. This is a program that means something

to me and helps me make decisions that are for a lifetime.

Thank you for letting me meet with you to talk about La Crosse,

WI, and our NYSP/GREAT Program.

Senator CAMPBELL. Thank you for being here. Sergeant, did I

pronounce that right?

Mr. SIMEONA. Yes, sir.

Senator CAMPBELL. Sergeant, if you would like to proceed before

we hear from your youngsters?

STATEMENT OF DAREN SIMEONA

Mr. SIMEONA. Senators, thank you. I am honored to be here

today. I have been teaching the GREAT Program for 2 years now

in several different communities. I am a police officer with the

Navajo Nation and I have been a police officer for 13 years.

I have graduated to date almost 2,000 students from the GREAT

Program in different communities. This program has established a

rapport between the police department, the students, and the

schools. The students have really accepted the program with little
495

resistance. I believe that this program has given the native American kids a chance and reassurance that they can reach out and

reach their goals and become someone.

Being that we are so far away from the big cities, we do not have

the access that city kids do. We tend to be set apart thinking that

we do not have the same problems, but we do. We have problems

with gangs, drugs, alcohol, domestic violence, child abuse, child neglect, murder, assaults, accidents, broken families, child abandonment, and the list goes on and on, same as the big cities.

I truly believe that this program has given the native American

kids and all kids reassurance that they can go out and become

someone, someone special, someone important. I believe that we in

law enforcement have neglected our part in educating the kids for

over 10 years in the communities.

I believe that with programs like the GREAT Program, I have

seen native American kids change their lives and they have started

to work on their education, reestablishing the families, and setting

their sights on their goals. The program has taught the students

to establish, especially native American kids, the importance in our

culture and why it is important to them.

Some students have gone back to their grandparents and talked

about the tradition and where our ancestors came from, and most

important, they have learned who they really are, native Americans. I have taken kids on trips, our students on trips, to watch

professional teams play, the Phoenix Suns, and also the Arizona

Cardinals.

Most of the Navajo kids have never been to special events such

as these and were really impressed and enjoyed watching these

professional athletes. We have helped kids raise money in high

schools and we also have police officers that go out and do volunteer work at high schools teaching and coaching baseball.

I truly believe that the GREAT Program is very important to our

children and that we cannot stop educating them and helping

them. This is the only way that we can give our kids a chance in

life and watch them blossom into prominent figures in our communities, by continually educating them and supporting them.

I believe that with having police officers teach this program, it

has really changed our image among our kids. We no longer are

looked on as the bad guys. We are looked at as the good guys. I

know that the GREAT Program has been a great part in making

a difference and without this program, our kids will fall into a life

of trouble, gangs, and death, and we cannot let that happen.

I thank you very much for this time. I would like to introduce

two of our GREAT student graduates from our program. The first

one will be Gabriel Towne.

Senator CAMPBELL. Gabriel, just bring the microphone over real

close and speak right into it.

STATEMENT OF GABRIEL TOWNE

Mr. TOWNE. Good morning, Senators. My name is Gabriel Towne.

I am from Chinle, AZ. I am 12 years old. I recently graduated from

the GREAT Program. The GREAT Program is one of the best programs I have learned. The program teaches kids why it is better

to stay out of gangs.
496

The teacher is also funny, so kids do not want to miss GREAT.

GREAT has also taught us about what we have to do to reach our

goals, like a goal can be anything that helps people and yourselves.

GREAT also teaches us about our culture, to be proud of what I

am, how to respect people like the elderly, how to solve conflicts,

the six steps, and basic needs like physical needs.

I feel that all of the lessons are important and I believe if we

keep teaching the GREAT Program, we will have a better world.

This program has made my life better and I know it has made

other kids’ lives better, too. Help save kids. Keep GREAT going.

Thank you, Senators, for your time.

Senator CAMPBELL. Thank you. Bernell?

Mr. SIMEONA. Our next student is Bernell Yazzie.

STATEMENT OF BERNELL YAZZIE

Mr. YAZZIE. Good morning, Senators. My name is Bernell Yazzie.

I am 15 years old and I am from the Navajo Reservation. It is a

great honor to be here today. I took lessons from the GREAT Program, which was taught by Sergeant Simeona, and it helped me

make the right choices. The GREAT Program educates younger

kids from keeping them out of gangs and violent activities.

The program helps change the kids that had made the wrong

choices, but now they enjoy learning and taking lessons from the

GREAT Program. I myself almost made several wrong choices, but

Mr. Simeona helped me make the right choices by giving me lessons from the GREAT Program.

On the reservation, there are gang-related activities that go on.

There is graffiti on the walls, violence due to gangs, people claiming they are part of a gang. Chinle might be a small town in the

middle of nowhere, but there are gangs actually out there. If the

gangs and violence increase, it could become dangerous to the community.

I myself have friends in gangs, but they do not make my decisions for me. But if the program goes on and more GREAT officers

were to teach, then maybe it would change their lives. So I kindly

ask the Senate to keep the GREAT Program going because it could

change a lot of the youth. Thank you.

Senator CAMPBELL. Thank you for your testimony. I noticed all

of our officers today are in uniform. I assume that when you teach

in schools, you are in the uniforms. I happen to think that is good

because I think symbols are important and if people see the symbol

of a uniform, the badge, in a positive manner, those youngsters are

going to carry that image with them.

I guess there are some people that say, ‘‘Well, it is a form of

stereotyping,’’ but I think that is a positive stereotype. There are

also some negative stereotypes from the type of dress and so on,

too. I might mention a short story.

The officers from Colorado know that my favorite mode of transportation is two wheels rather than four, on a motorcycle. Most

kids like motorcycles. Their mothers do not, but they do. A couple

of years ago, I went on what is called a charity ride. We were raising money for the Children’s Hospital in Colorado and there were

probably 1,000 people on motorcycles, and you know how they

dress. They tend to be dressed in leather and so on.
497

We did this fundraiser to raise money for the Children’s Hospital. The State patrol officers that were assigned to us to lead the

group so we would not be a traffic problem, went with us and while

I was talking to them, they invited me to go to what they call a

motorcycle police shootout. It is a motorcycle competition where all

different departments are invited to participate and show their

skills.

I think they do this all over the United States. So I said, ‘‘Great,

I would really like to go see that,’’ and we left the rest of the group

and I went with the officers. There were four of them ahead of me

and two of them behind me and we were going down the freeway

in a close group and we passed a car. A guy rolled down the window and yelled at me through the window, ‘‘Too bad, buddy.’’

[Laughter.]

You know what the stereotype was. I had just been booked, or

something. But I mention that police activity because when I got

there, there were a number of youngsters there, and I do not know

who brought them, whether their parents did or who, but I got to

thinking.

There are a lot of activities that police do in their own time. Perhaps they are with a mounted unit, as I was when I was in the

sheriff’s department, or something else, with different parade

groups or boats or something that interest youngsters, too.

I kept thinking at the time, there must be some kind of a connection, I do not know, PAL or GREAT or something where youngsters

can watch policemen when they are doing things that are a little

less fun than the mundane stuff they have to do while they are on

duty.

Do any of you participate in activities like that where there is

a connection with the GREAT youngsters?

Mr. SIMEONA. In our department, I teach baseball at the high

school and the kids, the students that are out there, they really appreciate seeing a police officer. Sometimes I have to go in my uniform and I go out there and help coach and participate with the

kids and they really appreciate that. They like seeing the officers

out there with them. Then they look at us as one of the team, one

of the members.

So yes, there are many officers that are out there that do participate and volunteer their services to help a lot of kids.

Senator CAMPBELL. Being in uniform probably quells little league

disputes, too.

Mr. SIMEONA. Yes. [Laughter.]

Senator CAMPBELL. Senator Kohl, did you have some questions

you would like to ask these terrific youngsters or the officers?

Senator KOHL. Yes; well, like you, Senator Campbell, I am very

impressed with the presentation this morning. It leads me to believe and conclude that the GREAT Program is a very important

program in our country today, and that it is a program that all officers should have an opportunity to participate in; that the skills,

the experience, the wisdom that you bring to the program, if it

were replicated throughout our police systems across the country

and then brought to the kids, would really make a big difference

in the lives of our children, as it does on this small scale that we

are now practicing it.
498

It could make an enormous difference in the lives and the futures

of these young people. I am chagrined at the low level of funding

that we put on the GREAT Program because where we put our dollars, to an extent, describes what kind of a society we are. We may

not wish to believe that, but it is true.

When we send out $13 or $14 million for GREAT programs

across the country, like it or not, what we are saying is that we

do not think they are all that important and we have to take that

upon ourselves and live with that and try and do something about

it here to see to it that the GREAT programs are more fully funded.

Now, I do understand that in most cases, there are matching

funds, aren’t there, Chief Kondracki, or not at all?

Mr. KONDRACKI. We have no matching funds at all.

Senator KOHL. In other words, that $13 or $14 million, that is

what the GREAT Program is funded at, no more, just that amount?

Mr. KONDRACKI. That is correct. Most cities that do not receive

funding are doing bake sales and chile cookoffs.

Senator KOHL. OK. I really am impressed with the presentations

this morning, particularly with the police officers and then, most

especially, with the young people. I would like to ask you, Officer

Barnes, to explain a little bit about the summer and National

Youth Sports Program components of GREAT. How is the summer

component funded? How do you describe the value of that summer

program?

Mr. BARNES. As far as the funding goes, Senator, I would like to

turn it over to Dr. Tymeson. However, I will address the other

issue and that is what is the effectiveness of the program.

As I said in my testimony, we have lessons during the school

year, but the students then get an opportunity to see us in a different setting. When we are at the summer program, we are in

gray shorts and polo shirts and we are out there having fun with

the kids. We are doing a lot of other things outside the classroom.

It allows us to bond more with the students.

One story that comes to mind in particular, a couple years ago,

we had a young man that I had in elementary school. He was living in foster care. He had been split up from his brother, who was

in another foster care home, did not like that. He had been caring

for his brother for a long, long time. He was the primary caregiver

in the house, he in fifth grade.

He was having problems at his foster care, but he was having no

problems at NYSP because he had bonded with all of our counselors. We have a very good student/counselor ratio, about a 4 or

5 to 1. This particular student got kicked out of foster care, basically, because the foster parents did not want him there anymore.

They said, ‘‘We cannot handle this. We do not need the disruption

in our life.’’

Human Services had no place to put this child. He was going to

spend the next three nights in the juvenile detention center because there was no other place for him. One of the counselors said,

‘‘That is not right,’’ and begged and pleaded and got emergency authorization for that child to come and stay with him.

That was the first time that any adult had ever reached out to

that child in such a capacity and it has made a significant dif-
499

ference in his life. That is just one of many stories. The summer

program puts into practice what we learn throughout the school

year, the diversity, the giving back to the community, the making

good choices, the working relationships, those types of skills.

Senator KOHL. Do you believe that the responsibilities of a law

enforcement officer are equally important in law enforcement and

in relating to young people? When you think about a police officer’s

important role in our society, that it is equally important that they

do a good job of relating to the young people in their community

as, in fact, providing on-the-job law enforcement?

Mr. BARNES. I am not so sure it is equally important. I actually

think it is more important. The ability to communicate and relate,

particularly with youth, is, I think, 85 to 90 percent of our job, is

this communication. If we cannot do that, we cannot do the rest.

Senator KOHL. How much time is spent? In training for the

GREAT Program, that is what that provides. I understand you

have 94 police officers, is that right, in La Crosse?

Mr. BARNES. That is right.

Senator KOHL. How many of those police officers do we have the

money to train in relating to young people?

Mr. BARNES. That I would have to refer——

Senator KOHL. What would you say, Chief Kondracki?

Mr. KONDRACKI. Well, Senator, we have nine officers trained and

I think it is important to point out that we are not a funded agency.

Senator KOHL. So 9 out of 94 is all you have, is all you can afford

to train?

Mr. KONDRACKI. That is correct.

Senator KOHL. Which is really a shame, truly a shame. Well, you

have done a great job here, folks, and I think as a result of your

appearing here, we will do a lot better in our responsibilities to

you. We thank you all for coming and, young people, you have done

a great job. Chief Kondracki, it is good to have you here. Senator

Campbell, it has been a great hearing.

Senator CAMPBELL. Senator Kohl and I are of one mind, I think,

when we recognize that we are not doing as good a job as we ought

to, we gave $10 million. That was in the budget last year for

grants, $10 million to be spread clear across the United States. It

is my understanding that to build a new prison from the ground

up, a startup prison, costs about $1 million a cell.

So in other words, we have a choice: Ten cells or that $10 million

for all those youngsters. It just seems to me that the money is

much more wisely used to put it into those youngsters. I also understand it is about $26,000 a year cost to incarcerate now in the

penitentiaries, depending on whether it is the State or Federal

level. That does not include property loss, trauma, pain, suffering

in a hospital and all those things. It is just the upkeep of keeping

somebody warehoused in a prison.

We know that we have a long way to go in getting ahead of the

curve, not only from the standpoint of what is best for the country,

but from a cost-efficiency standpoint, too. We certainly appreciate

you being here to give some first-hand testimony on how it has

worked for you and we certainly appreciate our youngsters for
500

being here, too, and we look forward to watching you grow to be

healthy, productive, good citizens.

We usually keep these records open for about 2 weeks. If you

have anything you want to add, any letters of support, anything of

that nature, you are welcome to turn those in and we will include

those in the record. Do you have anything further you want to add

before we close the hearing? Yes, sir.

Mr. BAKER. I just have one thing that I wanted to add. You

stressed the importance of alternative programs, especially in your

own life, sports programs and so forth. Well, there is part of the

GREAT curriculum which identifies the difference between a club,

a positive program, and a gang, a negative program. I just wanted

you to be aware of that.

Senator CAMPBELL. Great. Josh?

Mr. HALBERT. I have with me some letters that all say the same

thing. The GREAT Program has helped them throughout my core,

which is in my school. We go by cores instead of classes.

Senator CAMPBELL. All right.

Mr. HALBERT. There are 1,800 in school.

Senator CAMPBELL. If you will leave those letters with us, give

them to us, we will make sure that they are included in the hearing record as testimony. Thank you.

[The information follows:]

LETTER FROM JASMINE HERRE

495 APPLEBLOSSOM ROAD,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Avenue, Washington, DC.

To Whom It May Concern:

My seventh grade classes at my school had a great opportunity to be in the

GREAT program.

This program should keep coming to our school because it is a really good learning experience. I learned how to stay out of gangs and things happening around

gangs and what to do if I am face to face with a gang member.

Sincerely,

JASMINE HERRE.

LETTER FROM ZACH KAREUS

3222 D1⁄2 ROAD, APT. #103,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I had the chance to participate in the GREAT program, and it taught me a lot.

This program taught me the dangers of gangs and drugs. It made me think about

how being in a gang or doing drugs can affect my whole life. It also helped me deal

with anger. The program helped me with dealing with bad situations and how to

trust others. It helped me with communicating.

Sincerely,

ZACH KAREUS.
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LETTER FROM ASHLEY SEIBERT

3072 GROSBEAK CT.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

We have had a very great opportunity to be able to have the GREAT program

come to our school.

The GREAT program taught me how to set goals, how to say no, it helped me

take care of my problems, and how to trust people.

Thank you!

Sincerely,

ASHLEY SEIBERT.

LETTER FROM CORE DILBA

4681⁄2 SEMINOLE CT.,

GRAND JUNCTION, CO 81504,

May 7, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I think people should fund the GREAT Program (Gang Resistance Education And

Training) because it shows kids the problem with gangs.

Everybody chooses to ignore the rising gang problem, but now there is a program

to prevent gang and gang members, this is called the GREAT Program. It shows

the ups and downs of gangs. Believe me there are a lot more downs than ups.

GREAT also teaches people how to say, ‘‘NO’’ to gangs, drugs, violence, stealing, and

other gang related activities. GREAT also shows kids why gang and gang members

are a problem.

That is why I think the GREAT Program should remain in our schools. Thank

you for your time.

Sincerely,

CORE DILBA.

LETTER FROM MELISSA GOWER

32281⁄2 D3⁄4 ROAD,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The reason, to me, why the GREAT program is so great is because it teaches students how to stay away from gangs and tells students what gangs do so we know

what to stay away from and what is wrong to do and what is right to do. Trooper

Moseman also told us what the laws are and what our rights are. Those are the

reasons why I think the GREAT program should stay in school.

Sincerely,

MELISSA GOWER.

LETTER FROM ZACH AUILA

3042 COLORADO AVENUE,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, D.C.

To Whom It May Concern:

My class was taught the GREAT program; it was wonderful that Trooper

Moseman came to our class. The GREAT program helped me learn about gangs and
502

how to say NO to Drugs. I learned what I had to do in a drug situation. The GREAT

program will help people get out of situations.

Sincerely,

ZACH AUILA.

LETTER FROM AMY JOHNSON

3593 FRONT STREET,

PALISADE, CO 81526,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, DC.

To Whom It May Concern:

Hello, my name is Amy Johnson. I think that the GREAT program is great because it really influenced my life and my friends. Now I know how to stay out of

fights and gangs, to not get involved with drugs and/or alcohol.

I know not to play with knives and/or guns because I don’t want to get hurt or

hurt other people. It also will help teens with their problems and feelings. Thanks

for your time and patience.

Sincerely,

AMY JOHNSON.

LETTER FROM NICK HEFNER

419 LAR DRIVE,

CLIFTON, CO 81520,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, D.C.

To Whom It May Concern:

I think the GREAT program is good because it gives us direction in life. It taught

me not to get involved in gangs or drugs. I like having someone coming in to teach

us the GREAT program. It’s cool because you can ask them almost anything.

Sincerely,

NICK HEFNER.

LETTER FROM KENDRA ADAMS

33521⁄2 PRICE DITCH ROAD,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I recently went through the GREAT program (Gang Resistance Education and

Training). It was very educational. We learned how to resist pressure, stay away

from gangs and drugs, and what constitutes a crime. I have benefited a lot from

this program. I have also noticed a big difference in the kids at our school. This is

something that would be a great thing to keep going. We learned how to survive

in an ugly world and Trooper Moseman made it fun. We even had a graduation

ceremony on January 9. Please consider keeping this program in schools! Thank

you.

Sincerely,

KENDRA ADAMS.

LETTER FROM SHEENA MARTINEZ

4281⁄2 SAXON CT.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The GREAT program was really helpful to a lot of kids because Trooper Moseman

told us about the dangers of drugs and gangs. He told us what to say and what
503

to do if someone asked us to do something we didn’t want to do. Trooper Moseman

was a great help to our school so I hope everyone will have the chance to experience

the GREAT program!

Sincerely,

SHEENA MARTINEZ.

LETTER FROM ROYETTA TOHTSONIE

4601⁄2 321⁄8 RD. #2,

CLIFTON, CO 86520,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I think GREAT is really good for middle school kids. So in the future they will

know what is good and bad so kids don’t get into drugs and Alcohol. The GREAT

program is also good so you can learn your lesson. GREAT is pretty cool.

Sincerely,

ROYETTA TOHTSONIE.

LETTER FROM KELSEY HARRINGTON

3316 F5⁄8 RD.,

CLIFTON, CO 81520,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The GREAT program is a good program because it is about how to avoid gangs,

and how to get away from gangs and how to say no. Trooper Moseman talked about

the dangers of gangs and what could happen with the law and your family at home,

its a great program.

Sincerely,

KELSEY HARRINGTON.

LETTER FROM MATTHEW COOK

586 333⁄4 RD.,

CLIFTON, CO 81520,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I think that the GREAT program should stay in public schools because it teaches

us to say no to things that would get us in trouble, and it taught us not to do drugs

and what they do to your body. It also taught us to respect cultural differences, and

why we are different.

Sincerely,

MATTHEW COOK.

LETTER FROM JON FITZPATRICK

4141⁄2 GLENDALE WAY,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Our school has had the experience of Trooper Moseman teaching us about

GREAT. It was fun.

Other schools from now on should learn about GREAT for these great reasons.

(1) It teaches you to stay away from the dark side.

(2) They teach you to talk about problems, not to use big Bad guns.

(3) It will help keep kids away from gangs.

(4) It teaches people to be friends.
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(5) Kids learn to have their own power.

Sincerely,

JON FITZPATRICK.

LETTER FROM AMBER KELLEHER

426 MORNING DOVE DR.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Our school was honored to have the GREAT program. The following are reasons

why I think we should keep the GREAT program in schools: It was a big help in

teaching students how bad drugs are, how gangs can ruin your life, it helps kids

learn right from wrong, teaches ways to keep away from drugs, ways to tell a gang

member you don’t want to join, and it helps us to tell people who want us to do

drugs no. Please keep the GREAT program in schools. Thank you for your time.

Sincerely,

AMBER KELLEHER.

LETTER FROM KRISTINA M. PIFER

3304 DELICIOUS DRIVE,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I feel honored to have been through the GREAT program. It was instructed by

Colorado State Trooper, Don Moseman. When Trooper Moseman first walked into

the room, water glass in hand, I thought it would turn out as just another boring

speech.

I was wrong. The GREAT program is filled with educational lessons and challenging assignments. It was good, I think that if you were to commit a criminal act during GREAT training (or 9 weeks), you were not eligible to graduate from the program. All of the activities were fun, and most hands-on, most kids liked that part.

Trooper Moseman said some things that went straight to my heart. He was a great

presenter. I enjoyed doing the occasional homework assignments and copying down

definitions in my book.

Moseman had a good discipline procedure which we all pretty much followed to

the word. We all had name tag like things on our desks with class rules on the back.

If we didn’t meet his expectations at one moment he would gently remind us of the

rules.

What I’m trying to say is that this is the first of these programs that I’ve liked,

and I’d love to see more of it. Thank so much for your time.

Sincerely,

KRISTINA M. PIFER, Student.

LETTER FROM JESSE GORDON

35 99E1⁄2 RD.,

PALISADE, CO 31526,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Hi, we had the honor to work with Trooper Moseman. He explained everything

to where everybody understand what he wanted them to do. I think they should

keep the GREAT program in schools so kids don’t get the idea to do drugs and drink

beer and so they could understand what is happening in the U.S.A. today. I hope

they keep it in schools because I learned something new each day.

Sincerely,

JESSE GORDON.
505

LETTER FROM DANNY NICHOLS

437 321⁄8 ROAD,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania, Ave., Washington, DC.

To Whom It May Concern:

We were happy to have Colorado State Trooper Moseman come to our school. He

taught us how often a crime is committed. We also learned that teenage crime is

rising rapidly and this program helps that rate slow down. So please, keep the

GREAT program running in schools.

Sincerely,

DANNY NICHOLS.

LETTER FROM LAWRENCE ABAD

P.O. BOX 312,

PALISADE, CO 81526,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Our Language Arts class was taught the GREAT Program by Trooper Moseman.

He taught us about saying NO, and gang resistance. He was a very good teacher.

We did a lot of hands on activities like acting out getting a job or dealing with

a problem causing child.

I thought the graduation was the best. We all graduated from the GREAT Program on January 9, 1998.

Sincerely,

LAWRENCE ABAD.

LETTER FROM VALARIE RUSSELL

P.O. BOX 444,

PALISADE, CO 81526,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Hello, my name is Valarie Russell and I’m writing you because I think that the

GREAT Program should stay in middle schools because you learn how drugs and

other people can change your life. Trooper Moseman taught us how to say NO, he

taught us how to cope with peer pressure, how to get out of gangs, how to stay away

from people that could be a bad influence on us, and he also taught us that just

because somebody is new doesn’t mean that you have to treat them different.

Sincerely,

VALARIE RUSSELL.

LETTER FROM AARON R. SCHEETZ

491 ANJOU DR.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The GREAT Program is GREAT!

I was lucky enough to have participated in the GREAT Program this year. It

stands for Gang Resistant Education And Training. GREAT keeps kids out of trouble, and it gives real life scenarios to kids so they know what to do. Kids have to

stay out of trouble with the law in order to stay in the program. GREAT has taught

me many things I did not know before. I also learned the six steps of making a decision, or conflict/resolution. GREAT has helped me in my life, and I really think that

it should be in other schools across the nation. I am glad I now know about cultural
506

differences, and I liked the Role playing and hands on experience the GREAT Program gave me. I hope that GREAT will be around for my kids in middle school.

Sincerely,

AARON R. SCHEETZ.

LETTER FROM BEN DIMARCO

3306 S. HIGHLAND DR.,

CLIFTON, CO 81520,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Our class is writing you to tell you how great the GREAT program really is, and

how this program should remain in school districts.

This program helps the kids stay out of trouble. It was really exciting when

Trooper Moseman came to our class because it was really great learning about the

law. Trooper Moseman and all the other Trooper Teachers taught us about the consequences of our doings. This program should stay in school because it was a really

great learning experience. This nine week lesson shows a great way of conflict resolution.

Thank you for your time, and consideration.

Sincerely,

BEN DIMARCO.

LETTER FROM BOBBI JO WATT

3513 G. ROAD,

PALISADE, CO 81526,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

My name is Bobbi Jo Watt and I was in the GREAT program. I thought it was

fun and interesting and it should continue in all schools. Trooper Moseman, the officer who taught us, was very kind and sincere. He did a very good job of teaching

us the GREAT rules and why we shouldn’t join gangs. In the program we learned

the six steps to conflict resolution what we should do if a ‘‘gang’’ or group of bad

people tried to get you to do something that is wrong. Overall, I think the GREAT

program did help those at our school making bad choices.

Sincerely,

BOBBI JO WATT.

LETTER FROM RICKIE BERG

557 AARON CT.,

CLIFTON, CO 81520,

May 5, 1998

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The GREAT program was very educational. It taught us how to say no and alternatives. It also taught self-discipline.

I think that the GREAT program should stay in the school district because it

teaches respect. We liked having Trooper Moseman come in and visit us and teach

us about gang resistance and how to not get involved in drugs and alcohol. It gave

us scenarios and conflict resolution.

Thank you for your consideration!

Sincerely,

RICKIE BERG.
507

LETTER FROM HOWIE TATE

725 356⁄10 ROAD,

PALISADE, CO 81526,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The GREAT program is a learning program about things you can’t learn in school,

but are still important.

Trooper Moseman taught us about gangs, drugs, and illegal acts. He showed us

what to do about these things and also how to work with others in a group.

He also showed us how to control our emotions.

Sincerely,

HOWIE TATE.

LETTER FROM J.J. JEROME

364 ANNANSSA DR.,

CLIFTON, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

We were very happy to have Trooper Moseman come to our school.

One reason why we should keep it is that it help some people get out of gangs

so they don’t die.

Trooper Moseman told us about gang resistance so we wouldn’t join the gang and

we can say NO to drugs.

Sincerely,

J.J. JEROME.

LETTER FROM TASHA ENGLEHART

3133 BROWNIE CIR. 28,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

When we had Trooper Moseman come to our class for the GREAT program. I really learned something. I learned about gangs, drugs, safety issues and violence.

When we went through the program, we learned how to stay away from danger,

such as gangs, drugs, and violence.

I would hope that the same program would be passed next year and the year after

that for many 7th graders. If we learn things like that now, then we won’t be stupid

about them later when any pressure comes our way.

Thank you for your time.

Sincerely,

TASHA ENGLEHART.

LETTER FROM AMANDA SADUAR

424 32ND #87,

CLIFTON, CO 81520,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

We the kids of Mt. Garfield have had the opportunity to graduate from the

GREAT program successfully. I would like to make a comment, all of the kids at

Mt. Garfield would be honored if the GREAT program would stay with our school

to help other kids with violence.

Sincerely,

AMANDA SADUAR.
508

LETTER FROM LEE R. BROWN

30601⁄2 HUMMINGBIRD CT.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I’m a student from Mt. Garfield Middle School and we had the honor of having

Trooper Moseman and the GREAT program in our classroom. I think we should

keep the GREAT program because it’s fun and also teaches us how to deal with

drugs and gangs. It also reduces drugs and gang activity at our school.

Sincerely,

LEE R. BROWN.

LETTER FROM MATT BAILEY

P.O. BOX 32251⁄2 BUNTING,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The GREAT program is good for schools because it can help you decide what is

good and what is bad and encourage you from being in gangs and what to do in

their spare time. GREAT means Gang Resistance Education and Training. It also

tells you how many bad things are happening a day.

Sincerely,

MATT BAILEY.

LETTER FROM DAVID CORKLER

3124 ROBREN,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

This year the Mount Garfield 7th grade had the opportunity to participate in the

GREAT program. We learned many things. We first had to look at examples of different crimes and had to write our own punishment. This helped us learn more

about crimes and punishments, giving us a better understanding of them. We then

had to write down different actions we might take in situations like parties where

others start to experiment with drugs. Our choices were to stay or leave. This gave

us an idea of what to do in situations like that. We also learned to respect different

cultures, work in groups, and things to do instead of joining gangs. I think continuing GREAT would improve our country.

Sincerely,

DAVID CORKLER.

LETTER FROM MOLLIE STOCKMAN

P.O. BOX 1010,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The GREAT Program is Gang Resistance Education and Training. We have had

the honor to have this in our school. It teaches us not to do drugs! It also teaches

us how to not get in gangs and to control our anger! We learned to be nice to our

family because so many kids are being so mean to their parents and elders. It teaches them to behave. One reason it should stay in our school is it helps kids to understand violence.

Sincerely,

MOLLIE STOCKMAN,
509

LETTER FROM JENI TOPAI

429 SAXON CT.,

CLIFTON, CO 81504,

May 4, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I would like to tell you about my training in the GREAT program that we had

in our class recently. We went through it and graduated, we learned to say NO if

you were asked to do drugs because most of our teens today were pressured to do

drugs, and I strongly feel this program would help your family and friends to stay

drug-free for a century. The GREAT program is not only educational, but fun too.

You do plays in class on problems with teens and drugs. (We did one on a boy who

did not care about his grades or anything else.) It encourages us to stay in school

and out of gangs and not to do drugs. I feel we should KEEP THIS PROGRAM!

because there’s a very high risk that we won’t have any drug problems with our

teens.

Sincerely,

JENI TOPAI.

LETTER FROM KATIE SOMMERMEYER

3349 F RD. #2,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

We have gone through the GREAT program and it really helped out some kids.

I have five good reasons that we should keep the GREAT program in our school.

It helps kids live their lives better and to keep kids off drugs and to stay in school

and not to do bad things.

Sincerely,

KATIE SOMMERMEYER.

LETTER FROM MEGAN VAUGHN

3050 D1⁄2 RD.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I’m writing to you to tell you about the GREAT program. Trooper Moseman has

told us how to act when a gang comes up to you and ask you if you want to join,

and he also taught us role play where we saw what it was like to be a cop and get

assaulted. He also taught us the meaning of GREAT. It means Gang Resistance

Education and Training. To the students in my class, this is something to think

about. Thank you for your time.

Sincerely,

MEGAN VAUGHN.

LETTER FROM YVONNE ARNETT

3608 E1⁄4 RD.,

PALISADE, CO 81526,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

My class was privileged to have Trooper Moseman come and teach us about the

GREAT program. We have learned about drugs, what they do to us, cooperation,

how much it can help us, and violence, how much it can hurt you along with other

innocent people.
510

I hope that this program will be continued over the years. I believe that this program will help future 7th graders make important decisions to the best benefit.

Sincerely,

YVONNE ARNETT.

LETTER FROM LYDIA ALLEN

P.O. BOX 3344,

GRAND JUNCTION, CO 81502,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

When we had Trooper Moseman it was great. He taught us a lot of things, like

what kind of drugs there are.

Then he taught us the definition of words like violence. He told us that we could

make it through this program. He showed us what we should do if our friends talk

us into doing stuff. The last thing is, its good and it teaches kids to do good things.

Sincerely,

LYDIA ALLEN.

LETTER FROM TINA CAREN

P.O. BOX 733,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I had the privilege to be in the GREAT Program at Mt. Garfield Middle School.

I think that GREAT was good for us because it helped us get out of trouble. I also

think it was good for us because we learned the consequences of our actions if we

did something wrong. I also believe that Trooper Moseman taught us to respect others and ourselves.

Sincerely,

TINA CAREN.

LETTER FROM KRISTEEN CARPENTER

P.O. BOX 703,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The GREAT Program was very educational because it teaches young people to

stay out of gangs, solve problems, work as a team, and not to do or deal drugs. It

taught us to treat each other with respect.

Sincerely,

KRISTEEN CARPENTER.

LETTER FROM BLADE DOUGLAS

P.O. BOX 1741,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

This program is a good program and should stay in schools because the GREAT

Program is very educational and that’s why we go to school to become educated.

Right? Another reason to keep GREAT in schools is because it teaches us how to
511

stay out of gangs and we do have a gang problem. It also teaches us to say NO to

drugs and alcohol. I think Trooper Moseman did a great job and we all enjoyed it.

Sincerely,

BLADE DOUGLAS.

LETTER FROM SARAH KUHNS

3081 SANDPIPER AVE.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I would like to tell you the GREAT program is a cool way to teach younger kids

and teens how to respect other people. It will teach other people not to do drugs

or kill or rob houses. It will give people an opportunity to make a choice of what

they want to do when they are in a dangerous situation.

Thank you for your time.

Sincerely,

SARAH KUHNS.

LETTER FROM DAYNA MARTIN

5181⁄2 GARLAND AVENUE,

CLIFTON, CO 81520,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, D.C.

To Whom It May Concern:

Hello, how are you? I’m fine, and just dandy! How’s the weather there? Here in

Grand Junction, CO, it is really starting to get hot!

I’m writing in regards to ask you guys to help keep the GREAT program in

schools.

I think there are many great reasons to keep this program in. First of all, Trooper

Moseman is very fun, and will always be there if you’re in trouble. He teaches you

that going to a gang because you have problems at home or school is not the way

to solve them. It can actually make it worse. Trooper Moseman taught us to work

together and to say no to certain things, and when we should just walk away. I

think this program helped some kids realize that gangs don’t help. So, I think you

should consider keeping this program in all schools and in all grades.

Thank you for your time.

Sincerely,

DAYNA MARTIN.

LETTER FROM KRISTIN STOGSDILL

P.O. BOX 1334,

PALISADE, CO 81226,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

We’ve had the opportunity to have the GREAT program in our school. Our teacher

was Trooper Moseman. He taught us about gangs, drugs, and alcohol and that we

should stay away from them. He also taught us about illegal acts, family situation,

and how to deal with anger. I think the GREAT program should stay in schools.

I think it really helps; I know it helped me.

Sincerely.

KRISTIN STOGSDILL.
512

LETTER FROM DESTINIE SALAZAR

3299 LOMBARDY LN. #D,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

We were really lucky to have Trooper Moseman teach us the GREAT Program.

It’s so useful to middle schools because it teaches us not to join gangs and try to

stay in school, plus he tells us how to handle conflicts. I think you should keep it

in schools because it teaches us new things. It helps people who have problems with

drugs or even gangs. It shows us how to deal with people trying to get in trouble,

how to achieve our goals, and the six goals to conflict. Well, that’s all I have to say

about the GREAT program. So please continue it.

Thanks.

Sincerely,

DESTINIE SALAZAR.

LETTER FROM BREE WHITNEY

131 SUNSET CIR.,

PALISADE, CO 81526,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I am representing the 7th Graders at Mt. Garfield Middle School in Clifton, CO.

The purpose of me writing this letter is to ensure that the GREAT program remains

in our school and other schools in our district. This program is useful because it

teaches us how to resist gangs and peer pressure. It also puts us in difficult scenarios and shows us ways to resolve them. This program deals with theft, drugs,

and vandalism and how to avoid them. It puts us in with others and shows us how

to get along. It also taught us goal setting. This program is very informative.

Sincerely,

BREE WHITNEY.

LETTER FROM JORDAN C. SMITH

3294 E ROAD,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

I’m a 7th grader at Mt. Garfield Middle School. We had a wonderful opportunity

to have the GREAT program come to our school, and I believe that you should proceed to fund this program because it taught many of us to stay away and ignore

gangsters and people who want to get you to do something violent. It is a very good

program and also teaches how to get help from friends if you are having a problem

with something, like gangs and drugs. It’s a very good learning process.

Sincerely,

JORDAN C. SMITH.

LETTER FROM DATASHA BEAUCHAMP

414 W. 1ST #C,

PALISADE, CO 81526,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

At Mt. Garfield Middle School we had a wonderful opportunity to experience the

GREAT program. It was spectacular because we got to learn new techniques to deal

with peer pressure. We also learned how to stay out of gangs and what to do in

a nervous situation we worked through a booklet and Trooper Moseman explained
513

everything thoroughly. I would appreciate it if you would keep the GREAT program

so my little sister can get the same knowledge I got from the GREAT program.

Sincerely,

DATASHA BEAUCHAMP.

LETTER FROM ANITA KITTS

3688 G4⁄10 ROAD,

PALISADE, CO 81526,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Well, I’ve been through the GREAT training. It taught me a lot. I think that we

should keep the GREAT program around because others need to know what’s going

on in the world today. Also because we need to realize that all the drugs, alcohol,

and also gangs need to stop! Especially killing good people, and little innocent babies because the gang members think you’re not good enough for them. I think the

GREAT program could help very much. I used to be very bad until the GREAT program came to our school. I think it will help young kids to say no to drugs, gangs,

and alcohol. I just want to thank Trooper Moseman for helping me change my life

so much. If it wasn’t for him, I would probably still be in the same place I was.

Sincerely,

ANITA KITTS.

LETTER FROM KYLA LONDBERG

660 33RD,

CLIFTON, CO 81520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Mount Garfield Middle School had the opportunity to learn about the GREAT program. It was very beneficial for everyone. We learned how to resist peer pressure

of joining gangs, and what to do if you see an act of violence of the danger of drugs.

I think that we should keep the GREAT program going.

Sincerely,

KYLA LONDBERG.

LETTER FROM AMANDA WILKINSON

405 30 ROAD,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave, Washington, D.C.

To Whom It May Concern:

Other classmates, cores, and I have gone through the GREAT program. It was

very educational and fun. I learned a lot.

I learned about gangs and what they do, things to do to stay out of gangs. What

to do if we see something happening and what we can do to help ourselves and

other people.

Thank you for your time.

Sincerely,

AMANDA WILKINSON.
514

LETTER FROM STEVEN SMYTHE

3210 WHITE CIRCLE WEST,

CLIFTON, CO 81520,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Avenue Washington, D.C.

To Whom It May Concern:

I think that the GREAT program should continue for middle schools. It is good

for us to know how to stay out of trouble and gangs. We also learned consequences

for the trouble we get in. In this class we all owe Trooper Moseman for teaching

us all we know about gangs, drugs, and other criminal activities. Trooper Moseman

taught us about these things and to avoid them. Please continue the program so

other kids can also have the opportunity to have this program and still have a

chance.

Thank you for your time.

Sincerely,

STEVEN SMYTHE.

LETTER FROM SHINON CLINKENBEARD

436 DEVON CT.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Team 701 of Mount Garfield had the privilege of having a Trooper from our state

visit us every Wednesday for nine weeks, to tell us about the GREAT program. It

was actually fun.

I, myself learned some things I had forgotten and I know I may have some kind

of importance in my life, like how to say NO to drugs or alcohol, but leave a way

for them to get out too.

I also learned that being a leader and putting forth your ideas is better than just

sitting around and waiting for other people to solve them. We learned some valuable

things in the GREAT program, and I know other people did too.

Sincerely,

SHINON CLINKENBEARD.

LETTER FROM GABRIELLE SCHULTZ

3681 G7⁄10 RD.,

PALISADE, CO 81526,

May 6, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

We went through the GREAT program and it has certainly left an impact on our

school, and our minds.

Trooper Moseman came to our classroom and we had the honor of being the first

class in our school to take the nine week course.

During that time we learned many valuable lessons. We learned that outside appearances don’t matter as much as the person on the inside, that we can gain respect by taking on our responsibilities, that gangs are just troubled kids just like

us who need help. I hope that 7th graders to come will have the opportunity to do

the GREAT program too.

Sincerely,

GABRIELLE SCHULTZ,
515

LETTER FROM PAUL BAILEY

443 LOIS ST.,

CLIFTON, CO 84520,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Our school had the opportunity to experience the GREAT program. And Here are

some benefits that I learned. First, I learned some new laws and how to back away

from drugs or crime. Also, I learned how criminals think and how drug dealers

think so that we can resist. We also learned how to take charge of a situation.

Sincerely,

PAUL BAILEY.

LETTER FROM KENDRA HERALD

468 MEADOW RD.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

The 7th grade at Mt. Garfield Middle School has had a great opportunity to participate in the GREAT program.

During the nine weeks Trooper Moseman was here, we learned how to stay out

of gangs, how to protect ourselves and say NO when asked to join a gang. We

learned how joining gangs and taking drugs ruins our lives. The GREAT program

taught me how to set goals and how to trust people when I’m having problems. In

the future, I hope the GREAT program helps more kids learn about the dangers and

risks of gangs and drugs.

Thank you for your time.

Sincerely,

KENDRA HERALD.

LETTER FROM JOHN SULLIVAN

3251.5 COLLYER,

CLIFTON, CO 81520,

May 7, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

We, the 7–1 core at Mt. Garfield Middle School were honored to have the GREAT

program at our school. I, one of the students, have had hands on experience in this

course. I truly think that you need to support this group. It has made me think

about our town and community. The class activities were great because we got to

role play and get put in a difficult situation. I was a principal in one of the activities. It made me think about kids these days. When I didn’t know what something

meant, he would tell me. I hope this stays in schools so that the other grades will

learn and train themselves from gangs.

Sincerely,

JOHN SULLIVAN.

LETTER FROM NATALIE PUCKETT

464 GREENLEAF DR.,

GRAND JUNCTION, CO 81504,

May 5, 1998.

U.S. Senate, White House, 1600 Pennsylvania Ave., Washington, DC.

To Whom It May Concern:

Mt. Garfield Middle School has had the opportunity to be involved with the

GREAT program. I strongly believe that this program should stay in our school because I have never learned so much about the consequences of violence. I also think

this program really made kids think again about joining a gang. When Trooper
516

Moseman taught us about what drugs did, I was convinced that many kids made

the decision not to do drugs. At the end of the program when we thought and wrote

our goals that we wanted to happen in life, it really made me think about what

choices I would need to make to achieve them. I also learned about the things that

I could do to stop violence.

I know that this program works and has an impact on every student that goes

through this course. I would hate to have to see the GREAT program stopped.

Sincerely,

NATALIE PUCKETT.

SUMMER PROGRAMMING

Mr. TYMESON. Senators Kohl and Campbell, if I could add some

information about the summer program? Senator Kohl asked the

question and I certainly appreciate the opportunity to be helping

represent the La Crosse group here. First I would like to say I wish

I had this panel with me at the University of Wisconsin-La Crosse.

I work with a lot of future teachers and professionals in youth service areas and I would just love to bring this group right here in

as instructors. They would do a fabulous job in reality.

I just want to emphasize the importance of summer programming. Summer programming is a key part of any comprehensive

youth programming, including the GREAT Program. Summer is a

time for youth to have fun, experience new things, and as we all

know, explore. Sometimes in that exploration they need a little

help in making sure that is positive exploration and to be sure that

it is in structured programming with appropriate role models.

Kids are really challenged today. As a parent of two young boys

who have been through the GREAT and the DARE programs, I recognize this in what they bring home each day. Kids are challenged

to do the right things. Kids are often alone without parental role

models, unfortunately, and they need to grow to make good decisions and have those skills to make good decisions.

A GREAT summer program, a GREAT educational program is

important. Senator Campbell, you mentioned about the importance

of sports and recreational programming in kind of turning around

your life. That served obviously as a very, very important alternative for you and the kids, I think, up here on the panel and the

officers have mentioned how important those alternative programs

are.

That is the importance of a summer program, giving the kids an

opportunity to apply what they have learned during the school

year, apply it during all of that extra time that they have during

the summer. A quality summer program must be a multiagency effort. There needs to be education, social, and human service agencies. All of these must be combined.

This is what makes the NYSP/GREAT program work and this is

what I am sure makes all of these programs work, that it has to

be a multiagency type of program. Recent statistics are very, very

scary from the National Center for Educational Statistics. They

state that there is an increase in gang activity in schools. The percentage of kids that are victims of crime in school are increasing.

I would just encourage you to really consider increasing the funding and giving more kids and officers the opportunities. Senator

Campbell, I think it was you, you mentioned, do you see the police

officers in different roles? I have the luxury to be working with

these guys from La Crosse. I have the luxury to be a parent who
517

can see the impact, and also a consumer to be able to enjoy a safe

community.

I see the police officers having fun teaching kids during the summer in the summer GREAT Program. It sheds a whole different

light on the relationship between these kids and the officers, and

I know that it makes a difference. I know that some night, some

time when these kids might be getting into trouble and not using

some of the good decisionmaking skills, that I know they are going

to recognize a police officer.

All over the country this could happen and I know it is going to

prevent some problems from occurring. That interaction with community policing that is happening is a critical thing and the

GREAT Program, including the summer programs, are marvelous

examples of community policing. Thank you very much.

Senator CAMPBELL. While you police officers are here, I might

recommend, if you have the time, you go to the police memorial

that is here in Washington, DC. Last night, they had a candlelight

vigil there and I, unfortunately, had a conflict and could not get

over there, but once a year, they read the names of the police officers who have been killed in the line of duty. This day of remembrance lasts for several days here in town and we always encourage youngsters to go there.

Mr. SIMEONA. Senator, if we may, we wanted to present you with

some gifts that we brought.

Senator CAMPBELL. I am not sure of the rules for that, but I

think I am going to recess the subcommittee. It might be graft and

corruption or something. There are rules for all kinds of things.

[Laughter.]

CONCLUSION OF HEARINGS

With that, this subcommittee has recessed and I will look forward to that. Thank you. That concludes the hearings. The subcommittee will recess and reconvene at the call of the Chair.

[Whereupon, at 11:30 a.m., Thursday, May 14, the hearings were

concluded and the subcommittee was recessed, to reconvene subject

to the call of the Chair.]

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MATERIAL SUBMITTED BY INDEPENDENT

AGENCY NOT APPEARING FOR FORMAL

HEARINGS

[CLERK’S NOTE.—The following independent agency of the Department of the Treasury did not appear before the subcommittee

this year. The subcommittee requested that this agency submit testimony in support of its fiscal year 1999 budget request. The statement follows:]

U.S. POSTAL SERVICE

PREPARED STATEMENT OF MARVIN RUNYON, POSTMASTER GENERAL/CHIEF EXECUTIVE

OFFICER

We appreciate the chance to talk with you about the Postal Service and our appropriations request for fiscal year 1999.

Today marks my final statement before this subcommittee. I want to thank the

members of this subcommittee for your strong interest in the nation’s mail system.

Your counsel and support have been valuable to me and to the Postal Service. You

have also been generous with your praise when our employees have delivered better

service and financial performance. We appreciate that.

As you know, I have announced my intention to step down as Postmaster General

by May 15. The Governors of the Postal Service are searching for my successor.

There are several highly qualified candidates within the current officer ranks. I am

confident that an able leader will be selected and that the progress of the Postal

Service will continue.

Whoever that leader is, they will soon learn, as I did, how important the Postal

Service is to the nation. And how much the American people rely upon it to do business, stay in touch, and carry out their civic responsibilities.

They will also learn that the Postal Service faces a unique mandate. On one hand,

it is a public service, chartered to deliver to every home, farm, and factory in the

nation. That means keeping open thousands of small post offices that do not cover

their costs. It means delivering letters at a uniform price to all areas of the country,

no matter how great the distance or how remote the location.

On the other hand, the Postal Service also faces vigorous competition and a requirement to operate like a business. That means we must continually prove ourselves in the marketplace of today and prepare ourselves for the marketplace of tomorrow.

Some see those objectives as incompatible. But the truth is, a self supporting universal service must be run like a business or it will cease to be either self-supporting or universal. I believe during the past six years, the Postal Service has shown

that it is possible to do both.

Recently, the American people cast a strong vote of approval for the job that postal employees are doing. Nine out of ten Americans gave the Postal Service the most

favorable rating among agencies of the federal government in a recent study by the

Pew Research Center for The People and The Press. The Pew report said, ‘‘The Postal Service stands out from other departments.’’ The Postal Service stands out because postal employees stand out. They have made change work for the Postal Service and delivered excellence to the American people.

The Postal Service has been undergoing a transformation since 1992. At that

time, customers and employees alike voiced concern that the nation’s mail system

was in trouble. The Postal Service faced a projected year-end deficit of $2.2 billion

and service was shaky. A sizable rate increase seemed likely. One that would have

continued a long-standing cycle of red ink and rate hikes.

The first order of business was to break that cycle. To begin, the organization was

restructured, layers reduced, and bureaucracy cut. Without layoffs, 23,000 overhead
520

positions were eliminated. Expenses were lowered and unnecessary programs ended.

We also refinanced debt, saving more than $2 billion over 20 years.

In all, the anticipated deficit was trimmed by $1.7 billion in 1992. And prices were

held steady for four years until 1995. The rate increase that followed was one of

the lowest ever, two full points below inflation.

Last summer, we requested the lowest increase in our history. It is less than half

the rate of inflation and only a single penny on the First-Class stamp. We are asking the Postal Rate Commission for so little because we have replaced deficits with

surpluses. $1.8 billion in 1995. $1.6 billion in 1996. And $1.3 billion last year.

Today, the Postal Service is well on the road to financial health. And well on the

way to fulfilling the legislative mandate that our finances break even over time. The

net income of the last three years has cut our accumulated losses since reorganization in half. We have $4.4 billion yet to recover and a strategy in place to do so.

At the same time, we have also broken the cycle of sacrificing service to make

budget. Postal employees have delivered record service, while trimming costs and

handling increased work loads. In 1994, 79 percent of local First-Class Mail was

being delivered overnight. That figure has risen steadily to a record 92 percent at

the close of fiscal year 1997. Service is up across the board, in rural and suburban

areas, and in all of America’s large cities. We expect to close with a new record in

1998.

These numbers reflect extensive changes that have taken place across the postal

landscape. None more profound than the CustomerPerfect! Management system we

adopted in 1995, based on the Malcolm Baldrige business principles. As the name

implies, CustomerPerfect! establishes customer needs as our primary business driver. It also provides the framework for integrating managerial processes to deliver

optimal performance. Market assessments, planning, budgeting, training, resource

allocations, and major initiatives of every kind are brought together in an understandable and actionable way.

Another hallmark is that we are setting more specific performance targets and

tracking our progress more precisely. We have incorporated these measures in the

five-year Strategic Plan presented to Congress. And we’re updating them in our

yearly performance plans. By the turn of the century, plans call for higher delivery

scores. Not just for local First-Class Mail, but for two- and three-day deliveries, Priority Mail, and bulk business mailings. We are also adopting new ‘‘Ease of Use’’

measures, to make it increasingly easy for customers to do business with us.

The future of the Postal Service is taking shape right now across America in communities large and small and throughout our plants and offices. It is evident in our

new retail attitude, the acceptance of credit and debit cards, extended business

hours, and modern interior design that takes products and services from behind the

counter and places them at the customer’s fingertips.

The future lies in advanced communications technology that is being deployed to

connect our offices and delivery force into a modern logistical system. This will help

us manage the business and provide customers with value-added services they demand and deserve.

The future is in advanced automation and handling systems that drive costs down

and service up. Computers can now process more than 25 percent of handwritten

letter mail. The sorting of magazines, newspapers, catalogs and small packages is

being steadily automated. We are also in the early stages of creating the plant of

the future. One that will see intelligent transport systems and robots handling the

mail from acceptance to dispatch.

The future is in process management that is simplifying our systems, eliminating

stumbling blocks, and lowering costs. Process management is at work throughout

Headquarters and in a growing number of plants and offices across the country. We

share what we learn at these sites throughout the organization via our internal web

site.

Increasingly, the future will be augmented by electronic means. We are linking

electronically with customers to reduce paperwork, schedule shipments, and reconcile accounts. We are providing the public with 24-hour access to information

through our public web site. And we are developing electronic channels that allow

a range of postal services to be purchased from the home or office.

Most important of all, the future is in our people. It is in seasoned leaders like

my Deputy, Mike Coughlin, Chief Operating Officer Bill Henderson, our officer

corps, and our field management team. It is in the more than 770,000 career postal

employees whose dedicated service makes all of this possible. I can’t say enough

about what they have accomplished. They make the changes work. Around the

clock, across the country, despite every act of nature, they deliver for America. I am

very proud of them.
521

The Postal Service has come a long way. However, the challenges we face in the

marketplace have grown as well. We face competition for every message, package,

and payment we deliver. The rise of the internet and increasing numbers of personal computers in American households pose a threat to half of our First-Class

Mail volume: the bills, payments, and statements which provide nearly 30 percent

of our revenue. At risk is not only the heart of our business, but the underpinnings

for the universal mail network that has served this nation so well for over two centuries.

We are defending our business and universal service through two key strategies.

One, we are raising the value of our services through a combination of cost-control,

price restraint, and service improvement. Two, we are seeking new growth opportunities in parcel services, global markets, and satisfying customer needs. To those

ends, we have committed an investment of $17 billion over the next five years to

build the infrastructure and capabilities that are required.

The Postal Service is on the move. We are committed by word, deed, and dollar

to a transformational path that will keep us a vibrant communications force in the

21st century marketplace. I’m confident we will be successful. And I appreciate the

support of this subcommittee and this Congress as we move forward.

Today, the Postal Service requests a total appropriation of $100,195,000 for fiscal

year 1999. This amount recovers the expense of revenue forgone on free and reduced-rate postage for certain types of mail mandated by Congress. Most of this

amount—$68,710,000—reimburses the Postal Service for the costs of providing free

mail for the blind and overseas voting.

The Postal Service also requests an amount of $29,000,000 toward reimbursement

for past year shortfalls in revenue forgone funding. This is the sixth payment in a

series of 42 annual payments authorized for this purpose in the Revenue Forgone

Reform Act. Consistent with the law, the remainder of our request—$2,485,000—

is a reconciliation adjustment to appropriations in previous years. Each year, appropriations for free and reduced rates are based on estimated mail volumes. When

final audited mail volumes become available, these figures are reconciled with the

estimates. Our request for the coming fiscal year contains an amount to cover an

audited funding shortfall in fiscal year 1996.

Our request, however, no longer includes an amount to cover workers’ compensation payments for employees of the old Post Office Department. Formerly, transitional appropriations to the Postal Service funded the compensation paid to approximately 1,800 individuals or their survivors for injuries which occurred before July

1, 1971. These expenses are directly related to the operations of the former Post Office Department and were, by law, a liability of the U.S. Government. The Balanced

Budget Act of 1997 repealed the authorization for these transitional appropriations,

and as of October 1, 1997, made these compensation costs liabilities of the Postal

Service payable out of the Postal Service Fund. Consistent with business accounting

principles, we have already accrued the full estimated cost of these liabilities,

amounting to about $258 million.

Finally, we have again declined to request the annual public service appropriation

of $460 million which is authorized by law. We have not received an appropriation

of this type since fiscal year 1982. By not using these funds, the Postal Service and

this subcommittee have saved the Federal Government over $6 billion. We view not

requesting this appropriation as one of the ways we keep faith with the legislative

contract that made the Postal Service a self-supporting government establishment.

Another way, of course, is maintaining universal service to everyone, everywhere,

every day. We are extremely proud of our success in that regard, and we hope and

trust that we will continue to benefit from your support.

(523)

NONDEPARTMENTAL WITNESSES

[CLERK’S NOTE.—The following testimonies were received by the

Subcommittee on the Treasury and General Government for inclusion in the record.

The subcommittee requested that public witnesses provide written testimony because, given the Senate schedule and the number

of subcommittee hearings with Department witnesses, there was

not enough time to schedule separate hearings for nondepartmental witnesses.]

PREPARED STATEMENT OF BOBBY L. HARNAGE, SR., NATIONAL PRESIDENT, AMERICAN

FEDERATION OF GOVERNMENT EMPLOYEES, AFL–CIO

Mr. Chairman and Members of the Subcommittee, my name is Bobby L. Harnage,

Sr. and I am President of the American Federation of Government Employees, AFL–

CIO. I appreciate the opportunity to testify before the Subcommittee concerning

three issues affecting federal employees: the 1999 pay adjustment, official time for

federal employee union representatives, and contracting out legislation. AFGE is the

largest federal employee union, representing 600,000 workers across the nation and

overseas.

FEDERAL PAY—GENERAL SCHEDULE

General Schedule (GS) federal employees, on average, should have received pay

increases this year in excess of 10 percent. But because of continued defiance of the

law by politicians in both the executive and legislative branches, those employees

are actually receiving, on average, raises of only 2.8 percent. Short-changing federal

employees on their pay raises is nothing new. Actually, it’s happened year after year

after year.

In 1999, GS employees should receive pay increases of almost 13 percent. However, the Clinton Administration has proposed in its budget that pay raises for GS

employees next year be only 3.1 percent, on average. Unfortunately, the President’s

budget submissions for the years 1994 through 1999 have proposed federal GS salary increases far below that called for under the Federal Employees Pay Comparability Act (FEPCA). To remedy this gross inequity, legislation has recently been

introduced that would close the loophole in FEPCA which allows the President to

recommend pay raises smaller than the levels required by law.

That federal employees are underpaid compared to their counterparts in the private sector and state and local government who perform similar work is a fact.

What remains to be seen is whether the Administration and the Congress will finally provide federal employees with the pay raises which are their due under

FEPCA. Responding to studies which showed conclusively that, on average, federal

employees were paid 30 percent less than their private and public sector counterparts, Democrats, Republicans, and President Bush, urged on by AFGE and other

unions, decided to close that pay gap over a nine-year period. As agencies continued

to downsize, the President and a bipartisan coalition of lawmakers understood that

it was more imperative than ever that the federal government provide competitive

compensation packages so as to recruit and retain the highest quality employees.

FEPCA was designed to enable the federal government to compete for applicants in

every single labor market. And the law itself represented a fair, evenhanded approach to balancing the government’s need to control its costs and the need of federal employees to maintain adequate standards of living.

Following the law’s passage, many thought that the pay increases due GS employees would no longer be cut back or held up by the President and/or the Congress.

Under the law, pay for GS employees would slowly but surely become more comparable with the salaries of their counterparts in the private and public sectors. Pay

adjustments for GS employees would consist of two components: (1) a nationwide
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increase linked to the Employment Cost Index (ECI), which measures the change

in private sector wages and salaries; and (2) a locality increase, based on a comparison of non-federal and GS salaries in 32 pay areas across the nation.

In order to minimize the impact on the budget of finally treating the government’s

GS employees comparably with their private and public sector counterparts, the locality portion of the pay adjustment was to be phased in over a nine-year period.

This grand compromise left GS employees with the expectation that the pay gap

would eventually be closed. In fact, FEPCA mandated that 20 percent of the pay

gap between average non-federal salaries and average federal salaries be closed in

1994 and that an additional 10 percent be closed each year thereafter through 2002.

Unfortunately, the Administration and successive Congresses have failed to provide GS employees with the pay raises required by FEPCA. In fact, the law’s mandates were ignored almost from the start. Although FEPCA mandated that 70 percent of the pay gap be closed by 1999, it will only have been reduced by 30.7 percent.

As reported in a recent Congressional Research Service report (Implementing the

Federal Employees Pay Comparability Act: Results Since 1991 and the Federal Employee Pay Adjustment for January 1999), ‘‘FEPCA has never been implemented as

originally enacted. In 1994, the annual pay adjustment was not provided and, in

1995, 1996, and 1998, reduced amounts of the annual adjustment were provided.

For the years 1995 through 1998, reduced amounts of the locality payments were

provided. (Only in 1994 was locality pay implemented as FEPCA required.)’’ The

record of the Administration and successive Congresses raises the question of

whether the law will ever be fully and faithfully implemented.

For 1998, for example, the pay raise was only 2.8 percent. The Congress remained

silent on the issue of GS pay in the Treasury Appropriations conference report, subsequently signed into law by the President. The President’s budget had earlier recommended a total pay raise of 2.8 percent for 1998, to be divided between the nationwide and locality adjustments. In September 1997, it was determined that ECI

for 1998 would be 2.8 percent. After subtracting 0.5 percent, as required by FEPCA,

the nationwide adjustment for 1998 was 2.3 percent. The Administration recommended to the Congress limiting the locality portion of the raise to just 0.5 percent, on average. After combining the nationwide and locality adjustments, the average pay raise for GS employees for 1998 worked out to only 2.8 percent—even

though FEPCA said that those dedicated public servants should have had their pay

boosted by much larger amounts. Last year, in fact, FEPCA authorized closure of

60 percent of the gap. That means GS employees should have received, on average,

10.5 percent increases in locality pay alone.

After several years of low-balling GS employees on their pay increases, the crusade begun under FEPCA to finally treat GS employees comparably with their private and public sector counterparts—by closing the pay gap with the non-federal

work force—is far, far behind schedule. The lawmakers who crafted FEPCA insisted

that the pay gap between federal employees and their private and public sector

counterparts should have been closed to 17 percent by 1998. However, because of

continued defiance of FEPCA, that gap actually now stands at 24 percent.

How much will the politicians’ failure to follow FEPCA cost federal employees for

just this year? Let’s take three GS employees in Mobile, AL. A GS–4, Step 4, worker

is making $20,697 this year. If the politicians had obeyed FEPCA, that same federal

employee would now be making $21,928. A GS–8, Step 8, worker is earning $35,615

this year, but should actually be paid $37,735. And a GS–12, Step 8, worker who

should be paid $60,439 in 1998 is actually making $57,050. Obviously, the differences between the ‘‘way it is’’ and the ‘‘way it ought to be’’ are not enough to retire on, put five kids through college, or pay for around-the-world cruises. But it is

money which could undoubtedly be put to good use by the working and middle-class

Americans who make up the federal work force. More importantly, it is money

which FEPCA—and the lawmakers who wrote the law—say belongs to federal employees. Of course, those losses are just for 1998; they are neither cumulative nor

adjusted for inflation.

Since 1994, the President has continued to deny federal employees increases

called for under FEPCA based on a technicality—by claiming that an economic

emergency exists of such severity that FEPCA must be disregarded. Economic emergency? The United States of America has experienced several years of strong economic growth. Moreover, the budget is in surplus—in large measure thanks to the

incredible sacrifices made by federal employees, federal retirees, and their families.

In fact, over the last eighteen years, the federal employee community has sacrificed

over $180 billion to balance the budget. It’s safe to say that no other specific group

of Americans has done more to reduce the nation’s indebtedness than federal employees, federal retirees, and their families. Based on data provided by the Office
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of Personnel Management, between 1994 and 1998 federal pay raises were reduced

approximately $29.6 billion below the increases called for under FEPCA. In fact, the

largest share of those sacrifices has occurred through the failure of the Administration and the Congress to follow FEPCA. Now that those sacrifices have paid off, it’s

time for politicians to pay federal employees the raises that are their due under the

law.

In conclusion, the Congress and the President should finally understand that paying GS employees what they deserve is a sound investment in the future of the federal work force. The continued defiance of FEPCA fuels the cynical view that seeking good faith compromises on issues of public policy is futile, because Congress and

the Administration will always do what is easy, rather than what is right.

FEDERAL PAY—BLUE COLLAR

The Federal Wage System (FWS) is the federal government’s pay-setting system

for workers in crafts and trades occupations, often referred to as ‘‘blue-collar’’ workers. The FWS is designed to pay these workers according to the prevailing rates in

the private sector of the local economy. The system’s design, intended to provide federal blue collar employees with a fair wage and assure that the federal government

can attract and retain high quality craft and trade workers, is sound. But the Congress has consistently imposed arbitrary pay caps that prevent the system from

working properly and leave blue collar workers further and further behind their

counterparts in the private sector with respect to compensation.

The goals of the FWS, which was enacted in 1972, have largely been ignored because Congress has imposed artificial limitations on pay increases that have nothing

to do with private sector pay rates, and everything to do with penny-pinching politics. The comparability provisions of the FWS have been consistently disregarded by

limiting increases to no more than the same percentage increase paid to white collar

employees under the General Schedule, regardless of the percentage actually due to

blue collar employees under the FWS. These ‘‘pay caps’’ have forced federal blue collar workers to see not only the real value of their pay decline, but also to have their

own salaries fall further and further behind the rates paid to their counterparts in

the private sector who perform similar work. The government continues to conduct

careful surveys of private sector pay in 134 different wage areas around the country

each year. These surveys are models for labor-management cooperation and produce

statistically valid information on the rates of pay in the local private economy. Unfortunately, these results are ignored and treated as virtually meaningless due to

the arbitrary pay caps that have been imposed annually since 1979.

Successive pay caps on the FWS have caused the government’s blue collar workers to see a real, inflation adjusted decline in the value of their pay compared to

their private sector counterparts. The pay gaps vary in different parts of the country. They also vary by grade. A WG–2 Janitor in Dothan, AL earns $8.26 per hour,

while the prevailing rate for that work in the local private economy is $10.06. A

WG–5 Warehouse Worker in Dothan makes $10.17, while his private sector counterpart makes $12.53. A WG–10 electrician earns $13.52, while the private prevailing

rate is $16.55. In Oklahoma City, OK, the federal Janitor makes $10.03, while they

pay $10.54 in the private sector. The Warehouse Worker makes $11.85 vs. $12.65

in the private sector. The Electrician earns $15.77, while the prevailing rate is

$16.15. In San Bernardino, CA, the federal Janitor is making the same as the private prevailing rate, $8.34 per hour. The Warehouse Worker is also making the prevailing rate at $11.72 per hour. The electrician in San Bernardino still lags behind

her private counterpart, earning $16.22 to the prevailing rate of $17.37.

Under FEPCA, the gaps between federal white collar pay and the rates in the

local economy were so large that the costs of closing them had to be spread over

nine years. Fortunately, no similar major overhaul of the blue collar pay system is

needed to address the pay gap of that work force. First, the size of the FWS work

force is much smaller than that covered by the General Schedule. As of December

31, 1997, there were only 244,000 blue collar employees; and that number continues

to shrink steadily. In 1957, there were almost 750,000 federal blue collar employees,

at a time when there were just under a million white collar workers. During the

Vietnam War there were over 500,000 craft and trade workers. As recently as July

1993 the number was 333,295. DOD downsizing and often wasteful contracting out

are the main factors contributing to this decline.

Second, FWS pay gaps are much smaller than those in the General Schedule. According to the Federal Salary Council, the average pay gap for the General Schedule

pay localities this year was 28 percent. OPM found the average FWS pay gap as

of December 31, 1997 to be only 4.94 percent. Less than one percent of federal pay

blue collar workers have gaps in excess of 15 percent.
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While the solution to the problem is more easily achieved for blue collar employees, the failure of the government to pay equitable wages will only grow worse if

the Congress continues to arbitrarily impose caps on pay increases called for under

the FWS.

In conclusion, the system Congress designed in 1972 to set federal crafts and

trades wage rates in accordance with locally prevailing rates is sound public policy.

AFGE has great confidence in the integrity of this system. The cooperation between

management and labor unions in the implementation of the system is a model of

partnership that is showing the way for others in the federal government. Congress

should honor this policy and allow the system to resume operation without the imposition of arbitrary pay caps in fiscal year 1999.

OFFICIAL TIME FOR FEDERAL EMPLOYEE UNION REPRESENTATIVES

The Office of Personnel Management (OPM) was directed by the House Appropriations Committee to report by December 1, 1998, on the use of official time by

federal employee unions. The report will cover official time activity for the first six

months of calendar year 1998.

AFGE and other federal employee unions have been working closely with OPM

and key federal agencies to ensure a reliable and accurate report. OPM created a

working group of agency and union representatives who collaborated on the development of an official time survey and a set of instructions for all federal agencies covered by the Committee’s request. The working group will continue to assist OPM

in any way requested as the data is collected.

GOVERNMENT-WIDE CONTRACTING OUT

Mr. Chairman, as you may know, there’s been some talk about attaching the latest versions of the ‘‘Freedom From Government Competition Act’’ (S. 314) to the

Senate Treasury-Postal funding measure. I urge the Subcommittee to oppose such

an effort. Moreover, I urge the members of this Subcommittee to oppose this legislation regardless of how it is advanced.

Although the latest versions of this legislation are styled as ‘‘compromises,’’ little

has changed from before. The latest Senate draft would replace OMB Circular A–

76, the current system for competing commercial services between federal employees

and contractor employees, with a more pro-contractor system and then put the government up for bid over a five-year period. Because of the documented lack of competition for government contracts, this legislation will likely increase costs to the

taxpayers because so many contracts will be sole-sourced or divided up among a few

bidders—as has historically been the case at the Department of Defense (DOD) and

the Department of Energy (DOE), the two federal agencies which do the most service contracting. Adding to taxpayers’ burdens, the staggering amount of waste,

fraud, and abuse in federal service contracting which exists already will likely skyrocket once the government is put up for sale.

It is claimed that the federal government doesn’t contract out enough and that

OMB Circular A–76, the system by which federal employees and contractors compete for commercial activities, isn’t used enough. But the federal government already contracts out at least $110 billion annually. That figure is somewhat arbitrary

since it doesn’t include a multitude of federal service contracting, like payments to

Medicare providers. Even at that artificially low level, the federal government

spends less annually on pay and retirement for its entire civilian work force of 1.8

million employees ($108 billion) than it does on service contracting.

While supporters of S. 314 admit that OMB Circular A–76 is being used extensively in DOD, they point out that it isn’t often used in other departments. That’s

true. But does that mean there is no contracting out occurring outside of DOD? Certainly not! Approximately two-fifths of the more than $110 billion contracted out annually is from non-DOD departments. In the absence of OMB Circular A–76, it must

be assumed that most of that contracting out is occurring without public-private cost

comparisons. So supporters of S. 314 have a point, but not the one they intended

to make: Although much contracting out is occurring outside of DOD, little of it is

done under OMB Circular A–76—meaning that contractors are getting this work

without competing against federal employees.

What’s wrong with this legislation:

1. It would junk OMB Circular A–76 in favor of a more pro-contractor system.

Federal employees used to regularly lose the competitions conducted under OMB

Circular A–76. Only a few years ago, federal employees came out on the losing end

7 out of 10 times. Thanks to the efforts of federal employees to reinvent themselves,

we now win one-half of the public-private competitions. It is this dramatic change
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in fortunes for the contractors which has inspired this most recent effort to do away

with OMB Circular A–76.

Moreover, if anything, it’s federal employees who ought to be complaining about

OMB Circular A–76. Under its guidelines, managers are entitled to contract out—

without first doing a cost comparison—work involving 10 or fewer employees. For

work involving 11 or more employees, cost comparisons can be waived for contractors. And the cost comparison process can be ‘‘streamlined’’ for work involving 65

or more employees.

It is inevitable that the public sector and the private sector will find fault with

OMB Circular A–76. Jobs and money are at stake. It’s been said that democracy

is a terrible way to govern, but it’s better than the alternatives. The same can be

said of OMB Circular A–76. Federal unions and contractors participated extensively

in the most recent revision of OMB Circular A–76. Neither side managed to achieve

all of its objectives. Contractors and their political benefactors need to learn that

compromises must be made when competing interests are at stake.

2. It would subject to public-private competitions work which is truly inherently

governmental.

The latest draft of S. 314 would allow contractors to protest agencies decisions to

keep work which is inherently governmental in-house. It would allow agencies to

challenge in federal claims court agencies determinations of what’s inherently governmental. The Senate draft would allow contractors to challenge agencies’ awards

in federal claims court. As might be expected, unions would be forbidden from both

challenging agencies’ decisions about what’s inherently governmental and taking

agencies to court about awards. Obviously, the intent is to allow contractors to bully

agencies with costly and protracted litigation into forcing as much work to be contracted out as possible. Decisions about awards and what’s inherently governmental

should continue to be made by department officials who are most familiar with the

services actually provided.

Moreover, both versions would involve politicians in the process by which work

is determined to be inherently governmental or commercial. The new version of S.

314 requires departments to submit to Congress lists of the commercial services

they provide. The resulting contractors’ catalogues would invite a completely unprecedented and thoroughly unhealthy Congressional micromanagement of contracting

out decisions.

In response to lobbying by constituents back home, politicians are sure to use

their influence to have particular services classified according to their preferences,

rather than how they should be classified. While some politicians may intervene on

behalf of federal employees, let’s face the facts: contractors have deeper pockets and

are thus more capable of getting their way. The result of all this politicalization:

services which are truly inherently governmental bid will be put up for bid and perhaps steered towards well-connected contractors.

3. It would put the government up for sale over five years by mandating publicprivate competitions under a pro-contractor successor to OMB Circular A–76 for an

expansively-defined list of commercial activities—regardless of how well federal employees are actually performing their jobs.

Federal employee unions understand the value of public-private competitions

within the context of OMB Circular A–76. Clearly, work should not be contracted

out without the benefit of public-private competition. And just as surely as OMB

Circular A–76 gives managers the discretion to subject commercial work to publicprivate competitions, it also gives managers the discretion not to compete work

when federal employees are doing their jobs satisfactorily.

Supporters seem to take the position that any commercial work not subject to

public-private competition and still performed by federal employees is inherently

suspect, i.e., that there must be a conspiracy afoot to keep that work in-house. After

12 years of Reagan-Bush political appointees, who largely disdained the public sector, and 5 years of Clinton political appointees, who have racked up the largest service contracting out bills in the nation’s history, it would be difficult to argue that

the reason more work hasn’t been contracted out is federal employee protectionism.

Sometimes, the real explanation is also the simplest: federal employees consistently

deliver services departments’ customers need at the prices taxpayers can afford. And

if federal employees are performing at least satisfactorily, there’s no need to impose

public-private competitions.

Worse, lawmakers already have the power to compel public-private competitions

under OMB Circular A–76 if they think it to be proper. As is often the case in DOD,

lawmakers—presumably after careful study and consultation with experts—can intelligently determine whether a particular activity should be considered for contracting out and impose that requirement in law. That makes more sense than blindly
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subjecting to competition every commercial activity in every single federal agency

over a five-year period.

Finally, it must be noted that the savings generated from this disruptive system

of around-the-clock competitions would be one-time and likely disappear soon thereafter. Work contracted out is unlikely to ever be brought back in-house because of

the expense of recapitalizing in-house capability and reassembling and retraining

the necessary staff. That means, the taxpayers will become vulnerable to sole-source

contracting—as has been the case at DOD and DOE, which have done the most contracting out—because of the absence of private-private competition. Not only will

the one-time savings be quickly consumed but taxpayers could be left on the hook

in perpetuity because of the absence of effective in-house competition. As Representative Norm Sisisky (D-VA), a businessman before entering politics, has said repeatedly: ‘‘If you kill the public sector, you kill competition.’’

This legislation fails to address several outstanding issues:

1. Our current contract administration system is already busted and broken beyond repair. Much of it is on the General Accounting Office’s (GAO) list of federal

services subject to waste, fraud, and abuse. OMB, departments, and outside experts

like GAO report that the government cannot adequately supervise all of the service

contracting it undertakes right now. Imagine what will happen when the government is put up for sale over five years! The ‘‘revolving door’’ phenomenon—whereby

managers direct work towards contractors they intend to work for upon retirement,

would surely increase throughout the government—is also left unaddressed by the

draft.

2. Arbitrary personnel ceilings are already forcing work to be contracted out. Departments don’t have enough employees, so they simply contract out the work without any public-private cost comparisons. That’s not just what federal employee

unions say. That what departments say. That’s what inspectors general, GAO, and

outside experts say. For several years, politicians have been bragging about reducing the number of federal employees. But what the American people haven’t been

told is that a ‘‘shadow work force’’ is being hidden on the payrolls of thousands of

federal contractors. That is, federal employees are being replaced with contractor

employees—often at greater expense.

Departments should be required to manage by budgets. If they have the money,

then they should be allowed to keep or hire the necessary number of federal employees to perform the work if they would provide more efficient and more effective service than their private sector counterparts.

Unfortunately, these bills doesn’t require departments to manage by budgets. Instead, they would leave federal employees with the worst of both worlds: they would

be forced to compete all of the time but would often be prevented from actually competing for work because they couldn’t keep on or hire sufficient in-house staff to do

the work.

3. Champions of contracting out say that private sector firms generate savings for

taxpayers by devising more efficient ways of delivering services. However, much

contracting out is done to shortchange employees on pay and benefits; and, often,

contracting out is done to avoid unions. Nothing in the legislation would force contractors to devise better ways of delivering services and reduce their incentive to

provide substandard wages and benefits. When the budget is in surplus, the economy’s booming, but income distribution grows worse and worse, how can the federal

government justify replacing working and middle class Americans with poorly-paid,

contingent workers?

4. Despite the dislocation that would obviously result from enactment of this legislation, no provisions are made for soft landings, job training, and employment assistance.

I urge the members of this Subcommittee to oppose S. 314, whether offered as

an amendment to the Treasury-Postal appropriations bill or as stand-alone legislation.

CONCLUSION

Mr. Chairman, I thank you for inviting AFGE to share with you the perspectives

of rank-and-file federal employees. I am eager to answer any questions you and your

colleagues might have for me.

PREPARED STATEMENT OF ROBERT M. TOBIAS, NATIONAL PRESIDENT, NATIONAL

TREASURY EMPLOYEES UNION

Chairman Campbell, Ranking Member Kohl and Members of the Subcommittee,

my name is Robert M. Tobias, and I am the National President of the National
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Treasury Employees Union (NTEU). On behalf of the men and women who collect

the revenue for the federal government, fight to curb the flow of narcotics and contraband into our country, and enforce our trade laws, I would like to thank you for

this opportunity to present our Union’s views on the President’s proposal for fiscal

year 1999.

IRS and Customs are the two main revenue collection agencies of the Federal government. They are also front line enforcement agencies for our tax and trade laws,

assuring equitable sharing of the tax burden, and protecting our nation from illegal

imports. Both agencies continue to confront rapidly increasing workloads with relatively static manpower and fiscal resources.

INTERNAL REVENUE SERVICE

The total budget request for fiscal year 1999 is $8.196 billion and 100,829 FTE.

In addition, the IRS budget includes a request for $143 million and 2,184 FTE in

funding outside the caps for the Earned Income Tax Credit. The total budget request includes a net increase of $529 million and 1,232 FTE over the fiscal year

1998 level. Of this increase, $176 million represents part of the cost that would be

needed to maintain the current level of operations, taking into account inflation and

mandatory pay increases. The remaining increases represent increases dedicated to

improved near-term customer service ($103 million), near-term and long-term technology investments ($227 million) and organizational modernization ($25 million).

NTEU fully supports the President’s request for IRS funding in fiscal year 1999.

NTEU believes that the President’s budget proposal is the absolute minimum required to begin a reinvention of the IRS ‘‘around taxpayers needs.’’ However, there

are others in the Congress who are seeking to gut the IRS budget instead of providing the resources indispensable to that necessary restructuring. The Senate Budget

Committee’s recent action to cut the President’s request for the IRS by 6 percent—

some $500 million—makes no sense. It is the wrong cut in the wrong place at the

wrong time.

Mr. Chairman, the plain fact is that no one, not even the Congress, can have it

both ways. We cannot expect the IRS to do what we say we want it to do to eliminate problems if we cut its budget. That does not make any sense.

Last September’s hearings by the Senate Finance Committee pinpointed a variety

of problems in the agency’s systems and processes. In turn, the hearings also generated a great many proposals as to how to solve many of these problems and an

expectation that the Congress and this Administration would immediately take

steps to respond to the needs of its customers—the American taxpayers.

Both the recently announced Gore-Rubin ‘‘Reinventing Service at the IRS’’ report

and the President’s budget are solid first steps in response to taxpayers’ concerns.

The Congress should not ignore them. As the new IRS Commissioner, Mr. Rossotti,

advised both the Senate and House Appropriations Subcommittees in early March:

‘‘The fiscal year 1999 budget we are requesting is absolutely essential to begin this

long-term transformation.’’

Among the funding initiatives proposed for fiscal year 1999, NTEU believes that

the Congress should consider the $103 million for near-term improvements in customer service as one of its highest priorities.

NTEU members have first-hand knowledge of what the American taxpayers expect and have been working with the new Commissioner, Mr. Rossotti, to do all that

we can within existing resources to improve customer service. Despite all the shortcomings of the IRS, the employees are performing exceedingly well in comparison

to any similar organization in the world.

Over the past four fiscal years, fiscal year 1995 to fiscal year 1998, the IRS collected 24 percent more revenue, 8 percent more returns with 13 percent fewer resources, or more than $1 billion less, in constant dollars. In fiscal year 1995, the

IRS processed 193.3 million returns. In fiscal year 1998, it is expected to process

208.4 million returns. In the past year, the total tax revenue collected rose by more

than $70 billion while the agency processed another 5.8 million returns. Revenues

were $1.36 trillion in fiscal year 1996; $1.5 trillion in fiscal year 1997; $1.58 trillion

in fiscal year 1998, and projected revenues for fiscal year 1999 are $1.64 trillion.

In addition, the accuracy rates for tax law inquiries, accounts information and refunds have dramatically improved.

In fiscal year 1995, the cost to collect $100 of revenue was 59 cents, 53 cents in

fiscal year 1996, 48 cents in fiscal year 1997, and in fiscal year 1998, the cost to

collect $100 should drop to 47 cents. No tax collection agency anywhere comes close,

much less matches the IRS cost per dollar of revenue raised. Most democracies

spend nearly three to four times that much, $1.25 to $1.70, to collect $100 in income

tax revenue.
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In 1997, the 102,000 IRS employees collected more than $1.5 billion, processed

215 million tax returns, issued almost 88 million refunds, assisted more than 110

million taxpayers, distributed more than one billion forms and publications, sent 70

million notices and letters to taxpayers, processed more than one billion information

documents, completed more than 1.5 million audits and assessed $10.4 billion on delinquent returns. In fiscal year 1998, the IRS will answer more than 120 million

telephone calls, provide walk-in service to nearly nine million taxpayers, and will

examine nearly 1.3 million individual returns.

Mr. Chairman, with so many of the agency’s numbers going in the right direction,

IRS workers find it bewildering that so many in the Congress remain so hostile to

their achievements. The Senate hearings last Fall were devastating, but continued

attacks by some in the Congress upon the IRS are having a crippling effect on the

IRS’ ability to perform its core functions.

NTEU considers Senator Faircloth’s bill, S. 1690, even more counterproductive

than the Senate Budget Committee’s actions. The IRS employee base has already

dropped more than 11 percent since fiscal year 1995. Our nation can ill afford to

lose a third of its core tax law enforcement personnel at the IRS to the Drug Enforcement Agency or any other agency.

CUSTOMS FISCAL YEAR 1999 BUDGET

Mr. Chairman, the President’s fiscal year 1999 budget request provides $1.7 billion and 16,655 FTE for Salaries and Expenses for the U.S. Customs Service, an

increase of $117.8 million and 111 FTE over the fiscal year 1998 enacted levels. In

addition, the President has submitted a legislative proposal for $48 million to increase the rate of the Merchandise Processing Fee (MPF) to offset the costs of modernizing Customs automated commercial operations.

NTEU believes this request is the bare minimum to meet Customs’ responsibilities to interdict illegal drugs and perform its many other responsibilities, including

the inspection of high-risk shipments to assure proper manifest recording and duty

payment; resolution of discrepancies related to inbound shipments; trade enforcement at bonded warehouses and foreign trade zones; non-proliferation related export

enforcement; anti-money laundering enforcement, and the protection of domestic intellectual property rights. The new positions requested for fiscal year 1999 will be

used to strengthen Customs’ ability to disrupt normal smuggling channels, enhance

investigative and intelligence capabilities and improve the child labor enforcement

program.

In fiscal year 1999, Customs estimates it will process 379.4 million land border

passenger arrivals, 81.5 million air passenger arrivals and 10 million sea passenger

arrivals. Customs estimates that 122 million vehicles, 136,000 aircraft, and 225,000

vessels will enter our ports during the current fiscal year. Most significantly, Customs expects an increase of 13.5 percent in the number of railcars coming into the

U.S. and an increase of 9 percent in the number of commercial aircraft arrivals

(420,000 railcars and 850,000 commercial aircraft).

In fiscal year 1999, Customs estimates it will seize more than 160 thousand

pounds of cocaine (2500 seizures), 780 thousand pounds of marijuana (13,000 seizures) and 3 thousand pounds of heroin (1,250 seizures). In contrast, Customs in

fiscal year 1995 seized 158.3 pounds of cocaine (2,228 seizures), 658.6 pounds of

marijuana (10,221 seizures) and only 2.2 thousand pounds of heroin (928 seizures).

Despite the record of achievement in so many law enforcement areas, the vast

majority of Customs employees still do not qualify for law enforcement status. As

in past years, NTEU will continue its efforts to enact legislation to end this disparity in this Congress. While we appreciate the significant budget implications, we believe that denying the brave men and women of the Customs Service the same employment rights of other federal employees who risk their lives every day to combat

the trafficking of drugs and other dangerous illegal import activity is unjust.

FEDERAL PAY ISSUES

NTEU also has concerns regarding the proposed 3.1 percent pay raise for federal

workers in 1999. Almost 40 percent of the federal work force has a college degree.

The jobs, like making computer year 2000 compliant, are very challenging and important. If the federal government is going to be able to recruit and retain some of

the country’s best and brightest workers, we must provide wage levels comparable

to their private sector counterparts. Today’s federal work force today is smaller than

any since the Kennedy administration. Many who criticize the federal work force

fail to acknowledge the substantial growth in the number of Americans served per

federal worker. Only a work force that is working harder and smarter can keep up

with these demands.
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The Federal Employees Pay Comparability Act (FEPCA) of 1990 established fundamental changes in setting federal employee pay and created a system for paying

federal employees on a local, rather than national basis. Under FEPCA, federal employees were to receive an annual nationwide pay adjustment and a locality-based

comparability adjustment designed to begin to close the gap between federal and

private sector salaries measured at approximately 30 percent.

Although FEPCA resulted from a 4-year bipartisan effort, it has never been implemented as intended. On January 1, 1999, 70 percent of the pay comparability gap

between federal and private sector employees should be closed. In reality, with only

4 years remaining under the timetable set by FEPCA for achieving pay comparability between federal and private sector salaries by 2002, less than 30 percent of the

salary gap has been closed.

FEPCA authorizes the President to issue an alternative pay proposal in the event

of ‘‘national emergency or serious economic conditions affecting the general welfare’’.

Each year, the President has used this loophole and declared an economic emergency. This has resulted in an arbitrary pay setting policy with no apparent rationale. Rather than catching up with their private sector counterparts, federal employees have continued to fall behind. Congressman Steny Hoyer (D-MD) and Senator

Paul Sarbanes have introduced legislation to restrict the Administration’s authority

to claim economic emergencies and issue alternative pay proposals. NTEU heartily

endorses the Hoyer/Sarbanes legislation (H.R. 3251 and S. 1679).

Our Nation currently enjoys sustained economic growth, shrinking deficits and

the possibility of vast budget surpluses. That the federal budget is on the verge of

being in balance is, in part, a reflection of the sacrifices made by federal employees.

They are working harder and smarter as part of a work force that has declined by

more than 300,000 employees and is the smallest since 1964. They perform their

jobs despite restrictions on training and promotions and in the face of terrorist attacks, lockouts and layoffs as well as pay and benefit cuts totaling more than $220

billion over the last 20 years.

The President’s fiscal year 1999 budget recommends a 3.1 percent pay raise in

January, 1999. To meet FEPCA’s goal of achieving full comparability by 2002, an

average 17 percent increase would be required. NTEU urges the Committee to consider action that would address this inequity.

Mr. Chairman, thank you and the Members of the Committee again for the opportunity for our Union to present its views on the proposed budgets for fiscal year

1999 for Internal Revenue Service and U.S. Customs Service and compensation to

federal employees.

PREPARED STATEMENT OF THE AMERICAN ASSOCIATION OF RETIRED PERSONS

The American Association of Retired Persons (AARP), appreciates this opportunity

to comment on appropriations next year for the Tax Counseling for the Elderly

(TCE) program. This cost effective activity provides free tax assistance for low and

moderate income older people. The AARP Foundation—a separate 501(c)(3) corporation—operates the AARP Tax Aide Program, which is the largest of the TCE programs.

The Association deeply appreciates the Subcommittee’s continued support of Tax

Counseling for the Elderly. Enacted in 1978, TCE improves taxpayer compliance

measurably by helping to ensure that more tax returns are prepared completely and

accurately. At the same time, TCE volunteers inform taxpayers about their obligations and assist them in fulfilling their responsibilities. The agency reports that

many taxpayers with incomes below the minimum level required file tax returns

needlessly each year. This results in unnecessary costs to both the taxpayer and the

Federal government. TCE helps prevent such occurrences.

TCE volunteers are also actively involved in electronic filing and other alternative

filing methods, all of which increase the accuracy of tax returns while reducing Federal processing costs. TCE involvement in this arena is growing, and is helping to

reduce IRS expenses.

The Tax Counseling for the Elderly program has enabled IRS to assist aged minorities more effectively as well as disabled and hard-to-reach taxpayers such as the

rural elderly and shut-ins, especially those residing in nursing homes or senior citizen housing. In 1997 TCE sites offered assistance in 25 languages, including American sign language.

Given the discretionary caps, AARP supports the Administration’s recommended

$3.7 million freeze for TCE next year. The value of TCE has been amply demonstrated over the years, and is reflected in growing demand for assistance. A report

issued five years ago by the General Accounting Office (GAO) indicates that in 1992,
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TCE accounted for the preparation of more than four times the number of returns

prepared at Internal Revenue Service (IRS) walk-in sites. More than 31,000 volunteers are involved in TCE services at more than 10,000 sites across the country. In

addition, the agency’s annual Individual Master File (IMF) reported a 95 percent

mathematical accuracy rate for TCE returns in 1997, which was comparable to or

higher than those for other categories of preparers. When the program first began,

it helped 846,000 elderly taxpayers prepare their tax returns. Currently, over 1.5

million people receive tax counseling annually. We do not have complete data for

the current tax season, but we expect TCE to continue to grow in the future. There

are several reasons why this is likely to happen.

First, the elderly population is increasing.

Second, the complexities of our tax code cause many aged taxpayers particular difficulty in computing their tax obligations. Moreover, many aged citizens are not

aware of the changes made in our tax laws over the past few years.

Third, the Internal Revenue Service has increasingly turned to TCE programs for

assistance, in large part because budgetary constraints have stretched the ability of

the agency to respond directly to numerous public inquiries. Volunteers are contributing millions of hours annually in direct public service to older taxpayers.

TCE volunteers are dedicated to the program and are committed to helping others. TCE volunteers are also committed to ensuring that older taxpayers with dependent children or grandchildren are made aware of their eligibility for the earned

income tax credit (EITC). Many older low income wage earners find themselves responsible for providing care for their dependent children or grandchildren. EITC is

an important benefit for these individuals.

The TCE program will continue to participate in successful IRS efforts such as

the Reduce Unnecessary Filing (RUF) initiative. In 1997, the agency notified

630,000 taxpayers that they might not have to file a Federal return. Data indicate

that 75 percent of the RUE letters were sent to taxpayers 61 years of age or older.

Many of these older individuals approached TCE sites in order to receive confirmation that they did not need to file a return that year.

Thank you again for this opportunity to comment on appropriations next year for

the Tax Counseling for the Elderly program.

PREPARED STATEMENT OF DANIEL W. MCKINNON, JR., PRESIDENT, NATIONAL

INDUSTRIES FOR THE SEVERELY HANDICAPPED [NISH]

Mr. Chairman and members of the Subcommittee, my name is Daniel W.

McKinnon, Jr. and I am President of NISH, formerly known as the National Industries for the Severely Handicapped. I want to thank you for this opportunity to discuss your role in supporting one of the United States’ most successful government

programs, the Javits-Wagner-O’Day (JWOD) Program and urge you to fund the

Committee for Purchase from People who are Blind or Severely Disabled’s (Committee for Purchase) request of $2.464 million for fiscal year 1999.

I am submitting testimony this year in particular because it is the 60th anniversary of the Wagner-O’Day Act, an Act created to help provide employment opportunities for people who are blind through the federal procurement process. Twentyseven years ago, the program was expanded to provide employment opportunities

for people with severe disabilities other than blindness.

NISH’s responsibility in this program is to maximize employment opportunities

for people with severe disabilities through providing professional and technical assistance to not-for-profit Community Rehabilitation Programs (CRP’s) to enable

their participation in the JWOD Program. NISH is the Central Nonprofit Agency

designated by the Committee for Purchase from People who are Blind or Severely

Disabled to provide assistance to CRP’s interested in obtaining federal contracts

under the JWOD Program. Founded twenty-four years ago by United Cerebral Palsy

Association, National Easter Seals Society, The ARC, Goodwill Industries International, National Association of Jewish Vocational Services and the American Rehabilitation Association, NISH is proud to be part of the accomplishments of the

past 60 years.

In 1997 nearly 32,000 people with severe disabilities were employed on JWOD

projects. These individuals worked 26 million hours and earned $172.6 million in

wages. NISH associated JWOD employees earned an average of $6.79 per hour. Of

these individuals approximately 2,500 people with disabilities moved into other community jobs based on their JWOD training and experience.

These results come about by a simple process. A small slice of the annual federal

market of $200 billion purchases of products and services is made available to CRP’s

who train and employ people with disabilities. Government contracts result in em-
533

powerment and independence for people who face often tremendous barriers to employment. These are men and women who are not fully benefiting from record 4.7

percent unemployment, the lowest in 25 years. Great advances have been made in

the past years in the employment of people with disabilities because of the Americans with Disabilities Act and slowly changing public perceptions. Nevertheless,

their unemployment stands at almost 70 percent and so much remains to be done.

Although small, JWOD is an outstanding government sponsored program that is addressing this problem. Typically these job opportunities are in the service industries

and include such positions as food service attendant, building maintenance, mail

room operative, shelf-stocker, etc.

The government agency responsible for these results is one of the smallest in the

federal government, the Committee for Purchase from People who are Blind or Severely Disabled. The Committee for Purchase has a modest staff of 19 with responsibilities that are vast. Their duties include evaluating projects, making determinations relative to adverse impact on other potential contractors, approving projects,

establishing the government’s price, overseeing the regulatory requirements of the

program, and handling many other details of this unique program. Easily the old

phrase, ‘‘Never so few . . .’’ applies to this agency.

And who are the organizations that are bringing in the results? They are today’s

modern Community Rehabilitation Programs, or CRP’s, that exist in every community and town. Almost 2,000 are associated with NISH. You may know them by

names like Goodwill Industries, Easter Seals, or many other very uplifting titles

such as Pride Industries, REACH Incorporated, Project Hired, The Opportunity

Center, Able Industries of the Pacific, and Challenge Unlimited. They are managed

by today’s new Social Entrepreneurs—men and women who use their business skills

to help others achieve independence through employment. Not only do they provide

training and employment through JWOD projects and other vocational programs,

they are stepping forward to provide housing, transportation, and other services the

community needs when government cannot or should not. They are in the forefront

of self-reliance and self-help, the American way. A JWOD project provides remarkable leverage and contributes to a CRP’s ability to change lives. Teamed with the

Committee for Purchase under JWOD, they engage in a wonderful public/private

partnership that is easily described as ‘‘government at its best.’’

In recognizing the 60th year of the JWOD program, I would like to highlight a

few figures from the past twenty years. In 1978, this Committee provided funding

for the 10 staff member Committee for Purchase from People who are Blind or Severely Disabled. In 1978 nearly 5,000 people with severe disabilities worked 3.5 million hours on JWOD contracts totaling $84.6 million.

Twenty years later, in 1998, the Committee for Purchase from People who are

Blind or Severely Disabled is still one of the smallest federal agencies with a staff

of 19. Last year nearly 32,000 people with disabilities work 26 million hours on

JWOD contracts totaling $793.2 million. The Committee for Purchase’s modest

budget is more than offset when people with disabilities return to work and become

contributing members of our economy.

We thank this Committee for its continuing support in funding the Committee for

Purchase. Given its relatively small budget and staff, it has done remarkable work

and achieved outstanding results. We at NISH are proud to assist both CRP’s and

the Committee for Purchase achieve those results.

The following are two stories typical of the JWOD program. The first is about

Marie-Terese Henderson who works with Goodwill Industries of Central Florida in

Orlando, Florida.

Today, Marie-Terese still stuns people. Six years ago, she suffered multiple trauma and fractures, compounded by a severe head injury as a result of a car accident

in which she was a passenger. When police arrived on the scene, they were shocked

to find Marie-Terese alive. Once she gained consciousness in the hospital, it became

apparent that she would have to learn to breathe, swallow, talk and walk again.

Marie-Terese still experiences difficulties as a result of the accident. She has double vision, is frequently unable to maintain her balance, lacks coordination, has no

short-term memory and suffers with bouts of chronic depression. In spite of these

challenges, she has worked on a Javits-Wagner-O’Day project as a supply technician

at the Naval Air Warfare Center in Orlando, Florida among 1,500 military personnel. A steno pad is her compass, reminding her each day what her job entails. Without her volumes of notes, every Monday would seem like the first day on a new job.

Despite the barriers imposed by her disability, Marie-Terese controls a fleet of

government vehicles, maintains and processes invoices for shipping, assigns priority

for printing requests, and manages the maintenance of service contracts. Due to her

exceptional abilities and strong, compassionate character, Marie-Terese is a model

employee at Goodwill Industries of Central Florida. ‘‘She is extraordinarily efficient
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and organized in carrying out her job,’’ said Patricia Carr, her Vocational Counselor.

‘‘She has compensated for her disability by relying on her own notes and a unique

system that works best for her.’’

A model employee, Marie-Terese has taken the initiative to make suggestions that

have boosted workplace morale. In addition, she has demonstrated excellent customer services skills, and she has been a determined advocate for herself and other

people with disabilities. She doesn’t dwell on the disabilities her coworkers may

have, rather, she recognizes the capability of the person. ‘‘Marie-Teresa is a team

player who helps out wherever she is needed,’’ said Dean Bosnak, Goodwill’s Project

Manager at the Orlando Naval Air Warfare Center.

The second story is of a former JWOD employee who has found employment in

another community job. Marian Hollars began work at the Work Services Corporation (WSC) in Wichita Falls, Texas, on March 3, 1968. With Down’s Syndrome and

mental retardation, Marian’s medical and vocational prognosis at the time stated

that the best employment setting for Marian would be a sheltered environment.

Marian worked at WSC, primarily producing paper clips with a JWOD project.

As she watched several of her coworkers move into employment outside the facility, Marian decided that she wanted to follow their example. Through her persistence, Marian was able to convince the CRP to find her another job a few months

later. With the help of a local employer, an aggressive job development employee,

and an innovative CRP, on June 6, 1996, at age 46, Marian started working at Bargain Depot, a local retail store. Initially, Marian’s duties were limited to greeting

customers and returning grocery carts from the parking lot to the store. But this

wasn’t enough for her. Through her own initiative, Marian expanded her duties to

include stocking shelves, cleaning up spills, and helping cashiers bag merchandise.

The store manager was so impressed with Marian’s performance that she decided

to add tasks in the store lunch counter to Marian’s daily schedule. Marian passed

the Wichita County Health Department Food Handler Test on the first try. As a

result, today she fills food orders and cleans counters, tables and trays in the lunch

counter, in addition to a variety of other duties within the store.

The store manager, Sarah Norton, reports that ‘‘Marian makes the decisions as

to the priority of her tasks. She works on her own with very little supervision. She

sees what needs to be done, and very quickly carries it out enthusiastically.’’ There

were concerns about Marian’s ability to communicate and interact with coworkers

and the general public, but these concerns proved to be unfounded. Norton states,

‘‘my regular customers love Marian and she can greet most by name. Our employees

have nothing but love, respect and praise for Marian.’’

Marian is extremely active in her community. She is a member of People First,

the ARC of Wichita County Self-Advocacy group and has represented them as a delegate to the Texas State Conference for the past six years. Marian actively participates in programs at her church, the Faith Village Church of Christ, attends a

weekly bible study, and although she cannot read music, she sings with her church

choir. On the job at Bargain Depot, Marian conducts tours for special education students from area high schools. A special education teacher has commented that Marian’s success is a source of inspiration for her students.

These two Americans are typical examples of people all over the country who are

benefiting, or have benefited from the JWOD program. Mr. Chairman and members

of the Committee, you’ve helped make this possible.

For fiscal year 1999, the Committee for Purchase has requested $2.464 million.

NISH supports this request because the need for training and employment of people

with disabilities is so vast...because the way government does business is ever

changing... and because the Committee for Purchase has such a large role in ensuring that people with severe disabilities continue to have employment opportunities.

We would like to thank you Mr. Chairman and members of the Committee, for your

continuous support for this small federal program with such a big return. Because

of the 60th Anniversary, we felt it was necessary to provide you with input, thanking both this Subcommittee and the Committee for Purchase for maintaining one

of the most successful government programs ever established. We hope you will

allow us to present in person next year on the 25th Anniversary of NISH.

PREPARED STATEMENT OF SHARPE JAMES, MAYOR, CITY OF NEWARK, NJ

Newark, New Jersey, the largest City in the state, is a regional hub of State and

Federal government operations, as well as home to municipal and County government. The Federal presence includes such locations as office buildings, courts and

postal facilities. Thousands of visitors and employees access Federal services in
535

Newark daily, and their safety and security has become an important issue for the

City.

In the aftermath of the tragedy in Oklahoma City, extraordinary security measures were put into place around Newark’s Federal complex. Streets through and

surrounding the buildings were closed, metered parking spaces were eliminated, and

an additional municipal Police presence was established. As time has passed, these

actions have become part of an overall permanent Federal security plan for the

area. Since Newark’s Police Headquarters, Municipal Courts, and City Hall itself

are immediately adjacent to the Federal complex, forming what is called Government Center, the Federal plan has had a marked impact on the ability of citizens

to access not just Federal services, but Municipal ones as well.

The City government has worked cooperatively with Federal authorities on this

critical issue over the past two years, and the City has absorbed the expenses of

these measures. However, we are seeking your assistance in recovering costs that

the Newark municipal government has incurred in advancing the security of Federal facilities.

The local Federal officials have requested the permanent closing of five (5) streets

to vehicular traffic, and that the streetbeds be deeded over to the Federal government to allow permanent access control. An independent appraisal has valued this

property at $3 million. In addition, the City has lost revenues from 21 parking meters surrounding the Peter Rodino Federal Building, which had been high turn-over

spaces, as well as from longer-term parking on adjacent streets. Further, summons

revenue in the area has been eliminated, while Police overtime and patrol costs

have skyrocketed, averaging at least $13,000 per month. The street closings have

dramatically shifted both the traffic and parking patterns in the Government Center

area, causing further congestion and delays in the already clogged area, and when

they become permanent, the City will have to make a substantial expenditure for

traffic engineering items such as traffic studies, resignalization and signage replacement. It is estimated that the total of all of these expenses has exceeded four million

dollars ($4,000,000). We are seeking the assistance of this committee in securing

compensation for these expenditures.

In a related matter, several years ago it was recognized that the United States

Post Office distribution facility in the Federal complex had become crowded and obsolete. In an effort to save Newark-based jobs and comply with the intent of Executive Order 12072, which directs federal agencies to be located in downtowns, the

City of Newark entered into discussions with postal officials about locating a new

mail handling facility in the heart of Newark’s major redevelopment area. The original concept was for the USPS to acquire over 17 acres for the 300,000 square foot

operation, to employ 1,200 workers. However, our current realities of downsizing

and budget cutting have impacted on this project too.

Current plans for a site of only 4.5 acres to house a much smaller and less ambitious project. It will now accommodate the functions of the relocated 07103 branch

facility, which is situated within the University Heights redevelopment area. A new

Post Office in this neighborhood will service the thousands of new housing unitspublic, private, market-rate and low-income- which have been or will be constructed

in the area. It is estimated that site acquisition, required relocations, site preparation and construction of a modern postal facility will cost five million dollars

($5,000,000). These funds will be the first Postal Service investment in a Newark

neighborhood in decades, and show, in bricks and mortar, the Federal commitment

to Newark, its people, and its jobs.

To conclude: I ask you for help in coping with the changing situation in Newark.

It is my understanding that GSA has requested $250 million to upgrade security

at Federal facilities throughout the country. We support that request, and urge the

Subcommittee to include language in the bill that will direct some of these funds

to be spent on the projects noted above.

We have felt the ripples of the impact of a terrible tragedy, and ask for your help

in dealing with them. And we have built a new neighborhood, with much Federal

assistance, and ask for your help in completing a community by providing an essential service to its residents. Your help today can make the difference.

PREPARED STATEMENT OF DR. RAYMOND E. BYE, JR., ASSOCIATE VICE PRESIDENT

FOR RESEARCH, FLORIDA STATE UNIVERSITY

Mr. Chairman, thank you, and the Members of the Subcommittee, for this opportunity to present testimony. I would like to take a moment to acquaint you with

Florida State University. Located in the state capital of Tallahassee, we have been

a university since 1947; prior to that, we had a long and proud history as a semi-
536

nary, a college, and a women’s college. While widely known for our athletics teams,

we have a rapidly emerging reputation as one of the Nation’s top public universities.

Having been designated as a Carnegie Research I University several years ago,

Florida State University currently exceeds $100 million per year in research expenditures. With no agricultural or medical school, few institutions can boast of that

kind of success. We are strong in both the sciences and the arts. We have high quality students; we rank in the top 25 among U. S. colleges and universities in attracting National Merit Scholars. Our scientists and engineers do excellent research, and

they work closely with industry to commercialize those results. Florida State ranks

seventh this year among all U.S. universities in royalties collected from its patents

and licenses. In short, Florida State University is an exciting and rapidly changing

institution.

Mr. Chairman, let me describe a project that we are pursuing this year. Florida

State University is proposing the creation of The Institute on World War II and the

Human Experience. The generation that fought World War II is gradually disappearing and, unfortunately, much of the history they represent is not being systematically and professionally preserved. One of the major sources of information

about WWII is the personal papers, letters, diaries, oral histories, and memorabilia

collected by the veterans. The major focus of the Institute is research on and preservation of materials relating to the molding and survival of the individual in World

War II. The emphasis is on the experiences of ordinary men and women, military

and civilian alike, amid the pressures of wartime life. Located currently on the campus of Florida State University, the Institute is seeking funding for archival space

and resources for its rapidly expanding collections. We are exploring a partnership

with the National Archives and other governmental or academic units as well.

Mr. Chairman, the WWII Institute will make an important contribution to conserving our Nation’s history. Your Subcommittee’s support for those activities such

as this Institute which will preserve for all Americans the memory of these brave

citizens is greatly appreciated. Those investments are crucial ones for our Nation’s

future. Thank you again for this opportunity to present these views for your consideration.

PREPARED STATEMENTS OF CYRUS M. JOLLIVETTE, VICE PRESIDENT FOR

GOVERNMENT RELATIONS, UNIVERSITY OF MIAMI

APRIL 2, 1998

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity

to present testimony on behalf of the University of Miami. As the Committee prepares its fiscal year 1999 appropriations bill, we respectfully ask for your favorable

consideration of the University’s proposal concerning the use of the U.S. Naval Observatory/Alternate Time Service Observatory in Perrine, Florida.

The University of Miami Rosenstiel School of Marine and Atmospheric Science

(Rosenstiel School) proposes to establish a satellite data ground receiving station on

the former U.S. Naval Observatory/Alternate Time Service Observatory property,

Perrine, Florida. The existing Very Long Baseline Interferometry (VLBI) antenna

and the existing ancillary hardware and buildings are ideal for this purpose. The

new ground receiving station will enable the Rosenstiel School to pursue a variety

of research and educational activities in the general area of land and ocean remote

sensing, with an emphasis on applications in geological science, oceanographic

science, and environmental monitoring and environmental science. The facility will

be used for critical scientific research and graduate and undergraduate training.

The Rosenstiel School proposes to maintain at the U.S. Naval Observatory/Alternate Time Service Observatory site the long established history of high precision

geodetic observations. These observations are currently performed by the dual frequency Global Positioning (GPS) System operated by the National Oceanic and Atmospheric Administration (NOAA), periodically supplemented by satellite laser

ranging observations from Geodetic Monuments such as ‘‘TIMER,’’ first occupied in

the 1960’s. The long time series of geodetic observations at these monuments have

been critical for defining the terrestrial reference frame, for understanding variations in earth rotation rate (length of day) and polar motion, and for high precision

satellite tracking. Laser calibration piers at various locations around the property,

up to 200 meters from the main mark, are useful in this regard and should be maintained. The long-term preservation of the main geodetic marks is a high priority.

Similarly, the University of Miami proposes to maintain a dedicated monument

for absolute gravity; absolute gravity measurements were begun at the Richmond

VLBI site in 1990. Also, the Rosenstiel School proposes to locate a long-term geologi-
537

cal core sample storage facility on the site. This facility will enhance research, training, and education in paleoclimate and paleoecology of the Caribbean and InterAmerican Seas. The University of Miami is the nation’s premier expert in these

fields.

The Synthetic Aperture Radar (SAR) receiving facility will also provide crucial information during the passage of hurricanes or severe tropical storms in the region.

Such information complements current satellite and aircraft observations already

obtained and used by NOAA, the Air Force, Navy, and academic institutions in the

region. These SAR data, which will permit the determination of parameters such

as wind speed and direction directional wave-spectra, would establish critical boundary conditions for regional forecasting models and potential estimation of storm impacts on coastal property, beach erosion, and consequent flooding.

While highly specialized scientific research will be the principal activity, graduate

and undergraduate education and training will be conducted at the site. As an example:

—the classroom oriented Satellite Oceanography program at the Rosenstiel School

will offer a remote-sensing laboratory, which will focus on the processing, interpretation and use of satellite data pertinent to oceanographic and atmospheric

research;

—the University of Miami’s newly revised undergraduate geological sciences program will operate a ‘‘hands on’’ training seminar in geological and environmental remote sensing techniques;

—it is anticipated that other units of the University will participate in these and

related educational activities, as well as more research-oriented activities; and

—opportunities exist for broadening the educational use of the site through a K–

12 education partnership with Miami-Dade County Public Schools as an environmental study and nature area for students.

Once again, the University is seeking your full consideration of this proposal.

APRIL 15, 1998

Mr. Chairman and Members of the Subcommittee; I appreciate the opportunity

to provide testimony concerning the future use of the former United States Naval

Observatory Alternate Time Site in Perrine, Florida, south of Miami.

The University of Miami has learned from the Department of the Navy of its intent to excess an 85- acre portion of its Perrine, Florida site. My colleagues and I

hope that it will be possible to transfer the property OT the University—with appropriate restrictions—to allow for the establishment of a satellite data ground receiving station on the site. The facility will be used exclusively for scientific research

and training and undergraduate and graduate education. Respectfully, Mr. Chairman, we seek your and the Subcommittee’s support in transferring ownership of

their property to the University of Miami through the public benefit discount program.

The Rosensteil School is one of fourteen schools and colleges at the University of

Miami, the most comprehensive private research university in the Southeast, and

is one of the five largest oceanographic facilities in the nation. It has one of the

broadest research agendas in the global oceanographic community. The Rosensteil

School’s basic and applied research interests encompass virtually all of the marinerelated sciences in all oceans; marine and atmospheric chemistry, marine geology

and geophysics, physical oceanography, satellite oceanography, meteorology, marine

biology and fisheries, biochemistry, marine biomedicine, marine biotechnology, and

marine affairs and management.

The Rosensteil School is a world leader in deep and near shore oceanic and atmospheric circulation pattern studies and their implications in oil spill movements, sea

level fluctuations, global warming trends, plankton and fisheries distribution and

recruitment mechanisms, and hurricane and monsoon mechanics. It also offers the

only subtropical marine oceanographic research base in the continental United

States.

The existing 60-meter VLBI antenna and the existing ancillary hardware and

buildings are ideal for the operation of a satellite data ground receiving station. The

new ground receiving station will enable the Rosensteil School to pursue a variety

of research and educational activities in the general area of land and ocean remote

sensing, with an emphasis on applications in geological science, oceanographic

science, and environmental monitoring and environmental science.

For example, a newly-revised undergraduate geological sciences program will operate a hands-on training seminar in geological and environmental remote sensing

techniques. The classroom oriented Satellite Oceanography program at the

Rosensteil School will offer a remote-sensing laboratory, which will focus on the
538

processing, interpretation and use of satellite data pertinent to oceanographic and

atmospheric research. It is anticipated that other units of the University will participate in this and related educational activities, as well as more research-oriented

activities. Opportunities exist for broadening the educational use of the site through

a K–12 education partnership with Miami-Dade County Schools as an environmental study and nature area for students.

One important function of the site that Rosensteil School programs proposes to

maintain is the long history of high precision geodetic observations. These are currently performed by a dual frequency GPS system operated by NOAA, periodically

supplemented by satellite laser ranging observations from Geodetic Monuments,

first occupied in the 1960’s. The long time series of geodetic observations at these

monuments have been critical for defining the terrestrial reference frame, for understanding variations in earth rotation rate (length of day) and polar motion, and for

high precision satellite tracking. Laser calibration piers at various locations around

the property, up to 200 meters from the main mark, are useful in this regard and

should be maintained. The long- term preservation of the main geodetic marks are

a high priority. Similarly, Rosenstiel proposes to maintain a dedicated monument

for absolute gravity-absolute gravity measurements begun at this site in 1990.

The SAR receiving facility will also provide crucial information during the passage

of hurricanes or severe tropical storms in the region. Such information complements

current satellite and aircraft observations already obtained and used by NOAA, AIR

FORCE, NAVY, and academic institutions in the region. These SAR data, which will

permit the determination of parameters such as wind speed and direction directional wave-spectra, would establish critical boundary conditions for regional forecasting models and potential estimation of storm impacts on coastal property, beach

erosion and consequent flooding.

The Rosenstiel School also proposes to locate a long-term geological core sample

storage facility on the site. This facility will help the University maintain its lead

as the premier research and education institution in the paleoclimate and

paleoecology of the Caribbean and Inter-American Seas.

Mr. Chairman, the University of Miami has proven itself to be a worthy steward

of Federal facilities and in all cases heretofore has met the mandates of cognizant

Federal agencies. My colleagues and I hope that you will provide the scientists at

the Rosenstiel School the opportunity to utilize the unique resource available at

Perrine, Florida in a way which will benefit the nation.

PREPARED STATEMENT OF BERNARD H. BERNE, M.D., PH.D.

SUMMARY OF TESTIMONY

I am a resident of Arlington, Virginia. I serve the Food and Drug Administration

(FDA) as a Medical Officer and as a reviewer medical device approval applications.

I am testifying as a private individual and not as a representative of FDA or of any

other organization.

The General Services Administration (GSA) is evaluating the former Naval Surface Warfare Center in White Oak, Maryland, for the major FDA consolidation.

However, this is a very poor site for this federal administrative and laboratory facility.

Metrorail is three miles away. Nearby highways and roads are highly congested

during rush hours.

GSA and FDA are planning a country club in White Oak’s affluent suburbs. FDA’s

130-acre campus will have a visitor center and other amenities. Adjacent federal

property will contain a golf course and a woodland.

Congress must stop this extravaganza. The Administration has not requested any

funds to begin this project, which lacks an approved prospectus. Congress should

not initiate any appropriation to support the project.

The Southeast Federal Center in Washington, D.C. is now available for a major

federal headquarters. Adjacent to the Navy Yard Metro station and close to the Capitol, this site appears ideal for FDA’s facility.

Two Executive Orders, GSA’s own regulations, and the policies and of President

Clinton’s Administration and of the National Capital Planning Commission (NCPC)

require that GSA and FDA give the Southeast Federal Center preference over the

White Oak site. However, because of past actions and requests by Conference Committees on Appropriations, GSA is not evaluating it.

I therefore ask the Committee on Appropriations of the United States Senate to

take the following four actions:
539

1. Please oppose any appropriation of funds to support an FDA consolidation at

the former White Oak Naval Surface Warfare Center in Montgomery County, Maryland.

2. Please appropriate $4,000,000 to the study of a major FDA consolidation in the

District of Columbia, with an initial focus on the Southeast Federal Center and its

vicinity.

3. Please do not appropriate any funds for the General Services Administration

(GSA) to prepare or acquire any site for any part of the FDA consolidation until a

prospectus for the entire consolidation is approved in accordance with the provisions

of the Public Buildings Act of 1959.

4. Please ask GSA or the General Accounting Office to appraise the value of the

White Oak site to prepare for a sale of the property.

EXPLANATION OF REQUESTS

1. Please oppose any appropriation of funds to support an FDA consolidation at

the former White Oak Naval Surface Warfare Center in Montgomery County, Maryland.

The present need for this project is questionable. New FDA buildings in Prince

George’s County will house those FDA Centers that now contain most or all of the

FDA offices and laboratories that are reported to be in poor facilities.

Many FDA offices, including my own, are in excellent buildings. None of my coworkers complain about their present offices. Nevertheless, we would all relocate to

the Montgomery County consolidated facility.

My coworkers and I rarely need to visit other FDA centers while reviewing medical device applications. The need to consolidate seems small.

White Oak is three miles from the closest Metrorail station. In contrast, FDA’s

largest office building is presently only half a mile from a Metro station. FDA will

likely lose many experienced employees if it moves to White Oak.

The Naval Surface Warfare Center is in an affluent suburban residential neighborhood. The White Oak area does not require federal aid to support its development.

Roads and highways near White Oak are highly congested during rush hours.

These include such major arterials as Capital Beltway, New Hampshire Avenue,

and Colesville Road. These do not need the additional traffic that this project would

bring to the area.

The Congressional Concurrent Resolution on the Budget for Fiscal Year 1996–

2002 assumes a 30 percent reduction in funds for Federal Buildings construction in

its seven year plan to balance the federal budget (Conference Report for H. Con.

Res. 67: H. Rept. 104–59, June 26, 1995, p. 84). House and Senate Committees on

Appropriations need to address this programmed reduction in discretionary spending.

President William J. Clinton urged Congress to further reduce spending on federal building projects when he vetoed the first 1995 rescission bill (H.R. 1158). The

President does not appear to support costly federal construction projects, especially

since the Administration did not propose any 1998 funding to initiate or support

this project.

There is no urgent need for a major FDA consolidation. Congress needs to implement its Budget Resolution and the President’s policies by appropriating no new

1997 funds for FDA’s Montgomery County consolidation.

FDA and GSA are developing plans for an extravagant 130-acre campus at White

Oak. According to GSA’s April 1997 Final Environmental Impact Statement (FEIS)

for the Montgomery County consolidation, the White Oak campus will contain a visitor center and will feature both a woodland and a six hole golf course on adjacent

federal property.

FDA can accomplish its mission without a sprawling campus, a golf course, a

woodland, or a visitor center. FDA does not need a country club.

Congress has not reviewed or approved any prospectus for any part of the FDA

consolidation. Congress does not know the specifications or the costs of this project.

GSA presently has an opportunity to acquire property near the downtown Silver

Spring Metrorail station by donation from the Montgomery County government.

GSA also can locate the project on federally-owned property in downtown Washington, D.C. With such opportunities, Congress should not support a White Oak consolidation.

2. Please appropriate $4,000,000 for the study of a major FDA consolidation in

the District of Columbia, with an initial focus on the Southeast Federal Center and

its vicinity.
540

Rescissions in 1996 removed all of the funding for federal construction at the

Southeast Federal Center. The 1997 Omnibus Appropriations Act provided funds for

environmental clean-up activities at this site. This federal property is therefore

available for the FDA consolidation.

The Southeast Federal Center is adjacent to the Washington, D.C., Navy Yard.

It is next to the Navy Yard Metro Station and is only a mile from the Capitol building.

Previous actions and statements by Congressional conference committees on appropriations and rescissions have directed FDA’s major consolidation to White Oak.

Citing these actions and statements, GSA officials have refused my repeated requests to evaluate the Southeast Federal Center site as an alternative site for the

consolidation.

The April 1997 FEIS does not evaluate any sites other than the White Oak Naval

Surface Warfare Center. Only Congress or a Federal court can change GSA’s direction.

A 1996 National Capital Planning Commission (NCPC) plan has recently designated the Southeast Federal Center as an important site for new offices. NCPC

expects this new economic development to ‘‘assist the transformation of the Southeast Federal Center and adjacent Navy Yard into a lively urban waterfront of offices, restaurants, shops and marinas’’ (‘‘Extending the Legacy’’, Plan for Washington’s Monumental Core, NCPC, March 1996).

The goal of NCPC’s plan is to preserve and enhance Washington’s Monumental

Core, which is centered at the U.S. Capitol building. An FDA consolidation at the

Southeast Federal Center can revitalize a decaying D.C. neighborhood and help

achieve NCPC’s goal.

The Southeast Federal Center and its nearby depressed commercial area can hold

buildings up to 14 stories high. If necessary for the consolidation, GSA can purchase

adjacent commercial property at a low cost. The Southeast Federal Center is an

ideal site for a large new federal headquarters facility.

The legislation that initiated the FDA consolidation (Public Law 101–635) authorizes only a single consolidated FDA administrative and laboratory facility. Indeed,

Senate Report No. 101–242 (Feb. 1, 1990), which accompanied the authorizing legislation, states, ‘‘the FDA needs to be consolidated in a building.’’ Public Law 101–

635 did not anticipate or authorize a 130-acre FDA campus and two satellite facilities.

FDA does not require a 130-acre campus for its consolidation. Large high-rise

buildings can readily house most or all of FDA’s offices, laboratories, and ancillary

facilities.

Cities throughout the Nation contain many such research and office centers. Over

2,000 National Institutes of Health (NIH) research laboratories are located in a single 14-story building that the government constructed in 1981 in Bethesda, Maryland. A single 18-story building in Rockville, Maryland, now houses many of FDA’s

offices, including the Office of the Commissioner.

Congress and the Secretary of Health and Human Services (HHS) can readily

oversee FDA’s activities if FDA consolidates at the Southeast Federal Center. Additionally, FDA’s visitors and regulated industries would find this site to be far more

convenient than suburban White Oak.

The Southeast Federal Center is close to both Maryland and Virginia. An FDA

consolidation there will enhance the economies of three jurisdictions (D.C., Maryland, and Virginia). In contrast a consolidation at White Oak would benefit Maryland at the expense of the District and Virginia.

The median annual household income in the White Oak residential neighborhood

exceeds affluent Montgomery County’s median at $65,000. Southeast Washington’s

median household income is much lower. Federally supported economic development

is far more critical to Southeast D.C. than to White Oak.

Please recommend a survey of other sites in the District if GSA finds that FDA

cannot feasibly consolidate at and near the Southeast Federal Center.

A direction of planning funds to study sites in the District would place the project

in compliance with Executive Order No. 12072 (August 16, 1978), and with its implementing regulations in 41 CFR § 101–17.000 et seq., as reaffirmed by the present

Administration in 41 CFR § 17.205 (Location of space) (Federal Register, Vol. 61,

No. 46, pp. 9110–9112, March 7, 1996). It would also be consistent with the purposes of the National Capital Planning Act of 1952 and the policies and recommendations that NCPC has developed to implement it.

Executive Order 12072 and its implementing regulations direct the locations of

federal facilities in urban areas, including the National Capital Region. They require federal agencies to locate and use their space and facilities so that the facili-
541

ties ‘‘shall serve to strengthen the Nation’s cities’’ and ‘‘shall conserve existing urban

resources, and encourage the development and redevelopment of cities.’’

Executive Order 12072 and its implementing regulations require GSA and FDA

officials to ‘‘economize in their requirements for space’’. The Order states: ‘‘Except

where such selection is otherwise prohibited, the process for meeting Federal space

needs in urban areas shall give first consideration to a centralized community business area and adjacent areas of similar character. . . .’’

President William J. Clinton reaffirmed Executive Order 12072 in his Executive

Order 13006, May 21, 1996, (Federal Register, Vol. 61, No. 102, May 24, 1996, pp.

26071–26072). Section 1 of President Clinton’s Order states:

‘‘(Statement of Policy). Through the Administration’s community empowerment

initiatives, the Federal Government has undertaken various efforts to revitalize our

central cities, which have historically served as the centers for growth and commerce in our metropolitan areas. Accordingly, the Administration hereby reaffirms

the commitment set forth in Executive Order No. 12072 to strengthen our nation’s

cities by encouraging the location of Federal facilities in our central cities.’’

On March 11, 1997, President Clinton stated that, as part of his economic stimulus package to revitalize D.C., he had ‘‘directed his Cabinet secretaries to find other

ways to help the District, beginning with keeping federal agencies in the city’’

(Washington Post, March 12, 1997, page 1). This is consistent with his Executive

Order 13006 and with established federal policies concerning the location of federal

facilities in the Washington Metropolitan Area.

GSA’s 1996 interim rule, 41 CFR 101–17.205 (Location of space), requires GSA

and other federal agencies to comply with Executive Order 12072. It also states in

paragraph (n), ‘‘. . . These policies shall be applied in the GSA National Capital Region, in conjunction with regional policies established by the National Capital Planning Commission and consistent with the general purposes of the National Capital

Planning Act of 1959 (66 Stat. 781), as amended. These policies shall guide the strategic plans for housing of Federal agencies within the National Capital Region.

GSA and FDA have long disregarded the Executive Order and NCPC’s regional

policies and recommendations when planning, leasing and constructing federal

buildings in the National Capital Region. To help President Clinton resolve D.C.’s

financial crisis, Congress needs to correct this.

A long-standing NCPC policy presently encourages government agencies to redistribute federal jobs in the National Capital Region. This redistribution is long overdue. Congress needs to address this in the federal buildings appropriations process.

The redistribution would implement NCPC policies and recommendations that

NCPC has developed in compliance with National Capital Planning Act. It would

reverse recent trends and correct a growing imbalance of federal employment in the

National Capital Region.

In a recent Proposed Federal Capital Improvements Program (PFCIP), National

Capital Region, fiscal years 1997–2001 (April, 1996) (p. 9), NCPC reported that the

District of Columbia will lose 889 federal employees as a result of the FDA consolidation project. This would accelerate a continuing transfer of federal employment

from the District to the Maryland and Virginia suburbs.

According to NCPC’s PFCIP (p. 10), the District’s percentage of the total Federal

employment in the National Capital Region has declined from 58.0 percent in 1969

to 52.4 percent in 1994.

Because of this trend, NCPC’s PFCIP (p. 12) has a final recommendation that

states, ‘‘The Commission encourages each agency to adhere to the policy in the Federal Employment element of the Comprehensive Plan adopted in 1983 which specifies that the historic relative distribution of Federal employment of approximately

60 percent in the District of Columbia, and 40 percent elsewhere in the Region

should continue during the next two decades. This policy is used by the Commission

to ensure the retention of the historic concentration of Federal employment in the

District of Columbia, the seat of the national government.’’

A major FDA facility at the Southeast Federal Center is consistent with President

Clinton’s expressed policies and orders to his Cabinet secretaries, Executive Orders

12072 and 13006, GSA’s implementing regulations, and NCPC policies and recommendations. A facility at White Oak would be inconsistent with all of these.

FDA now plans to move about 700 federal employees in its Center for Food and

Applied Nutrition (CFSAN) from the District of Columbia to a new facility in Prince

Georges County, Maryland. To reverse the accelerating decline of the nation’s capital city, Congress must mitigate such relocations by directing the major FDA consolidation to the District of Columbia.

4. Please do not appropriate any funds for GSA to prepare or acquire any site for

any part of the FDA consolidation until a prospectus for the entire consolidation is

approved in accordance with the provisions of the Public Buildings Act of 1959.
542

The Public Buildings Act of 1959 requires the approval of a prospectus for all GSA

building projects before funds can be appropriated for construction and site acquisition. However, no prospectus for any phase of the FDA consolidation has ever been

approved.

Provisions in the 1992, 1993 and 1995 Treasury, Postal Service, and General Government Appropriations Acts (Public Law 102–141, Public Law 102–393, and Public

Law 103–329) permitted GSA to use the funds made available in those Acts for the

FDA consolidation and for certain other projects, even though no prospectuses for

these projects had been approved. These provisions released GSA from its obligation

to comply with the Public Buildings Act of 1959 when planning the early phases

of the FDA consolidation.

The 1996 and 1997 Appropriations Acts (Public Laws 104–52 and 104-208) and

contained no such exemptions. Provisions in these laws state that appropriated

funds shall not be available for construction, repair, alteration, and acquisition

project for any project if a prospectus for project has not been approved. The 1998

Appropriations Act should contain such a provision.

In 1995, the House of Representatives debated the need for a prospectus for the

FDA consolidation (Congressional Record, July 19, 1995, pp. H7200–H7206). Some

members of Congress appear to believe that the consolidation’s authorizing legislation (Public Law 101–635) exempts the consolidation from the prospectus requirement.

Congress must eliminate this ambiguity and ensure proper congressional oversight. Congress should appropriate no new funds for any phase of any FDA consolidation until a prospectus describing the entire project is approved.

Because of a 1996 rescission (Public Law 101–19), GSA and FDA have no funds

available to construct its major consolidated facility at White Oak or at any other

location. Congress needs to review a prospectus for the project before any funds are

appropriated to construct it.

5. Please ask GSA or the General Accounting Office to appraise the value of the

White Oak site to prepare for a sale of the property.

This would prepare the government for a sale of part or all of the Naval Surface

Warfare Center. It would also help Congress evaluate the real cost of an FDA consolidation at White Oak. A sale would support the original purpose of the base closure, which is to help balance the federal budget.

ADDITIONAL INFORMATION

The following observations further support my requests:

1. The government long ago designated its Southeast Federal Center as a site for

a new federal facility. However, nothing has been built there yet. An FDA facility

would stimulate the revitalization of this D.C. area.

2. As noted above, the National Capital Planning Commission’s 1996 plan for

Washington’s Monumental Core states in the category of Economic Development,

‘‘Assist the transformation of the Southeast Federal Center and adjacent Navy Yard

into a lively urban waterfront of offices, restaurants, shops and marinas’’.

An FDA consolidation at the Center would help implement this Plan. The government could rent space in the ground floors of FDA’s office buildings to operators of

shops and restaurants.

3. Unlike White Oak, the Southeast Federal Center is near a Metro station. Development at this site would encourage the use of Metrorail. This would increase

the use of the area’s financially troubled public transit system and reduce air pollution and traffic congestion.

If the consolidation occurs at the Southeast Federal Center, many more FDA

workers will likely choose to use Metrorail than presently do. This would benefit the

Washington Metropolitan Transit Authority (WMATA) and local, state, and federal

governments.

In contrast, an FDA facility at White Oak would encourage the use of private

automobiles. The roads near White Oak are already highly congested.

The sections of I–95 and the Capital Beltway that serve White Oak rank among

the most congested highways in the National Capital Region. They are the sites of

frequent accidents and traffic jams.

The White Oak area is principally residential. For this reason, few buses run from

Metro stations to the White Oak Naval Surface Warfare Center in the morning and

from it in the afternoon. Thus, most FDA employees would find it difficult to use

public transportation to commute to and from work at White Oak.

New public transportation routes are costly. There can be no assurance that bus

service will improve if FDA moves to White Oak.
543

If FDA consolidates at White Oak, WMATA will lose revenues from FDA employees who now use Metrorail and Metrobuses on a daily basis. Local, state and federal

governments will have to pay for this, since WMATA is heavily subsidized.

4. White Oak’s distance from Metrorail and from the core of the National Capital

Region will induce many employees to work at home under FLEXIPLACE. This will

defeat the purpose of the consolidation.

5. The Southeast Federal Center is in a decaying urban commercial area that is

in great need of the economic development that the FDA consolidation would bring.

Southeast Washington is one of the most economically distressed areas of the nation’s capital city. As is well known, the District of Columbia is itself in great need

of economic development.

According to a table in the April 1997 FEIS, the District of Columbia had in 1994 the lowest average household income ($30,727) of nine jurisdictions in the Washington, D.C., Metropolitan Area.

In contrast, the White Oak site is in an affluent residential neighborhood that is

not in great need of economic development. According to a March 29, 1996, Maryland-National Capital Park and Planning Commission staff report on the White Oak

EIS, the neighborhood’s median household income exceeds the median income for

Montgomery County at $65,000 per year.

According to the Washington Post (April 3, 1996), the White Oak neighborhood

already boasts a community swimming pool, tennis courts, and four tot lots. A map

in the April 1997 FEIS shows that a neighborhood community center abuts the

Naval Surface Warfare Center near the FDA site. The FDA consolidation would add

a federally-owned golf course to these amenities.

The FEIS states that Montgomery County, Maryland, had in 1994 the second highest average household income ($64,596) of nine listed Washington, D.C. Metropolitan Area jurisdictions. Montgomery County therefore does not appear to be in

great need of large federal employment centers that might otherwise be located in

the District of Columbia.

There is a great economic contrast between Southeast Washington and White

Oak. Federal development would serve a far better purpose at the Southeast Federal Center than it would at White Oak.

6. FDA can place its laboratories and offices in compact and efficient 14-story

buildings at the Southeast Federal Center. In contrast, its buildings at White Oak

would be only five to six stories high.

FDA’s present headquarters are in a 18 story office building (the Parklawn Building in Rockville, MD). The Office of the Commissioner of Food and Drugs is in this

building, which is half a mile from the Twinbrook Metro station.

The National Institutes of Health has a 14 story research laboratory building that

was built in 1981 at its Warren Magnuson Clinical Center in Bethesda, Maryland.

The National Cancer Institute has some of its nationally-renowned laboratories in

the 13th floor of this building, which, according to an NIH brochure, holds 2,000

separate laboratories.

It is therefore likely that FDA can consolidate its laboratories and offices in buildings up to 14 stories high in the Southeast Federal Center. If needed, GSA can purchase additional property nearby at low cost. Neighboring properties do not appear

to be in good condition.

7. The Navy Yard Metrorail Station is on Metro’s Green Line. The station is only

three stops from Maryland’s Southern Avenue Metrorail station and only two stops

from Virginia’s Pentagon Station. An FDA facility at the Southeast Federal Center

will therefore benefit the economies of both Maryland and Virginia, as well as the

District.

In contrast, an FDA facility at White Oak would benefit only Maryland. It is too

far from D.C. and from Virginia to provide any economic benefits to either of these

jurisdictions. Instead, it would draw federal employees and associated businesses

away from Virginia and D.C.

8. An FDA consolidation at suburban White Oak would violate former President

Jimmy Carter’s Executive Order 12072, which President William J. Clinton’s Executive Order 13006 reaffirmed. It would also violate a federal regulation in 41 CFR

101–17.205 that GSA issued in 1996 to help implement the Order.

When issuing this new regulation, GSA stated, ‘‘On August 16, 1978, President

Carter issued Executive Order 12072, which directs Federal agencies to give first

consideration to centralized community business areas while filling federal space

needs in urban areas. The objective of the Executive Order is that Federal facilities

and Federal use of space in urban areas serve to strengthen the Nation’s cities and

make them attractive places to live and to work. This regulation serves to reaffirm

the Administration’s commitment to Executive Order 12072 and its goals.’’ (Federal

Register, Vol. 61, No. 46, March 7, 1996, p. 9110.)
544

The Southeast Federal Center is in an economically depressed centralized community business area in the city of Washington D.C. This area’s neighborhood urgently

needs revitalization. In contrast, the Naval Surface Warfare Center at White Oak

is not in any city, is far from any centralized community business area, and is in

an affluent Montgomery County residential neighborhood.

The Executive Order and the CFR have provisions that make them especially applicable when the neighborhood of the urban site (Southeast Washington) is economically depressed while the suburban site is affluent, and when the urban site

is adequately served by public transportation, while the suburban site is not. Because of its residential suburban location, the White Oak site is served only infrequently by buses that run from Metrorail stations in the morning and to the stations in the afternoon.

Appropriations legislation makes funds available for federal construction in specified locations. The language of such legislation and its supporting committee reports

should not conflict with an existing Executive Order and a recently revised Federal

regulation that both require federal agencies to give preference to a different location.

FDA must economize on its space requirements to a great enough extent to allow

it to consolidate at the Southeast Federal Center, rather than at suburban White

Oak. Congress should not support the appropriation of funds if such an appropriation would encourage GSA to violate the Executive Order and its implementing regulations.

9. The April 1997 FEIS discusses a federal report to the Secretary of HHS (Final

Report of the Advisory Committee on the Food and Drug Administration, May 15,

1991) that assessed the need for new FDA facilities. According to the FEIS, the

Committee summarized its chapter on resources by recommending, ‘‘The FDA must

now begin to correct the most urgent of its facility needs, particularly for food and

veterinary medicine laboratories and field operations.’’

It is noteworthy that FDA is now planning to relocate its food and veterinary

medicine laboratories to new facilities in Prince Georges County, Maryland. Facilities for field operations would not be improved by an FDA headquarters consolidation. According to documentation cited in the FEIS, the FDA offices and centers that

FDA plans to move to White Oak do not appear to be in great need of new facilities

at this time.

While some FDA facilities may need renovation or replacement, many do not. Senate Report 101–242, which supports the consolidation, cites only one example of a

facility that is antiquated. This is a laboratory in CFSAN, which FDA plans to relocate to Prince Georges County and not to Montgomery County.

FDA and GSA officials may describe to you certain existing buildings that are inadequate. These descriptions may be correct; however, my personal observations indicate that the conditions of such buildings are not representative of most buildings

that FDA now occupies.

One FDA laboratory building that may need repair is on the NIH campus in Bethesda, Maryland. This is a laboratory of the Center for Biologics Evaluation and

Research (CBER), which would be relocated to White Oak. However, this building

is owned by the Federal government.

The government will have to fund the CBER lab’s renovation even if FDA leaves

it. Further, if FDA leaves this facility, its personnel will lose valuable personal

interactions with world-renowned personnel who work for NIH. They will also lose

the ability to use valuable and unique NIH equipment. The government will gain

nothing from this move.

Some of the CBER laboratories have recently moved into a new building on the

NIH campus. Thus, even within CBER, not all laboratories are in poor condition.

In contrast to some FDA laboratories, many of the office buildings used by FDA

are in good or excellent condition. Some are in leased buildings that are quite new.

Some even contain amenities such as large atriums with palm trees.

Such superb facilities can be observed at the Center for Devices and Radiological

Health (CDRH) offices at 9200 Corporate Blvd. in Rockville. Other excellent CDRH

office facilities are located at 1350 Piccard Drive and 2094 and 2098 Gaither Road

in Rockville. Still others can be seen at the offices of other Centers in the Metropark

North buildings on Crabbs Branch Road in Rockville.

The adequacy of the CDRH office facilities is documented in an Interoffice Memorandum sent by Electronic Mail dated 01-Feb-1995, from Connie J. Wilhelm-Miller,

of the CDRH Office of Management Services, Division of Resource Management.

This memo, whose primary subject is Smoking Policy (smokers were putting burns

in the floors and walls of new buildings), states that ‘‘most of CDRH’s office space

is fairly new’’. My personal observations confirm the accuracy of this statement.
545

A Conference Committee Report (House Report 102–234) that supported the 1992

Appropriations legislation (Public Law 102–141) stated that there is no disagreement that FDA facilities are antiquated, inefficient and overcrowded. This is simply

incorrect. It overstates a problem that is being experienced by only a small portion

of FDA.

House and Senate Reports supporting the consolidation state that FDA’s antiquated facilities are causing recruitment and retention problems. However, this is

only true at very few places, and perhaps only in the CFSAN laboratory that is relocating to Prince Georges County.

I know of no FDA building housing an office or laboratory that will move to the

White Oak campus that is in such disrepair that people will not work in it. Some

buildings may need improvement, but none are that bad.

Most FDA workers work only in offices. Many of these are in fairly new buildings

that are in good condition, such as the one in which I work. There is little reason

to expect that many of these employees will be happier in a new facility at White

Oak.

Limited replacement of facilities with local consolidations where needed may well

be desirable. However, a massive consolidation of Montgomery County facilities is

not.

10. FDA facilities are presently dispersed. However, this does not create great inefficiencies. Many FDA offices with related functions, such as those in CDRH in

Rockville, are consolidated in buildings within one or two miles of each other. A

large number are in and near a single building (the Parklawn Building) near the

Twinbrook Metro Station in Rockville, MD.

Although there are a number of functions that involve different offices in different

centers, most functions are carried out within one Center. More importantly, few

interoffice functions require more than occasional face-to-face interactions which necessitate travel.

In addition, travel times between existing Centers that will consolidate in the

Montgomery County campus are not great. All are connected by Rockville Pike and

I–270. The average trip between offices is probably less than 1⁄2 hour.

It is important not to overrate the need for consolidated facilities.

The U.S. Armed Forces won the Second World War operating from bases and

headquarters throughout the U.S. and in much of the rest of the world. Only a tiny

percentage of defense workers and military personnel were located in any single facility. Decentralized agencies can and do often work at least as efficiently as those

that are consolidated.

Further, the great majority of product approvals require decision-making within

only a single building. It is only unusual decisions that require conferences in separate buildings. Only a tiny minority require conferences among offices in widely

scattered facilities.

Most FDA personnel therefore have no need to travel between different centers

or offices on a regular basis. The need for consolidation is not great, despite the

statements made in Congressional Committee Reports.

A number of present FDA centers are located near Metro stations, such as Medical Center, Shady Grove, and Twinbrook. The large Parklawn Building is an example of this. Many employees can therefore now travel quickly and easily from one

Center to another, as well as to meetings at NIH and in downtown D.C.

In contrast, White Oak is 3 miles from Metrorail. Few, if any, people will take

Metro to commute or to go to meetings at NIH or in D.C.

Most communications occur today by phone and by electronic mail. Electronic networks allow documents to be transmitted to anyone with a receiver. Indeed, many

FDA personnel now regularly work at home using FLEXIPLACE. Using home computer modems, they can connect with FDA computer networks to perform most necessary functions.

The need for a costly consolidation is not great. It cannot be expected to greatly

increase FDA’s efficiency. By causing experienced workers to leave the agency, it

may actually decrease FDA’s effectiveness.

11. Congress should only appropriate funds for a consolidated FDA facility if the

consolidation would help increase the use of mass transportation or would aid in the

redevelopment of a depressed urban center such as Southeast Washington, D.C. It

is environmentally and economically unsound for Congress to fund the construction

of a new facility at White Oak that is far from an urban center.

12. Most FDA employees need to work only at a single location. The approval of

new drugs and medical devices usually takes place within a single FDA Center. A

major FDA consolidation, if it occurs, will primarily benefit a small cadre of FDA

managers who often travel between centers and who are promoting the consolidation.
546

In actuality, a major consolidation is not likely to benefit many FDA employees.

It is even less likely that a consolidation will significantly speed the approval of new

drugs and medical devices.

13. During President George Bush’s term in office, the Office of Management and

Budget (OMB) opposed funding of the FDA consolidation because it was not worth

the cost. The Administration considered it more cost/effective to renovate facilities

as needed.

It was a Congressional Appropriations conference committee that first proposed

the appropriation of funds for the FDA consolidation (Conference Report for Public

Law 102–141: House Report 102–234, Oct. 3, 1991). The Conferees directed FDA,

GSA, HHS, and OMB to work together to submit a funding plan for the project and

urged OMB and the President to support the Conferees’ concept of the ‘‘consolidation’’.

The Conferees introduced the concept of building separate FDA facilities in Prince

Georges and Montgomery Counties. They recommended the appropriation of

$200,000,000 in the Federal Buildings Fund to begin the process of dismantling the

single-site consolidation that the FDA Revitalization Act (Public Law 101–635) had

previously authorized.

Public Law 101–635 had amended the Federal Food, Drugs and Cosmetics Act.

It had authorized the Secretary of HHS (not the Administrator of GSA) to construct

a single consolidated FDA facility.

Despite this authorization, the Conferees recommended the appropriations of

funds from the Federal Buildings Fund for the GSA Administrator to use to construct two FDA facilities in separate counties located in the State of Maryland. The

Conferees also recommended that the appropriation for the FDA facilities be exempt

from prospectus requirements of the Public Buildings Act of 1959.

Appropriations Conference Committees have therefore undermined the FDA Revitalization Act, the Public Buildings Act of 1959, Executive Order No. 12072, 41 CFR

101–17.000 et seq., and the National Capital Planning Act of 1952. They have made

it difficult for government officials to follow procedures that assure compliance with

Congressional oversight legislation and site selection requirements in the National

Capital Region and elsewhere.

These Conference Committees have endorsed the appropriations of funds for more

than one FDA ‘‘consolidated’’ facility, have designated the GSA Administrator (rather than the Secretary of HHS) as the planner and builder of the facilities. They have

also allowed GSA to construct buildings without a prospectus.

Appropriations conferees have recommended that FDA build a campus rather

than consolidate in a single building. Additionally, they have caused FDA to transfer federal jobs out of the financially distressed District of Columbia and into more

prosperous Maryland counties and neighborhoods.

This is not good planning. It is pork barrel politics at its worst. Congress must

correct itself.

14. Senate Report No. 101–242, Feb. 1, 1990, which supported the FDA Revitalization Act (Public Law 101–635) estimated that the cost of the consolidation would

approximate $500,000,000.

FDA and GSA now estimate the total cost of the consolidation to be at least

$600,000,000. This would create a cost overrun exceeding the original $500,000,000

estimate by $100,000,000.

15. Despite the 1995 rescission of funds for a sprawling FDA facility in Clarksburg, Maryland, FDA’s and GSA’s facility engineers continue to plan for a large

FDA campus. They do not wish to seriously economize in the agency’s use of space.

By creating unnecessarily large requirements for space, they are evading their responsibilities to consider locating the consolidated facility in a compact site in a central city. One such site is now available at the Southeast Federal Center.

Unless Congress intervenes as it did in 1995, GSA and FDA will likely violate

major provisions of Executive Order No. 12072 and the National Capital Planning

Act of 1952. As noted above, these now dictate a preference for the Southeast Federal Center.

16. Some reports on FDA have suggested that certain FDA facilities are overcrowded. This may no longer be true.

GSA has recently leased a number of new buildings for FDA. Overcrowding is

therefore not as acute as it was several years ago.

17. The FEIS contains no information on the number of buildings that FDA will

reuse at White Oak. FDA will not be able to use many of the existing buildings because they are contaminated, deteriorated, of unsatisfactory conformation, and poorly located. FDA will clearly need to build a number of costly structures at White

Oak.
547

18. Some of the planned excess capacity at the 130 acre White Oak facility is desired for future expansion. However, this amounts to nothing more than speculation.

Expectations of FDA expansions may well be unrealistic. FDA has not grown significantly in recent years, except in a few specific areas. Further, regulatory agencies often do not grow over long periods of time when there is an antiregulatory climate, when there are budgetary problems, or when there are pressures to privatize

Federal functions.

FDA’s major growth occurred years ago in response to obvious and important

needs. FDA can now meet most of these needs without any further growth. Although many agencies try to justify their own expansion, FDA may never be able

to significantly increase its size or number of employees.

A compact site such as the Southeast Federal Center is more consistent with proposed FDA reform legislation than is a 130 acre site at White Oak. This reinforces

the need for Congress to direct a study of the Southeast Federal Center.

19. Because FDA would acquire more land at White Oak than it presently needs,

it will surely press for additional funding to construct more buildings in the future.

This will increase future government expenditures.

As the FDA campus adds buildings at White Oak in the future, it will increase

the urbanization of its surrounding residential neighborhood. This will eventually

exceed the limits imposed by current zoning and land use plans and will create local

controversies.

PREPARED STATEMENT OF QUON Y. KWAN, D. CRIM.

APPROPRIATION FOR THE STUDY OF FDA CONSOLIDATION

I am a resident of Rockville, Maryland. Although I am Secretary and Transportation Chairman for the Manor Lake Civic Association, I am writing as a private

individual. I am currently employed as a senior environmental scientist for

Energetics, Inc., a contractor for the U.S. Department of Energy, Assistant Secretary for Environment, Safety and Health. Neither my company nor I have received or will be receiving any contracts or grants from the General Services Administration (GSA) or Food and Drug Administration (FDA).

My interest in the FDA consolidation stems from my involvement as Vice-President for Action Committee for Transit (Montgomery County) for the past and current years. Again, my views do not represent the official position of Action Committee for Transit. I was opposed to the siting of the consolidated FDA campus at

exurban Clarksburg primarily because of the lack of supporting infrastructure (especially, access to transit) and the commuting hardship posed on low-income and minority workers. My other reasons for opposing the Clarksburg site included the adverse impact in furthering sprawl development and the further deterioration on the

inner city and urban areas. As you are well aware, the GSA and FDA abandoned

Clarksburg as a potential site due to public outcry.

The GSA and FDA now seems to be focusing on the former Navel Surface Weapons Center at White Oak as a site for its consolidated campus. White Oak is also

a poor choice for a number of similar reasons. My primary objection is the inadequacy of public transportation serving the White Oak site. Although it has bus

service, workers would be using Metrobus service (route K6) and Ride-On service

(route 22) to/from White Oak in the counterflow direction (AM northbound and PM

southbound on New Hampshire Avenue). The frequency of counterflow bus service

(on either route) is every 30 minutes even during rush hours. In my comments on

the draft and final environmental impact statement for the proposed FDA consolidation at White Oak, I noted that such frequency of bus service is wholly inadequate

to accommodate even 10 percent of the 6,697 employees that would work at the site.

The GSA misled the public by listing 19 bus routes and 4 rail lines that serve the

study area, when in fact only the two aforementioned bus routes were within reasonable walking distance (1⁄4 mile of the site). The closest rail station is the Silver

Spring stations for the Metrorail Red Line and MARC Brunswick Line, which is

three miles away. I noted that the no-action alternative (i.e., to keep the FDA at

its existing locations) was better because the dispersed FDA sites are located near

Metrorail stations and have far better access to public transportation than White

Oak.

My second primary objection to the White Oak site is its location in the residential suburbs. The FDA consolidated campus does not belong in a residential suburb

but in the inner city or central business district. President Jimmy Carter signed an

Executive Order 12072, ‘‘Strengthening the Nation’s Cities,’’ which is codified by the

General Service Administration into the Federal Property Management Regulations
548

at 41 CFR 101–19.002. This Order calls for Federal agencies to site their facilities

and utilize space in such a way as to strengthen the Nation’s cities. This Order has

been upheld in Federal courts (rf City of Reading, PA v. Austin [816 F.Supp. 351

(E.D. Pa. 1993)]). Why does this Order make good sense? Abandoning the inner city

for the suburbs causes deterioration of the inner city and exacerbates sprawl development in the suburbs. This in turn has the unintended adverse effect of furthering

division between socio-economic classes and between races, with of course, the lowincome and minorities—the less mobile—remaining in the inner city and the more

affluent and majority white—the more mobile—fleeing to the suburbs. When Federal agencies as well as private sector businesses take flight from the inner city to

the suburbs, they create a prodigious redistribution of wealth. The inner city loses

its tax base and becomes enveloped in a downward spiraling cycle of decreasing job

growth and abandoned buildings accompanied by increasing alienation, poverty, and

crime. On the other hand, the suburbs grow in their tax base and become enveloped

in an upward spiraling cycle of increasing job growth and construction but accompanied by cookie-cutter gated communities and sterile industrial parks that exclude

‘‘undesirables’’ and oppose diversity. We need cities because we need identifiable,

physical centers of commerce and culture. We need cities because they provide diversity; places that thrive with diversity breed new ideas for exchange, growth, and

prosperity. Cities—not suburbs—are where the poor can rub elbows with the rich,

the blacks with the whites, the humble with the powerful, and the public with the

government. These are the places where Federal agencies belong—inner cities and

central business districts—not in the exurbs or suburbs. Cities are vital for democracy. The Federal government should set the example and take the lead in strengthening the inner cities.

As an alternative to the White Oak site, the FDA should be consolidated at a site

in the city, Washington, D.C. (consistent with Executive Order 12072), and preferably near a Metrorail station. There are several sites that would fit this criterion.

One is at the Southeast Federal Center, which is adjacent to the Navy Yard Metrorail Station and is no more than about a mile from the Hubert H. Humphrey building, headquarters of the Department of Health and Human Services, the department to which FDA belongs. The other advantages of the Southeast Federal Center

are that it is already owned by the Federal government (General Services Administration) and it has adequate floor space to meet FDA’s needs. Furthermore, the

Southeast Federal Center is located in an economically depressed area of the District of Columbia that is in urgent need of revitalization. As you are quite aware,

D.C. has lost many employers, including Federal agencies, and the President has

directed his cabinet secretaries in March 1997 to not contribute to the economic decline of D.C. by not allowing any more Federal agencies to abandon D.C. Moreover,

the National Capital Planning Commission’s Plan for Washington’s Monumental

Core (March 1996) under the subject of economic development proposes that the

Southeast Federal Center and adjacent Navy Yard be transformed into a lively

urban water front of offices, restaurants, shops, and marinas.

In conclusion, it would behoove the Subcommittee to cancel any more appropriation for the White Oak site, and instead, dedicate an appropriation of approximately

$5 million for studying the feasibility of consolidating the FDA administrative and

laboratory facilities at the Southeast Federal Center site or similar site within walking distance of a Metrorail station in D.C.

PREPARED STATEMENT OF LARRY BOHLEN, D.C. ISSUES COORDINATOR, FRIENDS OF

THE EARTH

SUPPORT FOR FDA CONSOLIDATION AT AN URBAN, METRO ACCESSIBLE SITE

Friends of the Earth is taking an increasing interest in protecting the urban core

and inner suburbs of cities across America. Existing communities are worthy of protection. In addition, making sure that existing communities are safe and economically viable places to live is one of the surest ways to protect undeveloped farms

and forests from falling to haphazard sprawl development.

Moves of Federal jobs outside the D.C. beltway are detrimental to the health of

the District and the inner suburbs of D.C. A currently proposed move of the Food

and Drug Administration to White Oak, Maryland would threaten the economic viability of areas inside the Beltway.

To address these issues, we propose that you:

(1) Initiate a study of consolidating the FDA within a half mile of a Metro-accessible site, such as the Southeast Federal Center in the District of Columbia. We sug-
549

gest that at least $4 million be appropriated to GSA’s Buildings Fund in fiscal year

1999 to conduct such a study.

(2) Oppose Congressional funding of any move of the FDA outside of the D.C. beltway, including the proposed White Oak site.

(3) Observe federal Executive Order 13006 directing location of federal facilities

in urban centers.

Consolidation of the FDA at the Southeast Federal Center has several advantages:

—it is adjacent to the Navy Yard Metro;

—it is only one mile from the Dept. Of Health and Human Services, FDA’s parent

agency;

—it is owned by the federal government and controlled by GSA;

—it has more than adequate floor space for FDA’s site plan and is currently

underutilized;

—the Southeast Federal Center site has no funds appropriated for its redevelopment; and

—it is in an area of D.C. urgently in need of revitalization.

In comparison, siting of the FDA in White Oak, Maryland, as proposed, has several disadvantages:

—it is 3 miles from the nearest Metro station and has very limited bus service;

—it is in a low-density sprawling neighborhood outside the Washington beltway,

not in an urban center as directed by Executive Order 13006;

—it is 10 miles from other FDA facilities that would not consolidate in White Oak,

raising the question of just what kind of benefits is consolidation bringing; and

—it would involve development of undeveloped wooded areas near a stream on the

White Oak site whereas the Southeast Federal Center is already paved.

Your consideration of this matter is greatly appreciated.

cv: Friends of the Earth is a non-profit group advocating the protection of the environment in the D.C. metro area, nationally and globally.

Disclosure: Friends of the Earth has no federal grants or contracts related to the

redevelopment of the District of Columbia, nor any related to the location of federal

facilities.
(i)

LIST OF WITNESSES, COMMUNICATIONS, AND

PREPARED STATEMENTS

Page

Abad, Lawrence, letter from ................................................................................... 505

Adams, Kendra, letter from .................................................................................... 502

Allen, Ernest E., president and chief executive officer, National Center for

Missing and Exploited Children ......................................................................... 361

Prepared statement .......................................................................................... 373

Allen, Lydia, letter from .......................................................................................... 510

American Association of Retired Persons, prepared statement ........................... 531

Arnett, Yvonne, letter from ..................................................................................... 509

Auila, Zach, letter from ........................................................................................... 501

Bailey, Matt, letter from ......................................................................................... 508

Bailey, Paul, letter from .......................................................................................... 515

Baity, William, Deputy Director, Financial Crimes Enforcement Network ....... 75

Prepared statement .......................................................................................... 94

Baker, Officer Will, Mesa County Sheriff, Grand Junction, CO .......................... 485

Banks, Samuel H., Acting Commissioner, U.S. Customs Service ....................... 1, 361

Prepared statements...................................................................................... 47, 364

Baray, Sarah Marie, Sterling, CO .......................................................................... 485

Barnes, Officer Roger, La Crosse Police Department, La Crosse, WI ................. 485

Basham, W. Ralph, Director, Federal Law Enforcement Training Center ......... 75

Prepared statement .......................................................................................... 82

Beauchamp, Datasha, letter from .......................................................................... 512

Berg, Rickie, letter from .......................................................................................... 506

Berne, Bernard H., M.D., Ph.D., prepared statement .......................................... 538

Bohlen, Larry, D.C. issues coordinator, Friends of the Earth, prepared statement ...................................................................................................................... 548

Brown, Lee R., letter from ...................................................................................... 508

Brown, Ted F., Assistant Commissioner, Criminal Division, Internal Revenue

Service ................................................................................................................... 75

Prepared statement .......................................................................................... 78

Bye, Dr. Raymond E., Jr., associate vice president for research, Florida State

University, prepared statement .......................................................................... 535

Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado, prepared statements .................................................................................................................... 2, 330

Caren, Tina, letter from .......................................................................................... 510

Carpenter, Kristeen, letter from ............................................................................. 510

Clinkenbeard, Shinon, letter from .......................................................................... 514

Cook, Matthew, letter from ..................................................................................... 503

Corkler, David, letter from ..................................................................................... 508

Coverdell, Hon. Paul, U.S. Senator from Georgia, prepared statements .................................................................................................................... 4, 202

Crabtree, Laura, Senior Technical Advisor, Information Technology Management Team, Office of Administration, Executive Office of the President ....... 393

Prepared statement .......................................................................................... 396

Dalrymple, John, Deputy Chief Operations Officer, Internal Revenue Service ...... 163

Dilba, Core, letter from ........................................................................................... 501

DiMarco, Ben, letter from ....................................................................................... 506

Douglas, Blade, letter from ..................................................................................... 510

Englehart, Tasha, letter from ................................................................................. 507
Page

ii

Fitzpatrick, Jon, letter from ................................................................................... 503

Friend, Sgt. Scott, Colorado State Patrol, Sterling, CO ....................................... 485

Gordon, Jesse, letter from ....................................................................................... 504

Gower, Melissa, letter from .................................................................................... 501

Gray, C. Boyden, Wilmer, Cutler & Pickering, and former White House Counsel to President Bush ........................................................................................... 415

Prepared statement .......................................................................................... 417

Gross, Arthur, Chief Information Officer, Internal Revenue Service .................. 163

Halbert, Josh, Grand Junction, CO ........................................................................ 485

Harnage, Bobby L., Sr., national president, American Federation of Government Employees, AFL–CIO, prepared statement .............................................. 523

Harrington, Kelsey, letter from .............................................................................. 503

Hefner, Nick, letter from ......................................................................................... 502

Henderson, Christopher, La Crosse, WI ................................................................ 485

Herald, Kendra, letter from .................................................................................... 515

Herre, Jasmine, letter from .................................................................................... 500

James, Sharpe, mayor, city of Newark, NJ, prepared statement ........................ 534

Jerome, J.J., letter from .......................................................................................... 507

Johnson, Amy, letter from ...................................................................................... 502

Jollivette, Cyrus M., vice president for government relations, University of

Miami, prepared statement ................................................................................. 536

Kareus, Zach, letter from ........................................................................................ 500

Kelleher, Amber, letter from ................................................................................... 504

Kelly, Raymond W., Under Secretary, Law Enforcement Division, Department

of the Treasury ..................................................................................................... 1

Prepared statement .......................................................................................... 8

Killefer, Nancy, Assistant Secretary for Management, Department of the

Treasury ................................................................................................................ 269

Kitts, Anita, letter from .......................................................................................... 513

Kondracki, Edward N., chief, La Crosse Police Department, La Crosse, WI ..... 465

Kuhns, Sarah, letter from ....................................................................................... 511

Kwan, Quon Y., D. Crim., prepared statement ..................................................... 547

Lampson, Hon. Nick, U.S. Representative from Texas, prepared statement ..... 391

Lindsay, Mark, Chief of Staff and General Counsel, Office of Administration,

Executive Office of the President ........................................................................ 393

Londberg, Kyla, letter from .................................................................................... 513

MacKinnon, John, Senior Special Agent, U.S. Customs Service ......................... 361

Magaw, John W., Director, Bureau of Alcohol, Tobacco and Firearms .............. 1, 465

Prepared statements...................................................................................... 17, 469

Martin, Dayna, letter from ..................................................................................... 511

Martinez, Sheena, letter from ................................................................................. 502

McCaffrey, Gen. Barry R., Director, Office of National Drug Control Policy ..... 313

Prepared statement .......................................................................................... 320

McKinnon, Daniel W., Jr., president, National Industries for the Severely

Handicapped [NISH], prepared statement ........................................................ 532

Merletti, Lewis C., Director, U.S. Secret Service .................................................. 1

Prepared statement .......................................................................................... 40

Nichols, Danny, letter from .................................................................................... 505

Pifer, Kristina M., letter from ................................................................................ 504

Posey, Ada Louise, Director, Office of Administration, Executive Office of

the President ........................................................................................................ 393

Puckett, Natalie, letter from ................................................................................... 515

Rossides, Gale D., Assistant Director, Training and Professional Development,

Bureau of Alcohol, Tobacco and Firearms .......................................................... 465

Prepared statement .......................................................................................... 471

Rossotti, Charles O., Commissioner, Internal Revenue Service .......................... 163

Prepared statement .......................................................................................... 170

Rubin, Hon. Robert E., Secretary, Department of the Treasury ......................... 269

Prepared statement .......................................................................................... 275
Page

iii

Runyon, Marvin, Postmaster General/Chief Executive Officer, U.S. Postal

Service, prepared statement ................................................................................ 519

Russell, Valarie, letter from .................................................................................... 505

Saduar, Amanda, letter from .................................................................................. 507

Salazar, Destinie, letter from ................................................................................. 512

Scheetz, Aaron R., letter from ................................................................................ 505

Schultz, Gabrielle, letter from ................................................................................ 514

Seibert, Ashley, letter from ..................................................................................... 501

Simeona, Sgt. Daren, Navajo Indian Tribal Police, Willow Rock, AZ ................. 485

Smith, Jordan C., letter from ................................................................................. 512

Smythe, Steven, letter from .................................................................................... 514

Sommermeyer, Katie, letter from ........................................................................... 509

Stockman, Mollie, letter from ................................................................................. 508

Stogsdill, Kristin, letter from .................................................................................. 511

Sullivan, John, letter from ...................................................................................... 515

Tate, Howie, letter from .......................................................................................... 507

Tobias, Robert M., national president, National Treasury Employees Union,

prepared statement .............................................................................................. 528

Tohtsonie, Royetta, letter from ............................................................................... 503

Topai, Jeni, letter from ............................................................................................ 509

Towne, Gabriel, Willow Rock, AZ ........................................................................... 485

Vaughn, Megan, letter from .................................................................................... 509

Watt, Bobbi Jo, letter from ..................................................................................... 506

Weinschenk, Gene, Head, Cybersmuggling Center, U.S. Customs Service ........ 361

Whitney, Bree, letter from ...................................................................................... 512

Wilkinson, Amanda, letter from ............................................................................. 513

Windham, Chief Deputy Sheriff Cuyler, Cumberland County Sheriff’s Office,

Fayetteville, NC ................................................................................................... 465

Prepared statement .......................................................................................... 476

Yang, Susan, La Crosse, WI ................................................................................... 485

Yazzie, Bernell, Willow Rock, AZ ........................................................................... 485

(v)

SUBJECT INDEX

DEPARTMENT OF THE TREASURY

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

Page

Fiscal year 1999 request ......................................................................................... 480

Funding criteria ....................................................................................................... 479

GREAT Program:

Accomplishments .............................................................................................. 482

Characteristics of .............................................................................................. 477

In North Carolina ............................................................................................. 483

Instructors ......................................................................................................... 479

Parental involvement .............................................................................................. 481

Schools, dissemination of information to ............................................................... 483

Summer programming ............................................................................................ 516

Youth gun crime interdiction .................................................................................. 481

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

U.S. SECRET SERVICE

U.S. CUSTOMS SERVICE

INTERNAL REVENUE SERVICE

FEDERAL LAW ENFORCEMENT TRAINING CENTER

FINANCIAL CRIMES ENFORCEMENT CENTER

Armored limousines ................................................................................................. 61

Bank Secrecy Act ..................................................................................................... 92

Birmingham bombing .............................................................................................. 59

Budget request, fiscal year 1999 ............................................................................ 92

Bureau of Alcohol, Tobacco and Firearms [ATF]:

Budget request .................................................................................................. 15

Strategic plan .................................................................................................... 15

Child labor:

Enforcement ...................................................................................................... 65

Hotline ............................................................................................................... 67

Importation of goods ......................................................................................... 68

Other forced labor ............................................................................................. 68

Regulations ....................................................................................................... 68

Child pornography:

Detection ........................................................................................................... 69

Tipline ............................................................................................................... 70

Confiscating forced child labor products ................................................................ 67

Customs agent, death of .......................................................................................... 56

Customs authority ................................................................................................... 66

Drug interdiction initiative ..................................................................................... 6

Federal firearms license security measures .......................................................... 58

Federal Law Enforcement Training Center .......................................................... 7

Fraud program ......................................................................................................... 77

Gang Resistance Education and Training Program ............................................. 57

Gateway Program .................................................................................................... 93

International Law Enforcement Training Academy ............................................. 82
Page

vi

International strategy ............................................................................................. 77

IRS criminal investigation ...................................................................................... 75

Methamphetamine seizures .................................................................................... 65

Mexico’s new drug force .......................................................................................... 63

Mexico, Custom’s weapons restrictions in ............................................................. 63

Money laundering...................................................................................................... 6, 94

Magnitude of ..................................................................................................... 93

Strategy ............................................................................................................. 76

Montana secret banking proposal .......................................................................... 98

Narcotics and money laundering strategy ............................................................. 64

Narcotics program ................................................................................................... 77

Nonintrusive inspection technology ....................................................................... 63

Not giving testimony, privilege for ......................................................................... 62

Office of Enforcement .............................................................................................. 7

Office of Foreign Assets Control ............................................................................. 56

Office of Professional Responsibility ...................................................................... 55

Pending nomination, congratulations on ............................................................... 15

Personnel levels ....................................................................................................... 16

Presidential campaign, 2000 ................................................................................... 7

Revenue collection ................................................................................................... 59

Seizure rate .............................................................................................................. 64

Submitted questions ................................................................................................ 99

Tax gap strategy ...................................................................................................... 76

Travel budget ........................................................................................................... 61

Violent Crime Coordinator Program ...................................................................... 16

White House security clearance process ................................................................ 71

Year 2000 Program .................................................................................................. 59

Youth crime gun interdiction .................................................................................. 7

Initiative ............................................................................................................ 16

INTERNAL REVENUE SERVICE

Budget:

Outlook .............................................................................................................. 169

Request .............................................................................................................. 193

Business practices .................................................................................................... 166

Century date change ............................................................................................... 189

Completing ........................................................................................................ 167

Citizens advocacy panels ......................................................................................... 184

Customer improvements ......................................................................................... 168

Earned income tax credit ........................................................................................ 194

EITC program .......................................................................................................... 202

Elderly, tax counseling for ...................................................................................... 188

Electronic filing ........................................................................................................ 200

Information accuracy rate ....................................................................................... 197

Internal ethics problems ......................................................................................... 192

IRS employee browsing ........................................................................................... 186

Misprinted bar codes ............................................................................................... 201

New information technology systems ..................................................................... 190

New technology ........................................................................................................ 167

Noncustodial parents ............................................................................................... 187

Organization:

Modernization of ............................................................................................... 169

Structure ........................................................................................................... 166

Performance, measures of ....................................................................................... 167

Purchasing processes, management of ................................................................... 199

Section 6103 ............................................................................................................. 191

Small businesses, problems of ................................................................................ 186

Southerners, disproportionate audits of ................................................................ 193

Submitted questions ................................................................................................ 203

Tax code, changes in ................................................................................................ 195

Tax law enforcement section ................................................................................... 199

Taxpayer service ...................................................................................................... 197

Taxpayers, mistreatment of .................................................................................... 196

Technology:

Improvements ................................................................................................... 168

Investments ....................................................................................................... 168

Year 2000 ................................................................................................................. 201
Page

vii

Year 2000—Continued

Date change problem ........................................................................................ 167

OFFICE OF THE SECRETARY

Budget surplus ......................................................................................................... 284

International affairs and law enforcement, interface between ............................ 281

International Monetary Fund [IMF]......................................................... 281, 287, 289

Proposed reforms .............................................................................................. 290

Internal Revenue Service [IRS]:

Chief Information Officer ................................................................................. 279

Collections ......................................................................................................... 286

Customer service .............................................................................................. 279

Oversight board ................................................................................................ 271

Reform ............................................................................................................... 273

Law enforcement ...................................................................................................... 274

Submitted questions ................................................................................................ 291

Tax Code .............................................................................................................. 285, 287

Treasury Building, renovation of ............................................................................ 281

Year 2000 ............................................................................................................. 274, 277

U.S. CUSTOMS SERVICE

Child sex tourism ..................................................................................................... 383

Children, protection of ............................................................................................. 370

Computer forensics .................................................................................................. 383

Convictions ............................................................................................................... 384

Latest technology ..................................................................................................... 386

Legislation to extend existing authorities ............................................................. 369

Limitations ............................................................................................................... 368

Offenders, occupations of ........................................................................................ 368

Online demonstration .............................................................................................. 375

Resources .................................................................................................................. 382

Submitted questions ................................................................................................ 386

EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF ADMINISTRATION

Counsel’s Office:

Bush and Clinton compared ............................................................................ 421

Bush White House:

Commonsense view of public and private activities of ........................... 416

Public versus private activities in ............................................................ 418

Size of during the Bush and Reagan administrations ................................... 422

Skeptical of statutory attempt to establish internal controls of ................... 419

Executive Office of the President [EOP]:

Activities of legal counsel ................................................................................. 402

Allegations of improper use of legal counsel by ............................................. 395

Budget submission ........................................................................................... 396

Information technology infrastructure ............................................................ 395

Information technology planning and coordination ....................................... 401

Executive privilege .................................................................................................. 420

Office of Administration capital investments ........................................................ 399

Old Executive Office Building, GSA fire, life, and safety repairs and renovations of ................................................................................................................... 406

Public and private activities, internal controls for distinguishing between ....... 419

Submitted questions ................................................................................................ 408

White House Communications Agency agreement with the White House ......... 407

White House Counsel:

Responsibilities 415

Staff size ............................................................................................................ 416

OFFICE OF NATIONAL DRUG CONTROL POLICY

Budget ....................................................................................................................... 319

Classified strategy ................................................................................................... 316

Counterdrug Technology Assessment Center [CTAC] .......................................... 332

GAO report on .................................................................................................. 333
Page

viii

Director’s security .................................................................................................... 335

Drug use data .......................................................................................................... 316

Drug-free prison zone demonstration ..................................................................... 338

Drugs and prisons .................................................................................................... 318

Effectiveness, performance measures of ................................................................ 336

Hardcore drug users ................................................................................................ 339

High-intensity drug trafficking area [HIDTA]......................................... 319, 333, 337

Media campaign .................................................................................................. 331, 334

Methamphetamine labs ........................................................................................... 332

National drug control strategy, 1998 ..................................................................... 315

National youth media campaign ............................................................................. 318

Performance measures ............................................................................................ 316

Prison drug treatment ........................................................................................ 339, 340

Submitted questions ................................................................................................ 341

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