Report to the Chairman and Ranking

Minority Member, Subcommittee on

Readiness and Management Support,

Committee on Armed Services, U.S.

Senate

United States General Accounting Office

GAO

December 2001 EXPORT CONTROLS

Reengineering

Business Processes

Can Improve

Efficiency of State

Department License

Reviews

GAO-02-203
Page i GAO-02-203 Export Controls

Letter 1

Results in Brief 1

Background 3

Export License Applications May Require Extensive Review, but

Process Inefficiencies Cause Delays 6

Conclusions 12

Recommendations for Executive Actions 12

Agency Comments and Our Evaluation 13

Scope and Methodology 16

Appendix I Comments From the U.S. Department of State 19

Tables

Table 1: Time License Applications Take to Be Sent Between the

Licensing Office and Reviewing Agencies, September 2000 9

Figures

Figure 1: State Department License Process 4

Contents
Page 1 GAO-02-203 Export Controls

December 31, 2001

The Honorable Daniel Akaka

Chairman

The Honorable James M. Inhofe

Ranking Minority Member

Subcommittee on Readiness

 and Management Support,

Committee on Armed Services

United States Senate

The U.S defense industry and some foreign government purchasers have

expressed concern that the U.S. export control process is unnecessarily

burdensome. Specifically, defense industry officials have stated that

extended reviews of export license applications by the State Department

are resulting in lost sales and are adversely affecting the nation’s defense

industry. In the United States, the State Department’s Office of Defense

Trade Controls is the office responsible for licensing the export and

temporary import of defense articles and services. In June 2001, we

reported to you that the State Department completed over 46,000 license

application reviews in fiscal year 2000.1

 While the U.S. export licensing

process can be lengthy because of foreign policy and national security

considerations, other factors may also have an impact on processing

times. Therefore, you asked us to determine whether elements of the

process create delays in license application reviews.

Many license applications take a significant amount of time to review

because of the complexity of the application and the need to consider

different points of view in the review process. However, several conditions

reduce the efficiency of the application review process and result in

delays. Also, planned improvements to the license review process need to

focus on key elements that cause delays.

• The State Department has not established formal guidelines for

determining the agencies and offices that need to review license

 1

 See Export Controls: State and Commerce Department License Review Times Are

Similar (GAO-01-528, June 1, 2001).

United States General Accounting Office

Washington, DC 20548

Results in Brief
Page 2 GAO-02-203 Export Controls

applications. As a result, the licensing office refers more license

applications to other agencies and offices than may be necessary.

Further, many license application reviewers in State Department

reviewing offices consider license reviews low priority work.

• The State Department lacks procedures to monitor the flow of license

applications through the review process. There are no guidelines on the

length of time a review should take,2 no requirements to justify a

lengthy review, and no systematic checks on the progress of

applications. In fiscal year 2000, hundreds of applications were lost and

thousands were delayed while no substantive review occurred.

• The State Department has hired new licensing officers, which,

according to license office officials, has decreased processing time, and

the Department is planning to upgrade the office’s electronic business

system. However, the planned business system upgrade needs to focus

on ensuring a controlled and timely flow of applications, and

implementing a mechanism to track the progress of applications;

otherwise, the benefits of the upgrade may be limited.

This report contains recommendations for the Secretary of State to

develop guidance for referring applications and training for reviewing

officials, establish timeliness goals to ensure the efficient flow of

applications, implement a tracking mechanism to identify lost or delayed

applications, and fix the process before proceeding with the new

electronic business processing system.

In commenting on a draft of this report, the State Department said that the

report indicates a failure to comprehend how U.S. foreign policy provides

the context for munitions export controls. The Department appears to

have missed the point of our report. As is clear from our scope and

methodology, our report does not address the time spent in substantive

review of license applications. It is primarily concerned with the

procedures in place to ensure that license applications flow smoothly

through the review process. On that point, the Department provided only

one bit of additional information. That is that the licensing office reviews

computer runs of pending cases to determine their status. However, the

point of our finding is that monitoring the flow of license applications

 2

 The Arms Export Control Act and the International Traffic in Arms Regulations do not

mandate or recommend timelines for review of applications.
Page 3 GAO-02-203 Export Controls

needs to be done on a routine basis, not sporadically, which is the current

situation. We modified the language of our report to accommodate this

additional information.

Under the authority of the Arms Export Control Act,3 the State Department

controls the export and temporary import of defense articles and services.

The State Department’s International Traffic in Arms Regulations explain

specific licensing procedures.4

 Companies that manufacture or export

defense articles or provide defense services are required to register with

the licensing office. Exporters must obtain a license to export defense

articles or an agreement to export defense services. 5

Exporters file license applications either electronically or in paper copy.

Currently, 50 percent of applications are submitted electronically. For

both electronic and paper copy applications, the State Department

requires seven paper copies of supporting documentation, including

brochures and technical data.6

 The supporting documentation for one

application can be several inches thick and occasionally much thicker.

Applications are assigned a number and logged into the licensing office’s

database. Applications are distributed to licensing officers for initial

review according to munitions categories, for example, firearms, aircraft,

 3

 22 U.S.C. secs. 2751 et seq.

4

 22 C.F.R. secs. 120-130.

5

 As explained in 22 C.F.R. part 120, agreements include manufacturing license agreements

that allow a U.S. person to grant a foreign person an authorization to manufacture defense

articles abroad; technical assistance agreements that permit the performance of defense

services or the disclosure of technical data; and distribution agreements that allow the

establishment of a warehouse or distribution point abroad for defense articles exported

from the United States for distribution to entities in an approved sales territory.

6

 According to the International Traffic in Arms Regulations, seven copies of supporting

documentation are required for defense articles. The licensing office guidance also requires

seven copies to be made for defense services. Only two copies are needed if the application

is for a license renewal.

Background
Page 4 GAO-02-203 Export Controls

ammunition, and spacecraft systems.7 The names of the parties involved in

an application are automatically screened by the database against a watch

list of parties about whom prior concerns have been raised to determine if

more intensive reviews are necessary. Figure 1 shows the key phases of

the license application review process.

Figure 1: State Department License Process

During the initial review, a licensing officer decides if there is enough

information to make a decision. If there is, the officer makes a decision

and takes final action on the application. If a licensing officer decides

additional review is needed, the officer then decides which organizations,

such as the Defense Department or other State Department offices, should

conduct a further review. The Defense Department conducts a technical

review, identifies national security concerns, and also identifies whether

 7

 License categories include firearms; artillery projectors; ammunition; launch vehicles,

guided missiles, ballistic missiles, rockets, torpedoes, bombs, and mines; explosives,

propellants, incendiary agents, and their constituents; vessels of war and special naval

equipment; tanks and military vehicles; aircraft, spacecraft and associated equipment;

military training equipment; protective personnel equipment; military and space

electronics; fire control, range finder, optical and guidance and control equipment;

auxiliary military equipment; toxicological agents and equipment and radiological

equipment; spacecraft systems and associated equipment; nuclear weapons design and test

equipment; classified articles, technical data and defense services not otherwise

enumerated; submersible vessels, oceanographic and associated equipment; and,

miscellaneous articles, 22 C.F.R. part 121.
Page 5 GAO-02-203 Export Controls

an application needs to be reviewed for Missile Technology Control

Regime concerns.8

 State Department offices review applications for

foreign policy, human rights, and non-proliferation concerns. After

deciding which offices need to review the application, the licensing officer

forwards the application to administrative personnel who transmit the

application package to the other agencies and offices. This referral

process is not automated and relies on the physical distribution of paper

documents via couriers to other agencies and inter-office mail to State

Department offices.

In fiscal year 2000, the licensing office made 28,496 referrals for 15,512

license applications (about one-third of all applications) to other agencies

and State Department offices. The average processing time for these

referred applications was 91 days. For the 66 percent of applications that

were not referred to other agencies, the average processing time was 23

days.

While applications are undergoing review outside the licensing office,

administrative assistants maintain the application, answer calls from

license applicants concerning the status of reviews,9

 record agencies

recommendations as they are received from reviewing agencies and

offices, and attach the recommendations to the paper copy files of the

applications. Once all recommendations have been received for an

application, the assistants close the referral process and submit the

application to the licensing officer for final review and action.

Under the Arms Export Control Act, the State Department is also required

to notify Congress before approving applications that involve significant

military equipment exports of defense articles and services valued over

$50 million, or exports of major defense equipment valued over $14

million. The State Department cannot approve such applications until 15

 8

 The Missile Technology Control Regime was founded by the United States and six allies to

limit the proliferation of rocket and unmanned air vehicle systems capable of delivering

nuclear, biological, and chemical weapons of mass destruction and their associated

equipment and technology.

9

 Licensing officers and license reviewers in agencies and offices told us that they get

frequent calls concerning the status of license applications. One licensing officer told us

that he receives 30 calls a day from companies with concerns about license applications.

The State Department provides license applicants the ability to electronically see the status

of license applications. Industry representatives that we spoke with use this data to

monitor the status of their applications and will call if an application appears delayed.
Page 6 GAO-02-203 Export Controls

days after notification for applications to export to North Atlantic Treaty

Organization countries and Australia, Japan, or New Zealand; 15 days after

notification for exports of commercial communication satellites for launch

from and by nationals of the Russian Federation, Ukraine, or Kazakhstan;

and 30 days after notification for other countries. If the Congress enacts a

joint resolution during that time period prohibiting the export, the State

Department cannot issue the license. In fiscal year 2000, the State

Department notified Congress of 123 applications. These applications

averaged nearly 7 months to review. Our analysis did not include the

portions of the license application review process associated with

congressional notifications.

Many license applications take substantial time to process because they

require attention by the licensing office, other agencies, and other State

Department offices. License applications that are referred to other

agencies and offices for review take an average of more than two months

longer to review than applications that do not leave the licensing office.

However, the State Department has not established formal guidelines for

licensing officers to use to determine which agencies and State

Department offices need to see certain license applications. As a result,

the licensing office may be referring more applications than necessary.

Further, officials in State Department reviewing offices generally do not

receive training on how the licensing process works or how to conduct a

review and consider the reviews a secondary work priority.

The State Department lacks procedures to control the flow of license

applications through the review process, and as a result, in fiscal year

2000, hundreds of applications were lost and thousands more were

delayed. To improve license processing time, Congress increased the

licensing office’s budget. The licensing office has hired additional license

officers and is planning to develop a new electronic business processing

system, but improvement efforts also need to focus on guidance and

training for referrals, and the new electronic system must incorporate

procedures for ensuring the efficient flow of applications through the

process.

Licensing officers lack formal guidelines on when to refer applications to

other agencies and offices. As a result, applications may be unnecessarily

referred, which results in longer processing time. In lieu of guidelines,

licensing officers told us that they rely on prior cases and certain “rules-ofthumb” that they have learned, over time, from their predecessors or

Export License

Applications May

Require Extensive

Review, but Process

Inefficiencies Cause

Delays

Lack of Guidelines,

Training, and Priority

Delay License Reviews
Page 7 GAO-02-203 Export Controls

supervisors. For example, applications involving new weapon systems or

technical data and applications for license agreements, except for those

involving minor amendments to previously approved agreements, are all

referred to the Defense Department. When no existing rule applies, some

licensing officers told us that they use their own rule, which is “when in

doubt, refer it out.” Licensing officers told us that they once used the State

Department’s country policy handbook as a guide for referring

applications, but the handbook has not been updated since 1996 and is too

out-of-date to be used. Licensing officers also told us that because of the

lack of referral criteria, newer licensing officers tend to refer more

applications.

Reviewing agencies and offices generally do not tell the State

Department’s licensing office which applications they need to review. Over

half of the license referrals are sent to the Defense Department, but there

is no formal guidance explaining what applications the Department needs

to review. Of the 11 State Department offices that frequently review

applications, only one office, the Bureau of Democracy, Human Rights and

Labor, provides written guidance on the applications it needs to review.

An official in the Political-Military Affairs Bureau’s Office of Regional

Security and Arms Transfer Policy told us that his office asks the licensing

office for all applications that are referred to the geographic bureaus.

However, he could not provide documentation of that guidance and

licensing officers did not mention this guidance when we asked. An

official in the Bureau of European and Eurasian Affairs said that he does

not need to see most of the applications he receives. He told us he only

needed license applications related to three countries, but had not told the

licensing office.

The State Department does not provide training to license reviewers so

that they understand how the licensing process works and what to look

for when conducting a license application review. Several officials had

only a limited understanding of the process and the purpose of their

reviews. Of the officials we spoke with in State Department reviewing

offices, only one told us that he attended a training course on the export

license process. Officials in six reviewing offices were military officers on

detail, generally as military attachés in geographic bureaus, and are only in

their positions for a few years. Several license reviewers told us that they

are not always sure why they have been asked to review specific license

applications and do not always understand the issues or concerns

associated with an application. One official told us that he calls other

offices to make sure his recommendation is consistent with those offices.

Two officials assumed that they received all license applications
Page 8 GAO-02-203 Export Controls

associated with their geographic region and were surprised to find out that

they review only a portion of those applications. One senior licensing

officer told us that State Department license application reviewers do not

provide adequate information when recommending a license denial, and

licensing officers must go back to the reviewing official to obtain

additional information to ensure that a denial is justified.

Reviewing officials in 10 State Department offices told us that reviewing

license applications is only one of their duties, and in some offices, it is a

secondary duty. For example, in geographic bureaus the military attaché,

whose primary responsibility is providing military advice related to their

geographic region, is often in charge of ensuring that license reviews are

conducted. One attaché showed us a pile of license applications that he

had accumulated over the past 4 weeks. The attaché explained that he

waits for enough applications to come in so he can review them all in one

afternoon. Other State Department reviewers told us that there are no

backup personnel to handle application reviews. If a reviewer is on leave

or work-related travel, the license applications wait for the reviewer’s

return with no action taken in the interim.

The State Department has not established procedures to ensure that

agencies are conducting timely reviews of referred applications, that

license application referrals are received when they are sent through the

mail or by courier, and that applications that become lost or delayed are

quickly identified.

Timely Reviews of Referred Applications: There are no guidelines

governing the time permitted to review license applications, no

requirement for a reviewing agency or office to justify a lengthy review,

and the licensing office does not routinely check the status of a review

unless an applicant calls to ask why an application is taking a long time.

While the majority of reviews by other agencies and offices are completed

in 26 days, 10 percent of referrals take 57 days or more. Several State

Department license reviewers told us that applications frequently sit on

their desk or the desk of other officials awaiting attention. As explained

previously, several reviewing offices do not have backup personnel to

handle application reviews when the reviewer is out of the office.

Ensuring Referrals Are Received: The licensing office has no

procedures to ensure that other agencies or State Department offices

receive license applications from the licensing office. Licensing office

officials told us that they periodically send the Defense Department a list

Lack of Procedures and

Tracking Cause Delays in

the Process
Page 9 GAO-02-203 Export Controls

of outstanding applications. However, no lists are routinely sent to State

Department offices. Further, periodic lists do not identify applications

until they are delayed for several weeks or more. State Department license

reviewers told us that they frequently receive calls from applicants asking

why their application is taking a long time. Reviewers told us that many of

these inquiries identified applications that were either sent by the

licensing office but not received by the reviewing organization or

identified applications where the reviewer had returned the

recommendation, but it was never received by the licensing office. When

these cases are identified, the licensing office either sends another copy of

the application to the reviewing office or the reviewing office sends a copy

of its recommendation to the licensing office.

As shown in table 1, our analysis of applications completed in September

2000 that were referred to the Defense Department or State Department

offices identified 233 instances where applications took more than 2

weeks to travel from the licensing office to a reviewing office or from a

reviewing office back to the licensing office. We identified 101 instances in

that month alone where an application took over 4 weeks to travel from

one office to the next. For fiscal year 2000 as a whole, there were 254

instances where applications were lost between the licensing office and a

reviewing agency or office. Once identified as missing, usually as the result

of a contact from the license applicant, they had to be re-sent. These

applications averaged 7 months in the review process.

Table 1: Time License Applications Take to Be Sent Between the Licensing Office

and Reviewing Agencies, September 2000

0 to 7

days

8 to14

days

15 to 21

days

22 to 28

days

29 plus

days

State Department reviewing offices 464 210 68 41 91

Defense Department 2,342 318 17 6 10

Total 2,806 528 85 47 101

Note: Some data fields were blank or had incorrect data and some State Department reviewing

offices did not have data indicating when they received or returned applications. When this occurred,

we did not count the applications.

Tracking Lost or Delayed Applications: The progress of license

applications are not tracked within the licensing office as applications

move from one stage in the process to the next. While the majority of

license applications took only 2 or 3 days to pass from one administrative

point to the next within the licensing office during fiscal year 2000, we
Page 10 GAO-02-203 Export Controls

identified 2,777 instances where applications took over 2 weeks and 674 of

these took over 4 weeks to move from one point to the next while no

substantive review activity occurred. The following describe three key

stages of the licensing process where applications were delayed within the

licensing office.10

• When a licensing officer decides to refer an application for review to

another agency or State Department office, administrative personnel

make copies and send the applications to each reviewing organization

selected by the licensing officer. Licensing officers record the date they

make this decision and administrative personnel record the date the

application is sent to an agency or a State Department office. The

majority of applications were sent to agencies and offices within 2 days

of the licensing officers’ decision, but 586 applications took more than

2 weeks and 118 of these took over 4 weeks. State Department

personnel were not able to explain the delays.

• Agencies and State Department offices return a recommendation on

each license application referral. Administrative personnel record the

date each recommendation is returned. When all recommendations are

received, the license referral process is complete and administrative

personnel return the application to the licensing officer. Administrative

personnel told us that they periodically check their files to see if they

have overlooked any applications. These periodic checks depend on

their workload. Our analysis showed that the majority of applications

are returned within 3 days after the last recommendation is received,

but 1,861 took over 2 weeks and 443 of these took over 4 weeks to be

sent to a licensing officer for a final decision on the license application.

• Once a licensing officer decides to approve, deny, or return an

application without action, the officer records the date and provides

the application to administrative personnel who send the response to

the applicant. The majority of responses took 3 days from the licensing

officers’ decision to the time the response was sent to the applicant,

but 330 responses took over 2 weeks and 113 of these took over 4

weeks.

 10 Because the licensing office does not record when administrative personnel send

applications to licensing officers and when licensing officers receive these applications, we

were not able to determine if applications become delayed or lost during the transfer or

how long licensing officers take to conduct their initial reviews.
Page 11 GAO-02-203 Export Controls

The licensing office has taken steps to improve license processing time by

hiring additional licensing officers and is planning to upgrade the office’s

electronic business processing system. The office’s expenditures increased

from $4.6 million in fiscal year 1999 to $9.3 million in fiscal year 2000. The

number of licensing officers has risen from 23 in fiscal year 2000 to 34 in

fiscal year 2001. The office reported that increased staffing has improved

median processing time for referred applications from 69 days in fiscal

year 2000 to 60 days in September 2001. The licensing office is also

developing an information technology strategy with the long-term goal of

automating the licensing process. It plans to

• automate the process for submitting license applications and

supporting documentation;

• develop a means to electronically send license applications and

supporting documentation to the Defense Department, which is also

developing its own electronic system to process applications;

• accommodate new processing requirements such as additional reports;

• add high-speed scanners and barcode printing and reading equipment;

and

• support future requirements in the areas of programming and support.

However, the State Department’s plan to automate the licensing process

needs to focus on making significant improvements to the licensing

process before applying new technology. The Director of the licensing

office told us that they will make process adjustments and changes in

personnel as they are upgrading to a new electronic business system. In a

1994 study of fundamental practices that led to performance

improvements in leading private and public organizations, we reported

that electronic business system initiatives must be focused on process

improvement. Information systems that simply use technology to do the

same work, the same way, but only faster typically fail or reach only a

fraction of their potential.11 In May 2000, we reported that when developing

new electronic business processes, it is important to ensure that current

business processes are working well before applying new technology.12 In

fact, agency heads are required by the Clinger-Cohen Act of 1996 to

analyze an agency’s mission and revise mission-related processes, as

 11 Executive Guide: Improving Mission Performance Through Strategic Information

Management and Technology (GAO/AIMD-94-115, May 1994).

12 Electronic Government: Federal Initiatives Are Evolving Rapidly but They Face

Significant Challenges (GAO-T-AIMD/GGD-00-179, May 2000).

State Department Has

Added Personnel and

Plans to Automate the

Process, but Needs to

Focus on Correcting

Process Weaknesses
Page 12 GAO-02-203 Export Controls

appropriate, before making significant investments in information

technology.13 Not revising business processes prior to investing in new

technology creates the risk of merely automating inefficient ways of doing

business.

In conducting our work, these comments were echoed by officials from

other government agencies who we met with to understand ways to

automate business processes that are similar to the license review

process. Officials from the Defense Electronic Business Program Office

and the Patent and Trademark Office told us that an essential ingredient

for effectively transitioning to a new electronic business system is

reengineering and streamlining of work processes before automating

those processes. Automating an inefficient process will not likely make it

more efficient.

License applicants have long complained that they cannot predict how

long a license review may take and are frustrated by delays. Although

licensing officers and license reviewers require time to deliberate and

ensure that license decisions are appropriate, a substantial number of

applications become stalled between reviews by licensing officers and

reviewers. Improving efficiency, predictability, and timeliness of the

process may be achieved with relatively small changes in guidelines and

procedures.

To improve the efficiency and timeliness of the munitions licensing

process, we recommend that the Secretary of State direct the Office of

Defense Trade Controls in conjunction with reviewing agencies and

offices to

• develop criteria for determining which license applications to refer to

other agencies and offices, and formal guidelines and training for

organizations that receive referrals so that reviewers clearly

understand their duties when reviewing license applications, and

• establish timeliness goals for each phase of the licensing process.

 13 P.L. 104-106.

Conclusions

Recommendations for

Executive Actions
Page 13 GAO-02-203 Export Controls

Further, we recommend that the Secretary of State direct the Office of

Defense Trade Controls to establish a mechanism to track license

applications through each phase of the process to ensure timeliness goals

are met and applications are not lost or delayed.

To prevent imbedding an inefficient process into the State Department’s

planned electronic business processing system, we recommend that the

Secretary of State ensure the steps outlined above are taken before

proceeding with a new electronic processing system. The State

Department should coordinate its efforts with the Defense Department

because the Defense Department is also developing a new electronic

system and receives the majority of license application referrals.

In commenting on our draft report, the State Department said that certain

of our findings appear to be premised on conjecture and a failure to

comprehend how foreign policy provides the overall context for munitions

export controls and that other findings appear to be exaggerated and

reflect out-of-context presentations. Also, the Department stated that our

presentation of data was inflammatory and trivialized the licensing

officer’s role in referring license applications for review. Further, our

characterization of its plans to enhance automation was totally inaccurate.

The Department appears to have missed the point that our report, as

stated in our scope and methodology, is primarily concerned with the

procedures in place to ensure that license applications flow smoothly

through the review process and not with the time spent in substantive

license application reviews. In our review of State Department data, we

took extreme care not to confuse legitimately lengthy license application

reviews caused by national security and foreign policy concerns with

delays caused by administrative inadequacies. Regarding the

administrative process, the Department provided only one bit of additional

information. That is that the licensing office reviews computer runs of

pending license applications to determine their status. However, the point

of our finding is that such monitoring needs to be done on a routine basis,

not sporadically, which is the current situation. Licensing office personnel

told us that these reviews of pending applications are generally done on an

“as time permits” basis. We have modified our report to accommodate this

additional information.

The Department referred to our point, early in the report, that industry has

raised concerns about the effect of the process on U. S. defense industry

sales as an example of our exaggeration and out-of-context presentation. It

is not clear from the Department’s comment whether it is taking issue with

the validity of the comment or our statement that industry has raised the

Agency Comments

and Our Evaluation
Page 14 GAO-02-203 Export Controls

concern. This statement was not intended to validate industry concerns

but was merely meant to explain the reason why we were asked to

examine the State Department’s licensing process.

The Department’s statement that the report is inflammatory relates to our

statement that ‘hundreds” of applications were lost and “thousands” were

delayed while no substantive reviews occurred. Our report provides a

detailed explanation of the data on which our comment was based. Our

use of the term “lost” refers to the fact that applications referred for

review were sent by the licensing office but not received by the reviewing

office and had to be re-sent. The Department states that no licenses were

lost because the licensing office retains the original. The Department also

pointed out that the “lost” applications are a very small percentage of the

total number of license application referrals. We agree. Our point,

however, is that applications that are lost could be easily identified and

forwarded by a routine status review. Currently, the time required to

process these lost applications, as we point out in the report, averages

about 7 months. In terms of the delayed applications, the Department

commented that it does not keep detailed diaries on every application and

that the lack of an audit trail should not be a basis for “unqualified

conjecture or speculation.” Our statement that thousands of applications

were delayed is based solely on detailed data provided by the State

Department.

The Department stated that we trivialized the role of the licensing officer

when we explained that there are no formal guidelines to assist in

referring license applications and the Department further stated that

decisions to refer license applications rely on practice, precedent, and the

current state of foreign policy. The comments explained that licensing

officers are trained to consider applications with the utmost seriousness.

In our opinion, the lack of agreement and understanding between the

licensing office and reviewing offices on the referral process demonstrates

the problems that can occur when a process that requires actions and

interpretations by a variety of people lacks formal guidelines. Our findings

and recommendations were based on lengthy and structured interviews

with all licensing officers who had over one year of experience and

officials in State Department offices that receive these referrals. Based on

the information provided by these officials, it is clear that State

Department offices that receive referrals are at times confused about the

referral process and licensing officers believe that further guidance would

assist in making decisions to refer or not to refer a license application.

In regard to the Department’s comment that our report is inaccurate

concerning its automation plans, we held lengthy discussions with
Page 15 GAO-02-203 Export Controls

managers from the Office of Defense Trade Controls concerning their

information technology plans and evaluated existing copies of automation

plans. Based on the State Department comments, we requested any

additional information on technology modernization plans that we had not

seen. The Department provided no further information concerning its

plans. As stated in the report, the Director of the Office of Defense Trade

Controls told us that he plans to correct inadequacies in the licensing

process during the modernization. As we pointed out, past GAO work has

proven that proceeding with information technology modernization

without first correcting problems in current systems risks merely

automating inefficient ways of doing business.

The State Department did not agree with our recommendation to develop

criteria for determining which license applications to refer to other

agencies and offices and to develop guidelines and training for offices that

receive referrals. The Department commented that they have made a

conscious, deliberate, decision not to develop guidelines that address

every country or commodity. The Department explained that they have

written operational and policy guidelines that are used extensively. The

guidelines, however, are not written down in a single document and are

heavily reliant on practice and the current state of foreign policy. The

Department acknowledged that practice within certain regions needs to be

updated and made uniform. During our structured interviews with

licensing officers, we asked if there were written guidelines to guide

license referral decisions and the licensing officers explained that there

were none except for referrals related to the State Department’s Bureau of

Democracy, Human Rights and Labor. The Department’s response to this

recommendation did state that training for reviewing officers in State

Department offices is needed, and the Department intends to discuss this

issue as their information technology system is enhanced.

In response to our recommendation to establish timeliness goals, the

Department said that it is considering a timeliness goal of 25 working days

for license referrals, which is similar to the Department of Defense’s selfimposed goal. The Department also explained that licensing officers have

timeliness goals in their performance plans. Our concern in making this

recommendation was not with the time spent in substantive review of

applications but rather with the administrative procedures in the process.

That is, those portions of the process in which paper moves from one desk

to another during which there are no “value-added” steps occurring. The

comments did not mention timeliness goals for administrative phases of

the process within the Office of Defense Trade Controls.
Page 16 GAO-02-203 Export Controls

The Department agreed with our recommendation to establish a

mechanism to track license applications; however, it also stated that the

capability to track already exists and the information technology

modernization plan that is under development will be engineered to enable

tracking. We agree that tracking is a current capability. Our

recommendation is to begin using that capability to routinely track license

applications. We hope that the Department intends to do that rather than

waiting for a new system that has not yet been developed.

The Department did not comment on our recommendation to ensure the

steps outlined in the previous recommendations are taken before

proceeding with a new electronic processing system.

To determine conditions that cause delays in the licensing process, we

reviewed regulations governing the process, met with personnel who are

involved in the licensing process, reviewed license applications, and

collected and analyzed databases that show the flow of applications. We

reviewed the Arms Export Control Act and the International Traffic in

Arms Regulations to understand the rules that govern license processing.

We also discussed guidelines with licensing office officials and license

reviewers to understand written and verbal guidelines associated with the

process.

To understand the process of reviewing license applications, we met with

all licensing officers with more than one year of experience, and

administrative personnel from the licensing office. Our interviews with

the licensing officers were detailed and structured and we provided our

questions to Office of Defense Trade Controls management in advance. To

understand the role of license reviewers, we met with reviewers in the 11

State Department offices that review nearly all referred applications

within the State Department. We also met with Defense Department

officials who manage the review of license applications. We selected a

random sample of applications that were completed in September 2000

and took over 90 days to process in order to understand the progress of

license applications that take longer to review.

To analyze the flow of license applications through the process, we

obtained the licensing office’s database that has dates associated with the

progress of license application reviews. We reviewed data on all license

applications completed in fiscal year 2000. To determine how efficiently

applications were transferred from one office to another, we compared

data logs from the Defense Department and State Department reviewing

offices with the licensing office’s database for applications completed in

Scope and

Methodology
Page 17 GAO-02-203 Export Controls

September 2000. We cannot be certain of the reliability of the data we

reviewed. The State Department does not have a data dictionary that

explains the data. As a substitute, we discussed key elements of the

database with a State Department representative to ensure that we

accurately interpreted the data. In a recent review of the Office of Defense

Trade Controls, the State Department Inspector General sampled selected

elements of the database and found data entry errors. While conducting

our analysis, we also found data entry inaccuracies. We worked with a

State Department representative to correct some of these inaccuracies.

However, some data fields did not have entries. As a result, data for some

license applications was incomplete.

We also collected information from the licensing office on their plans to

improve license processing. We obtained information on their budget,

staffing, and plans for a new electronic business system. We reviewed

prior work to determine appropriate ways to implement new electronic

business systems and met with the Defense Electronic Business Program

Office and the Patent and Trademark Office to learn from their

experiences. We also met with Defense Department officials who review

State Department license applications to understand their efforts to

coordinate the implementation of their electronic business system with

State Department efforts.

We conducted our work between May 2001 and November 2001 in

accordance with generally accepted government auditing standards.

As agreed with your offices, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 10 days after its

issuance. At that time, we will send copies to the Chairmen and Ranking

Minority Members of the Senate Committee on Foreign Relations, the

Senate Committee on Banking, Housing, and Urban Affairs, and the House

Committee on International Relations. We will also send copies to the

Secretaries of State, Defense, and the Director, Office of Management and

Budget. This report will also be made available on GAO’s home page

http://www.gao.gov.
Page 18 GAO-02-203 Export Controls

If you or your staff have questions concerning this report, please contact

me at (202) 512-4841. Others making key contributions to this report were

Blake Ainsworth, Heather Barker, Raymond H. Denmark, Thomas J.

Denomme, Minette D. Richardson, and John P. Ting.

Katherine V. Schinasi

Director, Acquisition and Sourcing Management
Appendix I: Comments From the U.S.

Department of State

Page 19 GAO-02-203 Export Controls

Appendix I: Comments From the U.S.

Department of State

Note: GAO comments

supplementing those in

the report text appear at

the end of this appendix.
Appendix I: Comments From the U.S.

Department of State

Page 20 GAO-02-203 Export Controls

See comment 1.
Appendix I: Comments From the U.S.

Department of State

Page 21 GAO-02-203 Export Controls
Appendix I: Comments From the U.S.

Department of State

Page 22 GAO-02-203 Export Controls

See comment 4.

See comment 3.

See comment 2.
Appendix I: Comments From the U.S.

Department of State

Page 23 GAO-02-203 Export Controls

See comment 6.

See comment 5.
Appendix I: Comments From the U.S.

Department of State

Page 24 GAO-02-203 Export Controls

See comment 7.
Appendix I: Comments From the U.S.

Department of State

Page 25 GAO-02-203 Export Controls

Now on pp. 5 and 6.

See comment 9.

See comment 8.

Now on p. 2.
Appendix I: Comments From the U.S.

Department of State

Page 26 GAO-02-203 Export Controls
Appendix I: Comments From the U.S.

Department of State

Page 27 GAO-02-203 Export Controls
Appendix I: Comments From the U.S.

Department of State

Page 28 GAO-02-203 Export Controls
Appendix I: Comments From the U.S.

Department of State

Page 29 GAO-02-203 Export Controls

1. We changed the text to reflect that the U.S. export licensing process

can be lengthy because of foreign policy and national security

considerations, not just national security considerations.

2. We changed the text on page 8 to state that the licensing office does

not routinely check the status of license reviews.

3. This State Department comment is not correct. Through discussions

with State Department budgeting officials, we determined that the

information in the draft report is correct. The data we reported are

actual Office of Defense Trade Controls expenditures for fiscal years

1999 and 2000. The State Department comments refer to authorized

funding levels that were not actually spent in fiscal year 1999.

4. The report states that the State Department does not have formal

guidelines for referring license applications to other agencies and

offices.

5. The licensing office did not provide sufficient information for us to

validate this statement.

6. We revised text on page 8 of the report to say that no lists are routinely

sent to State Department offices.

7. Text revised.

8. Text revised.

9. Text revised.

GAO Comments

(120052)

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