Deloitte Consulting LLP


# U.S. Department of State Bureau of Educational and Cultural Affairs Private Sector Exchange Exchange Visitor Program User Fee Study ( FY2013

– FY2014 ) Executive Summary
July 2 7 , 20122



### Executive Summary In 2012, Deloitte Consulting LLP conducted an independent study of the Exchange Visitor Program (EVP) user fees for the U.S. Department of State (Department), Bureau of Educational and Cultural Affairs (ECA), Directorate for Privat e Sector Exchange (ECA/EC). The scope of this review included Private Sector Exchange operations supporting the Exchange Visitor Program (EVP), and EVP activities performed within the Private Sector Exchange Directorate’s Office of Private Sector Designati on . The main objective of the study was to determine the Fiscal Year (FY) 2013 and FY 2014 **Application Fee** for Program Sponsor Designation or Redesignation and the **Administrative Fee**  for Exchange Visitor (J
- 1 Visa Holder) Benefits. An accurate determination of these two fees (“user fees”) is vital to successful operations of the EVP, as the fees fund the full labor (salary) and ancillary

costs of ECA/EC’s Office of Private Sector Designation , and the ancillary costs of the planned new Office of Private S ector Exchange Program Administration and the ECA/EC Front Office, including four additional Full
- time Employees (FTEs)
. **EVP, Funding Sources, and User Fees** The Exchange Visitor Program (EVP) provides foreign nationals, utilizing the J
- 1 Exchange Visitor Visa (J
- 1 Visa), opportunities to participate in exchange programs in the United States. It is administered and overseen b y the Directorate for Private Secto r Exchange in the Bureau of Educational and Cultural Affairs (ECA/EC). ECA/EC is responsible for designating eligible U.S. government agencies and public and private organizations as EVP sponsors. Upon designation, ECA/EC is also responsible for the over sight of the EVP sponsors. ECA/EC is comprised of a Front Office and three supporting offices: the Office of Private Sector Designation , the Office of Exchange Coordination and Compliance, and pending re
- organization approval, the Office of Private Secto r Exchange Program Administration. Three different funding streams fund all of the ECA/EC units administering and overseeing the EVP , including all of the EVP’s program administration activities and the ECA/EC personnel conducting those activities. Th ese funding streams are:

 **Application Fee for Sponsor Designation or Redesignation** and **the Administrative Fee for Exchange Visitor (J** **- 1 Visa Holder) Benefits**  : The Application Fee is paid b y prospective and current EVP sponsors for Designation and Redesign ation , respectivel y. The Administrative Fee is paid by EVP sponsors on behalf of J
- 1 participants seeking an administrative benefit related to their current exchange visitor program. Both fees primarily fund the Office of Private Sector Designation labor (salary) and ancillary costs (e.g. , staff travel, communications, and utilities). Both fees also fund the Office of Exchange Coordination and Compliance ancillary costs and will fund the ancillary costs of the future Office of Private Sector Exchan ge Program Administration.3

 **SEVIS Fees paid by J -**  **1 Visa Applicants and Participants to the U.S. Department of Homeland Security (DHS)**  : These fees, via transfer on a reimbursable basis from DHS to the Department of State, fund the Office of Exchange Coordination and Compliance labor (salary) costs; and, in the future, will fund the Office of Private Sector Exchange Program Administration labor (salary) costs.

 **Bureau of Educational and Cultural Affairs (ECA) Budget:** Congressional appropriation funds suppo rt certain ECA/EC personnel salaries (or portions of salaries) and portions of salaries of Bureau of Education and Cultural Affairs Support Services personnel who assist the administration of the EVP. This report only

provides recommendations for the **Appl ication Fee**  for Sponsor Designation or Redesignation, and the **Administrative Fee** for Exchange Visitor (J
- 1 Visa Holder) Benefits. The report does **not** provide recommendations concerning the SEVIS fees paid by J
- 1 Visa applicants and participants to DHS (and transferred to the Department) that fund the labor (salary) costs of the ECA/EC’s Office of Exchange Coordination and Compliance, nor does it provide recommendations concerning the Bureau of Educational and Cultural Affairs (ECA) budget. **Study Objectiv es**  The objectives of this study were to:

 Review the methodology developed and implemented during the Deloitte Consulting LLP Exchange Visitor Program Fee Study concluded in March 2010;  Perform an updated analysis of current EVP activities and organization al structure;  I dentify

and allocate costs of Office of Private Sector Designation operations to EVP services rendered;  Verify

that identified costs are accuratel y and correctly factored into the pricing process for EVP services performed by Directorate fo r Private Sector Exchange staff and per internal and external cost accounting guidance;  Develop cost assessments for the future Designation Processing S ys tem, the L ocal Coordinator Training Certification Module, and the new Office of Private Sector Exchan ge Administration;  Provide information to senior managers of the Directorate for Private Sector Exchange to improve their ability

to assure stakeholders that the cost and pricing of EVP
- related services are fair and rational, and that the Directorate for P rivate Sector Exchange is operating efficientl y and effectivel y;  Provide recommendations for the FY 2013 and FY 2014 Application Fee for Sponsor Designation or Redesignation and the Administrative Fee for Exchange Visitor (J
- 1 Visa Holder) Benefits; and f

inally  Present results, conclusions, and recommendations to the U.S. Department of State in both a final report and oral presentation.4

**Methodology** In accordance with the Statement of Federal Finance and Accounting Standards No. 4 (SFFAS 4), Deloitte used an “activity
- based costing'' (ABC) approach to develop a sustainable model to align the associated costs of the EVP to the specific services performed b y the Office of Private Sector Designation on behalf of EVP applicants, sponso rs , participants and other program stakeholders. ABC is a method of identifying the work that is performed, how resources are consumed by that work, and how that work contributes to the production of required outputs. This methodology enabled the development of a cost model that factored in forecasts for expected demand of program services in the years when the fees are effective (FY2013 and FY2014) and would provide the program with adequate resources to meet that future program demand. To obtain data needed for the cost model using the ABC methodology , a Labor Survey was conducted to determine the time spent by the Directorate for Private Sector Exchange personnel on EVP activities. Although both the Office of Private Sector Designation and the Office of Exchange Coordin ation and Compliance were surveyed, **only** the Office of Private Sector Designation ’s survey

results were taken into account when determining the two user fees. The results of the Labor Survey were anal yz ed in conjunction with Office of Private Sector Desi gnation salary

data (escalated for benefits) to determine the cost basis of activities supporting the EVP. Added to the cost basis were Directorate of Private Sector Exchange ancillary costs (including the projected ancillary costs of a planned, new third office and four additional FTEs in the ECA/EC Front Office), costs for the development of a new Designation Processing S ys tem and a new Learning Management System, and Bureau of Educational and Cultural Affairs and Department of State labor (salary) costs that support the EVP. The model then assigned direct costs and allocated indirect and General and Administrative (G&A) costs using allocation ratios to isolate direct, indirect, and G&A costs. The sum of direct, indirect and G&A costs for Designation and Redesignation Applications were divided b y the projected number of FY 2013 and FY 2014 Designation and Redesignation Applications to determine the Application Fee for Sponsor Designation or Redesignation. To determine the Administrative Fee for Exchan ge Visitor (J
- 1 Visa Holder) Benefits, the sum of direct, indirect and G&A costs for Exchange Visitor Activity Counts were divided by the projected number of FY 2013 and FY 2014 Exchange Visitor Activity Counts; i.e., the expected number of benefit applications. **Findings** The FY 2011

– FY 2012 EVP fees in place at the time the EVP Fee Study was conducted were:  $2,700.00 for the Application Fee for Sponsor Designation and Redesignation (hereafter referred to as Application Fee); and  $233.00 for the Admi nistrative Fee for Exchange Visitor (J
- 1 Visa Holder) Administrative Benefits (hereafter referred to as Administrative Fee). The 2012 Deloitte Consulting LLP EVP Fee Study recommended EVP fees for the FY 2013

– FY 2014 timeframe are:  $3,981.65 for the Ap plication Fee; and  $367.44 for the Administrative Fee.5

The increase in the FY 2013 and FY 2014 Application and Administrative Fees is primarily attributable to three initiatives related to ongoing or planned process improvements and technology

implementations. These initiatives aim to increase the efficiency and accuracy

of the Designation and Redesignation Application review processes and the level of service provided to EVP sponsors by

the Directorate for Private Sector Exchange. Costs assessments were developed b y Deloitte Consulting LLP for each initiative and added into the total cost basis that must be recovered b y the two EVP fees. The three initiatives are:

 Development of a Learning Management S ys tem ( an expansion of the currently existing Local Coordinator Training Certification Mod ule ) needed to meet EVP local coordinator training requirements established in new or future EVP regulations
 Development and implementation of the Designation Processing S ys tem , which consists of:

− Robust electronic content management s ys tem for storing and reviewing new and historical sponsor files

− Electric file migration of all hard cop y sponsor files

− Complaint Management Workflow Module for tracking, managing, and reporting on all complaints and in cidents reported to the Department; e.g., serious incidents reported b y EVP sponsors and complaints reported by Exchange Visitors and any interested persons on behalf of Exchange Visitors or of a general nature
 Addition of a new Office of Private Sector E xchange Program Administration in the Directorate for Private Sector Exchange (ECA/EC) and the addition of four Full
- time E quivalent employees (FTEs) in the ECA/EC F ront O ffice, which will increase the ancillary costs factored into the cost basis **Conclusio n**  The 2012 Deloitte Fee Study successfully reviewed and updated all available aspects of the 2010 Deloitte Fee Study , including the strategies, models , and methods used. These actions spanned the A ctivity M odel, L abor S urvey , C ost A ccounting M odel, and fee structure which were originall y developed and implemented by the 2010 Deloitte Fee Study
. The 2012 Deloitte Fee Study has provided recommendations drawn from our direct experience with both ECA/EC and the EVP and offered them for the consideration of ECA/EC senior management. **Recommendations** Deloitte makes the following recommendations regarding the Directorate for Private Sector Exchange’s (ECA/EC) future operations of the Exchange Visitor Program (EVP):  **Recommendation 1 :**  Th e 2012 Deloitte Consulting LLP EVP Fee Study recommended EVP fees for the FY 2013

– FY 2014 timeframe are:
o $3,981.65 for the Application Fee; and o $367.44 for the Administration Fee.6

 **Recommendation 2 :**  Since there have been no significant changes in the g eneral types of services provided b y the Exchange Visitor Program, Deloitte recommends that ECA/EC continue to use the two existing fees, Application Fee and Administrative Fee as the mechanisms for recovering cost s for services provided b y the office.

 **Recommendation 3 :**  The 2012 Deloitte Fee Study , as well as prior EVP fee studies conducted on behalf of ECA/EC, has leveraged a traditional Activity
- based Costing (ABC) approach for calculating the Application and Administrative Fees used to recover the EC A/EC’s costs of EVP
- related operations. One aspect of this approach consists of ECA/EC staff recording their time spent conducting the set of activities defined in the Activity Model for a designated period of time. The time allocation information was th en used to drive labor costs to activities, which roll up into one of the two fees. If activity level cost information is solely being used for the purposes of fee calculation and not for other management purposes, continuing to invest staff time required to complete the labor survey may not be necessary
. This is because the org anizational structure of ECA/EC is such that functional positions can be mapped directly to each of the fees
. Therefore, labor cost can be directl y mapped based on position title to the Application and Administrative Fees. This method would be considered a “Standard Costing” approach as defined by the Statement of Federal Financial Accounting Standards (SFFAS#4) for Managerial Accounting, where resources are directly mapped to outputs as opposed to activities which are then aligned to outputs. Adopting a standard costing approach in future EVP fee studies would reduce the level of effort required to complete future fee studies.

 **Recommendation 4 :**  Currentl y there is no formal pro cess in place for (1) reconciling prior year revenues to estimated expenditures calculated to set out year fees, and (2) f orecasting application volumes based on prior ye ar. Establishing a formal process would help inform whether fluctuations in Applicati on volume and the volume of Administrative Fee actions remain stable enough to support recovery of the full cost of ECA/EC operations. During the 2012 Deloitte Fee Study, Deloitte performed this ty pe of reconciliation by

calculating fees collected in FY2011 and comparing them to FY2011 expenditure estimates from the 2010 Deloitte Fee Study
. Results indicated that projected expenditures and estimated collections from charg ed fees are well within an acceptable range. However, significant fluctuations in future EVP applications and EVP administration applications, volumes could impact the accuracy of the fees. This is especiall y important due to the fact that ECA/EC is now considering setting limitations on EVP application volumes by sponsor category

as recommended in the 2012 ECA Office of Inspector General (OIG) Report.