United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Trade, Committee on Ways and

Means, House of Representatives

May 1996 CUSTOMS SERVICE

MODERNIZATION

Strategic Information

Management Must Be

Improved for National

Automation Program

To Succeed

G O A

years

1921 - 1996

GAO/AIMD-96-57

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-261815 

May 9, 1996

The Honorable Philip M. Crane

Chairman, Subcommittee on Trade

Committee on Ways and Means

House of Representatives

Dear Mr. Chairman:

This report responds to your request that we assess the U.S. Customs

Service’s efforts to modernize its automated systems. Specifically, you

asked that we determine (1) the status and adequacy of Customs’ efforts to

implement the National Customs Automation Program (NCAP),1

 which

seeks to streamline the way Customs conducts its import business, and

(2) whether in implementing NCAP, Customs is applying the best practices

used by successful private and public organizations to improve mission

performance through strategic information management and technology.

To determine the status and adequacy of Customs’ efforts to implement

NCAP, we reviewed the authorizing legislation, interviewed key program

and information system officials as well as agency contractors, and

examined relevant plans, including annual and 5-year business and

information systems plans. We compared Customs’ approach with the best

practices of successful agencies and organizations and with Customs’

internal system development policy. We conducted our review from June

1995 through February 1996, in accordance with generally accepted

government auditing standards. Details of our scope and methodology are

contained in appendix I. Customs commented on a draft of this report.

These comments are discussed in the Agency Comments section and are

reprinted in appendix II.

Results in Brief Customs is acutely aware that its ability to effectively conduct business in

the future depends heavily on successfully modernizing its import process

and automated systems. To its credit, Customs is redesigning its import

process. It is also developing a new automated import system—the

Automated Commercial Environment (ACE)—to support this new process.

Customs’ efforts, however, are vulnerable to failure because the agency is

not effectively applying best practices to mitigate the serious risks

associated with such an ambitious systems modernization effort. For

1

This program was mandated in December 1993 by Public Law 103-182 (19 U.S.C. 1411 et seq.).

Page 1 GAO/AIMD-96-57 Customs Service Modernization
B-261815 

example, contrary to best practices, Customs selected hardware, software,

and telecommunications for ACE and other systems before it redesigned its

key business processes. In addition, Customs is not applying specific

criteria in assessing projects and analyzing project costs and benefits.

Finally, Customs has not established clear accountability for ensuring that

NCAP requirements are successfully implemented.

Background Customs’ responsibility includes (1) enforcing the laws governing the flow

of goods and persons across the borders of the United States and

(2) assessing and collecting duties, taxes, and fees on imported

merchandise. To speed the processing of imports and improve compliance

with trade laws, the Congress in 1993 enacted legislation that enabled

Customs to streamline import processing through automation.2

 The

legislation also eliminated certain legislatively mandated paper

requirements, allowing Customs to move from a paper-intensive to an

automated import environment. Further, it required Customs to establish

NCAP and specified critical functions that this program must provide,

including the ability to electronically file import entries at remote

locations and process drawback claims.3

In response to the authorizing legislation, Customs launched a major

initiative in 1994 to reorganize the agency, streamline operations, and

modernize the automated systems that support operations. In the process,

Customs identified its core business processes as trade compliance

(imports), outbound goods (exports), and passengers.

In 1992, prior to redesigning its operations, Customs decided to move from

centralized to distributive computing and selected a suite of hardware,

software, and telecommunications products to enable it to do so. Customs

refers to its effort to move to decentralized computing using these

products as the Customs Distributed Computing for the Year 2000

(CDC-2000) project. The agency plans to implement ACE and its other

modernized systems applications on these products. According to

Customs, as of October 1, 1995, it had spent $63 million purchasing these

products including upgrading its personal computers, installing local area

networks, and acquiring minicomputers and related peripherals. Although

no detailed analysis has been prepared, the CDC-2000 project director

estimated that when completed, total purchases could reach $500 million.

2

19 U.S.C. 1411 et seq.

3

Drawbacks are refunds of duties and taxes paid on imported goods which are subsequently exported

or destroyed.

Page 2 GAO/AIMD-96-57 Customs Service Modernization
B-261815 

In January 1995, Customs hired Gartner Group Consulting Services to

review the adequacy of this approach, and the contractor issued its report

in April 1995.4

 About this same time, Customs engaged another

contractor—IBM Consulting Group—to determine whether the agency

was technically capable of developing ACE. IBM reported its findings in

February 1995.5

Customs Has a

Strategy for

Implementing NCAP

Customs’ strategy for implementing NCAP consists of three initiatives. First,

Customs is redesigning the import process to better meet customer needs

and improve operational efficiency and effectiveness. In doing so, the

agency identified and prioritized the needs of its internal and external

customers involved in import processing. Using this information, Customs

determined how the new import process will work and is testing this new

process at selected ports of entry. Customs plans to complete the

definition of its redesigned import process by September 1997.

Second, Customs is developing its new automated import processing

system (ACE) applications to support the new import process and comply

with NCAP-mandated functions. Customs is in the early stages of system

development. Specifically, the agency has recently issued user

requirements and is in the process of determining functional requirements.

Customs estimates that when completed, the system will cost $125 million

over its 10-year planned life. As of March 1996, Customs had spent

$25 million on ACE. Customs plans to begin deploying ACE in October 1998.

Finally, until ACE is deployed, Customs plans to enhance its existing import

processing system—the Automated Commercial System—which operates

in the existing centralized computing environment, to provide selected

NCAP-mandated functions critical to meeting agency and trade community

needs. For example, Customs is modifying this system to allow importers

to file documentation at a port of entry other than where the goods are to

arrive or be examined. Rather than wait for this function to be deployed

with ACE, Customs plans to add this function to (1) facilitate inspections

and import processing and (2) reduce the importers’ administrative burden

by eliminating the need of having importer staff at the port of entry.

Customs is currently testing this capability with seven importers at

selected locations.

4

U.S. Customs Service, CDC-2000 Review, Gartner Group Consulting Services, April 12, 1995.

5

U.S. Customs Service Automated Commercial Environment (ACE) Technical Readiness Assessment

Final Report, IBM Consulting Group, February 27, 1995.

Page 3 GAO/AIMD-96-57 Customs Service Modernization
B-261815 

Customs is also enhancing its current Automated Commercial System to

provide electronic filing capabilities for drawback claims. To date,

Customs has modified the system to enable electronic (1) filing of such

claims by the trade community and (2) comparison of key information on

drawback claims to the original import entries. Customs also plans to

improve its controls over duplicate and excessive drawback payments,

which we previously noted were a problem, by enhancing this system to

maintain a cumulative record of drawback amounts paid against individual

line items on import entries. This enhancement is scheduled to be

completed by October 1997.

Customs Is Not

Effectively Applying

Critical Management

Practices

In implementing its NCAP strategy, Customs has not adhered to strategic

information management best practices that help organizations

(1) mitigate the risks associated with modernizing automated systems and

(2) better position themselves to achieve success. Specifically, Customs

did not (1) conduct the requisite analyses (e.g., cost-benefit, feasibility,

alternatives) before committing to the CDC-2000 project, (2) redesign its

import and other business processes before the agency selected the

hardware for ACE and other systems, (3) manage ACE as an investment, and

(4) designate strict accountability for ensuring that it successfully

incorporates all NCAP-mandated functions into the agency’s modernization

effort.

CDC-2000 Selected

Without Adequate Analysis

Organizations that have successfully modernized operations and systems

use a structured approach to identify the architecture that most efficiently

and effectively meets their information needs. First, they redesign their old

business processes. Then they analyze the new processes to identify

(1) the information needs of the entire organization and (2) alternative

ways of meeting them, including consideration of costs and benefits.

Finally, the organizations use this analysis to select an optimal

businesswide configuration, which specifies where and how processing

will occur and identifies the hardware, software, telecommunications, and

other elements needed to support new automated systems. This

configuration is commonly referred to as an architecture and serves as a

guide for modernizing automated systems. Organizations that do not

follow this disciplined approach risk (1) automating the wrong processes

and (2) developing systems that do not function well or that cannot be

readily integrated with other systems. Consequently, the agency may

develop systems that do not enhance the agency’s mission performance or

that reach only a fraction of their potential to do so.

Page 4 GAO/AIMD-96-57 Customs Service Modernization
B-261815 

However, Customs selected its CDC-2000 approach for ACE and other

systems without using this disciplined approach. Specifically, the agency

began buying minicomputers, software, and other equipment to support

decentralized processing in 1993, but did not start to redesign its first

critical business process (imports) until late 1994 and the other two

processes (passenger, exports) until January and August 1995. In addition,

Customs does not plan to complete these redesign efforts until

September 1997, October 1996, and December 1996, respectively. In

formulating the CDC-2000 project, Customs did not identify the information

needs of the entire organization and consider alternative ways of meeting

them as well as the respective costs and benefits. These shortcomings

were also reported by Gartner. In this regard, the contractor stated that

Customs’ selected products were primarily a “buy list” and were largely

identified without taking into consideration the information needs of

agency processes and systems. While Gartner stated that “the CDC-2000

architecture is, in general, valid and reasonable,” Gartner recommended

that Customs use a disciplined approach to fully identify its needs and

only then select products to meet those needs.

Customs officials said they had selected the products included in the

CDC-2000 initiative before the import process was redesigned because they

needed to move from their current centralized system to decentralized

processing and believed that the products selected would meet any future

system needs. They also said that, at the time of selection, they did not

believe a rigorous supporting analysis was needed because the products

chosen were widely used by industry. Further, although CDC-2000 was

adopted over 4 years ago, Customs does not believe it has wasted its time

and resources because, according to the agency, only $4 million of the

$63 million CDC-2000 funds spent to date have been used to buy

minicomputers, software, and other equipment to support decentralized

processing. Customs officials noted that, to date, $59 million has been

used to upgrade and install personal computers and local area networks,

which needed to be acquired regardless of the architecture that was

ultimately formulated.

We recognize Customs’ need to improve office automation using personal

computers and local area networks. However, Customs’ rationale for

purchasing minicomputers, software, and other equipment is based on

several faulty assertions. First, Customs risks wasting hundreds of millions

of dollars it plans to spend in the future on the CDC-2000 project should it

continue purchasing hardware and software to support decentralized

processing without conducting a thorough analysis. Second, while

Page 5 GAO/AIMD-96-57 Customs Service Modernization
B-261815 

decentralized processing and the products Customs selected may be

widely used, this has no bearing on whether they are a cost-effective

approach to meeting Customs’ needs. Further, since the agency does not

yet know how it plans to conduct its business in the future or what

automated systems would best support these new business processes, it is

in no position to commit to CDC-2000. Third, the Federal Information

Resources Management Regulation and Office of Management and Budget

Circular A-130 require thorough analyses to justify major systems efforts

such as CDC-2000. Finally, best practice organizations have learned that

using a structured approach can help them effectively use resources and

lead to order-of-magnitude gains in productivity.

ACE Not Managed as an

Investment

Successful organizations manage information system projects as

investments rather than expenses. This includes (1) creating an investment

review board of senior program and automated systems managers to

select, monitor, and evaluate system projects, (2) establishing explicit

criteria to assess the merits of each project relative to others, including the

use of cost, benefit, and risk analyses, and (3) following structured

systems development methodologies throughout the system’s life. Such

disciplined control processes are required by the Office of Management

and Budget to help federal agencies decide which planned systems are

worthwhile investments and ensure that the risks associated with building

those systems are adequately controlled.6

Although its annual automated systems expenditures total about

$150 million, Customs does not manage ACE and its other systems as

investments. First, while Customs has a systems steering committee,

composed of senior officials who meet periodically to monitor automation

projects such as ACE, the committee functions primarily as a sounding

board that addresses concerns raised by project managers as well as

committee members rather than as an investment review board. For

example, the committee has not developed explicit decision criteria to

assess mission cost, benefits, and risk of both ongoing and planned

projects. Instead, the committee makes decisions on ACE and other

systems, including Automated Commercial System enhancements, without

considering such critical information as the merits of each project relative

to others, how well these systems will contribute to improving mission

performance, if their value will exceed their cost, and how likely they are

to succeed.

6

Office of Management and Budget’s Circular A-130 Revised, Transmittal Memorandum 2

(July 1994) and investment guide, Evaluating Information Technology Investments, A Practical Guide,

(Version 1.0, November 1995).

Page 6 GAO/AIMD-96-57 Customs Service Modernization
B-261815 

Customs officials acknowledged the steering committee’s shortcomings

and told us that, while they had initiated an effort in January 1995 to

redefine the steering committee’s role, including managing systems as

investments, not much progress has been made since then. Customs’

Deputy Commissioner said he intends to restart efforts to establish an

investment subcommittee under the steering committee but has not

established a target date to do so.

Second, although Customs’ system development policies require

cost-benefit analyses to be performed prior to developing critical and

costly systems, we found that Customs had not performed such analyses

for ACE and the CDC-2000 project.7

 Gartner and IBM also reported that such

analyses were lacking. In this regard, Gartner stated that Customs needed

to assess the cost and benefits for CDC-2000 because (1) the agency had only

a limited understanding of what it will ultimately cost and (2) if Customs

waited much longer, the cost of purchases of selected products could

mushroom beyond the agency’s ability to control it. Similarly, IBM stated

that to be successful with ACE, Customs needed to identify and

continuously monitor the cost and benefits of this system. Customs

officials told us they recognize that until the agency conducts these

analyses, it will not know whether these major system investments are

worthwhile. In response to these findings, Customs hired contractors to

help perform these analyses, but it continues to develop ACE on CDC-2000

hardware and plans to continue making CDC-2000 purchases. These analyses

are scheduled to be completed by July 1996.

Third, in developing ACE, Customs also skipped or has not completed other

required system development steps necessary to control development

risks. Specifically, Customs has not resolved how to incorporate into ACE

critical functions mandated over 2 years ago in NCAP. These functions

include reconciling adjustments to importers’ duties and processing

drawback claims. It also did not prepare a security plan, although Customs

has had problems in the past implementing effective internal controls to

protect systems and data.

Customs officials acknowledged that, given where they are in the ACE

development process, they should have determined how to deliver

NCAP-mandated functions and completed their security plan. In addition,

they told us that it is their intention to complete the security plan in July

1996 and update the user requirements in June 1996.

7

Systems Development Life Cycle Handbook (HB-5500-04), Office of Information and Technology, U.S.

Customs Service, August 1995.

Page 7 GAO/AIMD-96-57 Customs Service Modernization
B-261815 

Accountability for

Implementing NCAP

Functions Unclear

Assigning clear accountability and responsibility for information

management decisions and results is another important practice identified

by successful organizations. As we pointed out in our January 1995

testimony8

 on Customs’ plan to modernize the agency, Customs is in the

midst of a major reorganization and during this time of change, it needs to

clarify roles and responsibilities to reinforce accountability and facilitate

mission success.

We found, however, that clear accountability for meeting NCAP

requirements is lacking. Customs has established a board called the Trade

Compliance Board of Directors to redesign its import process. This board

consists of senior officials who represent the import process and related

systems. However, while the board’s charter makes it accountable for the

redesigned import process, it does not establish accountability for

successfully implementing NCAP. Customs’ Deputy Commissioner agreed

that the agency needs to assign accountability and requisite authority to

ensure that the functions mandated in NCAP are successfully implemented.

Conclusions Customs recognizes that it (1) cannot afford to fail in its effort to redesign

and automate critical NCAP processes and (2) needs to make a more

concentrated effort to implement best practices. However, Customs has

not assigned responsibility for ensuring that NCAP is successfully

implemented. Further, Customs has no assurance that continued buying of

CDC-2000 equipment is the best way to accomplish its mission or that the

hardware selected for ACE and other systems is appropriate.

Customs is in the early stages of its modernization and has time to

implement these best practices. While Customs is starting to take

corrective action, the agency is at serious risk and vulnerable to failure

until such action is completed.

Recommendations We recommend that, prior to additional CDC-2000 equipment purchases

(except those for office automation needs) and before beginning to

develop any applications software that will run on this equipment, the

Commissioner of Customs should:

• Assign accountability and responsibility for implementing NCAP.

8

Customs Service: Status of Reorganization and Modernization Efforts (GAO/T-GGD/AIMD-95-70,

January 30, 1995).

Page 8 GAO/AIMD-96-57 Customs Service Modernization
B-261815 

• Ensure that the export and passenger business processes are completed

and the requirements generated from these two tasks, along with those of

the import process requirements, are used to determine

• how Customs should accomplish its mission in the future, including who

will perform operations and where they will be performed,

• what functions must be performed as part of these operations, what

information is needed to perform these functions, and where data

should be created and processed to produce such information,

• what alternative processing approaches could be used to satisfy

Customs’ requirements, and what are the costs, benefits, and risks of

each approach, and

• what processing approach is optimal, and not resume CDC-2000 purchases

unless CDC-2000 is determined to be the optimal approach.

• Complete the agency’s effort to redefine the role of the systems steering

committee to include managing systems as investments as required by the

Office of Management and Budget’s Circular A-130 and information

technology investment guide. This effort should include developing and

using explicit criteria to guide system development decisions and using

the criteria to revisit whether Customs’ planned investments, including ACE

and Automated Commercial System enhancements, are appropriate.

• Direct the steering committee to ensure that all systems being developed

strictly adhere to Customs’ system development steps. As part of this

oversight, we recommend that before applications are developed for ACE,

the steering committee ensure that Customs resolves how to incorporate

NCAP-mandated functions into ACE and prepares a security plan.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, Customs agreed with all of our

recommendations and said it plans to or has acted to implement them.

First, Customs agreed to clarify and document accountability and

responsibility for implementing NCAP. Second, Customs agreed to perform

the requisite analyses to determine the optimal architecture and to cease

CDC-2000 purchases, except those for office automation needs and

prototyping, until this determination is made, which is fully responsive to

our recommendation. Third, according to Customs, the agency has

formally established its investment subcommittee and is studying best

investment practices of federal and private sector organizations, which the

investment subcommittee plans to use to develop operating procedures

and investment criteria for reviewing system decisions. Finally, Customs

agreed to have the systems steering committee address compliance with

agency system development procedures at the committee’s next meeting.

Page 9 GAO/AIMD-96-57 Customs Service Modernization
B-261815 

We are sending copies of this letter to the Chairmen and the Ranking

Minority Members of the Senate Committee on Finance; the

Subcommittees on Treasury, Postal Service and General Government of

the Senate and House Appropriations Committees; the Senate Committee

on Governmental Affairs; and the House Committee on Government

Reform and Oversight. We are also sending copies to the Secretary of the

Treasury, Commissioner of Customs, and Director of the Office of

Management and Budget. Copies will also be available to others upon

request. If you have questions about this letter, please contact me at

(202) 512-6240. Major contributors are listed in appendix III.

Sincerely yours,

Linda D. Koontz

Associate Director,

Information Resources Management/

General Government Issues

Page 10 GAO/AIMD-96-57 Customs Service Modernization
Page 11 GAO/AIMD-96-57 Customs Service Modernization
Contents

Letter 1

Appendix I 

Scope and

Methodology

14

Appendix II 

Comments From the

U.S. Customs Service

16

Appendix III 

Major Contributors to

This Report

18

Abbreviations

ACE Automated Commercial Environment

CDC-2000 Customs Distributed Computing for the Year 2000

NCAP National Customs Automation Program

SIM Strategic Information Management

Page 12 GAO/AIMD-96-57 Customs Service Modernization
Page 13 GAO/AIMD-96-57 Customs Service Modernization
Appendix I 

Scope and Methodology

To determine the status of Customs’ strategy for implementing the

National Customs Automation Program (NCAP), we reviewed the law—and

its legislative history—establishing NCAP. We interviewed key Customs

program and information system officials regarding process improvement

and systems modernization efforts for the import process. We examined

Customs’ People, Processes, and Partnerships report of September 1994,

which outlines the agency’s vision for organizational and process change,

and examined the 5-year information systems plan of April 1995 for fiscal

years 1997-2001. We also reviewed background information on Customs’

existing automated import processing system and documents supporting

current enhancements to that system as well as the (1) annual business

plan, (2) project plan, and (3) user requirements documents for Customs’

planned ACE system.

To assess the adequacy of Customs’ strategy for implementing NCAP, we

assessed Customs’ strategic information management processes for

developing ACE. In analyzing Customs’ processes, we applied fundamental

best practices used by successful private and public sector organizations

as discussed in our report, Executive Guide: Improving Mission

Performance Through Strategic Information Management and Technology

(GAO/AIMD-94-115, May 1994), and our related guide Strategic Information

Management (SIM) Self-Assessment Toolkit (GAO/Version 1.0, October 28,

1994, exposure draft). We also made our assessment using the (1) Office of

Management and Budget’s Circular A-130 Revised, Transmittal 2

(July 1994) and investment guide Evaluating Information Technology

Investments, A Practical Guide (Version 1.0, November 1995) and

(2) General Services Administration’s guide Critical Success Factors for

Systems Modernization (October 1988).

Specifically, to determine if information resources management plans

supported the agency mission and customer needs for imports, we

interviewed planning officials and examined 5-year and annual business

and information management plans. To assess whether the business

process is being considered in developing ACE, we conducted interviews

and examined documentation for the redesigned import process, including

the structured methodology used to conduct this initiative. At user

conferences held by Customs, we also interviewed internal and external

users of the current import system to determine whether customer

information requirements are being identified in developing ACE.

To determine whether ACE was guided by an architecture, we reviewed

internal studies evaluating Customs’ distributed computing environment.

Page 14 GAO/AIMD-96-57 Customs Service Modernization
Appendix I 

Scope and Methodology

We also analyzed commissioned studies, interviewed the contractors

performing the studies, and obtained Customs’ response to the technical

studies. In assessing whether CDC-2000 meets agencywide information

needs, we examined agency documents and interviewed all three core

business process owners as well as information systems officials.

To determine if ACE is managed as an investment, we interviewed members

of Customs’ systems steering committee and examined its minutes and an

agenda book with background information for a committee meeting. Also,

we reviewed Customs’ systems development life cycle procedures and

compared ACE to applicable procedures to determine if required steps

were completed at this initial stage of ACE development.

Finally, to determine whether a single official was designated to ensure

that NCAP requirements are met we interviewed members of the Trade

Compliance Board of Directors which provides oversight of the redesign

of the import process. We also examined the board’s charter, identified

which Customs organizations were represented on the board, and

reviewed minutes of meetings.

Our work was performed at Customs headquarters in Washington, D.C.,

and its Data Center in Newington, Virginia.

Page 15 GAO/AIMD-96-57 Customs Service Modernization
Appendix II 

Comments From the U.S. Customs Service

Page 16 GAO/AIMD-96-57 Customs Service Modernization
Appendix II 

Comments From the U.S. Customs Service

Page 17 GAO/AIMD-96-57 Customs Service Modernization
Appendix III 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D.C.

Mark E. Heatwole, Senior Assistant Director

Antionette Cattledge, Assistant Director

Brian C. Spencer, Technical Assistant Director

Agnes I. Spruill, Senior Information Systems Analyst

Gary N. Mountjoy, Senior Information Systems Analyst

Cristina T. Chaplain, Communications Analyst

(511089) Page 18 GAO/AIMD-96-57 Customs Service Modernization
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