U.S. Customs Service: Prospective Rulings More Timely, but Database Reliability Questions Remain
Published: 2003-08-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO previously reported that the U.S. Customs Service Office of Regulations and Rulings (OR&R) headquarters was not timely in issuing most of its prospective rulings, which establish the duties importers pay on imported goods. The Trade Act of 2002 required GAO to determine whether OR&R has improved the timeliness of its prospective rulings. In addition, GAO determined what actions OR&R took to improve the timeliness of rulings and whether OR&R resolved challenges it faced with the reliability of automated rulings data.
section_title: What GAO Found
paragraphs: OR&R headquarters improved its response time for issuing prospective rulings since GAO issued a September 2000 report concluding that most rulings were untimely. GAO's review of a sample of prospective ruling request cases opened and closed from February through October 2002 showed that OR&R headquarters completed about 75 percent of these cases within its prior goal of 120 days, with about 64 percent of the cases completed within the 90-day goal mandated by the Customs Commissioner in January 2002. For cases in the latter part of our sample that were opened and closed from July through October 2002, after significant progress had been made in reducing a backlog of ruling requests, OR&R completed an estimated 94 percent of the cases within 90 days. OR&R also reported that it was successful in its efforts to eliminate the February 1, 2002 backlog of 757 ruling requests that had been open more than 90 days. Since the Commissioner's January 2002 mandate to issue rulings within 90 days, OR&R has given ruling requests the highest priority, with increased attention to balancing workloads and increased management oversight. OR&R has also taken other actions to help issue rulings within 90 days and prevent delays. OR&R continued to face data reliability challenges with its automated rulings database. OR&R has taken corrective actions to improve the accuracy and reliability of the database. However, these corrective actions do not provide assurance that OR&R has resolved the data reliability challenges because some of the actions lack specific procedures for their effective implementation.

section_title: Letter
paragraphs: As mandated by the Trade Act of 2002, we are providing you with a report  on the U.S. Customs Service’s Office of Regulations and Rulings (OR&R)  progress in issuing timely prospective rulings. OR&R issues prospective  rulings on such matters as the proper classification and valuation of  imported goods in response to requests from importers and others. OR&R  rulings advise importers of Customs regulations and assist importers in  making marketing and pricing decisions. Delayed rulings can adversely  affect importers’ ability to make plans to import, price, and sell their  products. In March 1997, we testified before the Subcommittee on Trade,  House Committee on Ways and Means that OR&R had not consistently  met its timeliness requirement for classification rulings. More recently, in  September 2000, we issued a report also concluding that OR&R’s  headquarters office in Washington, D.C., had not issued the majority of its  prospective rulings in a timely manner. The Subcommittee on OR&R of  the Treasury Advisory Committee on Commercial Operations of the U.S.  Customs Service (COAC), a private sector group composed of those  affected by Customs’ operations, had also expressed concern about the  timeliness of OR&R headquarters rulings in its January 2000 report on the  structure, staffing, and performance of OR&R. Based on concerns  surrounding delayed rulings, in January 2002, the U.S. Customs  Commissioner, on his own initiative, instructed OR&R by memorandum to  issue its rulings within 90 days and eliminate the backlog of ruling requests  that existed.
As required by the Trade Act of 2002, we studied the extent to which  OR&R headquarters has made improvements to decrease the amount of  time taken to issue prospective rulings on the classification, valuation, and  marking of imported goods. Specifically, we addressed the following  questions:    Did OR&R headquarters response time for issuing prospective rulings  on the classification, valuation, and marking of imported goods  improve since our September 2000 report?
What actions did OR&R headquarters take to improve the timeliness of  its prospective rulings and to eliminate its backlog of ruling request  cases?
Did OR&R resolve the data reliability challenges it faced with its Legal  Case Inventory System, the automated database used to monitor and  track the timeliness of prospective rulings?
To address these questions, we reviewed files for a sample of 325 cases,  from a random sample of 344 cases, categorized as prospective rulings that  were closed by OR&R headquarters from February 1, 2002, through  October 31, 2002, covering the classification, valuation, and marking of  imported goods. We interviewed OR&R management officials and  reviewed and collected other pertinent information, such as procedures  established to ensure the consistent recording of data on ruling cases in  the Legal Case Inventory System (LCIS). We also interviewed the chair of  COAC’s Subcommittee on OR&R, representatives of the American Bar  Association Customs Law Committee and five selected trade associations  (e.g., American Association of Exporters and Importers) identified as  being knowledgeable about OR&R headquarters prospective rulings, and  selected importer representatives. Appendix I discusses our scope and  methodology in greater detail and provides information about our  sampling of cases. We conducted our work between October 2002 and  June 2003 in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: Customs enforces the nation’s trade laws and policies, including collecting  duties on imported merchandise. OR&R plays an important role in  carrying out Customs’ trade mission by (1) drafting regulations  implementing U.S. trade laws; (2) issuing rulings on the proper  classification, valuation, marking, and entry of imported goods, as well as  the application of drawback laws (drawbacks involve refunds on duties of  imported merchandise when they are exported from the United States)  and navigation laws (these laws govern the movement of vessels in  international trade), in response to requests from importers and others;  and (3) providing guidance to the trade community and other Customs  offices on their compliance duties under Customs laws, and other laws  enforced by Customs, as well as related regulations. OR&R provides  compliance information to the trade community through various  mechanisms, including issuing regulations, publications, and rulings,  which establish the duty an importer will owe. These rulings advise  importers on how they can stay in compliance with Customs laws and help  them and importers of similar goods make marketing and pricing  decisions by providing information on the cost of importing their goods.  For example, OR&R’s prospective classification rulings give both the  requesting importer and importers of similar goods vital information to  help them determine the amounts of the duties and fees they will be  charged when they import their goods. Customs uses its Web site to  disseminate information on completed rulings to the trade community and  communicate other information, such as U.S. import requirements and  how to request a ruling from OR&R. Customs reported collecting about  $19.8 billion in duties in fiscal year 2002.
OR&R is headed by an Assistant Commissioner and has offices in  Washington, D.C., and New York. OR&R reported 9,053 prospective ruling  request cases closed in fiscal year 2002, most of which were processed by  its New York office in 30 days or less, according to OR&R officials. Most of  the rulings issued by the New York office concern the classification of  imported goods and generally provide a brief description the merchandise  along with the classification and the duty rate. OR&R’s headquarters office  in Washington, D.C., processes cases that are expected to take longer than  30 days to complete. OR&R headquarters rulings contain much more  elaboration, including a detailed explanation of the legal basis for the  conclusion reached by OR&R. Ruling requests received in OR&R’s   New York office that are considered highly complex or highly sensitive, or  that involve novel issues never presented to Customs before, are referred  to OR&R headquarters for a decision. OR&R reported 815 headquarters  prospective ruling request cases closed in fiscal year 2002, or about 9  percent of all prospective ruling requests. OR&R had 232 total staff as of  October 2002: 117 headquarters staff, including 90 attorneys; and 115 staff  in the New York office, including 93 import specialists (about 45 of which  are national commodity specialists) who classify imported merchandise.  For fiscal year 2002, OR&R’s budget was over $23 million.
In January 2002, the Customs Commissioner, in a memorandum to the  Assistant Commissioner for OR&R, set a requirement that rulings were to  be issued within 90 days. The Commissioner noted that timeliness of the  guidance contained in rulings is essential in ensuring compliance with the  law. The Commissioner further instructed the OR&R Assistant  Commissioner to take appropriate measures to eliminate the backlog of  ruling requests that existed. The backlog was to be eliminated by  December 31, 2002, but the Customs Commissioner later changed this  deadline to September 30, 2002.
OR&R uses its automated database, LCIS, to internally track cases,  including rulings, pending before OR&R. This system was designed as a  management tool and was to serve as the principal means for recording  and monitoring the progress and history of individual cases. According to  OR&R officials, LCIS became OR&R’s principal case tracking system in  1983 and is used to help ensure that ruling request cases are closed within  90 days. In our September 2000 report, however, we concluded that LCIS  was not an effective tool for measuring the timeliness of headquarters  rulings because it did not contain accurate and reliable data, and we  recommended actions to address the LCIS data problems.
section_title: OR&R Headquarters Improved Response Time for Issuing Prospective Rulings
paragraphs: Our review of a sample of prospective ruling request cases showed that in  response to the Customs Commissioner’s January 2002 mandate, OR&R  headquarters improved its response time for issuing prospective rulings.  We previously concluded in September 2000 that OR&R headquarters did  not issue the majority of its prospective rulings in a timely manner (i.e.,  within OR&R’s 120-day goal). Our work for this report, on the other hand,  demonstrated that OR&R headquarters completed the majority of its  prospective ruling request cases opened and closed from February  through October 2002 within the newly established goal of 90 days.  Further, OR&R reported that, with a few exceptions beyond Customs’  control, it had eliminated its February 2002 backlog of prospective ruling  requests that were still open after 90 days or more. Representatives of  COAC’s Subcommittee on OR&R, the American Bar Association Customs  Law Committee, and five trade associations that we contacted agreed that  OR&R headquarters had improved the timeliness of its rulings.
Before 2002, OR&R headquarters had a 120-day goal for processing and  issuing rulings from the date a ruling request was assigned to an OR&R  attorney. In March 1997, we testified that OR&R had not consistently met  its 120-day timeliness goal. Specifically, OR&R did not meet this  requirement for 53 percent of the 81 classification cases closed in   1996 that we reviewed. Later, in September 2000, we reported that our  review of a random sample of 70 case files, representing approximately  610 prospective rulings, showed that about two-thirds of the rulings that  were requested and issued between January 1, 1997, and October 26, 1999,  were not completed within OR&R’s 120-day goal. At the time, OR&R  acknowledged having problems issuing headquarters rulings on a timely  basis and attributed the problems to staffing shortages and competing  workload demands.
To determine the amount of time taken by OR&R headquarters to issue  prospective rulings after the Customs Commissioner established the   90-day timeliness goal in January 2002, we reviewed files for 124  prospective ruling request cases opened and closed from February 1, 2002,  through October 31, 2002. Our review showed that about 75 percent of  the cases were completed in 120 days or less, the old goal, and about 64  percent were completed within 90 days, the new goal. Table 1 shows the  number and percent of cases that took 90 days or less, from 91 to 120 days,  and more than 120 days to complete from the date they were assigned to  OR&R attorneys for processing. As also shown in table 1, most of the  cases resulted in rulings being issued by OR&R, while some cases resulted  in information letters sent to the requesters and other cases were  administratively closed.
Our review of the 124 prospective ruling request case files also indicates  that OR&R improved its response time during the latter part of the  February through October 2002 time period, after OR&R had made  significant progress in reducing the size of the backlog. For the 93 cases in  our sample that were opened during the 5-month period from February  through June 2002, OR&R completed an estimated 55 percent of the cases  within 90 days. In contrast, OR&R completed an estimated 94 percent of  the 31 cases in the latter part of our sample, cases opened and closed  during the 4-month period from July through October 2002, within   90 days.
Figure 1 summarizes the findings regarding the timeliness of OR&R  headquarters prospective ruling request cases in our March 1997  testimony, September 2000 report, and work for this report. Specifically,  figure 1 shows the percent of cases we examined during each of those  reviews that were completed within OR&R’s stated goals. As noted earlier,  these percentages are not directly comparable because the samples and  populations covered differ for each of the three reviews we conducted.
OR&R reported that its efforts to eliminate the backlog of 757  headquarters ruling request cases open 90 days or more as of February 1,  2002, were successful. Table 2 shows the size of the ruling backlog as  reported by OR&R for each month from February 2002 though April 2003.  OR&R reported having two prospective ruling request cases that were  open 90 days or more as of October 31, 2002, the last date of the cases  included in our case file review, and the backlog did not substantially  increase through April 30, 2003, when there were 6 such cases. According  to OR&R, these cases took more than 90 days for reasons beyond  Customs’ control, such as being held at the request of the Department of  the Treasury.
To determine how long some of the headquarters ruling request backlog  cases were open before they were completed, we examined case files for  157 prospective ruling request cases opened before February 1, 2002, and  closed from February 1, 2002, through October 31, 2002. We determined  that 131 of these cases were part of OR&R’s backlog of ruling request  cases open 90 days or more as of February 1, 2002. According to OR&R,  these 131 cases were among the oldest cases in LCIS at that time. We  determined that the 131 backlog cases took an average of 581 days to  complete, from the date each case was assigned to an OR&R attorney  (before OR&R started its efforts in 2002 to eliminate the ruling request  backlog) until the date each case was closed. The amount of time taken to  complete each of these 131 backlog cases ranged from 136 to 1,586 days,  with 501 days as the median.
subsections: section_title: Trade Community Agreed OR&R Improved the Timeliness of Headquarters Prospective Rulings
paragraphs: The chair of COAC’s Subcommittee on OR&R, as well as representatives of  the American Bar Association Customs Law Committee and five trade  associations we contacted, told us that OR&R started issuing prospective  rulings in 2002 more quickly than in the past. In April 2003, the chair of the  COAC subcommittee told us that OR&R’s efforts since February 2002 to  eliminate the backlog of rulings and issue rulings within 90 days of receipt  had been “outstanding.” All of the association representatives said that  OR&R headquarters had improved the timeliness of its rulings. One  association’s representative said OR&R’s new policy of responding to all  ruling requests within 90 days of receipt is a very positive development  that should improve OR&R’s responsiveness to the trade community.
section_title: Actions Taken by OR&R Headquarters to Improve the Timeliness of Rulings and Eliminate the Backlog
paragraphs: Since the Customs Commissioner required in January 2002 that OR&R  issue rulings within 90 days and the existing backlog of ruling requests be  eliminated, OR&R has given ruling requests its highest priority, according  to OR&R officials. OR&R first concentrated its efforts starting in February  2002 primarily on eliminating the ruling backlog. Then, starting in July  2002 when significant progress had been made in reducing the size of the  backlog, OR&R intensified its focus on issuing rulings within 90 days.  According to OR&R officials and documentation we reviewed, OR&R  increased the amount of attorney time spent on rulings to carry out these  efforts. OR&R managers also provided increased oversight to the  processing of rulings. In addition, OR&R took other actions to help  address the backlog and issue rulings within 90 days, such as rejecting  ruling requests when needed information could not be quickly obtained  and holding teleconferences instead of face-to-face meetings with  importers and their attorneys to discuss their requests and obtain further  information or clarification. OR&R officials said OR&R will permanently  maintain the high-priority status for rulings and will continue efforts to  issue rulings within 90 days. We believe continuing to give priority to  rulings, and continuing to streamline the processing of rulings, should help  institutionalize and sustain the progress OR&R has made in improving the  timeliness of headquarters prospective rulings.
OR&R reported that nine OR&R attorneys, who had been dividing their  time between OR&R units, were reassigned in February 2002 to work full- time on rulings within the units that had the largest number of overdue  ruling requests. Also, in July 2002, after the Customs Commissioner  changed the deadline for eliminating the ruling request backlog to  September 30, 2002, ruling cases were assigned to nine additional  attorneys working in OR&R units that did not process rulings. Each of  these nine attorneys had prior experience with rulings, according to an  OR&R report, and they continued to handle their normal workload in  addition to assisting with the elimination of the backlog. In addition,  OR&R delayed the rotation of attorneys among its units while efforts were  being taken to eliminate the ruling request backlog in 2002. According to  OR&R officials, OR&R managers have continued to provide sustained  attention to balancing attorney workloads so that rulings are issued within  90 days.
OR&R managers explained to the attorneys that rulings were to be their  highest priority. Previously, the attorneys would likely carry out other  responsibilities and tasks before turning their attention to processing  ruling requests. According to OR&R officials, prior to 2002, on the basis of  priorities established by Customs management, OR&R attorneys spent a  far greater percentage of their time on tasks and responsibilities other  than ruling requests, such as providing domestic and international training,  participating in trade negotiations, providing advice to other Customs  offices, commenting on pending legislation, and assisting in Customs  litigation. OR&R officials told us that OR&R is fully committed in its  strategic planning to maintaining this high-priority status for rulings on a  permanent basis in order to facilitate legitimate trade and informed  compliance by the trade community.
According to OR&R officials, OR&R managers started giving increased  attention and review to rulings because of their high priority, including  interacting more often with attorneys regarding the processing of rulings,  as well as providing additional oversight and monitoring of the entire  effort, to help ensure that ruling requests are issued within 90 days. OR&R  officials told us that OR&R managers will continue to give increased  attention and review to the rulings process, and this responsibility is  emphasized in OR&R management staff meetings and in the evaluation of  each manager’s performance.
OR&R also started providing monthly reports to the Customs  Commissioner regarding the status of its efforts to implement procedural  changes to issue rulings within 90 days and eliminate the backlog,  indicative of the high priority the Commissioner placed on rulings. OR&R  officials said the monthly reports on the status of its work on rulings will  continue to be provided to the Commissioner.
In addition, as part of its efforts in 2002, OR&R drafted procedures to  provide a standardized approach for reviewing, researching, and finalizing  rulings within OR&R. According to OR&R officials, each OR&R unit  previously used its own procedures for processing rulings. OR&R officials  said they believe use of the draft Standard Operating Procedure (SOP),  starting in February 2002, has streamlined their processes for issuing  rulings, helped OR&R’s efforts to issue rulings within 90 days, and will  help sustain the elimination of the ruling backlog. In July 2002, OR&R  also issued a SOP on the use of the LCIS. According to OR&R officials, this  SOP contains valuable guidance for attorneys with respect to the  processing of ruling requests, including, for example, specifying that ruling  requests are to be carefully reviewed for completeness when received.
During 2002, OR&R also revised its policy regarding the type of meetings  scheduled with importer representatives if it is considered that  discussions would be helpful in deciding ruling issues or a decision  contrary to that advocated in a ruling request is contemplated. OR&R  officials told us that, previously, such meetings were typically held in  person; but to help meet the 90-day benchmark for issuing rulings, OR&R  attorneys started primarily holding teleconferences for the discussions.  Using teleconferences is consistent with the federal regulation providing  for these conferences, and, according to OR&R officials, saves time and is  as effective as in-person meetings. According to OR&R officials, in-person  meetings are almost always held at OR&R’s office, are logistically harder  and more time-consuming to schedule and hold than teleconferences, and  tend to take longer than teleconferences. OR&R officials noted that in- person meetings used to be scheduled as a matter of course, and while  they have not been entirely eliminated, OR&R attorneys now have fewer  such meetings.
OR&R also took actions intended to reduce the amount of time spent  writing ruling letters that are sent to importers, according to OR&R  officials. Where appropriate, OR&R started using more standardized  language in rulings, often using the same language that was used in  previously issued rulings for similar products. Also, efforts were made to  curtail the length of ruling letters. OR&R officials said that attorneys were  told to be succinct and write only what is needed to rule on the matter at  hand.
OR&R officials said that another change made to help eliminate the ruling  backlog and issue rulings within 90 days was that OR&R started holding  importers making ruling requests to a more rigorous standard for  submitting information. Some ruling requests did not contain all the  information needed, or were insufficiently detailed, for OR&R to issue a  ruling. Previously, OR&R attorneys would generally spend whatever  amount of time it took to communicate with importers and obtain the  needed information, according to OR&R officials. In 2002, however, rather  than keeping cases open while waiting for more information, OR&R  started administratively closing cases or sending information letters,  which provide some information that may be helpful and often take less  time to process than rulings, when missing information could not be  quickly obtained. For administrative closures, OR&R sends a letter  advising the importer that the ruling request case is being administratively  closed and providing the importer with the reason the ruling request  cannot be processed. OR&R also started generally closing ruling request  cases administratively when they are contingent on other pending  decisions, such as decisions for related rulings, litigation, legislation, or  regulations, rather than keeping such cases open and postponing activity  on them.
subsections: section_title: Trade Community Expressed Some Concerns about OR&R Headquarters Actions
paragraphs: Fourteen of 35 importer representatives we interviewed who had  requested prospective rulings, but either did not receive a ruling or  received one that took longer than 120 days to issue, were critical of  OR&R’s actions in handling their requests. We interviewed these  representatives to obtain their views on how OR&R handled their requests.
Seven importer representatives we interviewed noted that they disagreed  with reasons generally given by OR&R to administratively close ruling  request cases. In the sample of cases we reviewed, OR&R administratively  closed cases because either the requests involved current transactions that  were not prospective in nature or information needed to issue rulings  was missing and could not be quickly obtained. Four of the 7 importer  representatives said that OR&R administratively closing cases because  importation transactions are no longer prospective is unfair, primarily  because OR&R had, in the past, loosely defined prospective transactions,  such as either transactions that had not yet begun or that had begun and  were still in progress. One representative said that OR&R now seems to  define prospective importation transactions only as those that have not yet  begun, but did not officially alert importers to this change. In addition,   4 of the 7 importer representatives said that OR&R’s closing of cases  almost immediately because information is missing is an inefficient  practice. They said that it takes more time for OR&R to close a case and  later receive a resubmitted request with complete information than it does  for OR&R to allow importers to submit additional information while a case  remains open. In response, OR&R officials said that one of the factors that  lead to substantial delays in issuing rulings prior to 2002 was the  willingness of OR&R to hold cases open while awaiting additional  information from importers. OR&R management decided that it is a more  efficient process to administratively close such cases.
Ten of the 35 importer representatives we interviewed disagreed with  OR&R’s decision in 2002 to have telephone discussions instead of in- person meetings with importers and/or their attorneys to discuss ruling  requests. Two of the 10 representatives said they believed that in the long  run, this practice will be more time-consuming for OR&R than granting in- person meetings. Six of the importer representatives said that the  discussions and the information presented at in-person meetings have, in  their experience, often led OR&R attorneys to change their contemplated  ruling decisions. The representatives also believe that by having telephone  discussions instead of in-person meetings, OR&R will likely make less  informed ruling decisions, resulting in additional importer protests and  requests for revocations of rulings. In response, OR&R officials said that  OR&R has found conference calls to be a very effective means of obtaining  needed information from importers in addition to informal contacts  between staff attorneys and importers and their representatives. OR&R  officials noted that where the nature of an issue suggests that an in-person  meeting is needed to clarify the matter, OR&R may still schedule such a  meeting.
section_title: OR&R Has Taken Actions to Improve LCIS Data Reliability, but Challenges Remain
paragraphs: Our review of a sample of 325 OR&R headquarters cases, from a random  sample of 344 cases, closed from February 1, 2002, through October 31,  2002, showed that LCIS continued to face data reliability challenges  potentially hindering its effectiveness as a tool for monitoring cases and  measuring the timeliness of rulings. In response to recommendations we  made in our September 2000 report, OR&R completed certain actions by  February 2003 to improve the accuracy and reliability of LCIS data. OR&R  also initiated additional corrective actions based on data errors we found  in our case file review. However, these actions may not sufficiently correct  problems with LCIS because some of the actions lack specific procedures  for their effective implementation. According to our internal control  standards, for an agency to run and control its operations, it must have  relevant, reliable information relating to internal events. That information  should be recorded and communicated to management and others within  the agency who need it to carry out their responsibilities.
subsections: section_title: LCIS Data Often Inaccurate and Unreliable
paragraphs: Our comparison of LCIS data to 325 case files showed that LCIS data were  often inaccurate, did not match the case files, or could not be easily  verified. A total of 88 cases were inaccurately coded in LCIS as rulings. In  addition, LCIS data for 153 of the 281 prospective ruling request cases in  the sample either did not match data in the case files or could not be easily  verified because case file data were missing for at least one of four key  data elements (i.e., the “type of case code,” “case category code,” “date  assigned,” and “date closed”). Although OR&R uses LCIS to track the  progress of its headquarters rulings, LCIS is not an effective tool for  measuring the timeliness of rulings when it does not contain accurate and  reliable dates.
In our review of the 325 OR&R headquarters case files, we found that 44 of  the cases did not involve prospective ruling requests and were  inaccurately coded in LCIS as rulings. These 44 inaccurately coded cases  were internal advice decisions, protest reviews, and ruling revocation and  modification decisions. Such cases have different codes to be entered into  LCIS.
Separately, we found that OR&R had not issued rulings for an additional  44 of the remaining 281 prospective ruling request cases. The cases  originated with letters requesting rulings, but OR&R administratively  closed 31 of the cases and issued information letters for the other 13 cases.  However, the cases remained inaccurately coded in LCIS as rulings. We  brought the cases to the attention of OR&R management while reviewing  OR&R’s case files. OR&R agreed that when the cases were closed they  should no longer have been coded in LCIS as rulings because rulings were  not issued (i.e., the codes should have been changed after OR&R decided  not to issue rulings for these cases). Consequently, OR&R officials advised  us that they had decided to establish a uniform approach to the coding of  such cases, including the identification of specific codes to be entered into  LCIS, and had taken corrective action on the 44 cases we brought to their  attention.
In reviewing the 281 prospective ruling request cases, we also found that  153 cases had LCIS data for at least one of four key data elements which  either did not match data in the case files or we could not verify because  case file data were missing. Table 3 shows our estimates of the extent to  which these key data elements in LCIS matched, did not match, or could  not be easily verified with data in individual case files for the 281  prospective ruling requests.
OR&R’s ability to measure the timeliness of rulings is hindered when  either the date a case is assigned to an attorney for processing or the date  a case is closed is inaccurate in LCIS. These two dates are used by LCIS to  automatically calculate and record the number of days in progress for  each case. OR&R managers monitor the timeliness of rulings using each  case’s days in progress from the date a case is assigned. However, LCIS  errors with the date assigned and date closed can be substantial. For  example, documents in one case file we reviewed showed that the case  took 157 days from the date assigned to the date closed, but LCIS showed  35 days in progress for the case. In another case, we determined from the  case file that it took 1,225 days from the date assigned to the date closed,  but LCIS showed 587 days in progress.
section_title: It Is Uncertain Whether OR&R’s Corrective Actions Will Improve LCIS Data Reliability
paragraphs: In our September 2000 report, we concluded that LCIS was not an  effective tool for measuring the timeliness of OR&R headquarters  prospective rulings because it did not contain accurate and reliable data.  We recommended that the OR&R Assistant Commissioner take steps to    modify LCIS to enable the system to record and retain key data so that  managers can more readily monitor and track the history of cases;    provide clear and complete guidance to ensure that staff that use LCIS  understand and consistently interpret the guidance, as well as train  staff on any modifications to LCIS; and    establish an ongoing LCIS monitoring system to ensure the quality and  integrity of the data entered and maintained in the system.
In response to our recommendations, OR&R took corrective actions that  were completed by February 13, 2003. Specifically, OR&R developed and  issued a new SOP for LCIS. The purpose of the LCIS SOP is to ensure a  consistent process for receiving, acknowledging, assigning, recording,  tracking, updating, signing, and closing ruling cases in LCIS. For example,  the SOP explains how a Case Assignment sheet is to be used to enter,  review, and update data in LCIS.
OR&R also began producing monthly LCIS reports of open and closed  cases and reports for cases nearing or over the 90-day ruling issuance  turnaround benchmark. OR&R managers are to use these reports to  determine case status and resolve barriers to completion. At the same  time, the OR&R managers are to review the monthly reports to help ensure  the accuracy of the information entered into LCIS for these cases.
Another corrective action taken by OR&R was to conduct training of  employees to ensure that they are familiar with LCIS requirements and  capabilities. A training session was conducted in November 2002, and two  more sessions were planned for fiscal year 2003. In addition, according to  OR&R officials, informal training of employees, such as new employees  and employees transferring among OR&R units, has taken place on a one- on-one basis.
OR&R initiated additional corrective actions based on LCIS data errors we  found and discussed with an OR&R official as we conducted our case file  review for this report. As discussed earlier, OR&R decided to establish a  uniform approach to the coding of ruling requests that result in  administrative closures or the issuance of information letters, including  the identification of specific codes to be entered into LCIS. In addition,  OR&R units responsible for processing prospective rulings were  instructed to check the accuracy of the LCIS “type of case code” for all  cases closed between October 1, 2002, and March 3, 2003. The OR&R units  compared hard copy documentation to LCIS data and made the necessary  corrections to LCIS. In the future, the OR&R units are to perform a similar  check of a selected percentage of LCIS data on a quarterly basis.
OR&R’s corrective actions to improve the accuracy and reliability of LCIS  data are steps in the right direction, but they do not provide assurance that  LCIS data reliability challenges have been resolved. Although the  corrective actions include goals, some actions lack specific procedures  indicating how the goals will be met. For example, OR&R’s recent decision  to establish a uniform approach to the coding of administrative closures  and information letters did not include any specific guidance as to how  and when the coding is to be done and by whom. According to OR&R  management, as of June 2003, the OR&R Assistant Commissioner was  drafting a memorandum to provide such guidance.
In addition, the LCIS SOP does not provide specific and thorough guidance  to ensure consistent recording, updating, and verification of LCIS data.  The SOP directs administrative staff to enter timely and accurate  information into LCIS, but it does not provide detailed guidance for the  verification of LCIS data during the life of a case. Although the LCIS SOP  instructs OR&R attorneys to compare LCIS data hard-copy summaries to  Case Assignment sheets in case files to ensure that the information  matches, the SOP appears to suggest that attorneys carry out this task  before conducting research and other work on cases. The SOP does not  specifically require the verification of LCIS data for individual cases at  other times, such as when each case is closed. After we discussed this  with OR&R officials, the OR&R Assistant Commissioner issued a  memorandum on July 8, 2003, requiring OR&R managers to verify the  accuracy of LCIS data for each case as it is closed.
section_title: Conclusions
paragraphs: OR&R headquarters improved the timeliness of its prospective rulings  since we issued our September 2000 report concluding that most rulings  were untimely. Starting in February 2002, OR&R gave ruling requests its  highest priority and took other actions to help issue rulings within 90 days  and eliminate the backlog of ruling requests that existed. By continuing to  give priority to rulings and continuing to streamline the processing of  rulings, OR&R headquarters may be able to institutionalize and sustain the  progress it has made in improving timeliness. This would benefit the trade  community and help ensure compliance with U.S. trade law.
LCIS, OR&R’s automated database, continued to face data reliability  challenges. OR&R has taken corrective actions to improve the accuracy  and reliability of LCIS data. However, these actions do not provide  assurance that OR&R has resolved its LCIS data reliability challenges  because some of the actions lack specific procedures for their effective  implementation. LCIS needs accurate and reliable data so that it can  effectively serve as an OR&R management tool for recording and  monitoring the progress and history of individual prospective ruling  requests and measuring timeliness. To achieve this, additional corrective  actions may be necessary.
section_title: Recommendation for Executive Action
paragraphs: To help ensure that LCIS data are accurate and that OR&R can reliably use  the database as a management tool to record and monitor prospective  rulings and measure timeliness, we recommend that the OR&R Assistant  Commissioner take steps to continue to assess LCIS data reliability to  determine whether recent improvements sufficiently correct past  problems.
section_title: Agency Comments and Our Evaluation
paragraphs: Customs provided written comments on a draft of this report and  generally agreed with our findings and recommendations. Customs’  comments are contained in appendix II.
While Customs said that the report acknowledges OR&R’s improvement in  the timeliness of its rulings, Customs believed the report did not convey  that OR&R has dramatically improved the timeliness of its rulings and  eliminated timeliness as a problem. Customs also said that the report did  not recognize the dramatic turnaround that OR&R accomplished,  including the elimination of the backlog of 757 ruling requests that existed  on February 1, 2002; the issuance of nearly every prospective ruling  request received since July 2002 within 90 days; and the issuance of nearly  every prospective ruling request received since September 2002 within   70 days. Customs also said that the report did not sufficiently emphasize  that OR&R has maintained its record of issuing rulings well within the   90-day time frame in the months since September 30, 2002, when the  backlog was eliminated.
We believe that the report appropriately reflects the improvements OR&R  has made in the timeliness of its prospective rulings. Regarding OR&R’s  issuance of prospective rulings since September 2002, we did not assess  OR&R’s timeliness for cases closed after October 31, 2002. Rather, we  assessed OR&R’s timeliness by reviewing the files for prospective ruling  request cases opened and closed from February 2002, when OR&R started  its efforts to issue rulings within 90 days, through October 2002, when we  initiated our review. In addition, our report identifies that OR&R improved  its response time for cases in the latter part of our sample (i.e., cases  opened and closed from July through October 2002, after OR&R had made  significant progress in reducing the size of its ruling request backlog), with  an estimated 94 percent of these cases completed within 90 days.
Regarding whether OR&R has eliminated timeliness as a problem, the  scope of our work and the possibility of OR&R changing its priorities does  not allow us to reach this conclusion. We identified, however, that OR&R  continuing to give priority to rulings should help institutionalize and  sustain the progress made in improving the timeliness of headquarters  prospective rulings. In addition, although Customs said that the report did  not recognize the elimination of the February 2002 backlog of cases open  90 days or more, the report clearly identified that OR&R reported it had  eliminated the backlog, with a few exceptions that were beyond Customs’  control.
Customs also commented on recent steps OR&R has taken to improve  LCIS data reliability, as outlined in a July 8, 2003, memorandum from the  OR&R Assistant Commissioner to OR&R managers. The memorandum  formally establishes and communicates two corrective actions taken by  OR&R to address LCIS data errors that we identified in the report:  verifying the accuracy of LCIS data on a quarterly basis, and establishing a  uniform approach to coding ruling requests that result in administrative  closures or the issuance of information letters. The memorandum also  requires OR&R managers to verify the accuracy of LCIS data for each case  as it is closed and note their review on the Case Assignment sheet, which  is now to be retained in each case file. We agree with Customs that this  action sufficiently addresses a second recommendation made in our draft  report.  Accordingly, we removed this recommendation. In addition to  implementing this recommendation, Customs also concurred with our  remaining recommendation to continue to assess LCIS data reliability  issues and is taking actions to address it. We believe OR&R’s recent  actions demonstrate a willingness to continue to assess and improve data  reliability for LCIS.
We are sending copies of this report to the Commissioner of Customs and  interested congressional committees. We will also make copies available  to others upon request. In addition, the report will be available on GAO’s  Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Seto J. Bagdoyan, Assistant Director, at 202-512-8658, or me at 202-512- 8777. Other staff are acknowledged in appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: Our scope and methodology for responding to our three objectives,  presented earlier in the report, and carrying out related work is described  in the next sections.
subsections: section_title: Response Time for OR&R Headquarters Rulings
paragraphs: To determine whether the Office of Regulations and Rulings (OR&R)  headquarters improved its response time for issuing prospective rulings on  the classification, valuation, and marking of imported goods since our  September 2000 report, we reviewed hard-copy files for a sample of   325 headquarters cases. OR&R had categorized these cases as prospective  rulings involving requests for the classification, valuation, and marking of  imported goods, and they were closed from February 1, 2002, through  October 31, 2002. We attempted to review a random sample of 344 case  files, representing 387 cases categorized in OR&R’s Legal Case Inventory  system (LCIS) database as prospective rulings, but OR&R staff could not  locate 19 of the files. We grouped the cases into three categories: those  cases that were assigned to OR&R attorneys for processing before  February 1, 2002; cases assigned from February 1, 2002, through June 30,  2002; and cases assigned from July 1, 2002, through October 31, 2002; with  all cases in each of the three categories closed from February 1, 2002,  through October 31, 2002. We were primarily interested in whether or not  the days in progress for prospective rulings has decreased if they were  assigned after February 1, 2002. Days in progress, as defined by OR&R, is  measured as the number of calendar days from the date a case was  assigned to an OR&R attorney for processing (date assigned) until the date  that same case was closed (date closed). We determined the days in  progress with data we collected from OR&R’s hard-copy case files and  recorded using an electronic data collection instrument.
We obtained from OR&R a listing of cases categorized as prospective  rulings, which OR&R extracted from its LCIS database and put on an  electronic spreadsheet. We narrowed down this population so that it  consisted of only cases categorized as prospective rulings that were closed  from February 1, 2002, through October 31, 2002. These prospective ruling  cases involved the classification, valuation, and marking of imported  goods and were from OR&R’s Textile Branch, General Classification  Branch, Value Branch, and Special Classification and Marking Branch. We  excluded other prospective ruling cases that the Trade Act of 2002 did not  require us to study. Our sampling units are each individual prospective  ruling request case. There were a total of 387 cases categorized in the LCIS  database as prospective rulings covering the classification, valuation, and  marking of imported goods that were from these four OR&R branches and  were closed between February 1, 2002, and October 31, 2002.
In conducting the file review, we used a random list of the 387 cases to  ensure a random sample regardless of whether or not we would be able to  review all of the cases, and we reviewed 325 of the 387 cases (as noted  earlier, we attempted to review a random sample of 344 of the 387 cases,  but OR&R staff could not locate files for 19 cases). Table 4 provides details  of the strata samples and population.
Our probability samples allow us to make estimates to the populations of  total cases for each of the three time periods. Because we used random  sampling, the results obtained are subject to some uncertainty or sampling  error. The sampling error can be expressed in terms of confidence levels  and ranges. The confidence level indicates the degree of confidence that  can be placed in the estimates derived from the samples. The range is a  pair of values derived from the sample data, an upper and lower limit,  between which the actual population values might be found. Our samples  were designed so that the sampling error around the estimates of  percentages would not be greater than 5 percentage points at the   95-percent confidence level. Thus, if all cases in our populations had been  examined, the chances are 95 out of 100 that the results obtained would be  included in the range formed by adding or subtracting no more than   5 percentage points from the sample estimates. Table 5 provides the   95-percent confidence intervals for each of the estimates to the  populations of total cases that we made in this report.
section_title: OR&R Headquarters Actions on Rulings
paragraphs: To determine what actions OR&R headquarters took to improve the  timeliness of its prospective rulings and eliminate its backlog of ruling  request cases, we interviewed OR&R management officials and collected  and reviewed pertinent documentation (e.g., OR&R reports to the  Commissioner regarding the status of efforts to implement procedural  changes to issue rulings within 90 days and eliminate the backlog; the July  2002 draft Standard Operating Procedure intended to provide a  standardized approach for processing and issuing rulings).
section_title: OR&R Data Reliability Challenges
paragraphs: To determine whether OR&R resolved the data reliability challenges it  faced with LCIS, we interviewed OR&R management officials; reviewed  case file information for our sample of 325 OR&R headquarters cases  categorized in LCIS as prospective rulings; and collected and reviewed  other available information, such as the July 2002 Standard Operating  Procedure intended to ensure a consistent process for receiving,  acknowledging, assigning, recording, tracking, updating, signing, and  closing ruling cases in LCIS.
In reviewing OR&R’s case files for our sample of cases and noting  discrepancies with LCIS data for “type of case code,” “case category code,”  “date assigned,” and “date closed,” we did not discuss each case with  OR&R officials to determine the reasons that case file data did not match  LCIS data or data were missing from case files. To do so would have been  a time-consuming and complex task, for us as well as OR&R, with little  likelihood of determining the reason for each discrepancy. In carrying out  the work for our September 2000 report on OR&R headquarters rulings,  we asked OR&R officials to explain the reasons for discrepancies as part  of our methodology. However, we reported that we could not always  identify the reasons why LCIS data were inaccurate for the cases we  reviewed.
section_title: Trade Community Perspective on OR&R Headquarters Rulings
paragraphs: We also obtained the trade community’s perspective on OR&R  headquarters’ prospective rulings. We interviewed the chair of the  Subcommittee on OR&R of the Treasury Advisory Committee on  Commercial Operations of the U.S. Customs Service (COAC),  representatives of selected associations, and selected importer  representatives. The trade representatives we interviewed are not a  representative, national sample from which we can make estimates to the  entire trade community. We did not independently validate or verify the  accuracy or reliability of information they provided.
We conducted a telephone interview with the chair of COAC’s  Subcommittee on OR&R. We also conducted telephone interviews with  representatives of the American Bar Association Customs Law Committee  and five trade associations suggested to us by congressional staff and  identified by the media and other sources as being knowledgeable about  OR&R headquarters’ prospective rulings: the American Association of  Exporters & Importers; Business Alliance for Customs Modernization;  International Mass Retail Association; Joint Industry Group Import  Committee; and National Customs Brokers & Forwarders Association of  America.
We attempted to conduct structured telephone interviews with a  judgmental sample of 76 importer representatives who had requested  rulings from OR&R to obtain their views on how OR&R handled their  requests and to ask whether OR&R’s response had adversely affected the  importers. We successfully interviewed 35 of these importer  representatives; the remaining 41 either did not return our messages, did  not answer our questions, or could not be contacted at the telephone  number we obtained from OR&R files. For the interviews, we selected  importer representatives who were involved with ruling request cases in  our sample that were either untimely, administratively closed, or resulted  in an information letter.
We conducted our work between October 2002 and June 2003 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Comments from the Bureau of Customs and Border Protection
section_title: Appendix III: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to those named above, Ronald G. Viereck, Brian J. Lipman,  Kristy N. Brown, Elizabeth Neidert, Michele C. Fejfar, Kriti Bhandari,  Nathan A. Morris, Elizabeth A. Laffoon, and Ann H. Finley made key  contributions to this report.