International Remittances: Actions Needed to Address Unreliable Official U.S. Estimate
Published: 2016-02-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: For many countries, remittances represent a large and stable source of foreign currency. Remittances have received increasing attention from policymakers as the volume of funds transferred has increased over the years. Despite the global significance of remittances, much remains unknown about the actual volume of remittances and the methods used to remit them. GAO was asked to study the potential effects of a fine on certain remitters and estimates of U.S. remittances. GAO examined (1) the potential effects of a fine on remitters unable to provide proof of legal immigration status, and (2) BEA's remittance estimate and the extent to which its revised estimation methodology met government-wide policies and best practices. GAO constructed a hypothetical scenario analysis to show the uncertainty associated with the effects of a fine. GAO interviewed, among others, BEA, International Monetary Fund and World Bank officials, and researchers. GAO also analyzed BEA's estimate of U.S. remittances and documentation of its methodologies.
section_title: What GAO Found
paragraphs: The Remittance Status Verification Act of 2015, S. 79, would require remittance transfer providers to request that all senders of remittances to recipients outside the United States provide proof of their legal status under U.S. immigration laws and impose a fine on those unable to provide such proof. The funds collected would be submitted to the Consumer Financial Protection Bureau (CFPB) to pay for its administrative and enforcement costs in carrying out the act, and any remaining funds would be used to pay expenses related to border protection. The fine may raise money for border protection, but the exact amount is unknown and would depend on several factors, including
the dollar amount of remittances sent by those without legal status,
changes in remitter behavior due to the fine, such as using unregulated transfer methods, and
CFPB's administrative and enforcement costs to carry out the act.
The first two factors above affect the volume of remittances that would be subject to a fine. The third factor affects the amount of net revenue from the fine remaining for border protection. Finally, remittance transfer providers told GAO that the fine could have consequences for them, including potentially disproportionate costs for small providers.
The Bureau of Economic Analysis (BEA) estimated that remittances from the United States were approximately $40 billion in 2014. However, BEA's methodology for estimating remittances is not consistent with government-wide policies and guidance on statistical practices or with BEA's own best practices and thus produces unreliable estimates. GAO identified several weaknesses in BEA's estimation methodology, illustrated by the following examples.
BEA failed to use appropriate methodology that addressed questionable aspects of the data, such as missing information and measurement problems. This is inconsistent with National Research Council of the National Academies of Science guidelines for federal statistical agencies and government-wide policies.
BEA also calibrated the output of the new model to match the estimate produced by BEA's previous model. BEA did this because according to officials the new model produced substantially lower results than BEA had previously estimated. In a 2006 report GAO had questioned the reliability of BEA's previous model; as a result BEA's actions raise further concerns about the reliability of the new model's results.
Moreover, BEA could not provide adequate, transparent documentation underlying its methodology or reviews of its methods and data. According to BEA officials, BEA did not adhere to its own best practices for changing its methodology because they did not consider the remittance estimate to be influential information. However, BEA's estimate is influential, as it is cited by national and international organizations and in some cases is incorporated into the estimates of these organizations, including the World Bank.
section_title: What GAO Recommends
paragraphs: GAO recommends that BEA conduct analyses to improve the reliability of its estimate and follow established policies for documenting its methods and analyses. BEA agreed to implement the recommendations but disagreed that its estimates are unreliable and not adequately documented. GAO disagrees and maintains that BEA's revised estimation model produces unreliable estimates and BEA could not provide adequate documentation of its methodology.

section_title: Letter
paragraphs: The United States is the largest remittance sending country in the world  with an estimated $54.2 billion sent in 2014, according to the World  Bank. For many receiving countries, remittances are the largest source  of foreign currency, often amounting to more than official foreign  assistance from international aid organizations and developed countries  such as the United States. These transfers are generally considered a  stable source of funds for receiving countries.
In a March 2006 report we examined various methods of estimating  remittances from the United States and found that different  methodologies had resulted in a range of estimates. We reviewed the  model that the Bureau of Economic Analysis (BEA) used to estimate U.S.  remittance flows and found that the estimate was uncertain because of  issues with the quality and timeliness of the data.
According to the International Monetary Fund (IMF), remittances have  received increasing attention from policymakers in many nations and  international organizations as the volume of funds transferred has grown  over the years. However, despite their global and economic significance,  much remains unknown about the actual volume of remitted funds and  the methods used to remit them. Concerns about the reliability and  consistency of remittance estimates from the Group of Eight and other  international observers have led to the creation of a guide that aims to  substantially improve the quality of remittance data. In 2009, the  Luxembourg Group on Remittances, which included representatives from  the IMF, World Bank, Organization for Economic Co-operation and  Development (OECD), Eurostat and national statistical offices and central  banks from countries around the world, produced detailed guidance that  includes recommendations for best practices in collecting information  about and estimating remittances.
In January 2015, the Remittance Status Verification Act of 2015 was  introduced in the U.S. Senate. The proposed legislation would amend  the Electronic Fund Transfer Act (EFTA) to require remittance transfer  providers to request that all senders of remittance transfers to recipients  outside of the United States provide proof of their legal status under the  immigration laws. The proposed legislation would require remittance  transfer providers to impose a fine on any sender unable to provide proof  of immigration status and would also include a provision for GAO to study  the act’s effects. In states that require proof of legal residence, acceptable  documentation for showing proof of legal status under the proposed law  would include a state-issued driver’s license or federal passport, or the  same documentation as required by the state for proof of identity for the  issuance of a driver’s license or as required for a federal passport. For  those states that do not require proof of legal residence, under the  proposed law the Consumer Financial Protection Bureau (CFPB) would  define by rule what constitutes acceptable documentation of proof of legal  status.
Each remittance transfer provider would be required to impose on any  sender unable to provide proof of legal immigration status a fine equal to  7 percent of the dollar amount to be transferred, excluding any fees or  other charges imposed by the remittance transfer provider. The provider  would then be required to submit all fines imposed and collected to CFPB  to pay for the administrative and enforcement costs to CFPB of carrying  out the act. Any funds remaining after paying for such costs would be  transferred by CFPB to the Department of the Treasury (Treasury) to be  used to pay expenses relating to U.S. Customs and Border Protection for  border security fencing, infrastructure, and technology. The bill was  referred to the Committee on Banking, Housing, and Urban Affairs on  January 7, 2015.
You asked that we consider the potential effect on remitters and providers  of the proposed Remittance Status Verification Act and the potential  revenue the proposed act would generate, and that we update our  previous work on estimates of remittances from the United States. This  report (1) discusses the potential effects of assessing a fine on remitters  unable to provide proof of legal U.S. immigration status, and (2) examines  BEA’s remittance estimate and the extent to which its revised estimation  methodology met government-wide policies and agency best practices.
To discuss the potential effects of assessing a fine on remitters unable to  provide proof of U.S. immigration status, we summarized estimates of the  number of immigrants without legal status from federal agencies and  research organizations, including the Department of Homeland Security  (DHS), Pew Research Center, and Center for Migration Studies (CMS).  Collectively, DHS, Pew Research, and CMS are primary sources for the  estimates of immigrants without legal status in the United States,  according to researchers we interviewed. We used these sources to  identify the size of the potentially affected group of immigrants without  legal status. We also reviewed laws and regulations relevant to  remittance transfer providers and interviewed providers. We spoke with  regulators, including CFPB and the Financial Crimes Enforcement  Network (FinCEN), and two industry associations to obtain their  perspectives on compliance with the requirements of S. 79, should it  become law.
In addition, we judgmentally selected a cross-section of remittance  transfer providers that included five nondepository remittance transfer  providers and four depository institutions based on a number of factors,  including the volume of remittances and diversity of countries serviced.  We interviewed academic researchers with expertise in remittances and  immigration to the United States. Finally, we constructed a set of  hypothetical scenarios using factors that would affect the amount of  revenue generated for border protection. We varied the following factors  to highlight the uncertainty associated with estimates of net revenue from  the fine: dollar amounts of remittances sent by immigrants without legal  status, the percentage reduction in remittances in response to the fine,  and administrative and enforcement costs associated with the fine.  Together, these three factors demonstrate the wide variation in potential  net revenue from the fine. We found insufficient literature upon which to  base the values given to each factor, therefore dollar amounts or  percentages in our scenario analysis are hypothetical.
To describe BEA’s estimate of remittances from the United States, we  collected published estimates of personal transfers attributable to BEA.  To examine BEA’s current estimation methodology, we reviewed BEA  documentation, including components of its model, and interviewed BEA  officials. We obtained documentation on the Census Bureau’s (Census)  American Community Survey (ACS) and Current Population Survey  (CPS) data to understand how they were used in BEA’s remittance  estimation methodology and interviewed Census officials familiar with the  surveys. As described in this report, we found that results from BEA’s  estimation model are unreliable.
To obtain a variety of views about remittance estimation, including the  challenges involved, we interviewed officials from Inter-American  Development Bank (IDB), IMF, World Bank, and selected central banks  from among the top 10 recipient countries of U.S. outflows that use a  formal methodology to track remittance inflows or outflows on at least an  annual basis, including Mexico and the Philippines.
We conducted this performance audit from October 2014 to February  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The United States is home to more immigrants than any other country in  the world. Census estimated that 41 million foreign-born individuals  resided in the United States from 2010 through 2014, making up 13  percent of the population. According to the World Bank, the United  States is also, by far, the largest source of remittances from foreign-born  residents to their home countries, including Mexico, China, India, and the  Philippines, among others (see fig. 1).
Remittance funds can be used for basic consumption, housing,  education, and small business formation and can promote financial  development in cash-based economies. In a number of developing  economies, remittances have become an important and stable source of  funds that exceeds revenues from exports of goods and services and  financial inflows from foreign direct investment.
Remittances can be sent through formal transfer systems and informal  methods. Formal systems typically include banks, credit unions, money  transfer businesses such as wire services, and postal services. In the  United States, providers of remittance transfer services (including bank  and nonbank institutions) are subject to federal oversight and, depending  on the state in which they operate, can be subject to supervision by  states. According to CFPB, nonbank remittance transfer providers sent  an estimated 150 million individual transfers from the United States in  2012. Informal remittance transfer methods include hand-carried cash,  courier services, and agents known as hawalas.
Individuals can transfer remittance funds in several ways, such as  1.  cash payments to individuals and bank accounts;  2.  prepaid debit or credit cards; and  3.  online and through mobile devices.
Global remittance estimates are published annually by some international  organizations on an annual basis. IMF collects data on components of  remittances submitted by its member countries, including the United  States, as part of its annual publication of balance of payments  statistics. IMF’s Balance of Payments and International Investment  Position Manual provides a framework for identifying individual remittance  flows that benefit households. According to IMF, this framework can be  applied by all countries and should lead to some level of comparability  among them. The World Bank uses IMF statistics to produce an annual  Migration and Remittances Factbook and monthly and annual remittances  data on its website. Other international organizations, such as the IDB  through the Multilateral Investment Fund, also produce annual reports on  remittance estimates. In the United States, BEA is responsible for  compiling the official U.S. estimates. Other nations may delegate the  official estimation of remittances to central banks or specific government  agencies.
In response to requests from policymakers, remittance data compilers,  and other data users, IMF and the World Bank published a guide for  compilers and users of remittances data. The purpose of the guide is to  promote lasting improvements in remittances data, which it seeks to  accomplish by summarizing the definitions and concepts related to the  balance of payments framework and by providing practical compilation  guidance. Two items in the guide that substantially relate to remittances  are “personal transfers” and “compensation of employees,” both of which  countries are required to report to IMF. Personal transfers are a measure  of all transfers in cash or in kind made or received by resident households  to or from nonresident individuals and households. Compensation of  employees is a measure of the income of short-term workers in an  economy where they are not resident and of the income of resident  workers who are employed by a nonresident entity. The guide also  defines additional measures related to remittances, which countries are  encouraged but not required to report. For example, personal remittances  represent the sum of personal transfers, net compensation of employees,  and capital transfers between households, according to the guide.
Institutions use different methodologies to produce estimates of  remittances. For example, BEA uses demographic and household survey  data and a model that calculates the remittance rates by demographic  group to create the official estimate of remittances from the United States.  The World Bank has developed its own methodology to create remittance  estimates. Its research group produces country-specific development  indicators and international development statistics. The World Bank then  complements these data with information from the IMF’s Balance of  Payments and International Investment Position Manual to create annual  and semi-annual remittance estimates.
Since 2010, researchers at the World Bank have also used United  Nations population data to develop a bilateral migration matrix, which  provides a second set of country-specific bilateral remittance estimates— that is, estimates between sending and receiving countries. These  estimates are based on the number of migrants in different destination  countries and estimates of how changes in the income of migrants  influence the remittances they send. IDB’s Multilateral Investment Fund  has a different methodology, using estimates reported by central banks to  IMF as a baseline for individual country estimates. The Multilateral  Investment Fund then works with the Center for Latin American Monetary  Studies to help refine remittance estimates for selected countries in the  Latin America and Caribbean region.
Finally, some central banks use a combination of methods to estimate  remittances. The central bank of Mexico, known as Banco de México,  tracks remittance flows to Mexico with the help of regulatory reporting  requirements on money transmitters. Since 2003, Mexico’s methodology  for estimating remittances has required firms that receive remittances to  report, on a monthly basis, the amount of money received and the  number of transactions conducted between the United States and  Mexico. To track remittances through informal channels, such as couriers  that fall outside this regulatory framework, Banco de México conducts a  survey at the U.S.-Mexico border of Mexicans entering the country. The  central bank of the Philippines, known as Bangko Sentral Ng Pilipinas,  estimates remittances that are channeled through banks. The Philippine  government also has established a formal program for registering and  tracking overseas Filipino workers. This program provides data to the  government on the type of employment these workers obtain as well as  their salaries. The Bangko Sentral Ng Pilipinas also uses the Survey of  Overseas Filipinos to supplement data from the program. Using these two  approaches, Bangko Sentral Ng Pilipinas is able to identify remittance  funds sent by Filipinos overseas through friends and relatives and  amounts brought in when these workers return home.
section_title: Potential Effect of a Fine on Remitters without Legal Status Is Uncertain and Depends on a Variety of Factors
paragraphs: A proposed fine on immigrants unable to show proof of legal status who  send money through remittance transfer providers covered under EFTA  could raise money for border protection, but the potential amount of  revenue to be generated is unknown. Net revenue from the fine—the total  of all fines collected less CFPB’s administrative and enforcement costs— would depend on several key factors, namely the dollar amount of  remittances sent by those without legal immigration status, changes in  remitter behavior because of the fine, including a potential reduction in  remittances through regulated providers, and the cost of enforcement. For  example, the ability to raise money depends on a significant number of  individuals without legal status using regulated remittance transfer  providers and paying the fine. However, a fine could result in a decrease  in remittances in the regulated market and an increase in remittances  through informal methods of money transfer. The revenue raised by the  proposed fine would first be used to pay CFPB for enforcement costs. We  did not identify any estimates of the administrative and enforcement costs  associated with the fine. Our hypothetical scenario analysis illustrates the  sensitivity of potential net revenue estimates to these factors. CFPB and  other federal regulators would enforce the requirements of the proposed  legislation and CFPB identified some implementation challenges. Lastly,  providers told us the fine could have consequences for them, and one  provider said that smaller providers would likely be affected the most.
subsections: section_title: Several Factors Could Affect the Amount of Revenue Generated from a Proposed Fine on Remitters without Legal Status, as Hypothetical Scenarios Show
paragraphs: A fine could potentially generate net revenue for border control, but the  following selected factors would influence the actual amount:
The dollar amount of remittances sent by those without legal  immigration status. The revenue raised by the fine would depend on  the dollar amount of remittances sent by those individuals in the  United States without legal immigration status and, specifically by  those using regulated remittance transfer providers. According to  three studies we identified during discussions with experts, estimates  of unauthorized U.S. immigrants in 2012 ranged from 11.1 million to  11.4 million people. Of that number, only those who conduct  transactions through providers that are subject to EFTA would actually  pay a fine, should they continue to use such providers, and that  number is unknown.
The response to the fine by individuals in the United States without  legal status, including a reduction in remittances through regulated  providers. If individuals without legal status respond to the fine by  making money transfers that may not be subject to EFTA  requirements, by remitting less, or leveraging connections with  immigrants with legal status, the amount of revenue raised by the fine  would be lower. Representatives from almost all of the organizations  we spoke with, including providers, researchers, federal agencies,  and community groups, stated that remitters without legal status may  be deterred by the fine and the additional scrutiny around their  immigration status. The amount of revenue generated by the fine  would also depend on the extent to which those without legal  immigration status continue to use regulated systems after the fine is  imposed instead of switching to informal methods, such as hawalas.  Two articles identified in our literature search noted that those without  legal status may use methods that allow them to maintain a higher  degree of anonymity. For example, those without legal immigration  status may have relatives or friends who are authorized to be in the  United States send remittances for them, potentially lowering the  amount of revenue raised by a fine.
Conversely, if most remitters continue to remit the same amount, and  continue to remit through regulated channels, the total amount remitted  may remain stable, and more revenue will be raised. Research experts,  officials from industry, community groups, and some federal agencies  with which we spoke suggested that some remitters unable to provide  proof of legal status may send the remittance and pay the fine, but the  exact percentage is unknown. While the effect of the fine depends heavily  on the remitting behavior of individuals without legal immigration status  and their response to the fine, limited information exists on how many of  these individuals remit or the extent to which they rely on regulated  methods. In the absence of definitive studies on remitting behavior, the  extent to which immigrants use regulated or informal methods for  remitting and how they will respond to price increases is unknown.
If the costs of the fine, including costs for providers to implement the  requirements of the proposed legislation, are passed on to the remitter in  the form of a price increase, remitters might reduce the amounts or the  frequency with which they remit. Information on price sensitivity—how  senders respond to an increase in price—is limited. According to a CFPB  report and a remittance transfer provider with whom we spoke, remitters’  response to higher prices may partly depend on knowledge of other  available options, including access to information about fees charged by  other providers. Behavioral changes could substantially limit the amount  of revenue generated for border protection.
Administrative and enforcement costs associated with the fine.
Although the regulatory costs associated with the proposed legislation  are unknown, CFPB officials told us that the agency would incur  expenses associated with implementing the legislation and ensuring  compliance. According to CFPB, these expenses would include the  costs of developing rules, examining remittance transfer providers,  and cooperating with other federal agencies on enforcement actions  against noncompliant institutions. Other federal regulators also  enforce EFTA for their regulated entities, and state regulators also  may play a role in oversight of remittance transfer providers. As the  revenue for the fine would be used first to reimburse CFPB for  administrative and enforcement costs to carry out the proposed  legislation, high costs to CFPB for these activities would mean less  net revenue available for border protection. Uncertainty in these  costs would contribute to uncertainty in how much revenue remains  for border protection.
Given the uncertainty related to these important factors, we constructed a  scenario analysis to illustrate how the revenue generated for border  protection could vary based on the values we assume for the following,  given our starting assumptions about the total volume of remittances and  proportion of those in the formal sector:  1.  the dollar amount of remittances sent by immigrants without legal  2.  the reduction in remittances through regulated providers in response  to the request to show proof of legal status or pay a fine, and  3.  the magnitude of administrative and enforcement costs to CFPB.
The scenarios are hypothetical because the factors used to generate the  results were selected solely to demonstrate the uncertainty in how much  revenue would be collected. They are not supported by empirical  research or evidence. The selected scenarios we illustrate are from a  larger number that we analyzed to examine how sensitive net revenue  from fines is to the factors. The three factors shown in figure 2 illustrate  the potentially wide variation in net revenue from fines. In our analysis, we  begin by assuming that the total volume of remittances is $50 billion and  50 percent of the total volume of remittances is sent through regulated  providers. The scenario analysis varies the three factors above, thereby  demonstrating the breadth of uncertainty in potential net revenue.
As figure 2 demonstrates, when the factors vary potential net revenue  from fines can change significantly. For example, one scenario with no  change in the amount of remittances and low administrative and  enforcement costs could provide $0.41 billion in potential net revenue for  border protection. In contrast, another scenario with a 75 percent  reduction in remittances after the fine and high administrative and  enforcement costs would generate potential net revenue of only $0.01  billion. In some cases, the cost incurred by CFPB could be more than the  revenue from the fine. For example, a small dollar amount of remittances  sent by immigrants without legal status, large reductions in remittances,  and high administrative and enforcement costs could lead to negative net  revenue. Obtaining reasonable estimates of net revenue would depend  upon having accurate, reliable, and complete information on the amount  immigrants without legal status remit and their response to a requirement  for providers to request proof of legal status or assess a fine, as well as  administrative and enforcement costs. In the absence of such information,  the potential net revenue a fine would generate is unknown.
section_title: Proposed Legislation Raises Other Issues for CFPB
paragraphs: Officials from CFPB noted that in addition to creating uncertainty about  administrative and enforcement costs, the proposed legislation, if passed,  would require CFPB to address other issues, including issuing new rules  to define what constitutes proof of legal status and to establish  procedures for submitting fines, as well as coordinating with other  regulators.
As noted earlier, CFPB would be required to define by rule what  constitutes acceptable documentation in states that do not require  proof of legal status to obtain a state-issued driver’s license or a  federal passport.
CFPB would need to coordinate with other financial regulators. For  example, the proposed legislation calls for remittance transfer  providers to submit the fines to CFPB and for CFPB to then transfer to  Treasury any remaining funds after the payment of CFPB’s  administrative and enforcement costs. However as noted previously,  other federal regulators have the authority to enforce EFTA for the  entities they supervise, including enforcing the remittance provisions  against those supervised entities that are remittance transfer  providers under the act. The proposed legislation would provide CFPB  with rulemaking authority, but does not state how CFPB would  coordinate with other agencies. CFPB staff told us that it might need  to develop procedures with others on examination and enforcement  efforts.
CFPB would be required to issue rules establishing the form and  manner in which fines would be submitted to CFPB. CFPB staff told  us that CFPB does not currently levy fines on consumers. Instead,  CFPB levies monetary sanctions and brings other enforcement  actions against consumer finance businesses and other persons in  connection with violations of Federal consumer financial law. But  CFPB staff noted that collecting fines directly from institutions for  noncompliance is different from a fine on remitters collected by  remittance transfer providers that is then submitted to the agency.
Finally, CFPB may have examination authority over nonbank  remittance transfer providers that also may be overseen by state  regulators. If the proposed legislation were to become law, CFPB  might have to coordinate with state regulators.
section_title: A Requirement for Proof of Legal Status or Payment of a Fine Would Also Affect Providers
paragraphs: If remittances decrease because the number of transactions or amounts  remitted decline, the fee revenue associated with remittance transactions  that providers receive would decrease. Without any corresponding  reduction in cost, the decrease in remittances might decrease profits for  some providers, but by how much is uncertain. Prior experience with  legislation passed in Oklahoma in 2009 may demonstrate effects similar  to those that could result from the proposed legislation though there are  some key differences between the two. The Oklahoma law imposed a  $5 fee on each wire transfer from a nondepository institution, and 1  percent of the amount of the transaction, if any, in excess of $500.  When making a transfer, all persons regardless of immigration status  were required to pay the fee. Under the Oklahoma law, customers who  paid the fee are entitled to an income tax credit equal to the amount paid  when filing individual income taxes in Oklahoma with either a valid Social  Security number or a valid taxpayer identification number. The tax credit  in effect means that those customers without a Social Security or  taxpayer identification number are not eligible for the state income tax  credit and therefore will have paid the remittance fee without being able to  obtain a credit or refund.
Statements of four remittance transfer providers with operations in  Oklahoma suggest that the law has had mixed effects. According to two  providers, revenues decreased once the law was in place. Two providers  told us that transaction activity in the state had fallen. One other provider  stated that their company had still not recovered from the decline in  revenue. This provider told us that the decreased number of transactions  was the result of remittances that moved to out of state providers or from  regulated to informal channels. The other two providers we interviewed  noticed decreases in remittances, although they noted they did not have a  large presence in Oklahoma. Also, one official from a state audit  association noted that fee revenues for the State of Oklahoma continued  to increase after the first year of the imposition of the fee. Remittance  transfer providers, industry associations, research experts, and some  federal agencies we met with said that they expected to see revenues  decrease in the regulated market if the proposed law (S.79) were passed,  as it would send remittances to the informal market.
New proof-of-legal status requirements and fine collection could also  increase remittance transfer providers’ costs. Such potential costs were  noted by almost all providers, and representatives from industry  associations we spoke to. Several providers noted that they might need to  pay for new computer infrastructure and databases, staff training, and  compliance. One provider pointed out that just to add a new variable  listing information on customers to an existing information system was a  9-month process that would involve testing and validation.  Representatives of an industry association and one remittance transfer  provider cited potential costs related to maintaining databases used to  verify legal status.
Remittance transfer providers could also face increased compliance costs  related to new requirements. In some cases, providers told us that  compliance costs could be significant. For example, some providers said  that they had made significant investments to comply with the fee and  exchange rate disclosures and other requirements implemented through  amendments to Regulation E after the passage of the Dodd-Frank Act,  such as developing procedures to electronically disclose the fees charged  by the provider. Another provider said that it had spent more than $3  million on technology enhancements and customer service teams to  satisfy the requirements of the rule. Still another provider noted that the  company spent about 3 percent to 4 percent of its revenue on the legal  compliance budget.
One representative of a transfer provider whom we interviewed said that  the company might be able to incorporate compliance requirements into  its Bank Secrecy Act (BSA)/anti-money-laundering (AML) efforts.  BSA/AML requirements for institutions that provide money transfer  services include, among other things, collecting sender identification for  each transfer in the amount of $3,000 or more. Banks are also required  to implement a customer identification program, under which they  establish procedures specifying what identifying information they will  collect when customers open accounts. However, other providers noted  that collecting identification is not the same as verifying legal status. For  example, several providers accepted the Matrícula Consular de Alta  Seguridad, which is an official identity card that Mexican Consulates issue  to nationals living outside Mexico. As previously discussed, under the  Remittance Status Verification Act this card would not be an acceptable  form of identification for proving legal status within the United States for  purposes of the act. One provider we spoke with explained that not all  states require proof of legal status before issuing a driver’s license or  other form of identification. Forms of identification that demonstrate legal  status may vary from state to state. It could be difficult for money transfer  clerks to know what form of identification to collect, particularly when  remitters may hold identification from other states.
Some providers and one trade association also noted that the proposed  legislation would require additional staff training. For example, one  provider said that the company operated through many retail outlets, such  as grocery stores and gas stations, and it would not be practical to train  all store clerks to determine the appropriate form of identification to show  legal residency status. Another provider stated that it would be a  significant challenge to train all agents—retail outlets that conduct  transactions for the provider—on the documentation they would be  responsible for collecting for proof of legal status. A trade association  noted the difficulty and potential expense of training staff on how to  properly check for proof of legal status; calculate, disclose, and collect the  fine; and put the transaction in a database.
How much of the fine and added cost would be absorbed by the provider  or retail outlet partly depends upon the competitiveness of the market.  Remittance transfer providers stated that in competitive markets with a  number of providers and a variety of methods for transmitting money, the  demand for remittances is more sensitive to prices. For example, one  provider indicated that it lost customers when its prices were only  marginally higher than those charged by other providers. With the  prospect of losing more customers and revenue, one provider with whom  we spoke stated that it might choose to absorb some of the fine and  added cost instead of passing it on. One provider we spoke with expected  that the added costs would increase the costs passed on to consumers  by 3 to 4 percentage points. If these costs were passed on in such a  manner, all consumers, regardless of legal status, could experience an  increase in the price of remittance transfers that are sent to a foreign  country.
In addition, certain providers might be disproportionately affected by the  requirements of the proposed legislation. According to representatives  from two providers and a research expert, smaller providers generally  operate at lower profit margins compared with larger providers.  Providers with lower margins would find it more difficult to absorb costs  imposed due to the fine and may be more adversely affected with a  reduction in revenues.
section_title: BEA Does Not Follow Best Practices for Estimating Remittances, Leading to an Unreliable Estimate
paragraphs: BEA’s estimate of remittances from the United States totaled  approximately $40 billion in 2014, and its estimates of remittances  generally increased from 2006 to 2014. BEA changed its remittance  estimation methodology in 2012 in order to incorporate new data on  reported remittances. However, BEA’s methodology for estimating  remittances is not consistent with government-wide policies and guidance  on statistical practices or with BEA’s own best practices and thus  produces unreliable estimates. For example, BEA did not follow the  guidelines from the National Research Council (NRC) of the National  Academies stating that data releases from a statistical program should be  accompanied by appropriate methods for analysis that take account of  variability and other sources of error in the data. In addition, we  identified several errors in BEA’s analysis that led us to question the  reliability of BEA’s estimates, including data that are censored,  measurement and coding errors, and an estimation methodology that is  subject to biases. Further, BEA calibrated its new model to match the  estimates from BEA’s old model, whose accuracy we questioned in a  March 2006 report on remittance estimates. On the basis of discussions  with BEA officials, BEA’s failure to follow best practices appears to be due  to the fact that the agency does not consider its remittance estimates to  be “influential information” that is subject to a high degree of  transparency. However, BEA’s estimate is cited by national and  international organizations and in some cases is incorporated into the  estimates of these organizations, including the World Bank.
subsections: section_title: BEA’s Estimates of Remittances from the United States
paragraphs: BEA’s estimate of remittances from the United States (which it reports as  personal transfers) totaled approximately $40 billion in 2014. As figure 3  shows, BEA’s estimates of remittances generally increased from 2006 to  2014.
BEA’s estimates of remittances from the United States are based on  demographic and household survey data and a model that calculates the  remittance rates by demographic group. BEA assumes that the foreign- born population represents the relevant population of remittance senders  in the United States, because this population is most likely to have a  personal link to foreign residents. The estimates of personal transfers  include all current transfers from resident to nonresident households,  regardless of the means of transfer.
section_title: BEA Changed Its Remittance Estimation Methodology in 2012 to Incorporate New Data on Reported Remittances
paragraphs: BEA changed its model for estimating remittances in 2012 by using new  demographic variables and data on reported remittances from the August  2008 migration supplement to the Current Population Survey (CPS)  conducted by Census. For its revised model, BEA employed a  multiplicative model—that is, a model whose results are the product of the  combined effects produced by the individual variables. It used a  nonstandard iterative technique to estimate the remittance rates. These  rates show the proportion of income that is remitted. To obtain total  remittances, the remittance rates for different demographic categories  can be multiplied by the number of individuals in those categories and  their incomes. In its new methodology, BEA combined the new remittance  rates from its revised model with ACS data on foreign-born residents and  their income to estimate total remittances sent annually from the United  States (see fig. 4).
The availability of nationally representative data on remittances in the  CPS with actual reported numbers on remittances provided BEA with an  opportunity to revise the model it created in 2005. BEA first tested its  previous demographic variables against CPS data and found that its  assumptions about family structure and time in the United States were  weak indicators of how much people reported to remit in CPS data and  that its previous country tiers did not match remitting behavior very well.  Therefore, in 2012 BEA changed the new model by,  removing U.S. citizens born abroad of American parents, assuming  that this group’s remittance behavior would be similar to the behavior  of U.S. born who were not included in their study;  replacing the “children/no children” category with “married, spouse  absent/other marital,” because those in the latter category were more  likely to send remittances to spouses abroad and were thus a better  predictor of remittances; adding the category “living with roommates/other living  arrangements,” assuming that people shared housing to save money  and therefore could send more remittances;  combining immigrants who had been in the United States for 16 to 30  years with those who had been in the country for longer than 30 years  into one category, “15 plus years,” as they found in CPS data that  these two categories had similar remittance rates; and  reallocating countries within pre-existing geographical tiers as BEA  found that their previous country allocations were not the best match  for the CPS data.
section_title: BEA’s Methodology Resulted in Unreliable Estimates, Partly Due to its Failure to Follow Best Practices and Guidelines for Federal Statistical Agencies
paragraphs: We found several issues with BEA’s methodology that resulted in  unreliable remittance estimates. BEA also did not follow its own best  practices and Office of Management and Budget (OMB) or NRC guidance  on documentation and methods for analysis that could have ensured  reliability of its methodology and limited the inaccuracy in its estimates.
subsections: section_title: BEA Did Not Follow Its Own Best Practices for Documenting Its Procedures
paragraphs: Despite OMB and agency guidance and best practices that would provide  that BEA should document its procedures for developing its new model  for estimating remittances, BEA did not prepare adequate, transparent  documentation of its efforts to develop its new model. BEA also did not  prepare adequate documentation of management review and approval of  the new model.
OMB’s Information Quality Act (IQA) guidelines, which are designed so  that agencies will meet basic information quality standards, state that  agencies should ensure that data and methods are documented and  transparent enough to allow an independent reanalysis by a qualified  member of the public. IQA guidelines also direct agencies to develop  management procedures for reviewing and substantiating the quality of  information before it is disseminated. According to BEA best practice  guidance, all changes in either methodology or data sources should  receive documented management approval.
In its own internal guidelines, BEA notes that it strives for the highest level  of transparency about data and methods for its estimates to support the  development of high-quality data and facilitate efforts to reproduce the  information. Additionally, BEA best practices guidelines are designed to  ensure the accuracy of input data; provide high-quality, timely analyses  that document how estimates are made; and provide estimates that  satisfy both internal and external customer needs. One BEA best practice  is to enhance both transparency and replicability by instructing BEA staff  to document each step or change in the methodology and document the  rationale behind each decision. Another BEA best practice states that  written analyses of the estimate should include a discussion of changes  and revisions as well as deviations from standard methods. However,  based on our analysis, BEA did not follow these guidelines, as the  following examples illustrate.
Documentation showing how the final remittance estimate is  calculated was not maintained. When asked to provide records of  analysis that supported the calculations of 2012 and 2013 remittance  estimates (the most recent estimates available at the time of our  review), BEA staff told us that the documents were created only when  each year’s estimate was produced and were not saved. Unable to  produce its original documents, BEA recreated the documentation to  fulfill our request. However, BEA staff told us that the file could be  missing some information required to successfully run the computer  program that calculates total remittance estimates; for example,  certain variables had been renamed and some fields were missing;  their numbers were also multiplied by an arbitrary discount factor  whose use was explained to us only later as something done to avoid  a break in the series.
Changes and revisions were not sufficiently documented. When  asked to provide documentation of the analyses completed to  determine changes in the model, BEA provided a conference paper  containing written descriptions of its regression analyses. BEA staff  who completed these analyses told us that the regression files had  not been saved in a way that would allow the staff to easily provide us  with the files applicable to the model changes. The staff described  saving them among many partially complete files and told us that it  would be difficult to identify the files that led to the current version of  the model. Unable to provide its original research, BEA attempted to  recreate the steps that were used to create the model.
Management review of estimation methodology was insufficiently  documented. BEA officials noted that staff adhered to internal  guidance by obtaining both managerial and external reviews of the  model’s revision but provided little documentation of them. BEA staff  said the remittance model proposal was presented to the  Modernization and Enhancement Steering Committee (MESC) for  formal review. BEA provided minutes of the MESC meeting  discussing the review of the model, but the minutes also indicated that  BEA management was still considering changes. BEA staff could not  provide documentation of additional management actions taken or of  another MESC meeting held at a later date. BEA staff told us that the  agency subjected the output of research that affected methodology  changes to a full gamut of validity checks. However, the only  documentation we received of a validity test was the MESC meeting  minutes that contained a discussion of the model’s assumptions. BEA  staff told us that the personal transfers model had been subjected to  additional scrutiny by BEA senior management resulting from the  authors’ conference presentations. However, BEA did not provide us  with either documentation of the conference feedback or the results of  senior management’s additional scrutiny. BEA officials stated that the  decision to publish a Survey of Current Business article about the  model’s revision constituted verification of management review.  However, BEA could not provide any documentation of the approval  process for publication to demonstrate what the management review  entailed.
The rationale and appropriateness of its methodology for estimating  remittances was not documented. According to NRC guidelines for  federal statistical agencies data releases from a statistical program  should be accompanied by assumptions used for data collection, and  what is known about the quality and relevance of the data. The  guidelines also mention appropriate methods for analysis that take  account of variability and other sources of error and the results of  research on the methods and data. We found BEA did not follow  these guidelines, as illustrated by the following examples,
Data. We were unable to verify the accuracy of the data because we  were not provided with documents detailing the steps and analyses  BEA undertook to convert CPS data to the dataset BEA actually used  to estimate the model. A BEA best practice states that an analysis of  the estimate should include a discussion of questionable aspects of  the source data, including outliers. However, BEA could not provide  us with documents showing analyses performed to deal with various  problematic aspects of the data and treatment of outliers. In  addition, BEA conducts an analysis to assign a portion of the  household’s income to each individual in the household. The income  amount attributed to each individual is a critical component of the  model and has a substantial effect on the result, yet BEA could not  provide any documents showing sensitivity analyses of this critical  assumption to see how the attribution of income affects its results.  Further, for some households that did not have any family income in  CPS data, BEA assigned them incomes but could not tell us how they  calculated them. BEA also assigned all households within a given  range of family income the same income. This approach introduces  measurement error to the extent that households within a given range  of family income do not, in fact, have the same income. BEA could not  provide any documentation explaining these details or what  implications the assigned incomes could have on its results.
Estimation Technique. As described earlier, BEA used a nonstandard  iterative technique to estimate its model. BEA staff acknowledged that  the method was unusual and may be hard to comprehend. When we  requested additional information on management review of the model,  BEA staff stated that they had had the model reviewed by an outside  expert. However, officials later said the review was informal and no  written opinion was provided.
Model specification. BEA did not follow IMF’s guide for compilers in  two instances related to issues of model specification. First, the  guide specifies that the variables used to explain and predict  remittance rates may need to be converted to different forms to see if  they generate a better model. BEA could provide no documentation  showing it attempted to do this analysis. Second, the IMF guide states  that statistical analyses are also needed to understand the  relationship of different demographic variables to each other and to  remittance rates in order to select the relevant variables. BEA could  not provide us with any documentation showing they performed any  tests on the relationship among different demographic variables.
Goodness-of-fit. This term refers to how well a model represents the  data. The IMF guide states that various statistics describing  goodness-of-fit should be calculated to decide on the best model for  determining the level of remittances. BEA presented the results of  only one such test, namely the “R-squared (R2).” Moreover, BEA  does not report standard errors for their models’ coefficients using  their iterative method and does not document that this iterative  method would produce correct standard errors for these coefficients.
section_title: BEA’s Methodology Resulted in Unreliable Estimates
paragraphs: test is a measure of the how well the proposed model fits the data. R suggests that the  model is a poor fit, while a high Rof 6.75 percent. BEA mentions an Rof 15.8 percent. BEA got this number when it ran the model again for us  using a different dependent variable.
Statistical Policy Directive No. 1 states that where appropriate any  known or potential data limitations or sources of error should be  described to data users so they can evaluate the suitability of the data  for a particular purpose. But BEA does not mention this aspect of  the data in its publication even though it has significant influence on  the results.
BEA’s model was not consistent with the data. BEA’s model  assumption that all individuals within a demographic category remit on  average the same percentage of their income is inconsistent with its  data, which show that 75 percent of households remit nothing at all.  Moreover, BEA’s model generates remittance rates for certain  categories of households that have no individuals in them. For  example, the model calculates that individuals in households with  married persons with absent spouses who have roommates, who  remit to low-tier countries, and who have spent 6 to 15 years in the  United States, remit 8.5 percent of their income. However, there are  no such individuals in the data. BEA failed to point out these data  deficiencies even though OMB’s Statistical Policy Directive No.4 asks  agencies to clearly point out limitations of the data to users.
Failure to account for censored data leads to biased results. Because  the value of reported remittances is only partially known, BEA’s  remittance data are censored data. The remittance data are censored  (at the bottom) because 75 percent of households remit $0 and all  other households remit positive sums. The remittance data are  censored (at the top) because, as noted earlier, the CPS assigns all  households that remit over $10,000 a remittance value of $27,199.  Estimating a model on censored data demands certain econometric  techniques, which BEA has not adopted, in order to yield unbiased  estimates. The guidelines presented by NRC as mentioned above  specifically ask agencies to use appropriate methods for analysis that  take account of variability and other sources of error.
BEA’s model is incorrectly specified in its documentation, and the  actual model specification may lead to biases. BEA’s documentation  states that its model explains the total amount remitted by a  household (in part) in terms of that household’s income level.  However, BEA’s model assumes that the total amount remitted by a  household depends only on the income of the foreign-born individuals  in the household. To the extent that U.S.-born individuals in a  household do remit, BEA’s model overestimates the fraction of  income remitted by foreign-born individuals in that household. BEA  officials said that they excluded U.S.-born individuals from a  household on the basis that they remitted very little. But we found that  407 households with only U.S.-born individuals reported remitting  almost 13 percent of total remittances, suggesting that the remittance  rates of foreign-born individuals may be overestimated and, thus,  biased.
Measurement errors in a critical explanatory variable bias the results.
As explained earlier, BEA’s assignment of household income to  individuals within the household is critical to its analysis. Since this  individual income variable is subject to measurement error, it biases  the effect of this variable on the remittance rates, contributing to the  unreliability of the remittance estimates calculated by BEA.
Several coding and other errors also contributed to inaccuracy. BEA  staff said that they considered the estimation of the personal transfers  model a relatively straightforward task. As such, they did not  consider independent programming of code by a reviewer necessary.  We found several errors and unexplained adjustments in BEA’s code  that might have been detected had a review been conducted.
Calibration of this new model to match unreliable old estimates  enhanced unreliability. BEA’s model predicts total remittance amounts  that are substantially lower than those BEA has historically published.  BEA handles this difference by multiplying the remittance rates from  its model by an arbitrary calibration factor so that the total model’s  estimated remittances equal those that BEA previously calculated for  2008. BEA calibrated the model because an analysis of CPS data  determined that remittance rates may have been underestimated  because many immigrants were reluctant to report their precise  remittances. Because BEA calibrated the new model to old  estimates, BEA estimated the same remittance amount for the year  2008 that the old model had produced. For the years following 2008,  the remittance estimates differed slightly from the previous estimates  because of the different demographic characteristics used in the new  model (see table 2).
In our March 2006 report on BEA remittance estimates, we questioned  the accuracy of BEA estimates based on the model developed in 2005  after finding that the remittance rates BEA used were primarily based on  its own judgment. We found shortcomings in BEA’s model, specifically  with regard to the assumptions BEA made about the percentage of  income remitted and the percentage of foreign-born persons who remit.  We were unable to link the parameters that BEA used to capture the  remitting behavior of foreign-born persons directly to the sources that  BEA cited. We found that BEA used its own judgment to determine the  proportion of the adult foreign-born population that sent remittances and  the proportion of income they remitted. We concluded that the accuracy  of these estimates was affected both by the quality of the underlying data  as well as by these assumptions. Therefore, calibration of the new  model—which may itself be unreliable—to the old estimates further  affects the reliability of the final estimates.
section_title: BEA Does Not Regard Its Remittance Estimate as Influential
paragraphs: BEA officials told us that the personal transfers estimate was not a  principal economic indicator. Therefore, BEA considered information  related to the development of the estimate to be influential (as defined by  OMB’s IQA guidelines) only in terms of the integrity of the estimate’s  dissemination. Nonetheless, BEA’s Information Quality Guidelines state  that at BEA the notion of data integrity goes beyond the maintaining of the  security of its information. Integrity includes, among other things,  transparency that is ensured by providing certain information, such as  assumptions for missing source data and discussions of revisions. BEA  officials also noted that personal remittances were a relatively small  component of the U.S. current account. According to BEA officials, over  the past 5 years personal transfers accounted for an average of 0.59  percent of gross current account transactions. Officials said that, as a  result, resources devoted to improving the estimation of personal  remittances had to be balanced with resources allocated to improving  other estimates that could be more important to the balance of payments.  However, a number of organizations use BEA’s estimates. BEA reports  its personal transfer estimates to IMF, which publishes country estimates  in its Balance of Payments Statistics Yearbook. In addition, the World  Bank uses BEA estimates submitted to IMF as part of its calculations on  remittances. IDB’s Multilateral Investment Fund also uses estimates  published by IMF as a baseline for its calculations of individual country  estimates.
BEA officials also noted that OMB’s guidelines give agencies discretion in  determining the level of quality to which information will be held.  However, while the guidelines do afford agencies some discretion, the  guidelines make it clear that agencies should not disseminate substantive  information that does not meet a basic level of quality. As discussed  earlier, by failing to follow its best practices, BEA has not met this basic  quality level. BEA officials did not explain the reasons behind not  following their own best practices or failing to maintain adequate  documentation along the way. We have previously stated that appropriate  documentation of a significant event or internal control, in a manner that  allows it to be readily available for examination, is an example of a control  activity that can be taken by federal program management. This type of  control activity allows management to achieve objectives and respond to  risks in its internal control system. Such events would include supervisory  review of methodological changes to BEA’s estimation model.
Moreover, BEA’s best practices require documentation of its methodology  and data and supervisory and management review and approval of any  changes. But BEA has not provided sufficient and transparent  documentation of its procedures for developing its new personal  remittance estimation model. The lack of documentation made our  evaluation of BEA’s model and estimates difficult, and it was not possible  for us to obtain reasonable assurance that BEA met federal guidelines  and its own internal standards. Because the documentation provided to  us by BEA is lacking in both clarity and completeness, we cannot say that  BEA has met the goal of IQA to ensure and maximize the quality,  objectivity, utility, and integrity of its remittance statistics, which are public  information disseminated by federal agencies. However, based on the  information we were able to obtain, we were still able to determine that  the model produces unreliable annual estimates.
section_title: Conclusions
paragraphs: BEA’s updated model for estimating remittances produces unreliable  results due to underlying issues with the data, such as missing  information and measurement problems. BEA did not satisfactorily  explain why its methodology was appropriate, despite NRC’s guidance to  do so. Moreover, BEA calibrated the new estimates to align with those  from its old model, the accuracy of which we had previously called into  question. Additionally, BEA could not provide us with sufficient  documentation of the steps it took to test the model and ensure it  received management review and approval—key quality assurance  procedures.
Documentation of BEA’s processes of analyzing, testing, and reviewing  its model should not be simply an act of memorializing events.  Documentation also provides evidence of an agency’s adherence to  procedures and policies that are part of its quality assurance framework.  BEA’s methodology for estimating remittances is not consistent with  guidelines prescribed by BEA’s best practices standards, the standards of  IQA, OMB statistical directives, and NRC guidance. Had BEA subjected  its model to these standards, it would have taken important steps toward  obtaining reasonable assurance that it had produced reliable annual  estimates of remittances.
Although BEA officials discount the importance of remittances as a  component of international transactions statistics, the inability of BEA’s  new model to produce more accurate remittances estimates is  consequential, as BEA’s estimate is the official remittance estimate of the  United States and is cited by both national and international  organizations, and in some cases incorporated into the estimates of these  organizations.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Commerce direct the BEA Director  to take the following actions:  To improve the reliability of the annual official U.S. estimate of  remittances, conduct additional analyses of BEA’s estimates using  estimation techniques appropriate for dealing with the shortcomings of the  data. Analyses should also be conducted to understand the effect of  various assumptions behind and limitations of the data on the estimates.
To improve the transparency and quality of BEA’s international  remittances estimate, follow established BEA best practices, OMB  policies, and NRC guidance for documenting BEA’s methods and  analyses used to revise its model for estimating remittances and for  producing its annual estimates.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretaries of Commerce,  Homeland Security, State and the Treasury, the Chair of the Board of  Governors of the Federal Reserve System, and the Director of Consumer  Financial Protection Bureau (CFPB). Commerce provided a letter,  including written comments the Bureau of Economic Analysis (BEA) on a  draft of the report, which are reprinted in Appendix II. CFPB, Treasury  and State provided technical comments, which we incorporated as  appropriate.
In its comment letter, BEA stated that it intends to implement our two  recommendations to the extent possible consistent with resource  limitations as it continuously improves its remittance (personal transfer)  estimate and other estimates. However, BEA stated that it did not agree  with our report’s conclusions that its remittance estimates are unreliable  or that its documentation of changes to its estimation model or annual  estimates is inadequate. More specifically, BEA commented that it  believes that its remittance estimates are valid and reasonable for the  purpose for which they are prepared and that the documentation provided  to GAO was fully adequate. We recognize BEA’s resource constraints.  However, we maintain that our findings related to the reliability of BEA’s  remittance estimates and documentation of the methodology to produce  such estimates are valid and support the recommendations we made in  the report.
Regarding our conclusion that BEA’s remittance estimates are unreliable,  in its comment letter BEA acknowledged the data limitations that GAO  pointed out in the report but did not explain how these may affect its  estimates. The limitations described in BEA’s comment letter were not  discussed in the documentation provided by BEA. Nor did BEA provide  evidence showing that it conducted alternative analyses to conclude that  these limitations did not affect the quality of its final estimates. For  example, in its comment letter BEA mentions that the calculation of its  income variable was problematic but during our review did not present us  with analysis to show how sensitive its estimates were to various  assumptions about income, including that of taking the midpoint of the  range of income provided in its data. Even BEA’s choice of demographic  variables included in their analysis depends on how it calculates  individual income. BEA acknowledges that its data was censored—where  the value of reported remittances for some households in its data set is  only partially known—but during our review, it did not provide evidence  that it conducted additional analyses using an alternative methodology to  see how final estimates might be affected. BEA told us that these  households were responsible for a substantial proportion of all  remittances and we found that it had considerable influence on BEA’s  estimates. Though these and other data limitations described in this  report could have substantial impact on the estimates, in its comments  BEA dismisses the limitations stating that they would only have marginal  effect on the estimates. However, BEA does not present evidence of  having tested the magnitude of the effects on the estimates. Moreover,  calibrating the estimates resulting from BEA’s revised estimation model to  its previous estimates, the accuracy of which was deemed uncertain in a  previous GAO report, further undermines our confidence in these  estimates. As a result of data limitations, BEA’s choice of methodology in  light of those limitations, and other errors and corrections BEA made, we  maintain that BEA’s revised estimation model produces unreliable  remittance estimates.
Regarding our conclusion that BEA did not follow the best practices,  policies, and guidance to which it is subject for documenting its methods  and analyses, BEA stated that the documentation provided to GAO was  fully adequate. We disagree. As discussed in this report, we identified  several instances where BEA did not follow best practices, policies, and  guidance. For example, we requested files that provided documentation  of the analyses BEA conducted to determine changes to its estimation  methodology. BEA provided written descriptions of its regression analysis  in a conference paper. BEA staff told us that its analysis files had been  saved among many partially complete files and that it would be difficult to  identify the files that led to the current version of the model. BEA’s best  practice standards require that all methodological changes and the  rationale for the changes be clearly documented. As we describe in the  report, without documentation BEA could not effectively convey and  support the rationale and appropriateness of its methodology. We were  unable to verify, among other things, the accuracy of much of BEA’s data  or fully understand the selection of its methodology.
As we stated in the report, documentation of analysis, testing, and  evaluations of models should show evidence of adherence to procedures  and policies that are part of an effective quality assurance framework.  BEA did not provide documentation that reflected such a framework. For  example, BEA officials described conducting managerial and external  reviews of the model’s revision but provided only the minutes to one  management review meeting indicating that the model had been  discussed but was still under consideration. Though we requested  documentation of final approval of the model by the management  committee, BEA told us that it had nothing further to provide. BEA also  described an external review of its model revision that was done by an  external econometrician for quality assurance purposes. When we asked  for documentation of this review, however, BEA told us that it had been  informal and that no written opinion had been provided.
In addition, BEA stated that our ability to reproduce the agency’s  estimates showed that its documentation was adequate. However, we did  not attempt to reproduce BEA’s estimates. Rather, we ran the computer  program that BEA provided on the data created by BEA to replicate a few  intermediate steps in its methodology.  By replicating these steps, we  found inconsistencies between BEA’s description of the analysis and  what was actually done, and other errors.  We did not and would not have  been able to reproduce the analysis, based on the documentation that  BEA provided, that led to the final remittance estimates or even create the  dataset used by BEA from its listed sources.
BEA noted that it provided us with new summaries to help explain certain  aspects of its methodology, but asserted that we conflated this additional  effort with an inadequacy of internal control and initial documentation.  However, we maintain that in some cases, BEA provided these  summaries because it was unable to provide us with original  documentation. For example, we asked for records of analysis that  supported the calculations of 2012 and 2013 estimates. BEA told us that  the documents were created only when each year’s estimate was  produced and were not saved. BEA also was unable to provide original  documentation of the analysis that led to the current version of the model  and attempted to recreate its steps in new documentation.
BEA also rejected the statement that it did not follow best practices  because it did not consider remittances to be influential. During our  review, BEA staff told us that information about BEA’s remittance  estimates was designated as influential only to prevent their disclosure  before they were officially released. BEA also told us orally and in writing  that as personal remittances were a relatively small component of the  U.S. current account, resources devoted to improving the estimate of  remittances had to be balanced with resources allocated to improving  other estimates that could be more important to the balance of payments.
Finally, BEA stated its remittance estimate was not designed to measure  the potential impact of the WIRE Act (proposed Remittance Status  Verification Act of 2015), and it understood that we would use its  estimates as a basis for understanding the magnitude of cross-border  transfers. BEA’s comment inaccurately described the purpose and scope  of our review. As we describe in this report, our review focused on two  separate objectives which were to (1) discuss the potential effects of  assessing a fine on remitters unable to provide proof of legal U.S.  immigration status, and (2) examine BEA’s remittance estimate and the  extent to which its revised estimation methodology met government-wide  policies and agency best practices. We used information on BEA’s  remittance estimates solely to help us answer the report’s second  objective.
We are sending copies of this report to interested congressional  committees and the Secretaries of Commerce, Homeland Security, State,  and Treasury, as well as to CFPB and the Federal Reserve Board. In  addition, the report will be available at no charge on GAO’s website at  http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-8678 or cackleya@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs are listed on the last  page of this report. GAO staff who made major contributions to this report  are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report (1) discusses the potential effects of collecting information  from and imposing a fine on remitters unable to provide proof of legal  U.S. immigration status, and (2) examines the Bureau of Economic  Analysis’ (BEA) remittance estimate and the extent to which the revised  estimation methodology met government-wide policies and agency best  practices.
To discuss the potential effects of assessing a fine on remitters unable to  provide proof of U.S. immigration status, we summarized estimates of the  number of immigrants without legal status from federal agencies and  research organizations, including the Department of Homeland Security  (DHS), Pew Research Center, and Center for Migration Studies (CMS).  Together, DHS, Pew Research, and CMS are primary sources for the  estimates of immigrants without legal status in the United States, which  we determined by asking experts from each organization above to  discuss all other similar estimates. Through interviews with immigration  researchers, review of research articles, and comparison of the  estimates, which ranged from 11.1 million to 11.4 million immigrants in  the United States without legal status in 2012, we determined that the  estimates were authoritative and sufficiently reliable for the purposes of  this report. We used these sources to identify the size of the potentially  affected group of immigrants without legal status.
To acquire information on the effects of the proposed requirement to  provide proof of legal status or pay a fine, we reviewed relevant academic  and industry studies based on a literature search. We reviewed and  summarized the literature for factors that could be associated with the  proposed legislation, including the number and remitting behavior of  immigrants without legal status, changes in remittance flows in response  to a price increase, the effect of requiring proof of legal status on  remittances, and market competition between remittance providers.. We  determined the studies to be reliable for our purposes.
To obtain perspectives on the potential effects of imposing a fine on  remitters without proof of U.S. legal status, we interviewed researchers  with expertise in remittances and immigration to the United States,  financial institutions, remittance service providers, two industry trade  associations, one state audit association, two community groups with  knowledge of remitters’ concerns, and knowledgeable federal and  international agencies. We judgmentally selected a cross-section of  remittance transfer providers that included five nondepository remittance  transfer providers and four depository institutions based on a number of  factors, including the volume of remittances and diversity of countries  serviced. We spoke with regulators, including the Consumer Financial  Protection Bureau (CFPB) and the Financial Crimes Enforcement  Network (FinCEN), to obtain their perspectives on compliance with  requirements of the proposed Remittance Status Verification Act of 2015,  should it become law. We also reviewed laws and regulations relevant to  remittance transfer providers. Researchers with expertise in remittance  transfers were selected by contacting two recognized experts and asking  for referrals. We interviewed the experts recommended and continued to  ask for others until the referrals began to repeat with experts we already  interviewed. To select community groups, we asked others we  interviewed for recommended groups.
To highlight the uncertainty associated with the effects of the fine, we  constructed a scenario analysis of several factors that may affect net  revenue from the fine, which is the amount of fine collected that remains  available for border protection after payment of CFPB’s administrative  and enforcements costs. We varied hypothetical amounts for the following  three factors: dollar amount of remittances sent by immigrants without  legal status, the percentage reduction in remittances in response to the  fine, and the cost for administration and enforcement. We selected the  three factors by analyzing them among other potential factors and we  found that these three provided wide variability in net revenue from the  fine. Other factors we considered included the volume of total  remittances, the percentage transmitted through formal methods, and the  percent of remittances sent by immigrants without legal status. Though  we conducted a literature search for statistics for each factor in our  analysis, any studies found were not generalizable or sufficient for our  purposes. The data were limited to remittance flows between specific  countries, for example remittances sent between the United States and  Mexico, or were not recent. Therefore, the dollar amounts or percentages  given to each factor in our scenario analysis are hypothetical and  selected only to show the potential variability in net revenue from the fine.
To obtain information on BEA’s estimate of remittances (personal  transfers) from the United States, we met several times with BEA officials  responsible for developing the estimate. They provided us with an  estimate of the total volume of remittances from the United States to the  rest of the world from 2006 to 2014 that they provided to the IMF for  inclusion in balance of payments statistics. In this report, we further  assess BEA’s estimation model and find that its results are unreliable.
To understand BEA’s revised methodology for estimating remittances  (personal transfers) we conducted multiple interviews with BEA staff  responsible for developing the estimate. We obtained BEA documentation  describing the agency’s approach to estimating remittances, including  components of its model, related statistical program files, and its outputs.  We reviewed BEA’s presentation and description of the model and  checked for consistency with its statistical program files and other  calculations. We provided BEA with numerous follow-up questions about  the methodology, and BEA provided us with written responses and  attended additional meetings to provide more clarity. We also obtained  documentation on the Census Bureau’s (Census) American Community  Survey and Current Population Survey data to understand how they were  used in BEA’s remittance estimation methodology and interviewed  Census officials familiar with the survey. We also reviewed BEA’s best  practices, Office of Management and Budget (OMB) statistical directives,  and the National Research Council (NRC) of the National Academies of  Sciences’ manual for statistical agencies to determine the extent to which  BEA’s methodological changes conformed with guidance on statistical  practices.
To determine the extent to which BEA documented its changed  methodology and its results and adhered to best practice standards, we  met with BEA staff responsible for developing the estimate. BEA staff  explained their documentation procedures to us. BEA staff also provided  copies of BEA guidance on best practices regarding methodological  changes. We also reviewed relevant law and regulations, as well as  guidance from IMF, the Department of Commerce, OMB, and NRC. We  reviewed documents provided by BEA for transparency and  completeness. Additionally, we provided BEA with follow-up questions  about the agency’s documentation processes and procedures, and BEA  provided us with written responses. After receiving the responses, we  again met with BEA staff to discuss these processes and procedures.
To obtain a variety of views on remittance estimation, we met with  officials from IMF, World Bank, Inter-American Development Bank and  their external consultant, as well as the Mexican and Philippine central  banks. We selected these two countries because they were among the  top 10 recipient countries of U.S. annual outflows and both countries use  a formal methodology to track inflows and outflows on at least an annual  basis. In meetings with these entities, we gained an understanding of the  methodologies used to estimate remittances and challenges in remittance  estimation.
We conducted this performance audit from October 2014 to February  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Commerce
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Marshall Hamlett (Assistant  Director); Julie Trinder-Clements (Analyst-in-Charge); Namita Bhatia- Sabharwal; Tarik Carter; Emily Chalmers; David Dornisch; Lawrance  Evans, Jr.;  Donald Hirasuna; Cheryl Jones; Madeline Messick; Patricia  Moye; Jungjin Park; Oliver Richard; and Jena Sinkfield made key  contributions to this report.