State Department: Transparent Cost Estimates Needed to Support Passport Execution Fee Decisions
Published: 2007-10-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As early as January 31, 2008, U.S. citizens will be required to present a passport or other approved document to enter the United States at all ports of entry. The Department of State (State) is developing a "passport card" as a means of establishing U.S. citizenship for individuals crossing U.S. land borders or arriving by sea from Canada, Mexico, the Caribbean, or Bermuda. State proposes to charge $45 for the card, which would include a $25 execution fee. Acceptance facilities, including State's passport offices, as well as post offices and state courts, execute passport applications on State's behalf, and retain this fee. GAO was asked to examine (1) the factors State considered when setting the proposed fee and (2) how execution cost data were developed. GAO reviewed current laws that authorize the setting of fees and met with State officials to determine how they set the execution fee. GAO also met with officials from State and the U.S. Postal Service (USPS) to discuss acceptance facility execution costs and how these costs were estimated.
section_title: What GAO Found
paragraphs: State considered several factors, including congressional interest in having a low-cost travel document, when setting the proposed passport execution fee. State has proposed to reduce the current execution fee from $30 to $25, which would help the department to issue a lower cost passport card that meets the new documentation requirements. Consular officials told GAO that State made a commitment to Congress to issue a document that would be, at most, one-half the price of the current passport book, which costs $97 for first time, adult applicants. To do this, State needed to reduce its fees, including the execution fee. Consular officials stated that State did not want to reduce the execution fee below $25 because it wanted to recover its costs, which it estimated at $24.36 per execution. In addition, the fee needed to be high enough to avoid jeopardizing State's relationship with acceptance facilities, on which State depends to provide passport services. State concluded that $25 would compensate acceptance facilities based, in part, on data from USPS that initially indicated its passport execution costs were about $19, as well as a projected increase in application volume. USPS later told State that the $19 figure did not include additional indirect costs. GAO found that State's most recent cost of service study, which estimated passport execution costs, lacked documentation of key decisions. Rigorous documentation increases an estimate's credibility and helps support an organization's decision-making process. Documentation of cost estimates should explicitly identify the primary methods, calculations, results, and rationales or assumptions. State was not able to provide documentation of critical components of the study's methodology. For example, consular officials could not provide details of its survey used to estimate the time it takes to execute a passport, including how the data was used to arrive at the final time estimate. State has begun a new cost study that will provide updated estimates of execution costs.

section_title: Letter
paragraphs: In April 2005, the Departments of Homeland Security (DHS) and State  (State) announced the Western Hemisphere Travel Initiative (WHTI) to  implement the new documentation requirements of the 2004 Intelligence  Reform Act, namely that U.S. citizens traveling from any foreign country  or territory present a passport or other approved document to enter the  United States at all ports of entry. In August 2007, DHS announced that,  beginning January 31, 2008, it will phase in these documentation  requirements. To facilitate the frequent travel of those living in border  communities, State is developing a card-format passport, or “passport  card” as a means of establishing identity and U.S. citizenship for  individuals crossing U.S. land borders or arriving by sea from Canada,  Mexico, the Caribbean, or Bermuda. State proposes to charge $45 for the  passport card for adults 16 years and older. This includes a $25 execution  fee—a $5 reduction from the current fee—that goes to offices that accept  passport applications. Acceptance facilities—such as State’s passport  offices, as well as post offices and many federal, state, and probate  courts—execute passport applications on State’s behalf and retain the  execution fee for this service.
Given your interest in the proposed execution fee, this report discusses   (1) the factors that State considered when setting the fee and (2) how the  execution cost data that State considered was developed. We reviewed  current laws and regulations that authorize the setting of fees. We also  collected and analyzed documentation from State’s Bureau of Consular  Affairs, which is responsible for determining the execution fee. We  interviewed consular officials to determine the factors the bureau  considered when establishing the execution fee. In reviewing the cost data  that State considered, we analyzed data on State’s estimated costs for  execution services it provides as outlined in the bureau’s most recent cost  of service study, as well as the study’s scope and methodology. In addition,  we collected and analyzed documentation and interviewed officials from  the U.S. Postal Service (USPS) on its estimated execution costs because  post offices comprise almost two-thirds of all active acceptance facilities.  We did not evaluate the validity of State’s and USPS’s cost estimates. We  conducted our work between May and August 2007 in accordance with  generally accepted government auditing standards. Appendix I presents  more details about the scope and methodology of our work.
subsections: section_title: Background
paragraphs: State is authorized to designate acceptance facilities—in addition to its  own passport offices—to provide passport execution services to the  American public. The majority of passport applications are submitted at  acceptance facilities nationwide; these include post offices; federal, state,  and probate courts; some public libraries and public universities; and a  variety of other county, township, and municipal offices. Agents at these  facilities are responsible for, among other things, verifying that the  applicant’s identification documents (driver’s license, for example) and  photo are authentic and match the person standing before the agent.  Acceptance facilities retain the execution fee for this service. Figure 1  depicts the execution process.
State reported that there were 8,583 active acceptance facilities  nationwide as of September 30, 2006 (see table 1)—post offices comprised  almost two-thirds of all active facilities. According to consular officials,  for fiscal year 2006, post offices executed about 72 percent of applications  for minors and for adults applying for the first time; nonpostal facilities  executed about 25 percent. The remainder (3 percent) were executed by  14 of State’s passport offices. In recent years, State has expanded its  network of acceptance facilities to accommodate increasing passport  demand. We reported previously that there were approximately 7,000  acceptance facilities as of March 2005. In fiscal year 2006, State added 753  new locations to its network of acceptance facilities, of which 636 are post  offices, and 117 are nonpostal facilities.
State requires that acceptance agents be U.S. citizens, permanent  employees, 18 years or older, and have successfully completed a training  program. We reported in July 2007 that State has taken a number of  measures to ensure the security and quality of passports, including  establishing internal control standards and quality assurance measures  and training of acceptance agents. However, we found that State lacks a  program for oversight of passport acceptance facilities and made a  number of recommendations to improve this oversight. State indicated  that it has begun to take actions that would address our recommendations.
subsections: section_title: State Sets Passport Fees; USPS Provides Information for State’s Consideration
paragraphs: The Secretary of State prescribes fees for passport services that State  provides and has some discretion in setting and collecting passport fees.  The Chief Financial Officers Act of 1990 requires, and Office of  Management and Budget (OMB) guidance in Circular A-25 advises, that  agencies review the fees for their programs biennially. According to OMB  A-25 guidance, fees should be sufficient to recover the full cost to the  federal government of providing the service, resource, or good. “Full cost”  includes all direct and indirect costs to the federal government, such as  direct and indirect personnel costs, including salaries and fringe benefits  such as medical insurance and retirement; physical overhead, material,  and supply costs; rents; and management and supervisory costs.
In addition, State and USPS signed a formal, interagency agreement in  2000, which sets forth the terms and conditions of the execution services  that USPS provides on State’s behalf. The agreement states, among other  things, that State will consider the results of any USPS analyses of  passport execution costs and, that before changes in the execution fee are  finalized, State and USPS will mutually agree upon the new amount.  Further, the agreement states that this partnership is voluntary—if, at any  time, State and USPS do not mutually agree to the new fee, either party is  free to consider other options, including ending their partnership.
section_title: State Is Developing Alternative Document to Meet WHTI Requirements
paragraphs: Based on recommendations from the 9/11 Commission, Congress, in 2004,  mandated the development and implementation of a plan that requires  U.S. citizens to have a passport or other document that demonstrates their  identity and citizenship when entering the United States from any foreign  country or territory. Prior to this legislation, U.S. citizens did not need a  passport to enter the United States if they were traveling from Canada,  Mexico, the Caribbean, or Bermuda. DHS and State implemented this  requirement for airports on January 23, 2007, and are to implement the  requirement for land and sea ports before June 1, 2009 (see fig. 2 for key  dates in WHTI implementation). The departments have indicated that  they will begin to phase in the requirement for land and sea ports in 2008.
The current passport book fee is $97 for first time, adult applicants (16  years and older). State reported that there are circumstances where, due  to reasons of both cost and ease of use, the traditional book-style U.S.  passport may not be the optimal solution for international travelers along  the northern and southern land borders of the United States, or  international sea travel between the United States and Canada, Mexico,  the Caribbean, and Bermuda. Thus, in October 2006, State announced  plans to produce a passport card as a lower cost means of establishing  citizenship and identity for U.S. citizens. For the passport card, State has  proposed to charge $45, which includes a $25 execution fee. The current  execution fee is $30 for passport books. The proposed reduction of $5  applies to the execution fee for both passport documents because  acceptance agents will follow the same procedures regardless of the type  of document. Table 2 shows the current passport book fees, as well as the  proposed fees for the passport book and card.
According to State, passport cards, like passport books, would be issued  for a 10-year validity period for U.S. citizens 16 years and older and for a   5-year validity period for U.S. citizens under 16 years of age.
section_title: State Proposes Reduced Execution Fee Based on Commitment to Congress and Other Factors
paragraphs: State considered several factors, including congressional interest in having  a low-cost travel document and its own estimated execution costs, when  setting the proposed execution fee. Based on an interagency agreement,  State also reviewed information from USPS on its estimated passport  execution costs.
subsections: section_title: State’s Cost Estimates One of Several Factors the Department Considered When Lowering the Execution Fee
paragraphs: According to State, the information from its cost of service study  supported the fee-setting process in 2006, but the proposal to reduce the  execution fee was not based solely on full cost recovery considerations.  Consular officials told us that they considered several factors when setting  the proposed execution fee. These include:    Commitment to Congress to issue a low-cost document. According to  consular officials, the department made a commitment to issue an  alternative document to meet WHTI requirements that would be, at most,  one-half the cost of the passport book, which currently costs $97.
State’s estimates of its passport execution costs. State, through an  independent contractor, conducts cost studies for its consular services,  including passport execution, to determine the full costs for providing  these services. Consular officials stated that the department’s policy is to  review these fees on a periodic basis, rather than biennially, due to the  length of time it takes to complete the cost of service studies. State’s  most recent cost of service study estimated the full costs for execution  services to the department for fiscal years 2004 and 2005 to be $24.36.  Because OMB guidance states that subject to exceptions, user charges will  be sufficient to recover the full cost to the federal government, consular  officials told us that the department decided to not lower the execution  fee below the amount estimated in the most recent cost of service study.
Maintaining State’s network of acceptance facilities. According to  consular officials, State wanted to ensure that, while the cost of the  passport card was lower than the cost for the current passport book, that  its execution fee was not so low that it jeopardized State’s relationship  with its network of acceptance facilities, on which the department  depends to provide passport services to U.S. citizens. State has seen an  increase in passport demand from a base level of 7 million passports  issued in 2003 to an expected more than 17 million issuances in fiscal year  2007. Based, in part, on these data, consular officials concluded that,  even with the reduced execution fee, the department and its acceptance  facilities could continue to expect additional funds from passport services.
Figure 3 shows that, historically, passport execution fees have been higher  than State’s estimated costs. For example, in 2002, State set the execution  fee at $30 based on a cost estimate of $16.20. Consular officials told us  that, based on policy considerations, there are certain services for which  State does not charge a fee or the fee covers only a portion of the cost of  the service. For example, State may not charge a passport fee from certain  relatives of a deceased member of the Armed Forces proceeding abroad to  visit the grave or to attend a funeral or memorial service for that member.  Consular officials stated that their general management practice has been  to round cost estimates for some services up to cover the cost of those  services for which the public is not charged.
In 2005, State kept the passport execution fee at $30 based on the $24.36  cost of service study estimate. For the passport card, State only rounded  up its cost estimate to the nearest dollar to help reduce the total cost of  the card.
section_title: State Considered Information from USPS
paragraphs: Based on a 2000 interagency agreement, consular officials consider cost  information from USPS in setting passport execution fees. In a fiscal year  2001 internal cost study, USPS estimated that its costs were about $13 per  passport. In April 2006, using this study as a baseline, USPS notified  Congress that its projected costs for fiscal year 2005 had increased to  about $19 per passport. According to consular officials, over the next  several months, State and USPS met to discuss the Service’s estimated  passport execution costs. Then, in early August 2006, USPS sent a letter to  State to notify the department that its initial estimate of $19 did not  include a contribution to institutional costs that USPS applies to postal  and nonpostal products and services. According to USPS, its average  contribution to institutional costs was approximately 76 percent of  directly attributed costs. Using this average, USPS told State that its full  costs for passport execution for fiscal year 2005 would total about $33 per  execution (see table 3)—about $19 for costs directly attributable to  passport execution and $14 for institutional cost coverage. USPS’s 2001  study did not address institutional costs. Consular officials stated that  State did not receive more detailed information about USPS’s internal cost  study or how the cost estimates were developed.
A number of factors affecting costs may have changed since USPS’s 2001  cost study, and USPS did not take these changes into account when  projecting passport execution costs for fiscal year 2005. For example, the  estimates that USPS provided to Congress and State did not account for  the projected increase in passport application volume or the growth in  active postal acceptance facilities. As a result, it is unclear whether USPS’s  estimate accurately reflects its costs.
In late August 2006, State notified USPS that it had decided to propose a  $25 execution fee, which was higher than the directly attributable costs for  passport execution services that USPS reported to Congress in April 2006  (see fig. 4 for a time line of communication involving State and USPS on  this issue). Regarding the additional contribution to institutional overhead,  USPS officials told us that they have some flexibility in the percentage of  institutional costs that the Service assigns to each of its products, in  general, including the percentage used to calculate the passport execution  cost estimate provided to State, specifically. For example, in fiscal year  2006, USPS charged an additional 14 percent of its direct and indirect  costs for insured services to cover the institutional cost assigned to this  service, and 197 percent for presorted, first class letter mail. As of August  2007, USPS officials stated that they have agreed, in principle, to State’s  proposed $25 execution fee.
State notified its network of acceptance facilities in early 2006 that the  department would be proposing a lower execution fee. However, State did  not seek cost information from nonpostal acceptance facilities. According  to State officials, nonpostal acceptance facilities are not organized in a  way that would make systematic data collection feasible. Thus, State  relied on information that these facilities provided to the department  through the public comment period following the publication of the  proposed passport card rule in the Federal Register.
section_title: Lack of Transparency in State’s Most Recent Passport Execution Cost Estimate
paragraphs: We found that State’s most recent cost of service study, which the  department considered when establishing the reduced passport execution  fee, lacked documentation of several of the contractor’s key decisions.  State is in the initial stages of a new study of fiscal year 2007 costs.
We have previously reported that cost estimates are well documented  when they can be easily repeated or updated and can be traced to original  sources through auditing. Rigorous documentation increases the  credibility of an estimate and helps support an organization’s decision- making process. In particular, the documentation should explicitly identify  the primary methods, calculations, results, rationales or assumptions, and  sources of the data used to generate each cost element. Regarding the  passport execution fee, State considered execution cost estimates from its  2004 cost of service study as part of the fee-setting process for the  passport card. We found that this study lacked documentation to justify  key decisions the contractor made when estimating passport execution  costs. We found the following examples:    Estimates of the resources associated with passport execution (both  direct and indirect costs) were integral to the contractor’s calculation of  State’s cost of providing this service. At the time of the 2004 cost of  service study, however, State’s financial systems and processes did not  provide managerial cost information for its activities, such as the full cost  of the department’s passport activities. Thus, State was not able to obtain  necessary cost information directly from the department’s financial system  and made numerous assumptions to estimate the aggregate cost of  consular activities, including the passport execution costs. State’s  contractor used baseline obligations data from fiscal year 2002 to estimate  passport execution costs for fiscal years 2004 and 2005 ($24.36). The  contractor’s final report, however, did not indicate that there may be  limitations in using this information as opposed to actual expenditure  data.
The estimated time associated with passport execution was another  important component of the contractor’s methodology. To determine how  much time was spent on passport services and develop a time estimate,  the contractor conducted surveys of State’s consular staff . We requested  documentation from State on the contractor’s sampling plan and survey  results, but officials were not able to provide additional details about the  survey’s sample design, results by office, or how the data was used to  arrive at the final estimated time State officials spend on passport  execution.
In the study’s survey of State’s domestic passport agencies, the tasks for  executing and adjudicating a passport were combined into one activity.  Therefore, to estimate the time generally associated with execution  services that State provides, the contractor visited several post offices in  the Washington, D.C., area, and performed time in motion studies at these  facilities. Using the time estimates gathered at the post offices as a proxy,  the contractor concluded that it took State an average of 7.63 minutes for  each passport execution. However, State could not provide documentation  regarding the number, type, and location of post offices visited or detailed  results of the contractor’s time in motion studies. This methodology  supported the specific costs allocated to the passport execution.
State is beginning a new cost of service study, according to consular  officials, which will estimate fiscal year 2007 costs for all consular  services, including passport book and card execution.
section_title: Conclusion
paragraphs: State considered several factors in proposing to reduce the execution fee  by $5, most notably its commitment to Congress to create a lower cost  document for U.S. citizens that would comply with WHTI documentation  requirements; State’s proposal achieves this commitment. State’s passport  execution cost estimates, while not the sole factor that the department  considered when setting this fee, are important data, as OMB guidance  encourages agencies to recover the full costs of the services they provide.  However, State did not ensure adequate documentation of key aspects of  the study’s assumptions, methodology, and limitations. In addition, USPS  did not provide detailed information regarding its estimated passport  execution costs, which were based on a fiscal year 2001 study. Better  documentation would increase the credibility of State’s estimate and help  support its fee-setting process. Given the potential impact on a significant  number of U.S. citizens, it is imperative that State have a transparent  process for setting the passport execution fee to ensure that passport  execution cost estimates can be used as a reliable basis for decisions.
section_title: Recommendation for Executive Action
paragraphs: To improve the transparency of the passport execution fee-setting process,  we are recommending that the Secretary of State instruct the department’s  contractor to provide additional documentation in its forthcoming fee  study to support key methodologies, assumptions, and limitations. Such  documentation should clarify survey and other work performed, disclose  all sources of cost information being used, and identify potential  limitations and uncertainties associated with the cost figures and other  data. The study should also document the extent to which State’s  contractor incorporated estimated passport execution costs from USPS  and other acceptance facilities.
section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments from State, which we have reprinted in  appendix III. State agreed with our recommendation and stated that the  department is working with its contractor for State’s new cost of service  study to ensure that the final report identifies primary methods,  calculations, and rationales for any assumptions made. State and USPS  also provided technical comments, which we have incorporated into the  report, as appropriate.
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section_title: Appendix I: Scope and Methodology
paragraphs: To determine the process by which the Department of State (State) set the  proposed passport execution fee, we reviewed current laws and  regulations that authorize the setting of fees, as well as guidance to  agencies on the fee-setting process from the Office of Management and  Budget, and State’s procedures as outlined in the Foreign Affairs Manual.  We also collected and analyzed documentation and interviewed officials  from State’s Bureau of Consular Affairs, which is responsible for  determining the passport card fees, to determine the factors that State  considered.
To determine how the execution cost data that State considered was  developed, we reviewed data on State’s estimated execution costs as  outlined in the bureau’s June 2004 consular cost of service study and  interviewed consular officials regarding the study’s scope and  methodology. We also reviewed State’s audited consolidated financial  statements of net costs for the fiscal years 2006, 2005, 2002, and 2001. In  addition, we analyzed data on the U.S. Postal Service’s (USPS) estimated  passport execution costs and interviewed USPS officials responsible for  cost analysis and pricing to determine the process USPS uses to estimate  passport execution costs. In particular, we reviewed USPS’s September  2001 passport execution cost study report, as well as information on its  costs and revenue. We also examined USPS’s audited consolidated  financial statements of net costs for the fiscal years 2006 and 2001. We did  not evaluate the validity of State and USPS’s cost estimates.
We conducted our work between May and August 2007 in accordance with  generally accepted government auditing standards.
section_title: Appendix II: Passport Adjudication and Issuance Process
paragraphs: Under U.S. law, the Secretary of State has the authority to issue passports.  Once a passport application has been received by one of the 17 domestic  passport-issuing offices, a passport examiner must examine each  application to determine, through a process called adjudication, whether  the applicant should be issued a passport. Adjudication requires the  examiner to scrutinize identification and citizenship documents presented  by applicants to verify their identity and U.S. citizenship. Once the  passport examiner has determined that an applicant is eligible for a  passport, State personalizes the passport with the applicant’s information  and delivers it to the applicant (see fig. 5). According to State’s proposed  notice on the passport card in the Federal Register, the basis of the  passport card application fee is to be the direct costs of producing  passport cards, the card stock, technology, adjudicating the application,  printing the biographic information on the card, and priority mail return of  the card.
section_title: Appendix III: Comments from the Department of State
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, John Brummet, Assistant  Director; Robert Owens, Assistant Director; Kathryn H. Bernet; Richard  Cambosos; Joseph Carney; Esther Cha; Peter B. Grinnell; Jeffrey Isaacs;  and Grace Lui made key contributions to this report.