Export Promotion: Commerce Needs Better Information to Evaluate Its Fee-Based Programs and Customers
Published: 2009-03-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Federal and state trade promotion activities are intended to help U.S. firms compete successfully in foreign markets. Small and medium-sized enterprises (SME)--firms with fewer than 500 employees--represent a key segment of exporting firms. GAO was asked to determine (1) the relationship between the Department of Commerce's (Commerce) U.S. Commercial Service (CS) and states' trade offices' export promotion programs, (2) CS's methodology and practices for determining costs and establishing user fees for export promotion services, and (3) how CS's user fees affect SMEs' use of its programs. GAO conducted a survey of states' trade offices and reviewed data such as export promotion budgets and fees, program information, government standards, and user fee studies. GAO met with officials from Commerce, the State International Development Organizations, six states' trade offices, and others.
section_title: What GAO Found
paragraphs: Both CS and most states' trade offices provide various types of export promotion services. However, states have limited resources and scope when compared with CS's $235 million budget and large overseas staff. Thus, most states responding to GAO's survey reported that CS's services are important to their export promotion capabilities. State offices often partner with CS on trade missions and other activities. CS and most states focus their efforts on encouraging SMEs to participate in their programs, but user fees can influence whether firms choose to access export promotion services. CS lowers fees for SME exporters, but about a third of the states said they provide grants or payments to defray firms' costs and facilitate access to CS's programs. CS needs better information to maximize the efficient and effective operation of its programs and to ensure that there is a sound basis for setting fees. CS set user fees in May 2008 guided by the Office of Management and Budget's (OMB) full cost recovery policy. However, CS has had a yearly legislative exemption from having to recover full costs through its fees and attempted to recover only a portion of the full cost of its export promotion services. CS did not support and document the methodology and assumptions it used to determine costs and cannot ensure its cost information is consistent and reliable and in accordance with government standards. GAO found significant instances where CS used incomplete and potentially inaccurate data. Complete and accurate full cost information would assist CS and the Congress in making decisions about resource allocations, evaluating program performance, and improving program efficiency. Finally, CS did not document how it established the lower user fees for SMEs and cannot show how the fees it charges different firms for each service link to costs. The extent to which CS's user fees affect SMEs' use of its export promotion programs is unclear. CS lacks reliable and sufficient data to evaluate its customer base and needs to ensure it charges firms the right fees. CS lacks reliable historical data on fees charged, firm size and status, and purchases by location and type. CS is taking steps to better evaluate its customer base. GAO's survey showed that most states reported the 2008 user fees to be reasonable but thought fees charged SMEs for some services were too high when compared with those charged by private sector providers. CS projects an increase in SMEs' demand for its services, but the projection is not based on any analysis of historical data. Relevant studies and other sources suggest that the types of services CS offers compared with other providers, the level of individualized attention provided, and service quality are factors that also affect SMEs' choice to use CS's services.

section_title: Letter
paragraphs: In 2006, SMEs comprised 97 percent of all identified exporters and accounted for 29  percent of the total value of U.S. exports.
CS is also referred to as the U.S. and Foreign Commercial Service.
Federal export promotion programs primarily focus on SMEs and charge  fees for services. The fees charged to prospective exporters, especially  SMEs, for particular services affect their decisions to participate in these  federal trade promotion programs. In 2005, SMEs, as well as large firms,  expressed concerns about their future access to CS programs while CS  was considering whether to raise its fees in order to recover the full costs  of these programs.
In response to your request, we evaluated (1) the relationship between CS  and states’ trade offices’ export promotion programs, (2) CS’s  methodology and practices for determining costs and establishing user  fees, and (3) how CS’s user fees affect SMEs’ use of its programs.
To address these objectives, we reviewed documents and analyzed data  provided by CS, the 50 states’ trade offices, the State International  Development Organizations, District Export Councils, and other relevant  sources. In addition, to obtain information on states’ trade offices’  programs and fees, we surveyed the 50 states’ trade offices and conducted  site visits in six states (California, Connecticut, Idaho, Illinois, Mississippi,  and Pennsylvania). We selected states’ trade offices based on a number of  criteria, including the size of the states’ trade promotion budgets and  states’ trade offices colocated with CS’s domestic offices. We received  survey responses from 45 states’ trade offices, or a 90 percent response  rate. This report does not contain all the results from the survey. The  survey and a more complete tabulation of the results are provided in a  supplement to this report (see GAO-09-148SP). Further, to obtain  information on the costs of CS export promotion programs and user fees  and to determine what is known about how CS’s user fees affect SMEs’  participation in its programs, we interviewed Commerce officials in  Washington, D.C., and at the six U.S. Export Assistance Centers we visited,  as well as officials from the six states’ trade offices, District Export  Councils, the Office of Management and Budget (OMB), which issues U.S.  government guidance for user fees, and the State International  Development Organizations. We conducted this performance audit from  October 2007 to March 2009, in accordance with generally accepted  government auditing standards. Those standards require that we plan and  perform our audit to obtain sufficient, appropriate evidence to provide a  reasonable basis for our findings and conclusions based on our audit  objectives. We believe the evidence obtained provides this reasonable  basis. (Appendix I provides a detailed discussion of our scope and  methodology.)
subsections: section_title: Background
paragraphs: The U.S. Commercial Service, within Commerce’s International Trade  Administration (ITA), plays a leading role in the federal government’s  efforts to encourage and promote U.S. nonagricultural exports. CS was  founded in 1980, as overseas commercial work was transferred from the  Department of State (State) to CS. The purpose of CS’s export promotion  programs is stated through statutory authority. CS’s mission is to  maximize U.S. competitiveness, and enable economic growth for U.S.  industries, and enhance job creation by helping U.S. firms take advantage  of opportunities abroad through a global network of international trade  professionals. CS operates 108 domestic offices at U.S. Export Assistance  Centers (USEAC), and maintains 124 international offices in 75 countries  that represent the significant export markets for U.S. goods and services.  CS trade specialists at these offices are tasked with assisting U.S. firms  and representing U.S. commercial interests abroad. In those countries  where CS does not have a presence, State represents U.S. commercial  interests and assists U.S. exporters. State and CS are in the process of  negotiating a memorandum of understanding to formalize this  arrangement. Currently, State can offer certain export promotion services,  but does not use CS product and customer service standards or CS pricing  policies.
The general goal of CS is to use its network of professionals and export  promotion services to broaden and deepen the U.S. exporter base and help  U.S. firms make sales in international markets. CS reports that it helps  thousands of firms make export sales each year. Furthermore, according  to CS, the majority of these sales are by SMEs. Its services include  providing market research and supporting trade events. The Gold Key  Service, which helps firms identify international business partners, is one  of its most popular services. CS provides these services to a variety of  customers. While private U.S. firms (particularly SMEs) are CS’s main  customers, CS also delivers services to other customers, including state  and local governments.
Many U.S. states maintain state trade offices that provide varying levels of  export assistance, usually focusing on increasing exports from firms  located in their states. Most are managed by state economic development  agencies and funded by states’ operating budgets. Many state trade offices  maintain both domestic and overseas offices to deliver services. In  addition, many states’ trade offices partner with CS to ensure client firms  have access to services the state cannot offer, particularly in those foreign  markets where the states lack offices.
CS is authorized to charge a user fee for its export promotion services, and  CS has adjusted its user fee structure in recent years. Prior to fiscal year  2005, CS did not have an agencywide user fee schedule for its export  promotion programs, as each overseas post decided what user fees firms  were charged for the export promotion services the posts delivered. As  part of its user fee review in fiscal year 2005, CS sought to determine the  user fees it would have to charge to recover the full costs of its services.  CS determined its user fees would have to rise significantly to recover full  costs, causing concern among firms, business leaders, and CS staff.  However, CS did not implement a 2005 user fee schedule that recovered  full costs but adopted an agencywide user fee schedule with user fees for  most services set to recover a portion of program costs.
section_title: CS and Most States’ Trade Offices Provide Similar Export Promotion Services and Work in Partnership
paragraphs: CS and the majority of states provide many of the same types of export  promotion services, such as export training, trade missions, and market  research. Firms can choose to go to CS, states’ trade offices, or other  providers to get these services. However, states have limited budgets and  staff to assist their firms. Partly as a result of this limited capacity, most  states reported that CS’s services are important to their export promotion  capabilities and have partnered with CS’s offices. Both CS and most states’  trade offices focus their export promotion efforts on SMEs. CS and the  majority of states’ trade offices provide services for free but charge fees  for certain services. In addition, to facilitate access to CS’s programs,  about a third of the states responding to our survey indicated that they  provide grants or payments to firms from their states to defray the costs of   CS’s fee services.
subsections: section_title: CS and States’ Trade Offices Provide Many of the Same Types of Export Promotion Services
paragraphs: CS offers a range of standardized and customized services to help firms to  export. The standardized CS services, including Gold Key Service,  International Partner Search, and International Company Profile, are  prepared and delivered to firms in approximately the same manner around  the world. These services offer firms assistance to identify and meet  potential overseas buyers and distributors, and to perform due diligence  on prospective foreign buyers. The customized services, including  Customized Market Research, QuickTake, seminars/webinars, and trade  promotion events and trade missions, are tailored to fit the specific needs  of an individual firm in a specific export market and vary based on the  scope of work.
The majority of the states’ trade offices that responded to our survey  provide many of the same types of export promotion services as CS to  assist firms interested in exporting. According to CS officials, no state  provides services that compare with the depth and extent of CS’s export  promotion services. According to SIDO, states’ comparative advantage is  their local presence and their ability to specialize in the major industries in  their states and on the export markets those industries typically target.  Services that most states provide and that are similar to CS include  training programs and seminars, as well as assistance in participating in  trade shows and missions. Other services states often cited include market  research, agent and distributor searches, and foreign company  background checks. According to CS officials, CS provides its services to a  national client base and provides services in numerous markets where  states have little or no presence. For example, CS officials explained that  while many states provide “market research” services, these services may  cover fewer markets and provide less detail than the market research CS  provides. In addition, CS said that its missions target an industry segment  more broadly and deeply than is possible for any state. Further, CS  provides some services for which there are no state counterparts, such as  government-to-government advocacy. Table 1 shows the major export  promotion services offered by states’ trade offices and CS.
section_title: States’ Trade Offices’ Export Promotion Efforts Are Limited by Small Staffs and Budgets Relative to CS
paragraphs: States’ trade offices have small staffs and budgets relative to CS.  Consistent with its role as a federal entity promoting U.S. interests abroad,  CS has a national and worldwide presence while states have a local  presence and operate in fewer countries. CS has 493 domestic and 991  overseas staff who are currently engaged in export promotion activities in  47 states plus Puerto Rico and 75 countries. (See app. II for CS’s  domestic and international locations.) The 45 states’ trade offices  responding to our survey have a combined total of 275 domestic staff and  214 overseas staff. According to SIDO, states’ trade offices have 245  offices in 34 countries. Half the states responding to our survey have five  or fewer full-time domestic staff and two or fewer full-time overseas staff.  Table 2 shows the differences among the states in terms of the resources  they devote to export promotion activities. Both CS and the states’ trade  offices have been experiencing reductions in their staffing levels. Based on  CS’s data, it has experienced a 5 percent reduction in domestic staff and  3.5 percent reduction in overseas staff from fiscal year 2007 to 2008.  Thirty-two states’ trade offices, or almost 73 percent of those that had a  basis to judge, said that their overall staffing level has decreased or stayed  the same over the past 5 years.
While reliable trade promotion budget data are not available for the 50  states’ trade offices, sources estimate that the combined annual trade  budget of the 50 states is significantly lower than CS’s annual budget,  perhaps less than half. CS’s total budget for export promotion was about  $235 million in fiscal year 2008 and is projected at $237.7 million for fiscal  year 2009 (less than 1 percent increase in nominal terms.) Information  about states’ export promotion budgets is difficult to obtain and may not  be fully reliable. States’ commerce departments or economic development  agencies usually run states’ trade promotion programs and foreign  investment recruitment programs, and some states do not disaggregate the  budget data between the two functions. CSG estimates that the 50 states  spend a combined total of about $100 million each year helping state  businesses create jobs at home by selling products abroad. SIDO estimates  that states’ budget for both trade and foreign investment recruitment was  about $103 million in 2008. Current state trade budget data are only  available for 27 states through SIDO’s survey. Based on these data, the  average state export promotion budget was $1.4 million in 2008, and the  median was $775,000, ranging from Pennsylvania at about $10 million to  Vermont at about $170,000. (Also see table 2.)
In responding to our survey, some states’ trade offices made a variety of  observations regarding leveraging resources between the states and CS  and the limited resources available for export promotion programs. For  example, one state said that budget cuts have resulted in its decision not  to duplicate services offered by CS. Another state that has recently  discontinued its export promotion programs expressed interest in having  the USEAC colocate within its economic development agency while  another state said colocation costs incurred by individual states could be  offset by discounted fees for CS services. With regard to CS’s overseas  offices, some states and SIDO noted that CS is closing offices in developed  countries (and shifting resources to developing countries), and this leaves  established global markets for SMEs without CS presence in some cases.  SIDO is concerned about what they believe are the small number of CS  resources available for export promotion programs. SIDO believes that  U.S. firms are at a competitive disadvantage compared with firms in other  competitor countries with larger government export promotion budgets  and has called for a 50 percent increase in CS’s budget.
section_title: Most States’ Trade Offices Report CS’s Services Are Important to Their Export Promotion Capabilities and Have Partnered with CS
paragraphs: States’ trade offices collaborate with CS to help provide firms export  promotion services, and some states’ domestic offices are colocated with  CS’s staff at a USEAC with a goal of helping firms access CS services.  More than three-quarters of states’ trade offices (36 of 43) that had a basis  to judge viewed Commerce’s services to be very or moderately important  to their states’ export promotion capabilities. (See fig. 1.) According to  states’ trade offices we visited, as well as SIDO, most states rely on or  partner with CS to obtain export assistance in overseas markets where the  states have no representation. Where the states have representation, they  rely on their own services to assist their exporters. Activities in which  states’ trade offices partnered most with CS included trade shows and  trade missions, seminars, training programs, conferences, and event  planning. In addition to partnering with CS, some states’ trade offices also  reported working closely with their local USEACs. For example, one state  named its USEAC a “key partner” with which “all export related programs,  seminars, and conferences are planned, coordinated, and implemented.”  Another state said that its USEAC serves on the state’s committee, helping  to select the winners of the Governor’s Awards for Excellence in  exporting. In addition, 11 states’ trade offices are colocated with  USEACs. According to officials of one state trade office colocated with a  USEAC, colocation has helped the state partner with CS to provide  services to firms and outreach to potential client firms.
Just over three-quarters of states’ respondents that had a basis to judge (34  of 42) reported that they have partnered with CS on a variety of activities  that are not part of CS’s formal services, which requires a signed  cooperation agreement. A few states cited frequently working with CS,  while the majority of respondents identified only a few activities they have  conducted jointly with CS during the last 3 years. For example, some  states we visited informed us that they have conducted joint company  visits and counseling sessions with their local USEACs.
Some state trade offices work with CS to facilitate state-sponsored trade  missions and trade events and are sometimes customers of CS. Our survey  revealed that some states’ trade offices directly purchased some of CS’s  services during the last 3 years. Figure 2 indicates the services states’ trade  offices have purchased directly from CS. Gold Key Services and  seminars/webinars were the services states’ trade offices most often  reported purchasing directly from CS. Half of the states’ trade offices  reported purchasing Gold Key Service from CS, and less than half reported  purchasing seminar/webinar services directly from CS. Three states we  visited reported purchasing Gold Key services directly from CS to support  overseas trade missions. One state said that it has purchased CS’s Gold  Key Service to identify potential consultants and representatives overseas  and another state said that it has purchased Gold Key Service to  complement a state-led trade mission.
In responding to our survey, some states’ trade offices said that the  collaboration between them and CS can be improved to provide greater  benefits to their client firms. For example, states and CS target the same  client base within their states, and some states’ trade offices and SIDO  said that improved information sharing would greatly increase  effectiveness and reduce duplication of efforts to the benefit of exporting  SMEs if sharing of client contacts and client needs were allowed. The  types of information they sought included USEAC offices and staff goals  and CS’s foreign national contractors’ list. Regarding sharing client  information, CS officials said they must adhere to federal regulations,  which prohibit the sharing of business proprietary information with non- U.S. government agencies.
Some states’ trade offices said that they have partnered with other states’  trade offices, chambers of commerce, world trade centers, universities,  and other entities to share costs for export promotion services. For  example, some states said that they have obtained sponsors from both the  public and private sectors to cover some of their costs, such as governor- led trade missions and agricultural exports. In addition, other states said  that they shared costs with several state entities and organizations to  cover programs, such as export training seminars, conferences, and  forums while other states said that they have shared the costs of domestic  and overseas trade offices or contractors with others.
section_title: Both CS and States’ Trade Offices Focus Their Export Promotion Efforts on SMEs
paragraphs: CS and most states’ trade offices focus their export promotion efforts on  SMEs. According to CS, the majority of its customers are SMEs. Similarly,  most state trade offices focus their export promotion efforts on SMEs,  with 32 of the 42 states responding to our survey question reporting that  more than three-quarters of their budgets were used to target the needs of  SMEs. In addition, approximately 79 percent of the 33 states’ trade offices  that responded to SIDO’s 2008 survey of states’ trade offices reported SME  manufacturing firms comprised the primary customers for their export  promotion services, and approximately 18 percent considered very small  manufacturing firms (50 employees or less) their most important  customers.
According to CS, most of its services are sold to SMEs, with about 78  percent sold to SMEs in fiscal year 2008. As an incentive for SMEs to  purchase their services, CS charges them less than large firms for its  standardized and customized services. In May 2008, CS implemented its  current cost-based user fee schedule, which charges SMEs only a  proportion of the fees large firms pay for the same services. The 2008 user  fee schedule introduced a reduced one-time incentive user fee to new-to- export (NTE) SMEs using CS standardized services. Also, under the 2008  user fee schedule, CS extends to states’ trade offices the SME user fee  rates for standardized and customized services when purchasing CS  services for their own use.
section_title: CS and States’ Trade Offices Charge Firms Fees for Some Export Promotion Services
paragraphs: CS currently offers firms five standardized and nine customized services.  CS’s standardized export promotion services have fixed user fees, while  the user fees for CS’s customized services vary based on the scope of  service provided. In addition, according to CS, a significant amount of  trade specialists’ time is spent providing export counseling, advocacy, and  generic market research, for which CS does not charge user fees. The user  fee schedule CS implemented in May 2008 replaced CS’s user fee schedule  implemented in 2005. The 2008 user fee schedule raised the user fees for  large firms, while maintaining the level of user fees for SMEs. Figure 3  compares CS’s 2005 and 2008 user fee schedules for CS standardized and  customized services.
CS’s data show that it sold a total of 19,906 services in fiscal year 2008. In  addition, CS reports that it collected approximately $10.2 million for these  standardized and customized services. Table 3 shows the number of  services sold and collections by type of service for fiscal year 2008.
A majority of states do not charge fees for most types of services they  offer, and they provide some services for free for which CS charges a fee.  At least 23 states responding to our survey do not charge fees for 7 of the  11 types of services, including export counseling, market research, market  entry strategy development, product analysis, and pricing information.  (See fig. 4.) In contrast, CS charges a fee for similar services in some  cases. For example, while CS charges user fees for agent and distributor  searches under its Gold Key Service and International Partner Search  services, most states reported charging no fee for this type of service. In  addition, most of the six states’ trade offices we visited told us they  provide free export promotion services for which CS charges a fee, such  as foreign company background checks and foreign agent and distributor  searches. However, the scope and coverage of states’ services compared  with CS’s may differ. For example, some state trade office officials told us  that while they provide for free services similar to CS’s fee-based services,  often these services are available only in limited overseas markets and are  not as comprehensive as the services CS provides.
For those services for which states’ trade offices reported charging a fee,  most states charge partial fees rather than full fees. Most states reported  charging a fee for trade shows, foreign trade missions, as well as training  programs and seminars. Most states reported charging a partial fee to  recover part of the cost of these services. For example, for foreign trade  missions, 28 states charge a partial fee, and 8 states charge a full fee. We  did not request information on the fees states’ trade offices charge for  their services or their annual fee collections. According to SIDO, the  states’ fees vary widely.
section_title: Some States Help Client Firms Defray Costs of Export Promotion Services
paragraphs: To help make export promotion services more accessible to potential  exporters from their states, some states’ trade offices offer grants. Of the  45 states that responded to our survey, 19 reported providing SMEs with  grants, and 16 reported providing SMEs with grants or direct payments  that could be used to defray the costs of CS’s export promotion programs  and services. (See fig. 5.)
The rate at which states defray costs or reimburse SMEs for their  participation in CS’s programs varies. States’ grants generally range from  $1,000 to $5,000 per firm and are often intended for participation in trade  shows, trade missions, or other state-sponsored events. States’ trade  offices cannot determine what portions of the grants (or direct payments)  are used to defray the cost of CS’s user fees; SMEs may use states’ grant  funding for a range of other eligible expenses, such as travel and logistical  expenses. According to SIDO, states’ funding of CS’s services is highly  dependent upon their affordability relative to services available from  private consultants and other sources. Three of the six states’ trade offices  we visited offer such grants—Connecticut, Mississippi, and Pennsylvania.  According to these states’ trade officials, grants are a useful tool to  outreach to SMEs that might not have considered exporting and might not  be familiar with the costs of export assistance. However, these officials  explained that grants in and of themselves often do not determine whether  SMEs participate in export promotion programs.
section_title: CS Needs to Improve Its Methodology to Determine Costs and Set User Fees
paragraphs: CS needs better information to maximize the efficient and effective  operation of its export promotion programs and to ensure there is a sound  basis for setting its user fee rates. CS decided to base its export promotion  user fees on program costs, though it has a yearly legislative exemption  from having to recover full costs, and it attempted to recover only a  portion of the cost of its services. Nevertheless, CS did not document its  methodology, calculations, and support for the assumptions it used to  determine the full cost of each type of service; thus, CS cannot ensure its  methodology is based on accurate information or is consistently applied  from year to year to allow officials to make sound management decisions  about its services and user fees. In addition, CS’s cost estimates are not  complete. For example, CS’s cost estimates did not include certain costs  paid for by other entities on behalf of CS, as federal accounting standards  require. Also, CS used potentially outdated and inaccurate 2005 staff time  data to estimate its program costs, upon which it based the 2008 user fee  structure. Complete and accurate full cost information would assist CS  and the Congress in making decisions about resource allocations,  evaluating program performance, and improving program efficiency.  Finally, CS did not document its procedures and assumptions for setting  its user fees, including how it determined incentive rates for SMEs, thus  weakening the link between costs and the user fees.
subsections: section_title: CS Uses OMB Full Cost Recovery Policy as a Guide for Fee Setting but Is Not Required to Do So
paragraphs: CS’s annual appropriation permits it to charge user fees but is silent with  respect to setting and revising user fees. Nevertheless, there should be a  sound basis for any user fees charged. According to CS officials, CS made  a policy decision to use OMB Circular A-25, including its direction to  recover full costs, as a guide for establishing its 2008 user fee structure,  but it does not attempt to recover the full cost of its services. In annual  appropriations since the 1990s, certain provisions of the Mutual Education  and Cultural Exchange Act (MECEA) have applied to ITA’s trade  promotion activities. Through these MECEA provisions, CS is authorized  to accept “contributions” from firms. Under this statutory authority CS  charges a fee for services provided in its export promotion programs, but  the statute is silent with respect to setting and revising user fees.  Furthermore, since fiscal year 2006, the Congress has exempted CS from  the requirements of OMB Circular A-25 as part of the ITA’s annual  appropriation. However, according to the CS officials who established  the user fee policy, CS nevertheless implemented the 2008 user fee  schedule with the goal of moving toward OMB’s full cost recovery policy.
subsections: section_title: Confusion Over Whether CS Must Try to Recover Full Costs
paragraphs: Our review of various documents and interviews with agency officials  indicated that there had been confusion over whether CS is required to  comply with Circular A-25. OMB has expressed concern about the  adequacy of CS’s understanding of its costs, to which CS has responded. In  2003, OMB found that although CS charges user fees for some services, it  did not have a consistently applied pricing strategy for its services, and the  infrastructure for capturing cost information was inadequate for making  informed decisions. In addition, in 2004, Commerce’s Office of Inspector  General reported that CS was not in compliance with Circular A-25 and  recommended that CS work with OMB to comply with the circular. In  response, CS undertook efforts to determine the full cost of its services  and to comply with Circular A-25.
Although CS has received a yearly legislative waiver explicitly exempting  it from the requirements, in May 2008, CS submitted a request to OMB for  a permanent waiver from the full cost recovery provisions contained in the  circular. In its request to OMB, CS explained “the user fee schedule moves  us closer to the intent of the cost recovery provisions of the OMB Circular  without making our services out of reach to SMEs who have less financial  flexibility.” According to OMB officials, OMB reviewed the 2008 CS user  fee schedule based on estimates of fee collections, which OMB considered  reasonable; however, OMB did not review details of the methodology CS  used to determine costs and establish the user fees. Following the review,  OMB found, “the new fee structure will increase collections and moves  toward the goals of the circular.” OMB stated it will continue to work with  CS through the executive budget process to ensure the user fee strategy is  evolving properly to meet the provisions of OMB Circular A-25. Although  OMB did not approve the request for a permanent waiver, OMB told CS  the 2008 user fee structure was acceptable with Circular A-25 for fiscal  year 2009.
OMB Circular A-25, User Charges, establishes, among other things,  guidelines for federal agencies for assessing user fees for government  services. It provides information on the scope and types of activities  subject to user fees and the basis on which user fees are to be set. The  circular also provides guidance for agency implementation of user fees  and collections and outlines the following several policy objectives:    Ensure that each service, sale, or use of government goods or resources  provided by an agency to specific recipients be self-sustaining.
Promote efficient allocation of resources by establishing charges for  special benefits provided to the recipient that are at least as great as costs  to the government of providing the special benefits.
Allow the private sector to compete with the government without  disadvantage in supplying comparable services, resources, or goods where  appropriate.
In determining full costs to set user fees, agencies may use cost  accounting systems—a system designed to consistently produce reliable  cost information—or cost finding methodology, which uses cost studies or  cost analyses to develop cost information. The methodology the agency  uses to determine costs should be appropriate for management’s needs  and the environment in which the agency operates.
section_title: Understanding the Full Costs of Federal Programs Is Important for Good Management
paragraphs: Understanding the full costs of federal programs, including CS’s export  promotion programs, is important for several reasons. First, management  needs reliable cost information to make resource decisions and to find and  avoid waste and inefficiencies. For example, using full cost information,  management can make decisions to reduce resources devoted to activities  that are not cost-effective. In addition, such information allows managers  to compare cost changes over time and identify their causes and reduce  excess costs. Second, management needs reliable and complete cost  information to assess the extent to which user fees recover the proportion  of full costs intended. Third, the Congress and the public can use full cost  information to evaluate the performance of federal programs and compare  their costs and benefits. For example, full cost information assists the  Congress in making decisions about allocating federal resources, and  when authorizing and modifying programs.
In 2005, CS developed a cost-finding methodology to attempt to determine  the full costs of its export promotion services and increased the user fees  of one of its most popular services, International Company Profile, to full  cost recovery for all firms based on its 2005 cost estimates. CS officials  explained that it is currently adopting a new cost accounting system that is  used throughout Commerce, which CS officials stated would provide  improvements to its cost accounting. However, according to CS officials,  this new cost accounting system would not be used to apply salary costs  to activities or attribute overhead costs to determine the full cost of  services.
While CS has taken steps to move toward full cost recovery, CS officials  told us they balance this objective with trying to ensure its user fee  schedule keeps its services accessible to SMEs. CS officials decided to  provide lower incentive rates to SMEs, which only cover a portion of the  full costs of these services. The 2008 fee schedule seeks to charge large  companies “full cost.” For example, CS charges large firms a $70 per hour  rate and charges SMEs approximately 35 percent of that rate, or $25 per  hour, for the cost of staff time required to deliver standardized and  customized services. CS charges both large firms and SMEs the full cost of  third party charges needed to deliver a CS service, such as translation and  transportation services.
section_title: CS Did Not Document Its Methodology for Determining Full Costs
paragraphs: CS relied on a cost-finding methodology to determine full costs, according  to CS officials; however, CS did not document the methods, calculations,  and support for the assumptions it used to estimate the full cost of each  type of service, as called for by federal accounting standards. Instead, CS  officials generally described to us its cost-finding methodology, which they  said was partly based on the one used for the 2005 user fee schedule, and  provided limited documentation of its cost templates. (See table 4.) CS did  not document its methods, assumptions, and cost calculations for each  service.
Better information would raise CS’s awareness of the composition of its  costs, and changes to those costs, and allow them to better control and  reduce costs where possible and to evaluate program performance. For  example, such documentation could allow CS to compare costs among  alternatives, such as whether to provide a service in-house or contract it  out or whether to continue or eliminate a service. Without complete  documentation and support for the specific methodology and information  CS used as a basis for determining costs, CS cannot be sure that its chosen  cost assignments are reasonable and based on accurate information. In  addition, it is not possible to ensure the methodology is consistent from  year to year to allow CS to make sound decisions about its services and  user fees. The risk of overestimating or underestimating costs may be  reduced if CS clearly documents its methods for accounting for program  costs and the assumptions used to project future costs. Such  documentation would help CS assess whether its estimates are aligned  with changes in costs; this is important so that the user fees recover the  intended portion of full costs, and CS does not charge firms more or less  than intended. However, CS did not document how it assigned costs to  each service in enough detail to allow CS staff and other knowledgeable  persons to assess these procedures and determine the accuracy of the  information used. Furthermore, the lack of documentation makes it  difficult to ensure staff are properly trained and consistently apply the  methodology so that it produces accurate cost information that can be  compared from year to year. Finally, the lack of full cost information  makes it difficult for CS and the Congress to accurately evaluate the  performance of CS services in light of the true overall costs and determine  whether resources are rationally allocated to CS services.
section_title: CS Cost Estimates Are Not Complete or Accurate
paragraphs: Notwithstanding the lack of documentation, we found CS’s cost estimates  do not accurately reflect full costs. First, for example, CS did not include  certain costs paid on behalf of CS by other entities, as required in federal  accounting standards. Without consideration of costs paid by other federal  entities, CS’s cost estimates do not reflect full costs to the federal  government and are misleading for CS officials and others using that  information to make decisions about resource allocations and changes in  programs. Moreover, because CS has chosen to base its user fees on the  full cost of its services, it needs a reliable accounting of total costs when  setting user fees so that they cover the intended share of the cost of its  services. According to CS officials, CS did not include certain retirement  benefits to be paid by the Office of Personnel Management, including the  costs of pensions and health and life insurance, in determining the full  costs of its export promotion services. CS estimated the annual cost of  these benefits to be approximately $17 million in fiscal year 2008. Full  costs should include the cost of such employee retirement benefits  according to federal accounting standards.
Second, CS used potentially outdated and inaccurate information about  staff time spent to estimate program costs and set user fees. These were  key data that CS used to assign costs to the activities required to deliver its  standardized services. CS officials explained that, as part of its cost-finding  methodology, CS surveyed staff to determine the specific step-by-step  activities and time staff spent to deliver services and used these data to  develop the cost templates to estimate the full costs of each standardized  service. However, CS officials stated that, for its most recent user fee  adjustment in 2008, CS relied on the survey data it collected in preparation  for its prior adjustment of user fees in 2005 and did not update the survey  data to ensure its reliability. Thus, these data were potentially outdated  and inaccurate. CS officials explained they assumed the activities and staff  time required to deliver services had not changed significantly, but they  did not justify or provide documentation supporting the assumption the  data were reliable in 2008.
In addition, we found the accuracy of CS’s 2005 survey data to be  questionable. These data were not based on an actual accounting of staff  time, according to CS officials. Instead, CS officials explained that these  data were based on staffs’ estimates of the amount of time they thought  they spent, on average, performing specific tasks to deliver a service. Staff  reported widely divergent time estimates for the same activities, which  raises concerns about how accurately staff estimated their time. For  example, for the activity “identifying and contacting potential partners”  staffs’ time, estimates ranged from 1 hour to 20 hours and, for the activity,  “final debrief of the client,” the range was 15 minutes to 4 hours. CS  officials told us they were satisfied that these estimates were reasonably  accurate; however, based on our statistical analysis we disagree and  believe they did not sufficiently explain and document support for this  assumption.
Federal accounting standards recognize the importance of collecting  accurate cost information. For example, federal accounting standards  state that reliable information on the costs of federal programs and  activities is crucial for effective management of government operations.  Without supporting its assumptions of its staff time estimates, CS cannot  be sure that the cost assignments it used to determine costs were  accurate. In addition, inaccurate cost information can skew fee-setting  decisions, so CS needs reliable information to ensure that the user fees are  aligned with any changes in staff productivity and recover CS’s intended  share of program costs.
section_title: CS Did Not Justify and Document Its Procedures for Establishing SME User Fees
paragraphs: CS does not seek to recover full costs from all firms under its 2008 user fee  structure. CS offers lower fees to SMEs as an incentive to purchase CS  services, and CS officials explained that factors other than costs  contributed to their formulation of the 2008 user fee structure. CS seeks  to recover only a proportion of full costs from SMEs, with the remainder  of the costs covered by CS’s annual budget appropriation. Lower user fees  are an incentive to SMEs to use CS services.
However, CS did not sufficiently support and document the methods and  assumptions it used, particularly with regard to the lower user fees for  SMEs under the 2008 user fee structure. For example, according to CS  officials, CS set the current SME-level user fees based on the historical  proportion of costs—approximately 35 percent—recovered by the old user  fees charged to SMEs. However, CS did not document how it determined  this 35 percent incentive level and the level of the newly introduced new- to-export incentive user fees. Instead, CS officials told us they set the level  of the incentive user fee for new-to-export SMEs based on their perception  of what would constitute a reasonable discount while still signaling that  the services are valuable. These officials also stated the new-to-export  incentive user fees were set at the same $350 for the most popular SME  services to eliminate potential confusion among customers. They  explained that CS used informal client and stakeholder feedback, as well  as program counts and collections data, to assist in establishing the user  fees SMEs are charged for standardized services, but CS did not document  this. As a result, CS cannot demonstrate how its cost estimates are linked  to the user fees it charges different sizes of firms for each of its services.  This information would allow comparisons to inform management and  program staff decisions, such as whether to adjust user fees, do a project  in-house or contract it out, to accept or reject a proposal, or to continue or  eliminate a service.
Significant events, which can include key decisions about user fees, are to  be clearly documented, according to federal internal control standards.
Transparent procedures can contribute toward an improved  understanding about the decisions made to establish the user fees and the  basis on which those decisions were made. For example, as CS cost-based  user fees represent a charge for a specific service received, stakeholders  may expect a change in the user fees firms are charged to be related to a  change in the true cost of providing services.
section_title: The Extent to Which CS’s User Fees Affect SMEs’ Use of Its Export Promotion Services Is Unclear
paragraphs: The extent to which CS’s user fees affect SMEs’ use of its export  promotion programs is unclear because CS lacks comparable and reliable  historical data on fees charged its customers and has only limited  disaggregated data on services sold by company size and type of  customers. CS officials informed us that they have performed only limited  studies of customer demand, but that CS has recently begun to take steps  to improve the quality of data it collects to better evaluate its customer  base. Because state governments play a potentially important role in  helping their businesses to compete in the global economy, and because  they are also partners with and customers of CS, we obtained the states’  trade offices’ views on the user fees CS charges for some of its services.  States’ trade offices’ views of the 2005 and 2008 user fee schedules and  their projected future use of CS services varied. CS projects a 10 percent  increase in SMEs’ total demand for its services in fiscal year 2009 based on  its new user fees, but support for this projection is unclear. Factors other  than fees, such as the availability and quality of comparable services from  private providers, may affect SMEs’ use of CS services.
subsections: section_title: CS Lacks Reliable and Sufficient Data to Evaluate Its Customer Base
paragraphs: CS lacks reliable and sufficient data on its export promotion fee-based  services to evaluate its customer base. We have identified several  limitations with regard to CS’s data about: (1) fees charged its customers,  (2) the characteristics of its customers, and (3) purchases by location and  types of services. CS is taking steps to improve the quality of the data it  collects, as well as the integration of its customer data systems, but its  officials acknowledged that the Client Tracking System (CTS) may not be  fully operational until well into 2009 or beyond. For an entity to run and  control its operations and to achieve all its objectives, it must collect and  process relevant, reliable, and timely data relating to internal, as well as  external events, based on GAO’s Standards for Internal Control in the  Federal Government and OMB Circular A-123 on Management’s  Responsibility for Internal Control. In addition, effective information  technology management is critical to achieving useful, reliable, and  continuous recording and communication of information.
subsections: section_title: CS Lacks Reliable Historical Data on User Fees Charged Its Customers
paragraphs: CS lacks comparable and reliable historical data on the fees charged for  each service to measure past and potential effects of user fee changes on  its SME customers to ensure that it is charging them the correct fee. Prior  to 2005, according to CS officials, there were no set fees, and each post  decided what to charge customers for its export promotion services. In  addition, according to CS officials, prior to December 2007, every overseas  post had its own database of customers, resulting in 80 databases, as well  as domestic databases that did not communicate with each other.  According to CS, it currently uses two main systems (the eMenu and the  CTS) to collect and track data on the programs and services it offers its  customers. We observed demonstrations of both these systems in August  2008. While the systems have many useful features and represent  promising directions for CS to take, we identified several limitations with  regard to computer database design and internal controls. In our review  of the data, we noticed instances where companies received a bill that was  much larger than the advertised service fee, but the reason (possibly  because the extra days and add on services were being included) was not  documented. More comparable and reliable user fee data could be used to  help CS in determining how changes in its user fees affect SMEs’ demand  for its services.
section_title: CS Is Limited in Its Ability to Analyze Data by Size and Status of Customers
paragraphs: CS is limited in its ability to disaggregate the firms that purchased fee  services by company size or by export status (whether the firms are new- to-export or had purchased prior export services from CS). Such  information would be useful for making managerial decisions and  determining which products and services are in demand and which  products are purchased less frequently by CS’s different customers. A lack  of accurate customer information and good procedures creates the risk of  charging CS customers a fee that is inconsistent with their company size  or export status. According to CS officials, the eMenu initially relies on the  customers to self-report their size and export status. CS officials stated  that its trade specialists could verify company size by consulting the Harris  database and export status by consulting the CTS. When we examined  data for 2008 from the CTS, we found that 16 percent of the companies  were listed as being of “unknown size.” In addition, there were numerous  inconsistencies in the designation of company size, with more than 200  instances of companies being designated with different sizes. In addition,  based on our review of the data, CS has not yet addressed the deficiencies  with prior years’ data. The 2006 and 2007 database did not identify  company size for at least one quarter of the companies per year. Prior to  December 2007, according to CS officials, the size of firms purchasing  services was not a mandatory field in the databases.
It would require a manual review of the records to determine whether a  company meets CS’s new-to-export status. Even with a manual review, the  accuracy of the designation about export status would depend on the  thoroughness, completeness, and consistency of the entries that had been  made by trade specialists and others. Yet our review of CS data raised  questions about the manual review because we found at least 30 instances  when companies designated as new to export in 2008 had appeared in the  prior year’s (2007) database as purchasers of certain CS fee services. CS’s  limitations in collecting and processing accurate information on company  size and export status reduce its ability to determine which products and  services are in demand or underused by its different customers and more  importantly to charge firms the appropriate fees. Under the 2008 fee  structure, SMEs and new-to-export SMEs are charged lower fees for CS’s  services.
section_title: CS Is Limited in Its Ability to Analyze Customers’ Purchases by Location and Type
paragraphs: Due to limitations in CS’s databases, it is difficult to disaggregate  purchases by location and types of services. Complete information on the  characteristics of CS’s customers, such as geographic location, industry,  and services bought and at what price over time, would allow CS to better  analyze and understand its customer base and to adjust to changes in  market demand. CS’s database has total purchases by states, which not  only includes private sector firms but also includes state export promotion  agencies, universities, and other entities, making it difficult to obtain an  accurate count for only SMEs, for example. We wanted to analyze SMEs’  fee-based purchases by home state for about 5 years to better understand  the relationship between CS and SMEs in home states. Since it was not  possible to disaggregate only the SMEs’ purchases, we decided to examine  the data by home state for all firms. However, CS could only identify  companies’ home states by performing a manual review of its records;  therefore, the analysis was limited to data for 2 years, 2007 and 2008, and  for only four standardized services. See appendix III for information on  CS’s customers’ purchases by states for selected services.
section_title: Studies of CS’s Export Promotion Programs and User Fees Have Been Limited
paragraphs: CS has made some attempts to determine how the user fees affect its  customers’ participation in its programs; however, these studies have been  limited, according to CS officials, in determining how the fees affect  customers’ participation due to lack of sufficient data. One company  contracted by Commerce attempted to estimate price elasticity (or  sensitivity) of demand, both in 1998 and 1999, using different data. In  1998, the company used data based on a survey of a small number of trade  consulting companies on how their customers would have responded to  price increases. CS officials said that they did not use the results of the  1998 study in determining the fees to be charged because the analysis was  unreliable since it was based on hypothetical data. For the 1999 estimate  of price sensitivity, the contractor used customer survey data. However,  the data suffer from a low response rate of 11 percent. Again, CS did not  directly consider the price sensitivity estimates when making fee decisions  in subsequent years. Table 5 provides a summary of some prior  assessments of CS’s export promotion programs and user fees.
According to CS, it is difficult to compare CS prices to others offering  similar services, such as private sector providers. CS officials informed us  that many consultants are reluctant to talk to them or share their pricing  schedules. GAO also contacted some private sector firms to determine  what export advisory services they offer and the fees charged but either  these firms did not provide such services or the firms did not respond to  our inquiries for information on fees. Our survey of states’ trade offices  found none of the 45 states that responded, including those we visited, had  conducted an evaluation on the effects of user fees on SMEs’ participation  in federal export promotion programs.
section_title: States Had Differing Opinions About the Impact of CS’s 2005 Fee Schedule
paragraphs: Because state governments play a potentially important role in helping  their businesses compete in the global economy, partner with CS, and are  sometimes customers themselves, we obtained the states’ trade offices’  views on the impact of CS’s change in user fees in 2005 on states’ use of  certain services. States had mixed views about the impact of CS’s 2005  fee change. Some states said that the introduction of the 2005 fee schedule  had no impact on their use of certain CS services, while others said that it  caused them to decrease their use of those services. For example, of the  states that had a basis to judge, 56 percent (14 of 25) reported that the  2005 fee schedule caused their offices to decrease their use of CS’s Gold  Key Service, compared with 44 percent (11 of 25) reporting that their use  stayed the same. (See fig. 6.)
Based on CS’s data, for the total number of standardized services  purchased, SMEs’ participation fluctuated before and after the 2005 fee  change. For example, the Gold Key Service showed a decline in purchases  of about 26 percent from 2005 to 2006 and slightly increased in 2007 by  about 3 percent above the 2006 level. CS officials said that these large   changes are due in part to a spike in demand in 2005 as companies rushed  to sign up for certain services before the 2005 fees went into effect in April  2005.
section_title: CS Projects Increase in SMEs’ Demand with New Fee Schedule
paragraphs: CS projects a 10 percent increase in SMEs’ total demand for its services in  fiscal year 2009 based on its new user fees, but support for this projection  is unclear. According to CS officials, although the fees for Featured U.S.  Exporter and Business Service Provider (domestic) will increase for SMEs  with the new fee schedule, overall collections are expected to rise, with  higher demand for services such as Gold Key, International Company  Profile, and International Partner Search that are now priced lower in  most markets. In particular, CS expects an increase in demand for Gold  Key Service in the expensive markets that now offer SMEs lower fees. The  10 percent increase in SMEs’ demand is not based on any analysis of  historical data. According to CS, the projected increase is based on  anecdotal reports from its offices in the field, some businesses, SIDO, and  DEC officials. With the new-to-export pilot incentive fee introduced for the  first time, CS also anticipates an increase in demand from new-to-export  SMEs, but the assumption of how much demand will change is a “wild  guess,” according to CS officials. CS said it expects participation by large  firms to remain constant or to decrease moderately. CS arrived at the  assumption for large firms on the basis that large firms are less sensitive to  the fees and will often use CS’s services to expand their overseas markets  even when fees increase.
Our survey showed states’ trade offices’ reaction to the new fee schedule  was generally positive, but there were some negative views. Most states  view CS’s new fee schedule to be reasonable. As figure 7 shows, almost  two-thirds (24 of 37) of the states that had a basis to judge reported that  they considered CS’s new fee schedule to be very reasonable or somewhat  reasonable. In addition, some DEC members in the states we visited  believed the new fee schedule for SMEs is reasonable but expect the effect  of the fees to vary by company.
Some states’ trade offices elaborated on their views regarding the  reasonableness or unreasonableness of the new user fees. For those  states’ trade offices that considered the new fee schedule to be somewhat  or very reasonable, one said that it is very happy with the new fee  schedule and has been promoting it and that the concept behind the low  fees for new-to-export companies is “really brilliant.” Another state said  that SMEs will still complain about having to pay for services, but that the  new fee schedule is fair and makes CS’s services much more accessible for  very small firms, while another state said that lower fees for SMEs is a  good start but ignores the need to invest more in trade and investment  promotion. For those states’ trade offices that considered the fees to be  somewhat or very unreasonable, one said that SMEs need assistance and  support to increase exports and that CS should provide available services  at reasonable cost instead of trying to get more money from U.S. business  taxpayers. One state said that the majority of its companies have fewer  than 10 employees and that these companies find it difficult to justify  paying the government fees for services, while another state said that the  majority of its SMEs are not currently using CS’s programs due to the cost  involved and that alternatives may be less expensive but take longer to  achieve similar results.
We asked states’ trade offices for their views on the new fees’ projected  impact on their use of certain services purchased directly to assist SMEs.  Of the three standardized services we asked about (Gold Key,  International Company Profile, and International Partner Search), at least  85 percent of those that had a basis to judge for each service said that their  use would increase or stay the same. For example, 27 of the 30 states (90  percent) that had a basis to judge reported that their use of the Gold Key  Service for SMEs would either increase or stay the same under the new fee  schedule. (See fig. 8.)
We also asked states’ trade offices their views on the new fees CS charges  certain customers compared with the fees charged by private sector  providers. More than two-thirds of the states that had a basis to judge (27  of 39) indicated that Commerce’s new fees for new-to-export SMEs were  about right compared with fees charged by private sector providers.
However, states’ trade offices had mixed views about the new fees  charged to SMEs that already export, and for each of the CS services  about which we inquired (Gold Key, International Company Profile,  International Partner Search, FUSE, Domestic Business Provider, and the  customized services), roughly half of those that had a basis to judge  responded that the fees were about right while roughly half reported they  were too high compared with private sector providers. For example, figure  9 shows that more than half (16 of 27) thought that the new customized  fees charged to SMEs that already export were somewhat or much too  high compared with the private sector.
According to SIDO, states can obtain cost competitive services in some  markets, but such private sector alternatives are not universally available.  CS also subcontracts with private sector providers at lower rates than  those of its employees. These private providers state that their knowledge  of a particular market or its operational efficiencies allows them to offer  lower cost services, such as matchmaking, according to SIDO. However,  SIDO states that some states’ trade offices might choose CS’s services  because they are more comfortable working with a federal agency and CS  generally offers superior quality control to private sector alternatives. One  study prepared for CS found that export promotion services available from  private enterprises and trade groups vary in price, but that a number of  private providers’ services are significantly more expensive. In addition,  the study reported that, in some cases, these enterprises and trade groups  work with CS to develop products and services and that some repackage  and sell CS’s products, particularly market research and contact  development information.
Almost all of the states’ trade offices with a basis to judge responded that  SMEs’ use of CS’s services would decrease if they were charged the same  fees as large firms (which, according to CS, represent the full cost of  services). For example, more than 70 percent of these respondents  indicated that they would expect a great or very great decrease in services,  such as Gold Key (28 of 37) and International Company Profile (22 of 30) if  fees were the same as those charged for large firms. Further, DEC  members and USEAC officials in the states we visited expect that there  would be significant decreases in SMEs’ demand for CS’s services if they  were charged full costs for export promotion services.
section_title: Factors Other Than Fees May Affect SMEs’ Choice to Use CS’s Services
paragraphs: Factors other than fees may affect SMEs’ choice to use CS’s services  including: (1) the types of services CS offers compared with other  providers, (2) the individualized attention received, and (3) the quality of  the service. First, some states’ trade offices and other sources reported  that factors such as the types of services required influence the choice of  services purchased from CS versus other providers. A 2002 study prepared  for the Trade Promotion Coordinating Committee found that more than  half of the services used by SME exporters were obtained from the private  sector, which leads in providing transaction-related services, such as  freight forwarding and helping firms to develop Web sites to promote  products to foreign buyers. The study reported that the government’s  role, including CS’s role, was seen as strongest in the provision of basic  information to exporters, such as “how to export” information, Web-based  information on markets, export counseling, and government procedures  overseas. In addition, our survey revealed that 36 of 45 states’ trade  offices (80 percent) use private consultants, including private businesses  and American Chambers of Commerce, as providers for trade promotion  services. For example, some states’ trade offices use private consultants  for trade missions and trade shows, market research, and arranging  company meetings, which are services CS provides. Services that CS does  not provide and which states’ trade offices obtain from the private sector  include assistance in setting up offices in a foreign country, assistance in  sourcing products or manufacturers with sourcing a manufacturing  partner, having prototypes or product samples made, and freight  forwarding.
Second, transaction-related services tend to require individualized  attention, which is another factor that may influence SMEs’ choice of  whether to obtain services from CS versus other providers. Based on the  2002 study, Commerce was seen as not being as well-positioned as private  providers to provide the intensive attention that transaction-related  services may require. We also spoke with officials of one large American  chamber of commerce operating in a key market who informed us that its  members, including SMEs, are attracted to private providers’ intensive  “handholding,” which, according to these officials, CS is not well known  for providing. For example, this chamber of commerce offers a Corporate  Visa Program, which, according to the officials, actively helps its member  companies to complete paperwork and expedite the visa process within a  1-week time frame. In addition, one state trade office also said that  contractors or private consultants offer in-country coordination and  individualized attention that the CS no longer offers.
The quality of service is also a key factor that influences SMEs’ choice of  where to purchase services. A 2003 study estimated that fees for some CS  services that SMEs demand were lower than market comparisons but that  CS’s market share based on total demand by SMEs for products and  services similar to CS’s was relatively small; it suggested that the quality or  type of services provided by CS may not match the quality or type of  services demanded by SMEs. One DEC member also told us that  companies may perceive the quality to be better in the private sector since  prices for similar services tend to be higher in the private sector and that,  in some instances, inexperienced CS staff performed work, which may  have led some businesses to the private sector. One state trade office said  that the quality of CS’s service depends on staff dynamics at the individual  post. Another state trade office said that, while price is important, the  delivery of consistent quality is more important to companies and that it  relies on CS to provide quality service. According to CS, its customer  surveys indicate that quality is a key factor in their choice of where to  purchase services. CS officials said that, in reviewing the surveys’ open- ended questions, companies cited three drivers of client satisfaction:  communication, quality, and consistency. Price paid for the services,  according to the officials, has not been of equal importance.
SIDO officials noted that another factor that may influence SMEs’  participation in CS’s programs is small firms’ general level of awareness  about the states’ and federal government’s export promotion efforts. SIDO  officials expressed concern that domestic firms’ awareness about U.S.  export promotion programs is less than that of foreign firms about the  programs in competing countries. However, according to the 2002 study,   small and medium-sized exporters are generally aware of government  programs that can help them export, but there is still room for  improvement. Exporters appear to be broadly familiar with Commerce.  However, SIDO advocates for more resources for CS and state outreach to  small firms in order to raise the profile of their programs and increase  participation.
section_title: Conclusions
paragraphs: CS and states’ trade offices provide various types of export promotion  programs. These programs share similar goals of increasing the number of  exporting firms, especially SMEs, expanding existing markets, and  opening up new markets to U.S. exports. Targeting federal government  resources to programs that achieve the goals outlined in the National  Export Strategy requires knowledge of whether existing programs  contribute to these goals, whether customer experiences reveal  suggestions for enhancing these programs, and knowledge of the extent to  which current intergovernmental partnerships contribute to export  promotion goals.
Commerce’s $235 million export promotion program currently collects  about $10 million annually through fees on some services. Commerce  decided to collect these fees to cover at least a portion of the costs for  providing some of its services. However, Commerce lacks good  information on the true costs of providing these services, both fee-based  and those offered for free. As a result, it is unclear whether the fees they  established reflect their policy objectives or whether they optimize the  efficient and effective management of these programs.
Similarly, Commerce lacks reliable information about the size, location,  and type of its customers, and about how its fees (or lack thereof) affect  their access to the program, or how they compare to state or private sector  fees. Fees for particular services affect firms’ access to and use of federal  export promotion programs. Better information would help CS market its  program better, adjust to changes in the marketplace, and address those  areas that maximize the impact of its services on promoting U.S. exports.  Not much is known about the extent to which user fees or other factors  influence SMEs’ decisions to rely on CS for export promotion services.
Studies and other sources suggest that the types of services CS offers  compared with other providers, the level of individualized attention  provided, and service quality are factors that also affect SMEs’ choice to  use CS’s services.
Better evaluation of fee-based programs and customers, including states,  could improve program continuity, help managers target their resources  more efficiently and effectively, assess costs and benefits, and help the  Congress make more informed funding decisions. Commerce has taken  some initial steps in developing systems that could improve this situation,  but it is unclear whether they intend to fully develop this potential.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Commerce direct the Assistant  Secretary for Trade Promotion and Director General of the U.S. and  Foreign Commercial Service to (1) take steps to improve the collection,  processing, and documentation of cost information on its export  promotion programs and user fees in order to enhance efficient and  effective management in line with federal accounting and internal control  standards. These steps could, for example, include    documenting the procedures and processes of the costing methodology in  sufficient detail so that staff who work with costing at a later point could  understand the specific procedures used and the data sources and cost  assignment methods for each step in the process; incorporating costs paid by other federal entities for CS’s benefits, such as  pensions and health insurance paid for by the Office of Personnel  Management when determining the full cost of each service;    updating estimates of the amount of time staff spent performing various  activities to realize any efficiency gained and to provide more accurate  estimates of full costs; and    documenting the methods and assumptions for establishing the user fees  CS charges different firms for each service to clearly show the linkage  between costs and user fees, particularly with regard to the lower user  fees for SMEs.
To better understand demand for CS export promotion programs and the  level of participation attributable to its user fees, we also recommend that  the Secretary of Commerce direct the Assistant Secretary for Trade  Promotion and Director General of the U.S. and Foreign Commercial  Service to (2) ensure that the design of CS databases and procedures  followed by those entering the data enable CS to produce more accurate,  reliable, and complete data on its customers and services, including all  fees charged, company size, and export status.
section_title: Agency Comments and Our Evaluation
paragraphs: Commerce concurred with our recommendations and stated that CS  would take steps to improve the collection, processing, and  documentation of cost information on its export promotion programs.  Commerce stated that CS developed its new user fee policy from the most  accurate data available from its existing database and that its accounting  systems were not deficient based on receiving an unqualified audit opinion  on its annual financial statements. Its technical comments mentioned CS’s  conversion to a new financial accounting system, Commerce Business  System, which management expects will improve information about CS’s  costs of delivering services. We support CS’s implementation of an  improved financial accounting system. We remain concerned, however,  that potentially outdated and inaccurate nonfinancial data that are used to  determine the unit cost of specific services, such as the time staff spend  performing various activities, may not be updated by the new system.  Updating that information will help ensure that the full costs of specific  services are considered when setting fees. In addition, although an entity’s  audited financial statements and unaudited cost accounting analyses may  use the same underlying financial data, an auditor’s opinion on the  financial statements does not provide assurance concerning the  reasonableness of cost analyses performed using that data.
Commerce also noted an increase in fees collected and services provided  to SMEs in fiscal year 2008, which they believe indicates their products  and services remain accessible to SMEs. However, we believe that missing  and inaccurate data about company size mean that CS cannot reliably or  accurately estimate the volume of services provided to SMEs or the fees  collected from them. In addition, CS’s response relies on aggregate  analyses between fiscal year 2007 and fiscal year 2008 that did not take  into account changes in the mix of services provided or longer term trends  and, therefore, does not provide useful information about the impact of its  2008 fee schedule on SMEs.
Further, Commerce stated that its trade promotion services are greater in  depth and scope than those provided by the states, and we discussed this  in our report. We clarified this point in various places in our report, taking  into account some related information that we received in technical  comments from agency officials. Commerce’s comments, along with our  responses to specific points, are reprinted in appendix IV. Commerce also  provided technical comments, which were incorporated into the report, as  appropriate.
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Should you or your staff have any questions about this report, please  either contact me at (202) 512-4347 or yagerl@gao.gov or Stanley J.  Czerwinski at (202) 512-6806 or czerwinskis@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs can be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: Our objectives were to evaluate (1) the relationship between the U.S.  Commercial Service (CS) and states’ trade offices’ export promotion  programs, (2) CS’s methodology and practices for determining costs and  establishing user fees, and (3) how CS’s user fees affect small and  medium-sized enterprises’ (SME) use of its programs. Our scope of work  focused on the Department of Commerce’s (Commerce) U.S. Commercial  Service’s and the 50 states’ trade offices’ export promotion programs and  associated user fees.
To determine what export promotion services states’ trade offices provide  and their relationship with CS’s programs and user fees, we reviewed and  analyzed both CS’s and states’ trade offices’ export promotion programs  and user fee data; data on domestic and overseas staff; export promotion  budgets; states’ export promotion grant programs, and services states  trade offices purchased from CS. In addition, to obtain information on the  states’ trade offices’ export promotion programs, fees, grants, and the  importance of Commerce to their activities, we surveyed the 50 states’  trade offices. We developed our survey instrument between January and  late April 2008. To ensure that the survey respondents understood the  questions in the same way, that we had used appropriate terms for this  population, and that we had covered the most important issues, we  conducted three expert reviews and three formal pretests. We received  45 responses from the 50 states’ trade offices, or a 90 percent response  rate. The survey and a more complete tabulation of the results are  provided in a supplement to this report (see GAO-09-148SP). We also  conducted site visits in 6 states (California, Connecticut, Idaho, Illinois,  Mississippi, and Pennsylvania). We chose these states to ensure a range of  characteristics based on the following criteria: the size of the state trade  promotion budget, the existence of a grant or subsidy program that funds  SMEs’ participation in CS’s export promotion programs, states’ trade  offices collocated with U.S. Export Assistance Centers, the number of  overseas states’ trade offices and representatives, size of the state’s  economy and population, and states that do not have trade offices. We  also reviewed and analyzed information in the 2005-2007 National Export  Strategy reports and the State International Development Organizations’  (SIDO) annual survey results of states’ trade offices. Based on interviews  and our analysis, we determined that SIDO’s data were sufficiently reliable  for our purposes. Information on all the states’ export promotion budgets  were difficult to obtain, and reliable and current data were only available  from SIDO for 27 states; however, we used data for only 24 states in our  analysis because 3 states did not disaggregate their export promotion  budgets from their foreign investment recruitment budgets.
To determine CS’s procedures for determining costs and establishing user  fees, we interviewed key CS and International Trade Administration staff  and reviewed and analyzed available documentation about CS’s export  promotion programs and user fees based on the 2005 and 2008 user fee  changes; CS’s methodology for full cost recovery; cost templates of CS’s  fee-based export promotion programs; data on CS’s budget and staff; data  on staff time spent on various activities to deliver services; legislation  authorizing CS to charge a fee for services (annual appropriations and the  Mutual Education and Cultural Exchange Act); OMB Circular A-25, User  Charges; Statement of Federal Financial Accounting Standards 4:  Managerial Cost Accounting Standards and Concepts; GAO’s Standards  for Internal Control in the Federal Government; and GAO’s Federal User  Fees: A Design Guide. We did not need to perform an assessment of the  reliability of the export promotion programs’ cost and user fees data  because we did not use the data but noted weaknesses in the cost-finding  methodology.
To determine what is known about how CS’s export promotion programs’  user fees affect SMEs’ participation in its programs, we reviewed and  analyzed past export promotion programs and user fees studies performed  for Commerce by Booz Allen and Hamilton, Inc., KPMG LLP,  and  Chemonics International. In addition, we reviewed and analyzed the  Office of Management and Budget’s 2003 and 2008 Program Assessment  Rating Tool for the CS. We also reviewed and analyzed CS’s fee-based  export promotion services purchased by its customers and the associated  collections from these purchases from 2004 to 2008. While we cited data  elements on clients and collections for 2008, having determined that these  elements were sufficiently reliable for our purposes, we noted that other  data elements, particularly company size and export status, are not fully  reliable for the reasons that we have elaborated upon in the report’s third  objective. We also reviewed ad hoc feedback CS received on its user fees  from CS’s field staff, client firms, District Export Councils, states’ trade  offices, and trade and industry associations. Further, we analyzed our  survey results regarding states’ trade offices’ views on the impact of the  2005 and 2008 user fees changes on their purchase of CS’s services. We  obtained the states’ trade offices’ views for several reasons: (1) they are  experts in offering export promotion programs and services; (2) they work  with SMEs that export and, in many cases, they work with the same SMEs  as CS; (3) they are purchasers and multipliers of CS’s fee services, as well  as purchasers of private sector fee services and are able to compare and  contrast these service providers; and (4) our research at the beginning of  our review indicated that it would be feasible to survey the states within  our time frame and achieve an acceptable response rate.
Further, we interviewed Commerce officials in Washington, D.C., and at  the six U.S. Export Assistance Centers we visited, as well as officials of the  six states’ trade offices, District Export Councils, the Office of  Management and Budget, the State International Development  Organizations, and American chambers of commerce.
To determine the purposes for which we could and could not use  Commerce data on customers served and the dollars collected, we  interviewed agency officials, attended a demonstration of CS’s data  systems, and performed checks and analyses of the data themselves. We  determined that the data were sufficiently reliable in the aggregate to  report on fee services provided, in a broad sense, and dollars collected. We  also determined that the data were sufficiently reliable to report on  selected fee services by the state of the company purchasing the service,  though with the caveat that we could not examine the data by company  size. However, we noted several limitations in the data, which we  discussed in the body of this report. In particular, the data do not provide  accurate counts by company size and export status. Moreover, the data  only provide an incomplete picture of the fee services purchased by states’  trade offices. We based our review on various internal control standards,  such as the GAO’s Standards for Internal Control in the Federal  Government; the Office of Management and Budget Circular A-123,  Management’s Responsibility for Internal Control; Internal Control –  Integrated Framework, by the Committee of Sponsoring Organizations of  the Treadway Commission, as well as GAO’s guidance on Assessing the  Reliability of Computer-Processed Data.
We conducted this performance audit from October 2007 to March 2009, in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform our audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe the evidence  obtained provides this reasonable basis.
section_title: Appendix II: Overview of CS’s and States’ Domestic and International Offices
paragraphs: CS and states’ trade offices both maintain offices in domestic and  international locations to help firms identify export opportunities. CS’s  trade specialists are currently working in 108 cities in 47 states and Puerto  Rico. CS does not currently have an office in Alaska, Delaware, and  Wyoming, and CS provides services to customers in these states from U.S.  Export Assistance Centers (USEAC) in neighboring states. For example,  the USEAC in Seattle provides services to customers in Alaska. In  addition, USEACs are colocated with 11 states’ trade offices. CS’s trade  specialists also work in 75 countries or 124 offices worldwide. In some  countries, such as Brazil, China, and India, CS has offices in 5 or more  cities. In addition, most states’ trade offices have 1 or more overseas  offices. For example, in 2008, there were 34 countries in which at least one  state trade office maintained an office or representative. In some  countries, such as China, multiple states maintain offices, and individual  states maintain offices in more than one city. CS also operates offices in  each of these 34 countries. However, CS operates in 41 countries where  states do not have representation, and some states’ trade offices explained  they rely heavily on CS services in these countries. The following map (see  fig. 10) shows CS’s domestic and international locations.
The number of CS’s staff varies across countries, and states’ overseas  offices vary in size and composition. The number of CS’s trade specialists  working in its overseas offices varies widely across the countries in which  it operates. For example, CS has 104 staff in China, 30 staff in Germany,  and 12 staff in Australia. In addition, some states maintain large overseas  offices in certain countries, which tend to be staffed with full-time  employees. Other states’ overseas offices are staffed by part-time private  consultants working on contract or volunteer representatives. For  example, states often maintain full-time offices in primary overseas  markets, such as Mexico and Japan, while states tend to employ part-time  consultants in smaller markets.
Recently, CS and many states’ trade offices have reduced or consolidated  their overseas offices but have maintained or opened offices in key  markets. CS has recently undertaken the Transformational Commercial  Diplomacy (TCD) initiative, which seeks to shift CS resources from more  accessible overseas markets to less accessible markets to better align the  needs of U.S. exporters with CS resources. Under the TCD initiative, CS  has closed a number of small offices in well-developed markets or in small  markets with limited commercial opportunities to open offices in new  emerging markets with greater commercial potential, such as China and  India. For example, under TCD, CS has closed 22 offices and opened 4  offices in Qatar, Tunisia, Libya, and Afghanistan. In addition, CS plans to  open additional offices in Baku, Azerbaijan; Wuhan, China; Porto Alegre,  Brazil; and Racife, Brazil; and add staff at offices in China and India.  Similarly, many states’ trade offices have reduced or consolidated their  overseas offices but have maintained and opened offices in key overseas  markets. For example, some states’ trade offices have consolidated their  overseas offices in multiple countries of a particular region, such as  Europe or Asia, to cover the entire region from a single office. However,  many states continue to maintain and expand overseas offices in key  markets, including China and Japan. For example, in recent years many  states have opened offices in multiple cities in China.
section_title: Appendix III: Selected CS Fee Services Purchased by Firms in Each State in 2007 and 2008
paragraphs: This table presents selected fee services purchased by CS’s customers in  each state for 2 years. The data are for 2007 and 2008 and include 5,890  standardized fee services purchased, out of a total of more than 30,000, or  about 20 percent for all fee services in those years. However, they include  four of the five standardized fee services that CS offers (Gold Key,  International Company Profile, International Partner Search, and Featured  U.S. Exporter). Table 6 shows selected CS services that firms purchased  from CS by home state in fiscal years 2007 and 2008, sorted by the number  of services purchased per state.
section_title: Appendix IV: Comments from the Department of Commerce
paragraphs: The following are GAO’s comments on the Department of Commerce’s  letter dated February 18, 2009.
subsections: section_title: GAO Comments
paragraphs: 1.  Also, Commerce’s technical comments mentioned CS’s conversion to a  new financial accounting system, Commerce Business System, which  management expects will improve information about CS’s costs of  delivering services. We support CS’s implementation of an improved  financial accounting system. We remain concerned, however, that  potentially outdated and inaccurate nonfinancial data that are used to  determine the unit cost of specific services, such as the time staff  spend performing various activities, may not be updated by the new  system. Updating that information will help ensure that the full costs  of specific services are considered when setting fees.  2.  We believe that missing and inaccurate data about company size mean  that CS cannot reliably or accurately estimate the volume of services  provided to SMEs or the fees collected from them. In addition, CS’s  response relies on aggregate analyses between fiscal year 2007 and  fiscal year 2008 that did not take into account changes in the mix of  services provided or longer term trends and, therefore, does not  provide useful information about the impact of its 2008 fee schedule on  SMEs. 3.  Commerce commented that CS’s trade promotion services are greater  in depth and scope than those provided by the states, and we  discussed this in our report. We clarified this point in various places in  our report, taking into account some related information that we  received in technical comments from agency officials.
section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals named above, Adam Cowles, Assistant  Director; Michelle Sager, Assistant Director; Martin De Alteriis, Assistant  Director; Jack Warner, Assistant Director; Yesook Merrill, Assistant  Director; Karen Deans; Bradley Hunt; Grace Lui; and Barbara Shields  made key contributions to this report. In addition, the following staff  provided technical assistance: Jacqueline Nowicki, Assistant Director;  Etana Finkler; Sheila Rajaibiun; and Jena Sinkfield.