Agricultural Quarantine Inspection Fees: Major Changes Needed to Align Fee Revenues with Program Costs
Released: 2013-03-01T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The AQI program guards against agriculture threats by inspecting international passengers and cargo at U.S. ports of entry, seizing prohibited material, and intercepting foreign agricultural pests. The program, which cost $861 million in 2011, is funded from annual appropriations and user fees. GAO has reported several times on the need to revise the fees to cover program costs as authorized. In 2010, APHIS initiated a review of AQI costs and fee design options. APHIS and CBP are considering options for a new fee structure. Pending departmental approval, APHIS expects to issue a proposed rule in fall 2013. GAO was asked to examine issues related to the AQI fees. This report examines 1) the fees currently charged and proposed revisions; 2) how fee revenues are allocated between the agencies; and 3) the extent to which fee collection processes provide reasonable assurance that all AQI fees due are collected. To do this, GAO reviewed AQI fee and cost data, and relevant laws, regulations, and policies; observed inspections at ports of entry; and interviewed APHIS and CBP officials.

section_title: What GAO Found
paragraphs: GAO's analysis of the Agricultural Quarantine Inspection (AQI) fee and cost data revealed a more than $325 million gap between fee revenues and total program costs in fiscal year 2011, or 38 percent of AQI program costs. The program, which is co-administered by the Department of Agriculture (USDA) Animal and Plant Health Inspection Service (APHIS) and Department of Homeland Security (DHS) Customs and Border Patrol (CBP), has a gap for several reasons: 1) APHIS's authority does not permit it to charge all persons seeking entry to the United States (e.g., pedestrians) and does not permit it to charge the costs of those inspections to others; 2) APHIS has chosen not to charge some classes of passengers, citing administrative fee collection difficulties; 3) CBP does not charge a portion of all primary inspections to agriculture functions, as required by CBP guidance; 4) APHIS does not consider all imputed costs (that is, costs incurred by other agencies on behalf of the AQI program) when setting fees; and 5) the allowable rates for overtime services are misaligned with the personnel costs of performing those services. APHIS is considering fees that would better align many, but not all, AQI fees with related inspection activity costs. APHIS and CBP can take additional steps to better align fees with costs; however, additional authority will be needed to fully recover all program costs.

Contrary to APHIS-CBP agreements and APHIS policy, the distribution of fee collections between CBP and APHIS is significantly misaligned with AQI costs. In 2005, CBP and APHIS agreed to divide AQI collections in proportion to each agency's share of AQI costs. However, in fiscal year 2011, for example, CBP incurred over 80 percent of total program costs but received only 60 percent of collections, while APHIS incurred 19 percent of program costs but retained 36 percent of collections. CBP bridges the gap between its AQI costs and its share of the fee revenues with its annual appropriation. In keeping with its authorities and with good practices for fee-funded programs, APHIS carries over a portion of AQI collections from year to year to maintain a shared APHIS-CBP reserve to provide a cushion against unexpected declines in fee collections. APHIS's stated goal is to maintain a 3- to 5-month reserve but the preliminary fee proposal would fund the reserve at a level higher than the 5 month maximum. Further, the 5-month maximum target balance is the amount officials say they would need to completely shut down the program, and therefore does not reflect realistic program risks. Further, this is more than the amount required to cover shortfalls during both the 2009 financial crisis and the events of September 11, 2001, and would increase reliance on appropriated funds to cover current program costs.

APHIS's and CBP's collection processes do not provide reasonable assurance that all AQI fees due are collected. Specifically, APHIS does not collect AQI fees for railcars consistent with its regulations, resulting in a revenue loss of $13.2 million in 2010. Further, CBP does not verify that it collects fees due for every commercial truck, private aircraft, and private vessel, resulting in an unknown amount of revenue loss annually. CBP has tools available to help remedy these issues but does not require their use. Until APHIS and CBP improve oversight of these collection processes, they will continue to forgo revenue due the government, which will increase reliance on appropriated funds to cover program costs.

section_title: What GAO Recommends
paragraphs: GAO is making a number of recommendations aimed at more fully aligning fees with program costs, aligning the division of fees between APHIS and CBP with their respective costs, and ensuring that fees are collected when due. Further, GAO suggests Congress amend the AQI fee authority to allow the Secretary of Agriculture to set fee rates to recover the full costs of the AQI program. USDA and DHS generally agreed with the recommendations.

section_title: Letter
paragraphs: The movement of people and goods across U.S. borders is vital to the  U.S. economy but also poses risks because imported products  sometimes contain exotic pests and diseases that have resulted in billions  of dollars in damages and lost agricultural revenues. Further, the terrorist  attacks of September 11, 2001, heightened concerns about agriculture’s  vulnerability to terrorism, including the deliberate introduction of livestock,  poultry, and crop diseases. The Agricultural Quarantine Inspection (AQI)  program helps to guard against these threats by inspecting international  passengers and cargo, seizing prohibited material, and intercepting  foreign agricultural pests at U.S. ports of entry. The AQI program is co- administered by the Department of Agriculture’s (USDA) Animal and Plant  Health Inspection Service (APHIS), which has authority to set AQI user  fees, and the Department of Homeland Security’s (DHS) U.S. Customs  and Border Protection (CBP). The AQI program is funded in part with  revenues from fees assessed on those subject to inspection and in part  with monies from CBP’s annual Salaries and Expenses appropriation. In  2006 we recommended that DHS and USDA work together to revise the  user fees to ensure that they cover the AQI program’s costs. In 2007 and  2008, we reported on various other challenges related to these fees,  including that AQI user fees were misaligned with program costs. In  2010, APHIS hired a contractor to conduct a comprehensive fee review to  determine the full cost of AQI services, identify potential changes to the  fee structure, and recommend new fees. Efforts to better align fees with  costs are important, especially in an environment of tightening  discretionary budgets, because user fees can reduce reliance on  taxpayer funding of federal programs that provide a service to an  identifiable beneficiary.

In this context, you asked us to examine the AQI user fees. This report  assesses the following objectives: (1) the AQI fees currently charged and  how, if at all, the proposed revisions would improve efficiency, equity, and  revenue adequacy, and reduce administrative burden; (2) how, if at all,  changes to the allocation of fee revenues between USDA and DHS could  improve efficiency, equity, and revenue adequacy, and reduce  administrative burden; and (3) the extent to which APHIS and CBP fee  collection processes provide reasonable assurance that all AQI fees due  are collected.

To address these objectives we analyzed the AQI fees using principles of  effective user fee design—efficiency, equity, revenue adequacy, and  administrative burden—on which we previously reported. Specifically,

Efficiency: “Efficiency” refers to requiring identifiable beneficiaries to pay  for the costs of services, allowing user fees to simultaneously constrain  demand and reveal the value that beneficiaries place on the service. If  those benefiting from a service do not bear the full social cost of the  service, they may seek to have the government provide more of the  service than is economically efficient. User fees may also foster  production efficiency by increasing awareness of the costs of publicly  provided services and therefore increasing incentives to reduce costs  where possible.

Equity: “Equity” refers to everyone paying their fair share, but the  definition of fair share can have multiple facets. Under the beneficiary- pays principle, the beneficiaries of a service pay for the cost of providing  the service. Under the ability-to-pay principle, beneficiaries who are more  capable of bearing the burden of fees should pay more for the service  than those with less ability to pay.

Revenue adequacy: “Revenue adequacy” refers to the extent to which  the fee collections cover the intended share of costs. It encompasses  variations in collections over time relative to the cost of the program.  Revenue adequacy also incorporates the concept of revenue stability,  which generally refers to the degree to which short-term fluctuations in  economic activity and other factors affect the level of fee collections.

Administrative burden: “Administrative burden” refers to the cost of  administering the fee, including the cost of collection and enforcement as  well as the compliance burden (the administrative costs imposed on the  payers of the fee).

As we reported, these principals interact and are often in conflict with  each other so that there are tradeoffs to consider among the principles  when designing a fee. For example, a fee closely aligned with the cost of  the services provided to a particular user may promote efficiency and the  beneficiary-pays aspect of equity, but could impose a higher  administrative burden and conflict with the ability-to-pay aspect of equity.

In addition, the Office of Management and Budget (OMB) provides  guidance to executive branch agencies through Circular No. A-25. This  circular establishes federal guidelines regarding user fees including the  scope and types of activities subject to user fees and the basis upon  which the fees are set. It also provides guidance for executive branch  agency implementation of fees and the disposition of collections. Further,  the Chief Financial Officers (CFO) Act of 1990 requires an agency’s CFO  to review, on a biennial basis, the fees, royalties, rents, and other charges  for services and things of value and make recommendations on revising  those charges to reflect costs incurred. The Statement of Federal  Financial Accounting Standards Number 4, Managerial Cost Accounting   establishes  Concepts and Standards for the Federal Governmentstandards for federal agencies to use in reporting the costs of their  products, services, and activities.

We reviewed APHIS’s cost study and proposed revisions, relevant  statutes and regulations, and AQI cost and fee revenue data. We  analyzed APHIS and CBP AQI cost data and interviewed APHIS and  CBP officials. We assessed the reliability of the data and determined that  they were sufficiently reliable for our purposes. In addition, we selected a  nonprobability sample of ports of entry to visit: Miami, Florida; Port Huron,  Michigan; San Diego, California, and its surrounding areas; and Seattle  and Blaine, Washington. In selecting these ports we considered factors  including the presence or absence of agriculture inspections for which  AQI user fees were and were not charged; passenger and cargo  volumes; the diverse set of inspection challenges faced by ports in varied  parts of the country; different types of ports (e.g., land border, seaports,  etc.) and our resource constraints. While information from these visits  cannot be generalized to other ports of entry, themes we identified from  the visits allowed us to understand commonalities and differences in  inspection practices and fee collection processes at various ports and  provide illustrative examples. We also visited APHIS’s Plant Protection  and Quarantine offices in Miami, San Diego, and Seattle to understand  the AQI-related work conducted by APHIS in the field. More details on our  scope and methodology appear in appendix I.

We conducted this performance audit from April 2012 to March 2013 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The AQI program provides for inspections of imported agricultural goods,  products, passenger baggage, and vehicles, including commercial  aircraft, ships, trucks, and railcars, to prevent the introduction of harmful  agricultural pests and diseases. CBP has responsibility for inspection  activities at ports of entry, including   reviewing passenger declarations and cargo manifests and targeting  high-risk passengers and cargo shipments for agricultural inspection;   inspecting international passengers, luggage, cargo, mail, and means of  conveyance; and holding suspect cargo and articles for evaluation of plant and animal  health risk in accordance with USDA regulations, policies, and guidelines.

Inspection procedures vary somewhat depending on what pathway is  being inspected (e.g., passengers, cargo, vessels, etc.) but, generally,  CBP officers conduct a combined primary inspection for agriculture,  customs, and immigration issues, and, as needed, make referrals to  CBP agriculture specialists who conduct more detailed secondary  inspections.

APHIS has responsibility for other AQI program activities, including providing training; providing pest identification services at plant inspection stations and  setting AQI user fee rates and administering the collected fees;   setting inspection protocols; applying remedial measures other than destruction and re-exportation,  such as fumigation, to commodities, conveyances, and passengers.

APHIS lacks the authority to recover the full costs of the AQI program  through fees. Section 2509(a) of the Food, Agriculture, Conservation, and  Trade (FACT) Act of 1990 authorizes APHIS to set and collect user fees  sufficient to cover the cost of providing and administering AQI services in  connection with the arrival of commercial vessels, trucks, railcars, and  aircraft, and international passengers. APHIS does not have the authority  to charge AQI fees to pedestrians or military personnel and their vehicles,  nor to recover the costs of these inspections through the fees assessed  on others (see fig. 1). AQI fee collections are divided between CBP and  APHIS. Gaps between AQI fee collections and program costs are  generally covered by CBP using its Salaries and Expenses appropriation,  which is authorized for necessary expenses related to agricultural  inspections, among other activities.

In fiscal year 2012, AQI fee revenues totaled approximately $548 million  (see fig. 2). As authorized by the FACT Act, these funds remain available  without fiscal year limitation and may be used for any AQI-related  purpose without further appropriation. When funds are available until  expended, agencies may carry forward unexpended collections to  subsequent years and match fee collections to average program costs  over more than 1 year. Such carryovers are one way agencies can  establish reserve accounts, that is, revenue to sustain operations in the  event of a sharp downturn in collections. APHIS uses some of the AQI fee  collections in this way. We have previously reported that a reserve can be  important when fees are expected to cover program costs and program  costs do not necessarily decline with a drop in fee revenue.

APHIS maintains two types of reserves. APHIS refers to the first reserve  as the “shared reserve” because it is meant to cover both APHIS and  CBP needs in the event that fee collections decline unexpectedly. The  second reserve is an “APHIS-only” reserve, and is funded from APHIS’s  portion of total AQI collections. The APHIS-only reserve is intended to  provide APHIS with budgetary flexibility. Between the two reserves,  APHIS aims to maintain a total reserve balance equal to 3 to 5 months of  AQI program costs.

As previously mentioned, in 2010, APHIS engaged a contractor to  conduct a thorough review of AQI program costs and options for  redesigning AQI fees. In addition, APHIS contracted for an economic  analysis to ensure that the proposed fees would not have unintended  consequences. In reviewing the AQI fees, the contractor identified the  direct and indirect costs of the AQI program for both APHIS and CBP by  pathway, to the extent the agencies captured these costs for fiscal year  2010. The contractor also conducted activity-based costing to serve as  the basis for future fee setting. These practices are consistent with  federal cost accounting standards.

The contractor assumed the accuracy of the data provided from both  APHIS and CBP. Our recent work reported that data quality is an  ongoing issue with AQI data systems, including the Work  Accomplishment Data System (WADS), one of the data sources used by  the contractor. However, Office of Management and Budget Circular A- 25 states that when reviewing user fees, full cost should be determined or  estimated using the best available records of the agency, and new cost  accounting systems do not need to be established solely for the purpose  of rate-setting. The contractor also solicited input from stakeholders as  part of the fee review process, a practice consistent with our User Fee  Design Guide.

APHIS is using the AQI cost model developed by the contractor as well  as the findings from the fee review to update the AQI fee schedule.  According to APHIS officials, as of February 2013, APHIS and CBP are  considering staff recommendations for a new fee structure, including new  fee rates. Pending approval from both USDA and DHS, APHIS expects to  publish a notice in the Federal Register with a proposed new fee  schedule in the fall of 2013. As such, it is important to note that the  current staff recommendations for AQI fees are subject to change and  that the fee structure and rates APHIS establishes will be informed by  many factors, including public comments through the rulemaking process.

section_title: APHIS Currently Does Not Fully Recover Program Costs
subsections: section_title: In Fiscal Year 2011 There Was a Nearly 40 Percent Gap Between Total Identified AQI Costs and Collections
paragraphs: In fiscal year 2011—the most recent year for which data were available— AQI fee collections covered 62 percent of total identified AQI program  costs, leaving a gap of more than $325 million between total AQI costs  and total AQI collections. This gap was covered with funds from CBP’s  Salaries and Expenses appropriation and by funds from other agencies to  cover imputed costs. Although the AQI program is often referred to as a  fully fee-funded program, it is not. Fees assessed on individual pathways  are to be set commensurate with the costs of services with respect to a  particular pathway. For passenger fees, the costs of services include the  costs of related inspections of the vehicle. Once revenue is earned from  one pathway, however, it may be spent on any AQI-related program cost.  For example, revenue earned from commercial airline passenger  inspections may be spent on private air passenger inspection activities.  However, as shown in table 1, APHIS has chosen not to charge some  classes of passengers, and the collections of the AQI program as a whole  do not equal total identified program costs.

Several other factors also compound the gap between AQI program costs  and total AQI fee collections, as discussed below. Specifically, CBP’s AQI  costs are understated, AQI fee rates do not reflect imputed costs, and  CBP and APHIS do not fully recover the costs of AQI-related  reimbursable overtime services.

CBP does not capture all time spent on agriculture activities in its Cost  Management Information System (CMIS)—the system in which CBP  tracks its activities and determines personnel costs. Both to accurately set  AQI fee rates to recover program costs and to allocate fee revenues  between APHIS and CBP proportionate with each agency’s program  costs, CBP must accurately track its expenses related to the AQI  program. In 2005, CBP agreed to report its AQI-related expenses to  APHIS quarterly. CBP officers’ and agriculture specialists’ time is  generally charged to a mix of CMIS codes to represent the variety of  activities they perform. Although this mix of codes will understandably  vary, CBP guidance specifies that time spent by officers conducting  primary inspections—which, as previously discussed, include aspects of  agriculture, customs, and immigration inspections—is to be attributed to a  mix of CMIS codes representing each of these three functions. We found,  however, that at 31 ports and other locations, CBP did not charge any  primary inspection time to agriculture-related CMIS codes for all or a  portion of fiscal year 2012, which means that AQI costs at these ports are  being understated. Further, CBP officers at ports we visited described  different procedures for using CMIS codes and wide variation in the  extent to which they verify that CMIS codes accurately capture work  activities. Because CBP’s AQI costs are underreported by some unknown  amount in CMIS, APHIS does not have complete information about CBP’s  AQI-related costs and therefore is unable to consider total program costs  when setting AQI fee rates.

CBP headquarters oversees ports’ use of CMIS to track AQI expenses by  providing guidance and training, and by annually reviewing CMIS data  from about 50 of the highest-volume ports. In addition, CBP field offices  review CMIS codes for ports in their jurisdiction on a quarterly basis. CBP  headquarters also produces CMIS guidance, which includes a CMIS code  dictionary and a notice that the time officers spend on primary inspection  should be charged to customs, immigration, and agriculture codes.  Instructions for reviewing the use of CMIS codes are also provided to  ports. Although the instructions provide brief examples, they do not  specify how ports should determine the appropriate mix of codes to use  or the frequency with which ports should conduct work studies. At some  locations we visited, CBP officials said that headquarters does not  provide sufficient CMIS guidance to enable accurate and consistent  reporting of staff activities. CBP headquarters officials told us that they  provide semiannual training which is intended to ensure correct CMIS use  at ports. However, attendance at these training sessions is not required  and officials said there is high turnover among CMIS practitioners at the  ports and field offices.

The current AQI fee rates do not cover imputed AQI program costs.  APHIS estimated that these costs were about $38 million in fiscal year  2011, the most recent year for which data were available. In 2008 we  recommended that the Secretary of Agriculture include these costs when  setting AQI fees consistent with federal accounting standards, OMB  Circular No. A-25 guidance, and USDA policy. APHIS agreed with the  recommendation and, as we will discuss more fully later on in this report,  has included some, but not all, of these costs in its recent analysis of AQI  costs. Because APHIS is authorized to set AQI fees to recover the full  cost for each pathway, it is important that the agency accurately  captures full program costs.

The AQI program does not fully recover costs for reimbursable overtime  agriculture inspection services in part because (1) the reimbursement  rates paid by users are set by APHIS regulations and do not cover the  agencies’ overtime costs, (2) CBP does not consistently charge for these  services, and (3) when CBP does charge it does not timely collect  payments for these services. CBP is authorized to charge for overtime for  agriculture inspection and related services in some situations, known as  reimbursable overtime. When a CBP officer or agriculture specialist  performs an inspection service on a Sunday or holiday or while the  employee performing the inspection is on overtime, CBP is to bill the user  for the service. This can happen, for example, when an importer requests  an inspection of agricultural produce outside of normal duty hours.

Reimbursable overtime collection rates are not aligned with the agencies’  current staff costs, which means any reimbursable overtime collections do  not fully cover costs to perform these services. APHIS has the authority to  set reimbursable charges to recover the full costs of overtime services,  but the reimbursement rates have not been adjusted since 2005. Under  the APHIS regulations, CBP may charge $51 per hour for agriculture- related overtime Monday through Saturday and holidays, and $67 per  hour on Sunday. When we asked CBP officials for their average annual  costs for overtime agriculture inspections they told us that they have not  calculated these costs. However, CBP was able to create such an  analysis for us using August 2012 as an example. CBP estimated that its  average salary cost for overtime agricultural inspections in August 2012  was approximately $85 per hour, and it billed approximately $55 per hour  for those services. They further estimated that for that month,  reimbursable agriculture overtime services cost the agency approximately  $58,000, while the agency only billed approximately $37,000 for those  services—or about 64 percent of the cost. APHIS’s rates for  reimbursable agriculture overtime services are similarly misaligned with  its costs. APHIS and CBP officials worked together to develop a draft  proposed rule to update the overtime rates, but according to APHIS  officials it has been on hold since summer 2011.

CBP headquarters encourages ports to charge for reimbursable overtime  services and provides guidance clarifying how they should do so. This  practice is consistent with effective fee design principles; as we have  previously reported, if a service primarily benefits identifiable users, users   However, CBP personnel at some ports told  should pay for that service. us they do not charge for reimbursable agriculture services provided  because their port does not get to keep the reimbursable overtime  funds. In addition, officials at three ports said it is administratively  burdensome to process the reimbursable overtime forms.

CBP does not ensure that reimbursable overtime is collected when  charged. APHIS regulations require that agriculture-related reimbursable  overtime be paid for in advance and that overtime services be denied to  anyone whose account is more than 90 days delinquent.according to CBP data, as of August 31, 2012, the agency had more than  $200,000 in past-due overtime agriculture inspection bills, of which more  than $160,000 is more than a year past-due. Some bills are as old as  2004, and one company has more than $9,000 in past-due bills that were  issued from 2004 through 2012. Although CBP can and does assess  interest for past-due reimbursable overtime bills, it does not consistently  deny overtime services to entities with accounts more than 90 days  delinquent.

section_title: The Fees Currently under Consideration Would Not Fully Recover Costs for All Pathways nor Directly Charge the Users of Certain Services
subsections: section_title: APHIS Might Remove Caps on Commercial Rail and Vessels but Not Trucks, Leaving a Revenue Gap
paragraphs: APHIS is considering new or updated fees for AQI services. However, the  fees might not recover the costs of all commercial trucks. APHIS lost $85  million in revenue in fiscal year 2010 due to capping the annual amount of  AQI fees paid by commercial rail, vessels, and trucks, but as of February  2013, the staff recommendations APHIS is considering would remedy  only the revenue loss for commercial rail and vessels. According to  APHIS data, in fiscal year 2010, the caps on rail and vessel fees resulted  in a combined revenue loss of about $46 million, while the caps on truck  entries resulted in a $39 million loss for that year. These revenue losses  are currently covered by CBP through its annual appropriation or by AQI  user fees collected from other pathways. As we have previously reported,  charging users the full cost of the inspection they are receiving can  promote economic efficiency and equity by assigning costs to those who  both use and benefit from the services being provided.

Commercial trucks seeking entry into the United States can either pay the  $5.25 AQI fee each time they cross the border, or they can pay a one- time flat AQI fee of $105 each calendar year. To pay the annual AQI fee,  trucks must use an electronic transponder which must be purchased in  advance. Although the $105 annual AQI truck transponder fee is  equivalent to paying for 20 arrivals each year, according to APHIS data,  in 2010, trucks with a transponder cross the border 106 times a year on  average. In Otay Mesa, California, for example, we observed trucks  which CBP officers told us typically make up to three to four border  crossings a day, dropping off their cargo nearby and returning for another  shipment.

APHIS is considering raising the per-entry truck fees to more closely align  fees with costs. To encourage use of truck transponders, APHIS is  considering setting the fee rate for transponders at a rate equivalent to  the price of 40 arrivals but still well below the average number of arrivals  for trucks with transponders. In this way, APHIS hopes to provide a  financial incentive to use transponders to both minimize CBP’s  administrative burden (by reducing the number of fee collection  transactions at the border) and to reduce wait times at border crossings.  According to a CBP estimate, trucks with transponders save at least 10  minutes when crossing the border because they do not have to pay the  fee at the time of crossing, benefiting trucking firms and shippers. This  time savings is, in and of itself, another incentive for truck transponder  use. Shorter wait times at the border also support the CBP mission to  foster international trade.

The contractor assisting APHIS with its fee review did not propose a way  for APHIS to better align truck fees with the full cost of truck inspections  while still incentivizing the use of transponders, but noted that for the long  term, APHIS should look into other possible alternatives, including  examining the feasibility of implementing toll-based transponders, which  would allow trucks to pay for each crossing while still retaining a low  administrative burden for CBP and time savings of the current  transponder system. Table 2 demonstrates, for illustrative purposes only,  various combinations of per-entry and annual transponder fee rates to  more closely align commercial truck fees with costs under the current  system. For example, one example adds a portion of the cost of  inspecting trucks with transponders to the per-arrival fee for trucks, which  would provide an incentive for the use of transponders (see table 2). In  another example, trucks could purchase different “packages” of arrivals at  a discounted rate (50 arrivals, 100 arrivals, 200 arrivals, etc.). In  commenting on a draft of this report, APHIS officials said that because  the distribution around the mean number of arrivals is unknown, it would  be difficult to determine the effects of a change in truck transponder  pricing.

As previously discussed, although APHIS has authority to charge AQI  fees to all international passengers, it currently only charges fees to  international commercial air passengers.not considering fees for international passengers aboard private aircraft,  private vessels, buses, and railcars, citing administrative burdens and  anticipated challenges relating to collecting these fees. Because APHIS  does not currently charge fees to inspect these passengers, these costs  are covered by CBP’s annual appropriations or AQI fees paid by other  users. This reduces economic efficiency and equity of the fees because   As of February 2013, APHIS is  the costs of the inspections are not assigned to those who both use and  benefit from them.

APHIS’s authority permits it to charge all passengers for the cost of  inspecting both passengers and the vehicle in which they arrive, but does  not always permit APHIS to do the reverse; that is, to include in the  vehicle AQI fees the cost of inspecting the passengers arriving in the  vehicle. Charging the cost of inspecting bus, private aircraft, private  vessel, and rail passengers and the vehicles in which they arrive to the  passengers themselves would be administratively burdensome because  there is no existing mechanism for collecting fees from these classes of  passengers. However, in several instances, CBP can and does charge  customs fees—fees collected to help offset the costs of customs  inspections—to private vehicles rather than the passengers. If APHIS had  statutory authority to charge all vehicles in which passengers travel,  rather than only the passengers themselves, then APHIS could leverage  existing customs fee collection mechanisms to minimize administrative  burden in collecting AQI fees. We previously recommended that USDA  and DHS develop a legislative proposal, in consultation with Congress, to  harmonize customs, immigration, and AQI fees. To date, a proposal to  harmonize these three fees has not been introduced.

Bus passengers. The cost of bus passenger inspections totaled about  $23 million, or about $4 per passenger, in fiscal year 2011. CBP officials  told us that it would be difficult to collect the fee from individual  passengers. In June 2012, our limited observations of the inspection  process for bus passengers at San Ysidro, California, revealed logistical  challenges consistent with these concerns. In this port, bus passengers  get off the bus and are processed along with pedestrians crossing the  border, which would make it difficult to properly separate out and charge  a fee only to bus passengers.

To avoid these kinds of logistical challenges, bus passenger fees could  be collected using the air passenger fee model in which the fee is  collected by the airline and then remitted to APHIS periodically. However,  APHIS’s fee review noted that barriers to entry for the bus passenger  industry are lower than air and cruise vessel industries—which could  mean a large and changing list of bus companies from which APHIS  would need to collect fees. Because of this, an APHIS official stated, this  type of remittance model could be burdensome to maintain and audit. The  official also told us that APHIS has discussed both a possible transponder  approach to collect fees for buses, and an approach in which buses with  over 15 seats and buses with fewer than 15 seats pay different fee rates.  In commenting on a draft of this report, APHIS officials said that due to  logistical challenges, they would have to seek new legislative authority to  allow for the collection of fees for the bus rather than charging a fee for  the individual passenger.

Private aircraft and private sea vessels. The total cost of inspecting  private aircraft passengers in fiscal year 2011 was about $11 million,  which equates to approximately $34 per passenger or $93 per aircraft for  each arrival. The cost of inspecting private vessel sea passengers for  fiscal year 2011 was about $4.9 million, which equates to approximately  $20 per passenger or $61 per vessel for each arrival. As stated above,  AQI’s statute authorizes it to charge passengers, but not the private  aircraft or vessels in which those passengers arrive. However, CBP  charges a customs fee of $27.50 per year for each private plane and  vessel at least 30 feet long. Absent a change in APHIS’s statutory  authority allowing it to charge private aircraft and vessels for AQI  services, APHIS and CBP cannot leverage the CBP infrastructure already  used to collect customs inspections fees for private aircraft and vessels.

APHIS considered the effect of charging new fees for private aircraft and  vessels, but as of February 2013, the fees APHIS is considering might not  recover the costs of AQI services for these users. APHIS’s fee review  noted that it would be relatively easy to administer an annual fee on  private aircraft or vessels using CBP’s current process, but concluded  that the potential revenue would be very small. However, the potential  revenue from such a fee would be greater than the AQI fees currently  assessed on freight rail.

It is also worth noting that even if an AQI vessel fee was piggybacked  onto the customs vessel fee, vessels presenting similar agriculture risks  may not all be subject to an AQI fee. As mentioned above, CBP’s  customs fee applies to private vessels that are at least 30 feet long.  However, one CBP official told us that many private vessels arriving at his  port are only about 20 feet long and thus are not required to pay the  customs fee, but that these vessels still present agriculture risks similar to  larger vessels because 20-foot vessels are large enough to store food.  According to APHIS officials, APHIS has not assessed the agricultural  risks posed by smaller vessels and said that the risks would likely vary at  each port.

Rail passengers. Rail passenger inspections cost the AQI program  about $1.6 million in fiscal year 2011, or almost $6 per passenger. As  stated previously, AQI’s statute authorizes it to charge rail passengers  seeking to enter the country for the costs of inspecting the passengers as  well as the railcar in which they are riding. CBP charges a customs  inspection fee for each passenger railcar, but APHIS does not charge an  AQI fee. Absent a change, APHIS and CBP cannot leverage the  infrastructure used for a per-car fee for customs inspections currently  charged for the arrival of each railroad car carrying passengers.

In 2005 APHIS set AQI commercial vessel fees—which are levied on  cruise and cargo vessels alike—to cover the costs of inspecting vessel  passengers. According to its authorizing statute, APHIS may set fees to  cover the costs of AQI services for arriving international passengers, and  commercial aircraft, trucks, vessels, and railcars. The amount of the fee  must be commensurate with the costs of AQI services for each pathway  (i.e., class of passengers or entities paying the fees), preventing cross- subsidization of costs between users in setting the fee rates. The way the  fees are currently set, the vessel fee includes the cost of inspecting  vessel passengers, such as passengers arriving on cruise ships. APHIS  is considering replacing the cruise vessel fee with a sea passenger fee  that would recover the costs of inspecting both sea passengers and the  cruise vessels. The cost of inspecting cruise passengers for fiscal year  2011 was about $17.9 million. Charging an inspection fee to sea  passengers would not require a new collections infrastructure because  commercial vessel passengers currently pay user fees for customs  inspections, which are remitted to CBP by the party—such as the cruise  line—issuing the ticket or travel document. As we mentioned previously,  in 2008 we recommended that DHS develop a legislative proposal, in  consultation with Congress, to harmonize the customs, immigration, and  AQI fees. To date, a proposal to harmonize these three fees has not  been introduced. In addition, we previously reported that existing  collection mechanisms can be leveraged to minimize administrative  burden in collecting fees.

APHIS is considering a new fee for treatments and monitoring but might  not change current AQI policy for two other specialized AQI services— permits for importing commodities and monitoring of garbage compliance  agreements—that benefit only a limited set of users yet the costs are  borne by other AQI fee payers. By continuing to include the costs of these  specialized services in the regular AQI fees for each pathway, the users  that benefit most from these services do not know how much they are  paying for these services—which may encourage overuse of these  services—while other fee payers are paying for services they do not use.  As we have previously reported, a more tailored, user-specific approach  to fee-setting better promotes equity and economic efficiency by assigning costs to those who use or benefit from the services.

APHIS does not track costs separately for conducting and monitoring of treatments, so it cannot  identify the specific costs related to each activity. The contractor’s report recommended that they do  so. monitors these treatments, generally at no additional costs to the  importer, to ensure compliance with APHIS policies and procedures.  Second, and less commonly, in certain instances APHIS provides both  treatment and monitoring services for certain commodities, generally at  no additional cost to the importer. Because the cost of treatment and  monitoring provided by APHIS is bundled into the AQI fees for air cargo,  maritime cargo, commercial trucks and rail cargo, these services— including those for repeat offenders who require treatments regularly— are subsidized by other shippers. Further, importers may not be aware of  the costs being incurred for APHIS’s treatment and monitoring services.  Directly charging importers for these services may encourage importers  to work with growers whose products do not regularly require treatment  because importers would directly incur the costs of the treatments. In  keeping with basic economic principles, this may also improve the  economic efficiency of the fees.

Import commodity permits. Permits are required to import and transport  certain agricultural commodities. Although APHIS has authority to charge  for permits, under the current system these services are paid for indirectly  through the AQI fees. In fiscal year 2011, APHIS issued 12,152 permits  for the import of commodities such as wood products, plants, and soil.  Multiple commodities can be listed on a single permit, which is valid for  that importer for a year. APHIS spent about $13 million in fiscal year 2011  on permit-related activities; as mentioned previously, the cost of these  permits is included in the regular inspection fees for air cargo, maritime  cargo, trucks, and rail cargo. As such, importers may not be aware of the  cost incurred for their permit application and adjudication, which may lead  to inefficient use of APHIS resources if importers “overpurchase” permit  applications. According to APHIS officials, importers sometimes obtain  permits that they do not use. The contractor’s report proposed a charge of  $1,075 for each commodity permit and $1,775 for each pest permit.  However, APHIS officials were concerned that charging for permits may  create an unintended barrier to trade and retaliatory actions by other  countries with which we trade.

Monitoring of compliance agreements for regulated garbage. Costs  related to monitoring compliance with regulated garbage agreements  were projected to be about $36 million in fiscal year 2013. CBP monitors  compliance agreements for disposal of regulated international garbage  but does not currently charge additional fees for these services. APHIS  guidance requires that agriculture specialists monitor all facilities with  compliance agreements quarterly—generally airports and seaports that  serve international travel. In addition, officials stated that certain ships,  such as cruise ships, have compliance agreements and the disposal of  their garbage is regularly overseen by CBP agriculture specialists. APHIS  might continue to include these costs in inspection fees for air, maritime,  truck, and rail cargo rather than capture them under a separate fee for  monitoring compliance agreements.

section_title: The Fees Currently under Consideration Might Include Some, But Not All, Imputed Costs
paragraphs: The fees APHIS is considering would recover imputed costs paid by the  Office of Personnel Management and the Department of Labor on behalf  of APHIS and CBP and attributable to the AQI program. By  incorporating some imputed costs in its analysis of AQI program costs,  APHIS makes progress in implementing our 2008 recommendation.  However, APHIS’s analysis does not include costs of processing AQI  collections borne by the Department of the Treasury (Treasury) for costs  related to collecting, depositing, and accounting for certain AQI fee  collections. We previously reported that agencies authorized to charge  full-cost recovery fees could include the Treasury’s cost of collections in  their fee rates and deposit these funds into the Treasury. APHIS officials  told us that Treasury has not yet provided APHIS with a statement of  these costs. However, federal accounting standards specify that when  such costs are unknown, a reasonable estimate may be used.

section_title: The Distribution of Fee Collections among CBP, APHIS, and the AQI Reserve Is Misaligned with AQI Costs
subsections: section_title: APHIS’s and CBP’s Shares of Fee Revenues Are Misaligned
paragraphs: CBP’s share of AQI fee revenue is significantly lower than its share of  program costs. For example, in fiscal year 2011 (the most recent year  for which APHIS could provide this data), CBP incurred 81 percent of total  AQI program costs, but received only 60 percent of fee revenues; APHIS  incurred 19 percent of program costs but retained 36 percent of the  revenues, as shown in table 3. Further, although AQI costs exceeded AQI  fee revenues by more than $288 million in fiscal year 2011—a gap that  was bridged in part using amounts from CBP’s annual Salaries and  Expenses appropriation—APHIS used more than $25 million of the AQI  fee collections to increase the AQI reserve balance that year.

In 2005, CBP and APHIS agreed that user fee collections should be  allocated based on each agency’s expected annual costs. Each fiscal  year, APHIS and CBP agree to an estimate of total AQI revenues for that  year and how those funds will be allocated between the agencies. For  2006, the agencies agreed on a 61/39 percent split for CBP and APHIS,  respectively. Table 4 shows the planned division of revenues between  CBP and APHIS for 2010 to 2013. The 63/37 percent split has changed  little since the 2006 distribution.

Although the 2005 agreement states that AQI funds will be distributed  between CBP and APHIS in proportion to each agency’s AQI-related  costs, this does not happen in practice. Rather, the 63/37 percent split  means that APHIS retains AQI fee revenues sufficient to cover all of its  estimated AQI costs—including costs attributable to AQI services for  which no fees are authorized or charged—and transfers the remainder of  the estimated fee revenues to CBP. In other words, APHIS covers all its  AQI costs with AQI fee revenues, while CBP does not. To bridge the  resulting gap, CBP uses its annual appropriation.

Because the 63/37 percent split is based on estimated revenues, APHIS  and CBP developed an adjustment process for when actual AQI fee  collections differ from the amount that was expected. When total actual  fee collections for the year exceed (or fall short of) the estimate, the  difference is added to (or taken from) the shared reserve. As previously  mentioned, the shared reserve is money that is carried over each year  and is meant to cover both APHIS and CBP needs in the event that fee  collections decline unexpectedly. If, however, APHIS’s costs are greater  or less than the estimated 37 percent, the difference is added to or taken  from a second reserve; as mentioned previously, this is known as the  APHIS-only reserve. For example, according to APHIS officials, a USDA  hiring freeze has resulted in lower-than-expected APHIS AQI spending in  recent years. Specifically, because APHIS costs were lower than the  estimated 37 percent in fiscal year 2012, APHIS took a portion of the 37  percent allocated to it and put some of those funds into this second  reserve. Figure 3 shows the total actual distribution of AQI program  funding among CBP, APHIS, and both reserve funds in fiscal year 2011.

APHIS and CBP also adjust the 63/37 percent split as they see how  actual revenues compare with estimates. For example, in fiscal year  2011, fee revenues were higher than estimated and APHIS and CBP  each received distributions of $1 million more than the initial estimate.  Table 5 shows the distributions and obligations of actual AQI fee  revenues for recent years.

We have previously reported that maintaining a reserve balance is  important for fee programs to ensure that program operations can be  sustained in case fee revenues decline but workload does not. According  to APHIS officials, APHIS’s target balance for the total reserve is 3 to 5  months worth of AQI costs. Officials told us that this level would ensure  the stability of the program in case of potential fluctuations in fee  volumes, bad debts, unanticipated crises, or the need for one time capital  expenditures. The upper end of the target—5 months—is the amount  APHIS officials estimate would be needed to completely shut down the  inspection program if it were to cease. However, a maximum target  balance aligned with more realistic program risks would also allow for  lower reserve levels. The rationale for maintaining a reserve balance as a  buffer against a complete program shutdown is not as compelling when a  fee-funded program also has access to annual appropriations from the  general fund, as Congress has an opportunity to weigh its funding  priorities on an annual basis.

Moreover, our analysis of APHIS’s cost and collection projections shows  a higher total reserve balance than the 3- to 5-month target. The total  reserve balance was approximately $107 million at the end of fiscal year  2012, which represents about 2.4 months of the AQI program costs paid  with AQI fee revenues that year. Our analysis of APHIS data shows that  the balance in the total AQI reserve would grow by an estimated $55  million, $75 million, and $96 million in fiscal years 2013, 2014, and 2015,  respectively. This would bring the reserve balance to approximately $333  million—or more than triple the fiscal 2012 balance. To further put this  amount in perspective, $333 million would have paid more than 7 months  of AQI costs paid with fee revenues in fiscal year 2012. An  unnecessarily high total reserve balance means that monies that could be  used to pay for AQI program costs would instead be carried over for  possible future needs. This strategy would increase reliance on CBP’s  annual appropriation to pay for current AQI-related costs.

APHIS’s projected level for the shared reserve fund exceeds the historical  use of the fund (see figure 4). In past crises, APHIS and CBP used much  less than APHIS’s total reserve balance target of 3 to 5 months worth of  AQI costs. During the financial crisis in fiscal year 2009, AQI collections  dropped by more than $46 million compared to the prior year and the  reserve fund dropped by about $50 million, reducing the reserve from 2.3  months of fiscal year 2008 costs paid with fee revenues to 1.1 months of  fiscal year 2009 costs paid with fee revenues, as shown in figure 4. In  addition, after the events of September 11, 2001, the reserve fund  dropped from approximately $68 million on October 1, 2001, to just less  than $45 million on September 30, 2002, reducing the reserve to about  2.5 months of fiscal year 2002 costs paid with fee revenues.

section_title: APHIS and CBP Do Not Ensure that All AQI Fees Due are Collected
subsections: section_title: APHIS Does Not Collect AQI Railcar Fees Consistent with Its Regulations
paragraphs: APHIS’s collection practices for the AQI fees assessed on railcars are not  consistent with APHIS regulations. According to the APHIS fee  regulations, railcars seeking to enter the United States may pay AQI  fees in one of two ways. First, they can pay a $7.75 fee for each arrival of  a loaded commercial railcar. Second, they can prepay a flat fee of $155  annually for a specific railcar. The $155 annual fee is equal to the cost of  20 individual arrivals. According to APHIS officials, no railcar companies  choose the $155 flat fee; rather, all choose to pay the $7.75 per arrival  fee. However, rather than collecting this fee for each arrival of a loaded  railcar (as required by APHIS regulations), APHIS only collects fees for  the first 20 arrivals a railcar makes each year. Because of this, in fiscal  year 2010, APHIS lost $13.2 million in railcar fee revenue because about  1.7 million railcar arrivals did not pay a fee even though a fee was due.

section_title: CBP Does Not Verify Payment for Commercial Truck, Private Vessel, and Private Aircraft Fees
paragraphs: CBP does not verify that it collects applicable user fees for every  commercial truck, private aircraft, and private vessel for which the fees  are due, resulting in an unknown amount of lost revenue. We have  previously reported that internal controls should generally be designed to  assure that ongoing monitoring occurs in the course of operations.APHIS and CBP regulations, commercial trucks entering the United  States must pay AQI and customs user fees by purchasing an annual  transponder or paying the fees upon each arrival. Trucks without  transponders pay fees upon arrival by cash, check, or credit card. CBP  personnel at ports we visited compared the amount of cash deposited for  AQI and customs user fees to the number of cash register transactions to  ensure against theft, but did not verify that all trucks that were supposed  to pay the fees actually paid the fees. In other words, CBP cannot be sure  that it collected these fees from all trucks required to pay them. The  Automated Commercial Environment system alerts CBP when an arriving  truck does not have a transponder and therefore owes the fee at the time  of crossing, but CBP does not require officers to record in the system that  the truck has paid the fee, or review this information to verify whether all  trucks paid the fees.

Similarly, CBP does not consistently verify that all arriving private aircraft  and private vessels have a customs user fee decal, as required. As we  stated previously in this report, per CBP regulations, private aircraft and  private vessels more than 30 feet long arriving in the United States must  pay an annual $27.50 customs user fee. As proof of payment, these  aircraft and vessels receive a customs user fee decal.review noted, the customs decal could provide an administratively simple  mechanism on which to piggyback an AQI fee for private aircraft and  vessels. However, absent more rigorous oversight of proper payment for  customs decals this strategy would not be as effective as it otherwise  could be.

As APHIS’s fee  For private aircraft, the Advanced Passenger Information System (APIS)  can show the customs user fee decal number before arrival. However,  APIS neither requires that the decal number be entered nor flags aircraft  for which decal numbers are not entered. For private vessels, the  Pleasure Boat Reporting System and the Small Vessel Arrival System  both include a field for the customs user fee decal number. However, the  decal number is not a required field in either system and the systems do  not link to the Decal and Transponder Online Procurement System to  provide an automated mechanism to verify the decal number. According  to CBP officials, CBP officers are to physically verify the decal during their  inspection of the aircraft or vessel upon arrival. However, CBP does not  verify that this actually occurs, nor are procedures in place nationwide to  ensure that CBP officers collect the decal user fee as required if arriving  vessels and aircraft lack a valid decal. Further, on one of our site visits to  a small airport, the CBP officers conducting the inspections were  unfamiliar with the process they should follow if an aircraft arrived without  a decal; port records showed that the last time a customs user fee decal  had been sold at that airport was in 2010. Later that day, port officials  informed us that shortly after our visit an aircraft arrived without a decal  and the officers collected the decal fee. We also observed inspections of  private vessels that arrived without customs decals; the CBP officer  conducting the inspections did not collect the decal user fees, but instead  informed the vessel owners of the requirement to get a decal.

section_title: Conclusions
paragraphs: The AQI program is a key component in the nation’s efforts to protect  against exotic diseases and pests and the billions of dollars in damage  they can cause. Analyzing and understanding the costs of providing these  important services—for which CBP and APHIS have joint responsibility— are important so that the agencies and Congress have the best possible  information available to them when designing, reviewing, and overseeing  AQI fees and operations. This is especially true given the increasing need  for fiscal restraint in an environment of tightening discretionary budgets.  By conducting a thorough review of AQI program costs and options for  redesigning AQI fees, APHIS has taken important steps in identifying and  strengthening the link between AQI program costs and fee collections.  However, the current AQI fee structure does not (1) recover full costs  from some users, as authorized; (2) charge fees to some passengers that  APHIS is authorized to charge but chooses not to for policy reasons; and  (3) align fees with the program costs to maximize economic efficiency and  equity. As of February 2013, the fees APHIS is considering would not fully  remedy these issues (partly because of gaps in AQI’s statutory authority  and partly because APHIS chooses not to fully exercise the AQI fee  authorities), thus requiring APHIS and CBP to continue to rely on  appropriated funds to bridge the historical gap of nearly 40 percent  between AQI program costs and collections. Similarly, because the  reimbursable overtime rates for agriculture inspections are not aligned  with personnel costs to perform the inspections and because not all ports  consistently charge for those reimbursable services or collect payment in  a timely way, a portion of those costs are subsidized by CBP’s  appropriation.

Absent authority to either charge all pathways for AQI services or to  permit cross-subsidization among pathways when setting fees—that is,  allowing fees paid by some users to be set to recover the costs of  services provided to other users—the AQI program cannot recover its full  costs and must continue to rely on appropriated funds. Furthermore,  APHIS does not charge fees in all instances in which the authority exists  to do so because administrative costs for collecting fees from certain  passengers would be high and the statutory authority limits the recovery  of such costs through fees assessed on vehicles in which passengers  travel (a method CBP uses for some other inspection fees).

Regular, timely, and substantive fee reviews are especially critical for  programs—like AQI—that are mostly or solely fee funded to ensure that  fee collections and program costs remain aligned. Although APHIS is to  be commended for its in-depth review of the AQI user fees and program  costs, until APHIS includes all imputed costs when setting fee rates and  CBP ensures that its CMIS cost data accurately reflect program costs at  all ports, APHIS will not be able to set fees to recover the full costs of AQI  services.

Because the fee revenues distributed to each agency are not aligned with  costs and funding of the AQI reserve is greater than the level needed to  address realistic program risks, CBP relies more heavily on its  appropriation to fund AQI costs that could otherwise be funded with AQI  fee revenues. APHIS and CBP have not followed their 2005 agreement to  allocate fee collections based on each agency’s costs, essentially  overfunding APHIS and underfunding CBP.

Finally, the AQI program is forgoing revenues because CBP and APHIS  do not ensure that all fees due are collected. APHIS does not collect  railcar fees for the arrival of all railcars in accordance with regulations,  and CBP does not use available controls to verify that commercial trucks  have paid the AQI fee. Similarly, because CBP does not use available  information to verify that all arriving private aircraft and private vessels  have valid customs decals, the agency does not have assurance that it is  collecting all fees that are due. Until APHIS and CBP improve oversight of  these collection processes, they will continue to forgo revenue due the  government, which will increase reliance on appropriated funds to cover  program costs.

section_title: Matters for Congressional Consideration
paragraphs: In light of declining discretionary budgets, to reduce or eliminate the  reliance of the AQI program on taxpayer funding, Congress should  consider allowing USDA to set AQI fees to recover the aggregate  estimated costs of AQI services—thereby allowing the Secretary of  Agriculture to set fee rates to recover the full costs of the AQI program.

Congress should consider amending USDA’s authorization to assess AQI  fees on bus companies, private vessels, and private aircraft and include  in those fees the costs of AQI services for the passengers on those  buses, private vessels, and private aircraft.

section_title: Recommendations for Executive Action
paragraphs: To help ensure that USDA considers full AQI program costs when setting  AQI fee rates, we recommend that  the Secretary of Agriculture include all imputed costs borne by other  federal agencies and attributable to the AQI program, and   the Secretary of Homeland Security direct CBP to update and widely  disseminate comprehensive guidance to ports on the correct use and  review of CMIS codes. Specifically, the guidance should reiterate that a  portion of CBP officers’ primary inspection time should be charged to  agriculture and cover how, and with what frequency, ports should  conduct work studies to determine the correct allocation of staff time.

CBP should also consider making CMIS training mandatory for CMIS  practitioners.

To help ensure that fee rates are set to recover program costs, as  authorized, and to enhance economic efficiency and equity with  consideration of the administrative burden, we recommend that the  Secretary of Agriculture establish an AQI cruise passenger fee aligned with the costs of  inspecting cruise passengers and vessels and collected using the  existing processes for collecting cruise passenger customs fees; establish a fee for passenger railcars aligned with the costs of inspecting  rail passengers and railcars and collected using the existing processes  for collecting passenger railcar customs fees; eliminate caps on the commercial vessel and commercial rail AQI fees; set truck fee rates to recover the costs of AQI services for trucks while  maintaining a financial incentive for trucks to use transponders; and  recover the costs of AQI services for buses and bus passengers by either  establishing a bus passenger fee that is remitted by the bus companies  or seeking legislative authority to establish a bus fee that covers the  costs of bus passenger inspections.

To align reimbursable overtime revenues with the costs of those  agriculture inspections, we recommend that   the Secretaries of Agriculture and Homeland Security work together to  amend overtime regulations for agriculture services so that reimbursable  overtime rates that CBP and APHIS charge are aligned with the costs of  those services; and  the Secretary of Homeland Security ensure that ports consistently charge for agriculture overtime  services that are eligible for reimbursement and deny agriculture-related reimbursable overtime inspection services  to entities with bills more than 90 days past due, consistent with  APHIS regulations.

To help ensure that AQI fee rates are structured to maximize economic  efficiency and equity while minimizing administrative burden, we  recommend that the Secretary of Agriculture   charge user fees for AQI permit applications;  charge user fees for treatment services; and  charge user fees for the costs of monitoring compliance agreements for  regulated garbage.

To better align the distribution of AQI fee revenues with AQI costs, we  recommend that   the Secretaries of Agriculture and Homeland Security work together to  allocate AQI fee revenues consistent with each agency’s AQI costs, and   the Secretary of Agriculture establish an AQI reserve target that is more  closely aligned with program needs and risks, based on past experience.

To ensure that inspection fees are collected when due, we recommend  that   the Secretary of Agriculture revise its processes for collecting AQI railcar  fees to conform to USDA regulation and  the Secretary of Homeland Security establish internal controls to alert  personnel when fees are not paid, and use available information to verify  that arriving trucks, private aircraft, and private vessels pay applicable  inspection user fees.

section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretaries of Agriculture and  Homeland Security for their review and comment. We received written  comments from USDA and DHS, which are reprinted in appendixes III  and IV, respectively. In addition, both agencies provided technical  comments, which we incorporated as appropriate.

DHS concurred with our recommendations and described corrective  actions the agency plans to take to implement them.

USDA agreed with the majority of the recommendations we made to the  Secretary of Agriculture. However, USDA said that with respect to nine of  the recommendations, the agency is preparing to initiate notice and  comment rulemaking regarding the AQI fees. Therefore, USDA stated, it  would be inappropriate to firmly commit to any particular component or a  specific amount of fees at this time. USDA commented that, at this time,  they cannot agree with our recommendation to establish a fee to recover  the costs of AQI services for buses and bus passengers, but that they  would work with CBP to assess whether USDA should seek authority to  establish a bus fee that covers the cost of bus passenger inspections and  whether such a fee would be practical. As we stated in our report, we  recognize that USDA may not currently have the authority to assess this  fee on the vehicles rather than the passenger. We continue to believe that  APHIS should recover the costs of AQI services for bus passengers, as  authorized, or seek legislative authority to establish a bus fee that covers  the costs of bus passenger inspections. We continue to encourage  APHIS and CBP to explore options for implementing such a fee in a way  that would minimize the administrative burden of the fee.

USDA disagreed with our recommendation to charge user fees for the  costs of monitoring compliance agreements for regulated garbage, stating  that compliance agreements save money because the agency does not  need to provide a service, and that charging a fee to those that provide  the service would be a disincentive to enter into such an agreement.  However, APHIS regulations state that any person engaged in the  business of handling or disposing of garbage must first enter into a  compliance agreement with APHIS. USDA further asserted that  recovering the costs of compliance agreements through the current AQI  fees is fair and simple. However, the costs of compliance agreements  being paid through AQI fees assessed on cargo pathways (air, vessels,  trucks, and rail) benefit entities that handle garbage for users that do not  pay AQI fees, including private aircraft and private vessels. We continue  to believe that the users of these specialized services should be charged  directly, consistent with Circular A-25, promoting efficiency and equity by  ensuring that the beneficiaries of the service pay for the service.

We are sending copies of this report to the Secretaries of Agriculture and  Homeland Security, the appropriate congressional committees, and other  interested parties. In addition, the report is available at no charge on  GAO’s website at http://www.gao.gov.

Should you or your staff have any questions about this report, please  contact me on (202) 512-6806 or irvings@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may 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: Objectives, Scope, and Methodology
paragraphs: To analyze the Agricultural Quarantine Inspection (AQI) fees, we  assessed (1) the AQI fees currently charged and how, if at all, the  proposed revisions would improve efficiency, equity, and revenue  adequacy, and reduce administrative burden; (2) how, if at all, changes to  the allocation of fee revenues between the Department of Agriculture  (USDA) and the Department of Homeland Security (DHS) could improve  efficiency, equity, and revenue adequacy, and reduce administrative  burden; and (3) the extent to which Animal and Plant Health Inspection  Service (APHIS) and U.S. Customs and Border Protection (CBP) fee  collection processes provide reasonable assurance that all AQI fees due  are collected.

To address these objectives we analyzed the AQI fees using principles of  effective user fee design—specifically, efficiency, equity, revenue  adequacy, and administrative burden—on which we previously reported.  These principles draw on various laws and federal guidance. To assess  the current AQI fees and proposed revisions, we examined  documentation provided by APHIS related to the activity-based cost  model APHIS and the contractor used to analyze AQI costs and the AQI  fee structure; observed a demonstration of CostPerform, the software  used for the activity-based costing; and analyzed cost and fee revenue  data and documentation provided by both APHIS and CBP. We also  interviewed APHIS officials responsible for the review and fee-setting  process. To assess the reliability of data from the activity-based costing  model, we reviewed whether costs were ascribed to activities in a logical  manner and discussed the reliability of the data with knowledgeable  agency officials. Based on these assessments, we determined that the  AQI cost data from the activity-based costing model were sufficiently  reliable for our purposes. We reviewed the analysis of the economic  impact of proposed changes to fee rates, which was performed as part of  the fee review. This analysis evaluated the economic impact of proposed  fee scenarios on both the U.S. economy and selected industries to  determine if any fee scenarios considered would create an unreasonable  burden on these industries or consumers. Specifically, a contractor  analyzed short and long-run economic impacts by evaluating the impact  on the price of individual goods and services, corresponding changes in  U.S. consumer purchases, and the resulting impact throughout the U.S.  economy. All scenarios showed economic impacts that were very small  relative to the size of the affected sectors and had an overall minimal  impact on the national economy. Because the contractor found the effects  to be minimal, it did not apply behavioral responses to changes in fee  prices to the proposed fees.

To examine how changes to the allocation of fee revenue could improve  efficiency, equity, and revenue adequacy, and reduce administrative  burden, we compared the existing and proposed fee structures to  applicable statutes and regulations and to criteria from GAO’s User Fee  Design Guide. We used APHIS and CBP data to analyze AQI costs and  fee collections. We also discussed fee design options with APHIS and  CBP officials. Further, we analyzed the extent to which CBP attributes a  portion of primary inspection time to agriculture-related cost accounting  codes by analyzing data from CBP’s cost management information  system. In addition, to examine how APHIS and CBP fee collection  processes have ensured that all AQI fees are collected, we interviewed  APHIS and CBP officials, examined documents related to fee collection  procedures, and observed fee collection processes at ports of entry. To  assess the reliability of the CBP and APHIS data, we analyzed the data  for internal consistency and discussed the data with CBP and APHIS  officials. We also compared the APHIS data on collections and  obligations of AQI fee revenue and AQI reserve balances to another  published source of this information and found them to be consistent.  Based on these assessments, we determined that the CBP and APHIS  data were sufficiently reliable for our purposes.

To address all of these objectives, we visited a nonprobability sample of  seven ports of entry to observe CBP inspection procedures and discuss  issues related to AQI user fees. We determined that, for our purposes  and considering resource constraints, seven is a sufficient number of site  visit ports. We visited the ports of Blaine, Washington; Miami, Florida;  Otay Mesa in San Diego, California; Port Huron, Michigan; San Diego,  California; San Ysidro, California; and Seattle, Washington. We selected  these ports of entry based on entry pathways, particularly those that  charge fees, such as commercial rail and commercial vessels; volume of  entries; diversity of inspection challenges; and geographic proximity to  each other. We also visited APHIS Plant Protection and Quarantine  (PPQ) offices in Miami, San Diego, and Seattle to understand the AQI- related work being conducted by APHIS in the field. We determined that a  nonprobability sample was sufficient for our purposes because we used  the site visit information to understand commonalities and differences in  inspection practices and fee collection processes at various ports and for  illustrative examples of how fee design and implementation affect equity,  efficiency, revenue adequacy, and administrative burden. Because we  used a nonprobability sample, the information we obtained from these  visits cannot be generalized to other CBP ports of entry. On the site visits,  we interviewed CBP and APHIS officials and observed agriculture  inspections and AQI fee collection processes. We also interviewed AQI  program stakeholders, including ship agents and customs brokers. We  conducted a content analysis on our site visit interviews and observations  to identify common themes.

We conducted this performance audit from April 2012 to March 2013 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

section_title: Appendix II: Fees Charged for Arrival Inspections

section_title: Appendix III: Comments from the U.S. Department of Agriculture

section_title: Appendix IV: Comments from the Department of Homeland Security

section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Jacqueline M. Nowicki, Assistant  Director, and Susan Etzel, Senior Analyst in Charge, managed all aspect  of this assignment. Laurel Plume and Alexandra Edwards made key  contributions to this report. Michelle Cooper, Kate Lenane, Felicia Lopez,  Mary Denigan-Macauley, Rebecca Gambler, Sarah McGrath, Donna  Miller, Cynthia Saunders, Anne Stevens, and Jack Warner also made  important contributions.


Question-summary annotations: questions: question: What did GAO's analysis of AQI fee and cost data reveal?
answer: GAO's analysis of the Agricultural Quarantine Inspection (AQI) fee and cost data revealed a more than $325 million gap between fee revenues and total program costs in fiscal year 2011, or 38 percent of AQI program costs.
child_questions: question: What is the cause of this gap?
answer: The program, which is co-administered by the Department of Agriculture (USDA) Animal and Plant Health Inspection Service (APHIS) and Department of Homeland Security (DHS) Customs and Border Patrol (CBP), has a gap for several reasons: 1) APHIS's authority does not permit it to charge all persons seeking entry to the United States (e.g., pedestrians) and does not permit it to charge the costs of those inspections to others; 2) APHIS has chosen not to charge some classes of passengers, citing administrative fee collection difficulties; 3) CBP does not charge a portion of all primary inspections to agriculture functions, as required by CBP guidance; 4) APHIS does not consider all imputed costs (that is, costs incurred by other agencies on behalf of the AQI program) when setting fees; and 5) the allowable rates for overtime services are misaligned with the personnel costs of performing those services.

question: How is APHIS considering changing their fee structure?
answer: APHIS is considering fees that would better align many, but not all, AQI fees with related inspection activity costs.

question: How can APHIS and CBP remedy this revenue gap?
answer: APHIS and CBP can take additional steps to better align fees with costs; however, additional authority will be needed to fully recover all program costs.

questions: question: To what extent is the CBP-APHIS fee collection agreement working as intended?
answer: Contrary to APHIS-CBP agreements and APHIS policy, the distribution of fee collections between CBP and APHIS is significantly misaligned with AQI costs.
child_questions: question: What was the fee distribution agreement?
answer: In 2005, CBP and APHIS agreed to divide AQI collections in proportion to each agency's share of AQI costs.
child_questions: question: How does CBP make up for the difference in costs?
answer: CBP bridges the gap between its AQI costs and its share of the fee revenues with its annual appropriation.

question: How does APHIS use AQI collections to sustain a fee reserve?
answer: In keeping with its authorities and with good practices for fee-funded programs, APHIS carries over a portion of AQI collections from year to year to maintain a shared APHIS-CBP reserve to provide a cushion against unexpected declines in fee collections. APHIS's stated goal is to maintain a 3- to 5-month reserve but the preliminary fee proposal would fund the reserve at a level higher than the 5 month maximum.
child_questions: question: Why is the 5-month maximum target unrealistic?
answer: Further, the 5-month maximum target balance is the amount officials say they would need to completely shut down the program, and therefore does not reflect realistic program risks. Further, this is more than the amount required to cover shortfalls during both the 2009 financial crisis and the events of September 11, 2001, and would increase reliance on appropriated funds to cover current program costs.

questions: question: How effective are APHIS's and CBP's collection processes?
answer: APHIS's and CBP's collection processes do not provide reasonable assurance that all AQI fees due are collected.
child_questions: question: What is a flaw in APHIS's collection process regarding railcars?
answer: Specifically, APHIS does not collect AQI fees for railcars consistent with its regulations, resulting in a revenue loss of $13.2 million in 2010.

question: What is a flaw in CBP's collection process?
answer: Further, CBP does not verify that it collects fees due for every commercial truck, private aircraft, and private vessel, resulting in an unknown amount of revenue loss annually. CBP has tools available to help remedy these issues but does not require their use.

question: How do these flaws negatively affect the program goals?
answer: Until APHIS and CBP improve oversight of these collection processes, they will continue to forgo revenue due the government, which will increase reliance on appropriated funds to cover program costs.

questions: question: How does the AQI program guard against agricultural threats?
answer: The AQI program guards against agriculture threats by inspecting international passengers and cargo at U.S. ports of entry, seizing prohibited material, and intercepting foreign agricultural pests.

question: How is the AQI program funded?
answer: The program, which cost $861 million in 2011, is funded from annual appropriations and user fees. GAO has reported several times on the need to revise the fees to cover program costs as authorized.

question: What was GAO asked to examine?
answer: GAO was asked to examine issues related to the AQI fees.
child_questions: question: What does this report cover?
answer: This report examines 1) the fees currently charged and proposed revisions; 2) how fee revenues are allocated between the agencies; and 3) the extent to which fee collection processes provide reasonable assurance that all AQI fees due are collected.
child_questions: question: How did GAO source their data for this report?
answer: To do this, GAO reviewed AQI fee and cost data, and relevant laws, regulations, and policies; observed inspections at ports of entry; and interviewed APHIS and CBP officials.

questions: question: What recommendations is GAO making?
answer: GAO is making a number of recommendations aimed at more fully aligning fees with program costs, aligning the division of fees between APHIS and CBP with their respective costs, and ensuring that fees are collected when due.
child_questions: question: What did GAO recommend regarding Congressional action?
answer: Further, GAO suggests Congress amend the AQI fee authority to allow the Secretary of Agriculture to set fee rates to recover the full costs of the AQI program.

question: To what extent did USDA and DHS agree with the recommendations?
answer: USDA and DHS generally agreed with the recommendations.