Regulatory Guidance Processes: Agencies Could Benefit from Stronger Internal Control Practices
Released: 2015-09-23T00:00:00

Letter

Regulatory Guidance Is a Tool for Agency Communication

One of the main purposes of guidance is to explain and help regulated parties comply with agency regulations. As shown in figure 1, guidance may explain how agencies plan to interpret regulations. Agencies sometimes include disclaimers in their guidance to note that the documents have no legally binding effect on regulated parties or the agencies. Even though not legally binding, guidance documents can have a significant effect on regulated entities and the public, both because of agencies’ reliance on large volumes of guidance documents and because the guidance can prompt changes in the behavior of regulated parties and the general public. Nevertheless, defining guidance can be difficult. To illustrate that difficulty, several of the components told us that they do not consider many of the communication documents they issue to the public to be guidance.

Regulations and guidance documents serve different purposes. The Administrative Procedure Act (APA) established broadly applicable requirements for informal rulemaking, also known as notice and comment rulemaking. Among other things, the APA generally requires that agencies publish a notice of proposed rulemaking in the Federal Register. After giving the public an opportunity to comment on the proposed regulation by providing “written data, views, or arguments,” and after considering the public comments received, the agency may then publish the final regulation. To balance the need for public input with competing societal interests favoring the efficient and expeditious conduct of certain government affairs, the APA exempts certain types of rules from the notice and comment process, including “interpretative rules” (we will refer to these as interpretive rules in this statement) and “general statements of policy.” Regulations affect regulated entities by creating binding legal obligations. Regulations are generally subject to judicial review by the courts if, for example, a party believes that an agency did not follow required rulemaking procedures or went beyond its statutory authority.

Despite the general distinctions between regulations and guidance documents, legal scholars and federal courts have at times noted that it is not always easy to determine whether an agency action should be issued as a regulation subject to the APA’s notice and comment requirements, or is guidance or a policy statement, and therefore exempt from these requirements. Among the reasons agency guidance may be legally challenged are procedural concerns that the agency inappropriately used guidance rather than the rulemaking process or concerns that the agency has issued guidance that goes beyond its authority. On March 9, 2015, the Supreme Court held that an agency could make substantive changes to an interpretive rule without going through notice and comment under the APA. This decision overturned prior federal court rulings that had held that an agency is precluded from substantively changing its interpretation of a regulation through issuance of a new interpretive rule without notice and comment. Other concerns raised about agency use of guidance include consistency of the information being provided, currency of guidance, and whether the documents are effectively communicated to affected parties.

Departments Considered Few of Their Guidance Documents as Significant under OMB’s Definition

An OMB Bulletin establishes policies and procedures for the development, issuance, and use of “significant” guidance documents. OMB defines “significant guidance documents” as guidance with a broad and substantial impact on regulated entities. Pursuant to a memorandum issued by the Director of OMB in March 2009, OMB’s Office of Information and Regulatory Affairs (OIRA) reviews some significant guidance documents prior to issuance. All significant guidance documents, whether reviewed by OIRA or not, are subject to the OMB Bulletin. “Economically significant guidance documents” are also published in the Federal Register to invite public comment. Non- significant guidance is not subject to the OMB Bulletin, and any procedures for developing and disseminating it are left to agency discretion.

Selected departments considered few of their guidance documents to be significant as defined by OMB. For example, as of February 2015, agencies listed the following numbers of significant guidance documents on their websites: Education, 139; DOL, 36; and USDA, 34. We were unable to determine the number of significant guidance documents issued by HHS. In contrast, some of the agencies issued hundreds of non- significant guidance documents. All selected components told us that they did not issue any economically significant guidance. OIRA staff told us they accepted departments’ determinations of which types of guidance meet the definition of significant guidance.

Agencies Issued a Wide Variety of Guidance Serving Multiple Purposes

Agencies Used Many Terms for Non-significant Guidance

The selected components we reviewed differed in both the terminology they used for their external non-significant guidance documents and in the amounts of non-significant guidance they issued. We found the components used many names for these guidance documents—for example, Education components’ guidance documents included FAQs and “Dear Colleague” letters, while DOL components used varied terms including bulletins, “Administrator Interpretations,” directives, fact sheets, and policy letters.

The components issued varying amounts of guidance ranging from 10 to more than 100 documents issued by a component in a single year. Component officials said a component’s mission or the types of programs it administers can affect the number of guidance documents issued. Officials from DOL’s Bureau of Labor Statistics (BLS) told us their agency, as a non-regulatory component, rarely issues guidance. They said BLS has issued about 10 routine administrative memorandums each year related to the operation of two cooperative agreement statistical programs. In contrast, DOL Occupational Safety and Health Administration (OSHA) officials told us they have regularly issued guidance to assist with regulatory compliance, and could easily produce 100 new or updated products each year to provide guidance to stakeholders. Although the DOL Office of Workers’ Compensation Programs has regulatory authority, officials told us that they have not frequently issued guidance because their authorizing statutes have not changed recently and their programs focus on administering benefits.

Agencies Issued Non- significant Guidance Serving Multiple Purposes

Agencies have used guidance for multiple purposes, including explaining or interpreting regulations, clarifying policies in response to questions or compliance findings, disseminating suggested practices or leadership priorities, and providing grant administration information.

Explain or Interpret New, Immediate, or Upcoming Regulations

Component officials told us they used guidance to summarize regulations or explain ways for regulated entities to meet regulatory requirements. For example, Education officials told us that they often follow their regulations with guidance to restate the regulation in plainer language, to summarize requirements, to suggest ways to comply with the new regulation, or to offer best practices.

In a few cases, components used guidance to alert affected entities about immediate statutory requirements or to anticipate upcoming requirements to be promulgated through the rulemaking process. Education officials told us they often used guidance to help their field office staff understand and apply new statutory requirements. While this may provide timely information about new or upcoming requirements, it may also cause confusion as details are revised during the rulemaking process. Officials from USDA’s Food and Nutrition Service (FNS) told us that when a new statute becomes effective immediately and there is little ambiguity in how the statute can be interpreted, they use a “staging process.” In this process, they issue informational guidance so their stakeholders are aware of and consistently understand new requirements before the more time-consuming rulemaking process can be completed. Other officials told us that in rare instances, they have issued guidance while a proposed rule is out for comment. They noted that statutory deadlines for implementation may require them to issue guidance before issuing a final rule.

Component officials cited instances in which they used guidance to provide information on upcoming requirements to be promulgated through regulation to those affected. In one example, HHS’s Office of Child Care within the Administration for Children and Families issued recommendations to its grantees to foreshadow future binding requirements. In that case, the office issued an Information Memorandum in September 2011 recommending criminal background checks. It later published a proposed rule in May 2013 to mandate the background checks.

Clarify Policies in Response to Questions or Compliance Findings

Multiple component officials told us that they used guidance to clarify policies in response to questions received from the field, or regional office input about questions received from grantees or regulated entities. Officials at Education’s Office for Civil Rights and OSHA told us that they often initiated guidance in response to findings resulting from their investigatory or monitoring efforts, among other things.

Distribute Information on Suggested Practices or Leadership Priorities

Component officials also told us that they used guidance to distribute information on program suggestions (sometimes called best practices). In particular, we heard this from component officials who administered formula grants in which wide discretion is given to grantees, such as states. Officials at Education’s Office of Postsecondary Education told us that component leadership initiates guidance related to priorities the administration wants to accomplish. One example they cited was a Dear Colleague letter explaining that students confined or incarcerated in locations such as juvenile justice facilities were eligible for federal Pell grants.

Provide Guidance on Grant Administration

Components that administered grants also issued procedural guidance related to grant administration. For example, BLS issued routine administrative memorandums to remind state partners of federal grant reporting requirements and closeout procedures. In other examples, DOL provided guidance on how to apply and comply with Office of Disability Employment Policy grants.

Agencies Weighed Various Factors When Choosing Whether to Issue a Regulation or Guidance

Officials considered a number of factors before deciding whether to issue guidance or undertake rulemaking. Among these factors, a key criterion was whether officials intended for the document to be binding (in which case they issued a regulation). Officials from all components that issue regulations told us that they understood when guidance was inappropriate and when regulation was necessary and that they consulted with legal counsel when deciding whether to initiate rulemaking or issue guidance. According to DOL officials, new regulations may need to be issued if components determined that current regulations could not reasonably be interpreted to encompass the best course of action, a solution was not case specific, or a problem was widespread. An Education official told us that Education considered multiple factors, including the objective to be achieved, when choosing between guidance and regulations. Similarly, HHS’s Administration for Community Living officials told us that they considered a number of factors, including whether the instructions to be disseminated were enforceable or merely good practice. For example, when Administration for Community Living officials noticed that states were applying issued guidance related to technical assistance and compliance for the state long-term care ombudsman program differently, they decided it would be best to clarify program actions through a regulation, as they could not compel the states to comply through guidance. Officials believed that a regulation would ensure consistent application of program requirements and allow them to enforce those actions. They issued the proposed rule in June 2013 and the final rule in February 2015.

FNS officials told us that the decision to issue guidance or undertake rulemaking depended on (1) the extent to which the proposed document was anticipated to affect stakeholders and the public, and (2) what the component was trying to accomplish with the issued document. OIRA staff concurred that agencies understood what types of direction to regulated entities must go through the regulatory process.

Agencies Can Ensure More Effective Guidance Processes through Consistent Adherence with OMB Requirements and Stronger Internal Controls

Agencies Did Not Always Adhere to OMB Requirements for Significant Guidance

We found that agencies did not always adhere to OMB requirements for significant guidance. The OMB Bulletin establishes standard elements that must be included in significant guidance documents and directs agencies to (1) develop written procedures for the approval of significant guidance, (2) maintain a website to assist the public in locating significant guidance documents, and (3) provide a means for the public to submit comments on significant guidance through their websites. Education and USDA had written procedures for the approval of significant guidance as directed by OMB. While DOL had written approval procedures, they were not available to the appropriate officials and DOL officials noted that they required updating. HHS did not have any written procedures. We found that Education, USDA, and DOL consistently applied OMB’s public access and feedback requirements for significant guidance, while HHS did not.

We made recommendations to HHS and DOL to better adhere to OMB’s requirements for significant guidance. Both agencies concurred with those recommendations. Without written procedures or wide knowledge of procedures for the development of significant guidance, HHS and DOL may be unable to ensure that their components consistently follow other requirements of the OMB Bulletin and cannot ensure consistency in their processes over time. Further, because agencies rely on their websites to disseminate guidance, it is important that they generally follow requirements and guidelines for online dissemination for significant guidance.

Stronger Application of Internal Controls for Guidance Processes Could Achieve Desired Results and Prevent Errors

In the absence of government-wide standards for the production of non- significant guidance, officials must rely upon internal controls—which are synonymous with management controls—to ensure that guidance policies, processes, and practices achieve desired results and prevent and detect errors. We selected four components of internal control and applied them to agencies’ guidance processes (see appendix I). Departments and components identified diverse and specific practices that addressed these four components of internal control. However, the departments and components typically had not documented their processes for internal review of guidance documents. Further, agencies did not consistently apply other components of internal control. Some of the selected components identified practices to address these internal controls that we believe could be more broadly applied by other agencies. Wider adoption of these practices could better ensure that components have internal controls in place to promote quality and consistency of their guidance development processes.

To improve agencies’ guidance processes, we recommended that the Secretaries of USDA, HHS, DOL, and Education strengthen their components’ application of internal controls by adopting, as appropriate, practices developed by other departments and components, such as assessment of risk; written procedures and tools to promote the consistent implementation and communication of management directives; and ongoing monitoring efforts to ensure that guidance is being issued appropriately and has the intended effect. USDA, Education, HHS, and DOL generally agreed with the recommendations.

Determine Appropriate Level of Review to Manage Risk

Although no component can insulate itself completely from risks, it can manage risk by involving management in decisions to initiate guidance, prioritize among proposed guidance, and determine the appropriate level of review prior to issuance. In addition, if leadership is not included in discussions related to initiation of guidance, agencies risk expending resources developing guidance that is unnecessary or inadvisable.

At a few components, officials told us that leadership (such as component heads and department-level management) decided whether to initiate certain guidance, and guidance did not originate from program staff for these components. For example, guidance at DOL’s Employee Benefits Security Administration related to legal, policy, and programmatic factors were proposed by office directors and approved by Assistant Secretaries and Deputy Assistant Secretaries. In most other cases, ideas for additional guidance documents originated from program staff and field offices or from leadership, depending on the nature of the guidance.

Education officials told us that component program staff and leadership work together to identify issues to address in guidance.

At most components, officials told us that they determine the appropriate level of review and final clearance of proposed guidance, and in many cases guidance was reviewed at a higher level if the document was anticipated to affect other offices or had a particular subject or scope. Risk was one factor agency officials considered when determining the anticipated appropriate level of review and final clearance of proposed guidance. For example, officials at the Employee Benefits Security Administration told us that the need for department-level clearance depended on various factors, including likely congressional interest, potential effects on areas regulated by other DOL components, expected media coverage, and whether the guidance was likely to be seen as controversial by constituent groups. A few agencies reported they considered two other factors in making this decision: whether guidance was related to a major priority or would be “impactful.”

Maintain Written Policies and Procedures for the Production of Non-significant Guidance

Control activities (such as written procedures) help ensure that actions are taken to address risks and enforce management’s directives. Only 6 of the 25 components we reviewed had written procedures for the entire guidance production process, and several of these components highlighted benefits of these procedures for their guidance processes. These components included HHS’s Administration for Children and Families Office of Head Start and five DOL components. The DOL Mine Safety and Health Administration’s written procedures contained information officials described as essential to the effective and consistent administration of the component’s programs and activities. OSHA officials reported that their written procedures were designed to ensure that the program director manages the process for a specific policy document by considering feedback and obtaining appropriate concurrence to ensure that guidance incorporates all comments and has been cleared by appropriate officials. The Deputy Assistant Secretary resolves any disagreements about substance, potential policy implications, or assigned priority of the document.

In contrast, Education’s Office of Innovation and Improvement and Office of Elementary and Secondary Education and DOL’s Veterans’ Employment and Training Service had written procedures only for the review and clearance phase. Components without written procedures said they relied on officials’ understanding of the guidance process. In these cases, officials told us that the guidance process was well understood by program staff or followed typical management hierarchies.

Officials from all components could describe standard review practices to provide management the opportunity to comment and ensure that its comments were addressed by program staff. Nonetheless, documented procedures are an important internal control activity to help ensure that officials understand how to adequately review guidance before issuance.

Ensure Communication during the Guidance Development and Review Process

Most selected components had guidance practices to ensure either intra- agency and interagency review (or both) of guidance documents before issuance. Obtaining feedback from management, internal offices, the public, and other interested parties is essential to ensuring guidance is effective.

Intra-agency communications. To ensure that management concurrence was recorded, most components we reviewed used communication tools, such as electronic or hard-copy routing slips, to document approval for guidance clearance or to communicate with management and other offices about proposed or upcoming guidance. In particular, officials at 20 components used a routing slip to document management concurrence.

Interagency communications. Most component officials told us that they conferred with other affected components or federal departments to ensure consistency during the development of guidance.

External stakeholders. Officials told us that feedback from external nonfederal stakeholders often served as the impetus for the initiation of guidance, and more than half of the selected components cited examples in which they conferred with external nonfederal stakeholders during the guidance development process. At OSHA, for example, external stakeholders were not involved in developing directives or issuing policy, but assisted with developing educational, non-policy guidance, such as hazard alerts.

Regularly Evaluate Whether Issued Guidance is Effective and Up to Date

Nearly half of the components we reviewed did not regularly evaluate whether issued guidance was effective and up to date. Without a regular review of issued guidance, components can miss the opportunity to revisit whether current guidance could be improved and thereby provide better assistance to grantees and regulated entities. DOL’s Office of Labor- Management Standards officials told us they had not evaluated the relative success of existing guidance and therefore did not often revise guidance.

A few selected components had initiated or established a process for tracking and evaluating guidance to identify necessary revisions. For example, in November 2011, officials at DOL’s Office of Federal Contract Compliance Programs initiated a 2-year project to review their directives system to ensure that they only posted up-to-date guidance. As a result of the project, in 2012 and 2013 officials identified necessary updates to guidance, clarified superseded guidance, and rescinded guidance where appropriate. Officials told us that these actions reduced the original number of directives by 85 percent. Officials also told us that they did this to ensure that their guidance was more accurate and correct, and the actions resulted in officials posting only relevant and current guidance information on the component’s website. Officials told us they now routinely monitor their directives about once a year and review other guidance documents each time they issue new regulations or change a policy to decide if they need to revise them. DOL’s Employment and Training Administration used a checklist to review a list of active guidance documents and identified whether to continue, cancel, or rescind the guidance. In addition, officials indicated which documents were no longer active on their website. Lastly, DOL’s Mine Safety and Health Administration also ensured that program officials periodically reviewed and updated guidance documents and canceled certain guidance.

Chairman Lankford, Ranking Member Heitkamp, and members of the Subcommittee, this concludes my prepared remarks. I look forward to answering any questions you may have.

GAO Contact and Staff Acknowledgments

For questions about this statement, please contact me at (202) 512-6806 or sagerm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony were Tim Bober, Assistant Director, Robert Gebhart, Shirley Hwang, Andrea Levine, and Wesley Sholtes.

Appendix I: Application of Select Internal Control Standards to Agencies’ Guidance Processes

Component of Internal Control Risk Assessment Internal control should provide for an assessment of the risks the agency faces from both external and internal sources. Once risks have been identified, they should be analyzed for their possible effects.

Application to Guidance Processes Agencies should assess the level of risk associated with potential guidance at the outset to determine 1. the legal implications of the use of guidance based on available criteria, and the appropriate level of review. 2. Some agencies have found it helpful to categorize proposed guidance at initiation to determine different types and levels of review.

Control activities Internal control activities help ensure that management’s directives are executed. Control activities are the policies, procedures, techniques, and mechanisms that enforce management’s directives. They help ensure that actions are taken to address risks. The control activities should be effective and efficient in accomplishing the agency’s control objectives.

The agency should maintain written policies, procedures, and processes to ensure that once the appropriate level of review has been determined, agency officials understand the process to adequately review guidance prior to issuance. Written policies and procedures should designate: 1. 2. the appropriate level of review to maintain appropriate segregation of duties, and the means by which management can comment on the draft guidance and program staff can address those comments.

Information and communication Information should be recorded and communicated to management and others within the entity who need it. In addition to internal communications, management should ensure there are adequate means of communicating with, and obtaining information from, external stakeholders who have a significant impact on the agency achieving its goals.

Internal communications: Agencies should have procedures in place to get feedback from management and other internal offices on guidance to be issued. For example, they should have a written mechanism (such as a routing slip) to document management review and associated comments and suggestions. External communications: Agencies should provide a means, via an e-mail box or contact person, for the public and interested parties to comment on the guidance, ask questions about the guidance, and facilitate two-way feedback and communication.

Monitoring Internal control should generally be designed to ensure that ongoing monitoring occurs in the course of normal operations.

Processes should be established to collect feedback on both the substance and clarity of guidance, to communicate this feedback to the appropriate officials, and to maintain applicable feedback to inform future guidance and revisions of guidance.

Appendix II: Components Included in Our Review

Department United States Department of Agriculture (USDA)

Department of Health and Human Services (HHS)

Administration for Children and Families’ Office of Child Care Administration for Children and Families’ Office of Head Start Bureau of International Labor Affairs Mine Safety and Health Administration Occupational Safety and Health Administration Office of Disability Employment Policy Office of Federal Contract Compliance Programs Office of Workers’ Compensation Programs Veterans Employment and Training Service Women’s Bureau This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.