DHS Management: Enhanced Oversight Could Better Ensure Programs Receiving Fees and Other Collections Use Funds Efficiently
Released: 2016-07-21T00:00:00

Letter

Background

Authority to Receive and Obligate Fees and Other Collections

The various types of fees and other collections received by federal agencies are, in general, governed by two authorities—an authority to charge a fee and an authority to retain and obligate fee collections. An agency’s authority to charge fees or establish other collections is derived either from the general statutory authority to assess user charges pursuant to the Independent Offices Appropriation Act of 1952 (IOAA) or from a statutory provision authorizing or directing an agency to establish a particular fee or other collection. IOAA provides that, in general, each service or thing of value provided by an agency to a person is to be self- sustaining to the extent possible, and provides the head of each agency with authority to prescribe regulations to establish the charge for a service or thing of value provided by the agency. Fees assessed under IOAA must be (1) fair and (2) based on costs to the government, the value of the service or thing to the recipient, public policy or interest serviced, and other relevant facts. Without additional statutory authority to retain fee collections, however, such collections are deposited as miscellaneous receipts in the U.S. Treasury and are not available to the agency collecting the fees. OMB Circular A-25 establishes federal policy regarding fees assessed in accordance with IOAA and provides guidance for agency implementation of charges and disposition of such collections. More specifically, agencies must apply the provisions of OMB Circular A-25 to fees assessed pursuant to IOAA. For fees assessed pursuant to another statutory authority, OMB Circular A-25 provides guidance to agencies that is intended to be applied only to the extent permitted by law and to the extent it is not inconsistent with a controlling statute. In many instances, agencies receive specific authority through authorizing or appropriations legislation to collect fees and retain and obligate the collections. Such legislation may establish a specified rate or amount to be assessed, how the fee is to be calculated, the method and timing of collection, the authorized purposes for which fee collections may be used, and the degree of flexibility an agency has to set and revise fee rates through the regulatory process. Regardless of whether a fee program is established under the authority of IOAA or some other statute, we have reported on the benefits agencies could realize by applying the principles of OMB Circular A-25 to their programs receiving fees and other collections.

Roles and Responsibilities

Congress—through the authorization and appropriations processes— oversees DHS funding typically at the account level and may, through enacted legislation, specify the purpose for which appropriated funds may be used, restrict the amount or purpose for which the funds can be used, and require that an agency report on activities conducted at the account or program level. For each program receiving fees or other collections, DHS or its components must be provided with authority to (1) conduct the activity for which the fee or other collection is authorized, (2) collect the fee or other collection at authorized levels, and (3) obligate and expend the funds collected. Furthermore, the degree of flexibility a DHS component has with respect to managing its programs receiving fees and other collections depends upon the statutory authority upon which the fee or other collection is based. For example, in cases where a statute prescribes a specific amount the agency is to charge, component officials may lack the flexibility to adjust the amount charged through the regulatory process and instead must submit a legislative proposal seeking statutory changes if it is determined that circumstances warrant an adjustment.

DHS OCFO has responsibility to oversee the department’s budget formulation process in order to ensure, among other things, that DHS resources from fees and other collections are used and managed in accordance with applicable laws and policies. To this end, DHS OCFO is to ensure components comply with the biennial reporting requirements and other applicable provisions of the CFO Act and OMB Circular A-25. For example, the CFO Act provides that, among other things, an agency’s CFO is to review the fees, royalties, rents, and other charges imposed by the agency for services and things of value it provides on a biennial basis, and make recommendations on revising those charges to reflect costs incurred by the agency. In addition, DHS OCFO periodically conducts department-wide reviews of its portfolio of programs receiving fees and other collections to identify ways to minimize the effects of increasing fiscal constraints on DHS’s mission and reduce reliance on annual appropriations. DHS OCFO has completed two such reviews. In fiscal year 2012, DHS OCFO conducted a Fee Structure Review that considered whether opportunities existed to increase flexibility in the discretionary budget in fiscal years 2014 through 2018 from both existing programs receiving fees and other collections and prospective new fees. The study focused on the amount of costs recovered by programs from collections for activities that are funded jointly by collections and annual appropriations for fiscal years 2014 through 2018. In March 2015, DHS completed the 2014-2015 User Fee Winter Study (Winter Study). According to DHS OCFO officials, this study was initiated as part of the DHS Secretary’s “Unity of Effort” initiative, and the results of the Winter Study were expected to inform DHS’s fiscal year 2017 budget formulation process and educate internal DHS stakeholders on DHS’s portfolio of programs receiving fees and other collections. According to the Winter Study Terms of Reference, the purpose of the Winter Study was to provide DHS with an opportunity to consider broadly the use of user fees and similar financing alternatives—such as fines and trust funds—across DHS to examine how the use of these fees and other collections further key policy objectives and whether there is a need for greater cohesion in the management, budgeting, and oversight of user fees. Specifically, the goals of the study were to consider how to (1) best leverage resources from its fees and other collections across DHS; (2) examine how the use of fees and other collections further key policy objectives; and (3) strengthen management, budgeting, and oversight of user fees and other collections. According to DHS officials, to achieve these goals, representatives from each DHS component met on an ad hoc basis as part of the Winter Study working group. More specifically, the Winter Study sought to identify the current amounts of user fees and other collections and respective legal authorities, the intended degree of cost recovery, the history of previous requests for fee adjustments, and best practices among components. Findings and recommendations from the Fee Structure Review and Winter Study are discussed later in this report.

DHS components have responsibility for the collection and obligation of fees and other collections in accordance with applicable laws and policies. CBP and the Federal Emergency Management Agency (FEMA) collected more than half of the approximately $15 billion DHS received from fees and other collections in fiscal year 2014, as shown in figure 1, with the Transportation Security Administration (TSA), U.S. Citizenship and Immigration Services (USCIS), and NPPD programs also collecting in excess of a billion dollars. Appendix I provides details on each of the 38 programs receiving fees and other collections, including general authorities, amounts collected in fiscal year 2014, and descriptions of the programs and purposes for which collections may be used.

Collections for Over One-Third of Programs Fully Covered Identified Costs, but DHS Has Not Consistently Documented Cost Recovery Processes and Decisions

Collections for 14 Programs Fully Covered Identified Costs, and Components Cited Actions to Increase Cost Recovery for 10 Additional Programs

Our analysis of DHS collections and cost data showed that 14 of the 38 programs receiving fees and other collections in fiscal year 2014 collected amounts that fully covered identified program costs. Of the remaining 24 programs, collections for 20 programs partially covered identified program costs, and DHS did not provide cost data, or we determined such data may not be reliable, for 4 programs. For the 14 programs with full cost recovery, collections exceeded identified program costs by approximately $1.4 billion, and DHS did not rely on annual appropriations to cover any program costs. The $1.4 billion in collections that exceeded program costs was maintained in several ways, such as unobligated carryover balances, maintained in reserve funds, or deposited to the Treasury in accordance with applicable laws. For the 20 programs that had identified program costs exceeding collections in fiscal year 2014, costs exceeded collections by an estimated $6 billion. (See app. II.) A fee or collection may be assessed at a rate that either partially or fully recovers costs from the user, or it may be assessed according to some other basis, such as market value of the benefit provided. If a fee or collection is set at a rate that does not achieve full-cost recovery, the difference is generally funded through amounts received in an agency’s annual appropriations acts. According to component documentation, annual appropriations covered about 97 percent of the estimated $6 billion difference, unobligated carryover balances covered about 3 percent of the estimated difference, and transfers of collections from one fee program to another fee program covered less than 1 percent of the estimated difference in fiscal year 2014.

For the 4 remaining programs, either DHS component officials cited reasons they could not provide cost data or we determined such data may not be reliable. For example, a CBP official stated that CBP’s activity based costing model does not capture costs for the Harbor Maintenance Fee, which is administered by another agency, and the Merchandise Processing Fee, from which CBP deposits collections in the general fund to offset CBP’s salaries and expenses appropriation. In addition, CBP does not collect cost or volume data at the level of detail needed to fully identify the costs associated with the 78 specific fees included under the Miscellaneous Fees Collections account that collectively constitute less than 1 percent of CBP’s total collections as reported in its biennial review. For the fourth remaining program—TSA’s Aviation Security Infrastructure Fee (Air Carrier Fee)—TSA reported that the statutes governing the Air Carrier Fee and the Passenger Civil Aviation Security Service Fee specify that collections from these programs be used to offset the authorized costs of providing civil aviation security services and, hence, TSA only tracks the costs of these programs in aggregate.

Of the 20 programs with costs exceeding collections, DHS (or the U.S. Department of Agriculture for one program) initiated actions intended to increase cost recovery for 6 fee programs, comprising about 85 percent of the estimated $6 billion difference in fiscal year 2014. One of the programs—TSA’s Passenger Civil Aviation Security Service Fee— accounted for nearly 76 percent of the difference. Most recently, DHS submitted legislative proposals with its fiscal year 2017 budget submission to increase fees for three programs that support the provision of civil aviation security services (the Passenger Civil Aviation Security Service Fee), customs-related inspections (the Consolidated Omnibus Budget and Reconciliation Act Fee), and inspection and detention services at air and sea ports of entry (the Immigration Inspection User Fee ). DHS reported that the proposals to increase collections for these programs would accomplish such things as reduce reliance on annual appropriations, fund additional CBP officers, and contribute to deficit reduction as a portion of collections would go directly to the general fund of the Treasury. Additionally, DHS pursued regulatory adjustments to one program that provides for the registration of commercial vessels (Coast Guard’s Commercial Vessel Documentation Fee) and the Department of Agriculture amended the regulation for one program through which CBP conducts inspectional activities for international arrival of passengers, conveyances, animals, plants, and agricultural goods at port of entry (AQI Fee). In addition, at DHS’s request, OMB authorized a rate adjustment for one program that provides law enforcement services on federally controlled property (FPS’s Basic Security and Oversight Fees). See table 1 for the status of actions taken by DHS or the U.S. Department of Agriculture to increase cost recovery or contribute to the reduction of the federal deficit for the 6 fee programs as of April 2016.

DHS components have plans to address cost recovery issues for 4 additional fee programs, according to component officials. Specifically, TSA has plans to amend regulations to increase fees for two fee programs—the Security Threat Assessments for Hazmat Drivers, and the Commercial Aviation and Airport Fee and Other Security Threat Assessment Fee—as it seeks to harmonize the entire set of TSA’s vetting and credentialing fees, which includes seven different programs, by fiscal year 2018, according to TSA officials and documentation. In addition, ICE officials told us they plan to submit a legislative proposal to increase spending authority to cover program costs for the Student and Exchange Visitor Program (SEVP) in fiscal year 2017. According to ICE documentation, the proposed increase is necessary to fund the costs of future mission requirements and to invest in modernization initiatives for the program, among other things. Finally, USCIS issued a proposed rule to adjust most fees within the Immigration Examinations Fee Account to address the difference between costs and collections.

Components Did Not Document Processes and Decisions Used in Managing Differences between Collections and Identified Costs for the Remaining 10 Programs

DHS component officials did not document the analyses and processes they used to manage differences between identified program costs and collections for the remaining 10 programs receiving fees and other collections or document decisions related to cost recovery. For 6 of the 10 programs, component officials had identified deficiencies related to the difference between program costs and collections and made recommendations to address them in fee studies and biennial fee reviews, but did not document the reasons that they did not pursue the recommended actions. For the remaining 4 programs, component officials said that they did not document reasons for not addressing the differences because they did not consider it required or necessary. Reasons cited for not documenting the processes for managing and making decisions on how to address the estimated $726 million difference included that some fees and other collections are set in statute and not intended to cover full program cost and that some fees and other collections had other funds available to cover the difference between identified program costs and collections in fiscal year 2014 (see table 2).

While we were able to determine—through a review of data, DHS fee studies, biennial fee reviews, and through interviews—why components decided not to take actions to address differences in collections and program costs for these 10 programs, components have not documented the processes, analyses, and resulting decisions in a way that would enable systematic oversight of these decisions or inform management in their decision making. For example, CBP officials stated that the component has an informal decision-making process, with a goal to prioritize action to increase cost recovery for the three fee programs with the highest volume of fee collections across its portfolio of fees and other collections (AQI, COBRA fees, and IUF). However, CBP has not documented its decision-making process, making it difficult for stakeholders to determine why action was initiated for some fee and collection programs and not others such as the Land Border Inspection Fee, which is a fee that while small relative to the rest of CBP’s fee program portfolio, comprised nearly 10 percent—or $645 million—of the difference in identified program costs over collections for the overall DHS fee program portfolio in fiscal year 2014.

DHS has emphasized the importance of documenting processes and analysis to inform decision makers and achieve agency goals in the DHS Fiscal years 2014-2018 Strategic Plan. Specifically, the strategic plan states that DHS’s Unity of Effort initiative to integrate DHS organizations can be achieved through documenting processes and analysis to provide transparency and relevant information to DHS decision makers. Standard practices for project management also support this practice to better ensure that programs are operating efficiently and effectively. In addition, Standards for Internal Control in the Federal Government calls for agencies to help ensure transparency and accountability over agency resource decisions by clearly documenting significant events—such as decisions for addressing differences in collections and program costs—in a form readily available for examination.

Component officials said that DHS OCFO had not provided requirements or guidance to document the processes, analyses, and decisions regarding the management of fee and other collection programs. DHS OCFO officials said that they do not provide such guidance because they have delegated fee management and oversight responsibilities to component officials. Without documentation, transparency is lacking regarding whether component decisions not to address differences in program collections and costs are reasonable and appropriate, particularly where DHS or its components have identified and reported deficiencies and recommended actions to address them. Further, DHS OCFO may lack complete information to determine why components initiated actions for some fee programs set in statute, but not others—or to assess how decisions for managing individual component program portfolios align with effective practices for managing the overall DHS portfolio.

DHS Processes to Manage Unobligated Carryover Balances Are Intended to Ensure Continuity of Program Operations More Than Efficient Use of Such Balances

DHS Components Established and Met Targets for Minimum Unobligated Carryover Balances to Ensure Continuity of Operations for Most Programs

DHS component officials said that they have established targets for a minimum level of unobligated balance to carry over from one fiscal year to the next for most programs. Specifically, these officials said that they established such targets for 21 of 25 programs with unobligated balances carried over to fiscal year 2014 based on historical trends in collections and projected program costs. Component officials stated that for most programs, these targets are set at levels to sustain a program’s operations for the first quarter of the succeeding fiscal year; with some components adjusting targets based on differences in administering fees and other collections, spending authority, and statutory limitations. DHS component officials did not identify targets for minimum unobligated carryover balances for the remaining four programs that were funded by collections from insurance premiums or reimbursable agreements. Specifically, FEMA officials said that such targets were not necessary for the National Flood Insurance Fund as FEMA has borrowing authority to cover the difference between the costs of program operations and collections from insurance premiums. FPS officials said that they had not established such targets for its three programs—Basic Security and Oversight, Building Specific, and Reimbursable Agency Specific— because officials lacked the data and cost models to do so for these program operations funded by reimbursable agreements between FPS and other federal agencies. DHS OCFO officials stated that responsibility for managing unobligated carryover balances is delegated to components as, according to officials, component management is in the best position to determine the appropriate amount of unobligated carryover balance needed to ensure efficient program operations. Our analysis of DHS OCFO data showed that DHS components carried over unobligated balances totaling $2.6 billion from fiscal year 2014 to fiscal year 2015 across the 25 fees and other collections. (See app. III.)

Our analysis comparing amounts of unobligated carryover balances to agency criteria showed that components generally met minimum targets set to sustain program operations or relied on other mitigation strategies. Specifically, our comparison of unobligated carryover balances from fiscal year 2013 and amounts obligated in the first quarter of fiscal year 2014 showed that components carried over unobligated balances sufficient to ensure continuity of operations for 19 of the 21 fee and other collections programs that had targets for minimum unobligated carryover balances in place, and CBP officials cited other mitigation strategies to sustain operations for the remaining two programs. Unobligated carryover balances for CBP’s COBRA and Land Border Inspection Fee programs did not cover about 48 percent (approximately $31 million) and about 70 percent (approximately $5 million), respectively, of first quarter fiscal year 2014 obligations. However, CBP officials said that they did not rely on unobligated carryover balances to sustain operations for these programs as the reimbursable structure of its COBRA and Land Border Inspection Fees allows CBP to address funding shortages through the use of CBP’s annual appropriations, as available.

DHS Components Have Not Established Management Processes to Ensure Efficient Use of Unobligated Carryover Balances

DHS components have taken some steps to manage potential excess unobligated carryover balances, but have not established targets for the maximum level of unobligated carryover balance or a process that uses these targets to ensure efficient use of funds. DHS component officials had identified actions to manage excess unobligated carryover balances for seven programs that have grown—or have the potential to grow beyond levels these officials deemed necessary to ensure efficient program operations. Component officials cited actions underway to manage excess unobligated carryover balances by, among other things, redirecting fee resources, adjusting fee rates, and submitting proposals to increase spending limits. However, the processes established by DHS components to manage unobligated carryover balances do not include reasonable and appropriate targets for these excess balances.

We have previously reported that it is important for agencies to assess reserves for reasonableness, set clear goals—such as maximum reserve levels—and clarify how the reserve will be implemented to help ensure agency accountability and transparency. DHS component officials stated that targets for maximum unobligated carryover balances have not been established for their respective programs because the establishment of such targets is complicated by factors component officials deemed beyond the agency’s control. They cited factors such as the level of unobligated balances for some programs being the result of rates and spending limits set in statute and annual fluctuations in program users and associated collections. However, actions have been taken in the past to address some of these factors by submitting legislative proposals to adjust rates and spending limits, and by developing models that project fluctuations in program use and collections. DHS OCFO said that it delegates the responsibility for managing fee and collection programs, including establishing an appropriate range of unobligated carryover balance, to the components as they are best positioned to understand the factors affecting the management of the programs.

We have previously reported that agencies managing fee accounts should have a robust strategy to estimate and manage a carryover balance that assesses how effectively agencies anticipate program needs and ensure the most efficient use of resources. If an agency does not have a robust strategy in place to manage carryover balances, or is unable to adequately explain or support the reported carryover balance, then a more in-depth review is warranted as balances may rise to unnecessarily high levels, producing potential opportunities for those funds to be used more efficiently elsewhere. Lacking criteria for maximum levels of unobligated carryover that should be in place and documented processes for managing such balances, it is unclear whether steps taken by components to manage excess balances will be sufficient to ensure efficient program operations, as highlighted in the following examples.

USCIS’s Immigration Examinations Fee Account (IEFA)

USCIS has not established targets for a maximum unobligated carryover balance to determine the extent that additional actions may be needed to reduce or redirect excess amounts included in the approximately $983 million in unobligated carryover balance in its IEFA as of the end of fiscal year 2014. As shown in figure 2, the $983 million balance was comprised of approximately $516 million derived from nonpremium processing collections used to fund program operations related to the processing of immigration benefit applications while the remaining $467 million was derived from premium processing collections used primarily to support USCIS’ Transformation initiative to move from manual to electronic processing systems.

USCIS has taken actions to manage the growth in the unobligated carryover balance for the nonpremium processing fee, by using it to fund the increasing difference between identified program costs and fee collections. These actions have resulted in nonpremium balances declining to levels below the minimum target level of $750 million identified by USCIS to mitigate potential shortfalls in fee collections to cover program costs, as shown in figure 2. USCIS officials reported that they are in the process of developing an analytical methodology for determining an appropriate maximum level of carryover for any year given the cash flow, deferred revenue, and reserve fund considerations, but stated that they have been challenged to identify a maximum level because program funding requirements fluctuate with levels of pending caseload. In addition, USCIS issued a proposed rule in May 2016 to address the difference between costs and collections within IEFA, including most IEFA nonpremium fees.

It is unclear, however, the extent that USCIS action will address the increasing growth of the premium processing side of IEFA. USCIS estimated that the unobligated carryover balance for the premium processing fee could continue to grow to $1.1 billion by fiscal year 2020, as fee collections are expected to exceed Transformation initiative funding requirements. Therefore, USCIS reported that it has begun to reduce the growing balance by expanding the use of these premium fee collections to fund onetime infrastructure improvements that support adjudication services other than Transformation, such as its Financial Systems Modernization project. USCIS estimated in its spending plan that expanding the use of premium processing fee collections will result in an unobligated carryover balance for premium processing of about $341 million by the end of fiscal year 2020. However, USCIS has not established a maximum target for the appropriate amount of unobligated carryover balance that should be maintained consistent with actions that could be taken under the spending plan and that ensure efficient use of funds. According to USCIS officials, the agency is currently implementing its fiscal year 2016 operating plan that discusses planned uses of premium processing collections, and is based on its assessment of projected collections, planned Transformation program requirements, and other appropriate infrastructure requirements. However, USCIS has not identified maximum targets for the unobligated carryover balance needed for both nonpremium processing and premium fees within the IEFA. Without such targets, USCIS may not be able to determine the extent that expanding uses for premium processing fee collections is sufficient to achieve appropriate balance within the premium processing program.

NPPD/FPS’s Collection Programs

NPPD’s FPS has not established targets to determine the extent that the approximately $193 million of unobligated carryover balance as of fiscal year end 2014 was appropriate to fund operations across its three collection programs. Our analysis of FPS data showed that the unobligated carryover balance for the Basic Security and Oversight Fees increased at a greater rate than identified program costs for each of the three collection programs from fiscal year 2011 through 2014, rising from a low of about 17 percent of identified program costs in fiscal year 2011 to a high of about 45 percent in fiscal year 2014. (See fig. 3.)

According to FPS officials, the increase in unobligated carryover balances across its collection programs can be attributed to hiring delays and FPS’s decision to maintain spending at fiscal year 2011 levels to help fund enhance security operations and reserve requirements, such as surge-related activities and information technology investments that are going through the acquisition process. FPS reported in its Congressional Budget Justification for Fiscal Year 2017 that it is working on a sustainable revenue model whereby collections from other agency customers sustain the cost requirements of the same year, as reliance on unobligated carryover balances and recoveries is a short-term fix and not a sustainable long-term solution. In July 2015, FPS informed its customer agencies that it will increase the rates for its collection programs in fiscal year 2017 to, among other things, maintain its capacity to rapidly surge personnel to protect federal facilities during periods of heightened vulnerability.

FPS has not determined at what point its unobligated carryover balance would be insufficient or continue to be in excess of need to address the projected growth in cost for program operations, surge activities, and long-term capital investment decisions. FPS officials said they are evaluating the recommendation made by an independent audit firm to maintain a minimum of 1 to 2 month operating reserve based on the firm’s analysis of FPS’s average cash flow; however, FPS has yet to determine whether this recommendation for the size of the program’s operating reserve is appropriate to meet its future operating needs given recent increases in the agency’s surge operations. Without evaluating the impact of the fee increase on its fee balances and establishing targets for both minimum and maximum unobligated carryover balances, stakeholders lack reasonable assurance that FPS is managing its resources to ensure that its carryover balances do not grow beyond levels necessary ensure efficient program operations, or fall below levels necessary to ensure continuity of program operations, meet reserve requirements for potential surge operations, and make effective capital investment decisions.

CBP’s User Fee Facility Program

CBP has not established a target for the maximum unobligated carryover balance necessary for its User Fee Facility program or taken action necessary to reduce the approximately $14 million balance as of fiscal year end 2014 within the collection program that, while relatively small, consistently constituted over 100 percent of the program’s operational costs each year from fiscal years 2010 through 2014. Our analysis of CBP data showed that the unobligated carryover balance amounted to about 160 percent of total identified program costs in fiscal year 2014, exceeding these program costs by approximately $7 million. Our analysis further showed that unobligated carryover balances within this fee program ranged from a high of over $17 million in fiscal year 2013 to a low of about $15 million in fiscal year 2012. (See fig. 4.)

CBP officials stated that until recently, CBP did not have the system capacity to bill actual direct and indirect costs incurred at each User Fee Facility and that the rate charged to small airports may likely be inconsistent with the grade of the officer providing customs services. Beginning in fiscal year 2013, CBP began charging user fee facilities 15 percent for indirect costs per OMB recommendation for agencies that are unable to identify indirect costs.

CBP officials stated that until recently, CBP did not have the system capacity to bill actual direct and indirect costs incurred at each User Fee Facility and that the rate charged to small airports may likely be inconsistent with the grade of the officer providing customs services. Beginning in fiscal year 2013, CBP began charging user fee facilities 15 percent for indirect costs per OMB recommendation for agencies that are unable to identify indirect costs. indirect costs for customs services, and statutory limitations on how CBP may use User Fee Facility collections.

CBP has taken some action to address these causes of excess unobligated carryover balances in the program. In 2012, CBP began piloting a new module within its financial system that captures actual salary benefit and overtime costs for each user fee airport facility and bills actual expenses for reimbursement from the program on a monthly basis. Moreover, CBP officials said that CBP is in the process of identifying how existing policy, regulations, and MOAs with small airports need to be modified to implement the new billing module. CBP officials stated that, once fully implemented, the pilot system to bill based on actual expenses, as well as CBP efforts to revise MOAs to adjust charges for about 6 of the 50 facilities served under the User Fee Facility program, may reduce unobligated carryover balance over time, but did not document analysis showing a target balance or timeframe for completed action.

CBP also has not taken action to assess other reasons for the excess unobligated carryover balance in the User Fee Facility program, including whether rates charged to facilities are too high and should be reduced. CBP has not commissioned a comprehensive study to analyze small airport operations, costs, and activities to determine how to better align the fee with cost, as recommended in its most recent biennial fee review. Rather, CBP officials stated that CBP will primarily rely on its new billing system to manage the excess carryover balance associated with the program. Moreover, CBP has not identified an appropriate maximum level of unobligated carryover, studied the potential impacts of its efforts to address the causes of the excess unobligated carryover balance, or determined the need to take further action to ensure proper fee alignment and efficient use of funds. Without evaluating the impact of actions taken to manage excess unobligated carryover balances, or whether additional actions are needed to align the fee rate with costs charged to the program, stakeholders lack reasonable assurance that CBP is managing unobligated carryover balances to ensure they do not continue to rise beyond levels necessary for efficient program operations.

DHS Does Not Ensure Components Conduct Program Reviews and Does Not Monitor Components’ Actions to Address Identified Management and Operational Deficiencies

DHS Does Not Provide Oversight to Ensure That All Components Review and Report on Programs Receiving Fees and Other Collections

DHS OCFO distributes instructions to components for submitting the results of biennial reviews of their fee and other collections programs to DHS, but does not provide oversight to ensure that components conduct these reviews. Pursuant to the CFO Act and consistent with implementing guidance in OMB Circular A-25, an agency’s CFO is to review, on a biennial basis, the fees and other charges imposed by the agency for services and things of value it provides and make recommendations on revising the charges to reflect costs incurred in providing such services and things of value. In addition, federal programs are subject to Standards for Internal Control in the Federal Government which states that agencies should ensure that ongoing monitoring occurs during the course of normal operations to help evaluate program effectiveness. Our review of DHS and component records showed that while four components submitted results of reviews conducted for each of their respective fee and other collections programs, three components did not, as shown in table 3. Specifically, CBP, NPPD, TSA, and the Coast Guard reviewed and reported results for all of their collective 30 programs, but FEMA, ICE, and USCIS did not review 6 of the remaining 8 programs.

FEMA, ICE, and USCIS officials cited three reasons for not conducting biennial reviews for their programs. Specifically, these officials stated that biennial review and reporting requirements in the CFO Act do not apply to programs with rates set in statute, to accounts that are too small relative to other programs to warrant resources spent on a review, and to programs that are not structured as traditional user fees.

However, we have previously reported that consistent with OMB Circular A-25 and statements of OMB staff, agencies should review and report on any government service provided for which an agency receives revenue in accordance with the CFO Act, regardless of the relative size of the fee or whether rates are set in statute or by the agency through regulation. Further, some DHS components—such as CBP, have conducted biennial reviews for programs receiving collections that are not traditionally considered fees or other charges—such as Immigration Enforcement Fines. Such actions help ensure that decision makers have complete information about program costs and activities. For example, we have reported that the CFO Act’s biennial review provisions provide decision makers with comprehensive information necessary to support robust deliberations about fee financing.

Absent oversight to ensure that components are conducting regular comprehensive reviews, agencies and Congress may not be aware of opportunities to, as appropriate, improve fee design and management processes and that, if left unaddressed, could contribute to inefficient use of government resources. For example, TSA officials stated that information from biennial fee reviews of the Passenger Civil Aviation Security fee—a fee with a rate set in statute—enabled TSA to inform congressional stakeholders of an increasing gap between fee collections and aviation security program costs. Information derived from biennial fee reviews may similarly inform congressional stakeholders and provide similar benefits to fee programs, regardless of whether the rate charged is set in statute. In addition, Coast Guard officials stated that its biennial fee reviews of the Commercial Vessel Documentation Fee program—a relatively small fee program collecting fees averaging about $2 million annually from fiscal years 2010 through 2014—are important because the Coast Guard is generally authorized to maintain funds for obligation only during the fiscal year in which they become available (1-year authority) and thus cannot carryover unobligated balances into subsequent fiscal years. As such, biennial fee reviews help the Coast Guard to ensure fee collections are sufficient to cover program costs, and provide information to relevant stakeholders about the need to adjust fee rates.

Furthermore, we have previously concluded that a regular process of reviewing fee programs could reveal and help address challenges identified by agencies in a more timely and systematic manner. For example, FEMA reported that the Radiological Emergency Preparedness Program, a program for which FEMA does not conduct biennial fee reviews because it does not consider the program to be a traditional user fee, faced challenges accurately estimating costs, resulting in FEMA refunding nearly $14 million to Radiological Emergency Preparedness Program users from fiscal year 2013 through 2015. A regular review may have helped the agency identify the issue sooner and avoid having to issue refunds. Moreover, without regular comprehensive reviews, agencies and Congress may miss opportunities to improve fee design and management processes which, if left unaddressed, could contribute to inefficient use of government resources.

With regard to reporting, our review of DHS’s CFO Act report—The Department of Homeland Security’s Agency Financial Report for Fiscal Year 2014 (Agency Financial Report)—showed that DHS OCFO did not report the extent to which all components are conducting such reviews or any proposals to address management and operational deficiencies identified by components, such as those relating to the adjustment of fee and other collection rates. OMB Circular A-25 provides that agencies are to discuss the results of biennial fee reviews and any resulting proposals, such as adjustments to fee rates, in the annual report submitted pursuant to the CFO Act. The Agency Financial Report did not include this information, and instead included a listing of DHS components and some of the programs they administer that receive fees and other collections. DHS OCFO officials stated that more detailed information on components’ biennial fee reviews was included in the quarterly user fee reports DHS submitted to Congress and referenced in the Agency Financial Report. In addition, DHS OCFO officials stated that duplicating this information in the Agency Financial Report would not have provided additional useful information to decision makers. However, the quarterly reports did not include information on any proposals to address management and operational deficiencies, and as of July 2015, DHS was no longer under direction to submit quarterly user fee reports.

Additionally, our review showed that DHS did not discuss in any of these reports the six programs receiving fees and other collections for which reviews were not conducted. Our review of The Agency Financial Report for fiscal year 2015 also found that the report did not include proposals to address management and operational deficiencies or other information from reviews of these programs. DHS OCFO officials stated that the department has not determined how it will report on the results of biennial fee reviews and any resulting proposals to adjust fee and other collection rates in the future, and needs to seek guidance from OMB on how the department should report on biennial fee reviews in future agency financial reports. Without transparency of fee program operations provided in the Agency Financial Report, or by other means, Congress and other stakeholders lack reasonable assurance that DHS OCFO has complete information on management and operational deficiencies to ensure components are making informed decisions regarding the actions needed to address such deficiencies.

DHS Does Not Monitor Component Actions to Address Identified Program Management and Operational Deficiencies

DHS OCFO has not established a process to actively monitor the status of components’ efforts to address the management and operational deficiencies that have been identified across programs, such as those deficiencies relating to cost recovery and excess unobligated carryover balances. According to DHS OCFO officials, the oversight and monitoring of actions to address identified deficiencies is delegated to components because components are responsible for administering programs and are best positioned to understand the statutes governing the programs as well as the factors—such as changing economic conditions—affecting program implementation.

However, we found that while components have recommended actions to address identified management and operational deficiencies, some components have not taken action to implement these recommended actions or otherwise addressed longstanding deficiencies. Specifically, our analysis of biennial fee reviews conducted by components since fiscal year 2014 showed that components recommended 48 actions for 20 identified deficiencies across 18 programs receiving fees and other collections. (See app. IV.) Components most often identified deficiencies related to aligning fee rates to recover a greater share of program costs. Specifically, 12 of the 20 deficiencies related to recovering greater shares of program cost through collections by adjusting rates and spending caps or establishing charges for additional services. Another 5 deficiencies involved existing rates that may not distribute costs among users in an equitable manner. Two deficiencies identified challenges related to managing unobligated carryover balances. The remaining deficiency identified a difference in program collections and costs that could be addressed by recognizing other revenue sources, such as available unobligated carryover balances. However, components have not taken action to address 9 of these 20 deficiencies. For example, components have not addressed 5 of the deficiencies related to cost recovery, resulting in a difference between identified program costs and collections of around $700 million for the related programs since these deficiencies were identified in fiscal year 2014. If left unaddressed, these deficiencies may lead to management and operational challenges, such as the inequitable distribution and inefficient use of funds.

DHS OCFO identified the need for greater oversight of the DHS fee portfolio through its Winter Study. Specifically, the Winter Study found considerable variation across components relating to the development and budgeting of user fees and other collections, and recommended as first steps towards greater standardization and coordination (1) the establishment of a framework for developing fee proposals, and (2) a department-wide fee governance council comprising Chief Financial Officers from components responsible for collecting fees and other collections as well as representatives from DHS OCFO and DHS Office of General Counsel. In January 2016, DHS formally established the DHS Fee Governance Council for the purpose of advising and assisting the DHS OCFO in establishing a consistent program for the financial management functions, activities, and policies relating to fees across DHS. Moreover, in accordance with its charter, the Fee Governance Council is to establish a governance and oversight structure for fees and other collections across DHS, developing policy guidance on issues such as, how fees and other collections are established, updated, or changed, and how regular fee reviews are conducted.

While the establishment of a department-wide fee council is a positive step, DHS has not determined whether DHS OCFO will use this venue to issue guidance to components or provide oversight to ensure appropriate actions are taken to address management and operational deficiencies, such as those relating to cost recovery and excess carryover. Standards for Internal Control in the Federal Government state that policies and procedures should provide reasonable assurance that ongoing monitoring and evaluation are institutionalized in an agency’s operations, and require that findings from audits and other reviews are promptly resolved. Further we have previously reported that evaluating and reporting on results is a key practice that can assist interagency efforts in identifying areas for policy and operational improvement. Without oversight of components’ decision making processes—including tracking and reporting on the status of recommendations to address deficiencies— DHS cannot provide stakeholders with reasonable assurance that the agency is actively managing its portfolio of fees and other collections to mitigate the impact of management and operational deficiencies. Enhancing DHS’s oversight of its component agencies’ actions to address identified deficiencies could ensure that deficiencies are addressed in a timely manner and help DHS determine whether widespread management challenges are causing deficiencies to not be addressed and whether additional guidance should be provided to address these challenges.

Conclusions

The uncertain budgetary environment highlight the need for DHS and its components to effectively manage, use, and oversee the approximately $15 billion in collections by DHS components across 38 homeland security-related programs. DHS and components have taken steps for some programs to strengthen management and oversight, such as by adjusting fees and other collections to cover a higher proportion of identified program costs, establishing some targets for minimum levels of unobligated carryover balances, conducting fee reviews, and establishing a DHS Fee Governance Council. However, opportunities remain for DHS OCFO and components to improve the transparency and accountability for management decisions and processes across all programs in the DHS portfolio. For example, ensuring that for all fee and other collections programs DHS OCFO and components are (1) documenting decisions about whether or not to take action, as appropriate, to address differences between program costs and collections; (2) establishing targets for appropriate minimum and maximum unobligated carryover balances; (3) conducting fee reviews; and (4) tracking and reporting the status of recommended actions would allow the DHS Fee Governance Council, the DHS OCFO, or others to provide oversight and ensure that management practices and decisions are appropriate and effective to ensure continuity of operations and equity in amounts charged to users of program services. Further, regularly reviewing and reporting the results of fee and other collections programs to agency heads, OMB, and Congress could also enhance information available to the annual budget process and better inform decisions to adjust fees or aspects of program operations through changes in legislation or regulation.

Recommendations for Executive Action

To ensure effective management and oversight of DHS programs receiving fees and other collections, we recommend that the Secretary of Homeland Security direct the DHS Chief Financial Officer to use some means, such as the DHS Fee Governance Council, to ensure that component management take the following actions for each fee and other collections program that they administer: document the processes and analyses for assessing and, as appropriate, for managing the difference between program costs and collections and document resulting decisions; establish processes for managing unobligated carryover balances, to include targets for minimum and maximum balances for programs that lack such processes and targets; conduct reviews to identify any management and operational deficiencies; and take action to track and report on management and operational deficiencies—including reasons supporting any decisions to not pursue recommended actions—identified in fee reviews or through other means.

Further we recommend that the Secretary of Homeland Security direct the DHS Chief Financial Officer to discuss the results of biennial fee reviews and any resultant proposals in the annual Agency Financial Report, annual performance report, or other reporting mechanism, consistent with the CFO Act and OMB Circular A-25.

Agency Comments and Our Evaluation

We provided a draft of this report to DHS for review and comment. DHS provided written comments, which are reproduced in appendix V. In its comments, DHS concurred with the five recommendations and described actions under way or planned to address them. DHS also provided technical comments, which we incorporated as appropriate.

DHS stated that through the DHS Fee Governance Council, chaired by the Deputy DHS Chief Financial Officer, guidance will be developed and disseminated to (1) document the processes and analyses for assessing and, as appropriate, for managing the difference between program costs and collections and document resulting decisions; (2) establish processes for managing unobligated carryover balances, to include targets for minimum and maximum balances for programs that lack such processes and targets; (3) conduct reviews to identify any management and operational deficiencies; and (4) take action to track and report on management and operational deficiencies—including reasons supporting any decisions to not pursue recommended actions—identified in fee reviews or through other means. DHS estimated that these actions would be completed by July 31, 2017. Once guidance is developed and disseminated to components, components take appropriate actions to implement this guidance, and tools are developed to measure and assess changes in fee balances, these actions should address the intent of our recommendations to ensure effective management of DHS fee programs.

In regard to our second recommendation, however, DHS stated that GAO’s characterization of DHS components’ planning processes for managing carryover balances is not entirely accurate. Specifically, DHS stated that GAO characterizes these processes as being too heavily focused on ensuring continuity of program operations rather than efficient use of funds, when in fact components actively manage carryover balances to ensure effective use of program funds. DHS cited as an example USCIS’ fee account annual operating plan development process that is used to guide resource deployment to best achieve mission critical goals.

Our report does not state that DHS components were too heavily focused on ensuring continuity of operations, only that components placed more focus in this area than managing efficient use of funds. In general, we found that while components had identified minimum balances for most programs and mitigation strategies for when balances may fall below these minimums, components had not identified maximum balances and mitigation strategies for when balances grow above these maximums. DHS stated that USCIS is taking additional actions to address our second recommendation by prototyping new tools to measure and assess fee account carryover balances, cash flow, and changes to fee balances. DHS estimated that this action would be completed by September 30, 2016.

Regarding our fifth recommendation, that the DHS Chief Financial Officer discuss the results of biennial fee reviews and any resultant proposals in the annual Agency Financial Report, annual performance report, or other reporting mechanism, consistent with the CFO Act and OMB Circular A- 25, DHS concurred, stating that DHS is in the process of developing a consolidated tracking system for the results of biennial fee reviews and any resultant proposals. In addition, DHS stated that DHS OCFO’s Financial Management Division will ensure that the results of biennial fee reviews and any resultant proposals are discussed in the annual DHS Agency Financial Report. DHS estimated that these actions would be completed by July 31, 2017. These actions should address the intent of the recommendation and better position DHS to ensure the effective oversight of programs receiving fees and other collections.

We are sending copies of this report to the Secretary of Homeland Security and the Office of Management and Budget, and appropriate congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions concerning this report, please contact me at (213) 830-1011 or vonaha@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 significant contributions to this report are listed in appendix IV.

Appendix I: Department of Homeland Security (DHS) Programs Receiving Fees and Other Collections in Fiscal Year 2014

In fiscal year 2014, the Department of Homeland Security (DHS) received fees and other collections totaling approximately $15 billion from 38 programs with an estimated $17 billion in identified program costs. For these 38 programs, table 4 describes the legal authorities, program descriptions and financial information in terms of total collections and identified program costs for fiscal year 2014.

Appendix II: Department of Homeland Security Programs Receiving Fee and Other Collections with Identified Program Costs Exceeding Collections for FY 2014

Immigration Inspection User Fees (IUF)

Consolidated Omnibus Budget Reconciliations Act Fee (COBRA)

Agricultural Quarantine Inspection User Fees Merchant Mariner Licensing Documentation Fee Basic Security and Oversight Fees Student and Exchange Visitor Program Fee Overseas Inspection and Examination Fee Commercial Aviation and Airport Fee and Other Security Threat Assessment Fees Enforcement and Removal Operations Fee 2 reviews, program costs identified by components may include, but are not limited to, the direct and indirect costs associated with specific activities or tasks, such as administrative costs, salaries and expenses, and inspection and screening services. We identified limitations to the cost data provided by components such as the inability to accurately estimate and report direct and indirect cost, and note these limitations in the body of our report.

Appendix III: Department of Homeland Security Programs Receiving Fee and Other Collections by Amount of Unobligated Carryover Balance as the of End of FY 2014

Our analysis of DHS data showed that DHS components had unobligated balances carried over from fiscal year 2014 to the beginning of fiscal year 2015 totaling $2.6 billion across 25 of the 38 programs receiving fees and other collections, as shown in table 6.

Appendix IV: Status of Actions Taken by DHS Components to Address Identified Deficiencies and Recommended Actions Reported in Biennial Fee Reviews

DHS components identified 20 deficiencies across 18 programs receiving fees and other collections and recommended 48 actions across 23 programs in biennial fee reviews conducted in fiscal year 2012 or 2014. Our analysis showed that DHS components took action to address 11 of these 20 deficiencies through changes in agency regulation, proposed changes to legislation, or other actions as shown in table 7.

Appendix V: Comments from the Department of Homeland Security

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Lacinda “Cindy” Ayers, Assistant Director, and Michelle Woods, Analyst-in-Charge, managed this review. Wendy Dye and Jesse Tow made significant contributions to the work. Dominick Dale, Roshni Dave, Lorraine Ettaro, Eric Hauswirth, James Kernen, Thomas F. Lombardi, Susan Murphy, Laurel Plume, Amanda Postiglione, and Amelia Shachoy also contributed to this report.

Related GAO Products

Department of Homeland Security: Progress Made, but Work Remains in Strengthening Acquisition and Other Management Functions, GAO-16-507T. Washington, D.C.: March. 16, 2016.

Federal User Fees: Key Considerations for Designing and Implementing Regulatory Fees, GAO-15-718. Washington, D.C.: September 16, 2015.

High-Risk Series: An Update, GAO-15-290. Washington, D.C.: February 11, 2015.

Budget Issues: Key Questions to Consider When Evaluating Balances in Federal Accounts, GAO-13-798. Washington, D.C.: September 30, 2013.

Federal User Fees: Fee Design Options and Implications for Managing Revenue Instability. GAO-13-820. Washington, D.C.: September 30, 2013.

Agricultural Quarantine Inspection Fees: Major Changes Needed to Align Fee Revenues with Program Costs. GAO-13-268. Washington, D.C.: March 1, 2013.

Budget Issues: Better Fee Design Would Improve Federal Protective Service’s and Federal Agencies’ Planning and Budgeting for Security. GAO-11-492. Washington, D.C.: May 20, 2011.

Federal User Fees: Additional Analyses and Timely Reviews Could Improve Immigration and Naturalization User Fee Design and USCIS Operations. GAO-09-180. Washington, D.C.: January 23, 2009.

Federal User Fees: A Design Guide. GAO-08-386SP. Washington, D.C.: May 29, 2008.

Federal User Fees: Substantive Reviews Needed to Align Port-Related Fees With the Programs They Support. GAO-08-321. Washington, D.C.: February 22, 2008.

Federal User Fees: Key Aspects of International Air Passenger Inspection Fees Should Be Addressed Regardless of Whether Fees Are Consolidated. GAO-07-1131. Washington, D.C.: September 24, 2007.

Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies, GAO-06-15. Washington, D.C.: October 21, 2005.