Export Controls: Reengineering Business Processes Can Improve Efficiency of State Department License Reviews
Released: 2002-01-10T00:00:00

Letter

Background

Under the authority of the Arms Export Control Act, the State Department controls the export and temporary import of defense articles and services. The State Department’s International Traffic in Arms Regulations explain specific licensing procedures. Companies that manufacture or export defense articles or provide defense services are required to register with the licensing office. Exporters must obtain a license to export defense articles or an agreement to export defense services.

Exporters file license applications either electronically or in paper copy. Currently, 50 percent of applications are submitted electronically. For both electronic and paper copy applications, the State Department requires seven paper copies of supporting documentation, including brochures and technical data. The supporting documentation for one application can be several inches thick and occasionally much thicker. Applications are assigned a number and logged into the licensing office’s database. Applications are distributed to licensing officers for initial review according to munitions categories, for example, firearms, aircraft, ammunition, and spacecraft systems. The names of the parties involved in an application are automatically screened by the database against a watch list of parties about whom prior concerns have been raised to determine if more intensive reviews are necessary. Figure 1 shows the key phases of the license application review process.

During the initial review, a licensing officer decides if there is enough information to make a decision. If there is, the officer makes a decision and takes final action on the application. If a licensing officer decides additional review is needed, the officer then decides which organizations, such as the Defense Department or other State Department offices, should conduct a further review. The Defense Department conducts a technical review, identifies national security concerns, and also identifies whether an application needs to be reviewed for Missile Technology Control Regime concerns. State Department offices review applications for foreign policy, human rights, and non-proliferation concerns. After deciding which offices need to review the application, the licensing officer forwards the application to administrative personnel who transmit the application package to the other agencies and offices. This referral process is not automated and relies on the physical distribution of paper documents via couriers to other agencies and inter-office mail to State Department offices.

In fiscal year 2000, the licensing office made 28,496 referrals for 15,512 license applications (about one-third of all applications) to other agencies and State Department offices. The average processing time for these referred applications was 91 days. For the 66 percent of applications that were not referred to other agencies, the average processing time was 23 days.

While applications are undergoing review outside the licensing office, administrative assistants maintain the application, answer calls from license applicants concerning the status of reviews, record agencies recommendations as they are received from reviewing agencies and offices, and attach the recommendations to the paper copy files of the applications. Once all recommendations have been received for an application, the assistants close the referral process and submit the application to the licensing officer for final review and action.

Under the Arms Export Control Act, the State Department is also required to notify Congress before approving applications that involve significant military equipment exports of defense articles and services valued over $50 million, or exports of major defense equipment valued over $14 million. The State Department cannot approve such applications until 15 days after notification for applications to export to North Atlantic Treaty Organization countries and Australia, Japan, or New Zealand; 15 days after notification for exports of commercial communication satellites for launch from and by nationals of the Russian Federation, Ukraine, or Kazakhstan; and 30 days after notification for other countries. If the Congress enacts a joint resolution during that time period prohibiting the export, the State Department cannot issue the license. In fiscal year 2000, the State Department notified Congress of 123 applications. These applications averaged nearly 7 months to review. Our analysis did not include the portions of the license application review process associated with congressional notifications.

Export License Applications May Require Extensive Review, but Process Inefficiencies Cause Delays

Many license applications take substantial time to process because they require attention by the licensing office, other agencies, and other State Department offices. License applications that are referred to other agencies and offices for review take an average of more than two months longer to review than applications that do not leave the licensing office. However, the State Department has not established formal guidelines for licensing officers to use to determine which agencies and State Department offices need to see certain license applications. As a result, the licensing office may be referring more applications than necessary. Further, officials in State Department reviewing offices generally do not receive training on how the licensing process works or how to conduct a review and consider the reviews a secondary work priority.

The State Department lacks procedures to control the flow of license applications through the review process, and as a result, in fiscal year 2000, hundreds of applications were lost and thousands more were delayed. To improve license processing time, Congress increased the licensing office’s budget. The licensing office has hired additional license officers and is planning to develop a new electronic business processing system, but improvement efforts also need to focus on guidance and training for referrals, and the new electronic system must incorporate procedures for ensuring the efficient flow of applications through the process.

Lack of Guidelines, Training, and Priority Delay License Reviews

Licensing officers lack formal guidelines on when to refer applications to other agencies and offices. As a result, applications may be unnecessarily referred, which results in longer processing time. In lieu of guidelines, licensing officers told us that they rely on prior cases and certain “rules-of- thumb” that they have learned, over time, from their predecessors or supervisors. For example, applications involving new weapon systems or technical data and applications for license agreements, except for those involving minor amendments to previously approved agreements, are all referred to the Defense Department. When no existing rule applies, some licensing officers told us that they use their own rule, which is “when in doubt, refer it out.” Licensing officers told us that they once used the State Department’s country policy handbook as a guide for referring applications, but the handbook has not been updated since 1996 and is too out-of-date to be used. Licensing officers also told us that because of the lack of referral criteria, newer licensing officers tend to refer more applications.

Reviewing agencies and offices generally do not tell the State Department’s licensing office which applications they need to review. Over half of the license referrals are sent to the Defense Department, but there is no formal guidance explaining what applications the Department needs to review. Of the 11 State Department offices that frequently review applications, only one office, the Bureau of Democracy, Human Rights and Labor, provides written guidance on the applications it needs to review. An official in the Political-Military Affairs Bureau’s Office of Regional Security and Arms Transfer Policy told us that his office asks the licensing office for all applications that are referred to the geographic bureaus. However, he could not provide documentation of that guidance and licensing officers did not mention this guidance when we asked. An official in the Bureau of European and Eurasian Affairs said that he does not need to see most of the applications he receives. He told us he only needed license applications related to three countries, but had not told the licensing office.

The State Department does not provide training to license reviewers so that they understand how the licensing process works and what to look for when conducting a license application review. Several officials had only a limited understanding of the process and the purpose of their reviews. Of the officials we spoke with in State Department reviewing offices, only one told us that he attended a training course on the export license process. Officials in six reviewing offices were military officers on detail, generally as military attachés in geographic bureaus, and are only in their positions for a few years. Several license reviewers told us that they are not always sure why they have been asked to review specific license applications and do not always understand the issues or concerns associated with an application. One official told us that he calls other offices to make sure his recommendation is consistent with those offices. Two officials assumed that they received all license applications associated with their geographic region and were surprised to find out that they review only a portion of those applications. One senior licensing officer told us that State Department license application reviewers do not provide adequate information when recommending a license denial, and licensing officers must go back to the reviewing official to obtain additional information to ensure that a denial is justified.

Reviewing officials in 10 State Department offices told us that reviewing license applications is only one of their duties, and in some offices, it is a secondary duty. For example, in geographic bureaus the military attaché, whose primary responsibility is providing military advice related to their geographic region, is often in charge of ensuring that license reviews are conducted. One attaché showed us a pile of license applications that he had accumulated over the past 4 weeks. The attaché explained that he waits for enough applications to come in so he can review them all in one afternoon. Other State Department reviewers told us that there are no backup personnel to handle application reviews. If a reviewer is on leave or work-related travel, the license applications wait for the reviewer’s return with no action taken in the interim.

Lack of Procedures and Tracking Cause Delays in the Process

The State Department has not established procedures to ensure that agencies are conducting timely reviews of referred applications, that license application referrals are received when they are sent through the mail or by courier, and that applications that become lost or delayed are quickly identified.

Timely Reviews of Referred Applications: There are no guidelines governing the time permitted to review license applications, no requirement for a reviewing agency or office to justify a lengthy review, and the licensing office does not routinely check the status of a review unless an applicant calls to ask why an application is taking a long time. While the majority of reviews by other agencies and offices are completed in 26 days, 10 percent of referrals take 57 days or more. Several State Department license reviewers told us that applications frequently sit on their desk or the desk of other officials awaiting attention. As explained previously, several reviewing offices do not have backup personnel to handle application reviews when the reviewer is out of the office.

Ensuring Referrals Are Received: The licensing office has no procedures to ensure that other agencies or State Department offices receive license applications from the licensing office. Licensing office officials told us that they periodically send the Defense Department a list of outstanding applications. However, no lists are routinely sent to State Department offices. Further, periodic lists do not identify applications until they are delayed for several weeks or more. State Department license reviewers told us that they frequently receive calls from applicants asking why their application is taking a long time. Reviewers told us that many of these inquiries identified applications that were either sent by the licensing office but not received by the reviewing organization or identified applications where the reviewer had returned the recommendation, but it was never received by the licensing office. When these cases are identified, the licensing office either sends another copy of the application to the reviewing office or the reviewing office sends a copy of its recommendation to the licensing office.

As shown in table 1, our analysis of applications completed in September 2000 that were referred to the Defense Department or State Department offices identified 233 instances where applications took more than 2 weeks to travel from the licensing office to a reviewing office or from a reviewing office back to the licensing office. We identified 101 instances in that month alone where an application took over 4 weeks to travel from one office to the next. For fiscal year 2000 as a whole, there were 254 instances where applications were lost between the licensing office and a reviewing agency or office. Once identified as missing, usually as the result of a contact from the license applicant, they had to be re-sent. These applications averaged 7 months in the review process.

Tracking Lost or Delayed Applications: The progress of license applications are not tracked within the licensing office as applications move from one stage in the process to the next. While the majority of license applications took only 2 or 3 days to pass from one administrative point to the next within the licensing office during fiscal year 2000, we identified 2,777 instances where applications took over 2 weeks and 674 of these took over 4 weeks to move from one point to the next while no substantive review activity occurred. The following describe three key stages of the licensing process where applications were delayed within the licensing office.

When a licensing officer decides to refer an application for review to another agency or State Department office, administrative personnel make copies and send the applications to each reviewing organization selected by the licensing officer. Licensing officers record the date they make this decision and administrative personnel record the date the application is sent to an agency or a State Department office. The majority of applications were sent to agencies and offices within 2 days of the licensing officers’ decision, but 586 applications took more than 2 weeks and 118 of these took over 4 weeks. State Department personnel were not able to explain the delays.

Agencies and State Department offices return a recommendation on each license application referral. Administrative personnel record the date each recommendation is returned. When all recommendations are received, the license referral process is complete and administrative personnel return the application to the licensing officer. Administrative personnel told us that they periodically check their files to see if they have overlooked any applications. These periodic checks depend on their workload. Our analysis showed that the majority of applications are returned within 3 days after the last recommendation is received, but 1,861 took over 2 weeks and 443 of these took over 4 weeks to be sent to a licensing officer for a final decision on the license application.

Once a licensing officer decides to approve, deny, or return an application without action, the officer records the date and provides the application to administrative personnel who send the response to the applicant. The majority of responses took 3 days from the licensing officers’ decision to the time the response was sent to the applicant, but 330 responses took over 2 weeks and 113 of these took over 4 weeks.

State Department Has Added Personnel and Plans to Automate the Process, but Needs to Focus on Correcting Process Weaknesses

The licensing office has taken steps to improve license processing time by hiring additional licensing officers and is planning to upgrade the office’s electronic business processing system. The office’s expenditures increased from $4.6 million in fiscal year 1999 to $9.3 million in fiscal year 2000. The number of licensing officers has risen from 23 in fiscal year 2000 to 34 in fiscal year 2001. The office reported that increased staffing has improved median processing time for referred applications from 69 days in fiscal year 2000 to 60 days in September 2001. The licensing office is also developing an information technology strategy with the long-term goal of automating the licensing process. It plans to automate the process for submitting license applications and develop a means to electronically send license applications and supporting documentation to the Defense Department, which is also developing its own electronic system to process applications; accommodate new processing requirements such as additional reports; add high-speed scanners and barcode printing and reading equipment; support future requirements in the areas of programming and support.

However, the State Department’s plan to automate the licensing process needs to focus on making significant improvements to the licensing process before applying new technology. The Director of the licensing office told us that they will make process adjustments and changes in personnel as they are upgrading to a new electronic business system. In a 1994 study of fundamental practices that led to performance improvements in leading private and public organizations, we reported that electronic business system initiatives must be focused on process improvement. Information systems that simply use technology to do the same work, the same way, but only faster typically fail or reach only a fraction of their potential. In May 2000, we reported that when developing new electronic business processes, it is important to ensure that current business processes are working well before applying new technology. In fact, agency heads are required by the Clinger-Cohen Act of 1996 to analyze an agency’s mission and revise mission-related processes, as appropriate, before making significant investments in information technology. Not revising business processes prior to investing in new technology creates the risk of merely automating inefficient ways of doing business.

In conducting our work, these comments were echoed by officials from other government agencies who we met with to understand ways to automate business processes that are similar to the license review process. Officials from the Defense Electronic Business Program Office and the Patent and Trademark Office told us that an essential ingredient for effectively transitioning to a new electronic business system is reengineering and streamlining of work processes before automating those processes. Automating an inefficient process will not likely make it more efficient.

Conclusions

License applicants have long complained that they cannot predict how long a license review may take and are frustrated by delays. Although licensing officers and license reviewers require time to deliberate and ensure that license decisions are appropriate, a substantial number of applications become stalled between reviews by licensing officers and reviewers. Improving efficiency, predictability, and timeliness of the process may be achieved with relatively small changes in guidelines and procedures.

Recommendations for Executive Actions

To improve the efficiency and timeliness of the munitions licensing process, we recommend that the Secretary of State direct the Office of Defense Trade Controls in conjunction with reviewing agencies and offices to develop criteria for determining which license applications to refer to other agencies and offices, and formal guidelines and training for organizations that receive referrals so that reviewers clearly understand their duties when reviewing license applications, and establish timeliness goals for each phase of the licensing process.

Further, we recommend that the Secretary of State direct the Office of Defense Trade Controls to establish a mechanism to track license applications through each phase of the process to ensure timeliness goals are met and applications are not lost or delayed.

To prevent imbedding an inefficient process into the State Department’s planned electronic business processing system, we recommend that the Secretary of State ensure the steps outlined above are taken before proceeding with a new electronic processing system. The State Department should coordinate its efforts with the Defense Department because the Defense Department is also developing a new electronic system and receives the majority of license application referrals.

Agency Comments and Our Evaluation

In commenting on our draft report, the State Department said that certain of our findings appear to be premised on conjecture and a failure to comprehend how foreign policy provides the overall context for munitions export controls and that other findings appear to be exaggerated and reflect out-of-context presentations. Also, the Department stated that our presentation of data was inflammatory and trivialized the licensing officer’s role in referring license applications for review. Further, our characterization of its plans to enhance automation was totally inaccurate.

The Department appears to have missed the point that our report, as stated in our scope and methodology, is primarily concerned with the procedures in place to ensure that license applications flow smoothly through the review process and not with the time spent in substantive license application reviews. In our review of State Department data, we took extreme care not to confuse legitimately lengthy license application reviews caused by national security and foreign policy concerns with delays caused by administrative inadequacies. Regarding the administrative process, the Department provided only one bit of additional information. That is that the licensing office reviews computer runs of pending license applications to determine their status. However, the point of our finding is that such monitoring needs to be done on a routine basis, not sporadically, which is the current situation. Licensing office personnel told us that these reviews of pending applications are generally done on an “as time permits” basis. We have modified our report to accommodate this additional information.

The Department referred to our point, early in the report, that industry has raised concerns about the effect of the process on U. S. defense industry sales as an example of our exaggeration and out-of-context presentation. It is not clear from the Department’s comment whether it is taking issue with the validity of the comment or our statement that industry has raised the concern. This statement was not intended to validate industry concerns but was merely meant to explain the reason why we were asked to examine the State Department’s licensing process.

The Department’s statement that the report is inflammatory relates to our statement that ‘hundreds” of applications were lost and “thousands” were delayed while no substantive reviews occurred. Our report provides a detailed explanation of the data on which our comment was based. Our use of the term “lost” refers to the fact that applications referred for review were sent by the licensing office but not received by the reviewing office and had to be re-sent. The Department states that no licenses were lost because the licensing office retains the original. The Department also pointed out that the “lost” applications are a very small percentage of the total number of license application referrals. We agree. Our point, however, is that applications that are lost could be easily identified and forwarded by a routine status review. Currently, the time required to process these lost applications, as we point out in the report, averages about 7 months. In terms of the delayed applications, the Department commented that it does not keep detailed diaries on every application and that the lack of an audit trail should not be a basis for “unqualified conjecture or speculation.” Our statement that thousands of applications were delayed is based solely on detailed data provided by the State Department.

The Department stated that we trivialized the role of the licensing officer when we explained that there are no formal guidelines to assist in referring license applications and the Department further stated that decisions to refer license applications rely on practice, precedent, and the current state of foreign policy. The comments explained that licensing officers are trained to consider applications with the utmost seriousness. In our opinion, the lack of agreement and understanding between the licensing office and reviewing offices on the referral process demonstrates the problems that can occur when a process that requires actions and interpretations by a variety of people lacks formal guidelines. Our findings and recommendations were based on lengthy and structured interviews with all licensing officers who had over one year of experience and officials in State Department offices that receive these referrals. Based on the information provided by these officials, it is clear that State Department offices that receive referrals are at times confused about the referral process and licensing officers believe that further guidance would assist in making decisions to refer or not to refer a license application.

In regard to the Department’s comment that our report is inaccurate concerning its automation plans, we held lengthy discussions with managers from the Office of Defense Trade Controls concerning their information technology plans and evaluated existing copies of automation plans. Based on the State Department comments, we requested any additional information on technology modernization plans that we had not seen. The Department provided no further information concerning its plans. As stated in the report, the Director of the Office of Defense Trade Controls told us that he plans to correct inadequacies in the licensing process during the modernization. As we pointed out, past GAO work has proven that proceeding with information technology modernization without first correcting problems in current systems risks merely automating inefficient ways of doing business.

The State Department did not agree with our recommendation to develop criteria for determining which license applications to refer to other agencies and offices and to develop guidelines and training for offices that receive referrals. The Department commented that they have made a conscious, deliberate, decision not to develop guidelines that address every country or commodity. The Department explained that they have written operational and policy guidelines that are used extensively. The guidelines, however, are not written down in a single document and are heavily reliant on practice and the current state of foreign policy. The Department acknowledged that practice within certain regions needs to be updated and made uniform. During our structured interviews with licensing officers, we asked if there were written guidelines to guide license referral decisions and the licensing officers explained that there were none except for referrals related to the State Department’s Bureau of Democracy, Human Rights and Labor. The Department’s response to this recommendation did state that training for reviewing officers in State Department offices is needed, and the Department intends to discuss this issue as their information technology system is enhanced.

In response to our recommendation to establish timeliness goals, the Department said that it is considering a timeliness goal of 25 working days for license referrals, which is similar to the Department of Defense’s self- imposed goal. The Department also explained that licensing officers have timeliness goals in their performance plans. Our concern in making this recommendation was not with the time spent in substantive review of applications but rather with the administrative procedures in the process. That is, those portions of the process in which paper moves from one desk to another during which there are no “value-added” steps occurring. The comments did not mention timeliness goals for administrative phases of the process within the Office of Defense Trade Controls.

The Department agreed with our recommendation to establish a mechanism to track license applications; however, it also stated that the capability to track already exists and the information technology modernization plan that is under development will be engineered to enable tracking. We agree that tracking is a current capability. Our recommendation is to begin using that capability to routinely track license applications. We hope that the Department intends to do that rather than waiting for a new system that has not yet been developed.

The Department did not comment on our recommendation to ensure the steps outlined in the previous recommendations are taken before proceeding with a new electronic processing system.

Scope and Methodology

To determine conditions that cause delays in the licensing process, we reviewed regulations governing the process, met with personnel who are involved in the licensing process, reviewed license applications, and collected and analyzed databases that show the flow of applications. We reviewed the Arms Export Control Act and the International Traffic in Arms Regulations to understand the rules that govern license processing. We also discussed guidelines with licensing office officials and license reviewers to understand written and verbal guidelines associated with the process.

To understand the process of reviewing license applications, we met with all licensing officers with more than one year of experience, and administrative personnel from the licensing office. Our interviews with the licensing officers were detailed and structured and we provided our questions to Office of Defense Trade Controls management in advance. To understand the role of license reviewers, we met with reviewers in the 11 State Department offices that review nearly all referred applications within the State Department. We also met with Defense Department officials who manage the review of license applications. We selected a random sample of applications that were completed in September 2000 and took over 90 days to process in order to understand the progress of license applications that take longer to review.

To analyze the flow of license applications through the process, we obtained the licensing office’s database that has dates associated with the progress of license application reviews. We reviewed data on all license applications completed in fiscal year 2000. To determine how efficiently applications were transferred from one office to another, we compared data logs from the Defense Department and State Department reviewing offices with the licensing office’s database for applications completed in September 2000. We cannot be certain of the reliability of the data we reviewed. The State Department does not have a data dictionary that explains the data. As a substitute, we discussed key elements of the database with a State Department representative to ensure that we accurately interpreted the data. In a recent review of the Office of Defense Trade Controls, the State Department Inspector General sampled selected elements of the database and found data entry errors. While conducting our analysis, we also found data entry inaccuracies. We worked with a State Department representative to correct some of these inaccuracies. However, some data fields did not have entries. As a result, data for some license applications was incomplete.

We also collected information from the licensing office on their plans to improve license processing. We obtained information on their budget, staffing, and plans for a new electronic business system. We reviewed prior work to determine appropriate ways to implement new electronic business systems and met with the Defense Electronic Business Program Office and the Patent and Trademark Office to learn from their experiences. We also met with Defense Department officials who review State Department license applications to understand their efforts to coordinate the implementation of their electronic business system with State Department efforts.

We conducted our work between May 2001 and November 2001 in accordance with generally accepted government auditing standards.

As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 10 days after its issuance. At that time, we will send copies to the Chairmen and Ranking Minority Members of the Senate Committee on Foreign Relations, the Senate Committee on Banking, Housing, and Urban Affairs, and the House Committee on International Relations. We will also send copies to the Secretaries of State, Defense, and the Director, Office of Management and Budget. This report will also be made available on GAO’s home page http://www.gao.gov.

If you or your staff have questions concerning this report, please contact me at (202) 512-4841. Others making key contributions to this report were Blake Ainsworth, Heather Barker, Raymond H. Denmark, Thomas J. Denomme, Minette D. Richardson, and John P. Ting.

Appendix I: Comments From the U.S. Department of State

GAO Comments

1. We changed the text to reflect that the U.S. export licensing process can be lengthy because of foreign policy and national security considerations, not just national security considerations. 2. We changed the text on page 8 to state that the licensing office does not routinely check the status of license reviews. 3. This State Department comment is not correct. Through discussions with State Department budgeting officials, we determined that the information in the draft report is correct. The data we reported are actual Office of Defense Trade Controls expenditures for fiscal years 1999 and 2000. The State Department comments refer to authorized funding levels that were not actually spent in fiscal year 1999. 4. The report states that the State Department does not have formal guidelines for referring license applications to other agencies and offices. 5. The licensing office did not provide sufficient information for us to validate this statement. 6. We revised text on page 8 of the report to say that no lists are routinely sent to State Department offices.

7. Text revised. 8. Text revised. 9. Text revised.