GCA, as amended, provided an enhanced licensing system for persons engaged in the business of manufacturing, importing, and dealing in firearms. These licensees are allowed to transport, ship, and receive firearms in interstate commerce among themselves and are required to certify that they comply with the requirements of state and local laws in the conduct of their businesses. GCA also established a comprehensive record-keeping system at the dealer level. GCA, as amended, contains federal licensing standards for various firearms businesses. More specifically, the act provides, in part, that no person shall engage in the business of dealing in firearms until he has filed an application with and received a license to do so from the Secretary of the Treasury. The act further provides, in general, that any application submitted shall be approved if the applicant (1) is 21 years of age or older; (2) is not prohibited from transporting, shipping, or receiving firearms or ammunition in interstate or foreign commerce under section 922(g) and (n); (3) has not willfully violated GCA or its regulations; (4) has not willfully failed to disclose any material information or has not made any false statements as to any material fact, in connection with his application; (5) has premises from which he conducts business or from which he intends to conduct business; and (6) makes certain certifications, such as that the business will comply with the requirements of state and local law applicable to the conduct of the business. The Secretary of the Treasury was authorized to promulgate regulations to facilitate the enforcement of GCA. This responsibility, including the authority to approve or deny firearms license applications, was delegated within the Department to ATF. ATF’s principal firearms regulatory responsibilities are to (1) process and review firearms license applications and inspect applicants to determine their qualifications, under GCA, for licenses; (2) conduct periodic compliance inspections of licensees; and (3) support ATF’s Criminal Enforcement Offices in their efforts to curb the illegal possession and/or use of firearms. ATF carries out its firearms regulatory responsibilities at its headquarters in Washington, D.C.; its Firearms and Explosives Licensing Center in Atlanta, Georgia, which processes firearms license applications; and its 5 districts and 37 area offices located throughout the country that inspect applicants and licensees. The term “dealer” is defined in Section 921(a)(11) of Title 18 as (A) any person engaged in the business of selling firearms at wholesale or retail; (B) any person engaged in the business of repairing firearms or of making or fitting special barrels, stocks, or trigger mechanisms to firearms; or (C) any person who is a pawnbroker. The term “engaged in the business,” as applied to a dealer in firearms, is defined in Section 921(a)(21)(C) of Title 18, in part, as a person who devotes time, attention, and labor to dealing in firearms as a regular course of trade or business with the principal objective of livelihood and profit through the repetitive purchase and resale of firearms. The definition further provides that such term shall not include a person who makes occasional sales, exchanges, or purchases of firearms for the enhancement of a personal collection or for a hobby, or who sells all or part of his personal collection of firearms. A similar provision in Section 921(a)(21)(D) defines “engaged in the business” as applied to the repair of firearms by gunsmiths. To address our objectives, we reviewed ATF documents and data and discussed policies with agency officials. As agreed with you, we did not verify licensee and inspection data provided by ATF because of time limitations. We did our work at ATF headquarters, ATF’s Firearms and Explosive Licensing Center, four ATF district offices, and four ATF area offices. We discussed policies and practices with officials at various levels within ATF. We obtained the views of representatives of seven external organizations on (1) the advantages and disadvantages of reducing the number of licensed firearms dealers and (2) on the reasons for recent declines in the number of licenses. In addition, we conducted a limited survey of former firearms dealer licensees to learn why they no longer held licenses. Appendix I provides a detailed discussion of our objectives, scope and methodology. We did our work from August 1995 through January 1996 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Secretary of the Treasury. Responsible Treasury officials provided oral comments at a meeting on March 7, 1996. Their comments are discussed at the end of this letter. Since reaching a high point in April 1993, the number of licensed firearms dealers declined steadily and sharply by approximately 35 percent as of September 30, 1995. The decline occurred in every state. ATF received substantially fewer applications for licenses; in particular, applications for new licenses dropped very sharply from April 1993 to April 1994, during the first year of declines. Also, in fiscal years 1993 and 1994, the number of ATF denials of both new and renewal applications remained relatively small, but there was a substantial increase in the number of new applications abandoned and withdrawn. Similarly, during the same years, as a result of ATF inspections, the number of licenses revoked remained small, but the number of licenses voluntarily surrendered was high. The number of federal firearms dealer licenses (classes 01 and 02) rose steadily until April 1993, when they peaked at 260,703. The number declined sharply since then. As of September 30, 1995, there were 168,395 dealer licensees—the lowest number since fiscal year 1980. To provide the context for interpreting the more recent decline, figure l depicts trend data on the number of federally licensed firearms dealers at the end of fiscal years 1975 to 1995, and appendix II lists the actual number of dealers at the end of each fiscal year. As shown in figure 2, the decline in the number of firearms dealer licenses from April 1993 through September 1995 occurred throughout the country. The overall average decline among the states was approximately 35 percent, ranging from 23 percent in Montana to 45 percent in Hawaii. The decline in the number of firearms dealer licenses occurred in all regions of the country. The percentage decline was almost identical for each region of the country represented by ATF’s five regulatory enforcement district offices, ranging from 34.5 percent in ATF’s Midwest district to 37.1 percent in ATF’s Southeast district. Declines in the number of firearms dealer licenses were primarily a function of declines in the number of new applications and of renewals of existing licenses. Over the past 3 years, a large decline occurred in applications for both new licenses and for renewals of existing licenses. According to ATF officials, the number of new applications increased dramatically between December 1992 and March 1993 to a high of 7,003, primarily because of publicity concerning the ease of obtaining firearms licenses. The number of new applications then declined to the level prior to the increase, and remained at approximately this level for the remainder of 1993. Another sharp decline occurred beginning in February 1994, and the number has remained fairly steady since then, with 485 new applications being received in September 1995. Figure 3 shows the number of new and renewal applications received monthly by ATF from January 1992 through September 1995. New and renewal applications can result in four outcomes: (1) licenses granted, (2) licenses denied, (3) applications abandoned, and (4) applications withdrawn. In addition, existing licenses can be either revoked or voluntarily surrendered as a result of ATF inspections. Generally, the number of applications abandoned and withdrawn has been much higher than the number of licenses denied and revoked. (To provide a broader context for interpreting the more recent declines, appendix III shows licenses issued and revoked by ATF and the outcome of applications received in fiscal years 1975 through 1995.) The number of abandonments and withdrawals for new and renewal applications increased significantly in fiscal year 1993. The number of abandonments of new applications continued to increase significantly in fiscal year 1994 and declined since then. The number of abandonments of renewal applications continued to rise in fiscal years 1994 and 1995, and the number of withdrawals of renewal applications remained at approximately the same level in fiscal years 1994 and 1995. Figures 4 and 5 show the number of abandonments and withdrawals, respectively, for both new and renewal applications in fiscal years 1990 through 1995. In fiscal year 1993, ATF denied far more new applications (343) than in prior years. Only about 47 new applications, on average, were denied from 1990 to 1992. However, in fiscal year 1995, the number of denials of new applications declined to the pre-1993 level. The number of denials of renewal applications reached its recent peak in fiscal year 1994 and declined in 1995. Overall, the number of denials remained quite small compared to abandonments and withdrawals. Figure 6 shows denials of both new and renewal applications in fiscal years 1990 through 1995. Since 1990, ATF has increased its inspections of federal firearms licensees. As a result, the number of revoked licenses increased but remained relatively small compared to the number of application abandonments and withdrawals. In fiscal year 1995, 35 licenses were revoked. However, a large number of licenses were voluntary surrendered by licensees as a result of ATF inspections (discussed later). A total of 7,593 licenses were surrendered by licensees during fiscal years 1994 and 1995. The following factors contributed to the recent decline in the number of federally licensed firearms dealers: In January 1993, ATF initiated a National Firearms Program, which consisted of several regulatory enforcement strategies, including efforts to increase the number of inspections of applicants for federal firearms dealer licenses and the operations of licensees to ensure strict compliance with the GCA. In an August 1993 memorandum, the President directed the Department of the Treasury and ATF to take actions to ensure compliance with federal firearms license requirements. The President pointed out that there were over 287,000 federal firearms licensees (all categories), many of which he stated probably should not have been licensed because they were not engaged in a legitimate firearms business. In late November 1993, Congress passed the Federal Firearms License Reform Act of 1993, which increased the licensing fees for obtaining and renewing a federal firearms dealer license. In December 1993, in response to the President’s memorandum, ATF significantly revised the application process and forms for obtaining and renewing federal firearms licenses, including requiring applicants to submit fingerprints and a photograph as a positive means of identification. ATF began using its revised application form (dated December 1993) in February 1994. In September 1994, Congress passed the Violent Crime Control and Law Enforcement Act of 1994, which added more licensing requirements. Among other provisions, this act required applicants for firearms licenses to certify that their firearms business will comply with the requirements of state and local laws. In addition to factors at the federal level that contributed to the decline in the number of federal firearms dealers licensees, state and local agencies’ enforcement of their laws may have resulted in reducing the number of licensees. For example, local agencies’ enforcement of zoning ordinances dealing with businesses operating in residential areas may have resulted in declines in the number of firearms dealer licensees. The decline in the number of federally licensed firearms dealers and the factors contributing to the decline are shown in figure 7. A time lag existed between the occurrence of the factors contributing to the decline and when the decline actually began. For example, while the President’s memorandum was issued in August 1993, ATF’s implementation of actions taken pursuant to the memorandum, such as revising the application form, did not occur until late 1993 and early 1994, with resulting declines in the number of dealers occurring thereafter. We found no evidence that ATF had a policy, or sought, to reduce the number of licensed dealers by some targeted number. Rather, all of the factors mentioned above, including ATF’s increased enforcement efforts, collectively contributed to declines in the number of dealers in 1994 and 1995. These factors were reiterated by various organizations from whom we obtained views on the reasons for the decline and by our independent survey of randomly selected former firearms dealers. In January 1993, ATF initiated the National Firearms Program. As part of the program, ATF initiated efforts to screen applicants for federal firearms dealer licenses more thoroughly and increased the number of inspections of applicants and licensees to ensure strict compliance with GCA. According to the Chief of the Firearms and Explosives Regulatory Division, the ATF official responsible for managing ATF’s Firearms and Explosives matters, a number of factors led ATF to increase its regulatory enforcement efforts over firearms dealer applicants and licensees. These included rising violence associated with the illegal use and sale of firearms, national media attention on the ease of obtaining a firearms dealer license, administration policies emphasizing increased enforcement of firearms licensing requirements, and our 1992 report on ATF’s firearms inspections suggesting better targeting of inspections. In addition, ATF’s Operation Snapshot, an inspection project that was conducted in 1992 and 1993 to obtain information about federal firearms licensees and their business operations, reported that 46 percent of all licensees had sold no firearms in the previous 12 months, and another 34 percent had sold 1 to 10 firearms. According to ATF, these survey results were invaluable in formulating the National Firearms Program. As part of ATF’s National Firearms Program, ATF developed a number of regulatory enforcement strategies, including targeting federal firearms dealer applicants and licensees for inspection, especially those in ATF-identified high-crime areas for full field compliance inspections and enhancing coordination with state and local officials. The focus of the inspections was to ensure that applicants and licensees strictly met the statutory requirements of GCA. In early 1993, ATF tasked its district and area offices with conducting preliminary inspections (telephone interviews) of all applicants for new firearms dealer licenses, regardless of geographic location; application inspections (full field, face-to-face inspections) if warranted based on preliminary inspections; and compliance inspections (full field, face-to-face inspections) of all applicants for renewal dealer licenses who were located in the 43 high-crime areas, were due for renewal, and had not been inspected within the past 3 years. ATF continued its National Firearms Program in fiscal years 1994 and 1995. In July 1995, ATF expanded its inspections beyond firearms dealer licensees to include other categories of licensees, such as manufacturers and importers, but not collectors of curios and relics. Also, in lieu of preliminary inspections, ATF increased its scrutiny of applicants for new licenses by requiring application inspections (full field, face-to-face inspections) of all applicants regardless of location. The number of ATF inspections of federal firearms applicants and licensees (all categories) increased from 19,910 in fiscal year 1992 to a high of 27,031 in fiscal year 1993—the time frame during which the National Firearms Program was initiated. The number of inspections then dropped to 22,529 in fiscal year 1994 and 17,772 in fiscal year 1995. However, from 1993 to 1995, the number of inspections as a percentage of the universe of firearms licensees generally remained in the 9-percent range, compared to 7 percent in 1992. Table 1 shows the number of ATF inspections and the number of inspections as a percentage of the universe of federal firearms licensees for fiscal years 1990 through 1995. In addition to full field application and compliance inspections, ATF used preliminary inspections (telephone interviews) in fiscal years 1993 through 1995 as a means of scrutinizing federal firearms dealer applicants. The number of preliminary inspections conducted in fiscal years 1993, 1994, and 1995 was 25,922, 14,805, and 10,822, respectively. ATF generally did not use preliminary inspections before fiscal year 1993. According to ATF, a substantial portion of the 2,527 applications abandoned (see fig. 4) and 7,217 applications withdrawn (see fig. 5) during fiscal year 1993 was directly attributable to the initiation of the preliminary inspections. In addition to emphasizing that new and renewal firearms dealer license applicants qualified under GCA, the National Firearms Program also called for continued checks of other dealers for compliance with GCA. Dealers were targeted for compliance inspections on the basis of analysis of firearms tracing data, referrals from law enforcement, and other factors. The over 27,000 inspections of all categories of licensees in 1993, most of which were compliance inspections, resulted in the discovery of 11,149 violations of records and inventory requirements and 17,783 referrals to ATF criminal enforcement and other federal, state, and local law enforcement agencies. According to ATF, referrals increased by 13,030 over 1992 because of increased efforts under the National Firearms Program to coordinate more closely with state and local authorities. Also, as a result of ATF’s compliance inspection efforts, a large number of firearms dealer licensees voluntarily surrendered their licenses in fiscal years 1994 and 1995—2 years for which the data were collected. For example, when a compliance inspection showed that a dealer was not “engaged in a firearms business” at the location shown on the license, ATF’s National Firearms Program called for advising the dealer to voluntarily surrender the license, prior to implementing a formal revocation action. According to ATF data, as of September 30, 1995, 7,593 firearms dealer licenses were surrendered as a result of ATF’s National Firearms Program—4,936 in fiscal year 1994 and 2,657 in fiscal year 1995—the only 2 years for which the data were collected. In addition, the number of federal firearms licenses (all categories) revoked as part of ATF’s inspection efforts increased from 24 in fiscal year 1992 to a high of 44 in fiscal year 1994 and then decreased to 35 in fiscal year 1995. The total number of federal firearms licenses revoked was relatively small—less than 1 percent compared to the total number of inspections conducted. Under its National Firearms Program, ATF is to first seek voluntary surrenders of licenses rather than pursuing formal administrative actions to revoke a license to save the time, effort, and expense involved with administrative proceedings. To conduct increased firearms regulatory inspections, ATF devoted increased staff to the effort. According to ATF data, the number of ATF inspector staff years devoted to firearms regulatory activities increased from 90 inspector staff years in fiscal year 1992 to 114 inspector staff years in fiscal year 1994 and then dropped to 105 inspector staff years in 1995. In an August 1993 memorandum, the President directed the Department of the Treasury and ATF to take actions to ensure compliance with present firearms licensing requirements. The President pointed out that there were over 287,000 federal firearms licensees (all categories), many of whom he stated probably should not have been licensed. The President cited ATF estimates that 40 percent of licensees conducted no business at all and were persons who used the license to obtain the benefits of trading and buying guns at wholesale. The President listed a number of steps that ATF could take to ensure compliance with present licensing requirements, including revising the application process to require the applicant to supply all information relevant to establishing qualification for a license, and requiring more reliable forms of identification of the applicant, such as fingerprinting. (App. IV contains the President’s Memorandum on Gun Dealer Licensing.) In response to the President’s memorandum, ATF implemented a number of actions to improve the thoroughness and effectiveness of screening applicants for federal firearms licenses. For example, in late 1993 and early 1994, ATF significantly revised the firearms licensing process to obtain more information about applicants to determine whether they met the requirements of GCA. For the first time, ATF began doing criminal background checks on applicants applying for renewals of their licenses. Also, ATF substantially revised the application form by adding a number of questions and requirements for supporting information to assist it in determining whether applicants intended to engage in the firearms business. For example, ATF required applicants to (1) submit fingerprints and photographs of themselves, (2) furnish a diagram of the business premises where their firearms inventories were located, and (3) provide a description of their security system for safeguarding firearms inventories. Further, ATF stopped using its short application form previously used for renewing firearms dealer licenses and required applicants applying for renewal of their licenses to use the longer, more detailed application form. ATF’s Firearms and Explosives Licensing Center began mailing out the application form (dated December 1993) in February 1994. Concurrent with implementing these substantive changes, ATF officials said they placed more responsibility on applicants to correctly and completely file applications and more emphasis on ensuring that all applicants complied with GCA. For example, ATF licensing examiners were instructed to return incomplete applications for licenses rather than attempt to correct them by telephone. As a result of the application form revisions, together with the increased license fees passed in the Federal Firearms License Reform Act of 1993 and new requirements added by the Violent Crime Control and Law Enforcement Act of 1994 (discussed below), ATF began experiencing backlogs and delays in issuing firearms dealer licenses. According to ATF, the backlog of applications was due primarily to the large number of incomplete application packages being submitted; approximately 80 percent of the applications were returned due to errors and omissions. In addition, ATF received numerous complaints from applicants about the complicated form and delays in receiving licenses. To address this backlog problem and related complaints, in July 1995 ATF again revised the application form for firearms dealer licenses and took steps to expedite the application process. Specifically, ATF reduced the number of questions and the amount of supporting documents and forms required in the application package. For example, ATF eliminated (1) questions requiring a diagram of the premises, a description of the security system, and a description of restrictions and ordinances relating to conducting a business; and (2) the requirement for supporting documents, such as lease agreements. When revising the application form and process in July 1995, ATF obtained input from the firearms industry. Along with executive branch actions discussed above, Congress passed legislation in 1993 and 1994 affecting the licensing provisions of GCA. Concurrent with ATF’s revision of the application form, the Federal Firearms License Reform Act of 1993, passed in November 1993 increased the licensing fees for obtaining and renewing federal firearms dealer licenses. The 1993 act increased the licensing fee, effective November 30, 1993, from $10 per year to $200 for a new 3-year license and from $10 per year to $90 for a 3-year renewal license. According to ATF, since the fee increase took effect immediately, many applications were received with insufficient fees and had to be returned, thus causing some backlogs. The Violent Crime Control and Law Enforcement Act of 1994, passed in September 1994, added more licensing requirements. The 1994 act enacted an already existing ATF requirement that an applicant for a federal firearms license furnish a photograph and fingerprints as a positive means of identification. In addition, the 1994 act required that an applicant for a federal firearms license make various certifications, such as that (1) the firearms business to be conducted under the license is not prohibited by state and local law and (2) the business will comply with state and local law applicable to the conduct of the business within 30 days after the application is approved. This latter provision, according to the Chief of ATF’s Licensing Center, was a significant factor that added to the backlogs because applications that were in process had to be returned to obtain the applicants’ certifications. Prior to the Violent Crime Control and Law Enforcement Act of 1994, ATF would not deny an application or revoke a license solely on the basis of noncompliance with state and local laws. However, ATF used noncompliance with state and local laws as a basis for advising applicants to withdraw their applications. Under its National Firearms Program, if ATF found an applicant/licensee was not in compliance with state and local laws, ATF inspectors were to advise the applicant/licensee that information on noncompliance would be referred to the appropriate state and local officials. Further, inspectors were to give applicants/licensees the opportunity to withdraw their applications or surrender their licenses and re-apply when they were in compliance with the requirements of state and local laws. With the passage of the Violent Crime Control and Law Enforcement Act of 1994, ATF was provided the authority to condition issuance of a federal firearms license on the certification, by an applicant, of compliance with state and local laws. According to ATF officials in December 1995, ATF found that its five districts and some area offices within districts were enforcing the licensing requirement on compliance with state and local laws differently. Two districts were taking a “hard-line” approach by withholding issuance of licenses until all state and local compliance matters were resolved. Three other districts were generally taking a more moderate approach to enforcement of the licensing requirement. For example, these three districts would not withhold issuance of licenses if local agencies were not enforcing local zoning requirements. “1.In situations where zoning laws are enforced by local authorities, a license application will be disapproved if the local zoning law prohibits the conduct of the business. 2.In situations where zoning laws appear to prohibit a Federal firearms licensee from conducting business, but where the laws are not enforced, ATF will not take adverse action on a license application based solely on apparent non-compliance with zoning restrictions.” Along with federal laws and administration actions, the enforcement of state and local laws may have resulted in reduction in the number of firearms dealers. Such laws include licensing, taxing, and other business-related state and local laws and zoning ordinances. Although we did not systematically review state and local laws and enforcement efforts relating to firearms dealers, the Chief of ATF’s Firearms and Explosives Licensing Center informed us that several states, including California, Rhode Island, and Connecticut, have strict gun laws that have contributed to significant decreases in the number of federal firearms licenses. It should be noted that those three states had declines of 41.5, 43.1, and 40.2 percent, respectively, in the number of firearms dealer licenses from April 1993 to September 1995. Concerning California, ATF’s Los Angeles Area Office Supervisor told us that California’s requirements for a firearms dealer license contributed to the decline in the number of dealers. California requires that applicants for dealer licenses obtain a state certificate of eligibility, a state seller’s permit, and a local business license or permit. In addition, during the course of our work, we obtained several examples of where the enforcement of local laws, including zoning requirements, resulted in reductions in the number of firearms dealers. These are summarized below: According to ATF’s Detroit Area Office Supervisor, the city of Detroit used an existing zoning ordinance that forbids people from operating businesses out of their homes to reduce the number of firearms dealers in the city. If not in compliance with the zoning ordinance, the City of Detroit is to give the firearms dealers the option of withdrawing their federal licenses or moving to a location properly zoned for commercial sales. Dealers are given 30 days to comply. If they are not in compliance, they are to be cited and prosecuted. According to ATF’s Acting New York Area Office Supervisor, in New York City and three New York Counties—Westchester, Nassau, and Suffolk—the number of firearms dealer licensees declined primarily due to enforcement of local laws and zoning requirements enforced through a joint program with ATF and local law enforcement agencies. ATF inspectors were accompanied on applicant inspections by local law enforcement personnel who checked for compliance with local requirements, particularly zoning ordinances. In Honolulu, Hawaii, according to the Chief of ATF’s Firearms and Explosives Regulatory Division, the number of federal firearms dealer licensees has decreased significantly because of a city ordinance banning the sale of firearms within the city limits. We found no evidence from our review of ATF and other documents and interviews with numerous agency headquarters and field officials that ATF had a policy, or sought, to reduce the number of licensed dealers by some targeted number. Instead, we found that ATF’s strategy since 1993 has been to strictly enforce GCA by closely scrutinizing firearms dealer applicants and licensees to ensure that licenses would not be used for purposes other than conducting legitimate firearms businesses. Further, ATF recognized that its strategy of increased enforcement, along with the legislative actions discussed earlier, would likely result in a reduction in the number of licensed dealers. To obtain information on whether ATF had a policy, or sought, to reduce the number of firearms dealers to some targeted number, we reviewed numerous ATF documents and interviewed 40 ATF officials, including headquarters officials responsible for developing policy and field officials responsible for implementing policy. We reviewed numerous ATF documents on its National Firearms Program, including memoranda, ATF briefs (which outline annual program requirements), annual operating plans and reports, issue papers, briefing papers, and firearms dealer application forms and standardized letters. We also accessed ATF’s computer database of active and obsolete policy and program documents. Our review of these documents showed that ATF’s strategy was to closely scrutinize firearms dealer applicants and licensees to ensure strict compliance with GCA. For example, we noted a memorandum dated June 16, 1993, from ATF’s Associate Director (Compliance Operations) to All Regional Directors (Compliance) providing guidance on implementation of the National Firearms Program that stated “ur [ATF’s] mission is not to put federal firearms licensees out of business, but to ensure that all licensees adhere to the requirements of the Gun Control Act (GCA).” We interviewed the Chief of the Firearms and Explosives Regulatory Division, who was responsible for developing policy on firearms regulatory matters. We also interviewed ATF officials responsible for implementing ATF policy, including: (1) the Chief of the Firearms and Explosives Licensing Center and licensing examiners; (2) the Directors of the Western, Southwest, Southeast, and Midwest Districts; and (3) Area Office Supervisors and inspectors from the Los Angeles, Dallas, Atlanta, and Detroit Area Offices. These discussions indicated that ATF did not have a policy or an objective to reduce the number of firearms dealers by a targeted number. However, partly on the basis of the results of Operation Snapshot, conducted in 1992 and 1993, ATF recognized that its increased enforcement efforts would likely result in declines in the number of firearms dealers not engaged in a firearms business. ATF’s report on Operation Snapshot stated that 46 percent of all licensees had sold no firearms in the previous 12 months, and another 34 percent had sold between 1 to 10 firearms. In addition to its own increased enforcement efforts, ATF attributed the declines in the number of firearms dealers to various other factors, particularly the Federal Firearms License Reform Act of 1993 and the Violent Crime Control and Law Enforcement Act of 1994. ATF stated that it received correspondence from a number of applicants who cited increased fees, reluctance to provide fingerprints, and state and local restrictions as reasons for not pursuing new or renewal licenses. ATF also commented that a number of licensees were unwilling or unable to certify compliance with state and local laws, and ATF was therefore unable to issue new or renewal licenses. While ATF commented that it did not have empirical data to categorically show why licensees went out of business, it stated that many licensees had obtained licenses only to purchase firearms at a discount to enhance a personal collection. ATF stated that additional licensing requirements, including increased licensing fees and costs associated with compliance with state and local laws, negated the benefits of a license. To help determine reasons for declines in the number of licensed firearms dealers, we obtained the views of representatives of seven organizations. These included three firearms industry organizations—the American Shooting Sports Council, Inc. (ASSC), National Alliance of Stocking Gun Dealers (NASGD), and National Association of Federally Licensed Firearms Dealers (NAFLFD); a firearms consumers organization—the National Rifle Association (NRA); two handgun control/violence prevention organizations—Handgun Control, Inc., and the Violence Policy Center (VPC); and a law enforcement organization—the International Association of Chiefs of Police (IACP). (App. VI contains descriptions of these organizations.) The firearms industry organizations and the NRA were of the opinion that the primary reason for the decline in the number of dealers was ATF’s December 1993 revised licensing requirements and the related application form. They generally believed that the type and amount of detailed information required by the new form discouraged many persons from applying for or renewing a license. ASSC and NASGD, as well as Handgun Control, Inc., cited the requirements to provide fingerprints and photographs (subsequently enacted in the Violent Crime Control and Law Enforcement Act of 1994) as a major reason for the declines. In addition, IACP, an organization of police executives, also pointed to the overall tightening of the application process as a reason for the decline in the number of dealers. However, it did not believe that this or other additional changes were onerous burdens on legitimate business operations. Two of the firearms industry organizations—ASSC and NAFLFD, as well as Handgun Control and VPC—also cited the increased licensing fee authorized by the Federal Firearms License Reform Act of 1993 as a major cause for the decline in the number of dealers. Handgun Control and VPC believed other reasons for the decline were (1) ATF’s increased enforcement of already existing laws, particularly the “engaged in the business” provision of GCA; and (2) the Violent Crime Control and Law Enforcement Act of 1994 provision requiring applicant certification of compliance with state and local laws as a condition for federal licensing. IACP also cited this provision as a factor contributing to declines in the number of dealers. In addition, VPC attributed the declines to legislative and enforcement actions by state and local governments and law enforcement agencies to regulate the licensing of firearms dealers in their jurisdictions. We conducted a telephone survey of a sample of former federal firearms dealer licensees to determine why they did not renew their licenses. We randomly selected 80 licensees whose licenses had expired between October 1, 1994, and March 31, 1995. We were able to reach 56 of the 80 (70 percent) former licensees. We asked the respondents for the reasons their licenses had expired, the average number of firearms they had sold a year, and any other comments they had about ATF. Since we asked an open-ended question about the reasons for the expiration of the license, our results are likely to underestimate the frequency of each reason. Also, because we introduced the survey as part of a study of how ATF administers the licensing process, reasons concerning ATF’s role are likely to have been recalled more easily than other reasons. Because we were unable to contact 30 percent of our sample and the size of our sample was limited, the results should be interpreted cautiously. Finally, we cannot be certain that the reasons provided by these dealers would apply to those whose licenses expired at other times. (See app. I for more details on the survey and the sampling errors associated with each estimate; see app. VII for the survey questionnaire.) On the basis of our sample results, we estimated that 57 percent of former licensees would list federal licensing fees or other federal requirements as one of the reasons for not renewing their licenses; because of sampling errors, this figure could be as low as 43 percent. Aspects of the federal requirements mentioned include application filing requirements, amount of paperwork, fingerprinting, and diagram of premises. Most licensees who mentioned one of these federal requirements also mentioned at least one other reason for nonrenewal. We examined the other reasons provided by our respondents for nonrenewal of their licenses. For example, some licensees went out of business for unrelated reasons, or decided that they could not make a profit selling firearms. Some indicated they just forgot to renew their licenses. We estimated that 79 percent of former licensees believed that there was at least one reason, other than a federal requirement, for not renewing their licenses; because of sampling errors, this figure could be as low as 67 percent. As discussed earlier, ATF’s Operation Snapshot reported that as many as 46 percent of dealer licensees were not selling firearms. Our survey results indicated that similar proportions of the former licensees in our sample period were probably not selling firearms. We asked our respondents how many firearms they sold in an average year when they had a license. On the basis of their responses, we estimated that between 27 percent and 55 percent of licensees had not sold any firearms in an average year. In addition, we estimated that at least 50 percent, and as many as 78 percent, of former licensees had sold fewer than six firearms in an average year. We also found that only 2 of the 56 former licensees had sold 100 firearms or more per year. These results help support ATF’s conclusion that part of the decline in the number of licensees involves those not actually selling firearms dropping out of the population of licensees. Representatives of the seven previously mentioned organizations also provided us with a wide range of views on the advantages and disadvantages of reducing the number of firearms dealers. Their views, which are summarized below, generally concerned the effect that declines in the number of firearms dealers may have on crime, regulatory enforcement, and economics. Three organizations—NASGD, Handgun Control, and VPC—indicated that reducing the number of dealers to only those who are legitimately “engaged in the business” was advantageous as a step toward reducing crime. Handgun Control and VPC expressed concerns that “kitchen dealers,” those who operate out of their homes or vehicles, or at gun shows, were a major source of black market firearms used to commit crimes. The NASGD Executive Director stated “reductions in the number of non-legitimate firearms dealers has a direct impact on reducing crime.” Several organizations saw declines as advantageous to regulatory enforcement efforts. The Executive Director of ASSC indicated that reducing the number of licensed dealers would allow better use of regulatory resources. The President of NAFLFD stated that with fewer licensed firearms dealers, ATF’s firearms tracing operations should become more efficient and effective. IACP indicated that reducing the number of federally licensed firearms dealers would enable the limited number of [ATF] inspectors to do their jobs. Similarly, Handgun Control and VPC stated that when the number of licensed dealers was about 244,000, ATF could not effectively monitor them. They stated that with fewer licensed dealers, ATF would be able to more efficiently and effectively monitor dealer compliance with federal law. As a disadvantage, the President of NAFLFD raised a concern that reducing the number of licensed dealers too much could lead to an “underground economy,” an environment where firearms transactions would go unregulated and firearms tracing would be difficult. Two firearms industry organizations—NAFLFD and ASSC—expressed concerns that a reduction in the number of retail dealers could negatively affect competition. NRA representatives said they were less concerned with the number of dealers than with ATF artificially reducing the number of dealers due to its policies and enforcement efforts. NRA indicated that as a representative of firearm consumers, it is vitally interested in ensuring that government policies do not have a detrimental effect on the legal supply and availability of firearms. The President of NAFLFD indicated that the smaller firearms dealers did not represent competition for successful storefront dealers; therefore, the elimination of smaller dealers would not affect the availability or prices of legally traded firearms. IACP indicated that the reduction in the number of dealers had not made it any more difficult for law-abiding citizens to purchase firearms. We requested comments on a draft of this report from the Secretary of the Treasury. Department of the Treasury officials from the Office of the Under Secretary for Enforcement and ATF provided Treasury’s comments at a meeting on March 7, 1996. Overall, the officials stated that the report was accurate, thorough, and balanced. They also provided technical comments, which have been incorporated in this report where appropriate. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time we will send copies of the report to the Secretary of the Treasury and the Director of ATF. Copies will also be made available to others upon request. The major contributors to this report are listed in appendix VIII. If you have any questions about this report, please call me on (202) 512-8777. Because of concerns by various organizations over declines in the number of federally licensed firearms dealers during the last several years, the Chairman of the House Subcommittee on Treasury, Postal Service, and General Government, Committee on Appropriations, requested that we review ATF’s policies and procedures for licensing and inspecting firearms dealers. We agreed to (1) determine the extent and nature of recent declines in the number of licensed firearms dealers; (2) determine what factors were likely to have affected recent declines in the number of licensed firearms dealers, including whether ATF had a policy to reduce the number of licensed dealers; and (3) obtain the views of pertinent organizations on the advantages and disadvantages of reducing the number of licensed firearms dealers. To obtain information on ATF’s policies and procedures, we obtained and reviewed documents and discussed current policies with agency officials. We accessed policy and program documents through ATF’s directive system, a computer database containing both current and obsolete policy directives. This database included ATF orders, briefs, and other memoranda. We also reviewed related materials that may have affected ATF’s policies and procedures. For example, we examined a 1993 Presidential Memorandum, a 1994 speech by the Secretary of the Treasury, and various congressional hearings records. We also obtained and reviewed recent legislation dealing with the licensing process and discussed the implications of these laws with ATF officials. To obtain information on the number of firearms dealer licenses and the extent and nature of recent declines in the number of firearms dealers, we analyzed ATF data on the number of dealers; the number of applications received; licenses issued, denied, and revoked; and applications withdrawn and abandoned by applicants. Whenever possible, we used ATF information on firearms dealer licenses; in some cases, the only available ATF information aggregated all firearms licensees. As agreed with the requester, we did not verify license and inspection data provided by ATF because of time limitations. To determine the factors likely to have affected declines in the number of firearms dealer licenses, we reviewed ATF documents and analyzed ATF data. We reviewed federal legislation and discussed ATF’s interpretation with ATF officials. We also obtained the views of representatives of seven organizations representing the firearms industry, firearms consumers, law enforcement, and gun control interests. We judgmentally selected the organizations on the basis of our knowledge of their missions and objectives and on suggestions from the Subcommittee staff, ATF officials, and firearms industry representatives in an attempt to obtain a wide range of views. We obtained comments from representatives of the National Alliance of Stocking Gun Dealers, the American Shooting Sports Council, the National Association of Federally Licensed Firearms Dealers, the National Rifle Association, the International Association of Chiefs of Police, Handgun Control Incorporated, and the Violence Policy Center. (These organizations are described in app. VI.) To understand how ATF implemented its policies, we visited four ATF district offices, four ATF area offices, and ATF’s Firearms and Explosives Licensing Center. We visited ATF’s Southeast, Southwest, Western, and Midwest district offices and ATF’s Atlanta, Dallas, Los Angeles, and Detroit area offices. We judgmentally selected the eight field offices on the basis of geographic diversity, significant declines in the number of dealer licensees, inclusion of both urban and rural licensees, and availability of our staff to conduct the work. We cannot be certain that our results apply to the other 33 ATF area offices. We also did some limited work at ATF’s area office in New York City. During our visits to the ATF field offices, we interviewed both top management and other employees. We discussed actual inspection procedures with available ATF inspectors and supervisors to determine whether their views were shared by others. We obtained any guidelines concerning the licensing and inspection process that had been developed in each field office. To determine reasons some former licensees were no longer licensed, we conducted a telephone survey of a random sample of former licensees. We identified a universe of 36,614 licenses that were entered in ATF’s database as having expired in the 6-month period between October 1, 1994, and March 31, 1995. This period was sufficiently distant to ensure that renewal applications were not still being processed, but sufficiently recent to enable respondents to remember why their licenses had expired. We selected a simple random sample of 90 licensees from the population of former licensees. Because of time constraints, we were unable to complete more interviews. Our results do enable us to make estimates to the universe of former licensees, although the small sample requires those estimates to be made with fairly large confidence intervals. Of the 90 licenses in the sample, 10 were not eligible for the following reasons: 7 actually had been renewed, 1 had expired more than 5 years earlier, 1 was pending renewal, and 1 was pending denial. After eliminating these 10, we had a sample of 80 to represent the licenses that expired during our 6-month review period. We were able to obtain survey information on 56 of these individuals, for a response rate of 70 percent. We conducted our telephone survey between October 1995 and January 1996. The survey consisted of four types of questions. First, we verified that the respondents did have licenses that expired in the period specified in the ATF database. Second, we asked for the reasons why the license had expired or had not been renewed. We asked this question in an open-ended manner and probed for more information or additional reasons. Third, we asked the respondent to provide an estimate of the average number of firearms sold in the years when the license was in effect. And fourth, we asked whether there was anything else the respondent would like to tell us about the licensing or inspection process, or about ATF. (A copy of the questionnaire form appears in app. VII.) Several aspects of the survey should be kept in mind in interpreting the results. We cannot be certain that the nonrespondents would have answered our questions in the same way as the respondents. When we compared respondents and nonrespondents using the limited ATF data on size of dealer businesses, we found that most nonrespondents (as most respondents) sold very few firearms. In addition, when we compared the reasons for nonrenewal provided by respondents who were harder to reach with those who were easier to reach, we found no remarkable differences. Despite these similarities, the possibility remains that those we did not reach may differ in other important ways from our respondents. In addition, we used an open-ended question to identify reasons for expiration of the license. We adopted this approach because we did not have time to conduct a pretest that could have identified a comprehensive list of reasons for a closed, check-list question. Using open-ended questions (rather than a list of items read to the respondent) is likely to result in an under-reporting of reasons. Therefore, we have not reported an upper bound for estimates of answers to this question. Also, the survey was introduced to the respondents as GAO’s study of ATF. Given this context, it is likely that reasons related to ATF were more completely reported than were other reasons. We tried to partially balance this potential problem by probing for additional reasons after the respondents answered the question. Finally, our results apply only to licenses expiring between October 1, 1994, and March 31, 1995. However, we have no reason to believe that these results would be any different for any other 6-month period since the implementation of the relevant legislative and policy changes. In this report the 56 sample interviews have been used to provide estimates of the characteristics of the population of all licenses that expired during this period. All such sample results are subject to sampling error. This occurs because the sample results are likely to differ to some extent from the results that would have been obtained if all individuals in the universe had been contacted. The sizes of sampling errors depend largely on the completed sample size and the amount of variability in the data. In this report, all estimates have 95 percent confidence intervals of no more than plus or minus 14 percent. This means that, if we drew repeated samples from the entire study population, 19 out of 20 samples would produce estimates within 14 percent of the true proportion of the total population. In addition to the reported sampling errors, any survey may be subject to nonsampling errors. For example, differences in how a particular question is interpreted, in the sources of information that are available to respondents, or in the types of people who do not respond can introduce unwanted variability into survey results. To minimize nonsampling errors, we took several steps in developing and conducting the survey. We discussed the wording of our questions with ATF officials before finalizing the survey form. Interviewers were told to ask the questions as written, and follow-up questions were provided for the interviewers. In addition, a tentative list of reasons for expiration of licenses was provided on the interview form to facilitate the systematic interpretation of the open-ended responses. The completed survey forms were reviewed by two of our analysts, and all counts of responses were checked independently. To obtain information on whether ATF had a policy to reduce the number of firearms dealer licensees, we reviewed ATF documents—memoranda, ATF briefs (which outline annual program requirements), annual operating plans and reports, issue papers, briefing papers, and firearms dealer application forms and standardized letters—and interviewed ATF officials. In particular, we spoke with the headquarters officials responsible for developing regulatory policy and strategies and field officials responsible for implementing them. To obtain information on the advantages and disadvantages of reducing the number of firearms dealers, we obtained the views of representatives of the same seven organizations previously discussed and further described in appendix VI. N/A = ATF did not maintain data. ATF switched from 1-year to 3-year renewals in 1985. The American Shooting Sports Council represents the firearms industry and interested individuals. The Council promotes the sport of shooting and lobbies on firearms issues. The Council has about 350 members and is headquartered in Atlanta, GA. Handgun Control, Inc., is a public citizens lobby organization working for legislative controls and governmental regulation on the manufacture, importation, sale, transfer, and civilian possession of guns. The organization has about 400,000 members and is headquartered in Washington, D.C. The Center to Prevent Handgun Violence is a nonprofit education, research, and legal advocacy organization established in 1983 to reduce handgun violence. The Center is an affiliate of Handgun Control, Inc. They work closely with one another to disseminate information on handgun violence. The International Association of Chiefs of Police is an organization of police executives who are commissioners, superintendents, chiefs, and directors of national, state, provincial, and municipal departments. The organization provides leadership, support, and research services in all phases of law enforcement activity. This nonprofit organization has about 14,500 members from 81 countries and is headquartered in Alexandria, VA. The National Alliance of Stocking Gun Dealers is a trade organization representing independent, storefront shooting sports dealers, distributors, and manufacturers. The Alliance has about 16,300 members and is headquartered in Havelock, NC. The National Association of Federally Licensed Firearms Dealers is a trade association representing individuals licensed by the federal government to sell firearms. The Association provides firearms retailers with low-cost liability insurance, current information on new products for the industry, and retail business guidance. It has about 10,000 members and is headquartered in Fort Lauderdale, FL. The National Rifle Association of America is a nonprofit sports organization representing target shooters, hunters, gun collectors, gunsmiths, police officers, and others interested in firearms. The Association promotes the rights of individuals to possess and use firearms, promotes shooting sports and firearms safety, and encourages civilian marksmanship. It has about 3.2 million members and is headquartered in Fairfax, VA. The Violence Policy Center is a national nonprofit educational foundation that conducts research on violence in America and works to develop violence-reduction policies and proposals. The Center examines the role of firearms in America, conducts research on firearms violence, and explores new ways to decrease it. The Center is headquartered in Washington, D.C. Jan B. Montgomery, Assistant General Counsel Geoffrey R. Hamilton, Senior Attorney Sandy Ballou, Legal Extern The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Summary: Pursuant to a congressional request, GAO reviewed the Bureau of Alcohol, Tobacco, and Firearms' (ATF) policies and procedures for licensing and inspecting firearms dealers, focusing on: (1) the extent and nature of the decline in the number of firearms dealers since 1993; (2) factors that may have affected the decline, including whether ATF had a policy to reduce the number of dealers; and (3) the views of interested organizations on the advantages and disadvantages of reducing the number of federal firearms dealers. GAO found that: (1) as of September 30, 1995, the number of federally licensed firearms dealers had declined by about 35 percent nationwide from its high point in April 1993; (2) the decline occurred in every state and in applications for both new licenses and renewals; (3) more applications were abandoned or withdrawn and licenses voluntarily surrendered than were denied or revoked by ATF; (4) the reasons for the decline included new ATF efforts to increase enforcement of existing laws through increased inspections, revised application requirements and forms requiring more information, and new legislation that increased license fees and licensing requirements; (5) increased state and local enforcement of their laws may have also contributed to the decline; (6) there was no evidence that ATF had a policy or deliberately sought to reduce the number of licensed firearms dealers, although ATF realized that its strict enforcement of the Gun Control Act of 1968 and the new legislation would likely reduce the number of licensed dealers; (7) officials of 7 organizations representing firearms interests concurred with GAO-identified factors that led to the decline in dealers; (8) a survey of former dealers found various reasons for their not renewing their licenses; and (9) some organizations believed that reducing the number of firearms dealers would lead to a reduction in crime and better monitoring of dealers and guns, while other organizations believed that the decrease would curb competition, raise prices, and limit the lawful availability of firearms.