State is authorized to designate acceptance facilities—in addition to its own passport offices—to provide passport execution services to the American public. The majority of passport applications are submitted at acceptance facilities nationwide; these include post offices; federal, state, and probate courts; some public libraries and public universities; and a variety of other county, township, and municipal offices. Agents at these facilities are responsible for, among other things, verifying that the applicant’s identification documents (driver’s license, for example) and photo are authentic and match the person standing before the agent. Acceptance facilities retain the execution fee for this service. Figure 1 depicts the execution process. State reported that there were 8,583 active acceptance facilities nationwide as of September 30, 2006 (see table 1)—post offices comprised almost two-thirds of all active facilities. According to consular officials, for fiscal year 2006, post offices executed about 72 percent of applications for minors and for adults applying for the first time; nonpostal facilities executed about 25 percent. The remainder (3 percent) were executed by 14 of State’s passport offices. In recent years, State has expanded its network of acceptance facilities to accommodate increasing passport demand. We reported previously that there were approximately 7,000 acceptance facilities as of March 2005. In fiscal year 2006, State added 753 new locations to its network of acceptance facilities, of which 636 are post offices, and 117 are nonpostal facilities. State requires that acceptance agents be U.S. citizens, permanent employees, 18 years or older, and have successfully completed a training program. We reported in July 2007 that State has taken a number of measures to ensure the security and quality of passports, including establishing internal control standards and quality assurance measures and training of acceptance agents. However, we found that State lacks a program for oversight of passport acceptance facilities and made a number of recommendations to improve this oversight. State indicated that it has begun to take actions that would address our recommendations. The Secretary of State prescribes fees for passport services that State provides and has some discretion in setting and collecting passport fees. The Chief Financial Officers Act of 1990 requires, and Office of Management and Budget (OMB) guidance in Circular A-25 advises, that agencies review the fees for their programs biennially. According to OMB A-25 guidance, fees should be sufficient to recover the full cost to the federal government of providing the service, resource, or good. “Full cost” includes all direct and indirect costs to the federal government, such as direct and indirect personnel costs, including salaries and fringe benefits such as medical insurance and retirement; physical overhead, material, and supply costs; rents; and management and supervisory costs. In addition, State and USPS signed a formal, interagency agreement in 2000, which sets forth the terms and conditions of the execution services that USPS provides on State’s behalf. The agreement states, among other things, that State will consider the results of any USPS analyses of passport execution costs and, that before changes in the execution fee are finalized, State and USPS will mutually agree upon the new amount. Further, the agreement states that this partnership is voluntary—if, at any time, State and USPS do not mutually agree to the new fee, either party is free to consider other options, including ending their partnership. Based on recommendations from the 9/11 Commission, Congress, in 2004, mandated the development and implementation of a plan that requires U.S. citizens to have a passport or other document that demonstrates their identity and citizenship when entering the United States from any foreign country or territory. Prior to this legislation, U.S. citizens did not need a passport to enter the United States if they were traveling from Canada, Mexico, the Caribbean, or Bermuda. DHS and State implemented this requirement for airports on January 23, 2007, and are to implement the requirement for land and sea ports before June 1, 2009 (see fig. 2 for key dates in WHTI implementation). The departments have indicated that they will begin to phase in the requirement for land and sea ports in 2008. The current passport book fee is $97 for first time, adult applicants (16 years and older). State reported that there are circumstances where, due to reasons of both cost and ease of use, the traditional book-style U.S. passport may not be the optimal solution for international travelers along the northern and southern land borders of the United States, or international sea travel between the United States and Canada, Mexico, the Caribbean, and Bermuda. Thus, in October 2006, State announced plans to produce a passport card as a lower cost means of establishing citizenship and identity for U.S. citizens. For the passport card, State has proposed to charge $45, which includes a $25 execution fee. The current execution fee is $30 for passport books. The proposed reduction of $5 applies to the execution fee for both passport documents because acceptance agents will follow the same procedures regardless of the type of document. Table 2 shows the current passport book fees, as well as the proposed fees for the passport book and card. According to State, passport cards, like passport books, would be issued for a 10-year validity period for U.S. citizens 16 years and older and for a 5-year validity period for U.S. citizens under 16 years of age. State considered several factors, including congressional interest in having a low-cost travel document and its own estimated execution costs, when setting the proposed execution fee. Based on an interagency agreement, State also reviewed information from USPS on its estimated passport execution costs. According to State, the information from its cost of service study supported the fee-setting process in 2006, but the proposal to reduce the execution fee was not based solely on full cost recovery considerations. Consular officials told us that they considered several factors when setting the proposed execution fee. These include: Commitment to Congress to issue a low-cost document. According to consular officials, the department made a commitment to issue an alternative document to meet WHTI requirements that would be, at most, one-half the cost of the passport book, which currently costs $97. State’s estimates of its passport execution costs. State, through an independent contractor, conducts cost studies for its consular services, including passport execution, to determine the full costs for providing these services. Consular officials stated that the department’s policy is to review these fees on a periodic basis, rather than biennially, due to the length of time it takes to complete the cost of service studies. State’s most recent cost of service study estimated the full costs for execution services to the department for fiscal years 2004 and 2005 to be $24.36. Because OMB guidance states that subject to exceptions, user charges will be sufficient to recover the full cost to the federal government, consular officials told us that the department decided to not lower the execution fee below the amount estimated in the most recent cost of service study. Maintaining State’s network of acceptance facilities. According to consular officials, State wanted to ensure that, while the cost of the passport card was lower than the cost for the current passport book, that its execution fee was not so low that it jeopardized State’s relationship with its network of acceptance facilities, on which the department depends to provide passport services to U.S. citizens. State has seen an increase in passport demand from a base level of 7 million passports issued in 2003 to an expected more than 17 million issuances in fiscal year 2007. Based, in part, on these data, consular officials concluded that, even with the reduced execution fee, the department and its acceptance facilities could continue to expect additional funds from passport services. Figure 3 shows that, historically, passport execution fees have been higher than State’s estimated costs. For example, in 2002, State set the execution fee at $30 based on a cost estimate of $16.20. Consular officials told us that, based on policy considerations, there are certain services for which State does not charge a fee or the fee covers only a portion of the cost of the service. For example, State may not charge a passport fee from certain relatives of a deceased member of the Armed Forces proceeding abroad to visit the grave or to attend a funeral or memorial service for that member. Consular officials stated that their general management practice has been to round cost estimates for some services up to cover the cost of those services for which the public is not charged. In 2005, State kept the passport execution fee at $30 based on the $24.36 cost of service study estimate. For the passport card, State only rounded up its cost estimate to the nearest dollar to help reduce the total cost of the card. Based on a 2000 interagency agreement, consular officials consider cost information from USPS in setting passport execution fees. In a fiscal year 2001 internal cost study, USPS estimated that its costs were about $13 per passport. In April 2006, using this study as a baseline, USPS notified Congress that its projected costs for fiscal year 2005 had increased to about $19 per passport. According to consular officials, over the next several months, State and USPS met to discuss the Service’s estimated passport execution costs. Then, in early August 2006, USPS sent a letter to State to notify the department that its initial estimate of $19 did not include a contribution to institutional costs that USPS applies to postal and nonpostal products and services. According to USPS, its average contribution to institutional costs was approximately 76 percent of directly attributed costs. Using this average, USPS told State that its full costs for passport execution for fiscal year 2005 would total about $33 per execution (see table 3)—about $19 for costs directly attributable to passport execution and $14 for institutional cost coverage. USPS’s 2001 study did not address institutional costs.