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.