Small businesses are a significant part of the nation’s economy, accounting (under SBA’s definition) for 99 percent of all businesses, about 50 percent of the gross domestic product, and about 53 percent of private industry’s workforce. Small governments make up 97 percent of all of the local governments in the United States. However, small businesses and governments can be disproportionately affected by federal agencies’ regulatory requirements, and agencies may inadequately consider the impact of those requirements on small entities when the requirements are implemented. In response to concerns about the effect that federal regulations may have on small entities, Congress passed the Regulatory Flexibility Act (RFA) in 1980 (5 U.S.C. 601-612). The RFA requires federal agencies to analyze the anticipated effects of rules they plan to propose on small entities unless they certify that the rules will not have a “significant economic impact on a substantial number of small entities.” We have reported several times on the implementation of the RFA, noting areas in need of improvement. On March 29, 1996, Congress passed SBREFA to, among other things, strengthen the RFA’s protections for small entities and “create a more cooperative regulatory environment among agencies and small businesses that is less punitive and more solution-oriented.” Subsection 223(a) of SBREFA directed each federal agency regulating the activities of small entities to establish a policy or program by March 29, 1997, “to provide for the reduction, and under appropriate circumstances for the waiver, of civil penalties for violations of a statutory or regulatory requirement by a small entity.” Subsection 223(b) identifies certain “conditions and exclusions” that agencies’ policies or program could include (e.g., requiring the small entity to correct the violation within a reasonable period of time and excluding violations that pose serious health, safety, or environmental threats). Although the agencies’ policies and programs were required to contain conditions and exclusions (subject to the requirements or limitations in other statutes), agencies were not required to include the conditions and exclusions listed in the subsection and were not limited to those listed. Subsection 223(c) required agencies to submit a one-time report to four specific congressional committees by March 29, 1998, on (1) the scope of their programs or policies, (2) the number of enforcement actions against small entities that qualified or failed to qualify for the programs or policies, and (3) the total amount of penalty reductions and waivers. Comments by the drafters of SBREFA at the time the act was passed underscore the discretion that agencies have in the development and implementation of their section 223 programs and the degree to which agencies can use existing programs to satisfy the act’s requirements. Their statement, entitled the “Joint Managers Statement of Legislative History and Congressional Intent,” says that “ach agency would have the discretion to condition and limit the policy or program on appropriate conditions,” and “it is up to each agency to develop the boundaries of their program and the specific circumstances for providing for a waiver or reduction of penalties.” The statement also noted that “ome agencies have already established formal or informal policies or programs that would meet the requirements of this section” and specifically referred to EPA’s small business enforcement policy in this regard. The enactment of SBREFA marked the second time in less than a year that agencies had been encouraged to provide penalty relief to small businesses. In April 1995, President Clinton, by memorandum, directed the heads of 27 departments and agencies to modify the penalties for small businesses in certain situations “to the extent permitted by law.” For example, the memorandum said agencies “shall exercise their enforcement discretion to waive the imposition of all or a portion of a penalty when the violation is corrected within a time period appropriate to the violation in question.” The memorandum also required each agency to submit a plan to the Director of the Office of Management and Budget (OMB) describing the actions the agency would take and said the plan must provide that the agency will implement the policies on or before July 14, 1995. It also said that the plans should identify how notification of the agencies’ policies will be given to frontline workers and small businesses. We have recognized in previous reports that enforcement is an important element of regulatory management and civil penalties are important to agencies’ enforcement efforts. For example, in a 1996 report on the Clean Water Act we said “penalties play a key role in environmental enforcement by deterring violators and by ensuring that regulated entities are treated fairly and consistently so that no one gains a competitive advantage by violating environmental regulations.” In another report, we said civil monetary penalties “are potentially a strong deterrent” to noncompliance with nursing home regulations, and we also said those penalties “have potential to provide the necessary incentives to ensure continued compliance.” However, some Members of Congress have become concerned about the impact that civil penalties can have on small businesses and other small entities, particularly for infractions that may be relatively minor in nature. During the 105th Congress, the House of Representatives approved legislation that would have required federal regulatory agencies, in certain circumstances, to suspend civil fines on small businesses for first-time paperwork violations so that the small businesses could correct the violations. Similar legislation was introduced in the Senate but was not enacted. In commenting on this proposed legislation, EPA and other agencies indicated that information collection requirements are the foundation of many health and safety statutes, and that violations of those requirements should not automatically be treated as a minor infractions meriting a waiver of civil penalties. In testimony before the Senate Committee on Governmental Affairs, the Administrator of the Office of Information and Regulatory Affairs within OMB said the Clinton administration strongly opposed the Senate bill, noting that “e already have a powerful tool designed to give protection to small business owners”—section 223 of SBREFA. The Administrator said that OMB was not aware of any significant problems with the implementation of section 223. However, he also said that if there are “gaps” in section 223 that need correction, OMB would be willing to help craft an appropriate amendment. The objectives of our review were to (1) describe the similarities and differences in the selected agencies’ policies or programs under subsection 223(a) of SBREFA; (2) determine how many civil penalty enforcement actions each selected agency had initiated against small entities each fiscal year since SBREFA’s enactment and how many of those actions resulted in some kind of penalty relief (either a waiver or penalty reduction); and (3) determine whether any of the civil penalty enforcement actions that did not result in penalty relief involved paperwork requirements and, if so, why a waiver or penalty reduction was not provided in those cases. To identify the agencies included in our review, we examined the October editions of the Unified Agenda of Federal Regulatory and Deregulatory Actions for fiscal years 1997, 1998, and 1999 to identify the agencies that most frequently appeared to issue rules with a significant economic impact on a substantial number of small entities. Ten departments and agencies had at least 50 entries in at least 1 of these editions of the Unified Agenda— EPA; FCC; and the Departments of Agriculture, Commerce, Health and Human Services, the Interior, Justice, Labor, Transportation, and the Treasury. On the basis of the Subcommittee’s interests, we selected EPA, FCC, DOJ, and DOL for inclusion in the review. Within DOJ and DOL, we identified the agencies that accounted for most of the departments’ totals— INS within DOJ and MSHA and OSHA within DOL. We then confirmed that each of the five agencies selected had civil penalty authority. To address the first objective of describing the similarities and differences in the selected agencies’ policies, we obtained a copy of the report that each of the agencies submitted in 1998 pursuant to subsection 223(c) of SBREFA from the Senate Committee on Small Business. We also obtained copies of each agency’s policies and reports from the agencies or through the Internet. We reviewed the agencies’ policies and policy descriptions in their reports, noting areas of similarity and difference (e.g., whether the agencies’ policies provided civil penalty relief for small entities and the scope of the policies’ coverage). We then clarified, where appropriate, our characterizations of the agencies’ policies with agency officials. We also attempted to use the agencies’ subsection 223(c) reports to address the second objective—determining how many civil penalty enforcement actions the agencies had initiated and how many resulted in penalty relief. However, two of the reports did not contain any enforcement data, and in two other cases the data were not presented in the manner specified in the statute or consistent with our objective. Therefore, we asked officials in each selected agency to identify how many civil penalty enforcement actions the agency had initiated against small entities each fiscal year since SBREFA’s enactment (i.e., fiscal years 1997, 1998, 1999, and 2000), and how many of those actions in each year resulted in some penalty relief and no penalty relief. To address our third objective regarding paperwork requirements, we asked the agencies to identify how many of the enforcement actions against small entities that resulted in no penalty relief involved a paperwork requirement. We also asked the agencies to explain why those paperwork-related actions did not result in civil penalty relief. We defined a “paperwork requirement” as involving a collection of information approved by OMB pursuant to the Paperwork Reduction Act of 1995. This review focused on five selected agencies and cannot be used to characterize the SBREFA programs or policies in other agencies. However, we believe these agencies’ programs and policies illustrate the variation in such policies among agencies with a significant regulatory impact on small entities. We did not validate the reliability of the enforcement data that agencies provided. We conducted our review between August 2000 and December 2000 in accordance with generally accepted government auditing standards. We provided a draft of this report to the Secretary of Labor, the Attorney General, the Chairman of the Federal Communications Commission, and the Administrator of the Environmental Protection Agency for their review and comment.