User fees or user charges are defined by OMB as assessments levied on a class of individuals or businesses directly benefiting from, or subject to regulation by, a government program or activity. Examples of user fees are trademark registration fees, park entrance fees, and food inspection fees. User fees represent the principle that identifiable individuals or businesses who receive benefits from governmental services beyond those that accrue to the general public should bear the cost of providing the service. General user fee authority was established under title V of the Independent Offices Appropriation Act (IOAA) of 1952. The IOAA gave agencies broad authority to assess user fees or charges on identifiable beneficiaries by administrative regulation. This does not authorize agencies to retain and/or use the fees they collect. In the absence of specific legislation that authorizes agencies to retain and/or use the fees they collect, fees must be deposited in the U.S. Treasury general fund. Authority to assess user fees may also be granted to agencies through the enactment of specific authorizing or appropriations legislation, which may or may not authorize the agencies to retain and/or use the fees they collect. OMB Circular A-25, dated July 8, 1993, establishes guidelines for federal agencies to use in assessing fees for government services and for the sale or use of government property or resources. The Circular (1) states that its provisions shall be applied by agencies in their assessment of user charges under the IOAA and (2) provides guidance to agencies regarding their assessment of user charges authorized under other statutes. A specific user fee rate or amount may be based on the full cost to the government of the service or goods provided or on market value, or may be set legislatively. The Circular outlines the circumstances under which agencies are to use cost recovery or market value for determining the fee amount. It defines full cost as all direct and indirect costs to any part of the federal government of providing goods or services, including, but not limited to, direct and indirect personnel costs (i.e., salaries and fringe benefits); overhead costs (i.e., rents and utilities); and management and supervisory costs. The Circular defines market value as the price for goods, resources, or services that is based on competition in open markets and creates neither a shortage nor a surplus of the goods, resources, or services. In some cases, legislation either sets the specific user fee rate or amount or stipulates how the fee is to be calculated, such as a formula. These fees can be based on partial cost recovery, partial market value, or some other basis. For example, the Social Security Administration’s (SSA) fees for administration of state supplementary payments are legislatively set at $6.20 per payment for fiscal year 1998. An example of partial cost recovery is under Public Law 98-575, which excludes the recovery of overhead costs from the National Aeronautics and Space Administration’s commercial space launch services fees. Both the CFO Act and OMB Circular A-25 provide that agencies review their user fees biennially. The CFO Act of 1990 requires an agency’s CFO to review on a biennial basis the fees, royalties, rents, and other charges for services and things of value and make recommendations on revising those charges to reflect costs incurred. OMB Circular A-25 provides that each agency will review user charges biennially to include (1) assurance that existing charges are adjusted to reflect unanticipated changes in costs or market values and (2) a review of other programs within the agency to determine whether fees should be initiated for government services or goods for which it is not currently charging fees. Circular A-25 further states that agencies should discuss the results of the user fee reviews and any resultant proposals in the CFO annual report required by the CFO Act. The Circular also states that when the imposition of user charges is prohibited or restricted by existing law, agencies will review activities and recommend legislative changes when appropriate. Periodic reviews of all user fees are important because the reviews can provide agencies, the administration, and Congress with information on the government’s costs to provide these services or, in some cases, the current market value of goods and services provided. To obtain the information for the first three objectives, we requested the CFOs of the 24 agencies to provide for fiscal year 1996 (1) a list of all user fees, (2) the basis (cost recovery, market value, or legislatively set) for determining the fee amount, (3) total amount of user fees collected in fiscal year 1996, and (4) supporting documents for the most recent review they had conducted of each user fee between fiscal years 1993 and 1997. We used 1996 fees because 1996 was the most recent year agencies had complete data. We reviewed the supporting documentation of the fee reviews to determine whether the reviews (1) indicated that direct and indirect costs were determined (if the fee was based on cost recovery) or current market value was determined (if the fee was based on market value) and (2) included an assessment of other programs within the agency to identify potential new user fees. We followed up with agency program officials when necessary to clarify the CFOs’ responses. We also reviewed Federal Register notices for fiscal years 1993 through 1997 that discussed fee revisions and how the fees were calculated. In addition, we reviewed prior reports by the agencies’ Inspectors General (IG) and us that covered user fees in CFO agencies during the time period covered by the scope of our work. We did not verify whether agencies reported all of their user fees. To obtain information on the fourth objective, we reviewed the CFO annual reports for fiscal years 1995 through 1997 and requested information from the 24 agencies on whether they reported the results of reviews in the CFO reports during fiscal years 1993 and 1994. To determine whether agencies were more likely to review fees if the fees were authorized to be used to cover agencies’ expenses compared to when they were not, we obtained information from each of the agencies on whether they had legislative authority to use fees they collect. We then compared the number of reviews of fees that agencies were allowed to keep with the number of reviews of those that they were not allowed to keep. We reviewed relevant laws and regulations pertaining to user fees, including the CFO Act of 1990, the IOAA and other user fee authorizing legislation, and OMB Circular A-25. We also reviewed OMB Bulletins 94-01 and 97-01, Form and Content of Agency Financial Statements, to determine whether they contained user fee reporting requirements. We met with OMB officials to obtain additional information on OMB’s user fee review and reporting requirements. In some cases, agencies said they did not formally conduct “biennial fee reviews” but instead periodically, generally annually, conducted fee rate updates that met the key requirements of a biennial review. In these instances, we considered the rate updates as user fee reviews. In those cases where agency documentation indicated that agencies determined the direct and indirect costs of providing services, we did not verify that both direct and indirect costs had been considered or that the types of costs considered were appropriate. Our previous work has concluded that, in general, the federal government does not have adequate cost accounting systems to track costs to specific programs or services. To audit each individual cost factor for the fees we reviewed was beyond our scope and would have involved more time and resources than were available. Our scope did not include fees charged to other federal agencies or federal employees. We also excluded insurance premiums because, according to an OMB official, they were not subject to Circular A-25 during the scope of our review. We excluded credit-related fees, such as loan guarantee fees, since OMB advised that credit-related fees were not covered by Circular A-25, but were governed by OMB Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables. We did our work at the 24 CFO agencies’ headquarters in Washington, D.C., between June 1997 and June 1998 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Director of the Office of Management and Budget and asked the Chief Financial Officers of the 24 agencies included in the review to verify the accuracy of their agencies’ data used in the report. Their comments are discussed near the end of this letter. As table 1 shows, the 24 CFO agencies reported having 546 total user fees in effect in fiscal year 1996. Agencies reported that 397 of their fees were based on cost recovery, 35 were based on market value, and 114 were set by legislation. As previously stated, statute-based formulas can be based on either market value, cost recovery, or some other basis. Of the 24 CFO agencies with 546 reported user fees, 6 agencies reviewed all of their reported fees at least biennially as required by Circular A-25 during fiscal years 1993 through 1997, 3 reviewed all of their reported fees at least once, 11 reviewed some of their reported fees, and 4 did not review any of their reported fees during this period. The agencies reported that they had reviewed 259 of the fees annually, 159 biennially, and 34 once during this 5-year period, as shown in table 2. According to OMB Circular A-25, agencies should have reviewed the fees at least biennially. The fee reviews that were conducted annually or biennially were in compliance with the Circular. Excluding the three newly effective fees in table 2, 13 agencies did not comply with the Circular for 31 fees that were reviewed only once during the 5-year period. All of the 31 fees were in effect long enough to have had biennial reviews. Fifteen of the 24 CFO agencies had not reviewed 94 user fees at all during the 5-year period. These 94 fees were about 17 percent of the total 546 fees. The agencies provided various reasons for not conducting the reviews.