The mission of the Customs Service is to ensure that all goods and persons entering and exiting the United States do so in compliance with all U.S. laws and regulations. It does this by (1) enforcing the laws governing the flow of goods and persons across U.S. borders and (2) assessing and collecting duties, taxes, and fees on imported merchandise. During fiscal year 1997, Customs collected $22.1 billion in revenue at more than 300 ports of entry, and it processed nearly 450 million passengers entering the United States. To accomplish its mission, Customs is organized into the following six business areas: trade compliance, outbound, passenger, finance, human resources, and investigations. Each business area is described below. Trade compliance includes enforcement of laws and regulations associated with the importation of goods into the United States. To do so, Customs (1) works with the trade community to promote understanding of applicable laws and regulations, (2) selectively examines cargo to ensure that only eligible goods enter the country, (3) reviews documentation associated with cargo entries to ensure that they are properly valued and classified, (4) collects billions of dollars annually in duties, taxes, and fees associated with imported cargo, (5) assesses fines and penalties for noncompliance with trade laws and regulation, (6) seizes and accounts for illegal cargo, and (7) manages the collection of these moneys to ensure that all trade-related debts due to Customs are paid and properly accounted for. Outbound includes Customs enforcement of laws and regulations associated with the movement of merchandise and conveyances from the United States. To do so, Customs (1) selectively inspects cargo at U.S. ports to guard against the exportation of illegal goods, such as protected technologies, stolen vehicles, and illegal currency, (2) collects, disseminates, and uses intelligence to identify high-risk cargo and passengers, (3) assesses and collects fines and penalties associated with the exportation of illegal cargo, and (4) physically examines baggage and cargo at airport facilities for explosive and nuclear materials. In addition, the outbound business includes collecting and disseminating trade data within the federal government. Accurate trade data are crucial to establishing accurate trade statistics on which to base trade policy decisions and negotiate trade agreements with other countries. By the year 2000, Customs estimates that exports will be valued at $1.2 trillion, as compared to a reported $696 billion in 1994. Passenger includes processing all passengers and crew of arriving and departing air, sea, and land conveyances and pedestrians. In fiscal year 1997, Customs reported that it processed nearly 450 million travelers, and by the year 2000, expects almost 500 million passengers to arrive in the United States annually. Many of Customs’ passenger activities are coordinated with other federal agencies, such as the Immigration and Naturalization Service and the Department of Agriculture’s Animal and Plant Health Inspection Service. Activities include targeting high-risk passengers, which requires timely and accurate information, and physically inspecting selected passengers, baggage, and vehicles to determine compliance with laws and regulations. Finance includes asset and revenue management activities. Asset management consists of activities to (1) formulate Customs’ budget, (2) properly allocate and distribute funds, and (3) acquire, manage, and account for personnel, goods, and services. Revenue management encompasses all Customs activities to identify and establish amounts owed Customs, collect these amounts, and accurately report the status of revenue from all sources. Sources of revenue include duties, fees, taxes, other user fees, and forfeited currency and property. The revenue management activities interrelate closely with the revenue collection activities in the trade compliance, outbound, and passenger business areas. Human resources is responsible for filling positions, providing employee benefits and services, training employees, facilitating workforce effectiveness, and processing personnel actions for Customs’ 18,000 employees and managers. Investigations includes activities to detect and eliminate narcotics and money laundering operations. Customs works with other agencies and foreign governments to reduce drug-related activity by interdicting (seizing and destroying) narcotics, investigating organizations involved in drug smuggling, and deterring smuggling efforts through various other methods. Customs also develops and provides information to the trade and carrier communities to assist them in their efforts to prevent smuggling organizations from using cargo containers and commercial conveyances to introduce narcotics into the United States. To carry out its responsibilities, Customs relies on information systems and processes to assist its staff in (1) documenting, inspecting, and accounting for the movement and disposition of imported goods and (2) collecting and accounting for the related revenues. Customs expects its reliance on information systems to increase as a result of its burgeoning workload. For 1995 through 2001, Customs estimates that the annual volume of import trade between the United States and other countries will increase from $761 billion to $1.1 trillion. This will result in Customs processing an estimated increase of 7.5 million import entries—from 13.1 million to 20.6 million annually—during the same period. Recent trade agreements, such as the North American Free Trade Agreement (NAFTA), have also increased the number and complexity of trade provisions that Customs must enforce. Both Customs and the Congress recognize that the ability to process the growing volume of imports while improving compliance with trade laws depends heavily on successfully modernizing Customs’ trade compliance process and its supporting automated systems. To speed the processing of imports and improve compliance with trade laws, the Congress enacted Title VI of the North American Free Trade Agreement Implementation Act in December 1993. Customs refers to this legislation as the “Customs Modernization and Informed Compliance Act” or “Mod” Act. The primary purpose of the act is to streamline and automate Customs’ commercial operations by eliminating certain legislatively mandated paper requirements and requiring Customs to establish the National Customs Automation Program (NCAP). The legislation also specified certain functions that NCAP must provide, including giving members of the trade community the capability to electronically file import entries at remote locations as well as enabling Customs to electronically process “drawback” claims, which are refunds of duties and taxes paid on imported goods that are subsequently exported or destroyed. According to Customs, the act provides the legal framework to automate commercial operations and thereby streamline the processing, and expedite the movement of merchandise at more than 300 ports of entry. ACE is intended to support the trade compliance business process, implement Mod Act requirements, and replace the existing import system, the Automated Commercial System (ACS). ACS is nearly 15 years old and Customs reports that it is becoming increasingly difficult and expensive to operate, maintain, and enhance due to the system’s antiquated hardware and software and limited processing capacity. Currently, ACE’s architecture is to include both (1) mainframe-based, centralized processing to support high-volume, repetitive transactions and (2) distributed, client-server processing and desktop PC interfaces to support port office analysis and decision support needs. The transaction-intensive applications are to run on IBM mainframes at Customs’ national data center and are to be written in COBOL and C++. The distributed processing is to occur on UNIX servers and the applications are to be written in C++ and Java. To support this processing environment, Customs plans to design and implement a single, integrated agencywide database. It also plans to connect port offices to the national data center through existing communications networks comprising the Treasury Communications System, and to connect the trade community to the data center through the Internet and a combination of dial-up lines and dedicated lines. According to Customs, ACE will facilitate increased compliance of individuals, businesses, and governments with the trade laws and regulations of the United States and increased communication with the trade community. It will also provide an integrated, account-based, automated information system for collecting, disseminating, and analyzing trade-related data and ensuring the proper collection and allocation of revenues. Customs began developing ACE in 1994 and plans to develop and deploy ACE in 21 increments from 1998 through 2005. Each increment consists of the software and hardware necessary to perform a discrete portion of the total ACE functionality. The first four increments, known collectively as the NCAP prototype, will process pre-identified merchandise shipped into the U.S. via truck by three selected importers. The first two increments, NCAP 0.1 and NCAP 0.2, were deployed for operational evaluation at three pilot border port locations (Detroit, Michigan; Laredo, Texas; and Port Huron, Michigan) during May 1998 and October 1998, respectively. The succeeding 17 increments are intended to build upon the foundational capabilities contained within the four NCAP prototype increments, providing additional functionality including the capability to (1) process merchandise imported via rail, air, sea, and couriers, (2) process collections and refunds associated with imported cargo, (3) process warehouse entry cargo, and (4) process cargo subject to drawbacks. Until all of these deployments are completed, Customs intends to operate and maintain ACS. Customs’ estimate of ACE costs has escalated since August 1997, when it initially estimated that ACE’s 10-year life-cycle cost would be $895 million for the period 1998 through 2007. In November 1997, Customs revised this 10-year cost estimate to $987.6 million and also estimated that, over 15 years, from 1994 through 2008, it would spend $1.05 billion on ACE. It then used the $1.05 billion estimate along with estimated expected savings of $1.9 billion to justify ACE. Customs is currently reevaluating this estimate. Figure 1.1 compares planned and actual deployments of the NCAP increments. As the figure illustrates, Customs is well over 2 years behind its original schedule for NCAP. The Chairman, Subcommittee on Treasury, Postal Service, and General Government, House Committee on Appropriations, and the Chairman, Subcommittee on Treasury, General Government, and Civil Service, Senate Appropriations Committee, requested that we review ACE.