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Inspection Fees Should be Addressed Regardless of Whether Fees Are 
Consolidated' which was released on September 25, 2007. 

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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

September 2007: 

Federal User Fees: 

Key Aspects of International Air Passenger Inspection Fees Should Be 
Addressed Regardless of Whether Fees Are Consolidated: 

Federal User Fees: 

GAO-07-1131: 

GAO Highlights: 

Highlights of GAO-07-1131, a report to congressional committees. 

Why GAO Did This Study: 

International air passengers arriving in the United States are subject 
to an inspection to ensure they possess legal entry and immigration 
documents and do not bring in contraband, such as illegal drugs, 
counterfeit goods, or harmful pests and prohibited agriculture 
products. With the creation of the Department of Homeland Security 
(DHS) in 2003, the customs, immigration, and agriculture inspections 
activities were integrated into one program led by DHS’s office of 
Customs and Border Protection (CBP). However, the three fees—whose 
collections totaled about $1 billion in fiscal year 2006—linked to 
these inspections remain statutorily distinct and are coadministered by 
CBP, Immigration and Customs Enforcement (ICE), both within DHS, and 
the Department of Agriculture’s Animal Plant Health Inspection Service 
(APHIS). GAO was asked to examine how the fees are set, collected, and 
distributed, and the benefits and challenges of this process to 
agencies and stakeholders, including implications of consolidating 
these fees under the authority of DHS. 

What GAO Found: 

The process of setting, collecting, and distributing separate, 
dissimilar fees creates challenges for agencies and stakeholders. 
Although air passenger inspections were integrated within CBP, the fees 
supporting these inspections were created and are still governed by 
separate, dissimilar authorizing legislation. Two fee amounts are set 
in statute and one is set by regulation; all are collected by the 
airlines, deposited into three separate accounts and distributed among 
the agencies. As a result, the fees are administered and overseen by a 
complicated network of executive branch agencies and congressional 
committees, creating a series of challenges. For example, neither CBP 
nor ICE know whether the fees collected are recovering the full cost of 
the immigration inspection activities or whether the fees are properly 
divided between them, because ICE does not have finalized cost 
calculations for its inspection-related activities. In addition, 
certain passengers are exempt from some fees but not others, making it 
difficult for agencies to administer the fees. Further, although 
airports and airlines play an important role in facilitating 
inspections and the process of collecting and remitting the fees, 
opportunities for two-way communication are fragmented and limited, 
reducing stakeholder buy-in and acceptance of the fees and contributing 
to confusion about how the three fees work and what activities they may 
fund. 

Other challenges are due to the statutory structure of the individual 
passenger inspection fees. For example, the customs inspection fees are 
available for limited purposes: not all reimbursable activities may be 
associated with inspections, and not all inspection activities are 
reimbursable. However, CBP officials said even if the customs fees were 
spent on inspection-related activities, they still would only recover 
about 72 percent of costs in fiscal year 2006. Therefore, customs 
inspection-related activities are mainly funded by appropriations from 
general revenues. Further, without auditing each airline, CBP cannot 
independently verify the amount owed by airlines, partly because 
airlines are required to remit the fees based on ticket sales rather 
than passengers transported. CBP said it is developing a legislative 
proposal that would address these and other challenges by requiring 
airlines to remit based on passengers transported, but airline industry 
stakeholders said this change would complicate their collection process 
and create substantial transition costs. 

Although a number of options for addressing these fees have been 
raised, regardless of whether these fees are consolidated in whole, in 
part, or not at all, certain problems specific to the individual fees 
can and should be resolved first, and in a manner consistent with 
principles of effective user fee design, on which GAO has previously 
reported. Moreover, although partly or fully consolidating the fees 
under DHS’s authority could provide opportunities to address some of 
the many challenges identified in this report, consolidation in-and-of-
itself will not solve all of the problems we have identified. 

What GAO Recommends: 

GAO is making 10 recommendations to the Secretaries of Agriculture and 
Homeland Security to improve cost estimates, collection, distribution, 
remittance, and compliance of the user fees. Both agencies concurred 
with our recommendations. Further, GAO suggests Congress consider 
eliminating key differences among the user fees. 

To view the full product, including the scope and methodology, click on 
GAO-07-1131. For more information, contact Susan J. Irving at (202) 512-
9142 or irvings@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Separate, Dissimilar Fees Create Administrative, Operational, and 
Oversight Challenges: 

Specific Aspects of the Individual Passenger Inspection Fees Should Be 
Addressed Prior to or in Concert with Any Consolidation Effort: 

Conclusions: 

Recommendations for Executive Action: 

Matter for Congressional Consideration: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of Homeland Security: 

Appendix III: Comments from the Department of Agriculture: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Passenger Inspection Fees' Legislative Authorities, 
Congressional Jurisdiction, and Fee Adjustments: 

Table 2: Bimonthly Transfers of Agriculture Fees from APHIS to CBP, 
Including Additional Lump Sum in August. 

Table 3: Air Passenger Exemptions: 

Table 4: Legal Availability of Customs Passenger User Fee: 

Table 5: Actual Customs Air Passenger Inspection Activities: 

Figure: 

Figure 1: Process for Setting, Collecting, and Distributing Air 
Passenger Inspection Fees (Simplified): 

Abbreviations: 

Advisory Committee: Airport and Seaport Inspections User Fee Advisory 
Committee: 

APHIS: Department of Agriculture's Animal and Plant Health Inspection 
Service: 

APIS: Advance Passenger Information System: 

AQI: agriculture quarantine inspections: 

ATA: Air Transport Association: 

CBP: U.S. Customs and Border Protection: 

CFO Act: Chief Financial Officers Act of 1990: 

DHS: Department of Homeland Security: 

FAA: Federal Aviation Administration: 

FTE: full-time equivalent: 

IATA: International Air Transport Association: 

ICE: U.S. Immigration and Customs Enforcement: 

INS: United States Customs Service, the Immigration and Naturalization 
Service: 

MOU/ MOAmemorandum of understanding / memorandum of agreement: 

OMB: Office of Management and Budget: 

PFC: passenger facility charge: 

SABPOE: Securing America's Borders at Ports of Entry: 

United States Government Accountability Office: 

Washington, DC 20548: 

September 24, 2007: 

The Honorable John L. Mica: 
Ranking Member: 
Committee on Transportation and Infrastructure: 
House of Representatives: 

The Honorable Daniel E. Lungren: 
Ranking Member: 
Subcommittee on Transportation, Security, and Infrastructure: 
Protection: 
Committee on Homeland Security: 
House of Representatives: 

The Honorable Thomas Petri: 
Ranking Member: 
Subcommittee on Aviation: 
Committee on Transportation and Infrastructure: 
House of Representatives: 

International air passengers arriving in the United States are subject 
to an inspection to ensure they possess legal entry and immigration 
documents and do not bring in contraband, such as illegal drugs, 
counterfeit goods, or harmful pests and prohibited agriculture 
products.[Footnote 1] With the creation of the Department of Homeland 
Security (DHS) in 2003, the customs, immigration, and agriculture 
quarantine inspection activities were integrated into a unified 
inspection program--often referred to as Securing America's Borders at 
Ports of Entry (SABPOE)--led by DHS's U.S. Customs and Border 
Protection (CBP). However, the three fees charged for these 
inspections--for which collections totaled about $1 billion in fiscal 
year 2006--remain statutorily distinct and are coadministered by CBP, 
U.S. Immigration and Customs Enforcement (ICE), both within DHS, and 
the Department of Agriculture's Animal and Plant Health Inspection 
Service (APHIS), referred to in this report as agencies. 

Although CBP now conducts primary and secondary passenger inspections, 
ICE and APHIS each still conduct inspection-related activities. APHIS 
retained responsibility for 17 plant inspection stations, smuggling 
interdiction and trade compliance, pest and disease identification and 
notification, and risk analysis, in addition to agriculture inspection 
policy and training. ICE is responsible for the investigation, 
detention, and removal activities for inadmissible aliens. 

You asked us to review how the three user fees charged for the 
inspection of arriving international airline passengers are set, 
collected, and distributed and the benefits and challenges of this 
process for agencies and stakeholders, including examining the 
implications of consolidating these fees under DHS's authority. 

To meet these objectives, we reviewed the passenger inspection user fee 
legislation, regulations, guidance, agency documents, prior GAO 
reports, and literature on principles of effective user fee design and 
implementation characteristics. We observed the inspections process and 
interviewed CBP officials responsible for port management and airport 
and airline officials involved with international passenger processing 
for the three passenger inspection fees. We did not assess the 
effectiveness of these inspections. We reviewed audit and cost data 
related to air passenger inspection activities. We also interviewed 
APHIS, CBP, and ICE officials responsible for managing the user fees 
and auditing the user fee collections at DHS and the Department of 
Agriculture. We asked questions about CBP's and APHIS's internal 
controls for the data we used and determined that the data are 
sufficiently reliable for the purposes of this report. However, it was 
beyond the scope of this report to evaluate the reliability of the cost 
data for purposes beyond this report. 

For more information on our scope and methodology, see appendix I. We 
performed our work from October 2006 through August 2007 in Washington, 
D.C; San Francisco, California; Miami, Florida; Boston, Massachusetts; 
Newark, New Jersey; New York, New York; Dallas and Houston, Texas; and 
Seattle, Washington in accordance with generally accepted government 
auditing standards. 

We reviewed the passenger inspection fees taking into consideration 
principles of effective user fee design. These principles, on which we 
have previously reported, can inform efforts to design or redesign user 
fees by helping to clarify the trade-offs associated with various fee 
design elements.[Footnote 2] These principles include:[Footnote 3] 

Equity: An equitable user fee is one in which the consumers pay for the 
cost of the services received, or the burden imposed on the program. 
Efficiency: An efficient user fee is set at a rate that is in 
proportion to the cost that the user imposes on the program. Revenue 
Adequacy: The revenue adequacy of a fee is determined by its ability to 
cover the costs of the program over time. Administrative Burden: The 
burden or cost of administering the user fee should not exceed the 
funds generated by the user fee, including any transitional costs 
associated with changes to the existing system. 

We are currently studying these user fee design issues in more depth 
and expect to issue a report in the coming months. 

Results in Brief: 

The process for setting, collecting, distributing, and using the 
customs, immigration, and agriculture passenger inspection fees is 
complex and varies for each fee. Although air passenger inspections 
were integrated within CBP, the fees supporting these inspections were 
created and are still governed by separate, dissimilar authorizing 
legislation. The amounts of two fees are set by legislation and the 
amount of one fee is set by the agency in regulation. All three are 
collected by the airlines and then deposited into three separate 
accounts and distributed among the agencies (see fig. 1). 

Figure 1: Process for Setting, Collecting, and Distributing Air 
Passenger Inspection Fees (Simplified): 

[See PDF for image] 

Source: GAO. 

[A] The fees are remitted to the government quarterly, except for the 
last quarter of the year, when the immigration fees collected to-date 
are remitted 10 days before the end of the fiscal year, with the 
remaining fees collected in the fourth quarter remitted along with the 
first quarter payment of the next fiscal year. 

[End of figure] 

As a result, the fees are administered and overseen by a complicated 
network of executive branch agencies and congressional committees, 
creating a series of challenges: 

* The eight congressional committees that oversee the fees do not have 
a unified picture of whether the fees work in concert or conflict with 
each other because none of the agencies submit a comprehensive review 
of the passenger inspection fees. 

Agencies disagree on how to distribute the fees. For example, 

* Both conduct immigration inspection activities, but neither CBP nor 
ICE know whether the fees collected are recovering the full cost of the 
immigration inspection activities or whether the fees are properly 
divided between them, because ICE does not have finalized cost 
calculations for its inspection-related activities. 

* Passengers from Canada, Mexico, and U.S. territories and adjacent 
islands are exempt from the customs fee but not from the immigration or 
agriculture fees, which complicates the oversight and audit process. 

* Finally, although stakeholders--primarily airports and airlines-- 
play an important role in both facilitating inspections and the process 
of collecting and remitting the fees, opportunities for two-way 
communication with the three agencies are fragmented and limited. This 
reduces stakeholder buy-in and acceptance of the fees, and contributes 
to misunderstandings and confusion about how the fees work and what 
activities they may fund. For example, the Airport and Seaport 
Inspections User Fee Advisory Committee, under the auspices of CBP, 
focuses on the passenger inspection activities under CBP's purview but 
omits other passenger inspection activities for which ICE and APHIS are 
responsible. 

Other challenges are not the result of the separate passenger 
inspection fees but are related to the specific statutory structures of 
the individual fees: 

* Under the authorizing statute, the customs passenger inspection fees 
collected are only available to reimburse appropriations for a limited 
set of activities related to customs inspections, namely overtime and 
premium pay, retirement and disability contributions, preclearance 
services,[Footnote 4] and foreign language proficiency awards. 
Therefore not all activities that may be funded from the customs fee 
may be associated with conducting passenger inspections, and not all 
inspection activities are reimbursable, that is, can be covered by 
funds from the user fee account. 

* Even if the customs fee was limited to funding the customs inspection 
activities, according to CBP, for fiscal year 2006 it would have only 
covered about 72 percent of total inspection costs. After the April 
2007 fee increase, CBP estimates the fee would still need to increase 
an additional 39 percent to cover total costs. Therefore, customs 
inspection-related activities are generally funded by appropriations 
from general revenues, limiting funds available for other federal 
priorities. 

* Without auditing each airline, CBP cannot independently verify the 
total amount owed by airlines. Because the user fee statutes or 
regulations require airlines and ticket issuers to collect all three 
fees based on total ticket sales, rather than number of passengers 
actually transported, CBP cannot verify the airlines are appropriately 
collecting and remitting the fees. CBP is developing a legislative 
proposal that would address several of the challenges identified in 
this report, including a proposal to require airlines to remit fees 
based on passengers transported along with documentation of passengers 
who traveled. Airline industry stakeholders report that this change 
would complicate their role in the collection process and create 
substantial transition costs. 

A number of options for addressing these issues have been 
raised.[Footnote 5] Regardless of whether these fees are consolidated 
in whole or in part or not at all, the problems resulting from specific 
elements in the individual fees--such as those identified above--need 
to be resolved first. Moreover, although partly or fully consolidating 
the fees under DHS's authority could provide opportunities to address 
some of the many challenges identified in this report, consolidation in-
and-of-itself will not solve all of the problems we have identified. 

In light of this, we are making 10 recommendations for executive action 
to help the Secretaries of Agriculture and of Homeland Security improve 
the cost estimates, collection, distribution, remittance, and 
compliance of the three user fees. Further, we suggest Congress 
consider eliminating key differences among the user fees such as 
authority to set the fee rates and the country of origin exemptions 
mentioned above, and aspects of individual fees such as the set of 
activities on which customs fee collections may be spent. We provided a 
draft of this report to DHS and the Department of Agriculture for 
comment and both agencies concurred with our recommendations. 

Background: 

Millions of individuals arrive in the United States every year and 
undergo an inspection to ensure they are entering the country lawfully 
and not transporting any illegal goods or harmful pests and prohibited 
agricultural products. 

Prior to the creation of DHS in 2003, passengers were required to 
undergo separate customs, immigration, and agriculture quarantine 
inspections (AQI), which were performed by the United States Customs 
Service, the United States Immigration and Naturalization Service 
(INS), and APHIS. Under the Homeland Security Act of 2002, however, 
these passenger inspection functions were transferred to DHS. As part 
of this realignment, CBP was charged with leading the customs, 
immigration, and agriculture quarantine inspection functions, and all 
immigration and agriculture quarantine inspectors were transferred to 
CBP.[Footnote 6] The newly created CBP officers were cross-trained on 
customs, immigration, and agricultural quarantine inspections in what 
is now referred to as "SABPOE."[Footnote 7] As a result, all 
international passengers are now subject to a single primary 
inspection--looking for customs, immigration, and agriculture 
quarantine violations--conducted by a CBP officer. If, as a result of 
the primary inspection, a passenger requires further scrutiny, that 
passenger is referred to another CBP officer who conducts a more in- 
depth secondary inspection. Secondary inspection can involve additional 
interviews, document reviews, database queries, communication with 
other law enforcement agencies, observational techniques, and 
heightened physical inspections.[Footnote 8] Although CBP absorbed and 
leads the inspection program for customs, immigration, and agriculture 
quarantine, other immigration and agriculture responsibilities were not 
merged into CBP. (See text box for more information on CBP, ICE, and 
APHIS and their missions.) 

CBP, ICE, and APHIS: 

The Homeland Security Act established DHS by merging 22 disparate 
agencies and organizations with multiple missions, values, and 
cultures. As part of this transition, both CBP and ICE were newly 
created from parts of legacy agencies. 

CBP was assigned the border inspection functions of the former 
Immigration and Naturalization Service (INS) and former U.S. Customs 
Service and the Department of Agriculture's APHIS program. The new 
agency's mission is the following: 

* interdicting illegal drugs and other contraband; 
* apprehending individuals who are attempting to enter the United 
States illegally; 
* inspecting inbound and outbound people, vehicles, and cargo; 
* enforcing all laws of the United States at the border; 
* protecting U.S. agricultural and economic interests from harmful 
pests and diseases; 
* regulating and facilitating international trade; 
* collecting import duties; and: 
* enforcing U.S. trade laws. 

ICE was created by combining the law enforcement arms of the former INS 
and the former U.S. Customs Service. Its mission is the following: 

* to enforce immigration and customs laws, and: 
* to protect the United States against terrorist attacks by targeting 
illegal immigrants-- including the people, money, and materials that 
support terrorism and other criminal activities. 

The APHIS Program remains part of the Department of Agriculture, though 
the agriculture quarantine inspection functions have now been 
transferred to CBP. The program's mission is to: 

* protect and promote U.S. agricultural health, and: 
* administer certain domestic and wild animal management programs. 

Source: Not available. 

[End of table] 

Although the inspections were unified in 2002, the Homeland Security 
Act did not consolidate the corresponding air passenger inspection 
fees. Thus the previous separate processes for setting, collecting, and 
distributing the fees remain in place. So, whereas most passengers 
likely notice only that they pay "fees" when they purchase a ticket, 
they actually pay--among other charges--three separate inspection user 
fees: one for the legacy customs inspection, one for the legacy 
immigration inspection, and one for the legacy agriculture quarantine 
inspection. 

What Is a User Fee? 

A user fee is a fee assessed to consumers of goods or services provided 
by the federal government. User fees generally apply to federal 
programs or activities that provide special benefits to identifiable 
recipients above and beyond what is normally available to the public. 
User fees are normally related to the cost of the goods or services 
provided. An example of a user fee is a fee for entering a national 
park. In the narrow budgetary sense, a toll for the use of a highway is 
considered a user fee because it is related to the specific use of a 
particular section of highway. Alternatively, highway excise taxes on 
gasoline are considered a form of user charge in the economic sense, 
but since the tax must be paid regardless of how the gasoline is used 
and since it is not directly linked with the provision of the specific 
service, it is considered a tax. 

Source: GAO, A Glossary of Terms Used in the Federal Budget Process, 
GAO-05-734SP (Washington, D.C.: September 2005). 

The Customs Air Passenger Inspection Fee: 

The customs air passenger inspection is designed to prevent passengers 
from bringing illegal goods--such as narcotics--into the United States. 
Passengers pay a customs air passenger inspection fee, currently set in 
statute at $5.50 per passenger, when they purchase their tickets. The 
fees are remitted to the government quarterly, after which they 
reimburse CBP appropriations for a specific set of reimbursable 
expenses. The air passenger inspection fee is only one of several types 
of customs inspection fees also known as COBRA fees--named for its 
authorizing legislation, the Consolidated Omnibus Reconciliation Act of 
1985. For example, commercial vessel passengers also pay a customs 
inspection fee. 

The Immigration Air Passenger Inspection Fee: 

The immigration air passenger inspection is designed to prevent 
passengers from entering the United States without legal entry and 
immigration documents. Passengers pay an inspection fee (set in statute 
at $7 per passenger) when they purchase their tickets. The fees are 
remitted to the government quarterly, except for the last quarter of 
the year, when the immigration fees collected to-date are remitted 10 
days before the end of the fiscal year, with the remaining fees 
collected in the fourth quarter remitted along with the first quarter 
payment of the next fiscal year. The fees are then divided between CBP 
and ICE according to the costs of the immigration inspection activities 
for which each agency is responsible. The immigration air passenger fee 
is one of two immigration inspection fees, the other being the 
international passenger commercial vessel fee. 

The Agriculture Air Passenger Inspection Fee: 

The agriculture air passenger inspection is in place to seize 
prohibited materials and intercept foreign agricultural pests. 
Passengers pay an inspection fee, set by the agency in regulation at 
$5.00 per passenger, when they purchase their tickets. The fees are 
remitted to the government quarterly and are made available to APHIS. 
The fees are then divided between APHIS and CBP based on the proportion 
of costs associated with each agency's agriculture quarantine 
inspection activities. The air passenger inspection fee is only one of 
several types of APHIS inspection fees, known as AQI fees. For example, 
commercial aircraft and vessels also pay AQI fees. 

By statute, the authority to collect the three passenger inspection 
user fees varies from a legislative grant of broad agency discretion to 
set and collect a full-cost recovery fee, to more restrictive authority 
to collect a sum-certain amount available for a limited number of 
purposes. For example, the agriculture inspection statute grants the 
Secretary of Agriculture broad discretion to prescribe and collect fees 
sufficient to cover the cost of providing agricultural quarantine and 
inspection services.[Footnote 9] APHIS adjusts fees under this 
authority through the federal regulatory process by public notice and 
comment on proposed rates and implementing regulations in the federal 
register. In contrast, the customs passenger inspection fee statute is 
the most restrictive of these three fee statutes. It limits both the 
fee that may be charged and the set of activities for which collections 
may reimburse appropriations.[Footnote 10] Somewhere between these two 
margins is the immigration fee statute. It is available to refund any 
appropriation for expenses incurred in providing immigration inspection 
and preinspection services, but it limits the fee that may be 
charged.[Footnote 11] While both the immigration and customs statutes 
contain language that fees equal or be reasonably related to the cost 
of services, the two statutes actually prescribe an exact amount in law 
to be charged for their respective inspection services. That is, the 
immigration and customs user fees actually limit cost recovery to a sum 
certain. 

During our audit work, CBP informed us that they are developing a broad 
legislative proposal that would, among other things, partially 
consolidate the three passenger inspection user fees and make other 
changes to address certain administrative challenges.[Footnote 12] As 
of August 2007, the legislative proposal had been reviewed by CBP chief 
counsel but officials were still working on estimates of the cost of 
ICE's inspection activities. We have not received, reviewed, or 
evaluated this proposal, although we have been briefed on elements of 
it. Because CBP has widely circulated elements of the proposal among 
key stakeholders, we refer to relevant elements of this proposal 
throughout this report. Any proposal to consolidate these fees, 
however, will be considered in an environment of considerable flux and 
controversy. For example, there are proposals before lawmakers to 
transfer the agriculture quarantine inspection function back out of DHS 
and under the Department of Agriculture's authority. 

Separate, Dissimilar Fees Create Administrative, Operational, and 
Oversight Challenges: 

The complex process for setting, collecting, and distributing the 
passenger inspection fees is different for each fee, creating 
administrative, operational, and oversight challenges for agencies and 
stakeholders, and oversight challenges for Congress. The fees are still 
governed by separate, dissimilar authorizing legislation and are 
administered by multiple executive branch agencies and overseen by 
multiple congressional committees. Agencies involved face difficulties 
reimbursing the collections among their various appropriations because 
there is disagreement on how to divide the receipts among them and 
because the process of transferring the funds from one agency to 
another complicates agency budget execution. Finally, airports and 
airlines play an important role in both facilitating inspections and in 
fee collection and remittance, but they have limited substantive 
interaction with the three agencies. This contributes to 
misunderstandings, skepticism, and confusion about how the fees work 
and what activities they may fund. 

A Complicated Network of Decision Makers Administer and Oversee These 
Fees: 

Although the passenger inspections themselves have largely been 
consolidated, administrative authority remains divided. The Treasury 
Department, from which the legacy U.S. Customs Service was transferred, 
retained administrative authority over the customs fee, although most 
of these duties have been delegated to DHS.[Footnote 13] The Department 
of Agriculture's APHIS retained administrative authority over the 
agriculture inspection fee, although a majority of the fee collections 
is transferred to CBP to cover the cost of agriculture quarantine 
inspections. The administrative authority for the immigration passenger 
inspection fee was transferred to CBP, but CBP and ICE divide the 
immigration fee collections. 

Table 1 shows the differences in authorizing statute, rate, 
congressional committees of jurisdiction, and administrative authority. 

Table 1: Passenger Inspection Fees' Legislative Authorities, 
Congressional Jurisdiction, and Fee Adjustments: 

Passenger inspection fee: Customs; 
Authorizing legislation and amendments to rates and disposition of 
fees: Consolidated Omnibus Reconciliation Act (COBRA) of 1985, Pub. L. 
No. 99-272, as amended by: 
* Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-509; 

* Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203; 

* The Customs and Trade Act of 1990, Pub. L. No. 101-382; 
*Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66; 

* The North American Free Trade Agreement Implementation Act, Pub. L. 
No. 103-182; 

* Uruguay Round Agreements Act, Pub. L. No. 103-465; 

* Miscellaneous Trade and Technical Corrections Act of 1996, Pub. L. 
No. 104-295; Pub. L. No. 105-150; 

* Miscellaneous Trade and Technical Corrections Act of 1999, Pub. L. 
No. 106-36; 

* Homeland Security Act of 2002, Pub. L. No. 107-296; and: 

* The American Jobs Creation Act of 2004, Pub. L. No. 108-357. 

(COBRA customs user fees authority is currently set to expire Sept. 30, 
2014.); 

Per-passenger fee rates and adjustments: August 1986 through fiscal 
year 1993: $5.00. 

Fiscal years 1994-1997: $6.50. 

Fiscal years 1998-2005: $5.00. 

Fiscal years 2006-2014: Congress authorized the Secretary of Treasury 
to raise the fee from $5.00 to $5.50 and the Secretary did so; 
Authority to adjust fee: Congress; Congressional oversight: House Ways 
and Means Committee. 

Senate Finance Committee; Administrative authority: Delegated by the 
Department of Treasury to the Department of Homeland Security (DHS). 

Passenger inspection fee: Immigration; 

Authorizing legislation and amendments to rates and disposition of 
fees: The Department of Justice Appropriation Act of 1987, Pub. L. No. 
99-500, as amended by: 

* Departments of Commerce, Justice, and State, the Judiciary, and 
Related Agencies Appropriations Act, 1994, Pub. L. No. 103-121; and: 

* The Departments of Commerce, Justice, and State, the Judiciary, and 
Related Agencies Appropriations Act, 2002, Pub. L. No. 107-77; 

Per-passenger fee rates and adjustments: From 1987 to 1993: $5.00. 

In 1993: raised from $5.00 to $6.00. 

In 2002: raised from $6.00 to $7.00; 

Authority to adjust fee: Congress; 

Congressional oversight: Judiciary Committees. 

Homeland Security Committees. 

House Ways and Means Committee. 

Senate Finance Committee; 

Administrative authority: DHS. 

Passenger inspection fee: Agriculture; 

Authorizing legislation and amendments to rates and disposition of 
fees: The Food, Agriculture, Conservation and Trade (FACT) Act of 1990, 
Pub. L. No. 101-624, as amended by: 

* Omnibus Reconciliation Act of 1990, Pub. L. No. 101- 508; 

* Food, Agriculture, Conservation, and Trade Act Amendments of 1991, 
Pub. L. No. 102-237; 

* The Federal Agriculture Improvement and Reform Act of 1996, Pub. L. 
No. 104-127; and: 

* Farm Security and Rural Investment Act of 2002, Pub. L. No. 107-171; 

Per-passenger fee rates and adjustments: Set at $2.00 in 1991. 

Reduced to $1.45 in 1993. 

In 1997, raised to $1.95 for fiscal year 1997, and; raised to $2.00 for 
fiscal years 1998-1999; In 1999 raised to $3.00 from January 1, 2000- 
September 30, 2001; and to $3.10 after October 1, 2001. 

In 2005: raised to $4.95 through September 2005, then to $5.00 (rate 
effective through end of fiscal year 2010); 

Authority to adjust fee: Department of Agriculture; 

Congressional oversight: Agriculture Committees. 

House Ways and Means Committee. 

Senate Finance Committee; 

Administrative authority: Department of Agriculture. 

Source: GAO. 

[End of table] 

Although the agencies are required to report to Congress on their 
respective fees, Congress lacks a comprehensive picture of all three 
fees because the agencies report separately. Both the Office of 
Management and Budget (OMB) Circular A-25 and the Chief Financial 
Officers Act of 1990 (CFO Act) require an agency to review its user 
fees biennially and make recommendations on topics such as revising the 
fees to reflect costs incurred. We have previously reported that 
agencies with shared responsibilities for common outcomes or related 
functions should reinforce agency accountability for collaborative 
efforts through common agency planning and reporting.[Footnote 14] 
However, when CBP issued its user fee review it only reported on the 
customs fee, the portion of the agriculture fee it received, and the 
immigration fee. Further, the information provided about the 
immigration fee did not include any input from ICE, which did not have 
cost information about its portion of the immigration fee at that time. 
APHIS's review included the entire agriculture fee.[Footnote 15] As a 
result, the eight congressional committees that oversee the inspection 
fees do not have a complete picture as to whether the fees work in 
concert or conflict with each other.[Footnote 16] 

Agencies Disagree on How to Divide and Distribute the Fees: 

Although the immigration fee may be used for any immigration inspection 
activity, ICE officials said that they do not receive sufficient 
immigration fee collections to cover their reimbursable activities. 
Principles of effective user fee design suggest that user fees should 
be set at a rate to cover allowable costs as a way of ensuring the fee 
is as efficient as possible. Instead, however, ICE officials said they 
rely on appropriated funds to cover the gap between fee collections and 
costs. By law, ICE uses appropriated money for fee-reimbursable 
expenses and then refunds the appropriations when user fees are 
received. They are also permitted to use appropriations if fees are 
insufficient to cover inspection costs. ICE officials said that 
although they have not finalized their activity cost analysis, the 
preliminary data shows that ICE's current portion of the fee 
collections is not sufficient to fully refund the appropriations used 
and demonstrates that ICE should receive a greater proportion of the 
immigration user fee funds. CBP officials do not agree with the 
preliminary assessment.[Footnote 17] CBP officials told us that the 
immigration fee collections CBP receives are sufficient to cover the 
cost of CBP's immigration-related reimbursable activities. In fact, 
CBP's data show that its portion of the immigration fee collections 
were 1 percent more than CBP's immigration inspection costs for fiscal 
year 2006. Until ICE completes its cost analysis, it will not be known 
whether the immigration fee is set at a rate that covers the total cost 
of both CBP and ICE's immigration activities. 

CBP and APHIS disagree on how future collections should be estimated 
and how the fees are subsequently distributed. CBP and APHIS use 
different rates of passenger volume increases to calculate the costs of 
covered activities. APHIS--the agency responsible for setting the 
agriculture fee--estimates future international air passenger volumes 
by extrapolating historical growth, whereas CBP primarily uses Federal 
Aviation Administration's (FAA) passenger volume forecast and 
collection trends. In the December 2004 interim rule for the January 
2005 fee adjustment, for example, APHIS forecast passenger volume to 
increase by 1.18 percent per year for fiscal years 2005 through 2010, 
which was the average volume increase for fiscal years 1999 through 
2003. In contrast, CBP projected a 4.7 to 4.8 percent annual growth. 
The resulting higher passenger volume estimate leads to higher total 
collections estimates by CBP than the one APHIS uses. CBP officials 
said that in 2004, 2005, and 2006 actual collections were higher than 
APHIS's forecast by $17 million, $11 million, and $12 million, 
respectively. CBP officials said 2007 collections to-date are also $13 
million higher than forecasted, and APHIS officials told us they would 
make additional transfers to CBP to distribute the extra collections. 
CBP officials said that if the agriculture fee estimates tracked actual 
collections better, CBP would receive more money earlier in the year 
rather than toward the end of the fiscal year, which would allow CBP to 
better plan for its use. However, APHIS officials said the more 
conservative forecasting approach was appropriate since they do not 
receive appropriations for these activities and must be able to provide 
the services even if fee collections should decline.[Footnote 18] Table 
2 shows the bimonthly transfers for November 2005 through August 2006, 
and the additional year-end transfer of additional fees. 

Table 2: Bimonthly Transfers of Agriculture Fees from APHIS to CBP, 
Including Additional Lump Sum in August: 

Bimonthly transfer: November 2005; 
Agriculture user fees transferred to CBP: $35,186,667. 

Bimonthly transfer: January 2006; 
Agriculture user fees transferred to CBP: 35,186,667. 

Bimonthly transfer: March 2006; 
Agriculture user fees transferred to CBP: 35,186,667. 

Bimonthly transfer: May 2006; 
Agriculture user fees transferred to CBP: 40,931,000. 

Bimonthly transfer: July 2006; 
Agriculture user fees transferred to CBP: 40,931,000. 

Bimonthly transfer: August 2006; 
Agriculture user fees transferred to CBP: 40,930,999. 

Bimonthly transfer: August 2006[A] (excess transfer); 
Agriculture user fees transferred to CBP: 12,191,000. 

Source: CBP and APHIS data. 

[A] CBP officials said this transfer was scheduled for August 2006 but 
did not occur until September 2006. 

[End of table] 

Agencies divide and distribute the fees as specified in memoranda. CBP 
and APHIS, and CBP and ICE signed a memorandum of agreement (MOA) / 
memorandum of understanding (MOU) establishing a process for fee 
distribution. The Homeland Security Act of 2002 requires an agreement 
between the Secretaries governing the transfer of agriculture user fee 
funds from the Department of Agriculture to DHS for DHS's agriculture 
quarantine inspection activities. The most recent MOA, dated 2007, 
documents the fee distribution: 60.64 percent of total agriculture 
passenger inspection fees were allotted to CBP and 39.36 percent to 
APHIS.[Footnote 19] Per the MOA, APHIS transfers CBP's portion via a 
bimonthly transfer. Although we reported in May 2006 that APHIS did not 
always make regular transfers to CBP,[Footnote 20] we found that these 
issues have generally been resolved. The CBP/ICE memo allotted 82.63 
percent of total immigration fee collections to CBP and 17.37 percent 
to ICE, and required CBP to submit monthly warrants to the Treasury to 
initiate the distribution of the immigration fees between ICE and CBP. 

However, the extent, quality, and results of agency coordination 
differ. The CBP/APHIS MOA requires the agencies to periodically 
exchange cost information. Specifically, CBP is required to submit to 
APHIS at the end of each quarter an accounting of the costs of its 
agriculture quarantine inspection activities. APHIS is also required to 
submit to CBP a quarterly and annual report on both agriculture user 
fee collections by activity and associated costs of the agriculture 
quarantine inspection fees. Officials told us that these requirements 
are important to help them address issues such as changing workloads 
and costs, and the MOA has been updated accordingly. CBP and APHIS's 
experience is consistent with our past work on agency coordination, 
which states that optimal coordination requires agencies to establish 
compatible policies and procedures and communicate frequently.[Footnote 
21] Such communication is critical, as evidenced by our recent report 
on APHIS and CBP management coordination issues, which found that the 
agencies' coordination problems sometimes result in operational 
weaknesses that increase the vulnerability of United States agriculture 
to foreign pests and disease.[Footnote 22] In contrast, the CBP/ICE MOU 
is much less specific and lacks important elements present in the 
CBP/APHIS MOA. For example, the CBP/ICE MOU only states that, "ICE and 
CBP agree to provide each other reports on the total amounts of 
immigration user fees received to ensure that such receipts are 
equitably split." ICE officials said the MOU was primarily intended to 
set up the initial transfer of immigration fee collections from the 
newly formed ICE to CBP and was not designed to address how CBP and ICE 
would regularly coordinate on the immigration fee. 

Even if agencies generate complete cost data and agree on how to divide 
collections between them, the precise activities associated with 
inspections--and the costs of those activities--can change over time. 
Legislation, regulations, or agency agreements governing a fee should 
ideally contain a mechanism for adjusting user fee rates that is 
flexible and timely enough to allow for periodic review and, as 
appropriate, adjustment. The CBP/APHIS MOA requires both agencies to 
appoint Chief Budget Liaisons who must hold "quarterly and annual face- 
to-face meetings where both parties would share and analyze their 
respective program costs … " so that the proportions can be reviewed 
and adjusted as appropriate. Through this coordination, CBP received an 
additional 1.31 percent in agricultural passenger inspection fees, 
pursuant to approval by both agencies, after actual fee collections 
exceeded projections. ICE officials told us that, at the time of the 
transition to DHS, ICE requested that the MOU be renegotiated every 2 
years; however, the CBP/ICE MOU does not include any provision to 
renegotiate, and CBP and ICE officials have not regularly met to 
discuss potential adjustments to each agency's portion of the fee. 

Distributing Fees among Agencies Has Implications for Agency Budget 
Execution: 

Airlines remit collections of the customs and immigration user fees to 
CBP and the agriculture fees to APHIS. The three fees are remitted to 
the government quarterly, except for the last quarter, when the 
immigration fees collected to-date are remitted 10 days before the end 
of the fiscal year, with the remaining fees collected in the fourth 
quarter remitted along with the first quarter payment of the next 
fiscal year. By law, each of the three passenger inspection fees is 
deposited into a separate account. Therefore CBP must transfer ICE's 
portion of the immigration fees to reimburse ICE's appropriations, and 
APHIS must transfer CBP's portion of the agriculture passenger 
inspection fee to reimburse CBP's appropriations. CBP officials told us 
that CBP has more flexibility in spending customs fees than immigration 
and agriculture fees, partly because of the fees' budgetary treatment 
and partly because of the interagency transfer process for the APHIS 
fee.[Footnote 23] The customs fee is subject to an automatic warrant 
process, wherein within 5 business days Treasury confirms the total 
amount remitted and then the fees are directly reimbursed to CBP 
appropriations to spend from right away. In contrast, CBP's immigration 
and agriculture activities are funded on a reimbursable basis by CBP's 
portion of the respective fees. Therefore, CBP initially uses 
appropriations to cover the cost of the agriculture quarantine and 
immigration inspections and then reimburses the appropriations accounts 
from the immigration and agriculture user fee accounts. To ensure that 
they reimburse from the correct fee account, CBP officers track time 
spent on customs, agriculture quarantine, and immigration activities, 
respectively.[Footnote 24] 

CBP officials said that the quarterly remittance schedule--which is 
exacerbated by the fourth quarter remittance schedule for the 
immigration fee--contributes to a several-month delay between use of 
the appropriated funds and receipt of the reimbursement from the 
immigration and agriculture user fee accounts, which has delayed CBP's 
ability to spend funds on critical mission areas such as hiring 
personnel, purchasing equipment, or travel. For example, CBP officials 
told us of instances where they had to delay entering into a contract 
because of cash-flow issues resulting from the delay in fee 
reimbursement. They also said transferring funds between budget 
accounts creates administrative rework. To address these challenges, 
CBP told us it is requesting in its draft legislative proposal direct 
reimbursement authority for the immigration and agriculture quarantine 
activities it conducts. 

Inconsistent Passenger Exemptions among the Fees and Record-Keeping 
Requirements for Airlines Complicate Remittance and Verification: 

Inconsistencies in passenger exemptions and definitions across the 
three fees make administering the fees difficult. Each statute 
specifies the same standard passenger exemptions for each fee, but 
there are additional exemptions for the customs fee. Passengers from 
Canada, Mexico, and U.S. territories and adjacent islands are exempt 
from the customs fee but not from the immigration or agriculture 
fees.[Footnote 25] (See table 3). For instance, a passenger arriving 
from the Bahamas must pay the immigration and agriculture fee, but not 
the customs fee. Aspects of a fee, such as country of origin 
exemptions, may promote certain policy goals. However, complex fee 
structures--like the variations in passenger exemptions--can increase 
administrative costs and potential for error and complicate the audit 
process since CBP must reconcile the remittance for a single passenger 
with different exemptions rules. It is important to understand the 
likely administrative and operational consequences of a fee's design in 
order to address and mitigate challenges. 

Table 3: Air Passenger Exemptions: 

Geographic exemptions: Passengers originating in Canada, Mexico, a 
territory or possession of the United States: American Samoa, Guam, the 
Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands; 
or any adjacent island: Saint Pierre, Miquelon, Cuba, the Dominican 
Republic, Haiti, Bermuda, the Bahamas, Barbados, Jamaica, the Windward 
and Leeward Islands, Trinidad, Martinique, and other British, French, 
and Netherlands territory or possessions in or bordering on the 
Caribbean Sea; 
Customs: X; 
Immigration: [Empty]; 
Agriculture: [Empty]. 

Geographic exemptions: Passengers moving from the U.S. Virgin Islands 
to Puerto Rico; 
Customs: X; 
Immigration: X; 
Agriculture: X. 

Geographic exemptions: Passengers moving between Alaska, Hawaii, Puerto 
Rico, Guam, the U.S. Virgin Islands, and the continental United 
States[A]; 
Customs: X; 
Immigration: X; 
Agriculture: [Empty]. 

Standard exemptions: On-duty crew members; 
Customs: X; 
Immigration: X; 
Agriculture: X. 

Standard exemptions: Airline employees traveling on official business; 
Customs: X; 
Immigration: X; 
Agriculture: X. 

Standard exemptions: Diplomats, except U.S. diplomats; 
Customs: X; 
Immigration: X; 
Agriculture: X. 

Standard exemptions: Passengers arriving on commercial aircraft used 
exclusively in government service (U.S. or foreign); 
Customs: X; 
Immigration: X; 
Agriculture: X. 

Standard exemptions: Passengers arriving on an aircraft due to 
emergency or forced landing when original destination was a foreign 
port; 
Customs: X; 
Immigration: X; 
Agriculture: X. 

Source: GAO analysis of authorized statutes and governing regulations. 

[A] The agriculture fee exempts passengers from all of these locations 
except Guam. 

[End of table] 

CBP officials said its draft legislative proposal recommends 
eliminating the customs-specific country of origin exemptions.[Footnote 
26] The airline industry officials we spoke with generally support this 
change and said the administrative transition costs would be minimal, 
since calculations are automated and could be easily adjusted to 
accommodate this type of change. 

In response to Treasury Inspector General recommendations, the audit 
function was consolidated before the inspection functions themselves 
were consolidated, creating efficiencies and simplifying the process 
for government and industry alike by having only one agency audit all 
three fees concurrently. However, the improvement was limited because 
the regulations for each of the fees still specify different airline 
record-keeping requirements for audit purposes. Airlines must retain 
customs documentation for 5 years and immigration documentation for 2 
years. There is no time period specified for airline documentation for 
the agriculture fees. Both CBP and airline officials said inconsistent 
record-keeping requirements impose an unnecessary administrative burden 
on both parties. Airline officials told us that the custom fee's 5-year 
document retention requirement is especially burdensome. 

Air Travel Stakeholders Play an Important Role in the Process, but 
Mechanisms for Ensuring Substantive Stakeholder Communication and 
Information Exchange Are Fragmented and Reportedly Insufficient: 

The administering agencies use separate, different processes for 
communicating with stakeholders, including soliciting stakeholder 
feedback on proposed adjustments to the fees, an area of great interest 
to stakeholders. However, stakeholders report that these disjointed 
mechanisms for two-way communication are insufficient. CBP uses the 
Airport and Seaport Inspections User Fee Advisory Committee (Advisory 
Committee)[Footnote 27] to solicit stakeholder perspectives, but limits 
the breadth of the Advisory Committee by discussing only the customs 
fee and CBP's portion of the immigration and agriculture fees.[Footnote 
28] ICE is not included in planning these Advisory Committee meetings 
even though the legacy Department of Justice immigration fee advisory 
committee was combined with the customs advisory committee when 
immigration functions were transferred to DHS. ICE officials said they 
were not aware that a meeting had been scheduled and were not consulted 
on the agenda, even though their user fee statute specifies that they 
meet regularly with stakeholders. ICE officials attended the June 2007 
Advisory Committee meeting but did not participate in the presentations 
and had not been involved in the planning or agenda-setting for the 
meeting.[Footnote 29] APHIS is also not included in planning Advisory 
Committee meetings. APHIS officials said issues pertaining to the 
agricultural inspection fee are handled by CBP's liaison to APHIS, but 
no one from this office attended the June 2007 meeting. CBP officials 
said CBP met the notification requirements of the Federal Advisory 
Committee Act[Footnote 30] by publishing notice of the meeting date and 
the agenda in the Federal Register. 

APHIS provides information about inspection costs and receives 
stakeholder input on proposed changes to the agriculture fee through 
public notice and comment under the federal rule-making process. APHIS 
officials also told us that they meet informally with stakeholders when 
issues arise, particularly in the field, and that this informal 
consultation is sufficient for their purposes, but our audit work 
indicates otherwise. For the past two adjustments, however APHIS has 
adjusted the fees through interim final rules, an option within the 
regulatory process that allows an agency, for "good cause" to make a 
rule change effective before receiving public comment. That is, the 
increase took effect before stakeholders had an opportunity to 
comment.[Footnote 31] For example, on December 9, 2004, APHIS published 
an interim final rule in the Federal Register proposing to increase the 
agriculture passenger inspection fee from $3.10 in 2004 to $4.95 in 
2005 and to $5.00 per passenger for 2006 to 2010. The change was 
effective January 1, 2005, although comments received by February 7, 
2005, would be considered before the final rule was issued. In another 
instance, APHIS eliminated the fee exemption for passengers originating 
in Canada by means of an interim final rule published in the Federal 
Register in August 2006, which stated that it was effective November 
24, 2006, and comments received by November 24, 2006, would be 
considered.[Footnote 32] 

APHIS's use of the "good cause" exemptions to issue interim final rules 
limits stakeholder input. Stakeholders said they do not feel their 
comments are taken into account since the Department of Agriculture 
adjusts the fee before even soliciting feedback and the final rule 
matches the interim one regardless of stakeholder feedback. 
Furthermore, we have previously reported that nonfederal stakeholders 
believe relying solely on notice and comment through the Federal 
Register is insufficient for obtaining stakeholder input.[Footnote 33] 
When agencies do not effectively communicate their analysis and 
results, they miss the opportunity to obtain meaningful comments that 
could affect the outcome of their regulatory changes. Without showing 
the underlying analysis, the agencies' conclusions may lack 
credibility. 

ICE and APHIS officials told us that air travel stakeholders have 
little information on their respective activities and fees and 
generally do not understand how these fees work or what they are 
intended to fund. As we will discuss in the next section, CBP 
stakeholders also do not have a clear understanding of how the customs 
fee works and what activities it may fund.[Footnote 34] For example, 
officials said the agriculture quarantine inspection function has 
become less transparent to air passengers and stakeholders since CBP 
officers all wear the same uniform and conduct the primary customs, 
immigration, and agriculture quarantine inspections--and not all 
passengers are identified for an agriculture-related secondary 
inspection. Similarly, many of the inspection activities retained by 
APHIS and ICE are not visible to most passengers or stakeholders during 
the actual inspection process. 

Stakeholders said the Advisory Committee meetings had declined in value 
since INS ran them because cost and full time equivalent (FTE) 
information is no longer provided. CBP officials said that in the post- 
September 11 environment, airport inspector staffing information is 
"law-enforcement sensitive" and therefore not shared with airports and 
airlines. Airport, airline, and industry officials said they have 
requested information about passenger inspection activities or the cost 
of these activities. As a result, they feel they lack data necessary to 
know whether the passenger inspection fees are set fairly or 
accurately, or are being spent on the appropriate activities. 

Specific Aspects of the Individual Passenger Inspection Fees Should Be 
Addressed Prior to or in Concert with Any Consolidation Effort: 

Some difficulties with these fees arise not because the fees are 
separate but because of factors that are specific to the individual 
passenger inspection fees. First of all, by statute, the customs fees 
are available for limited purposes. Not all of these purposes are 
associated with conducting inspections, and not all inspection 
activities are reimbursable. Even if all the costs were reimburseable, 
according to CBP, the fees collected still would not cover the full 
inspection costs. This misalignment, coupled with the problems in 
stakeholder communication described in the previous section, have 
created confusion and misunderstandings, and in some cases the 
misimpression among stakeholders that CBP in particular is using the 
air passenger fee collections inappropriately. Furthermore, the 
collection process itself is complex and presents challenges for CBP 
and the airlines. Finally, the tools provided to the agencies to ensure 
the airlines' compliance are not applied consistently and, contrary to 
strategies associated with effective incentives and penalties, do not 
provide progressively stronger disincentives for noncompliance (i.e., a 
graduated penalty system). 

There Is a Disconnect between What Customs User Fees Can Pay for and 
Activities Involved in Customs Inspections: 

The activities that can be funded by passenger inspection collections 
vary among the fees and are specified in statute. Principles of 
effective user fee design suggest that fees should be aligned with the 
costs of the activities for which the fee is collected. The agriculture 
and immigration statutes generally permit the Secretaries of 
Agriculture and Homeland Security to cover costs associated with 
agricultural and immigration inspection activities.[Footnote 35] In 
contrast, the customs user fee collections are available for limited 
purposes. Under the customs authorizing statute, passenger inspection 
fee collections are only available to reimburse appropriations for a 
limited, prioritized set of activities, including general deficit 
reduction, overtime and premium pay, retirement and disability 
contributions, preclearance services, and foreign language proficiency 
awards. Customs inspection-related activities that occur while a CBP 
officer is earning overtime, premium pay, or during preclearance can be 
funded by the user fees, but the customs fee is not authorized to fund 
customs-inspection activities that occur beyond these times.[Footnote 
36] Moreover, the customs air passenger fee can be used for overtime 
and premium pay as well as retirement and disability contributions for 
CBP officers for time spent conducting inspections regardless of 
whether the CBP officers are inspecting passengers at air, sea, or land 
ports of entry. Therefore, under current law not all activities that 
may be funded from the customs fee (see table 4) are necessarily 
associated with conducting air passenger inspections (see table 5), and 
not all inspection activities are reimbursable, that is, can be covered 
by funds from the user fee account.[Footnote 37] 

Table 4: Legal Availability of Customs Passenger User Fee[A]: 

Customs user fees availability limited to (in specified order of 
priority): 

(1) Transfers to the Treasury's General Fund for deficit reduction 
purposes, of the difference between estimated overtime compensation for 
customs inspections and actual overtime, premium pay, agency retirement 
contributions, and foreign language proficiency awards, or $18,000,000, 
whichever is less. 

(2) Reimbursements to appropriations for: 
* overtime compensation; 
* certain premium pay costs; 
* retirement and disability contributions; 
* all unreimburseable preclearance services, and; 
* foreign language proficiency awards. 

(3) To the extent funds remain available after reimbursements to 
appropriations (listed in (2) above), user fees are further available 
for: 
* providing full-and part-time salaries for inspections personnel and 
equipment that enhance customs services for persons or entities 
required to pay fees generally for commercial vessels; trucks; railroad 
cars; private vessels or private aircraft; commercial passenger 
inspections; dutiable mail; customs broker permits; and barge or other 
bulk carriers. 

(4) To the extent funds remain available after reimbursements to 
appropriations (listed in (3) above), user fees are further available 
for: 
* 50 full-time equivalent inspectional positions to provide 
preclearance services. 

Source: GAO analysis of legislation and CBP data. 

[A] 19 U.S.C. § 58c(f). 

[End of table] 

Table 5: Actual Customs Air Passenger Inspection Activities: 

Air fee audits--passenger. 

Antiterrorism--passenger; 
For customs-related passenger analysis unit activities and customs-
related anti-terrorism-passenger/nonpassenger activities. 

Contraband enforcement team activities in passenger: seizure processing 
by canine officers; 
All canine officer activities involving the removing, testing, weighing 
of narcotics during seizure processing. And CBP officer (canine) 
functions: all activities involving the daily or reoccurring needs of 
detector dogs such as veterinary exams, feeding, grooming, etc. 

Entrance--aircraft: entrance/clearance - commercial aircraft (PAX); 
Processing of entry control documents, general declarations, clearance 
numbers, and collection of fees. 

Examine--compliant passengers; 
For customs-related primary inspection. 

Examine--noncompliance passengers; 
For customs-related seizure/ penalty case processing, for customs-
related processing of seizures and arrests, for customs-related 
secondary inspections, hospital detail: processing and transporting of 
passengers to the hospital for examination/detention; monitoring and 
security of detainees and arrestees at the hospital, and for customs-
related court time. 

Identify--for customs-related roving. 

Informed compliance--for customs canine-related (K9) informed 
compliance and outreach and for customs-related informed compliance and 
outreach. 

Military personnel--military aircraft; 
All activities associated with the processing of military personnel and 
military aircraft. Includes primary and secondary functions and also 
includes CARNETS, informal entry, Temporary Importation under Bond 
(TIB), other government agency processing, left over baggage clearance, 
duty calculations, collections, 14-point intensive exams, currency 
forms, currency verification, STOP, Blitzes, 7/14s inspections, COMPEX; 
sanctions and embargos for OFAC; munitions, dual use materials, with 
military applications and chemicals. Military Vessels: all activities 
associated with the processing of military personnel and military 
vessels. Includes primary and secondary functions. Also includes 
CARNETS, informal entry, TIB, other government agency processing, left 
over baggage clearance, duty calculations, collections, 14-point 
intensive exams, currency forms, currency verification, STOP, Blitzes, 
7/14s inspections, COMPEX; sanctions and embargos for OFAC; munitions, 
dual- use materials, with military applications and chemicals. 

Nonintrusive technology--passenger: for customs-related non-intrusive 
technology--(PAX). 

Other Activities--airport security and safety; 
Officers assigned to work within the airport security office, 
processing of applications and fingerprinting of airport applicants; 
ramp security; internal conspiracy operations. Program administration 
for shared intelligence operations. Multi-agency taskforce, 
information, participation in technical training with foreign 
governments. Coordination, integration, cooperation with other federal 
agencies and international task forces. 

Source: CBP. 

[End of table] 

Even if the customs fee was limited to funding the customs air 
passenger inspection activities, according to CBP, for fiscal year 2006 
it would have only covered about 72 percent of total inspection costs. 
After the April 2007 fee increase, CBP estimates that the fee would 
still need to increase an additional 39 percent to cover total costs. 
Therefore, customs inspection-related activities are generally funded 
by appropriations from general revenues, limiting funds available for 
other federal priorities. However, CBP officials also said that customs 
fee collections would fully cover current inspection costs if the 
country-of-origin exemption for Canada, Mexico, and the adjacent 
islands were lifted. 

Another difference between the customs fee and the other two passenger 
inspection fees is that although the immigration and agriculture fees 
are to be used for any costs related to inspection activities (referred 
to in this report as full cost recovery fees), the customs fee is 
structured to recover only a portion of the cost of the customs 
inspection activities (referred to in this report as a partial cost 
recovery fee). In its draft legislative proposal, CBP officials said it 
will request both the authority to recover the full costs of the 
customs inspections and to fund all international air passenger 
inspection-related activities. Stakeholders said they would support 
these changes, which helps bring the customs fee more in line with 
principles of effective user fee design, but were concerned that the 
agencies do not have reliable cost data to determine the actual cost of 
conducting inspections.[Footnote 38] 

Passenger exemptions are also factors in whether fee collections can 
recover the costs of inspections. As previously discussed, passengers 
whose travel into the United States originates in Canada are exempt 
from paying the customs fee. Since exempt passengers receive but do not 
pay for inspections, either nonexempt passengers bear these costs by 
paying higher fees, or the inspections must be funded with 
appropriations.[Footnote 39] Although passengers originating in Canada 
are often "precleared"--meaning that passengers are inspected before 
departing Canada rather than upon arrival in the United States[Footnote 
40]--preclearance inspections are allowable reimbursable activities per 
the customs inspection fee statute. Therefore, passengers originating 
in Canada are exempted from paying the customs inspection fee, even 
though their inspections are funded by it. 

Airlines Collect Fees When Tickets Are Sold Rather Than When Passengers 
Travel, Which Makes It Difficult for Agencies to Verify Collection and 
Payment: 

Despite a unified collection process for the three fees, CBP faces 
challenges in verifying individual passenger payment and accurately 
determining each airline's liability. By law, the ticket seller (i.e., 
the airline or ticket agent) must collect the applicable passenger 
inspection fees from the passenger at the time the ticket is 
sold.[Footnote 41] Tickets can be sold up to a year in advance, and CBP 
has no independent documentation on which to calculate liability. 
Therefore, CBP cannot match the fees paid to individual 
passengers.[Footnote 42] The only way CBP can independently confirm 
that passengers traveling to the United States have paid the requisite 
inspection fees is through postremittance audits. To remedy this, CBP 
would like to move to a system wherein airlines remit fees based on the 
passengers transported into the United States. CBP could then track the 
remittances to the number of passengers per flight by comparing them to 
the airplane manifest data and "onboard" counts that airlines already 
provide to CBP. According to CBP officials, if the fees were remitted 
based on passengers transported, there would be little need for 
auditing carrier remittance since CBP would be able to automatically 
calculate and verify airline liability. 

Airline and Air Transport Association (ATA) officials with whom we 
spoke said that changing from a ticket-based collection system to a 
passenger-transported collection system poses challenges to airlines. 
First, the airline that transports the passenger is not always the 
airline that sold the ticket. This means that in a manifest-based 
system the airline responsible for remitting a fee might not be the 
airline that collected it from the passenger. Nearly all United States 
airlines use the "interlining" system, in which one airline can 
contract with another to provide transportation for one or more 
segments of a passenger's journey. Under the current ticket-based 
collection system, on an interlined ticket the airline that sells the 
ticket remits the fee, regardless of which airline transports the 
passenger into the United States. For example, a passenger who 
purchases a Madrid-Paris-New York ticket from ABC airline pays the fee 
to ABC airline even if he flies ABC from Madrid to Paris and XYZ from 
Paris to New York. Airline ABC is liable for the fee and remits it to 
the U.S. government. However, under CBP's original proposed passenger- 
transported system, the liability for remitting the fee would fall on 
airline XYZ--the airline that brought the passenger into the country-- 
even though ABC airline sold the ticket and collected the fee.[Footnote 
43] As a result, airline XYZ--the airline that transported the 
passenger into the United States--would have to ensure not only that 
ABC paid airline XYZ for the ticket but also that it collected and 
transferred the correct fees. 

According to CBP officials many foreign-owned airlines already remit 
the fees based on passengers transported, though these payments are in 
violation of the statute, and the International Air Transport 
Association (IATA) reports that the manifest-based remittance system is 
common in other countries that collect similar fees.[Footnote 44] 
Nevertheless, airlines and ATA officials said that transition costs 
would be significant--though limited to the first year--because 
airlines begin selling tickets for a flight 1 year in advance, and as a 
result they would have to maintain two separate remittance systems-- 
ticket-based and passenger-transported-based--for a full year. Airlines 
question the need for such a change. Officials from two major airlines 
noted that CBP's audits put their remittance error rate at less than 1 
percent. CBP officials concur that for the six to seven major domestic 
airlines the remittance error rate is extremely low, but as we will 
discuss, error and timely remittance rates for small and medium-sized 
airlines are more problematic. A shift to a passenger- transported 
system would, they argue, increase the ability of CBP's finance office 
to determine the compliance of smaller airlines and potentially reduce 
CBP's audit costs. 

In addition, the airlines also see fee collection as a cost they incur 
over and above the cost of the audits. To help offset collection costs, 
airlines are permitted to keep the "interest float"--that is, the 
interest income that accrues between the quarterly remittances. Airline 
representatives view this as minimal for two reasons. First, in the 
recent era of low interest rates, the interest float is small; airline 
officials told us that it covered as little as 38 percent of collection 
costs. This would decline even further if CBP moves to monthly 
remittance as it suggests it will in its legislative proposal. Second, 
airline and airline industry officials said credit card transaction 
fees averaging 2.15 percent on the total transaction--including taxes 
and fees as well as the ticket price--further reduce the benefit. 
Another user fee collected by airlines on behalf of the government--the 
passenger facility charges[Footnote 45] (PFC)--has a provision that is 
designed to compensate for the actual cost of collections, in addition 
to the interest float. The airlines told us they would prefer this type 
of direct compensation for their collection role, similar to the PFC. 

Compliance Tools Do Not Provide a Graduated Penalty System to Encourage 
Airline Remittance: 

The tools used to ensure airline compliance do not provide optimal 
incentives for airlines to make accurate and timely payments. We have 
previously reported that rewards and penalties should correspond to 
performance.[Footnote 46] Although each fee contains enforcement 
mechanisms meant to encourage airlines to remit the correct fee amount 
on time--namely the carrier bond associated with the customs fee, the 
denial of landing rights for the customs and immigration fees, and the 
penalties and interest associated with the agriculture and immigration 
fees--none are designed in this manner. For the customs fee, CBP is 
authorized to require airlines to maintain a carrier bond, which is 
used both to enforce payment of inspection fees and to encourage 
airlines to comply with inspection-related requirements, such as 
submitting complete Advance Passenger Information System (APIS) data 
prior to takeoff. In addition, airlines that do not remit the customs 
fee timely--or not at all--are charged liquidated damages for breach of 
bond conditions that are equal to twice the fee amount owed for each 
violation, whether it is the first violation or a repeat violation. CBP 
officials said they have issued liquidated damages against 20-25 
airlines on average per quarter since 2003 for late payment or 
nonpayment.[Footnote 47] 

For the immigration and agriculture fees, the agencies may require 
airlines to pay interest and penalties because of late payment or 
nonpayment. CBP officials said the interest and penalty rates charged 
for late payments are set by the Treasury Department and do not provide 
for increasing interest or penalty rates, or both, for repeated 
instances of late or nonpayment.[Footnote 48] Thus an airline that 
repeatedly pays late--or not at all--is charged the same interest and 
penalty amount each time, which may just offset the interest the 
airline earned by not remitting user fee collections in the first 
place. Therefore, CBP officials said the penalty is not high enough to 
discourage violations. 

CBP is also authorized to deny landing rights if the airline does not 
remit customs and immigration fees. However, this tool suffers from the 
very opposite design flaw: it is perceived to be too severe to invoke. 
CBP officials said that denying landing rights is such a severe penalty 
that its very existence--infrequent application notwithstanding--is 
effective enough to discourage late payment or nonpayment of passenger 
inspection fees by the airlines. However, even in cases of carrier 
nonremittance or chronic late remittance, CBP officials said CBP has 
threatened to use this authority to deny landing rights on four 
occasions--twice against the same airline--in nearly 20 years. Three of 
these instances occurred in 2007. We have previously reported that 
penalties may lose their effectiveness and credibility over time if 
they are not executed consistently.[Footnote 49] 

CBP Does Not Employ a Systematic Process for Selecting Airlines for 
Audit: 

Officials said there is no standard set of criteria used to guide the 
selection of airlines for audit. The audit function for all three 
inspection fees is consolidated within CBP's Office of Regulatory 
Audit, and all audits cover all three fees. Approximately 385 airlines 
remit immigration and agriculture fees, and 290 airlines remit the 
customs fee. CBP audits about 50 carriers annually to test for 
compliance. CBP's Office of Finance recommends airlines for audit based 
on a number of factors, including whether a carrier's remittance 
dropped substantially from one quarter to the next, news articles about 
changes in flights or airline financial issues, and prior audit 
findings. Experience and judgment also come into play. Officials are 
responsible for processing the same airlines' payments every quarter 
and become "experts" on those airlines and the normal trends in their 
remittances. Although this flexibility and individualized understanding 
of the airlines is important, we have previously reported that 
developing internal controls is key to minimizing the risks that may 
prevent an agency from meeting its objective.[Footnote 50] Documenting 
selection criteria could also protect the agency when experienced 
officials leave the agency. CBP officials told us that although the 
larger airlines generally present a much lower risk of noncompliance or 
incomplete remittance, they are audited every couple of years because 
the record-keeping requirements are so burdensome. In addition, if CBP 
audited a large airline only once every 5 years, the audit would be 
very resource-intensive. Nevertheless, the fact that there is 
significantly more volatility in compliance by small and mid- sized 
airlines and those offering seasonal flights means they require more 
audit attention. For context, in a 5-year sample of 16 
airlines,[Footnote 51] the 11 airlines with the smallest passenger 
volume rate remitted the passenger inspection fees late 35 times. These 
11 airlines represented 14.6 percent of total international passenger 
volume--slightly larger than that of the single largest airline in the 
sample. 

Certain Elements Have the Potential to Undermine Any Effort to 
Consolidate the Fees: 

As we have discussed, the challenges related to the passenger 
inspection user fees result both from inconsistencies among the fees-- 
making them difficult to administer--and from specific design elements 
within the individual fees. For example, agencies face difficulties 
distributing the fee collections, both because they disagree on how to 
allocate the receipts among them, and because the process of 
transferring the funds from one agency or appropriation to another 
complicates agency budget execution. Moreover, the statutory structure 
does not permit the administering agencies to easily verify collection 
and payment, and the customs fee does not permit reimbursement for many 
activities directly associated with air passenger inspections. These 
issues should be considered regardless of whether the fees are 
consolidated. 

As discussed earlier, we have previously reported on a number of 
principles that could inform efforts such as these to redesign or 
consolidate these fees. Understanding the trade-offs inherent in 
various fee design elements and the likely consequences of various 
design choices with respect to efficiency, equity, revenue adequacy and 
administrative burden can help policy makers carefully weigh the likely 
effects of various policy decisions and move discussion and debate to a 
more informed plane. 

Conclusions: 

Although the need to address some of the user fee challenges presented 
in this report may appear obvious, how to accomplish this is less 
clear. Any changes made to one fee should be designed to complement 
rather than conflict with the other two fees. Moreover, although 
whether and how to consolidate the international passenger inspection 
fees is ultimately a policy decision Congress must make, it is 
important to note that consolidating the passenger inspection fees 
absent other changes will not eliminate some of the administrative and 
operational challenges agencies and stakeholders currently encounter. 
In some cases the origins of these challenges lie in the statutory 
structure of the fees themselves, and not their lack of consolidation. 

Any consolidation effort that neglects to consider these issues is 
unlikely to have the desired effect: 

* Unless agencies present a comprehensive picture of the three fees, 
including the full scope of inspection activities and their costs, 
Congress will lack a complete picture of whether the fees work in 
concert or conflict with each other, which could hamper oversight. 
Furthermore, agencies will be less able to develop and maintain the 
partnerships necessary to collect and distribute the fees as 
efficiently and effectively as possible. 

* The lack of complete cost data and regular, formal opportunities to 
share such information can prevent the agencies from addressing 
existing issues, including differences in forecasting assumptions and 
lack of agreement on activity costs, standardized audit selection 
criteria, and the design and implementation of a graduated penalty 
system to encourage and enforce airline compliance. 

* More broadly, if agencies cannot determine whether these fees are 
recovering costs, Congress cannot be sure that resources are allocated 
to the activities it most values. 

* Likewise, without substantive, transparent coordination between 
agencies and stakeholders, agencies will not be able to effectively 
address administrative burdens such as disparate airline record-keeping 
requirements among the fees. 

The principles of effective user fee design discussed earlier in this 
report can both offer a framework for considering the implications of 
various statutory structures and help clarify and illuminate the trade- 
offs associated with various policy choices available to Congress 
associated with amending the individual statutes related to passenger 
inspection fees or consolidating all or part of them into a single 
passenger inspection fee. Such a framework could also provide the basis 
for future reviews of federal user fees as Congress works to ensure 
that user fee financing mechanisms remain relevant and up-to-date. 

Recommendations for Executive Action: 

We recommend that the Secretaries of Agriculture and Homeland Security 
take the following seven actions: 

* direct CBP, ICE, and APHIS to make information on the estimated cost 
of inspections as well as the basis for these cost estimates readily 
available to affected parties to improve the transparency and 
credibility--and hence the acceptance by stakeholders and payers--of 
the processes for setting, collecting, and distributing the fees; 

* direct CBP, ICE, and APHIS to collaborate on agendas, presentations, 
and discussions with stakeholders for the CBP Airport and Seaport 
Inspections User Fee Advisory Committee (Advisory Committee) meetings 
in order to improve the usefulness of these meetings for both agencies 
and fee stakeholders; 

* consolidate reporting of the passenger inspection fees, to include 
the activities and proportion of fees for which CBP, ICE, and APHIS are 
each responsible to provide a comprehensive picture of the user fees 
supporting the passenger inspection process; 

* develop a legislative proposal in consultation with Congress on a 
consolidated, graduated penalty system that reflects airline payment 
history and includes specific administrative procedures regarding when 
penalties should be invoked in order to improve the effectiveness of 
the tools for enforcing payment of passenger inspection fees; 

* develop a legislative proposal in consultation with Congress on a 
single, common set of airline record-keeping requirements for all three 
passenger inspection fees that reflects the consolidated audit function 
for these fees and reduces the administrative burden on airlines; 

* develop a legislative proposal in consultation with Congress to 
eliminate key differences among the fourth quarter remittance 
requirement for the immigration fee; and: 

* develop and implement common assumptions used to forecast the 
collections of agriculture quarantine inspection activities in order to 
more closely tie the fee rate to CBP's and APHIS's agriculture fee 
distribution to actual collections. 

Further, we make the following three recommendations to the Secretary 
of Homeland Security: 

* develop and implement formal written guidance on factors to be 
considered in selecting airlines for audit, including factors intended 
to reflect the risk of non-or incomplete payment; 

* complete development of and report on ICE's activity costs to ensure 
the immigration fee is divided between ICE and CBP according to their 
respective proportion of immigration inspection activity costs. 
Further, if the study shows that immigration activity costs exceed 
collections, develop a legislative proposal in consultation with 
Congress to adjust the immigration fee to recover costs as closely as 
possible, per statute; and: 

* direct CBP and ICE to develop and implement a fee-sharing memorandum 
of understanding (MOU) to include time frames for when funds would be 
transferred and to provide for periodic review and update. 

Matter for Congressional Consideration: 

Congress should consider: 

* harmonizing the passenger exemption and statutory definitions across 
the various inspections fees, 

* eliminating the differences among the three fees in the authority to 
set fee rates, 

* whether it wishes the customs fee to be a full cost recovery fee, 
and: 

* reviewing the activities that may be reimbursed by the customs fee 
collections. 

Agency Comments & Our Evaluation: 

We provided a draft of this report to the Secretaries of the 
Departments of Homeland Security (DHS) and Agriculture for review and 
received comments from both agencies that are reprinted in appendixes 
II and III. In addition, DHS provided technical corrections, which were 
incorporated as appropriate. DHS and USDA concurred with our 
recommendations, and provided additional comments for our 
consideration. We also provided portions of the report for non-federal 
stakeholder review and made technical corrections where appropriate. 

While DHS concurred with our recommendations to work with Congress to 
(1) develop a graduated penalty system, (2) develop a common set of 
airline record-keeping requirements, (3) eliminate the differences in 
the fourth quarter remittance requirements for airlines, and, if 
needed, (4) increase the immigration passenger inspection fee, by 
developing legislative proposals to address these issues, DHS officials 
said implementing these individually could take several years and only 
address the challenges in the air passenger environment. In 
recommending these separately we did not intend to imply that they 
should be addressed separately and recognize that the agencies could 
address these issues in a single legislative proposal. Further, since 
this engagement only reviewed air passenger inspection fees we limited 
our recommendations to those fees. 

We are sending copies of this report to the Secretaries of Homeland 
Security and Agriculture and interested congressional committees. We 
will also make copies available to others on request. In addition, this 
report will be available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. If you or your staff have any 
questions about this report, please contact me at (202) 512-9142 or 
irvings@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. GAO staff making major contributions to this report are listed 
in appendix IV. 

Signed by: 

Susan J. Irving: 
Director for Federal Budget Analysis, Strategic Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of this report were to identify how the three separate 
passenger inspection user fees are set, collected, and distributed and 
the benefits and challenges of this process for agencies and 
stakeholders, and implications of consolidating these fees under the 
Department of Homeland Security (DHS). 

To meet these objectives, we reviewed the passenger inspection user fee 
legislation and guidance, agency documents, and literature on user fee 
design and implementation characteristics, and interviewed officials 
responsible for managing user fees at the Customs and Border Protection 
(CBP) offices in Washington, D.C., and from the New York/New Jersey, 
Miami and Seattle Regional Offices, Immigration and Customs Enforcement 
(ICE), and Animal and Plant Health Inspection Service (APHIS). We 
observed the inspections process and interviewed CBP officials 
responsible for port management and certain airport and airline 
officials involved with international passenger processing or the three 
passenger inspection fees. We did not assess the effectiveness of these 
inspections. We reviewed audit and cost data related to air passenger 
inspection activities. We also asked questions about CBP's and APHIS's 
internal controls for the data we used and determined that the data are 
sufficiently reliable for the purposes of this report. However, it was 
beyond the scope of this report to evaluate the reliability of the cost 
data for purposes beyond this report. 

We also interviewed APHIS, CBP, and ICE officials responsible for 
managing the user fees and auditing the user fee collections at DHS and 
the Department of Agriculture. 

We also met with officials from Continental Airlines, American 
Airlines, Air Transport Association, International Air Transport 
Association, Airports Council International-North America, Miami-Dade 
County International Airport, New York/New Jersey Port Authority, Bush 
Houston-Intercontinental International Airport, Dallas-Fort Worth 
International Airport, San Francisco International Airport, and Seattle-
Tacoma International Airport. We also met with and reviewed documents 
from the travel industry organization, the Discover America 
Partnership. 

To select the airlines and airports to meet with, we reviewed Bureau of 
Transportation Statistics data on the volume of international air 
passengers and number of international flights and consulted with 
officials from government and industry associations. To select industry 
stakeholders to meet with, we consulted government agency officials and 
reviewed CBP's Airport and Seaport User Fee Advisory Committee 
membership. 

We performed our work from October 2006 through August 2007 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II Comments from the Department of Homeland Security: 

U.S. Department of Homeland Security: 
Washington, DC 20528: 

Homeland Security: 

September 6, 2007: 

Ms. Susan Irving: 
Director, Strategic Issues: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Irving:

Thank you for providing us with a copy of the draft report entitled, 
"Federal User Fees: Key Aspects of International Air Passenger 
Inspection Fees Should Be Addressed Regardless of Whether Fees are 
Consolidated," GAO-07-1131, dated September 2007. This report addresses 
how the three user fees charged for the inspection of arriving 
international airline passengers are set, collected, arid distributed 
and the benefits and challenges of this process for agencies and 
stakeholders, including examining the implications of consolidating 
these fees under the Department of Homeland Security's (DHS) authority. 

The U.S. Customs and Border Protection (CBP) appreciated the 
opportunity to work with the Government Accountability Office (GAO) 
team in constructing a balanced and accurate report. CBP agrees with 
the overall substance and findings of the report. DHS is pleased that 
the report highlights the same operational and coordination problems 
CBP has identified and has been working to resolve. As stated in the 
report "the process of setting fees, collections, and distributing 
separate, dissimilar fees creates challenges for agencies and 
stakeholders." DHS notes that the challenges described in the report 
are not limited to the air passenger inspection user fees. CBP faces 
these and other challenges in managing user fees collected for 
inspecting passengers, conveyances, animals, plants, and agriculture 
goods entering the United States. 

CBP concurs with the ten recommendations for Executive Action included 
in the draft report. CBP realizes the benefits that the adoption and 
implementation of these recommendations will produce for DHS, CBP, U.S. 
Immigration and Customs Enforcement (ICE), the US Department of 
Agriculture's Animal and Plant Health Inspection Service (APHIS), and 
nonfederal stakeholders. However, if the recommendations were adopted 
separately, as suggested by GAO, DHS would need to develop and submit 
at least four legislative proposals to the Congress. In addition, a 
series of regulations will need to be issued to implement some of the 
recommendations. If GAO's recommendations were implemented 
individually, their full implementation will take several years and 
only address the challenges in the air passenger environment. 

To address the challenges described in the draft report, CBP in 
consultation with DHS, ICE, and APHIS, initiated an effort to develop a 
legislative proposal to consolidate the authorities that govern the 
customs, immigration, and agriculture inspection user fees. CBP's 
original proposal included the consolidation of the customs, 
immigration, and agriculture inspection user fees authorities into a 
single law. However, CBP decided to restructure its proposal due to the 
expressed opposition by APHIS and the House Agriculture Committee to 
any effort aimed at transferring the authority over the agriculture 
inspection fees to DHS. The resulting proposal's main goal is to create 
DHS/CBP user fees that recover, to the extent possible, CBP and ICE's 
costs of providing inspection services. Under this proposal, APHIS 
retains the authority to set and adjust user fees to recover their 
costs associated with agriculture inspections. If the legislative 
proposal is enacted APHIS will no longer have to transfer a portion of 
their user fee collections to CBP. Meanwhile, CBP will split a portion 
of the consolidated user fees with ICE to ensure that both agencies 
fully recover the costs related to immigration inspection at airports 
and seaports. Attached to this memorandum is a table that summarizes 
the GAO recommendations that CBP will address in the proposal to 
consolidate the authorities that govern the customs, immigration, and 
agriculture inspection user fees. 

The ten recommendations and CBP's corrective actions to address these 
recommendations are included below: 

Recommendation I: 

Direct CBP, ICE, and the Animal and Plant Health Inspection Service 
(APHIS) to make infonnation on the estimated cost of inspections as 
well as the basis for these cost estimates readily available to 
affected parties to improve the transparency and credibility — and 
hence the acceptance by stakeholders and payers — of the process for 
setting, collecting, and distributing the fees. 

CBP Response: 

In an effort to simplify and streamline the process of setting, 
collecting, and distributing user fees, CBP has begun developing 
legislation that will consolidate current user fee authorities. During 
the user fee consolidation proposal requirements process, stakeholders 
had been actively involved in providing their input and CBP has been 
diligent in maintaining open dialogue to increase transparency and ease 
understanding and adherence to the revised legislation. 

Advisory committee meetings afford stakeholders an opportunity to 
address CBP representatives with questions and comments on the status 
of collections and cost data for each fee and activity. At the last 
advisory committee meeting, CBP provided the membership with 
documentation showing CBP's costs and collections for the various user 
fees. CBP will continue to work with ICE and APHIS to streamline the 
reporting process and collaborate on improving the availability and 
accessibility of data. CBP will also explore additional opportunities 
for sharing this information with the trade community.

Recommendation 2: 

Direct CBP, ICE, and APHIS to collaborate on agendas, presentations, 
and discussions with stakeholders for the CBP Airport and Seaport 
Inspections User Fee Advisory Committee meetings in order to improve 
the usefulness of these meetings for both agencies and fee 
stakeholders. 

CBP Response: 

CBP agrees that the advisory committee should address issues related to 
airport and seaport passenger inspection fees that are relevant to its 
membership. Prior to each meeting, CBP asks the membership for input on 
the agenda. To date, CBP has not received requests for information on 
ICE or APHIS functions. 

In the future, CBP will strive to communicate the usefulness and 
importance of these meetings to the committee members, as well as the 
services offered by ICE and APHIS that are relevant to the fee 
stakeholders. CBP will work with ICE and APHIS to determine the level 
of involvement they desire and with DHS to determine whether the 
charter of the committee should be amended to include these agencies or 
if their role can be broadened under the current committee charter. 

Recommendation 3: 

Consolidate reporting of the passenger inspection fees, to include the 
activities and proportion of fees for which CBP, ICE, and APHIS are 
each responsible to provide a comprehensive picture of the user fees 
supporting the passenger inspection process. 

CBP Response: 

In keeping with CBP's Memorandum of Agreement (MOA) with APHIS, CBP 
shares the costs of our agriculture fee activities with APHIS on a 
periodic basis, which they can use in their reports. Also, starting in 
FY 2007, APHIS and CBP are submitting a joint report to the Office of 
Management and Budget (OMB) on the Agriculture Quarantine Inspection 
(AQI) user fees, for use in evaluating the agencies' budget requests. 
This report includes current and projected collections and costs by 
activity, FTE to be funded from the user fees, and performance measures 
on the effectiveness of the AQI program. 

In the past, CBP has only reported its own costs and collections in its 
reports, in part because ICE did not have data available on the costs 
of their activities. Now that this data is available from ICE, we can 
start submitting a joint Immigration User Fee (IUF) report to Congress. 
For the required biennial user fee review, we will continue to follow 
DHS' guidance by submitting CBP's fee costs and collections to DHS, 
which then issues a consolidated user fee report for the entire 
Department. 

Recommendation 4: 

Develop a legislative proposal in consultation with Congress on a 
consolidated, graduated penalty system that reflects airline payment 
history and includes specific administrative procedures regarding when 
penalties should be invoked in order to improve the effectiveness of 
the tools for enforcing payment of passenger inspection fees. 

CBP Response: 

The absence of a strong and cohesive penalty system does not 
effectively deter air carriers for failing to comply with CBP rules and 
regulations. Under the status quo CBP's authority to issue penalties to 
air carriers are dispersed across three different user fee regulations. 
This fact reduces CBP's ability to effectively enforce penalty 
provisions. CBP is addressing this problem in the short term by working 
to incorporate more definitive enforcement provisions into the existing 
Immigration and Customs user fee regulations. For a more complete 
solution to this problem, DHS is proposing to establish a penalty 
provision by statute as a part of its Unified User Fee legislative 
proposal. This proposed authority will give the Secretary of DHS the 
ability to create a robust system of penalties via regulation and also 
provide the trade appropriate opportunities to comment on the proposed 
changes. 

Recommendation 5: 

Develop a legislative proposal in consultation with Congress on a 
single, common set of airline record-keeping requirements for all three 
passenger inspection fees that reflects the consolidated audit function 
for these fees and reduces the administrative burden on airlines. 

CBP Response: 

CBP plans to solve this problem as part of the Unified User Fee 
initiative. The proposed authority will give the Secretary of DHS the 
ability to establish record keeping requirements via regulation, giving 
the trade appropriate opportunities to comment on the proposed changes. 

Recommendation 6: 

Develop a legislative proposal in consultation with Congress to 
eliminate key differences among the fourth quarter remittance 
requirement for the immigration fee. 

CBP Response: 

The current cycle of payments is problematic because air passenger 
inspection expenses occur throughout the year, but payments are 
received far less often. The Immigration User Fee's provision for the 
fourth quarterly payment further complicates the matter as it leaves an 
even longer gap in collections. CBP plans to solve these payment 
problems as part of the Unified User Fee initiative. Under our proposed 
payment system, payments will be due 30 days after the month in which 
the fees are collected. 

Recommendation 7: 

Develop and implement common assumptions used to forecast the costs of 
agriculture quarantine inspection activities in order to more closely 
tie the fee rate to CBP's and APHIS' agriculture inspection costs. 

CBP Response: 

Projecting collections accurately is important because it affects how 
much revenue the agencies can spend on agriculture inspections and also 
when CBP receives the revenue. Now that CBP is submitting a joint 
report to OMB, it has become even more important that we agree on how 
to project collections. CBP has already brought this matter to APHIS's 
attention in the past and we will work to schedule a meeting to come to 
an agreement on the assumptions used. At CRP's next quarterly meeting 
with APHIS in September 2007, CBP will suggest that those responsible 
for the forecasting meet separately to make sure the agencies use the 
same assumptions. 

Recommendation 8: 

Develop and implement formal written guidance on factors to be 
considered in selecting airlines for audit, including factors intended 
to reflect the risk on non-or incomplete payment. 

CBP Response: 

Formal written guidance on factors to be considered in selecting 
airlines for audit will be completed and implemented. Recommendation9
Complete development of and report on ICE's activity costs to ensure 
the immigration fee is divided between ICE and CBP according to their 
respective proportion of immigration inspection activity costs. 
Further, if the study shows that immigration activity costs exceed 
collections, develop a legislative proposal in consultation with 
Congress to adjust the immigration fee to recover costs as closely as 
possible. 

CBP Response: 

CBP plans to adjust the fees to cover the full costs both agencies 
incur in providing inspection services as part of the Unified User Fee 
legislative proposal. CBP has already included ICE's estimated costs 
for the new fee calculation in our draft proposal. When we receive 
their final costs, CBP will update the legislative package as 
necessary. 

Recommendation 10: 

Direct CBP and ICE to develop and implement a fee-sharing memorandum of 
understanding to include timeframes for when funds would be reimbursed 
and to provide for periodic review and update. 

CBP Response: 

As noted in the report, ICE is finalizing its cost analysis. Once the 
analysis is complete, CBP will revisit the split of user fees and 
expand the scope of the existing MOU to provide for periodic review and 
update. CBP would also take advantage of the available cost data by 
including provisions for periodic meetings and data sharing between the 
agencies. Timeframes for when funds will be transferred are included in 
the current MOU. In drafting the MOU language, CBP will follow the 
guidance already provided by DHS. 

We thank you for the opportunity to review the draft report and provide 
comments. 

Sincerely,

Signed by: 
Steven J. Pecinovsky: 
Director: 
Departmental GAO/OIG Liaison Office: 

[End of section] 

Appendix III Comments from the Department of Agriculture: 

USDA: 

United States Department of Agriculture: 
Office at the Secretary: 
Washington, D.C. 20250: 

September 17, 2007: 

Ms. Susan J. Irving, Director: 
Strategic Issues: 
United States Government Accountability Office: 
441 G Sweet, NW: 
Washington, DC 20548: 

Dear Ms. Irving: 

The United States Department of Agriculture (USDA) has reviewed the 
U.S. Government Accountability Office's (GAO) draft report, "Federal 
User Fees: Key Aspects of International Air Passenger Inspection Fees 
Should Be Addressed Regardless of Whether Fees Are Consolidated (07-
1131)." We are impressed with the high level of detail contained in 
this report and the thorough explanations and charts that covered some 
of the highly complex issues and differences between the USDA, 
Department of Homeland Security's Office of Customs and Border 
Protection (DHS, CBP), and Immigration and Customs Enforcement's (ICE) 
authorities, fees, penalties, and exemptions. The well- organized 
explanations and visual diagrams make this report useful for purposes 
beyond GAO's original intention to examine how fees are set, collected, 
and distributed; to evaluate the impact of these Federal processes on 
the industry; and to discuss any implications of consolidating fees. 

USDA considers fair and efficient user fees and related administrative 
processes a high priority for the Department. While we concur with each 
recommendation that pertains to USDA, we also offer the following 
perspectives on each recommendation. 

Direct CBP, ICE and APHIS to make information on the estimated cost of 
inspections as well as the basis for these cost estimates readily 
available to affected parties to improve the transparency and 
credibility-and hence the acceptance by stakeholders and payers-of the 
processes for setting collecting, and distributing the fees. 

USDA concurs with this recommendation. However, we believe it is 
important to note that the funds we collect in our international air 
passenger user fees are used to fund all direct and indirect costs for 
this program. International air passengers pay our user fees because 
all air passengers are subject to inspection, regardless of whether 
they are actually inspected.

Further, we believe that full disclosure of all costs and what the user 
fees were used for is the best way to add credibility and acceptance of 
the user fees for the industry. Starting in Fiscal Year 2007, USDA's 
Animal and Plant Health Inspection Service (APHIS) filed reports with 
the U.S. Office of Management and Budget to not only marry our actual 
costs with our upcoming budget submissions, but to provide outputs and 
outcomes to the public on the results of our Agriculture Quarantine and 
Inspection (AQI) Program. This contains information on the number of 
plant pest interdictions to protect the fruit, vegetable, and grain 
industries in the U.S. and other valuable accomplishments. 

Regarding the action to make information available on setting fees, we 
already provide full disclosure on exactly how we set our international 
airline passenger user fees in our fee proposal rules in the "Federal 
Register." In our last rate-setting, we provided detailed calculations 
for each and every penny of each and every AQI user fee including any 
amounts included in the fees for rounding. We remain, of course, open 
to any suggestions for enhancements or improvements on rate-setting. 

Regarding the action to make information available on our process for 
distributing the fees, we currently provide this information through a 
Memorandum of Agreement (MOA) between USDA and DHS. As shown by your 
later suggestion for DHS and ICE to use a similar vehicle for this 
process, we believe a MOA between USDA and DHS is our proper course of 
action. We can make that information available on a wider basis as 
needed. 

Direct CBP, ICE, and APHIS to collaborate on agendas, presentations, 
and discussions with stakeholders for the CBI' Airport and Seaport 
Inspections User Fee Advisory Committee meetings in order to improve 
the usefulness of these meetings for both agencies and fee 
stakeholders. 

USDA concurs with this recommendation. We are happy to cooperate, 
participate, and provide any assistance we can. We agree our 
participation on certain agenda topics could be mutually beneficial to 
both the industry and to USDA. 

Consolidate reporting of the passenger inspection fees, to include the 
activities and proportion of fees for which CBP, ICE, and APHIS are 
each responsible to provide a comprehensive picture of the user fees 
supporting the passenger inspection process. 

USDA concurs with this recommendation. We realize that it is essential 
for Congress to have a complete source of information on how the 
interrelated inspection functions of all three agencies work together, 
so Congress can properly oversee our programs and their related user 
fees.

Develop a legislative proposal in consultation with Congress on a 
consolidated graduated penalty system that reflects airline payment 
history and includes specific administrative procedures regarding when 
penalties should be invoked in order to improve the effectiveness of 
the tools for enforcing payment of passenger inspection fees. 

USDA concurs with this recommendation. In accordance with the Debt 
Collection Act, as codified in 31 U.S.C. 3701, we do charge penalties 
and interest though not using a potentially more effective graduated 
penalty system as recommended here. As our current process allows us to 
make changes of this nature directly to our regulations without a 
change in our legislative authority, as DHS obtains such authority and 
establishes a GAO- recommended graduated penalty system, USDA will 
amend our regulations to be consistent. 

Develop a legislative proposal in consultation with Congress on a 
single, common set of airline record-keeping requirements for all three 
passenger inspection fees that reflects the consolidated audit function 
for these fees and reduces the administrative burden on airlines. 

USDA concurs with this recommendation. Although our regulations are 
silent in this regard, we plan to propose rulemaking for a five year 
record retention requirement. We believe it would be beneficial for all 
three entities to require a common set of airline record-keeping 
requirements not just for the airlines, but to also help our joint 
Federal audit programs run smoothly. As our current process allows us 
to make changes of this nature directly to our regulations without a 
change in our legislative authority, as DHS obtains such authority and 
establishes a new record-keeping requirement, USDA will amend our 
regulations to be consistent. 

Develop and implement common assumptions used to forecast the 
collections of agriculture quarantine inspection fee in order to more 
closely tie to CBP's and APHIS' agriculture fee distribution to actual 
collections. 

USDA concurs with this recommendation. USDA fully understands the 
benefits for DHS, CBP to receive more money earlier in the year to 
better plan and meet mission goals. Because no appropriated funding is 
available to pay for inspection work, APHIS has been conservative in 
volume projections. In fact, if we had based volume projections on the 
Canadian exemption taking place on November 24, 2006, we would have 
over- estimated the available funding and subsequently overspent. As 
the reserve balance continues to slowly build in the AQI Program's 
account, and a better projection of the Canadian passenger volumes can 
be made, APHIS will be more comfortable using less conservative 
forecasting approaches as long as there is no compromise in our ability 
to provide the necessary program services. 

Sincerely, 

Signed by: 
Bruce I. Knight: 
Under Secretary: 
Marketing and Regulatory Programs: 

[End of section] 

Appendix IV GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Susan Irving, (202) 512-9142 or irvings@gao.gov: 

Acknowledgments: 

Jacqueline M. Nowicki (Assistant Director) and Chelsa Gurkin managed 
this assignment. Robin Freshwater and Amy Rosewarne made key 
contributions to all aspects of the report. Susan Etzel, Terrance N. 
Horner Jr., Jessica Nierenberg, Kathleen Padulchick, and Jack Warner 
also provided assistance. In addition, Carlos Diz and Pedro Briones 
provided legal support and Donna Miller developed the report's 
graphics. 

[End of section] 

Footnotes: 

[1] International arrivals at sea and land ports are also subject to 
inspection. 

[2] For characteristics useful for reviewing user fees in general, see 
GAO, Aviation Finance: Observations on Potential FAA Funding Options, 
GAO-06-973 (Washington, D.C.: Sept. 29, 2006). 

[3] This is an abbreviated description of the principles relating to 
the passenger inspection fees. There are many specific factors to be 
considered within each of these principles; for example, when assessing 
the equity of a fee, one can consider whether it is based on the 
individual's ability to pay for the service, and when assessing a fee's 
efficiency, one can consider whether the rate is set to encourage or 
discourage consumption of a resource. 

[4] Precleared passengers are inspected in the departing country rather 
than in the United States. 

[5] See for example, S. 1160, 110TH Cong. (2007); H. Amend. 704, 110TH 
Cong. (2007); H.R. 1706, 110TH Cong. (2007); H.R. 2629, 110TH Cong. 
(2007); S. 887, 110TH Cong. (2007). 

[6] For more information on the AQI program, as well as (1) the extent 
to which the Department of Agriculture and DHS have changed the 
inspection program since the transfer, (2) how the agencies have 
managed and coordinated their responsibilities, and (3) how funding for 
agricultural inspections has been managed since the transfer, see GAO, 
Homeland Security: Management and Coordination Problems Increase the 
Vulnerability of U.S. Agriculture to Foreign Pests and Disease, GAO-06-
644 (Washington, D.C.: May 19, 2006). 

[7] Similar transitions took place at land ports and seaports of entry. 

[8] Agriculture secondary inspections are performed by CBP Agriculture 
Specialists. 

[9] 21 U.S.C. § 136a(a)(1). 

[10] 19 U.S.C. §§ 58c(a)(5), (f)(3). These activities include: overtime 
and premium pay generally (i.e., not limited solely to international 
passenger inspection but for all customs inspections); retirement and 
disability contributions; preclearance service; and foreign language 
proficiency awards. 

[11] 8 U.S.C. §§ 1356(d), (h). 

[12] CBP aims to fully consolidate the authorities that govern the 
three inspection user fees that support CBP inspection functions, but 
officials said they are proposing a partial consolidation of the 
customs, immigration, and CBP's portion of the agriculture fee because 
the Department of Agriculture does not support consolidating the 
portion of the agriculture fee that APHIS retained. 

[13] CBP has proposed formally moving these authorities to DHS in its 
draft legislative proposal. 

[14] GAO, Results-Oriented Government: Practices That Can Help Enhance 
and Sustain Collaboration among Federal Agencies, GAO-06-15 
(Washington, D.C.: Oct. 21, 2005). 

[15] However, APHIS's report did not include CBP's analysis of its 
agriculture inspection costs. APHIS's report is based only on APHIS's 
analysis of the agriculture fee collections and inspection costs. 

[16] Starting in fiscal year 2007, APHIS and CBP are submitting a joint 
report to OMB on the AQI user fees, for use in evaluating the agencies' 
budget requests. This report will include current and projected 
collections and costs by activity, FTE to be funded from the user fees, 
and performance measures on the effectiveness of the AQI program. 

[17] At the end of our audit, CBP and ICE officials agreed to work 
together to address the immigration inspection user fee. 

[18] The agriculture inspection fee also authorizes APHIS to maintain a 
user fee reserve fund equal to 3 months of agriculture quarantine 
inspection costs for use in the event of a decline in fee collections. 

[19] In addition to the base collections, this MOA documents the 
distribution of the agriculture passenger inspection fees collected 
from passengers originating in Canada, as a result of the January 2007 
elimination of the Canadian exemption. Per MOA, for fiscal year 2007, 
CBP will receive 75.5 percent and APHIS will receive 24.5 percent of 
these new collections. 

[20] GAO-06-644. 

[21] GAO-06-15. 

[22] GAO-06-644. 

[23] The customs and immigration fees are both classified as offsetting 
receipts and the agriculture fee is a governmental receipt. Offsetting 
receipts are collections that are offset against gross outlays but are 
not authorized to be credited to expenditure accounts. Offsetting 
receipts are deposited in receipt accounts and cannot be used without 
being appropriated. 

[24] Generally, CBP uses a standard system to estimate the amount of 
time an inspector spends on customs, immigration, and agriculture 
inspection activities per shift, and files exception reports as 
necessary. 

[25] There was an exemption from the agricultural fee for air 
passengers arriving from Canada, but it was eliminated effective 
January 1, 2007. 

[26] According to CBP officials, CBP's draft proposal does not 
recommend eliminating the exemption for passengers arriving from U.S. 
territories. 

[27] The Advisory Committee is a standing committee that meets 
biannually to advise the Commissioner of CBP on issues related to the 
performance of airport and seaport agriculture, customs, or immigration 
inspections. The 14 committee members and chairperson are nominated as 
representatives from their organizations--generally airlines, airports, 
cruise lines, and associations with each of these industries. Both the 
customs and immigration passenger inspection fee statutes required the 
establishment and periodic meetings of advisory committees consisting 
of industry representatives to advise the agency on issues related to 
inspectional services, including fee levels. See 8 U.S.C. 1356(k); 19 
U.S.C. 58c(k). 

[28] CBP officials said they also regularly meet with officials from 
ATA and IATA, however, as we will discuss later, stakeholders said they 
do not feel these interactions are substantive. 

[29] According to the Advisory Committee sign-in sheet, ICE officials 
also attended the August 2006 Advisory Committee meeting, but we do not 
know the extent of their participation. 

[30] 5 U.S.C. App. 2., § 10. 

[31] See 5 U.S.C. § 553(b)(B) and (d)(3). 

[32] The elimination of the Canadian exemption for air passengers 
actually went into effect January 1, 2007, allowing affected groups 
more time to make necessary preparations in order to comply with the 
inspection and collection procedures. 

[33] GAO, Reexamining Regulations: Opportunities Exist to Improve the 
Effectiveness and Transparency of Retrospective Reviews, GAO-07-791 
(Washington, D.C.: July 16, 2007). 

[34] CBP provided information on the costs of performing air passenger 
inspections at the aggregated level at the Advisory Committee meetings. 
However, the information provided--fiscal year 2006 total costs and 
collections for each of the three air passenger inspections, and the 
forecasted collections for fiscal years 2007and 2008--was at too high 
of a level to be useful to stakeholders. 

[35] The agriculture statute permits the Secretary of Agriculture to 
"prescribe and collect fees sufficient to cover the cost of providing 
agricultural quarantine and inspection services in connection with the 
arrival at a port in the customs territory of the United States, or the 
preclearance or preinspection . . . " 21 U.S.C. § 136a(a)(1). 
Similarly, although the immigration user fee statute prescribes the 
exact amount of the fee, the statutory language is broadly available to 
refund any appropriation for the amount paid out of such appropriation 
for expenses incurred in providing immigration inspection and 
preinspection services. 8 U.S.C. § 1356(d) and 1356(h). 

[36] According to CBP, of the customs user fee funds spent on overtime 
and premium pay, more than 66 percent of the overtime and nearly 12 
percent of premium pay was used for CBP officers in airports in fiscal 
year 2006. COBRA fees can be spent on other types of inspection 
overtime and premium pay for inspections related to barges, broker 
permits, commercial vehicles, dutiable mail, private aircraft/vessels, 
rail cars, and sea passengers. COBRA overtime is paid at a rate of 100 
percent for any time worked outside the 40-hour workweek. Premium pay 
is additional compensation employees receive for working nights, 
Sundays, and holidays. 

[37] In fact, although the Customs Service Inspector General once 
questioned the agency's use of user fees to cover costs of activities 
unrelated to actual services provided, the Comptroller General ruled 
that the Customs Service was permitted by law to cover other expenses 
as specified by the user fee statute. B-279865, Apr. 22, 1999. 

[38] Reliable cost information is critical to setting user fees because 
if the data are wrong, the resulting analysis can lead to improper fee- 
setting decisions. 

[39] Currently, only the customs fee exempts air passengers originating 
in Canada and Mexico from paying the inspection fee. The Canadian 
agriculture air passenger exemption was eliminated in January 2007. 

[40] The United States preclears passengers at 15 airports around the 
world. 

[41] According to CBP, if the fees are not collected at the time of 
purchase, the airline is responsible for collecting the fee from the 
passenger at the airport. If the ticket is sold by a travel agent or 
online travel service, they collect and transfer the fee as part of the 
overall ticket transaction to the airline. The Court of Federal Claims 
has ruled that the immigration and agriculture user fee statutes and 
implementing regulations do not impose liability on airlines for 
payment of any uncollected inspection fees. American Airlines v. United 
States, 68 Fed. Cl. 723 (2005); Continental Airlines v. United States, 
No. 06-432C (Fed. Cl. July 12, 2007). CBP and APHIS argue that airlines 
must remit immigration and agriculture fees, regardless of whether 
airlines collected them from passengers. CBP reported to us that it is 
appealing both cases, as well as submitting a legislative proposal to 
Congress that would hold carriers liable even for those fees that 
should have been collected but were not. 

[42] Since fees are collected when the ticket is sold, fees may be 
remitted in advance of passenger travel. 

[43] According to CBP officials, CBP's draft legislative proposal has 
been amended such that "when feasible," the Secretary of DHS may 
establish an alternative system to remit user fees. 

[44] According to airline officials we spoke with, domestically-owned 
carriers--responsible for 60 percent of the international flights into 
the United States--generally believe their positions are better 
represented by ATA, while IATA is more in line with foreign-owned 
carriers, which represent 40 percent of the international flights into 
the United States. 

[45] Passenger facility charges are fees airports use to fund FAA- 
approved projects that enhance safety, security, or capacity; reduce 
noise; or increase air carrier competition. In evaluating how much the 
carrier compensation should be for the collection of PFCs, the FAA 
asked carriers to submit their incremental costs associated with PFC 
collection, handling, remittance, reporting, recordkeeping, and 
auditing. These categories consisted of the following: credit card 
fees, audit fees, PFC disclosure, reservations, passenger service, 
revenue accounting, data entry, accounts payable, tax, legal, corporate 
property department, training reservations, ticket agents, and other 
departments, carrier ongoing information systems, computer reservation 
systems ongoing, PFC absorption, airline tariff publishing company, 
airline reporting corporation, and interest income. From the analysis 
of these data, the FAA determined the average carrier cost was $0.11 
per PFC. 

[46] GAO, Grants Management: Enhancing Performance Accountability 
Provisions Could Lead to Better Results, GAO-06-1046 (Washington, D.C.: 
Sept. 29, 2006). 

[47] Because customs fees are treated as duties for administration and 
enforcement purposes, CBP also has the authority to charge interest on 
unremitted customs user fees at the tariff rate of interest, however, 
in practice interest charges are included in the liquidated damages 
calculation. 

[48] 31 U.S.C. Section 3717(a)(1). 

[49] GAO-06-1046. 

[50] GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G 
(Washington, D.C.: August 2001). 

[51] The sample included airlines whose total passengers transported 
represented top, middle, and low shares or segments of total passenger 
volume. 

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