Strained Customs

he average American traveler expects little more of the Customs Service than to get in and out of the country with minimal hassle. Businesses want Customs to ensure goods travel freely and quickly across the borders. But political leaders insist that the agency keep harmful substances and goods from entering the United States. Like the Immigration and Naturalization Service and, until recently, the Federal Aviation Administration, the Customs Service must perform a tricky balancing act as it tries to manage competing missions.

For example, consider a trainload of automobile parts entering the United States from Canada. The delay of this shipment may slow the process of making cars in the United States, increasing costs for U.S. manufacturers. But a failure to aggressively inspect the shipment for contraband may allow illegal drugs to enter the country. Sometimes it seems Customs can't win.

Those who see it primarily as a law enforcement agency often say it's not aggressive enough. Those who favor rapid movement of people and goods into and out of the country see Customs as a bureaucratic impediment. The agency constantly must shift between facilitating trade and capturing contraband. The result is overall management inefficiency.

There is evidence that given a single, clear priority, Customs is quite capable of responding. In February 1998, for example, Customs launched Operation Brass Ring, a six-month concentrated enforcement effort to immediately and dramatically increase narcotics seizures. Using intensified inspection and random strikes, Customs met its objectives just two months into the operation. This success contributed to impressive increases in seizures of narcotics and currency by Customs in 1998, compared with 1997. Total seizures of cocaine, marijuana and heroin between February and July 1998 exceeded by 45 percent the amount seized during the same period a year earlier. Industry groups praised the effort, noting that expected shipping delays did not materialize. Unambiguous successes such as Brass Ring are the exception rather than the rule, however.

The sheer scope of the Customs mission presents its own challenges. In 1997 alone, the agency processed almost 18 million commercial shipments and 447 million passengers arriving by land, air or sea at 301 U.S. ports of entry. The potential for contraband with such a volume is enormous; in 1997, Customs seized about 1 million pounds of illegal narcotics, more than all other federal agencies combined.

Customs agents constantly must judge whether delaying an incoming shipment or passenger is justified in terms of the potential for the seizure of some illegal substance. The problem, of course, is that drug interdiction is just one of many functions that inspectors at the border are expected to perform. No wonder a Customs manager says the most common cry of inspectors caught between trade facilitation and law enforcement is, "Just tell me what you want me to do."

To better accomplish its competing missions, Customs is looking for ways to fuse them. One such effort is the informed compliance program, which assumes traders will voluntarily comply with the rules if given the proper information and the ability to audit their own processes. As part of the 1993
Customs Modernization Act, Customs was required to increase the amount of information it provides importers and exporters. In exchange, traders are to provide more information to Customs in advance of bringing goods through U.S. ports. Between 1993 and 1997, Customs made more than 1,000 outreach visits to the trade community as part of the voluntary compliance program.

Though many of Customs management problems stem from its ambiguous mission, some are simply the result of inadequate systems. The agency historically has had a difficult time managing its finances, for example, though it seems to be gaining control in this area. Customs also faces constraints in law and in union agreements on how it uses staff. At the same time, the agency fails to do much human resources planning. In addition, its major computer system is in danger of imminent overload, and a replacement system is running six years behind schedule. Not surprisingly, given its trouble establishing mission priorities, Customs has a difficult time coming up with performance measures.

Getting Off the Risk List

Only the IRS handles more federal revenue than does the Customs Service, which collected $22.1 billion in fiscal 1997. Yet Customs is chronically unable to account for the cash it receives. In 1993, the General Accounting Office found Customs' accounts receivable reports unreliable, erroneous and unsubstantiated. Customs' financial management has, since 1991, been on GAO's list of federal activities at high risk for waste, fraud, abuse or mismanagement. While GAO has acknowledged progress, Customs' high-risk status was reaffirmed as recently as February 1997.

GAO cites several chronic financial management problems at Customs: its inability to assure that duties, taxes and fees are properly assessed and collected; serious potential computer security concerns; and unreliable core financial management systems. Because of GAO's concerns, Customs received audit disclaimers for fiscal 1992, 1993 and 1994. Disclaimers indicate that auditors regarded the quality of financial information insufficient to enable them to render an opinion on the agency's financial management. With two consecutive unqualified audit opinions for fiscal 1996 and fiscal 1997, however, the agency is on track to be removed from GAO's high-risk list, a major indicator of financial management progress.

This is not to say that Customs has no remaining financial weaknesses. Though Customs is heavily personnel-dependent, it cannot accurately measure its inspection workload, according to GAO (GGD-98-107). Though Customs has performed needs assessments since 1995, those assessments have failed to take workload into account when determining whether additional employees are needed.

Customs historically has had difficulty identifying the costs of its activities, as well. As a result, trade groups believe the user fees they pay are not tied to the actual costs of Customs inspections. In April, Carol Hallett of the Air Transport Association of America told the House Ways and Means trade subcommittee that Customs overcharges air and sea passengers, who must pay a $5 fee upon entering or leaving the United States. Hallett pointed out that Customs has determined that processing a passenger costs just $3.25 on average. In 1997, Customs began moving to improve fee-setting by using activity-based costing to determine the actual costs of processing both passengers and freight.

Stuck Staff

Customs' ability to deploy its staff is constrained by a number of factors. By law, Customs can't use the $5 passenger fees for anything except equipment and personnel for processing passengers. This prevents Customs from using the money for other pressing needs, such as improving air cargo inspections. Such checks are far more likely to turn up contraband than is processing passengers.The user fees currently fund about 1,200 positions for specific purposes at specific locations, further preventing the agency from moving staff to match workload.

The National Treasury Employees Union (NTEU), which represents more than 60 percent of Customs employees, exerts its power in part by limiting the agency's ability to move people around. Customs field managers negotiate directly with their local union heads, resulting in port-to-port inconsistencies in staffing levels, hours worked and percentage of imports inspected, leading some observers to worry about potential enforcement gaps.

Magnifying the problem is the agency's apparent lack of workforce planning. In August, GAO reported that it couldn't analyze Customs' inspection staffing, because the agency has no process for assessing how many inspectors it needs to process passengers. Customs also lacks a process for allocating personnel to process commercial cargo, auditors have found.

Customs managers also complain that they have almost no means to motivate employees to improve their performance. The agency apparently hands out financial awards across the board, limiting their use as motivators. In addition, Customs rarely terminates employees. These factors create a situation, says one manager, in which "we have no carrots and no sticks."

ACE in the Hole

Customs' key mission-critical technology system, the Automated Commercial System (ACS), allows the agency to track, control and process all commercial goods imported into the United States. Unfortunately, the 15-year-old system soon will no longer be a reliable source of data for staff and customers. The system already is operating at 99 percent of capacity. It crashed twice last fall, wreaking havoc in the trade world and forcing importers to file documents by fax.

Aware that ACS was outliving its usefulness, Customs has been planning a replacement, called the Automated Commercial Environment (ACE) system, since the Customs Modernization Act took effect in 1993. ACE has been plagued with problems from the start. GAO questioned its basic design as early as 1996. Customs also has diverted funding from ACE in order to deal with its year 2000 problem (which, by all indications, it has solved). Since 1996, industry groups have complained about the dearth of solid cost information about ACE and the continuing lack of a formal business plan for the system.

Not until last spring, however, did Customs reveal that ACE was running six years behind its planned October 1998 implementation date and would cost about $850 million. Congress has been reluctant to come up with the money. Customs' proposal to increase a merchandise-processing fee by almost 20 percent to cover ACE costs was met with howls of protest from the trade community. In the meantime, the agency is propping up its current system by adding processing capacity.

Even under the best-case scenario, Customs will wait more than six years for ACE. But inspectors need the new system now. Given the uncertainty concerning cost, schedule and funding, there is no reason to believe Customs can continue to support its inspectors in the field until a new system is ready.

Nevertheless, Customs' technology problems largely are in the future, rather than the present. Customs managers praise the current usefulness of ACS, as well as the training of agency IT staff. Last year, Customs won three of 19 Government Technology Leadership Awards sponsored by Government Executive. But future problems loom so large as to call into question Customs' ability to plan for and manage technology.

Customs appears to have a handle on its other key capital investment: airplanes. The agency currently owns $400 million worth of airplanes, with another $10 million in spare parts. The planes are primarily used to detect, track and apprehend aircraft, boats and vehicles attempting to smuggle drugs into the United States. They also support other law enforcement agencies at home and abroad in their interdiction efforts.

The aviation program has received generous appropriations, and Customs has done an admirable job of keeping a tight watch on costs and expenditures. This is one of the few areas where the agency uses program-based budgeting, and overall benefits seem to more than justify costs.

Mixed Results

Customs' efforts to manage for results meet the basic requirements of the 1993 Government Performance and Results Act, according to GAO's review of Customs' strategic plan. Customs has a good record of outreach and consultation with trade groups, but it has a history of confrontational relationships with other federal agencies, particularly those, such as INS, whose missions overlap with Customs'.

Customs' main challenges in managing for results are created by its competing missions. The agency also has had a difficult time developing outcome measures, particularly for its law enforcement goals. GAO noted that Customs' targets were "more process oriented than results oriented" (T-GGD-98-15). The subsequent GAO review of Treasury's performance plan criticized Customs for its vague strategies. GAO also chastised Customs for relying on traditional law enforcement measures--such as seizures, arrests, indictments and convictions--as indicators of drug interdiction effectiveness. In a subsequent report on aviation performance measures, GAO underscored the point, noting that "these measures are used to track activity, not results or effectiveness."

The main barrier to effective outcome measurement in Customs, as in many agencies, is that enforcement program results are affected by external factors, such as actions of other law enforcement agencies, many of them in other countries.

With little hope of resolving its mission contradiction, Customs faces daunting management challenges. While U.S. import volumes are expected to double by 2005, Customs' workforce will remain static or decline. Only a useful, up-to-date computer system will allow Customs to achieve its missions. Now that Customs nearly has solved its Y2K problem, the agency must concentrate on funding ACE and getting it up and running. In the meantime, short-term operations like Brass Ring may slow imports of illegal drugs, but stanching the flow of drugs and dangerous goods will take longer-term and larger efforts. Field staffers need a reliable ACS replacement soon to prevent a serious breakdown in their ability to inspect and control trade.

Technology also is the key to fulfilling Customs' trade facilitation mission. The informed compliance project is based in large part on access to computer-based information. The project is designed to give traders full access to the information they need so they can easily and electronically file documents. If the project succeeds, it should speed shipping and strengthen compliance by reducing mistakes and duplication in import and export documents. Customs then can use the resources saved to beef up interdiction.

Customs must ensure its activity-based costing system is implemented quickly and correctly. But accounting improvements are not enough. The agency must also redouble its efforts to develop valid, results-based performance measures, both to comply with GPRA and to maximize the results achieved with resources available.

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