Export Promotion
Commerce Needs Better Information to Evaluate Its Fee-Based Programs and Customers Gao ID: GAO-09-144 March 4, 2009Federal and state trade promotion activities are intended to help U.S. firms compete successfully in foreign markets. Small and medium-sized enterprises (SME)--firms with fewer than 500 employees--represent a key segment of exporting firms. GAO was asked to determine (1) the relationship between the Department of Commerce's (Commerce) U.S. Commercial Service (CS) and states' trade offices' export promotion programs, (2) CS's methodology and practices for determining costs and establishing user fees for export promotion services, and (3) how CS's user fees affect SMEs' use of its programs. GAO conducted a survey of states' trade offices and reviewed data such as export promotion budgets and fees, program information, government standards, and user fee studies. GAO met with officials from Commerce, the State International Development Organizations, six states' trade offices, and others.
Both CS and most states' trade offices provide various types of export promotion services. However, states have limited resources and scope when compared with CS's $235 million budget and large overseas staff. Thus, most states responding to GAO's survey reported that CS's services are important to their export promotion capabilities. State offices often partner with CS on trade missions and other activities. CS and most states focus their efforts on encouraging SMEs to participate in their programs, but user fees can influence whether firms choose to access export promotion services. CS lowers fees for SME exporters, but about a third of the states said they provide grants or payments to defray firms' costs and facilitate access to CS's programs. CS needs better information to maximize the efficient and effective operation of its programs and to ensure that there is a sound basis for setting fees. CS set user fees in May 2008 guided by the Office of Management and Budget's (OMB) full cost recovery policy. However, CS has had a yearly legislative exemption from having to recover full costs through its fees and attempted to recover only a portion of the full cost of its export promotion services. CS did not support and document the methodology and assumptions it used to determine costs and cannot ensure its cost information is consistent and reliable and in accordance with government standards. GAO found significant instances where CS used incomplete and potentially inaccurate data. Complete and accurate full cost information would assist CS and the Congress in making decisions about resource allocations, evaluating program performance, and improving program efficiency. Finally, CS did not document how it established the lower user fees for SMEs and cannot show how the fees it charges different firms for each service link to costs. The extent to which CS's user fees affect SMEs' use of its export promotion programs is unclear. CS lacks reliable and sufficient data to evaluate its customer base and needs to ensure it charges firms the right fees. CS lacks reliable historical data on fees charged, firm size and status, and purchases by location and type. CS is taking steps to better evaluate its customer base. GAO's survey showed that most states reported the 2008 user fees to be reasonable but thought fees charged SMEs for some services were too high when compared with those charged by private sector providers. CS projects an increase in SMEs' demand for its services, but the projection is not based on any analysis of historical data. Relevant studies and other sources suggest that the types of services CS offers compared with other providers, the level of individualized attention provided, and service quality are factors that also affect SMEs' choice to use CS's services.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-09-144, Export Promotion: Commerce Needs Better Information to Evaluate Its Fee-Based Programs and Customers
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Report to the Chairman, Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
March 2009:
Export Promotion:
Commerce Needs Better Information to Evaluate Its Fee-Based Programs
and Customers:
Export Promotion User Fees:
GAO-09-144:
GAO Highlights:
Highlights of GAO-09-144, a report to Chairman, Committee on Finance,
U.S. Senate.
Why GAO Did This Study:
Federal and state trade promotion activities are intended to help U.S.
firms compete successfully in foreign markets. Small and medium-sized
enterprises (SME)”firms with fewer than 500 employees”represent a key
segment of exporting firms. GAO was asked to determine (1) the
relationship between the Department of Commerce‘s (Commerce) U.S.
Commercial Service (CS) and states‘ trade offices‘ export promotion
programs, (2) CS‘s methodology and practices for determining costs and
establishing user fees for export promotion services, and (3) how CS‘s
user fees affect SMEs‘ use of its programs.
GAO conducted a survey of states‘ trade offices and reviewed data such
as export promotion budgets and fees, program information, government
standards, and user fee studies. GAO met with officials from Commerce,
the State International Development Organizations, six states‘ trade
offices, and others.
What GAO Found:
Both CS and most states‘ trade offices provide various types of export
promotion services. However, states have limited resources and scope
when compared with CS‘s $235 million budget and large overseas staff.
Thus, most states responding to GAO‘s survey reported that CS's
services are important to their export promotion capabilities. State
offices often partner with CS on trade missions and other activities.
CS and most states focus their efforts on encouraging SMEs to
participate in their programs, but user fees can influence whether
firms choose to access export promotion services. CS lowers fees for
SME exporters, but about a third of the states said they provide grants
or payments to defray firms‘ costs and facilitate access to CS‘s
programs.
CS needs better information to maximize the efficient and effective
operation of its programs and to ensure that there is a sound basis for
setting fees. CS set user fees in May 2008 guided by the Office of
Management and Budget‘s (OMB) full cost recovery policy. However, CS
has had a yearly legislative exemption from having to recover full
costs through its fees and attempted to recover only a portion of the
full cost of its export promotion services. CS did not support and
document the methodology and assumptions it used to determine costs and
cannot ensure its cost information is consistent and reliable and in
accordance with government standards. GAO found significant instances
where CS used incomplete and potentially inaccurate data. Complete and
accurate full cost information would assist CS and the Congress in
making decisions about resource allocations, evaluating program
performance, and improving program efficiency. Finally, CS did not
document how it established the lower user fees for SMEs and cannot
show how the fees it charges different firms for each service link to
costs.
The extent to which CS‘s user fees affect SMEs‘ use of its export
promotion programs is unclear. CS lacks reliable and sufficient data to
evaluate its customer base and needs to ensure it charges firms the
right fees. CS lacks reliable historical data on fees charged, firm
size and status, and purchases by location and type. CS is taking steps
to better evaluate its customer base. GAO‘s survey showed that most
states reported the 2008 user fees to be reasonable but thought fees
charged SMEs for some services were too high when compared with those
charged by private sector providers. CS projects an increase in SMEs‘
demand for its services, but the projection is not based on any
analysis of historical data. Relevant studies and other sources suggest
that the types of services CS offers compared with other providers, the
level of individualized attention provided, and service quality are
factors that also affect SMEs‘ choice to use CS‘s services.
What GAO Recommends:
GAO recommends that Commerce (1) improve CS procedures for determining
costs and setting user fees for export promotion services and (2)
collect and process more reliable information about its customers to
better understand demand for CS services and how the user fees affect
customers. Commerce concurred with our recommendations.
View [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-144] or key
components. To view the survey results, click on [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-09-148SP]. For more information,
contact Loren Yager at (202) 512-4347 or yagerl@gao.gov and Stan
Czerwinski (202) 512-6520 or czerwinskis@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
CS and Most States' Trade Offices Provide Similar Export Promotion
Services and Work in Partnership:
CS Needs to Improve Its Methodology to Determine Costs and Set User
Fees:
The Extent to Which CS's User Fees Affect SMEs' Use of Its Export
Promotion Services Is Unclear:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Overview of CS's and States' Domestic and International
Offices:
Appendix III: Selected CS Fee Services Purchased by Firms in Each State
in 2007 and 2008:
Appendix IV: Comments from the Department of Commerce:
Appendix V: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Export Promotion Services Offered by CS and States' Trade
Offices:
Table 2: State Export Promotion Resources: Domestic and Overseas
Staffing and Budget Averages:
Table 3: CS Services Sold and Total Collections, Fiscal Year 2008:
Table 4: Overview of CS Cost Methodology:
Table 5: Some Studies of CS's Export Promotion Programs and User Fees:
Table 6: Numbers of Selected CS Fee Services Purchased by Firms in Each
State:
Figures:
Figure 1: States' Opinions on the Importance of CS Services to their
Export Promotion Capabilities:
Figure 2: Export Promotion Services States Purchased Directly from CS:
Figure 3: Comparison of the Commercial Service's 2005 and 2008 User Fee
Schedules:
Figure 4: States' Trade Offices' Fee-Based and Non-Fee Based Services:
Figure 5: States' Trade Offices Offering Export Promotion Grants:
Figure 6: States' Trade Offices Use of Gold Key Service under 2005 Fee
Schedule:
Figure 7: States' Trade Offices' Views of CS's 2008 Fee Schedule:
Figure 8: States' Trade Offices' Views of Gold Key Service under 2008
Fee Schedule:
Figure 9: States' Trade Offices' Views of CS's Customized Services Fees
Compared to Private Sector Providers' Fees:
Figure 10: CS Domestic and International Locations:
Abbreviations:
ARC: Appalachian Regional Commission:
CS: Commercial Service:
COSO: Committee of the Sponsoring Organizations of the Treadway
Commission:
CSG: Council of State Governments:
CTS: Client Tracking System:
DEC: District Export Council:
EDO: Economic Development Organization:
FUSE: Featured U.S. Exporter:
IOAA: Independent Offices Appropriations Act of 1952:
ITA: International Trade Administration:
MECEA: Mutual Education and Cultural Exchange Act:
NTE: new to export:
OMB: Office of Management and Budget:
SFFAS: Statement of Federal Financial Accounting Standards:
SIDO: State International Development Organizations:
SME: small and medium-sized enterprise:
TCD: Transformational Commercial Diplomacy:
USEAC: U.S. Export Assistance Center:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 4, 2009:
The Honorable Max Baucus:
Chairman:
Committee on Finance:
United States Senate:
Dear Mr. Chairman:
The low proportion of U.S. firms that engage in exporting is a major
challenge to realizing the nation's full export potential. For example,
less than 1 percent of U.S. firms are identified as exporters. The
percentage of U.S. production accounted for by exports has risen in
recent years as U.S. industries have responded to export opportunities
created by new market access and growing foreign markets. Small and
medium-sized enterprises (SME)--firms with fewer than 500 employees--
represent a key segment of exporting firms.[Footnote 1] Federal trade
promotion, along with negotiating trade agreements and monitoring
existing agreements, is intended to help U.S. firms gain access to and
compete successfully in foreign markets.
The mission of the U. S. Commercial Service (CS),[Footnote 2] part of
the Department of Commerce (Commerce), is to promote economic
prosperity and enhance job creation through a global network of
international trade professionals that provide trade promotion
services. CS's trade promotion activities seek to increase the number
of U.S. firms that export and assist current exporters to enter
additional markets and expand their presence within markets. In fiscal
year 2008, CS's budget for export promotion totaled approximately $235
million. One way CS seeks to broaden and deepen the U.S. exporter base
is through public and private partnerships, including partnerships with
state trade offices, which have similar missions. The current recession
is likely to highlight the importance of these federal-state
partnerships. During economic downturns, some states cut back on or
eliminate services, such as export promotion, in an effort to address
fiscal challenges through expenditure cuts. In such circumstances,
companies seeking export assistance from a government entity may turn
more to the federal government.
Federal export promotion programs primarily focus on SMEs and charge
fees for services. The fees charged to prospective exporters,
especially SMEs, for particular services affect their decisions to
participate in these federal trade promotion programs. In 2005, SMEs,
as well as large firms, expressed concerns about their future access to
CS programs while CS was considering whether to raise its fees in order
to recover the full costs of these programs.
In response to your request, we evaluated (1) the relationship between
CS and states' trade offices' export promotion programs, (2) CS's
methodology and practices for determining costs and establishing user
fees, and (3) how CS's user fees affect SMEs' use of its programs.
To address these objectives, we reviewed documents and analyzed data
provided by CS, the 50 states' trade offices, the State International
Development Organizations,[Footnote 3] District Export
Councils,[Footnote 4] and other relevant sources. In addition, to
obtain information on states' trade offices' programs and fees, we
surveyed the 50 states' trade offices and conducted site visits in six
states (California, Connecticut, Idaho, Illinois, Mississippi, and
Pennsylvania). We selected states' trade offices based on a number of
criteria, including the size of the states' trade promotion budgets and
states' trade offices colocated with CS's domestic offices. We received
survey responses from 45 states' trade offices, or a 90 percent
response rate. This report does not contain all the results from the
survey. The survey and a more complete tabulation of the results are
provided in a supplement to this report (see GAO-09-148SP). Further, to
obtain information on the costs of CS export promotion programs and
user fees and to determine what is known about how CS's user fees
affect SMEs' participation in its programs, we interviewed Commerce
officials in Washington, D.C., and at the six U.S. Export Assistance
Centers we visited, as well as officials from the six states' trade
offices, District Export Councils, the Office of Management and Budget
(OMB), which issues U.S. government guidance for user fees, and the
State International Development Organizations. We conducted this
performance audit from October 2007 to March 2009, in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform our audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe the evidence
obtained provides this reasonable basis. (Appendix I provides a
detailed discussion of our scope and methodology.)
Results in Brief:
CS and the majority of states' trade offices provide many of the same
types of export promotion services, such as export training, trade
missions, and market research. According to CS officials, no state
provides services that compare with the depth and extent of CS export
promotion services. Consistent with its role as a federal entity
promoting U.S. interests abroad, CS has a national and worldwide
presence, while states' trade offices have fewer staff, smaller
budgets, and operate in fewer countries. Our survey showed that the 45
states responding have an average of 5 overseas offices, or
representatives, each and can cover only a few countries and regions;
in contrast, CS has 124 offices in 75 countries. Partly as a result of
this limited capacity, most states reported that CS's services are
important to their export promotion capabilities and have often
partnered with CS's offices on activities, such as trade shows and
trade missions, as well as joint company visits and counseling
sessions. Furthermore, states' trade offices sometimes purchase
services from CS. CS and most states' trade offices focus their export
promotion efforts on encouraging SMEs to participate in their programs.
User fees can be a factor in firms' decisions on whether to use state
and federal export promotion services. The majority of states' trade
offices provide most services, like export counseling, for free but
charge fees for some services, such as foreign trade missions and trade
shows; CS charges for some services that state offices generally
provide for free, such as foreign agency and distributor searches, but
CS generally provides lower user fees to SMEs as an incentive for them
to participate in CS's programs. In addition, to help make export
promotion services more accessible to potential exporters from their
states, about a third of the 45 states responding to our survey
indicated that they provide some grants or payments to SMEs that can
help defray the costs of CS's fee services.
CS needs better information to maximize the efficient and effective
operation of its export promotion programs and to ensure that there is
a sound basis for setting its user fees. CS officials decided to use
OMB's full cost recovery policy, Circular A-25, User Charges, as a
guide for setting its May 2008 user fees, despite a yearly legislative
exemption from having to recover full costs through its fees.[Footnote
5] Nevertheless, CS neither provided support for nor documented the
methodology and assumptions it used to determine costs, which hampers
CS's ability to make sound management decisions about its services. CS
cannot ensure its cost information is complete, consistent, and
reliable and in accordance with government standards. For example, we
found CS's cost estimates do not include certain costs paid on behalf
of CS by other entities, such as approximately $17 million in
retirement benefits paid by the Office of Personnel Management in
fiscal year 2008. Also, CS did not support its assumptions about the
amount of time staff spent performing standardized export promotion
activities. We found the staff time data CS used, which were collected
in 2005, were potentially outdated and inaccurate. Complete and
accurate full cost information would assist CS and the Congress in
making decisions about resource allocations, evaluating program
performance, and improving program efficiency. Furthermore, CS cannot
demonstrate that its user fees for the services it provides are based
on complete and accurate cost information and that the user fees
recover the portions of program costs that CS intends. Finally, CS
designed the 2008 user fee schedule to provide an incentive to
SMEs.[Footnote 6] CS did not document its procedures and assumptions
used to establish the lower user fees for SMEs and thus the basis for
the different user fees it charges different firms for each service are
not transparent and are not linked to the costs of those services.
The extent to which CS's user fees affect SMEs' use of its export
promotion programs is unclear because CS lacks reliable and sufficient
data on its fee-based services to evaluate its customer base and to
ensure that it is allocating resources to services that its customers
need and is charging them the appropriate fees. CS lacks comparable and
reliable historical data on the fees it has charged, as well as
reliable data on company sizes and purchases by SMEs and its other
customers. CS officials informed us that they have performed only
limited studies of customer demand, but that CS has recently begun to
take steps to improve the quality of data it collects to better
evaluate its customer base. We surveyed the states' trade offices to
obtain their views on CS user fees because state governments are
partners with, and customers of CS, and play an important role in
helping their businesses to compete in the global economy. Most states'
trade offices that had a basis to judge said that the 2005 CS fee
change caused them to decrease their use of a key standardized service
they purchased most often from CS. Overall, most states with a basis to
judge reported the 2008 user fees to be reasonable but thought fees
charged to SMEs for some services were too high in comparison to fees
charged by the private sector. Finally, CS projects an increase in
SMEs' demand for its services, but the projection is not based on any
analysis of historical data. Our work, which included a review of
relevant studies, suggests that factors other than fees also affect
SMEs' choice to use CS's services, and these factors include the types
of services CS offers compared with other providers, the level of
individualized attention provided, and service quality.
We make recommendations in this report to the Secretary of Commerce to
direct the Assistant Secretary for Trade Promotion and Director General
of the U.S. and Foreign Commercial Service to (1) take steps to improve
the collection, processing, and documentation of cost information on
its export promotion programs and user fees in order to enhance
efficient and effective management in line with federal accounting and
internal control standards and (2) ensure that the design of its
databases and procedures followed produce more accurate, reliable, and
complete data on its customers to better understand demand for CS
programs and the extent to which participation is affected by its user
fees.
In commenting on a draft of this report, Commerce concurred with our
recommendations and said that CS would take steps to improve the
collection, processing, and documentation of cost information related
to its export promotion programs. Commerce officials stated that CS
developed its new user fee policy from the most accurate data available
and that its accounting systems were not deficient based on receiving
an unqualified audit opinion on its annual financial statements. We
remain concerned, however, that potentially outdated and inaccurate
nonfinancial data, such as the time staff spend performing various
activities, were used to determine the unit cost of specific services
and that the full costs of specific services should be considered when
CS next review its fees. Also, although an entity's audited financial
statements and unaudited cost accounting analyses may use the same
underlying financial data, an auditor's opinion on the financial
statements does not provide assurance concerning the reasonableness of
cost analyses performed using the underlying financial data. Commerce
also noted an increase in fees collected and services provided in
fiscal year 2008, which they believe indicates their products and
services remain accessible to SMEs. However, we continue to believe
that more complete and accurate data about company size are needed to
properly estimate the volume of services provided to SMEs and come to
judgements about the fees collected from them. Finally, Commerce
emphasized that its trade promotion services are greater in depth and
scope than those provided by the states, and we clarified this point in
various places in our report where appropriate. Commerce's comments,
along with our responses to specific points, are reprinted in appendix
IV. Commerce also provided technical comments, which were incorporated
in the report, as appropriate.
Background:
The U.S. Commercial Service, within Commerce's International Trade
Administration (ITA), plays a leading role in the federal government's
efforts to encourage and promote U.S. nonagricultural exports. CS was
founded in 1980, as overseas commercial work was transferred from the
Department of State (State) to CS. The purpose of CS's export promotion
programs is stated through statutory authority.[Footnote 7] CS's
mission is to maximize U.S. competitiveness, and enable economic growth
for U.S. industries, and enhance job creation by helping U.S. firms
take advantage of opportunities abroad through a global network of
international trade professionals. CS operates 108 domestic offices at
U.S. Export Assistance Centers (USEAC), and maintains 124 international
offices in 75 countries that represent the significant export markets
for U.S. goods and services.[Footnote 8] CS trade specialists at these
offices are tasked with assisting U.S. firms and representing U.S.
commercial interests abroad. In those countries where CS does not have
a presence, State represents U.S. commercial interests and assists U.S.
exporters. State and CS are in the process of negotiating a memorandum
of understanding to formalize this arrangement. Currently, State can
offer certain export promotion services, but does not use CS product
and customer service standards or CS pricing policies.[Footnote 9]
The general goal of CS is to use its network of professionals and
export promotion services to broaden and deepen the U.S. exporter base
and help U.S. firms make sales in international markets. CS reports
that it helps thousands of firms make export sales each year.
Furthermore, according to CS, the majority of these sales are by SMEs.
Its services include providing market research and supporting trade
events. The Gold Key Service, which helps firms identify international
business partners, is one of its most popular services. CS provides
these services to a variety of customers. While private U.S. firms
(particularly SMEs) are CS's main customers, CS also delivers services
to other customers, including state and local governments.
Many U.S. states maintain state trade offices that provide varying
levels of export assistance, usually focusing on increasing exports
from firms located in their states. Most are managed by state economic
development agencies and funded by states' operating budgets. Many
state trade offices maintain both domestic and overseas offices to
deliver services. In addition, many states' trade offices partner with
CS to ensure client firms have access to services the state cannot
offer, particularly in those foreign markets where the states lack
offices.
CS is authorized to charge a user fee for its export promotion
services, and CS has adjusted its user fee structure in recent
years.[Footnote 10] Prior to fiscal year 2005, CS did not have an
agencywide user fee schedule for its export promotion programs, as each
overseas post decided what user fees firms were charged for the export
promotion services the posts delivered. As part of its user fee review
in fiscal year 2005, CS sought to determine the user fees it would have
to charge to recover the full costs of its services. CS determined its
user fees would have to rise significantly to recover full costs,
causing concern among firms, business leaders, and CS staff. However,
CS did not implement a 2005 user fee schedule that recovered full costs
but adopted an agencywide user fee schedule with user fees for most
services set to recover a portion of program costs.
CS and Most States' Trade Offices Provide Similar Export Promotion
Services and Work in Partnership:
CS and the majority of states provide many of the same types of export
promotion services, such as export training, trade missions, and market
research. Firms can choose to go to CS, states' trade offices, or other
providers to get these services. However, states have limited budgets
and staff to assist their firms. Partly as a result of this limited
capacity, most states reported that CS's services are important to
their export promotion capabilities and have partnered with CS's
offices. Both CS and most states' trade offices focus their export
promotion efforts on SMEs. CS and the majority of states' trade offices
provide services for free but charge fees for certain services. In
addition, to facilitate access to CS's programs, about a third of the
states responding to our survey indicated that they provide grants or
payments to firms from their states to defray the costs of CS's fee
services.[Footnote 11]
CS and States' Trade Offices Provide Many of the Same Types of Export
Promotion Services:
CS offers a range of standardized and customized services to help firms
to export. The standardized CS services, including Gold Key Service,
International Partner Search, and International Company Profile, are
prepared and delivered to firms in approximately the same manner around
the world. These services offer firms assistance to identify and meet
potential overseas buyers and distributors, and to perform due
diligence on prospective foreign buyers. The customized services,
including Customized Market Research, QuickTake, seminars/webinars, and
trade promotion events and trade missions, are tailored to fit the
specific needs of an individual firm in a specific export market and
vary based on the scope of work.
The majority of the states' trade offices that responded to our survey
provide many of the same types of export promotion services as CS to
assist firms interested in exporting.[Footnote 12] According to CS
officials, no state provides services that compare with the depth and
extent of CS's export promotion services. According to SIDO, states'
comparative advantage is their local presence and their ability to
specialize in the major industries in their states and on the export
markets those industries typically target. Services that most states
provide and that are similar to CS include training programs and
seminars, as well as assistance in participating in trade shows and
missions. Other services states often cited include market research,
agent and distributor searches, and foreign company background checks.
According to CS officials, CS provides its services to a national
client base and provides services in numerous markets where states have
little or no presence. For example, CS officials explained that while
many states provide "market research" services, these services may
cover fewer markets and provide less detail than the market research CS
provides. In addition, CS said that its missions target an industry
segment more broadly and deeply than is possible for any state.
Further, CS provides some services for which there are no state
counterparts, such as government-to-government advocacy. Table 1 shows
the major export promotion services offered by states' trade offices
and CS.
Table 1: Export Promotion Services Offered by CS and States' Trade
Offices:
Type of service: Training programs/seminars; Description of service:
Training on various topics related to exporting;
CS service(s): * Webinars;
* Seminars;
Number of states offering similar service: 40.
Type of service: Foreign Trade Missions;
Description of service: Overseas travel to meet officials, prospective
business partners and buyers and to promote the sales of U.S. exports
to a foreign market;
CS service(s): * Certified Trade Mission;
Number of states offering similar service: 39.
Type of service: Trade shows (U.S., foreign, and catalog);
Description of service: Events organized to introduce U.S. exporters to
potential overseas business partners;
CS service(s): * Commerce trade events;
* Commerce Trade Fair Certification;
Number of states offering similar service: 39.
Type of service: Market research;
Description of service: Research on target markets, marketability of
product, market trends and size, distribution and promotion practices,
product standards and regulations, key competitors, potential business
partners;
CS service(s): * Publicly available market research;
* Customized Market Research;
Number of states offering similar service: 36.
Type of service: Agent/distributor searches;
Description of service: Identification of prescreened potential
overseas buyers and distributors;
CS service(s): * Gold Key Service;
* International Partner Search;
Number of states offering similar service: 33.
Type of service: Foreign company background checks;
Description of service: Due diligence to verify the background and
credit worthiness of overseas companies, including information on key
officers and management, and the company's financial information;
CS service(s): * International Company Profile;
Number of states offering similar service: 29.
Type of service: Product pricing/analysis;
Description of service: Review product's export potential in certain
overseas markets, including current demand, future demand, and
competition;
CS service(s): * QuickTake;
Number of states offering similar service: 29.
Sources: CS and GAO survey of states' trade offices.
Note: The number of countries in which CS provides export promotion
services exceeds the number of countries in which states' trade offices
provide similar services.
[End of table]
States' Trade Offices' Export Promotion Efforts Are Limited by Small
Staffs and Budgets Relative to CS:
States' trade offices have small staffs and budgets relative to CS.
Consistent with its role as a federal entity promoting U.S. interests
abroad, CS has a national and worldwide presence while states have a
local presence and operate in fewer countries. CS has 493 domestic and
991 overseas staff who are currently engaged in export promotion
activities in 47 states[Footnote 13] plus Puerto Rico and 75
countries.[Footnote 14] (See app. II for CS's domestic and
international locations.) The 45 states' trade offices responding to
our survey have a combined total of 275 domestic staff and 214 overseas
staff.[Footnote 15] According to SIDO, states' trade offices have 245
offices in 34 countries. Half the states responding to our survey have
five or fewer full-time domestic staff and two or fewer full-time
overseas staff.[Footnote 16] Table 2 shows the differences among the
states in terms of the resources they devote to export promotion
activities. Both CS and the states' trade offices have been
experiencing reductions in their staffing levels. Based on CS's data,
it has experienced a 5 percent reduction in domestic staff and 3.5
percent reduction in overseas staff from fiscal year 2007 to 2008.
Thirty-two states' trade offices, or almost 73 percent of those that
had a basis to judge, said that their overall staffing level has
decreased or stayed the same over the past 5 years.
Table 2: State Export Promotion Resources: Domestic and Overseas
Staffing and Budget Averages:
Domestic FTEs[A]: States with 0 to 1 FTE;
Number of states: 9;
Average number of overseas FTEs: 0.2;
Average number of overseas locations[B]: 3.8;
Average export promotion budget[C]: $262,000.
Domestic FTEs[A]: States with 2 to 4 FTEs;
Number of states: 13;
Average number of overseas FTEs: 1.3;
Average number of overseas locations[B]: 3.1;
Average export promotion budget[C]: 334,000.
Domestic FTEs[A]: States with 5 to 7 FTEs;
Number of states: 11;
Average number of overseas FTEs: 2.9;
Average number of overseas locations[B]: 4.0;
Average export promotion budget[C]: 1,294,000.
Domestic FTEs[A]: States with 8+ FTEs;
Number of states: 12;
Average number of overseas FTEs: 13.6;
Average number of overseas locations[B]: 9.3;
Average export promotion budget[C]: 2,943,000.
Domestic FTEs[A]: Average for all states responding to each survey;
Number of states: 45;
Average number of overseas FTEs: 4.7;
Average number of overseas locations[B]: 5.1;
Average export promotion budget[C]: $1,448,057[D].
Sources: Analysis of GAO and SIDO surveys of state export promotion
agencies.
[A] These groupings are approximate quartiles because 45 states
responded to our survey, which does not allow for even quartiles, and
states frequently had the same number of domestic FTEs, which also
affected the quartile sizes.
[B] States' overseas offices can be staffed by state employees,
contractors, or volunteer or honorary representatives. According to
SIDO, most offices are staffed by contractors.
[C] SIDO state export promotion budget data were only available for 24
states. Three (3) of these were in the first quartile, 6 were in the
second quartile, another 6 were in the third quartiles, and 7 were in
the fourth quartile. One state provided budget data to SIDO but did not
respond to the GAO survey.
[D] The median budget was $775,000.
[End of table]
While reliable trade promotion budget data are not available for the 50
states' trade offices, sources estimate that the combined annual trade
budget of the 50 states is significantly lower than CS's annual budget,
perhaps less than half. CS's total budget for export promotion was
about $235 million in fiscal year 2008 and is projected at $237.7
million for fiscal year 2009 (less than 1 percent increase in nominal
terms.)[Footnote 17] Information about states' export promotion budgets
is difficult to obtain and may not be fully reliable. States' commerce
departments or economic development agencies usually run states' trade
promotion programs and foreign investment recruitment programs, and
some states do not disaggregate the budget data between the two
functions. CSG estimates that the 50 states spend a combined total of
about $100 million each year helping state businesses create jobs at
home by selling products abroad. SIDO estimates that states' budget for
both trade and foreign investment recruitment was about $103 million in
2008.[Footnote 18] Current state trade budget data are only available
for 27 states through SIDO's survey. Based on these data, the average
state export promotion budget was $1.4 million in 2008, and the median
was $775,000,[Footnote 19] ranging from Pennsylvania at about $10
million to Vermont at about $170,000. (Also see table 2.)
In responding to our survey, some states' trade offices made a variety
of observations regarding leveraging resources between the states and
CS and the limited resources available for export promotion
programs.[Footnote 20] For example, one state said that budget cuts
have resulted in its decision not to duplicate services offered by CS.
Another state that has recently discontinued its export promotion
programs expressed interest in having the USEAC colocate within its
economic development agency while another state said colocation costs
incurred by individual states could be offset by discounted fees for CS
services. With regard to CS's overseas offices, some states and SIDO
noted that CS is closing offices in developed countries (and shifting
resources to developing countries), and this leaves established global
markets for SMEs without CS presence in some cases. SIDO is concerned
about what they believe are the small number of CS resources available
for export promotion programs. SIDO believes that U.S. firms are at a
competitive disadvantage compared with firms in other competitor
countries with larger government export promotion budgets and has
called for a 50 percent increase in CS's budget.[Footnote 21]
Most States' Trade Offices Report CS's Services Are Important to Their
Export Promotion Capabilities and Have Partnered with CS:
States' trade offices collaborate with CS to help provide firms export
promotion services, and some states' domestic offices are colocated
with CS's staff at a USEAC with a goal of helping firms access CS
services. More than three-quarters of states' trade offices (36 of 43)
that had a basis to judge viewed Commerce's services to be very or
moderately important to their states' export promotion capabilities.
(See fig. 1.) According to states' trade offices we visited, as well as
SIDO, most states rely on or partner with CS to obtain export
assistance in overseas markets where the states have no representation.
Where the states have representation, they rely on their own services
to assist their exporters. Activities in which states' trade offices
partnered most with CS included trade shows and trade missions,
seminars, training programs, conferences, and event planning. In
addition to partnering with CS, some states' trade offices also
reported working closely with their local USEACs. For example, one
state named its USEAC a "key partner" with which "all export related
programs, seminars, and conferences are planned, coordinated, and
implemented." Another state said that its USEAC serves on the state's
committee, helping to select the winners of the Governor's Awards for
Excellence in exporting. In addition, 11 states' trade offices are
colocated with USEACs.[Footnote 22] According to officials of one state
trade office colocated with a USEAC, colocation has helped the state
partner with CS to provide services to firms and outreach to potential
client firms.
Figure 1: States' Opinions on the Importance of CS Services to their
Export Promotion Capabilities:
Pie Graph:
Very important: 65%;
Moderately important: 19%;
Slightly important: 14%;
Not important: 2%.
[Refer PDF for image]
Source: GAO analysis of states' trade offices survey responses.
Note: A total of 44 states' trade offices responded to this survey
question, but one had no basis to judge regarding the importance of
CS's services.
[End of figure]
Just over three-quarters of states' respondents that had a basis to
judge (34 of 42) reported that they have partnered with CS on a variety
of activities that are not part of CS's formal services, which requires
a signed cooperation agreement.[Footnote 23] A few states cited
frequently working with CS, while the majority of respondents
identified only a few activities they have conducted jointly with CS
during the last 3 years. For example, some states we visited informed
us that they have conducted joint company visits and counseling
sessions with their local USEACs.
Some state trade offices work with CS to facilitate state-sponsored
trade missions and trade events and are sometimes customers of CS. Our
survey revealed that some states' trade offices directly purchased some
of CS's services during the last 3 years. Figure 2 indicates the
services states' trade offices have purchased directly from CS. Gold
Key Services and seminars/webinars were the services states' trade
offices most often reported purchasing directly from CS. Half of the
states' trade offices reported purchasing Gold Key Service from CS, and
less than half reported purchasing seminar/webinar services directly
from CS. Three states we visited reported purchasing Gold Key services
directly from CS to support overseas trade missions. One state said
that it has purchased CS's Gold Key Service to identify potential
consultants and representatives overseas and another state said that it
has purchased Gold Key Service to complement a state-led trade mission.
Figure 2: Export Promotion Services States Purchased Directly from CS:
Types of CS services: Gold Key Service (highlighted);
Number of states that purchased directly from CS: 22 (highlighted);
Number of states that did not purchase from CS: 22 (highlighted).
Types of CS services: Seminar/webinar (highlighted);
Number of states that purchased directly from CS: 19 (highlighted);
Number of states that did not purchase from CS: 25 (highlighted).
Types of CS services: Trade fair;
Number of states that purchased directly from CS: 14;
Number of states that did not purchase from CS: 30.
Types of CS services: Commerce-led Certified Trade Mission/trade
mission;
Number of states that purchased directly from CS: 9;
Number of states that did not purchase from CS: 35.
Types of CS services: Business Facilitation Service;
Number of states that purchased directly from CS: 8;
Number of states that did not purchase from CS: 36.
Types of CS services: Catalog event/product literature center;
Number of states that purchased directly from CS: 8;
Number of states that did not purchase from CS: 36.
Types of CS services: Platinum Key Service;
Number of states that purchased directly from CS: 7;
Number of states that did not purchase from CS: 37.
Types of CS services: Customized Market Research;
Number of states that purchased directly from CS: 3;
Number of states that did not purchase from CS: 41.
Types of CS services: International Company Profile;
Number of states that purchased directly from CS: 3;
Number of states that did not purchase from CS: 41.
Types of CS services: International Partner Search;
Number of states that purchased directly from CS: 3;
Number of states that did not purchase from CS: 41.
Types of CS services: Single Company Promotion;
Number of states that purchased directly from CS: 3;
Number of states that did not purchase from CS: 40.
Types of CS services: QuickTake;
Number of states that purchased directly from CS: 2;
Number of states that did not purchase from CS: 42.
Types of CS services: Featured U.S. Exporter (Fuse);
Number of states that purchased directly from CS: 0;
Number of states that did not purchase from CS: 44.
[Refer to PDF for image]
Source: GAO analysis of states' trade office survey responses.
Note: Forty-five states' trade offices responded to the survey and, in
all cases, except the single company promotion, 44 responded to each
service.
[End of figure]
In responding to our survey, some states' trade offices said that the
collaboration between them and CS can be improved to provide greater
benefits to their client firms.[Footnote 24] For example, states and CS
target the same client base within their states, and some states' trade
offices and SIDO said that improved information sharing would greatly
increase effectiveness and reduce duplication of efforts to the benefit
of exporting SMEs if sharing of client contacts and client needs were
allowed. The types of information they sought included USEAC offices
and staff goals and CS's foreign national contractors' list. Regarding
sharing client information, CS officials said they must adhere to
federal regulations, which prohibit the sharing of business proprietary
information with non-U.S. government agencies.
Some states' trade offices said that they have partnered with other
states' trade offices, chambers of commerce, world trade centers,
universities, and other entities to share costs for export promotion
services. For example, some states said that they have obtained
sponsors from both the public and private sectors to cover some of
their costs, such as governor-led trade missions and agricultural
exports. In addition, other states said that they shared costs with
several state entities and organizations to cover programs, such as
export training seminars, conferences, and forums while other states
said that they have shared the costs of domestic and overseas trade
offices or contractors with others.
Both CS and States' Trade Offices Focus Their Export Promotion Efforts
on SMEs:
CS and most states' trade offices focus their export promotion efforts
on SMEs. According to CS, the majority of its customers are SMEs.
Similarly, most state trade offices focus their export promotion
efforts on SMEs, with 32 of the 42 states responding to our survey
question reporting that more than three-quarters of their budgets were
used to target the needs of SMEs. In addition, approximately 79 percent
of the 33 states' trade offices that responded to SIDO's 2008 survey of
states' trade offices reported SME manufacturing firms comprised the
primary customers for their export promotion services, and
approximately 18 percent considered very small manufacturing firms (50
employees or less) their most important customers.
According to CS, most of its services are sold to SMEs, with about 78
percent sold to SMEs in fiscal year 2008.[Footnote 25] As an incentive
for SMEs to purchase their services, CS charges them less than large
firms for its standardized and customized services. In May 2008, CS
implemented its current cost-based user fee schedule, which charges
SMEs only a proportion of the fees large firms pay for the same
services. The 2008 user fee schedule introduced a reduced one-time
incentive user fee to new-to-export (NTE) SMEs using CS standardized
services.[Footnote 26] Also, under the 2008 user fee schedule, CS
extends to states' trade offices the SME user fee rates for
standardized and customized services when purchasing CS services for
their own use.[Footnote 27]
CS and States' Trade Offices Charge Firms Fees for Some Export
Promotion Services:
CS currently offers firms five standardized and nine customized
services. CS's standardized export promotion services have fixed user
fees, while the user fees for CS's customized services vary based on
the scope of service provided. In addition, according to CS, a
significant amount of trade specialists' time is spent providing export
counseling, advocacy, and generic market research, for which CS does
not charge user fees. The user fee schedule CS implemented in May 2008
replaced CS's user fee schedule implemented in 2005. The 2008 user fee
schedule raised the user fees for large firms, while maintaining the
level of user fees for SMEs.[Footnote 28] Figure 3 compares CS's 2005
and 2008 user fee schedules for CS standardized and customized
services.
Figure 3: Comparison of the Commercial Service's 2005 and 2008 User Fee
Schedules:
Standardized services: Gold Key Service;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
First appointment: $685-$770;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
Additional appointments[B]: $320-$700;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: New-to-Export 1st use of service: $350;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: First appointment: $700;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: Additional appointments[B]: $300;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First
appointment: $2,300;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional
appointments[B]: $1,000.
Standardized services: International Company Profile;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
First appointment: $520-$810;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
Additional appointments[B]: N/A;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: New-to-Export 1st use of service: $350;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: First appointment: $600;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: Additional appointments[B]: N/A;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First
appointment: $900;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional
appointments[B]: N/A.
Standardized services: International Partner Search;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
First appointment: $500-$790;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
Additional appointments[B]: N/A;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: New-to-Export 1st use of service: $350;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: First appointment: $550;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: Additional appointments[B]: N/A;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First
appointment: $1,400;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional
appointments[B]: N/A.
Standardized services: FUSE;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
First appointment: $5;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
Additional appointments[B]: N/A;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: New-to-Export 1st use of service: $75;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: First appointment: $150;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: Additional appointments[B]: N/A;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First
appointment: $300;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional
appointments[B]: N/A.
Standardized services: Domestic Business Provider;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
First appointment: $250;
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms:
Additional appointments[B]: N/A;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: New-to-Export 1st use of service: N/A;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: First appointment: $300;
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade
offices: Additional appointments[B]: N/A;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First
appointment: $600;
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional
appointments[B]: N/A.
Customized services:
* Business Facilitation Service:
* Platinum Key Service:
* Single Company Promotion:
* Trade missions:
* Catalog events:
* Customized Market Research:
SMEs and large firms:
100% of costs billed to third party[C]:
35% of CS resource costs:
SMEs:
100% of costs billed to third party[C]:
35% of CS resource costs:
Large firms:
100% of costs billed to a third party[C]:
100% of CS resource costs:
[Refer to PDF for image]
Source: GAO analysis of Commerce data.
[A] The 2005 user fee schedule shows the range of user fees charged to
both SMEs and large firms by groupings of overseas markets. The 2008
user fee schedule shows the user fees for each service by size of firm.
[B] Additional appointments also may be referred to as additional days.
[C] Costs billed to a third party include any costs needed to deliver a
CS service that requires payment to a third party vendor. These costs
include items such as temporary staff help, ground transportation,
translators, and catering.
[End of figure]
CS's data show that it sold a total of 19,906 services in fiscal year
2008. In addition, CS reports that it collected approximately $10.2
million for these standardized and customized services. Table 3 shows
the number of services sold and collections by type of service for
fiscal year 2008.
Table 3: CS Services Sold and Total Collections, Fiscal Year 2008:
Standardized services: Gold Key Service;
Number of services sold: 1,416;
Collections: $1,200,100.
Standardized services: International Company Profile;
Number of services sold: 1,445;
Collections: 1,014,822.
Standardized services: International Partner Search;
Number of services sold: 369;
Collections: 215,550.
Standardized services: Featured U.S. Exporter (FUSE);
Number of services sold: 158;
Collections: 50,610.
Standardized services: Business Service Provider (domestic);
Number of services sold: 797;
Collections: 239,721.
Standardized services: Total;
Number of services sold: 4,185;
Collections: $2,720,803.
Customized services: Business Facilitation Service;
Number of services sold: 2,985;
Collections: $1,953,351.
Customized services: Customized Market Research;
Number of services sold: 178;
Collections: 162,571.
Customized services: Platinum Key Service;
Number of services sold: 67;
Collections: 282,273.
Customized services: QuickTake;
Number of services sold: 12;
Collections: 8,813.
Customized services: Catalog event;
Number of services sold: 157;
Collections: 81,722.
Customized services: Single Company Promotion;
Number of services sold: 101;
Collections: 155,053.
Customized services: Certified Trade Mission;
Number of services sold: 44;
Collections: 433,779.
Customized services: International Buyer Program;
Number of services sold: 936;
Collections: 937,682.
Customized services: Seminar/webinar;
Number of services sold: 9,261;
Collections: 994,391.
Customized services: Trade fair;
Number of services sold: 382;
Collections: 999,493.
Customized services: Trade mission;
Number of services sold: 166;
Collections: 513,420.
Customized services: Trade promotion event;
Number of services sold: 1,110;
Collections: 901,005.
Customized services: Local event;
Number of services sold: 322;
Collections: 73,457.
Customized services: Total;
Number of services sold: 15,721;
Collections: $7,497,010.
Customized services: Grand total;
Number of services sold: 19,906;
Collections: $10,217,813.
Source: GAO presentation of CS data.
[End of table]
A majority of states do not charge fees for most types of services they
offer, and they provide some services for free for which CS charges a
fee. At least 23 states responding to our survey do not charge fees for
7 of the 11 types of services, including export counseling, market
research, market entry strategy development, product analysis, and
pricing information. (See fig. 4.) In contrast, CS charges a fee for
similar services in some cases. For example, while CS charges user fees
for agent and distributor searches under its Gold Key Service and
International Partner Search services, most states reported charging no
fee for this type of service. In addition, most of the six states'
trade offices we visited told us they provide free export promotion
services for which CS charges a fee, such as foreign company background
checks and foreign agent and distributor searches. However, the scope
and coverage of states' services compared with CS's may differ. For
example, some state trade office officials told us that while they
provide for free services similar to CS's fee-based services, often
these services are available only in limited overseas markets and are
not as comprehensive as the services CS provides.
Figure 4: States' Trade Offices' Fee-Based and Non-Fee Based Services:
Type of services: Export counseling;
Number of states that charge: no fee: 38(Text Bold);
Number of states that charge: partial fee: 1;
Number of states that charge: full fee: 0;
Number and percentage of states that: provide service: 39: 89%;
Number and percentage of states that: do not provide service: 5: 11%.
Type of services: Market research;
Number of states that charge: no fee: 31(Text Bold);
Number of states that charge: partial fee: 5;
Number of states that charge: full fee: 1;
Number and percentage of states that: provide service: 37: 84%;
Number and percentage of states that: do not provide service: 7: 16%.
Type of services: Market entry strategy development;
Number of states that charge: no fee: 30(Text Bold);
Number of states that charge: partial fee: 4;
Number of states that charge: full fee: 1;
Number and percentage of states that: provide service: 35: 80%;
Number and percentage of states that: do not provide service: 9: 20%.
Type of services: Product analysis/pricing information;
Number of states that charge: no fee: 26(Text Bold);
Number of states that charge: partial fee: 2;
Number of states that charge: full fee: 1;
Number and percentage of states that: provide service: 29: 66%;
Number and percentage of states that: do not provide service: 15: 34%.
Type of services: Agency/distributor searches;
Number of states that charge: no fee: 25(Text Bold);
Number of states that charge: partial fee: 7;
Number of states that charge: full fee: 2;
Number and percentage of states that: provide service: 34: 77%;
Number and percentage of states that: do not provide service: 10: 23%.
Type of services: Marketing/promotional literature reviews;
Number of states that charge: no fee: 23(Text Bold);
Number of states that charge: partial fee: 6;
Number of states that charge: full fee: 2;
Number and percentage of states that: provide service: 31: 70%;
Number and percentage of states that: do not provide service: 13: 30%.
Type of services: Foreign company background checks;
Number of states that charge: no fee: 23(Text Bold);
Number of states that charge: partial fee: 3;
Number of states that charge: full fee: 3;
Number and percentage of states that: provide service: 29: 66%;
Number and percentage of states that: do not provide service: 15: 34%.
Type of services: Licensee, joint venture, and partnership contracts;
Number of states that charge: no fee: 11(Text Bold);
Number of states that charge: partial fee: 1;
Number of states that charge: full fee: 2;
Number and percentage of states that: provide service: 14: 33%;
Number and percentage of states that: do not provide service: 29: 67%.
Type of services: Foreign trade missions;
Number of states that charge: no fee: 3;
Number of states that charge: partial fee: 28(Text Bold);
Number of states that charge: full fee: 8;
Number and percentage of states that: provide service: 39: 89%;
Number and percentage of states that: do not provide service: 5: 11%.
Type of services: Trade shows (U.S. foreign, and catalog);
Number of states that charge: no fee: 2;
Number of states that charge: partial fee: 28(Text Bold);
Number of states that charge: full fee: 8;
Number and percentage of states that: provide service: 39: 89%;
Number and percentage of states that: do not provide service: 5: 11%.
Type of services: Training programs and seminars;
Number of states that charge: no fee: 8;
Number of states that charge: partial fee: 23(Text Bold);
Number of states that charge: full fee: 8;
Number and percentage of states that: provide service: 39: 91%;
Number and percentage of states that: do not provide service: 4: 9%.
[Refer to PDF for image]
Source: GAO analysis of states' trade offices survey responses.
Note: For most of the services, 44 states' trade offices responded and,
in two cases, 43 responded.
[End of figure]
For those services for which states' trade offices reported charging a
fee, most states charge partial fees rather than full fees. Most states
reported charging a fee for trade shows, foreign trade missions, as
well as training programs and seminars. Most states reported charging a
partial fee to recover part of the cost of these services. For example,
for foreign trade missions, 28 states charge a partial fee, and 8
states charge a full fee. We did not request information on the fees
states' trade offices charge for their services or their annual fee
collections. According to SIDO, the states' fees vary widely.
Some States Help Client Firms Defray Costs of Export Promotion
Services:
To help make export promotion services more accessible to potential
exporters from their states, some states' trade offices offer grants.
Of the 45 states that responded to our survey, 19 reported providing
SMEs with grants, and 16 reported providing SMEs with grants or direct
payments that could be used to defray the costs of CS's export
promotion programs and services.[Footnote 29] (See fig. 5.)
Figure 5: States' Trade Offices Offering Export Promotion Grants:
State: 1. Alabama;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: The current grant has
expired that provided money to companies to set up one-on-one
matchmaking appointments through the Gold Key Service. Funding has been
requested through the Appalachian Regional Commission (ARC) and, if
accepted, grants will be provided to companies located in the ARC
region, excluding Madison and Shelby Counties, to pay for Gold Key
Service.
State: 2. Connecticut;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Connecticut reimburses SMEs
50% up to $1,000 for certain CS‘s export promotion programs and
services.
State: 3. Florida;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Does not provide grants
directly to SMEs but to economic development organizations (EDO) based
on competitive proposals designed to expand trade in their specific
regions. However, the EDOs may use these grant funds to defray the cost
of participation of local SMEs on Enterprise Florida, Inc. trade
missions, which use Gold Key or trade show space.
State: 4. Indiana;
Can grant be used to defray cost of CS's export promotion services?:
No;
Type and amount of export promotion grant: Trade Show Assistance
Program offers up to $5,000 per company per fiscal year to attend
international trade shows; about $100,000 allocated each year.
State: 5. Iowa;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Export Trade Assistance
Program reimburses a company up to $4000, three times in the state‘s
fiscal year, for trade shows and trade missions, which may include the
purchase of Gold Key or other services from Commerce on the company's
behalf.
State: 6. Maine;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Offers limited support
through the Manufacturing Extension Partnership program, which can be
used to offset CS fee services; $1,000 to $1,500 toward matchmaking
costs.
State: 7. Maryland;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Provides up to $5,000 in
matching grants, with $100,000 allocated each year.
State: 8. Mississippi;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Provides grants for up to a
maximum of $250 per company for Gold Key Services based on budget
availability.
State: 9. Montana;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Provides grants for up to
half the cost of Gold Key Service.
State: 10. New York;
Can grant be used to defray cost of CS's export promotion services?:
Yes, subject to approval of grant project overall;
Type and amount of export promotion grant: The Global Export Market
Service Program offers matching grants to qualified individual firms
(up to $25,000) or to groups of companies, or industry/trade
associations (up to $50,000).
State: 11. North Dakota;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Receives grant through
Commerce‘s Market Development Cooperator Program, which it uses to
defray costs of CS‘s services.
State: 12. Oklahoma;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Provides Trade Show Matching
Grant Program for companies to attend international trade shows. The
grant matches company expenses up to $2,500 for booth rental,
translation service, and promotional materials shipping costs. The
grant does not cover travel, hotel, and food costs.
State: 13. Oregon;
Can grant be used to defray cost of CS's export promotion services?:
No;
Type and amount of export promotion grant: Provides $2,500 grants for
trade show or trade mission costs.
State: 14. Pennsylvania;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Provides SMEs a matching
grant of up to $5,000 yearly per firm if the SME meets eligibility
requirements. The grant can be used to defray Commerce‘s fees if
Pennsylvania does not have an overseas office in the country where
Commerce service is used; about $1 million allocated each year.
State: 15. Rhode Island;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Provides minigrants up to
$5,000 for export training.
State: 16. Vermont;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Provides limited grants to
pay for Gold Key and other CS services.
State: 17. Virginia;
Can grant be used to defray cost of CS's export promotion services?:
No;
Type and amount of export promotion grant: Provides 20 $5,000 grants
per year and 15 $10,000 grants per year.
State: 18. Washington;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Offers an international
trade show grant program, which can be used for trade shows organized
by Commerce.
State: 19. Wisconsin;
Can grant be used to defray cost of CS's export promotion services?:
Yes;
Type and amount of export promotion grant: Offers $5,000 grants from an
annual fund of $100,000. Grant can be used to purchase CS‘s Gold Key
Service and interpreters during a trade mission.
[Refer to PDF for image]
Source: GAO analysis of state's trade offices survey responses and
State International Development Organizations data.
[End of figure]
The rate at which states defray costs or reimburse SMEs for their
participation in CS's programs varies. States' grants generally range
from $1,000 to $5,000 per firm and are often intended for participation
in trade shows, trade missions, or other state-sponsored events.
States' trade offices cannot determine what portions of the grants (or
direct payments) are used to defray the cost of CS's user fees; SMEs
may use states' grant funding for a range of other eligible expenses,
such as travel and logistical expenses. According to SIDO, states'
funding of CS's services is highly dependent upon their affordability
relative to services available from private consultants and other
sources. Three of the six states' trade offices we visited offer such
grants--Connecticut, Mississippi, and Pennsylvania. According to these
states' trade officials, grants are a useful tool to outreach to SMEs
that might not have considered exporting and might not be familiar with
the costs of export assistance. However, these officials explained that
grants in and of themselves often do not determine whether SMEs
participate in export promotion programs.
CS Needs to Improve Its Methodology to Determine Costs and Set User
Fees:
CS needs better information to maximize the efficient and effective
operation of its export promotion programs and to ensure there is a
sound basis for setting its user fee rates. CS decided to base its
export promotion user fees on program costs, though it has a yearly
legislative exemption from having to recover full costs, and it
attempted to recover only a portion of the cost of its
services.[Footnote 30] Nevertheless, CS did not document its
methodology, calculations, and support for the assumptions it used to
determine the full cost of each type of service; thus, CS cannot ensure
its methodology is based on accurate information or is consistently
applied from year to year to allow officials to make sound management
decisions about its services and user fees. In addition, CS's cost
estimates are not complete. For example, CS's cost estimates did not
include certain costs paid for by other entities on behalf of CS, as
federal accounting standards require. Also, CS used potentially
outdated and inaccurate 2005 staff time data to estimate its program
costs, upon which it based the 2008 user fee structure. Complete and
accurate full cost information would assist CS and the Congress in
making decisions about resource allocations, evaluating program
performance, and improving program efficiency. Finally, CS did not
document its procedures and assumptions for setting its user fees,
including how it determined incentive rates for SMEs, thus weakening
the link between costs and the user fees.
CS Uses OMB Full Cost Recovery Policy as a Guide for Fee Setting but Is
Not Required to Do So:
CS's annual appropriation permits it to charge user fees but is silent
with respect to setting and revising user fees.[Footnote 31]
Nevertheless, there should be a sound basis for any user fees charged.
According to CS officials, CS made a policy decision to use OMB
Circular A-25, including its direction to recover full costs, as a
guide for establishing its 2008 user fee structure, but it does not
attempt to recover the full cost of its services. In annual
appropriations since the 1990s, certain provisions of the Mutual
Education and Cultural Exchange Act (MECEA) have applied to ITA's trade
promotion activities.[Footnote 32] Through these MECEA provisions, CS
is authorized to accept "contributions" from firms. Under this
statutory authority CS charges a fee for services provided in its
export promotion programs, but the statute is silent with respect to
setting and revising user fees.[Footnote 33] Furthermore, since fiscal
year 2006, the Congress has exempted CS from the requirements of OMB
Circular A-25 as part of the ITA's annual appropriation.[Footnote 34]
However, according to the CS officials who established the user fee
policy, CS nevertheless implemented the 2008 user fee schedule with the
goal of moving toward OMB's full cost recovery policy.[Footnote 35]
Confusion Over Whether CS Must Try to Recover Full Costs:
Our review of various documents and interviews with agency officials
indicated that there had been confusion over whether CS is required to
comply with Circular A-25. OMB has expressed concern about the adequacy
of CS's understanding of its costs, to which CS has responded. In 2003,
OMB found that although CS charges user fees for some services, it did
not have a consistently applied pricing strategy for its services, and
the infrastructure for capturing cost information was inadequate for
making informed decisions. In addition, in 2004, Commerce's Office of
Inspector General reported that CS was not in compliance with Circular
A-25 and recommended that CS work with OMB to comply with the circular.
In response, CS undertook efforts to determine the full cost of its
services and to comply with Circular A-25.
Although CS has received a yearly legislative waiver explicitly
exempting it from the requirements, in May 2008, CS submitted a request
to OMB for a permanent waiver from the full cost recovery provisions
contained in the circular. In its request to OMB, CS explained "the
user fee schedule moves us closer to the intent of the cost recovery
provisions of the OMB Circular without making our services out of reach
to SMEs who have less financial flexibility." According to OMB
officials, OMB reviewed the 2008 CS user fee schedule based on
estimates of fee collections, which OMB considered reasonable; however,
OMB did not review details of the methodology CS used to determine
costs and establish the user fees. Following the review, OMB found,
"the new fee structure will increase collections and moves toward the
goals of the circular." OMB stated it will continue to work with CS
through the executive budget process to ensure the user fee strategy is
evolving properly to meet the provisions of OMB Circular A-25. Although
OMB did not approve the request for a permanent waiver, OMB told CS the
2008 user fee structure was acceptable with Circular A-25 for fiscal
year 2009.
OMB Circular A-25, User Charges, establishes, among other things,
guidelines for federal agencies for assessing user fees for government
services.[Footnote 36] It provides information on the scope and types
of activities subject to user fees and the basis on which user fees are
to be set. The circular also provides guidance for agency
implementation of user fees and collections and outlines the following
several policy objectives:
* Ensure that each service, sale, or use of government goods or
resources provided by an agency to specific recipients be self-
sustaining.
* Promote efficient allocation of resources by establishing charges for
special benefits provided to the recipient that are at least as great
as costs to the government of providing the special benefits.
* Allow the private sector to compete with the government without
disadvantage in supplying comparable services, resources, or goods
where appropriate.
In determining full costs to set user fees, agencies may use cost
accounting systems--a system designed to consistently produce reliable
cost information--or cost finding methodology, which uses cost studies
or cost analyses to develop cost information. The methodology the
agency uses to determine costs should be appropriate for management's
needs and the environment in which the agency operates.
Understanding the Full Costs of Federal Programs Is Important for Good
Management:
Understanding the full costs of federal programs, including CS's export
promotion programs, is important for several reasons. First, management
needs reliable cost information to make resource decisions and to find
and avoid waste and inefficiencies. For example, using full cost
information, management can make decisions to reduce resources devoted
to activities that are not cost-effective. In addition, such
information allows managers to compare cost changes over time and
identify their causes and reduce excess costs. Second, management needs
reliable and complete cost information to assess the extent to which
user fees recover the proportion of full costs intended. Third, the
Congress and the public can use full cost information to evaluate the
performance of federal programs and compare their costs and benefits.
For example, full cost information assists the Congress in making
decisions about allocating federal resources, and when authorizing and
modifying programs.
In 2005, CS developed a cost-finding methodology to attempt to
determine the full costs of its export promotion services and increased
the user fees of one of its most popular services, International
Company Profile, to full cost recovery for all firms based on its 2005
cost estimates. CS officials explained that it is currently adopting a
new cost accounting system that is used throughout Commerce, which CS
officials stated would provide improvements to its cost accounting.
However, according to CS officials, this new cost accounting system
would not be used to apply salary costs to activities or attribute
overhead costs to determine the full cost of services.
While CS has taken steps to move toward full cost recovery, CS
officials told us they balance this objective with trying to ensure its
user fee schedule keeps its services accessible to SMEs. CS officials
decided to provide lower incentive rates to SMEs, which only cover a
portion of the full costs of these services. The 2008 fee schedule
seeks to charge large companies "full cost." For example, CS charges
large firms a $70 per hour rate and charges SMEs approximately 35
percent of that rate, or $25 per hour, for the cost of staff time
required to deliver standardized and customized services. CS charges
both large firms and SMEs the full cost of third party charges needed
to deliver a CS service, such as translation and transportation
services.
CS Did Not Document Its Methodology for Determining Full Costs:
CS relied on a cost-finding methodology to determine full costs,
according to CS officials; however, CS did not document the methods,
calculations, and support for the assumptions it used to estimate the
full cost of each type of service, as called for by federal accounting
standards.[Footnote 37] Instead, CS officials generally described to us
its cost-finding methodology, which they said was partly based on the
one used for the 2005 user fee schedule, and provided limited
documentation of its cost templates. (See table 4.) CS did not document
its methods, assumptions, and cost calculations for each service.
Table 4: Overview of CS Cost Methodology:
According to CS officials:
CS estimated the hourly rates for staff time spent to deliver CS
services by dividing their total annual budget by the total number of
annual staff hours budgeted for CS;
* For example, for the 2008 user fee schedule, CS officials told us
they divided the fiscal year 2007 CS budget of $229 million by the
total number of hours incurred by 1,566 staff in 1 year to calculate a
$70 hourly full cost rate;
CS then used cost templates that included an estimate of staff time for
each type of service, which it multiplied by the $70 hourly rate to
determine full cost of each service;
* If there are any costs incurred by a third party, such as venue costs
or equipment rentals, these are also included;
* CS included overhead costs using a flat rate of 12 percent of
salaries and benefits, as recommended by OMB Circular A-76;
For standardized services, for which CS charges a set user fee, CS
officials stated they determined;
* the specific step-by-step activities, and:
* the amount of time required to deliver services by surveying staff at
CS domestic offices and at overseas posts.
Source: CS.
Note: Although CS officials stated CS included overhead costs using a
flat rate of 12 percent, the cost templates CS provided to us showed a
6.25 percent rate for calculating overhead costs, and CS officials did
not explain how the 12 percent flat rate was applied to its cost
estimates.
[End of table]
Better information would raise CS's awareness of the composition of its
costs, and changes to those costs, and allow them to better control and
reduce costs where possible and to evaluate program performance. For
example, such documentation could allow CS to compare costs among
alternatives, such as whether to provide a service in-house or contract
it out or whether to continue or eliminate a service. Without complete
documentation and support for the specific methodology and information
CS used as a basis for determining costs, CS cannot be sure that its
chosen cost assignments are reasonable and based on accurate
information. In addition, it is not possible to ensure the methodology
is consistent from year to year to allow CS to make sound decisions
about its services and user fees. The risk of overestimating or
underestimating costs may be reduced if CS clearly documents its
methods for accounting for program costs and the assumptions used to
project future costs. Such documentation would help CS assess whether
its estimates are aligned with changes in costs; this is important so
that the user fees recover the intended portion of full costs, and CS
does not charge firms more or less than intended. However, CS did not
document how it assigned costs to each service in enough detail to
allow CS staff and other knowledgeable persons to assess these
procedures and determine the accuracy of the information used.
Furthermore, the lack of documentation makes it difficult to ensure
staff are properly trained and consistently apply the methodology so
that it produces accurate cost information that can be compared from
year to year. Finally, the lack of full cost information makes it
difficult for CS and the Congress to accurately evaluate the
performance of CS services in light of the true overall costs and
determine whether resources are rationally allocated to CS services.
CS Cost Estimates Are Not Complete or Accurate:
Notwithstanding the lack of documentation, we found CS's cost estimates
do not accurately reflect full costs. First, for example, CS did not
include certain costs paid on behalf of CS by other entities, as
required in federal accounting standards. Without consideration of
costs paid by other federal entities, CS's cost estimates do not
reflect full costs to the federal government and are misleading for CS
officials and others using that information to make decisions about
resource allocations and changes in programs. Moreover, because CS has
chosen to base its user fees on the full cost of its services, it needs
a reliable accounting of total costs when setting user fees so that
they cover the intended share of the cost of its services. According to
CS officials, CS did not include certain retirement benefits to be paid
by the Office of Personnel Management, including the costs of pensions
and health and life insurance, in determining the full costs of its
export promotion services. CS estimated the annual cost of these
benefits to be approximately $17 million in fiscal year 2008. Full
costs should include the cost of such employee retirement benefits
according to federal accounting standards.[Footnote 38]
Second, CS used potentially outdated and inaccurate information about
staff time spent to estimate program costs and set user fees. These
were key data that CS used to assign costs to the activities required
to deliver its standardized services. CS officials explained that, as
part of its cost-finding methodology, CS surveyed staff to determine
the specific step-by-step activities and time staff spent to deliver
services and used these data to develop the cost templates to estimate
the full costs of each standardized service. However, CS officials
stated that, for its most recent user fee adjustment in 2008, CS relied
on the survey data it collected in preparation for its prior adjustment
of user fees in 2005 and did not update the survey data to ensure its
reliability. Thus, these data were potentially outdated and inaccurate.
CS officials explained they assumed the activities and staff time
required to deliver services had not changed significantly, but they
did not justify or provide documentation supporting the assumption the
data were reliable in 2008.
In addition, we found the accuracy of CS's 2005 survey data to be
questionable. These data were not based on an actual accounting of
staff time, according to CS officials. Instead, CS officials explained
that these data were based on staffs' estimates of the amount of time
they thought they spent, on average, performing specific tasks to
deliver a service. Staff reported widely divergent time estimates for
the same activities, which raises concerns about how accurately staff
estimated their time. For example, for the activity "identifying and
contacting potential partners" staffs' time, estimates ranged from 1
hour to 20 hours and, for the activity, "final debrief of the client,"
the range was 15 minutes to 4 hours. CS officials told us they were
satisfied that these estimates were reasonably accurate; however, based
on our statistical analysis we disagree and believe they did not
sufficiently explain and document support for this assumption.
Federal accounting standards recognize the importance of collecting
accurate cost information. For example, federal accounting standards
state that reliable information on the costs of federal programs and
activities is crucial for effective management of government
operations. Without supporting its assumptions of its staff time
estimates, CS cannot be sure that the cost assignments it used to
determine costs were accurate. In addition, inaccurate cost information
can skew fee-setting decisions, so CS needs reliable information to
ensure that the user fees are aligned with any changes in staff
productivity and recover CS's intended share of program costs.
CS Did Not Justify and Document Its Procedures for Establishing SME
User Fees:
CS does not seek to recover full costs from all firms under its 2008
user fee structure. CS offers lower fees to SMEs as an incentive to
purchase CS services, and CS officials explained that factors other
than costs contributed to their formulation of the 2008 user fee
structure.[Footnote 39] CS seeks to recover only a proportion of full
costs from SMEs, with the remainder of the costs covered by CS's annual
budget appropriation. Lower user fees are an incentive to SMEs to use
CS services.
However, CS did not sufficiently support and document the methods and
assumptions it used, particularly with regard to the lower user fees
for SMEs under the 2008 user fee structure. For example, according to
CS officials, CS set the current SME-level user fees based on the
historical proportion of costs--approximately 35 percent--recovered by
the old user fees charged to SMEs. However, CS did not document how it
determined this 35 percent incentive level and the level of the newly
introduced new-to-export incentive user fees. Instead, CS officials
told us they set the level of the incentive user fee for new-to-export
SMEs based on their perception of what would constitute a reasonable
discount while still signaling that the services are valuable. These
officials also stated the new-to-export incentive user fees were set at
the same $350 for the most popular SME services to eliminate potential
confusion among customers. They explained that CS used informal client
and stakeholder feedback, as well as program counts and collections
data, to assist in establishing the user fees SMEs are charged for
standardized services, but CS did not document this. As a result, CS
cannot demonstrate how its cost estimates are linked to the user fees
it charges different sizes of firms for each of its services. This
information would allow comparisons to inform management and program
staff decisions, such as whether to adjust user fees, do a project in-
house or contract it out, to accept or reject a proposal, or to
continue or eliminate a service.
Significant events, which can include key decisions about user fees,
are to be clearly documented, according to federal internal control
standards.[Footnote 40] Transparent procedures can contribute toward an
improved understanding about the decisions made to establish the user
fees and the basis on which those decisions were made. For example, as
CS cost-based user fees represent a charge for a specific service
received, stakeholders may expect a change in the user fees firms are
charged to be related to a change in the true cost of providing
services.
The Extent to Which CS's User Fees Affect SMEs' Use of Its Export
Promotion Services Is Unclear:
The extent to which CS's user fees affect SMEs' use of its export
promotion programs is unclear because CS lacks comparable and reliable
historical data on fees charged its customers and has only limited
disaggregated data on services sold by company size and type of
customers. CS officials informed us that they have performed only
limited studies of customer demand, but that CS has recently begun to
take steps to improve the quality of data it collects to better
evaluate its customer base. Because state governments play a
potentially important role in helping their businesses to compete in
the global economy, and because they are also partners with and
customers of CS, we obtained the states' trade offices' views on the
user fees CS charges for some of its services. States' trade offices'
views of the 2005 and 2008 user fee schedules and their projected
future use of CS services varied. CS projects a 10 percent increase in
SMEs' total demand for its services in fiscal year 2009 based on its
new user fees, but support for this projection is unclear. Factors
other than fees, such as the availability and quality of comparable
services from private providers, may affect SMEs' use of CS services.
CS Lacks Reliable and Sufficient Data to Evaluate Its Customer Base:
CS lacks reliable and sufficient data on its export promotion fee-based
services to evaluate its customer base. We have identified several
limitations with regard to CS's data about: (1) fees charged its
customers, (2) the characteristics of its customers, and (3) purchases
by location and types of services. CS is taking steps to improve the
quality of the data it collects, as well as the integration of its
customer data systems, but its officials acknowledged that the Client
Tracking System (CTS) may not be fully operational until well into 2009
or beyond.[Footnote 41] For an entity to run and control its operations
and to achieve all its objectives, it must collect and process
relevant, reliable, and timely data relating to internal, as well as
external events, based on GAO's Standards for Internal Control in the
Federal Government and OMB Circular A-123 on Management's
Responsibility for Internal Control. In addition, effective information
technology management is critical to achieving useful, reliable, and
continuous recording and communication of information.
CS Lacks Reliable Historical Data on User Fees Charged Its Customers:
CS lacks comparable and reliable historical data on the fees charged
for each service to measure past and potential effects of user fee
changes on its SME customers to ensure that it is charging them the
correct fee. Prior to 2005, according to CS officials, there were no
set fees, and each post decided what to charge customers for its export
promotion services. In addition, according to CS officials, prior to
December 2007, every overseas post had its own database of customers,
resulting in 80 databases, as well as domestic databases that did not
communicate with each other. According to CS, it currently uses two
main systems (the eMenu[Footnote 42] and the CTS) to collect and track
data on the programs and services it offers its customers. We observed
demonstrations of both these systems in August 2008. While the systems
have many useful features and represent promising directions for CS to
take, we identified several limitations with regard to computer
database design and internal controls.[Footnote 43] In our review of
the data, we noticed instances where companies received a bill that was
much larger than the advertised service fee, but the reason (possibly
because the extra days and add on services were being included) was not
documented. More comparable and reliable user fee data could be used to
help CS in determining how changes in its user fees affect SMEs' demand
for its services.
CS Is Limited in Its Ability to Analyze Data by Size and Status of
Customers:
CS is limited in its ability to disaggregate the firms that purchased
fee services by company size or by export status (whether the firms are
new-to-export or had purchased prior export services from CS). Such
information would be useful for making managerial decisions and
determining which products and services are in demand and which
products are purchased less frequently by CS's different customers. A
lack of accurate customer information and good procedures creates the
risk of charging CS customers a fee that is inconsistent with their
company size or export status. According to CS officials, the eMenu
initially relies on the customers to self-report their size and export
status. CS officials stated that its trade specialists could verify
company size by consulting the Harris database[Footnote 44] and export
status by consulting the CTS. When we examined data for 2008 from the
CTS, we found that 16 percent of the companies were listed as being of
"unknown size." In addition, there were numerous inconsistencies in the
designation of company size, with more than 200 instances of companies
being designated with different sizes. In addition, based on our review
of the data, CS has not yet addressed the deficiencies with prior
years' data. The 2006 and 2007 database did not identify company size
for at least one quarter of the companies per year. Prior to December
2007, according to CS officials, the size of firms purchasing services
was not a mandatory field in the databases.
It would require a manual review of the records to determine whether a
company meets CS's new-to-export status. Even with a manual review, the
accuracy of the designation about export status would depend on the
thoroughness, completeness, and consistency of the entries that had
been made by trade specialists and others. Yet our review of CS data
raised questions about the manual review because we found at least 30
instances when companies designated as new to export in 2008[Footnote
45] had appeared in the prior year's (2007) database as purchasers of
certain CS fee services.[Footnote 46] CS's limitations in collecting
and processing accurate information on company size and export status
reduce its ability to determine which products and services are in
demand or underused by its different customers and more importantly to
charge firms the appropriate fees. Under the 2008 fee structure, SMEs
and new-to-export SMEs are charged lower fees for CS's services.
CS Is Limited in Its Ability to Analyze Customers' Purchases by
Location and Type:
Due to limitations in CS's databases, it is difficult to disaggregate
purchases by location and types of services. Complete information on
the characteristics of CS's customers, such as geographic location,
industry, and services bought and at what price over time, would allow
CS to better analyze and understand its customer base and to adjust to
changes in market demand. CS's database has total purchases by states,
which not only includes private sector firms but also includes state
export promotion agencies, universities, and other entities, making it
difficult to obtain an accurate count for only SMEs, for example. We
wanted to analyze SMEs' fee-based purchases by home state for about 5
years to better understand the relationship between CS and SMEs in home
states. Since it was not possible to disaggregate only the SMEs'
purchases, we decided to examine the data by home state for all firms.
However, CS could only identify companies' home states by performing a
manual review of its records; therefore, the analysis was limited to
data for 2 years, 2007 and 2008, and for only four standardized
services. See appendix III for information on CS's customers' purchases
by states for selected services.
Studies of CS's Export Promotion Programs and User Fees Have Been
Limited:
CS has made some attempts to determine how the user fees affect its
customers' participation in its programs; however, these studies have
been limited, according to CS officials, in determining how the fees
affect customers' participation due to lack of sufficient data. One
company contracted by Commerce attempted to estimate price elasticity
(or sensitivity) of demand, both in 1998 and 1999, using different
data.[Footnote 47] In 1998, the company used data based on a survey of
a small number of trade consulting companies on how their customers
would have responded to price increases. CS officials said that they
did not use the results of the 1998 study in determining the fees to be
charged because the analysis was unreliable since it was based on
hypothetical data. For the 1999 estimate of price sensitivity, the
contractor used customer survey data. However, the data suffer from a
low response rate of 11 percent. Again, CS did not directly consider
the price sensitivity estimates when making fee decisions in subsequent
years. Table 5 provides a summary of some prior assessments of CS's
export promotion programs and user fees.
Table 5: Some Studies of CS's Export Promotion Programs and User Fees:
Date: 2003;
Study: OMB Program Assessment Rating Tool;
Relevant findings: CS's primary assessment mechanism has been customer
service surveys. Although these surveys yield relevant information,
they do not provide a comprehensive independent assessment of CS's
products and services;
Relevant recommendations: CS should perform ongoing competitor and
market analysis.
Date: January 2003;
Study: ITA User Fee Study;
Relevant findings: * The contractor said that ITA was unable to provide
them with useful customer information to conduct the study because its
systems did not properly track information that would assist them in
further understanding its customer base;
* The contractor did not conduct a price sensitivity survey of CS's
customers, which it had intended, but instead conducted an internal
survey of ITA's trade specialists' perception of customers' willingness
to pay for ITA's products and services, among other things;
* The low response rate (40%) of the survey impacted the contractor's
ability to precisely quantify market demand and price sensitivity for
all of the products and services the contractor was asked to evaluate;
Relevant recommendations: ITA should set fees that align with
established strategic position, using accurate product cost
information. Factors that need to be considered when making this
determination include the characteristics of the customer that buys the
product, what demand ITA has experienced for the product at the current
price, the market price for the product, and ITA's strategic objective
in offering the products.
Date: March 1999;
Study: CS study on the Impact of Product Price Increases on Clients and
Revenues;
Relevant findings: * The contractor reported that, based on its
estimate of price sensitivity of demand, the reduction in participation
from a price increase would result in a reduction in revenues;
* Increasing revenues through across-the-board price increases will
negatively impact the mission to develop SME exports;
Relevant recommendations: No relevant recommendation.
Date: May 1998;
Study: ITA Product Pricing Study;
Relevant findings: * Due to major cost and price data limitations,
price and revenue projections cannot be made with confidence;
* Based on estimated price sensitivity, ITA can increase revenue by
raising prices on some existing products or services, charging for some
products for which ITA has not historically charged, and charging for
selected new products or services;
* However, price increases will result inevitably in the loss of some
current and prospective clients. Thus, pursuing revenue generation has
important implications for ITA's mission of maximizing its services to
SME clients;
Relevant recommendations: Initiate a tiered pricing structure based on
factors, such as size of firm or export maturity using appropriate OMB
(A-25) waivers and approvals.
Sources: GAO analysis of OMB and Commerce data.
Note: These reports contain several recommendations. We used the terms
"relevant findings and recommendations" to mean those that address the
fee or pricing structure with regard to CS's clients.
[End of table]
According to CS, it is difficult to compare CS prices to others
offering similar services, such as private sector providers. CS
officials informed us that many consultants are reluctant to talk to
them or share their pricing schedules. GAO also contacted some private
sector firms to determine what export advisory services they offer and
the fees charged but either these firms did not provide such services
or the firms did not respond to our inquiries for information on fees.
Our survey of states' trade offices found none of the 45 states that
responded, including those we visited, had conducted an evaluation on
the effects of user fees on SMEs' participation in federal export
promotion programs.
States Had Differing Opinions About the Impact of CS's 2005 Fee
Schedule:
Because state governments play a potentially important role in helping
their businesses compete in the global economy, partner with CS, and
are sometimes customers themselves, we obtained the states' trade
offices' views on the impact of CS's change in user fees in 2005 on
states' use of certain services.[Footnote 48] States had mixed views
about the impact of CS's 2005 fee change. Some states said that the
introduction of the 2005 fee schedule had no impact on their use of
certain CS services, while others said that it caused them to decrease
their use of those services. For example, of the states that had a
basis to judge, 56 percent (14 of 25) reported that the 2005 fee
schedule caused their offices to decrease their use of CS's Gold Key
Service, compared with 44 percent (11 of 25) reporting that their use
stayed the same.[Footnote 49] (See fig. 6.)
Figure 6: States' Trade Offices Use of Gold Key Service under 2005 Fee
Schedule:
Pie Graph:
Total respondents with a basis to judge=25.
Stayed the same: 44%;
Somewhat decreased use: 36%;
Greatly decreased use: 20%.
[Refer to PDF for image]
Source: GAO analysis of states' trade offices survey responses.
Note: Forty-four states' trade offices responded to this question, but
19 had no basis to judge.
[End of figure]
Based on CS's data, for the total number of standardized services
purchased, SMEs' participation fluctuated before and after the 2005 fee
change. For example, the Gold Key Service showed a decline in purchases
of about 26 percent from 2005 to 2006 and slightly increased in 2007 by
about 3 percent above the 2006 level. CS officials said that these
large:
changes are due in part to a spike in demand in 2005 as companies
rushed to sign up for certain services before the 2005 fees went into
effect in April 2005.
CS Projects Increase in SMEs' Demand with New Fee Schedule:
CS projects a 10 percent increase in SMEs' total demand for its
services in fiscal year 2009 based on its new user fees, but support
for this projection is unclear. According to CS officials, although the
fees for Featured U.S. Exporter and Business Service Provider
(domestic) will increase for SMEs with the new fee schedule, overall
collections are expected to rise, with higher demand for services such
as Gold Key, International Company Profile, and International Partner
Search that are now priced lower in most markets. In particular, CS
expects an increase in demand for Gold Key Service in the expensive
markets that now offer SMEs lower fees. The 10 percent increase in
SMEs' demand is not based on any analysis of historical data. According
to CS, the projected increase is based on anecdotal reports from its
offices in the field, some businesses, SIDO, and DEC officials. With
the new-to-export pilot incentive fee introduced for the first time, CS
also anticipates an increase in demand from new-to-export SMEs, but the
assumption of how much demand will change is a "wild guess," according
to CS officials. CS said it expects participation by large firms to
remain constant or to decrease moderately. CS arrived at the assumption
for large firms on the basis that large firms are less sensitive to the
fees and will often use CS's services to expand their overseas markets
even when fees increase.
Our survey showed states' trade offices' reaction to the new fee
schedule was generally positive, but there were some negative views.
Most states view CS's new fee schedule to be reasonable. As figure 7
shows, almost two-thirds (24 of 37) of the states that had a basis to
judge reported that they considered CS's new fee schedule to be very
reasonable or somewhat reasonable. In addition, some DEC members in the
states we visited believed the new fee schedule for SMEs is reasonable
but expect the effect of the fees to vary by company.
Figure 7: States' Trade Offices' Views of CS's 2008 Fee Schedule:
Pie Graph:
Somewhat reasonable: 35%;
Very reasonable: 30%;
Somewhat unreasonable: 16;
Neither reasonable nor unreasonable: 11%;
Very unreasonable: 8%.
[Refer to PDF for image]
Source: GAO analysis of states' trade offices survey responses.
Note: Forty-three states' trade offices responded to this question, but
6 had no basis to judge.
[End of figure]
Some states' trade offices elaborated on their views regarding the
reasonableness or unreasonableness of the new user fees. For those
states' trade offices that considered the new fee schedule to be
somewhat or very reasonable, one said that it is very happy with the
new fee schedule and has been promoting it and that the concept behind
the low fees for new-to-export companies is "really brilliant." Another
state said that SMEs will still complain about having to pay for
services, but that the new fee schedule is fair and makes CS's services
much more accessible for very small firms, while another state said
that lower fees for SMEs is a good start but ignores the need to invest
more in trade and investment promotion. For those states' trade offices
that considered the fees to be somewhat or very unreasonable, one said
that SMEs need assistance and support to increase exports and that CS
should provide available services at reasonable cost instead of trying
to get more money from U.S. business taxpayers. One state said that the
majority of its companies have fewer than 10 employees and that these
companies find it difficult to justify paying the government fees for
services, while another state said that the majority of its SMEs are
not currently using CS's programs due to the cost involved and that
alternatives may be less expensive but take longer to achieve similar
results.
We asked states' trade offices for their views on the new fees'
projected impact on their use of certain services purchased directly to
assist SMEs. Of the three standardized services we asked about (Gold
Key, International Company Profile, and International Partner Search),
at least 85 percent of those that had a basis to judge for each service
said that their use would increase or stay the same. For example, 27 of
the 30 states (90 percent) that had a basis to judge reported that
their use of the Gold Key Service for SMEs would either increase or
stay the same under the new fee schedule. (See fig. 8.)
Figure 8: States' Trade Offices' Views of Gold Key Service under 2008
Fee Schedule:
Pie Graph:
Total respondents with a basis to judge=30.
Stayed the same: 44%;
Somewhat increased use: 33%;
Greatly decreased use: 17%;
Somewhat decreased role: 10%.
[Refer to PDF for image]
Source: GAO analysis of states' trade offices survey responses.
Note: Forty-four states' trade offices responded to this question, but
14 had no basis to judge.
[End of figure]
We also asked states' trade offices their views on the new fees CS
charges certain customers compared with the fees charged by private
sector providers. More than two-thirds of the states that had a basis
to judge (27 of 39) indicated that Commerce's new fees for new-to-
export SMEs were about right compared with fees charged by private
sector providers.
However, states' trade offices had mixed views about the new fees
charged to SMEs that already export, and for each of the CS services
about which we inquired (Gold Key, International Company Profile,
International Partner Search, FUSE, Domestic Business Provider, and the
customized services), roughly half of those that had a basis to judge
responded that the fees were about right while roughly half reported
they were too high compared with private sector providers. For example,
figure 9 shows that more than half (16 of 27) thought that the new
customized fees charged to SMEs that already export were somewhat or
much too high compared with the private sector.
Figure 9: States' Trade Offices' Views of CS's Customized Services Fees
Compared to Private Sector Providers' Fees:
Pie Graph:
Total respondents with a basis to judge=27.
Someone or much too high: 59%;
About right: 41%.
[Refer to PDF for image]
Source: GAO analysis of states' trade offices survey responses.
Note: Forty-three states' trade offices responded to this question, but
16 had no basis to judge.
[End of figure]
According to SIDO, states can obtain cost competitive services in some
markets, but such private sector alternatives are not universally
available. CS also subcontracts with private sector providers at lower
rates than those of its employees. These private providers state that
their knowledge of a particular market or its operational efficiencies
allows them to offer lower cost services, such as matchmaking,
according to SIDO. However, SIDO states that some states' trade offices
might choose CS's services because they are more comfortable working
with a federal agency and CS generally offers superior quality control
to private sector alternatives. One study prepared for CS found that
export promotion services available from private enterprises and trade
groups vary in price, but that a number of private providers' services
are significantly more expensive. In addition, the study reported that,
in some cases, these enterprises and trade groups work with CS to
develop products and services and that some repackage and sell CS's
products, particularly market research and contact development
information.
Almost all of the states' trade offices with a basis to judge responded
that SMEs' use of CS's services would decrease if they were charged the
same fees as large firms (which, according to CS, represent the full
cost of services). For example, more than 70 percent of these
respondents indicated that they would expect a great or very great
decrease in services, such as Gold Key (28 of 37) and International
Company Profile (22 of 30) if fees were the same as those charged for
large firms. Further, DEC members and USEAC officials in the states we
visited expect that there would be significant decreases in SMEs'
demand for CS's services if they were charged full costs for export
promotion services.
Factors Other Than Fees May Affect SMEs' Choice to Use CS's Services:
Factors other than fees may affect SMEs' choice to use CS's services
including: (1) the types of services CS offers compared with other
providers, (2) the individualized attention received, and (3) the
quality of the service. First, some states' trade offices and other
sources reported that factors such as the types of services required
influence the choice of services purchased from CS versus other
providers. A 2002 study prepared for the Trade Promotion Coordinating
Committee found that more than half of the services used by SME
exporters were obtained from the private sector, which leads in
providing transaction-related services, such as freight forwarding and
helping firms to develop Web sites to promote products to foreign
buyers.[Footnote 50] The study reported that the government's role,
including CS's role, was seen as strongest in the provision of basic
information to exporters, such as "how to export" information, Web-
based information on markets, export counseling, and government
procedures overseas.[Footnote 51] In addition, our survey revealed that
36 of 45 states' trade offices (80 percent) use private consultants,
including private businesses and American Chambers of Commerce, as
providers for trade promotion services. For example, some states' trade
offices use private consultants for trade missions and trade shows,
market research, and arranging company meetings, which are services CS
provides. Services that CS does not provide and which states' trade
offices obtain from the private sector include assistance in setting up
offices in a foreign country, assistance in sourcing products or
manufacturers with sourcing a manufacturing partner, having prototypes
or product samples made, and freight forwarding.[Footnote 52]
Second, transaction-related services tend to require individualized
attention, which is another factor that may influence SMEs' choice of
whether to obtain services from CS versus other providers. Based on the
2002 study, Commerce was seen as not being as well-positioned as
private providers to provide the intensive attention that transaction-
related services may require. We also spoke with officials of one large
American chamber of commerce operating in a key market who informed us
that its members, including SMEs, are attracted to private providers'
intensive "handholding," which, according to these officials, CS is not
well known for providing. For example, this chamber of commerce offers
a Corporate Visa Program, which, according to the officials, actively
helps its member companies to complete paperwork and expedite the visa
process within a 1-week time frame. In addition, one state trade office
also said that contractors or private consultants offer in-country
coordination and individualized attention that the CS no longer offers.
The quality of service is also a key factor that influences SMEs'
choice of where to purchase services. A 2003 study[Footnote 53]
estimated that fees for some CS services that SMEs demand were lower
than market comparisons but that CS's market share based on total
demand by SMEs for products and services similar to CS's was relatively
small; it suggested that the quality or type of services provided by CS
may not match the quality or type of services demanded by
SMEs.[Footnote 54] One DEC member also told us that companies may
perceive the quality to be better in the private sector since prices
for similar services tend to be higher in the private sector and that,
in some instances, inexperienced CS staff performed work, which may
have led some businesses to the private sector. One state trade office
said that the quality of CS's service depends on staff dynamics at the
individual post. Another state trade office said that, while price is
important, the delivery of consistent quality is more important to
companies and that it relies on CS to provide quality service.
According to CS, its customer surveys indicate that quality is a key
factor in their choice of where to purchase services.[Footnote 55] CS
officials said that, in reviewing the surveys' open-ended questions,
companies cited three drivers of client satisfaction: communication,
quality, and consistency.[Footnote 56] Price paid for the services,
according to the officials, has not been of equal importance.
SIDO officials noted that another factor that may influence SMEs'
participation in CS's programs is small firms' general level of
awareness about the states' and federal government's export promotion
efforts. SIDO officials expressed concern that domestic firms'
awareness about U.S. export promotion programs is less than that of
foreign firms about the programs in competing countries. However,
according to the 2002 study, [Footnote 57] small and medium-sized
exporters are generally aware of government programs that can help them
export, but there is still room for improvement. Exporters appear to be
broadly familiar with Commerce.[Footnote 58] However, SIDO advocates
for more resources for CS and state outreach to small firms in order to
raise the profile of their programs and increase participation.
Conclusions:
CS and states' trade offices provide various types of export promotion
programs. These programs share similar goals of increasing the number
of exporting firms, especially SMEs, expanding existing markets, and
opening up new markets to U.S. exports. Targeting federal government
resources to programs that achieve the goals outlined in the National
Export Strategy requires knowledge of whether existing programs
contribute to these goals, whether customer experiences reveal
suggestions for enhancing these programs, and knowledge of the extent
to which current intergovernmental partnerships contribute to export
promotion goals.
Commerce's $235 million export promotion program currently collects
about $10 million annually through fees on some services. Commerce
decided to collect these fees to cover at least a portion of the costs
for providing some of its services. However, Commerce lacks good
information on the true costs of providing these services, both fee-
based and those offered for free. As a result, it is unclear whether
the fees they established reflect their policy objectives or whether
they optimize the efficient and effective management of these programs.
Similarly, Commerce lacks reliable information about the size,
location, and type of its customers, and about how its fees (or lack
thereof) affect their access to the program, or how they compare to
state or private sector fees. Fees for particular services affect
firms' access to and use of federal export promotion programs. Better
information would help CS market its program better, adjust to changes
in the marketplace, and address those areas that maximize the impact of
its services on promoting U.S. exports. Not much is known about the
extent to which user fees or other factors influence SMEs' decisions to
rely on CS for export promotion services. Studies and other sources
suggest that the types of services CS offers compared with other
providers, the level of individualized attention provided, and service
quality are factors that also affect SMEs' choice to use CS's services.
Better evaluation of fee-based programs and customers, including
states, could improve program continuity, help managers target their
resources more efficiently and effectively, assess costs and benefits,
and help the Congress make more informed funding decisions. Commerce
has taken some initial steps in developing systems that could improve
this situation, but it is unclear whether they intend to fully develop
this potential.
Recommendations for Executive Action:
We recommend that the Secretary of Commerce direct the Assistant
Secretary for Trade Promotion and Director General of the U.S. and
Foreign Commercial Service to (1) take steps to improve the collection,
processing, and documentation of cost information on its export
promotion programs and user fees in order to enhance efficient and
effective management in line with federal accounting and internal
control standards. These steps could, for example, include:
* documenting the procedures and processes of the costing methodology
in sufficient detail so that staff who work with costing at a later
point could understand the specific procedures used and the data
sources and cost assignment methods for each step in the process;
* incorporating costs paid by other federal entities for CS's benefits,
such as pensions and health insurance paid for by the Office of
Personnel Management when determining the full cost of each service;
* updating estimates of the amount of time staff spent performing
various activities to realize any efficiency gained and to provide more
accurate estimates of full costs; and:
* documenting the methods and assumptions for establishing the user
fees CS charges different firms for each service to clearly show the
linkage between costs and user fees, particularly with regard to the
lower user fees for SMEs.
To better understand demand for CS export promotion programs and the
level of participation attributable to its user fees, we also recommend
that the Secretary of Commerce direct the Assistant Secretary for Trade
Promotion and Director General of the U.S. and Foreign Commercial
Service to (2) ensure that the design of CS databases and procedures
followed by those entering the data enable CS to produce more accurate,
reliable, and complete data on its customers and services, including
all fees charged, company size, and export status.
Agency Comments and Our Evaluation:
Commerce concurred with our recommendations and stated that CS would
take steps to improve the collection, processing, and documentation of
cost information on its export promotion programs. Commerce stated that
CS developed its new user fee policy from the most accurate data
available from its existing database and that its accounting systems
were not deficient based on receiving an unqualified audit opinion on
its annual financial statements. Its technical comments mentioned CS's
conversion to a new financial accounting system, Commerce Business
System, which management expects will improve information about CS's
costs of delivering services. We support CS's implementation of an
improved financial accounting system. We remain concerned, however,
that potentially outdated and inaccurate nonfinancial data that are
used to determine the unit cost of specific services, such as the time
staff spend performing various activities, may not be updated by the
new system. Updating that information will help ensure that the full
costs of specific services are considered when setting fees. In
addition, although an entity's audited financial statements and
unaudited cost accounting analyses may use the same underlying
financial data, an auditor's opinion on the financial statements does
not provide assurance concerning the reasonableness of cost analyses
performed using that data.
Commerce also noted an increase in fees collected and services provided
to SMEs in fiscal year 2008, which they believe indicates their
products and services remain accessible to SMEs. However, we believe
that missing and inaccurate data about company size mean that CS cannot
reliably or accurately estimate the volume of services provided to SMEs
or the fees collected from them. In addition, CS's response relies on
aggregate analyses between fiscal year 2007 and fiscal year 2008 that
did not take into account changes in the mix of services provided or
longer term trends and, therefore, does not provide useful information
about the impact of its 2008 fee schedule on SMEs.
Further, Commerce stated that its trade promotion services are greater
in depth and scope than those provided by the states, and we discussed
this in our report. We clarified this point in various places in our
report, taking into account some related information that we received
in technical comments from agency officials. Commerce's comments, along
with our responses to specific points, are reprinted in appendix IV.
Commerce also provided technical comments, which were incorporated into
the report, as appropriate.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to interested
congressional committees and the Secretary of Commerce. The report also
will be available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
Should you or your staff have any questions about this report, please
either contact me at (202) 512-4347 or yagerl@gao.gov or Stanley J.
Czerwinski at (202) 512-6806 or czerwinskis@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs can be found
on the last page of this report. GAO staff who made major contributions
to this report are listed in appendix V.
Sincerely yours,
Signed by:
Loren Yager:
Director, International Affairs and Trade:
Stanley J. Czerwinski:
Director, Strategic Issues:
[End of section]
Appendix I: Scope and Methodology:
Our objectives were to evaluate (1) the relationship between the U.S.
Commercial Service (CS) and states' trade offices' export promotion
programs, (2) CS's methodology and practices for determining costs and
establishing user fees, and (3) how CS's user fees affect small and
medium-sized enterprises' (SME) use of its programs. Our scope of work
focused on the Department of Commerce's (Commerce) U.S. Commercial
Service's and the 50 states' trade offices' export promotion programs
and associated user fees.
To determine what export promotion services states' trade offices
provide and their relationship with CS's programs and user fees, we
reviewed and analyzed both CS's and states' trade offices' export
promotion programs and user fee data; data on domestic and overseas
staff; export promotion budgets; states' export promotion grant
programs, and services states trade offices purchased from CS. In
addition, to obtain information on the states' trade offices' export
promotion programs, fees, grants, and the importance of Commerce to
their activities, we surveyed the 50 states' trade offices. We
developed our survey instrument between January and late April 2008. To
ensure that the survey respondents understood the questions in the same
way, that we had used appropriate terms for this population, and that
we had covered the most important issues, we conducted three expert
reviews[Footnote 59] and three formal pretests.[Footnote 60] We
received 45 responses from the 50 states' trade offices, or a 90
percent response rate. The survey and a more complete tabulation of the
results are provided in a supplement to this report (see GAO-09-148SP).
We also conducted site visits in 6 states (California, Connecticut,
Idaho, Illinois, Mississippi, and Pennsylvania). We chose these states
to ensure a range of characteristics based on the following criteria:
the size of the state trade promotion budget, the existence of a grant
or subsidy program that funds SMEs' participation in CS's export
promotion programs, states' trade offices collocated with U.S. Export
Assistance Centers, the number of overseas states' trade offices and
representatives, size of the state's economy and population, and states
that do not have trade offices. We also reviewed and analyzed
information in the 2005-2007 National Export Strategy reports and the
State International Development Organizations' (SIDO) annual survey
results of states' trade offices. Based on interviews and our analysis,
we determined that SIDO's data were sufficiently reliable for our
purposes. Information on all the states' export promotion budgets were
difficult to obtain, and reliable and current data were only available
from SIDO for 27 states; however, we used data for only 24 states in
our analysis because 3 states did not disaggregate their export
promotion budgets from their foreign investment recruitment budgets.
To determine CS's procedures for determining costs and establishing
user fees, we interviewed key CS and International Trade Administration
staff and reviewed and analyzed available documentation about CS's
export promotion programs and user fees based on the 2005 and 2008 user
fee changes; CS's methodology for full cost recovery; cost templates of
CS's fee-based export promotion programs; data on CS's budget and
staff; data on staff time spent on various activities to deliver
services; legislation authorizing CS to charge a fee for services
(annual appropriations and the Mutual Education and Cultural Exchange
Act); OMB Circular A-25, User Charges; Statement of Federal Financial
Accounting Standards 4: Managerial Cost Accounting Standards and
Concepts; GAO's Standards for Internal Control in the Federal
Government;[Footnote 61] and GAO's Federal User Fees: A Design
Guide.[Footnote 62] We did not need to perform an assessment of the
reliability of the export promotion programs' cost and user fees data
because we did not use the data but noted weaknesses in the cost-
finding methodology.
To determine what is known about how CS's export promotion programs'
user fees affect SMEs' participation in its programs, we reviewed and
analyzed past export promotion programs and user fees studies performed
for Commerce by Booz Allen and Hamilton, Inc.,[Footnote 63] KPMG LLP,
[Footnote 64] and Chemonics International.[Footnote 65] In addition, we
reviewed and analyzed the Office of Management and Budget's 2003 and
2008 Program Assessment Rating Tool for the CS. We also reviewed and
analyzed CS's fee-based export promotion services purchased by its
customers and the associated collections from these purchases from 2004
to 2008. While we cited data elements on clients and collections for
2008, having determined that these elements were sufficiently reliable
for our purposes, we noted that other data elements, particularly
company size and export status, are not fully reliable for the reasons
that we have elaborated upon in the report's third objective. We also
reviewed ad hoc feedback CS received on its user fees from CS's field
staff, client firms, District Export Councils, states' trade offices,
and trade and industry associations. Further, we analyzed our survey
results regarding states' trade offices' views on the impact of the
2005 and 2008 user fees changes on their purchase of CS's services. We
obtained the states' trade offices' views for several reasons: (1) they
are experts in offering export promotion programs and services; (2)
they work with SMEs that export and, in many cases, they work with the
same SMEs as CS; (3) they are purchasers and multipliers of CS's fee
services, as well as purchasers of private sector fee services and are
able to compare and contrast these service providers; and (4) our
research at the beginning of our review indicated that it would be
feasible to survey the states within our time frame and achieve an
acceptable response rate.
Further, we interviewed Commerce officials in Washington, D.C., and at
the six U.S. Export Assistance Centers we visited, as well as officials
of the six states' trade offices, District Export Councils, the Office
of Management and Budget, the State International Development
Organizations, and American chambers of commerce.
To determine the purposes for which we could and could not use Commerce
data on customers served and the dollars collected, we interviewed
agency officials, attended a demonstration of CS's data systems, and
performed checks and analyses of the data themselves. We determined
that the data were sufficiently reliable in the aggregate to report on
fee services provided, in a broad sense, and dollars collected. We also
determined that the data were sufficiently reliable to report on
selected fee services by the state of the company purchasing the
service, though with the caveat that we could not examine the data by
company size. However, we noted several limitations in the data, which
we discussed in the body of this report. In particular, the data do not
provide accurate counts by company size and export status. Moreover,
the data only provide an incomplete picture of the fee services
purchased by states' trade offices. We based our review on various
internal control standards, such as the GAO's Standards for Internal
Control in the Federal Government; the Office of Management and Budget
Circular A-123, Management's Responsibility for Internal Control;
Internal Control - Integrated Framework, by the Committee of Sponsoring
Organizations of the Treadway Commission,[Footnote 66] as well as GAO's
guidance on Assessing the Reliability of Computer-Processed
Data.[Footnote 67]
We conducted this performance audit from October 2007 to March 2009, in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform our audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe the
evidence obtained provides this reasonable basis.
[End of section]
Appendix II: Overview of CS's and States' Domestic and International
Offices:
CS and states' trade offices both maintain offices in domestic and
international locations to help firms identify export opportunities.
CS's trade specialists are currently working in 108 cities in 47 states
and Puerto Rico. CS does not currently have an office in Alaska,
Delaware, and Wyoming, and CS provides services to customers in these
states from U.S. Export Assistance Centers (USEAC) in neighboring
states. For example, the USEAC in Seattle provides services to
customers in Alaska. In addition, USEACs are colocated with 11 states'
trade offices.[Footnote 68] CS's trade specialists also work in 75
countries or 124 offices worldwide. In some countries, such as Brazil,
China, and India, CS has offices in 5 or more cities. In addition, most
states' trade offices have 1 or more overseas offices. For example, in
2008, there were 34 countries in which at least one state trade office
maintained an office or representative.[Footnote 69] In some countries,
such as China, multiple states maintain offices, and individual states
maintain offices in more than one city. CS also operates offices in
each of these 34 countries. However, CS operates in 41 countries where
states do not have representation, and some states' trade offices
explained they rely heavily on CS services in these countries. The
following map (see fig. 10) shows CS's domestic and international
locations.
Figure 10: CS Domestic and International Locations:
This figure is a map of CS domestic and international locations.
CS Domestic locations:
Alabama:
Arizona:
Arkansas:
California:
Colorado:
Connecticut:
Florida:
Georgia:
Hawaii:
Idaho:
Illinois:
Indiana:
Iowa:
Kansas:
Kentucky:
Louisiana:
Maine:
Maryland:
Massachusetts:
Michigan:
Minnesota:
Mississippi:
Missouri:
Montana:
Nebraska:
Nevada:
New Hampshire:
New Jersey:
New Mexico:
New York:
North Carolina:
North Dakota:
Ohio:
Oklahoma:
Oregon:
Pennsylvania:
Rhode Island:
South Carolina:
South Dakota:
Tennessee:
Texas:
Utah:
Vermont:
Virginia:
Washington:
Wisconsin:
West Virginia:
Puerto Rico:
Countries with international CS field offices (FY 2009):
Western Hemisphere:
1: Argentina:
5: Brazil:
5: Canada:
1: Chile:
1: Colombia:
1: Costa Rica:
1: Dominican Republic:
1: Ecuador:
1: El Salvador:
1: Guatemala:
1: Honduras:
4: Mexico:
1: Panama:
1: Peru:
1: Uruguay:
1: Venezuela:
Europe:
1: Austria:
1: Belgium:
1: European Union (Brussels):
1: Bulgaria:
1: Croatia:
1: Czech Republic:
1: Denmark:
1: Finland:
1: France:
4: Germany:
1: Greece:
1: Hungary:
1: Ireland:
4: Italy:
1: Kazakhstan:
1: Netherlands:
1: Norway:
1: Poland:
1: Portugal:
1: Romania:
3: Russia:
1: Serbia:
1: Slovak Republic:
1: Spain:
1: Sweden:
2: Switzerland:
3: Turkey:
1: Ukraine:
1: United Kingdom:
Africa/Near East/South Asia:
1: Algeria:
2: Egypt:
1: Ghana:
7: India:
1: Iraq:
2: Israel:
1: Jordan:
1: Kenya:
1: Kuwait:
1: Lebanon:
1: Morocco:
1: Nigeria:
3: Pakistan:
1: Qatar:
3: Saudi Arabia:
1: Senegal:
2: South Africa:
2: United Arab Emirates:
East Asia/Pacific:
2: Australia:
5: China:
1: Hong Kong:
1: Indonesia:
4: Japan:
1: Korea:
1: Malaysia:
1: New Zealand:
1: Philippines:
1: Singapore:
2: Taiwan:
1: Thailand:
2: Vietnam:
[Refer PDF for image]
Source: GAO analysis of Commerce data; Map Resources (map).
[End of figure]
The number of CS's staff varies across countries, and states' overseas
offices vary in size and composition. The number of CS's trade
specialists working in its overseas offices varies widely across the
countries in which it operates. For example, CS has 104 staff in China,
30 staff in Germany, and 12 staff in Australia. In addition, some
states maintain large overseas offices in certain countries, which tend
to be staffed with full-time employees. Other states' overseas offices
are staffed by part-time private consultants working on contract or
volunteer representatives. For example, states often maintain full-time
offices in primary overseas markets, such as Mexico and Japan, while
states tend to employ part-time consultants in smaller markets.
Recently, CS and many states' trade offices have reduced or
consolidated their overseas offices but have maintained or opened
offices in key markets. CS has recently undertaken the Transformational
Commercial Diplomacy (TCD) initiative, which seeks to shift CS
resources from more accessible overseas markets to less accessible
markets to better align the needs of U.S. exporters with CS resources.
Under the TCD initiative, CS has closed a number of small offices in
well-developed markets or in small markets with limited commercial
opportunities to open offices in new emerging markets with greater
commercial potential, such as China and India. For example, under TCD,
CS has closed 22 offices and opened 4 offices in Qatar, Tunisia, Libya,
and Afghanistan.[Footnote 70] In addition, CS plans to open additional
offices in Baku, Azerbaijan; Wuhan, China; Porto Alegre, Brazil; and
Racife, Brazil; and add staff at offices in China and India.[Footnote
71] Similarly, many states' trade offices have reduced or consolidated
their overseas offices but have maintained and opened offices in key
overseas markets. For example, some states' trade offices have
consolidated their overseas offices in multiple countries of a
particular region, such as Europe or Asia, to cover the entire region
from a single office. However, many states continue to maintain and
expand overseas offices in key markets, including China and Japan. For
example, in recent years many states have opened offices in multiple
cities in China.
[End of section]
Appendix III: Selected CS Fee Services Purchased by Firms in Each State
in 2007 and 2008:
This table presents selected fee services purchased by CS's customers
in each state for 2 years. The data are for 2007 and 2008 and include
5,890 standardized fee services purchased, out of a total of more than
30,000, or about 20 percent for all fee services in those years.
However, they include four of the five standardized fee services that
CS offers (Gold Key, International Company Profile, International
Partner Search, and Featured U.S. Exporter). Table 6 shows selected CS
services that firms purchased from CS by home state in fiscal years
2007 and 2008, sorted by the number of services purchased per state.
Table 6: Numbers of Selected CS Fee Services Purchased by Firms in Each
State:
State: California;
Selected CS fee services: 720.
State: Texas;
Selected CS fee services: 577.
State: New York;
Selected CS fee services: 506.
State: Virginia;
Selected CS fee services: 467.
State: Florida;
Selected CS fee services: 351.
State: Illinois;
Selected CS fee services: 277.
State: Minnesota;
Selected CS fee services: 237.
State: Connecticut;
Selected CS fee services: 230.
State: Pennsylvania;
Selected CS fee services: 200.
State: Ohio;
Selected CS fee services: 176.
State: Massachusetts;
Selected CS fee services: 146.
State: New Jersey;
Selected CS fee services: 129.
State: Maryland;
Selected CS fee services: 122.
State: Michigan;
Selected CS fee services: 104.
State: Arizona;
Selected CS fee services: 99.
State: Georgia;
Selected CS fee services: 85.
State: Wisconsin;
Selected CS fee services: 84.
State: North Carolina;
Selected CS fee services: 81.
State: Rhode Island;
Selected CS fee services: 78.
State: Tennessee;
Selected CS fee services: 77.
State: Indiana;
Selected CS fee services: 72.
State: Washington;
Selected CS fee services: 72.
State: South Carolina;
Selected CS fee services: 71.
State: Oregon;
Selected CS fee services: 69.
State: Utah;
Selected CS fee services: 67.
State: Kansas;
Selected CS fee services: 65.
State: Alabama;
Selected CS fee services: 55.
State: New Hampshire;
Selected CS fee services: 52.
State: Louisiana;
Selected CS fee services: 51.
State: Colorado;
Selected CS fee services: 43.
State: Kentucky;
Selected CS fee services: 41.
State: Montana;
Selected CS fee services: 40.
State: Missouri;
Selected CS fee services: 40.
State: Iowa;
Selected CS fee services: 34.
State: Nebraska;
Selected CS fee services: 33.
State: Nevada;
Selected CS fee services: 26.
State: Oklahoma;
Selected CS fee services: 21.
State: West Virginia;
Selected CS fee services: 20.
State: South Dakota;
Selected CS fee services: 19.
State: Idaho;
Selected CS fee services: 19.
State: North Dakota;
Selected CS fee services: 16.
State: Delaware;
Selected CS fee services: 16.
State: Maine;
Selected CS fee services: 12.
State: New Mexico;
Selected CS fee services: 8.
State: Mississippi;
Selected CS fee services: 8.
State: Hawaii;
Selected CS fee services: 7.
State: Arkansas;
Selected CS fee services: 4.
State: Alaska;
Selected CS fee services: 1.
State: Wyoming;
Selected CS fee services: 1.
State: Vermont;
Selected CS fee services: 1.
Source: GAO analysis of CS's 2007 and 2008 data.
Notes:
The Gold Key, International Company Profile, International Partner
Search, and FUSE Services were selected in consultation with CS. A key
limitation in this analysis was that CS had to manually review
participation agreements to identify companies' home states. These
services were selected based on the CS's capacity to perform that
review, and what we knew about the completeness of the data on CS's
services.
CS identified the companies' home states from information provided in
participation agreements it had signed with them. CS could not
authoritatively identify the companies' home states from these
agreements because companies sometimes used their headquarters contact
information and sometimes used their branch contact information. CS was
able to identify more than 90 percent of the companies' home states.
In some instances, the companies may have used CS facilities outside of
their state; for example, according to CS, companies in the District of
Columbia used USEACs in Northern Virginia and Baltimore.
[End of table]
[End of section]
Appendix IV: Comments from the Department of Commerce:
United States Department Of Commerce:
The Under Secretary for International Trade:
Washington, D.C. 20230:
February 18, 2009:
Dr. Loren Yager:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Dr. Yager:
Thank you for providing us with the draft report assessing U.S. and
Foreign Commercial Service (CS) operations with respect to user fees
and state export promotion programs and services. We concur with the
recommendations, and that CS should take steps to improve the
collection, processing and documentation of cost information on its
export promotion programs.
It is important to note, however, that CS developed its new user fee
policy from the most accurate data available from its existing
databases. The accounting systems of record then, and now, were not
deficient in meeting federal accounting and internal control standards
as evidenced by ITA consistently receiving an unqualified audit opinion
on its annual financial statement audits. Moreover, this new user fee
policy has resulted in increased recovery of user fees, while ensuring
that our products and services remain accessible for U.S. small- and
medium-size enterprises (SMEs). In fact, in FY 2008 under its new user
fee schedule, CS provided the highest number of services to SMEs and
collected the most revenues of any prior fiscal year. We believe this
speaks to the effectiveness of our trade promotion services, our
ability to work closely with state economic development agencies, and
our ability to manage our programs in an efficient and economical
manner.
See comment 1.
See comment 2.
In regards to your analysis of CS's trade promotion services versus
those conducted by various state agencies, we believe that it is
important to highlight the fact that no state provides or is capable of
providing services that compare with the depth and extent of CS export
promotion services.
See comment 3.
Enclosed for your consideration are our specific technical comments
relating to the text of the report. Thank you again for the opportunity
to comment on the draft report.
Signed by:
Michelle O'Neill, Acting:
Enclosure:
The following are GAO's comments on the Department of Commerce's letter
dated February 18, 2009.
GAO Comments:
1. Also, Commerce's technical comments mentioned CS's conversion to a
new financial accounting system, Commerce Business System, which
management expects will improve information about CS's costs of
delivering services. We support CS's implementation of an improved
financial accounting system. We remain concerned, however, that
potentially outdated and inaccurate nonfinancial data that are used to
determine the unit cost of specific services, such as the time staff
spend performing various activities, may not be updated by the new
system. Updating that information will help ensure that the full costs
of specific services are considered when setting fees.[Footnote 72]
2. We believe that missing and inaccurate data about company size mean
that CS cannot reliably or accurately estimate the volume of services
provided to SMEs or the fees collected from them. In addition, CS's
response relies on aggregate analyses between fiscal year 2007 and
fiscal year 2008 that did not take into account changes in the mix of
services provided or longer term trends and, therefore, does not
provide useful information about the impact of its 2008 fee schedule on
SMEs.
3. Commerce commented that CS's trade promotion services are greater in
depth and scope than those provided by the states, and we discussed
this in our report. We clarified this point in various places in our
report, taking into account some related information that we received
in technical comments from agency officials.
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Loren Yager, (202) 512-4347, yagerl@gao.gov Stanley Czerwinski, (202)
512-6803, czerwinskis@gao.gov:
Staff Acknowledgments:
In addition to the individuals named above, Adam Cowles, Assistant
Director; Michelle Sager, Assistant Director; Martin De Alteriis,
Assistant Director; Jack Warner, Assistant Director; Yesook Merrill,
Assistant Director; Karen Deans; Bradley Hunt; Grace Lui; and Barbara
Shields made key contributions to this report. In addition, the
following staff provided technical assistance: Jacqueline Nowicki,
Assistant Director; Etana Finkler; Sheila Rajaibiun; and Jena
Sinkfield.
[End of section]
Footnotes:
[1] In 2006, SMEs comprised 97 percent of all identified exporters and
accounted for 29 percent of the total value of U.S. exports.
[2] CS is also referred to as the U.S. and Foreign Commercial Service.
[3] The State International Development Organizations (SIDO) is a
nonprofit, nonpartisan organization, affiliated with the Council of
State Governments (CSG), which comprises international economic
development practitioners and professionals from state and related
organizations across the country. It is the only national organization
focused exclusively on state international trade development. SIDO
helps state international trade agencies better serve American
exporters by sharing innovative ideas and resources, developing the
skills of state trade professionals, advocating the interests of states
in trade promotion, and facilitating multistate collaboration. Forty
states are members of SIDO.
[4] District Export Councils (DEC) are volunteer organizations of
leaders from local business communities throughout the United States
that are appointed by U.S. Secretaries of Commerce under the authority
of a 1973 Executive Order; DECs do not receive government
appropriations or compensation.
[5] See Consolidated Appropriations Act, 2008, Pub. L. No. 110-161,
Div. B, 121 Stat. 1844, 1885 (2007) and Science, State, Justice,
Commerce, and Related Agencies Appropriations Act, 2006, Pub. L. No.
109-108, 119 Stat. 2290, 2307 (2005).
[6] The 2008 CS user fee schedule charges user fees for each service
based on the size of a client firm. This user fee schedule raised the
user fees for large firms to CS's estimates of the full costs, while
maintaining the level of user fees SMEs had been charged under the
previous user fee schedule implemented in 2005.
[7] 15 U.S.C. § 4721.
[8] USEACs are intended to integrate the representatives and assistance
of the principal federal agencies providing export assistance--the
Commercial Service, the Small Business Administration, and the Export-
Import Bank. USEACs serve as one-stop-shops to provide exporters with
information on U.S. government export promotion and export finance
programs and help potential exporters make contact with the federal
programs that may provide the greatest assistance.
[9] In 2007, Commerce's Office of Inspector General reported on the
need for an agreement between State and CS to address specific business
processes at posts where CS does not have a presence. See Department of
Commerce, Office of Inspector General, Commerce Can Further Assist U.S.
Exporters by Enhancing Its Trade Coordination Efforts, Final Inspection
Report Number IPE-18322 (Washington, D.C.: Mar. 30, 2007).
[10] CS's authority to charge a fee for its export promotion services
stems from its annual appropriation. See e.g., Pub. L. No. 110-161.
[11] Forty-five states responded to our survey. We did not receive
survey responses from Alaska, Kansas, Kentucky, Louisiana, and New
Jersey.
[12] Even though three states (Arkansas, California, and Michigan) do
not offer a formal program, they offer some services on an as needed
basis. According to the Michigan trade office, it maintains one
overseas office, which provides trade development and foreign direct
assistance to companies interested in exporting to China.
[13] CS does not currently have offices in Alaska, Delaware, and
Wyoming. CS operates in 108 cities nationwide. Of the 493 domestic
staff, 211 are located at CS's headquarters in Washington, D.C.
[14] CS currently operates offices in 75 countries compared with 80
countries in 2006 and 2007. CS currently has 124 offices worldwide. In
some countries, there are offices in more than one city. For example,
CS has five offices in China. In those countries where CS does not have
a presence, State represents U.S. commercial interests and assists U.S.
exporters. The number of overseas staff includes foreign service
nationals.
[15] Our survey focused on the states' trade offices, their staff, and
the activities they provide directly and did not include export
promotion activities provided indirectly at the state level, such as
export readiness training and the number of staff associated with those
activities under a wide variety of arrangements. SIDO estimates that
there are hundreds of individuals employed in states' funded
educational institutions and economic development agencies that support
small business export promotion primarily through training and
counseling activities.
[16] States are often represented overseas by agents or local
consultants that work for them on a part-time or as-needed basis.
[17] CS's total budget averaged about $227 million over the past 3
fiscal years (2006-2008).
[18] SIDO tracks states' expenditures on trade as part of its annual
survey and reported in its 2008 survey that tracking expenditures on
trade and investment remains a challenge as many states are reluctant
to report these expenditures, and others undercount the amount they
spend by not including staff salaries and other overhead in the trade
budgets.
[19] The median budget is the amount ($775,000) that divides the budget
distribution into two equal groups, meaning that half had budgets above
the median, and half had budgets below the median.
[20] These observations are taken from states' trade offices responses
to our survey's open-ended questions.
[21] According to CS, its export promotion budget is projected to grow
in nominal terms by 11.4 percent over the last 5 years; the fiscal year
2005 budget was $213.5 million, and the budget for 2009 is expected to
be about $237.7 million.
[22] The following states' trade offices are colocated with a USEAC:
Idaho, Mississippi, New Hampshire, New Jersey, New Mexico, New York,
Oklahoma, Rhode Island, Tennessee, Texas, and Vermont.
[23] The formal services are CS's fee-based standardized and customized
services.
[24] These observations are taken from states' trade offices responses
to our survey's open-ended questions.
[25] Since CS had difficulty disaggregating the data by company size,
and over 16 percent of its customers are of unknown size, the data for
SMEs are not fully reliable. See the discussion of data reliability on
page 35.
[26] CS defines an SME as NTE for incentive fee purposes if it has not
exported anywhere in the world during the last 24 months, except for
unsolicited orders or orders placed by U.S. intermediaries, and has not
previously used a CS service.
[27] In addition, CS extends SME-level user fees for standardized and
customized services to cities and local governments, trade
associations, and nonprofit educational institutions and partners.
[28] Under the 2005 user fee schedule, CS charged large firms and SMEs
the same user fees for the same services, but the user fees differed
from country to country. For example, CS charged all firms, regardless
of size, the same user fees for the Gold Key Service and the
International Company Profile based on groupings of export markets into
four user fee bands, which were roughly related to variations in
national labor costs across markets. For customized services, the 2005
user fee schedule charged all firms the same user fees based on the
scope of work required to meet firms' specific needs, and the range of
user fees also reflected variations in the cost of doing business in
different markets.
[29] CS does not offer any comparable export promotion grant programs
to SMEs. However, ITA offers limited financial assistance to nonprofit
groups, including trade associations and states' trade offices, under
the Market Development Cooperator Program.
[30] Pub. L. No. 110-161.
[31] According to the Statement of Federal Financial Accounting
Standards (SFFAS) 4: Managerial Cost Accounting Standards and Concepts,
full cost of a service produced by a segment of an agency is the sum of
the costs of resources consumed by the segment that directly or
indirectly contributes to the service, and the costs of identifiable
supporting services provided by other segments within the agency, and
by other entities.
[32] Pub. L. No. 110-161.
[33] See e.g., Departments of Commerce, Justice, and State, the
Judiciary, and Related Agencies Appropriations Act, 1990, Pub. L. No.
101-162, 103 Stat. 988, 990, (1989). Since the Departments of Commerce,
Justice, and State, the Judiciary, and Related Agencies Appropriations
Act, 1990, the Congress has applied certain provisions of MECEA to ITA
in ITA's annual appropriation.
[34] The Congress has stated that, for ITA, certain provisions of MECEA
shall apply in carrying out international trade and promotion
activities abroad. Through the application of these MECEA provisions,
the Congress authorizes CS to accept contributions from "[f]oreign
governments, international organizations and private individuals,
firms, associations, agencies, and other groups" to carry out the
purposes of MECEA. These contributions "shall include payment for
assessments for services provided as part of these activities." Under
this authority, CS must charge a fee for services it renders in its
export promotion programs and CS has made a policy decision to charge
the fee on a full cost recovery basis. See e.g., Pub. L. No. 110-161.
[35] Pub. L. No. 109-108 and Pub. L. No. 110-161.
[36] Other options could include basing fees on competing market rates
charged by other providers of similar services or setting fees that
would promote a certain level of participation.
[37] Agencies may derive their authority to charge fees either from
specific statutory authority or from the Independent Offices
Appropriation Act of 1952 (IOAA). OMB Circular A-25 generally applies
to agencies that derive their authority to charge user fees under IOAA,
but specific user fee statutes should be construed consistent with OMB
Circular A-25 to the extent possible as part of an overall statutory
scheme. CS derives its authority to charge fees for its export
promotion services from its annual appropriation.
[38] SFFAS, No. 4, provides that agencies may determine full costs
based on a cost-finding methodology; however, the methodology for
determining costs should be clearly documented and followed
consistently. According to federal accounting standards, cost
accounting procedures and processes should be documented and should
provide instructions for procedures and practices to be followed in
determining costs and contain examples of other documents used.
[39] Federal accounting standards state that each entity's full costs
should include the costs of goods and services that it receives from
other entities, and the payment of retirement benefits is likened to
providing goods and services. Furthermore, federal accounting standards
state that recognizing the costs of interentity goods and services is
especially important when those costs constitute inputs to services
provided to nonfederal government entities for a user fee and thus
these costs need to be recognized by the entity in order to determine
user fees for services.
[40] CS implemented the 2008 user fee structure with the goals of (1)
moving toward the provisions of OMB Circular A-25, (2) maintaining the
level of user fees SMEs are charged and providing incentive user fees
for new-to-export SMEs to use CS services for the first time, and (3)
simplifying the user fee structure implemented in 2005. CS officials
explained the 2008 user fee schedule moves closer to the intent of
OMB's full cost recovery policy because it seeks to recover full costs
from large firms.
[41] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[42] The CTS is an ITA-wide customer relationship management system
that is being developed to track clients and their activities (fee-
based and non-fee-based services) at domestic and overseas posts.
[43] According to CS, the eMenu is now primarily used as a tool for
customers to pay for CS's services, capturing clients' credit card
information, as well as statistics such as company size, export status,
and export successes.
[44] For example, when preparing a statement of work for the client in
the eMenu, the trade specialist has to enter the fee into a data field,
since the field is not automatically populated based on company size
and export status. CS officials explained that the fees could consist
not only of the initial fee-based services, such as a 1-day Gold Key
Service, but could also include additional days of service, as well as
"add ons," such as transportation and interpreter costs. However, as
there is only one field in the database for all these costs, we could
not isolate the initial fee part of the costs or identify any
additional service costs when those applied.
[45] A service CS purchases that provides various statistics on U.S.
companies.
[46] This represents data for the first half of fiscal year 2008 as we
did not obtain the remaining months on time to complete the analysis
for the year. The purpose of this test was neither to quantify the
exact number of firms that had been inappropriately designated as NTE
in 2008, nor to comment on whether any firms had been inappropriately
charged a lower fee than was required; rather, it was to establish that
there are some concerns about data reliability in the designations of
NTE in the historic data and to suggest that CS take actions to correct
these problems given that the new fee structure offers lower fees to
NTE SMEs.
[47] According to recent CS guidance, NTE firms are not supposed to
have been prior recipients of services such as Gold Key, International
Company Profile, International Partner Search, trade missions,
Customized Market Research, Business Service Provider, and QuickTake.
We found more than 650 companies designated as NTE in the data for the
first half of 2008 that we examined.
[48] The price elasticity of demand measures how sensitive the quantity
demanded is to changes in price. If a small price increase results in a
disproportionately large decrease in the quantity demanded, then demand
is price elastic. For example, if a price increase of 10 percent
results in a decrease of more than 10 percent in the quantity demanded,
then demand is price elastic. If the quantity demanded decreases less
than 10 percent, then demand is price inelastic.
[49] CS did not have set fees for its services prior to 2005, so we
categorized the 2005 fees as ’fee change.“ It is unclear what fees were
charged prior to 2005.
[50] We highlighted the Gold Key Service throughout the report because,
based on our survey, most states' trade offices said that they have
primarily purchased the Gold Key Service from Commerce over the past 3
years.
[51] Chemonics International in Cooperation with University of North
Carolina at Chapel Hill, The Kenan Institute of Private Enterprise,
Kenan-Flagler Business School, Report Card on Trade II: Assessing the
Effectiveness of U.S. Government Support to Small and Midsize Exporters
(Chapel Hill: June 12, 2002).
[52] The study, which looked across all services used, said Commerce
emerged as the "clear leader" among the government service providers,
accounting for more than a third of all government-provided services.
[53] CS also purchases services from the private sector. However, the
partnership between CS and the private sector was beyond the scope of
our review. In addition, we did not further explore states' trade
offices' relationship with private sector providers.
[54] User Fee Study, prepared for the Department of Commerce,
International Trade Administration by KPMG LLP, January 24, 2003.
[55] The study mentioned ITA, but the specific services that were
evaluated were those of the CS.
[56] According to CS officials, after the closing of a Participation
Agreement (service) or the completion of a trade event, CS sends its
customers a comment card, called a Quality Assurance Survey (QAS), in
order to track customer satisfaction with its services. The current
survey has three questions, two closed-ended and one open-ended.
[57] The three survey questions are: (1) on a scale of 1 to 10, please
rate your level of overall satisfaction with the service; (2) on a
scale of 1 to 10, how likely is it that you would recommend this
service; and (3) comments and suggestions. CS does not have a survey
question that specifically relates to the fees it charges.
[58] Chemonics International in Cooperation with University of North
Carolina at Chapel Hill, The Kenan Institute of Private Enterprise,
Kenan-Flagler Business School, Report Card on Trade II: Assessing the
Effectiveness of U.S. Government Support to Small and Midsize Exporters
(Chapel Hill: June 12, 2002).
[59] According to the study, 15 percent of small exporters had not
heard of or used Commerce's services, 30 percent had used Commerce's
services, and 55 percent had heard of Commerce's services but had not
used them. In contrast, 44 percent of small exporters had not heard of
or used states' trade offices' services, 15 percent had used states'
trade offices' services, and 41 percent had heard of states' trade
offices services but had not used them.
[60] The expert reviewers were officials from the Commercial Service,
the Pennsylvania's state trade office, and from SIDO.
[61] The pretest states were Iowa, Nevada, and Pennsylvania.
[61] See GAO/AIMD-00-21.3.1.
[62] See GAO, Federal User Fees: A Design Guide, GAO-08-386SP
(Washington, D.C.: May 29, 2008).
[63] Department of Commerce, International Trade Administration,
Product Pricing Study (Washington, D.C.: May 1998) and Impact of
Product Price Increases on Clients and Revenues (Washington, D.C.:
March 1999).
[64] Department of Commerce, International Trade Administration, User
Fee Study (Washington, D.C.: January 2003).
[65] Chemonics International in Cooperation with University of North
Carolina at Chapel Hill, The Kenan Institute of Private Enterprise,
Kenan-Flagler Business School, Report Card on Trade II: Assessing the
Effectiveness of U.S. Government Support to Small and Midsize Exporters
(Chapel Hill: June 12, 2002).
[66] Internal Control-Integrated Framework, by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), September
1992.
[67] GAO, Assessing the Reliability of Computer-Processed Data,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-15G] (Washington,
D.C.: September 2002).
[68] The following states' trade offices are colocated with USEACs:
Idaho, Mississippi, New Hampshire, New Jersey, New Mexico, New York,
Oklahoma, Rhode Island, Tennessee, Texas, and Vermont.
[69] According to the State International Development Organizations
(SIDO), in 2008 states' trade offices had overseas offices or
representatives located in the following 34 countries: Argentina,
Australia, Belgium, Brazil, Canada, Chile, China, Colombia, Czech
Republic, Finland, France, Germany, Hong Kong, India, Israel, Italy,
Japan, Jordan, Korea, Mexico, Netherlands, Poland, Qatar, Russia, Saudi
Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan,
Thailand, United Kingdom, and Vietnam.
[70] Under CS's Transformational Commercial Diplomacy initiative, CS
has closed offices in Bridgetown, Barbados; Halifax, Canada; Abidjan,
Cote d'Ivoire; Lyon, France; Marseille, France; Strasbourg, France;
Toulouse, France; Hamburg, Germany; Leipzig, Germany; Naples, Italy;
Kingston, Jamaica; Fukuoka, Japan; Luxembourg City, Luxembourg; Rabat,
Morocco; Amsterdam, Netherlands; Aukland, New Zealand; Oporto,
Portugal; Yekaterinburg, Russia; Barcelona, Spain; Zurich, Switzerland;
Port of Spain, Trinidad and Tobago; and Belfast, United Kingdom. CS has
recently opened offices in Kabul, Afghanistan; Tunis, Tunisia; Tripoli,
Libya; and Doha, Qatar.
[71] CS plans to add staff at offices in Beijing, China; Guangzhou,
China; Calcutta, India; Chennai, India; Mumbai, India; and New Delhi,
India.
[72] Also, auditor opinions on an entity's financial statements focus
on whether those principal financial statements present fairly, in all
material respects, the financial position of the entity and its net
costs, changes in net position, and budgetary resources in conformity
with U.S. generally accepted accounting principles. Those audits are
conducted for the purpose of forming an opinion on the financial
statements taken as a whole. An audit includes consideration of
internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
entity's internal control over financial reporting. Accordingly, while
an entity's audited financial statements and unaudited cost accounting
analyses may use the same underlying financial data, an auditor's
opinion on financial statements does not provide assurance concerning
the reasonableness of cost analyses performed using that data.
[End of section]
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