State Department
Transparent Cost Estimates Needed to Support Passport Execution Fee Decisions Gao ID: GAO-08-63 October 10, 2007As early as January 31, 2008, U.S. citizens will be required to present a passport or other approved document to enter the United States at all ports of entry. The Department of State (State) is developing a "passport card" as a means of establishing U.S. citizenship for individuals crossing U.S. land borders or arriving by sea from Canada, Mexico, the Caribbean, or Bermuda. State proposes to charge $45 for the card, which would include a $25 execution fee. Acceptance facilities, including State's passport offices, as well as post offices and state courts, execute passport applications on State's behalf, and retain this fee. GAO was asked to examine (1) the factors State considered when setting the proposed fee and (2) how execution cost data were developed. GAO reviewed current laws that authorize the setting of fees and met with State officials to determine how they set the execution fee. GAO also met with officials from State and the U.S. Postal Service (USPS) to discuss acceptance facility execution costs and how these costs were estimated.
State considered several factors, including congressional interest in having a low-cost travel document, when setting the proposed passport execution fee. State has proposed to reduce the current execution fee from $30 to $25, which would help the department to issue a lower cost passport card that meets the new documentation requirements. Consular officials told GAO that State made a commitment to Congress to issue a document that would be, at most, one-half the price of the current passport book, which costs $97 for first time, adult applicants. To do this, State needed to reduce its fees, including the execution fee. Consular officials stated that State did not want to reduce the execution fee below $25 because it wanted to recover its costs, which it estimated at $24.36 per execution. In addition, the fee needed to be high enough to avoid jeopardizing State's relationship with acceptance facilities, on which State depends to provide passport services. State concluded that $25 would compensate acceptance facilities based, in part, on data from USPS that initially indicated its passport execution costs were about $19, as well as a projected increase in application volume. USPS later told State that the $19 figure did not include additional indirect costs. GAO found that State's most recent cost of service study, which estimated passport execution costs, lacked documentation of key decisions. Rigorous documentation increases an estimate's credibility and helps support an organization's decision-making process. Documentation of cost estimates should explicitly identify the primary methods, calculations, results, and rationales or assumptions. State was not able to provide documentation of critical components of the study's methodology. For example, consular officials could not provide details of its survey used to estimate the time it takes to execute a passport, including how the data was used to arrive at the final time estimate. State has begun a new cost study that will provide updated estimates of execution costs.
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-08-63, State Department: Transparent Cost Estimates Needed to Support Passport Execution Fee Decisions
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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
October 2007:
State Department:
Transparent Cost Estimates Needed to Support Passport Execution Fee
Decisions:
GAO-08-63:
GAO Highlights:
Highlights of GAO-08-63, a report to congressional requesters.
Why GAO Did This Study:
As early as January 31, 2008, U.S. citizens will be required to present
a passport or other approved document to enter the United States at all
ports of entry. The Department of State (State) is developing a
’passport card“ as a means of establishing U.S. citizenship for
individuals crossing U.S. land borders or arriving by sea from Canada,
Mexico, the Caribbean, or Bermuda. State proposes to charge $45 for the
card, which would include a $25 execution fee. Acceptance facilities,
including State‘s passport offices, as well as post offices and state
courts, execute passport applications on State‘s behalf, and retain
this fee. GAO was asked to examine (1) the factors State considered
when setting the proposed fee and (2) how execution cost data were
developed. GAO reviewed current laws that authorize the setting of fees
and met with State officials to determine how they set the execution
fee. GAO also met with officials from State and the U.S. Postal Service
(USPS) to discuss acceptance facility execution costs and how these
costs were estimated.
What GAO Found:
State considered several factors, including congressional interest in
having a low-cost travel document, when setting the proposed passport
execution fee. State has proposed to reduce the current execution fee
from $30 to $25, which would help the department to issue a lower cost
passport card that meets the new documentation requirements. Consular
officials told GAO that State made a commitment to Congress to issue a
document that would be, at most, one-half the price of the current
passport book, which costs $97 for first time, adult applicants. To do
this, State needed to reduce its fees, including the execution fee.
Consular officials stated that State did not want to reduce the
execution fee below $25 because it wanted to recover its costs, which
it estimated at $24.36 per execution. In addition, the fee needed to be
high enough to avoid jeopardizing State‘s relationship with acceptance
facilities, on which State depends to provide passport services. State
concluded that $25 would compensate acceptance facilities based, in
part, on data from USPS that initially indicated its passport execution
costs were about $19, as well as a projected increase in application
volume. USPS later told State that the $19 figure did not include
additional indirect costs.
GAO found that State‘s most recent cost of service study, which
estimated passport execution costs, lacked documentation of key
decisions. Rigorous documentation increases an estimate‘s credibility
and helps support an organization‘s decision-making process.
Documentation of cost estimates should explicitly identify the primary
methods, calculations, results, and rationales or assumptions. State
was not able to provide documentation of critical components of the
study‘s methodology. For example, consular officials could not provide
details of its survey used to estimate the time it takes to execute a
passport, including how the data was used to arrive at the final time
estimate. State has begun a new cost study that will provide updated
estimates of execution costs.
What GAO Recommends:
To improve the transparency of execution cost estimates, GAO recommends
that the Secretary of State provide additional documentation of key
decisions in its forthcoming cost of service study. State agreed with
GAO‘s recommendation.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-63]. For more information, contact Jess
Ford at (202) 512-4128 or fordj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
State Proposes Reduced Execution Fee Based on Commitment to Congress
and Other Factors:
Lack of Transparency in State's Most Recent Passport Execution Cost
Estimate:
Conclusion:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Passport Adjudication and Issuance Process:
Appendix III: Comments from the Department of State:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Active Passport Acceptance Facilities and Applications
Executed, as of September 30, 2006:
Table 2: Current and Proposed Passport Fees:
Table 3: USPS's Estimated Passport Execution Costs:
Figures:
Figure 1: Passport Execution Process:
Figure 2: Time Line of WHTI Implementation:
Figure 3: State's Prior Cost Estimates and Passport Execution Fees:
Figure 4: Time Line of State and USPS Communication on Passport
Execution Costs:
Figure 5: Passport Adjudication Process:
Abbreviations:
DHS: Department of Homeland Security:
OMB: Office of Management and Budget:
USPS: U.S. Postal Service:
WHTI: Western Hemisphere Travel Initiative:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
October 10, 2007:
The Honorable Byron L. Dorgan:
Chairman:
Subcommittee on Interstate Commerce, Trade, and Tourism:
Committee on Commerce, Science, and Transportation:
United States Senate:
The Honorable Charles E. Schumer:
United States Senate:
In April 2005, the Departments of Homeland Security (DHS) and State
(State) announced the Western Hemisphere Travel Initiative (WHTI) to
implement the new documentation requirements of the 2004 Intelligence
Reform Act,[Footnote 1] namely that U.S. citizens traveling from any
foreign country or territory present a passport or other approved
document to enter the United States at all ports of entry. In August
2007, DHS announced that, beginning January 31, 2008, it will phase in
these documentation requirements. To facilitate the frequent travel of
those living in border communities, State is developing a card-format
passport, or "passport card" as a means of establishing identity and
U.S. citizenship for individuals crossing U.S. land borders or arriving
by sea from Canada, Mexico, the Caribbean, or Bermuda. State proposes
to charge $45 for the passport card for adults 16 years and older. This
includes a $25 execution fee--a $5 reduction from the current fee--that
goes to offices that accept passport applications.[Footnote 2]
Acceptance facilities--such as State's passport offices,[Footnote 3] as
well as post offices and many federal, state, and probate courts--
execute passport applications on State's behalf and retain the
execution fee for this service.
Given your interest in the proposed execution fee, this report
discusses (1) the factors that State considered when setting the fee
and (2) how the execution cost data that State considered was
developed. We reviewed current laws and regulations that authorize the
setting of fees. We also collected and analyzed documentation from
State's Bureau of Consular Affairs, which is responsible for
determining the execution fee. We interviewed consular officials to
determine the factors the bureau considered when establishing the
execution fee. In reviewing the cost data that State considered, we
analyzed data on State's estimated costs for execution services it
provides as outlined in the bureau's most recent cost of service study,
as well as the study's scope and methodology. In addition, we collected
and analyzed documentation and interviewed officials from the U.S.
Postal Service (USPS) on its estimated execution costs because post
offices comprise almost two-thirds of all active acceptance facilities.
We did not evaluate the validity of State's and USPS's cost estimates.
We conducted our work between May and August 2007 in accordance with
generally accepted government auditing standards. Appendix I presents
more details about the scope and methodology of our work.
Results in Brief:
State considered several factors, including congressional interest in
having a low-cost travel document, when setting the proposed passport
execution fee. State has proposed to reduce the execution fee from $30
to $25, which would help permit the department to provide U.S. citizens
with a lower cost travel document that meets WHTI requirements.
Consular officials told us that the department made a commitment to
Congress to issue an alternative document that would be, at most, one-
half the price of the current passport book, which costs $97 for first
time, adult applicants. To do this, State needed to reduce its fees,
including the execution fee retained by acceptance facilities. Consular
officials stated that the department did not want to reduce the
execution fee below $25 because it wanted to recover its costs in
providing this service, which were estimated at $24.36 in its most
recent cost study. In addition, according to consular officials, the
execution fee needed to be high enough to avoid jeopardizing State's
relationship with its network of acceptance facilities, on which the
department depends to provide passport services to U.S. citizens. In
particular, State concluded that $25 would compensate acceptance
agencies based, in part, on USPS reporting to Congress that the
Service's costs for passport execution were about $19 per
execution,[Footnote 4] as well as a projected increase in passport
application volume that would result in additional funds from passport
services.
We found that State's most recent cost study lacked documentation of
several key decisions. We have previously reported that rigorous
documentation increases the credibility of a cost estimate and helps
support an organization's decision-making process.[Footnote 5]
Documentation of cost estimates should explicitly identify the primary
methods, calculations, results, rationales or assumptions, and sources
of the data used to generate each cost element. However, State was not
able to provide documentation of critical components of the study's
estimated execution costs calculation. For example, consular officials
could not provide details regarding the survey of consular officers
used to estimate the time it takes to execute a passport, including the
survey's design or how the results were used to arrive at the final
estimated time spent on passport execution--a key driver of costs. As
of August 2007, State told us it has begun a new cost study, which will
provide updated estimates of execution costs for future fee-setting
decisions.
To improve the transparency of the passport execution fee-setting
process and ensure that future passport execution cost estimates can be
used as a reliable basis for decisions, we are recommending that the
Secretary of State instruct the department's contractor to provide
additional documentation in its forthcoming fee study to support the
contractor's key methodologies, assumptions, and limitations. The study
should also document the extent to which State's contractor
incorporated estimated passport execution costs from USPS and other
acceptance facilities.
We received written comments from State, which we have reprinted in
appendix III. State agreed with our recommendation and stated that the
department is working with its contractor for State's new cost of
service study to ensure that the final report identifies primary
methods, calculations, and rationales for any assumptions made.
Background:
State is authorized to designate acceptance facilities--in addition to
its own passport offices--to provide passport execution services to the
American public.[Footnote 6] The majority of passport applications are
submitted at acceptance facilities nationwide; these include post
offices; federal, state, and probate courts; some public libraries and
public universities; and a variety of other county, township, and
municipal offices. Agents at these facilities are responsible for,
among other things, verifying that the applicant's identification
documents (driver's license, for example) and photo are authentic and
match the person standing before the agent. Acceptance facilities
retain the execution fee for this service. Figure 1 depicts the
execution process.
Figure 1: Passport Execution Process:
[See PDF for image]
This figure is an illustration of the Passport Execution Process.
Applicant files at acceptance facility;
Acceptance agent:
Asks for a completed application form for first time passport
applicants;
* Checks documentation of applicant‘s identity and citizenship (proof
of U.S. citizenship, current photo identification, two passport
photographs, and appropriate fees);
* Reviews application;
* Records applicant‘s driver‘s license or other acceptable
identification and ensures that the photos match the applicant‘s
likeness;
* Attaches one photo to the front of the application;
* Administers the passport oath;
* Witnesses the applicant‘s signature.
Acceptance agent:
Certifies the application by signing and dating it, indicating the type
and location of the facility, and stamping the office‘s authorizing
seal on the application;
Collects and retains execution fee for the acceptance agency. For
expedited services, optional fees are collected for State;
Reexamines the application for completeness, assembles the passport
application, and checks for fraud indicators;
Completes daily transmittal form(s) that indicate(s) facility
information; customers‘ names, dates of birth, and phone numbers; and
fees collected;
Daily, examiner mails applications, transmittal form(s), and
accompanying documents to specified addresses for processing.
Source: GAO analysis of State data; Nova Development (clip art).
[End of figure]
State reported that there were 8,583 active acceptance facilities
nationwide as of September 30, 2006 (see table 1)--post offices
comprised almost two-thirds of all active facilities.[Footnote 7]
According to consular officials, for fiscal year 2006, post offices
executed about 72 percent of applications for minors and for adults
applying for the first time; nonpostal facilities executed about 25
percent. The remainder (3 percent) were executed by 14 of State's
passport offices. In recent years, State has expanded its network of
acceptance facilities to accommodate increasing passport demand. We
reported previously that there were approximately 7,000 acceptance
facilities as of March 2005.[Footnote 8] In fiscal year 2006, State
added 753 new locations to its network of acceptance facilities, of
which 636 are post offices, and 117 are nonpostal facilities.
Table 1: Active Passport Acceptance Facilities and Applications
Executed, as of September 30, 2006:
Post offices;
Number of facilities: 5,382;
Applications executed: 6,059,902.
Nonpostal facilities, Courts;
Number of facilities: 2,041;
Applications executed: [Empty].
Nonpostal facilities, Municipal offices;
Number of facilities: 637;
Applications executed: [Empty].
Nonpostal facilities, County/state offices;
Number of facilities: 391;
Applications executed: [Empty].
Nonpostal facilities, Public schools;
Number of facilities: 24;
Applications executed: [Empty].
Nonpostal facilities, Public libraries;
Number of facilities: 94;
Applications executed: [Empty].
Nonpostal facilities, Subtotal;
Number of facilities: 3,187;
Applications executed: 2,107,037.
Nonpostal facilities, State's passport offices;
Number of facilities: 14;
Applications executed: 285,488.
Total;
Number of facilities: 8,583;
Applications executed: 8,452,427.
Source: State.
[End of table]
State requires that acceptance agents be U.S. citizens, permanent
employees, 18 years or older, and have successfully completed a
training program. We reported in July 2007 that State has taken a
number of measures to ensure the security and quality of passports,
including establishing internal control standards and quality assurance
measures and training of acceptance agents.[Footnote 9] However, we
found that State lacks a program for oversight of passport acceptance
facilities and made a number of recommendations to improve this
oversight. State indicated that it has begun to take actions that would
address our recommendations.
State Sets Passport Fees; USPS Provides Information for State's
Consideration:
The Secretary of State prescribes fees for passport services that State
provides[Footnote 10] and has some discretion in setting and collecting
passport fees.[Footnote 11] The Chief Financial Officers Act of
1990[Footnote 12] requires, and Office of Management and Budget (OMB)
guidance in Circular A-25[Footnote 13] advises, that agencies review
the fees for their programs biennially.[Footnote 14] According to OMB A-
25 guidance, fees should be sufficient to recover the full cost to the
federal government of providing the service, resource, or good. "Full
cost" includes all direct and indirect costs to the federal government,
such as direct and indirect personnel costs, including salaries and
fringe benefits such as medical insurance and retirement; physical
overhead, material, and supply costs; rents; and management and
supervisory costs.[Footnote 15]
In addition, State and USPS signed a formal, interagency agreement in
2000, which sets forth the terms and conditions of the execution
services that USPS provides on State's behalf. The agreement states,
among other things, that State will consider the results of any USPS
analyses of passport execution costs and, that before changes in the
execution fee are finalized, State and USPS will mutually agree upon
the new amount. Further, the agreement states that this partnership is
voluntary--if, at any time, State and USPS do not mutually agree to the
new fee, either party is free to consider other options, including
ending their partnership.
State Is Developing Alternative Document to Meet WHTI Requirements:
Based on recommendations from the 9/11 Commission, Congress, in 2004,
mandated the development and implementation of a plan that requires
U.S. citizens to have a passport or other document that demonstrates
their identity and citizenship when entering the United States from any
foreign country or territory.[Footnote 16] Prior to this legislation,
U.S. citizens did not need a passport to enter the United States if
they were traveling from Canada, Mexico, the Caribbean, or Bermuda. DHS
and State implemented this requirement for airports on January 23,
2007,[Footnote 17] and are to implement the requirement for land and
sea ports before June 1, 2009 (see fig. 2 for key dates in WHTI
implementation).[Footnote 18] The departments have indicated that they
will begin to phase in the requirement for land and sea ports in
2008.[Footnote 19]
Figure 2: Time Line of WHTI Implementation:
[See PDF for image]
This figure is a timeline of WHTI Implementation from 2004 through
2009, with the following dates specifically described:
December 17, 2004: Intelligence Reform and Terrorism Prevention Act of
2004 requires that U.S. citizens present a passport document to enter
the United States;
April 5, 2005: DHS and State announce WHTI implementation strategy;
October 17, 2006: Proposed rule for passport card released;
November 24, 2006: Final rule for WHTI requirements at airports;
January 23, 2007: Implementation of WHTI requirements at airports;
June 8-September 30, 2007: Temporary suspension of WHTI passport
requirement at airports, substituting specific proof of passport
application in process, due to passport application backlog;
January 31, 2008: DHS to begin phase-in of WHTI requirements for land
and sea ports of entry;
June 1, 2009: Deadline for full implementation of WHTI documentation
requirements.
Source: GAO.
[End of figure]
The current passport book fee is $97 for first time, adult applicants
(16 years and older). State reported that there are circumstances
where, due to reasons of both cost and ease of use, the traditional
book-style U.S. passport may not be the optimal solution for
international travelers along the northern and southern land borders of
the United States, or international sea travel between the United
States and Canada, Mexico, the Caribbean, and Bermuda. Thus, in October
2006, State announced plans to produce a passport card as a lower cost
means of establishing citizenship and identity for U.S. citizens. For
the passport card, State has proposed to charge $45, which includes a
$25 execution fee. The current execution fee is $30 for passport books.
The proposed reduction of $5 applies to the execution fee for both
passport documents because acceptance agents will follow the same
procedures regardless of the type of document. Table 2 shows the
current passport book fees, as well as the proposed fees for the
passport book and card.
Table 2: Current and Proposed Passport Fees:
Application type: Current (passport book only), First time, adult[A];
Application fee: $67.00;
Execution fee: $30.00;
Total fee: $97.00.
Application type: Current (passport book only), Minor;
Application fee: 52.00;
Execution fee: 30.00;
Total fee: 82.00.
Application type: Proposed, Passport book, First time, adult;
Application fee: 67.00;
Execution fee: 25.00;
Total fee: 92.00.
Application type: Proposed, Passport book, Minor;
Application fee: 52.00;
Execution fee: 25.00;
Total fee: 77.00.
Application type: Proposed, Passport card, First time, adult;
Application fee: 20.00;
Execution fee: 25.00;
Total fee: 45.00.
Application type: Proposed, Passport card, Minor;
Application fee: $10.00;
Execution fee: $25.00;
Total fee: $35.00.
Source: GAO analysis of State data.
Note: If an applicant holds a valid passport book, he or she may apply
for a passport card as a "renewal" by mail, if applicable.
[A] First time, adult applicants and all minors under 16 years of age
are required to apply in person and pay an execution fee. Adults
applying for replacement passports that have been lost, stolen, or
mutilated are also required to appear in person, as are those holding
expired passports issued more than 15 years previously, or when the
bearer was a minor. Applicants who are renewing their passports are not
required to apply in person.
[End of table]
According to State, passport cards, like passport books, would be
issued for a 10-year validity period for U.S. citizens 16 years and
older and for a 5-year validity period for U.S. citizens under 16 years
of age.
State Proposes Reduced Execution Fee Based on Commitment to Congress
and Other Factors:
State considered several factors, including congressional interest in
having a low-cost travel document and its own estimated execution
costs, when setting the proposed execution fee. Based on an interagency
agreement, State also reviewed information from USPS on its estimated
passport execution costs.
State's Cost Estimates One of Several Factors the Department Considered
When Lowering the Execution Fee:
According to State, the information from its cost of service study
supported the fee-setting process in 2006, but the proposal to reduce
the execution fee was not based solely on full cost recovery
considerations. Consular officials told us that they considered several
factors when setting the proposed execution fee. These include:
* Commitment to Congress to issue a low-cost document. According to
consular officials, the department made a commitment to issue an
alternative document to meet WHTI requirements that would be, at most,
one-half the cost of the passport book, which currently costs $97.
* State's estimates of its passport execution costs. State, through an
independent contractor, conducts cost studies for its consular
services, including passport execution, to determine the full costs for
providing these services. Consular officials stated that the
department's policy is to review these fees on a periodic basis, rather
than biennially, due to the length of time it takes to complete the
cost of service studies.[Footnote 20] State's most recent cost of
service study estimated the full costs for execution services to the
department for fiscal years 2004 and 2005 to be $24.36. Because OMB
guidance states that subject to exceptions, user charges will be
sufficient to recover the full cost to the federal government,[Footnote
21] consular officials told us that the department decided to not lower
the execution fee below the amount estimated in the most recent cost of
service study.
* Maintaining State's network of acceptance facilities. According to
consular officials, State wanted to ensure that, while the cost of the
passport card was lower than the cost for the current passport book,
that its execution fee was not so low that it jeopardized State's
relationship with its network of acceptance facilities, on which the
department depends to provide passport services to U.S. citizens. State
has seen an increase in passport demand from a base level of 7 million
passports issued in 2003 to an expected more than 17 million issuances
in fiscal year 2007.[Footnote 22] Based, in part, on these data,
consular officials concluded that, even with the reduced execution fee,
the department and its acceptance facilities could continue to expect
additional funds from passport services.
Figure 3 shows that, historically, passport execution fees have been
higher than State's estimated costs. For example, in 2002, State set
the execution fee at $30 based on a cost estimate of $16.20. Consular
officials told us that, based on policy considerations, there are
certain services for which State does not charge a fee or the fee
covers only a portion of the cost of the service. For example, State
may not charge a passport fee from certain relatives of a deceased
member of the Armed Forces proceeding abroad to visit the grave or to
attend a funeral or memorial service for that member.[Footnote 23]
Consular officials stated that their general management practice has
been to round cost estimates for some services up to cover the cost of
those services for which the public is not charged.
Figure 3: State's Prior Cost Estimates and Passport Execution Fees:
[See PDF for image]
Cost estimates:
Fiscal year 2002-State‘s cost of service study estimated $16.20 per
passport execution;
Fiscal year 2004-State‘s cost of service study estimated $24.36 per
passport execution.
Fees:
February 1, 1998-Execution fee is $15.00; June 1, 2002-Execution fee
changed to $30.00; March 8, 2005-Execution fee remains at $30.00;
October 17, 2006-State proposes $25.00 execution fee.
Source: GAO; Nova Development (clip art).
[End of figure]
In 2005, State kept the passport execution fee at $30 based on the
$24.36 cost of service study estimate. For the passport card, State
only rounded up its cost estimate to the nearest dollar to help reduce
the total cost of the card.
State Considered Information from USPS:
Based on a 2000 interagency agreement, consular officials consider cost
information from USPS in setting passport execution fees. In a fiscal
year 2001 internal cost study, USPS estimated that its costs were about
$13 per passport. In April 2006, using this study as a baseline, USPS
notified Congress that its projected costs for fiscal year 2005 had
increased to about $19 per passport. According to consular officials,
over the next several months, State and USPS met to discuss the
Service's estimated passport execution costs. Then, in early August
2006, USPS sent a letter to State to notify the department that its
initial estimate of $19 did not include a contribution to institutional
costs that USPS applies to postal and nonpostal products and
services.[Footnote 24] According to USPS, its average contribution to
institutional costs was approximately 76 percent of directly attributed
costs. Using this average, USPS told State that its full costs for
passport execution for fiscal year 2005 would total about $33 per
execution (see table 3)--about $19 for costs directly attributable to
passport execution and $14 for institutional cost coverage. USPS's 2001
study did not address institutional costs. Consular officials stated
that State did not receive more detailed information about USPS's
internal cost study or how the cost estimates were developed.
Table 3: USPS's Estimated Passport Execution Costs:
Direct costs;
Fiscal year 2001: $9.23;
Fiscal year 2005: $8.37.
Indirect costs;
Fiscal year 2001: 4.08;
Fiscal year 2005: 10.31.
Subtotal;
Fiscal year 2001: 13.31;
Fiscal year 2005: 18.68.
Institutional cost coverage;
Fiscal year 2001: Not included;
Fiscal year 2005: 14.18.
Total USPS execution costs;
Fiscal year 2001: $13.31;
Fiscal year 2005: $32.86.
Source: GAO analysis of USPS data.
[End of table]
A number of factors affecting costs may have changed since USPS's 2001
cost study, and USPS did not take these changes into account when
projecting passport execution costs for fiscal year 2005. For example,
the estimates that USPS provided to Congress and State did not account
for the projected increase in passport application volume or the growth
in active postal acceptance facilities. As a result, it is unclear
whether USPS's estimate accurately reflects its costs.
In late August 2006, State notified USPS that it had decided to propose
a $25 execution fee, which was higher than the directly attributable
costs for passport execution services that USPS reported to Congress in
April 2006 (see fig. 4 for a time line of communication involving State
and USPS on this issue). Regarding the additional contribution to
institutional overhead, USPS officials told us that they have some
flexibility in the percentage of institutional costs that the Service
assigns to each of its products, in general, including the percentage
used to calculate the passport execution cost estimate provided to
State, specifically. For example, in fiscal year 2006, USPS charged an
additional 14 percent of its direct and indirect costs for insured
services to cover the institutional cost assigned to this service, and
197 percent for presorted, first class letter mail. As of August 2007,
USPS officials stated that they have agreed, in principle, to State's
proposed $25 execution fee.[Footnote 25]
Figure 4: Time Line of State and USPS Communication on Passport
Execution Costs:
[See PDF for image]
This figure is a timeline of State and USPS Communication on Passport
Execution Costs for the year 2006, with the following dates
specifically described:
April 21: USPS notifies Congress that its execution costs are $19;
May 3: State notifies acceptance facilities of plan to reduce execution
fee;
August 9: USPS notifies State that its estimated execution costs plus
institutional costs total $33;
August 22: State notifies USPS that it will propose a $25 execution
fee;
October 13: State notifies all acceptance facilities that it will
propose a $25 execution fee;
October 17: State proposes $25 execution fee;
October 17-December 18: Public comment period for proposed passport
card.
[End of figure]
State notified its network of acceptance facilities in early 2006 that
the department would be proposing a lower execution fee. However, State
did not seek cost information from nonpostal acceptance facilities.
According to State officials, nonpostal acceptance facilities are not
organized in a way that would make systematic data collection feasible.
Thus, State relied on information that these facilities provided to the
department through the public comment period following the publication
of the proposed passport card rule in the Federal Register.[Footnote
26]
Lack of Transparency in State's Most Recent Passport Execution Cost
Estimate:
We found that State's most recent cost of service study, which the
department considered when establishing the reduced passport execution
fee, lacked documentation of several of the contractor's key decisions.
State is in the initial stages of a new study of fiscal year 2007
costs.
We have previously reported that cost estimates are well documented
when they can be easily repeated or updated and can be traced to
original sources through auditing.[Footnote 27] Rigorous documentation
increases the credibility of an estimate and helps support an
organization's decision-making process. In particular, the
documentation should explicitly identify the primary methods,
calculations, results, rationales or assumptions, and sources of the
data used to generate each cost element. Regarding the passport
execution fee, State considered execution cost estimates from its 2004
cost of service study as part of the fee-setting process for the
passport card. We found that this study lacked documentation to justify
key decisions the contractor made when estimating passport execution
costs. We found the following examples:
* Estimates of the resources associated with passport execution (both
direct and indirect costs) were integral to the contractor's
calculation of State's cost of providing this service.[Footnote 28] At
the time of the 2004 cost of service study, however, State's financial
systems and processes did not provide managerial cost information for
its activities, such as the full cost of the department's passport
activities.[Footnote 29] Thus, State was not able to obtain necessary
cost information directly from the department's financial system and
made numerous assumptions to estimate the aggregate cost of consular
activities, including the passport execution costs. State's contractor
used baseline obligations data from fiscal year 2002 to estimate
passport execution costs for fiscal years 2004 and 2005 ($24.36). The
contractor's final report, however, did not indicate that there may be
limitations in using this information as opposed to actual expenditure
data.
* The estimated time associated with passport execution was another
important component of the contractor's methodology. To determine how
much time was spent on passport services and develop a time estimate,
the contractor conducted surveys of State's consular staff . We
requested documentation from State on the contractor's sampling plan
and survey results, but officials were not able to provide additional
details about the survey's sample design, results by office, or how the
data was used to arrive at the final estimated time State officials
spend on passport execution.
* In the study's survey of State's domestic passport agencies, the
tasks for executing and adjudicating a passport were combined into one
activity. Therefore, to estimate the time generally associated with
execution services that State provides, the contractor visited several
post offices in the Washington, D.C., area, and performed time in
motion studies at these facilities. Using the time estimates gathered
at the post offices as a proxy, the contractor concluded that it took
State an average of 7.63 minutes for each passport execution. However,
State could not provide documentation regarding the number, type, and
location of post offices visited or detailed results of the
contractor's time in motion studies. This methodology supported the
specific costs allocated to the passport execution.
State is beginning a new cost of service study, according to consular
officials, which will estimate fiscal year 2007 costs for all consular
services, including passport book and card execution.
Conclusion:
State considered several factors in proposing to reduce the execution
fee by $5, most notably its commitment to Congress to create a lower
cost document for U.S. citizens that would comply with WHTI
documentation requirements; State's proposal achieves this commitment.
State's passport execution cost estimates, while not the sole factor
that the department considered when setting this fee, are important
data, as OMB guidance encourages agencies to recover the full costs of
the services they provide. However, State did not ensure adequate
documentation of key aspects of the study's assumptions, methodology,
and limitations. In addition, USPS did not provide detailed information
regarding its estimated passport execution costs, which were based on a
fiscal year 2001 study. Better documentation would increase the
credibility of State's estimate and help support its fee-setting
process. Given the potential impact on a significant number of U.S.
citizens, it is imperative that State have a transparent process for
setting the passport execution fee to ensure that passport execution
cost estimates can be used as a reliable basis for decisions.
Recommendation for Executive Action:
To improve the transparency of the passport execution fee-setting
process, we are recommending that the Secretary of State instruct the
department's contractor to provide additional documentation in its
forthcoming fee study to support key methodologies, assumptions, and
limitations. Such documentation should clarify survey and other work
performed, disclose all sources of cost information being used, and
identify potential limitations and uncertainties associated with the
cost figures and other data. The study should also document the extent
to which State's contractor incorporated estimated passport execution
costs from USPS and other acceptance facilities.
Agency Comments and Our Evaluation:
We received written comments from State, which we have reprinted in
appendix III. State agreed with our recommendation and stated that the
department is working with its contractor for State's new cost of
service study to ensure that the final report identifies primary
methods, calculations, and rationales for any assumptions made. State
and USPS also provided technical comments, which we have incorporated
into the report, as appropriate.
As agreed with your offices, 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 of this report
to the Secretary of State and the Postmaster General and other
interested Members of Congress. We also will make copies available to
others upon request. In addition, the report will be available at no
charge on the GAO Web site at [hyperlink, http://http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-4128 or fordj@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix IV.
Signed by:
Jess T. Ford:
Director:
International Affairs and Trade:
[End of section]
Appendix I: Scope and Methodology:
To determine the process by which the Department of State (State) set
the proposed passport execution fee, we reviewed current laws and
regulations that authorize the setting of fees, as well as guidance to
agencies on the fee-setting process from the Office of Management and
Budget, and State's procedures as outlined in the Foreign Affairs
Manual. We also collected and analyzed documentation and interviewed
officials from State's Bureau of Consular Affairs, which is responsible
for determining the passport card fees, to determine the factors that
State considered.
To determine how the execution cost data that State considered was
developed, we reviewed data on State's estimated execution costs as
outlined in the bureau's June 2004 consular cost of service study and
interviewed consular officials regarding the study's scope and
methodology. We also reviewed State's audited consolidated financial
statements of net costs for the fiscal years 2006, 2005, 2002, and
2001. In addition, we analyzed data on the U.S. Postal Service's (USPS)
estimated passport execution costs and interviewed USPS officials
responsible for cost analysis and pricing to determine the process USPS
uses to estimate passport execution costs. In particular, we reviewed
USPS's September 2001 passport execution cost study report, as well as
information on its costs and revenue. We also examined USPS's audited
consolidated financial statements of net costs for the fiscal years
2006 and 2001. We did not evaluate the validity of State and USPS's
cost estimates.
We conducted our work between May and August 2007 in accordance with
generally accepted government auditing standards.
[End of section]
Appendix II: Passport Adjudication and Issuance Process:
Under U.S. law, the Secretary of State has the authority to issue
passports.[Footnote 30] Once a passport application has been received
by one of the 17 domestic passport-issuing offices, a passport examiner
must examine each application to determine, through a process called
adjudication, whether the applicant should be issued a passport.
Adjudication requires the examiner to scrutinize identification and
citizenship documents presented by applicants to verify their identity
and U.S. citizenship. Once the passport examiner has determined that an
applicant is eligible for a passport, State personalizes the passport
with the applicant's information and delivers it to the applicant (see
fig. 5). According to State's proposed notice on the passport card in
the Federal Register,[Footnote 31] the basis of the passport card
application fee is to be the direct costs of producing passport cards,
the card stock, technology, adjudicating the application, printing the
biographic information on the card, and priority mail return of the
card.
Figure 5: Passport Adjudication Process:
[See PDF for image]
This figure is an illustration of the passport adjudication process.
The following data is depicted:
Passport applicant:
Application mailed; or:
Application filed at an acceptance facility; or:
Application filed at a passport office.
Examiner may need additional information from the applicant;
Data entry and payment processing occur.
Passport application adjudication: Examiner:
* checks travel document issuance system for hits in name-check
databases;
* reviews results of database checks;
* checks documentation of applicant's identity and citizenship;
* decides whether to approve issuance of a passport.
Application is rejected; or:
Application approved:
* Passport printing and quality control;
* Passport issuance.
Source: GAO analysis of State data; Nova Development (clip art).
[End of figure]
[End of section]
Appendix III: Comments from the Department of State:
United States Department of State:
Assistant Secretary for Resource Management and Chief Financial
Officer:
Washington, D.C. 20520:
September 26, 2007:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, NW:
Washington, D.C. 20548-0001:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report,
"Border Security: State Plans to Reduce Passport Execution Fee;
Transparent Cost Estimates Needed to Support Future Fee Decisions," GAO
Job Code 320505.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact Joe
De Maria, Management Analyst, Bureau of Consular Affairs at (202) 663-
2509.
Sincerely,
Signed by:
Bradford R. Higgins:
cc: GAO ” Katie Bernet:
CA ” Maura Harty:
State/OIG ” Mark Duda:
Department of State Comments on GAO Draft Report:
Border Security: State Plans to Reduce Passport Execution Fee;
Transparent Cost Estimates Needed to Support Future Fee Decisions,
(GAO-07-1193, GAO Code 320505):
Thank you for allowing the Department of State the opportunity to
comment on GAO's draft report `Border Security: State Plans to Reduce
Passport Execution Fee; transparent Cost Estimates Needed to Support
Future Fee Decisions.
The Department of State concurs with GAO's finding on the need for
rigorous documentation and transparent methods in fully documenting fee
calculations. A new independent contractor team has been retained to
execute the 2007 Cost of Service Study (COSS). The Bureau of Consular
Affairs management has stressed to the independent contractors the
importance of more transparency and better documentation in this year's
study and is committed to working closely with them to ensure the final
document identifies primary methods, calculations, and rationales for
any assumptions made. The Department can arrange for the independent
contractors to meet with GAO auditors to discuss shortcomings in the
2004 COSS and methods to prevent their recurrence. The 2007 COSS is
scheduled to be completed in December 2008.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Jess T. Ford, (202) 512-4128, or fordj@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, John Brummet, Assistant
Director; Robert Owens, Assistant Director; Kathryn H. Bernet; Richard
Cambosos; Joseph Carney; Esther Cha; Peter B. Grinnell; Jeffrey Isaacs;
and Grace Lui made key contributions to this report.
[End of section]
Footnotes:
[1] See the Intelligence Reform and Terrorism Prevention Act of 2004,
Pub. L. No. 108-458, § 7209, 118 Stat. 3638, 3873. Prior to this
legislation, U.S. citizens did not need a passport to enter the United
States if they were traveling from Canada, Mexico, the Caribbean, or
Bermuda.
[2] As of June 2002, the passport execution fee is $30.
[3] State operates 17 domestic passport-issuing offices; 14 are open to
the public for passport execution services. They are located in Aurora,
Colorado; Boston; Chicago; Honolulu; Houston; Los Angeles; Miami; New
Orleans; New York; Norwalk, Connecticut; Philadelphia; San Francisco;
Seattle; and Washington, D.C.
[4] According to USPS, this is the cost directly attributable to
passport execution services, exclusive of any institutional cost
coverage--a contribution to institutional costs that USPS applies to
postal and nonpostal products and services, which covers a reasonable
share of institutional and administrative expenses that cannot be
directly attributable to any one product, but which support the
Service's operations.
[5] See GAO, Telecommunications: GSA Has Accumulated Adequate Funding
for Transition to New Contracts but Needs Cost Estimation Policy, GAO-
07-268 (Washington, D.C.: Feb. 23, 2007).
[6] State's passport offices also determine, through a process called
adjudication, whether the passports should be issued (see app. II for
details on the passport adjudication process).
[7] According to State, the number of active acceptance facilities
changes frequently as new facilities are added and others are dropped.
[8] GAO, Improvements Needed to Strengthen U.S. Passport Fraud
Detection Efforts, GAO-05-477 (Washington, D.C.: May 20, 2005).
[9] GAO, Security of New Passports and Visas Enhanced, but More Needs
to Be Done to Prevent Their Fraudulent Use, GAO-07-1006 (Washington,
D.C.: July 31, 2007).
[10] 22 U.S.C. § 214 states that the Secretary prescribes, by
regulation, fees for the filing and execution of each passport
application.
[11] For example, 22 U.S.C. § 214 states that no passport fee shall be
collected from someone when the Secretary determines the exemption is
justified for humanitarian reasons or law enforcement purposes.
[12] 31 U.S.C. § 902(a)(B).
[13] OMB Circular A-25, "User Fees," establishes guidelines for federal
agencies to use in assessing fees for government services. A user fee
is a fee assessed to consumers of goods or services provided by the
federal government. See GAO, A Glossary of Terms Used in the Federal
Budget Process, GAO-05-734SP (Washington, D.C.: September 2005). OMB
Circular A-25, "User Fees," establishes guidelines for federal agencies
in assessing fees for government services under the broader,
governmentwide user fee statute at 31 U.S.C. § 9701, and under more
agency-specific fee statutes to the extent permitted by law--that is,
the provisions of a more specific user-fee statute, such as 22 U.S.C. §
214, may take precedence over the circular's guidance. See generally,
GAO, Principles of Federal Appropriations Law, vol. IV, 2nd ed., GAO-01-
179SP (Washington, D.C.: March 2001) at 15-154-15-159.
[14] We have reported previously that periodic reviews of all user fees
are important because the reviews can provide agencies, the
administration, and Congress with information on the government's costs
to provide these services. See, GAO, Federal User Fees: Some Agencies
Do Not Comply With Review Requirements, GAO/GGD-98-161 (Washington,
D.C.: June 30, 1998).
[15] See OMB Circ. No. A-25, § 6.d.
[16] Pub. L. No. 108-458, § 7209.
[17] On June 8, 2007, State and DHS announced that, through September
30, 2007, U.S. citizens traveling to Canada, Mexico, the Caribbean, and
Bermuda who had applied for, but not yet received, passports could
nevertheless temporarily enter and depart from the United States by air
with a government-issued photo identification and Department of State
official proof of application for a passport.
[18] See GAO, Department of Homeland Security and Department of State:
Documents Required for Travelers Departing From or Arriving in the
United States at Air Ports-of-Entry From Within the Western Hemisphere,
GAO-07-250R (Washington, D.C.: Dec. 6, 2006).
[19] In July 2007, we reported that State indicated that the exact
implementation date will be determined by a number of factors,
including the progress of DHS and State in implementing WHTI and the
availability of compliant documents. See GAO-07-1006.
[20] These officials told us that it takes between 18 and 20 months to
select the independent contractor, complete the cost of service study,
and implement any new consular fees. In some instances, outside events
will lead to an intermediate cost study, according to consular
officials. For example, in March 2006, State used an independent
contractor to examine the expected impact on passport services costs,
in light of WHTI documentation requirements; however, this study did
not include the impact on execution costs.
[21] See OMB Circ. No. A-25, § 6.1.2.
[22] Total issuances include passport renewals, which generally do not
require an applicant to appear in person.
[23] 22 U.S.C. § 214.
[24] USPS officials told us that USPS intends to be self-supporting of
its operations, and its fees should be sufficient to cover the costs
directly attributable to a particular service (for example, passport
execution) and a reasonable share of institutional and administrative
expenses that cannot be directly attributable to any one product, but
which support its operations. 39 C.F.R. 259.1(b).
[25] The Department of Homeland Security Appropriations Act of 2007
requires that the Secretaries of Homeland Security and State jointly
certify and submit a detailed justification to the Senate and House
Committees on Appropriations on the fee to be charged individuals for
the passport card prior to the card's issuance and certify that the
departments have reached an agreement with USPS on this amount. State
and USPS stated that they are in the process of completing this
certification to Congress that indicates that USPS has agreed to the
proposed execution fee. Pub. L. No. 109-295, § 546, 120 Stat. 1355,
1386-87 (2006).
[26] 71 Fed. Reg. 60, 928 (Oct. 17, 2006).
[27] GAO-07-268.
[28] The contractor used activity-based costing to determine the cost
of consular activities and services in the 2004 study. This methodology
is used to describe the relationship between inputs (resources) and
outputs (products and services) by quantifying how work is performed in
an organization (activities). It used resources and activity drivers to
assign costs to specific products and services.
[29] In State's "Performance and Accountability Report Fiscal Year
2002," the department's external auditor found that State did not have
an effective process to routinely collect managerial cost accounting
information, establish outputs for each responsibility segment, or
allocate all support costs. Until this was done, the external auditor
stated that this information would not be useful as a management
decision-making tool. In 2006, the external auditor concluded that the
department's financial and accounting system was inadequate and could
lead to materially misstating financial information.
[30] 22 U.S.C. § 211a.
[31] 71 Fed. Reg. 60, 928 (Oct. 17, 2006).
[End of section]
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