This is the accessible text file for GAO report number GAO-13-820 
entitled 'Federal User Fees: Fee Design Options and Implications for 
Managing Revenue Instability' which was released on September 30, 2013. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office: 
GAO: 

Report to the Chairman, Committee on the Budget, House of 
Representatives: 

September 2013: 

Federal User Fees: 

Fee Design Options and Implications for Managing Revenue Instability: 

GAO-13-820: 

GAO Highlights: 

Highlights of GAO-13-820, a report to the Chairman, Committee on the 
Budget, House of Representatives. 

Why GAO Did This Study: 

In 2012, the President’s Budget reported nearly $300 billion collected 
in user fees from the public. Given the nation’s fiscal condition it 
is critical that every funding source and spending decision be 
carefully considered and applied to its best use. GAO was asked to 
review oversight opportunities for fees. GAO examined (1) key 
Congressional design decisions and related implications for achieving 
the desired balance between agency flexibility and congressional 
control, (2) issues related to identifying and managing unobligated 
balances in selected fee-funded agencies, and (3) key questions to 
identify potential sources of fee revenue instability and to manage 
any consequences. To do so, GAO analyzed laws, agency documents and 
guidance, literature, and prior GAO work. In addition, GAO interviewed 
officials at three fully fee-funded agencies, which were selected to 
illustrate implications of key design options, unobligated fee 
balances, and approaches for managing revenue instability. GAO also 
validated certain findings with budget subject matter specialists. 

What GAO Found: 

GAO identified six key fee design decisions related to how fees are 
set, used, and reviewed that, in the aggregate, enable Congress to 
design fees that strike the desired balance between agency flexibility 
and congressional control (see figure below). For example, narrowly 
limiting the activities for which fees may be used heightens 
congressional control over the funds; however, doing so can also 
reduce an agency’s flexibility to reallocate resources as needs change 
and may increase administrative costs. Design decisions also have 
program management implications. For example, the frequency of fee 
reviews and adjustments affects the alignment between collections and 
costs. Failing to review fees regularly has sometimes resulted in 
large increases when fees are eventually updated, creating costly 
challenges. Understanding the implications of fee design is important 
to avoid such unintended consequences. 

Figure: Congressional Fee Design Decisions Key to Determining Agency 
Flexibility and Congressional Control: 

[Refer to PDF for image: illustration] 

Setting: 
How are fee rates set? 

Using: 
What Congressional action triggers the use of fee collections? 
What is the period of availabilityfor the collections? 
For what purposes may the collections be used? 
To what degree will Congress limit the amount of collections that can 
be used? 

Reviewing: 
What types of reporting and oversight requirements are in place? 

Source: GAO. 

[End of figure] 

Identifying and understanding unobligated balances—the portion of 
obligational authority that has not yet been obligated—in fee-based 
accounts is challenging. There is no single list of all federal user 
fees, and in general, budget accounts are not labeled in a way that 
indicates whether an account contains fee collections. This makes it 
challenging to identify whether (or which) unobligated balances in an 
account are fee-related. Further, some fee designs include dedicated 
reserves that appear as unobligated balances. Despite these 
challenges, funding a program or agency through fees does not 
eliminate the need for careful monitoring and managing of unobligated 
balances. 

Considering key questions about costs and collections can enable 
Congress and agencies to identify and manage potential fluctuations in 
fee collections–known as revenue instability–as well as potential 
consequences. Importantly, decision makers need to understand 
potential vulnerabilities in the context of a fee’s design. Examples 
of such questions include: what is the risk that fee revenue 
instability will affect a program? What analysis is needed to 
understand factors such as cost drivers and elements that influence 
collections? Are there data limitations that could add uncertainty to 
collection estimates? Can the agency quickly respond to changing 
costs? What factors affect the timing and pattern of collections and 
spending? If revenue instability is a function of a fee’s design, the 
most sustainable solutions are often found by realigning costs and 
collections. In other cases, maintaining a reserve can help address 
sudden or temporary fluctuations in collections and/or costs and can 
minimize the effect of revenue instability on operations. 

What GAO Recommends: 

GAO is not making any new recommendations in this report. GAO 
previously recommended that the Office of Management and Budget (OMB) 
review fee-funded programs and identify opportunities to improve their 
design and better align fee collections with program costs. OMB has 
not yet taken action on this recommendation. Two of the three selected 
fully fee-funded agencies provided technical comments which were 
incorporated as appropriate. 

View [hyperlink, http://www.gao.gov/products/GAO-13-820]. For more 
information, contact Susan J. Irving at (202) 512-6806 or 
irvings@gao.gov or Jacqueline M. Nowicki at (617) 788-0580 or 
nowickij@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Fee Design Affects the Balance between Congressional Control and 
Agency Flexibility and Has Implications for Program Management: 

Agencies Manage Unobligated Balances Differently Depending on Whether 
They Represent Operating Reserves or Reflect the Timing of Collections 
and Outlays: 

Considering Key Questions About Costs and Collections Can Enable 
Congress and Agencies to Identify and Manage Revenue Instability: 

Concluding Observations: 

Agency Comments & Our Evaluation: 

Appendix I: Key Fee Design Decisions Allow for Agency Flexibility or 
Congressional Control: 

Appendix II: Key Questions about Costs and Collections to Enable 
Congress and Agencies to Identify and Manage Revenue Instability: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Three Agencies Selected to Illustrate Reasons for Unobligated 
Balances in Fee Accounts: 

Table 2: Unobligated Balances of Selected Fee-Funded Agencies, Fiscal 
Year 2012: 

Table 3: Collections, Disbursements, and Set-Asides for Universal 
Service Fund Programs, 2012: 

Figures: 

Figure 1: Key Fee Design Decisions Allow for Agency Flexibility or 
Congressional Control. 

Figure 2: Key Fee Design Options: Setting: 

Figure 3: Key Fee Design Options: Using: 

Figure 4: Key Fee Design Options: Reviewing: 

Abbreviations: 

AIA: Leahy-Smith America Invents Act of 2011: 

APHIS: Animal and Plant Health Inspection Service: 

AQI: Agricultural Quarantine Inspection: 

CBP: Customs and Border Protection: 

CBO: Congressional Budget Office: 

CFO Act: Chief Financial Officers Act of 1990: 

COBRA: Consolidated Omnibus Reconciliation Act of 1985: 

FCC: Federal Communications Commission: 

IOAA: Independent Offices Appropriation Act of 1952: 

OMB: Office of Management and Budget: 

PEF: Public Enterprise Fund: 

Mint: United States Mint: 

USAC: Universal Service Administrative Company: 

USCIS: United States Citizenship and Immigration Service: 

USF: Universal Service Fund: 

USPTO: United States Patent and Trademark Office: 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

September 30, 2013: 

The Honorable Paul Ryan: 
Chairman: 
Committee on the Budget: 
House of Representatives: 

Dear Mr. Chairman: 

In 2012, the federal government collected nearly $300 billion in user 
fees from the public.[Footnote 1] Given the nation's fiscal condition, 
it is critical that every funding source and spending decision be 
carefully considered and applied to its best use.[Footnote 2] As funds 
become increasingly scarce and new policy priorities emerge, 
policymakers have demonstrated interest in user fees as a means of 
financing new and existing services. Well designed fees can fund 
programs or activities that benefit an identifiable population beyond 
what is normally provided to the public, while promoting economic 
efficiency and equity. 

You asked us to provide information on the key appropriations 
frameworks used to design federal user fees and charges, on the 
unobligated balances in selected fee accounts--specifically, the 
portion of obligational authority that has not yet been obligated--and 
on some key questions Congress and agencies could consider when 
overseeing and managing fee revenue instability. Our objectives were 
(1) to identify the key Congressional design decisions and related 
implications for achieving the desired balance between agency 
flexibility and Congressional control, (2) to examine issues related 
to identifying and managing unobligated balances in selected fee-
funded agencies, and (3) to identify key questions to identify 
potential sources of fee revenue instability and manage any 
consequences. 

To identify the key Congressional design decisions for achieving the 
desired levels of agency flexibility and Congressional control, we 
reviewed our prior work, including Federal User Fees: A Design Guide, 
[Footnote 3] and selected user fee statutory authorities and 
regulations and met with the Congressional Budget Office. We also 
reviewed relevant user fee policies contained in the Office of 
Management and Budget's (OMB) Circular A-25 and contained in the Chief 
Financial Officers Act of 1990 (CFO Act).[Footnote 4] 

To review unobligated balances derived from fees, we reviewed fiscal 
year 2007 through 2011 unobligated balance data from OMB's MAX 
database, agency congressional justifications, and agency financial 
documents. We also reviewed data from our 2011 survey of fee 
collections in agencies covered by the CFO Act and OMB Circular A-25 
that we collected for our annual review of program duplication, 
overlap, and fragmentation.[Footnote 5] In addition, we reviewed 
congressional budget justifications and financial reports from 
agencies not covered by the CFO Act. We reviewed the amount of fees 
collected and the statutory authorities governing collection and use 
of fees. Based on this, we selected three fully fee-funded agencies--
the United States Mint (the Mint) in the Department of the Treasury, 
the United States Patent and Trademark Office (USPTO) in the 
Department of Commerce, and the Federal Communications Commission 
(FCC). Although the results from these three agencies may not be 
generalized to all fee-funded agencies, the selection of these 
agencies was appropriate to illustrate implications of key design 
options, of fee unobligated balances, and of approaches for managing 
revenue instability. For each of these three agencies, we reviewed 
agency annual reports and financial statements; we also reviewed 
agency fee collection procedures, policies, and data. We spoke with 
agency officials about their management of fee collections. To assess 
the reliability of OMB's MAX data, and data on unobligated balances 
that we received from FCC, we reviewed available documentation and 
followed up as needed to resolve any questions. Based on our review, 
we found these data sufficiently reliable for the purposes of our 
report. 

To develop the key questions for managing revenue instability, we 
reviewed our past work on federal user fees--including our user fee 
design guide and reviews of specific fees--and considered our current 
audit work in the three selected agencies noted above. We also 
reviewed literature from governmental and nongovernmental 
organizations to identify common principles for managing reserve 
funds. Specifically, we used published guidance from a state 
government, from professional associations, and from a consulting firm 
that described practices in managing reserve funds; these sources were 
selected from a literature review, based upon their applicability to a 
federal fee-funded framework. Once we identified common themes in fee-
funded programs that were experiencing revenue instability, and 
identified leading practices for creating and managing reserve funds, 
we developed a set of questions that agency managers and Congress 
could use to identify and manage fee revenue instability. We validated 
our key questions with subject matter specialists selected for their 
fee program expertise in both the public and private sectors, as well 
as with relevant officials at USPTO, the Mint, the FCC, and OMB. 

We performed our work from August 2012 to September 2013 in accordance 
with generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings 
and conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Background: 

In general, a user fee is related to some voluntary transaction or 
request for government goods or services, above and beyond what is 
normally available to the public (such as a national park entrance fee 
or a license to operate a radio station). We have previously reported 
on the characteristics (equity, efficiency, revenue adequacy, and 
administrative burden) that can influence the effectiveness of user 
fees to fund activities that provide benefits to identifiable users. 
[Footnote 6] 

User fee designs can vary widely and, in general, are governed by two 
authorities: an authority to charge fees, and an authority to use fee 
collections. Agencies derive their authority to charge fees either 
from the Independent Offices Appropriation Act of 1952 (IOAA) or from 
a specific statutory authority.[Footnote 7] Overall, fees established 
under the IOAA must be (1) fair and (2) based on costs to the 
government, on the value of the service or thing to the recipient, on 
public policy, or on interest serviced. Agencies that established fees 
under the IOAA, however, are only authorized to charge the fee; a 
separate authority is required to use the fee collections. However, 
Congress has frequently provided agencies with the authority via 
authorizing or appropriations legislation both to collect fees and to 
use the collections. In these specific fee authorities, Congress 
determines the degree of flexibility to make fee design and 
implementation decisions that will be retained or delegated to the 
agency. 

Regardless how the imposition of fee collections is authorized, 
Congressional action is required for agencies to use those 
collections. Congress may provide agencies with the authority to 
collect and use a fee within authorizing legislation, within 
appropriations legislation, or within both.[Footnote 8] For agencies 
whose fee collections are available for obligation on a no-year or 
multi-year authority basis, unobligated balances can be carried 
forward from year to year. To illustrate the reasons why such balances 
exist in fee-related programs, we selected three fee-funded agencies 
with unobligated balances: the United States Mint (Mint), the United 
States Patent and Trademark Office (USPTO), and the Federal 
Communications Commission (FCC). 

Table 1: Three Agencies Selected to Illustrate Reasons for Unobligated 
Balances in Fee Accounts: 

The United States Patent and Trademark Office (USPTO): 
USPTO is a component of the Department of Commerce and is charged with 
examining applications and granting patents to new, useful, and non-
obvious inventions and with reviewing and registering marks--
trademarks, service marks, certification marks, and collective 
membership marks. USPTO is fully funded by fee collections paid by 
applicants and owners applying for and maintaining patents or 
trademarks. The fees correspond to products and services at different 
points in patent and trademark application and examination processes 
and lifecycles. The Leahy-Smith America Invents Act (AIA)[A] of 2011 
provides USPTO the authority to set all fee amounts through the 
regulatory process. USPTO is authorized to spend the fee amounts 
collected each year, up to the amount appropriated by Congress. The 
AIA also created a special account called the Patent and Trademark Fee 
Reserve Fund, referred to as the FRF by USPTO. Any USPTO collections 
in excess of the amounts annually appropriated by Congress are 
deposited into this fund. The USPTO can access money from the Patent 
and Trademark Fee Reserve Fund only to the extent appropriated by 
Congress. We reported in 2012 that 90 percent of USPTO's revenues came 
from patent fees, and the remainder of revenue came from trademark 
fees. 

The United States Mint (Mint): 
The Mint, a component of the Department of the Treasury, manufactures 
and distributes coins and medals. It provides circulating coins to the 
Federal Reserve for distribution to banks, and prepares and 
distributes numismatic items, including investment-grade bullion coins 
and high-quality versions of circulating coinage, precious metal 
coins, commemorative coins, medals, and sets. It is also responsible 
for safeguarding noncirculating coins and medals and the precious 
metals used to make them. In 1995, Congress created the United States 
Mint Public Enterprise Fund (PEF), which accounts for all receipts and 
expenses related to production and sale of numismatic items and 
circulating coinage, as well as protection activities. Since 
establishment of the PEF, the Mint has operated without direct 
appropriations, and is entirely funded by its collections. Any amounts 
in the PEF that are determined by the Mint to be in excess of the 
amount required for Mint expenses are transferred to the Treasury's 
General Fund. From fiscal years 2006 to 2010 the Mint returned 
collections between $388 million and $825 million annually to the 
General Fund. In fiscal year 2012 the Mint collected $3.4 billion in 
revenue from the sale of circulating and noncirculating items. 
Numismatic coins, including gold and silver bullion coins, generated 
approximately 86 percent of the Mint's revenues; 
sales of circulating coins generated 14 percent. 

The Federal Communications Commission (FCC): 
The FCC is an independent regulatory agency governed by five 
commissioners appointed by the President and confirmed by the Senate. 
It is charged with regulating interstate and international 
communications by radio, television, wire, satellite, and cable, and 
with regulating telecommunications services for all people of the 
United States. The FCC is authorized by Section 9 of the 
Communications Act of 1934 (as amended) to assess and collect 
regulatory fees to recover the regulatory costs associated with the 
Commission's enforcement, policy-and rulemaking, user information, and 
international activities;[B] it is subject to annual Congressional 
appropriations that specify the amount of regulatory fees it may 
collect each year. In addition, the FCC manages the Universal Service 
Fund (USF), which was created by the Telecommunications Act of 
1996.[C] This fund is administered by the Universal Service 
Administrative Company (USAC), an independent, not-for-profit 
corporation designated as the administrator of the federal USF by the 
FCC, and financed by mandatory contributions from U.S. 
telecommunications service providers and other providers of 
telecommunications. The USAC provides USF funds directly to service 
providers to defray the cost of serving customers in high cost and 
rural areas, and of serving customers who have low incomes. In 
addition, USF funds provide financial support to assist schools, 
libraries, and health care providers in purchasing telecommunications 
services, advanced telecommunications and information services, and 
Internet access. In fiscal 2012, the FCC collected $340 million in the 
form of regulatory fees which were deposited into the FCC's salaries 
and expense account, and $9.3 billion in the form of contributions for 
the USF, which were deposited in the USF account administered by 
USAC[D]. 

Source: USPTO, the Mint, and FCC. 

Notes: 

[A] Leahy-Smith America Invents Act of 2011, P.L. 112-29. § 10 (Sept. 
16, 2011). 

[B] Pub. L. No. 73-416, section 9 is codified at 47 U.S.C. § 159. FCC 
also collects application fees from companies for activities such as 
license applications, renewals or requests for modification. These 
fees are deposited in the General Fund of the Treasury and cannot be 
used by the FCC. 47 U.S.C. § 158(e). 

[C] Pub. L. No. 104-104, codified at 47 U.S.C. § 254. 

[D] The remaining revenue collected was from contributions to the 
Telecommunications Relay Service Fund, and proceeds from radio 
spectrum auctions and the North American Numbering Plan. 

[End of table] 

Fee Design Affects the Balance between Congressional Control and 
Agency Flexibility and Has Implications for Program Management: 

Congress Delegates or Retains Varying Degrees of Decision-Making 
Authority Depending on How It Designs Key Aspects of User Fees: 

When designing fees, Congress is presented with a number of decisions 
regarding how a fee will be set, collected, used, and reviewed. At 
each decision point, Congress can delegate some flexibility to 
agencies, or it can retain that control. In the aggregate, these 
decisions enable Congress to design a fee that strikes its desired 
balance between agency flexibility and Congressional control. It is 
important to note that regardless of how Congress designs a fee, it 
always retains oversight over the fee and over the goods and services 
the fee supports. Figure 1 identifies six key fee design decisions for 
Congress that have a direct bearing on how much control Congress will 
retain and how much flexibility will be delegated to an agency. 
[Footnote 9] For each design question, we have identified at least two 
options, one granting the agency more flexibility and the other 
retaining more control for Congress. In some cases, Congress selects 
an option that falls in between the two options shown in figure 1. For 
example, Congress can grant an agency the authority to set some of its 
fee rates by regulation while setting other fees, or requirements for 
any of the rates such as provisions for exemptions, waivers, and caps, 
in statute. 

Figure 1: Key Fee Design Decisions Allow for Agency Flexibility or 
Congressional Control. 

[Refer to PDF for image: interactive graphic] 

Directions: Mouse over entries in the table below for additional 
information. 

For full text version of this graphic, go to appendix I. 

Source: GAO. 

[End of figure] 

Fee Design Options Have Implications for Fee Program Management: 

Congress's fee design decisions have implications for fee program 
management beyond striking the desired balance between agency 
flexibility and Congressional control. Below, we discuss in more 
detail the key fee design options introduced in figure 1--setting, 
using, and reviewing--and the implications that flow from decisions 
about each design option. Understanding these implications, especially 
in the context of Congress's own priorities and goals, can help to 
avoid unintended consequences in fee design. 

Implications of Fee Design: Setting: 

Figure 2 shows the key design options related to how fee rates are set. 

Figure 2: Key Fee Design Options: Setting: 

[Refer to PDF for image: illustration] 

Source: GAO. 

Note: See interactive figure on page 8 for more details. 

[End of figure] 

The frequency of fee review and adjustment, and the ability to keep 
fees and costs aligned, have a number of potential implications for 
agencies. The CFO Act[Footnote 10] requires federal agencies to review 
user fees biennially and OMB's Circular A-25 directs agencies to set 
fees to recover all direct and indirect costs to the federal 
government of a good or service. We have previously reported that the 
failure to review fees regularly can result in large fee increases 
when the fees are eventually updated, which creates costly challenges. 
[Footnote 11] For example, the U.S. Citizenship and Immigration 
Service (USCIS) is authorized to charge fees for the adjudication of 
immigration and naturalization applications. Although USCIS has the 
authority to adjust its fees through the regulatory process, in 2007 
it conducted its first comprehensive fee review in nine years. 
[Footnote 12] As a result, USCIS had to increase fees by an average of 
86 percent to align them with its costs.[Footnote 13] During the month 
before the fee increase took effect, the number of applications 
received increased an unprecedented 100 percent over the prior month, 
far outpacing the agency's processing capacity. This contributed to a 
backlog of 1.47 million applications and unplanned costs to secure 
additional facilities to store these applications. In 2012, we found 
that prior to the passage of the AIA, fees generating over 80 percent 
of the USPTO's revenues were set in statute.[Footnote 14] This limited 
the USPTO's ability to adjust fee rates as costs changed. Other than 
periodic increases to reflect inflation, these statutorily-set fees 
had not been reviewed or adjusted for the 7 years before 2012. 

In contrast, there are other examples of intentional deviation from 
cost-fee alignment. In some cases, a less precise alignment between 
costs and each fee is chosen in order to achieve a policy or 
administrative goal. A fully fee-funded agency covers program costs in 
the aggregate, but not necessarily on a fee-by-fee basis. For example, 
within the suite of USCIS's immigration and naturalization fees, 
Congress directed that fees providing adjudication and naturalization 
services be set to ensure recovery of full costs of providing such 
services. This includes the costs of similar services provided without 
charge to asylum applicants or other immigrants.[Footnote 15] As a 
result, the costs of processing applicants granted the fee waivers are 
distributed to other fee payers as a flat-rate surcharge. However, 
unintentional misalignment between fees and costs can increase the 
demand for more expensive services, because fee payers do not bear the 
agency's total cost of the service. This can result in some fee payers 
subsidizing others with no public policy purpose. 

We have found over the years that fees set through the regulatory 
process may be updated more frequently than fees set in statute: 
therefore, they may more consistently align collections with costs. 
[Footnote 16] However, we have also previously reported that, in the 
past, stakeholders expressed concern about the agency incentive to 
inflate costs or the lack of incentive to restrain costs.[Footnote 17] 
This risk may be reduced, and tools for Congressional and stakeholder 
oversight may be enhanced, if the agency clearly reports its methods 
for setting the fee, including an accounting of program costs and the 
assumptions it uses to project future program costs and fee 
collections. Further, federal agencies must also follow guidelines 
regarding their cost accounting information, providing some safeguards 
against artificial inflation of program costs.[Footnote 18] 

Implications of Fee Design: Using: 

Figure 3 shows the key design options related to an agency's access to 
and use of its fee collections. 

Figure 3: Key Fee Design Options: Using: 

[Refer to PDF for image: illustration] 

Source: GAO. 

Note: See interactive figure on page 8 for more details. 

[End of figure] 

Congressional decisions about the collection and use of a fee will 
determine how the fee will be considered within the context of all 
federal budgetary resources. Fee collections are classified into 3 
categories: offsetting collections, offsetting receipts, or 
governmental receipts.[Footnote 19] As noted in figure 1, fees 
classified as offsetting collections can provide agencies with more 
flexibility because they are generally available for agency obligation 
without an additional annual appropriation. In contrast, offsetting 
receipts and governmental receipts offer greater Congressional control 
because, generally, additional Congressional action is needed before 
the collections are available for agency obligation. Regular 
Congressional review--whether through reauthorization or the annual 
appropriations process--offers opportunities to exercise Congressional 
oversight. Regardless of the specific classification, all fees remain 
subject to Congressional oversight at any point in time. 

The authorities under which an agency may collect and use fees can be 
affected by different legislative decisions made over time, resulting 
in increased complexity and potentially significant intended or 
unintended effects. For example, a program's authorizing legislation 
may grant the agency the authority to collect fees but not provide the 
agency the authority to spend the fees. As a result, any later enacted 
legislation to allow the agency to spend the fees may not be 
consistent with the authorizing legislation, contributing to increased 
complexity. 

Congress also determines the period of time the collections are 
available for obligation, the purposes for which they may be used, and 
the amount of collections that are available to the agency--thereby 
determining how much flexibility the agency has in managing its fee 
collections. 

Time. When Congress limits the period of availability of funds, it 
retains greater control over when the funds will be used. When 
Congress provides an agency unlimited access to its fee collections 
(that is, makes the fee collections available until they are expended) 
agencies have greater flexibility and can carry over unobligated 
amounts to future fiscal years. This enables agencies to align fees 
and costs over a longer horizon and to better prepare for, and adjust 
to, fluctuations in collections and costs. Carrying over unobligated 
balances from year to year, if an agency has multi-or no-year fee 
collections, is one way a reserve can be established. Set aside or 
reserved funds can sustain operations in the event of a sharp downturn 
in collections or increase in costs. We have previously found that, 
for programs where fees are expected to cover all or most program 
costs, and especially when program costs do not necessarily decline 
with a drop in fee collections, a reserve is important.[Footnote 20] 
(Later in this report, we will discuss reserve funds at fee-funded 
agencies.) 

Purpose. Congress can also specify limits on the activities or 
purposes for which an agency may use fee collections. Congress has 
granted some agencies broad authority to use some of the fees they 
collect for any program purpose, but has limited the use of other fees 
to specific sets of activities. Such restrictions may benefit 
stakeholders and increase Congressional control. For example, 
according to USPTO officials, patent fee collections can only be used 
for patent processes, and trademark fee collections can only be used 
for trademark processes, as well as the proportionate share of the 
administrative costs of the agency. USPTO officials stated that patent 
and trademark customers are typically two distinct groups and this 
division helps to assure stakeholders that their fees are supporting 
the activities that affect them directly. 

On the other hand, statutes that too narrowly limit how fees can be 
used reduces both Congress's flexibility to make resource decisions 
and an agency's flexibility to reallocate resources. This can make it 
more difficult to pursue public policy goals or respond to changing 
program needs, such as when the activities intended to achieve fee-
funded purposes change. For example, Customs and Border Protection's 
(CBP) Merchandise Processing Fee is authorized to fund only a specific 
set of activities. However, after the events of September 11, 2001, as 
the program's focus shifted towards security, other activities (such 
as screening and inspecting conveyances and inspecting vessels and 
containers) became part of the program. While CBP views these 
activities as part of the merchandise processing service, they are not 
included in the set of authorized activities that may be funded by the 
fee collections; the result is a misalignment between the services 
provided and the authorized uses for the fees. 

Narrowing the authorized uses of a fee in statute can also increase 
agency administrative costs. For example, the narrower the subset of 
activities for which collections can be used, the more detailed and 
potentially expensive the required cost accounting. Given these 
challenges, more frequent reviews and updated fee schedules become 
even more important to ensure that the authorized purposes remain 
aligned with program needs. For example, in 2008 we reported that some 
CBP inspection fees can pay for only some inspection activities and 
only under certain circumstances. In order to be reimbursed for time 
spent on authorized activities for various fees, CBP must track the 
time spent on these activities for several of its inspection fees--
including customs, immigration, and agriculture activities.[Footnote 
21] In early 2007, to help address a concern that timekeeping was 
taking time away from officers' inspection duties, CBP implemented a 
standard process for tracking the time dedicated for these activities. 
However, at one port we visited for the 2008 report, on each shift, a 
full-time CBP officer was assigned solely to tracking staff time. In 
2013, we found that CBP still does not capture all of the time spent 
on agriculture activities in its Cost Management Information System--
the system in which CBP tracks its activities and determines personnel 
costs.[Footnote 22] 

Amount. Congress determines the specific level of budget authority 
provided for a program's activities by limiting the amount of fee 
collections that can be collected or used by the agency; however, 
these limits can also pose challenges for the agency. For example, 
when the agency is not authorized to retain or use all of its fee 
collections and no other funding source is provided, the agency may 
not have the funds available to produce the goods or services that it 
has promised, or that it is required by law to provide. In a 2012 
report, we found that in USPTO's case, fees must be designed to 
recover costs of the related activities in aggregate as directed by 
the AIA.[Footnote 23] However, with each set of application fees 
collected, USPTO takes on an additional work activity. In some years 
Congress chose not to make available to USPTO the full amount of its 
collections to support that work.[Footnote 24] USPTO officials stated 
that, prior to the passage of the AIA, this contributed to USPTO's 
inability to hire sufficient examiners to keep up with USPTO's 
workload and invest in needed technology systems to modernize the 
USPTO. In 2012, we reported a backlog of over 640,000 patent 
applications.[Footnote 25] 

Limiting the availability of fee collections may also have future 
budgetary implications for Congress. For example, as mentioned above, 
USPTO collections in excess of appropriations are deposited into the 
Patent and Trademark Fee Reserve Fund and are not available to the 
agency without additional Congressional action. If these amounts are 
made available in future years rather than in the year the fees were 
collected, the action will count or "score" as new budget authority 
against discretionary spending limits in place in a given future 
fiscal year, and will not offset against budget authority made 
available that year. The effect of this scoring may make the fee-
funded activities appear more costly and can make granting access to 
previously collected amounts a less desirable option for Congressional 
fee designers. The outcome can lead to the buildup of unavailable and 
unobligated balances. 

Implications of Fee Design: Reviewing: 

Figure 4 shows the design decisions related to the kinds of specific 
reporting or review requirements Congress may wish to impose, beyond 
the standard biennial review requirement in the CFO Act. 

Figure 4: Key Fee Design Options: Reviewing: 

[Refer to PDF for image: illustration] 

Source: GAO. 

Note: See interactive figure on page 8 for more details. 

[End of figure] 

When designing a fee, Congress must balance granting more autonomy to 
an agency (by requiring no additional reporting and review beyond that 
required in the CFO Act) with stronger control for itself (via 
additional reporting and oversight requirements over and above the CFO 
Act requirements). When a fee's authorizing statute does not specify 
review and reporting requirements or if a fee derives its statutory 
authority from the Independent Offices Appropriation Act of 1952, 
[Footnote 26] the CFO Act requires and OMB Circular No. A-25 directs 
agencies to review their fees biennially and to recommend fee 
adjustments as appropriate. In addition, OMB Circular No. A-25 directs 
agencies to include non-fee-funded programs in these reviews to 
determine whether fees should be initiated for government services or 
goods for which fees are not currently charged. Further, if imposing 
such fees is prohibited or restricted by law, agencies are to 
recommend legislative changes as appropriate. Moreover, OMB Circular 
No. A-25 directs agencies to discuss the results of these reviews and 
any resulting proposals, such as adjustments to fee rates, in annual 
reports, such as performance and accountability reports. However, our 
2011 survey of the 24 agencies covered by the CFO Act and OMB Circular 
No. A-25 suggested that agencies are reviewing more fees than they are 
discussing in their annual reports.[Footnote 27] While these reviews 
may provide information for agency management and decision making, the 
extent to which this information is being shared with Congressional 
decision makers or other stakeholders appears far more limited. In 
2012, we concluded that OMB should do more to ensure that agencies 
comply with requirements and recommended that OMB use its budget 
reviews to ensure agencies are adhering to this guidance. As of March 
2013, OMB had not taken action on this recommendation.[Footnote 28] 

Additional reporting requirements can further increase information 
available to Congress about fee programs. We previously concluded that 
whether fee rates are set by the agency in regulation or by Congress 
in statute, agencies must substantively review and report on all cost-
based fees regularly to ensure decision makers have complete 
information about program costs and activities.[Footnote 29] A variety 
of reporting requirements can be included in appropriations, 
authorizing legislation, or committee reports. For example, AIA 
requires USPTO to report on the implementation of the AIA, which 
includes fee-setting authority. In addition, USPTO's 2012 
appropriations required a spending plan to access funds in the Patent 
and Trademark Fee Reserve Fund. Similarly, the Mint is required to 
report to Congress biennially on the status of coin production costs, 
and annually on the operation of the Mint's Numismatic Public 
Enterprise Fund, as well as provide quarterly financial reports on the 
Funds. 

Reporting requirements sometimes contain requirements to include 
stakeholders during the course of reviews. For example, in accordance 
with the AIA, USPTO is required to work with the relevant public 
advisory committee to hold public hearings on fee-setting, to consider 
and analyze any comments, advice or recommendations from the advisory 
committee, and to publish proposed and final rules in the Federal 
Register, including the purpose, rationale, and possible benefits 
resulting from the change. Our previous work has found that including 
stakeholders in the fee review process can increase success for 
substantive, two-way communication and understanding/buy-in on the fee 
setting process,[Footnote 30] and that effectively communicating with 
stakeholders involves sharing relevant analysis and information as 
well as providing opportunities for stakeholder input.[Footnote 31] 

Agencies Manage Unobligated Balances Differently Depending on Whether 
They Represent Operating Reserves or Reflect the Timing of Collections 
and Outlays: 

Identifying and understanding unobligated balances in fee-based 
accounts is challenging. There is no single list of all federal user 
fees. In addition, although some fees are deposited into an account 
containing only fee collections, others are deposited into accounts 
that also contain other types of funds such as general fund 
appropriations. In general, budget accounts are not labeled in a way 
that indicates whether the account contains fee collections. This also 
makes it challenging to identify which unobligated balances in an 
account are related to fee collections. Further, as discussed below, 
some fee designs include dedicated reserves that appear as unobligated 
balances. Despite these challenges, unobligated balances must be 
carefully monitored in agencies funded by fee collections. 

Table 2: Unobligated Balances of Selected Fee-Funded Agencies, Fiscal 
Year 2012: 

Unobligated balance; 
USPTO: $238 million; 
Mint: $694 million; 
FCC: $3.2 billion. 

Total budget authority; 
USPTO: $2.4 billion; 
Mint: $3.4 billion; 
FCC: $10.5 billion. 

Unobligated balances as a percentage of budget authority; 
USPTO: 9.9%; 
Mint: 20.4%; 
FCC: 30.5%. 

Source: GAO review of agency financial reports and GAO calculation. 

[End of table] 

The three fee-funded agencies took different approaches to managing 
their unobligated balances. At the end of the fiscal years 2009 
through 2012, USPTO, the Mint, and the FCC each reported large 
unobligated balances related to fee collections (see table 2). The 
origin of each agency's unobligated balance, and how each agency 
manages its unobligated balance, is related in part to how the fees 
were designed by Congress and the agencies. 

U.S. Patent and Trademark Office's Unobligated Balances are a Long-
term Strategy to Manage Revenue Instability: 

USPTO's $238 million unobligated balance at the end of fiscal year 
2012 represents the agency's operating reserve. USPTO officials said 
that during the economic recession in fiscal year 2009, the agency 
experienced serious operational challenges as a result of a decline in 
the number of applications and patent renewals - and corresponding fee 
collections.[Footnote 32] When collections are less than costs, USPTO 
faces a situation which impairs its ability to maintain operations, 
hire sufficient examiners, and invest in technology to handle a large 
backlog (approximately 591,000 patent applications as of July 2013). 
In 2010, to smooth the impact of economic downturns on operations and 
to help address funding uncertainty, USPTO announced its intention to 
designate a portion of Congress's annual appropriations as an 
operating reserve that could be carried over for use in future years. 
This reserve appears in USPTO's financial statements and OMB's budget 
database as an unobligated balance. USPTO officials said they do not 
intend to obligate these funds unless needed, and therefore USPTO will 
likely report unobligated balances every year. This operating reserve 
is separate and distinct from the Patent and Trademark Fee Reserve 
Fund established by the AIA, which is only available to USPTO to the 
extent appropriated by Congress and currently has no balance.[Footnote 
33] 

In its patent fee rulemaking process, USPTO established and 
communicated a strategy to its stakeholders for developing the 
agency's patent operating reserve. In its proposed and final rules, 
USPTO included information on the intended size and funding strategy 
for the reserve. While developing this strategy, USPTO also sought and 
incorporated stakeholder input. For example, in response to comments 
from the public and from the Patent Public Advisory Committee, USPTO 
decided to slow the reserve's growth and to reduce the amount of fees 
designated for the reserve beginning in fiscal year 2013. In fiscal 
year 2013, USPTO issued a final rule reflective of this input and 
increased its patent fees, in part to fund a 3 month operating reserve 
(approximately $700 million) by fiscal year 2018. Specifically, the 
final rule adopted fees set at a lower amount compared to the proposed 
rule. 

To determine the size of its reserve, USPTO used a risk assessment 
process to inform its decisionmaking, analyzing its operations and 
drawing on the reserve guidance from other organizations.[Footnote 34] 
The two main factors that contribute to instability in patent 
operations are increases in costs and decreases in fee collections. 
Costs of patent operations consist mostly of the expense of patent 
examinations, and also include expenditures for information technology 
and general support costs. Collections consist of fees paid by patent 
applicants at different stages of the examination process and 
throughout the life of the patent: they vary with the speed of the 
application process (which is a function of the number of examiners 
available), and with economic conditions both in the United States and 
in other countries. USPTO plans to assess the patent operating reserve 
balance against its target balance annually and, at least every 2 
years, plans to evaluate whether the target balance is sufficient to 
meet USPTO's needs. According to agency officials, a similar reserve 
is planned for trademark fees, but the analysis to determine the 
appropriate size of the reserve is on-going; USPTO officials expect 
this analysis to be completed in fiscal year 2014. 

The Mint's Unobligated Balance Represents a Reserve to Address Policy 
Changes, Collection Declines and Increased Costs: 

The Mint's unobligated balance is the source of the Mint's operating 
reserves, established in 2011 in response to operational challenges. 
Specifically, Mint officials said that they regularly review their 
open obligations, liabilities, projected earnings, and financial risks 
which include not having sufficient cash to meet required obligations, 
or sufficient resources needed to fulfill the mission appropriately. 
The Mint has had to take into account various factors, including (1) a 
decline in the Federal Reserve's demand for circulating coins due to 
the recession, (2) the Treasury Secretary's decision to suspend 
minting and issuing of $1 coins for circulation, (3) an increase in 
metal prices causing the Mint to lose money on the production of one-
cent and 5-cent coins, (4) delays in release of numismatic products 
for sale, (5) decreasing demand for the Mint's numismatic products, 
and (6) increasing demand for the cash-intensive silver bullion coin 
program. 

In response to these factors, Mint officials exercised their authority 
to suspend transfers of collections from the Mint's circulating coin 
revenues to the General Fund and, starting in fiscal year 2011, 
reserves were created from the unobligated balance as follows: 

* Seignorage Reserve ($377.5 million as of August 2013): established 
to approximate one year's worth of circulating coinage operating 
expenses. This is to ensure continued delivery of coinage to the 
Federal Reserve Banks until other mitigating decisions or strategies 
are implemented to offset any effects that are impairing the continued 
financing of circulating operations: 

* Numismatic Reserve ($50 million as of August 2013): established to 
mitigate the risk of loss in revenue in sufficient amounts to cover 
cost should demand significantly decrease. The reserve represents the 
availability of funds for ongoing funding of approximately one year's 
funding of the Mint's protection activity. The protection activity is 
a cost without revenue to offset, and presents the most significant 
cost to fully cover should demand significantly decrease. 

Mint officials said they will to continue to monitor Mint operations 
and the operating environment, including changes in customer demand, 
costs of inputs, administration policies, natural or man-made 
disasters, and critical investment needs, to determine if the reserves 
are at suitable levels for their purposes. These target levels were 
set at a level meant to reflect the needs and/or the risks that 
require mitigation over the next 2-5 years. 

Federal Communications Commission's Unobligated Balance Largely 
Reflects the Timing of Collections and Outlays: 

Both FCC's salaries and expenses account, which contains regulatory 
fee collections, and USAC's USF contribution account had unobligated 
balances at the end of fiscal year 2012, with the USF account, 
[Footnote 35] which includes Telecommunications Relay Service funds, 
containing much larger unobligated balances (approximately $3 billion) 
than the salaries and expenses account ($18 million). According to FCC 
officials, $10.4 million in unobligated funds in the salaries and 
expenses account is no-year funding and will be reapportioned in 
fiscal year 2013. Of the remaining $7.6 million, FCC officials said 
that $7.1 million will remain unobligated until FCC receives OMB and 
Congressional approval for special projects, and $500,000 relates to 
expired reimbursable authority. According to FCC officials, the 
salaries and expenses account's unobligated balances were regulatory 
fees associated with expired contracts or Recovery Act funds 
deobligated because contracts had not been signed. 

Since fiscal year 2008, the FCC has not been provided access to its 
regulatory fee collections in excess of its annual appropriation. 
FCC's annual appropriation permits the agency to assess and collect 
regulatory fees up to a specified amount. This amount remains 
available until expended.[Footnote 36] With respect to USF 
contributions, FCC officials reported that the approximately $3 
billion in unobligated balances from USAC's USF amounts[Footnote 37] 
was largely the result of the timing of collections and obligations 
for the four programs funded by USF contributions: (1) the Connect 
America Fund (also known as the High Cost program) for rural areas, 
(2) the Lifeline program (for low-income consumers), (3) the Schools 
and Libraries (or E-rate) program, and (4) the Rural Health Care 
program.[Footnote 38] A significant length of time can lapse between 
contribution collections and the funding commitment. In the E-rate and 
Rural Health Care programs, the USAC does not record USF amounts as 
committed until the application is approved. 

In addition to these timing issues, FCC officials said some USF 
contributions are set aside for specific multi-year pilot projects and 
appeals. Table 3 below shows the contributions, disbursements, and 
amounts set-aside in each program for fiscal 2012. 

Table 3: Collections, Disbursements, and Set-Asides for Universal 
Service Fund Programs, 2012: 

Contributions received (CY); 
Connect America: $4.5 billion; 
Schools and libraries: $2.4 billion; 
Rural health care: $110 million; 
Lifeline: $2.3 billion. 

Disbursements to providers (CY); 
Connect America: $4.1 billion; 
Schools and libraries: $2.3 billion; 
Rural health care: $173.5 million; 
Lifeline: $2.0 billion. 

Unobligated balance (FY); 
Connect America: $ 1 billion; 
Schools and libraries: $1.7 billion; 
Rural health care: $136 million; 
Lifeline: $205 million. 

Reserves/set-asides (FY); 
Connect America: $805 million; 
(for Connect America Fund implementation); 
Schools and libraries: $683 million; (for appeals and invoice 
extension requests); 
Rural health care: [Empty]; 
Lifeline: $25 million; (for broadband pilot). 

Source: FCC. 

[End of table] 

Considering Key Questions About Costs and Collections Can Enable 
Congress and Agencies to Identify and Manage Revenue Instability: 

The more a program or agency depends on fees to fund its activities, 
the more vulnerable it is to revenue instability: that is, the extent 
to which fee collections cover the intended share of costs over time. 
[Footnote 39] Largely or wholly fee-funded programs do not necessarily 
see a proportional decline in costs when they experience a drop in 
collections. Absent access to other funding sources these program are 
sensitive to revenue instability, making the following considerations 
especially important.[Footnote 40] 

Key aspects of fee design can help or hinder agencies in managing 
revenue instability, and minimize or exacerbate the effect on the 
agency's ability to provide goods or services. The following key 
questions center on understanding (1) the data and analysis needed to 
identify and manage revenue instability, (2) the factors likely to 
affect collections, (3) the factors likely to affect costs, and (4) 
how agencies can manage fee revenue instability. They will be most 
useful when considered in conjunction with key questions for designing 
and implementing user fees: that is, how fees are set, collected, used 
and reviewed.[Footnote 41] Appendix II provides a summary of the key 
questions discussed below. 

What Data and Analysis are Needed to Identify and Manage Revenue 
Instability? 

In order to identify and manage revenue instability, decision makers 
need regular information and analysis to understand potential 
vulnerabilities in the context of the specific fee design. The 
authority to create or implement a tool to manage revenue instability 
may be retained by Congress or it may be delegated to the agency. But 
regardless of where the authority lies, it is the agency's 
responsibility to obtain and analyze the necessary data to inform 
decision making. This is true even--or especially--in cases where 
statutory authority is required to act on the analysis. 

Agencies should consider the following questions when gathering 
information for decision makers. 

What is the risk that fee revenue instability will affect this program? 

In considering approaches to managing fee revenue instability, an 
agency should develop a risk-based strategy. Risk assessment is the 
identification and analysis of relevant risks associated with 
achieving the program's objectives, and with forming a basis for 
determining how risks should be managed. Risk identification methods 
may include qualitative and quantitative ranking activities, 
management conferences, forecasting and strategic planning, and 
findings from audits and other reviews. 

Once risks have been identified, they should be analyzed for their 
possible effect. Risk analysis generally includes estimating the 
risk's significance, assessing the likelihood of its occurrence, and 
deciding how to manage the risk. GAO's Standards for Internal Controls 
in the Federal Government notes that the specific risk analysis 
methodology used can vary by agency because of differences in 
agencies' missions and the difficulty in qualitatively and 
quantitatively assigning risk levels.[Footnote 42] 

The strategy developed to manage revenue instability should match the 
level of risk identified. For example, preparing for risks that are 
highly unlikely but would have dire consequences can result in a 
reserve balance that is unnecessarily high and draws revenue away from 
other fee program needs. In 2013, we found that for the Agricultural 
Quarantine Inspection (AQI) program, the Animal and Plant Health 
Inspection Service (APHIS) had based its target reserve balance on 
largely unrealistic risks--including the possibility of ceasing all 
inspections--and as a result, developed a target reserve balance that 
was unnecessarily high.[Footnote 43] We recommended a reserve target 
that is more closely aligned with program needs and risks. United 
States Department of Agriculture agreed with the recommendation, and 
adjusted its target reserve balance to a level it said would allow for 
continuous services in the event of an unforeseen decrease in user fee 
collections, or other instances that could cause an increase in 
workload for the program. 

What analysis should be performed and what data are needed? 

The appropriate analysis can help an agency obtain a thorough 
understanding of factors such as cost drivers and elements that 
influence collections. As recognized in the Statement of Federal 
Financial Accounting Standards 4: Managerial Cost Accounting Standards 
and Concepts, agency cost information should be sufficient to be used 
by Congress and federal executives in making program and resources 
decisions, as well as for setting fees, but the analysis does not 
necessarily need to be complex, costly, or require special resources. 
Agencies should seek to leverage data and analysis that already 
exists. For example, agencies may use proxies, or leading or lagging 
indicators to forecast key changes, rather than undertake complex, 
original analysis to do the same. USCIS is almost entirely funded from 
immigration and naturalization application fees and uses data from 
DHS's Office of Immigration Statistics, among other sources, to 
project the volume of incoming applications.[Footnote 44] 

Are there limitations to the available data (such as preliminary 
estimates) that could add uncertainty to collection estimates? 

Indicators that are drawn from early estimates may add vulnerabilities 
to demand or collection forecasts. For example, each quarter, 
Universal Service Administrative Company projects the next quarter's 
anticipated USF demand and assessable industry revenues. The FCC uses 
this information to determine the applicable contribution factor 
(percentage of assessable revenues) for the following quarter. FCC 
officials have found that their use of projected data in setting the 
USF contribution factor has led to collections that are more or less 
than initially expected. 

How frequently should this analysis be conducted? 

Once the necessary analysis has been identified, agencies should 
consider how frequently to perform the analysis. Although agencies are 
required to conduct biennial fee reviews per the CFO Act, revenue 
instability may occur over a shorter time horizon and may demand more 
frequent examinations. In particular, agencies should balance 
informational and reporting needs with the cost of performing the 
analysis. For example, FCC reviews USF outlays, receipts, and cash 
balances monthly, and these are taken into account in the quarterly 
adjustment of the USF contribution factor. 

What Factors Could Affect the Timing and Pattern of Collections? 

Fee-funded agencies sometimes experience revenue instability as a 
result of how, or how frequently, fees are collected and external 
factors that can influence the demand for the goods or services. 
Agencies can plan for contingencies by understanding the factors 
affecting payers and external events affecting the collection process. 
Asking the following questions could help decision makers plan for 
contingencies. 

How frequently are fees collected? 

User fees are not always received at regular or predictable intervals 
throughout the year. The frequency of collections is sometimes related 
to how and by whom fees are collected and paid to the Treasury. For 
example, airlines collect international air passenger inspection fees 
at the time a ticket is sold, but remit fees to the government 
quarterly on behalf of the passengers. Collections that come in small 
increments on a rolling basis or late in the fiscal year may inhibit 
an agency's ability to identify patterns and fluctuations in 
collections in the aggregate, or may create cash flow challenges. For 
example, USCIS receives application fees throughout the fiscal year 
but enters into year-long contracts at the start of the fiscal year. 
Because of the kind of legal authority USCIS has to obligate funds, 
USCIS must have collections equal to the full contract value available 
for obligation at the start of the year. (See also: What is the timing 
and pattern of spending?) 

What remittance compliance issues may exist, and what are the tools 
for ensuring compliance? 

Agencies may not collect amounts they are owed because of external 
factors affecting payers or because of vulnerabilities in the 
remittance process. For example, the FCC adjusts contribution rates 
and payments due from telecommunication service providers quarterly; 
however, abrupt changes in a company's finances (such as bankruptcy) 
can affect the actual remittance amounts. On the other hand, CBP has 
lost an unknown amount of revenue because it does not verify that it 
collects applicable user fees for every commercial truck, private 
aircraft, and private vessel for which the fees are due.[Footnote 45] 

In the event payers do not remit fees in a timely manner, the agency 
may need tools such as penalties to ensure remittance compliance. For 
example, CBP can levy interest charges or deny landing rights to 
airlines for non-or late remittance of the international air passenger 
inspection fees.[Footnote 46] Similarly, the FCC can place a 
delinquent payer of regulatory user fees or USF contributions in "Red 
Light" status, which results in withholding Commission action in any 
licensing or similar proceeding until the payment or other 
satisfactory arrangements are made. 

What external known or unknown events could affect fee collections? 

Understanding external influences - for example, weather, world 
events, or changes in technology--allows for the proper planning of 
resources or the use of limited funding in the face of changing 
revenue. For example, according to USPTO officials, economic activity, 
like a recession, is an important consideration when developing 
workload forecasts, primarily patent and trademark application 
filings. In addition to economic factors, officials stated that USPTO 
considers overseas activity, policies and legislation, process 
efficiencies, and anticipated applicant behavior when preparing 
estimates. Estimates of incoming workload are developed after 
researching and modeling these elements, which helps USPTO plan. There 
may be indirect influences as well. For example, a fee on imports may 
be tied to the exchange rate. When currency exchange rates are 
favorable, the demand for cheaper items from foreign countries may 
increase. In this example the fee revenue would go up, or conversely, 
it would go down with a weaker exchange rate. Programs should 
regularly conduct environmental scans to identify new influences, or 
significant changes to existing influences. 

Program management decisions can also influence the level of demand 
for a fee-funded activity, for example, when services are delivered 
through a third party. In 2010, we found that FCC had allowed certain 
prepaid wireless providers to be eligible telecommunications carriers 
in order to expand the availability of its Lifeline program.[Footnote 
47] Both participation in the program and payments to providers 
increased, but the program's internal controls were not addressing the 
risks of the telecommunication providers' inconsistent adherence to 
applicant eligibility requirements.[Footnote 48] 

In programs where fees for some activities subsidize the costs for 
other activities, payers' overuse of the subsidized activity may 
affect the agency's ability to cover costs. For example, according to 
USPTO officials, USPTO has intentionally designed fees to encourage 
innovation by reducing up-front fees for patent applicants and 
imposing higher maintenance fees later in the process, after users 
have already obtained a patent. Moreover, higher than aggregate costs 
must be charged of applicants and owners that do not qualify for 
reduced fees as a small or micro entity applicant. However, if 
applicants pay only the lower application filing fee and then decide 
against maintaining the patent, the higher maintenance fees are lost 
to USPTO. Because USPTO incurs the same cost to process an application 
whether the patent is maintained or not, and because costs are fully 
recovered in the aggregate over time and not at each step in the 
patent process, USPTO's patent examination costs do not match 
collections if maintenance fees are not collected. 

How quickly is a change in collection amounts likely to occur? 

External events or changes to internal policies can affect 
collections, in either the short or long term. For example, USPTO 
officials said rates of collections can change rapidly in response to 
economic events. During the 2009 recession, fewer patent applications 
were filed and maintained than were anticipated in the 2009 fiscal 
year, which reduced fee collections. Policy changes can affect 
collections as well, as when USCIS experienced a 100 percent increase 
in immigration and naturalization applications before USCIS increased 
its fees by an average of 86 percent in July 2007. Revenues can also 
be affected by market supply and demand. Further analysis can reveal 
whether fee changes are prudent based on the price elasticity of the 
good or service being provided, including whether there may be 
substitutes in the private sector.[Footnote 49] 

What Factors Can Affect Costs in Fee-funded Programs? 

Fee-funded agencies should ask the following questions to gather 
information about the factors that affect their costs. 

What are the fixed and variable costs of fee-funded activities? 

If a fee is designed to recover all or a portion of the costs 
associated with an agency program or service, it is critical that 
agencies record, accumulate, and analyze timely and reliable data 
relating to those costs, consistent with applicable federal cost 
accounting standards. For example, according to USPTO officials, when 
USPTO began redesigning its fees under AIA in 2011, it used an 
activity-based cost accounting system to understand all agency costs 
as they relate to the activities performed supporting the fees 
collected. USPTO's Activity Based Information helps officials identify 
and analyze current activity costs on an ongoing basis, which helps 
with planning decisions as well as justifying budget requests. 

What is the timing and pattern of spending? 

Program management needs to understand the timing of program 
obligations in relation to the timing of collections during the fiscal 
year. As with collections, some agencies may have predictable patterns 
of obligations--whether regularly scheduled payments (such as payroll) 
or established spikes at particular points in the year (such as 
payouts for performance awards or bonuses). Other obligations may 
occur in a less predictable pattern. 

Large upfront costs (such as IT investments or capital asset 
purchases) should be identified in time to capture those costs when 
setting fee rates, especially if the costs are ongoing (see also: 
Develop and Maintain a Reserve Fund). Fee-funded programs may require 
specific efforts to ensure that necessary infrastructure improvements 
are not neglected in cost accounting methods. For example, in 2007, 
USCIS stated in its fee review its intention to use all premium-
processing fee collections toward investments in information 
technology and business-system transformation,[Footnote 50] two 
planned infrastructure improvements.[Footnote 51] 

Can the agency quickly respond to changing costs? 

Fee-funded programs may have flexibility to adjust program activities 
in response to rising costs, but certain types of costs create 
vulnerabilities if not considered in advance. For example, if fee-
funded activities are inherently governmental in nature, and therefore 
required to be performed by federal employees, a reduction in fee 
revenue may be more challenging, because it takes longer to increase 
or decrease the number of federal employees than it would to adjust 
the number of contractors. 

Data analysis can help program managers understand how quickly changes 
in costs could affect program activities. For example, USF sometimes 
experiences short-term changes in demand, stemming from program 
changes (such as the creation of pilot programs), revised eligibility 
rules, or program growth due to outreach efforts. The FCC and USAC 
regularly monitor potential changes in the level of USF commitments, 
and calculate the telecommunication companies' contribution levels on 
a quarterly basis. This allows USF collections to be more responsive 
to mid-year changes in obligations. 

What is the relationship between costs and revenue? 

Without data analysis, it is difficult to fully understand the 
relationship between costs and revenue. If costs increase and there is 
no corresponding increase in collections, programs will likely 
experience a cost-collections gap that needs to be addressed. However, 
increasing costs are sometimes due to improvements in service delivery 
(which can be more expensive), and over the course of time may lead to 
increased revenue. For example, a USPTO official said that spending 
more on overtime can increase production, which in this case is 
increasing the number of patent applications being examined. Since 
fees are required for many responses during examination, the increase 
in overtime costs generates more fee revenue as a result of the 
increase in applications examined and the replies necessary. 

Decision Makers Can Manage Revenue Instability By More Closely 
Aligning Fees and Costs and Using Reserve Funds: 

To manage revenue instability actively and ensure continuity of goods 
or services, fee-funded agencies can better align fees with costs and 
create reserve funds. First, ensuring that program costs and fee rates 
remain aligned will minimize the chance of a cost-collections gap over 
the long-term. If revenue instability is a function of a fee's design, 
the most sustainable solutions will be found by realigning costs and 
collections. Not all fee revenue instability can be completely 
addressed in this way, however, and some agencies may need to take 
additional action. Maintaining a reserve can help address sudden or 
temporary fluctuations in collections and/or costs, and can minimize 
the effect of revenue instability on operations. Reserve funds can 
both help manage revenue instability, and where appropriate, serve as 
a mechanism for accumulating revenue for identified future capital 
investments. 

Closer Alignment of Fee Costs and Collections: 

To determine whether closer cost-collection alignment could 
sufficiently and timely address revenue instability, agencies should 
consider the following questions. 

How quickly can the program adjust fee rates in response to changes in 
collections or costs? 

Adjusting fees through either statutory or rulemaking processes can be 
a lengthy process, so it is important to plan ahead. Regular fee 
reviews ensure that Congress, stakeholders, and agencies have complete 
information about changing costs and whether a fee needs to be changed. 

Are fees set at a rate that enables the program to respond to spikes 
or surges? 

Fee reviews can help agencies determine if they are prepared for 
spikes or surges in demand, which may occur more or less frequently, 
depending on the good or service. Over-staffing or excess capital 
creates waste and establishes a higher-than-needed unit cost for the 
service; however 100 percent efficiency provides for no flexibility to 
address surge capacity. 

Does the program have other sources of funding that may mitigate 
initial revenue shortfalls, or is the program fully fee-reliant? 

Fully fee-funded programs typically experience some lag time before 
initial collections are realized. To cover costs before collections 
are realized, the program may require another source of initial 
funding. Congress has sometimes provided this initial funding through 
an appropriation that may or may not be reimbursed over time. If an 
appropriation is to be reimbursed, reimbursement is generally done 
through incoming fee collections. 

Develop and Maintain a Reserve Fund: 

When the risks of revenue instability are greater than the agency can 
manage by aligning costs and fees, having a reserve can enable the 
agency to continue providing goods and services despite fluctuations 
in collections, and to act quickly in response to changing conditions. 
Reserve funds can also be a tool for fee-funded programs in planning 
for capital investments. Agencies should consider the following 
questions in developing a reserve fund. 

What legal authority does the program or agency have to develop and 
fund a reserve? 

Before an agency commits to building a reserve, agencies must 
understand their statutory structures. Agencies with no-year funds--
that is, collections that remain available for obligation until 
expended - allowing the agency to carry over balances indefinitely. 
This gives the agency the flexibility to build or maintain an internal 
reserve fund within their existing fee accounts. Also, agencies with 
multiyear collections, or collections available for obligation for a 
fixed period of time beyond one fiscal year, may also be able to 
maintain a reserve fund. Absent those authorities, agencies would 
require additional authority from Congress to develop and maintain a 
reserve. If not specified in statute, agencies should verify their 
legal authority to keep funds in reserve. 

Further, individual authorizing statutes may require or restrict a fee 
reserve. For example, the Consolidated Omnibus Reconciliation Act of 
1985 (COBRA) requires CBP to maintain a $30 million reserve in the 
existing COBRA fee account, and the United States Department of 
Agriculture's AQI program is authorized to develop and maintain a fee 
reserve in the existing fee account. 

Does the agency need to notify Congress or seek permission, beyond its 
existing authority, to use its reserve fund? 

Money in the reserve may only be accessible up to a set amount or 
within a specified time frame. Decision makers can also limit use of 
the reserve in other ways, such as: 

* money in the reserve may only be available for specified purposes or 
in response to a trigger, like a natural disaster; 

* agencies may only have access to reserves in specific amounts, such 
as a percentage at a time in order to avoid total depletion of funds, 
or: 

* agencies may be required to report on their level of use and their 
plan for ending their use of the reserve. 

Alternative budget account structures like a reimbursable account or 
revolving fund could help mitigate budgeting or timing challenges 
without compromising accountability for federal funds.[Footnote 52] 
Program managers may also consider what mechanisms exist within the 
agency to track reserve balances. 

What is the goal of the reserve? 

Regardless of the authority under which a reserve is created, setting 
clear goals for the reserve and clarifying how the reserve will be 
implemented helps ensure accountability and transparency both to 
Congress and users of fee-based programs. For example, some agencies 
may wish to use a reserve to help ensure the long-term financial 
stability of the agency or to position the agency to respond to 
varying economic conditions. Others may seek a reserve to smooth 
expected fluctuations in costs or collections, or to build capital for 
necessary infrastructure improvements. Still other programs may seek a 
reserve as a means to mitigate unforeseen and unavoidable revenue 
shortfalls. 

Historical data can demonstrate to Congress, to stakeholders, and to 
fee payers why a reserve is needed. For example, based on USPTO's 
experience with a rapid decline in collections during the recession in 
2009, and to address other sources of revenue instability, officials 
told us they are building an operating reserve to avoid a slowdown in 
operations should collections suddenly decline. According to 
officials, the agency used risk assessments of spending levels and 
revenue streams to explain to stakeholders why fees were being 
increased to build an operating reserve. (See also: What is the risk 
that revenue instability will affect this program?): 

Who should review and approve the reserve policy? 

In addition to notifying Congress as part of a transparent 
communication strategy, reserve policies could be published and 
reviewed by stakeholders via the Federal Register notice and comment 
process or alternatively, by existing fee advisory boards or 
committees. Internal agency policies may also require review by 
cognizant financial officers. 

What level of reserves should be maintained? 

To ensure accountability and adherence to the reserve's goals, 
establishing minimum and maximum reserve levels may be advisable. 
These numbers should be justified with program data and risk 
management considerations. When established reserve goals have been 
achieved, such as to fund planned capital investments, the level of 
reserve should be assessed for reasonableness. 

How should the reserve fund be built and at what pace? 

Data analysis and communication with users should inform the rate at 
which funds are applied to the reserve, and what actions are taken 
when the desired level is reached. For example, USPTO estimated in 
January 2013 that the patent operating reserve would reach its target 
of 3 months of operating expenses in fiscal year 2018, after 
accumulating a proportion of patent fees over 5 years. As the 
operating reserve approaches its target, USPTO plans to consider the 
level of reserve in its biennial fee review. USPTO sought input from 
patent users and stakeholders in creating a reasonable timeline for 
building its reserve. 

Concluding Observations: 

In 2012, the President's budget reported collections of nearly $300 
billion in federal user fees, funding a wide variety of programs 
integral to our nation's security, to the security of our financial 
system, and to the protection of our natural resources. In light of 
the nation's current fiscal condition, it is essential that every 
funding source and spending decision be carefully considered and 
applied to its best and most efficient use. By their nature, federal 
user fees do not--and should not--follow a single model or design. 
However, wide variation can contribute to more challenging oversight. 
In light of this, it is critical for Congress and agencies to 
understand the implications of the key design decisions--each choice 
in isolation and also in the aggregate--to achieve a deliberate design 
that minimizes unintended consequences. Regardless of the fee design 
decisions made, Congress and agencies both have a role in effectively 
managing fee funded programs and ensuring that fees are designed to 
meet the goals of the program and are managed effectively. 

The same prudent management standards should be applied to fee-funded 
programs as to those funded by general revenues. As such, unobligated 
balances in fee programs should be scrutinized. The federal budget's 
accounting structure can make it challenging to isolate unobligated 
balances resulting from fee collections, increasing the responsibility 
agencies have to manage and report on unobligated fee balances. 
Unobligated balances in fee programs may represent a reserve intended 
to manage the effects of revenue instability. However, to be effective 
as a reserve, agencies and Congress need to understand a fee's 
vulnerabilities and be deliberate in their design of a reserve fund to 
effectively manage them. 

Agency Comments & Our Evaluation: 

We provided a draft of this report for review and comment to the 
Secretaries of Commerce and Treasury, and the Managing Director of the 
Federal Communications Commission (FCC). The Secretary of Commerce and 
the Managing Director of the FCC provided technical changes, which we 
incorporated where appropriate. We also provided a copy of the report 
to the Office of Management and Budget. 

We are sending copies of this report to the Secretaries of Commerce, 
Treasury and the Managing Director of the FCC and interested 
Congressional committees. In addition, the report is available at no 
charge on the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report please 
contact me at (202) 512-6806 or irvings@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made key contributions 
to this report are listed in appendix III. 

Sincerely yours, 

Signed by: 

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

Signed by: 

Jacqueline M. Nowicki: 
Acting Director: 
Education, Workforce, and Income Security: 

[End of section] 

Appendix I: Key Fee Design Decisions Allow for Agency Flexibility or 
Congressional Control: 

Setting For further discussion of setting user fees, see GAO's Federal 
User Fees: A Design Guide, p. 7.[A]: 

Key design question: How are fee rates set? Congress specifies how 
specific fee amounts will be determined. This could include specific 
dollar amounts, rates or other requirements (such as provisions for 
exemptions, waivers, and caps); 
Options increasing agency flexibility: By regulation Congress may 
grant the agency the authority to set fee rates by following the rule-
making process spelled out in the Administrative Procedure Act; 
Options increasing congressional control: In statute Congress may set 
fee amounts or rates in statute. 

Using For further discussion of using user fees, see GAO's Federal 
User Fees: A Design Guide, p. 26[A]: 

Key design question: What Congressional action triggers the use of fee 
collections? Collections are classified into 3 major categories: 
offsetting collections, offsetting receipts and governmental receipts; 
Options increasing agency flexibility: Offsetting collection authority 
Offsetting collections are authorized by law to be credited to 
expenditure accounts from which they may be obligated without further 
legislation. However, an annual appropriation act may limit the total 
amount an agency may collect during a given fiscal year; 
Options increasing congressional control: Offsetting receipt authority 
Government receipt authority Offsetting receipts and government 
receipts are required by law to be deposited into receipt accounts. 
Whether government receipts can be used without additional 
appropriation depends on the specific authorizing legislation for the 
collection. Offsetting receipt collections may not be used without 
additional appropriations. 

Key design question: What is the period of availability for the 
collections? Congress specifies the length of time for which 
collections are available for new obligations; 
Options increasing agency flexibility: No-year No-year collections 
remain available for obligation for an indefinite period of time. A no-
year appropriation of fee collections is usually identified by 
language such as "to remain available until expended."; 
Options increasing congressional control: Limited year One-year 
(fiscal year) or multiyear authority is available for a fixed period 
of time. 

Key design question: For what purposes may the collections be used? 
Congress assigns the purpose(s) for which the collections can be used; 
Options increasing agency flexibility: Broadly defined uses Congress 
may define the uses for particular collections broadly, for example, 
authorizing fees to be used for "all authorized activities and 
operations"; 
Options increasing congressional control: Narrowly defined uses 
Congress may define the uses for particular collections narrowly, 
authorizing fees to be used for specific, limited activities. 

Key design question: To what degree will Congress limit the amount of 
collections that can be used? Congress sets the level of fee 
collections that the agency can spend in a given fiscal year; 
Options increasing agency flexibility: No limit Congress may grant the 
agency the authority to spend all the money it collects without regard 
to amount or time; 
Options increasing congressional control: Limit set in statute 
Congress may limit the amount of fee collections that the agency can 
spend to a particular dollar amount, often in annual appropriations 
acts. In some cases, Congress sets the limit and provides specific 
direction for the treatment of collections in excess of that limit. 

Reviewing For further discussion of reviewing user fees, see GAO's 
Federal User Fees: A Design Guide, p. 33[A]: 

Key design question: What types of reporting and oversight 
requirements are in place? Congress determines what type of 
requirements the agency must meet in order to permit the desired level 
of oversight; 
Options increasing agency flexibility: Basic requirements such as CFO 
Act Biennial Fee Reviews Congress has designated basic review and 
reporting requirements. According to the CFO Act, the agency must 
review its fees on a biennial basis. This basic requirement applies 
for all 24 CFO Act agencies unless other requirements are specified 
for a particular fee program; 
Options increasing congressional control: Additional requirements 
Congress may designate a number of additional requirements, such as 
reporting requirements and consulting with an advisory council. These 
requirements may be laid out in appropriations or authorizing 
legislation. 

Source: GAO. 

[A] [hyperlink, http://www.gao.gov/products/GAO-08-386SP]. 

[End of table] 

[End of section] 

Appendix II: Key Questions about Costs and Collections to Enable 
Congress and Agencies to Identify and Manage Revenue Instability: 

What Data and Analysis Are Needed to Identify and Manage Revenue 
Instability? 

* What is the risk that fee revenue instability will affect this 
program? 

* What analysis should be performed and what data are needed? 

* Are there limitations to the available data (such as preliminary 
estimates) that could add uncertainty to the collection estimates? 

* How frequently should this analysis be conducted? 

What Factors Could Affect the Timing and Pattern of Collections? 

* How frequently are fees collected? 

* What remittance compliance issues may exist, and what are the tools 
for ensuring compliance? 

* What external known or unknown events could affect fee collections? 

* How quickly is a change in collection amounts likely to occur? 

What Factors Can Affect Costs in Fee-funded Programs? 

* What are the fixed and variable costs of fee-funded activities? 

* What is the timing and pattern of spending? 

* Can the agency quickly respond to changing costs? 

* What is the relationship between costs and revenue? 

Closer Alignment of Fee Costs and Collections: 

* How quickly can the program adjust fee rates in response to changes 
in collections or costs? 

* Are fees set at a rate that enables the program to respond to spikes 
or surges? 

* Does the program have other sources of funding that may mitigate 
initial revenue shortfalls, or is the program fully fee-reliant? 

Develop and Maintain a Reserve Fund: 

* What legal authority does the program or agency have to develop and 
fund a reserve? 

* Does the agency need to notify Congress or seek permission, beyond 
its existing authority, to use its reserve fund? 

* What is the goal of the reserve? 

* Who should review and approve the reserve policy? 

* What level of reserves should be maintained? 

* How should the reserve fund be built and at what pace? 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contacts: 

Susan J. Irving, (202) 512-6806 or irvings@gao.gov: 

Jacqueline M. Nowicki, (617) 788-0580 or nowickij@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Chelsa Gurkin, Assistant 
Director, Steven Berke, Amber Edwards, Elizabeth Gregory-Hosler, 
Hayley Landes, and Felicia Lopez made key contributions to this 
report. Also contributing to this report were Virginia Chanley, Robert 
Gebhart, and Donna Miller. 

[End of section] 

Related GAO Products: 

Agricultural Quarantine Inspection Fees: Major Changes Needed to Align 
Fee Revenues with Program Costs. [hyperlink, 
http://www.gao.gov/products/GAO-13-268]. Washington, D.C.: March 1, 
2013. 

Federal Communications Commission: Regulatory Fee Process Needs to Be 
Updated. [hyperlink, http://www.gao.gov/products/GAO-12-686]. 
Washington, D.C.: August 10, 2012. 

Patent and Trademark Office: New User Fee Design Presents 
Opportunities to Build on Transparency and Communication Success. 
[hyperlink, http://www.gao.gov/products/GAO-12-514R]. Washington, DC: 
April 25, 2012. 

2012 Annual Report: Opportunities to Reduce Duplication, Overlap and 
Fragmentation, Achieve Savings, and Enhance Revenue. [hyperlink, 
http://www.gao.gov/products/GAO-12-342SP]. Washington, DC: February 
28, 2012. 

User Fees: Additional Guidance and Documentation Could Further 
Strengthen IRS's Biennial Review of Fees.[hyperlink, 
http://www.gao.gov/products/GAO-12-193]. Washington, DC: November 22, 
2011. 

Budget Issues: Better Fee Design Would Improve Federal Protective 
Service's and Federal Agencies' Planning and Budgeting for 
Security.[hyperlink, http://www.gao.gov/products/GAO-11-492]. 
Washington, DC: May 20, 2011. 

Federal User Fees: Fee Design Characteristics and Trade-Offs 
Illustrated by USCIS's Immigration and Naturalization Fees.[hyperlink, 
http://www.gao.gov/products/GAO-10-560T]. Washington, DC: March 23, 
2010. 

Budget Issues: Electronic Processing of Non-IRS Collections Has 
Increased but Better Understanding of Cost Structure Is Needed. 
[hyperlink, http://www.gao.gov/products/GAO-10-11]. Washington, DC: 
November 20, 2009. 

Immigration Application Fees: Costing Methodology Improvements Would 
Provide More Reliable Basis for Setting Fees. [hyperlink, 
http://www.gao.gov/products/GAO-09-70]. Washington, DC: January 23, 
2009. 

Federal User Fees: Additional Analyses and Timely Reviews Could 
Improve Immigration and Naturalization User Fee Design and USCIS 
Operations. [hyperlink, http://www.gao.gov/products/GAO-09-180]. 
Washington, DC: January 23, 2009. 

Federal User Fees: Improvements Could Be Made to Performance Standards 
and Penalties in USCIS's Service Center Contracts. [hyperlink, 
http://www.gao.gov/products/GAO-08-1170R]. Washington, D.C.: September 
25, 2008. 

Federal User Fees: A Design Guide.[hyperlink, 
http://www.gao.gov/products/GAO-08-386SP]. Washington, D.C.: May 29, 
2008. 

Federal User Fees: Substantive Reviews Needed to Align Port-Related 
Fees with the Programs They Support.[hyperlink, 
http://www.gao.gov/products/GAO-08-321]. Washington, DC: February 22, 
2008. 

Federal User Fees: Key Aspects of International Air Passenger 
Inspection Fees Should Be Addressed Regardless of Whether Fees Are 
Consolidated.[hyperlink, http://www.gao.gov/products/GAO-07-1131]. 
Washington, DC: September 24, 2007. 

[End of section] 

Footnotes: 

[1] User charges from the public as reported in The President's Fiscal 
Year 2014 Budget Analytical Perspectives. 

[2] We have also identified the key considerations for evaluating 
carryover balances in non-fee accounts. See GAO, Budget Issues: Key 
Questions to Consider When Evaluating Balances in Federal Accounts, 
[hyperlink, http://www.gao.gov/products/GAO-13-798] (Washington, D.C.: 
Sept. 30, 2013). 

[3] GAO, Federal User Fees: A Design Guide, [hyperlink, 
http://www.gao.gov/products/GAO-08-386SP] (Washington, D.C.: May 29, 
2008). 

[4] Chief Financial Officers Act of 1990, Pub. L. No. 101-576 (Nov. 
15, 1990), codified at, 31 U.S.C. § 902. 

[5] GAO, 2012 Annual Report: Opportunities to Reduce Duplication, 
Overlap and Fragmentation, Achieve Savings, and Enhance Revenue, 
[hyperlink, http://www.gao.gov/products/GAO-12-342SP] (Washington, 
D.C.: Feb. 28, 2012), 279-284. 

[6] [hyperlink, http://www.gao.gov/products/GAO-08-386SP]. 

[7] Without additional statutory authority to retain collections, fees 
collected under the IOAA are deposited in the general fund of the U.S. 
Treasury and are generally not available to the agency or the activity 
generating the fees. IOAA requires that agency regulations 
establishing a user fee are subject to policies prescribed by the 
President. OMB provides such guidance to executive branch agencies 
under this authority through OMB Circular No. A-25. 

[8] Depending on the type of legislation providing the authority to 
collect or spend the fees, these funds are either mandatory or 
discretionary. Collections authorized in authorizing legislation are 
considered mandatory and collections that are authorized in 
appropriations legislation are discretionary. 

[9] There are other Congressional design decisions that are not 
included in figure 1. These decisions have less direct bearing on the 
amount of agency flexibility or the nature of congressional control. 
For example, Congress could specify how an agency should collect its 
fees in some cases, but might delegate that decision to the agency in 
other cases. However, the Department of the Treasury established 
government-wide guidance directing agencies to use electronic 
collections in the absence of specific Congressional direction. As a 
result of this executive direction, even when Congress delegates the 
collection method to the agency, the implication for increased agency 
flexibility is generally less significant. 

[10] The CFO Act requires agencies to review "fees, royalties, rents, 
and other charges imposed by the agency for services and things of 
value it provides." For the purposes of this discussion, GAO refers to 
all of these collectively as user fees. 

[11] GAO, Federal User Fees: Additional Analyses and Timely Reviews 
Could Improve Immigration and Naturalization User Fee Design and USCIS 
Operations, [hyperlink, http://www.gao.gov/products/GAO-09-180] 
(Washington, D.C.: Jan. 23, 2009). 

[12] USCIS issued a subsequent fee review in 2010. 

[13] In 2009 we found that USCIS's fees did not include the costs of 
certain retirement benefits paid by the Office of Personnel Management 
and the costs of the Department of Treasury's lockbox services--where 
some applications were received and processed. In response to our 
recommendation, USCIS identified these costs in its 2010 fee review. 
However, USCIS did not include these costs in setting its fees and the 
Office of Management and Budget concurred with USCIS's decision. See 
GAO, Immigration Applications Fees: Costing Methodology Improvements 
Would Provide More Reliable Basis for Setting Fees, [hyperlink, 
http://www.gao.gov/products/GAO-09-70]. (Washington, D.C.: Jan. 23, 
2009). 

[14] GAO, Patent and Trademark Office: New User Fee Design Presents 
Opportunities to Build on Transparency and Communication Success, 
[hyperlink, http://www.gao.gov/products/GAO-12-514R] (Washington, 
D.C.: Apr. 25, 2012). 

[15] The use of fee waivers is one method of incorporating the ability-
to-pay principle of equity in a fee design. See [hyperlink, 
http://www.gao.gov/products/GAO-08-386SP] and [hyperlink, 
http://www.gao.gov/products/GAO-09-180]. 

[16] For examples, see [hyperlink, 
http://www.gao.gov/products/GAO-08-386SP] and [hyperlink, 
http://www.gao.gov/products/GAO-12-514R]. 

[17] [hyperlink, http://www.gao.gov/products/GAO-08-386SP]. 

[18] Federal Accounting Standards Advisory Board, Statement of Federal 
Financial Accounting Standards No. 4: Managerial Cost Accounting 
Standards and Concepts (July 31, 1995). Cost information can be used 
by Congress and federal executives in making decisions about 
allocating federal resources, authorizing and modifying programs, and 
evaluating program performance; it can also be used by program 
managers in making managerial decisions to improve operating economy 
and efficiency. 

[19] The Budget Enforcement Act of 1990, defines offsetting 
collections and receipts as negative budget authority and the 
reductions to it as positive authority. 

[20] GAO, Federal User Fees: Substantive Reviews Needed to Align Port-
Related Fees with the Programs They Support, [hyperlink, 
http://www.gao.gov/products/GAO-08-321] (Washington, D.C.: Feb. 22, 
2008). 

[21] [hyperlink, http://www.gao.gov/products/GAO-08-321]. 

[22] GAO, Agricultural Quarantine Inspection Fees: Major Changes 
Needed to Align Fee Revenues with Program Costs, [hyperlink, 
http://www.gao.gov/products/GAO-13-268] (Washington, D.C.: March 1, 
2013). 

[23] [hyperlink, http://www.gao.gov/products/GAO-12-514R]. 

[24] Prior to enactment of the AIA, all fees collected were deposited 
into USPTO's account and were available to the extent appropriated. 
Since the enactment of AIA, collections during a fiscal year in excess 
of the amount appropriated to USPTO for the fiscal year are deposited 
into the new Patent and Trademark Fee Reserve Fund. As before, these 
excess collections are available to USPTO only to the extent 
appropriated by Congress. In 2012 we reported that the establishment 
of this special account increased transparency of these funds because 
any amounts appropriated, transferred, or rescinded from the fund 
would be clearly visible. 

[25] As of July 2013, this backlog has been reduced to approximately 
591,000 patent applications. 

[26] Pub. L. No. 82-137 (Aug. 31, 1951), codified at, 31 U.S.C. § 9701. 

[27] Specifically, 21 of the 23 agencies that responded to our survey 
reported varying levels of adherence to the biennial review and 
reporting requirements. The survey responses indicated that for most 
fees, agencies (1) had not discussed fee review results in annual 
reports, and (2) had not reviewed the fees and were inconsistent in 
their ability to provide fee review documentation. The 24TH CFO Act 
agency, the Department of Defense, did not respond to our survey in 
time to be included. See GAO, 2012 Annual Report: Opportunities to 
Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and 
Enhance Revenue, [hyperlink, http://www.gao.gov/products/GAO-12-342SP] 
(Washington, D.C.: Feb. 28, 2012). 

[28] GAO, "General Government: Federal User Fees," GAO's Action 
Tracker (Washington, DC: March 6, 2013), accessed July 25, 2013, 
[hyperlink, 
http://www.gao.gov/duplication/action_tracker/Federal_User_Fees/action1]
. 

[29] [hyperlink, http://www.gao.gov/products/GAO-09-180]. For example, 
in 2007 we found that under CBP's authorizing statute for passenger 
inspection user fees, not all activities that may be funded from the 
customs fee were necessarily associated with conducting air passenger 
inspections, and not all inspection activities were reimbursable by 
funds from the user fee account. We concluded in that report that 
unless agencies present a comprehensive picture of the fees, including 
the full scope of inspection activities and their costs, Congress will 
lack a complete picture of whether the fees work in concert or 
conflict with each other, which could hamper oversight. See GAO, 
Federal User Fees: Key Aspects of International Air Passenger 
Inspection Fees Should be Addressed Regardless of Whether Fees are 
Consolidated, [hyperlink, http://www.gao.gov/products/GAO-07-1131] 
(Washington, D.C.: Sept. 24, 2007). 

[30] [hyperlink, http://www.gao.gov/products/GAO-08-321] and 
[hyperlink, http://www.gao.gov/products/GAO-07-1131]. 

[31] [hyperlink, http://www.gao.gov/products/GAO-08-386SP]. 

[32] Congress passed legislation in late 2010 that included a number 
of supplemental appropriations and rescissions affecting various 
government agencies. Included among them was a $120 million 
supplemental appropriation for USPTO. As a result of this supplemental 
appropriation, USPTO had access to almost all fees collected during 
fiscal year 2010. 

[33] The AIA created a second account, the Patent and Trademark Fee 
Reserve Fund. USPTO collections in excess of appropriations are to be 
deposited into this account. In the fiscal year 2012 appropriations, 
Congress provided USPTO with access to the funds in the Patent and Fee 
Trademark Reserve Fund; this was extended through FY 2013 by the 
continuing resolution. However, according to USPTO officials, there is 
currently no balance in the Reserve Fund. 

[34] We recommended in April 2012 that USPTO finalize an operating 
reserve policy, including the expected level of reserves, to smooth 
the impact of economic downturns on operations and to ensure its use 
aligns with agency goals. The Department of Commerce accepted this 
recommendation. See GAO, Patent and Trademark Office: New User Fee 
Design Presents Opportunities to Build on Transparency and 
Communication Success, [hyperlink, 
http://www.gao.gov/products/GAO-12-514R] (Washington, D.C.: Apr. 12, 
2012). 

[35] USF collections are administered by the USAC, which is a non-
governmental, private entity. As such, USF contributions are not 
subject to the appropriations process, unlike FCC's regulatory fee 
collections held in the agency's salaries and expenses account. 

[36] In August 2012, we recommended that Congress should consider 
whether FCC's excess regulatory fees (approximately $66 million 
through fiscal year 2011) should be appropriated for FCC's use, or, if 
not, what the disposition of these funds should be, and whether to 
change FCC's annual appropriations language to permit reconciliation 
of excess collections or to govern FCC's handling of any future excess 
collections. Congress has not as yet taken any action. See GAO, 
Federal Communications Commission: Regulatory Process Needs to Be 
Updated, [hyperlink, http://www.gao.gov/products/GAO-12-686], 
(Washington, D.C.: Aug. 10, 2012), 36. 

[37] USF contributions are paid monthly by telecommunications carriers 
(including landline and wireless companies, interconnected Voice over 
Internet Protocol (VoIP) providers, and other providers of 
telecommunications) based on their projected revenues. The 
contributions are collected by the Universal Service Administrative 
Company (USAC) an independent, not-for-profit corporation created in 
1997 to collect universal service contributions and administer 
universal support programs. 

[38] GAO, Telecommunications: FCC Has Reformed the High-Cost Program, 
but Oversight and Management Could Be Improved, [hyperlink, 
http://www.gao.gov/products/GAO-12-738] (Washington, D.C.: July 25, 
2012); Telecommunications: FCC's Performance Management Weaknesses 
Could Jeopardize Proposed Reforms of the Rural Health Care Program, 
[hyperlink, http://www.gao.gov/products/GAO-11-27] (Washington, D.C.: 
Nov. 17, 2010); Telecommunications: Improved Management Can Enhance 
FCC Decision Making for the Universal Service Fund Low-Income Program, 
[hyperlink, http://www.gao.gov/products/GAO-11-11] (Washington, D.C.: 
Oct. 28, 2010); Telecommunications: FCC Should Assess the Design of 
the E-rate Program's Internal Control Structure, [hyperlink, 
http://www.gao.gov/products/GAO-10-908] (Washington, D.C.: Sept. 29, 
2010). 

[39] Ensuring that fees are set at a rate to cover the intended costs 
is referred to as revenue adequacy. We discuss the key considerations 
for ensuring revenue adequacy in [hyperlink, 
http://www.gao.gov/products/GAO-08-386SP]. 

[40] Programs that rely solely on general fund appropriations can also 
experience fluctuations in funding, but the causes and considerations 
are distinct from those affecting fee-reliant programs. 

[41] See [hyperlink, http://www.gao.gov/products/GAO-08-386SP] for the 
questions to consider when designing and implementing user fees. 

[42] GAO, Internal Controls: Standards for Internal Controls in the 
Federal Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. (Washington, D.C.: 
November, 1999.) 

[43] [hyperlink, http://www.gao.gov/products/GAO-13-268]. 

[44] [hyperlink, http://www.gao.gov/products/GAO-09-180]. 

[45] [hyperlink, http://www.gao.gov/products/GAO-13-268]. In 2013, we 
recommended that the Secretary of Homeland Security establish internal 
controls to alert personnel when fees are not paid, and to use 
available information to verify that arriving trucks, private 
aircraft, and private vessels pay applicable inspection user fees. 

[46] Penalties need to be strong enough to deter unwanted behavior but 
not so severe that they cannot practically be imposed. For more 
information on design of non-remittance penalties, see [hyperlink, 
http://www.gao.gov/products/GAO-07-1131]. 

[47] GAO, Telecommunications: Improved Management Can Enhance FCC 
Decision Making for the Universal Service Fund Low-Income Program, 
[hyperlink, http://www.gao.gov/products/GAO-11-11] (Washington, D.C.: 
Oct. 28, 2010). 

[48] Since the release of our 2010 report, the FCC made efforts to 
address the risks of telecommunication providers' inconsistent 
adherence to applicant eligibility requirements. For example, the 
Lifeline Reform Order established uniform eligibility criteria for the 
federal Lifeline program, and required service providers to determine 
whether a subscriber was in fact eligible for Lifeline service, based 
on documentation provided by the subscriber, rather than allowing 
subscribers to self-certify their eligibility. See Lifeline and Link 
Up Reform and Modernization et al., WC Docket Nos. 11-42 et al., 
Report and Order and Further Notice of Proposed Rulemaking, 27 FCC Rcd 
6656 (2012) (Lifeline Reform Order). 

[49] See [hyperlink, http://www.gao.gov/products/GAO-08-386SP] for 
more information about price elasticity and fee-funded programs. 

[50] Funding USCIS' information technology investments with premium-
processing fees was consistent with Congressional report language 
accompanying the fiscal years 2008-2010 Department of Homeland 
Security appropriations bills. 

[51] In December 2000, Congress authorized the collection of a premium 
processing fee in addition to the regular application fees for 
employment-based applications. Congress set the amount of the fee at 
$1,000 and directed that these amounts be available for (1) the 
premium processing activities and (2) infrastructure improvements 
associated with adjudications and customer-service. 

[52] GAO, Budget Issues: Better Fee Design Would Improve Federal 
Protective Service's and Federal Agencies' Planning and Budgeting for 
Security, [hyperlink, http://www.gao.gov/products/GAO-11-492] 
(Washington, DC: May 20, 2011). 

[End of section] 

GAO’s Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
American people. GAO examines the use of public funds; evaluates 
federal programs and policies; and provides analyses, recommendations, 
and other assistance to help Congress make informed oversight, policy, 
and funding decisions. GAO’s commitment to good government is 
reflected in its core values of accountability, integrity, and 
reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO’s website [hyperlink, http://www.gao.gov]. Each 
weekday afternoon, GAO posts on its website newly released reports, 
testimony, and correspondence. To have GAO e-mail you a list of newly 
posted products, go to [hyperlink, http://www.gao.gov] and select 
“E-mail Updates.” 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO’s 
website, [hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information. 

Connect with GAO: 

Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov]. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, DC 20548. 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, DC 20548. 

[End of document]