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Report to the Committee on Governmental Affairs, U.S. Senate, and the 

Committee on Government Reform, House of Representatives:



March 2003:



CIVIL PENALTIES:



Agencies Unable to Fully Adjust Penalties for Inflation Under Current 

Law:



GAO-03-409:



GAO Highlights:



Highlights of GAO-03-409, a report to the Senate Committee on 

Governmental Affairs and the House Committee on Government Reform

March 2003



Why GAO Did This Study:



Civil penalties are an important element of regulatory enforcement, 

allowing agencies to punish violators appropriately and to serve as a 

deterrent to future violations. In 1996, Congress enacted the 

Inflation Adjustment Act to require agencies to adjust certain 

penalties for inflation. GAO assessed federal agencies’ compliance 

with the act and whether provisions in the act have prevented agencies 

from keeping their penalties in pace with inflation.



What GAO Found:



As of June 2002, 16 of 80 federal agencies with civil penalties 

covered by the Inflation Adjustment Act had not made the required 

initial adjustments to their penalties. Nineteen other agencies had 

not made required subsequent adjustments, and several other agencies 

had made incorrect adjustments. The act does not give any agency the 

authority to monitor compliance or to provide guidance to agencies. 

More important, several provisions of the act have prevented some 

agencies from fully adjusting their penalties for inflation. One 

provision limited the agencies’ first adjustments to 10 percent of the

penalty amounts, even if the penalties were decades old and hundreds 

of percent behind inflation. The resultant “inflation gap” can never

be corrected under the statute and grows with each subsequent 

adjustment. (The figure below illustrates the effect of the cap on one 

agency’s $1,000 penalty set in 1958.) Also, the act’s calculation and 

rounding procedures require agencies to lose a year of inflation each 

time they adjust their penalties, and can prevent some agencies from 

making adjustments until inflation increases by 45 percent or more 

(i.e., 15 years or more at recent rates of inflation). Finally, the 

act exempts penalties under certain statutes from its requirements 

entirely. Consequently, more than 100 exempted penalties have declined 

in value by 50 percent or more since Congress last set them.



What GAO Recommends:



Congress may wish to consider amending the act to (1) require or 

permit agencies to adjust their penalties for lost inflation; (2) make 

the calculation and rounding procedures more consistent with changes 

in inflation; (3) permit agencies with exempt penalties to adjust them 

for inflation; and (4) give some agency the responsibility to monitor 

compliance and provide guidance. The Department of Justice, the 

Department of the Treasury, and the Office of Management and Budget 

did not comment on the first three matters for congressional 

consideration. The agencies suggested changes to the fourth matter, 

but we did not make those changes.



www.gao.gov/cgi-bin/getrpt?GAO-03-409.

To view the full report, including the scope and methodology, click on 

the link above. For more information, contact Victor Rezendes (202) 

512-6806 or rezendesv@gao.gov.



[End of section]



Letter:



Results in Brief:



Background:



Objectives, Scope, and Methodology:



Many Agencies Did Not Make Required Penalty Adjustments:



The Inflation Adjustment Act Has Prevented Agencies from Keeping 

Certain Penalties in Pace with Inflation:



Conclusions:



Matters for Congressional Consideration:



Agency Comments and Our Evaluation:



Appendixes:



Appendix I: Final Rules That Adjust Civil Penalties for Inflation as of 

June 30, 2002:



Appendix II: Amount of Inflation and Estimated Length of Time Needed to 

Trigger Penalty Adjustments in Selected Agencies:



Tables:



Table 1: The 10 Percent Cap on Initial Adjustments Resulted in Large 

“Inflation Gaps” for Some Penalties:



Table 2: Rounding Rules in the Inflation Adjustment Act Prevented PWBA 

from Increasing Its Penalties in 2001:



Table 3: When PWBA Penalties Are Eligible for Adjustment, the Increases 

Will Be about Twice That Needed to Keep Pace with Inflation:



Table 4: Inflation Adjustment Act Exempted at Least 238 Civil Penalties 

from Coverage:



Table 5: A Substantial Amount of Inflation Has Elapsed with Regard to 

Some Exempted Penalties:



Table 6: Final Rules That Adjust Cabinet Departments’ Civil Penalties 

for Inflation (as of June 30, 2002):



Table 7: Final Rules That Adjust Independent Agencies’ Civil Penalties 

for Inflation (as of June 30, 2002):



Table 8: Amount of Inflation and Estimated Length of Time Needed to 

Trigger Next Penalty Adjustments in Six Selected Agencies:



Figures:



Figure 1: The 10 Percent Cap on Initial Adjustments Prevented FAA from 

Keeping Its $1,000 Penalty in Pace With Inflation:



Figure 2: The Size of the Inflation Gap Resulting from the 10 Percent 

Cap Grows with Each Subsequent Adjustment:



Figure 3: CPI Lag in the Inflation Adjustment Act Reduces the Amount of 

Inflation That Can Be Considered:



Figure 4: Inflation Lost Due to CPI Lag Cannot Be Recovered:



Figure 5: Less Inflation Can Be Considered When Penalty Adjustments Are 

More Frequent:



Figure 6: Rounding Rules Can Prevent Penalty Adjustments for Decades:



Figure 7: Rounding Based on the Size of the Increase More Closely 
Tracks 

Inflation than Rounding Based on the Size of the Penalty:



Figure 8: Rounding Based on the Size of the Increase without the CPI 
Lag 

More Closely Tracks Inflation:



Abbreviations:



CMS: Centers for Medicare and Medicaid Services:



CPI: Consumer Price Index:



EPA: Environmental Protection Agency:



ERISA: Employee Retirement Income Security Act:



FAA: Federal Aviation Administration:



FMS : Financial Management Service:



IRS: Internal Revenue Service:



MSHA: Mine Safety and Health Administration:



NHTSA: National Highway Traffic Safety Administration:



NPR: National Performance Review:



OFFM: Office of Federal Financial Management:



OMB: Office of Management and Budget:



OPS: Office of Pipeline Safety:



OSHA: Occupational Safety and Health Administration:



PWBA: Pension and Welfare Benefits Administration:



SSA: Social Security Administration:



USCG: United States Coast Guard:



Letter March 14, 2003:



The Honorable Susan M. Collins

Chairman

The Honorable Joseph I. Lieberman

Ranking Minority Member

Committee on Governmental Affairs

United States Senate:



The Honorable Tom Davis

Chairman

The Honorable Henry A. Waxman

Ranking Minority Member

Committee on Government Reform

House of Representatives:



Civil monetary penalties are one method by which agencies enforce 

federal laws and regulations, with penalty assessments and collections 

totaling hundreds of millions of dollars per year. Dozens of federal 

agencies are currently authorized to levy such penalties for violations 

involving such issues as public health and safety, environmental 

protection, securities transactions, and international trade. For 

example, within the past few years,



* a major automobile manufacturer agreed to pay $425,000 in civil 

penalties to settle charges that it failed to promptly recall vehicles 

with ignition-switch problems and withheld information in 

investigations into fires in its vehicles,



* a furniture manufacturer agreed to pay a $900,000 civil penalty to 

settle allegations that it knowingly failed to report a substantial 

hazard in cedar chests involved in the suffocation deaths of five 

children, and:



* a company agreed to pay civil penalties totaling $30,000 to settle 

allegations that it violated export control and antiboycott laws by 

shipping chemicals to Iran through the United Arab Emirates.



Congress generally establishes civil penalty maximums in the underlying 

statutes, and those maximum penalties are generally reserved for the 

worst offenses. In 1996, Congress amended the Federal Civil Penalties 

Inflation Adjustment Act of 1990 to require agencies to issue 

regulations adjusting their covered penalties for inflation.[Footnote 

1] The statute as amended (hereinafter referred to as the “Inflation 

Adjustment Act”) required agencies with covered penalties to publish 

initial penalty adjustments in the Federal Register by October 23, 

1996, and to examine their penalties for additional inflation 

adjustments at least once every 4 years thereafter.[Footnote 2] The act 

limited the first such adjustment to 10 percent of the penalty amount 

and required specific calculation and rounding procedures to be 

followed, but excluded penalties under certain statutes from coverage 

(e.g., the Occupational Safety and Health Act of 1970 and the Internal 

Revenue Code of 1986).



This report examines the implementation of the Inflation Adjustment 

Act. Specifically, our objectives were to determine (1) whether, as of 

June 30, 2002, agencies with penalties covered by the act had made the 

required penalty adjustments and (2) whether provisions in the act have 

prevented agencies from keeping their penalties in pace with inflation. 

A complete discussion of our scope and methodology is included later in 

this report. In brief, we focused part of our work on six agencies that 

the most recent data available indicated had large penalty assessments. 

We also focused on the five agencies that levy penalties under the 

excluded statutes. We conducted this review under our basic legislative 

authority to undertake work supporting Congress, and are reporting the 

results to you as the current Chairmen and Ranking Minority Members of 

the two Committees that sponsored the Federal Civil Penalties Inflation 

Adjustment Act of 1990.



Results in Brief:



As of June 2002, 16 of 80 federal agencies with civil penalties covered 

by the Inflation Adjustment Act had not adjusted any of their penalties 

for inflation. Only 9 of the 64 agencies that made initial penalty 

adjustments did so by the statutory deadline of October 23, 1996, and 

some of the adjustments were not made until years after the deadline. 

Also, 19 of the 64 agencies that made initial adjustments had not made 

required subsequent adjustments for eligible penalties, and several 

other agencies made the adjustments incorrectly. The act does not give 

any agency the authority or responsibility to monitor agencies’ 

compliance or provide guidance on its implementation. Lack of 

monitoring and guidance may have contributed to the widespread lack of 

compliance with the act’s requirements and the numerous questions 

raised to us regarding its provisions.



Several provisions in the Inflation Adjustment Act have prevented 

agencies from keeping their civil penalties in pace with inflation.



* The 10 percent cap on initial adjustments prevented some agencies 

from accounting for hundreds of percent of inflation that had occurred 

since certain penalties were last set or adjusted by Congress. The 

“inflation gap” that results from this 10 percent cap can never be 

corrected under this statutory authority and grows with each subsequent 

adjustment. Several agencies with penalties covered by the act 

indicated that, because of the 10 percent cap, their penalties had lost 

effectiveness and their enforcement options had been limited. However, 

officials in those agencies were generally noncommittal with regard to 

elimination of the cap, neither supporting nor opposing such action.



* The act’s requirements on how the penalty adjustments should be 

calculated and rounded prevent agencies from capturing all of the 

inflation that occurs between adjustments and prevent agencies from 

increasing certain penalties until inflation has increased by 45 

percent or more. Therefore, at recent rates of inflation, agencies may 

not be able to adjust some of their penalties for 15 years or more. 

Agency officials frequently told us that these provisions in the act 

were unclear and produced undesirable effects. Each agency in our 

review with covered penalties supported changes to the act to allow 

more timely and accurate penalty adjustments.



* The act exempted 238 penalties from its requirements. Many of these 

exempted penalties have not been adjusted for decades, and more than 

half would be at least 50 percent higher if fully adjusted for 

inflation. Nevertheless, officials in four of the five agencies with 

exempted penalties indicated that their penalties did not currently 

need to be increased.



This report contains several matters for consideration by Congress that 

can help ensure that agencies will keep their civil penalties in pace 

with inflation. First, if Congress wants federal civil penalties to 

retain their original deterrent values, it should consider amending the 

Inflation Adjustment Act to require or permit agencies to make catch-up 

adjustments accounting for all of the inflation that occurred since 

Congress last set or adjusted those penalties. Second, if Congress 

wants agencies to make timely and accurate adjustments of their civil 

penalties, Congress should consider amending the calculation and 

rounding procedures in the act to be more consistent with changes in 

inflation. Third, if Congress believes that exempted penalties are 

currently in need of adjustment, it could amend the statute to permit 

agencies to do so. Finally, to improve compliance with the statute, 

Congress could give one or more entities in the executive branch the 

authority and responsibility to monitor the act’s implementation and 

provide guidance to agencies.



Background:



Prior to 1996, agencies generally did not have the authority to adjust 

civil penalty maximums that were established in statute. Congress would 

occasionally adjust individual penalties or specific groups of 

penalties, but not all civil penalties. As a result, by 1990, many 

penalties had not been changed for decades. When the Federal Civil 

Penalties Inflation Adjustment Act of 1990 was enacted, Congress noted 

in the “Findings” section of the legislation that inflation had 

weakened the deterrent effect of many civil penalties. The stated 

purpose of the 1990 act was “to establish a mechanism that shall (1) 

allow for regular adjustment for inflation of civil monetary penalties; 

(2) maintain the deterrent effect of civil monetary penalties and 

promote compliance with the law; and (3) improve the collection by the 

Federal Government of civil monetary penalties.” However, the act did 

not give agencies the authority to adjust their civil penalties for 

inflation. Instead, the 1990 act required the President to report to 

Congress every 5 years on how much each covered civil penalty had to be 

increased to keep pace with inflation. In addition, the act required 

the President to report annually on penalty assessments and 

collections.



In July 1991, the Office of Management Budget (OMB) submitted the first 

(and ultimately the only) report to Congress under the Federal Civil 

Penalties Inflation Adjustment Act describing the penalty increases 

needed to keep pace with inflation.[Footnote 3] Based on submissions 

from dozens of agencies, the report identified almost 1,000 civil 

monetary penalties that were covered by the act, and listed, by agency, 

the statutory modifications that were required to fully adjust the 

penalties for inflation. Also, in satisfaction of the annual reporting 

requirement, the report also provided information on civil penalty 

assessments and collections during fiscal year 1990. At the request of 

OMB’s Office of Federal Financial Management, the Department of the 

Treasury’s Financial Management Service (FMS) published those reports 

until 1998 (providing information on assessments and collections 

through fiscal year 1997). Congress abolished this annual reporting 

requirement as part of the Federal Reports Elimination Act of 

1998.[Footnote 4]



Congress amended the 1990 act in 1996, replacing the 5-year reporting 

obligation with a requirement that agencies publish regulations in the 

Federal Register adjusting each of their covered civil penalties for 

inflation. The act as amended required each agency’s first inflation 

adjustment regulation to be published by October 23, 1996, and requires 

the agencies to examine their covered penalties at least once every 4 

years thereafter and, where possible, make penalty adjustments. 

However, the act limited the agencies’ initial penalty adjustments to 

10 percent of the penalty amounts. The Inflation Adjustment Act also 

exempted penalties under the Internal Revenue Code of 1986, the Tariff 

Act of 1930, the Occupational Safety and Health Act of 1970, and the 

Social Security Act.



Adjustment Procedures:



The Inflation Adjustment Act requires agencies to follow specific 

procedures when making penalty adjustments. For example, section 5 of 

the act defines a “cost-of-living adjustment” as the following:



…the percentage (if any) for each civil monetary penalty by which - 

(1) the Consumer Price Index[Footnote 5] for the month of June of the 

calendar year preceding the adjustment, exceeds (2) the Consumer Price 

Index for the month of June of the calendar year in which the amount of 

such civil monetary penalty was last set or adjusted pursuant to law.



Therefore, if an agency made its first round of adjustments in October 

1996 and the penalty was last set or adjusted in October 1990, the 

agency was required to calculate the unrounded cost-of-living 

adjustment by comparing the June 1995 Consumer Price Index (CPI) with 

the CPI for June 1990.



The Inflation Adjustment Act also provides specific criteria for how 

agencies should round any penalty increase. Section 5 of the act says 

the following:



Any increase determined under this subsection shall be rounded to the 

nearest (1) multiple of $10 in the case of penalties less than or equal 

to $100; (2) multiple of $100 in the case of penalties greater than 

$100 but less than or equal to $1,000; (3) multiple of $1,000 in the 

case of penalties greater than $1,000 but less than or equal to 

$10,000;

(4) multiple of $5,000 in the case of penalties greater than $10,000 

but less than or equal to $100,000; (5) multiple of $10,000 in the case 

of penalties greater than $100,000 but less than or equal to $200,000; 

and (6) multiple of $25,000 in the case of penalties greater than 

$200,000.



For example, if a maximum civil penalty of $5,000 was last set in 1990, 

and there had been 17 percent inflation from June 1990 through June 

1995 (the relevant time frame for an adjustment in 1996), the unrounded 

increase would be $850 ($5,000 times 0.17). Because the $5,000 penalty 

was greater than $1,000 but less than or equal to $10,000, the statute 

indicates that the $850 increase should be rounded to the nearest 

multiple of $1,000, which is $1,000. Therefore, the adjusted penalty 

after rounding would be $6,000.



However, section 6 of the Inflation Adjustment Act states that the 

first penalty adjustment under these procedures “may not exceed 10 

percent of such penalty.” Therefore, in the above example the $1,000 

rounded increase would be limited to 10 percent of the $5,000 penalty 

amount, or $500. As a result, the adjusted penalty after the 10 percent 

cap would be $5,500. The legislative history of the Inflation 

Adjustment Act does not explain why Congress established the 10 percent 

cap, the penalty exemptions, or the particular adjustment procedures.



Prior GAO Work on Civil Penalties:



Our previous work has indicated that the establishment and adjustment 

of civil penalty maximums is only one part of the penalty process. 

Civil penalty maximums are generally reserved for the most egregious 

cases (e.g., those involving willful intent to violate the law and/or 

fatalities). Agencies investigate potential violations and determine 

the amount of penalty to be sought based on a variety of factors, 

including the severity of the incident, whether the individual or 

organization involved has a previous history of violations, and the 

individual or organization’s ability to pay the fine. In February 2001, 

we reported on the implementation of a statutory provision that 

required federal agencies to provide small entities (e.g., small 

businesses and small governments) with civil penalty relief.[Footnote 

6] We concluded that the requirement was being implemented by the 

agencies differently, and that small entities may not be receiving any 

more relief than larger entities.



We have reported several other times on the assessment of civil 

penalties and the collection of civil penalty debt. For example, see 

the following.



* In August 1994, we reported on the enforcement of the Employee 

Retirement Income Security Act of 1974 (ERISA), noting that the Pension 

and Welfare Benefits Administration’s (PWBA) enforcement program could 

be strengthened by increasing the use of penalties authorized by the 

statute to deter plans from violating the law.[Footnote 7]



* In March 1996 we said “penalties play a key role in environmental 

enforcement by deterring violators and by ensuring that regulated 

entities are treated fairly and consistently so that no one gains a 

competitive advantage by violating environmental 

regulations.”[Footnote 8]



* In March 1999, we reported that the potential usefulness of civil 

monetary penalties in relation to noncompliant nursing homes was being 

hampered because of delays in the application of the sanctions by the 

Health Care Financing Administration.[Footnote 9]



* In May 2000, we reported that the Office of Pipeline Safety (OPS) had 

decreased the number and amount of fines while increasing the use of 

less severe corrective actions.[Footnote 10] We questioned this 

approach, and recommended that the agency determine the impact of the 

reduced use of fines on compliance with safety requirements. We 

subsequently reported that OPS had increased its use of fines.[Footnote 

11]



* In December 2001, we reported on the growth in civil monetary penalty 

receivables at the Centers for Medicare and Medicaid Services 

(CMS).[Footnote 12] In that report, OMB stated that it has broad 

oversight responsibility in monitoring and evaluating governmentwide 

debt collection activities. However, OMB said it is the agencies’ 

responsibility to monitor, manage, and collect the debt, and the 

agency’s Office of the Inspector General’s responsibility to audit debt 

collection activities.



We have also specifically commented on the adjustment of civil 

penalties for inflation. In September 1993, the National Performance 

Review (NPR) recommended that federal civil monetary penalties be 

adjusted for inflation.[Footnote 13] Specifically, NPR recommended that 

a “catch-up” penalty adjustment be made to bring penalties up to date, 

and that the need for additional inflation adjustments be automatically 

reassessed every 4 years. NPR estimated that implementation of the 

recommendation would increase federal receipts by nearly $200 million 

during the fiscal year 1994 through fiscal year 1999 period. In our 

December 1994 report on NPR, we generally agreed with the 

recommendation, noting that civil penalties should be periodically 

adjusted so that they do not lose relevancy.[Footnote 14]



Objectives, Scope, and Methodology:



The objectives of this report are to determine (1) whether, as of June 

30, 2002, agencies with penalties covered by the Inflation Adjustment 

Act had made the required penalty adjustments and (2) whether 

provisions in the act have prevented agencies from keeping their 

penalties in pace with inflation. To address the first objective, we 

electronically searched the Federal Register and determined whether the 

required penalty adjustment regulations had been published by all 

federal agencies that the 1991 OMB report and the 1997 Department of 

the Treasury report indicated had civil penalty authorities that were 

covered by the Inflation Adjustment Act. We defined an “agency” to be 

each organizational unit that was separately listed in those reports or 

that separately published penalty adjustment regulations in the Federal 

Register.



We also examined the adjusted penalties and determined whether any of 

them were eligible for a second round of adjustments. We focused part 

of our analysis on six agencies with large penalty assessments in 1997 

(the most recent data available)--the Environmental Protection Agency 

(EPA); the Mine Safety and Health Administration (MSHA) and PWBA within 

the Department of Labor; and the Federal Aviation Administration (FAA), 

the National Highway Traffic and Safety Administration (NHTSA), and the 

United States Coast Guard (USCG) within the Department of 

Transportation.



We also focused on those six agencies in the second objective, 

comparing the amount of penalty adjustments made under the 10 percent 

cap with the amount of inflation that had occurred since the agencies’ 

penalties were last set or adjusted. As called for by the act, we used 

the CPI for urban workers during the month of June in the relevant 

years as our measure of the historical rates of inflation. We then 

calculated the amount of inflation that had not been accounted for by 

the agencies’ initial adjustments--what we refer to in this report as 

the “inflation gap.” We interviewed officials in each agency to 

determine their views regarding the effect of the 10 percent cap on 

their agencies’ civil penalties and enforcement efforts.



We also focused on those six agencies to examine the effects of the 

adjustment calculation requirements and rounding rules in the statute. 

Specifically, we used certain commonly occurring penalty amounts to 

demonstrate how the statute requires the penalties to be adjusted and 

rounded, and developed projections of how closely the resultant 

penalties tracked a possible rate of inflation. Our projections assume 

an annual rate of inflation of 2.5 percent--about the average rate 

since the Inflation Adjustment Act was enacted in 1996.



We focused another part of our review on the five agencies responsible 

for penalties that are exempted from the act’s requirements--CMS within 

the Department of Health and Human Services, the Occupational Safety 

and Health Administration (OSHA) within the Department of Labor, the 

U.S. Customs Service (Customs) and the Internal Revenue Service (IRS) 

within the Department of the Treasury, and the Social Security 

Administration (SSA). We interviewed officials in each of the five 

agencies, asking if they knew why their agencies’ penalties had been 

excluded, the effect of the exclusions on their ability to keep their 

penalties in pace with inflation, and whether they believed their 

penalties should now be adjusted for inflation. We also contacted 

officials from OMB, the Department of Justice, and FMS within the 

Department of the Treasury to obtain their views regarding the need for 

central management oversight of the act.



We focused part of our review on the extent to which the Inflation 

Adjustment Act permits agencies to keep their civil penalties in pace 

with inflation. However, we made no attempt to ascertain whether any 

individual penalty was set at a sufficient level to deter violations of 

federal law or regulation. We also did not attempt to determine the 

extent to which the agencies’ maximum civil penalties are administered. 

Also, because there is no current comprehensive database that 

identifies each agency with civil penalty authority subject to the 

provisions of the Inflation Adjustment Act, we cannot be sure that we 

have identified all of the agencies or penalties covered by the act. We 

did not attempt to verify whether a penalty adjusted for inflation by 

an agency appropriately met the definition of a covered penalty in the 

Inflation Adjustment Act.[Footnote 15] We conducted our work from March 

1, 2002, through September 1, 2002, at the headquarters offices of the 

above-mentioned agencies in accordance with generally accepted 

government auditing standards.



We provided a draft of this report to OMB, the Department of Justice, 

and the Department of the Treasury for their review and comment. The 

comments that we received are reflected in the “Agency Comments and Our 

Evaluation” section of this report.



Many Agencies Did Not Make Required Penalty Adjustments:



Our review indicated that lack of compliance with the Inflation 

Adjustment Act has been widespread. As of June 2002, 16 of 80 federal 

agencies with civil penalties covered by the act had not adjusted any 

of their penalties for inflation. Only 9 of the 64 agencies that made 

initial penalty adjustments did so by the statutory deadline of October 

23, 1996, and some of the adjustments were not made until years after 

the deadline. Also, 19 of the 64 agencies that made initial adjustments 

had not made required subsequent adjustments for eligible penalties, 

and several other agencies made the adjustments incorrectly. The act 

does not give any agency the authority or responsibility to monitor 

agencies’ compliance or provide guidance on its implementation. 

Representatives from the six agencies with covered penalties that we 

contacted all supported giving some federal entity that authority and 

responsibility.



Sixteen Agencies with Covered Penalties Did Not Make Initial Penalty 

Adjustments:



As noted previously, the Inflation Adjustment Act required each federal 

agency with covered civil penalties to publish a regulation in the 

Federal Register by October 23, 1996, making initial inflation 

adjustments to its civil penalties (to a maximum of 10 percent). We 

reviewed OMB’s 1991 report to Congress and other sources and determined 

that 80 federal agencies had at least one civil penalty that was 

covered by the act’s requirements.[Footnote 16] Our review of the 

Federal Register indicated that, as of June 30, 2002, 16 of the 80 

agencies had not published the required penalty adjustment regulations. 

(See app. I for a list of the 80 agencies and which ones did and did 

not publish regulations.):



We contacted 4 of the 16 agencies that had not published regulations, 

those that appeared to have multiple civil penalties and/or active 

civil penalty programs--the Department of Education, the Federal Energy 

Regulatory Commission, the Food and Drug Administration within the 

Department of Health and Human Services, and Customs.[Footnote 17] In 

separate reports published during this review, we recommended that each 

of the four agencies publish the required initial penalty adjustment 

regulations.[Footnote 18] Each of the agencies agreed to do so, and 

some have since published the required adjustments.[Footnote 19] 

Officials in these agencies said they did not know why their agencies 

had not adjusted their penalties earlier.



Some of the penalty adjustment regulations that were published covered 

all of the department or agency’s civil penalties, but others covered 

only a particular subunit within the department or agency. For example, 

the Department of Agriculture’s initial inflation adjustment regulation 

covered eight different agencies within the department (e.g., the 

Agricultural Marketing Service, the Animal and Plant Health Inspection 

Service, and the Food Safety and Inspection Service). In contrast, nine 

agencies within the Department of Transportation (e.g., FAA, USCG, and 

NHTSA) each published separate penalty adjustment regulations.



Only 9 of the 64 agencies making penalty adjustments published their 

regulations by the statutory deadline of October 23, 1996. Most of the 

other 55 agencies published their regulations by the end of 1997, but 7 

agencies did not do so until 1998 or later. For example, the Office of 

the Attorney General within the Department of Justice did not publish 

its initial Inflation Adjustment Act regulation until August 30, 1999. 

The Wage and Hour Division within the Department of Labor’s Employment 

Standards Administration did not publish its initial regulation until 

December 7, 2001--more than 5 years after the statutory deadline.



All six of the agencies that we focused on in this part of our review 

had published a first round of penalty adjustment regulations by June 

2002. However, none of the agencies published their regulations by the 

October 23, 1996, statutory deadline. For example, MSHA did not publish 

its initial penalty adjustments until April 22, 1998--nearly 18 months 

after the deadline.



Nineteen Agencies Did Not Make Required Second-Round Adjustments:



The Inflation Adjustment Act required agencies with covered civil 

penalties to examine those penalties and, where possible under the 

act’s procedures, make at least one more round of penalty adjustments 

within 4 years after the initial adjustments. Therefore, if an agency 

published its initial penalty adjustments on October 23, 1996, it 

should have examined those penalties and, where possible, published a 

second round of adjustments by October 23, 2000. However, as we viewed 

the act, if the agency did not publish the initial adjustments until 2 

years after the deadline (i.e., October 23, 1998), the agency was not 

required to publish a second round of adjustments for eligible 

penalties until October 23, 2002.



As appendix I shows, 29 of the 64 agencies that published initial 

penalty adjustment regulations under the Inflation Adjustment Act had 

not published a second round of adjustments by June 30, 2002. However, 

in some cases, 4 years had not elapsed since the agencies’ initial 

penalty adjustments. In other cases, the agencies’ penalties were not 

eligible for a second round of adjustments under the procedures 

prescribed in the Inflation Adjustment Act. In total, 19 agencies had 

at least one penalty that was eligible for a second adjustment as of 

June 30, 2002, but the agencies had not adjusted those penalties.



Among the six agencies that we focused on in this part of our review, 

two agencies--FAA and NHTSA--had published a second round of 

adjustments for all of their eligible penalties by June 30, 

2002.[Footnote 20] One agency--PWBA--had no penalties that were 

eligible for adjustment under the Inflation Adjustment Act’s 

procedures. The three remaining agencies--EPA, USCG, and MSHA--had 

penalties that were eligible for a second round of adjustments as of 

June 30, 2002, but had not adjusted those penalties in a manner 

consistent with the act’s requirements.



* EPA published a second round of adjustments on June 18, 2002 (nearly 

5 ½ years after its first adjustments), but later withdrew the rule 

after we advised EPA that the adjustments were inconsistent with the 

Inflation Adjustment Act’s requirements.[Footnote 21] EPA officials 

told us that the agency would publish another adjustment regulation in 

2003.



* USCG could have adjusted 56 of its 122 previously adjusted penalties 

by June 2002.



* MSHA could have adjusted at least 2 of its 5 previously adjusted 

penalties by June 2002.



In separate reports published during this review, we recommended that 

USCG and MSHA publish a second round of penalty adjustments, and each 

agency subsequently agreed to do so.[Footnote 22]



No Agency Is Responsible for Monitoring Compliance or Providing 

Guidance:



Several provisions in the Inflation Adjustment Act are unclear, and 

agencies raised a number of questions during our review regarding some 

of the act’s requirements.



* The act does not clearly indicate whether second-round adjustments 

should be made within 4 years of the October 23, 1996, deadline, or 

within 4 years of the initial adjustment--whenever it occurred.



* Although it is clear that the Inflation Adjustment Act covers penalty 

maximums and minimums set in statute, it is not clear whether penalties 

set administratively by the agencies are covered by the act’s 

requirements.



* It is not clear whether the term “last set or adjusted” refers to the 

date an adjustment was published in the Federal Register or the date 

the adjustment took effect.



* Officials in several agencies raised questions during our review 

regarding how the rounding rules in the statute should be interpreted. 

In January 2002, the Federal Election Commission’s General Counsel 

developed a memo examining various interpretations of those provisions 

and indicating that agencies were interpreting the requirements 

differently.



* Officials in one agency said it was unclear whether future inflation 

adjustments should be based on the penalty prior to or after rounding.



When the Inflation Adjustment Act was enacted in 1996, Congress did not 

give any federal agency the authority or responsibility to monitor 

agencies’ compliance with the act or to provide guidance to agencies on 

how the act should be implemented. In November 1996, at the request of 

OMB’s Office of Federal Financial Management (OFFM), FMS developed 

written guidance on the Inflation Adjustment Act and held a workshop on 

how the act should be implemented. As noted previously, FMS also 

reported on agencies’ civil penalty assessments and collections until 

1998 at the request of OFFM. However, FMS has not provided any guidance 

to agencies on the Inflation Adjustment Act since 1996 and has never 

monitored agencies’ compliance with the act.



In contrast, other crosscutting regulatory reform statutes make a 

particular executive branch agency responsible for monitoring 

compliance and providing guidance to other agencies. For example, the 

Paperwork Reduction Act gives OMB the authority and responsibility to 

approve agencies’ proposed information collections and to provide 

guidance to the agencies on how the act should be implemented.[Footnote 

23] Also, the Regulatory Flexibility Act requires the Small Business 

Administration’s Chief Counsel for Advocacy to monitor and report at 

least annually on agencies’ compliance with the act.[Footnote 24]



Representatives from all six of the agencies with covered penalties 

that we contacted supported giving some federal entity the authority 

and responsibility to monitor agencies’ compliance with the Inflation 

Adjustment Act and to provide guidance to the agencies on the act’s 

implementation. One representative said that FMS had been very helpful 

during the act’s early implementation, but since then there had been no 

entity that the agencies could turn to for advice and guidance.



The Inflation Adjustment Act Has Prevented Agencies from Keeping 

Certain Penalties in Pace with Inflation:



Several provisions in the Inflation Adjustment Act have limited 

agencies’ ability to keep their penalties in pace with inflation. The 

10 percent cap on initial adjustments prevented some agencies from 

fully adjusting for hundreds of percent of inflation that had occurred 

since certain penalties were last set or adjusted by Congress. The 

resultant “inflation gap” cannot be corrected under this statutory 

authority through subsequent adjustments and, in fact, grows with each 

adjustment. Also, the act’s requirements on how the penalty adjustments 

should be calculated and rounded prevents agencies from capturing all 

of the inflation that occurs between adjustments, and can prevent 

agencies from increasing certain penalties until inflation increases by 

45 percent or more. In addition, the act exempted hundreds of penalties 

from inflation adjustment, some of which have not been adjusted for 

decades.



Ten Percent Cap Results in Penalty “Inflation Gaps”:



The Inflation Adjustment Act limited covered agencies’ first 

adjustments under the statute to 10 percent of the penalty amount. In 

the six agencies that we focused on in this portion of our review, all 

232 initial penalty adjustments were capped at 10 percent.[Footnote 25] 

As table 1 shows, none of these 10 percent adjustments were sufficient 

to fully account for the amount of inflation that had occurred since 

the underlying penalties were last set or adjusted. The size of the 

inflation gap varied by agency and by penalty within agencies. In some 

cases, the cap did not severely limit the agencies’ ability to account 

for inflation. For example, the 10 percent adjustment that MSHA made to 

its five penalties in 1998 (using the June 1997 CPI) accounted for all 

but 4 percent of the inflation that occurred since those penalties were 

last adjusted in 1992.



Table 1: The 10 Percent Cap on Initial Adjustments Resulted in Large 

“Inflation Gaps” for Some Penalties:



Agency: EPA; CPI year used for initial adjust-ment: 1995; Number of 

penalties adjusted and capped at 10 percent: 74; Year penalties were 

last set or adjusted: Oldest: 1972; Year penalties were last set or 

adjusted: Most recent: 1992; [Empty]; Inflation gap after adjustment 

(percent): High: 266; Inflation gap after adjustment (percent): 

Low: 2; [Empty]; Inflation gap after adjustment (dollars): High: $ 

282,400; Inflation gap after adjustment (dollars): Low: $ 74.



Agency: PWBA; CPI year used for initial adjust-ment: 1996; Number of 

penalties adjusted and capped at 10 percent: 7; Year penalties were 

last set or adjusted: Oldest: 1974; Year penalties were last set or 

adjusted: Most recent: 1990; [Empty]; Inflation gap after adjustment 

(percent): High: 281; Inflation gap after adjustment (percent): 

Low: 11; [Empty]; Inflation gap after adjustment (dollars): High: 

281; Inflation gap after adjustment (dollars): Low: 11.



Agency: MSHA; CPI year used for initial adjust-ment: 1997; Number of 

penalties adjusted and capped at 10 percent: 5; Year penalties were 

last set or adjusted: Oldest: 1992; Year penalties were last set or 

adjusted: Most recent: 1992; [Empty]; Inflation gap after adjustment 

(percent): High: 4; Inflation gap after adjustment (percent): Low: 

4; [Empty]; Inflation gap after adjustment (dollars): High: 2,150; 

Inflation gap after adjustment (dollars): Low: 2.



Agency: FAA; CPI year used for initial adjust-ment: 1995; Number of 

penalties adjusted and capped at 10 percent: 8; Year penalties were 

last set or adjusted: Oldest: 1958; Year penalties were last set or 

adjusted: Most recent: 1990; [Empty]; Inflation gap after adjustment 

(percent): High: 418; Inflation gap after adjustment (percent): 

Low: 7; [Empty]; Inflation gap after adjustment (dollars): High: 

20,120; Inflation gap after adjustment (dollars): Low: 488.



Agency: NHTSA; CPI year used for initial adjust-ment: 1996; Number of 

penalties adjusted and capped at 10 percent: 16; Year penalties were 

last set or adjusted: Oldest: 1966; Year penalties were last set or 

adjusted: Most recent: 1992; [Empty]; Inflation gap after adjustment 

(percent): High: 374; Inflation gap after adjustment (percent): 

Low: 2; [Empty]; Inflation gap after adjustment (dollars): High: 

2,126,400; Inflation gap after adjustment (dollars): Low: 13.



Agency: USCG; CPI year used for initial adjust-ment: 1996; Number of 

penalties adjusted and capped at 10 percent: 122; Year penalties were 

last set or adjusted: Oldest: 1968; Year penalties were last set or 

adjusted: Most recent: 1992; [Empty]; Inflation gap after adjustment 

(percent): High: 343; Inflation gap after adjustment (percent): 

Low: 11; [Empty]; Inflation gap after adjustment (dollars): High: 

41,100; Inflation gap after adjustment (dollars): Low: 10.



Agency: Total; CPI year used for initial adjust-ment: [Empty]; Number 

of penalties adjusted and capped at 10 percent: 232; Year penalties 

were last set or adjusted: Oldest: [Empty]; Year penalties were last 

set or adjusted: Most recent: [Empty]; [Empty]; Inflation gap after 

adjustment (percent): High: [Empty]; Inflation gap after adjustment 

(percent): Low: [Empty]; [Empty]; Inflation gap after adjustment 

(dollars): High: [Empty]; Inflation gap after adjustment (dollars): 

Low: [Empty].



Source: GAO analysis of agency initial inflation adjustment 

regulations.



Note: The inflation gap estimates represent the difference between the 

increase needed to fully account for inflation and the 10 percent 

adjustment. The 74 penalties that EPA adjusted and capped at 10 percent 

includes 2 penalties that the agency adjusted in June 1997 that were 

not included in the agency’s December 1996 publication.



[End of table]



However, in other cases the 10 percent cap on agencies’ initial 

adjustments resulted in sizable inflation gaps. For example, one of the 

civil penalties that FAA adjusted in 1996 was a maximum $1,000 penalty 

for, among other things, possession of a firearm discovered at a 

baggage security checkpoint. The penalty was set in 1958 and, until 

1996, had not been changed.[Footnote 26] As figure 1 illustrates, if 

adjusted for inflation in 1996 (using the June 1995 CPI), this penalty 

would have increased by more than 400 percent to $5,277. However, 

because the Inflation Adjustment Act limited agencies’ first 

adjustments to 10 percent, FAA was only able to increase this penalty 

by $100 to $1,100--$4,177 less than it would have been if fully 

adjusted for the amount of inflation that occurred from 1958 through 

1995.



Figure 1: The 10 Percent Cap on Initial Adjustments Prevented FAA from 

Keeping Its $1,000 Penalty in Pace With Inflation:



[See PDF for image]



[End of figure]



The 10 percent cap on initial adjustments also resulted in sizable 

inflation gaps for several other penalties in the six selected 

agencies. For example, see the following.



* If fully adjusted for inflation in 1996, a NHTSA penalty last set in 

1972 at $800,000 for a series of violations involving the failure to 

meet bumper standard testing criteria would have increased by 275 

percent to more than $3 million. However, the 10 percent cap limited 

the increase to $80,000, leaving an inflation gap of more than $2.1 

million.



* An EPA penalty last set at $25,000 in 1976 for violation of the Toxic 

Substances Control Act would have increased by nearly 170 percent to 

more than $67,000 if fully adjusted for inflation in 1995. However, the 

10 percent cap meant that the penalty could only increase by $2,500, 

leaving an inflation gap of nearly $40,000.



* A PWBA penalty was last set at $100 per day in 1974 for refusal to 

provide information in a timely manner needed to determine compliance 

with certain requirements in ERISA. If fully adjusted for inflation in 

1996, the penalty would have increased to more than $300 per day. 

However, with the 10 percent cap, the penalty could only increase by 

$10, leaving an inflation gap of more than $200.



Size of Inflation Gap Resulting from the 10 Percent Cap Grows with 

Subsequent Adjustments:



Because of other provisions in the Inflation Adjustment Act, the 

inflation gap resulting from the 10 percent cap on initial adjustments 

cannot be corrected under this statutory authority--and, in fact, grows 

with each penalty adjustment. The act defines the term “cost of living 

adjustment” as the percentage by which the CPI for the year preceding 

the adjustment exceeds the CPI for the year in which the penalty was 

last set or adjusted. Therefore, agencies’ second adjustments under the 

statute could only take into consideration the amount of inflation 

since the first adjustment.[Footnote 27] As a result, any inflation gap 

remaining as a result of the 10 percent cap becomes permanent. 

Furthermore, because the capped penalties are smaller than they would 

have been without the 10 percent restriction, the size of subsequent 

adjustments using that smaller base are also smaller, resulting in a 

widening of the inflation gaps.



For example, in the previously mentioned FAA penalty, the 10 percent 

cap on the agency’s December 1996 adjustment resulted in an adjusted 

penalty of $1,100 and an inflation gap of $4,177. Under the Inflation 

Adjustment Act, FAA was required to examine this penalty by December 

2000 and to calculate the cost of living adjustment needed to account 

for inflation from June 1996 through June 1999. Inflation increased by 

about 6 percent during this period, so the unrounded increase in this 

penalty would have been $66 ($1,100 times .06), resulting in an 

unrounded adjusted penalty of $1,166. However, FAA could not go back 

and recapture any of the $4,177 inflation gap that resulted from the 10 

percent cap on the 1996 adjustment.



As figure 2 shows, by June 1999, the $1,000 penalty set in 1958 would 

have been $5,750 if fully adjusted for inflation. Therefore, the 

inflation gap resulting from the 10 percent cap would have increased 

from $4,177 to $4,584 ($5,750 minus $1,166).



Figure 2: The Size of the Inflation Gap Resulting from the 10 Percent 

Cap Grows with Each Subsequent Adjustment:



[See PDF for image]



[End of figure]



Agencies Generally Noncommittal Regarding Elimination of 10 Percent 

Cap:



The limited legislative history that exists regarding the 1996 

amendment to the Inflation Adjustment Act does not explain why the 10 

percent cap was established. Until the 1996 amendment, no earlier 

executive branch or congressional initiative had called for any cap on 

the amount of inflation adjustments. In fact, legislation passed by the 

House of Representatives in 1993 included a provision for an immediate 

one-time catch-up adjustment.[Footnote 28] Officials in the six 

selected agencies said that they did not know why Congress established 

the 10 percent cap on initial penalty adjustments.



In its second inflation adjustment regulation, NHTSA expressed concern 

that even with two inflation adjustments, some of the agency’s penalty 

amounts may be inadequate because of the 10 percent cap.[Footnote 29] 

Specifically, NHTSA said the following:



Upon review, we concluded that application of the formulae permit some 

of our penalties to be increased at this time. We are doing so before 

the passage of four years in order to enhance the deterrent effect of 

these penalties because of their importance to our enforcement 

programs. Even with these increases, these penalties appear less than 

adequate as a full deterrent to violations of the statutes that we 

enforce. For example, the maximum penalty for a related series of 

violations under the National Traffic and Motor Vehicle Safety Act of 

1966 as amended in 1974 was $800,000. It would have increased more than 

threefold, to $2.45 million, in June 1996 if (fully) adjusted for 

inflation. However, the adjustment was capped at $880,000. Further, 

under this aggregate penalty ceiling, on a per vehicle basis the 

maximum penalty amounts to less than one dollar per vehicle where a 

substantial fleet was in violation of the Safety Act.



We asked representatives from each of the six agencies that we focused 

on in this part of our review whether their agencies believed the 10 

percent cap should be lifted and agencies either required or allowed to 

make catch-up adjustments. Although the agency representatives 

generally agreed that the 10 percent cap was a significant limitation 

on the maximum amount of the civil penalty that could be assessed on 

the “worst offenders,” they were generally noncommittal with regard to 

this issue, neither supporting nor opposing the elimination of the cap. 

One representative said he was not aware of any instance in which his 

agency had imposed its largest penalty (an $1,100 penalty for each day 

a violation occurred), so he did not believe a catch-up adjustment to 

account for lost inflation would have any effect on the agency’s 

enforcement actions. However, he indicated that the same situation 

might not be true for the agency’s other civil penalties. The 

Department of Labor representative said his department would not 

support changing the statute to require agencies to make catch-up 

adjustments, but said it would have no problem changing the statute to 

allow agencies to do so.



CPI Lag Reduces Amount of Inflation That Can Be Considered:



When determining whether adjustments to their penalties are permitted, 

the Inflation Adjustment Act requires agencies to compare the CPI from 

June of the year preceding the adjustment with the CPI in June of the 

year in which the penalty was “last set or adjusted pursuant to 

law.”[Footnote 30] Therefore, if an agency made its first round of 

penalty adjustments in October 1996 and examined those penalties in 

October 2000 to determine if further adjustments were warranted, the 

agency would have to compare the CPI for June 1996 with the CPI for 

June 1999--not the most current CPI data available or even the most 

recent June CPI data. As figure 3 shows, this “CPI lag” feature in the 

statutory adjustment procedures reduces the amount of inflation that 

can be accounted for from 10 percent (the amount of inflation from June 

1996 through June 2000) to 6.1 percent (the amount of inflation from 

June 1996 through June 1999).



Figure 3: CPI Lag in the Inflation Adjustment Act Reduces the Amount of 

Inflation That Can Be Considered:



[See PDF for image]



[End of figure]



The inflation lost as a result of the CPI lag in the statute cannot be 

recovered later because the statute requires each subsequent adjustment 

to be calculated from the CPI for the year in which the penalty was 

last set or adjusted (i.e., June 2000 in the above example)--not from 

the CPI used to make the last adjustment (June 1999).[Footnote 31] 

Therefore, as figure 4 shows, each time an agency makes an adjustment 

the agency loses a year of inflation that can never be recovered.



Figure 4: Inflation Lost Due to CPI Lag Cannot Be Recovered:



[See PDF for image]



[End of figure]



Also, the amount of inflation lost as a result of the CPI lag in the 

Inflation Adjustment Act increases in proportion to the frequency with 

which the agency makes penalty adjustments. Each time that an agency 

adjusts its penalties, the agency loses a year of inflation. As figure 

5 illustrates, if the agency in the above example had examined and been 

able to adjust its penalties twice during the period from 1996 to 2000, 

once in 1998, and again in 2000, the agency would have only been able 

to consider the amount of inflation that occurred from June 1996 

through June 1997 (2.3 percent) and from June 1998 through June 1999 

(2.0 percent)--a total of 4.3 percent--not the full amount of inflation 

that occurred from June 1996 through June 2000 (10 percent) or even the 

amount that occurred from June 1996 through June 1999 (6.1 percent).



Figure 5: Less Inflation Can Be Considered When Penalty Adjustments Are 

More Frequent:



[See PDF for image]



[End of figure]



Agencies Believe CPI Lag Should Be Changed:



Representatives from the six agencies with covered penalties that we 

focused on in this part of our review generally said the CPI lag in the 

Inflation Adjustment Act should be corrected. One official from 

Department of Labor said that it “doesn’t make much sense” to have a 

system in which agencies lose a year of inflation each time they make 

an adjustment, and supported changing the act in this area.



Rounding Rules Can Prevent Adjustments for Long Periods:



The rounding rules in the Inflation Adjustment Act can also 

significantly affect the size and the timing of agencies’ penalty 

adjustments. As noted previously, the act requires agencies to round 

penalty increases to certain dollar amounts, depending on the size of 

the penalty (not the size of the penalty increase). Specifically, the 

act provides that any increase should be rounded to the nearest:



* multiple of $10 in the case of penalties less than or equal to $100,



* multiple of $100 in the case of penalties greater than $100 but less 

than or equal to $1,000,



* multiple of $1,000 in the case of penalties greater than $1,000 but 

less than or equal to $10,000,



* multiple of $5,000 in the case of penalties greater than $10,000 but 

less than or equal to $100,000,



* multiple of $10,000 in the case of penalties greater than $100,000 

but less than or equal to $200,000, and:



* multiple of $25,000 in the case of penalties greater than $200,000.



For example, if the CPI increased by 10 percent during the relevant 

period since a $7,500 penalty was last set or adjusted, the resultant 

penalty increase ($750) would be rounded to the nearest multiple of 

$1,000--which is $1,000. Therefore, the new rounded penalty would be 

$8,500 ($7,500 plus $1,000).



Our analysis indicated that these requirements can prevent agencies 

from adjusting certain penalties until inflation increases 

substantially--sometimes 45 percent or more. At recent rates of 

inflation that can mean that agencies cannot make penalty adjustments 

for 15 years or more. For example, after a first round of adjustments 

in July 1997, one of PWBA’s seven civil penalty maximums at the time 

was $11, five were $110, and one was $1,100.[Footnote 32] Under the 

statute, any effort by the agency to increase its penalties during 

calendar year 2001 (4 years after the agency’s last adjustment) could 

include any increase in inflation that occurred from June 1997 through 

June 2000. During that period, the CPI increased by about 7.5 percent. 

However, as table 2 shows, multiplying each of the 1997 penalty amounts 

by 7.5 percent and applying the rounding rules in the act does not 

result in a penalty adjustment for any of the agency’s penalties.



Table 2: Rounding Rules in the Inflation Adjustment Act Prevented PWBA 

from Increasing Its Penalties in 2001:



Penalty amount after 1997 increase: $11; Unrounded penalty increase 

(1997 penalty times 0.075): $0.83; Unrounded penalty (unrounded 

increase plus 1997 penalty): $11.83; Statute requires increase to 

be rounded to nearest multiple of: $10; Rounded increase: 0.



Penalty amount after 1997 increase: 110; Unrounded penalty increase 

(1997 penalty times 0.075): 8.25; Unrounded penalty (unrounded increase 

plus 1997 penalty): 118.25; Statute requires increase to 

be rounded to nearest multiple of: 100; Rounded increase: 0.



Penalty amount after 1997 increase: 1,100; Unrounded penalty increase 

(1997 penalty times 0.075): 82.50; Unrounded penalty (unrounded 

increase plus 1997 penalty): 1,182.50; Statute requires increase to 

be rounded to nearest multiple of: 1,000; Rounded increase: 0.



Source: GAO analysis of PWBA data.



[End of table]



In fact, PWBA’s penalties are not eligible for an increase under the 

rounding rules in the Inflation Adjustment Act until the CPI increases 

by 45.5 percent. Assuming a 2.5 percent annual rate of inflation in the 

future (about the average rate since the Inflation Adjustment Act was 

passed in 1996), PWBA would not be able to increase any of its civil 

penalties for 17 years.[Footnote 33]



Appendix II shows the maximum civil penalty amounts in each of the six 

selected agencies after the first round of adjustments, the number of 

penalties at each maximum penalty amount, the inflation trigger points 

for each penalty amount, and the number of years that would have had to 

elapse before those penalties could be adjusted again (assuming a 2.5 

percent rate of inflation). Of the 232 penalties in the six agencies, 

208 (about 90 percent) could not be adjusted under the statute within 

the 4-year period contemplated in the statute. Ninety-eight of the 

penalties (about 42 percent) could not be adjusted for at least 10 

years, and 44 (about 19 percent) could not be adjusted for 17 years or 

more. For example, after the first round of adjustments (assuming a 2.5 

percent inflation rate), see the following:



* Six NHTSA penalties at the $1,100 level could not be adjusted under 

the statute for 17 years. These penalties include statutory violations 

involving failure to comply with requirements to reduce traffic deaths 

and injuries, the tracing and recovery of stolen vehicles and component 

parts, and the providing of information needed to determine the 

crashworthiness of motor vehicles. One NHTSA penalty at the $5.50 level 

(for each 0.1 mile per gallon exceeding the fuel standard for 

automobiles under the standard times the number of those automobiles) 

could not be adjusted for 28 years.



* Two EPA penalties at the $1,100 level could not be adjusted under the 

statute for 17 years. These include penalties for certain violations of 

the Clean Water Act and the Federal Insecticide, Fungicide, and 

Rodenticide Act.



* Twenty-seven USCG penalties at the $1,100 and $110 levels could not 

be adjusted under the statute for 17 years. The penalties involve 

violations related to the reporting of marine casualties, hazardous 

substance discharges, bridge maintenance and operation, and other 

statutory violations.



In general, penalties that are just over the lower end of the rounding 

categories (e.g., $110 or $1,100) take longer to adjust than penalties 

at the upper end of those categories (e.g., $1,000 or $10,000).



Rounding Can Result in Penalty Adjustments That Outpace Inflation:



When the agencies are finally able to adjust their penalties for 

inflation, the size of the adjustments permitted under the rounding 

rules in the statute can be significantly larger than the amount of 

inflation that has occurred. For example, as illustrated in table 3 for 

the PWBA penalties discussed above, although the CPI must increase 45.5 

percent before the agency can make an adjustment, the adjustment that 

is ultimately provided will be twice that amount--90.9 percent.



Table 3: When PWBA Penalties Are Eligible for Adjustment, the Increases 

Will Be about Twice That Needed to Keep Pace with Inflation:



Penalty amount after first round of adjustments: $11; Percentage 

increase in CPI needed to adjust penalty: 45.5; Unrounded increase: $5; 

Rounded increase: $10; New

penalty: $21; Percentage increase in penalty amount: 90.9.



Penalty amount after first round of adjustments: 110; Percentage 

increase in CPI needed to adjust penalty: 45.5; Unrounded increase: 50; 

Rounded increase: 100; New

penalty: 210; Percentage increase in penalty amount: 90.9.



Penalty amount after first round of adjustments: 1,100; Percentage 

increase in CPI needed to adjust penalty: 45.5; Unrounded increase: 

500; Rounded increase: 1,000; New

penalty: 2,100; Percentage increase in penalty amount: 90.9.



[End of table]



Source: GAO analysis of PWBA data.



Figure 6 illustrates the 17-year period that may be required for an 

adjustment of the $1,100 penalty and the overcompensation that can 

occur because of the rounding rules. Assuming a 2.5 percent annual rate 

of inflation and applying the adjustment formula in the statute, in 

2014 (17 years after the agency’s first adjustment) PWBA’s $1,100 

penalty could be increased by $1,000 to $2,100. However, if the penalty 

had just kept pace with inflation (i.e., increased 2.5 percent each 

year for 17 years) the penalty would have only increased by about $574 

to $1,674--about $426 less than the rounded adjustment pursuant to the 

Inflation Adjustment Act.



Figure 6: Rounding Rules Can Prevent Penalty Adjustments for Decades:



[See PDF for image]



[End of figure]



The figure also shows that in subsequent penalty adjustments under the 

statute (again assuming a 2.5 percent annual rate of inflation), the 

size of the rounded penalty is almost always above the penalty amount 

if it had just kept pace with inflation. For example, applying the 

rounding rules, the $2,100 rounded penalty would be eligible for 

another $1,000 increase to $3,100 in the year 2024--10 years after the 

previous adjustment. However, if the original $1,100 penalty had just 

kept pace with inflation from 1997 through 2024 it would be $2,143--

$957 less than the rounded penalty. By the fifth adjustment in 2038, 

the rounded civil penalty ($5,100) is projected to be more than $2,000 

larger than the penalty if it had simply kept pace with inflation 

($3,027).



Rounding Based on the Size of the Increase Yields More Frequent, 

Accurate Adjustments:



During our review, we determined that several agencies were rounding 

their penalty adjustments incorrectly. Specifically, the agencies were 

rounding the increases based on the size of the unrounded penalty 

increase rather than the size of the penalty.[Footnote 34] Although 

this method is inconsistent with the requirements of the Inflation 

Adjustment Act, as figure 7 shows (again using the $1,100 penalty for 

illustration and assuming a 2.5 percent annual rate of inflation), 

rounding based on the size of the increase yields more frequent results 

than the statutory approach (rounding based on the size of the 

penalty), and the results more closely track the actual changes in 

inflation over time. The agency could make adjustments every 2 years 

(as illustrated in the figure), but must do so at least once every 4 

years.



Figure 7: Rounding Based on the Size of the Increase More Closely 

Tracks Inflation than Rounding Based on the Size of the Penalty:



[See PDF for image]



[End of figure]



Although rounding based on the size of the increase produces improved 

results, the resulting penalty adjustments are less than they would be 

if the actual rates of inflation were used. For example, as figure 7 

shows, by the year 2021, the penalty amount derived by rounding based 

on the size of the increase would be $1,480--$510 less than if the 

penalty had just kept pace with the projected rate of inflation 

($1,990). However, virtually all of the difference between these two 

figures is caused by the CPI lag feature discussed earlier (in which 

only a portion of the amount of inflation occurring during an 

adjustment period is counted). As figure 8 shows, rounding penalty 

adjustments based on the size of the increase without the CPI lag 

allows the agency to make adjustments each year, and the result is a 

much closer fit to the projected rate of inflation. By the year 2021, 

the rounded penalty is only $10 more ($2,000 versus $1,990) than if it 

had directly kept pace with inflation.



Figure 8: Rounding Based on the Size of the Increase without the CPI 

Lag More Closely Tracks Inflation:



[See PDF for image]



[End of figure]



Agencies Believe Rounding Rules Should Be Changed:



Representatives from all six of the agencies that we focused on in this 

part of our review strongly supported changing the rounding rules in 

the Inflation Adjustment Act. All of them said the rules were 

problematic because of their complexity and/or their effects on the 

agencies’ ability to make timely and accurate adjustments. Alternatives 

that they suggested to the current approach included rounding based on 

the size of the penalty increase (rather than the size of the penalty 

itself) and elimination of rounding altogether.



Some Exempted Penalties Have Not Been Adjusted in Decades:



The Inflation Adjustment Act requires each agency to adjust its civil 

penalties for inflation, but explicitly exempts penalties established 

under certain statutes: (1) the Social Security Act, (2) the 

Occupational Safety and Health Act of 1970, (3) the Internal Revenue 

Code of 1986, and (4) the Tariff Act of 1930. As table 4 shows, the 

exemptions in the act account for at least 238 penalties enforced by 

five federal agencies: CMS within the Department of Health and Human 

Services, OSHA within the Department of Labor, Customs and IRS within 

the Department of the Treasury, and SSA. The legislative history of the 

act does not indicate why these statutes were exempted from the 

inflation adjustment requirements.



Table 4: Inflation Adjustment Act Exempted at Least 238 Civil Penalties 

from Coverage:



Exempted statute: Social Security Act; Department/agency: Department of 

Health and Human Services/CMS; Number of civil 

penalties excluded: 70.



Department/agency: SSA; Number of civil 

penalties excluded: 5.



Exempted statute: Occupational Safety and Health Act of 1970; 

Department/agency: Department of Labor/ OSHA; Number of civil 

penalties excluded: 6.



Exempted statute: Internal Revenue Code of 1986; Department/agency: 

Department of the Treasury/IRS; Number of civil 

penalties excluded: 128.



Exempted statute: Tariff Act of 1930; Department/agency: Department of 

the Treasury/Customs; Number of civil 

penalties excluded: 29.



Exempted statute: Total; Department/agency: [Empty]; Number of civil 

penalties excluded: 238.



Source: GAO analysis of 1991 OMB report on civil penalties supplemented 

with recent data from Health and Human Services, OSHA, IRS, Customs, 

and SSA.



[End of table]



All of OSHA’s six exempted civil penalties were last adjusted by 

Congress in 1990. Therefore, as of June 2002, all of them were 38 

percent less than if they had fully kept pace with inflation since 

1990. However, as table 5 illustrates, the dates that the other 

agencies’ exempted penalties were last set or adjusted vary 

substantially. As a result, the amount of inflation that has elapsed 

since the agencies’ last adjustments also varies. For example, eight 

IRS penalties have not been changed since 1954, but three other IRS 

penalties were set in 1998. As a result, by June 2002 the amount of 

inflation that had occurred since the agency’s penalties were last set 

or adjusted ranged from 10 percent (for the 1998 penalties) to 569 

percent (for the 1954 penalties). One Customs penalty had not been 

adjusted since 1879--resulting in an inflation gap of more than 1,700 

percent. Overall, 142 (nearly 60 percent) of the 238 exempted penalties 

would need to be increased by 50 percent or more to be fully adjusted 

for inflation as of June 2002. Twenty-six of the penalties (about 11 

percent) would need to be adjusted by at least 100 percent.



Table 5: A Substantial Amount of Inflation Has Elapsed with Regard to 

Some Exempted Penalties:



Agency: CMS; Years in which exempted penalties were last set or 

adjusted: Oldest: 1986; Years in which exempted penalties were last set 

or adjusted: Most recent: 1999; [Empty]; Amount of inflation since last 

adjustment (percent) as of 

June 2002: High: 64; Amount of inflation since last adjustment 

(percent) as of 

June 2002: Low: 8.



Agency: IRS; Years in which exempted penalties were last set or 

adjusted: Oldest: 1954; Years in which exempted penalties were last set 

or adjusted: Most recent: 1998; [Empty]; Amount of inflation since last 

adjustment (percent) as of 

June 2002: High: 569; Amount of inflation since last adjustment 

(percent) as of 

June 2002: Low: 10.



Agency: OSHA; Years in which exempted penalties were last set or 

adjusted: Oldest: 1990; Years in which exempted penalties were last set 

or adjusted: Most recent: 1990; [Empty]; Amount of inflation since last 

adjustment (percent) as of 

June 2002: High: 38; Amount of inflation since last adjustment 

(percent) as of 

June 2002: Low: 38.



Agency: Customs; Years in which exempted penalties were last set or 

adjusted: Oldest: 1879; Years in which exempted penalties were last set 

or adjusted: Most recent: 1993; [Empty]; Amount of inflation since last 

adjustment (percent) as of 

June 2002: High: 1,736; Amount of inflation since last adjustment 

(percent) as of 

June 2002: Low: 22.



Agency: SSA; Years in which exempted penalties were last set or 

adjusted: Oldest: 1988; Years in which exempted penalties were last set 

or adjusted: Most recent: 1994; [Empty]; Amount of inflation since last 

adjustment (percent) as of 

June 2002: High: 53; Amount of inflation since last adjustment 

(percent) as of 

June 2002: Low: 22.



Source: GAO analysis of 1991 OMB report on civil penalties supplemented 

with recent data from Health and Human Services, OSHA, IRS, Customs, 

and SSA.



Note: CPI information is only available since 1913, so the amount of 

inflation elapsed for the oldest customs penalty (1879) is calculated 

since 1913.



[End of table]



These inflation gaps notwithstanding, officials in four of the five 

agencies with exempted penalties--CMS, IRS, Customs, and OSHA--said 

that their penalties did not need to be adjusted for inflation.



* CMS officials said that, despite their age, some of the maximum 

penalties in the Social Security Act are still fairly high, thereby 

giving the agency the flexibility it needs when deciding on the size of 

the penalty imposed. They also said that some of the penalties could be 

compounded monthly, weekly, or daily, resulting in even higher penalty 

maximums if needed. As a result, they said that CMS has the leverage it 

needs to counteract the effects of inflation on penalty amounts that 

were set by Congress, in some cases, decades earlier.



* IRS officials said that the agency’s penalties for fixed dollar 

amounts can be compounded daily. As a result, they said, the maximum 

penalty assessed could be substantial even without adjusting for 

inflation. In addition, they said that IRS penalties sometimes contain 

formulas (e.g., a percentage of the amount invested or of the amount of 

tax due) that implicitly account for inflation.[Footnote 35]



* Customs officials said that they are satisfied with the adequacy of 

the fixed amount penalties provided for within the Tariff Act and the 

deterrent effect that they provide. For example, the most commonly 

assessed fixed amount penalty--a $5,000 penalty for violation of 19 

U.S.C. 1436 assessed against a master of a vessel, operator of a 

vehicle, or pilot of an aircraft for failing to comply with statutory 

requirements concerning report of arrival of conveyances and 

presentation of accurate cargo and passenger manifest information--has 

proven to be an effective deterrent.



* OSHA officials said that Congress increased the agency’s penalties 

seven-fold in 1990--far in excess of the amount of inflation that had 

occurred since those penalties were previously set in 1970. As a 

result, they said, the 1990 penalty amounts were still sufficient to 

keep their penalties in pace with the amount of inflation that has 

occurred since 1970. In addition, they said the agency’s policy allows 

penalties to be assessed on a violation-by-violation basis that allows 

the agency to create a multiplier effect. They indicated that this 

multiplier effect could raise the penalty to an amount that would 

exceed the inflation-adjusted levels.



In contrast, SSA officials said that inflation adjustments are 

currently needed for at least some of their penalties because they have 

become eroded by inflation over time and become less effective.



Conclusions:



Civil monetary penalties are an important element of regulatory 

enforcement. Suitably severe maximum penalties allow agencies to punish 

willful and egregious violators appropriately and serve as a deterrent 

to future violations. However, civil penalties can lose their ability 

to punish and deter if unadjusted for inflation. Therefore, as we have 

said previously, we believe that civil penalties should be periodically 

adjusted for the effects of inflation so that they do not lose their 

relevancy. Doing so can also increase federal receipts from those 

penalties, perhaps by tens of millions of dollars per year.



Our review indicated that the Inflation Adjustment Act limits agencies’ 

ability to keep their civil penalties in pace with inflation.



* Because of the 10 percent cap on initial penalty adjustments, some 

civil penalties are hundreds of percent less than they would be if 

fully adjusted for the amount of inflation since Congress last set or 

adjusted them. Viewed another way, those penalties currently represent 

only a fraction of their original value. The inflation gap resulting 

from the 10 percent cap can never be recovered under the statutory 

authority and grows each year.



* Because of the rounding rules in the statute, agencies can be 

prevented from making a second round of penalty adjustments until 

inflation increases 45 percent or more. Therefore, at recent rates of 

inflation, agencies may not be able to readjust their penalties for 15 

years or more after their initial adjustments.



* Because of the way that the statute requires the agencies to use CPI 

data to calculate the raw adjustment, agencies will lose a year of 

inflation each time they make an adjustment. That lost inflation that 

can never be recaptured in subsequent adjustments. Also, the statute 

requires agencies to use CPI data that are at least 7 months old, and 

perhaps as much as 18 months old.



* Because the statute exempted certain penalties from the act’s 

requirements, the agencies administering those penalties are unable to 

make even the modest adjustments permitted as a result of the 10 

percent cap, rounding rules, and CPI lag features discussed above. More 

than 100 of these exempted penalties have declined in value by 50 

percent or more since Congress last set them.



Our review also indicated widespread lack of compliance with and 

confusion about the Inflation Adjustment Act’s requirements. Agencies’ 

failure to comply with those requirements may have cost the government 

millions of dollars in lost penalties from individuals and 

organizations that are the worst offenders of health, safety, 

environmental, and other statutes. We believe that an agency charged 

with monitoring agencies’ compliance with the Inflation Adjustment Act 

could have identified the compliance problems earlier in the act’s 

implementation, and may have been able to prevent them from occurring. 

For example, an oversight agency could have developed a database that 

would determine when penalties were due for an adjustment and notified 

the agencies of their responsibilities under the act. The agency could 

also suggest ways to make implementation of the act’s requirements 

better or easier. For example, the agency could provide a standard 

format by which agencies could explain how their penalties were 

adjusted and list the new penalty amounts, and/or could have provided 

agencies with computer programs to facilitate the computation of 

penalty adjustments and revised penalty amounts. In addition, detailed 

guidance to the agencies regarding the Inflation Adjustment Act’s 

requirements might have prevented some of the questions and problems 

that have arisen during its implementation. Finally, an oversight 

agency could collect information regarding civil penalty assessments 

and collections that has been unavailable for the past 5 years. That 

information could help Congress understand which agencies have civil 

penalty authority, the extent to which certain penalties are being 

used, and the extent to which agencies are developing alternatives to 

the exemptions from the Inflation Adjustment Act and the limitations 

imposed by the act on their penalty adjustments.



Matters for Congressional Consideration:



If Congress wants federal civil penalties to regain their full impact 

and deterrent effects, it should consider amending the Inflation 

Adjustment Act to require agencies to adjust their penalties for the 

full amount of inflation that has occurred since they were last set or 

adjusted by Congress. This catch-up adjustment could occur all at once 

or in a series of adjustments. Alternatively, Congress could amend the 

act to permit (but not require) agencies to make catch-up adjustments.



If Congress wants federal civil penalties to be adjusted on a more 

timely and accurate basis, it should consider amending the Inflation 

Adjustment Act to:



* allow agencies to use more current CPI data to calculate the size of 

penalty increases, and require that changes in the CPI be calculated 

without losing a year of inflation and:



* either eliminate the rounding provisions altogether (e.g., adjust 

penalties for the actual amount of inflation that occurred) or change 

the way in which penalty increases are rounded (e.g., round based on 

the size of the increase rather than the size of the penalty itself).



If Congress wants penalties currently exempted from the act to be 

covered, it should consider amending the Inflation Adjustment Act and 

permitting agencies to adjust those penalties for inflation.



Finally, Congress should consider giving one or more executive branch 

agencies the authority and responsibility to monitor the act’s 

implementation and provide guidance to the agencies. A single agency 

could be made responsible for both providing guidance to agencies on 

the implementation of the Inflation Adjustment Act and monitoring 

compliance with the act. Alternatively, those functions could be given 

to separate agencies. The agency or agencies could also collect basic 

information on which agencies have civil penalty authority, the amount 

of penalty assessments and collections, and the agencies’ use of 

alternative mechanisms to increase assessments and collections.



Agency Comments and Our Evaluation:



On February 11, 2003, we provided a draft of this report to OMB, the 

Department of Justice, and the Department of the Treasury for their 

review and comment. We also provided a draft for technical review to 

the six selected agencies with covered penalties and the five agencies 

with penalties not covered by the Inflation Adjustment Act. Two of the 

agencies with covered penalties--NHTSA and PWBA--provided us with 

technical comments, which we incorporated as appropriate. For example, 

in response to a comment from NHTSA, we clarified that both FAA and 

NHTSA had published a second round of penalty adjustments by June 30, 

2002, for all of the agencies’ eligible penalties.



On February 26, 2003, we received written comments on the draft report 

from the Director of the Audit Liaison Office within the Department of 

Justice. On behalf of the department, she suggested that we change our 

matter for congressional consideration to state that Congress should 

provide not only the authority and responsibility to monitor the act’s 

implementation, but also the “necessary resources.” We did not make 

this change because we do not believe that these roles will require 

significant, dedicated resources. The Director did not comment on the 

other proposed changes to the act’s requirements (e.g., elimination of 

the inflation gap created by the 10 percent cap or changes to the 

rounding rules).



On February 27, 2003, we received written comments on the draft report 

from the Commissioner of FMS within the Department of the Treasury. The 

Commissioner said that FMS is “not the appropriate organization” for 

monitoring compliance with the Inflation Adjustment Act given the act’s 

“unique and complex features” and because such monitoring is not 

directly related to the agency’s responsibility for overseeing the 

collection of delinquent debt. He said it is FMS’s view that each 

federal agency is responsible for managing and collecting civil 

monetary penalty debt. He also said that each federal agency’s 

inspector general has a responsibility for overseeing agency compliance 

with the Inflation Adjustment Act. We agree that inspectors general can 

help oversee the act’s implementation within particular agencies. 

However, we also believe that some type of central oversight and 

guidance function is also needed to ensure consistency in how the act 

is interpreted and applied, and to gather information about civil 

penalty assessments and collections throughout the government. In 

addition, several of the departments and agencies with inspectors 

general did not make the required penalty adjustments--an indication 

that reliance on inspectors general alone may not result in improved 

compliance with the act. Also, at least two agencies with penalties 

covered by the act do not have inspectors general, so it is unclear 

what entities would oversee implementation in these agencies. 

Therefore, we did not change our matter for congressional 

consideration.



The Commissioner of FMS also provided comments on specific sections of 

the draft report, which we incorporated as appropriate. For example, he 

suggested that we clarify that FMS developed written guidance on the 

Inflation Adjustment Act and held a workshop on how the act should be 

implemented at the request of OFFM, not at the agency’s initiative. The 

Commissioner did not comment on the other proposed changes to the act’s 

requirements.



On March 7, 2003, we received written comments on the draft report from 

OMB staff in OFFM and the Office of the General Counsel. The OMB staff 

agreed with the report’s conclusions on the Inflation Adjustment Act’s 

requirements, namely that Congress directly assigned to each federal 

agency the responsibility to comply with the act’s requirements and did 

not assign to any agency the responsibility to provide centralized 

governmentwide guidance and oversight. As such, the staff said that it 

is the responsibility of each agency to comply with the act’s 

requirements, and that oversight of each agency’s compliance with the 

act resides first with that agency’s inspector general office. The OMB 

staff also said they did not agree that a centralized role of providing 

guidance and oversight of governmentwide compliance with the act was 

necessarily needed. However, they said that if it were concluded that a 

federal agency should take on this added responsibility, an agency 

other than OMB would likely be more appropriate for serving this role. 

As we indicated in our response to a similar comment from the 

Commissioner of FMS, we agree that agency inspectors general can help 

oversee the act’s implementation within particular agencies. However, 

we also believe some type of central oversight and guidance function is 

also needed to ensure consistency in how the act is interpreted and 

applied. Therefore, we did not change our matter for congressional 

consideration.



We are sending copies of this report to the Secretary of the Treasury, 

the Attorney General, and the Director of OMB. We are also sending 

copies to each of the six agencies with covered penalties that we 

focused on in this review, and to each of the five agencies with 

penalties that are not covered by the act. It will also be available at 

no charge on GAO’s homepage at http://www.gao.gov. If you have any 

questions concerning this report, please call Curtis Copeland or me at 

(202) 512-6806. Major contributors to this report include Andrea 

Levine, Joe Santiago, John Tavares, and Michael Volpe.



Victor S. Rezendes

Managing Director

Strategic Issues:



Signed by Victor S. Rezendes:



[End of section]



Appendixes:



Appendix I: Final Rules That Adjust Civil Penalties for Inflation as of 

June 30, 2002:



Tables 6 and 7 identify the departments and agencies that the Office of 

Management and Budget’s (OMB) 1991 report or other sources indicated 

have civil penalty authority and that are covered by the requirements 

of the Federal Civil Penalties Inflation Adjustment Act, as amended 

(Inflation Adjustment Act). The tables also identify the initial and 

subsequent penalty adjustment final rules that had been published as of 

June 30, 2002. Because there is no current comprehensive database that 

identifies each agency with civil penalty authority subject to the 

provisions of the Inflation Adjustment Act, we cannot be sure that we 

have identified all of the covered agencies or penalties. Also, the 

adjustment regulations listed reflect the results of our search of the 

Federal Register from 1996 through June 30, 2002. Other penalty 

adjustment regulations may have been published that we did not 

discover.



In some cases, cabinet departments published a single rule that 

adjusted penalties for all subagencies/offices within the department 

(e.g., the Department of Agriculture’s July 31, 1997, initial 

adjustment). In other cases, agencies within the departments each made 

their own adjustments (e.g., the Department of Transportation). The 

phrase “not made” in a cell indicates that a required initial or 

subsequent adjustment had not been made as of June 30, 2002, for at 

least one eligible penalty. The phrase “not required” in a cell in the 

“subsequent adjustment” column indicates that no adjustment was 

required as of June 30, 2002, either because 4 years had not elapsed 

since the initial adjustment or because not enough inflation had 

occurred to permit an adjustment under the rounding rules in the 

statute.



:



Table 6: Final Rules That Adjust Cabinet Departments’ Civil Penalties 

for Inflation (as of June 30, 2002):



Department: Agriculture; Subagency/office: Agricultural Marketing 

Service; Initial adjustments: Date of publication: 07/31/1997; Initial 

adjustments: Federal Register citation: 62 FR 40924; [Empty]; 

Subsequent adjustments: Date of publication: not made; Subsequent 

adjustments: Federal Register citation: [Empty].



Subagency/office: Animal and Plant Health Inspection Service; [Empty].



Subagency/office: Food and Consumer Service; [Empty].



Subagency/office: Food Safety and Inspection Service; [Empty].



Subagency/office: Forest Service; [Empty].



Subagency/office: Grain Inspection, Packers and Stockyards 

Administration; [Empty].



Subagency/office: Federal Crop Insurance Corporation; [Empty].



Subagency/office: Office of the Secretary; [Empty].



Department: Commerce; Subagency/office: Bureau of Export 

Administration; Initial adjustments: Date of publication: 10/24/1996; 

Initial adjustments: Federal Register citation: 61 FR 55092; [Empty]; 

Subsequent adjustments: Date of publication: 11/01/2000; Subsequent 

adjustments: Federal Register citation: 65 FR 65260.



Subagency/office: Economic Development Administration; [Empty]; 

Subsequent adjustments: Date of publication: [Empty].



Subagency/office: Economics and Statistics Administration; [Empty]; 

Subsequent adjustments: Date of publication: [Empty].



Subagency/office: Bureau of Economic Analysis; [Empty]; Subsequent 

adjustments: Date of publication: [Empty].



Subagency/office: Import Administration; [Empty]; Subsequent 

adjustments: Date of publication: [Empty].



Subagency/office: National Oceanic and Atmospheric Administration; 

[Empty]; Subsequent adjustments: Date of publication: [Empty].



Subagency/office: Office of the Secretary; [Empty]; Subsequent 

adjustments: Date of publication: [Empty].



Department: Defense; Subagency/office: Army Corps of Engineers; Initial 

adjustments: Date of publication: 12/26/1996; Initial adjustments: 

Federal Register citation: 61 FR 67944; [Empty]; Subsequent 

adjustments: Date of publication: not made; Subsequent adjustments: 

Federal Register citation: [Empty].



Subagency/office: Office of the Secretary; [Empty].



Department: Education; Date of publication: not made; 



Department: Energy; Subagency/office: Office of General Counsel; 

Initial adjustments: Date of publication: 09/02/1997; Initial 

adjustments: Federal Register citation: 62 FR 46181; [Empty]; 

Subsequent adjustments: Date of publication: not made; Subsequent 

adjustments: Federal Register citation: [Empty].



Department: Health and Human Services; Subagency/office: Food and Drug 

Administration; Date of publication: not made; 



Subagency/office: Office of Inspector General; Initial adjustments: 

Date of publication: 10/07/1996; Initial adjustments: Federal Register 

citation: 61 FR 52299; [Empty]; Subsequent adjustments: Date of 

publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Department: Housing and Urban Development; Subagency/office: Office of 

Federal Housing Enterprise Oversight; Initial adjustments: Date of 

publication: 12/31/1997; Initial adjustments: Federal Register 

citation: 62 FR 68152; [Empty]; Subsequent adjustments: Date of 

publication: 01/04/2001; Subsequent adjustments: Federal Register 

citation: 66 FR 709.



Subagency/office: Office of the Secretary; Initial adjustments: Date of 

publication: 09/24/1996; Initial adjustments: Federal Register 

citation: 61 FR 50207; [Empty]; Subsequent adjustments: Date of 

publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Initial adjustments: Date of publication: 10/04/1996; Initial 

adjustments: Federal Register citation: 61 FR 52215; [Empty].



Department: Interior; Subagency/office: Bureau of Land Management; 

Date of publication: not made; 



Subagency/office: Fish and Wildlife Service; Date 

of publication: not made; 



Subagency/office: Minerals Management Service; 

Date of publication: not made; 



Subagency/office: Office of Surface Mining Reclamation and Enforcement; 

Initial adjustments: Date of publication: 11/28/1997; Initial 

adjustments: Federal Register citation: 62 FR 63274; [Empty]; 

Subsequent adjustments: Date of publication: 11/21/2001; Subsequent 

adjustments: Federal Register citation: 66 FR 58644.



Department: Justice; Subagency/office: Executive Office for 

Immigration Review; Initial adjustments: Date of publication: 02/12/

1999; Initial adjustments: Federal Register citation: 64 FR 7066; 

[Empty]; Subsequent adjustments: Date of publication: not required; 

Subsequent adjustments: Federal Register citation: [Empty].



Subagency/office: Office of the Attorney General; Initial adjustments: 

Date of publication: 08/30/1999; Initial adjustments: Federal Register 

citation: 64 FR 47099; [Empty]; Subsequent adjustments: Date of 

publication: not required; Subsequent adjustments: Federal Register 

citation: [Empty].



Department: Labor; Subagency/office: Mine Safety and Health 

Administration; Initial adjustments: Date of publication: 04/22/1998; 

Initial adjustments: Federal Register citation: 63 FR 20031; [Empty]; 

Subsequent adjustments: Date of publication: not made; Subsequent 

adjustments: Federal Register citation: [Empty].



Subagency/office: Pension and Welfare Benefits Administration; Initial 

adjustments: Date of publication: 07/29/1997; Initial adjustments: 

Federal Register citation: 62 FR 40695; [Empty]; Subsequent 

adjustments: Date of publication: not required; Subsequent adjustments: 

Federal Register citation: [Empty].



Subagency/office: Wage and Hour Division; Initial adjustments: Date of 

publication: 12/07/2001; Initial adjustments: Federal Register 

citation: 66 FR 63501; [Empty]; Subsequent adjustments: Date of 

publication: not required; Subsequent adjustments: Federal Register 

citation: [Empty].



Subagency/office: Office of Worker’s Compensation Program; Initial 

adjustments: Date of publication: 10/17/1997; Initial adjustments: 

Federal Register citation: 62 FR 53955; [Empty]; Subsequent 

adjustments: Date of publication: not made; Subsequent adjustments: 

Federal Register citation: [Empty].



Department: State; 

Date of publication: not made; 



Department: Transportation; Subagency/office: Federal Aviation 

Administration; Initial adjustments: Date of publication: 12/20/1996; 

Initial adjustments: Federal Register citation: 61 FR 67443; [Empty]; 

Subsequent adjustments: Date of publication: 02/11/2002; Subsequent 

adjustments: Federal Register citation: 67 FR 6364.



Subagency/office: Federal Highway Administration; Initial adjustments: 

Date of publication: 03/13/1998; Initial adjustments: Federal Register 

citation: 63 FR 12413; [Empty]; Subsequent adjustments: Date of 

publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Subagency/office: Federal Railroad Administration; Initial 

adjustments: Date of publication: 03/10/1998; Initial adjustments: 

Federal Register citation: 63 FR 11618; [Empty]; Subsequent 

adjustments: Date of publication: not required; Subsequent adjustments: 

Federal Register citation: [Empty].



Subagency/office: Maritime Administration; Initial adjustments: Date 

of publication: 11/05/1996; Initial adjustments: Federal Register 

citation: 61 FR 56900; [Empty]; Subsequent adjustments: Date of 

publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Subagency/office: National Highway Traffic Safety Administration; 

Initial adjustments: Date of publication: 02/04/1997; Initial 

adjustments: Federal Register citation: 62 FR 5167; [Empty]; Subsequent 

adjustments: Date of publication: 07/14/1999; Subsequent adjustments: 

Federal Register citation: 64 FR 37876.



[Empty]; Subsequent adjustments: Date of publication: 08/07/2001; 

Subsequent adjustments: Federal Register citation: 66 FR 41149.



Subagency/office: Office of the Secretary; Initial adjustments: Date of 

publication: 02/13/1997; Initial adjustments: Federal Register 

citation: 62 FR 6719; [Empty]; Subsequent adjustments: Date of 

publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Subagency/office: Research and Special Projects Administration; 

Initial adjustments: Date of publication: 01/21/1997; Initial 

adjustments: Federal Register citation: 62 FR 2970; [Empty]; Subsequent 

adjustments: Date of publication: not made; Subsequent adjustments: 

Federal Register citation: [Empty].



Subagency/office: Saint Lawrence Seaway Development Corporation; 

Initial adjustments: Date of publication: 10/22/1996; Initial 

adjustments: Federal Register citation: 61 FR 54733; [Empty]; 

Subsequent adjustments: Date of publication: not made; Subsequent 

adjustments: Federal Register citation: [Empty].



Subagency/office: United States Coast Guard; Initial adjustments: Date 

of publication: 04/08/1997; Initial adjustments: Federal Register 

citation: 62 FR 16695; [Empty]; Subsequent adjustments: Date of 

publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Department: Treasury; Subagency/office: Bureau of Alcohol, Tobacco, and 

Firearms; Initial adjustments: Date of publication: 10/23/1996; Initial 

adjustments: Federal Register citation: 61 FR 54935; [Empty]; 

Subsequent adjustments: Date of publication: not required; Subsequent 

adjustments: Federal Register citation: [Empty].



Subagency/office: Office of Enforcement; Date of 

publication: not made; 



Subagency/office: Office of Foreign Assets Controls; Initial 

adjustments: Date of publication: 10/23/1996; Initial adjustments: 

Federal Register citation: 61 FR 54936; [Empty]; Subsequent 

adjustments: Date of publication: not made; Subsequent adjustments: 

Federal Register citation: [Empty].



Subagency/office: Office of the Comptroller of the Currency; Initial 

adjustments: Date of publication: 01/22/1997; Initial adjustments: 

Federal Register citation: 62 FR 3199; [Empty]; Subsequent adjustments: 

Date of publication: 12/11/2000; Subsequent adjustments: Federal 

Register citation: 65 FR 77250.



Subagency/office: Office of Thrift Supervision; Initial adjustments: 

Date of publication: 10/31/1996; Initial adjustments: Federal Register 

citation: 61 FR 56118; [Empty]; Subsequent adjustments: Date of 

publication: 10/17/2000; Subsequent adjustments: Federal Register 

citation: 65 FR 61260.



Subagency/office: U. S. Customs Service; Date of 

publication: not made; 



Department: Veterans Affairs; Subagency/office: [Empty]; Initial 

adjustments: Date of publication: 11/01/1996; Initial adjustments: 

Federal Register citation: 61 FR 56449; [Empty]; Subsequent 

adjustments: Date of publication: not made; Subsequent adjustments: 

Federal Register citation: [Empty].



Source: GAO analysis of OMB’s 1991 report and individual agency Federal 

Register documents.



Note: Some final rules making initial and subsequent adjustments were 

revised after the initial publication dates to reflect technical 

corrections.





[End of table]:



Table 7: Final Rules That Adjust Independent Agencies’ Civil Penalties 

for Inflation (as of June 30, 2002):



Agency: Commodity Futures Trading Commission; Initial adjustments: 

Original date of publication: 10/28/1996; Initial adjustments: Federal 

Register citation: 61 FR 55564; [Empty]; Subsequent adjustments: 

Original date of publication: 07/25/2000; Subsequent adjustments: 

Federal Register citation: 65 FR 45709.



Agency: Environmental Protection Agency; Initial adjustments: Original 

date of publication: 12/31/1996; Initial adjustments: Federal Register 

citation: 61 FR 69359; [Empty]; Subsequent adjustments: Original date 

of publication: 06/18/2002[A]; Subsequent adjustments: Federal 

Register citation: 67 FR 41343.



Agency: Equal Employment Opportunity Commission; Initial adjustments: 

Original date of publication: 05/16/1997; Initial adjustments: Federal 

Register citation: 62 FR 26933; [Empty]; Subsequent adjustments: 

Original date of publication: not required; Subsequent adjustments: 

Federal Register citation: [Empty].



Agency: Farm Credit Administration; Initial adjustments: Original date 

of publication: 10/22/1996; Initial adjustments: Federal Register 

citation: 61 FR 54728; [Empty]; Subsequent adjustments: Original date 

of publication: 07/27/2000; Subsequent adjustments: Federal Register 

citation: 65 FR 46087.



Agency: Farm Credit System Insurance Corporation; Initial adjustments: 

Original date of publication: 10/24/1996; Initial adjustments: Federal 

Register citation: 61 FR 55079; [Empty]; Subsequent adjustments: 

Original date of publication: 08/22/2001; Subsequent adjustments: 

Federal Register citation: 66 FR 44027.



Agency: Federal Communications Commission; Initial adjustments: 

Original date of publication: 02/03/1997; Initial adjustments: Federal 

Register citation: 62 FR 4917; [Empty]; Subsequent adjustments: 

Original date of publication: 10/13/2000; Subsequent adjustments: 

Federal Register citation: 65 FR 60868.



Agency: Federal Deposit Insurance Corporation; Initial adjustments: 

Original date of publication: 11/12/1996; Initial adjustments: Federal 

Register citation: 61 FR 57987; [Empty]; Subsequent adjustments: 

Original date of publication: 10/31/2000; Subsequent adjustments: 

Federal Register citation: 65 FR 64884.



Agency: Federal Election Commission; Initial adjustments: Original date 

of publication: 03/12/1997; Initial adjustments: Federal Register 

citation: 62 FR 11316; [Empty]; Subsequent adjustments: Original date 

of publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Agency: Federal Emergency Management Agency; 

Original date of publication: not made; 



Agency: Federal Energy Regulatory Commission; 

Original date of publication: not made; 



Agency: Federal Maritime Commission; Initial adjustments: Original date 

of publication: 10/08/1996; Initial adjustments: Federal Register 

citation: 61 FR 52704; [Empty]; Subsequent adjustments: Original date 

of publication: 08/15/2000; Subsequent adjustments: Federal Register 

citation: 65 FR 49741.



Agency: Federal Reserve System; Initial adjustments: Original date of 

publication: 11/01/1996; Initial adjustments: Federal Register 

citation: 61 FR 56407; [Empty]; Subsequent adjustments: Original date 

of publication: 10/12/2000; Subsequent adjustments: Federal Register 

citation: 65 FR 60583.



Agency: Federal Trade Commission; Initial adjustments: Original date of 

publication: 10/21/1996; Initial adjustments: Federal Register 

citation: 61 FR 54548; [Empty]; Subsequent adjustments: Original date 

of publication: 10/13/2000; Subsequent adjustments: Federal Register 

citation: 65 FR 60857.



Agency: General Services Administration; Initial adjustments: Original 

date of publication: 12/20/1996; Initial adjustments: Federal Register 

citation: 61 FR 67234; [Empty]; Subsequent adjustments: Original date 

of publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Agency: International Trade Commission; Original 

date of publication: not made; 



Agency: Merit Systems Protection Board; Initial adjustments: Original 

date of publication: 09/18/1996; Initial adjustments: Federal Register 

citation: 61 FR 49049; [Empty]; Subsequent adjustments: Original date 

of publication: not required; Subsequent adjustments: Federal Register 

citation: [Empty].



Agency: National Credit Union Administration; Initial adjustments: 

Original date of publication: 11/06/1996; Initial adjustments: Federal 

Register citation: 61 FR 57290; [Empty]; Subsequent adjustments: 

Original date of publication: 09/22/2000; Subsequent adjustments: 

Federal Register citation: 65 FR 57277.



Agency: National Aeronautics and Space Administration; 

Original date of publication: not made; 



Agency: National Transportation Safety Board; 

Original date of publication: not made; 



Agency: National Science Foundation; Initial adjustments: Original date 

of publication: 11/20/1996; Initial adjustments: Federal Register 

citation: 61 FR 59027; [Empty]; Subsequent adjustments: Original date 

of publication: 06/16/1998; Subsequent adjustments: Federal Register 

citation: 63 FR 32761.



Agency: Nuclear Regulatory Commission; Initial adjustments: Original 

date of publication: 10/11/1996; Initial adjustments: Federal Register 

citation: 61 FR 53553; [Empty]; Subsequent adjustments: Original date 

of publication: 10/04/2000; Subsequent adjustments: Federal Register 

citation: 65 FR 59270.



Agency: Office of Government Ethics; Initial adjustments: Original date 

of publication: 08/30/1999; Initial adjustments: Federal Register 

citation: 64 FR 47095; [Empty]; Subsequent adjustments: Original date 

of publication: not required; Subsequent adjustments: Federal Register 

citation: [Empty].



Agency: Office of Personnel Management; Original 

date of publication: not made; 



Agency: Pension Benefit Guaranty Corporation; Initial adjustments: 

Original date of publication: 07/10/1997; Initial adjustments: Federal 

Register citation: 62 FR 36993; [Empty]; Subsequent adjustments: 

Original date of publication: not required; Subsequent adjustments: 

Federal Register citation: [Empty].



Agency: Railroad Retirement Board; Initial adjustments: Original date 

of publication: 01/27/1997; Initial adjustments: Federal Register 

citation: 62 FR 3790; [Empty]; Subsequent adjustments: Original date of 

publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Agency: Securities and Exchange Commission; Initial adjustments: 

Original date of publication: 11/08/1996; Initial adjustments: Federal 

Register citation: 61 FR 57773; [Empty]; Subsequent adjustments: 

Original date of publication: 02/02/2001; Subsequent adjustments: 

Federal Register citation: 66 FR 8761.



Agency: Small Business Administration; Original 

date of publication: not made; 



Agency: Surface Transportation Board[B]; Original 

date of publication: not made; 



Agency: Tennessee Valley Authority; Initial adjustments: Original date 

of publication: 10/24/1996; Initial adjustments: Federal Register 

citation: 61 FR 55097; [Empty]; Subsequent adjustments: Original date 

of publication: 03/05/2002; Subsequent adjustments: Federal Register 

citation: 67 FR 9924.



Agency: United States Postal Service; Initial adjustments: Original 

date of publication: 10/29/1996; Initial adjustments: Federal Register 

citation: 61 FR 55750; [Empty]; Subsequent adjustments: Original date 

of publication: not made; Subsequent adjustments: Federal Register 

citation: [Empty].



Initial adjustments: Original date of publication: 11/01/1996; Initial 

adjustments: Federal Register citation: 61 FR 56450; [Empty].



Source: GAO analysis of Federal Register documents.



Note: Some final rules making initial and subsequent adjustments were 

revised after the initial publication dates to reflect technical 

corrections.



[A] As discussed in the report, EPA’s second round of adjustments was 

withdrawn after we advised EPA that the adjustments were inconsistent 

with the Inflation Adjustment Act’s requirements.



[B] The Interstate Commerce Commission Termination Act of 1995 (Pub. L. 

104-88, 109 Stat. 803) abolished the Interstate Commerce Commission and 

transferred certain regulatory functions to the newly created Surface 

Transportation Board (Board). The act took effect on January 1, 1996. 

Therefore, the Board was not required to make an initial round of 

adjustments for eligible civil penalties until January 1, 2000. As of 

June 30, 2002, the Board had not made those adjustments.



[End of table]



[End of section]



Appendix II: Amount of Inflation and Estimated Length of Time Needed to 

Trigger Penalty Adjustments in Selected Agencies:



Table 8 illustrates, for six selected agencies, the (1) size of the 

agencies’ penalty amounts after the first round of adjustments, (2) the 

number of covered penalties at each amount, (3) the relevant rounding 

category in the Federal Civil Penalties Inflation Adjustment Act, as 

amended (Inflation Adjustment Act), for each penalty amount, (4) the 

amount of inflation needed to trigger a second round of penalty 

adjustments at that penalty amount, (5) the rounded penalty amount 

after adjustment, (6) the percentage increase that rounded penalty 

represents (when compared to the earlier amount), and (6) the number of 

years it will take (at 2.5 percent inflation per year) to trigger this 

adjustment. The amount of inflation needed to trigger an adjustment is 

calculated by taking half of the rounding multiple and dividing that by 

the size of the penalty. For example, for the $11 Pension and Welfare 

Benefits Administration penalty, half of the $10 rounding multiple is 

$5, which when divided by $11 equals 45.4 percent. As the table shows, 

some of the agencies’ penalties cannot be adjusted for more than 15 

years under the rounding rules, and the rounded increases are twice the 

amount of actual inflation to trigger an adjustment.



Table 8: Amount of Inflation and Estimated Length of Time Needed to 

Trigger Next Penalty Adjustments in Six Selected Agencies:



Agency: Pension and Welfare Benefits Administration; Penalty amounts 

after first-round adjustments: $11; Number of covered penalties at 

this amount: 1; Statute requires increase to be rounded to nearest 

multiple of: $10; Percentage inflation increase needed to trigger next 

adjustment: 45.5; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

17; Rounded penalty amount: $21; Rounded percentage increase: 90.9.



Penalty amounts after first-round adjustments: 110; Number of covered 

penalties at this amount: 5; Statute requires increase to be rounded to 

nearest multiple of: 100; Percentage inflation increase needed to 

trigger next adjustment: 45.5; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

17; Rounded penalty amount: 210; Rounded percentage increase: 90.9.



Penalty amounts after first-round adjustments: 1,100; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 45.5; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

17; Rounded penalty amount: 2,100; Rounded percentage increase: 90.9.



Agency:Mine Safety and Health Administration; Penalty amounts after 

first-round adjustments: 55; Number of covered penalties at this 

amount: 1; Statute requires increase to be rounded to nearest multiple 

of: 10; Percentage inflation increase needed to trigger next 

adjustment: 9.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 65; Rounded percentage increase: 18.2.



Penalty amounts after first-round adjustments: 66; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 10; Percentage inflation increase needed to 

trigger next adjustment: 7.6; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

4; Rounded penalty amount: 76; Rounded percentage increase: 15.2.



Penalty amounts after first-round adjustments: 275; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 100; Percentage inflation increase needed to 

trigger next adjustment: 18.2; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

8; Rounded penalty amount: 375; Rounded percentage increase: 36.4.



Penalty amounts after first-round adjustments: 5,500; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 9.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 6,500; Rounded percentage increase: 18.2.



Penalty amounts after first-round adjustments: 55,000; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 4.6; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 60,000; Rounded percentage increase: 9.1.



Agency: Federal Aviation Administration; Penalty amounts after first-

round adjustments: 1,100; Number of covered penalties at this amount: 

1; Statute requires increase to be rounded to nearest multiple of: 

1,000; Percentage inflation increase needed to trigger next adjustment: 

45.5; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

17; Rounded penalty amount: 2,100; Rounded percentage increase: 90.9.



Penalty amounts after first-round adjustments: 2,200; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 22.8; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

10; Rounded penalty amount: 3,200; Rounded percentage increase: 45.5.



Penalty amounts after first-round adjustments: 11,000; Number of 

covered penalties at this amount: 5; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 22.8; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

10; Rounded penalty amount: 16,000; Rounded percentage increase: 45.5.



Penalty amounts after first-round adjustments: 27,500; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 9.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 32,500; Rounded percentage increase: 18.2.



Agency: National Highway Traffic Safety Administration; Penalty amounts 

after first-round adjustments: 5.5; Number of covered penalties at this 

amount: 1; Statute requires increase to be rounded to nearest multiple 

of: 10; Percentage inflation increase needed to trigger next 

adjustment: 91.0; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

28; Rounded penalty amount: 15.5; Rounded percentage increase: 181.8.



Penalty amounts after first-round adjustments: 1,100; Number of covered 

penalties at this amount: 6; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 45.5; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

17; Rounded penalty amount: 2,100; Rounded percentage increase: 90.9.



Penalty amounts after first-round adjustments: 1,650; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 30.4; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

12; Rounded penalty amount: 2,650; Rounded percentage increase: 60.6.



Penalty amounts after first-round adjustments: 2,200; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 22.8; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

10; Rounded penalty amount: 3,200; Rounded percentage increase: 45.5.



Penalty amounts after first-round adjustments: 11,000; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 22.8; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

10; Rounded penalty amount: 16,000; Rounded percentage increase: 45.5.



Penalty amounts after first-round adjustments: 110,000; Number of 

covered penalties at this amount: 2; Statute requires increase to be 

rounded to nearest multiple of: 10,000; Percentage inflation increase 

needed to trigger next adjustment: 4.6; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 120,000; Rounded percentage increase: 9.1.



Penalty amounts after first-round adjustments: 275,000; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 25,000; Percentage inflation increase 

needed to trigger next adjustment: 4.6; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 300,000; Rounded percentage increase: 9.1.



Penalty amounts after first-round adjustments: 440,000; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 25,000; Percentage inflation increase 

needed to trigger next adjustment: 2.9; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 465,000; Rounded percentage increase: 5.7.



Penalty amounts after first-round adjustments: 880,000; Number of 

covered penalties at this amount: 2; Statute requires increase to be 

rounded to nearest multiple of: 25,000; Percentage inflation increase 

needed to trigger next adjustment: 1.5; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

2; Rounded penalty amount: 905,000; Rounded percentage increase: 2.8.



Agency: United States Coast Guard; Penalty amounts after first-round 

adjustments: 22; Number of covered penalties at this amount: 1; Statute 

requires increase to be rounded to nearest multiple of: 10; Percentage 

inflation increase needed to trigger next adjustment: 22.8; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

10; Rounded penalty amount: 32; Rounded percentage increase: 45.5.



Penalty amounts after first-round adjustments: 55; Number of covered 

penalties at this amount: 2; Statute requires increase to be rounded to 

nearest multiple of: 10; Percentage inflation increase needed to 

trigger next adjustment: 9.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 65; Rounded percentage increase: 18.2.



Penalty amounts after first-round adjustments: 110; Number of covered 

penalties at this amount: 9; Statute requires increase to be rounded to 

nearest multiple of: 100; Percentage inflation increase needed to 

trigger next adjustment: 45.5; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

17; Rounded penalty amount: 210; Rounded percentage increase: 90.9.



Penalty amounts after first-round adjustments: 185; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 100; Percentage inflation increase needed to 

trigger next adjustment: 27.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

11; Rounded penalty amount: 285; Rounded percentage increase: 54.1.



Penalty amounts after first-round adjustments: 220; Number of covered 

penalties at this amount: 7; Statute requires increase to be rounded to 

nearest multiple of: 100; Percentage inflation increase needed to 

trigger next adjustment: 22.8; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

11; Rounded penalty amount: 320; Rounded percentage increase: 45.5.



Penalty amounts after first-round adjustments: 550; Number of covered 

penalties at this amount: 15; Statute requires increase to be rounded 

to nearest multiple of: 100; Percentage inflation increase needed to 

trigger next adjustment: 9.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 650; Rounded percentage increase: 18.2.



Penalty amounts after first-round adjustments: 1,100; Number of covered 

penalties at this amount: 18; Statute requires increase to be rounded 

to nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 45.5; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

17; Rounded penalty amount: 2,100; Rounded percentage increase: 90.9.



Penalty amounts after first-round adjustments: 2,200; Number of covered 

penalties at this amount: 2; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 22.8; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

11; Rounded penalty amount: 3,200; Rounded percentage increase: 45.5.



Penalty amounts after first-round adjustments: 3,300; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 15.2; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

7; Rounded penalty amount: 4,300; Rounded percentage increase: 30.3.



Penalty amounts after first-round adjustments: 5,500; Number of covered 

penalties at this amount: 22; Statute requires increase to be rounded 

to nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 9.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 6,500; Rounded percentage increase: 18.2.



Penalty amounts after first-round adjustments: 11,000; Number of 

covered penalties at this amount: 23; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 22.8; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

10; Rounded penalty amount: 16,000; Rounded percentage increase: 45.5.



Penalty amounts after first-round adjustments: 22,000; Number of 

covered penalties at this amount: 4; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 11.4; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

6; Rounded penalty amount: 27,000; Rounded percentage increase: 22.7.



Penalty amounts after first-round adjustments: 27,500; Number of 

covered penalties at this amount: 13; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 9.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 32,500; Rounded percentage increase: 18.2.



Penalty amounts after first-round adjustments: 55,000; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 4.6; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 60,000; Rounded percentage increase: 9.1.



Penalty amounts after first-round adjustments: 110,000; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 10,000; Percentage inflation increase 

needed to trigger next adjustment: 4.6; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 120,000; Rounded percentage increase: 9.1.



Penalty amounts after first-round adjustments: 137,500; Number of 

covered penalties at this amount: 2; Statute requires increase to be 

rounded to nearest multiple of: 10,000; Percentage inflation increase 

needed to trigger next adjustment: 3.7; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 147,500; Rounded percentage increase: 7.3.



Agency: Environmental Protection Agency; Penalty amounts after first-

round adjustments: 550; Number of covered penalties at this amount: 1; 

Statute requires increase to be rounded to nearest multiple of: 100; 

Percentage inflation increase needed to trigger next adjustment: 9.1; 

Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 650; Rounded percentage increase: 18.2.



Penalty amounts after first-round adjustments: 660; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 100; Percentage inflation increase needed to 

trigger next adjustment: 7.6; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

4; Rounded penalty amount: 760; Rounded percentage increase: 15.2.



Penalty amounts after first-round adjustments: 1,100; Number of covered 

penalties at this amount: 2; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 45.5; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

17; Rounded penalty amount: 2,100; Rounded percentage increase: 90.9.



Penalty amounts after first-round adjustments: 2,750; Number of covered 

penalties at this amount: 2; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 18.2; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

8; Rounded penalty amount: 3,750; Rounded percentage increase: 36.4.



Penalty amounts after first-round adjustments: 3,300; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 15.2; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

7; Rounded penalty amount: 4,300; Rounded percentage increase: 30.3.



Penalty amounts after first-round adjustments: 5,000; Number of covered 

penalties at this amount: 1; Statute requires increase to be rounded to 

nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 10.0; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 6,000; Rounded percentage increase: 20.0.



Penalty amounts after first-round adjustments: 5,500; Number of covered 

penalties at this amount: 10; Statute requires increase to be rounded 

to nearest multiple of: 1,000; Percentage inflation increase needed to 

trigger next adjustment: 9.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 6,500; Rounded percentage increase: 18.2.



Penalty amounts after first-round adjustments: 11,000; Number of 

covered penalties at this amount: 11; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 22.8; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

10; Rounded penalty amount: 16,000; Rounded percentage increase: 45.5.



Penalty amounts after first-round adjustments: 22,000; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 11.4; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

6; Rounded penalty amount: 27,000; Rounded percentage increase: 22.7.



Penalty amounts after first-round adjustments: 27,500; Number of 

covered penalties at this amount: 31; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 9.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

5; Rounded penalty amount: 32,500; Rounded percentage increase: 18.2.



Penalty amounts after first-round adjustments: 55,000; Number of 

covered penalties at this amount: 3; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 4.6; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 60,000; Rounded percentage increase: 9.1.



Penalty amounts after first-round adjustments: 82,500; Number of 

covered penalties at this amount: 3; Statute requires increase to be 

rounded to nearest multiple of: 5,000; Percentage inflation increase 

needed to trigger next adjustment: 3.1; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 87,500; Rounded percentage increase: 6.1.



Penalty amounts after first-round adjustments: 110,000; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 10,000; Percentage inflation increase 

needed to trigger next adjustment: 4.6; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 120,000; Rounded percentage increase: 9.1.



Penalty amounts after first-round adjustments: 137,500; Number of 

covered penalties at this amount: 5; Statute requires increase to be 

rounded to nearest multiple of: 10,000; Percentage inflation increase 

needed to trigger next adjustment: 3.7; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 147,500; Rounded percentage increase: 7.3.



Penalty amounts after first-round adjustments: 220,000; Number of 

covered penalties at this amount: 1; Statute requires increase to be 

rounded to nearest multiple of: 25,000; Percentage inflation increase 

needed to trigger next adjustment: 5.7; Number of

years to next adjustment assuming a 2.5 percent annual inflation rate: 

3; Rounded penalty amount: 245,000; Rounded percentage increase: 11.4.



Source: GAO.



Note: The projection of the number of years to next adjustment was 

based on a 2.5 percent inflation rate compounded annually and the 

addition of 1 year to reflect the Consumer Price Index lag requirement 

in the Inflation Adjustment Act.



[End of table]



[End of section]



(450105):



:



FOOTNOTES



[1] The 1990 act was amended in 1996 by the Debt Collection Improvement 

Act, which added the requirement for agencies to adjust their civil 

penalties by regulation (Pub. L. 104-134, Sec. 31001(s)(1),110 Stat. 

1321-373). See 28 U.S.C. 2461 note. 



[2] The Inflation Adjustment Act does not clearly indicate whether 

second-round adjustments should be made within 4 years of the initial 

deadline (i.e., by October 23, 2000) or within 4 years after the 

initial adjustment--whenever it occurred. In this report we considered 

the statute to require second-round adjustments within 4 years of the 

first adjustment. 



[3] Office of Management and Budget, Civil Monetary Penalty Assessments 

and Collections: 1990 Report to Congress and Civil Monetary Penalty 

Inflation Adjustment Report (Washington, D.C.: July 1991).



[4] Pub. L. 105-362, Nov. 10, 1998.



[5] The Consumer Price Index is published monthly by the Bureau of 

Labor Statistics and is the most widely used measure of inflation.



[6] U.S. General Accounting Office, Regulatory Reform: Implementation 

of Selected Agencies’ Civil Penalty Relief Policies for Small Entities, 

GAO-01-280 (Washington, D.C.: Feb. 20, 2001).



[7] U.S. General Accounting Office, Pension Plans: Stronger Labor ERISA 

Enforcement Should Better Protect Plan Participants, GAO/HEHS-94-157 

(Washington, D.C.: Aug. 8, 1994). Effective February 3, 2003, the name 

of the Pension and Welfare Benefits Administration was changed to the 

Employee Benefits Security Administration. In this report, we refer to 

the agency as PWBA because that was its name during the time frame 

covered by this review.



[8] U.S. General Accounting Office, Water Pollution: Many Violations 

Have Not Received Appropriate Enforcement Attention, GAO/RCED-96-23 

(Washington, D.C.: Mar. 20, 1996).



[9] U.S. General Accounting Office, Nursing Homes: Additional Steps 

Needed to Strengthen Enforcement of Federal Quality Standards, GAO/

HEHS-99-46 (Washington, D.C.: Mar. 18, 1999).



[10] U.S. General Accounting Office, Pipeline Safety: The Office of 

Pipeline Safety Is Changing How It Oversees the Pipeline Industry, GAO/

RCED-00-128 (Washington, D.C.: May 15, 2000). 



[11] U.S. General Accounting Office, Pipeline Safety: Status of 

Improving Oversight of the Pipeline Industry, GAO-02-517T (Washington, 

D.C.: Mar. 19, 2002).



[12] U.S. General Accounting Office, Civil Fines and Penalties Debt: 

Review of CMS’ Management and Collection Processes, GAO-02-116 

(Washington, D.C.: Dec. 31, 2001). 



[13] National Performance Review, From Red Tape to Results: Creating a 

Government That Works Better and Costs Less (Washington, D.C.: Sept. 7, 

1993). 



[14] U.S. General Accounting Office, Management Reform: Implementation 

of the National Performance Review’s Recommendations, GAO/OCG-95-1 

(Washington, D.C.: Dec. 5, 1994).



[15] For example, some agencies adjusted broadly applicable civil 

penalty statutes (e.g., the False Claims Act or the Program Fraud Civil 

Remedies Act of 1986), whereas other agencies administering penalties 

under those statutes did not. 



[16] We also determined that the Consumer Product Safety Commission has 

its own agency-specific civil penalty inflation adjustment authority 

that supersedes the Inflation Adjustment Act as the governing criteria 

for its penalties. See the Consumer Product Safety Improvement Act of 

1990, Pub. L. 101-608,104 Stat. 3110 (Nov. 16, 1990). 



[17] The 12 other agencies that had not published initial inflation 

adjustment regulations generally had only a few civil penalties 

identified in previous OMB and Treasury reports as covered under the 

Inflation Adjustment Act. Those 12 agencies are the Bureau of Land 

Management, the Fish and Wildlife Service, and the Minerals Management 

Service within the Department of the Interior; the Department of State; 

the Enforcement Office within the Department of the Treasury; the 

Federal Emergency Management Agency; the International Trade 

Commission; the Office of Personnel Management; the National 

Aeronautics and Space Administration; the National Transportation 

Safety Board; the Small Business Administration; and the Surface 

Transportation Board.



[18] U.S. General Accounting Office, Federal Energy Regulatory 

Commission’s Compliance with Requirement to Adjust Civil Monetary 

Penalties for Inflation, GAO-02-888R (Washington, D.C.: July 15, 2002); 

The Department of Education’s Compliance with the Inflation Adjustment 

Act, GAO-02-1030R (Washington, D.C.: Aug. 26, 2002); Food and Drug 

Administration’s Compliance with the Inflation Adjustment Act, GAO-02-

933R (Washington, D.C.: Aug. 1, 2002); and U.S. Customs Service: 

Compliance with the Inflation Adjustment Act, GAO-02-1045R (Washington, 

D.C.: Sept. 9, 2002).



[19] For example, the Federal Energy Regulatory Commission published 

its regulation at 67 Fed. Reg. 52410 (Aug. 12, 2002). The Department of 

Education published its regulation at 67 Fed. Reg. 69654 (Nov. 18, 

2002).



[20] FAA adjusted 1 of its 8 civil penalties in 2002, and NHTSA 

adjusted 7 of its 16 civil penalties in two separate regulations in 

1999 and 2001.



[21] U.S. General Accounting Office, Federal Civil Penalties Inflation 

Adjustment Act, B-290021 (Washington, D.C.: July 15, 2002). 



[22] U.S. General Accounting Office, United States Coast Guard: 

Implementation of the Inflation Adjustment Act, GAO-03-221R 

(Washington, D.C.: Nov. 1, 2002) and Mine Safety and Health 

Administration: Implementation of the Inflation Adjustment Act, GAO-03-

288R (Washington, D.C.: Nov. 27, 2002). 



[23] See 44 U.S.C. 3504.



[24] See 5 U.S.C. 612.



[25] Although all of the penalties in the six agencies that were 

adjusted were capped at 10 percent, some of the agencies’ penalties 

were not adjusted. For example, EPA did not increase certain penalties 

that were enacted into law in 1996. 



[26] In November 2002, this penalty was increased to $10,000 as part of 

the establishment of the Department of Homeland Security. (Pub. L. 107-

296, Section 1602, Nov. 25, 2002).



[27] During our review, we determined that the National Science 

Foundation had adjusted its covered penalties in a manner that 

erroneously accounted for all of the changes in the CPI since the 

penalties were set in 1978. The agency agreed with our recommendation 

to correct this error. See U.S. General Accounting Office, National 

Science Foundation’s Compliance With the Inflation Adjustment Act, GAO-

02-932R (Washington, D.C.: July 26, 2002). See the corrected adjustment 

in 67 Fed. Reg. 55728 (Aug. 30, 2002).



[28] See H.R. 3400. This provision was deleted from the bill that was 

subsequently enacted as Pub. L. 103-356. 



[29] 64 Fed. Reg. 37876 (July 14, 1999).



[30] During our review, EPA officials raised questions to us regarding 

the interpretation of this requirement. Specifically, they asked 

whether the term “last set or adjusted pursuant to law” referred to the 

date an adjustment was published in the Federal Register or the date 

the adjustment took effect. This issue has relevance for EPA because 

the agency published its first round of adjustments in December 1996 

but the adjustments took effect in January 1997. Other agencies’ 

adjustments also took effect in different years than their publication. 





[31] NHTSA calculated its August 2001 adjustment without losing a year 

of inflation by comparing the CPI index of June 2000 with the index 

that it last used to make the adjustment (June 1996), not the index for 

June in the year the adjustment was last made (June 1997). (See 66 Fed. 

Reg. 41149, Aug. 7, 2001.) Although we understand why NHTSA would want 

to use the earlier index, we believe that this approach is inconsistent 

with the act’s requirements. 



[32] Subsequently, Congress established three other PWBA civil penalty 

maximums--two at $1,000 and one at $100. On January 22, 2003, PWBA 

published a final rule adjusting each of these penalties by 10 percent 

effective March 24, 2003. See 68 Fed. Reg. 2875 (Jan. 22, 2003).



[33] For example, at 2.5 percent inflation per year, compounded 

annually, a 45.5 percent increase in the CPI would take 16 years. With 

the 1-year CPI lag, the total is 17 years. At double that rate of 

inflation (5 percent per year), these penalties would be eligible for 

adjustment under the rounding rules in 9 years. 



[34] See, for example, U.S. General Accounting Office, Farm Credit 

Administration: Compliance with the Inflation Adjustment Act, GAO-02-

1084R (Washington, D.C.: Sept. 24, 2002) and Department of Commerce: 

Compliance with the Inflation Adjustment Act, GAO-02-1085R (Washington, 

D.C.: Sept. 30, 2002). 



[35] For example, one penalty states that if a person either fails to 

register a tax shelter by a certain prescribed date or files false or 

incomplete information regarding the registration, IRS can either 

impose a penalty of up to $500 or 1 percent of the aggregate amount 

invested in the tax shelter--whichever is greater. See 26 U.S.C. 

6707(a).



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