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entitled 'Wetlands Protection: Corps of Engineers Does Not Have an 
Effective Oversight Approach to Ensure That Compensatory Mitigation Is 
Occurring' which was released on October 7, 2005. 

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Report to the Ranking Democratic Member, Committee on Transportation 
and Infrastructure, House of Representatives: 

September 2005: 

Wetlands Protection: 

Corps of Engineers Does Not Have an Effective Oversight Approach to 
Ensure That Compensatory Mitigation Is Occurring: 

GAO-05-898: 

GAO Highlights: 

Highlights of GAO-05-898, a report to the Ranking Democratic Member, 
Committee on Transportation and Infrastructure, House of 
Representatives: 

Why GAO Did This Study: 

Because wetlands provide valuable functions, the administration set a 
national goal of no net loss of wetlands in 1989. Section 404 of the 
Clean Water Act generally prohibits the discharge of dredged or fill 
material into waters of the United States, which include certain 
wetlands, without a permit from the U.S. Army Corps of Engineers 
(Corps). To help achieve the goal of no net loss, the Corps can require 
compensatory mitigation, such as restoring a former wetland, as a 
condition of a permit when the loss of wetlands is unavoidable. 
Permittees can perform the mitigation or pay a third party—a mitigation 
bank or an in-lieu-fee arrangement—to perform the mitigation. GAO was 
asked to review the (1) guidance the Corps has issued for overseeing 
compensatory mitigation, (2) extent to which the Corps oversees 
compensatory mitigation, and (3) enforcement actions the Corps can take 
if required mitigation is not performed and the extent to which it 
takes these actions. 

What GAO Found: 

The Corps has developed guidance that establishes two primary oversight 
activities for compensatory mitigation: requiring the parties 
performing mitigation to periodically submit monitoring reports to the 
Corps and conducting compliance inspections of the mitigation. However, 
parts of the guidance are vague or internally inconsistent. For 
example, the guidance suggests that the Corps place a high priority on 
requiring and reviewing monitoring reports when “substantial 
mitigation” is required, but it does not define substantial mitigation. 
Furthermore, one section of the guidance directs district officials to 
conduct compliance inspections of a relatively high percentage of 
compensatory mitigation sites, while another section designates these 
inspections as a low priority, leading to confusion by Corps officials. 

Overall, the seven Corps districts GAO visited performed limited 
oversight to determine the status of compensatory mitigation. The Corps 
required monitoring reports for 89 of the 152 permit files reviewed 
where the permittee was required to perform compensatory mitigation. 
However, only 21 of these files contained evidence that the Corps 
received these reports. Moreover, only 15 percent of the 152 permit 
files contained evidence that the Corps had conducted a compliance 
inspection. The Corps districts provided somewhat more oversight for 
mitigation performed by the 85 mitigation banks and 12 in-lieu-fee 
arrangements that GAO reviewed. For the 60 mitigation banks that were 
required to submit monitoring reports, 70 percent of the files 
contained evidence that the Corps had received at least one monitoring 
report. However, only 36 percent of the mitigation bank files that GAO 
reviewed contained evidence that the Corps conducted an inspection. For 
the 6 in-lieu-fee arrangements that were required to submit monitoring 
reports to the Corps, 5 had submitted at least one report. In addition, 
the Corps had conducted inspections of 5 of the 12 arrangements. 

The Corps can take a variety of enforcement actions if required 
compensatory mitigation is not performed. These actions include issuing 
compliance orders, assessing administrative penalties of up to $27,500, 
requiring the permittee to forfeit a bond, suspending or revoking a 
permit, implementing the enforcement provisions of agreements with 
third parties, and recommending legal actions. District officials 
rarely use these actions and rely primarily on negotiation to resolve 
any violations. In some cases, GAO found district officials may not be 
able to use enforcement actions after detecting instances of 
noncompliance because they have limited their enforcement capabilities. 
For example, because they did not always specify the requirements of 
compensatory mitigation in the permits, they had no legal recourse for 
noncompliance. 

What GAO Recommends: 

GAO recommends that the Secretary of the Army direct the Corps to 
establish an effective oversight approach that will ensure that 
permittees and third parties are performing required compensatory 
mitigation. In commenting on our report, the Department of Defense 
generally agreed with GAO’s recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-05-898. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Anu K. Mittal at (202) 
512-3841 or mittala@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Corps Guidance for Oversight of Compensatory Mitigation Is Sometimes 
Vague or Internally Inconsistent: 

Corps Districts Perform Limited Oversight of Compensatory Mitigation: 

Corps Districts Can Take a Variety of Enforcement Actions to Resolve 
Violations but Rely Primarily on Negotiation: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Scope and Methodology: 

Appendix II: Corps of Engineers Federal Guidance for Oversight of 
Compensatory Mitigation: 

Appendix III: File Review Results by Corps District: 

Appendix IV: Comments from the Department of Defense: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Permit Files Reviewed at the Seven Districts, Fiscal Year 
2000: 

Table 2: Mitigation Banks Reviewed at the Seven Districts, November 28, 
1995, through December 2004: 

Table 3: In-Lieu-Fee Arrangements Reviewed at the Seven Districts: 

Table 4: Results of Review of Corps Oversight of Individual Permits 
Issued in Fiscal Year 2000 Where Permittees Are Responsible for 
Compensatory Mitigation: 

Table 5: Results of Review of Corps Oversight of Mitigation Banks 
Approved from November 1995 through December 2003: 

Table 6: Results of Review of Corps Oversight of In-Lieu-Fee 
Arrangements Currently in Operation at the Time of Our Site Visit: 

Figures: 

Figure 1: Marsh in Michigan: 

Figure 2: Bayou in Louisiana: 

Figure 3: Wetlands Restoration Project in Washington, D.C. (Before and 
After): 

Abbreviations: 

Corps: U.S. Army Corps of Engineers: 

EPA: Environmental Protection Agency: 

Letter September 8, 2005: 

The Honorable James L. Oberstar: 
Ranking Democratic Member: 
Committee on Transportation and Infrastructure: 
House of Representatives: 

Dear Mr. Oberstar: 

Wetlands such as bogs, swamps, and marshes support a number of valuable 
functions--controlling floods, improving water quality, and providing 
wildlife habitat, among other things. Given the value of these 
functions, the administration set a national goal in 1989 of balancing 
the losses and gains of wetlands to achieve no net loss of wetlands. 
Each subsequent President has reaffirmed and expanded this goal to 
achieve net gains of wetlands in the long term. The U.S. Army Corps of 
Engineers (Corps) is responsible for processing permit applications 
from individuals and businesses seeking to build driveways, houses, 
golf courses, or commercial buildings or perform other activities that 
could degrade or destroy wetlands on their property, and each year the 
Corps approves thousands of these permit applications. The Corps' 
decisions are to reflect the national concern for both the protection 
and utilization of important resources. 

Under section 404 of the Clean Water Act, the Corps and the 
Environmental Protection Agency (EPA) regulate activities affecting 
wetlands. Under related regulations and guidance issued by these 
agencies, a permittee is expected to avoid deliberate discharge of fill 
materials into wetlands or other federally regulated waters and then to 
minimize discharges that cannot be avoided. If such discharges are 
unavoidable, the Corps can require mitigation to compensate for the 
loss and/or degradation of wetlands from permitted activities as a 
condition of issuing the permit. Such compensatory mitigation could 
involve (1) creating a new wetland, (2) restoring a former wetland, (3) 
enhancing a degraded wetland, or (4) preserving an existing wetland. 
Since 1993, the Corps has required such mitigation on more than 40,000 
acres of land per year. Permittees may perform their own compensatory 
mitigation, often on or near the project site, or they may pay another 
entity to perform mitigation, usually at a location away from the 
project site, but generally within the same watershed. This kind of 
mitigation, known as third-party mitigation, is typically performed by 
mitigation banks or sponsors of in-lieu-fee arrangements. Mitigation 
banks are often private for-profit entities with land in areas where 
they believe that they can successfully establish wetlands.[Footnote 1] 
These areas include those that have the potential to become wetlands, 
previously filled wetlands, wetlands that have been degraded by 
invasive plant species,[Footnote 2] or wetlands that are threatened by 
development. After the mitigation banks improve these areas as 
wetlands, permittees required to perform compensatory mitigation pay 
fees to the mitigation bank to fulfill their mitigation requirements. 
In contrast to mitigation banks, in-lieu-fee arrangements are often 
sponsored by public or nonprofit entities. Under agreements with the 
Corps, in-lieu-fee sponsors receive payments from multiple permittees 
required to perform compensatory mitigation. Then, at a later date, the 
sponsors use these funds to establish wetlands. 

The Corps is responsible for ensuring that permittees, mitigation 
banks, and in-lieu-fee sponsors perform required compensatory 
mitigation. However, the Corps historically has not emphasized 
oversight of such mitigation activities. In 1988, we reported that the 
Corps placed a high priority on issuing permits and did not routinely 
inspect project sites to ensure that permittees were in compliance with 
their permit conditions, which include any compensatory mitigation that 
the permittee was required to perform.[Footnote 3] More recently, the 
National Research Council, environmental groups, and others have raised 
concerns that the Corps may not spend sufficient time on oversight to 
ensure that permittees or third parties are performing the required 
compensatory mitigation. 

In this context, you asked us to review the (1) guidance the Corps has 
established for overseeing compensatory mitigation, (2) extent to which 
the Corps oversees compensatory mitigation, and (3) enforcement actions 
the Corps can take if it determines that compensatory mitigation 
requirements are not being met and the extent to which it takes such 
actions. 

In conducting our work, we selected 7 of the 38 Corps districts that 
implement the section 404 program--Charleston, South Carolina; 
Galveston, Texas; Jacksonville, Florida; New Orleans, Louisiana; St. 
Paul, Minnesota; Seattle, Washington; and Wilmington, North Carolina. 
We selected these districts because they represent different geographic 
areas of the United States and collectively accounted for over two- 
thirds of the compensatory mitigation required by individual permits 
issued in fiscal year 2003.[Footnote 4] To identify the guidance the 
Corps has established for overseeing compensatory mitigation, we 
examined Corps documents and interviewed officials from Corps 
headquarters, as well as from Corps' district offices. 

To determine the extent to which the Corps oversees compensatory 
mitigation, we reviewed a total of 249 files. We reviewed 152 permit 
files issued in fiscal year 2000 where the permittee was responsible 
for the mitigation. We selected this time frame because most of the 
permits we reviewed were valid for 5 years or less, and sufficient time 
would have passed for the permittee to begin work on the permitted 
project and for the Corps to have received a monitoring report or 
conducted a compliance inspection. We also reviewed files for 85 
mitigation banks and 12 in-lieu-fee arrangements.[Footnote 5] The 
mitigation bank and in-lieu-fee arrangement files we reviewed usually 
provided data on the mitigation activities for multiple permittees, and 
the mitigation conducted can encompass thousands of acres. While our 
results cannot be generalized to all 38 Corps districts, according to a 
Corps official responsible for managing the program nationally, our 
findings would most likely represent program implementation by other 
Corps districts. We also interviewed district officials to obtain 
additional information on how they oversee compensatory mitigation. 

To identify enforcement actions the Corps can take if it determines 
that compensatory mitigation requirements are not being met and the 
extent to which it takes these actions, we examined agency regulations 
and documents that outline available enforcement actions, reviewed 
agency data on noncompliance cases, and discussed levels of 
noncompliance and actions taken with district officials. In addition, 
we interviewed several sponsors of mitigation banks and a sponsor of an 
in-lieu-fee arrangement to obtain their perspectives on the Corps' 
mitigation program. A more detailed description of the scope and 
methodology of our review is presented in appendix I. We performed our 
work between June 2004 and September 2005 in accordance with generally 
accepted government auditing standards. 

Results in Brief: 

The Corps has developed guidance that establishes two primary oversight 
activities for compensatory mitigation. First, the Corps guidance 
directs district officials to require the parties performing mitigation 
to periodically submit monitoring reports to the Corps on the status of 
compensatory mitigation. Second, the guidance calls for district 
officials to conduct compliance inspections of the mitigation. However, 
we found that parts of the guidance are vague or internally 
inconsistent, thus limiting their usefulness. For example, the guidance 
suggests that requiring and reviewing monitoring reports is a high- 
priority activity for the Corps when "substantial mitigation" is 
required, but it does not define substantial mitigation. Furthermore, 
the guidance does not indicate what actions Corps officials should take 
if permittees or third parties do not submit required monitoring 
reports. The guidance is also internally inconsistent because, in one 
section of the guidance, district officials are directed to conduct 
compliance inspections on a relatively high percentage of compensatory 
mitigation sites to ensure that permit conditions have been met, while 
another section designates these inspections as a low-priority 
activity, to be conducted only if the goals for other higher priority 
work, such as issuing permits, have been achieved. As a result, 
district officials told us that they are unsure of how many resources 
to allocate to compliance inspections. The Corps is currently 
developing new guidance, which it expects to issue by fall of 2005. 

Overall, the Corps districts we visited have performed limited 
oversight to determine the status of required compensatory mitigation. 
For the 152 permit files that we reviewed where the individual 
permittee was required to perform compensatory mitigation, we found 
little evidence that required monitoring reports were submitted or that 
the Corps conducted compliance inspections. The Corps required 
monitoring reports for 89 of the files that we reviewed, but only 24 
percent, or 21 permit files, contained evidence that the Corps had 
actually received the report. Only 15 percent of the files contained 
evidence that the Corps had conducted a compliance inspection. Although 
Corps districts provided somewhat more oversight for mitigation 
conducted by the 85 mitigation banks and 12 in-lieu-fee arrangements 
that we reviewed, even in these cases oversight was still limited. For 
the 60 mitigation banks that were required to submit monitoring 
reports, 70 percent of the files showed that the Corps had received at 
least one monitoring report. The percentage of the mitigation bank 
files with evidence that the Corps conducted an inspection ranged from 
a low of 13 percent to a high of 78 percent in the seven districts. For 
the 6 in-lieu-fee arrangements that were required to submit monitoring 
reports to the Corps, 5 had submitted at least one report. In addition, 
the Corps had conducted a compliance inspection for 5 of the 12 
arrangements. District officials told us that the Corps' conflicting 
guidance, which notes that compliance inspections are crucial yet makes 
them a low priority, as well as limited resources contribute to their 
low level of oversight of compensatory mitigation. However, because 
many projects that we reviewed did not receive oversight, the districts 
cannot definitively assess whether compensatory mitigation has been 
performed on thousands of acres. Without this information, it is 
unclear how the Corps is assessing the effectiveness of its mitigation 
program or assessing whether this program is contributing to the 
national goal of no net loss of wetlands. 

The Corps can take a variety of enforcement actions if required 
compensatory mitigation is not performed. These actions include issuing 
compliance orders, assessing administrative penalties up to $27,500, 
suspending or revoking a permit, implementing the enforcement 
provisions of agreements with third parties, and recommending legal 
actions.[Footnote 6] According to fiscal year 2003 data provided by the 
Corps, the seven districts did not take any enforcement actions to 
obtain compliance with issued permits. Instead, district officials rely 
primarily on negotiation with permittees and third parties, a first 
step in the enforcement process, rather than enforcement actions to 
resolve any violations. According to district officials, when they find 
that required compensatory mitigation has not been performed, they 
usually first contact the responsible parties to discuss options and 
time frames for bringing the permittee or third-party sponsor into 
compliance. District officials told us that typically no further action 
is necessary because the desired action is subsequently taken. If 
district officials are not able to resolve the noncompliance through 
negotiation, they told us that they then notify the responsible party 
in writing of the noncompliance and lay out potential enforcement 
actions and time frames. District officials told us that they generally 
resort to enforcement actions only after negotiation fails because 
taking enforcement actions is usually more time-consuming and does not 
necessarily result in the required mitigation being completed. For 
instance, according to Corps district officials, while monetary 
penalties are an effective tool that draws attention to compliance and 
enforcement, the funds collected from assessing these penalties are 
required by law to go into the general fund of the federal Treasury. We 
found that, sometimes, district officials wanting to pursue enforcement 
actions after detecting instances of noncompliance may be unable to do 
so because they have limited their enforcement capabilities by not 
specifying the requirements for compensatory mitigation in permits and 
by not establishing agreements with third parties. For example, the 
Corps does not always specify what mitigation activity should be 
performed or the time frame for completing the mitigation in individual 
permits. Similarly, some districts have not established agreements 
called for in federal guidance with mitigation bank or in-lieu-fee 
sponsors. Without such agreements, the Corps and the third-party 
sponsors have not formally agreed to the penalties that may be imposed 
and/or corrective actions that may be required if the mitigation 
efforts are not performed. Therefore, the Corps does not have 
sufficient legal recourse if third parties do not perform required 
compensatory mitigation. 

To address the concerns we have identified, we are recommending that 
the Secretary of the Army direct the Corps of Engineers to establish an 
effective oversight approach that will ensure that permittees and third 
parties are performing required compensatory mitigation. In commenting 
on our report, the Department of Defense generally agreed with our 
recommendations. 

Background: 

Wetlands include swamps, marshes, bogs, and similar areas. They are 
characterized by three factors: (1) frequent or prolonged presence of 
water at or near the soil surface, (2) hydric soils that form under 
flooded or saturated conditions, and (3) plants that are adapted to 
live in these types of soils. Wetlands are found throughout the United 
States. They may differ greatly in their physical characteristics; for 
example, water may not be present on the wetland for part of the year 
or it may be present year-round. Figures 1 and 2 show two different 
types of wetlands--a marsh and a bayou. 

Figure 1: Marsh in Michigan: 

[See PDF for image] 

[End of figure] 

Figure 2: Bayou in Louisiana: 

[See PDF for image] 

[End of figure] 

Wetlands provide many important functions for the environment and for 
society. For example, wetlands: 

* improve water quality by removing excess nutrients from sources such 
as fertilizer applied to agricultural land and municipal sewage and by 
trapping other pollutants in soil particles; 

* reduce the harmful effects of weather events by storing flood waters 
and buffering roads and houses from the storm surges caused by 
hurricanes; and: 

* provide important habitat for plants and wildlife--more than one- 
third of threatened and endangered species, such as the whooping crane 
and Florida panther, live in wetlands. 

Over half of the estimated 220 million acres of wetlands in the 
contiguous United States during colonial times have disappeared, and 
many of the remaining wetlands have been degraded. This loss in 
wetlands was primarily caused by agricultural activities and 
development; significant wetland loss continued through the mid-1970s. 
While the economic pressure to develop wetlands continues today, 
according to the U.S. Fish and Wildlife Service, the rate of wetland 
loss has decreased significantly over the past 30 years.[Footnote 7] 

The decrease in the rate of wetlands loss stems from executive actions 
and legislation, prompted by an increased recognition of the benefits 
of wetlands. In 1977, the first executive order for the protection of 
wetlands directed federal agencies to take action to minimize the 
destruction of wetlands and to preserve and enhance wetlands' benefits 
when carrying out responsibilities such as managing federal lands and 
facilities or providing federally financed construction.[Footnote 8] 
Subsequently, in 1989, the administration set a national goal of no net 
loss of wetlands to ensure that these valuable resources are protected. 

The Clean Water Act provides the primary legislative authority for 
federal efforts to regulate wetlands and other waters of the United 
States.[Footnote 9] The act's objective is to restore and maintain the 
chemical, physical, and biological integrity of the nation's waters. 
The section 404 program under the Clean Water Act is the principal 
federal program that provides regulatory protection for wetlands. 
Section 404 generally prohibits the discharge of dredged or fill 
material in waters of the United States, which include certain 
wetlands, without a permit from the Corps.[Footnote 10] Responsibility 
for issuing these permits is delegated to 38 Corps district offices. 
The Corps requires the permittee to first avoid discharges of dredged 
or fill materials into wetlands and then to minimize discharges that 
cannot be avoided. To replace lost wetland functions, the Corps can 
require compensatory mitigation as a condition of issuing a permit when 
damage or degradation of wetlands is unavoidable. 

Compensatory mitigation can consist of creating a new wetland, 
restoring a former wetland, enhancing a degraded wetland, or preserving 
an existing wetland. According to Corps guidance, compensatory 
mitigation should generally provide, at a minimum, one-to-one 
functional replacement for a lost wetland.[Footnote 11] When 
determining the type, size, and nature of compensatory mitigation to be 
performed, district officials may consider factors such as the 
wetland's location, the rarity of the ecosystem, water levels, 
vegetation, wildlife usage, and the presence of endangered species. In 
some cases, the loss of the functions of a certain wetland area may be 
offset by either a larger or a smaller wetland area. For example, on an 
acreage basis, the ratio should be greater than one-to-one when the 
lost wetland functions are high and the replacement wetlands provide 
lower functions. 

In the absence of information about the functions of a certain site, 
acreage may be used instead to determine the amount of compensatory 
mitigation to help achieve the national goal of no net loss. Figure 3 
shows land before and after a wetland restoration project. 

Figure 3: Wetlands Restoration Project in Washington, D.C. (Before and 
After): 

[See PDF for image] 

[End of figure] 

Compensatory mitigation may be performed by permittees or third 
parties. Third-party mitigation is typically performed by mitigation 
banks, which are generally private for-profit entities that establish 
wetlands under agreements with the Corps, or under in-lieu-fee 
arrangements, which are often sponsored by public or nonprofit 
entities. Under mitigation banking guidance issued in 1995 and in-lieu- 
fee guidance issued in 2000, mitigation bank and in-lieu-fee sponsors 
should have formal, written agreements with the Corps, developed in 
consultation with EPA and other resource agencies such as the U.S. Fish 
and Wildlife Service, to provide frameworks for how the mitigation bank 
or in-lieu-fee arrangement will operate. According to Corps guidance, 
these written agreements should include information on: 

* the mitigation site, including the types of wetlands to be developed, 
the conditions of any existing wetlands, and the geographic area; and: 

* site management, such as: 

* monitoring plans and reporting protocols on the progress of the 
mitigation, 

* remedial actions and the parties responsible for performing them if 
the mitigation is not successful, 

* accounting procedures for tracking payments received from permittees, 

* performance standards for determining ecological success of the site, 
and: 

* provisions for long-term management and maintenance. 

The Corps and EPA, which have joint enforcement authorities for the 
section 404 program, established a memorandum of agreement allocating 
enforcement responsibilities between the two agencies. According to 
this agreement, the Corps is the lead enforcement agency for all 
violations of Corps-issued permits, while EPA is the lead enforcement 
agency when unpermitted activities occur in wetlands.[Footnote 12] 
Historically, the Corps has not emphasized enforcement activities. In 
1988, we reported that many Corps permits were not monitored for 
compliance with permit conditions, the Corps districts we visited at 
that time did not place a high priority on detecting unauthorized 
impacts to wetlands, and the frequent lack of monitoring could result 
in the loss of valuable wetland resources. Subsequently, in 1993, we 
reported that the Corps continued to emphasize permit processing over 
compliance and enforcement and that funding and staffing shortfalls had 
inhibited the Corps' and EPA's compliance and enforcement 
activities.[Footnote 13] More recently, the National Research Council, 
environmental groups, and others have noted the same lack of emphasis 
on monitoring and enforcement. 

Corps Guidance for Oversight of Compensatory Mitigation Is Sometimes 
Vague or Internally Inconsistent: 

The Corps has developed guidance that establishes two primary 
activities for oversight of compensatory mitigation performed by 
permittees or third parties. The guidance directs Corps districts to 
require that permittees performing compensatory mitigation periodically 
submit monitoring reports that provide information on the status of 
their mitigation efforts. For mitigation banks and in-lieu- fee 
arrangements, the guidance directs Corps districts to require sponsors 
to submit annual monitoring reports. The guidance also suggests that 
district staff conduct annual on-site inspections of mitigation bank 
activities but does not specify a frequency for inspections of 
mitigation activities performed by permittees and in- lieu-fee 
sponsors. However, we found that parts of the guidance are vague or 
internally inconsistent, thus limiting their usefulness. 

Corps Guidance Establishes Two Primary Oversight Activities for 
Compensatory Mitigation: 

The Corps has three primary guidance documents that establish 
requirements for overseeing compensatory mitigation performed by 
permittees, mitigation banks, or in-lieu-fee arrangements: (1) The 1999 
Army Corps of Engineers Standard Operating Procedures for the 
Regulatory Program; (2) The Federal Guidance for the Establishment, Use 
and Operation of Mitigation Banks; and (3) The Federal Guidance on the 
Use of In-Lieu-Fee Arrangements for Compensatory Mitigation Under 
Section 404 of the Clean Water Act and Section 10 of the Rivers and 
Harbors Act. The two primary oversight activities these guidance 
documents establish are (1) Corps review of monitoring reports 
submitted by permittees or third parties and (2) the conduct of 
compliance inspections (field visits) that provide firsthand knowledge 
of the status of the mitigation.[Footnote 14] The guidance documents 
lay out the following requirements: 

* 1999 Standard Operating Procedures for the Regulatory Program. This 
document, which highlights current Corps policies and procedures and 
provides guidance to the districts for setting priorities for their 
regulatory program activities, calls for Corps districts to require 
permittees to submit periodic monitoring reports and states that the 
districts should review all monitoring reports. It also states that 
compliance inspections are essential to ensure that compensatory 
mitigation is performed and directs Corps districts to inspect a 
relatively high percentage of compensatory mitigation performed by 
permittees to ensure compliance with permit conditions. Districts are 
to inspect all mitigation banks to ensure compliance with the banking 
agreement. 

* Federal Guidance for the Establishment, Use and Operation of 
Mitigation Banks. Developed to provide guidance for establishing, 
using, and operating mitigation banks, this federal guidance directs 
the Corps to require that mitigation bank sponsors submit annual 
monitoring reports to the Corps and other authorizing agencies, which 
can include the EPA and the U.S. Fish and Wildlife Service, among 
others. Typically, mitigation banks are to be monitored for 5 years; 
however, according to the guidance, it may be necessary to extend this 
period for mitigation banks that require more time to reach a stable 
condition or that have undertaken remedial activities. In addition, the 
guidance encourages members of the mitigation banking review team, 
which the Corps chairs, to conduct regular (e.g., annual) on-site 
inspections, as appropriate, to monitor bank performance.[Footnote 15] 

* Federal Guidance on the Use of In-Lieu-Fee Arrangements for 
Compensatory Mitigation Under Section 404 of the Clean Water Act and 
Section 10 of the Rivers and Harbors Act. This federal guidance was 
developed to ensure that in-lieu-fee arrangements can serve as an 
effective and useful mitigation approach. The guidance specifies that 
there should be appropriate schedules established for regular (e.g., 
annual) monitoring reports to document funds received, impacts 
permitted, funds disbursed, types of projects funded, and the success 
of projects conducted. Furthermore, the guidance calls for the Corps in 
conjunction with other federal and state agencies to evaluate these 
reports and conduct regular reviews to ensure that the arrangement is 
operating effectively and is consistent with agency policy and the 
specific agreement. 

Corps Guidance Is Sometimes Vague or Internally Inconsistent: 

Although Corps guidance documents establish monitoring reports and 
compliance inspections as the two primary oversight activities for 
compensatory mitigation, these guidance documents are sometimes vague 
or internally inconsistent. Specifically, the guidance is vague on the 
following key points: 

* The circumstances under which monitoring reports should be required. 
Although the Corps' standard operating procedures call for district 
officials to require and review monitoring reports for mitigation banks 
and "other substantial mitigation," it does not define substantial 
mitigation. We found that Corps districts differed in how they defined 
"substantial mitigation." For example, two districts require mitigation 
reports when the mitigation involves restoring, enhancing, or creating 
a wetland but not when the mitigation involves preserving a wetland. 
Another district interpreted "substantial" mitigation to include 
mitigation projects that generally involved more than one-half acre. 

* The actions district officials should take if reports are not 
submitted as required. Corps guidance does not address the issue of 
noncompliance if monitoring reports are not submitted for review. For 
the files that we reviewed, we found that monitoring reports were 
provided for 44 percent, or 68 of the 155 cases in which these reports 
were required. District officials told us that, because of budget 
constraints, little time is spent on compliance activities, including 
following up on the submission of monitoring reports. While three 
districts that we visited have established a process for tracking due 
dates for monitoring reports from either permittees or third parties, 
none of the districts had a system for tracking reports from 
both.[Footnote 16] Without such tracking systems, a district official 
told us that Corps officials may not realize when monitoring reports 
are due or that the reports were not submitted as required. 

* The information that should be included in a monitoring report. The 
guidance does not specify what information should be included in 
monitoring reports submitted by permittees and mitigation banks, 
despite the importance of these reports as a primary means of 
overseeing compliance with mitigation requirements. We found that some 
monitoring reports were only a few pages in length and provided limited 
information about the site, while other reports were over 50 pages in 
length, were more comprehensive, and included data on the water levels 
at the mitigation site, the plants growing at the site, methods for 
monitoring both the water levels and plant growth, documentation of 
animals present at the site, and photographs of the site. The Chief of 
the Regulatory Branch acknowledged that the information submitted in 
monitoring reports varies significantly and may not always provide the 
details needed to assess the status of the compensatory mitigation. 

Furthermore, the guidance is internally inconsistent about the emphasis 
districts should place on compliance inspections. The Corps' standard 
operating procedures state that compliance inspections are essential, 
and districts should inspect a relatively high percentage of 
compensatory mitigation sites to ensure compliance with permit 
conditions, although they do not define what high means. The mitigation 
banking guidance states that districts should inspect all mitigation 
performed by banks annually to ensure compliance with the banking 
agreement.[Footnote 17] The in-lieu-fee guidance does not specify how 
often compliance inspections should be conducted. However, the standard 
operating procedures also designate all compliance inspections as a low-
priority activity, to be performed only if the goals for other higher-
priority work, such as issuing permits, have been achieved. 
Furthermore, the guidance states that the degree to which districts 
perform lower priority work would affect whether districts received 
additional resources. District officials told us that in the past they 
were instructed that if they spent too many resources on low-priority 
activities, their budget would be reduced. Consequently, a number of 
district officials told us that they are unsure of how much time to 
spend on compliance inspections. According to officials in one district 
we visited, for instance, the number of sites they were inspecting was 
based on a target set in the 1991 guidance because the current guidance 
is not as specific.[Footnote 18] Other districts do not have a specific 
goal for the number of inspections that district officials will conduct 
for mitigation activities. The Corps is revising its standard operating 
procedures to include specific performance goals for compliance 
inspections. Corps officials told us they expect to finalize the 
revised standard operating procedures by fall of 2005. 

Corps Districts Perform Limited Oversight of Compensatory Mitigation: 

Overall, the Corps districts we visited have performed only limited 
oversight of compensatory mitigation undertaken by permittees and third 
parties. For the 152 individual permit files that we reviewed, we 
frequently found little evidence that the required monitoring reports 
were submitted or that the Corps conducted compliance inspections. 
Although Corps districts provided somewhat more oversight for 
mitigation performed by the 85 mitigation banks and 12 in-lieu-fee 
arrangements that we reviewed, we found that oversight was still 
limited even in these cases. Detailed results of our file review by 
district are presented in appendix III. 

Corps Districts Provide Little Oversight of Mitigation Performed by 
Permittees: 

According to our review of 152 permit files where the permittee was 
responsible for performing the compensatory mitigation, the Corps 
districts generally provided little oversight either through a 
monitoring report or a compliance inspection.[Footnote 19] The Corps 
required permittees to submit monitoring reports for 89 of the 152 
permit files that we reviewed. This ranged from a low of zero in 
Charleston to a high of 100 percent in Seattle. However, we found only 
21 files contained evidence that the Corps actually received these 
required reports, ranging from a low of zero in two districts to a high 
of 69 percent in Jacksonville.[Footnote 20] Furthermore, only 15 
percent, or 23 of the 152 permit files, showed that the Corps had 
conducted a compliance inspection. The actual proportion of permits 
receiving oversight may be less because several districts could not 
locate some of the permit files that we requested for review. 

The following cases illustrate situations in which the Corps required 
compensatory mitigation as a condition of permit issuance, but the 
files contained no evidence that the Corps had conducted oversight: 

* In November 1999, the Corps issued a permit authorizing a permittee 
to install two boat slips and dredge approximately 5,270 feet of a 
canal in Louisiana, which would affect marsh and other wetland areas. 
As a condition of issuing this permit, the Corps required the permittee 
to use the dredge material and establish wetland plants to create a 710-
acre intertidal marsh. The Corps also required the permittee to submit 
annual monitoring reports for 5 years. The file contained no evidence 
that the Corps had received any monitoring reports or conducted 
compliance inspections to determine the status of the required 
mitigation. 

* In May 2000, the Corps issued a permit authorizing a developer to 
fill over 430 acres of wetlands to build a residential golf community 
in Florida. As a condition of issuing this permit, the Corps required 
the permittee to enhance over 1,000 acres of wetlands and to create 13 
acres of wetlands. The Corps also required the permittee to submit 
annual monitoring reports for 5 years. The file contained no evidence 
that the Corps had conducted any compliance inspections or received any 
monitoring reports to determine the status of the required mitigation. 

* In May 2000, the Corps issued a permit authorizing a permittee to 
fill 77 acres for a landfill in Texas. As a condition of issuing this 
permit, the Corps required the permittee to create 122 acres of prairie 
wetlands and to preserve 58 acres of wetlands on-site. The preservation 
area also included lakes and uplands that were to be managed for 
wildlife habitat. The Corps required the permittee to submit monitoring 
reports after 6 months and annually for 5 years. The file contained no 
evidence that the Corps had conducted any compliance inspections or 
received any monitoring reports to determine the status of the required 
mitigation. 

Moreover, even when Corps officials conducted oversight, they did not 
always perform suggested follow-up. For example, in one permit file we 
reviewed, the Corps issued a permit in December 1999 that authorized 
the excavation of an approximately 15-acre sand and gravel mining 
project in a wetland area. The Corps required the permittee to restore 
the mining area to a wetland plant community as the excavation occurred 
and to submit annual monitoring reports on the progress of this 
restoration effort. The permittee submitted one report to the Corps in 
March 2000, which stated that the work authorized by the permit had 
begun but that compensatory mitigation activities could not be 
completed until excavation was completed. No other monitoring reports 
were in the file, and the file did not contain any evidence that Corps 
officials had followed up to determine if the compensatory mitigation 
was performed. Another file indicated that, in December 2000, a Corps 
official had inspected a project site to assess the status of the 
required compensatory mitigation for a permit issued in August 2000. 
This permit authorized filling about 6 acres of wetlands to build a 
retail facility. The official's inspection indicated that construction 
was almost finished, but the mitigation to enhance 4 acres of wetlands 
was still under way. The official recommended that the site be 
revisited at a later date. However, the file contained no evidence that 
the Corps conducted a follow-up compliance inspection or contacted the 
permittee to determine the status of the mitigation. 

Corps Districts Perform Somewhat Greater Oversight of Mitigation 
Performed by Mitigation Banks and In-Lieu-Fee Sponsors: 

Corps districts provided somewhat more oversight for mitigation 
conducted by third parties, although even in these cases oversight was 
limited. Of the 85 mitigation banks that we reviewed, the Corps 
required that 71 percent, or 60 of the 85 mitigation bank sponsors, 
submit monitoring reports and 70 percent, or 42 mitigation bank files, 
contained evidence that at least one monitoring report had been 
received.[Footnote 21] However, only 31 of the 85 mitigation bank files 
contained evidence that the Corps conducted a compliance 
inspection.[Footnote 22] This ranged from a low of 13 percent in the 
St. Paul district to a high of 78 percent in the Wilmington district. 
The following cases illustrate situations where files contained no 
evidence that the Corps had conducted oversight of the mitigation bank: 

* In February 1999, the Corps approved a mitigation bank in Texas that 
preserved and protected about 540 acres of swamp. The agreement between 
the Corps and the mitigation bank sponsor included a requirement that 
the sponsor submit an annual report on the mitigation bank's status of 
operation and maintenance. The file contained no evidence of any 
monitoring reports submitted by the sponsor or compliance inspections 
conducted by the Corps. 

* In August 1999, the Corps approved an approximately 360-acre 
mitigation bank in Louisiana to reestablish a productive, coastal, 
forested wetland ecosystem on previously converted agricultural lands. 
The agreement between the Corps and the mitigation bank sponsor 
included a requirement that the sponsor provide the Corps with annual 
monitoring reports for at least 5 years and then reports once every 5 
years. The file contained no evidence of any monitoring reports 
submitted by the sponsor or compliance inspections conducted by the 
Corps. 

* In December 2001, the Corps approved a 2,100-acre mitigation bank in 
Florida to restore native tree species and enhance the site's 
hydrology. The agreement between the Corps and the mitigation bank 
sponsor required the sponsor to submit annual monitoring reports to the 
Corps for 4 years. The file contained no evidence of any monitoring 
reports submitted by the sponsor or compliance inspections conducted by 
the Corps. 

For in-lieu-fee arrangements, the Corps required the sponsors of 6 of 
the 12 in-lieu-fee arrangements that we reviewed to submit monitoring 
reports. We found that five of the six files contained evidence that 
the sponsor had submitted at least one report. We also found that the 
Corps had received monitoring reports from one in-lieu-fee sponsor who 
was not required to submit a report. In addition, the files contained 
evidence that the Corps had conducted at least one compliance 
inspection for 5 of the 12 arrangements. 

Conflicting Guidance and Limited Resources Contribute to the Corps' Low 
Level of Oversight of Compensatory Mitigation: 

District officials told us that the Corps' conflicting guidance, which 
notes that compliance inspections are crucial but makes them a low 
priority, as well as limited resources contribute to their low level of 
oversight of compensatory mitigation activities. According to the Chief 
of the Regulatory Branch, historically, districts were to issue permits 
within specified time frames. If those time frames were not met, work 
in other areas, including compliance, was not to be performed. In 
addition, funds were allocated primarily for permit processing, with 
little remaining for other activities. However, Corps headquarters and 
district officials recognize the importance of oversight. They stated 
that without a comprehensive oversight program the Corps cannot ensure 
that compensatory mitigation will occur. In the absence of additional 
national guidance and resources, some of the districts we visited have 
decided to take their own steps to improve oversight. For example, 
Jacksonville district officials increased their compliance inspections 
of compensatory mitigation performed by permittees; the number of 
inspections more than tripled from 2003 to 2004 after several years of 
decline. In addition, New Orleans district officials told us that, in 
2003, they began tracking monitoring reports and compliance inspections 
for mitigation banks, more aggressively followed up to ensure that the 
mitigation banks submit required monitoring reports, and increased the 
number of compliance inspections of the mitigation banks. 

Corps Districts Can Take a Variety of Enforcement Actions to Resolve 
Violations but Rely Primarily on Negotiation: 

The Corps can take a variety of enforcement actions if required 
compensatory mitigation is not performed.[Footnote 23] Possible 
enforcement actions include issuing compliance orders and assessing 
administrative penalties, requiring the permittee to forfeit a bond, 
suspending or revoking a permit, and implementing the enforcement 
provisions of agreements with third parties to perform mitigation on 
permittees' behalf. In addition, the Corps may refer a case to the 
Department of Justice to bring legal action in federal district court. 
However, district officials rarely use these enforcement actions, 
relying primarily on negotiation with permittees or third parties as a 
first step in the enforcement process to resolve any noncompliance 
cases they detect. In some cases, district officials want to pursue 
enforcement actions after detecting instances of noncompliance, but 
they may not be able to do so because they have limited their 
enforcement capabilities by not including specific requirements in the 
permits or third-party agreements. 

A Variety of Enforcement Actions Are Available to Corps Districts: 

When the Corps determines that required compensatory mitigation has not 
been performed, the type of enforcement action taken would depend on, 
among other things, whether mitigation is to be carried out by the 
permittee or by a third party. 

In cases where the permittee was to perform the mitigation, the Corps 
may issue a compliance order, assess administrative penalties, require 
the permittee to forfeit a bond, suspend or revoke a permit, and/or 
refer the case to the Department of Justice for legal action. Under 
section 404 of the Clean Water Act and Corps regulations, the Corps may 
take the following actions: 

* Issue compliance orders to permittees who violate any condition of 
their permits. Each order must specify the nature of the violation, 
which could include failure to implement mitigation requirements, and 
specify a time by which the permittee must come into 
compliance.[Footnote 24] 

* Assess administrative penalties, in an amount of up to 
$27,500.[Footnote 25] 

* Require the permittee to forfeit a bond, if such a bond was a 
condition of the permit. The Corps has the authority to require 
permittees to post a financial bond to assure that they will fulfill 
all obligations required by the permit, which could include 
compensatory mitigation.[Footnote 26] 

* Suspend a permit for, among other things, a permittee's failure to 
comply with the terms and conditions of the permit.[Footnote 27] A 
suspension requires the permittee to stop the activities previously 
authorized by the suspended permit. Following the suspension, the Corps 
may take action to reinstate, modify, or revoke the permit.[Footnote 
28] 

* Refer the case to the Department of Justice to bring an action in 
federal district court seeking an injunction and civil 
penalties.[Footnote 29] Cases that are appropriate for judicial actions 
include violations that are willful, repeated, flagrant, or of 
substantial impact.[Footnote 30] Civil penalties may be awarded by the 
court in an amount of up to $25,000 per day for each 
violation.[Footnote 31] 

The enforcement actions available to the Corps for a mitigation bank or 
in-lieu-fee sponsor's failure to carry out mitigation would depend on 
the provisions that are incorporated into each permit (if applicable) 
and mitigation bank agreement or in-lieu-fee agreement and would be 
governed by the terms of the agreement with the Corps. For example, 
once the Corps has agreed that a permittee's mitigation requirements 
will be satisfied by a mitigation bank or in-lieu-fee arrangement, the 
permittee satisfies these mitigation requirements by submitting the 
required payment to the third-party sponsor. Federal guidance for 
mitigation banks states, "it is extremely important that an enforceable 
mechanism be adopted establishing the responsibility of the bank 
sponsor to develop and operate the bank properly."[Footnote 32] The 
guidance states that the bank sponsor is responsible for securing 
sufficient funds or other financial assurances in the form of, among 
other things, performance bonds, irrevocable trusts, escrow accounts, 
and letters of credit. In addition, "the banking agreement should 
stipulate the general procedures for identifying and implementing 
remedial measures at a bank." Similarly, federal guidance states that 
an in-lieu-fee agreement should contain, among other things, 
"financial, technical and legal provisions for remedial actions and 
responsibilities (e.g., contingency fund)"; "financial, technical and 
legal provisions for long-term management and maintenance (e.g., 
trust)"; and a "provision that clearly states that the legal 
responsibility for ensuring mitigation terms are fully satisfied rests 
with the organization accepting the fee."[Footnote 33] 

Corps Districts Rely Primarily on Negotiation: 

While the Corps may take a variety of enforcement actions, the seven 
districts did not take any enforcement actions in fiscal year 2003, the 
latest year for which data is available.[Footnote 34] Instead, district 
officials primarily rely on negotiation, a first step in the Corps' 
enforcement process, to resolve noncompliance issues. In keeping with 
Corps regulations, district officials told us that, when they find that 
required compensatory mitigation has not been performed, they first 
notify the responsible party and gather relevant information to better 
understand the noncompliance case. They then attempt to negotiate by 
discussing with the permittees or third parties available corrective 
actions and time frames for voluntarily bringing the work into 
compliance. For example, at one district, officials told us that 
corrective actions by responsible parties could include working with an 
environmental organization such as The Nature Conservancy to improve 
wetlands or developing a traveling exhibit for local schools to educate 
children about the value of protecting wetlands. According to Corps 
officials, no additional action is needed generally because responsible 
parties are willing to work with the Corps to get back into compliance. 

If district officials do not succeed in voluntarily bringing the 
responsible party into compliance, they notify the responsible party in 
writing, laying out potential enforcement actions available to the 
Corps and time frames for the party to respond to the letter--the next 
step toward achieving compliance. District officials told us they 
generally resort to such actions to achieve compliance only after 
negotiation has failed because such actions usually take more time to 
implement. For example, one district official estimated that when the 
Corps refers a noncompliance case to the Department of Justice, 
district officials may be occupied for several months. Similarly, 
according to Corps officials, developers prefer to negotiate with the 
Corps because it is less time-consuming than pursuing legal solutions. 
In addition, use of enforcement actions does not always ensure that the 
required compensatory mitigation will be completed. For instance, Corps 
district officials told us, while monetary penalties are an effective 
tool that draws attention to compliance and enforcement, the funds 
collected from assessing these penalties are required by law to go into 
the general fund of the federal Treasury.[Footnote 35] 

Corps Sometimes Limits Its Own Enforcement Ability: 

On occasion, district officials wanting to pursue enforcement actions 
after detecting instances of noncompliance may not be able to do so 
because they have limited their enforcement capabilities; that is, they 
have not specified the requirements for compensatory mitigation in 
permits and failed to establish agreements with third parties. In our 
file review, we identified several permits that lacked this crucial 
information about required mitigation.[Footnote 36] Both the Chief of 
the Regulatory Branch and district officials stress the importance of 
including specific mitigation information in permits so that the Corps 
can take actions necessary to ensure required compensatory mitigation 
occurs. However, some of the districts we visited acknowledged that the 
lack of enforceable conditions included within a permit has been a 
problem and they have efforts under way, such as permit reviews and 
standardized permit conditions, to ensure that future permits are 
issued with the conditions needed to ensure enforceability. Although a 
review process for permit conditions may be a good idea, we found that, 
even when a review process was in place in some of the districts we 
visited, they still had issued permits with unenforceable conditions. 

In addition, we found that three districts had not established formal 
agreements with third parties to document the objectives and 
implementation of mitigation banks or in-lieu-fee arrangements, as 
called for in federal guidance. Of the 85 mitigation bank files we 
reviewed, 21 did not have agreements with the Corps. These mitigation 
banks were all located in Minnesota, one of two states with mitigation 
banks that fall under the jurisdiction of the St. Paul District Office. 
According to district officials, Minnesota had developed state 
mitigation banking guidelines before the federal guidelines. Many of 
the banks in Minnesota were approved by the state program and partially 
developed before requesting Corps approval. Corps officials told us 
they had decided not to take additional steps to develop agreements 
with these mitigation banks. Currently, district officials issue a 
letter approving all or a portion of the state bank for use in the 
Corps compensatory mitigation program but do not develop a banking 
agreement with the bank sponsor. At the time of our review, district 
officials realized that the lack of mitigation banking agreements 
limited their enforcement ability and, therefore, were developing 
banking guidelines to provide more structure for the establishment of 
mitigation banks in Minnesota. However, they had not yet begun to 
consistently develop such agreements. 

For the in-lieu-fee arrangements we reviewed, the Galveston and New 
Orleans districts have not established formal agreements with in-lieu- 
fee sponsors. Without such agreements, district officials may not know 
how many permittees are using these arrangements to fulfill their 
compensatory mitigation requirements. For example, for the arrangements 
that he was responsible for monitoring, a Galveston district official 
could not provide us with information about the number of permittees 
using the arrangement to perform compensatory mitigation, the total 
amount of payments the in-lieu-fee sponsor had received, or any 
oversight activities conducted by the Corps to ensure that the sponsor 
was performing the required compensatory mitigation. Before our visit, 
Galveston district officials were unaware that their four in-lieu-fee 
arrangements were not in compliance with federal guidance and are now 
attempting to restructure these arrangements. In addition, a Galveston 
district official told us the district will develop such agreements 
with the sponsors of future arrangements. With regard to the in-lieu- 
fee arrangement in New Orleans that did not have an agreement, 
officials told us that resource constraints and other priorities had 
prevented them from establishing a formal agreement with the in-lieu- 
fee sponsor. This arrangement has collected approximately $1 million 
since its inception in 1994, but district officials could provide no 
other information regarding oversight of the arrangement.[Footnote 37] 

Until the districts establish formal agreements with third-party 
sponsors, the Corps does not have sufficient legal recourse if third 
parties do not perform required compensatory mitigation because the 
sponsors have not reached agreement with the Corps on what penalties 
and/or corrective actions will be required to address any problems if 
the mitigation efforts are not performed. The Corps' Chief of the 
Regulatory Branch noted that he would encourage the districts to cease 
using these in-lieu-fee arrangements to provide compensatory mitigation 
until such agreements are established. 

Conclusions: 

The Corps' section 404 program is crucial to the nation's efforts to 
protect wetlands and achieve the national goal of no net loss. Although 
Corps officials acknowledge that compensatory mitigation is a key 
component of this program, the Corps has consistently neglected to 
ensure that the mitigation it has required as a condition of obtaining 
a permit has been completed. The Corps' priority has been and continues 
to be processing permit applications. In 1988 and 1993, we reported 
that the Corps was placing little emphasis on its compliance efforts, 
including compensatory mitigation, and little has changed. The Corps 
continues to provide limited oversight of compensatory mitigation, 
largely relying on the good faith of permittees to comply with 
compensatory mitigation requirements. The Corps' oversight efforts have 
been further hampered by vague and inconsistent guidance that does not 
(1) define key terms, (2) specify the actions Corps staff should take 
if required monitoring reports are not received, or (3) set clear 
expectations for oversight of compensatory mitigation. Furthermore, 
district officials have failed to establish agreements with third-party 
sponsors that would ensure the agency has legal recourse if 
compensatory mitigation is not performed. Until the Corps takes its 
oversight responsibilities more seriously, it will not know if 
thousands of acres of compensatory mitigation have been performed and 
will be unable to ensure that the section 404 program is contributing 
to the national goal of no net loss of wetlands. 

Recommendations for Executive Action: 

Given the importance of compensatory mitigation to the section 404 
program and its contribution to achieving the national goal of no net 
loss of wetlands, we recommend that the Secretary of the Army direct 
the Corps of Engineers to establish an oversight approach that ensures 
required mitigation is being performed throughout the nation. As part 
of this oversight approach, the Corps should: 

* develop more specific guidance for overseeing compensatory mitigation 
performed by permittees, mitigation banks, and in-lieu-fee sponsors; in 
particular, the guidance should define key terms such as "substantial 
mitigation" and specify the actions Corps officials should take if 
required monitoring reports are not received; 

* clarify expectations for oversight of mitigation, including 
establishing goals for the number of monitoring reports that should be 
reviewed and the number of compliance inspections that should be 
conducted; and: 

* review existing mitigation banks and in-lieu-fee arrangements to 
ensure that the sponsor has an approved agreement with the Corps, as 
called for in federal guidance; if such agreements are not in place, 
they should be developed and the Corps should ensure that future 
mitigation banks and in-lieu-fee arrangements have these approved 
agreements. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Secretary of the Department 
of Defense for review and comment. The Department of Defense concurred 
with the report's findings and recommendations. In its written 
comments, the Department of Defense stated that the Corps is currently 
revising its standard operating procedures. According to the 
department, the revised guidance will provide details on mitigation 
requirements as well as compliance and enforcement procedures. The 
department also indicated that the Corps will issue a Regulatory 
Guidance Letter that will clarify monitoring requirements for 
compensatory mitigation and include an outline for standardized 
monitoring reports. In addition, the Department of Defense provided 
technical comments and clarifications that we incorporated, as 
appropriate. The Department of Defense's written comments are presented 
in appendix IV. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to interested congressional committees and Members of Congress; the 
Secretary of Defense; the Secretary of the U.S. Army; and the Chief of 
Engineers and Commander, U.S. Army Corps of Engineers. We also will 
make copies available to others upon request. In addition, the report 
will be available at no charge on the GAO Web site at [Hyperlink, 
http://www.gao.gov]. 

If you have any questions about this report, please contact me at (202) 
512-3841 or [Hyperlink, mittala@gao.gov]. Contact points for our 
Offices of Congressional Relations and of Public Affairs may be found 
on the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix V. 

Sincerely yours, 

Signed by: 

Anu K. Mittal: 
Director, Natural Resources and Environment: 

[End of section] 

Appendixes: 

Appendix I: Scope and Methodology: 

Our review focused on the compensatory mitigation activities at 7 of 
the U.S. Army Corps of Engineers' (Corps) 38 districts that implement 
the section 404 program: Charleston, South Carolina; Galveston, Texas; 
Jacksonville, Florida; New Orleans, Louisiana; St. Paul, Minnesota; 
Seattle, Washington; and Wilmington, North Carolina. We selected these 
districts because they represent different geographic areas of the 
United States, and they comprised over two-thirds of the compensatory 
mitigation required by individual permits issued in fiscal year 
2003.[Footnote 38] The Charleston, Galveston, Jacksonville, New 
Orleans, St. Paul, and Wilmington districts were the top districts 
nationwide in terms of mitigation required by individual permits. While 
the Seattle district is not one of the top 7 districts nationwide, it 
is one of the top districts in the western region in terms of required 
individual permit mitigation, and we included it to provide geographic 
coverage. To determine how much compensatory mitigation was required by 
permits issued by each of the 38 districts, we used the Quarterly 
Permit Data System data, which we examined and determined to be 
suitably reliable for selecting the districts to be included in our 
review. 

To identify the guidance the Corps has established for overseeing 
compensatory mitigation, we examined legislation, federal guidance on 
mitigation banks and in-lieu-fee arrangements, Corps regulations, Corps 
guidance, and supplemental guidance developed by the districts. We also 
met with responsible Corps headquarters and district officials to 
discuss the Corps' guidance on oversight of compensatory mitigation. 

To determine the extent to which the Corps oversees compensatory 
mitigation, we reviewed a total of 249 files. We reviewed 152 permit 
files issued in fiscal year 2000 where the permittee was responsible 
for the mitigation. We selected this time frame because sufficient time 
would have passed for the permittee to begin work on the permitted 
project, as most of the permits we reviewed were valid for 5 years or 
less, and for the Corps to have received a monitoring report or 
conducted a compliance inspection. We also reviewed files for 95 
mitigation banks (including 10 mitigation banks approved in 2004), and 
12 in-lieu-fee arrangements. The mitigation banks we reviewed had been 
approved since the mitigation banking guidance was established on 
November 28, 1995. For in-lieu-fee arrangements, we reviewed the 
arrangements currently operating at the seven districts at the time of 
our site visit. These mitigation bank and in-lieu-fee arrangement files 
usually provided data on the mitigation activities for multiple 
permittees, and the mitigation conducted can encompass thousands of 
acres. Owing to the large number of permits and mitigation banks at 
some of the districts, we selected a random sample of permit files at 
Jacksonville and of mitigation banks at the Jacksonville, New Orleans, 
and St. Paul districts. These samples were drawn so that the estimates 
from the samples would have a precision margin of about plus or minus 
15 percentage points at the 95 percent confidence level. However, we 
decided not to project our estimates to the population of permits in 
the seven districts because some districts were unable to find 
information for our sampled units, and another district was unable to 
provide a list of permits within the scope of our sample. Since we had 
no information on the missing permits, we are only presenting estimates 
for the permits and banks that we reviewed. 

While our results are not representative of the activities of the 38 
district offices nationwide, the Corps' Chief of the Regulatory Branch 
told us that our findings would likely indicate program implementation 
at the other districts not included in the scope of our review. Tables 
1 through 3 detail the permit files, mitigation banks, and in-lieu-fee 
arrangements reviewed at each of the districts. 

Table 1: Permit Files Reviewed at the Seven Districts, Fiscal Year 
2000: 

District: Charleston; 
Number of permits reviewed: 25. 

District: Galveston; 
Number of permits reviewed: 18. 

District: Jacksonville; 
Number of permits reviewed: 24. 

District: New Orleans; 
Number of permits reviewed: 26. 

District: St. Paul; 
Number of permits reviewed: 31. 

District: Seattle; 
Number of permits reviewed: 7. 

District: Wilmington; 
Number of permits reviewed: 21. 

Total; 
Number of permits reviewed: 152. 

Source: GAO analysis of Corps data. 

[End of table] 

As listed in table 1, we reviewed all permits that met our criteria 
(individual permits where the permittee was responsible for performing 
mitigation issued in fiscal year 2000) with the following exceptions: 

* Charleston. The district could not locate three permit files. 

* Jacksonville. We selected a random sample of 55 the 167 individual 
permits identified by Jacksonville officials. The district could not 
locate complete permit files for 13 of the permits we requested. In 
addition, 18 of the permits we requested did not meet our criteria; for 
example, some permits were modified in fiscal year 2000 but were not 
issued in that year. 

* New Orleans. District officials could not identify the permits that 
met our criteria from the district database. Therefore, we asked 
district officials to select the permits issued in fiscal year 2000 
where the permittee was responsible for performing compensatory 
mitigation and reviewed all of the permits they identified. 

* St. Paul. The district could not locate one permit file. 

Table 2: Mitigation Banks Reviewed at the Seven Districts, November 28, 
1995, through December 2004: 

District: Charleston; 
Number of banks reviewed: 10. 

District: Galveston; 
Number of banks reviewed: 4. 

District: Jacksonville[A]; 
Number of banks reviewed: 19. 

District: New Orleans[A, B]; 
Number of banks reviewed: 23. 

District: St. Paul[A]; 
Number of banks reviewed: 28. 

District: Seattle; 
Number of banks reviewed: 2. 

District: Wilmington; 
Number of banks reviewed: 9. 

Total; 
Number of banks reviewed: 95[C]. 

Source: GAO analysis of Corps data. 

[A] We randomly selected mitigation bank files for review at this 
district. 

[B] New Orleans could not locate files for two of the mitigation banks 
that we requested for review. 

[C] This total includes the 10 mitigation bank agreements that were 
approved during 2004: Jacksonville - 4, New Orleans - 1, and St. Paul - 
5. 

[End of table] 

Table 3: In-Lieu-Fee Arrangements Reviewed at the Seven Districts: 

District: Charleston; 
Number of arrangements: 2. 

District: Galveston; 
Number of arrangements: 4. 

District: Jacksonville; 
Number of arrangements: 4. 

District: New Orleans; 
Number of arrangements: 1. 

District: St. Paul; 
Number of arrangements: 0. 

District: Seattle; 
Number of arrangements: 0. 

District: Wilmington; 
Number of arrangements: 1. 

Total; 
Number of arrangements: 12. 

Source: GAO analysis of Corps data. 

Note: At the Galveston and New Orleans districts, we asked for 
documentation of the in-lieu-fee arrangements. Because neither of these 
districts has formal agreements for its arrangements, as called for by 
federal guidance, the districts did not provide any documentation for 
us to review. Therefore, any information about these districts' in- 
lieu-fee arrangements was obtained through interviews with district 
officials. 

[End of table] 

In addition to the file reviews, we spoke with district officials and 
reviewed relevant documentation to gain a better understanding of the 
districts' oversight programs and to gather any information that may 
not have been available during our file reviews. 

To identify the enforcement actions the Corps can take if it determines 
that compensatory mitigation requirements are not being met and the 
extent to which it takes these actions, we analyzed Corps data on how 
the district offices resolved instances of noncompliance during fiscal 
year 2003. In addition, we reviewed relevant regulations and 
documentation obtained either from Corps officials or identified during 
our file reviews. We also discussed with headquarters and district 
officials the enforcement actions available to the Corps and the 
frequency with which the districts used these actions. 

In addition, we met with several sponsors of mitigation banks and in- 
lieu-fee arrangements, as well as subject area experts, such as members 
of the National Research Council, to gain their views on the Corps' 
mitigation program. We conducted our review from June 2004 through 
September 2005 in accordance with generally accepted government 
auditing standards. 

[End of section] 

Appendix II: Corps of Engineers Federal Guidance for Oversight of 
Compensatory Mitigation: 

As noted earlier, the Corps has three primary guidance documents for 
overseeing compensatory mitigation performed by permittees, mitigation 
banks, and in-lieu-fee arrangements: (1) The 1999 Army Corps of 
Engineers Standard Operating Procedures for the Regulatory Program 
(Parts I and II); (2) The Federal Guidance for the Establishment, Use 
and Operation of Mitigation Banks; and (3) The Federal Guidance on the 
Use of In-Lieu-Fee Arrangements for Compensatory Mitigation Under 
Section 404 of the Clean Water Act and Section 10 of the Rivers and 
Harbors Act. These documents provide guidance for overseeing 
compensatory mitigation as described in this appendix. 

Standard Operating Procedures for the Regulatory Program (Parts I and 
II): 

The Corps' 1999 Standard Operating Procedures for the Regulatory 
Program (Part I) highlights critical policies and procedures that are 
major factors in administering a consistent program nationwide. It 
specifies the following: 

* For all compensatory mitigation, 

* Compliance inspections are essential. 

* For individual permitees, 

* Districts will inspect a relatively high percentage of compensatory 
mitigation to ensure compliance with permit conditions. This is 
important because many of the Corps permit decisions require 
compensatory mitigation to offset project impacts. 

* To minimize field visits and the associated expenditures of 
resources, permits with compensatory mitigation requirements should 
require applicants to provide periodic monitoring reports and certify 
that the mitigation is in accordance with permit conditions. Districts 
should review all monitoring reports. 

* Districts will require all permittees to submit a self-certification 
statement of compliance. Districts should not be expending funds on 
surveillance as a discrete activity. Surveillance should be performed 
in conjunction with other activities such as permit or enforcement 
actions. 

* For mitigation banks, 

* Districts will inspect all mitigation banks to ensure compliance with 
the banking agreement. 

* For in-lieu-fee arrangements, 

* These are not mentioned in Part I of the standard operating 
procedures. 

The Corps' Standard Operating Procedures for the Regulatory Program 
(Part II) lists the work that should be prioritized. Part II states 
that it is not intended to dissuade districts from doing lower priority 
work; however, all districts should perform the high priority work 
before expending resources on the lower priority work. Part II 
specifies the following for mitigation: 

* High priority work consists of: 

* requiring and reviewing monitoring reports on mitigation banks and 
other substantial mitigation, including in-lieu-fee approaches to 
assure success; and: 

* Low priority work consists of: 

* compliance inspections for all mitigation and multiple site visits to 
a mitigation site. 

Federal Guidance for the Establishment, Use and Operation of Mitigation 
Banks: 

The Federal Guidance for the Establishment, Use and Operation of 
Mitigation Banks, issued in November 1995, provides policy guidance for 
the establishment, use, and operation of mitigation banks for the 
purpose of providing compensatory mitigation. Oversight guidance in 
this document is as follows: 

* Members of the mitigation banking review team, which the Corps 
chairs, are encouraged to conduct regular (e.g., annual) on-site 
inspections, as appropriate, to monitor bank performance. 

* Annual monitoring reports should be submitted to the authorizing 
agencies, which include the Corps. The period for monitoring will 
typically be 5 years; however, it may be necessary to extend this 
period for projects requiring more time to reach a stable condition or 
where remedial activities were undertaken. 

Federal Guidance on the Use of In-Lieu-Fee Arrangements for 
Compensatory Mitigation Under Section 404 of the Clean Water Act and 
Section 10 of the Rivers and Harbors Act: 

The Federal Guidance on the Use of In-Lieu-Fee Arrangements for 
Compensatory Mitigation Under Section 404 of the Clean Water Act and 
Section 10 of the Rivers and Harbors Act, issued in November 2000, 
clarifies the manner in which in-lieu-fee mitigation may serve as an 
effective and useful approach to satisfy compensatory mitigation 
requirements and meet the administration goal of no net loss of 
wetlands. Related to oversight, it specifies the following: 

* There should be appropriate schedules for regular (e.g., annual) 
monitoring reports to document funds received, impacts permitted, how 
funds were disbursed, types of projects funded, and the success of 
projects conducted, among other aspects of the arrangement. 

* The Corps should evaluate the reports and conduct regular reviews to 
ensure that the arrangement is operating effectively and is consistent 
with agency policy and the specific agreement. 

[End of section] 

Appendix III: File Review Results by Corps District: 

This appendix presents the results of our file review at seven Corps 
districts--Charleston, South Carolina; Galveston, Texas; Jacksonville, 
Florida; New Orleans, Louisiana; St. Paul, Minnesota; Seattle, 
Washington; and Wilmington, North Carolina. Results of our review for 
individual permits issued in fiscal year 2000 where permittees were 
responsible for the mitigation are presented in table 4. Results for 
mitigation banks approved between the date of the mitigation bank 
federal guidance (November 28, 1995) and December 31, 2003, are in 
table 5 and in-lieu-fee arrangements currently operating at the 
districts at the time of our site visits are in table 6. 

Table 4: Results of Review of Corps Oversight of Individual Permits 
Issued in Fiscal Year 2000 Where Permittees Are Responsible for 
Compensatory Mitigation: 

Number of permit files reviewed; 
Charleston: 25; 
Galveston: 18; 
Jacksonville: 24; 
New Orleans: 26; 
St. Paul: 31; 
Seattle: 7; 
Wilmington: 21. 

Permits requiring monitoring reports; 
Charleston: 0; 
Galveston: 11; 
Jacksonville: 16; 
New Orleans: 19; 
St. Paul: 19; 
Seattle: 7; 
Wilmington: 17. 

Permit files with evidence of at least one monitoring report; 
Charleston: 1[A]; 
Galveston: 1[A]; 
Jacksonville: 11; 
New Orleans: 0; 
St. Paul: 2; 
Seattle: 2; 
Wilmington: 8[B]. 

Permit files with evidence of at least one compliance inspection; 
Charleston: 3; 
Galveston: 3; 
Jacksonville: 4; 
New Orleans: 0; 
St. Paul: 1; 
Seattle: 2; 
Wilmington: 10. 

Permit files with evidence of either monitoring reports or compliance 
inspections; 
Charleston: 4; 
Galveston: 3; 
Jacksonville: 13; 
New Orleans: 0; 
St. Paul: 3; 
Seattle: 2; 
Wilmington: 14. 

Source: GAO analysis of Corps data. 

[A] Monitoring report was received, but the Corps did not require the 
permittee to submit it. 

[B] Of the eight permit files with evidence of at least one monitoring 
report in Wilmington, two of the permits did not require these reports. 

[End of table] 

Table 5: Results of Review of Corps Oversight of Mitigation Banks 
Approved from November 1995 through December 2003: 

Number of mitigation bank files reviewed; 
Charleston: 10; 
Galveston: 4; 
Jacksonville[A]: 15[B]; 
New Orleans[A]: 22[C]; 
St. Paul[A]: 23[D]; 
Seattle: 2; 
Wilmington: 9. 

Mitigation banking agreements requiring monitoring reports; 
Charleston: 5; 
Galveston: 4; 
Jacksonville[A]: 14; 
New Orleans[A]: 22; 
St. Paul[A]: 4; 
Seattle: 2; 
Wilmington: 9. 

Mitigation bank files with evidence of at least one monitoring report; 
Charleston: 4; 
Galveston: 3; 
Jacksonville[A]: 7[E]; 
New Orleans[A]: 16; 
St. Paul[A]: 2; 
Seattle: 2; 
Wilmington: 9. 

Mitigation bank files with evidence of at least one compliance 
inspection; 
Charleston: 5; 
Galveston: 1; 
Jacksonville[A]: 5; 
New Orleans[A]: 9; 
St. Paul[A]: 3; 
Seattle: 1; 
Wilmington: 7. 

Mitigation bank files with evidence of either monitoring reports or 
compliance inspections; 
Charleston: 7; 
Galveston: 3; 
Jacksonville[A]: 8; 
New Orleans[A]: 18; 
St. Paul[A]: 5; 
Seattle: 2; 
Wilmington: 9. 

Source: GAO analysis of Corps data. 

[A] GAO reviewed a random sample of mitigation bank files at this 
district. 

[B] Four additional banks were approved in 2004. All of the banking 
agreements require the sponsor to provide monitoring reports to the 
Corps. 

[C] One additional bank was approved in 2004. The banking agreement 
requires the sponsor to provide monitoring reports to the Corps. 

[D] Five additional banks were approved in 2004. Of these, one of the 
banking agreements required the sponsor to provide monitoring reports 
to the Corps. 

[E] For one bank, a monitoring report was received, but the Corps did 
not require the bank to submit it. 

[End of table] 

Table 6: Results of Review of Corps Oversight of In-Lieu-Fee 
Arrangements Currently in Operation at the Time of Our Site Visit: 

Number of in-lieu-fee arrangements reviewed; 
Charleston: 2; 
Galveston[A]: 4; 
Jacksonville: 4; 
New Orleans [A]: 1; 
St. Paul: 0; 
Seattle: 0; 
Wilmington: 1. 

Arrangements with agreements requiring monitoring reports; 
Charleston: 2; 
Galveston[A]: 0; 
Jacksonville: 3; 
New Orleans [A]: 0; 
St. Paul: N/A; 
Seattle: N/A; 
Wilmington: 1. 

Arrangements with evidence of at least one monitoring report; 
Charleston: 1; 
Galveston[A]: 0; 
Jacksonville: 4[B]; 
New Orleans [A]: 0; 
St. Paul: N/A; 
Seattle: N/A; 
Wilmington: 1. 

Arrangements with evidence of at least one compliance inspection; 
Charleston: 0; 
Galveston[A]: 0; 
Jacksonville: 4; 
New Orleans [A]: 0; 
St. Paul: N/A; 
Seattle: N/A; 
Wilmington: 1. 

Arrangements with evidence of either monitoring reports or compliance 
inspections; 
Charleston: 1; 
Galveston[A]: 0; 
Jacksonville: 4; 
New Orleans [A]: 0; 
St. Paul: N/A; 
Seattle: N/A; 
Wilmington: 1. 

Source: GAO analysis of Corps data. 

[A] The Galveston and New Orleans districts do not have any formal 
agreements or documentation regarding oversight for their in-lieu-fee 
arrangements. As a result, district officials did not have any 
monitoring requirements or provide files for us to review. 

[B] For one arrangement, a monitoring report was received, but the 
Corps did not require the arrangement to submit it. 

[End of table] 

[End of section] 

Appendix IV: Comments from the Department of Defense: 

DEPARTMENT OF THE ARMY: 
OFFICE OF THE ASSISTANT SECRETARY: 
CIVIL WORKS: 
108 ARMY PENTAGON: 
WASHINGTON DC 20310-0108: 

26 AUG 2005: 

Ms. Anu Mittal: 
Director:
Natural Resource and Environment: 
U.S. General Accounting Office: 
441 G Street, N.W.
Washington, D.C. 20548-1000: 

Dear Ms. Mittal: 

This is the Department of Defense (DOD) response to the GAO draft 
report, WETLANDS PROTECTION: Corps of Engineers Is Not Providing the 
Oversight Needed to Ensure That Compensatory Mitigation Is Occurring,' 
dated August 12, 2005, (GAO Code 360490/GAO-05-898). 

The GAO report was prepared to examine the: (1) guidance the Corps has 
issued for overseeing compensatory mitigation; (2) extent to which the 
Corps oversees compensatory mitigation; and (3) enforcement actions the 
Corps can take if required mitigation is not performed and the extent 
to which it takes these actions. The report acknowledges that the Corps 
has existing guidance that establishes two primary oversight activities 
for compensatory mitigation: requiring monitoring reports be submitted 
by permittees and conducting compliance inspections of the mitigation 
sites. In general, the report concludes that better oversight of 
compensatory mitigation is completed for third-party mitigation than 
for permittee-responsible mitigation. In addition, the report indicates 
that the Corps prefers to negotiate with permittees over using 
enforcement actions to bring them into compliance with permit 
conditions, and for those infrequent circumstances where permittees 
believe that enforcement actions have been overly severe they may 
request review by the appropriate Division Commander. As a consequence 
of this investigation, the GAO recommends that the Secretary of the 
Army direct the Corps to establish an effective oversight approach to 
ensure that permittees and third parties are accomplishing all required 
compensatory mitigation as specified in their authorizations. On behalf 
of the Department of Defense, I have enclosed specific comments on the 
recommendations of the GAO. 

Very truly yours, 

Signed by: 

John Paul Woodley, Jr.: 
Assistant Secretary of the Army (Civil Works): 

Enclosure: 

GAO DRAFT REPORT - DATED AUGUST 12, 2005 GAO CODE 360490/GAO-05-898: 

"WETLANDS PROTECTION: Corps of Engineers is Not Providing the Oversight 
Needed to Ensure That Compensatory Mitigation Is Occurring" 

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS: 

RECOMMENDATION 1: The GAO recommends that the Secretary of the Army 
direct the Corps of Engineers to develop more specific guidance for 
overseeing compensatory mitigation performed by permittees, mitigation 
banks, and in-lieu-fee sponsors. In particular, the guidance should 
define key terms, such as "substantial mitigation"; and specify the 
actions Corps officials should take if required monitoring reports are 
not received. (p. 28/GAO Draft Report): 

DOD RESPONSE: We concur with this recommendation. The Standard 
Operation Procedures (SOP) procedures issued in 1999 do not adequately 
address mitigation nor compliance and enforcement. The Corps recognized 
this shortcoming prior to the GAO initiating this investigation and has 
been working on a revised SOP to clarify existing discrepancies and 
lack of specific guidance. The revised SOP will provide details on 
mitigation requirements as well as compliance and enforcement 
procedures in relation to all permit conditions, including compensatory 
mitigation requirements. A revised draft SOP will be circulated in 
October 2005 for review and comment by the Corps Divisions and 
Districts. 

RECOMMENDATION 2: The GAO recommends that the Secretary of the Army 
direct the Corps of Engineers to clarify expectations for oversight of 
mitigation, including establishing goals for the number of monitoring 
reports that should be reviewed and the number of compliance 
inspections that should be conducted. (p. 28/GAO Draft Report): 

DOD RESPONSE: We concur. The Corps will issue a Regulatory Guidance 
Letter (RGL) clarifying monitoring requirements for compensatory 
mitigation projects. The RGL will state what is required to be 
monitored and provide an outline for standardized monitoring reports. 
This outline will ensure Corps resources are used to provide oversight 
of the projects themselves rather than reports. In addition to the RGL, 
the Corps has established performance measures (issued in 2003 and will 
be tracked in 2006) that provide clear guidance to Corps districts on 
the level of oversight that is expected for compensatory mitigation 
projects. These performance measures were coordinated with the Office 
of Management and Budget through the Program Assessment and Rating Tool 
process (PART). Through a combination of the RGL and tracking of the 
performance measures, the Corps will insure better oversight of 
existing and future compensatory mitigation so that the 
Administration's goal of no overall net loss of wetlands is achieved 
within our Regulatory program. Additionally, the RGL will communicate 
to the public, mitigation bankers, ILF providers, and the Federal and 
State agencies what is expected of permittees who are required to 
perform compensatory mitigation. 

RECOMMENDATION 3: The GAO recommends that the Secretary of the Army 
direct the Corps of Engineers to review existing mitigation banks and 
in-lieu-fee arrangements to ensure that they have approved agreements 
with the Corps, as called for in federal guidance. If such agreements 
are not in place, they should be developed. Additionally, the Corps 
should ensure that future mitigation banks and in-lieu-fee arrangements 
have these approved agreements. (p. 29/GAO Draft Report): 

DOD RESPONSE: We concur. In response to independent critiques of the 
effectiveness of wetland compensatory mitigation projects, the Army 
Corps of Engineers, the Environmental Protection Agency, and the 
Departments of Agriculture, Commerce, Interior, and Transportation 
released the National Wetlands Mitigation Action Plan (MAP) on December 
26, 2002. The MAP includes tasks that will lead to improved ecological 
performance and results of compensatory mitigation. On May 7, 2004, the 
Corps issued guidance entitled "Mitigation for Impacts to Aquatic 
Resources from Surface Coal Mining" to supplement existing guidance so 
as to facilitate uniform implementation of compensatory mitigation 
requirements and the implementation of successful compensatory 
mitigation projects. In addition, Section 314 of the National Defense 
Authorization Act for Fiscal Year 2004 directed the Corps to issue 
regulations "establishing performance standards and criteria for the 
use, consistent with section 404 of the Federal Water Pollution Control 
Act (33 U.S.C. 1344), of on-site, off-site, and in-lieu fee mitigation 
and mitigation banking as compensation for lost wetlands functions in 
permits issued by the Secretary of the Army under such section." The 
Corps has prepared a draft mitigation rule that establishes standards 
and requirements for all forms of compensatory mitigation projects, 
including wetland and stream projects. The Corps will implement this 
new comprehensive mitigation rule in accordance with the interagency 
vetting, coordination, and comment procedures stipulated by the 
Administrative Procedures Act. The Corps will ensure district offices 
follow these new requirements and procedures in concert with additional 
follow-on supplemental guidance developed through the MAP process. 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Anu K. Mittal (202) 512-3841 (mittala@gao.gov): 

Staff Acknowledgments: 

In addition to the individual named above, Sherry McDonald, Assistant 
Director; Diane Caves; Jonathan Dent; Doreen Feldman; Janet Frisch; 
Natalie Herzog; Cynthia Norris; Karen O'Conor; Anne Rhodes-Kline; Jerry 
Sandau; Carol Herrnstadt Shulman; Lisa Vojta; and Daniel Wade Zeno made 
key contributions to this report. 

(360490): 

FOOTNOTES 

[1] According to the Environmental Law Institute, in the early 1990s, 
most banks were sponsored by public entities, such as state highway 
agencies, but now most mitigation banks are sponsored by private 
entities. 

[2] Invasive species are nonnative plants, animals, and microorganisms 
that are found throughout the United States and that have a devastating 
effect on natural areas, where they can take over wetland habitats and 
strangle native flora. 

[3] GAO, Wetlands: The Corps of Engineers' Administration of the 
Section 404 Program, GAO/RCED-88-110 (Washington, D.C.: July 28, 1988). 

[4] Individual permits are typically issued for projects that may have 
substantial environmental impacts. For smaller impacts, Corps officials 
generally issue either letters of permission, which are used when the 
proposed work is minor and is not expected to receive appreciable 
opposition, or general permits, which cover activities that have been 
identified as being substantially similar in nature, such as 
stabilizing stream banks. The Charleston, Galveston, Jacksonville, New 
Orleans, St. Paul, and Wilmington districts were the top six districts 
nationwide in terms of mitigation required by individual permits. 
Seattle was among the top districts in the western part of the United 
States. 

[5] In those districts where it was not feasible to review all files, 
we selected a random sample of files from the district's database for 
review. We reviewed a random sample of permit files in the Jacksonville 
district and a random sample of mitigation bank files in the 
Jacksonville, New Orleans, and St. Paul districts. Because the New 
Orleans district was not able to identify permits requiring the 
permittee to perform mitigation from their database, we asked district 
officials to select these permits, and we reviewed all of them. 

[6] Under Corps' regulations, the Corps may refer appropriate cases to 
the local U.S. attorney to file a criminal or civil action. Appropriate 
cases include, but are not limited to, violations that are willful, 
repeated, or of substantial impact. 33 C.F.R § 326.5. 

[7] The Emergency Wetlands Resources Act of 1986, as amended, requires 
the Fish and Wildlife Service to, among other things, assess the status 
of wetlands in the United States and trends in wetland gains or losses 
and to report the results to Congress each decade. 16 U.S.C. § 3931. 

[8] Exec. Order No. 11990 (May 24, 1977). 

[9] Other federal laws and programs regulating activities in wetlands 
include the Swampbuster Provision of the Food Security Act of 1985, as 
amended, which denies benefits to farmers who drain wetlands on their 
property; the Wetlands Reserve Program, which offers payments to 
farmers to restore and protect wetlands on their property; and the 
Coastal Wetlands Planning, Protection and Restoration Act, which 
authorized spending for coastal wetlands conservation and restoration 
projects and created a task force to develop a comprehensive approach 
for protecting and restoring coastal wetlands in Louisiana. 

[10] These discharges result from activities such as construction or 
mining and may include soil, rock, sand, or other materials. Section 
404(g) of the Clean Water Act authorizes EPA-approved states to assume 
responsibility for issuing section 404 permits in certain waters under 
their jurisdiction (other than waters used to transport interstate or 
foreign commerce); only Michigan and New Jersey have assumed this 
responsibility. 

[11] Even an acre for acre replacement of lost wetlands may not 
translate into maintaining equal functionality. Questions remain about 
whether created wetlands function as effectively as natural wetlands. 

[12] The Corps refers to its actions in response to activities not in 
compliance with issued permits as "compliance actions," as distinct 
from EPA's "enforcement actions" in response to unauthorized activities 
performed without required permits. 

[13] GAO, Wetlands Protection: The Scope of the Section 404 Program 
Remains Uncertain, GAO/RCED-93-26 (Washington, D.C.: Apr. 6, 1993). 

[14] See appendix II for a summary of these guidance documents. 

[15] A mitigation banking review team is an interagency group of 
federal, state, tribal, and/or local regulatory and resource agency 
representatives which are signatories to the mitigation banking 
agreement and oversee the establishment, use, and operation of the 
mitigation bank. 

[16] The Jacksonville district office has a tracking system for permits 
and is modifying the system to include mitigation banks. The New 
Orleans district only has a system for tracking reports for mitigation 
banks. The Seattle district has a system for tracking reports from 
permittees, and officials stated that it does not currently need such a 
system for mitigation banks because it has not had a problem with 
receiving the reports since there are only two banks currently approved 
by the district. 

[17] This agreement is referred to as the mitigation banking instrument 
in the federal mitigation banking guidance. 

[18] In 1991, the Corps' numerical inspection goal was equivalent to 25 
percent of the individual permits issued in the prior year. Permits 
with required mitigation, including general permits if applicable, were 
a high priority to inspect. 

[19] The permit files in the Wilmington district contained evidence 
that district officials had more consistently conducted oversight of 
mitigation performed by permittees. There was evidence that district 
officials had either received a monitoring report or conducted a 
compliance inspection for 14 of 21 permit files, or 67 percent, that we 
reviewed. See appendix III. 

[20] Four permit files contained evidence that the Corps received 
monitoring reports although the Corps did not require submission of 
these reports. 

[21] Only one district did not conduct oversight for a majority of the 
mitigation banks that we reviewed. We reviewed an additional 10 
mitigation bank files for banks approved during calendar year 2004. We 
did not include these banks in our overall totals because monitoring 
reports are typically required on a yearly basis and not enough time 
had elapsed during our review to determine if the banks submitted 
monitoring reports. 

[22] One mitigation bank file contained evidence that the Corps 
received a monitoring report even though the Corps did not require the 
sponsor to submit monitoring reports. 

[23] The Corps refers to its actions in response to noncompliance as 
"compliance actions," as distinct from EPA's "enforcement actions" in 
response to unauthorized activities performed without required permits. 

[24] 33 U.S.C. § 1344(s); 33 C.F.R. § 326.4(d). 

[25] The Corps has authority to assess Class I administrative penalties 
in an amount of up to $11,000 per violation, not to exceed $27,500. 33 
U.S.C. § 1319(g) and 33 C.F.R. § 326.6(a)(1). The current penalty 
amounts were effective July 26, 2004. 69 Fed. Reg. 35518 (June 25, 
2004). However, under the Corps' policy, once the Corps decides to 
proceed with an administrative penalty, it cannot subsequently refer 
the case to the Department of Justice for legal action. 33 C.F.R. § 
326.6(a)(2). 

[26] 33 C.F.R. § 325.4(d). 

[27] 33 C.F.R. § 325.7(c). 

[28] 33 C.F.R. § 325.7(d). 

[29] 33 U.S.C. § 1344(s); 33 C.F.R. § 326.5. 

[30] 33 C.F.R. § 326.5(a). 

[31] 33 U.S.C. § 1344(s)(4). 

[32] 60 Fed. Reg. 58605 (Nov. 28, 1995). 

[33] 65 Fed. Reg. 66914 (Nov. 7, 2000). 

[34] The fiscal year 2003 data provided by the Corps includes 
information about litigation and penalties but does not provide 
information on permit suspensions or revocations. According to a 
headquarters senior project manager, the Corps rarely uses these 
actions to obtain compliance. 

[35] 31 U.S.C. § 3302(b), known as the miscellaneous receipts statute, 
requires that, unless otherwise provided, a government agency must 
deposit any funds received from sources other than appropriations into 
the general fund of the Treasury. 

[36] A National Research Council report also has noted that it is 
important for permit requirements to contain clear and comprehensive 
information about compensatory mitigation and that without such 
information Corps officials may not be able to ensure that mitigation 
replaces the functions and values of lost wetlands. 

[37] According to a New Orleans official, although the majority of the 
total is the result of compensatory mitigation requirements, some of 
the monies were collected as a result of penalty assessments from the 
state's coastal program. 

[38] Individual permits are typically issued for projects that may have 
substantial environmental impacts. For smaller impacts, Corps officials 
generally issue either letters of permission, which are used when the 
proposed work is minor and is not expected to receive appreciable 
opposition, or general permits, which cover activities that have been 
identified as being substantially similar in nature, such as 
stabilizing stream banks. 

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