Fees increased by a weighted average of 86  percent per application, based on the fee review completed by USCIS in  February 2007. Costing Methodology Did Not Consistently Adhere to Federal Accounting Standards and Principles and Other Guidance

Although the July 2007 fee increases met management’s objective to set  fees at a level to recover USCIS’s estimated costs of immigration  application processing and adjudication services, the costing methodology  USCIS used to develop the fees for each application type did not  consistently adhere to federal accounting standards and principles and  other guidance. While federal accounting standards allow flexibility for  agencies to develop managerial cost accounting practices that are suited  to their specific needs and operating environments, they also provide  certain specific guidance based on sound cost accounting concepts. USCIS’s methodology was not consistent with federal accounting  standards and principles and other guidance in the following aspects:   (1) unreimbursed costs paid by other federal entities on behalf of USCIS  were not included in USCIS’s estimates of total costs, (2) key assumptions  and methods used for allocation of costs to activities and types of  applications were not sufficiently justified, (3) assumptions about staff  time spent on various activities were not supported by documented  rationale or analysis, (4) the cost of premium processing services was not  determined, and (5) documentation of the processes and procedures was  not sufficient to ensure consistent and accurate implementation of the  methodology. Because of these inconsistencies, USCIS cannot support the  reasonableness of the cost assignments to the various application types. In other words, costs  should be included regardless of which agency pays them. In large part, it consisted of allocating costs on a  prorated basis. USCIS did not prepare and document analyses to justify its  assumptions that prorated allocations provided a reasonable distribution  of those costs. Of the $924 million of overhead costs,   $732 million—31 percent of the total $2.329 billion cost—was allocated to  field offices based on the number of FTEs assigned to each field office. This approach did not consider USCIS’s approximately 6,100 contract  workers and used only approximately 7,900 FTEs of the total federal FTEs  of about 10,400 as the basis for distributing overhead costs. For example, documentation of the  multistep process USCIS used to allocate overhead costs to activities did  not include the percentages used to make these allocations. Accountability Mechanisms Are in Place to Track Use of Fees, and USCIS Is Taking Steps to Strengthen Control over Collections

USCIS has put accountability mechanisms in place to help ensure that it is  using regular application fee collections and premium processing fee  collections as it intended, and it is taking steps to improve internal control  over collection of fees. USCIS reported that it has taken some actions to  strengthen service center controls in the short term, and that it is in the  process of moving all preadjudication application processing and fee  receipt functions from the service centers and field offices to lockbox  facilities to further strengthen control over collections. Expenditures for USCIS’s business transformation program, to make long- term improvements to its business processes and technology, come from  premium processing fees. USCIS plans to use the  entire amount of premium processing fees it received in fiscal year 2008— almost $163 million—for its transformation program. Although controls are in place, USCIS has identified  through its monitoring procedures some weaknesses at one of its service  centers. Recommendations for Executive Action

To help make USCIS’s costing methodology used for determining  application fees consistent with federal accounting standards and  principles and to strengthen the reliability of the cost assignments used to  set fees, we recommend that the Secretary of Homeland Security direct  the Director of USCIS to take the following four actions:  identify the full cost of application processing services whether paid  directly by USCIS or by other federal entities for USCIS’s benefit, such as  the costs of lockbox services paid by Treasury’s FMS and certain  retirement benefits to be paid to USCIS retirees by OPM;   consider the full costs to the government when USCIS next reviews and  sets application fees and document the rationale for decisions made about  including or excluding any types of costs in the fee determination process;   determine the costs of providing premium processing services to identify  the extent to which the $1,000 premium processing fee would cover  associated expedited processing costs and infrastructure improvements;  and   document the processes and procedures of the costing methodology in  sufficient detail so that the specific procedures used and the data sources  and cost assignment methods employed for each step in the process can  be understood and replicated.
Why GAO Did This Study

The Department of Homeland Security's (DHS) U.S. Citizenship and Immigration Services (USCIS) is responsible for granting or denying immigration benefits to individuals. USCIS charges fees for the millions of immigration applications it receives each year to fund the cost of processing and adjudicating them. In February 2007, USCIS completed a study to determine the full costs of its operations and the level at which application fees should be set to recover those costs. USCIS's new fee schedule increased application fees by a weighted average of 86 percent. Almost 96 percent of USCIS's fiscal year 2008 budget of $2.6 billion was expected to have come from fees. GAO was asked to review the methodology USCIS used in its fee review and controls in place over collection and use of fees. In this report, GAO addresses the consistency of the methodology with federal accounting standards and principles and other guidance, including whether key assumptions and methods were sufficiently justified and documented. The report also addresses internal controls USCIS has in place over the collection and use of fees.

What GAO Found

In 2007, USCIS completed a fee review in which USCIS estimated the costs of its immigration application processing and adjudication services and, in accordance with management's objective, set the fees at a level to recover those costs. The methodology USCIS used in its review, however, did not consistently adhere to federal accounting standards and principles and other guidance. While federal accounting standards allow flexibility for agencies to develop managerial cost accounting practices that are suited to their needs, they also provide certain specific guidance based on sound cost accounting concepts. USCIS's methodology, for example, did not include the costs paid by other federal entities on behalf of USCIS. Federal standards and guidance also call for documentation that is sufficient to allow an understanding of and provide justification for the cost assignment processes and data used. USCIS did not adequately document the detailed processes used or sufficiently justify assumptions used in allocating costs to various activities on a prorated basis. As a result, USCIS could not show that its methods provided a reasonable distribution of the costs to the various types of applications. For instance, USCIS allocated $732 million of overhead costs (or 31 percent of total costs)--including information technology operations and maintenance--to offices based on the number of staff full-time equivalents (FTE) in each office. However, USCIS's documentation did not sufficiently justify (1) why cost allocation was used instead of other possible methods or (2) why it did not include about 6,100 contract workers and used only approximately 7,900 FTEs of the total federal FTEs of about 10,400 as the basis for allocation. USCIS also did not adequately justify the equal assignment of activity costs representing 51 percent of total costs to each application type. While such pro rata assignment of costs may be a reasonable method in some circumstances, USCIS did not document its justification for the assumptions made when deciding which costs to allocate on a prorated basis and how those costs should be allocated. Because of these inconsistencies with federal accounting standards and principles and other guidance, USCIS cannot support the reasonableness of cost assignments to the various application types. USCIS has implemented accountability mechanisms to track the use of both regular application fees as well as premium processing fees intended for specific projects. USCIS plans to use its premium processing fee collections to fund its transformation program to make long-term improvements to its business processes and technology. Through its monitoring of fee collection procedures, USCIS has identified some weaknesses at one of its service centers. It has taken actions to strengthen service center controls in the short term, and it is moving all fee receipt functions and the application processing done in preparation for adjudication to lockbox facilities to further strengthen control over collections.