Department of Commerce: Compliance with the Inflation Adjustment
Act (30-SEP-02, GAO-02-1085R).
GAO initiated a governmentwide review of the implementation of
the Federal Civil Penalties Inflation Adjustment Act of 1990. The
act requires each federal agency to issue a regulation adjusting
its covered maximum civil monetary penalties for inflation by
October 23, 1996, and requires each agency to make necessary
adjustments at least once every 4 years thereafter. During the
review, GAO determined that the Department of Commerce had
adjusted its civil penalties in a manner inconsistent with eh
requirements of the statute.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-1085R
ACCNO: A05200
TITLE: Department of Commerce: Compliance with the Inflation
Adjustment Act
DATE: 09/30/2002
SUBJECT: Federal law
Fines (penalties)
Inflation
Noncompliance
Consumer Price Index
Department of Commerce: Compliance with the Inflation Adjustment
Act (30-SEP-02, GAO-02-1085R).
GAO initiated a governmentwide review of the implementation of
the Federal Civil Penalties Inflation Adjustment Act of 1990. The
act requires each federal agency to issue a regulation adjusting
its covered maximum civil monetary penalties for inflation by
October 23, 1996, and requires each agency to make necessary
adjustments at least once every 4 years thereafter. During the
review, GAO determined that the Department of Commerce had
adjusted its civil penalties in a manner inconsistent with eh
requirements of the statute.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-1085R
ACCNO: A05200
TITLE: Department of Commerce: Compliance with the Inflation
Adjustment Act
DATE: 09/30/2002
SUBJECT: Federal law
Fines (penalties)
Inflation
Noncompliance
Consumer Price Index
******************************************************************
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** may not resemble those in the printed version. **
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GAO-02-1085R
GAO- 02- 1085R DOC Penalty Adjustments
United States General Accounting Office Washington, DC 20548
September 30, 2002 The Honorable Donald L. Evans The Secretary of Commerce
Subject: Department of Commerce: Compliance with the Inflation Adjustment
Act
Dear Mr. Secretary: Earlier this year, we initiated a governmentwide
review of the implementation of the Federal Civil Penalties Inflation
Adjustment Act of 1990, as amended (Inflation Adjustment Act). 1 The
Inflation Adjustment Act required each federal agency to issue a
regulation adjusting its covered maximum and minimum civil monetary
penalties for inflation by October 23, 1996, and requires them to make
necessary adjustments at least once every 4 years thereafter. During our
review, we determined that the Department of Commerce (DOC) had adjusted
its civil penalties in a manner inconsistent with the requirements of the
statute. This report is intended to bring this matter to your attention
and to recommend corrective action.
DOC*s Method of Rounding Is Inconsistent with the Requirements of the
Inflation Adjustment Act
Under the Inflation Adjustment Act, DOC (like other covered federal
agencies) was required to publish a regulation by October 23, 1996,
adjusting its maximum civil penalties for inflation. The amount of this
adjustment was to be based on changes in the Consumer Price Index (CPI)
from June of the calendar year in which DOC*s penalties were last set or
adjusted through June of the year prior to the adjustment (i. e., June
1995 for adjustments made in October 1996). However, the statute limited
the first adjustments of an agency*s penalties to 10 percent of the
penalty amounts.
On October 24, 1996, DOC published a final rule adjusting its civil
penalties for inflation. 2 In the rule, the department identified dozens
of covered civil penalties and adjusted most of them by the 10 percent
maximum adjustment permitted under the Inflation Adjustment Act.
1 The Inflation Adjustment Act is codified at 28 U. S. C. 2461 note. The
1990 act was amended in 1996 by the Debt Collection Improvement Act, which
added the requirement for agencies to adjust their civil penalties by
regulation (Pub. L. 104- 134, Sec. 31001, 110 Stat. 1321- 373). 2 See 61
Fed. Reg. 55092.
GAO- 02- 1085R DOC Penalty Adjustments Page 2 The Inflation Adjustment Act
also required DOC to examine its civil penalties by
October 23, 2000, and, if necessary, make additional inflation
adjustments. The calendar year 2000 adjustments were to be based on
changes in the CPI from June of the year in which the penalties were last
adjusted (i. e., June 1996 for the penalties that were adjusted by 10
percent) through June of the year prior to the adjustment (i. e., June
1999). The statute also includes a mechanism for rounding penalty
increases, setting out penalty ranges, from amounts less than or equal to
$100 to amounts greater than $200,000, and provides different dollar
multiples for rounding the increase in each penalty range. For example,
subsection 5( a) of the Inflation Adjustment Act provides that increases
determined under that subsection must be rounded to the nearest *multiple
of $1,000 in the case of penalties greater than $1,000 but less than or
equal to $10,000.* (Emphasis added.) Similarly, it provides that increases
should be rounded to the nearest *multiple of $5,000 in the case of
penalties greater than $10,000 but less than or equal to $100,000.*
(Emphasis added.)
On November 1, 2000, DOC published a final rule implementing a second
round of penalty adjustments to account for the approximately 6 percent
change in the CPI between June 1996 and June 1999. 3 However, in
determining the amount of adjustments to be made, DOC used an incorrect
approach. Specifically, DOC noted that the Inflation Adjustment Act
requires the raw inflation adjustment amounts to be rounded, and said that
the categories of rounding were determined by the size of the penalty
increase. For example, DOC said that if the increase is greater than
$1,000 and less than or equal to $10,000, the raw inflation adjustment
amount should be rounded to the nearest multiple of $1,000. However, as
noted previously, the Inflation Adjustment Act clearly states that the
appropriate category of rounding should be determined by the size of the
penalty, not the size of the increase.
Had DOC used the size of the penalty to determine the appropriate category
of rounding for the increase, many of the department*s penalties could not
have been adjusted in November 2000. 4 For example, DOC increased the
penalty for a violation of 50 U. S. C. 1705( b) (a provision of the
International Emergency Economic Powers Act) from $11,000 to $12,000.
Multiplying the $11,000 base penalty times 1.06 (reflecting the 6 percent
inflation between June 1996 and June 1999) yields an unrounded penalty of
$11,660* a $660 increase. The statute provides that a penalty of this size
should be rounded to the nearest multiple of $5,000. However, the nearest
multiple of $5,000 for an unrounded increase of $660 is zero. 5
Recommendation for Executive Action
Although we recognize some advantages to rounding on the basis of the size
of the increase rather than the size of the penalty, such a determination
does not comport
3 See 65 Fed. Reg. 65260. In this publication, DOC also adjusted for the
first time 10 civil penalties that existed in October 1996 but were not
included in the department*s first round of adjustments. 4 We took a
similar position earlier this year with regard to a direct final rule
published by the
Environmental Protection Agency. See B- 290021, July 15, 2002. 5 However,
using the size of the increase to determine the appropriate category of
rounding for this
penalty indicates that the increase should be rounded to the nearest
multiple of $100. Because the nearest multiple of $100 for an unrounded
increase of $660 is $700, the penalty would be increased from $11, 000 to
$11,700* not $12, 000 as DOC did in this rule.
GAO- 02- 1085R DOC Penalty Adjustments Page 3 with the plain language of
the statute. Therefore, we recommend that the Secretary
of Commerce initiate a regulatory action to adjust the agency*s civil
penalties in a manner consistent with the requirements of the Inflation
Adjustment Act.
Agency Comments and Our Evaluation
On September 11, 2002, we provided a draft of this report to the Secretary
of Commerce for his review and comment. On September 27, 2002, the DOC
Chief Counsel for Regulation told us that the department would, as we
recommended, issue new regulations adjusting its penalties in a manner
consistent with the Inflation Adjustment Act. However, he also said that
rounding increases based on the size of the penalty produces a result that
seems inconsistent with the stated purpose of the statute* to keep civil
penalties in pace with inflation.
- - - - We are sending copies of this report to the appropriate
congressional committees, and it will be available at no charge on GAO*s
website at http:// www. gao. gov. If you or your staff have any questions
on the matters discussed in this letter, you may contact Curtis Copeland
or me at (202) 512- 6806. Major contributors to this report include John
Tavares and Oliver Walker.
Sincerely yours, Victor S. Rezendes Managing Director Strategic Issues
(450157)
*** End of document. ***