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Report to the Chairman, Committee on Finance, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

March 2009: 

Export Promotion: 

Commerce Needs Better Information to Evaluate Its Fee-Based Programs 
and Customers: 

Export Promotion User Fees: 

GAO-09-144: 

GAO Highlights: 

Highlights of GAO-09-144, a report to Chairman, Committee on Finance, 
U.S. Senate. 

Why GAO Did This Study: 

Federal and state trade promotion activities are intended to help U.S. 
firms compete successfully in foreign markets. Small and medium-sized 
enterprises (SME)—firms with fewer than 500 employees—represent a key 
segment of exporting firms. GAO was asked to determine (1) the 
relationship between the Department of Commerce’s (Commerce) U.S. 
Commercial Service (CS) and states’ trade offices’ export promotion 
programs, (2) CS’s methodology and practices for determining costs and 
establishing user fees for export promotion services, and (3) how CS’s 
user fees affect SMEs’ use of its programs. 

GAO conducted a survey of states’ trade offices and reviewed data such 
as export promotion budgets and fees, program information, government 
standards, and user fee studies. GAO met with officials from Commerce, 
the State International Development Organizations, six states’ trade 
offices, and others. 

What GAO Found: 

Both CS and most states’ trade offices provide various types of export 
promotion services. However, states have limited resources and scope 
when compared with CS’s $235 million budget and large overseas staff. 
Thus, most states responding to GAO’s survey reported that CS's 
services are important to their export promotion capabilities. State 
offices often partner with CS on trade missions and other activities. 
CS and most states focus their efforts on encouraging SMEs to 
participate in their programs, but user fees can influence whether 
firms choose to access export promotion services. CS lowers fees for 
SME exporters, but about a third of the states said they provide grants 
or payments to defray firms’ costs and facilitate access to CS’s 
programs. 

CS needs better information to maximize the efficient and effective 
operation of its programs and to ensure that there is a sound basis for 
setting fees. CS set user fees in May 2008 guided by the Office of 
Management and Budget’s (OMB) full cost recovery policy. However, CS 
has had a yearly legislative exemption from having to recover full 
costs through its fees and attempted to recover only a portion of the 
full cost of its export promotion services. CS did not support and 
document the methodology and assumptions it used to determine costs and 
cannot ensure its cost information is consistent and reliable and in 
accordance with government standards. GAO found significant instances 
where CS used incomplete and potentially inaccurate data. Complete and 
accurate full cost information would assist CS and the Congress in 
making decisions about resource allocations, evaluating program 
performance, and improving program efficiency. Finally, CS did not 
document how it established the lower user fees for SMEs and cannot 
show how the fees it charges different firms for each service link to 
costs. 

The extent to which CS’s user fees affect SMEs’ use of its export 
promotion programs is unclear. CS lacks reliable and sufficient data to 
evaluate its customer base and needs to ensure it charges firms the 
right fees. CS lacks reliable historical data on fees charged, firm 
size and status, and purchases by location and type. CS is taking steps 
to better evaluate its customer base. GAO’s survey showed that most 
states reported the 2008 user fees to be reasonable but thought fees 
charged SMEs for some services were too high when compared with those 
charged by private sector providers. CS projects an increase in SMEs’ 
demand for its services, but the projection is not based on any 
analysis of historical data. Relevant studies and other sources suggest 
that the types of services CS offers compared with other providers, the 
level of individualized attention provided, and service quality are 
factors that also affect SMEs’ choice to use CS’s services. 

What GAO Recommends: 

GAO recommends that Commerce (1) improve CS procedures for determining 
costs and setting user fees for export promotion services and (2) 
collect and process more reliable information about its customers to 
better understand demand for CS services and how the user fees affect 
customers. Commerce concurred with our recommendations. 

View [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-144] or key 
components. To view the survey results, click on [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-09-148SP]. For more information, 
contact Loren Yager at (202) 512-4347 or yagerl@gao.gov and Stan 
Czerwinski (202) 512-6520 or czerwinskis@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

CS and Most States' Trade Offices Provide Similar Export Promotion 
Services and Work in Partnership: 

CS Needs to Improve Its Methodology to Determine Costs and Set User 
Fees: 

The Extent to Which CS's User Fees Affect SMEs' Use of Its Export 
Promotion Services Is Unclear: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Overview of CS's and States' Domestic and International 
Offices: 

Appendix III: Selected CS Fee Services Purchased by Firms in Each State 
in 2007 and 2008: 

Appendix IV: Comments from the Department of Commerce: 

Appendix V: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Export Promotion Services Offered by CS and States' Trade 
Offices: 

Table 2: State Export Promotion Resources: Domestic and Overseas 
Staffing and Budget Averages: 

Table 3: CS Services Sold and Total Collections, Fiscal Year 2008: 

Table 4: Overview of CS Cost Methodology: 

Table 5: Some Studies of CS's Export Promotion Programs and User Fees: 

Table 6: Numbers of Selected CS Fee Services Purchased by Firms in Each 
State: 

Figures: 

Figure 1: States' Opinions on the Importance of CS Services to their 
Export Promotion Capabilities: 

Figure 2: Export Promotion Services States Purchased Directly from CS: 

Figure 3: Comparison of the Commercial Service's 2005 and 2008 User Fee 
Schedules: 

Figure 4: States' Trade Offices' Fee-Based and Non-Fee Based Services: 

Figure 5: States' Trade Offices Offering Export Promotion Grants: 

Figure 6: States' Trade Offices Use of Gold Key Service under 2005 Fee 
Schedule: 

Figure 7: States' Trade Offices' Views of CS's 2008 Fee Schedule: 

Figure 8: States' Trade Offices' Views of Gold Key Service under 2008 
Fee Schedule: 

Figure 9: States' Trade Offices' Views of CS's Customized Services Fees 
Compared to Private Sector Providers' Fees: 

Figure 10: CS Domestic and International Locations: 

Abbreviations: 

ARC: Appalachian Regional Commission: 
CS: Commercial Service: 
COSO: Committee of the Sponsoring Organizations of the Treadway 
Commission: 
CSG: Council of State Governments: 
CTS: Client Tracking System: 
DEC: District Export Council: 
EDO: Economic Development Organization: 
FUSE: Featured U.S. Exporter: 
IOAA: Independent Offices Appropriations Act of 1952: 
ITA: International Trade Administration: 
MECEA: Mutual Education and Cultural Exchange Act: 
NTE: new to export: 
OMB: Office of Management and Budget: 
SFFAS: Statement of Federal Financial Accounting Standards: 
SIDO: State International Development Organizations: 
SME: small and medium-sized enterprise: 
TCD: Transformational Commercial Diplomacy: 
USEAC: U.S. Export Assistance Center: 

[End of section] 

United States Government Accountability Office: 

Washington, DC 20548: 

March 4, 2009: 

The Honorable Max Baucus: 
Chairman: 
Committee on Finance: 
United States Senate: 

Dear Mr. Chairman: 

The low proportion of U.S. firms that engage in exporting is a major 
challenge to realizing the nation's full export potential. For example, 
less than 1 percent of U.S. firms are identified as exporters. The 
percentage of U.S. production accounted for by exports has risen in 
recent years as U.S. industries have responded to export opportunities 
created by new market access and growing foreign markets. Small and 
medium-sized enterprises (SME)--firms with fewer than 500 employees-- 
represent a key segment of exporting firms.[Footnote 1] Federal trade 
promotion, along with negotiating trade agreements and monitoring 
existing agreements, is intended to help U.S. firms gain access to and 
compete successfully in foreign markets. 

The mission of the U. S. Commercial Service (CS),[Footnote 2] part of 
the Department of Commerce (Commerce), is to promote economic 
prosperity and enhance job creation through a global network of 
international trade professionals that provide trade promotion 
services. CS's trade promotion activities seek to increase the number 
of U.S. firms that export and assist current exporters to enter 
additional markets and expand their presence within markets. In fiscal 
year 2008, CS's budget for export promotion totaled approximately $235 
million. One way CS seeks to broaden and deepen the U.S. exporter base 
is through public and private partnerships, including partnerships with 
state trade offices, which have similar missions. The current recession 
is likely to highlight the importance of these federal-state 
partnerships. During economic downturns, some states cut back on or 
eliminate services, such as export promotion, in an effort to address 
fiscal challenges through expenditure cuts. In such circumstances, 
companies seeking export assistance from a government entity may turn 
more to the federal government. 

Federal export promotion programs primarily focus on SMEs and charge 
fees for services. The fees charged to prospective exporters, 
especially SMEs, for particular services affect their decisions to 
participate in these federal trade promotion programs. In 2005, SMEs, 
as well as large firms, expressed concerns about their future access to 
CS programs while CS was considering whether to raise its fees in order 
to recover the full costs of these programs. 

In response to your request, we evaluated (1) the relationship between 
CS and states' trade offices' export promotion programs, (2) CS's 
methodology and practices for determining costs and establishing user 
fees, and (3) how CS's user fees affect SMEs' use of its programs. 

To address these objectives, we reviewed documents and analyzed data 
provided by CS, the 50 states' trade offices, the State International 
Development Organizations,[Footnote 3] District Export 
Councils,[Footnote 4] and other relevant sources. In addition, to 
obtain information on states' trade offices' programs and fees, we 
surveyed the 50 states' trade offices and conducted site visits in six 
states (California, Connecticut, Idaho, Illinois, Mississippi, and 
Pennsylvania). We selected states' trade offices based on a number of 
criteria, including the size of the states' trade promotion budgets and 
states' trade offices colocated with CS's domestic offices. We received 
survey responses from 45 states' trade offices, or a 90 percent 
response rate. This report does not contain all the results from the 
survey. The survey and a more complete tabulation of the results are 
provided in a supplement to this report (see GAO-09-148SP). Further, to 
obtain information on the costs of CS export promotion programs and 
user fees and to determine what is known about how CS's user fees 
affect SMEs' participation in its programs, we interviewed Commerce 
officials in Washington, D.C., and at the six U.S. Export Assistance 
Centers we visited, as well as officials from the six states' trade 
offices, District Export Councils, the Office of Management and Budget 
(OMB), which issues U.S. government guidance for user fees, and the 
State International Development Organizations. We conducted this 
performance audit from October 2007 to March 2009, in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform our audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe the evidence 
obtained provides this reasonable basis. (Appendix I provides a 
detailed discussion of our scope and methodology.) 

Results in Brief: 

CS and the majority of states' trade offices provide many of the same 
types of export promotion services, such as export training, trade 
missions, and market research. According to CS officials, no state 
provides services that compare with the depth and extent of CS export 
promotion services. Consistent with its role as a federal entity 
promoting U.S. interests abroad, CS has a national and worldwide 
presence, while states' trade offices have fewer staff, smaller 
budgets, and operate in fewer countries. Our survey showed that the 45 
states responding have an average of 5 overseas offices, or 
representatives, each and can cover only a few countries and regions; 
in contrast, CS has 124 offices in 75 countries. Partly as a result of 
this limited capacity, most states reported that CS's services are 
important to their export promotion capabilities and have often 
partnered with CS's offices on activities, such as trade shows and 
trade missions, as well as joint company visits and counseling 
sessions. Furthermore, states' trade offices sometimes purchase 
services from CS. CS and most states' trade offices focus their export 
promotion efforts on encouraging SMEs to participate in their programs. 
User fees can be a factor in firms' decisions on whether to use state 
and federal export promotion services. The majority of states' trade 
offices provide most services, like export counseling, for free but 
charge fees for some services, such as foreign trade missions and trade 
shows; CS charges for some services that state offices generally 
provide for free, such as foreign agency and distributor searches, but 
CS generally provides lower user fees to SMEs as an incentive for them 
to participate in CS's programs. In addition, to help make export 
promotion services more accessible to potential exporters from their 
states, about a third of the 45 states responding to our survey 
indicated that they provide some grants or payments to SMEs that can 
help defray the costs of CS's fee services. 

CS needs better information to maximize the efficient and effective 
operation of its export promotion programs and to ensure that there is 
a sound basis for setting its user fees. CS officials decided to use 
OMB's full cost recovery policy, Circular A-25, User Charges, as a 
guide for setting its May 2008 user fees, despite a yearly legislative 
exemption from having to recover full costs through its fees.[Footnote 
5] Nevertheless, CS neither provided support for nor documented the 
methodology and assumptions it used to determine costs, which hampers 
CS's ability to make sound management decisions about its services. CS 
cannot ensure its cost information is complete, consistent, and 
reliable and in accordance with government standards. For example, we 
found CS's cost estimates do not include certain costs paid on behalf 
of CS by other entities, such as approximately $17 million in 
retirement benefits paid by the Office of Personnel Management in 
fiscal year 2008. Also, CS did not support its assumptions about the 
amount of time staff spent performing standardized export promotion 
activities. We found the staff time data CS used, which were collected 
in 2005, were potentially outdated and inaccurate. Complete and 
accurate full cost information would assist CS and the Congress in 
making decisions about resource allocations, evaluating program 
performance, and improving program efficiency. Furthermore, CS cannot 
demonstrate that its user fees for the services it provides are based 
on complete and accurate cost information and that the user fees 
recover the portions of program costs that CS intends. Finally, CS 
designed the 2008 user fee schedule to provide an incentive to 
SMEs.[Footnote 6] CS did not document its procedures and assumptions 
used to establish the lower user fees for SMEs and thus the basis for 
the different user fees it charges different firms for each service are 
not transparent and are not linked to the costs of those services. 

The extent to which CS's user fees affect SMEs' use of its export 
promotion programs is unclear because CS lacks reliable and sufficient 
data on its fee-based services to evaluate its customer base and to 
ensure that it is allocating resources to services that its customers 
need and is charging them the appropriate fees. CS lacks comparable and 
reliable historical data on the fees it has charged, as well as 
reliable data on company sizes and purchases by SMEs and its other 
customers. CS officials informed us that they have performed only 
limited studies of customer demand, but that CS has recently begun to 
take steps to improve the quality of data it collects to better 
evaluate its customer base. We surveyed the states' trade offices to 
obtain their views on CS user fees because state governments are 
partners with, and customers of CS, and play an important role in 
helping their businesses to compete in the global economy. Most states' 
trade offices that had a basis to judge said that the 2005 CS fee 
change caused them to decrease their use of a key standardized service 
they purchased most often from CS. Overall, most states with a basis to 
judge reported the 2008 user fees to be reasonable but thought fees 
charged to SMEs for some services were too high in comparison to fees 
charged by the private sector. Finally, CS projects an increase in 
SMEs' demand for its services, but the projection is not based on any 
analysis of historical data. Our work, which included a review of 
relevant studies, suggests that factors other than fees also affect 
SMEs' choice to use CS's services, and these factors include the types 
of services CS offers compared with other providers, the level of 
individualized attention provided, and service quality. 

We make recommendations in this report to the Secretary of Commerce to 
direct the Assistant Secretary for Trade Promotion and Director General 
of the U.S. and Foreign Commercial Service to (1) take steps to improve 
the collection, processing, and documentation of cost information on 
its export promotion programs and user fees in order to enhance 
efficient and effective management in line with federal accounting and 
internal control standards and (2) ensure that the design of its 
databases and procedures followed produce more accurate, reliable, and 
complete data on its customers to better understand demand for CS 
programs and the extent to which participation is affected by its user 
fees. 

In commenting on a draft of this report, Commerce concurred with our 
recommendations and said that CS would take steps to improve the 
collection, processing, and documentation of cost information related 
to its export promotion programs. Commerce officials stated that CS 
developed its new user fee policy from the most accurate data available 
and that its accounting systems were not deficient based on receiving 
an unqualified audit opinion on its annual financial statements. We 
remain concerned, however, that potentially outdated and inaccurate 
nonfinancial data, such as the time staff spend performing various 
activities, were used to determine the unit cost of specific services 
and that the full costs of specific services should be considered when 
CS next review its fees. Also, although an entity's audited financial 
statements and unaudited cost accounting analyses may use the same 
underlying financial data, an auditor's opinion on the financial 
statements does not provide assurance concerning the reasonableness of 
cost analyses performed using the underlying financial data. Commerce 
also noted an increase in fees collected and services provided in 
fiscal year 2008, which they believe indicates their products and 
services remain accessible to SMEs. However, we continue to believe 
that more complete and accurate data about company size are needed to 
properly estimate the volume of services provided to SMEs and come to 
judgements about the fees collected from them. Finally, Commerce 
emphasized that its trade promotion services are greater in depth and 
scope than those provided by the states, and we clarified this point in 
various places in our report where appropriate. Commerce's comments, 
along with our responses to specific points, are reprinted in appendix 
IV. Commerce also provided technical comments, which were incorporated 
in the report, as appropriate. 

Background: 

The U.S. Commercial Service, within Commerce's International Trade 
Administration (ITA), plays a leading role in the federal government's 
efforts to encourage and promote U.S. nonagricultural exports. CS was 
founded in 1980, as overseas commercial work was transferred from the 
Department of State (State) to CS. The purpose of CS's export promotion 
programs is stated through statutory authority.[Footnote 7] CS's 
mission is to maximize U.S. competitiveness, and enable economic growth 
for U.S. industries, and enhance job creation by helping U.S. firms 
take advantage of opportunities abroad through a global network of 
international trade professionals. CS operates 108 domestic offices at 
U.S. Export Assistance Centers (USEAC), and maintains 124 international 
offices in 75 countries that represent the significant export markets 
for U.S. goods and services.[Footnote 8] CS trade specialists at these 
offices are tasked with assisting U.S. firms and representing U.S. 
commercial interests abroad. In those countries where CS does not have 
a presence, State represents U.S. commercial interests and assists U.S. 
exporters. State and CS are in the process of negotiating a memorandum 
of understanding to formalize this arrangement. Currently, State can 
offer certain export promotion services, but does not use CS product 
and customer service standards or CS pricing policies.[Footnote 9] 

The general goal of CS is to use its network of professionals and 
export promotion services to broaden and deepen the U.S. exporter base 
and help U.S. firms make sales in international markets. CS reports 
that it helps thousands of firms make export sales each year. 
Furthermore, according to CS, the majority of these sales are by SMEs. 
Its services include providing market research and supporting trade 
events. The Gold Key Service, which helps firms identify international 
business partners, is one of its most popular services. CS provides 
these services to a variety of customers. While private U.S. firms 
(particularly SMEs) are CS's main customers, CS also delivers services 
to other customers, including state and local governments. 

Many U.S. states maintain state trade offices that provide varying 
levels of export assistance, usually focusing on increasing exports 
from firms located in their states. Most are managed by state economic 
development agencies and funded by states' operating budgets. Many 
state trade offices maintain both domestic and overseas offices to 
deliver services. In addition, many states' trade offices partner with 
CS to ensure client firms have access to services the state cannot 
offer, particularly in those foreign markets where the states lack 
offices. 

CS is authorized to charge a user fee for its export promotion 
services, and CS has adjusted its user fee structure in recent 
years.[Footnote 10] Prior to fiscal year 2005, CS did not have an 
agencywide user fee schedule for its export promotion programs, as each 
overseas post decided what user fees firms were charged for the export 
promotion services the posts delivered. As part of its user fee review 
in fiscal year 2005, CS sought to determine the user fees it would have 
to charge to recover the full costs of its services. CS determined its 
user fees would have to rise significantly to recover full costs, 
causing concern among firms, business leaders, and CS staff. However, 
CS did not implement a 2005 user fee schedule that recovered full costs 
but adopted an agencywide user fee schedule with user fees for most 
services set to recover a portion of program costs. 

CS and Most States' Trade Offices Provide Similar Export Promotion 
Services and Work in Partnership: 

CS and the majority of states provide many of the same types of export 
promotion services, such as export training, trade missions, and market 
research. Firms can choose to go to CS, states' trade offices, or other 
providers to get these services. However, states have limited budgets 
and staff to assist their firms. Partly as a result of this limited 
capacity, most states reported that CS's services are important to 
their export promotion capabilities and have partnered with CS's 
offices. Both CS and most states' trade offices focus their export 
promotion efforts on SMEs. CS and the majority of states' trade offices 
provide services for free but charge fees for certain services. In 
addition, to facilitate access to CS's programs, about a third of the 
states responding to our survey indicated that they provide grants or 
payments to firms from their states to defray the costs of CS's fee 
services.[Footnote 11] 

CS and States' Trade Offices Provide Many of the Same Types of Export 
Promotion Services: 

CS offers a range of standardized and customized services to help firms 
to export. The standardized CS services, including Gold Key Service, 
International Partner Search, and International Company Profile, are 
prepared and delivered to firms in approximately the same manner around 
the world. These services offer firms assistance to identify and meet 
potential overseas buyers and distributors, and to perform due 
diligence on prospective foreign buyers. The customized services, 
including Customized Market Research, QuickTake, seminars/webinars, and 
trade promotion events and trade missions, are tailored to fit the 
specific needs of an individual firm in a specific export market and 
vary based on the scope of work. 

The majority of the states' trade offices that responded to our survey 
provide many of the same types of export promotion services as CS to 
assist firms interested in exporting.[Footnote 12] According to CS 
officials, no state provides services that compare with the depth and 
extent of CS's export promotion services. According to SIDO, states' 
comparative advantage is their local presence and their ability to 
specialize in the major industries in their states and on the export 
markets those industries typically target. Services that most states 
provide and that are similar to CS include training programs and 
seminars, as well as assistance in participating in trade shows and 
missions. Other services states often cited include market research, 
agent and distributor searches, and foreign company background checks. 
According to CS officials, CS provides its services to a national 
client base and provides services in numerous markets where states have 
little or no presence. For example, CS officials explained that while 
many states provide "market research" services, these services may 
cover fewer markets and provide less detail than the market research CS 
provides. In addition, CS said that its missions target an industry 
segment more broadly and deeply than is possible for any state. 
Further, CS provides some services for which there are no state 
counterparts, such as government-to-government advocacy. Table 1 shows 
the major export promotion services offered by states' trade offices 
and CS. 

Table 1: Export Promotion Services Offered by CS and States' Trade 
Offices: 

Type of service: Training programs/seminars; Description of service: 
Training on various topics related to exporting; 
CS service(s): * Webinars; 
* Seminars; 
Number of states offering similar service: 40. 

Type of service: Foreign Trade Missions; 
Description of service: Overseas travel to meet officials, prospective 
business partners and buyers and to promote the sales of U.S. exports 
to a foreign market; 
CS service(s): * Certified Trade Mission; 
Number of states offering similar service: 39. 

Type of service: Trade shows (U.S., foreign, and catalog); 
Description of service: Events organized to introduce U.S. exporters to 
potential overseas business partners; 
CS service(s): * Commerce trade events; 
* Commerce Trade Fair Certification; 
Number of states offering similar service: 39. 

Type of service: Market research; 
Description of service: Research on target markets, marketability of 
product, market trends and size, distribution and promotion practices, 
product standards and regulations, key competitors, potential business 
partners; 
CS service(s): * Publicly available market research; 
* Customized Market Research; 
Number of states offering similar service: 36. 

Type of service: Agent/distributor searches; 
Description of service: Identification of prescreened potential 
overseas buyers and distributors; 
CS service(s): * Gold Key Service; 
* International Partner Search; 
Number of states offering similar service: 33. 

Type of service: Foreign company background checks; 
Description of service: Due diligence to verify the background and 
credit worthiness of overseas companies, including information on key 
officers and management, and the company's financial information; 
CS service(s): * International Company Profile; 
Number of states offering similar service: 29. 

Type of service: Product pricing/analysis; 
Description of service: Review product's export potential in certain 
overseas markets, including current demand, future demand, and 
competition; 
CS service(s): * QuickTake; 
Number of states offering similar service: 29. 

Sources: CS and GAO survey of states' trade offices. 

Note: The number of countries in which CS provides export promotion 
services exceeds the number of countries in which states' trade offices 
provide similar services. 

[End of table] 

States' Trade Offices' Export Promotion Efforts Are Limited by Small 
Staffs and Budgets Relative to CS: 

States' trade offices have small staffs and budgets relative to CS. 
Consistent with its role as a federal entity promoting U.S. interests 
abroad, CS has a national and worldwide presence while states have a 
local presence and operate in fewer countries. CS has 493 domestic and 
991 overseas staff who are currently engaged in export promotion 
activities in 47 states[Footnote 13] plus Puerto Rico and 75 
countries.[Footnote 14] (See app. II for CS's domestic and 
international locations.) The 45 states' trade offices responding to 
our survey have a combined total of 275 domestic staff and 214 overseas 
staff.[Footnote 15] According to SIDO, states' trade offices have 245 
offices in 34 countries. Half the states responding to our survey have 
five or fewer full-time domestic staff and two or fewer full-time 
overseas staff.[Footnote 16] Table 2 shows the differences among the 
states in terms of the resources they devote to export promotion 
activities. Both CS and the states' trade offices have been 
experiencing reductions in their staffing levels. Based on CS's data, 
it has experienced a 5 percent reduction in domestic staff and 3.5 
percent reduction in overseas staff from fiscal year 2007 to 2008. 
Thirty-two states' trade offices, or almost 73 percent of those that 
had a basis to judge, said that their overall staffing level has 
decreased or stayed the same over the past 5 years. 

Table 2: State Export Promotion Resources: Domestic and Overseas 
Staffing and Budget Averages: 

Domestic FTEs[A]: States with 0 to 1 FTE; 
Number of states: 9; 
Average number of overseas FTEs: 0.2; 
Average number of overseas locations[B]: 3.8; 
Average export promotion budget[C]: $262,000. 

Domestic FTEs[A]: States with 2 to 4 FTEs; 
Number of states: 13; 
Average number of overseas FTEs: 1.3; 
Average number of overseas locations[B]: 3.1; 
Average export promotion budget[C]: 334,000. 

Domestic FTEs[A]: States with 5 to 7 FTEs; 
Number of states: 11; 
Average number of overseas FTEs: 2.9; 
Average number of overseas locations[B]: 4.0; 
Average export promotion budget[C]: 1,294,000. 

Domestic FTEs[A]: States with 8+ FTEs; 
Number of states: 12; 
Average number of overseas FTEs: 13.6; 
Average number of overseas locations[B]: 9.3; 
Average export promotion budget[C]: 2,943,000. 

Domestic FTEs[A]: Average for all states responding to each survey; 
Number of states: 45; 
Average number of overseas FTEs: 4.7; 
Average number of overseas locations[B]: 5.1; 
Average export promotion budget[C]: $1,448,057[D]. 

Sources: Analysis of GAO and SIDO surveys of state export promotion 
agencies. 

[A] These groupings are approximate quartiles because 45 states 
responded to our survey, which does not allow for even quartiles, and 
states frequently had the same number of domestic FTEs, which also 
affected the quartile sizes. 

[B] States' overseas offices can be staffed by state employees, 
contractors, or volunteer or honorary representatives. According to 
SIDO, most offices are staffed by contractors. 

[C] SIDO state export promotion budget data were only available for 24 
states. Three (3) of these were in the first quartile, 6 were in the 
second quartile, another 6 were in the third quartiles, and 7 were in 
the fourth quartile. One state provided budget data to SIDO but did not 
respond to the GAO survey. 

[D] The median budget was $775,000. 

[End of table] 

While reliable trade promotion budget data are not available for the 50 
states' trade offices, sources estimate that the combined annual trade 
budget of the 50 states is significantly lower than CS's annual budget, 
perhaps less than half. CS's total budget for export promotion was 
about $235 million in fiscal year 2008 and is projected at $237.7 
million for fiscal year 2009 (less than 1 percent increase in nominal 
terms.)[Footnote 17] Information about states' export promotion budgets 
is difficult to obtain and may not be fully reliable. States' commerce 
departments or economic development agencies usually run states' trade 
promotion programs and foreign investment recruitment programs, and 
some states do not disaggregate the budget data between the two 
functions. CSG estimates that the 50 states spend a combined total of 
about $100 million each year helping state businesses create jobs at 
home by selling products abroad. SIDO estimates that states' budget for 
both trade and foreign investment recruitment was about $103 million in 
2008.[Footnote 18] Current state trade budget data are only available 
for 27 states through SIDO's survey. Based on these data, the average 
state export promotion budget was $1.4 million in 2008, and the median 
was $775,000,[Footnote 19] ranging from Pennsylvania at about $10 
million to Vermont at about $170,000. (Also see table 2.) 

In responding to our survey, some states' trade offices made a variety 
of observations regarding leveraging resources between the states and 
CS and the limited resources available for export promotion 
programs.[Footnote 20] For example, one state said that budget cuts 
have resulted in its decision not to duplicate services offered by CS. 
Another state that has recently discontinued its export promotion 
programs expressed interest in having the USEAC colocate within its 
economic development agency while another state said colocation costs 
incurred by individual states could be offset by discounted fees for CS 
services. With regard to CS's overseas offices, some states and SIDO 
noted that CS is closing offices in developed countries (and shifting 
resources to developing countries), and this leaves established global 
markets for SMEs without CS presence in some cases. SIDO is concerned 
about what they believe are the small number of CS resources available 
for export promotion programs. SIDO believes that U.S. firms are at a 
competitive disadvantage compared with firms in other competitor 
countries with larger government export promotion budgets and has 
called for a 50 percent increase in CS's budget.[Footnote 21] 

Most States' Trade Offices Report CS's Services Are Important to Their 
Export Promotion Capabilities and Have Partnered with CS: 

States' trade offices collaborate with CS to help provide firms export 
promotion services, and some states' domestic offices are colocated 
with CS's staff at a USEAC with a goal of helping firms access CS 
services. More than three-quarters of states' trade offices (36 of 43) 
that had a basis to judge viewed Commerce's services to be very or 
moderately important to their states' export promotion capabilities. 
(See fig. 1.) According to states' trade offices we visited, as well as 
SIDO, most states rely on or partner with CS to obtain export 
assistance in overseas markets where the states have no representation. 
Where the states have representation, they rely on their own services 
to assist their exporters. Activities in which states' trade offices 
partnered most with CS included trade shows and trade missions, 
seminars, training programs, conferences, and event planning. In 
addition to partnering with CS, some states' trade offices also 
reported working closely with their local USEACs. For example, one 
state named its USEAC a "key partner" with which "all export related 
programs, seminars, and conferences are planned, coordinated, and 
implemented." Another state said that its USEAC serves on the state's 
committee, helping to select the winners of the Governor's Awards for 
Excellence in exporting. In addition, 11 states' trade offices are 
colocated with USEACs.[Footnote 22] According to officials of one state 
trade office colocated with a USEAC, colocation has helped the state 
partner with CS to provide services to firms and outreach to potential 
client firms. 

Figure 1: States' Opinions on the Importance of CS Services to their 
Export Promotion Capabilities: 

Pie Graph: 

Very important: 65%; 
Moderately important: 19%; 
Slightly important: 14%; 
Not important: 2%. 

[Refer PDF for image] 

Source: GAO analysis of states' trade offices survey responses. 

Note: A total of 44 states' trade offices responded to this survey 
question, but one had no basis to judge regarding the importance of 
CS's services. 

[End of figure] 

Just over three-quarters of states' respondents that had a basis to 
judge (34 of 42) reported that they have partnered with CS on a variety 
of activities that are not part of CS's formal services, which requires 
a signed cooperation agreement.[Footnote 23] A few states cited 
frequently working with CS, while the majority of respondents 
identified only a few activities they have conducted jointly with CS 
during the last 3 years. For example, some states we visited informed 
us that they have conducted joint company visits and counseling 
sessions with their local USEACs. 

Some state trade offices work with CS to facilitate state-sponsored 
trade missions and trade events and are sometimes customers of CS. Our 
survey revealed that some states' trade offices directly purchased some 
of CS's services during the last 3 years. Figure 2 indicates the 
services states' trade offices have purchased directly from CS. Gold 
Key Services and seminars/webinars were the services states' trade 
offices most often reported purchasing directly from CS. Half of the 
states' trade offices reported purchasing Gold Key Service from CS, and 
less than half reported purchasing seminar/webinar services directly 
from CS. Three states we visited reported purchasing Gold Key services 
directly from CS to support overseas trade missions. One state said 
that it has purchased CS's Gold Key Service to identify potential 
consultants and representatives overseas and another state said that it 
has purchased Gold Key Service to complement a state-led trade mission. 

Figure 2: Export Promotion Services States Purchased Directly from CS: 

Types of CS services: Gold Key Service (highlighted); 
Number of states that purchased directly from CS: 22 (highlighted); 
Number of states that did not purchase from CS: 22 (highlighted). 

Types of CS services: Seminar/webinar (highlighted); 
Number of states that purchased directly from CS: 19 (highlighted); 
Number of states that did not purchase from CS: 25 (highlighted). 

Types of CS services: Trade fair; 
Number of states that purchased directly from CS: 14; 
Number of states that did not purchase from CS: 30. 

Types of CS services: Commerce-led Certified Trade Mission/trade 
mission; 
Number of states that purchased directly from CS: 9; 
Number of states that did not purchase from CS: 35. 

Types of CS services: Business Facilitation Service; 
Number of states that purchased directly from CS: 8; 
Number of states that did not purchase from CS: 36. 

Types of CS services: Catalog event/product literature center; 
Number of states that purchased directly from CS: 8; 
Number of states that did not purchase from CS: 36. 

Types of CS services: Platinum Key Service; 
Number of states that purchased directly from CS: 7; 
Number of states that did not purchase from CS: 37. 

Types of CS services: Customized Market Research; 
Number of states that purchased directly from CS: 3; 
Number of states that did not purchase from CS: 41. 

Types of CS services: International Company Profile; 
Number of states that purchased directly from CS: 3; 
Number of states that did not purchase from CS: 41. 

Types of CS services: International Partner Search; 
Number of states that purchased directly from CS: 3; 
Number of states that did not purchase from CS: 41. 

Types of CS services: Single Company Promotion; 
Number of states that purchased directly from CS: 3; 
Number of states that did not purchase from CS: 40. 

Types of CS services: QuickTake; 
Number of states that purchased directly from CS: 2; 
Number of states that did not purchase from CS: 42. 

Types of CS services: Featured U.S. Exporter (Fuse); 
Number of states that purchased directly from CS: 0; 
Number of states that did not purchase from CS: 44. 

[Refer to PDF for image] 

Source: GAO analysis of states' trade office survey responses. 

Note: Forty-five states' trade offices responded to the survey and, in 
all cases, except the single company promotion, 44 responded to each 
service. 

[End of figure]

In responding to our survey, some states' trade offices said that the 
collaboration between them and CS can be improved to provide greater 
benefits to their client firms.[Footnote 24] For example, states and CS 
target the same client base within their states, and some states' trade 
offices and SIDO said that improved information sharing would greatly 
increase effectiveness and reduce duplication of efforts to the benefit 
of exporting SMEs if sharing of client contacts and client needs were 
allowed. The types of information they sought included USEAC offices 
and staff goals and CS's foreign national contractors' list. Regarding 
sharing client information, CS officials said they must adhere to 
federal regulations, which prohibit the sharing of business proprietary 
information with non-U.S. government agencies. 

Some states' trade offices said that they have partnered with other 
states' trade offices, chambers of commerce, world trade centers, 
universities, and other entities to share costs for export promotion 
services. For example, some states said that they have obtained 
sponsors from both the public and private sectors to cover some of 
their costs, such as governor-led trade missions and agricultural 
exports. In addition, other states said that they shared costs with 
several state entities and organizations to cover programs, such as 
export training seminars, conferences, and forums while other states 
said that they have shared the costs of domestic and overseas trade 
offices or contractors with others. 

Both CS and States' Trade Offices Focus Their Export Promotion Efforts 
on SMEs: 

CS and most states' trade offices focus their export promotion efforts 
on SMEs. According to CS, the majority of its customers are SMEs. 
Similarly, most state trade offices focus their export promotion 
efforts on SMEs, with 32 of the 42 states responding to our survey 
question reporting that more than three-quarters of their budgets were 
used to target the needs of SMEs. In addition, approximately 79 percent 
of the 33 states' trade offices that responded to SIDO's 2008 survey of 
states' trade offices reported SME manufacturing firms comprised the 
primary customers for their export promotion services, and 
approximately 18 percent considered very small manufacturing firms (50 
employees or less) their most important customers. 

According to CS, most of its services are sold to SMEs, with about 78 
percent sold to SMEs in fiscal year 2008.[Footnote 25] As an incentive 
for SMEs to purchase their services, CS charges them less than large 
firms for its standardized and customized services. In May 2008, CS 
implemented its current cost-based user fee schedule, which charges 
SMEs only a proportion of the fees large firms pay for the same 
services. The 2008 user fee schedule introduced a reduced one-time 
incentive user fee to new-to-export (NTE) SMEs using CS standardized 
services.[Footnote 26] Also, under the 2008 user fee schedule, CS 
extends to states' trade offices the SME user fee rates for 
standardized and customized services when purchasing CS services for 
their own use.[Footnote 27] 

CS and States' Trade Offices Charge Firms Fees for Some Export 
Promotion Services: 

CS currently offers firms five standardized and nine customized 
services. CS's standardized export promotion services have fixed user 
fees, while the user fees for CS's customized services vary based on 
the scope of service provided. In addition, according to CS, a 
significant amount of trade specialists' time is spent providing export 
counseling, advocacy, and generic market research, for which CS does 
not charge user fees. The user fee schedule CS implemented in May 2008 
replaced CS's user fee schedule implemented in 2005. The 2008 user fee 
schedule raised the user fees for large firms, while maintaining the 
level of user fees for SMEs.[Footnote 28] Figure 3 compares CS's 2005 
and 2008 user fee schedules for CS standardized and customized 
services. 

Figure 3: Comparison of the Commercial Service's 2005 and 2008 User Fee 
Schedules: 

Standardized services: Gold Key Service; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
First appointment: $685-$770; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
Additional appointments[B]: $320-$700; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: New-to-Export 1st use of service: $350; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: First appointment: $700; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: Additional appointments[B]: $300; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First 
appointment: $2,300; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional 
appointments[B]: $1,000. 

Standardized services: International Company Profile; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
First appointment: $520-$810; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
Additional appointments[B]: N/A; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: New-to-Export 1st use of service: $350; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: First appointment: $600; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: Additional appointments[B]: N/A; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First 
appointment: $900; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional 
appointments[B]:  N/A. 

Standardized services: International Partner Search; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
First appointment: $500-$790; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
Additional appointments[B]: N/A; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: New-to-Export 1st use of service: $350; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: First appointment: $550; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: Additional appointments[B]: N/A; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First 
appointment: $1,400; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional 
appointments[B]:  N/A. 

Standardized services: FUSE; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
First appointment: $5; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
Additional appointments[B]: N/A; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: New-to-Export 1st use of service: $75; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: First appointment: $150; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: Additional appointments[B]: N/A; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First 
appointment: $300; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional 
appointments[B]: N/A. 

Standardized services: Domestic Business Provider; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
First appointment: $250; 
CS User Fee schedule (2005-Apr. 30, 2008)[A]: SMEs and large firms: 
Additional appointments[B]: N/A; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: New-to-Export 1st use of service: N/A; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: First appointment: $300; 
CS User Fee Schedule (as of May 1, 2008)[A]: SME's and state trade 
offices: Additional appointments[B]: N/A; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: First 
appointment: $600; 
CS User Fee Schedule (as of May 1, 2008)[A]: Large firms: Additional 
appointments[B]: N/A. 

Customized services:  
* Business Facilitation Service: 
* Platinum Key Service: 
* Single Company Promotion: 
* Trade missions: 
* Catalog events: 
* Customized Market Research: 

SMEs and large firms: 
100% of costs billed to third party[C]: 
35% of CS resource costs: 

SMEs: 
100% of costs billed to third party[C]: 
35% of CS resource costs: 

Large firms: 
100% of costs billed to a third party[C]: 
100% of CS resource costs: 

[Refer to PDF for image] 

Source: GAO analysis of Commerce data. 

[A] The 2005 user fee schedule shows the range of user fees charged to 
both SMEs and large firms by groupings of overseas markets. The 2008 
user fee schedule shows the user fees for each service by size of firm. 

[B] Additional appointments also may be referred to as additional days. 

[C] Costs billed to a third party include any costs needed to deliver a 
CS service that requires payment to a third party vendor. These costs 
include items such as temporary staff help, ground transportation, 
translators, and catering. 

[End of figure] 

CS's data show that it sold a total of 19,906 services in fiscal year 
2008. In addition, CS reports that it collected approximately $10.2 
million for these standardized and customized services. Table 3 shows 
the number of services sold and collections by type of service for 
fiscal year 2008. 

Table 3: CS Services Sold and Total Collections, Fiscal Year 2008: 

Standardized services: Gold Key Service; 
Number of services sold: 1,416; 
Collections: $1,200,100. 

Standardized services: International Company Profile; 
Number of services sold: 1,445; 
Collections: 1,014,822. 

Standardized services: International Partner Search; 
Number of services sold: 369; 
Collections: 215,550. 

Standardized services: Featured U.S. Exporter (FUSE); 
Number of services sold: 158; 
Collections: 50,610. 

Standardized services: Business Service Provider (domestic); 
Number of services sold: 797; 
Collections: 239,721. 

Standardized services: Total; 
Number of services sold: 4,185; 
Collections: $2,720,803. 

Customized services: Business Facilitation Service; 
Number of services sold: 2,985; 
Collections: $1,953,351. 

Customized services: Customized Market Research; 
Number of services sold: 178; 
Collections: 162,571. 

Customized services: Platinum Key Service; 
Number of services sold: 67; 
Collections: 282,273. 

Customized services: QuickTake; 
Number of services sold: 12; 
Collections: 8,813. 

Customized services: Catalog event; 
Number of services sold: 157; 
Collections: 81,722. 

Customized services: Single Company Promotion; 
Number of services sold: 101; 
Collections: 155,053. 

Customized services: Certified Trade Mission; 
Number of services sold: 44; 
Collections: 433,779. 

Customized services: International Buyer Program; 
Number of services sold: 936; 
Collections: 937,682. 

Customized services: Seminar/webinar; 
Number of services sold: 9,261; 
Collections: 994,391. 

Customized services: Trade fair; 
Number of services sold: 382; 
Collections: 999,493. 

Customized services: Trade mission; 
Number of services sold: 166; 
Collections: 513,420. 

Customized services: Trade promotion event; 
Number of services sold: 1,110; 
Collections: 901,005. 

Customized services: Local event; 
Number of services sold: 322; 
Collections: 73,457. 

Customized services: Total; 
Number of services sold: 15,721; 
Collections: $7,497,010. 

Customized services: Grand total; 
Number of services sold: 19,906; 
Collections: $10,217,813. 

Source: GAO presentation of CS data. 

[End of table] 

A majority of states do not charge fees for most types of services they 
offer, and they provide some services for free for which CS charges a 
fee. At least 23 states responding to our survey do not charge fees for 
7 of the 11 types of services, including export counseling, market 
research, market entry strategy development, product analysis, and 
pricing information. (See fig. 4.) In contrast, CS charges a fee for 
similar services in some cases. For example, while CS charges user fees 
for agent and distributor searches under its Gold Key Service and 
International Partner Search services, most states reported charging no 
fee for this type of service. In addition, most of the six states' 
trade offices we visited told us they provide free export promotion 
services for which CS charges a fee, such as foreign company background 
checks and foreign agent and distributor searches. However, the scope 
and coverage of states' services compared with CS's may differ. For 
example, some state trade office officials told us that while they 
provide for free services similar to CS's fee-based services, often 
these services are available only in limited overseas markets and are 
not as comprehensive as the services CS provides. 

Figure 4: States' Trade Offices' Fee-Based and Non-Fee Based Services: 

Type of services: Export counseling; 
Number of states that charge: no fee: 38(Text Bold); 
Number of states that charge: partial fee: 1; 
Number of states that charge: full fee: 0; 
Number and percentage of states that: provide service: 39: 89%; 
Number and percentage of states that: do not provide service: 5: 11%. 

Type of services: Market research; 
Number of states that charge: no fee: 31(Text Bold); 
Number of states that charge: partial fee: 5; 
Number of states that charge: full fee: 1; 
Number and percentage of states that: provide service: 37: 84%; 
Number and percentage of states that: do not provide service: 7: 16%. 

Type of services: Market entry strategy development; 
Number of states that charge: no fee: 30(Text Bold); 
Number of states that charge: partial fee: 4; 
Number of states that charge: full fee: 1; 
Number and percentage of states that: provide service: 35: 80%; 
Number and percentage of states that: do not provide service: 9: 20%. 

Type of services: Product analysis/pricing information; 
Number of states that charge: no fee: 26(Text Bold); 
Number of states that charge: partial fee: 2; 
Number of states that charge: full fee: 1; 
Number and percentage of states that: provide service: 29: 66%; 
Number and percentage of states that: do not provide service: 15: 34%. 

Type of services: Agency/distributor searches; 
Number of states that charge: no fee: 25(Text Bold); 
Number of states that charge: partial fee: 7; 
Number of states that charge: full fee: 2; 
Number and percentage of states that: provide service: 34: 77%; 
Number and percentage of states that: do not provide service: 10: 23%. 

Type of services: Marketing/promotional literature reviews; 
Number of states that charge: no fee: 23(Text Bold); 
Number of states that charge: partial fee: 6; 
Number of states that charge: full fee: 2; 
Number and percentage of states that: provide service: 31: 70%; 
Number and percentage of states that: do not provide service: 13: 30%. 

Type of services: Foreign company background checks; 
Number of states that charge: no fee: 23(Text Bold); 
Number of states that charge: partial fee: 3; 
Number of states that charge: full fee: 3; 
Number and percentage of states that: provide service: 29: 66%; 
Number and percentage of states that: do not provide service: 15: 34%. 

Type of services: Licensee, joint venture, and partnership contracts; 
Number of states that charge: no fee: 11(Text Bold); 
Number of states that charge: partial fee: 1; 
Number of states that charge: full fee: 2; 
Number and percentage of states that: provide service: 14: 33%; 
Number and percentage of states that: do not provide service: 29: 67%. 

Type of services: Foreign trade missions; 
Number of states that charge: no fee: 3; 
Number of states that charge: partial fee: 28(Text Bold); 
Number of states that charge: full fee: 8; 
Number and percentage of states that: provide service: 39: 89%; 
Number and percentage of states that: do not provide service: 5: 11%. 

Type of services: Trade shows (U.S. foreign, and catalog); 
Number of states that charge: no fee: 2; 
Number of states that charge: partial fee: 28(Text Bold); 
Number of states that charge: full fee: 8; 
Number and percentage of states that: provide service: 39: 89%; 
Number and percentage of states that: do not provide service: 5: 11%. 

Type of services: Training programs and seminars; 
Number of states that charge: no fee: 8; 
Number of states that charge: partial fee: 23(Text Bold); 
Number of states that charge: full fee: 8; 
Number and percentage of states that: provide service: 39: 91%; 
Number and percentage of states that: do not provide service: 4: 9%. 

[Refer to PDF for image] 

Source: GAO analysis of states' trade offices survey responses. 

Note: For most of the services, 44 states' trade offices responded and, 
in two cases, 43 responded. 

[End of figure] 

For those services for which states' trade offices reported charging a 
fee, most states charge partial fees rather than full fees. Most states 
reported charging a fee for trade shows, foreign trade missions, as 
well as training programs and seminars. Most states reported charging a 
partial fee to recover part of the cost of these services. For example, 
for foreign trade missions, 28 states charge a partial fee, and 8 
states charge a full fee. We did not request information on the fees 
states' trade offices charge for their services or their annual fee 
collections. According to SIDO, the states' fees vary widely. 

Some States Help Client Firms Defray Costs of Export Promotion 
Services: 

To help make export promotion services more accessible to potential 
exporters from their states, some states' trade offices offer grants. 
Of the 45 states that responded to our survey, 19 reported providing 
SMEs with grants, and 16 reported providing SMEs with grants or direct 
payments that could be used to defray the costs of CS's export 
promotion programs and services.[Footnote 29] (See fig. 5.) 

Figure 5: States' Trade Offices Offering Export Promotion Grants: 

State: 1. Alabama; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: The current grant has 
expired that provided money to companies to set up one-on-one 
matchmaking appointments through the Gold Key Service. Funding has been 
requested through the Appalachian Regional Commission (ARC) and, if 
accepted, grants will be provided to companies located in the ARC 
region, excluding Madison and Shelby Counties, to pay for Gold Key 
Service. 

State: 2. Connecticut; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Connecticut reimburses SMEs 
50% up to $1,000 for certain CS’s export promotion programs and 
services. 

State: 3. Florida; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Does not provide grants 
directly to SMEs but to economic development organizations (EDO) based 
on competitive proposals designed to expand trade in their specific 
regions. However, the EDOs may use these grant funds to defray the cost 
of participation of local SMEs on Enterprise Florida, Inc. trade 
missions, which use Gold Key or trade show space. 

State: 4. Indiana; 
Can grant be used to defray cost of CS's export promotion services?: 
No; 
Type and amount of export promotion grant: Trade Show Assistance 
Program offers up to $5,000 per company per fiscal year to attend 
international trade shows; about $100,000 allocated each year. 

State: 5. Iowa; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Export Trade Assistance 
Program reimburses a company up to $4000, three times in the state’s 
fiscal year, for trade shows and trade missions, which may include the 
purchase of Gold Key or other services from Commerce on the company's 
behalf. 

State: 6. Maine; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Offers limited support 
through the Manufacturing Extension Partnership program, which can be 
used to offset CS fee services; $1,000 to $1,500 toward matchmaking 
costs. 

State: 7. Maryland; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Provides up to $5,000 in 
matching grants, with $100,000 allocated each year. 

State: 8. Mississippi; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Provides grants for up to a 
maximum of $250 per company for Gold Key Services based on budget 
availability. 

State: 9. Montana; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Provides grants for up to 
half the cost of Gold Key Service. 

State: 10. New York; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes, subject to approval of grant project overall; 
Type and amount of export promotion grant: The Global Export Market 
Service Program offers matching grants to qualified individual firms 
(up to $25,000) or to groups of companies, or industry/trade 
associations (up to $50,000). 

State: 11. North Dakota; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Receives grant through 
Commerce’s Market Development Cooperator Program, which it uses to 
defray costs of CS’s services. 

State: 12. Oklahoma; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Provides Trade Show Matching 
Grant Program for companies to attend international trade shows. The 
grant matches company expenses up to $2,500 for booth rental, 
translation service, and promotional materials shipping costs. The 
grant does not cover travel, hotel, and food costs. 

State: 13. Oregon; 
Can grant be used to defray cost of CS's export promotion services?: 
No; 
Type and amount of export promotion grant: Provides $2,500 grants for 
trade show or trade mission costs. 

State: 14. Pennsylvania; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Provides SMEs a matching 
grant of up to $5,000 yearly per firm if the SME meets eligibility 
requirements. The grant can be used to defray Commerce’s fees if 
Pennsylvania does not have an overseas office in the country where 
Commerce service is used; about $1 million allocated each year. 

State: 15. Rhode Island; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Provides minigrants up to 
$5,000 for export training. 

State: 16. Vermont; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Provides limited grants to 
pay for Gold Key and other CS services. 

State: 17. Virginia; 
Can grant be used to defray cost of CS's export promotion services?: 
No; 
Type and amount of export promotion grant: Provides 20 $5,000 grants 
per year and 15 $10,000 grants per year. 

State: 18. Washington; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Offers an international 
trade show grant program, which can be used for trade shows organized 
by Commerce. 

State: 19. Wisconsin; 
Can grant be used to defray cost of CS's export promotion services?: 
Yes; 
Type and amount of export promotion grant: Offers $5,000 grants from an 
annual fund of $100,000. Grant can be used to purchase CS’s Gold Key 
Service and interpreters during a trade mission. 

[Refer to PDF for image] 

Source: GAO analysis of state's trade offices survey responses and 
State International Development Organizations data. 

[End of figure] 

The rate at which states defray costs or reimburse SMEs for their 
participation in CS's programs varies. States' grants generally range 
from $1,000 to $5,000 per firm and are often intended for participation 
in trade shows, trade missions, or other state-sponsored events. 
States' trade offices cannot determine what portions of the grants (or 
direct payments) are used to defray the cost of CS's user fees; SMEs 
may use states' grant funding for a range of other eligible expenses, 
such as travel and logistical expenses. According to SIDO, states' 
funding of CS's services is highly dependent upon their affordability 
relative to services available from private consultants and other 
sources. Three of the six states' trade offices we visited offer such 
grants--Connecticut, Mississippi, and Pennsylvania. According to these 
states' trade officials, grants are a useful tool to outreach to SMEs 
that might not have considered exporting and might not be familiar with 
the costs of export assistance. However, these officials explained that 
grants in and of themselves often do not determine whether SMEs 
participate in export promotion programs. 

CS Needs to Improve Its Methodology to Determine Costs and Set User 
Fees: 

CS needs better information to maximize the efficient and effective 
operation of its export promotion programs and to ensure there is a 
sound basis for setting its user fee rates. CS decided to base its 
export promotion user fees on program costs, though it has a yearly 
legislative exemption from having to recover full costs, and it 
attempted to recover only a portion of the cost of its 
services.[Footnote 30] Nevertheless, CS did not document its 
methodology, calculations, and support for the assumptions it used to 
determine the full cost of each type of service; thus, CS cannot ensure 
its methodology is based on accurate information or is consistently 
applied from year to year to allow officials to make sound management 
decisions about its services and user fees. In addition, CS's cost 
estimates are not complete. For example, CS's cost estimates did not 
include certain costs paid for by other entities on behalf of CS, as 
federal accounting standards require. Also, CS used potentially 
outdated and inaccurate 2005 staff time data to estimate its program 
costs, upon which it based the 2008 user fee structure. Complete and 
accurate full cost information would assist CS and the Congress in 
making decisions about resource allocations, evaluating program 
performance, and improving program efficiency. Finally, CS did not 
document its procedures and assumptions for setting its user fees, 
including how it determined incentive rates for SMEs, thus weakening 
the link between costs and the user fees. 

CS Uses OMB Full Cost Recovery Policy as a Guide for Fee Setting but Is 
Not Required to Do So: 

CS's annual appropriation permits it to charge user fees but is silent 
with respect to setting and revising user fees.[Footnote 31] 
Nevertheless, there should be a sound basis for any user fees charged. 
According to CS officials, CS made a policy decision to use OMB 
Circular A-25, including its direction to recover full costs, as a 
guide for establishing its 2008 user fee structure, but it does not 
attempt to recover the full cost of its services. In annual 
appropriations since the 1990s, certain provisions of the Mutual 
Education and Cultural Exchange Act (MECEA) have applied to ITA's trade 
promotion activities.[Footnote 32] Through these MECEA provisions, CS 
is authorized to accept "contributions" from firms. Under this 
statutory authority CS charges a fee for services provided in its 
export promotion programs, but the statute is silent with respect to 
setting and revising user fees.[Footnote 33] Furthermore, since fiscal 
year 2006, the Congress has exempted CS from the requirements of OMB 
Circular A-25 as part of the ITA's annual appropriation.[Footnote 34] 
However, according to the CS officials who established the user fee 
policy, CS nevertheless implemented the 2008 user fee schedule with the 
goal of moving toward OMB's full cost recovery policy.[Footnote 35] 

Confusion Over Whether CS Must Try to Recover Full Costs: 

Our review of various documents and interviews with agency officials 
indicated that there had been confusion over whether CS is required to 
comply with Circular A-25. OMB has expressed concern about the adequacy 
of CS's understanding of its costs, to which CS has responded. In 2003, 
OMB found that although CS charges user fees for some services, it did 
not have a consistently applied pricing strategy for its services, and 
the infrastructure for capturing cost information was inadequate for 
making informed decisions. In addition, in 2004, Commerce's Office of 
Inspector General reported that CS was not in compliance with Circular 
A-25 and recommended that CS work with OMB to comply with the circular. 
In response, CS undertook efforts to determine the full cost of its 
services and to comply with Circular A-25. 

Although CS has received a yearly legislative waiver explicitly 
exempting it from the requirements, in May 2008, CS submitted a request 
to OMB for a permanent waiver from the full cost recovery provisions 
contained in the circular. In its request to OMB, CS explained "the 
user fee schedule moves us closer to the intent of the cost recovery 
provisions of the OMB Circular without making our services out of reach 
to SMEs who have less financial flexibility." According to OMB 
officials, OMB reviewed the 2008 CS user fee schedule based on 
estimates of fee collections, which OMB considered reasonable; however, 
OMB did not review details of the methodology CS used to determine 
costs and establish the user fees. Following the review, OMB found, 
"the new fee structure will increase collections and moves toward the 
goals of the circular." OMB stated it will continue to work with CS 
through the executive budget process to ensure the user fee strategy is 
evolving properly to meet the provisions of OMB Circular A-25. Although 
OMB did not approve the request for a permanent waiver, OMB told CS the 
2008 user fee structure was acceptable with Circular A-25 for fiscal 
year 2009. 

OMB Circular A-25, User Charges, establishes, among other things, 
guidelines for federal agencies for assessing user fees for government 
services.[Footnote 36] It provides information on the scope and types 
of activities subject to user fees and the basis on which user fees are 
to be set. The circular also provides guidance for agency 
implementation of user fees and collections and outlines the following 
several policy objectives: 

* Ensure that each service, sale, or use of government goods or 
resources provided by an agency to specific recipients be self- 
sustaining. 

* Promote efficient allocation of resources by establishing charges for 
special benefits provided to the recipient that are at least as great 
as costs to the government of providing the special benefits. 

* Allow the private sector to compete with the government without 
disadvantage in supplying comparable services, resources, or goods 
where appropriate. 

In determining full costs to set user fees, agencies may use cost 
accounting systems--a system designed to consistently produce reliable 
cost information--or cost finding methodology, which uses cost studies 
or cost analyses to develop cost information. The methodology the 
agency uses to determine costs should be appropriate for management's 
needs and the environment in which the agency operates. 

Understanding the Full Costs of Federal Programs Is Important for Good 
Management: 

Understanding the full costs of federal programs, including CS's export 
promotion programs, is important for several reasons. First, management 
needs reliable cost information to make resource decisions and to find 
and avoid waste and inefficiencies. For example, using full cost 
information, management can make decisions to reduce resources devoted 
to activities that are not cost-effective. In addition, such 
information allows managers to compare cost changes over time and 
identify their causes and reduce excess costs. Second, management needs 
reliable and complete cost information to assess the extent to which 
user fees recover the proportion of full costs intended. Third, the 
Congress and the public can use full cost information to evaluate the 
performance of federal programs and compare their costs and benefits. 
For example, full cost information assists the Congress in making 
decisions about allocating federal resources, and when authorizing and 
modifying programs. 

In 2005, CS developed a cost-finding methodology to attempt to 
determine the full costs of its export promotion services and increased 
the user fees of one of its most popular services, International 
Company Profile, to full cost recovery for all firms based on its 2005 
cost estimates. CS officials explained that it is currently adopting a 
new cost accounting system that is used throughout Commerce, which CS 
officials stated would provide improvements to its cost accounting. 
However, according to CS officials, this new cost accounting system 
would not be used to apply salary costs to activities or attribute 
overhead costs to determine the full cost of services. 

While CS has taken steps to move toward full cost recovery, CS 
officials told us they balance this objective with trying to ensure its 
user fee schedule keeps its services accessible to SMEs. CS officials 
decided to provide lower incentive rates to SMEs, which only cover a 
portion of the full costs of these services. The 2008 fee schedule 
seeks to charge large companies "full cost." For example, CS charges 
large firms a $70 per hour rate and charges SMEs approximately 35 
percent of that rate, or $25 per hour, for the cost of staff time 
required to deliver standardized and customized services. CS charges 
both large firms and SMEs the full cost of third party charges needed 
to deliver a CS service, such as translation and transportation 
services. 

CS Did Not Document Its Methodology for Determining Full Costs: 

CS relied on a cost-finding methodology to determine full costs, 
according to CS officials; however, CS did not document the methods, 
calculations, and support for the assumptions it used to estimate the 
full cost of each type of service, as called for by federal accounting 
standards.[Footnote 37] Instead, CS officials generally described to us 
its cost-finding methodology, which they said was partly based on the 
one used for the 2005 user fee schedule, and provided limited 
documentation of its cost templates. (See table 4.) CS did not document 
its methods, assumptions, and cost calculations for each service. 

Table 4: Overview of CS Cost Methodology: 

According to CS officials: 

CS estimated the hourly rates for staff time spent to deliver CS 
services by dividing their total annual budget by the total number of 
annual staff hours budgeted for CS; 
* For example, for the 2008 user fee schedule, CS officials told us 
they divided the fiscal year 2007 CS budget of $229 million by the 
total number of hours incurred by 1,566 staff in 1 year to calculate a 
$70 hourly full cost rate; 

CS then used cost templates that included an estimate of staff time for 
each type of service, which it multiplied by the $70 hourly rate to 
determine full cost of each service; 
* If there are any costs incurred by a third party, such as venue costs 
or equipment rentals, these are also included; 
* CS included overhead costs using a flat rate of 12 percent of 
salaries and benefits, as recommended by OMB Circular A-76; 

For standardized services, for which CS charges a set user fee, CS 
officials stated they determined; 
* the specific step-by-step activities, and: 
* the amount of time required to deliver services by surveying staff at 
CS domestic offices and at overseas posts. 

Source: CS. 

Note: Although CS officials stated CS included overhead costs using a 
flat rate of 12 percent, the cost templates CS provided to us showed a 
6.25 percent rate for calculating overhead costs, and CS officials did 
not explain how the 12 percent flat rate was applied to its cost 
estimates. 

[End of table] 

Better information would raise CS's awareness of the composition of its 
costs, and changes to those costs, and allow them to better control and 
reduce costs where possible and to evaluate program performance. For 
example, such documentation could allow CS to compare costs among 
alternatives, such as whether to provide a service in-house or contract 
it out or whether to continue or eliminate a service. Without complete 
documentation and support for the specific methodology and information 
CS used as a basis for determining costs, CS cannot be sure that its 
chosen cost assignments are reasonable and based on accurate 
information. In addition, it is not possible to ensure the methodology 
is consistent from year to year to allow CS to make sound decisions 
about its services and user fees. The risk of overestimating or 
underestimating costs may be reduced if CS clearly documents its 
methods for accounting for program costs and the assumptions used to 
project future costs. Such documentation would help CS assess whether 
its estimates are aligned with changes in costs; this is important so 
that the user fees recover the intended portion of full costs, and CS 
does not charge firms more or less than intended. However, CS did not 
document how it assigned costs to each service in enough detail to 
allow CS staff and other knowledgeable persons to assess these 
procedures and determine the accuracy of the information used. 
Furthermore, the lack of documentation makes it difficult to ensure 
staff are properly trained and consistently apply the methodology so 
that it produces accurate cost information that can be compared from 
year to year. Finally, the lack of full cost information makes it 
difficult for CS and the Congress to accurately evaluate the 
performance of CS services in light of the true overall costs and 
determine whether resources are rationally allocated to CS services. 

CS Cost Estimates Are Not Complete or Accurate: 

Notwithstanding the lack of documentation, we found CS's cost estimates 
do not accurately reflect full costs. First, for example, CS did not 
include certain costs paid on behalf of CS by other entities, as 
required in federal accounting standards. Without consideration of 
costs paid by other federal entities, CS's cost estimates do not 
reflect full costs to the federal government and are misleading for CS 
officials and others using that information to make decisions about 
resource allocations and changes in programs. Moreover, because CS has 
chosen to base its user fees on the full cost of its services, it needs 
a reliable accounting of total costs when setting user fees so that 
they cover the intended share of the cost of its services. According to 
CS officials, CS did not include certain retirement benefits to be paid 
by the Office of Personnel Management, including the costs of pensions 
and health and life insurance, in determining the full costs of its 
export promotion services. CS estimated the annual cost of these 
benefits to be approximately $17 million in fiscal year 2008. Full 
costs should include the cost of such employee retirement benefits 
according to federal accounting standards.[Footnote 38] 

Second, CS used potentially outdated and inaccurate information about 
staff time spent to estimate program costs and set user fees. These 
were key data that CS used to assign costs to the activities required 
to deliver its standardized services. CS officials explained that, as 
part of its cost-finding methodology, CS surveyed staff to determine 
the specific step-by-step activities and time staff spent to deliver 
services and used these data to develop the cost templates to estimate 
the full costs of each standardized service. However, CS officials 
stated that, for its most recent user fee adjustment in 2008, CS relied 
on the survey data it collected in preparation for its prior adjustment 
of user fees in 2005 and did not update the survey data to ensure its 
reliability. Thus, these data were potentially outdated and inaccurate. 
CS officials explained they assumed the activities and staff time 
required to deliver services had not changed significantly, but they 
did not justify or provide documentation supporting the assumption the 
data were reliable in 2008. 

In addition, we found the accuracy of CS's 2005 survey data to be 
questionable. These data were not based on an actual accounting of 
staff time, according to CS officials. Instead, CS officials explained 
that these data were based on staffs' estimates of the amount of time 
they thought they spent, on average, performing specific tasks to 
deliver a service. Staff reported widely divergent time estimates for 
the same activities, which raises concerns about how accurately staff 
estimated their time. For example, for the activity "identifying and 
contacting potential partners" staffs' time, estimates ranged from 1 
hour to 20 hours and, for the activity, "final debrief of the client," 
the range was 15 minutes to 4 hours. CS officials told us they were 
satisfied that these estimates were reasonably accurate; however, based 
on our statistical analysis we disagree and believe they did not 
sufficiently explain and document support for this assumption. 

Federal accounting standards recognize the importance of collecting 
accurate cost information. For example, federal accounting standards 
state that reliable information on the costs of federal programs and 
activities is crucial for effective management of government 
operations. Without supporting its assumptions of its staff time 
estimates, CS cannot be sure that the cost assignments it used to 
determine costs were accurate. In addition, inaccurate cost information 
can skew fee-setting decisions, so CS needs reliable information to 
ensure that the user fees are aligned with any changes in staff 
productivity and recover CS's intended share of program costs. 

CS Did Not Justify and Document Its Procedures for Establishing SME 
User Fees: 

CS does not seek to recover full costs from all firms under its 2008 
user fee structure. CS offers lower fees to SMEs as an incentive to 
purchase CS services, and CS officials explained that factors other 
than costs contributed to their formulation of the 2008 user fee 
structure.[Footnote 39] CS seeks to recover only a proportion of full 
costs from SMEs, with the remainder of the costs covered by CS's annual 
budget appropriation. Lower user fees are an incentive to SMEs to use 
CS services. 

However, CS did not sufficiently support and document the methods and 
assumptions it used, particularly with regard to the lower user fees 
for SMEs under the 2008 user fee structure. For example, according to 
CS officials, CS set the current SME-level user fees based on the 
historical proportion of costs--approximately 35 percent--recovered by 
the old user fees charged to SMEs. However, CS did not document how it 
determined this 35 percent incentive level and the level of the newly 
introduced new-to-export incentive user fees. Instead, CS officials 
told us they set the level of the incentive user fee for new-to-export 
SMEs based on their perception of what would constitute a reasonable 
discount while still signaling that the services are valuable. These 
officials also stated the new-to-export incentive user fees were set at 
the same $350 for the most popular SME services to eliminate potential 
confusion among customers. They explained that CS used informal client 
and stakeholder feedback, as well as program counts and collections 
data, to assist in establishing the user fees SMEs are charged for 
standardized services, but CS did not document this. As a result, CS 
cannot demonstrate how its cost estimates are linked to the user fees 
it charges different sizes of firms for each of its services. This 
information would allow comparisons to inform management and program 
staff decisions, such as whether to adjust user fees, do a project in- 
house or contract it out, to accept or reject a proposal, or to 
continue or eliminate a service. 

Significant events, which can include key decisions about user fees, 
are to be clearly documented, according to federal internal control 
standards.[Footnote 40] Transparent procedures can contribute toward an 
improved understanding about the decisions made to establish the user 
fees and the basis on which those decisions were made. For example, as 
CS cost-based user fees represent a charge for a specific service 
received, stakeholders may expect a change in the user fees firms are 
charged to be related to a change in the true cost of providing 
services. 

The Extent to Which CS's User Fees Affect SMEs' Use of Its Export 
Promotion Services Is Unclear: 

The extent to which CS's user fees affect SMEs' use of its export 
promotion programs is unclear because CS lacks comparable and reliable 
historical data on fees charged its customers and has only limited 
disaggregated data on services sold by company size and type of 
customers. CS officials informed us that they have performed only 
limited studies of customer demand, but that CS has recently begun to 
take steps to improve the quality of data it collects to better 
evaluate its customer base. Because state governments play a 
potentially important role in helping their businesses to compete in 
the global economy, and because they are also partners with and 
customers of CS, we obtained the states' trade offices' views on the 
user fees CS charges for some of its services. States' trade offices' 
views of the 2005 and 2008 user fee schedules and their projected 
future use of CS services varied. CS projects a 10 percent increase in 
SMEs' total demand for its services in fiscal year 2009 based on its 
new user fees, but support for this projection is unclear. Factors 
other than fees, such as the availability and quality of comparable 
services from private providers, may affect SMEs' use of CS services. 

CS Lacks Reliable and Sufficient Data to Evaluate Its Customer Base: 

CS lacks reliable and sufficient data on its export promotion fee-based 
services to evaluate its customer base. We have identified several 
limitations with regard to CS's data about: (1) fees charged its 
customers, (2) the characteristics of its customers, and (3) purchases 
by location and types of services. CS is taking steps to improve the 
quality of the data it collects, as well as the integration of its 
customer data systems, but its officials acknowledged that the Client 
Tracking System (CTS) may not be fully operational until well into 2009 
or beyond.[Footnote 41] For an entity to run and control its operations 
and to achieve all its objectives, it must collect and process 
relevant, reliable, and timely data relating to internal, as well as 
external events, based on GAO's Standards for Internal Control in the 
Federal Government and OMB Circular A-123 on Management's 
Responsibility for Internal Control. In addition, effective information 
technology management is critical to achieving useful, reliable, and 
continuous recording and communication of information. 

CS Lacks Reliable Historical Data on User Fees Charged Its Customers: 

CS lacks comparable and reliable historical data on the fees charged 
for each service to measure past and potential effects of user fee 
changes on its SME customers to ensure that it is charging them the 
correct fee. Prior to 2005, according to CS officials, there were no 
set fees, and each post decided what to charge customers for its export 
promotion services. In addition, according to CS officials, prior to 
December 2007, every overseas post had its own database of customers, 
resulting in 80 databases, as well as domestic databases that did not 
communicate with each other. According to CS, it currently uses two 
main systems (the eMenu[Footnote 42] and the CTS) to collect and track 
data on the programs and services it offers its customers. We observed 
demonstrations of both these systems in August 2008. While the systems 
have many useful features and represent promising directions for CS to 
take, we identified several limitations with regard to computer 
database design and internal controls.[Footnote 43] In our review of 
the data, we noticed instances where companies received a bill that was 
much larger than the advertised service fee, but the reason (possibly 
because the extra days and add on services were being included) was not 
documented. More comparable and reliable user fee data could be used to 
help CS in determining how changes in its user fees affect SMEs' demand 
for its services. 

CS Is Limited in Its Ability to Analyze Data by Size and Status of 
Customers: 

CS is limited in its ability to disaggregate the firms that purchased 
fee services by company size or by export status (whether the firms are 
new-to-export or had purchased prior export services from CS). Such 
information would be useful for making managerial decisions and 
determining which products and services are in demand and which 
products are purchased less frequently by CS's different customers. A 
lack of accurate customer information and good procedures creates the 
risk of charging CS customers a fee that is inconsistent with their 
company size or export status. According to CS officials, the eMenu 
initially relies on the customers to self-report their size and export 
status. CS officials stated that its trade specialists could verify 
company size by consulting the Harris database[Footnote 44] and export 
status by consulting the CTS. When we examined data for 2008 from the 
CTS, we found that 16 percent of the companies were listed as being of 
"unknown size." In addition, there were numerous inconsistencies in the 
designation of company size, with more than 200 instances of companies 
being designated with different sizes. In addition, based on our review 
of the data, CS has not yet addressed the deficiencies with prior 
years' data. The 2006 and 2007 database did not identify company size 
for at least one quarter of the companies per year. Prior to December 
2007, according to CS officials, the size of firms purchasing services 
was not a mandatory field in the databases. 

It would require a manual review of the records to determine whether a 
company meets CS's new-to-export status. Even with a manual review, the 
accuracy of the designation about export status would depend on the 
thoroughness, completeness, and consistency of the entries that had 
been made by trade specialists and others. Yet our review of CS data 
raised questions about the manual review because we found at least 30 
instances when companies designated as new to export in 2008[Footnote 
45] had appeared in the prior year's (2007) database as purchasers of 
certain CS fee services.[Footnote 46] CS's limitations in collecting 
and processing accurate information on company size and export status 
reduce its ability to determine which products and services are in 
demand or underused by its different customers and more importantly to 
charge firms the appropriate fees. Under the 2008 fee structure, SMEs 
and new-to-export SMEs are charged lower fees for CS's services. 

CS Is Limited in Its Ability to Analyze Customers' Purchases by 
Location and Type: 

Due to limitations in CS's databases, it is difficult to disaggregate 
purchases by location and types of services. Complete information on 
the characteristics of CS's customers, such as geographic location, 
industry, and services bought and at what price over time, would allow 
CS to better analyze and understand its customer base and to adjust to 
changes in market demand. CS's database has total purchases by states, 
which not only includes private sector firms but also includes state 
export promotion agencies, universities, and other entities, making it 
difficult to obtain an accurate count for only SMEs, for example. We 
wanted to analyze SMEs' fee-based purchases by home state for about 5 
years to better understand the relationship between CS and SMEs in home 
states. Since it was not possible to disaggregate only the SMEs' 
purchases, we decided to examine the data by home state for all firms. 
However, CS could only identify companies' home states by performing a 
manual review of its records; therefore, the analysis was limited to 
data for 2 years, 2007 and 2008, and for only four standardized 
services. See appendix III for information on CS's customers' purchases 
by states for selected services. 

Studies of CS's Export Promotion Programs and User Fees Have Been 
Limited: 

CS has made some attempts to determine how the user fees affect its 
customers' participation in its programs; however, these studies have 
been limited, according to CS officials, in determining how the fees 
affect customers' participation due to lack of sufficient data. One 
company contracted by Commerce attempted to estimate price elasticity 
(or sensitivity) of demand, both in 1998 and 1999, using different 
data.[Footnote 47] In 1998, the company used data based on a survey of 
a small number of trade consulting companies on how their customers 
would have responded to price increases. CS officials said that they 
did not use the results of the 1998 study in determining the fees to be 
charged because the analysis was unreliable since it was based on 
hypothetical data. For the 1999 estimate of price sensitivity, the 
contractor used customer survey data. However, the data suffer from a 
low response rate of 11 percent. Again, CS did not directly consider 
the price sensitivity estimates when making fee decisions in subsequent 
years. Table 5 provides a summary of some prior assessments of CS's 
export promotion programs and user fees. 

Table 5: Some Studies of CS's Export Promotion Programs and User Fees: 

Date: 2003; 
Study: OMB Program Assessment Rating Tool; 
Relevant findings: CS's primary assessment mechanism has been customer 
service surveys. Although these surveys yield relevant information, 
they do not provide a comprehensive independent assessment of CS's 
products and services; 
Relevant recommendations: CS should perform ongoing competitor and 
market analysis. 

Date: January 2003; 
Study: ITA User Fee Study; 
Relevant findings: * The contractor said that ITA was unable to provide 
them with useful customer information to conduct the study because its 
systems did not properly track information that would assist them in 
further understanding its customer base; 
* The contractor did not conduct a price sensitivity survey of CS's 
customers, which it had intended, but instead conducted an internal 
survey of ITA's trade specialists' perception of customers' willingness 
to pay for ITA's products and services, among other things; 
* The low response rate (40%) of the survey impacted the contractor's 
ability to precisely quantify market demand and price sensitivity for 
all of the products and services the contractor was asked to evaluate; 
Relevant recommendations: ITA should set fees that align with 
established strategic position, using accurate product cost 
information. Factors that need to be considered when making this 
determination include the characteristics of the customer that buys the 
product, what demand ITA has experienced for the product at the current 
price, the market price for the product, and ITA's strategic objective 
in offering the products. 

Date: March 1999; 
Study: CS study on the Impact of Product Price Increases on Clients and 
Revenues; 
Relevant findings: * The contractor reported that, based on its 
estimate of price sensitivity of demand, the reduction in participation 
from a price increase would result in a reduction in revenues; 
* Increasing revenues through across-the-board price increases will 
negatively impact the mission to develop SME exports; 
Relevant recommendations: No relevant recommendation. 

Date: May 1998; 
Study: ITA Product Pricing Study; 
Relevant findings: * Due to major cost and price data limitations, 
price and revenue projections cannot be made with confidence; 
* Based on estimated price sensitivity, ITA can increase revenue by 
raising prices on some existing products or services, charging for some 
products for which ITA has not historically charged, and charging for 
selected new products or services; 
* However, price increases will result inevitably in the loss of some 
current and prospective clients. Thus, pursuing revenue generation has 
important implications for ITA's mission of maximizing its services to 
SME clients; 
Relevant recommendations: Initiate a tiered pricing structure based on 
factors, such as size of firm or export maturity using appropriate OMB 
(A-25) waivers and approvals. 

Sources: GAO analysis of OMB and Commerce data. 

Note: These reports contain several recommendations. We used the terms 
"relevant findings and recommendations" to mean those that address the 
fee or pricing structure with regard to CS's clients. 

[End of table] 

According to CS, it is difficult to compare CS prices to others 
offering similar services, such as private sector providers. CS 
officials informed us that many consultants are reluctant to talk to 
them or share their pricing schedules. GAO also contacted some private 
sector firms to determine what export advisory services they offer and 
the fees charged but either these firms did not provide such services 
or the firms did not respond to our inquiries for information on fees. 
Our survey of states' trade offices found none of the 45 states that 
responded, including those we visited, had conducted an evaluation on 
the effects of user fees on SMEs' participation in federal export 
promotion programs. 

States Had Differing Opinions About the Impact of CS's 2005 Fee 
Schedule: 

Because state governments play a potentially important role in helping 
their businesses compete in the global economy, partner with CS, and 
are sometimes customers themselves, we obtained the states' trade 
offices' views on the impact of CS's change in user fees in 2005 on 
states' use of certain services.[Footnote 48] States had mixed views 
about the impact of CS's 2005 fee change. Some states said that the 
introduction of the 2005 fee schedule had no impact on their use of 
certain CS services, while others said that it caused them to decrease 
their use of those services. For example, of the states that had a 
basis to judge, 56 percent (14 of 25) reported that the 2005 fee 
schedule caused their offices to decrease their use of CS's Gold Key 
Service, compared with 44 percent (11 of 25) reporting that their use 
stayed the same.[Footnote 49] (See fig. 6.) 

Figure 6: States' Trade Offices Use of Gold Key Service under 2005 Fee 
Schedule: 

Pie Graph: 

Total respondents with a basis to judge=25. 

Stayed the same: 44%; 
Somewhat decreased use: 36%; 
Greatly decreased use: 20%. 

[Refer to PDF for image] 

Source: GAO analysis of states' trade offices survey responses. 

Note: Forty-four states' trade offices responded to this question, but 
19 had no basis to judge. 

[End of figure] 

Based on CS's data, for the total number of standardized services 
purchased, SMEs' participation fluctuated before and after the 2005 fee 
change. For example, the Gold Key Service showed a decline in purchases 
of about 26 percent from 2005 to 2006 and slightly increased in 2007 by 
about 3 percent above the 2006 level. CS officials said that these 
large: 

changes are due in part to a spike in demand in 2005 as companies 
rushed to sign up for certain services before the 2005 fees went into 
effect in April 2005. 

CS Projects Increase in SMEs' Demand with New Fee Schedule: 

CS projects a 10 percent increase in SMEs' total demand for its 
services in fiscal year 2009 based on its new user fees, but support 
for this projection is unclear. According to CS officials, although the 
fees for Featured U.S. Exporter and Business Service Provider 
(domestic) will increase for SMEs with the new fee schedule, overall 
collections are expected to rise, with higher demand for services such 
as Gold Key, International Company Profile, and International Partner 
Search that are now priced lower in most markets. In particular, CS 
expects an increase in demand for Gold Key Service in the expensive 
markets that now offer SMEs lower fees. The 10 percent increase in 
SMEs' demand is not based on any analysis of historical data. According 
to CS, the projected increase is based on anecdotal reports from its 
offices in the field, some businesses, SIDO, and DEC officials. With 
the new-to-export pilot incentive fee introduced for the first time, CS 
also anticipates an increase in demand from new-to-export SMEs, but the 
assumption of how much demand will change is a "wild guess," according 
to CS officials. CS said it expects participation by large firms to 
remain constant or to decrease moderately. CS arrived at the assumption 
for large firms on the basis that large firms are less sensitive to the 
fees and will often use CS's services to expand their overseas markets 
even when fees increase. 

Our survey showed states' trade offices' reaction to the new fee 
schedule was generally positive, but there were some negative views. 
Most states view CS's new fee schedule to be reasonable. As figure 7 
shows, almost two-thirds (24 of 37) of the states that had a basis to 
judge reported that they considered CS's new fee schedule to be very 
reasonable or somewhat reasonable. In addition, some DEC members in the 
states we visited believed the new fee schedule for SMEs is reasonable 
but expect the effect of the fees to vary by company. 

Figure 7: States' Trade Offices' Views of CS's 2008 Fee Schedule: 

Pie Graph: 

Somewhat reasonable: 35%; 
Very reasonable: 30%; 
Somewhat unreasonable: 16; 
Neither reasonable nor unreasonable: 11%; 
Very unreasonable: 8%. 

[Refer to PDF for image] 

Source: GAO analysis of states' trade offices survey responses. 

Note: Forty-three states' trade offices responded to this question, but 
6 had no basis to judge. 

[End of figure] 

Some states' trade offices elaborated on their views regarding the 
reasonableness or unreasonableness of the new user fees. For those 
states' trade offices that considered the new fee schedule to be 
somewhat or very reasonable, one said that it is very happy with the 
new fee schedule and has been promoting it and that the concept behind 
the low fees for new-to-export companies is "really brilliant." Another 
state said that SMEs will still complain about having to pay for 
services, but that the new fee schedule is fair and makes CS's services 
much more accessible for very small firms, while another state said 
that lower fees for SMEs is a good start but ignores the need to invest 
more in trade and investment promotion. For those states' trade offices 
that considered the fees to be somewhat or very unreasonable, one said 
that SMEs need assistance and support to increase exports and that CS 
should provide available services at reasonable cost instead of trying 
to get more money from U.S. business taxpayers. One state said that the 
majority of its companies have fewer than 10 employees and that these 
companies find it difficult to justify paying the government fees for 
services, while another state said that the majority of its SMEs are 
not currently using CS's programs due to the cost involved and that 
alternatives may be less expensive but take longer to achieve similar 
results. 

We asked states' trade offices for their views on the new fees' 
projected impact on their use of certain services purchased directly to 
assist SMEs. Of the three standardized services we asked about (Gold 
Key, International Company Profile, and International Partner Search), 
at least 85 percent of those that had a basis to judge for each service 
said that their use would increase or stay the same. For example, 27 of 
the 30 states (90 percent) that had a basis to judge reported that 
their use of the Gold Key Service for SMEs would either increase or 
stay the same under the new fee schedule. (See fig. 8.) 

Figure 8: States' Trade Offices' Views of Gold Key Service under 2008 
Fee Schedule: 

Pie Graph: 

Total respondents with a basis to judge=30. 

Stayed the same: 44%; 
Somewhat increased use: 33%; 
Greatly decreased use: 17%; 
Somewhat decreased role: 10%. 

[Refer to PDF for image] 

Source: GAO analysis of states' trade offices survey responses. 

Note: Forty-four states' trade offices responded to this question, but 
14 had no basis to judge. 

[End of figure] 

We also asked states' trade offices their views on the new fees CS 
charges certain customers compared with the fees charged by private 
sector providers. More than two-thirds of the states that had a basis 
to judge (27 of 39) indicated that Commerce's new fees for new-to- 
export SMEs were about right compared with fees charged by private 
sector providers. 

However, states' trade offices had mixed views about the new fees 
charged to SMEs that already export, and for each of the CS services 
about which we inquired (Gold Key, International Company Profile, 
International Partner Search, FUSE, Domestic Business Provider, and the 
customized services), roughly half of those that had a basis to judge 
responded that the fees were about right while roughly half reported 
they were too high compared with private sector providers. For example, 
figure 9 shows that more than half (16 of 27) thought that the new 
customized fees charged to SMEs that already export were somewhat or 
much too high compared with the private sector. 

Figure 9: States' Trade Offices' Views of CS's Customized Services Fees 
Compared to Private Sector Providers' Fees: 

Pie Graph: 

Total respondents with a basis to judge=27. 

Someone or much too high: 59%; 
About right: 41%. 

[Refer to PDF for image] 

Source: GAO analysis of states' trade offices survey responses. 

Note: Forty-three states' trade offices responded to this question, but 
16 had no basis to judge. 

[End of figure] 

According to SIDO, states can obtain cost competitive services in some 
markets, but such private sector alternatives are not universally 
available. CS also subcontracts with private sector providers at lower 
rates than those of its employees. These private providers state that 
their knowledge of a particular market or its operational efficiencies 
allows them to offer lower cost services, such as matchmaking, 
according to SIDO. However, SIDO states that some states' trade offices 
might choose CS's services because they are more comfortable working 
with a federal agency and CS generally offers superior quality control 
to private sector alternatives. One study prepared for CS found that 
export promotion services available from private enterprises and trade 
groups vary in price, but that a number of private providers' services 
are significantly more expensive. In addition, the study reported that, 
in some cases, these enterprises and trade groups work with CS to 
develop products and services and that some repackage and sell CS's 
products, particularly market research and contact development 
information. 

Almost all of the states' trade offices with a basis to judge responded 
that SMEs' use of CS's services would decrease if they were charged the 
same fees as large firms (which, according to CS, represent the full 
cost of services). For example, more than 70 percent of these 
respondents indicated that they would expect a great or very great 
decrease in services, such as Gold Key (28 of 37) and International 
Company Profile (22 of 30) if fees were the same as those charged for 
large firms. Further, DEC members and USEAC officials in the states we 
visited expect that there would be significant decreases in SMEs' 
demand for CS's services if they were charged full costs for export 
promotion services. 

Factors Other Than Fees May Affect SMEs' Choice to Use CS's Services: 

Factors other than fees may affect SMEs' choice to use CS's services 
including: (1) the types of services CS offers compared with other 
providers, (2) the individualized attention received, and (3) the 
quality of the service. First, some states' trade offices and other 
sources reported that factors such as the types of services required 
influence the choice of services purchased from CS versus other 
providers. A 2002 study prepared for the Trade Promotion Coordinating 
Committee found that more than half of the services used by SME 
exporters were obtained from the private sector, which leads in 
providing transaction-related services, such as freight forwarding and 
helping firms to develop Web sites to promote products to foreign 
buyers.[Footnote 50] The study reported that the government's role, 
including CS's role, was seen as strongest in the provision of basic 
information to exporters, such as "how to export" information, Web- 
based information on markets, export counseling, and government 
procedures overseas.[Footnote 51] In addition, our survey revealed that 
36 of 45 states' trade offices (80 percent) use private consultants, 
including private businesses and American Chambers of Commerce, as 
providers for trade promotion services. For example, some states' trade 
offices use private consultants for trade missions and trade shows, 
market research, and arranging company meetings, which are services CS 
provides. Services that CS does not provide and which states' trade 
offices obtain from the private sector include assistance in setting up 
offices in a foreign country, assistance in sourcing products or 
manufacturers with sourcing a manufacturing partner, having prototypes 
or product samples made, and freight forwarding.[Footnote 52] 

Second, transaction-related services tend to require individualized 
attention, which is another factor that may influence SMEs' choice of 
whether to obtain services from CS versus other providers. Based on the 
2002 study, Commerce was seen as not being as well-positioned as 
private providers to provide the intensive attention that transaction- 
related services may require. We also spoke with officials of one large 
American chamber of commerce operating in a key market who informed us 
that its members, including SMEs, are attracted to private providers' 
intensive "handholding," which, according to these officials, CS is not 
well known for providing. For example, this chamber of commerce offers 
a Corporate Visa Program, which, according to the officials, actively 
helps its member companies to complete paperwork and expedite the visa 
process within a 1-week time frame. In addition, one state trade office 
also said that contractors or private consultants offer in-country 
coordination and individualized attention that the CS no longer offers. 

The quality of service is also a key factor that influences SMEs' 
choice of where to purchase services. A 2003 study[Footnote 53] 
estimated that fees for some CS services that SMEs demand were lower 
than market comparisons but that CS's market share based on total 
demand by SMEs for products and services similar to CS's was relatively 
small; it suggested that the quality or type of services provided by CS 
may not match the quality or type of services demanded by 
SMEs.[Footnote 54] One DEC member also told us that companies may 
perceive the quality to be better in the private sector since prices 
for similar services tend to be higher in the private sector and that, 
in some instances, inexperienced CS staff performed work, which may 
have led some businesses to the private sector. One state trade office 
said that the quality of CS's service depends on staff dynamics at the 
individual post. Another state trade office said that, while price is 
important, the delivery of consistent quality is more important to 
companies and that it relies on CS to provide quality service. 
According to CS, its customer surveys indicate that quality is a key 
factor in their choice of where to purchase services.[Footnote 55] CS 
officials said that, in reviewing the surveys' open-ended questions, 
companies cited three drivers of client satisfaction: communication, 
quality, and consistency.[Footnote 56] Price paid for the services, 
according to the officials, has not been of equal importance. 

SIDO officials noted that another factor that may influence SMEs' 
participation in CS's programs is small firms' general level of 
awareness about the states' and federal government's export promotion 
efforts. SIDO officials expressed concern that domestic firms' 
awareness about U.S. export promotion programs is less than that of 
foreign firms about the programs in competing countries. However, 
according to the 2002 study, [Footnote 57] small and medium-sized 
exporters are generally aware of government programs that can help them 
export, but there is still room for improvement. Exporters appear to be 
broadly familiar with Commerce.[Footnote 58] However, SIDO advocates 
for more resources for CS and state outreach to small firms in order to 
raise the profile of their programs and increase participation. 

Conclusions: 

CS and states' trade offices provide various types of export promotion 
programs. These programs share similar goals of increasing the number 
of exporting firms, especially SMEs, expanding existing markets, and 
opening up new markets to U.S. exports. Targeting federal government 
resources to programs that achieve the goals outlined in the National 
Export Strategy requires knowledge of whether existing programs 
contribute to these goals, whether customer experiences reveal 
suggestions for enhancing these programs, and knowledge of the extent 
to which current intergovernmental partnerships contribute to export 
promotion goals. 

Commerce's $235 million export promotion program currently collects 
about $10 million annually through fees on some services. Commerce 
decided to collect these fees to cover at least a portion of the costs 
for providing some of its services. However, Commerce lacks good 
information on the true costs of providing these services, both fee- 
based and those offered for free. As a result, it is unclear whether 
the fees they established reflect their policy objectives or whether 
they optimize the efficient and effective management of these programs. 

Similarly, Commerce lacks reliable information about the size, 
location, and type of its customers, and about how its fees (or lack 
thereof) affect their access to the program, or how they compare to 
state or private sector fees. Fees for particular services affect 
firms' access to and use of federal export promotion programs. Better 
information would help CS market its program better, adjust to changes 
in the marketplace, and address those areas that maximize the impact of 
its services on promoting U.S. exports. Not much is known about the 
extent to which user fees or other factors influence SMEs' decisions to 
rely on CS for export promotion services. Studies and other sources 
suggest that the types of services CS offers compared with other 
providers, the level of individualized attention provided, and service 
quality are factors that also affect SMEs' choice to use CS's services. 

Better evaluation of fee-based programs and customers, including 
states, could improve program continuity, help managers target their 
resources more efficiently and effectively, assess costs and benefits, 
and help the Congress make more informed funding decisions. Commerce 
has taken some initial steps in developing systems that could improve 
this situation, but it is unclear whether they intend to fully develop 
this potential. 

Recommendations for Executive Action: 

We recommend that the Secretary of Commerce direct the Assistant 
Secretary for Trade Promotion and Director General of the U.S. and 
Foreign Commercial Service to (1) take steps to improve the collection, 
processing, and documentation of cost information on its export 
promotion programs and user fees in order to enhance efficient and 
effective management in line with federal accounting and internal 
control standards. These steps could, for example, include: 

* documenting the procedures and processes of the costing methodology 
in sufficient detail so that staff who work with costing at a later 
point could understand the specific procedures used and the data 
sources and cost assignment methods for each step in the process; 

* incorporating costs paid by other federal entities for CS's benefits, 
such as pensions and health insurance paid for by the Office of 
Personnel Management when determining the full cost of each service; 

* updating estimates of the amount of time staff spent performing 
various activities to realize any efficiency gained and to provide more 
accurate estimates of full costs; and: 

* documenting the methods and assumptions for establishing the user 
fees CS charges different firms for each service to clearly show the 
linkage between costs and user fees, particularly with regard to the 
lower user fees for SMEs. 

To better understand demand for CS export promotion programs and the 
level of participation attributable to its user fees, we also recommend 
that the Secretary of Commerce direct the Assistant Secretary for Trade 
Promotion and Director General of the U.S. and Foreign Commercial 
Service to (2) ensure that the design of CS databases and procedures 
followed by those entering the data enable CS to produce more accurate, 
reliable, and complete data on its customers and services, including 
all fees charged, company size, and export status. 

Agency Comments and Our Evaluation: 

Commerce concurred with our recommendations and stated that CS would 
take steps to improve the collection, processing, and documentation of 
cost information on its export promotion programs. Commerce stated that 
CS developed its new user fee policy from the most accurate data 
available from its existing database and that its accounting systems 
were not deficient based on receiving an unqualified audit opinion on 
its annual financial statements. Its technical comments mentioned CS's 
conversion to a new financial accounting system, Commerce Business 
System, which management expects will improve information about CS's 
costs of delivering services. We support CS's implementation of an 
improved financial accounting system. We remain concerned, however, 
that potentially outdated and inaccurate nonfinancial data that are 
used to determine the unit cost of specific services, such as the time 
staff spend performing various activities, may not be updated by the 
new system. Updating that information will help ensure that the full 
costs of specific services are considered when setting fees. In 
addition, although an entity's audited financial statements and 
unaudited cost accounting analyses may use the same underlying 
financial data, an auditor's opinion on the financial statements does 
not provide assurance concerning the reasonableness of cost analyses 
performed using that data. 

Commerce also noted an increase in fees collected and services provided 
to SMEs in fiscal year 2008, which they believe indicates their 
products and services remain accessible to SMEs. However, we believe 
that missing and inaccurate data about company size mean that CS cannot 
reliably or accurately estimate the volume of services provided to SMEs 
or the fees collected from them. In addition, CS's response relies on 
aggregate analyses between fiscal year 2007 and fiscal year 2008 that 
did not take into account changes in the mix of services provided or 
longer term trends and, therefore, does not provide useful information 
about the impact of its 2008 fee schedule on SMEs. 

Further, Commerce stated that its trade promotion services are greater 
in depth and scope than those provided by the states, and we discussed 
this in our report. We clarified this point in various places in our 
report, taking into account some related information that we received 
in technical comments from agency officials. Commerce's comments, along 
with our responses to specific points, are reprinted in appendix IV. 
Commerce also provided technical comments, which were incorporated into 
the report, as appropriate. 

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 to interested 
congressional committees and the Secretary of Commerce. The report also 
will be available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

Should you or your staff have any questions about this report, please 
either contact me at (202) 512-4347 or yagerl@gao.gov or Stanley J. 
Czerwinski at (202) 512-6806 or czerwinskis@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs can 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: 

Loren Yager: 
Director, International Affairs and Trade: 

Stanley J. Czerwinski: 
Director, Strategic Issues: 

[End of section] 

Appendix I: Scope and Methodology: 

Our objectives were to evaluate (1) the relationship between the U.S. 
Commercial Service (CS) and states' trade offices' export promotion 
programs, (2) CS's methodology and practices for determining costs and 
establishing user fees, and (3) how CS's user fees affect small and 
medium-sized enterprises' (SME) use of its programs. Our scope of work 
focused on the Department of Commerce's (Commerce) U.S. Commercial 
Service's and the 50 states' trade offices' export promotion programs 
and associated user fees. 

To determine what export promotion services states' trade offices 
provide and their relationship with CS's programs and user fees, we 
reviewed and analyzed both CS's and states' trade offices' export 
promotion programs and user fee data; data on domestic and overseas 
staff; export promotion budgets; states' export promotion grant 
programs, and services states trade offices purchased from CS. In 
addition, to obtain information on the states' trade offices' export 
promotion programs, fees, grants, and the importance of Commerce to 
their activities, we surveyed the 50 states' trade offices. We 
developed our survey instrument between January and late April 2008. To 
ensure that the survey respondents understood the questions in the same 
way, that we had used appropriate terms for this population, and that 
we had covered the most important issues, we conducted three expert 
reviews[Footnote 59] and three formal pretests.[Footnote 60] We 
received 45 responses from the 50 states' trade offices, or a 90 
percent response rate. The survey and a more complete tabulation of the 
results are provided in a supplement to this report (see GAO-09-148SP). 
We also conducted site visits in 6 states (California, Connecticut, 
Idaho, Illinois, Mississippi, and Pennsylvania). We chose these states 
to ensure a range of characteristics based on the following criteria: 
the size of the state trade promotion budget, the existence of a grant 
or subsidy program that funds SMEs' participation in CS's export 
promotion programs, states' trade offices collocated with U.S. Export 
Assistance Centers, the number of overseas states' trade offices and 
representatives, size of the state's economy and population, and states 
that do not have trade offices. We also reviewed and analyzed 
information in the 2005-2007 National Export Strategy reports and the 
State International Development Organizations' (SIDO) annual survey 
results of states' trade offices. Based on interviews and our analysis, 
we determined that SIDO's data were sufficiently reliable for our 
purposes. Information on all the states' export promotion budgets were 
difficult to obtain, and reliable and current data were only available 
from SIDO for 27 states; however, we used data for only 24 states in 
our analysis because 3 states did not disaggregate their export 
promotion budgets from their foreign investment recruitment budgets. 

To determine CS's procedures for determining costs and establishing 
user fees, we interviewed key CS and International Trade Administration 
staff and reviewed and analyzed available documentation about CS's 
export promotion programs and user fees based on the 2005 and 2008 user 
fee changes; CS's methodology for full cost recovery; cost templates of 
CS's fee-based export promotion programs; data on CS's budget and 
staff; data on staff time spent on various activities to deliver 
services; legislation authorizing CS to charge a fee for services 
(annual appropriations and the Mutual Education and Cultural Exchange 
Act); OMB Circular A-25, User Charges; Statement of Federal Financial 
Accounting Standards 4: Managerial Cost Accounting Standards and 
Concepts; GAO's Standards for Internal Control in the Federal 
Government;[Footnote 61] and GAO's Federal User Fees: A Design 
Guide.[Footnote 62] We did not need to perform an assessment of the 
reliability of the export promotion programs' cost and user fees data 
because we did not use the data but noted weaknesses in the cost- 
finding methodology. 

To determine what is known about how CS's export promotion programs' 
user fees affect SMEs' participation in its programs, we reviewed and 
analyzed past export promotion programs and user fees studies performed 
for Commerce by Booz Allen and Hamilton, Inc.,[Footnote 63] KPMG LLP, 
[Footnote 64] and Chemonics International.[Footnote 65] In addition, we 
reviewed and analyzed the Office of Management and Budget's 2003 and 
2008 Program Assessment Rating Tool for the CS. We also reviewed and 
analyzed CS's fee-based export promotion services purchased by its 
customers and the associated collections from these purchases from 2004 
to 2008. While we cited data elements on clients and collections for 
2008, having determined that these elements were sufficiently reliable 
for our purposes, we noted that other data elements, particularly 
company size and export status, are not fully reliable for the reasons 
that we have elaborated upon in the report's third objective. We also 
reviewed ad hoc feedback CS received on its user fees from CS's field 
staff, client firms, District Export Councils, states' trade offices, 
and trade and industry associations. Further, we analyzed our survey 
results regarding states' trade offices' views on the impact of the 
2005 and 2008 user fees changes on their purchase of CS's services. We 
obtained the states' trade offices' views for several reasons: (1) they 
are experts in offering export promotion programs and services; (2) 
they work with SMEs that export and, in many cases, they work with the 
same SMEs as CS; (3) they are purchasers and multipliers of CS's fee 
services, as well as purchasers of private sector fee services and are 
able to compare and contrast these service providers; and (4) our 
research at the beginning of our review indicated that it would be 
feasible to survey the states within our time frame and achieve an 
acceptable response rate. 

Further, we interviewed Commerce officials in Washington, D.C., and at 
the six U.S. Export Assistance Centers we visited, as well as officials 
of the six states' trade offices, District Export Councils, the Office 
of Management and Budget, the State International Development 
Organizations, and American chambers of commerce. 

To determine the purposes for which we could and could not use Commerce 
data on customers served and the dollars collected, we interviewed 
agency officials, attended a demonstration of CS's data systems, and 
performed checks and analyses of the data themselves. We determined 
that the data were sufficiently reliable in the aggregate to report on 
fee services provided, in a broad sense, and dollars collected. We also 
determined that the data were sufficiently reliable to report on 
selected fee services by the state of the company purchasing the 
service, though with the caveat that we could not examine the data by 
company size. However, we noted several limitations in the data, which 
we discussed in the body of this report. In particular, the data do not 
provide accurate counts by company size and export status. Moreover, 
the data only provide an incomplete picture of the fee services 
purchased by states' trade offices. We based our review on various 
internal control standards, such as the GAO's Standards for Internal 
Control in the Federal Government; the Office of Management and Budget 
Circular A-123, Management's Responsibility for Internal Control; 
Internal Control - Integrated Framework, by the Committee of Sponsoring 
Organizations of the Treadway Commission,[Footnote 66] as well as GAO's 
guidance on Assessing the Reliability of Computer-Processed 
Data.[Footnote 67] 

We conducted this performance audit from October 2007 to March 2009, in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform our audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe the 
evidence obtained provides this reasonable basis. 

[End of section] 

Appendix II: Overview of CS's and States' Domestic and International 
Offices: 

CS and states' trade offices both maintain offices in domestic and 
international locations to help firms identify export opportunities. 
CS's trade specialists are currently working in 108 cities in 47 states 
and Puerto Rico. CS does not currently have an office in Alaska, 
Delaware, and Wyoming, and CS provides services to customers in these 
states from U.S. Export Assistance Centers (USEAC) in neighboring 
states. For example, the USEAC in Seattle provides services to 
customers in Alaska. In addition, USEACs are colocated with 11 states' 
trade offices.[Footnote 68] CS's trade specialists also work in 75 
countries or 124 offices worldwide. In some countries, such as Brazil, 
China, and India, CS has offices in 5 or more cities. In addition, most 
states' trade offices have 1 or more overseas offices. For example, in 
2008, there were 34 countries in which at least one state trade office 
maintained an office or representative.[Footnote 69] In some countries, 
such as China, multiple states maintain offices, and individual states 
maintain offices in more than one city. CS also operates offices in 
each of these 34 countries. However, CS operates in 41 countries where 
states do not have representation, and some states' trade offices 
explained they rely heavily on CS services in these countries. The 
following map (see fig. 10) shows CS's domestic and international 
locations. 

Figure 10: CS Domestic and International Locations: 

This figure is a map of CS domestic and international locations. 

CS Domestic locations: 

Alabama: 
Arizona: 
Arkansas: 
California: 
Colorado: 
Connecticut: 
Florida: 
Georgia: 
Hawaii: 
Idaho: 
Illinois: 
Indiana: 
Iowa: 
Kansas: 
Kentucky: 
Louisiana: 
Maine: 
Maryland: 
Massachusetts: 
Michigan: 
Minnesota: 
Mississippi: 
Missouri: 
Montana: 
Nebraska: 
Nevada: 
New Hampshire: 
New Jersey: 
New Mexico: 
New York: 
North Carolina: 
North Dakota: 
Ohio: 
Oklahoma: 
Oregon: 
Pennsylvania: 
Rhode Island: 
South Carolina: 
South Dakota: 
Tennessee: 
Texas: 
Utah: 
Vermont: 
Virginia: 
Washington: 
Wisconsin: 
West Virginia: 
Puerto Rico: 


Countries with international CS field offices (FY 2009): 

Western Hemisphere: 

1: Argentina: 
5: Brazil: 
5: Canada: 
1: Chile: 
1: Colombia: 
1: Costa Rica: 
1: Dominican Republic: 
1: Ecuador: 
1: El Salvador: 
1: Guatemala: 
1: Honduras: 
4: Mexico: 
1: Panama: 
1: Peru: 
1: Uruguay: 
1: Venezuela: 

Europe: 

1: Austria: 
1: Belgium: 
1: European Union (Brussels): 
1: Bulgaria: 
1: Croatia: 
1: Czech Republic: 
1: Denmark: 
1: Finland: 
1: France: 
4: Germany: 
1: Greece: 
1: Hungary: 
1: Ireland: 
4: Italy: 
1: Kazakhstan: 
1: Netherlands: 
1: Norway: 
1: Poland: 
1: Portugal: 
1: Romania: 
3: Russia: 
1: Serbia: 
1: Slovak Republic: 
1: Spain: 
1: Sweden: 
2: Switzerland: 
3: Turkey: 
1: Ukraine: 
1: United Kingdom: 

Africa/Near East/South Asia: 
1: Algeria: 
2: Egypt: 
1: Ghana: 
7: India: 
1: Iraq: 
2: Israel: 
1: Jordan: 
1: Kenya: 
1: Kuwait: 
1: Lebanon: 
1: Morocco: 
1: Nigeria: 
3: Pakistan: 
1: Qatar: 
3: Saudi Arabia: 
1: Senegal: 
2: South Africa: 
2: United Arab Emirates: 

East Asia/Pacific: 
2: Australia: 
5: China: 
1: Hong Kong: 
1: Indonesia: 
4: Japan: 
1: Korea: 
1: Malaysia: 
1: New Zealand: 
1: Philippines: 
1: Singapore: 
2: Taiwan: 
1: Thailand: 
2: Vietnam: 

[Refer PDF for image] 

Source: GAO analysis of Commerce data; Map Resources (map). 

[End of figure] 

The number of CS's staff varies across countries, and states' overseas 
offices vary in size and composition. The number of CS's trade 
specialists working in its overseas offices varies widely across the 
countries in which it operates. For example, CS has 104 staff in China, 
30 staff in Germany, and 12 staff in Australia. In addition, some 
states maintain large overseas offices in certain countries, which tend 
to be staffed with full-time employees. Other states' overseas offices 
are staffed by part-time private consultants working on contract or 
volunteer representatives. For example, states often maintain full-time 
offices in primary overseas markets, such as Mexico and Japan, while 
states tend to employ part-time consultants in smaller markets. 

Recently, CS and many states' trade offices have reduced or 
consolidated their overseas offices but have maintained or opened 
offices in key markets. CS has recently undertaken the Transformational 
Commercial Diplomacy (TCD) initiative, which seeks to shift CS 
resources from more accessible overseas markets to less accessible 
markets to better align the needs of U.S. exporters with CS resources. 
Under the TCD initiative, CS has closed a number of small offices in 
well-developed markets or in small markets with limited commercial 
opportunities to open offices in new emerging markets with greater 
commercial potential, such as China and India. For example, under TCD, 
CS has closed 22 offices and opened 4 offices in Qatar, Tunisia, Libya, 
and Afghanistan.[Footnote 70] In addition, CS plans to open additional 
offices in Baku, Azerbaijan; Wuhan, China; Porto Alegre, Brazil; and 
Racife, Brazil; and add staff at offices in China and India.[Footnote 
71] Similarly, many states' trade offices have reduced or consolidated 
their overseas offices but have maintained and opened offices in key 
overseas markets. For example, some states' trade offices have 
consolidated their overseas offices in multiple countries of a 
particular region, such as Europe or Asia, to cover the entire region 
from a single office. However, many states continue to maintain and 
expand overseas offices in key markets, including China and Japan. For 
example, in recent years many states have opened offices in multiple 
cities in China. 

[End of section] 

Appendix III: Selected CS Fee Services Purchased by Firms in Each State 
in 2007 and 2008: 

This table presents selected fee services purchased by CS's customers 
in each state for 2 years. The data are for 2007 and 2008 and include 
5,890 standardized fee services purchased, out of a total of more than 
30,000, or about 20 percent for all fee services in those years. 
However, they include four of the five standardized fee services that 
CS offers (Gold Key, International Company Profile, International 
Partner Search, and Featured U.S. Exporter). Table 6 shows selected CS 
services that firms purchased from CS by home state in fiscal years 
2007 and 2008, sorted by the number of services purchased per state. 

Table 6: Numbers of Selected CS Fee Services Purchased by Firms in Each 
State: 

State: California; 
Selected CS fee services: 720. 

State: Texas; 
Selected CS fee services: 577. 

State: New York; 
Selected CS fee services: 506. 

State: Virginia; 
Selected CS fee services: 467. 

State: Florida; 
Selected CS fee services: 351. 

State: Illinois; 
Selected CS fee services: 277. 

State: Minnesota; 
Selected CS fee services: 237. 

State: Connecticut; 
Selected CS fee services: 230. 

State: Pennsylvania; 
Selected CS fee services: 200. 

State: Ohio; 
Selected CS fee services: 176. 

State: Massachusetts; 
Selected CS fee services: 146. 

State: New Jersey; 
Selected CS fee services: 129. 

State: Maryland; 
Selected CS fee services: 122. 

State: Michigan; 
Selected CS fee services: 104. 

State: Arizona; 
Selected CS fee services: 99. 

State: Georgia; 
Selected CS fee services: 85. 

State: Wisconsin; 
Selected CS fee services: 84. 

State: North Carolina; 
Selected CS fee services: 81. 

State: Rhode Island; 
Selected CS fee services: 78. 

State: Tennessee; 
Selected CS fee services: 77. 

State: Indiana; 
Selected CS fee services: 72. 

State: Washington; 
Selected CS fee services: 72. 

State: South Carolina; 
Selected CS fee services: 71. 

State: Oregon; 
Selected CS fee services: 69. 

State: Utah; 
Selected CS fee services: 67. 

State: Kansas; 
Selected CS fee services: 65. 

State: Alabama; 
Selected CS fee services: 55. 

State: New Hampshire; 
Selected CS fee services: 52. 

State: Louisiana; 
Selected CS fee services: 51. 

State: Colorado; 
Selected CS fee services: 43. 

State: Kentucky; 
Selected CS fee services: 41. 

State: Montana; 
Selected CS fee services: 40. 

State: Missouri; 
Selected CS fee services: 40. 

State: Iowa; 
Selected CS fee services: 34. 

State: Nebraska; 
Selected CS fee services: 33. 

State: Nevada; 
Selected CS fee services: 26. 

State: Oklahoma; 
Selected CS fee services: 21. 

State: West Virginia; 
Selected CS fee services: 20. 

State: South Dakota; 
Selected CS fee services: 19. 

State: Idaho; 
Selected CS fee services: 19. 

State: North Dakota; 
Selected CS fee services: 16. 

State: Delaware; 
Selected CS fee services: 16. 

State: Maine; 
Selected CS fee services: 12. 

State: New Mexico; 
Selected CS fee services: 8. 

State: Mississippi; 
Selected CS fee services: 8. 

State: Hawaii; 
Selected CS fee services: 7. 

State: Arkansas; 
Selected CS fee services: 4. 

State: Alaska; 
Selected CS fee services: 1. 

State: Wyoming; 
Selected CS fee services: 1. 

State: Vermont; 
Selected CS fee services: 1. 

Source: GAO analysis of CS's 2007 and 2008 data. 

Notes: 

The Gold Key, International Company Profile, International Partner 
Search, and FUSE Services were selected in consultation with CS. A key 
limitation in this analysis was that CS had to manually review 
participation agreements to identify companies' home states. These 
services were selected based on the CS's capacity to perform that 
review, and what we knew about the completeness of the data on CS's 
services. 

CS identified the companies' home states from information provided in 
participation agreements it had signed with them. CS could not 
authoritatively identify the companies' home states from these 
agreements because companies sometimes used their headquarters contact 
information and sometimes used their branch contact information. CS was 
able to identify more than 90 percent of the companies' home states. 

In some instances, the companies may have used CS facilities outside of 
their state; for example, according to CS, companies in the District of 
Columbia used USEACs in Northern Virginia and Baltimore. 

[End of table] 

[End of section] 

Appendix IV: Comments from the Department of Commerce: 

United States Department Of Commerce: 
The Under Secretary for International Trade: 
Washington, D.C. 20230: 

February 18, 2009: 

Dr. Loren Yager: 
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Dr. Yager: 

Thank you for providing us with the draft report assessing U.S. and 
Foreign Commercial Service (CS) operations with respect to user fees 
and state export promotion programs and services. We concur with the 
recommendations, and that CS should take steps to improve the 
collection, processing and documentation of cost information on its 
export promotion programs. 

It is important to note, however, that CS developed its new user fee 
policy from the most accurate data available from its existing 
databases. The accounting systems of record then, and now, were not 
deficient in meeting federal accounting and internal control standards 
as evidenced by ITA consistently receiving an unqualified audit opinion 
on its annual financial statement audits. Moreover, this new user fee 
policy has resulted in increased recovery of user fees, while ensuring 
that our products and services remain accessible for U.S. small- and 
medium-size enterprises (SMEs). In fact, in FY 2008 under its new user 
fee schedule, CS provided the highest number of services to SMEs and 
collected the most revenues of any prior fiscal year. We believe this 
speaks to the effectiveness of our trade promotion services, our 
ability to work closely with state economic development agencies, and 
our ability to manage our programs in an efficient and economical 
manner. 

See comment 1. 

See comment 2. 

In regards to your analysis of CS's trade promotion services versus 
those conducted by various state agencies, we believe that it is 
important to highlight the fact that no state provides or is capable of 
providing services that compare with the depth and extent of CS export 
promotion services. 

See comment 3. 

Enclosed for your consideration are our specific technical comments 
relating to the text of the report. Thank you again for the opportunity 
to comment on the draft report. 

Signed by: 

Michelle O'Neill, Acting: 

Enclosure: 

The following are GAO's comments on the Department of Commerce's letter 
dated February 18, 2009. 

GAO Comments: 

1. Also, Commerce's technical comments mentioned CS's conversion to a 
new financial accounting system, Commerce Business System, which 
management expects will improve information about CS's costs of 
delivering services. We support CS's implementation of an improved 
financial accounting system. We remain concerned, however, that 
potentially outdated and inaccurate nonfinancial data that are used to 
determine the unit cost of specific services, such as the time staff 
spend performing various activities, may not be updated by the new 
system. Updating that information will help ensure that the full costs 
of specific services are considered when setting fees.[Footnote 72] 

2. We believe that missing and inaccurate data about company size mean 
that CS cannot reliably or accurately estimate the volume of services 
provided to SMEs or the fees collected from them. In addition, CS's 
response relies on aggregate analyses between fiscal year 2007 and 
fiscal year 2008 that did not take into account changes in the mix of 
services provided or longer term trends and, therefore, does not 
provide useful information about the impact of its 2008 fee schedule on 
SMEs. 

3. Commerce commented that CS's trade promotion services are greater in 
depth and scope than those provided by the states, and we discussed 
this in our report. We clarified this point in various places in our 
report, taking into account some related information that we received 
in technical comments from agency officials. 

[End of section] 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Loren Yager, (202) 512-4347, yagerl@gao.gov Stanley Czerwinski, (202) 
512-6803, czerwinskis@gao.gov: 

Staff Acknowledgments: 

In addition to the individuals named above, Adam Cowles, Assistant 
Director; Michelle Sager, Assistant Director; Martin De Alteriis, 
Assistant Director; Jack Warner, Assistant Director; Yesook Merrill, 
Assistant Director; Karen Deans; Bradley Hunt; Grace Lui; and Barbara 
Shields made key contributions to this report. In addition, the 
following staff provided technical assistance: Jacqueline Nowicki, 
Assistant Director; Etana Finkler; Sheila Rajaibiun; and Jena 
Sinkfield. 

[End of section] 

Footnotes:  

[1] In 2006, SMEs comprised 97 percent of all identified exporters and 
accounted for 29 percent of the total value of U.S. exports. 

[2] CS is also referred to as the U.S. and Foreign Commercial Service. 

[3] The State International Development Organizations (SIDO) is a 
nonprofit, nonpartisan organization, affiliated with the Council of 
State Governments (CSG), which comprises international economic 
development practitioners and professionals from state and related 
organizations across the country. It is the only national organization 
focused exclusively on state international trade development. SIDO 
helps state international trade agencies better serve American 
exporters by sharing innovative ideas and resources, developing the 
skills of state trade professionals, advocating the interests of states 
in trade promotion, and facilitating multistate collaboration. Forty 
states are members of SIDO. 

[4] District Export Councils (DEC) are volunteer organizations of 
leaders from local business communities throughout the United States 
that are appointed by U.S. Secretaries of Commerce under the authority 
of a 1973 Executive Order; DECs do not receive government 
appropriations or compensation. 

[5] See Consolidated Appropriations Act, 2008, Pub. L. No. 110-161, 
Div. B, 121 Stat. 1844, 1885 (2007) and Science, State, Justice, 
Commerce, and Related Agencies Appropriations Act, 2006, Pub. L. No. 
109-108, 119 Stat. 2290, 2307 (2005). 

[6] The 2008 CS user fee schedule charges user fees for each service 
based on the size of a client firm. This user fee schedule raised the 
user fees for large firms to CS's estimates of the full costs, while 
maintaining the level of user fees SMEs had been charged under the 
previous user fee schedule implemented in 2005. 

[7] 15 U.S.C. § 4721. 

[8] USEACs are intended to integrate the representatives and assistance 
of the principal federal agencies providing export assistance--the 
Commercial Service, the Small Business Administration, and the Export- 
Import Bank. USEACs serve as one-stop-shops to provide exporters with 
information on U.S. government export promotion and export finance 
programs and help potential exporters make contact with the federal 
programs that may provide the greatest assistance. 

[9] In 2007, Commerce's Office of Inspector General reported on the 
need for an agreement between State and CS to address specific business 
processes at posts where CS does not have a presence. See Department of 
Commerce, Office of Inspector General, Commerce Can Further Assist U.S. 
Exporters by Enhancing Its Trade Coordination Efforts, Final Inspection 
Report Number IPE-18322 (Washington, D.C.: Mar. 30, 2007). 

[10] CS's authority to charge a fee for its export promotion services 
stems from its annual appropriation. See e.g., Pub. L. No. 110-161. 

[11] Forty-five states responded to our survey. We did not receive 
survey responses from Alaska, Kansas, Kentucky, Louisiana, and New 
Jersey. 

[12] Even though three states (Arkansas, California, and Michigan) do 
not offer a formal program, they offer some services on an as needed 
basis. According to the Michigan trade office, it maintains one 
overseas office, which provides trade development and foreign direct 
assistance to companies interested in exporting to China. 

[13] CS does not currently have offices in Alaska, Delaware, and 
Wyoming. CS operates in 108 cities nationwide. Of the 493 domestic 
staff, 211 are located at CS's headquarters in Washington, D.C. 

[14] CS currently operates offices in 75 countries compared with 80 
countries in 2006 and 2007. CS currently has 124 offices worldwide. In 
some countries, there are offices in more than one city. For example, 
CS has five offices in China. In those countries where CS does not have 
a presence, State represents U.S. commercial interests and assists U.S. 
exporters. The number of overseas staff includes foreign service 
nationals. 

[15] Our survey focused on the states' trade offices, their staff, and 
the activities they provide directly and did not include export 
promotion activities provided indirectly at the state level, such as 
export readiness training and the number of staff associated with those 
activities under a wide variety of arrangements. SIDO estimates that 
there are hundreds of individuals employed in states' funded 
educational institutions and economic development agencies that support 
small business export promotion primarily through training and 
counseling activities. 

[16] States are often represented overseas by agents or local 
consultants that work for them on a part-time or as-needed basis. 

[17] CS's total budget averaged about $227 million over the past 3 
fiscal years (2006-2008). 

[18] SIDO tracks states' expenditures on trade as part of its annual 
survey and reported in its 2008 survey that tracking expenditures on 
trade and investment remains a challenge as many states are reluctant 
to report these expenditures, and others undercount the amount they 
spend by not including staff salaries and other overhead in the trade 
budgets. 

[19] The median budget is the amount ($775,000) that divides the budget 
distribution into two equal groups, meaning that half had budgets above 
the median, and half had budgets below the median. 

[20] These observations are taken from states' trade offices responses 
to our survey's open-ended questions. 

[21] According to CS, its export promotion budget is projected to grow 
in nominal terms by 11.4 percent over the last 5 years; the fiscal year 
2005 budget was $213.5 million, and the budget for 2009 is expected to 
be about $237.7 million. 

[22] The following states' trade offices are colocated with a USEAC: 
Idaho, Mississippi, New Hampshire, New Jersey, New Mexico, New York, 
Oklahoma, Rhode Island, Tennessee, Texas, and Vermont. 

[23] The formal services are CS's fee-based standardized and customized 
services. 

[24] These observations are taken from states' trade offices responses 
to our survey's open-ended questions. 

[25] Since CS had difficulty disaggregating the data by company size, 
and over 16 percent of its customers are of unknown size, the data for 
SMEs are not fully reliable. See the discussion of data reliability on 
page 35. 

[26] CS defines an SME as NTE for incentive fee purposes if it has not 
exported anywhere in the world during the last 24 months, except for 
unsolicited orders or orders placed by U.S. intermediaries, and has not 
previously used a CS service. 

[27] In addition, CS extends SME-level user fees for standardized and 
customized services to cities and local governments, trade 
associations, and nonprofit educational institutions and partners. 

[28] Under the 2005 user fee schedule, CS charged large firms and SMEs 
the same user fees for the same services, but the user fees differed 
from country to country. For example, CS charged all firms, regardless 
of size, the same user fees for the Gold Key Service and the 
International Company Profile based on groupings of export markets into 
four user fee bands, which were roughly related to variations in 
national labor costs across markets. For customized services, the 2005 
user fee schedule charged all firms the same user fees based on the 
scope of work required to meet firms' specific needs, and the range of 
user fees also reflected variations in the cost of doing business in 
different markets. 

[29] CS does not offer any comparable export promotion grant programs 
to SMEs. However, ITA offers limited financial assistance to nonprofit 
groups, including trade associations and states' trade offices, under 
the Market Development Cooperator Program. 

[30] Pub. L. No. 110-161. 

[31] According to the Statement of Federal Financial Accounting 
Standards (SFFAS) 4: Managerial Cost Accounting Standards and Concepts, 
full cost of a service produced by a segment of an agency is the sum of 
the costs of resources consumed by the segment that directly or 
indirectly contributes to the service, and the costs of identifiable 
supporting services provided by other segments within the agency, and 
by other entities. 

[32] Pub. L. No. 110-161. 

[33] See e.g., Departments of Commerce, Justice, and State, the 
Judiciary, and Related Agencies Appropriations Act, 1990, Pub. L. No. 
101-162, 103 Stat. 988, 990, (1989). Since the Departments of Commerce, 
Justice, and State, the Judiciary, and Related Agencies Appropriations 
Act, 1990, the Congress has applied certain provisions of MECEA to ITA 
in ITA's annual appropriation. 

[34] The Congress has stated that, for ITA, certain provisions of MECEA 
shall apply in carrying out international trade and promotion 
activities abroad. Through the application of these MECEA provisions, 
the Congress authorizes CS to accept contributions from "[f]oreign 
governments, international organizations and private individuals, 
firms, associations, agencies, and other groups" to carry out the 
purposes of MECEA. These contributions "shall include payment for 
assessments for services provided as part of these activities." Under 
this authority, CS must charge a fee for services it renders in its 
export promotion programs and CS has made a policy decision to charge 
the fee on a full cost recovery basis. See e.g., Pub. L. No. 110-161. 

[35] Pub. L. No. 109-108 and Pub. L. No. 110-161. 

[36] Other options could include basing fees on competing market rates 
charged by other providers of similar services or setting fees that 
would promote a certain level of participation. 

[37] Agencies may derive their authority to charge fees either from 
specific statutory authority or from the Independent Offices 
Appropriation Act of 1952 (IOAA). OMB Circular A-25 generally applies 
to agencies that derive their authority to charge user fees under IOAA, 
but specific user fee statutes should be construed consistent with OMB 
Circular A-25 to the extent possible as part of an overall statutory 
scheme. CS derives its authority to charge fees for its export 
promotion services from its annual appropriation. 

[38] SFFAS, No. 4, provides that agencies may determine full costs 
based on a cost-finding methodology; however, the methodology for 
determining costs should be clearly documented and followed 
consistently. According to federal accounting standards, cost 
accounting procedures and processes should be documented and should 
provide instructions for procedures and practices to be followed in 
determining costs and contain examples of other documents used. 

[39] Federal accounting standards state that each entity's full costs 
should include the costs of goods and services that it receives from 
other entities, and the payment of retirement benefits is likened to 
providing goods and services. Furthermore, federal accounting standards 
state that recognizing the costs of interentity goods and services is 
especially important when those costs constitute inputs to services 
provided to nonfederal government entities for a user fee and thus 
these costs need to be recognized by the entity in order to determine 
user fees for services. 

[40] CS implemented the 2008 user fee structure with the goals of (1) 
moving toward the provisions of OMB Circular A-25, (2) maintaining the 
level of user fees SMEs are charged and providing incentive user fees 
for new-to-export SMEs to use CS services for the first time, and (3) 
simplifying the user fee structure implemented in 2005. CS officials 
explained the 2008 user fee schedule moves closer to the intent of 
OMB's full cost recovery policy because it seeks to recover full costs 
from large firms. 

[41] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[42] The CTS is an ITA-wide customer relationship management system 
that is being developed to track clients and their activities (fee-
based and non-fee-based services) at domestic and overseas posts. 

[43] According to CS, the eMenu is now primarily used as a tool for 
customers to pay for CS's services, capturing clients' credit card 
information, as well as statistics such as company size, export status, 
and export successes. 

[44] For example, when preparing a statement of work for the client in 
the eMenu, the trade specialist has to enter the fee into a data field, 
since the field is not automatically populated based on company size 
and export status. CS officials explained that the fees could consist 
not only of the initial fee-based services, such as a 1-day Gold Key 
Service, but could also include additional days of service, as well as 
"add ons," such as transportation and interpreter costs. However, as 
there is only one field in the database for all these costs, we could 
not isolate the initial fee part of the costs or identify any 
additional service costs when those applied. 

[45] A service CS purchases that provides various statistics on U.S. 
companies. 

[46] This represents data for the first half of fiscal year 2008 as we 
did not obtain the remaining months on time to complete the analysis 
for the year. The purpose of this test was neither to quantify the 
exact number of firms that had been inappropriately designated as NTE 
in 2008, nor to comment on whether any firms had been inappropriately 
charged a lower fee than was required; rather, it was to establish that 
there are some concerns about data reliability in the designations of 
NTE in the historic data and to suggest that CS take actions to correct 
these problems given that the new fee structure offers lower fees to 
NTE SMEs. 

[47] According to recent CS guidance, NTE firms are not supposed to 
have been prior recipients of services such as Gold Key, International 
Company Profile, International Partner Search, trade missions, 
Customized Market Research, Business Service Provider, and QuickTake. 
We found more than 650 companies designated as NTE in the data for the 
first half of 2008 that we examined. 

[48] The price elasticity of demand measures how sensitive the quantity 
demanded is to changes in price. If a small price increase results in a 
disproportionately large decrease in the quantity demanded, then demand 
is price elastic. For example, if a price increase of 10 percent 
results in a decrease of more than 10 percent in the quantity demanded, 
then demand is price elastic. If the quantity demanded decreases less 
than 10 percent, then demand is price inelastic. 

[49] CS did not have set fees for its services prior to 2005, so we 
categorized the 2005 fees as “fee change.” It is unclear what fees were 
charged prior to 2005.

[50] We highlighted the Gold Key Service throughout the report because, 
based on our survey, most states' trade offices said that they have 
primarily purchased the Gold Key Service from Commerce over the past 3 
years. 

[51] Chemonics International in Cooperation with University of North 
Carolina at Chapel Hill, The Kenan Institute of Private Enterprise, 
Kenan-Flagler Business School, Report Card on Trade II: Assessing the 
Effectiveness of U.S. Government Support to Small and Midsize Exporters 
(Chapel Hill: June 12, 2002). 

[52] The study, which looked across all services used, said Commerce 
emerged as the "clear leader" among the government service providers, 
accounting for more than a third of all government-provided services. 

[53] CS also purchases services from the private sector. However, the 
partnership between CS and the private sector was beyond the scope of 
our review. In addition, we did not further explore states' trade 
offices' relationship with private sector providers. 

[54] User Fee Study, prepared for the Department of Commerce, 
International Trade Administration by KPMG LLP, January 24, 2003. 

[55] The study mentioned ITA, but the specific services that were 
evaluated were those of the CS. 

[56] According to CS officials, after the closing of a Participation 
Agreement (service) or the completion of a trade event, CS sends its 
customers a comment card, called a Quality Assurance Survey (QAS), in 
order to track customer satisfaction with its services. The current 
survey has three questions, two closed-ended and one open-ended. 

[57] The three survey questions are: (1) on a scale of 1 to 10, please 
rate your level of overall satisfaction with the service; (2) on a 
scale of 1 to 10, how likely is it that you would recommend this 
service; and (3) comments and suggestions. CS does not have a survey 
question that specifically relates to the fees it charges. 

[58] Chemonics International in Cooperation with University of North 
Carolina at Chapel Hill, The Kenan Institute of Private Enterprise, 
Kenan-Flagler Business School, Report Card on Trade II: Assessing the 
Effectiveness of U.S. Government Support to Small and Midsize Exporters 
(Chapel Hill: June 12, 2002). 

[59] According to the study, 15 percent of small exporters had not 
heard of or used Commerce's services, 30 percent had used Commerce's 
services, and 55 percent had heard of Commerce's services but had not 
used them. In contrast, 44 percent of small exporters had not heard of 
or used states' trade offices' services, 15 percent had used states' 
trade offices' services, and 41 percent had heard of states' trade 
offices services but had not used them. 

[60] The expert reviewers were officials from the Commercial Service, 
the Pennsylvania's state trade office, and from SIDO. 

[61] The pretest states were Iowa, Nevada, and Pennsylvania. 

[61] See GAO/AIMD-00-21.3.1. 

[62] See GAO, Federal User Fees: A Design Guide, GAO-08-386SP 
(Washington, D.C.: May 29, 2008). 

[63] Department of Commerce, International Trade Administration, 
Product Pricing Study (Washington, D.C.: May 1998) and Impact of 
Product Price Increases on Clients and Revenues (Washington, D.C.: 
March 1999). 

[64] Department of Commerce, International Trade Administration, User 
Fee Study (Washington, D.C.: January 2003). 

[65] Chemonics International in Cooperation with University of North 
Carolina at Chapel Hill, The Kenan Institute of Private Enterprise, 
Kenan-Flagler Business School, Report Card on Trade II: Assessing the 
Effectiveness of U.S. Government Support to Small and Midsize Exporters 
(Chapel Hill: June 12, 2002). 

[66] Internal Control-Integrated Framework, by the Committee of 
Sponsoring Organizations of the Treadway Commission (COSO), September 
1992. 

[67] GAO, Assessing the Reliability of Computer-Processed Data, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-15G] (Washington, 
D.C.: September 2002). 

[68] The following states' trade offices are colocated with USEACs: 
Idaho, Mississippi, New Hampshire, New Jersey, New Mexico, New York, 
Oklahoma, Rhode Island, Tennessee, Texas, and Vermont. 

[69] According to the State International Development Organizations 
(SIDO), in 2008 states' trade offices had overseas offices or 
representatives located in the following 34 countries: Argentina, 
Australia, Belgium, Brazil, Canada, Chile, China, Colombia, Czech 
Republic, Finland, France, Germany, Hong Kong, India, Israel, Italy, 
Japan, Jordan, Korea, Mexico, Netherlands, Poland, Qatar, Russia, Saudi 
Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, 
Thailand, United Kingdom, and Vietnam. 

[70] Under CS's Transformational Commercial Diplomacy initiative, CS 
has closed offices in Bridgetown, Barbados; Halifax, Canada; Abidjan, 
Cote d'Ivoire; Lyon, France; Marseille, France; Strasbourg, France; 
Toulouse, France; Hamburg, Germany; Leipzig, Germany; Naples, Italy; 
Kingston, Jamaica; Fukuoka, Japan; Luxembourg City, Luxembourg; Rabat, 
Morocco; Amsterdam, Netherlands; Aukland, New Zealand; Oporto, 
Portugal; Yekaterinburg, Russia; Barcelona, Spain; Zurich, Switzerland; 
Port of Spain, Trinidad and Tobago; and Belfast, United Kingdom. CS has 
recently opened offices in Kabul, Afghanistan; Tunis, Tunisia; Tripoli, 
Libya; and Doha, Qatar. 

[71] CS plans to add staff at offices in Beijing, China; Guangzhou, 
China; Calcutta, India; Chennai, India; Mumbai, India; and New Delhi, 
India. 

[72] Also, auditor opinions on an entity's financial statements focus 
on whether those principal financial statements present fairly, in all 
material respects, the financial position of the entity and its net 
costs, changes in net position, and budgetary resources in conformity 
with U.S. generally accepted accounting principles. Those audits are 
conducted for the purpose of forming an opinion on the financial 
statements taken as a whole. An audit includes consideration of 
internal control over financial reporting as a basis for designing 
audit procedures that are appropriate in the circumstances, but not for 
the purpose of expressing an opinion on the effectiveness of the 
entity's internal control over financial reporting. Accordingly, while 
an entity's audited financial statements and unaudited cost accounting 
analyses may use the same underlying financial data, an auditor's 
opinion on financial statements does not provide assurance concerning 
the reasonableness of cost analyses performed using that data. 

[End of section] 

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