Civil Penalties:

Agencies Unable to Fully Adjust Penalties for Inflation Under Current Law

GAO-03-409: Published: Mar 14, 2003. Publicly Released: Mar 14, 2003.

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Civil penalties are an important element of regulatory enforcement, allowing agencies to punish violators appropriately and to serve as a deterrent to future violations. In 1996, Congress enacted the Inflation Adjustment Act to require agencies to adjust certain penalties for inflation. GAO assessed federal agencies' compliance with the act and whether provisions in the act have prevented agencies from keeping their penalties in pace with inflation.

As of June 2002, 16 of 80 federal agencies with civil penalties covered by the Inflation Adjustment Act had not made the required initial adjustments to their penalties. Nineteen other agencies had not made required subsequent adjustments, and several other agencies had made incorrect adjustments. The act does not give any agency the authority to monitor compliance or to provide guidance to agencies. More important, several provisions of the act have prevented some agencies from fully adjusting their penalties for inflation. One provision limited the agencies' first adjustments to 10 percent of the penalty amounts, even if the penalties were decades old and hundreds of percent behind inflation. The resultant "inflation gap" can never be corrected under the statute and grows with each subsequent adjustment. Also, the act's calculation and rounding procedures require agencies to lose a year of inflation each time they adjust their penalties, and can prevent some agencies from making adjustments until inflation increases by 45 percent or more (i.e., 15 years or more at recent rates of inflation). Finally, the act exempts penalties under certain statutes from its requirements entirely. Consequently, more than 100 exempted penalties have declined in value by 50 percent or more since Congress last set them.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Congress amended the Inflation Adjustment Act to address this recommendation through passage of the Bipartisan Budget Act of 2015 (P. L. 114-74-Nov. 2, 2015). Under section 701, the "Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015", the act required federal agencies, among other provisions, to adjust civil monetary penalties for inflation with an initial catch-up inflation adjustment published in the Federal Register and report civil monetary penalty information, including the catch-up inflation adjustment, in their agency financial reports.

    Matter: If Congress wants federal civil penalties to regain their full impact and deterrent effects, it may wish to consider amending the Inflation Adjustment Act to require agencies to adjust their penalties for the full amount of inflation that has occurred since they were last set or adjusted by Congress. This catch-up adjustment could occur all at once or in a series of adjustments. Alternatively, Congress could amend the act to permit (but not require) agencies to make catch-up adjustments.

  2. Status: Closed - Implemented

    Comments: Congress amended the Inflation Adjustment Act to address this recommendation through passage of the Bipartisan Budget Act of 2015 (P. L. 114-74-Nov. 2, 2015). Under section 701, the "Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015", Congress included provisions to make agencies' civil penalties subject to annual inflation increases using more current CPI data to calculate penalty inflation adjustments and without losing a year of inflation.

    Matter: If Congress wants federal civil penalties to be adjusted on a more timely and accurate basis, it may wish to consider amending the Inflation Adjustment Act to allow agencies to use more current Consumer Price Index (CPI) data to calculate the size of penalty increases, and require that changes in the CPI be calculated without losing a year of inflation.

  3. Status: Closed - Implemented

    Comments: Congress amended the Inflation Adjustment Act to address this recommendation through passage of the Bipartisan Budget Act of 2015 (P. L. 114-74-Nov. 2, 2015). Under section 701, the "Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015", the act changed the way in which penalty increases are rounded to specify "to the nearest multiple of $1.''

    Matter: If Congress wants federal civil penalties to be adjusted on a more timely and accurate basis, it may wish to consider amending the Inflation Adjustment Act to either eliminate the rounding provisions altogether (e.g., adjust penalties for the actual amount of inflation that occurred) or change the way in which penalty increases are rounded (e.g., round based on the size of the increase rather than the size of the penalty itself).

  4. Status: Closed - Implemented

    Comments: Congress amended the Inflation Adjustment Act to address this recommendation through passage of the Bipartisan Budget Act of 2015 (P. L. 114-74-Nov. 2, 2015). Under section 701, the "Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015", the amendments struck the prior exemptions from inflation adjustments under the Occupational Safety and Health Act of 1970 and the Social Security Act.

    Matter: If Congress wants penalties currently exempted from the act to be covered, it may wish to consider amending the Inflation Adjustment Act and permitting agencies to adjust those penalties for inflation.

  5. Status: Closed - Implemented

    Comments: Congress amended the Inflation Adjustment Act to address this recommendation through passage of the Bipartisan Budget Act of 2015 (P. L. 114-74-Nov. 2, 2015). Among other things, under section 701, the "Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015", the act included provisions on "implementation and oversight enhancements." These included requirements that (1) the Office of Management and Budget (OMB) issue implementation guidance to agencies "not later than February 29, 2016, not later than December 15, 2016, and December 15 of every year thereafter;" (2) federal agencies report information about the civil monetary penalties within the agencies' jurisdiction, including the inflation adjustment of the civil monetary penalty amounts, in their annual agency financial reports to OMB; and (3) GAO annually submit to Congress a report assessing the compliance of agencies with the inflation adjustments required by the act.

    Matter: Congress may wish to consider giving one or more executive branch agencies the authority and responsibility to monitor the act's implementation and provide guidance to the agencies. A single agency could be made responsible for both providing guidance to agencies on the implementation of the Inflation Adjustment Act and monitoring compliance with the act. Alternatively, those functions could be given to separate agencies. The agency or agencies could also collect basic information on which agencies have civil penalty authority, the amount of penalty assessments and collections, and the agencies' use of alternative mechanisms to increase assessments and collections.

 

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