International Remittances: Actions Needed to Address Unreliable Official U.S. Estimate

GAO-16-60 Published: Feb 16, 2016. Publicly Released: Feb 16, 2016.
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What GAO Found

The Remittance Status Verification Act of 2015, S. 79, would require remittance transfer providers to request that all senders of remittances to recipients outside the United States provide proof of their legal status under U.S. immigration laws and impose a fine on those unable to provide such proof. The funds collected would be submitted to the Consumer Financial Protection Bureau (CFPB) to pay for its administrative and enforcement costs in carrying out the act, and any remaining funds would be used to pay expenses related to border protection. The fine may raise money for border protection, but the exact amount is unknown and would depend on several factors, including

the dollar amount of remittances sent by those without legal status,

changes in remitter behavior due to the fine, such as using unregulated transfer methods, and

CFPB's administrative and enforcement costs to carry out the act.

The first two factors above affect the volume of remittances that would be subject to a fine. The third factor affects the amount of net revenue from the fine remaining for border protection. Finally, remittance transfer providers told GAO that the fine could have consequences for them, including potentially disproportionate costs for small providers.

The Bureau of Economic Analysis (BEA) estimated that remittances from the United States were approximately $40 billion in 2014. However, BEA's methodology for estimating remittances is not consistent with government-wide policies and guidance on statistical practices or with BEA's own best practices and thus produces unreliable estimates. GAO identified several weaknesses in BEA's estimation methodology, illustrated by the following examples.

BEA failed to use appropriate methodology that addressed questionable aspects of the data, such as missing information and measurement problems. This is inconsistent with National Research Council of the National Academies of Science guidelines for federal statistical agencies and government-wide policies.

BEA also calibrated the output of the new model to match the estimate produced by BEA's previous model. BEA did this because according to officials the new model produced substantially lower results than BEA had previously estimated. In a 2006 report GAO had questioned the reliability of BEA's previous model; as a result BEA's actions raise further concerns about the reliability of the new model's results.

Moreover, BEA could not provide adequate, transparent documentation underlying its methodology or reviews of its methods and data. According to BEA officials, BEA did not adhere to its own best practices for changing its methodology because they did not consider the remittance estimate to be influential information. However, BEA's estimate is influential, as it is cited by national and international organizations and in some cases is incorporated into the estimates of these organizations, including the World Bank.

Why GAO Did This Study

For many countries, remittances represent a large and stable source of foreign currency. Remittances have received increasing attention from policymakers as the volume of funds transferred has increased over the years. Despite the global significance of remittances, much remains unknown about the actual volume of remittances and the methods used to remit them. GAO was asked to study the potential effects of a fine on certain remitters and estimates of U.S. remittances. GAO examined (1) the potential effects of a fine on remitters unable to provide proof of legal immigration status, and (2) BEA's remittance estimate and the extent to which its revised estimation methodology met government-wide policies and best practices. GAO constructed a hypothetical scenario analysis to show the uncertainty associated with the effects of a fine. GAO interviewed, among others, BEA, International Monetary Fund and World Bank officials, and researchers. GAO also analyzed BEA's estimate of U.S. remittances and documentation of its methodologies.

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GAO recommends that BEA conduct analyses to improve the reliability of its estimate and follow established policies for documenting its methods and analyses. BEA agreed to implement the recommendations but disagreed that its estimates are unreliable and not adequately documented. GAO disagrees and maintains that BEA's revised estimation model produces unreliable estimates and BEA could not provide adequate documentation of its methodology.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Commerce To improve the reliability of the annual official U.S. estimate of remittances, the Secretary of Commerce should direct the BEA Director to conduct additional analyses of BEA's estimates using estimation techniques appropriate for dealing with the shortcomings of the data. Analyses should also be conducted to understand the effect of various assumptions behind and limitations of the data on the estimates.
Closed – Implemented
BEA conducted a review of its methodology for estimating remittances and analyses of whether alternative estimation techniques could be used to address the shortcomings of the source data. BEA concluded that its current methodology was sound and robust compared with alternative estimation techniques. In addition, BEA proposed several refinements to its methodology for estimating remittances intended to improve the accuracy of the estimate. In April 2020, an internal BEA advisory board approved the revised methodology. In June 2020, BEA released the 2020 annual update of the U.S. international transactions accounts, which included the official U.S. estimate of remittances based on the revised methodology.
Department of Commerce To improve the transparency and quality of BEA's international remittances estimate, the Secretary of Commerce should direct the BEA Director to follow established BEA best practices, OMB policies, and NRC guidance for documenting BEA's methods and analyses used to revise its model for estimating remittances and for producing its annual estimates.
Closed – Implemented
BEA followed its own internal best practices and federal guidelines for its revised methodology for estimating remittances, which BEA implemented for the 2020 annual update of the official U.S. estimate of remittances it released in June 2020. For example, BEA more clearly documented the agency's efforts to revise its methodology for estimating remittances, including key changes BEA made to the previous methodology. In addition, BEA clearly documented management review and approval of its revised methodology for estimating remittances. Further, BEA described steps it took to address shortcomings in the methodology. These actions should improve the transparency and quality of the annual official U.S. estimate of remittances.

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