Diversion Control Division, US Department of Justice, Drug Enforcement Administration

RESOURCES > Federal Register Notices > Rules - 2002 > Registration and Reregistration Application Fees

Rules - 2002

[Federal Register: August 9, 2002 (Volume 67, Number 154)]
[Rules and Regulations]
[Page 51987-52007]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09au02-16]

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X. History of the Current Fee

In response to the 1993 Appropriation, DEA published a rulemaking in the Federal Register on March 22, 1993 to announce a new fee schedule for the Diversion Control Program (DCP) (58 FR 15272). This announcement outlined the general categories of cost to be borne by the resulting Drug Diversion Control Fee Account (DDCFA) and excluded from such outline certain DCP costs, including the cost of the Chemical Control Program. This program is responsible for the regulation and monitoring of activity involving chemicals used in illicit manufacture of controlled substances and for the investigation of the diversion of these chemicals. Following the March 22, 1993 announcement, several registrant groups filed a complaint in the United States District Court for the District of Columbia. On July 5, 1994, the district court disposed of all claims, but one of the plaintiffs, the American Medical Association (AMA), appealed to the United States Court of Appeals for the District of Columbia Circuit. In this case, AMA v. Reno, 57 F. 3d 1129 (D.C. Cir. 1995), the District of Columbia Circuit held that DEA "was required to identify the components of the fee-funded Diversion Control Program and provide a brief explanation of why it deemed each component to be a part of that program." Id. At 1135. DEA has attempted to fulfill the court's mandate through a second announcement, which appeared in the Federal Register on December 30, 1996 (61 FR 68624).

The second announcement provided a more detailed discussion of the DCP costs to be included in, and excluded from, DEA's DDCFA charges. A table summarizing these costs follows.

Included  Excluded
  • All direct support of drug drug diversion control efforts including: Diversion investigators, analysts, technicians, and clerical personnel; equipment and services associated with  these positions for the registration and control of the manufacture, distribution and dispensing of controlled substances.
  • Salaries and expenses, benefits.
  • Travel, rent, utilities, supplies.
  • Training.

Specific Activities:

  • Development and refinement of regulations and rules re: registration and control of the manufacture, distribution and dispensing of controlled substances..
  • Preparation for and conduct of meetings and national conferences with registrants, registrants' representatives (e.g., associations,  etc.), law enforcement representatives, and other interested parties..
  • Responding to inquiries from industry, law enforcement, regulatory personnel, Congress, and federal
    agencies..
  • Classification and scheduling of substances, including the collection and analysis of necessary data, providing information to international, national and state entities re: scheduling of substances, responding to scheduling petitions, providing testimony and expert guidance and assistance, and working with law enforcement agencies, the scientific community, industry, the public and other interested parties.. 
  • Identification of controlled substances for the control of the lawful manufacture, distribution, dispensing, and export of controlled substances by practitioners and other registrants..
  • Establishment of quotas for certain controlled and substances for medical, scientific, research and industrial use and monitoring of the manufacture, utilization, trafficking an abuse of controlled substances against the quotas..
  • Conduct of training seminars for industry on controlled substances, including quotas, etc..
  • Registration of persons authorized to manufacture, distribute, dispense, import, or export controlled substances, including registration of persons conducting research with Schedule I controlled substances in conjunction with FDA and distribution of registrant information to other DEA elements , Federal, state and local regulatory personnel, and registrants as necessary..
  • Conduct of other investigations including pre- registrant investigations and cyclic investigations of registrants' records/inventories..
  • Participation in any civil or criminal action resulting from above- referenced investigations..
  • Operation of system of declarations and permits for importers and exporters of controlled substances to comply with CSA and international treaties. This includes examining request for permission to import or export controlled substances and maintenance ofrecords, monitoring of imports of controlled substances to ensure they are consistent with domestic need, and preparation of reports..
  • Participation in international policy activities re: the manufacture, distribution, dispensing, import and export of controlled substances and the strengthening of controls in these areas to comply with CSA and international treaties/conventions, including participating in United Nations policy activities and international meetings/conferences; developing and formulating policy; and developing substantive materials and research papers. Note, fee-funded activities in this area are limited to domestic personnel (personnel assigned to overseas positions are supported through appropriated funds)..
  • Providing assistance to foreign authorities and governments with their diversion control systems to improve the design and administration of, and cooperation regarding, controlled substances and chemical controls..
  • Participation in cooperative efforts with other officials involved in diversion control activities (e.g., Federal, state, local, and national and local pharmaceutical and health care organizations) and maintenance of an active liaison program..
  • Development of information manuals and materials for industry such as Pharmacist's Manual, Practitioner's Manual, Mid-Level Practitioner's Manual, and the Security Outline to the Controlled Substances Act..
  • Enforcement of the Anabolic Steroid Control Act..
  • Operation of ARCOS and CSA data systems..
  • Establishment and operation of National Forensic Laboratory Information System..
  • Establishment and operation of Tactical Diversion Squads..
  • All direct support of chemical diversion control efforts including payroll, benefits, travel, training supplies and equipment.

 


Specific Activities: 

  • Chemical control.
  • Clandestine laboratories.
  • Overseas positions.
  • Chief Counsel support.
  • Executive Direction.
  • DEA automated data processing systems and support (except ARCOS and CSA).
  • Office of Training staff.
  • DEA management and administrative support.
  • Office of Congressional and Public Affairs support.
  • Intelligence support.
  • Development of non- drug related materials such as the Chemical Handlers Manual.
  • Chemical Laboratory Services Support.

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The increased detail of the December 30, 1996 announcement did not address all concerns, however. Several of the commentors asserted that DEA failed in the first DDCFA rulemaking and in the December 1996 Federal Register notice to articulate how it had arrived at the amount for the registration fee increase in 1993 and failed to provide adequate justification for the increase. One commentor concluded that "[t]he thing that bothers many of us is that it appears the amount of increase was "picked out of the air" and there was no justification for that much of an increase."

The 1993 Appropriations Act mandates: (a) That DEA deposit each fiscal year's fee revenue in excess of $15 million into an account for "offsetting receipts" (i.e., the first $15 million collected must remain in the General Fund of the Treasury); (b) that revenue deposited into such account "remain available until expended"; (c) that the fees funding this account "be set at a level that ensures the recovery of the full costs of the various aspects" of the DCP; (d) that DEA "be refunded in accordance with estimates made in the budget request of the Attorney General"; and (e) that the Attorney General "prepare and submit annually to the Congress, statements of financial conditions of the account". 21 U.S.C. 886a.

The 1993 Appropriations Act augments DEA's previously established authority, pursuant to 21 U.S.C. 821, to collect offsetting fees by requiring that DEA fund the entire DCP with registration fees. Because previously established fees were insufficient to recover the full cost of operating the DCP, the 1993 legislation made a fee increase unavoidable. Because the law required recovery of the "full costs" of the program and because the law required all fee revenue to "remain available until expended," DEA knew that any excess or surplus collected would remain in the fee account until it could be used for an appropriate DCP purpose.

DEA's method for estimating the full cost of the DCP has been a traditional approach: modular costing. This approach is required under the Department of Justice (DOJ) Instructions for the Preparation of Budget Estimates and is consistent with Office of Management and Budget (OMB) Circular A-11, Section 30.5; and both DOJ and OMB review the cost modules presented with each of DEA's three annual budget drafts. A modular cost is the total organizational burden of each incremental employment position in an organization. Such burden extends beyond the salary and benefits of a new position and includes all other resource requirements (including supplies, utilities, rent, training, etc.) resulting from the position's existence. Cost estimation may also accommodate fixed program increases: such fixed costs are incorporated into each budget request under the separate heading "Non-Personnel Costs". The modular costing method is useful because it enables budget formulators to project the cost of additional resources without recalculating the base cost of the underlying program. If the underlying program is modified or broken into components, however, the base cost of the resulting program(s) must be calculated afresh. The DCP's division into one appropriation-funded component and one fee-funded component made just such a base cost recalculation necessary.

In 1992, prior to passage of the 1993 Appropriation Act, DEA's FY94 budget

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request for the DCP was represented partially under the Drug and Chemical Diversion Control Decision Unit and partially under other decision units. These decision units were not developed to enable DEA to track such individual programs as the DCP, and even the Drug and Chemical Diversion Control Decision Unit was not identical with the DCP. Many of the costs of the DCP were managed under other decision units. The cost of DCP budgeting and accounting, for example, was borne under DEA's Management and Administration decision unit. DEA was therefore unprepared to collect a fee recovering the full costs of a program which (a) could not be disaggregated in the DEA Accounting System (DEAAS, the automated accounting system in use at the time) and (b) was managed by several offices within the agency. Yet, with the passage of the 1993 Appropriation DEA was obliged to develop a new estimate of total DCP cost, including costs of the program not previously budgeted under the Drug and Chemical Diversion Control Decision Unit.

To achieve such a first-time, full cost estimation of the DDCFA-funded portion of the DCP, DEA assigned each object group (or general cost element, such as salaries, benefits, training etc.) a budgeted cost based on the ratio of projected DDCFA workyears (one workyear equals 2,080 hours worked by an individual) to projected Salary and Expense Appropriation (S&E) workyears. The budgeted cost of items intended for both DCP and non-DCP use (e.g., utilities, postal expenses, office services, and furniture) was prorated between DDCFA and the S&E account in proportion to the ratio of projected DDCFA workyears to projected S&E workyears. The budgeted cost of such dedicated DCP activities as the Administrative Law Judges' office, on the other hand, was assigned entirely to the DDCFA because 100 percent of that office's activities were related to drug diversion control at that time. When DEA prepared the initial estimate of FY94 DDCFA cost, budgeted DDCFA workyears totaled 555, in comparison with 6,602 total budgeted DEA workyears. The ratio of DDCFA workyears to total DEA workyears, accordingly, was 8.31 percent (555 divided by 6,602). DEA also prorated payroll costs and non-foreign space rent and alterations in proportion to the projected workyears billable to the DDCFA as a percentage of DEA's total projected workyears.

The amount DEA originally projected as the total operating cost of the DCP for FY94 was $62,917,000. Yet this estimate included the cost of "chemical" diversion control: the regulation and monitoring of activity involving chemicals used in the illicit manufacture of controlled substances and the investigation of the diversion of these chemicals. Because DEA had independently determined not to fee-fund the cost of "chemical" diversion control, it reduced its request for DDCFA obligating authority (and thereby its minimum fee revenue target) to $57,123,000. The remaining $5,794,000 of the DCP's projected FY94 cost fell under the modified (and still S&E-funded) Chemical Diversion Control Decision Unit.

DEA's original estimation of the DDCFA-billable portion of the DCP was, if anything, too conservative, especially inasmuch as it did not capture a significant non-programmatic item. In addition to the direct program elements discussed in the December 30, 1996 Federal Register announcement and outlined above, DEA must transfer the first $15 million of fee revenue to the General Fund of the Treasury each year. 21 U.S.C. 886a(1). DEA's failure to include this surcharge (which is not driven by the number of DCP employees and is therefore not captured in DEA's DCP cost modules) in its calculation of the DDCFA fee did not impede cash flow until FY99, however, because Congress had appropriated an offsetting $15 million supplement to the DDCFA for every year from FY93 (the year of the DDCFA's inception) through FY98. Indeed, because of the offsetting appropriation of $15 million from FY93 through FY98 (a total infusion to the DDCFA of $90 million), the DDCFA had spent $21 million more than its cumulative revenue but was still showing a $69 million surplus ($90 million minus $21 million) in FY99. The DDCFA surplus, even at its peak of $69 million in FY99, in other words, was artificial and predicated on a supplemental appropriation not provided for in 21 U.S.C. 886a.

The DDCFA's actual cash flow has turned negative with (a) the discontinuation of the $15 million supplemental appropriation in FY99 and (b) the growth of DCP responsibilities. Some DCP growth has been reflected in DEA budget submissions, as when DEA requested and received authority (in FY97) to create Tactical Diversion Squads (TDSs) in various field locations. Other DCP expansions have not been reflected in DEA budget submissions, as when DEA implemented its initial response to internet-based drug diversion, or when DEA increased the number of drug diversion cases leading to arrest. (The number of diversion arrests more than doubled in just five years, from 444 arrests in FY95 to 935 diversion arrests relating to drug cases alone in FY00.) Yet, notwithstanding such growth due to both budgeted and unbudgeted DCP expansions, DEA has not increased the fee supporting the DDCFA since FY93.

In the meantime, DEA has also faced a management challenge extending beyond the DDCFA. Before Fiscal Year 1998 (FY98), DEA relied upon DEAAS. DEAAS was adequate for the purposes of a law enforcement organization with a single funding source and streamlined agenda, but as both enforcement and diversion control mandates began to expand in the 1990s (and in order to comply with laws requiring auditable financial statements) DEA replaced DEAAS with a better-suited accounting system.

The replacement, DEA's current Federal Financial System (FFS), is more flexible and has enabled DEA to track all obligations and expenditures (not merely those incurred under the DDCFA) through a greater variety of cost centers and programs. But this improved accounting capability was not available until FY98. Prior to FY98, a deficiency of accounting controls throughout DEA's management structure resulted in the inadequate tracking of all DEA funds--not just the DDCFA. For FY97 and before, accordingly, DEA's annual independent financial audit resulted in an unsatisfactory opinion of DEA's accounts and financial statements. Yet even in FY93 DEA attempted to comply with the law establishing the DDCFA.

XI. Accumulation and Distribution of Surplus

Each of the five commentors addressed the surplus, with all but one asserting that DEA must either issue a refund to the fee-paying registrants or reduce future fees. As noted in the December 1996 Federal Register notice, this surplus (or positive cash balance) began to accrue shortly after the establishment of the DDCFA. The surplus totaled $45 million as of September 1996 and had risen to $69 million by February 1999. Note in the table below that the bottom line "Carryover" figure represents the DDCFA surplus at the end of a given fiscal year. This surplus grew through FY98 (the last fiscal year during which DEA received a supplemental $15 million appropriation for the DDCFA) and has declined through the present. Because the surplus is expected to become a deficit shortly after the end of FY02, there are no funds to support a

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refund to registrants, as all remaining DDCFA funds will be expended.

Drug Enforcement Administration Diversion Control Fee Account (DDCFA)
[Cash flow summary (dollars in thousands)]

  FY93  FY94  FY95  FY96  FY97  FY98  FY99  FY00  FY01  FY02 
(Est.)
FY03
(Est.)
DDCFA Authority \1\ 12,000 42,123 57,178 62,188 67,824 73,268 76,710 80,330 83,543 86,021 \2\116,462
Carry over from Prior Year .........  7,201 28,939 37,230 45,284 61,724 69,313 53,168 44,699 36,072 10,018
Rescinded Authority ........  .........  .........  .........  .........  .........  (7,000) (35,000) (8,000) .........  ...........
Net Carryover \3\ .........  7,201 28,939 37,230 45,284 61,724 62,313 18,168 36,699 36,072 10,018
Revenue:                      
   Collections \4\ 19,201 69,609 61,258 65,160 75,003 69,668 69,301 75,232 75,099 74,967 74,967
   Supplemental Appropriation. 15,000 15,000 15,000 15,000 15,000 15,000 .........  .........  .........  .........  ...........
   Less: General Treasury Surcharge (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000)
   Net Revenue 19,201 69,609 61,258 65,160 75,003 69,668 54,301 60,232 60,099 59,967 59,967
Obligations:                      
   Gross Obligations \4\ 12,000 47,871 53,294 57,106 61,951 62,961 71,772 74,121 77,272 86,021 116,462
   Adjustments & Deobligations .........  .........  (327) .........  (3,388) (882) (1,326) (5,420) (8,546) .........  ...........
   Net Obligations 12,000 47,871 52,967 57,106 58,563 62,079 70,446 68,701 68,726 86,021 116,462
Fiscal Year End Balance 7,201 28,939 37,230 45,284 61,724 69,313 46,168 9,699 28,072 10,018 (44,795)
   Restored Authority .........  .........  .........  .........  .........  .........  7,000 35,000 8,000 .........  ...........
   Carryover 7,201 28,939  37,230 45,284 61,724 69,313 53,168 44,699 36,072 10,018 (44,795)

\1\ Estimate of DDCFA-funded program is provided to Congress two years before execution and is subsequently authorized (but not appropriated).
\2\ The collection of $116,462 in FY03 will require prior implementation of a revised fee structure.
\3\ Carryover equals the Unobligated Balance shown on the final FMS Form 2108, after release of which Adjustments & Deobligations are shown in the subsequent year.
\4\ Gross Obligations and Collections are based on DEA's most recent Financial Management System (FMS) Form 133, prior to availability of which an estimate is provided.

A second series of tables on subsequent pages, entitled "Validated vs. Actual DCP Program Charges to the DDCFA", shows the accumulation and subsequent depletion of the DDCFA surplus.

The commentors stated that in (ostensibly) failing to project the costs of the DCP accurately, DEA overestimated initial program costs and calculated an excessive fee, which resulted in a significant surplus. Yet, rather than overestimating DCP costs, DEA appears, as discussed above, to have underestimated such costs drastically. DEA has followed the OMB-approved DOJ Instructions for the Preparation of Budget Estimates to project future DCP costs from the inception of the DDCFA through the present. Indeed, for all fiscal years since FY93, DEA's programmatic requirements of the DDCFA are defended in this section, below. Unfortunately, DEA has not charged the DDCFA for all fee-fundable costs, including the mandated annual $15 million transfer to the General Treasury. Thus the surplus accumulated between FY93 and FY98 was attributable not to overestimations of future DDCFA need but to subsequent underbilling of actual DDCFA-fundable activity and costs.

Perhaps confusingly, DEA's general underbilling of the DDCFA has accompanied occasional instances of DDCFA overcharge within a particular cost category. In FY96, for example, rent charges to the DDCFA appear to have exceeded a reasonable amount by at least $2.1 million. Yet for the same year DEA's estimate of valid DDCFA information technology charges (e.g. for Diversion Investigators' desktop computers, as distinct from network infrastructure charges provided for under DEA's Salaries and Expenses appropriation) is greater than actual DDCFA information technology charges by $3.3 million. DEA appears to have overcharged the DDCFA for rent in FY96, in other words, but other allowance centers were undercharging the DDCFA to an even greater degree during the same period.

A particular area of confusion between legitimate and illegitimate uses of the DDCFA has been the boundary separating "chemical" from "non-chemical" DCP activities. This boundary crosses through a range of cost categories, from payroll to training. In its 1993 Federal Register notice, and during the course of the AMA v. Reno litigation, DEA stated it was not charging the costs of enforcing the Chemical Diversion and Trafficking Act to the DDCFA. DEA has since discovered these statements to have been in error. DEA has identified numerous examples of chemical costs erroneously charged to the DDCFA and of DDCFA-fundable items erroneously charged to the Chemical Decision Unit. Such errors resulted from a failure in some DEA offices to understand (and therefore implement) internal directives to use multiple fund sources for obligations with both a chemical and a non-chemical purpose. Because the errors resulted from a failure of understanding, however, they resulted, in turn, in mischarges to both the DDCFA and to the appropriation for the Chemical Decision Unit. The analysis presented below was performed in order to quantify the full extent of such funding errors and to determine whether there was any net overcharge to the DDCFA.

Before FY00, a common cause of chemical mischarges was erroneous "split-funding." Items purchased in support of the entire DCP--for both chemical and non-chemical activities--were not consistently prorated by purpose (i.e., "split-funded") until FY00. Such items (including photocopiers and automobile repairs) should have been charged to the DDCFA in proportion to the ratio of non-chemical to chemical activity, but such "split funding" was not effectively instituted (despite earlier guidance) until FY00. The analysis below takes these and other DDCFA mischarges into account by imputing a legitimate DDCFA burden based on workyear consumption. The results of this calculation suggest that DDCFA overcharges are more than offset by DDCFA undercharges.

DEA has acted in good faith to address and resolve accounting and managerial deficiencies connected with both the DDCFA and other programs. The replacement of DEAAS with FFS arose not just from DDCFA challenges but also from the need to isolate the cost of such major appropriation-funded DEA programs as Source Country Interdiction and Mobile Enforcement Teams. To validate DDCFA charges

[[Page 52002]]

under the abandoned DEAAS system, DEA has performed two independent retrospective analyses of actual DDCFA billings since FY93. Both of these analyses have confirmed (a) that DEA's original projections of DDCFA need (as presented to Congress and subsequently used as the basis for fee collections) were overly conservative and (b) that the DEA also should have charged the DDCFA more in the aggregate for every year through FY00.

DEA began its first analysis with a calculation of the ratio of DDCFA to non-DDCFA work years consumed. Only domestic, non-chemical DCP work years (as broken out in DEA's budget submissions to Congress) were included in this calculation. These work years correspond to DCP positions assigned to drug diversion control efforts. DEA multiplied the resulting ratio by non-DDCFA actual expenditures (a figure also provided in DEA's Congressional budget submissions and consistently greater than 90 percent of DEA's total expenditures). The resulting total for FY93 through FY00, $672,745,000, was then multiplied by 67 percent to reflect the relatively lower cost of a DEA Diversion Investigator (the core position supporting DEA's DDCFA-funded activities) in comparison with a DEA Special Agent (the core position supporting DEA's appropriation-funded activities). The result of this last calculation was $449,227,000: $8,129,000 more than the $441,098,000 actually charged to the DDCFA for FY93 through FY00. This calculation is not a traditional budget estimation technique, yet it corroborates the actual charges originally provided for in the official budget process. It answers the commonsense question, "What if DEA had never developed a DCP budget: was the money spent from the DDCFA proportional to the number of Diversion Investigators assigned to drug diversion control efforts?" The resulting estimate of total drug diversion control cost is approximately $8 million greater than the actual charges to the DDCFA (as recorded in DEA's accounting system) during the same period, even before adding the $15 million annual surcharge (required transfer to the U.S. Treasury).

This first analysis addresses the possibility of DDCFA overcharges at the bottom line. The analysis assigns all DEA costs to one of two categories (DDCFA or non-DDCFA) based on the number of work years reported for each category. This analysis leaves untested the cost elements adding into the bottom line. To validate these components, DEA designed a second test of the DDCFA charges in FFS for FY99. In this second diagnostic, DEA met with each headquarters office holding DDCFA obligation authority and verified actual procedures and obligations. DDCFA obligations found not to comport with DEA's announcements in the Federal Register were removed from the obligating office's validated total, while DDCFA charges provided for (but not made because of accounting and managerial errors) in the same announcements were added. For field offices, whose authority to obligate DDCFA funds is limited, the principle problem identified was a failure to split-fund (i.e., draw a proportional amount from more than one fund source for a single item) non-travel items.

DEA next sought to extend this analysis of FY99 FFS data back to the beginning of the DDCFA (in FY93). To develop this extrapolation, DEA identified actual drug diversion control work hours stored in the Workhour Reporting System (WRS, a system tracking both the drug diversion control and chemical diversion control work hours reported by Diversion Investigators on DEA Form 351) and the wage and non-wage cost inflators reported to Congress in each fiscal year's budget request. DEA then projected valid DDCFA charges in reverse for FY93 through FY98 by carrying the directly validated FY99 data backward and adjusting for inflation and WRS data in each year. Finally, DEA compared this retrospective projection with the certified actual accounting data stored for the same fiscal years and offices.

The result was striking. In every year of this analysis, the actual DDCFA charges recorded in DEA's accounting system are significantly lower than what an inflation-adjusted, workhour-proportional projection generates. In the earlier years (FY93 through FY95), the difference is greater than $40 million per year. Later, as DEA began to make further legitimate use (even after invalidation of selected misuses) of the DDCFA, this annual difference recedes to just over $16 million. But in every year, DEA undercharged the DDCFA to a greater degree, and in more allowance centers, than the total of particular overcharges ultimately identified. The tables showing the results of this analysis follow.

Validated vs. actual DCP program charges to the DDCFA--Item  Validated Obligated/
incurred
Undercharge (overcharge)
  Fiscal year 1993
Diversion Control Work Hours ..............   274,960 ..............  
Drug Diversion Control Work Hours ..............   253,946 ..............  
Split-Funding Drug Portion ..............   92% ..............  
Wage Inflation Factor Used for DEA Budget ..............   2.0% ..............  
Non-wage Inflation Factor Used for DEA Budget ..............   2.6% ..............  
  ================ ================ ================
Payroll/Benefits 20,736,431 12,000,000 8,736,431
Rent/Utilities 6,982,552   6,982,552
DCP Management 3,787,819    3,787,819
Information Systems 3,214,756   3,214,756
Staff Relocation 2,197,040   2,197,040
Field Operations 1,187,364   1,187,364
Staff Training 912,791   912,791
Investigative Tech 791,779   791,779
Facility Security 531,529   531,529
Health Services 161,259   161,259
Forensic Sciences  140,117   140,117
Interest Penalties 71,552   71,552
Administrative Law 40,297   40,29
Total 40,755,287 12,000,000 28,755,287
  =============== ================ ================

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Validated vs. actual DCP program charges to the  DDCFA--Item  Validated Obligated/
incurred
Undercharge (overcharge)
Field Split-Funding Mischarges (NonTravel) ..............  ..............  .............. 
Net Undercharge (Overcharge) ..............  ..............  28,755,287
Cumulative Net DDCFA Undercharge from FY93 ..............  ..............  28,755,287
  Fiscal year 1994
Diversion Control Work Hours ..............  493,982 .............. 
Drug Diversion Control Work Hours ..............  466,200 .............. 
Split-Funding Drug Portion ..............  94% .............. 
Wage Inflation Factor Used for DEA Budget ..............  2.0% .............. 
Non-wage Inflation Factor Used for DEA Budget ..............  2.6% .............. 
  =============== =============== ===============
Payroll/Benefits 38,829,816 30,681,201 8,148,615
Rent/Utilities 13,152,027 12,662,303 489,724
DCP Management 7,134,570 752,964 6,381,605
Information Systems 6,055,172 546,115 5,509,057
Staff Relocation 4,138,249 483,060 3,655,188
Field Operations 2,236,466 1,298,223 938,242
Staff Training 1,719,293 449,291 1,270,002
Investigative Tech 1,491,360 1,068,591 422,769
Facility Security 1,001,165 451,073 550,092
Health Services 303,740 67,957 235,783
Forensic Sciences 263,919 ..............  263,919
Interest Penalties 134,773  ..............  134,773
Administrative Law 75,901  56,760  19,141
Total 76,536,451 48,517,539 28,018,912
Field Split-Funding Mischarges (NonTravel) ..............  ..............  46,723
Net Undercharge (Overcharge) ..............  ..............  27,972,188
Cumulative Net DDCFA Undercharge from FY93 ..............  ..............  56,727,475
  Fiscal year 1995
Diversion Control Work Hours ..............  485,937 .............. 
Drug Diversion Control Work Hours ..............  461,089  .............. 
Split-Funding Drug Portion ..............  94% .............. 
Wage Inflation Factor Used for DEA Budget ..............  2.0% .............. 
Non-wage Inflation Factor Used for DEA Budget ..............  2.6% .............. 
  =============== =============== ===============
Payroll/Benefits 39,172,203 29,874,828 9,297,375
Rent/Utilities 13,346,044 13,616,909 (270,865)
DCP Management 7,239,818 1,003,812 6,236,006
Information Systems 6,144,497 1,943,983 4,200,514
Staff Relocation 4,199,295 1,833,917 2,365,379
Field Operations 2,269,458 1,665,859 603,598
Staff Training 1,744,656 534,204 1,210,452
Investigative Tech 1,513,361 1,070,050 443,311
Facility Security 1,015,934 480,750 535,184
Health Services 308,221 109,170 199,051
Forensic Sciences 267,812 ..............  267,812
Interest Penalties 136,761 ..............  136,761
Administrative Law 77,021 69,721 7,300
Total 77,435,081 52,203,202 25,231,878
Field Split-Funding Mischarges (NonTravel) ..............  ..............  57,293
Net Undercharge (Overcharge) ..............  ..............  25,174,585
Cumulative Net DDCFA Undercharge from FY93 ..............  ..............  81,902,060
  Fiscal year 1996
Diversion Control Work Hours ..............  468,677 .............. 
Drug Diversion Control Work Hours ..............  430,032 .............. 
Split-Funding Drug Portion ..............  92% .............. 
Wage Inflation Factor Used for DEA Budget ..............  2.2% .............. 
Non-wage Inflation Factor Used for DEA Budget ..............  3.0% .............. 
  ============= ============= =============
Payroll/Benefits 37,337,472 31,120,120 6,217,352
Rent/Utilities 12,820,525 14,921,408 (2,100,883)
DCP Management 6,954,740 1,083,346 5,871,394
Information Systems 5,902,548 2,602,958 3,299,591
Staff Relocation 4,033,942 1,759,553 2,274,389
Field Operations 2,180,095 1,822,990 357,104
Staff Training 1,675,958 1,026,738 649,220
Investigative Tech 1,453,770 1,287,820 165,950

[[Page 52004]]

Validated vs. actual DCP program charges to the  DDCFA--Item  Validated Obligated/
incurred
Undercharge (overcharge)
Facility Security 975,930 442,216 533,714
Health Services 296,084 141,197 154,887
Forensic Sciences 257,267 ..............  257,267
Interest Penalties 131,376 32,374 99,002
Administrative Law 73,988 43,659 30,329
Total 74,093,694 56,284,378 17,809,316
Field Split-Funding Mischarges (NonTravel) ..............  ..............  107,017
Net Undercharge (Overcharge) ..............  ..............  17,702,299
Cumulative Net DDCFA Undercharge from FY93 ..............  ..............  99,604,360
  Fiscal Year 1997
Diversion Control Work Hours ..............  443,458 .............. 
Drug Diversion Control Work Hours ..............  397,002 .............. 
Split-Funding Drug Portion ..............  90% .............. 
Wage Inflation Factor Used for DEA Budget ..............  3.0% .............. 
Non-wage Inflation Factor Used for DEA Budget ..............  3.1% .............. 
  ============= ============= =============
Payroll/Benefits 35,503,736 31,009,637 4,494,099
Rent/Utilities 12,202,713 14,358,276 (2,155,563)
DCP Management 6,619,596 4,649,140 1,970,455
Information Systems 5,618,109 4,655,344 962,765
Staff Relocation 3,839,549 2,180,000 1,659,549
Field Operations 2,075,037 1,987,268 87,770
Staff Training 1,595,195 1,534,400 60,794
Investigative Tech 1,383,714 628,795 754,919
Facility Security 928,901 560,178 368,723
Health Services 281,816 146,499 135,317
Forensic Sciences 244,869 ..............  244,869
Interest Penalties 125,045 ..............  125,045
Administrative Law 70,422 242,833 (172,410)
     Total 70,488,701 61,952,370 8,536,332
Field Split-Funding Mischarges (NonTravel) ..............  ..............  133,277
Net Undercharge (Overcharge) ..............  ..............  8,403,054
Cumulative Net DDCFA Undercharge from FY93 ..............  ..............  108,007,414
  Fiscal year 1998
Diversion Control Work Hours ..............   501,861 ..............  
Drug Diversion Control Work Hours ..............   386,771 ..............  
Split-Funding Drug Portion ..............   77% ..............  
Wage Inflation Factor Used for DEA Budget ..............   3.1% ..............  
Non-wage Inflation Factor Used for DEA Budget ..............   2.8% ..............  
  ============== ================ ================
Payroll/Benefits 35,661,034 36,426,300 (765,266)
Rent/Utilities 12,221,111 13,926,300 (1,705,189)
DCP Management 6,629,576 3,209,600 3,419,976
Information Systems 5,626,580 3,092,800 2,533,780
Staff Relocation 3,845,338 1,949,900 1,895,438
Field Operations 2,078,166 2,316,600 (238,434)
Staff Training 1,597,600 921,700 675,900
Investigative Tech 1,385,800  200,300 1,185,500
Facility Security 930,301 1,060,900 (130,599)
Health Services 282,241 118,600 163,641
Forensic Sciences 245,238 ..............  245,238
Interest Penalties 125,233 ..............  125,233
Administrative Law 70,529 95,800  (25,271)
     Total 70,698,748 63,318,800 7,379,948
Field Split-Funding Mischarges (NonTravel)     324,747
Net Undercharge (Overcharge)     7,055,201
Cumulative Net DDCFA Undercharge from FY93     115,062,615
  Fiscal year 1999
Diversion Control Work Hours   484,083  
Drug Diversion Control Work Hours   386,171  
Split-Funding Drug Portion   80%  
Wage Inflation Factor Used for DEA Budget   3.0%  
Non-wage Inflation Factor Used for DEA Budget   2.1%  
       
Payroll/Benefits 36,673,884 38,484,803 (1,810,919)

[[Page 52005]]

Validated vs. actual DCP program charges to the  DDCFA--Item  Validated Obligated/
incurred
Undercharge (overcharge)
Rent/Utilities 12,458,398 16,111,600 (3,653,202)
DCP Management 6,758,297 6,402,810 355,487
Information Systems 5,735,826 3,831,504 1,904,322
Staff Relocation 3,920,000 1,397,306 2,522,694
Field Operations 2,118,516 2,895,754 (777,238)
Staff Training 1,628,619 1,139,564 489,055
Investigative Tech 1,412,707 11,549 1,401,158
Facility Security 948,364 ..............  948,364
Health Services 287,721 121,800 165,921
Forensic Sciences 250,000 249,861 139
Interest Penalties 127,665 149,517 (21,852)
Administrative Law 71,898 71,898 (0)
     Total 72,391,895 70,867,965 1,523,930
Field Split-Funding Mischarges (NonTravel) ..............  ..............  438,812
Net Undercharge (Overcharge) ..............  ..............  1,085,118
Cumulative Net DDCFA Undercharge from FY93 ..............  ..............  116,147,733

The preceding tables of "Validated vs. Actual Charges" show three quantitative columns for each fiscal year from FY93 through FY99. The first quantitative column shows the "Validated" amount, or the dollars that should have been charged (in accordance with the aforementioned itemized review of all FY99 DDCFA charges) to the DDCFA. The second quantitative column shows the "Obligated/Incurred" amount, or the dollars which actually were charged to the DDCFA. (Note that, given the deficiencies of DEAAS, this column does not necessarily reflect the accurate subtotal of each item listed; but the column does show exactly what was spent bottom line level for the years in question.) The third column (the first column minus the second column) shows the "Undercharge (Overcharge)" amount or dollars that should have been charged over and above what was charged to the DDCFA. The rows of the preceding tables represent the DCP's major items, from Payroll/Benefits to Regulatory Law. Two item names which may not be immediately self-evident are "Interest Penalties" (which are required by law to accompany late vendor payments) and "Administrative Law" (which, as distinct from the DEA executive administration chief counsel's office, is the independent function required under 21 CFR 1316.41 et seq. whereby DEA hears and resolves disputes regarding potential registrant violations).

For each fiscal year, the "Validated" charges shown above are adjusted to reflect (a) the wage and non-wage inflation factors for that year (shown at the top of each table) and (b) the ratio of Drug Diversion Control Work Hours to Diversion Control Work Hours, or Split-Funding Drug Portion (also shown at the top of each table). Note that adjustment (b) is based on work hours stored in WRS (DEA's system for tracking the purpose (drug or chemical) of Diversion Investigator hours worked). Thus, in FY93, DEA charged the DDCFA $12 million for salaries and benefits but did not bill the DDCFA for DCP administrative law functions, even though the cost of such functions is provided for in DEA's 1996 Federal Register announcement. When all such undercharges (together with consideration that FY93 payroll should have been over $20 million) are tallied, the result is a DDCFA undercharge exceeding $28 million in FY93 alone, even before adding the non-programmatic $15 million surcharge for that year.

While DEA is confident that the DDCFA was not overcharged in total between FY93 and the present, the agency is still moving toward a more precise accounting standard. In FY01 DEA created a task force to review each obligation of DDCFA funds for which the total cost to be incurred is $500 or greater. This task force also works closely with each DDCFA-funded office to establish a clear understanding of proper procedure and documentation, and its efforts will enable DEA to publish a more accurate accounting of total DCP costs than has heretofore been possible.

In the meantime, the $15 million annual offsetting transfer by Congress into the DDCFA was discontinued as of FY98, and the remaining revenue (from fee payments) is proving inadequate to address legitimate programmatic needs. Even during the period when Congress was providing an offsetting $15 million transfer (FY93 through FY98), the DCP received a cumulative funding supplement of $90 million but amassed a surplus which never exceeded $70 million. With the discontinuation of this supplement in FY99, the DDCFA surplus has declined rapidly and will turn deficit before the end of FY03.

XII. Status of the Current Fee

This notice does not change the current fee schedule, and the fee schedule currently supporting the DCP remains the same as the schedule announced at the inception of the DDCFA in 1993:

Registrant class Annual cost
Manufacturers $875
Distributors, Importers/Exporters 438
Dispensers/Practitioners 70
Research, Narcotic Treatment Programs 70

XIII. Miscellaneous Issues

A. Registration Fee as User Fee

One commentor stated that registration fees imposed on domestic registrants should not fund "international and other activities from which the registrant receives no greater benefit than the public at large." Yet DEA does not fund the costs of Diversion personnel stationed overseas through the DDCFA although certain overseas activities such as those relating to the import and export of controlled substances satisfy the requirements of 886a and 821 and are properly funded through the DDCFA. In addition, certain other activities from which "the registrant receives no greater benefit than the public at large" (e.g., the review for potential scheduling of new substances) are allowable DDCFA burdens. The commentor referred to the standard applicable to user fees. User fees, or charges imposed pursuant to the Independent Offices Appropriations Act (IOAA), may be assessed only when a fee-funded service provides special benefits to an identifiable recipient

[[Page 52006]]

beyond those that accrue to the general public. OMB Circular A-25, July 15, 1993. The IOAA applies "only when there is no independent statutory source for the charging of a fee or where a fee statute fails to define fee-setting criteria." AMA v. Reno, 857 F. Supp. at 84 (D.D.C. 1994). Congress established the DDCFA by passing the 1993 Appropriations Act with its collection and spending criteria established by prior law (21 U.S.C. 821 and 958(f)). This statute specified that "[f]ees charged by the Drug Enforcement Administration under its diversion control program shall be set at a level that ensures the recovery of the full costs of operating the various aspects of that program" and funds from the DDCFA will be raised "in accordance with estimates made in the budget request of the Attorney General." 21 U.S.C. 886a(3) and (4). Therefore, registration fees charged by DEA pursuant to the 1993 Appropriations Act are not user fees subject to the IOAA because the act constitutes an independent statutory source for charging the fee and it defines fee-setting criteria, i.e., to cover the full costs of the DCP. AMA v. Reno, 857 F. Supp. 80 (D.D.C. 1994).

Thus, the appropriate test for fee-funding DCP activities is not whether they convey a special benefit to registrants, but whether the fees are "reasonable" and "relat[e] to the registration and control of the manufacture, distribution, and dispensing of controlled substances" or relate to the registration of importers and exporters, and are set "at a level that ensures the recovery of the full costs of operating the various aspects of [the diversion control] program." 21 U.S.C. 821, 958(f) and 886a(3).

B. Costs of the Components of the DCP

Two commentors contended that DEA should have provided an explanation of the costs of the DCP components. One commentor argued that registrants are entitled to an accurate accounting of the expenses for each of the program's components and demanded that DEA publish an explanation of its expenditures. Another commentor asked that DEA document the comparative costs of activities included within the DCP and subject the proposed rule to review by OMB.

DEA acknowledges both commentors' concerns and has referred all parties of such a mind to DEA's annual budget request to Congress. This document breaks down the components of each DEA program, including the DCP, and shows both prior-year actual data and future-year projections. For budget submissions relating to FY98 and earlier, DEA retains little, and sometimes no, supporting documentation and is therefore unable to provide some of the cost detail. Yet each DEA budget is based on itemized cost modules which were developed using the most recent (i.e., best) accounting data available at the time. And the review of each DEA budget submission by both the Department of Justice and OMB includes a thorough examination and approval of the underlying cost modules and all other supporting documentation.

C. Fee Schedules Based on Prescribing Practices

One commentor expressed disappointment "at DEA's refusal to establish a fair and equitable fee schedule based on actual prescribing or use records." DEA addressed this issue in the December 30, 1996 Federal Register notice, noting the various alternative fee structures that it had considered and the problems associated with each. 61 FR 68632. As DEA stated in that notice, establishing a fee based on the volume of drugs handled by individual practitioners would be impractical since there is no way of determining such drug volumes. In addition, the volume of drugs handled can change due to considerations of market, health care, and competition, thus requiring frequent changes in the fees and making program budgeting impractical. Whatever benefit such a plan may offer would be offset by significantly increased costs, which must be borne by registrants, to monitor the prescribing and dispensing practices of practitioners and determine the appropriate fee, based on the volume of drugs prescribed or dispensed.

XIV. Conclusion

Since FY93, DEA has attempted to manage the DCP in compliance with the following statutes: 21 U.S.C. 821 (which authorizes reasonable fees relating to the registration and control of the manufacture, distribution and dispensing of controlled substances); 21 U.S.C. 958(f) (which authorizes reasonable fees relating to the registration of importers and exporters of controlled substances); and 21 U.S.C. 886a(3) (which requires a fee structure sufficient to recover the full costs of operating the DCP). Such management has included: (a) the submission to Congress of a DCP budget based on historic actual costs, in accordance with both DOJ and OMB guidelines and (b) the internal promulgation of guidelines governing the uses of the DDCFA. 

DEA has endeavored to avoid charging the DDCFA for three categories of DCP cost: (1) Costs associated with the regulation and monitoring of activity involving chemicals used in the illicit manufacture of controlled substance and the investigation of the diversion of these chemicals; (2) costs associated with the stationing of Diversion personnel overseas; and (3) portions of the DCP's indirect cost. Of these three cost categories, the first two (chemical and foreign diversion control activities) may be included in future Congressional requests for DDCFA funding authority. The third category includes DCP items which should have been (and, as of FY01, have indeed been) obligated against the DDCFA. Specifically, these items consist of health services and physical security requirements connected with DCP operation. Although DEA did not begin charging the DDCFA for such items until FY01, their funding out of the DDCFA is consistent with the provisions of 21 U.S.C. 821, 21 U.S.C. 886a, and all applicable public representations of DEA.

Yet DEA has also mischarged the DDCFA on numerous occasions. Some mischarges have been simple overcharges, as when DEA charged an excessive portion of its rent to the DDCFA. In such cases, DEA was correct to charge a portion of the total cost to the DDCFA; but the amount charged appears in retrospect to have been unreasonably high. Other mischarges fall into the "inappropriate" category. Such charges were explicitly proscribed either in 21 U.S.C. 886a or in DEA's subsequent public announcements.

DEA regrets being unable to itemize each instance of excessive and inappropriate charge to the DDCFA. DEA retains a full, certified public accounting record of all DDCFA charges, but the underlying documentation is largely unavailable and/or insufficient for the period in question. DEA's best effort to analyze this period in retrospect has nevertheless revealed two important insights: (1) DEA's FY93-FY98 accounting shortfall regarding the DDCFA resulted from a lack of familiarity with the funding mechanism and its managerial/accounting implications, and (2) the sum of all retrospectively identifiable potential mischarges is exceeded by the sum of all corresponding undercharges. DEA therefore acknowledges a failure in fully accounting for its early use of the DDCFA but concludes that such failure had no adverse impact on the registrants. With every year since the DDCFA's inception, DEA has improved its management of this vital source of

[[Page 52007]]

funds. DEA has made accounting errors, especially early on, when the very idea of a fee fund was new and unfamiliar to the law enforcement organization. But such errors have proven, upon subsequent inspection, both unintentional and financially offset by other errors. The accumulation of a DDCFA surplus, moreover, resulted not because DEA's cost projection and fee setting method was overly generous but because DEA's subsequent charges to the DDCFA did not include all actual DDCFA-billable costs of the DCP and because of an unexpected supplemental annual appropriation of $15 million by Congress. In light of such errors, DEA has intensified its efforts to transform the DDCFA from a management problem into the platform for a higher standard of managerial excellence. Beginning with FY99, DEA has retrospectively reviewed each office's use of the DDCFA to verify propriety. In FY01, DEA proceeded to validate (or reverse) each obligation of DDCFA funds totaling $500 or more. And in FY02, DEA will be validating both obligations and subsequent expenditures according to the highest standard of traceability. For these latest years, any auditor will be able to find a stand-alone document supporting every DDCFA-funded item costing $500 or more.

XV. Regulatory Analysis

Regulatory Flexibility Act

The Deputy Administrator of the Drug Enforcement Administration hereby certifies that this rule will not have a significant economic impact upon entities whose interests must be considered under the regulatory Flexibility Act (5 U.S.C. 601 et seq.). The majority of DEA registrants are practitioners, pharmacies and hospital/clinics, for whom the annual impact of the fee increase initially finalized on March 22, 1993 (58 FR 15272) was $50.00 per registrant. Further, the total annual impact of the fee increase for the entire registrant population was less than $50 million.

Since 1971, the Controlled Substances Act has permitted the Attorney General to collect fees relating to the registration and control of the manufacture, distribution, import, export and dispensing of controlled substances (21 U.S.C. 821 and 958(f)). DEA and its predecessor agency have collected such fees pursuant to a schedule based upon the five basic activities cited in the law. That fee schedule was proposed for public comment as part of regulations to implement the Controlled Substances Act which were finalized in 1971. The ratio of fees was: a distributor's fee is 50% of the manufacturer's fee and a dispenser's 16-20% of a distributor's fee.

In its December 30, 1996 Federal Register notice (61 FR 68624), DEA considered a number of alternate approaches to the fee schedule. Among these alternative were: establish a fee based on volume of drugs handled by individual registrants; establish a fee based upon DEA work hours expended per class of registrant; establish a different fee for various types of practitioner activities (i.e., hospital, medical doctor, dentist, veterinarian, narcotic treatment program, teaching institution); and, charge for order forms (DEA 222) used to order Schedule I and II controlled substances. Each of these alternative approaches was rejected for a variety of reasons, including, but not limited to, the impracticability of the alternative, an inability on the part of DEA to determine controlled substance utilization by individual registrants, and an inability to adequately budget due to fluctuating registration fees which would be created under certain alternatives. Therefore, although various fee approaches have been considered in the past, none offered a feasible alternative to the present approach.

Executive Order 12866

The Deputy Administrator further certifies that this rulemaking has been drafted in accordance with the principles in Executive Order 12866 Section 1(b). DEA has determined that this is a significant rulemaking action. Therefore, this action has been reviewed by the Office of Management and Budget. This document responds to the remand requirement of the United States Court of Appeals for the District of Columbia Circuit, and the notice and comments received subsequent to that remand
requirement.

Executive Order 12988

This regulation meets the applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988 Civil Justice Reform.

Executive Order 13132

This rulemaking does not preempt or modify any provision of state law; nor does it impose enforcement responsibilities on any state; nor does it diminish the power of any state to enforce its own laws. Accordingly, this rulemaking does not have federalism implications warranting the application of Executive Order 13132.

Paperwork Reduction Act

This rulemaking imposes no recordkeeping or reporting requirements on registrants. No information collection request is necessary.

Unfunded Mandates Reform Act of 1995

This rule will not result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more in any one year, and will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

Small Business Regulatory Enforcement Fairness Act of 1996

This rule is not a major rule as defined by Section 804 of the Small Business Regulatory Enforcement Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100,000,000 or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

Dated: July 30, 2002.

John B. Brown III,
Deputy Administrator.

[FR Doc. 02-19667 Filed 8-8-02; 8:45 am]

BILLING CODE 4410-09-P

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