Introduction

The Drug Enforcement Administration (DEA) is the primary agency for enforcing the provisions of the Controlled Substances Act that pertain to the diversion of controlled pharmaceuticals, such as narcotics, stimulants, depressants, and regulated chemicals such as ephedrine.¹¹ The DEA’s Diversion Control Program seeks to prevent, detect, and investigate the redirection of controlled pharmaceuticals and regulated chemicals from legitimate channels while ensuring an adequate, uninterrupted supply to meet legitimate needs. The Diversion Control Program is funded through registration fees that manufacturers, distributors, dispensers (such as physicians), importers, and exporters of controlled substances and certain regulated chemicals pay into an account called the Diversion Control Fee Account (Fee Account). Federal law under 21 U.S.C. § 886a(1)(C) (§ 886a) directs the DEA to set the fees “at a level that ensures the recovery of the full costs of operating the various aspects of the Diversion Control Program.”

The Office of the Inspector General (OIG) initiated this review in response to a letter from the Chairman of the Permanent Subcommittee on Investigations of the Senate Homeland Security and Governmental Affairs Committee (the Chairman).¹² The letter provided allegations the Subcommittee had received that the DEA was using Fee Account funds to pay for agency activities unrelated to the Diversion Control Program, such as funding the salaries of Special Agents and Intelligence Analysts who did not perform diversion control activities. T he allegations also stated that because of a lack of Fee Account funds, the DEA may have prohibited Diversion Investigators from working overtime and initiating travel and did not hire new Diversion Investigators. Our review assessed the validity of the allegations since fiscal year (FY) 2004, which was the first full year after the DEA created the Validation Unit within DEA headquarters to review and ensure that every Fee Account expense over $500 is related to a diversion control activity.¹³

In this report, we examine whether the DEA used funds from the Fee Account for non-diversion activities and whether the DEA fully funded its Diversion Control Program with Fee Account funds as required.

Diversion Control Program

The DEA’s Diversion Control Program has two main functions. The first is performing regulatory oversight of all registrants that provide controlled pharmaceutical products and regulated chemicals to the public to ensure that the registrants are complying with the requirements of the Controlled Substances Act. This is done through routine regulatory investigations of registered drug or chemical handlers as well as by providing information and assistance to registrants. The second function is to identify and investigate (administratively, civilly, or criminally) those persons responsible for diverting controlled pharmaceutical products and regulated chemicals from legitimate channels, whether through willfully negligent or criminal acts. This is done by conducting criminal and civil investigations.

The DEA’s diversion control activities are directed and supported from DEA headquarters, but are conducted primarily through the DEA’s field divisions. Historically, DEA’s headquarters-based diversion control activities have been largely centralized within the Office of Diversion Control. Over the last few years, the DEA has decentralized various support and operational functions, such as the planning of training and the coordinating of criminal diversion investigations, to other headquarters sections.

Diversion Control Activities Conducted at Headquarters

The Office of Diversion Control is located within the DEA’s Operations Division. The Office of Diversion Control provides policy direction, program guidance, and support to DEA diversion control staff in the field. It also coordinates all regulatory activities, such as working with registrants and other members of the chemical and pharmaceutical community to help prevent the diversion of controlled pharmaceuticals and listed chemicals. The section within the Office of Diversion Control that plays the largest role in managing Fee Account spending is the Diversion Planning and Resources Section (ODA). ODA oversees the development of budget submissions, issues Fee Account financial policies, and tracks and analyzes requests for purchases and funds distributed to DEA headquarters and field offices. ODA also manages personnel, develops administrative guidelines, and develops recruitment efforts for the Diversion Control Program.

ODA works closely with the Office of Resource Management in the DEA’s Financial Management Division to create the Diversion Control Program’s budget request and maintain the Table of Organization, a comprehensive listing of positions within the DEA offices. The Office of Resource Management analyzes diversion staffing and payroll data to determine payroll hours and staffing levels.

Diversion Control Program Structure in the Field

The DEA domestic field structure consists of 21 field divisions, each headed by a Special Agent in Charge, and 227 sub-offices located throughout the United States. Nineteen of the 21 field divisions have a Diversion Program Manager who supervises all diversion control personnel in the field division. Sixty-three of these offices and sub-offices have one or more groups of Diversion Investigators led by a diversion Group Supervisor. The DEA has also assigned Special Agents and Intelligence Analysts to assist some diversion groups. Below is a description of these positions and their roles and responsibilities:

• Diversion Investigators investigate regulatory, civil, and criminal matters pertaining to DEA registrants. They do not have law enforcement authority so they cannot perform law enforcement functions such as serving warrants, conducting surveillance, managing confidential informants, or working undercover. Diversion Investigators rely on DEA Special Agents or other law enforcement personnel to conduct tasks requiring law enforcement authority.¹⁴

• Special Agents conduct diversion investigations and assist Diversion Investigators by performing investigative tasks that require law enforcement authority such as surveillance, registering and working with confidential informants, serving search warrants, and making arrests.

• Intelligence Analysts support diversion investigations by analyzing data from wiretaps, prescription records, and interviews of confidential informants; preparing background profiles on investigative targets; and performing database checks.

The DEA created Tactical Diversion Squads in 1996. The squads conduct criminal diversion investigations and are composed of teams of Diversion Investigators, Special Agents, and state and local law enforcement personnel. Tactical Diversion Squads are currently located in five DEA field divisions: Denver, St. Louis, Houston, New Orleans, and Boston.

History of the Fee Account

In 1971, DEA’s predecessor, the Bureau of Narcotics and Dangerous Drugs, instituted a fee on registrants of controlled substances to cover the administrative costs of processing their registrations. The annual fees collected from registrants totaled about $15 million and were not intended to cover the costs to the agency of performing its diversion control activities. Instead, congressionally appropriated funds financed the bulk of the Diversion Control Program’s activities.

In October 1992, Section § 886a of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act of 1993 (Appropriations Act of 1993) established the Fee Account.¹⁵ This Act changed the funding of the Diversion Control Program beginning in FY 1993 from the DEA’s congressionally appropriated funds to fees paid by registrants, including doctors, pharmacies, hospitals, manufacturers, distributors, importers, and exporters of controlled substances. The Act stated that the DEA must set its registration fees “at a level that ensures the recovery of the full cost of operating various aspects of” the Diversion Control Program. While Congress mandated that the Fee Account be used to support the Diversion Control Program only, it did not include any specific criteria on what constituted the program. Thus, most of the specific information about what can and cannot be charged to the Fee Account is found only in notices issued by the DEA through the Federal Register.

The DEA established a registration fee schedule in a Final Rule published in the Federal Register on March 22, 1993.¹⁶ The rule stated that:

activities contained in the [diversion] program which give rise to the fees consist of Diversion Investigators, analysts, technicians, and clerical personnel salaries and expenses; and travel, rent, utilities, supplies, equipment and services associated with these positions for the registration and control of the manufacture, distribution and dispensing of controlled substances.¹⁷

The Final Rule specifically excluded costs associated with regulated chemical control efforts, clandestine laboratory efforts, Diversion Investigators assigned to foreign posts, and the DEA’s Office of Chief Counsel.

In response to the 1993 Final Rule, the American Medical Association filed a lawsuit objecting to the new fees because the Final Rule did not “provide adequate notice or explanation of the costs and scope of the Diversion Control Program to be funded through those fees.” In November 1995, the United States District Court for the District of Columbia allowed the new registration fee schedule to remain in effect, but required the DEA to identify specific components of the Diversion Control Program and explain why the components could be fee-funded.

In August 2002, the DEA published another Final Rule to describe the fee-funded components of the Diversion Control Program. The August 2002 Final Rule stated that in addition to what was included in the 1993 Final Rule, other activities were also fee-fundable, such as personnel and associated costs for the operation of two Diversion Control Program data systems known as ARCOS and CSA, and the establishment of the National Forensic Laboratory Information System and Tactical Diversion Squads.

In October 2003, the DEA published a Final Rule that increased registration fees for the first time in 10 years. As part of the justification for the increased fees, the October 2003 Final Rule described new initiatives of the Diversion Control Program, including responding to the threat of OxyContin abuse and Internet-based diversion, and upgrading ARCOS. The 2003 Final Rule also clarified activities that, while supporting the Diversion Control Program, would still be funded through congressional appropriations.¹⁸

In December 2004, the Consolidated Appropriations Act of 2005 (Pub. L. No. 108-447) amended 21 U.S.C. § 886a to define the Diversion Control Program as encompassing “the controlled substance and chemical diversion control activities” [emphasis added] of the DEA. Previously, the user fees paid by handlers of regulated chemicals covered only the costs of their registrations and some administrative oversight, while the Chemical Diversion Control Program was funded through DEA’s appropriations.

In November 2005, the DEA published a Federal Register notice that addressed the addition of the chemical diversion control activities to the program. This notice proposed expanding the range of diversion control activities that could be funded from the Fee Account to include positions for Diversion Investigators posted in overseas DEA offices; additional Special Agent and – for the first time – Intelligence Analyst positions; and portions of the Office of Chief Counsel, the Office of Forensic Sciences Special Testing Laboratory, and the Special Operations Division. The proposed fee was also to cover costs for the registration and control of the manufacturing, distribution, and dispensing of controlled substances as well as listed chemicals. This new fee structure went into effect in December 2006.

Concerns About the DEA’s Use of Fee Account Funds

Since the late 1990s, both registrants and DEA diversion control employees have raised concerns about how the DEA is using Fee Account funds. To address complaints regarding the use of the Fee Account and to better determine the cost and parameters of the Diversion Control Program, in the late 1990s the DEA took several steps to improve its management of the Fee Account. First, in 1999 the DEA created a work group made up of personnel from the DEA Office of Diversion Control and the Office of Resource Management. The purpose of the work group was to clarify what could and could not be fee-funded, complete the 2002 Final Rule to be published in the Federal Register, account for money that had been collected since the Fee Account was established, and identify the full cost of the Diversion Control Program. The work group also examined overall policy questions such as whether international activities should be paid for with the Fee Account.

At approximately the same time, in February 2000, the DEA Deputy Administrator requested that DEA’s Office of Inspections conduct an audit of charges to the Fee Account from FY 1994 through FY 2000 to determine their legitimacy and to review management controls in place to oversee the Fee Account.¹⁹ The results of this audit were never finalized, but some of the preliminary results were that the DEA:

1. did not adequately monitor costs charged to the Fee Account,

2. did not establish effective management controls after Congress required that the DEA fully fund the Diversion Control Program through registration fees in FY 1993, and

3. had no mechanism to verify salaries charged to the Fee Account.

As a result of the efforts of the work group and the Office of Inspections audit, the Deputy Administrator established a Diversion Task Force in October 2000 to review FY 1999 Fee Account charges to determine whether they were legitimate and to continue reviewing and validating obligated Fee Account funds from FY 2001 and FY 2002. In March 2003, the DEA created a permanent entity within the Office of the Deputy Administrator, Executive Policy and Strategic Planning Staff, to carry out the functions of the Diversion Task Force for all future Fee Account spending. This entity, which is independent from the Office of Diversion Control, is known as the Validation Unit. The unit is discussed later in this Background section.

Determination of the Cost of the Diversion Control Program and Registration Fees

The Controlled Substances Act requires that every entity that manufactures, distributes, or dispenses any controlled substance or certain listed chemicals obtain an annual registration. The amount of the registration fee depends on the DEA’s estimate of the total cost of operating its Diversion Control Program for a given year. In addition, the DEA must factor into the registration fee the $15 million it is required to pay the U.S. Treasury annually to cover administrative costs.²⁰ For instance, if the cost of the Diversion Control Program was estimated at $200 million for a given year, the total amount the DEA would need to collect through registration fees for that year would be $215 million.

To determine the expected operating costs for the program each fiscal year, every office within the DEA that uses Fee Account funds must estimate its expenditures for diversion control activities. The DEA refers to these estimates as “spend plans.” The spend plan is essentially a proposed budget for the fiscal year based on previous spending, planned enhancements, and any new initiatives planned for the next fiscal year. For example, a field office’s spend plan may include funding for operational activities associated with a planned investigation, such as investigation-related travel, payments to confidential informants for information, or purchasing evidence. The spend plan for a headquarters entity such as the Office of Administration may request Fee Account funds for rent, renovations, and vehicle purchases. The DEA compiles the spend plans from each office into an overall financial plan for diversion control.²¹

After the budget is completed, the DEA is able to set the fee structure based on the number of registrants. As of FY 2007, there were 1.29 million registrants.²² Eighty-one percent of registrants were medical practitioners, 11 percent were mid-level practitioners, 5 percent were pharmacies, and the remaining registrants were hospitals and clinics, researchers, teaching institutions, narcotic treatment programs, analytical laboratories, and controlled substance and regulated chemical manufacturers, distributors, reverse distributors, importers, and exporters. Table 1 presents the individual registration fees, by type of registrant, set by the DEA for FYs 1993, 2003, and 2006. Currently, certain registrants pay their fees annually and certain registrants pay their fees once every 3 years.

Table 1:  Registration Fees by Type of Registrant for FYs 1993, 2003, and 2006

Type of registrant	FY 1993 fee	FY 2003 fee	FY 2006 fee
Controlled substance manufacturer	$875	$1,625	$2,293
Controlled substance distributor, exporter, reverse distributor, or importer	$438	$813	$1,147
Medical practitioner, retail pharmacy, hospital/clinic, teaching institution, or midlevel practitioner*	$210	$390	$551
Researcher, analytical laboratory, or narcotics treatment program	$70	$130	$184
Regulated chemical manufacturer	—	—	$2,293
Regulated chemical retail distributor, importer, distributor, or exporter	—	—	$1,147

* Midlevel practitioners are nurse practitioners, nurse midwives, or physician assistants authorized by the state in which they practice to dispense controlled substances. Source: DEA

As shown in Table 1, t he DEA has increased registration fees twice since 1993.

Process for Spending Fee Account Funds

Every field division and headquarters office within the DEA that conducts or supports diversion control-related activities has an amount of Fee Account funds (called an allowance) allocated to it at the beginning of each fiscal year.²³ Each office’s allotment is based on the spend plan it developed with approval from the Office of Diversion Control for the year. The funding for most offices is front-loaded, meaning that at the beginning of each quarter the office receives one-fourth of its annual allotment of funds. This allows personnel in the office’s fiscal unit to obligate their own Fee Account expenses.

Any DEA employee can initiate a request for Fee Account funding for a purchase by submitting a request to his or her supervisor. This is referred to as a “commitment request.” Examples of commitments include a request for goods or services or travel orders. The commitment request is supposed to include a written justification for why Fee Account funds should be used. The supervisor submits the request and provides the necessary documentation to the official authorized to approve the use of Fee Account funding.²⁴ Once the proper document is signed by the authorizing official, the request is submitted to the Allowance Manager. If the Allowance Manager approves a request that is $500 or less, then the Allowance Manager submits the request to the funding office for processing and obligation.²⁵ Once the commitment request is recorded in the Federal Financial System (FFS), it becomes an obligation.²⁶ After the funds have been expended, the expense is again entered into the FFS as an expenditure. If the expense exceeds $500, then the Allowance Manager submits the request to a unit that validates that the expense is a legitimate use of Fee Account funds. This unit is called the Validation Unit.

The Validation Unit. The Validation Unit’s role is to certify (or validate) that any spending request for Fee Account funds that exceeds $500 is for a legitimate diversion control-related activity. The Validation Unit also conducts on-site reviews of offices in headquarters and field divisions on their use of Fee Account funds. (See Appendix II for the structure of the Office of Diversion Control in relation to the Validation Unit.) The Validation Unit does not determine whether the funds are available to be spent. It only determines whether the request to spend funds from the Fee Account is a legitimate diversion control activity. The Validation Unit makes its assessment based, in part, on a written justification included on the commitment request document. Even if the Validation Unit validates a request, it does not mean that Fee Account funds will ultimately be spent. The Office of Diversion Control and the Office of Resource Management share responsibility for determining whether funds are available and whether a given activity is a worthwhile diversion control expense. In addition, the Validation Unit sends ODA a copy of all validations so that it is aware of all expected (or obligated) Fee Account expenses.

If the Validation Unit determines that the commitment request is for a legitimate diversion control activity, then it stamps the document with a Validation Unit stamp and returns an electronic copy of the validated commitment request back to the field division or headquarters office so that the expense can be processed and obligated. If the Validation Unit determines that the request is not for a valid diversion control activity, then it denies the request.

Each quarter, the Validation Unit reconciles the commitments it has validated with the actual expenditures recorded in the FFS. In this process, the Validation Unit compares the actual expenditures of Fee Account funds made by each entity within the DEA that received Fee Account funds with the validations for that quarter. The Validation Unit requests documentation from the relevant office for all expenditures over $500 for which it has no record of validation. With the additional documentation, the Validation Unit either validates the expense retroactively or determines that it is not a legitimate use of the Fee Account and arranges for the funds expended to be transferred back to the Fee Account. See Figure 1 for the DEA’s process for requesting Fee Account funds.

Figure 1:  Process for Requesting Fee Account Funds

[Image Not Available Electronically]

Source: DEA

The Validation Unit is also responsible for determining the Fee Account’s share of DEA rent and salary costs. The Validation Unit determines the Fee Account’s share of rent by computing the proportion of authorized diversion control employees in each office based on the DEA’s Table of Organization for that year, and makes that equal to the Fee Account’s share of rent in that office. The Validation Unit uses the authorized number of employees rather than the actual number of employees because even when a position is vacant, the physical space must be reserved for the employee hired to fill the position. For example, if 10 percent of all employees on the Table of Organization for a given office were assigned to fee-fundable positions, then the Fee Account’s share of rent in that office would be 10 percent of that office’s rent. The Validation Unit repeats that calculation for every DEA office, and the DEA charges the Fee Account the total of all the individual rent costs.

Between FY 2004 and FY 2005, the Validation Unit determined the amount of salary costs to charge to the Fee Account simply by totaling the salary costs of all of the DEA employees in fee-funded positions. The Validation Unit did not include any time that employees who were not in fee-funded positions spent on diversion-related investigations or activities. For example, if a Special Agent expended work hours on criminal diversion investigations but was not in a fee-funded position, the DEA did not charge these hours to the Fee Account.

Starting in FY 2006, the Validation Unit based the salary charges to the Fee Account on salary costs of employees in fee-funded positions, plus cumulative diversion work hours by employees in certain other non-fee-funded positions. The DEA used the congressionally authorized number of full-time equivalents (FTE) as the maximum the Fee Account could be charged.²⁷ For example, if the DEA recorded 100 Special Agent diversion FTEs but the congressionally authorized number of FTEs was 50, the DEA charged the Fee Account for 50 Special Agent FTEs.

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11. 21 U.S.C. 822(a)(1) and 822(a)(2).

12. See Appendix I for the Chairman’s letter.

13. In March 2003, the DEA created the Validation Unit, which is independent of the Office of Diversion Control, to certify (or validate) that all spending requests for Fee Account funds exceeding $500 are for legitimate diversion control-related activities. The unit reviews documents related to requests for Fee Account funding to determine whether the expense is related to a diversion control activity, and, if the expense only partially supports the Diversion Control Program, such as a field office’s rent or utility cost, the portion of the expense that should be funded by the Fee Account.

14. The DEA has sought law enforcement authority for Diversion Investigators. In September 2005, the DEA submitted a request to the Department of Justice to reclassify the Diversion Investigator position to one with law enforcement authority through a new law enforcement occupational series. However, in September 2007 the Office of Personnel Management rejected this request, stating that a new position was not warranted because the proposed position is essentially the current Special Agent position.

15. See Pub. L. No. 102-395, codified at 21 U.S.C. § 886a.

16. Final Rules published in the Federal Register set the fees and describe the activities that the DEA considers to be part of the Diversion Control Program.

17. 58 Fed. Reg. 15273.

18. These activities included two sections in the Office of Chief Counsel that litigated administrative actions related to registrants and provided legal support on regulatory policy matters; salaries and related expenses in the Office of Training specifically dedicated to the Diversion Control Program; and a portion of the Office of Forensic Sciences Special Testing Laboratory that analyzed licit drugs.

19. Management controls are intended to provide reasonable assurance that Fee Account funds are used only for diversion control activities.

20. 21 U.S.C. § 886a (1992).

21. A financial plan is the instrument by which the DEA allocates resources to its various offices and programs.

22. According to a DEA official, each year there is a net increase of approximately 30,000 registrants.

23. An allowance is a portion of the Fee Account that the Diversion Planning and Resource Section transfers from a central account to an Allowance Manager to use in carrying out the mission of his or her organization. An Allowance Manager is an employee, usually at the management level, who is charged with managing the funding provided in an allowance. The Allowance Manager is an office-head-level official, typically the Special Agent in Charge, Laboratory Director, Country Attaché, or headquarters official at the Deputy Assistant Administrator level or higher. An Allowance Manager may delegate authority to authorize the use of funding in certain instances, such as for travel or training.

24. The authorizing official can be the Diversion Program Manager, Assistant Special Agent in Charge, or the Diversion Planning and Resources Section Chief.

25. An obligation is an action by an authorized individual that creates a liability on the part of the government to make a disbursement at a later time. When an authorized individual incurs an obligation on behalf of the government, this reduces the available balance of funding remaining in the account.

26. The FFS is the primary DEA financial system. It is a budgeting, accounting, and reporting application that records budget execution, fixed assets, purchasing, accounts payable, disbursements, travel, accounts receivable, general ledger, and other financial transactions. The FFS allows online queries, provides reports for monitoring program costs and financial operations, and fulfills external financial reporting requirements.

27. An FTE is the number of total hours worked divided by the maximum number of compensable hours in a work year. The DEA defines 1 full-time work year as 2,080 hours (or 2,600 hours for Special Agents conducting criminal investigations). One worker occupying a full-time job all year would consume one FTE. Similarly, two employees working for 1,040 hours each would consume one FTE. Congress authorizes the number of Special Agent, Intelligence Analyst, and Chemist FTEs that the DEA can charge to the Fee Account each year.