INDUSTRY NEWS: FEBRUARY 2005

By Robert Hausman

The inspection program of licensees by the Bureau of Alcohol, Tobacco, Firearms & Explosives was found to be “infrequent and of inconsistent quality,” in a recent report by the Office of the Inspector General of the Department of Justice (DOJ).

In addition, “follow-up inspections and adverse actions have been sporadic” the DOJ said in its report entitled “Inspections of Firearms Dealers by the Bureau of Alcohol, Tobacco, Firearms and Explosives,” released July, 2004. It should be noted that as of March 2004, the ATF had limited authority to suspend an FFL’s license, and no authority to fine FFLs.

Specifically, the DOJ found that ATF does not conduct in-person inspections on all applicants before licensing them to sell firearms, and ATF compliance inspections of active dealers, including large-scale retailers, are “infrequent and vary in quality. Even when numerous or serious violations were found, ATF did not uniformly take adverse actions, refer FFLs for investigation, or conduct timely follow-up inspections. We also found wide variations in the ATF inspection program’s productivity and implementation, among the ATF Field Divisions that led us to conclude that inspection procedures should be streamlined and standardized,” the report says.

Applicant Inspections

The report states that application inspections are “critical” for ensuring federal firearms law compliance as the inspections enable ATF to verify that applicants are eligible for the FFL license and provides new dealers an opportunity to discuss issues related to firearms laws with ATF inspectors. “Further, if an FFL violates federal firearms laws after having received an applications inspection, it is easier for ATF to meet the legal standard of demonstrating that the violation was ‘willful’” (emphasis added).

In fiscal year (FY) 2002, ATF issued 7,977 licenses to new firearms businesses, 7,382 licenses to firearms collectors and conducted 8,123 application inspections. The DOJ inspectors, upon examining ATF’s license database, found that most (95%) of the inspections were of businesses, not collectors, which indicated ATF inspected the preponderance of new firearms dealers in FY 2002. However, the DOJ found many of the application inspections consisted only of a telephone call, rather than an in-person visit.

Subsequent to the DOJ review, in an Oct. 8, 2003 memorandum to ATF Field Divisions, the ATF assistant director for firearms, explosives and arson issued revised guidance for conducting application inspections, stating ATF’s goal is to inspect all new FFL applicants on-site to ensure they understand federal firearms laws, beginning with applicants in 14 selected cities.

Compliance Inspections Infrequent

While ATF’s stated goal is to inspect each FFL at least once every three years, due in part to resource shortfalls, ATF is unable to achieve that goal. ATF workload data shows that 4,581 FFL compliance inspections were conducted in FY 2002, or about 4.5% of the approximately 104,000 FFLs nationwide. At that rate, it would take ATF more than 22 years to inspect all FFLs, the DOJ found.

Even for those that had been inspected, the records showed that many of the inspections occurred years before. For example, one FFL cited in 1985 for selling a rifle to a minor and for numerous record-keeping violations had never been re-inspected.

Manipulation of Inspection Criteria

Although the ATF focuses its inspections on those FFLs that exhibit most severely the established indicators of trafficking (e.g. sales of many handguns to one person), it does not identify all FFLs that exhibit those indicators. Instead, “the ATF manipulates the criteria it uses to target FFLs for inspections so that it only identifies as many such FFLs as it has the resources to inspect,” the report says.

Inspections by Field Divisions Inconsistent

The conduct of FFL inspections varied greatly among the 23 ATF Field Divisions. The average time spent on each application inspection in FY 2002 ranged from 6.2 hours to as much as 25.5 hours per inspection. The average time spent to conduct each compliance inspection ranged from 24.5 hours to as much as 90 hours. ATF Headquarters staff said the variance occurred due to the discretion inspectors have in how they conduct inspections and because some field divisions had more inexperienced inspectors on staff.

ATF inspectors may either conduct a full inventory during a compliance inspection or sample the FFLs inventory. The ATF inventory worksheet used during inspections provides no guidance on determining a minimum sample.

Inspections by Field Division Inconsistent

The study found that the conduct of FFL inspections varied greatly among the 23 ATF Field Divisions. To determine whether an FFL’s record-keeping system is accurate, ATF inspectors may either conduct a full inventory during a compliance inspection or sample the FFL’s inventory. The ATF inventory worksheet used during inspections provides no guidance to ensure that a minimum valid sample is taken.

The study notes, “The ATF worksheet for examining sales records does not specify how many records to review. Our interviews with inspectors in field divisions found varying approaches. For example, in the Miami field division, inspectors said they reviewed six months of records, while inspectors in the Seattle field division said they examined the records for one year. The inspectors also examined the records differently. Of the 18 inspectors we interviewed, 14 said they only examine the forms to see if they were properly filled out, while 4 indicated they also look for indications that a purchaser may be part of a firearms trafficking ring or acting as a straw purchaser for someone else.”

Average inspection times were related to disparities in staffing levels and the number of FFLs located in the divisions. Field division inspector staff ranged from a high of 35 to a low of 9 inspectors. Likewise, the number of FFLs in each field division ranged from 1,172 to 8,194.

“However, ATF had not distributed its inspector resources among the field divisions to match the distributions of FFLs, resulting in significant workload imbalances. As a result, the average time that each field division spent on application inspections decreased as the number of FFLs per available inspector increased,” the study found.

Little correlation was found between the amount of time that field divisions spent inspecting and the number of adverse actions taken or the number of times suspected criminal activity was identified and referred for investigation. Additional data in the DOJ report indicated:

• The number of inspections conducted per inspector each year ranged from 12.7 (Miami Field Division) to 46.5 (Kansas City Field Division).
• The percentage of inspections conducted by field divisions that identified violations varied from just 4.5% (Kansas City Field Division) to 41.5% (Dallas Field Division).
• On compliance inspections in which violations were discovered, the average number of violation instances found ranged from 15.9 (Nashville Field Division) to 178.2 (Chicago Field Division).
• The average time that the field divisions took to find each violation instance ranged from 47 minutes per violation instance (Dallas Field Division) to over 7 hours per violation instance (Los Angeles Field Division).

The DOJ review also found that significant violations of federal firearms laws are not always reported to ATF Special Agents for investigation. In several such instances, the FFLs were subsequently investigated after the illegal activity was discovered through other means.

“For example, one FFL was inspected in October 2002, and during that compliance inspection the inspector found 40 firearms not entered into the FFL’s inventory records, missing sales records, and sales to out-of-state residents. However, the inspector did not report the finding through ATF management channels for investigation. Subsequent to the inspection, information from a confidential informant led to an investigation, and in December 2003, ATF Special Agents arrested the dealer for firearms trafficking,” the report states.

In fiscal year (FY) 2002, some 1,934 of the inspections that ATF conducted uncovered violations with an average of almost 70 violations each. In FY 2003, ATF found violations on 1,812 inspections, with an average of over 80 violations each. ATF subsequently issued 30 Notices of Revocation in FY 2002 and 54 revocation notices in FY 2003. It can take ATF over one year to process a license revocation action from initiation to closure.

In May 2003, subsequent to the initiation of the DOJ review, ATF issued guidelines to encourage more consistent processing of adverse actions against FFLs found with violations. After ATF issued the guidelines, the number of FFL revocation hearings rose from 25 in FY 2002 to 87 in FY 2003. ATF also denied FFL renewal requests or issued Notices of Revocation 59 times during the first quarter of FY 2004.

The May 2003 guidelines directs that all FFLs that were issued warning letters or that were directed to attend warning conferences must be scheduled for a follow-up “recall” inspection in the following year; and that adverse actions are to escalate for repeat offenses. The policy also directs ATF field divisions to act on recommendations for adverse action within 90 days after receiving the inspection report.

Streamlined Inspections Recommended

The DOJ identified several areas in which the ATF inspection process could be improved to include: standardizing procedures to require reviews of firearms inventories and sales records to establish a statistically valid sample, which could be used to verify the effectiveness of the FFL’s inventory management and record-keeping systems; standardizing and automating inspections paperwork and providing laptop computers to enable inspectors to prepare reports on-site; extending the inspection cycle for FFLs with no significant violations so that limited resources can be directed toward non-compliant dealers; and establishing guidance to ensure that inspectors consistently identify and report indications of firearms trafficking for investigation.

Streamlining and standardizing the ATF FFL inspection process is needed as there is increased demand for ATF inspectors to conduct explosives licensee inspections. In November 2002, the Safe Explosives Act imposed new requirements that increased the number of explosives licensees and directed ATF to conduct on-site inspections of explosives licensees at least once every three years. This additional workload has reduced ATF’s ability to inspect FFL-holders.

DOJ’s review of inspections data for the first five months of FY 2004 found a precipitous decrease in the number of compliance inspections. From October 2003 through February 2004, ATF completed just 1,113 FFL compliance inspections. At that pace, the DOJ said, ATF would complete fewer than 2,700 FFL compliance inspections during FY 2004 – less than half the number the agency reported that it completed in FY 2003 and less than 2.6% of the FFL population.

Conclusions

The DOJ report concluded that ATF’s FFL inspection program is too limited and inconsistent to ensure that FFLs comply with federal firearms laws. ATF’s lack of standardized inspection procedures results in inconsistent inspections of FFLs and significant variation in the implementation of the inspection program by field divisions. Little correlation was found between longer inspection times and outcomes such as criminal referrals and adverse actions taken.

The DOJ further concluded that to ensure all FFLs are treated consistently, and that the FFL inspection program is as efficient as possible, a national ATF policy should require that inspections be conducted in a uniform manner, that inspection procedures are limited to the steps needed to accomplish a valid review, and that violations are processed in a uniform and appropriate manner.

Recommendations

Among the recommendations DOJ made to ATF are:

• The development of a standard, streamlined inspection process that includes in-person inspections of all FFL applicants; more efficient inventory and records reviews; automated inspection reporting; and consistent examination of indicators of firearms trafficking.
• Develop alternatives for better aligning inspector resources with the distribution of FFLs, such as by redrawing field division boundaries or realigning personnel.
• Direct the National Licensing Center to develop an adverse action tracking system to monitor the progress and timeliness of FFL denials and revocations from the time an inspector makes a recommendation until the proceedings are finalized.
• Continue coordinating with the Department of Justice, Office of Legislative Affairs, to gain the authority to suspend or impose civil penalties on FFLs that violate federal firearms laws.
• Develop a model for accurately identifying potential firearms trafficking through the analysis of an FFL’s firearms sales volume and the number of firearms traced to the FFL.

Notices of Revocation are not final. Of the 30 Notices in FY 2002, 25 FFLs requested a hearing and 3 avoided revocation. (FY 2003 data was unavailable.) The ATF can also effectively revoke an FFL’s license by denying his or her request for license renewal, and in FY 2001, the ATF denied 28 requests for renewal.

ATF’s Response to Report

While not agreeing with all of the conclusions in the DOJ report, ATF’s director, Carl J. Truscott, said the agency will take a number of steps in response, including:

• The requirement to conduct in-person inspections of all FFL applicants in 14 metropolitan areas.
• A new requirement instituted in June 2004 mandating that if an application inspection is not conducted in-person, an in-person compliance inspection must be scheduled in the first year after the license is issued.
• Issuing guidelines for conducting FFL inspections which provides guidance on the period of records review, when complete inventory verifications must be performed, and establishes the number of Form 4473s to be reviewed. It also gives guidance on referring potential trafficking cases to ATF agents.
• Developing a Focused Inspection Work Plan that concentrates on trafficking indicators.
• Coordinate with DOJ to gain suspension, fine, and offers in compromise authority.

The author is the publisher of the small arms industry’s two most widely read professional trade newsletters, The New Firearms Business, which covers the domestic U.S. industry, and The International Firearms Trade, which covers the industry from a global perspective. His firm also makes available mailing lists of FFL-holders to aid firms direct marketing efforts. He may be reached at: FirearmsB@aol.com