Auditing and Financial Management:

The Bureau of Public Debt Should Better Control Savings Bond Sales and Redemptions

AFMD-84-16: Published: Oct 31, 1983. Publicly Released: Oct 31, 1983.

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GAO reviewed the U.S. Savings Bond Program to determine the adequacy of accounting procedures and internal controls and to identify any losses resulting from irregularities or abuses.

Savings bonds are sold by agents, to whom blank savings bond stock is provided on consignment by the Bureau of the Public Debt. Fraudulent or unauthorized bond issues cannot be detected until after they are redeemed to the Bureau. GAO believes that the blank stocks should be controlled in the same manner as currency, with one Bureau office maintaining accounting control over stock inventories and sales. Under the current decentralized approach, the Bureau and the Federal Reserve Banks have not followed recognized controls and accounting procedures for stock distribution, and losses and thefts of stock with a face value totalling $8.8 million have been reported. Certain Bureau management actions have contributed to abuses and practices leading to stock and monetary losses. These actions include: (1) delaying a program to assess penalty interest on unremitted bond sales proceeds; (2) relieving agents from liability for stock shortages under questionable circumstances; (3) ineffectively controlling debt collection; and (4) paying sales agents on the basis of the number of transactions handled without regard to work quality. Also, several Bureau accounting practices were inconsistent with laws and recognized procedures, preventing full disclosure of losses and problems.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of the Treasury should have the Bureau's Parkersburg office centrally account for consigned savings bonds and sales proceeds. The office managing the consignment should be required to thoroughly investigate requests for relief from lost and stolen bonds, particularly large ones, before decisions are made on requests for relief.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury is investigating requests for relief from lost or stolen bonds. Procedures were modified in 1983.

    Recommendation: The Secretary of the Treasury should have the Bureau's Parkersburg office centrally account for consigned savings bond and sales proceeds. The office managing the consignment should be required to reconcile and verify agents' stock levels through appropriate procedures, including periodic and independent physical inventories that will ensure accountability for all bond stock held by agents.

    Agency Affected: Department of the Treasury

    Status: Closed - Not Implemented

    Comments: Bureau officials are opposed to this recommendation because they feel that it would be too costly. In the Bureau's opinion, the Federal Reserve Bank is doing an adequate job of monitoring stock in the hand of the agents.

    Recommendation: The Secretary of the Treasury should have the Bureau's Parkersburg office centrally account for consigned savings bonds and sales proceeds. The office managing the consignment should be required to establish requirements for agents to submit documents supporting payroll sales as soon as practicable after they remit sales proceeds.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury is accounting for proceeds and requiring documents supporting payroll sales to be submitted as soon as practicable.

    Recommendation: The Secretary of the Treasury should make other system improvements that will lower operating costs, such as eliminating stock levels of agents with low sales volume and converting from card weight to paper bonds.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Conversion and redesign were completed in the fall of 1985. Stock levels were returned by agents with no sales.

    Recommendation: The Secretary of the Treasury should ask the Office of the Inspector General to determine whether shortages exist in Series E bond stock and make sure that proper amounts are recorded on the Bureau's official inventory records for activities holding such bonds.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Records are reconciled, and the Inspector General was asked to work with Bureau staff to reconcile discrepancies.

    Recommendation: The Secretary of the Treasury should take action to ensure that interest penalties are assessed on issuing agents' late remittance of sales proceeds, as well as any overdue receivables, and that the assessed amounts are promptly collected unless circumstances warrant a waiver.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury stated that action would be taken to ensure that penalties and interest are charged.

    Recommendation: The Secretary of the Treasury should take actions to discontinue the Bureau's practice of allowing agents free or low-interest-cost use of the money realized from the sale of savings bonds.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury stated that it has implemented procedures.

    Recommendation: The Secretary of the Treasury should take action to amend the issuing agreement to specify that issuing agents are liable for all monetary losses related to redemption of savings bond stock that is lost or stolen by their employees and to recover any such monetary losses that develop.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury believes that the existing language in the agreement is adequate and that stricter enforcement of the agreements will suffice. However, GAO believes that the process could be better controlled with a revised agreement.

    Recommendation: The Secretary of the Treasury should take action to explore with the Department of Justice the possibility of recovering the losses from the Sears case, notwithstanding the grant by Treasury of relief from liability.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury stated that it would recover as much money as possible.

    Recommendation: The Secretary of the Treasury should take action to institute collection action against the bank employee convicted of the theft of bond stock, pursuant to the Claims Collection Act and implementing standards.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: A Treasury official stated that a report citing the facts of the case should be completed by the end of December 1985. The U.S. Attorney's Office, Chicago, will evaluate the facts presented in the report and determine the appropriate action. The Treasury official was not optimistic that a collection action would be successful. Treasury will collect the maximum amount possible.

    Recommendation: The Secretary of the Treasury should take action to have receivables resulting from the Bureau's operation properly managed and aged and aggressively collected.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: The Bureau is managing its receivables, including aging them. Private collection agencies were used beginning February 1984.

    Recommendation: The Secretary of the Treasury should take action to charge agents for correcting their errors when this appears to be a feasible approach to improve the quality of their work in handling sales, redemptions, and related transactions.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: The Bureau is strongly opposed to charging agents for errors. There is no tracking system to identify agents who have a high volume of errors. The Bureau has made operational changes which are expected to reduce the cost of adjustment activities by 15 to 20 percent.

    Recommendation: The Secretary of the Treasury should require the use of accrual basis accounting for all activities related to savings bonds, including the assessment of penalty interest and any redemption of savings bonds that results in money being owed to the government.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury has adopted procedures to do accruals at least annually.

    Recommendation: The Secretary of the Treasury should ensure that the Bureau properly uses the separate accounts for receivables and payables developed in its efforts to correct agents' errors.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: Treasury has implemented procedures to correct this problem.

    Recommendation: The Secretary of the Treasury should refund amounts of bond redemption underpayments directly to the bondholders and recover any costs of doing this from the agents responsible for the underpayments.

    Agency Affected: Department of the Treasury

    Status: Closed - Not Implemented

    Comments: The Bureau states that this recommendation has operational problems associated with refunding bond redemption payments directly to bond owners. It would require substantial modification of the large system employed to effect adjustment transactions with agents which would add to the operational and personnel costs.

    Recommendation: The Secretary of the Treasury should have monetary losses reported as required by regulation.

    Agency Affected: Department of the Treasury

    Status: Closed - Not Implemented

    Comments: The Bureau disagrees with this recommendation claiming that it is not subject to the statute for reporting losses to GAO. A copy of the Bureau's legal position paper will be sent to the GAO Office of General Counsel which is evaluating the agency's response.

    Recommendation: The Secretary of the Treasury should have the Bureau's Parkersburg office centrally account for consigned savings bonds and sales proceeds. The office managing the consignment should be required to actively enforce Bureau criteria for the amount of savings bond stock that issuing agents can have on hand and on requisition at any given time.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: A feasibility study has been conducted, stocks have been recalled, and stock level regulations issued.

    Recommendation: The Secretary of the Treasury should fully advise Congress of activities in the Payment of Government Losses in Shipment Fund, including the amount needed to cover existing and expected losses, and ensure that the Bureau's accounting system is changed to properly recognize such losses.

    Agency Affected: Department of the Treasury

    Status: Closed - Not Implemented

    Comments: The Bureau disagrees with this recommendation to fully advise Congress of activities involving this fund. The Bureau does not want to change the accounting procedures to reflect estimated losses, claiming compliance with the applicable statutes. It will send the GAO Office of General Counsel (OGC) a copy of its position papers. OGC is evaluating the agency's response.

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