B-241592, Mar 13, 1991

B-241592: Mar 13, 1991

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Two of the claims are based on government records which are known to be incomplete or unavailable. Claimant has not presented sufficient evidence to show it is entitled to the funds. Customs Service - Claims by Virgin Islands Government for Disposition of Funds: This decision is in response to three claims filed by Advisory Services of the Virgin Islands. The second claim is for $4.7 million of alleged duplicative administrative costs that were assessed against the Virgin Islands by Treasury from July 1. The third claim alleges that excessive administrative costs in the amount of $13 million were charged against the Virgin Islands fund from fiscal year 1971 through fiscal year 1989. The three claims are denied.

B-241592, Mar 13, 1991

APPROPRIATIONS/FINANCIAL MANAGEMENT - Claims Against Government - Customs duties - Proceeds - Ownership APPROPRIATIONS/FINANCIAL MANAGEMENT - Claims Against Government - Burden of proof

DIGEST

Customs Service - Claims by Virgin Islands Government for Disposition of Funds:

This decision is in response to three claims filed by Advisory Services of the Virgin Islands, an independent nongovernmental entity, acting as an agent for the Virgin Islands government. The first claim concerns the disposition of $5.2 million in funds held in the official deposit fund maintained by Treasury for the Virgin Islands government. The second claim is for $4.7 million of alleged duplicative administrative costs that were assessed against the Virgin Islands by Treasury from July 1, 1977, through June 30, 1981. The third claim alleges that excessive administrative costs in the amount of $13 million were charged against the Virgin Islands fund from fiscal year 1971 through fiscal year 1989. For the reasons stated below, the three claims are denied.

The United States Customs Service is responsible for the collection of customs duties in the Virgin Islands. 48 U.S.C. Sec. 1395 (1988). The proceeds of the customs duties collected in the Virgin Islands, less the cost of collecting the duties by Customs are paid into the Virgin Islands Treasury for such use as the Legislature of the Virgin Islands may provide. 48 U.S.C. Sec. 1642a (1988). In May 1986, the Virgin Islands legislature passed Act No. 5106, which required that funds held in the United States Treasury for the Virgin Islands government be audited. With the exception of an audit by this office in 1983 which compared Virgin Islands duty proceeds to Customs' collection costs, /1/ no comprehensive audit of the funds held had been made.

The Virgin Islands government hired Advisory Services as an independent contractor to perform the audit. The purpose of the audit was to determine: (1) the correct amounts of money which were due to the Virgin Islands government; (2) whether or not those monies were in fact paid; and (3) to do whatever was necessary to have any unpaid monies paid to the Virgin Islands government. The three claims are a direct result of that audit, and we shall discuss each claim below.

First Claim: The Deposit Fund

In June 1987, a draft report prepared by Advisory Services was submitted to Customs for its review. The Customs review disclosed an area of concern that the auditor had not discovered. Specifically, the official deposit fund maintained by Treasury for the Virgin Islands government had a balance of about $5 million more than the balance reported to the Virgin Islands by Customs. /2/

The Customs Service reviewed the matter and determined that the money did not belong in the Virgin Islands fund, but should be transferred to the general fund of the U.S. Treasury. The Customs Service attributed the difference in the fund report balance to a reporting problem, i.e., Customs deducted the amount in question as its administrative expenses from the gross proceeds of duty collected in the Virgin Islands and paid the net proceeds to the Virgin Islands government, but inadvertently neglected to report that amount to the U.S. Treasury to effect a transfer of the funds to Customs' Salaries and Expenses Appropriation.

Subsequently, in a letter to the Governor of the Virgin Islands, /3/ the Commissioner of Customs stated that Customs had determined that the Virgin Islands was actually paid the amount of collections which should have been transferred during that period based on a previous audit by our Office. /4/ The Commissioner stated that the proper amount of collections had been transferred to the Virgin Islands after deduction of administrative expenses. Advisory Services' auditor disagreed and argued that, in fiscal year 1980, when Customs changed the Virgin Islands account from a special fund to a deposit fund, /5/ Customs had credited the Virgin Islands deposit fund with about $5 million less that it should have.

Because of continuing concern about various issues in dispute between Customs and Advisory Services, including the subject $5.2 million dispute, the House Subcommittee on Insular and International Affairs requested a GAO report on the matter. Our report was issued in December 1989. /6/ Regarding the disputed $5.2 million, the report stated that because of insufficient Customs records we were unable to reconstruct the financial history of Customs' collections and disbursements necessary to decide whether the Virgin Islands is owed the money in question. We found that neither Advisory Services nor Customs had sufficient documentation to fully support their respective positions.

The GAO auditors primary difficulty was that many of the records necessary to resolve the dispute were no longer available in 1989. Since the Advisory Services auditor based the claim on reconstructed receipts, expenditures, and account balances for fiscal years 1978 through 1980, our auditors attempted to get detailed accounting transactions for those years. However, much of the transaction data was no longer available. Because of that problem, our auditors asked Customs for data for fiscal year 1979 since it appeared to be the year in which most of the discrepancy occurred. Unfortunately, not all of the collection and disbursement data needed for verification were available. The collection data were stored on magnetic tape and, by 1989, Customs was able to retrieve only half of the tapes for fiscal year 1979 because the other tapes were missing or were not readable. Moreover, Customs no longer had detailed disbursement data from before January 1981.

Our auditors were, therefore, not able to validate the Advisory Services auditor's collection and disbursement figures. Accordingly, we could not determine which account balance was accurate, and we were unable to resolve the dispute.

Claims presented to the General Accounting Office are settled on the basis of the facts as established on the written record before us. The burden of proof is on the claimant to establish the liability of the United States and the claimant's right to payment. 4 C.F.R. Sec. 31.7 (1990); 31 Comp.Gen. 340 (1952); Barbara S. McCoy, B-196686, Jan. 17, 1980.

It is not the duty of the General Accounting Office to refute claims presented to it for settlement; rather it is the claimant's burden to prove the claim and to establish the clear legal liability of the United States and the claimant's right to payment. 18 Comp.Gen. 980 (1939).

Ordinarily, proof of the validity of a claim can be found in government files, but in situations where official records or other evidence which may prove or disprove the validity of a claim cannot be produced from government files or elsewhere, because of the passage of time, the claim must be denied. Hai-Tha Truong, B-215118, Dec. 18, 1984, affirmed on reconsideration, May 7, 1987; Charles E. Hopkins, B-217652, Mar. 18, 1985; Albert J. Kreitzer, B-190599, Dec. 9, 1977.

As pointed out in our report to the House Subcommittee on Insular and International Affairs, supra, many of the detailed records necessary to prove or disprove the claim are no longer available. Advisory Services' auditor has not presented any evidence to rebut the findings in our audit report. Therefore, we deny the claim.

Second Claim: Duplicative Administrative Costs

Advisory Services claims that duplicative administrative costs were assessed against collections for the Virgin islands from July 1, 1977 through June 30, 1981, in the amount of $4.7 million. The supporting documentation for this claim is derived from its original audit report.

Since the claim presented by the Advisory Services' auditor is likewise based on government records that are no longer available, the same principle as outlined in our discussion of the claim for $5.2 million is applicable. Where government records necessary to either justify or refute a claim have been destroyed or become unavailable due to the lapse of time (10 to 14 years in this case), and there is no other documentation available from any source to establish the liability of the United States, this Office has no alternative but to disallow the claim. Robert Johnson, Jr., B-188543, Aug. 2, 1977.

Third Claim: Excessive Administrative Costs

The Advisory Services' auditor has also filed a claim on behalf of the Virgin Islands for excessive administrative costs of $13 million that it alleges were charged to the Virgin Islands fund from fiscal year 1971 through fiscal year 1989. The auditor contends that the administrative costs assessed against collections in the Virgin Islands were excessive since they were as much as one third (33 percent) of the total operational costs. /7/ As part of this claim, the auditor says that the Virgin Islands was overcharged for the cost of support services outside the territory. Again, as in the case of the $5.2 million claim and the claim for duplicative administrative costs, the information appears to have been gleaned from the Advisory Services audit report.

The Customs Service reviewed its administrative cost determinations and advised the auditor that the Virgin Islands had not been overcharged. Customs compared the administrative costs to the total operational costs charged to the Virgin Islands and the comparison showed that the administrative costs ranged from 5.6 percent to 13.3 percent of the total costs, far less than one third. The Customs Service further advised that it normally charges a flat rate of 15 percent for administrative overhead for reimbursable inspectional services to other accounts, a rate recommended as a reasonable estimate for determining administrative overhead costs by our Office. Customs also advised the auditor that the administrative costs since 1987 have been understated since they have not been increased for higher salaries and other costs incurred by the Customs Service during this period. /8/

As we have already said, sufficient information is not available to establish the liability of the United States for the period of the claim from 1971 through 1981. In 1983 the General Accounting Office prepared a report at the request of the Honorable Ron de Lugo, House of Representatives, concerning inter alia whether the amount of duty proceeds were currently sufficient to cover collection costs. See f.n. 3, supra. For fiscal years 1982 and 1983, we found costs to be $2.7 million, which supports the actual amounts reported by Customs for those years as opposed to the figures presented by the Advisory Services' auditor of $2 million and $2.1 million, respectively. We also note that the Advisory Services' costs are labelled as "estimated costs" whereas our figures at that time were based on the actual amount reported by Customs. Therefore, at least as to those 2 years, there is support for Customs' contention that its administrative costs are correct.

Customs has been utilizing the same practice for years in computing the administrative costs chargeable to the Virgin Islands account, and Advisory Services has not presented evidence that the methodology is incorrect. Under those circumstances we believe that Customs' practice must be accepted as appropriate. See Virgin Islands v. Blumenthal, 642 F.2d 641 (D.C. Cir. 1980), cert. denied, 451 U.S. 983 (1981), where the court used the long-time prevailing administrative practice as one of its reasons for determining that the Secretary of the Treasury was not required to cover into the Treasury of the Virgin Islands all customs duties collected on goods transported into the United States from the Virgin Islands.

CONCLUSION

In summary, Advisory Services has not met its burden of proof of providing sufficient evidence of the liability of the United States for any of the three claims. Accordingly, we deny the Advisory Services' claims on behalf of the Virgin Islands for duplicative administrative costs of $4.7 million and excessive administrative costs of $13 million, as well as its claim to the $5.2 million discrepancy in the Virgin Islands deposit fund balance.

/1/ GAO/GGD-84-26, Oct. 25, 1983 (B-212463).

/2/ Advisory Services claims the amount is $5,198,239.50.

/3/ Letter of June 3, 1988.

/4/ GAO/GGD-84-26, Footnote 1, supra.

/5/ Federal government accounts are assigned to fund groups. Two of these groups are for special funds and deposit funds.

/6/ Unresolved Audit Issues Between Customs and the Virgin Islands, GAO/GGD-90-21, Dec. 8, 1989 (B-236775).

/7/ Letter from Advisory Services' auditor to Debra Anderson, White House Staff, Aug. 30, 1990.

/8/ Letter from Acting Comptroller, U.S. Customs Service, to Advisory Services' auditor, Aug. 24, 1990.