Civil Service Fund:

Improved Controls Needed Over Investments

AFMD-87-17: Published: May 7, 1987. Publicly Released: Jun 10, 1987.

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Pursuant to a congressional request, GAO reviewed the Department of the Treasury's management of the Civil Service Retirement and Disability Trust Fund during debt ceiling crises in 1984 and 1985 to determine how much interest Treasury lost by not following its normal securities investment and redemption policies.

GAO found that: (1) during two periods when the federal debt was near its legal limit, Treasury departed from its normal procedures by delaying investment of fund receipts or prematurely redeeming fund securities; (2) the unintentional consequences of Treasury's actions cost the fund about $160 million; and (3) although Congress enacted legislation to permit Treasury to reimburse the fund and its intent was to fully restore the losses, the legislative language was somewhat restrictive and the fund's future earnings could ultimately decrease by up to $13.6 million. GAO also found internal control weaknesses not related to the debt ceiling, in that: (1) adjustments to the fund's accounting records were not adequately documented and did not ensure the accuracy of interest earnings; and (2) the Office of Personnel Management (OPM) underreported to Treasury the amounts to be invested on the fund's behalf. Treasury cannot restore the losses resulting from those weaknesses because of statutory limitations. In addition, GAO found that Treasury has not evaluated the system used to account for fund investments for conformance with applicable accounting principles and standards, as required by the Federal Managers' Financial Integrity Act.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Treasury is reviewing an analysis of the losses, and when the amount is determined, Treasury will sponsor appropriate legislation to restore the losses.

    Recommendation: The Secretary of the Treasury should direct the Financial Management Service to determine the amount of unrestored losses resulting from the 1984 and 1985 debt ceiling crises and seek the necessary legislative authority to fully restore those losses to the fund.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: Treasury controls adjustments and redemptions and, during the FIA review of the Public Debt Accounting System, will review internal controls over investment operations. Treasury noted that any legislation should include all trust funds and preserves equity between the trust funds and the general fund. Since such legislation would have broad impact, it may take 12 to 18 months for final passage.

    Recommendation: The Secretary of the Treasury should direct the Financial Management Service to: (1) document properly all adjustments to the accounting records; (2) establish controls to ensure that the lowest-interest-rate securities are redeemed first; and (3) evaluate the fund's accounting operations for conformance with applicable accounting principles and standards. The Secretary should also seek legislative authority to fully reimburse the fund for losses resulting from future Treasury or OPM management of fund transactions.

    Agency Affected: Department of the Treasury


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