B-114801 OM, NOV 19, 1979

B-114801 OM, NOV 19, 1979

SUBJECT: OGC INTERPRETATION OF BUREAU OF ENGRAVING AND PRINTING FUND LEGISLATION (B-114801)

JENNIE S. STATHIS:

THIS RESPONDS TO YOUR MEMORANDUM OF OCTOBER 5, 1979, ASKING US TO INTERPRET THE BUREAU OF ENGRAVING AND PRINTING'S (BEP) 1977 APPROPRIATION LEGISLATION. THE QUESTIONS YOU ASKED HAVE BOTH ACCOUNTING AND LEGAL ASPECTS. WE WILL ADDRESS THE LEGAL QUESTIONS AND, TO SOME EXTENT, THE RELATED ACCOUNTING ISSUES. IN ORDER TO ANSWER YOUR SPECIFIC QUESTIONS, WE THOUGHT IT WOULD BE HELPFUL TO FIRST PROVIDE SOME GENERAL BACKGROUND INFORMATION.

BACKGROUND

THE BUREAU'S OPERATIONS ARE FINANCED THROUGH A REVOLVING FUND ESTABLISHED BY THE ACT APPROVED AUGUST 4, 1950, CH. 558, 64 STAT. 408, 31 U.S.C. SECS. 181 ET SEQ., WITH AN INITIAL APPROPRIATION OF $5 MILLION. THE FUND IS REIMBURSED BY CUSTOMER AGENCIES FOR THE DIRECT AND INDIRECT COSTS OF THE BUREAU FOR WORK AND SERVICES PERFORMED. SECTION 2(E) OF THE 1950 ACT, 31 U.S.C. SEC. 181AE) PROVIDES THAT AT THE END OF THE FISCAL YEAR, AFTER RESTORING ANY IMPAIRMENT OF CAPITAL TO THE FUND (I.E., EXCESS OF ACTUAL COSTS OVER PRICES CHARGED), THE REMAINING SURPLUS MUST BE PAID INTO THE TREASURY. ADDITIONAL FUNDS HAVE BEEN APPROPRIATED BY CONGRESS TO FINANCE CAPITAL IMPROVEMENTS ON SEVERAL OCCASIONS.

IN RESPONSE TO A DIRECTIVE FROM THE SENATE APPROPRIATIONS COMMITTEE TO GENERATE FUNDS FOR OPERATING COSTS AND REPLACEMENT OF CAPITAL EQUIPMENT, THE BUREAU IMPLEMENTED A SURCHARGE BEGINNING IN 1975. THE GAO TOOK EXCEPTION TO THIS PROCEDURE AND SPECIFIC LEGISLATIVE AUTHORITY TO DO THIS WAS THEREFORE REQUESTED BY THE BUREAU. SEE, TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT APPROPRIATIONS FISCAL YEAR 1978: HEARINGS ON H.R. 7552 BEFORE A SUBCOMMITTEE OF THE SENATE COMMITTEE ON APPROPRIATIONS, 95TH CONG., 1ST SESS. 439 (1977) (STATEMENT OF JAMES A. CONLON, DIRECTOR, BEP). (SENATE HEARINGS), AND S. REP. NO. 95-267, 14 (1977).

IN RESPONSE TO THE BUREAU'S REQUEST, CONGRESS APPROVED AN APPROPRIATION OF $5 MILLION TO THE FUND IN JULY 1977, PUB. L. 95-81, 91 STAT. 341, 342. THE LEGISLATION ALSO APPROPRIATES TO THE BUREAU, NOTWITHSTANDING SECTION 2(E) OF THE 1950 ACT REQUIRING RETURN OF SURPLUS FUNDS TO THE TREASURY:

"THE FULL AMOUNT OF PAYMENTS MADE SINCE JULY 1, 1974, AND HEREAFTER, FOR WORK AND SERVICES *** AT PRICES ADJUSTED TO PERMIT THE ACQUISITION OF CAPITAL EQUIPMENT AND PROVIDE FUTURE WORKING CAPITAL."

THE BUREAU HAS IMPLEMENTED THE LEGISLATION BY ASSESSING TWO SEPARATE SURCHARGES ON ITS PRODUCTS - ONE FOR CAPITAL EQUIPMENT AND ONE FOR WORKING CAPITAL. IN ITS ACCOUNTING SYSTEM, "NET PROFITS" OF THE BUREAU ARE DETERMINED AND ACCOUNTED FOR SEPARATELY FROM THE TWO SURCHARGES. A DRAFT OF THE BUREAU'S LATEST "UNOFFICIAL" POSITION PAPER STATES THAT FUNDS DERIVED FROM SURCHARGES ARE PERMANENT INCREASES TO CAPITAL ANALOGOUS TO INCREASES APPROPRIATED BY CONGRESS AND MAY BE RETAINED UNDER AUTHORITY OF PUB. L. NO. 95-81. THEREFORE, IN THE BUREAU'S OPINION, THEY DO NOT HAVE ANY CONNECTION WITH THE BUREAU'S OPERATING PROFITS OR LOSSES, WHICH MUST STILL BE DEPOSITED IN THE TREASURY IN ACCORDANCE WITH SECTION 2(E) OF THE 1950 ACT.

FOR FISCAL YEAR 1978, THE BUREAU RETAINED THE INCOME FROM THE TWO SURCHARGES BUT RETURNED AN OPERATING SURPLUS (PROFIT) TO THE TREASURY. FOR FISCAL YEAR 1979, HOWEVER, THE BUREAU PLANS TO ADJUST ITS FINANCIAL STATEMENT TO SHOW THE MAJORITY OF ITS OPERATING SURPLUS AS ACCOUNTABLE TO SURCHARGES SO THAT IT NEED NOT BE RETURNED TO THE TREASURY.

DISCUSSION

YOUR SPECIFIC QUESTIONS AND OUR RESPONSE ARE AS FOLLOWS:

QUESTION 1: LEGALLY, CAN THE BUREAU RETAIN OPERATING INCOME AND SHOW A RETAINED EARNINGS ACCOUNT?

YES. PUB. L. NO. 95-81 STATES SPECIFICALLY THAT NOTWITHSTANDING SECTION 2(E) OF THE 1950 ACT, THE BUREAU MAY RETAIN THE FULL AMOUNT OF PAYMENTS MADE FOR WORK AND SERVICES AT PRICES ADJUSTED TO PROVIDE FOR FUTURE CAPITAL EQUIPMENT ACQUISITIONS AND WORKING CAPITAL.

UNDER THE 1950 ACT, PRICES WERE TO BE SET AT AN AMOUNT "ADEQUATE TO RECOVER THE AMOUNT OF DIRECT AND INDIRECT COSTS OF THE BUREAU," 31 U.S.C. SEC. 181, WITH THE SURPLUS BEING RETURNED TO THE TREASURY AFTER RESTORING IMPAIRMENT OF CAPITAL, 31 U.S.C. SEC. 181AE). UNDER PUB. L. 95-81, PAYMENTS RETAINED BY THE BUREAU MAY NOW BE GREATER THAN AMOUNTS NECESSARY TO COVER THE COSTS REFERRED TO IN SECTION 2(E) OF THE 1950 ACT.

THE PURPOSE OF PUB. L. NO. 95-81 WAS TO INCREASE THE BUREAU'S CAPITALIZATION WITHOUT THE NEED FOR FURTHER APPROPRIATIONS BY:

"*** AUTHORIZING THE SECRETARY OF THE TREASURY TO SET PRICES FOR WORK AND SERVICES PROVIDED BY THE BUREAU OF ENGRAVING AND PRINTING ADEQUATE NOT ONLY TO RECOVER BOTH DIRECT AND INDIRECT COSTS OF THE BUREAU, BUT ALSO TO ACCUMULATE IN THE FUND SUFFICIENT RESERVES TO PERMIT THE ACQUISITION OF CAPITAL EQUIPMENT AND PROVIDE ADEQUATE FUTURE WORKING CAPITAL." H.R. REP. NO. 95-455, 95TH, (1977) AT 4 (CONFERENCE REPORT).

PUBLIC LAW 95-81 DOES NOT SPECIFY THE MEANS OF IMPLEMENTING THE PRICE ADJUSTMENT. INSTEAD, IT LOOKS TO RESULTS, I.E., TO OBVIATE THE NEED FOR FUTURE APPROPRIATIONS BY PERMITTING THE BUREAU TO ACCUMULATE FUNDS SUFFICIENT TO ACCOMMODATE ITS FUTURE CAPITAL NEEDS. IT IS INCONGRUOUS TO STATE, THEN, THAT "PROFITS" MUST BE SEPARATELY ACCOUNTED FOR. THERE WOULD BE NO POINT IN RETURNING "PROFITS" TO THE TREASURY, WHILE GENERATING RETAINED INCOME THROUGH ANOTHER MEANS.

THEREFORE, PUB. L. 95-81 SUPERSEDES THE 1950 ACT TO THE EXTENT THAT THE BUREAU MAY RETAIN PAYMENTS RECEIVED, INCLUDING "EXCESS" OPERATING INCOME (I.E., INCOME BEYOND THAT RETAINABLE UNDER THE 1950 ACT) IN AMOUNTS SUFFICIENT TO "PERMIT THE ACQUISITION OF CAPITAL EQUIPMENT AND PROVIDE FOR FUTURE WORKING CAPITAL." THE ACT DOES NOT DIRECT THE BUREAU ON HOW TO RECORD SUCH AMOUNTS. IF IT IS WITHIN PROPER ACCOUNTING PROCEDURES, THEY MAY APPEAR IN A "RETAINED EARNINGS" ACCOUNT.

QUESTION 2: COULD THE BUREAU SIMPLY ADJUST ITS PRICES RATHER THAN IMPOSE SURCHARGES?

YES. AT THE APPROPRIATION HEARINGS, THE BUREAU REQUESTED LEGISLATION ENABLING IT TO ACCUMULATE FUNDS THROUGH SURCHARGES. THE BUREAU'S REQUEST ASKED FOR AUTHORITY TO GENERATE CAPITAL FUNDS TO "BE ACCOMPLISHED BY APPLYING A SURCHARGE ON SALES TO CUSTOMERS ***," SENATE HEARINGS, SUPRA, AT 439. THE LEGISLATION ENACTED, HOWEVER, DID NOT SPECIFY SURCHARGES AS THE REQUIRED MEANS TO OBTAIN CAPITAL FUNDS. INSTEAD, IT SIMPLY AUTHORIZES THE BUREAU TO ADJUST ITS PRICES. THEREFORE, THE BUREAU MAY, IN ITS DISCRETION, SIMPLY RAISE PRICES.

QUESTION 3: GIVEN THAT THE BUREAU ESTABLISHED AND COLLECTED SURCHARGES FOR 1979, CAN THE BUREAU LEGALLY ADJUST THE SURCHARGES "AFTER THE FACT" TO AVOID SHOWING AN OPERATING SURPLUS?

AS DISCUSSED ABOVE, PUB. L. 95-81 AUTHORIZES THE BUREAU TO RETAIN CERTAIN FUNDS. IT DOES NOT IMPOSE ANY PARTICULAR REQUIREMENTS ABOUT HOW THE BUREAU ACQUIRES THESE FUNDS OR DISPLAYS THEM ON ITS BOOKS. THE SURCHARGES ARE SIMPLY A METHOD FOR OBTAINING FUNDS WHICH MAY BE RETAINED. THEREFORE, WE DO NOT KNOW OF ANY LEGAL PROHIBITION AGAINST THE BUREAU RECLASSIFYING THESE FUNDS.

QUESTION 4: HOW MUCH AUTHORITY DOES GAO HAVE TO QUESTION AMOUNTS RETAINED? CAN WE REQUIRE THAT "EXCESS" AMOUNTS BE PAID INTO THE GENERAL FUND OF THE TREASURY?

GAO HAS SOME COGNIZANCE OVER THE FINANCIAL OPERATIONS OF THE BUREAU. FOR EXAMPLE, 31 U.S.C. SEC. 181C REQUIRES THAT THE BUREAU'S SYSTEM OF ACCOUNTING SHALL CONFORM TO THE PRINCIPLES AND STANDARDS PRESCRIBED BY THE COMPTROLLER GENERAL, AND THE SYSTEM IS SUBJECT TO REVIEW BY THE COMPTROLLER GENERAL TO ASSURE CONFORMANCE WITH THESE STANDARDS. SECTION 181D PROVIDES THAT FINANCIAL TRANSACTIONS, ACCOUNTS, AND REPORTS OF THE FUND SHALL BE AUDITED BY THE COMPTROLLER GENERAL IN ACCORDANCE WITH THE ACCOUNTING AND AUDITING ACT OF 1950, 31 U.S.C. SECS. 65 ET SEQ.

CONGRESS HAS GIVEN THE BUREAU AUTHORITY IN THE 1950 ACT AND IN PUB. L. NO. 95-81 TO RETAIN FUNDS FOR SPECIFIED PURPOSES, AND THE BUREAU MUST BE ACCORDED CONSIDERABLE DISCRETION IN DETERMINING WHAT AMOUNTS ARE NECESSARY FOR THESE PURPOSES (PARTICULARLY UNDER PUB. L. NO. 95 81). GAO CANNOT ACTUALLY "REQUIRE" THAT THE BUREAU DEPOSIT ANY FUNDS IN THE TREASURY. HOWEVER, GAO MAY RECOMMEND THAT THE BUREAU RETURN FUNDS TO THE TREASURY IF WE CONCLUDE THAT THE AMOUNTS BEING RETAINED ARE CLEARLY EXCESSIVE IN TERMS OF THE STATUTORY OBJECTIVES.

WE HOPE THAT OUR RESPONSE WILL ASSIST YOU IN RESOLVING THE ACCOUNTING ISSUES. IF YOU HAVE ANY FURTHER QUESTIONS, PLEASE FEEL FREE TO CONTACT US.