oversight

Follow-Up Review of the United States Disbursing Officers' Foreign Currency Accounts in India and Pakistan

Published by the Government Accountability Office on 1971-04-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                        UNUED STAT=         GENERAL ACCOUNTING OFFICE
                                                      WASXINGTOM,       D.C.     20548


lNTE‘3MATlONAL        DIVISION




                 B-146749



                 Dear Mr. Secretary:

                         Our follow-up          review of the United States Disbu&g                         Officers'
                                                                                                           yLlllrrrvw~-""w.
                 foreign
                  -_-.-     currency        accounts
                           - _..-. . ..- ..e.L--.l-.a._    in  India
                                                     .__.~_~bcm.r;-xo      and
                                                                  __.-..ll.l- .  Pakistan     has   shown   that some
                 sales of United States-owned                  foreign        currency     continue    to be improperly
                 recorded in the accounts containing                         currencies     eligible     for conversion
                 to dollars,      and that these accounting                     errors    could result      in a loss of
                 potential     benefits         to the United States amounting to $4.3 million                           as
                 of September 30, 1970.

                         The results     of our initial      review in India were brought to the
                 attention     of Secretary      Kennedy in a letter       dated October 3, 1969.        In
                 our follow-up       review we found that the disbursing           office   in India had
                 taken action to restore           the erroneously     recorded amounts to the proper
                 accounts but continued          to erroneously     record additional     sales of
                 United States-owned        foreign     currency,    Also, we found that no action
                 was taken on our recommendation             that the Treasury Department        conduct    yf
         I       reviews in other excess currency countries                to determine   if sales were
                 improperly      recorded in these locations.

                 AGREEMENTSPERTAINING TO THE ACCUMULATION AND
                 SALE OF UNITED STATES-OWNEDFOREIGN CURRENCY

                      The United States has entered into agreements with foreign              countries
                 under the Agricultural      Trade and Development Act of 1954 (7-U.S.C,          1701
                 et seq.) as amended which authorizes         the sale of agricultural     products
                 for foreign   currencies.      Through these agreements,    the United States
                 has accumulated    substantial     amounts of foreign  currency.      Most of this
                 currency        is   concentrated     in a few countries               (excess   currency    countries)
                 where balances          exceed all     known United           States     needs for    a period     of
                 several years.

                        Under the commodity sales agreements,     specified amounts of currency
                 accruing    to the United States as a result   of the agreements were available
                 for the purposes stated,     one purpose being for payment of United States
                 obligations    as authorized  by Section 104(a) (7-U.S.C.   1704) of the Act,




                                                 50 TH ANNIVERSARY              1921- 1971
        In accordance with the Act,disbursing         officers     were authorized     to
make sales of United States-owned         foreign    currency     available     under
Section 104(a) to:       (1) all civilian      employees of the United States
Government who are United States citizens,            (2) all United States con-
tractors    and subcontractors    who are engaged in activities             financed  by
the United States Government,       (3) all civilian         employees of such
contractors     who are United States citizens,        and (4) all United States
voluntary     non-profit  agencies engaged in projects          financed      by the
United States Government,

      The Smathers Amendment enacted in 1964, now in Section 104(j),
(7-U.S,C.  17041 provided        the necessary authorization         to enter into
agreements with excess currency           countries  to make sales for dollars
to United States citizens         and non-profit    organizations      for travel  or
other purposes.     Arrangements have been negotiated             with eight excess
currency  countries    (including      India and Pakistan)      to permit sales of
United States-owned      foreign    currency for purposes authorized          by
Section 104(j).

        Sales to United States citizens       and non-profit         organizations
constitute    a conversion     of United States-owned        foreign      currency      into
dollars.     Agreements    allowing   these  sales  placed      specific      limits      on
the amount of currency that could be used for this purpose.                        In order
to maximize the amount of conversions          of local currency,            Congress in
1966 required      that new sales agreements in excess currency                 countries
assure convertibility       of amounts of foreign       currency equal to the
normal expenditures      of United States tourists         in the importing            country,
but not to exceed 25 percent of the sales agreement (7-U.S,C.                        1703(m)).
The agreements with four excess currency countries,                  including       India and
Pakistan,    provide for conversion       of a specific      amount whether or not
sales are made to United States citizens           and non-profit          organizations
for travel    or other purposes.

       Management attention    is required     to assure that the available
quantities    of Section 104(j) currencie s are used only for authorized
sales.     Such assurances will   serve to enhance the opportunity         to sell
as much of the United States-owned         foreign  currencies as possible,
thereby improving     the United States balance-of-payments      position.

ACCOUNTING FOR SALES OF EXCESS
FOREIGN CURRENCY IN INDIA AND PAKISTAN

        In our folloWup     review, we found that,      because of an erroneous
interpretation      of Treasury Department policy,       certain      sales of United
States-owned     foreign   currencies     in India and Pakistan       equivalent   to
$4.3 million     were improperly      recorded as of September 30, 1970, as
having been made from accounts containing           currency     eligible     for con-
version to dollars.        These were sales to United States Government



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        employees, contractors        and their    employees, and voluntary        agencies
        working on projects      financed by the United States Government.               Accord-
        ingly,   these   sales  should   have    been    recorded  in other   accounts   containing
        funds not convertible       to dollars.        Unless corrected,    these improper
        reductions     of the recorded balances in the Section 104(j) accounts could
        result   in a loss of potential         benefits     to the United States.

                The amount of United States-owned           foreign     currency    available     for
        sale in India and Pakistan         under ,Section 104(a) was equivalent               to about
        $735 million      and $160 million     respectively       as of June 30, 1970, whereas
        the amount recorded as available           for sale under Section 104(j) was
        equivalent    to only $4.6 million        and $2.0 million         respectively.        Moreover,
        significant     future  increases    in the Section 104(j) funds are not likely
        because the sale of agricultural           commodities       for foreign      currency     is
        scheduled to end as a result         of a required        transition     to dollar      sales
        by December 1971,

              While the agreements do not specify        the time period for the conversion
        of currencies     available   under 104(j),   any unsold quantities    are convertible
        to dollars     by the Governments of India and Pakistan.        The same is not true
        of currency     available   under Section 104(a).     We noted that the equivalent
        of atout $480,000 worth of United States-owned          Indian currency held under
        Section'l04(j)      was converted  to dollars   by the Government of India in
        August 1970.

               The sale of United States-owned           foreign      currency accruing    from the
        agricultural    sales program is handled by United States Disbursing                   Officers
        under regulations      issued by the Treasury Department.                Accounts are mair+
        tained by the Disbursing          Officers   which reflect        balances available    for
        United States use under each of the various                  subsections   of Section 104.
        Treasury Department       Circular      830, issued in July 1966, designates           several
        categories    of persons and organizations            eligible     to purchase United States-
        owned foreign     currency,       The circular     did not specify,       however, the account
        from which the currency         is to be drawn for sale to each of the various
        categories    of eligible     purchasers.

               A Department of State instruction              was issued in November 1968, with
        the approval of the Treasury Department,                for the purpose of encouraging
        maximum use of excess foreign             currencies    and also designated        persons and
        organizations      eligible      to purchase this currency        but did not specify         the
        account from which the currency was to be drawn for each purchaser,                           We
        were advised by a Treasury official               that the intent     of the instruction
        was to indicate       that all sales of United States-owned             foreign     currency
        not specifically        designated     in the instruction      as authorized       under
        Section 104(j)       should be made from the 104(a) account.                 This instruction
        therefore     authorizes      all United States voluntary         non-profit      agencies
        engaged in programs or projects              sponsored or financed by the United
        States Government,         including     agencies involved     in programs under Title           II
        and .I11 of Public Law 480, to purchase currency under Section 104(a).



                                                                                                   -3-
ir       ,.
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                      We reported,   in a letter      to the Secretary    of the Treasury dated
              October 3, 1969, that a review of the disbursing                officers'      foreign
              currency accounts in India had shown that sales of United States-owned
              foreign    currency which should have been made from the Section 104(a)
              account were improperly         recorded as having been made from balances
              available     in the Section 104(j) account0           We noted that this procedure,
              if not corrected,      would result       in the loss of potential         benefits    to the
              United States amounting to about $447,000 but that the Embassy in India
              was taking steps to restore          the currency    to the proper account.            We
              recommended that the Treasury Department conduct a review in all excess
              currency countries       to determine       if the same situation       existed and, if
              SO% appropriate      corrective     action be taken,

                    The subsequent review of the disbursing         officers'    foreign   currency
              accounts in India and Pakistan      showed that,    as of September 30, 1970,
              sales equivalent    to $3,2 million   in India and $1.1 million          in Pakistan
              had been improperly    recorded as having been made from the Section 104(j)
              account,   Although we noted that the amount of $447,000 identified                in
              the prior  review in India had been restored        to the appropriate       account,
              we found no evidence that the Treasury Department             had conducted a review
              in all excess currency countries      to ascertain     what corrective      action was
              necessary as recommended in our prior       letter.

                     We did note, however, that a message from the Treasury Department
              in December 1969 requested         the Embassies in three excess currency
              countries,    including    India and Pakistan,       to review the accounts and
              take necessary corrective         action,     A reply from the United States
              Embassy in Pakistan in January 1970 stated that the sales were being
              made from the correct        accounts,    but our follow-up    review showed that
              sales were still      being improperly       recorded in the Section 104(j) account
              as of September 1970,

                     As stated previously,     the disbursing   office    in India made appropriate
              adjustments     for the sales identified     in our initial    review as having been
              improperly     recorded in the Section 104(j) accounts.          However, that office
              continued    to erroneously   record sales in the Section 104(j) account which
              should have been recorded in the Section 104(a) account.

                        We were advised by the United States Disbursing    Officer    that the
                  policy followed   in the sale of United States-owned  foreign    currency
                  in India was to make sales to United States Government employees and
                  their dependents from the Section 104(a) account and all other sales
                  from the Section 104(j) account.

                    It should be noted that the disbursing        officer's   interpretation
              of the policy     is somewhat different    than the intent    of the Department
              of State instruction      explained   to us by a Treasury official,         The
              Treasury official     advised us that the intent     of the instruction        was to



                                                                                                       -4-
require     that all sales of United States-owned     foreign    currency            not
specifically        designated in the instruction  as authorized     under
Section      104(j)   should be made from the 104(a) account.

      However, we found that the disbursing    officer's               interpretation
of the policy  was not always followed.     For instance,                sales made in
India to United States Government employees and their                    dependents were
recorded as having been made from the Section 104(j)                   account.

       We also noted that the disbursing              offices    at the United States
Embassy and consulates          in India did not always follow            the same pro-
cedure.     The Embassy disbursing          office    used the Section 104(j)        account
to record sales to Peace Corps volunteers                  while the consulate     disburs-
ing offices     properly     recorded    sales to volunteers         in the 104(a) account.
The Embassy disbursing          office   apparently       used the Section 104(j)       account
because a Peace Corps official            advised the disbursing          office to classify
the volunteers        s tourists,       Before completion        of our review,    the
Treasury    attach  2  in  New    Delhi  advised    the    Embassy   disbursing  office     that
action   should be taken to correct             the errors     in the accounts resulting
from these erroneously          recorded    sales to Peace Corps volunteers,

        Sales to United States Government employees,         voluntary     agencies
distributing    Title    II commodities ) and the University      of Maryland Center
for Medical Research financed         by a United States Government agency were
also improperly      recorded as made from the Section 104(j)          account in
Pakistan.

CONCLUSIONS

       United States-owned        foreign      currency     available    in India and Pakistan
for sale to Government employees,                contractors      and other eligible   purchasers
under Section 104(a) exceed known needs for a period of several                       years,
The amount of currency          specifically       available      for sale to United States
citizens    and non-profit       organizations        under Section       104Cj) is much smaller
and probably      will  cease to exist         in the near future        since sale of agri-
cultural    commodities      for foreign       currencies     are scheduled to end with the
required    transition     to dollar       sales by December 1971.

       We believe     that the action    of the Congress in amending Public         Law 480
legislation     to include provisions       making additional     amounts of foreign
currency    available     for United States uses and requiring        a portion   of this
currency    to be convertible      to dollars    clearly  reveals   congressional    intent
to assure that maximum benefits          accrue to the United States from these
resources.




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f
       -4.


         RECOMMENDATIONS

               Accordingly,     we recommend that the Secretary               of the Treasury      in
     'J-conjunction     with   the Department  of State: SJ+

               --issue     a clarification        of the State Department      instructions
                   to Disbursing       Officers     in all excess foreign     currency
                   countries    stating      that sales of United States-owned          foreign
                   currency    not explicitly         identified as authorized      under
                   Section 104(j)        be made from the 104(a) account.

               --require    Disbursing     Officers     in India and Pakistan     to restore
                   to the Section 104(j)        accounts the foreign     currency   equivalent
                   of $4.3 million     which we identified       as sales which should have
                   been recorded in the l.O4(a) accounts.

              --undertake     reviews of transactions       recorded     subsequent to
                 September 30, 1970, in India and Pakistan             and of all
                 transactions      in other excess currency       countries     where an
                 agreement exists        to make currency   available     for sale under
                 Section 104(j)       to determine   whether sales that should have
                 been made from the 104(a) accounts were improperly                  recorded
                 in the 104(j)       accounts.    Where this situation       exists,
                 appropriate     adjustments     should be made to restore         funds to
                 the 104(j)     account,

                                         *      *      *      *      *

                Your attention      is invited     to Section 236 of the Legislative
         Reorganization       Act of 1970 which requires       that you submit written
         statements     of the action      taken with respect     to the above recommen-
    clddations.       The statements       are to be sent to the House and Senate              L/J--b L7
      I~ Committees on Government Operations            not later    than 60 days after       the
       ! date of this report,         and to the Committees on Appropriations           in    tjao
         connection     with the first       request for appropriations       submitted    by
         your agency more than 60 days after            the date of this report.         We would
         appreciate     receiving     copies of all statements       submitted.

               In addition    to those committees    noted above, copies of this letter
         are being sent to the Director,      Office   of Management and Budget, the
         Secretary   of State, and the Foreign Operations       and Government Information
         Subcommittee,     House Committee on Government Operations.           f4 ,<I\

               We are, of course, available     to answer any questions               or render
         any assistance    that you may require   concerning the matters               discussed
         in this   letter.

                                                       Sincerely     yours,




        The Honorabie
        The Secretary      of Treasury                                                                  -6-