oversight

Unauthorized Retention in Working Capital Fund of Money Accumulated for Earned Leave of Transferred Employees

Published by the Government Accountability Office on 1971-03-10.

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

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                COMPTROLLER     GENERAL     OF      THE    UNITED   STATES
                              WASHINGTON.    D.C.     20548




B- 149858




To the President   of the Senate and the                                     (64
Speaker  of the House of Representativesc                           PJ”

        This is our report     on unauthorized     retention,    in the
working     capital fund, by the National      Bureau of Standards,
 Department      of Commerce,     of money accumulated        for earned
leave of transferred       employees.    Our review       was made pur-
 suant to the Budget and Accounting         Act, 1921 (31 U.S.C. 53),
 and the Accounting      and Auditing   Act of 1950 (31 U.S.C.        67).

       Copies of this report    are being sent to the Director,
Office  of Management      and Budget; the Secretary  of Commerce;
and the Director,    National  Bureau of Standards.




                                                 Comptroller            General
                                                 of the United          States




            -         50Tl-I ANNIVERSARY                  1921- 1971
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1           .
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I       ’
I           COME'TROLLER
                       GENERAL'S                          UNAUTHORIZED RETENTION IN WORKINGCAPITAL
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            REPORTTO THE CONGRESS                         FUND OF MONEY ACCUMULATED FOR EARNED LEAVE
                                                          OF TRANSFERRED EMPLOYEES
                                                          National   Bureau Of Standards
                                                          Department   of Commerce B-149858

I
I           DIGEST
            --_---
I

I
I
            WHYTHE REVIEWWASMADE
I
I                   The General Accounting     Office   (GAO), which is required     by law to review
I
I                   the accounting     system of each executive     agency, has reviewed selected
I                   aspects of the National     Bureau of Standards      accounting  system.  This
I
I
                    report    concerns the accounting    treatment    of the accrued annual leave
I               I   liability    for employees transferred      to other Government agencies.
I

            FINDINGS AND CONCLUSIONS
                    The Bureau maintains      a working capital   fund for financing      the initial
                    cost of certain     basic research,   development,    and testing   work per-
                    formed by the Bureau.       The fund is reimbursed      for such work from ap-
                    pli cable appropriations     and other sources,    including    advances and
                    reimbursements    from other Government agencies and non-Government
                    sources.    (See pp. 5 to 6.)

                    Fees to customers for Bureau          services           include       a factor       for   annual   leave
                    earned by Bureau employees.

                    In fiscal      year 1966 the employees of the Bureau's            former Central       Radio
                    Propagation      Laboratory      were transferred     to the Environmental        Science
                    Services      Administration      (now the National     Oceanic and Atmospheric         Ad-
                    ministration),        Department     of Commerce.     In the following     fiscal     year,
                    the Bureau treated          the reduction    in the liability     for accrued annual
                    leave of 757 transferred           employees as an increase       in donated capital.
                    Of the reduction,          $432,589 represented     the portion     of accrued annual
                    leave recovered        by charges to customers and retained           in the fund as a
                    result     of that treatment.          (See pp. 10 to 12.)

                    Section  13 of the Bureau's         Organic       Act,     as amended (15 U.S.C.               278b),   pro-
                    vides that:

                          'I*** The National    Bureau of Standards    is authorized  to uti-
                          lize in the performance     of its functions    the Working Capital
                          Fund established     by the Act of June 29, 1950 (64 Stat.       275),
                          and additional     amounts as from time to time may be required        for
                          the purposes of said fund are authorized        to be appropriated."
                                      *             *             *                    *              *
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            Tear Sheet
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             II*** The amount of any earned net income resulting      from the
             operation  of the fund at the close of each fiscal     year shall
             be paid into the general   fund of the Treasury:     Provided,
             That such earned net income may be applied     first  to restore
             any prior  impairment of the fund."    (See p. 9.)

     The Bureau operated   at a profit    in fiscal   year 1967 and transferred      the
     amount of such profit   to the general fund of the Treasury.          GAO believes
     that the $432,589 resulting     from the reduction    of leave liability    should
     have been treated   as an extraordinary      gain and added to the net income
     for that year for transfer    to the general fund of the Treasury.         (See
     p. 12.)

     In GAO's opinion,    the retention       of the $432,589 was an augmentation         of
     the Bureau's working     capital     fund without    authority   of law.     When the
     Congress specific s the sources of money and property             that are to make
     up the permanent working       capital    of revolving    funds, it is the general
     rule of law that there may not be additional             sources which serve to
     increase  the working    capital     in the absense of specific       statutory   au-
     thority.    (See p. 21.)

    A comparable situation          occurred     in fiscal     year 1954 when the Bureau
    transferred        all records,    property,     employees,      and activities      of its
    ordnance research          and development      programs to the Department           of De-
    fense (DOD).          The value of the accrued annual leave of the transferred
    employees amounted to $642,680.                The full    amount was retained        in the
    working      capital    fund after    the transfer       to DOD. At the time of that
    transfer,      the Bureau did not determine what portion               of the $642,680
    worth of accrued annual leave had been funded through fees or reim-
    bursements       recovered    by the working       capital    fund.   Because pertinent
    employee records had been disposed of in accordance with the Federal
    Records Act of 1950, GAO was unable to make a determination                        and, there-
    fore,     has no recommendations         regarding     that transfer.         (See p. 8.)

    GAO believes       that significant    transfers     of employees of the Bureau's                I
                                                                                                     I
    working    capital      fund could result    in future    unauthorized    augmentations          I
    similar    to the two transfers       described    in this report.       GAO noted that          I
    a decision     had not been made9 at the time of its review9 on the account-                     1
    ing treatment        for the accrued leave of 358 employees of the Clearing-                     I
    house for Federal Scientific          and Technical     Information     which was trans-         i
    ferred   from the Bureau to the Office           of the Secretary      on September 2,
    1970.    (See p. 21.)                                                                            I
                                                                                                     I

RECOMMENDATIONSOR SUGGESTIONS

    GAO is     recommending    to the Secretary       of Commerce that:

       --The Bureau pay into the general fund of the Treasury                    $432,589    re-
          tained in the working capital fund without authority                   of law.
I
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I        *
I
I                      --The Department of Commerce's Financial                Systems Staff    be required
                          to consider       the matters   discussed     in this report    and to establish
I
I                         specific      guidelines   to be followed      when accounting     for assets and
I                         liabilities       involved   in significant      transfers   of functions.      These
I                         guidelines       should be submitted       to the Comptroller     General for ap-
I                         proval and included        as a part of the Department's          Accounting    Prin-
I
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                          ciples      and Standards.     (See p. 22,)
I
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I            AGENCY ACTIONS AND UNRESOLVEDISSUES
I
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I                  The Director    of the National   Bureau of Standards     disagreed     that there
 I                 was an augmentation      of the working   capital   fund without    authority    of
 I
 I                 law.   He stated that the Bureau was in substantial          disagreement     with
 I                 the financial     concepts put forward    in GAO's report    draft   and with the
I
I
                   recommendation     that funds be transferred      to the Treasury.      (See
I                  apps. I and II.)
I
I                   The principal    reasons     for the Director's reaction         and GAO's evaluation
I                   thereof   are discussed      on pages 14 to 20.
I
I
I                  GAO's recommendations   are being made after             consideration      of the Di-
I                  rector's  comments.
I                                        (See P. 22.)
I
I
 I
             MATTERS FOR CONSIDERATION BY THE CONGRESS
    I
    I
                   This matter is being        reported   to the Congress       because     GAO believes    that
    I              the Bureau augmented        its working capital   fund       without     authority    of law.
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              Tear Sheet
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                          Contents
                                                                Page
DIGEST                                                            1
CHAPTER

       1    INTRODUCTION                                          4
       2    AUGMENTATIONOF WORKINGCAPITAL FUND WITHOUT
            AUTHORITY OF LAW                                      8
                Retention of funds representing    amounts
                  accumulated for accrued annual leave
                  of employees transferred    to ESSA            10
               Accrued annual leave of employees trans-
                  ferred to DOD                                  I?
       3    AGENCYCOMMENTS
                         AND GAO EVALUATION                      14
       4    CONCLUSIONSAND RECOMMENDATIONS                       21
               Conclusions                                       21
               Recommendations to the Secretary      of
                 Commerce                                        22

       5    SCOPEOF REVIEW                                       23

APPENDIX

        I   Letter dated December 18, 1969, from the
              Assistant Secretary of Commerce to the
              General Accounting Office                          27

   II       Letter dated July 30, 1970, from the Assis-
              tant Secretary of Commerce to the General
              Accounting Office                                  38

 III        Department of Commerce officials     responsible
              for administration of activities      discussed
              in this report                                     43
                          ABBREVIATIONS

DOD    Department      of Defense

ESSA   Environmental      Science   Services   Administration

GAO    General Accounting      Office
COMPTROLLERGENEIZAL'S                     UNAUTHORIZED RETENTION IN WORKING CAPITAL
REPORT TO THE CONGRESS                    FUND OF MONEY ACCUMULATED FOR EARNED LEAVE
                                          OF TRANSFERRED EMPLOYEES
                                          National   Bureau Of Standards
                                          Department   of Commerce B-149858


DIGEST
-----a

WHY THE REVIEW WAS MADE

    The General Accounting     Office   (GAO), which is required     by law to review
    the accounting     system of each executive     agency, has reviewed selected
    aspects of the National     Bureau of Standards accounting system. This
    report    concerns the accounting    treatment    of the accrued annual leave
    liability    for employees transferred      to other Government agencies.


FINDINGS AND CONCLUSIONS

    The Bureau maintains       a working capital   fund for financing     the initial
    cost of certain      basic research,   development,    and testing   work per-
    formed by the Bureau.        The fund is reimbursed     for such work from ap-
    plicable   appropriations     and other sources,    including    advances and
    reimbursements     from other Government agencies and non-Government
    sources.    (See pp. 5 to 6.)
     Fees to customers for Bureau services                   include       a factor       for   annual   leave
     earned by Bureau employees.

     In fiscal year 1966 the employees of the Bureau's former Central Radio
     Propagation      Laboratory    were transferred     to the Environmental        Science
     Services Administration         (now the National     Oceanic and Atmospheric         Ad-
     ministration),      Department     of Conunerce.    In the following     fiscal     year,
     the Bureau treated        the reduction in the liability        for accrued annual
     leave of 757 transferred         employees as an increase in donated capital.
     Of the reduction,        $432,589 represented     the portion     of accrued annual
     leave recovered by charges to customers and retained                in the fund as a
     result     of that treatment.        (See pp. 10 to 12.)

     Section 13 of the Bureau's         Organic       Act,     as amended (15 U.S.C.               278b),   pro-
     vides that:
           “**JrThe National    Bureau of Standards is authorized   to uti-
           lize in the performance    of its functions  the Working Capital
           Fund established    by the Act of June 29, 1950 (64 Stat.     275),
           and additional    amounts as from time to time may be required      for
           the purposes of said fund are authorized     to be appropriated."
                       *            *             *                    *              *




                                             1
             'I*** The amount of any earned net income resulting     from the
             operation  of the fund at the close of each fiscal     year shall
             be paid into the general fund of the Treasury:      Provided,
             That such earned net income may be applied   first   to restore
             any prior  impairment of the fund."   (See p. 9.)

     The Bureau operated   at a profit    in fiscal   year 1967 and transferred       the
     amount of such profit   to the general fund of the Treasury.           GAO believes
     that the $432,589 resulting     from the reduction    of leave liability     should
     have been treated   as an extraordinary      gain and added to the net income
     for that year for transfer    to the general fund of the Treasury.          (See
     p. 12.)

     In GAO's opinion,    the retention      of the $432,589 was an augmentation           of
     the Bureau's working     capital    fund without     authority   of law.      When the
     Congress specific s the sources of money and property             that are to make
     up the permanent working       capital    of revolving    funds, it is the general
     rule of law that there may not be additional             sources which serve to
     increase  the working    capital     in the absense of specific       statutory    au-
     thority.    (See p. 21.)

    A comparable situation          occurred     in fiscal     year 1954 when the Bureau
    transferred        all records,    property,     employees,     and activities     of its
    ordnance research          and development      programs to the Department of De-
    fense (DOD).          The value of the accrued annual leave of the transferred
    employees amounted to $642,680.               The full     amount was retained      in the
    working      capital    fund after    the transfer       to DOD. At the time of that
    transfer,      the Bureau did not determine            what portion    of the $642,680
    worth of accrued annual leave had been funded through fees or reim-
    bursements       recovered    by the working       capital   fund.    Because pertinent
    employee records had been disposed of in accordance with the Federal
    Records Act of 1950, GAO was unable to make a determination                      and, there-
    fore,     has no recommendations         regarding     that transfer.       (See p. 8.)

    GAO believes       that significant    transfers     of employees of the Bureau's
    working    capital      fund could result    in future    unauthorized    augmentations
    similar    to the two transfers      described     in this report.       GAO noted that
    a decision had not been made, at the time of its review, on the account-
    ing treatment        for the accrued leave of 358 employees of the Clearing-
    house for Federal Scientific          and Technical     Information     which was trans-
    ferred   from the Bureau to the Office           of the Secretary      on September 2,
    1970.    (See p. 21.)


RECOMMENDATIONSOR SUGGESTIONS

    GAO is    recommending    to the Secretary       of Commerce that:

       --The Bureau pay into the general fund of the Treasury                  $432,589    re-
          tained in the working capital fund without authority                 of law.
      --The Department of Commerce's Financial              Systems Staff be required
         to consider     the matters   discussed in this report        and to establish
         specific    guidelines   to be followed       when accounting    for assets and
         liabilities     involved   in significant      transfers   of functions.     These
         guidelines    should be submitted        to the Comptroller     General for ap-
         proval and included       as a part of the Department's         Accounting   Prin-
         ciples and Standards.        (See p. 22.)


AGENCYACTIONSAND UNRESOLVED
                          ISSUES
    The Director    of the National   Bureau of Standards disagreed       that there
    was an augmentation      of the working capital   fund without    authority    of
    law.   He stated that the Bureau was in substantial        disagreement     with
    the financial    concepts put forward in GAO's report      draft   and with the
    recommendation    that funds be transferred     to the Treasury.      (See
    apps. I and II.)

    The principal    reasons   for the Director's reaction        and GAO's evaluation
    thereof   are discussed    on pages 14 to 20.

    GAO's recommendations   are being made after         consideration      of the Di-
    rector's  comments.   (See pa 22.)


MATTERSFOR CONSIDERATIONBY THE CONGRESS
    This matter is being       reported   to the Congress because        GAO believes    that
    the Bureau augmented       its working capital    fund without       authority    of law.
                                CHAPTER1

                               INTRODUCTION

        The General Accounting Office has reviewed the account-
ing treatment      of the accrued annual leave liability   for em-
ployees     of the National Bureau of Standards, Department of
Commerce, transferred      to the Department of Defense (DOD)
and the Environmental      Science Services Administration    (ESSA)
(now the National Oceanic and Atmospheric Administration),
Department of Commerce, in fiscal       years 1954 and 1966, re-
spectively.       The scope of our review is included on page 23.

      The National Bureau of Standards, which was established
by the act of March 3, 1901 (31 Stat, 1449, as amended;
15 U.S.C. 271-2901, is the principal        focal point in the Fed-
eral Government for ensuring maximum application         of the
physical   and engineering    sciences to the advancement of
technology   in industry    and commerce. To accomplish this
purpose, the Bureau conducts research and provides services
in three broad program areas:         (1) basic measurement stan-
dards, (2) materials     research,   and (3) engineering   standards
and applied technology.

        The Bureau is composed of five major organizational
units,    each of which is primarily       concerned with one or more
of the aforementioned       program areas.      These units are the
Institute    for Basic Standards,     the Institute     for Materials
Research,    the  Institute    for Applied   Technology,    the Center
for Radiation Research, and the Center for Computer Sci-
ences and Technology.

      The   activities   of the Bureau within    these broad areas
include:

      1.    The development and maintenance of national         stan-
            dards for physical measurements.

      2.    The coordination     of these standards   with   those of
            other nations.

      3.    The calibration   of instruments  in terms of the na-
            tional standards for the Nation's    scientific com-
            munity, industry,   and commerce.

                                    4
      4.   The development and dissemination       of measurement
           techniques,   standard reference materials,     stan-
           dard reference    data, and engineering    measurements
           and performance criteria.

      5.   The conduct      of research   in the properties    of mate-
           rials.

      6.   The development of automatic data processing  stan-
           dards and the conduct of research in computer
           sciences and techniques.

       Costs incurred during fiscal     year 1970 by the       Bureau
totaled    about $88.8 million.     Of this amount about       $2.4 mil-
lion was incurred for construction        and maintenance      of plant
and facilities     and the remaining $86.4 million     was     incurred
for Bureau program operations.
      Of the total Bureau staff of about 4,050 at June 30,
1970, about 3,420 were located at Bureau headquarters   in
Gaithersburg,   Maryland, and the nearby Washington, D. C.,
area and about 630 were located at Boulder, Colorado.

       The Bureau is engaged in certain          basic research,    de-
velopment,    and  testing    work  which  is  financed   by direct   ap-
propriations;     other Federal agencies; State and local gov-
ernments; the District         of Columbia Government; and private
institutions,     enterprises,     and individuals.

      A working capital    fund, which initially      finances the
cost of all work performed by the Bureau, is periodically
reimbursed for the work from applicable         Bureau appropria-
tions and other receipts,      including advances and reimburse-
ments from other Government agencies and non-Government or-
ganizations,   gifts,   and bequests,

Working    capital   fund
       The Bureau's working capital   fund was established   by
the Deficiency     Appropriation Act of 1950, dated June 29,
1950 (64 Stat, 275), which provided for the original       appro-
priation   as follows:



                                     5
      "For the establishment       of a working capital         fund,
      to be available    without fiscal        year limitation,
      for expenses necessary for the maintenance and
      operation   of the National Bureau of Standards, in-
      cluding the furnishing       of facilities      and services
      to other Government agencies, not to exceed
      $3,000,000.     Said fund shall be established            as a
      special deposit account and shall be reimbursed
      from applicable     appropriations       of said Bureau for
      the work of said Bureau, and from funds of other
      Government agencies for facilities           and services
      furnished   to such agencies pursuant to law. Re-
      imbursements so made shall include handling and
      related   charges; reserves for depreciation            of
      equipment and accrued leave; and building              con-
      struction   and alterations      directly    related to the
      work for which reimbursement is made."'

      The land, buildings,       equipment, and certain   other as-
sets and liabilities      of the Bureau, in addition    to the ori-
ginal $3 million     appropriation,    were transferred   to the
fund and considered a part of the corpus of the fund when
it was established     on July 1, 1950.

       On August 3, 1956, the Organic Act of the Bureau
(15 U.S.C. 271) was amended,authorizing     the Bureau to uti-
lize the working capital    fund in the performance of its
functions   and for any activity   for which provision was made
in the appropriations   which reimbursed the fund (15 U.S.C.
278b(a) and (b)).

        Because the original       appropriation      was not considered
adequate to cover current operating              requirements,   the De-
partments of State, Justice,          Commerce, and the Judiciary
Appropriation      Act of 1952, enacted October 22, 1951 (65 Stat.
593), provided an additional           $2 million     for the working
capital    fund,    In addition,     the fund has been increased by
about $8 million         through transfers     from the Bureau's appro-
priated    funds for research and technical             services and con-
struction     of facilities.       Thus the funds appropriated        and
transferred      to the working capital        fund as of June 30, 1970,
totaled    about $13,284,100.



                                     6
      A list of principal  Department of Commerce officials
responsible  for the administration   of activities discussed
in this report is presented as appendix III.




                               7
                                 CHAPTER2

              AUGMENTATIONOF WORKINGCAPITALI.-FUND

                      WITHOUT AUTHORITY OF LAW

       In our opinion,   the Bureau augmented its working capi-
tal fund without authority     of law by retaining    funds repre-
senting the major portion     of accrued annual leave of em-
ployees transferred    from the Bureau to ESSA. When the Con-
gress specifies    the sources of money and property      that are
to ma'ke up the permanent working capital      of revolving    funds,
it is the general rule of law that there may not be addi-
tional   sources which serve to increase the working capital
in the absence of specific     statutory authority,

       The portion   of accrued annual leave of the employees
of the Bureau's former Central Radio Propagation            Laboratory,
which was reimbursed by payments from customers for whom
services were performed, was retained          in the working capital
fund in fiscal     year 1967 following     the transfer    of the Lab-
oratory to ESSA in fiscal        year 1966. In our opinion,        the
reduction   of the liability      resulted   in an extraordinary      gain
of $432,589 which should have been, but was not, included
in the payment of fiscal       year 1967 net income into the gen-
eral fund of the Treasury.         The accrued annual leave of the
employees transferred,       as it is used in the future,       will be
paid from appropriations       to ESSA.

       Also about $642,680, representing           the total accrued
 annual leave of the Bureau employees engaged in ordnance
 research and development programs, was retained               in the work-
 ing capital   fund following     the transfer       of these programs
and employees to DOD in fiscal         year 1954. At the time of
the transfer,     the Bureau did not make a determination              of
the portion    of the $642,680 worth of accrued annual leave
that had been funded by payments from customers and repre-
 sented an extraordinary      gain.    Because pertinent        records of
the employees involved in the fiscal           year 1954 transfer         had
been disposed of in accordance with the Federal Records Act
of 1950, we were unable to make this determination                 and
therefore    we have no recommendations regarding            that transfer.
We have included,however,       certain    details     of the transfer
to DOD on pages 12 and 13.
     Section 13 of the Bureau's Organic Act,             as amended
(15 U.S.C. 278b), provides,  in part, that:

      I'*** The National Bureau of Standards is authorized
      to utilize  in the performance of its functions    the
      Working Capital Fund established   by the Act of
      June 29, 1950 (64 Stat. 2751, and additional     amounts
      as from time to time may be required for the pur-
      poses of said fund are authorized   to be appro-
      priated."
           *            *           *            *            *


      I'*** The amount of any earned net income resulting
      from the operation   of the fund at the close of
      each fiscal  year shall be paid into the general
      fund of the Treasury:    Provided, That such earned
      net income may be applied first    to restore any
      prior impairment of the fund."

        The above provisions   of law supplement the basic au-
thority    for the establishment    of the fund as originally au-
thorized     in the Deficiency   Appropriation Act of 1950.

       Cur review showed that, except for fiscal   years 1954
and 1963, operation   of the fund had resulted   in net income
which was paid into the general fund of the Treasury.       The
impairments sustained in fiscal   years 1954 and 1963 were
restored by applying net income earned in succeeding years.

       In our report to the Congress on the operations               of the
Bureau for fiscal    years ended June 30, 1951, and June 30,
1952 (B-114821, May 10, 19541, we stated that the Bureau
had not recognized the liability         for employees' accrued an-
nual leave existing    at the inception         of the working capital
fund in 1950. The report stated also that, as a result,
the accrued annual leave liability          was understated       and the
donated capital    was overstated.       In fiscal       year 1953, the
Bureau recognized the liability         existing       at the inception
of the fund by establishing       an accrued annual leave liabil-
ity of $1.4 million     and reducing the donated capital             ac-
count.    This treatment   eliminated      the need for the Bureau
to fund the $1.4 million      of initial      liability      from charges
to customers.

                                        9
         A project  cost accounting   system is maintained to ac-
cumulate the costs of projects        undertaken by the working
capital     fund,   The charges to projects     for labor costs in-
clude, in addition      to the employee's compensation,        a factor
for annual leave earned, sick leave and other categories               of
leave used, paid holidays,        and adjustments    to bring the ac-
crued annual leave liability        account into agreement with
the total of the individual        employee balances.      This factor
is then recovered,      in cash, by billing     customers for whom
services are performed.        The term "funded" is used in this
report to describe the portion        of the accrued annual leave
liability      which is recovered by charges to customers.          The
accrued leave liability       account is reduced when the employ-
ees use the leave.       According to Bureau financial       state-
ments, the accrued annual leave liability          at June 30, 1970,
was about $3.6 million.

Retention of funds representing
amounts accumulated for
accrued annual leave of
employees transferred  to ESSA

      Effective    October 1965, Department of Commerce Order
No. 2-A, dated July 13, 1965, transferred         the Central Radio
Propagation     Laboratory  and its employees, funds, records,
and property to ESSA, also a constituent         agency of the De-
partment.     In October 1965 the Bureau and ESSA entered into
a memorandum of understanding       which provided that, except
for executive     direction  from ESSA, the Laboratory    would in
effect continue to operate as a part of the Bureau and the
Bureau would continue to account for the Laboratory          in the
Bureau's working capital       fund for the remainder of fiscal
year 1966.

      On July 2, 1966, the accounting   function relating    to
the 757(l) employees of the Laboratory was transferred       to
ESSA from the Bureau.   At that date the transferred      employ-
ees had a total accrued annual leave balance of 1'02,615
hours valued at about $520,130.     An entry was made in the

1Although the journal voucher supporting    the entry showed
 that 757 employees were transferred,    ESSA officials pro-
 duced records that supported a transfer    of only 720 em-
 ployees.
                                   10
Bureau's accounting    records reducing the accrued annual
leave liability    and increasing   the donated capital  for this
amount, The reduction      in the liability   consisted of funded
and unfunded accrued annual leave, but the donated capital
was increased under the assumption that the entire reduc-
tion of the liability     was unfunded,

       We computed the maximum amount of the accrued leave
for the transferred    employees, which could have been as-
sumed by the fund at its inception      on July 1, 1950, to be
$87,541.     This amount represented  the value of the maximum
leave balance for 52 employees transferred      to ESSA, who
were employed by the Bureau at July 1, 1950, and whose
leave balances at that date were assumed by the working
capital   fund.

       The leave balances of the remaining 705 transferred
employees, who began their employment with the Bureau sub-
sequent to July 1, 1950, and the increases to the assumed
leave balances of the aforementioned       52 employees were
funded by charges made through the Bureau's working capital
fund.    An inventory    of the fund's accrued annual leave of
its employees is taken semiannually       as a basis for adjust-
ing the leave rate factor included in the charges.         These
periodic   adjustments,    in addition  to such variations  as
those attributable      to changes in the value of leave, re-
flect the net effect of transfers       of leave balances to and
from the fund without reimbursement.

       We computed the maximum accrued leave amount of
$87,541 for the 52 employees, which was included in the ex-
isting   leave balance at the inception     of the working capi-
tal fund, in the following     manner,   We obtained for each
of the 52 employees the General Schedule grade and step
levels at July 1, 1950, from records available         at the ESSA
personnel office at the Boulder Laboratories        in Boulder and
at the Bureau headquarters     in Gaithersburg.     After comput-
ing the maximum leave balances for the 52 employees at
July 1, 1950, we multiplied     each balance by the hourly
earnings rate determined from a Civil Service Commission
table of General Schedule pay rates which were in effect at
that time.     Cur computation showed that $87,541 was the
maximum possible value of accrued annual leave at July 1,
1950, for the 52 transferred     employees who were at the

                                11
Bureau at the inception   of the fund. Therefore, of the to-
tal accrued leave balance of $520,130 for the employees
transferred  to ESSA, $432,589 was the minimum amount which
had been funded by payments from customers for whom ser-
vices had been performed,

       As stated previously,      the-accounting     entry made by the
Bureau to reflect      the transfer     of employees to ESSA reduced
the accrued leave liability         and increased the donated capi-
tal by $520,130.       The donated     capital  account, however,
should have been increased by no more than $87,541 and the
difference    should have been treated as an extraordinary
gain, because it represents         the portion of the liability
reduction    which had been funded by charges to customers.
Since the Bureau operated at a profit           in fiscal   year 1967,
the extraordinary      gain from the reduction       of the liability
would have increased the net income by a minimum of
$432,589.     Therefore a minimum of $432,589 representing            the
funded accrued annual leave of the transferred             employees,
in addition    to the net income in fiscal        year 1967, should
have been transferred      to the general fund of the Treasury.

         A Bureau official     informed us that, at the time of the
transfer     to ESSA, the legal implications       of this matter
were not considered        and that the decision to reduce the
liability     by a transfer     to donated capital   and to retain
the funds, rather than to transfer         them to the Treasury,
was approved by top Bureau management. We were advised
that the decision was based on the opinion that this was
the proper accounting        treatment.

Accrued annual leave      of employees
transferred to DOD
       Pursuant to a statement of understandtig           between the
Secretary of Defense and the Secretary of Commerce, all
records,   property,    employees, and activities        of the ordnance
research and development programs of the Bureau were trans-
ferred to DOD on September 27, 1953, The transferred              activ-
ities consisted      of the divisions    of ordnance development,
electromechanics,      and electronic    ordnance and one section
each of the divisions      of electronics     and electricity,    all
located in Washington, D.C,, and the guided missile labora-
tory located in Corona, California,           The activities    of the

                                   12
Washington laboratories     were transferred to the Diamond
Ordnance Fuse Laboratories,     Army Ordnance Corps, Department
of the Army. The guided missile laboratory      in Corona was
transferred  to the Corona Ordnance Laboratory,     Navy Bureau
of Ordnance, Department of the Navy,

      As a result,    a total of about 1,700 Bureau employees
were transferred    to DOD, The value of the accrued annual
leave of these employees amounted to about $642,680; how-
ever, the Bureau did not determine what portion was funded
through fees or reimbursements recovered by the Bureau's
working capital    fund at the time of the transfer,     We were
unable to make this determination,     because pertinent   em-
ployee records were disposed'of     in accordance with the Fed-
eral Records Act of 1950.




                               13
                                CHARTER3

               AGENCYCOMMENTS
                            AND GAO EVALUATION

       We initially      considered the entire amounts of the two
reductions     in accrued annual leave liability           to be augmen-
tations    of the working capital        fund and proposed that the
Bureau pay the total amount of $1,162,810 into the general
fund of the Treasury.          Comments of the Director,       National
Bureau of Standards, on this proposal were sent to us by
the Assistant       Secretary of Commerce on December 18, 1969.
Our consideration        of his comments prompted us to perform
additional     work to identify      that portion     of the accrued
leave which, we believe,          should be considered unfunded.        We
sent copies of the revised report draft to the Department
on May 6, 1970, and the Assistant            Secretary   submitted addi-
tional comments of the Director           to us on July 30, 1970,
The Director       requested that consideration        be given to both
responses and that the entire contents of his comments be
included in the report,           The comments of both dates are in-
cluded as appendixes I and II.

        The Director    disagreed with our findings         that there
was an augmentation of the working capital             fund without au-
thority     of law. He stated in the second of the two re-
sponses that the Bureau remained in substantial                disagree-
ment with the financial         concepts put forward in the report
draft and with the resultant          proposal of a transfer        of funds
to the Treasury.        The reasons given by the Director           for the
disagreement are contained in the two responses and relate
principally      to (1) the appropriate      accounting    treatment for
extraordinary      gains, (2) the reduction       in fund capital       rel-
ative to the reduction        in fund activities,       (3) consistency
in accounting      for all items involved in the transfer,             and
(4) the premises used in our computation of the funded
leave.
      In the earlier   response, the Director  questioned
whether nonoperating    income was a segment of net income
within the meaning of the legislation     which requires net in-
come to be paid into the general fund of the Treasury.          (See
pp. 34 to 35.)     We had used the term "nonoperating     income"
to refer to the funded portion of the liability       for accrued


                                    14
annual leave of     the employees transferred.    After further
consideration,    as described below, we classified     the re-
duction of the    liability   as an extraordinary   gain to be
included in net     income.

     In his response to the revised report draft,   the Direc-
tor stated that adjustments for such extraordinary    items as
leave transactions  should be handled through donated sur-
plus and should not be considered a part of earned net in-
come. He added that:

     "We believe the maintenance of donated surplus ac-
     counts in the operation      of revolving   funds is an
     accepted practice.       We believe such accounts are
     customarily  used to handle unusual and 'one-time'
     transactions   affecting    the capital   of the fund
     that should not be considered in the calculation
     of net income or loss."

      We agree   that the use of a donated surplus or similar
account is an    accepted practice  in revolving fund account-
ing.   Such an   account is necessary to adequately show the
equity of the    Government.
      The  Bureau's opinion that unusual and one-time trans-
actions affecting     the capital     of the fund should not be con-
sidered in the calculation        of net income or loss, however,
does not conform with generally          accepted accounting princi-
ples.    Opinion No. 9 of the Accounting Principles            Board,
American Institute      of Certified     Public Accountants,     con-
cludes that net income should reflect           all items of profit
and loss recognized during the period with the sole excep-
tion of certain prior period adjustments described in the
opinion.    The opinion states that extraordinary           items should
be segregated from the results          of ordinary operations      and
should be shown separately         in the income statement with a
disclosure    of their nature and amount. On the basis pf
criteria   described in the opinion for determining            extraor-
dinary items and prior period adjustments,            we believe that
the reduction     of the accrued annual leave liability           should
have been considered      an extraordinary      gain and included in
net income for fiscal      year 1967.



                                   15
        In commenting on our position      that the reduction   of the
capital      of the fund is consistent    with the reduction   of the
fund's activities        brought about by the transfer,    the Direc-
tor stated that the Bureau did not agree with this concept
as it applied to the cost of equipment which had not been
fully     recovered through depreciation.      According to the Bu-
reau, the equipment transferred        to ESSA had a book value of
$2,096,000,       and the Director  suggested that the Bureau
should have recovered the book value as a part of the trans-
fer.
        If, as suggested by the Director,         the working capital
fund were to recover the book value of the equipment trans-
ferred,     the reduction     in working capital     fund resources
would be offset by an increase in net working capital               and
the fund would be restored          to the level maintained before
the transfer.        We continue to believe that the reduction          in
the working capital       fund resources is consistent        with the
reduction      in fund activities     , just as an increase in fund
activities       normally justifies     an expansion of the fund re-
sources.

     The question of accounting consistency            was raised    by
the Director  in his statement that:

      'IIn the event we must include leave adjustments
      in the computation of profit   or loss, then we be-
      lieve all such transactions   should be so treated,
      including  property and equipment transactions.11
It was contended in the first       response, and pointed out
again in the second, that, had a loss been computed on the
property    and equipment transfer,     the subject transaction
with ESSA would have resulted       in a net loss of over $900,000
to the working capital    fund.     The Director   computed the loss
as follows:

Unrecovered working capital        fund cash invested
  in the equipment transfer        to ESSA                   $2,096,000
Reduction in leave liability         described in GAO's
  report (original  draft)                                    1,162,810
     Total   loss   to working   capital   fund              $-___
                                                                 933,190


                                    16
      We believe that the nonreimbursable        transfer     of prop-
erty and equipment should not be considered          a loss in the
computation of net income when the transfer          presumes a cor-
responding reduction      in the fund's activities,       regardless
of the accounting    treatment accorded the transfer          of the
leave liability.     If a loss had been computed on the trans-
fer of property    and equipment as suggested by the Director,
the effect would have been to restore the fund by the amount
of the unrecovered     investment without regard to the reduc-
tion in activities     and needs.

       The Director    indicated   that a 1971 appropriation      re-
quest for $950,000 for equipment and standard reference
materials     might not have been necessary if the Bureau had
been able to recover the value of the transferred            assets.
We noted, however, that appropriation         requests in similar
amounts were made annually for several years prior to the
transfer    in 1967. There is no evidence that the latest            re-
quest is attributable        to the loss in transferred    assets,
Although it is true that the fund can be increased either
through recovering       the book value of the transferred      assets
or through the appropriation         process; we believe that, in
the absence of evidence that the funds are needed to replace
transferred     assets, the former method of increasing        the
fund is not appropriate.

       We do not agree that consistency          requires   all items
involved in a transfer         to be handled as adjustments to do-
nated capital      without consideration      of the effects     of the
transfer     on prior determinations       of income.     Charges for ac-
crued leave earned by the 757 employees after July 1, 1950,
were made to the fund and were matched with revenues in
prior years' determinations         of income, but the transfer        of
the liability      precluded the payment of these charges by the
fund.     Consequently,     an extraordinary     gain arising    from the
reduction     of the liability     to the fund was realized.

       The Director commented on the method we used to com-
pute the funded portion   of the reduction in liability, as
follows:
      I'*** You have indicated   that of the 757 employees
      transferred   to ESSA, only 52 were employed by the
      Bureau on July 1, 1950, when all NBS employees'

                                  17
      leave liabilities       were assumed by the Fund. This
      assumption discounts        the various leave liabilities
      assumed for the remaining 705 employees that
      transferred     from other Government agencies to the
      Fund without reimbursement for leave, and also
      disregards     terminal leave settlements    paid for
      these, as well as other, employees who retired            or
      left the Fund for outside employment during the
      period from 1950 to 1966. Nor was it considered
      that the billing       rate of the Fund during this pe-
      riod did not include a factor for leave liabilities
      assumed July 1, 1950, and, subsequently,         liqui-
      dated with no reimbursement of the Fund for prior
      liability,"

        Me recognize that methods other than the specific            iden-
tification     of employees whose leave was assumed by the fund
at its inception     might ordinarily      be acceptable;     however,
we believe that the amount for the unfunded annual leave of
the 52 employees, which we determined by this method,is
reasonable and that the method is appropriate             in view of the
accounting policies      expressed by the Director.          (See pp. 31
to 32, app. I.)      Under these policies,gains       and losses were
not determined for employees whose annual leave balances
were assumed at the inception         of the fund and who were sep-
arated before the transfer.
      As discussed on page 11, the leave liabilities    for the
705 transferred   employees who began their employment with
the Bureau subsequent to July 1, 1950, were funded by
charges made through the Bureau's working capital    fund. . The
funding of the assumed leave liabilities    resulted from peri-
odic adjustments   of the charges.
      In the matter of terminal leave settlements,  the Bu-
reau appears to be following   the policy stated by the Di-
rector that:

     'I*** Perhaps there are some gains--there      are also
      some losses --we do not know the net effect,      and we
     believe that it would be too costly,      in relation
     to the materiality    of the result to account for
     the history    of each employee in such situationsQt'


                                   18
He stated also that the Bureau had paid terminal      leave set-
tlements from funds accumulated against the liability      even
though portions  of the leave were unfunded.     The Bureau also
gained, however, by retaining    funds which represented   funded
leave of employees who transferred     to other Government agen-
cies.

       Regarding the Director's    comment that we did not con-
sider the leave liabilities     assumed on July 1, 1950, we
stated on page 12 that the $432,589 was arrived at by sub-
tracting   the maximum possible value of the annual leave as-
sumed at July 1, 1950, from the value of the leave balance
at the date of transfer.       We considered the remainder of
the $432,589 to have been funded subsequent to July 1, 1950,
by adjustments    to the leave rate factor used in billing    cus-
tomers.    Therefore our computation recognized the fact that
the leave assumed at July 1, 1950, was not funded through
the working capital     fund.

      The Director   noted that:

     I'*** staff of the General Accounting Office were
      involved in establishing    the Working Capital Fund
      and many of the sub-accounts,    including the leave
     reserve,   and were consulted on operating    policies."

He also referred      to GAO reviews of the leave reserve account
after 1950. Our records do not show that we were involved
in the development of the specific          leave accounting policies
discussed in this report.         Furthermore    the Director   attrib-
utes the policies       explained on pages 31 and 32 of appen-
dix I solely to the Bureau.         Although a prior report re-
ferred to the change in donated capital            as a result of the
fiscal    year 1954 transfer     to DOD, the review, which was of
a general financial       nature, did not concentrate       on the ac-
counting treatment for the transfer           of accrued annual leave
liability     as such.

       The Director   commented that there is a lack of offi-
cial guidance in connection with Governmental reorganiza-
  .
tions,   particularly   where revolving  funds are involved,
Since our review was limited      to the working capital   fund of



                                   19
the Bureau, we are unable to comment on transfers         with re-
spect to other funds and agencies.        A copy of this report
will be furnished    to the Office of Management and Budget
for its consideration,     however, and we intend in future re-
views to give particular     attention   to the accounting    treat-
ment relating   to transfers    of employees.




                                 20
                                   CHAPTER     4


                   CONCLUSIONS AND RECOMMENDATIONS

CONCLUSIONS

       When the Congress specifies         the sources of money and
property    that are to make up the permanent         working   capital
of revolving       funds,   it is the general   rule of law that there
may not be additional          sources which serve to increase       the
working    capital     in the absence of specific     statutory   author-
ity.

        The statutes      pertaining      to the creation       and operation      of
the working      capital     revolving      fund direct    that appropria-
tions    comprise     the capital      of the revolving       fund;    that facil-
ities    and services      furnished      therefrom     be on a reimbursable
basis;    and that earned net income, except               for purposes      of
capital    restoration,        be paid into the general          fund of the
Treasury.       The authority        to include     a charge for a reserve
for accrued      leave was for the purpose            of placing     the fund on
a wholly     reimbursable       basis.

        There is nothing        in the legislative      history     or else-
where to indicate         that an excess in the funded reserve              re-
sulting     from the elimination        of a liability       for accrued
leave could be used to increase             the capital      of the revolving
fund.     Therefore     retention     of the funds,      representing     the
funded accrued        annual leave of the transferred            employees,     in
the revolving       fund as donated capital          was an augmentation        of
the fund without        authority     of law.      We have estimated      that
the minimum amount of the funded accrued                 leave of the trans-
ferred    employees     that was retained        in the revolving      fund
was $432,589.

       We believe     that significant           transfers     of employees      of
the Bureau's      working     capital     fund could result        in future      un-
authorized      augmentations       similar      to the two transfers         de-
scribed    in this report.          We noted that a decision           had not
been made, at the time of our review,                    on the accounting
treatment     for the accrued         leave of 358 employees         of the
Clearinghouse      for Federal        Scientific       and Technical     Informa-
tion transferred        from the Bureau to the Office              of the Sec-
retary    on September 2, 1970.

                                         21
RECOMMENDATIONS TO THE SECRETARY OF COMMERCE

       We recommend that funds in the amount of $432,589,            re-
tained   in the working   capital   fund without   authority      of law,
be paid into the general       fund of the Treasury,    as required
by the provisions     of section   13 of the Bureau's      Organic   Act,
as amended.

         We recommend further        that the Department       of Commerce
Financial      Systems Staff     be required     to consider      the matters
discussed      in this report      and to establish      specific    guide-
lines     to be followed      when accounting      for all assets and li-
abilities      involved    in significant     transfers    of functions.
These guidelines        should be submitted        to the Comptroller       Gen-
eral for approval        and should be included         as a part of the
Department's       Accounting    Principles     and Standards.

        The guidelines      should provide     that,   in any future       reor-
ganizations      which might result       in a transfer      of a signifi-
cant number of employees,          a determination       be made as to the
amount of leave which has been funded.               This portion     of the
leave liability,        if not paid to another       revolving    fund re-
ceiving     the transferred      employees,    should be treated      as in-
come in the year of the transfer.




                                       22
                            CHAPTER5

                        SCOPEOF REVIEW

       Our review, which was conducted primarily        at Bureau
headquarters    in Gaithersburg,included      an examination    of the
legislation    which authorized     the working capital    fund, Re-
organization    Plan No. 2 of 1965, and the procedures followed
in accounting    for the transfer      of employees from the Bureau
to ESSA in fiscal    year 1966 and to DOD in fiscal        year 1954.

       We reviewed also personnel and payroll        records main-
tained at the Bureau and obtained pertinent          information
from ESSA's Research Laboratories       in Boulder.      We discussed
the transfers     with Department of Commerce and Bureau offi-
cials,    We were unable to make a detailed       review of the
transfer    to DOD, because applicable    records had been dis-
posed of in accordance with normal Government practice.
Our review did not include an evaluation         of the basis and
authority     for the various increases in the capital        of the
fund above its initial       capital of $3 million.




                                  23
APPENDIXES




             ,,’ :




 25
                                                                 APPENDIX I
                                                                    Page 1

                THE     ASSISTANT    SECRETARY     OF COMMERCE
                             WASHINGTON,    D.C.   20230




    Mr., Henry Eschwege
    Associate     Director
    Civil   Division
    General Accounting     Office
    Washington,      D.C.  20548

    Dear Mr,      Eschwege:

    This is in reply to your letter   of December 16, 1968
    and the first  finding of a proposed report    to the
    Congress on the "Need for Improvement    in the Financial
    Management System of the National   Bureau of Standards".

    We have reviewed   the comments of the National    Bureau
    of Standards   and believe  that they are appropriately
    responsive   to the matters   discussed in the report.

    Sincerely         yours,




    Enclosure




,




                                        27
APPENDIX I
   Page 2


                                                           U.S. ~IEPARTMEIIMT     OF COMMERCE
                                                           hlational Bureau   of Standards
                                                           Washington. DC.   20234




 Mr. Henry Eschwege
 Associate     Director
 Civil   Division
 U. S. General Accounting        Office
 Washington, D. C. 20548

 Dear Mr. Eschwege:

 This is in response to your letter       of December 16, 1968, and the first
 finding   of your draft report to the Congress, "Need for Improvement in
 the Financial    Management System of the National Bureau of Standards."
 Both the letter     and the report allege that the Bureau retained    funds
 representing    accrued annual leave of employees transferred    from the
 Working Capital     Fund, thereby augmenting the Fund without authority      of
 the law.     The report recommends that $1,162,810 applicable    to these
 annual leave transactions       should be paid into the General Fund of the
 Treasury.     We believe   that the Working Capital Fund was not augmented,
 thus the action of the Bureau has been consonant with the law.

 BACKGROUND

 The Reserve for Leave account was established              as a current   liability      of
 the Fund shortly     after its inception     on recounnendation of the General
 Accounting   Office.     At that time', it was pointed out that an accrued
 annual leave liability      of about $1 million       was due to employees who had
 earned such leave prior to their transfer            to this organization.          There-
 fore, an adjustment      of $1,409,461 was made, in accordance with recom-
 mendations of the General Accounting         Office,     based on an inventory        of
 annual leave due each employee, to record the liability               and to reduce
 the donated capital      of the Fund in fiscal       year 1953. In September 1953,
 1,700 employees,     with $642,680 of accrued annual leave, were transferred
 to the Department      of Defense; and in July 1966, 757 employees, with
 $520,130 of accrued annual leave, were transferred              to the Environmental
 Science Services Administration.         Adjustments      were made in both of these
 cases increasing     the donated capital     of the Fund and reducing the leave
 liability   for a total of about $1.1 million,           leaving an unadjusted
 balance of about $246,000 of the original            reduction    of donated capital.

 As a response to your draft report,          we have reviewed those back records
 that remain available.      Cur review has disclosed          that (1) with respect
 to the 1953 transaction,      the three-year     limitation      for settlement of
 certifying  officer's    accounts, as set forth in 31 U.S.C. 821, expired
 long ago and, accordingly,       the certifying     officer's     accounts have been




                                                  28
.                                                                                       APPENDIX I
                                                                                           Page 3

    settled    either  by your office   or by the statutory   limits   of the act.
    Therefore,     the records have been disposed of in accordance with the
    Federal Records Act of 1950; and also (2) the pertinent          records of
    the employees involved in the July 1966 transfer         had been transferred
    with the employees.       Because we are unable to reconstruct      the detail
    facts and figures,      our response is made on a 'conceptual    basis in
    accordance with established       accounting procedures.

    DEFINING THE ISSUES

    Both the letter  and the report use technical     terms such as "depositing
    funds in the Treasury,"   "funded reserve, 11 "funded accrued annual leave,"
    "capital  of the fund," and "nonoperating   income."    We understand that
    these terms have the following   meanings:

          (1)   depositing  funds in the Treasury -- depositing   cash, other-
    wise available    to pay payrolls and vendors, to miscellaneous    receipts
    in the general fund of the Treasury.

             (2)   funded    reserve   -- cash set aside   for   a currently     undetermined
    use.

         (3) funded accrued leave -- an annual              leave balance       supported   by
    cash set aside for the purpose of liquidating              the liability.

            (4) funds provided,   and funds applied -- although not used in the
    report,    these terms are related to the issues and are the net working
    capital,    consisting of current assets less current   liabilities as
    defined by Treasury Circular      No. 966.

             (5) capital      of the Fund --networth,      or the residual       of total
    assets      less total    liabilities.

           (6)   nonoperating     income account -- We have not been able to
    locate a definition        of such an account in any governmental          accounting
    regulations.      We would define the account to consist           of significant      charges
    and credits     extraneous to the regular operation          of the Fund relating       to
    current and prior years.           The activities    in the account would be reported
    on lines 26 and 27 of the Standard Form 221, Statement of Income and Ex-
    pense and Changes in Accumulated Net Income or Deficit,               in accordance with
    paragraph 51 of Treasury Circular            No. 966. The criteria      for determining
    the significant      entries    to such an account would be substantially           those
    set forth in Accounting         Principles     Board Opinion No. 9, American Institute
    of Certified     Public Accountants.

    FUNDS AS A CASH CCNCEPT

    The operation        of the Bureau's Working Capital Fund accounting              system
    with respect       to annual leave is to record the cost of annual              leave as




                                                    29
APPENDIX I
   Page 4

  earned, and then to recover,       in cash, the cost of annual leave by bill&
  the cost to applicable     appropriations   for which services are performed,
  and to finance the leave when taken through the disbursement           of cash re-
  sources managed within     the Fund. Accordingly,     the total  cost billed   to
  appropriations    includes a rate factor applied to productive       labor designed
  to recover annual leave earned each year.        A normal residual     of the annual
  leave earned less the annual leave taken at any time is the annual leave
  liability.     A practical  test of the annual leave rates,     the comparison of
  the annual leave liability      account with an inventory    of annual leave owed
  to each employee, is made twice each year and the rates subsequently           ad-
  justed to correct variations.

 In fiscal      year 1952, the General Accounting        Office pointed out that there
 were a significant        number of employees on the payroll         who, prior to their
 transfer     to the Fwnd, had accumulated annual leave balances which should
 be recognized as a current liability,             Accordingly,    an inventory     of the
 value of annual leave due each employee was taken and the annual leave
 liability      account, which then amounted to about $626,000, was increased
 by $1,409,000 with a corresponding           reduction    in the donated capital        of
 the Fund.       The Fund received no cash or other current assets to finance
 this leave; therefore,         the adjustment was disclosed       in the financial
 statements       (Budget Document, 1955, P. 475, Statement of Source and Ap-
 plication      of Funds) as an element of funds applied entitled,             "Adjustment
 of Fund Principal        for Annual Leave Assumed at Inception."            The practical
 interpretation       of this financial    presentation     was that the Fund had
 reduced by $1.4 million         of its net working capital       (or its ability      to
 pay current bills)        by increasing   its current liability       for the payment of
 annual leave, and now had a $1.4'million             annual leave liability       for which
 it had received no cash resources to liquidate.                Moreover, because the
 leave rate is based on annual leave earned, it had no means of obtaining
 cash through billing         based on leave rates applied.

 The value of accrued annual leave when the $1.4 million         was computed in
 fiscal    year 1953 was about $646,000.     This leave was earned by personnel
 subsequent to assignment to the Fund and probably included          in the billings
 to appropriations.     As we have previously     stated,  it is not possible     to
 ascertain    how much of the $626,000 of annual leave was applicable         to the
 employees transferred    in 1953. Nor may we determine how much of the
 $520,000 of annual leave applicable       to the employees transferred     in 1966
 was billed.     There are many conditions    which affect an employee's annual
 leave account, as shown in the following        examples:




                                              30
                                                                             APPENDIX 1.
                                                                                Page 5

                                   DAYS OF ANNUAL LEAVE

                   July 1, 1950            1950 - 1953            September    1953
Employee          Transferred In           Net Accrued           Transferred    Cut

   A                    30                      -o-                    30
   B                    30                      -O-                    30
   C                    20                      10                     30
   D                    20                      -o-                    -o-

Employee A transfers   in with 30 days annual leave, the general legal limit.
Normally he will   take all the leave he earns each year.        Therefore,   if all
other factors   remain stable he will  transfer    out with the same value of
leave that he transferred    in. The logical    adjustment    on his transfer    out
is a reversal   of the entry made on his transfer      in (adjust donated capital).

Employee B transfers    in under the same conditions     as employee A, but gets a
raise in salary soon after the transfer.        The value of leave taken and the
value of leave transferred     out are in excess of the value transferred      in.
The logical  adjustment   on his transfer   out is to adjust the donated capital
for the increased value since there probably was not time to consider          the
raise in the leave rate.     If the same employee transferred      out in 1966, the
increase in value compared to the leave transferred        in was probably included
in the cost of operations    and billed   as income to the Fund.     In this case,
a later adjustment   of the annual leave account would be a belated academic
recognition  of the opening balance paid by the Fund.

If employee B retired   rather than transferred  out, the Fund would have paid
out more than it had billed    and should be made whole, possibly  by off-
setting  gains on other employees transferring   out.

Employee C transfers   in with 20 days and accumulates a net of 10 days annual
leave which is accrued and billed    by the Fund.      Possibly  the 10 days accrual
should be transferred    to other appropriations    or to the general fund of the
Treasury.   Employee C, however, would be subject to the same accrual com-
plexities  with respect to raises in salary,     retirement,    and length of service
as would employee B.

Employee D transfers in and then leaves the service immediately.   Logically,
his accrued leave should be a reversal  of the transfer in, but in practice
was probably paid out of the Fund's earnings from other employees' accruals.

The rationale   that we have used is generally    adopted in such complex situa-
tions where it is considered too costly    to perform accounting    in such a
detailed   manner; namely, that on a going concern basis these complexities
offset   and the Fund can pay for normal leave taken, including     that trans-
ferred in, as a part of financing    the payroll.    In significant  accretions




                                          31
APPENDIX I
   Page 6

   and liquidations      not incurred  in the ordinary     course of business we have
   also adopted the policy       that the individual    situations    should be disre-
   garded and we should assume that personnel trahsferred             out should be ac-
   counted for consistently       with those transferred      in.   Perhaps there are
   some gains -- there are also some losses -- we do not know the net effect,
   and we believe     that  it would be too costly,     in relation    to the materiality
   of the result    to account for the history       of each employee in such situations.

   The transfer    of 1,700 employees to the Department of Defense in September
   1953 occurred within a year of the original              annual leave adjustment.             Con-
   ceivably,    the Fund could have received some cash for annual leave earned
   by employees either before or after            the adjustment.       It is, however, im-
   practical    at this time to reconstruct          the situation,     considering        such
   factors as annual leave taken, annual leave lost, and terminal                     leave taken
   which had to be financed from sources other than recovery of annual leave
   earned.     The principal    of the Fund had been reduced by the $1.4 million
   and the transfer      was very material      with respect to annual leave.               There-
   fore, consistent      treatment    dictated   recording     this significant       liquidation
   in the same manner as the previous significant               accretion     in liabilities.
   The annual leave liability         of $643,000 applicable        to employees trans-
   ferred was recorded as a reduction           of the liability       and an increase of
   the capital    of the Fund. The effect          of this adjustment       was    to offset net
   working capital     previously     reduced, therefore,        the transaction      was pre-
   sented in the financial        statements    (Budget Document 1966, P. 499, State-
   ment of Sources and Application           of Funds) as an element of funds provided.
   The net effect     of these adjustments,        $766,000 ($1,409,000         less $643,000),
   was a reduction     in the donated capital         of the Fund.

   A similar    situation     prevailed   with respect to the July 1966 transfer   and
   similar   adjustments      were made. After the second adjustment      only $246,000
   of the original       reduction    of the capital  of the Fund remained.

   We believe  that our accounting     for annual leave applicable   to the two
   transfers  of employees did not provide any excess funded accrued annual
   leave or funded reserves,     in the sense of providing   excess cash, but
   rather was consistent    with the establishment    of the $1.4 million  liability
   for employees transferred     to the Fund.

  FUND AS A SELF BALANCING ACCOUNTINGENTITY (ASSETS = LIABILITIES                        -t U. S.
  EQUITY) CONCEPT

   If the $1.4 annual leave initially  assumed by the fund is considered as
   funded in the sense of being a part of the total assets and liabilities
   assumed at initial  capitalization, then the entire   transaction should be
   considered with respect to assets and liabilities   in the two transfers.

  The adjustment  of $1.4 million,           however, while      serving to clarify  the
  results  of assuming the annual           leave liability      of employees earned prior




                                                    32
                                                                                          APPENDIX I
                                                                                             Page 7

to their assignment to the Fund does not provide any substantive                             change
in effect       on the Fund compared to recognizing                the liability       at initial
capitalization.         The initial      cash of the Fund was obtained from an ap-
propriation       of $3 million.        Cur review of the legislative               history    of the
appropriation       disclosed      that the $3 million           had no relation       to specific
assets or liabilities           to be included in the Fund, but was to cover the
payment of salaries          and other operating         costs for a short period of time
necessary to organize the Fund on a self-sustaining                        basis.      The total
principal       of the Fund at initial         capitalization         consisted     of the $3 million
appropriation,        and about $25 million          of donated net capital            comprised of
assets and liabilities            other than cash. About $24 million                 of the initial
capitalization        was fixed assets.         Had the annual leave liability                been re-
cognized when the fund was established                  initially,      the donated capital
would have been $1.4 million             less and the Fund would have a liability
for which it had no means of obtaining                  cash based on leave rates applied,
The two transfers         involved not only personnel but also a substantial                       amount
of Bureau-owned fixed assets.               Following       is a tabulation       of net book value
of the assets transferred             out in each of the situations              discussed in the
report.

     To Department of Defense                                                $1,401,378
     To Environmental  Science Services Administration
        (Net Fund investment amount only)                                      2,096,OOO

                                                              TOTAL          $3,497,378

In addition     to the net amount shown above, $5,788,000 of special            purpose
and $510,000 of fully       depreciated    fixed assets, plus $7,693,000 of donated
fixed assets were transferred         to the Environmental    Science Services Ad-
ministration.       It is apparent that a substantial       reduction    in the invest-
ments as well as the capital         of the Fund was involved      in the transfer.
These reductions      were also recognized by reducing the donated capital             of
the Fund at the time of transfer.            Whereas we cannot agree that the leave
liability     was ever fully    funded in cash, we believe it is apparent that
by the most conservative       calculation      that it may be demonstrated     that
reductions     in funds in the sense of total assets and liabilities            originally
capitalized     have occurred,    rather than increased in connection        with the
two transfers      in the amount of at least $900,000 as shown below:

     Unrecovered Working Capital Fund cash invested in
       the equipment transfer  to Environmental Science
       Services Administration                                               $2,096,000

     Reduction      in leave     liability    described      in your
       report                                                                     1,162,810

                  Total    Loss to Working Capital          Fund              $     933,190




                                                 33
APPENDIX I
   Page 8

   We believe        that if the annual leave assumed at initial         capitalization      was
   funded in the sense of including           all assets and liabilities         in the defini-
   tion,      then consistency   would dictate    using the same definition          for signi-
   ficant       accretions  and decretions    of the Fund's.activities.         In this sense,
   the Fund has not established          any excess funded annual leave, or funded
   reserves,        because it has transferred    out more net value of assets than
   liabilities.

   THE NONOPERATING1NCOMECONCEPT

   The concept of a nonoperating           income account, is not readily   defined in
   governmental     accounting    regulations,    although the Treasury Department,    in
   Treasury Circular      No. 966 provides for handling prior years' charges and
   credits   as an adjustment       to the results    of annual operations.   This treat-
   ment parallels      the so-called     "clean surplus 'I theory long discussed in the
   accounting    profession.

   The Bureau would have no objection    to establishing    such an account (1)
   although this has not been the established      practice  of GAO and (2) the
   use of such an account, while providing     some benefit   in analytical facility
   would have no effect   on the handling of the annual leave transactions.

   If consistent     definitions     and criteria    are to be observed in administering
   a nonoperating     income (or loss) account, then all gains and losses should
   be cleared through the account, including             those recognized on the disposal
   of fixed assets.       We believe    that the gains and losses on disposal      of fixed
   assets would have to be included in the account, as well as the adjustments
   to the annual leave liability,          because all of these residual    balances arise
   from an inability       to realize   fully    the investment value (or under the
   criteria   in 2 GAO 12.5 the estimated value) of the assets.

   If all gains and losses applicable             to prior years' activities       are consis-
   tently    included     in the nonoperating       income (or loss) account in the year
   in which recognized,          then the account, in essence, would acquire all of the
   transactions       applicable     to the funded liabilities      as discussed in this
   letter    under the caption "FUND AS A SELF BALANCING ACCOUNTINGENTITY (ASSETS =
   LIABILITIES      + U. S. EQUITY)."         The account, therefore,     would each year re-
   flect   the prior year charges and credits            as we have described them under
   the fund concept.          The account would show the two transfers          discussed in
   your report as a net loss.            In this sense, the account would be a vehicle
   for collecting       in a systematic       manner the same information      which is now
   used to adjust directly           the donated capital      of the Fund.   In other words,
   we believe      that nonoperating       income would not be a segment of operating          in-
   come as an accounting          concept.

   There may be a question of whether the account would have meaning with re-
   spect to amounts to be paid into the general fund of the Treasury.    The
   legislation governing such payments, 15 U.S.C. 278b(f) provides that,
   "any earned net income resulting  from the operation of the Fund at the




                                                 34
                                                                                   APPENDIX I
                                                                                      Page 9

close of each fiscal       year shall be paid into the general fund of the
Treasury."      (Underscoring      supplied.)    The legislative       history     of the act
is silent     as to the intent of this language.           In view of the specific           '
reference to the underscored language there may be some question as to
whether nonoperating        income should be paid into the general fund of the
Treasury.       You may wish to consider this in'c-anncctic?              wit\ the -t-'
ment made on page 13 of the report that nonoperating                 income is a segment
of net income.       As we have stated previously,         the annual leave cost billed
to appropriations      is based.on a rate designed to recover annual leave earned
each year.      We believe     that this procedure is consistent           with the above
 legislative    requirement     that net income resulting        from operations        each year
be determined.       Had we established       our annual leave rate at a higher level,
designed to recover cash for financing            the leave liability          assumed, we
would have recovered more than annual leave earned each year and, accord-
 ingly,    would have charged annual appropriations            in excess of the yearly
cost of operations       of the working capital      fund operations.

Conclusions

It may be that there should be a principle        or standard governing adjust-
ments for leave earned and billed       when reorganizations    affecting  revolving
funds take place.      Perhaps this aspect of the increase or decrease in
resources should be made a part of the reorganization          plan and cleared
with your office    and, as now required,    with the Bureau of the Budget.        It
would not be appropriate,      however, to settle    the problems other than prcs-
pectively;  therefore,    the Working Capital Fund should not be required to
deposit funds to miscellaneous      receipts   of the Treasury as a result     of
the subject transactions.

If it is decided to prescribe         a. principle    or a standard governing the
transfer    of annual leave liabilities         to and from revolving    funds with
cash, there are a number of problems which should be considered.                  It would
add several    significant     complications      to the accounting   and financial   man-
agement of revolving       funds as follows:

        (1) If deposits must be made in connection with the past transactions,
it will    be necessary to also request the Congress to fund the reduction     in
net working capital,    since the cash balance of the Fund is not sufficient
to make a substantial     payment as you suggest.   Present investment require-
ments indicate    that additional  funds will be requested from the Congress
in the near future.

       (2)    If cash may have to be returned to the Treasury as a result     of
futuretransfers,     prudent management would dictate   that there be established
a reserve for such contingencies      on a going concern basis.     Adoption of
this concept would indicate      a cash balance be maintained   with an attendant
increase in interest      charges to the Treasury.




                                                35
APPENDIX I
   Page 10
         (3)   In future     accretions        to revolving      funds,         there would be requirea
   the receipt      of cash to cover         the annual     leave      liabilities       assumed.      We do
   not understand      how this      can be accomplished           with      respect   to appropriations
   approved    on an obligation         basis    because    these      appropriations        are available
   only    for leave   paid.

           (4)     Your draft            report,        in essence,          illustrates           a dilemma         as to the
   treatment         of appropriations,                   such as revolving               funds      administered           and fi-
   nanced      entirely          on a cost basis,               compared          to appropriations              financed        an-
   nually      on an obligation                 basis.        The 1953 transfers                 were made to the Army
   Industrial         Fund,         and the Navy Industrial                    Fund,      also     revolving         funds,      which,
   it appears,           were placed             in the same position                 with     respect        to financing            the
   annual      leave       liability         as was our Working                  Capital       Fund.       Our deposit            to
   miscellaneous             receipts        would not,           in this        case,     alleviate          the problem           of
   having      another         appropriation              which     receives         services        from these          funds
   ultimately          finance         this      leave.        On the other           hand,      the second          transfer        was
   to an agency            supported         by annual          appropriations              for which         the leave        is
   financed        on an obligation                 basis.       In this         case,      based on our belief                that
   the Working           Capital        Fund received            no excess           cash to fund           the leave,         we
   believe       that      the Government               has incurred            no adverse         effects       from the trans-
   action.

   Other      comments

   We suggest          the    following         revisions          in    the    text     of   the    report:

           (1)     In the second        paragraph       on page 13 of the draft             report,     the
    statement        is made that       in your report         (B- 114821,    November        1, 1955))     you
    stated     that     the value     of the accrued         annual    leave    of the transferred           em-
   ployees       amounted      to $642,680.        However,       the funds     representing         the accrued
   annual      leave      were not transferred            to the Department        of Defense        or to the
   general       fund of the Treasury.             We read this        to mean that         you had made such
   a recommendation            in your report,          but the report       does not contain           such a
   recommendation.             In order      to clarify      the report,      we suggest        that    the second
   sentence        be deleted;      the point       is made in the conclusions.

          (2)      In the first          paragraph     on page 14, the statement                is made that      no
   legal      consideration           had been given       to this    matter.         There    has been a con-
   siderable         amount      of legal      as well   as accounting          consideration        given   to
   your report          at all      levels     in the Department       of Commerce           as well    as the
   General       Accounting        Office,       and we believe     that      you may wish to revise            the
   paragraph         accordingly.

          (3)    Again,      in the last      paragraph      on page 14, the statement             is made
   that     the authority        to include      a charge     for a reserve        for accrued       leave
   was ostensibly          for the purpose         of placing       the Fund on a wholly         reimbursable
   basis.       (Underscoring       supplied.)         We believe       that the legislative           history
   of the Working         Capital     Fund is quite        clear      in the intent    that    annual        leave
   charges      were for the purpose           of placing        the Fund on a wholly        reimbursable




                                                                        36
                                                                              APPENDIX I
                                                                                 Page 11

basis.       We suggest   that   the word "ostensibly"   be deleted.

     (4) Finally,     in the last paragraph on page 14, the statement        is    made
"that earned net income, except for purposes of capital        restoration        shall
be paid into the general fund of the Treasury."        The statute    states      "The
amount of any earned net income resulting       from the operation    of the      fund
at the close of each fiscal      year shall be paid into the general fund          of
the Treasury,"    (Underscoring   supplied).  You may want to correct      the
technical   inaccuracy   in view of the importance of this phrase to the           is-
sues involved.

We request that the entire contents of our response             be included   in any
report that you may issue on this subject.

Sincerely,



L. M. BRANSCOMB
Director




                                               37
APPENDIX II
     Page 1


                 THE   ASSISTANT       SECRETARY       OF      COMMERCE
                             WASHINGTON,        D.C.   20230




    JUL    30 1970


    Mr. Henry Eschwege
    Associate    Director
    Civil Division
    General   Accounting    Office
    Washington,      D. C s 20548

    Dear   Mr.   Eschwege:

    This is in reply to your letter        of May 6, 1970, requesting
    comments      on a proposed    report     to the Congress   on the
    “Augmentation      of Working     Capital    Fund in the Amount    of
    Funded Leave Remaining          Unpaid After the Transfer       of a Large
    Number     of Employees,      National     Bureau of Standards,    Depart-
    ment of Commerce.”

    We have reviewed      the comments      of the National     Bureau    of
    Standards  and believe    they are appropriately        responsive     to
    the matter  discussed    in the report.




   Enclo sure




                                           38
                                                                                APPENDIX II
                                                                                    Page 2

                                                   U.S. DE;rARTMENT     OF COMMERCE
                                                   Mational  Bureau of Standards
                                                   Washington,   D.C.   20234




JUL 13 1970

Mr. Henry Eschwege
Associate      Director
Civil   Division
U. S. General        Accounting Office
Washington,       D. C. 20548
Dear Mr.      Eschwege:
This is in response               to your letter          of May 6, 1970,
transmitting           a draft      report     to the Congress          alleging
the augmentation             of the Bureau%s Working               Capital
Fund without           authority        of law as a result           of the
accounting         treatment        of the accrued          leave of certain
employees        transferred          to the Environmental             Science
Services       Administration,             Department      of Commerce0           We
previously         commented on an earlier                draft    report      on
this    same subject,,            We note that you have made changes
in this      report       to incorporate          some of our views.              We
believe      that additional              consideration         should be given
to our previous             comments as well            as to those provided
in this      letter.         We should point           out that we remain in
substantial          disagreement          with the financial           concepts
put forward          in the reports,            and the resulting           recommenda-
tion of a transfer               of funds to the Treasury.
We note that the report                 considers    that extraordinary
gains or losses           that occur from time to time,               such as
leave transactions,               should be considered        as part of
the computation           of earned net income which we are
obliged     to deposit          to the General       Fund of the Treasury
as miscellaneous            receipts.        Our position     is that adjust-
ments for such unusual                items should be handled          through
donated     surplus       and not considered           as a part of earned
net income.         We believe          the maintenance     of donated
surplus     accounts        in the operation         of revolving      funds is
an accepted        practice.          We believe     such accounts       are
customarily        used to handle unusual              and "one-time"       trans-
actions     affecting         the capital       of the fund that should
not be considered             in the calculation         of annual net income
or loss.



                                            39
APPENDIX II
    Page 3

In   the event     we must include          leave adjustments         in the
computation       of profit       or loss,      then we believe       all   such
transactions        should be so treated,             including    property
and equipment        transactions.          If this      had been done over
the years,      it is very likely           we would have deposited           to
the General Fund of the Treasury                   as miscellaneous
receipts     much less in profits             than under the present
system.      The subject        transaction        with ESSA would,       as we
pointed     out previously,          have resulted         in a net loss of
over $900,000        to the Working Capital              Fund.   As also
stated    previously,       we believe        that thorough      considera-
tion of the effects           of such reorganizations            on working
capital     should include         review     of the net effect.

We note that you state on page 16 of the revised                      report
that the reduction         of the capital       of the fund is con-
sistent     with the reduction       of the fund's         activities
brought     about by the transfer.           We do not agree with
this concept      as it applies      to General       Purpose Equipment
of which there was an unrecovered               cost amounting        to
$2,096,000.       This amount represents           what is tantamount
to a temporary       loan to the activity          which is expected         to
be paid back from operating            funds for use by other
activities.      General     Purpose Equipment         is of the type
that may be generally         useful     throughout      the Bureau,      as
opposed to Special        Purpose and Donated Equipment,               which
is identified      with a particular         program,      and in which the
Working Capital        Fund has no investment.
The investment         requirements        of the Working Capital            Fund
are not related          to particular        programs      or activities      in
any single      year,      but are based on the priorities
established       by Bureau management after                a review of needs
for working       capital.       Investments        may bear little
relationship        with the number of personnel:                for example,
in the procurement            of computers       or performance         of
reimbursable        services.        Further,      working    capital
frequently      is invested        in equipment        needed to start        new
programs without           the benefit      of a direct       appropriation,
nor the possibility            of recovery       from discontinued
programs     requiring        no further      capital     investment.        Requests
for investment         funds recently         have been on the order of
twice the amount available               in any one year,




                                         40
                                                                         APPENDIX II
                                                                                 Page 4

In our budget for Fiscal            Year 1971 we are            requesting
from the Congress direct             appropriations       of      $950,000
to maintain       required    levels     of investment          in equipment
and standard        reference    materials.         Had we      not lost an
anticipated       recovery    of $900,000        in working        capital
through     transfer      of assets    to ESSA, these           requests
might not have become necessary.
We do not agree that the premises                    used in the revised
draft    are valid      for computing        a recommended deposit
of $432,589 to the General               Fund of the Treasury              as a
miscellaneous        receipt.        You have indicated            that of the
757 employees        transferred       to ESSA, only 52 were employed
by the Bureau on July 1, 1950, when all NBS employees'
leave liabilities          were assumed by the Fund.                  This
assumption      discounts       the various        leave liabilities
assumed for the remaining              705 employees         that transferred
from other Government             agencies     to the Fund without
reimbursement        for leave,       and also disregards             terminal
leave settlements          paid for these,           as well as other,
e:mployees who retired            or left    the Fund for outside              employ-
ment during       the period       from 1950 to 1966.              Nor was it
considered      that the billing          rate of the Fund during               this
period    did not include          a factor      for leave liabilities
assumed July 1, 1950, and, subsequently,                       liquidated       with
no reimbursement          of the Fund for prior            liability.
We believe      that the original         conception         of the leave
reserve    as a commingled         account,      and treatment          of com-
parable    transactions       on a first-in,          first-out       basis,      is
in accord with generally             accepted     accounting        principles,
as we have explained          previously       in our response           of
November 21, 1969.          We still      assert,        therefore,      that the
Working Capital        Fund was not augmented without                   authority
of law because of the subject               leave transactions.               We
might note that staff           of the General           Accounting      Office
were involved        in establishing        the Working Capital              Fund
and many of the sub-accounts,               including        the leave reserve,
and were consulted         on operating        policies.          There has
also,   since 1950, been review of the leave reserve                          account
with GAO staff.




                                           41
APPENDIX II                                                                           .
    Page 5

We recognize       that there is little             official        guidance     on
the handling       of assets and liabilities                 in connection
with Governmental           reorganizations,         and that this is
particularly       evident       where revolving          funds are involved.
In the absence of official                standards,        we believe       we
have handled       the numerous working             capital       transactions
involved     in several        reorganizations          and transfers         on a
reasonable       and equitable        basis.      Our treatment          of the
leave reserve        has, we believe,          been consistent           in the
handling     of gains and losses.              While     we    believe     there
is a need for more formal               guidance     on the disposition
of assets      and liabilities          in Governmental           reorganizations,
we respectfully        disagree       that the recommended transfer
of NBS funds to the Treasury                 would be appropriate             or
equitable      in this      instance.
We request   that the entire    contents    of our comments of
this   date and of our previous     response,   dated November 21,
1969, be included    in any report     that you may issue on this
subject.
Sincerely,


fLEWIS M. BRAJX3COM.B
Director




                                          42
t
                                                                APPENDIX III

                           DEPARTMENTOF COMMERCE
                                               OFFICIALS

                           RESPONSIBLEFOR ADMINISTRATION OF

                           ACTIVITIES DISCUSSEDIN THIS REPORT


                                                    Tenure of office
                                                    From            To
                                                                    -
                                OFFICE OF THE SECRETARY

SECRETARYOF COMMERCE:
   Maurice H. Stans                              Jan.    1969    Present
   C. R. Smith                                   Mar.    1968    Jan.    1969
   Alexander B. Trowbridge                       June    1967    Mar. 1968
   Alexander B. Trowbridge
      (acting)                                   Feb.    1967    June    1967
   John T. Connor                                Jan.    1965    Jan.    1967
ASSISTANT SECRETARYFOR SCIENCE
  AND TECHNOLOGY:
    Richard 0. Simpson (acting)                  Dec.    1970    Present
    Myron Tribus                                 Mar.    1969    Nov. 1970
    Allen V. Astin (acting)                      Feb.    1969    Mar. 1969
    John F. Kincaid                              Ott 0   1967    Feb. 1969
    Allen V. Astin (acting)                      July    1967    Sept, 1967
    J. Herbert Hollomon                          %Y      1962    July    1967


                             NATIONAL BUREAUOF STANDARDS

DIRECTOR:
    Lewis M. Branscomb                           Sept.   1969    Present
    Allen V. Astin                               June    1952    Aug. 1969

ASSOCIATE DIRECTOR FOR ADMINISTRA-
  TION:
    Robert S. Walleigh                           Sept.   1955    Present




u-s-   GAO Wash.,   D.C.

                                           43