Improvements Needed in NOAA's Management of Its Charting Operations

Published by the Government Accountability Office on 1977-02-22.

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

                         DOCUMENT RESUNE
00188 - [A0891449] (Restricted)

tImprovements deeded in NOAA's management of Its Charting
operations] February 22, 1977. 13 pp.
Report to Robert S. white, Administrator, National Oceanic and
Atmospheric Administration; by William L- -artino, Assistant
Director, Community and Economic Development Div.
Issue Area: Science and Technology: Management and Oversight cf
    Programs (2004).
Contact: Conmunity and Sconosic Development Div.
Budget Function: Natural Resources, Environment, and Energy:
    Other Natural Resources (306).
Organization Concerned: Department of Commerce.
Authority: P.L. 91-412. P.L. 88-441. ORB Circular A-76.
          The National Oceanic and Atmospheric Administration's
(NOAA) National Ocean Survey (NOSI is responsible for the
production and distribution of aeronautical and nautical charts.
Findings/Conclusiono: NOS has considerable difficulty in
accurately accounting for the cost of producing charts. It also
has problems in matching revenues from the -ale of charts t+o
costs of producing the charts. Although a pricing formupla was
developed to determ.dne wthich costs were to be recovered in
establishing priceEs or charts, NOS has been inconsistent in its
application of the f,,rmula. The receipts from the sales ef
charts with regard to public funds have not been adequately
managed. There is a need for more definitive policy guidance
statements and operations manuals dealing with the Office of
Aeronautical Chart and Cartography's chart production and
inventory operations. Lack of policy guidance has resulted in
excessive production overruns. NOS does not perfcrm cost
analyses to determine which chart production projects could be
carried out more efficiently under contract, nor does it
accumulate adequate data with which to make such studies.
Recommendations: TLe gOAA Adainistrator should improve
management of NOS chart operations by: developing an adequate
cost accounting system for the production of charts;
consistently applying its all-inclusive pricing formula to
accurately estimate chart prices; and improving management of
funds from the sale of charts. NOS shoald: improve production
efficiency by closely msnitoring chart production output and
spoiLzav  levels; improve inventory control at the chart
distribution division; and attempt to reduce chart condemnation
rates. (RRS:
                                  W'ASHINGTON, D.C.   20548

                             nNot make available to pubilO readl    T
 DEVELOPMENr DIVISION                                 February 22, 1977

           The Honorable Robert M. White
           Administrator, National Oceanic and
             Atmospheric Administration
           Department of Commerce

           Dear Dr. White:

                We recently complete; a general survey of the activities of the
           National Oceanic and Atmospheric Administrition's (NOAA) National
           Ocean Survey (NOS). Ore phase of our survey focused ou NOS's
           production end distribution of aeronautical and nautical charts. We
           identified certain weaknesses in NOAA's management of its charting
           operations which we wish to bring to your attention.

                Our survey was performed at NOAA and NOS headquarters in
           Rockville, Maryland, and at the Pacifi.c Marine Center in Seattle,
           Washington. To obtain information on the present system of pro-
           duction and di:-tributlon. w<, also revi.wed the operations of the
           Chart Reproauction Division in the Main Commerce Building, and the
           Chart Distribution Division in Riverdale, Maryland.

                Among other things, our sucvey covered accounting controls;
           pricing policy; funds management; production and inventory policies,
           including allowable spoilage, inventory adjustments, and condemna-
           tions; contracting out versus in-house production decisions; and
           chart inventory and sales controls at NOS chart sales outlets.

                We believe there is a need to improve overall management
           direction and policy with regard to NOS's charting operations.
           Specifically, there is a need for better budgetary controls and cost
           accounting for the production of charts, chart pricing policies,
           management of appropriations and Public Law 91-412 funds, controls
           over production of charty., informationall data with which to make
           analyses of contracting out versus in-house production of charts,
           and controls over inventory and ss'es of charts at NOS chart sales
           outlets. These matters are discussed below.


                NOS has considerable difficulty in accurately accounting for the
           cost of producing charts. It also has problems in matching revenues
from the sales of charts to costs of producing the charts. As a
result, it does not Wave adequate information on profits and losses
with which to measure and analyze the results of its operations.

     Pursuant to Public Law 88-&41, NOS is required to price charts
so as to recover certain specified costs of production and distri-
bution. NOS is required to include in the price of its charts to the
public all expenses incurred ir actual reproduction, including
photography, opaquing, platemaking, press time and binding operations;
the full postage rates, according to the rates for postal service
used; and any additional cost factors deemed appropriate by the
Secretary, such as overhead and adn;inis:rative expenses allocable to
the production of the charts and related reference materials. In
1972, NOAA developed a pricing formula which spells out which costs
are to be recovered In establishing selling prices for charts.

     Publ4c Law 91-412 authorized the Secretary of Commerce, upon the
request of any person, firm t organization, or others, public or
private, to make special studies on matters within the authority of
the Department of Commerce; to prepare from its records special
compilations, lists, bulletins, or reports; and to furnish its
studies, compilations, and other records upon the payment of the
actual or estimated cost of such special work.

     Public Law 91-412 provides that the payments for work performed
under the Act be deposited in a separate account or accounts which
may be used to pay directly the costs of such work or services, to
repay or make advances to appropriations or funds which do or wtill
initially bear all or part of such costs, or to refund excess funds
when necessary.

     NOS uses Public Law 91-412 as authority for a revolving fund tc
finance chart operaticns. Under this procedure, NOS reimburses the
appropriation accounts which bear the initial cost of production with
sales receipts accumulated in the Public Law 91-412 account. However,
we could find no evidence that a revolving fund account symbol has
been secured from the Treasury Department nor does thie revolving fund
account appear in the President's budget.

Cost accounting system
needs improvement

     NOS's cost accounting system does not provide the cost information
necessary to adequately and accurately de'ermine the cost of producing
charts. Accordingly, NOS does not have accurate cost data upon which
to base chart prices, pursuant to Public Law 88-441. Also, cost data
has not been accurately distributed between Public Law 91-412 accounts
and approprLation accounts.

     NOS's cost accounting system is a part of NOAA's "Financial Manage-
ment System" (FIMA).  FIMA, a semi-automated process for planning and
monitoring the execution of the budget, has been in operation since
July 1973. FIMA relies on properly executed "Cost Operating Plans"
which are the primary budget system source documents for the collection
of planned information. Cost Operating Plans support FIMA by providing
the basis for administrative control of funds.

     NOS has experienced problems with regard to the use of the FIMA
system. A November 14, 1975 NOS position paper entitled, "Adequacy
of Funding Procedures to Support the National Ocean Survey Aeronautical
Charting Mission" states, "The FIMA System is an excellent vehicle for
maintaining awareness at the program level; however, the capability
to manage projects and assessments at the lower levels has been
inadequate. This has resulted in incorrect accounting of cost data
and the development of inaccurate estimates for both chart products
and reimbursable tasks."

     A primary reason for the lack of accuracy was the flexibility
allowed under NOS's task number accounting system. The task number
structure was such that NOS officials had wide flexibility to make
decisions whether a cost should be considered a direct cost or general
overhead cost. Costs which were direct and could be directly related
to a job were charged to general overhead and the costs spread between
several jobs, rcultinr in coat distortios;s.   Fo: example, in;k is a
direct material cost of production and is fully accountable under
Public Law 88-441. NOS has been charging the cost of ink to the
Management Fund, which is the general overhead operating account.
At the end of an accounting period, the M!anagement Fund is distributed
to total chart production operations, including reimbursable accounts;
public law accounts; and operations, research and facilities accounts.
This results in tin public law accounts being understated and the
reimbursable and operations, research and facilities accounts being

     Under its present cost accounting system, NOS has also not
developed standard costs of production for various series of charts.
Accordingly, it is unable to utilize management tools, such as variance
analysis as a benchmark for determining and evaluating how well it is
doing in keeping chart production costs in line with a standard, or
analyzing reasons why a particular cost exceeds or does not meet the

Inconsistences in
pricing policy

      Although NOS developed a pricing formula in 1972 to determine
 thich costs were to be recovered in establishing selling prices for
charts, we found that NOS was inconsistent in its application of the
formula.   In particular, we found that in fiscal year3 1974 and 1975,

various costs which were to be included in determining a chart's price
were deleted from the formula. The cost deletions were as follows:

     --In 1974, per unit cost for charts was computed only on a
       9-month basis, and Reproduction Office Overhead expenses
       were deleted.

     --In 1975, per unit cost for charts was computed only on a
       6-month basis, and Reproduction Office Overhead and Department
       of Commerce overhead expenses were deleted.

NOS officials could give no reason why these costs were left out. No
policy statements or memos could be found to justify these changes.
The personnel responsible for making the decision to delete costs are
no longer employed with NOAA.

     Although the net effect was that not all recoverable costs were
included in the formula to determine chart prices, we also noted that
NOS officials              .se the formula as a benchmark guide. They
also take in,            cion other factors including the need for
additional revenue to finance contingencies and the price that is
being paid in the open marketplace for like products to determine
what price they will charge for their charts. This could result in
charts being priced higher than necessary to recover costs. For
example, we found that, although NOS computed the unit cost for
Couvelnciondl NauLtcal Charts foL fisual year i976 to be about $i.53,
the retail price was $3.25.

     Because of its inadeqtalte cost accounting system and inconsis-
tencies in pricing policy, NOS often does not know what the costs of
producing a particular chart se:ies are. In this regard, NOS's
fiscal year 1975 annual report in charting operations shows that
nautical charts, in total, are being sold at a profit, thus subsidizing
aeronautical charts, which, in total. are being sold at a loss.
However, the NOS official in charge of chart production informed us
that the figures in the annual reports are not reliable and it is his
feeling that aeronautical charts are actually subsidizing nautical

Questionable management of
sources and uses of funds
from chart operations

     NOS has not adequately managed its receipts from the rales of
charts with regard to credits to Public Law 91-412 accounts and
appropriation accounts.

     Funding for the production of NOS charts is provided by appro-
priations, reimbursements from other Federal agencies, sales-agent
revenues, subscription income, and direct sales. During 1972, NOAA
planned to seek Congressional approval to establish a revolving fund

 to finance chart operations. However,
                                         after discussing the matter
 with the Department of Commerce's
                                    General Counsel, NOAA decided to
 use Public Law 91-412 as authority
                                     for a revolving fund to finance,
 among other things, chart operations,
 establish a specific revolving fund    rather than seek authority to
                                      for chart operations.
      NOS has accumulated fairly large
                                        balances in the Public Law 91-412
 account. This seems to indicate
                                   that either prices are too high
 relation to expenses or costs are                                 in
                                    not being properly distributed
 between appropriated accounts and
                                    Public Law 91-412 accounts.

      On September 1, 19725 NOAA began
                                         using the Public Law 91-412
 account as a repository for receipts
                                        from the sale of charts to the
 public. Prior to that time, these
                                     monies had been deposited to the
 Treasury as miscellaneous receipts.
                                        The monies collected bet,-~en
 September 1, 1972, and December
                                 31, 1972, were to be restrict _
 level equal to the NOAA liability                                  to a
                                   for prepaid subscriptions. This
 liability was estimE'ed by NOS to
                                   je about $750,000.    Funding for
 chart operations was officially
                                 phased over to the Public Law 91-412
account on January 1, 1973, at which
                                       time the balance in the account
was about $1.5 million.   By May 31, 1973, receipts totaling
$2,473,000 were reported by NOS                                about
                                 as being deposited to the Public
91-412 account. As of June 30,                                        Law
                                 1973, the Public Law 91-zq12 account
had a balance of about $2,250,000.
                                      NOAA has continued to operate
under the Public Law 91-412 account,
                                       aud has receivied funds into and
made several large disbursements
                                  of funds front the account. As of
June 30, 1976, the account balance
                                    stood at about $2,762,000.
CPA firm's review of
NOSrs accounting system
for chart operations

     During the summer of 1976, a Certified
                                             Public Accounting firm
was hired to make a preliminary
                                 study of NOS's accounting for chart
operations. In its study the firm
                                    reviewed the overall management
funds, cost accounting for chart                                     of
                                  production, inventory control, and
chart pricing policies.  The firm noted various deficiencies
accounting procedures and made several                        in NOS's
                                        recommendations including:

     --Costing, pricing, financial planning,
                                             and reporting should
       be all tied together;

    --Use a standard cost approach to
                                      accomplish this. This approach
      provides a more accucrte method of
                                          determining product costs
      and prices, means for measuring
                                      actual costs and determining
      differences by cause, and the basis
                                           for financial planning;
    --Establishselling prices to permit
                                        breakeven based on standard
      cost plus contingency provision;

    --Change selling prices on a fiscal year basis to coincide with
      development of standard costs and financial planning;

     --Change prices more frequently if conditions warrant;

     --Perform sales and cost of sales analysis by product/product
       series using standard costs;

     --Perform variance analysis by cause of variance;

     --Review and modify, if necessary, systems or procedures for
       recording, summarizing, and reporting chart quantities shipped;

     --Re-evaluate, in terms of propriety of charging to that fund,
       certain costs presently charged to the management fund, e.g.,
       supervision in reproduction division.

Some improvements
being made by NOS

     We discussed the lack of accounting and pricing controls with
officials of NOS's Office of Program D)evelopment and Management and
the Office of Aeronautical Charting and Cartography (AC&C). AC&C is
responsible for multi-year mapping and charting programs. It
providcs contrcl for podcdti, management, imp-eme-ntitioi of pol.cies
improvement of production techniques and procedures, and the develop-
ment and validation of production and process standards.

     The officials agreed that the problems we outlined existed.
They said that the problems have just recently surfaced and certain
actions have beern taken to alleviate some of the problems. They
informed us, however, that with their present accounting capabilities,
it will he some time before other problems, especially those involved
in the cost accounting area, including the establishment of standard
costs and variance analysis, could be resolved.

     Actions which NOS officials advised us were being taken included
the following:

     --AC&C is developing an operational procedures manual. All
       directives sent to change oper-tionai procedures will become

     --AC&C has developed a job task numbering system for all costs
       of production. This system was implemented in October 1976.
       According to AC&C, this system will assure accurate accounting
       of all Public Law accounts; and

     --AC&C has developed an all-inclusive pricing formula for
       estimating chart prices.

      While we believe that the actions indicated by NOS should improve
its control over chart operations, we believe also that the remaining
deficiencies in budgetary controls, cost accounting, funds management,
and pricing policies warrant immediate attention, especially since
such improvements are necessary if NOS is to fully comply with Public
Law 88-441. We believe that the Administrator of NOAA should place a
-high priority on making such improvements.

Recommendation to the
Administrator of NOAA

     We recommend that the Administrator of NOAA direct NOS to improve
management of its chart operations by

     --developing an adequate cost accounting system for the pro-
       duction of charts. In developing such a system, NOAA should
       give careful consideration to using a standard cost approach
       which would enable it to accurately determine product ccsts,
       perform variance analysis, and improve its financial planning.

     --consistently applying its all-inclusive pricing formula to
       accurately estimate chart prices and ensure that charts are
       priced in accordance with requirements set forth in Public
       Law 88-441.

     --improving management ot runds Lrom the sale or charts by
       accurately planning its funding requirements and insuring that
       production and distribution costs are accurately matched to
       funding sources' namely appropriations, reimbursements from
       other agencies, sales-agent revenues, subscription income,
       and direct sales.


     There is a need for more definitive policy guidance statements
and operations manuals dealing with AC&C's chart production and
inventory operations. The lack of policy guidance'and procedures has
resulted in excessive production overruns, large inventory adjustments,
and high chart condemnation rates. Each of these matters is discussed
separately below.

Weakness in control over
Chart Reproduction Division
results in excessive overruns

      AC&C's lack of policy guidance and procedures to the Chart
 Reproduction Division has resulted in excessive production overruns.
 On August 19, 1976, AC&C, for the first time, sent a directive to the
 Chart Distribution and Reproduction Divisions, which stated that
 "allowable overruns", including spoilage for Aeronautical-Visual and
Nautical Charts would be four percent of the quantity ordered. The
directive stated also that all overrun copies would be placed in
inventory at the Chart Distribution Division. Prior to the issuance
of this directive, allowable overrun for spoilage was planned for
seven percent of the quantity ordered and all overrun copies were

     AC&C determined that, although the industry standard for printing
jobs allowed for a seven percent spoilage factor, the Chart Repro-
duction Division could be operated at better than industry efficiency
and spoilage could be held to a minimum. Accordingly, by decreasing
the spoilage factor to four percent, and assuming the same level of
efficiency, AC&C could reduce production costs by decreasing mhart

     In reviewing the receiving records at the Chart Distribution
Division, we found that the Chart Reproduction Division had not been
adhering to the August 1976 AC&C directive. Although the Chart
Reproduction Division was placing chart overruns in the Chart Distri-
bution Division inventory, it was continuing to plan its production
for a spoilage factor greater than four percent. Consequently, chart
overruns were still greater than necessary.

      We advised AC&C officials that the Reproduction Division was
plzannin  its production fhr a $Foilagc grcater than four Fprccrt.
The officials stated they would review the situation and take such
corrective action as necessary.

     We believe AC&C should closely monitor chart production output
and spoilage levels to assure compliance with its August 1976 directive.

Weak internal control results
in high inventory adjustments

     We found average inventory adjustments for various chart series
for the five-year period covering fiscal years 1972 to 1976, ranging
from .41 percent to 10.16 percent of total inventory. Inventory
adjustments are defined by the Chart Distribution Division, as the
difference between book inventory and physical inventory.

     We believe that a primary reason for inventory adjustment rates
being so large is the fact that the internal control sysLta, at the
distribution center is weak. We believe a well-managed internal
control system would do much to alleviate this problem.

      With regard to internal control, we noted that, although delivery
 of charts ordered is made, inventory is not deducted from the records
 because order forms are misplaced before they are received by the
 branch responsible for maintaining inventory records.
       Under the present system, order forms are received by
                                                              the Order
 Processing Branch, where a mailing label is prepared.
                                                          The form is
 then sent to the Chart Supply Branch, which completes
                                                         the order,
 attaches the mail label and ships the order to the customer,
 form is then supposed to be sent to the Records and Statement
 where deductions are made to the inventory records.

      We discussed the need for improved internal controls
 inventory with the responsible officials at'AC&C and
                                                      the Dist.ibution
Division.   They agreed that improved controls were needed.   The
official at the Distribution Division said that they
                                                      did have a check
system to see that all orders were being completed and
being deducted from the records, but operation of the
                                                       system required
one man-year. When budget restrictions developed, the
                                                        check system
was dropped. They also stated that presently software
                                                        is being
developed for their new computerized inventory system
                                                       and that, with
the computer, internal control weaknesses will be alleviated.

     We agree that a computerized inventory control system
                                                            can improve
the internal control of the Distribution Division.
                                                     We believe,
however, that for such a system to be effective, adequate
control also must be established. In this regard, we
                                                       believe AC&C
should consider using a multi-copied order form so that
                                                         the branch
responsible for maintaining inventory records would get
                                                         a file copy
which it could reconcile with the original after the
                                                      order has been

High condemnation rates of charts

     We found average condemnation
the five-year period covering fiscalrates for various chart series for
                                      years 1972 to 1976, ranging from
2.61 to 33.77 percent of total production. Also, yearly
                                                          rates have
remained constant or increased over the previous rates.
                                                          We believe
sufficient chart market demand analysis has not been
                                                      undertaken by
AC&C to bring the condemnation rates dowm to acceptable
     We reviewed condemnation rates for fiscal years 1972-1976
25 chart series including 10 Nautical, 7 Aeronautical-Visual
                                                             and 8
Aeronautical-Instrumont. According to the officials
                                                     of AC&C and the
Chart Distribution Division, average condemnation rates
                                                        should be
approximately seven percent.

     We found overall five-year averages for units condemned
PY 1972 through FY 1976, to be 16.15 percent for the
                                                      Nautical chart
series: 17.20 percent for Aeronautical-Visual series;
                                                       and 20.63
percent for the Aeronautical-Instrument series. Only
                                                       seven chart
series--two Nautical and five Aeronautical-Instrument--were
                                                             in line
with the seven percent optimum.

     We discussed high condemnation rates with the responsible
officials at AC&C and the Chart Distribution Division.
                                                        The production

 manager at the Chart Distribution Division said that
                                                      he realized the
 condemnation rates were high in the past, but many un:controllable
 variables had developed to cause the higher itcrease
                                                       in FY 1976.   Two
 which he noted were (1) the price increase, which
                                                    was effective
 April 1975, raised maty chart prices from $1.85 to
 in a noticeable decline in sales; and (2) the U.S. $3.25 ar.d resulted
                                                     Coast Guard has
 developed a nautical longitude and latitude locating
                                                      system called the
 "LoranSystem C"; with this system being put into operation,
distribution center was required to update and revise
                                                      many charts
before the charts' shelf life was depleted.

     The officials also said that the computer system which
installed will enable them to better manage the approximatelyis being
Nautical, 110 Aeronautical-Visual and 4,025 Aerorautical-Instrument
Charts which are now managed manually. The system
                                                   is expected to be
fully implemented in about 8 months.
     We recognize that many different market variables, such
                                                              as price
changes, new technologies, weather conditions, and
                                                   economic conditions,
enter into the demand for charts. However, u-9 believe
                                                        that NOAA
should carry out more formal market analyses so that
                                                      it can better
interpret demand for its charts. For example, had
                                                   NOAA kept abreast
of market developments, it could have anticipated its
                                                       own price
increases and Coast Guard's development of the "Loran
                                                       System C."
      WP agree that whcn the cj.F.putL: system is operaLioutai,
 should have greatly expanded capacity to collect, store
                                                            and analyze
data on chart production, past market demand, and anticipated
demand. Accordingly, we believe that when the computer            future
                                                            system is
operational, NOS should develop a program to try to
                                                        more accurately
determine chart production quantities, based on potential
the chart. Such a program should take into account            demand for
                                                        past and future
market demand for charts, and should include factors
                                                         such as anticipated
price increases, and improved technologies.

Recommendation to the
Administrator of NOAA

     We recommend that the Administrator of NOAA direct
                                                        NOS to
     -- improve production efficiency by closely monitoring
       production output and spoilage levels.

     --improve inventory control at its Chart Distribution
       In this regard, NOAA should give consideration to instituting
       a double checking system for inventory control by using
       multi-copied order form.

    --attempt to reduce chart condemnation rates by developing
      computer program to more accurately determine chart

       quantities b-sed on the potential demand for the chart. Such
       a program shojld take into account past and future maiket
       demand for charts: and include factors such as anticipated
       price increases and improved technologies.


     NOS does not perform cos. analyses to determine which chart
production projects could be carried out more etficiently under
contract rather than in-house, nor does it accumulate adequate data
with which to make such studies.

     Guidelines for outside contracting are defined in the Office of
Management and Budget's Circular A-76, which states that a new .tart
(in-house production) should not be initiated until the possibilities
of obtaining the product or service from commercial sources have been
explored. Further, a systematic review- of existing commercial or
industrial activities (including previously approved new starts which
have been in operation for at least 18 months) should be maintained in
each agency, under the direction of the agency head or the person
designated by him as provided i  the circular.

     In a 1973 NOS study entilted, "Risin R Chart Prices--Reasons For
And Ltiorts t'o Reduce Them -    rS: Coimurercial
                                     (n.ow        Chart Products",
researchers concluded that savings could be realized not only through
production efficiencies, but also through product modifications,
increased sales to reduce unit cost, chart costing procedures,
inventory procedures and utilizing commercial printing and distribu-
tion under contract.

     A 1974 Department of Commerce internal audit of the AC&C's
Reproduction Division's activities reconmmended that the AC&C
investigate and determine which of its printing workload- could be
accomplished more economically by outside contractors. InvestigatolF
cited that outside contracting could be beneficial in reducing the
costs relative to excess idle machine time and unproductive manpower
hours incurred by maintaining extra staff and equipment to meet peak

     We found that many of the above mentioned recommendations and
policies have remained unheeded.

     Interviews with personnel at the Reproduction Division's
printing and b"ndery operation point up continued problems with excess
idle machine time; 20.7 percent from June 1975 to March 1976. as
opposed to 10 to 15 percent for industry averages.  Staff personnel
for aeronautical chart prouuction stated that they were attempting to
eliminate this slack time tirough contracting out negative engraving
and other processes which tend to impede a steady flow to the printing

  phase. However, examination
                               of contracts from June 30, 1975,
  September 30, 1976, revealed
                               only contracts for printing and to
  operations and no contracts for                               bindery
                                  negative engraving.

        No contracting-out versus in-house
                                             cost analysis is currently
  performed to determine whe.
                                X various projects, charts,
  information booklets, etc., could                           maps,
                                     be more efficiently produced
  in-house as opposed to cont acting-out.
                                              According to the production
  chief, the staff presently does
                                   not have the expertise to perform
  analysis of the in-house versus                                       an
                                   conmmercial product-mix to judge
  certain activities might be more                                   if
                                    efficiently performed by private
  industry and vice versa.

       in considering whether a project
 aeronautical production staff appears to only be jobbed out, the
                                                consider the following

      --Will the project fit into the
                                       existing production schedule?
      --Does the Reproduction Division
                                        have the manpower to perform
        the necessary negative engraving,
                                           drafting, etc., in a timely
        fashion to meet the legal requirements
                                                of the various aero-
        nautical publications?

      --Docs the product require special
                                          machinery beyond the cap-
        Phi li -,,-f he Reproduction Division's
                                                printing and binlc.y

     As previously noted, NOS has
                                    instituted a revised cost classifi-
cation system, the job task numbering
                                        system, which should ai'd upper
management in determining what
                                production costs are being incurred.
While this is a good basis for
                                further analysis, we believe
must still develop the capability                             AC&C
                                   to project this information into
a broad overview of the production
contracting-out versus in-house      operation, so that it can make
                                 cost analysis upon which to base
production decisions.                                               chart

Recommendation to the
Administrator of NOVA

     We recommend that the Administrator
                                          of NOAA direct NOS to
develop the necessary data with
                                 which to determine the most cost
effective method for producing

     NOS has not issued policy directives
                                          on inventory or sales pro-
ccdurcs to be used to maintain
                               adequate control over chart inventories
and sales at its chart sales outlets.

     Our survey at the Pacific Marine Center (PMC) disclosed inadequate
inventory practices to assure that all charts and other NOS publica-
tions received, sold, or given away are properly accounted for.

     To assure that all products and product receipts are properly
accounted for, it is important to have records showing the number of
products on hand at the beginning of the period; number of products
requisitioned and received from headquarters during the period; number
of products sold, given away, and condemned during the period; number
of products on hand at the end of the period; and receipts for
products sold.

     In addition, actual inventory and cash on hand should be re-
conciled regularly with the inventory and sales receipt records.

     PMC sales personnel only maintain receipts records for products
sold. PMC has not maintained the other records described above, has
not taken actual inventories, and has not reconciled actual inventories
with inventory and sales receipt records. The PMC employee in charge
of the PMC sales activity said that the only guidance he has received
dealing with inventory and sales procedures was given to him orally
by an NOS headquarters official who is now retired.

     We believe NOS should improve sales and inventory control at its
sales outlets by establishing and implemerting the necessary procedures
to provide foL uLopeLr accouniting for cilad sL es and inventories 4t:
its sales outlets.

Recommendation to the
Administrator of NOAA

     We recommend that the Administrator of NOAA direct NOS to improve
sales and inventory control at its sales outlets by establishing and
implementing the necessary procedures to provide for proper accounting
for chart sales and inventories at its sales outlets.

     We wish to acknowledge the cooperation given to our representa-
tives during this phase of our survey. A copy of this report is being
sent to the Assistant Secretary for Administration, and the Director,
Office of Audits, Department of Commerce, and the Director, National
Ocean Survey, for their information. Your comments or actions taken
or contemplated on the above matters would be appreciated.

                                      Sincerely yours,

                                      William L. Martino
                                      Assistant Director