111111 II11 Ill1 IllIll11 Ill11 Ill11 Ill11 LM103580 11111 UNITED STATESGENERAL ACCOIJNT~NGOFFICE iNTERNATION9L DIVISION l=AREAsrI3R*NCH PRlNCE ,ONAH K”H,C, KAUN~ANAOLE FEDERAL B”ILDINO ,a0 ALA MD- mWLEVARD HONOLULU. HAWAII 96813 fi!jG 2 ii 1977 The Honorable Leonard Unger kmerican .&mbassador U.S. Embassy Taipei, Taiwan Dear Mr. &mbassador: We have completed a survey of the merchandise control system administered by the U,S. Embassy in Taipei, Taiw;an. The system is designed to control the importation, use, and disposal of duty-free commodities (personal vehicles, other personal property, and 1 iquor) by U.S. Embassy and attached agency personnel in Taiwan. We found that the Embassy's rcanagement controls on vehicle and other personal property sales and on gifts and liquor sales could be improved. Taipei E-bassy officials were briefed on our observations and they generally agreed that the controls should be isproved. The sale of personal property, particularly motor vehicles, abroad by American e-.ployees has been criticized by members of Congress and the General Accounting Office because of profits that sellers have realized on the transa:tions. Profit-taking on sales of this kind is viewed as diminishing the stature of the American mission, damaging the United States image abroad, and resulting 21 undue personal advantage under circL:stances created in substantiai part by reason of official Governmert service to =3ich special customs and import privileges are attac‘;led. In a September 3, 1974, letter to Representative H. R. Gross we reporied on the administrative procedures of t>e U.S. Embassy, Lima, Peru, relating to sales of personal property where profits on such sales by U.S. Government employees were permitted. Scze of the same weaknesses we noted there exist at the U.S. E-Sassy, Taipei, Taiwan. ACCUPJTE REPORTING OF PERSONAL PROPERTY SALES IS SK ASSURED - The U.S. Embassy, Taipei, Tai*;zn, did not have a system for verifying or fol1ovir.g up sales of personal property and the disposition of profits on such sales to assure rhat they were accurately reported and the profits nroperly distributed. FPCD-77-75 Department of State regulations, as set forth in Foreign Affairs Manual Circular 378, prohibit the sale of personal automobiles and other personal property by U.S. Government employees abroad at prices producing profits to them which result primarily from import privileges derived from their official status. The regulations provide, however, that under local regulations approved by the Ambassador, sales may be made at profit but in no event shall any profits be retained by the employee, In accordance with Circular 378, the U.S. Embassy, Taipei, Taiwan, issued regulations on vehicle disposal (Circular 30/75) and on property disposal (Circular 31/75j. The provisions of these regulations apply to al.1 Embassy personnel and dependents which includes the Embassy, the Military Assistance and Advisory Group, the U.S. Army Technical Group, other attached agencies of the U.S. Embassy and associated con- tractors, and their nonappropriated fund activities. Under these procedures written approval of the Unit Administrative Officer and the General Services Officer are required before sales of personal property, including vehicles, can be accomplished. Sales of personal vehicles Circular 30/75 allows a person to sell one vehicle outside the duty-free commun;ty per tour providing it has been in the owner's possession on Taiwan for at least 2 years or it has been in the seller's possession on Taiwan for at least a year and the seller has either transfer or retirement orders having an effective date within 90 days of sale. Also, sellers may not retain an amount in excess of acquisition costs. We tested the Embassy's system for monitoring these sales and concluded that reported sales and acquisitiljn costs are questionable and the Embassy's system did not assure that the profits on sales of personal vehicles were properly reported and distributed. We identified as many as 16 possible cases where reported acquisition and sales prices shculd have raised a question of whether profits were being accurately reported. According to the Administrative Counselor and the General Services Officer, sales are not followed up to insure that correct sales and purchase prices are reFJ,rted. -2- c At the time of our survey, p rofitmaking was allowed for vehicle sales by military and civilian U.S. Government personnel not assigned to the Embassy. To determine whether Embassy assigned or attached personnel might have made a profit on vehicle sales* we reviewed the sales of 60 vehicles. We compared the sales of 15 late model vehicles wi.th similar sales at a profit by U.S. military personnel in Taiwan during January and February 1977. Sales prices reported in 14 of the 15 Embassy cases were lower than for similar sales in a profit envi rorlmen t . For example, one of tlke 14 sellers reported a sales price of $L, 405 for a 1975 Ford Granada. Three similar sales by . military personnel who may retain profits on such sales were made at reported sales prices of $7,000, $10,000, and $11,303. See enclosure I for additional examples. We also reviewed the 60 sales for overstating purchase prices. In one sale the reported purchase price for a 1974 Mercedes Benz 230 sedan was $9,820. However, a check of the vehicle’s Taiwan registration docu- ments disclosed a purchase price of $8,620. We reviewed available files and were urable to identify any other costs that the seller cou1.d report as acquisition costs. The seller reported only a $5,200 profit on a $15,020 sales price. Because the reported purchase prices differed, Embassy officials to whom the figures were available should ilave questioned whether t’he reported profit was understated by $1,200. The reported purchase price-- $10,000--of another Mercedes appears high and also should have been questicned. Sales of other personal pronerty Circular 31/75 governs the sale of personal property outside the duty-free community by Embassy personnel. Limits on these sales are based on type of item (accountable restricted and accountable) and time on island of the item and the seller. Accountable restricted items are air-conditioners, dehumidifiers, TVs, hot water heaters, refrigerators, freezers, pianos, and organs. Each sponsor is allowed to sell a specific number of each item outside the duty-free community providing the seller has some form of permanent change-of-station orders and the item has been in the owner’s possession at least 6 months prior to the date of application for disposal. - 3- Accountable items are stoves, washing machines, dryers, kerosene heaters, electric cooking appliances, camera equipment, stereo equipment, golf equipment, luggage, and other electrical appliances. Each sponsor is aliowed to sell a specific number of each item outside the duty-free community providing the item has been in the owner’s possession on island for at least 12 months. We examined the saies of personal property during 1976 by Embassy and attached agency personnel. For a majority of the sales it appeared thst the items sold had been bought for bona fide personal use and not with the intent of making a profit. However, in all the sales we reviewed no profit s were reported and the General Services Officer stated that he knew of no profits ever being reported. We obtained from a local buying agent in the private sectn the current resale prices of items sold in thene transactions. The following prices of items highly desired by the local community indicate that profits could have been made on the sale of these items. Purchase Sales price price 2 years old (note 1) New in l-ax (note 21 Sony 19” Color TV $430 $800+ $600 Whirlpool AC (21,000 BTU) Summer Sale 354 700-800 6GO k’inter Sale 354 650 500 Whirlpool Refrigerator Side by side 429 2/ 858 A/ 722 Top and bottom 360 J/ 720 _2/ 598 Freezer (chest) 258 2/ 516 y 414 Stove Small 218 2/ 436 2/ 342 Large 299 A/ 598 . z/ 382 Washer/dryer 446 868 476 l/Kavy Exch-ange, Taipei prices. L/Aad $50 if original box is included in the sale. i/Estimated sales price based on buying agentts formula. - 4 - - - - . - - - - - . _ - _ I . Present control procedures only require the seller to list the items for sale, their purchase price, date of purchase, and to certify whether a total procit was or was not made from the sale. No verifica- tion is made by the General Se-vices Officer of the purchase or sales price of individual items no- are complete reviews made of the sales application to insure only bona fLde personal r1s.e items that have been held for the proper tir,le are offered for sale. We believe this to be a serious weakness in the system which allowed to go unquestioned the reporting by one individual of sale of accountable restricted items having an acquisition cost of over $2,300 at no profit. when the market price for the i terns was over $3,100. The individual used home leave orders as the authorization for the sale rather than permanent change-of-station orders as required. Other individuals were identified as having sold items without holding them for the required time period. Declaring and donating profits to charity Both State Department and Embassy regulations re’quire that profits from vehicle sales be donated to a U.S. charity, a local charity approved by the Ambassador, the U.S. Government, or an authorized agency of the U.S. Government. Circular 378 also provides income tax guidance and an example for Embassy personnel outlining the financial advantages of declaring the procit as a capital gain and deducting the charitable contribution. Procedures for insuring that reported profits are donated to charities were inadequate. For example, the written certification of the disposal of profits on the sale of the 1974 Mercedes Benz noted above showed only that the seller planned to contribute unsoecified amounts to nine specified charities and to “other charities that may solicit my assistance.” According to the Administrative Counselor and the General Services Officer, no follohups are done to insure that donations are actually made. The degree to which the system can be abused under present conditions is exemplified J>y one case we reviewed. An employee reported a profit on the .s.\le of a personal car which on the basis of available data should hsve been questioned for understatement. Additionally, he sold accountable restricted items at much less than market value without proper orders and also viol dted the Embassy’s gift regulations (see pp. 3, 6, and 7). Despite these apparent violations, his actions wert not detected by the Embassy system but by the military merchandise control system when a check of his exchange purchases disclosed several positive indications of black-marketing and an expanded investigation was undertaken. -5- -- Conclusions and recommendations The Unit Administrative Officers and General Services Officer wer: not performing sufficient review and verification of vehicle and rez,tricted accountable item sales transactions to insure the accuracy of purchas 2 and sales prices. They were also not requiring sufficient documentation to determine whether profits actually were donated to approved charitable institutions. Control was solely dependent on an individual’s honesty. We recommend that you require Embassy officials to request documentation to stipport acquisition costs and sales prices and that employees be required to furnish proof that excess proceeds from sales of personal property including vehicles were donated to approved chari ties. Where cost or sales price data furnished by employees is out of line with current market prices and other data, as a minimum, special explanations should be required. -BETTER CONTROL NEEDED OVER GIFTS Circular 31175 requires that bona fide, duty-free gifts, whether imported or transported into Taiwan or acquired in Taiwan, given to persons outside the duty-free community must meet the following criteria: 1. No gift over $25 in value may be given without written approval by appropriate authori ties. 2. All gifts given to any one recipient in any 12-month period may not exceed $75.00 in value. 3. All gifts given in any 1 year by one member of the duty-free communi.ty shall not exceed $300 in value. Despite these restrictions, one sponsor and his dependents had purchased i terns to be given as gifts totaling $319 in 1976; $1,618 in 197 q; and $589 in 1974. In 1975, the sponsor had spent $490 for gifts and his wif*? had spent $1,035. Both were over the $300 limit and among the gifts were a variety of accountable items (luggage and electric blankets) and black-market items (cosmetics, baby clothing, bedding, and dinnerware}. For a complete listing of the gift purchases, seeenclosure II. We recommend that you establish a review process to periodically insure people are complying with Circular 31/75’s limit on gifts. -6- LIQUOR SALES COKIROLS CAN BE IYPROVED The Embassy operates all U.S. Government liquor stores rn Taiwan. According to the Administrative Counselor, about 95 percent of the saies are to non-Embassy military and civilian employees and their dependents. This situation results from the Embassy originally having liquor stores under diplomatic conditions and expanding the stores when military activities on Taiwan increased. Embassv ccntrol of liquor Al though the Embassy is a minority user of the liquor stores, it operates the control system. About 2,000 military and Government contract and 400 other personnel have ration cards that permit them to purchase liquor and wine at the stores. The cards are issued annually and have monthly unit limits. Embassy shop personnel mark each person’s card at the time of purchase to shot how much of the monthly ration has been used. Waivers to increase tte monthly limit can be obtained from the Administrative Counselor if the requestor has a valid reason. .. About 2 years ago the Embassy and the military had discussions on methods to reduce drug and alcohol abuse on Taiwan. As a result, the limits were reduced to the following monthly levels. Category Liquor Or Wine (bottles) (bottles) Military - L person 8 32 2 People 16 64 Embassy - 1 person 10 40 2 people 20 80 We discussed these limits with Embassy and military personnel. All agreed that few people could use their complete ration on an extended basis and that the limits could be reduced without restricting legi timate buyers. Law enforcement and investigative officials added that reducing the limits would rszsult in fewer i terns reaching the black market. -7- Inadequate review of liquoz purchases The Embassy controls the issuing and monitoring of liquor ration cards. The Embassy shop does not make periodic reviews of individual cardholder purchases. The only checks made are individual ones and at the specific request of the Provost Marshal Office. As a result, the majority of liquor purchases are not reviewed for potential black- marketing activities of a product that has probably the highest profit to cost ratio of any item being black-marketed. We recommend that you reduce liquor limits and introduce a procedure to periodccally review purchases by all cardholders to detect potential abusers. Please advise us as soon as possfble on what action you plan LO take to improve controls over gifts and sales of liquor and personal property. We are sending copies of this report to the Assistant Secretary of State for Administration and the Inspector General for their information. We appreciate the courtesies and cooperation extended to our representatives during our survey. Sincerely yours, Enclosures - 2 cc: Assistant Secretary of State for Administration Inspector General - 8 - ENCLOSURE I ENCLOSURE I COMPARISON OF SALES PRICES OF VEHICLES SOLD OUTSIDE THE U.S. COMMUNITY BY EMBASSY AND NON-EMBASSY PERSONNEL-- (SELECTED TRANSACTIONS) EmbdSSy sdles Non-Embassy scilesl/ Ddtf? of PurchdSc? SdleS Jdn./Feb. 1977 SdleS prices Vehicle sdle price price of SdnK?/SiTIildr vehicles 1974 Ford MUStdng l/ 7/76 $4,100 $3,605 1974 Ford !'~UStdng $ 5,000 19?4 Ford MUStdnCj 6,000 1974 Ford Mustdng 6,000 1974 Ford Gran Torino 4/16/76 5,600 5,013 1973 Grdn Torino 4,500 1975 Gran Torino 10,000 1974 POntidC b?ITIdnS 6,483 1974 Ford LTD 5/11/76 5,414 5,407 1973 Ford LTD '-I , 2 2 7 1975 Ford LTD 15,000 1974 PontidC Lemdns 6,483 1974 Olds CUtldSS 5/18/76 5,800 5,797 1975 Olds CUtldSS 13,000 1974 PoIItidC h3IIdnS 6,4tj,? 1975 Chevrolet 6/16/76 5,402 5,402 1975 Monte cdrlo 13,6OC 1975 Olds Cutldss 13,000 1975 Ford Grdnddd 10,100 1975 Ford Grdnddd 11,000 1975 Ford Grdnddd 7,000 1975 Ford Grdllddd 11/23/76 4,905 4,905 1975 Ford Gtdnddd 7,000 1975 Ford Grdnada 10,000 1975 Ford Grdnddd 11,300 1974 TOyOtd Corolld l/26,.76 2,315 2,312 1974 TOyotd CvrOlld 4,500 1974 Toyota Corollii 5,500 1974 TOyOtd Corolla 6,000 1974 Chevrolet Impdld S/27/76 4,024 4,024 1974 Chevrolet NOVd 5,395 1974 PontidC LeKIdnS 6.483 . . ENCLOSUREI ENCLOSUREI EIIIbdSSy SdleS Non-Embdssy SdleS Ddte of Jdn./Feb. .1977 SdleS prices Vehicle Sdl@ price price of sdIIIe/simildr vehicles 1974 TOyOtd Cordlld 6/ 9/76 S?,SOO $2,899 1974 TOYotd COrOlld $ 4,500 1974 Toyotc COrolld 5,500 1974 Tuyotd COrOlld 6,000 1974 Ford MUStdng 8/18/'76 4,000 4,000 1974 Ford MUStdng 5,000 1974 Ford MUStdI-KJ 6,000 1974 Ford b!Ustdng 6,000 1974 Dodge DdCt 9/ 7/76 3,765 3,557 1974 Dodge Ddrt 6,850 1975 Mercury Mondrch 7/ G/76 7,271 7,209 1975 Ford GITdnddd 7,000 1975 Ford Grdnddd 10,100 1975 Ford Grdtlddd 13,000 1975 Olds CUt1dS.s 13,000 1474 Mercury Comet 7/12/76 5,700 5,700 1974 Mercury Comet 9,159 (sale occurred l/8/76) 1974 Chevrolet VeCjd 8/ 6/76 3,800 3,795 1974 Chevrolet Vega 4,000 1974 Chevrolet Vegd 3,650 1974 Chevrolet Vega 5,200 1974 Chevrolet vegd 5,000 l/All SdleS trdnsdction of the SdIIIe wdel and yedr vehicle ds the EmbdSSy vehicle sold dre included. ENCLOSUREI I ENCLOSUREII NAVY EXCHANGEPURCHASES BY ONEINDIVIDUAL (AND DEPFNDENTS) . FOR GIFTS 1976 1975 1974 'Number of items Price Number of items Price Number of items Price Clothing *Jacket $ .39.00 Jacket $35.60 Jacket 13.50 Jacket 35.00 Jacket 16.00 Jacket 35.00 Jacket, Suede 20.00 Slacks $ 16.70 Slacks 16.80 3 Slacks 33.00 Slacks 16.00 Slacks 26.00 Slacks 31.00 Slacks 26.00 Slacks set 24.00 2 Jeans 15.00 Sweater 11.00 Shirt 11.00 6 Shirts, sports 30.00 Top 39.00 Robe 20.00 2 Robes 20.00 Gown 6.75 Gown set 6.75 Various clothing 79.50 Shoe; 17.50 Shoes 18.00 Shoes 29.00 Personal items 2 Wallets, ladies 11.00 3 Wallets, ladies 16.50 3 Wallets, ladies 25.00 Man's watch 40.00 Man's watch 40.00 Ladles watch 54.00 Cuff links 29.00 Ring 104.00 Diamond ring 135.00 Men's cologne 3.70 1976 1975 19i4 Number of items Price Number of items Price Number of items -- Price Personal items Men's gift set$ 5.50 (con't) Various cosmetics 39,00 Various cosmetics 35.45 3 Bubble baths 35.50 Baby goods 2 Nurser sets 17.00 Nurser sets 7.00 Baby crib 60.00 Baby mattress 21.00 2 Diapers 10.00 Stroller $ 26,50 Bedding 2 Sheets 21.00 Blanket, bed- spread and 2 pillowcases 48.00 5 Blankets 57.00 Blanket 9.00 Blanket $ 12.00 Electric blanket 18.50 Bedspread 22.50 Bedspread 22.50 Bedspread 23.50 Bedspread 24.00 Bedspread 15.00 Pillowcase 2.95 Pillowcase 2.95 2 Pillowcases 6.00 Pillowcase 3.00 2 Sheets 7.00 2 Sheets fi,oo 4 Sheets 42.00 Dinnerware Wine decanter 20.50 Wine decanter 12.00 Wine decanter 13.00 Wine decanter 11.50 Dinner set 60.00 Dinner set 55.00 Dinner set 39.00 Dinner set 15.00 Dinner set 15.00 Dish set 17.00 Dish set 15.00 . l 1976 1975 1974 Number of items Price Number of items Price Number -- of items Price Dinnerware 2 Cookware sets $ 29.00 Cookware set $ 14.50 (can't) Cooking plate 21.75 Silverware $ 54.50 Tray cart 8.00 Other Luggage, 3 suiter 39.00 Luggage, pullman 64.00 Luggage, overnight 26.00 Tote bag 25.50 Astray and lighter 31.00 Table lamp 14.00 Rug 24.00 3 Tapes 15.50 'Jnnis racket 32.00 2 Electric heaters 54.00 2 Electric heaters -- 54.00 $319.20 . $1,618.90 $589.80 -. -- 1 u. s. GtYCRAC MSCOUWTINC OFFICC APPfWVAL FOR RELEASE AND DISTWIBUTION OF REPORT WGWED III OFFICIAL OTHER WAR WE COMPTROLLER CEMCRAL OR DIVWOY DIRECTORY TIYLE Of REPOCW AtdD ASIiCHYEW1 CODE 1 INSTRUCYIOHS Letter report on Survey of Ration Control Systems htmctlcnm for prcp.rmg thm in the Far East (Code 963060) form WC rontolncd ,n Chapter 10 of the Report Menub NAYE OF OFFICIAL TO SIGN Rl?P-Rt TITLE OATE IISUCD W. H. Sheley, Jr. 1 D=- irectoQEB,_. _- ID f- 26.77 INITIAL EXOEWW &L DISTRIWJTIOM NO. Of UEClPfLNt ro. OF RLCIPILNT COPILS :oPILs 2 The Honorable Leonard Unger 1 Inspector General, Washington, D.C. American Ambassador U.S. Embassy 3 Director, Operations Analysis and Taipei, Taiwan CA0 Liaison (BF/OAC) Department of State, Washington, D.C. 1 Assistant Secretary of State for Administration I Was~C. . IWiTlAL IWTERYI DlSTff NO. OF 10. OF IPBCIPILHT ClECtPlLMT COPIES I :OPILS I DIRECTOR, OFFICE OF I’OLICV Mr. Conahan, Associate Director, ID Cogt~izrmt fhie~eo Oiroctsr FPCD 3b’ b. H. L. Krieger Mr. Sheiey, Jr., Director, FEB, ID 3 Chief, 8Jstrlbuclsn Sorrion, OAf’S 1 Mr. Fasick, Director, ID APPROVAL FOR RELEASE OF REPORT AND T2AHSYITTAL LETTERS
Merchandise Control System at the U.S. Embassy in Taipei, Taiwan
Published by the Government Accountability Office on 1977-08-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)