oversight

Government Printing Office: Information on September 1996 Major Inventory Reduction

Published by the Government Accountability Office on 1997-09-16.

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

                 United States General Accounting Office

GAO              Report to the Chairman
                 and the Ranking Minority Member,
                 Committee on Appropriations,
                 U.S. Senate

September 1997
                 GOVERNMENT
                 PRINTING OFFICE
                 Information on
                 September 1996 Major
                 Inventory Reduction




GAO/GGD-97-177
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   General Government Division

                   B-277904

                   September 16, 1997

                   The Honorable Ted Stevens
                   Chairman
                   The Honorable Robert C. Byrd
                   Ranking Minority Member
                   Committee on Appropriations
                   United States Senate

                   In addition to providing printing services to the federal government, the
                   Government Printing Office (GPO) provides government publications to the
                   public through its sales program at 24 bookstores across the country; by
                   telephone, fax, and mail order sales at its headquarters in Washington,
                   D.C.; and through consigned sales agents in other agencies. GPO
                   periodically reviews its inventory of publications to determine whether
                   any can be considered excess—i.e., no longer expected to sell—and then
                   disposes of the excess copies. This report responds to your request of
                   July 21, 1997, that we review GPO’s procedures involving the management
                   of its inventory of publications that it determines to be excess, particularly
                   its management of a major inventory reduction of excess publications that
                   took place in September 1996.

                   Specifically, our objectives were to determine the facts surrounding the
                   September 1996 inventory reduction: whether it followed existing policies
                   and procedures, and how 3,258 copies of The Senate 1789-1989, a
                   four-volume set written by Senator Byrd, were destroyed as part of that
                   reduction.

                   We obtained the information for this report from GPO’s policies and
                   procedures manuals, inventory and financial records, interviews with
                   agency and contractor personnel, and observations at GPO’s warehouse in
                   Laurel, Maryland. Our review was conducted in July and August 1997 in
                   accordance with generally accepted government auditing standards. A
                   more detailed discussion of our scope and methodology is contained in
                   appendix I. On September 5, 1997, we provided a draft of this report to the
                   Public Printer for review and comment. GPO’s comments are discussed at
                   the end of this letter and included in appendix IV.


                   When for the first time in 15 years a potential financial loss was identified
Results in Brief   in GPO’s sales program in June 1996, the Superintendent of Documents,
                   who heads the sales program, initiated several actions intended to improve
                   the program’s long-term financial condition. One action, which was carried



                   Page 1               GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
B-277904




out in September 1996, involved a special identification and disposal of
excess publications from its inventory. The Superintendent of Documents
said he wanted to dispose of the excess inventory by September 30, 1996,
to take the losses in fiscal year 1996, and to do so by identifying and
disposing of as much excess inventory as possible in fiscal year 1996
rather than in later years, when it otherwise would have been identified,
disposed of, and charged to expense. The Superintendent of Documents
also said he had erroneously believed that it was necessary to physically
remove excess publications from inventory storage by September 30, 1996,
in order to record them as an expense in the financial records for fiscal
year 1996.

During the major inventory reduction, GPO identified 2,127 different
publications1 as excess and disposed of them by selling them to a
contractor, who subsequently shredded them and sold the scrap paper for
recycling. For fiscal year 1996, GPO charged about $9 million in surplus
publications expense in its financial records to account for the
publications it excessed and disposed of. Of this, about $3 million was
attributable to the special inventory reduction in September 1996.

Although the Superintendent of Documents had policies and procedures in
place to prevent the disposal of publications that the issuing agency still
wanted, in June 1996 he instructed his staff to disregard those policies that
would interfere with his goal of disposing of as much excess publications
inventory as possible by September 30, 1996. Acting under the
Superintendent’s overall instructions, GPO sales program staff disregarded
a policy that has existed since at least 1984, which provides that, before
disposing of any excess copies of publications, GPO should offer them to
the issuing agencies. Sales program staff also did not follow an established
procedure by which several GPO supervisory personnel were to review and
approve each publication to be disposed of. Had sales program policies
and procedures been followed, the four-volume history by Senator Byrd,
The Senate 1789-1989, about which the Senate Historian’s Office had
expressed interest in receiving excess copies to GPO, would not have been
disposed of.

As part of the special inventory reduction, GPO excessed and disposed of
3,258 copies (some of each volume) of the four-volume Senate history, the
printing and binding costs of which accounted for about $83,000 of the
$3 million surplus publications expense. On the basis of the contract GPO

1
Each volume of the four-volume set of the Senate history is considered a separate publication in
GPO’s inventory.



Page 2                     GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
B-277904




has with the firm that picked up the excess copies from GPO’s warehouse
in September 1996, we estimated the scrap value GPO received for these
copies to have been about $600. In August 1997, GPO estimated that the
annual storage cost for the copies of the Senate history that were disposed
of would be about $2,500 and that the reprint cost would be about
$210,000.

In explaining its inventory reduction to Senator Byrd, GPO said that it had
found that it was generally more cost-effective to dispose of excess
inventory and reprint if necessary, than to hold it in storage indefinitely.
According to GPO, this statement referred to its publications inventory in
general, but it did not specifically refer to the Senate history volumes. In
September 1996, GPO had not calculated the cost of holding the Senate
history volumes in inventory or of reprinting them. However, GPO officials
said that they knew that the reprint costs would substantially exceed the
holding costs for these copies, given their relatively high printing and
binding costs.

In July 1997, after Senator Byrd inquired about the major inventory
reduction, the Superintendent of Documents orally instructed his staff to
retain the remaining volumes of the Senate history and, at our
recommendation, put this instruction in writing in August 1997. The
Superintendent further said that GPO was developing a new integrated
processing system that would help designate publications that should not
be excessed and, at our recommendation, agreed to develop a systematic
process for identifying publications to be held indefinitely for valid
reasons, such as historical significance. In addition, in response to another
recommendation that we made, he issued a written statement that the
policy to offer excess copies to issuing agencies before disposal cannot be
waived. To help avoid future misunderstandings on the reduction of
inventory, we recommended, and GPO agreed, that a written statement be
included in its policies and procedures specifying that excess inventory
does not have to be physically disposed of before being charged to surplus
publications expense, and that holding cost as a factor should be
considered when inventory management specialists develop data on
excess inventory. Finally, GPO has sent a legislative proposal to the Joint
Committee on Printing that would authorize GPO to donate excess
publications to schools or similar institutions. GPO does not now have such
authority, and this prevents GPO from donating its excess publications.




Page 3              GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
             B-277904




             GPO  was established in 1861 to (1) assist Congress and federal agencies in
Background   the production and replication of information products and services, and
             (2) provide the public with government information products and services.
             GPO provides printing services to all three branches of government—either
             by producing work in-house or by procuring it from commercial printers.
             Information dissemination is accomplished through GPO’s Superintendent
             of Documents, who is to provide public access to government information
             through (1) the sale of publications; (2) distribution of publications to
             depository and international exchange libraries, to those recipients
             designated by law, and for agencies on a reimbursable basis; and
             (3) compilation of catalogs and indexes containing complete and
             authoritative descriptions of government publications.

             The public printing and documents chapters of title 44 of the U. S. Code
             require GPO to fulfill the printing needs of the federal government and
             distribute government publications to the public. GPO’s activities are
             financed through a revolving fund, which is reimbursed by payments from
             client agencies and sales of government publications, and transfers from
             the Congressional Printing and Binding Appropriation and the Salaries and
             Expenses Appropriation of the Superintendent of Documents. These
             annual appropriations are to reimburse GPO for costs incurred while
             performing congressional work and fulfilling statutory requirements
             associated with the distribution of government publications.
             Reimbursements from these appropriations to the revolving fund are
             recorded as revenues. The sales program operates within the revolving
             fund and is expected to recover its costs from its sales. According to GPO,
             the sales program does not receive any direct appropriation.

             GPO  is headed by the Public Printer, who is nominated by the President and
             confirmed by the Senate. The sales program is led by the Superintendent
             of Documents, who reports directly to the Public Printer. The sales
             program provides the public the opportunity to purchase government
             publications and subscriptions at GPO’s 24 bookstores across the country;
             through telephone, fax, and mail orders; and through consigned sales
             agents at other agencies.2 Within the Superintendent of Documents’ staff is
             the Documents Sales Service, which includes staff in the Sales
             Management Division and Documents Control Branch. Other key players
             in the sales program include Customer Services, whose printing specialists

             2
              Two of the more popular publications are the Budget of the United States Government and the
             Occupational Outlook Handbook; some of the more popular subscriptions are the Code of Federal
             Regulations, Commerce Business Daily, and the Federal Register. Even though GPO’s September 1996
             inventory reduction included subscriptions, our review involved only publications, although the
             numbers of publications excessed and their costs cited include both.



             Page 4                   GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                    B-277904




                    serve as liaisons with the issuing agencies until the publications are
                    produced, and the Office of the Comptroller, which keeps the financial
                    records, including inventory. For more detail on GPO’s organizational
                    makeup, see appendix II.

                    Once a publication is printed and enters the sales program, the Documents
                    Control Branch, within the Sales Management Division, maintains
                    inventory control, determines its continued salability, and makes
                    reprinting and disposal decisions. Working with the issuing agency, Sales
                    Management Division staff establish a life cycle for each publication that
                    represents the period during which sales demand is expected. According
                    to GPO, the average life cycle for a publication in its inventory is now about
                    12 months.

                    As of September 1996, the sales program carried 13,268 publications in its
                    inventory, valued at about $12.8 million based on printing and binding
                    costs.3 The sales program did not report a loss between fiscal years 1981
                    and 1995. For fiscal year 1996, however, the sales program’s expenses of
                    $79.4 million exceeded revenues of $70.5 million, for a net loss of
                    $8.9 million. As of June 1997, the sales program was showing a loss of
                    about $537,000 for fiscal year 1997.


                    In May 1996, financial projections indicated that the sales program
GPO Completed a     expected a substantial loss for fiscal year 1996, the first such loss in 15
Major Inventory     years. These projections were based on information that indicated that
Reduction in 1996   revenue was down and expenses were up for several reasons, including
                    declining sales, the effect of the government shutdown at the beginning of
                    fiscal year 1996, competition from other government sales programs,
                    increasing use of free electronic publications, and a substantial increase in
                    charges to surplus publications expense (i.e., the printing and binding
                    costs of publications in GPO’s inventory that are expected to be unsalable).

                    As a result of the projected loss for fiscal year 1996, the Superintendent of
                    Documents tasked a management team with developing an action plan to
                    increase revenue and reduce expenses, with the objective of returning the
                    sales program to full cost-recovery in fiscal year 1997. The plan, dated
                    September 1996, originally contained 44 individual projects and was later
                    amended to include 2 more projects. One original project was a special
                    effort, over and above GPO’s routine process for removing excess

                    3
                     When the sales program acquires publications for sale, it pays only the incremental printing and
                    binding costs for the copies it acquires. All start-up costs are borne by the issuing agency.



                    Page 5                     GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                           B-277904




                           publications, to move aggressively to reduce the inventory of surplus
                           publications before the new fiscal year began on October 1, 1996. Such a
                           reduction would increase the surplus publications expense for fiscal year
                           1996 but was expected to decrease those expenses in fiscal year 1997 and
                           subsequent years. In other words, the sales program’s losses for fiscal year
                           1996 would be greater, but GPO officials hoped that this would result in the
                           program breaking even or better for fiscal year 1997 and beyond.

                           The inventory reduction began in early September 1996, even before the
                           action plan was issued, with a deadline for completion of September 30,
                           1996. The September 1996 inventory reduction involved 2,127 publications
                           that had a printing and binding cost of about $3 million, which was about
                           one-third of the surplus publications expense GPO charged for publications
                           it excessed and disposed of in fiscal year 1996. (See appendix III for
                           examples of the publications disposed of in September 1996.) GPO’s
                           records and our discussions with GPO warehouse and contractor personnel
                           indicate that the publications inventory that was excessed during the
                           reduction was sold (for less than 3 cents per pound) to a scrap contractor,
                           who was required by contractual terms to shred and recycle it rather than
                           resell the individual publications.4


Policies and Procedures    The Superintendent of Documents had issued policies and procedures for
Existed for Managing the   determining excess, obsolete, damaged, and destroyed information
Disposal of Excess         products and for managing inventory. Superintendent of Documents
                           Policy No. 38, dated May 28, 1984, provides that publication inventories
Inventory                  are to be reviewed quarterly to determine the quantities that are to be
                           retained and those that are excess. This policy applies to inventories that
                           are managed by headquarters staff. A separate procedure (Superintendent
                           of Documents Policy No. 38.6) applies to inventories in GPO’s bookstores.5

                           Under the existing policies and procedures, inventory management
                           specialists (IMS) in the Documents Control Branch are to review quarterly
                           the amount of inventory for the publications they manage. This review is
                           conducted to identify whether the inventory should be reduced based on
                           the sales history and projected life cycle of the publication. As part of the
                           Superintendent of Documents’ existing policy, which was issued by the
                           current Public Printer when he was the Superintendent of Documents,

                           4
                            By law, GPO has implicit authority to dispose of excess publications as scrap. GPO also has adopted a
                           policy to offer excess publications to issuing agencies at no cost.
                           5
                            According to GPO, its 24 bookstores keep a minimal stock of any particular publication on hand;
                           therefore, we did not include policies and procedures that apply to GPO’s bookstores in our review.



                           Page 6                     GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                        B-277904




                        once an IMS determines the number (if any) of copies of a publication that
                        are excess, he or she is to call the issuing agency to determine whether it
                        wants the extra copies.

                        As part of the inventory review process for publications of high dollar
                        value or with a large number of copies on hand, the IMS then is to complete
                        Form 3880, which includes such information as the estimated printing and
                        binding cost of the publication, anticipated sales, total copies sold, and
                        whether the issuing agency wants any of the excess copies. (The form
                        does not include the holding cost of retaining the copies in inventory.)
                        This completed form is to be sent to a Documents Survey Board consisting
                        of the Director of Documents Sales Service, the Chief of the Sales
                        Management Division, and the Chief of the Documents Control Branch. If
                        the Survey Board approves the form, the IMS then must prepare a notice to
                        be sent to GPO’s warehouse in Laurel, Maryland. At the warehouse, the
                        excessed stock (i.e., stock not wanted by the issuing agency) is to be
                        identified and moved to a separate area for periodic pick up by a
                        contractor, who is required by the contract to shred the documents and
                        have them recycled. The contractor is not permitted to resell the
                        documents other than for recycling.


Existing Policies and   During the major reduction in September 1996, the Superintendent of
Procedures Were Not     Documents’ staff followed his orders and disregarded policy and normal
Followed                procedures in order to reduce the inventory of excess publications before
                        October 1, 1996. When the Superintendent of Documents realized that the
                        sales program expected a substantial loss, he told his staff in a June 1996
                        memorandum that, while developing an action plan to increase revenue
                        and reduce expenses, they should: “Ignore politics and external influences.
                        Disregard current policies and practices that inhibit creativity and impede
                        change.” According to the Superintendent of Documents, his instruction to
                        ignore politics and external influences referred to frequent requests from
                        issuing agencies to have more copies of publications in the sales inventory
                        than GPO believes can be sold. The Superintendent further said that he
                        subsequently verbally instructed his staff to begin the inventory reduction
                        before the action plan was approved and told them to disregard policies
                        that would interfere with the removal of as much excess inventory by
                        September 30, 1996, as possible.

                        In order to maximize charges to surplus publications expense in fiscal year
                        1996, the Superintendent of Documents and GPO’s Comptroller advised IMS
                        staff to focus their attention on excessing publications that had high



                        Page 7              GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
B-277904




printing and binding costs, large quantities in inventory, and low sales
volume. Also, during this major reduction, IMS decisions on what
publications to excess did not receive the normal management review, and
IMS staff did not call the issuing agencies to see whether they wanted the
excess copies of their publications.

Superintendent of Documents staff told us that they disregarded policy
because they would not have had enough time to contact the issuing
agencies and receive answers by September 30. According to these staff
and Superintendent of Documents management officials, it would have
been very difficult to contact all of the agencies involved with the 2,127
publications being excessed and to wait for their various responses
concerning whether they wanted the excess copies. According to GPO, this
response period usually takes about 4 weeks, and GPO officials did not
believe that the agencies would be able to respond appropriately if given
only a few days.

According to Documents Control Branch staff, this disregard of policy
resulted from the Superintendent’s June 1996 memorandum and his oral
instructions to his staff regarding the formulation of the action plan to
increase revenue and reduce expenses. The IMS responsible for handling
congressional publications, and his supervisor in September 1996,
acknowledged discussing between themselves whether they should follow
GPO’s policy to offer excess publications to issuing agencies. They said that
they felt they had the authority to dispose of the publications without
notifying the issuing agencies because of time constraints and instructions
from the Superintendent of Documents to disregard policies. They said
that, given the Superintendent of Documents’ instructions, they saw no
need to tell management officials above them that they were disregarding
this policy.

The IMS responsible for handling congressional publications told us that he
made the decision on which publications to excess based primarily on the
criteria he was given—high printing and binding costs, large quantity in
inventory, and low projected sales. According to the IMS, his decisions on
which publications to dispose of in September 1996 were not reviewed or
approved by the Documents Survey Board, as generally would be required.
The publications selected for excessing by the IMS were approved by his
supervisor, but no one else’s approval was noted on the inventory records.

The Superintendent of Documents said that he was responsible for
policies not being followed and for the inventory reductions that took



Page 8              GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                          B-277904




                          place at the end of fiscal year 1996. The Superintendent of Documents said
                          that he wanted to dispose of the excess inventory by September 30, 1996,
                          in order to take the losses in fiscal year 1996. He also said that he wanted
                          to identify and dispose of as much excess inventory as possible in fiscal
                          year 1996 rather than in later years, when it otherwise would have been
                          identified, disposed of, and charged to expense. According to the
                          Superintendent of Documents, he instructed staff to dispose of the excess
                          inventory by September 30, 1996, because he mistakenly believed that the
                          inventory had to be physically removed from GPO property before surplus
                          publications expense could be charged.

                          However, the inventory identified as excess by the IMS staff did not have to
                          be disposed of by September 30, 1996, in order that the surplus
                          publications expense could be charged to fiscal year 1996. Neither
                          generally accepted accounting principles nor GPO’s own accounting
                          procedures require physically removing the excessed publications from
                          GPO property before surplus publications expense can be charged. Surplus
                          publications expense can be charged whenever GPO staff determine that
                          inventory is obsolete or unsalable. In fact, GPO had another major
                          inventory stock reduction in fiscal year 1981, and at that time, according to
                          GPO’s Comptroller, certain publications had been identified as excess but
                          had not yet been disposed of when they were shown as an expense in
                          GPO’s financial records.


                          Both GPO’s Comptroller and the Superintendent of Documents agree that
                          the latter misunderstood how publications expenses were handled in GPO’s
                          accounting system at the time of the major inventory reduction in 1996.
                          They both said that, at that time, GPO had no written guidance or
                          instructions stating that excess inventory does not have to be physically
                          removed from GPO before surplus publications expense can be charged.

                          In July 1997, the Public Printer told us that, while he was notified that a
                          major inventory reduction would be taking place in 1996, he was not made
                          aware of the details of the reduction. He said that he did not know that the
                          policy to offer excess publications to the issuing agency, which he had
                          instituted when he was Superintendent of Documents, was not followed in
                          the September 1996 reduction.


The Four-Volume History   As mentioned earlier, according to the IMS responsible for handling
Was Excessed During the   congressional publications, the decisions concerning which publications
Inventory Reduction       to excess were primarily based on the criteria of high printing and binding



                          Page 9              GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                                       B-277904




                                       costs, large quantity in inventory, and projected sales. The IMS said that the
                                       Senate history volumes met these criteria for disposal. According to the
                                       IMS, he made his decision concerning the number of copies of the Senate
                                       history to retain based on an estimate of future sales, using a 10-year
                                       estimated life cycle for each of the four volumes. According to GPO’s
                                       records, the 10-year life cycle was developed when the volumes were first
                                       published, as a result of discussions involving the Senate Historian, House
                                       Historian, Joint Committee on Printing staff, and staff from GPO’s
                                       Documents Sales Service group.

                                       GPO records show that, of the inventory that was excessed, 3,258 copies,
                                       involving some of each of the four volumes written by Senator Byrd, were
                                       disposed of. The 3,258 copies were about 10 percent of the total number
                                       originally printed of the four volumes (32,386 at a total cost of $1,572,291).
                                       The printing and binding cost of the 3,258 excessed copies was about
                                       $83,000. The scrap value received for the shredded copies was about $600.
                                       See table 1 for more detail.

Table 1: Scrap Value for Excessed
Copies of the Senate History Volumes                                                                                     Scrap value of
                                                                    Number of Weight of each             Scrap value             copies
                                                                       copies           copy               per ounce          excessed
                                       Volume                        excessed    (in ounces)             (in dollars)a      (in dollars)
                                       I                                  1,188                125        $0.0017343             $257.54
                                       II                                   918                  99        0.0017343              157.62
                                       III                                  660                  98        0.0017343              112.17
                                       IV                                   492                  89        0.0017343                75.94
                                       Total                              3,258                                                  $603.27
                                       a
                                           The scrap value contract was for $0.02775 per pound, which converts to $0.0017343 per ounce.

                                       Source: GAO calculation based on GPO records.



                                       According to GPO records, GPO retained 1,134 total copies of the Senate
                                       history, which GPO inventory management staff kept in inventory based on
                                       the estimated quantity needed to meet a sales demand calculated on what
                                       they initially agreed with representatives from the Senate Historian’s
                                       Office and others to be the life cycle for the publications. This life cycle
                                       was to be 10 years from the dates the volumes were published; their
                                       publication dates were 1988 (volume I), 1991 (volume II), 1994 (volume
                                       III), and 1993 (volume IV).




                                       Page 10                     GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                                           B-277904




                                           Table 2 contains a breakdown of the disposition of the Senate history
                                           volumes, including the number on hand as of July 1997.


Table 2: Inventory Transactions for the Senate History Volumes
             Copies acquired
                 for sale from Copies sold from                Other        Copies excessed                On hand as              On hand as
Volume             2/89 to 9/96       2/89 to 9/96     distributionsa                in 9/96                   of 9/96                of 7/97b
I                       4,397               2,356                    504                   1,188                    349                        211
II                      2,454                  720                   504                     918                    312                        224
III                     1,000                  167                      0                    660                    173                        91
IV                      1,000                  208                      0                    492                    300                        236
Total                   8,851               3,451                  1,008                   3,258                  1,134                        762
                                           a
                                            These copies were given to the Senate Historian’s Office in October 1991.
                                           b
                                            Sixty copies of each of the volumes were distributed without charge to the U. S. Information
                                           Agency at the request of the Senate Historian’s Office in June 1997 and thus are not reflected in
                                           the inventory as of July 1997.

                                           Source: GPO Office of the Comptroller and inventory control records.



                                           A representative from GPO’s Congressional Printing Management Division
                                           in Customer Services told us that, in June 1996, he told the IMS responsible
                                           for handling congressional publications that the Senate Historian’s Office
                                           wanted any excess Senate history volumes that GPO might have. The
                                           responsible IMS said he knew that in the past the Senate Historian’s Office
                                           had inquired about the status of the Senate history volumes on several
                                           occasions and that, while he recalled the previous inquiries by the Senate
                                           Historian’s Office, he did not recall being told in June 1996 that the Senate
                                           Historian’s Office wanted any excess copies. He said that he proceeded
                                           with the inventory reduction based on the Superintendent of Documents’
                                           instructions to disregard policies and ignore politics. Inventory records
                                           showed that he identified the copies as excess on September 6, 1996, and
                                           September 9, 1996. Warehouse records show that the copies were removed
                                           from the warehouse shelves for pickup by the scrap contractor on
                                           September 10, 1996, and September 12, 1996.

                                           All of the Superintendent of Documents staff we interviewed who were
                                           involved in the September 1996 inventory reduction said that no specific
                                           discussion of the Senate history volumes occurred during the
                                           September 1996 reduction. The Public Printer said he did not know at the
                                           time that the Senate history volumes were among those being excessed
                                           and that, if he had, those books would not have been disposed of.




                                           Page 11                    GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                              B-277904




                              GPO has taken action or has actions in process that are aimed at helping to
Actions Taken or in           prevent a recurrence of a situation in which excess publications are
Process Should Help           disposed of without regard to established policies and procedures. While
GPO Prevent a                 GPO’s initial actions could have helped prevent a recurrence, they did not
                              appear to address all of the underlying causes of the problems associated
Recurrence of                 with the September 1996 major inventory reduction. During the course of
Inappropriate                 our review, we identified and brought to GPO’s attention several additional
                              actions that we believed would address those causes. As discussed below,
Inventory Reduction           GPO officials agreed and took additional steps to prevent a recurrence.



Designating the Senate        In May 6, 1997, and July 11, 1997, letters to Senator Byrd, the Public
History Volumes for           Printer said that GPO had made an error in disposing of the Senate history
Indefinite Availability for   volumes and that all four volumes, because of their historical significance,
                              would remain in print and available through the sales program indefinitely.
Sale                          According to the Superintendent of Documents, this action was carried
                              out through oral instructions to his staff in July 1997. In response to these
                              oral instructions, the IMS responsible for handling congressional
                              publications wrote a note saying not to dispose of these volumes without
                              top management’s approval and attached the note to the inventory control
                              cards he maintained for these volumes. At our recommendation, the
                              Superintendent of Documents put his oral instructions in writing in
                              August 1997.

                              In response to our inquiries, both the Public Printer and the
                              Superintendent said that some publications, such as the Constitution and
                              the Senate history volumes, should be kept indefinitely because of their
                              historical significance. The Superintendent said that GPO did not have a
                              systematic process for identifying or designating such publications but
                              that, in response to our recommendation, GPO would develop a formal
                              system for identifying publications that should remain in inventory
                              indefinitely. In addition, he said that GPO was already developing a new
                              inventory management system that would allow publications that are to be
                              held indefinitely to be designated as such once they have been identified.
                              The Superintendent of Documents also acknowledged that his lack of
                              awareness about the planned disposal of the Senate history volumes
                              contributed to their being excessed.




                              Page 12             GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                          B-277904




Strengthening Policy on   On July 22, 1997, the Superintendent of Documents sent a memorandum to
Offering Excess           his staff stating that no further exceptions should be made to the current
Publications to Issuing   policy on excess, obsolete, damaged, and destroyed information products
                          and that “excess stocks will be offered to the issuing agency.” On July 23,
Agencies                  1997, the Superintendent of Documents asked his staff to revise his formal
                          policy document dated May 28, 1984, to address the problems that arose in
                          connection with the September 1996 inventory reduction. According to the
                          Superintendent of Documents, this revised policy will provide that
                          excessed inventory should be charged to surplus publications expense
                          when it is determined to be excess. The excessed inventory is then to be
                          held in the warehouse for a reasonable period while issuing agencies are
                          contacted to see if they want the excess publications. Under the
                          Superintendent’s revised procedures, the policy of offering issuing
                          agencies excess copies before their disposal cannot be waived.

                          We pointed out that we saw no written statement in GPO’s policies,
                          procedures, or guidance that specifically said that excessed inventory
                          does not have to be physically removed from GPO’s warehouse before it
                          can be charged to surplus publications expense. Both the Superintendent
                          of Documents and the Comptroller agreed that the lack of such a written
                          statement may have contributed to the misunderstanding that took place
                          in 1996. In August 1997, GPO’s Comptroller prepared such a statement.

                          Another action GPO has had in process for some time that could also help
                          prevent a recurrence of the problems of the September 1996 reduction is
                          the development of a new Integrated Processing System. The
                          Superintendent of Documents expects this new system, which GPO plans to
                          implement in October 1997, to provide his office with more flexibility in
                          tracking inventory and better information for making decisions to excess
                          publications. According to the Superintendent of Documents, the new
                          system will (1) allow GPO to designate inventory as excess without
                          physically relocating it in the warehouse, and (2) include a comment box
                          where the IMS can indicate that a publication is not to be excessed or make
                          other appropriate notations about its disposition. Until the new system is
                          implemented, notations concerning holding copies indefinitely must be
                          made on records that are maintained manually.

                          Finally, another dilemma GPO has faced in disposing of excess inventory is
                          the lack of authority to donate excess publications to schools or similar
                          institutions. Under existing law and policy, GPO’s current options for
                          disposing of excess publications are to offer them to issuing agencies at no
                          cost or to dispose of them as scrap. GPO is also precluded by statute and



                          Page 13             GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                             B-277904




                             regulation from offering publications to the public at discount prices
                             except to those who buy 100 or more copies of the same publication or to
                             book dealers who agree to resell the books at GPO’s prices—in which case,
                             GPO can only offer a maximum discount of 25 percent. To address this
                             problem, in May 1997, as part of its recommended revision of title 44 of the
                             U. S. Code, GPO forwarded a proposal to the Joint Committee on Printing
                             that would authorize the donation of excess publications to schools or
                             similar institutions if the copies are not wanted by the issuing agency.


Aligning GPO’s Procedure     In a May 6, 1997, letter to Senator Byrd, the Public Printer said that, on the
for Considering Holding      basis of a study GPO had done, it was more cost-effective to maintain an
Costs of Publications With   adequate inventory of sales publications based on their projected life cycle
                             and to reprint if necessary, than to hold excess copies of publications in
Its Policy                   inventory. According to the Superintendent of Documents, who drafted
                             the May 6 letter for the Public Printer, the study cited in the letter referred
                             to data supplied by the GPO’s Comptroller in 1996. These data showed that,
                             overall, GPO’s inventory of excess publications was growing and was
                             contributing to increasing charges to surplus publications expense. These
                             increased charges were, in turn, contributing to a worsening financial
                             situation for the sales program.

                             To help remedy this problem, according to the Superintendent of
                             Documents, the Comptroller recommended that the Superintendent
                             identify as much excess inventory as possible in fiscal year 1996 to
                             improve the sales program’s long-term financial situation. According to the
                             Superintendent of Documents, the statement in the May 6 letter pertained
                             to the typical publication, which he said has a printing and binding cost of
                             about $2 per copy; it did not specifically pertain to the Senate history
                             volumes, which had a printing and binding cost of $19 to $35 per copy.

                             In this regard, we noted that the printing and binding cost of the 3,258
                             copies of the Senate history volumes disposed of was about $83,000, and
                             that GPO’s estimated annual storage costs attributable to these copies was
                             about $2,500. These figures can be compared to GPO’s estimated reprinting
                             cost of about $210,000 should GPO reprint the copies disposed of, which it
                             has agreed to do if necessary.

                             During our review of GPO’s inventory management records, we also noted
                             that Form 3880, which IMS staff use to make recommendations and
                             supervisory personnel use to review actions on obsolete or excess
                             inventory, does not provide for inclusion of data on storage or holding



                             Page 14              GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                  B-277904




                  costs for publications. This omission is inconsistent with a memorandum,
                  dated January 4, 1985, from the Chief, Sales Management Division, to
                  Documents Control Branch staff, which directed that reasonable life
                  cycles should be consistent with economic analysis of the following
                  factors: expected trend, reprint costs, expected revision date, and holding
                  costs. The memorandum also stated that, when reviewing records to
                  identify excess or consider extension of the life cycle, the following
                  factors should be considered: continued marketability, projected revenue,
                  and estimated holding costs.

                  We discussed this inconsistency with the Superintendent of Documents in
                  August 1997. He said storage or holding costs are usually not significant,
                  but he recognized that they should be considered in making decisions on
                  excess inventory. He agreed to modify Form 3880 to incorporate
                  consideration of such costs.


                  To achieve its financial objective, GPO did not have to disregard policy and
Conclusion        procedures for notifying the issuing agencies of excess publications.
                  Because of the erroneous belief of the Superintendent of Documents, who
                  heads GPO’s sales program, that GPO had to physically remove excess
                  publications from the GPO warehouse by September 30, 1996, in order to
                  record them as an expense for fiscal year 1996, and because of his express
                  instruction to disregard policies and procedures, GPO staff disposed of
                  about 2,100 different publications without first contacting the issuing
                  agencies of those publications. As a result, 3,258 copies of the Senate
                  history were destroyed, even though the Senate Historian’s Office had told
                  a GPO representative that it wanted any excess copies. GPO has taken or
                  plans to take actions that, if effectively implemented, should prevent this
                  situation from recurring.

                  We made various recommendations during the course of our work that
                  GPO agreed to and either implemented the corrective action or is in the
                  process of doing so. Thus, we are making no further recommendations.


                  On September 5, 1997, we provided the Public Printer with a draft of this
Agency Comments   report for comment. We received his written comments, included in their
                  entirety in appendix IV, on September 10, 1997. The Public Printer said
                  that the report fairly represents the events as they occurred during the
                  September 1996 inventory reduction. He also said that actions have been
                  and are being taken to ensure that no sales publications will be disposed



                  Page 15             GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
B-277904




of in the future without strict adherence to applicable GPO policies and
procedures.


We are sending copies of this report to the Public Printer of the
Government Printing Office and the Chairman and the Vice Chairman of
the Joint Committee on Printing. We will make copies available to others
upon request. Major contributors to this report are listed in appendix V. If
you have any questions concerning this report, please call me on
(202) 512-4232.




Bernard L. Ungar
Director, Government Business
  Operations Issues




Page 16             GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Page 17   GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Contents



Letter                                                                                                1


Appendix I                                                                                           20

Objectives, Scope,
and Methodology
Appendix II                                                                                          22

Government Printing
Office Organization
Chart
Appendix III                                                                                         24

Examples of
Publications GPO
Disposed of in
September 1996
Appendix IV                                                                                          25

Comments From the
Government Printing
Office
Appendix V                                                                                           26

Major Contributors to
This Report
Tables                  Table 1: Scrap Value for Excessed Copies of the Senate History               10
                          Volumes
                        Table 2: Inventory Transactions for the Senate History Volumes               11




                        Abbreviations

                        GPO       Government Printing Office
                        IMS       Inventory Management Specialist


                        Page 18            GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Page 19   GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Appendix I

Objectives, Scope, and Methodology


              As agreed with your offices, our objectives were to determine the facts
              surrounding the September 1996 inventory reduction; whether it followed
              existing policies and procedures; and the fate of the 3,258 copies of The
              Senate 1789-1989, a four-volume set written by Senator Byrd, that were
              destroyed as part of that reduction.

              In order to obtain information on GPO’s sales program and the inventory
              reduction held in September 1996, we reviewed pertinent documentation,
              such as GPO’s inventory control records, policies and procedures,
              memoranda, and financial records and reports. We interviewed the Public
              Printer, the Superintendent of Documents and his staff who were involved
              in the reduction, the Comptroller and his staff who are responsible for the
              financial records, and staff in the Congressional Printing and Management
              Division who serve as the liaison with the Senate Historian’s Office for
              Senate publications, including Senator Byrd’s books. We visited GPO’s
              Laurel, Maryland, warehouse where excessed publications are disposed of;
              reviewed its inventory disposition records; and interviewed a
              representative of GPO’s contractor that had picked up GPO’s excessed
              publications from its Laurel warehouse in September 1996. In addition, we
              reviewed GPO’s authority to donate surplus books. We coordinated our
              review with GPO’s Office of Inspector General.

              The representative from GPO’s contractor told us that his company did not
              maintain any records that would specifically show that the 3,258 Senate
              history copies were shredded. Therefore, we had to rely on GPO’s records
              and interviews with GPO staff and the contractor’s representative to
              determine what happened to the 3,258 Senate history copies that were
              excessed. Further, we did not verify GPO’s computerized inventory or
              financial records or do actual counts of the remaining stock inventory of
              the Senate history volumes at the Laurel warehouse.




              Page 20            GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Appendix I
Objectives, Scope, and Methodology




Page 21                GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Appendix II

Government Printing Office Organization
Chart




                                                                                                                         A

                               Adminstrative                Equal Employment                       General
                                Law Judge                    Opportunity and                       Counsel
                                                             Labor/Employee
                                                              Relations Staff

                                                                                                                         B


                          Customer Services                                       Office of Administration




              Congressional                 Departmental                    Engineering                Occupational
                Printing                      Account                         Service                   Health and
              Management                   Representative                                              Environmental
                Division                      Division                                                   Services




               Institute for                   Typography                    Office of                       Office of
                 Federal                       and Design                   Comptroller                    Information
               Printing and                      Division                                                   Resources
                Publishing                                                                                 Management




                                                                            Office of                       Office of
                                                                            Planning                       Personnel




                                                                                            Office of
                                                                                          Administrative
                                                                                            Support




              Page 22                            GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
                                                  Appendix II
                                                  Government Printing Office Organization
                                                  Chart




                   Public Printer

                Deputy Public
                   Printer


A

    Inspector                         IRM Policy and                 Office of                 Office of                     Policy
     General                           Coordination                  Budget                 Congressional,                 Coordination
                                          Staff                                             Legislative, and                  Staff
                                                                                             Public Affairs

B


                                                              Production Services                                Superintendent of Documents




       Materials                      Printing                     Production                                  Documents                   Information
      Management                    Procurement                    Department                                    Sales                    Dissemination
        Service                     Department                                                                  Service                       Policy




                     Quality                                                                                    Library                      Office of
                   Control and                                                                                 Programs                     Electronic
                    Technical                                                                                   Service                    Information
                   Department                                                                                                             Dissemination




                                                                                                               Office of                    Technical
                                                                                                               Marketing                     Support
                                                                                                                                              Group




                                                  Page 23                  GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Appendix III

Examples of Publications GPO Disposed of
in September 1996

               In addition to the Senate history volumes, we selected the following
               examples of excessed publications to provide a mix of publications from
               both the legislative and executive branches and, in some cases, to reflect
               publications having high dollar values.

               Biographical Directory of the United States Congress, 1774-1989,
                 Bicentennial Edition
               Black Americans in Congress
               CPH3: 1990 Census Tract Maps, Washington, D.C.-MD-VA
               Creating a Government That Works Better and Costs Less
               Dictionary of Occupational Titles, Revised 4th Edition
               Foreign Relations of the U.S. 1961-1963, Vol.3 Vietnam, Jan. to Aug. 1963
               National Performance Review - Department of Defense
               Our Flag
               Senate Historical Almanac
               Soviet Union: Area Handbook
               Standard Industrial Classification Manual, 1987
               The Coast Guard and the Greenland Patrol
               The Senate 1789-1989, Addresses on the History of the United States
                 Senate, Volume One, Bicentennial Edition
               The Senate 1789-1989, Addresses on the History of the United States
                 Senate, Volume Two, Bicentennial Edition
               The Senate 1789-1989, Classic Speeches 1830-1993, Volume Three,
                 Bicentennial Edition
               The Senate 1789-1989, Historical Statistics 1789-1992, Volume Four,
                 Bicentennial Edition
               The U.S. Capitol - A Brief Architectural History
               Understanding Federal Training and Employment Programs
               U.S. Government Purchasing and Sales Directory, Revised 1994




               Page 24             GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Appendix IV

Comments From the Government Printing
Office




              Page 25   GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Appendix V

Major Contributors to This Report


                      John S. Baldwin, Sr., Assistant Director
General Government    Michael W. Jarvis, Evaluator-in-Charge
Division              Kiki Theodoropoulos, Senior Evaluator (Communications Analyst)


                      Robert W. Gramling, Director, Corporate Audits and Standards
Accounting and
Information
Management Division
                      Victor B. Goddard, Senior Attorney
Office of General
Counsel




(240268)              Page 26            GAO/GGD-97-177 GPO’s September 1996 Major Inventory Reduction
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested