International Trade: Export Enhancement Program Bonus Overpayments

Published by the Government Accountability Office on 1990-02-07.

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

                                               _.--_---_   --
                         -’   ‘-
                                   Export Enhancement
                                   Program Bonus

(i/IO   NSIAI)-!Jo-X:l
                   United States
                   General Accounting Office
                   Washington, D.C. 20548

                   National Security and
                   International Affairs Division

                   B-23792 1

                   February 7,lQQO
                   Mr. R.E. Anderson Jr., Administrator
                   Foreign Agricultural Service
                   Department of Agriculture

                   Dear Mr. Anderson:

                   At the,request of several Members of Congress we are currently review-
                   ing the Export Enhancement Program (EEP). Under EEP,,SU~~~US    govern-
                   ment-owned agricultural commodities are made available as bonuses to
                   U.S. exporters to expand sales in specific markets. These bonuses enable
                   exporters to lower the prices of U.S. agricultural commodities and make
                   them competitive with subsidized foreign agricultural exports. One
                   phase of our review is an examination of the process used to distribute
                   generic commodity certificates as bonuses to U.S. exporters. Our objec-
                   tives in this phase were to determine (1) whether adequate internal con-
                   trols were in place for the bonus payment process, and (2) whether any
                   overpayments had been made.

                   Our review indicated that internal controls over the bonus payment pro-
Results in Brief   cess were not adequate to ensure that bonus payments were properly
                   made. We identified eight cases in which unauthorized overpayments
                   totaling about $635,000 had apparently been made.

                   Under EEP,the Foreign Agricultural Service (FAS) approves a commodity
Ba@kground         sales agreement between an exporter and a participating country for a
                   specified quantity of agricultural goods that can be exceeded by up to
                   5 percent. Once the exporter has satisfactorily completed the shipment
                   and provided proof of performance, the Agricultural Stabilization and
                   Conservation Service (AXS) in Kansas City, Missouri, awards generic
                   commodity bonus certificates to the exporter. The amount of the bonus
                   awarded is based on the quantity shipped. However, if the quantity
                   shipped exceeds 106 percent of the approved sales quantity, the excess
                   is not eligible for a bonus. Any bonus awarded for these excess quanti-
                   ties shipped is considered an overpayment.

                   Over $2.6 billion worth of surplus U.S. agricultural commodities have
                   been made available as bonuses to eligible US. exporters from the incep-
                   tion of the program in 1986 through October 26,1989. These bonuses

                   Page 1                                    GAO/NSIAD90-83IntemationalTrade

    were spread among 105 initiatives (country/commodity pairings) target-
    ing 66 countries and 12 commodities. An additional 144 quantity alloca-
    tions were approved and announced under these initiatives through
    September 29,1989.

    making EEP bonus payments. Because ASCShad not consistently kept an
    accurate tally of the amount shipped under a particular contract and
    continually compared that figure to the approved sales quantity, the
    ASCSdid not routinely know if the 105percent ceiling had been
    exceeded. Further, bonus payment calculations were not independently
    reviewed by anyone.

    The Federal Managers’ Financial Integrity Act of 1982 (31 USC. 3512
    (b)) requires executive agencies to establish and maintain systems of
    internal control which are to be consistent with the Comptroller Gen-
    eral’s Standards for Internal Controls in the Federal Government. These
    standards call for internal controls to provide reasonable assurance that
    the use of resources is consistent with applicable laws, regulations, and
    policies; resources are safeguarded against waste, loss, or abuse; and
    reliable data are maintained and fairly reported. The standards recog-
    nize that the cost of internal control should not exceed the benefits to be
    derived and that judgment needs to be exercised in determining the
    extent of control needed.

    Before our review, FAS officials were aware that the bonus payment pro-
    cess lacked an adequate internal control system. The Export Credits sec-
    tion of FM had submitted a proposal to establish such internal controls
    to the FAS Information Systems Management Division for review. The
    purpose of the proposal was to greatly reduce the possibility of over-
    payments by strengthening ASCS’Sability to determine and monitor the
    amount of payment required.

    According to FM officials, this proposal was approved for inclusion in
    the Information Resources Management Plan for fiscal years 1990 to
    1994 and given priority over other FM proposals. However, the priority
    was reduced after review by FAS management, At the time of our review,
    the proposal had not been implemented.

    Page 2                                      GAO/NSIADBO-83   International   Trade

                  We obtained an FAS database which contained EEP contract information.
Extent of Bonus   Using a computer program, we examined the figures in the database for
Overpayments      every EEP contract approved from May 1986 through September 30,
                  1988. We compared actual bonuses awarded with the maximum bonuses
                  allowed under each of 2,146 contracts and identified 69 apparent

                  Of the 69 cases, we found that 49 were due to differences in rounding or
                  that they involved overpayments that ranged from one cent to $666.91.
                  Our analysis of the relevant contract files kept at the ASCS’SSales
                  Invoice Branch in Kansas City showed that for 12 of the remaining
                  20 contracts, keypunch errors had been made when ASCSentered con-
                  tract or payment information or that FAS had already reconciled or
                  recouped the overpayment. The eight remaining apparent overpayments
                  totaled $634,926. Two of the eight accounted for close to $600,000 of
                  this amount.

                  We discussed these cases with ASCSstaff in Kansas City, who agreed
                  that based on the information in their files, these eight cases repre-
                  sented overpayments. During a meeting in November 1989, we informed
                  FM officials in Washington, D.C., of the apparent overpayments. They
                  said that they would investigate the circumstances of each case to con-
                  firm whether any overpayments had been made. These officials said
                  they would act to recoup any overpayments from the exporters. Appen-
                  dix I provides more detailed information on these apparent

                  We recommend that the Administrator of FAS complete the review of the
Rebommendations   eight apparent overpayments and recover any actual overpayments
                  from the exporters. While we recognize the extent of significant over-
                  payments is limited, we believe that there is sufficient potential for fur-
                  ther occurrences of overpayments to warrant better internal controls.
                  Therefore, we also recommend that you develop sufficient internal con-
                  trols over the bonus payment process to safeguard against future


                  Page 2                                      GAO/NSlAD-QOM   lntemational   Trade

The principal GAO staff members responsible for this review were Phillip
J. Thomas, Juliann M. Gerkens, Michael J. Morgan, Larry D. Van Sickle,
and Shirley A. Franklin. If you have any questions, please feel free to
call me at (202) 275-4812. We would appreciate learning of whatever
actions you have taken or plan to take with regard to our

Sincerely yours,

Allan I. Mendelowitz
Director, International Trade
and Finance Issues

Page 4                                    GAO/NSIAD-90-83   International   Trade
Page 5   GAO/NSIAD-90-83   Intemational   Trade
Lebter                                                                                                         1
AIbpendix I                                                                                                    8
Pdyments That
Appendix II                                                                                                    9
Oejectives, Scope,and


                        ASCS        Agricultural Stabilization and Conservation Service
                        EEP         Export Enhancement Program
                        FM          Foreign Agricultural Service

                        Page 6                                       GAO/NSLAD-90433   International   Trade



    -...--,i..-        .______

                                 Page 7   GAO/NSIAD-SO-83   1nternationa.l   Trade
Appendix I

l3ayments That Exceededthe 105-PercentLimit

              Contract number                             Ma”d:i? Amount
              500-l 1-FP-6                                $1,729,367    $2,057,664              $328,297
              512-50-W-43C                                    94,142       357,354               263,212
              500-l A-W-74C                                  711,659       738,092                26,433
              500-l A-W-69C                                  636.035       641.633                 5.597
              500-86-W-l c                                   743,061       748,233                 5,173
              506.39.E-29C                                       751         4,950                 4,199
              505-2-WF-59C                                   989.127       990.140                 1.013
              500-8-R-2                                      902,580       903,582                 1,002
              Total                                                                            $634,926
              Note: Figures may not add due to rounding

              Page 8                                         GAO/NSIAD-SO-83   International      Trade
    8,”    :

*Appendix II

 Ol)jectives, Scope,and Methodology

                Objectives of this study were to determine (1) whether adequate inter-
                nal controls were in place for the bonus payment process associated
                with the Export Enhancement Program (EEP), and (2) whether any over-
                payments had been made.

                Information for this report was obtained from our review of documents
                and interviews with officials at the Agricultural Stabilization and Con-
                servation Service (ASS) offices in Kansas City, Missouri, and the Foreign
                Agricultural Service (FM) offices in Washington, DC..

                We interviewed ASCS officials in Kansas City to develop an understand-
                ing of what internal controls were established to ensure that payments
                were processed according to program guidelines. We documented pro-
                gram guidelines and interviewed ASCS staff directly involved in making
                bonus payments.

                To test to see if these guidelines were being followed we examined the
                files of selected contracts for which bonuses were awarded. We obtained
                an FAS database, jointly developed and maintained by FAS and ~~cs/Kan-
                sas City, which contained EEP contract information, performed a reliabil-
                ity assessment of that database, and used it to review the propriety of
                contract payments.

                For all contracts approved from May 1985 to September 30,1988, we
                developed a methodology that would (1) search the entire database,
                (2) compare actual bonus payments with the maximum allowed under
                the contracts, and (3) identify any payments that exceeded the 105-per-
                cent tolerance level. We then discussed the status of each significant
                case with the ASCSSales Invoice Branch accountants and attempted to
                reconcile the apparent overpayments. This inquiry included examina-
                tion of the contract files.

                We conducted this phase of our review between April and October 1989
                in accordance with generally accepted government auditing standards.

(433436)        Page 9                                     GAO/NSIAD-99-33   International   Trade
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