NASA: Interest Earned on Letter of Credit Funds

Published by the Government Accountability Office on 1997-08-13.

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

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      National Security and
      International Affairs Division


      August 13, 1997

      The Honorable Daniel S. Goldin
      Administrator, National Aeronautics
       and Space Administration

      Subject: NASA Interest Earned on Letter of Credit F’unds

      Dear Mr. Goldin:

      As part of our ongoing work on budget issues, we assisted in resolving a
      disagreement between the National Aeronautics and Space Administration
      (NASA) and the California Institute of Technology (Caltech). Caltech, a
      nonprofit private university, operates the Jet Propulsion Laboratory (JFL) for
      NASA under a &year cost-type research and development contract with an
      annual value of about $1 billion.’ The contract is funded by a letter of credit,
      managed by the Department of Health and Human Services.

      The disagreement related to Caltech’s retention of interest earned on letter of
      credit funds after the funds were deposited in its bank account but before
      Caltech’s checks were paid by the bank. We discussed the disagreement with
      NASA Management Office, Caltech, and Defense Contract Audit Agency (DCAA)
      representatives and reviewed the NASAKahech contract and the regulations
      governing the use and disposition of funds withdrawn from letters of credit. We
      also arranged and attended a series of meetings between Caltech and NASA
      Management Office personnel to help resolve this matter.

      Caltech notified NASA in a July 9, 1997, letter that, in consideration of its
      relationship with NASA, it would remit to the Treasury $389,540.16 in interest

      ‘JPL is a federally funded research and development center, with about 90
      percent of its work funded by NASA and 10 percent funded by other customers.

                                       GAO/NSIAD-97-241R Interest on Letter of Credit

                                /?7            /57
earned through June 1997.2 Caltech also stated that it would continue to remit
interest earnings on a quarterly basis. Caltech’s check dated July 29, 1997, has
been received. These actions satisfactorily resolve our interest in this matter.

Because similar issues may arise with other letter of credit funded contracts,
we are sending copies of this letter to other federal agencies involved in
establishing, implementing, and reviewing federal procurement and letter of
credit policies, procedures, and practices or in sponsoring large federally funded
research and development centers-including the Office of Management and
Budget; DC@, and the Departments of the Treasury, Health and Human
Services, Defense, and Energy.

Copies of this letter are also being sent to Caltech and will be made available to
others upon request. We appreciate the assistance and cooperation of NASA
Management Office, Cahech, and DCAA personnel during our work on this
issue. If you or your staff have any questions, please contact me on (202) 512-

Sincerely yours,

Allen Li
Associate Director
Defense Acquisitions Issues


 2The letter also stated that Caltech would make an additional letter of credit
 draw of $137556.34 to offset previous letter of credit interest payments made to

 Page 2                       GAO/NSLAD-97-241R Interest on Letter of Credit
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