Audit Report 

OIG-06-010 

BILL AND COIN MANUFACTURING: The Bureau of Engraving 

and Printing Should Ensure That Its Currency Billing Rates 

Include All Costs and That Excess Working Capital Is Deposited 

in the General Fund 

December 2, 2005

Office of 

Inspector General 

Department of the Treasury 
Contents 

BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010) 

Page 1 

Audit Report

 Results in Brief............................................................................................ 4 

 Background ....................................................................... ........................ 6 

 Findings and Recommendations..................................................................... 9 

 BEP’s Practice of Using Excess Working Capital to Reduce Currency 

Billing Rates Should Be Revisited .............................................................. 9 

 Recommendations................................................................................... 13 

 Full Cost of BEP’s Currency Operations Is Not Reflected In Billing Rates ........ 15 

 Recommendation ................................................................................. 17 

 Currency Billing Process Lacks Written Policies and Procedures 

and Documentation of Sufficient Internal Controls ...................................... 19 

 Recommendations ................................................................................. 23 

Appendices 

 Appendix 1: Objective, Scope, and Methodology........................................ 26 

 Appendix 2: Schedule of Revenue Enhancement ....................................... 27 

 Appendix 3: Management Response ......................................................... 28 

 Appendix 4: Report Distribution................................................................ 31 

Abbreviations 

 

 BEP Bureau of Engraving and Printing 

 CFO Associate Director (Chief Financial Officer) 

 DOL Department of Labor 
Contents 

BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010) 

Page 2 

Abbreviations (cont.) 

 FASAB Federal Accounting Standards Advisory Board 

 FECA Federal Employees’ Compensation Act 

 FY Fiscal Year 

 GAAP Generally Accepted Accounting Principles 

 GAO Government Accountability Office 

 JAMES Joint Audit Management Enterprise System 

 OFM Office of Financial Management 

 OIG Office of Inspector General 

 OMB Office of Management and Budget 

 OPM Office of Personnel Management 

 U.S.C. United States Code 
OIG Audit 

Report

The Department of the Treasury 

Office of Inspector General 

BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

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December 2, 2005 

Thomas A. Ferguson 

Director 

Bureau of Engraving and Printing 

This report provides the results of our review of the Bureau of 

Engraving and Printing’s (BEP) methodology for pricing currency. 

BEP operations are financed by means of a revolving fund that is 

reimbursed through product sales for direct and indirect costs of 

operations, including administrative expenses. BEP is also 

authorized to include in the prices charged for products an amount 

sufficient to fund future capital investment and to meet working 

capital requirements, thus eliminating the need for appropriations 

from Congress. 

The audit objective was to determine the adequacy of BEP’s pricing 

methodology to (1) cover all costs of manufacturing products and 

services performed, (2) provide for acquisition of capital equipment, 

and (3) provide for working capital needs. Sales of currency to the 

Federal Reserve System currently represent more than 90 percent 

of BEP’s revenue, with sales of postage stamps to the U.S. Postal 

Service representing the majority of the balance until June 2005, 

when BEP stopped producing postage stamps. For this reason, 

we focused our audit on the pricing of currency. 

We performed our field work primarily from March 2004 to 

July 2004 at BEP’s Headquarters in Washington, D.C. 

We interviewed BEP personnel assigned to the Office of Financial 

Management and evaluated financial reports, cost accounting 

data, and budgetary information. During our review, we 

considered BEP’s financial operations and pricing data for 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 4 

Fiscal Years (FY) 1998 through FY 2004. A more detailed 

description of our objective, scope, and methodology is included in 

Appendix 1. 

Results in Brief 

BEP’s practice of using working excess capital to reduce currency 

billing rates should be revisited. BEP, instead of depositing excess 

working capital funds into the general fund of the Treasury, has 

used the excess to address planned decreases in revenue that 

resulted from intentional reductions in the currency billing rates and 

to issue refunds directly to the Federal Reserve. There was a 

general lack of explanation regarding the underlying rationale for 

this practice and the methodology used. We recommend that the 

BEP Director ensure that excess working capital is returned to the 

Treasury general fund directly by BEP and enhance the discussion 

in BEP’s annual Chief Financial Officer Performance and 

Accountability Report (CFO-PAR) to include BEP management’s 

rationale and methodology for setting its currency prices. 

The full cost of BEP’s currency operations is not reflected in the 

currency billing rates. The rates did not include post-retirement 

benefit costs paid by the Office of Personnel Management (OPM), 

which were paid through appropriated funds and amounted to 

$9.8 million for FY 2004. We recommend that currency billing 

rates consider the full cost of operations, including imputed costs, 

such as those for employee benefits paid by OPM. To the extent 

the currency rates result in excess monies to the BEP revolving 

fund, these should be deposited as miscellaneous receipts to the 

Treasury general fund. 

BEP’s currency billing process lacks written policies and procedures 

as well as documentation of sufficient internal controls over the 

establishment of billing rates, and the funding of capital projects in 

the calculation of working capital. BEP management has not 

developed written policies and procedures regarding how these 

responsibilities are to be implemented, documented, or reviewed. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 5 

We recommend the issuance of policies and procedures to 

document the process for determining currency billing rates. 

We also recommend that the BEP Director require that the CFO 

document that excess working capital funds earmarked to reduce 

actual currency billing rates are not needed to fund current and 

future capital projects. In addition, we recommend that the BEP 

Director and the CFO document that they are satisfied that the 

excess funds are not needed to address BEP’s capital needs. 

In its response to our draft report, BEP management stated that 

it would continue its practice to reduce currency rates for excess 

working capital instead of returning the excess directly to the 

Treasury general fund. While we continue to believe that our 

recommendation would improve the overall transparency of BEP’s 

financial operations, we consider the recommendation to have 

a management decision. BEP management also did not concur 

with our recommendation to include post-retirement benefit costs 

paid by OPM as part of the billing rate. As discussed in the 

Findings and Recommendations section of this report, we believe 

the recommendation should be implemented. Accordingly, 

this disagreed recommendation will need to be referred to 

the Department for resolution in accordance with Treasury 

Directive 40-03, Treasury Audit Resolution, Follow-Up, and 

Closure. 

 

BEP management concurred with our other recommendations. The 

text of the management response is included as Appendix 3. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

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Background 

Mission

BEP’s mission is to design and manufacture high quality security 

documents that meet customer requirements for quality, quantity, 

and performance, including counterfeit deterrence. BEP operates 

under the general authority conferred upon the Secretary of the 

Treasury by 31 U.S.C. 321(a)(4) to engrave and print currency and 

other security documents. 

Financial Operations

BEP operations are financed by means of a revolving fund 

established in 1950 in accordance with Public Law 81-656. 

This fund is reimbursed through product sales for direct and 

indirect costs of operations, including administrative expenses. 

In Treasury Order 135-05, Delegation to Director, Bureau of 

Engraving and Printing Over Prices for Their Work and to Determine 

Fair Value of Capitalization of Inventories, dated July 2, 1951, 

the Secretary of the Treasury delegated to the BEP Director the 

authority to determine prices charged for work or services by BEP, 

and to determine fair and reasonable values for the capitalization of 

inventories and other physical assets. 

Public Law 95-81, July 31, 1977, [31 U.S.C. 5142(c)(3)], 

authorized the establishment of reimbursement prices from 

customer agencies at a level intended to provide funding for the 

acquisition of capital equipment and future working capital. 

The Comptroller General Decision B-114801, dated February 12, 

1980, stated that if amounts withheld for working capital and 

acquisition of capital equipment by BEP were considered excessive, 

the excess funds should paid into miscellaneous receipts in the 

general fund. However, the decision noted that the Government 

Accountability Office (GAO) could not require BEP to deposit such 

amounts into miscellaneous receipts since there was no legal 

requirement as to the amounts needed for capital purposes. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

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Major Components of the Currency Billing Rates

BEP determines the billing rates to be charged for the currency it 

produces and supplies to the Federal Reserve based on three major 

components. The first component includes estimated direct and 

indirect costs, including administrative expenses, for the production 

the currency. These estimates are prepared by the Cost Analysis 

and Pricing Division, and reviewed by the Chief, Office of Financial 

Management (OFM). 

The second component is the estimated cash outlays required for 

approved capital projects. These cash outlays are related to capital 

projects that were subjected to a comprehensive BEP approval 

process and were selected for funding by the capital investment 

review board. 

The final component is the amount required to maintain 

a reasonable amount of working capital needed to ensure 

the financial integrity of the revolving fund. The amount is 

determined by the Chief (OFM) and approved by the CFO. 

BEP calculates a separate billing rate for each currency type. 

For the newly-designed series, which to date involves the 

$20 and $50 denominations, additional billing rates are determined. 

BEP then computes an average billing rate based upon its estimates 

of the total number of notes for each currency denomination and 

series to be manufactured in the coming year. 

Accounting Policies

Revenue is generated from the sale of currency to the Federal 

Reserve System and is recognized when finished goods are 

delivered to the respective onsite depository vaults. All currency 

is transferred to the Federal Reserve depository immediately upon 

completion. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 8 

Property and equipment are recorded at cost. Depreciation of 

property and equipment is calculated using the straight-line 

method. Currently, BEP’s annual depreciation expense is 

approximately $40 million and is factored into the computation of 

the currency billing rates. 

The annual depreciation expense that BEP is reimbursed through 

its billings is used to fund its capital acquisitions. Funds not 

required to meet current and future capital needs become part of 

BEP’s working capital. 

BEP has historically prepared annual financial statements in 

conformity with generally accepted accounting principles based on 

accounting standards issued by the Financial Accounting Standards 

Board, the private-sector standards-setting body. BEP has received 

an unqualified audit opinion on its financial statements from an 

independent public accounting firm for the past 19 years. During 

the period FY 2001 through FY 2003, an independent public 

accountant, under Office of Inspector General supervision, rendered 

unqualified opinions on the annual financial statements. These 

audits did not identify any matters involving internal control over 

financial reporting and BEP operations that were considered to be 

material weaknesses, or any instances of noncompliance with laws 

and regulations that were required to be reported. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 9 

Findings and Recommendations

Finding 1 BEP’s Practice of Using Excess Working Capital to 

Reduce Currency Billing Rates Should Be Revisited 

Our review noted that BEP, due to increases in cost savings, 

increased productivity, and limited capital expenditures, was 

continuing to accumulate excess working capital. Rather than 

return the excess as a miscellaneous receipt to the general fund of 

the Treasury, BEP used it to address planned decreases in revenue 

that resulted from intentional reductions in the currency billing 

rates and to issue refunds directly to the Federal Reserve. 

According to BEP management, the excess working capital 

is ultimately returned to the general fund through the Federal 

Reserve.1 This practice, while not expressly prohibited, is an 

indirect method for returning the funds to the Treasury, and we 

believe the practice should be revisited by management to improve 

the transparency of BEP financial operations. 

A common feature of most Federal government revolving funds 

is that they are intended to operate on a break-even basis or 

reasonably close to it, at least over the long term. One thing this 

means is that the fund should not augment its working capital by 

retaining excess profits. 

 

1

 Federal Reserve Banks are required by the Board of Governors of the Federal Reserve System to 

transfer to the Treasury excess earnings, after providing for their cost of operations, payment of 

dividends, and reservation of an amount necessary to equate surplus with capital paid in. In the event 

of losses, or a substantial increase in capital, a Federal Reserve Bank will suspend its payments to the 

Treasury until such losses or increases in capital are recovered through subsequent earnings. The 

Financial Management Service records earnings deposited by the Federal Reserve as non-entity custodial 

revenue. For fiscal year 2004, these custodial earnings totaled nearly $19.7 billion. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 10 

In this regards, revolving fund statutes frequently include the 

requirement for the periodic payment of surplus amounts to the 

general fund of the Treasury. With respect to the BEP revolving 

fund, 31.U.S.C. 5142(d) requires that: 

The Secretary shall deposit each fiscal year, in the Treasury 

as miscellaneous receipts, amounts accruing to the Fund in 

the prior fiscal year that the Secretary decides are in excess 

of the needs of the Fund. However, the Secretary may use 

the excess amounts to restore capital of the Fund reduced 

by the difference between charges for services of the Bureau 

and the cost of providing those services. 

Under this statute and related Treasury Orders and Directives, 

BEP has wide discretion in setting charges for its services, and 

determining excess funds requiring deposit into the Treasury as 

miscellaneous receipts. 

For the period FY 2001 through FY 2003, BEP reported in its 

audited financial statements an excess of expenses over revenue 

in the amounts of $44.7 million, $29 million, and $12.1 million, 

respectively. BEP disclosed in its FY 2001 statements that the 

$44.7 million shortfall was due to a mid-year reduction in the 

Federal Reserve currency order, which BEP covered with excess 

working capital funds. However, for FY 2002 and FY 2003, the 

excess of expenses over revenues was intentionally planned by 

BEP in order to avoid increasing its working capital. Instead of 

billing the Federal Reserve for all costs associated with the 

production of currency, BEP reduced the billing rates and used its 

excess working capital funds to cover the planned losses. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 11 

A comparison of BEP’s estimated costs for FY 2002 through 

FY 2004 and the effect of using excess working capital to reduce 

the annual billing rates are contained in the following table. 

Table 1. Computation of Average Currency Billing Rates 

Components of Billing Rates FY 2002 FY 2003 FY 2004 

Manufacturing Costs $26.40 $31.00 $29.84 

Prepress/Engraving 1.34 1.29 1.16 

Manufacturing Support 20.39 19.37 18.60 

Research and Development 1.31 1.81 0.96 

General and Administrative 5.48 5.36 5.48 

Public Education Ad Campaign 2.45 2.23 

Total Costs (Per 1,000 Bills) $54.92 $61.28 $58.27 

Working Capital/Capital Investment 

 (Amount of Working Capital Applied 

 To Reduce Billing Rates) (4.18) (3.03) (2.25) 

Billing Rate (Per 1,000 Bills) $50.74 $58.25 $56.02 

Note: The manufacturing costs include paper, ink, direct labor, and variable and fixed overhead. 

In addition to using excess working capital to reduce its billing 

rates, BEP also has issued refunds directly to the Federal Reserve. 

In FY 1997, for example, BEP refunded $25 million that was 

assessed and earmarked for capital acquisitions that were 

subsequently cancelled. Another refund occurred in FY 2003 and 

involved $6.25 million resulting from savings from lower than 

anticipated spoilage costs associated with production of the new 

currency. 

We also noted that while the operating losses were reported in 

BEP’s annual financial statements, there was a general lack of 

explanation by BEP regarding the underlying rationale for the 

practice and methodology used. For example, for FY 2003, 

BEP discussed its planned loss in its CFO-PAR as follows. The 

introductory message from the CFO stated that the excess of 

expenses over revenue was planned and funded out of working 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 12 

capital. The Management Discussion and Analysis (MD&A)

included the following: 

The net operating loss for the year was within planned 

parameters. Funding for the Bureau remains adequate since 

depreciation, a non-cash expense, offset capital investment 

and the planned operating loss in 2003. 

The Statement of Operations (unaudited) noted that the net 

operating loss for the year, while within planned parameters, was 

less than anticipated.... 

There was no further explanation given by BEP in its CFO-PAR. 

BEP personnel stated that the general fund does ultimately benefit 

from BEP’s use of excess working capital to reduce the Federal 

Reserve’s costs. The reduction in the billing rates results in lower 

costs to the Federal Reserve. The resulting savings to the Federal 

Reserve are invested by the Federal Reserve, according to BEP 

personnel, and the savings plus interest earned are subsequently 

deposited into the general fund by the Federal Reserve. 

While this may be true, this is an indirect method for returning 

BEP’s excess working capital funds to the Treasury general fund 

compared to BEP depositing the excess funds directly as 

miscellaneous receipts, which we believe would provide greater 

transparency in BEP’s financial operations. During our audit, BEP 

management could not provide a compelling reason for the 

practice. One reason cited by management, however, was that 

lower currency rates enabled the Federal Reserve to return more of 

its earnings to the Treasury. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 13 

Recommendations

1. The BEP Director should, to improve transparency in BEP 

financial operations and reporting, and absent a compelling 

reason for its current practice, ensure that excess working 

capital is returned to the Treasury general fund directly by BEP. 

Management Comments

In its response, BEP stated that, in setting prices, BEP projects 

both capital and operating expenses and allocates them to 

products. BEP reserves the right to adjust prices upward if 

actual expenses exceed planned expenses. Conversely, when 

capital and/or operating expenses are less than anticipated, this 

money is returned to the customer through a pricing adjustment 

or retained if needed for future requirements. 

While BEP has the authority to retroactively classify such funds 

as reserved for future capital expenditures, its preference has 

been to return them to the Federal Reserve. This is because 

future years' depreciation expense can be used to fund planned 

capital investment, and the Federal Reserve can put the funds 

to better use in the short term because they have investment 

authority, which BEP lacks. In addition, the Federal Reserve 

transfers its surplus to Treasury weekly, which provides the 

funds to Treasury sooner than an annual reimbursement from 

BEP would. Based on this, BEP does not intend to take action 

on this recommendation. 

OIG Response

We consider the recommended approach preferable because it 

would improve transparency in BEP financial operations and 

reporting. However, we consider the recommendation to have 

a management decision. 

We would like to point out that we do not agree with BEP’s 

comments regarding the timing of transfers to the Treasury 

general fund. BEP uses the amount of excess working capital 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 14 

funds as of the end of the year to compute currency billing 

rates for the following year. Immediate deposit of excess funds 

at year-end would result in earlier receipt by Treasury than the 

current periodic transfer by the Federal Reserve of currency 

billing rate savings over the following year. 

2. The BEP Director should enhance the discussion in its annual 

Chief Financial Officer Performance and Accountability Report 

to include BEP management’s rationale and methodology for 

setting its currency prices. 

Management Comments

BEP concurs with this recommendation. Additional discussion 

related to the pricing methodology will be added to BEP's future 

Chief Financial Officer Performance and Accountability Reports. 

OIG Response

The OIG believes that the actions taken or planned by BEP 

address the intent of the recommendation. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 15 

Finding 2 Full Cost of BEP’s Currency Operations Is Not Reflected 

In Billing Rates 

BEP did not include certain employee benefit costs paid by the 

OPM in establishing its currency billing rates. As allowed by 

current accounting principles for the Federal government, such 

costs were not recorded on BEP’s financial statements and 

therefore were not reflected in BEP’s reported operating losses 

during our audit period. However, BEP does disclose these costs in 

the notes to its financial statements. For example, it reported that 

the amounts paid by OPM for post-retirement benefits (health care 

costs and life insurance) through appropriated funds for FY 2004 

and FY 2003 were $9.8 million and $8.5 million, respectively. In 

effect, appropriated funds are being used to subsidize the cost of 

currency sold to the Federal Reserve.2

Office of Management and Budget (OMB) Circular A-25, User 

Charges, establishes Federal policy regarding fees assessed for the 

sale or use of Government goods or resources. Circular A-25 (see 

Section 6.d.1) defines full cost as including all direct and indirect 

costs to any part of the Federal Government of providing a good, 

resource, or service. These costs include, but are not limited to, 

an appropriate share of direct and indirect personnel costs, 

including salaries and fringe benefits such as medical insurance and 

retirement. Retirement costs should include all (funded or 

unfunded) accrued costs not covered by employee contributions as 

specified in OMB Circular A-11. 

As an observation, our office reported in connection with the 

annual audit of the Department of the Treasury’s consolidated 

financial statements that certain Treasury components, including 

BEP, continue to report their financial results in conformity with 

private-sector accounting principles instead of generally accepted 

 

2

 If BEP were to include the cost of employee benefits paid by OPM as part of its currency billing rates, 

the amounts collected from the Federal Reserve would become excess monies to the BEP revolving fund 

available for deposit as miscellaneous receipts into the Treasury general fund. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

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accounting principles (Federal GAAP) prescribed by the Federal 

Accounting Standards Advisory Board (FASAB), the accounting 

standards-setting body for the Federal Government.3 In this regard, 

FASAB allows the continued use of private-sector accounting 

standards by Federal agency component reporting entities if those 

entities first began issuing financial statements before 

October 1999. 

Among other things, when compared to Federal GAAP, the use of 

private sector accounting principles can result in inconsistencies in 

how certain costs are reported. For example, Federal GAAP 

requires that non-reimbursed costs paid by the OPM for retirement 

plans and post-retirement benefits be recognized by the receiving 

entity as an “imputed cost” in order to report the full cost of 

operations. Since private sector accounting principles do not 

provide guidance for the reporting of imputed costs, they are not 

reported, or are reported inconsistently, by the Treasury 

components. 

As a further observation, Public Law 108-458, the Intelligence 

Reform and Terrorism Prevention Act of 2004, grants the Secretary 

of the Treasury the authority to produce currency, postage stamps, 

and other security documents for foreign governments. Adopting a 

billing methodology that fully reflects and consistently reports 

operating costs, such as would occur under Federal GAAP, would, 

in our opinion, facilitate the BEP billing process for all entities in the 

future.

Absent a specific statutory requirement, we believe that the 

continued use of private sector accounting principles instead of 

Federal GAAP by these Treasury components, including BEP, 

decreases the usefulness of information reported by these entities 

for users of Federal financial statements. This issue is currently 

under review by the Department. 

 

3 Management Letter for Fiscal Year 2004 Audit of the Department of the Treasury’s Financial 

Statements (OIG-05-017, issued December 14, 2004). 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

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Recommendation

3. The BEP Director should ensure that currency billing rates 

consider the full cost of operations, including imputed costs 

such as the imputed cost of employee benefits paid by OPM. 

To the extent the currency rates result in excess monies to the 

BEP revolving fund, they should be deposited as miscellaneous 

receipts to the Treasury general fund. 

Management Comments

BEP does not concur with this recommendation. BEP believes 

that the issue regarding charging for imputed costs for postretirement benefits is government-wide and is best addressed 

by the Office of Management and Budget or the governmentwide CFO Council. BEP has not been able to identify any entity 

or fund that is including such costs in its billing rates. This may 

be due to the fact that Federal Accounting Standards provide 

for the recognition of imputed revenue as a financing source to 

offset the imputed costs. As a result, these imputed costs are 

non-cash expenses to the entities, financing is provided 

(imputed), and there is no charge or cost to reimburse. In 

addition, BEP stated that charging these costs to the Federal 

Reserve will not result in any increase in funding to Treasury. 

Because the Federal Reserve provides weekly cash transfers to 

Treasury, having BEP charge for these costs would only serve 

to lessen this weekly reimbursement and replace them with an 

annual reimbursement from BEP. 

While these imputed costs are being allocated to entities across 

the government, there is no traceability for the cost allocation 

or any charge-back. That is, the costs being allocated for postretirement benefits to BEP are not traceable to any BEP retiree 

or any service provided to BEP. This has been an issue at the 

U.S. Postal Service that the Government Accountability Office 

has been unable to satisfactorily resolve for more than a 

decade. BEP believes that post-retirement expenses should be 

traceable and, once traceable, charged to the responsible entity 

and reimbursed. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 18 

Also, it is BEP’s position that including these post-retirement 

costs in BEP's billing rates will not in any manner impact the 

funding situation for these costs/liabilities if such reimbursement 

is classified as a miscellaneous receipt to Treasury. If any 

reimbursement were made for these costs it should go to the 

paying office, the Office of Personnel Management, and their 

appropriation reduced accordingly. Further, in BEP’s opinion, 

the use of imputed costs and revenues does not improve the 

financial statement presentation. Based on the foregoing, BEP 

does not intend to take further action on this recommendation. 

OIG Response

We believe the recommendation should be implemented. These 

post-retirement benefits are costs incurred by the Federal 

government, and should therefore be factored into the billing 

rates. We have considered the traceability issue mentioned 

by BEP, including the related issues between GAO and the 

U.S. Postal Service, an independent establishment of the 

Executive Branch of the Federal government. We do not believe 

that these arguments are relevant to our recommendation to a 

Bureau of the Treasury Department. 

In addition, we believe that existing policy, particularly OMB 

Circular A-25, adequately addresses the requirements to include 

indirect costs in billing rates. In our opinion, reflecting the full 

cost of BEP’s currency operations in the billing rates is further 

made necessary with the granting of authority to produce 

security products for foreign governments. As mentioned, the 

matter of whether entities such as BEP should report under 

Federal GAAP is under review by the Department. 

For these reasons, this disagreed recommendation will need to 

be referred to the Department for resolution in accordance with 

Treasury Directive 40-03, Treasury Audit Resolution, Follow-Up, 

and Closure. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 19 

Finding 3 Currency Billing Process Lacks Written Policies and 

Procedures and Documentation of Sufficient Internal 

Controls 

BEP’s currency billing process lacks written policies and procedures 

as well as documentation of sufficient internal controls over the 

establishment of billing rates, and the funding of capital projects in 

the calculation of working capital. BEP management has not 

developed written policies and procedures regarding how these 

responsibilities are to be implemented, documented, or reviewed. 

As a result, there is a lack of evidence that BEP is ensuring that 

these responsibilities are being properly executed and are subject to 

management oversight. 

Billing Process Lacks Written Documentation

Our review of the three components that make up BEP’s currency 

billing rates determined that the process lacks formal policies and 

procedures and evidence of management review. As a result, 

BEP’s currency billing rates and its determination of excess working 

capital is difficult to evaluate and verify. 

The Chief (OFM) does not maintain documentation or files 

regarding his responsibilities for reviewing estimated costs and 

expenses in manufacturing the currency, determining the amount 

of funds needed to meet capital acquisition needs, and calculating 

working capital levels and determining excess working capital. 

According to the Chief (OFM), all decisions regarding the 

components of the proposed currency billing rates, including the 

amount factored in to reduce the level of working capital, are 

subject to review and approval by the CFO. However, there is 

no documentation being maintained that provides evidence that the 

CFO reviewed and approved the basis for determining the currency 

billing rates. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 20 

We believe that BEP’s current process regarding the setting of 

billing rates carries with it a certain amount of risk. BEP’s 

oversight is based almost entirely on the experience and judgment 

of the Chief (OFM) and the CFO. While we found that these 

officials to have a good understanding of their responsibilities, 

we believe that operating in this manner increases the risk to BEP. 

At a future date, for example, another individual could assume the 

position of Chief (OFM), and he or she may have difficulty in 

determining his or her role as it relates to establishing valid and 

reliable billing rates. 

A major component of effective program management is good 

internal control. According to the Standards for Internal Control in 

the Federal Government, internal control comprises the plans, 

methods, and procedures used to meet missions, goals, and 

objectives of a program. According to this GAO publication, 

control activities include approvals, authorizations, verifications, 

and the creation and maintenance of related records, which provide 

evidence of execution of these activities. Internal controls, 

transactions, and significant events need to be clearly documented 

and available for examination and confirmation. The 

documentation should appear in administrative policies and 

operating manuals. 

The lack of written policies, the lack of supporting documentation, 

and the absence of documentation pertaining to supervisory review 

and approval may all undermine effective program management. 

These internal control deficiencies require immediate attention by 

BEP management. 

Excess Working Capital Needs Justification

BEP lacks sufficient evidence that its excess working capital 

amounts are valid and reliable. BEP does not have written policies 

and procedures regarding the process of determining excess 

working capital. As a result, we were unable to determine whether 

BEP is including sufficient funds in its billing rates to address 

current and future capital needs. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 21 

One of the primary objectives of our review was to determine 

whether BEP was including in its currency billing rates an amount 

sufficient to cover the costs of current and future capital 

investments. We determined that during the period FY 2003 

through FY 2004, BEP had excluded approximately $41 million in 

surplus funds from the billing rates that it assessed the Federal 

Reserve to avoid accumulating excess working capital. During 

FY 1997 and FY 2003, BEP had also directly refunded a total of 

an additional $31 million to the Federal Reserve as a result of 

operating efficiencies. BEP personnel had decided these excess 

funds were not needed to meet BEP’s current or future capital 

acquisition needs. 

The amount of money that BEP needs to fund approved current and 

future capital projects directly impacts the balance of working 

capital. Therefore, BEP needs to ensure that its capital 

requirements are being met when determining its billing rates and 

before identifying its excess working capital funds. 

Lack of Written Documentation in Determining Excess Working 

Capital

When we requested copies of the policies and procedures 

pertaining to determining the amount of excess working capital, 

we were told that these did not exist. In addition, BEP had not 

implemented a formal process documenting how working capital 

requirements are determined. Also, there was no documentation 

available to support that the decisions were subject to supervisory 

review and approval. The decision process involved primarily 

verbal discussions. 

The CFO and the Chief (OFM) review all projects that have been or 

may be obligated in the next year. The obligated funds from 

previous years are combined with the funds to be obligated during 

the new fiscal year. The total projected capital project outlays are 

then included in the billing rates. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 22 

The Chief (OFM) explained that funds had not been obligated for 

certain projects because processing delays, lack of resources, and 

“pipeline” problems prevent BEP from obligating funds for all 

approved capital projects. As a result, the Chief (OFM) and the 

CFO focus on those projects that they feel require funds to be 

obligated in the coming year. Projects that are not selected will 

have funds obligated in subsequent years. The Chief (OFM) did not 

want to obligate funds for capital projects that BEP would not be 

implementing in the near future. He felt that BEP’s current 

approach was sufficient, because the projects that had the highest 

priorities were being addressed, while lower priority projects could 

be delayed until a later date when resources and circumstances 

would enable BEP to implement those projects. 

As part of our review of capital projects, we identified six projects 

that had been approved for approximately $5.7 million. However, 

these projects were not being funded. According to BEP personnel, 

the funding for these projects had been put on hold pending the 

results of a Treasury-contracted review of the possible merging of 

BEP with the U.S. Mint. 

According to the CFO and the Chief (OFM), BEP has historically 

been very conservative in approving and expending funds to 

replace capital equipment. BEP requires all proposed capital 

projects be subject to a comprehensive and lengthy capital 

review and approval process. This process helps ensure that 

managers will only submit capital projects that show a positive 

return on investment or are necessary for security or safety. 

BEP management personnel acknowledged that the more rigorous 

process resulted in a 50 percent reduction in the number of 

business cases being submitted for review and approval. 

The CFO stated that the Bureau traditionally prefers to repair 

its older capital equipment whenever possible rather than invest 

in new equipment. In addition, the CFO stated that he would like 

to be able, sometime in the future, to implement a systematic 

plan for replacing BEP’s capital goods on a predetermined cycle. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 23 

However, given BEP’s conservative approach regarding capital 

acquisitions, the CFO felt that it was unlikely that such a plan 

would be implemented. 

BEP often consults the Federal Reserve when considering making 

major capital improvements or expenditures. We acknowledge that 

the Federal Reserve should be consulted on such matters since 

costs associated with capital acquisitions will ultimately be paid by 

the Federal Reserve. However, an increase in the funding of 

capital improvements also increases the currency billing rates. 

As a result, BEP is faced with the dilemma of trying to ensure that 

its capital needs are being addressed while at the same time trying 

to achieve customer satisfaction by reducing the billing rates. 

BEP needs to develop procedures that document the working 

capital reduction that is reflected in the currency billing rates. 

The procedures should document that a thorough review of all 

capital needs has been conducted, current and future capital needs 

have been identified, and all approved projects have either been 

funded or an explanation provided why funding was not provided. 

Before BEP identifies and transfers the excess funds, the BEP 

Director and the CFO should certify that they are satisfied that the 

excess funds are not needed to address BEP’s capital needs. 

Recommendations

4. The Director should require that policies and procedures 

be written and implemented that document the process for 

determining currency billing rates. These should outline the 

process by which BEP determines how each component of the 

billing rates is determined. The policies and procedures should 

also require evidence that the process and its results were 

properly documented, reviewed, and approved by BEP 

management. 
BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 24 

Management Comments

BEP concurs and will document existing policies and procedures 

used to determine currency billing rates. Plans are to have the 

policies and procedures prepared by June 2006. 

OIG Response

The OIG believes that the actions taken or planned by BEP 

address the intent of the recommendation. 

5. The Director should require the CFO to document that excess 

working capital funds earmarked to reduce currency billing rates 

are not needed to fund current and future capital projects. In 

addition, the BEP Director and the CFO should document that 

they are satisfied that the excess funds are not needed to 

address BEP’s capital needs. 

Management Comments

BEP will continue to review and revise billing rates annually as 

needed to maintain working capital and provide for capital 

investment. Billing rates for currency, which are revised each 

calendar year, will be completed and approved by the Director 

by December 1st. 

OIG Response

The OIG believes that the actions taken or planned by BEP 

address the intent of the recommendation. 

* * * * * * * 

Please be advised that we are recording a revenue enhancement 

of $29.4 million relating to the recommendation in Finding 2 

in the Joint Audit Management Enterprise System (JAMES). 

Appendix 1 

Objective, Scope, and Methodology 

BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 26 

The audit objective was to determine the adequacy of BEP’s 

pricing methodology to (1) cover all costs of manufacturing 

products and services performed, (2) provide for acquisition of 

capital equipment, and (3) provide for working capital needs. 

In general, we considered BEP’s financial operations and pricing 

data for FY 1998 through FY 2004. 

We reviewed the pertinent provisions of Public Law 81-656 and 

Public Law 95-81. We visited BEP Headquarters and interviewed 

the Chief (OFM) and members of his staff. We also spoke with the 

CFO about capital acquisition policies, and with the Federal 

Reserve’s liaison at BEP regarding the role of his organization in the 

currency billing process. 

We reviewed and analyzed cost data provided by BEP personnel to 

ensure that all direct and indirect costs as well as administrative 

expenses were included in determining currency billing rates. 

We evaluated the basis upon which BEP established the amount of 

working capital required to meet its financial obligations and 

responsibilities. We also evaluated BEP’s procedures regarding the 

submission, approval, and funding of capital projects. 

We analyzed monthly cash balances for the period October 2001 

through February 2004, and reviewed current and long-term 

liabilities as presented on the audited annual financial statements. 

We sampled various components of cost data, and confirmed that 

the costing data and procedures reviewed conformed to BEP’s 

Financial Management Policy Manual. We also reviewed 

summaries and audit step results, dealing with verification of costs, 

which were prepared by independent auditors. 

We conducted our audit between March 2004 and July 2004 

in accordance with generally accepted government auditing 

standards.
Appendix 2 

Schedule of Revenue Enhancement 

BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 27 

The term revenue enhancement is an action recommended in 

an OIG audit report that would, if implemented, enhance the 

General Fund receipts of the Federal Government, usually without 

having any budgetary impact on any of the Department of the 

Treasury's appropriations. The implementation of the following 

recommendation in this report involves a revenue enhancement. 

The related amount, as shown in the table below, will be recorded 

in JAMES and included in the statistical reporting in the next OIG 

Semiannual Report to the Congress. 

Table 2. Computation of Revenue Enhancement 

Recommendation Number Revenue Enhancement 

Finding 2 – Recommendation 3 $ 29.4 million 

 Total: $ 29.4 million 

The funds associated with Recommendation 3 represent an 

estimate of the amount that may be paid by OPM for 

post-retirement benefits for 3 years. The estimated amount 

is based on an assumption that the benefits paid by OPM will 

at least equal the $9.8 million that OPM paid for FY 2004, and 

is computed by multiplying the $9.8 million by three. 

It is management's responsibility to record the actual monetary 

benefits realized as a result of its implementation of the 

recommendation in JAMES. 
Appendix 3 

Management Response 

BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 28 
Appendix 3 

Management Response 

BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 29 
Appendix 3 

Management Response 

BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 30 
Appendix 4 

Report Distribution 

BILL AND COIN MANUFACTURING: The Bureau of Engraving and 

Printing Should Ensure That Its Currency Billing Rates Include All Costs 

and That Excess Working Capital Is Deposited in the General Fund 

(OIG-06-010)

Page 31 

Department of the Treasury

Office of Strategic Planning and Performance Management 

Office of Accounting and Internal Control 

Bureau of Engraving and Printing

Director 

Associate Director (Chief Financial Officer) 

Office of Management and Budget

OIG Budget Examiner