. 

GAO 

United States General AccouMin8 OlBce J 3 9 -+? ‘is 7 c 

Testimony 

I II 111111II 

139209 

For Release 

on Delivery 

Expected at 

10 a.m. EDT 

Tuesday 

August 1, 1989 

The U.S. Mint's Accounting and Control 

Problems Need Management Attention 

Statement of 

Jeffrey C. Steinhoff 

Director of Financial Management Systems Issues 

Accounting and Financial Management Division 

Before the 

Subcommittee on Consumer Affairs and Coinage 

Committee on Banking, Finance and Urban Affairs 

House of Representatives 

GAO/T-AFMD-89-12 
. 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to testify on the results of 

our review of the U.S. Mint's financial management practices. 

Your Subcommittee's former Chairman asked us to undertake this 

review because of concerns about the Mint's accounting and 

internal control procedures , particularly as they relate to 

numismatic, or collectors' , coin programs. 

The specific objectives of our review were to (1) determine 

whether the Mint complied with the legal requirement involving 

the shipment of Statue of Liberty coins, (2) examine internal 

controls for coins and dies, which are used to stamp images on 

coins, (3) evaluate aspects of the Mint's financial management 

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system related to accounting for costs, controlling funds, and 

providing financial information to managers, and (4) assess the 

budgetary fund structure for numismatic programs. 

We have provided a report 1 detailing the results of our 

review, which identified financial management problems at the 

Mint. Our report makes a number of recommendations to the 

Director of the Mint to correct these problems. A summary of our 

findings and recommendations follows. 

lFinancia1 Manaqement Systems: The U.S. Mint's Accountinq 

and Control Problems Need Manaqement Attention (GAO/AFMD-89-88, 

Julyy26, 1989). 

1 
INSIGNIFICANT NUMBERS OF STATUE OF LIBERTY 

COINS WERE SHIPPED WITHOUT PAYMENT 

The Statue of Liberty-Ellis Island Commemorative Coin Act 

requires that no coin be issued unless the Secretary of the 

Treasury has received full payment, satisfactory security, or a 

guarantee of full payment from a federally insured financial 

institution. The Mint did not always comply with this 

requirement; however, the instances of noncompliance were 

insignificant compared to the total number of coins shipped. 

During the 1988 budget authorization hearings, the Mint 

advised your Subcommittee that over 29,000 Statue of Liberty 

coins had been shipped to customers either without being paid for 

first or where payment was subsequently revoked through credit 

card chargebacks. The information the Mint gave to the 

Subcommittee was incorrect. For example, the number included 

coin purchases for which payments had been received, such as 

coin purchases returned by customers for refunds. 

The Mint does not have the information necessary for us to 

determine precisely how many Statue of Liberty coins were shipped 

that did not comply with the legal requirement. However, our 

analysis suggested that instances of noncompliance were less than 

1 percent of the 15.5 million coins shipped during the program, 

which we consider to be insignificant. 

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These noncompliant shipments resulted from a 1980 change in 

one of the Mint's internal control techniques. Previously, the 

Mint had a policy of holding numismatic coin shipments paid by 

check for 10 days to ensure that checks had cleared the bank. 

Due to customer complaints, the Mint discontinued this policy. 

The Mint has since reinstated and strengthened this control 

through a policy of holding numismatic coin shipments 15 days, 

which allows time for a check to clear the bank before coins are 

sent to a customer. 

INTERNAL CONTROLS OVER DIES AND COINS 

NEED STRENGTHENING 

The Mint has the important responsibility of safeguarding 

the dies used to strike images on coins. The Mint is also 

entrusted with gold and silver bullion worth hundreds of 

millions of dollars in the form of coins and coin blanks 

(unstruck coins), as well as in the coins themselves once they 

have been struck. While these valuable assets must be tightly 

controlled, die thefts and coin shortages have occurred. 

The Mint's control of die shipments did not provide adequate 

security to prevent thefts. After experiencing two thefts, the 

Mint concluded, based on an internal review, that its controls 

over die shipments did not provide the level of security needed 

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to prevent theft while dies were in transit. The Mint now uses 

only armored couriers who inspect shipment contents at each 

stopping or transfer point. 

The Mint also has weaknesses in its automated information 

system for maintaining die inventory records. Data entered into 

the system is unreliable because it is inaccurate. For example, 

when the Philadelphia Mint ships dies which it has manufactured, 

the die inventory system's reports show that an entire batch of 

25 dies was sent. However, if dies are spoiled or flawed in the 

manufacturing process, they are removed from the batch before 

shipment. In these cases, a manual record of individual dies 

not shipped is kept and the die inventory system's data is 

corrected. To maintain these manual records, the die 

manufacturing staff circle the serial numbers of spoiled and 

unshipped dies on shipping reports. We found, however, that 

serial numbers for unshipped dies are sometimes not circled, 

resulting in incorrect die inventory system information and field 

mint shipping reports. In this regard, during a recent 

reconciliation of die inventories, the San Francisco Mint found 

that it had not received 22 of the dies listed on its die 

inventory system shipping reports. 

Further, information produced by the die inventory system 

was untimely because data to update the system's automated files 

were,entered only about every 2 weeks. Mint managers advised us 

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that they no longer use some reports from the die inventory 

system because they are inaccurate and untimely. For example, 

the Mint’s headquarters production manager was not using the die 

inventory system’s information on dies retired from production to 

approve field mint requisitions for replacement dies because that 

information was unreliable. Instead, the manager used 

information provided manually by field mint production staff in 

weekly operational status reports which cover die usage. 

According to mint managers, improvements in the Mint's die 

inventory system are planned. For example, the Mint began to 

develop an on-line data entry and system update capability. This 

should make more timely information from the system available to 

mint managers and improve the accuracy of the system's data 

because its files will be updated sooner than at present. 

The Mint's control procedures for die inventories are weak 

in several areas. For instance, employees failed to follow 

prescribed die inventory procedures in some cases, such as 

verifying inventory reconciliations and notifying field mint 

security offices when unreconciled differences occur between die 

records and the number of dies identified during physical 

inventories. In other instances, die inventory procedures are 

weak because they do not include control techniques, such as 

quarterly inventories by serial number verification, that would 

provide early indications of missing dies. 

5 
Regarding internal control of coins and coin blanks, we 

found that the Philadelphia and West Point Mints followed their 

established procedures for weight and piece count controls during 

production. However, the San Francisco Mint omitted an essential 

step in its procedures for controlling coins. It failed to 

notify its security office when shortages were identified. 

Further, in 1988, that Mint's annual verification of accounting 

records and inventories of materials on hand, did not show 

whether coin and coin blank shortages existed because it showed 

large overages for each type of coin. That is, the physical 

count or weight for commemorative and bullion coins and coin 

blanks on hand was greater than the corresponding amounts shown 

in the Mint's records. 

REPORTS ON REVENUE AND EXPENSE NEED IMPROVEMENT 

Financial reports which reliably disclose revenues and 

expenses associated with carrying out operations provide key 

financial information on the government's revenue-producing 

activities. We found that the Mint's June 30, 1987, reports on 

revenue and expense related to numismatic program operations 

contained errors and inconsistencies, including the following. 

-- Amounts shown on the Mint's reports of revenue and 

w expense for different programs contained inconsistent and 

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incorrect calculations for seigniorage, which is the 

difference between the cost of metal and the coin's face 

value. 

-- We noted instances where overhead calculations and 

allocations were made that used inconsistent 

methodologies, excluded certain costs, or contained 

adjustments for which supporting documentation was 

unavailable. 

Be Incorrect cost accounting methods were used in some 

cases. For instance, when supply orders were received, 

the San Francisco Mint recorded them as expenses. Based 

on our accounting requirements,2 supplies would normally 

be recorded as part of the inventory and would be 1' 

recorded as a production expense when they were issued. 

Also, headquarters cost accounts charged the total amount 

of fixed assets, valued at over $567,000, as an overhead 

expense. To meet GAO's accounting requirements, these 

items would normally be recorded as assets, and, through 

a subsequent depreciation expense, a portion of these 

costs would be charged each year as overhead costs 

related to coinage programs. 

2GAOJs Policy and Procedures Manual for Guidance of Federal 

Agencies, Title 2. 

7 
-- Documentation was not always available to substantiate 

some of the costs reported by certain field mints, 

including those for labor charges by the Philadelphia 

Mint and depreciation expenses by the West Point Mint. 

Inconsistencies and inaccuracies in reporting expenses 

affect the amount of profit the Mint reports for its numismatic 

programs. They also result in the Mint and the Congress not 

having accurate information to oversee these programs. They are 

unable to determine, for example, whether these programs meet 

legislative requirements to operate at no net cost to the 

government. Problems with the Mint's cost accounting system, 

which caused the Mint's incorrect revenue and expense reports, 

are discussed in the following section. 

CRITICAL ELEMENTS OF THE MINT'S 

FINANCIAL SYSTEM NEED MODERNIZATION 

The Mint's financial management system for both numismatic 

and domestic coin programs has fundamental design and operational 

weaknesses. The Mint's cost accounting system is decentralized 

and manually operated, and the cost information it produces is 

not accurate or timely. Further, the Mint sometimes uses 

figures which reflect obligations rather than costs. In 

addition, in accounting for costs, the Mint does not meet the 

Comp&roller General's internal control standards for federal 

8 
agencies. Under these requirements, agencies must (1) have 

adequate documentation of their internal control systems, which 

would include their cost accounting systems, (2) give necessary 

training to staff, which in the case of the Mint would include 

training in cost accounting principles and techniques, and 

(3) provide continuous supervision. Some examples of the 

problems the Mint is experiencing in meeting these requirements 

follow. 

-- The Mint's written cost accounting policies and 

procedures are inadequate and outdated. The Mint's Cost 

Accountinq Manual has not been updated since 1974, 

although accounting instructions have been issued since 

that time. The manual does not cover cost accounting for 

numismatic coins, nor does it adequately cover 

methodologies for recording and allocating costs. For 

example, the manual does not cover accounting for 

unfinished units of work for numismatic programs, and it 

does not specify a standard methodology for allocating 

general and administrative overhead costs. 

-- The Mint's cost accountants were not adequately trained. 

In certain instances, they could not readily explain what 

they were doing or why they were using a particular 

method for calculating or allocating costs. Further, 

Y headquarters cost accountants did not completely and 

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consistently account for costs, and they did not 

reconcile cost accounts with appropriate general ledger 

accounts, a basic accounting requirement. During our 

review, the Mint recognized the need to further train 

its cost accounting staff and, in January 1989, began 

holding regular, in-house training sessions. In 

addition, it held a week-long cost accounting training 

session for field mint staff in March 1989. 

-- The Mint's supervisory controls were not always adequate 

to ensure that cost accounting reports were accurate or 

to prevent their being initiated or changed without 

approval. We identified instances where cost information 

was amended, revised, or prepared more than a year after 

the close of the accounting period. These reports and 1' 

financial records did not indicate their date, thus we 

could not always tell which report was the official, 

final version. In one case, we noted that, without a 

supervisor's knowledge, a staff member adjusted an 

official log on gold prices after we identified missing 

data. Also, we determined that, without supervisory 

approval, a headquarters manager directed the San 

Francisco Mint staff to prepare the 1986 cost ledger 

cards for our review in early 1988--over a year after 

the close of the fiscal year they were intended to 

* 

cover. 

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The Mint has been aware of its cost accounting system 

problems for many years and, since 1984, has recognized these 

problems in its Federal Managers' Financial Integrity Act3 

reports. However, the Mint's targeted completion date for 

enhancing the quality and timeliness of its cost reporting 

through an automated cost accounting system has been consistently 

postponed and now stands at 1993. While the Mint has been slow 

to initiate actions to correct its cost accounting problems, it 

has recently hired a public accounting firm to review its overall 

automated financial management system in order to identify system 

requirements, including those for cost accounting. 

The Mint's funds control system is predominantly manual and 

decentralized. We found basic problems in that funds control 

reports (1) contain errors, (2) are not regularly prepared as an 

integral function of the Mint's accounting system, and (3) do not 

show critical information, such as available balances, needed to 

monitor obligations. 

Also, written policies and procedures for carrying out the 

Mint's funds control system are out-of-date and incomplete. This 

guidance has not been updated since it was issued in 

3The Federal Managers' Financial Integrity Act of 1982 (31 

U.S.C. 3512 (b) and (c)) requires agencies to report material 

weaknesses in agency internal control and accounting systems to 

the President and the Congress each year, along with plans to 

correct the problems. 

Y 

11 
December 1971. The funds control policies and procedures 

(1) reflect a process timed to meet requirements of the old 

fiscal year, which began on July 1 and ended on June 30, and not 

the current October 1 to September 30 fiscal year, (2) do not 

cover the Mint's current programs, activities, and legislative 

authority, (3) exclude important information, such as how to 

distribute obligations that are not related to a specific program 

between appropriated and numismatic programs, and (4) do not 

address how to handle authorized transfers of funds. 

The Mint's system for controlling obligations of funds does 

not meet Comptroller General principles and standards for agency 

accounting systems. Agency accounting systems must provide 

information to assist in preventing overobligation and 

overexpenditure of approved funding levels. The Mint's funds 

control system does not meet its intended purpose of helping 

managers ensure that spending does not exceed approved funding 

levels. A Mint official advised us that an automated funds 

control system is being developed, with implementation planned 

for the beginning of fiscal year 1990. 

Currently, separate management reports provide detailed 

information by function, such as production, sales, and 

accounting. However, because these reports are cumulative, they 

do not allow monthly, quarterly, and annual comparisons. Also, 

no summary reports are prepared on coin program results to 0 

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indicate the number of coins produced and sold, program costs and 

revenues, and unit costs for comparison between time periods. 

The current reports, therefore, cannot be used to assess 

productivity, determine reasonable production levels and unit 

prices, or prepare accurate budget estimates. 

Mint managers agree that the current reports were not 

adequate to support decision-making. For example, they noted 

that the reports do not support decisions to shift production 

from one field mint to another. 

Financial management information, such as data for 

assessing productivity and determining production levels, would 

enable the Mint to better review program productivity and 

efficiency and to better estimate costs and determine prices for ,' 

coins. The Chief of the Mint's Cost Accounting and Analysis 

Division plans to develop the cost analysis capability needed for 

improved management information reports during 1989. 

A NUMISMATIC REVOLVING FUND 

SHOULD BE ESTABLISHED 

The Mint's numismatic programs are operated essentially as a 

business. These programs produce products for sale, generate 

revenues from product sales, and deposit profits in the general 

u 

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fund of the Treasury. Numismatic programs are an industry with 

gross revenues of over $400 million in fiscal year 1988. 

However, the Mint's numismatic programs are not shown 

separately in the President's budget. Also, for accounting and 

financial reporting purpobes, the Mint combines information on 

numismatic and domestic coinage program operations. 

Certain costs of the Mint's numismatic programs, such as 

field mint production costs and both field and headquarters 

overhead costs, along with its domestic coinage program, are 

financed primarily through an annual appropriation account for 

salaries and expenses. Thus, the Mint does not prepare the same 

financial reports for its numismatic programs that are generally 

required for other businesslike activities of the government. 

This financing method also creates budget presentation 

problems. For example, outlays from the Mint's salaries and 

expenses account differ significantly from the amount 

specifically appropriated to the account. Generally, outlays 

from an agency's salaries and expenses appropriation account are 

close to the account's appropriations. However, outlays reported 

in the budget for the Mint's salaries and expenses appropriation 

account represent the net effect of expenditures of appropriated 

and numismatic program funds. When receipts from the Mint's 

numirsmatic programs exceed expenditures for those programs, the 

14 
net effect is to reduce outlays reported for the'appropriation. 

Thus, excess receipts produce "negative" outlays. This situation 

masks the relationship between the appropriation for the salaries 

and expenses account and its outlays. 

Other businesslike operations of the government are financed 

through revolving funds. Under a revolving fund, the assets, 

liabilities, costs, and revenues related to a program's 

operations are generally disclosed in financial reports and 

presented to the Congress for its use in making budgetary 

decisions. We believe that, because the Mint's numismatic 

programs are operated much like a manufacturing business, a 

revolving fund would be the most appropriate financing method for 

them. While financing for the Mint's domestic coinage program 

could still be handled through annual appropriations, financing 

for the Mint's revenue-producing numismatic programs would be 

more appropriately handled through a public enterprise revolving 

fund that should be reviewed and approved through the annual 

appropriations process. 

In summary, the Mint has serious accounting and internal 

control problems which need management attention. To modernize 

critical elements of the Mint's financial system through improved 

cost, funds control, and management information, we have 

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recommended in our report to your Subcommittee that the Director 

of the Mint 

-- develop an automated cost accounting system to provide 

accurate and timely information on the cost of 

operations8 

-- enhance the Mint's funds control system in order to 

(1) provide data to help managers ensure that funds not 

be overobligated or overexpended, (2) generate standard, 

consistent, and reliable funds control reports from 

information in the accounting system, and (3) use the 

Mint's financial plans as the basis for controlling funds 

at both the headquarters and field mint levels; and 

-- develop management information reports that will give 1' 

mint managers a range of program and financial 

information, including summarized or comparative reports 

on programs showing, by time period, information such as 

the numbers of coins produced and sold, revenues and 

expenses, and unit costs. 

To improve internal controls over dies, we have recommended 

that, among other improvements, the Director of the Mint conduct 

quarterly physical inventories of dies through serial number 

verification and ensure that the resolution of discrepancies 

Y 

16 
b 

identified during field mint die inventories are reviewed by mint 

representatives who are independent of the inventory process. 

Also, it would be appropriate for the Mint's numismatic 

programs to be financed through a public enterprise revolving 

fund, similar to other businesslike operations of the government. 

We have, therefore, recommended that the Congress establish this 

financing arrangement for the Mint's numismatic programs, subject 

to the appropriations process. 

Mr. Chairman, that concludes my formal statement. I will be 

happy to answer any questions you or members of the Subcommittee 

may have. 

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