Government Printing Office: Information on September 1996 Major Inventory Reduction
Released: 1997-09-16T00:00:00

Letter

Background

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

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

GPO is headed by the Public Printer, who is nominated by the President and confirmed by the Senate. The sales program is led by the Superintendent of Documents, who reports directly to the Public Printer. The sales program provides the public the opportunity to purchase government publications and subscriptions at GPO’s 24 bookstores across the country; through telephone, fax, and mail orders; and through consigned sales agents at other agencies. Within the Superintendent of Documents’ staff is the Documents Sales Service, which includes staff in the Sales Management Division and Documents Control Branch. Other key players in the sales program include Customer Services, whose printing specialists serve as liaisons with the issuing agencies until the publications are produced, and the Office of the Comptroller, which keeps the financial records, including inventory. For more detail on GPO’s organizational makeup, see appendix II.

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

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

GPO Completed a Major Inventory Reduction in 1996

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

As a result of the projected loss for fiscal year 1996, the Superintendent of Documents tasked a management team with developing an action plan to increase revenue and reduce expenses, with the objective of returning the sales program to full cost-recovery in fiscal year 1997. The plan, dated September 1996, originally contained 44 individual projects and was later amended to include 2 more projects. One original project was a special effort, over and above GPO’s routine process for removing excess publications, to move aggressively to reduce the inventory of surplus publications before the new fiscal year began on October 1, 1996. Such a reduction would increase the surplus publications expense for fiscal year 1996 but was expected to decrease those expenses in fiscal year 1997 and subsequent years. In other words, the sales program’s losses for fiscal year 1996 would be greater, but GPO officials hoped that this would result in the program breaking even or better for fiscal year 1997 and beyond.

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

Policies and Procedures Existed for Managing the Disposal of Excess Inventory

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

Under the existing policies and procedures, inventory management specialists (IMS) in the Documents Control Branch are to review quarterly the amount of inventory for the publications they manage. This review is conducted to identify whether the inventory should be reduced based on the sales history and projected life cycle of the publication. As part of the Superintendent of Documents’ existing policy, which was issued by the current Public Printer when he was the Superintendent of Documents, once an IMS determines the number (if any) of copies of a publication that are excess, he or she is to call the issuing agency to determine whether it wants the extra copies.

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

Existing Policies and Procedures Were Not Followed

During the major reduction in September 1996, the Superintendent of Documents’ staff followed his orders and disregarded policy and normal procedures in order to reduce the inventory of excess publications before October 1, 1996. When the Superintendent of Documents realized that the sales program expected a substantial loss, he told his staff in a June 1996 memorandum that, while developing an action plan to increase revenue and reduce expenses, they should: “Ignore politics and external influences. Disregard current policies and practices that inhibit creativity and impede change.” According to the Superintendent of Documents, his instruction to ignore politics and external influences referred to frequent requests from issuing agencies to have more copies of publications in the sales inventory than GPO believes can be sold. The Superintendent further said that he subsequently verbally instructed his staff to begin the inventory reduction before the action plan was approved and told them to disregard policies that would interfere with the removal of as much excess inventory by September 30, 1996, as possible.

In order to maximize charges to surplus publications expense in fiscal year 1996, the Superintendent of Documents and GPO’s Comptroller advised IMS staff to focus their attention on excessing publications that had high printing and binding costs, large quantities in inventory, and low sales volume. Also, during this major reduction, IMS decisions on what publications to excess did not receive the normal management review, and IMS staff did not call the issuing agencies to see whether they wanted the excess copies of their publications.

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

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

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

The Superintendent of Documents said that he was responsible for policies not being followed and for the inventory reductions that took place at the end of fiscal year 1996. The Superintendent of Documents said that he wanted to dispose of the excess inventory by September 30, 1996, in order to take the losses in fiscal year 1996. He also said that he wanted to identify and dispose of as much excess inventory as possible in fiscal year 1996 rather than in later years, when it otherwise would have been identified, disposed of, and charged to expense. According to the Superintendent of Documents, he instructed staff to dispose of the excess inventory by September 30, 1996, because he mistakenly believed that the inventory had to be physically removed from GPO property before surplus publications expense could be charged.

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

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

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

The Four-Volume History Was Excessed During the Inventory Reduction

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

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

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

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

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

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

Actions Taken or in Process Should Help GPO Prevent a Recurrence of Inappropriate Inventory Reduction

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

Designating the Senate History Volumes for Indefinite Availability for Sale

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

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

Strengthening Policy on Offering Excess Publications to Issuing Agencies

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

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

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

Finally, another dilemma GPO has faced in disposing of excess inventory is the lack of authority to donate excess publications to schools or similar institutions. Under existing law and policy, GPO’s current options for disposing of excess publications are to offer them to issuing agencies at no cost or to dispose of them as scrap. GPO is also precluded by statute and regulation from offering publications to the public at discount prices except to those who buy 100 or more copies of the same publication or to book dealers who agree to resell the books at GPO’s prices—in which case, GPO can only offer a maximum discount of 25 percent. To address this problem, in May 1997, as part of its recommended revision of title 44 of the U. S. Code, GPO forwarded a proposal to the Joint Committee on Printing that would authorize the donation of excess publications to schools or similar institutions if the copies are not wanted by the issuing agency.

Aligning GPO’s Procedure for Considering Holding Costs of Publications With Its Policy

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

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

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

During our review of GPO’s inventory management records, we also noted that Form 3880, which IMS staff use to make recommendations and supervisory personnel use to review actions on obsolete or excess inventory, does not provide for inclusion of data on storage or holding costs for publications. This omission is inconsistent with a memorandum, dated January 4, 1985, from the Chief, Sales Management Division, to Documents Control Branch staff, which directed that reasonable life cycles should be consistent with economic analysis of the following factors: expected trend, reprint costs, expected revision date, and holding costs. The memorandum also stated that, when reviewing records to identify excess or consider extension of the life cycle, the following factors should be considered: continued marketability, projected revenue, and estimated holding costs.

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

Conclusion

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

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

Agency Comments

On September 5, 1997, we provided the Public Printer with a draft of this report for comment. We received his written comments, included in their entirety in appendix IV, on September 10, 1997. The Public Printer said that the report fairly represents the events as they occurred during the September 1996 inventory reduction. He also said that actions have been and are being taken to ensure that no sales publications will be disposed of in the future without strict adherence to applicable GPO policies and procedures.

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

Objectives, Scope, and Methodology

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

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

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

Government Printing Office Organization Chart

Examples of Publications GPO Disposed of in September 1996

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

Comments From the Government Printing Office

Major Contributors to This Report

General Government Division

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

Accounting and Information Management Division

Office of General Counsel

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

U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537.

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