EXECUTIVE COMMENTARY

We appreciate the opportunity to comment on the General Accounting Office Review of the United States Mint's Financial Management and Management Control Systems.

So

"The Mint does not have a modern financial system, a problem typical of the Federal Government today." (Emphasis added.) stated Mr. Jeffrey Steinhoff of GAO in presenting the GAO report to the Subcommittee on Consumer Affairs and Coinage at a public hearing on August 1, 1989. Mr. Steinhoff went on to say "The Mint recognized the seriousness of the weaknesses in the systems in its report [s] to the President and the Congress [beginning in 1984] under the Federal Managers Financial Integrity Act."

The above statements by GAO are correct. The management of the U.S. Mint has been fully aware that fundamental problems exist with the financial management systems and that major changes, requiring substantial time and money, need to be made. The GAO report will be useful to support said expenditures.

In large part, the problems are the result of the phenomenal growth of the Mint's special coin programs during the past several years. From the early 1980's, when a limited, but stable, line of numismatic products, such as annual proof and uncirculated coin sets and national medals were issued, the special programs have burgeoned into a multi-million dollar business, featuring successive commemorative coin programs since 1982. In addition, for the first time in Mint history, Congress mandated ongoing silver and gold bullion investment coin programs.

As is the case with many "growth companies" the Mint's financial infrastructure could not keep pace with the string of enormously successful sales efforts. In an attempt to "stay even" with the explosion of new programs mandated by Congress, without causing disruption in those programs, manual systems were modified as best as they could be. And that is the basis of much of GAO's criticism. In addition to the sweeping revisions made to the Mint's computer staff and ADP capabilities, which focused, among other things, on revamping the order processing system, management clearly recognized that a fully-integrated, automated financial management system was essential. Prior to the GAO audit, the Mint was taking steps to enhance the accounting staff and to design and implement such a system.

The limited existing accounting staff, and problems hiring sufficient talent to revamp the financial systems led Mint management to contract with the certified public accounting firm of Grant Thornton, Inc. to analyze the accounting situation and to help in updating accounting procedures. Further, Mint management engaged Booz-Allen & Hamilton, Inc., a major consulting firm, to assure modernization of the Mint's financial management system.

Under

The Mint's situation is far from unique in the Government. questioning, Mr. Steinhoff said, "I want to emphasize that the problems the Mint faces in challenges are very typical of the kinds of things Government as a whole faces today." Mint management had, and continues, to aspire to be an example of financial management modernization which may be helpful to other Government agencies, and is committed to that goal.

However, it is regrettable that the manner in which GAO issued its report may result in the positive efforts undertaken by the Mint being overshadowed by the negative media and public reaction. There is already evidence of that occurring. Further, since the Mint was not afforded the opportunity to review and comment on the report prior to its issuance, inaccuracies and misconceptions, as well as philosophic arguments as to what constitutes good accounting practices, were included.

A major failing of the report is GAO's omission of other Mint activities which they reviewed and which were found to be in compliance with applicable rules, regulations, and statutes, and in keeping with the mission of the Mint. The Mint had requested that those areas with positive findings be included in the final report. According to the GAO staff, areas with positive findings included high speed coin press procurement practices, and performance of the presses, and the bullion coin distribution system used by the Mint.

Significant staff time, both of GAO and the Mint, was spent reviewing these activities. Yet, the Mint's conscientious discharge of responsibilities in these areas was omitted. opinion, the report is incomplete without coverage of these

areas.

In our

It is important to assure all concerned that no allegation of lost revenues to the Government, nor of unjustifiable cost to the American public, was cited in the GAO review of the Mint.

So that confidence in the Mint is not lost due to the emphasis on negative findings, we feel attention should be called to page 32 of the report, which states "Raw material in the form of metal is the greatest expense associated with the manufacture of coins. Depending on the program involved, these expenses comprised from 57% to almost 100% of the total numismatic program expenses. dollar amounts of errors that were found in this area were relatively small." (Emphasis added.) For the reader's information, raw material expenses for the numismatic and bullion coin programs in Fiscal Year 1987 amounted to over $1.2 billion.

The

In addition, some of the "errors" referred to by GAO do not give a proper persepective. In one instance, an overage in a silver bullion account equated to 2/100th of 1 percent of all material received and processed in the silver bullion coin program. In another case, an understatement of metal expenses in the Statue of Liberty Program represented less than 1% of the total value of silver used in the program.

Despite the Mint's belief that the final report would have been more accurate and balanced had we been given the opportunity to comment on it prior to its release, Mint management totally agrees with the stipulation that there are problems with the Mint's financial systems. The Mint had begun, and is continuing to correct them through automation, additional training of staff, updating of procedures and clearer directives, and various other actions. Incidents of employees not following procedures have been looked at and in some cases disciplinary action is being considered. In other cases, there has been a reassignment of duties.

Finally, the Mint fully agrees with the concept of a public enterprise revolving fund proposed in the GAO report. GAO recommended a revolving fund for the Mint as far back as 1970. Present Mint management is committed to developing a modern financial management system. The time has also come for enactment of the public enterprise fund concept, not only for accounting purposes, but for marketing flexibility as well.

DETAILED COMMENTS

We have conducted a detailed review of the GAO report, and our comments follow. We have attempted to follow the format and structure of the report in preparing our comments by first presenting the GAO position, and then the Mint position. the GAO position could not be quoted concisely we have attempted to summarize the finding.

When

CHAPTER 2

INSIGNIFICANT NUMBERS OF STATUE OF LIBERTY COINS
WERE SHIPPED WITHOUT PAYMENT

PAGES 14 16 Direct Customer Sales

Summary of GAO Position GAO states that insignificant numbers of Statue of Liberty Coins were shipped to customers prior to payment being received, in violation of section 111(b) of the authorizing legislation.

Further, GAO indicated that the figure

the Mint reported to the Subcommittee in July 1987, for coins shipped prior to payment, was in error. GAO also states that coin sales made through credit cards, and later cancelled and charged back, did not constitute nonpayment for the purpose of making shipment.

Mint Position since full payment means that a check must clear the purchaser's bank before shipment of coins can be made, GAO is correct in saying that an insignificant number of Statue of Liberty Coins were shipped to customers prior to full payment. These instances occurred because checks received by the Mint prior to coin shipment were later returned for insufficient funds.

The actual number of coins outstanding as accounts receivable as of June 30, 1987, approximately 7,100, represented less than 1/20 of 1% of the total coins sold during the program. We discussed this matter with GAO during their review, and acknowledged in February 1988, that the figure originally given to the Subcommittee was overstated for the reasons GAO cited. For check payments, a policy of waiting 15 days after the processed order is placed on the Mint computer, before shipping coins to customers, has been instituted.

We believe this finding highlights one of the difficulties the U.8. Mint experiences in attempting to operate as a commercial enterprise in a government setting. Private businesses realize that customer service is one of the keys to success in a competitive environment. The Treasury Department has been aware of this as well, and, with Mint agreement, directed a relaxation of the policy of waiting for checks to clear before shipping coins (during the first Olympic Coin Program, which ran from 1983 to 1985 not in 1980 as reported by GAO) it was a management

effort to speed delivery to customers.

By reinstating a more stringent policy, we are attempting to ensure full payment for all coins prior to shipment, even though this type of practice is not followed by many businesses.

Summary of GAO Position GAO states that, even though payment guarantees were given to the Statue of Liberty Task Force, consignees still owed the government about $32,500 at the time of GAO's review. GAO found this amount to be negligible when compared to total consignment collections of over $100 million.

Mint Position GAO does not take a position on whether payment guarantees received in the Statue of Liberty consignment program were in compliance with the authorizing legislation. The report does point out that the $32,500 still uncollected at the time of GAO's review was negligible considering the total volume of consignment collections, approximately $100 million. We agree with this statement.

It should be emphasized that the consignment portion of the Statue of Liberty Program was operated by a Task Force which was not under the control of the Mint. Upon receiving the consignment program documentation from the Task Force in April 1987, approximately $300,000 was still outstanding from

consignees. Mint personnel worked aggressively to collect this remaining amount, and at the time of the GAO review, only $32,500 was still outstanding.

Collecting 99.97% of the total amounts due under the consignment program would be considered by most businesses as a very successful collection effort.

Page 18 Paragraph 4 GAO Position GAO states that 44 dies "were stolen from an airport warehouse in Montreal, Canada, while being shipped to the Royal Canadian Mint for chromeplating and polishing. During the 1988 budget authorization hearings in July 1987, the former Subcommittee Chairman had requested information from the Mint on security incidents occurring in 1985 and 1986. However, the Mint did not report this stolen die shipment to the Subcommittee at that time."

Mint Position The implication that the Mint withheld this information from the Subcommittee is without merit. The Mint's report to the Subcommittee included all information requested. The lost dies were not reported because they were considered lost in shipment, not stolen. In addition, the incident occurred at the hands of a commercial shipper, not at a Mint facility. This