glance at it in the short time we have had shows that we do have some disagreements with the findings. But it would not be appropriate for me to go into depth at this time. And as you are aware, we were also not given an opportunity to comment on the final report. So we saw it for the first time very recently.

And now with that, I would like to turn to the 1990 budget request for salaries and expenses of $50.735 million and 888 average positions. This will allow the Mint to produce 19.5 billion coins which will satisfy projected demand requirements of 18.1 billion coins and allow inventories, which had been very low at the time this budget was prepared, to increase. However, at the present time, we are experiencing a softening in demand and we will be tracking that trend very closely over the next few months.

Our contribution to the Treasury Department for 1990 from seigniorage, an off-budget receipt, is now estimated to be $572 million. The profits on numismatic and bullion programs, an on-budget receipt, is estimated to be $90 million. The Mint's 1990 budget request has a net increase of approximately $3.7 million over the 1989 fiscal year request. Increases totaling $5.7 million consist of a $1.5 million increase for increased coin production; a $400,000 increase for asbestos removal; a $2.1 million increase for equipment purchases and building improvements; and a $1.7 million increase for mandatory cost of living increases.

The increases are offset by reductions totaling $2 million for nonrecurring costs, productivity savings, and savings resulting from A76 studies. The budget requests $1.3 million in appropriated funds for asbestos abatement programs at the various Mint facilities. The total abatement effort throughout the Mint, which is projected to be completed at the end of 1993, is estimated to cost $7.1 million. $5.2 million funded by appropriated moneys and $1.9 million from reimbursable funds.

There are no new research and development projects planned in fiscal year 1990. Therefore, we are not requesting funds this fiscal year. We are working on projects that have already been developed. One of them, the coin press feed system, has progressed nicely with installation of 10 units and a contract for 50 more units has been completed. We plan a purchase of 50 more units next year.

The Mint will realize yearly savings of 19 FTEs and about $700,000 from the installation of the feed units. We have also completed the contract for the second robot for count, bag and stack operations. The first one is being used for penny operations. The second one will handle all denominations.

Our equipment acquisition plan includes funds for replacement of worn out and obsolete equipment. Our request of $3.4 million will let us in 1990 purchase such items as coin presses, a blanking press, counting machines and some industrial trucks.

Our budget request is for 2,145 FTEs, 888, as I said, for appropriated activities; and 1,257 for reimbursable activities. That is a reduction of 13 appropriated FTEs and 43 reimbursable FTEs from our 1989 level. Our request for FTEs includes proposed reductions in the police force following a requested A-76 study which may identify ways of making the force more efficient, or may indicate

that it should be replaced by private security guards through contracting out procedures.

The Mint's recurring reimbursable programs for 1990 will be the annual proof coin sets, uncirculated sets and congressionally authorized medals as well as the American Eagle Gold and Silver Bullion Programs. The Bicentennial of the Congress Program began in June 1989 and ends June 1990. The Eisenhower Commemorative Coin Program begins in 1990.

Legislation will be proposed for a public enterprise fund to finance numismatic and bullion coin operations. The Mint would retain profits from reimbursable programs to support start-up operations. Sales proceeds would be deposited into a revolving fund and operating and capital expenditures would be charged against the fund, much like they are now. But at year's end, the net profits resulting from all numismatic and bullion programs would be deposited into the General Fund of the Treasury with the exception that the necessary funding would be retained to finance necessary capital acquisitions and start-up operations for the subsequent fiscal year.

The Mint would be required to submit businesslike statements to Congress in support of a public enterprise fund. Implementation of a broad public enterprise concept would enable the Mint to be more responsive to changes in the marketplace for our profitmaking products, and would permit the Mint to operate reimbursable programs in a more business-like fashion and would allow us to compete with other major marketing mints of the world on more equal footing. That concludes my remarks, Mr. Chairman. I will be happy to answer questions.

[The prepared statement of Ms. Pope can be found in the appendix.]

Chairman LEHMAN. Thank you very much. As I stated earlier, I think what we will do now is invite Mr. Steinhoff to come forward and give his testimony.

STATEMENT OF JEFFREY C. STEINHOFF, DIRECTOR FOR THE FINANCIAL MANAGEMENT SYSTEMS ISSUES AT THE GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY BOB PEWANICK AND GAYLE CONDON, ASSISTANT DIRECTORS IN THE GENERAL ACCOUNTING OFFICE

Mr. STEINHOFF. Mr. Chairman, Members of the subcommittee, we are very pleased to be here today to discuss the results of our review for the subcommittee of the Mint's financial management practices for its numismatic coin programs. With me today are Bob Pewanick and Gayle Condon, Assistant Directors in the General Accounting Office, who have been instrumental in our work at the Mint.

I have a detailed statement which I would like to submit for the record together with our July 26, 1989 report to the subcommittee on the Mint's Financial Management Practices. We identified a number of accounting, financial reporting and internal control weaknesses. We kept Mint officials apprised of our findings throughout our review, and they have initiated a number of correc

tive actions to address the problems I will now highlight. I will focus on five areas.

First, the subcommittee asked us to determine whether the Mint complied with the Statue of Liberty Coin Act's requirement that payment be received prior to shipment of coins. We found for the most part this was not a problem. Only a fraction of 1 percent of the coins were shipped without payment, and these shipments were caused by a relaxing of an internal control, which allowed time for checks to clear banks for coin orders paid by personal checks. As a result of our review, this control has been reinstated by the Mint. Second, internal controls were not adequate to assure against the loss or theft of coin dies. There have been two reported thefts of shipped coin dies, the latest coming in January 1988. Based on its own study, the Mint has improved its shipping controls and now uses only armored couriers to ship dies.

However, unreliable die inventory records and weak die inventory procedures and practices continued to be problems. An automated system the Mint uses to maintain its die inventory records contained inaccurate and untimely data. Die inventory procedures were weak in some areas and not followed in others. And therefore did not provide for the early detection of missing dies. The Mint again is taking actions in this area to improve its die inventory system and practices.

Third, the Mint's June 30, 1987 revenue and expense reports for its numismatic programs, which the subcommittee asked us to review, contained errors and were prepared using inconsistent cost accounting methods. The accounting problems we noted can affect the amount of profit reported for the numismatic programs. The Mint does not have a modern financial management system, a problem typical in Federal Government today. The Mint is not alone in this area. The Mint accounting system is decentralized and largely manual.

Since 1984, Treasury recognized the seriousness of the weaknesses in the Mint's system in its report to the President and the Congress under the Federal Managers' Financial Integrity Act. Efforts to develop a new automated cost accounting system have been problematic. Facing a target completion date of 1993 for a new system, the Mint has hired a public accounting firm and a management consulting firm to help in this effort.

Mr. Chairman, we find across Government this is a real challenge today, and the problems with developing a new system are not small. So they have made the initial steps.

In addition to addressing the limitations of its current cost accounting system, we found a need for the Mint to update its accounting policies and procedures, to better cover its numismatic programs, to increase the training of its cost accountants and to enhance supervisory controls over its financial operations. Actions are also underway to address these concerns.

Fourth, the Mint also needs to upgrade its funds control system by updating its policies and procedures and automating its funds control process. The current system, which is inefficient and outdated, is not adequate to help managers ensure that spending does not exceed approved funding levels. The Mint plans to have a new funds control system in place by this October.

In this context, we also see a need for the Mint to improve its capabilities to use financial information to improve decisionmaking.

Finally, and I will build a little bit on what Mrs. Pope has said, we see a need to reexamine the method used to finance the Mint's numismatic programs and have proposed the establishment of a revolving fund. The numismatic programs are operated much like a manufacturing business. They produce products for sale with over $400 million in gross revenues for fiscal 1988.

Typically, businesslike Government operations are financed by revolving funds. Combining numismatic and domestic coinage programs as is now the case distorts the reporting for both activities, and exempts the Mint from preparing financial reports required of other Government businesslike operations. The subcommittee's concern over the financial reporting for individual numismatic programs, which resulted in the request for our review, in our view could be largely eliminated in the future through the mandated preparation of annual financial statements as is required for other businesslike revolving operations in Government, and the provision for an independent annual financial audit.

Mr. Chairman, this concludes my summary remarks. The Mint faces challenges as it works to strengthen financial management for its numismatic programs. A number of important initiatives are underway today. We stand ready to work with the subcommittee as it considers the issues in our report, and we would be pleased to respond to any questions you or Members of the subcommittee may have at this time.

[The prepared statement of Mr. Steinhoff and GAO report can be found in the appendix.]

Chairman LEHMAN. Thank you very much for your testimony and thank you all for your work in this regard. I would like to first go to a comment the Director made about the procedures that you followed in terms of making Mint officials aware of your findings. In other words, I would like to know if they were provided with details of your findings; how recently you made them aware of them; and what kind of opportunity were they given to respond? Mr. STEINHOFF. OK. We met with Mint officials throughout the conduct of the review and discussed with them our findings. Our report recognizes a whole host of corrective actions the Mint is taking and improvements that are ongoing today. Typically when we do audits we get comments in one of two ways. Before a report is issued, we send it out for a formal comment period, and incorporate the agency's official comments. In other cases, the report is released and we get comments following its release.

In the case of this report, the Mint was not given an opportunity to provide formal written comments before the release, based on the request of the subcommittee.

Chairman LEHMAN. So the previous chairman of the subcommittee made that request?

Mr. STEINHOFF. Yes. We did, however, meet with Mint officials throughout the review. We had what we call exit close-out meetings, and we tried to reflect in our report the many actions they are taking with respect to our report.

Chairman LEHMAN. Are you satisfied that you have found all the problems that exist at the Mint?

Mr. STEINHOFF. You never really know that. We think we focused on the major problems and challenges the Mint faces in really improving the financial management for its numismatic programs. I think the key point is the real need to put a modern system in place. I mentioned in my summary remarks that the challenge the Mint faces in this regard is not atypical to the Federal Government as a whole.

Other agencies are grappling with the same type of problems. So the Mint needs an automated system in place. They need a cadre of trained accountants to get the job done, and perhaps a refocus, as the Director stated, on the nature and purposes of the numismatic programs. They are businesslike programs and we think they should be separately treated as such.

Chairman LEHMAN. I notice throughout the report references to procedures not being followed or to management being lax. It seems that the picture you have painted of the Mint is not that of a real "tight ship". Most of these problems seem not to have occured because there was some intent that they occur, but because they just did not get management attention. Is that an accurate characterization or can you take it any further?

Mr. STEINHOFF. I think it stems back to the fact that they did not have in place an adequate accounting system. They had a manually driven system, and you just invite problems when you have that type of system in place with the growth of the numismatic programs and with those placed on top of the domestic coin programs. They did not have up to date consistent policies and procedures to guide the folks at the various mints. But there were a myriad of problems.

Chairman LEHMAN. Of the problems you identify in the report, which is the most serious?

Mr. STEINHOFF. I would say the fact that they did not have a modern system in place because I think that kind of drives back some of the other problems. If I were to take the second cut of that, it would be the real need for a cadre of trained accountants to get the job done. In summary, the serious problems are the system, the policies and procedures and the need for a cadre of accountants.

Chairman LEHMAN. Are the efforts that the Mint is taking now in response to the problems you identified sufficient?

Mr. STEINHOFF. We believe the Mint has been very responsive in addressing the concerns, many of which they were aware of prior to our audit. The key now is to sustain those corrective actions to assure that at the end of the road they do have a viable system in place. We find across Government this is not an easy job.

They identified, themselves, in their Financial Integrity Act reports since 1984, the fact that they needed a new cost accounting system, and we are looking now at a 1993 timeframe for a new system. So we are looking at 9 years there. There must be some assurance that there is a sustained commitment if a new director comes in at any point in time, and that the necessary resources and oversight be sustained in this area.

Chairman LEHMAN. As a result of these inefficiencies have coin collectors been paying more than they needed to for the product?