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«AUDIT REPORT INVENTORY MANAGEMENT AND VALUATION, NATIONAL MAPPING DIVISION, U.S. GEOLOGICAL SURVEY REPORT NO. 96-I-1239 SEPTEMBER 1996 United States ...»

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U.S. Department of the Interior

Office of Inspector General

AUDIT REPORT

INVENTORY MANAGEMENT AND VALUATION,

NATIONAL MAPPING DIVISION,

U.S. GEOLOGICAL SURVEY

REPORT NO. 96-I-1239

SEPTEMBER 1996

United States Department of the Interior

OFFICE OF INSPECTOR GENERAL

Washington, D.C. 20240

MEMORANDUM

TO:

FROM:

Final Audit Report for Your Information - “Inventory Management and

SUBJECT SUMMARY:

Valuation, National Mapping Division, U.S. Geological Survey” (No. 96-I-1239) Attached for your information is a copy of the subject final audit report. The objective of the audit was to determine whether the U.S. Geological Survey: (1) was effectively managing and valuing its inventory of maps and books held for sale and (2) had adequate inventory valuation procedures to ensure that the balance for inventories held for sale in its financial statements for fiscal year 1995 was reliable and auditable.

We concluded that the Geological Survey was not effectively managing the production and storage of maps and books, primarily because it had not fully implemented all the recommendations contained in our September 1989 audit report on the National Mapping Division’s inventory and sales management. Specifically, the Geological Survey had not conducted physical inventories and updated inventory records, implemented an inventory reduction plan, formalized the methods for ordering maps, and established time requirements for processing printing requests. As a result, inventory records were inaccurate; excess maps and books were being printed and stored; and a large portion of the inventory was excess or obsolete, while other items were out of stock. We also concluded that the $83.7 million balance reported in the fiscal year 1994 financial statements for inventory held for sale could not be substantiated because: (1) the formula for computing the inventory balance contained errors; (2) the Geological Survey did not have accurate historical cost data; and (3) inventory records were inaccurate.

The Geological Survey concurred with all of our recommendations, which pertained to establishing and implementing an inventory reduction program, revised ordering and reordering procedures, controls to prevent out-of-stock conditions, methods for ensuring accurate inventories, and valuation procedures that were in compliance with applicable guidelines. Based on the Geological Survey’s response to our report, we considered all of the recommendations resolved.

If you have any questions concerning this matter, please contact me at (202) 208-5745 or Mr. Robert J. Williams, Acting Assistant Inspector General for Audits, at (202) 208-4252.

Attachment

–  –  –

Subject: Audit Report on Inventory Management and Valuation, National Mapping Division, U.S. Geological Survey (No. 96-I-1239 ) This report presents the results of our audit of inventory management and valuation at the U.S. Geological Survey’s National Mapping Division. The objective of the audit was to determine whether the Geological Survey: (1) was effectively managing and valuing its inventory of maps and books held for sale and (2) had adequate inventory valuation procedures to ensure that the balance for inventories held for sale in its financial statements for fiscal year 1995 was reliable and auditable.

We concluded that the Geological Survey was not effectively managing the production and storage of maps and books, primarily because it had not fully implemented all the recommendations in our prior audit report “Inventory and Sales Management, National Mapping Division, U.S. Geological Survey” (No. 89- 114). Specifically, the Geological Survey had not conducted physical inventories and updated inventory records, implemented an inventory reduction plan, formalized the methods for ordering maps, and established time requirements for processing printing requests. As a result, inventory records were inaccurate; excess maps and books were being printed and stored; and a large portion of the inventory was excess or obsolete, while other items were out of stock. We also concluded that the $83.7 million balance reported in the fiscal year 1994 financial statements for inventory held for sale could not be substantiated because: (1) the formula for computing the inventory balance contained errors; (2) the Geological Survey did not have accurate historical cost data; and (3) inventory records were inaccurate. Furthermore, we concluded that these deficiencies could not be corrected in time to provide a reliable inventory balance for the fiscal year 1995 financial statements.

We recommended that the Director, U.S. Geological Survey, establish and implement: (1) a comprehensive inventory reduction program; (2) ordering and reordering procedures based on sales history data; (3) controls to prevent out-of-stock conditions; (4) statistical methods for ensuring accurate inventory counts; and (5) valuation procedures in accordance with the Statement of Federal Financial Accounting Standard No. 3, “Accounting for Inventory and Related Property.” During our audit, we worked with Geological Survey officials to evaluate the current inventory management system and to develop solutions for correcting deficiencies identified.





As a result of these cooperative efforts, the Geological Survey has taken prompt action to improve the system. Subsequent to the completion of our review, an Inventory Management Improvement Team was established, which developed an action plan to correct the deficiencies identified. The plan includes provisions for establishing: (1) statistical sampling procedures for verifying the inventory records; (2) policies for stock levels and print run sizes; (3) a method to identify excess stock; (4) the use of print-on-demand capabilities; and (5) procedures for inventory reduction and product abandonment, which should significantly reduce the map inventory and make it more manageable. The Improvement Team has also developed a reasonable approach for valuing the map inventory. Based on our review of this plan and discussions with National Mapping Division officials, we believe that timely implementation of the plan should result in an effective inventory management system and ensure the reliability of the inventory and accounting records.

In the August 19, 1996, response (Appendix 4) from the Director, U.S. Geological Survey, the Geological Survey concurred with all the recommendations in the draft report. In addition, the Geological Survey provided additional comments, which we incorporated into the report as appropriate. Based on the response, we considered Recommendations A.3 and B. 1 resolved and implemented and Recommendations A. 1, A.2, and A.4 resolved but not implemented. Accordingly, the unimplemented recommendations will be referred to the Assistant Secretary for Policy, Management and Budget for tracking of implementation, and no further response to the Office of Inspector General is required (see Appendix 5).

The legislation, as amended, creating the Office of Inspector General requires semiannual reporting to the Congress on all audit reports issued, actions taken to implement audit recommendations, and identification of each significant recommendation on which corrective action has not been taken.

–  –  –

BACKGROUND

The mission of the National Mapping Division, U.S. Geological Survey, is to generate geographic, cartographic, earth science, and remotely sensed information. The Division disseminates this information to the public, state and local governments, depository libraries (such as the National Archives and selected universities), and Federal agencies.

This is accomplished through the Branch of Information Services, in Denver, Colorado;

the Geological Survey’s nine Earth Science Information Centers; and two information outlets operated by other Federal agencies. Some of the Geological Survey’s major customers include 64 state-operated Earth Science Information Centers and 1,700 Authorized USGS Business Partners, which purchase this information from the Geological Survey and sell or distribute it to the public. Approximately 150,000 types of maps, books, and open file reports and about 10 million aerial and space images are available for purchase. In fiscal year 1994, the Geological Survey sold about 4 million maps, totaling $5.6 million, to Federal and non-Federal customers.

The Division is composed of (1) a headquarters office in Reston, Virginia, which provides overall policy and direction for the mapping program, establishes prices for maps, and computes the inventory held for sale balance reported in the financial statements; (2) five regional mapping centers (located in Reston; Denver, Colorado; Sioux Falls, South Dakota; Rolla, Missouri; and Menlo Park, California), which collect and analyze data and produce related products; (3) the Mapping Applications Center in Reston, which performs the printing operations; and (4) the Earth Resources Observation Center in Sioux Falls, which produces and distributes aerial photography, satellite imagery, and digital products.

The Branch of Information Services, within the Regional Mapping Center in Denver, receives, warehouses, and disseminates domestic and foreign cartographic, geographic, and earth science data and products. The Branch also assists in the development and implementation of product distribution policies, pricing studies, and sales forecasts and analyses, and it markets maps, digital cartographic data, aerial photographs, and other map products. The Branch’s centralized distribution facility also serves as an agent for the Government Printing Office to sell Geological Survey books. The facility conducts overthe-counter and mail-order sales of books and maps and distributes these products at no cost to Federal depository libraries. The Division also charges the public and Federal, state, and local governmental agencies for its reproduction and distribution costs.

OBJECTIVE AND SCOPE

The objective of the audit was to determine whether the Geological Survey: (1) was effectively managing and valuing its inventory of maps and books held for sale and (2) had adequate inventory valuation procedures to ensure that the balance for inventories held for sale in its financial statements for fiscal year 1995 was reliable and auditable. Our review was limited to a review of the recorded inventory balances for fiscal year 1994 for maps ($74. 7 million) and books ($7.2 million), which did not include the post-closing adjustment amount of $1.8 million that increased the balance to $83.7 million on the financial statements. We did not review the recorded inventory balances for the Water Resources Division’s hydrologic equipment ($4 million) or the National Mapping Division’s CD-ROM inventory ($264,700).

Our audit was made, as applicable, in accordance with the “Government Auditing Standards, ” issued by the Comptroller General of the United States. Accordingly, we included such tests of records and other auditing procedures that were considered necessary under the circumstances. Our review of the Geological Survey’s map inventory valuation methodology included a comparison of the Geological Survey’s procedures with those required by the Statement of Federal Financial Accounting Standards Number 3, “Accounting for Inventory and Related Property. ” In addition, we reviewed the procedures used by the Geological Survey to conduct the fiscal year 1993 physical inventory and reviewed current production, distribution, sales, and inventory procedures by performing walk-throughs of these activities and reviewing related documentation. To determine the accuracy of the reported inventory balances, we reconciled the quantities reported in the Federal Financial Inventory System with an actual count of selected items.

Our audit included visits or contacts with officials in the offices listed in Appendix 1.

–  –  –

We also reviewed the Secretary’s Annual Statement and Report to the President and the Congress, required by the Federal Managers’ Financial Integrity Act of 1982, for fiscal years 1993 through 1995 to determine whether any reported weaknesses were within the objective and scope of our audit. The report for fiscal year 1993 identified the lack of an adequate system to support effective management of the inventory, ordering, and sale of maps and books as a material weakness. Although the report for fiscal year 1994 indicated that the material weakness had been corrected, our current review found that these deficiencies still existed. The fiscal year 1993 report also identified the Geological Survey’s failure to integrate financial management and accounting systems as material nonconformance with Federal accounting system requirements. According to the fiscal year 1995 report, the nonconformance issue was to be resolved by September 1996.

PRIOR AUDIT COVERAGE

During the past 6 years, the Office of Inspector General has issued four audit reports that identified issues relating to inventory management in the Geological Survey’s mapping

program:

- The report “Inventory and Sales Management, National Mapping Division, U.S.

Geological Survey” (No. 89-114), dated September 1989, concluded that the National Mapping Division was generally achieving its mission of producing maps but that it needed to improve the economy and efficiency of its operations. Specifically, the report stated that the Division had not established adequate inventory management procedures to efficiently control the ordering and storing of maps and books and was not maintaining adequate inventory records. Our current audit found that, while some progress had been made to correct these deficiencies, further improvements were needed.



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