Pass­port printer re­pays $51 mil­lion

In­ves­ti­ga­tion prompts re­fund

The Washington Times Weekly - - Politics - BY BILL GERTZ

The Gov­ern­ment Print­ing Of­fice has re­paid $51 mil­lion to the State Depart­ment for over­charges from the sale of mil­lions of blank pass­ports, ac­cord­ing to GPO of­fi­cials and in­ter­nal gov­ern­ment doc­u­ments.

Sev­eral checks to­tal­ing more than $51,169,837 were de­liv­ered to the depart­ment Sept. 19 by armed couri­ers from the fed­eral agency’s head­quar­ters on North Capi­tol Street, said the of­fi­cials, some of whom spoke on the con­di­tion of anonymity.

The re­pay­ment co­in­cided with a six-month in­ves­ti­ga­tion by GPO In­spec­tor Gen­eral J. An­thony Og­den that un­cov­ered im­proper ac­count­ing prac­tices by GPO fi­nan­cial man­agers. Ac­cord­ing to of­fi­cials and a draft IG re­port ob­tained by The Wash­ing­ton Times, GPO man­agers ap­par­ently sought to con­ceal the ex­ces­sive prof­its gen­er­ated by the pass­port sales by sharply rais­ing over­head costs from 2007 to 2008, an ac­tiv­ity de­scribed as “ques­tion­able” in the draft re­port.

The in­ves­ti­ga­tion be­gan in April af­ter the dis­clo­sure of the ex­ces­sive prof­its and other ques­tion­able ac­tiv­i­ties at the GPO that were first made pub­lic by The Times.

Ac­cord­ing to the GPO of­fi­cials and in­ter­nal doc­u­ments, the money re­turned to the State Depart­ment in­cludes $9.5 mil­lion that ex­ceeded the amount au­tho­rized by Congress for build­ing a backup pass­port pro­duc­tion fa­cil­ity in Mis­sis­sippi. Congress au­tho­rized the GPO to raise $41 mil­lion for the plant at NASA’s John C. Sten­nis Space Cen­ter. How­ever, the agency spent only $31.5 mil­lion.

The GPO of­fi­cials es­ti­mated that the GPO amassed as much as $180 mil­lion in prof­its by charg­ing an ad­di­tional $1.83 per pass­port on its sales to the State Depart­ment. Each pass­port con­tains an elec­tronic chip de­signed to make it more se­cure.

Sec­re­tary of State Con­doleezza Rice said in March that her depart­ment had launched an in­ves­ti­ga­tion into the over­charges. She told re­porters and ed­i­tors of The Times, “I hope GPO is giv­ing us the best deal they can.”

State Depart­ment spokesman Sean McCormack de­clined to com­ment on the re­turn of the over­charges. A depart­ment of­fi­cial, who spoke on the con­di­tion that he not be named, de­scribed the trans­fer as “a re­cov­ery,” a de­scrip­tion sim­i­lar to that used by the GPO.

The of­fi­cial said the re­fund will be used to fund new pass­ports but would not say whether the price of pass­ports, cur­rently about $100, would be low­ered.

The pri­vate ac­count­ing firm KPMG also is in­ves­ti­gat­ing GPO ac­count­ing prac­tices, the GPO of­fi­cials said. The in­ves­ti­ga­tion was de­scribed as a State­ment on Au­dit­ing Stan­dards No. 99: Con­sid­er­a­tion of Fraud in a Fi­nan­cial State­ment, or SAS 99.

A KPMG spokesman de­clined to com­ment on the probe.

Gary Som­er­set, a GPO spokesman, said in a state­ment that the $51 mil­lion was re­turned as the re­sult of an “over-re­cov­ery” of costs “be­cause the ac­tual quan­tity of pass­ports pro­duced ex­ceeded the orig­i­nal quan­tity used to de­ter­mine the price.”

The GPO, the fed­eral gov­ern­ment’s mo­nop­oly print­ing agency, be­gan ac­cu­mu­lat­ing large prof­its in re­cent years af­ter decades of fol­low­ing a fed­eral law that lim­ited the agency to op­er­at­ing on a break-even ba­sis.

Mr. Som­er­set said au­di­tors in the past have given the GPO “an un­qual­i­fied opin­ion about the con­di­tion of our books” and that “GPO ex­pects that again this year.”

Ear­lier this year, doc­u­ments and GPO of­fi­cials dis­closed that the print­ing agency made about $90 mil­lion in prof­its for fis­cal 2007 and an­other $90 mil­lion be­tween Jan­uary and June, far be­yond the $41 mil­lion au­tho­rized by Congress.

The draft GAO in­spec­tor gen­eral re­port states that the GPO pro­duced 18.6 mil­lion pass­ports and sold them for $14.80 per blank book­let to the State Depart­ment for $275 mil­lion, “in­clud­ing $71 mil­lion in net in­come.”

“Re­cently, Congress and the news me­dia have ques­tioned GPO re­gard­ing the le­gal­ity and rea­son­able­ness of the net in­come,” the re­port stated.

Ma­jor is­sues iden­ti­fied by the IG in­cluded a ten­fold rise in in­di­rect over­head costs for pass­ports, which in­creased from 5.6 per­cent, or $4 mil­lion in fis­cal 2007, to 52 per­cent, or $40 mil­lion, in fis­cal 2008.

The ex­ces­sive over­head had the ef­fect of re­duc­ing GPO’s os­ten­si­ble profit on pass­port sales from $111.6 mil­lion to $71.5 mil­lion, the re­port stated.

“Some sus­pect that this un­rea­son­able over­head ex­pense re­al­lo­ca­tion was an act to con­ceal pass­port prof­its,” said one GPO of­fi­cial, who spoke on the con­di­tion of anonymity. “If a com­mer­cial con­trac­tor di­verted funds of this mag­ni­tude from the gov­ern­ment, a crim­i­nal in­ves­ti­ga­tion would surely be un­der way.”

Other prob­lems iden­ti­fied in the re­port in­cluded a lack of a for­mal man­age­ment pol­icy at GPO on cost­ing, over­stated la­bor costs and mis­stated over­time costs.

GPO fi­nan­cial man­agers in­cluded in in­di­rect over­head costs the fund­ing of a ma­jor GPO dig­i­tal­iza­tion pro­gram. The re­port noted that “by in­clud­ing the costs of this project in the in­di­rect over­head cost pool, GPO is fund­ing over half of the cost of this project through pass­port sales” to the State Depart­ment.

How­ever, the man­ager for the project told the IG that he “could not con­firm that over half the project will ben­e­fit pass­port pro­duc­tion, stat­ing that the project had noth­ing to do with pass­ports.”

The re­port said GPO’s chief fi­nan­cial of­fi­cer “should doc­u­ment an ex­pla­na­tion of the change in in­di­rect over­head al­lo­ca­tion method­ol­ogy.”

Steve Shedd, the GPO chief fi­nan­cial of­fi­cer, could not be reached for com­ment. Mr. Som­er­set, the GPO spokesman, dis­missed ques­tions about Mr. Shedd’s ac­count­ing work as “un­founded ac­cu­sa­tions.”

Ear­lier this year, Pub­lic Printer Robert Tapella stated in writ­ten ques­tions and an­swers sub­mit­ted to the House Com­mit­tee on En­ergy and Com­merce that the GPO did not make ex­ces­sive prof­its on the sales of pass­ports to the State Depart­ment.

He said the money made from pass­ports was “cur­rently rec­og­nized as net in­come” that “is be­ing ded­i­cated to on­go­ing and/or an­tic­i­pated fu­ture cap­i­tal in­vest­ments to sup­port pass­port pro­duc­tion.”

The large prof­its at GPO co­in­cided with in­creased travel by GPO man­agers, bonuses and ex­ces­sive spending on ex­ec­u­tive perks, such as $10,000 spent on of­fi­cial pho­to­graphs for Mr. Tapella.

Other spending in­cluded travel by se­nior GPO of­fi­cials to ex­otic for­eign lo­ca­tions and nu­mer­ous do­mes­tic U.S. trips be­tween 2003 and 2007, to­tal­ing more than $50,000. Mr. Tapella led a 17-mem­ber GPO del­e­ga­tion to a con­fer­ence in Dus­sel­dorf, Ger­many, sev­eral months ago that cost more than $133,000.

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