BNUMBER:  B-271127.2
DATE:  January 30, 1997
TITLE:  [Letter]

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B-271127.2

January 30, 1997

Mr. Winston Tabb
Associate Librarian
Library of Congress

Dear Mr. Tabb:

In its report on the financial statement audit of the Library of 
Congress for fiscal year 1995, Price Waterhouse identified an 
outstanding legal issue regarding the Library's retention of certain 
monies incident to its operation of the Cooperative Acquisitions 
Program.  The program had an approximate ending balance on September 
30, 1995, of $1.6 million, of which approximately $1 million was a 
liability representing the refund that would have been due if every 
participant had cancelled their requests as of the date of the ending 
balance.  The Library asserts that the remaining $600,000 was not a 
surplus but a reserve for shutdown costs to cover separation benefits 
for affected employees should the program close down, as well as any 
other unexpected contingencies.  Price Waterhouse referred the issue 
of whether the Library should retain the $600,000 to our Office for 
further development and resolution.

We obtained the Library's views on the matter.  Based on our analysis 
of the Library's authority and applicable principles of appropriations 
law, the Library should deposit in the Treasury as miscellaneous 
receipts the monies that the Library has received incident to the 
Cooperative Acquisitions Program, but does not need to fulfill its 
responsibilities to the program participants who paid such monies.

Background

The Cooperative Acquisitions Program evolved from two programs that 
began under separate authorities.  In 1958, Pub. L. No. 85-931, 72 
Stat. 1790, amended section 104n of the Agricultural Trade and 
Assistance Act of 1954, Pub. L. No. 83-480, 68 Stat. 454, 456, to make 
excess foreign currencies the United States was earning from its 
overseas sales of surplus agricultural commodities available to the 
Library for certain purposes.[1]  Overseas offices were created to use 
the foreign currencies to finance programs outside the United States 
for, among other things, the acquisition of new books, periodicals, 
and other materials for the Library as well as other libraries and 
research centers in the United States.  In 1965, Title II-C of the 
Higher Education Act, Pub. L. No. 89-329, 79 Stat. 1219, 1228, 
authorized appropriations for what became known as the National 
Program for Acquisitions and Cataloging (NPAC) at the Library.[2]  
Under NPAC, the Library received appropriated funds[3] to, among other 
things, acquire library materials to use for exchange or other 
purposes.  The Library set up Regional Acquisition Centers for the 
purposes of carrying out NPAC.  In 1976, Pub. L. No. 94-482, 90 Stat. 
2081, 2090, amended the Higher Education Act to eliminate the 
provision authorizing appropriations to the NPAC program.  Congress 
eliminated the provisions relating to NPAC "with the understanding 
that [NPAC], which has benefited users of libraries all across the 
country, is to be carried on by the Library of Congress."  S. Rep. No. 
882, 94th Cong., 2nd Sess. 8 (1976).  That understanding stems from 
the Library assuring Congress that NPAC "can be continued under the 
Library's own authority and that [NPAC's] reauthorization in the 
Higher Education Act is no longer needed."  Id.  Congress continued 
for fiscal year 1977 through fiscal year 1983 to explicitly include 
NPAC in the Library's appropriation for salaries and expenses.  
Beginning with fiscal year 1984, the Library did not receive 
appropriated funds specifically for NPAC.

As the Library stated in its July 15, 1996, submission to our office, 
when the overseas field offices depleted at the end of 1987 the 
foreign currencies that were available for purchases for other 
research libraries, the Library began requiring these institutions to 
pay for their purchases directly[4].  In 1990, Pub. L. No. 101-624, 
104 Stat. 3359, 3635, amended section 104n of the Agricultural Trade 
Development and Assistance Act by eliminating the provision regarding 
the use of foreign currencies for the Library's purposes.

The current program, the Cooperative Acquisitions Program, sometimes 
referred to as the Overseas Participant Program, is in effect a 
successor to the NPAC funded by appropriations and the program 
financed with foreign currencies.  The current program funds the 
administration of the program with Library appropriations and the 
materials with payments by participating libraries.  Annually, the 
Library identifies the services it provides to the participating 
libraries in its budget justification for the Library's 
appropriations.  Over the years, as the program changed so did the 
Library's description in its budget justifications.  Prior to fiscal 
year 1988, the Library included a description of the Special Foreign 
Currency Program under the heading "Collection and Distribution of 
Library Materials," as well as a description of the acquisition of 
foreign research materials for participating libraries through the 
Library's overseas offices in its explanation of "Trust Funds" 
financial and activities status.  In fiscal years 1988 through 1995, 
the Library pointed out that the foreign currencies it had been using 
for the program were no longer available, but that the program 
continued through the Library's salaries and expenses appropriations.  
In fiscal year 1996 and thereafter, the Library described the program 
exclusively in its explanation of Trust Funds activities.      
  
The Library has six overseas field offices operating the Cooperative 
Acquisitions Program.[5]  Briefly, the current program operates as 
follows.  The Library sends potential participants, usually a 
university or a library, a categorical listing of materials that the 
Library has the ability to purchase, along with the costs it will 
charge the participants for such materials plus their share of the 
program's administrative expenses.  See Library of Congress 
Cooperative Acquisitions Programs Brochure, September, 1992.  The 
charge for participation is broken down into both direct costs (direct 
materials, shipping, and binding), and indirect costs (administrative 
charges and overhead) based on a percentage of direct costs.[6]  A 
participant will then submit to the Library a subject profile 
detailing its request for the Library to purchase particular 
collection materials on its behalf, along with a check for the 
appropriate amount.  Upon the Library's receipt of the money charged, 
the Library deposits the money into a fund account.  The program is 
operated through six funds, one for each of the six field offices 
involved.  The monies associated with these six funds are deposited 
into one Treasury gift fund account, which also holds the Library's 
gift funds.  Although the Library deposits the monies associated with 
the program into a gift fund account, there is agreement that the 
monies involved in this program do not represent "gifts".  

Analysis

As explained in the background, Congress clearly wanted the Library to 
continue to acquire Library materials abroad for other libraries and 
research centers notwithstanding the expiration of the underlying 
statutory authorities financing the program.  What Congress did not 
address is how the Library should finance the program.  Historically, 
Congress had financed with public funds all costs associated with the 
program.  When the overseas field offices depleted the foreign 
currencies and Congress eliminated appropriations to support the 
program, the Library started to charge ordering institutions for 
acquiring the requested materials and so advised the Congress.  In 
view of the history of the Cooperative Acquisitions Program, we do not 
question the Library's authority to operate and charge participants 
for the costs associated with operating the program.  Rather, the 
issue is the Library's treatment of the monies it receives from the 
participants.  

The Library asserts that the prices it charges participants in the 
Cooperative Acquisitions Program stem from a cost recovery model 
designed to determine the Library's cost in providing goods and 
services.  Prices and costs are subject to many variables and matching 
them is not something that can be achieved with exact precision.  It 
is therefore not surprising that in some years the Library may receive 
funds that exceed the amount needed to satisfy the purchase requests 
of program participants; in other years the Library may receive less 
than the amount needed to fulfill its responsibilities to program 
participants.   

In the abstract, there are at least two ways to deal with such a 
situation.  One approach would be to address each participant 
separately.  Monies left over after paying the direct costs incurred 
to satisfy a participant order would be deposited in the Treasury; the 
Library's indirect costs would be covered by its regular salaries and 
expense appropriation and, should an unexpected contingency arise, a 
shortfall would be financed by an appropriation available for that 
purpose.  Another approach would be to ignore individual participants 
and fiscal years and treat the Cooperative Acquisitions Program as a 
continuing, business-like operation in which all monies received are 
retained by the Library for all present direct and indirect costs as 
well as contingencies.      

In operating government programs, an official or agent of the 
Government receiving money for the use of the Government from any 
source is required, absent authority to the contrary, to deposit the 
money in the Treasury as miscellaneous receipts.  31 U.S.C.  sec.  
3302(b)(1994).  When a program participant pays the Library to 
purchase materials on the participant's behalf, the Library's initial 
relationship to the monies received is essentially that of a bailee, 
i.e., the Library holds the money not for the government but for the 
benefit of the program participant.  Once the Library uses the money 
to pay the direct charges associated with satisfying the Library's 
responsibilities to the program participant, e.g., purchasing the 
materials ordered and having them delivered to the participant, any 
remaining money in effect represents the portion of the price 
attributable to the Library's indirect costs and contingencies and as 
such benefits the government by reimbursing its costs.  Therefore, in 
the words of 31 U.S.C.  sec.  3302(b), the remaining money is "money 
received for the Government" to be deposited in the Treasury.

When Congress wants an agency to retain and use program receipts to 
pay agency expenses, it enacts legislation providing the agency the 
necessary authority to avoid the application of 31 U.S.C.  sec.  3302(b), 
often by establishing a revolving fund.  There is no statute that 
provides the Library with such authority.  The Library has suggested 
no legal basis for concluding that the Cooperative Acquisitions 
Program is not subject to 31 U.S.C.  sec.  3302(b), or that money the 
Library receives from participants that is not used to pay direct 
charges for participants' purchases may be retained by the Library to 
pay indirect costs or future contingencies. 

Conclusion

In conducting the Cooperative Acquisitions Program, the Library does 
not have revolving fund or similar authority exempting it from the 
requirements of 31 U.S.C.  sec.  3302(b) with respect to the money it 
receives from program participants.  Accordingly, any money the 
Library has received from program participants that is not needed to 
pay the direct charges associated with satisfying the Library's 
responsibilities to the participants should be deposited into the 
Treasury as miscellaneous receipts.[7]  The Library should determine 
what portion of the current balance for the Cooperative Acquisitions 
Program is not needed to pay the direct charges and satisfy its 
responsibilities to program participants.

We are sending a copy of this letter to the Chair and Ranking Minority 
Members of the Joint Committee of the Library and Congress; House and 
Senate Subcommittees on the Legislative Branch, Committee on 
Appropriations; the House Committee on House Oversight; and the Senate 
Committee on Rules and Administration.

Sincerely yours,

Robert P. Murphy
General Counsel

B-271127.2

January 30, 1997

DIGEST

The Library of Congress does not have revolving fund or similar 
authority in conducting its Cooperative Acquisitions Program.  
Accordingly, when the Library receives money from program participants 
in excess of the amount the Library needs to pay the direct cost 
associated with satisfying the Library's responsibilities to the 
participants, the Library must treat the excess money consistent with        
31 U.S.C.  sec.  3302(b), which requires that absent statutory authority to 
the contrary, money received by the government must be deposited in 
the Treasury as miscellaneous receipts.

1. Codified at 7 U.S.C.  sec.  1704 (1958), "Use of local currency 
payment."

2. Codified at 20 U.S.C.  sec.  1041 (1970), "Research library resources."

3. From 1966 until 1972, the Library received funding from transfers 
from the Department of Health, Education and Welfare for NPAC.  For 
fiscal years 1973 through 1983, the Library directly received funds 
for this program as part of its appropriation for salaries and 
expenses.

4. See also, e.g., Legislative Branch Appropriations for 1984: 
Hearings before a Subcomm. of the House Comm. on Appropriations, 98th 
Cong., 1st Sess. 346-363 (1983).

5. These overseas offices also engage in activities unrelated to the 
Cooperative Acquisitions Program.  According to Library officials, 
approximately 20 percent of these overseas offices time represents 
work for the program.

6. The Library states that it has used for the past 3 years a cost 
recovery model developed under contract by Price Waterhouse.  The 
model is based on the principle of incremental cost recovery using 
activity-based costing to determine administrative (indirect & 
overhead) charges allocated to the participant program and express the 
amount to be recovered as a percentage of each dollar expended in 
direct expense for the purchase of materials.

7. This conclusion is consistent with our earlier views on the 
Library's use of certain gift funds in excess of its authority to 
accept and use gifts.  Library of Congress' Revolving Trust Funds, 
FGMS-80-76, September 24, 1980; Financial Audit: First Audit of the 
Library of Congress Discloses Significant Problems, GAO/AFMD-91-13, 
August, 1991.  In the cited audit reports we reported that absent a 
statute providing revolving fund authority, the Library was not 
authorized to set charges for goods or services provided through 
self-sustaining gift funds which (1) enlarge the funds beyond the 
scope of the donor's gifts, (2) produce revenues for other activities, 
or (3) create a substantial surplus.  Regarding the Cooperative 
Acquisitions Program, the Library similarly does not have a statute 
authorizing a revolving fund to retain funds and pay Library expenses 
otherwise paid for with appropriated funds.  As such, the Library is 
only authorized to accept the amount representing the direct costs of 
the materials and any amount exceeding the costs for the direct 
materials should be deposited into the Treasury.