BNUMBER:  B-276509   
DATE:  August 28, 1998 
TITLE: Government Printing Office - Treatment of Prompt Payment Discounts
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Matter of:Government Printing Office - Treatment of Prompt Payment 
Discounts

File:     B-276509

Date:     August 28, 1998

DIGEST

The Government Printing Office (GPO) may use the prompt payment 
discounts received from commercial printers in connection with 
printing ordered by federal agencies to offset its indirect costs 
instead of crediting the discounts directly to the ordering agencies.  
GPO charges its customers the full invoice price on procured jobs, and 
uses any prompt payment discounts received from commercial printers to 
offset its indirect costs.  This has the effect of reducing GPO's 
surcharge on procured printing used to recover the indirect costs of 
procured printing.  Since
44 U.S.C.  sec.  309(b) requires only that GPO charge at rates that cover 
its costs, GPO has the discretion to use prompt payment discounts to 
reduce its surcharges on procured printing applicable to all its 
customers of procured printing instead of passing on specific 
discounts to specific customers.

DECISION

The Chief Financial Officer of the Internal Revenue Service (IRS) at 
the Department of the Treasury asks whether the Government Printing 
Office (GPO) must pass on prompt payment discounts received from 
commercial printers directly to agencies ordering printing from GPO or 
whether GPO may use the discount to offset indirect costs that it 
recovers through a surcharge applied to all procured printing.  We 
conclude that GPO is not required to pass on prompt payment discounts 
received from commercial printers directly to federal agencies 
ordering printing from GPO.  Instead, GPO may apply the discount to 
offset indirect costs and thereby reduce the surcharge used to recover 
indirect costs for all procured printing.

Background

All printing for the Government generally must be done by GPO.  44 
U.S.C.  sec.  501 (1994).  When GPO is not able or equipped to provide 
printing services, it procures printing under 44 U.S.C.  sec.  502.  Under 
the terms of its contracts, GPO may receive discounts from printing 
contractors for paying the invoiced amount within a designated period.  
The revolving fund for departmental printing covers the payment of the 
invoiced amount of procured printing less any applicable prompt 
payment discounts.  See 44 U.S.C.  sec.  309(b).  To reimburse the 
revolving fund, GPO charges its customers for procured printing based 
on the full invoice price charged by printing contractors (regardless 
of whether it receives the contractors' discounts for prompt payment) 
plus a six percent surcharge to cover the indirect costs associated 
with procured printing.[1]  GPO treats prompt payment discounts up to 
five percent as an offset against its indirect costs, in effect 
reducing the surcharge it would otherwise charge its customers of 
procured printing.  GPO treats any discount in excess of five percent 
as a trade discount that it passes on directly to the customer agency. 
 
GPO does not function as an agent of its customers.  Rather, GPO is 
the source of printing and related services and supplies for the 
Government.  44 U.S.C.  sec.  501 (1994).  With limited exception, GPO's 
customers do not have the authority to procure directly the printing 
that GPO is unable to provide.  See 44 U.S.C.  sec.  504 (1994).  GPO's 
customer has no contractual relationship with the printing contractor 
and no influence over the terms of the contract.  Further, the 
ordering agency has no control over GPO's ability or inability to pay 
the contractor within the designated period. 

According to the submission, IRS ranks as GPO's second largest 
customer, obtaining large amounts of printing each year from GPO.  The 
IRS estimates that under GPO's current policy with respect to prompt 
payment discounts, it loses over $1 million from discounts not being 
passed on to it.[2]  The IRS asserts that GPO has no authority to 
retain prompt payment discounts received from commercial printers in 
connection with IRS printing and that such a policy violates various 
statutory and other legal principles.
   
Analysis

GPO's Authorizing Statutes

GPO's recovery of its printing costs is statutorily based.  Section 
309, title 44, United States Code directs that GPO's revolving fund 
for departmental printing "shall be reimbursed for the cost of all 
services and supplies furnished . . . at rates which include charges 
for overhead and related expenses . . . ."  In addition,         44 
U.S.C.  sec.  310 requires an ordering agency to pay GPO, upon its written 
request, all or part of the estimated or actual cost of the delivered 
work, and GPO to adjust its billing on the basis of actual cost when a 
customer pays for delivered work in advance.  The IRS asserts that 
when reading these two provisions together, the most logical 
interpretation is that GPO must base its charges on its actual costs 
to the maximum extent possible and that allocations for indirect costs 
are limited to costs such as overhead which cannot be specifically 
attributed to work GPO does for any specific agency.  Since GPO knows 
the amount of prompt payment discounts and the work they are 
attributable to, IRS asserts that there is no reason to treat them as 
overhead or any other allocable amount.  

The essence of IRS' argument is that GPO's authorizing statutes 
require it to charge a price for each job that recovers only the 
direct and indirect cost of that job, and that as a matter of law, GPO 
must treat a prompt payment discount as a reduction in direct costs.  
We disagree.  

Nothing in sections 309(b) and 310 explicitly requires GPO to charge a 
customer a price that reflects only the precise costs GPO incurred to 
fill that customer's specific order.  GPO maintains, and we have no 
basis to disagree, that by charging its customers the full invoice 
price on procured jobs and using the retained discounts to reduce its 
surcharge on procured printing, GPO recovers the direct and indirect 
costs of procured printing at rates that reflect those costs as 
section 309(b) requires.  Since section 309(b) requires only that GPO 
charge at rates that cover its costs and GPO's current practice 
satisfies this requirement without violating any specific statute, we 
have no basis legally to object to GPO's exercise of its discretion. 

Although GPO can determine which customer's contract received a prompt 
payment discount, GPO does not view the discount as directly related 
to any individual customer's specific order.  Rather, GPO views the 
discount as a product of efficiencies in its operations that should be 
credited to reduce its indirect administrative costs.  Accordingly, 
GPO uses the discounts received to offset indirect costs that it 
recovers through a surcharge applied to all procured printing.  A 
specific customer has no control over whether GPO acquires a discount 
and, arguably, should not be the sole beneficiary when GPO does so.  
We do acknowledge that there are alternative ways to account for these 
discounts.  However, given GPO's discretion on how to recover its 
costs, we do not believe that GPO's current practices violates its 
authorizing statutes.

Other Legal Principles

The IRS also asserts that GPO's current handling of the discounts is 
contrary to generally accepted accounting principles for the federal 
government.  Specifically, the IRS asserts that since GAO's Policy and 
Procedures Manual requires recording the acquisition cost of assets, 
net of purchase discounts, GPO, for purposes of billing agencies, 
should similarly determine the cost of the contract printing.  See 
Policy and Procedures Manual for Guidance of Federal Agencies, title 
2, App. I, Accounting Principles and Standards (TS 2-24, Oct. 31, 
1984).  There is nothing in the accounting standard that compels GPO 
to exercise its discretion in the manner suggested by IRS.  Nor do we 
see why GPO's current handling of discounts is contrary to the 
accounting standard since IRS remains free to record the cost of 
assets acquired at net or not of purchase discounts in accordance with 
GAO's Policy and Procedures Manual.

Finally, the IRS asserts that GPO's current handling of the discounts 
violates appropriations law because the retention of the discounts in 
the GPO revolving fund improperly augments either the GPO revolving 
fund, a permanent indefinite appropriation, or other ordering 
agencies' appropriations.  According to IRS, the use of prompt payment 
discounts attributable to the contract printing done for large volume 
customers subsidizes printing for smaller volume customers and thus 
improperly reallocates the appropriations of GPO's large volume 
customers to its low volume customers.  

We disagree for the very same reasons that we disagreed with IRS' 
assertion that GPO could not treat the prompt payment discounts as a 
reduction of indirect costs.  In our view, GPO's policy results in 
consistent billings to different customers for the same or similar 
product while satisfying its statutory obligations to recover its 
direct and indirect costs.  IRS' argument focuses on only one part of 
GPO's method of recovering indirect costs and ignores the benefits 
that such method provides large volume customers.  For example, IRS' 
assertion does not recognize that GPO caps the surcharge for each 
standard order at $15,000.  As a result, the effective rate for a 
standard order in excess of $250,000 will be less than the nominal 
rate of six percent.  IRS also ignores whatever additional indirect 
costs GPO may incur as a result of handling large volume customers.  
Accordingly, we would not view GPO's approach as significantly 
augmenting one agency's appropriation at the expense of another's. 

Conclusion

For the reasons stated above, GPO's decision not to pass on prompt 
payment discounts received from commercial printers directly to 
federal agencies ordering printing from GPO does not violate any 
specific statutory or other legal principle.   Therefore, GPO may 
continue to use prompt payment discount to offset indirect costs and 
reduce the surcharge that it applies to all procured printing to 
recover indirect costs.

Comptroller General 
of the United States

1. Rush orders are subject to a nine percent surcharge.

2. IRS' assertion does not appear to account for the reduced surcharge 
it pays as a result of GPO offsetting its indirect costs by the prompt 
payment discounts it receives.