Library of Congress: Status of Retail Activities (29-APR-02,	 
GAO-02-554R).							 
                                                                 
This report evaluates the use of profits from the Library of	 
Congress' retail activities to support other Library activities. 
GAO found that the Library has not yet developed an overall plan,
specific business plans, pricing policies, or the accounting	 
procedures to generate	profits to support other activities.	 
Although it has policies and procedures to control the use of its
logo, the Library has not yet defined the scope and mission of	 
the retailing functions, control of products, or licensing	 
agreements. The Library's three major retail activities--the	 
Photoduplication Service, the Gift Shop, and the Audio Video	 
Laboratory--have not consistently generated profits or covered	 
all costs for the last five years. In each case, the activity's  
total expenses exceeded its total revenues. GAO found that the	 
Library is not able to conduct a study on generating profits from
the its retail activities to support other Library activities or 
evaluate options.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-554R					        
    ACCNO:   A03169						        
  TITLE:     Library of Congress: Status of Retail Activities	      
     DATE:   04/29/2002 
  SUBJECT:   Financial analysis 				 
	     Internal controls					 
	     Profits						 
	     Retail facilities					 


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GAO-02-554R
     
GAO- 02- 554R Library of Congress Retail Activities

United States General Accounting Office Washington, DC 20548

April 29, 2002 The Honorable Richard J. Durbin Chairman The Honorable Robert
F. Bennett Ranking Minority Member Subcommittee on the Legislative Branch
Committee on Appropriations United States Senate

The Honorable Vernon J. Ehlers Chairman The Honorable Christopher J. Dodd
Vice Chairman Joint Committee on the

Library of Congress Subject: Library of Congress: Status of Retail
Activities The Senate Committee on Appropriations directed us to evaluate
the viability of using profits from the Library of Congress? retail
activities to support other Library activities. 1 Specifically, we were
asked to evaluate the (1) potential for generating profits from Library
retail activities and (2) policies and procedures for the control of
products, licensing agreements, and use of the Library?s logo. Also, we were
asked to work in consultation with the Library to evaluate options and
alternatives for generating profits from retail activities.

During the preliminary stages of our study, we determined that the Library?s
planning activities were in a very preliminary state. Therefore, we agreed
with your staff on the following objectives for our work: (1) determine the
status of the Library?s plans to achieve the goal of operating these retail
activities for profit, including whether it has developed business plans,
implemented accounting procedures, conducted marketing studies, and
developed pricing policies for its retail operations, (2) identify the
Library?s current policies and procedures for the control of products,
licensing agreements, and use of the Library?s logo, and (3) analyze past
financial performance of Library retail activities for profit potential.

In February and March, 2002, we briefed staff of the Subcommittee on the
Legislative Branch, Senate Committee on Appropriations, and the Joint
Committee on the

1 Senate Report 107- 37, accompanying Public Law 107- 68, Legislative Branch
Appropriations Act, 2002.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 2 Library of
Congress on the results of our review. This letter transmits our final

briefing document, which is presented as enclosure I, and the Library
comments which are reprinted in enclosure II.

Based on our review, we determined that the Library (1) has not yet
developed an overall plan, specific business plans, pricing policies, or the
accounting procedures that it would need to achieve the goal of generating
profits to support other Library activities and (2) while it has policies
and procedures to control the use of its logo, the Library has not yet
developed policies and procedures covering the scope and mission of the
retailing functions, control of products, or licensing agreements.

Over the past 5 years, the Library?s three major retail activities, the
Photoduplication Service, the Gift Shop, and the Audio Video Laboratory,
have not consistently generated profits or covered all costs. In each case,
the activity?s total expenses for the 5- year period, exceeded its total
revenues for the period.

We concluded that the Library lacks the basic business plans and accounting
procedures for evaluating its current retail operations and measuring costs
and profitability. Such information would serve as the basis for developing
the Library?s plans for identifying opportunities and alternatives for how
it would achieve the goal of generating profits to support other activities.
Because of the above factors, the Library is not yet in a position to
conduct a study to evaluate the viability of generating profits from the
Library?s retail activities to support other Library activities or evaluate
options.

In order to develop the information and tools needed for evolving from its
current retail operations to one that will generate profits to support other
Library activities, we recommend that the Librarian of Congress

 develop an overall plan for generating profits from retail activities to
support other Library activities,

 develop business plans for the operations of its current and future retail
activities,

 develop accounting procedures to measure cost and profitability for its
retail activities,

 establish pricing policies,

 develop overall policies defining the scope and mission of the its retail
activities, and

 conduct marketing studies or analyses to identify markets and products
that will help it achieve the goal of generating profits from its retail
sales to support other Library activities.

We provided the Associate Librarian for Library Services a draft of our
briefing document for review and comment. The Associate Librarian, in his
written comments on the draft (see enclosure II) concurred with our
recommendations, which he characterized as needed to enhance the business
foundation of the Library?s retail operations prior to embarking on a
program of growth in the its retail operations. The Associate Librarian also
expressed concern that our report did not give more attention to the actions
that the Library has taken to date to set the stage

GAO- 02- 554R Library of Congress Retail Sales Activities Page 3 for the
development of its retail enterprises. He listed the following six actions
the

Library has taken to date:

 realigning the expense base to secure a sound financial footing for the
Photoduplication Service and Retail (Gift) Shop by eliminating 34 positions
within the past 9 months,

 completing the first draft of a business planning and marketing strategy
for the Photoduplication Service,

 establishing a full- time position of Marketing Services Coordinator,

 dedicating two senior staff members and designating five transition
working groups to the process of business planning and transition,

 beginning discussions with an outside consultant experienced in launching
e- commerce enterprises, and

 developing a preliminary e- commerce strategy including initiating a
relationship with Treasury in order to establish a sound mechanism for on-
line payments.

Although the above actions on the part of the Library of Congress are
related to its retail activities, in our opinion, they represent preliminary
efforts involving specific aspects of those activities. The Associate
Librarian agrees that the Library still needs to develop the fundamental
business plans; policies and procedures, including accounting procedures;
and marketing studies described in our recommendations to provide the basis
it needs for identifying and evaluating alternatives and options as well as
operating its activities to generate profits that could be used to support
other library activities.

___ ___ ___ ___ In conducting our study, we interviewed Library officials
responsible for each of the Library?s three major retail activities and
officials from Library Services, the Library?s Office of General Counsel,
and the Library?s Financial Management Services, and we reviewed related
documents, including agency memorandums, financial data, business planning
documentation and studies, Library policies and procedures, and Library
inspector general audit reports. We conducted our study in accordance with
generally accepted government auditing standards.

We are sending copies of this letter to the chairmen and ranking minority
members of the House Committee on Government Reform, the Senate Committee on
Governmental Affairs, and the Subcommittee on Legislative, House Committee
on Appropriations. We are also sending it to the Librarian of Congress. This
letter will also be available on GAO?s home page at http:// www. gao. gov.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 4 If you or
your staff have any questions concerning this letter or the briefing, please

contact me at (202) 512- 9471, or by e- mail at franzelj@ gao. gov, or Ben
Smith, Project Manager at (202) 512- 9196 or by e- mail at smithbw@ gao.
gov. Key contributors to this report were Robert P. Preshlock Jr. and
Jacquelyn N. Hamilton.

Jeanette M. Franzel Acting Director Financial Management and Assurance

Enclosures

GAO- 02- 554R Library of Congress Retail Sales Activities Page 5 Enclosure
I: Briefing for the Subcommittee on the Legislative Branch, Senate

Committee on Appropriations, and the Joint Committee on the Library of
Congress

1 Financial Management and Assurance Team

Library of Congress: Status of Retail Activities

Briefing for the Subcommittee on the Legislative Branch, Senate Committee on
Appropriations, and the Joint Committee on the Library of Congress

GAO- 02- 554R Library of Congress Retail Sales Activities Page 6

2 Briefing Overview

*Background  Objectives  Scope and Methodology  Results in Brief 
Results  Conclusions  Recommendations  Agency Comments

GAO- 02- 554R Library of Congress Retail Sales Activities Page 7

3 Background

 The Library of Congress operates its three major retail activities as
revolving funds, which generate revenue, in part, by selling goods and
services to the public.

 According to Library officials the Photoduplication Service, the Gift
Shop, and the Audio Video Laboratory are the Library?s three major retail
revolving fund activities.

 The Photoduplication Service provides microfilming, photographic,
photocopy, and digital services and products for the Library and the general
public.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 8

4 Background

 The Gift Shop purchases and develops products that are related to the
Library or its collections and sells these products through its store( s) to
patrons of the Library.

 The Audio Video Laboratory assists in the replication and conservation of
recorded sound and moving images for the Library and the public.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 9

5 Background

 For these activities,

 fees charged for goods and services are deposited into their respective
revolving funds,

 receipts must be used for the purposes for which the funds were
established, and

 each revolving fund is expected to break even over time, meaning it could
have profits or losses in any given year, but is expected to break even in
the long run.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 10

6 Background

 The Library has in the past requested authority to use profits from its
retail activities for other Library activities.

 The use of profits from retail sales for other Library activities could
require new legislative authority.

 The Senate Committee on Appropriations directed us to evaluate the
viability of using profits from the Library?s retail sales activities to
support other Library activities. (See Senate Report 107- 37 accompanying
Public Law 107- 68, Legislative Branch Appropriations Act, 2002.)

GAO- 02- 554R Library of Congress Retail Sales Activities Page 11

7 Objectives

Specifically, in the Senate report, GAO was directed to

 evaluate the potential for generating profits from Library retail
activities;

 evaluate the policies and procedures for the control of products,
licensing agreements, and use of the Library?s logo; and

 work in consultation with the Librarian of Congress in evaluating options
and alternatives.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 12

8

 As we began our work, we discovered that the Library?s planning activities
for generating profits from its retail activities were in a very preliminary
state. Therefore, we agreed with the committee staff on the following
objectives for our work:

 determine the status of the Library?s plans to achieve the goal of
generating profits from its retail activities to support other Library
activities, including whether the Library has developed business plans,
implemented cost accounting procedures, conducted marketing studies, and
developed pricing policies for its retail operations;

Objectives

GAO- 02- 554R Library of Congress Retail Sales Activities Page 13

9 Objectives

 identify current policies and procedures for the control of products,
licensing agreements, and use of the Library's logo; and

 analyze the financial performance of selected Library retail activities to
determine if, in the past, they have demonstrated a potential for profit.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 14

10 In conducting our study, we

 interviewed Library officials responsible for each of the Library?s three
major retail activities and officials from Library Services, the Library?s
Office of General Counsel, and the Library?s Financial Management Services
and

 reviewed related documents, including agency memorandums, financial data,
business planning documentation and studies, Library policies and
procedures, and Library inspector general audit reports. Scope and
Methodology

GAO- 02- 554R Library of Congress Retail Sales Activities Page 15

11 Scope and Methodology

 We conducted our work from October 2001 through March 2002 in accordance
with generally accepted government auditing standards.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 16

12 Results in Brief

 Status of Library?s Plans: The Library has not yet developed an overall
plan, specific business plans, pricing policies, or the business tools it
needs to achieve the goal of generating profits to support other Library
activities.

 Policies and Procedures: The Library has not developed policies and
procedures covering the scope and mission of the retailing functions,
control of products, or licensing agreements. The Library does have policies
and procedures to control the use of its logo.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 17

13 Results In Brief

 Financial Performance: Over the past 5 years, the three major retail
activities we reviewed have not consistently generated profits or covered
all costs over time.

 Recommendations: We are making recommendations to help ensure that the
Library develops the information and tools needed to (1) evaluate current
retail operations and (2) plan for generating profits from these operations
to support other Library activities.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 18

14 Results In Brief

Agency comments: The Associate Librarian for Library Services, in responding
to a draft of our briefing document

 stated that he concurred with our recommendations, which he characterized
as needed to enhance the foundation of the Library?s

retail operations prior to embarking on a program of growth for its retail
activities, and  expressed concern that we did not give more

attention in our briefing to actions taken to date to set the stage for the
development of the Library?s retail enterprises.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 19

15 Results In Brief

 In our view, the Library?s actions taken to date represent preliminary
efforts involving specific aspects of its retailing. The Associate Librarian
agreed that the Library still needs to develop the fundamental policies,
procedures, and plans for developing its retail operations.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 20

16 Results: Status of Library Plans

 The Library has not fully developed a plan for achieving the goal of
generating profits from its retail activities to support other Library
activities. For example, Library management has not determined (1) the range
of products that potentially could be sold, (2) whether such retail
activities would sell products at no profit or even at a loss for purposes
of promoting certain Library events or activities, and (3) if greater
emphasis would be placed on the most profitable products or expanding
product lines and markets.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 21

17 Results: Status of Library Plans

 The Library has not prepared basic business plans for its current and
future retail operations.

 The Library has not fully developed accounting procedures to collect and
analyze cost and profitability information for the retail activities in our
study.

 The Library has not conducted marketing studies to identify markets and
products to help achieve the above goal.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 22

18 Results: Status of Library Plans

 The Library has not developed pricing policies that consider expanded
markets for specific products and services and their associated costs.

 Also, the Library, in considering the use of ecommerce to expand its
retail sales operations, identified similar challenges, such as the need for
mission realignment of its revenue- generating activities and the lack of a
shared accounting system, and the need for marketing studies.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 23

19 Results: Policies and Procedures

 Current retail operations lack overall policy guidance defining the scope
and mission of the Library?s retailing functions.

 The Library has not fully developed policies and procedures for the
control of products.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 24

20 Results: Policies and Procedures

 The Library does not have overall policies or procedures governing
licensing agreements. According to the Library, such agreements are
contractual and specific to given vendor relationships. All contracts are
reviewed by the Library?s general counsel.

 The Library has developed policies and procedures for the use of its logo.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 25

21 Results: Financial Performance

 As noted in figures 1 through 3, over the last 5 years, the financial
performance of the Library?s retail activities has been mixed and has not
demonstrated the potential for generating profits or covering costs on a
consistent basis over time.

 In total, for the 5 years ending September 30, 2001, the Photoduplication
Service reported losses of about $2. 2 million, the Gift Shop reported
losses of about $200, 000, and the Audio Video Laboratory reported losses of
about $120, 000.

 Also, during this period only the Gift Shop included an allocation for the
Library?s administrative overhead costs in its operating costs.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 26

22 Results: Financial Performance

Photoduplication Service

 Although the Photoduplication Service reported revenues in excess of
expenses for 1997 and 1998, it has reported losses over the last 3 years as
the Library has used contractors to meet its internal microfilming needs.
(See figure 1.) These reported losses do not include an allocation of the
Library?s overhead costs.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 27

23

0.00 1.00

2.00 3.00

4.00 5.00

6.00 7.00

1997 1998 1999 2000 2001

Fiscal year Dollars in millions

Revenue Expense

Results: Financial Performance Figure 1: Photoduplication Service Revenue
and Expenses

Source: Library of Congress unaudited financial data.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 28

24 Results: Financial Performance

The Gift Shop

 Although the Gift Shop reported that it broke even in 1997 and had revenue
in excess of expenses in 1998, it also reported that it failed to break even
over the last 3 years and has had to close one of its stores in an effort to
reduce expenses following the events of September 11, 2001. (See figure 2.)

GAO- 02- 554R Library of Congress Retail Sales Activities Page 29

25 Source: Library of Congress unaudited financial data.

0.00 0.50

1.00 1.50

2.00 1997 1998 1999 2000 2001

Fiscal year Dollars in millions

Revenue Expense

Results: Financial Performance Figure 2: Gift Shop Revenues and Expenses

GAO- 02- 554R Library of Congress Retail Sales Activities Page 30

26 Results: Financial Performance

The Audio Video Laboratory

 Although the Audio Video Laboratory reported that its has broken even in 2
of the last 5 years, overall it has reported losses of about $120, 000 over
the 5- year period. (See figure 3.)

GAO- 02- 554R Library of Congress Retail Sales Activities Page 31

27

0.00 0.50

1.00 1.50

2.00 1997 1998 1999 2000 2001

Fiscal year Dollars in millions

Revenue Ex pens e

Source: Library of Congress unaudited financial data. Results: Financial
Performance

Figure 3: Audio Video Laboratory Revenues and Expenses

GAO- 02- 554R Library of Congress Retail Sales Activities Page 32

28 Conclusions

 The Library lacks the basic business plans and accounting procedures for
evaluating its current retail operations and measuring costs and
profitability. Such information would serve as a basis for developing the
Library?s plans for identifying opportunities and alternatives for how it
would achieve the goal of generating profits to support other Library
activities.

 Due to the above factors, the plans and related information are not
available at this time to conduct a study to evaluate the viability of
generating profits from the Library?s retail activities to support other
Library activities or to evaluate options.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 33

29 Recommendations

 Until the Library develops the information and business tools needed for
evolving its current retail operations that are based on a break- even
assumption into one that will generate profits to support other Library
activities, the viability of generating profits will remain uncertain.
Therefore, if the Librarian of Congress decides to pursue this objective, he
should first do the following:

 develop an overall plan for generating profits from retail activities to
support other Library activities,

GAO- 02- 554R Library of Congress Retail Sales Activities Page 34

30 Recommendations

 develop business plans for the operations of its current and future retail
activities,

 develop accounting procedures to measure cost and profitability for its
retail activities,

 establish pricing policies,

 develop overall policies defining the scope and mission of its retail
activities, and

GAO- 02- 554R Library of Congress Retail Sales Activities Page 35

31 Recommendations

 conduct marketing studies or analyses to identify markets and products
that will help the Library achieve the goal of generating profits from its
retail sales to support other Library activities.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 36

32 Agency Comments

We provided the Associate Librarian for Library Services a draft copy of our
briefing document for comment. His comments and our response are discussed
below.

 The Associate Librarian concurred with our recommendations, which he
characterized as needed to enhance the business foundation of the Library?s
retail operations prior to embarking on a program of growth in its retail
operations.  However, the Associate Librarian also expressed concern that
our report did not give more attention to the actions the Library had taken
to date to set the stage for the development of retail enterprises.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 37

33 Agency Comments

 The Associate Librarian identified the following six actions the Library
has taken to date:

 realigning the expense base to secure a sound financial footing for the
Photoduplication Service and Retail (Gift) Shop by eliminating 34 positions
within the past 9 months,

 completing the first draft of a business planning and marketing strategy
for the Photoduplication Service,  establishing of a full- time position of
Marketing Services Coordinator,

GAO- 02- 554R Library of Congress Retail Sales Activities Page 38

34 Agency Comments

 dedicating two senior staff members and designating five transition
working groups to the process of business planning and transition,

 beginning discussions with an outside consultant experienced in the
launching e- commerce enterprises, and

 developing a preliminary e- commerce strategy, including initiating a
relationship with Treasury in order to establish a sound mechanism for
online payments.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 39

35 Agency Comments

 Although the above actions on the part of the Library are related to its
retail activities, they represent preliminary efforts involving specific
aspects of those activities.

 The Associate Librarian agrees that the Library still needs to develop the
fundamental business plans; policies and procedures, including accounting
procedures; and marketing studies described in our recommendations to
provide the basis it needs for identifying and evaluating alternatives and
options as well as operating its activities to generate profits that could
be used to support other Library activities.

GAO- 02- 554R Library of Congress Retail Sales Activities Page 40 Enclosure
II: Comments from the Library of Congress

GAO- 02- 554R Library of Congress Retail Sales Activities Page 41 (194120)
*** End of document. ***