Library of Congress: Opportunities to Improve General and Financial
Management (Testimony, 05/07/96, GAO/T-GGD/AIMD-96-115).

Pursuant to a congressional request, GAO discussed two independent
management and financial reviews of the Library of Congress. GAO noted
that: (1) the management review found that the Library's mission needed
to be reassessed because its enormous growth threatens to overwhelm its
staff, structure, and resources; (2) alternative missions include
service to Congress exclusively, Congress and the nation, or Congress,
the nation, and the world community; (3) the first two mission options
would require fewer staff and resources, but the third mission would
require staff and funding increases; (4) after determining its mission,
the Library's service role options include being an independent
archive-knowledge developer or an information-knowledge broker; (5) the
review recommended that the Library focus on the Congress-nation mission
alternative and become a national information-knowledge broker; (6) the
review also recommended that the Library improve its human and financial
resources management and operational processes; (7) the financial review
found that the Library had mixed results in implementing previous GAO
recommendations and certain financial management weaknesses remain; (8)
except for property and equipment accounts, the Library's financial
statement presented fairly, in all material respects, its financial
position as of September 30 1995; (9) the Library's internal controls
were not effective in safeguarding assets, ensuring that material
misstatements did not occur, and ensuring that gifts complied with
applicable laws and regulations; and (10) the review made several
recommendations for safeguarding assets and improving accounting
processes.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD/AIMD-96-115
     TITLE:  Library of Congress: Opportunities to Improve General and 
             Financial Management
      DATE:  05/07/96
   SUBJECT:  Libraries
             Accounting procedures
             Internal controls
             Federal agency accounting systems
             Human resources utilization
             Agency missions
             General management reviews
             Financial management
             Financial statement audits
             Legislative reference operations
IDENTIFIER:  Federal Library and Information Network
             GMR
             Library of Congress National Digital Library Program
             
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Cover
================================================================ COVER


Before the Joint Committee on the Library of Congress

For Release
on Delivery
Expected at
10:00 a.m.  EDT
Tuesday
May 7, 1996

LIBRARY OF CONGRESS -
OPPORTUNITIES TO IMPROVE GENERAL
AND FINANCIAL MANAGEMENT

Joint Statement of
J.  William Gadsby, Director, Government Business Operations;
Robert W.  Gramling, Director, Corporate Audits and Standards;
Joyce C.  Doria, Partner, Booz-Allen & Hamilton, Inc.;
Paul E.  Lohneis, Partner, Price Waterhouse LLP

GAO/T-GGD/AIMD-96-115

GAO/GGD/AIMD-96-115T


240191


Abbreviations
=============================================================== ABBREV


============================================================ Chapter 0

Mr Chairman and Members of the Joint Committee: 

We are pleased to be here today to discuss the recently completed
management and financial reviews of the Library of Congress.  Our
comments today will focus on four major themes--the Library's
mission, operations, resources, and financial condition.  In October
1995, Senators Hatfield and Mack asked that we conduct a broad
assessment of the Library's management.  This request was made in
response to specific allegations concerning the Library's handling of
thefts of rare materials, as well as longstanding problems related to
human resources and financial management.  The Senators asked that
the work be completed by the Spring of 1996.  To help meet that time
frame, given that our limited resources were already committed to
other priority projects, we contracted with Booz-Allen & Hamilton
Inc.  to conduct a general management review of the Library and with
Price Waterhouse LLP to conduct an audit of the Library's fiscal year
1995 financial statements. 

As part of GAO's contractor oversight role, we worked closely with
Booz-Allen and Price Waterhouse as they planned and executed their
work and developed their reports.  Prior to contracting with
Booz-Allen and Price Waterhouse, we independently performed
preliminary work at the Library.  This preliminary work was provided
to the contractors to assist them in understanding the operations of
the Library and in planning their work.  GAO also provided the
contractors with information from our 1991 financial audit\1 report
of the Library.  To ensure a sound approach to the study, we reviewed
the contractors' workplans and provided them with standard GAO
financial audit and information management methodologies.  As the
contractors executed their work, we received periodic briefings and
made ourselves available to answer questions, discuss potential
findings, and review related evidentiary support.  GAO also made
arrangements for the contractors to share drafts of their reports
with the Library to obtain comments from Library officials on the
reports' factual matters as well as their recommendations.  This
statement is based on the reports recently completed by the
contractors.  The executive summaries of their reports\2 are
attached. 

Before highlighting the management review and financial audit
findings, we would like to note some aspects of the Library's
activities that can serve as a useful context for discussing the
overall management of the Library.  First, the Library's collections
are large and diverse.  The Library collects materials covering a
wide range of subject matter, in over 400 languages, and in a variety
of formats ranging from books and manuscripts to photographs and
sound recordings.  The Library believes it currently has over 103
million items and adds to its collections at a rate of about 2.5
million items per year.  The Library's foreign language collections
constitute approximately 50 percent of its book collections and
approximately 60 percent of its cataloging workload. 

Second, the Library provides an extremely wide range of products and
services.  The Library of Congress is much more than just a library. 
It provides products ranging from policy analysis and information to
support legislative decisionmaking, to books on tape to aid the blind
and physically handicapped.  It also provides copyright registration
services to the creative public, cataloging standards and services
for libraries across the nation and some foreign libraries, and a
host of other products and services.  The Library has also recently
embarked on its National Digital Library program.  Under this program
the Library plans to digitize 5 million of its 103 million items by
the year 2000, at a cost of $60 million.  Of this amount, $15 million
are to be provided by appropriations and $45 million are to be
provided by private donations. 

Within this context, Booz-Allen's findings on the Library's mission,
operations, and resources and the results of Price Waterhouse's
financial statement audit are summarized as follows. 


--------------------
\1 Financial Audit:  First Audit of the Library of Congress Discloses
Significant Problems, GAO/AFMD-91-13, August 22, 1991. 

\2 Management Review of The Library of Congress, Booz-Allen &
Hamilton Inc.  (Washington:  May 7, 1996); Financial Statement Audit
for the Library of Congress for Fiscal Year 1995, Price Waterhouse
LLP (Washington:  May 7, 1996). 


BOOZ-ALLEN MANAGEMENT REVIEW OF
THE LIBRARY OF CONGRESS AND
RECOMMENDATIONS
============================================================ Chapter 1


   LIBRARY'S MISSION NEEDS
   REASSESSING
---------------------------------------------------------- Chapter 1:1

Today, the Library is at an important crossroads in its long history. 
Its efficiency, effectiveness, and continued relevance may depend on
its ability to address key issues about its future mission.  The
Library's mission and activities have continued to grow since its
creation in 1800, and the growth of its mission has been matched or
exceeded by the growth of its collections.  Booz-Allen found that the
Library's staff, management structure, and resources are in danger of
being overwhelmed by this growth. 

Booz-Allen identified three alternative missions that could be
considered to shape the Library's future.  The three missions can be
used to characterize the potential scope of activity and the
customers the Library might serve:  (1) Congress; (2) Congress and
the nation; and (3) Congress, the nation, and the world community of
libraries, publishers, and scholars.  The current Library mission and
activities fall somewhere between the latter two alternatives. 

Under the first mission alternative, the Library would refocus its
functions on the original role of serving Congress.  Collections
would be limited to broadly defined congressional and federal
government needs, and Congressional Research Service-provided
information would continue to support legislative functions.  There
would be no national library, and leadership of the
information/library community would be missing unless assumed by
other organizations.  Booz-Allen concluded that the Library would
require significantly fewer staff and financial resources to carry
out this mission. 

The second mission alternative would emphasize the Library's national
role, and current activities of a global nature would be
deemphasized.  The national library role would be formally
acknowledged, and the Library's leadership and partnering roles would
be strengthened.  This mission would require increased interaction
with national constituencies.  Booz-Allen concluded that the Library
would require somewhat fewer staff and financial resources to carry
out this mission. 

Under the third mission alternative, the Library would continue and
perhaps broaden its activities to serve the worldwide communities of
libraries, publishers, and scholars.  Collections would expand
substantially with accompanying translation and processing
consequences.  Booz-Allen concluded that this expanded mission would
require increased staff and financial resources. 

After determining whom the Library will serve, the next step should
be to decide how the Library will serve them.  Booz-Allen identified
two role options:  (1) independent archive/knowledge developer and
(2) information/knowledge broker.  Within the role of independent
archive/knowledge developer, the Library would continue to develop
and manage collections independently in Library and other government
facilities.  Traditional, original cataloging and research or
development functions would be performed primarily by Library
components and staff.  Library collections and facility requirements
would continue to expand based on collection strategy and policy. 
Traditional areas of Library expertise, such as acquisitions,
cataloging, and preservation, would continue to grow in importance
and would drive future staffing and resource requirements. 

Within the role of information/knowledge broker, the Library's
principal role would change from being a custodian of collections
with an independent operational role to that of a comprehensive
broker or referral agency.  The Library would initiate collaborative
and cooperative relationships with other libraries and consortia.  It
would use information technology to tell inquirers which library in
the nation or the world has the specific information.  Under this
scenario, the Library's collections would be selectively retained
and/or transferred to other institutions with arrangements for
appropriate preservation.  Other institutions would need to
demonstrate their willingness and capability to participate in such a
system. 

Booz-Allen assessed each of these mission and role options and
discussed them during focus groups with Library management,
congressional staff, external customers, and others.  Many focus
group participants perceived a need to systematically limit and
consolidate the Library's global role.  On the basis of these
discussions as well as its other findings from the overall management
review of the Library, Booz-Allen recommended that the Library's
mission be focused within the Congress/nation alternative, and
planning should begin toward a future mission of serving Congress and
performing the role of a national information/knowledge broker. 

Booz-Allen made this recommendation in the context of the following
points.  First, a final decision on any new future mission and role
should receive thorough examination and debate by all the affected
stakeholders--Congress, the Library, government agencies, state and
local governments, other libraries, publishers, and others in the
information-handling business.  Second, this examination and debate
should include a thorough consideration of the appropriate role of
technology in supporting the Library's operation.  Third, the Library
should initiate and guide this examination and debate.  And fourth,
at the end of the process, the mission of the Library should be
affirmed by Congress, and resources should be provided at a level
that would enable the Library to effectively fulfill the chosen
mission. 

Regardless of what Congress ultimately affirms regarding the future
mission of the Library, Booz-Allen also identified a number of
management and operational issues that should be addressed. 


   LIBRARY'S MANAGEMENT AND
   OPERATIONAL PROCESSES NEED
   IMPROVING
---------------------------------------------------------- Chapter 1:2

Booz-Allen reported that the Library's management processes could be
more effective.  First, it concluded that the Library should
institute a more comprehensive planning and program execution process
that provides for better integration of key management elements, such
as strategic and operational planning, budget development, program
execution, performance measurement, and evaluation.  Second,
Booz-Allen noted that the Library should improve the capability to
make decisions and solve problems that cut across organizational
lines primarily by clarifying roles, responsibilities, and
accountability.  Third, it pointed out that the Library should
reengineer its support services, particularly in the areas of
information resource management, facilities, security, and human
resources, to improve the capability of its infrastructure to support
the mission. 

Additionally, Booz-Allen noted that the Library does not manage its
operations from a process management approach but instead uses a
functional approach.  For example, the Library has different groups
to acquire, catalog, preserve, and service each collection.  Under
this functional approach, the Library is not in a good position to
routinely consider such factors as current arrearage status or
requirements for preservation, cataloging, and storage when
coordinating and planning for acquisitions of large collections. 
These factors could be considered more effectively under a process
management approach, because one group would perform these functions
for each collection.  This approach also would permit the information
technology function to support one Library-wide infrastructure rather
than its current duplicative and poorly integrated systems.  One
major benefit of using a process management approach and integrated
information technology infrastructure is that it provides a better
understanding of how to control, manage, and improve how the
organization delivers its products and services. 

Booz-Allen made a number of specific recommendations targeted
directly at improving the Library's management and operational
processes.  It emphasized that three organization-related
recommendations are key to the Library's overall success in improving
its management and operations.  Booz-Allen recommended that the
Library

  -- clarify the role of the Deputy Librarian to serve as the
     Library's Chief Operating Officer and vest the individual
     occupying that position with Library-wide operational
     decisionmaking authority;

  -- elevate the Chief Financial Officer's position to focus greater
     attention on improving the Library's financial systems and
     controls; and

  -- establish a Chief Information Officer position to provide
     leadership in technology across the organization, which should
     help the Library function more effectively in the electronic
     information age. 


   LIBRARY'S RESOURCES NEED BETTER
   MANAGING
---------------------------------------------------------- Chapter 1:3

The effective allocation and use of human and financial resources are
paramount to support the day-to-day activities of the Library. 
However, Booz-Allen found that a variety of weaknesses hamper the
Library's ability to maintain the intellectual capital of its
workforce and that the Library has opportunities for increasing
revenue.  Booz-Allen made several recommendations to improve the
Library's ability to deal with these important issues. 


      HUMAN RESOURCES ISSUES
-------------------------------------------------------- Chapter 1:3.1

The success of the Library's mission depends heavily on its human
resources.  Whether the mission is to serve Congress, the nation, or
the world, its ultimate achievement rests with the quality of the
Library staff.  However, Booz-Allen found that the human resource
function at the Library has some significant problems that may hamper
the Library's ability to maintain its intellectual capital. 

  -- First, the Library does not have a coordinated training program. 

  -- Second, human resources' personnel and processes are not
     equipped to handle changes to recruitment, training, or
     selection requirements that may result from technology, changes
     to the Library's mission, or staff turnover. 

  -- Third, the human resources services unit is not able to
     strategically plan for workload and staffing requirements
     because of its poor coordination among the Library service
     units. 

  -- Fourth, ongoing problems in communications between managers and
     the unions inhibit their ability to plan together for future
     directions of the Library. 

  -- Finally, the personnel management operations, particularly
     competitive selection and training, inhibit the Library's
     ability to bring on new staff members and get them trained
     quickly.  Currently, it takes about 6 months to recruit and hire
     new employees. 


      REVENUE OPPORTUNITIES
-------------------------------------------------------- Chapter 1:3.2

Booz-Allen recognized that improving the Library's operations would
require additional funding.  Thus, as part of its review, Booz-Allen
looked for opportunities through which the Library could generate
revenue to help offset the costs of improvements.  It found that
opportunities to significantly increase revenues exist in the
copyright registration and cataloging areas.  By fully recovering
copyright registration costs, Booz-Allen estimated that the Library
could receive additional revenue annually ranging from $12-$29
million, depending on different assumptions.  The potential revenue
to be generated from charging publishers a fee for cataloging could
be about $7.5 million annually. 

Booz-Allen recognized that these additional potential revenue
opportunities must be reviewed in light of past efforts to increase
revenues and the Library's mission.  For example, Congress decided in
1948 and 1989 not to recover full cost of copyright registration, and
the perception in the library community is that cataloging is at the
heart of what the Library does and forms an integral part of its
mission.  Consequently, both of these revenue opportunities need to
be considered as part of reexamining the Library's mission with a
view towards better balancing its mission and available resources. 

In order for the Library to have success with the implementation of
any revenue opportunities, an appropriate support structure will be
required.  Therefore, Booz-Allen suggested that the Library needs to
develop a legislative strategy that will provide it with the
financial mechanisms and authority needed to implement new fee-based
services.  To date, Congress has not provided the Library with
legislation authorizing fee-based services and all the different
financial mechanisms needed to pursue a range of fee-based service
opportunities. 

The demand for Library resources will continue to remain high whether
it serves Congress, the nation, or the world.  Accordingly,
Booz-Allen also suggested that the Library consider discontinuing or
reducing products and services that are not consistent with a newly
established mission.  Booz-Allen interviews and focus groups
identified the following Library products and services as possible
candidates for reduction:  selected special collections acquisitions,
foreign acquisitions, selected English language acquisitions,
original cataloging, exhibits, displays, and performances. 


PRICE WATERHOUSE FINANCIAL AUDIT
FOR THE LIBRARY OF CONGRESS FOR
FISCAL YEAR 1995 AND
RECOMMENDATIONS
============================================================ Chapter 2


   LIBRARY'S FINANCIAL MANAGEMENT
   PRACTICES NEED IMPROVING
---------------------------------------------------------- Chapter 2:1

As a part of the review of the Library's management, Price Waterhouse
(1) audited the Library's fiscal year 1995 consolidated statement of
financial position, (2) examined assertions made by Library
management concerning the effectiveness of internal controls over
financial reporting, (3) reviewed compliance with selected laws and
regulations, and (4) examined assertions made by Library management
concerning the safeguarding of the Library's collection.  This was
the first financial statement audit of the Library since our audit of
the Library's fiscal year 1988 financial statements. 


      FINANCIAL STATEMENTS
-------------------------------------------------------- Chapter 2:1.1

Price Waterhouse found that the Library had mixed results in
implementing GAO's recommendations made in its 1991 report.  The
Library made improvements including resolution of significant
compliance and control problems in the Federal Library and
Information Network (FEDLINK) program and implementation of a new
financial management system in fiscal year 1995.  Price Waterhouse
also found that the Library established accounting policies and
procedures to address many of the problems we found in our audit of
the Library's 1988 financial statements.  However, the Library had
not supplemented that system with the processes necessary to generate
complete, auditable financial statements.  For example, the Library's
new system had not been configured to generate the detailed trial
balances necessary for an audit, and the system did not track
significant account balances, including property and equipment and
advances from others. 

Further, the Library did not record significant accounting entries,
including those converting balances from the old system, in
sufficient detail to permit effective audit analysis of the accounts. 
Price Waterhouse stated that this latter deficiency, coupled with the
lack of comparable prior year information and audited opening
balances, precluded it from auditing the Library's fiscal year 1995
operating statement. 

Although adding to cost and time to conduct the audit, Price
Waterhouse was able to perform sufficient work to overcome other
weaknesses in the Library's financial management practices, except
for those relating to property and equipment, which enabled Price
Waterhouse to opine on the Library's consolidated statement of
financial position as of September 30, 1995.  Price Waterhouse found
that the Library's property and equipment records were not reliable
or complete and that portions of property and equipment were not
adequately controlled.  Accordingly, Price Waterhouse qualified its
opinion on the Library's consolidated statement of financial position
as follows: 

     ".  .  .  except for the effects of such adjustments, if any, as
     might have been determined to be necessary had (Price
     Waterhouse) been able to examine evidence regarding property and
     equipment balances, the Consolidated Statement of Financial
     Position presents fairly, in all material respects, the
     Library's financial position as of September 30, 1995, in
     conformity with the basis of accounting described in Note 1 to
     the Consolidated Statement of Financial Position."


      INTERNAL FINANCIAL AND
      COMPLIANCE CONTROLS
-------------------------------------------------------- Chapter 2:1.2

Price Waterhouse concluded that the Library's financial internal
controls in place as of September 30, 1995, were not effective in
safeguarding assets from material loss and in ensuring that there
were no material misstatements in the Consolidated Statement of
Financial Position.  In addition to the material weaknesses over
property and equipment that led Price Waterhouse to qualify its
opinion on the Consolidated Statement of Financial Position, Price
Waterhouse reported that the Library had material weaknesses in its
financial reporting preparation process, reconciliations of cash
accounts with the Department of the Treasury and of various general
ledger balances with those in subsidiary records, and information
technology security practices over its computer operations. 

Price Waterhouse concluded that the Library's internal controls in
place on September 30, 1995, were effective in ensuring material
compliance with relevant laws and regulations.  However, Price
Waterhouse reported that the Library continued to accumulate
surpluses in certain gift funds that it operates as revolving funds,
even though the Library does not have the statutory authority to do
so.  GAO previously reported this noncompliance in its audit of the
Library's 1988 financial statements.  GAO recommended that the
Library obtain the statutory authority necessary to continue
operating the revolving gift funds but it has not received such
authority.  Also, Price Waterhouse found one instance where the
Library violated 2 U.S.C.  158a, which prohibits the Library from
investing or reinvesting a gift of securities offered to the Library
until acceptance of the gift has been approved by the Joint Committee
on the Library.  The Library believes this was an isolated error and
is holding the proceeds pending approval by the committee. 

Price Waterhouse made a number of recommendations that the Library
should implement to fulfill its plan of having a full set of audited
financial statements for fiscal year 1996.  These recommendations
related to the financial report preparation process, reconciliations
of accounting records, accounting for property and equipment,
computer security practices, enhancing information that is provided
to management, financial services staffing, controls over the general
ledger and reporting system, internal self-assessment of internal
controls, computer operations disaster recovery plan, controls over
cash handling and check processing, and trust fund accounting. 


      SAFEGUARDING THE COLLECTIONS
-------------------------------------------------------- Chapter 2:1.3

Price Waterhouse concluded that the Library's management lacked
reasonable assurance that the Library's internal control structure
over safeguarding of collection assets against unauthorized
acquisition, use, or disposition was generally effective as of
September 30, 1995.  Price Waterhouse found that the Library has not
completed a comprehensive risk assessment and collection security
plan to identify the risks to the collection, the proposed or
established control activities to address the risks, the required
information management needs to carry out its responsibilities, and
the methods by which management could monitor the effectiveness of
control procedures.  Price Waterhouse concluded that without these
practices and procedures, Library managers do not have reasonable
assurance that the risk of unanticipated loss (theft, mutilation,
destruction, or misplacement) of materials with significant market
value, cultural or historical importance, or with significant
information content is reduced to an acceptable level.  Booz-Allen
had similar findings in its review of how the Library managed
security. 

Price Waterhouse recommended the Library establish a comprehensive
plan for safeguarding the collections by defining and applying
specific standards of care to reasonably ensure that the risks from
users, internal staff, and the environment are reduced to an
acceptable level.  As measures of success, Price Waterhouse made the
following suggestions: 

  -- Risks from users would be effectively controlled when the
     Library is able to tell what collection material is served to
     users and what they return; when reading rooms are under a
     reasonable level of surveillance and users know that they are
     being watched; when the Library knows who its users are; and
     when the Library limits what material users bring into the
     reading rooms and knows what they take out. 

  -- Risks from internal Library staff would be effectively
     controlled when the Library can be sure that only those with
     need have access to the collection; when the Library has secured
     its most at-risk material in a way that it knows who accessed
     secured areas; when it has established procedures to
     periodically inventory key items in the collection; when staff
     are precluded from bringing personal items into storage areas;
     when it has reduced the number of non-emergency exits in the
     collections areas of the Library's buildings; when it has
     regular reporting, tracking, and follow-up of missing materials;
     when it has a coordinated approach to access by its own
     maintenance personnel and those of the Architect of the Capitol;
     and when it has sufficient surveillance cameras in areas where
     high-value materials are stored. 

  -- Environmental risks would be effectively controlled when the
     Library has determined that high-value, irreplaceable items have
     been protected from possible fire and water damage and that its
     preservation program is targeting and treating its highest
     priority items in a timely fashion. 

Although the Library has been striving to improve the safeguarding of
its collection since 1991, the findings of Price Waterhouse and
Booz-Allen confirm that the Library continues to have a number of
significant weaknesses in safeguarding the collection materials that
the Library relies upon to serve Congress and the nation. 


-------------------------------------------------------- Chapter 2:1.4

Mr.  Chairman, that concludes the overall summary of the review of
the management of the Library of Congress.  We would be pleased to
answer any questions that you or other Members may have. 

*** End of document. ***