[Audit Report on Inventory Management and Valuation, National Mapping Division, U.S. Geological Survey]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 96-I-1239

Title: Audit Report on Inventory Management and Valuation, National
       Mapping Division, U.S. Geological Survey

Date: September 30, 1996


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A printed copy of this report may be obtained by referring to the PDF file or by calling the Office
of Inspector General, Logistical Services Branch at (202) 208-4599.
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MEMORANDUM

United States Department of the Interior
OFFICE OF INSPECTOR GENERAL
Washington, D.C. 20240

TO:                 The Secretary

FROM:               Wilma A. Lewis
                    Inspector General

SUBJECT SUMMARY:    Final Audit Report for Your Information - "Inventory Management                 and   Valuation, National Mapping Division, U.S. Geological Survey"
                              (No. 96-I-1239)

Attached for your information is a copy of the subject final audit report. The objective of the audit
was to determine whether the U.S. Geological Survey: (1) was effectively managing and valuing its
inventory of maps and books held for sale and (2) had adequate inventory valuation procedures to
ensure that the balance for inventories held for sale in its financial statements for fiscal year 1995
was reliable and auditable.

We concluded that the Geological Survey was not effectively managing the production and storage
of maps and books, primarily because it had not fully implemented all the recommendations
contained in our September 1989 audit report on the National Mapping Division's inventory and
sales management. Specifically, the Geological Survey had not conducted physical inventories and
updated inventory records, implemented an inventory reduction plan, formalized the methods for
ordering maps, and established time requirements for processing printing requests. As a result,
inventory records were inaccurate; excess maps and books were being printed and stored; and a large
portion of the inventory was excess or obsolete, while other items were out of stock. We also
concluded that the $83.7 million balance reported in the fiscal year 1994 financial statements for
inventory held for sale could not be substantiated because: (1) the formula for computing the
inventory balance contained errors; (2) the Geological Survey did not have accurate historical cost
data; and (3) inventory records were inaccurate.

The Geological Survey concurred with all of our recommendations, which pertained to establishing
and implementing an inventory reduction program, revised ordering and reordering procedures,
controls to prevent out-of-stock conditions, methods for ensuring accurate inventories, and valuation
procedures that were in compliance with applicable guidelines. Based on the Geological Survey's
response to our report, we considered all of the recommendations resolved.

If you have any questions concerning this matter, please contact me at (202) 208-5745 or
Mr. Robert J. Williams, Acting Assistant Inspector General for Audits, at (202) 208-4252.

Attachment

  E-IN-GSV-006-95

United States Department of the Interior
OFFICE OF THE INSPECTOR GENERAL
Washington, D.C. 20240

Memorandum

To:    Assistant Secretary for Water and Science

From:   Robert J. Williams
     Acting Assistant Inspector General for Audits

Subject:  Audit Report on Inventory Management and Valuation, National Mapping
Division, U.S. Geological Survey (No. 96-I-1239 )

This report presents the results of our audit of inventory management and valuation at the
U.S. Geological Survey's National Mapping Division. The objective of the audit was to
determine whether the Geological Survey: (1) was effectively managing and valuing its
inventory of maps and books held for sale and (2) had adequate inventory valuation
procedures to ensure that the balance for inventories held for sale in its financial statements
for fiscal year 1995 was reliable and auditable.

We concluded that the Geological Survey was not effectively managing the production and
storage of maps and books, primarily because it had not fully implemented all the
recommendations in our prior audit report "Inventory and Sales Management, National
Mapping Division, U.S. Geological Survey" (No. 89- 114). Specifically, the Geological
Survey had not conducted physical inventories and updated inventory records, implemented
an inventory reduction plan, formalized the methods for ordering maps, and established time
requirements for processing printing requests.  As a result, inventory records were
inaccurate; excess maps and books were being printed and stored; and a large portion of the
inventory was excess or obsolete, while other items were out of stock. We also concluded
that the $83.7 million balance reported in the fiscal year 1994 financial statements for
inventory held for sale could not be substantiated because: (1) the formula for computing the
inventory balance contained errors; (2) the Geological Survey did not have accurate
historical cost data; and (3) inventory records were inaccurate. Furthermore, we concluded
that these deficiencies could not be corrected in time to provide a reliable inventory balance
for the fiscal year 1995 financial statements.

We recommended that the Director, U.S. Geological Survey, establish and implement: (1)
a comprehensive inventory reduction program; (2) ordering and reordering procedures based
on sales history data; (3) controls to prevent out-of-stock conditions; (4) statistical methods
for ensuring accurate inventory counts; and (5) valuation procedures in accordance with the
Statement of Federal Financial Accounting Standard No. 3, "Accounting for Inventory and
Related Property."

 
During our audit, we worked with Geological Survey officials to evaluate the current
inventory management system and to develop solutions for correcting deficiencies identified.
As a result of these cooperative efforts, the Geological Survey has taken prompt action to
improve the system. Subsequent to the completion of our review, an Inventory Management
Improvement Team was established, which developed an action plan to correct the
deficiencies identified. The plan includes provisions for establishing: (1) statistical sampling
procedures for verifying the inventory records; (2) policies for stock levels and print run
sizes; (3) a method to identify excess stock; (4) the use of print-on-demand capabilities; and
(5) procedures for inventory reduction and product abandonment, which should significantly
reduce the map inventory and make it more manageable. The Improvement Team has also
developed a reasonable approach for valuing the map inventory. Based on our review of this
plan and discussions with National Mapping Division officials, we believe that timely
implementation of the plan should result in an effective inventory management system and
ensure the reliability of the inventory and accounting records.

In the August 19, 1996, response (Appendix 4) from the Director, U.S. Geological Survey,
the Geological Survey concurred with all the recommendations in the draft report. In
addition, the Geological Survey provided additional comments, which we incorporated into
the report as appropriate. Based on the response, we considered Recommendations A.3 and
B. 1 resolved and implemented and Recommendations A. 1, A.2, and A.4 resolved but not
implemented. Accordingly, the unimplemented recommendations will be referred to the
Assistant Secretary for Policy, Management and Budget for tracking of implementation, and
no further response to the Office of Inspector General is required (see Appendix 5).

The legislation, as amended, creating the Office of Inspector General requires semiannual
reporting to the Congress on all audit reports issued, actions taken to implement audit
recommendations, and identification of each significant recommendation on which corrective
action has not been taken.

We appreciate the U.S. Geological Survey's cooperation in the conduct of this audit.

 
CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OBJECTIVE AND SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRIOR AUDIT COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . .

A. INVENTORY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . .
B. INVENTORY VALUATION. . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDICES

1. NATIONAL MAPPING DIVISION SITES VISITED OR
  CONTACTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. COMPARISON OF FEDERAL FINANCIAL SYSTEM
  INVENTORY DATA WITH STOCK ON HAND
  AT THE WAREHOUSE DISTRIBUTION CENTER . . . . . . . . . .
3. FOLLOWUP OF AUDIT REPORT "INVENTORY AND SALES
  MANAGEMENT, U.S. GEOLOGICAL SURVEY" (NO. 89-1 14),
  DATED SEPTEMBER 1989..... . . . . . . . . . . . . . . . . . . . . .
4. U.S. GEOLOGICAL SURVEY RESPONSE . . . . . . . . . . . . . . . . .
5. STATUS OF AUDIT REPORT RECOMMENDATIONS . . . . . . . . .

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INTRODUCTION

BACKGROUND



The mission of the National Mapping Division, U.S. Geological Survey, is to generate
geographic, cartographic, earth science, and remotely sensed information. The Division
disseminates this information to the public, state and local governments, depository
libraries (such as the National Archives and selected universities), and Federal agencies.
This is accomplished through the Branch of Information Services, in Denver, Colorado;
the Geological Survey's nine Earth Science Information Centers; and two information
outlets operated by other Federal agencies. Some of the Geological Survey's major
customers include 64 state-operated Earth Science Information Centers and 1,700
Authorized USGS Business Partners, which purchase this information from the Geological
Survey and sell or distribute it to the public. Approximately 150,000 types of maps,
books, and open file reports and about 10 million aerial and space images are available for
purchase. In fiscal year 1994, the Geological Survey sold about 4 million maps, totaling
$5.6 million, to Federal and non-Federal customers.

The Division is composed of (1) a headquarters office in Reston, Virginia, which provides
overall policy and direction for the mapping program, establishes prices for maps, and
computes the inventory held for sale balance reported in the financial statements; (2) five
regional mapping centers (located in Reston; Denver, Colorado; Sioux Falls, South
Dakota; Rolla, Missouri; and Menlo Park, California), which collect and analyze data and
produce related products; (3) the Mapping Applications Center in Reston, which performs
the printing operations; and (4) the Earth Resources Observation Center in Sioux Falls,
which produces and distributes aerial photography, satellite imagery, and digital products.

The Branch of Information Services, within the Regional Mapping Center in Denver,
receives, warehouses, and disseminates domestic and foreign cartographic, geographic,
and earth science data and products. The Branch also assists in the development and
implementation of product distribution policies, pricing studies, and sales forecasts and
analyses, and it markets maps, digital cartographic data, aerial photographs, and other map
products. The Branch's centralized distribution facility also serves as an agent for the
Government Printing Office to sell Geological Survey books. The facility conducts over-
the-counter and mail-order sales of books and maps and distributes these products at no
cost to Federal depository libraries. The Division also charges the public and Federal,
state, and local governmental agencies for its reproduction and distribution costs.

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OBJECTIVE AND SCOPE

The objective of the audit was to determine whether the Geological Survey: (1) was
effectively managing and valuing its inventory of maps and books held for sale and (2)
had adequate inventory valuation procedures to ensure that the balance for inventories held
for sale in its financial statements for fiscal year 1995 was reliable and auditable. Our
review was limited to a review of the recorded inventory balances for fiscal year 1994 for
maps ($74. 7 million) and books ($7.2 million), which did not include the post-closing
adjustment amount of $1.8 million that increased the balance to $83.7 million on the
financial statements. We did not review the recorded inventory balances for the Water
Resources Division's hydrologic equipment ($4 million) or the National Mapping
Division's CD-ROM inventory ($264,700).

Our audit was made, as applicable, in accordance with the "Government Auditing
Standards, " issued by the Comptroller General of the United States. Accordingly, we
included such tests of records and other auditing procedures that were considered
necessary under the circumstances. Our review of the Geological Survey's map inventory
valuation methodology included a comparison of the Geological Survey's procedures with
those required by the Statement of Federal Financial Accounting Standards Number 3,
"Accounting for Inventory and Related Property. " In addition, we reviewed the
procedures used by the Geological Survey to conduct the fiscal year 1993 physical
inventory and reviewed current production, distribution, sales, and inventory procedures
by performing walk-throughs of these activities and reviewing related documentation. To
determine the accuracy of the reported inventory balances, we reconciled the quantities
reported in the Federal Financial Inventory System with an actual count of selected items.
Our audit included visits or contacts with officials in the offices listed in Appendix 1.

As part of our review, we evaluated the internal controls within the inventory management
and distribution functions of the National Mapping Division. Our evaluation noted
weaknesses regarding inventory management and valuation.  These weaknesses are
                              Our
recommendations, if implemented in a timely manner, should improve internal controls
in these areas.

We also reviewed the Secretary's Annual Statement and Report to the President and the
Congress, required by the Federal Managers' Financial Integrity Act of 1982, for fiscal
years 1993 through 1995 to determine whether any reported weaknesses were within the
objective and scope of our audit. The report for fiscal year 1993 identified the lack of an
adequate system to support effective management of the inventory, ordering, and sale of
maps and books as a material weakness. Although the report for fiscal year 1994 indicated
that the material weakness had been corrected, our current review found that these
deficiencies still existed. The fiscal year 1993 report also identified the Geological
Survey's failure to integrate financial management and accounting systems as material

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nonconformance with Federal accounting system requirements. According to the fiscal
year 1995 report, the nonconformance issue was to be resolved by September 1996.

PRIOR AUDIT COVERAGE

During the past 6 years, the Office of Inspector General has issued four audit reports that
identified issues relating to inventory management in the Geological Survey's mapping
program:

  - The report "Inventory and Sales Management, National Mapping Division, U.S.
Geological Survey" (No. 89-114), dated September 1989, concluded that the National
Mapping Division was generally achieving its mission of producing maps but that it
needed to improve the economy and efficiency of its operations. Specifically, the report
stated that the Division had not established adequate inventory management procedures to
efficiently control the ordering and storing of maps and books and was not maintaining
adequate inventory records. Our current audit found that, while some progress had been
made to correct these deficiencies, further improvements were needed.

  - The report "U.S. Geological Survey Statement of Financial Position as of
September 30, 1992" (No. 93-I-1214), dated June 1993, stated that the Office of Inspector
General was unable to express an opinion on the Geological Survey's statement of
financial position, in part, because the Geological Survey could not provide sufficient
detailed records to support the amounts reported for inventory held for sale. According
to the report, the Geological Survey did not adequately control and account for $65.4
million of the inventory of products held for sale.

  - The report "U. S. Geological Survey Principal Financial Statements for Fiscal
Years 1993 and 1994" (No. 95-I-582), dated February 1995, stated that the Office of
Inspector General was unable to express an opinion on the Geological Survey's financial
statements, in part, because of the lack of adequate supporting documentation to
substantiate the amounts reported for inventory held for sale. Specifically, the Geological
Survey did not maintain detailed support for the amounts reported in the general ledger for
inventory at September 30, 1993, and 1994 ($71 million and $88 million, respectively),
and had not conducted a physical review of its map inventory at fiscal year-end or
performed procedures necessary to validate the account balance.

  - The report "U. S. Geological Survey Principal Financial Statements for Fiscal
Year 1995" (No. 96-I-563), dated March 1996, stated that the financial statements were
reliable in all material respects except for the amounts reported for published map
inventory and invested capital. The Geological Survey disclosed in its notes to the
financial statements that neither periodic or perpetual inventory procedures nor accurate

3

 
inventory valuation methods were implemented during fiscal year 1995. As a result, we
could not validate the amounts reported for inventory in the financial statements.

 
 

FINDINGS AND RECOMMENDATIONS

A.  INVENTORY MANAGEMENT

The U.S. Geological Survey was noneffectively managing the production and storage of
maps and books. The Federal Acquisition Regulation (41 CFR 101-27 ) provides policies,
principles, and guidelines on inventory management. However, the Geological Survey
was not fully complying with these requirements, in part, because it had not effectively
implemented the recommendations in our prior audit report "Inventory and Sales
Management, U.S. Geological Survey. "  As a result, map inventory records were
inaccurate and unreliable for financial reporting purposes, and excess books and maps
were being printed and stored.  Subsequent to the completion of our review, the
Geological Survey developed an inventory management improvement plan, which should
correct these deficiencies and result in an effective inventory management system.

Our prior audit found that the inventory records were inaccurate and that the Geological
Survey was producing and storing maps and books in excess of demand, which resulted
in unnecessary printing and storage costs. Our current review found that while the current
inventory listing of books on hand was accurate, the Geological Survey had not developed
adequate inventory management procedures to account for all maps printed and distributed,
resulting in inaccurate map production and inventory records.  For example, we
judgmentally selected a sample of 15 map products listed in the Federal Financial
Inventory System records and compared the recorded number of maps with the maps on
hand. Our review identified significant variances in the inventory stock for 13 of the 15
maps, as shown in Appendix 2. In addition, the Geological Survey was still printing and
storing excess maps, having about a 15-year supply at the time of our review. All of these
maps were classified in the Geological Survey's fiscal year 1994 financial statements as
inventory held for sale, when, in fact, 94 percent of these maps (70,080 products) had
distribution levels of less than 200 copies in 1994. A significant portion of this inventory
should have been classified as excess inventory, in accordance with the Statement of
Federal Financial Accounting Standard No. 3, "Accounting for Inventory and Related
Property. "

We concluded that these conditions existed, in part, because the Geological Survey had not
implemented the recommendations from our prior report that related to conducting
physical inventories and periodically updating the inventory records, implementing an
inventory reduction plan, and formalizing the methods for ordering maps (see Appendix
3).

In conjunction with the Geological Survey's Inventory Management Improvement Team,
we identified other factors that contributed to the inaccurate inventory records as follows:

 


  - Inventory systems were not fully integrated and on-line with the Federal Financial
System. For example, eight of the nine Earth Science Information Centers did not have
the capability to provide up-to-date inventory balances or to identify out-of-stock
conditions because their reporting systems did not track by product title or type of map.
Therefore, estimates rather than actual counts were used to value the inventory. In
addition, officials at the mapping centers and the printing plant were not aware of out-of-
stock conditions in the warehouse and the Earth Science Information Centers.

  - Official inventory records maintained on the Federal Financial Inventory System
were not updated to reflect all production and distribution of maps. We found that maps
removed from print runs in the printing plant and shipped directly to customers were not
included in the map inventory. For example, in 1993, approximately 40,000 maps were
removed from production in the printing plant and shipped directly to customers before
this production was entered into the inventory system. In addition, maps shipped directly
from the printing plant to the Earth Science Information Centers in Reston and in
Washington, D.C. were also not included in the official inventory records. These
omissions resulted in the inventory counts being understated.

  - Maps were removed from the Inventory Subsystem when they were shipped from
the warehouse to the Earth Science Information Centers before they were sold to the
public. Accordingly, these maps were removed from the official inventory records, when,
in fact, they were still available for sale, which resulted in the inventory being understated.

  - Information on historical sales and distribution was not used as a critical criterion
for establishing print run quantities, which resulted in excess production and inventory at
the Denver warehouse.

Recommendations

We recommend that the Director, U.S. Geological Survey:

  1. Establish inventory system controls and procedures which ensure that an
accurate perpetual inventory count is maintained for each Geological Survey inventory site
(including the Earth Science Information Centers). These controls and procedures should
also provide for periodic physical verification of the inventories using statistical sampling
techniques.

  2. Establish a comprehensive inventory reduction program to ensure that, on a
periodic basis, excess and obsolete maps are identified, are appropriately classified in the
accounting records, and are removed from the warehouse.

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  3. Establish and implement procedures for ordering and reordering print runs of
maps and map products based on the sales/distribution history of those products or similar
products.  The procedures should include adequate controls to prevent items from
becoming out of stock.

  4. Ensure that the maps distributed to the Earth Science Information Centers are
recorded in the Federal Financial Inventory System.

U.S. Geological Survey Response and Office of Inspector General Reply

In the August 19, 1996, response (Appendix 4) from the Director, U.S. Geological
Survey, the Geological Survey concurred with Recommendations 1-4. Based on the
response,  we consider Recommendation 3 resolved and implemented and
Recommendations 1, 2, and 4 resolved but not implemented (see Appendix 5).

 


B. INVENTORY VALUATION

The Geological Survey was not fully complying with guidelines for properly valuing its
inventory of maps and books held for sale because: (1) the formula for computing the
inventory balance contained errors; (2) the Geological Survey did not have historical cost
data; and (3) the inventory records were inaccurate. As a result, the amounts used to
support the inventory held for sale balance on the Geological Survey's fiscal year 1994
financial statements (maps and map-related products totaling $74.7 million and books
totaling $7.2 million) were unreliable. The Statement of Federal Financial Accounting
Standards Number 3, "Accounting for Inventory and Related Property, " requires that
inventory held for sale be valued at either historical cost or latest acquisition cost (if the
value approximates historical cost). Although the Geological Survey was addressing these
issues, corrective actions were not completed in time to provide a reliable inventory
balance for the fiscal year 1995 financial statements.

Map Inventory

The Geological Survey computed the value of its fiscal year 1994 year-end map inventory
by computing a unit cost per map ($.78) using the following formula: fiscal year 1994
production costs (labor, materials [primarily printing plates and paper], and overhead)
divided by the total number of maps distributed in fiscal year 1993. The September 30,
1994, inventory balance was then computed by multiplying this unit cost by the estimated
number of maps on hand at year-end. However, we found that the $74.7 million balance
was unreliable because it was computed incorrectly as follows: 1

  - Valuation Formula. The Geological Survey computed its production costs using
the cost of materials purchased in fiscal year 1994 rather than the cost of materials used
in production. As a result, the inventory valuation did not include materials used in
production that were purchased before 1994 (likely at a lower cost), and it did include
materials purchased in 1994 that had not been used by year-end. In addition, the
Geological Survey computed its unit cost using the total number of maps distributed in
fiscal year 1993 (6.2 million maps) rather than the number of maps produced in fiscal year
1994 (2.6 million maps).

  - Historical Cost. The Geological Survey did not use historical cost data or current
cost data that approximated historical cost, as required by the Statement of Federal
Financial Accounting Standards Number 3, because such data were not available. Under
the Geological Survey's valuation procedures, the entire inventory of maps was valued
based on the calculated unit cost, even though approximately 75 million of the maps in the

1The Geological Survey's records did not contain the information needed to determine the monetary
impact
of these conditions on the inventory valuation.

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inventory were produced in prior years. Therefore, the value of these older maps was
overstated.

  - Inventory Quantities. The Geological Survey did not have an accurate estimate of
the number of maps held for sale at year-end. As discussed in the section "Inventory
Management" in this report, the inventory balance was not supported by a recent physical
inventory and included maps that were not held for sale (for example, maps held for free
distribution to other Federal or state agencies) or that were excess or obsolete.

  - Inventory Categories. The Statement of Federal Financial Accounting Standards
Number 3 requires a Federal entity to classify its inventory using four categories:
inventory held for sale, inventory held in reserve for future sale, excess and obsolete
inventory, and inventory held for repair. The Geological Survey classified its entire
inventory as inventory held for sale.

Book Inventory

The $7.2 million balance included in the fiscal year 1994 financial statements for the
inventory of books held for sale was inaccurate. The recorded balance was based on an
inventory of 7.2 million books valued at $1 each. Our tests indicated that while the
reported number of books on hand was accurate, the Geological Survey had no historical
cost data to support the $1 valuation. In addition, it is unlikely that most of these books
will be sold. For example, only about 22,000 books were sold in fiscal year 1994.
Excess books were printed because the Geological Survey had not established guidelines
to determine the quantity to be printed. Therefore, a substantial portion of the inventory
should not be classified as inventory held for sale because this portion was excess or
obsolete.

Recommendation

We recommend that the Director, U.S. Geological Survey, establish valuation procedures
for books and maps which ensure that the valuations are in accordance with the provisions
of the Statement of Federal Financial Accounting Standards Number 3. These procedures
should ensure that:

  - The valuation formula for maps is based on the number of maps produced during
a specific period rather than the number of maps distributed and on the materials used
during the period rather than the materials purchased.

  - Inventory values are established using historical costs or current costs that
approximate historical costs. Valuation for the current year's map production should
reflect the current production volume divided by the cost of materials, labor, and overhead

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used to generate that production. Historical valuation can be accomplished through the
application of inflation indices to the current production costs to approximate the historical
costs of maps produced in prior periods.

  - Separate values are established and presented in the financial statements for
inventory held for sale, inventory held in reserve for future sale, and inventory that is
excess or obsolete.

U.S. Geological Survey Response and Office of Inspector General Reply

In the August 19, 1996, response (Appendix 4) from the Director, U.S. Geological Survey
(Appendix 4), the Geological Survey concurred with the recommendation. Based on the
response, we consider the recommendation resolved and implemented (see Appendix 5).

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APPENDIX 1

NATIONAL MAPPING DIVISION
SITES VISITED OR CONTACTED

Site                Location

Headquarters Office
Regional Office
Mapping Applications Center
Printing Plant
Warehouse
Earth Science Information Center
Earth Science Information Center
Earth Science Information Center
Earth Resource Observation System Data Center *

Reston, Virginia
Denver, Colorado
Reston, Virginia
Reston, Virginia
Denver, Colorado
Reston, Virginia
Denver, Colorado
Washington, D.C.
Sioux Falls, South Dakota

* Site contacted

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                       APPENDIX 2

COMPARISON OF FEDERAL FINANCIAL SYSTEM

INVENTORY DATA WITH STOCK ON HAND
AT THE WAREHOUSE DISTRIBUTION CENTER

Item Name

Yellowstone National Park
Yellowstone National Park
Emerald Bay
Mt. Whitney
Fort Polk
Pasadena
Van Nuys
Drinkwater Lake
Kurthwood
Kindt Reservoir
Sonora Pass
Bright Angel
Mount Laguna
Mammoth Cave
Wheatland

Product
ID No.

TWY1659
TWY2114
TCA0751
TCA3299
TLA0243
TCA1811
TCA2595
TCA3392
TLA0366
TWY1717
TCA2361
TAZ0180
TCA1586
TKY0414
TWY1601

Total Stock
Per System

0
5,074
2,242
800
906
2,109
443
1,439
146
1,166
294
300
5,183
0
0

Total Stock
Per Count

6,400
  0
1,750
1,000
1,100
2,300
625
1,600
  0
1,300
  350
  250
5,150
  0
  0

Variance

(6,400)
5,074
492
(200)
(194)
(191)
(182)
(161)
146
(134)
(56)
50
33
  0
  0

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APPENDIX 3
Page 1 of 3

  FOLLOWUP OF AUDIT REPORT
"INVENTORY AND SALES MANAGEMENT,
  U.S. GEOLOGICAL SURVEY"
(NO. 89-114), DATED SEPTEMBER 1989

In September 1989, the Office of Inspector General issued the audit report entitled "Inventory
and Sales Management, U.S. Geological Survey" (No. 89- 114), which contained four
recommendations on inventory management. During our current review, we found that three
of the four recommendations had not been fully implemented. However, as a result of our
current review, the Geological Survey developed a comprehensive plan for improving its
inventory management system, which, if implemented timely, should correct the deficiencies
identified in our prior report.

Recommendation 1. Require the Distribution Center to maintain an accurate inventory of the
quantity of maps and books on hand by performing annual physical counts and periodic
updates of the records.

Status: Not implemented. In December 1993, the Geological Survey awarded a $50,000
contract for assistance in conducting a physical inventory of maps in the Denver warehouse.
This effort was a major undertaking. The Geological Survey's inventory consisted of about
125,000 different titles. Over 90 million published maps and 7.2 million books were stored
in a 5.5 acre warehouse, which was not adequately lighted and configured to allow for an
efficient physical inventory. While the working stock was organized in alphabetical order in
the front of the warehouse, the bulk stock was arranged randomly in stacks of up to 8 feet
high, which made counting difficult. As a result of these conditions, all the funds were
expended before the contractor completed the inventory.

At the time of our current review, the Geological Survey was taking actions to improve its
physical inventory procedures through the use of statistical sampling to verify inventory
quantities on hand. We believe that the successful and timely completion of this plan will
significantly improve the accuracy of the Geological Survey's physical inventories of maps.

Recommendation 2. Require the Distribution Center to formalize an inventory reduction plan
for maps and books, specifying time frames and the methods to be used to accomplish the
reduction. Obsolete and damaged items should be disposed of through the General Services
Administration's recycling program.

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APPENDIX 3
Page 2 of 3

Status: Not implemented. During our followup review, we found that while some actions
had been taken to reduce the map inventory subsequent to our prior review, excess inventory
levels continued to exist because procedures had not been implemented to periodically identify
and reduce excess inventories. For example, the Geological Survey had about 90 million
maps in inventory and distributed about 6 million maps (about 4 million to Federal and non-
Federal customers and about 2 million for free distribution) during fiscal year 1994. Based
on these figures, the inventory represented approximately a 15-year supply, which was
significantly higher than the Geological Survey's goal of printing a 5-year supply.

Subsequent to our current review, the Geological Survey's Inventory Management
Improvement Team was implementing policies and procedures to establish maximum inventory
levels and reduce and eventually eliminate excess and obsolete stock. The Geological Survey
was also conducting a cost-benefit analysis to identify the most efficient method for disposing
of its excess maps.  We believe that these actions will effectively implement this
recommendation.

Recommendation 3. Require the mapping centers and the Distribution Center to formalize
the methods used for ordering and reordering the quantity of maps necessary to meet the
products' demand and to minimize the costs of inventories.

Status: Not implemented. The Code of Federal Regulations (41 CFR 101-27.102) requires
inventories to be replenished in accordance with the economic order quantity principle to
determine the most efficient quantity to order. Factors that should be considered in reordering
include historical sales, reorder points, printing costs, economic quantity determinations,
storage costs, handling costs, deterioration, and obsolescence. We found, however, that the
Geological Survey's procedures were not based on these requirements, in part, because the
Distribution Center did not have accurate and current information on the number of maps in
the inventory or sales history information on individual maps. Instead, order quantities for
new, revised, and out-of-stock maps were established by the mapping centers based on an
informal method of estimating a 5-year supply.

The plan being implemented subsequent to our current review by the Inventory Management
Improvement Team includes the establishment of maximum order quantities based on critical
product information such as sales/distribution history, print lead time, and handling time. In
addition, print-on-demand capabilities will be developed, which will eventually eliminate the
need for maintaining stocks of certain products. These actions, when completed, should
effectively implement the recommendation.

14

 


APPENDIX 3
Page 3 of 3

Recommendation 4. Require the mapping centers and the Printing Center to establish time
requirements for processing printing requests and assign adequate number of staff to meet
these requirements.

Status: Implemented. Our followup review found that the Geological Survey had made
progress in this area, reducing the turnaround time from 22 to 10 months. We believe that
a 10-month turnaround time should be sufficient once the Geological Survey implements
adequate ordering procedures to ensure that out-of-stock conditions do not occur and
establishes print-on-demand capabilities.

15

 


APPENDIX 4

                      Page 1 of 2
United States Department of the Interior

U.S. GEOLOGICAL SURVEY
   Office of the Director
   Reston, Virginia 22092

In Reply Refer To:
Mail Stop 105

MEMORANDUM

To:     Robert J. Williams
     Acting Assistant Inspector General for Audits
From:    Gordon P. Eaton

Subject:   Draft Audit Report on Inventory Management and Valuation, National Mapping
     Division, U.S. Geological Survey (Assignment No. E-IN-GSV-O06-95)

The U.S. Geological Survey (USGS) has reviewed the draft audit report and concurs with the
recommendations. The USGS would like to take this opportunity to thank the Office of the
Inspector General for their cooperation and assistance in developing solutions for correcting the
deficiencies which were identified in the audit.

Corrective actions taken and/or planned include:

Inventory Management

Recommendation 1
o   Implemented the use of scales at all product handling steps to establish and verify
  inventory counts
o   Products and product location have been bar coded to streamline product handling
  procedures
o   lnventory management procedures and functions have been documented
o   Future plan - establish procedures for maintaining a perpetual inventory and implement
  procedures by January 1997
o   Future plan - initiate real time access to the Federal Financial System (FFS) inventory by
  January 1997

Recommendation 2
o   Initiated a stock reduction plan approved by Operations Council
o   Assessed over 35,000 titles since January 1, 1996
o   Reduced inventory from 95 million to 81 million items
o   Developed plans for the disposal of excess products
o   Removed obsolete products
o   Future plan - continue the assessment of all products in the warehouse and plan to
  complete removal of all excess products by October 1997

 


APPENDIX 4
Page 2 of 2

Recommendation 3
o   Issued memorandum on establishing and coordinating print run sizes for products and
  establishing print run on demand
o   Established target stock levels and reorder points for all products in the warehouse
o   Significantly reduced the number of out-of-stock items in the warehouse

Recommendation 4
o   Six Earth Science Information Centers (ESIC) have been inventoried and point-of-sale
  technology is now maintaining inventories at these sites
o   Future plan - ESIC inventories will have an automated connection to the DORRAN with
  an automated interface with FFS and access to other ESIC inventories by July 1997

Recommendation 1
o   Captured production costs in Covalent system

Recommendation 2
o   Established stock valuation formula (Fiscal Year 1995 costs deflated by the Gross
  Domestic Product back to print year multiplied by the number of units held for sale)

Questions related to implementation of recommendations maybe referred to Hedy Rossmeissl,
Senior Advisor for Data and Information Delivery, National Mapping Division. The attachment
reflects editorial suggestions and corrections to the draft report. The wording to be eliminated is
underlined; the substitute wording is in italics.

If you have any questions regarding this response, please contact Kitty Venti, USGS audit liaison,
at (703) 648-7104.

Attachment

[ATTACHMENT NOT INCLUDED BY OFFICE OF INSPECTOR GENERAL] 

17

 


APPENDIX 5

STATUS OF AUDIT REPORT RECOMMENDATIONS

Finding/Recommendation
  Reference        Status         Action Required

A.3 and B.1     Implemented    No further action is required.

A.l, A.2, and A.4    Resolved; not    No further response to the Office of
          implemented.    Inspector General is required. The
                  recommendations will be referred
                  to the Assistant Secretary for Policy,
                  Management and Budget for tracking
                  of implementation.

18

 
ILLEGAL OR WASTEFUL ACTIVITIES
   SHOULD BE REPORTED TO
THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:           Calling:

Within the Continental United States

U.S. Department of the Interior       Our 24-hour
Office of Inspector General          Telephone HOTLINE
1550 Wilson Boulevard            1-800-424-5081 or
Suite 402                (703) 235-9399
Arlington, Virginia 22210

TDD for hearing impaired
(703) 235-9403 or
1-800-354-0996

Outside the Continental United States

U.S. Department of the interior        (703) 235-9221
Office of Inspector General
Eastern Division - Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

North Pacific Region

U.S. Department of the Interior         (700) 550-7279 or
Office of Inspector General          COMM 9-011-671-472-7279
North Pacific Region
238 Archbishop F.C. FIores Street
Suite 807, PDN Building
Agana, Guam 96910

 
Toll Free Numbers:
1-800-424-5081
TDD 1-800-354-0996

ITS/Commercial Numbers:
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TDD (703) 235-9403

HOTLINE

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Suite 402