Passport printer repays $51 million

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EXCLUSIVE:

The State Department for overcharges from the sale of millions of blank passports, according to GPO officials and internal government documents.

Several checks totaling more than $51,169,837 were delivered to the department Friday by armed couriers from the federal agency’s headquarters on North Capitol Street, said the officials, some of whom spoke on the condition of anonymity.

The repayment coincided with a six-month investigation by The Washington Times, GPO managers apparently sought to conceal the excessive profits generated by the passport sales by sharply raising overhead costs from 2007 to 2008, an activity described as “questionable” in the draft report.

The investigation began in April after the disclosure of the excessive profits and other questionable activities at the GPO that were first made public by The Times.

According to the GPO officials and internal documents, the money returned to the State Department includes $9.5 million that exceeded the amount authorized by Congress for building a backup passport production facility in John C. Stennis Space Center. However, the agency spent only $31.5 million.

The GPO officials estimated that the GPO amassed as much as $180 million in profits by charging an additional $1.83 per passport on its sales to the State Department. Each passport contains an electronic chip designed to make it more secure.

Secretary of State Condoleezza Rice said in March that her department had launched an investigation into the overcharges. She told reporters and editors of The Times, “I hope GPO is giving us the best deal they can.”

State Department spokesman Sean McCormack declined to comment on the return of the overcharges. A department official, who spoke on the condition that he not be named, described the transfer as “a recovery,” a description similar to that used by the GPO.

The official said the refund will be used to fund new passports but would not say whether the price of passports, currently about $100, would be lowered.

The private accounting firm KPMG also is investigating GPO accounting practices, the GPO officials said. The investigation was described as a Statement on Auditing Standards No. 99: Consideration of Fraud in a Financial Statement, or SAS 99.

A KPMG spokesman declined to comment on the probe.

Gary Somerset, a GPO spokesman, said in a statement that the $51 million was returned as the result of an “over-recovery” of costs “because the actual quantity of passports produced exceeded the original quantity used to determine the price.”

The GPO, the federal government’s monopoly printing agency, began accumulating large profits in recent years after decades of following a federal law that limited the agency to operating on a break-even basis.

Mr. Somerset said auditors in the past have given the GPO “an unqualified opinion about the condition of our books” and that “GPO expects that again this year.”

Earlier this year, documents and GPO officials disclosed that the printing agency made about $90 million in profits for fiscal 2007 and another $90 million between January and June, far beyond the $41 million authorized by Congress.

The draft GAO inspector general report states that the GPO produced 18.6 million passports and sold them for $14.80 per blank booklet to the State Department for $275 million, “including $71 million in net income.”

“Recently, Congress and the news media have questioned GPO regarding the legality and reasonableness of the net income,” the report stated.

Major issues identified by the IG included a tenfold rise in indirect overhead costs for passports, which increased from 5.6 percent, or $4 million in fiscal 2007, to 52 percent, or $40 million, in fiscal 2008.

The excessive overhead had the effect of reducing GPO’s ostensible profit on passport sales from $111.6 million to $71.5 million, the report stated.

“Some suspect that this unreasonable overhead expense reallocation was an act to conceal passport profits,” said one GPO official, who spoke on the condition of anonymity. “If a commercial contractor diverted funds of this magnitude from the government, a criminal investigation would surely be under way.”

Other problems identified in the report included a lack of a formal management policy at GPO on costing, overstated labor costs and misstated overtime costs.

GPO financial managers included in indirect overhead costs the funding of a major GPO digitalization program. The report noted that “by including the costs of this project in the indirect overhead cost pool, GPO is funding over half of the cost of this project through passport sales” to the State Department.

However, the manager for the project told the IG that he “could not confirm that over half the project will benefit passport production, stating that the project had nothing to do with passports.”

The report said GPO’s chief financial officer “should document an explanation of the change in indirect overhead allocation methodology.”

Steve Shedd, the GPO chief financial officer, could not be reached for comment. Mr. Somerset, the GPO spokesman, dismissed questions about Mr. Shedd’s accounting work as “unfounded accusations.”

Earlier this year, Public Printer Robert Tapella stated in written questions and answers submitted to the House Committee on Energy and Commerce that the GPO did not make excessive profits on the sales of passports to the State Department.

He said the money made from passports was “currently recognized as net income” that “is being dedicated to ongoing and/or anticipated future capital investments to support passport production.”

The large profits at GPO coincided with increased travel by GPO managers, bonuses and excessive spending on executive perks, such as $10,000 spent on official photographs for Mr. Tapella.

Other spending included travel by senior GPO officials to exotic foreign locations and numerous domestic Germany, several months ago that cost more than $133,000.

About the Author
Bill Gertz

Bill Gertz

Bill Gertz is a national security columnist for The Washington Times and senior editor at The Washington Free Beacon (www.freebeacon.com). He has been with The Times since 1985.

He is the author of six books, four of them national best-sellers. His latest book, “The Failure Factory,” on government bureaucracy and national security, was published in September 2008.

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