General Services Administration

The General Services Administration (GSA) sells 27 retail packaging products, which include boxes, envelopes, and shipping sacks, to federal agencies. The Postal Service is its largest customer. GSA is not required to, nor does it set prices to, recover all estimated costs associated with selling retail packaging products on an item-by-item basis. GAO's analysis of the 27 retail packaging products shows that GSA's prices for most of these products fell short of recovering all estimated costs associated with each item. GAO agrees with GSA that the method it has chosen to achieve full cost recovery is within its discretion as long as the money obtained from all the products and services sold under the General Supply Fund covers the fund's operating expenses. On the other hand, a question that remains unanswered is whether GSA should be selling the majority of its products at prices that do not recover all selling costs. GSA's ongoing study of its stock program may shed some light on this issue.

GAO noted that: (1) GSA is not required to, nor does it set prices to, recover all estimated costs associated with selling retail packaging products on an item-by-item basis; (2) the statutory provision related to product pricing and cost recovery, 40 U.S.C. 756, specifically identifies the purchase price, transportation, and the direct and indirect costs associated with contracting, handling, and distributing products as the costs that GSA should recover through its selling prices; (3) however, the law does not require GSA to use a specific method in recovering its costs or require GSA to establish a price for an individual product that will recover all of the costs associated with selling that product; (4) GSA officials believe that they are complying with the full cost recovery requirement mandated in 40 U.S.C. 756, if the revenues for all products and services sold through its General Supply Fund are at least equal to the total cost of operating the Fund; (5) because the statute does not specify how GSA should implement full cost recovery, does not require that GSA must recover cost on an item-by-item basis, and states that cost should be recovered so far as practicable, GAO believes that the method GSA is using to achieve full cost recovery is within its discretion; (6) GAO's analysis of the 27 retail packaging products indicates that GSA's selling prices for the majority of these products were not sufficient to ensure that all estimated costs associated with selling each individual item were recovered from the sale of these products; (7) specifically, GAO found that the actual pricing markups applied to these products were usually lower than the individual product markups calculated by GSA's cost allocation model, which, according to GSA officials, is the most accurate estimate of how much it costs GSA to sell each item individually; (8) GSA groups similar products into what it calls a federal supply class and applies a single markup to each class to determine its product selling prices; (9) the federal supply class markups are determined through the use of the cost allocation model and the professional judgment of supply officials; and (10) GSA pricing officials said that it would be burdensome and impractical to implement a system that tracks each product and ensures full cost recovery on an item-by-item basis.