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$1 million. When an accident does occur, the Commission estimates the cost it will
be responsible for paying and sets up an account payable for that amount. The
amount of the reserve is reduced by the amount of the payable.
In our opinion, the practice of setting up such a reserve accomplishes a matching
of cost and revenues by charging users each year with their share of the cost of acci-
dents that will occur. Additionally, the reserve process described above normalizes
or levels out cost fluctuations.
The Commission is required by its implementing legislation to recover all costs of
operating and maintaining the Canal. Tolls are to be increased or decreased as these
costs fluctuate. If reserves were not employed, the tolls rate would need to rise each
time there was a major accident and lowered as soon as the cost of the accident
were recovered. The tolls adjustment mechanism would not be that responsive-an
increase in the tolls rate takes 6 months. Additionally, although unrecovered costs
can be made up from future tolls revenues, excess recovery becomes a profit and,
under the Treaty and Act, the first $10 million in profits is payable to the Republic
of Panama.
RESERVE COVERAGE
The reserve described above provides for all marine accidents within the Canal.
That is, it includes the estimated cost of claims for damages arising from marine
accidents which may occur: within the Canal locks, outside the Canal locks with an
estimated liability of $120,000 or less, and outside the Canal locks with an estimated
liability of more than $120,000.
The Commission has the authority to adjust and pay the first two categories of
claims. Sections 1411 and 1412 of the Panama Canal Act direct the Commission to
promptly adjust and pay all claims arising from accidents within the locks and all
those outside the locks where the claim or estimated liability is $120,000 or less.
These are to be paid for appropriations for operating and maintaining the Canal.
The Commission, however, has no authority to adjust or pay claims in the third
category-that is, claims arising from accidents which occur outside the locks and
where the claim or estimated liability exceeds $120,000. Rather, section 1415 of the
Act requires the Commission to submit this category of claims to the Congress with
a special report on the accident containing the material facts and the Commission's
recommendation. The Act is silent as to what the Congress will do upon receipt of
these reports.
Some question whether the Commission should consider this last category of
claims in its reserve for marine accidents when it has no authority to pay such
claims. We believe reserves should continue for this category of claims; collected as
a part of tolls and deposited in the Panama Canal Commission Fund. However, au-
thorization and appropriation from the Fund to pay such claims now must await the
action of the Congress on the reports rendered by the Congress.
The Act is clear that the Panama Canal is to be self-supporting and none of the
cost of operation and maintenance should be borne by the U.S. taxpayer. The Com-
mission's decision to include all claims in its reserve is in recognition of this re-
quirement to be self-supporting. It also assumes that the Congress will not deny a
valid claim arising from an accident caused by the negligence or fault of an officer
or employee of the United States acting within the scope of his employment and in
the line of duty. We agree with the self-support concept.
CONCLUSION
In short, we believe the Commission's marine accident reserve reflects prudent fi-
nancial management under the rules for operating and maintaining the Canal. It
allows for a reasonable accommodation in that it allows for matching revenues with
expenses, assuring self-support through cost recovery, and providing for a reason-
ably stable toll rate.
We recently approved the Commission's statement of accounting principles and
standards which include the marine accident reserve. Additionally, we have com-
pleted our examination of the Commission's financial statements for fiscal years
1980 and 1981. We discussed the Commission's marine accident reserve in our 1980
report, but we did not challenge either its concept or coverage.