JMD: AFP: Appendix 1

APPENDIX I

	U.S. Department of Justice

	Washington, D.C. 20530

This responds to recommendations included in the Independent Auditors' Report on Internal Controls stemming from the audit of the Fiscal Year 2003 financial statements of the Assets Forfeiture Fund and Seized Asset Deposit Fund (AFF/SADF).

Recommendation #1: Continue monitoring and evaluating participating agencies' efforts to improve the Consolidated Assets Tracking System (CATS) data quality and adopt effective processes by which the Asset Forfeiture Management Staff (AFMS) can enforce compliance with standards designed to ensure that the impact of status, valuation, category and substitute res errors are minimized throughout the fiscal year. This should include establishing effective accounting closing procedures, performing on-site monitoring, resolving disagreements between participating agencies, correcting CATS and the general ledger as needed, and reaffirming with the participating agencies the proper procedures for correcting errors found during physical inventory counts. Moreover, AFMS should enforce procedures to ensure any CATS errors that are not corrected in an effective or timely manner are brought to the attention of senior financial managers at the responsible participating agency.

Concur: The AFMS, through the CATS Data Quality Team (DQT), will continue to monitor and evaluate participating agencies efforts to improve CATS data quality through on-site reviews of source documentation. Results of each review are chronicled in a management report, outlining corrective actions that must take place. In addition to these on-going site reviews, the CATS DQT Program Manager has initiated a data review process with each of the component agencies CATS User Group representatives where specific data entry risk areas have been identified and a corrective action plan has been put in place to resolve known errors and monitor on-going progress.

Recommendation #2: Establish a reporting and monitoring process that communicates and emphasizes the importance of correctly classifying obligations as delivered and undelivered throughout the fiscal year, not just at fiscal year-end. This communication should stress the need for a change in practice for the participating agencies that establish obligations for AFF/SADF to monitor the status of obligations on an on-going basis in accordance with the budgetary and accrual basis of accounting, and to review monthly and quarterly information, in addition to year-end information. The process should include prompt identification and correction of obligation errors to prevent misstatements or delays that adversely affect the AFF/SADF financial statements.

Concur: The AFMS agrees that challenges of improving the accuracy and timeliness of financial reporting requires changes to the business-as-usual practices of the past. AFF member agencies are being provided with regular, written direction that reinforces existing Department policies and procedures regarding the importance of accurate reporting of obligations. In addition, where changes in practices are found to be necessary, the AFMS has supported providing additional AFF resources necessary to prevent misstatements or delays that adversely affect the AFF/SADF financial statements. For example, one participating entity of the AFF has been allocated resources to procure expert financial contract support services that are participating in the review, analysis, development, and implementation of a comprehensive corrective action plan to address financial reporting deficiencies identified in the most recent audit. As a result, progress reports to date indicate the problems are being successfully addressed.

Recommendation #3: Develop and implement procedures within AFMS or Justice Management Division (JMD) to perform frequent validation of obligation status recorded in the financial system and sampling of open obligations throughout the fiscal year. This should include reviewing open obligations and the related supporting documentation to ensure obligations are correctly classified, ensuring documentation supports calculations of undelivered and delivered amounts recorded in the general ledger, and ensuring appropriate adjustments are made to deobligate expired obligations. These procedures should be completed to ensure new processes are being followed throughout the fiscal year, allowing management in each participating agency to correct any problem areas prior to fiscal year-end.

Concur: The AFMS agrees that validation of obligation status and periodic reviews of open obligations are essential elements of successful financial management. The AFMS is working closely with JMD Finance Staff to ensure that applicable AFF member agencies provide reports and certifications of valid obligations on a regular basis. In addition, AFMS staff are meeting with agency financial management personnel and audit teams to review obligation status processes and practices, including the criteria used to substantiate the delivery status of amounts recorded in the financial system. To date, these meetings have been very constructive and have resulted in actions to strengthen certain accounting practices that were found to be questionable.

Recommendation #4: Ensure reimbursable agreements are obligated for the appropriate amount for Program Operation Expenses or Investigative Expenses when they are initially entered into the system and ensure the appropriate amount of obligations are included in interim financial statements.

Concur: AFMS recognizes that the financial management policies in this area found to be lacking in the Department as a whole by the independent auditors requires a change in standard accounting practices. Accordingly, the AFMS has taken appropriate action to ensure that obligations are correctly recorded in the general ledger in compliance with the law and regulations governing the AFF.

Recommendation #5: Implement procedures to ensure that the U.S. Marshals Service (USMS) is properly accounting for real estate dispositions in the financial system and CATS including a review by AFMS of a monthly reconciliation of the real property disposition spreadsheet to CATS and the U.S. Marshals Service Finance Staff (FMS) to verify that all real property sale transactions are properly accounted for. In addition, AFMS should require USMS supervisory personnel to review the schedule for any errors in recording sales price, third party payments and sale expenses. The spreadsheet and supporting documentation should be provided to the AFMS in a timely manner so accurate information can be presented in the financial statements.

Concur: AFMS has provided the USMS with a set of Standard Operating Procedures for preparing the support documentation and spreadsheet used to post the revenue and expense adjustment associated with the disposition of real estate. The USMS has agreed to ensure that each quarterly and year end schedule is reviewed by a supervisor before submitting the information to AFMS but has indicated that they will perform a quarterly in lieu of monthly reconciliation of the real property dispositions.

Recommendation #6: Perform a detailed review of all forfeiture revenue activity at each financial reporting date to ensure transactions are accounted for in the proper period. The AFF/SADF should also verify that the revenue accrual calculation includes all sales that occurred during the fiscal year for which income is received after year-end.

Concur: New closing procedures at the Department level include time frames established to permit cut-off accruals after the closing of field activity has occurred. AFMS also continues to work with the investigative agencies, U.S. Attorney's Offices and the USMS to ensure forfeiture and sales information is entered into CATS prior to the cut-off date, which is critical for accounting for revenue transactions in the proper period.

Recommendation #7: Improve the on-going communication and follow-through among participating agencies pertaining to transaction processing standards, errors, exceptions, missing documents, unresolved discrepancies, control matters and other items that impact the timely and accurate preparation of the AFF/SADF financial statements. We also recommend that AFMS establish standard closing procedures and time-frames for all accounting and property information impacting the AFF/SADF's financial statements and enforce those standards vigorously.

Concur: Comprehensive closing procedures are being developed at the Department level and will improve the communication of the steps applicable to each level of the accounting compilation process in the identification and correction of errors, exceptions and delays in general. AFMS will continue to work with the program components to establish standard closing procedures and time- frames for all accounting and property information impacting the AFF/SADF's financial statements at the component and field level.

Recommendation #8: Establish procedures to monitor JMD's review of the budget clearing account (BCA) transactions to ensure timely and accurate identification of the allocation of BCA balances to the AFF/SADF.

Concur: Beginning in FY 2004, JMD implemented a quarterly review of the BCA and produced an aging report of BCA differences by fiscal year. Additional resources have been assigned to research and correct old BCA balances. The allocation of the BCA account balances between the Office, Boards and Divisions, the Working Capital Fund, and AFF are based on payment schedule type. Efforts are being made to clear pending BCA differences within a three-month timeframe.