USDOJ/OIG - Semiannual Report to Congress, October 1, 1995 - March 31, 1996

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The Audit Division

The Audit Division is responsible for independent reviews of Department of Justice organizations, programs, functions, automated data processing systems, and financial statement audits.

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The Audit Division

Overview & Highlights

The Audit Division is responsible for independent audits and related reviews of Department of Justice (DOJ) organizations, programs, functions, automated data processing systems, and financial statement audits. The Audit Division also conducts or reviews external audits of expenditures made under Department contracts, grants, and other agreements. Audits are conducted in accordance with the Comptroller General's Government Auditing Standards and related professional auditing standards. The Audit Division produces a wide variety of audit products designed to provide timely notification to Department management of issues needing attention. It also assists the Investigations Division in complex fraud cases.

During this period, the Audit Division issued 11 internal audits, 14 external audits, 85 audits of bankruptcy trustees, and 79 Single Audit Act audits. The Division issued seven Management Information Memoranda, four Technical Assistance Memoranda, three Investigative Assistance Memoranda, and one Notification of Irregularity. In addition, Department management agreed with $941,000 in questioned costs, agreed to implement 190 management improvement recommendations, and agreed that $1 million in funds be put to better use.


Significant Audit Products

The Home Confinement Program in the BOP

The Bureau of Prisons (BOP) Home Confinement Program allows Federal inmates to live at home and maintain gainful employment while remaining in official detention status. Generally, participants must have less than 6 months or 10 percent of their sentence remaining and not require the full range of services provided by Community Corrections Centers (CCCs). The program provides Federal prison inmates a transition back into the communities where they will live upon release from Federal custody. Because the Administrative Office of the United States Courts (AOUSC) has its own home confinement program, BOP entered into an agreement with AOUSC to monitor home confinees at locations where BOP CCCs were inaccessible.

Overall, we found the program to be operating satisfactorily. However, BOP can operate the program more efficiently and reduce program costs by about $1 million annually by: (1) implementing electronic monitoring for all home confinees, (2) collecting the required subsistence payments from BOP home confinees monitored by AOUSC, and (3) ensuring that bills from AOUSC for electronic monitoring services are reduced by subsistence collections from BOP home confinees. While the CCCs' staff generally completed the requirements for monitoring home confinees, some did not contact home confinees daily at random times or conduct weekly residence and employment visits.


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Significant Audit Products

DEA Property Management and Inventory Controls

At the time of our audit, the Drug Enforcement Administration (DEA) estimated that its property inventory consisted of about 111,000 items with an approximate value of $290 million. Our audit found that DEA's official property records were materially misstated. We determined that DEA did not have a comprehensive, reliable property management program. The agency had seven different, fragmented systems organized by property type and use, and each was operated and managed independently. We sampled 3,699 property items and found that 464 items were not recorded in one of the property systems; 473 items were recorded with an incorrect serial number, location, custodian, or DEA identifier; and 56 items valued at over $120,000, as well as 16 unissued badges, could not be located and produced for our physical inspection.

Other property management weaknesses were: (1) there was no property management officer with overall property management responsibility, (2) physical inventory practices were not adequate, (3) idle property with an acquisition value of over $217,000 was noted, and (4) the duties for controlling both the physical property and records for badges and credentials were not adequately separated. Additionally, DEA's accounting records for personal property were inaccurate and unreliable, resulting in a materially misstated fixed asset balance in the aggregate of at least $85 million. The fixed asset balance was erroneous due in part to capitalization errors, the omission of nonpurchased assets, and the failure to deduct disposed assets.

We recommended that DEA establish a comprehensive personal property management program and correct specific deficiencies that led to the misstated fixed asset balance.

USMS' Collection of Service Fees and Commissions

The United States Marshals Service (USMS) reported collecting approximately $10.2 million in fees for over 920,000 processes served during the period of fiscal year (FY) 1992 through FY 1994.

We tested USMS districts' consistency in calculating fees, billing for services, controlling collections, and reporting work load activity. We found considerable confusion. None of the districts calculated fees and commissions correctly in at least 38 percent of the test cases. Additionally, over 80 percent of the districts did not collect all fees due. As a result, USMS managers could not ensure that staff collected all potential revenues. We could not estimate whether the USMS was over- or under-collecting fees because 67 percent of districts did not track all information needed to perform this calculation. We also found that none of the districts adequately segregated cash handling duties to minimize misuse of Government funds.

During our field work, USMS issued revised guidance for the fee program clarifying many of the inconsistently implemented policies. USMS managers will instruct district office personnel on properly segregating critical cash handling duties.

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Significant Audit Products

Immigration Information Officers' Access to Central Index System

Immigration information officers (IIO) are responsible for verifying the status of applicants by checking data in the Immigration and Naturalization Service's (INS) Central Index System (CIS). During a recent audit we noted that several IIOs could change data in the CIS to create new CIS files or aliases, enter or alter naturalization status, and change the classification and physical description of applicants. While we found no indications of errors or irregularities, IIOs come into direct contact with applicants who could benefit if their INS records were modified, resulting in a risk of erroneous or unauthorized creation and alteration of alien records.

We informed INS of this security weakness and advised strengthening the control environment by either limiting the ability of IIOs to alter or create records, or electronically monitoring database transactions to detect potentially fraudulent activity.

Equitable Sharing Audits

The Department shares the proceeds of forfeited assets with State and local law enforcement agencies that participate in Federal investigations resulting in forfeitures. Annual sharing of funds totals about $234 million nationally and is to be used for law enforcement purposes. Audits of fund use are performed at the request of Department management.

• An audit of a state police department identified funds totaling about $405,000 credited in error to a non-law enforcement fund and questioned costs of about $1.6 million as a result of incorrect use of asset forfeiture funds, unsupported transactions, and interest not credited to the asset forfeiture fund.

• An audit of a city police department found no records for the receipt of $10,435 from the USMS, and the local asset sharing fund was not credited for $110,000 of estimated interest earned on monies contained in the fund.

• An audit of another state police department found that local appropriations had been improperly used in place of local funds for about $76,000 in salary payments. In addition, property records were inaccurate.

USMS Agreement With St. Elizabeth's Hospital

We reviewed payments made by the USMS to St. Elizabeth's Hospital in the District of Columbia for the care of patients in Federal custody. The hospital received $25,040 in overpayments made by the Medicare program for services reimbursed in full by USMS. Additionally, the USMS was billed for services to a patient long after medical treatment stopped. USMS planned to recover about $340,000 paid for this patient. Further, while gathering records for our review, USMS personnel discovered that they paid the May 1990 hospital billing twice, which resulted in an overpayment of $306,220. USMS management intended to recover this amount through the offset of future payments.

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Significant Audit Products

Status of INS' Financial Management Corrective Action Plan

DOJ's implementation of the Chief Financial Officers Act included annual audits of INS' Fee Accounts for FY 1991 through FY 1993 and an audit of the INS Breached Bond Detention Fund for FY 1993. Each audit resulted in a disclaimer of opinion due to the condition of INS' accounting records. Significant weaknesses in the internal control structure were identified in corresponding reports on internal control and compliance with laws and regulations. These weaknesses must be corrected before an opinion can be expressed on the financial statements.

In response to our auditors' reports, INS developed a corrective action plan designed to improve overall financial management and eliminate the weaknesses identified in the audit reports. We reviewed the corrective action plan and found that INS has begun to make progress toward its implementation.

Controls Over the Use of Trust Accounts for Chapter 7
Bankruptcy-related Earnest Monies

Panel trustees often have custody of funds that are not yet the official property of estates, such as when earnest monies are received related to the purchase of estate assets. Because panel trustees usually have other business interests such as law firms or accounting practices, care must be taken to prevent these bankruptcy-related funds from becoming commingled in the panel trustee's business or personal accounts. Funds commingled in such accounts are at risk of loss because they are subject to the claims of a panel trustee's creditors or may become otherwise encumbered by operation of law.

We recommended that the Executive Office for United States Trustees (EOUST) establish trust account maintenance requirements to safeguard bankruptcy-related earnest monies, require panel trustees who receive bankruptcy-related earnest monies to adhere to EOUST trust account requirements, and require such panel trustees to provide a full accounting of trust account activity for bankruptcy-related funds.

National Drug Intelligence Center

The National Drug Intelligence Center (NDIC) provides investigative agencies relevant information on major drug trafficking organizations. We found that NDIC undertook projects which were outside the scope of its mission, lacked necessary access to DEA and Federal Bureau of Investigation case file information, and had not obtained the full participation of DOJ components, agencies, and intelligence centers. During our review of NDIC management controls, we noted that personnel security clearances were out of date, classified documents were not always secure, and computer backup data were not properly stored off-site. Currently, we are conducting a financial audit of NDIC.

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Significant Audit Products

Contract and Grant Audits

At the request of Department management, we audited expenditures made under several DOJ contracts and grants.

• An audit of a Bureau of Prisons' contractor found that the contractor overstated its $7.7 million claim by about $2.2 million. We provided this information to the contracting officer for use in negotiations for the settlement of the claim.

• An audit of two Office of Justice Programs (OJP) grants could not be completed because the grantee failed to produce the necessary records. As a result, we recommended that OJP take action necessary to remedy the costs questioned totaling $287,436.

• An audit of costs incurred in two OJP Office of Juvenile Justice and Delinquency Prevention (OJJDP) grants identified about $220,000 in questionable costs and concluded that financial and administrative controls were inadequate. We recommended that OJJDP remedy the costs questioned and ensure that the grantee takes corrective action to prevent a recurrence of the questionable practices.

Chief Financial Officers Act of 1990/
Government Management Reform Act of 1994

Financial statement audits are performed at the Department by independent public accountants, with oversight by the Audit Division. During this semiannual period, an audit of the FY 1995 annual financial statement of the Federal Prison Industries, Inc. was issued with an unqualified opinion on the principal financial statements.

INS Automation Initiatives

We continued to monitor INS' critical automation initiatives. The total cost for these initiatives is projected to be almost $1.7 billion and will affect nearly all aspects of INS management. We attend INS' quarterly meetings to monitor the effective use of their automation resources. Based on our monitoring, we notified the Justice Management Division of potential problems in the progress to date.

Office of Community Oriented Policing Services

We continued to work with the Office of Community Oriented Policing Services (COPS) in its implementation of the Violent Crime Control and Law Enforcement Act of 1994. We performed four reviews of selected grant applicants under the COPS FAST and COPS MORE programs to determine if the information contained in the grant applications was accurate, complete, and supported by adequate documentation. We also reviewed whether community groups and appropriate public and private agencies were consulted in the formulation of applications and whether problems existed that might impede successful grant implementation in the communities.

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Significant Audit Products

Trustee Audits

The Audit Division has contributed significantly to the integrity of the bankruptcy system by performing financial audits of trustees under a reimbursable agreement with the EOUST. During the reporting period, 85 trustee reports were issued.

For FY 1996, the U.S. Trustee Program plans to redirect 52 percent of the funds presently reimbursed to the OIG for audits to support other bankruptcy initiatives. This reduction in the reimbursable agreement could substantially eliminate oversight of an area that has been designated high risk and increase the possibility that trustee fraud will go undetected.

Summary of Trustee Audit Reports and Findings Issued for FY 1995

The Audit Division conducted 427 audits of trustees administering bankruptcy cases under Title 11, United States Code, Chapters 7, 12, and 13 for FY 1995. Our audits were conducted at the request of EOUST as part of a continuing reimbursable agreement between EOUST and the OIG.

• We conducted 400 audits of panel trustees administering Chapter 7 bankruptcy cases. Our audits sampled over 5,000 cases containing over $502 million, from a universe of over 16,700 cases with funds over $649 million. We reported about 2,300 deficiencies for an average of almost 6 deficiencies per report.

• We conducted 26 audits of standing trustees administering Chapter 12 bankruptcy cases. We audited trustees administering about 1,400 cases with disbursements to creditors in excess of $19 million during the period reviewed. We reported a total of 90 deficiencies in the Chapter 12 audits, an average of over 3 per audit.

• We conducted one audit of a standing trustee administering Chapter 13 bankruptcy cases. The trustee administered about six cases as determined by the audit. The trustee did not prepare the U.S. Trustee-required annual reports.

Single Audit Act of 1984

The Single Audit Act of 1984 and the Office of Management and Budget (OMB) Circulars A-128 and A-133 require recipients of Federal funds to arrange for audits of their activities. During this period, 79 reports were reviewed and transmitted by the Audit Division encompassing 342 Department contracts, grants, and other agreements totaling $148,886,785. These audits report on financial activities, compliance with applicable laws, and, in many cases, the adequacy of recipients' internal controls over Federal expenditures. Reports on organizations over which the Department is cognizant or which have a preponderance of Department funds are reviewed to ensure compliance with generally accepted Government auditing standards. In certain circumstances, the Audit Division performs audits of State and local governments, nonprofit organizations, and Department contracts and provides requested assistance to these entities.

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Significant Audit Products

Audit Follow-up Activities

OMB Circular A-50, "Audit Follow-up," requires audit reports to be resolved within six months of the audit report issuance date. The status of open audit reports is continuously monitored to track the audit resolution and closure process. As of March 31, 1996, the OIG had closed 214 audit reports and was monitoring the resolution process of 99 open audit reports.


Achievements Resulting From Past Audits

USMS Reorganization Plan's Effect on Seized Assets Management

In our last Semiannual Report to Congress, we summarized our special review requested by the Deputy Attorney General. In addition to potential benefits from the USMS' proposed reorganization, we reported that the reorganization could result in insufficient staff levels, loss of program expertise, and reduced oversight of the seized assets program. On March 22, 1996, the Chairman of the House Subcommittee on the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies notified the Department of the Committee's approval of the USMS reorganization plan but placed conditions on its implementation in regard to the seized assets program.

The Committee stipulated that:

• Oversight and management of the seized assets program should be placed within the USMS' proposed Business Services Division.

• No less than 418 positions, 404 FTEs, and $27.8 million should be devoted to the program as provided in the 1996 Conference Report levels.

• No resources currently dedicated to the program at USMS headquarters should be shifted to other divisions or the field until a review of the number, type, and location of positions needed to carry out the responsibilities of the USMS for managing seized assets is completed and provided to the Committee.

Controls Over Established User Fee Accounts in INS

In December 1992, we issued an audit report showing that the INS was not recovering all indirect costs from user fees. We identified $114.8 million in program costs that should be recovered through fees. According to the INS, this audit finding triggered several actions culminating in INS' decision to increase fees by
7.5 percent or an estimated $23.5 million. The revised fee schedule became effective in July 1994 and consequently was effective for the full 1995 fiscal year; it continues into FY 1996.

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Audit Statistics

Funds Recommended to be Put to Better Use

Audits with Questioned Costs

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Audit Statistics

Audits Involving Recommendations for Management Improvements