Summary

Prior to the transfer of the functions of the Federal Emergency Management Agency (FEMA) to the newly established Department of Homeland Security (DHS) within the Emergency Preparedness and Response Directorate (EP&R), FEMA was one of 24 Chief Financial Officers (CFO) Act agencies required to obtain annual financial statement audits. While DHS obtained a financial statement audit covering the period from March 1 through September 30, 2003, no financial statement audit was performed for FEMA activities for the 5 months prior to March 1, 2003. For fiscal year 2001, FEMA received a qualified audit opinion, which was due mostly to the auditor's inability to determine the accuracy of the amount reported for FEMA's equipment as well as other property issues. Although FEMA received an unqualified opinion from its auditor in fiscal year 2002, the auditor reported six material weaknesses (one relating to its real and personal property system processes) and one reportable condition as well as significant year-end adjustments made to property accounts. Furthermore, the audit report noted that FEMA did not have policies and procedures in place to ensure the accuracy of data recorded in its personal property system, the Logistics and Information Management System (LIMS). The previously reported weaknesses as well as the very nature of FEMA's mission, disaster response, which entails the acquisition of new personal property, sometimes very quickly, raise the risk that property may have been acquired but not recorded in LIMS and not accounted for by FEMA in the interim 5 months before the agency functions were transferred to DHS. As such, given the past weaknesses and risks surrounding FEMA's property management, the objectives of our review were to determine (1) whether controls were in place to ensure that property acquired during the 5 months prior to FEMA transferring its functions to DHS was properly accounted for in LIMS and (2) whether FEMA has corrected previously reported property management weaknesses.

FEMA continues to lack the controls and key information necessary to ensure that personal property is properly accounted for. Accordingly, we were unable to perform statistically based testing to conclude whether or not FEMA properly accounted for property acquired during the 5 months prior to transferring its functions to DHS. We attempted to manually trace property items from the acquisition system and related documentation to the property system. Because these systems do not share common data identifiers such as serial numbers, purchase order numbers, and the like, we were unable to complete our tests of individual items. Absent integrated or adequately interfaced systems with the key information necessary to track and account for property, accountable and sensitive property is highly vulnerable to loss or misappropriation. In addition, while the original acquisition date was recorded in LIMS, users of the system were able to change that date and frequently did so to reflect when items were transferred to other locations. FEMA has not corrected its reported weaknesses related to property and equipment. Its property system is still not JFMIP compliant. Although new data fields have been added to address compliance, the systems holding the data needed to populate those fields are not linked to LIMS and thus, do not routinely share information. While processes have been developed to transfer information for certain data fields manually, it has only been done for capitalized property, which makes up less than 1 percent of property items and roughly 20 percent or $73 million of the total property value in LIMS. FEMA's fiscal years 2001 and 2002 auditors reported material weaknesses related to FEMA's accounting for real and personal property, and we reiterated these weaknesses in our fiscal year 2003 Performance and Accountability Series. In addition, due to the reduced materiality of FEMA's real and personal property for financial statement audit purposes, these weaknesses were not included in the DHS's departmentwide audit report. Instead, the material weaknesses were included in an observations and recommendations comment provided to EP&R management. Due to decreased visibility of this issue and the seriousness of these problems given the nature of FEMA's operations, immediate corrective actions are warranted, so that these problems do not continue to grow or assets are not unnecessarily vulnerable to loss or misappropriation.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Implemented" or "Not implemented" based on our follow up work.

Recommendations for Executive Action