FY 2002 Annual financial Statements
U.S. Department of Justice
Notes to the Principal Financial Statements
(Dollars in Thousands)
Note 1. Summary of Significant Accounting Policies
The Department has a wide-range of responsibilities which include: detecting, apprehending, prosecuting, and incarcerating criminal offenders; operating Federal prison factories; upholding the civil rights of all Americans; enforcing laws to protect the environment; ensuring healthy competition of business in the United States free enterprise system; safeguarding the consumer from fraudulent activity; carrying out the immigration laws of the United States; and representing the American people in all legal matters involving the United States Government. Under the direction of the Attorney General, these responsibilities are discharged by the components of the Department.
For purposes of these consolidated/combined financial statements, the following components comprise the Department's reporting entity:
These financial statements have been prepared to report the financial position and results of operations of the Department as required by the Government Management Reform Act of 1994, Public Law 103-356, 108, Stat. 3515. These financial statements have been prepared from the books and records of the Department in accordance with generally accepted accounting principles issued by the Federal Accounting Standards Advisory Board (FASAB) and Office of Management and Budget (OMB) Bulletin 01-09, “Form and Content of Agency Financial Statements.” These financial statements are different from the financial reports, also prepared for the Department pursuant to OMB directives, which are used to monitor and control the use of the Department's budgetary resources. The accompanying financial statements include the accounts of all funds under the Department's control.
FPI, a reporting component of the Department of Justice, operates as a revolving fund and does not receive appropriations. Its budgetary information is based on a crosswalk from proprietary accounting data. The budgetary accounting data presented best represents the actual activity as reflected in the proprietary accounts. Therefore, FPI reports negative recoveries because it does not track upward and downward budgetary adjustments separately.
Transactions are recorded on an accrual and a budgetary basis of accounting. Under the accrual basis, revenues are recorded when earned and expenses are recorded when incurred, regardless of when cash is exchanged. Under the budgetary basis, however, funds availability is recorded based upon legal considerations and constraints. As a result, similar line items on the proprietary financial statements, budgetary financial statements, and notes may not equal. Examples include, but are not limited to, the following:
The Department receives the majority of funding needed to support its programs through Congressional appropriations. The Department receives annual, no-year, and multi-year appropriations that may be used, within statutory limits, for operating and capital expenditures. Additional funding is obtained through exchange revenues, non-exchange revenues and transfers-in.
Appropriations are recognized as budgetary financing sources at the time the related program or administrative expenses are incurred. Exchange revenues are recognized when earned, for example, when goods have been delivered or services rendered. Non-exchange revenues are resources that the Government demands or receives, for example, forfeiture revenue and fines and penalties.
The Department's exchange revenue consists of licensing fees to manufacture and distribute controlled substances, services rendered for legal activities, space management, and data processing services. Fees are set by law and are periodically evaluated in accordance with OMB guidance and collected for inspecting commercial and/or sea vessel passengers, and processing various immigration applications. Other exchange revenues are generated by the sale of merchandise and telephone services to inmates, and the sale of manufactured goods and services to other federal agencies. The pricing policy for goods and services provided is based on cost plus a predetermined gross margin ratio.
The Department's non-exchange revenue consists of forfeiture income resulting from the sale of forfeited property, penalties in lieu of forfeiture, recovery of returned asset management cost, judgment collections, and other miscellaneous income. Other non-exchange revenue includes the OJP Crime Victims Fund receipts and AFF/SADF interest on investments with the U.S. Department of the Treasury (Treasury).
The Department's deferred revenue includes fees received for processing various applications and licenses mostly with INS and DEA. Deferred revenue represents monies received to process applications and licenses for which the process was not completed at the end of fiscal year. These monies are recorded as liabilities in the financial statements. Deferred revenue also includes forfeited property held for sale. When the property is sold, the deferred revenue is reversed and forfeiture revenue in the amount of the gross proceeds of the sale is recorded.
Custodial activity reported on the Statement of Custodial Activity is prepared on the modified cash basis.
Funds with the Treasury represent primarily appropriated, revolving, and trust funds available to pay current liabilities and finance future authorized purchases. Cash receipts and disbursements are processed by the Treasury as directed by authorized certifying officers. The Department does not, for the most part, maintain cash in commercial bank accounts. Certain receipts, however, are processed by commercial banks for deposit into individual accounts maintained at the Treasury. The Department's cash and other monetary assets consist of undeposited collections, imprest funds, cash used in undercover operations, cash held as evidence, seized cash, and drafts in transit.
Investments are Federal debt securities issued by the Bureau of Public Debt. When securities are purchased, the investment is recorded at par value (the value at maturity). Premiums and/or discounts are amortized through the end of the reporting period. The Department's intent is to hold investments to maturity, unless securities are needed to sustain operations. No provision is made for unrealized gains or losses on these securities because, in the majority of cases, they are held to maturity.
Net accounts receivable includes reimbursement and refund receivables due from Federal agencies and others, less the allowance for doubtful accounts. Generally, most intragovernmental accounts receivable are considered fully collectible. The allowance for doubtful accounts for public receivables is estimated based on past collection experience and analysis of outstanding receivable balances at year end.
The Department owns some of the buildings in which it operates. Other buildings are provided by the General Services Administration (GSA), which charges rent equivalent to the commercial rental rates for similar properties. Depreciation on buildings and equipment provided by the GSA is not recognized by the Department. Leasehold improvements are depreciated over the term of the remaining portion of the lease.
Except for BOP and FPI, Department acquisitions of personal property, excluding internal use software, $25 and over are capitalized and depreciated, based on historical cost, using the straight-line method over the estimated useful lives of the assets. Personal property, excluding internal use software, is capitalized when the initial cost of acquiring the asset is $25 or more and the asset has an estimated useful life of two or more years. Internal use software is capitalized when developmental phase costs or enhancement costs are $500 or more and the asset has an estimated useful life of two or more years. BOP and FPI capitalize personal property acquisitions over $5. Aircraft is capitalized when the initial cost of acquiring those assets is $100 or more. Real property, except for land, and leasehold improvements are capitalized when the cost of acquiring and/or improving the asset is $100 or more and the asset has a useful life of two or more years. Land is capitalized regardless of the acquisition cost.
Advances and prepayments, classified as assets on the balance sheet, consist primarily of funds disbursed to grantees in excess of total of expenditures made by those grantees to third parties, funds advanced to state and local participants in the Domestic Cannabis Eradication and Suppression Program, and travel advances issued to Federal employees for official travel. Travel advances are limited to meals and incidental expenses expected to be incurred by the employees during official travel. Payments in advance of the receipt of goods and services are recorded as prepaid charges at the time of payment and are recognized as expenses when the goods and services are received.
Property is seized in consequence of a violation of public law. Seized property can include monetary instruments, real property, and tangible personal property of others in the actual or constructive possession of the custodial agency. Most non-cash property is held by the USMS from the point of seizure until its disposition.
Forfeited property is property for which the title has passed to the U.S. Government. This property is recorded at the estimated fair market value at the time of forfeiture. The value of the property is reduced by the estimated liens of record.
Non-entity assets are not available for use by the Department and consist of restricted undisbursed civil and criminal debt collections, cash bonds, and seized cash and other monetary assets.
Liabilities represent the monies or other resources that are likely to be paid by the Department as the result of a transaction or event that has already occurred. However, no liability can be paid by the Department absent proper budget authority. Liabilities that are not funded by the current year appropriation are classified as liabilities not covered by budgetary resources in Note 15.
Congress granted the FPI borrowing authority pursuant to Public Law 100-690. Under this authority, the FPI borrowed $20,000 from the Treasury with a lump-sum maturity date of September 30, 2008.
The Department is involved in various legal actions, including administrative proceedings, lawsuits, and claims. A liability is generally recognized as an unfunded liability for those legal actions where unfavorable decisions are considered "probable" and an estimate for the liability can be made. Contingent liabilities that are considered "possible" are disclosed in the notes to the financial statements. Liabilities that are considered "remote" are not recognized in the financial statements or disclosed in the notes to the financial statements.
Annual and compensatory leave is expensed with an offsetting liability as it is earned and the liability is reduced as leave is taken. Each year, the balance in the accrued annual leave liability account is adjusted to reflect current pay rates. To the extent current or prior year appropriations are not available to fund annual and compensatory leave earned but not taken, funding will be obtained from future financing sources. Sick leave and other types of nonvested leave are expensed as taken.
Pursuant to the Prompt Payment Act, 31 U.S.C. ' 3901-3907, Federal agencies must pay interest on payments for goods or services made to business concerns after the due date. The due date is generally 30 days after receipt of a proper invoice or acceptance of the goods or services, whichever is later.
With few exceptions, employees hired before January 1, 1984, are covered by the Civil Service Retirement System (CSRS) and employees hired after that date are covered by the Federal Employees Retirement System (FERS).
For employees covered by the CSRS, the Department contributes 8.5 percent of the employees' gross pay for normal retirement or 9 percent for hazardous duty retirement. For employees covered by the FERS, the Department contributes approximately 11 percent of employees' gross pay. All employees are eligible to contribute to the Federal Thrift Savings Plan (TSP). For those employees covered by the FERS, a TSP is automatically established, and the Department is required to contribute an additional 1 percent of gross pay to this plan and match employee contributions up to 4 percent. No matching contributions are made to the TSPs established by the CSRS employees. The Department does not report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities, if any, which may be applicable to its employees. Such reporting is the responsibility of the Office of Personnel Management (OPM).
Statement of Federal Financial Accounting Standards (SFFAS) No. 5, "Accounting for Liabilities of the Federal Government," requires employing agencies to recognize the cost of pensions and other retirement benefits during their employees' active years of service. Refer to Note 18 C Imputed Financing Sources, for additional details.
The Federal Employees Compensation Act (FECA) provides income and medical cost protection to covered Federal civilian employees injured on the job, employees who have incurred a work-related occupational disease, and beneficiaries of employees whose death is attributable to a job-related injury or occupational disease. The total FECA liability consists of an actuarial and an accrued portion as discussed below.
Actuarial Liability: The U.S. Department of Labor (DOL) calculates the liability of the Federal Government for future compensation benefits, which includes the expected liability for death, disability, medical, and other approved costs. The liability is determined using the paid-losses extrapolation method calculated over the next 37-year period. This method utilizes historical benefit payment patterns related to a specific incurred period to predict the ultimate payments related to that period. The projected annual benefit payments were discounted to present value. The resulting Federal Government liability was then distributed by agency. The Department portion of this liability includes the estimated future cost of death benefits, workers' compensation, medical, and miscellaneous cost for approved compensation cases for the Department employees. The Department liability is further allocated to component reporting entities on the basis of actual payments made to the FECA Special Benefits Fund (SBF) for the three prior years as compared to the total Department payments made over the same period.
The FECA actuarial liability is recorded for reporting purposes only. This liability constitutes an extended future estimate of cost which will not be obligated against budgetary resources until the FY in which the cost is actually billed to the Department. The cost associated with this liability cannot be met by the Department without further appropriation action.
Accrued Liability: The accrued FECA liability is the amount owed to the DOL for the benefits paid from the FECA SBF.
The consolidated/combined financial statements of the Department include the accounts of the AFF/SADF, WCF, OBD, USMS, OJP, DEA, FBI, INS, BOP, and FPI. All significant proprietary intra-entity transactions and balances have been eliminated in consolidation. The Statement of Budgetary Resources and Statement of Custodial Activity are combined statements for FYs 2002 and 2001, and as such, intra-entity transactions have not been eliminated.
The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The Fund Balance with the U.S. Treasury amount reported in the financial statements represents the unexpended cash balance on the Department's books for all the Department's Treasury Symbols:
Inventories consist of new and rehabilitated office furniture, equipment and supplies used for the repair of airplanes, administrative supplies and materials, commission sales to inmates (sundry items), metals, plastics, electronics, graphics, and optics.
The value of new stock is determined on the basis of acquisition cost, whereas, the value of rehabilitated stock is determined on the basis of rehabilitation and transportation costs. Inventory on hand at year end is reported at the lower of original costs (using the first-in, first-out method) or current market value. Recorded values of inventories are adjusted for the results of physical inventories conducted throughout and at the close of the fiscal year.
An allowance for inventory valuation and obsolescence is recorded for anticipated inventory losses of contracts where the current estimated cost to manufacture the item exceeds the total sales price, as well as estimated losses for inventories that may not be utilized in the future.
Anticipated Equitable Sharing in Future Periods:
The statute governing the use of the AFF (28 U.S.C. '524(c)) permits the payment of equitable shares of forfeiture proceeds to participating foreign governments and state and local law enforcement agencies. The statute does not require such sharing and permits the Attorney General wide discretion in determining those transfers. Actual sharing is difficult to predict because many factors influence both the amount and time of disbursement of sharing payments, such as the length of time required to move an asset through the forfeiture process to disposition, the amount of net proceeds available for sharing, the elapse of time for Departmental approval of equitable sharing requests for cases with asset values exceeding $1 million, and appeal of forfeiture judgments. Because of uncertainties surrounding the timing and amount of any equitable sharing payment, an obligation and expense are recorded only when the actual disbursement of the equitable sharing payment is imminent. From FYs 1997 through 2002, equitable sharing allocation levels averaged $239,212. The anticipated equitable sharing allocation level for FY 2003 is $206,000.
Analysis of Change in Forfeited Property:
Pursuant to Federal Financial Accounting and Auditing Technical Release 4, "Reporting on Non-Valued Seized and Forfeited Property," the value of forfeited property with no legal market in the United States (e.g., weapons, chemicals, drug paraphernalia, gambling devices) is not included in the net forfeited property value, although the item count of non-valued items is disclosed.
The following table represents the analysis of change in forfeited property for FY 2002:
During FY 2002, $71,452 of forfeited property was sold, $19,913 was returned to owners, and $27,218 was disposed of by other means. Other means of distribution include property transferred to other federal agencies for official use or equitable sharing, property distributed to a state or local agency, or destroyed.
The number of items represents quantities calculated using many different units of measure. Adjustments include property status and valuation changes as a result of fair market appraisals and/or court orders received during FY 2002.
The following table represents the analysis of change in forfeited property for FY 2001:
During FY 2001, $77,641 was forfeited property was sold, $26,860 was returned to owners, and $23,098 was disposed of by other means. Other means of distribution include property transferred to other federal agencies for official use or equitable sharing, property distributed to a state or local agency, or destroyed.
The number of items represents quantities calculated using many different units of measure. Adjustments include property status and valuation changes as a result of fair market appraisals and/or court orders received during FY 2001.
Note 7. Forfeited and Seized Property - Continued
Analysis of Change in Seized Property and Evidence:
A seizure is the act of taking possession of goods in consequence of a violation of public law. Seized property consists of monetary instruments, real property and tangible personal property in the actual or constructive possession of the seizing and the custodial agencies. Such property is not legally owned by the Department until judicially or administratively forfeited. Seized evidence includes cash, financial instruments, non-monetary valuables and illegal drugs.
Pursuant to Federal Financial Accounting and Auditing Technical Release 4, "Reporting on Non-Valued Seized and Forfeited Property," the value of seized property with no legal market in the United States (e.g., weapons, chemicals, drug paraphernalia, gambling devices) is not included in the net seized property value, although the item count of non-valued items is disclosed. The gross value of seized property, less estimated liens, equals the net seized property value.
The following table represents the analysis of change in seized property for FY 2002:
Note 7. Forfeited and Seized Property - Continued
During FY 2002, $109,017 of seized property was forfeited, $46,184 was returned to owners, and $14,531 was disposed of by other means. Other means of distribution include seized property that is sold, converted to cash, or destroyed.
Seized cash deposited (see Note 3) in the SADF of $9,533 is not presented in this note. Also, the number of items represents quantities calculated using many different units of measure. Adjustments include property status and valuation changes as a result of fair market appraisals and/or court orders received during FY 2002.
The following table represents the analysis of change in seized property for FY 2001:
During FY 2001, $103,145 of seized property was forfeited, $38,580 was returned to owners, and $24,024 was disposed of by other means, including $23,321 of DEA and FBI disposals that were not reported in FY2001. Other means of distribution include seized property that is sold, converted to cash, or destroyed.
Seized cash deposited (see Note 3) in the SADF of $8,255 is not presented in this note. Also, the number of items represents quantities calculated using many different units of measure.
Adjustments include property status and valuation changes as a result of fair market appraisals and/or court orders received during FY 2002.
The DEA and FBI have custody of illegal drugs taken as evidence for legal proceedings. In accordance with Federal Financial Accounting and Auditing Technical Release No. 4, "Reporting on Non-Valued Seized and Forfeited Property," the Department reported the total amount of seized drugs below by quantity (kilograms) only, as illegal drugs have no value and are destroyed upon resolution of legal proceedings.
The following table represents the analysis of change in Seized Narcotics Held for Evidence for FYs 2002 and 2001:
Bulk and unanalyzed drugs held by DEA are not included in the above tables.
Items are generally depreciated using the straight line method.