The mission of the asset forfeiture program is to disrupt, damage and dismantle criminal organizations through the use of civil and criminal forfeiture. The program attempts to remove those assets that are essential to the operation of those criminal organizations and punish the criminals involved by denying them use of the proceeds of their crimes.
The funds of the asset forfeiture program are under the management control of the Asset Forfeiture Management Staff, Justice Management Division (AFMS). The Seized Asset Deposit Fund (SADF) is listed in the U.S. Treasury Federal Account Symbols and Titles as 15X6874. The Assets Forfeiture Fund (AFF or Fund) is a special fund and is listed as 15X5042. The SADF and most AFF activities are administered by the U.S. Marshals Service (USMS).
The SADF was created administratively by the Department of Justice to ensure positive control over and security of funds seized by agencies participating in the Department's asset forfeiture program. Public Law (P.L.) 102-140, dated October 28, 1991, provided authority for the investment of SADF monies. The SADF serves as a repository for seized funds that are not the property of the Government. The SADF holds seized cash, the proceeds of any pre-forfeiture sale of seized property, and forfeited cash not yet transferred to the AFF. The income and expenses from operating businesses under seizure may also be managed through the SADF. Because most funds held in the SADF are not Government property, funds in the SADF cannot be spent for law enforcement purposes of the Department. The SADF is a dynamic fund. At any given time, there are several thousand cash seizures resident in the SADF in various stages of the forfeiture process. During any accounting period, several hundred accounting transactions occur that affect the balance in the SADF. The majority of these transactions involve the deposit of new seizures into the SADF or the withdrawal of funds from the SADF. Once the funds have been forfeited, they are transferred from the SADF to the AFF upon the successful conclusion of a forfeiture action.
The AFF was created by the Comprehensive Crime Control Act of 1984 (P.L. 98-473, dated October 12, 1984) to be a repository of the proceeds of forfeitures under any law enforced and administered by the Department of Justice (see 28 U.S.C. 524(c)). Forfeited cash is transferred from the SADF to the AFF by the USMS. Proceeds from the sale of forfeited property are also deposited into the AFF by the USMS. Also, pursuant to 28 U.S.C. 524(c)(5), all amounts earned on investment of AFF and SADF balances are deposited to the AFF. The interest earned on the AFF balances is the property of the Government. Interest earned on SADF balances is initially deposited to the AFF pursuant to the statute cited above. These earnings are either returned to the owner with the underlying principal or become the property of the government upon forfeiture of the principal.
The table below displays the structure of the asset forfeiture program as it relates to the function of the participating agencies. These agencies investigate or prosecute criminal activity under statutes, such as the Comprehensive Drug Abuse Prevention and Control Act of 1970, the Racketeer Influenced and Corrupt Organizations (RICO) statute, the Controlled Substances Act, and the Controlled Substances Import and Export Act.
|Custody of Assets||X|
The Fund receives most of its revenue from the forfeiture of cash and other monetary assets and, secondly, from the sale of forfeited property. Fund participants receive annual allocations by suballotment advice or reimbursement agreement. The Fund's first priority is to cover the business or operational expenses of the asset forfeiture program. After it is determined that there will be sufficient receipts, allocations may be made for investigative expenses, such as awards for information, purchase of evidence, and equipping of conveyances, and also discretionary expenses, such as storage, protection and destruction of controlled substances.
LIMITATIONS ON THE USE OF THE ASSETS FORFEITURE FUND
The AFF is defined by statute. Authorities and limitations governing use of the AFF are specified in 28 U.S.C. 524(c). In addition, use of the AFF is controlled by laws and regulations governing the use of public monies and appropriations (e.g., 31 U.S.C. 1341-1353, 1501-1558, Office of Management and Budget (OMB) Circulars, and provisions of annual appropriation acts). It is further controlled by the Attorney General's Guidelines on Seized and Forfeited Property (July 1990), policy memoranda, and statutory interpretations issued by appropriate authorities. Restrictions on the use of AFF monies retain those limitations after the monies are made available to a recipient agency unless otherwise provided by law. Monies are available for use only to the extent receipts are available in the AFF.
In Fiscal Year (FY) 2002, these monies were available under a permanent indefinite appropriation to finance the following:
The monies deposited in the AFF are not available for general use by a recipient agency for investigative, prosecutive, or other purposes, even if that activity may result in the seizure of assets for forfeiture. Resources of the AFF are intended to cover the business expenses of the asset forfeiture program, with any excess balances available for other more discretionary purposes, including investigative expenses covered by the appropriated, definite portion of the Fund. Excess unobligated balances identified at the end of a fiscal year may be declared a "Super Surplus" balance. Super surplus balances may be allocated at the discretion of the Attorney General for " . . . any Federal law enforcement, litigative/prosecutive, and correctional activities or any other authorized purpose of the Department of Justice" pursuant to 28 U.S.C. 524(c)(8)(E).
HOLDING AND ACCOUNTING FOR SEIZED AND FORFEITED PROPERTY
The USMS is responsible for holding and maintaining real and tangible personal property, seized by participating agencies, for disposition. Seized property either can be returned to the owner or forfeited to the Government. Forfeited property is subsequently sold, placed into official use, destroyed, or transferred to another agency. Seized and forfeited property is not to be considered inventory held for resale in the normal course of business.
The estimated value of non-monetary seized assets (property), net of estimated liens, held by the USMS at the end of FY 2001 and FY 2002 is presented in the Notes to the Principal Statements, rather than within the Principal Statements, because the Government does not have title to the property. The Statement of Federal Financial Accounting Standards (SFFAS) Number 3, Accounting for Inventory and Related Property, mandates this method of presentation in order to avoid overstating the entity's assets and liabilities while providing needed accountability over seized assets.
RESOURCES AND ACCOMPLISHMENTS
|Source||FY 2002||FY 2001|
|Other Non-exchange Revenue||444,148||459,026|
|Strategic Goal (SG)||FY 2002||FY 2001||Change%|
|SG 2. Enforce Federal Criminal Laws||219,642||196,518||12%|
|SG 3. Prevent and Reduce Crime and Violence by Assisting State, Tribal, Local, and Community-Based Programs||240,039||248,079||-3%|
2002 FINANCIAL HIGHLIGHTS
As indicated in Table 3, the AFF supports Strategic Goals 2 and 3 of the Attorney General's Strategic Plan for Fiscal Years 2001 - 2006. The AFF has no costs associated with counter terrorism or homeland security.
Strategic Goal 2, Enforce Federal Criminal Laws. Included are mandatory expenditures made for case and program support authorized expenses by AFF participants to operate the activities of the Fund. The Fund's resources cover the costs of seizing, evaluating, inventorying, maintaining, protecting, advertising, forfeiting, and disposing of property seized for forfeiture. These costs are necessary to support the federal asset forfeiture program and fluctuate in direct relation to the forfeiture activity levels of the investigative, prosecutive and litigative participants of the Fund. In 2002, $219.6 million was expended while $196.5 million was expended in 2001. Goal 2 expenses are presented in Figure 1.
Strategic Goal 3, Prevent and Reduce Crime and Violence by Assisting Tribal, State, Local, and Community-Based Programs. Included are expenditures made for equitable sharing and joint federal/state and local law enforcement operations. Equitable sharing payments represent the transfer of portions of federally forfeited cash and proceeds from the sale of forfeited property to state and local law enforcement agencies that directly assisted in targeting or seizing the property. Public Law 102-393, the 1993 Treasury Department Appropriations Act, enacted new authority for the Fund to pay for "overtime, travel, fuel, training, equipment, and other similar costs of state or local law enforcement officers that are incurred in a joint law enforcement operation with a Federal law enforcement agency participating in the Fund." In FY 2002, $240.0 million was expended for equitable sharing and joint law enforcement operations vs. $248.1 million in 2001. Goal 3 expenses are presented in Figure 1.
Revenues represent actual or expected cash inflows that occur as a result of the asset forfeiture program's ongoing activities. Revenues are a measurement of the activities that occurred in FY 2002. To be recognized, revenues must meet two criteria: (1) they have been realized (non-cash resources have been converted to cash or rights to cash) and (2) they have been earned (i.e., forfeited). SFFAS Number 3, Accounting for Inventory and Related Property, requires that revenue associated with property not disposed of through sale be recognized upon approval of distribution. AFF net revenues over a seven-year period are shown in Figure 2.
Investment earnings realized totaled $20.5 million for FY 2002, $31.7 million less than the $52.2 million in interest earned in FY 2001 and are 32 percent less than the $30.0 million estimated for FY 2002 in the Budget of the United States Government, Fiscal Year 2003--Appendix. The reduced earnings are due primarily to the fall in short-term interest rates. In addition, the amounts available for investment are difficult to predict because many factors influence the balance. For example, one significant factor is the level of equitable sharing distributions, associated with uncertainties in the amount and timing of disbursements of payments, including the time needed for Departmental approval of equitable sharing requests for cases with asset values exceeding $1.0 million and appeals of forfeiture judgments.
Net forfeiture revenue is the sum of cash and proceeds from the sale of forfeited property and includes adjustments for transactions such as transfers to and from other federal agencies, refunds to other federal agencies, and recoveries of asset management costs.
Net position, which is the equity of the U.S. Government in the AFF, has decreased 7.7 percent since FY 2001. The ratio of net position to total assets was .39 to 1.0 in FY 2002, .03 less than FY 2001. Due to the continual investment of cash in government securities, the AFF and SADF Fund balances with the U.S. Treasury remain low.
Current assets exceeded short-term liabilities by a ratio of 3.23 to 1.0. This relationship reflects a decrease of .37 from FY 2001. The ratio continues to indicate that the AFF will be able to meet its obligations when due. In the ratio of current assets to current liabilities, current assets equal total entity assets while current liabilities equal the total of liabilities covered by budgetary resources except for deposit funds.
In FY 2002 $459.7 million were provided for Goal 2 and 3 expenses while in 2001, $444.6 million were provided. This was made possible by $419.1 million and $433.9 million in non-exchange revenue net of transfers in FY 2002 and 2001, respectively, generated from the cash and proceeds from the sale of assets deposited into the AFF. To the extent that deposits do not cover expenses, AFF carry forward balances are used to support program expenses. The carry forward balances consist primarily of special case funds and monies for operational requirements.
In FY 2002, 25,748 assets were seized valued at about $560.1 million compared to the 2001 number of assets seized of 21,962 with an estimated value of $532.0 million. The program invests cash balances from both the AFF and SADF in Government securities. These investments resulted in earnings of $20.5 during FY 2002 and $52.2 million during FY 2001. Earnings over a seven-year period are presented in Figure 2.
The AFF's end-of-year unobligated balance increased to $395.3 million, an increase of $16.0 million from the 2001 balance of $379.3 million. The unobligated balance carried forward is retained in the AFF to ensure the availability of sufficient monies in the upcoming fiscal year for authorized purposes. These purposes include mandatory program operating expenses as well as pending extraordinary equitable sharing distributions, pending innocent third party payments, uncommitted super surplus authority, and other essential items. For example, as of September 30, 2002, known extraordinary sharing distributions pending total $69.1 million (comprises 46 cases with asset values in excess of $1.0 million for which the forfeiture process, including disposition, has concluded and asset proceeds have been deposited into the Fund).
In an effort to further improve the program's cash management controls, AFMS facilitated a multi-agency project in FY 2001 to update existing cash handling procedures related to the seizure of currency. This effort lead to a recommendation to move to an Electronic Funds Transfer (EFT) environment for purposes of depositing seized currency to the SADF and centralizing the financial management of these funds. In early November 2001, a pilot test was initiated in the District of Columbia/Baltimore area in which the FBI and DEA began transferring seized currency electronically into the SADF. The pilot successfully concluded in June 2002. AFMS' intentions are to implement EFT transfer of seized currency on a broader scale in FY 2003 with a goal of handling all deposits of seized currency into the SADF by EFT by the end of FY 2003.
The AFF views data reliability and validity as critically important in the planning and assessment of our performance. As such, this document includes a discussion of data validation and verification for the performance information presented. In addition, the data reported meets the OMB standards for data reliability that is presented in Circular A-11, Section 232.10(c). The standard is as follows:
Performance data is acceptably reliable when there is neither a refusal nor a marked reluctance by agency managers or government decision makers to use the data in carrying out their responsibilities. Performance data need not be perfect to be reliable, and the cost and effort to secure the performance data possibly can exceed the value of any data so obtained.
The financial management of the Fund is supported by the Justice Management Division's Financial Management Information System (FMIS), the USMS's Financial Management System (FMS), and the AFF's Consolidated Asset Tracking System (CATS). FMIS is a computerized, general-purpose accounting and reporting facility that supports the financial operations of the Department. FMS is the USMS field offices' financial management system. CATS is an integrated system providing services to the asset forfeiture community and serving as a subsidiary system for the financial accounting and reporting of the seized and forfeited inventory. As enhancements or refinements are made in these systems, they will strengthen the data supporting the activities of the AFF and SADF.
The 2001 financial statements of the AFF and SADF received an unqualified opinion from the independent auditors; however, there were six less significant matters involving internal controls that were brought to management's attention in the 2001 audit. Three of these involved the timeliness of the submission of data, status errors, and inclusion of frozen, indicted, restrained, or otherwise encumbered (FIRE) assets in CATS. The AFMS data quality team will continue to monitor and evaluate seizing and custodial agencies' efforts to improve CATS data. Two matters involving improvements in accounting for budgetary transactions and the intradepartmental elimination entry process, which impact the AFF/SADF audit, were mentioned. The resolution of these matters will be accomplished at the Finance Staff or departmental level. The last item involved modifications of periods of performance of reimbursement agreements and purchase orders. Those responsible for the preparation of these documents have been instructed in the procedures to follow in the future.
FY 2002 REPORT ON SELECTED ACCOMPLISHMENTS
STRATEGIC GOAL 2: Enforce Federal Criminal Laws
48 Percent of the Asset Forfeiture Fund's Net Costs support this Goal.
Annual Goal: To provide funds to federal agencies engaged in the asset forfeiture program, in a manner designed to support use of the asset forfeiture sanction against the financial infrastructure of criminal organizations, to eliminate the burden of forfeiture-related costs as a disincentive to use of the asset forfeiture powers, to facilitate the efficient execution of forfeiture program responsibilities, and to enhance program accountability by ensuring the availability of current and accurate information on the status of all assets seized for forfeiture.
Background/Program Objectives: The primary purpose of the Fund is to provide a stable source of resources to cover the costs of an effective asset forfeiture program. Prior to the creation of the Fund in 1984, costs of activities had to be diverted from agency operational funds. The more effective an agency was in seizing property, the greater the drain on its appropriated funds. A secondary benefit of an aggressive and well-managed forfeiture program is the production of surplus revenues to assist in financing important law enforcement programs. The Fund's authority to incur program operation expenses is limited only by the level of receipts deposited into the Fund.
Receipts to the Fund were $419.1 million in 2002. These receipts must cover program operation expenses which include all costs incurred in support of the federal asset forfeiture program such as case support costs, ADP equipment, training and printing, and other program management. The 2002 ratio of program operation expenses to deposits is 41 percent while in 2001 it was 34 percent. After program operation expenses are deducted from receipts, the remainder represents the results of the year's operations ($419.1 million - $172.1 million = $247.0 million in 2002 and $433.9 million - 146.7 million = $287.2 million in 2001). This net income is distributed in various ways. It is paid out as equitable sharing; state and local overtime; and investigative expenses after the annual appropriation of funds.
Performance/ Discussion of FY 2002 Accomplishments: The AFF provided $459.7 million in obligation authority to participating agencies in 2002, of which $219.6 million was used for Goal 2 activities. This was made possible by $419.1 million in receipts from forfeiture activities and interest earnings on invested balances. The AFMS administers the Fund in a fiscally responsible manner that will minimize the costs incurred by the United States while maximizing the impact on criminal enterprises. Funds are available to pay mandatory expenses of the AFF including case support expenses (asset management and disposal, third party payments, case related expenses, special contract services, contracts to identify assets, and awards for information leading to a forfeiture); program support expenses (automated data processing, training and printing, and other program management); and other authorized expenses (storage, protection and destruction of controlled substances). Because receipts exceeded the amounts necessary for program expenses, Fund monies were used for authorized investigative expenses, such as awards for information, purchase of evidence, and equipping of conveyances.
To facilitate the efficient execution of the national forfeiture program, the AFF is providing funds for a CATS technology refreshment project. The modernization initiative will replace outdated and proprietary software products; replace outdated, complex, and proprietary database query language; and move from a cooperative processing environment to a thin-client processing approach. CATS currently ties more than seven hundred locations together using a national telecommunications network and supports program functions such as seizure, custody, notification, claims, petitions, forfeiture, disposal, official use, financial tracking, status inquiry, advertising copy production, equitable sharing, reporting, and management analysis.
STRATEGIC GOAL 3: Prevent and Reduce Crime and Violence by Assisting State,
Tribal, Local, and Community--Based Programs
52 Percent of the Asset Forfeiture Fund's Net Costs support this Goal.
Annual Goal: To provide funds to state and local law enforcement agencies for the purpose of encouraging cooperation in development and execution of criminal investigations.
Background/Program Objectives: See Goal 2.
Performance/Discussion of FY 2002 Accomplishments: The AFF provided $459.7 million in obligation authority to participating agencies in 2002, of which $240.0 million was used for Goal 3 activities. This was made possible by $419.1 million in receipts from forfeiture activities, interest earnings on invested balances, and carry forward balances. The AFMS administers the Fund in a fiscally responsible manner that will minimize the costs incurred by the United States while maximizing the impact on criminal enterprises. Funds are available to pay for authorized expenses such as equitable sharing payments and joint law enforcement operations.
To facilitate the efficient execution of the national forfeiture program, AFMS is working with participating agencies to ensure that all appropriate expenses are properly accounted for prior to the execution of equitable sharing distributions that will result in a fair and equitable distribution of forfeited proceeds. In addition, it is working with participating agencies to involve the forfeiture sanction in more multi-agency cases. The effect will be that criminal organizations will have millions of dollars less to support their illicit operations each year.
MANAGEMENT CONTROLS PROGRAM IN THE FUND
AFMS is responsible for maintaining internal accounting and administrative controls that are adequate to ensure that (1) transactions are executed in accordance with applicable budgetary and financial laws and other requirements, consistent with the purposes authorized, and are recorded in accordance with federal accounting standards; (2) assets are properly safeguarded to deter fraud, waste, and abuse; and (3) appropriate performance measurement information is adequately supported. AFMS monitors its financial transactions on an on-going basis and also requires participants who enter Fund transactions in their own financial system to report on their activity at least semiannually.
INTEGRITY ACT SECTION 2 - MATERIAL WEAKNESSES AND SECTION 4-MATERIAL NONCONFORMANCES
The Fund has no FMFIA Section 2 material weaknesses to report; however, management is aware of several post-September 30 revenue and expense adjustments and has addressed the issue with Fund program and financial managers. The Fund relies upon the Department's FMIS managers for Section 4 compliance. No material nonconformances are reported.
AFMS is materially in compliance with the requirements and responsibilities defined in numerous laws and administrative requirements, including the Federal Manager's Financial Integrity Act of 1982, Federal Financial Management Improvement Act of 1996, and OMB Circulars A-123 and A-127.
The General Accounting Office (GAO) has reported the asset forfeiture programs of the Department of Treasury and the Department of Justice on their most recent list of high-risk program areas, based on an assertion that the Department of Justice and the Department of Treasury have failed to properly implement the provisions of Section 887 of Title 21 of the United States Code. The FY 2001 Financial Statements contain a synopsis of the underlying issues, thus obviating the need to repeat that information here. However, there has been activity regarding this issue in FY 2002 that is worth mentioning.
During the second quarter of FY 2002, GAO requested a meeting with the Department of Justice and the Department of Treasury to receive a status update of the respective Department's asset forfeiture programs and specifically to address what, if any, recent efforts had been made to coordinate post-seizure activity between the Departments. The Departments reported that on-going discussions were occurring between the respective staffs and that a number of areas had been identified as potential candidates for further investigation. Subsequent to the GAO meeting, a joint Justice/Treasury Working Group was established to explore the specific areas in more detail. The initial round of discussions focused exclusively on common requirements in the area of personal property management and disposition. Of specific interest for both Departments are high-risk items such as chemicals and weapons, large volume assets in specific geographical locations, and areas where service providers are difficult to find. Both Departments intend to continue the effort to identify areas of commonality and mutual benefit to take advantage of coordinated efforts where it makes sense.
Revenue for FY 2002 totaled $419.1 million, which is $14.8 million less than the $433.9 million received in FY 2001. It is difficult to project future receipt levels since they are dependent upon many factors including new cases being developed, the uneven flow of cases through the forfeiture process, the level of appropriations that federal law enforcement agencies receive, the level of personnel and monetary resources dedicated to the forfeiture program, international cooperation in forfeiture and repatriation matters, federal court decisions, and evolving forfeiture legislation.
The Civil Asset Forfeiture Reform Act of 2000 (CAFRA) made various changes to federal laws relating to the forfeiture of civil assets that contributed to a decrease in civil seizures in FY 2001. This decline in seizure activity, with a corresponding decline in forfeitures, resulted in a significant decrease in receipts deposited into the AFF in FY 2001 and 2002. Despite the initial negative consequences of CAFRA, the new legislation does include many upsides. CAFRA expands forfeiture into new areas, resolves ambiguities and issues that split the courts, and gives the government new procedural tools. The potentially significant negative impacts of CAFRA are being mitigated by the Department's aggressive use of the expanded forfeiture of proceeds authority and cautious allocation of Fund monies for discretionary expenses that might be in excess of anticipated receipts.
Another event that has impacted the forfeiture program is the Attorney General's November 8, 2001, announcement of a comprehensive review and reorganization of the Department to meet the counter terrorism mission. As a result, there will be a reorienting of program activities to support the goals of the Attorney General's new strategic plan for 2001-2006, particularly within the FBI. In addition, INS is slated to be transferred to the newly created Department of Homeland Security. How these events will ultimately impact program operations is difficult to quantify at this time.
While it is difficult to quantify the mid- and long-term effects of the reform legislation and the on-going reorganizations of major component agencies, after several quarters of declining activity, the decline in the value and number of new seizures has leveled off over the last 12 months. Revenue in 2003 and 2004 however is still expected to decline slightly from prior year levels. The fiscal resources of the AFF must first cover the business or operational expenses of the asset forfeiture program, and the Fund is not allowed to operate at a deficit. Significant decreases in forfeiture revenue will make it more difficult to cover these operational expenses. At risk are the discretionary expenses, with the most at risk being allocations for joint operations with state and local law enforcement agencies, followed by investigative expenses. Also considered discretionary are storage, protection and destruction of controlled substances, and, to some extent, training and printing.
The Fund is continuing to reposition itself to align to the Department's new goals that will impact the Fund, some of which are to streamline, eliminate or consolidate duplicative functions; improve communications; improve financial performance; and utilize technology to improve government. The Fund is already meeting some of these goals. CATS has received Automated Information System (AIS) approval to begin a technology refreshment initiative in FY 2002. The implementation of CATS brought together all AFF participants under one integrated system and eliminated seven legacy systems. CATS technology, however, is now 10 to 15 years old and is being replaced by an open system that is more efficient and effective in accomplishing its mission to manage and track assets, bring order and uniformity, eliminate diverse information systems, and improve the accuracy and dependability of data.
The financial statements have been prepared to report the financial position and results of operations of the asset forfeiture program, pursuant to the requirements of 31 U.S.C. 3515(b).
While the statements have been prepared from the books and records of the asset forfeiture program in accordance with generally accepted accounting principles for federal entities and the formats prescribed by OMB, the statements are in addition to the financial reports used to monitor and control budgetary resources which are prepared from the same books and records.
The statements should be read with the realization that they are for a component of the U.S. Government, a sovereign entity. Should unfunded liabilities arise, the cost of which may be met by the permanent, indefinite portion of the Fund, these liabilities may be met without further appropriation action.
1 - The participants include the United States Marshals Service (USMS); Federal Breau of Investigation (FBI); Drug Enforcement Administration (DEA), Immigration and Naturalization Service (INS); Executive Office for United States Attorneys (EOUSA); Asset Forfeiture and Money Laundering Section, Criminal Division (AFMLS); Asset Forfeiture Management Staff, Justice Management Division (AFMS); United States Postal Service (USPS); United States Park Police (USPP); United States Department of Agriculture (USDA); and Food and Drug Administration (FDA).