U.S. Department of Justice
Assets Forfeiture Fund and Seized Asset Deposit Fund
Managementís Discussion and Analysis
(unaudited)

MISSION

The primary mission of the Department of Justice (DOJ or the Department) Asset Forfeiture Program (AFP) is to prevent and reduce crime by disrupting, damaging, and dismantling criminal organizations through the use of the forfeiture sanction. This is accomplished by means of depriving drug traffickers, racketeers, and other criminal syndicates of their ill-gotten proceeds and instrumentalities of their trade. Components responsible for the administration and financial management of the AFP are charged with lawfully, effectively and efficiently supporting law enforcement authorities in the application of specified forfeiture statutes. The Assets Forfeiture Fund (AFF or Fund) and Seized Asset Deposit Fund (SADF) together comprise a single financial reporting entity of the DOJ, which includes the specified funds, property seized for forfeiture, and the transactions and program activities of DOJ forfeiture program components and other participating agencies as described more fully herein.

ORGANIZATION STRUCTURE

Table 1 below displays the primary functional activities of the participating agencies in the AFP. 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 statute, the Controlled Substances Act, and the Money Laundering Control Act, or provide administrative support services to the program.

Table 1. Asset Forfeiture Program Participants by Function1
Function AFMLS AFMS ATF DEA DS EOUSA FBI FDA USDA USMS USPS
Investigation     X X X   X X X   X
Litigation X         X          
Custody of Assets                   X  
Management X X                  

FINANCIAL STRUCTURE

The AFP comprises two funds, which are under the management control of AFMS. The AFF is a special fund listed in the U.S. Treasury Federal Account Symbols and Titles as 15X5042. The SADF is a deposit fund listed as 15X6874.

The AFF was created by the Comprehensive Crime Control Act of 1984 to be the repository of the proceeds of forfeitures under any law enforced and administered by the DOJ (28 U.S.C. 524(c)). All amounts earned on investment of AFF and SADF balances are deposited into the AFF. The interest earned on the AFF balances is the property of the Government. Interest earned on SADF balances is deposited into the AFF pursuant to the statute cited above. SADF earnings are either returned to the owner with the underlying principal or become the property of the Government upon forfeiture of the principal.

Monies deposited in the AFF are used to cover operating costs of the program. These include, for example, asset management and disposition expenses; equitable sharing payments to participating state, local, and foreign governments; ADP equipment; contract service payments; and payments of innocent third party claims. All employment related expenses, liabilities, and imputed financing costs of DOJ AFP participants are reported in the financial statements of the participantsí reporting components. Salaries and employment related costs of administrative personnel of the AFMS and USMS are charged to the AFP as program operating costs. The AFPís operating costs do not include the costs of any participant salaries incurred while conducting investigations leading to seizure and forfeiture.

While the AFF is the repository for forfeited currency and proceeds arising from the sale of forfeited property and also serves as the operating fund for specified program expenditures, the SADF serves as a repository for seized currency and specified deposits.

The SADF was created administratively by the DOJ to ensure control over monies seized by agencies participating in the DOJís AFP. Public Law (P.L.) 102-140, dated October 28, 1991, provided authority for the investment of SADF balances pending adjudication. Generally, monies in the SADF 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. Operating businesses under seizure also may be managed through the SADF. Because most funds held in the SADF are not Government property, monies in the SADF cannot be spent. SADF balances are transferred to the AFF upon the successful conclusion of a forfeiture action.

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 may receive annual allocations by suballotment advice or reimbursement agreement. The Fundís first priority is to cover the business or operational expenses of the AFP. 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 and 1501-1558, Office of Management and Budget (OMB) Circulars, and provisions of annual appropriation acts). The AFF 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. Unless otherwise provided by law, restrictions on the use of AFF monies retain those limitations after any monies are made available to a recipient agency. Moreover, monies are available for use only to the extent receipts are available in the AFF.

In Fiscal Year (FY) 2005, monies were available under a permanent indefinite appropriation to finance the following:

(1) The operational costs of the forfeiture program, including handling and disposal of
seized and forfeited assets, and the execution of legal forfeiture proceedings to perfect
the title of the United States in that property.
(2) The payment of innocent third party claims.
(3) The payment of equitable shares to participating foreign governments and state and
local law enforcement agencies.
(4) The costs of ADP equipment and ADP support for the program.
(5) Contract services in support of the program.
(6) Training and printing associated with the program.
(7) Other management expenses of the program.
(8) Awards for information leading to forfeiture.
(9) Joint Federal, state, and local law enforcement operations.
(10) Investigative expenses leading to seizure

 

 

 

 

 

 

 

 

 

Resources of the AFF are intended to cover the business expenses of the AFP, with any excess balances available for discretionary purposes, including investigative expenses subject to appropriations limitation (definite authority). 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 DOJ" pursuant to 28 U.S.C. 524(c)(8)(E).

Holding and Accounting for Seized and Forfeited Property

The USMS has primary responsibility 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 considered inventory held for resale in the normal course of business.

ANALYSIS OF FINANCIAL STATEMENTS

Following are brief explanations for the AFF/SADF financial results, position, and condition conveyed in the principal financial statements.

Balance Sheets

Total assets, which presents as of a specific time, the amounts of future economic benefits owned or managed by the AFF/SADF increased in FY 2005 to $1,370.4 million, from $1,248.8 million in FY 2004, an increase of 9.7 percent. If seized assets, which are not yet owned by the government, are backed out, the adjusted assets of the Fund increased to $659.2 million in FY 2005 from $623.9 million in FY 2004, an increase of 5.7 percent. This is attributable to an increase in both forfeited assets and seized assets in FY 2005 from FY 2004, indicating a strong current and future potential stream of assets flowing into the AFF.

Total liabilities of the fund increased to $922.3 million in FY 2005 from $820.8 million in FY 2004, an increase of 12.4 percent. The majority of the change, $86.3 million or 85 percent of the change in liabilities is due to the increase in seized assets and monetary instruments. Current assets exceeded current liabilities by a ratio of 3.12 to 1. This relationship reflects a decrease of 0.06 from FY 2004. The ratio continues to indicate that the AFF will be able to meet its obligations when due. In the calculation of the ratio of current assets to current liabilities, current assets consist of total assets less SADF net investments, seized cash deposited, and seized monetary instruments (see Note 10) while current liabilities include the total of liabilities covered by budgetary resources except for total seized cash and monetary instruments.

For the fiscal year ended September 30, 2005, net position, which is the equity of the U.S. Government in the AFF, increased 4.7 percent compared to FY 2004. The ratio of net position to total assets was 0.33 to 1 in FY 2005, a decrease of 0.02 from FY 2004. Due to the continual investment of cash in government securities, the AFF and SADF fund balances with the U.S. Treasury remain low.

Statements of Net Cost

Net cost of operations, shown separately by strategic goal, of $594.4 million in FY 2005 increased from $555.1 million in FY 2004 by $39.3 million or 7.1 percent. The largest single Fund expense consists of equitable sharing payments, which are included under Goal 3. Each year millions of dollars are paid to state and local law enforcement agencies and foreign governments for their participation in seizures that lead to forfeitures. An explanation of the uses of these resources by state and local law enforcement agencies may be found under Strategic Goal 3. The increase in net costs was due to an increase in mandatory program activities. This was made possible by $614.5 million and $454.6 million from financing sources in FY 2005 and 2004, respectively, generated in cash and proceeds from the sale of assets deposited into the AFF. To the extent that financing sources do not cover net costs, AFF’s carry forward balances are used to support program expenses. The carry forward balances consist primarily of special case funds and monies for operational requirements.

Statements of Changes in Net Position

Net position, an indicator of the Fund’s future capability to support ongoing operations, increased to $448.0 million in FY 2005 from $427.9 million in FY 2004, an increase of $20.1 million or 4.7 percent. The Fund’s financing sources consist primarily of forfeited cash and other monetary assets and, secondly, from the sale of forfeited property. In addition, other factors that influence the AFF net position to a lesser extent include the short-term interest rates that affect nonexchange revenue from investment in Government securities; the nature of seized non-cash properties that must be converted into cash, affecting inventory turnover rates; and Super Surplus allocations and transfers of properties placed into official use that use resources.

The program invests cash balances from both the AFF and SADF in Government securities. Earnings over a five-year period are presented in Figure 2. Investment interest earnings (i.e., nonexchange revenue) realized for the fiscal year ended September 30, 2005 totaled $29.1 million, which is $17.6 million more than the $11.5 million in investment interest earnings for the fiscal year ended September 30, 2004. FY 2005 investment interest earned is $16.1 million more than the $13 million estimated for FY 2005 in the Budget of the United States Government, Fiscal Year 2006--Appendix. The increased earnings are due primarily to the rise in short-term interest rates and to a change in investment strategy implemented in FY 2005 that increased amounts invested and staggered investments over different periods of time. 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 DOJ approval of equitable sharing requests for cases with asset values exceeding $1 million and appeals of forfeiture judgments .

Statements of Budgetary Resources

Total budgetary resources decreased to $907.2 million in FY 2005 from $970.1 million in FY 2004, a 6.5 percent decrease. The net decrease may be attributed primarily to a decrease in availability of AFF unobligated balances (Super Surplus) and a decrease in unobligated balances carried forward from prior years. These decreases were partially offset by an increase in receipts. The net outlays decreased to $580.2 million in FY 2005 from $605.0 million in FY 2004, a decrease of 4.1 percent. Decreases in outlays may be attributed to no Super Surplus payments in FY 2005 while there were $77.7 million in FY 2004, but the decreases were partially offset by increases in mandatory expenses.

The total obligations incurred in FY 2005 were $628.2 a decrease of $30.2 million compared to $658.4 incurred in FY 2004. The FY 2005 obligations decreased relative to FY 2004 due to no obligations of Super Surplus funds in FY 2005 while over $77.7 million were obligated in FY 2004. The decrease in Super Surplus obligations was offset by an increase in the obligations of mandatory expenses.

The AFF’s unobligated balance was $279.0 million as of September 30, 2005, a decrease of $32.7 million or 10.5 percent as compared to $311.7 million as of September 30, 2004. 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 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, 2005, pending extraordinary equitable sharing distributions totaled an estimated $72.6 million (comprises 57 assets with values in excess of $1 million for which the forfeiture process, including disposition, has concluded and asset proceeds have been deposited into the Fund).

PERFORMANCE INFORMATION

Table 2. Source of Assets Forfeiture Fund Resources
(Dollars in Thousands)
Source FY 2005 FY 2004 Change %
Exchange Revenue 2,281 2,104 8.4%

Budgetary Financing Sources:

     
   Nonexchange Revenues 29,078 11,468 153.6%
   Donations and Forfeitures of Cash or Cash Equivalents 514,876 448,467 14.8%

Other Financing Sources:

     
   Donations and Forfeitures of Property 80,564 94,601 -14.8%
   Transfers-In/Out Without Reimbursement -10,054 -99,905 89.9%
Total 616,745 456,735 35.0%
Table 3. How Assets Forfeiture Fund Resources are Spent (Net of Earned Revenue)
(Dollars in Thousands)
Strategic Goal (SG) FY 2005 FY 2004 Change%
SG 2. Enforce Federal Laws and Represent the Rights and Interests of the American People 276,599 273,265 1.2%
SG 3. Assist State, Local, and Tribal Efforts to Prevent or Reduce Crime and Violence 317,752 281,847 12.7%
Net Cost of Operations 594,351 555,112 7.1 %

2005 Financial Highlights

As indicated in Table 3, the AFF supports Strategic Goals 2 and 3 of the Attorney Generalís Strategic Plan for Fiscal Years 2003 - 2008. The AFF has no costs associated with counterterrorism, homeland security, or hurricanes Katrina and Rita.

d

Strategic Goal 2, Enforce Federal Laws and Represent the Rights and Interests of the American People. Included are expenditures made for case and program support authorized costs incurred by AFP participants to operate the activities of the program. The Fundís 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 AFP and fluctuate in direct relation to the forfeiture activity levels of the investigative, prosecutive, litigative and administrative participants of the Fund. For the fiscal year ended September 30, 2005, $276.6 million was expended (net of earned revenue) while $273.3 million was expended (net of earned revenue) for the fiscal year ended September 30, 2004. Goal 2 net costs are presented in Figure 1.

Strategic Goal 3, Assist State, Local and Tribal Efforts to Prevent or Reduce Crime and Violence. Included are payments that 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. P.L. 102-393, the 1993 Treasury Department Appropriations Act, enacted new authority for the Fund to pay for ďovertime salaries, 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.Ē For the fiscal year ended September 30, 2005, $317.8 million was expended (net of earned revenue) for equitable sharing and joint law enforcement operations while $281.8 million was expended (net of earned revenue) for the fiscal year ended September 30, 2004. Goal 3 net costs are presented in Figure 1.

d

AFF levels of financing over a five-year period are shown in Figure 2. Net forfeiture revenue is the sum of forfeited cash and proceeds from the sale of forfeited property, adjusted for transactions such as transfers to and from other Federal agencies, refunds to other Federal agencies, and recoveries of asset management costs. For the fiscal year ended September 30, 2005, approximately 47,500 items were seized and valued at about $833 million compared to approximately 38,000 items seized with an estimated value of $673 million in FY 2004.

Data Reliability And Validity

The AFP views data reliability and validity as critically important in the planning and assessment of its performance. Justice Management Division maintains standards and practices to ensure that data reported meets the OMB standards for data reliability that are presented in Circular A-11, Section 230.2 (f).

The financial management of the Fund is supported by the Justice Management Division’s Financial Management Information System 2 (FMIS2), the USMS’ Financial Management System (FMS), the AFF/SADF’s Consolidated Asset Tracking System (CATS), and ATF’s Forfeited and Seized Assets Tracking System (FASTRAK). FMIS2 is a computerized, general-purpose accounting and reporting system that supports the financial operations of the DOJ. FMS is the USMS field offices’ financial management system. CATS is an integrated system that provides services to the asset forfeiture community and serves as a subsidiary system for the financial accounting and reporting of the seized and forfeited inventory. FASTRAK is an asset tracking and forfeiture status information system used by ATF. Enhancements and refinements are being made to some of these systems that will improve the usefulness of the data supporting the activities of the AFF and SADF.

FY 2005 REPORT ON SELECTED ACCOMPLISHMENTS

STRATEGIC GOAL 2: Enforce Federal Laws and Represent the Rights and Interests of the American People
47% of the AFF’s Net Costs supports this Goal.

PROGRAM:
Background/Program Objectives: The primary purpose of the Fund is to deter crime by providing a stable source of resources to cover the costs of an effective AFP. 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.

Discussion of FY 2005 Accomplishments: Receipts to the Fund were $614.5 million for the fiscal year ended September 30, 2005. These receipts must cover program operation expenses, which include all costs incurred in support of the Federal AFP. The FY 2005 percentage of program operation expenses to deposits was 37% while in FY 2004 it was 39%. After program operation expenses (as presented in Note 14) are deducted from receipts, the remainder represents the results of the year’s operations ($614.5 million - $227.8 million = $386.7 million in FY 2005 and $454.6 million – $176.8 million = $277.8 million in FY 2004). This net income is distributed in various ways. It is paid out for equitable sharing; state and local overtime; contracts to identify assets; and investigative expenses after the annual appropriation of funds.

To facilitate the efficient execution of the national forfeiture program, the AFF funded the Browser Based Consolidated Asset Tracking System (BBC) project. This modernization effort, completed in FY 2005, replaced outdated, unsupportable software products with industry mainstream products and moved CATS from a mainframe/client-processing environment to web-based, object-oriented technology architecture. BBC ties more than 700 locations together using web-based technology and support 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.

No performance measures are indicated because the Fund’s program operations are performed by its participants. The Fund is considered to be an enabling/administrative activity where resources are spread across agencies in accordance with full program costing guidance.

STRATEGIC GOAL 3: Assist State, Local, and Tribal Efforts to Prevent or Reduce Crime and Violence
53% of the AFF’s Net Costs supports this Goal.

PROGRAM:
Background/Program Objectives: An ancillary purpose of the AFP is to enhance cooperation among federal, state, and local law enforcement agencies through the equitable sharing of federal forfeiture proceeds. Pursuant to 21 U.S.C. Sec. 881(e)(1) and 19 U.S.C. Sec. 1616a, as made applicable by 21 U.S.C. Sec. 881(d) and other statutes, the Attorney General has the authority to equitably transfer forfeited property and cash to state and local agencies that directly participate in the law enforcement effort leading to the seizure and forfeiture of property.

All property transferred to state and local agencies and any income generated by this property is to be used for law enforcement purposes. As a result, state and local law enforcement programs and capabilities have benefited significantly from their cooperative efforts with Federal law enforcement agencies. Among the following uses of equitable shares, priority is given to supporting community policing activities, training, and law enforcement operations calculated to result in further seizures and forfeitures:

Discussion of FY 2005 Accomplishments: For the period ended September 30, 2005, participating agencies spent a net total of $317.8 million for Goal 3 activities. This was made possible by $614.5 million in receipts from forfeiture activities and interest earnings on invested balances. In FY 2004, participating agencies spent a net total of $281.8 million for Goal 3 activities. This was made possible by $454.6 million received in financing sources from forfeiture activities and interest earnings on invested balances. The DOJ administers the Fund in a manner that will minimize the costs incurred by the United States while maximizing the impact on criminal enterprises. Funds are available for payment of authorized expenses consisting of equitable sharing payments and joint law enforcement operations.

No performance measures are indicated because the Fund’s program operations are performed by its participants. The Fund’s budget authority is considered to be an enabling/administrative activity where resources are spread across agencies in accordance with full program costing guidance.

ANALYSIS OF INTERNAL CONTROLS, FINANCIAL MANAGEMENT SYSTEMS, AND LEGAL COMPLIANCE

Internal Controls Program

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) management information is adequately supported. AFMS, along with other Fund participants who use FMIS2, monitor their financial transactions on an on-going basis. AFMS also requires participants, who enter Fund transactions into their own financial system, to provide reports of their summary level financial transactions at least quarterly to update the AFF’s obligation status.

FMFIA Section 2 – Material Weaknesses

For FY 2005 and FY 2004, the independent auditors reported no material weaknesses. Management’s self assessment of the AFF/SADF internal controls over financial reporting, conducted in FY 2005, as required by the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) and OMB Circular No.
A-123, Management Accountability and Control, identified fragmented financial systems and processes as an operational deficiency that is not currently material but warrants acknowledging as a deficiency that, if not addressed, managed, or corrected, could develop into a program material weakness. To correct this deficiency, forfeiture program components will work with the Unified Financial Management System Project team to implement a Department-wide and program-wide core financial system. The financial system will be integrated with the Department’s seized and forfeited property system (CATS) and ATF seizures and forfeitures will be brought into CATS to provide access across the appropriate components to ensure timely reporting in the audited financial statements. As these systems are implemented, changes in participating agencies’ financial accounting procedures will be made to promote uniform procedures for AFF/SADF seized and forfeited property and financial transactions.

For FY 2004, the independent auditors reported no material weaknesses; however, a reportable condition was noted on the existence of weaknesses in the information system controls environment. The AFF/SADF uses FMIS2, which is maintained by the Justice Management Division (JMD). As a result, the control improvements needed in FMIS2 also impact the AFF/SADF. The reportable condition and related recommendations were addressed to JMD Finance Staff, who has primary responsibility over FMIS2, by the auditors in their Independent Auditors’ Report on Internal Control over Financial Reporting. Accordingly, no recommendations for this reportable condition were addressed to the AFF/SADF management. In FY 2005, this FMIS2-related reportable condition was repeated by the auditors in their Independent Auditors’ Report on Internal Control over Financial Reporting addressed to the JMD Finance Staff.

In FY 2005, the DOJ provided reasonable assurance that management controls and financial systems met the objectives of Section 2 of FMFIA.

In FY 2004, the DOJ provided qualified assurance that management controls and financial systems met the objectives of Section 2 of FMFIA due to significant weaknesses in internal controls related to information technology security. The consolidated financial statement audit revealed a range of deficiencies in the component financial and financial-mixed IT systems that include: access controls, specifically noting failure to ensure adequate separation of duties; application software development and change controls; service continuity; system software; and application controls. None of the recommendations for material weaknesses or reportable conditions were addressed to the AFF/SADF management. To address the weaknesses in the long term, the DOJ will adopt a single unified financial management system. Further information may be obtained from the FY 2004 U.S. Department of Justice Performance & Accountability Report.

FMFIA Section 4 – Material Nonconformances

For FY 2005 and FY 2004, the Fund reported no material nonconformances of its financial-mixed IT system CATS. See FMFIA Section 2 – Material Weaknesses for discussion of management’s self-assessment relative to potential program financial systems and processes deficiencies.

For FY 2005, the DOJ provided reasonable assurance that management controls and financial systems met the objectives of Section 4 of FMFIA. The Fund relies upon the Department’s FMIS2 managers for Section 4 compliance on the Department’s financial system of record.

In FY 2004, the DOJ provided qualified assurance that management controls and financial systems met the objectives of Section 4 of FMFIA due to two material weaknesses pertaining to its accounting operations. The first, on DOJ financial systems compliance, resulted from nonconformance with OMB Circulars No. A-127 and A-130, technological changes, and the need to better support critical financial operations and agency programs. The second, on DOJ accounting standards compliance, includes ten material weaknesses across the components, none of which were addressed to the AFF/SADF. Further information may be obtained from the FY 2004 U.S. Department of Justice Performance & Accountability Report.

Legal Compliance

For FY 2005 and FY 2004 the AFF/SADF was in compliance with the requirements and responsibilities defined in applicable laws and administrative requirements including FMFIA, the Federal Financial Management Improvement Act of 1996 (FFMIA), and relevant OMB Circulars.

IMPROPER PAYMENTS

The Improper Payment Information Act (IPIA) requires a risk assessment in all programs to identify those that are susceptible to significant erroneous payments. Significant erroneous payments are defined by the OMB as annual erroneous payments in a program exceeding both 2.5% of program payments and $10 million. Based on risk assessments comprised of Independent Audit Reports, Internal Control Reviews, Inspector General Reviews, and Recovery Audit Activities, in FY 2004, the DOJ has determined there were no significant risk programs in which improper payments exceed both 2.5% of program payments and $10 million.

For FY 2005, the AFF has identified no programs that are susceptible to significant erroneous payments that exceed both 2.5% of program payments and $10 million.

POSSIBLE EFFECTS OF EXISTING, CURRENTLYKNOWN DEMANDS, RISKS, UNCERTAINTIES, EVENTS, CONDITIONS, AND TRENDS

Financing sources in FY 2005 totaled $614.5 million, which are $159.9 million more than the $454.6 million reported in FY 2004. It is difficult to project future levels of financing since they are dependent upon many factors, including the development of new cases, uneven flow of cases through the forfeiture process, level of appropriations that Federal law enforcement agencies receive, level of personnel and monetary resources dedicated to the forfeiture program, international cooperation in forfeiture and repatriation matters, Federal court decisions, and evolving forfeiture law.

The DOJ is also planning to update its financial management systems through the replacement of the core financial management systems currently operating across the components of DOJ with one core commercial off-the-shelf financial management system certified by the Joint Financial Management Improvement Program. The AFP will be among the first group of components migrating to the Unified Financial Management System.

The Fund is continuing to support the DOJ's goals, some of which are to streamline, eliminate or consolidate duplicative functions; improve communications; improve financial performance; and utilize technology to improve operations. The Fund is already meeting some of these goals. The BBC development project received approval to begin in FY 2002, and was completed in late 2005.

LIMITATIONS OF THE FINANCIAL STATEMENTS

The financial statements have been prepared to report the financial position and results of operations of the AFF/SADF, pursuant to the requirements of 31 U.S.C. 3515(b).

While the statements have been prepared from the books and records of the AFF/SADF in accordance with accounting principles generally accepted in the United States of America 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.


FOOTNOTES:
1 The participants include the Asset Forfeiture and Money Laundering Section, Criminal Division (AFMLS); Asset Forfeiture Management Staff, Justice Management Division (AFMS); Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF); Drug Enforcement Administration (DEA); Executive Office for United States Attorneys (EOUSA); Federal Bureau of Investigation (FBI); Food and Drug Administration (FDA), United States Department of Agriculture (USDA); United States Marshals Service (USMS); and United States Postal Service (USPS). On October 1, 2004, the Bureau of Diplomatic Security, Department of State (DS), became a participant of the AFF.