State and Local Equitable Sharing Program
Report No. 00-18
August 7, 2000
Office of the Inspector General
|MEMORANDUM FOR|| DONNIE R. MARSHALL
DRUG ENFORCEMENT ADMINISTRATION
|FROM:|| ROBERT L. ASHBAUGH
ACTING INSPECTOR GENERAL
|SUBJECT:|| MEMORANDUM AUDIT REPORT
U.S. Department of Justice
State and Local Equitable Sharing Program
The purpose of this audit was to determine whether the Department of Justice (DOJ) agencies responsible for the equitable sharing program are in compliance with pertinent regulations and guidelines. During FY 1999, DOJ shared approximately $231 million in cash and proceeds with state and local law enforcement agencies.
Specifically, the objectives of this audit were to determine whether: (1) sharing amounts are based on net forfeiture proceeds in accordance with applicable guidelines, (2) sharing percentages appear reasonable based on the level of effort provided by the requesting agency, and (3) equitable sharing applications and related documentation are completed properly. Our audit primarily focused on the Drug Enforcement Administration (DEA), the Federal Bureau of Investigation (FBI), the U.S. Attorneys Offices (USAOs), and the U.S. Marshals Service (USMS).
Asset forfeiture is one of the most powerful tools available to law enforcement in the war against crime because it deprives criminals of the profits and proceeds from illegal activities. While the threat of imprisonment can be a convincing deterrent to numerous crimes, it is the possibility of significant "profits" which sustains many criminal enterprises.
The DOJ asset forfeiture program has three primary goals: (1) punish and deter criminal activity by depriving criminals of property used or acquired through illegal activities; (2) enhance cooperation among foreign, federal, state, and local law enforcement 1 agencies through equitable sharing of assets recovered through this program; and, as a by-product, (3) produce revenues to enhance forfeitures and strengthen law enforcement.
The DOJ equitable sharing program is designed to enhance cooperation among federal, state, and local law enforcement agencies through the sharing of proceeds resulting from federal forfeitures. State and local law enforcement agencies generally receive equitable sharing revenues by participating directly with DOJ agencies in joint investigations leading to the seizure or forfeiture of property. 2 The amount shared with state and local law enforcement agencies is based on the degree of the agencies' direct participation in the case.
At the time of our audit, the equitable sharing program was comprised of the following DOJ entities: the Criminal Division, Immigration and Naturalization Service (INS), JMD, DEA, FBI, INS, USAOs, and USMS. During FY 1998, DEA was responsible for about 79 percent of the total sharing by DOJ, FBI was responsible for about 21 percent and INS was responsible for less than 1 percent. Consequently, we excluded INS from our audit since sharing by INS comprised such a small portion of total sharing by DOJ during FY 1998. The U.S. Department of Treasury also administers a similar equitable sharing program based on seizures under its jurisdiction. The U.S. Customs Service, Internal Revenue Service, and Bureau of Alcohol, Tobacco, and Firearms participate in the Treasury forfeiture program.
EQUITABLE SHARING PROCESS
A state or local law enforcement agency may request a share of seized property by submitting a request Form DAG-71, Application for Transfer of Federally Forfeited Property, to the field office of the pertinent federal investigative agency. A separate application must be completed for each asset to be shared.
Sharing decisions are documented on the Form DAG-72, Decision Form for Transfer of Federally Forfeited Property. Authority to make decisions on equitable sharing requests depend on the value of the assets seized and whether the asset is forfeited through administrative or judicial proceedings. 3 The investigative agency, e.g., DEA, FBI and INS, determines the amount of the equitable share in administrative forfeiture cases where the value of the asset is less than $1 million. In judicial forfeiture cases where the value of the asset is less than $1 million, the USAO determines the amount of the equitable share. Further, in both administrative and judicial forfeiture cases where the asset is valued at $1 million or more, in multi-district cases, and in cases involving the transfer of real property, the Criminal Division determines the amount of the equitable share.
In addition to the decision-making authority, the following DOJ guidelines apply to equitable sharing decisions:
In conducting our audit, we performed tests on a sample of 134 assets that were equitably shared in FY 1998, to determine whether: (1) all asset-related revenues and costs were accurately entered into the Consolidated Asset Tracking System (CATS) 4, (2) all costs were deducted from the gross receipts prior to sharing ensuring that only net proceeds were shared, (3) sharing amounts were calculated correctly, (4) sharing percentage information was accurately entered into CATS, (5) sharing percentages appeared reasonable based on the participation of the requesting agency, and (6) equitable sharing applications and related documentation were completed properly. (See Attachment II, Scope and Methodology, for detailed information related to our sample.)
For the assets sampled, we found that the FBI, USAOs, and USMS accurately entered all asset-related costs into CATS, recovered costs prior to sharing, and calculated sharing amounts correctly. However, as shown in the following section, DEA did not always recover its costs prior to sharing. For the assets sampled, we also found that sharing percentages determined by the DEA, FBI and USAOs appeared reasonable and were based on the degree of the state or local agencies' participation in the seizure of forfeiture. Further, with the exception of one missing signature on a sharing application, sharing applications and related documentation had been completed properly.
Pursuant to DOJ sharing guidelines, equitable sharing is based on the net proceeds of the asset forfeiture. In other words, all asset-related costs must be recovered prior to sharing. Asset-related costs are entered into CATS to ensure that all costs are recovered prior to sharing. The net proceeds available for sharing are calculated using the following formula, as illustrated in A Guide to Equitable Sharing of Federally Forfeited Property for State and Local Law Enforcement Agencies, March 1994:
Gross Receipts (from the forfeiture or sale of forfeited property):
We found that costs incurred by the FBI, USAOs and USMS were entered into CATS and recovered prior to sharing; however, DEA did not recover a $10,000 award paid to a confidential informant prior to sharing because DEA staff did not enter the award amount into CATS. Proceeds available for sharing prior to deducting the $10,000 award totaled $99,856, of which a local law enforcement agency was awarded 60 percent or $59,914 ($99,856 x 60 percent). If the $10,000 award had been deducted from the proceeds available for sharing, as required, the net proceeds available for sharing would have totaled $89,856, of which the local law enforcement should have been awarded $53,914 ($89,856 x 60 percent). As a result, an excess of $6,000 ($59,914 - $53,914) was shared with the local law enforcement reducing the funds available to DOJ agencies to enhance forfeitures and strengthen law enforcement. Thus, we are questioning $6,000 in excess sharing.
We also found that DEA was not fully recovering its advertising costs prior to sharing. To forfeit an asset administratively, the investigative agency is required to advertise the forfeiture for a minimum of three weeks. In FY 1995, DEA entered into a contract with USA Today to provide advertising for administrative forfeitures. At that time, DEA determined the average advertising cost per asset to be $144, based on the per line rate of $11.98. The average advertising cost was calculated by multiplying the line rate ($11.98) by the average number of lines per advertisement (4 lines) and the number of weeks the advertisement must be run (3 weeks). ($11.98 line rate x 4 lines per advertisement x 3 weeks = $144.)
We determined that since FY 1995, DEA had not recalculated its $144 average advertising cost per asset; even though the per line advertising rate increased each fiscal year during FYs 1996 through 1998. Based on the increased per line rates, we calculated the average advertising cost DEA should have been charging to each shared asset, as shown in the following table.
AVERAGE DEA ADVERTISING COST BY FISCAL YEAR (PER SHARED ASSET)
Absent a detailed review of all assets shared by DEA during FY 1998, we were unable to determine the actual amount of advertising costs that were not recovered prior to sharing because the data was not available. However, to demonstrate the impact of DEA not fully recovering its advertising costs prior to sharing, we developed an estimate of the total advertising costs that were not recovered for all assets shared by DEA during FY 1998.
DEA shared a total of 22,179 assets during FY 1998, according to a CATS report provided by DEA. DEA generally allocates its advertising costs in the fiscal year in which the asset is seized rather than in the fiscal year in which the asset is shared. We were unable to obtain a listing providing the breakdown of the fiscal years in which the assets were seized. Therefore, we estimated the number of assets seized prior to FY 1996, and in FYs 1996 through 1998, for the 22,179 assets shared, based on our analysis of a sample of 418 assets shared by DEA during FY 1998. Using our analysis and the unrecovered advertising amounts in the previous table, we estimated that DEA did not recover $511,684 in advertising costs prior to sharing, as shown in the table on the following page.
ESTIMATED UNRECOVERED ADVERTISING COST
Additionally, using the same sample of 418 assets shared by DEA in FY 1998, we determined that the average share of forfeiture proceeds totaled 73 percent per case. Applying the 73 percent average share to the total estimated unrecovered advertising costs of $511,684, we estimate that DEA shared an excess of $373,529 (511,684 x 73 percent) with state and local law enforcement agencies. 5
VIEWS OF RESPONSIBLE OFFICIALS
We discussed our finding with DEA officials about the failure to increase its average advertising rate since it was first calculated in FY 1995. DEA agreed with our finding and issued a memorandum increasing the advertising costs charged to each administratively forfeited asset from the original $144 to $200. The memorandum further advised that the advertising cost may be adjusted each fiscal year, as necessary. Subsequent to our audit, DEA entered into a new advertising contract for FY 2000 that significantly reduced its average advertising costs per asset to about $126 ($10.53 line rate x 4 lines per advertisement x 3 weeks = $126). DEA also provided us with documentation showing that as a result of the savings from the new contract, DEA's FY 2000 allocation for advertising costs from the Assets Forfeiture Fund was reduced by $700,000.
Additionally, in response to our finding that DEA did not recover a $10,000 award paid to a confidential informant prior to sharing, resulting in an excess sharing of funds, DEA officials stated that DEA headquarters officials should have entered the award amount into CATS. DEA headquarters officials stated that the oversight occurred because the award was paid during the transition between the prior asset tracking system and the new CATS system.
Based on the results of our audit, we found that: (1) costs incurred by the FBI, USAOs and USMS were entered into CATS and recovered prior to sharing; (2) sharing percentages determined by the DEA, FBI and USAOs appeared reasonable; and (3) sharing applications and related documentation had been completed properly. In our judgment, DEA has adequately addressed our finding related to the failure to increase its average advertising rate; thus, we offer no recommendations related to the finding. Based on the fact that our review of the assets shared by DEA revealed only one instance in which DEA failed to recover an award paid to a confidential informant and based on DEA's response to our finding, we concluded that DEA's failure to recover the $10,000 award appears to be a random error. As a result, we also offer no recommendations related to this finding.
The report does not contain any recommendations and is considered closed. We previously furnished copies of the draft report and requested written comments on its contents. Your agency's response has been attached to this report.
We appreciate the cooperation and assistance received during the audit. If you have any questions or would like to meet on this report, please contact me on (202) 514-3435 or George W. Stendell, Regional Audit Manager, Dallas Regional Audit Office, on (214) 655-5000.
ATTACHMENT I-STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS
We have audited aspects of the equitable sharing program at the Executive Office for U.S. Attorneys, DEA and FBI Headquarters, three USAOs, and three DEA, FBI and USMS field offices, for FY 1998, and included a review of selected activities and transactions. The audit was conducted in accordance with generally accepted government auditing standards.
In connection with this audit, and as required by the standards, we tested selected transactions and records to obtain reasonable assurance about audited agencies' compliance with laws, regulations, and guidelines that, if not complied with, we believe could have a material effect on the program operations. Compliance with laws and regulations applicable to the equitable sharing program is the responsibility of audited agencies' management.
Our audit included examining, on a test basis, evidence concerning laws and regulations. The specific laws, regulations, and guidelines for which we conducted tests are contained in the relevant portions of:
Our tests indicated that, for the cases and records tested, the agencies audited generally complied with the provisions of applicable laws, regulations and guidelines, except as noted in the report.
With respect to those transactions not tested, nothing came to our attention that caused us to believe that the audited agencies' management was not in compliance with the laws, regulations, and guidelines cited above.
ATTACHMENT II-SCOPE AND METHODOLOGY
We performed the audit in accordance with generally accepted government auditing standards and, accordingly, included such tests of records and procedures as we considered necessary. The scope of our audit included equitable sharing during the period October 1, 1997, through September 30, 1998 (FY 1998).
Our audit was limited to the DOJ equitable sharing program and we focused primarily on DEA, FBI, USAOs and the USMS. We conducted audit work at each agency headquarters, and selected field offices. We reviewed laws, regulations and guidelines related to equitable sharing, and prior reports related to asset forfeiture and equitable sharing.
We selected a judgmental sample of 142 assets that were equitably shared in FY 1998, (50 administered by the USMS District of Colorado, 44 administered by the USMS Southern District of Texas, and 48 administered by the USMS Western District of Texas). Of the 142 shared assets selected for review, 8 were excluded because the asset was seized prior to FY 1996 or the investigative files were located in another district. The remaining 134 shared assets reviewed consisted of 119 assets seized by DEA (89 percent) and 15 assets seized by the FBI (11 percent). Based on the dollar value of assets shared nationwide during FY 1998, the universe consisted of 78 percent DEA seizures and 22 percent FBI seizures.
In performing our audit work we used data contained in CATS, to select our sample and determine the universe of assets shared with the Houston Police Department and the San Antonio Police Department. We also used asset revenue and cost data contained in CATS, although all financial data used in conducting the audit was verified to source documentation. We did not establish the reliability of data contained in the CATS system as a whole; however, when the data used is viewed in context with other available evidence, we believe the opinions and conclusions in this report are valid.
To demonstrate the impact of DEA not fully recovering its advertising costs prior to sharing, we had to develop an estimate of the total advertising costs that were not recovered for all assets shared by DEA during FY 1998. DEA shared a total of 22,179 assets during FY 1998, according to a CATS report provided by DEA. As previously stated in the report, DEA generally allocates its advertising costs in the fiscal year in which the asset is seized rather than in the fiscal year in which the asset is shared. To calculate the estimated advertising costs not recovered by DEA prior to sharing during FY 1998, we had to develop a methodology for estimating the fiscal year in which the assets were seized.
We obtained detailed CATS listings of assets shared during FY 1998, for the District of Colorado, the Southern District of Texas, and the Western District of Texas. From those listings, we identified a total of 418 assets shared by DEA and used the data related to those assets to determine the percentage of assets shared in FY 1998 that were seized prior to FYs 1996 and during FY 1996 through 1998. The results of our detailed analysis revealed that:
We then applied these percentages to the 22,179 total assets shared by DEA during FY 1998, and developed the following estimates related to the fiscal years in which the assets were seized:
To determine the total estimated advertising costs not recovered prior to sharing related to the 22,179 assets shared during FY 1998, we then multiplied the estimates related to the fiscal years in which the assets were seized by the average unrecovered advertising cost per case for the related fiscal year.
Additionally, using the same sample of 418 assets shared by DEA in FY 1998, we determined that the average share per case was 73 percent. The average share per case was determined by adding the percent shared in each of the 418 cases and dividing the total sharing percentages by 418 cases.
ATTACHMENT III-SCHEDULE OF DOLLAR-RELATED FINDINGS
QUESTIONED COSTS are monies spent that, at the time of the audit, do not comply with legal requirements, or are unsupported, or are unnecessary or unreasonable. They can be recoverable or non-recoverable.
|U.S. Department of Justice
Drug Enforcement Administration
July 6, 2000
|TO:||Guy K. Zimmerman|
Assistant Inspector General
Office of the Inspector General
|SUBJECT:||Draft Audit Report-United States Department of Justice State and Local Equitable Sharing Program|
This is in response to your memorandum dated May 31,2000, requesting the Drug Enforcement Administration (DEA) to review and comment on the above subject draft report. Accordingly, DEA has no comments.
If you have any questions, please contact Deputy Chief Inspector Gloria J. Woods, Office of Inspections, or Audit Liaison Frank Proietti at (202) 307-8200.
|cc:||Vickie L. Sloan
Audit Liaison Office
Justice Management Division