DRUG ENFORCEMENT ADMINISTRATION
ANNUAL FINANCIAL STATEMENT
FISCAL YEAR 1996
Audit Report 97-31A, (9/97)
TABLE OF CONTENTS
OFFICE OF THE INSPECTOR GENERAL COMMENTARY AND SUMMARY
MESSAGE FROM THE CHIEF FINANCIAL OFFICER
OVERVIEW OF THE REPORTING ENTITY
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROLS
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS
STATEMENT OF FINANCIAL POSITION
STATEMENT OF OPERATIONS AND CHANGES IN NET POSITION
NOTES TO THE FINANCIAL STATEMENTS
SUPPLEMENTAL FINANCIAL AND MANAGEMENT INFORMATION
DOMESTIC AND FOREIGN CHARTS, MAPS & OFFICE LISTINGS
PERFORMANCE MEASURES FISCAL YEAR 1996 PROGRAM HIGHLIGHTS
APPENDIX I - AUDIT DIVISION ANALYSIS AND SUMMARY OF ACTIONS NECESSARY TO CLOSE THE REPORT
OFFICE OF THE INSPECTOR GENERAL
COMMENTARY AND SUMMARY
This audit report contains the Annual Financial Statement of the Drug Enforcement Administration (DEA) for the fiscal year ended September 30, 1996. The report includes the DEA management's overview, the principal financial statements and related notes, and the independent auditors' reports on the principal financial statement, internal control structure, compliance with laws and regulations, and supplemental financial and management information. The annual financial statement is the responsibility of the DEA management. This audit was performed as part of the Department of Justice's (DOJ) effort to implement the Government Management Reform Act of 1994 (GMRA), which requires an annual financial statement audit of the DOJ beginning with FY 1996. The results of the annual financial statement audit of the DEA as presented in this report will be relied upon by Price Waterhouse LLP in its performance of the consolidated financial statement audit of the DOJ, which will be issued as a separate report by the Office of the Inspector General (OIG).
The OIG contracted with KPMG Peat Marwick, LLP, Certified Public Accountants (CPA), to perform the FY 1996 audit of the DEA Combined Statement of Financial Position. The audit was conducted in accordance with generally accepted government auditing standards and Office of Management and Budget Bulletin No. 93-06, "Audit Requirements for Federal Financial Statements." The OIG performs an oversight role in the audit process and ensures compliance with the GMRA by monitoring the progress of the audit, reviewing supporting workpapers, coordinating the issuance of reports, and following up on findings and management letter issues.
As part of the DOJ-wide audit, Price Waterhouse LLP performed a general controls review
of the Justice Data Centers, which process the DEA's data. The results of this work were
considered by KPMG Peat Marwick in performing its audit of the DEA. Additional work was
performed by KPMG Peat Marwick at the DEA level, as considered necessary to complete its
The DEA was created on July 1, 1973, as the result of an effort to consolidate all federal anti-drug forces under a single unified command within the Department of Justice. It is headed by an Administrator and consists of 20 Domestic Divisions and 70 Foreign Offices in 51 countries throughout the world.
The DEA's sole mission is to combat drug trafficking. It is responsible for the development of federal drug enforcement strategy, programs, planning, and evaluation. It provides the skeletal structure for drug law enforcement worldwide and a point of reference for efforts against all aspects of the illegal drug problem, including investigations, drug intelligence, chemical control, diversion control and regulation, and crop and laboratory eradication. Other agencies have a non-drug mission and bring special functions to particular aspects of the overall anti-drug effort. The DEA conducts 75 percent of its investigations in cooperation with other agencies.
In FY 1996, DEA employed over 7,400 persons and its budget was approximately $1 billion.
The audit resulted in a disclaimer of opinion on the Combined Statement of Financial Position. The independent auditor was unable to obtain sufficient information regarding an irregularity involving a DEA employee and therefore was not able to determine the effect of the irregularity on the DEA's financial position as of September 30, 1996. In addition, the DEA either did not have, or had not maintained, systems to accurately and completely account for all of its capitalizable property and equipment (P&E), report its seized assets and related liabilities, and report the results of operations of Attorney General exempt and trafficker directed operations which were active during FY 1996. The auditors were therefore unable to satisfy themselves as to the fair presentation of the related account balances. The independent auditors were unable to apply audit procedures sufficient to determine the extent to which the combined Statement of Financial Position may have been affected by these conditions. As a result, the scope of the independent auditors' work was not sufficient for the auditors to express an opinion.
Due to the scope limitation imposed as a result of the irregularity involving the DEA employee referred to in the previous paragraph, the independent auditors were unable to determine what, if any, reportable conditions existed related to that matter or the effect, if any, of the irregularity on DEA's compliance with laws and regulations. However, its report on the internal control structure identified four material weaknesses with respect to: (1) property and equipment, (2) seized assets, (3) Attorney General exempt and trafficker directed operation, and (4) security software. In its report on compliance with laws and regulations, the independent auditor cited DEA for not complying with Attorney General exempt and trafficker directed authority reporting requirements.
The auditors were not contracted to perform control testing sufficient to enable them to express an opinion on management's assertion over the effectiveness of the internal control structure as a whole or compliance with laws and regulations. Accordingly they did not express such opinions. Additionally, certain conditions involving the internal control structure and compliance with laws and regulations were noted by the independent auditor and will be communicated to management under separate letter.
Financial and Operating Highlights
The DEA is currently in the process of switching their accounting system to the Department of Interior's Federal Financial System (FFS). The DEA's current accounting system was cited as a material nonconformance in its 1996 FMFIA report because of its inability to perform the core financial accounting functions. The DEA believes that moving to this system should help to eliminate some of the problems identified in this report such as the reporting of accounts payable.