Immigration and Naturalization Service
Annual Financial Statement
Fiscal Year 2002
Report No. 03-22
Office of the Inspector General
This audit report contains the Annual Financial Statement of the Immigration and Naturalization Service (INS) for the fiscal years ended September 30, 2002 and 2001. Under the direction of the Office of the Inspector General, the audit was performed by Urbach Kahn & Werlin LLP, and resulted in an unqualified opinion on the FY 2002 financial statements. As previously reported, the INS received an unqualified opinion on the FY 2001 financial statements (Office of Inspector General Report Number 02-35). An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and results of operations of the entity.
In FY 2002, the INS's management continued to make progress in correcting the number of reportable conditions previously reported, reducing them from four in FY 2001 to three in FY 2002. Two of the FY 2001 material weaknesses on information system controls, the financial management systems control material weakness and the general information systems control material weakness, were combined into one material weakness on information system controls for FY 2002. The auditors also determined that the INS had made improvements through its implementation of a new financial accounting system, Federal Financial Management System (FFMS), beginning in March of FY 2002 and the implementation of corrective action for certain general information system controls weaknesses. However, because the INS's field offices did not transition to FFMS until October 2002 and certain corrective actions to the general controls environment were still needed, the auditors determined that a material weakness still existed in the area of information system controls.
The auditors continued to report a material weakness on deferred revenue as the INS continues to expend tremendous efforts in planning and conducting a wall-to-wall physical inventory to determine its deferred revenue balance at year-end. Finally, a new material weakness was identified in FY 2002 related to weaknesses in INS's processes for financial accounting and reporting. This material weakness specifically addresses the lack of integrated perpetual general ledger records and the stand-alone systems, manual processes, and data calls the INS uses to prepare financial statements. The prior year reportable condition on the lack of an integrated accounts payable system was combined into this material weakness.
Although progress has been made at the INS, it is important to note that the unqualified opinion on the FY 2002 financial statements is not due to the reliability of the financial management information system at the INS but is instead due to the extensive manual processes and work-arounds the INS utilizes. For example, because there are no controls in place to ensure that accurate earned and deferred revenue information is available throughout the year, the INS performs a year-end physical count of over 5.4 million pending applications in order to determine its deferred revenue balance. Although the count was a success, the effort required still remains extremely costly, both in dollars and lost production.
In the Report on Compliance with Laws and Regulations, the auditors are required to report whether the INS's financial management systems substantially comply with the federal financial management system requirements, applicable federal accounting standards, and the United States Government Standard General Ledger at the transaction level. To meet this requirement, the auditors performed tests of compliance with the Federal Financial Management Improvement Act (FFMIA) requirements. The results of their tests disclosed instances where INS's financial management systems did not substantially comply with these three requirements. The auditors reported that the INS's core financial reporting system of record is FFMS. However, the INS's legacy system, the Financial Accounting and Control System (FACS) operated as a significant feeder system during FY 2002 and still processed a large portion of its financial transactions. Due to its age and design, FACS is not a Joint Financial Management Improvement Program certified application and does not meet federal financial management system requirements, including OMB Circulars A-127, Financial Management Systems and A-130, Management of Federal Information Resources.
In addition, the INS's systems for recording and reporting pending and completed applications (i.e. deferred and earned revenue) do not meet federal accounting standards or federal financial system requirements as described above. Due to their unique management functionality, these revenue systems are discrete from INS's core financial management systems.