APPENDIX I

SCOPE AND METHODOLOGY

The audit was performed in accordance with generally accepted government audit standards and included tests and procedures necessary to accomplish the audit objectives. We reviewed applicable federal laws and regulations as well as INS policies, procedures, organization charts, and mission and function statements. The work was performed at the INS Headquarters Office in Washington D.C. We interviewed staff in the Budget Division, Accounting Division, Statistical Analysis Branch, and various program managers in INS. In addition, we interviewed Justice Management Division budget personnel and database managers in the Department of Transportation (DOT) and U.S. Customs Service.

In performing this audit, we utilized computer-processed data available from the DOT T-100 database (International Form 41), INS' Performance Analysis System, and INS' Financial Accounting and Control System (FACS). The DOT T-100 data includes the number of passengers entering the United States from foreign ports. The Performance Analysis System includes the number of inspections performed and applications submitted to INS. The FACS contains information on cash deposits and expenditures. We summarized the DOT T-100 data over a 4 year period and compared it to user fee deposits which were maintained manually at the INS. We found there was a close correlation in the two sources of data, once timing differences were accommodated (see page 14 of the report). We also compared information in the Performance Analysis System to the land border weekly activity reports prepared manually by port staff and found this data to be consistent. The FACS is the only source of financial information for the INS, but based on our limited testing and our independent auditors disclaimer of an opinion on the INS Fee Accounts Annual Financial Statement (see our Report Number 95-2A), the data cannot be considered reliable. Because the preciseness of computer-processed data is not of paramount importance in preparing reasonable forecasts of fee revenue, when these data are viewed in context with other available evidence, we believe the opinions, conclusions, and recommendations in this report are valid.

Our review period covered fees collected from January 1, 1991 through December 31, 1994, for each of the four fee accounts. To assess controls, we reviewed INS' forecasting methods and interviewed staff to gain an understanding of controls over its budget and forecasting cycles.

APPENDIX II

ADDITIONAL BACKGROUND

We interviewed staff in the Budget Division, Accounting Division, Statistical Analysis Branch, and various program managers in INS. In addition, we interviewed budget personnel within Justice Management Division (JMD) and database managers in the Department of Transportation (DOT) and U.S. Customs Service.

The budget formulation process begins about 10 months before the President's budget is presented to the Congress in January or February. During this budget formulation process, internal budget reviews and decision-making sessions, based in part upon consideration of accounting data, culminate in INS' submission of a budget request to the OMB. Administration policy, revenue and economic projections, and other policy-related factors are considered by OMB in deciding upon the budget request presented in the President's budget. This budget includes program, financing, and object classification schedules detailing most budget accounts' prior fiscal year actual obligations, current fiscal year estimated obligations, and budget year planned obligations, by program activity and by object class.

BUDGET DIVISION MISSION: "The primary mission of the Budget Division is to communicate effectively and persuasively to the Department of Justice (DOJ), the Office of Management and Budget (OMB), and the U.S. Congress the resources needed by the Immigration and Naturalization Service (INS) to administer the Nation's immigration laws, facilitate efficient distribution and use of resources within INS, and ensure that statutory requirements are met."

The Fee Analysis and Operations Branch was established within the Budget Division in response to Congressional requirements that INS rely on fee revenues to cover about one-third of its costs. The Fee Analysis and Operations Branch had a continuing responsibility for monitoring the costs of fee-supported activities and managing INS' responsibilities for assuring that fee revenues cover those costs.

During the course of this audit there was a reorganization and a shifting of functions within the Budget Division.

The Fee Analysis and Operations Branch no longer exists and some of its former responsibilities were divided between two Budget Division offices.

The Analysis and Formulation Branch will focus on the development of future year budget initiatives and resource requirements and will manage the processes necessary for the development and presentation of the budget.

The Execution Branch will continually analyze current year resource use and requirements and provide a quarterly status of resources to INS Senior Management.

Additional responsibilities of the former Fee Analysis and Operations Branch were shifted to the Fee Policy and Rate Setting Branch and the Analysis and Formulation and Coordination Branch. Prior to this reorganization, individual analysts within the Budget Division worked on one or two of the fee accounts, but these individual responsibilities are being reviewed and may be reassigned. In our Report Number 93-3, "Controls over Established User Fee Accounts in the Immigration and Naturalization Service," we stated that:

"Budget plans usually have to be amended to generate funding for unplanned costs or for program deficits caused by overspending. The Comptroller conducts reviews on the status of the budget at least quarterly. Unplanned problems are handled by the Commissioner and Headquarters management which approves funding options developed by the Comptroller during the reprogramming process."

DOJ instructions for the budget and reprogrammings were sent to the Heads of Department Components and require submission of certain documents based on changes contained in their initial operating plans, when they exceed reprogramming thresholds. When a reprogramming action was required, the memorandum was drafted within the Budget Division and sent to the Commissioner's office for signature. Once approved by the Commissioner, the memorandum was sent to JMD. The Assistant Attorney General for Administration then prepared the official reprogramming memorandum to OMB and Congress. Congress could send an acknowledgment to the Assistant Attorney General for Administration, or possibly request more detailed information or explanation.

In order to determine when there were material changes in initial operating plans, current information on receipts and obligations was required. INS' Accounting Operations and Reports Analysis Branch prepares a monthly Status of Funds Report that details fee account collections and bank deposits for the preceding month. The Administrative Centers/Regional Offices reconcile bank deposit slips with INS' automated accounting system, but we did not verify or test these procedures since it was beyond the scope of this audit.

All fee account deposits were entered in FACS, a computerized batch processing system working on a cyclical basis that contains the records on allocations, obligations, commitments, disbursements, accrued liabilities, and collections. Some of its data are captured via automated links and the remainder is entered at Headquarters and the Administrative Centers/Regional Offices and transmitted into the mainframe. The FACS reports were used as a basis for budget and accounting decisions. Our independent auditors who performed the audit of the FY 1993 Fee Account Annual Financial Statement disclaimed an opinion on the accuracy of the financial data. One material weakness reported was "management of the fee accounts was unable to provide sufficient accounting information supporting various general ledger and financial statement balances." Based on this and other problems, INS plans to replace its automated financial management accounting system in the next few years. One option under consideration is a cross-servicing agreement with the Department of Interior for accounting services.

STATEMENT ON MANAGEMENT CONTROL STRUCTURE

In planning and performing our audit of Forecasting for Fee Accounts at INS, we considered INS' control structure for the purpose of determining our auditing procedures. This evaluation was not made for the purpose of providing assurance on INS' management control structure as a whole. However, we noted certain practices at INS that we consider to be reportable conditions under generally accepted government auditing standards.

Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the control structure that, in our judgment, could adversely affect INS' ability to make management decisions. Management did not have timely or reliable information to make budgeting and reprogramming decisions.

Because we are not expressing an opinion on INS' management control structure as a whole, this statement is intended solely for the information and use of INS' management. This restriction is not intended to limit the distribution of this report, which is a matter of public record.

STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS

We have audited INS' budgetary policies and associated operational procedures. The audit was conducted in accordance with generally accepted government auditing standards.

In connection with the audit, and as required by the standards, we tested transactions and records to obtain reasonable assurance about the entity's compliance with laws and regulations that, if not complied with, we believe could have a material effect on program operations. Compliance with laws and regulations applicable to budgetary procedures and fee account management is the responsibility of INS management.

The audit included examining, on a test basis, evidence about laws and regulations. The specific laws and regulations against which we conducted our tests were Section 605 of the 1994 DOJ Appropriations Act and Section 8 of the DOJ Appropriation Authorization Act, 1980, P.L. 96-132 and DOJ guidance issued in the User Fee Programs (Supplement to the DOJ Budget Formulation and Execution Calls) prepared by the Controller, JMD in April 1993.

The results of our tests indicated that for the areas tested, INS did not always comply with the regulations and laws referred to above in the following areas:

budgetary procedures -- accrual method (see page 8), and

procedures for reprogrammings need to be reviewed (see page 26).

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