The Working Capital Fund (WCF) is a revolving fund created primarily to provide certain administrative services to the Department on a centralized basis. The WCF is reimbursed by the Department's participating components for the cost of these services, which includes an amount for operating expenses of the fund. The WCF also serves as the custodian for amounts collected through civil debt litigation and has the authority to retain up to three percent of these collections. The WCF does not receive appropriated monies from Congress, but is allowed to receive unobligated prior year appropriations from other Department of Justice components. Amounts transferred to the WCF may be used by the Department for the acquisition or improvement of automated systems and capital equipment.

This audit report contains the financial statements of the WCF for the fiscal years ended September 30, 2003 and 2002. Under the direction of the Office of the Inspector General (OIG), the audit was performed by PricewaterhouseCoopers LLP. The audit resulted in an unqualified opinion on the FY 2003 financial statements. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and results of operations of the entity. For FY 2002, the WCF also received an unqualified opinion on its financial statements (OIG Audit Report 03-24).

The Report on Internal Control identified one material weakness in the WCF's accounting procedures for preparing its financial statements. Specifically, the auditors noted the following problems in the WCF's accounting procedures, which resulted in a material weakness:

• errors in the status and value of accounts payable and undelivered orders,

• errors in the calculation and classification of earned revenue and unfilled customer orders,

• inadequate procedures for the allocation and timely resolution of amounts reported in the Budget Clearing Account,

• inadequate controls surrounding the recordation and updating of property items,

• disbursements are not adequately monitored and sufficient supporting documentation is not maintained,

• quarterly financial reporting needs improvement,

• year-end financial management processes need improvement,

• staff resource issues need to be addressed,

• documentation to support the WCF's financial statements was not provided timely and year-end deadlines were not met,

• the WCF's property management system is not linked to FMIS and, therefore requires manual entries for financial reporting,

• FMIS does not link obligations incurred under reimbursable authority to specific reimbursable agreements,

• FMIS does not support the correct identification of transfers versus revenue, and

• FMIS does not prevent the creation of an obligation with a prior year obligation number in subsequent fiscal years.

As a result, timely and accurate information is not available to management throughout the year, and there is a risk that the WCF will not meet the accelerated financial statement reporting deadlines in future years. The audit had reported a similar material weakness for FY 2002.

In their Report on Compliance with Laws and Regulations, the auditors concluded that the WCF's financial management systems did not substantially comply with federal financial management systems requirements and applicable federal accounting standards as required by the FFMIA. The same compliance issue had been reported for FY 2002.

The OIG reviewed PwC's report and related documentation and made necessary inquiries of its representatives. Our review, as differentiated from an audit in accordance with U.S. generally accepted government auditing standards, was not intended to enable us to express, and we do not express, an opinion on the WCF's financial statements, conclusions about the effectiveness of internal control, or conclusions on compliance with laws and regulations. PwC is responsible for the attached auditors' report dated January 14, 2004, and the conclusions expresses in the report. However, our review disclosed no instances where PwC did not comply, in all material respects, with generally accepted government auditing standards.