2. SUPERVISION OF SERVICE PROVIDERS

The USMS did not exercise due care in reviewing the performance of providers of certain services. As a result, assets were allowed to deteriorate, contractors and other vendors failed to perform as required, and overcharges of at least $140,000 were paid. This occurred because the USMS did not adequately monitor performance under contracts or other agreements.

Performance of USMS Contractors

In San Diego, California, where there was a large inventory of seized motor vehicles, significant deficiencies were noted by prior reviews. Our Report #90-14, "Management of Seized and Forfeited Assets In the Department of Justice," issued in September 1990, included an observation that "cars were parked bumper to bumper, windows and windshields were broken, and vehicles were not locked" at one storage facility.

Subsequently, the USMS conducted its own Contract Management Review (CMR) of the vehicle towing and storage contractor in 1991. The CMR described the contractor's performance as "a total mission failure."

The CMR documented such non-performance as:

vehicles pushed into the sides of other vehicles;

vehicles with the ignition keys left on and all power drained from the battery;

food and debris found in the vehicles;

windows left down, thereby exposing the vehicles' interiors to the elements;

vehicles with flat tires being moved around the lot, thereby destroying the tires;

lack of security; and,

missing equipment, such as radios or speakers.

The USMS team that conducted the CMR also noted that local offices of the DEA and the FBI refused to have their seized vehicles towed to that contractor's lot.

During this audit, we visited the contractor's lot and found that many of the deficiencies noted previously by our auditors and by the USMS reviewers still existed in early 1993. We witnessed vehicles being towed across an unpaved lot on flat tires. We also noticed a vehicle that had been towed by its tie rod; as a result, the tie rod was severely bent. We saw expensive vehicles stored outdoors, without adequate covering to assure protection from the effects of exposure to sunlight. We also saw vehicles that appeared to have deteriorated in condition as a result of prolonged storage outdoors (see Appendix II).

Despite two reviews that found material deficiencies in the contractor's performance, the USMS continued to employ that contractor until April 1993, when the contract finally expired. The USMS also failed to take any action to debar the contractor from future contracts with the government, even though grounds to consider debarment existed.

Providers of storage for other types of assets also failed to perform as required. The Seized Property Management Guidelines and Procedures require storage of seized vessels with wooden hulls in the water and vessels with other types of hulls out of the water. However, we found violations of this policy in San Diego, California; Miami, Florida; and Brooklyn, New York.

In San Diego, five vessels with fiberglass hulls were stored in the water at a substantially higher cost than the prevailing cost of dry storage. In Miami, 6 of 20 vessels with non-wood hulls were stored in the water and we were unable to determine from district records where another 4 were stored.

In Brooklyn, all the vessels reviewed had fiberglass hulls and all but one were stored in the water. One vessel was not tied up at a pier but was kept at anchor at a distance of about 150 yards from shore. Other privately owned vessels were also anchored in the vicinity and boat traffic moved freely through the area. Anyone with a boat could easily reach the anchorage and board the seized vessel.

During a storm, the vessel sank and sustained severe damage. The vessel was raised and cleaned out at government expense but was worth almost nothing afterwards. Its engines no longer worked and the upholstery and instruments had been ruined. The damage resulting from the sinking could have been prevented if the vessel had been stored on land in keeping with the USMS' own guidelines. Moreover, the cost of raising and cleaning a sunken vessel would have been avoided.

Services were obtained from the marina without the benefit of a formal contract. Thus there was no assurance that the government obtained favorable rates for services provided and no basis for determining the services that were agreed upon and whether they were provided.

Overpayments

During a period of 21 months, the former vehicle storage contractor in San Diego charged and the USMS paid an extra five cents a day per vehicle. This resulted in an overpayment of $94,930. The CMR conducted in 1991 disclosed that an overpayment had occurred, but the USMS failed to calculate the total amount overpaid or request a refund. Local USMS officials told us that the contractor had expressed willingness to repay the overcharge if the USMS would tell him how much was due. Based in part on our determination that $94,930 had been overpaid, the USMS Headquarters notified the district office in San Diego on May 10, 1993, to withhold payment of invoices from the contractor until further notice.

The USMS District Office in San Diego failed to reconcile the contractor's bills but paid them as presented. The result was the payment of erroneous charges. When we tested a sample of 100 entries from the February 1993 bill against USMS records, we found 18 vehicles for which the USMS had no record and 14 that had been sold, returned to the owner, or released to a lien holder. The total charges for those vehicles was $11,925, calculated from the date of disposition or the date when the vendor claimed to have received the vehicle through the end of the February 1993 billing period. Since the February 1993 bill listed 5,382 entries and we were able to sample only 100, the potential overcharges were much higher than $11,925. Consequently, the USMS should withhold payment to the vendor until a complete reconciliation of recent billing is performed and all overpayments are recovered.

In Brooklyn, New York, we also found that the government had paid erroneous amounts for storing seized vehicles. The contract specified monthly billing on the basis of 30 days a month for 12 months. However, the contractor was billing twice a month on a calendar day basis, which resulted in payment for 5 extra days storage annually. The overpayment would amount to $32,670 through the end of fiscal year 1993 and $55,522 over the life of the contract (fiscal years 1991 through 1995). The payment of invoices semi-monthly rather than monthly also resulted in imputed interest costs to the government of approximately $1,028 a year.

Recommendations

We recommend that the Director, USMS:

5. Recover the overpayments made to vehicle contractors in the Southern District of California and the Eastern District of New York.

6. Discontinue paying the vendor in the Eastern District of New York on a calendar day basis and pay, instead, on the contractual basis.

7. Perform a complete reconciliation of the invoices for January through April 1993 submitted by the former vehicle storage contractor in San Diego, California and recover any overpayments.

8. Regularly reconcile vendor invoices prior to payment.

9. Ensure that vessels with hulls made of materials other than wood are stored out of the water, wherever practicable.

 

3. USMS HANGAR

Although the Deputy Attorney General ordered the USMS to use its hangar in Oklahoma City, Oklahoma, for storage of large seized aircraft, the USMS did not do so. Consequently, the USMS incurred storage costs of more than $322,000 for seized aircraft, some of which could have been avoided. This resulted from the failure, for a period of two years, by the affected USMS divisions to execute a Memorandum of Understanding on the use of the hangar.

On June 17, 1991, the Deputy Attorney General ordered the USMS to store large seized aircraft at its hangar in Oklahoma City, Oklahoma. This order noted that the USMS was "responsible for storing and maintaining all aircraft seized by federal law enforcement agencies" and was paying two contractors to maintain and service aircraft. The Deputy Attorney General's order then stated, "the Department has decided to move these airplanes to the Oklahoma City hangar. Storing these airplanes at Oklahoma City will result in lower maintenance and storage costs to the seized asset program and better security for assets in the custody of the government." In our opinion, a facility to store large aircraft could also be used to store some small seized aircraft.

Our review found that the USMS stored only five seized aircraft in the hangar in Oklahoma City and the last one had been released in December 1992. According to officials of the SAD, the most seized aircraft that had been stored there at any one time was three. Our review of records for the contract facilities where aircraft were stored found at least 13 large aircraft held at one time or another between 1991 and 1993; in our opinion, the USMS could have stored some of them at the hangar, thereby averting additional storage costs.

Although the decision of the Deputy Attorney General was issued in June 1991, a Memorandum of Understanding (MOU) between the Seized Assets Division (SAD) and the Air Operations Division (AOD) was not drafted until January 1992 and not signed until June 1993. The draft MOU was signed by the Associate Director for Operations Support and circulated for consideration. The AOD responded in February 1992 with concerns about: conforming the SAD maintenance plan to provisions of the AOD's existing maintenance contract; distinguishing between "routine" and "non-routine" maintenance; and, reimbursement of AOD for expenses incurred to maintain seized aircraft. Additional drafts of an MOU were circulated in April and August.

On October 21, 1992, the Chief of the AOD wrote to the Chief of the SAD, saying that ". . . an MOU between our two divisions is necessary for the continued storage and maintenance of seized/forfeited aircraft in the AOD facility . . . . If an MOU is not accomplished for FY 1993, AOD cannot obligate funds for the upkeep of seized or forfeited aircraft." Nevertheless, an MOU was not signed until June 1993.

Aircraft were stored at contract facilities in Harrisburg, Pennsylvania; Brunswick, Georgia; and Midland, Texas. An internal CMR conducted by the USMS found significant problems with the storage of aircraft at the contract facility in Brunswick, Georgia. Among other things it was found that the humid climate in Brunswick resulted in damage, such as the growth of mildew in the cockpit, to aircraft stored there. We found two aircraft with problems attributable to the heat and humidity in Brunswick including one with considerable corrosion of the interior and the avionics.

The USMS paid over $322,000 for storage of aircraft at the three contract facilities during the period from July 1, 1991, through February 28, 1993. In our opinion, some cost and damage could have been avoided if the USMS had stored more aircraft at the hangar in Oklahoma City.

Recommendation

We recommend that the Director, USMS:

10. Review the current and future inventories of seized aircraft and identify those aircraft which could be economically stored at the hangar in Oklahoma City.

 

4. TRACKING ASSETS

Many instances occurred where USMS files either could not be found or else lacked critical documents. For example, records relating to assets valued at $9.9 million could not be located in one district office. Consequently, there was no assurance that key events in the maintenance and disposal of the underlying assets had occurred or that assets could be accounted for. In addition, the SAMS database contained significant errors and omitted significant data from its report of forfeited assets still pending disposition. As a result, it misrepresented the inventory and may make assets vulnerable to loss without detection.

During our field work, we developed samples for various tests involving maintenance and disposal issues. The samples included case files for both current inventory and sold assets.

Current Inventory

Headquarters asset reports did not match reports generated by the USMS districts. Specifically, the listing on a printout obtained in Brooklyn of a cash asset valued at $22 million was omitted from the printout obtained from USMS Headquarters. Further, in a sample of 13 assets valued at more than $197,000, we found that 7 assets valued at $51,377 either had actually been disposed of or else had not been forfeited and, therefore, should not have been reflected on the report.

In the Southern District of Florida (Miami), 93 case files for assets valued at $9.9 million could not be produced for our review. The files that were not produced represented approximately 26 percent of the total cases and 25 percent of the total dollar value in our sample.

The Headquarters printout overstated the inventory by $780,000 in Chicago.

The Department of Justice plans to migrate SAMS data to the Consolidated Asset Tracking System (CATS). Since our audit found significant errors and omissions of data in the SAMS database, we believe that no data should be migrated from SAMS to the new CATS database unless it has first been verified. Otherwise, unreliable data will simply be transferred from one system to another.

Assets of Little or No Value

Our review of the SAMP010 printout found several items of questionable value being reported with an "estimated or appraised value." That being the case, we believe it was misleading to report them as assets.

For instance, the District of Nevada reported six quantities of "pornographic materials" with a combined dollar value of $500,000. SAD officials stated that these materials would be destroyed.

The Southern District of California (San Diego) had custody of checks drawn in Colombian pesos with a reported value of $32,240. However, the checks had been forfeited in 1987 and it was doubtful whether they had retained any value at all.

The printout for the Southern District of Florida (Miami) included a listing for non-controlled drugs with a reported value of $300,000. Since the drugs had been forfeited in 1991 it was unlikely that they could be marketed. The district intended to destroy the drugs, so we believe it was misleading to report them as an asset in the same way that vessels, motor vehicles, and other marketable assets were reported.

Case File Review

We identified a sample of 309 case files relating to vehicles, vessels, and real property that had been sold. Of that total, 63 case files (20 percent) could not be located by the USMS district staff. For those case files that were located, we developed tests based on requirements published in the Seized Asset Management Guidelines and Procedures and/or the Asset Forfeiture Policies. We found significant weaknesses in a number of areas, which could result in lost revenue, litigation, increased costs, or other adverse consequences.

Vehicles. In a sample of 98 sold vehicle case files, we found that:

27 percent did not document the ownership,

33 percent did not document a check of the National Crime Information Center database,

31 percent did not document the source of the stated appraised value,

47 percent did not document an inventory of the vehicle's contents,

30 percent did not contain photographs to document the condition of the vehicle when the USMS assumed custody, and

56 percent lacked documentation of any inspection by USMS personnel of the storage facility.

Vessels. In a sample of 41 sold vessel case files, we found that:

20 percent did not document ownership,

37 percent did not identify the source of the stated appraised value, and

17 percent did not contain an inventory and 22 percent did not contain photographs to support the inventory.

Real Property. In a sample of 107 sold real property case files, we found that:

39 percent did not contain work sheets calculating the government's net equity,

33 percent did not document annual appraisals,

14 percent did not contain title reports, and

30 percent did not document USMS inspections of the premises.

One reason that these deficiencies occurred was the inability of the USMS' internal review process to require compliance with recommendations. The USMS relies on Performance Management Reviews (PMRs) of the districts, conducted by staff from the regional offices of the SAD, to monitor performance. Regarding PMRs, the 1992 Management Review conducted by the JMD Management and Planning Staff found that "there have never been sufficient resources in the regions to perform these on a regular basis, and the coverage has been inadequate with many district offices seldom, if ever, reviewed . . . . Several district officials indicated that even though they had been reviewed, the results were either slow in coming or never came . . . . Clear top management support for the PMR process appears to have been lacking."

On December 1, 1992, the USMS Office of Inspections issued a "Summary of District Program Review Findings" for fiscal years 1991 and 1992. That document reported that 94 findings, or 14 percent of the total, from all the district reviews performed in those 2 years were in the seized assets area. Specific examples cited included failure to dispose of property expeditiously, incomplete or missing documentation, inconsistencies between the SAMS database and underlying case records, all of which are discussed in our audit report.

Recommendations

We recommend that the Director, USMS:

11. Transfer data from SAMS to CATS only after those data are verified.

12. Ensure that the findings of USMS internal reviews related to seized and forfeited assets are corrected by district offices.

 

STATEMENT ON INTERNAL CONTROL STRUCTURE

In planning and performing our audit of the USMS' maintenance and disposal of seized assets, we considered its internal control structure for the purpose of determining our audit procedures. This evaluation was not made for the purpose of providing assurance on the overall USMS internal control structure. However, we noted certain matters involving the internal control structure and operation of the USMS' maintenance and disposal activities 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 internal control structure that, in our judgment, could adversely affect the USMS' ability to manage the maintenance and disposal of seized assets.

Identified deficiencies are:

Internal review mechanisms that discovered overpayments and non-performance by contractors were ignored (Findings 1, 2, and 4).

Controls were not adequate to assure timely disposal of forfeited assets (Finding 1).

Significant Seized Property Decisions that could increase the government's cost of borrowing were made without consideration of that cost (Finding 1).

Controls were not adequate to assure that assets were safeguarded. (Finding 1).

Controls were not adequate to assure that forfeited assets would be disposed only in accordance with established policy (Finding 1).

Controls over the processing of Significant Seized Property Decisions were not adequate to assure that urgent matters would be decided promptly (Finding 1).

Procedures and practices employed by district staff in processing vendor invoices were not adequate to assure that the government paid correct amounts (Finding 1).

Failure to comply with a directive from the Deputy Attorney General to use the USMS hangar for storing large seized aircraft resulted in additional storage costs being incurred elsewhere (Finding 3).

Errors and omissions in the database resulted in an incomplete and inaccurate record of assets in USMS custody (Finding 4).

Inadequacies in the record-keeping system resulted in an inability to locate a significant number of case files (Finding 4).

The value of the inventory was overstated by including items that would have to be destroyed (Finding 4).

 

STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS

We have audited the USMS Maintenance and Disposal of Seized Assets. The audit covered the period October 1, 1990, through February 28, 1993, and included review of selected activities and transactions. 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 agency'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 maintenance and disposal of seized assets is the responsibility of USMS management.

An audit includes examining, on a test basis, evidence about laws and regulations. The specific laws and regulations for which we conducted tests are contained in 21 USC 881, (forfeitures and disposal of forfeited property), and the Endangered Species Act of 1973, as amended.

The results of our tests indicated that, for the items tested, we identified noncompliance with the laws and regulations as follows:

donation of forfeited property to a charitable organization, when donation was not a means of disposal authorized by law;

donation of a coat made from the fur of an endangered species, contrary to a provision of the Endangered Species Act.

With respect to those transactions not tested, nothing came to our attention that caused us to believe that USMS management was not in compliance with the laws and regulations cited above.

 

APPENDIX I

 

SCHEDULE OF COST EXCEPTIONS

Page No Description Amount
Funds to Better Use
9 Estimated interest charges incurred by the Federal Government $13,975,345
9 Estimated annual interest charges to the Federal Government $4,578,271
13 Estimated interest charges to the Federal Government resulting from failure to dispose of forfeited cash for almost 8 years. $73,182
19 Estimated interest charges to the Federal Government resulting from payment for storage of vehicles contrary to the terms of a contract (2 years at $1,028 annually). $2,056
SUBTOTAL $18,628,854
Questioned Costs
10 Avoidable storage cost of forfeited vehicles. $92,500-
$129,500
11 Avoidable storage and maintenance expenses. $47,000
13 Loss of promissory note and mortgage deed resulting in the inability to liquidate the asset. $65,000
15 Loss of potential revenue resulting from failure to perfect the Federal Government's interest in real property. $47,000
19 Overcharges for storage of seized vehicles in one USMS district. $94,930
19 Storage charges paid for vehicles that had been released or for which no USMS record was found. $11,925
19 Overcharges for storage of seized vehicles in one USMS district. $32,670-
$55,222
SUBTOTAL $391,025-
$450,577
GRAND TOTAL $19,019,879-
$19,079,431

 

 

 

APPENDIX IV

 

OFFICE OF THE INSPECTOR GENERAL, AUDIT DIVISION
ANALYSIS AND SUMMARY OF ACTIONS NECESSARY TO CLOSE REPORT


Recommendation Number
:

1. Resolved. The recommendation is resolved based on agreement that the USMS should make timely disposition of forfeited assets. We reiterate that imputed interest is a valid financial concept for determining the cost of retaining assets in inventory.

The recommendation remains open pending our receipt and review of documentation, such as a current report of Properties Forfeited but Not Disposed (SAMP010), that assets are being disposed in a timely manner.

2. Resolved. The recommendation remains open pending our receipt and review of an "aging schedule" delineating the number of vehicles in the Southern District of California, their forfeiture dates, and the projected dates of sale or other disposition. In addition, please provide us a list of the vehicles sold during the month of December 1993.

3. Resolved. No further response is necessary.

4. Resolved. The recommendation remains open pending our receipt of notification that the promissory note has been located, perfected, and sold. If the note cannot be found, please notify us of the action taken by the USMS to find it and to ensure that liquid assets seized in the future are not lost.

5. Resolved. However, we disagree with your comment that this recommendation is a generalized version of Recommendations 6 and 7. Recommendations 5, 6, and 7 each address different issues.

Recommendation 5 deals with past overpayments of $94,930 in the Southern District of California and $32,670 in the Eastern District of New York. It remains open pending our receipt of evidence that the contractors have made refunds.

If you determine that either contractor cannot be compelled to refund the overpayment because of the contract terms, please provide us a legal opinion documenting that determination.

6. Resolved. This recommendation, which deals with the manner of calculating present and future payments to a vendor in the Eastern District of New York, is resolved based on your statement that future payments will be made in keeping with the terms of the contract. No further response is necessary.

7. Resolved. This recommendation was based on a finding of $11,925 in erroneous charges in a sample of 100 vehicles selected from the February 1993 invoice from a former contractor in the Southern District of California. The recommendation called for the performance of a complete reconciliation of all invoices submitted by that contractor between January and April 1993 and recovery of the overpayments. This recommendation is resolved based on your response that the Marshals Service is working on this reconciliation and the Procurement Division will seek recovery. No further response is necessary.

8. Resolved. No further response is necessary.

9. Resolved. No further response is necessary.

10. Resolved. By memorandum dated December 24, 1993, the USMS asked the Deputy Attorney General to be relieved of the requirement to use the hangar for storing seized and forfeited aircraft. The request was referred to us for comment and by memorandum dated January 14, 1994, we concluded that the Deputy Attorney General's original decision to use the hangar for storage of seized and forfeited aircraft remained valid. We based our conclusion on three factors: an analysis of the cost of storing seized and forfeited aircraft at other locations, the current questionable USMS use of the hangar for storage of operational aircraft, and, the availability later this year of secure storage for USMS operational aircraft at a Federal Bureau of Prisons facility at the airport in Oklahoma City. The recommendation remains open pending action by the Deputy Attorney General.

11. Resolved. No further response is necessary.

12. Resolved. No further response is necessary.

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