UNITED STATES MARSHALS SERVICE'S COLLECTION OF
SERVICE FEES AND COMMISSIONS

Audit Report 96-01, (11/95)

TABLE OF CONTENTS

 

AUDIT RESULT

FINDINGS AND RECOMMENDATIONS

1. CALCULATING AND COLLECTING FEES AND COMMISSIONS

A. Calculating

B. Collecting

C. Recommendations

2. PROPRIETY OF FEE AND COMMISSION SCHEDULES

A. Fee and Commission Schedules and Data Accuracy

B. Recommendations

3. INTERNAL CONTROLS OVER COLLECTING AND
CONTROLLING PROGRAM REVENUES

A. Segregating Fee-Related Duties

B. Receipts

C. Recommendations

STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS

APPENDIX I - AUDIT SCOPE AND METHODOLOGY

APPENDIX II - USMS

 

DISTRICT OFFICE ABBREVIATIONS AND FY 1994 SERVICE OF PROCESS COLLECTIONS

APPENDIX III - FEE CALCULATION AND COLLECTION DEFICIENCIES IDENTIFIED BY DISTRICT

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Sheet 2

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Sheet 5

 

APPENDIX IV - INTERNAL CONTROL DEFICIENCIES IDENTIFIED BY DISTRICT

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Sheet 5

 


 

UNITED STATES MARSHALS SERVICE'S COLLECTION OF
SERVICE FEES AND COMMISSIONS

AUDIT RESULTS

In accordance with Title 28, United States Code (USC) 1921(b), the United States Marshals Service (USMS) was granted authority to charge and collect fees for its service of process duties in connection with federal court proceedings. The Anti-Drug Abuse Act of 1988 permitted the Attorney General to set and revise fees and commissions for the service of process by United States Marshals. In its legal vernacular, "process" is a legal document (e.g., summons, complaint, or writ) issued by the court that notifies or compels a person to take or abstain from certain actions during the progress of litigation. The current fee schedule for service of process was set by the Attorney General in FY 1991.

For service of process, the USMS reported collecting approximately $3.6 million in FY 1992; $3.1 million in FY 1993; and $3.5 million in FY 1994. The USMS received 315,620 processes for service in FY 1992; 300,475 processes in FY 1993; and 304,090 processes in FY 1994. During FY 1994, total collections for the service of process program (fee program) ranged from a low of $138 by one district to a high of $925,199 by another district. [ Appendix II identifies the amount collected by each district during FY 1994.] The collections were different for each district because the number of requests received, the number of processes served, and the amount of fees and commissions remitted varied by district. The USMS districts collect a fee for the delivery of a court ordered process. Districts collect a commission for the sale of an asset as the result of service of a writ of foreclosure in a judicial foreclosure action. [ In order for the U.S. Marshal to be entitled to a commission, the Marshal must perform three functions: 1) seize or levy on property; 2) dispose of the property by sale, set off, or otherwise; and 3) receive and pay over money.]

The audit objectives were to determine: (1) whether fees and commissions were appropriately collected, (2) the propriety of fee and commission schedules, and (3) the adequacy of internal controls over collecting and accounting for fees and commissions. Details on our scope and methodology are in Appendix I to this report.

Our audit results determined that USMS management can improve the fee program by: (1) ensuring that districts accurately calculate and collect fees and commissions, (2) obtaining accurate statistical data for calculating the fee schedule, (3) improving segregation of fee-related duties, (4) maintaining receipts logs for fees collected, and (5) endorsing fee receipts immediately upon receipt. Appendix III and IV identify the deficiencies by district. We could not estimate whether the USMS was over- or under-collecting fees because USMS staff did not track the information needed to perform this calculation. During our field work, the USMS issued revised guidance for the fee program. The new guidance clarified many of the policies the districts implemented inconsistently. However, additional corrective action in the aforementioned areas is necessary.

FINDINGS AND RECOMMENDATIONS

1. CALCULATING AND COLLECTING FEES AND COMMISSIONS

USMS managers should ensure that district staff accurately calculate and collect service of process fees [ The USMS districts collect a fee for the delivery of a court ordered process such as a subpoena.] and commissions. [ When required by a court ordered process to seize and sell an asset, the USMS districts can collect a commission if they perform all three of these functions: (1) seize or levy property, (2) dispose of the property, and (3) receive and pay over money.] Specifically, our survey indicated that 100 percent of the districts did not calculate fees and commissions correctly in at least three of the eight test cases and 83 percent of district staff would not attempt to collect all applicable fees. As a result, USMS managers cannot ensure staff maximized potential revenues.

A. Calculating

Generally, fees and expenses were not calculated correctly due to:

(1) inconsistent information contained in the USMS Policy and Procedures Manual (USMS Manual) and Code of Federal Regulations (CFR), and (2) insufficient information recorded by the districts to determine the proper fee. During our field work, USMS management revised the USMS Manual providing detailed procedures and specific guidance related to service of process. The revision was necessary because previous guidance was vague. The USMS Manual now provides: (1) rates and allowable expenses for service of process, (2) examples for calculating the fee, and (3) the formula for determining commissions. Our survey was conducted shortly after the revised USMS Manual was issued.

Section 0.114 of 28 CFR states the minimum fee for serving a process in person within 2 duty hours is $40 per item plus travel costs and any other out-of-pocket expenses. [ Out-of-pocket expenses include parking, tolls, advertising, etc.] The rate for each additional duty hour, or portion thereof, and/or each additional Deputy is $20 per hour. However, the USMS Manual instructs staff to collect $40 per Deputy for serving a private process within 2 duty hours. This is not consistent with the rates established in the noted CFR. When we pointed out this discrepancy, a representative with the Office of General Counsel, USMS, asked us to assess the districts' fee calculations for a case with two Deputies. Our survey results indicated 16 districts used the $40 rate for each Deputy, while 10 districts used the $20 rate to calculate the fee for the second Deputy. We could not determine the rate used by the remaining 69 districts because staff did not provide detailed calculations. [ The remaining 69 districts provided various responses ranging from $0 to $1,500. We could not determine the rate used by these districts because staff did not provide the correct response and did not explain how they calculated the fee. Appendix III identifies the districts that used either the $20 or $40 rate.]

To assess whether or not district staff compute fees and commissions accurately, our survey included eight test cases describing the hypothetical circumstances under which the processes were served. We asked staff in each district to compute the fees, commissions, and out-of-pocket expenses they would charge for each case. Four cases required fee and expense calculations and four cases required fee, expense, and commission calculations. We coordinated with staff in the USMS Office of General Counsel to confirm correct answers for each test case and then compared the districts' responses to the "correct" answers.

Staff in all 95 districts incorrectly calculated the amount due for at least three of the eight test cases. In 70 districts (74 percent), staff incorrectly calculated the amount due for five or more of the cases. The greatest variances from the correct rates were for the four commission cases. In these cases, district staff's responses ranged from an undercharge of $1,268 to an overcharge of $1,895. For the four fee cases, the variances ranged from a $105 undercharge to a $145 overcharge.

Appendix III of this report contains an analysis of the districts' incorrect calculations for each of the eight cases. Appendix II contains the abbreviations of the USMS districts used in Appendix III and IV.

In a memorandum dated March 13, 1991, the Director, USMS, instructed district staff to record the following information on the Form USM-285, Process Receipt and Return, for each process served: (1) number of items served, (2) number of personnel involved in service, (3) hours involved in service -- including beginning and ending times, (4) round-trip miles, (5) out-of-pocket expenses, (6) sale proceeds amount, and (7) any unusual circumstances affecting the fee calculation. The Director stated that proper completion of the Form USM-285 was imperative to assure the USMS receives the appropriate fees for each service.

To determine if the districts obtain the data necessary to accurately calculate fees due, we asked district staff to identify the items they tracked on the Form USM-285 or other document. The districts served processes for three categories: paupers, [ A "pauper" is a person that files an affidavit stating they are unable to pay the USMS fees. After consideration by the court, a motion to proceed in forma pauperis is granted, and a court order is issued stating the plaintiff is allowed to proceed with his/her court action without prepayment of USMS fees.] government agencies, and private litigants. Staff in 64 districts (67 percent) did not track one or more of the items required by the Director's March 1991 memorandum. The number of districts that did not track the required items is as follows.

Number of Districts That Did Not Track Required Data

Required Items

Category
Pauper Government Private
# Items Served 30 24 22
# of Personnel Involved in Service 28 20 14
Hours Involved in Service 30 17 10
Round-trip Mileage 19 9 6
Out-of-pocket Expenses 34 23 18
Sales Proceeds Amount 39 14 10
Unusual Circumstances 23 11 8

We conducted an on-site review of the fee program at two USMS district offices. At one of the districts, Deputies generally did not record the: (1) beginning and ending times for serving a process, (2) number of Deputies involved in the service, or (3) out-of-pocket expenses. In this district, an employee other than the serving Deputies was responsible for calculating and collecting the fees. Without the required information on the Form USM-285, the employee could not ensure all applicable fees and expenses were properly calculated and collected.

At the second district, we judgmentally selected and reviewed 20 Forms USM-285 to determine if Deputies recorded the required data. The Deputies did not record the following information on any of the forms we reviewed: (1) number of personnel involved, (2) total number of hours -- including beginning and ending times, (3) total round-trip mileage involved, or (4) out-of-pocket expenses. Without this information, USMS staff could not ensure fees and commissions were properly calculated and collected.

B. Collecting

The USMS Manual instructs staff to collect certain fees, expenses, and commissions from paupers, government agencies, and private litigants. Our survey results disclosed USMS district staff were not collecting all fees due because they did not bill: (1) government corporations acting as receivers, [ Such as the Federal Deposit Insurance Corporation or Resolution Trust Corporation.] which should be treated as private litigants, or (2) paupers. Section 1 in Appendix IV of this report identifies the districts that did not bill government corporations or paupers.

Government Corporations. The USMS Manual instructs USMS staff to collect applicable fees, expenses, and commissions for service of process for government corporations acting as receivers. These corporations act on behalf of a failed bank's creditors and shareholders, not the federal government. According to the USMS Manual, since payments received from the sale of the failed bank's assets benefit private parties, USMS staff should treat these corporations as private litigants. Thirty-nine districts (41 percent) surveyed made no attempt to collect fees or expenses from government corporations acting as receivers. The districts' monthly activity report contains the total number of processes served during the month "in person," "by mail," and "returned unexecuted." [ Processes tracked in the "Returned Unexecuted" category are processes that were returned after one or more valid attempts to serve either by mail or in person.] The report does not identify the number of processes served for government corporations acting as a receiver in each of these categories. Since we cannot distinguish between the processes served by mail and the processes served in person for government corporations acting as a receiver, we cannot estimate the potential loss of revenue for these processes.

Paupers. According to Title 28 USC 1915, USMS districts are not required to collect "prepayment" of fees and costs from people who file an affidavit stating they are unable to pay such costs ("paupers"). After consideration by the court, a motion to proceed in forma pauperis is granted, and a court order is issued stating the plaintiff is allowed to proceed with his/her court action without prepayment of USMS fees. The plaintiff is provided the appropriate USMS forms and is ordered to complete and return the forms to the Clerk of Court within 30 days. Although prepayment is waived, the USMS Manual instructs staff to record all applicable fees and mileage on a Form USM-285 for billing and collection purposes. In addition, the USMS Manual states reasonable efforts should be taken to collect from paupers. These efforts can include direct billing or taxing the fee as a cost against the judgment if the pauper prevails.

The 95 USMS districts reported they received a total of 76,930 [ During FY 1994, the 95 USMS districts received a total of 304,090 civil and criminal processes for service. Of this total, 76,930 processes (25 percent) were received for pauper cases. ] processes to serve for paupers during FY 1994. According to our survey, staff in 73 districts (77 percent) did not bill paupers after service was provided. [ These 73 districts received 62,854 (82 percent) of the FY 1994 pauper processes.] Staff at one of the districts audited said collecting the required information (mileage, etc.) for pauper cases was time consuming and costly. The staff believed it was not cost-effective to collect the required information because the majority of paupers cannot pay the fees and expenses. The districts' monthly activity report contains the total number of processes served during the month "in person," "by mail," and "returned unexecuted." The report does not identify the number of processes served for paupers in each of these categories. Since we cannot distinguish between the processes served by mail and the processes served in person for paupers, we cannot estimate the potential loss of revenue for these processes.

To determine the cost-effectiveness of pursuing collections from paupers, USMS staff need to determine: (1) the cost associated with the collection efforts, and (2) the revenue generated through these efforts. During our audit, USMS staff did not maintain records identifying the time specifically associated with pursuing collections from paupers. In addition, not all districts collected the necessary data to determine the cost associated with service of process for pauper cases. Without this data, USMS management cannot determine if its policy to pursue collection from paupers is a cost- effective requirement that should be continued.

Although the latest revision to the USMS Manual clarified many of the policies for calculating fees and commissions, our results indicated district staff did not adhere to the guidance. Consequently, USMS management cannot ensure fee collections are appropriate and revenues are maximized.

C. Recommendations

We recommend the Director, USMS, ensure:

1. District staff are advised of the appropriate fee to be charged for processes served by more than one Deputy.

Resolved. We discussed the inconsistency between the USMS Manual and 28 CFR with USMS managers. They stated the appropriate fee for each additional Deputy used to serve a process within 2 duty hours is $20 as set forth in 28 CFR. They further stated they will issue a policy clarification to the districts explaining the correct fee rate under these circumstances.

To close this recommendation, please provide a copy of the policy clarification issued to the districts.

2. District staff record required data on the Form USM-285 for each process served and use the data to calculate appropriate fees, expenses, and commissions.

Resolved. We discussed the need for district staff to track specific data for accurately calculating fees, expenses, and commissions with USMS managers. We suggested USMS managers develop a schedule for documenting the required data and instruct district staff to use the schedule in conjunction with the Form USM-285. USMS managers stated they prefer modifying the Form USM-285 by adding line items to capture the necessary data. If revision to the Form USM-285 is not possible, the managers said they will consider other options for documenting the data. Further, a reminder will be sent to the districts advising staff of the need to use all appropriate data when calculating fees, expenses, and commissions.

To close this recommendation, please provide a copy of the revised Form USM-285 or other document provided to the districts for recording the necessary data, as well as a copy of the reminder notice.

3. District staff collect fees, expenses and commissions from government corporations acting as receivers.

Resolved. We discussed the need to reemphasize the requirement to collect fees, expenses, and commissions from government corporations acting as receivers with USMS managers. They explained the new guidelines clearly state this requirement. They suggested the reason many of the districts did not respond correctly to this issue on the Audit Division survey was that the new guidelines were issued only a few weeks prior to the survey. We expressed concern that district staff may not have referred to the revised USMS Manual when responding to the survey because they believe they are collecting fees appropriately. USMS managers stated they will issue a memorandum to the districts summarizing the deficiencies identified during the audit. The memorandum will address the need for district staff to ensure the appropriate fees, expenses, and commissions are collected from government corporations acting as receivers.

To close this recommendation, please provide a copy of the memorandum noted above.

4. District staff comply with USMS policy to undertake reasonable efforts to bill and collect applicable fees, expenses, and commissions from paupers if cost- effective. If collection efforts are not cost-effective, management should revise the USMS Manual to document the policy change.

Resolved. We discussed the need to determine the cost-effectiveness of collection efforts for processes served for paupers with USMS managers. They stated they will conduct a study to determine if pursuing collections from paupers is cost-effective. After analyzing the study results, USMS managers will either issue revised policy on pursuing collections from paupers or reemphasize the current policy to district staff.

To close this recommendation, please provide documentation on the methodology and results of the cost-benefit study conducted. In addition, provide a copy of the revised policy, if applicable, or the memorandum issued to the districts reemphasizing the current requirements.

2. PROPRIETY OF FEE AND COMMISSION SCHEDULES

USMS Headquarters staff used inappropriate and inaccurate data when calculating the fee schedule. Specifically, USMS staff did not: (1) correctly calculate the average time required to serve a process in person, and (2) consistently report service of process activity. As a result, the USMS cannot ensure: (1) the fee rate reflect actual and reasonable costs of the service provided, or (2) all costs associated with serving process are recovered.

Title 28 USC 1921(b) and the Anti-Drug Abuse Act of 1988 state fees set by the Attorney General for the service of process shall, to the extent practical, reflect the actual and reasonable costs of the service provided. The current fee rates set in FY 1991 in 28 CFR Section 0.114 are $3 for mailing a process and a base rate of $40 for serving a process in person. The current commission rates for the service of process were established in 1962 by Title 28 USC 1921. The rates are 3 percent of the first $1,000 collected from the sale of an asset and 1.5 percent on any sum over $1,000 collected. The Anti-Drug Abuse Act of 1988 permitted the Attorney General to establish a minimum and maximum range for commissions. The minimum and maximum range was set at $100 and $50,000, respectively, in Section 0.114, 28 CFR.

A. Fee and Commission Schedules and Data Accuracy

Commission Schedule. The current USMS commission rates for service of process have not changed in over 30 years. We discussed the need to revise the rates with USMS managers. They stated they cannot sufficiently justify requesting an increase in the commission rates from Congress because the fee is established to cover all costs associated with the program, not the commission. The commission is compensation for performing limited services involved in seizing and selling a property associated with serving a process. USMS managers stated that although the commission rates have not increased over the past 30 years, the commissions collected have increased as the value of real property has increased. We concur with USMS managers plan to maintain the current commission rates. It should be noted that USMS managers plan to review the appropriateness of the minimum and maximum ranges established in 28 CFR.

Fee Schedule. USMS Headquarters staff is currently reviewing the service of process rate structure to determine the need for increasing the fee rates. Headquarters staff provided documentation on the method used to determine the proposed fee rate increases. Staff stated they used the same method employed to calculate the current fee rates established in FY 1991. To calculate the base fee for serving a process in person, USMS staff first had to determine the average time required to serve a process in person. [ (# of hours used to serve processes in person) (# of processes served in person) during FY 1993] Once this time was computed, staff used the data to determine the "base rate" salary, [ (Average time to serve a process in person) x (hourly rate for a GS-12, Step 1) ] fringe benefits, [ Fringe benefits = (base rate) x 0.45] and overhead costs [ Overhead rate = (base rate + fringe benefits) x 0.10] associated with serving a process.

We reviewed the data used to calculate the average time required to serve a process in person and determined USMS staff did not use the appropriate data. USMS staff intended to divide the number of hours used to serve processes "in person" by the number of processes served "in person" during FY 1993. However, staff actually divided the number of hours for all service efforts ("in person," "by mail," and "returned unexecuted") by the number of processes served only "in person." Currently, USMS district staff cannot determine the hours associated only with serving process "in person" because they record all time associated with serving process under one time category (PR - Execution of Writs) on the USM-7, Biweekly Time Report. In addition, some district staff reported time not directly associated with serving process, such as prisoner transportation and administrative activities, in the PR time category. [ Seven districts reported prisoner transportation and 82 districts reported administrative activities in the PR time category.] Section 2 in Appendix IV of this report identifies the districts that recorded time associated with administrative activities and prisoner transportation in the PR time category. Unless time reporting requirements are changed, or a time study is conducted, the USMS is unable to use its current formula for calculating a reasonable fee schedule.

In addition, the total used in the formula for the number of processes served "in person" may not be accurate because districts did not consistently report process activity on their Form C-USM-86, Monthly Report of Process and Seizures. For example, districts performing the same service did not report the same activity level on their monthly reports. Specifically, 37 districts counted the service of a writ, summons and complaint, and interrogatory as one process when served on one person for one case. Fifty-two districts counted the same activity as three processes. [ For the remaining 6 districts, 3 districts counted the activity as 2 processes; 1 district counted it as 4 processes, and 2 districts did not respond to the question.] In addition, staff in 34 districts counted processes forwarded to another district for service as served by their own district. Staff in 85 districts (89%) stated they counted a process received from another district as served in their own district. Section 3 in Appendix IV of this report identifies the districts' practices for reporting: (a) service of a writ, summons and complaint, and interrogatory; (b) a process forwarded to another district for service; and (c) a process received from another district for service.

The USMS Program Review Division found similar results during internal control reviews at the districts. We reviewed the most recent reviews conducted for 89 of the 95 districts. Nineteen of the 89 reports (21 percent) identified a need for improvement in the districts' tracking of time or statistics associated with the fee program.

In addition to the base fee issues, the fee for mailing a process or forwarding a process to another USMS district may not be sufficient. Currently, the USMS' mailing fee is $3. The USMS Manual states a process should be served according to the instructions contained within the process, and pursuant to the procedures permitted under the service of process laws of the state. According to the USMS Manual, the method most commonly allowed by states for mailing process is certified mail. We contacted the U.S. Postal Service and determined the current rate for mailing a process by certified mail is $2.52. Based on this data, the current fee for mailing process appears to be low and may not cover all costs associated with serving a process when administrative time is considered.

Without reliable process activity data, USMS staff cannot accurately calculate the fee schedule. As a result, management cannot ensure the USMS established fees that reflect actual and reasonable costs of the service provided or recover all costs associated with serving process.

B. Recommendations

We recommend the Director, USMS:

5. Provide guidance to all districts on how to complete the Monthly Report of Process and Seizures for service of process. The guidance should include instructions on how to report service of: (a) a process forwarded to another district; and (b) a writ, summons and complaint, and interrogatory on one person for one case.

Resolved. We discussed with USMS managers the need to ensure all districts accurately and uniformly complete the Monthly Report of Process and Seizures. The data in this report is necessary for USMS managers to compute a fee rate that reflects actual and reasonable costs of the service provided. Our survey results indicated several districts did not have a copy of the November 18, 1985 instructions for completing the monthly report. Although the USMS Manual contains instructions on how to track processes forwarded to another district for service, we expressed concern that staff who have the November 1985 instructions may not refer to the USMS Manual for additional guidance on completing the report. USMS managers stated they will issue a memorandum to the districts summarizing the deficiencies identified during the audit. The memorandum will address the need to ensure district staff uniformly report monthly service of process activity. In addition, USMS managers will issue guidance to the districts on completing the Monthly Report of Process and Seizures.

To close this recommendation, please provide a copy of the guidance issued to the districts for reporting service of process activity on the Monthly Report of Process and Seizures.

6. Collect sufficient time and activity data for serving and attempting to serve processes "in person" from the districts and use this data to recompute the fee schedule so that it reflects actual and reasonable costs of the services provided. USMS staff should collect the data after Recommendation 5 is completed.

Resolved. We discussed with USMS managers the need to collect accurate time and activity data for serving and attempting to serve processes "in person" to compute the fee schedule. USMS managers acknowledged the need to collect the required data. They stated they need to discuss this recommendation further before deciding exactly how to address the issue. They further stated that, at a minimum, they will conduct a time and activity study at a limited number of districts and use this data to compute the fee schedule.

To close this recommendation, please provide documentation on the methodology and results of the study conducted. In addition, please provide a copy of the notification to district staff regarding the changes in the fee schedule, if applicable.

7. Revise the current rates for mailing processes to ensure they reflect the actual and reasonable costs of the service provided.

Resolved. We discussed with USMS managers the need to ensure the rate for mailing process reflects the actual and reasonable costs associated with the service provided. They stated they will conduct a limited study to determine the actual costs for mailing process.

To close this recommendation, please provide documentation on the methodology and results of the study conducted. In addition, please provide a copy of the notification to district staff regarding the changes in the fee schedule, if applicable.

3. INTERNAL CONTROLS OVER COLLECTING AND CONTROLLING PROGRAM REVENUES

Staff in some districts did not adequately: (1) separate critical fee-related duties for receiving, disbursing, recording, and reconciling funds; or (2) control fee receipts. Our survey results demonstrated that staff in all USMS districts did not adequately separate responsibilities for receiving, disbursing, recording, or reconciling funds. In addition, staff in 73 percent of the districts did not sufficiently control receipts. As a result, USMS managers cannot ensure fees and commissions received are adequately safeguarded against misappropriation.

A. Segregating Fee-Related Duties

The internal control standards for separation of duties are addressed in Appendix II of Title 2 of the GAO Policy and Procedures Manual for Guidance of Federal Agencies. It states "Key duties and responsibilities in authorizing, processing, recording, and reviewing transactions should be separated among individuals." To reduce the risk of error, waste, or wrongful acts from occurring or going undetected, no one individual should control key aspects of a transaction or event. Systematic assignment of duties to a number of individuals helps ensure that effective checks and balances exist. The USMS Manual provides general guidance for separating disbursement duties, but does not address the need to separate receiving, recording, and reconciling responsibilities.

Another key feature of effective internal controls is the independent reconciliation of the accounting system. Currently, the USMS Manual requires district staff to verify deposits and disbursements recorded on the USM-286 case file folders to the Financial Management System (FMS) USM-286 reports as part of their month-end close out procedures. For this verification to be effective, the person reconciling the documents should be independent of the person recording the information on the case file folders or in FMS. Similarly, the person who reconciles funds received to funds deposited should not be involved in the receipt or deposit process.

To assess the level of internal controls, our survey included questions related to handling, disbursing, recording, and reconciling program funds. Our survey disclosed that USMS district staff did not adequately separate key fee-related duties or independently reconcile their accounting records. Specifically, districts did not adequately separate duties for receiving and/or disbursing funds from duties for recording transactions in the accounting system. In addition, several districts did not assign an independent person to reconcile the: (1) USM-286 case file folders to the USM-286 report, and/or (2) funds received to funds deposited. The following chart illustrates the number of districts that did not adequately separate receiving, disbursing, and/or reconciling duties and the duties that were not separated. We consider these controls to be critical to deterring misuse of government funds. In addition, Section 4 in Appendix IV of this report identifies the individual districts that inadequately separated these duties.

CRITICAL DUTIES NOT ADEQUATELY SEPARATED NUMBER OF DISTRICTS
Logs receipts or Receives cash/checks (no log), and Records receipts in FMS

54

Prepares or Controls blank Treasury checks, and Records disbursements in FMS

83

Records receipts/disbursements in FMS or on USM-286 folder, and Reconciles USM-286 report (FMS report) to USM-286 folder

91

Logs receipts or Receives cash/checks (no log) or Prepares deposits,and Reconciles receipts log to deposits; or No reconciliation was performed

79

By allowing the same person to receive or disburse funds and enter the transactions on FMS, USMS management increased the risk that a person could both commit and conceal errors or irregularities in the normal course of business. [ In other words, staff could take funds received or prepare a check to themselves and conceal the fraud in FMS.] Similarly, USMS management increased the risk that errors and irregularities will go undetected by allowing persons responsible for performing reconciliations to also create the documents being reconciled. Without adequate separation of key duties and independent reconciliation of the accounting system, USMS management cannot ensure that all funds received were deposited and that funds are adequately safeguarded against loss or misuse.

B. Receipts

The Federal Managers' Financial Integrity Act of 1982 requires internal accounting and administrative controls (controls) to provide reasonable assurances that funds are safeguarded against waste, loss, unauthorized use, or misappropriation. The controls must also assure revenues and expenditures are properly recorded and accounted for to permit preparation of accounts and reliable financial and statistical reports, and to maintain accountability over assets.

Based on the survey responses provided by the districts, staff in 93 districts stated they properly secured funds not deposited on the day received. [ For the two remaining districts, one stated receipts were deposited daily and one stated receipts were stored in an unlocked container.] Staff in 66 districts reported they maintained either a manual or automated receipts log to control fees and commissions received by mail and over-the-counter. However, staff in 29 districts did not maintain a log for both mailed-in and over-the-counter receipts. Also, staff in 60 districts did not endorse checks received for the fee program immediately upon receipt. Section 5 in Appendix IV of this report identifies the districts that inadequately controlled process receipts. The USMS staff's failure to log program funds and to restrictively endorse checks immediately upon receipt could result in misappropriated funds.

C. Recommendations

We recommend the Director, USMS, ensure district staff receive sufficient guidance and training on:

8. Separating critical cash-related duties for receiving, disbursing, recording, and reconciling service of process funds.

Resolved. We discussed the need to ensure district staff separate critical cash-related duties for service of process funds with USMS managers. They stated the new USMS financial system is designed to ensure proper segregation of duties by preventing a user from executing incompatible functions. USMS managers stated they will issue a memorandum to the districts summarizing the deficiencies identified during the audit. The memorandum will address the need for district staff to ensure critical cash-related duties for receiving, disbursing, recording, and reconciling service of process funds are segregated to the fullest extent possible utilizing their current staff. In addition to the memorandum, the Chief, USMS Finance Division, will address the concerns identified in the audit report during training for district finance staff in November 1995.

To close this recommendation, please provide a copy of the memorandum noted above and confirmation of any training provided.

9. Recording all program receipts in a log immediately upon receipt for use in reconciling deposits.

Resolved. We discussed with USMS managers the need to record all receipts in a log immediately upon receipt. We explained that many of the districts maintained a log for either over-the-counter receipts or mailed-in receipts but not both. Also, several districts stated they could not distinguish service of process receipts from other receipts recorded in the log. USMS managers stated they will issue a memorandum to the districts summarizing the deficiencies identified during the audit. The memorandum will address the need for district staff to record all service of process related collections in a log immediately upon receipt and identify them as service of process fees. In addition to the memorandum, the Chief, USMS Finance Division, will address the concerns identified in the audit report during training for district finance staff in November 1995.

To close this recommendation, please provide a copy of the memorandum noted above and confirmation of any training provided.

10. Endorsing checks immediately upon receipt.

Resolved. We discussed with USMS managers the need to restrictively endorse all checks immediately upon receipt. USMS managers stated they will issue a memorandum to the districts summarizing the deficiencies identified during the audit. The memorandum will address the need for district staff to restrictively endorse all checks immediately upon receipt. In addition, USMS managers stated they will attempt to issue endorsement stamps to the districts along with the policy memorandum. In addition to the memorandum, the Chief, USMS Finance Division, will address the concerns identified in the audit report during training for district finance staff in November 1995.

To close this recommendation, please provide a copy of the memorandum noted above and confirmation of any training provided.

STATEMENT ON COMPLIANCE WITH LAWS AND REGULATIONS

In connection with our audit and as required by standards, we tested transactions and accounting records to obtain reasonable assurance about the USMS' compliance with laws and regulations we believe could have a material effect on the fee program. Compliance with laws and regulations applicable to service fees and commissions is the responsibility of USMS management.

An audit includes examining, on a test basis, evidence about compliance with laws and regulations. The specific laws and regulations for which we conducted tests are contained in:

• 28 USC 1915, Proceeding in Forma Pauperis,

• 28 USC 1921, United States Marshal's Fee,

• Federal Managers' Financial Integrity Act of 1982,

• Anti-Drug Abuse Act of 1988, and

• 28 CFR Subpart U, Section 0.114.

For the items tested, we identified noncompliance with the Federal Managers' Financial Integrity Act of 1982; Anti-Drug Abuse Act of 1988; 28 USC 1921; and 28 CFR Subpart U, Section 0.114. Noncompliance occurred because the USMS did not adequately: (1) segregate fee-related duties, (2) control program funds received, (3) compute the fee schedule based on actual and reasonable costs, (4) calculate fees and commissions, and (5) attempt to collect fees from government corporations and paupers. These weaknesses are described in detail under the FINDINGS AND RECOMMENDATIONS section of this report.

APPENDIX I

AUDIT SCOPE AND METHODOLOGY

The audit was conducted using Government Auditing Standards, and included tests of the accounting records and other auditing procedures we considered necessary. We reviewed USMS collection practices and fee computations. Specifically, we:

• reviewed current USMS policies and procedures;

• interviewed staff at the USMS Headquarters, USMS Northern District of Georgia, and USMS Eastern District of Virginia;

• analyzed the methodology and data used to calculate the fee schedule;

• performed detailed tests of the billing, tracking, and reporting activities for the fee program at the USMS Northern District of Georgia and the USMS Eastern District of Virginia; and

• issued a survey instrument to all 95 USMS districts. We received and analyzed the responses from each of the 95 districts to determine each district's practice for calculating the fee, billing for services, controlling collections, and reporting process workload activity to USMS Headquarters. The issues discussed in the FINDINGS AND RECOMMENDATIONS section of this report are quantified in Appendix III and IV.

The draft USMS Reinvention Proposal dated August 31, 1994, outlined a reorganization of USMS offices and responsibilities. Under the proposed reorganization, responsibility for the fee program will be assigned to Investigative Services. However, as of September 1995, the Reinvention Proposal had not been fully implemented. USMS Headquarters staff stated current responsibility for the fee program was not assigned to a specific office at USMS Headquarters. According to USMS Headquarters staff, each district implemented the fee program differently. After verifying this statement at two districts, we determined an assessment of the fee program at all districts would most benefit USMS management. In coordination with the USMS Finance Division, we developed a survey instrument to determine each district's practices for calculating the fee, billing for services, controlling collections, and reporting fee-related activities. We received and analyzed responses from all 95 USMS districts (94 USMS judicial districts and the District of Columbia Superior Court).

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