Notes to Principal Financial Statements

Note 1. Summary of Significant Accounting Policies

A. Basis of Presentation

These financial statements have been prepared to report the financial position and results of operations of the Department of Justice (DOJ) Violent Crime Reduction Trust Fund (VCRTF), as required by The Government Management Reform Act of 1994, Public Law 103-356, 108, Stat. 3515. These statements have been prepared from the books and records of the DOJ in accordance with the form and content for entity financial statements specified by the Office of Management and Budget (OMB) Bulletin 94-01, Form and Content of Agency Financial Statements, dated November 16, 1993, and DOJ accounting policies which are summarized in this note. These statements are therefore different from the financial reports, also prepared for the DOJ VCRTF pursuant to OMB directives, that are used to monitor and control the use of VCRTF budgetary resources.

B. Reporting Entity

The Violent Crime Control and Law Enforcement Act of 1994, Public Law 103-322, 108, Stat. 1796 established the DOJ VCRTF, to finance Public Safety and Community Policing Programs and to supplement funding for State and Local Law Enforcement, Corrections, and Violence Prevention Programs; Immigration Enforcement; Expedited Deportation of Criminal Aliens; and Asylum Reform. Six DOJ components, (1) the Office of Community Oriented Policing Services (COPS), (2) the Office of Justice Programs (OJP), (3) the Immigration and Naturalization Service (INS), (4) the Executive Office for Immigration Review (EOIR), (5) the Civil Division, and (6) the U.S. Attorneys, received VCRTF monies in FY 1995 to establish new programs, and to support existing programs and increasing workloads.

C. Basis of Accounting

Transactions are recorded on an accrual and a budgetary accounting basis. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates compliance with legal constraints and controls over the use of Federal funds.

D. Accounting Principles and Standards

Until all Statements of Federal Financial Accounting Standards, which will constitute generally accepted accounting principles for the Federal Government, become effective, the following hierarchy shall constitute an other comprehensive basis of accounting and was used to prepare these financial statements:

  1. Statements of Federal Financial Accounting Standards which are in effect.
  2. The form and content requirements included in OMB Bulletin 94-01.
  3. Accounting standards contained in agency accounting policy, procedures manuals, and/or related guidance as of March 29, 1991.
  4. Accounting principles published by authoritative standard setting bodies and other authoritative sources (1) in the absence of other guidance in the first three parts of this hierarchy, and (2) if the use of such accounting standards improve the meaningfulness of these financial statements.

E. Revenues and Other Financing Sources

The VCRTF receives the funding needed to support its programs through both annual and no-year Federal budget appropriations. Appropriations are recognized as revenues at the time the related program or administrative expenses are incurred. Appropriations expended for property and equipment are recognized as revenue and depreciation expense over the estimated useful life of the asset.

The VCRTF also received $15 million from the Department of Defense (DOD) in FY 1995, to establish the TROOPS to COPS Program. These funds are recognized as revenue when related expenses are incurred, with the balance classified as deferred revenue.

Other Financing Sources represent OJP, INS and EOIR overhead costs related to Trust Fund activities which were not reimbursed by the VCRTF.

F. Funds with the U.S. Department of the Treasury and Cash

Cash receipts and disbursements are processed by the U.S. Treasury as directed by authorized DOJ certifying officers. Funds with the U.S. Treasury represent appropriated funds available to pay current liabilities and finance future authorized purchases. There are no cash balances held outside the U.S. Treasury.

G. Property, Plant and Equipment

The land and buildings in which VCRTF activity is conducted are provided by the General Services Administration (GSA), which charges rent equivalent to the commercial rental rates for similar properties. Therefore, depreciation on buildings and equipment provided by the GSA is not recognized by the VCRTF.

Acquisitions of $25,000 and over are capitalized and depreciated, based on historical cost, using the straight-line method over the estimated useful lives of the assets which, for most equipment, range from 2 to 20 years. Equipment with an acquisition cost of less than $25,000 is expensed when purchased.

H. Advances and Prepayments

This amount includes the excess amount of funds disbursed to grantees over the total of expenditures made by those grantees to third parties based upon data as of September 30, 1995. This amount also includes the current balance of travel advances issued to Federal employees in advance of official travel. Amounts issued are limited to meals and incidental expenses expected to be incurred by the employees during official travel.

I. Liabilities

Liabilities represent the amount of monies or other resources that are likely to be paid from the VCRTF as the result of a transaction or event that has already occurred. However, no liability can be paid from VCRTF funds absent proper budget authority. Liabilities for which an appropriation has not been enacted are therefore classified as unfunded liabilities and there is no certainty that corresponding future appropriations will be enacted. Liabilities arising from other than contracts can be abrogated by the Government, acting in its sovereign capacity.

J. Annual, Sick, and Other Leave

Annual and compensatory leave is expensed with an offsetting liability as it is earned and the liability is reduced as leave is taken. Each year, the balance in the accrued annual leave liability account is adjusted to reflect current pay rates. To the extent current or prior year appropriations are not available to fund annual and compensatory leave earned but not taken, funding will be obtained from future financing sources.

Sick leave and other types of nonvested leave are expensed as taken.

K. Interest on Late Payments

Pursuant to the Prompt Payment Act, 31 U.S.C. 3901-3907, Federal agencies must pay interest on payments for goods or services made to business concerns after the due date. The due date is generally 30 days after receipt of a proper invoice or acceptance of the goods or services.

L. Retirement Plan

With few exceptions, employees hired before January 1, 1984, are covered by the Civil Service Retirement System (CSRS) and employees hired after that date are covered by the Federal Employees Retirement System (FERS).

For employees covered by the CSRS, the Department contributes 7 percent of the employee's gross pay. For employees covered by the FERS, the Department contributes approximately 13 percent. All employees are eligible to contribute to the Federal Thrift Savings Plan (TSP). For those employees covered by the FERS, a TSP is automatically established, and the Department is required to contribute 1 percent of gross pay to this plan and match employee contributions up to 4 percent. No matching contributions are made to the TSPs established by the CSRS employees.

The VCRTF Financial Statement does not report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities, if any, which may be applicable to Department employees funded by the VCRTF. Such reporting is the responsibility of the Office of Personnel Management.

M. Actuarial Liabilities

The Federal Employees' Compensation Act (FECA) provides income and medical cost protection to covered Federal civilian employees injured on the job, employees who have incurred a work-related occupational disease, and beneficiaries of employees whose death is attributable to a job-related injury or occupational disease. Claims incurred for benefits for VCRTF employees under FECA are administered by the Department of Labor (DOL) and are ultimately paid by the VCRTF. The future workers' compensation liability has two components, (1) unpaid billings, and (2) an amount of estimated unbilled claims. The unbilled claims are estimated by applying actuarial procedures. The DOL calculated the liability of the Federal Government for future compensation benefits, which includes the expected liability for death, disability, medical, and miscellaneous costs for approved compensation costs. The liability was determined using the paid-losses extrapolation method calculated over the next 23-year period. This method utilizes historical benefit payment patterns related to a specific incurred period to predict the ultimate payments related to that period. The projected annual benefit payments was discounted to present value. The resulting Federal Government liability was then distributed by agency. Based on the information provided by the DOL, the DOJ portion of this liability was calculated by dividing the VCRTF full time equivalents (FTEs) by DOJ FTEs and applying the percentage to the DOJ liability. The allocated VCRTF liability and expense for FY 1995 was $3,356,747. The expense recorded for future FYs will be the change in the liability from one FY to the next. The Future Compensation Benefits Liability is recorded for reporting purposes only. This liability constitutes an extended future estimate of cost which will not be obligated against budgetary resources until the FY in which the cost is actually billed to the DOJ.

Note 2. Fund Balance With the U.S. Treasury (in thousands)

The Fund Balance with the U.S. Treasury amount reported in the financial statements represents the unexpended cash balance on the DOJ VCRTF books (Treasury Symbols 1558593, 15X8594, 15X8595, 1558595, 1558596, 15X8586, 15X8587, 15X8588, 15X8589, 15X8590, 15X8591, 15X8595, 1558597, 15X8597 and 15X8598) at September 30, 1995. The following schedule details the amount reported on the SF 2108s, Treasury Year-End Closing Statement, for the VCRTF Treasury Symbols and reconciles this amount to the DOJ VCRTF records. Post closing adjustments represent correcting entries made after the SF 2108s were prepared. The variance from the balance on the U.S. Treasury books at September 30, 1995, was $26,321. This variance represents cash in transit to and from the DOJ to the U.S. Treasury at year end. Cash in transit is included in the Fund Balance with Treasury line item on Federal financial statements: for SF 2108 reporting, cash in transit is accounted for in other categories, such as Receivables (Reimbursements Earned and Refunds, and Unfilled Customer Orders) and Unpaid Obligations (Undelivered Orders and Contacts, and Accounts Payable and Other Liabilities). Of the fund balance, $14,980 is restricted for TROOPS to COPS transactions.

Obligated Balance: $1,675,401
Unobligated Balance:
  Available 269,986
  Unavailable 2,192
Less Advances and Prepayments (21,505)
Fund Balance per SF 2108 1,926,074
Post closing adjustments (1,608)
Cash in Transit (26,321)
Fund Balance per DOJ Records $1,898,145

 

Note 3. Property, Plant and Equipment (in thousands)

Equipment consisted of the following as of September 30, 1995:

Entity Equipment Type Depreciation Method Service Life Acquisition Cost Accumulated Depreciation Net Book Value
INS ADP Straight-line 10 yrs $3,573 $89 $3,484
COPS Computer Straight-line 5 yrs 35 5 30
  Total $3,608 $94 $3,514

 

Note 4. Future Funding Requirements (in thousands)

Future funding requirements are funding needs that will be met by future appropriations. For the VCRTF, future funding requirements include accrued leave and actuarial liabilities. All amounts are current except for the FECA liability of $3,357. Unfunded expenses include future benefit costs - actuarial liabilities, accrued annual leave and accrued compensatory leave for the year presented. These expenses are included in the Statement of Operations and Changes in Net Position, Future Compensation Benefits Cost. The following is a summary of the unfunded liabilities as of September 30, 1995.

I. Liabilities Not Covered By Budgetary Resources:
    Unfunded Annual Leave $1,524
    Unfunded Compensatory Leave $ 24
    Actuarial Liabilities $3,357
    Total Liabilities Not Covered By Budgetary Resources $4,905
II. Unfunded Expenses For The Years Ending September 30, 1995:
    Unfunded Expenses $4,905

 

Note 5. Deferred Revenue

The DOD provided COPS with $15 million from its Operations and Maintenance appropriation, to establish the TROOPS to COPS Program. Of this amount, $19,590 was spent in FY 1995. Appropriations are recognized as revenues at the time the related program or administrative expenses are incurred. Therefore, $14,980,410 is classified as deferred revenue on the Statement of Financial Position. The $19,590 is classified as reimbursement income on the Statement of Operations and Changes in Net Position.

 

Note 6. Net Position (in thousands)

The Net Position for the VCRTF as of September 30, 1995, was comprised of the following components.

Unexpended Appropriations:
    Unobligated, Available $ 262,405
    Unobligated, Unavailable 2,219
    Undelivered Orders 1,755,061
Invested Capital 3,514
Future Funding Requirements (4,905)
Total $2,018,294

 

Note 7. Expenses by Program (in thousands)

OJP, INS and EOIR management and administrative expenses represent the overhead costs related to trust fund activities which were not reimbursed by the VCRTF to the OJP Justice Assistance appropriation, the INS Salaries and Expenses appropriation, and the EOIR direct appropriation, respectively. These overhead costs are captured by object class on the Statement of Operations and Changes in Net Position. The total of these overhead costs, $17,404, is also presented as other financing sources in the revenue section of the Statement of Operations and Changes in Net Position and as other unfunded expenses on the Statement of Budgetary Resources and Actual Expenses. Note 7 continues on the next page.

 

Expenses by Program, as of September 30, 1995, were as follows:

Office of Community Oriented Policing Services:
    COPS Hiring Programs $ 78,361
    COPS Innovative Programs 2,629
    COPS Training and Technical Assistance 16,957
    COPS Management and Administration 9,980
    TROOPS to COPS Management and Administration 20
Total 107,947
Office of Justice Programs:
    State and Local Law Enforcement Assistance 25,587
    Criminal Record Upgrade 1,779
    Correctional Facilities Grants 1,214
    Drug Courts 813
    Violence Against Women Act Grants 3,647
    State Criminal Alien Assistance Program 42,102
    President's Prevention Council 0
    OJP Management and Administration 1,411
Total 76,553
Immigration and Naturalization Service:
    INS Salaries and Expenses 62,340
    Border Control System Modernization 41,379
    INS Management and Administration 9,770
Total 113,489
Executive Office for Immigration Review:
    EOIR Direct Expenses 16,535
    EOIR Management and Administration 6,223
Total 22,758
Civil Division 2,550
U.S. Attorneys 3,539
Total $326,836

 

Note 8. Non-Operating Changes (in thousands)

Changes in the net position other than excess of revenues over total expenses were as follows at September 30, 1995.

Increase in Unexpended Appropriations $2,019,685
Increase in Capital Investment 3,514
Net Non-Operating Changes $2,023,199


APPENDIX I

Independent Auditor's Reports on the Immigration and Naturalization Service Component

Independent Auditor's Reports on the Immigration and Naturalization Service Component

Independent Auditor's Reports on the Immigration and Naturalization Service Component

Independent Auditor's Reports on the Immigration and Naturalization Service Component

Independent Auditor's Reports on the Immigration and Naturalization Service Component

Independent Auditor's Reports on the Immigration and Naturalization Service Component

Independent Auditor's Reports on the Immigration and Naturalization Service Component

Independent Auditor's Reports on the Immigration and Naturalization Service Component

Independent Auditor's Reports on the Immigration and Naturalization Service Component

 


APPENDIX II

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

Acting Chief Financial Officer's Comments on the Report

 

APPENDIX III

 

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

 

Williams, Adley And Company Report

  1. Resolved. This recommendation will be closed when the Justice Management Division (JMD) Personnel Staff implements procedures to verify that all changes and transactions affecting personnel that can be substantiated by some form of documentation are supported by proper documentation in the employee's personnel file or by an electronic file. This documentation, such as a check list, should be maintained in the personnel file as evidence that periodic reviews of the personnel file are being completed.
  2. Closed.
  3. Resolved. This recommendation will be closed when we receive a copy of documentation from the Assistant Director, Financial Operation Service (FOS) Branch addressed to supervisors in the Fiscal Data Services Section reemphasizing the need not to pay invoices without written certification that goods or services were received and accepted.
  4. Resolved. This recommendation will be closed when we receive a copy of the Policy and Procedures Bulletin issued by JMD Finance Staff outlining requirements and procedures for adjusting the general ledgers to properly reflect the Community Oriented Policing Services (COPS) grant expenses, advances, and accounts payable based upon the Office of Justice Programs (OJP) grant management system.
  5. Resolved. This recommendation will be closed when we receive documentation from COPS implementing procedures to improve collection of Initial Department reports from grantees and imposing financial restrictions on grantees who fail to file reports in a timely manner. However, we question why COPS is using 90 days instead of 45 days (30 days plus 15 days grace period) as the cutoff for placing a hold on delinquent grantee accounts .
  6. Resolved. This recommendation can be closed when we receive confirmation from OJP that they will enforce their own internal policy of not disbursing funds to a grantee until the most recent SF-269 is received by the grantee. Please also provide several examples of payment requests that have been denied due to a delinquent SF-269 report.
  7. UNRESOLVED. This recommendation can be resolved when you agree to implement the recommendation or propose alternative corrective action which satisfies the intent of our recommendation. While it is understandable that OJP has problems timely updating the grantee financial status as of September 30, material adjustments to the financial statements will be required annually until an automated or other alternative solution is developed. Please provide additional comments including any updates on OJP's initiatives in this area.
  8. Resolved. This recommendation will be closed when we receive copies of documentation from JMD FOS addressed to the Offices, Boards, and Divisions reemphasizing the need to determine whether ordered goods were received and accepted.

Brown & Company Report

  1. Resolved. This recommendation addresses a long standing problem at the Immigration and Naturalization Service (INS): the failure to perform monthly reconciliations of all their Treasury accounts. Please provide a copy of the new policy on reconciliations requiring quarterly reviews and monthly reviews for the last quarter of the fiscal year. In addition, please provide a copy of the INS Headquarters Finance Office review of the FY 1997 2nd quarter reconciliation that ensures that all unreconciled items were reviewed, resolved, and posted in the Financial Accounting and Control System (FACS). Finally, please provide information on the INS' plans to address its insufficient resources and priorities such that the INS can implement its own policy of performing reconciliations on a monthly basis in the future.
  2. Resolved. See Recommendation 1.
  3. Resolved. See Recommendation 1.
  4. Resolved. This recommendation can be closed when we receive a copy of the revised corrective action plan that addresses the deficiencies in accounting for fixed assets and depreciation in the general ledger and reconciliation with the Asset Management Information System.
  5. Resolved. This recommendation will be closed when the INS completes the organization-wide physical inventory and reconciliation of fixed assets, and we receive a copy of the results and corrective action taken on any deficiencies noted. In the interim, please have the Office of Logistics provide us with quarterly updates on the status of this organization-wide effort.
  6. Resolved. This recommendation will be closed when we receive a copy of documentation from the managers in the Headquarters Finance Office and the Directors of the Administrative Center Finance Offices providing written confirmation that each member of their staffs has received the new Financial Management Procedures Handbook and the updated Administrative Manual.
  7. Resolved. This recommendation will be closed when we receive a written update on the status of the INS' efforts to contract with Arthur Andersen, LLP for assistance in reviewing work processes, developing desk procedures, and creating work monitoring tools. Please also provide us with a timeline when available with completion dates for all phases of this procurement, including expected implementation of recommendations made by Arthur Andersen, LLP.
  8. Closed.
  9. Resolved. This recommendation can be closed when we receive a copy of the most recent reconciliation performed and adjustments made to FACS. When INS makes its payroll adjustments to allocate salaries and related expenses to the VCRTF, timekeepers should also be notified to change the accounting classification code. The INS' periodic reconciliations and postings to the FACS to properly classify VCRTF employees should ensure that salaries and benefits costs will be properly allocated to the VCRTF in the future.
  10. Resolved. This recommendation can be closed when we receive a copy of the new policy for automating and ensuring management approval of journal vouchers when issued in final. In addition, please provide us with copies of the signed and approved mass payroll change requests that were initiated at the end of FY 1995.
  11. Resolved. This recommendation can be closed when we receive a copy of the policy guidance for the INS Table of Organization issued by the Office of Budget on April 15, 1996.
  12. Resolved. See Recommendation 6.
  13. Resolved. This recommendation will be closed when we receive a copy of the most recent review performed by the INS Compliance and Quality Assurance Branch confirming that the INS Headquarters Finance Office is performing reviews of financial reports as recommended.

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