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The Audit Division

The Audit Division is responsible for independent reviews of Department of Justice organizations, programs, functions, computer technology and security systems, and financial statement audits.

 

 


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Audit Division

Overview & Highlights

 


The Audit Division (Audit) reviews Department of Justice (Department) organizations, programs, functions, computer technology and security systems, and financial statements. Audit also conducts or oversees external audits of expenditures made under Department contracts, grants, and other agreements. Audits are conducted in accordance with the Comptroller General's Government Auditing Standards and related professional auditing standards. Audit produces a wide variety of audit products designed to provide timely notification to Department management of issues needing attention and assists the Investigations Division in complex fraud cases.

Audit works closely with Department management to develop recommendations for corrective actions that will resolve identified weaknesses. By doing so, Audit remains responsive to its customers and promotes more efficient and effective Department operations. During the course of regularly scheduled work, Audit also lends fiscal and programmatic expertise to Department clients.

During this reporting period, Audit issued 13 internal reports of programs funded at almost $22 billion; 54 external reports of contracts, grants, and other agreements funded at over $303 million; 82 audits of bankruptcy trustees with responsibility for funds of over $109 million; and 300 Single Audit Act audits encompassing almost $358 million. Audit issued six Management Information Memoranda, five Technical Assistance Memoranda, and two Notifications of Irregularity.

 

Significant Audit Products

 

Seizure and Disposal Efforts for the Bicycle Club Casino

In 1990, the Department seized the Bicycle Club (Club), a card casino in Bell Gardens, California, following a money laundering investigation. Our audit of the Club determined that its seizure effectively deprived criminals of substantial profits. We found that the Department has received over $30 million through its partial ownership in the Club and has used these funds for crime-fighting activities. The Department may realize an additional $19 to $25 million if the pending agreement for disposal of its interest in the Club is finalized. However, we identified significant weaknesses in the Department's planning for the seizure and timely disposal of the property.

Our audit found little evidence of effective preseizure planning. We criticized the process for disposing of the asset as inadequate -- the current sale proposal has taken over two years, still awaits approval by the state of California, and has been at the cost of a serious diminution in the value of the seized asset. Further, we concluded that the Department's reliance on court-appointed trustees to manage and dispose of the casino has been cumbersome and expensive.

The Department should weigh the costs and benefits of seizing complex, controversial assets before a seizure occurs. Such assets should not be seized until the risks of seizing and holding the asset are fully evaluated and all components with responsibilities in the seizure and disposal efforts are consulted.


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Significant Audit Products



We recommended that the Department adhere to its policy on preseizure planning, including:

Designate a senior official to deal with high-profile, problem assets.

Separate management and disposal duties.

Hire incentive-based contractors to dispose of high-value assets.

Hire a commission-based broker if the current agreement to dispose of the Club does not materialize.

Avoid open-ended compensation arrangements for asset management and/or disposal.

INS Management of Automation Programs

The Immigration and Naturalization Service (INS) expects to spend about $2.6 billion on its automation programs through Fiscal Year (FY) 2001. However, the projected cost through FY 2000 was reported at about $1.7 billion in January 1995 and at about $2.9 billion in July 1996. Over $900 million has been awarded for contracts to date. Our audit assessed INS' management of projects supporting automation.

We determined that INS has not adequately managed its automation programs or monitored related contractor activities. INS did not develop comprehensive performance measures for 16 of its 22 automation projects prior to spending almost $500 million. INS also did not use the performance measures it had established to evaluate the success of its remaining 6 projects.

INS has not sufficiently tracked its projects and cannot determine if progress toward completion of its automation programs is acceptable. In May 1997, INS awarded a contract to evaluate progress in its automation programs.

Our audit found the following additional funding-related concerns:

Based on projections, INS will need an additional $260 million to complete automation programs beyond FY 2001.

INS does not have a contingency plan to replace funding if monies from one of its major sources, the Violent Crime Reduction Trust Fund, are not available.

INS has not fully utilized user fees to fund automation.

INS is approaching the funding ceiling for a major 5-year contract (about $300 million) after only 3 years.

We also noted that:

INS allowed contractors to begin and sometimes complete work on task orders without written authorization.

 


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Significant Audit Products



Equipment valued at about $1.8 million will be in storage for at least six months because INS purchased it too far in advance.

INS had not implemented adequate safeguards to ensure the accuracy of existing data to be used by the new systems. Thus, regardless of the integrity of the new systems, INS could continue to rely on inaccurate or unreliable data accessed from existing databases.

As a result of these deficiencies, INS risks that completed projects will not meet the overall goals of the automation programs, completion of the programs will be significantly delayed, and unnecessary cost increases could occur. Because of the magnitude of deficiencies we identified, we initiated an immediate follow-up audit of this high-risk program.

Office of Community Oriented Policing Services

We continue to work with the Office of Community Oriented Policing Services (COPS) in its implementation of the Violent Crime Control Act of 1994. During this reporting period, we performed 40 audits of COPS grants. Our audits identified $8,381,723 in questioned costs and $10,814,179 in funds that could be put to better use. We initiated these audits based on requests from the COPS office and Office of Justice Programs and on allegations of misuse of grant funds. COPS findings to date may not necessarily be representative of the universe of grantees. In fact, they could represent worst case scenarios. This is because, as a matter of policy, COPS has referred to us what it suspects might be its riskiest grantees. We recently began supplementing, by about one-half, the number of grants audited. Our results to date, however, still may be skewed to the COPS-requested problem grantees.

These audits focus on (1) the allowability of grant expenditures, (2) the source of matching funds, (3) the implementation or enhancement of community policing activities, (4) efforts to fill vacant sworn officer positions, (5) plans to retain officer positions at grant completion, (6) grantee reporting, and (7) an analysis of supplanting issues. Results indicate that some jurisdictions are using federal funds to supplant local funds, not making sufficient effort to fill locally-funded sworn officer positions, and not documenting efforts to redeploy officers to community policing. Additionally, some jurisdictions may have difficulty retaining the officer positions with local funds at the conclusion of the grants.

The following are examples of findings reported in our audits of COPS grants to date:

• The City of Belle Glade, Florida, received a grant of $596,104 to hire or rehire six sworn law enforcement officers and $35,101 to redeploy six officers to community policing. The City did not implement community policing as proposed, charged salary and fringe benefit costs of four officers hired prior to the grant, and supplanted local funds with the grant funds. We questioned unsupported costs of $441,902 and recommended


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Significant Audit Products


that the remaining $189,303 in grant funds be put to better use until these conditions are corrected.

• The Rosebud Sioux Police Department (RSPD), South Dakota, received a grant of $1.7 million to hire or rehire 20 sworn police officers. We found that grant-funded positions were used to supplant other funded positions in 1996 and 1997. We questioned the $427,357 received by RSPD at the time of our audit. We also found that RSPD was reimbursed for unallowable year-end bonuses, was unable to recruit an adequate number of police officers, did not have a formal plan to fund the positions at the end of the grant, and did not implement a community policing program. We recommended that the remaining $1.3 million in grant funds be withheld as funds to be put to better use until these conditions are corrected.

• The City of Macks Creek, Missouri, population 272, received a grant totaling $87,538 to hire two officers. At the time of our audit, the City was planning to apply for Chapter Nine bankruptcy protection. Our audit found that the City did not employ a sufficient number of officers to warrant grant reimbursements and, as a result, supplanted local funds with the grant funds. In addition, the City did not make a good faith effort to fill officer vacancies in a timely manner. We questioned $15,826 of the $25,788 paid to the City and recommended that the remaining grant funds, $61,750, be put to better use.

Department Financial Statement Audits

As required by the Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994, financial statement audits are performed at the Department by independent public accountants. Audit oversees and issues the reports based on the work performed by the accountants. During this reporting period, the second consolidated Department audit was completed. The Department received a disclaimer of opinion on the consolidated Statement of Financial Position and consolidated Statement of Operations and Changes in Net Position because the auditors found unreconciled balances, deficiencies in reporting seized and forfeited assets and evidence, and weaknesses in accrual accounting and property accounting. The auditors also cited inadequate accounting records and issues of consistency and completeness in preparing consolidated financial statements.

Due to the Department's decentralized structure and the many automated financial systems in use by the various components, separate audits were per- formed for each component. The table on the following page lists the Department components whose financial statements were audited and the opinion they received.


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Significant Audit Products

 


1 See glossary (p. A-19) for definitions of audit opinions.


Computer Security at Department Data Centers

The Justice Management Division (JMD) maintains two major data processing centers to support the computer needs of the Department (excluding the Federal Bureau of Investigation). An assessment of the general controls environment established for the Rockville, Maryland, and Dallas, Texas, computer data centers was performed in support of the Department's FY 1996 annual financial statement audit. Independent public accountants, with oversight by Audit, performed the assessment in accordance with the General Accounting Office's Federal Information System Controls Audit Manual. Audit then issued a report identifying control vulnerabilities at these data centers that require management attention.

The audit report is not publicly available because the detailed disclosure of the report's sensitive information could compromise data processed by the Department's computer systems.

Implementation of the Communications Assistance for
Law Enforcement Act by the FBI

Congress enacted the Communications Assistance for Law Enforcement Act (CALEA) to ensure that law enforcement agencies, when authorized by court order, have the ability to intercept electronic communications. Telecommunications carriers may be reimbursed for costs associated with equipment modifications to meet capability and capacity requirements. The Department may reimburse the carriers for the modifications from the $500 million authorized by CALEA, subject to congressional approval.


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Significant Audit Products


We are required by CALEA to report to Congress by April 1, 1998, on the equipment, facilities, and services (equipment) that have been modified to comply with CALEA and whether Federal Bureau of Investigation (FBI) payments to telecommunications carriers for equipment modifications are reasonable and cost-effective.

The FBI and telecommunications industry disagree over reimbursement eligibility and the technical modifications that must be made to comply with CALEA. To date, carriers have made no modifications to equipment; therefore, the FBI has made no payments to carriers. Our audit assessed the current activities of the FBI but did not address the financial audit objectives in CALEA.

INS Refugees, Asylum, and Parole System

INS developed the Refugees, Asylum, and Parole System (RAPS) to automate tracking of individuals seeking asylum, control asylum and refugee applications, and provide an efficient and effective asylum adjudication process.

Our audit focused on INS Service Centers and asylum offices. Most RAPS users surveyed indicated that the system satisfied their needs by automating the asylum caseload process and reducing manual processing. We tested data authenticity, completeness, and accuracy for 4,704 randomly selected entries and found an acceptable one percent error rate. However, our audit found that alien file numbers were not always properly accounted for, system interfaces were not always effective, computer security was inadequate, and data input controls were inadequate in asylum offices. These weaknesses could: (1) allow the creation of fraudulent records, (2) impair the timeliness and reliability of information used for decision making, (3) diminish the reliability of alien status reporting, and (4) expose sensitive information to unauthorized use, loss, or modifications.

Agreements for Detention Facilities and Services

The Bureau of Prisons (BOP), United States Marshals Service (USMS), and INS enter into agreements with state and local jails and private corrections corporations to provide prison facilities and services for federal prisoners.

During this reporting period, we audited six agreements awarded by Department components. The audits resulted in questioned costs of $4,121,020 and $2,860,124 in funds that could be put to better use. We believe substantial additional savings are available nationwide and plan additional audits to identify such savings.

We continue to provide technical assistance and advice to BOP, USMS, and INS regarding the substantive issues identified in our audits. We also have provided advice and information to USMS' Program Review Division regarding their jail agreement audits.


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Significant Audit Products


Trustee Audits

Audit has contributed significantly to the integrity of the bankruptcy system by performing audits of trustees under a reimbursable agreement with the Executive Office for U.S. Trustees. During the reporting period, 82 trustee reports were issued.

Single Audit Act

The Single Audit Act and Office of Management and Budget (OMB) Circulars A-128 and A-133 require recipients of federal funds to arrange for audits of their activities. During this reporting period, we reviewed and transmitted 300 reports encompassing 914 Department contracts, grants, and other agreements totaling $358,275,409. These audits report on financial activities, compliance with applicable laws, and the adequacy of recipients' management controls over federal expenditures.

Audit Follow-Up

OMB Circular A-50

OMB Circular A-50, Audit Follow-Up, requires audit reports to be resolved within six months of the audit report issuance date. The status of each open audit report is continuously monitored to track the audit resolution and closure process. As of March 31, 1998, the OIG had closed 451 audit reports in this reporting period and was monitoring the resolution process of 252 open audit reports. In addition, five audits remain unresolved after the end of the 6-month period.

Unresolved Audits

USMS Intergovernmental Service Agreement Audits

As of March 31, 1998, four USMS Intergovernmental Service Agreement audits remained unresolved over six months: Anoka County, Minnesota; Plymouth County, Massachusetts; Torrence County, New Mexico; and City of Mansfield, Texas. These audits contained questioned costs of $4,061,904 and $737,837 in funds to be put to better use. In addition, the USMS Air Maintenance contract with Stambaugh's Air Service remains unresolved. This audit contained questioned costs of $1,731,632. We continue working with USMS to resolve these audits.

Update

INS' Replacement of Resident Alien Cards

Our last Semiannual Report to Congress described issues forwarded to the Department's Audit Resolution Committee (ARC) following JMD's assertion that we had improperly classified $45 million as funds put to better use in our audit of INS' Replacement of Resident Alien Identity Cards. ARC had referred the matter


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Update

to the Department's Office of Legal Counsel (OLC) for resolution. OLC provides legal advice and legal opinions to the Department and other federal agencies.

On March 20, 1998, the OLC ruled that our interpretation of "funds to better use" was in accord with the statutory definition.

Quality Control

External Quality Control Review

In November 1997, the Department of State (State) OIG completed its external quality control review of Audit. State OIG issued an unqualified opinion stating that the system of quality control for the audit function of the OIG was designed in accordance with the quality standards established by the President's Council on Integrity and Efficiency and was being complied with to provide the OIG with assurance of conforming with professional standards in the conduct of its audits.


Audit Statistics

Funds Recommended to be Put to Better Use




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Audit Statistics


Audits With Questioned Costs





Audits Involving Recommendations for Management Improvements


1 Management has responded to a number of, but not all, recommendations on a single report; hence the number of reports is higher.