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ON COMPLIANCE WITH LAWS AND REGULATIONS
Office of the Inspector General
U.S. Department of Justice
Director, Asset Forfeiture Management Staff
U.S. Department of Justice
We have audited the accompanying consolidated balance sheets of the Assets Forfeiture Fund and Seized Asset Deposit Fund, a financial reporting component of the U.S. Department of Justice (DOJ) referred to herein as the AFF/SADF, as of September 30, 2003 and 2002, and the related consolidated statements of net cost, of changes in net position, and of financing, and the combined statements of budgetary resources, for the years then ended, and have issued our report thereon dated January 14, 2004. We conducted our audits in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 01-02, Audit Requirements for Federal Financial Statements.
Pursuant to the Homeland Security Act of 2002, Public Law 107-296, the operations and funds of the Immigration and Naturalization Service were transferred to the Department of Homeland Security on March 1, 2003. However, legacy INS asset seizure and forfeiture activity remained part of the AFF/SADF for the entire fiscal year. Additionally, the operations and funds of certain programs of the U.S. Department of the Treasury Bureau of Alcohol, Tobacco and Firearms were transferred to the DOJ's newly created Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) effective January 24, 2003. The AFF/SADF has included ATF seizure and forfeiture activity in its financial statements since January 24, 2003.
Compliance with laws and regulations applicable to the AFF/SADF is the responsibility of management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of AFF/SADF's compliance with certain provisions of laws and regulations, noncompliance with which could have a direct and material effect on the determination of financial statement amounts, and certain other laws and regulations specified in OMB Bulletin No. 01-02, including the requirements referred to in the Federal Financial Management Improvement Act of 1996. However, the objective of our audits of the financial statements was not to provide an opinion on overall compliance with such provisions and, accordingly, we do not express such an opinion.
The results of our tests of AFF/SADF's compliance with the laws and regulations described in the preceding paragraph, exclusive of FFMIA, disclosed the following instance of noncompliance that is required to be reported under Government Auditing Standards and OMB Bulletin No. 01-02.
OMB Circular No. A-11, Preparation, Submission and Execution of the Budget requires that an obligation (for customer agencies) or an unfilled customer order (for provider agencies) be recorded at the time an agreement/contract to commit the Federal government to incur expenses or receive reimbursable revenue is signed. The AFF/SADF entered into reimbursable agreements at the beginning of the fiscal year and recorded the corresponding obligation amounts only as they were incurred and reported by the provider agency throughout the fiscal year, even though the agreement provides funding for the entire year without restriction as to when services can be provided. This condition understated the amounts recorded for obligations during the interim periods, and thus, misstated the interim financial statements prepared each fiscal quarter.
Under FFMIA, we are required to report whether the AFF/SADF's financial management systems substantially comply with (1) the Federal financial management systems requirements, (2) the applicable Federal accounting standards, and (3) the United States Standard General Ledger at the transaction level. The results of our tests disclosed instances where the AFF/SADF's accounting and reporting of financial transactions did not substantially comply with applicable Federal accounting standards. All significant facts pertaining to the matter referred to above and recommended remedial actions are included in our auditors' Report on Internal Control dated January 14, 2004.
This report is intended solely for the information and use of the U.S. Department of Justice Office of the Inspector General, the management of the Department of Justice, the Asset Forfeiture Management Staff, the OMB, and Congress. This report is not intended to be and should not be used by anyone other than these specified parties.
January 14, 2004