Department of Justice
IG/GAO Report

Table of Contents INTRODUCTION 3 CONTROLS OVER FINANCIAL REPORTING NEEDS IMPROVEMENT 3 Recommendations 4 Management Response 4 REPORTING OF NON-VALUED EVIDENCE 4 Recommendations 5 Management Response 5 INADEQUATE FUNDS MANAGEMENT CONTROL 5 Recommendations 5 Management Response 6 BIBLIOGRAPHY 8

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DEPARTMENT OF JUSTICE IG/GAO REPORT
INTRODUCTION

The Department of Justice (DOJ) is led by the Attorney General and consists of forty-two agencies, which cover a variety of responsibilities. DOJ prosecutes federal law offenders and represents the U.S. Government in court. DOJ is responsible for enforcing the law and defending the interests of the United States.

The objective of the Department of Justice’s internal control program is to provide reasonable assurance that operations are effective, efficient, and comply with applicable laws and regulations; financial reporting is reliable; and assets are safeguarded against waste, loss, and unauthorized use. The Department identifies issues of concern through a strong network of oversight councils and internal review teams. These include the Department’s Senior Assessment Team, the Justice Management Division’s Internal Review and Evaluation Office and Quality Control and Compliance Group, and Departmental component internal review teams. The Department also considers reports by the Office of the Inspector General (OIG) in its evaluation of internal control. (FY 2011 Performance & Accountability, 2011) Some of the issues found during the OIG’s evaluation were deficiency in controls over financial reporting; reporting of non-valued seized evidence and inadequate funds management controls.

CONTROLS OVER FINANCIAL REPORTING NEEDS IMPROVEMENT The auditors identified one significant deficiency in the FY 2011 Independent Auditor’s Report on Internal Control over Financial Reporting. The significant deficiency related to weaknesses in review and oversight of financial reporting. The Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF)’s internal control over financial reporting needs improvement to ensure that amounts reported in its financial statements were valid, accurate, and complete. ATF personnel did not sufficiently and adequately reconcile general ledger accounts, review transactions before posting them to the general ledger, and analyze account balances to determine their validity. Numerous errors and misstatements were identified in general ledger account balances dated June 30, 2011. Property, Plant, and Equipment was an error for misstatements. ATF records certain transactions related to capitalized equipment accounts based on information derived from reconciliation between its equipment property schedules and its property management systems. ATF did perform reconciliation for the first nine months of FY 2011 and made numerous errors performing a reconciliation to support the financial statement adjustments for June 30, 2011. As a result, ATF’s financial statements for June 30, 2011 contained an understatement for property, plant, and equipment, depreciation expense, and accumulated depreciation accounts. An overstatement was contained in the operating expenses and financing sources transferred in accounts. OMB Circular A-123, Management’s Responsibility for Internal Control, states: “Management is responsible for establishing and maintaining internal control to achieve the objectives of effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. “ It further states:” Transactions should be promptly recorded, properly classified and accounted for in order to prepare timely accounts and reliable financial and other reports.” (OMB Circular A-123 - Management's Responsibility for Internal Control, 2004) Recommendations

Specifically, ATF needs to improve its oversight of reconciliations of general ledger accounts, reviewing transactions, and analyzing account balances. OIG recommended that ATF establish stronger oversight controls for financial reporting and validation of recorded transactions including: * Timely and comprehensive reconciliation of general ledger account balances with subsidiary records. * Review and approval of source documentation, calculations, and posting by someone other than the preparer, and * More thorough data analysis and managerial reviews, including performance of more analytical procedures at the transaction, and general ledger account level.
Management Response ATF concurred with the recommendation and is implementing corrective actions to strengthen controls to strengthen financial reporting to include validation of recorded transactions. ATF plans to publish policies, incorporate a more extensive analysis and refine their timelines to allow for enhanced peer/management review. (Bureau of Alcohol, Tobacco, Firearms, and Explosives, 2012) REPORTING OF NON-VALUED EVIDENCE

During FY 2011, Drug Enforcement Agency (DEA) personnel relied upon the information contained within certain data fields in the DEA’s evidence reporting system to report the disposal activity and on-hand weight of non-valued seized evidence in the DEA’s annual financial statements. However, when the evidence reporting system was queried, incorrect data fields were selected, which did not accurately report the disposal activity and on-hand weight of seized drugs. Specifically, the query was not properly factoring in partial destructions of bulk seizures, rather it was only accounting for the disposal when the exhibit was fully destroyed. As a result of miscommunication between DEA personnel and an incomplete understanding of the query being used to extract information from the DEA’s evidence reporting system, DEA’s reporting process of the disposal activity and on-hand weight of non-valued seized evidence information did not detect errors of 242,925 kilograms in a timely manner. (Drug Enforcement Agency , 2012)

Recommendations

No recommendations were made for the findings because DEA had implemented newly developed reports from its evidence reporting system and enhanced internal controls which allow the DEA to accurately report the disposal activity and on-hand weight of its non-valued seized evidence. OIG tested the reports and were successful in retrieving proper results.

Management Response

DEA concurred with the findings and addressed corrective actions necessary based on the absence of any recommendation in this report. According to DEA, there is no question over the safeguarding of DEA’s drug evidence. There were no incidents identified where the DEA could not account for or locate drug evidence exhibits.

DEA believes that the issuance of this finding could be misinterpreted, in that taken out of context it gives the appearance that DEA has taken a step back and cannot locate or account for drug evidence, which is not true. DEA continues to make improvements in all areas of financial management and is confident that the internal controls in place are working effectively.

INADEQUATE FUNDS MANAGEMENT CONTROL

The United States Marshall Service (USMS) does not have adequate financial and compliance controls to ensure that obligation transactions are executed and recorded in accordance with laws and regulations, and that related undelivered orders and accounts payable balances are accurate and complete. During FY 2010, USMS created the Audit Coordination and Remediation (ACR) team, which serves as the audit liaison, recommends and implements funds management process improvements, and advises the financial services Division on remediation strategies. The ACR team directed testing of undelivered orders and accounts payable and provided training, assistance, and guidance to USMS personnel throughout the process. The USMS made significant progress in developing and documenting standard operating procedures for processing various types of transactions. However, the procedures were never finalized and implemented in all of the USMS’s district and headquarters offices during FY 2011. During the FY 2011 testing, numerous errors were identified. During the review of the undelivered orders, there were significant accounting errors and instances of noncompliance, which resulted in several misstatements.

During the review of accounts payable transactions, there were significant accounting errors resulting in misstatements due to incorrect obligation of funds and account adjustments. Specifically, the financial and compliance controls were not adequate to ensure that obligation transactions were executed and recorded in accordance with laws and regulations.

Recommendations

OIG recommends the following actions for USMS: 1. Continue the coordinated efforts among the ACR team, Financial Services Division, and USMS program offices to finalize and consistently implement policies and procedures for recording obligations and de-obligations in a timely manner, and to ensure that goods and services provided but not paid for are properly calculated, recorded timely, and adequately supported.

2. Enhance supervisory review and approval controls, including review of source documentation, calculations, and posting logic for accounts payable, obligations, and de-obligation transactions.

3. Review and update policies and Review and update policies and procedures for the use of purchase cards to pay recurring charges, including procedures to ensure that accruals are recorded for goods and services received, and that there is an adequate audit trail to support undelivered order and accounts payable balances.

Management Response

Recommendation #1: USMS concurred with the recommendation and conducted Program Office document reviews and key controls were tested that ensured USMS policies and procedures were followed. Each document was crosschecked, and supporting documentation was reviewed to trace the individual transaction through the financial process steps.
Recommendation #2: USMS concurred with the recommendation. The ACR Team reviewed each open obligation submission that required supervisory review and approval. Communications were provided to the District Office Chief Deputy U.S. Marshal, the Administrative Officer (AO), and USMS key stakeholders on the detailed findings of the District Office monthly testing.
Recommendation #3: USMS concurred with the recommendation and continued to review purchase card procedures for coordination and standardization of efforts across Headquarters Program Offices.

BIBLIOGRAPHY

OMB Circular A-123 - Management's Responsibility for Internal Control. (2004, December 21). Retrieved from Whitehouse - Office of Management and Budget: http://www.whitehouse.gov/omb/circulars_a123_rev

FY 2011 Performance & Accountability. (2011, December). Retrieved from Department of Justice: http://www.justice.gov/ag/annualreports/pr2011/section1.pdf

Bureau of Alcohol, Tobacco, Firearms, and Explosives. (2012, February). Retrieved from U.S. Department of Justice Office of Inspector General: http://www.justice.gov/oig/reports/ATF/index.htm

Drug Enforcement Agency . (2012, February). Retrieved from U.S. Department of Justice Office of Inspector General: http://www.justice.gov/oig/reports/DEA/index.htm