Audit Report
ASSETS FORFEITURE FUND AND SEIZED ASSET DEPOSIT FUND ANNUAL FINANCIAL STATEMENT FISCAL YEAR 1999
September 2000 00-24

ASSETS FORFEITURE FUND AND SEIZED ASSET DEPOSIT FUND
ANNUAL FINANCIAL STATEMENT
FISCAL YEAR 1999

The Assets Forfeiture Fund and Seized Asset Deposit Fund (AFF/SADF) is a reporting entity within the Department of Justice (DOJ). The AFF/SADF reports the amount of monies seized, along with the amounts realized from forfeitures, by agencies participating in the DOJ Asset Forfeiture Program (AFP). The AFF/SADF also reports the operational expenses of the AFP and the status of property seized and forfeited.

The SADF and AFF were created to serve as repositories for seized funds and the sale proceeds from forfeited property. The proceeds deposited in the AFF are used to cover the operational costs of the AFP; payments of equitable sharing arrangements with state, local, and foreign governments; joint law enforcement operations; and other permissible costs. Operational expenses do not include the salaries and administrative expenses of AFP participants incurred while conducting investigations leading to seizure and forfeiture, and these are not reported in the AFF/SADF financial statements.

This audit report contains the Annual Financial Statement of the AFF/SADF for the fiscal year ended September 30, 1999. The audit was performed by PricewaterhouseCoopers LLP (PwC) and resulted in an unqualified opinion. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and results of operations of the entity. For FY 1998, the AFF/SADF received a disclaimer of opinion on its financial statements (OIG Report No. 99-29).

The AFF/SADF improved in its ability to meet federal financial reporting requirements. Reductions in the significance and number of internal control weaknesses resulted in the strengthening of the overall quality of the financial records. The improvements in the quality of the financial records allowed the auditors to issue an unqualified opinion. However, the auditors identified a reportable condition on seized and forfeited property inventory procedures that still requires management's attention.

Similar to the prior year, AFF/SADF's Annual Financial Statement consists of a balance sheet, statement of net cost, statement of changes in net position, statement of budgetary resources, and statement of financing. However, comparative financial statements were not required this year and are therefore not presented.

I. Introduction

The funds of the Asset Forfeiture Program are under the management control of the Asset Forfeiture Management Staff, Justice Management Division. The Seized Asset Deposit Fund (SADF) is listed in the U.S. Treasury Federal Account Symbols and Titles as 15X6874. The Assets Forfeiture Fund (AFF) is a special fund and is listed as 15X5042. The SADF and most AFF activities are administered by the U.S. Marshals Service (USMS).

The SADF was created administratively by the Department to ensure positive control over, and security of, funds seized by agencies participating in the Department's asset forfeiture program. P.L. 102-140, dated October 28, 1991, provided authority for the investment of SADF monies. The SADF serves as a repository for seized funds that are not the property of the Government. The SADF holds seized cash, the proceeds of any pre-forfeiture sale of seized property, and forfeited cash not yet transferred to the AFF. Cost bonds, and the income and expenses from operating businesses under seizure, may also be managed through the SADF. Because most funds held in the SADF are not Government property, funds in the SADF cannot be spent for law enforcement purposes of the Department. The SADF is a dynamic fund. At any given time, there are several thousand cash seizures resident in the SADF in various stages of the forfeiture process. During any accounting period, several hundred accounting transactions occur that affect the balances in the SADF. The majority of these transactions involve the deposit of new seizures into the SADF or the withdrawal of funds from the SADF for deposit into the AFF upon the successful conclusion of a forfeiture action. Once the funds have been forfeited successfully, they are transferred from the SADF to the AFF.

The AFF was created by the Comprehensive Crime Control Act of 1984 (P.L. 98-473, dated October 12, 1984) to be a repository of the proceeds of forfeitures under any law enforced and administered by the Department of Justice. See 28 U.S.C. § 524(c). Forfeited cash is transferred from the SADF to the AFF by the USMS. Proceeds from the sale of forfeited property are deposited into the AFF by the USMS. Also, pursuant to 28 U.S.C. § 524(c)(5), all amounts earned on investment of AFF and SADF balances are deposited to the AFF. The interest earned on the AFF balances is the property of the Government. The interest earned on invested SADF balances becomes property of the Government only when the SADF principal has been successfully forfeited.

A majority of AFF and SADF balances are invested with the Treasury through its Bureau of Public Debt. Options for investment include Treasury bills, notes, and bonds, and one (1) day certificates. As a general rule, AFF and SADF balances are invested in thirty (30) day Treasury bills. This approach balances a desire to earn the best rate of return with the need to maintain periodic liquidity to permit reasonably prompt movement of funds upon completion of large pending cases. Separate, shorter term investments have been utilized for specific large volume cases where disbursements are imminent. The rate of return offered by the Bureau of Public Debt for investment of AFF and SADF balances is the same rate offered to the general public for the same investment period.

In determining the amount of the SADF balance to invest for a given period, we (a) determine the current fund balance, and (b) deduct estimated net disbursements to be made during the upcoming investment period, i.e., court-ordered disbursements or movement of forfeited funds to the AFF. In determining the amount of the AFF balance to invest for a given period, we (a) determine the current fund balance, (b) add the accumulated interest earned from the prior investment period for the AFF and SADF so that it can be reinvested, and (c) deduct anticipated net changes in AFF balances due to payment requirements during the next investment period. There is a demand for a margin of liquidity to meet disbursement and payment requirements. Therefore, a portion of each fund balance is not invested. This portion is required primarily to support disbursement of forfeited cash.

The government invests available SADF balances on an aggregate level due to the impracticality of investing and tracking each of the thousands of cash seizures separately. Thus, the Government cannot demonstrate conclusively that any particular cash seizure was or was not invested. However, the balances invested generally exceed the total amount of non-forfeited cash on deposit, i.e., the total of all SADF deposits less the amount of forfeited cash awaiting transfer to the AFF. Therefore, the Government operates on the basis that one hundred percent (100%) of non-forfeited dollars on deposit in the SADF are included in the amounts invested.

Generally, when a decision is made not to pursue a forfeiture action against seized cash or the court orders the Government to release monies previously seized, the Government returns the amount seized without interest because the Government is not required to automatically disgorge the benefit realized from possession of the seized cash. When the court orders the Government to release seized cash with interest, the government returns the seized cash, as well as any actual interest earned from the current investment of the seized cash and any prior interest earned on that cash. In so doing, the Government is not paying interest on the returned cash; rather, the Government is disgorging the benefit received by returning the corpus of the asset.

Limitations on the Use of the Assets Forfeiture Fund

The AFF is defined by statute. Authorities and limitations governing use of the AFF are specified in 28 U.S.C. § 524(c).

In addition, use of the AFF is controlled by laws and regulations governing the use of public monies and appropriations (e.g., 31 U.S.C. § 1341-1353, 1501-1558, OMB Circulars, and provisions of annual appropriations acts). It is further controlled by the Attorney General's Guidelines on Seized and Forfeited Property (July 1990), policy memoranda, and statutory interpretations issued by appropriate authorities. Restrictions on the use of AFF monies retain those limitations after the monies are made available to a recipient agency unless otherwise provided by law. Monies are available for use only to the extent receipts are available in the AFF.

In FY 1999, these monies were available under a permanent indefinite appropriation to finance the following:
 

(1) The operational costs of the forfeiture program, including handling and disposal of seized and forfeited assets, and the execution of legal forfeiture proceedings to perfect the title of the United States in that property.

(2) The satisfaction of innocent third party claims.

(3) The payment of equitable shares to participating foreign governments and state and local law enforcement agencies.

(4) The costs of ADP equipment and ADP support for the program.

(5) Contract services in support of the program.

(6) Training and printing associated with the program.

(7) Other management expenses of the program subject to approval by the Asset Forfeiture Management Staff.

The monies deposited in the AFF are not available for general use by a recipient agency for investigative, prosecutive or other purposes, even if that activity may result in the seizure of assets for forfeiture. Resources of the AFF are intended to cover the business expenses of the Asset Forfeiture Program, with any excess balances available for other more discretionary purposes, including investigative expenses covered by the appropriated, definite portion of the Fund. Excess unobligated balances identified at the end of a fiscal year may be declared a "Super Surplus" balance. Super Surplus balances may be allocated at the discretion of the Attorney General for "... any Federal law enforcement, litigative/prosecutive, and correctional activities or any other authorized purpose of the Department of Justice" pursuant to 28 U.S.C. § 524(c)(8)(E).

Holding and Accounting for Seized and Forfeited Property

The USMS is responsible for holding and maintaining real and tangible personal property, seized by participating agencies, for disposition. Seized property can be either returned to the owner or forfeited to the Government and subsequently sold, placed into official use, destroyed or transferred to another agency. Seized and forfeited property is not to be considered inventory held for resale in the normal course of business.

The estimated value of non-monetary seized assets (property), net of estimated liens, held by the USMS at the end of FY 1998 and FY 1999 is presented in the Notes to the Principal Statements, rather than within the Principal Statements, because the Government does not have title to the property. The Statement of Federal Financial Accounting Standards (SFFAS) Number 3, Accounting for Inventory and Related Property, mandates this method of presentation, in order to avoid overstating the entity's assets and liabilities, while providing needed accountability over seized assets.

II. Program Performance Information

During FY 1999, a total of $643.5 million in cash and proceeds was deposited into the AFF. From current balances, $283.3 million was shared with foreign governments and state and local law enforcement agencies that participated in joint investigations with Federal agencies that led to asset seizures and forfeitures. Several state or local agencies received aggregate sharing payments in excess of $1 million in 1999. The AFF's end-of-year unobligated balance increased to $449.0 million. The program invested cash balances from both the AFF and SADF in Government securities. These investments resulted in earnings of $53.8 million during FY 1999, including $11.4 million in interest earnings on deposits from the Bank of Credit and Commerce International (BCCI) case.^¹

The largest criminal forfeiture to date was achieved in January 1992, when a preliminary forfeiture order for $347.0 million was issued for all of the domestic assets of BCCI and three related corporations. Subsequently, the court amended the forfeiture order several times to add additional assets, bringing the total amount forfeited to more than $1 billion. Substantial BCCI principal remains in the SADF pending the resolution of third party claims. In 1999, over $15.8 million in BCCI interest from the AFF was distributed as refunds under court order.

The following tables include the performance measures used and reported in the "Program Performance Information" in the Fiscal Year 2001 AFF budget.²

^¹ Actual interest earnings totaled $53.8 million for 1999. Offset against these earnings was a refund of over $15.8 million in prior year interest earnings distributed pursuant to a BCCI court order.

² Enacted and actual performance data for 1998 and enacted performance data for 1999 were compiled using budgetary data, while 1999 actual performance data was compiled using proprietary data, the more appropriate data application for financial statements. Thus, a comparison of actual data for the two years will be difficult. All future performance data will be drawn from proprietary accounting data.

DECISION UNIT/PROGRAM: The decision unit should be supported by the following goals from the Department of Justice's Strategic Plan FY 1997-2002
Department of Justice Core Function: Investigations and prosecution of criminal offenses Strategic Goal: To provide funds to federal agencies engaged in the asset forfeiture program, in a manner designed to support use of the asset forfeiture sanction against the financial infrastructure of criminal organizations, to eliminate the burden of forfeiture-related costs as a disincentive to use of the asset forfeiture powers, to facilitate the efficient execution of forfeiture program responsibilities, and to enhance program accountability by ensuring the availability of current and accurate information on the status of all assets seized for forfeiture. Annual Performance Goal: Same as above
PERFORMANCE  INDICATOR  INFORMATION			Performance Report and Performance Plans
			Performance Report		Performance Plan
Type of Indicator	Performance Indicators	Data Source	1998		1999		2000 Plan	2001 Plan
			Enacted Plan	Actual	Enacted Plan	Actual
Input	1 Fund receipts (less BCCI)	FMIS	410,000,000	470,707,806	429,349,000	632,109,981	494,000,000	490,986,000
	2 Assets in inventory, end-of-year (less BCCI)	CATS	30,000	24,903	31,704	28,977	29,000	28,000
	3 Value of assets in inventory, end-of-year (Less BCCI)	CATS	1,500,000,000	1,000,300,000	2,407,680,000	726,528,682	727,000,000	705,000,000
Output/ Activity	4 Net deposits to Fund (less BCCI )	FMIS	410,000,000	448,769,748	407,691,153	647,942,828	513,012,000	490,986,000
	5   Program operation expenses incurred (excluding equitable sharing and state and local overtime)	FMIS	158,488,000	158,968,224	186,520,000	208,714,000	202,525,800	162,740,700
	6   Ratio of program operation expenses to deposits	FMIS	38.7%	35.4%	45.8%	32.2%	39.5%	33.1%
	7   Net case deposits	FMIS	373,100,000	405,115,618	372,691,153	593,571,949	478,012,000	455,986,000
	8   Case support costs	FMIS	125,988,000	127,463,479	141,702,000	157,213,000	105,625,000	89,570,000
	9   Ratio of case support costs to net case deposits	FMIS	33.8%	31.5%	38.0%	26.5%	22.1%	19.6%
	10  Net case income	FMIS	247,112,000	277,652,139	230,989,153	436,358,949	372,387,000	366,416,000
	11  Net income	FMIS	251,512,000	289,801,524	221,171,153	439,228,828	310,486,200	328,245,300
	12  Allocations (excluding super surplus)	FMIS	409,238,000	429,403,600	417,914,000	477,228,949	687,072,000	485,838,000
Intermediate Outcome
End Outcome	13  Percent of net income available for federal law enforcement		9.7%	25.5%	5.8%	30.6%	-14.0%	36.5%
Productivity/ Efficiency

DECISION UNIT/PROGRAM: The decision unit should be supported by the following goals from the Department of Justice's Strategic Plan FY 1997-2002
Department of Justice Core Function: Assistance to Tribal, State and Local Governments Strategic Goal: To provide funds to state and local law enforcement agencies for the purpose of encouraging cooperation in development and execution of criminal investigations Annual Performance Goal: Same as above
PERFORMANCE  INDICATOR  INFORMATION			Performance Report and Performance Plans
			Performance Report		Performance Plan
Type of Indicator	Performance Indicators	Data Source	1998		1999		2000 Plan	2001 Plan
			Enacted Plan	Actual	Enacted Plan	Actual
Input	1 Fund receipts (less BCCI )	FMIS	410,000,000.00	470,707,806	429,349,000	632,109,981	494,000,000	490,986,000
Output/ Activity	2   Equitable sharing payments	FMIS	196,000,000.00	185,333,479	177,719,000	283,267,000	331,337,600	185,710,400
	3   Ratio of equitable sharing payments to net case income	FMIS	79.3%	66.8%	76.9%	64.9%	89.0%	50.7%
	4   Number of state and local law enforcement agencies who receive equitable sharing	CATS	N/A	2,570	2,610	2,610	2,680	2,600
	5   Amounts provided for joint law enforcement operations (excluding Weed and Seed Program)	FMIS	22,000,000	21,442,861	21,675,000	12,547,000	13,600,000	13,600,000
	6   Amounts provided for joint law enforcement operations (including Weed and Seed)	FMIS	31,000,000	30,442,861	30,675,000	21,547,000	22,600,000	22,600,000
	7   Number of Weed and Seed sites that received AFF monies for joint law enforcement operations	EOWS	101	101	170	170	170	170
Intermediate Outcome
End Outcome	8   Percent of net income available to state, local, and tribal governments	FMIS	90.3%	74.5%	94.2%	69.4%	114.0%	63.5%
Productivity/ Efficiency

Definitions of Terms for Indicators:

Case support costs - Expenses incurred in support of specific asset forfeiture actions. Included are costs incurred for asset management and disposal, third party payments, case related expenses, special contract services, contracts to identify assets, and awards for information based on the amount of the forfeiture.

Fund receipts - regular receipts, excluding BCCI interest income.

Net case deposits - Derived from net deposits by subtracting income from investments, transfers in from the Treasury Forfeiture Fund and other agencies, and adding back refunds to the Treasury Forfeiture Fund, Postal Inspection Service, and other agencies.

Net case income - Derived by subtracting case support costs from net case deposits.

Net deposits - The total of income and refunds from all sources for the current year. Excludes the net effect of BCCI.

Net Income - This represents the results of the year's operations. It is derived by subtracting all program operations expenses from net deposits, which is different than net results of operations calculated in the financial statements.

Program operation expenses - All costs incurred in support of the federal asset forfeiture program. It includes case support costs plus ADP equipment, training and printing, and other program management. It excludes equitable sharing and joint law enforcement operations costs.

III. Financial Performance Information

The revenue for the AFF was $643.5 million for FY 1999 (see table below). SFFAS Number 3, Accounting for Inventory and Related Property, requires that revenue associated with property not disposed of through sale be recognized upon approval of distribution.

Investment earnings realized totaled over $53.8 million for FY 1999. The investment of seized cash from BCCI accounted for $11.4 million or 21.2 percent of these earnings.

Net Position, which is the equity of the U.S. Government in the Asset Forfeiture Program, has increased 27.0 percent since FY 1998. The ratio of Net Position to Total Assets was .35 to 1 in FY 1999, an increase of .05 since FY 1998. The ratio of Net Position to Total Assets, excluding the value of BCCI cash on deposit in the SADF, was .40 to 1.0 in FY 1999, an increase of .07 from FY 1998. Due to continual investment of idle cash in Government securities, the AFF and SADF Fund balances with the U.S. Treasury remain low.

Current Assets exceed short term liabilities by a ratio of 1.6 to 1.0. This relationship decreased by .7 from FY 1998 and continues to indicate that the AFF will be able to meet its obligations when due. In the ratio of current assets to current liabilities, current assets equal total entity assets while current liabilities equal the total of liabilities covered by budgetary resources except for deposit funds.

IV. Financial Management

The timely deposit of cash assets is important to the effective management of the Program. The more quickly seized cash can be deposited into the SADF, the earlier it is available for investment, and, thus, the greater the yield on investment. This is important both to the government and to owners who may have their cash and interest earnings returned. AFMS is reviewing the current practices for the deposit of seized cash into the SADF. Alternative means to more quickly deposit funds will be evaluated. A side benefit of expediting the deposit of the cash into federal depositories will be enhanced security of seized cash assets.

V. Financial Systems

Reporting Year 2000 (Y2K) Issues

The Consolidated Asset Tracking System (CATS) provides a central data base for all assets seized or indicted in both administrative and judicial cases. CATS tracks information and supports operations in all of the asset forfeiture program's business functions, including seizure, custody, notification, forfeiture, claims, petitions, equitable sharing, official use, and disposal. CATS replaced several asset forfeiture systems through the conversion of data on active assets, starting in FY 1994. Final nationwide implementation was achieved during FY 1998. All operational needs for forfeiture processing of a field office are addressed by CATS. The requirements of SFFAS Number 3, Accounting for Inventory and Related Property, are met from CATS data.

The Y2K implications for the application system have been fully assessed. As a result of that assessment, the code was renovated, tested, and fielded to all users during FY 1998. The network infrastructure used to communicate between the field user and the mainframe has been assessed as not being fully Y2K compliant. The renovations were begun during FY 1998, and have been completed. Total expenditures for Y2K activities were less than $2.0 million. A catastrophic failure of CATS would impair the participating agencies' abilities to conduct their forfeiture activities in an efficient manner. The greater impact would be on the preparation of the FY 2000 financial statements should any failure not be remedied by September 2000.

The most likely of the "Worst Case Scenarios" is that several of the field locations will not be able to operate as a result of power or telecommunications failures. These situations, while having a great impact on the field office, would not be material to the operation of the entire application system. The absolute worst case scenario would be a combination of events that would render the mainframe inoperative. Contingency plans and a business continuity plan were published.

VI. Limitations of the Financial Statements

The financial statements have been prepared as required by the Chief Financial Officers Act of 1990. Generally Accepted Accounting Principles in effect as of September 30, 1999, were followed in the preparation of these financial statements. The statements were prepared from the books and records of the AFF and SADF in accordance with Office of Management and Budget (OMB) Bulletin 97-01, Form and Content of Agency Financial Statements, as amended, and the AFF and SADF accounting policies which are summarized in the financial statements. These statements are, therefore, different from the financial reports, also prepared by the AFF and SADF pursuant to OMB directives, used to monitor and control the program's use of budgetary resources.

While the statements have been prepared from the books and records of the Asset Forfeiture Program in accordance with the formats prescribed by Office of Management and Budget, the statements are in addition to the financial reports used to monitor and control budgetary resources which are prepared from the same books and records.

The statements should be read with the realization that they are for a component of the U.S. Government, a sovereign entity. Should unfunded liabilities arise, the cost of which may be met by the permanent, indefinite portion of the fund, these liabilities may be met without further appropriation action.

VII. A Prospective View

It appears that the Attorney General's call for efforts to reinvigorate the use of asset forfeiture in all appropriate cases, as well as the major program success in recent U.S. Supreme Court decisions, have generally reversed the decline in program activity realized, most notably, in 1996. Receipts for 1999 totaled $643.5 million, which is $194.6 million higher than the $448.9 million in receipts in 1998.

The 1999 receipts included some unusual activity that may not recur in future years, i.e., a deposit of $89.0 million, representing the U.S. Government's share of proceeds repatriated from the Swiss Government as a result of the Drug Enforcement Administration's successful efforts to forfeit millions of dollars in drug proceeds from Colombian drug trafficker, Julio Nasser-David. It is difficult to project future receipts levels since receipts are dependent upon many factors including new cases being developed, the uneven flow of cases through the forfeiture process, the level of appropriations that federal law enforcement agencies receive, the level of personnel and monetary resources dedicated to the forfeiture program, international cooperation in forfeiture and repatriation matters, federal court decisions, and evolving forfeiture legislation.

With regard to forfeiture legislation, it is likely that Congress will reopen a debate on civil forfeiture reform legislation when the 106th Congress convenes in January, 2000. If the pending legislation passes as currently drafted, it is expected to have a dramatically negative impact on the forfeiture program and on AFF receipts.

Assuming there is no unusual case activity and forfeiture reform does not become a reality, it is expected that receipts in 2000 and 2001 will continue to exceed 1998 receipts. Deposits are projected to be $513.0 million and $491.0 million, respectively, for 2000 and 2001.
 

Office of the Inspector General
U.S. Department of Justice

Director, Asset Forfeiture Management Staff
Asset Forfeiture Program
U.S. Department of Justice

We have audited the accompanying balance sheet of the Assets Forfeiture Fund and Seized Asset Deposit Fund, a financial reporting component of the U.S. Department of Justice, as of September 30, 1999, and the related statements of net cost, changes in net position, budgetary resources and financing, for the year then ended. These financial statements are the responsibility of the Asset Forfeiture Management Staff. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 98-08, Audit Requirements for Federal Financial Statements, as amended. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Assets Forfeiture Fund and Seized Asset Deposit Fund at September 30, 1999, and its net cost, changes in net position, budgetary resources and reconciliation of net cost to budgetary resources for the fiscal year then ended in conformity with generally accepted accounting principles.

The information in the "Assets Forfeiture Fund and Seized Asset Deposit Fund Management Overview" and "Required Supplementary Information Intra-Governmental Trading Partners" is not a required part of the principal financial statements, but is supplementary information required by OMB Bulletin No. 97-01, Form and Content of Agency Financial Statements, as amended. This information has not been subjected to auditing procedures. Accordingly, we express no opinion on this information.

In accordance with Government Auditing Standards, we have also issued reports dated January 3, 2000, on our consideration of the Assets Forfeiture Fund and Seized Asset Deposit Fund's internal controls and on its compliance with laws and regulations.

PriceWaterhouseCoopers LLP
January 3, 2000
Arlington, Virginia

Office of the Inspector General
U.S. Department of Justice

Director, Asset Forfeiture Management Staff
Asset Forfeiture Program
U.S. Department of Justice

We have audited the accompanying balance sheet of the Assets Forfeiture Fund and Seized Asset Deposit Fund, a financial reporting component of the U.S. Department of Justice referred to herein as the AFF/SADF, as of September 30, 1999, and the related statements of net cost, changes in net position, budgetary resources and financing, for the year then ended, and have issued our report thereon dated January 3, 2000. We conducted our audit in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 98-08, Audit Requirements for Federal Financial Statements, as amended.

The Asset Forfeiture Management Staff (AFMS) of the AFF/SADF is responsible for establishing and maintaining accounting systems and internal control. In fulfilling this responsibility, estimates and judgements are required to assess the expected benefits and related costs of internal control policies and procedures. The objectives of internal control are to provide management with reasonable, but not absolute, assurance that: (1) transactions are properly recorded and accounted for to permit the preparation of reliable financial statements and to maintain accountability over assets; (2) funds, property, and other assets are safeguarded from loss from unauthorized use or disposition; (3) transactions, including those related to obligations and costs, are executed in compliance with laws and regulations that could have a direct and material effect on the financial statements and other relevant laws and regulations; and (4) data that support reported performance measures are properly recorded and accounted for to permit preparation of reliable and complete performance information. Because of inherent limitations in any internal control, errors or fraud may nevertheless occur and not be detected. Also, projection of any evaluation of internal control to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate.

In planning and performing our audit of the AFF/SADF's financial statements, we obtained an understanding of the design of significant internal controls and whether they had been placed in operation, tested certain controls and assessed control risk in order to determine our auditing procedures for the purpose of expressing an opinion on the financial statements. Our purpose was not to provide an opinion on the AFF/SADF's internal controls. Accordingly, we do not express such an opinion.

With respect to internal control relevant to data that support reported performance measures, we obtained an understanding of relevant internal control policies and procedures designed to achieve the above noted control objectives, and assessed risk related to management's assertions that the data is complete and relates to events that have occurred. Our procedures were not designed to provide assurance on internal control over reported performance measures. Accordingly, we do not provide an opinion on such controls.

We noted certain matters in the AFF/SADF's internal control that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants and OMB Bulletin No. 98-08, Audit Requirements for Federal Financial Statements, as amended. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of internal control that, in our judgement, could adversely affect the entity's ability to meet the internal control objectives described above.

Certain reportable conditions are also considered to be material weaknesses. A material weakness in internal control is a reportable condition in which the design or operation of one or more of the internal control elements does not reduce to a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements being audited or material to a performance measure or aggregation of related performance measures may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. However, none of the reportable conditions identified below are considered material weaknesses.

1. Improved inventory procedures are needed to validate the status and value of seized and forfeited property at year-end. (Repeat Condition)

 
2. Security controls over the Financial Management Information System need to be strengthened. (Modified Condition)

As of September 30, 1999, the AFF/SADF's financial statements reported over 18,000 seized property records with an estimated seizure value of $512.8 million and over 7,700 forfeited property records with an estimated forfeiture value of $341.2 million, net of liens and claims. It is essential that the AFMS and custodial agencies improve coordination to ensure financial management systems contain accurate and timely information on seized and forfeited property.

During fiscal year 1999, the AFMS continued to direct a significant amount of resources to monitoring participating agencies' efforts to correct errors in the value and status of seized and forfeited property. AFMS personnel conducted on-site reviews of the underlying data supporting the seizure and forfeiture data in the Consolidated Asset Tracking System (CATS). Consequently, AFMS and participating agencies made significant improvements to the quality of the seizure and forfeiture data in CATS. However, errors continue to occur resulting in necessary adjustments to amounts reported in the financial statements and related footnotes.

Seizing and custodial agencies did not take steps to ensure that corrections to inventory records in CATS identified as a result of physical inventory counts were made in accordance with guidance provided by the AFMS. The AFMS issued detailed guidance for year-end processing and reporting requirements to all entities whose financial and inventory records affect the AFF/SADF. Instructions included what procedures had to be performed, when they were to be performed, and how they should be performed. These procedures included guidance on conducting physical inventory counts and processing year-end seizure and forfeiture information. We found that agencies generally performed inventory counts according to AFMS's guidance to review and update the value and status of property records. However, even though some adjustments to property records were not processed timely, agencies certified ending inventory without these corrections, resulting in misstatements to year-end seized and forfeited property inventory reports, as follows:

• We identified $2.1 million of property incorrectly reported as forfeited at September 30, 1999. Of this amount, $1.9 million represents assets that had already been disposed. We noted $14.2 million incorrectly reported as seized property at September 30, 1999. Of this amount, $3.4 million of the assets had been forfeited and $10.8 million had been disposed.

 
• We identified $1 million of the forfeiture values that were not consistent with the documentation provided by seizing/custodial agencies. We also identified $4.9 million of the seizure values that were not consistent with the documentation provided by the agencies.

 
• Based on the errors identified, statistical projections resulted in net adjustments of $2.1 million to forfeited property and $51.4 million to seized property.

We recommend the Director of the AFMS:

1. Revise year-end closing procedures as necessary to specify the required steps for the custodial and seizing agencies to review and correct errors identified during year-end inventory counts. Guidelines should include informing AFMS of any errors that remain uncorrected.

 
2. Continue monitoring and evaluating seizing and custodial agencies' efforts to improve CATS data quality. For fiscal year 2000 this would include AFMS developing a schedule to continue on-site visits and follow-up on inventory results to ensure identified problems are adequately resolved.

 
3. Perform periodic reviews of CATS seized and forfeited records, during fiscal year 2000, to ensure reasonableness and to identify unexpected or unusual trends in seizure and forfeiture information. AFMS should place particular attention on older records and those with unusually high or low dollar values.

The Justice Management Division (JMD) must ensure that a secured environment exists for its Financial Management Information System (FMIS), which is the primary financial system for AFF/SADF, to prevent unauthorized access and promote financial statement integrity. As part of our audit of the Offices, Boards and Divisions (OBDs) financial statement, a financial reporting component of the U.S. Department of Justice, we reviewed security functions related to FMIS as well as the security functions at the OBDs related to the mainframe. Testing in these areas identified the following conditions:

• Inadequate segregation of duties at the OBDs impedes adequate security administration in the Obligation Module of FMIS. An integrated security administration table exists that stores user access rights for various FMIS modules; however, FMIS application programmers for the obligation module had access to this table and could create and maintain access to their own module for fiscal year 1999. Segregation of duties refers to dividing roles and responsibilities so that a single individual cannot subvert a critical process. With these responsibilities, application programmers are able to modify the programs and create access rights for any individual to process transactions in those modules, (e.g. creating obligations). Management provided us with a report dated December 21, 1999, indicating that the application programmer's access to the security table had been revoked; however, it was not possible to determine whether this revocation was accomplished prior to the end of fiscal year 1999. Our review of security table access logs showed that FMIS application programmers accessed the security table through August 1999, indicating that this weakness was in effect during at least 11 months of the fiscal year under audit.

 
• The change management methodology for developing and implementing changes to the FMIS application needs to be strengthened and formalized. Application programmers have been granted access to the production region and are responsible for implementing changes into production. The programmers develop changes in a development region, test the changes, and implement the new software into the production environment. With such access, any application programmer may inadvertently or intentionally make a change to a FMIS program in production. A formal change management process ensures that all application software installation and maintenance requirements are performed in a structured and controlled manner and provide management with a chronological history of all software modifications. A formal change control process ensures that all changes to the application are (a) formally requested by a user, (b) approved by authorized individuals, (c) adequately tested by the developer and user to minimize the risk of errors and irregularities in the production processing environment, and (d) moved to the production region by an independent group. Failure to define and recognize any of the above stated standard program change control procedures for all application changes may result in unauthorized, untested, and undocumented changes in the production environment.

 
• Security policies and procedures to guide security administration over the FMIS system are informal and undocumented. Although JMD has documented a security plan for FMIS, security administration procedures over FMIS are not specifically defined. The documented security plan is considered sensitive and is not distributed or used as a guide for the security administrator or users. In addition, there is no formal process for granting, authorizing, and maintaining users' access to the mainframe and the FMIS application. Based on the results of our review, we noted that the absence of formal security policies and procedures contributed to the following conditions: (a) access approval documentation is not maintained; (b) users are not periodically re-certified; (c) there are no procedures for the timely disabling of inactive or obsolete IDs; and (d) there is no monitoring of access violations for invalid or unauthorized attempts to access data. Further, users and their supervisors are not adequately aware of their security responsibilities regarding the application. Although users do receive periodic security awareness briefings, the security administrator is not always promptly notified of a terminated or transferred employee. Also, the security administrator is aware of the practice of sharing IDs at the field offices but has not been able to eliminate this practice.

DOJ Order 2640.2C, Telecommunications and Automated Information Systems Security provides general guidelines for implementing security policies throughout the Department of Justice. The order requires each system to have an access control policy that includes procedures to enforce the access control measures. The access control measures should address safeguards such as individual accountability and least privilege. It further requires the preparation of standard security procedures tailored for end users of systems.

In the absence of clearly defined security procedures, security administrators and users may not be fully aware of management's security objectives and may not be consistently performing the necessary procedures required to provide effective control. Further, undocumented or out-of-date access requests may compromise the integrity of the system by authorizing access that is not consistent with management's security objectives or user job responsibilities.

We understand that management issued a number of security policy statements in January 2000, that address most of the conditions identified above; however, the policies will only be implemented in FMIS II (expected to be operational in fiscal year 2000). Management's recognition of the need to improve security controls in FMIS II should be commended. We believe management's actions, if fully implemented, will enhance the integrity of the security controls in the OBDs' financial management systems during fiscal year 2000.

This reportable condition is described in each of the following Department of Justice financial reporting components' fiscal year 1999 audit reports: the AFF/SADF; the Federal Bureau of Prisons; the OBDs; and the Working Capital Fund. Each of the aforementioned components relies primarily on the FMIS as its core financial system. This reportable condition will be addressed to the Justice Management Division, which is where the FMIS resides. The related recommendation for this reportable condition will be included in the report on internal controls of the OBDs. The other financial reporting components are not required to provide comments on this condition.

This report is intended solely for the information of the Office of the Inspector General, the Director of 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.

PriceWaterhouseCoopers LLP
January 3, 2000
Arlington, Virginia
 
 

Office of the Inspector  General
U.S. Department of Justice

Director, Asset Forfeiture Management Staff
Asset Forfeiture Program
U.S. Department of Justice

We have audited the accompanying balance sheet of the Assets Forfeiture Fund and Seized Asset Deposit Fund, a financial reporting component of the U.S. Department of Justice, as of September 30, 1999, and the related statements of net cost, changes in net position, budgetary resources and financing, for the year then ended, and have issued our report thereon dated January 3, 2000.  We conducted our audit in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 98-08, Audit Requirements for Federal Financial Statements, as amended.

Compliance with laws and regulations applicable to the Assets Forfeiture Fund and Seized Asset Deposit Fund is the responsibility of the Asset Forfeiture Management Staff.  As part of obtaining reasonable assurance about whether the Assets Forfeiture Fund and Seized Asset Deposit Fund�s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of applicable 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. 98-08, as amended, including the requirements referred to in the Federal Financial Management Improvement Act (FFMIA) of 1996.  However, the objective of these tests was not to provide an opinion on the Assets Forfeiture Fund and Seized Asset Deposit Fund�s overall compliance with laws and regulations.  Accordingly, we do not express such an opinion.

The results of our tests of compliance with laws and regulations disclosed no instances of noncompliance with laws and regulations that we believe are required to be reported under Government Auditing Standards and OMB Bulletin No. 98-08, as amended.
Under FFMIA, we are required to report whether the Assets Forfeiture Fund and Seized Asset Deposit Fund�s financial management systems substantially comply with the Federal financial management systems requirements, applicable accounting standards, and the United States Standard General Ledger at the transaction level.  To meet this requirement, we performed tests of compliance using the implementation guidance for the FFMIA included in OMB Bulletin No. 98-08, as amended.
 
Our tests of compliance with the FFMIA disclosed no instances in which the Assets Forfeiture Fund and Seized Asset Deposit Fund�s financial management systems did not substantially comply with the three requirements discussed in the preceding paragraph.

This report is intended solely for the information of the Office of the Inspector General, the Director of 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 3, 2000
Arlington, Virginia

Note 1. Description of Reporting Entity

The Asset Forfeiture Program is a nationwide law enforcement program administered by the Department of Justice. The Program comprises the following Department of Justice components: the Drug Enforcement Administration; the Federal Bureau of Investigation; the Immigration and Naturalization Service; the U.S. Marshals Service; the U.S. Attorneys; and the Asset Forfeiture and Money Laundering Section, Criminal Division. The U.S. Postal Inspection Service; the Food and Drug Administration, Office of Criminal Investigations; the U.S. Department of Agriculture, Office of the Inspector General; and the U.S. Park Police are non-Department of Justice participants in the program.

The accompanying financial statements include the accounts of the Assets Forfeiture Fund (AFF) and Seized Asset Deposit Fund (SADF). The AFF is a special fund and is listed in the U.S. Treasury Federal Account Symbols and Titles as 15X5042. The SADF is a deposit fund and is listed in the U.S. Treasury Federal Account Symbols and Titles as 15X6874.

The accompanying financial statements of the AFF and SADF do not include the salaries and administrative expenses incurred by the Asset Forfeiture Program participants while conducting investigations leading to seizure and forfeiture. Salaries are paid out of the AFF for the Asset Forfeiture Management Staff (AFMS), Justice Management Division, and administrative costs are paid for the U.S. Marshals Service and the AFMS. There are no operating expenses charged to the SADF.

Note 2. Significant Accounting Policies
 

A.	Basis of Presentation
	These financial statements were prepared as required by the Chief Financial Officers Act of 1990 . The Federal Accounting Standards Advisory Board (FASAB) was designated as the accounting standards-setting body for the Federal Government during 1999. Generally accepted accounting principles in effect as of September 30, 1999, were followed in the preparation of these financial statements. The statements were prepared from the books and records of the AFF and SADF in accordance with Office of Management and Budget (OMB) Bulletin 97-01, Form and Content of Agency Financial Statements, as amended, and the AFF and SADF accounting policies which are summarized in these notes. These statements are, therefore, different from the financial reports, also prepared by the AFF and SADF pursuant to OMB directives, used to monitor and control the program's use of budgetary resources.
B.	Basis of Accounting
	The financial statements were prepared on an accrual basis of accounting. Transactions are recorded on an accrual and 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 restraints and controls over the use of Federal funds.
C.	Revenues and Other Financing Sources
	The funds in the AFF are derived primarily from forfeited cash, proceeds from the sale of forfeited property, interest earned on investments, payment of penalties in lieu of forfeiture, and recovery of asset management expenses. Revenue is recognized when cash is forfeited, forfeited property is sold, or when forfeited property is placed into official use, transferred to another federal agency, or distributed to a state or local law enforcement agency or foreign government.  The funds in the SADF are held in trust until a determination is made as to their disposition. These funds include seized cash, proceeds from preforfeiture sales of seized property, and income from property under seizure. No revenue recognition is given to cash deposited in the SADF.
D.	Fund Balance with Treasury and Cash
	The funds in the AFF are considered an entity asset and are used to finance the operations of the Asset Forfeiture Program. Seized cash is deposited and accounted for in the SADF until a determination has been made as to its disposition. If title passes to the U.S. Government, the forfeited cash is then transferred from the SADF to the AFF. The cash balance in the SADF is not available to finance the Asset Forfeiture Program activities, and is considered a non-entity asset.
E.	Investments in Government Securities
	Pursuant to 28 U.S.C. § 524(c), idle SADF and AFF cash is invested in U.S. Treasury securities. The earnings on Bank of Credit and Commerce International (BCCI) funds held by the SADF and AFF are tracked separately due to special disposition requirements. BCCI principal is held in the SADF, while earnings on BCCI principal are deposited into the AFF. Investments in U.S. Government Securities are recorded at their stated par value and associated premiums and/or discounts are amortized through the end of the reporting period. Investments are held to maturity; therefore, no provision is made for unrealized gains or losses on these securities.
F.	Seized and Forfeited Property
	Property is seized in consequence of a violation of public law. Seized property can include monetary instruments, real property, and tangible personal property of others in the actual or constructive possession of the custodial agency. Most noncash property is held by the U.S. Marshals Service from the point of seizure until its disposition. In certain cases, the investigative agency will keep seized property in its custody if the intention is to place the property into official use after forfeiture or to use the property as evidence in a court proceeding. If title passes to the U.S. Government, the proceeds from the sale of forfeited property are deposited in the AFF.  Forfeited property is property for which title has passed to the U.S. Government. This property is recorded at the estimated fair market value at the time of forfeiture. The value of the property is reduced by estimated liens of record.  Amounts reported as assets of the AFF and SADF at September 30, 1999, as well as in related revenue and liability accounts, include management's best estimates of forfeitures and seizures that occurred during FY 1999. They also include management's best estimates of the value of forfeited and seized assets. The amount ultimately realized from the forfeiture and disposition of these assets could differ materially from the amounts reported.  In accordance with Federal Financial Accounting and Auditing Technical Release Number 4, Reporting on Non-Valued Seized and Forfeited Property, effective July 31, 1999, seized and forfeited property on hand with no legal market in the United States was disclosed in item number only with no value.
G.	Liabilities
	Liabilities represent the amount of monies or other resources that are due to be paid by the AFF and SADF as the result of a transaction or event that has already occurred. AFF accounts payable represent liabilities with both federal and nonfederal governmental entities. Other liabilities include the Liability for Allocation Transfers (see Note 11D); expected BCCI distributions (See Note 7); Deferred Revenue, which is recorded when a forfeiture order is obtained and seized property is recorded as forfeited property; and Cash Held as Evidence and Deposit Fund, which offset the value of cash not on deposit or in the SADF balance with Treasury and in non-entity investments in U.S. Treasury securities.
H.	Comparative Data
	Comparative data for the prior year is not a required FY 1999 disclosure and is not presented in these financial statements.

Note 3. Fund Balance with Treasury

The Fund Balance with Treasury reported in the financial statements represents the unexpended cash balances of the AFF and SADF on September 30, 1999:
 

Note 4. Cash Held as Evidence

On September 30, 1999, cash in the amount of $11,529 was held as evidence outside of the U.S. Treasury. These funds, while seized for forfeiture, remained in the custody of the seizing agencies, primarily for evidentiary purposes.

Note 5. Investments

Investments are short term, market-based Federal debt securities issued by the Bureau of the Public Debt and purchased exclusively through Treasury's Financial Management Service. When securities are purchased, the investment is recorded at acquisition cost. Premiums and/or discounts are amortized through the end of the reporting period. Estimated market value of investments is presented for information purposes only, since all investments are in non-marketable securities. The following schedule shows the investment balance as of September 30, 1999:

 

Note 6. Seized and Forfeited Property:

A. Forfeited Property

Pursuant to Federal Financial Accounting and Auditing Technical Release 4, "Reporting Non- Valued Property," the value of forfeited property with no legal market in the United States (e.g., weapons, chemicals, drug paraphernalia, gambling devices) is not included in the net forfeited property value, although the item count of non-valued items is disclosed. Similarly, known liens against forfeited property are not included in the net forfeited property value. The $88,719 gross value of forfeited property, less non-valued property of $2,099 and known liens of $3,783, equals the net forfeited property value of $82,837.

 

Assets Forfeiture Fund and Seized Asset Deposit Fund Analysis of Change in Forfeited Property Dollars in Thousands
The following table represents the analysis of change for forfeited property during FY 1999.
Property Category (1)		Balance Reported FY 1998	Adjustments (2)	Beginning Balance Restated	Forfeited During Year	Disposed During Year (3)	Ending Balance	Non-Valued Property	Ending Balance Net of Non-Valued Property	Liens/ Claims	Ending Balance Net of Liens/Claims & Non-Valued Property
Aircrafts	Number	20	2	22	8	20	10	0	10	2	8
	Value	2,882	2,172	5,054	2,101	2,156	4,999	0	4,999	58	4,941
Alcohol	Number	0	0	0	0	0	0	0	0	0	0
	Value	0	0	0	0	0	0	0	0	0	0
Animals	Number	0	0	0	1	1	0	0	0	0	0
	Value	0	0	0	7	7	0	0	0	0	0
Art and Antiques	Number	14	10	24	20	26	18	0	18	1	17
	Value	14,148	(12,830)	1,318	312	394	1,236	0	1,236	479	757
Business	Number	19	(2)	17	10	17	10	0	10	0	10
	Value	6,271	5,402	11,673	1,392	10,664	2,401	0	2,401	0	2,401
Chemicals	Number	58	(2)	56	595	598	53	0	53	0	53
	Value	1,207	(33)	1,174	2,262	1,401	2,035	2,035	(0)	0	(0)
Drug Paraphernalia	Number	33	1	34	33	30	37	0	37	0	37
	Value	0	0	0	0	0	0	0	0	0	0
Electronic Equipment	Number	249	13	262	274	272	264	0	264	7	257
	Value	2,406	493	2,899	815	1,387	2,327	0	2,327	20	2,307
Financial Instruments	Number	284	70	354	737	917	174	0	174	7	167
	Value	27,806	(4,710)	23,096	154,389	165,708	11,777	0	11,777	716	11,061
Foodstuffs	Number	0	0	0	0	0	0	0	0	0	0
	Value	0	0	0	0	0	0	0	0	0	0
Gambling Devices	Number	19	6	25	16	31	10	0	10	0	10
	Value	440	13	453	53	442	64	64	0	0	0
Jewelry	Number	130	13	143	231	229	145	0	145	3	142
	Value	2,092	(162)	1,930	3,553	3,362	2,121	0	2,121	48	2,073
Other	Number	125	18	143	262	273	132	0	132	5	127
	Value	2,469	(1,367)	1,102	2,380	2,557	925	0	925	43	882
Real Property	Number	327	79	406	460	554	312	0	312	6	306
	Value	45,405	3,520	48,925	55,546	69,324	35,147	0	35,147	162	34,985
Vehicles	Number	4,567	88	4,655	32,609	32,148	5,116	0	5,116	755	4,361
	Value	21,665	(125)	21,540	108,055	105,244	24,351	0	24,351	2,241	22,110
Vessel	Number	89	(2)	87	185	203	69	0	69	1	68
	Value	2,980	(1,327)	1,653	3,390	3,707	1,336	0	1,336	16	1,320
Weapons	Number	508	(2)	506	515	463	558	0	558	2	556
	Value	0	0	0	0	0	0	0	0	0	0
Total without cash	Number	6,442	292	6,734	35,956	35,782	6,908	0	6,908	789	6,119
	Value	129,771	(8,954)	120,817	334,255	366,353	88,719	2,099	86,620	3,783	82,837
Cash	Number	2,095	125	2,220	8,950	9,511	1,659	0	1,659	15	1,644
	Value	76,961	196,132	273,093	455,130	469,582	258,641	0	258,641	281	258,360
Total with cash	Number	8,537	417	8,954	44,906	45,293	8,567	0	8,567	804	7,763
	Value	206,732	187,178	393,910	789,385	835,935	347,360	2,099	345,261	4,064	341,197

1. Federal Financial Accounting and Auditing Technical Release 4, "Reporting Non-Valued Seized and Forfeited Property," requires disclosure of property that does not have a legal market in the United States. Additional property categories reported for FY 1999 that were not reported in FY 1998 are: alcohol, chemicals, drug paraphernalia, gambling devices and weapons. In the FY 1998 financial statements, weapons appeared as non-valued property and other non-valued property were combined with other property categories. To ensure accuracy in the analysis of change in forfeited and seized property, the "Balance Reported FY 1998" is shown including these disclosures.
2. Adjustments include changes to asset counts and values that were not known at the end of FY 1998.
3. There were 77 partial disposals included in the number of assets disposed during the year. Disposed totals are based on asset value, i.e., the initial appraised value of record. Disposed totals do not reflect value changes due to partial dispositions or reappraisals, or expenses associated with the maintenance and disposition of assets. Forfeiture income of $633,985 does not reflect value changes during the life of the asset, or destroyed, donated, transferred or returned assets.

4. The variance represents the difference between the value of the property when seized and recorded in CATS, and the value of the property when disposed.
5. Some assets are disposed of in segments (e.g., part of an asset may be returned to the owner and part may be forfeited). As a result, the number of disposals on the Analysis of Change may not agree to the number of disposals on the Method of Disposition.

B. Seized Property

Pursuant to Federal Financial Accounting and Auditing Technical Release 4, "Reporting Non- Valued Property," the value of seized property with no legal market in the United States (e.g., weapons, chemicals, drug paraphernalia, gambling devices) is not included in the net seized property value, although the item count of non-valued items is disclosed. Similarly, estimated liens against seized property are not included in the net seized property value. The $301,206 gross value of seized property, less non-valued property of $10,040 and estimated liens of $40,452, equals the net seized property value of $250,714.

Total without
cash

Assets Forfeiture Fund and Seized Asset Deposit Fund Analysis of Change in Seized Property Dollars in Thousands
The following table represents the analysis of change for seized property during FY 1999.
Property Category (1)		Balance Reported FY 1998	Adjustments (2)	Beginning Balance Restated	Seized During Year	Disposed During Year (3)	Ending Balance (4)	Non-Valued Property	Ending Balance Net of Non-Valued Property	Liens/ Claims	Ending Balance Net of Liens/Claims & Non-Valued Property (4)
Aircrafts	Number	22	(3)	19	12	8	23	0	23	4	19
	Value	8,885	(5,446)	3,439	2,637	2,101	3,975	0	3,975	398	3,577
Alcohol	Number	1	0	1	4	0	5	0	5	0	5
	Value	2	0	2	121	0	123	123	0	0	0
Animals	Number	4	(4)	0	19	2	17	0	17	0	17
	Value	133	(133)	0	753	53	700	0	700	0	700
Art and Antiques	Number	44	(9)	35	23	27	31	0	31	1	30
	Value	783	(102)	681	311	320	672	0	672	19	653
Business	Number	19	(10)	9	7	11	5	0	5	0	5
	Value	39,713	(38,184)	1,529	842	1,592	779	0	779	0	779
Chemicals	Number	40	20	60	1,117	1,043	134	0	134	0	134
	Value	5,633	355	5,988	4,037	2,757	7,268	7,268	0	0	0
Drug Paraphernalia	Number	20	1	21	38	33	26	0	26	0	26
	Value	0	0	0	0	0	0	0	0	0	0
Electronic Equipment	Number	430	22	452	289	304	437	0	437	8	429
	Value	2,325	(673)	1,652	783	914	1,521	0	1,521	16	1,505
Financial Instruments	Number	1,292	(114)	1,178	923	842	1,259	0	1,259	63	1,196
	Value	232,693	(108,658)	124,035	122,604	91,336	155,303	0	155,303	5,491	149,812
Foodstuffs	Number	0	0	0	0	0	0	0	0	0	0
	Value	0	0	0	0	0	0	0	0	0	0
Gambling Devices	Number	113	33	146	19	26	139	0	139	0	139
	Value	5,987	(3,577)	2,410	380	141	2,649	2,649	0	0	0
Jewelry	Number	415	(13)	402	301	294	409	0	409	15	394
	Value	14,006	(6,442)	7,564	5,316	4,215	8,665	0	8,665	380	8,285
Other	Number	285	(15)	270	298	295	273	0	273	6	267
	Value	6,688	(1,385)	5,303	3,628	3,560	5,371	0	5,371	67	5,304
Real Property	Number	532	(42)	490	326	483	333	0	333	94	239
	Value	94,680	(39,358)	55,322	42,538	60,423	37,437	0	37,437	10,427	27,010
Vehicles	Number	9,624	26	9,650	35,707	35,682	9,675	0	9,675	1,994	7,681
	Value	62,574	(8,096)	54,478	157,262	145,405	66,335	0	66,335	19,346	46,989
Vessel	Number	195	(14)	181	205	206	180	0	180	16	164
	Value	5,271	(1,639)	3,632	10,935	4,159	10,408	0	10,408	4,308	6,100
Weapons	Number	468	41	509	607	549	567	0	567	5	562
	Value	0	0	0	0	0	0	0	0	0	0
	Number	13,504	(81)	13,423	39,895	39,805	13,513	0	13,513	2,206	11,307
	Value	479,373	(213,338)	266,035	352,147	316,976	301,206	10,040	291,166	40,452	250,714
Cash	Number	6,763	355	7,118	9,172	9,387	6,903	0	6,903	178	6,725
	Value	316,630	(20,495)	296,135	294,163	316,105	274,193	0	274,193	12,058	262,135
Total with cash	Number	20,267	274	20,541	49,067	49,192	20,416	0	20,416	2,384	18,032
	Value	796,003	(233,833)	562,170	646,310	633,081	575,399	10,040	565,359	52,510	512,849

1. Federal Financial Accounting and Auditing Technical Release 4, "Reporting Non-Valued Seized and Forfeited Property," requires disclosure of property that does not have a legal market in the United States. Additional property categories reported for FY 1999 that were not reported in FY 1998 are: alcohol, chemicals, drug paraphernalia, gambling devices and weapons. In the FY 1998 financial statements, weapons appeared as non-valued property and other non-valued property were combined with other property categories. To ensure accuracy in the analysis of change in forfeited and seized property, the "Balance Reported FY 1998" is shown including these disclosures.
   
2. Adjustments include changes to asset counts and values that were not known at the end of FY 1998.
   
3. There were 21 partial disposals included in the number of assets disposed during the year.
   
4. The seized cash balance is only a part of the SADF balance of $644.5 million, as reported by the Department of the Treasury. Other funds that comprise the SADF account balance include forfeited cash that remains in the SADF pending the payment of equitable sharing, appeal, or return to a successful claimant, such as BCCI distributions. Further, the seized cash property property balance does not include revenue from the operation of seized properties, or claim and cost bonds, while the SADF account balance does include these items.

5. The variance represents the difference between the value of the property when seized and recorded in CATS, and the value of the property when disposed.
6. Some assets are disposed of in segments (e.g., part of an asset may be returned to the owner and part may be forfeited). As a result, the number of disposals on the Analysis of Change may not agree to the number of disposals on the Method of Disposition.

Note 7. BCCI Activity.

The largest criminal forfeiture to date was achieved in January 1992, when a preliminary forfeiture order for $347 million was issued for all of the domestic assets of BCCI and three related corporations. Subsequently, the court amended the forfeiture order several times to add additional assets, bringing the total amount forfeited to more than $1 billion. The BCCI funds are held in the SADF pending orders from the court, as these refunds are not available to finance the activities of the Asset Forfeiture Program. The court has ordered periodic distributions of BCCI funds with $184,091 remaining in the SADF pending the resolution of third party claims. During FY 1999, $15,833 in BCCI funds were distributed from the interest earnings of the BCCI funds. An additional $140 million of the BCCI funds were distributed to third party claimants from the SADF.

Note 8. Net Position

The AFF accounts for the following amounts presented within Net Position:
 

• Unallocated Prior Year Surplus. The Unallocated Prior Year Surplus are monies available but not yet authorized for use by the Attorney General for any Federal law enforcement, litigative, prosecutive, and correctional activities, or any other authorized purpose of the Department of Justice.

 
• BCCI Income Subject to Court Order. BCCI principal and investment income are subject to court order and will be applied in satisfaction of associated case claims. BCCI principal is held in the SADF, while BCCI interest is deposited in the AFF, per 28 U.S.C. 524(c)(5). Neither the principal nor the interest are available to finance the ongoing program activities.

Note 9. Anticipated Equitable Sharing in Future Periods.

The statute governing the use of the AFF (28 U.S.C. §524(c)) permits the payment of equitable shares of forfeiture proceeds to participating foreign governments and state and local law enforcement agencies. The statute does not require such sharing and permits the Attorney General wide discretion in determining those transfers. Actual sharing is difficult to predict because many factors influence both the amount and time of disbursement of sharing payments, such as the length of time required to move an asset through the forfeiture process to disposition, the amount of net proceeds available for sharing, the elapse of time for Departmental approval of equitable sharing requests for cases with asset values exceeding $1 million, and appeal of forfeiture judgements. Because of uncertainties surrounding the timing and amount of any equitable sharing payment, an obligation and expense are recorded only when the actual disbursement of the equitable sharing payment is imminent. From 1994 through 1999, equitable sharing allocation levels averaged $207 million. The anticipated equitable sharing allocation level for FY 2000 is $330 million.

Note 10. Return of Forfeiture Income

Dollars in Thousands
Payments to individuals or organizations for proceeds from assets forfeited and deposited into the AFF and subsequently returned to them through a settlement agreement or by court order.	$4,214
Return of forfeiture income to the Treasury Forfeiture Fund for its participation in seizure which led to forfeiture.	6,284
Return of forfeiture income to the Resolution Trust Corporation, the Federal Deposit Insurance Corporation, or other Federal financial institutions or regulatory agencies for monies recovered under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).	337
Return of forfeiture income to the U.S. Postal Service for its participation in seizure which led to forfeiture.	4,987
Return of forfeiture income to other Federal agencies for their participation in seizure which led to forfeiture.	2,625
BCCI Distributions to victims and other permanent court- ordered distributions.	15,833

Allocations of prior year surplus are obligated through reimbursable agreements or suballotment advices with the organizations receiving the allocation, listed above. On September 30, 1999, $97,850 was obligated but not yet paid by the organizations that received allocations in current and prior years. This represents the Liability for Allocation Transfers.

Note 12. Prior Period Adjustments

The following prior period adjustments were made to correct errors in accounting or reporting in the FY 1998 financial statements:

• Liability for Allocation Transfers. Expenses related to the liability of allocation transfers were overstated by $5,916 in FY 1998. Prior period adjustments to increase Net Position by $5,916 were made on these statements.

 
• Interest Income. Interest income in the amount $742 was overstated on the FY 1998 financial statements. Prior period adjustments to decrease Net Position by $742 were made on these statements.

 
• Forfeiture Income. Forfeiture income was understated in the amount of $29,583 on the FY 1998 financial statements due to a delay in transferring seized cash to the AFF after forfeiture. Prior period adjustments to increase Net Position by $29,583 were made on these statements.

 
• Forfeited Cash. Cash held in the SADF in the amount of $39,500 was forfeited prior to FY 1999. This cash is being held in the SADF pending resolution of the cases that brought the cash into the SADF. Prior period adjustments to increase Net Position by $39,500 were made on these statements.

Note 13. Net Cost of Operations

All expenses and distributions of revenue are recorded under Budget Functional Code 750, Administration of Justice. Expenses and distributions of forfeiture revenue, net of earned income, presented on the Statement of Net Cost are shown below.
 

Asset Forfeiture Program Expenses:
Payment to Third Parties	$32,489
Asset Management Expense	40,769
Special Contract Services	45,564
ADP Equipment	28,875
Forfeiture Case Prosecution	10,951
Forfeiture Training and Printing	3,391
Other Program Management	9,159
Distribution of Revenues:
Equitable Sharing	283,267
Awards for Information	21,994
Purchase of Evidence	5,156
Equipping Conveyances	4,920
Joint Law Enforcement Operations	21,547
Contracts to Identify Assets	5,446

Note 15. Obligated Balance - End of Period.
On September 30, 1999, the obligated balance was $197,441, which includes undelivered orders of $72,165.
 
 

U. S. Department of Justice

This is in response to your memorandum, subject as above, that transmitted the draft audit report for comment.

Recommendation 1: Revise year-end closing procedures as necessary to specify the required steps for the custodial and seizing
agencies to review and correct errors during year-end inventory counts. Guidelines should include informing the Asset Forfeiture
Management Staff (AFMS) of any errors that remain uncorrected.

Response: Agree. A copy of the revised procedures is attached.

Recommendation 2: Continue monitoring and evaluating custodial agencies to improve Consolidated Asset Tracking System (CATS) data quality. a schedule to include on-site visits and follow-up on inventory results to ensure identified problems are adequately resolved.

Response: Agree. AFMS has established and staffed a Data Quality Team with the expressed mission of evaluating the quality of the data in CATS and monitoring any identified problems or issues. The field visits for fiscal year 2000 were scheduled and then cancelled because of the need to focus on the implementation of the recently enacted Civil
Asset Forfeiture Reform Act. The Data Quality Team has developed an aggressive data review program that they are conducting by correspondence rather than by on-site visits. We anticipate resuming the on-site visit schedules next year

Recommendation 3: Perform periodic reviews of CATS seized and forfeited records, during fiscal year 2000, to ensure reasonableness and to identify unexpected or unusual trends in seizure and forfeiture information. AFMS should place particular attention on older records and those with unusually high or low dollar values.

Response: Agree. As indicated in the response to Recommendation 2, above, this is being performed. Several thousand assets have been reviewed to date. The analyses and agency responses are available for review in the AFMS

AFF/SADF management was provided a draft of the Report of Independent Accountants on Internal Controls and their comments on the findings and recommendations were considered in preparing this Analysis and Summary of Actions Necessary to Close the Report. We will continue to review the actions taken during future financial statement audits in order to assess whether the findings have been adequately addressed and recommendations implemented. Depending on the recommendation, it will be closed either when the action requested is completed or subsequent audit testing verifies the adequacy of corrective actions. In the case of a repeat recommendation, the report recommendation will be immediately closed upon report issuance, but will continue to be followed up in the prior report where the recommendation was initially made.

Recommendation Number:

1. Closed. This recommendation is closed based on the actions taken.


2. Resolved. This recommendation will be closed when audit testing determines that planned corrective actions have been implemented and are effective. Please provide the OIG with updates on the evaluating and monitoring CATS data quality.


3. Resolved. This recommendation will be closed when audit testing determines that corrective actions have been implemented and the reasonableness of CATS data and information is verified. Please provide the OIG with any updates on the corrective actions as they are implemented.