Weaknesses in the Drug Enforcement Administration's Financial Management System

Published by the Government Accountability Office on 1977-12-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          DOCUMENIT SESUME
04617 - [E00249221
Weaknesses in the Drug Enforcement IdhinistrationQs Financial
sanagesent System. FG6SD-77-74; B-183363. Decembsr 27, 1977, 2
pp. + 2 enclouures (6 pp.).
Deport to Peter B. Bensinger, Adainistrator, Drug Eaforcement
Administration; by D. L. Scantlebury, Director, Fin.,ncial and
General Management Studies Div.
Issue Area: Accountitg and Financial Reporting (2100);
    Accounting and Financial Reporting: Internal Controls over
    Receipts and Disbursements (2810).
Contact: Financial and General aanageseut Studies Div.
Budget Function: aiscellaneous: Financial Eanage&nt and
    Information Systems (1002).
Organization Concerned: Department of Justice*
Authority: 31 U.S.C. 66a. 7 GAO 122.2 7 GAO 111. 7 GAO 25.6. 7
    GAC 24.8. 7 GAO 17.1.
         A questionnaire survey was conducted to evaluate the
procedures and controls of revenue and expenditure transactions
of the Drug Enforcement Administration. The questionnaire
covered the systea of internal controls over coll*ctions,
disbursements, isprest funds, and obligations.
Findings/Conclusions:   aespoases indicated potential weaknesses
in the financial manageaent systes. The agency needs to: improve
controls over the disposition of seized and recovered funds,
l.esrove control of collections, have headquarters acknowledge
receipt of collections, periodically review outstanding travel
advances, segregate duties of cashiers, explain missed discounts
in writing, and adequately support estimates of cbligations.
Although corrective actions were taken or promised in most
cases, followup on these actions wva suggested to determine
whether the corrective actions vere adequate. (Author/HTW)
                               UNITED STATES GENERAL ACCOUNTING OFFICE
                                       WASHINGTON, D.C.   20548

                                                              iEC 4   71971


   %0 Mr. Peter Bensinger, Administrator
   <- Drug Enforcement Administration
   o Department of Justice
        Dear MrQ Bensinger:

             This report contains the results of a questionnaire
    '   survey to evaluate the procedures and controls of revenue and
        expenditure transactions of the Drug Enforcement Administra-
        tion. The work was done pursuant to our responsibilities set
        forth in the Budget and Accounting Act, 1921 (31 U.S.C. 53),
        and the Accounting and Auditing Act of i950 (31 U.S.C. 67).

             Designed to identify potential problem areas, the ques-
        tionnaire covered the system of inter.lal controls over
        collections, disbursements, imprest funds, and obligations.
        To obtain responses, we primarily interviewed and talked with
        responsible officials at headquarters and at 13 regional office
        accounting stations. These responses indicated some potential
        weaknesses in the financial management system of the Drug
        Enforcement Administration. We tested selected transactions
        and limited our work to .dentifying weaknesses in the internal
        control system. We did rljt determine the extent of weaknesses
        ncr the precise corrective action needed.

             We discussed our survey results with responsible head-
        quarters and regional accounting station officials, and in
        most instances they initiated or promised corrective action.
        We are informing you of the identified weaknesses to help you
        in discharging your responsibilities under 31 U.S.C. 66a, which
        requires agency heads to provide effective control over and
        accountability for cll funds under their responsibility.

             Our observations of the identified system weaknesses are
        included in enclosure I; the locations of the weaknesses
        are in enclosure II. Generally, the agency needs to

               -- improve controls over the disposition of seized
                  and recovered funds,
               -- improve control of collections,

B- 183363

     -- have headquarters acknowledge receipt of

     -- periodically review outstandinq travel advances,

     -- segrega.e duties of cashiers,

     -- explain missed discounts in writing, and

     -- adequately support estimates of obligations.

      Althuugh corrective actions were taken or promised in
most cases, we suggest you follow up on these actions to
determine whether they were aaiquate. We also suggest that
you request the Department's internal audit staff to
periodically audit the financial management of the accounting
stations to insure the continuance of good financial manage-

     Because action had tither been taken or promised to
correct noted system deficiencies at one Division of Financial
Management and the accounting stations, we are not making
any formal recommendations at this time. We would, however,
appreciate your informing us in writing of the corrective
actions taken.

     We appreciated the courtesies and cooperation extended
tc us by your staff.

     A copy of this report is also being sent to the Director,
Internal Audit Staff, Department of Justice.
                                   Sincerely yours,

                                   D. L. Scantlebury
Enclosures - 2
ENCLOSURE I                                         ENCLOSURE i




     The GAO Policy and Procedures Manual for Guidance of
Federal Ngencies (7 GAO 12.2) states that agencies shall
deposit =ollections daily.

     The Drug Enforcement Administration (DEA), however, has
no guidelines specifying how soon after an arrest agents
should turn in seized and recovered funds for safekeeping.
Furthermore, no guidelines exist requiring periodic reviews
of the court cases to determine their current status and to
insure timely transmission of these funds to headquarters for
deposit. As a result, 10 regional offices had about $3.8
million of seized and recovered funds on hand on December 31,
1976, and some of this money has been lying idle for years.

     These funds are normally used as evidence and safe-
guarded by a custodian, either a cashier or subcashier, until
the funds are released by the court. If no appeal is pending
or the funds have not been claimed, the cognizant agent or,
if the agent is no longer employed, the administrative officer
remits the funds to headquarters for deposit. This p:ocess
can take years. For example, one DEA regional accounting
station had $500 on hand since November 1964.

     Because of the excessive periods that funds are held,
the possibility for fraudulent disposition, misuse, or mis-
placement is present. Much of the older evidence is kept in
manila envelopes, tattered and torn from age and handling.
In addition to the risks, the Department of the Treasury
cannot use these Federal funds since they are not deposited
in the Treasury.

     Regional officials agreed that, after the disposition
of a case, they would take the necessary steps to insure
timely transmission of recovered and unclaimed seized funds
to headquarters for deposit. Headquarters officials
informed us that funds obtained from individuals whose cases
ENCLOSURE I                                        ENCLOSURE I

had not been heard in court cannot be deposited without the
U.S. attorney's permission, since the attorney may want to
use these funds as evidence.

     Headquarters officials agreed to explore the idea of
having regional offices deposit funds in nearby Treasury
depositories rather than mailing them to headquarters for
deposit. If necessary, the regional offices could inform
headquarters of their deposits by sending it deposit slip
copies. Local deposits would provide the Treasury with
Federal funds sooner and would reduce the need for the
Treasury to borrow funds to finance Government operations.

     In an earlier May 31, 1977, GAO report, rDrugs, Fire-
arms, Currency, and Other Property Seized by Law Enforce-
ment Agencies: Too Much Held Too Long" (GGD-76-105), we
concluded that:

     '*     * *the Federal Government, private individuals,
          and institutions could realize additional interest
          if recovered and seized money were deposited in the
          U.S. Treasury interest-bearing accounts or returned
          sooner to its rightful owner rather than stored in
          vaults and safe deposit boxes. Recovered buy
          money could be made available for reuse by the
          agency. Evidence needs could be met with serial
          numbers and photocopies of the actual money
          provided the courts and attorneys concur with the

     In replying to that report, the Department of Justice
generally agreed with GAO's conclusions and recommendations
regarding evidence substitutions and sample quantities of
funds for use as evidence. The Department believes, however,
that it may sometimes be difficult to obtain the complete
concurrence of the U.S. attorney, courts, and defendant's
attorney because of tactical or other considerations.  The
Department further stated that it does not object to using
sample quantities of seized funds or a substitute when a
full and unequivocal stipulation by a defendant's attorney
has been submitted and when the courts clearly understand
and concur that the substituted evidence accurately represented
the entire seizure.

ENCLOSURE I                                     ENCLOSURE I

     The GAO Policy and Procedures Manual for Guidance of
Federal Agencies (7 GAO 11.1) requires that agencies main-
tain proper records and adequate physical controls over
collections. A mailroom log of collections is one way to
help insure that all receipts are properly accounted for.

     Colluctions received through the mail include checks
for (1) the sale of seized vehicles, (2) repayment of travel
advances, and (3) payments for damages to Federal vehicles.
These collections were not recorded, logged in, or controlled
in the mailrooms at headquarters and at 9 of the 13 regional
accounting stations. Without a mailroom log, control over
receipts is weakened. The accounting station officials agreed
to improve controls over collections.


     DEA headquarters does not acknowledge receipt of checks
mailed from the regions for the sale of seized vehicles
because it is not required by DEA procedures. Headquarters
does, nowever, acknowledge receipt for other funds mailed
from the regions.

     Acknowledgment of collections by headquarters is
especially important because the regional offices are not
maintaining mailroom logs to record collections. Without
acknowledging receipt of collections, it is questionable
whether DEA is properly controlling and accounting for them.

     The revenue from the sale of seized vehicles is signifi-
cant and should be controlled.   In one regional accounting
station, for example, we noted that the revenue from the sale
of seized vehicles for a 15--month period was about $320,000.

     Headquarters officials agreed to acknowledge receipt
in the future.


     According to the GAO Policy and Procedures Manual for
Guidance of Federal Agencies (7 GAO 25.6), agency account-
ing systems shall include procedures for periodic reviews

ENCLOSURE I                                      ENCLOSURE I

and analyses of outstanding travel advances.   All advances
determined to be in excess of the immediate needs of the
travelers are to be promptly recovered.
     At three regional accounting stations, we noted that
unusually large travel advances were permitted to remain out-
standing for extended periods without periodic review. On
September 30, 1976, 82 employees at one station had a combined
total in outstanding travel advances of about $55,700.
Fifteen of these employees had about $37,900, or 68 percent
of the funds. Because of the lack of periodic review and
analysis of outstanding travel advances, there was no
assurance that employees had not received and retained
travel advances in excess of their needs.
     DEA regional officials agreed to periodically review
travel advances and to hold them to the minimum necessary.

     The DEA Accounting Manual provides that cashiers will
not De tasked with additional or collateral duties that may
interfere with the primary function of an imprest fund
cashier.  DEA's principal cashiers and subcashiers, however,
are also the custodians of seized and recovered funds and
a-e responsible for holding, controlling, and processing
receipts for these funds.

     Duties of the imprest fund cashier and the custodian
of seized and recovered funds should be segregated to prevent
the possible misuse of cash receipts and its concealment
in the accounting records. DEA regional officials agreed
that the consolidation of duties compromises good internal
control of funds and dgreed to separate these responsibilities.


     The GAO Policy and Procedures Manual for Guidance of
Federal Agencies (7 GAO 24.8) requires that (1) procedures
be established for insuring that invoices are processed
promptly so that payment may be made within the time pre-
scribed and (2) failures to take discounts be fully
explained on the appropriate document.

                                                   ENCLOSURE I
        At six regional accounting
 explanations were not provided stations, we found that
 discounts offered by vendors. on invoices for not taking
 the number and amount cf discountsWe were unable to determine
                                       lost because this infor-
 mation was not readily available.
 accounting station                    According to regional
 discounts lost are officials,   the number and amount of
                      relatively small. Considering
 time required to explain why discounts               the short
 still believe that explanations           were not taken, we
                                    should be provided. These
 explanations can help managers
                                  and inde?:ndent reviewers
 evaluate procedures to assure that
 taken.                                available discounts are

      Regional officials generally agreed
                                           to require that
 employees explain on invoices the
 discounts.                        reasons  for not taking

      As required by the GAO Policy and
Guidance of Federal Agencies (7          Procedures Manual for
                                 GAO  17.1), the basis for
and computation of an estimated
on the obligating document. This obligation  shall  be shown
appropriate adjustments can be      is necessary so  that
                                made later if it is disclosed
that the obligation was estimated
amount.                            incorrectly by a significant

     At DEA headquarters and five regional
we found the basis for estimating           accounting stations,
on the obligating document. Agencies            was not shown
maintaining proper fund controls       are responsible  for
and expenditures do not exeed the to insure that obligations
                                   amounts authorized. DEA can
improve its fund controls by requiring
basis for estimating and computing      employees to show the
obligating documents.               obligations  on the

     Regional officials agreed to have
                                       employees show the basis
for estimating and computing obligations
documents.                               on obligating

ENCLOSURE II                                                                ENCLOSURE II

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