oversight

Customs Automation: Weakness in Revenue Collection at John F. Kennedy International Airport

Published by the Government Accountability Office on 1990-09-27.

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

                   United   States   General   Accounting   Office
                   Report to the Regional Commissioner,
                   U.S. Customs Setiice, New York Region



September   1990
                   CUSTOMS
                   AUTOMATION
                   Weaknessesin          ,
                   Revenue Collection at
                   John F. Kennedy
                   International Airport




GAO,‘IMTEC-90-16                                                     .:“..1.. .
                                                                     .‘.
                                                                     L I I; ‘-
                   United States
GAO                General Accounting Office


                   New York Regional Office                                    7 World Trade Center, Floor      25
                                                                               New York, New York 10048
                   B-240920

                   September 27,199O

                   Mr. Anthony M. Liberta
                   Regional Commissioner
                   U.S. Customs Service
                   New York Region
                   6 World Trade Center
                   New York, New York 10048

                   Dear Mr. Liberta:

                   As a result of our recent review of Customs duties and other collections,
                   conducted at three ports of entry, including John F. Kennedy Interna-
                   tional Airport (JFK), we reported that the lack of internal controls over
                   prenumbered collection documents and the number of unaccounted-for
                   documents provide an enormous potential for fraud and abuse.1 During
                   that review we found certain other weaknesses at the JFK Area Office in
                   the physical security of revenue, accountability over prenumbered col-
                   lection documents, and the timeliness of these revenue deposits-weak-
                   nesses that deserve your attention.

                   In fiscal year 1989 the Customs Service reported that almost $2 billion
                   in duties and other revenue was collected at JFK. Of that $2 billion, at
                   least $23 million was collected using prenumbered collection docu-
                   ments-customs     Cash Receipt (CF-5104) and Informal Entry (CF-6119-
                   A) documents. As you know, the cash receipt is used for recording
                   taxes, fees, passenger duties, and any collection where a collection docu-
                   ment does not exist. The informal entry is used t,o record the collection
                   of duties and other amounts due from importers and brokers valued at
                   under $1,250. Both of these documents are issued to inspectors and
                   other personnel in books of 50.


                   Physical security weaknesses exist at the cashier’s office in the JFK Area
Results in Brief   Office where revenues are controlled and deposited. Accountability and
                   storage procedures for prenumbered collection documents are lax and
                   deposits of certain revenues are untimely. These three weaknesses, pre-
                   viously reported to your office by Customs’ Office of Internal Affairs in
                   March 1989,* for the most part still existed at the time of our review.

                   ‘Customs Automation: Duties and Other Collections Vulnerable to Fraud and Abuse (GAO/
                   1~430-29,    Feb.28,1000~.

                   2Final Report of Audit 8%NY 4 Kational Audit of Collections, New York Region, U.S. Customs Ser-
                   vice, Office of Internal Affairs, New York, New York (March 24, 1080).



                   Page 1                                   GAO/lMTEGSO-16 Customs Revenue Collection at JFK
                       5240920




                       by Customs employees’ not adhering to stated procedures for control of
                       such documents. To address these problems the JFKArea Office has
                       reduced the number of prenumbered collection documents and the
                       number of employees to whom the documents are assigned. The office
                       also intends to provide locked cabinets as necessary for the storage of
                       these documents.


                       Several instances were uncovered in which the JFXArea Office was not
Untimely Deposits of   depositing revenue it collected using the prenumbered collection docu-
Revenue                ments on time, as required by Treasury and Customs regulations. For
                       example, over half of the $153,016 in deposits we analyzed were
                       between 1 and 34 days late. As a result, the Treasury is losing interest
                       on these funds. This was also noted in the March 1989 Customs Internal
                       Affairs report. We also found that (1) the Automated Commercial
                       System (Am), which provides Customs management with deposit infor-
                       mation, contained incorrect collection dates for some deposits, making
                       them appear as if they were deposited on time; and (2) some inspectors
                       were not turning their collections in to the cashier’s office by the end of
                       the next business day, as required. The Customs Assistant Area
                       Director, Entry Division, agreed with our findings. He said the JFK Area
                       Office plans to increase the cashier’s office staff to assure that all rev-
                       enue is deposited on time and that ACS reflects accurate collection
                       information.


                       The weaknesses we identified at JFK substantially increase the vulnera-
Conclusion and         bility of the Customs Area Office to fraud, waste, and abuse. Accord-
Recommendations        ingly, we recommend that you ensure that all corrective actions planned
                       by the Customs Area Office, or underway as described in this report, are
                       carried out.

                       We also recommend that you ensure that supervisors follow stated poli-
                       cies and procedures and that they reinforce the importance of these
                       directives to their staffs.


                       Appendix I contains details on the matters discussed herein. Our objec-
                       tives, scope, and methodology are described in appendix II. Major con-
                       tributors to this report are listed in appendix III. Copies of this report
                       are being sent to the Secretary of the Treasury, the Commissioner of
                       Customs, and other interested parties. Copies will also be made available
                       to others upon request. Our review was conducted in accordance with


                        Page 3                         GAO/IMTEG90-16 Customs Revenue Collection at JFK
Page 6   GAO/IMTEGW16   Custmm Revenue Cdlection at JFK
Page 7   GAO/lMTECXW-16 Customs Revenue C!oUection at JFK
                           Appendix I
                           DetaibofourF%ndinga




                           area, one could gain access to the cashier’s cage by opening the unlocked
                           door. Inside the cashier’s cage are two safes where duties and other col-
                           lections and related documents are stored.

                           We also observed in the cashier’s cage that checks relating to both
                           prenumbered collection documents and formal entries were left out in
                           public view on desktops or in trays. They were not stored in either of
                           the two safes in the cashier’s cage while awaiting input into ACS,
                           endorsement, and courier transport to the bank. In October 1989, we
                           witnessed a non-Customs Service person enter the cashier’s cage, where-
                           upon the supervisor immediately instructed this person to leave the cage
                           and return to the presentation area. Twice in November 1989 we
                           observed that the two-door, approximately 6-foot-high safe was not
                           locked. This safe contains an authorized $30,000 imprest fund. Staff
                           other than those authorized to use the safe work in the cashier’s cage.
                           We also observed a gap in the ceiling that could permit unauthorized
                           entry into the cashier’s cage.


Inadequate Separation of   Our review of the cashier’s office activities disclosed a separation-of-
Duties                     duties issue. Specifically, we observed that one cashier who received
                           checks also prepared prenumbered collection documents and entered
                           $57,000 in collections into ACS. We were also told that other cashiers
                           who receive checks also write the prenumbered collection document and
                           record the collections in ACS.

                           GAO  Title 24 states that key duties and responsibilities in authorizing,
                           processing, recording, and reviewing transactions should be separated
                           among individuals, and no individual should control all key aspects of a
                           transaction or event.


Status of Customs’         We discussed these conditions with the Customs Assistant Area
Corrective Actions         Director, Entry Division, and were told that the physical safeguard
                           weaknesses were caused by a lack of adequate funding for improve-
                           ments and the failure of Customs employees to follow established proce-
                           dures; and that the separation-of-duties weakness was the result of staff
                           shortages.



                           4Title 4, Appendix 11,GAO Pohcy and Procedures Manual for Guidance of Federal Agencies, May
                           1988.



                           Page 9                                  GAO/IMTEG9O-16 Customs Revenue C!~Ilectlon at JFK
                           Appendix I
                           Details of Our Findings




                           month period, Customs found 19 of the 25 documents, reported 2 as
                           stolen, and could not account for the remaining 4.

                           Regional Directive II-21 lo-05 and JFK Area Office Directive II-K-21 lo-04
                           state that if an employee resigns, transfers, or is detailed to another sec-
                           tion, unit, or team, it is the supervisor’s responsibility to collect and
                           verify the used and unused documents assigned to that employee. This
                           statement is underlined, stressing its importance. Customs supervisors
                           were not, however, following these directives for controlling and
                           accounting for prenumbered documents and therefore could not initially
                           locate or account for any of the 25 documents we selected. Some of the
                           reasons why the JFK Area Office could not immediately locate the 25
                           documents were that (1) inspectors took their documents with them
                           when they transferred to other ports, (2) employees left or retired from
                           Customs and did not return their documents, and (3) supervisors who
                           signed for documents “had no recollection or records. . .” In addition, in
                           March 1988, the JFKArea Office issued a directive stating that when a
                           document is lost or stolen, the JFK Area Director must so notify NFC in
                           writing and request that those prenumbered documents be deleted from
                           ACS. This process is not always followed. Although inspectors had
                           reported 2 of the 25 documents as stolen, one as early as 1987, the JFK
                           Area Office took 2 years to report these stolen documents to NFC after
                           the March 1988 local directive was issued.

                           .JF’K AreaOffice Directive II-K-2 1lo-03 and subsequent Directive II-K-
                           21 lo-04 require all branch chiefs or immediate supervisors to maintain
                           accountability records for documents they distribute to their employees.
                           We interviewed six supervisors, four of whom were selected by Cus-
                           toms,to determine whether they were maintaining logs or other records
                           as required by the .IFK directives. None of the six maintained control
                           logs. One supervisor, after much effort, did provide us with an account-
                           ability record which he constructed at our request. One of the six stated
                           that recordkeeping requirements are “wide open” at the JFK Area Office,
                           in comparison with the stringent accountability records he was required
                           to keep as a Customs supervisor at another port.


Too Many Collection        In June 1989, JFK Area Office officials estimated that between 300 and
Documents in Circulation   400 inspectors and other personnel were issued prenumbered collection
                           documents; however, our work showed that some inspectors are not
                           using these documents at all or are using them infrequently, because in
                           some instances they may have assignments where collections of revenue



                           Page 11                         GAO/lMTEGIH)-16 Customs Revenue Collection at JFK
                         Appendix I
                         D&alla of Our Find-




                         off time.” In addition, section 6314.2~ of the Customs Policies and Proce-
                         dures Manual states that “collection ports shall observe a daily cut-off
                         sufficient to allow collections to be deposited on the day received . . .
                         Collections received after the cut-off . . shall be deposited with the fol-
                         lowing day’s collections.” In March 1989, Customs’ Internal Affairs
                         report noted that, in many instances, collections at JFK were not being
                         deposited in a timely manner.

                         Examples were also found in which inspectors were not turning their
                         collections in to the cashier’s office in the prescribed time allowed. Fur-
                         ther, the cashier’s office was not making daily deposits of (1) collections
                         from prenumbered collection documents, (2) mixed cash and check pay-
                         ments made by some brokers for formal entries, and (3) cash collections.
                         As a result, the Treasury is losing interest on funds not deposited on
                         time. These conditions also make these funds more susceptible to loss,
                         theft, or misuse. We did not assess the timing of deposits of revenue
                         resulting from formal entries paid only with checks, because we were
                         told by staff of the Treasury Inspector General that the timeliness of
                         these deposits is being reviewed by them. According to Customs offi-
                         cials, deposits paid entirely by check represent about 97 percent of all
                         revenue collected at JFK.


Untimely Deposits of     We analyzed all 104 prenumbered collection-document deposits made by
RevenueFrom              the JFK Area Office for two randomly selected days, November 3 and 6,
                          1989. We found that 87 of the 104 documents (84 percent), accounting
Prenumbered Collection   for over half of the $153,016 in revenue collected, were deposited
Documents                between 1 and 34 days late. The majority of these funds were deposited
                         between 1 and 5 days late, as shown in table 1.




                         Page 13                         GAO/IlWIEC~l6   Customs Revenue tilleetion   at JFK
                           Appendix I
                           Details of Our Findings




                           Again, the ACS collection date was in error as it showed the deposit as
                           being made on time. We wanted to use ACS to determine the full extent of
                           lost interest on late prenumbered collection document deposits, but
                           could not do so because of the inaccurate collection dates cited above.
                           Even if only half the approximately $23 million received in fiscal year
                            1989 from prenumbered collection documents was not deposited on
                           time, the Treasury would still lose about $2,500 in interest for each day
                           these deposits were late.

                           The Assistant Area Director, Entry Division, said that because he is
                           shorthanded, he gives priority to processing formal entries and
                           processes all other revenue when there is adequate time. However, after
                           discussing the timeliness issue, he said that he was increasing the
                           cashier’s office staff to ensure that all revenue is processed and depos-
                           ited within 24 hours. He said the incorrect collection date in ACS was a
                           data-entry error, and that this situation would be corrected. While
                           reviewing the timeliness of deposits for prenumbered collection docu-
                           ments, other information affecting the timeliness of deposits from
                           formal entries came to our attention. This is discussed in the section
                           below.


Untimely Deposits on       During our review involving prenumbered collection documents, we also
Mixed Formal Entries and   noted late deposits involving some formal entries and cash payments.
                           We found that payments by brokers for formal entries containing both
Cash Deposits              cash and checks (mixed formal entries) were held in the cashier’s office
                           safe pending the weekly cash count. We were told by the Assistant Area
                           Director, Entry Division, that it is the policy of the area office to hold all
                           cash received for weekly conversion to a cashier’s check; when cash and
                           checks cover the same entry, both are held for the weekly cash count.
                           As can be seen in table 2, a few pennies in cash has held up thousands of
                           dollars in deposits.




                            Page 15                         GAO/IMTEC66-16 Cust.mm Revenue Collection at JFK
                        Appendix I
                        Details of Our Findings




Inspectors Are Not      JFK  Area Office’s Local Operating Procedures II-K-21 lo-04 state that
                        documents and money collected by Customs inspectors will be trans-
Forwarding Revenueson   mitted by the end of the next business day to the cashier’s office. An
Time                    audit completed in September 1989 by Customs’ Inspection and Control
                        Division showed that this is not being done in all instances. In one case,
                        money was not turned in for over 7 months. To determine whether the
                        problem was corrected, we analyzed all 59 prenumbered collection docu-
                        ments in the November 2, 1989, deposit, and found the same problem
                        still existed. Nineteen of the 59 were between 1 and 6 days late, 38 were
                        on time, and 2 had no collection date so their status could not be deter-
                        mined. While the total dollar amount involved was relatively small
                        (about $SOO.OO),we believe that all money collected, regardless of
                        amount, should be turned in to the cashier’s office within the time limit
                        required by Customs’ policies and procedures to reduce the possibility of
                        loss, theft, or misuse. The Assistant Area Director, Entry Division,
                        agreed and said that the area office would reemphasize to its inspectors
                        the importance of turning in revenue when due.




                        Page 17                        GAO/IMTEGP6-16 Customs Revenue Collection at JPK
Appendix 11
Objectives, Scope, and Methodology




entries with payments containing both cash and a check. These pay-
ments were held in the safe pending the weekly cash count. That led us
to examine the timeliness of deposits on this type of payment.

We also reviewed cash collected by the JFK Area Office during October
and November 1989 to determine the timeliness of these deposits.
Regarding the timeliness of deposits, the Treasury Financial Manual
states that agencies will deposit receipts of $1,000 or more on the same
day received prior to the depository cutoff time. At the JFK Area Office
the depository cutoff time is 12:00 noon each weekday. However, not all
collection documents were time-and-date stamped and, as a result, it was
not always possible to tell whether they should have been included in
that days’s deposit. Therefore, we applied a 24-hour or next-day deposit
criterion in calculating the number of days a deposit was late. We did
not review what occurred with the deposit transaction after it left the
JFK Area Office and was delivered to the contract bank depository.

We performed our audit from October 1989 to June 1990, in accordance
with generally accepted government auditing standards.




Page 19                              GAO/IMTEG96-16   Customs Revenue Collection   at JFK
        L
    c
,




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Appendix III

Major Contributors to This Report


                       Anthony R. Carlo, Evaluator-in-Charge
New York Regional      Jeremiah F. Donoghue, Senior Evaluator
Office                 Allen W. Gendler, Staff Evaluator
                       Laura C. Morgan, Staff Evaluator


                       Howard G. Rhile, Director, General Government Information
Information              Systems
Management and         Stephen A. Schwartz, Assistant Director
Technology Division,   David B. Alston, Senior Evaluator

Washington, D.C.




(610184)               Page 20
Appendix II

Objectives, Scope,and Methodology


               Our objectives were to determine the extent of physical security over
               revenue collected, accountability and controls over the use of
               prenumbered collection documents, and the timeliness of deposits of
               prenumbered collection-document revenue at the U.S. Customs Service,
               John F. Kennedy International Airport. Our work at the Customs Ser-
               vice at JFK resulted from an earlier report, Customs Automation: Duties
               and Other Collections Vulnerable to Fraud and Abuse (GAo/IMTEcXX-29,
               Feb. 28, 1990). JFK accounted for almost $2 billion (about 10 percent) of
               Customs’ $19.1 billion in total revenue for fiscal year 1989.

               To assess physical security over revenue, we reviewed pertinent Cus-
               toms policies and procedures, toured the collection area, and observed
               operations on 14 occasions between October 25, 1989, and June 21,
               1990.

               To address the adequacy of accountability and controls over the use of
               prenumbered collection documents, we reviewed discrepancy reports
               issued by Customs following the 1987 and 1988 annual inventories. We
               randomly selected from over 120,000 discrepancies a sample of 25 docu-
               ments shown in ACS as assigned to JFK and available for use. In October
               1989, we requested that the JFK Area Office locate or otherwise properly
               account for these 25 documents. In addition, we interviewed Customs
               supervisors and staff using these documents to determine if they were
               maintaining logs/accountability records, as required by their operating
               procedures.

               To address the timeliness of deposits, we analyzed deposits for 2 ran-
               domly selected days-November 3, and 6,1989-from          the first 7 days
               in November 1989. To determine if the problem was corrected, we per-
               formed a spot check of an additional 2 days-January      16 and 22,199O.
               We did not review the timeliness of formal entries because we were told
               by staff of Treasury’s Office of the Inspector General that they are
               reviewing this matter. Our analysis of the timeliness of deposits was lim-
               ited to reviewing all the related prenumbered collection documents
               included in the total deposits with one exception: we did not review the
               timeliness of prenumbered revenues collected from passengers and
               crews at JFK international arrival terminals because at the time of our
               review this activity was also being reviewed by Treasury’s Office of the
               Inspector General. While reviewing the timeliness of deposits for
               prenumbered collection documents, we noted untimely deposits,
               including some formal entries and cash payments. Specifically, while
               observing the weekly c.ash count on November 1, 1989, we found formal



               Page18                         GAO/IMTEC40-16CustomsRevenueCollectionatJFK
                                     Appendix I
                                     DetausofourNndlngs




Table 2: Mixed Payments on Formal
Entries Included in the Deposit of                                                                  Check
November 2,1989, at JFK              Entry Number                         Entry Date*              Amount        Cash              Total
                                     0003523-7                               1O/i 6/89         $3031.36           $.Ol         $3,031.39
                                     0003551-8                               1O/21/89              3,347.36         .02         3,347.38
                                     0003534-4                               1O/l   9/89           2,046.lO         .03         2046.13
                                     0031714-1                               10/13/89          -     434.09         50            434.59
                                     0031672-l                               10/15/09                242.52         .17           242.69
                                                                                              $9,101.45           t.73        t9,102.19

                                     BNo collection date was on the documents; therefore we could not determine the exact number of days
                                     that these mixed payments were held I” the safe


                                     The cashier’s office supervisor said that both brokers and importers
                                     know that it is the practice of the JFK Area Office to count cash once a
                                     week, and that combination check and cash payments do not get depos-
                                     ited until the cash is counted. This could lead to brokers’ submitting
                                     mixed check and cash payments in order to gain longer use of their
                                     funds (free float). Further analysis showed that two of the three brokers
                                     who made payments in cash and checks in November 1989 also made
                                     payments this way in January 1990. After we brought this matter to his
                                     attention, the Assistant Area Director, Entry Division, said that this
                                     practice has stopped and that this type of entry is now processed when
                                     received.

                                     We also found that the JFK Area Office was accumulating cash in the
                                     cashier’s office safe and depositing it only once a week. This is contrary
                                     to section 8030.30 of the Treasury Financial Manual, which states that,
                                     to reduce processing float and improve availability of funds, agencies
                                     will deposit receipts of $1,000 or more on the same day received prior to
                                     the depository cutoff time. We found that during October and November
                                     1989, $36,968 in cash was received at the cashier’s office and converted
                                     to nine cashier’s checks at a local bank. They were deposited generally
                                     at weekly intervals in amounts that ranged from $2,231 to $7,296. The
                                     Assistant Area Director, Entry Division, said that the courier service
                                     they use to bring the daily deposits to the bank located in New York City
                                     does not transfer cash. Therefore, the area office would convert cash to
                                     a cashier’s check at a local bank; because the cashier’s staff is short-
                                     handed, this was done once a week. He said the area office has made
                                     arrangements to obtain armed courier service to begin in October 1990.
                                     He added that in the interim they have halted the practice of weekly
                                     cash deposits and now convert cash to a cashier’s check when cash
                                     accumulates to $1,000.




                                      Page 16                                   GAO/JMTEG9S16 Customs Revenue Collection at JFK
                                                                  -
                                       Appendix I
                                       tkmib   0eour bindings




Table 1: Analysis of Prenumbered
Collection-Document Revenue Deposits                                                             Cashier’s               ACS
for November 3 and 6,1969, at JFK      Number of                                       Days      Collection        Collection
                                       Documents                        Amount         Late’           Date              Date           DePDaE
                                       1                                         $48      34     09-29-89           11-02-89       11-03-89
                                       3                                       1,183      25     10-11-89           11-06-89       11-06-89
                                       2                                         394       19    10-17-89           11-06-89       11-06-89
                                       1                                         172       18    10-18-89           11-06-89       11-06-89
                                       3                                         707       12    10-24-89           11-06-89       11-06-89
                                       1                                           7        9    10-24-89           11-02-89       11-03-89
                                       6                                      23,687        5    10-31-89           11-06-89       11-06-89
                                       6                                       5,410        3    11-02-89           11-06-89       11-06-89
                                       40                                     46.005        2    10-31-89           11-02-89       11-03-89
                                       24                                     11,735        1    11-01-89           11-02-89       11-03-89
                                       16                                     16,598        0    11-02-89           11-02-89       11-03-89
                                       1                                      47,070        0    11-03-89           ll-06-8gb      11-06-89
                                       104                             $153,016
                                       Wslng a 24.hour lateness   crlter~on
                                       bBased on the ACS collectnn date, this document was deposlted on time by the cashrer's offlce s!nce
                                       November4and5,1989,wereweekenddays


                                       We also found that xs contained incorrect collection dates for the late
                                       deposits, showing them as being deposited on time. For example, ACS
                                       showed all the November 3 deposit documents as having a November 2,
                                       1989, collection date, when in fact one was received as early as Sep-
                                       tember 29,1989. The November 6 deposits show a November 6,1989,
                                       collection date in AC'S, even though they were actually received by Cus-
                                       toms as early as October 11, 1989.

                                       In addition, during a physical observation on October 30, 1989, we saw
                                       collection documents in the cashier’s office for which checks in the
                                       amount of $37,107 were received. The collection documents were dated
                                       October 26. None of the checks had been endorsed, nor had the collec-
                                       tions been recorded in ACS or deposited. We observed that checks for 13
                                       of these 26 collection documents, totaling over $33,000, were received in
                                       the cashier’s officca as caarly as October 11, 1989.

                                       We also observed other examples of untimely deposits and incorrect col-
                                       lection dates in .January 1990. Almost $5,000 (25 documents) received
                                       on January 8, 1990, was not deposited until January 16, but the ACS col-
                                       lection report incorrectly showed January 16 as the collection date. In
                                       addition, $3,385 (16 documents) received on January 16 was not depos-
                                       ited until <January 82; the ACS collection date was shown as January 22.


                                       Page 14                                         GAO/IMTEC%O-16       Customs Revenue Cdlection    at JFK
                       Appendix I
                       Details of Our Pindin@




                       are not made. One inspector we interviewed was not sure where his doc-
                       uments were because he had not used any in over 2 years. Another
                       inspector told us that she had not used her documents since October
                       1987. One of the supervisors interviewed said that none of the ten
                       inspectors assigned to her used the documents within a 6-month period.

                       In November 1988, Customs’ Office of Internal Affairs recommended6
                       that the Assistant Area Director of Inspection and Control evaluate the
                       number of documents supplied to inspectors to ensure that an adequate
                       number are on hand, commensurate with individual tasks. At that time
                       the regional commissioner disagreed, stating that all the books in use
                       were needed. However, after we presented our findings on the lack of
                       accountability and control over prenumbered collection documents, the
                       area office agreed to reduce the number of documents in use. Specifi-
                       cally, we were told that they had reduced the number of prenumbered
                       documents from 55,000 in March 1990 to 7,500 documents in June 1990;
                       and that the number of inspectors and other personnel assigned collec-
                       tion documents had been reduced from 400 to 70.


Storage Problems       Secure storage of prenumbered collection documents, both before issu-
                       ance and while in use, is essential to prevent loss, theft, or misuse. How-
                       ever, in at least three instances, prenumbered collection documents were
                       stored in unsecured areas. In two cases prenumbered collection docu-
                       ments were stored in unlocked desk drawers, making them vulnerable to
                       theft or misuse and further weakening control and accountability over
                       documents. For example, a supervisor kept 400 documents in a desk
                       that could not be locked. We also found hundreds of unissued documents
                       stored in the supply room-an area that can be entered by unauthorized
                       personnel. After discussing these storage problems with an assistant
                       area director, we were told that (1) locked file cabinets will be provided
                       as needed, and (2) the area office will no longer store unissued docu-
                       ments in the supply room.


                       The JFK Area Office was not making daily deposits of some of its collec-
Untimely Deposits of   tions, which is contrary to Treasury and Customs requirements. Section
Revenue                8030.30 of the Treasury Financial Manual states, “To reduce processing
                       float and improve availability of funds, agencies . will deposit receipts
                       of $1,000 or more on the same day received prior to the depository cut-

                       6Statement of Condition and Recommendation Number 8, Customs’ Office of Internal Affairs,
                       November R, 1988.



                       Page 12                                  GAO/~016            Custom Revenue Collection at JPK
                           Appendix I
                           Details of Our Findings




                                                     -
                           By the end of our audit in June 1990, Customs made certain physical
                           security improvements aimed at securing the collection area. These
                           improvements included the installation of drywall and barbed wire to
                           close the gap in the ceiling between the presentation area and the
                           cashier’s cage, and a steel roll-up gate door to prevent access outside of
                           normal hours to the presentation area. The Customs Assistant Area
                           Director, Entry Division, told us of additional plans to improve physical
                           security. These include installing countertop-to-ceiling partitions at the
                           presentation counter, adding a closed-circuit camera in the cashier’s
                           cage, repositioning certain computer equipment in the cage area so that
                           it is less visible, and reemphasizing to staff the importance of locking
                            access doors and properly safeguarding revenues.

                           This area director also discussed plans to increase the staff in the
                           cashier’s office so that the same Customs employee does not control all
                           aspects of the revenue-collection process

                                                         -~
                           Customs’ New York Regional Office and the JFK Area Office issued a
Lax Accountability         series of directives to control and account for prenumbered collection
Over Prenumbered           documents. We found that these directives were not being followed at
Collection Documents       the JFK Area Office. We also found too many documents in circulation,
                           and prenumbered c*ollection documents stored in unsecured areas. Col-
                           lectively, these weaknesses make Customs vulnerable to theft and loss
                           of revenue.


Weak Accountability Over    We found weak accountability and control over prenumbered collection
                            documents because Customs was not adhering to its stated procedures.
Prenumbered Collection      As a result, the area office was unable to readily locate documents that
Documents by Supervisors    ACS showed assigned to .JFK and available for use. Further, supervisors
and Inspectors              were not maintaining accountability records for documents distributed
                            t.o their employees. This was also reported to you by Customs’ Office of
                            Internal Affairs in March 1989.

                            In fiscal years 1987 and 1988, the National Finance Center (NE)
                            directed nationwide district inventories of prenumbered collection docu-
                            ments. Resulting discrepancy reports disclosed that the JFKArea Office
                            could neither locate nor otherwise account for over 120,000 collection
                            documents that KS showed assigned to the JFK Area Office following
                            inventory. We randomly selected 25 of these 120,000 documents and
                            asked Customs to locate them. Initially, Customs could not locate or
                            account for any of these documents. However, during the ensuing 6-


                            Page 10                           GAO/lMTEG90.16   Customs Revenue Colktion   at JPK
                           In fiscal year 1989, Customs reported that almost $2 billion in duties
Physical Security Over     and other revenue was collected at JFK. However, the JFK Area Office is
Collected Revenue and      not properly safeguarding this revenue.
Separation of Duties
Are Weak

Current Configuration of   The current configuration of the cashier’s office, together with Customs
                           employees’ not following established procedures, contributes to physical
Cashier’s Office Causes    security problems for revenue collected by the JFK Area Office.
Physical Security
Problems                   Sections 5311.3a and 5314.2~ of the Customs Policies and Procedures
                           Manual point out that daily collections should be kept from public view
                           during as well as before and after official hours, and that funds on hand
                           should be secured both during and outside of normal work hours. As
                           mentioned, our review discovered that this is not always the case.

                           During normal business hours, anyone can enter the broker/importer
                           presentation area; no security guards are stationed in this area. The
                           presentation area is where individuals present payments and documen-
                           tation (referred to as formal entry by Customs) for importing merchan-
                           dise into the United States.3 Adjacent to the presentation area is the
                           cashier’s work area, where cashier office staff process collections and
                           related documents. Adjacent to the presentation area and the cashier’s
                           work area is the cashier’s cage. This is an enclosed room that contains
                           two teller windows where other payments are received. A counter
                           approximately 4 feet high separates the presentation area from the
                           cashier’s work area. One could climb over this counter and gain access to
                           the cashier’s work area, or remove broker/importer documents from the
                           wire baskets left out on the countertop. On several occasions we
                           observed access doors leading from the presentation area to the
                           cashier’s work area left open, inviting unauthorized access.

                           Further, on several occasions while in the cashier’s work area, we
                           observed endorsed checks left in public view in wire baskets. These
                           checks were awaiting courier transport to the bank. Thus, anyone
                           entering the cashier’s work area could potentially leave with some of
                           these endorsed checks Moreover, as discussed below, once in the work

                           “When goods valued at “vu $1.250 are imported into the United States, the importer or broker acting
                           on the importer’s behalf m!lst file certain documents with Customs at the port of entry. The docw
                           ments for this filing, called a formA entry, include the application for a permit to immediately deliver
                           cargo, a commercial invoiw and evidence that bond exists to guarantee that duties will be paid.



                           Page 8                                      GAO/IMTEG!BO-16 Customs Revenue Collection at JPK
Contents


Letter                                                                                              1
Appendix I                                                                                          8
Details of Our          Physical Security Over Collected Revenue and Separation
                            of Duties Are Weak
                                                                                                    8

Findings                Lax Accountability Over Prenumbered Collection                             10
                            Documents
                        Untimely Deposits of Revenue                                               12

Appendix II                                                                                        18
Objectives, Scope,and
Methodology
Appendix III                                                                                       20
Major Contributors to
This Report
Tables                  Table 1: Analysis of Prenumbered Collection-Document
                            Revenue Deposits for November 3 and 6,1989, at
                            JFK
                        Table 2: Mixed Payments on Formal Entries Included in                      16
                            the Deposit of November 2, 1989, at JFK




                        Abbreviations

                        ACS       Automated Commercial System
                        GAO       General Accounting Office
                        IMTEC     Information Management and Technology Division
                        JFK       John F. Kennedy International Airport
                        WC        National Finance Center


                        Pa@ 6                         GAO/lMTEG9C-16 Customs Revenue Collection at JFK
    B-240920




    generally accepted government auditing standards, from October 1989
    to June 1990. If you have any questions on the matters discussed in the
    report, I can be reached at (212) 264-0961.

    Sincerely yours,
n




    Mary R. Hamilton
    Regional Manager




    Page 4                         GAO/IMTJCG9O.16 Cuetom Revenue Cdlection et JPK
                        B-240920




                        Such weaknesses heighten the area office’s vulnerability    to lost or stolen
                        collections.


                        Physical security of revenue was inadequate at the cashier’s office at
Inadequate Physical     JFK. This office handles all deposits of Customs revenue collected at .J!X
Security Over Revenue   We observed checks left out in the open and in public view; an unlocked,
                        improperly secured safe; doors to the cashier’s office left open or closed
                        but not locked; and someone other than Customs personnel entering the
                        cashier’s cage. Inadequate security over revenues was also cited by Cus-
                        toms’ Office of Internal Affairs in its March 1989 report. We also
                        observed a separation-of-duties weaknesses, noting that the same
                        cashier who receives collections also prepares the prenumbered collec-
                        tion document and records the collections. The Customs Assistant Area
                        Director, Entry Division, agreed with our findings and stated that the
                        physical security weaknesses were caused by a lack of funding for
                        improvements and the failure of Customs employees to follow estab-
                         lished procedures. The inadequate separation-of-duties, he said, was
                         caused by staff shortages.

                        During the latter stages of our review, Customs made several improve-
                        ments in safeguarding revenue. Other improvements are planned,
                        including adding a closed-circuit camera and repositioning certain com-
                        puter equipment in the cashier’s cage, reemphasizing to staff the impor-
                        tance of locking access doors and properly safeguarding revenue, and
                        increasing the number of staff in the cashier’s office to address the sepa-
                        ration-of-duties weakness.


                        Weaknesses pertaining to accountability, control, and storage of
Lax Accountability      prenumbered collection documents resulted from Customs’ not following
Over Prenumbered        stated procedures or good management practices. Specifically, (1) Cus-
Collection Documents    toms supervisors were not keeping track of the collection documents
                        they issued, (2) too many employees had been issued prenumbered doc-
                        uments for effective monitoring, and (3) the documents were being
                        stored in unsecured areas. Customs’ Office of Internal Affairs also found
                        a lack of control and accountability in its March 1989 report. This lack
                        of control and accountability has allowed instances in which documents
                        could not be accounted for. These unaccounted-for documents could
                        represent lost or stolen collections.

                         The Customs Assistant Area Director, Entry Division, said that these
                         conditions are caused by an excessive number of documents in use, and


                         Page 2                         GAO/IMTHX@16   Customs Revenue Collection at JFK