United State General Accounting Office GAO Report to the Chairman, Subcommittee on Oversight, Committee on Ways and Means GruarS: 1990 CUST0MS AUTOMATION Duties and Other Collections Vulnerable to Fraud and Abuse .--. 6 h0 IMTlX-90-29 united states GAO General Accounting Office Washington, D.C. 20648 Information Management and Technology Division B-231311 February 281990 The Honorable J. J. Pickle Chairman, Subcommittee on Oversight Committee on Ways and Means House of Representatives Dear Mr. Chairman: This report responds to your May 17, 1989, letter, in which you requested that we examine certain controls relating to the U.S. Customs Service’s automated revenue collection and deposit processes.Your request was triggered, in part, by our disclosure of internal control weaknessesin these processesduring hearings before your Subcommit- tee on April 17,198g.l During those hearings and in an earlier report,* we indicated that inadequate controls over the automated tracking of pre-numbered collection documents and untimely reconciliation of col- lections to bank deposits may have contributed to $4.2 million in thefts that remained undetected for lengthy periods of time-in one casefor nearly a year and in another for more than 2 months. Accordingly, you requested that we conduct a comprehensivereview of these two areas. As agreed with your office, we initiated a review of Customs’ internal controls related to the use of pre-numbered collection documents and the processesused for reconciling collections to bank deposits. Although our review is still underway, several important and disturbing facts have cometo our attention regarding Customs’ use of pre-numbered col- lection documents at ports of entry. For this reason we are providing you with the results of our work in this area earlier than previously planned so corrective actions can be taken as soon as possible. Our work relating to reconciliation of collections to bank deposits is continuing, and we will report on that work at a later date. At 300 ports of entry (including airports, seaports, and land border crossings),over 8,000 Customs inspectors, tellers, and other employees collect duties on imports and goods brought into the country. These employees also collect taxes, fees, fines, and penalties. Often the duty and other collections are paid in cash or with a check and recorded using *Intemal Control Weaknesses in Customs Revenue C&xtion Process (GAO/T-IMTEC-89-5, April 17, lw39). *Customs Automation: Internal Control Weaknessesin Customs’ Revenue Collection F’rocess(GAO/ -60, April 11,198!3>. Page 1 GAO/MTEGBO-29 iMlectbm Vulnerable to Fraud and Abuse 5231311 pre-numbered collection documents. These documents serve as a receipt to the payer and a source for entering the transaction into Customs’ automated information system known as the Automated Commercial System (A@. Customs doesnot maintain records on how much of its collections are made using pre-numbered collection documents. At our request, Customs analyzed its computer records of fiscal year 1989 col- lections and estimated that between $600 and $700 million was collected using about 630,000 such documents. Becausecash collections (including checks) offer the potential for theft, fraud, and abuse,they must be carefully controlled. The basic control that Customs uses for cash collected by its employees is the pre-num- bered collection document. Pre-numbering these documents facilitates their control and each one is supposedto be accounted for in ACS. Docu- ments that cannot be located or otherwise accounted for could represent lost or stolen collections. Customs could be losing millions of dollars in duties and other collec- Results in Brief tions due to fraud and abuse becauseof an almost total breakdown of internal controls over its pre-numbered collection documents.Although the total is unknown, Customs estimates that several million collection documents could not be accounted for following nationwide inventories conducted in fiscal years 1987 and 1988. In addition, over the last 5 years, Customs’ National Finance Center (NFC) changed the status of nearly 5 million documents from “unused” to “used” in ACS.According to NFC officials, these changeswere made becausethey feared an astronomical growth in the number of unac- counted for documents when the next inventory was taken. In 98 per- cent of these cases,however, there were no collections recorded in ACS. One obvious implication of an “unaccounted for” document is that money could have been collected and subsequently lost or stolen along with the document. By changing the status of these documents to “used,” Customs exacerbatesthe problem becausemany of them may still be in the possessionof Customs employeesbut will no longer be tracked in m and are no longer considered a problem. This breakdown in internal controls could present a significant opportunity to misuse them without fear of detection. Also disturbing is that the Deputy Com- missioner and Comptroller of Customs told us they were unaware that nearly 5 million unaccounted for documents had been changedto a used status. Page 2 GAO/IMTEC30-29 Collection Vulnerable to kaud and Abuse __ 5231311 Several other internal control weaknessesat ports of entry have led to this breakdown in accountability over these documents.We visited three major ports accounting for about 12 percent of Customs’ total revenue in fiscal year 1989 and found poorly executed controls over the assign- ment of documents to Customs employees.For convenience,documents were assignedto groups of employeesinstead of to individual employees as required by Customs’ procedures. In addition, even though prudent management and Customs’ own policies call for timely investigation of unaccounted for documents, these investigations were done on a part- time, low priority basis. As a result, at the three ports we visited, about 67 percent of their unaccounted for documents as of December 1989 had been in this status for over 6 months. Under the Federal Managers’ Financial Integrity Act of 1982 (31 U.S.C. 3512 (1982)), agenciesmust establish internal controls to ensure that their missions and related activities are effectively carried out and to annually report weaknessesin these controls and the status of correc- tive actions taken. We believe the weaknessesin Customs’ internal con- trols over its collections using pie-numbered collection documents are sufficiently serious to warrant disclosure and corrective actions under the act’s provisions. It is possible that modern technology could be used in place of current pre-numbered collection documents to help control collections. For example, the ACSsystem has the capability to electronically “capture” collection information from cash registers at ports thus negating the need to manually record collection transactions on pre-numbered collec- tion documents. In addition, hand-held devices are available on the mar- ket to automate the revenue collection processin locations where there are no cash registers. Appendix I contains background information on the matters discussed in this report and details of our findings. Our objective, scope,and meth- odology are shown in appendix II. Conclusions and the staggering number of unaccounted for documents provide an enormous potential for abuse and cover-up. Widespread thefts and other fraud and abuse may be occurring. Accordingly, such weaknessesmate- rially affect Customs’ ability to carry out its mission and therefore should be reported under the Federal Managers’ Financial Integrity Act. Page 3 GAO/IMTECo-223 Collections Vulnerable to Fraud and Abuse B-331311 Given the almost complete breakdown in internal controls over pre-num- bered collection documents and the large thefts that have already occurred, prompt and vigorous action is needed. Modern technology could make the use of pre-numbered collection docu- ments obsolete. But technology alone cannot solve the problems we found with Customs’ control over collections. A careful assessmentof all controls is and will be needed,even with new technology, to assure that each collection is accounted for properly. We recommend that, in the short term, the Commissioner of Customs: Recommendations l Discontinue immediately the use of the current pre-numbered collection documents and convert to a new pre-numbered format that would clearly be a recognizable change in document design and/or color scheme.Brokers, importers, and others likely to do businesswith Cus- toms should be notified not to accept as a receipt for payment a collec- tion document other than one in the new format. l Enforce stringent internal controls over the assignment and use of the new pre-numbered documents.At a minimum, internal controls should be instituted so that documents can always be traced to the individual to whom assigned,all changesin the status of documents are properly jus- tified, and error reports on missing documents are promptly resolved. l Report the lack of internal controls over pre-numbered collection docu- ments as a material weaknessunder the Federal Managers’ Financial Integrity Act, and report the status of corrective actions taken. For the longer term, we recommendthat the Commissioner direct that an analysis be made of the collection processwith a view towards the possible use of modern information technology to eliminate the use of such documents, when feasible. The analysis should include a thorough risk assessmentto determine the vulnerabilities of any such technology and the establishment of appropriate internal controls to mitigate the vulnerabilities. As requested by your Office, we did not obtain formal comments from Customs on a draft of this report. We did, however, discuss its contents with the Deputy Commissioner and Comptroller of Customs. These offi- cials agreed that Customs faces serious internal control problems in its use of pre-numbered collection documents and stated that they were Page 4 GAO/TMTEC9tM3 C!allecdo~ Vulnerable to Fraud and Abuse B231311 unaware that nearly 5 million documents were converted to a used sta- tus without corresponding collections recorded in ACS.They also agreed with our recommendations, and stated that they would act upon them. The Deputy Commissioner also said that Customs would seek to estab- lish additional improvements in its internal controls over these documents. As agreed with your office, unless you publicly announce this report’s contents earlier, we plan no further distribution until 30 days after the date of its issuance.At that time we will send copies of this report to the Chairmen, House and SenateCommittees on Appropriations; Chairman, House Committee on Government Operations; Chairman, SenateCom- mittee on Governmental Affairs; and the Director, Office of Management and Budget. We will also send copies to the Secretary of the Treasury, the Commissioner of Customs and other interested parties. This report was prepared under the direction of Howard G. Rhile, Direc- tor, General Government Information Systems,who can be reached at (202) 275-3455. Other major contributors are listed in appendix III. Sincerely yours, Ralph V. Carlone Assistant Comptroller General Page 5 GAO/lMIWSO-29 tI!oUe&o~ Vulnerable to Fraud and Abuse Contents Letter 1 Appendix I 8 Background and Millions of Pre-Numbered Collection Documents 10 Unaccounted for and Status Improperly Changed Details of Our Other Internal Control WeaknessesOver Pre-Numbered 13 Findings Collection Documents Led to Unaccounted for Documents Control WeaknessesNeed to Be DisclosedUnder the 15 Federal Managers’ Financial Integrity Act Customs DoesNot Use Available Technology to Control 16 Cash Receipts Appendix II 17 Objective, Scope,and Methodology Appendix III 18 Major Contributors to This Report Table Table 1: Resolution of Unaccounted for Collection Documents Sampled in Fiscal Years 1987 and 1988 Inventories Figures Figure I. 1: Unaccounted for Collection Documents,Fiscal 11 Years 1987 and 1988 Figure 1.2:Percentageof Collection Documents Appearing 15 on December 1989 Error Reports Less Than/More Than 6 Months Page 6 GAO/lMTEGW-29 Collections Vulnerable to Fraud and Abwe Abbreviations AC3 Automated Commercial System GAO General Accounting Office IMTEC Information Management and Technology Division NIT National Finance Center p4w7 GAO-29 lhlkctio~~ Vdnemble to Fraud and Abuse Background and Details of Our Findings Customs has been developing and implementing its ACS since 1984. This system is aimed at integrating all of Customs’ commercial operations to aid Customs in inspecting merchandise imported into this country and collecting related duties, taxes, fees, fines, and penalties. In fiscal year 1989, Customs collected nearly $19.1 billion in duties, fees, fines, and other charges. Most of this represents duties on large imports. Each large import enters the United States through a processknown as a formal entry. In this process,most brokers and large importers elec- tronically transmit information to ACSon the type and quantity of mer- chandise being imported, along with an estimate of the associated duties, taxes and fees. These transmissions are made in advance of the cargo’s arrival. Generally, payments must be received by Customs within 10 days after the imported merchandise has been released into the commerceof the United States. A portion of the $19.1 billion was collected from importers and the gen- eral public and consists of taxes, fees, fines, penalties, and duties on small imports and on goods brought into the country by airline and ship passengers.* In contrast to the formal entry process,these amounts are not always entered into ACSprior to payment and are usually in the form of small checks and currency. Often these collections are recorded first on pre-numbered collection documents’ by Customs’ inspectors, tellers, and other employees before being entered into AB, Customs’ records indicate that approximately 630,000 pre-numbered collection documents were used in fiscal year 1989. However, Customs does not maintain records on how much of its collections are made using these documents. At our request, Customs analyzed its computer records of collections made with pre-numbered collection documents. Between $600 and $700 million of the $19.1 billion collected in fiscal year 1989 was collected using such documents. Document numbers are entered into ACSwith the amount collected so documents missing from the sequencecan be (1) identified on monthly error lists, (2) researchedto determine the causefor the discrepancy, lPassengers and importers receive a cash register receipt at those ports that have registers. When a register is used, prenumbered collection documents are used to summarize the amounts collected during a work shift. “Customs uses two documents for this purpose. The most frequently used is the Cash Receipt (CF- 5104) which is used primarily for recording taxes, fees, passenger duties and any collection where there is no other designated form for the particular type of collection involved. The other document is called an Informal Entry Form (CF-6119-A). This is used to record collections of duties and other amounts due from importers and brokers on imports vahxd at $1,260 or less. Page g GAO/IbiTEGB@Z9 Ckdlectlom Vulnerable to Fraud and Abuse and (3) removed from the error list after the discrepancy has been resolved. Customs has had problems using and controlling pre-numbered collec- tion documents. For example, in our report and testimony in April 1989 on Customs revenue controls, we cited a major fraud at a Customsport involving repeated thefts of collections over almost a l-year period totaling nearly $840,000. The thefts, which occurred at the Los Angeles International Airport, were accomplished by a former Customs’ supervi- sory aide who failed to deposit funds received, and either falsified or destroyed pre-numbered collection documents tocover up the thefts. A Customs Internal Affairs investigation concluded that several internal control weaknesses,including failure to resolve discrepanciesshown on error reports of missing collection documents, created an environment which contributed to the thefts not being detected by Customs.3In this case,the fraud was detected only after a passengercomplained to Cus- toms about not receiving a canceledcheck. The subsequentinvestigation by Customs Internal Affairs disclosed the magnitude of the fraud. The employee has since been convicted and sentencedand procedures at Los Angeles have been changed to prevent the reoccurrenceof a similar scheme. The following sections in this report discussthree major internal control breakdowns in Customs’ use of pre-numbered collection documents. Mil- lions of documents were unaccounted for and their status improperly changed as a result of Customs’ nationwide inventories conducted in 1987 and 1988. Also, at the three major ports we visited-JFK airport, New York; New Orleans seaport, Louisiana; and San Ysidro land border crossing, California-we found poorly executed controls over the assignment of collection documents to Customs’ employeesand low pri- ority given to resolving unaccounted for documents. These three ports accounted for about 12 percent of Customs’ total collections in fiscal year 1989. 3Durlng the past several years, customs’ Office of Internal Affairs has produced numerous reports that criticized weakneses in the controls over pm-numbered collection documents and noted that such weakneses contributed to thefts and losses of revenue. Pye 9 GAOfMTE4XGBB Cdleetlona Vulnerable to Fraud and Abuee Appendix I ISac~andDetailsofOur~~ A basic tenet of good accounting controls over the handling of cash col- Millions of Pre- lections is the use and proper control of pre-numbered collection docu- Numbered Collection ments. However, we found a significant breakdown of this basic internal Documents control. According to Customs, millions of unused pre-numbered docu- ments could not be accounted for following annual inventories in fiscal Unaccounted for and years 1987 and 1988. In addition, over the last 5 years, Customs Status Improperly changed approximately 4.8 million documents to a used status without evidence in ACSthat any funds were actually collected. Customs made Changed these changesto avoid increasesin the number of unaccounted for docu- ments. Although we have not determined if the abuseof pre-numbered documents has resulted in widespread fraud, the lack of effective con- trols and the fact of previous thefts signal its potential. Millions of Documents In fiscal years 1987 and 1988, Customs’ NE conducted nationwide Unaccounted for inventories of its pre-numbered collection documents on a district-by- district basis.4Each district was requested to conduct an inventory and forward the serial numbers of all documents in its inventory to NFC. NIX entered the serial numbers into ACSfor comparison with ACSfiles con- taining each document’s assignedlocation and status. From this compar- ison, discrepancy reports were generated that listed (1) unused documents that were assignedto a port but not in the port’s reported inventory, (2) documents that were not assignedto a port but were in the port’s reported inventory, and (3) documents that were assignedto one port but reported as used by another. From this initial comparison, millions of documents had to be researchedand reconciled. The inventories conducted in 1987 and 1988 disclosed that Customs could neither locate nor otherwise account for a sizeablenumber of doc- uments. m does not retain past inventory results, and the hard-copy inventory reports were at each of Customs’ nearly 300 ports of entry in a format which neither Customs nor GAO could readily summarize. Accordingly, we did not obtain the number of unaccounted for docu- ments nationwide or on a port-by-port basis. However, NIT officials and staff researching the inventories said the number nationwide was in the millions. 4A nationwide inventory on a region-by-region basis was attempted in the early 1980s before the establishment of NE. The inventory was never completed due to what was described by Customs officials as “coordination problems” between Customs’ Headquarten and the seven Customs regions in forwarding and receiving information on document discrepancies. The results of the 1989 inven- tory were not available at the time of our review. Page 10 GAO/IMTEG90-29 cOUecXiona Vulnerable to Fraud and Abuse Our review of hard-copy inventory records for the 3 ports we visited showed unaccounted for documents totaling 306,604 and 14,799 for fis- cal years 1987 and 1988. A large number of unaccounted for documents suggeststhat money could have been collected and later lost or stolen along with the associatedcollection documents. As shown in Figure 1 below, the number of unaccounted for documents declined significantly in fiscal year 1988. But, as discussedin the next section, this decline was mainly attributable to unsubstantiated changesor adjustments made by NFC. Figure 1.1: Unaccounted for Collection Dbments, Fiacel Years lSM7 end 190 11 (h-1 120 110 100 00 00 70 00 50 40 30 20 10 0 Page 11 GAO/IMTEGB@2@ Ck&ctio~ Vulnerable to Fraud and Abuse Background and Details of Our Fkdhga Status of Unaccounted for To determine how the status of those documents identified as unac- counted for on inventory discrepancy reports was resolved, we ran- Collection Documents domly selected a sample of 50 documents for each port from the fiscal Improperly Changed to years 1987 and 1988 inventory discrepancy reports-a total of 300 doc- Appear as If Properly uments. For each document, we researchedcomputerized ACSfiles and Used or Canceled NFC hard-copy files. Our purpose was to determine how the discrepan- cies were resolved and the basis for any revisions. We found, as shown in Table 1, that 72 percent of these documents were changed to a used status or canceledas of September 1989. Table 1: Resolution of Unaccounted for CoMedon Documents Sampled in Fiscal NOW San Total Years 1987 l nd 1988 Inventories Resolution JFK Orleana Ysidro Number Percent Unused 25 20 0 45 15 Used 5 31 2 38 13 Changed to used 42 49 97 188 62 Canceled 28 0 1 29 10 100 100 100 300 100 The 38 documents listed as used appear to have been used properly. However, of the 188 documents changed to a used status, we found no supporting collection data in the computerized MS records or in the hard-copy files at NFC. In addition, of the 29 canceleddocuments, 27 or 93 percent did not have supporting documentation-copies of the can- celed documents in the NFCfiles-to show that they were properly accounted for. Becauseof the significant number of pre-numbered collection documents in our sample that were either changedor canceledwithout supporting documentation, we queried the MS system to determine how many docu- ments throughout all of Customs had been changedto used or canceled during the past 5 years. We also determined how many of those that were changed to used had corresponding collection data recorded in ACS. We found 8.3 million documents identified by MS as having been either used or canceled for the period October 1984 to September 1989. Of these, 4.8 million (57 percent) had been changedto a used status; only 83,000 or about 2 percent of the 4.8 million had collections recorded in Aa. NFC officials, who were responsible for making the above changes,said that the changeswere made to lower the overall number of unaccounted for documents. They explained that the massive number of unaccounted Page 12 GAO/IIblTECW22 Coll&ons Vulnerable to Fraud and Abuse ApjmulIxI BackgmMandDetatlsiofChuIhdingm for documents, coupled with the failure on the part of ports and dis- tricts to locate them during the annual inventories, would otherwise result in an astronomical increase.NFC staff acknowledged that no col- lection data were available to support most of the changes,but that many changeswere requested in memorandums from Customs districts. These memorandums indicated that the documents or copiesof them were no longer available at the ports and directed that such changesbe made. The Chief, NFC RevenueBranch, explained that in fiscal year 1987, NFC began requesting the districts to prepare such memorandums as a basis for making the changes. Without evidence in the form of collections recorded in ACSor in the hard-copy NFC files that collections were actually made, many docu- ments changed to a used status or canceledmay still be in the possession of Customs employees.The documents will also no longer appear on inventory discrepancy reports. In addition, if an attempt is made to enter into ACSa document previously changedto used, the system will alert the user that the document was already recorded as used, thus offering an additional opportunity for abuse.This breakdown in internal controls provides an unparalleled opportunity to misuse these docu- ments without detection. The high number of missing or unaccounted for pre-numbered collection Other Internal Control documents was the result of other major breakdowns in Customs’ inter- WeaknessesOver Pre- nal controls. These include (1) poorly executed controls over the assign- Numbered Collection ment of unused pre-numbered collection documents to Customs employees, and (2) the low priority given to resolving unaccounted for Documents Led to documents at ports. Unaccounted for Documents Procedures Not Followed The NFC is responsible for distributing pre-numbered collection docu- for Assigning Documents ments to districts and ports. Accountability and use of these documents are tracked through XS. Customs’ Policies and ProceduresManual, 5311.9B, dated December3,1984, requires that each district and port designate a forms issuanceofficer responsible for issuing pre-numbered collection documents, maintaining a log of the documents issued for use, and receiving and reviewing record copies of used documents. The man- ual states that the log should include the numbers of the documents issued and the signature of the employee to whom issued. To assure Page 12 GAO-29 CLdkctiona Vulnerable to Fraud and Abuse Appendix I Background and Details of Our Pindings accountability for the documents and money collected using them, the manual also states that the documents are to be under the personal con- trol of an employee and shall not be issued to a dock or desk, such as a passengerprocessingdesk. Also, the documents are not to be loaned or transferred between employeeswithout authorization. Customs is not following these procedures. At two of the ports we vis- ited, books of pre-numbered collection documents were not being issued to individuals as required by Customs’ policies. At the San Ysidro land border crossing, books of collection documents were being issued to the passengerprocessingdesk where several inspectors used the samebook. At the New Orleans Customshouse,books of the documents were being issued to a division. In both instances, port officials said this was done for convenienceand to reduce the manual record-keeping resulting from assigning documents to individuals. We also found the three ports we visited were not using ACSto track the assignmentof documents to indi- viduals, although A@was designedto perform this function. Instead, NE used the system to record the assignment of documents only at the district or port level. Port officials said that, becausem is limited to tracking document assignmentsto individuals using only a 5-digit number, they did not use this system feature. They suggestedredesign- ing the system to use nine digits to track document assignments through employees’ Social Security numbers. Customs plans to modify the AC% system to accept a nine-digit employee identification number by June 1990. Law Priority Given to According to Customs’ policies and procedures, district and port direc- tors are responsible for reviewing ACSerror reports identifying unac- Resolving Monthly Error counted for collection documents. These monthly reports identify Reports missing documents and documents used out of sequence.Section 5311.9D of Customs’ Policies and ProceduresManual states that these “reports are to be verified on a timely basis by an assignedresponsible employee....” However, at the ports we visited, personnel assigned to investigate error reports said they had other duties and did not consider the error reports a high priority. At the San Ysidro port the responsibil- ity for investigating error reports was assigned to a cashier; howwer, the cashier was not able to work on the report becauseof other tvork- load responsibilities. At the two other ports visited, we were told that work on the report is done only on a part-time basis. Becauseof t he low priority accordedthis task, documents remained unaccounted fc)I‘over Page 14 GAO/MTECBG22 cOllectionr Vulnerable to Fraud and Abuse . Appendix 1 BmkgmmdandDetailoofOurPin~ long periods of time. As indicated in Figure 2, most of the 660 docu- ments on the December1989 error reports for these ports were unac- counted for longer than 6 months. Figun 1.2: Pwcentago of CoUoctM Docunrmta Appuring on Docembw l## Error Reporta Lmu Than/Mom Than 218 documen!s appeared on error 6Montho I reports for 6 months of less 442 documents appeard on ermr reports for more than 6 months Selected Customs ports of entry: JFK, New Orleans, and San Ysidro The internal control weaknessesidentified during our review-a pre- Control Weaknesses ponderance of unaccounted for collection documents coupled with the Need to Be Disclosed improper changeof millions of these to a “used” status, the failure to Under the Federal follow required procedures in assigning documents, and the low priority given to resolving monthly error reports-impair Customs’ effective- Managers’ Financial nessin collecting taxes, fines, penalties, and duties on small imports and Integrity Act goods brought into the country by airline and other passengers.These are the kinds of problems that require review, disclosure, and corrective actions under the provisions of the Federal Managers’ Financial Integ- rity Act. Agencies must establish a system of internal controls to ensure that their mission and related activities are carried out. This includes annually reviewing their internal controls and reporting any weaknesses identified in these controls along with the status of corrective actions. Customs did not disclose these weaknessesin its annual report for fiscal year 1989. Page 15 GAO-22 CdlectioM Vulnerable to Fraud and Abuse A~pe* I BackgmdandDe!tauaofoluPindlnga In developing ACSbeginning in 1984, Customs continued the use of pre- Customs Does Not Use numbered documents to control collections, although other processes- Available Technology such as selecting cargo for inspection and releasing inspected cargo- to Control Cash were being automated. According to Customs,the automation of these processeswas its highest priority. As a result, KS doesnot yet use mod- Receipts ern technology to control collections. For example, the cash registers used at ports to collect revenues can electronically transmit collection information directly to m, thus eliminating pre-numbered documents and the opportunity to use them fraudulently at these locations. Instead, the cash registers are used to maintain a register tape of daily transac- tions. This tape is used as the basis to manually prepare a pre-numbered collection document which, in turn, is used to manually enter the amounts collected into ACS. Modern technology can also be used instead of these documents where collections are made by an inspector who is far from a cash register. For example, at least three companies manufacture hand-held devicesthat can be used to automate the revenue collection process.These devices, which are used in various businessand government applications such as billing and collecting automobile rental fees and inventory control, can electronically produce a cash receipt; and could store the collections data and transmit the collection information directly to ACS.Their use could therefore eliminate the need for processingpre-numbered collec- tion documents, which is both labor-intensive and difficult to control. Page 16 GAO/IMTECtMMiB CdleetioM Vulnerable to Fraud and Abuse Appendix II Objective,Scope,and Methodology Cur objective was to assessthe controls over Customs’ use of pre-num- bered collection documents at three ports of entry. Customs’ field struc- ture consists of 7 regions, 44 districts, and approximately 300 ports. We visited ports in three geographically diverse regions: New Orleans, Loui- siana; San Ysidro/Otay Mesa’, California; and JFK International Airport, New York. These ports include a seaport, land border crossings,and an airport; they accounted for $2.3 billion or 12 percent of Customs’ $19.1 billion in revenue for fiscal year 1989. At each port, we conducted a data flow analysis. The purpose of the data flow analysis was to document the use of and assessthe internal controls over pre-numbered collection documents at each point in the revenue collection process.We also obtained and analyzed Customs’ monthly error reports dated December31,1989, to determine the age of the discrepancies shown on the reports. These reports show missing doc- uments and those used out of sequence.We also sampled, for the three ports visited, 300 documents listed as discrepancieson Customs’ fiscal years 1987 and 1988 inventory discrepancy reports. We followed up at each port and the National Finance Center to assessCustoms’ efforts to account for documents identified in these reports. In addition, we obtained a copy of an ACSautomated file listing the status of pre-num- bered documents. For documents that were adjusted to a used status from October 1984 to September 1989, we asked Customs to provide us with ACScollection data to determine the number having revenue collec- tions associatedwith them. To determine Customs’ policies, practices, and procedures regarding the use and tracking of pre-numbered collection documents, we interviewed officials at Customs headquarters in Washington, DC. and the National Finance Center in Indianapolis, Indiana; and reviewed documentation furnished by them. We also interviewed Customs employeesinvolved in the distribution, maintenance, storage, and use of these documents at the three ports visited. Cur work was performed in accordancewith generally acceptedgovernment auditing standards, from May 1989 to January 1990. ‘Although San Yaidro and Otay Mesa are separate border crossings, they are classified as a single port by Customs for acamting purposes. Page 17 GAO/JMTECBO26 C!oUec&na Vulnerable to Fraud and Abuse Appendix III . Major Contributors to This &port Thomas E. Melloy, Assistant Director Information David B. Alston, Evaluator-in-Charge Management and Joyce A. Keyes, Evaluator Technology Division, Washington, DC. Roberto Rivera, Evaluator Cincinnati Regional Katrina Stewart, Evaluator Office James D. Moses,Evaluator Los Angeles Regional SusanAbdalla, Evaluator Office New York Regional Allen W. Gendler, Evaluator Office (510437) Page 18 GAO/IMTEW@28 Collectiona Vulnerable to Fraud and Abuse
Customs Automation: Duties and Other Collections Vulnerable to Fraud and Abuse
Published by the Government Accountability Office on 1990-02-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)