oversight

Oversight Hearings on Asset Forfeiture Programs

Published by the Government Accountability Office on 1990-07-24.

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

                      United !%ates General Accounting Once
                      Testimony
GAO               .

For Release           Oversight   Hearings
on Delivery           on Asset Forfeiture    Programs
Expected at
9:30 a.m. EDT
July 24, 1990




                       Statement of
                       J. William Gadsby
                       Director,  Federal Management Issues
                       General Government Division

                       Before the
                       Committee on Governmental   Affairs




                      04% /!ff@G-
GAO/T-GGD-90-56
                                                                              \    --




          OVERSIGHTHEARINGSON THE DEPARTMENTOF JUSTICE'S
     AND CUSTOMSSERVICE'S "HIGH-RISK" ASSET FORFEITURE PROGRAMS
                          SUMMARYOF STATEMENTBY
                            J. W ILLIAM GADSBY
                    DIRECTOR, FEDERALMANAGEMENT  ISSUES
                        GENERALGOVERNMENT DIVISION
GAO is testifying     on the need to enact a series of legislative
and administrative      changes to strengthen   the operations     of the
Department of Justice's      and the Customs Service's     billion   dollar
asset forfeiture     programs.    Specifically,   GAO recommends
legislation    designed to

--   allow millions      of dollars   in uncontested seized cash to be
     put to use sooner by utilizing          administrative   forfeiture,
--   strengthen     the internal    controls    and financial  reporting      by
     requiring    audited financial      statements consistent      with
     Comptroller     General standards,      and
--   accelerate     the sale of forfeited       real property by
     guaranteeing      (warranting)   purchasers against title        defects
     resulting    from the forfeiture       proceedings.

GAO also recommends that Justice and Customs strengthen        the
monitoring    of existing  policies  to ensure prompt deposit of
nonevidentiary    cash.   They also need to work aggressively     toward
resolution    of m&nagement information   system deficiencies.

Finally,     oversight     involving Congress, GAO, Justice, and Treasury
would help ensure        that the asset forfeiture  programs operate
effectively.
Mr. Chairman and Members of the Committee:

                  .
We are pleased             to be here today             to discuss        the asset          forfeiture
programs of the Department                     of Justice        and the         Customs      Service.
As you know, these                 programs have been identified                     by the
Comptroller            General      as a high-risk            area warranting              special     audit
effort.        Today I will           highlight         why we identified             the asset
forfeiture            programs      as high-risk,         address        the status          of efforts
to fix       the problems           confronting         them, and discuss             program
oversight.


In the Comptroller                 General's      January       1990 letter          to the Chairman,
he identified             seized     and forfeited            assets     as a "high-risk"              area
because it            had been characterized              by mismanagement and internal
control       weaknesses.            More     specifically,            the programs          had:


--    experienced           enormous growth             in seized        asset     inventories            as
      reported          by Justice          and Customs (from            $33 million           in    1979      to

      $1.4 billion           in 1989);
Be    a history          of debilitating            internal      control         problems          leading
      to mismanagement of seized                     cash;      inaccurate         reporting          on the
      financial          results      of program operations;                 and an inability                  to
      maximize          revenues      on hundreds         of millions         of dollars'             worth
      of seized          cars,      boats,     airplanes,        and real         estate;       and
--    a lack          of staff      with     property     management expertise.



1
We also     noted      that     these programs            had been the subject              of
considerable         press      attention,          due primarily       to their         link     with
the highly      visible         war on drugs.


PRIOR PROBLEMSCONTINUE
TO NEED ATTENTION


Over the past 9 years,                GAO has identified             numerous problems                in
Justice's      and Customs'             asset      forfeiture     programs.1           While      a
number of      improvements             have been initiated,            several         areas warrant
further     attention.           They are          (1)   cash management,          (2) management
information      that         includes       the preparation         of financial
statements,         (3)   staffing,          and (4) real        property      title       insurance.


Cash Management Problems Continue


We first      reported         on serious          cash management problems                in    1987.

Subsequently,          Justice        and    Customs      both   took   actions         to address
many of these          problems.            But,    as we recently       reported          to this
Committee,      the process             used to forfeit          uncontested           cash seizures
of over     $100,000          remains       unnecessarily        cumbersome and untimely,
and both agencies              continue         to unnecessarily        hold      seized        cash for
evidence.




1See appendix for complete listing                         of GAO reports          and testimonies
on the asset forfeiture  programs.
2
Current        law allows          the seizing               agencies          to administratively
forfeit        cases,      including          cash,          of     $100,000           or less.             Generally,
this      type of proceeding                 is used on              most      smaller           cases,        such as
cars,      boats,        and planes.               For amounts              above       $100,000            and for       all
real      property,        the cases are handled                        judicially               by    U.S. Attorney
offices        and the courts.


Historically,             73 percent          of      all     seized         cash has been forfeited
judicially           even though           the forfeiture                   was uncontested--that                        is,
no one       came     forward       to claim           the money.                   Judi;cial         forfeiture          is
more      cumbersome        than         the administrative                    process,           requires          more
staff      time,      and takes           longer--          about     7 months longer                   at     Customs

and 4 months longer                 at Justice.                    We asked attorneys                   at Justice
and     Customs,         as well         as judges           who preside              over       judicial
forfeitures,             what they         thought           of widening               the      use    of
administrative             forfeiture.                They agreed              it      would      be    a    much     better

use     of resources         with         no adverse               impact      on individual                 due
process        rights.


Justice        and    Customs,       as     of December                1989,         had     about      $557       million
in seized          cash undergoing                 forfeiture.               By changing               the law to
permit       administrative               forfeiture               of all      uncontested              cash
seizures,          an estimated            S406 million               could          be forfeited              months
earlier        and put to          use     quicker.


We first        recommended in April                        1989     that      the law be changed to

3
  permit      the administrative             forfeiture             of all      uncontested         cash
  seizures.        We continue          to believe           this     recommendation             needs to be
  implemented.           H.R. 1594, currently                  pending        before      Congress,
  contains      such a provision.


  Another      nagging      cash management issue                    is the problem             of agencies
  unnecessarily          holding      seized        cash for         evidence         purposes.       We have
  reported      on this       issue     several       times         since     March 1987.           Both
  agencies      have established             policies          to minimize            holding     cash
  unnecessarily,           but,     while    the situation             has improved,             problems
  remain.


  Basically,       each agency's            policy      says that            within     60 days of
  seizure,      cash will          be deposited         into        the agency's          holding     account
  unless      the specific          currency        seized      is needed as evidence,                   for
  example,      because       it    has defendant            fingerprints             on it.      Decisions
  to hold cash for            evidence       rest     with      the seizing            agencies      and U.S.
  Attorney      offices.           Department        of Justice             headquarters         approval       is
. required      to hold       seizures       of $5,000          or more.


  When we asked how much seized                      cash was being              held     as evidence          in
  February      1990, we found that                 Customs was holding                 about $36
  million      nationwide.           And of this          amount,           about     $31 million
  involved      seizures          of $5,000 or more that                    had been on hand for
  more than 60 days.                About $19 million                of the $31 million              was in
  Miami,      New York,      and Los Angeles.,                 Further        inquiries         in these

  4
locations          showed that             about half              of this         money was not needed for
evidence         and should              have been deposited.                        Deposits            totaling           about

$10    million       were made following                          our     inquiries          at these            locations.
At the      time     of our inquiries                  at Customs,                  Justice        did     a     similar

follow-up          with     its     agencies          that         resulted          in the identification
and deposit          of another                 $16 million.


Justice      has reminded                 its     employees of its                   policy         on holding              cash
as evidence.               Customs revised                  its         seized      cash directive                in June
1990    requiring           more communication                          between      its     offices           and U.S.
Attorney         offices.           But,         because these               problems         have been
recurring,          we recommended in our June report                                       that     Justice           and
Customs routinely                  monitor         the holding              of seized              cash for
evidentiary          purposes.


Manauement Information                          Deficiencies


Inadequate          management information                              has also been a long-standing
problem       in the seized                assets      programs.                 For example,               in March
1986 we reported                  that     the internal                  controls          over millions               of
dollars'         worth of seized                  assets          was deficient              because Justice's
accounting          system did             not provide                  accurate      and timely               data.         In
September          1987,     we reported              (1)         inventory          data on real                property
were inaccurate              and incomplete,                      (2) legal          and other            file
documentation              on properties              were missing,                  and (3) internal
controls         over properties'                  expenses were inadequate.                               We pointed

5
out     that        these        inadequacies           hampered informed              decision-making                 and
were contributing                    factors      in the seizing            of properties                with     low
equity            and delays         in disposing            of property.          We recommended that
the Attorney                General          improve the adequacy and accuracy                           of the
data.             Additionally,              Marshals      Service      audit     reports            covering
1985         to    1989     reveal       consistent          problems      with    inaccurate             and
incomplete                inventories,          records,       and case-file            documentation.


A     1989        assessment         of the current            asset      forfeiture         case tracking
system done by Justice                         showed that        program data           continued              to be
inadequate.                 The review          identified        three     problem         areas:
(1)     important            data were not captured,                    (2) data validity                 was
erratic,             and (3) data             were not timely.             An April         1990       report         by
Justice's             Office       of Inspector            General      noted     similar            deficiencies.
Thus, program managers continue                               to manage hundreds              of millions                  of
dollars'            worth        of seized       property       with      inaccurate         and incomplete
information.


Some         of the information                 deficiencies           we observed          at Justice            are
also         present        at    Customs.         For example,           in October         1989,        we

reported             that     because of information                   deficiencies,            it     was
impossible                to accurately          determine        how much money             Customs            was

making or losing                   from the sale of forfeited                     noncash assets.


Both agencies                have actions           underway to correct                 these         problems,
but     resolution.is                still      several       years away, particularly                       at

6
Justice.        The Attorney              General         is conducting              a requirements
analysis       and feasibility                 study      to build          a new         system.          Customs       is

in the process            of integrating                and modifying               its        current
information           systems.



In addition           to systems           improvement,             both agencies                have also
initiated,        with     our assistance,                    efforts       to prepare              financial
statements        for     their         forfeiture            programs       that         would      be    capable      of
withstanding            independent            audit.          These statements                  can help         to
                                                                 .

--   more     accurately          report        forfeiture              program results;
-- more accurately                determine           program cost effectiveness;                            and
--   limit     the     exposure          to fraud,            waste,      and mismanagement.


While current            Justice         and    Customs         officials           seem        committed         to
preparing       these      statements,               fixing       their      current            financial
reporting       systems          will     take time.              Therefore,              to ensure
continuity,          we recommended in June                       1990      that     Congress             enact    a
statutory       requirement              for    Justice         and      Customs          to   produce       a set of
annually       audited       financial             statements.              H.R.     1594        contains         such a
provision       for     Customs,          but similar             legislation              has not yet been
introduced       for      Justice.


As part       of the effort              to produce            annual       financial            statements,           the
agencies       need to establish                 data     systems           capab,le of providing
complete,       timely,          and    accurate         program          information.

7
Lack of Adequate              Staff


In March 1986, we reported                      that     the Marshals            Service     was having
difficulty         accepting          custodial         responsibilities             for    seized
property        because of inadequate                   staffing.       The Marshals            Service
has custodial          responsibility               for virtually          all     Justice      seizures.
In September          1987, we said that                 the Marshals            Service     may not have
had adequate          staff      to effectively              manage the program.


Over the last          5 years,         the staff          resources       the Marshals           Service
has devoted         to its       seized     property            program has remained              constant
at 240 full-time              equivalent           positions.         At the same time,                the
number of property               seizures          has increased           from 3,664 in 1985 to
27,530         as of December 1989.                 During       the same period,            the value            of
the on-hand         property          went from $300 million                  to nearly        $1 .l
bill    ion.      Justice      expects       its       volume of seizures             to continue            to
grow.


The President's             fiscal      year       1991 budget        proposes        an additional
134 positions          to support          the Marshals             Service       seizure     program.
The Marshals          Service         intends       to use almost          all     of these
positions         in the field          to hire         procurement        clerks,         property
management specialists,                   and Deputy Marshals.                    Given the program’s
growth,         we do not question              the need for          additional           resources.
Title      Insurance            Problems
Inhibit        Disposal


In September             1987,      we reported           that         the Marshals              Service       was
experiencing             real     property           disposal          delays         because      of
difficulties             in obtaining           title         insurance.                At that      time,         we

recommended that                 Justice      consider           alternative                 measures        for
resolving        title          insurance       companies’              reluctance              to insure
forfeited        real       properties.               The title           insurance             industry       wanted
the government              td guarantee              the purchaser                  reimbursement            for       any
title     defects         arising        from the processing                      of the forfeiture.


In April        1989,       we again         reported           that      the Marshals             Service          was
experiencing             title-related               delays      and recommended that
legislation         be      enacted         guaranteeing               clear         title      to individuals
who acquire         civilly          forfeited           real      properties.                  We noted then
that      the concerns            of the title            industry,             at best,          lengthened
processing        time by requiring                     more documentation,                      and, at worst,
lowered        the market           value     of the property                   if      it    was sold without
title       insurance.


Our work this             year with          title       industry          officials,             Justice
attorneys,        and Marshals               Service          officials              suggests       that      the
situation        is unchanged.                For example :


-- The American                 Land Title           Association           told         us that      the general

9
     counsels       of the five          largest  title    insurance companies have
                                                .
     expressed       reluctance          to insure civilly      forfeited property.


--   In February       1990, the U.S. Attorney,                            Eastern        District         of
     Texas,     reported       that      the title             insurers          were concerned             about
     the finality         of civil         forfeiture            and were reluctant                     to issue
     title     insurance.         As a result,                 properties           are being           sold at
     below fair       market      value.


--   In Miami,       a Marshals          Service         official           said     that        a title
     guarantee       would have helped                   to speed up the sale of 52 of the
     88 properties          disposed           since     October           1,    1989.



--   In California,           the U.S. Attorney                  office          in San Diego reported
     that     the sales       of about 6 civilly                    forfeited            properties         were
     delayed     during       fiscal       year        1990,     and probably               25 to 30 other
     sales     were delayed           during      the last           3 years,            because of
     concerns       about     the forfeiture               proceeding.


For other       views concerning                our recommendation,                      we asked Justice
and title       industry       officials          about         the advisability                  of
guaranteeing         purchasers          reimbursement               for        any title         defects
resulting       from the forfeiture                    process.           Both groups             support       the
recommendation.              Therefore,          we continue               to believe            that
legislation         should     be enacted              giving       the Attorney                General
discretion       to warrant            clear     title         to forfeited              real     property.

10
 NEED FOR STRONGOVERSIGHT CONTINUES


 As     illustrated            in the preceding                  sections,       most of these problems
 have existed            for     several         years.           Solving       them-- particularly                  those
 related       to information                  systems--will            also      take     years.         NOW that

 the problems           have been identified                         and corrective          actions        have
 been started,               effective          oversight            is needed to see these problems
 through       to resolution.                   Such oversight               should       involve      Justice         and
-Treasury        Inspectors             General          (IG),       Congress,        and GAO.


 We plan       to continue              our     oversight            through      three     reviews        looking
 at (1) internal               controls          over sales            of forfeited          property           to
 insure      they are "arms-length"                        transactions,              (2) the management of
 commercial           real     property          seizures,            and (3) a comparison                 of
 Justice's        and        Customs’          cost of managing                seized      property.


 In addition           to our efforts,                   in June       1990,     the Office          of
 Management and Budget                        (OMB) issued            a series      of policies            that
 addressed,           among other              things,       linking         the resolution            of high-
 risk      areas to the Financial                        Integrity       Act process           and calling             for
 the IGs to play               a role          in validating            corrective          actions.            We
 endorse       the OMB policies.                    The IGs should               also      work closely              with
 their      respective           agencies          to strengthen               financial       reporting.


 Finally,       through          passage of recommended legislative                                 changes and

 11
continued      oversight hearings,  Congress     can help       assure   that    the
                .
forfeiture      programs operate effectively         and that    program profits
are maximized.




This concludes      my prepared   testimony,   Mr.     Chairman;    I will      be
pleased      to answer any questions    that   you or Members of the
Committee may have.




12
APPENDIX                                                      APPENDIX
                     GAO REPORTSAND TESTIMONIES ON
                     ASSET SEmES   AND PO-

1.   Asset Forfeiture:   Legislation Needed To       GAO/GGD-90-94
     Improve Cash Processing and Financial           June 19, 1990
     Renortina
2.   Asset Forfeiture:   Helping Finance      the    GAO/GGD-90-OlVR
     War on Drugs (Video Report)                     October 1989
3.   Statement of Richard L. Fogel Before            GAO/T-GGD-90-1
     the Subcommittee on Oversight,        House     October 10, 1989
     of Representatives,   on Profitability
     of Customs Forfeiture   Program Can Be
     Enhanced
4.   Statement of Gene L. Dodaro Before              GAO/T-GGD-89-17
     the Subcommittee on Crime, House                April 24, 1989
     of Representatives, on Asset Forfeiture:
     An Update
5    Statement of Gen-e L. Dodaro Before             GAO/T-GGD-88-41
     the Subcommittee on Federal Spending            June 23, 1988
     Budget and Accounting,   United States
     Senate, on asset Forfeiture    Programs:
     Progress and Problems
6.   Statement of Gene L. Dodaro Before              GAO/T-GGD-88-16
     the Subcommittee on Crime, House of             March 4, 1988
     Representatives,   on Asset Forfeiture
     Programs: Corrective    Actions Underway
     But Additional   Improvements Needed
7.   Seized Conveyances:   Justice and Customs       GAO/GGD-88-30
     Correction of Previous Conveyance               February 3, 1988
     Management Problems
8.   Statement of Gene L. Dodaro Before the          GAO/T-GGD-87-28
     Subcommittee on Federal Spending,               September 25, 1987
     Budget and Accounting,  United States
     Senate, on Real Property Seizure and
     Disposal Program Improvements Needed
9.   Statement of Gene L. Dodaro Before the          GAO/T-GGD-87-27
     Subcommittee on Federal Spending, Budget        September 25, 1987
     and Accounting,    United States Senate,
     on Asset Forfeiture     Funds:  Changes
     Needed to Enhance Congressional     Oversight

13
    APPENDIX                                                            APPENDIX
    10.   Statement of Gene L. Dodaro Before the       GAO/T-GGD-87-7
.         Subcommittee on Federal Spending, Budget     March 13, 1987
          and Accounting,   United States Senate,
          S Millions   in Seized Cash Can Be
          Deposited Faster
    11.   Drug Enforcement   Administration's          GAO/GGD-87-20
          Use of Forfeited   Personal Property         December 10,            1986

    12.   Statement of Arnold P. Jones Before the      Statement
          Committee on the Budget, United States       April       3,   1986
          Senate, on Customs'  Management of Seized
          and Forfeited  Cars, Boats, and Planes
    13.   Improved Management Processes    Would       GAO/GGD-86-12
          Enhance Justice's Operations                 March 14, 1986
    14.   Better Care and Disposal of Seized Cars,     GAO/PLRD-83-94
          Boats, and Planes Should Save Money and      July 15, 1983
          Benefit Law Entorcement
    15.   Asset  Forfeiture
          5in Combattina       -- A Seldom Used Tool   GAO/GGD-81-51
                            Drua Trattickinu           April 10, 1981




    14