Notes to the Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation
The accompanying financial statements report the financial position, results of operations, and changes in net position of the Drug Enforcement Administration (DEA) for fiscal year 1996. These statements include the accounts of all funds under the DEA's control which have been established and maintained to account for the resources of the DEA. They were prepared from the DEA's accounting and management information system in accordance with the Office of Management and Budget (OMB) Bulletin 94-01, Form and Content of Agency Financial Statements and the DEA's accounting policies which are summarized in this note.
B. Reporting Entity
The DEA was created on July 1, 1973, as a result of Presidential Reorganization Plan No. 2 of 1973. Its aim is to enforce the controlled substances laws and regulations of the United States and to bring to justice individuals involved in the growing, manufacturing, or distribution of controlled substances appearing in or destined for illicit traffic in the United States. The DEA is the lead agency responsible for the development of overall federal drug enforcement strategy, programs, planning, and evaluation.
Nonentity assets reported in the accompanying statement of financial position consist primarily of monetary seized assets and cash currently used in Attorney General exempt and trafficker directed operations. These assets can not be used to satisfy the obligations of the DEA.
C. Basis of Accounting
Transactions are recorded on the accrual basis and are within budgetary limitations established to facilitate compliance with legal constraints and controls over use of federal funds. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash.
The General Accounting Office (GAO), the OMB, and the Department of the Treasury (Treasury) established the Federal Accounting Standards Advisory Board (FASAB) for the purpose of considering and recommending accounting principles, standards, and requirements to the GAO, the Treasury, and the OMB. The three principals of FASAB, the Comptroller General, the Secretary of the Treasury, and the Director of OMB, will decide upon new principles, standards, and requirements after considering FASAB's recommendations. The resulting standards are concurrently issued by the GAO and the OMB. Pending issuance and effective date of a sufficiently comprehensive set of accounting standards, and in accordance with the interim guidance agreed to by the three principals, the accompanying financial statements have been prepared in accordance with the following hierarchy of accounting principles and standards:
- individual standards agreed to and published by the Joint Financial Management Improvement Program (JFMIP) Principals, the GAO, the OMB, and the Treasury, based upon recommendations from FASAB;
- form and content requirements included in OMB Bulletin 94-01, dated November 16, 1993, and subsequent issuances;
- the DEA accounting policies summarized in this note; and
- accounting principles published by authoritative standard setting bodies and other authoritative sources (1) in the absence of such other guidance in the first three parts of this hierarchy, and (2) if the use of such accounting standards improves the meaningfulness of the financial statements.
D. Revenues and Other Financing Sources
The DEA receives the majority of the funding needed to support operations through congressional appropriations. The DEA receives annual, multi-year, and no-year Federal law permits the DEA to collect fees from Diversion Control Program registrants in exchange for authorization in the form of a license to manufacture, handle, or prescribe controlled substances. Every fiscal year, the first $15,000 of fees collected from registrants and all fees for licenses to manufacture chemicals are required to be returned to Treasury. Fees amounting to approximately $15,264 are reported as returned to Treasury on the accompanying statement of operations and changes in net position.
Prior to fiscal year 1996, the DEA recognized revenue from fees paid by registrants in the Diversion Control Program on a cash basis. However, in order to comply with guidance outlined in Statement of Federal Financial Accounting Standards Number 7, "Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting," issued May 10, 1996, the DEA is recognizing revenue from these fees on the accrual basis. That is, revenue is recognized over the period covered by the fee. As a result of this change, a prior period adjustment has been recorded which restates the deferred revenue - diversion account as if this methodology had been applied from the inception of the Diversion Control Program. See note 12.
E. Fund Balance with the Treasury and Cash
The DEA does not have disbursing authority and does not maintain cash in commercial bank accounts. Cash receipts and disbursements are processed by the Treasury. The Funds with the Treasury include: appropriated funds that are available to pay current liabilities and finance authorized purchase commitments and deposit and clearing accounts. In addition to Treasury fund balances, a cash balance is maintained primarily to support imprest fund payments.
F. Accounts Receivable
Accounts receivable consists of amounts due from governmental agencies, private organizations, and individuals. The DEA establishes an allowance for uncollectible accounts receivable from private sources, but regards amounts due from other Federal agencies as 100% collectible. Due to the small number and dollar amount of the private receivables, the DEA analyzes each account independently to assess collectibility and the need for an allowance.
G. Property and Equipment
Property and Equipment are capitalized at their historical cost of acquisition or their fair market value, if acquired through the asset forfeiture program, and are depreciated using the straight line method over estimated useful lives ranging from 5 to 50 years. The DEA capitalizes property and equipment with an initial cost of $25 or more and all vehicles, aircraft, watercraft, buildings, and land regardless of cost. Major removals and betterments that extend the life of an asset are capitalized. All other repairs and maintenance are expensed.
H. Seized Assets
The DEA accounts for Seized Assets in accordance with Statement of Federal Financial Accounting Standards Number 3, "Accounting for Inventory and Related Property." Seized monetary assets are reported at their fair market value on the accompanying statement of financial position with an offsetting liability included in other governmental liabilities not covered by budgetary resources. Seized non-monetary assets are disclosed at their fair market value in the notes to the financial statements.
All seized assets are being held for evidentiary purposes or are pending transfer to the United States Marshals Service (USMS).
I. Advances and Prepayments
Advances and Prepayments include the unexpended funds disbursed to state and local entities participating in the Domestic Cannabis Eradication Program and travel advances issued to federal employees. Travel advances are limited to meals and incidental expenses expected to be incurred by the employees during official travel.
J. Advances from Others
Advances from Others is included in other intragovernmental liabilities covered by budgetary resources. The advances are amounts obligated and advanced by other federal entities for services to be furnished under reimbursable agreements and nonexpenditure transfer authorizations, which are appropriation allocations from other government agencies.
K. Deferred Revenue - Diversion
Fee collections through the Diversion Control Program are initially recorded as deferred revenue, then are recognized as income over one to three years using the straight line method. The deferred revenue equal to the unearned portion of these fees is included in other governmental liabilities covered by budgetary resources on the accompanying statement of financial position.
L. Annual, Sick, and Other Leave
Annual leave is accrued as it is earned, and the accrual is reduced as leave is taken. Each year, the balance in the accrued annual leave account is adjusted to reflect current pay rates. To the extent current and prior-year appropriations are not available to fund annual leave earned but not taken, funding will likely be obtained from future salaries and expenses appropriations. Accrued leave is included in other governmental liabilities not covered by budgetary resources in the accompanying statement of financial position.
M. Actuarial Liabilities
A liability is recorded for estimated and actual future payments to be made for workers' compensation pursuant to the Federal Employees' Compensation Act (FECA). The liability consists of the net present value of estimated future payments calculated by the U.S. Department of Labor (DOL) and the unreimbursed cost paid by the DOL for compensation paid to recipients under FECA. The actual costs incurred are reflected as a liability because the DEA will reimburse the DOL two years after the actual payment of expenses. Future salaries and expenses appropriations will likely be used for the DOL's reimbursement.
N. Retirement Plan
Approximately 35% of the DEA employees participate in the Civil Service Retirement System (CSRS), to which the DEA makes matching contributions equal to 7 percent of pay (7.5 percent for hazardous duty pay). On January 1, 1984, the Federal Employees Retirement System (FERS) went into effect pursuant to the Federal Employees' Retirement System Act. Most employees hired after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired prior to January 1, 1984, can elect to either join FERS and Social Security or remain in CSRS. A primary feature of FERS is that it offers a Federal Thrift Savings Plan to which the DEA automatically contributes 1 percent of pay and matches any employee contribution up to an additional 4 percent of pay. The DEA also contributes the employer's matching share for Social Security for FERS participants. Although the DEA funds a portion of the benefits under FERS and CSRS relating to its employees and withholds the necessary payroll deductions, the agency has no liability for future payments to employees under these plans nor does the DEA report CSRS, FERS, or Social Security assets, or accumulated plan benefits, on its financial statements. Reporting such amounts is the responsibility of the Office of Personnel Management. During fiscal year 1996, the DEA paid $13,391 and $52,600 for the agency's contribution to CSRS and FERS, respectively.
The DEA is involved in various administrative proceedings, legal actions, and claims. Settlements under $2.5 million are paid from the DEA appropriations, and amounts in excess of $2.5 million may be paid by the U.S. Treasury Judgment Fund. The DEA's Office of Chief Counsel has determined that possible awards relating to adverse decisions and settlements under statutes and regulations should not exceed $200, at September 30, 1996, which would not materially affect the financial position or results of operations of the DEA. The Office of Chief Counsel is not aware of any significant threatened or unasserted claims against the DEA as of September 30, 1996.
Note 2. Fund Balance with the Treasury
The Fund Balance with Treasury amount reported on the statement of financial position represents the unexpended balance on the DEA's books as of September 30, 1996. Restricted unobligated fund balances include amounts related to expired authority and holdings which have not been transferred to Treasury as of September 30, 1996, and which are unavailable for agency use. Restricted funds also include collections received from Diversion Control registrants that were in excess of the amounts budgeted for administration of the Diversion Control Program or, if less, obligations incurred. These collections may not be used until further congressional action is initiated. The obligated portion of Fund Balance with Treasury includes $28 of funds which will be canceled on October 1, 1996 and returned to Treasury. The $375 represents expenses which have not been classified to the correct fund.
Fund Balance with Treasury consisted of the following at September 30, 1996:
Obligated Unobligated Total Available Restricted Appropriated Salaries and Expense $144,046 $5,891 $21,623 $171,560 Construction 6,651 - - 6,651 Violent Crime 11,873 7,335 - 19,208 Total Appropriated 162,570 13,226 21,623 197,419 Other Funds Diversion 15,946 8,055 37,229 61,230 Suspense, Deposit, and Clearing Accounts - - (375) (375) Total Other Funds 15,946 8,055 36,854 60,855 Total All Funds $178,516 $21,281 $58,477 $258,274
Note 3. Cash
Cash held outside of the Treasury as of September 30, 1996, consists of $6,860 of imprest funds and undeposited collections, and $1,280 in use by on-going Attorney General exempt and trafficker directed operations.
Note 4. Accounts Receivable
Intragovernmental accounts receivable total $31,276 as of September 30, 1996, consisting of reimbursements due from other federal agencies for salaries and other expenses incurred by DEA employees on behalf of those agencies.
Entity and nonentity governmental accounts receivable total $197 and $151, respectively, as of September 30, 1996, and consist of amounts due from nongovernmental sources. The DEA considers all governmental accounts receivable collectible and therefore did not record an allowance for accounts of doubtful collectibility.
Note 5. Seized Property
Seized monies and other financial instruments as of September 30, 1996, totaled $16,022. The seized monies consisted of $8,604 in currency and $7,418 in other financial instruments.
Seized non-monetary assets activity during the year ended September 30, 1996, resulted in an ending balance of $18,042 and is summarized below by asset type. There were less than one thousand assets seized or disposed of in each of the asset types listed below except for approximately two thousand vehicles seized during fiscal year 1996. Disposals represent transfers to United States Marshals Service, the agency ultimately responsible for dispositions of seized assets.
Asset Type Balances Beginning of Year Seizures Disposals Balances End of Year Vehicles $876 $33,485 $31,623 $2,738 Vessels 122 6,913 6,676 359 Aircraft 175 3,423 3,587 11 Other Conveyances 3 1,456 1,365 94 Real Property 5,721 77,863 72,603 10,981 Lab Equipment 285 1,232 1,277 240 Jewelry 1,239 5,755 5,372 1,622 Electronic Equipment 412 713 521 604 Weapons 230 187 142 275 Antiques, Works of Art, etc. 563 1,198 1,199 562 Other 127 2,649 2,220 556 Total $9,753 $134,874 $126,585 $18,042
Note 6. Property and Equipment, Net
The major classes of property and equipment, the related accumulated depreciation, and depreciable lives, as of September 30, 1996, are listed below. The last six categories are in the process of being reconciled by the Office of Finance. Accumulated depreciation or service life was never considered prior to the reconciliation of all property categories.
|Classes of Property and Equipment||Acquisition Cost||Accumulated Depreciation and Amortization||Net Book Value||Service Life|
|Vehicles||$ 94,670||$39,795||$54,875||6 yrs.|
|Lab Equipment||11,457||8,540||2,917||5 yrs.|
|Construction in Progress||10,495||n/a||10,495||n/a|
|ADP Equipment||2,885||1,776||1,109||5 yrs.|
|Assets Under Capital Lease||717||434||283||5 yrs.|
|Office Equipment||545||455||90||5 yrs.|
|Training Equipment||436||327||109||5 yrs.|
|Audio/Visual Equipment||179||72||107||10 yrs.|
|Technical Investigative Equip.||12,865||-||12,865||-|
|Title III Equipment||1,956||-||1,956||-|
During fiscal year 1995, the DEA revised its capitalization policy to increase the capitalization threshold from $5 to $25. However, Vehicles, Boats, Aircraft, Buildings, and Land are capitalized regardless of the acquisition value.
Note 7. Capital Leases
The DEA leases office equipment under Lease to Ownership Plans in which ownership is automatically transferred at the expiration of the 60 month lease term. Capitalized assets acquired under capital lease agreements and their related liability are reported at the present value of the minimum lease payments. As of September 30, 1996, the cost of office equipment under capital lease at the DEA is $717 with accumulated amortization of $434. All leases are cancelable with the payment of a penalty in the amount of three times the monthly rental payment. However, it is improbable that the DEA will cancel these lease agreements. The following scheduled payments for capital lease agreements are not covered by budgetary resources.
Fiscal Year 1997 $184 1998 102 1999 38 2000 14 Total Future Capital Lease Payments 338 Less Imputed Interest (51) Total Capital Lease Liability $287
Note 8. Other Liabilities
Other Liabilities Covered by Budgetary Resources include:
Non-Current Liabilities Current Liabilities Total Intragovernmental Advances from Others $ - $7,484 $7,484 Suspense, Deposit, and Clearing - (375) (375) Total $ - $ 7,109 $7,109 Governmental Accrued Funded Payroll $ - $23,534 $23,534 Deferred Revenue-Diversion 33,595 15,265 48,860 Total $33,595 $38,799 $72,394
Other Liabilities Not Covered by Budgetary Resources includes:
Non-Current Liabilities Current Liabilities Total Intragovernmental Non-Entity Liabilities $ - $ 1,431 $1,431 Governmental Lease Liability $ - $ 287 $ 287 Accrued Liability 9,032 53,293 62,325 Actuarial Liability (FECA) 33,626 2,711 36,337 Subtotal $42,658 $56,004 $98,662 Liability for Seized Property-Monetary Instruments - 16,022 16,022 Total Unfunded Liabilities $42,658 $73,744 $116,402
Non-entity liabilities represent the amounts payable to Treasury for non-entity receivables
Note 9. Net Position
The components of net position as of September 30, 1996 are as follows:
Appropriated Funds Other Funds Total Unexpended Appropriations: Available $13,226 - $13,226 Unavailable 21,623 - 21,623 Undelivered Orders 145,222 - 145,222 Total Unexpended Appropriations 180,071 - 180,071 Invested Capital 200,071 - 200,071 Cumulative Results of Operations - 9,871 9,871 Subtotal 380,142 9,871 390,013 Less Future Funding Requirements: Unfunded Annual Leave (39,829) ( 2,118) (41,947) Unfunded Compensatory Leave (347) (35) (382) Unfunded FECA Liability (19,996) (19,996) Capital Lease Liability (287) - (287) Actuarial Liabilities (FECA) (36,337) - (36,337) Total Future Funding Requirements (96,796) (2,153) (98,949) Total Net Position $283,346 $7,718 $291,064
Future funding requirements do not include other intragovernmental liabilities and seized property liabilities, both of which are offset by asset balances.
Note 10. Operating Expenses by Program
Operating expenses by program, as of September 30, 1996, were as follows:
Salaries and Expenses $952,105 Diversion 52,260 Violent Crime Reduction Fund 42,187 Total $1,046,552
Note 11. Operating Leases
The DEA leases various facilities and equipment under operating leases. Assets held under these leases consist of offices, parking facilities, warehouses, aircraft hangars, office equipment, and vehicles. The majority of space occupied by the DEA is leased by the General Services Administration (GSA). The space is assigned to the DEA by the GSA based on the DEA's square footage requirements. The rent charged by the GSA is based on approximate commercial rates for commercial space. The DEA may terminate the leases at any time without incurring termination charges. However, it is anticipated that the DEA will continue to occupy and lease space from the GSA in future years. Lease expense paid during fiscal year 1996 totaled $74,000. The DEA does not expect cash expenditures for rent to change significantly in future periods. The following is a summary of remaining lease payments under the existing lease terms ranging from 1 to 4 years:
Equipment Vehicles Total Minimum Rentals $363 $68 $431
Note 12. Prior Period Adjustments
Prior period adjustments recorded during fiscal year 1996 totaled $109,528. Prior period adjustments of $61,333 were made to write off fixed asset costs due to a change in the capitalization threshold and to record accumulated depreciation of fixed assets that had not been previously depreciated. In addition, prior period adjustments were made: to recognize nonvested leave as a future funding requirement, ($3,622); to correct prior year payments improperly charged to current year operating expenses, $924; to adjust revenue recorded in the current year that was earned in prior years, ($3,591); to correct the method of accounting for Diversion Control Fee Revenue, $11,813; and to correct the unfunded FECA liability related to prior fiscal years, $42,671.
Note 13. Non-Operating Changes
Changes in net position other than excess of revenues over total expenses were as follows for the year ended September 30, 1996:
Gross Appropriations Received $850,994 Less: Appropriated Capital Used 834,938 Change in Unexpended Appropriations $(16,056) Change in Capital Investment (19,198) Other: Increase in Unfunded FECA Liability (4,891) Decrease in Unfunded Leave Liability 2,076 Increase in Unfunded Lease Liability (287) Net Non-Operating Changes $(38,356)