Federal Bureau of Investigation

Annual Financial Statement

Fiscal Year 1997

Audit Report 98-17, (7/98)






















The Federal Bureau of Investigation (FBI) is the principal investigative arm of the U.S. Department of Justice. Its' mission is very diverse, and the FBI presently has investigative jurisdiction over violations of more than 200 categories of federal crimes. To achieve their mission, the FBI received $2.8 billion in direct appropriations for FY 1997. Reimbursable funding levels, totaling about $451 million, provided them with the resources to participate in several joint-agency enforcement efforts, including Organized Crime Drug Enforcement Task Forces, Regional Drug Intelligence Squads, and the Asset Forfeiture Program. The FBI also offers cooperative services such as fingerprint identification, laboratory examination, police training, Uniform Crime Reports, and the National Crime Information Center to duly authorized law enforcement agencies.

This audit report contains the Annual Financial Statement of the FBI for the fiscal year ended September 30, 1997. The audit was performed by KPMG Peat Marwick LLP, and resulted in a qualified opinion on the Statement of Financial Position and the Statement of Operations and Changes in Net Position. The qualifications were a result of the following:

The FBI also received a qualified opinion on its Statement of Financial Position for FY 1996 (OIG Report 97-29A). The auditors were not contracted to audit the Statement of Operations and Changes in Net Position in that first-year audit. Weaknesses identified in the FY 1996 audit pertaining to completeness of assets seized for forfeiture and the proper recording of accounts receivable and capital leases were resolved; however, issues related to accounts payable continued to be identified as a reportable condition. A summary of findings noted in the FY 1996 audit and their status can be found in the accompanying report.

Message from the Chief Financial Officer

Management's Overview

Background, Mission, and Goals

The agency now known as the Federal Bureau of Investigation (FBI) was founded in 1908 when Attorney General Charles J. Bonaparte appointed an unnamed force of Special Agents to be the investigative force of the Department of Justice (DOJ). Prior to that time, DOJ borrowed Agents from the Secret Service to investigate violations of federal criminal laws within its jurisdiction.

The FBI is the principal investigative arm of the DOJ. At present, the Bureau has investigative jurisdiction over violations of more than 200 categories of federal law.

The FBI's basic authority is drawn from Title 28, U. S. Code, Section 533, which authorizes the Attorney General to "appoint officials to detect...crimes against the United States." It is pursuant to this clause that the FBI performs most of its work--namely, investigating persons or incidents when there is reason to believe that a federal crime has been or is likely to be committed. While this provision of the statute assigns to the Bureau general investigative authority over criminal violations, there are other statutes, such as the Congressional Assassination, Kidnapping, and Assault Act (Title 18, U. S. Code, Section 351), which give the Bureau responsibility to investigate specific crimes. On January 28, 1982, the Attorney General assigned concurrent jurisdiction for the enforcement of the Controlled Substances Act to the FBI and Drug Enforcement Administration (DEA).

Priority has been assigned to the five areas that affect society the most: counterterrorism, foreign counterintelligence, organized crime/drugs, violent crimes, and white-collar crime. The FBI is also authorized to provide cooperative services to law enforcement agencies, such as fingerprint identification, laboratory examinations, police training, Uniform Crime Reports, and the National Crime Information Center.

The Mission of the FBI is to uphold the law through the investigation of violations of federal criminal law; to protect the United States from foreign intelligence and terrorist activities; to provide leadership and law enforcement assistance to federal, state, local, and international agencies; and to perform these responsibilities in a manner that is responsive to the needs of the public and is faithful to the Constitution of the United States.

The general goals of the FBI are to:


The FBI is a field-oriented organization in which nine divisions and four offices at FBI Headquarters (FBIHQ) in Washington, D.C., provide program direction and support services to 56 field offices, approximately 400 satellite offices known as resident agencies, four specialized field installations, and 32 foreign liaison posts. (See FBI Organization Chart in the Supplemental Financial and Management Information section). The foreign liaison offices, each of which is headed by a Legal Attaché or Legal Liaison Officer, work with American and local authorities on criminal matters within FBI jurisdiction.

As of September 30, 1997, the FBI had approximately 11,300 Special Agents and 16,000 other employees who perform professional, administrative, technical, clerical, craft, trade, or maintenance duties or functions.

FBI field offices are located in 56 major cities. Of those, 55 are in the United States, and one is located in Puerto Rico. Each FBI field office is overseen by a Special Agent in Charge (SAC) except for those located in Los Angeles, New York City and Washington, D.C. Due to their large size, those offices are each managed by an Assistant Director in Charge (ADIC).

The FBI also operates specialized field installations: two Regional Computer Support Centers; and two Information Technology Centers (ITCs). The ITCs provide information services to support field investigative and administrative operations.

The Critical Incident Response Group (CIRG) was established in 1994 to address crisis situations requiring an emergency response by a diverse group of law enforcement resources.

Budget Resources and Accomplishments

The FBI is provided direct budget authority through the Salaries and Expenses (S&E), Violent Crime Reduction Program, Construction, and Telecommunications Carrier Compliance Fund appropriations. The FBI is also provided significant levels of budget authority through reimbursable funding.

For FY 1997, the FBI's enacted level included $2,841,136,000 in direct appropriated funding, based on the following appropriations:

Salaries and Expenses $2,570,497,000
Violent Crime Reduction Program $169,000,000
Construction $41,639,000
Telephone Carrier Compliance $60,000,000
FY 1997 Direct Appropriated Funding $2,841,136,000

(Also see FY 1997 budget chart in the Supplemental Financial and Management Information section).

The FBI also anticipated approximately $451 million in reimbursable funding. Reimbursable funding is received from a number of sources, e.g., Organized Crime Drug Enforcement Task Force (over $100 million), Health Care Fraud (over $50 million), Asset Forfeiture Fund (approximately $28 million), and federal and non-federal user fees (over $100 million).


It should be noted that many critical investigations were conducted during FY 1997, such as those relating to the Oklahoma City bombing, TWA Flight 800, Centennial Olympic Park bombing, apprehension of Mir Aimal Kansi and the UNABOM case. Additionally, other significant investigative results were achieved in the programs addressing terrorism, organized crime, drugs, white-collar crime, violent crime, gangs and juvenile crime, sexual exploitation of children, hate crimes, and foreign counterintelligence.

Investigative Accomplishments

Oklahoma City Bombing

On April 19, 1995, the Murrah Federal Building in Oklahoma City was destroyed by a bomb blast which took the lives of 168 innocent men, women, and children, and wounded over 700 others. On August 10, 1995, Timothy J. McVeigh and Terry Lynn Nichols were indicted by a federal grand jury in Oklahoma City, charging them with conspiracy to use a weapon of mass destruction, use of a weapon of mass destruction, destruction by explosive, and eight counts of first degree murder. On Friday, June 13, 1997, Timothy McVeigh was sentenced to death after having been found guilty on all counts.

TWA Flight 800

On the evening of Wednesday, July 17, 1996, TWA Flight 800, carrying 213 passengers and 17 crew members, exploded and crashed into the Atlantic Ocean off the coast of Long Island shortly after taking off from New York City's John F. Kennedy International Airport en route to Paris. There were no survivors. The FBI recently announced that no evidence was found to indicate that the crash was the result of a criminal act.

Centennial Olympic Park Bombing.

Early on Saturday morning, July 27, 1996, a very large pipe bomb exploded in Centennial Olympic Park, downtown Atlanta, Georgia. The bomb sprayed shrapnel that killed one person, caused one fatal heart attack, and injured 112 others. The investigation continues.

Mir Aimal Kansi.

On January 25, 1993, a shooting spree outside CIA headquarters in McLean, Virginia, resulted in the killing of two CIA workers and the wounding of three other people. The suspect, Mir Aimal Kansi, was captured in June by the FBI after a four-year manhunt.


UNABOM (for University and Airline Bombing) is the code name for the FBI's investigation of 16 improvised explosive devices which were mailed or placed during a 17-year period beginning on May 25, 1978, and which resulted in three deaths and injuries to 23 people throughout the United States. On June 18, 1996, the federal grand jury sitting in Sacramento, California returned a ten-count indictment, charging Theodore J. Kaczynski with four bombings that killed two individuals and injured two others. On October 1, 1996, the federal grand jury sitting in the District of New Jersey returned a three-count indictment, charging Kaczynski with a bombing that killed one individual.


On March 3, 1997, Harold James Nicholson pleaded guilty to one count of espionage and conspiracy to commit espionage. Nicholson was a CIA officer who volunteered to the Russian Civilian Intelligence Service (SVRR) in Kuala Lampur, Malaysia, in 1994, and is the highest ranking CIA employee to be caught spying. Nicholson was sentenced on June 5, 1997, to serve 23 years and seven months in prison.

On June 23, 1997, Earl Edwin Pitts was sentenced to serve 27 years in federal prison. Pitts was an FBI Special Agent who volunteered information to the Soviet Committee for State Security (KGB) in New York. He provided classified information to the Russians from 1987 until 1992. Later, he attempted to provide classified information to the Russians during an FBI undercover operation.

Terrorism Prevention

FBI Dallas received information that two members and two associates of the True Knights of the Ku Klux Klan were planning to commit acts of terrorism in several areas of Wise County, Texas. The four subjects planned to commit an armored car robbery, which would have involved the detonation of diversionary bombs at a natural gas processing/storage facility, which they believed contained lethal gases. As a result of this investigation, all four subjects were arrested and four terrorist acts were prevented.

In October 1996, seven members of the Mountaineer Militia were indicted and arrested. The subjects were planning to bomb the FBI's Criminal Justice Information Services (CJIS) facility in Clarksburg, West Virginia. An FBI undercover agent had posed as an intermediary for a Middle East terrorist organization and offered to pay the subjects $50,000 for blueprints of the FBI building. Upon delivery of the blueprints, the subjects were arrested.

Innocent Images

While investigating the disappearance of a minor, FBI Agents and Prince George's County, Maryland, police detectives identified two suspects who had sexually exploited numerous juvenile males over a 25-year period. Investigation into the activities of these two suspects disclosed that both adults and juveniles are routinely using computers to transmit sexual images of minors, as well as to lure minors into engaging in illicit sexual activity with the suspects. This investigation led to the initiation of the FBI investigation code named "Innocent Images" and the formation of a multi-agency task force which focuses on the identification and development of evidence to support the prosecution of individuals who use computer telecommunications facilities to receive or distribute child pornography. The task force also focuses on those who use such technology to recruit minors into illicit sexual relationships.

"Innocent Images" investigative operations produced the following results during FY 1997: 14 "consent" searches; 86 search warrants; 51 arrests; 61 grand jury indictments; 25 informations (i.e., non-grand jury indictments); and 70 convictions. A high priority was placed on investigating cases involving interstate computer communications and travel for the recruitment of minors for illicit sexual relationships. There were 61 "traveler" investigations initiated and coordinated during FY 1997.

International Law Enforcement

The FBI believes it is essential to station agent and support staff in other countries to prevent foreign terrorism and foreign crime from reaching the United States. These employees work closely with authorities of host countries to build "cop-to-cop" bridges that help all law abiding societies to develop cooperative efforts that better protect their people and our people. As a result of trust developed through the ongoing work of the legal attaches, the FBI recently conducted an 18-month investigation into a conspiracy with links to Colombian, Italian, and United States criminal organizations. The scheme involved exportation of cocaine from Latin America to Europe, where it was exchanged for heroin that was imported into the United States. Over 107 persons were arrested, of which 43 were convicted.

Investigative Support and Other Accomplishments

Telecommunications Carrier Compliance

The Communications Assistance for Law Enforcement Act (CALEA) (P.L. 103-414) clarified the duty of the telecommunication carriers to assist law enforcement agencies with the lawful interception of communications and the collection of call-identifying information in a rapidly changing telecommunications environment. This legislation was necessitated by the erosion of law enforcement interception abilities and the frustration of carrying out court orders for electronic surveillance as a result of the deployment of advanced telecommunications technologies. Electronic surveillance is a critical tool used by Federal, State and local law enforcement agencies in the investigation of kidnappings, extortions, murder, illegal drug trafficking, major white-collar crimes, organized crime, terrorism, and national security matters. During the past 14 years, evidence obtained from court-authorized interceptions has been directly responsible for convicting 26,000 dangerous felons. In 1997, the Attorney General submitted to Congress a CALEA Implementation Plan that identified priority telephone switching platforms and established a process for the development of CALEA solutions.


FBI Laboratory. Construction of the new FBI Laboratory began in the Fall of 1997. The estimated construction cost of the new laboratory is $130 million. The current laboratory is one of the largest and most comprehensive crime laboratories in the world. It provides leadership and service in the scientific solution and prosecution of crimes throughout the United States and is the only full-service federal forensic laboratory. The FBI is in the process of applying for accreditation of the FBI Laboratory by the American Society of Crime Laboratory Directors.

The FBI has undertaken a major initiative to relocate the FBI Laboratory from the FBI Headquarters Building in Washington, D.C., to a new, stand-alone facility on the campus of the FBI Academy, Quantico, Virginia. Relocation is necessary due to safety, health, and environmental concerns of operating the current laboratory in a densely populated office building and the need to provide additional space to accommodate the integration of new forensic examination techniques and technologies. Phased occupancy of the new FBI laboratory is planned for the Summer/Fall of 2000.

Criminal Justice Information Services (CJIS) Facility. In 1990, the FBI initiated the Relocation and Revitalization Project to improve its fingerprint identification and related services provided to the Nation's criminal justice community in response to the demands for these services. As a result of this initiative, the Congress appropriated $185 million in the Dire Emergency Supplemental Appropriations Act of 1990 for the construction of a new fingerprint identification facility.

The CJIS Division Complex was built in Clarksburg, West Virginia, and opened in August 1995. The West Virginia facility includes 986 acres, three miles of roads, parking for over 2,000 vehicles, underground utilities, and nine buildings, providing over 781,000 square feet for offices, storage, and infrastructure activities. The Opening Ceremony for the CJIS Division's Main Office Building was held on May 29, 1997.

Combined DNA Index System (CODIS)

The FBI developed CODIS to function as a national DNA database system containing indices of DNA profiles from convicted offenders and unsolved crime scenes. DNA testing is provided free of charge to any law enforcement agency in the United States.

As of September 30, 1997, there were 78 CODIS sites in 36 states and the District of Columbia.


DRUGFIRE is a computer database system which allows laboratories within a region or large metropolitan area to exchange and compare images of firearms evidence (i.e., bullets and cartridge cases). Nationwide, over 35,000 criminal investigations represented by over 60,000 images have been entered in DRUGFIRE. DRUGFIRE has linked nearly 1,400 pairs of cartridge cases, matching one of every eight cartridge cases entered from crime scenes and providing police with investigative leads that would otherwise have gone undetected. As of September 30, 1997, there were 84 DRUGFIRE sites within the United States, with another 70 laboratories expected to install DRUGFIRE by the end of fiscal year 1998.

Integrated Automated Fingerprint Identification System (IAFIS)

The FBI is developing IAFIS, which will completely replace the existing fingerprint identification system and improve processing capabilities and turnaround time. The IAFIS will be a rapid response, paperless system that will receive and process electronic images, criminal histories, and related identification data for the entire criminal justice community. IAFIS is designed to process an average volume of 62,000 fingerprint records per day within two to 24 hours. The cost estimate for IAFIS is $640 million, and complete IAFIS functionality is projected for July 1999.

National Crime Information Center (NCIC)

In 1967, the FBI established the NCIC as a nationwide database containing data and information files, such as wanted and missing persons, foreign fugitives, unidentified persons, and stolen property. The NCIC system contains over 32 million records stored in 18 information databases, and is accessed by 79,000 authorized users. The system is accessed almost 2 million times daily by law enforcement officers inquiring about the status of several "hot" files. The current NCIC system will be replaced by the NCIC 2000 system. The new system will provide additional functionalities, such as mug shots and fingerprint matching, to serve the criminal justice community into the twenty-first century. The initial operating capability is anticipated for July 1999. The current estimate to complete the NCIC 2000 initiative is $183.2 million.

FBI Home Page

Recognizing the tremendous growth of public information available through the Internet, in 1995 the FBI established a Home Page on the World Wide Web at: http://www.fbi.gov. The site features general information about the FBI and some of its major programs and initiatives. It also includes major speeches, congressional testimony, press releases, fugitive publicity, and crime statistics.

Financial Improvements

The FBI is committed to a process of continually evaluating, streamlining and improving its financial processes. In prior years the FBI contracted with outside firms to evaluate its process of preparing financial reports, including financial statements for audit. Operational improvements are also being made in response to the findings and recommendations made incident to the first CFO Act audit of the FBI's financial statements.

The FBI is currently reformulating its strategic plan, and new performance measurements will be developed and subsumed within the strategic plan. In this regard, the FBI continued to aggressively implement the requirements of the Government Performance and Results Act (GPRA) by making significant changes and improvements to its annual budget submission and by organizationally aligning the strategic planning and budget functions under the Chief Financial Officer. These changes were all part of the FBI's long-term plan to develop a resource based, results oriented strategic management system. In implementing its plan, FBI efforts during FY 1997 were focused on developing strategic plans in the operational areas of the FBI and establishing performance measures that accurately capture FBI progress in meeting operational strategic goals. (See Performance Goals and Results in the Supplemental Financial and Management Information section).

During FY 1997 the quality of financial data reported to the FBI's external budgetary reviewing authorities was improved through automation. Actual obligations incurred and expenses paid from the FBI's FY 1997 Salaries and Expenses appropriation must be reported programmatically to FBI budgetary reviewing authorities in the agency's FY 1999 budget request to the Congress. Because appropriations are provided for specific programs, e.g., white-collar crime, organized crime, violent crimes, etc., the FBI must report its use of appropriated funds on a programmatic basis through the formal budget process. Many labor-intensive, manual procedures were replaced with more efficient and accurate processes as computer programs were written to perform a major portion of the overall program costing process for the FY 1997 Salaries and Expenses appropriation. Actual obligation and expense data were downloaded directly from a mainframe computer application to a spreadsheet format, eliminating the need to rekey or reenter a large amount of data. With this new ability, the FBI can increase the frequency of its programmatic financial analyses and reporting to a quarterly rather than annual basis, and the methodology developed can be expanded and applied to other areas of accounting and financial management which require programmatic cost information.

Other efforts continued with the migration toward electronic payments within the overall electronic commerce initiative (e.g., electronic deposit of funds into employee accounts for official reimbursement and electronic payment of FBI commercial invoices), on-line printing of purchase orders at headquarters and plans for on-line printing of purchase orders in the field offices, and a home sale incentive program where employees share in the savings to the FBI. Emphasis is also being placed on continuing the process of reconciling financial data and improving the quality of data resident in the Financial Management System (FMS) to facilitate the process of preparing internal and external financial reports.

The current FMS (Geac) was implemented in 1987 using commercial software developed by Dun & Bradstreet Software. The FMS is composed of a suite of software modules that perform Purchasing, Accounts Payable, Budgetary Control, General Ledger, Inventory Management, Third Party Draft, and Fixed Assets operations. These modules provide field and Headquarters managers with timely and accurate financial information, enhance the FBI's cash management policies by decentralizing its funds control to the field offices via the Third Party Draft System, and directly support field operations by ensuring case expenditures are paid in a timely manner and vendors are reimbursed as required. Another goal is to upgrade the FBI's financial management software to ensure that the FMS is Year 2000 compliant.

In the personnel area, the FBI received clearance in October 1997 from DOJ to establish Financial Manager and auditor positions in each of the 56 field offices. Formerly, only 17 field offices had financial manager positions, with 18 offices having authorized auditor positions. This expansion of the Financial Manager and auditor programs will enhance financial management and internal control over field operations to a significant degree. Considerable effort was expended during FY 1997 toward establishing these fieldwide positions.

Changes in Financial Statements from FY 1996 to FY 1997

FY 1997 marks the second year for which financial statements were prepared by the FBI; therefore, certain comparisons can be made between the two financial statements.

Seized Property/Evidence. Property seized by the FBI for forfeiture is no longer reported or disclosed in the FBI's financial statements, but rather in the statements of the DOJ Asset Forfeiture Program. For FY 1997, only cash, financial instruments, non-monetary valuables, and illegal drugs seized for evidentiary purposes (and not subject to forfeiture) are reported or disclosed in the FBI's statements. (See Notes 1 and 5).

Accounts Receivable. The net of Intragovernmental Accounts Receivable reported for FY 1997 ($100,602,000) represents a 50 percent decline from the amount reported for FY 1996 ($199,910,000). The net of Governmental Accounts Receivable reported for FY 1997 ($11,481,000) represents a 30 percent decline from the amount reported for FY 1996 ($16,330,000). The declines are the result of (1) the correction of amounts that were incorrectly recorded as receivables (included in prior period adjustments) and (2) aggressive efforts by the Accounting Section to reduce the number of outstanding receivables.

During FY 1997 the FBI significantly expanded the use of OPAC as a mechanism for collecting payments from other Federal agencies. For example, collections from one of the FBI's biggest accounts, OCDETF, were made through OPAC during FY 1997. The FBI also took a more aggressive posture with respect to collecting debts from private individuals. The average age of receivables for both federal and public receivables decreased from FY 1996 to FY 1997, most dramatically for public receivables. The total amount of delinquent public receivables dropped from $4.6 million in FY 1996 to $363,000 in FY 1997, a reduction of approximately 92 percent.

Other Revenue and Financing Sources. The amount increased from $8,105,000 in FY 1996 to $190,514,000 in FY 1997, due primarily to the inclusion of imputed financing for retirement expenses paid by OPM ($180,021,000) and claims paid on behalf of the FBI by the Treasury Judgement Fund ($4,241,000). (See Note 1).

Property and Equipment (P&E). The reported value of P&E for FY 1997 ($352,596,000) represents a 27 percent increase over the FY 1996 value ($277,966,000). The FY 1997 increase was primarily due to capitalization of costs associated with the construction and outfitting of the CJIS facility. (See Note 4).

Financial Trends

The FBI is participating in Treasury's FACTS 2 project, and is further expanding efforts in the area of EFT payments. Therefore, one clear trend for the FBI is the movement toward expanded electronic reporting and payments. It is also projected that the FBI will continue to move in the direction of sharing financial information via intranet/internet facilities.

In the area of electronic payments, we have been advised that DOD is piloting the use of the OPAC system. The ability to OPAC DOD at some future date will significantly expand the total dollar coverage of federal accounts subject to collections using OPAC. Additionally, more and more state and local government agencies are using ACH as a payment mechanism, which should speed up the receipt of payments from the agencies and reduce the amount of operational effort currently required to process checks.

The FBI will also be focusing on the continued implementation of the FASAB Revenue and Cost Accounting Standards to comply with the regulatory requirements mandated for the standards. The FBI will also use the "new" data gleaned from the application of these standards to enhance overall financial management, e.g., using cost accounting data to improve financial management processes.

As previously indicated, the FBI received authority from the DOJ to establish Financial Manager and auditor positions for each of the 56 FBI field offices. This supports the trend of delegating authority and decision-making from FBI Headquarters to field office managers. A corollary to this is that field offices will be more accountable for managing their financial affairs.

Management's Assertions

FBI management asserts that it is responsible for maintaining internal accounting and administrative controls that are adequate to ensure that transactions are executed in accordance with budgetary and financial laws and other requirements, consistent with purposes authorized, and are recorded in accordance with federal accounting standards; that assets are properly safeguarded to deter fraud, waste, and abuse; and that performance measurement information is adequately supported.

Limitations of the Financial Statements

The FBI's financial statements have been prepared to report the financial position and results of operations of the entity, pursuant to the requirements of 31 U.S.C. 3515(b).

While the financial statements have been prepared from the books and records of the FBI in accordance with the formats prescribed by OMB, the statements are in addition to the financial reports used to monitor and control budgetary resources which are prepared from the same books and records.

The statements should be read with the realization that they are for a component of the United States Government, a sovereign entity. One implication of this is that liabilities cannot be liquidated without legislation that provides resources to do so.