Immigration and Naturalization Annual Financial Statement
Fiscal Year 2001

Report No. 02-35
September 2002
Office of the Inspector General


The Immigration and Naturalization Service (INS), a component of the United States Department of Justice, is responsible for the administration and enforcement of immigration laws. Its mission includes conducting immigration inspections of travelers seeking entry to the United States; regulating permanent and temporary immigration to the United States, such as legal permanent residence status, nonimmigrant status, and naturalization; controlling U.S. borders; and identifying and removing people who have no lawful immigration status in the United States. In FY 2001, the INS had approximately $5.7 billion in total budgetary resources, a 24 percent increase over the FY 2000 funding level of $4.6 billion.

This audit report contains the Annual Financial Statements of the INS for the fiscal years ended September 30, 2001 and 2000. Under the direction of the Office of the Inspector General, the audit was performed by Urbach Kahn & Werlin LLP, and resulted in an unqualified opinion on the FY 2001 financial statements. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and results of operations of the entity. As previously reported in the audit of the FY 2000 financial statements (Office of the Inspector General Report Number 01-17), INS received an unqualified opinion on the balance sheet and a qualified opinion on the statements of net cost, changes in net position, budgetary resources, and financing. The qualification resulted from the INS's inability to substantiate the earned revenues offset portion of Immigration Program Costs because the INS did not have adequate records to support the number of pending applications at the beginning of FY 2000. A qualified opinion means that the financial statements are presented fairly in all material respects, except for matters identified in the audit report.

INS management has continued to make progress in correcting the number of reportable conditions previously reported, reducing them from six in FY 2000 to four this year. Although progress has been made, the INS still needs to make further improvement in certain areas including financial management systems controls, general information system control environment, its system for recording revenue, and its system for recording accounts payable. As in FY 2000, the first three items were identified by the auditors as material weaknesses.

As was the case in FY 2000, INS management again expended tremendous efforts in planning and conducting a wall-to-wall physical inventory of approximately 5 million pending applications in order to determine its deferred revenue balance at year-end. However, during FY 2001, the INS implemented the use of application-specific bar code labels that were placed on alien files, application receipt files, and application batch sheets. These labels were intended to significantly reduce the time and effort necessary to complete the inventory of pending applications compared to previous years. Although the count was a success, the effort required still remains extremely costly, both in dollars and lost production. Until an automated system for maintaining the status of applications is in place, the INS will continue to face the challenge of annually conducting service-wide counts in order to determine the value of its pending application inventory.

In the Report on Compliance with Laws and Regulations, the auditors reported that a significant feeder system to INS's financial management system, which processes a large percentage of INS's financial transactions, did not comply with the requirements of the Federal Financial Management Improvement Act of 1996. Specifically, the auditors concluded that the feeder system was not a Joint Financial Management Improvement Program certified application and did not meet federal financial systems requirements. The auditors also reported that INS's systems for recording and reporting pending and completed applications (i.e., deferred and earned revenue) did not meet federal accounting standards or federal financial system requirements.