OFFICE OF THE INSPECTOR GENERAL, AUDIT
DIVISION, ANALYSIS AND SUMMARY OF ACTIONS
NECESSARY TO CLOSE THE REPORT

In its response to the draft report, the EOUST stated that the audit report clearly identifies the need for enhanced and comprehensive efforts to identify fraud and abuse in the bankruptcy system, and provides several recommendations that will improve EOUST's ongoing activities in this critical area. Further, the EOUST stated that it largely concurs with our findings and analyses.

The EOUST also stated that despite the current Administration's efforts to provide the program with additional resources, it is not realistic to expect that it will enjoy financial and personnel resources sufficient to uncover "all" civil and criminal fraud and abuse in the bankruptcy system. We indicate on page 29 of the report that the UST Program will never be able to prevent or identify all instances of fraud and abuse. Therefore, the UST Program should focus its resources on higher-risk types of fraud most affecting the bankruptcy system.

Additionally, the EOUST stated that it is important to recognize that the UST Program's authority is limited to civil enforcement and is not authorized to conduct criminal investigations or to prosecute cases without express authority from the United States Attorney. We agree and stated on page 7 of the report that the USTs are responsible for taking legal action (civil) to enforce the requirements of the Bankruptcy Code and referring cases for investigation and criminal prosecution. Further, we indicated on page 46 that criminal investigations and prosecution is the responsibility of law enforcement agencies and the U.S. Attorneys Office.

Finally, the EOUST requested some minor technical changes to the report. We made the requested changes except for the following:

Page 11: "The second category, providing $82.4 million or 55 percent of the UST Program's funding, is quarterly fees paid by the Chapter 11 debtors. The other $7.4 million or 5 percent comes from miscellaneous compensation associated with Chapters 12 and 13 debt collection receipts, and refunds."

Technical Correction 8: "The second category, providing $82.5 million or 54 percent of the UST Program's funding, is quarterly fees paid by the Chapter 11 debtors. The other $7.4 million or 5 percent comes from miscellaneous compensation associated with Chapters 12 and 13 debt collection receipts."

Explanation for Technical Correction 8: The dollar amount and corresponding funding percentage were corrected for accuracy. Additionally, the source of funding was corrected.

OIG Response: Based on the Program's fiscal year 2003 budget, we adjusted the amount to $82.5 million. However, the percentage remains at 55 percent. The budget includes refunds as a source of funding.

Page 56: FY 2002 and 2003 Performance Indicators Chart.

Technical Correction 16: Substitute the Performance Resources Table included as Attachment 2 to this Appendix.

Explanation for Technical Correction 16: The chart depicted is not current.

OIG Response: Change not made because the chart was current for our audit period.

The status of the report's recommendations follows.

Recommendation Number:

1. Resolved. This recommendation is resolved based on the EOUST's agreement to issue guidance, provide technical assistance and training, and coordinate multi-jurisdictional litigation through the designation of civil enforcement coordinators. The guidance will include a description of the best methods to identify the most common forms of abuse. This recommendation can be closed when we received documentation of such guidance.
2. Resolved. This recommendation is resolved based the EOUST's agreement to expand the ACMS system to allow for the detection of multiple bankruptcy filings. This recommendation can be closed when we received documentation that shows that the ACMS system can detect multiple bankruptcy fillings nationwide.
3. Resolved. This recommendation is resolved based on the EOUST's agreement to revise or reissue guidance governing the review of final reports and accounts. This recommendation can be closed when we received documentation that shows guidance covering the review of final reports and accounts has been revised or reissued to ensure that the reviews are uniform and complete.
4. Resolved. This recommendation is resolved based on the EOUST's agreement to reissue or revise guidance governing the review of Chapter 11 monthly operating reports. This recommendation can be closed when we receive documentation that shows guidance covering the review of Chapter 11 monthly operating reports has been revised or reissued to ensure the reviews are completed.
5. Resolved. This recommendation is resolved based on the EOUST's agreement that the current Criminal Referral Tracking System was insufficiently reliable and stated that a new system will be designed to serve the purposes described in the recommendation. This recommendation can be closed when we receive documentation demonstrating that the new Criminal Referral Tracking System will track UST investigations, referrals made to law enforcement, and allow for trend analyses of the types of fraud and caseloads both nationally and regionally.
6. Resolved. This recommendation is resolved based on the EOUST's agreement to establish data entry protocols for the Criminal Referral Tracking System. This recommendation can be closed when we receive documentation that the new Criminal Referral Tracking System has incorporated established data entry protocols.
7. Resolved. This recommendation is resolved based on the EOUST's agreement to include within the new Criminal Referral Tracking System protocols that will require appropriate verification by regional offices. This recommendation can be closed when we receive documentation that requires regional offices to verify criminal referral data is accurate, complete, and consistent prior to submitting the data to the EOUST.
8. Resolved. This recommendation is resolved based on the EOUST's agreement to include within the new Criminal Referral Tracking System protocols that will provide for periodic spot checks by EOUST staff. This recommendation can be closed when we receive documentation that requires the EOUST's staff to spot check fraud referral data submitted by the regional offices.
9. Resolved. This recommendation is resolved based on the EOUST's establishment of the Significant Accomplishments database that tracks civil enforcement actions performed in the field and by the Program. This recommendation can be closed when we received documentation demonstrating that the Significant Accomplishments database accurately tracks civil enforcement actions nationally and compiles performance data on the civil enforcement aspect of the UST Program.