Maintenance and Disposal of Seized and Forfeited Assets
in Selected Western Districts
Report No. 02-07
March 2002
Office of the Inspector General
We performed field work in USMS offices in the Southern District of California and the Districts of Arizona and Nevada. At each site we evaluated the maintenance and disposal of selected categories of seized and forfeited assets. The results of our testing for each asset category are described below.
We tested seized and forfeited vehicles to determine whether:
The results of our testing are discussed below.
Vehicle Inventory was Accurately Reported
We accounted for all seized and forfeited vehicles selected for testing at each of the sites where we performed audit work.
In our testing, we used a combination of 100 percent review, judgmental sampling of vehicles valued at $30,000 or more, and statistical sampling. When we conducted a 100 percent review and when we tested judgmentally selected vehicles, we noted no exceptions. In our tests on assets selected using statistical samples, we were able to account for each selected vehicle and, consequently, we can state with 95 percent confidence that errors, if any, at the locations tested would not exceed 5 percent of the applicable universe.
The following tables display by location the number of vehicles in the universe and their dollar valuation, and the number and dollar valuation of the vehicles selected for testing. We divided the universe of vehicles in custody into two groups, those that were seized and those that were forfeited and, therefore, available for disposal.
The USMS responsibilities for seized vehicles include secure storage so as to preserve their value until disposal.
SEIZED VEHICLES IN CUSTODY
| LOCATION | NUMBER OF ITEMS | VALUE OF ITEMS ($) | NUMBER OF ITEMS TESTED | PERCENT OF ITEMS TESTED | VALUE OF ITEMS TESTED ($) | PERCENT OF VALUE TESTED |
|---|---|---|---|---|---|---|
| Las Vegas, NV San Diego, CA Tucson, AZ Yuma, AZ 6 |
9 704 171 121 |
730,958 2,854,682 1,093,182 158,883 |
9 141 81 59 |
100.0 20.0 47.4 48.8 |
730,958 554,512 574,324 111,252 |
100.0 19.4 52.5 70.0 |
| TOTAL | 1,005 | 4,837,705 | 290 | 28.9 | 1,971,046 | 40.7 |
Source: OIG Verification of CATS Inventory of Seized Vehicles
After seized vehicles are forfeited, the USMS becomes responsible for their sale, transfer to other agencies for official use, or other disposition, as required by the forfeiture decision.
FORFEITED VEHICLES IN CUSTODY
| LOCATION | NUMBER OF ITEMS | VALUE OF ITEMS ($) | NUMBER OF ITEMS TESTED | PERCENT OF ITEMS TESTED | VALUE OF ITEMS TESTED ($) | PERCENT OF VALUE TESTED |
|---|---|---|---|---|---|---|
| Las Vegas, NV San Diego, CA Tucson, AZ Yuma, AZ |
8 309 23 0 |
125,381 1,023,686 231,276 0 |
8 89 23 0 |
100.0 28.8 100.0 0 |
125,381 411,134 231,276 0 |
100.0 40.2 100.0 0 |
| TOTAL | 340 | 1,380,343 | 120 | 35.3 | 767,791 | 55.6 |
Source: OIG Verification of CATS Inventory of Forfeited Vehicles
Vehicle Valuation was Reasonable
For all the vehicles we tested, both seized and forfeited, we concluded that the valuation recorded in CATS was reasonable. The USMS offices determine the value of vehicles by obtaining the "unadjusted loan" value from the National Automobile Dealers Association (NADA), and then adjusting that amount for the condition of the vehicle and the presence or absence of options. During our testing, we verified the factors that the USMS office had used to enhance or diminish the NADA valuation, and we concluded that in each case the USMS valuation was reasonable.
In addition, sales data from San Diego and Tucson supported, in our judgment, the reasonableness of the valuations reported in CATS. We examined the results from three auction sales of vehicles held in San Diego between January and May 2001. Each sale realized more than 100 percent of the cumulative NADA unadjusted loan values of the vehicles sold.
We also reviewed the only recent sale at the Tucson suboffice of the District of Arizona. At that sale, held in June 2001, the cumulative return was $129,450 for 33 vehicles valued at $161,687, or 80.1 percent of the NADA loan value.
In our judgment, the proceeds from these sales indicate that the USMS generally obtained a fair market value for the vehicles sold in San Diego and Tucson.
Forfeited Vehicles were Generally Disposed of Promptly
The USMS guidelines require the disposal of forfeited vehicles within 120 days after forfeiture, unless they are low-value vehicles that are to be scrapped. In the latter case, the USMS guidelines call for disposal within 60 days.
In San Diego, 2 of the 89 forfeited vehicles we tested had remained in USMS custody for excessive lengths of time. In one case, the delay in disposing of the vehicle resulted from oversight. In the other instance, a contractor's employee damaged a vehicle that had been sold as it was being moved from the lot. The sale was voided and the vehicle was retained while the USMS considered how to proceed. Ultimately, the vehicle was sold at a later date. In our judgment this incidence rate (2.2 percent) is minimal, does not indicate a pattern of mismanagement, and does not adversely reflect on general management of forfeited vehicles in San Diego. We noted no excessive retention of forfeited vehicles at the other sites where we performed audit work.
Our objectives in testing vessels were similar to those for our testing of vehicles: to validate the inventory and its valuation and to evaluate whether there were any unreasonable delays in disposing of forfeited vessels. The results of our testing are as follows.
Vessel Inventory was Accurately Reported
We accounted for all seized and forfeited vessels at each of the sites we audited. Because of the limited number of vessels at those sites, we conducted a 100 percent review in each instance.
TOTAL VESSELS IN CUSTODY
| LOCATION | NUMBER OF ITEMS | VALUE OF ITEMS ($) | NUMBER OF ITEMS TESTED | PERCENT OF ITEMS TESTED |
|---|---|---|---|---|
| Las Vegas, NV 7 San Diego, CA Tucson, AZ |
2 7 7 |
9,895 407,070 37,500 |
2 7 7 |
100.0 100.0 100.0 |
| TOTAL | 16 | 454,465 | 16 | 100.0 |
Source: OIG Verification of CATS Inventory of Total Vessels
Vessel Valuation was Reasonable
The value of five vessels in custody in San Diego and one in Las Vegas was determined by using the NADA Marine Appraisal Guide. The value of two vessels in San Diego, one in Las Vegas, and all seven vessels in Tucson was established by appraisers retained by the USMS. Based on our review of documentation in the case files, we concluded that the valuation of all the vessels at each of the sites was reasonable. In summary, the documentation was as follows.
Forfeited Vessels were Disposed of Promptly
Our testing did not disclose any instances where the USMS had retained forfeited vessels for excessive periods of time.
CASH/CURRENCY AND FINANCIAL INSTRUMENTS 9
We tested the "cash/currency" and "financial instruments" categories to determine whether:
Inventory of Cash/Currency and Financial Instruments was Accurately Reported
We accounted for all seized and forfeited "cash/currency" and "financial instrument" assets selected for testing at each of the sites where we performed audit work.
In selecting assets for our testing, we used a combination of statistical sampling, judgmental sampling of assets valued at $100,000 or more, 10 and 100 percent review.
In our tests on statistically sampled assets, we were able to account for each selected asset; consequently, we can state with 95 percent confidence that errors, if any, at the locations tested would not exceed 5 percent of the assets in the applicable universe. When we conducted a 100 percent review and when we judgmentally selected certain assets for testing, we noted no exceptions.
The following table identifies by location the number of assets in the universe, their dollar value, and the number and dollar value of the assets selected for testing. Although CATS defines cash/currency and financial instruments as separate categories, we combined them for audit purposes.
TOTAL CASH AND FINANCIAL INSTRUMENTS IN CUSTODY
| LOCATION | NUMBER OF ITEMS | VALUE OF ITEMS ($) | NUMBER OF ITEMS TESTED | PERCENT OF ITEMS TESTED | VALUE OF ITEMS TESTED ($) | PERCENT OF VALUE TESTED |
|---|---|---|---|---|---|---|
| Las Vegas, NV San Diego, CA 11 Phoenix, AZ |
117 380 171 |
7,514,913 6,185,566 10,071,694 |
117 129 92 |
100.0 33.9 53.8 |
7,514,913 4,217,446 6,907,472 |
100.0 68.2 68.6 |
| TOTAL | 668 | 23,772,173 | 338 | 50.6 | 18,639,831 | 78.4 |
Source: OIG Verification of CATS Inventory of Cash/Currency and Financial Instrument Assets
Valuation of Cash/Currency and Financial Instruments was Accurately Reported
When we conducted a 100 percent review and when we judgmentally selected certain financial assets, we noted no exceptions between the CATS valuation and the amount deposited in the Seized Asset Deposit Fund (SADF) or otherwise in USMS custody. 12
In our tests of assets selected using statistical sampling, we were able to verify the CATS valuation for each selected financial asset; consequently, we can state with 95 percent confidence that inaccuracies, if any, of the valuation of cash/currency and financial instrument assets at the locations tested would not exceed 5 percent of the assets in the applicable universe.
Forfeited Cash/Currency was Disposed of Promptly
Our testing of cash/currency did not disclose any instances where forfeited assets were retained for an excessive time after forfeiture. However, we found four instances where the USMS office in San Diego did not make a timely disposal of forfeited financial instruments.
Because these appear to be isolated instances, we are not offering a formal audit recommendation for corrective action. However, in our judgment the USMS should evaluate the adequacy of its policies and procedures to prevent negotiable instruments from becoming stale-dated and to ensure the timely disposal of forfeited financial assets.
The USMS Headquarters scheduled a national auction in Las Vegas, NV in March 2001 to dispose of forfeited jewelry and collectibles from 40 (of 94) USMS districts throughout the country. We observed the auction, which included 527 lots from the USMS plus more than 500 from other law enforcement entities. A total of 152 bidders registered for the auction.
According to a representative of the USMS Asset Forfeiture Office, the proceeds from this auction were the third highest amount realized in the past five years of the contract with the auctioneer. The sales proceeds of $1,005,895 represented 95.3 percent of the appraised value of the assets sold.
A USMS representative at the auction told us that the high bid for several items was below the reserve amount established by the USMS, so those items were retained for sale at a later auction. In our judgment that action was an appropriate measure to protect the Government's interest in obtaining a fair return from the sale of such assets.
Based on our observation of the auction, we concluded that the USMS disposes of forfeited jewelry in an orderly process that obtains a reasonable rate of return for the government. We also concluded that the centralized sale of forfeited jewelry made it unnecessary to perform additional audit work on jewelry at individual USMS districts.
Our audit identified a noteworthy practice at three sites that in our judgment the USMS should consider for more widespread adoption. This practice involves the use of digital cameras to photograph vehicles.
The USMS maintenance and disposal personnel at San Diego, Tucson, and Yuma use digital cameras to document the existence and condition of vehicles. We believe that creating a photographic file can protect the interests of the government in the event that a dispute arises later on. For example, photographs can be very helpful in establishing the condition of the vehicle at the time of sale.
The Tucson and Yuma offices employ comprehensive practices by taking several exterior photographs as well as interior photographs showing the odometer reading for all vehicles. In our judgment, establishing a photographic record of the odometer reading is an especially noteworthy practice.