Budget Execution in the United States Marshals Service During Fiscal Years 2002 and 2003
Report No. 04-02
Office of the Inspector General
In its response to the draft audit report, the USMS agreed with two of our three recommendations, but disagreed with many of our comments and conclusions, stating that they were based on incomplete analysis, contradictory statements, and inaccurate facts. Before we discuss the status of each of the three recommendations, we respond to the general report comments made by the USMS. The status of each recommendation and our discussion of the USMS response to the recommendations will follow thereafter.
First, it is important that we clarify what we audited and what we did not audit. The USMS response mistakenly focuses on its budget formulation process rather than the budget execution process - the subject of our audit. To reiterate, as we state in the Executive Summary:
The objective of the audit was to determine if the USMS executed its appropriated budgets for FY 2002 and FY 2003 in accordance with Congressional spending instructions.
To accomplish this task, we relied on the FY 2002 and FY 2003 appropriation laws and the corresponding House, Senate, and conference reports. We then focused our review on the Congressional spending instructions contained in those reports and how the USMS executed its budget in light of these instructions. Our audit was designed to examine whether the USMS's recorded expenditures were consistent with the congressional instructions.
USMS Financial Statement Audit
The USMS response cites the USMS Annual Financial Statement Audit for FY 2002 (OIG Report No. 03-26), in which the USMS received an unqualified opinion, as evidence that it is in compliance with congressional spending instructions. However, the USMS's reliance on this unqualified opinion as an indication that it has followed Congressional spending instructions is not valid because the purpose of the Financial Statement Audit is to express an opinion only on the agency's financial statements, internal control, and compliance with certain provisions of laws and regulations. As we state on page 3 of the draft audit report on USMS budget execution practices:
We also reviewed the USMS's Standard Form 133 Reports on Budget Execution (SF-133) submitted to the Office of Management and Budget (OMB) for FY 2002 and FY 2003 to determine whether the USMS's total spending in these years is within its total budget authority. In this regard we accepted the amounts reported on the SF-133s based on our reliance on the results in the Office of the Inspector General Audit Report Number 03-26, the United States Marshals Service Annual Financial Statement Audit, Fiscal Year 2002, July 2003, which resulted in an unqualified opinion.
The financial statement auditors do not compare agency spending against Congressional spending instructions when performing testing for the financial statement audit. We relied on the auditors' opinion in the FY 2002 Annual Financial Statement only to determine that the USMS did not exceed its overall budget authority.
The USMS objected to our use of the term "cost model" rather than the term "cost module" in the report. However, in numerous interviews and discussions with USMS personnel, the term cost model was used rather than cost module. The cost module exists in budget formulation, which we did not audit. Notwithstanding that fact, we will accept the terminology suggested by USMS management and consequently have replaced all references in the report to cost model with cost module.
The USMS response stated that it "is not re-organizing via centralization" and that its use of zero-base budgeting in FY 2002 "is not an annual process." In addition, the USMS stated that starting in FY 2003 it used project codes rather than cost centers and that neither project codes nor cost centers "create workplans." Although the USMS may not have undertaken a formal plan to centralize spending and budget execution, as noted in the report, the USMS has centralized spending in key areas at Headquarters and has limited the authority of officials to transfer funds between or among object classes or project codes. The MBD determines the amount of the annual allocation the cost center (FY 2002) or project code (FY 2003) will receive. Further, officials from the cost centers or project codes determine the amount of funding that will be spent in each quarter of the fiscal year and, thus, those officials create the document entitled "workplan." We have clarified this point in the report and explained that the USMS only used zero-base budgeting in FY 2002.
The USMS also objected to our use of the term "account" when we stated in the report that "districts previously could realign funds between accounts without the approval of MBD officials." The USMS stated that "[t]he term 'account' is usually referred to in the same context as an appropriation" and, in this sense, cost centers and project codes "never had authority to move funding between accounts." We have amended the audit report to replace "accounts" with "project codes or object class."
The USMS response also stated, "the USMS has clearly demonstrated and provided supporting documentation to the IG Audit Staff that funding appropriated by Congress for specific purposes was fully allocated in accordance with Congressional direction." As detailed in the audit report, however, the USMS could not demonstrate that budgeted funds were expended in accordance with specific congressional instructions. The USMS could not provide either accounting records or a management information system report supported by accounting records that demonstrated expenses incurred were for the specific purpose described in the spending instructions. By not being able to provide independently verifiable records of expenditures for the specific purposes cited in the congressional spending instructions, the USMS could not show that it had expended its funds in accord with specific congressional directives contained in appropriation laws and committee reports. We have amended the audit report to clarify that while the USMS was able to demonstrate allocation of funding in accordance with congressional spending instructions, it could not demonstrate that funds were expended in accordance with congressional spending instructions
In our audit report we state that the USMS could not demonstrate its adherence to the congressional spending instructions in FY 2002 and FY 2003. The USMS response stated that it "strongly opposed" our use of the term "deficiency" and stated that its system "identifies funding for every program office" in accordance with "approved cost modules." In addition, the USMS stated that it has an "additional internal control . . . to systematically document every allocation change made in STARS." This additional internal control, which we considered to be ineffective, is a Lotus Notes spreadsheet used by the USMS to track budget allocations. We found that the USMS was generally able to demonstrate its allocation of funds; however, it often was unable to demonstrate the obligation and expenditure of these funds in accordance with Congressional intent. In our opinion, because the USMS cannot clearly demonstrate obligation and expenditure of these funds they cannot give assurance that the funds were spent in accordance with congressional spending instructions.
The USMS also disagreed with our continued assertion that the "USMS records do not document that certain funds were expended to the purpose intended by Congress," and noted that "this statement appears to be associated with an incomplete analysis." We do not concur that our review was based on an incomplete analysis. Our analysis was thorough and, throughout the audit, we worked closely with MBD staff when analyzing worksheets and reports that were provided to us. We have provided the details of the budget execution process as gathered from the USMS and disclosed our analyses in the report. We attempted to match expenditures against what Congress specified in spending instructions but were unable to do so. Similarly, the USMS could not do so. As a result, we concluded that USMS records do not document that certain funds were expended for the purpose intended by Congress. The specific spending instructions and expenditures are identified on pages 8 and 19 of the report. Our detailed analysis regarding this process appears in the body of the report.
In its response, the USMS provided additional information about its use of cost modules and the circumstances surrounding its $3,150,000 program increase for the ESU in FY 2002. The USMS stated that it "allocated the entire program increase as Congress intended, and to imply that the funding was not allocated in support of ESU is incorrect." In addition, the USMS stated that "[t]o conclude that the cost module understated the funding for 9 ESU vehicles is factually incorrect."
We found that the USMS allocated the entire program increase in support of the ESU as detailed in the body of the report. However, based on our review of the BSD records, we found that while the BSD spent about $28,985 per vehicle for the 9 ESU vehicles, the cost module allocated only about $25,376 per vehicle. Therefore, we concluded that the BSD was required to compensate for this difference. We stand behind this statement and our conclusion that the USMS cannot track expenditures to ensure that the vehicles line item, as well as other line items in the cost module, remains accurate.
The USMS also stated that it "does trace expenditures to corresponding allocations by project code," but "does not trace by each individual program increase." The USMS stated it "will comply with any additional JMD guidance issued to all components on this issue." As noted previously, we found the USMS was generally able to demonstrate the allocation of funds; however, it often was unable to demonstrate the obligation and expenditure of these funds in accordance with congressional intent. To its credit in September 2002 the USMS Comptroller issued a memorandum to the USMS Headquarters Senior Staff and USMS District Offices incorporating changes to the USMS financial management and budget allocation approach for FY 2003. The memorandum implemented the use of project codes to enhance the ability of the USMS to trace expenditures to the corresponding budget allocations. In our audit report we noted that the use of project codes would help link budget allocations to expenditures, but the use of project codes would not track expenditures across cost centers. Consequently, we stand behind our recommendation that the USMS develop a budget execution system that will allow all expenditures to be traced to corresponding allocations.
The USMS asserted that adding additional project codes to track the specific expenses associated with the cost module portion of program increases is not an efficient use of staff resources or the accounting system. The USMS also disagreed with our statement that, "the USMS needs to implement a methodology for tracking expenditures to cost module estimates in order to demonstrate to Congress that it is adhering to its spending instructions. The USMS believes that it has fully complied with established guidelines with regard to budget execution of appropriated funding." However, we found that the USMS could not demonstrate that the funds provided by Congress in response to the cost module were used for the specific purposes in the estimates. Therefore, we reassert that the USMS needs to implement a methodology for tracking expenditures to cost module estimates in order to demonstrate to Congress that it is adhering to its spending instructions.
In our draft report, we recommended that the USMS develop a vehicle replacement plan to ensure that the USMS motor vehicle fleet is brought into, and then remains, in compliance with the GSA mileage requirements. In its response, the USMS said it "agrees with the value of having a vehicle replacement Plan," but "does not agree to develop a plan that meets the GSA standard of 3 years and 60,000 miles." The USMS stated that the "GSA does not provide the funding to implement a plan to these standards," and that "a standard of 4 years and 80,000 miles provides adequate value for a vehicle replacement plan." Based on the USMS's response to the draft report, and additional information obtained on the GSA vehicle replacement criteria, we have modified our recommendation to read that the USMS develop and implement a formal motor vehicle replacement policy that includes replacement criteria such as vehicle age and mileage.
The USMS stated that it "has not received appropriated funding specifically for JDIS," and that the JDIS "funding was to be identified after all other requirements have been met." In addition, the USMS asserted that it "has operated fully within the 'umbrella' of Congressional expectation and intent." In our review of the FY 2002 and FY 2003 appropriation laws and conference reports, we could not identify language that specified that the JDIS should be funded "after all other requirements have been met," or that this appropriation should be treated differently than any other USMS "no-year" appropriations.
The USMS also asserted that our report inaccurately stated that the USMS assigned a vehicle to the Deputy Director that was purchased with FY 2002 funds. As noted on page six of the USMS's response, the USMS stated that it "employs an additional internal control that is used to systematically document every allocation change made in STARS." This additional internal control is a Lotus Notes spreadsheet that the USMS maintains to track budget allocations. We based our report comment on the following entry from the spreadsheet:
Based on our review of this document, the Deputy Director's vehicle was purchased with FY 2002 funds. Any inaccuracy in this statement is the result of an inaccuracy in the USMS's records and a weakness in the additional internal control referred to by the USMS.
We focused our review on the Congressional spending instructions contained in the FY 2002 and FY 2003 appropriation laws and the corresponding House, Senate, and conference reports, and how the USMS executed its budget in light of these instructions. Based on comments provided by the USMS in its response to the draft audit report and additional information obtained, we made some revisions to the final report including modifying our recommendation for the USMS motor vehicle fleet. We found that while the USMS was able to demonstrate its allocation of funds, it could not demonstrate that funds were expended in accordance with congressional intent. Specifically, it could not provide either accounting records, or a management information system report supported by accounting records, that demonstrated obligations and expenditure of funds for the specific purposes described in the spending instructions. By not being able to provide independently verifiable records of expenditures for the specific purposes cited in the congressional spending instructions, the USMS could not show that it had expended its funds in accordance with specific congressional instructions contained in the FY 2002 and FY 2003 appropriation laws and committee reports. Therefore, we concluded that the USMS needed to improve its budget execution process in order to demonstrate more clearly that budgeted funds are executed in accordance with Congressional intent.
Status of Recommendations
1. Unresolved. The USMS disagreed with our recommendation that it develop a budget execution system that tracks changes, obligations, and expenditures to the budget estimates included in congressional spending instructions. Further, in its response, the USMS stated, "it is inaccurate to assert, 'the USMS can't clearly demonstrate that budgeted funds are allocated in accordance with Congressional intent'." As noted previously, the USMS generally was able to demonstrate the allocation of funds; however, it often was unable to demonstrate the obligation and expenditure of these funds in accordance with congressional intent. Specifically, the USMS could not provide accounting records identifying the obligations or expenditures. We have amended the audit report to clarify this point.
The USMS also stated that it has not pursued the establishment of a budget execution system that tracks specific increments of funding because it has not received direction to do so from the DOJ, the OMB, or Congress. The USMS asserted that establishing such a system without direction "would create a significant administrative burden on both financial and program office staffs, and would be of questionable benefit." However, due to congressional interest in the USMS's budget execution process, the OIG believes that the USMS needs to develop a budget execution system that will track changes, obligations, and expenditures to budget estimates to resolve and close this recommendation.
2. Resolved. The USMS agreed with our recommendation to reexamine its annual congressional request of $4 million for JDIS, in light of the USMS's record of not allocating more than $5.5 million of the available $28 million of these funds over the past seven years. We consider this responsive to the intent of the recommendation. To close this recommendation, the USMS needs to provide the OIG with documentation showing the status of the JDIS project and projected spending requirements for completion.
3. Resolved. To close this recommendation, the USMS needs to provide the OIG with documentation that it has implemented a vehicle replacement policy.