United States Marshals Service Annual Financial Statement
Fiscal Year 2005

Audit Report 06-09
February 2006
Office of the Inspector General

Commentary and Summary

This audit report contains the Annual Financial Statement of the United States Marshals Service (USMS) for the fiscal years (FY) ended September 30, 2005, and September 30, 2004. Under the direction of the Office of the Inspector General (OIG), Cotton & Company LLP (Cotton & Company) performed the USMS audit.

The USMS received an unqualified opinion on its FY 2005 financial statements. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and results of the entityís operations in conformity with generally accepted accounting principles in the United States. The USMS also received an unqualified opinion on its FY 2004 financial statements (OIG Report No. 05-13).

For FY 2005, the auditors reported four reportable conditions, three of which were material weaknesses. The auditors reported a material weakness in the overall internal control environment. Specifically, improvements are needed in the control environment, risk assessment, control activities, information and communication, and monitoring of control activities and financial transactions. The second material weakness related to the management and recording of property, where deficiencies were noted in the USMSís control processes for acquiring, processing, and monitoring of capitalized real property transactions. The auditors also reported a third material weakness regarding improvements needed in the information system general and application control environments. Significant weaknesses were identified in the areas of segregation of duties, system software, and access controls.

Furthermore, the auditors reported in the reportable condition that the USMS needs to address several compliance issues that may have a significant affect on USMSís internal controls with regard to the Prompt Payment Act, the Improper Payments Information Act and the Federal Managersí Financial Integrity Act.

In the Independent Auditorís Report on Compliance, in addition to the compliance issues discussed above, the auditors reported that the USMSís financial management systems did not substantially comply with the requirements of the Federal Financial Management Improvement Act (FFMIA). The auditors also reported non-compliance with regard to funding of capital leases in accordance with Office of Management and Budget Circular A-11.

The OIG reviewed Cotton & Companyís report and related documentation and made necessary inquiries of its representatives. Our review, as differentiated from an audit in accordance with generally accepted government auditing standards in the United States, was not intended to enable us to express, and we do not express, an opinion on the USMSís financial statements, conclusions about the effectiveness of internal control, conclusions on whether the USMSís financial management systems substantially complied with FFMIA, or conclusions on compliance with laws and regulations. Cotton & Company is responsible for the attached auditorís report dated October 24, 2005, and the conclusions expressed in the report. However, our review disclosed no instances where Cotton & Company did not comply, in all material respects, with generally accepted government auditing standards.