UNITED STATES MARSHALS SERVICE
MANAGEMENT OF PROPERTY AND CAPITALIZED ASSETS
Audit Report 97-12, (5/97)
TABLE OF CONTENTS
Property Management System Requirements
Overview of the Property System
Review of Methodology and Results
Significant Amounts of Property Were Unaccounted For
One-Third of Property Located On-Site Was Not Contained in the PMS
Property Had Missing or Incorrect Serial Numbers, Barcode Numbers, or Values
Updating PMS Can Take Over 1 Year
Most Property Purchased at District and Field Offices Was Not Entered into the PMS
Inventories Were Not Adequate or Not Performed Timely
Lack of Controls Pervasive at the Information Technology Services Office
Congressional Requirements for Financial Statements
Capitalized Property Record System
Aircraft, Vehicles, and Other High Cost Property
SCHEDULE OF DOLLAR-RELATED FINDINGS
APPENDIX I - AUDIT SCOPE AND METHODOLOGY
APPENDIX II - PROPERTY TABLE BY TYPE AND VALUE
APPENDIX III - LIST OF SITES REVIEWED
APPENDIX IV - SUMMARY OF AUDIT FINDINGS BY LOCATION
APPENDIX V - STATISTICAL SAMPLING MODEL
APPENDIX VI - ACRONYMS AND DEFINITIONS
APPENDIX VII- USMS RESPONSE TO THE DRAFT REPORT
EXECUTIVE SUMMARY
The U.S. Marshals Service (USMS) is a nationwide law enforcement agency with 3,185 employees. Its mission includes locating fugitives, protection of federal courthouses, transportation of prisoners, and relocation of protected witnesses. During FY 1996, the official USMS property management system contained 52,000 items valued at about $120 million, mostly computers and communications equipment. In brief, our audit determined:
Our findings included all types of property, however, the most serious problems related to computer equipment. A disproportionate share of the property that could not be found was assigned to the USMS Headquarters offices.
We also determined that capitalized assets were not accounted for properly, resulting in an account misstatement of at least $112 million. The types of assets included capitalized leases, leasehold improvements, vehicles, and aircraft. This weakness was primarily the result of: (1) a lack of communication between the USMS and the Justice Management Division, who is preparing financial statements for the Department; and (2) an insufficient automated accounting system to support financial statements.
The details of our results are contained in the Findings and Recommendations section of
the report. Our audit scope and methodology are contained in Appendix I.
On March 17, 1997, the USMS issued a memorandum indicating initiation of corrective action
to resolve all the recommendations in the report. A copy of that memorandum is included as
Appendix VII.
The USMS has a primarily decentralized organizational structure, organized into 94 district offices with at least 200 suboffices; a centralized Headquarters (HQ) unit in Washington D.C., and regional/field offices for the various Headquarters Divisions. The automated Property Management System (PMS) is utilized by the USMS to manage property dispersed throughout the organization. A chart listing property types for the entire system by number and dollar value is included as Appendix II.
The PMS is a module of the Financial Management Information System (FMIS). FMIS was developed and is maintained by the Justice Management Division (JMD). There is no linkage between the USMS PMS and its accounting system. The PMS is a centrally maintained system requiring all additions, deletions, and changes to be made by USMS property management staff in Washington, D.C. The PMS does not differentiate between property assigned to a district office or to any of its suboffices, nor does it identify a particular individual who has custody of the property in the district/office. Therefore, this information must be maintained separately by the local office.
In addition to tracking property at USMS Headquarters and in the field, the USMS needs to keep track of capitalized property such as leases and leasehold improvements. A Department of Justice financial statement audit requires the accurate reporting of all capitalized assets valued at $25,000 or more. The USMS has JMD prepare its financial statements, including maintaining all of the USMS general ledger account balances. Information in the PMS is used to support some account balances but other assets, such as capitalized leases and leasehold improvements, are not defined as accountable property and are maintained in a separate record.
FINDINGS AND RECOMMENDATIONS
I. USMS PROPERTY MANAGEMENT SYSTEM IS INADEQUATE
The USMS PMS does not adequately record, manage, and control personal property. An overall cause is the cumbersome and inefficient computer-based property management system. The current system does not allow field offices to manage their own property records, but instead requires centralized data input at USMS Headquarters. Other causes include property records being inaccurate and not current, inventories are not conducted timely or conducted properly, controls over property are weak or nonexistent, and staff receiving insufficient training and supervision. Based on our testing, about $4 million of USMS property is at risk of loss, theft or misuse.
Property Management System Requirements
The Office of Management and Budget (OMB) Circular A-123, Revised, states that the objectives of internal control systems are to provide management with reasonable assurance that:
DOJ Order 2450.1A requires that a property management system be designed to maintain data on property throughout the organization and provide management with accurate information including property utilization and accountability.
Overview of the Property System
Accountable property as defined by the USMS has three primary characteristics: (1) an acquisition value of at least $200, (2) an expected useful life of at least 1 year, and (3) it does not become a component part of another item. There are exceptions to this list such as leased property and furniture.
The property system used by the USMS is a centrally maintained ADP system requiring all additions, deletions, and changes to be made by property management staff at Headquarters. Changes are made based on manual input from district/field offices. USMS district and field offices cannot query the system, or change any records. Staff must request inventory lists from Headquarters to determine the status of property in their office. The system does not differentiate between property assigned to a district office or to any of its suboffices, nor does it identify a particular individual who has custody of the property. As a result, field offices must maintain this information separately.
The system is not integrated with the USMS' accounting or procurement systems and is therefore a fragmented, rather than unified system. Property management staff depend on paperwork sent in from the accounting and procurement offices to alert them to any new accountable property.
At the initiation of our audit, there was a separate Property Management Division in Headquarters. In December 1996, the USMS implemented a reorganization and changed this structure. Property management responsibilities are now integrated into field support teams.1
Review of Methodology and Results
In order to test the effectiveness of the USMS' property management system, we concentrated on what we considered to be the property most vulnerable to loss, theft, or misuse. These categories were weapons and computers, representing about 46 percent of all accountable property in the USMS. We supplemented these categories with an overall property category that included the remaining types of property.
We reviewed property records at 18 district offices, 4 Headquarters field offices outside Washington, D.C., and the USMS Headquarters2. Together, these offices maintained about 36 percent of the USMS property items nationwide. We performed the following eight tests of the property records. Specifically, we:
For tests 1 and 8, we were able to use statistical sampling techniques to project our results to the universe of property. For test 3, we tested the entire PMS and our results are for the universe. For the remaining tests, our results are only for the offices reviewed and are not projected. Because of the magnitude of deficiencies at ITS, we performed more in-depth tests at this office. A detailed discussion of our results for each of the tests follows. For a matrix containing our tests, deficiencies, and their magnitude, please see Appendix IV.
Significant Amounts of Property Were Unaccounted For
We reviewed a PMS property listing to determine if items could be found on-site. An item was considered found if we physically saw it, or we were provided satisfactory documentation it existed at another location. Based on statistical sampling, at least 2,776 items valued at almost $3.5 million cannot be located3.
USMS Headquarters property comprised about 15 percent of the items in the PMS. However, the majority of the property not located was assigned to USMS Headquarters, both in terms of the number of items and their dollar value. Computer equipment comprised the majority of unaccounted for property. Except for one instance, all firearms we tested were accounted for.4
One-Third of Property Located On-Site Was Not Contained in the PMS
We judgmentally selected accountable property items at sites and determined if the equipment was on the USMS inventory list. At Judicial Security Division (JSD) offices, we also traced items to the supplemental inventory list5. We refer to this as our "walk through" inventory. If an item was not on either list, we determined whether paperwork had been initiated to add it to the PMS. Of the 616 items selected for this test, 405 items were in the PMS, 8 were on a JSD supplemental list, and 203 items (33 percent) worth approximately $488,662 were not in the accountable property records. These results are for only the locations we tested and are not projected.
Because PMS data input is centralized in USMS Headquarters, we determined whether paperwork had been initiated to add the 203 items to PMS. We found that paperwork for 125 of the items (62 percent) had not been initiated to add the property to the PMS or the JSD supplemental list.
As part of our walk-through inventory test, we noted that seven weapons on-site (10 percent of all weapons selected) were not in the PMS. We queried the entire PMS and found two weapons were in the system but were identified with the wrong district/office and that five weapons were not accounted for in the system. During our field work, paperwork had been initiated to add or change information in the PMS for three of the seven weapons.
A JSD office understated its accountable property by at least $237,000. JSD personnel stated that as a security precaution, they did not record in PMS sensitive property that was used in classified operations. As a result of our inquiry, JSD prepared a supplemental list of unrecorded property items totalling $237,000 that were located in JSD headquarter and field offices. However, even this supplemental list was incomplete, as a JSD field office had at least 25 items that were not recorded either in the PMS or the supplemental list.
In our judgment, USMS property that is not contained in the official property system is a serious deficiency because it is highly vulnerable to loss, theft, or misuse. The USMS recognized this problem and since the inception of the audit, has requested property management personnel to add all accountable property to the system. For example, JSD has added 21 vehicles valued at $1.6 million and computer equipment acquired at $1.7 million. In addition, the Air Operations Branch has added almost $900,000 in property and the Historian's Office has added about $265,000 in property. For purposes of comparison, the Historian's Office PMS inventory was less than $33,000 as of April 1996.
Property Had Missing or Incorrect Serial Numbers, Barcode Numbers, or Values
We reviewed the entire PMS database. PMS contained approximately 52,000 items valued at $120 million. General tests were performed on the database in order to determine the completeness and validity of the data. We found that:
Missing and duplicate barcode and serial numbers make it much more difficult to perform an inventory. Vastly understated values also have a financial impact. An analysis of the 499 items referred to above revealed that 293 of the 499 (59 percent) were assigned to the Air Operations Division. These items, valued at about $2.2 million, included: 2 Convair aircraft valued at about $1 million each, 3 aircraft tugs valued at a minimum of $22,500 each, 20 airplane jacks valued at approximately $1,000 each, and 4 forklifts valued at $16,000 each.
Updating PMS Can Take Over 1 Year
As we discussed before, all entries and changes to the PMS are performed by USMS staff in Washington, D.C. OMB Circular A-123 standards require the timely updating of inventory records to ensure the protection of property. In our judgment, the centralized property management system promotes delays and inaccuracies. An interactive property management system, with appropriately controlled field office and Headquarters access, would minimize the delays and provide more reliable information.
Our audit revealed that property received by offices was not being entered into the PMS in a timely manner. This was the result of the failure of district/office personnel to forward the required paperwork to USMS Headquarters, and/or the failure of Headquarters personnel to enter the data in a timely manner. The test results are for only the locations we reviewed and are not projected.
For the first test, we quantified the days that had elapsed from the date that property was received in the office/district to the date the paperwork was forwarded to USMS Headquarters for data entry. We were able to identify 125 transactions where we could isolate the necessary date information. For these transactions, the elapsed time averaged 162 days or 5.4 months.
For the second test, we quantified the number of days this data was awaiting entry into the PMS at USMS Headquarters. We compared the date it was sent to USMS Headquarters to the June 1996 listing used to test the accuracy of the inventory. For this test, 174 transactions were identified that had been submitted but not yet entered into the system. The average waiting period was 555 days or 18.5 months.
Most Property Purchased at District and Field Offices Was Not Entered into the PMS
USMS offices were purchasing accountable property and not updating the records to include this property in the PMS. There appeared to be two primary reasons for this: (1) the purchasing officials were not notifying the property custodian of the purchases of accountable property, and (2) USMS personnel were not requesting Headquarters to add newly purchased property to the inventory system. As a result, accounting and internal controls over these assets were weakened.
We tested 147 purchases of property bought for about $165,000 in 18 field offices from July 1, 1995 through March 31, 1996.6 Our tests were to determine if transactions were being recorded in the PMS. The results of our tests are for only the locations we reviewed and are not projected. We noted in a majority of instances, the new purchases were not in the property records as of June 6, 1996. The total number of items was 118 (about 80 percent of the universe) costing approximately $139,044. For 82 of the 118 purchases, district personnel had initiated the necessary paperwork to add the property to the database, but, as of June 1996, the property was not recorded in PMS. We were able to physically verify or account for all the purchased property we identified.
We noted another deficiency regarding the acquisition of property and maintenance of property records. In two offices, the individual responsible for maintaining the property records was also responsible for procuring accountable property. These two responsibilities create a separation of duties problem where one individual could purchase property, omit it from the property records, and misappropriate its use. In our judgment, this conflict should be eliminated.
Inventories Were Not Adequate or Not Performed Timely
Inadequate Inventories. We noted a lack of internal controls at several locations concerning the segregation of duties when physical inventories were performed. Our audit of five Headquarters offices revealed that in four offices, the individual responsible for maintaining the inventory was involved in conducting the actual inventory. In the other 22 offices we reviewed, this situation was prevalent in 18 locations. In total, one person was in a position to manipulate the inventory as well as supporting property records in 22 of 27 offices reviewed.
The USMS manual states the property custodian may not be a member of the inventory team, but can provide technical guidance and assistance during the actual inventory. In addition, each employee taking part in the physical inventory must sign a Certification of Inventory form stating that they are not involved with the maintenance of accountable property records. This form becomes a part of the physical inventory records submitted to the Property Management Branch.
Our review of the certifications signed by the USMS employees revealed that the required statement was not utilized. This lack of adequate certification may have contributed to employees misunderstanding that they should not be responsible for maintaining the local accountable property records and be involved in the actual physical inventory.
Inadequate and untimely inventories could potentially have been avoided if personnel with custodial responsibilities were adequately trained. Property Custodians at 23 of the 27 locations visited, stated that they did not receive training in property management.
Inventories Not Performed Timely. DOJ Order, 2450.1A, as implemented by the USMS manual, requires the completion of an accountable property inventory every 2 years or when there is a change of Property Custodian, whichever is sooner. We tested the less stringent 2 year requirement and found that 5 of the 27 locations reviewed did not meet it. Three of these five locations were Headquarters offices.
Lack of Controls Pervasive at the Information Technology Services Office
The ITS had the most significant internal control problems. ITS is responsible for purchasing and supporting computer equipment for the entire USMS. The weaknesses had to do with property under ITS control and property in other USMS offices purchased by ITS. Property maintained by ITS is among the most vulnerable to waste, theft, or misuse because of its utility, portability, and relatively high cost.
Controls were deficient over: (1) property ITS employees took home, (2) the timing of inventories, (3) the accuracy of inventory listings, (4) recording purchases of computer equipment, and (5) classifying items as accountable property. A discussion of each follows.
Property Located at ITS Employees' Homes. We noted a lack of internal controls over accountable property ITS employees took home. The ITS did not require employees to record personal possession of property.
When we began our review, ITS had three memoranda, all dated in November 1992, indicating that three employees had computer equipment at home. In addition to being outdated, the memoranda lacked any identifying information (i.e. serial number, barcodes, etc.) by which the property could be tracked using the PMS. As a result of our inquiry, ITS generated a list of employees and the corresponding computer equipment that was in their possession at home. This new list did provide the item description, serial number, and barcode (if barcoded). However, ITS did not prepare and maintain any hand receipts for accountable property in the personal possession of its employees.
We tested the new list to determine if the items appeared in the PMS and more specifically on ITS' inventory listing. Of 23 computer items listed, 14 (60 percent) did not appear on the ITS inventory listing. Of these 14 items, 8 were not in the PMS at all; the remaining 6 were assigned to other offices besides ITS.
We also noted two instances of inaccurate information on the new list of equipment at ITS employees' homes. First, there were two laptops with identical serial numbers and barcode numbers listed in the possession of two employees. Second, the barcode number for these two laptops was already assigned to a mobile radio located at a JSD field office.
The USMS manual states that "Management of accountable property requires continuous record of accountability and a written audit trail be maintained for all accountable property at all times." Furthermore, the manual states, "All accountable property and nonexpendable property issued to employees, or on loan, must be supported by use of Form USM-325 (Hand Receipt)." Accordingly, ITS was required to prepare and maintain Hand Receipts for all items issued to employees, including those located at the employees' homes. However, this was not the practice.
Outdated Inventory. The most recent inventory performed at ITS was dated September 9, 1993. At the time of our review, the inventory was out of date by 3 years and at least a year over the required interval for conducting inventories. As previously stated, an inventory is required to be performed every 2 years or when there is a change of Property Custodian, whichever is sooner.
We reviewed the last inventory and the accompanying adjustments in order to determine whether these adjustments were made. Of the 28 items that were unaccounted for as of September 9, 1993, adjustments were properly made for 25. As a result, these items were removed from the PMS. However, the remaining three property items were still found in the PMS. Two computers and a monitor were shown to be located in the Northern District of Iowa, the District of Hawaii, and at ITS, respectively. Though the USM-134 (Affidavit regarding lost, stolen, or unauthorized destruction of government property) was properly prepared, the revisions to the PMS were not made for these three property items.
Accuracy of Inventory Listings. The PMS records for ITS were highly inaccurate. As of March 6, 1996, the PMS inventory reported a total of 1,651 items valued at about $2.8 million. In March 1996, we performed two types of tests. First, we physically verified a random sample of 176 items valued at $293,579 that appeared in the PMS inventory listing [from the list to the floor]. Second, we compared the recently prepared USMS contractor list of property to the PMS list [from the floor to the list].
For our first test, 132 items ($177,143) of the 176 sampled were not found, 17 items ($63,000) were found, and the remaining 27 items ($53,436) had paperwork to show whether the items were excessed or transferred. For the 132 items not found, ITS officials were unable to determine where these items were located. They explained that when ITS purchased large quantities of computer equipment for the USMS, the property was recorded on the PMS inventory listing, but shipped or transferred to other offices.
In our second test, 104 items (41 percent) of the 254 listed on the contractor's property list were not found on the PMS inventory listing, while 149 were found on the list. This represents a serious internal control weakness in that these 104 pieces of computer equipment were at risk of loss or theft.
In October 1996, we reviewed ITS again. We could not locate 19 property items out of 31 randomly sampled for ITS. Four were found and 8 were excessed or transferred. Our second review confirmed the results of our first review.
Purchases of Accountable Property. ITS lacked adequate controls in managing the purchases of computer equipment. In our review of three types of purchasing methods that ITS used from July 1, 1995 to March 31, 1996, there were no controls to:
- Identify purchased accountable property.
- Record purchased accountable property into the PMS. This would include serial numbers and barcode numbers.
- Maintain documentation (such as receipts, invoices, etc.) for purchases made.
Our tests indicated that accountable property worth $2.1 million (1,034 items; 94 percent of the items tested), purchased during our test period, were not in the PMS as of June 6, 1996. The table on the following page shows in summary the items tested and our results.
Purchasing Methods |
Property Items Tested |
Property Items Found in PMS |
Property Items Not Found in PMS |
|||
Qty |
$ |
Qty |
$ |
Qty |
$ |
|
| VISA | 3 |
$1,447 |
0 |
$0 |
3 |
$1,447 |
| USM 157s7 | 383 |
$735,237 |
6 |
$8,693 |
377 |
$726,544 |
| J-CAP8 | 717 |
$1,500,764 |
63 |
$121,252 |
654 |
$1,379,512 |
Totals |
1,103 |
$2,237,448 |
69 |
$129,945 |
1,034 |
$2,107,503 |
Property Improperly Classified. During our review, we noted that ITS purchased 255 Uninterrupted Power Supply units (UPS) valued at a total of $197,625 and 175 external Tape Back-up Units (TBU) valued at a total of $38,850. These UPSs and TBUs had a unit cost of $775 and $222 respectively, as well as a useful life of more than 1 year. UPSs were considered exceptions to the definition of accountable property and, therefore, were not recorded in the PMS. Also, ITS staff explained that they were under the impression that TBUs were not accountable property. However, the USMS manual states, "Accountable property is property which is complete within itself, has an expected useful life of one year or longer, and must be recorded and controlled. In general, accountable property has an individual, initial acquisition value of $200 or more." Therefore, according to the USMS manual, UPSs and TBUs should have been considered accountable and recorded in the PMS.
Significant Amounts of Idle Property Were Identified
We found significant amounts of idle property throughout the USMS. We considered an item to be idle if it was: described as such by office management, found in the office in an unopened box, or if it was kept in a storage area obviously not utilized for an extensive period of time. Before categorizing any equipment as idle, we obtained confirmation from office management. Based on our use of statistical sampling, at least 5,070 items nationwide valued at about $4.4 million were idle. Examples of the idle property at a district office included two microwave link systems purchased in April 1991 for approximately $700 each. The equipment apparently had never been used and no one at the district office knew how to operate the equipment.
We also identified idle property we could not project because it was selected judgmentally. It was identified during our walk through inventory that consisted of 616 items. In total, 128, or approximately 21 percent, of the items were identified as idle. The value of these 128 items was $152,381. Examples of idle property included 15 video printers that were purchased in December 1992 and February 1993 for a total cost of approximately $17,000. We found the items in un-opened boxes in the USMS warehouse.
The occurrence of idle property across the USMS was proportionate. No specific type of USMS office had an unusual percentage of this type equipment, resulting in this being a systemic problem.
The current USMS property management system is inadequate. The types, locations, and values of equipment contained in PMS are questionable. There are a myriad of causes, however, an overriding cause is the current computerized system. PMS does not allow USMS property officials nationwide to query it, or to update it directly when necessary. Instead, paperwork must flow from the field to Headquarters for centralized data input. This is a costly, time consuming, inefficient process. The affect of the weaknesses in the PMS is that significant property is at risk for theft, loss and abuse. In addition, the current system does not adequately support the required financial statements.
There are other weaknesses in the current USMS property management process unrelated to PMS. These include inadequate: (1) inventory practices, (2) training, (3) supervision of personnel, and (4) separation of duties.
Unless the USMS implements a nationwide property management system that users can access and appropriately update, and corrects the internal control weaknesses identified herein, we believe significant portions of USMS property will remain at risk for waste, loss, and theft.
Recognizing some of the problems with the PMS, the USMS has begun to take corrective actions. As mentioned previously, some of the Headquarters offices have identified a significant amount of accountable property to be added to the system. According to the USMS, it has: (1) hired contract employees to enter data into the system and reduce the previously identified backlog; (2) processed approximately 6,400 property transactions worth about $32.6 million since May 1996; and (3) initiated testing of an automated hand receipt system that should help in performing inventories and control property at the local level.
We recommend the Director, USMS:
1. Implement a new, automated system to assist the USMS in its management of property nationwide. The system should take into account the current system's weaknesses, including allowing appropriate field and Headquarters access and update capabilities.
Resolved. The USMS has committed to develop an improved property management system. It expects to have a fully integrated finance and property management system in place by September 30, 1998.
To close this recommendation, please notify the OIG when the new system is implemented. Additionally, provide interim updates on the status of its development.
2. Ensure that inventories are conducted as required and that timely adjustments are made to the property management system.
Resolved. The USMS indicated it will ensure that all physical inventories are current by September 30, 1997 for field sites and by December 31, 1997 for Headquarters offices. By April 1, 1997, the USMS indicated it will have eliminated the previous backlog of adjustments. The USMS also indicated it will establish a new standard requiring all updates to the system be entered within 30 days from the date of the receipt.
To close this recommendation, please provide evidence that: (1) all inventories are current, (2) the adjustment backlog has been eliminated, and (3) a 30 day standard is in place.
3. Ensure that property custodians are not members of teams that perform inventories.
Resolved. The USMS indicated it will notify property custodians of this requirement by memorandum immediately and monitor physical verification certification reports for compliance.
To close this recommendation, please provide a copy of the memorandum, and support of monitoring of their future performance.
4. Ensure that all USMS employees with property management responsibilities receive adequate training.
Resolved. The USMS indicated it will develop a training program by June 30, 1997. Training will commence by October 1, 1997, and be completed by September 30, 1998.
To close this recommendation, please provide an outline of the training, a list of who will receive training, and the training dates.
1 The reorganization does not affect any of the findings in this report.
2 The locations we reviewed are contained in Appendix III.
3 Our projection methodology is in Appendix V.
4 One firearm was reported being stored at a U.S. Attorneys Office as evidence in the Ruby Ridge incident. We did not physically verify this.
5 JSD created a supplemental list at the request of the OIG to account for property in its field offices, which were not listed on the PMS for security reasons.
6 Our tests in Headquarters concentrated in the Information Technology Services Office because of perceived weaknesses there. Those results are reported separately.
7 USMS Form utilized for the requisition of supplies, services and equipment.
8 DOJ-wide contract used to purchase computer equipment by Information Technology Services.
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