January 4, 2007

MEMORANDUM

TO:	Glenn A. Fine Assistant Inspector General for Audit
FROM:	Lee J. Lofthus Assistant Attorney General for Administration
SUBJECT:	Response to the Office of the Inspector General’s (OIG) Draft Report: Efforts to Prevent, Identify, and Recover Improper and Erroneous Payments by Selected Department of Justice Components

This responds to the Office of the Inspector General’s (OIG) Draft Report:  Efforts to Prevent, Identify, and Recover Improper and Erroneous Payments by Selected Department of Justice Components. This response is for the Justice Management Division (JMD) and Offices, Boards, and Divisions (OBD) recommendations only.

Recommendation 1. Ensure that risk assessments for each component are required to include:  (1) an assurance statement of an unqualified, qualified, or no-assurance opinion, following the requirements of OMB Circular A-123 revision, Managements’ Responsibility for Internal Controls, for DOJ as a whole; (2) the reason for the opinion and its effect on the component’s risk of making improper payments; and (3) any corrective actions being taken to address the opinion and the component’s risk.

Response: JMD concurs with the recommendation. JMD updated and reissued Finance Staff Policies and Procedures Bulletin (P&P) 06-11, Recovery Audit Programs and the Improper Payments Information Act (IPIA). The updated P&P, 07-03, Recovery Audit Programs and the Improper Payments Information Act (IPIA), requires that risk assessments include the assurance statement of the opinion, the reason for the opinion and its effect on the component’s risk of making improper payments, and any corrective actions being taken to address the opinion and the component’s risk. A copy of P&P, 07-03 is attached for your information. We consider this recommendation closed.

Recommendation 2. Evaluate the recent changes to OMB Circular A-123, Appendix C and determine whether changes need to be made to Bulletin 06-11.

Response: JMD concurs with the recommendation. The JMD Finance Staff evaluated the changes to OMB Circular A-123, Appendix C, and incorporated the applicable changes to the updated P&P 07-03. We consider this recommendation closed.

Recommendation 3. Ensure future risk assessments include:  (1) the results from the most recent financial statement audit, including any material weaknesses or reportable conditions; (2) the effect of those weaknesses or conditions on its risk of making improper payments; (3) a description of the corrective action taken to address those weaknesses or conditions as required by Bulletin 06-11.

Response:  JMD concurs with the recommendation. Starting in Fiscal Year 2007, risk assessments will include:  (1) the results from the most recent financial statement audit, including any material weaknesses or reportable conditions; (2) the effect of those weaknesses or conditions on its risk of making improper payments, and (3) a description of the corrective action taken to address those weaknesses or conditions.

Recommendation 4. Ensure risk assessments include:  (1) an assurance statement of an unqualified, qualified, or no-assurance opinion; (2) the reason for the opinion and its effect on the component’s risk of making improper payments; and (3) any corrective actions being taken to address the opinions and the component’s risk.

Response:  JMD concurs with the recommendation. Starting in Fiscal Year 2007, risk assessments will include:  (1) an assurance statement of an unqualified, qualified, or no-assurance opinion; (2) the reason for the opinion and its effect on the component’s risk of making improper payments, and (3) any corrective actions being taken to address the opinions and the component’s risk.

Recommendation 5. Ensure risk assessments include an assessment of federal award payments made by the recipients and subrecipients as required by Bulletin 06-11.

Response: JMD concurs with the recommendation. Starting in Fiscal Year 2007, risk assessments will include assessment of federal award payments made by recipients and sub-recipients.

Recommendation 12. Develop and implement a department-wide policy for time limits after the recovery audit contractor identified a potential improper payment and submits the claim to the component.

Response: JMD concurs with the recommendation. JMD has established a 15-day response policy for verifying potential improper payments identified by the recovery contractors. See Finance Staff, P&P, 07-03. We consider this recommendation closed.

Recommendation 13. Ensure each subcomponent submits the Notification of Erroneous Payment form (Attachment 2 of Bulletin 05-03) to JMD Finance Staff regarding improper payments identified and recovered by the OBDs as required by Bulletin 05-03.

Response:  JMD concurs with the recommendation. JMD updated Finance Staff P&P 05-03, Recovery Audit Program, to clarify the component responsibilities for submitting the Notification of Erroneous Payment form when improper payments are identified and recovered by the OBDs. In addition, this requirement was discussed with the OBD Financial Managers’ Council (FMC) on December 7, 2006. Attached for your information is a copy of the updated P&P 07-02, Recovery Audit Program and a copy of the agenda from the December 7, 2006 OBD FMC meeting. We consider this recommendation closed.

Recommendation 14. Ensure that its recovery audit program addresses and includes grants as required by Bulletin 06-11.

Response: JMD concurs with the recommendation. The OBDs will include grants in the recovery audit program.

Please not the report does not properly cite OMB Circular A-123, Appendix C, where it states “Those requirements apply to DOJ programs as a whole, rather that to the individual components. Moreover, because the improper payment estimate for DOJ programs as a whole is less than $10 million, in our judgment, DOJ is not required to include this information in its PAR for 2006.” The $10 million threshold for determining high risk for reporting purposes is applied to each program rather than to DOJ programs as a whole.

If you have any questions concerning this subject, please contact Melinda Morgan, Director, JMD/Finance Staff, on (202)616-5809, or Lori Armold, Assistant Director, Financial Management Policies and Requirements Group, JMD/Finance Staff, on (202)616-5216.

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