APPENDIX I

SCHEDULE OF DOLLAR-RELATED FINDINGS

QUESTIONED COSTS are defined as expenses incurred that do not comply with law or other official requirements, or are unsupported by adequate documentation, or are unnecessary or unreasonable for the intended purpose. They can be recoverable or non-recoverable.

FUNDS TO BETTER USE are defined as future funds that could be used more efficiently if management took actions to implement and complete audit recommendations.

APPENDIX II

SCOPE AND METHODOLOGY

We conducted our audit in accordance with Government Auditing Standards issued by the Comptroller General of the United States and, accordingly, included such tests of the financial records and other auditing procedures as were considered necessary to accomplish our objective.

Our audit focused on identifying and assessing the processes and internal controls implemented by NDIC for administering the DOJ controlled financial activities. This included a limited review of transactions occurring during FYs 1995 and 1996. In order to address DOJ's responsibility for accountability over total NDIC funds, we obtained a general understanding of the processes related to the financial activities administered by the DOD.

To obtain an understanding of NDIC's internal control structure over its financial operations, we identified how financial documents moved through NDIC; interviewed the individuals responsible for overseeing the respective cycles or functions; and prepared flowcharts of NDIC's principal financial cycles and functions. We also reviewed NDIC's Accounting and Procedures Manual. The Manual did not provide narrative definition or flowcharting for most of NDIC's key financial control processes; however, it did contain policy guidance organized under the following areas: (1) travel, (2) time and attendance/promotion, (3) inventory and procurement, (4) security, (5) tax exemption, (6) operations, and (7) third party drafts. Generally, we noted to varying degrees, some type of documentation within each area within NDIC where the specific financial cycle was conducted; however, NDIC had not documented and consolidated its financial cycles and functions into a manual. Thus, many of its processes had to be conveyed to us verbally.

APPENDIX III

LISTING OF NDIC REIMBURSABLE AGREEMENTS, FY 1995

APPENDIX IV

FUNDS OBLIGATED BY NDIC FOR PARTICIPATING AGENCIES, FY 1995

APPENDIX V

OTHER MATTERS

The accounting record closeout process used by the NDIC requires extensive effort due to the difference in the funding classification categories used by DOD and DOJ. The DOD uses multi-year, specified categories of funding. This differs from the accounting methodology used by DOJ, which receives its appropriation annually and categorizes funding when expended in line with classification guidelines established by the U.S. Treasury Department.

The DOD identifies funds by budget year and category of cost: Operating and Maintenance (one-year money), Research & Development (two-year money), and Procurement (three-year money). The NDIC uses more detailed, cost-specific account numbers, while the DOD controlled funds for certain items are identified by DOD general fund classification. The NDIC must determine to what accounts the Technical Support Division costs are to be posted; NDIC also has to change the account numbers to fit the DOD fund classifications. Although this difference did not create an internal control weakness, it created additional work and complications for NDIC's Finance Branch, which is responsible for identifying and accounting for all of NDIC's expenditures.

In early 1996 DOD's Intelligence Systems Support Office had begun providing the Finance Branch with monthly expenditure reports that the accounting technician used to assist in determining the actual cost to record in the accounting records. However, delays in reconciling expenditure amounts existed during FY 1995 and contributed to the delay in the closeout of NDIC's FY 1995 accounting records.

During the course of our discussions with the former CFO, it was brought to our attention that the difference in classification of funding between DOD and DOJ caused problems in attempting to categorize expenditures and determine precisely how the funds were spent from a consolidated NDIC perspective. The former CFO provided us with FY 1995 accounting record closeout information which disclosed unsupported DOD costs of $550,667. These were for expenditures made through the Technical Support Division with the appropriated funds retained by DOD's Intelligence Systems Support Office. Prior to conclusion of this audit, NDIC obtained from DOD the necessary documents and explanations supporting the costs.

APPENDIX VI

NDIC COMMENTS ON THE AUDIT RECOMMENDATIONS

APPENDIX VII

OFFICE OF THE INSPECTOR GENERAL, AUDIT DIVISION
ANALYSIS AND SUMMARY OF ACTIONS NECESSARY TO CLOSE REPORT

The NDIC response to the audit (APPENDIX VI) included actions NDIC has already taken or intends to take to close the audit recommendations. The following statements are based on our analysis of their response.

1. Resolved. This recommendation can be closed when we receive the approved plan on how you will utilize the entire $5 million.
2. Closed.
3. Resolved. This recommendation can be closed when we receive documentation which demonstrates that all NDIC personnel receive travel advances from government issued credit cards.
4. Resolved. This recommendation can be closed when we receive documentation showing that the imprest fund was closed.
5. Resolved. We recognize that NDIC intends to seek procurement authority up to $25,000 after its procurement official attends the appropriate FBI training. Therefore, this recommendation can be closed when we receive documentation that procurement authority was requested for a level of at least $10,000.
6. Resolved. This recommendation can be closed when we receive the results of BETAC's personnel staffing review and your decision on recommended functional realignment.
7. Resolved. See number 6 above.
8. Resolved. This recommendation can be closed when we receive documentation of the final actions that you will take as a result of trying to locate the missing inventory items.
9. Resolved. This recommendation can be closed when we receive documentation of the accounting system and procedures.

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