Audit Report 97-21, (5/97)










Reimbursable Agreements
Budget Cycle
Third Party Draft System
Property Management












The Office of the Inspector General, Audit Division, has completed an audit of the controls over financial activities at the National Drug Intelligence Center (NDIC). The audit was performed at the request of the NDIC through the Office of the Deputy Attorney General.

With regard to the funding administered by the Department of Justice (DOJ), our audit disclosed that NDIC had established adequate controls to perform its financial responsibilities; however, the processes were not always economical or efficient. We identified opportunities for the NDIC to enhance operations through organizational change and operational improvements. Enactment of recommendations could result in the NDIC utilizing $5 million, which remains available, but unused, and taking greater control over its operations by improving its processes. Among the issues noted were:

The details of our work are contained in the Findings and Recommendations section of the report.



The purpose of our review was to determine whether the NDIC established and maintained adequate financial and administrative controls for DOJ controlled activities.1 Our audit objective was to identify and assess the processes involved with each of NDIC's principal financial cycles and functions. To do so, we reviewed selected FY 1995 and 1996 expenditures, but focused on FY 1995, the only complete year of financial activity available at the time of our review. Accordingly, our review was directed at, but was not limited to, this timeframe.2 We conducted our fieldwork at the NDIC facility in Johnstown, PA.

Congress established the NDIC as a federal multi-agency organization.3 It acts as a central entity to collect, consolidate, and coordinate drug intelligence beyond the capability of any single agency. The NDIC defined its mission as providing strategic organizational intelligence analyses to law enforcement entities, intelligence communities, and national policy makers; promoting information-sharing among these entities; and promoting compatibility standards for drug intelligence information collection systems.

The FY 1991 Department of Defense (DOD) Appropriations Act provided for initial funding of the NDIC, and the FY 1992 DOD Appropriations Act included a provision assigning responsibility for executive management of NDIC to the Attorney General. Funding for NDIC was provided to DOJ from funds appropriated to DOD. From FY 1991 to FY 1996, DOD provided approximately $134 million to DOJ, as follows:

(Amounts in millions)

FY 1991 1992 1993 1994 1995 1996 Total
Amount $10 $40 $04 $10 $39 $35 $134

As of September 1996, NDIC had 228 federal employees and 100 contract employees on-board to assist in its mission.




NDIC controls over its financial operations were adequate but need improvement to promote more economical and efficient operations. This is due to funding and administrative constraints under which NDIC operated. The NDIC has opportunities to enhance financial and administrative systems through organization and operational improvements and to put $5 million of funds to better use.

The NDIC conducts financial activities from its facility in Johnstown, PA. There are two office sections in the NDIC involved with financial cycles and functions. The Finance Branch is staffed predominantly by FBI and NDIC employees and controls expenditures designated in the interagency agreement for the FBI. The Technical Support Division is staffed with employees detailed from the Defense Intelligence Agency and controls expenditures of funds retained by the DOD Intelligence Systems Support Office located in Arlington, VA.

During the period of our review, the funds transferred to the FBI were used predominantly for salaries, benefits, rent, supplies, transfers, and to fund reimbursable agreements with participating agencies. The funds available for expenditure by the Technical Support Division were used extensively for computer equipment, software, and salaries of Defense Intelligence Agency employees assigned to NDIC. The Finance Branch was responsible for reporting the total funding appropriated to support the NDIC, regardless who expended the funds. In our judgment, the dual framework did not provide for unified financial activities because activities were performed based on participating agency affiliation and control of the appropriated funding, as opposed to financial cycle and function.

To assess the impact of this process, we reviewed NDIC's principal financial cycles and functions, defined by NDIC as: (1) reimbursable agreements, (2) budget, (3) third party drafts, (4) procurement, (5) property management, and (6) accounting.5 We discussed the results of our review, including the recommendations, with NDIC officials during the course of the audit. During our discussions with them thereafter, they offered corrective actions and responses to the reported issues and suggested audit recommendations. We included that information in this report.

A. Reimbursable Agreements

Interagency agreements provide the mechanism for NDIC to reimburse participating agencies for personnel and associated costs of individuals assigned to NDIC. As part of its efforts with the NDIC, the FBI provides administrative support to the NDIC, inclusive of paying the bills submitted by participating agencies. The FBI was reimbursed via an interagency agreement with NDIC for the cost of the support services it provides.

Each participating agency paid the salaries and related costs of its NDIC assigned personnel and sent quarterly billings for reimbursement to the FBI. For FY 1995 the NDIC obligated $4.2 million to reimburse participating agencies, other than the FBI, for their assistance.6 The FBI billed DOD on a quarterly basis to obtain reimbursement for NDIC activities by participating agencies.

The FBI forwarded the bills of participating agencies to the NDIC for review prior to FBI payment. The Finance Branch, NDIC reviewed the bills and verified that the billed employee positions were authorized, filled, and actually on board at NDIC during the billing period. Upon NDIC certification, the FBI reimbursed the participating agencies. We found no material deficiencies in the process used by, and under the control of, the NDIC to review the submitted billings.

For FYs 1992 through 1995, the FBI received approximately $1.9 million for administrative support provided to NDIC. Prior to our review, DOJ was considering organizational and operational changes to the NDIC. At the time of our review, the NDIC was led by an Acting Director. Subsequent to our fieldwork, DOJ named a permanent Director for NDIC. DOJ management now has the opportunity to revisit the FBI-NDIC support arrangement to determine the best course of action to benefit the operation of the NDIC.

B. Budget Cycle

The NDIC does not receive its funding directly from Congress; it flows from Congress, through DOD, then to DOJ. The majority of the annual Congressional appropriation is transferred from DOD to the FBI using an interagency agreement.
The FBI makes the funding available to NDIC through a separate account established on its Financial Management System administered and operated at FBI Headquarters. The remaining balance of the appropriation is retained by DOD's Intelligence Systems Support Office.

The specific amount to be administered by DOD and DOJ is determined each fiscal year through a financial plan approved by NDIC and documented formally by an interagency agreement. The interagency agreement is negotiated annually and signed by NDIC, the FBI, and DOD's Intelligence Systems Support Office. During FY 1995, the interagency agreement provided for the Finance Branch, NDIC to administer approximately $26 million of the $39 million NDIC appropriation, and for DOD's Intelligence Systems Support Office to administer the remaining $13 million through its agency representative at NDIC, the Technical Support Division.

The NDIC conducts its budget formulation and request process through DOD, yet NDIC's financial operations are more closely aligned with the FBI. The Finance Branch and Technical Support Division develop their respective budgets based on past years' activities and operations. The Chief Financial Officer (CFO) combines these two budgets, which become the overall proposed budget for NDIC that is submitted to DOD's Intelligence Systems Support Office for review. Once the budget is finalized, it is used as the basis to prepare the interagency agreement.

The FBI allots funds in its Financial Management System for NDIC to use based on the interagency agreement. Pending approval of the interagency agreement, during past fiscal years, the FBI has provided NDIC with funds in the beginning of each fiscal year to cover NDIC's operating expenses until an interagency agreement was in place. Although the preceding process is cumbersome and inefficient to NDIC operations, we found no internal control weaknesses in it.

During our review of NDIC's budget cycle, the former NDIC CFO advised us that $5 million, included in the FY 1995 appropriation to the Organized Crime Drug Enforcement Task Force (OCDETF) Program, was allotted to the DOD for use in NDIC, but not spent. The former CFO said that the $5 million apparently was designated in error to NDIC for a classified program, and that the funds remained unused. We could not confirm the purpose behind the appropriation, only that it existed as a DOD/NDIC line item in the OCDETF budget.7 We contacted the OCDETF's budget officer to determine the most current status of the $5 million.

As of September 1996, OCDETF had received no requests for expenditures against the $5 million. However, during the 4th quarter of FY 1995 OCDETF had obligated these no-year funds to the FBI as the financial agent for the NDIC funds. According to the OCDETF's budget officer, the $5 million represented a portion of an overall $39 million NDIC request -- $34 million of which was appropriated to NDIC through DOD. The OCDETF's budget officer stated that he was of the understanding that the $39 million for NDIC was for construction costs, retrofitting, and setting up the facility in Johnstown, PA. However, the reimbursable agreement between the FBI and OCDETF indicated that NDIC may use the $5 million as it deems appropriate.

The OCDETF budget officer confirmed that he discussed the status of these funds with the former and current NDIC CFOs and the Controller, Justice Management Division, but no action had occurred regarding the funds. Accordingly, the $5 million remained unused since being approved in the FY 1995 budget. The NDIC CFO advised us that NDIC has developed a definitive plan to utilize the entire $5 million by the end of FY 1998. This plan involves the establishment of a Secure Video Tele-conferencing Center and creation of a Distance Learning Program. A concept of operations has been developed and requirement documents have been prepared. The NDIC needs to bring this matter to conclusion to avoid these funds either remaining unutilized or being used for purposes other than intended.


We recommend that the Director, NDIC:

1. Take the necessary action to utilize, reprogram, or deobligate the $5 million designated for NDIC in the FY 1995 OCDETF appropriation.

C. Third Party Draft System

We reviewed selected FY 1995 and FY 1996 third party drafts8 to verify the transactions to source documents, the approval signatures on the vouchers, and the expenses to the accounting records. For the transactions reviewed, we noted no deficiencies for the attributes tested. We also selected a judgmental sample of travel advances from FY 1995 and FY 1996 to determine if the advances had been liquidated. The NDIC did not maintain a list of outstanding travel advances; however, the system automatically liquidated them when the travel voucher was processed. The traveler was reimbursed the net amount of the travel reimbursement request less the advance.

The NDIC uses the Third Party Draft Program on the Financial Management System accessible from the FBI's network system (FBI NET) to issue payments to commercial vendors and to reimburse employee travel expenses. The NDIC is limited to issuing drafts not to exceed $2,500. If the disbursement exceeds $2,500, it is forwarded to FBI Headquarters for payment. This is due to the level of NDIC's procurement authority (see discussion under Procurement).

NDIC officials indicated that using FBI NET is a lengthy process and that the system often is not accessible. (The system was not accessible three of the five days of the first week of our review at NDIC.) When this occurred, users had to redial repeatedly, sometimes to no avail. During the periods this system is not available to NDIC, they are unable to print any drafts. Despite the problems experienced, at the time of our review, a backlog of only two to three weeks existed for processing commercial vouchers and no backlog existed for the travel vouchers.

During our review of third party drafts, we noted that the NDIC has the option of adopting an FBI policy relating to financial operations because NDIC is a separate entity. We found instances where the NDIC adopted FBI policy, possibly to the detriment of internal controls or efficiency. Following are areas we identified that provide NDIC with opportunities for improvements in the third party draft process.

Commercial Vouchers - Commercial vouchers are received by the approval officer who verifies the invoices, and prepares the Draft Request, FD-794. Once approved, the FD-794 is given to the cashier who prints the draft.9 The cashiers are authorized to sign the drafts (regardless of whether the payment is a commercial or a travel reimbursement). Although FBI procedures allow the same person to prepare and to sign the drafts, we believe controls over the Third Party Draft System would be enhanced if a separation of duties existed between these two functions. The signature on the drafts should be that of the CFO, who is ultimately responsible for NDIC's expenditures. In the absence of the CFO or next higher-level official, NDIC should consider having a dual signature requirement for its disbursements. The NDIC CFO stated that the Third Party Draft System utilized by NDIC is an FBI system and NDIC has established and adhered to all internal controls mandated by the FBI.

Travel - All travel for individuals assigned to work at NDIC is reimbursed through the Finance Branch, regardless of the participating agency affiliation. The NDIC adopted the FBI policy that restricts travelers from using their government issued credit cards to access automatic teller machines (ATMs) to obtain cash advances for travel. Other DOJ components permit and encourage their employees to use ATMs for cash advances and claim the charge for the transaction on travel vouchers. This reduces paperwork in the component and establishes the liability between the traveler and the credit card company. The NDIC should consider permitting its staff to use the credit cards for this purpose.

According to the CFO, all NDIC personnel are issued U. S. Government American Express Cards from their parent agencies. Some agencies allow their employees to access ATM machines for travel advances while some do not. The NDIC has contacted American Express for information about establishing NDIC-issued American Express cards, over which NDIC would exercise control. If this is accomplished, all NDIC personnel will be able to receive advances using the credit card. The CFO advised us that NDIC has abolished the practice of issuing travel advances through the Third Party Draft System.

Imprest Fund - The third party draft system was to be the alternative to the existence of imprest funds. Yet, the NDIC is authorized by the FBI to maintain a $2,500 imprest fund: $1,500 in Johnstown; and $1,000 in the Washington Liaison Office. We found that the NDIC maintains adequate security measures for the funds ($2,000 is maintained in fire-resistant metal cash boxes equipped with built in combination locks, and $500 is in a bank account in Johnstown), and that it adheres to FBI policy for the monthly audit of imprest funds. However, we question the need for the fund based on the existence of the third party draft system.

As support for our position, we reviewed the May and October 1995 semiannual imprest fund reports the NDIC issued to the FBI. There were only eight to nine transactions per month from the Johnstown imprest fund and four to seven transactions from the Washington Liaison Office imprest fund. We considered transactions to include funds disbursed but excluded replenishments to the imprest funds. During post audit discussions with NDIC officials, they concurred with our position and stated that they intended to abolish the imprest fund.

Notwithstanding our judgment regarding abolishment of the imprest fund, we noted an internal control weakness in the current process. The Johnstown imprest fund cashier replenishes the funds monthly by cashing a draft made out to herself and depositing the cash to the Johnstown imprest fund.


We recommend that the Director, NDIC:

2. Consider designating NDIC officials other than the cashiers to sign the drafts prepared by the cashiers.

3. Complete action to allow employees to obtain travel advances using government-issued credit cards at ATMs.

4. Eliminate the imprest fund.

D. Procurement

In order to review the NDIC controls over the procurement process, we reviewed a sample of 28 purchases totaling $3,075,314 from a universe of 416 transactions totaling $6,754,844 in FY 1995. We traced the 28 purchases to the required source documents and verified approval signatures. Our assessment noted that for two FBI initiated purchase orders and one VISA purchase appropriate supporting documentation, such as the purchase order, purchase requisition, or invoice, was not on file at NDIC. Following is a table listing the transactions reviewed by type, number and amount.

Procurement - FY 1995


Type of Purchase

Transactions Amount
FY 1995 Reviewed FY 1995 Reviewed
Telephone Approval (T-Number) 140 7 $ 146,732 $ 19,077
NDIC Initiated Purchase Order 117 7 429,432 53,913
FBI Initiated Purchase Order 92 7 6,153,383 2,996,876
VISA 67 7 25,297 5,448
        Total 416 28 $6,754,844 $3,075,314

(Source: NDIC Procurement Log and files.)

The procurement process at NDIC is handled by both the Finance Branch and the Technical Support Division, who have different methods of processing purchase orders, as described below. However, the Finance Branch has the overall responsibility for approving, coordinating and reporting all expenditures made on behalf of NDIC. The Finance Branch relies on the FBI's Financial Management System procurement module, while the Technical Support Division relies on the General Services Administration (GSA) to prepare and issue purchase orders. NDIC officials indicated that a contractor is performing a personnel staffing review at NDIC and will issue recommendations to NDIC management on streamlining operations, including that of the procurement function. Notwithstanding the contractor's review, following is a brief description of the procurement process.

Finance Branch Process - The accounting technician and the procurement specialist in the Finance Branch had procurement authority up to $2,500. During the latter part of FY 1995, the FBI granted the NDIC procurement authority to $10,000. The authority was given specifically to the former CFO, a FBI supervisory special agent. The authority was reduced to $2,500 in January 1996 when the former CFO was reassigned. Purchases that exceeded the procurement authority were processed by FBI. This limited the number of transactions that were processed by the Finance Branch. In turn, it increased the number that was required to be handled by the FBI. NDIC officials advised us that NDIC received approval from FBI Headquarters for the contract specialist to attend the next available $10,000 procurement class. This will promote the establishment of procurement authority up to $10,000.

Technical Support Division Process - The NDIC funds retained by DOD are expended by the Technical Support Division. The Finance Branch has no control over the expenditures, but is responsible for capturing and reporting on the NDIC accounting system how all appropriated monies are spent. During FY 1995, it became the general practice of the Technical Support Division to notify and seek approval from the Finance Branch prior to entering into any procurement activity. The Technical Support Division provided the Finance Branch with expenditure activity for items it purchased.

The Technical Support Division identifies automated systems requirements and performs technical analyses for NDIC. Once the Technical Support Division identifies the requirements and recommends the method or source of procurement, the Finance Branch approves the purchase and determines whether the purchase should be handled by the Technical Support Division. The Technical Support Division uses a division within GSA to acquire the items or services. It is the general practice of the DOD's Intelligence Systems Support Office to place funds with GSA, which then are available for use as directed by the Technical Support Division at NDIC. Nearly all of the Technical Support Division's procurements are for computer hardware or software. The expenditures made by the Technical Support Division are incorporated with the overall NDIC expenditures and accountable property inventory. These procedures were not integrated with the Finance Branch procedures except for the approval process.

The Finance Branch is provided with the amount and line item number to document procurement activity of the Technical Services Division. However, the final acquisition price of the items was not always provided. The Technical Support Division maintained the Budget Actions FY 96 book for information regarding procurements made for NDIC with DOD controlled funds. The Technical Support Division had performed some reconciliations with the Finance Branch accounting records, but they were not done on a regular basis. The Technical Support Division intended to begin obtaining copies of the purchase orders it issued from GSA, so the actual cost of the items could be determined. The Technical Support Division planned to make this information available to the Finance Branch, once initiated.

The FBI's Financial Management System did not provide the Finance Branch with the capability to document all of its procurement activity; it documented only that portion handled through the FBI. The decrease in the level of NDIC's procurement authority from $10,000 to $2,500 caused more purchases to be processed by FBI Headquarters.


We recommend that the Director, NDIC:

5. Take actions necessary to reestablish the level of procurement authority to at least $10,000 for the NDIC.

6. Consider consolidating, in one office, the procurement function now being performed by the Finance Branch and the Technical Support Division.

E. Property Management

The Administration Division10 and the Technical Support Division maintains separate and distinct, but often duplicative, inventories of property and equipment. The Administration Division inventory includes all NDIC accountable property; the Technical Support Division maintains a database inventory of computer equipment and software, which it uses to augment its technical analyses and monitoring of NDIC's advanced automation requirements.11 Even when the Technical Support Division procured equipment with the DOD allocation of funds, the Administration Division barcoded the items.

Although NDIC uses barcoding, it does not have centralized control for incoming property, such as a designated central receiving area.12 Because NDIC's procurement activity is fragmented and can be initiated by either the Finance Branch or the Technical Support Division, there are different contact people depending on who orders the items. The contact people receive the ordered items. The advantage of establishing a designated receiving section within NDIC would be to separate the function of the person ordering goods and services for the entity from being the same individual authorized to receive and accept the items.

The equipment that is barcoded becomes a part of the inventory maintained by the Administration Division. We consider this as NDIC's official property management inventory. The Administration Division inventory is comprised of two modules: the Integrated Inventory Management Application and the Configuration Management Property Management unit. The Configuration Management Property Management database module was created in 1993 and contains information on items barcoded from 1993 through November 1995. The newer Integrated Inventory Management Application database module was created in November 1995 as a replacement for the older Configuration Management Property Management database module. In August 1996 the Administration Division transferred active equipment records from the older database into the newer database, after surplusing excess equipment and reflecting the changes in the older database.

The Integrated Inventory Management Application database listing provided to us identified 806 barcoded entries showing a total acquisition cost of $1,435,881. The Configuration Management Property Management database listing provided to us identified 2,618 barcoded entries showing a total acquisition cost of $4,902,236. For purposes of reviewing the inventory, we selected a judgmental sample of 75 items: 25 from the Integrated Inventory Management Application database, 25 from the Configuration Management Property Management database, and 25 from on-site accountable property to trace back to the inventory lists.

Generally, not all of the items in the two databases had dollar values assigned to them, thus the total cost of inventoried items identified may be understated on the inventory listings. We located the 25 items selected from the Integrated Inventory Management Application list and traced them to the records. However, we did not locate the following four items included in the Configuration Management Property Management list.

The cost identified on the Configuration Management Property Management inventory listing for the concentrator and the CPU was $3,441. The Configuration Management Property Management listing did not include amounts for the modem and the hard drive. NDIC management provided additional information on two of the missing items:

According to NDIC officials, one NDIC employee and one contractor employee were working on property management. They conducted a property inventory of NDIC offices and are reconciling that inventory. They will attempt to locate and account for the four items not located during the audit.


We recommend that the Director, NDIC:

7. Establish a central receiving point, which is separate from the procurement function, for all goods and services.

8. Remedy the reported discrepancies noted on the Configuration Management Property Management inventory listing.

F. Accounting

Previously in this report, we indicated that we had to rely on verbal descriptions of systems and control points to gain an understanding of the financial and administrative processes at NDIC. As such, the NDIC needs to develop formal procedures to chronicle and document policies and procedures involved in its operations. This would ensure continuity of operations in the event of staff turnover. Following are issues that demonstrate the need for such a formal document.

During our audit the NDIC Finance Branch was reviewing all financial policies and procedures. According to NDIC officials, after a new accounting system is selected, all financial policies and procedures will be documented in a manual for use by NDIC employees.


We recommend that the Director, NDIC:

9. Document the NDIC accounting system and procedures.



We have audited the internal controls implemented by NDIC for administering DOJ controlled financial activities. This included a limited review of transactions occurring during FY 1995 and 1996. In connection with our audit, we tested financial transactions and records to obtain reasonable assurance about NDIC's compliance with laws and regulations that, if not complied with, we believe could have a material effect on financial operations.

We conducted our audit in accordance with generally accepted government auditing standards. Those standards require planning and performing the audit to obtain reasonable assurance about whether NDIC had, in all material respects, complied with the applicable laws and regulations. An audit includes examining, on a test basis, evidence about NDIC's compliance with laws and regulations. The specific laws and regulations against which we conducted tests were 31 U.S.C. 3321; Treasury Financial Manual, Chapter 3000; and Manual of Procedures and Instructions for Cashiers; the Federal Acquisition Regulation; the Justice Property Management Regulations; and the Federal Travel Regulations.

The results of our tests indicate that for the items tested, NDIC complied with the provisions of the laws and regulations referred to above except as indicated in the FINDINGS AND RECOMMENDATIONS section of this report. With respect to the transactions not tested, nothing came to our attention that caused us to believe NDIC was not in compliance with the laws and regulations cited above.


1 Certain NDIC financial activities are controlled by DOD. We did not review those activities, but to address DOJ's responsibility for reporting on total NDIC funds, we obtained a general understanding of DOD processes.

2 See Appendix II for the scope of our review.

3 See Appendix III.

4 No-year funding from FY 1992 was spent in FY 1993.

5 Specific procedures for performing the majority of NDIC's financial operations were not documented formally and incorporated into a procedures manual; therefore, NDIC officials described the processes to us. Accordingly, we relied on these descriptions of the processes in conducting our assessment and in performing our transaction testing and analyses. We identified the impact of this on NDIC during our review of the financial cycles (see Accounting section of this finding).

6 See Appendix IV for funding by participating agency.

7 THE BUDGET FOR FISCAL YEAR 1996, INTERAGENCY LAW ENFORCEMENT, Federal Funds, Organized Crime Drug Enforcement, pages 640 and 641.

8 Third party drafts are an alternative to cash. A draft is a negotiable instrument that does not require cash from the U.S. Treasury when issued. Funds are provided, instead, by a third party, the contracting bank. U.S. Treasury funds are disbursed when payment is made to the contracting bank.

9 This process is for vouchers up to $2,500 only. All other vouchers require the approval of FBI Headquarters.

10 The Finance Branch, organizationally, falls under the NDIC Administration Division, and handles the preponderance of NDIC's financial cycles and functions; however, it is not involved with the property management and inventory function. The responsibility for this function resides with a different sector of the Administration Division.

11 At the end of our onsite review, NDIC had a committee reviewing the combining of the two inventory systems maintained by the Administration Division and the Technical Support Division.

12 We were advised that this issue is also being examined during the personnel staffing review currently underway at NDIC.