This audit report contains the Annual Financial Statement of the Drug Enforcement Administration (DEA) for the fiscal years ended September 30, 2003, and September 30, 2002. Under the direction of the Office of the Inspector General (OIG), KPMG LLP performed the DEA audit.

The DEA received an unqualified opinion on its FY 2003 financial statements. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and the results of the entity's operations. For FY 2002, the DEA also received an unqualified opinion on its financial statements (OIG Report No. 03-23).

The DEA has made significant strides over the past three years in correcting outstanding internal control issues. However, issues relating to obligations and information technology still continue to be noted and the DEA must focus on correcting these issues for future years.

The DEA accelerated the issuance of its audited financial statements while maintaining an unqualified audit opinion. The DEA was able to complete its financial statements and Management's Discussion and Analysis well in advance of the Department of Justice imposed deadlines. However, the DEA must sustain this commitment in FY 2004. The accelerated year-end deadlines imposed by the Department and the Office of Management and Budget represent an area of significant risk that must be continually addressed if the DEA is to continue to maintain its progress. Interim financial reporting must be improved and become routine. The DEA must maximize the use of system-generated data and reduce its dependency on manual processes. Additionally, senior management must ensure those personnel outside the finance office remain involved in the process.

The OIG reviewed KPMG's report and related documentation and made necessary inquiries of its representatives. Our review was not intended to enable us to express an opinion on the DEA's financial statements, conclusions about the effectiveness of internal control, or conclusions on compliance with laws and regulations. KPMG is responsible for the attached auditors' reports dated November 10, 2003 and the conclusions expressed in the report. However, our review disclosed no instances where KPMG did not comply, in all material respects, with Government Auditing Standards.