Inspections Report I-98-02

MEMORANDUM FOR DORIS MEISSNER
COMMISSIONER
IMMIGRATION AND NATURALIZATION SERVICE

SUBJECT: Inspection of the Controls Over Certificates of
Naturalization (Phase I), Report Number I-98-02

Our objective was to assess the adequacy of controls over Certificates of Naturalization (N-550) from the point of receipt by the Immigration and Naturalization Service (INS) to issuance of these controlled documents to qualified aliens. We examined INS' two forms centers, the Eastern Forms Center in Williston, VT, and the Western Forms Center in Bell, CA, the Burlington and Laguna Niguel Administrative Centers, and selected district offices. We divided the inspection into two phases. This report presents the results of the first phase, which assesses the management controls over the N-550s at the two forms centers. A subsequent report will assess the management controls over the N-550s at the district offices.

During our review period, June 1, 1995, through March 31, 1997, the Bureau of Engraving and Printing shipped 2.8 million N-550s to the forms centers. We verified that the forms centers received the 2.8 million N-550s. We also conducted a physical inventory of certificates on-hand, and reviewed shipping documents from the forms centers and receiving documents from INS field locations to determine whether the 2.8 million certificates were accounted for properly.

The forms centers, on their own initiative, have created an electronic inventory spreadsheet to record the receipts and issuances of N-550s. They no longer use the cumbersome, manual record-keeping process required by INS procedures and used by most field locations. Each forms center uses its own electronic spreadsheet to track its N-550 inventory. While this automation is a positive step, these electronic spreadsheets do not create audit trails that will enable personnel to detect alterations in records made to conceal theft, loss, or misuse of N-550s.

We found no evidence that physical inventories, used to verify the number of N-550s on-hand and required by INS procedures, had been conducted since November 1993. In addition, because of the lack of regular inventories and the forms centers' failure to consistently follow established procedures to verify and reconcile shipments to INS field locations, we do not have reasonable assurance that controls are in place to prevent loss, theft, or misuse of N-550s.

We, therefore, recommend that the forms centers conduct immediate independent physical inventories, and make necessary adjustments to inventory records. All adjusting entries, including those for destruction of certificates, should be properly documented. We also recommend that the forms centers conduct periodic physical inventories and reconcile all shipments to INS field locations with signed receipts confirming those shipments. INS should also establish procedures to ensure that only authorized personnel can request and receive shipments of N-550s. In addition, any computer program used to track N-550 inventory should include an audit trail of all entries made to the system.

We sent copies of the draft report to your office on August 27, 1997, and requested written comments on the findings and recommendations. Your October 8, 1997 response addressed each of the five recommendations and specific findings. We have attached your response as Appendix I.

On the basis of your written comments, we made minor technical changes to specific statements in our findings. We also consider all recommendations resolved but have kept all of them open pending further action. Appendix II explains why the recommendations were not closed and what action is needed.

Please respond to the open recommendations by May 1, 1998. Your response should provide the additional information requested. If actions have not been completed, please provide proposed completion dates. Guidance on report follow-up and resolution can be found in Department of Justice Order 2900.10.

We appreciate the cooperation extended to our Inspections Division staff during the review. If you have any suggestions how we might improve our review process, or if we can provide you with additional information, please let us know.

The Certificate of Naturalization (N-550) is an individually numbered certificate printed by the Bureau of Engraving and Printing (BEP) and issued by the Immigration and Naturalization Service (INS) to qualified aliens. The N-550 is a valuable document because it serves as evidence of United States citizenship and is needed to secure benefits in addition to those granted to lawful permanent residents. Citizenship bestows the privileges of voting, holding a United States passport, and participating in certain federally-funded assistance programs such as food stamps and welfare.

INS designates the N-550 as a secure form and requires that it be properly safeguarded and controlled. INS Administrative Manual (AM) Section 2117 provides the guidelines for receipting, storing, issuing, inventorying, shipping, and destroying secure forms.

After determining the number of certificates needed for the district offices, INS Headquarters places an order for N-550s with the BEP in Washington, DC. The BEP uses the United States Postal Service (registered-return receipt mail) to ship blank N-550s, in sealed boxes of 500 to a box, to the two INS forms centers. After receiving a signed requisition (Form G-514) from INS field locations, the forms centers ship the certificates to INS field locations by registered-return receipt mail (or United Parcel Service). The forms centers consider the return receipt as proof of delivery of the shipment to the field location. Also included in each shipment to a field location is a Report of Property Shipped-Received (G-504), which should be signed by a district official and returned to the forms center as proof that the actual contents of the shipment were received. At each point in the handling and distribution of the N-550, accountable employees are required to maintain a permanently bound log that shows receipts and issuances.

Our review covered the period June 1, 1995, through March 31, 1997. During this period, 2.8 million N-550s were sent from the BEP to the forms centers. Our review methodology included verifying whether all 2.8 million N-550s received by the forms centers during this period were either shipped to INS field locations or remained on-hand at the centers. We conducted physical inventories at both forms centers to verify entries to the inventory records, and assessed the adequacy of management controls over the security of the N-550s. We also checked shipping records and signed confirmations of receipt to ensure that shipments of the N-550s to the INS field locations were properly sent by the forms centers and subsequently received in INS field offices.

The forms centers have not conducted periodic physical inventories to verify the number of N-550s on-hand since at least November 1993. AM Section 2117 requires a biweekly inventory by employees other than those who are designated accountable, and a record of the inventory to be entered in the log book. Both of the forms centers' directors said the biweekly requirement for inventories was too frequent and other work often precluded conducting them as required.

The current Director of the Western Forms Center was assigned to the position in April 1995. No audit or physical inventory of the N-550s on-hand at the center was conducted when he took control of the center from his predecessor. While the former director kept the N-550 inventory records on an electronic spreadsheet, it was maintained in a manner similar to the bound log books required by AM Section 2117. Because bound logs are kept chronologically by date and issuances are not always made sequentially by certificate number, it is very difficult to determine whether all the certificates in a series have been issued.

We examined the inventory records at the Western Forms Center to determine whether these records agreed with our physical inventory. We found no supporting documentation for two entries on the inventory records. The most significant of the two entries, as described below, relates to the possible destruction of 73,500 N-550s. The current director has tried to locate supporting documentation for these entries to reconcile the former director's inventory records, but has been unsuccessful.

In June 1993, the Western Forms Center recorded a shipment of 100,000 N-550s from the BEP. Inventory records show shipments of 26,500 N-550s from this block of 100,000 certificates to INS field locations. The 26,500 N-550s were not issued sequentially, i.e., the serial numbers were dispersed among the entire block of 100,000 certificates. Inventory records for this block of 100,000 certificates also show a July 1993 entry for the destruction of 73,500 N-550s. However, certificate serial numbers were not identified for the destruction entry and no supporting documentation for the destruction exists.⁽¹⁾ Moreover, there was no record to explain why these certificates had to be destroyed.

The 73,500 certificates not accounted for in the block of 100,000 certificates is the same as the number noted to have been destroyed. In order to determine whether these unaccounted certificates were the ones that were destroyed, we checked 78 of these 73,500 certificate numbers through INS's Central Index System (CIS). Entries in CIS showed that some of these 78 naturalization certificates were issued to aliens rather than destroyed. Because none of the 100,000 certificates was on-hand during our physical inventory in April 1997 and our sample showed that certificates were issued to aliens, we were unable to determine what, if any, certificates were destroyed or if all certificates were issued.

Both forms centers maintained complete and accurate records of receipts and shipments by certificate number since at least mid-1995. However, because there were no prior physical inventories at the forms centers, we could not determine the number of N-550s that should have been on hand at the forms centers before they received 2.8 million certificates from the BEP and which would also have been available for issuance.

Biweekly inventories may be too frequent, costly, or inconvenient for the two forms centers. However, periodic inventories must be conducted by disinterested persons to deter and detect the loss, theft, or misuse of valuable naturalization certificates. Additionally, physical inventories and reconciliations with inventory records definitely must occur each time there is a change in accountable employees. Otherwise, responsibility for discrepancies cannot be established.

The Forms Centers Had No Assurance That Field Personnel Requesting N-550s Were Authorized To Make Such Requests

Anyone in an INS field location can request N-550s from the forms centers, accept receipt of certificates in the mail room, or acknowledge the number of certificates received. INS procedures do not restrict the field personnel authorized to perform these duties, and the forms centers generally accepted all G-514s, return receipts, and G-504s as valid. Both of the forms centers' directors said that at one time they had lists of personnel authorized to handle the secure documents, but had discontinued their use. The lists became cumbersome to use because field locations were constantly changing or moving personnel within the office and not notifying the forms centers.

Without a management control such as a predetermined list, the possibility for unauthorized access to N-550s increases. For example, someone at a district office could use a false name to order one or more boxes (500 certificates to a box) of N-550s. That same person could then take delivery and receipt for the documents, signing for them with the same or a different name. Theft of certificates in this manner might never be detected.

Confirmation of Shipments to Field Offices and Acknowledgement of Receipt of Certificates Were Not Always Received or Reconciled

The forms centers maintained files documenting shipments of N-550s to field locations. The files generally consisted of the G-514, the G-504, and the signed return receipt from the registered mail shipment.

The Western Forms Center had an accumulation of signed return receipts from the registered mail shipments to field locations dating back to June 1995, but was not matching them with the G-514 and G-504 in the files. Matching these receipts at the time they are returned provides a quicker response time for the forms center to inquire about a possible lost or misdirected shipment. The Director of the Western Forms Center recognized the need to match the receipt to the G-514/G-504 and had already started the task when informed of our visit. The Eastern Forms Center followed the procedure of matching the return receipts to the G-514/G-504.

INS field locations were not always returning the signed copy of the G-504 to the forms centers. In addition, neither forms center was consistently following-up with the field locations to obtain the G-504. The signed G-504 provides the documentation that the field location actually received the number of N-550s that were shipped. The return receipt from the registered mail only indicates that a package was received, not what the contents of the package were. We found a few instances where there was a difference in the number of certificates reported as shipped from the forms centers and the number of certificates reported as received on the signed G-504. Both forms centers' directors said they tried diligently to follow-up to obtain the signed G-504s, but the large volume of work and other duties often hampered their efforts.

Unless forms center personnel reconcile shipping invoices to the receipts from INS field locations signed by persons authorized to receive a shipment, they cannot be assured that all shipments were properly received, and cannot be assured that certificates have not been lost or stolen.

The permanently bound log books, required by AM Section 2117 to maintain a continuing record of receipts, issuances, and balances, are a time consuming and cumbersome method of accounting for numbered certificates. This task is especially arduous when there is a large volume of activity. The BEP ships relatively large blocks of sequentially numbered certificates to the forms centers. A typical shipment from the BEP might contain 100,000 certificates. The forms centers send many smaller individual shipments to the INS field locations and the certificates may not be issued by the forms centers in sequential order. If certificates are not issued sequentially, it is very difficult to account for a box of 500 numbered certificates when, for example, the box could be part of an overall shipment of 100,000 certificates (200 boxes).

To provide for easier record keeping and inventory control, both forms centers have discontinued using bound log books in favor of an electronic spreadsheet that tracks receipt and issuance by certificate numbers. Each forms center is using its own electronic spreadsheet for record keeping and inventory control. While both forms centers' directors assured us that approval was given for the departure from the record keeping and inventory practices required in AM Section 2117, we could not find any formal documentation authorizing it.

We found that the electronic spreadsheet at the forms centers simplifies recording and tracking the receipt and issuance of the N-550s. This spreadsheet is especially helpful in dealing with the large number of certificates the forms centers are now handling. Each shipment from the BEP was individually listed in the forms centers' spreadsheets and showed the sequential list of certificate numbers contained in that shipment. The spreadsheets also identified the shipments from the forms centers to INS field locations including the date, amount, and serial number of the certificates in the shipments.

The major problem we identified with the electronic spreadsheets was the lack of an audit trail. An audit trail shows any additions, deletions, or changes to a document. Therefore, when any additions, deletions, or changes were made to the spreadsheets, there was no permanent record to show how inventory records were adjusted.

While the bound log books provided an audit trail of additions, deletions, or changes, the benefits of an automated system far outnumber the disadvantages as long as controls can be built into the system. Officials in the Burlington Administrative Center stated that computer software packages are available that contain the necessary built-in controls. For example, verification by another person could be required before entries are made part of the system, and afterwards, any changes to existing data in the system would have to be by another employee such as the security officer.

The key lock at the Western Forms Center was not changed after the current director assumed the position from his predecessor.

AM Section 2117 also states that employees accountable for secure forms will be provided with sole access to appropriate storage facilities. Even though an accountable employee has sole access to a storage facility, AM Section 2117 provides that the security officer may maintain the combination or extra key to the storage facility to have access if needed. Program managers at INS Headquarters and the Burlington and Laguna Niguel Administrative Centers said they did not interpret the sole access requirement as being applicable to the bulk supplies of secure forms at the forms centers. They said two or more employees could be designated as being accountable for the bulk supply of secure forms. They interpreted the requirement for sole access as only applying at the point of issue, that is, to employees who prepare and issue secure forms to aliens. This interpretation means that it is not possible to hold a single person accountable in the case of theft or loss.

When accountability and responsibility for loss are shared by more than one person, other management controls must be relied upon to a greater extent. The greater the number of people who have access to N-550s, the stronger the other management controls should be. INS needs to determine the best combination of management controls. For example, the frequency of inventories should have some correlation with the number of people having access, the volume of receipts and issues, the value of the item, and the level of physical security controls.

INS should take immediate action to ensure that certificates of naturalization (N-550s) are properly controlled. We, therefore, recommend that the Commissioner, Immigration and Naturalization Service, direct that:

1. AM Section 2117 requires a destruction document that records the date of destruction, the serial numbers of the documents destroyed, the method of destruction, and signatures of both the destroyer of the documents and a witness.

              Inspection of the Controls Over
              Certificates of Naturalization (Phase 1);
              Draft Report A-97-12

To Mary W. Demory
      Assistant Inspector General
      for Inspections
      Department of Justice

From Office of the
           Commissioner
           Immigration and
           Naturalization Service

Attached is the response from the Executive Associate Commissioner for Management addressing your memorandum dated August 27. 1 have reviewed the response and concur with the comments. The attached response does not concur with the fifth finding, "physical security should be improved." This finding was discussed with your staff and your staff agrees with our response.

If you have any questions, please contact Kathleen Stanley, Audit Liaison, at (202) 514-8800.

Inspection of the Controls Over
Certificates of Naturalization (Phase 1);
Assignment Number A-97-12

We generally concur with the draft report on Phase I of the subject inspection, although we cannot concur with some of the statements included on page 3 under the Results of the Inspection heading.

Specifically, bullet one implies that there are no physical inventories conducted. The Centers do conduct inventories, but have not complied with a regular schedule requirement stipulated in existing policy.

Also, the third bullet item indicates that we have no reconciliation process for receipts and shipping invoices. We do have a process in place which records shipments and receipts. We understood that the inspectors took issue with the process in place, not that there was no reconciliation at all.

INS agrees that the recommendations contained in the inspection report should be addressed, and the Offices of Security and Files and Forms Management are already working together to use these findings to improve the security of Certificates of Naturalization and other highly sensitive forms.

FINDING: Periodic Inventories by Disinterested Officials Were Not Conducted.

FINDING: The Forms Centers had no assurance that field personnel requesting, N-550's were authorized to make such requests.

FINDING: Automated record keeping and inventory controls need strengthening.

INS POSITION: Non-concur with the statement that key locks on secure forms storage areas have not been chanced annually as required by AM Section 2117. The requirement in paragraph 7.b, Combination/Key Procedures, is as follows (emphasis added):

Combinations shall be changed annually or whenever ver there is a change in accountable employee(s), or when it has been necessary to effect access to the secure forms in the case of an unforeseen absence of the employee or when the combination has otherwise been disclosed to unauthorized personnel. Locks shall be re-keyed whenever a key has been lost, compromised, or upon change of accountable employees.

Thus, the requirement is for combinations to be changed annually, not locks. Locks require re-key only when a key has been lost, compromised, or upon change of accountable employees.

Also, sole access requirements DO ONLY apply to issue points, NOT bulk storage points, see paragraphs 7 a(l) and 7a(2). However, we do agree that in such cases, other management controls are needed.

RECOMMENDATION 1: In order to establish a baseline for future accountability, an immediate physical inventory and reconciliation of N-550S be conducted at the forms centers and any adjustments to inventory records be fully documented.

INS RESPONSE: Concur. We believe that the inventory conducted by Forms Center staff and in conjunction with the inspection team that produced the report constitutes a baseline inventory from which to work.

RECOMMENDATION 2: Periodic inventories of N-550s be conducted by disinterested persons at the forms centers at established intervals and any discrepancies be thoroughly investigated,

INS RESPONSE: Concur. We acknowledge that the biweekly inventories have not been conducted. We are reviewing this particular requirement with the intention of modifying, it to make it more reasonable and more effective. Security officers will be reminded to ensure complete physical inventories of all forms are completed upon changes in custodians. We will develop new procedures to address this issue in the first quarter of FY 1998.

RECOMMENDATION 3: Only authorized personnel request and receive shipments of N-550's from the forms centers.

INS RESPONSE: Concur. The Offices of Files and Forms Management and Security intend to develop during the first quarter of FY 1998 a procedure requiring a counter-signature of a management official in field offices ordering, these certificates. This authority will be delegated to a management position rather than an individual, which should preclude the need to maintain lists of names who are authorized.

RECOMMENDATION 4: Field locations send signed confirmations of the shipments they receive from the forms centers and the forms centers follow-up on all confirmations not received.

RECOMMENDATION 5: An automated record keeping, and' inventory system for the forms centers be developed that contains the necessary controls to prevent unauthorized record changes and to create an audit trail of all record entries.

INS RESPONSE: Concur. The Forms Centers are currently using, an electronic system to maintain inventory control. The inspection raised some questions that need to be addressed as to the security of the access to that system. We will examine this aspect of the system and modify it appropriately as soon as possible.

In addition, the Office of Security is drafting a policy change to require electronic inventory control systems Service wide. A working group consisting of representatives from the Headquarters, Office of Security and Office of Files and Forms Management, will be working with field personnel to create an electronic record of receipts, issuance, and balances that provides an effective inventory control system with adequate audit trail. A prototype system will be tested at a selected field site within six months. The system will be implemented Service wide after testing and necessary modifications approximately 12 months later.

If you have any questions, please contact Scott 0. Hastings, Director, Office of Files and Forms Management, at (202) 514-2989.

Based on the comments from INS managers, we made some minor technical changes to the final report addressing INS' concerns about our summary statements on conducting physical inventories and reconciling receipts to shipments of certificates to field locations, and our finding on physical security.

The INS response states that the forms centers conduct physical inventories, but not as frequently as required. We found no documentation that inventories of N-550s were conducted with any regularity by either forms center. The most recent evidence of any physical inventory was dated November 1993. More importantly, however, the physical inventories must be conducted by an independent person not accountable for the certificates, as required by AM Section 2117. Our change to the summary statement on page 3 of the report now reflects that independent physical inventories were not conducted.

We acknowledge in the report that INS has a process for reconciling the receipt and shipment of certificates. As pointed out in the report, the reconciliation process actually involves two steps. The first step requires the verification that the shipment of certificates actually arrives at the destination. The second step requires the verification that the actual contents of the shipment are received. We found minimal evidence that either of these steps was routinely completed. We clarified our summary statement on page 3 of the report to reflect that there were no complete reconciliations of receipts to shipments of certificates to field locations.

We agree with INS that key locks do not have to be changed annually as do combination locks. Therefore, we have deleted this statement in the physical security section of the report.

1. Resolved-Open. The OIG agrees that the inventories conducted on-site at the forms centers constitute a useable baseline inventory from which to start the reconciliation process. While we physically counted all N-550s on-hand at the forms centers during our visit, we only checked receipts and issuances dating back to June 1995--the initial time period covered by our review. According to records at the forms centers, physical inventories were last taken in November 1993. Considering the length of time since the most recent inventories and the significant unexplained entries in the Western Forms Center's records, the current physical counts of N-550s need to be reconciled to the previous 1993 inventory records. Therefore, this recommendation will remain open until we receive confirmation that the physical inventories have been reconciled back to the last official inventory and any corrections or adjustments have been documented.

2. Resolved-Open. The OIG agrees with the planned action to review the requirement of biweekly inventories for the forms centers to consider changes that would make it more reasonable and effective. This recommendation will remain open until we receive the new procedures that address this issue.

3. Resolved-Open. The OIG agrees with the planned action to develop a procedure that requires a counter-signature of a management official in the field offices when ordering certificates. We believe this new procedure should also include a provision for the actual receipt of certificates in field offices. Therefore, this recommendation will remain open until we receive a copy of the new procedure.

4. Resolved-Open. INS concurred with the recommendation, but did not state how the recommendation will be implemented. Therefore, this recommendation will remain open until we receive documentation stating how field locations will be required to send confirmations of the shipments they receive from forms centers, and how the forms centers will follow-up on all confirmations not received.

5. Resolved-Open. The OIG agrees with the planned action to examine and modify the electronic system now used in the forms centers to ensure security issues are addressed, and the future plans to develop an electronic inventory control system INS-wide. This recommendation will remain open until we receive confirmation on how the electronic system at the forms centers has been modified to prevent unauthorized record changes and to create an audit trail of all record entries.