The Assets Forfeiture Fund and Seized Asset Deposit Fund (AFF/SADF) is a reporting entity within the U.S. Department of Justice (DOJ). The AFF and SADF were created to serve as repositories for funds seized by participating agencies and the sale proceeds from forfeited property. The proceeds deposited in the AFF are used to cover certain operating costs of the DOJ Asset Forfeiture Program (AFP). These include equitable sharing payments to state, local, and foreign governments; joint law enforcement operations; contract services in support of the program; and satisfaction of innocent third party claims. Operational expenses do not include the salaries and administrative expenses of AFP participants incurred while conducting investigations leading to seizure and forfeiture, and these are not reported in the AFF/SADF financial statements.

This audit report contains the financial statements of the AFF/SADF for the fiscal years (FY) ended September 30, 2003 and 2002. Under the direction of the Office of the Inspector General, the audit was performed by PricewaterhouseCoopers LLP (PwC). The audit resulted in an unqualified opinion on the FY 2003 financial statements. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and results of operations of the entity. For FY 2002, the AFF/SADF also received an unqualified opinion on its financial statements (OIG Audit Report 03-20).

The Report of Independent Auditors on Internal Control identified one material weakness in controls over monitoring, accounting, and reporting of financial transactions for FY 2003, which was elevated from a reportable condition in FY 2002. Within this condition, the auditors identified the following weaknesses: errors in the valuation and status of seized and forfeited property, errors in the status of undelivered orders and accounts payable, inadequate revenue recognition procedures related to forfeited property, and inadequate controls surrounding the monitoring of the DOJ Justice Management Division's allocation of the Budget Clearing Account balance to the AFF/SADF. As a result, timely and accurate information is not available to management throughout the year, and the risk that AFF/SADF will not be able to timely prepare auditable financial statements is increased.

The Report of Independent Auditors on Compliance with Laws and Regulations indicated two instances of noncompliance for FY 2003. The first instance involved non-compliance with OMB Circular No. A-11, Preparation, Submission and Execution of the Budget on proper recording of obligations and unfilled customer orders. The auditors also noted noncompliance with the Federal Financial Management Improvement Act of 1996 because financial transactions did not substantially comply with applicable Federal accounting standards. No instances of noncompliance with laws and regulations were reported for FY 2002.

Management's continued attention and commitment is essential to correct the reported weakness and meet the accelerated FY 2004 reporting deadlines. This is a long-standing issue for the AFF/SADF, having been reported in prior years as either a material weakness or reportable condition. In addition, the accelerated year-end deadlines imposed by DOJ and OMB represent an area of significant risk that must be continually addressed. Interim financial reporting must be improved and become routine. Senior management must ensure that personnel outside the immediate program office, specifically at the seizing and custodial agencies, are involved in the process.

The OIG reviewed PwC's report and related documentation and made necessary inquiries of its representatives. Our review, as differentiated from an audit in accordance with U.S. generally accepted government auditing standards, was not intended to enable us to express, and we do not express, an opinion on the AFF/SADF's financial statements, conclusions about the effectiveness of internal control, or conclusions on compliance with laws and regulations. PwC is responsible for the attached auditors' report dated January 14, 2004, and the conclusions expressed in the report. However, our review disclosed no instances where PwC did not comply, in all material respects, with generally accepted government auditing standards.