Working Capital Fund
Annual Financial Statement
Fiscal Year 1997
Audit Report 98-08A , (3/98)
TABLE OF CONTENTS
OFFICE OF THE INSPECTOR GENERAL COMMENTARY AND SUMMARY
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE
PRINCIPAL FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
SUPPLEMENTAL FINANCIAL AND MANAGEMENT INFORMATION
REVENUE AND WORKYEARS (FTE) BY WCF ACTIVITY
APPENDIX - AUDIT DIVISION ANALYSIS AND SUMMARY OF ACTIONS NECESSARY TO CLOSE THE REPORT
OFFICE OF THE INSPECTOR GENERAL
COMMENTARY AND SUMMARY
The Working Capital Fund (WCF) is a revolving fund authorized to finance, on a break-even basis, administrative services provided by the Justice Management Division (JMD) to Offices, Boards, Divisions and Bureaus of the Department of Justice (DOJ) and to other Federal agencies. These services are generally commercial functions, such as data processing, publications, building services, financial operations, personnel services, telecommunications, property management, and space management. The WCF is also authorized to receive transfers of unobligated balances of appropriations from other DOJ components. These transfers may be used to fund the acquisition of capital equipment, develop and implement law enforcement or litigation related automated data processing systems, and improve and implement the DOJ's financial management and payroll/personnel systems. The Congress must be notified of the DOJ's intention to use these funds.
This audit report contains the Annual Financial Statement of the WCF for the fiscal year ended September 30, 1997. The audit was performed by Brown & Company, Certified Public Accountants, and resulted in an unqualified opinion on the FY 1997 statement of financial position and the related statement of operations and changes in net position. The independent auditor's report on internal control identified one reportable condition concerning an unreconciled Treasury account. This issue was previously reported as a material weakness in the FY 1996 financial statement audit of the WCF (Office of the Inspector General Report No. 97-30A), but was downgraded this year because management has initiated corrective action. The WCF previously received an unqualified opinion on its FY 1996 statement of financial position and related FY 1996 statement of operations and changes in net position (Office of the Inspector General Report No. 97-30A).
Management's Overview
Introduction
The basic principle supporting the establishment of a Working Capital Fund (WCF) is to
consolidate, under one financing arrangement, many common services to obtain economies of
scale and efficiency of operations while avoiding a duplication of effort. This principle
was embraced by Congress for the Department of Justice (DOJ) on January 2, 1975, through
the enactment of the fund (28 U.S.C. § 527). The DOJ WCF provides certain
administrative services where a determination has been made that these services can be
provided more advantageously on a centralized basis. The WCF provides the Department with
the flexibility to effectively obtain and use resources in response to the service demands
of customers both within and outside the Department.
The WCF is a revolving fund authorized to finance the provision of goods and services through a process that charges customers for the goods and services delivered. The WCF is operated on a not-for-profit basis. The WCF generates its cash through collections from customers, rather than appropriations from Congress. Customer billings are based on rates which are intended to fully recover the actual expenses associated with the services provided.
Organizational Structure
The WCF has a well established organizational structure. All services are provided by employees of the Justice Management Division (JMD). With the exception of those employees located at the Dallas, Texas, data processing facility, all employees are located in the Washington, D.C. metropolitan area. The services provided, however, are available to all DOJ locations, worldwide.
The General Manager of the WCF is the Assistant Attorney General for Administration (AAG/A). The General Manager approves all operating plans and capital budgets of the WCF Activities; approves rate changes to recoup the cost of goods or services provided; approves all directives affecting the relationship between the WCF Activities and the organizations served by them; and approves all major expenditures from the Fund. The Financial Manager of the WCF is the Deputy Assistant Attorney General, Controller. The Financial Manager develops and maintains a budget and accounting system; prepares Office of Management and Budget (OMB) and Congressional budgets; provides financial management services that include recommendations to the General Manager regarding rate revisions; prepares external and internal financial reports; provides direction and assistance to the managers of the WCF Activities in the areas of cost accounting and rate development; and provides oversight in the development of operating plans and capital budgets.
The AAG/A created and chartered a WCF Customer Advisory Board during Fiscal Year (FY) 1994 to periodically review WCF operations; address issues related to the management of the WCF; and serve to enhance the customer services provided by the WCF Activities.
WCF services are directed by WCF Activity Managers in such areas as Data Processing Services, Financial Management Systems, Human Resource Systems, and Telecommunications Services. These Activity Managers are responsible for the operation, review, and management of their respective WCF Activities, and development of financial operating plans. Duties include day-to-day management of the operations for the WCF Activities; review of financial reports to determine if income levels are adequate or if rate changes are to be recommended; and maintenance of data and management systems to support customer billings. All Activity Managers are required to manage their operations at the lowest possible cost to their customers.
The WCF is listed in the Treasury Account Symbols and Titles as 15X4526, Working
Capital Fund, Department of Justice. The WCF includes thirteen major service activities.
Brief descriptions of these activities are provided below.
WCF Activities
Data Processing Services (DPS) provides large scale information processing centers and a broad range of modern Automated Data Processing (ADP) technologies to support law enforcement, litigation support, and other management systems for Departmental components and other Federal agencies. The Department operates data processing centers in Rockville, Maryland, and Dallas, Texas.
Telecommunications Services (TSS) operates a wide range of telecommunications services for Departmental components, including 24-hour operation of the Department's Washington metropolitan area telephone system, and voice and data communications services. Payments to the General Services Administration (GSA) for FTS 2000 services are processed through this WCF Activity. This WCF Activity is also responsible for the development of telecommunications policy.
Financial Management Systems (FMS) is responsible for the accounting operation which supports the Offices, Boards, and Divisions (OBDs), and the U.S. Marshals Service (USMS). Effective October 1997, the USMS assumed full responsibility for its financial accounting and operational support. This WCF Activity also includes the development and implementation of Department-wide financial management policies and systems to support planning, programming, budgeting, accounting, and other financial management activities.
Human Resource Systems (HRS) is responsible for the maintenance and enhancement of the payroll/personnel system functions of the Department. With the exception of the Federal Bureau of Investigation (FBI), the Department's payroll/personnel services were converted to the Department of Agriculture's National Finance Center through a cross-servicing arrangement in FY 1993. The HRS reviews and analyzes proposed system modifications and alternatives, which involve a variety of managerial and operational functions of existing and long range designs of the systems application and development.
Asset Forfeiture Management is responsible for the administrative management and operational functions that were formerly performed by the Executive Office of Asset Forfeiture. This responsibility includes the operation of a central asset forfeiture resource center, the management of investments in U.S. Treasury securities, and the implementation of the Consolidated Asset Tracking System.
Justice Building Services (JBS) provides support for the operation, maintenance, alteration, repair, and preservation of all equipment and space in the Main Justice Building.
Mail, Audio-Visual, and Publications Services (MAPS) provides direct administrative support for mail management; direct support for mail referral and dispatch services; and oversight of contractual mail delivery services and special messenger services. MAPS also provides audio visual, publications, and related services for all Departmental components. This WCF Activity provides direction and monitoring concerning printing production, and makes recommendations for the proper use and application of all Departmental publications and visual communications material.
Property Management provides for the purchase, sale, and inventory of new and refurbished office furniture that is available for purchase by Departmental components. No personnel or management expenses are charged to this WCF Activity.
Space Management is a clearing account that pays GSA rent and other space related expenses. Costs are reimbursed on the basis of assigned space and space rates. No personnel expenses are charged to this WCF Activity.
Library Acquisition Services serves as the primary resource for obtaining publications for the Department's OBDs. This WCF Activity orders new books and subscriptions; renews all ongoing subscriptions; monitors the publication budgets for the components; and distributes monthly status reports. No personnel or management expenses are charged to this WCF Activity.
Personnel Services provides staffing, position classification, pay administration, employee-management relations, employee benefits, performance appraisal, time and attendance, and personnel records maintenance for the OBDs.
Drug-Free Workplace, provides random testing of employees, in designated positions, and mandatory applicant testing for the OBDs.
Debt Collection Management (DCM) is responsible for implementing the provisions
of the Federal Debt Recovery Act of 1986, which authorizes the Attorney General to
contract with private counsel to help the U.S. Attorneys collect delinquent Federal civil
debts. Since FY 1994, the Attorney General has been authorized to credit to the WCF
up to 3 percent of the Department's total civil cash collections to be used for paying the
costs of "processing and tracking" such litigation (see Note 7). DCM is
responsible for the operation of the Nationwide Central Intake Facility, the private
counsel pilot project, and other projects funded by the 3 percent of the Department's
civil debt collections.
Summary of WCF Financial Activity
In FY 1997, WCF total revenue was $584.1 million, an increase of
7.5 percent over FY 1996. The total revenue is composed of $580.9 million from
services provided, and for financial statement presentation purposes, $3.2 million from an
imputed financing source for pensions and other retirement benefits (see Note 1E) . A
total of 650 workyears were utilized during FY 1997, a decrease of 11 workyears below
the FY 1996 level. A further analysis of these changes is presented as Schedule A,
Revenue and Workyears by WCF Activity, located in the Supplemental Financial and
Management Information section.
As shown in Chart 1 on the next page, the largest single revenue source is the Space Management Activity, which generated $291.4 million in FY 1997, an increase of 4.1 percent over FY 1996. The next largest revenue source was the TSS Activity which generated $91.0 million in revenue, an increase of 4.6 percent from FY 1996. The DPS Activity recorded a 2.2 percent increase in revenue at $90.9 million. The DCM Activity recorded $44.8 million in revenue during FY 1997, which is 63.2 percent above FY 1996. The remaining $66.0 million in revenue came from the other WCF Activities.
Total expenses of $563.0 million were recorded, an increase of 6.2 percent increase over FY 1996. Of the $563.0 million in expenses incurred, $11.0 million represents authorized uses of WCF retained earnings pursuant to P.L. 102-140, and $552.0 million was used in support of normal WCF operations. The primary uses of the $552.0 million were to pay GSA for space rentals, other space related expenses, communications, and utilities ($367.4 million), to obtain other contractual services ($91.7 million), to compensate personnel ($41.9 million), and for Supplies, Materials, Uncapitalized Equipment, Travel, Printing, Depreciation, Cost of Goods Sold, Future Compensation Benefits Cost (see Note 10), Pension and Other Retirement Benefits Paid by Other Federal Entities (see Note 11), and Miscellaneous Expenses ($51.0 million). Chart 2 on the next page, displays these figures as a percentage of each dollar of expense.
Total excess revenues over expenses were $21.1 million for FY 1997, an increase of 60.4 percent over FY 1996. Most of the increase is attributable to DCM, which experienced a 63.2 percent increase in revenue and a 32.5 percent decrease in expenses.
The WCF also recorded a non-operating change to Net Position amounting to
$34.1 million. The non-operating change is composed of $154.5 million in
unobligated balances transferred in from other appropriations (see Schedule B), $11.4
million in erroneous FY 1996 transfers-in were transferred from the WCF, and $30.0 million
and $6.4 million which were rescinded pursuant to Public Law (P.L.) 105-18, 1997
Emergency Supplemental Appropriations Act and P.L 104-208, Omnibus Consolidated
Appropriations Act of FY 1997, respectively. The remaining $72.6 million of the
non-operating change represents authorized uses of Unobligated Balances Transferred to the
WCF from other DOJ appropriations pursuant to P.L. 102-140.
The WCF Annual Financial Statements received unqualified audit opinions for FYs 1991 through 1996. The auditors also provided Management Letter Reports (MLR) containing recommendations for financial management improvements in each of the FYs audited. All recommendations within the MLRs have been addressed, implemented, or scheduled for implementation by the Department's management, and the MLRs through FY 1995 have been closed by the Office of the Inspector General (OIG). The FY 1996MLR contains one open recommendation involving the implementation of an automated warehouse inventory system. The inventory system is expected to be fully implemented during FY 1998, at which time documentation will be forwarded to the OIG for review and closure.
There are no material weaknesses or material nonconformances reported in the
Department's FY 1997 Federal Managers' Financial Integrity Act report that are directly
associated with the WCF.
Program Performance Information
The WCF legislative mandate directs the fund, with the approval of the OMB, to finance operations of such administrative services as the Attorney General determines may be performed more advantageously on a centralized basis. The mission of the WCF is to provide quality services while achieving economies of scale. The goals of the WCF include customer satisfaction, cost containment, and continual improvement in service quality and delivery. The primary customers for these services are those Departmental components responsible for carrying out the Department's law enforcement mission. Some services, such as automated legal research and ADP, are also used by other Government agencies. Major objectives of the WCF can be summarized as follows:
The DOJ has aggressively pursued the development and implementation of performance measures within the Department. The WCF Activity Managers have been tasked with developing and implementing performance measures for their respective areas of responsibility. The measures relate directly to the goals, missions, and objectives of the WCF, and will focus both on inputs and outputs, and related measures of efficiency. Approximately three to five measures have been identified and developed for each WCF Activity, keeping in mind the common measures developed by the OMB. Examples of measures implemented to date appear in the Supplemental Financial and Management Information section of this financial statement. Reports on the measures are provided annually to WCF management. Trend information, causes, and comparisons are compiled in an attempt to relate current performance to past activity and anticipated future performance levels. In June 1993, the OMB initiated a program for reporting agency progress of Government-wide financial management goals. In addition, the Government Performance and Results Act of 1993 was enacted to improve program effectiveness, public accountability, service delivery, and financial management within the Federal Government. The Department is committed to this program measurement and reporting effort and is using performance indicators to report its progress in achieving sound financial management practices. The performance measurement effort is long-term in nature and will require a significant commitment of the WCF management.
The profit and loss by WCF Activity is a significant performance measurement. The
performance of each WCF Activity is monitored throughout each year by the JMD Budget
Staff. Although the WCF Activities, as a whole, ended the year with a surplus on
operations, two of the WCF Activities ended the year with a loss on operations. The
$.8 million in losses reported by these two WCF Activities account for
approximately two tenths of one percent of the revenue recorded for FY 1997.
Overhead expenses absorbed by the WCF during FY 1997 were $11.1 million, which
represents a 73.4 percent increase over the $6.4 million reported in
FY 1996. Considering the total WCF operating expenses and the $11.0 million in
authorized uses of WCF Retained Capital, the WCF closed the year with a $21.1 million
surplus overall.
Financial Performance Information
The financial performance of the WCF in FY 1997 continued to meet the goal of providing quality services at established rates while achieving economies of scale. Revenue from services provided increased 6.9 percent over the FY 1996 level.
Total entity assets of the WCF increased 21.2 percent in 1997, to approximately $459.7 million. Much of this increase is attributable to a 21.6 percent increase in cash (Fund Balance with Treasury), which was due mainly to $21.1 million increase in FY 1997 WCF retained earnings, and $34.1 million in non-operating changes due to net unobligated balances transferred in from other appropriations pursuant to P.L. 102-140. (See Notes 6 and 7). The accounts receivable balance increased 29.9 percent from the close of FY 1996. Please note that Non-Entity Assets, which represent restricted undisbursed civil and criminal debt collections, along with the related liability, and have been excluded from this analysis. (See Note 1I and 2).
The FY 1997 WCF entity assets are approximately seven times the FY 1992 level. The net transfers into the WCF of unobligated balances of other DOJ accounts (see Notes 6 and 7), which amount to $249.5 million in cash, are restricted by P.L. 102-140 to specific uses and not available to pay general short term liabilities. Therefore, the transfers are not considered part of current assets. Excluding the net transfers into the WCF, which account for 64.2 percent of the $388.7 million increase in WCF assets, the composition of the assets has changed. The proportion of cash has increased while the level of accounts receivable and equipment has decreased over the same period.
Total liabilities covered by budgetary resources and net position (equity) have increased commensurately with the rise in entity assets. Excluding the impact of the cash transferred in since FY 1993, the five-year growth in net position was 277.9 percent and liabilities covered by budgetary resources are 126.7 percent higher than in FY 1992. At the close of FY 1997, the mix of liabilities covered by budgetary resources and net position as a percent of total entity assets has remained relatively constant when compared to FY 1996 results. The FY 1997 liabilities covered by budgetary resources amount to 41.6 percent, up from 38.1 percent of current assets in FY 1996, while net position has decreased to 58.4 percent of current assets compared to 61.9 percent in FY 1996. WCF liabilities covered by budgetary resources consist almost entirely of accounts payable to vendors and personnel compensation liabilities.
The WCF financial performance measures indicate that the WCF current ratio (current assets to current liabilities covered by budgetary resources) of 2.4 to 1 has remained relatively constant since FY 1996, and continues to enable the fund to adequately meet its current liabilities. Approximately 76.7 percent of current assets are in the form of cash, 23.1 percent are in the form of accounts receivables, and the remaining .2 percent in inventory. This indicates a strong and liquid current asset position with enough cash to meet short term debts without reliance on the collection of receivables. Fixed assets represent 5.4 percent of total unrestricted assets. During FY 1997, $.8 million was invested in capital equipment which, tempered by depreciation expense, was responsible for the 12.6 percent decrease in the net book value of fixed assets since FY 1996.
Along with the generally sound financial position of the WCF, some financial management
and reporting problems continue to exist. The financial reporting of property and
equipment for FY 1997 and FY 1996 relied significantly upon physical inventories
of capital assets and inventory held for sale, which were conducted at the close of each
FY. Although the balances for Inventory and Property, Plant and Equipment, were adjusted
accordingly in these financial statements, the process for systematically updating these
accounts with current transaction data was not accomplished by the end of FY 1997. A
manual adjusting entry was required in both FY 1997 and FY 1996 to reflect the
impact of related transactions. Resource limitations and competing priorities have
hampered the success of resolving these issues.
Limitations of the Financial Statements
The financial statements have been prepared to report the financial position and results of operations of the WCF, pursuant to the requirements of the 31 U.S.C. 3515(b) and related laws.
While the statements have been prepared from the books and records of the WCF in accordance with the formats prescribed by the OMB, the statements are different from the financial reports used to monitor and control budgetary resources which are prepared from the same books and records.
The statements should be read with the realization that they are for a component of the
U.S. Government, a sovereign entity. One implication of this is that liabilities cannot be
liquidated without legislation that provides resources to do so.
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