This audit report contains the Annual Financial Statement of the United States Marshals Service (USMS) for the fiscal years ended September 30, 2003, and September 30, 2002. Under the direction of the Office of the Inspector General (OIG), Urbach, Kahn and Werlin, LLP (UKW) performed the USMS audit.

The USMS 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 results of the entity's operations. The USMS also received an unqualified opinion on its FY 2002 financial statements (OIG Report No. 03-26).

For FY 2003, the auditors reported two reportable conditions, one of which was a material weakness. First, the auditors continued to report that improvements are needed in processes for timely preparation of financial reports. The USMS has financial management system weaknesses and inefficient business process controls that prevent reliable and timely preparation of financial reports. The auditors determined that for FY 2003 this reportable condition represented a material weakness in the USMS internal control structure. Second, the USMS needs to continue improving its general and application controls to ensure its systems continue to produce reliable financial and other sensitive data. Although USMS continued to make improvements in their information technology control environment, the auditors identified some areas where additional improvements are needed. The OIG is particularly concerned about the material weakness because of the risk that the USMS will not be able to meet the accelerated deadline required by the Office of Management and Budget (OMB) for FY 2004.

In the Report on Compliance with Laws and Regulations, the auditors reported that the USMS's financial management systems did not substantially comply with the requirements of the Federal Financial Management Improvement Act of 1996. The auditors also reported a non-compliance with regard to funding of capital leases in accordance with OMB Circular A-11.

The OIG reviewed UKW's report and related documentation and made 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 USMS's financial statements, conclusions about the effectiveness of internal control, or conclusions on compliance with laws and regulations. UKW is responsible for the attached auditor's report dated November 14, 2003, and the conclusions expressed in the report. However, our review disclosed no instances where UKW did not comply, in all material respects, with generally accepted government auditing standards.