DHS OIG, OIG-06-26, Independent Review of The U.S. Customs and Border Protection's Reporting of FY 2005, Drug Control Funds (2006)

DEPARTMENT OF HOMELAND SECURITY

Office of Inspector General Letter Report: Independent Review of The U.S. Customs and Border Protection’s Reporting of FY 2005 Drug Control Funds Office of Audits OIG-06-26 1 March 2006 Office of Inspector General U.S. Department of Homeland Security Washington, DC 20528 March 20, 2006 MEMORANDUM FOR: Deborah J. Spero Acting Commissioner U.S. Customs and Border Protection FROM: SUBJECT: Richard L. Skinner Inspector General Independent Review of the U.S. Customs and Border Protection’s Reporting of FY 2005 Drug Control Funds The Office of National Drug Control Policy (ONDCP) requires U.S. Customs and Border Protection (CBP) to submit an annual Detailed Accounting Submission (Submission), as authorized by 21 U.S.C. § 1704(d) and ONDCP Circular, Drug Control Accounting (Circular), April 18, 2003, to ONDCP. The Submission is included in this report as Appendix A, and the Circular is included as Appendix B. The Submission is the responsibility of CBP’s management. We have reviewed the reasonableness and accuracy of the drug methodology used to calculate obligations of prior year budgetary resources by function and by budget decision unit according to the criteria specified in Section 6(b) of the Circular; and whether the drug methodology disclosed in the Submission was the actual methodology used to generate the table required by Section 6(a) of the Circular. Drug methodology means the process by which CBP calculates its drug-related financial statistics according to ONDCP requirements.

Our review was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on the reasonableness and accuracy of the drug methodology used to calculate obligations of prior year budgetary resources by function and by budget decision unit according to the criteria specified in Section 6(b) of the Circular; and whether the drug methodology disclosed in the Submission was the actual methodology used to generate the table required by Section 6(a) of the Circular. Accordingly, we do not express such an opinion. 1 Our review disclosed that, in its Submission, CBP reported using a factor of 90 percent to calculate the CBP Air and Marine’s contribution to CBP’s reported drug-related obligations.

The factor used in CBP Air and Marine’s actual calculation of drug-related obligations was 84 percent. The Submission also omitted a description of the methodology used by CBP Air and Marine to allocate its drug-related obligations between Intelligence and Interdiction functions. These two conditions deviate from the requirement that the drug methodology disclosed in the Submission was the actual methodology used to generate the table required by Section 6(a) of the Circular. Our review disclosed that the Independent Auditors’ Report1 for CBP’s balance sheet as of September 30, 2005, identified a material weakness related to information technology.

The report said that the information technology control weaknesses limited “CBP’s ability to ensure that critical financial and operational data is maintained in such a manner to ensure confidentiality, integrity, and availability.” Material weaknesses are reportable conditions in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements, in amounts that would be material in relation to the financial statements being audited, may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Reportable conditions are matters coming to the auditors’ attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in the auditors’ judgment, could adversely affect CBP’s ability to record, process, summarize, and report financial data consistent with the assertions by management in the financial statements. The material weakness related to information technology deviates from the criteria that financial systems supporting the drug methodology should yield data that fairly present, in all material respects, aggregate obligations from which drug-related obligation estimates are derived. We did not review, as required by the Circular, whether data presented are associated with obligations against a financial plan that, if revised during the fiscal year, properly reflects those changes, including ONDCP’s approval of reprogrammings or transfers affecting drug-related resources in excess of $5 million.

Further, we did not review whether the data presented are associated with obligations against a financial plan that fully complied with all Fund Control Notices issued by the ONDCP Director under 21 U.S.C. § 1703(f) and Section 8 of the ONDCP Circular, Budget Execution. We did not review these matters because of incomplete criteria against which to evaluate the subject matter, in terms of measurability and applicability for multi-mission bureaus, of which CBP is one. We recommend that CBP, in conjunction with DHS, obtain formal guidance from ONDCP and legal counsel, as appropriate, on appropriate and suitable criteria to evaluate these matters for multi-mission bureaus. Based on our review, except for the effects, if any, of the matters discussed in paragraphs four and five of this report, nothing came to our attention that caused us to believe that the drug methodology used to calculate obligations of prior year budgetary resources by function and by budget decision unit is not reasonable and accurate, in all material respects, in conformity with criteria specified in the Circular, and that the drug methodology disclosed in the Submission was not the actual methodology used to generate the table required by the Circular, in all material respects.

1 See DHS Office of Inspector General Report Number OIG-06-12, December 2005. KPMG LLP, an independent public accounting firm, performed the audit of CBP’s balance sheet as of September 30, 2005. 2 We provided a copy of this report in draft to CBP. CBP concurred with the findings and agreed to implement the report’s recommendation found in paragraph six.

This report is intended solely for the information and use of CBP, DHS, ONDCP, and the U.S. Congress, and is not intended to be and should not be used by anyone other than these specified parties. Should you have any questions concerning this review, please call me, or your staff may contact David M. Zavada, Assistant Inspector General for Audits, at (202) 254-4100. 3 DISTRIBUTION DHS Secretary Deputy Secretary Executive Secretary General Counsel Chief of Staff Under Secretary for Management Assistant Secretary for Public Affairs Assistant Secretary for Policy Assistant Secretary for Legislative Affairs Acting Chief Financial Officer Chief Security Officer DHS Audit Liaison CBP Acting Commissioner Chief Financial Officer CBP Audit Liaison Office of National Drug and Control Policy Associate Director for Planning and Budget Office of Management and Budget Chief, Homeland Security Branch DHS OIG Budget Examiner Congress Congressional Oversight and Appropriations Committees as appropriate 4 Appendix A 5 6 7 8 9 Appendix B 10 11 12 13 14 Additional Information and Copies To obtain additional copies of this report, call the Office of Inspector General (OIG) at (202) 254-4100, fax your request to (202) 254-4285, or visit the OIG web site at www.dhs.gov. OIG Hotline To report alleged fraud, waste, abuse or mismanagement, or any other kind of criminal or noncriminal misconduct relative to department programs or operations, call the OIG Hotline at 1-800-323-8603; write to Department of Homeland Security, Washington, DC 20528, Attn: Office of Inspector General, Investigations Division – Hotline.

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