Follow-up Audit of the Department of Justice Counterterrorism Fund

Report No. 03-33
September 2003
Office of the Inspector General

1. Reimbursements to Department Components

Our review of over $36 million in component expenditures disclosed $2.6 million in questioned costs, which resulted from expenditures that were either improper or were not adequately supported. These deficiencies represented a combined component error rate of 7 percent. Although this reflects that improvements have been made since our last audit, during which we identified a 16 percent error rate for Department component expenditures, our findings show that Department components need to improve further their management of Fund monies.

For FYs 1998 through 2002, JMD entered into RAs totaling about $94 million with five Department components - the Criminal Division, EOUSA, FBI, SEPS, and USMS. As of June 30, 2003, the components had billed the Fund for about $91.4 million against these RAs. These components spent the funds in support of various initiatives, primarily in support of the Oklahoma City Bombing Trial of Terry Nichols; the investigation of the U.S. embassy bombings in Africa; the 1998 trial of the Freemen antigovernment extremists in Montana; the 1998 manhunt of fugitive Eric Rudolph;²⁷ and the response to the September 11, 2001, terrorist attacks. In addition, funding was expended on a 5-year inter-departmental counterterrorism and technology crime plan, arrangements to ensure the continuation of Department operations in the event of an emergency, counterterrorism and technology crime research and development, and bomb technician training.

Fund recipients are responsible for ensuring that expenditures are allowable, supported, and used in accordance with authorized purposes. Specifically, the RAs state:

The Chief Financial Officer [CFO] for your organization must certify that all amounts billed under this agreement have been expended only for the specified purposes & will retain all supporting documents associated with billings under this agreement.

This was reiterated in a memorandum JMD sent to Department components on April 1, 2000. JMD officials informed the components that the CFO of each agency must ensure that the billings submitted for reimbursement include only approved expenses pertaining to the counterterrorism initiative stated in the RA and in congressional notifications. Additionally, the memorandum stated that each CFO should maintain appropriate supporting documentation for the agency's Fund expenditures.

Fund Expenditures

We tested a sample of the monies distributed from the Fund to the five Department components noted previously. In general, the types of expenditures made by the components for FYs 1998 through 2002 were overtime, travel, equipment, supplies, utilities, and rent payments. We examined the expenditures for reasonableness, appropriateness, compliance with Fund legislation, and adequacy of supporting documentation. We reviewed over $36 million, or 44 percent of the amount billed.

We found that the components did not have adequate documentation for transactions totaling $1,110,606. Further, we identified $1,530,533 in unallowable expenditures. Thus, we questioned over $2.6 million, or 7 percent of the expenditures reviewed, as shown in the following table.

Federal Bureau of Investigation - During the prior audit, the FBI was the largest recipient of Fund monies. The FBI once again received the majority of the funds between FYs 1998 and 2002. During this period, the FBI entered into nine RAs amounting to $82,618,139.³² During our review timeframe, the FBI was reimbursed $75,892,377 for expenditures related to counterterrorism initiatives.

The following table identifies each RA with the year it was issued and the approved uses for the Fund monies. In addition, the table provides the amount the FBI billed against each RA, the dollar amount that we tested, the questioned costs we identified, and the breakdown of questioned costs as unallowed or unsupported. Of $32,607,795 in transactions selected for detailed testing at the FBI, which represented 42 percent³³ of the universe, we questioned a total of $1,319,691 (4 percent) as unsupported or unallowable.

In total, we identified $528,391 of unsupported costs in the categories of travel; rent, communications, and utilities; other services; supplies; and equipment. FBI officials stated that there was a fire at the National Records Center that destroyed boxes of records, which may be the reason for some of the missing documents. However, they were unable to definitively state that FBI boxes were destroyed and did not provide us with any documentation from the National Records Center as to when the fire happened, how many boxes were destroyed, and which boxes were the FBI's. Beyond those records that may have been destroyed by the fire, we noted instances of additional unsupported costs. For example:

• $22,500 was inadvertently billed for equipment because of an input error on the documentation submitted to JMD for reimbursement. The cost of the equipment was recorded as $25,000 instead of the actual expense of $2,500. We considered the difference of $22,500 to be unsupported.

• $62,509 was billed for other services; however, the FBI could only support $54,016. The difference of $8,493 was questioned as unsupported.

In addition to these unsupported costs, we identified unallowable costs totaling $791,300 attributed to the FBI. Specifically:

• $488,366 was unallowable because, although the FBI provided the requisite documentation to support the disbursement of funds (e.g., accounting reports, purchase orders, invoices, vendor receipts), it was unable to provide us documentation that clearly linked the expenditure to the specific counterterrorism initiative stipulated in the RA.

• $48,252 in billing errors was identified, including service charges for late payments on purchases ($18,410), expenses from the prior fiscal year ($17,226), a fax machine that was charged to the Fund twice ($10,480), and improper travel charges ($2,136). We spoke with personnel from the JMD Budget Staff regarding the late payment charges, and they concurred that late fees were not an allowable Fund expense. Regarding the prior fiscal year charges, the FBI's request for monies from the Fund explicitly stated that the expenses would be incurred during FY 1998. The travel expenses were unallowable because they were not related to the approved counterterrorism initiative.

• $254,682 was unallowable because the cost categories charged to the RA had not been approved by JMD. This included $123,212 for the reimbursement of services provided by state agencies, along with medical services in the amount of $107,480 charged to the Southeast Bombings Task Force RA. These types of expenses were not included in the FBI's description of costs for which they sought reimbursement from the Fund. Therefore, these services were not approved, as required, by JMD, the Attorney General, OMB, and Congress. In addition, the FBI received $23,990 in cash advances pertaining to one of the RAs for the African Embassy bombings. However, the FBI could not provide sufficient detail of how the funds were used. Thus, we considered these costs to be unallowable.

Our review of the FBI's Fund expenditures revealed an error rate of 12 percent in our prior audit and 4 percent in our current audit. Comparing the two error rates, the FBI has shown improvement in the management of its Fund expenditures. However, the FBI continues to have a significant amount of dollar-related findings, as evidenced by the $1,319,691 of questioned costs disclosed during our current review.

We discussed our findings with the FBI prior to the issuance of this report. The FBI agreed with our figures and continued to search for the missing documentation for the expenditures that we determined to be unsupported. FBI officials stated that, for some of the RAs, they had expenditures in excess of the amounts billed to the Fund and these could offset some of the questioned costs. In addition, the officials declared that they were provided with little guidance on the allowability of expenditures. For example, the officials acknowledged that they charged the interest and penalties from late payments to the Fund, and explained that: 1) the fees pertained to equipment purchases that were billable to the Fund, and 2) the guidance provided by JMD did not specifically indicate that these costs were not reimbursable.

United States Marshals Service - In general, the USMS did not adequately account for the reimbursements it received from the Fund. At the time we issued our prior report in September 1999, the USMS did not have an effective system to capture expenditures that would be reimbursed by the Fund. We encountered this situation again during our follow-up audit.

After four months of requesting from the USMS summary ledgers and detailed transaction listings for the 1998 RAs, we received information that was pieced together and incomplete. Several entries on the summary ledgers did not have detailed listings from which we could review individual transactions; we therefore considered these to be unsupported. From the remaining items on the summary ledgers, we selected a sample of transactions to test and identified such a high error rate associated with an RA related to the Oklahoma City bombing trial that we tested virtually all of the expenditures.

In contrast, we received the data for the 2001 RA for the World Trade Center and Pentagon bombings immediately upon request and our testing revealed no discrepancies. The expenditures for this RA were made up entirely of overtime transactions; however, the prior RAs included expenses in addition to overtime, such as travel, guard services, equipment, rent, and other services. The limited nature of the 2001 RA precludes us from concluding that the USMS has resolved the problems of the past, because only overtime expenditures were incurred.

The following table identifies each USMS RA with the date it was issued, the approved counterterrorism initiative, and the types of expenses eligible for reimbursement. In addition, it provides the amount the USMS billed against each RA, the dollar amount that we tested, the questioned costs we identified, and the breakdown of questioned costs as unallowed or unsupported.

• Oklahoma City Bombing RA: The USMS billed the Fund for $1,097,394 for the reimbursement of some of its costs related to the Oklahoma City bombing trial. In the process of testing our initial sample of expenditures, we found that all or part of each sample transaction contained errors. As a result, we selected a much larger sample and tested nearly every transaction. In total, we reviewed $1,089,298 and found $964,969 in questioned costs, resulting in an error rate of 89 percent. Of the total amount questioned, $526,201 was unsupported, as detailed below:

• In preparing the records for our review, the USMS determined that it could not provide adequate documentation to support disbursements totaling $209,191. These expenditures consisted of travel, supplies, and equipment expenses.
• $317,010 in unsupported expenditures was identified during our testing of travel and guard services transactions. The USMS was unable to provide us with proper supporting documents, including travel vouchers, travel authorizations, receipts, and invoices.

The remaining $438,768 of our questioned costs was unallowable, as detailed below:

• We identified $384,937 in costs charged to the Fund for categories that were not approved by JMD for reimbursement. Specifically, the USMS was reimbursed from the Fund for Deputy U.S. Marshals' overtime ($380,529), office supplies ($1,005), and vehicle expenses ($3,403) even though these items were explicitly denied by JMD in its assessment of the USMS request.
• $40,810 in travel expenses was unallowable because: 1) the travel was not related to the Oklahoma City bombing trial, 2) the expenses were incurred during the fiscal year prior to the effective date of the RA, or 3) the travel was not authorized.
• $13,021 charged for computer equipment was not related to the Oklahoma City bombing RA. This expense was billed to the Fund under both the Freemen trial and Oklahoma City bombing trial RAs. This equipment was purchased for the Freemen trial and should not have been charged to the Oklahoma City bombing trial RA.

• Freemen Trial RA: The USMS also received $526,219 for the reimbursement of some of its costs related to the Freemen trial. We tested $390,902 of its expenditures, which was 74 percent of the universe. Our testing again revealed a high error rate, amounting to 82 percent of the expenditures reviewed. The total questioned costs were $319,484, of which $35,659 was unsupported because the USMS was unable to provide us with proper supporting documents (e.g., travel vouchers, receipts, and invoices). The remaining $283,825 in questioned costs was unallowable, as detailed below:

• The USMS billed the Fund $286,500 for the purchase and installation of a video-teleconferencing system for the Freemen trial. In the initial request for funding, the USMS asked for $275,000 for the system. In JMD's analysis of the request and the subsequent approvals by the Attorney General, OMB, and Congress, only $50,000 was approved. Therefore, we questioned the difference of $236,500. The USMS stated that they would reimburse the Fund for the amount overcharged.
• $11,360 was unallowable because, although the USMS could fully support the financial transaction, officials could not provide documentation that clearly connected the equipment purchase to the Freemen trial.
• $32,165 of Deputy U.S. Marshals' overtime charged to the Fund was unallowable because it was explicitly denied by JMD in its assessment of the USMS request.
• $3,800 in travel expenditures was erroneously charged to the Fund twice.

• World Trade Center and Pentagon Bombings RA: The USMS was reimbursed $1,016,755 for overtime costs related to the September 11, 2001, terrorist attacks. The results of our testing identified no deficiencies.

In the previous audit, our testing at the USMS revealed that the agency did not have an effective system for tracking expenditures, and we identified an overall error rate of about 24 percent. As a result, we advised JMD that it needed to ensure that funds provided to the USMS were used appropriately. However, weak management of Fund monies continued to exist; our current review disclosed an overall error rate of 85 percent.

We discussed these findings with USMS officials who agreed with our figures. In response to billing the Fund for costs that had been explicitly denied by JMD during the RA approval process, USMS officials explained that the staff members preparing the bills had not been informed by their superiors of the JMD denials; the staff was only aware of what had been in the initial request submitted by the USMS.

The officials added that they now have a new accounting system. They stated that the new system has improved their financial operations and commented that the funding provided under the 2001 World Trade Center and Pentagon bombings RA was adequately tracked. In response, we noted that all of the expenditures reimbursed under this RA were for overtime; thus, we could not conclude that the USMS had taken corrective action in its other expenditure areas because the control systems for payroll are different than those for other disbursement transactions.

Executive Office for United States Attorneys - EOUSA received $2,763,817 from the Fund for the reimbursement of expenses related to three RAs for prosecutions pertaining to the terrorist bombings in Oklahoma and Africa. The following table identifies each RA with the year it was issued and the allowable uses of funds for the approved counterterrorism initiative. In addition, it provides the amount EOUSA billed against each RA, the dollar amount that we tested, the questioned costs we identified, and the breakdown of questioned costs as unallowed or unsupported.

Our review of a sample of transactions totaling $1,043,611 (34 percent of the universe³⁵) resulted in the identification of $17,491 in questioned costs. We identified:

• unsupported costs in the amount of $3,016, which consisted mainly of lodging costs claimed on travel vouchers; the supporting lodging bills could not be located.

• unallowable costs totaling $14,475 for: 1) expenditures that were made prior to the effective date of the RA, or 2) travel vouchers that were not properly approved; the traveler had signed as the approving official.

Our testing at EOUSA revealed only minor discrepancies as indicated by an overall error rate of 2 percent. In comparison, our prior audit identified a 15 percent error rate. Thus, it appears that EOUSA has significantly improved its management of reimbursements from the Fund. We discussed our findings with EOUSA officials who expressed their belief that every transaction the agency had charged to the Fund was fully supported and allowable. Also, they stated that they had additional expenses that could be charged to offset a majority of the questioned costs.

Security and Emergency Planning Staff - Since the initiation of the Fund in 1995, SEPS has only received one RA. SEPS received $510,000 from the Fund in FY 2000 for the reimbursement of expenses related to ensuring the continuation of government operations in times of emergency. This involved assembling an undisclosed, alternate location from which Department officials could continue to operate in the event of a disaster affecting the Department or one of its components. SEPS was unable to distinguish the reimbursed transactions from its total expenditures for this initiative. Therefore, our universe of transactions to be tested was $1,158,134. This consisted of rent, equipment, supplies, travel, furniture, and other services. Our sample of transactions totaled $656,251, which was 57 percent of the universe of expenditures.

Our review resulted in the identification of $19,504 in dollar-related deficiencies, which amounted to an error rate of 3 percent. Specifically, $17,339 was unsupported and consisted of a computer purchase for which the invoice could not be located. SEPS acknowledged that the invoice could not be found, and SEPS returned the money to the Fund. In addition, we identified $2,165 in unallowable costs that was due to an accounting error. This expense was not a continuation of operations cost and was inadvertently charged to this initiative. SEPS has corrected this error and returned the money to the Fund. Although the total of these two exceptions ($19,504) has been returned, JMD has not yet officially deobligated this amount. As previously discussed, SEPS did not receive monies from the Fund during FYs 1995 through 1997, the review period of our first audit.

Criminal Division - In FY 1998, Congress earmarked $1 million from the Fund for the development of a 5-year inter-departmental counterterrorism and technology crime plan to be prepared by the Criminal Division. The legislative conference report stated: ". . . this plan will serve as a baseline strategy for coordination of national policy and operational capabilities to combat terrorism and will be updated annually to institutionalize this effort."³⁶

The Criminal Division was reimbursed $944,351 for expenditures incurred for this initiative. The costs included salaries and benefits, consulting services, equipment, and overhead expenses. Our review of $196,141 of the related expenditures, which represented 21 percent of the universe, disclosed no exceptions. The Criminal Division did not receive monies from the Fund during FYs 1995 through 1997, the review period of our first audit.

Overall Assessment of Department Components

During our initial audit, we identified significant deficiencies related to the management of Fund monies at many of the components audited, resulting in a combined component error rate of almost 16 percent of the expenditures reviewed. In response, JMD officials stressed that receiving components were primarily responsible for adequately managing the funds received. Our current audit has revealed that, in general, there has been some improvement in the management of funds, as evidenced by the decrease in the combined error rate for all direct component expenditures, which is currently 7 percent.

The combined error rate has decreased; however, our current audit revealed significant questioned costs, totaling over $2.6 million. In addition, fiscal management weaknesses persisted at the component level. The following table compares the error rate for each of the components that received funding during our prior and follow-up audits.

Since the FBI, USMS, and EOUSA are the Department's primary investigating and prosecuting agencies involved in terrorism matters, it is logical that they continue to be heavy users of the Fund. Therefore, these components should ensure that: 1) they have a system to adequately track expenditures reimbursed with Fund monies, and 2) expenditures billed against the Fund are allowable and fully supported. As illustrated in the following chart, the condition at each of these components changed significantly following our previous audit. Although the dollar amount of questioned costs at the FBI was significant, the FBI and EOUSA both improved their operations, as evidenced by a lower error rate. In contrast, the situation at the USMS has dramatically worsened.

Recommendations

We recommend the Assistant Attorney General for Administration:

1. In consultation with EOUSA, remedy the $17,491 in questioned costs.
2. In consultation with the FBI, remedy the $1,319,691 in questioned costs.
3. In consultation with the USMS, remedy the $1,284,453 in questioned costs.
4. Remedy the $19,504 in questioned SEPS expenditures that have been reversed but have not been deobligated.
5. Ensure that the FBI and USMS improve their controls over Fund monies to reduce the likelihood that reimbursements are requested for inappropriate items, particularly those that were not authorized by JMD in the RA approval process.

2. Reimbursements to Non-DOJ Components

Between FYs 1998 and 2002, a total of $2.7 million in Fund monies was passed through the FBI and JMD to other federal, state, and local agencies. Our audit revealed that these funds were not adequately monitored by these two components, putting the funds at a greater risk of misuse. We identified over $430,000 in questioned costs, representing 19 percent of the $2.3 million we tested. Our prior audit disclosed similar findings, and it appears that little improvement has been made in the management of these pass-through funds.

Non-DOJ Component Reimbursement Process

Congress has approved the Fund's use to reimburse certain state and local governments as well as other federal agencies for costs related to terrorism initiatives and investigations. At times, Congress has directly approved these reimbursements by earmarking Funds for particular uses. For example, the Fund's annual appropriations legislation has included a stipulation that state and local agencies of New York receive funding in FY 1997 for their response to the crash of TWA flight 800. In addition, Congress directed that the city of Ogden, Utah, receive reimbursement for costs related to security preparations for the 2002 Winter Olympics.

When funding is not earmarked by Congress, the non-DOJ agencies generally submit requests to one of the Department components, which in turn submits the requests to JMD on their behalf. For example, the Georgia Department of Corrections and the U.S. Department of Agriculture (USDA) Forest Service each submitted a reimbursement request to the FBI to recover funds expended in support of the FBI Southeast Bombings Task Force's manhunt of Eric Rudolph. These requests then go through the normal review and approval processes discussed on page 4.

Generally, these pass-through funds are processed in much the same way as the direct component reimbursements. JMD executes an RA with a Department component containing a provision that certain funds are to be passed on to another user. This agreement makes the pass-through component responsible for managing and transferring the funds to the non-DOJ agencies. Specifically, the pass-through agency receives the billing documentation submitted by the end-user and provides JMD with a bill for the reimbursement of Fund monies to that agency. We encountered one instance, however, in which funding was provided directly to the city of Ogden, Utah, via a grant agreement with JMD. In this instance, the JMD Finance Staff assumed the responsibility for the management of the funds.

Prior Audit Results

In our prior audit, the FBI was the only Department component that acted as a pass-through agency to provide monies to non-DOJ recipients. We reported that a significant portion of these funds was improperly used, in part because the FBI did not adequately manage these monies. As a result, we identified over $1.1 million in questioned costs and funds to better use, which reflected 20 percent of the pass-through expenditures reviewed. One of the weaknesses identified was that written agreements detailing the purpose and appropriate costs of the reimbursement were not always utilized between the FBI and the non-DOJ agency, increasing the risk that unallowable expenses would be charged to the Fund. In addition, the FBI did not require the end-users to submit detailed documentation of their expenditures prior to reimbursement. A significant portion of our dollar-related findings (36 percent) was due to transactions lacking appropriate supporting documentation.

Current Non-DOJ Users & Initiatives

During FYs 1998 through 2002, non-DOJ components were approved to receive funding totaling almost $4 million for various terrorism-related initiatives.³⁸ The following table provides an overview of this pass-through funding. Specifically, it identifies the amount of monies obligated to Department components (e.g.., pass-through agencies) for the reimbursement of costs incurred by non-DOJ agencies (e.g.., end-users) for each agreement, including the fiscal year it was issued. In addition, the table explains the purpose of each agreement, the approved expenditures for each initiative, and whether Congress had earmarked the funds.

Funding Agreements

As stated earlier, the agreements signed by JMD and the Fund recipients stipulate that the recipients are responsible for ensuring that expenditures are allowable, supported, and used in accordance with authorized purposes. The JMD Budget Staff applies this same requirement to the Department components that receive the monies to be passed through to non-DOJ agencies. In other words, the Department component that enters into an RA on behalf of a pass-through agency is accountable for the amounts billed to the Fund. Therefore, the Department component should ensure that supporting documentation is maintained for the expenditures charged to the Fund and review the costs submitted by the end-user for allowability.

Between FYs 1998 and 2002, only two Department components - the FBI and JMD - acted as pass-through agencies. Our review of these agreements and related expenditures totaling over $2.3 million revealed more than $430,000 in questioned costs, or 19 percent of the amount tested. We examined, if possible, the selected expenditures for reasonableness, appropriateness, compliance with Fund legislation, and adequacy of supporting documentation.

In general, we found that the FBI did not adequately manage the Fund monies provided to other users. In each of its arrangements, the FBI failed to obtain or maintain documentation to support the overall amounts billed by the end-users. In addition, we found that JMD had allowed payments for expenses expressly prohibited in the funding agreement. Details of our findings related to each user follow.

City of Ogden, Utah - In the FY 1998 appropriations, Congress stipulated that the city of Ogden, Utah (Ogden), was to receive $3 million from the Fund for security enhancements at the 2002 Winter Olympics.⁴⁰ JMD entered into a grant agreement with Ogden on November 4, 1997, which entitled Ogden to receive reimbursement of specific expenditures incurred in the construction of communications towers as well as the purchase of communications equipment. According to the JMD Budget Staff, this agreement was unique because: 1) a grant agreement had never been used before as a vehicle for providing Fund reimbursements to non-DOJ users, and 2) Ogden dealt directly with JMD instead of working through another Department component. The JMD Finance Staff was placed in charge of administering the grant agreement.

We reviewed all Ogden transactions, which totaled $2,082,331.⁴¹ Our analysis of the Fund expenditures resulted in the identification of $187,922 in dollar-related deficiencies, of which $103,892 was unsupported and $84,030 was unallowable. For example:

• In violation of the grant agreement, Ogden received reimbursement for overhead charges. The grant agreement explicitly stated, "Ogden is not entitled to reimbursement of indirect costs, such as salaries and administrative expenses of its employees and operations." Ogden submitted a letter to the JMD Finance Staff indicating that it would like to charge overhead costs at a rate of 5 percent for each of its expenditures. In response to Ogden's request, the JMD Finance Staff allowed Ogden to bill the Fund for indirect costs at the 5 percent rate. As a result, Ogden began including indirect expenses in its billings and had been reimbursed $83,584 for these charges. However, the JMD Finance Staff did not request or receive approval to override the grant agreement that was signed by the Assistant Attorney General for Administration.

• Ogden billed the Fund and received reimbursement for an encumbrance (e.g.., obligation) rather than an actual expense. Ogden did not have supporting documentation for the $101,931 charged since it had not yet incurred the expense.
  
  As part of its billing process, Ogden submitted a cover page stating the amount requested for reimbursement as well as a progress report explaining the status of the security improvements, which generally did not include amounts of the specific expenditures. The JMD Finance Staff did not ask Ogden to provide documentation to support its expenditures. If the JMD Finance Staff had regularly requested supporting documents for review, this billing error could have been discovered. Ogden officials were aware of this situation at the time of our review and indicated that they would take corrective action for this error in their final billing.

Denver Police Department - On November 21, 1997, the Denver Police Department (Denver PD) submitted a request to the JMD Budget Staff for reimbursement from the Fund. At the time, the request was only an estimate of its costs associated with security at the trial of Oklahoma City bombing suspect Terry Nichols. JMD had a copy of a November 27, 1997 memorandum that was circulated within the FBI, which stated that the FBI supported the Denver PD's request for reimbursement of overtime expenses. This memorandum further stated that the FBI's National Security Division could not verify the total amount requested or confirm that the amount requested did not also include salaries and benefits. On June 18, 1998, the Denver PD submitted a revised request to JMD that provided the actual overtime costs incurred. In September 1998, the FBI entered into an RA with the Department stipulating that the FBI was to reimburse the Denver PD $108,290 for overtime costs in relation to the trial.

According to billing documentation provided by the FBI, the Denver PD was reimbursed the entire $108,290. To test these pass-through funds, we asked the FBI for a transaction listing of the overtime costs included in the billing. In response, we were informed that the FBI did not have a detailed transaction listing or a written agreement with the Denver PD. The FBI then attempted to obtain a listing from the Denver PD; however, the Denver PD was unresponsive and never provided a listing. Thus, we questioned the entire amount reimbursed to the Denver PD as unsupported.

Georgia Department of Corrections - In September 1998, the FBI entered into an RA with the Department that included $652,560 to reimburse the Georgia Department of Corrections (Georgia) for overtime and travel expenses related to the assistance provided to the FBI Southeast Bombings Task Force's pursuit of Eric Rudolph. According to documentation provided by the FBI, Georgia was reimbursed a total of $525,772.⁴² We asked the FBI for documentation to support the payments, including a transaction listing of Georgia's expenditures. The FBI provided us with the reimbursement agreement it executed with Georgia, correspondence pertaining to the reimbursement requests submitted by Georgia, and a transaction listing for a portion of the overtime costs charged to the Fund totaling $159,852. The FBI did not have detailed transaction listings for the remaining $365,920 paid to Georgia. In response to our inquiry, the FBI requested and received a listing from the agency.

Our review of the transaction listings and billing documents that the FBI was able to provide revealed that Georgia was reimbursed for unapproved expenses totaling $17,367. Specifically, Georgia charged the Fund for regular operating expenses, telephone charges, and cabling and splicing kits for perimeter security. According to the agreement between the FBI and Georgia, only overtime and travel expenses were to be reimbursed. As a result, we questioned the $17,367 as unallowable.

From the remaining transactions on the listings provided, we selected a sample of expenditures totaling $174,508 for review. After providing the selected transactions to Georgia, the FBI informed us that Georgia had destroyed all of the records for these expenditures. Georgia provided a letter indicating that its records had been destroyed in accordance with its record retention policy and provided us with a copy of the official notice of records destruction.

We did not question any of these charges (except the $17,367 noted above) as unsupported because: 1) the FBI was able to provide transaction listings that were sufficiently detailed, and 2) Georgia provided us with documentation that the records had been destroyed in accordance with its official retention policy; the written agreement between the FBI and Georgia did not specify a record retention period.

USDA Forest Service - In September 1998, the FBI entered into an RA with the Department stipulating that the FBI was to reimburse the USDA Forest Service (Forest Service) $205,700 for overtime, travel, other services, supplies, and equipment expenses. This funding was for the Forest Service's assistance with the FBI Southeast Bombings Task Force's pursuit of Eric Rudolph. Based upon documentation provided by the FBI, the Forest Service was reimbursed for expenditures totaling $116,553.⁴³ We asked the FBI for a listing of the Forest Service's expenditures that were reimbursed from the Fund. The FBI provided us with correspondence pertaining to the reimbursement request submitted by the Forest Service and various computer-generated reports that could not be interpreted; no written agreement between the FBI and Forest Service was provided.

We asked FBI officials for an explanation of the computer-generated reports; they informed us that they could not explain them. The FBI then obtained a clear listing of transactions from the Forest Service, and we selected a sample of expenditures totaling $72,926 for review. After providing the selected transactions to the Forest Service, we were informed by the FBI that the Forest Service no longer had supporting documentation for the expenditures. However, we were not provided with any documents from the Forest Service supporting this assertion. As a result, we questioned the entire $116,553 billed to the Fund as unsupported.

Conclusion

The Fund was initially established to reimburse Department components for extraordinary expenses incurred while combating and reacting to unanticipated and catastrophic terrorist incidents. However, Congress has, on several occasions, directed that Fund monies be provided to reimburse other federal, state, and local agencies for certain terrorism-related initiatives. To execute these reimbursements, the funds were passed through Department components. The pass-through agencies are required to ensure that Fund expenditures incurred by non-DOJ components were allowable, supported, and used in accordance with authorized purposes.

In the prior audit, we disclosed significant weaknesses in this area and concluded that funding provided to non-DOJ users had to be monitored more closely to ensure that funds were used properly. Our current audit has revealed that this problem continues to exist. We identified $430,132 in questioned costs, which represents 19 percent of the $2.3 million reviewed, or about the same error rate as the 20 percent error rate identified in this area during our initial audit. In addition, written agreements were not always issued, and in instances where an agreement was formalized, these guidelines did not reduce the likelihood that unallowable costs would be reimbursed. Department components need to improve their monitoring of the funds reimbursed to pass-through recipients to ensure that Department resources are safeguarded and used for their intended purpose.

Recommendations

We recommend the Assistant Attorney General for Administration:

6. In consultation with the city of Ogden, Utah, remedy the $187,922 in questioned costs.
7. In consultation with the FBI, remedy the $108,290 in questioned costs attributable to the Denver Police Department.
8. In consultation with the FBI, remedy the $17,367 in questioned costs attributable to the Georgia Department of Corrections.
9. In consultation with the FBI, remedy the $116,553 in questioned costs attributable to the USDA Forest Service.

3. JMD Oversight of the Fund

As the Fund administrator, JMD needs to carefully monitor Fund expenditures to ensure its availability during times of extreme need. Our prior audit disclosed that JMD needed to take a more proactive approach in monitoring Fund expenditures, as indicated by our identification of $4.1 million in dollar-related findings, or 17 percent of the total funds reviewed. In comparison, our current audit has revealed a total of $3.1 million in dollar-related findings, or 8 percent of the overall funds reviewed, resulting from expenditures that were either improper or were not adequately supported. The current results illustrate that JMD has made some improvement in its controls over the use of Fund monies, but it needs to further strengthen controls. Funds continue to be at risk of misuse and fewer resources could be available to the Department for responding rapidly and effectively to unanticipated terrorist acts.

In the prior report, we provided JMD with several recommendations to assist in improving its oversight of the Fund. As noted in Findings 1 and 2 of our current audit, we reviewed Fund expenditures for FYs 1998 through 2002 to determine whether there had been improvement in the recipients' management of Fund monies since the prior audit. Although JMD has strengthened its administration by taking timely action to close RAs and overseeing the improvements at EOUSA and the FBI, there remain areas of continued weaknesses. Specifically, we found that components were billing and receiving funds for expenditures that: 1) were not approved costs of the Fund, 2) were explicitly denied, or 3) lacked supporting documentation. Further, we found that significant weaknesses persisted or worsened at the USMS and that funding provided to non-DOJ users continued to be at risk of misuse. In order to maintain the integrity of the Fund, JMD must strengthen its controls over the administration of the Fund.

Prior Report

The prior report stated that JMD had no system to monitor Fund recipients to ensure that actual expenditures were allowable and supported, and that Fund monies were used in accordance with authorized purposes. According to JMD, Fund recipients are responsible for ensuring the appropriateness of their expenditures. As previously discussed, the RAs between JMD and Department components state: "The Chief Financial Officer [CFO] for your organization must certify that all amounts billed under this agreement have been expended only for the specified purposes, and will retain all supporting documents associated with the billings under this agreement."

In our prior audit, we made several recommendations to JMD to improve its administration of the Fund, and to help ensure that adequate funds remained available to the Department for responding rapidly and effectively to terrorism-related incidents. For example, we recommended that JMD: 1) develop and issue guidance for all Fund users regarding the appropriate use of Fund monies; 2) develop and implement a plan to increase oversight of the Fund, including periodic monitoring of actual expenditures; and 3) determine if inactive RAs can be closed, and if so, deobligate the remaining unexpended funds and make them available to others. The JMD Budget Staff responded to the first two recommendations by sending out a memorandum to recipients that reiterated the purpose and appropriate use of the Fund, the CFO's responsibility, and the requesting process. In addition, they stated that they ". . . will continue to review all component billings as they are submitted. This includes reviewing all backup documentation for accuracy and appropriateness, prior to the processing of the billing." In response to the third recommendation noted above, JMD reviewed and closed the open 1995 and 1996 RAs, which resulted in the deobligation of Fund monies totaling over $270,000.

Improvements

During our current review, we noted two areas of improvement regarding the administration of the Fund.

Timely Closure of RAs - In the prior report, we recommended that JMD determine if open RAs could be closed and if so, deobligate the remaining unexpended funds. At the beginning of our follow-up audit, there were seven open agreements - three from FY 1998, two from FY 1999, and two from FY 2001. Our review of these open RAs revealed that JMD continued to monitor and follow-up with the components on outstanding obligations. During FY 2003, the FBI submitted documentation to close one of its RAs, and the city of Ogden, Utah, and the USMS noted that they would be submitting final bills in the near future that would close their open agreements. In our opinion, JMD has remained watchful of the open RAs.

Component Progress - Our review of direct Department component Fund expenditures revealed a combined error rate of almost 16 percent in our prior audit and 7 percent in our current audit. Specifically, EOUSA improved from the prior audit error rate of 15 percent to a 2 percent error rate during the current review period. Similarly, the FBI reduced its error rate from 12 percent to 4 percent. These improvements are significant and can be attributed to the Department components' management of Fund expenditures, as well as JMD's oversight of the Fund.

Continuing Weaknesses

Our review disclosed five areas in which JMD should strengthen its oversight of the Fund.

Payments for Denied Expenses - As noted earlier, JMD Budget analysts review components' requests to determine if the expenditures for which they are requesting reimbursement are appropriate uses of the Fund. Based upon these analyses, JMD recommends funding amounts that must be approved by the Attorney General, OMB, and Congress. However, we found that the USMS received $653,602 for categories or items that were specifically included in its funding requests but were explicitly denied for reimbursement, as detailed in the following table.

• As discussed on page 19, the USMS requested $275,000 for a video teleconferencing system for the Freemen trial and JMD Budget reduced this amount to $50,000 based on prior requests for the same type of equipment. The USMS then submitted a billing that included a $275,000 equipment purchase and the related installation bill for $11,500. Despite only $50,000 being approved, the total amount of $286,500 was reimbursed to the USMS for this equipment.

• JMD denied the categories of deputy overtime, supplies, and vehicle expenses specifically requested by the USMS; the Attorney General, OMB, and Congress approved the recommendation by JMD. However, the USMS billed these costs to the Fund and received the requested reimbursement.

If the JMD Budget Staff had properly reviewed the USMS's billings and backup documentation, these items would have been obvious. A comparison of the billed items to the approved categories would have revealed that these items were explicitly denied.

Reimbursement of Unapproved Costs - In some instances, the components charged for costs outside the scope of what had been requested and approved for the RA. The following table identifies these costs, including expenditures incurred prior to the effective date of the RA, late payment penalties, and costs unrelated to the initiative or cost categories stipulated in the RA.

Many of the unapproved expenditures noted in the preceding table were apparent on the itemized listings that we used to perform our testing. For example, as discussed on page 14, the FBI received reimbursement for late fees. In the detailed transaction listings we received, these charges were in a category entitled "Late Payment Penalties." If JMD had reviewed the itemized expenses, these unallowable expenditures should have been identified.

In another example, the FBI received reimbursement for medical expenses incurred in conjunction with its pursuit of Eric Rudolph by the Southeast Bombings Task Force. However, this type of expenditure was not included in the FBI's initial funding request and, therefore, was not approved by JMD, the Attorney General, OMB, and Congress. Since the billing documentation submitted by the FBI consisted of a summary with general categories, these expenditures were not as easily recognizable as the late fees mentioned above. However, if JMD had requested and reviewed the detailed listings, the unallowable costs could have been identified.

Lack of Supporting Documentation - When testing expenditures, original supporting documents provide auditors with the highest level of validity. In the prior audit, unsupported costs comprised 27 percent of our total dollar-related deficiencies. In our current review, a significant portion of our questioned costs was again unsupported. As a result of our transaction testing detailed in Findings 1 and 2, we identified $1,110,606 in unsupported expenditures for Department components and $328,735 for non-DOJ recipients. These questioned costs represented 47 percent of our total findings.

Although the JMD Budget Staff requires that Fund recipients maintain supporting documentation, it has not provided guidelines for the length of time the records should be retained, and it has not significantly improved its billing review process as a means of monitoring the components' compliance with the retention requirement. During our work at the various Department components, we found differing standards for record retention. According to JMD, the components are required to maintain records for six years and three months from the last billing for each RA, as required in the National Archives and Records Administration (NARA) General Records Schedule 6.1a. However, the USMS has a 2 or 3?year retention policy, following NARA Schedule 7.1 and 7.4a. The FBI was following NARA Schedule 6.1a for most Fund expenditures; however, the FBI followed other internal guidelines for payroll records, which include overtime payments.

We recommend that the JMD Budget Staff advise all Fund recipients of a standardized period for retention of supporting documentation for all expenditures, including those of pass-through recipients. In addition, JMD should improve its process for reviewing component billings to ensure Fund expenditures are adequately supported. For example, JMD should require the components to have the supporting documents readily available for review. Also, JMD should review the components' quarterly billings and test a sample of expenditures for the adequacy of supporting documentation.

USMS - As noted in our prior audit report, we identified $436,510 in questioned costs, or 24 percent of the expenditures reviewed, at the USMS. In addition, we advised that the USMS needed to improve its fiscal controls prior to JMD providing the agency with more funding. However, our current audit revealed that the USMS had not improved its management of Fund expenditures. We identified $1,284,453 in questioned costs, representing an 85 percent error rate. This indicates that significant weaknesses at the USMS continue to exist. Although the USMS adequately tracked the expenditures related to its most recent RA (e.g., the FY 2001 RA for the World Trade Center and Pentagon bombings), we could not conclude that the USMS improved its management of Fund monies because the RA was limited to overtime expenses only. Before entering into another RA with the USMS, JMD needs to ensure that the agency has established and implemented a system to adequately track all types of Fund expenditures.

Pass-through Funding - Our prior audit disclosed that Fund monies passed through to non-DOJ users were at risk because they were not being adequately managed or monitored. As a result, we identified $1,106,616 in dollar-related findings, or 20 percent of the expenditures reviewed. Our current audit disclosed $430,132 in questioned costs, or a 19 percent error rate. As previously reported, pass-through agencies, such as the FBI, need to improve their management of these funds by consistently using written agreements that detail the scope of the reimbursement and the parties' responsibilities. In addition, the pass-through agencies need to review and maintain documentation to support the billed expenditures. In turn, JMD needs to provide a framework for the pass-through process and clearly delineate what is expected of both the end-users and the pass-through agencies.

Conclusion

As the Fund administrator, the JMD Budget Staff must ensure that expenditures are reasonable, appropriate, adequately supported, and in compliance with Fund legislation. Despite maintaining strong controls during the initial review and RA approval processes, the JMD Budget Staff has not significantly improved its controls over Fund expenditures since the prior audit. We identified over $4 million in dollar-related deficiencies during our prior audit and over $3 million during our follow-up audit. The questioned costs identified during our current review could have been alleviated had the JMD Budget Staff strengthened its controls over the use of Fund monies as recommended in the prior audit.

Although JMD has continued to monitor the open RAs and inquire if the remaining funds can be deobligated, JMD has not improved its review of component billings. In response to two of the prior audit's recommendations, JMD stated that it would review component billings, including supporting documentation, prior to processing the billings. However, the unallowable and unsupported expenditures that we identified indicate that JMD has not implemented an adequate review process. In addition, the prior report stated that funds passed through to non?DOJ users needed increased oversight; however, we found deficiencies in pass-through funding that amounted to virtually the same error rate as noted in the previous review.

JMD needs to strengthen its controls over the administration of the Fund, particularly during the review of billings and when funds are passed through Department components to non-DOJ users. Further, JMD needs to develop guidance that clearly instructs the components on how long they must retain the supporting documents associated with their billings. If controls are enhanced, additional resources should be available to react to terrorist incidents if they occur. We recognize that there are a variety of ways that improvements in JMD's controls can be achieved. JMD may need to involve the participating components in order to arrive at a solution that works most efficiently. However, JMD is ultimately responsible for the integrity of the Fund and must take action to improve controls over Fund expenditures.

Recommendations

We recommend the Assistant Attorney General for Administration:

10. Develop and implement a plan to increase the JMD Budget Staff's oversight of the Department components' management of Fund monies, including more detailed reviews of component billings and periodic monitoring of actual expenditures.
11. Develop and issue guidance on the retention of records for Fund expenditures.
12. Review the USMS's system for tracking Fund expenditures prior to providing the agency with any additional funding. In addition, the JMD Budget Staff should closely monitor any future paymnts to the USMS.
13. Establish a process to use in the event that Fund monies are to be passed through to non-DOJ agencies. The process should provide guidance for the pass-through agencies, including mandating the use of written agreements, reviewing the actual expenditures of the end-users, and maintaining appropriate documentation.

27. Rudolph, who was on the FBI's Ten Most Wanted Fugitives list, was charged in relation to various bombing incidents in the Southeastern section of the United States. He was arrested in May 2003 in Murphy, North Carolina.
28. These figures do not include our results for non-DOJ users, which are presented in Finding 2.
29. Some agencies have not billed the Fund for the entire amount made available by the RAs. The amounts billed reflect transactions as of September 10, 2002, the end date of our review period.
30. Unallowed costs are expenditures that do not comply with the Fund legislation, the approved initiatives, or costs stipulated in the RA; or for which the allowability could not be determined. Unsupported costs are transactions that were not adequately supported at the time of the audit.
31. SEPS was unable to distinguish the reimbursed transactions from its total expenditures related to its RA. Therefore, we tested a sample of transactions based upon the entire universe of transactions expended on the initiative, which totaled $1,158,134.
32. In addition, the FBI was provided with $966,550 to pass on to other federal, state, and local agencies. The pass-through monies are discussed in Finding 2.
33. This percentage was calculated by using the entire universe of transactions at the FBI, as discussed in Appendix I and detailed in the table on page 46.
34. The category "other services" consists of various types of expenses, including construction, consulting, and interpreter services.
35. This percentage was calculated by using the entire universe of transactions at EOUSA, as discussed in Appendix I and detailed in the table on page 46.
36. Conference Committee Report 105-405, dated November 13, 1997, contains more specific information pertaining to the creation of this inter-departmental plan.
37. The error rates are the questioned costs as a percent of the dollars reviewed at each component.
38. As noted on page 8, OJP received an additional $151 million during FYs 1998 and 1999 to pass on to state and local agencies; however, this funding was excluded from our review.
39. We reviewed approximately $90,000 more than the amount reimbursed because the city of Ogden reduced one of its billings to account for an expenditure that it thought had been billed to the Fund twice. However, based upon our testing, no expenditures were charged to the Fund more than once.
40. Public Law 105-018, Chapter 2, General Provisions, Section 2001.
41. A detailed explanation of our methodology is contained in Appendix I.
42. The FBI informed JMD that the remaining funds totaling $126,788 would not be expended and were deobligated by JMD.
43. The FBI informed JMD that the remaining funds totaling $89,147 would not be expended and were deobligated by JMD.