Performance and

Accountability Report

Fiscal Year 2006

Table of Contents

Message from the Commissioner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Management’s Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Overview of CBP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Mission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Core Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Fiscal Year 2006 Statistical Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Major Mission Programs/Strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Budget by Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Budget Resource Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Looking Ahead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Headquarters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Performance Goals and Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Performance Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Fiscal Year 2006 Performance by Strategic Goal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Management Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Federal Managers’ Financial Integrity Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

DHS Financial Accountability Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Reports Consolidation Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Federal Financial Management Improvement Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Federal Information Security Management Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Systems and Controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Financial Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

President’s Management Agenda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Improper Payments Information Act of 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Overview of the Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Compliance Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Limitations of the Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Performance Section. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Performance Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Individual Performance Measure Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Financial Section. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Message from the Chief Financial Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Required Supplementary Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Other Accompanying Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Auditor Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Office of Inspector General (OIG) Report on Major Management Challenges. . . . . . . . . . . 113

Independent Auditor’s Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Management’s Response to the Independent Auditor’s Report. . . . . . . . . . . . . . . . . . . . . . . 139

Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
2 U.S. Customs and Border Protection • Performance and Accountability Report

I am pleased to present the Fiscal Year 2006 Performance and Accountability 

Report for U.S. Customs and Border Protection (CBP).

CBP is the agency within the Department of Homeland Security responsible 

for managing and securing the borders of the United States. Our priority 

mission – and our greatest challenge – is to prevent terrorists and terrorist 

weapons from entering the United States, both at and between the ports of 

entry. Everyday, over 43,000 CBP officers, agents, and employees work to 

carry out this extraordinarily important mission while simultaneously 

facilitating the flow of legitimate trade and travel. This is an undertaking of 

significant complexity – protecting our borders, and thus our way of life – from 

multiple threats and in every imaginable geographic environment. 

Everyday, employees of CBP carry out important traditional missions: apprehending individuals 

attempting illegal entry into the United States, preventing the smuggling of illegal drugs and contraband, 

protecting agricultural and economic interests from harmful pests and diseases, protecting American 

businesses from theft of their intellectual property, regulating and facilitating international trade, 

collecting import duties, and enforcing trade laws.

Our responsibilities to protect America and our national economy are not mutually exclusive but, in fact, 

complement one another. CBP has instituted programs to secure commerce and travel that also make 

processing legitimate commerce and passengers more efficient. 

The Performance and Accountability Report provides information on the strategies, goals and programs 

that help CBP achieve its mission. 

As a result of the Fiscal Year 2006 Financial Statements Audit, CBP received an unqualified opinion on 

its full set of financial statements. This outstanding accomplishment demonstrates CBP’s discipline and 

accountability in the execution of its fiscal responsibilities as a steward of CBP programs, and reflects a 

second year of an unqualified audit opinion for CBP. 

The Performance and Accountability Report addresses CBP’s compliance with financial management 

requirements and identifies some areas for improvement which are outlined below:

• CBP has evaluated its management controls and financial management systems and is compliant with 

the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) and its internal controls over financial 

reporting as required by the Department of Homeland Security Financial Accountability Act. 

Message from the Commissioner
Message from the Commissioner 3

• As a result of CBP’s self-assessment, five material weaknesses were identified for fiscal year 2006. 

Three deficiencies in the areas of drawback, core financial systems, and financial systems security are 

carryovers from previous years. There are two new deficiencies for fiscal year 2006, one in the area of 

environmental liability and the other in laptop computer security. 

• While current CBP financial management systems do not substantially comply with Federal financial 

management systems requirements and the U.S. Government Standard General Ledger at the 

transaction level, CBP is modernizing its financial systems. CBP is now in its third year of utilizing SAP 

(Systems, Applications, and Products) as an integrated solution for its budget, procurement, asset 

management, finance, and reporting business processes. 

• An independent audit was conducted on CBP’s Fiscal Year 2006 Financial Statements by KPMG LLP. 

Material deficiencies, as evidenced by the auditor’s report found in the Financial Section of this report, 

support those identified through CBP’s self-assertion process with two exceptions. The first is the 

material weakness on environmental liabilities identified by KPMG during the fiscal year 2005 audit 

but no longer deemed a material weakness in fiscal year 2006. The second is the material weakness 

on laptop computer security identified by the Department of Homeland Security, Office of the 

Inspector General, audit in fiscal year 2006. 

CBP will work to improve deficiencies identified in the Performance and Accountability Report and will put 

in place timetables for corrective action to ensure future compliance. We remain committed each year to 

share information on our financial and program performance.

Without security of our borders, our citizens, economy and way of life are vulnerable to disruption and to 

cataclysmic events that could change the face of our Nation. I am enormously proud to be a part of CBP 

and am equally proud of the dedicated men and women who work to secure our Nation and its future.

W. Ralph Basham

Commissioner

November 15, 2006
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Management’s Discussion 

and Analysis
6 U.S. Customs and Border Protection • Performance and Accountability Report

Mission

U.S. Customs and Border Protection (CBP) is the unified border agency within the Department of 

Homeland Security (DHS) charged with the priority mission of preventing terrorists and terrorist weapons 

from entering the United States, while also facilitating the flow of legitimate trade and travel. More than 

43,000 CBP employees manage, control, and protect the Nation’s borders at and between the official 

ports of entry. CBP is responsible for protecting more than 5,000 miles of border with Canada, 1,900 

miles of border with Mexico, and 95,000 miles of shoreline. As the single unified border agency, CBP’s 

mission is vitally important for the protection of the American people and the national economy.

Core Values

Vigilance is how we ensure the safety of all Americans. We are continuously watchful and alert to 

deter, detect, and prevent threats to our Nation. We demonstrate courage and valor in the protection of 

our Nation.

Service to Country is embodied in the work we do. We are dedicated to defending and upholding the 

Constitution of the United States. The American people have entrusted us to protect the homeland and 

defend liberty.

Integrity is our cornerstone. We are guided by the highest ethical and moral principles. Our actions bring 

honor to ourselves and to our agency.

Fiscal Year 2006 Statistical Highlights

• Ports of entry : 325 (includes 15 pre-clearance stations)

• Border Patrol Sectors: 20 (with 142 Border Patrol stations nationwide and 35 permanent checkpoints)

• Air units: 44 (including 2 Air & Marine Operations Centers)

• Marine units: 18

• Trade entries processed: 31.1 million

• Total revenue collected: $30 billion

• Illegal narcotics seized: 2.2 million pounds

• Illegal alien apprehensions: 1.3 million (1.1 million between the ports of entry)

• Pedestrians and passengers processed: 422.9 million

• Conveyances processed: 132.4 million

Overview of CBP
Overview of CBP

Management’s Discussion and Analysis 7

Major Mission Programs/Strategies

As the frontline agency responsible for securing the Nation’s borders while facilitating legitimate trade 

and travel, CBP maintains several programs to accomplish this mission. The CBP National Targeting 

Center uses risk assessment and targeting analysis to support these programs.

A few of the major programs are described below.

National Border Patrol Strategy

The ports of entry (POEs) serve as designated access points into and out of the United States. Between 

these ports lie thousands of miles of open space, deserts, waterways, forests, and prairies, making our 

Nation’s perimeter vulnerable to the threats of terrorism and to exploitation from smugglers of humans 

and illegal substances. CBP’s Office of Border Patrol is responsible for maintaining control of the U.S. 

borders between the POEs. To assist in achieving its goal, the Border Patrol implemented the National 

Border Patrol Strategy in 2005.

The five main objectives of the National Border Patrol Strategy are the following:

1. Establish substantial probability of apprehending terrorists and their weapons as they attempt to 

enter illegally between the POEs.

2. Deter illegal entries through improved enforcement.

3. Detect, apprehend, and deter smugglers of humans, drugs, and other contraband.

4. Leverage “Smart Border” technology to multiply the effect of enforcement personnel.

5. Reduce crime in border communities and consequently improve the quality of life and economic 

vitality of these areas.

During fiscal year 2006, the Border Patrol continued to refine and build on the successes of the strategy. 

The Border Patrol continues to employ a variety of programmatic, technological, and tactical approaches 

to realize progress toward the accomplishment of these objectives.

Operation Jump Start

Operation Jump Start, initiated by the President in 

May 2006, authorized the Department of Defense 

(DoD) to provide support, primarily from the National 

Guard Bureau (NGB), to DHS and CBP to secure and 

maintain control of the Southwest Border. Operation 

Jump Start will provide up to 6,000 Army and Air 

Force National Guard members with supporting 

resources during the first year of the operation. In 

its second year, Operation Jump Start will provide 

up to 3,000 National Guard members. National 

CBP Border Patrol agents and National Guard members work 

together to strengthen and secure the Southwest Border.
Overview of CBP

8 U.S. Customs and Border Protection • Performance and Accountability Report

Guard members began arriving at Border Patrol sectors in California, Arizona, New Mexico, and Texas in 

June 2006.

Operation Jump Start is an immediate, short-term measure that allows CBP to advance deterrence 

measures and border security capabilities while the Office of Border Patrol increases its operational 

capacity. Recruiting, hiring, and training up to 6,000 additional Border Patrol agents over the next 2 years 

is a CBP priority. Operation Jump Start leverages a combination of CBP and DoD assets in the form of 

people, systems, technology, and infrastructure. This collaboration provides a “bridge” that enables the 

Border Patrol to accelerate its efforts to gain control of the border as DHS implements the Secure Border 

Initiative (SBI).

NGB forces continue to support CBP by providing mission-enhancing capabilities in the following general, 

prioritized categories:

• Relieving Border Patrol agents from non-law-enforcement duties such as general, vehicle, and facilities 

maintenance; control room operations; administrative support; training; and information technology 

(IT) support.

• Providing enhanced surveillance and reconnaissance capabilities that provide increased detection and 

tracking capabilities. These operations include operation of mobile, fixed, and airborne sensor systems.

• Providing enhanced intelligence, command, control, and communications capabilities that increase 

the effectiveness of the border enforcement forces.

• Providing construction support for tactical infrastructure (barriers, fences, roads, light/sensor towers) 

and facilities (detention facilities, temporary remote base camps, and engineering missions).

Operation Jump Start statistics for fiscal year 2006 include the following:

• Border Patrol agents relieved from non-law-enforcement duties: 384

• Border Patrol apprehensions attributable to the National Guard: 13,196

Arizona Border Control Initiative (ABCI)

ABCI is a year-round initiative with goals of achieving control of the Arizona border and supporting the 

priority mission of anti-terrorism and the detection, arrest, prosecution, and deterrence of all crossborder illicit trafficking. Phases I and II of ABCI have made significant impacts in disrupting smuggling 

organizations, reducing crime in border communities, and gaining control of the Arizona border. Implementation of Phase III of ABCI, from April 1, 2006, to September 30, 2006, increased the deployment 

strength to 250 Border Patrol agents in the Arizona West Desert area extending from Tucson to Ajo, 

where they made the most impact during the critical summer months. Additionally, a durational deployment of 37 Border Patrol agent (trainees) were detailed to the Nogales Processing Center upon graduation from the U.S. Border Patrol Academy to assist with alien processing. Fifty-five (55) U.S. Immigration 

and Customs Enforcement (ICE) agents were also deployed to Arizona to assist with transporting illegal 

aliens out of the West Desert. Until the proper mix of personnel, technology, and infrastructure is 

achieved, ABCI will continue to engage the illegal cross-border traffic currently impacting Arizona.
Overview of CBP

Management’s Discussion and Analysis 9

Expedited Removal (ER)

A key element of CBP’s ongoing efforts to deter illegal entry is the implementation and expansion of ER 

to all Border Patrol sectors. ER is a removal process that requires mandatory detention of select 

classes of illegal aliens who can be removed from the United States without the recourse of an immigration hearing. This includes illegal aliens who are present in the United States without having been admitted or paroled following inspection by a CBP officer at a designated port of entry (POE) and within 100 

miles of the U.S. border, and who are unable to establish their physical presence in the United States 

for the 2-week period before the date of encounter. 

Before the implementation of ER, illegal aliens who could not be detained because of a lack of detention 

space were released on their own recognizance. Previously when illegal aliens were released, they agreed 

to appear at an immigration court for a hearing at a specified time in the future. Often, the illegal aliens 

would not appear for their hearings and, therefore became part of the growing illegal alien population in 

the United States. This was the so-called “catch and release” practice. As releases increased, the rate 

of illegal entry attempts also increased, especially among illegal aliens from Brazil and Honduras. Migration patterns shifted from sector to sector with higher release rates.

The ER program was expanded to include illegal aliens apprehended by Border Patrol on the Southwest 

Border on September 14, 2004, and later extended to include apprehensions on the Northern Border on 

January 30, 2006. After ER was implemented in all Border Patrol sectors, almost all Other Than Mexican 

(OTM) apprehensions are now detained prior to their removal. More than 29 percent of all OTM apprehensions were removed using the ER process during fiscal year 2006. On July 14, 2006, DHS announced 

the end of catch and release.

Operation Against Smugglers Initiative on Safety and Security (OASISS)

In March 2005, the United States and Mexico agreed to establish a bilateral standardized prosecution 

program titled “Operation Against Smugglers Initiative on Safety and Security” (OASISS). OASISS is operational at and between the POEs along the California/Baja California and Arizona/Sonora border. Implementation of OASISS began in August 2005 with a total of 6 POEs and 4 Border Patrol sectors, which 

later expanded to a total of 16 POEs and 5 Border Patrol sectors through the end of September 2006.

Through this program, the Government of Mexico prosecutes smugglers and guides who do not meet 

the prosecution thresholds in the United States. Engaging the Government of Mexico in border efforts 

like OASISS assists CBP in more swiftly gaining control of the border. Additional POEs and sectors may 

be added over the course of 2007.

Fiscal year 2006 resulted in many successes for OASISS:

• Number of Office of Border Patrol (OBP) Cases Generated: 263 

• Number of OBP cases presented to and accepted by the Government of Mexico for prosecution: 206

• Number of OBP cases prosecuted by the Government of Mexico: 14

• Number of Office of Field Operations (OFO) cases generated: 41

• Number of OFO cases presented to and accepted by the Government of Mexico for prosecution: 38

• Number of OFO cases prosecuted by the Government of Mexico: 20
Overview of CBP

10 U.S. Customs and Border Protection • Performance and Accountability Report

CBP Air and Marine (A&M)

On January 17, 2006, CBP consolidated all marine assets and personnel with CBP Air, creating the 

Office of CBP Air and Marine (A&M). The integration and unification of air and marine resources into one 

organization supports CBP’s mission of anti-terrorism as well as border security, drug interdiction, and 

other important missions. A&M protects our land and adjacent coastal borders and contiguous airspace 

and performs additional missions supporting DHS, ICE, Joint Interagency Task Force-South, and other 

Federal, state, and local law enforcement partners.

A&M performs frequent self-evaluations based on three core competencies: air and marine interdiction, 

air and marine law enforcement, and domain security. All are critical to the success of DHS’s strategic 

goals. A&M is a key component of CBP’s layered enforcement strategy for border security.

Container Security Initiative (CSI)

Containerized shipping is a critical component of global trade because approximately 90 percent of the 

world’s manufactured goods are transported in cargo containers. In the United States, almost half of 

incoming trade (by value) arrives by containers onboard ships. More than 11 million cargo containers 

arrive on ships and are off-loaded at U.S. seaports each year.

Through CSI, sea cargo containers that pose a risk for terrorism are identified and examined at foreign 

ports before they are shipped to the United States. CBP receives the bill of lading/manifest data on sea 

containers 24 hours before the containers are loaded on the vessel destined for the United States. CSI 

extends our zone of security outward so that America’s borders are the last line of defense, not the first.

CSI consists of four core elements:

1. Using intelligence and automated advance targeting information to identify and target containers that 

pose a risk for terrorism.

2. Prescreening those containers that pose a risk at the port of departure before they arrive at U.S. ports.

3. Using state-of-the-art detection technology to prescreen containers that pose a risk.

4. Using smarter, tamper-evident containers.

Through partnerships with foreign governments, CSI deploys teams of CBP officials to work with their 

host nation counterparts to screen containers that pose a terrorism risk. At the end of fiscal year 2006, 

CBP officers began operations at the 50th CSI port overseas resulting in approximately 82 percent of 

cargo containers destined for the United States being processed through the 50 operating CSI ports. 

CBP’s goal by the end of 2007 is to expand CSI to cover approximately 85 percent of the sea containers 

coming to the United States.

As of September 30, 2006, 32 foreign administrations have joined or have committed to join the CSI 

program. CBP continues to expand the program to additional ports on the basis of volume, location, and 

strategic concerns. Strong support from countries in Europe, Asia, the Middle East, Africa, North and 

South America, and the Caribbean ensures that CSI will continue to expand to ports in those areas.
Overview of CBP

Management’s Discussion and Analysis 11

CSI is a reciprocal program that offers participating countries the opportunity to send their customs 

officers to major U.S. ports to target ocean-going containerized cargo being exported to their countries. 

Likewise, CBP shares information on a bilateral basis with its CSI partners.

Customs-Trade Partnership Against Terrorism (C-TPAT)

C-TPAT is part of CBP’s extended border strategy to protect America against terrorist threats, to protect 

the global supply chain, and to facilitate trade. Under the C-TPAT initiative, CBP partners with importers, 

carriers, brokers, and other industry sectors to enhance supply chain security and meet our twin goals 

of security and facilitation. Membership entails completion of a comprehensive security profile and a 

commitment to work with CBP to strengthen the supply chain. Once CBP reviews and certifies the submitted security profiles, C-TPAT supply chain security specialists are sent worldwide to validate the commitments of the certified members and recommend areas for improvement. Certified members currently 

receive considerable benefits, the two greatest being fewer cargo inspections and expedited clearance 

processes at the border. As of the end of fiscal year 2006, there were 6,114 certified members. In addition, 1,194 applicants were actively pursuing C-TPAT certification.

By providing a forum where the business community and CBP can exchange anti-terrorism ideas, concepts, and information, both the government and business communities work together to increase the 

security of the entire commercial process, from manufacture through transportation and importation to 

ultimate distribution.

Non-Intrusive Inspection (NII)

CBP has developed a multilayered screening process 

to identify, target, and 

inspect high-risk shipments. The Automated 

Targeting System (ATS), a 

powerful rules-based computer system, is used to 

automatically review the 

electronic bill of lading/

manifest data of more than 

11 million containers before they arrive at U.S. POEs, allowing CBP to flag containers that are considered 

high-risk. NII equipment is then used to scan the contents of those containers identified as high-risk or 

selected by CBP officers for further review.

CBP officers use large-scale NII equipment such as gamma ray and X-ray imaging systems to scan the 

contents of entire containers. These units can scan the interior of a full-size, 40-foot container in less 

than a minute. Some of the currently deployed high-energy X-ray systems can penetrate more than a 

foot of steel. This equipment is very effective at identifying a variety of illegal activity and contraband, 

including human smuggling, narcotics, weapons, and explosives. Large-scale NII equipment is deployed 

at nearly all U.S. land border crossings and seaports.

Two stowaways are revealed using a non-intrusive inspection device employing gamma-ray 

technology.
Overview of CBP

12 U.S. Customs and Border Protection • Performance and Accountability Report

CBP uses radiation portal monitors to scan cargo containers for radioactive materials as they pass 

through vehicle-processing lanes at the land border ports or are off-loaded from ships at the seaports. 

Officers also use personal radiation detectors to scan for signs of radioactive materials as they perform 

inspections on smaller vehicles and shipments. Special high-tech tools such as densitometers and fiberoptic scopes allow officers to peer inside suspicious containers. Finally, if necessary, containers are 

opened and unloaded for a more thorough carton-by-carton inspection.

Canine Enforcement Teams

When NII indicates further examination is required, CBP Canine Enforcement Teams are used to determine if the secondary exam is warranted. CBP has the largest and most diverse law enforcement canine 

program in the United States. CBP canine officers and Border Patrol agents use specially trained detector 

dogs to combat terrorist threats; identify chemical or explosive threats; and interdict concealed persons, 

currency, agriculture, narcotics, and other contraband at our Nation’s POEs, international mail facilities, 

and along the border between the POEs. CBP detector dogs also perform Border Patrol Search, Trauma, 

and Rescue missions.

Canine teams are assigned to 73 POEs and 91 Border Patrol stations throughout the United States. 

To meet both new and growing threats, the CBP canine program has trained and deployed canine teams 

in an array of specialized detection capabilities. CBP has two canine enforcement training facilities, 

located in Front Royal, Virginia, and El Paso, Texas. In fiscal year 2006, more than 300 detector dog 

teams were trained.

Advance Passenger Information System (APIS)

APIS is the single most critical element of the Nation’s ability to identify dangerous individuals entering 

the United States. This system receives biographical and official passport information on passengers 

arriving and departing by air and sea. Queries look for matches with multi-agency law enforcement alerts, 

immigrant visas, and historical databases prior to the passenger’s arrival in the United States or departure from the United States. CBP receives advance information on passengers and crew with accuracy 

sufficient for basic law enforcement queries. CBP has issued a Notice of Proposed Rule Making (NPRM) 

that requires carriers to provide APIS data in advance of a passenger boarding the intended aircraft or 

vessel. This NPRM is referred to as “APIS Pre-departure” and allows CBP to check all travelers against 

government watch lists and provide a “Cleared” or “Not-Cleared” response to the carrier before departure.

National Targeting Center (NTC)

The NTC is the centralized coordination point for all CBP anti-terrorism efforts. The NTC’s mission is to 

provide tactical targeting and analytical research support for CBP anti-terrorism efforts, both locally and 

nationally. The NTC includes representatives from all CBP disciplines, including the Offices of Field Operations, Border Patrol, Intelligence, Laboratory and Scientific Services, and Information and Technology. 

Permanent on-site liaisons have also been developed with a variety of external organizations, including 

the U.S. Coast Guard (USCG), Transportation Security Administration, Department of Energy, Federal 

Bureau of Investigation, ICE, and the Food and Drug Administration. The NTC strategically enhances 

U.S. detection and deterrent capabilities by extending them into bio-terrorism prevention and rapid 

radiological assessments and provides ongoing targeting expertise to the DHS Operations Center.
Overview of CBP

Management’s Discussion and Analysis 13

In fiscal year 2006, two new divisions were created and co-located at the NTC. The Fraudulent Document 

Analysis Unit removes all fraudulent documents encountered from circulation. It conducts link analysis 

and develops tactical intelligence that has been successful in targeting and intercepting inadmissible 

travelers. The Admissibility Review Office provides a dedicated resource with a consistent approach in 

making determinations of admissibility, inadmissibility, and the exercise of discretion for inadmissible 

illegal aliens.

Automated Commercial Environment (ACE)

ACE is the modernized U.S. trade processing system designed to consolidate and automate cargo processing to significantly enhance border security and foster our Nation’s economic security through lawful 

international trade and travel. Among other capabilities, CBP personnel will have automated tools and 

better information to decide, before a shipment reaches U.S. borders, what cargo should be targeted 

because of the potential risk it poses, and what cargo should be expedited because it complies with 

U.S. laws.

After September 11, 2001, it became evident that the Federal Government had to establish an interagency ability to ensure a central information-clearinghouse with compatible databases of information 

on all aspects of border control. As a result, the scope of ACE was expanded to include all Federal 

agencies with missions tied to international trade and transportation, including related security, regulation, and analysis. The International Trade Data System (ITDS) is an e-Gov initiative providing a secure, 

integrated, government-wide system to meet the private and Federal requirements for the electronic 

collection and use of standard trade and transportation data by all Federal agencies. The decision 

was made to include the ITDS requirements into ACE to meet the needs of these agencies. The result 

is that ACE, along with ITDS, will provide a “single window” for the electronic submission of all trade 

and transportation data.

ACE supports the following major CBP business areas: release processing, entry processing, revenue 

collection, account relationships, legal and policy, enforcement, business intelligence, and risk. It is in 

direct alignment with the President’s Management Agenda (PMA). To maintain this alignment, ACE uses 

e-business technologies whenever possible and is governed by citizens needs. ACE also provides 

national account-based processing and periodic payment and monthly statement features that benefit 

both CBP and the trade community, as CBP moves away from transaction-by-transaction processing.
Overview of CBP

14 U.S. Customs and Border Protection • Performance and Accountability Report

Budget by Program

The charts below present a comparison of the fiscal year budgets by major program element for FY 2006 

and FY 2005.

CSI

2%

Security at 

Ports of Entry

34% Other

5%

Air & Marine

Operations

7%

ACE

8%

C-TPAT

1% NII

1%

Security Between 

Ports of Entry

42%

FY 2006

CSI

2%

Security at 

Ports of Entry

44% Other

4%

Air & Marine

Operations

6%

ACE

5%

C-TPAT

1% NII

2%

Security Between 

Ports of Entry

36%

FY 2005 
Overview of CBP

Management’s Discussion and Analysis 15

Budget Resource Obligations

The charts below present a comparison of the distribution of CBP budget resource obligations for 

FY 2006 and FY 2005.

FY 2005

Salaries &

Expenses

Reimbursable

18%

Modernization

6%

Other

2%

Salaries &

Expenses Direct

67%

Operations &

Maintenance

4%

Facilities

3%

FY 2006

Salaries &

Expenses

Reimbursable

16%

Modernization

7%

Other

1%

Salaries &

Expenses Direct

65%

Facilities

6% Operations &

Maintenance

5%
Overview of CBP

16 U.S. Customs and Border Protection • Performance and Accountability Report

Looking Ahead

CBP will continue to expand and enhance the 

major programs previously discussed along 

with new initiatives and enhancements.

Secure Border Initiative (SBI)

SBI is a comprehensive multi-year plan to 

secure America’s borders and reduce illegal 

immigration. SBI looks at all aspects of the 

problems of border security: deterrence, 

detection, apprehension, detention, and 

removal. As stated by the Secretary of the 

Department of Homeland Security, the goal of 

SBI is to develop a comprehensive system of 

immigration enforcement built on two pillars: 

border control and interior enforcement. Current SBI focus includes defining the required mix of technology, personnel, infrastructure, and supporting resources, including rapid response capabilities needed 

to gain effective control of our borders.

In support of SBI, CBP serves as program executive agent under the direction of DHS. The CBP vision 

for SBI includes the following:

• Increased number of Border Patrol agents to patrol our borders and increased number of CBP officers 

to secure our POEs while enforcing immigration laws.

• A comprehensive and systemic upgrading of the technology used in controlling the border, including 

increased manned aerial assets, expanded use of the Unmanned Aircraft System (UAS), and nextgeneration detection technology.

• Increased investment in infrastructure improvements at the border to provide additional physical 

security to sharply reduce illegal border crossings.

• Partnership with state, local, and tribal governments; our partners across the Federal Government 

(Department of Justice, Department of State, etc.); our international partners; and the private sector.

SBInet

A critical component of the SBI strategy is the plan to launch a comprehensive program to transform 

border-control technology and infrastructure.

This program, named “SBInet,” integrates multiple state-of-the-art systems and traditional security 

infrastructure into a single comprehensive border protection system.

The goal is to provide a solution that will help CBP:

• Fully integrate and balance the trade-offs of personnel, infrastructure requirements and technology.

• Address the need to coordinate operations and share information.

CBP agriculture officers inspect for dangerous exotic pests and 

diseases, which if allowed to become established in the United 

States can have a devastating impact on agriculture production.
Overview of CBP

Management’s Discussion and Analysis 17

• Evaluate the illegal entry threat against the current level of resources, prioritize the shortfalls based 

on areas of greatest operational need, and provide a comprehensive roadmap for achieving full 

control of the border in the shortest possible time.

• Include a detailed and comprehensive set of performance measures.

Expanding the Use of Biometrics in CBP Programs

The U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) program launched in 2004 

con­tinues to be deployed at many of our land, sea, and air POEs. This system provides CBP officers 

at primary and secondary inspection stations with biometric identifiers such as fingerprints (using an 

inkless fingerprint scanner) and photographs (using a digital camera) to verify the identity of foreign 

nationals wishing to enter the United States. US-VISIT’s biometric information helps thwart identity fraud 

by providing unalterable, unassailable identity information. It is an integral part of the entry-exit system 

that provides CBP with unique identity information to aid in determining if someone has remained in 

the country longer than authorized. This system interacts with existing criminal databases that identify 

people with criminal histories and those who may be linked to terrorist activities.

In August 2005, CBP and US-VISIT began using Radio Frequency Identification (RFID) Technology at 

selected land crossings along the Canadian and Mexican borders as a proof-of-concept test project. 

This involves using RFID tags imbedded in the CBP Arrival-Departure Record (Form I-94). The tags 

transmit a serial number to antennas at the border crossing. The serial number is linked to a database 

containing personal and biometric information for the individual seeking entrance into the United States. 

Use of this technology provides CBP with advance information, automatically conducts queries, and 

prevents the need for manual input of data. This allows CBP officers to facilitate legitimate trade and 

travel and allow for resources to concentrate more on those persons who may pose a threat to the 

United States.

CBP has several trusted traveler programs that have integrated the use of biometrics for the identification and validation of persons. The Secure Electronic Network for Traveler Rapid Inspection (SENTRI) 

program, developed for our southern border, and the NEXUS program, a joint United States-Canada 

trusted traveler program for the northern border, help to facilitate travel for non-commercial travelers. 

For commercial drivers, Free and Secure Trade (FAST) is the trusted traveler program implemented for 

both the northern and southern borders. CBP is also initiating an air environment trusted traveler program called US PASS, which will use fingerprint-based vetting and validation for expedited clearance of 

the membership.

All CBP trusted traveler programs use a fingerprint capture and validation process for enrollment into 

the programs. Biometric vetting ensures that can­didates for participation in all these programs have no 

disqualifying prior criminal activity, which would preclude their eligibility for expedited clearance at the 

land POEs.

CBP Air and Marine (A&M)

Long-range planning in support of CBP A&M mission operations and threat assessments for fiscal year 

2006 indicate the need for 14 primary air wing sites, 5 of which are being established along the northern border, and 9 along the southern border, including 2 P-3 maritime aircraft patrol sites. CBP and ICE 
Overview of CBP

18 U.S. Customs and Border Protection • Performance and Accountability Report

mission requirements helped dictate the selection of the primary and secondary air wing sites and remain 

key factors in the selection of new aircraft and associated detection, tracking, and logistics capabilities. 

The commitment of annual flight hours to specific missions is made through ongoing, formal deliberations 

with the Office of Border Patrol, USCG, and ICE.

The present air fleet consists of 267 aircraft of 19 different types. Many of these aircraft are dated. 

Under the Strategic Air Plan, A&M plans to reduce the types of aircraft from 19 to 8. Though smaller, the 

fleet will be more effective and more sustainable over time. New sensors to optimize the mission capabilities of the P-3 maritime patrol aircraft, light enforcement aircraft, and medium-lift helicopters have 

been identified. As the operational benefits are fully assessed, CBP will plan for continued sensor 

upgrades.

Beginning in November 2004, CBP conducted test programs using unmanned aircraft (UA) for surveillance 

missions along the United States-Mexico border in Arizona. The test results were very positive and CBP 

initiated an Unmanned Aircraft System (UAS) in 2005. The UAS provides an efficient and reliable supplement to existing detection and intelligence-gathering technologies. UA have a significant advantage over 

manned aircraft with the capability to fly for more than 30 hours without refueling. This technology has 

proven highly successful in supporting existing manned aircraft, current ground assets, and in monitoring 

remote portions of the border that are often difficult to reach safely or are unable to accommodate infrastructure devices.

CBP A&M supports the President’s budget request that includes appropriations for a UAS in fiscal year 

2007. Ongoing use of this technology will be vital in supporting SBI.

World Customs Organization (WCO)

In June 2005, the WCO unanimously adopted the SAFE Framework of Standards to Secure and Facilitate 

Global Trade (known as the Framework), which seeks to protect the global supply chain from the threat 

of terrorism and transnational crime while simultaneously facilitating legitimate trade.

The Framework seeks to:

• Consolidate advance electronic cargo information requirements.

• Institute consistent risk management approaches to address security threats.

• Establish procedures so that the customs administration in the destination country of a shipment can 

request customs in the originating country to conduct an inspection on its behalf.

• Define benefits for businesses that meet supply chain security standards and best practices.

Implementation represents an extraordinary challenge for the customs administration of any country, 

particularly for one that may not have the resources or subject matter expertise readily available to 

implement the practices identified in the Framework. Because CBP recognizes that widespread implementation of the Framework substantially contributes to the major strategic goals of the agency, CBP is 

providing capacity-building assistance to 12 countries, all of which have demonstrated their commitment 

to implementation. Such capacity-building assistance takes the form of on-site diagnostic assessments, 

training, and technical assistance on the most salient issues surrounding the Framework. In 2006, CBP 
Overview of CBP

Management’s Discussion and Analysis 19

conducted 8 in-country diagnostic assessments, 13 training missions, and 4 senior consultations to 

raise awareness and support for Framework implementation at the highest political levels.

Summary

CBP will continue to integrate state-of-the-art technologies and traditional security infrastructures at 

U.S. POEs and along our borders, and work in collaboration and partnership with the trade community 

and foreign governments to secure our country from terrorists and terrorist weapons while facilitating 

world commerce.

Organization

U.S. Customs and Border Protection (CBP)

Office of

Intelligence*

Office of

Anti-Terrorism*

Office of Policy

and Planning*

Office of

Trade Relations*

Office of

Internal Affairs

Chief

Counsel

Office of

Public Affairs

Office of

Congressional

Affairs

EEO*

Office of

International

Affairs

Office of

Border Patrol

Office of

Field Operations

Office of CBP

Air & Marine

Office of

Training and

Development

Office of

Strategic Trade

Commissioner

Deputy Commissioner

Office of

Human Resources

Management

Office of

Finance

Office of

Information and

Technology

Office of

Regulations and

Rulings

*Denotes Commissioner’s Staff Offices As of September 30, 2006
Overview of CBP

20 U.S. Customs and Border Protection • Performance and Accountability Report

Headquarters

Office of the Commissioner: W. Ralph Basham was sworn in by President George W. Bush on June 6, 

2006, to serve as the second Commissioner of U.S. Customs and Border Protection, the agency of DHS 

responsible for managing, controlling, and securing our Nation’s borders. As Commissioner, Mr. Basham 

advances CBP’s priority mission of preventing terrorists and terrorist weapons from entering the United 

States while facilitating legitimate trade and travel.

Office of the Deputy Commissioner: Deborah J. Spero was appointed Deputy Commissioner, CBP, in 

April 2004. As Deputy Commissioner, Ms. Spero is responsible for providing leadership and executivelevel direction to CBP’s day-to-day operations. This includes oversight of agency initiatives that facilitate 

the international movement of legitimate, low-risk goods and travelers while promoting effective border 

security.

Component Organizations and Field Structure

CBP is organized into 19 separate offices. Five of these are the Commissioner’s staff offices, which are 

responsible for issues falling under the Commissioner’s direct operational control and that report directly 

to the Commissioner. The Commissioner’s staff offices are described briefly below. Assistant Commissioners of CBP head 14 additional offices.

Commissioner’s Staff Offices

Office of Anti-Terrorism (OAT): Serves as the principal adviser to the Commissioner and other senior officials on CBP anti-terrorism programs. To meet CBP’s mission, OAT monitors, coordinates, recommends, 

assesses, and participates in the development of all policy, programs, training, and matters related to 

anti-terrorism. OAT maximizes CBP’s anti-terrorism efforts by leveraging and working within the broader 

Federal law enforcement community and homeland security structure. OAT provides anti-terrorism expertise and supporting policy development while serving as a focal point for interaction and cooperation 

with the interagency community on terrorism-related issues. OAT, in conjunction with CBP’s operational 

offices, coordinates incident management operations, heightened threat responses, and counter-drug 

activities, while providing information and situational awareness to the Commissioner and other senior 

officials through round-the-clock management of the Commissioner’s Situation Room.

Office of Equal Employment Opportunity (EEO): Establishes policies and programs necessary to ensure 

compliance with the civil rights laws. The EEO office works aggressively to find solutions to workplace 

disputes through proactive training, early intervention, and mediation.

Office of Intelligence (OINT): Serves as the primary adviser on intelligence matters. OINT is responsible 

for directly supporting the Commissioner and senior CBP leadership by obtaining, analyzing, and disseminating intelligence in a timely manner to assist CBP in carrying out its primary mission of detecting, 

identifying, and preventing terrorists and terrorist weapons from entering the United States. OINT directs 

and efficiently manages an integrated intelligence capability that ensures that frontline operators and 

senior leadership have the value-added intelligence required to drive operations and support policy. 

Lastly, through membership on the Homeland Security Intelligence Council, it is OINT’s responsibility to 

represent CBP’s intelligence interests to the DHS Chief Intelligence Officer and assist in directing the 

DHS intelligence enterprise and in providing “one DHS face” to the National Intelligence Community.
Overview of CBP

Management’s Discussion and Analysis 21

Office of Policy and Planning (OPP): Advises the executive staff on policy development and implementation in the broad array of issues addressed by CBP, including the development of national border security 

policy, immigration enforcement, cargo security and facilitation, agriculture protection, interagency coordination, and legislation. The office further coordinates with individual offices and programs inside and 

outside the agency to develop specific strategies and planning guidance that support the CBP mission. 

This includes managing the strategic planning process and performance measurement requirements 

related to the Government Performance and Results Act (GPRA), the Performance Assessment Rating 

Tool (PART), and the President’s Management Agenda (PMA). In addition to the policy and planning activities of the office, OPP serves as the central coordination point for congressional reporting and all matters under review or audit by the Government Accountability Office (GAO) and the DHS Office of the 

Inspector General (OIG).

Office of Trade Relations (OTR): Serves as the primary contact for the international trade community for 

advancing their issues and ideas to CBP leadership, and as the primary channel for CBP to advance its 

agenda to the trade community. OTR is also an objective, independent problem-resolution resource for the 

international trade community and is designated as the regulatory fairness representative for the agency, 

responsible for promoting compliance with the Small Business Regulatory Enforcement Fairness Act.

Assistant Commissioners’ Offices

Office of CBP Air and Marine (A&M): Protects the American people and critical infrastructure of our land 

and coastal borders and the airspace above our borders, using 1,186 field personnel, 267 aircraft, and 

190 marine vessels. CBP A&M uses an integrated and coordinated air and marine force to detect, monitor, intercept, and track suspect conveyances involved with the illegal movement of people, illicit drugs, 

and other contraband through source, transit, and arrival zones, thereby preventing acts of terrorism 

arising from these actions. CBP A&M further supports DHS missions, such as response and recovery 

to natural disasters and terrorism.

Office of Border Patrol (OBP): Serves as the CBP law enforcement organization with the primary responsibility for preventing terrorists, weapons of terrorism, illegal aliens, drugs and those who smuggle them 

from entering the United States between the ports of entry. The Border Patrol is organized into 20 sectors along the southwestern, northern, and coastal areas of the United States.

Office of Chief Counsel (OCC): Serves as the chief legal officer of CBP and reports to the General Counsel 

of DHS. The Chief Counsel serves as the Ethics Officer for the organization and is the principal legal 

advisor to the Commissioner of CBP and its officers. The OCC provides legal advice to and legal representation of CBP officers in matters relating to the activities and functions of CBP.

Office of Congressional Affairs (OCA): Advises CBP managers on legislative and congressional matters 

and assists Members of Congress and their staffs in understanding current and proposed CBP programs.

Office of Field Operations (OFO): Enforces customs, immigration, and agriculture laws and regulations 

at U.S. borders and has the primary responsibility for preventing terrorists and terrorist weapons from 

entering the United States at the POEs. OFO maintains programs at 20 field operations offices, 325 

POEs which includes 15 pre-clearance stations in Canada, the Caribbean, and Ireland. A Director of 

Field Operations heads each field operations office. Port Directors oversee POEs in their operational 

areas, where virtually all conveyances, passengers, and goods legally enter and exit the United States. 
Overview of CBP

22 U.S. Customs and Border Protection • Performance and Accountability Report

OFO oversees the enforcement of laws and regulations while ensuring the safe and efficient flow of 

goods and people through the POEs.

Office of Finance (OF) and Chief Financial Officer (CFO): Oversees all financial operations, procurement, 

asset management, and budget activities within CBP. OF is responsible for administering $9 billion that 

is budgeted annually for law enforcement and trade operations, and collecting over $30 billion in revenue 

annually. This office is responsible for administering the broad range of financial management activities 

delineated under the CFO Act of 1990, including accounting, budgeting, procurement, asset management, financial systems, and financial management.

Office of Human Resources Management (HRM): Provides human resources support by filling positions, 

offering employee services and benefits, processing personnel actions, improving business processes, 

and facilitating workforce effectiveness. HRM also promotes and enables mission accomplishment 

through human capital planning and utilization, strategic leadership, labor-management relations, training, and employee safety.

Office of Information and Technology (OIT): Provides CBP with information, services, and technology 

solutions to secure the border, prevent the entry of terrorists or terrorist weapons, and facilitate legitimate trade and travel. In addition, OIT operates a round-the-clock secure, stable, and high-performance 

IT infrastructure and supports tactical communications, scientific solutions, and forensic services. OIT 

implements and supports IT, research and development, and automation and technology strategies. 

OIT personnel manage all computers and related resources, including all operational aspects of the 

Computer Security Program. OIT also establishes requirements for computer interfaces between CBP 

and various trade groups and government agencies, and manages matters related to automated import 

processing and systems development.

Office of International Affairs (INA): Manages international activities and programs and conducts bilateral 

and multilateral discussions on behalf of CBP with other countries and international organizations. INA 

is an integral part of CBP’s efforts to develop programs that effectively push our zone of security out 

beyond U.S. borders. INA also oversees the negotiation and implementation of all international agreements and is responsible for all foreign training and technical assistance provided by CBP.

Office of Internal Affairs (IA): Exercises oversight authority for all aspects of CBP operations, personnel, 

and facilities. IA is responsible for ensuring compliance with all bureau-wide programs and policies 

relating to corruption, misconduct, or mismanagement; investigating misconduct by CBP employees; 

and executing the internal security, integrity, and management self-inspection program. IA also conducts 

personnel security investigations, educates employees concerning ethical standards and integrity 

responsibilities, evaluates physical security threats to CBP facilities and sensitive information, and 

inspects CBP operations and processes for managerial effectiveness and improvements.

Office of Public Affairs (OPA): Communicates CBP’s mission and operations to the agency’s chief stakeholders, which include the American public, foreign nationals who conduct business in the United States, 

international trade entities, and travelers who cross U.S. borders. Tools used in the national and international public communication process include media outreach and public information campaigns conducted via media events, video, photography and informational brochures. In addition, CBP maintains a 

public web site, www.cbp.gov, and a national customer service call center to address public questions 

and complaints. OPA also keeps the CBP workforce informed through the CBPnet Intranet site, the 
Overview of CBP

Management’s Discussion and Analysis 23

weekly emailed news compilation “Frontline News,” and mass emails. A bimonthly newsletter, “CBP 

Today,” is distributed to CBP personnel and other stakeholders nationwide.

Office of Regulations and Rulings (OR&R): Develops, implements, and evaluates national programs, 

policies, and procedures through the issuance of regulations and rulings affecting the border security 

and trade facilitation missions of CBP and DHS. OR&R has a major responsibility for providing guidance 

to members of the international trade community to facilitate compliance with international trade and 

customs laws. OR&R provides policy and technical support to CBP and DHS, Congress, other government agencies, and international organizations concerning the application of customs and other laws, 

regulations, and procedures that govern international trade. OR&R issues legal decisions on matters 

related to claims (including claims for liquidated damages), fines, penalties, and forfeitures. OR&R 

issues rulings, legal determinations, and guidelines relating to tariff classification and customs value, 

carriers, duty, drawback, bonds, entry, country of origin, intellectual property rights, restricted merchandise, and dis­closure law.

Office of Strategic Trade (OST): Identifies and confronts major trade issues facing the United States 

through advanced risk management techniques, focusing on priority areas and providing solutions to 

both enforcement and facilitation challenges. OST is responsible for designing CBP’s multi-discipline 

trade strategy; developing and applying innovative risk assessment tools such as statistical risk modeling; assessing risks by reviewing corporate controls over trade compliance and trade security in a postentry audit process; and partnering with the trade community to maintain a high level of compliance, 

which facilitates the movement of cargo at the border. OST develops and provides trade data, such as 

statistics and compliance information, in support of CBP’s trade and security missions and programs 

such as C-TPAT and CSI. OST also publishes compliance data that enable the trade community to initiate 

its own efforts to achieve compliance.

Office of Training and Development (OTD): Leads and directs CBP’s training programs. OTD ensures that 

all training efforts support the CBP mission and strategic goals, meet the needs of a diverse and dispersed workforce, and contribute to measurable outcomes and results. OTD establishes standards for 

designing, developing, delivering, and evaluating training. The office directly executes career development programs, basic and advanced training to all occupations, and supervisory, management and 

executive development programs.
Overview of CBP

24 U.S. Customs and Border Protection • Performance and Accountability Report
Overview of CBP

Management’s Discussion and Analysis 25
26 U.S. Customs and Border Protection • Performance and Accountability Report

In fiscal year 2006, CBP made significant progress toward achieving the long-term goals set forth in the 

Strategic Plan for Fiscal Years 2005–2010. Agency progress is described in this Performance and 

Accountability Report (PAR). The information is set forth in the context of the Government Performance 

and Results Act of 1993, which requires Federal agencies to develop and implement processes to plan 

for and measure mission performance. Since the first full year of CBP operations occurred in fiscal year 

2004, four full years of data are not available for trend analysis.

Performance Management

The CBP comprehensive strategic planning process is driven by the need to address the global challenges to secure the Homeland and the Nation’s economic security. The CBP Strategic Plan is based 

on the priorities that were established and articulated by the Secretary of Homeland Security and the 

Commissioner of CBP. The Strategic Plan is prepared with input from senior managers to reflect these 

priorities and supports the CBP budget submission. The development process has considered the DHS 

Strategic Plan, the National Strategy for Homeland Security, the National Money Laundering Strategy, 

the National Drug Control Strategy, Presidential Directives on National Security, and Executive Orders. 

In addition, the President’s Management Agenda (PMA), budget justification materials, internal strategic 

planning ini­tiatives and the DHS Future Year Homeland Security Program (FYHSP), used for formulating, 

analyzing, and reporting the DHS planning and budgeting process, were considered. Finally, evaluations 

conducted through the GAO, the DHS OIG and the Performance Assessment Rating Tool (PART) 

processes have also been assessed.

The CBP strategic planning framework is organized as follows:

• Strategic Goal—A high-level statement of what needs to be achieved

• Objectives—Specific statements of what is to be accomplished within the goal

• Strategies—Specific actions that are to be taken to reach an objective

• Performance Measures—What will be accomplished by carrying out the strategies

Each strategic goal is presented using the CBP strategic planning framework and has been determined 

based on future assumptions, previous accomplishments, and the need to integrate diverse CBP 

responsibilities effectively. The goals are further linked to specific objectives and strategies, as well as 

performance measures that are used to evaluate progress toward achieving the goals. This strategic 

planning process has resulted in the formulation of six strategic goals and associated objectives and 

measurements.

Fiscal Year 2006 Performance by Strategic Goal

This section presents a discussion of highlighted fiscal year 2006 performance objectives and related 

key performance measures for each of CBP’s strategic goals. Additional performance measures and 

results can be found in the “Performance” section under “Performance Summary,” beginning on 

page 52.

Performance Goals and Results
Performance Goals and Results

Management’s Discussion and Analysis 27

Strategic Goal #1—Preventing Terrorism at the Ports of Entry

To achieve this strategic goal, CBP implements the 

strategic plans for preventing terrorists and terrorist 

weapons from entering the United States. Through 

improved targeting and intelligence, CBP targets 

and interdicts terrorists and their weapons at the 

POEs. Through various programs, CBP screens and 

examines passengers, cargo, and conveyances 

posing a potentially high risk for terrorism prior to 

departing foreign ports for the United States. To 

protect legitimate travel, trade, and the economy, 

CBP will extend its zone of security beyond the 

physical borders of the United States by stationing 

its offices in foreign countries and by partnering 

with international entities and the trade community.

Performance Objective —Improve the collection, use, analysis, and dissemination of intelligence to 

target, identify, and prevent potential terrorists and terrorist weapons from entering the United States.

To achieve timely interdiction and enforcement actions, CBP will expand intelligence collection and dissemination, enhance information-sharing capabilities, and increase the rapid exchange of intelligence 

and information to assist frontline officers in identifying potential threats.

To provide guidance on conducting specific operations in the field, CBP will form Intelligence Driven 

Special Operations and support the CSI assessment teams with intelligence updates.

Key Performance Measure —Percentage of worldwide U.S.-destined containers processed 

through CSI ports.

This measure is the percentage of worldwide U.S.-destined maritime containers (tracked via their respective bills of lading) processed through CSI ports as a deterrence action to detect and prevent terrorist 

weapons of mass destruction/effects (WMD/Es) and other potentially harmful materials from leaving 

foreign ports bound for U.S. ports.

FY 2004 Actual: 45% FY 2005 Actual: 73% FY 2006 Target: 81%

Actual FY 2006 Performance: 82%

Target Met

The fiscal year 2006 target was met as a result of CSI’s continuing success in gaining cooperation from 

foreign port administrations during the year. The volume of several ports that became operational in the 

Middle East, Europe, and South and Central America combined to reach the target.

Data Source: Shipping volume processed through the ports (bills of lading), Port Import Export Reporting Service.

CBP uses non-intrusive imaging technology to inspect the 

contents of a truck at the port of entry.
Performance Goals and Results

28 U.S. Customs and Border Protection • Performance and Accountability Report

Performance Objective —Improve identification and targeting of potential terrorists and terrorist weapons 

through risk management and automated advanced and enhanced information.

To improve targeting of cargo and passengers that pose a potential risk for terrorism, CBP will continue 

to use advance passenger and cargo information, as well as commercial and law enforcement databases, to prescreen, target, and identify potential terrorists and terrorist shipments and any related 

activity. To improve targeting and analysis, CBP will integrate existing databases and enhance its rulesbased targeting system.

Key Performance Measure —Number of foreign mitigated examinations waived through the CSI.

This proxy measure gauges the outcome of increased information sharing and collaboration by collocating 

CSI customs personnel at foreign ports. The measure is the number of examinations waived by CSI due 

to mitigation by foreign customs sources using their own knowledge of shippers, information from their 

sources/databases, and intelligence sources to make a decision that an examination is not necessary.

FY 2004 Actual: 2,400 FY 2005 Actual: 25,222 FY 2006 Target: 24,000

Actual FY 2006 Performance: 30,332

Target Met

The fiscal year 2006 target was met as a result of the collaboration with foreign customs counterparts 

and the volume of maritime containers that CSI ports have evaluated. The additional volume stems from 

the continued performance of the existing CSI ports and from the new CSI ports that became operational during fiscal year 2006. New CSI ports in the Middle East, Europe, and South and Central America 

increased the volume processed through CSI ports.

Note: The fiscal year 2006 target for this measure was estimated based on previous calculations made during the 2006 

budget planning process and subsequent issuance of the Fiscal Year 2006 President’s Budget.

Data Source: CBP Automated Targeting System.

Performance Objective —Strengthen the CBP defense-in-depth approach through the use of state-of-theart detection and sensor technology, resources, and training.

The goal of CBP is to screen 100 percent of all people, cargo, and conveyances entering the United 

States based on national security threshold targeting and to examine all identified people, cargo, and 

conveyances scoring above a mandatory threshold both abroad and at U.S. borders. Frontline officers 

and agents will use an array of radiation detection technology including personal radiation detectors. 

CBP will build on existing NII technology and expand the explosive and chemical detection canine 

program.

Key Performance Measure —Percent of active commissioned canine teams with 100 percent 

detection rate results in testing of the Canine Enforcement Team.

The Canine Enforcement Program supports the protection of America and its citizens through twice yearly 

testing of the Canine Enforcement Teams and by maintaining a standard of full detection. To meet both 

new and existing threats, the CBP canine program has trained and deployed canine teams in a broad 
Performance Goals and Results

Management’s Discussion and Analysis 29

array of specialized detection capabilities. Any team exhibiting a weakness in detection capability for an 

area in which it has been trained must undergo additional training to bring it to a level of full detection.

FY 2004 Actual: N/A FY 2005 Actual: 99% FY 2006 Target: 99%

Actual FY 2006 Performance: 100%

Target Met

The CBP canine program has been successful at maintaining the highest detection rates of any canine 

program in the country, even though it is the largest and most diverse. This is due to very high training 

standards and regular testing to identify deficiencies before they become serious problems. CBP will 

continue to emphasize frequent testing and retraining to continue expanding detection capabilities while 

maintaining the highest detection rates possible.

Data Source: Canine Enforcement Program.

Strategic Goal #2—Preventing Terrorism Between the Ports of Entry

To achieve this strategic goal, CBP will implement 

the National Border Patrol Strategy, with the goal 

of establishing and maintaining control of the 

borders. The CBP Border Patrol will employ 

a highly centralized and strengthened organizational model. Border security will be maximized 

with an appropriate balance of personnel, equipment, technology, communications capabilities, 

and tactical infrastructure. Further, CBP plans to 

expand the anti-terrorism mission of the Border 

Patrol through a national command structure, partnerships, intelligence sharing, training, technology, 

infrastructure support, and the use of specialized 

rapid-response teams.

Performance Objective —Maximize border security along the northern, southern, and coastal borders 

through an appropriate balance of personnel, equipment, technology, communications capabilities, and 

infrastructure.

Differing threats result from the diversity of the borders and require CBP to maintain flexibility in its 

border security approach. To support border control efforts between the POEs, CBP will leverage technology, tactical infrastructure, and facilities to maximize the effectiveness of Border Patrol agents. CBP 

intends to add remote monitoring technology along the borders, which will improve our ability to assess 

threats and determine likely illegal border entry scenarios and locations.

Key Performance Measure —Border miles under control (including certain coastal sectors).

As the Border Patrol moves toward its ultimate goal of control of the border, gains made in improving 

border security are examined to measure levels of control. The Border Patrol is responsible for the 8,607 

CBP Border Patrol agents patrol a remote area near the 

U.S. border.
Performance Goals and Results

30 U.S. Customs and Border Protection • Performance and Accountability Report

miles of land border shared with Mexico and Canada as well as the coastal border areas of the New 

Orleans, Miami, and Ramey sectors. This measure depicts the number of border miles under control 

where the appropriate mix of personnel, equipment, technology, and tactical infrastructure has been 

deployed to reasonably assure that when an attempted illegal alien is detected, identified, and classified, the Border Patrol has the ability to respond and the attempted illegal entry is brought to a satisfactory law enforcement resolution. As the Border Patrol continues toward its forward deployment efforts 

and resources are deployed based on risk, threat potential, and operational need, the number of miles 

under control will increase.

FY 2004 Actual: N/A FY 2005 Actual: 288 Miles FY 2006 Target: 338 Miles

Actual FY 2006 Performance: 449 Miles

Target Met

The target for fiscal year 2006 was exceeded through the strategic deployment of resources in conjunction with improved intelligence collection, analysis, and dissemination. In priority areas such as the 

Tucson and El Paso sectors, previously planned deployment of technology and infrastructure coupled 

with personnel increases resulted in more miles brought under control than expected. In other specific 

areas of the Del Rio sector, manpower was reallocated based on intelligence and in concert with 

improved prosecutions of illegal aliens resulting in appreciable gains in miles under control. By deploying 

NGB members to perform non-law enforcement duties beginning in June 2006, Border Patrol agents 

returned to border enforcement activities along the Southwest Border, further advancing the miles under 

control. Improving border miles under control helps keep unwanted illegal activity from entering our 

borders making our Nation more secure.

Data Source: After Action Reports, Daily Activity Reports, Automated Biometric Identification System, Enforcement Case 

Tracking System.

Strategic Goal #3—Unifying as One Border Agency

CBP continues to create a uniformed law enforcement workforce that works together in a professional manner with courtesy and respect toward 

the public, and that is recognized worldwide.

Performance Objective —Establish a unified primary inspection process for passenger processing 

at all POEs into the United States and fully integrate analysis and targeting units.

 Key Performance Measure —Total number of 

linked electronic sources from CBP and other 

government agencies for targeting information.

Electronic targeting systems allow CBP the ability to accurately and efficiently identify a potential risk to 

border security in any conveyance entering the United States. This effort is improved by linking data 

A CBP officer processes individuals as they enter the 

United States.
Performance Goals and Results

Management’s Discussion and Analysis 31

sources from CBP automated systems and other government agencies, through ACE, as a single source 

for border decision-makers.

FY 2004 Actual: N/A FY 2005 Actual: N/A FY 2006 Target: 4

Actual FY 2006 Performance: 9

Target Met

Successful completion of the Operational Readiness Review milestone demonstrated the linkage of the 

data system sources planned, namely the Automated Manifest System, Automated Targeting System, 

and Automated Commercial System. The addition of other data sources further enriched targeting information provided by other agencies, including the U.S. Postal Service, the USCG’s Electronic Notice of 

Arrival and Departure System, Dun & Bradstreet, the Treasury Enforcement Communication System, the 

Canadian Customs & Revenue Authority, and the Express Courier.

Data Source: CBP Modernization Office.

Strategic Goal #4—Facilitating Legitimate Trade and Travel

To improve risk assessment, CBP will use stateof-the-art modeling technologies that aid in identifying high risk for commercial enforcement. CBP 

will continue to deploy NII technology, including 

radiation detection equipment such as personal 

radiation detectors, radiation isotope identification 

devices, and radiation portal monitors, as well as 

other screening technologies that support a layered inspection process. These and other initiatives will help identify risks while preventing unnecessary delays in processing cargo and people.

Performance Objective —Modernize automated 

import, export, and passenger processing systems 

to improve risk assessment and enforcement 

decision-making.

CBP is developing and improving systems that 

can provide advance manifest information for prescreening cargo containers, agricultural products, and 

passengers. Trade- and passenger-related intelligence will be analyzed and distributed in a fast, meaningful way. Systems capable of linking law enforcement and other agency databases into one integrated 

database will be developed.

Key Performance Measure —Percentage of internal population using the ACE functionality to 

manage trade information.

Biometric information such as inkless fingerprints and digital 

photographs is captured on foreign travelers seeking entry into 

the United States.
Performance Goals and Results

32 U.S. Customs and Border Protection • Performance and Accountability Report

This measure indicates that CBP staff members have easier and quicker access to more complete, 

accurate, and sophisticated information. Increased use of ACE by CBP personnel also indicates its 

effectiveness in carrying out CBP’s mission.

FY 2004 Actual: N/A FY 2005 Actual: 8% FY 2006 Target: 14%

Actual FY 2006 Performance: 23%

Target Met

Use of ACE is increasing through the deployment of e-Manifest: Trucks (Release 4) to both the northern 

and southern borders. The number of internal users has grown as planned in fiscal year 2006 as a 

result of deployment to significant land border ports, including San Diego, El Paso, and Buffalo.

Increasing the agency’s ACE user base means advanced cargo information will be more widely available 

thus increasing the use of targeting information to prescreen, target, and identify potential terrorists, 

terrorist shipments and contraband. Our estimate of the expected population of CBP will be reevaluated 

regularly to verify it represents the personnel that will use ACE to manage trade information.

Data Source: Automated Commercial Environment system-use metrics.

Key Performance Measure —APIS data sufficiency rate.

This measure is an estimate of the level of effectiveness of the primary processing method for identifying high-risk passengers through name checks against Federal law enforcement databases. It is also the 

data sufficiency rate of information received for international air passengers. It is used to evaluate the 

quality and usefulness of data received.

FY 2004 Actual: 98.0% FY 2005 Actual: 98.6% FY 2006 Target: 99.2%

Actual FY 2006 Performance: 78.9%

Target Not Met

Carrier compliance rates were substantially below the target. New APIS reporting requirements that went 

into effect in fiscal year 2006 greatly increased the number of reportable data elements from 5 to more 

than 20. Manually provided data elements such as addresses placed greater responsibility for accuracy 

at the embarkation point. All data elements on the passenger data record must be transmitted correctly 

for the record to be counted as valid.

Most carriers spent much of fiscal year 2006 reprogramming their systems to meet the extensive new 

data requirements. In addition, carriers are having continued difficulty ensuring that legible and valid 

information is provided for advance transmission in the manually prepared data fields. APIS carrier 

account managers are working with the carriers to improve data collection procedures and input forms 

to improve the APIS rate.

Data Source: Airline passenger and crew manifest data.

Performance Objective —Promote industry and foreign government partnership programs.

Through work with the WCO and the G-8, CBP continues to lead the international customs community in 

developing and ensuring rapid implementation of global supply chain security standards. To increase 
Performance Goals and Results

Management’s Discussion and Analysis 33

maritime port security, the agency will work to internationalize C-TPAT through coordination with the 

international community. Supply chain security specialists will be hired and trained to visit participant 

facilities to review security practices. CBP intends to build on cooperative “Smart Border” agreements 

and pursue criminal enterprises involved in internal conspiracies at the POEs.

Key Performance Measure —Compliance rate for C-TPAT members with established C-TPAT 

security guidelines.

The percentage of C-TPAT members whose security procedures have been validated by CBP were found 

to be acceptable, and that met the C-TPAT security guidelines. This measure indicates the ability of 

C-TPAT companies to meet C-TPAT supply-chain security guidelines.

FY 2004 Actual: N/A FY 2005 Actual: 97% FY 2006 Target: 90%

Actual FY 2006 Performance: 98%

Target Met

In fiscal year 2006, CBP increased the number of validations performed. Over 50 percent of all C-TPAT 

members have been validated by CBP. A high compliance rate indicates that a high percentage of C-TPAT 

members are committed to maintaining supply chain security standards and have the required level of 

security measures in place.

Note: The fiscal year 2006 target for this measure was estimated based on previous calculations made during the 2006 

budget planning process and subsequent issuance of the Fiscal Year 2006 President’s Budget.

Data Source: C-TPAT Validation Reports.

Performance Objective —Facilitate international trade and travel.

Trade partnership programs will be expanded to facilitate legitimate international trade while securing 

the supply chain. To gain support and input for key initiatives, CBP plans to continue reaching out to the 

international trade and transportation communities. Pre-enrollment programs will allow CBP to expedite 

processing of prescreened and low-risk cargo and passengers, while high-risk cargo containers will be 

prescreened prior to entering the country.

Key Performance Measure —Percentage of sea containers examined using NII technology.

This measure demonstrates operational efficiencies that facilitate international trade and travel while 

supporting effective enforcement. It represents the total number of examinations conducted using NII 

technology in the sea environment compared to the total number of sea containers that arrived. NII systems provide a quick, safe, and comprehensive method for screening cargo for WMD/Es and other contraband while facilitating legitimate cross-border traffic. NII technology provides a more efficient and 

effective alternative to 100 percent physical inspection of all targeted high-risk containers.

FY 2004 Actual: 5.2% FY 2005 Actual: 5.6% FY 2006 Target: 5.25%

Actual FY 2006 Performance: 5.25%
Performance Goals and Results

34 U.S. Customs and Border Protection • Performance and Accountability Report

Target Met

CBP leverages its technology and inspection resources by identifying high-risk containers using techniques such as advance targeting through the Automated Targeting System (ATS), manifest reviews, 

and informed targeting by officers at the POEs. This process allows CBP officers to screen nearly 100 

percent of those containers that are judged to pose the highest risk, as determined by ATS targeting, 

as well as a large number of lower-risk containers identified for review by officers at the ports based on 

a variety of identification mechanisms, including cargo manifest reviews, canine examinations, officernoted irregularities, and random selections. In fiscal year 2006, a substantial amount of new NII equipment was put into place at the ports and older equipment was phased out. 

CBP will continue to increase the number and mix of NII equipment available at the POEs to meet our 

overall desired capability and individual port operational requirements.

Note: The fiscal year 2005 actual was revised based on the fiscal year 2006 validation process. Fiscal year 2005 results 

were not impacted by this revision.

Note: The fiscal year 2006 target for this measure was estimated based on previous calculations made during the 2006 

budget planning process and subsequent issuance of the Fiscal Year 2006 President’s Budget.

Data Source: Operations Management Reports Data Warehouse.

Strategic Goal #5—Protecting America and Its Citizens

CBP protects the American people and the national economy by 

prohibiting the introduction of contraband such as illegal drugs, 

counterfeit goods, and other harmful materials and organisms into 

the United States. CBP continues to develop technology to enhance 

targeting of high-risk cargo and individuals attempting entry into 

the country. Enforcement activities related to counterfeit trademark 

violations have increased to protect intellectual property rights.

Performance Objective —Reduce the importation of all prohibited or 

illegal drugs and other materials that are harmful to the public or 

may damage the American economy.

CBP monitors connections between illegal drug trafficking and 

terrorism, and coordinates efforts to sever such connections while 

interdicting illegal narcotics. Canine resources are used to detect 

illegal aliens, explosives, and chemicals, and to interdict drugs and 

agri­cultural commodities. CBP works closely with other Government 

agencies, industry, and stakeholders to measure agricultural risk 

and develop mitigation strategies to prevent harmful organisms 

from entering the United States intentionally or by accident.

Key Performance Measure —International air passengers in compliance with agricultural 

quarantine regulations (percentage compliant).

Specially trained detector dogs combat 

threats against the United States as varied 

as terrorism, chemicals, explosives, and 

smuggling.
Performance Goals and Results

Management’s Discussion and Analysis 35

This measure demonstrates the high level of compliance of air travelers with the regulations governing 

the types of agricultural products that can safely be brought into the United States. The information 

collected from agriculture inspections helps CBP estimate the percentage of compliance and yields a 

detailed understanding of the threat risk of agricultural pests and diseases entering the United States. 

FY 2004 Actual: 97.0% FY 2005 Actual: 95.8% FY 2006 Target: 97.0%

Actual FY 2006 Performance: 95.5%

Target Almost Met (within 5 percent of target)

The goal for compliance of air passengers with agricultural regulations for fiscal year 2006 was almost 

met. High-risk ports are not yet fully staffed with trained CBP agriculture specialists, although CBP is 

diligently working toward staffing existing vacancies. Analysis indicates that higher rates of interceptions 

occurred during shifts when CBP agriculture specialists were readily available.

CBP has shown significant success in achieving compliance over historical rates. The goal was originally 

set at 95 percent compliance by the U.S. Department of Agriculture (USDA) but raised to the current 

level of 97 percent by CBP. The goal has been set at a level that is high by historical standards and is a 

challenge for CBP to continue to meet on an ongoing basis. CBP will maintain its current mix of programs 

while continuing its emphasis on filling CBP agriculture specialist vacancies, with a priority given to highrisk ports, and providing additional specialized agricultural training to CBP officers.

Data Source: USDA Work Accomplishment Data System (WADS), Agricultural Quarantine Inspection monitoring activities. 

Compliance rates are calculated using random statistical sampling procedures.

Performance Objective —Provide support to protect events and key assets of national interest and 

mitigate the risks of terrorism and other threats to critical government operations.

Key Performance Measure —Percentage of no-launches to prevent acts of terrorism and other 

illegal activities arising from unlawful movement of people and goods across the borders of the 

United States.

The most important outcome of any air force is its capability and/or capacity to launch an aircraft when 

a request is made for aerial support. The annual “no-launch rate” shows the percent of all requests 

CBP A&M was unable to respond to on the basis of three factors: an aircraft was unavailable due to 

maintenance, the correct type of aircraft needed for the mission was unavailable, or the correct type 

of aircraft was available but without the correct crew to launch. There are numerous other reasons why 

aircraft do not launch; however, these are the ones currently used to monitor progress.

FY 2004 Actual: N/A FY 2005 Actual: N/A FY 2006 Target: Less than 23%

Actual FY 2006 Performance: 7.5%

Target Met

In fiscal year 2006, all air assets of CBP were merged into CBP A&M with the priority mission of preventing acts of terrorism and other illegal activities arising from unlawful movement of people and goods 

across the borders of the United States. This merger created the largest law enforcement air force in 

the world, with enhanced mission support to A&M’s primary customer, the Office of Border Patrol. More 

air assets were realigned to the Southwest Border of the United States in support of ABCI Phase III, with 
Performance Goals and Results

36 U.S. Customs and Border Protection • Performance and Accountability Report

increased operations tempo. Although this operation put a strain on the assigned aircraft, causing 

increased maintenance/ground time, A&M was able to launch aircraft in support of most missions. 

As air assets are relocated from other regions of the United States, in some cases, sufficient aircraft 

may not be available to support all requests. However, A&M has plans to relocate assets and personnel permanently to the Southwest Border in support of the CBP primary mission, acquire additional aircraft and unmanned aircraft, and hire additional personnel to achieve and maintain future projected 

no-launch targets. Having appropriate aircraft resources available deters and reduces possible acts of 

terrorism as well as disrupts the supply and reduces the quantity of drugs entering the United States.

Data Source: Air and Marine Operations Reporting System (AMOR).

Strategic Goal #6—

Modernizing and Managing

To achieve the other five strategic goals, CBP 

must put forth a continuous effort to enhance 

and modernize its information technology systems 

and technical support services. CBP will assist 

its customers and stakeholders in obtaining and 

managing the financial resources and assets 

needed to accomplish the mission. To provide 

customers and stakeholders with accurate, timely, 

and integrated data, CBP intends to maintain 

and improve financial and administrative systems, 

along with increasing the use of e-commerce.

Performance Objective —Improve budgeting and financial processes, policies, and systems, ensuring 

accurate, reliable allocation of, and accounting for, expenditure of funds, collection of revenues, and 

maintenance of reliable, timely, and accurate financial data for decision-making and reporting.

Key Performance Measure —Percent of trade accounts with access to ACE functionality to 

manage trade information.

The number of ACE accounts established with the trade community compared with the target number of 

accounts over time demonstrates the usefulness to the trade community of electronic filings versus paper 

filings with CBP. ACE also allows companies to move away from a transaction-based payment environment 

(i.e., payment for each individual entry) to account-based payments. The growth in the number of ACE 

accounts primarily depends on the successful deployment of ACE cargo processing at land border ports.

FY 2004 Actual: N/A FY 2005 Actual: 1% FY 2006 Target: 4%

Actual FY 2006 Performance: 3.5%

Target Not Met

ACE and its secure data portal feature offers unprecedented information integration and communication 

between CBP, the trade community, and other participating government agencies through a single, 

A CBP forensic scientist places samples in a liquid 

chromatograph. Chromatographs separate samples into 

their different components.
Performance Goals and Results

Management’s Discussion and Analysis 37

on-line access point. As of September 2006, there were 3,737 ACE trade accounts. Growth in the 

number of ACE accounts is primarily attributable to the successful deployment of ACE cargo processing 

capabilities at land border ports.

Future actions to increase participation include trade community conferences and seminars on both 

sides of our borders with Mexico and Canada, trade shows, print media, radio advertising, and local television, radio, and newspaper interviews. Our original estimate of the expected population of trade users 

is being revisited to better reflect the expected user base. Initial results indicate that the expected total 

number of trade accounts appears to have been overstated and fiscal year targets will need adjustment.

Data Source: CBP Modernization Office.

Performance Objective —Maintain a reliable, stable, and secure IT infrastructure and an array of technical support services, including laboratory and scientific services, tactical radio communication, field 

equipment maintenance/support, and round-the-clock customer assistance.

CBP continues to support its anti-terrorism mission and its widely dispersed field workforce by deploying 

a modern, robust, secure technology infrastructure that provides global systems integration and information warehousing for a completely automated trade, border security, and mission support environment. 

CBP intends to build and maintain a unified tactical communications capability that supports the needs 

of the agency and is coordinated within DHS.

Key Performance Measure —Percentage of time the Treasury Enforcement Communication 

System (TECS) is available to end-users.

TECS is a CBP mission-critical law enforcement application designed to identify individuals and 

businesses suspected of, or involved in, violation of Federal law. TECS is a communications system permitting message transmittal among DHS law enforcement offices and other Federal, state, and local law 

enforcement agencies. TECS provides access to the National Crime Information Center and the National 

Law Enforcement Telecommunication System (NLETS), with the ability to communicate directly with state 

and local enforcement agencies. NLETS provides direct access to state motor vehicle departments. This 

performance measure shows the established service-level objective that the end-user experiences in 

terms of TECS service availability.

FY 2004 Actual: N/A FY 2005 Actual: 96.2% FY 2006 Target: 92%

Actual FY 2006 Performance: 98%

Target Met

During the month of August 2006, the TECS processor was upgraded to increase the number and speed 

of system processors, further decreasing response time and increasing processing power, to support 

ever-increasing volume demands. On the basis of these accomplishments, CBP foresees no technical or 

environmental changes that would affect the ability to continue to provide successful system access to 

end-users.

Note: The fiscal year 2006 target for this measure was estimated based on previous calculations made during the 2006 

budget planning process and subsequent issuance of the Fiscal Year 2006 President’s Budget.

Data Source: Topaz, a Web-based application that enables users to track and analyze availability and system performance 

problems.
38 U.S. Customs and Border Protection • Performance and Accountability Report

Overview

To comply with the provisions of the Federal Managers’ Financial Integrity Act of 1982 (FMFIA); the DHS 

Financial Accountability Act of 2004; the Reports Consolidation Act of 2000; the Federal Financial 

Management Improvement Act of 1996 (FFMIA); The Federal Information Security Management Act of 

2002 (FISMA); and the Office of Management and Budget (OMB) Circular A-123, “Management’s 

Responsibility for Internal Control,” revised December 2004, the Commissioner of CBP must provide 

annual assurance statements to DHS regarding CBP’s management and financial system controls, internal controls over financial reporting, and performance data reliability. Any material weaknesses or deficiencies are reported in the statements. Information for these statements is derived from GAO and DHS 

OIG reviews, independent audits, and self-assessments provided by CBP management.

Federal Managers’ Financial Integrity Act (FMFIA)

In accordance with FMFIA and OMB Circular A-123, CBP has evaluated its management controls and 

financial management systems for the fiscal year ending September 30, 2006. Through our annual selfassessment process and GAO/OIG reviews for fiscal year 2006 we are reporting three open material 

weaknesses from prior years and two new material weaknesses.

Drawback Controls

Drawback involves the reimbursement of duties paid by an importer on materials or merchandise 

imported into the United States and subsequently exported. In 1993, deficiencies were reported in the 

controls to prevent excessive drawback claims. ACS cannot compare entry and export information electronically; therefore, CBP uses a risk-based sampling approach to review drawback claims. However, 

the methodology used did not provide adequate measurement and statistical projection of the results 

of the control process. In fiscal year 2005, a statistically valid methodology was developed to partially 

resolve the issue, but the final solution is to provide electronic tracking and control of drawback claims 

from importation through exportation. This solution is not targeted for completion until the implementation of ACE Release 7 in 2009. However, a September 2006 decision by Congress to not pursue 

changes to the current drawback statutes may adversely affect the implementation of this solution.

Core Financial Systems

This material weakness was first reported in 1993 when it was noted that agency core financial systems were not integrated and did not provide certain financial information for managing operations. 

With the implementation of Systems, Applications, and Products (SAP) Release 3 in October 2004, 

10 of the 11 corrective actions have been completed. The remaining open issue relates to the integration of the ACE and SAP systems. The ACE Entry Summary, Accounts, and Revenue Drop 2 that is 

targeted for implementation by July 2008 will have full financial information and interface established 

in ACE.

Management Assurances
Management’s Discussion and Analysis 39

Management Assurances

Financial Systems Security

In the Fiscal Year 2005 DHS Financial Statements Audit Report, auditors expanded this DHS material 

weakness to include IT and financial system control weaknesses in addition to weaknesses in CBP 

security controls affecting headquarters and the National Data Center management and staff’s system 

access to CBP applications and data (formerly Financial Systems Functionality and Technology). To 

address the systems access component of this weakness for the Windows NT platform, the DHS Active 

Directory infrastructure is required. For the Novell network and Sun servers, alternative strategies are 

required. Of the 20 milestones identified to correct this aspect of the material weakness, 11 remain 

outstanding. The remaining milestones are targeted for completion in fiscal year 2007.

The IT and financial system control aspect of this material weakness was identified in 30 Notices of 

Findings and Recommendations (NFRs) issued during CBP’s Fiscal Year 2005 Financial Statements 

Audit. CBP has completed all planned milestones for 17 of the 30 NFRs.

Environmental Liabilities

As a result of the CBP Fiscal Year 2005 Financial Statements Audit, auditors identified a material 

weakness in the management of CBP’s environmental liabilities program. CBP has completed all major 

milestones established to implement auditor recommendations. Validated auditor results of CBP’s Fiscal 

Year 2006 Financial Statements Audit reflect the elimination of the CBP material weakness in environmental liabilities.

Laptop Computer Security

During fiscal year 2006, the DHS OIG noted weaknesses related to CBP’s inventory control, inventory 

review, and training of local property officers regarding laptop computer security. In addition, a security 

issue related to controls ensuring laptop computers are cleared and sanitized prior to reissue or disposal 

was identified. CBP has determined that compliance with established procedures is the issue and has 

established milestones to be implemented throughout fiscal year 2007 to correct this weakness.

DHS Financial Accountability Act

The DHS Financial Accountability Act requires an assertion of internal controls over financial reporting. 

For fiscal year 2006, the scope of CBP’s assessment of internal controls over financial reporting 

included performing tests of design over financial management processes related to entity-level internal 

controls, financial reporting, funds management, and CBP’s Emergency Response Plan. CBP’s fiscal year 

2006 Internal Control Assertion Statement provides reasonable assurance that internal controls over 

financial reporting related to these processes were designed effectively.
40 U.S. Customs and Border Protection • Performance and Accountability Report

Management Assurances

Reports Consolidation Act

The Reports Consolidation Act requires an assessment of the completeness and reliability of the performance data used in an agency’s Annual Performance and Accountability Report. Performance data 

used in this CBP Fiscal Year 2006 Performance and Accountability Report are complete and reliable.

Federal Financial Management Improvement Act (FFMIA)

The Federal Financial Management Improvement Act (FFMIA) instructs agencies to maintain an integrated financial management system that complies with Federal system requirements, Federal Accounting Standard Advisory Board standards, and the U.S. Standard General Ledger at the transaction level. 

Although CBP has made significant improvements toward compliance through the implementation of 

SAP financial software, we cannot claim full compliance due to the deficiencies previously discussed.

Federal Information Security Management Act (FISMA)

The Federal Information Security Act (FISMA) requires agencies to conduct an annual self-assessment 

review of their IT security programs, and to develop and implement corrective actions for identified security weaknesses and vulnerabilities. CBP has completed a comprehensive self-assessment for fiscal 

year 2006 and can state with reasonable assurance that the IT security controls are in compliance with 

FISMA, with the exception of the material weakness previously discussed.
Management’s Discussion and Analysis 41

Overview

Data Integrity: CBP is dedicated to providing clear, concise, relevant, and reliable data for managerial 

decision-making and program management. We strive to ensure the data are both quantifiable and verifiable and provided in a timely manner. In place are internal management controls, including ongoing data 

review, annual self-inspections, audit trails, restricted access to sensitive data, and separation of duties, 

designed to safeguard the integrity and quality of CBP’s data resources.

Data Systems and Controls: Performance data for the planned performance measures are generated by 

automated management information and workload measurement systems and reports as a by-product 

of day-to-day operations. All levels of management routinely monitor the data systems and controls. 

CBP management has reviewed the performance measurement data for fiscal year 2006 and has determined, with reasonable assurance, that the data are complete, accurate, and reliable.

Audit of the Fiscal Year 2006 CBP Consolidated Financial Statements: As directed by DHS to assist the 

Department in complying with the Chief Financial Officer’s Act of 1990, DHS’s independent auditors, 

KPMG LLP, audited CBP’s consolidated financial statements (Consolidated Balance Sheet, Consolidated 

Statement of Net Cost, Consolidated Statement of Changes in Net Position, Combined Statement of 

Budgetary Resources, Consolidated Statement of Financing, and Consolidated Statement of Custodial 

Activity), hereinafter referred to as the “financial statements.” The objective of the audit is to determine 

whether the financial statements fairly present the financial position of CBP. Audit reviews evaluate 

assets, liabilities, net position, net costs of major CBP programs, availability of budgetary resources, 

finance activity, budgetary spending, and revenue from collections and refunds. An audit consists of 

examining, through various sampling methods, evidence supporting the amounts and disclosures in the 

financial statements. The Independent Auditor’s Report can be found on page 114. 

Self-Inspection Program (SIP)

SIP was developed to emphasize managerial accountability and provide a mechanism for management 

oversight of CBP programs and processes. SIP, along with other methodologies, helps CBP meet Federal 

management control requirements established by FMFIA and OMB Circular A-123, revised. SIP provides 

a method by which CBP headquarters and field managers conduct internal assessments of their operations and report on the results by completing self-inspection worksheets developed by national program 

managers. In completing and certifying the results of their self-inspections, managers assess whether 

their area of responsibility is:

• properly implementing established programs, policies, procedures, and strategies that support 

mission/program accomplishment;

• ensuring the security of funds, property, and other agency resources; and

• complying with Federal laws and regulations.

For the current reporting cycle, the 19 offices of CBP completed more than 16,000 self-inspection worksheets. These worksheets require participants to answer questions resulting from testing about program 

administration and operation.

Systems and Controls
42 U.S. Customs and Border Protection • Performance and Accountability Report

Systems and Controls

Results of the assessments are entered into the Self-Inspection Reporting System (SIRS). In addition, 

SIRS requires the completion of an audit trail section that documents what information was reviewed 

prior to the worksheets being completed, as well as a separate addendum that gives a detailed 

description of the cause and corrective action for any deficiencies. Managers are responsible for implementing corrective action plans to resolve identified deficiencies.

Every year, after the end of the SIP reporting cycle, the Management Inspection Division (MID) prepares 

a summary analysis report that identifies significant issues to help CBP management determine which 

administrative or operational areas require attention. Issues identified through this program may become 

the focus of MID internal inspection/review activities.

Analysis of the self-inspection data allows executive managers and national program managers to gauge 

the level of compliance with critical program management controls, identify programmatic issues that 

require national attention, and address issues before they cause administrative burden or otherwise 

have a negative impact on the mission of CBP.
Management’s Discussion and Analysis 43

Overview

CBP strives to be a leader in financial management by providing high-quality, cost-efficient services 

through customer involvement and modern, integrated financial systems. Our goal is to continuously 

develop and implement more effective and efficient methods to obtain, manage, and deliver the financial resources, capital assets, and financial services to meet or exceed the needs of customers and 

stakeholders. Because CBP is also a revenue collection agency, it is imperative that we accurately 

identify amounts owed CBP and efficiently and effectively collect, report, and account for revenue.

Providing top-quality financial management services includes translating workloads and requirements 

into budget requests for needed resources; allocating and distributing funds after resources are made 

available; acquiring and distributing goods and services that are used to accomplish the CBP mission; 

managing and paying for those goods and services; and reporting on the costs and use of personnel, 

goods, and services.

In October 2004, CBP implemented the third and final release of the SAP financial software. SAP is a 

modular, PC-based, integrated financial management and reporting system that provides full materials 

management, budgeting, and general and subsidiary ledger capabilities. The impact of SAP is farreaching, as it has put into place new automated, integrated processes for core finance and accounting, 

budget execution, and reporting.

President’s Management Agenda (PMA)

In 2001, the PMA was implemented as a management reform initiative established to identify deficiencies and improve performance within the Federal Government. For fiscal year 2006, the PMA focused 

on six key management initiatives across the Federal Government: (1) Strategic Management of Human 

Capital, (2) Competitive Sourcing, (3) Improved Financial Performance, (4) Expanded Electronic Government, (5) Budget and Performance Integration, and (6) Asset Management (Real Property). Federal 

Executive agencies are tracked, via a “scorecard,” on how well the departments and major agencies 

are executing the six government-wide management initiatives.

In ongoing compliance and support of the PMA, CBP continues to efficiently and economically develop, 

implement, and track activities that improve our accomplishments and scorecards in the six areas of 

management weakness.

The following highlights CBP’s accomplishments during fiscal year 2006 in the key areas.

Human Capital

Strategic human capital management refers to the methods an agency uses to employ, deploy, develop, 

and evaluate its workforce. These methods are measured against six standards of success that serve 

as a common language on which agencies can assess their progress on the strategic management of 

human capital. CBP continuously evaluates its human resources programs to ensure that the following 

standards are met:

• Align human capital strategies with mission goals.

• Plan and deploy the workforce to create a citizen-centered and mission-focused organization.

Financial Management
44 U.S. Customs and Border Protection • Performance and Accountability Report

Financial Management

• Ensure continuity of effective leadership.

• Develop a results-oriented performance culture.

• Close mission-critical competency gaps.

• Develop an accountability system to ensure that human capital management is merit-based, effective, 

efficient, and supports mission accomplishment.

Throughout fiscal year 2006, CBP continued to support the effective implementation of MAXHR, the 

DHS-wide pay-for-performance management system that is designed to facilitate a high-performance 

culture by developing clear performance standards closely linked to the agency’s mission and allowing 

for monetary incentives to employees who exceed performance expectations. Ultimately, MAXHR will 

enable CBP to attract and retain mission-critical leadership and talent.

Competitive Sourcing

The goal of competitive sourcing is to provide a more effective, efficient way to foster a more resultsoriented focus within Government organizations. Requirements for the Competitive Sourcing Initiative are 

outlined in and governed by statute and policy, including the Federal Activities Inventory Reform (FAIR) 

Act, OMB Circular A-76, OMB directives to the President’s Management Council, and DHS Management 

Directive 0476.

During fiscal year 2006, CBP has done the following:

• Completed two streamlined competitions for the payroll processing and position classification function. 

The personnel processing competition, although initiated at the same time, was canceled after a 

thorough review of the competition process and discussion among senior management. Management 

determined that it would be more effective to complete the function as part of the larger human 

resources standard competition scheduled for a later date.

• Initiated post competition accountability efforts, as required by OMB Circular A-76.

• Reviewed all positions and categorized the functions of the positions as commercial or inherently 

governmental, as required annually by the FAIR Act. This inventory process further requires agencies 

to assign a function code to the position and identify whether the function performed is suitable for 

competition with the private sector.

• Initiated the update of long-range plans directed at achieving “green” status on the PMA scorecard, 

specifically for the Competitive Sourcing Initiative, as required by OMB.

Financial Performance

The PMA initiative for Improved Financial Performance directs agencies to possess more timely and 

reliable financial information, improve the integrity of their financial activities, and have sound and 

dependable financial systems. CBP has fully supported this PMA initiative with its implementation of 

the DHS Financial Accountability Act. The Act requires DHS and its components to meet internal control 

requirements in advance of all other Federal agencies. In implementing the DHS Financial Accountability 
Management’s Discussion and Analysis 45

Financial Management

Act, the DHS Chief Financial Officer has established a strategy of eliminating material weaknesses in 

internal controls over financial reporting and obtaining an unqualified audit opinion on the DHS 

consolidated financial statements. In support of this strategy, CBP has done the following:

• Received an unqualified audit opinion on its Fiscal Year 2005 Consolidated Balance Sheet.

• Underwent a full-scope financial statements audit as a stand-alone entity for fiscal year 2006.

• Prepared and initiated corrective action plans to resolve auditor-identified and Integrity Act material 

weaknesses in internal controls. This includes developing annual risk management plans and risk 

mitigation plans that include milestones to proactively monitor and resolve identified issues of 

weakness in internal controls processes that may affect resources.

• Maintained accountability for financial and performance information during operational evaluation 

and decision-making through quarterly reviews. Management of financial and performance data in 

FYHSP allows senior management to complete program evaluations and make funding decisions.

E-Gov

CBP continues to focus IT spending on modernization initiatives in many areas such as expanded cargo 

processing for the ACE program, expanded electronic manifest certification, and implementation of 

Foreign Trade Zone automated admission and cargo control capabilities. CBP is promoting the use of 

Earned Value Management by incorporating its use and capabilities into the OIT Project Management 

Education and Certification Program for all project managers for mandatory use in project planning and 

management.

In 2006, CBP successfully certified and accredited all major IT systems and projects and met its goal of 

full compliance for the fiscal year. CBP is also working to align major IT systems with the Federal Enterprise Architecture’s Lines of Business to eliminate duplicate processes and improve system efficiency 

and effectiveness.

Budget and Performance Integration

The Budget and Performance Integration Initiative builds on the Government Performance and Results 

Act of 1993 (GPRA) and the Homeland Security Act of 2002, which directs DHS to identify program goals 

and performance measures and link them to the budget process. DHS created FYHSP to communicate 

to Congress its resource plans, performance, and milestones for 5 years for programs that support DHS 

strategic goals and objectives.

In support of FYHSP, CBP regularly monitors external program evaluations, develops and tracks meaningful performance measures, improves out-year planning with program milestones, creates programmatic 

strategic plans, and conducts risk management. Information on these activities is shared with senior 

management to ensure that they make informed resource allocation decisions.

Asset Management (Real Property)

The goal of the Real Property Initiative under the PMA is to promote the efficient and economical use of 

Federal real property resources in accordance with their value as national assets and in the best interests of the Nation.
46 U.S. Customs and Border Protection • Performance and Accountability Report

Financial Management

The Office of Finance, Office of Asset Management of CBP provides real property assets in support of 

the agency’s overall mission with a range of facilities services including new construction, leasing, 

repairs and alterations, operations and maintenance, and technology insertion to meet requirements for 

the following types of assets:

• Land, Air, and Sea Ports of Entry;

• Border Patrol Sector HQs, Stations, Checkpoints, and Remote Operating Bases;

• Tactical Infrastructure on the border, including barriers, fencing, lighting, patrol roads, bridges, 

drainage structures, and control of brush and other obstructions;

• Air and Marine Operations Facilities;

• Detention and Removal Facilities;

• Laboratories and other special use space; and

• Administrative space.

In support of the PMA during fiscal year 2006, CBP has done the following:

• Reconciled and completed 100 percent of the capitalized inventory.

• Implemented the National Signage Program.

• Modified SAP to accommodate the Federal Real Property Program (FRPP) reporting requirements.

• Made progress toward eliminating gaps in FRPP reporting by CBP in support of the PMA performance 

measures.

• Consolidated space for the tactical air programs through the formation of the Office of CBP Air and 

Marine in support of the PMA space consolidation requirements.

• Restructured Asset Management to more effectively support real property by creating a Real Property 

Division.

• Completed the work scope development of our Strategic Facilities Assessments of all CBP facilities 

to determine their condition index.

• Submitted Asset Management’s Strategic Plan to DHS.

Improper Payments Information Act of 2002 (IPIA)

The initiative to reduce improper payments is a key component of the PMA. The Improper Payments 

Information Act of 2002 (IPIA) requires Federal agencies to report annually on the extent of improper 

payments in those programs that are susceptible to significant improper payment and the actions they 

are taking to reduce such payments.

DHS issues IPIA guidance for its component agencies including CBP. It requires sample payment testing 

for all CBP fiscal year 2005 programs but excludes payments relating to payroll and to other Federal 

agencies. It also requires that an independent statistician examine the payment data, design sample 

testing parameters, and select the payments to be reviewed. 
Management’s Discussion and Analysis 47

Financial Management

This is the first year in which CBP can produce a baseline measurement. CBP identified payments totaling $3.6 billion meeting the IPIA guidance for sample payment testing. Risk susceptible programs were 

identified for User Fee Accounts, Salaries and Expense, Automation Modernization, Custodial Activity and 

Other miscellaneous programs. Payments totaling $1.6 billion were selected from the User Fee 

Accounts, Salaries and Expense, Automation Modernization and Other programs and subjected to the 

detail review procedures. Improper payments totaling $22,613, or .001 percent, were identified. Estimates for future year improper payment percentages for these programs are expected to be consistent 

with the current year results. The results from the Custodial Activity program were incomplete.

Recovery Auditing

In fiscal year 2006, CBP provided fiscal year 2005 disbursement data to Horn and Associates for 

recovery audit contractual services. The fiscal year 2005 disbursement data was comprised of 30,430 

transactions totaling over $881M. To date, no duplicate payments have been identified.

Overview of the Financial Statements

The financial statements and footnotes appear in the “Financial Section” of this report on pages 59 

through 112. The financial statements have been audited by our independent auditor, KPMG LLP, and 

have been found to have no material misstatements as evidenced by the audit report.

Consolidated Balance Sheet

The Consolidated Balance Sheet presents the property owned by CBP (assets), amounts owed by CBP 

(liabilities), and the amounts of the difference (net position). As of September 30, 2006, total assets 

were $14.9 billion, a 21 percent increase over fiscal year 2005 which was due to an increase in the 

Fund Balance with Treasury resulting from an increase in CBP’s budget appropriations, Receivables Due 

from Treasury resulting from an increase in accrued non-entity liabilities, and Tax, Duties and Trade 

Receivables resulting from an increased use of periodic monthly payments by importers. As of 

September 30, 2006, total liabilities were $9.8 billion, an increase of 19 percent over fiscal year 2005, 

which was mostly due to an increase in Refunds Payable as a result of an agreement with Canada on 

softwood lumber imports of which $5.5 billion is expected to be refunded, an increase in the liability for 

Injured Domestic Industries due to an increase in collections and liquidations for antidumping and 

countervailing duties, and an increase in the liability Due to the General Fund due to an increase in nonentity collections and accrued receivables. The charts below present a comparison of the major categories of assets and liabilities as a percentage of the totals for FY 2006 and FY 2005.
48 U.S. Customs and Border Protection • Performance and Accountability Report

Financial Management

2006 Assets

Intra Gov’t

Receivables

3%

Duties & Trade

Receivables

12%

Property Plant

& Equipment

13%

Other

3%

Fund Balance

with Treasury

69%

Other

5%

2006 Liabilities

Due the

General Fund

18%

Refunds Payable

57%

Injured Domestic

Industries

5%

Payroll &

Benefits

10%

Accounts

Payable

5%

Fund Balance

with Treasury

69%

Other

2%

Intra Gov’t

Receivables

2%

Duties & Trade

Receivables

11%

Property Plant

& Equipment

16%

2005 Assets
Management’s Discussion and Analysis 49

Financial Management

Consolidated Statement of Net Cost

The Consolidated Statement of Net Cost presents the net cost of the major CBP programs as they relate 

to the goals of the 2005–2010 Strategic Plan. The gross cost less any offsetting revenue for each program equals net cost of operations. Net cost of operations was $7 billion. 

Consolidated Statement of Changes in Net Position

The Consolidated Statement of Changes in Net Position represents those accounting transactions that 

caused the net position of the balance sheet to change from the beginning to the end of the reporting 

period. CBP’s net cost of operations serves to reduce net position. Appropriations used totaled $4.5 

billion, representing 63 percent of CBP’s total financing sources. CBP collected and retained $2.4 billion 

of Non-exchange revenue, comprising 33 percent, that was used to fund CBP operations. 

Combined Statement of Budgetary Resources

The Combined Statement of Budgetary Resources illustrates how budgetary resources were made available as well as their status at the end of fiscal year 2006. CBP had $12.6 billion in budgetary resources, 

of which $2.3 billion was unobligated. CBP incurred obligations of $10.3 billion and recorded $9.4 billion 

in gross outlays by the end of the fiscal year. 

Consolidated Statement of Financing

The Consolidated Statement of Financing reconciles total resources used to finance activities (budgetary 

spending) with the net cost of operations (the proprietary expenses of the agency). Budgetary spending 

for fiscal year 2006 was $6.7 billion. 

Refunds

Payable

1%

2005 Liabilities

Due the

General Fund

17%

Other

63%

Injured Domestic

Industries

3%

Payroll &

Benefits

11%

Accounts

Payable

5%
50 U.S. Customs and Border Protection • Performance and Accountability Report

Financial Management

Consolidated Statement of Custodial Activity

The Consolidated Statement of Custodial Activity presents non-entity revenue and refunds (revenue and 

refunds held by CBP but not available to it), using a modified cash basis. This method reports revenue 

from cash collection separately from receivable accruals, and cash disbursements are reported separately from payable accruals. The net collection of revenue for fiscal year 2006 was $23 billion. 

Compliance Measurement

The Compliance Measurement Program collects objective statistical data to determine the compliance 

level of commercial imports with U.S. trade laws, regulations, and agreements, and it estimates the 

revenue gap. The revenue gap is a calculated estimate that measures potential loss of revenue owing 

to noncompliance with trade laws, regulations, and agreements using a statistically valid sample of the 

revenue losses and overpayments detected during Compliance Measurement entry summary reviews conducted throughout the year. For fiscal year 2005, the actual revenue gap was $470 million. CBP calculated 

the preliminary fiscal year 2006 revenue gap to be $314 million. The projected over-collection and undercollection amounts due to noncompliance were $128 million and $442 million in fiscal year 2006, respectively. The preliminary overall trade compliance rate for fiscal year 2006 is 96.6 percent. With overall compliance at a high level, CBP has been able to emphasize matters of significant trade risk.The final overall 

trade compliance rate and estimated revenue gap for fiscal year 2006 will be issued in January 2007.

Limitations of the Financial Statements

The principal financial statements have been prepared to report the financial position and results of the 

operations of CBP, pursuant to the requirements of 31 U.S.C. 3515(b). While the financial statements 

have been prepared from the books and records of CBP in accordance with Generally Accepted Accounting Principles for Federal entities and the formats prescribed by OMB, the statements are in addition to 

the financial reports used to monitor and control budgetary resources, which are prepared from the 

same books and records.

The financial statements should be read with the realization that they are a component of the U.S. 

Government, a sovereign entity. Liabilities not covered by budgetary resources cannot be liquidated without the enactment of an appropriation by Congress, and payment of liabilities, other than for contracts, 

can be abrogated by the sovereign entity.
Performance Section
52 U.S. Customs and Border Protection • Performance and Accountability Report

The chart below highlights CBP’s success in achieving fiscal year 2006 performance goals. The 

performance measures are established as an integral part of the CBP Strategic Plan and the DHS FYHSP. 

The measurement data are collected through various systems and methods and then entered into the 

FYHSP system for tracking and compiling for management decision-making and year-end reporting.

Security, threat, and risk analyses often necessitate changes in the agency’s focus. CBP performance 

measures continue to evolve to better reflect operational functions and alignment with critical missions. 

For fiscal year 2006, CBP has 22 reportable per­formance measures that support the Strategic Plan. 

Of the 22 performance measures, 16 were met or exceeded, 4 were almost met (within 5 percent of 

target), and 2 were not met.

The performance data presented in this report are in accordance with the guidance provided by OMB. 

The data integrity discussion in the “Systems and Controls” section of the “Management’s Discussion 

and Analysis” (page 41) describes CBP’s commitment to providing quality and timely per­formance 

information to increase its value to CBP management and interested parties. CBP managers routinely 

use these data to improve the quality of program management and demonstrate accountability of 

program results.

Individual Performance Measure Results

This section describes CBP’s fiscal year 2006 results for each FYHSP performance measure by the 

strategic goal and performance objective they support. Although some of the performance measures 

may relate to more than one performance objective, each performance measure was aligned under the 

single objective considered most relevant or meaningful. Discussions of the key performance measures 

can be found in the “Management’s Discussion and Analysis” section under “Performance Goals and 

Results,” beginning on page 26.

Performance Summary

FY 2006 Performance

Not Met

9%

Almost Met

18% Met

73%
Performance Summary

Performance Section 53

Strategic Goal #1—Preventing Terrorism at the Ports of Entry

Performance Objective —Improve the collection, use, analysis, and dissemination of intelligence to 

target, identify, and prevent potential terrorists and terrorist weapons from entering the United States.

Key Performance Measure —Percentage of worldwide U.S.-destined containers processed through 

CSI ports. (See page 27 for results and detailed discussion.)

Performance Objective —Improve identification and targeting of potential terrorists and terrorist 

weapons, through risk management and automated advances and enhanced information.

Key Performance Measure—Number of foreign mitigated examinations waived through the CSI. 

(See page 28 for results and detailed discussion.)

Performance Objective —Strengthen the CBP defense-in-depth approach through the use of state-ofthe-art detection and sensor technology, resources, and training.

Key Performance Measure—Percent of active commissioned canine teams with 100 percent 

detection rate results in testing of the Canine Enforcement Team. (See page 28 for results and 

detailed discussion.)

Strategic Goal #2—Preventing Terrorism Between the Ports of Entry

Performance Objective —Maximize border security along the northern, southern, and coastal borders 

through an appropriate balance of personnel, equipment, technology, communications capabilities, 

and infrastructure.

Key Performance Measure —Border miles under control (including certain coastal sectors). (See 

page 29 for results and detailed discussion.)

Performance Measure —Apprehensions at checkpoints; effectiveness of checkpoint operations in 

apprehensions as they relate to border enforcement activities.

FY 2004 Actual: N/A FY 2005 Actual: N/A FY 2006 Target: 5%–10%

Actual FY 2006 Performance: 5.9%

Target Met

Border Patrol checkpoints are a vital part of the Border Patrol’s layered enforcement strategy in that they 

provide an additional means of maximizing resources to increase the probability that those attempting to 

illegally enter the United States will be apprehended.
54 U.S. Customs and Border Protection • Performance and Accountability Report

Performance Summary

The checkpoints serve as a component of the successful “defense in depth” strategy, which deny major 

routes of egress to smugglers intent on delivering people, drugs, and other contraband into the interior 

of the United States.

Through the development and utilization of the Checkpoint Activity Report, more accurate information has 

been collected on checkpoint operations, ensuring they have a strategic focus based on current threat 

levels and national and sector priorities. Tucson Sector checkpoint apprehensions were an anomaly in 

fiscal year 2006, therefore, apprehensions for this sector were not included in the apprehension average. 

While checkpoint apprehensions remained consistently indicative of overall apprehensions nationwide in 

fiscal year 2005 (5.3 percent), apprehensions in Tucson decreased from 5.2 percent in fiscal year 2005 

to 2.7 percent in fiscal year 2006 due to the enhanced level of operations in Arizona with Operation Jump 

Start and ABCI, as well as severe weather conditions affecting the Tucson area of operations.

Data Source: Summary records from Border Patrol sectors for checkpoint activity from fiscal year 2000 through 2006. Data 

are maintained in two databases: ENFORCE and BPETS.

Strategic Goal #3—Unifying as One Border Agency

Performance Objective —Establish a unified primary inspection process for passenger processing at all 

ports of entry into the United States and fully integrate analysis and targeting units.

Key Performance Measure —Total number of linked electronic sources from CBP and other 

government agencies for targeting information. (See page 30 for results and detailed 

discussion.)

Strategic Goal #4—Facilitating Legitimate Trade and Travel

Performance Objective—Modernize automated import, export, and passenger processing systems to 

improve risk assessment and enforcement decision-making.

Key Performance Measure —Percentage of internal population using the ACE functionality to 

manage trade information. (See page 31 for results and detailed discussion.)

Key Performance Measure —APIS data sufficiency rate. (See page 32 for results and detailed 

discussion.)

Performance Objective —Promote industry and foreign government partnership programs.

Key Performance Measure —Compliance rate for C-TPAT members with established C-TPAT 

security guidelines. (See page 32 for results and detailed discussion.)
Performance Summary

Performance Section 55

Performance Objective —Enforce all U.S. trade, immigration, drug, consumer protection, intellectual 

property, and agricultural laws and regulations at the borders.

Performance Measure —Percentage of air passengers compliant with laws, rules, and regulations.

FY 2004 Actual: 99.2% FY 2005 Actual: 99.0% FY 2006 Target: 99.2%

Actual FY 2006 Performance: 98.7%

Target Almost Met

This measure estimates the threat approaching the POE. It encompasses enforcement action at the 

POE and a sampling of passengers considered low-risk who would not otherwise be examined. These 

data are used to determine the percentage of air travelers who are compliant with laws, rules, regulations, and agreements enforced by CBP.

The fiscal year 2006 air passenger compliance rate, while lower than statistically expected, is still very 

high by historical standards. CBP will use targeted enforcement, training, and public outreach programs 

to influence public awareness and increase voluntary compliance. CBP will maintain its current mix of 

enforcement programs and continue its emphasis on additional training.

Data Source: Treasury Enforcement Communication System, Categories I and II violations.

Performance Measure —Percentage of land border passengers compliant with laws, rules, and 

regulations.

FY 2004 Actual: 99.9% FY 2005 Actual: 99.9% FY 2006 Target: 99.9%

Actual FY 2006 Performance: 99.9%

Target Met

The rate of passenger compliance is determined by estimating the total number of violations present in 

the population of vehicles approaching the POE and dividing that number by the total number of vehicles 

subject to random sampling. This provides an estimate of the percentage of vehicles approaching the 

POE that are not in violation of any laws, rules, regulations, or agreements enforced by CBP.

Data Source: Treasury Enforcement Communication System.

Performance Objective —Facilitate international trade and travel.

Key Performance Measure —Percentage of sea containers examined using NII technology. (See 

page 33 for results and detailed discussion.)

Performance Measure —Percentage of truck and rail containers examined using NII technology.

FY 2004 Actual: 26.6% FY 2005 Actual: 28.9% FY 2006 Target: 10.25%

Actual FY 2006 Performance: 32.80%

Target Met

This measure demonstrates improved operational efficiencies that facilitate international trade and travel 

while supporting effective enforcement. NII systems provide a quick, safe, and comprehensive method for 
56 U.S. Customs and Border Protection • Performance and Accountability Report

Performance Summary

screening truck and rail containers for WMD/Es and other contraband while facilitating legitimate crossborder traffic. The higher the percentage of cargo screened using NII, the greater the likelihood of detecting potentially hazardous materials and preventing them from entering the United States. This technology 

provides a more efficient and effective alternative to 100 percent physical inspection of all targeted highrisk containers.

Note: The fiscal year 2006 target for this measure was estimated based on previous calculations made during the 2006 

budget planning process and subsequent issuance of the Fiscal Year 2006 President’s Budget.

Data Source: Operations Management Reports Data Warehouse.

Performance Measure —Average CBP exam reduction ratio for C-TPAT member importers compared with 

non–C-TPAT importers.

FY 2004 Actual: N/A FY 2005 Actual: 4.1 Times Less FY 2006 Target: 3.5 Times Less

Actual FY 2006 Performance: 3.4 Times Less

Target Almost Met

The average CBP exam reduction ratio for C-TPAT member importers compared with that of non–C-TPAT 

importers demonstrates how CBP facilitates trade transactions for known, certified C-TPAT companies 

compared with non–C-TPAT importers. The benefits of thorough validations are a reduction in exams that 

translate to time-savings and reduced cost for importers. Importers have continued to work diligently to 

cooperate with CBP in this review process.

During fiscal year 2006, CBP experienced some staffing limitations that have contributed to a slightly 

missed target. However, CBP remains committed to increasing the number of supply chain specialists 

and providing the necessary resources devoted to performing C-TPAT member validations.

Note: The fiscal year 2006 target for this measure was estimated based on previous calculations made during the 2006 

budget planning process and subsequent issuance of the Fiscal Year 2006 President’s Budget.

Data Source: CBP Automated Commercial System transaction data.

Strategic Goal #5—Protecting America and Its Citizens

Performance Objective —Reduce the importation of all prohibited or illegal drugs and other materials that 

are harmful to the public or may damage the American economy.

Key Performance Measure —International air passengers in compliance with agricultural 

quarantine regulations (percentage compliant). (See page 34 for results and detailed 

discussion.)

Performance Measure —Border vehicle passengers in compliance with agricultural quarantine 

regulations (percentage compliant).

FY 2004 Actual: 96.0% FY 2005 Actual: 93.7% FY 2006 Target: 94.6%

Actual FY 2006 Performance: 92.9%
Performance Summary

Performance Section 57

Target Almost Met

This measure demonstrates the high level of compliance of land vehicle passengers with the regulations 

governing the types of agricultural products that can safely be brought into the United States. The information collected from agricultural inspections helps CBP estimate the percentage of compliance and yields 

a better understanding of the threat risk of agricultural pests and diseases entering the United States.

The goal for compliance of land border vehicle passengers with agricultural regulations for fiscal year 

2006 was almost met. High-risk ports are not yet fully staffed with trained CBP agriculture specialists, 

although CBP is diligently working toward staffing existing vacancies. Analysis indicates that higher 

rates of interceptions occurred during shifts when CBP agriculture specialists were readily available. 

CBP will maintain its current mix of programs while continuing its emphasis on filling CBP agriculture 

specialist vacancies, with a priority given to high-risk ports, and providing additional specialized agriculture training to CBP officers.

Data Source: USDA Work Accomplishment Data System (WADS) Agricultural Quarantine Inspection monitoring activities. 

Compliance rates are calculated using random statistical sampling procedures.

Performance Measure —Number of thousands of pounds of cocaine seized at the POEs.

FY 2004 Actual: 44.6 FY 2005 Actual: 42.8 FY 2006 Target: 34.4

Actual FY 2006 Performance: 53.7

Target Met

Note: The fiscal year 2006 target for this measure was estimated based on previous calculations made during the 2006 

budget planning process and subsequent issuance of the Fiscal Year 2006 President’s Budget.

Data Source: Treasury Enforcement Communication System.

Performance Measure —Number of thousands of pounds of heroin seized at the POEs.

FY 2004 Actual: 2.8 FY 2005 Actual: 2.3 FY 2006 Target: 2.4

Actual FY 2006 Performance: 2.5

Target Met

Data Source: Treasury Enforcement Communication System.

Performance Measure —Number of thousands of pounds of marijuana seized at the POEs.

FY 2004 Actual: 653 FY 2005 Actual: 531.7 FY 2006 Target: 478

Actual FY 2006 Performance: 489.3

Target Met

The above drug seizure measures represent the amount of illegal narcotics seized by or with the participation of CBP officers at the POEs from passengers, vehicles, commercial and private aircraft, vessels, 

trucks, cargo, and railcars. A consistent drug flow was assumed in establishing the targets for the 

Strategic Plan. However, changes in narcotics flow to U.S. POEs may affect actual results in comparison 

with the established targets.
58 U.S. Customs and Border Protection • Performance and Accountability Report

Performance Summary

Seizure targets are mathematically computed forecasts of what is likely to be achieved based on statistical analysis (regression analysis) using previous years’ data and do not constitute operational targets. 

CBP does not control the amount of narcotics arriving at the ports, and seizures have always been irregular over the short term. When various smuggling trends are downward, as the trends have been in the 

recent past, the forecast will be downward.

Although it is difficult to quantify the impact of CBP enforcement actions as a deterrent over the past 

several years, our enforcement posture has increased substantially. The numbers of overall vehicle and 

cargo exams have increased dramatically. We have greatly increased the numbers and types of NII equipment for cargo and mail enforcement, all of which are very effective at detecting cocaine, heroin, and 

marijuana. CBP will continue to maximize resources applied to narcotics detection.

Note: The fiscal year 2006 target for this measure was estimated based on previous calculations made during the 2006 

budget planning process and subsequent issuance of the Fiscal Year 2006 President’s Budget.

Data Source: Treasury Enforcement Communication System.

Performance Objective —Provide support to protect events and key assets of national interest, and 

mitigate the risks of terrorism and other threats to critical Government operations.

Key Performance Measure —Percentage of no-launches to prevent acts of terrorism and other 

illegal activities arising from unlawful movement of people and goods across the borders of the 

United States. (See page 35 for results and detailed discussion.)

Strategic Goal #6—Modernizing and Managing

Performance Objective —Improve budgeting and financial processes, policies, and systems, ensuring 

accurate, reliable allocation of and accounting for expenditure of funds; collection of revenues; and 

maintenance of reliable, timely, and accurate financial data for decision-making and reporting.

Key Performance Measure —Percent of trade accounts with access to ACE functionality to 

manage trade information. (See page 36 for results and detailed discussion.)

Performance Objective —Maintain a reliable, stable, and secure IT infrastructure and an array of 

tech­nical support services, including laboratory and scientific services, tactical radio communication, 

field equipment maintenance/support, and round-the-clock customer assistance.

Key Performance Measure —Percentage of time the Treasury Enforcement Communication 

System is available to end-users. (See page 37 for results and detailed discussion.)
Financial Section
60 U.S. Customs and Border Protection • Performance and Accountability Report

Message from the Chief Financial Officer

Today, more than ever, the mission of U.S. Customs and Border Protection (CBP) 

is critical to the protection of our loved ones and the entire Nation. There are few 

missions in the Federal Government that are more important. With this in mind, 

CBP must be equipped to face the future challenges in its operating environment. In the coming years, CBP will likely be impacted by changes in resources, 

leadership, the workforce, and new developments in technology. As an organization, we must continue to be proactive. 

The Office of Finance (OF) has a significant role in achieving the CBP mission. As 

a mission support organization, OF is responsible for providing CBP with the resources and services necessary to carry out its mission. In order to support CBP through future challenges, OF is continuously 

striving for excellence in financial management. Within the OF Strategic Plan, we have identified four 

major strategic goals that will help improve the way we do business. First, by focusing on customer service and communication, we can strengthen our customer relationships and ensure that we are providing 

the right information for our customers to do their jobs. Secondly, we are streamlining our operations by 

documenting and reengineering our business processes. Thirdly, we are leveraging our technologies, 

which will strengthen our ability to provide the best financial management in the Federal Government. 

Finally, by implementing human capital initiatives, we are ensuring that we have the best personnel with 

the skills and knowledge necessary to succeed in their jobs. 

By working toward these goals, we will provide better financial management for CBP. Since initiating the 

OF Strategic Plan, we have already begun seeing improvements in financial management. In fiscal year 

2006, CBP received an unqualified (clean) opinion on its financial statements. The unqualified opinion on 

our fiscal year 2006 financial statements strongly indicates that CBP continues to demonstrate discipline and accountability in the execution of our fiscal responsibilities as stewards of CBP programs. 

We are in the process of correcting issues identified by internal management evaluations in support of 

CBP’s Management Assurances as well as auditor-identified weaknesses in internal controls reported 

this year and can provide reasonable assurance that the objectives of Section 2 (Management Controls) 

and Section 4 (Financial Management Systems) of the Federal Managers’ Financial Integrity Act have 

been achieved. CBP is committed to addressing all of our financial management challenges by implementing immediate measures toward corrective action to improve our oversight and accountability. 

As part of CBP’s continuing efforts to modernize its financial systems, an enterprise resource planning 

system solution, Systems, Applications, and Products (SAP) has been successfully implemented and is 

now beginning its third year of operation. SAP provides the tools for enhanced customer service and 

facilitates a shift in the role of finance from a transaction process/record-keeping function to a more 

analytical and integrated decision-making function. CBP utilizes SAP as an integrated solution for its 

asset management, procurement, finance, budget and reporting business processes. 
Financial Section 61

CBP continues to provide oversight and direction for continued successful implementation of shared 

services and the development of any new shared service agreements to ensure that all programmatic 

support issues and problems are identified and resolved expeditiously. CBP led efforts to complete 

fiscal year 2006 tri-bureau agreements to promptly implement service delivery in the areas of human 

resources management, safety and health, fleet management, printing and graphics, forms management, construction, and facilities leasing. CBP developed procedures and set up roles in SAP to enable 

the efficient establishment and smooth operations of shared services for property and other business 

areas. 

In the upcoming year, CBP will continue to focus on the initiatives related to the President’s Management 

Agenda, fulfill the requirements of the Department of Homeland Security’s Financial Accountability Act, 

continue with the implementation of Automated Commercial Environment and continue to make improvements in CBP’s internal controls. Our goal remains to provide timely, reliable, and useful financial management information to Congress and to the American public. 

Richard L. Balaban 

Chief Financial Officer 
62 U.S. Customs and Border Protection • Performance and Accountability Report

Customs and Border Protection

Consolidated Balance Sheet

As of September 30

(Dollars in Thousands)

2006 2005

ASSETS (Note 2) 

Intra-governmental

Fund Balance with Treasury (Note 3) $10,367,400 $ 8,545,942

Advances and Prepayments 174,523 62,514

Accounts Receivable (Note 5) 48,160 44,437

Other

Receivables Due from Treasury – Refund and Drawback (Note 5) 412,427 143,848

Total Intra-governmental 11,002,510 8,796,741

Cash and Other Monetary Instruments (Note 4) 5,649 6,982

Accounts Receivable, Net (Note 5) 162,707 147,298

Tax, Duties and Trade Receivables, Net (Note 6) 1,754,622 1,400,073

Operating Materials and Supplies (Note 7) 67,166 53,749

Property, Plant and Equipment, Net (Note 9) 1,924,891 1,917,722

Other 

Advances and Prepayments 605 2,642

TOTAL ASSETS $14,918,150 $12,325,207

LIABILITIES

Intra-governmental

Due to the Treasury General Fund $ 1,799,521 $ 1,419,307

Accounts Payable 122,934 86,235

Other

Accrued FECA Liability (Note 26) 118,226 160,280

Employee Benefits and Taxes 35,335 32,565

Advances from Others 7,970 4,045

Total Intra-governmental $ 2,083,986 $ 1,702,432

(Continued)

Financial Statements
Financial Section 63

The accompanying notes are an integral part of these statements.

Financial Statements

Customs and Border Protection

Consolidated Balance Sheet (continued)

As of September 30

(Dollars in Thousands)

2006 2005

Accounts Payable 377,817 300,096 300,096

Accrued Payroll and Benefits (Note 10) 926,276 880,087

Environmental Liabilities (Note 11) 15,823 43,447

Other

Refunds Payable (Note 12) 5,593,334 118,469

Advances from Others (Note 12) 199,254 4,812,831

Injured Domestic Industries (Note 12) 475,751 236,890

Software License Agreements (Note 13) 61,691 74,855

Legal Contingent Liabilities (Note 14) 62,196 61,727

TOTAL LIABILITIES $ 9,796,128 $ 8,230,834

Commitment and Contingencies (Note 14)

NET POSITION 

Unexpended Appropriations 2,971,412 2,070,402

Cumulative Results of Operations – Earmarked Funds (Note 15) 1,094,642 —

Cumulative Results of Operations – Other Funds 1,055,968 —

Total Cumulative Results of Operations 2,150,610 2,023,971

TOTAL NET POSITION $ 5,122,022 $ 4,094,373

TOTAL LIABILITIES AND NET POSITION $14,918,150 $12,325,207
64 U.S. Customs and Border Protection • Performance and Accountability Report

The accompanying notes are an integral part of these statements.

Financial Statements

Customs and Border Protection

Consolidated Statement of Net Cost

For the Year Ended September 30

(Dollars in Thousands)

2006

Office of Field Operations Border Security Inspections and Trade 

Facilitation at Ports of Entry 

Gross Cost (Note 16) $4,693,579

Less: Earned Revenue 195,216

Net Program Costs $4,498,363

Border Security and Control Between Ports of Entry

Gross Cost (Note 16) $2,250,496

Less: Earned Revenue 93,603

Net Program Costs $2,156,893

Air and Marine Operations

Gross Cost (Note 16) $ 350,887

Less: Earned Revenue 14,594

Net Program Costs $ 336,293

Net Cost of Operations (Note 17) $6,991,549
Financial Section 65

Financial Statements

Customs and Border Protection

Consolidated Statement of Changes in Net Position

As of September 30

(Dollars in Thousands)

FY 2006

Earmarked 

Funds

All Other 

Funds

Consolidated 

Total

Cumulative Results of Operations:

Beginning Balances $ 1,057,701 $ 966,270 $ 2,023,971 2,023,971

Budgetary Financing Sources:

Appropriations Used — 4,460,061 4,460,061

Non-exchange Revenue (Note 18) 2,367,316 5,289 2,372,605

Transfers in/out without Reimbursement (Note 18) (1,469,510) 1,609,860 140,350

Other (Note 18) — (153,327) (153,327)

Other Financing Sources:

Donations and Forfeitures of Property — 6,497 6,497

Transfers in/out without Reimbursement 49 40,879 40,928

Imputed Financing from Costs Absorbed by Others — 251,074 251,074

Total Financing Sources 897,855 6,220,333 7,118,188

Net Cost of Operations (860,914) (6,130,635) (6,991,549)

Net Change 36,941 89,698 126,639

Cumulative Results of Operations $ 1,094,642 $ 1,055,968 $ 2,150,610

Unexpended Appropriations:

Beginning Balance $ — $ 2,070,402 2,070,402 $ 2,070,402

Budgetary Financing Sources:

Appropriations Received — 5,440,771 5,440,771

Appropriations Transferred in/out — (15) (15)

Other Adjustments — (79,685) (79,685)

Appropriations Used — (4,460,061) (4,460,061)

Total Budgetary Financing Sources — 901,010 901,010

Unexpended Appropriations — 2,971,412 2,971,412

Net Position $ 1,094,642 $ 4,027,380 $ 5,122,022

The accompanying notes are an integral part of these statements.
66 U.S. Customs and Border Protection • Performance and Accountability Report

Financial Statements

Customs and Border Protection

Combined Statement of Budgetary Resources

For the Year Ended September 30

(Dollars in Thousands)

2006

Budgetary Resources (Note 25)

Unobligated Balances Brought Forward, October 1 $ 1,724,244

Recoveries of Prior Year Obligations 217,202

Budget Authority:

Appropriations 9,253,801

Spending Authority from Offsetting Collections:

Earned:

Collected 1,290,526

Change in Receivable From Federal Sources 9,849

Change in Unfilled Customer Orders:

Advance Received 1,400

Without Advance From Federal Sources 42,063

Expenditure Transfers From Trust Funds 3,000

Subtotal 10,600,639

Non-Expenditure Transfers from Trust Funds 243,863

Permanently Not Available (162,676)

Total Budgetary Resources $12,623,272

Status of Budgetary Resources

Obligations Incurred:

Direct (Note 19) $ 9,032,372

Reimbursable (Note 19) 1,295,357

Total Obligations Incurred 10,327,729

Unobligated Balance:

Apportioned 293,495

Exempt from Apportionment 328

Subtotal 293,823

Unobligated Balance Not Available 2,001,720

Total Status of Budgetary Resources $12,623,272

(Continued)
Financial Section 67

The accompanying notes are an integral part of these statements.

Financial Statements

Customs and Border Protection

Combined Statement of Budgetary Resources (continued)

For the Year Ended September 30

(Dollars in Thousands)

2006

Change in Obligated Balances

Obligated Balance, Net

Unpaid Obligations Brought Forward, October 1 $ 2,397,626

Less: Uncollected Customer Payments from Federal Sources, 

Brought Forward from October 1 (323,029)

Total Unpaid Obligated Balance, Net 2,074,597

Obligations Incurred, Net 10,327,729

Less: Gross Outlays (9,440,979)

Less: Recoveries of Prior Year Unpaid Obligations (217,202)

Change In Uncollected Customer Payments From Federal Sources (51,912)

Obligated Balance, Net End Of Period

Unpaid Obligations 3,067,174

Less: Uncollected Customer Payments From Federal Sources (374,941)

Total, Unpaid Obligated Balance, Net, End Of Period 2,692,233

Net Outlays

Gross Outlays 9,440,979

Less: Offsetting Collections (1,294,926)

Less: Distributed Offsetting Receipts (2,347,944)

Net Outlays $ 5,798,109 
68 U.S. Customs and Border Protection • Performance and Accountability Report

Financial Statements

Customs and Border Protection

Consolidated Statement of Financing

For the Year Ended September 30

(Dollars in Thousands)

2006

Resources Used to Finance Activities:

Budgetary Resources Obligated

Obligations Incurred $10,327,729

Less: Spending Authority from Offsetting Collections and 

Recoveries 1,564,040

Obligations Net of Offsetting Collections and Recoveries 8,763,689

Less: Offsetting Receipts 2,347,944

Net Obligations 6,415,745

Other Resources

Donations and Forfeiture of Property 6,497

Transfers in/out Without Reimbursement 40,928

Imputed Financing from Costs Absorbed by Others 251,074

Net Other Resources Used to Finance Activities 298,499

Total Resources Used to Finance Activities $ 6,714,244

Resources Used to Finance Items Not Part of the Net Cost of 

Operations

Change in Budgetary Resources Obligated for Goods, Services and 

Benefits Ordered, but not yet Provided $ 577,971

Resources that Fund Expenses Recognized in Prior Periods 88,339

Budgetary Offsetting Collections and Receipts that do not Affect 

Net Cost of Operations

Other (2,346,273)

Resources that Finance the Acquisition of Assets or Liquidation of 

Liabilities 504,401

Other Resources or Adjustments to Net Obligated Resources that 

do not Affect Net Cost of Operations (Note 28) 1,247,955

Total Resources Used to Finance Items Not Part of the Net Cost 

of Operations $ 72,393

Total Resources Used to Finance the Net Cost of Operations $ 6,641,851

(Continued)
Financial Section 69

The accompanying notes are an integral part of these statements.

Financial Statements

Customs and Border Protection

Consolidated Statement of Financing (continued)

For the Year Ended September 30

(Dollars in Thousands)

2006

Components of the Net Cost of Operations that will not Require or 

Generate Resources in the Current Period:

Components Requiring or Generating Resources in Future Periods

Increase in Annual Leave Liability (Note 10) $ 21,099

Other 31,514

Total Components of Net Cost of Operations that will Require or 

Generate

$ 52,613

Components not Requiring or Generating Resources

Depreciation and Amortization $ 319,630

Revaluation of Assets or Liabilities 173

Other (22,718)

Total Components of Net Cost of Operations that will not Require 

or Generate

$ 297,085

Total Components of Net Cost of Operations That Will Not Require 

or Generate Resources in the Current Period $ 349,698

Net Cost of Operations $ 6,991,549
70 U.S. Customs and Border Protection • Performance and Accountability Report

The accompanying notes are an integral part of these statements.

Financial Statements

Customs and Border Protection

Consolidated Statement of Custodial Activity

For the Year Ended September 30

(Dollars in Thousands)

2006

Revenue Activity:

Sources of Cash Collections:

Duties $24,729,875

User Fees 1,241,961

Excise Taxes 2,426,725

Fines and Penalties 51,224

Interest 8,649

Miscellaneous 11,431

Total Cash Collections 28,469,865

Accrual Adjustments (+/-) (5,371,096)

Total Custodial Revenue $23,098,769

Transferred to Others:

Treasury General Fund Accounts $27,137,083

U.S. Department of Agriculture 126,608

Other Federal Agencies 16,661

Government of Puerto Rico 14,424

Government of the U.S. Virgin Islands 6,435

Refunds and Drawbacks 1,160,051

Non-federal Other 8,603

Change in Amounts Yet to be Transferred (5,371,096)

Total Disposition of Custodial Revenue 23,098,769

Net Custodial Activity $ —
Notes to Financial Statements

Financial Section 71

Notes to Financial Statements

1. Summary of Significant Accounting Policies

Reporting Entity

U.S. Customs and Border Protection (CBP), with headquarters in Washington, D.C., was created on 

March 1, 2003, and is a bureau of the U.S. Department of Homeland Security (DHS). CBP is the unified 

border agency whose priority mission is the prevention of terrorist and terrorist weapons from entering 

the U.S. CBP is also responsible for administering the U.S. Trade Program and U.S. Narcotics Enforcement Program. CBP meets these responsibilities by: (1) enforcing the laws governing the flow of merchandise or commerce across the borders of the U.S., (2) assessing and collecting duties, taxes and 

fees on imported and other goods and services, and (3) enforcing drug-related and other laws and regulations of the U.S. on behalf of Federal agencies and/or in conjunction with various state, local, and 

other Federal agencies and foreign countries.

Substantially all of the duty, tax, and fee revenues collected by CBP are remitted to various general fund 

accounts maintained by Treasury. Treasury further distributes these revenues to other Federal agencies 

in accordance with various laws and regulations. CBP transfers the remaining revenue (generally less 

than two percent of revenues collected) directly to other Federal agencies, the Governments of Puerto 

Rico and the U.S. Virgin Islands. Refunds of revenues collected from import/export activity are recorded 

in separate accounts established for this purpose and are funded through permanent indefinite appropriations. These activities reflect the non-entity or custodial responsibilities that CBP, as an agency of 

the Federal Government, has been authorized by law to enforce.

Basis of Accounting and Presentation

These financial statements have been prepared from CBP accounting records in conformity with generally accepted accounting principles (GAAP). GAAP for federal entities are the standards prescribed by the 

Federal Accounting Standards Advisory Board, which was designated the official accounting standardsetting body of the Federal Government by the American Institute of Certified Public Accountants. The 

statements consist of the Consolidated Balance Sheet, the Consolidated Statement of Net Cost, the 

Consolidated Statement of Changes in Net Position, the Combined Statement of Budgetary Resources, 

the Consolidated Statement of Financing and the Consolidated Statement of Custodial Activity.

These financial statements should be read with the realization that they are for a component of a sovereign entity, that liabilities not covered by budgetary resources cannot be liquidated without the enactment of an appropriation, and that payment of liabilities other than for contracts can be abrogated by the 

sovereign entity.

These financial statements, with respect to the Consolidated Balance Sheet, the Consolidated Statement of Net Cost and the Consolidated Statement of Changes in Net Position, are reported using the 

accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when 

earned and expenses are recognized when a liability is incurred without regard to receipt or payment of 

cash. The Combined Statement of Budgetary Resources is reported using the budgetary basis of 

accounting. Budgetary accounting facilitates compliance with legal constraints and controls over the use 
Notes to Financial Statements

72 U.S. Customs and Border Protection • Performance and Accountability Report

of federal funds. It generally differs from the accrual basis of accounting in that obligations are recognized when new orders are placed, contracts awarded and services received that will require payments 

during the same or future period. The Consolidated Statement of Financing reconciles differences 

between the budgetary and accrual bases of accounting. CBP non-entity revenue and refunds are 

reported on the Consolidated Statement of Custodial Activity using a modified cash basis. With this 

method, revenue from cash collections are reported separately from receivable accruals and cash disbursements are reported separately from payable accruals.

In accordance with OMB Circular A-136, intra-CBP transactions and balances have been eliminated from 

the Consolidated Balance Sheet, Consolidated Statement of Net Cost, and the Consolidated Statement 

of Changes in Net Position. As provided for by OMB Circular A-136, the Combined Statement of Budgetary Resources is presented on a combined basis, therefore, intra-CBP transactions and balances have 

not been eliminated from this statement. In accordance with OMB Circular A-136, intra-CBP transactions 

and balances have been eliminated from all the amounts on the Consolidated Statement of Financing, 

except for obligations incurred and spending authority from offsetting collections and adjustments, which 

are presented on a combined basis.

Earmarked Funds

In 2006, CBP accounted for revenues and other financing sources for earmarked funds separately from 

other funds. This new method was adopted in accordance with the provisions of Statement of Federal 

Financial Accounting Standards (SFFAS) No. 27, Identifying and Reporting Earmarked Funds, which 

became effective October 1, 2005. This new standard amended SFFAS No. 7, Revenue and Other Financing Sources, by:

Elaborating the special accountability needs associated with dedicated collections; separating dedicated collections into two categories, earmarked and fiduciary activity; and defining and providing 

accounting and reporting guidance for earmarked funds.

In accordance with SFFAS No. 27, CBP did not restate the prior period columns of the consolidated financial statements and related disclosures. See Note 15, Earmarked Funds, for specific required disclosures related to CBP’s earmarked funds.

CBP has program management responsibility for the following earmarked funds:

Appropriation Title

70X5087 CBP - Immigration User Fees

70X5695 Customs User Fees Account

70X5089 Land Border Inspection Fees

70X5451 Enforcement Fines Account

70X5694 Small Airport User Fees

70X8870 Harbor Maintenance Fee Collections
Notes to Financial Statements

Financial Section 73

Assets and Liabilities

Intra-governmental assets and liabilities result from activity with other Federal agencies. All other assets 

and liabilities result from activity with parties outside the Federal Government, such as domestic and 

foreign persons, organizations or governments.

Fund Balance with Treasury, Cash and Other Monetary Assets

Entity Fund Balance with Treasury are the amounts remaining as of September 30, 2006 and 2005 from 

which CBP is authorized to make expenditures and pay liabilities resulting from operational activity, 

except as restricted by law. Non-entity Fund Balance with Treasury represents funds available to pay 

refunds and drawback claims of duties, taxes, fees, and other non-entity amounts to be distributed to 

the Treasury General Fund and other Federal accounts in a future period.

Undeposited cash collections represent monies to be distributed in a future period. A timing difference 

occurs when cash is received and applied to a specific revenue type in one period, and the deposit and 

distribution of funds occurs in a future period. Monetary instruments are held by CBP in lieu of an 

importer/broker filing a surety bond. Corresponding liabilities are recorded for amounts expected to be 

allocated in future periods to Federal agencies.

Advances and Prepayments

Intra-governmental advances and prepayments consist of amounts paid to Federal agencies prior to CBP 

receipt of goods and services. Advances and prepayments to the public consist primarily of prepaid rent.

Accounts Receivable

Intra-governmental accounts receivable represent amounts due from Federal agencies. These receivables are expected to be fully collected. Accounts receivable from reimbursable services and user fees 

represent amounts due from non-federal sources for services performed. These receivables are net of 

amounts deemed uncollectible which are determined by considering the debtor’s current ability to pay, 

the debtor’s payment record and willingness to pay, the probable recovery of amounts from secondary 

sources, such as sureties, and an analysis of aged receivable activity. The user fee receivable is based 

on a calculated estimate using historical user fee receivables.

Receivable Due From Treasury and Due to the Treasury General Fund

The Receivable Due From Treasury represents amounts to be provided by Treasury to fund accrued liabilities of duty, tax and/or fee refunds and drawbacks. Due to the Treasury General Fund is the offsetting 

liability to non-entity collections and non-entity receivables. 

Tax, Duties and Trade Receivables

Accounts receivable consist of duties, user fees, fines and penalties, refunds and drawback overpayments, and interest associated with import/export activity, which have been established as a specifically 

identifiable, legally enforceable claim and remain uncollected as of year-end. These receivables are net 

of amounts deemed uncollectible which were determined by considering the debtor’s payment record 

and willingness to pay, the probable recovery of amounts from secondary sources, such as sureties, and 
Notes to Financial Statements

74 U.S. Customs and Border Protection • Performance and Accountability Report

an analysis of aged receivable activity. CBP’s accounting policy for non-entity receivables is described in 

more detail in Note 6, Tax, Duties and Trade Receivables, Net.

Operating Materials and Supplies

Operating Materials and Supplies consist of aircraft and marine parts and materials to be used in CBP’s 

operations. Aircraft parts and materials are recorded at average unit cost, and marine parts and materials are recorded using the First-In-First-Out valuation method. Both methods approximate actual acquisition costs. When ultimately used in CBP operations, an operating expense is recorded.

Seized and Forfeited Property

Prohibited seized and forfeited property results primarily from CBP criminal investigations and passenger/cargo processing. Seized property is not considered an asset of CBP and is not reported as such in 

CBP’s financial statements; however, CBP has a stewardship responsibility until the disposition of the 

seized items are determined. Non-prohibited seized property, including monetary instruments, real property and tangible personal property of others in the actual or constructive possession of CBP will be 

transferred to the Treasury Forfeiture Fund and is not presented in the accompanying CBP Balance 

Sheet.

Forfeited property is property for which the title has passed to the U.S. Government. As noted above, 

non-prohibited forfeited property or currency becomes assets of the Treasury Forfeiture Fund. However, 

prohibited forfeited items, such as counterfeit goods, narcotics, or firearms, are held by CBP until disposed or destroyed. In accordance with Statement of Federal Financial Accounting Standards (SFFAS) 

No. 3, Accounting for Inventory and Related Property, analyses of changes in seized and forfeited property 

of prohibited items are disclosed in Note 8.

CBP will also take into custody, without risk or expense, merchandise termed “general order property” 

which for various reasons cannot legally enter into the commerce of the United States. CBP’s sole 

responsibility for the general order property is to ensure the property does not enter into U.S. commerce. 

If general order property remains in CBP custody for a prescribed period of time, without payment of all 

estimated duties, storage and other charges, the property is considered unclaimed and abandoned and 

can be sold by CBP at public auction. Auction sales revenue in excess of charges associated with the 

sale or storage of the item is remitted to the Treasury General Fund. In some cases, CBP incurs charges 

prior to the sale and funds these costs from entity appropriations. Regulations permit CBP to offset 

these costs of sale before returning excess amounts to Treasury.

Property, Plant and Equipment

CBP capitalized property, plant and equipment with an acquisition value of $5,000 or greater and a useful life of 2 years or greater if acquired prior to October 1, 1995. Beginning October 1, 1995, CBP capitalizes property, plant and equipment with an acquisition value of $50,000 or greater, and a useful life of 

2 years or greater. The property, plant, and equipment assets acquired by CBP from the former Immigration and Naturalization Service as part of the formation of the Department of Homeland Security were 

capitalized if the acquisition value was $25,000 or greater. As of October 1, 2000, CBP implemented 

SFFAS No. 10, Accounting for Internal Use Software. SFFAS No. 10 requires the capitalization of all internal use software, including commercial off-the-shelf, contractor developed and internally developed soft-
Notes to Financial Statements

Financial Section 75

ware. As a result, CBP began capitalizing costs associated with the development of internal use software. In addition, CBP implemented the SFFAS No. 10 recommendation to apply capital lease accounting 

concepts to software license fee agreements that give CBP the “right to use” the software. Prior to October 1, 2000, costs relating to the development of internal use software and “right to use” license agreements were expensed. 

Expenditures for normal repairs and maintenance are charged to expense as incurred. Expenditures 

greater than $50,000 for improving or rebuilding an asset and that increase an asset’s useful life are 

capitalized. Prior to October 1, 1995, expenditures greater than $5,000 for improving or rebuilding an 

asset and that increased an asset’s useful life were capitalized. 

Depreciation and amortization are computed using the straight line method over the estimated useful 

lives of the assets ranging from 2 to 30 years for equipment and software, 2 to 30 years for leasehold 

improvements, and 6–40 years for buildings, structures and land improvements. Amortization of capitalized software begins on the date of acquisition if purchased or when the module or component has been 

successfully tested if contractor or internally developed.

Commercial/Travel Payable

A liability is recorded for an accounts payable accrual from commercial/travel activities. A portion of this 

liability is determined using a calculated estimate. This estimate is based on a ratio developed using 

historical subsequent disbursements and undelivered orders and applying the ratio to the undelivered 

orders as of September 30, 2006 and 2005. 

Other Non-Entity Items in CBP Custody

CBP has the authority, in accordance with provisions of the Federal Crime Code and Federal Rules of 

Criminal Procedures, to retain property within its custody for evidentiary purposes. Because this property 

is not seized under seizure and forfeiture laws, it cannot become property of the U.S. Government and is 

intended to be returned to the owner at some future date. This evidence is not disclosed in the financial 

statements or a related note as the amount is not significant, but does represent a fiduciary responsibility of CBP.

Accrued Annual, Sick and Other Leave and Compensatory Time

Annual leave, compensatory time and other leave time are accrued when earned. The accrual is presented as a component of the payroll and benefits liability in the balance sheet and is adjusted for 

changes in compensation rates and reduced for annual leave taken. Sick leave is not accrued when 

earned, but is expensed when taken. For additional information see Note 10, Accrued Payroll and 

Benefits.

Pension Costs, Other Retirement Benefits and Other Post-Employment Benefits

Most CBP employees hired prior to January 1, 1984 participate in the Civil Service Retirement System 

(CSRS). CBP contributes 8.5 percent of base pay for regular employees, and 9 percent for law enforcement agents. Employees hired after December 31, 1983 are automatically covered by the Federal 

Employees’ Retirement System (FERS) and Social Security. A primary feature of FERS is that it offers a 
Notes to Financial Statements

76 U.S. Customs and Border Protection • Performance and Accountability Report

savings plan to which CBP automatically contributes 1 percent of base pay and matches any employee 

contributions up to an additional 4 percent of base pay. For most employees hired after December 31, 

1983, CBP also contributes the employee’s matching share for Social Security. For the FERS basic benefit CBP contributes 11.2 percent of base pay for regular employees and 23.8 percent for law enforcement agents. The pay base for determining CBP contributions to CSRS and FERS for inspectors and 

canine officers includes regular pay and up to a maximum of $17,500 in certain overtime earnings for FY 

2006 and 2005. CBP recognizes the full costs of its employees’ pension benefits; however, the liability 

associated with these costs is recognized by the Office of Personnel Management (OPM). 

Similar to Federal retirement plans, OPM, rather than CBP, reports the liability for future payments to 

retired employees who participate in the Federal Employees Health Benefits Program and the Federal 

Employees Group Life Insurance Program. 

A liability for other post-employment benefits, which includes all types of benefits to former or inactive 

(but not retired) employees, their beneficiaries, and covered dependents, is also recognized. For additional information see Note 10, Accrued Payroll and Benefits.

Workers’ Compensation

A liability is recorded for actual and estimated future payments to be made for workers’ compensation 

pursuant to the Federal Employees’ Compensation Act (FECA). The actual liability is presented as a component of intra-governmental other liabilities and the actuarial liability is presented within accrued payroll 

and benefits in the accompanying Balance Sheet. The FECA program is administered by the U.S. Department of Labor (DOL), which initially pays valid claims and subsequently seeks reimbursement from Federal agencies employing the claimants. Reimbursement to DOL on payments made usually occurs 

approximately two years subsequent to the actual disbursement. Budgetary resources for this intra-governmental liability are made available to CBP as part of its annual appropriation from Congress in the 

year in which the reimbursement takes place.

Additionally, the actuarial liability due to the public includes the expected liability for death, disability, 

medical and miscellaneous costs for approved compensation cases. The liability is determined using a 

method that utilizes historical benefit payment patterns related to a specific incurred period to predict 

the ultimate payments related to that period. Based on information provided by DOL, DHS allocates the 

actuarial liability to its bureaus and department offices based on the payment history for the bureaus 

and department offices. The accrued liability is not covered by budgetary resources and will require 

future funding.

Unexpended Appropriations

Unexpended appropriations represent the amount of CBP unexpended appropriated spending authority 

as of fiscal year-end that is unliquidated or is unobligated and has not lapsed, been rescinded or 

withdrawn.

Cumulative Results of Operations

Cumulative results of operations primarily represent the excess of user fee revenues over related 

expenses. It also reflects the net investment in property and equipment, operating materials and sup-
Notes to Financial Statements

Financial Section 77

plies held for use, and transfers in of equipment, materials and supplies from other Federal agencies 

without reimbursement. Also, included as a reduction in cumulative results of operations, are liabilities 

incurred, which will require funding from future appropriations, such as accumulated annual and other 

leave earned but not taken, accrued workers’ compensation and contingent liabilities. The portion of 

cumulative results of operations attributable to earmarked funds is shown separately on both the Statement of Changes in Net Position and the Balance Sheet. For additional information see Note 15, Earmarked Funds.

Revenue, Financing Sources and Expense Recognition

CBP entity activities are financed principally through appropriations, exchange revenue and non-exchange 

revenue. Appropriations used are recognized as a financing source when expenses are incurred or 

assets are purchased. Exchange revenues from reimbursable services and intra-governmental reimbursable activity are recognized as earned when the good or service is provided and reflect the full cost of 

the good or service provided. Non-exchange revenue from user fees is recognized as earned in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. CBP may retain 

the user fee revenues and expend them as authorized by law for CBP inspector overtime and other activities directly related to the services to which the fees relate. An imputed financing source is also recognized to offset costs incurred by CBP but funded by another federal source, generally in the period in 

which the cost was incurred. Expenses are recognized when goods or services are received, when inventory is used, or assets depreciated or amortized.

The FY 2006 activities reported on the Consolidated Statement of Net Cost contain all resource costs 

assigned from CBP cost centers. All field operational cost centers were surveyed for time spent in the 

Passenger Processing, Trade Compliance, Outbound Operations and field Mission Support activities. For 

enforcement operational cost centers, the time spent in the activities was extracted from the Customs 

Electronic Data Warehouse. Time reported by the field and enforcement operational cost centers is also 

used to assign mission support and overhead costs to “front-line” activities.

Non-entity Revenue is recognized when the cash CBP is entitled to collect on behalf of the Federal Government is received. Primarily, these revenue collections result from current fiscal year activities. The 

significant types of revenues collected and related disbursements are described below:

• Duties: amounts collected on imported goods.

• User fees: amounts designed to maintain U.S. harbors, and to defray the cost of other miscellaneous 

service programs.

• Excise taxes: amounts collected on imported distilled spirits, wines and tobacco products, and other 

miscellaneous taxes collected on behalf of the Federal Government.

• Fines and penalties: amounts collected for violations of laws and regulations.

• Refunds: payments made to importers/exporters is primarily identified when the import entry is 

liquidated, a process in which CBP makes final determination of duties, taxes, fees and interest owed 

on the entry and compares it to the estimated amount previously determined and paid by the 

importer/broker. Interest is included in the refund generally for the period of time between when the 

estimated amounts were received from the importer/broker and the time the entry is liquidated. When 
Notes to Financial Statements

78 U.S. Customs and Border Protection • Performance and Accountability Report

a refund is identified prior to liquidation, the refund from this remittance is funded from the duty, tax 

or fee collections rather than from the Refunds and Drawback Account.

• Drawback: a remittance, in whole or in part, of duties, taxes or fees. Drawback typically occurs when 

the imported goods on which duties, taxes or fees have been previously paid and subsequently 

exported from the United States or destroyed prior to entering the commerce of the United States. 

Depending on the type of claim, the claimant has up to six or eight years from the date of importation 

to file for drawback.

A financing source for refunds and drawback is recognized when payment is made. The financing source, 

representing permanent, indefinite appropriations accounts used to fund the disbursement, is recorded 

as a decrease in the amount transferred to Treasury General Fund Accounts reported on the Statement 

of Custodial Activity.

An accrual adjustment is included to adjust cash collections and refund disbursements with the net 

increase or decrease of accrued Non-entity Accounts Receivables, net of uncollectible amounts and 

refunds payable.

CBP will also take into custody, without risk or expense, merchandise termed “general order property”, 

which for various reasons cannot be legally entered into the U.S. commerce. CBP sole responsibility for 

the general order property is to ensure it does not enter the commerce of the United States. If general 

order property remains in CBP custody for a prescribed period of time, without payment of all estimated 

duties, storage and other charges, it is considered unclaimed and abandoned and can be sold by CBP at 

public auction. Auction sales revenue in excess of charges associated with the sale or storage of the 

item is remitted to the Treasury General Fund. In some cases, CBP incurs charges prior to the sale and 

funds these costs from entity appropriations. Regulations permit CBP to offset these costs of sale 

before returning excess amounts to Treasury. Proceeds from the sale of general order property totaled 

$9 million and $7 million for the years ended September 30, 2006 and 2005, respectively. Excess 

amounts returned to the Treasury General Fund average $1 million.

Use of Estimates

Management has made certain estimates and assumptions in the reporting of assets, liabilities and 

note disclosures in the Consolidated Balance Sheet, the Consolidated Statement of Net Cost, the Consolidated Statement of Changes in Net Position, the Combined Statement of Budgetary Resources, the 

Consolidated Statement of Financing, the Consolidated Statement of Custodial Activity and accompanying notes. Actual results could differ from these estimates. Significant estimates include: year-end accruals of accounts payable, contingent legal and environmental liabilities, accrued workers’ compensation, 

allowance for doubtful accounts receivable, retirement and post-retirement benefits assumptions and 

certain non-entity receivables and payables related to custodial activities.

Taxes

CBP, as a Federal bureau, is not subject to Federal, state or local income taxes and accordingly, no provision for income taxes has been recorded in the accompanying financial statements.
Notes to Financial Statements

Financial Section 79

Reclassifications

Certain FY 2005 balances have been reclassified, re-titled, or combined with other financial statement 

line items for consistency with current year presentation.

2. Non-Entity Assets

Non-entity assets as of September 30, 2006 and 2005, consist of the following (in thousands):

2006 2005

Intra-governmental

 Fund Balance with Treasury (Note 3) $ 5,944,570 $ 5,062,751 

 Receivables Due from Treasury (Note 5) 412,427 143,848

Total Intra-governmental 6,356,997 5,206,599

Public

Tax, Duties and Trade Receivables, Net (Note 6) 1,754,622 1,400,073

Cash and Other Monetary Instruments (Note 4) 5,305 6,350

Property, Plant and Equipment, Net 2,628 6,156

Total Public 1,762,555 1,412,579

Total Non-Entity Assets 8,119,552 6,619,178

Total Entity Assets 6,798,598 5,706,029

Total Assets $14,918,150 $12,325,207

Non-entity Fund Balance with Treasury as of September 30, 2006 and 2005 includes approximately 

$5.2 billion and $4.6 billion (in deposit fund) in duties collected by CBP for unliquidated anti-dumping/

countervailing duties and $566 million and $316.4 million (in special fund) for Injured Domestic Industries as of September 30, 2006 and 2005, respectively. These assets offset accrued liabilities as of 

September 30, 2006 and 2005.

Non-entity Fund Balance with Treasury consists of special and deposit funds, permanent appropriations, 

and miscellaneous receipts that are available to pay non-entity liabilities. Non-entity Receivables Due 

from Treasury represent an estimate of duty, tax, and/or fee refunds and drawbacks that will be reimbursed by a permanent and indefinite appropriation account. Duties and taxes receivable from the public 

represent amounts due from importers for goods and merchandise imported to the United States and, 

upon collection, will be available to pay the accrued intra-governmental liability Due to the Treasury General Fund, which equaled $1.8 billion and $1.4 billion as of September 30, 2006 and 2005.
Notes to Financial Statements

80 U.S. Customs and Border Protection • Performance and Accountability Report

3. Fund Balance with Treasury

Fund Balance with Treasury as of September 30, 2006 and 2005 consists of the following (in 

thousands):

2006 Entity Non-Entity Totals

Appropriated Funds $3,409,454 $ 163,949 $ 3,573,403

Trust Funds 8,563 — 8,563

Special Funds 1,001,243 566,127 1,567,370

Deposit Funds 3,570 5,214,494 5,218,064

Totals $4,422,830 $5,944,570 $10,367,400

2005 Entity Non-Entity Totals

Appropriated Funds $2,500,129 $ 105,152 $ 2,605,281

Trust Funds 11,435 — 11,435

Special Funds 968,562 316,428 1,284,990

Deposit Funds 3,065 4,641,171 4,644,236

Totals $3,483,191 $5,062,751 $ 8,545,942

Appropriated funds consist of amounts appropriated annually by Congress to fund the operations of CBP. 

The non-entity appropriated fund balance represents permanent, indefinite appropriations to pay refunds 

and drawback claims of duties, taxes, or fees. The balance is presented as a non-entity balance 

because the refund and drawback payments are associated with CBP custodial activity of collecting revenue on behalf of the Federal Government.

Trust funds are both receipt accounts and expenditure accounts that are designated by law as a trust 

fund. The entity trust fund balances result from CBP authority to use the proceeds from general order 

items sold at auction to offset specific costs incurred by CBP relating to their sale, to use available 

funds in the Salaries and Expense Trust Fund to offset specific costs for expanding border and port 

enforcement activities, and to use available funds from the Harbor Maintenance Fee Trust Fund to offset 

administrative expenses related to the collection of the Harbor Maintenance Fee.

Special funds are receipt funds used for specific purposes. Entity amounts comprising the special fund 

balances result from CBP authority to assess and collect passenger and conveyance-related user fees, 

CBP authority to assess and collect fees associated with services performed at certain small airports or 

other facilities, and CBP authority to retain amounts needed to offset costs associated with collecting 

duties, taxes, and fees for the Government of Puerto Rico. As of September 30, 2006 and 2005, CBP 

User Fees Account contained approximately $761.1 million and $740.5 million, respectively; CBP Services at Small Airports account contained approximately $8 million and $5 million, respectively; and the 

Refunds, Transfers and Expenses of Operation of Puerto Rico account contained approximately $31.8 

million and $27.4 million respectively. CBP also has entity special funds for immigration user fees of 

$192.8 million and $179.4 million, land border inspection fees of $6.2 million and $8.4 million, and 

immigration enforcement account of $1.1 million and $7.8 million as of September 30, 2006 and 2005, 

respectively. Non-entity fund balance includes monies received in connection with antidumping and coun-
Notes to Financial Statements

Financial Section 81

tervailing duty orders and findings to qualifying Injured Domestic Industries of $566 million and $316.4 

million as of September 30, 2006 and 2005, respectively.

The entity deposit fund balance represents amounts received as an advance that are not accompanied 

by an order. Once the order is received the deposit fund balance is decreased. Deposit funds represent 

amounts received as an advance that are not accompanied by an order and include non-entity collections. For the fiscal year ending September 30, 2005, the majority of the deposit fund balance was for 

unliquidated antidumping and countervailing duties collected by CBP, mostly Canadian softwood lumber 

imports. For the fiscal year ending September 30, 2006, CBP reported a $5.5 billion refund payable for 

Canadian softwood lumber imports.

Status of Fund Balance with Treasury as of September 30, 2006 and 2005 consists of the following (in 

thousands):

2006 Entity Non-Entity Totals

Unobligated Balance Available $ 293,823 $5,944,570 $ 6,238,393

Unobligated Balance Unavailable 749,160 — 749,160

Obligated Balance not yet Disbursed 2,693,415 — 2,693,415

Restricted Unobligated Funds 686,432 — 686,432

Totals $4,422,830 $5,944,570 $10,367,400

2005 Entity Non-Entity Totals

Unobligated Balance Available $ 202,924 $5,062,751 $ 5,265,675

Unobligated Balance Unavailable 557,069 — 557,069

Obligated Balance not yet Disbursed 2,075,067 — 2,075,067

Restricted Unobligated Funds 648,131 — 648,131

Totals $3,483,191 $5,062,751 $ 8,545,942

Amounts reported as Unobligated Balance Unavailable and Obligated Balance not yet Disbursed will not 

match amounts reported on the Statement of Budgetary Resources due to CBP reporting all Non-entity 

Fund Balance with Treasury amounts as Unobligated Balance Available. Portions of the Unobligated 

Balance Available, Unobligated Balance Unavailable and Obligated Balance not yet Disbursed contain 

CBP’s user fees account balance of $640 million as of September 30, 2006 and 2005, which is 

restricted by law in its use to offset specific costs incurred by CBP until made available as provided in 

Appropriation Acts. 

Portions of the Unobligated Balance Unavailable include amounts appropriated in prior fiscal years that 

are not available to fund new obligations. However, it can be used for upward and downward adjustments 

for existing obligations in future years. 

The Obligated Balance not yet Disbursed represents amounts designated for payment of goods or 

services ordered but not received or goods and services received but for which payment has not yet 

been made. 
Notes to Financial Statements

82 U.S. Customs and Border Protection • Performance and Accountability Report

CBP returned to Treasury $83 million and $23.4 million for indefinite no-year authority and $1.9 million 

in authority for obligations pursuant to public law during both the years ending September 30, 2006 and 

2005. 

In accordance with Public Law 101-510, CBP is required to automatically cancel obligated and unobligated balances of appropriated funds five years after a fund expires. Obligations that have not been paid 

at the time an appropriation is canceled may be paid from an unexpired appropriation that is available 

for the same general purpose. As of September 30, 2006, CBP canceled $20.2 million from FY 2002 

annual appropriations, of which $14.4 million was deobligated. As of September 30, 2005, CBP canceled $11.1 million from FY 2001 annual appropriations, of which $8.9 million was deobligated. Based 

on historical activity CBP estimates obligations related to canceled appropriations that will be paid from 

future appropriations, would not exceed $1 million in any fiscal year.

4. Cash and Other Monetary Instruments

Cash and Other Monetary Instruments as of September 30, 2006 and 2005, consist of the following (in 

thousands):

2006 Entity Non-Entity Totals

Imprest Funds $118 $ — $ 118

Undeposited Collections 226 4,945 5,171

Monetary Instruments — 360 360

Totals $344 $5,305 $5,649

2005 Entity Non-Entity Totals

Imprest Funds $304 $ — $ 304

Undeposited Collections 328 5,640 5,968

Monetary Instruments — 710 710

Totals $632 $6,350 $6,982

Undeposited collection balances represent timing differences between when cash relating to duties, 

taxes, fees, and other trade related collections are received and when the distribution of funds occurs. 

Cash can either be distributed to the General Fund, other Federal agencies, other governments, or 

returned to the importer/broker. The monetary instruments represent instruments importers/brokers 

provide to CBP in lieu of obtaining surety bonds. 

5. Accounts Receivable

Intra-governmental Accounts Receivable

Accounts receivable due from other Federal agencies, as of September 30, 2006 and 2005, total $48.2 

million and $44.4 million, and are considered fully collectible.
Notes to Financial Statements

Financial Section 83

Accounts Receivables, Net

Receivables from reimbursable services are recognized for work or services provided to a private party. 

By law, collections of these receivables can be credited to the appropriation accounts from which the 

related costs were paid. As of September 30, 2006 and 2005, reimbursable service receivables total 

$3 million and $18 million, and are considered fully collectible.

Title 19 of the United States Code, chapter 1, section 58c, authorizes CBP, formerly known as the 

United States Customs Service, to collect user fees for services provided in connection with the processing of commercial air and commercial vessel passengers, loaded or partially loaded railroad cars 

carrying passengers or commercial flights arriving into the customs territory as defined in general note 2 

of the Harmonized Tariff Schedule of the United States (some exceptions apply).

Receivables accrue for commercial airline and commercial vessel fees on a quarterly basis and the payments are due to CBP within thirty-one days after the close of the calendar quarter in which the fees are 

collected. Railroad car fees accrue on a monthly basis and the payments are due to CBP on or before 

the date that is 60 days after the applicable month. As of September 30, 2006 and 2005, the Customs 

user fee receivables total $72 million and $69 million, respectively, and are net of uncollectible amounts 

totaling $2 million and $3 million. 

Title 8 of the United States Code, chapter 12, subchapter II, part IX, section 1356 authorizes CBP, formerly known as the Immigration and Naturalization Service, to collect immigration user fees for inspection or pre-inspection of passengers arriving at a port of entry in the United States (as defined in Title 8, 

chapter 12, subchapter I, section 1101) aboard a commercial aircraft and commercial vessel (some 

exceptions apply). Receivables accrue for commercial airline and commercial vessel user fees on a quarterly basis. Payment is due at any time within thirty-one days after the quarter in which the fees are collected, except the July and August fees collected from airline passengers shall be made ten days before 

the end of the fiscal year. The first quarter payment shall include any collections made in the preceding 

quarter that were not remitted with the previous payment. As of September 30, 2006 and 2005, the 

Immigration user fee receivables totals $88 million and $60 million, respectively, and are net of uncollectible amounts totaling $13 million and $14 million.

Receivables Due from Treasury – Refund and Drawback

Non-entity Receivables Due from Treasury represent an estimate of duty, tax and/or fee refunds and 

drawbacks that will be reimbursed by a permanent and indefinite appropriation account and will be used 

to pay estimated duty refunds and drawbacks of $412.4 million and $143.8 million, as of September 

30, 2006 and 2005, respectively. 
Notes to Financial Statements

84 U.S. Customs and Border Protection • Performance and Accountability Report

6. Tax, Duties and Trade Receivables, Net

Receivables as of September 30, 2006 and 2005, are as follows (in thousands):

2006 

Receivable

Category

Gross 

Receivable

Amounts 

Uncollectible

Total Net 

Receivables

Duties $1,553,714 $ (117,932) $1,435,782

Excise Taxes 99,178 (5,630) 93,548

User fees 120,041 (12,864) 107,177

Fines/penalties 1,120,769 (1,071,114) 49,655

Interest 164,589 (156,361) 8,228

Anti-Dumping/

Countervailing Duties 260,929 (200,777) 60,152

Refunds and drawback 2,077 (1,997) 80

Totals $3,321,297 $(1,566,675) $1,754,622

2005 

Receivable

Category

Gross 

Receivable

Amounts 

Uncollectible

Total Net 

Receivables

Duties $1,142,830 $ (96,774) $1,046,056

Excise Taxes 87,925 (5,729) 82,196

User fees 84,533 (1,575) 82,958

Fines/penalties 1,033,688 (957,347) 76,341

Interest 120,983 (107,147) 13,836

Anti-Dumping/

Countervailing Duties 240,494 (142,126) 98,368

Refunds and drawback 1,609 (1,291) 318

Totals $2,712,062 $(1,311,989) $1,400,073

CBP assesses duties, taxes and fees on goods and merchandise brought into the United States from 

foreign countries. At the time importers bring merchandise into the United States, they are required to 

file CBP entry documents. Generally, within 10 working days after CBP releases the merchandise into the 

U.S. commerce, the importer is to submit an entry document with payment of estimated duties, taxes 

and fees. In FY 2004, CBP began implementing periodic monthly payment that requires payment of estimated duties, taxes and fees on the 15th day of the month following release. A receivable of $1.6 billion 

and $1.2 billion was recorded for 844,069 entries and 721,470 entries for merchandise released into 

commerce on or before September 30, 2006 and 2005, respectively, of which $769 million and $284 

million related to importers using the periodic monthly payment. There were an additional 4,541 entries 

and 4,370 entries for merchandise released into commerce on or before September 30, 2006 and 

2005, respectively, for which a receivable amount could not be determined because the entry summary 
Notes to Financial Statements

Financial Section 85

documentation describing the type, quantity, and value of the merchandise had not been received from 

the importers. It is CBP policy to track and demand payment of unpaid estimated duties, taxes and fees 

receivable amounts by establishing a liquidated damage case which generally results in a fines and penalty type receivable.

A fine or penalty is established when a violation of import/export law is discovered. CBP assesses a 

liquidated damage or penalty for these cases to the maximum extent of the law. After receiving the 

notice of assessment the importer or surety has 60 days to either file a petition requesting a review of 

the assessment or make payment of the assessed amount. If a petition is received and CBP finds there 

are extenuating circumstances, such as an incorrect assessment, which warrants mitigation, relief is 

granted as prescribed by CBP mitigation guidelines and directives. Until this process has been completed, CBP records an allowance on fines and penalties of approximately 95.75 percent of the total 

assessment based on historical experience of fines and penalties mitigation and collection. Duties and 

taxes receivable are non-entity assets for which there is an offsetting liability due to the Treasury General Fund. 

7. Operating Materials and Supplies

Operating Materials and Supplies consist of parts and materials to repair and maintain CBP aircraft and 

vessels used in enforcement activities. CBP holds inventory for future use only. CBP does not hold inventory in reserve or excess.

Operating Materials and Supplies as of September 30, 2006 and 2005 consist of the following (in 

thousands):

2006 2005

Aircraft $63,350 $49,658

Vessels 3,816 4,091

Totals $67,166 $53,749
Notes to Financial Statements

86 U.S. Customs and Border Protection • Performance and Accountability Report

8. Seized and Forfeited Property 

This schedule is presented for material prohibited (non-valued) seized and forfeited property only. These 

items are retained and ultimately destroyed by CBP and are not transferred to the Department of Treasury Forfeiture Fund or other Federal agencies. The ending balance for firearms includes only those 

seized items that can actually be used as firearms. Illegal drugs are presented in kilograms and a significant portion of the weight includes packaging, which often cannot be reasonably separated from the 

weight of the drugs since the packaging must be maintained for evidentiary purposes. Firearms, explosives and pornography are presented in number of items; and counterfeit currency is presented in number of bills. 

Analysis of Changes in Prohibited (Non-Valued) Seized Property, September 30, 2006

Category

Unit of 

Measurement

Balance 

October 1

New 

Seizures Remissions

New 

Forfeitures

Adjustments 

(1)

Balance 

September 30

Illegal Drugs

Cannabis 

(marijuana) Kilograms 502 439,748 0 (439,597) 84 737

Cocaine Kilograms 162 28,513 0 (28,289) (33) 353

Heroin Kilograms 26 1,345 0 (1,345) (6) 20

Firearms and Explosives

Firearms Number 2,021 1,362 (936) (1,521) (62) 864

Pornography Number 141 158 0 (138) (60) 101

(1) Adjustments are caused by changes during the fiscal year to cases on the beginning balance. For example, changes in 

quantity from the amount reported in the beginning balance. Additionally, prior year cases can change legal status or property 

type. For example, a case considered forfeited could be re-opened and changed to seized status, or a case can change a 

particular drug property type.

Analysis of Changes in Prohibited (Non-Valued) Seized Property, September 30, 2005

Category

Unit of 

Measurement

Balance 

October 1

New 

Seizures Remissions

New 

Forfeitures Adjustments

Balance 

September 30

Illegal Drugs

Cannabis 

(marijuana) Kilograms 2,176 444,751 0 (446,861) 436 502

Cocaine Kilograms 144 31,818 0 (31,345) (455) 162

Heroin Kilograms 18 1,230 0 (1,225) 3 26

Firearms and Explosives

Firearms Number 7,788 1,454 (5,798) (1,364) (59) 2,021

Pornography Number 133 213 (5) (182) (18) 141
Notes to Financial Statements

Financial Section 87

Analysis of Changes in Prohibited (Non-Valued) Forfeited Property, September 30, 2006

Category

Unit of 

Measurement

Balance 

October 1

New 

Forfeitures Transfers Destroyed

Adjustments 

(1)

Balance 

September 30

Illegal Drugs

Cannabis 

(marijuana) Kilograms 92,834 439,597 (3,167) (362,988) (68,972) 97,304

Cocaine Kilograms 21,513 28,289 (7) (29,663) (548) 19,584

Heroin Kilograms 2,104 1,345 (1) (1,242) 15 2,221

Firearms and Explosives

Firearms Number 276 1,521 (1,551) (4) 11 253

Pornography Number 39 138 0 (178) 33 32

(1) Adjustments are caused by changes during the fiscal year to cases on the beginning balance or transfer to another agency 

after forfeiture. The majority of adjustments to illegal drugs refers to forfeited cases where drugs were transferred to DEA. 

Prior year cases can change legal status or property type. For example, a case considered forfeited could be re-opened and 

changed to seized status, or a case can change a particular drug property type.

Analysis of Changes in Prohibited (Non-Valued) Forfeited Property, September 30, 2005

Category

Unit of 

Measurement

Balance 

October 1

New 

Forfeitures Transfers Destroyed Adjustments

Balance 

September 30

Illegal Drugs

Cannabis 

(marijuana) Kilograms 98,657 446,861 (641) (419,668) (32,375) 92,834

Cocaine Kilograms 17,348 31,345 (58) (26,576) (546) 21,513

Heroin Kilograms 2,545 1,225 (1) (1,664) (1) 2,104

Firearms and Explosives

Firearms Number 297 1,364 (1,307) (14) (64) 276

Pornography Number 37 182 0 (189) 9 39
Notes to Financial Statements

88 U.S. Customs and Border Protection • Performance and Accountability Report

9. Property, Plant and Equipment, Net

Property, Plant and Equipment as of September 30, 2006 and 2005 consist of the following (in 

thousands):

2006 

Categories

Useful Life

(in years)

Acquisition 

Cost

Accumulated 

Depreciation/

Amortization

Net

Book Value

Land and Land Rights N/A $ 27,690 $ — $ 27,690

Improvements to Land 6–40 28,115 (17,268) 10,847

Construction in Progress N/A 257,802 — 257,802

Buildings, Other Structures 

and Facilities (a) 6–40 512,450 (95,519) 416,931

Equipment:

ADP Equipment 5 237,000 (127,939) 109,061

Aircraft 12–20 749,566 (451,721) 297,845

Vessels 5–30 22,392 (12,072) 10,320

Vehicles 3–8 348,871 (268,022) 80,849

Other Equipment 5–15 589,536 (289,395) 300,141

Assets Under Capital Lease 2–10 10,279 (10,162) 117

Leasehold Improvements 2–30 206,690 (62,736) 143,954

Internal Use Software 5 575,045 (346,698) 228,347

Internal Use Software-in 

Development N/A 40,987 — 40,987

Totals $3,606,423 $(1,681,532) $1,924,891
Notes to Financial Statements

Financial Section 89

2005 

Categories

Useful Life

(in years)

Acquisition 

Cost

Accumulated 

Depreciation/

Amortization

Net

Book Value

Land N/A $ 15,638 $ — $ 15,638 

Improvements to Land 6–40 28,419 (11,436) 16,983

Construction in Progress N/A 450,316 — 450,316

Buildings, Other Structures 

and Facilities (a) 6–40 353,397 (68,974) 284,423

Equipment:

ADP Equipment 5 203,191 (92,886) 110,305

Aircraft 12–20 514,048 (374,251) 139,797

Vessels 5–30 24,047 (12,319) 11,728

Vehicles 3–8 348,965 (243,626) 105,339

Other Equipment 5–15 385,180 (234,965) 150,215

Assets Under Capital Lease 2–10 9,429 (9,429) —

Leasehold Improvements 2–30 183,492 (46,499) 136,993

Internal Use Software 5 242,189 (97,011) 145,178

Internal Use Software-in 

Development N/A 350,807 — 350,807

Totals $3,109,118 $(1,191,396) $1,917,722

(a) Includes four multi-use heritage assets located in Puerto Rico with an acquisition value of $534 

thousand.

In FY06 CBP conducted an inventory of owned real property and validated the status of construction in 

progress assets. These efforts resulted in the addition of several capitalized real property assets, significant reclassifications from CBP’s construction in progress accounts to completed assets on the balance 

sheet, and revaluation of assets related to prior year depreciation.

10. Accrued Payroll and Benefits

The payroll and benefits liability as of September 30, 2006 and 2005 consists of the following (in 

thousands):

2006 2005

Accrued Funded Payroll and Benefits $141,839 $137,253

Accrued Unfunded Leave 227,692 206,593

Actuarial FECA Liability 556,745 536,241

Total $926,276 $880,087
Notes to Financial Statements

90 U.S. Customs and Border Protection • Performance and Accountability Report

Claims incurred for the benefit of CBP employees under FECA are administered by DOL and are ultimately 

paid by CBP. Future workers’ compensation estimates, generated from an application of actuarial procedures developed by the DOL as of September 30, 2006 and 2005, was $556.7 million and $536.2 million, respectively.

11. Environmental Liabilities

CBP is responsible to remediate its sites with environmental contamination. The major Federal laws covering environmental response, cleanup and monitoring are the Comprehensive Environmental Response, 

Compensation and Liability Act, the Resource Conservation and Recovery Act and the Toxic Substances 

Control Act. The unrecognized amounts of environmental liabilities for assets that require the systematic 

recognition of the total estimated cleanup costs is applicable to PP&E placed in service after October 1, 

1997. CBP’s environmental cleanup liability as of September 30, 2006 and 2005 was $15.8 million and 

$43.4 million, respectively. The liability consists of underground fuel storage tanks (UST), occupied buildings containing friable asbestos material and firing ranges. The reduction in CBP’s environmental liability 

is due to counsel’s determination that CBP is not liable for environmental cleanup of leased firing 

ranges. 

Cost estimates for environmental and disposal liabilities in this section are subject to material change 

as a result of changes in environmental laws and regulations, technology and plans. The nature of estimates and the disclosures herein are subject to possible changes due to inflation, deflation, technology 

or applicable laws and regulations and are disclosed as necessary based on the applicable asset.

12. Other Liabilities

Refunds Payable 

Refunds Payable consists of amounts owed for refunds of duty and other trade related activity and drawback claims. These liabilities, all considered current year liabilities, are principally funded from the 

Refunds and Drawback account. The September 30, 2006 and 2005, accrued liability consists of the 

following (in thousands):

2006 2005

Refunds $5,556,292 $ 91,659

Drawback claims 37,042 26,810

Total $5,593,334 $118,469

CBP accrues a liability for refunds and drawback claims approved at year-end, but paid subsequent to 

year-end. Payments made to importers/exporters are primarily identified when the import entry is liquidated, a process in which CBP makes a final determination of duties, taxes and fees owed on the entry. 

Due to non-liquidation of the entries, the amount to be refunded is undetermined. Therefore, a historical 

calculated average was used to determine a ratio for estimating the receivable and payable to be 

recorded. Using this average, CBP has estimated $9.8 million and $9.2 million as of September 30, 

2006 and 2005, respectively, as a payable.
Notes to Financial Statements

Financial Section 91

During FY 2006, an agreement was reached for Canadian softwood lumber imports. Refunds are 

expected to be paid in FY 2007. The monies relating to Canadian softwood lumber was reported as 

Advances from Others in FY 2005. For the fiscal year ending September 30, 2006, CBP reported a $5.5 

billion refund payable for Canadian softwood lumber imports.

Advances from Others

Advances from others included $199 million and $4.8 billion of unliquidated anti-dumping/countervailing 

duties as of September 30, 2006 and 2005, respectively. 

Injured Domestic Industries

The Continued Dumping and Subsidy Offset Act of 2000, P.L. 106-387, Title X, enacted in FY 2001 calls 

for CBP to disburse monies received in connection with antidumping and countervailing (AD/CV) duty 

orders and findings to qualifying injured domestic industries. During FY 2006 and 2005, CBP liquidated 

$475.8 million and $236.9 million, respectively in AD/CV duty and recorded the liability. 

13. Leases

Operating Leases

CBP leases various facilities and equipment under leases accounted for as operating leases. The leased 

items consist of offices, warehouses, vehicles and other equipment. Much of the office space occupied 

by CBP is either owned by the Federal Government or is leased by the General Services Administration 

(GSA) from commercial sources. CBP is not committed to continue to pay rent to GSA beyond the period 

occupied providing proper advance notice to GSA is made and unless the space occupied is designated 

as unique space only for CBP operations. However, it is expected that CBP will continue to occupy and 

lease office space from GSA in future years and that the lease charges will be adjusted annually to 

reflect operating costs incurred by GSA.

As of September 30, 2006 and 2005, there were no future minimum lease commitments under noncancelable operating leases for equipment.

Software License Agreements 

CBP has a number of software license fee agreements primarily involving mainframe software licenses. 

The liabilities associated with these software license agreements are reflected on the accompanying 

balance sheet based upon the present value of the future minimum license agreement payments. As of 

September 30, 2006, the aggregate capitalized cost of the agreements still subject to lease is $152.2 

million. These agreements are included in the capitalized software. 
Notes to Financial Statements

92 U.S. Customs and Border Protection • Performance and Accountability Report

(in thousands:)

2006

Summary of Assets Acquired through 

Capital Lease:

Acquisition 

Cost

Accumulated 

Depreciation

Net 

Book Value

Personal Property (machinery & equipment) $162,525 $(92,584) $69,941

Total $162,525 $(92,584) $69,941

2005

Summary of Assets Acquired through 

Capital Lease:

Acquisition 

Cost

Accumulated 

Depreciation

Net 

Book Value

Personal Property (machinery & equipment) $164,363 $(75,638) $88,725

Total $164,363 $(75,638) $88,725

Future minimum payments for cancelable commercial off-the-shelf license agreements and the present 

value of the minimum license agreement payments as of September 30, 2006, is as follows (in 

thousands):

FY 2006

2007 $17,981

2008 17,981

2009 17,981

2010 17,982

2011 —

Beyond 2011 —

Total future minimum license 71,925

Less: Imputed interest (10,234)

Total net present value of software license agreements $61,691

The net present value of the cancelable software license agreement is expected to be funded from 

future sources.

14. Contingent Liabilities and Other Commitments

Legal Contingent Liabilities

The estimated contingent liabilities for all probable and estimable litigation related claims as of September 30, 2006 and 2005 was $62.2 million and $61.7 million, respectively. Of these amounts, $47.4 and 

$25.8 million as of September 30, 2006 and 2005 is funded from appropriations for the Refund and 

Drawback Account. Asserted and pending legal claims for which loss is reasonably possible was estimated at $64 million and $317.3 million, as of September 30, 2006 and 2005.
Notes to Financial Statements

Financial Section 93

CBP is party to various administrative proceedings, legal actions, and claims brought by or against it. Any 

financially unfavorable administrative or court decision will normally be funded from either: (1) CBP 

appropriation for refunds and drawback for trade litigation issues; (2) various claims and judgment funds 

maintained by Treasury; or (3) CBP salary and expense appropriation.

Duty and Trade Refunds

There are various other trade issues resolved by other Federal Agencies, such as the Department of 

Commerce, which may result in refunds of duties, taxes and fees from the Refunds and Drawback 

Account. Until such time as a decision is reached by the other Federal agencies, CBP does not have sufficient information to estimate a contingent liability amount. All known refunds as of September 30, 

2006 and 2005 have been recorded. 

Loaned Aircraft 

CBP is generally liable to the Department of Defense for damage or loss to aircraft on loan. CBP had 16 

aircraft loaned from Department of Defense with an acquisition value of $94.4 million, as of September 

30, 2006 and 2005.

15. Earmarked Funds

COBRA fees, appropriation 70X5695, are legislatively set as are the restrictions on the use of collections. Based on the statute, fee collections may be used to pay for inspectional overtime, excess

pre-clearance costs, the hiring of inspectional personnel, purchasing of equipment, foreign language 

proficiency awards, and payment of related expenses using surplus monies available after overtime and 

pre-clearance costs are satisfied.

The Department of Justice Appropriation Act of 1987 authorized legacy INS to collect user fees for processing commercial air and sea passengers. In FY 2003 with the formation of the DHS, legacy INS border functions transferred to CBP, while its interior enforcement activities fell to Immigration and Customs 

Enforcement (ICE). CBP collects and shares the revenue from the immigration user fees, appropriation 

70X5087, based on a memorandum of understanding. CBP maintains approximately 83% of the user 

fee, while the other 17% is turned over to ICE.

The following table presents condensed data relating to CBP’s earmarked funds (disclosed in note 1) as 

of and for the year ended September 30, 2006 (in thousands):
Notes to Financial Statements

94 U.S. Customs and Border Protection • Performance and Accountability Report

2006

Balance Sheet 70X5695 70X5087 All Others Total

Assets 

Fund Balance with Treasury $ 761,175 $ 192,814 $ 15,439 $ 969,428

Tax, Duties and Trade Receivables, 

Net 61,117 - 110 61,227

Other Assets 72,410 87,637 343 160,390

Total Assets $ 894,702 $ 280,451 $ 15,892 $ 1,191,045

Liabilities and Net Position

Other Liabilities 95,952 14 437 96,403

Unexpended Appropriations — — — —

Cumulative Results of Operations 798,750 280,437 15,455 1,094,642

Total Liabilities and Net Position $ 894,702 $ 280,451 $ 15,892 $ 1,191,045

Statement of Net Cost

Gross Cost $ 336,845 $ 480,011 $ 45,728 $ 862,584 862,584

Less Earned Revenue — — (1,670) (1,670)

Net Cost of Operations $ 336,845 $ 480,011 $ 44,058 $ 860,914 860,914

Statement of Change in Net Position

Net Position Beginning of Period $ 797,236 $ 239,091 $ 21,374 $ 1,057,701

Net Costs of Operations (336,845) (480,011) (44,058) (860,914)

Taxes and Other Non Exchange 

Revenue 1,704,342 624,884 38,090 2,367,316

Net Transfers In/Out (1,365,983) (103,527) 49 (1,469,461)

Change in Net Position 1,514 41,346 (5,919) 36,941

Net Position End of Period $ 798,750 $ 280,437 $ 15,455 $ 1,094,642

Consolidated Omnibus Budget Reconciliation (COBRA), Appropriation 70X5695

In April 1986, the President signed the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 

1985, which authorized the Customs and Border Protection (CBP) to collect user fees for certain services. The law initially established processing fees for air and sea passengers, commercial trucks, rail 

cars, private vessels and aircraft, commercial vessels, dutiable mail packages, and CBP broker permits. 

An additional fee category, contained in tax reform legislation, for processing barges and bulk carriers for 
Notes to Financial Statements

Financial Section 95

Canada and Mexico, was added later that year. The collection of the COBRA fees for CBP services began 

on July 7, 1986. 

In addition to the collection of user fees, other changes in CBP procedures were enacted due to the 

COBRA statute. Most importantly, provisions were included for providing non-reimbursable inspectional 

overtime services and paying for excess pre-clearance costs from the COBRA user fee collections.

The Customs and Trade Act of 1990 amended the COBRA legislation to provide for the hiring of inspectional personnel, the purchasing of equipment, and the covering of related expenses with any surplus 

monies available, after overtime and excess pre-clearance costs are satisfied. Expenditures from the 

surplus can only be used to enhance the service provided to those functions for which fees are collected. This legislation took effect on October 1, 1990.

19 USC Section 58c contains the Fees for certain customs services. The authority to use these funds is 

contained in the annual Department of Homeland Security Appropriations Act. 

Access to COBRA surplus funds provides CBP with additional resources to assist in the accomplishment 

of CBP’s mission. Increased staffing and equipment have enhanced the manager’s flexibility in dealing 

with the ever-increasing demands of the trade and travel communities. 

Immigration User Fees, Appropriation 70X5087

Joint Resolution (H.J. Res. 738), making continuing appropriations for FY 1987 (the “1987 Act”) (Public 

Laws 99-500 and 99-591), established the Immigration User Fee Account (IUFA) [requiring] the [collection] of a $5.00 fee charged to each passenger arriving in the United States from foreign locations 

aboard commercial aircraft and commercial vessels except passengers whose journeys originated in the 

United States, Canada, Mexico, a territory or possession of the United States, or an adjacent island. The 

1987 Act directed the [INS] Service, beginning in FY 1987, to collect an immigration user fee for each 

passenger arriving in the United States by commercial air or sea conveyance (with limited exceptions). 

This law was codified in 8 U.S.C. 1103, 1356, section 286, the Immigration and Nationality Act (INA).

In 1993, Congress amended section 286 of the INA by raising the immigration user fee from the original 

$5 to $6 with the passage of Public Law 103-121, making appropriations for the Departments of Commerce, Justice, and State, the Judiciary, and related agencies for the fiscal year ending September 30, 

1994, and for other purposes.

In 1998, in Public Law 105-277, making appropriations for the Department of Transportation and related 

agencies for the fiscal year ending September 30, 1999, and for other purposes, Congress made a technical correction to section 286 by adding the word “State” to the list of exempt origination areas, making 

explicit what was already the policy.

In 2002, in Public Law 107-77, making appropriations for the Department of Commerce, Justice, and 

State, the Judiciary, and related agencies for the fiscal year ending September 30, 2002, and for other 

purposes, the immigration user fee was increased from $6 to $7.

Also in Public Law 107-77, Congress amended section 286(e) of the INA to authorize the Attorney General to charge and collect a user fee from certain previously exempt commercial vessel passengers. Prior 

to the enactment of this law, commercial vessel passengers whose journeys originated in Canada, Mex-
Notes to Financial Statements

96 U.S. Customs and Border Protection • Performance and Accountability Report

ico, a State, territory or possession of the United States, or an adjacent island, were statutorily exempt 

from paying the Immigration User Fee prescribed by section 286(d) of the INA. While these vessel passengers were exempt from paying the fee, the [INS] Service was still required to provide inspection services. This exemption resulted in the [INS] Service inability to invest in necessary staffing and technology resources. 

The IUFA was also established as a repository for fines imposed to prevent unauthorized landing and 

unlawful bringing of aliens in to the United States, penalties for document fraud, 31 Act overtime, and 

liquidated damages and expenses collected. All deposits into the IUFA are available until expended.

In FY 2003 with the formation of the Department of Homeland Security, legacy INS border functions 

transferred to CBP, while its interior enforcement activities fell to Immigration and Customs Enforcement 

(ICE). CBP collects the fees and shares the revenue from the immigration user fees based on a memorandum of understanding between CBP and ICE. CBP maintains 82.63% of the user fee, while 17.37% is 

provided to ICE. CBP retains 100% of the administrative carrier fines collected.

CBP records the entire user fee as non-exchange revenue (collections) on the Statement of Custodial 

Activities. 

16. Intra-governmental Costs and Exchange Revenue

Intra-governmental costs represent exchange transactions made between two reporting entities within 

the Federal government and are presented separately from costs with the public (exchange transactions 

made between the reporting entity and a non-Federal entity). Intra-governmental exchange revenue is 

disclosed separately from exchange revenue with the public. The criteria used for this classification 

requires that the intra-governmental expenses relate to the source of goods and services purchased 

by the reporting entity and not to the classification of related revenue. With “intra-governmental costs,” 

the buyer and seller are both Federal entities. If a Federal entity purchases goods or services from 

another Federal entity and sells them to the public, the exchange revenue would be classified as “with 

the public,” but the related costs would be classified as “intra-governmental.” The purpose of this classification is to enable the Federal government to provide consolidated financial statements, and not to 

match public and intra-governmental revenue with costs that are incurred to produce public and intragovernmental revenue.

The Consolidated Statement of Net Cost reflects intra-governmental and public cost and exchange revenue as summarized below for the year ended September 30, 2006 (in thousands):
Notes to Financial Statements

Financial Section 97

2006

Border Security Inspections and Trade Facilitation at Ports of Entry

Intra-governmental costs $1,252,679

Public costs 3,440,900

Total Border Security Inspections and Trade Facilitation at Ports of Entry Costs 4,693,579

Intra-governmental earned revenue (127,161)

Public earned revenue (68,055)

Total Border Security Inspections and Trade Facilitation at Ports of Entry 

Revenue (195,216)

Border Security and Control Between Ports of Entry 

Intra-governmental costs 600,639

Public costs 1,649,857

Total Border Security and Control Between Ports of Entry Costs 2,250,496

Intra-governmental earned revenue (60,972)

Public earned revenue (32,631)

Total Border Security and Control Between Ports of Entry Revenue (93,603)

Air and Marine Operations

Intra-governmental costs 93,649

Public costs 257,238

Total Air and Marine Operations Costs 350,887

Intra-governmental earned revenue (9,506)

Public earned revenue (5,088)

Total Air and Marine Operations Revenue (14,594)

Net Cost of Operations $6,991,549

17. Sub-organization Program Costs/Program Costs by Segment

CBP is the unified border agency whose priority mission is the prevention of terrorism and terrorist weapons from entering the U.S. CBP meets these responsibilities by: (1) enforcing the laws governing the flow 

of merchandise or commerce across the borders of the U.S., (2) assessing and collecting duties, taxes 

and fees on imported and other goods and services, and (3) enforcing drug-related and other laws and 

regulations of the U.S. on behalf of Federal agencies and/or in conjunction with various state, local and 

other Federal agencies and foreign countries.
Notes to Financial Statements

98 U.S. Customs and Border Protection • Performance and Accountability Report

Operating costs are summarized in the Statement of Net Cost by responsibility segment, as applicable 

to the reporting period. The net cost of operations is the gross (i.e., total) cost incurred by CBP, less any 

exchange (i.e., earned) revenue. A responsibility segment is the component that carries out a mission or 

major line of activity, and whose managers report directly to Departmental Management. 

Schedule of Net Cost 

by Program and 

Responsibility Segment

Prevention 

Dollars

Service 

Dollars

Combined 

Total

Intra-Entity 

Eliminations

Consolidated 

Total

Border Security Inspections and Trade Facilitation at Ports of Entry (Note a)

Gross Costs:

Passenger Processing $2,558,828 $ 21,799 $2,580,627 $335,237 $2,245,390

Trade Compliance 1,595,494 498,854 2,094,348 272,067 1,822,281

Outbound 96,417 - 96,417 12,525 83,892

Anti-Terrorism 622,939 - 622,939 80,923 542,016

Total Gross Costs 4,873,678 520,653 5,394,331 700,752 4,693,579

Less: Earned Revenue 809,491 86,477 895,968 700,752 195,216

Net Program Costs $4,064,187 $434,176 $4,498,363 $ — $4,498,363

Border Security and Control Between Ports of Entry (Note b)

Gross Costs 2,569,727 16,768 2,586,495 335,999 2,250,496

Less: Earned Revenue 426,817 2,785 429,602 335,999 93,603

Net Program Costs $2,142,910 $ 13,983 $2,156,893 $ — $2,156,893

Air and Marine Operations (Note c)

Gross Costs 403,275 - 403,275 52,388 350,887

Less: Earned Revenue 66,982 - 66,982 52,388 14,594

Net Program Costs 336,293 - 336,293 — 336,293

Net Cost of Operations $6,543,390 $448,159 $6,991,549 $ — $6,991,549

Notes to Schedule:

Note a:

Cost of processing passengers (Customs, Immigration, Agriculture and land border)

• Compliance and Non-Compliance

• Non-Intrusive Technology

• Contraband Enforce Team

• Identify & Targeting

• Antiterrorism

Air Traffic Security Cost

Travel Facilitation

Seaport Security Cost

Trade Rules Compliance
Notes to Financial Statements

Financial Section 99

Note b:

Enforcement

• Patrol

• Transportation

Development and Implementation of the Secure Border Initiative

Note c:

Interdiction

General Investigative Activities

• Intelligence

• Smuggling

18. Net Position

Non-exchange Revenue represents amounts collected from user fees that CBP may retain and expend as 

authorized by law. Transfers In/Out Without Reimbursement are amounts of funds collected and transferred from CBP receipt accounts to expenditure accounts within CBP and to other Federal agencies. The 

amount reported as Other is the net effect of CBP’s revaluation of property, plant and equipment.

19. Apportionment Categories of Obligations Incurred

Apportionment categories are determined in accordance with the guidance provided in OMB Circular A-11, 

Preparation, Submission and Execution of the Budget. Category A represents resources apportioned for 

calendar quarters. Category B represents resources apportioned for other time periods; for activities, 

projects or objectives; or for any combination thereof (in thousands).

FY Ended September 30, 2006

Apportionment 

Category A

Apportionment 

Category B

Exempt from 

Apportionment Total

Obligations Incurred — Direct $5,284,687 $2,851,108 $896,577 $ 9,032,372

Obligations Incurred — 

Reimbursable 1,343,115 (47,758) — 1,295,357

Total Obligations Incurred $6,627,802 $2,803,350 $896,577 $10,327,729

20. Borrowing Authority

CBP did not have any borrowing or contract authority and did not have any repayment requirements, 

financing sources for repayments or any other terms of borrowing authority used.

21. Permanent Indefinite Appropriations

Permanent indefinite appropriations refer to the appropriations that result from permanent public laws, 

which authorize CBP to retain certain receipts. The amount appropriated depends upon the amount of 

the receipts rather than on a specific amount. CBP has a permanent and indefinite appropriation, which 
Notes to Financial Statements

100 U.S. Customs and Border Protection • Performance and Accountability Report

is used to disburse tax and duty refunds and duty drawbacks. Although funded through appropriations, 

refund and drawback activity is, in most instances, reported as a custodial activity. Refunds are custodial revenue-related activity in that refunds are a direct result of importer overpayments of their duties, 

taxes and fees. Federal tax revenue received from taxpayers is not available for use in the operation of 

CBP and is not reported on the Consolidated Statement of Net Cost. Likewise, the refunds of overpayments are not available for use by CBP in its operations. Refunds and drawback disbursements totaled 

$1.16 billion for fiscal year ended September 30, 2006, and are presented as a use of custodial revenue on the Consolidated Statement of Custodial Activity.

This appropriation is not subject to budgetary ceilings established by Congress. CBP’s refunds payable 

at year-end are not subject to funding restrictions. Refund payment funding is recognized as appropriations are used.

22. Legal Arrangements Affecting the Use of Unobligated Balances of Budget 

Authority

Unobligated balances, whose period of availability has expired, are not available to fund new obligations. 

Expired unobligated balances are available to pay for current period adjustments to obligations incurred 

prior to expiration. For a fixed appropriation account, the balance can be carried forward for five fiscal 

years after the period of availability ends. For a no-year account, the unobligated balance is carried forward indefinitely until (1) specifically rescinded by law; or (2) the head of the agency concerned or the 

President determines that the purposes for which the appropriation was made have been carried out and 

disbursements have not been made against the appropriation for two consecutive years.

Included in the cumulative results of operations for special funds is $1.1 billion at September 30, 2006, 

that represents CBP’s authority to assess and collect user fees relating to merchandise and passenger 

processing, to assess and collect fees associated with the services performed at certain small airports 

or other facilities, retain amounts needed to offset costs associated with collecting duties, and taxes 

and fees for the government of Puerto Rico. These special fund balances are restricted by law and in 

their use to offset specific costs incurred by CBP. Part of the passenger fees in the User Fees Account, 

totaling approximately $761 million is restricted by law in its use to offset specific costs incurred by CBP 

and are available to the extent provided in Department Appropriations Acts.

The entity trust fund balances result from CBP’s authority to use the proceeds from general order items 

sold at auction to offset specific costs incurred by CBP relating to their sale, to use available funds in 

the Salaries and Expense Trust Fund to offset specific costs for expanding border and port enforcement 

activities, and to use available funds from the Harbor Maintenance Trust Fund to offset administrative 

expenses related to the collection of the Harbor Maintenance Fee.

23. Explanation of Differences Between the SBR and the Budget of the 

U.S. Government

The table below documents the material differences between the FY 2005 Statement of Budgetary 

Resources and the actual amounts reported for FY 2005 in the Budget of the United States Government. Since the FY 2006 financial statements are reported prior to the Budget of the United States Government, Customs and Border Protection is reporting for FY 2005 only. Typically, the Budget of the 
Notes to Financial Statements

Financial Section 101

United States Government with the FY 2006 actual data is published in February of the subsequent 

year. Once published, the FY 2006 actual data will be available at OMB website, www.whitehouse.gov/

omb. (in thousands:) 

2005

Budgetary 

Resources

Obligations 

Incurred

Distributed 

Offsetting 

Receipts Net Outlays

Combined Statement of Budgetary 

Resources $10,879,092 $9,152,015 $ — $5,339,586

Differences:

Expired Appropriation not included in 

President’s Budget (160,418) (83,572) — —

Refunds & Drawbacks not included in 

President’s Budget (821,577) (821,577) — 819,689

Injured Domestic Industries not included in 

President’s Budget (20X5688) (612,591) (296,163) — 296,163

Unclaimed & Abandoned Goods Budgetary 

Resources not included in the 

President’s Budget (70X8789) (7,568) — — —

President’s Budget did not include nonExpenditure transfers out to ICE ($88.4 

Million) and CIS ($2.2 million) (70X0503) 90,672 — — —

Rounding: $950,000 more reported on 

the President’s Budget than on the SBR 

(705/60530) 950 — — —

Miscellaneous 3,440 1,000 — (8,000)

Total Differences (1,507,092) (1,200,312) — 1,107,852

Budget of the US Government $ 9,372,000 $7,951,703 $ — $6,447,438

24. Undelivered Orders at the end of Period

An undelivered order exists when a valid obligation has occurred and funds have been reserved, but the 

goods or services have not been delivered and have not prepaid. Undelivered orders for the period 

ended September 30, 2006 (in thousands):

2006

Unpaid $2,522

Upward/Down Adjustment of Prior Period (167)

Total Undelivered Orders at the end of Period $2,355

25. Statement of Budgetary Resources (SBR)

The total Budgetary Resources of $12.6 billion for FY 2006 includes new budget authority, unobligated 

balances at the beginning of the year and transferred in/out, spending authority from offsetting collections, recoveries of prior year obligations and adjustments.
Notes to Financial Statements

102 U.S. Customs and Border Protection • Performance and Accountability Report

The amount reported as Appropriations on the Statement of Budgetary Resources differs from the 

amount reported as Appropriations Received on the Statement of Changes in Net Position due to CBP’s 

non-entity activity that is not reported on the Statement of Changes in Net Position. 

26. Explanation of Liabilities Not Covered by Budgetary Resources and 

Components Requiring or Generating Resources in Future Periods

Liabilities Not Covered by Budgetary Resources as of September 30, 2006, consist of the following (in 

thousands):

2006 2005

Intra-governmental:

Accrued FECA Liability $ 118,226 $ 160,280

Total Intra-governmental 118,226 160,280

Public:

Accrued Payroll and Benefits:

Accrued Leave 227,692 206,593

Actuarial FECA Liability 556,745 536,241

Other:

Environmental Cleanup Costs 15,823 43,447

Contingent Liability 14,804 35,936

Software License Agreements 61,691 74,855

Total Public 876,755 897,072

Total Liabilities Not Covered by Budgetary Resources 994,981 1,057,352

Total Liabilities Covered by Budgetary Resources or 

Non-Entity Assets 8,801,147 7,173,482

Total Liabilities $9,796,128 $8,230,834

Liabilities not covered by budgetary or other resources represent amounts owed in excess of available 

appropriated or other amounts. The liquidation of liabilities not covered by budgetary or other resources 

is dependent on future congressional appropriations.

27. Custodial Revenues

The Consolidated Statement of Custodial Activity has been prepared from CBP accounting records in 

conformity with generally accepted accounting principles (GAAP). Custodial Revenue consists of duties, 

user fees, fines and penalties, refunds and drawback overpayments and interest associated with import/

export activity which have been established as a specifically identifiable, legally enforceable claim and 

remain uncollected as of year-end. These receivables are net of amounts deemed uncollectible which 

were determined by considering the debtor’s payment record and willingness to pay, the probable recovery of amounts from secondary sources, such as sureties and an analysis of aged receivable activity. 

Primarily, revenue collections result from current fiscal year activity.
Notes to Financial Statements

Financial Section 103

Disbursements from the Refunds and Drawback account for the fiscal year ended September 30, 2006 

(in thousands):

2006

Refunds $ 646,035

Drawback 514,016

Total $1,160,051

Amounts refunded during FY 2006 identified by entry year consist of the following (in thousands):

Entry Year

2006 $ 596,166

2005 142,713

2004 89,827

2003 38,827

Prior Years 292,518

Total $1,160,051

The total amounts of antidumping and countervailing duties vary from year to year, depending on decisions from Department of Commerce. Antidumping and countervailing duty refunds (included in total 

refunds presented above) and associated interest refunded for the fiscal year ended September 30, 

2006, consisted of the following (in thousands):

2006

Antidumping and countervailing duty refunds $381,406

Interest 85,613

Total $467,019

28. Statement of Financing

Explanation of Relationship Between Liabilities Not Covered by Budgetary Resources and 

Components Requiring or Generating Resources in Future Periods

Components Requiring or Generating Resources in Future Periods presented on the Statement of 

Financing represents the change between beginning and ending balances for Liabilities Not Covered by 

Budgetary Resources presented on the Consolidated Balance Sheet.

Other Resources or Adjustments to Net Obligated Resources that do not Affect Net Cost of 

Operations

Other Resources or Adjustments to Net Obligated Resources that do not Affect Net Cost of Operations 

includes $1.1 billion of refunds and drawbacks which are obligated and thus shown on the Statement of 

Budgetary Resources but are shown expended on the Statement of Custodial Activity, not on the Statement of Net Cost.
104 U.S. Customs and Border Protection • Performance and Accountability Report

Required Supplementary Information

Stewardship PP&E

As of September 30, 2006, CBP maintains four multi-use heritage assets located in Puerto Rico valued 

at $534 thousand and are fully depreciated. Heritage assets are property, plant and equipment that 

have historical or national significance, cultural, educational or artistic importance, or significant architectural characteristics. Heritage assets are generally expected to be preserved indefinitely. All multi-use 

heritage assets are reflected on the Consolidated Balance Sheet. Financial information for heritage 

assets and general PP&E is presented in the required supplementary information.

Deferred Maintenance

Deferred maintenance is maintenance that was not performed when it should have been or was scheduled to be performed, and is delayed until a future period. Maintenance includes preventive maintenance, normal repairs, replacement of parts and structural components, and other activities needed to 

preserve the asset so that it will continue to provide acceptable service and achieve its useful life.

An assessment of Fair means the facility/equipment condition meets minimum standards but requires 

additional maintenance or repair to prevent further deterioration, increase operating efficiency and to 

achieve normal life expectancy. An assessment of Good means the facility/equipment condition is above 

minimum standards, but requires preventative maintenance or normal repairs to maintain the design 

intent of the building or equipment so that it continues to provide acceptable service and achieves the 

expected useful life. Deferred maintenance on property, plant and equipment as measured by condition 

assessment survey, is comprised of (in thousands):

2006

Condition 

Assessment

Deferred 

Maintenance

Building and Structures Fair to Good $5,509

Vehicles Fair to Good 1

Stewardship/Heritage Assets (multi-use) Fair to Good 1,080

Totals $6,590

Custodial Activity

Substantially all duty, tax and fee revenues collected by CBP are remitted to various General Fund 

accounts maintained by Treasury. Treasury further distributes these revenues to other Federal agencies 

in accordance with various laws and regulations. CBP transfers the remaining revenue (generally less 

than two percent of revenues collected) directly to other Federal agencies, the Governments of Puerto 

Rico and the U.S. Virgin Islands. Refunds of revenues collected from import/export activities are 

recorded in separate accounts established for this purpose and are funded through permanent indefinite 

appropriations. These activities reflect the non-entity, or custodial, responsibilities that CBP, as an 

agency of the Federal government, has been authorized by law to enforce.

Customs and Border Protection

Required Supplementary Information

(Unaudited, see accompanying independent Auditor’s Report)
Financial Section 105

Required Supplementary Information

CBP reviews selected documents to ensure all duties, taxes and fees owed to the Federal government 

are paid and to ensure regulations are followed. If CBP believes duties, taxes, fees, fines or penalties 

are due in addition to estimated amounts previously paid by the importer/violator, the importer/violator 

is notified of the additional amount due. CBP regulations allow the importer/violator to file a protest on 

the additional amount due for review by the Port Director. A protest allows the importer/violator the 

opportunity to submit additional documentation supporting their claim of a lower amount due or to 

cancel the additional amount due in its entirety. Work in progress will continue until all protest options 

have expired or an agreement is reached. During this protest period, CBP does not have a legal right to 

importer/violator’s assets, and consequently CBP recognizes accounts receivable only when the protest 

period has expired or an agreement is reached. For FY 2006, CBP had legal right to collect $1.75 billion 

of receivables. In addition, there was $2.4 billion representing records still in the protest phase for 

FY 2006. CBP recognized as write-offs $204 million of assessments that the Department has statutory 

authority to collect at September 30, 2006, but has no future collection potential. Most of this amount 

represents fines, penalties and interest.

Customs and Border Protection Schedule of Budgetary Resources by Major Fund Type 

As of September 30, 2006 (in thousands):

Appropriated 

Funds

Trust

Funds

Other

Funds Totals

Budgetary Resources 

Unobligated balances brought forward, October 1 $ 514,175 $ 361 $1,209,708 $ 1,724,244

Recoveries of Prior Year Obligations 201,280 896 15,026 217,202

Budget Authority:

Appropriations 5,440,771 5,894 3,807,136 9,253,801

Spending Authority from Offsetting Collections:

Earned

Collected 1,273,412 — 17,114 1,290,526

Change in Receivable From Federal Sources 22,788 10 (12,949) 9,849

Change in Unfilled Customer Orders:

Advance Received 1,400 — — 1,400

Without Advance From Federal Sources 41,599 39 425 42,063

Expenditure Transfers From Trust Funds 3,000 — — 3,000

Subtotal 6,782,970 5,943 3,811,726 10,600,639

Non-Expenditure Transfers from Trust Funds 1,612,177 3,000 (1,371,314) 243,863

Permanently Not Available (79,685) — (82,991) (162,676)

Total Budgetary Resources $9,030,917 $10,200 $3,582,155 $12,623,272

Customs and Border Protection

Required Supplementary Information (continued)

(Unaudited, see accompanying independent Auditor’s Report)
106 U.S. Customs and Border Protection • Performance and Accountability Report

Required Supplementary Information

Appropriated 

Funds

Trust

Funds

Other

Funds Totals

Status of Budgetary Resources

Obligations Incurred:

Direct $6,929,278 $ 9,945 $2,093,149 $ 9,032,372 9,032,372

Reimbursable 1,279,354 — 16,003 1,295,357

Total Obligations Incurred 8,208,632 9,945 2,109,152 10,327,729

Unobligated Balance:

Apportioned 279,651 — 13,844 293,495

Exempt From Apportionment — — 328 328

Subtotal 279,651 — 14,172 293,823

Unobligated Balance Not Available 542,634 255 1,458,831 2,001,720

Total Status of Budgetary Resources $9,030,917 $10,200 $3,582,155 $12,623,272

Change in Obligated Balances

Obligated Balance, Net

Unpaid Obligations Brought Forward, October 1 $2,294,870 $11,122 $ 91,634 $ 2,397,626

Less: Uncollected Customer Payments From 

Federal Sources, Brought Forward From 

October 1 (308,612) (48) (14,369) (323,029)

Total Unpaid Obligated Balance, Net 1,986,258 11,074 77,265 2,074,597

Obligations Incurred, Net 8,208,632 9,945 2,109,152 10,327,729

Less: Gross Outlays (7,341,938) (11,765) (2,087,276) (9,440,979)

Less: Recoveries of Prior Year Unpaid Obligations (201,280) (896) (15,026) (217,202)

Change In Uncollected Customer Pymts From 

Federal Sources (64,386) (49) 12,523 (51,912)

Obligated Balance, Net End Of Period

Unpaid Obligations 2,960,284 8,406 98,484 3,067,174

Less: Uncollected Customer Pymts From 

Federal Sources (372,998) (97) (1,846) (374,941)

Total, Unpaid Obligated Balance, Net, End Of 

Period 2,587,286 8,309 96,638 2,692,233

Net Outlays

Gross Outlays 7,341,938 11,765 2,087,276 9,440,979

Less: Offsetting Collections (1,277,813) — (17,113) (1,294,926)

Less: Distributed Offsetting Receipts — — (2,347,944) (2,347,944)

Net Outlays $6,064,125 $11,765 $ (277,781) $ 5,798,109

Customs and Border Protection

Required Supplementary Information (continued)

(Unaudited, see accompanying independent Auditor’s Report)

Customs and Border Protection Schedule of Budgetary Resources by Major Fund Type (continued)
Financial Section 107

Other Accompanying Information

Revenue Gap

The Compliance Measurement Program collects objective statistical data to determine the compliance 

level of commercial imports with U.S. trade laws, regulations and agreements, and it estimates the revenue gap. The revenue gap is a calculated estimate that measures potential loss of revenue owing to 

noncompliance with trade laws, regulations, and agreements using a statistically valid sample of the 

revenue losses and overpayments detected during Compliance Measurement entry summary reviews 

conducted throughout the year. For FY 2005, the actual revenue gap was $470 million. CBP has calculated the preliminary FY 2006 revenue gap to be $314 million. The projected over-collection and undercollection amounts due to noncompliance were $128 million and $442 million in FY 2006, respectively. 

The preliminary overall trade compliance rate for FY 2006 is 96.6 percent. With overall compliance at a 

high level, CBP has been able to emphasize matters of significant trade risk.

The final overall trade compliance rate and estimated revenue gap for FY 2006 will be issued in January 

2007.

Petitioned and Protested Schedule

An analysis of the changes in petitioned and protested assessed amounts during FY 2006 is as follows 

(in thousands):

2006

Balance 

October 1

Additional 

Assessments

Protest 

in Favor

of Debtor

Net Reduction 

Administrative 

Process

Additional 

Receivable

Balance 

September 30

Duties 60,190 82,779 (8,776) (59,307) (12,143) 62,743

Taxes 648 637 (19) (498) (245) 523

Fees 346 1,871 (122) (1,620) (101) 374

Fines/Penalties 1,461,138 1,648,233 (636,309) (59) (502,624) 1,970,379

Interest 95,218 76,961 (15,772) (29,803) (27,352) 99,252

Antidumping/ 

Countervailing Duty 228,300 235,230 (22,591) (60,110) (124,518) 256,311

Refunds & 

Drawback 9,588 9,882 (1,040) (6,717) (1,026) 10,687

Totals 1,855,428 2,055,593 (684,629) (158,114) (668,009) 2,400,269

CBP reviews selected entry documentation to determine whether importer payment estimates of duties, 

taxes and fees were accurate or whether additional supplemental amounts are owed and should be 

billed. CBP regulations allow the importer 90 days (or 180 days for entries on or after 12/18/04) from 

the bill date in which to file a protest to be reviewed by the Port Director and an application requesting 

further review of the protest by CBP Office of Regulations and Rulings challenging the assessment of 

supplemental duties, taxes and fees. If the Port Director denies the protest and application for further 

Customs and Border Protection

Other Accompanying Information

(Unaudited, see accompanying independent Auditor’s Report)
108 U.S. Customs and Border Protection • Performance and Accountability Report

Other Accompanying Information

review, the protestor has an additional 60 days from the denial date for a review of the application by the 

Commissioner of CBP. Consequently, CBP recognizes accounts receivables only when the protested 

period has elapsed or when a protest decision has been rendered in CBP favor.

Additionally, importers and their sureties also have the option to petition for relief after receipt of CBP 

notice that a fine or penalty has been assessed when a violation of law or regulation is discovered. The 

importer or surety has 60 days to file a petition for relief or make payment of the assessed amount. If a 

petition is received and CBP finds there are extenuating circumstances such as an incorrect assessment, which warrants mitigation, relief is granted as prescribed by CBP mitigation guidelines and directives. Consequently, CBP recognizes accounts receivables only when the petition period has elapsed or 

when a petition decision has been rendered.

Entity Receivables

An aging of entity receivables as of September 30, 2006 is as follows (in thousands):

Aged Period

2006 <=90 days 91 days–1 year 1–2 years 2–3 years 3+ years Total

Reimbursable services $ 386 $ 447 $ 1,149 $ 710 $  194 $ 2,886

User fees 147,806 2,820 4,573 10,682 9,655 175,536

Gross receivables 148,192 3,267 5,722 11,392 9,849 178,422

Less uncollectible 

amounts (442) (41) (3,295) (3,375) (8,562) (15,715)

Net receivables $147,750 $3,226 $ 2,427 $ 8,017 $ 1,287 $162,707

Customs and Border Protection

Other Accompanying Information (continued)

(Unaudited, see accompanying independent Auditor’s Report)
Financial Section 109

Other Accompanying Information

Non-Entity Receivables

An analysis of the changes in accounts receivable during FY 2006 is as follows (in thousands):

2006 

Receivable 

Category

Balance 

October 1

Receivables 

Recorded 

During the 

Fiscal Year Collections Write-offs Adjustments

Balance 

September 30

Duties $ 1,142,830 $24,784,777 $(24,097,216) $ (1,065) $ (275,612) $ 1,553,714

Excise Taxes 87,925 2,796,560 (2,788,384) (314) 3,391 99,178

Fees 84,533 2,413,366 (2,357,234) (5) (20,619) 120,041

Fines/penalties 1,033,688 1,932,068 (56,510) (189,253) (1,599,224) 1,120,769

Interest 120,983 91,512 (34,289) (4,128) (9,489) 164,589

Antidumping/ 

Countervailing Duty 240,494 1,465,289 (1,343,339) (8,910) (92,605) 260,929

Refunds/drawback 1,609 22,935 (20,285) (18) (2,164) 2,077

Totals $ 2,712,062 $33,506,507 $(30,697,257) $(203,693) $(1,996,322) $ 3,321,297

Less uncollectible 

amounts (1,311,989) (1,566,675)

Net receivables $ 1,400,073 $ 1,754,622

An aging of non-entity Intra-governmental receivables as of September 30, 2006 is as follows 

(in thousands):

Aged Period

2006 (Audited) <=90 days 91 days–1 year 1–2 years 2–3 years 3+ years Total

Duties $1,419,582 $ 22,674 $ 4,201 $ 15,619 $ 91,638 $ 1,553,714

Excise taxes 93,117 67 5 5,691 298 99,178

User fees 106,029 13,648 53 69 242 120,041

Fines/penalties 106,411 189,664 369,503 238,469 216,722 1,120,769

Interest 3 8,585 9,848 33,721 112,432 164,589

Antidumping/ 

Countervailing Duty 46,864 20,175 34,652 94,342 64,896 260,929

Refunds and 

drawback 2 185 161 1 1,728 2,077

Gross receivables 1,772,008 254,998 418,423 387,912 487,956 3,321,297

Less uncollectible 

amounts (106,940) (234,061) (398,410) (364,721) (462,543) (1,566,675)

Net receivables $1,665,068 $ 20,937 $ 20,013 $ 23,191 $ 25,413 $ 1,754,622

Customs and Border Protection

Other Accompanying Information (continued)

(Unaudited, see accompanying independent Auditor’s Report)
110 U.S. Customs and Border Protection • Performance and Accountability Report

Other Accompanying Information

CBP Collections by Category

(Dollars in thousands)

Duties 2002 2003 2004 2005 2006

(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Consumption entries $19,485,864 $20,331,692 $21,012,275 $23,213,476 $24,787,051

Warehouse withdrawals 132,078 116,803 115,512 107,477 90,832

Mail entries 4,238 3,961 3,175 2,687 2,696

Passenger baggage 

entries 7,609 4,381 4,551 3,985 4,386

Crew baggage entries 36 25 17 11 9

Military baggage 

entries 18 6 4 2 2

Informal entries 49,911 49,616 53,612 55,680 57,415

Vessel repair entries 12,494 12,213 36,033 38,687 15,742

Other duties 95,695 82,728 54,433 44,552 37,853

Total Duties 19,787,943 20,601,425 21,279,612 23,466,557 24,995,986

Miscellaneous

Violations of CBP law 55,789 54,407 52,159 54,227 49,797

Testing, inspecting & 

grading 35 62 54 56 46

Miscellaneous taxes 71,653 41,186 17,391 18,659 19,803

USDA collections 70,036 74,520 77,410 91,070 94,359

Harbor maintenance 

fee 673,348 757,882 869,522 1,047,843 1,206,414

Fees 4,774 4,258 5,195 5,419 7,107

User fee account 1,233,347 1,322,756 1,464,138 1,600,365 1,702,043

Unclaimed funds 1,337 897 1,081 1,124 991

Recoveries 30 6 53 3 2

Interest 15,389 12,711 9,892 9,760 8,604

Other CBP receipts 7,694 5,199 8,663 9,645 17,246

Total Miscellaneous 2,133,432 2,273,884 2,505,558 2,838,171 3,106,412

Internal Revenue Taxes 1,913,752 2,092,276 2,205,744 2,255,482 2,345,992

Total Collections $23,835,127 $24,967,585 $25,990,914 $28,560,210 $30,448,390

Customs and Border Protection

Other Accompanying Information (continued)

(Unaudited, see accompanying independent Auditor’s Report)
Financial Section 111

Other Accompanying Information

Total Collections include custodial, duty, tax, fee and interest collections and entity user fee 

collections recorded by port locations during the period October through September are as follows:

2002 2003 2004 2005 2006

(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Custodial collections $22,605,492 $24,681,966 $25,676,473 $28,235,545 $30,112,330

Entity collections 1,229,635 285,619 314,441 324,665 336,060

Total Collections $23,835,127 $24,967,585 $25,990,914 $28,560,210 $30,448,390

These schedules will not equal amounts reported on the Statement of Custodial Activity due to certain 

deposit fund collections being reported on the Consolidated Balance Sheet, timing differences between 

the collections report and general ledger postings, and other adjustments.

CBP Collections by Major Processing Port Locations

(Dollars in thousands)

2002 2003 2004 2005 2006

(Unaudited) (Unaudited Unaudited) (Unaudited) (Unaudited) (Unaudited)

Boston $ 453,907 $ 426,545 426,545 $ 440,158 $ 457,696 $ 478,550

Buffalo-Niagara Falls 150,806 166,428 181,876 201,428 210,888

Ogdensburg 87,991 87,237 102,490 120,864 141,628

Portland, Maine 45,706 49,879 54,311 59,397 57,673

Providence 35,909 60,692 67,787 74,624 83,238

St. Albans 29,001 34,473 41,129 47,311 44,687

Baltimore 491,299 558,733 548,892 584,537 584,719

Philadelphia 539,610 526,844 549,459 586,956 639,201

Newark 3,639,930 3,851,645 3,961,215 4,179,939 4,362,201

JFK Airport 1,255,133 1,291,671 1,274,989 1,300,376 1,220,472

Charleston 693,832 807,133 906,318 1,145,999 1,175,442

Miami 773,030 819,933 844,143 798,307 752,711

San Juan 185,885 99,920 98,709 15,381 123,132

St. Thomas 23,266 10,429 11,949 113,244 14,819

Savannah 835,753 956,698 958,250 1,108,911 1,265,007

Tampa 388,254 416,743 390,533 409,229 473,650

Wilmington 265,276 263,549 272,646 267,769 290,312

Norfolk 474,699 553,719 563,558 629,274 674,041

Customs and Border Protection

Other Accompanying Information (continued)

(Unaudited, see accompanying independent Auditor’s Report)
112 U.S. Customs and Border Protection • Performance and Accountability Report

Other Accompanying Information

Customs and Border Protection

Other Accompanying Information (continued)

(Unaudited, see accompanying independent Auditor’s Report)

CBP Collections by Major Processing Port Locations (continued)

2002 2003 2004 2005 2006

(Unaudited) (Unaudited Unaudited) (Unaudited) (Unaudited) (Unaudited)

NFC Indianapolis/

Washington 632,622 654,492 761,791 737,498 1,004,911

Mobile 93,955 105,512 108,809 125,715 157,920

New Orleans 776,773 847,966 855,041 885,110 936,744

Dallas/Ft Worth 291,823 311,226 335,763 378,052 418,128

El Paso 68,121 93,057 112,521 126,113 146,472

Houston 516,549 518,039 497,180 611,527 773,047

Laredo 303,162 301,332 307,842 337,921 370,216

Port Arthur 33,466 32,161 32,613 35,092 28,144

Nogales 84,809 97,051 92,216 82,636 77,832

Los Angeles 5,291,462 5,589,441 5,982,568 6,788,238 7,258,249

San Diego 210,054 226,881 230,158 237,419 259,000

Anchorage 88,657 85,086 101,446 84,913 103,998

Honolulu 37,541 41,255 45,898 42,089 39,670

Portland 353,457 336,487 341,904 369,471 395,707

San Francisco 684,473 707,208 774,722 800,687 945,986

Seattle 783,326 818,627 816,870 1,143,720 1,157,762

Chicago 1,266,939 1,261,818 1,299,606 1,412,668 1,436,691

Cleveland 1,015,719 1,001,462 1,009,197 1,114,677 1,245,447

Detroit 396,886 433,890 487,286 552,711 546,870

Milwaukee 32,876 36,656 32,437 32,630 33,230

Minneapolis 112,649 119,441 123,082 132,869 168,568

Pembina 11,786 12,990 14,256 16,434 17,631

St. Louis 268,592 305,061 293,594 304,816 271,647

Great Falls 103,760 107,655 124,965 140,278 152,974

Total Collections 23,828,744 25,027,065 26,050,177 28,594,526 30,539,215

Net Financial Statement 

Adjustments (a) 6,383 (59,480) (59,263) (34,316) (90,825)

Total Revenues 

Collected $23,835,127 $24,967,585 $25,990,914 $28,560,210 $30,448,390

(a) Total collections represent collections recorded by the port locations during the fiscal year. Net financial statement adjustments primarily represent adjustments for timing differences for collections 

received during the fiscal year but not recorded until the next fiscal year.
Financial Section 113

Office of Inspector General (OIG) 

Report on Major Management Challenges

The DHS OIG’s Summary of Major Management Challenges Facing the Department of Homeland Security, dated October 23, 2006, and the agency’s progress addressing these challenges are addressed at 

the DHS consolidated level and are incorporated into the DHS Fiscal Year 2006 PAR.

Independent Auditor’s Report

The independent audit of CBP’s financial statements and internal controls was conducted by KPMG LLP, 

and follows in its entirety.

Auditor Reports
114 U.S. Customs and Border Protection • Performance and Accountability Report

Independent Auditor’s Report
Financial Section 115

Independent Auditor’s Report
116 U.S. Customs and Border Protection • Performance and Accountability Report

Independent Auditor’s Report

KPMG LLP 

2001 M Street, NW 

Washington, DC 20036 

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is 

a member of KPMG International, a Swiss cooperative. 

Independent Auditorsʼ Report 

Inspector General 

U.S. Department of Homeland Security: 

Commissioner 

Customs and Border Protection:

We have audited the accompanying consolidated balance sheets of the U.S. Department of Homeland 

Securityʼs (DHS) Bureau of Customs and Border Protection (CBP) as of September 30, 2006 and 2005, 

and the related consolidated statement of net cost, changes in net position, financing, and custodial 

activity, and the combined statement of budgetary resources (hereinafter referred to as “consolidated 

financial statements”) for the year ended September 30, 2006. The objective of our audits was to express 

an opinion on the fair presentation of these consolidated financial statements. In connection with our 

fiscal year 2006 audit, we also considered CBPʼs internal controls over financial reporting and 

performance measures, and tested CBPʼs compliance with certain provisions of applicable laws, 

regulations, and contract agreements that could have a direct and material effect on these consolidated 

financial statements. 

SUMMARY

As stated in our opinion on the consolidated financial statements, we concluded that CBPʼs consolidated 

financial statements as of September 30, 2006 and 2005 and for the year ended September 30, 2006, are 

presented fairly, in all material respects, in conformity with U.S. generally accepted accounting 

principles.

As discussed in Notes 1 and 15 to the consolidated financial statements, CBP changed its method of 

accounting for and reporting earmarked funds in fiscal year 2006 to adopt the provisions of the Federal 

Accounting Standards Advisory Boardʼs Statement of Federal Financial Accounting Standards No. 27, 

Identifying and Reporting Earmarked Funds.

Our consideration of internal controls over financial reporting and performance measures resulted in the 

following conditions being identified as reportable conditions: 

1. Drawback of Duties, Taxes, and Fees 

2. Information Technology 

3. Financial Reporting 

x Property, Plant, and Equipment 

x Intra-Departmental Imputed Financing Costs 

x Financial Statement Presentation 

4. Entry Process 

x Compliance Measurement Program 

x Bonded Warehouse and Foreign Trade Zones 

x In-Bond Program 

We consider the first two reportable conditions, above, to be material weaknesses. 
Financial Section 117

Independent Auditor’s Report

The results of our tests of compliance with certain provisions of laws, regulations, and contract 

agreements disclosed the following instances of noncompliance or other matters that are required to be 

reported under Government Auditing Standards, issued by the Comptroller General of the United States, 

and Office of Management and Budget (OMB) Bulletin No. 06-03, Audit Requirements for Federal 

Financial Statements.

x Federal Information Security Management Act (Electronic Governmental Act of 2002) 

x Federal Financial Management Improvement Act of 1996 (FFMIA) 

x Improper Payments Information Act of 2002 

The following sections discuss our opinion on CBPʼs consolidated financial statements; our consideration 

of CBPʼs internal controls over financial reporting and performance measures; our tests of CBPʼs 

compliance with certain provisions of applicable laws, regulations, and contract agreements; and 

managementʼs and our responsibilities. 

OPINION ON THE FINANCIAL STATEMENTS 

We have audited the accompanying consolidated balance sheets of the Department of Homeland 

Securityʼs (DHS) Bureau of Customs and Border Protection (CBP) as of September 30, 2006 and 2005, 

and the related consolidated statement of net cost, changes in net position, financing, and custodial 

activity and the combined statement of budgetary resources for the year ended September 30, 2006. 

In our opinion, the consolidated financial statements referred to above present fairly, in all material 

respects, the financial position of CBP as of September 30, 2006 and 2005, and its net costs, changes in 

net position, budgetary resources, reconciliation of net costs to budgetary obligations, and custodial 

activity for the year ended September 30, 2006, in conformity with U.S. generally accepted accounting 

principles.

As discussed in Notes 1 and 15 to the consolidated financial statements, CBP changed its method of 

accounting for and reporting earmarked funds in fiscal year 2006 to adopt the provisions of the Federal 

Accounting Standards Advisory Boardʼs Statement of Federal Financial Accounting Standards No. 27, 

Identifying and Reporting Earmarked Funds.

The information in the Management Discussion and Analysis and Required Supplementary Information 

sections is not a required part of the consolidated financial statements, but is supplementary information 

required by U.S. generally accepted accounting principles and OMB Circular No. A-136, Financial 

Reporting Requirements. We have applied certain limited procedures, which consisted principally of 

inquiries of management regarding the methods of measurement and presentation of this information. 

However, we did not audit this information and, accordingly, we express no opinion on it. 

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements 

taken as a whole. The information in the FY 2006 Management Discussion and Analysis and 

Performance Section and Other Accompanying Information section on pages 5 to 52 and 107 to 112 are 

presented for purposes of additional analysis and are not required as part of the consolidated financial 

statements. This information has not been subjected to auditing procedures and, accordingly, we express 

no opinion on it. 

INTERNAL CONTROL OVER FINANCIAL REPORTING 

Our consideration of internal control over financial reporting would not necessarily disclose all matters in 

the internal control over financial reporting that might be reportable conditions. Under standards issued 
118 U.S. Customs and Border Protection • Performance and Accountability Report

Independent Auditor’s Report

by the American Institute of Certified Public Accountants, reportable conditions are matters coming to 

our attention relating to significant deficiencies in the design or operation of the internal control over 

financial reporting that, in our judgment, could adversely affect CBPʼs ability to record, process, 

summarize, and report financial data consistent with the assertions by management in the consolidated 

financial statements. 

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 caused by 

error or fraud, in amounts that would be material in relation to the consolidated 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. Because of inherent limitations in internal control, misstatements 

due to error or fraud may nevertheless occur and not be detected. 

In our fiscal year 2006 audit, we noted certain matters, described in Exhibits I and II, involving internal 

control over financial reporting and its operation that we consider to be reportable conditions. We believe 

that the reportable conditions presented in Exhibit I are material weaknesses. Exhibit II presents the other 

reportable conditions. Exhibit IV presents the status of prior year reportable conditions. 

INTERNAL CONTROLS OVER PERFORMANCE MEASURES 

Under OMB Bulletin No. 06-03, the definition of material weaknesses is extended to other controls as 

follows. 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 

caused by error or fraud, in amounts that would be material in relation to a performance measure or 

aggregation of related performance measures, may occur and not be detected within a timely period by 

employees in the normal course of performing their assigned functions. Because of inherent limitations in 

internal control, misstatements due to error or fraud may nevertheless occur and not be detected. 

Our consideration of the internal control over the existence and completeness assertions related to key 

performance measures would not necessarily disclose all matters involving the internal control and its 

operation related to the design and operation of the internal control over the existence and completeness 

assertions related to key performance measures that might be reportable conditions. 

In our fiscal year 2006 audit, we noted no matters involving the design and operation of the internal 

control over the existence and completeness assertions related to key performance measures that we 

considered to be material weaknesses as defined above. 

COMPLIANCE AND OTHER MATTERS 

Our tests of compliance with certain provisions of laws, regulations, and contract agreements, as 

described in the Responsibilities section of this report, exclusive of those referred to in the Federal

Financial Management Improvement Act of 1996 (FFMIA), disclosed two instances of noncompliance or 

other matters that are required to be reported under Government Auditing Standards or OMB Bulletin No. 

06-03, and are described in Exhibit III. 

The results of our tests of FFMIA disclosed instances, described in Exhibit III, in which CBPʼs financial 

systems did not substantially comply with Federal financial management system requirements, and were 

not compliant with the United States Standard General Ledger at the transaction level. 

The results of our tests of FFMIA disclosed no instances in which CBPʼs financial management systems 

did not substantially comply with Federal accounting standards. 
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 * * * * * 

We noted certain additional matters that we have reported in the DHS Consolidated management letter. 

RESPONSIBILITIES

Managementʼs Responsibilities. The United States Code Title 31 Section 3515 and 9106 require 

agencies to report annually to Congress on their financial status and any other information needed to 

fairly present their financial position and results of operations. To assist DHS in meeting these reporting 

requirements, CBP prepares and submits financial statements in accordance with accounting principles 

generally accepted in the United States of America. 

Management is responsible for the consolidated financial statements, including: 

x Preparing the consolidated financial statements in conformity with U.S. generally accepted 

accounting principles; 

x Preparing the Management Discussion and Analysis (including the performance measures) and 

Required Supplementary Information; 

x Establishing and maintaining effective internal control; and 

x Complying with laws, regulations, and contract agreements applicable to the CBP, including FFMIA. 

In fulfilling this responsibility, management is required to make estimates and judgments to assess the 

expected benefits and related costs of internal control policies. 

Auditorsʼ Responsibilities. Our responsibility is to express an opinion on the fiscal year 2006 and 2005 

consolidated balance sheet and the related consolidated statement of net cost, changes in net position, 

financing, and custodial activity and the combined statement of budgetary resources for the year ended 

September 30, 2006 of CBP based on our audits. We conducted our audits in accordance with auditing 

standards generally accepted in the United States of America; the standards applicable to financial audits 

contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 

OMB Bulletin No. 06-03. Those standards and OMB Bulletin No. 06-03 require that we plan and 

perform the audits to obtain reasonable assurance about whether the consolidated financial statements are 

free of material misstatement. An audit includes consideration of internal control over financial reporting 

as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose 

of expressing an opinion on the effectiveness of CBPʼs internal control over financial reporting. 

Accordingly, we express no such opinion. 

An audit also includes: 

x Examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 

financial statements; 

x Assessing the accounting principles used and significant estimates made by management; and 

x Evaluating the overall consolidated financial statement presentation. 
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We believe that our audits provide a reasonable basis for our opinion. 

In planning and performing our fiscal year 2006 audit, we considered CBPʼs internal control over 

financial reporting by obtaining an understanding of CBPʼs internal control, determining whether internal 

controls had been placed in operation, assessing control risk, and performing tests of controls in order to 

determine our auditing procedures for the purpose of expressing our opinion on the consolidated financial 

statements. We limited our internal control testing to those controls necessary to achieve the objectives 

described in Government Auditing Standards and OMB Bulletin No. 06-03. We did not test all internal 

controls relevant to operating objectives as broadly defined by the Federal Managersʼ Financial Integrity 

Act of 1982. The objective of our audit was not to provide an opinion on CBPʼs internal control over 

financial reporting. Consequently, we do not provide an opinion thereon. 

As required by OMB Bulletin No. 06-03, in our fiscal year 2006 audit, with respect to internal control 

related to performance measures determined by management to be key and reported in the Management 

Discussion and Analysis and Performance sections, we obtained an understanding of the design of 

internal controls relating to the existence and completeness assertions and determined whether these 

internal controls had been placed in operation. We limited our testing to those controls necessary to test 

and report on the internal control over key performance measures in accordance with OMB Bulletin 06-

03. However, our procedures were not designed to provide an opinion on internal control over reported 

performance measures and, accordingly, we do not provide an opinion thereon. 

As part of obtaining reasonable assurance about whether CBPʼs fiscal year 2006 consolidated financial 

statements are free of material misstatement, we performed tests of CBPʼs compliance with certain 

provisions of laws, regulations, and contract agreements, noncompliance with which could have a direct 

and material effect on the determination of the consolidated financial statement amounts, and certain 

provisions of other laws and regulations specified in OMB Bulletin No. 06-03, including certain 

provisions referred to in FFMIA. We limited our tests of compliance to the provisions described in the 

preceding sentence, and we did not test compliance with all laws, regulations, and contract agreements 

applicable to CBP. However, providing an opinion on compliance with laws, regulations, and contract 

agreements was not an objective of our audit and, accordingly, we do not express such an opinion. 

Under OMB Bulletin No. 06-03 and FFMIA, we are required to report whether CBPʼs financial 

management systems substantially comply with (1) Federal financial management systems requirements, 

(2) applicable Federal accounting standards, and (3) the United States Government Standard General 

Ledger at the transaction level. To meet this requirement, we performed tests of compliance with FFMIA 

Section 803(a) requirements. 

RESTRICTED USE

This report is intended solely for the information and use of CBP management, DHS Management, the 

DHS Office of Inspector General, OMB, the U.S. Government Accountability Office, and the U.S. 

Congress and is not intended to be and should not be used by anyone other than these specified parties. 

November 15, 2006 
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Material Weaknesses 

A. Drawback of Duties, Taxes and Fees 

Background:

CBP, as a component of DHS, continued to perform an important revenue collection function for the U.S. 

Treasury. CBP collects approximately $28 billion in import duties, taxes and fees annually on 

merchandise arriving in the United States from foreign countries. 

Drawback is a remittance in whole or in part, of duties, taxes, or fees previously paid by an importer. 

Drawback typically occurs when the imported goods on which duties, taxes, or fees have been previously 

paid are subsequently exported from the United States or destroyed prior to entering the commerce of the 

United States. Depending on the type of drawback claim, the claimant has up to eight years from the date 

of importation to file for drawback. During the end of FY 2005, regulations were passed by the U.S. 

Congress that stipulated the timeframe for liquidating claims; this new process is known as deemliquidation by CBP. As a result of the new deem-liquidation process, CBP implemented new policies and 

procedures during FY 2006 that require the payment of claims in an accelerated timeframe. 

Condition: 

We noted the following weaknesses related to internal controls over drawback of duties, taxes, and fees 

paid by the importer: 

x The Automated Commercial System (ACS) lacked automated controls to detect and prevent 

excessive drawback claims and payments, necessitating inefficient manual processes that do 

not effectively compensate for these automated controls. ACS did not have the capability to 

compare, verify, and track essential information on drawback claims to the related underlying 

consumption entries or export documentation upon which the drawback claim was based. For 

example, ACS did not contain electronic edit checks that would flag duplicate claims for 

export of the same merchandise; 

x In addition, we noted that ACS lacked controls to prevent overpayment of drawback claims at 

the summary line level that were subject to the new deem liquidation process put in place 

during FY 2006. Specifically, we noted approximately $387K of overpayments. Also during 

FY 2006, we noted a claim that was disbursed via accelerated payment in a prior year that 

was subsequently paid again during FY 2006; 

x Drawback review policies did not require drawback specialists to review all related drawback 

claims against the underlying consumption entries to determine whether, in the aggregate, an 

excessive amount was claimed. During FY 2006, CBP implemented a statistical sampling 

method related to underlying consumption entries. However, a review has not occurred to 

determine the effectiveness of the new sampling method. In addition, under the new 

methodology drawback specialists are not required to review all prior drawback claims 

against a selected import entry; 
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x CBP drawback review policy and procedures allowed drawback specialists, with supervisory 

approval, to judgmentally decrease the number of ACS selected underlying consumption 

entries randomly selected for review, thus decreasing the reviewʼs effectiveness; and 

x The initial period for document retention related to a drawback claim is only 3 years from the 

date of payment. However, there are several situations that could extend the life of the 

drawback claim well beyond those 3 years. Also, the policy language was ambiguous; 

“...three years from the date of payment...” left open to interpretation whether the three years 

began on the date of the accelerated payment (if any), or the payment at final liquidation. 

Cause/Effect: 

Much of the drawback process was manual, placing an added burden on limited resources. CBP did use a 

sampling approach to compare, verify, and match consumption entry and export documentation to 

drawback claims submitted by importers. However, system and procedural limitations decreased the 

effectiveness of this approach. The inherent risk of fraudulent claims or claims made in error was high, 

which increased the risk of erroneous payments.

Criteria:

Under FMFIA, management must implement cost-effective controls to safeguard assets and ensure 

reliable financial reporting. OMBʼs Revised Implementation Guidance for the Federal Financial 

Management Improvement Act states that financial systems should “routinely provide reliable financial 

information consistently, accurately, and reported uniformly” to support management of current 

operations. Joint Financial Management Improvement Program (JFMIP) publications and OMB Circular 

A-127, Financial Management Systems, outlines the requirements for Federal systems. JFMIPʼs Core

Financial System Requirements states that the core financial system must maintain detailed information 

by account sufficient to provide audit trails and to support billing and research activities. OMB Circular 

A-127 requires that the design of financial systems should eliminate unnecessary duplication of a 

transaction entry. Wherever appropriate, data needed by the systems to support financial functions should 

be entered only once and other parts of the system should be updated through electronic means consistent 

with the timing requirements of normal business/transaction cycles. 

The Improper Payments Information Act of 2002 requires agencies to assess the risk of erroneous 

payments and develop a plan to correct control weaknesses. In addition to the regulatory requirements 

stated above, CBPʼs Drawback Handbook, dated July 2004, states that management reviews are necessary 

to maintain a uniform national policy of supervisory review. 

Recommendations: 

We recommend that CBP: 

1. Implement effective internal controls over drawback claims as part of any new systems 

initiatives, including the ability to compare, verify, and track essential information on drawback 

claims to the related underlying consumption entries and export documentation for which the 

drawback claim is based, and identify duplicate or excessive drawback claims; 
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2. Implement automated controls within ACS to prevent overpayment of a drawback claim that is 

subject to deem-liquidation as well as automated controls to prevent duplicate payments of 

refund claims; 

3. Evaluate the effectiveness of the sampling methodology implemented in FY 2006 related to 

underlying consumption entries; 

4. Eliminate the drawback specialists ability, with supervisory approval, to judgmentally decrease 

the number of ACS selected underlying consumption entries randomly selected for review, 

thereby reducing the effectiveness of the statistical sample; and 

5. Continue to work with the U.S. Congress to lengthen the required document retention period 

for all supporting documentation so that it corresponds with the drawback claim life cycle. 

B. Information Technology 

Background:

Controls over information technology (IT) and related financial systems are essential elements of 

financial reporting integrity. Effective general controls in an IT and financial systems environment are 

typically defined in six key control areas: entity-wide security program planning and management, access 

control, application software development and change control, system software, segregation of duties, and 

service continuity. In addition to reliable controls, financial management system functionality is important 

to program monitoring, increasing accountability of financial and program managers, providing better 

information for decision-making, and increasing the efficiency and effectiveness of services provided by 

the Federal government. 

Condition:

During FY 2006, CBP took corrective actions to address prior year IT control weaknesses. However, 

during FY 2006, we continued to find IT general and application control weaknesses at CBP. The most 

significant weaknesses from a financial statement audit perspective relate to information security. 

Collectively, the IT control weaknesses limit CBPʼs ability to ensure that critical financial and operational 

data is maintained in such a manner to ensure confidentiality, integrity, and availability. Because of the 

sensitive nature of the issues identified, we will issue a separate restricted distribution report to address 

those issues in detail. 

Criteria:

The Federal Information Security Management Act (FISMA), passed as part of the Electronic 

Government Act of 2002, mandates that Federal entities maintain IT security programs in accordance with 

OMB and National Institute of Standards and Technology (NIST) guidance. OMB Circular A-130, 

Management of Federal Information Resources, and various NIST guidelines describe specific essential 

criteria for maintaining effective general IT controls. In addition, OMB Circular A-127 prescribes policies 

and standards for executive departments and agencies to follow in developing, operating, evaluating, and 

reporting on financial management systems. 
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Recommendation: 

Due to the sensitive nature of these findings, our separate report will recommend that CBP management 

implement and enforce certain procedures to address the general and application control vulnerability of 

its financial systems. 
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Other Reportable Conditions 

C. Financial Reporting 

1. Property, Plant, and Equipment 

Background:

During FY 2006, CBP determined that errors existed in property, plant, and equipment (PPE) as of 

September 30, 2005. The ultimate affect of the majority of the errors were determined in 3rd quarter and 

were recorded during the 3rd and 4th quarter. Based upon the review completed by CBP it was determined 

that the PPE balance as of September 30, 2005 was overstated by $172 million. 

The errors were noted in the following categories: 

1. Software projects were recorded as software in development and not software in use; thereby no 

deprecation expense was recorded in prior periods. The incorrect classification caused an 

overstatement of $160 million in the software in use net book value. 

2. Real property inventory procedures resulted in identifying an additional $76 million in assets not 

recorded or assets not recorded at the correct cost. 

3. Aircraft were recorded as aircraft construction in progress and not aircraft in use; thereby no 

depreciation expense was recorded in prior periods. The incorrect classification caused an 

overstatement of $47 million in the aircraft in use net book value. 

4. Other PPE equipment and leasehold improvements were incorrectly recorded or not recorded 

causing an overstatement of $41 million in net book value. 

Condition:

CBPʼs property, plant, and equipment balance was misstated by approximately $172 million at 

September 30, 2005. CBP undertook a significant project to identify and properly account for these 

errors. CBP did not determine the final adjustments until 3rd and 4th quarters, thus resulting in 

misstatements of PPE for the first three quarters of FY 2006. It is noted that the errors related to the 

aircraft account balances were corrected during the second quarter. 

Cause/Effect: 

CBPʼs untimely recognition and correction of errors in PPE resulted in material misstatement in CBPʼs 

financial records for the first three quarters of FY 2006. 

Criteria:

Statement of Federal Financial Accounting Standards (SFFAS) No. 6, Accounting for Property, Plant, and 

Equipment, requires that: 

- PP&E be recorded at historical cost with an adjustment recorded for depreciation. In the absence of 

such information, estimates may be used based on a comparison of similar assets with known values 

or inflation-adjusted current costs; and 

- PP&E accounts be adjusted for disposals, retirements and removal of PP&E, including associated 

depreciation; and 
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- Upon completion of a construction project, costs should be capitalized into fixed assets. 

OMB Circular No. A-123, states that transactions should be promptly recorded, properly classified and 

accounted for in order to prepare timely and reliable financial and other reports. Documentation for 

transactions, management controls, and other significant events must be clear and readily available for 

examination. 

SFFAS No. 10, Accounting for Internal Use Software, provides requirements for the capitalization and 

reporting of software development costs. 

Recommendation: 

We recommend that CBP: 

1. Develop and implement policies and procedures to monitor property, plant, and equipment 

balances throughout the year and identified errors should be researched and corrected in a 

timely manner; 

2. CBPʼs “FY 2005 PPE Clean-Up Group” should make permanent the property, plant, and 

equipment review procedures developed in FY 2006 to detect and prevent errors in property, 

plant and equipment; and 

3. Coordination should be stressed and documented among the responsible CBP offices. 

2. Intra-Departmental Imputed Financing Costs 

Background:

The Federal Accounting Standards Advisory Board (FASAB) Statement of Federal Financial Accounting 

Standards No. 4, Managerial Cost Accounting Standards and Concepts (SFFAS No. 4) effective 

beginning in FY 2005, requires that “each entityʼs full cost should incorporate the full cost of goods and 

services that are received from other entities.” SFFAS No. 4 explains that, for some inter-entity costs, the 

provider will be reimbursed by the recipient at full cost. As such, the full cost of these inter-entity goods 

and services will be recognized in the recipient entityʼs accounts through the normal recording of 

transactions. SFFAS No. 4 also specifies that costs not fully reimbursed by the receiving entity should be 

recognized at the full cost. To accomplish recognition, the receiving entity should recognize an imputed 

financing source for the difference between the actual payment (if any) and the full cost. 

Condition:

CBP did have not in place a process to identify imputed financing sources and related costs for services 

provided by other bureaus within the Department of Homeland Security (DHS). 

Cause/Effect:

CBP did not have procedures in place during FY 2006 to ensure that intra departmental imputed costs are 

recognized in accordance with SFFAS No. 4 and Interpretation No. 6. Furthermore, CBP did not receive 
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the necessary information from other DHS bureaus in a timely manner in order to calculate the total 

imputed financing costs until the 4th quarter. 

Criteria:

Imputed intra-departmental costs are defined by SFFAS No. 4 and again in Interpretation No. 6, as the 

unreimbursed portion of the full cost of goods and services received by the entity (whether recognized or 

not) from a providing entity that is part of the same department or larger reporting entity. Interpretation 

No. 6 clarifies the requirement that the accounting and implementation applies to both imputed intraDepartmental and inter-Departmental costs. 

Recommendations: 

We recommend that CBP: 

1. Identify and maintain as current all activity with other DHS bureaus and determine if the 

items are recorded at full cost as required by SFFAS No. 4, interpretation No. 6; 

2. Obtain through the Department the necessary documentation from the other DHS bureaus in 

order to determine the imputed financing and costs to be recorded for those services/goods 

not already recorded at full cost; and 

3. Update at least twice a year, once at year-end, the imputed financing and costs associated 

with intra-DHS activity. 

3. Financial Statement Presentation 

Background:

Financial statement presentation at CBP is dependent upon guidance provided by the DHS – Office of the 

Chief Financial Officer (OCFO), however DHSʼ financial reporting resources are decentralized at the 

component level (CBP), thereby requiring CBP to have in place policies and procedures to ensure 

adequate year-end financial statement presentation. It was noted during FY 2006, the DHS-OCFO did 

not provide adequate financial statement presentation guidance to the bureaus, including CBP.

Condition:

CBPʼs September 30, 2006 pro-forma financial statements had significant weaknesses or omissions 

related to the presentation of the financial statements and notes. Specifically, we noted the following: 

x CBPʼs consolidated balance sheet and related notes were not presented on a comparative basis. 

x CBPʼs summary of significant accounting policies (note 1) did not include the following 

disclosures:

1. Narrative discussion of the implementation of SFFAS No. 27, Identifying and 

Reporting Earmarked Funds;
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2. Narrative discussion related to the adoption of new accounting standards (included in 

the “Basis of Accounting” section); 

3. Narrative discussion related to intra-CBP eliminations (included in the “Basis of 

Accounting” section); and 

4. Narrative discussion related to reclassifications. 

x CBPʼs statement of net cost was not presented in accordance with OMB A-136, Financial 

Reporting Requirements.

x CBPʼs earmarked funds note was missing the narrative discussion related to each fund required 

by SFFAS No. 27, paragraph 23. 

x CBPʼs notes did not include disclosures related to the Statement of Financing 

x Custodial revenue note was missing disclosures required by SFFAS No. 7, Accounting for 

Revenue and other Financing Sources. Specifically, CBP collects approximately $2.3 billion in 

excise taxes. Per paragraph 65 of SFFAS No. 7, CBPʼs cash collections and refunds by tax year 

and type of tax should include cash collections and cash refunds for the reporting period and for 

sufficient prior periods to illustrate (1) the historical timing of tax collections and refunds, and 

(2) any material trends in collection and refund patterns. CBPʼs note only provided information 

related to refunds and not tax collections. 

x CBPʼs required supplementary information (RSI) did not include the combining Statement of 

Budgetary Resources (SBR) as required by OMB Circular No. A-136. 

Cause/Effect: 

CBP did not prepare pro-forma financial statements that were in accordance with the FASAB statements 

and OMB circulars. This was caused by the lack of guidance provided by the Department (DHS-CFO) 

for preparing year-end financial statements. Without the proper presentation and disclosures noted above, 

CBP will present financial statements that are not in accordance with SFFAS #ʼs 7, and 27 and OMB 

Circular No. A-136. 

Criteria:

SFFAS No. 7, Accounting for Revenue and other Financing Sources, paragraphs 64-66, 67-68, and 69, 

provide the presentation requirements for Custodial revenue in the notes, required supplementary 

information, and other accompanying information. 

Specifically, paragraph 65 requires the following disclosure: 

x Cash collections and refunds by tax year and type of tax should include cash collections and 

cash refunds for the reporting period and for sufficient prior periods to illustrate (1) the 

historical timing of tax collections and refunds, and (2) any material trends in collection and 

refund patterns. Sufficient prior periods for each type of tax are the periods which end when 

the statutory period for collection ends. Collecting entities may shorten these periods if 

evidence for prior tax years indicates that a shorter period would reflect at least 99 percent of 

the collectible taxes. 
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SFFAS No. 27, Identifying and Reporting Earmarked Funds, paragraph 23, requires the following 

information to be disclosed in the notes: 

x A description of each fund's purpose, how the entity accounts for and reports the fund, and its 

authority to use those revenues and other financing sources. 

x The sources of revenue or other financing for the period and an explanation of the extent to 

which they are inflows of resources to the Government or the result of intragovernmental 

flows.

x Any change in legislation during or subsequent to the reporting period and before the issuance 

of the financial statements that significantly changes the purpose of the fund or that redirects 

a material portion of the accumulated balance. 

Office of Management and Budget Circular No. A-136, Financial Reporting Requirements, sets forth the 

financial reporting requirements of Federal agencies. Specifically, the following items are required: 

x Section II.4.1b – states that comparative financial statements are required. 

x Section II.4.4.1 – states that the Statement of Net Cost shall present costs and revenues as 

gross of public and intragovernmental. A note is required then to show the break-out between 

intragovernmental and public costs and revenues. 

x Section II.4.10.1 – states that the summary of significant accounting policies should include a 

description of changes in generally accepted accounting principles impacting the financial 

statements. 

x Section II.4.10.37-.38 – provide examples of notes suggested for the Statement of Financing. 

x Section II.4.12.5 – states that budgetary information aggregated for purposes of the SBR 

should be disaggregated for each of the reporting entityʼs major budget accounts and 

presented as RSI. Therefore, a Combining SBR should be presented as part of RSI. 

Recommendation: 

We recommend that CBP work jointly with the DHS-CFO department to ensure that the financial 

statement guidance provided from the department is in accordance with all FASAB statements and OMB 

circulars. If the DHS-CFOʼs guidance is not in accordance with FASAB statements and OMB circulars, 

CBP should make this apparent to the DHS-CFO and ensure that their stand-alone audit statements 

remain in accordance with the standards. 
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performance of port audits. Instead, CBP-HQ relies on the Self-Inspection program to 

determine how the ports are performing the CM examinations. We noted that questions on 

the self-inspection program worksheets do not provide the equivalent information that the 

twenty-five point port audit review provided; 

x Untimely results of CM exams. The FY 2006 memorandum for CM changes noted in 

condition 1 above includes an adjustment extending the deadline for ISDA comments from 

the Import Specialists to 120 days. Due to the extension in imputing results, CBP is unable to 

analyze the results of CM exams in a timely manner; and 

x CBP performs little review or analysis on the CM data to ensure that it was inputted correctly. 

Cause/Effect: 

CBP has been challenged to balance its commitment of limited resources to two important mission 

objectives – trade compliance, including the collection of taxes, duties and fees owed to the Federal 

government, and securing the U.S. borders from potential terrorist entry. While these mission objectives 

do overlap somewhat, there are differences in how resources are deployed. In fiscal year 2006, CBP 

made significant improvements in its custodial review controls and measurement processes, procedures 

and policies. 

The weaknesses in the CM program could result in CBP incorrectly evaluating the effectiveness of its 

control environment over the collections of duties, taxes, and fees. In addition, errors within the CM 

program could result in a misstatement of the “revenue gap” disclosure in the Management Discussion 

and Analysis section of CBPʼs Performance and Accountability Report. 

Recommendations: 

We recommend that CBP implement the following to improve the CM program: 

1. Provide additional detail in the guidelines, specifying the sample size, procedures to perform, 

and documentation requirements for the CM Coordinatorʼs review of Import Specialistsʼ 

review. The guidance should also readdress the timing requirements for the monitoring reports 

or data queries and documentation retention; 

2. Conduct periodic training to ensure that all port personnel have comprehensive knowledge of 

the CM program requirements; 

3. Re-formalize and implement effective procedures for the port audit process performed by 

NASD, or readdress the self-inspection program to provide a more comprehensive and in-depth 

review of port activity (similar to what was accomplished under the previously performed port 

audits), including ensuring that the port is performing the reviews accurately; and 

4. Establish an effective means of communication between the Office of Field Operations and 

Office of Strategic Trade to ensure data quality issues are timely addressed. 
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2. Bonded Warehouse and Foreign Trade Zones 

Background:

Bonded Warehouses (BW) are facilities under the joint supervision of CBP and the BW proprietor used to 

store merchandise that has not made entry into the U.S. Commerce. 

Foreign Trade Zones (FTZ) are secured areas under the joint supervision of CBP and the FTZ operator 

that are considered outside of the CBP territory upon activation. Authority for establishing these facilities 

is granted by the U.S. Department of Commerceʼs Foreign Trade Zones Board under the Foreign Trade 

Zones Act of 1934, as amended (19 U.S.C. 81a-81u). Foreign and domestic merchandise may be admitted 

into zones for operations not otherwise prohibited by law, including storage, exhibition, assembly, 

manufacturing, and processing. 

Condition:

We noted the following internal control weaknesses related to the BW and FTZ processes: 

x CBP lacked official policies and procedures for completing risk assessments and compliance 

reviews for the entire fiscal year (procedures formalized in March 2006) to address the 

monitoring of BWs and FTZs; 

x Inconsistent procedures followed by the ports for completing the risk assessments and 

compliance reviews; and 

x Annual surveys are completed by the ports and manually provided to Headquarters once a 

year. The HQ review of the manually provided surveys can take up to 6 months to compile 

and analyze. 

Criteria:

Under FMFIA, management must implement cost-effective controls to safeguard assets and ensure 

reliable financial reporting. OMBʼs Revised Implementation Guidance for FFMIA, states that financial 

systems should “routinely provide reliable financial information consistently, accurately, and reported 

uniformly” to support management of current operations. 

Cause/Effect: 

In many instances port personnel were not aware of the requirements and were following outdated 

procedures for the risk assessments and compliance reviews. CBP-HQ cannot effectively monitor or 

determine the overall compliance of the BWH/FTZ process if inconsistent procedures were being 

followed at the ports for completing the risk assessment and compliance reviews. 

Processes do not exist for the ports to electronically provide on a timely basis the results of the BWH/FTZ 

surveys, risk assessments, and compliance reviews to CBP-HQ for review. As a result, CBP-HQ cannot 

determine the effectiveness of the BWH/FTZ program without the ability to track the results of 

BWH/FTZ surveys on a consistent timely basis from the ports. 
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It is possible that BWH/FTZ operators and users may be able to operate BWHs and FTZs that contain 

merchandise about which CBP has no knowledge.

Recommendations: 

We recommend that CBP: 

1. Ensure adequate communication of the ports requirements related to compliance reviews and 

provide effective training so that all responsible personnel are aware of and can consistently 

execute all of the requirements; and 

2. Implement an electronic survey to be received and completed by the ports and sent back to HQs 

in order to ensure timely response and review by HQ personnel. 

3. In-Bond Program 

Background:

In-bond entries occur when merchandise is transported through one port; however, the merchandise does 

not officially enter U.S. commerce until it reaches the intended port of destination. An In-bond also 

allows foreign merchandise arriving at one U.S. port to be transported through the U.S. and be exported 

from another U.S. port without appraisement or the payment of duty. In 1998 CBP implemented a tracking 

and audit system within the Automated Commercial System (ACS). It was designed to provide “real time” 

tracking of in-bond shipments from origin to destination, including entry and exportation. This tracking and 

audit system also serves as a compliance measurement system through random examinations and port audit 

reviews to ensure compliance. The tracking and audit system was designed to prevent diversion of In-bond 

shipments being imported and exported. The tracking and audit system calls for randomly selected ports 

to perform physical examinations at the time of arrival and departure as well as for post audit reviews of 

carrier activity. 

Condition:

We noted the following internal control weaknesses related to the In-bond process: 

x Inconsistent procedures followed by the ports for completing compliance reviews/audits of 

in-bond entries; 

x Inconsistent review of required monthly reports related to in-bond activity at the ports; 

x National policies or procedures do not exist to monitor the results of In-Bond audits; and 

x CBP has not implemented a CMP to measure the revenue gap and effectiveness of controls 

over trade compliance related to the In-bond process. 

Criteria:

Under FMFIA, management must implement cost-effective controls to safeguard assets and ensure 

reliable financial reporting. OMBʼs Revised Implementation Guidance for FFMIA, states that financial 
134 U.S. Customs and Border Protection • Performance and Accountability Report

Independent Auditor’s Report

EXHIBIT II 

systems should “routinely provide reliable financial information consistently, accurately, and reported 

uniformly” to support management of current operations. 

Cause/Effect: 

In recent years, several new directives and new handbook have been implemented for the In-Bond 

program to address the performance of the program at the port level; however, there are currently no 

procedures in place to address headquartersʼ oversight of the program on a national level. 

The lack of an automatic compilation and analysis of audit results at the national level, results in the 

inability to determine the overall effectiveness of the in-bond audits and weaknesses in the overall Inbond program will not be known or identified at the national level. 

Recommendations: 

We recommend that CBP: 

1. Communicate to the ports the requirements for the in-bond program and provide adequate 

training for appropriate personnel to ensure that the requirements are carried out accurately; 

2. Develop policies and procedures for the review of required monthly reports. The policies and 

procedures should state how often the monthly reports are to be reviewed and the exact 

procedures to follow when completing the review; 

3. Maintain supporting documentation, such as the manifests, bill of ladings, or permits reviewed 

for all In-bond audits performed; 

4. Implement a standard procedure to periodically compile the results of all In-bond audits 

performed during the year and develop an analysis function in order to evaluate importersʼ 

compliance with regulations as well as the overall effectiveness of the In-bond audits at a 

national level; and 

5. Consider the cost/effectiveness of implementing a CMP (revenue gap calculation) over In-Bond 

to assess the risk of revenue loss and violations of trade regulations by importers. 
Financial Section 135

Independent Auditor’s Report

Exhibit III 

Compliance with Laws and Regulations 

(Findings A – B and C – D are presented in Exhibits I and II, respectively) 

E. Federal Information Security Management Act (Electronic Government Act of 2002) 

CBP is required to comply with the FISMA, which was enacted as part of the Electronic Government Act 

of 2002. FISMA requires agencies and departments to: (1) provide information security for the systems 

that support the operations under their control; (2) develop, document and implement an organizationwide information security program; (3) develop and maintain information security policies, procedures 

and control techniques; (4) provide security training and oversee personnel with significant 

responsibilities for information security; (5) assist senior officials concerning their security 

responsibilities; and (6) ensure the organization has sufficient trained personnel to comply with FISMA 

requirements. We noted instances of non-compliance with FISMA that have been reported by us in 

Appendix I within Comment B – Information Technology.

Recommendations: 

We recommend that CBP fully implement the requirements of FISMA in fiscal year 2007. 

F. Federal Financial Management Improvement Act of 1996 (FFMIA) 

CBP is required to comply with FFMIA, which requires that an agencyʼs financial management systems 

substantially comply with Federal financial management systems requirements, applicable Federal 

accounting standards, and the United States Government Standard General Ledger at the transaction level. 

We noted instances of non-compliance with FFMIA in relation to Federal financial management systems 

requirements and the United States Government Standard General Ledger at the transaction level.

Specifically, we noted the following weaknesses: 

1. With respect to Federal financial management system requirements, CBPʼs inventory 

transactions do not interface between the inventory systems and the financial system (SAP) and 

non-entity accounts receivable do not interface between ACS and SAP; and 

2. With respect to the United States Government Standard General Ledger at the transaction level, 

inventory activity (usage, usage, turn-ins, interagency transfers) and non-entity accounts 

receivable are not recorded at the transaction level in SAP. Non-entity accounts receivable 

information is maintained in ACS, SAP, and on manually prepared schedules. ACS is made up 

of several financial modules that track receivables through entry or case number. Year-end 

balances are posted through the ACS/SAP interface and through manual calculations for 

receivables not recorded through the ACS/SAP interface. 

Recommendation: 

We recommend that CBP improve its processes to ensure compliance with the FFMIA in fiscal year 

2007. 
136 U.S. Customs and Border Protection • Performance and Accountability Report

Independent Auditor’s Report

Exhibit III 

G. Improper Payments Information Act of 2002 (IPIA) 

CBP is required to comply with the Improper Payments Information Act of 2002 (the Act) in order to 

assist DHS in achieving overall compliance. The Act requires agencies to review all programs and 

activities they administer annually and identify those that may be susceptible to significant erroneous 

payments. For all programs and activities where the risk of erroneous payments is significant, agencies 

must estimate the annual amounts of erroneous payments, and report the estimates to the President and 

Congress with a progress report on actions to reduce them. The agency must report a statistically valid 

error projection for susceptible programs in its annual PAR. To facilitate the implementation of the Act, 

OMB issued guidance in Memorandum M-03-13, Implementation Guide for the Improper Payments 

Information Act of 2002, which among other matters provided a recommended process to meet the 

disclosure requirements. We noted that CBP did not complete IPIA sampling and testwork as it relates to 

custodial activity disbursements and as a result could not provide complete IPIA information to DHS.

Recommendation: 

We recommend that CBP ensure that the results of all improper payments testwork are obtained, 

evaluated, and provided to DHS in order to meet the IPIA reporting requirements in FY 2007. 
Financial Section 137

Independent Auditor’s Report

EXHIBIT IV 

Prior Year Condition As Reported at 

September 30, 2005 Status as of September 30, 2006 

Drawback of Duties, Taxes and 

Fees

Material Weakness: ACS lacked controls 

to detect and prevent excessive drawback 

claims and payments, requiring inefficient 

manual processes to compensate and the 

drawback review policies did not require 

drawback specialists to review all related 

drawback claims. 

Continue as a material weakness:

Weaknesses continue to exist related 

to the drawback process. See control 

finding letter A. 

Information Technology Material Weakness: Weaknesses 

were noted in entity-wide security, 

system access, segregation of duties, 

service continuity, and system software 

change management. 

Continue as a material weakness: 

Although improvements were made, 

weaknesses still remained in all areas 

noted during fiscal year 2005. See 

control finding letter B. 

Environmental Clean-up Costs Material Weakness: CBP did not have 

procedures in place to determine the overall 

environmental liabilities to be recorded in 

the September 30, 2005 financial 

statements. No single program existed in 

CBP in order to manage CBPʼs 

environmental liabilities. In addition, we 

noted a lack of communication within the 

organization related to the requirements 

associated with environmental liabilities. 

No longer considered a material 

weakness. 

Entry Process – Compliance 

Measurement Program 

Reportable Condition: Several

weaknesses existed related to CMP, such as 

inconsistent procedures followed at the 

ports, reduced CMP sample size, lack of 

NASD port audits, and little review or 

analysis on the CM data to ensure that it 

was inputted correctly. 

Continue as a reportable condition: 

Although improvements were made, 

weaknesses still remain during fiscal 

year 2006. See control finding letter 

D.

Entry Process – Bonded 

Warehouse and Foreign Trade 

Zones 

Reportable Condition: Several

weaknesses existed related to BW/FTZ, 

such as the lack of official guidance and 

training to address the monitoring of 

BW/FTZ, lack of management review of 

the BW/FTZ surveys, and the lack of a 

revenue gap calculation related to 

BW/FTZ. 

Continue as a reportable condition:

Weaknesses continue to exist related 

to the bonded warehouse and foreign 

trade zone process. See control 

finding letter D.

Non-compliance with the 

Federal Managersʼ Financial 

Integrity Act of 1982

Instance of non-compliance: CBP was 

not in compliance with FMFIA. FMFIA 

requires Federal managers to: 1) develop 

and implement management controls; 2) 

assess the adequacy of management 

controls; 3) identify needed improvements; 

4) take corresponding corrective action; 5) 

report annually on management controls. 

CBPʼs FMFIA report did not note all 

material weaknesses identified in the 

Independent Auditorsʼ Report. 

No longer considered an instance of 

non-compliance
138 U.S. Customs and Border Protection • Performance and Accountability Report

Independent Auditor’s Report

Exhibit IV 

Prior Year Condition As Reported at 

September 30, 2005 Status as of September 30, 2006 

Non-compliance with the 

Federal Information Security 

Management Act

Instance of non-compliance: CBP was not 

in substantial compliance with FISMA. 

FISMA requires agencies and departments 

to: 1) provide information security for the 

systems that support the operations under 

their control; 2) develop, document and 

implement an organization-wide 

information security program; 3) develop 

and maintain information security policies, 

procedures and control techniques; 4) 

provide security training and oversee 

personnel with significant responsibilities 

for information security; 5) assist senior 

officials concerning their security 

responsibilities; and 6) ensure the 

organization has sufficient trained 

personnel to comply with FISMA 

requirements. 

Continue reporting as an instance 

of non-compliance: Although 

improvements were made, CBP did 

not substantially comply with all 

categories of FISMA. See 

compliance finding letter E. 

Non-compliance with the 

Federal Financial Management 

Improvement Act of 1996

Instance of non-compliance: CBP was 

not in substantial compliance with FFMIA, 

which requires that an agencyʼs financial 

management systems substantially comply 

with Federal financial management systems 

requirements, applicable Federal 

accounting standards, and the United States 

Government Standard General Ledger at 

the transaction level. We noted instances of 

non-compliance with FFMIA in relation to 

Federal financial management systems 

requirements, the United States 

Government Standard General Ledger at 

the transaction level, and Federal 

accounting standards 

Continue reporting as an instance 

of non-compliance: Although 

improvements were made, CBP did 

not substantially comply with all 

categories of FFMIA. See 

compliance finding letter F.
Financial Section 139

Management’s Response to the Independent Auditor’s Report
140 U.S. Customs and Border Protection • Performance and Accountability Report

A&M Air and Marine

ABCI Arizona Border Control Initiative

ACE Automated Commercial Environment

ACS Automated Commercial System

APIS Advance Passenger Information System

ATS Automated Targeting System

BW Bonded Warehouses

CBP U.S. Customs and Border Protection

CFO Chief Financial Officer

CM Compliance Measurement

CSI Container Security Initiative

C-TPAT Customs Trade Partnership Against 

Terrorism

DHS Department of Homeland Security

DoD Department of Defense

DOL Department of Labor

EEO Equal Employment Opportunity

ER Expedited Removal

FAIR Federal Activities Inventory Reform

FAST Free and Secure Trade

FFMIA Federal Financial Management 

Improvement Act

FISMA Federal Information Security 

Management Act

FMFIA Federal Managers’ Financial 

Integrity Act

FRPP Federal Real Property Program

FTZ Foreign Trade Zones

FY Fiscal Year

FYHSP Future Year Homeland Security Program

GAO Government Accountability Office

GPRA Government Performance and Results 

Act

GSA General Services Administration

HRM Human Resources Management

IA Internal Affairs

ICE Immigration and Customs Enforcement

INA Office of International Affairs

IPIA Improper Payments Information Act 

of 2002

ITDS International Trade Data System

IT Information Technology

JFMIP Joint Financial Management 

Improvement Program

MID Management Inspection Division

NASD National Analysis Specialist Division

NFR Notice of Finding and Recommendation

NGB National Guard Bureau

NII Non-Intrusive Inspection

NIST National Institute of Standards and 

Technology

NLETS National Law Enforcement 

Telecommunication System

NPRM Notice of Proposed Rule Making

NTC National Targeting Center

OASISS Operation Against Smugglers Initiative 

on Safety and Security

OAT Office of Anti-Terrorism

OBP Office of Border Patrol

Acronyms
Acronyms

Acronyms 141

OCA Office of Congressional Affairs

OCC Office of Chief Counsel

OF Office of Finance

OFO Office of Field Operations

OIG Office of Inspector General

OINT Office of Intelligence

OIT Office of Information and Technology

OMB Office of Management and Budget

OPA Office of Public Affairs

OPP Office of Policy and Planning

OR&R Office of Regulations and Rulings

OST Office of Strategic Trade

OTD Office of Training and Development

OTM Other Than Mexican

OTR Office of Trade Relations

PAR Performance and Accountability Report

PART Performance Assessment Rating Tool

PMA President’s Management Agenda

POE Port of Entry

POEs Ports of Entry

PP&E Property, Plant and Equipment

RPM Radiation Portal Monitor

RFID Radio Frequency Identification

RSI Required Supplementary Information

SAP Systems, Applications, and Products

SBI Secure Border Initiative 

SENTRI Secure Electronic Network for Traveler 

Rapid Inspection

SFFAS Statement of Federal Financial 

Accounting Standards

SIP Self-Inspection Program

SIRS Self-Inspection Reporting System

SOW Statement of Work

TECS Treasury Enforcement Communication 

System

UA Unmanned Aircraft

UAS Unmanned Aircraft System

U.S. United States

USCG U.S. Coast Guard

USDA U.S. Department of Agriculture

US-VISIT U.S. Visitor and Immigrant Status 

Indicator Technology

WCO World Customs Organization

WMD Weapons of Mass Destruction

WME Weapons of Mass Effect
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130 U.S. Customs and Border Protection • Performance and Accountability Report

Independent Auditor’s Report

EXHIBIT II 

D. Entry Process 

1. Compliance Measurement Program 

Background:

CBP utilizes the Compliance Measurement (CM) program to measure the effectiveness of its control 

mechanisms over the collection of taxes, duties, and fees. The CM program is also used to determine the 

revenue gap that is reported in the “Other Accompanying Information” in the financial statements.

Condition:

We noted the following weaknesses related to CBPʼs CM Program: 

x CM Coordinatorsʼ guidance related to sampling, review procedures, and documentation 

requirements is ineffective related to the monthly review of CM results completed by import 

specialists. During FY 2006, the Assistant Commissioner, Office of Field Operations issued 

a memorandum addressing changes to the Compliance Measurement (CM) program. The 

memorandum included an updated Appendix B listing the responsibilities of various 

personnel within the CM process. Section 2.6 states that “On a monthly basis, the CM 

Coordinator will randomly sample the CM reviews completed by Import Specialists to verify 

that the reviews have been done in accordance with the procedures set forth herein.” 

However, there is a weakness in the guidance in that it does not provide the CM Coordinators 

with a sampling methodology, required review procedures, and related documentation 

requirements for the monthly review; 

x Non-compliance with CM guidelines requiring periodic reviews at the port level. During FY 

2006, we noted that six CM Coordinators were not performing the monthly reviews of CM 

reviews performed by the import specialists as required in the memorandum discussed above. 

At an additional six sites, there was no documentation to confirm performance of the monthly 

reviews. In addition, we noted that at three sites, the Compliance Review Tracking Quarterly 

(CRTQ) function was used to follow-up on Entry Summary CM selectivity hits; however, the 

CRTQ was not run weekly as required by Appendix B. During the review of entries 

identified on the various monitoring reports, KPMG noted that at eleven sites selected for 

testing were not inputting Import Specialist Discrepancy Adjustment (ISDA) remarks in 

compliance with Directives 3550-074A (dated May 14, 2004) and 3550-074B (dated 

September 15, 2006) and Appendix B. KPMG noted three different types of discrepancies 

from the guidelines noted above: ISDA remarks were input beyond the 120 day requirement 

at eleven ports, the compliance field was not marked at two ports, and the ISDA remarks did 

not provide sufficient detail at five ports; 

x The National Analysis Specialist Division (NASD) port audits were no longer performed 

during FY 2006. In prior years, NASD performed port audits to identify errors during the 

performance of a CM review. In fiscal year 2005, KPMG recommended using a risk-based 

approach to select which ports to audit. In addition, we recommended compiling the results 

of the port audits to identify potential trends or weaknesses on a national level, and to 

calculate a revenue impact for the discrepancies noted. During FY 2006, CBP suspended the 
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Overview of CBP

Cvr4 U.S. Customs and Border Protection • Performance and Accountability Report

Additional Information and Copies

To obtain additional copies of this report, 

visit the U.S. Customs and Border Protection 

public Website at http://www.cbp.gov