Appendix 1

Page 1 of 1
ABBREVIATIONS
ALC Agency Location Code
CEBA Competitive Equality Banking Act
CP&R Check Payment and Reconciliation System
FARS Financial Accounting and Reporting System
FMS Financial Management Service
FPA Federal Program Agency
FY Fiscal Year
GOALS Government On-line Accounting Link System
IG Inspector General
IIM Individual Indian Monies
Interior Department of the Interior
OIG Office of Inspector General
OPAC On-line Payment and Collection System
OTFM Office of Trust Fund Management
SF Standard Form
STAR Central Accounting System for the U.S. Government
(not an acronym)
TRACS Treasury Receivable, Accounting and Collection System
Treasury The Department of the Treasury
US. United States
USC United States Code
OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 14

FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


AUDIT RESULTS

2. Management concurred with the recommendation. Account
balances have been established, and the funds, upon authorization
by the Assistant Commissioner for Financial Operations, will be
moved to the General Fund. This is planned to occur by
June 30, 2000.

The OIG believes that the completed and proposed actions address the
intent of the recommendations.

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 8
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


Appendix 3
Page 1 of 1

MAJOR CONTRIBUTORS TO THIS REPORT

PROGRAM AUDITS DIRECTORATE

Maria V. Carmona, Acting Director
C. Samuel McGeorge, Audit Manager
Delores V. Dabney, Auditor-in-Charge
Ethel Taylor- Young, Senior Auditor

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 18
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


EXECUTIVE DIGEST

Audit Results

The audit identified approximately $42 million in funds to be put to
better use. FMS has two deposit fund accounts and a former Financial
Accounting and Reporting System (FARS) pre-effective limited
payability account that should be closed out, and the remaining balances,
which total approximately $42 million, should be transferred to the
miscellaneous receipts of the Treasury. The IIM trust fund, for which
the Department of the Interior (not Treasury) has primary responsibility,
has no direct relationship to the limited payability deposit fund accounts.
The current limited payability cancellation process adheres to CEBA.
However, FMS should ensure that problems are identified and corrected
in a timely manner.

Recommendations

We recommended that FMS: discontinue efforts to reconcile the deposit
fund accounts, make no adjustments to the accounts until final
disposition is decided, close out the two deposit fund accounts and the
former FARS pre-effective limited payability account and transfer the
remaining balances to the miscellaneous receipts of the Treasury, and
modify its existing Accounts Branch procedures to include a review of
limited payability transactions processed through the Treasury
Receivable, Accounting and Collection System (TRACS).

Management Response and OIG Comment

FMS management concurred with the findings and recommendations.
FMS has taken actions such as ceasing reconciliation efforts, flagging
accounts so that adjustments cannot be made, implementing an
enhancement to TRACS, and initiating monthly monitoring of limited
payability credits. In addition, FMS plans to move $41,714,404.55 to
the General Fund.

The OIG believes that the actions taken or proposed by FMS
management address the intent of the recommendations.

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page ii
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


Appendix 2
Page 1 of 3

MANAGEMENT RESPONSE

DEPARTMENT OF THE TREASURY
FINANCIAL MANAGEMENT SERVICE
WASHINGTON, D.C. 20227

May 8, 2000

MEMORANDUM FOR DENNIS S. SCHINDEL
ASSISTANT INSPECTOR GENERAL FOR AUDIT

FROM:

SUBJECT: Draft Report on Financial Management Service's Deposit Fund
Accounts Used for the Implementation of the Competitive
Equality Banking Act--FMS Comments

Thank you for the opportunity to review your draft audit report on the Financial
Management Service's Deposit Fund Accounts Used for the Implementation of the
Competitive Equality Banking Act (CEBA) dated March 30, 2000. We concur with the
findings and recommendations, and we have a few points of clarification. Although the
Financial Management Service (FMS) corrective action plan is not yet due, a synopsis of
our planned corrective actions and their status follows immediately below. After that is a
discussion of the technical issues.

Finding 1 - FMS Should Close Out the Two Limited Payability Deposit Fund Accounts
and the Related Former FARS Account, and Transfer the Remaining Balances to the
Miscellaneous Receipts of the Treasury,

Recommendation | - FMS should discontinue efforts to reconcile the deposit fund
accounts. FMS should not make any adjustments to the accounts until final disposition is
decided.

Status of Corrective Action: Reconciliation efforts have been terminated and accounts
flagged so adjustments cannot be made.

Recommendation 2 - FMS should close out the two deposit fund accounts and the former
FARS pre-effective limited payability account and transfer the remaining $41,714,404.55
to the miscellaneous receipts of the Treasury.

Status of Corrective Action: Account balances have already been established and the
funds, upon authorization by the Assistant Commissioner for Financial Operations, will
be moved to the general fund. This is planned to occur by June 30, 2000.

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page 15
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


Appendix 2
Page 3 of 3

MANAGEMENT RESPONSE

Page 3 - DENNIS S. SCHINDEL

As you can see, FMS has been proactive in identifying the required corrective actions and
has already made significant progress toward implementing the recommendations made
in your report. Thank you for keeping us informed during the audit so that we could take
prompt action.

cc: Don Hammond

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 17
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


AUDIT RESULTS

funds to the appropriate agencies via the SF 1081. The reason the
credits did not automatically transfer to the agencies was because there
were no transfer options and consolidation codes recorded on the ALC
query screen. When this happens, the item defaults to GOALS to
determine what transfer option (OPAC or SF 1081) should be used.
The credit for the two transactions would normally have been
transferred via SF 1081. But, because there was no transfer option and
consolidation code recorded on the ALC query screen, GOALS
eliminated the transactions as invalid ALCs.

According to an accountant in the Accounts Branch, at the time, the
solution was that the programmer in the Applications Software
Division would fix the transfer option and consolidation code.

We were provided with supporting documentation demonstrating the
actual transfer and credit to the agencies.

For the other two transactions, the check and limited payability
cancellation dates were missing in TRACS. When the Accounts
Branch researched the two transactions with missing dates, the
Accounts Branch informed us that the debit voucher was prepared by
the Reconciliation Branch for issue tape process with erroneous dates
of February 1997 instead of February 1998. According to the
Accounts Branch, the problem caused limited payability cancellations
for the two transactions.

We determined that the Accounts Branch had not conducted a periodic
review of the limited payability transactions in TRACS to discover
discrepancies that may exist in TRACS. We reviewed the existing
procedures and determined that the Accounts Branch did not include a
process to conduct a periodic review of limited payability transactions
in TRACS. A periodic review of limited payability transactions
processed in TRACS will ensure that discrepancies are identified and
corrected in a timely manner.

Recommendation

1. FMS should modify its existing Accounts Branch procedures to

include a review of limited payability transactions processed
through TRACS.

Management Response and OIG Comment

Management concurred with the recommendation. To correct the
problem related to non-Treasury Disbursing Offices, a TRACS

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page 12
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT



AUDIT RESULTS

Finding 1.

FMS Should Close Out the Two Limited Payability
Deposit Fund Accounts and the Related Former FARS
Account, and Transfer the Remaining Balances to the
Miscellaneous Receipts of the Treasury

Deposit Fund Accounts

FMS had two limited payability deposit fund accounts with balances
totaling $11,358,242.63 that did not comply with the provisions of
CEBA. FMS created the two deposit fund accounts and anticipated
that agencies would submit future claims for pre- and post-effective
date checks. As a result, because FMS created the two deposit fund
accounts and continued to carry them in the financial system, the funds
have not been put to better use.

CEBA required that Treasury checks that were outstanding as of
October 1, 1989, be cancelled within 18 months. The proceeds from
the cancelled checks should have been applied to eliminate the
balances in accounts that represented uncollectible accounts receivable
and other costs associated with the payment of checks and check
claims by Treasury on behalf of all payment certifying agencies. Any
remaining proceeds should have been deposited in the miscellaneous
receipts of the Treasury. Also, CEBA requires that Treasury checks
issued on or after October 1, 1989, which remain outstanding for

12 months or more be cancelled and that the funds be returned to the
applicable agencies.

FMS established the two deposit fund accounts in April 1988 in
anticipation of CEBA. One account, titled pre-effective date limited
payability cancellations credit, was established to cancel checks issued
prior to October 1, 1989. The other account, titled post-effective date
limited payability cancellations credit, was established to cancel
checks issued on or after October 1, 1989.

As of September 30, 1999, the balance in STAR for the pre-effective
deposit fund account (20X6023) was $328,625.16. The balance in the
post-effective deposit fund account (20X6024) was $11,029,617.47.
FMS informed us that the deposit fund accounts had remained active
in anticipation of future claims. FMS made the two deposit fund
accounts dormant in October 1997, so that no further activity would be
reported to the accounts, and so that the Accounts Branch could
reconcile the differences in the balances between TRACS and STAR.

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page 4
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


BACKGROUND

FMS is the United States (U.S.) Government’s central financial
manager. FMS promotes sound financial management practices for all
Federal Program Agencies (FPA). FPAs report to FMS all of their
deposits, disbursements, and fund balances. Additionally, FMS is
charged with providing systems and related support for recording and
reporting collection and payment transactions, and for identifying and
reporting differences between FMS transaction records and agency
transaction records. Also, FMS makes recommendations on the
country’s ability to borrow money to meet its debts.

The Accounts Branch within FMS accomplishes its limited payability
responsibilities through two mainframe-based centralized accounting
database systems. The first, TRACS, maintains the accounting for the
check claims process. TRACS processes check claims, authorizes
payments, issues bills, performs collection functions, and processes
transfers to and from FPAs. The second, STAR,! which is the central
accounting system for the U.S. Government, maintains all data related to
Federal collections and disbursements. TRACS detail data and the
cumulative detail balances should reconcile with STAR’s summary
totals and with data reported to TRACS by FMS’ Check Payment and
Reconciliation System (CP&R), which identifies and cancels checks that
meet the limited payability criteria, then passes the credit to TRACS.

CEBA, Public Law 100-86, otherwise known as limited payability,
includes provisions that required the cancellation of Treasury checks that
were outstanding as of October 1, 1989, and the cancellation of
subsequently issued checks that were not negotiated within 12 months of
issuance. In addition, CEBA delineated the purposes for which the
proceeds of non-negotiated checks issued before its enactment, and on
the date of or after its enactment, could be used.

During our audit, Treasury and the Department of the Interior (Interior)
were defendants in a Federal class action lawsuit relating to the IIM trust
fund. During the course of the litigation, questions were raised
regarding the source and utilization of funds in the FMS deposit fund
accounts relating to the IIM trust fund.

The OIG received a June 11, 1999, memorandum from the then Treasury
General Counsel requesting a review of the two deposit fund accounts
and of the disposal of historical records. The first matter involved two
deposit fund accounts FMS established and maintained for the purpose
of implementing CEBA. The second matter involved the disposal of
historical records maintained by FMS at its Hyattsville, Maryland,

' This term is not an acronym.

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 1
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


TABLE OF CONTENTS

EXECUTIVE DIGEST

BACKGROUND .....csssccssssssssesssssssnscssesessessnecessessuseesusesanscessnecsneessueesueessessueeseeeneaseesaee 1
OBJECTIVES, SCOPE, AND METHODOLOGY ..........c:ssssssssssssssssessssseesessessseessneees 3
AUDIT RESULTS ....ccscssssssssssesssssesessscsssssecsssssccssnssecessneeessnneesssneesssnseseeaeesesueeessessseses 4

Finding 1. FMS Should Close Out the Two Limited Payability
Deposit Fund Accounts and the Related Former FARS
Account, and Transfer the Remaining Balances to the
Miscellaneous Receipts of the Treasury .........sscsssssssescsessseesesssesssesceesses 4

Finding 2. The Individual Indian Monies Trust Fund, for Which Interior
(Not Treasury) Has Primary Responsibility, Has No Direct

Relationship to the Limited Payability Deposit Fund Accounts................ 9
Finding 3. FMS Should Improve Its Current Limited Payability
Cancellation Process .....:.scssssscssesssssssssesssecsneessueeesneesseesneesneessuecnteesseensosse 11
APPENDICES

Appendix 1. Abbreviations

Appendix 2. Management Response............csesssecssescssessssessssecsnecssscsssecssesesecsssesuses 15

Appendix 3. Major Contributors to This Report........ssssscssesssessssesnessstesseecstecsseseees 18

Appendix 4. Report Distribution .........scceessessesssssssesssesseeseessssssssssusssecseessessesaevees 19
OIG-00-088 FMS’S DEPOSIT FUND ACCOUNTS USED Page iii

FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


AUDIT RESULTS

enhancement request was implemented on March 1, 2000. This
enhancement converts 4-digit ALCs to the appropriate 8-digit ALC.
Additionally, through the use of recently-obtained software, the
Accounts Branch now monitors limited payability credits on a monthly
basis to ensure that no credits are suspended. One of the senior
accountants has been assigned to resolve any aged limited payability
credits and to monitor the account on a monthly basis.

The OIG believes that the completed and proposed actions address the
intent of the recommendation.

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 13
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


OBJECTIVES, SCOPE, AND METHODOLOGY

The objectives of the audit were to (1) determine the source and
utilization of the deposit fund accounts FMS established and maintained
for the purpose of implementing CEBA, (2) assess any related activity
regarding the IIM trust fund, and (3) assess the current limited payability
cancellation process. Following an entrance conference in August 1999,
we conducted our on-site audit fieldwork at FMS’s Accounts Branch
located in Hyattsville, Maryland, from September through

November 1999,

To accomplish the audit objectives, we reviewed the two limited
payability deposit fund accounts from October 1, 1989, the effective
date of CEBA, through September 30, 1999. We developed a
chronology of events that transpired during that time. We interviewed
former and current employees involved in the limited payability process
at FMS. We reviewed the Accounts Branch’s reconciliation efforts for
the deposit fund balances, but could not perform any extensive detailed
reconstruction of the accounts due to the lack of supporting
documentation and an audit trail. Therefore, we are unable to attest to
the details (make up) of the account balances. In addition, we randomly
selected a sample of 60 limited payability transactions for FY 1999 to
test and verify the current limited payability cancellation process.

We conducted the audit in accordance with the Government Auditing
Standards issued by the Comptroller General of the United States,
and included such tests as were deemed necessary.

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page 3
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


Appendix 4
Page 1 of 1

REPORT DISTRIBUTION

TREASURY DEPARTMENTAL OFFICES

Fiscal Assistant Secretary

Office of Strategic Planning

Office of Budget

Office of Accounting and Internal Control

FINANCIAL MANAGEMENT SERVICE

Commissioner
Assistant Commissioner, Management and Chief Financial Officer
Assistant Commissioner, Financial Operations

OFFICE OF MANAGEMENT AND BUDGET

Esther Rosenbaum, OIG Budget Examiner

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 19
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


FINANCIAL MANAGEMENT SERVICE’S
DEPOSIT FUND ACCOUNTS USED FOR THE
IMPLEMENTATION OF THE COMPETITIVE

EQUALITY BANKING ACT

OIG-00-088 May 30, 2000

Office of Inspector General

United States Department of the Treasury



AUDIT RESULTS

The entire FARS balance was not carried forward to TRACS because
only the FARS data that matched the edit capabilities of TRACS
(valid transactions) were entered into TRACS. The remaining
invalid transactions that could not be migrated into TRACS were
printed for manual reconciliation.

During our audit, the Accounts Branch was unable to perform a
manual reconciliation. Many of the historical records no longer exist
and FMS is unable to identify agency location codes (ALC) for the
various agencies. Therefore, FMS should close out the FARS balance
and transfer the FARS pre-effective limited payability cancellation
funds to the miscellaneous receipts of the Treasury. Also, during our
audit, there was a suggestion from the Accounts Branch about making
adjustments between the pre- and post-effective deposit fund accounts.
There was no basis or documentary accounting evidence to make any
adjustments to the deposit fund accounts.

In our opinion, FMS should discontinue its effort to reconcile the
balances and make no adjustments to the deposit fund accounts.

Mass Cancellation

FMS processed a mass cancellation in two segments. The first
segment, totaling approximately $4.8 billion, occurred on

November 30, 1990. The source of the mass cancellation included
records of unnegotiated checks dating from 1955 through

November 1986. FMS extracted the check record information from its
old CP&R system. Another source for the mass cancellation was
unnegotiated check record information from November 1986 through
September 30, 1989, that FMS extracted from its new CP&R system
implemented in 1986.

The second segment of the mass cancellation, totaling approximately
$11.3 million, was for checks dated prior to October 1, 1989, that were
cancelled during the period December 1990 through June 1991.

The sources for the second segment included agencies such as the
Department of Defense, the Social Security Administration, the
Railroad Retirement Board, the Internal Revenue Service, and the
Veterans Administration. The second segment did not identify Interior
as a source of funds. The detailed information to support Interior’s
check records is maintained by Interior. FMS information is only
recorded at the ALC level.

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 6
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


AUDIT RESULTS

As previously discussed, the intent of CEBA was not to establish
ownership of the funds or to return the funds to the agencies for checks
issued prior to October 1, 1989. CEBA required intent was for FMS to
conduct a mass cancellation and return the funds to the miscellaneous
receipts of the Treasury. After the mass cancellation took place,
CEBA’s intent was that FMS would start with a new limited payability
process that would automatically and systematically return the funds
outstanding to the applicable agencies.

CEBA made it impossible for any individual or agency, including
individual Indians, to directly claim any Treasury funds that were
subject to mass cancellation. Any claims on the Government would
have to be reestablished with the certifying agency. Nothing in CEBA
was to be construed as affecting the underlying obligation of the U.S.
or any agency thereof. According to FMS Bulletin No. 90-03, Limited
Payability, Section 4b, Check Claimability, dated October 1, 1989,
“any claim on account of a Treasury check issued prior to October 1,
1989, will be barred unless it is presented by the payee to the
certifying agency before October 1, 1990.”

In our opinion, FMS should not have established the pre- and
post-effective limited payability deposit fund accounts in anticipation
of future claims. The deposit fund accounts should not have existed
after FMS conducted the mass cancellation (discussed further on
Page 6). However, to comply with the intent of CEBA, we believe
that FMS should have created the post-effective limited payability
cancellation account (2135) that currently exists in TRACS.

At the time of our audit, the Accounts Branch was unable to reconcile
the different balances between TRACS and STAR. We do not

believe that the Accounts Branch will be able to reconcile the balances
due to the lack of an adequate audit trail. Much of the historical
documentation regarding the deposit fund balances no longer exists.
Therefore, we believe that FMS should discontinue any attempts to
reconcile the balances.

Former FARS Limited Payability Cancellation Account

We found a balance of $30,356,161.92 remaining in a pre-effective
limited payability cancellation account (2125) maintained in FARS.
The balance had not been transferred to the TRACS pre-effective
limited payability account. In 1991, FMS converted its FARS to
TRACS. At the time of conversion, FARS had a balance of
$41,836,670.25. Only $11,480,508.33 was transferred into TRACS.

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 5
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


BACKGROUND

facility. The OIG agreed to conduct a review of the deposit fund
accounts and any related activity concerning the IIM trust fund.

In response to the second part of the request regarding the disposal of
records, the Inspector General (IG) agreed to defer any investigative
action pending receipt of the Special Master’s report. On July 1, 1999,
the IG and the Special Master assigned by the presiding judge to
investigate the disposal of records met. At that time, the Special Master
requested that the OIG defer investigative activity until receipt of a
report.

The IIM trust fund is primarily derived from claims, judgement awards,
and proceeds from surface and subsurface leasing, such as agriculture,
business, timber, minerals, or oil and gas. The IIM trust fund realizes
receipts primarily from royalties on natural resource depletion, land use
agreements, enterprises having a direct relationship to trust fund
resources, per capita payments, and investment income. Treasury
functions as the disbursing agent for Interior’s Office of Trust Fund
Management (OTFM). When Treasury checks are written by OTFM,
the amounts are deducted from the IIM trust fund, regardless of when
(or whether) the checks are eventually negotiated by the payees.

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page 2
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


Appendix 2
Page 2 of 3

MANAGEMENT RESPONSE

Page 2 - DENNIS S. SCHINDEL

Finding 2 - The Individual Indian Monies Trust Fund, for Which Interior (Not Treasury)
Has Primary Responsibility, Has No Direct Relationship to the Limited Payability
Deposit Fund Accounts

Status of Corrective Action: No recommendation; no corrective action is necessary.
Finding 3 - FMS Should Improve Its Current Limited Payability Cancellation Process

Recommendation 3: FMS should modify its existing Accounts Branch procedures to
include a review of limited payability transactions processed through Treasury
Receivable, Accounting, and Collection System (TRACS).

Status of Corrective Action: To correct the problem related to non-Treasury Disbursing
Offices (NTDOs), a TRACS enhancement request was implemented on March 1, 2000.
This enhancement converts four-digit agency location codes (ALCs) to the appropriate
eight-digit ALC. Additionally, through the use of recently obtained software, Accounts
Branch now monitors limited payability credits on a monthly basis to ensure that no
credits are suspended. One of the senior accountants has been assigned to resolve any
aged limited payability credits and to monitor the account on a monthly basis.

Clarifications

On page 1, the second paragraph correctly describes the roles of accounting systems
TRACS and STAR [not an acronym], but should mention the role of the Check Payment
and Reconciliation System (CP&R) which identifies and cancels checks that meet the
limited payability criteria, then passes the credit to TRACS.

On page 5, second paragraph, it would be more accurate to add at the end, "CEBA also
stated that ‘Nothing in this subsection...should impact the underlying obligation of the
agency."

On page 6, reference is made to two mass cancellations. There was only a single mass
cancellation. During the months from December 1990 through June 1991, FMS received
check issue data for pre-October 1989 checks that were outstanding, which were
cancelled as part of the monthly check cancellation process. The funds associated with
these pre-October 1989 checks were not returned to the agency.

On page 8, fourth paragraph, reference is made to the "... first mass cancellation file."
The word "first" should be deleted, since there was no second file.

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 16
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


Overview

EXECUTIVE DIGEST

The Competitive Equality Banking Act (CEBA), Public Law 100-86,
otherwise known as limited payability, required the cancellation of the
Department of the Treasury (Treasury) checks that were outstanding as
of October 1, 1989, and the cancellation of subsequently issued checks
that were not negotiated within 12 months of issuance. In addition,
CEBA delineated the purposes for which the proceeds of non-negotiated
checks could be used.

The Office of Inspector General (OIG) received a June 11, 1999,
memorandum from the then Treasury General Counsel requesting a
review of two deposit fund accounts that the Financial Management
Service (FMS) established and maintained for the purpose of
implementing CEBA and of the disposal of historical records maintained
by FMS. The OIG agreed to conduct a review of the deposit fund
accounts and any related activity concerning the Individual Indian
Monies (IIM) trust fund.

Objectives, Scope, and Methodology

The objectives of the audit were to: (1) determine the source and
utilization of the deposit fund accounts that FMS established and
maintained for the purpose of implementing CEBA, (2) assess any
related activity regarding the ITM trust fund, and (3) assess the current
limited payability cancellation process.

We reviewed the two limited payability deposit fund accounts from
October 1, 1989hrough September 30, 1999. We developed a
chronology of events that transpired during that time. We interviewed
former and current employees involved in the limited payability process
at FMS. In addition, we selected a sample of 60 limited payability
transactions for Fiscal Year (FY) 1999 to test and verify the current
limited payability cancellation process.

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page i
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


AUDIT RESULTS

Finding 2.

The Individual Indian Monies Trust Fund, for Which
Interior (Not Treasury) Has Primary Responsibility, Has
No Direct Relationship to the Limited Payability Deposit
Fund Accounts

Interior (not Treasury) is the primary custodian of IIM trust fund.
Interior has custodial responsibility for accounting and reporting

IIM trust fund activities. Interior has independent disbursing authority
for payments relating to the IIM trust fund. By contrast, Treasury has
a minimal role with respect to the ITM trust fund. Under the IIM trust
fund statute, the only responsibility of Treasury is to invest the IIM
fund, at the direction of Interior, in public debt securities with
maturities determined by Interior.

As specifically stated in 25 USC 162a (d), Interior is responsible for,
among other things: (1) providing adequate systems for accounting for
and reporting trust fund balances; (2) providing adequate controls over
receipts and disbursements; (3) providing periodic, timely
reconciliations to assure the accuracy of accounts; (4) determining
accurate cash balances; (5) preparing and supplying account holders
with balances of their accounts, which shall be available on a daily
basis; and (6) establishing consistent written policies and procedures
for trust fund management and accounting.

There is no direct relationship between the IIM trust fund and the
deposit fund accounts. The trust fund is an account used for
investment purposes. The deposit fund accounts are used to return
credits for non-negotiated checks authorized by the agencies.

There could be an indirect relationship between the IIM and the
deposit fund accounts if the deposit fund accounts were to contain
monies that were previously disbursed from the IIM, but were never
negotiated by the recipient. However, Interior would be the
responsible agency that would have that information.

FMS informed us that Interior requested and was provided with a copy
of the mass cancellation file relating to Interior. According to the data
FMS provided, Interior had 57,254 items totaling approximately

$1.8 million in the mass cancellation. FMS does not have the level of
detail that would enable it to determine if the 57,254 items represented
IIM trust fund transactions.

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page 9
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


AUDIT RESULTS

Finding 3. FMS Should Improve Its Current Limited Payability
Cancellation Process

The current limited payability cancellation process adheres to CEBA.
However, FMS should ensure that the Accounts Branch systematically
identifies and corrects problems in a timely manner. If FMS continues
to have transactions accumulate in TRACS, the same problems that
existed in the old FARS system will occur. That is, large sums of
unidentified monies will be held in an account when these funds
should be returned to the agencies so that the funds can be put to
better use.

Of the 60 transactions that we reviewed, we found that FMS should
have timely identified the problems we discovered for 4 transactions.
Because of the limited scope of the current audit, we selected a small
sample to determine if there were any problems with the current
limited payability process. We did not extrapolate to the universe of
FY 1999 transactions.

For 2 of the 4 limited payability transactions, the agencies had not
been credited with the funds as of November 1999. The check issue
dates were August 21, 1997, and November 12, 1997. The limited
payability cancellation dates were October 27, 1998, and January 20,
1999, respectively. Although the cancellation appropriately occurred
during the 14% month, the credits were not transferred to the agencies
in a timely manner.

According to FMS Bulletin No. 90-03, Limited Payability, Section 5e,
Limited Payability Cancellation, during the 14" month after issuance,
Treasury will identify and cancel all checks that have aged 12 months
from the issue date during the previous month and have remained
outstanding. Proceeds of the checks will be forwarded to agencies
using 8-digit ALCs in the issue record through the Government
On-line Accounting Link System/On-line Payment and Collection
system (GOALS/OPAC). Non-Treasury Disbursing Officers will
receive credit on the Standard Form (SF) 1081, Voucher and Schedule
of Withdrawals and Credit, from the Accounts Branch.

We informed the Accounts Branch that the agencies had not received
credit for the funds because they were still in TRACS. The Accounts
Branch researched and corrected the problem, and transferred the

OIG-00-088 | FMS’S DEPOSIT FUND ACCOUNTS USED Page 11
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT


Page 2

In its response dated May 8, 2000, and included as
Appendix 2, FMS management concurred with the findings and
recommendations. FMS has taken actions such as: ceasing
reconciliation efforts; flagging accounts so that
adjustments cannot be made; implementing an enhancement to
the Treasury Receivable, Accounting and Collection System;
and initiating monthly monitoring of limited payability
credits. In addition, FMS plans to move $41,714,404.55 to
the General Fund. The Office of Inspector General believes
that the actions taken or proposed by FMS management
address the intent of the recommendations.

We appreciate the courtesies and cooperation provided to
our auditors during the audit. If you wish to discuss this
report, you may contact me at (202) 927-5400, or a member
of your staff may contact Maria V. Carmona, Acting
Director, Program Audits, at (202) 283-1591.

Attachment


DEPARTMENT OF THE TREASURY
WASHINGTON, D.c. 20220

May 30, 2000

OFFICE OF
INSPECTOR GENERAL

MEMORANDUM FOR RICHARD L. GREGG, COMMISSIONER
FINANCIAL MANAGEMENT SERVICE

ones, rbd
FROM: Dennis S. Schindel

Assistant Inspector General for Audit

SUBJECT: Final Report on Financial Management
Service’s Deposit Fund Accounts Used for the
Implementation of the Competitive Equality
Banking Act

This memorandum transmits the final audit report titled
Financial Management Service’s Deposit Fund Accounts Used
for the Implementation of the Competitive Equality Banking
Act. The Competitive Equality Banking Act (CEBA) is also
known as the Limited Payability statute. The objectives of
our review were to: determine the source and utilization
of the deposit fund accounts that the Financial Management
Service (FMS) established and maintained for the purpose of
implementing CEBA, assess any related activity regarding
the Individual Indian Monies trust fund, and assess the
current limited payability cancellation process.

Overall, we identified approximately $42 million in funds
to be put to better use. We concluded that FMS should
close out three limited payability cancellation accounts
and transfer the corresponding balances, which total
approximately $42 million, to the miscellaneous receipts of
the Treasury. We found that the Individual Indian Monies
trust fund, for which the Department of the Interior (not
Treasury) has primary responsibility, has no direct
relationship to the limited payability deposit fund
accounts. In addition, FMS current limited payability
process adheres to CEBA; however, FMS should ensure that
problems are identified and corrected in a timely manner.

The audit findings are summarized in the Executive Digest,
and explained in further detail in the Audit Results
section of the report. Also, the report includes three
recommendations that are contained in the applicable
sub-sections of the Audit Results section.


AUDIT RESULTS

The proceeds of the mass cancellation went to the Treasury General
Fund to reduce the Federal debt (miscellaneous accounts receivables).

It was appropriate for FMS to process the mass cancellation.

But, checks totaling $227,188.51 cancelled during May and June 1991
for the mass cancellation were processed late and after the cut-off time
frame established by CEBA. We were told that FMS cancelled the
checks during these two months (May and June 1991) because
agencies had not submitted the check issue information in a timely
manner.

According to FMS Bulletin No. 90-03, Limited Payability, Section 4c,
Pre-effective Date Limited Payability Cancellation, “Not later than
April 1, 1991, Treasury will identify and cancel all checks issued prior
to October 1, 1989, that are still outstanding. The moneys will be
applied by Treasury as required by Public Law 100-86, Sec. 1003.

No moneys will be available to agencies from this cancellation.”

In our opinion, the pre- and post-effective limited payability
cancellation accounts should never have existed. Instead, when FMS
created the accounts, the funds should have been mass-cancelled in
accordance with CEBA. All funds should be returned to the
miscellaneous receipts of the Treasury.

Recommendations

1. FMS should discontinue efforts to reconcile the deposit fund
accounts. FMS should not make any adjustments to the accounts
until final disposition is decided.

2. FMS should close out the two deposit fund accounts and the
former FARS pre-effective limited payability account and transfer
the remaining $41,714,404.55 to the miscellaneous receipts of the
Treasury.

Management Response and OIG Comment

1. Management concurred with the recommendation. Reconciliation
efforts have been terminated and accounts flagged so that
adjustments cannot be made.

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page 7
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT



AUDIT RESULTS

The mass cancellation was mandated by CEBA. The funds from the
checks canceled at the time of the mass cancellation should have been
applied to the miscellaneous receipts of the Treasury. Therefore, no
entity or individual, including individual Indians, was entitled to
receive funds from the mass-canceled checks. Subsequent to the mass
cancellation, entities and individuals could go back to the authorizing
agency for recertification of the liability. It is not Treasury’s
responsibility to recertify payments/checks without authorization from
the certifying agency. FMS maintains payment information at the
ALC level. Federal agencies, including Interior, must keep any
records necessary to recertify payments on obligations represented by
canceled checks.

OIG-00-088

FMS’S DEPOSIT FUND ACCOUNTS USED Page 10
FOR THE IMPLEMENTATION OF THE
COMPETITIVE EQUALITY BANKING ACT