DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

September 8, 2000 

OFFICE OF 

INSPECTOR GENERAL 

MEMORANDUM FOR RAYMOND W. KELLY, COMMISSIB 


UNITED STATES CUSTOMS SERVICE 


RAYMOND M. DINEEN, DIRECTOR 


EXECUTIVE OFFICE 


FROM: 	 Dennis S. Schindel 

Assistant Inspector general' for Audit 

SUBJECT: 	 Review of Contract Performance Related to 

Seized and Forfeited Property 

This memorandum transmits the subject final audit report. 


Our objective in conducting this review was to determine 


how effectively contracted services were being provided 


with regard to seized and forfeited property. 


Based on our review, we are making eight recommendations 


that address the following conditions: (1) the estimated 


inventory value of general property was overstated, 


(2) contract requirements for property insurance were out 


of date, (3) forfeited property was not always offered for 


sale within 63 days of receipt of a disposition order, 


(4) performance award fee criteria was not always 


applicable, (5) seizing agencies were not always timely 


entering seized property information into the Seized Asset 


and Case Tracking System, and (6) contractor invoices 
could

be reviewed more thoroughly. 


With regard to the first recommendation listed above, we 


estimate that by adjusting the inventory value of general 


property, it may be possible to reduce insurance premiums 


by as much as $402,000 annually. Please be advised we are 


recording this amount as potential funds put to better use 


in the Inventory, Tracking and Closure (ITC) System, We 

Page 2 


will also include the amount in the Office of Inspector 

General Semiannual Report to the Congress. U. S. Customs 

Service (Customs)and Executive Office for Asset Forfeiture 

(EOAF)management are responsible for recording the actual 


amount of funds put to better use as a result of the audit 


in the ITC System. 


In commenting on the draft report, Customs and EOAF 


officials generally agreed with our findings and 


recommendations. They disagreed with recommendations that 


called for (1)modifying contract insurance requirements 


(Recommendation I), and (2) clarifying or more strictly 


complying with performance evaluation plan criteria 


(Recommendation 7). However, they provided other 


alternative actions that satisfied the intent of these two 


recommendations. We incorporated other comments into the 


report as appropriate. The complete text of Customs and 


EOAF's responses are presented in ~ppendixes2 and 3, 


respectively. 


We appreciate the courtesies and cooperation provided to 


our auditors during the audit. If you wish to discuss this 


report, please contact me at (202) 927-5400, or have a 


member of your staff contact Barry L. Savill, Director, 


Program Audits, at (202) 283-0151. 


Attachment 


cc: Brenda A. Brockman 


Director of Evaluations Oversight, 


Office of Planning 


U.S. Customs Service 


Susan Mazur 


Director, Seizures and Penalties Division 


U. S. Customs Service 

ich was initiated in accordance wi 

Annual Plan For Fiscal Year (FYI 

was one of two Office of Inspector General (OIG) 

reviews conducted regarding seized and forfeite 

assets. A second review (OIG-99-016),for whie 

as been issued, was conducte 

er internal controls were in pl 

for and effectively manage asset 

This report presents the results of the OIG's audi 


work concerning contract performance related to 


seized and forfeited property. Our audit 


to determine how effectively contracted s 


being provided with regard to seized and forfeite 


property. Our review also included foll 


prior audit recommendations with regard to the seized 


property auction process. Our audit work was 


performed from January through May 1999. 


Based on our review, we are making eight 


reconxnendations that ad ess the following 


conditions: (1)the estimated inventory value of 


general property was overstated, (2)contract 


requirements for property insurance were out o

(3)forfeited property was not always offered for 

within 63 days of receipt of a disposition order, 

(4)performance award fee criteria was not alw 

applicable, (5)seizing agencies were not alway 

ente~gseized property information into the Seize 

Asset and Case Tracking System (SEACATS),and 

(6) contractor invoices could be reviewed more 

thoroughly. With regard to the first item listed above, 

we estimate that by adjusting the inventory value of 

general property, it may be possible to reduce 

insurance premiums by as much as $402,000 

annually. 

Our review also found that: Contract modifications 

were prepared and processed in accordance with 

PAGE i 

LAT'ED TO SEIZED AND FORFEITED 
Federal Acquisition Regulation (FAR)requirements, 

internal controls were equate to safeguard property 

and ensure proceeds of sale were recorded and 

accounted for properly, real property sold in Calendar 

Year 1998was properly processed and proceeds from 

the sales were deposited timely into Treasury's 

account, and contract requirements did not present an

inherent conflict of interest for the contractor. 

OIG-00- 121 	 REVIEW OF CONTREICT PERFORTMANCE PAGE ii 

RELATED TO SEIZED AND FORFEITED 

PROPERTY 
OVERVIEW ............................................................................................. i 


BACKGROUND ....................................................................................1 


OEUECTrVE. SCOPE AND METHODOLOGY ........................................... 4 


AUDIT RESULTS
........................................ 6 


Valuation of Seized Property .............................................................. 6 


Property Insurance......................................................................... -9 


Seized Property Sales - Other Than Real Property ........................... 11 


Performance Award Fee .................................................................. -13 


Certification of Contractor Invoices..............................................16 


Property Accountability ........................................ 18 


Contract Monitoring and Administration ........................................ 19 


Contract Modifications ................................................................ -20 


Seized Property Auction................................................................... 21 


Disposition of Real Property .......................................................... 22 


Conflict of Interest..........................................................................-23 


APPENDICES 


Appendix 1. Schedule of Potential Funds Put to Better Use ............25 


Appendix 2. Management Response .Customs ..............................26 


Appendix 3. Management Response .EOAF .................................. 33 


OIG-00-121 	 REVIEW OF CONTRACT PERFORMANCE PAGE iii 


RELATED TO SEIZED AND FORFEITED 


PROPEWrY 

4. Major Contributors to This Repo ....(.....).II-... .(...-..-.....38 

Appendix 5. Report Distribution .............. ... ..-.I.*. .). . *. (... . .. . . ..... . -... .. . - 3

PIEMmD TO SEIZED AND FORFEITED 

PROPERTY 
Public Law 102-393,Treasury Forfeiture Fund Act of 

1992, established the Department of the Treasury 

(Treasury)Forfeiture Fund (Fund). As a result of this 

law, Treasury established the Executive Office for 

Asset Forfeiture (EOAF)to consolidate allTreasury law 

enforcement bureaus under a single forfeiture fund 

program. 

In addition to other responsibilities, EOAF was tasked 

with implementing Treasury policy decisions with 

regard to seized or forfeited property. This task 

included: (1) developing and implementing automated 

systems to track assets from seizure to disposition; 

(2)operating and managing programs designed to 

handle the transportation, custody, and sale or 

disposition of assets; and (3)entering into and 

administering contracts for the management of assets. 

Under a memorandum of understanding, EOAF made 

the United States Customs Service (Customs)its 

Executive Agent for securing property management 

services for seized and forfeited property. As the 

Executive Agent, Customs, in FY 1996, entered into 

the second in a series of contracts dbr the

transportation, storage, maintenance, and disposal of 

seized and forfeited property. This second contract, 

which was addressed by this review, was a Cost Plus

Award Fee type contract that provided for a transition, 

base, and four 1-year option periods at an estimated 

cost of about $89.8 million. With modifications (36 in 

total), the cost increased by about $2 1.4 million during 

the first 4 years of the contract. 

Customs also implemented the SEACATS in 

November 1996 to serve as a single repository for all 

inventory and case information related to seized and 

forfeited property within Treasury. Through a module 

within SEACATS, the seized property contractor 

records and manages allvalued seized and forfeited 

property on behalf of all Treasury law enforcement 

bureaus. 

OIG-00- 121  F33VIEVV OF CONTMCT PERFO-CE PAGE 1 

RELATED TO SEIZED AND FORFEITED 

PROPErn 
According to the contractor, in FY1998: 

0 € an average of 2,600 transactions were p 

month involving five categories (aircraft, 

real property, vehicles, and general pro 

seized and forfeited property; 

about 11,600 line items valued at about 

$337 million were maintained; and 

over 13,000 line items valued at app 

$54 million were sold at 388 sales. 

For FY 1998, the Fund's independent auditors issued 


three audit reports. The reports addressed the Fund's 


financial statements, compliance with laws and 


regulations, and internal controls. Although the Fund 


received an unqualified opinion on its financial 


statements, the reports cited four material internal 


control weaknesses, six reportable conditions, and one 


instance of noncompliance with applicable laws 
a d

regulations. Many of these deficiencies concerned the 


accuracy and reliability of seized and forfeited property 


data and related 
transactions.

Although our review identified wealmesses similar to 


those reported by the independent auditors, to avoid 


duplicate reporting we chose not to address those 


previously reported weaknesses. This report, 


therefore, focused on other activities with regard to 


contract monitoring, contract requirements, and 


contractor performance. Specifically, our review 


examined the following areas: 


Property Valuation 


Property Insurance 


Sale of Real Property 


Award Fee Process 


Property Accountability 


Certification of Vendor Invoices 


Assignment of Contract Monitoring Responsibilities 


Contract Requirements/Modifications 


OIG-00- 121 	 RE)VIEW OF CONTMCT PERFORTVL~NCE PAGE 2 

REMTED TO SEIZED AND FORFEITED 

PROPErn 
Auction Process 

Disposition of Prope 

Conflict of Interest 

At the conclusion of o e 1 1 areas listed 

above, a determination made that no additional 

review effort was necess

RELATED TO SEIZED AND FORFEITED 

PROPERTY 
The objective of this review was to determine how 

effectively contracted services were being provided with 

regard to valued seized and forfeited property. We also 

followed up on previous audit recommendations 

concerning the contractor's auction process to 

determine whether the recommendations were 

implemented and wo g as intended. 

To accomplish our overall'objective,we conducted onsite work from January through May 1999. We 

interviewed key personnel involved in the management 

of seized and forfeited property at Customs' 

Headquarters and select field offices. We also 

interviewed personnel from the Internal Revenue 

Senice (IRS)and the contractor. We reviewed relevant 

legislation, prior OIG and United States General 

Accounting Ofice (GAO)audit reports, and relevant 

Treasury and bureau policies and procedures 

regarding seized and forfeited property. In addition, 

we visited Customs facilities in: Newark, New Jersey; 

New York, New York; Indianapolis, Indiana; and 

Washington, D.C. We also visited the contractor's 

facilities in Edison, New Jersey, and FaMax, Virginia.

To assess the role of the Contracting Officer (CO) and 

the Contracting Officer's Technical Representative 

(COTR)in monitoring the performance of the seized

and forfeited property contract, we: obtained 

information concerning assignment of contract 

administration responsibilities, assessed the CO and 

COTR's roles in monitoring the performance of this 

contract, identified the types of reports the contractor 

furnished to the CO and COTR, and reviewed the 

award fee process for the fourth quarter of FY 1998. 

To evaluate contract (Tc-96-001)requirements, we: 

obtained and reviewed the contract and all 

36 modifications, assessed whether the modifications 

were within the scope of the contract, analyzed the 

contract Statement of Work (SOW),and reviewed 

OIG-00-121 	 REVIEW OF CONTRACT PERFOR.NIANCE PAGE 4 

RELATED TO SEIZED AND FOWEITED 

PR0PERII"Y 
contract requirements to dete 

contractor was required to perfo 

provided services that consti 

To assess the contractor's performance, we: 

conducted a physical inventory on February 3, 1999, 

of 57 line items statistically selected from a population 

of 1,199 items stored at the co torrsfacility at 

Edison, New Jersey; reviewed seized and general order 

merchandise records maintained by the contractor for 

88 items sold during the January 8, 1998, auction at 

Edison, New Jersey; assessed the adequacy of the 

Government and contractor's system for estimating the 

value of seized property; issued and analyzed 

responses to customer satisfaction questiomaires;

observed the February 4, 1999, auction of seized and 

forfeited property at the contractor's facility in Edison,

New Jersey; and reviewed select financial transactions

that occurred between January 1998 and 

February 1999. 

The Treasury Office of Inspector General for Tax 

Administration assisted us in obtaining seized and 

forfeited property information maintained by the IRS. 

Our work was conducted in accordance with 

Government Auditing Standards issued by the 

Comptroller General of the United States, and 

included such tests as were deemed necessary. 

FtELATED TO SEIZED AND FORFEITED 

PROPERlSY 
Our audit found that: (1)the inventory value of 

general property was overstated, (2)contract 

requirements for property insurance were out of date, 

(3)forfeited property was not always offered for sale 

within 63 days of receipt of a disposition order, 

(4)performance award fee criteria was not always 

applicable, (5)seizing agencies were not always timely 

entering seized property information into the 

SEACATS, and (6)contractor invoices could be 

reviewed more thoroughly. With regard to the first 

item listed above, we estimate that by adjusting the 

inventory value of general property, it may be possible 

to reduce insurance premiums by as much as 

$4OZ,OOO annually. 

Our audit also found that: contract modifications 

were prepared and processed in accordance with the 

FAR requirements, internal controls were adequate to 

safeguard property and ensure proceeds of sale were 

recorded and accounted for properly, real property 

sold in Calendar Year 1998was properly processed 

and proceeds from the sales were deposited timely into 

Treasury's account, and contract requirements did not 

present an inherent conflict of interest for the 

contractor. 

Details and recommended actions are provided in the 

following sections. 

The estimated value of seized general property was 

overstated. As a result, insurance premiums for 

general property in the custody of the contractor may 

be reduced by as much as $402,000 annually. In 

conducting our review, we learned that several factors 

affect the appraised value of seized property, including 

the type of commodity, the appraiser's experience, and 

when the appraisal was performed. 

OIG-00-121 €F?EYIEW OF CONTRACT PERFORMANCE PAGE 6 

ELATED TO SEIZED AND FORFEITED 

PROPERTY 
e seized and forfeited 

tion 3.13, Appraisal, 

e (APV) of seized pr 

the seizing agency. 

According to contract perso 

an insurance poli 

urns for this insu 

the APV reported by the seizing agencies for all general 

property in the contractor's custody. We were also 

informed that the annual insurance premiums for all 

categories of general property were about $50 

an average monthly inventory valued at $170 

To determine the validity of the inventory values 

agencies, we selected 30 

items from the , 1998, auction of seized 

contractor's Edison Sales Center. Our 

that the Gove ent routinely received 

less than 26 percent of the APV assigned by the seizing 

agency. We also learned from Customs Accounting 

Services Division (ASD)personnel that, for financial 

reporting purposes, the seized property inventory had

to be adjusted annually to more accurately reflect 

market value. 

For the last 3 FYs, the general	property inventory was 

adjusted downward by about 80 percent. These 

adjustments were the results of studies performed by

Customs and the Fund's independent public 

accountant, which showe for general 

property was overstated. e general property 

inventory was reduced by about 80 percent to more 

accurately reflect its realizable value, then it may be 

possible to reduce insuran rerniums by about 

80 percent, or as much as 2,000 annually. 
1. 	Customs should rnodlfy contract insurance 

requirements for general property. The 

modification should require the contractor to 

adjust the general property APV, for insurance 

purposes, based on the inventory adjustments 

used for financial statement reporting. 

Both Customs and EOAF raised concerns with regard 

to the legal aspects of adjusting the APV, the OIG1s 

consideration of "risk in estimating insurance 

savings, and the categories (i.e., aircraft, vessels, 

general property) of property covered by the insurance 

premiums. Despite these concems, Customs stated 

that it had already modified two sections of the 

contract that pertained to property insurance and was 

in the process of evaluating property insurance 

coverage to find the most cost effective approach. 

Although Customs and EOAF raised concems about 

this finding, the actions taken or underway by 

Customs generally meet the intent of our 

recommendation. In addition, to dispel some of 

Customs and EOAF1sconcerns, this finding and 

recommendation did not contemplate Customs 

changing the A.FV recorded in SEACATS. Therefore,

the legal concerns raised by Customs and EON? do

not appear to be valid. Second, we did not consider 

"risk" in estimating insurance savings because the 

insurance rates used by the contractor were fixed rates 

per dollar value of property. Thus, "risk"was not a 

factor that we needed to consider. Third, according to 

the contractor, our insurance calculations did not 

include allcategories of property. For example, vessel 

and aircraft were not categories of property included in 

our estimate. Further, the $502,500 cited in our 

report as the annual insurance premium for all 

general property was provided by the contractor's risk 

manager. The risk manager was responsible for all 

property insurance matters, including insurance 

premium payments. 

OIG-00-121 REVIEW OF CONTRACT PERFORMANCE PAGE 8 

RELATEDTO SEIZED AND FORFEITED 

PROPErn 
Consequently, we still believe Customs should 

consider, along with other approaches identified 

insurance evaluation process, adjusting the general 

property APV, for insurance purposes only, to more 

accurately reflect fair market value. 

Our review indicated that Customs had not revised 

contract requirements for property insurance that 

were out of date. This condition occurred because an 

agreement between contractor and Customs personnel 

regarding the method for obtaining insurance was not 

properly authorized by the CO. As a result, the 

contractor was not in compliance with the property 

insurance requirements set forth in the contract. 

Discussion €

The seized and forfeited property contract, Section 

H. 15,Other Required Insurance, provides for the types 

and minimum amounts of insurance the contractor is 

required to procure and maintain during the 

performance period of the contract. This section 

requires the contractor to provide insurance for the 

categories of property listed. For most categories 

(i.e., aircraft, vessels, vehicles, general property, and 

real property-)the contract requires insurance only on 

individual property items with an appraised value in 

excess of an established minimum value. For

example, aircraf? with an appraised value of $150,000 

or greater are required to be insured. 

Section H. 15 also requires the contractor to furnish to 

the CO a plan or methodology for obtaining required 

insurance. Furtherrriore, the contractor is required to 

now the CO prior to canceling or making any 

material change to an insurance policy that adversely 

affects the interest ~f the Government. 

Our review, however, indicated that the contractor did 

not procure insurance on individual property items at 

or above the minimum appraised value listed in the 

OIG-00-121 	 REVIEW OF CONTRACT PERFOFtNKN'CE PAGE 9 

RELATED TO SEIZED AND FOFWEITECD 

PROPErn 
exceeded $20 million, additional insurance would be 

obtained at an additional cost. 

We were informed that contractor and Customs 

personnel verbally agreed to the current method of 

procuring property insurance. Contractor and 

Customs personnel also informed us that the current 

method of insuring property was more cost effective, 

provided better coverage, and reduced the 

Government's risk of loss in case of damage. We found 

no indication, however, that the CO formally 

authorized the current method of procuring property 

insurance. 

Without the CO's authorization, the contractor's 

actions were not in compliance with the property 

insurance requirements set forth in the contract. We 

did not attempt to venfy the contractor and Customs' 

claim that the insurance method currently being 

employed by the contractor was the most cost effective. 

Our reasoning was that management needed to first 

decide what level, if any, the Government should self 

insure before a proper analysis could be made. 

Recommendations 

2. Customs should remind its personnel of the 

importance of not entering into informal 

agreements with the contractor. 

3. 	Customs should either mode the contract to come 

into alignment with current business practice or 

require the contractor to comply with existing 

insurance requirements. 

Customs and EOAF agreed with both 

recommendations. In its response to 

OIG-00-121 REVIEW OF CON'I'WCT PERFORMANCE PAGE 10 

RELATED TO SEIZED AND FORFEITED 

PROPERTY 

contract. Instead, the contractor 

for all property items within a ca 

the contractor insured allaircraft: 

value up to $20 million. When th 
Recommendation 2, Customs stated that a policy 

memorandum was issued March 16, 2000, concerning 

tasking authority for the contractor. With regard to 

Recommendation 3, Customs stated that, among other 

things, Section H. 15 of the contract has been revised 

to clarrfy the insurance requirements and the 

contractor is currently complying with existing 

insurance requirements. The actions planned or taken 

by Customs to implement the two recommendations as 

discussed in its response are considered by the OIG to 

be responsive. 

The contractor did not always offer forfeited property 

for sale within 63 days of receipt of a disposition order 

as required by the contract SOW. This condition 

existed because the SOW (1)did not provide for cut-off 

dates for accepting disposition orders before the sale 

date, and (2)prohibited the contractor from selling 

forfeited property during the last 3 weeks of the FY. 

Based on information provided to us, the 63-day 

requirement was not based on empirical data and, 

therefore, may be unrealistic. This condition was 

previously reported in September 1996 by Customs' 

Regulatory Audit Division in audit report 

032-96-SZO-004. 

Discussion 

The seized and forfeited property contract, SOW, 

Section 3.7, Seized Property Disposition, states that 

the seizing law enforcement agency will maintain

authority over allseized property it transfers to the 

contractor. The contractor is to maintain seized 

property until its disposition is directed by the seizing 

agency. Further, the seizing agency affects disposition 

by providing the contractor with a signed disposition 

order, which shows the manner of disposition. 

After receipt of the disposition order, the contractor 

has 63 calendar days to offer the forfeited property for 

sale. Moreover, the contractor is generally prohibited 

OIG-00-121 €REVIEW OF COINTRACT PERFORMAISTCE PAGE 11 

RELATED TO SEIZED AND FORFEITED 

PROPErn 
from selling forfeited property during the last 

of the FY. 

To assess whether the contractor was co 

the 63-day sales requirement, we selecte 

items valued at $167,320 from 22 lots 

at the contractor's facility in Edison, N 

January 8, 1998, for review. Our revie 

only 2 line items were offered for sale wi 

63-day requirement. In analyzing the infomaaon 

gathered, we identified two factors that d 

influenced the contractor's ability to mee 

sales requirement. 

First, the SOW did not provide for cut-off dates for 

accepting disposition orders before the sale date. Cutoff dates are, however, necessary to meet other 

contractor related sales requirements. For instance, 

the contractor is required by the SOW to p 

seizing agencies with a formal sales plan and catalogs 

describing the items to be sold 5 workdays prior to the 

sale. To meet this requirement, the contractor must 

analyze available property and establish appropriate 

sales lots; schedule, market, and advertise the sale; 

and respond to public inquires concerning the time, 

place, and nature of the sale. 

The second factor concerned the SOW requirement 

that prohibited the contractor from selling forfeited 

property during the last 3 weeks of the FY. An 

analysis of available sales infomation disclosed that 

the contractor generally scheduled public auctions, at 

the contractor's Edison Sale Center, 63 days apart. 

However, sales scheduled immediately after the end of 

the FY were as much as 77 days after the last 

scheduled sale. Consequently, the effective sales 

period could be as much as 112 days or almost twice 

the required 63-day requirement when coupled with a 

cut-off period of 4 to 5 weeks for the receipt of 

disposition orders. 

OIG-00-121 	 REVIEW OF CONTMCT PERFORR?ANCE PAGE 12 

RELATED TO SEIZED AND FORFEITED 

PROPEKIY 
4. Customs should revise its SOW to include a 

provision for establishing disposition order cut-off 

dates for placing property in an auction sale. 

5. 	Customs should provide clarification with respect 

to the 63-day sale requirement described in the 

SOW. Customs should consider requiring forfeited 

property, excluded from an auction sale because 

the corresponding disposition order was received 

after the cut-off date, to be offered for sale no later 

than the date of the next cycle auction. 

Management Response and OIG Comment 

In responding to the draft.report, Customs and EON? 

concurred with both recommendations. Customs 

indicted that the issue of cut-off dates would be 

addressed with the award of a new contract. In the 

meantime, Customs would monitor the sale of forfeited 

property to ensure that it is sold as soon as possible 

after the property has been forfeited. The OIG agrees 

with the actions being taken. 

Performance Award Fee 

Our review found that Customs had not revised 

contract criteria used to determine performance award 

fees that were no longer applicable. In addition, 

Customs' award fee evaluation process raised concerns 

about how consistently established criteria was 

applied. As a result, Customs could not, or did not, 

properly evaluate 9 of the 19 performance elements 

used to determine the contractors' award fee. Award 

fees paid to the contractor, therefore, may not be an 

accurate reflection of the contractor's performance. 

This condition was due, in part, to the implementation 

of a new management information system (SEACATS) 

that did not produce the required reports. 

OIG-00-121 REVIEW OF CONTRACT PERFORMAS\JCE PAGE 13 

RELATED TO SEIZED AND FORFEITED 

PROPERTY 
Discussion 

The seized and forfeited property contract, Section 

H.2 1, Payment of Award Fee, states that the 

Government shall evaluate the contractor's 

performance quarterly to determine the award fee 

earned by the contractor. A Fee Determining Official 

determines the amount of the award fee earned by the 

contractor. The Quarterly Performance Evaluation 

Plan provides the criteria to be used by the Fee 

Determining Official for the 19 performance areas 

evaluated. The Fee Determining Official is also 

responsible for removing from the evaluation any item 

or event that was not reasonably under the control of 

the contractor (e.g., natural disasters). 

Management reports that were to be used, under the 

old management information system, to evaluate the 

contractor's performance in6 of the 19 areas were no 

longer available from SEACATS. Customs, therefore, 

provided the contractor the maximum score in each of 

these six areas. This meant the contractor 

automatically received 23.5 percent of the award fee. 

Based on the last modification to this contract, the 

award fee pool totaled $6,675,526; 23.5 percent of the 

award fee pool is $1,568,749.'

Our review of Customs' evaluation process also raised 

concerns about how consistently award fee criteria 

was applied in three additional performance areas.

For instance, our review indicated that management 

reports and adverse incidents were not always used in 

accordance with established evaluation criteria in 

determining the contractor's score. 

In discussing the evaluation criteria and how the 

criteria was applied, we were informed that (1)one 

management report was not always available, (2)the 

adverse incident was not a repeat deficiency, and/or 

(3)the adverse incident did not result ina loss to the 

It should be noted the contractor would most likely have earned a large percentage of 

this amount based on the contractor's documented performance in other areas 

evaluated. 

OIG-00-121 	 REVIEW OF CONTRACT PERFORMANCE PAGE 14 

RELATED TO SEIZED AND FORFEITED 

PROPERTY 
Government. While we recognize that even the most 

objective evaluation criteria are open to some 

interpretation, we believe the interpretation applied to 

the criteria with regard to the three areas in question 

was too liberal. (Details were provided to Customs.) 

Recommendations 

Customs should iden* alternative criteria or 

methods for evaluating the contractor's 

performance for the six areas where management 

reports are no longer available. 

Customs should claw Quarterly Performance 

Evaluation Plan criteria or more strictly comply 

with stated criteria. 

Management Response and OIG Comment 

Customs and EOAF concurred with Recommendation 

6. According to Customs, two new reports are now 

being programmed and should be in production by the 

end of this fiscal year. Customs also stated the 

contractor is currently inputting data to SEACATS and 

once this process has been completed it will be used 

for the award fee. 

EON? concurred with Recommendation 7. Customs 

stated it would reemphasize and clarify the 

performance criteria to those individuals involved in 

the award fee process and this will meet with the 

intent of our recommendation. 

While we are encouraged by Customs' plan to 

reemphasize and clam the performance evaluation 

criteria to those individuals involved in the evaluation 

process, we are concemed that this action alone may 

not correct the conditions cited. We are concemed 

because our review found no evidence that information 

from the one missing management report was 

considered by Customs. In addition, evaluation 

criteria for the three performance elements questioned 

by our report were very specific for determining the 

contractor's score. We, therefore, believe the 

OIG-00- 121 	 REVIEW OF CONTRACT PERFORMANCE PAGE 15 

RELATED TO SEIZED AND FORFEITED 

PROPERTY 
applicable criteria needs to be changed or strictly 

adhered to. 

cation of Con 

Reviews of contractor invoices were not sufficiently 

thorough. Our review indicates that this condition 

may be attributed to the COTR and Deputy 

Contracting Officer's Technical Representatives 

(DCOTR)not receiving detailed billing information 

prior to approving summary invoices. Another factor 

communicated to us by Customs management was the 

lack of personnel to audit supporting contractor 

charges. As a result, errors associated with the 

$20 million plus of costs expected to be billed under 

this contract for FY 1999 could go undetected. 

Discussion 

GAO's Policy and Procedures Manual For Guidance of 

Federal Agencies; Title 7; Fiscal Guidance, states that 

effective control over disbursements requires the 

preaudit and approval of invoices before they are 

certified for payment. The principal objectives of the 

preaudit of an invoice are, in part, to determine 

whether: (1)quantities, prices, and amounts are 

accurate; (2)computations are correct; (3)goods 

received or services performed were in accordance with 

the agreement; and (4)proposed payment under the 

appropriation or fund involved is legal. Accountability 

for public funds generally rests with the certrfylng

officer who certifies invoices for payment. 

The Department of the Treasury, Contracting Officer's 

Technical Representatives Handbook (TD P 76-01.Dl, 

states that COTRs are responsible for reviewing and 

approving invoices on contracts. The Handbook also 

provides that the COTR will receive instructions 

regarding his/her involvement in the review and 

approval of invoices and vouchers from the CO. 

To evaluate Customs process for ce-g contractor 

invoices, we selected 11 summary invoices submitted 

by the contractor in January 1999 for review. We 

OIG-00-121 	 REVIEW OF CONTRACT PERFO~CE PAGE 16 

RELATED TO SEIZED AND FOWEITED 

PROPErn 
found that all 11 invoices were original documents, 

approved by the COTR, and ce ed for payment by 

the CO. 

An examination of the COTR and DCOTRs Designation 

letters showed that they were responsible for 

"Reviewing contractor's invoices ..., and ce 

acceptance." These Designation letters did not, 

however, specifically make the COTR or DCOTRs 

responsible for reviewing the supporting detail 

charges. We also leamed that neither the CO or COTR 

routinely reviewed the detailed listing of supporting 

charges that the contractor submitted with the 

sumrnary invoice. We, therefore, selected four invoices 

totaling about $1.3 million to review the supporting 

charges. 

Because we were unable to reconcile the supporting 

detail to the summary costs billed, we requested 

assistance from our Contract and Procurement Audit 

group. Although their examination of costs baed

under this contract did not lead to any significant 

questioned costs, the lack of consistent invoice review 

by Customs could result in material errors going 

undetected. (Due to the proprietary nature of the 

information obtained in conducting audits of the two 

contractor's invoices, details are not included in this 

report. Details are, however, contained in two limited 

distribution audit reports (OIG-99-096and OIG-99-

099). 

8. 	Customs should review the detailed charges 

submitted by the contractor in support of the 

summary invoices. This review should provide 

reasonable assurance that "preaudit" objectives 

delineated in GAO's Policy and Procedures Manual 

For Guidance of Federal Agencies are met prior to 

cerlxfymg the contractor's invoices for payment. 

OIG-00-121 	 REVIEW OF CONTRACT PERFORMANCE PAGE 17 

RELATED TO SEIZlED AND FORFEITED 

PROPEFU'Y 
Customs and EOAF'sresponse expressed agreement 

with this recommendation. Customs responded that it 

planned to develop a procedure for reviewing the 

detailed charges that support the summary invoices 

submitted by the contractor. Customs also indicated 

it was seeking the OIG's advice in implementing this 

recommendation. The OIG considers the actions 

planned by Customs responsive to the 

recommendation. In addition, we are available for any 

additional discussions Customs wishes to have with 

regard to the implementation of this recommendation. 

PropertyAccountability €

We were able to account for all 69 seized property €

items selected for inventory at the contractor's €

warehouse in Edison, New Jersey. Our review, €

however, disclosed that two property items had not €

been entered into the property records (SEACATS)by €

the seizing agencies. €

Discussion €

The seized and forfeited property contract, SOW, €

Section 3.5, Physical Accountability, provides that the €

contractor is to maintain strict accountability of all €

seized property in its custody. €

To assess the contractor's accountability over seized €

property, we statistically selected 57 of 1,199 seized €

items from the SEACATS' listing entitled "Contractor €

Held Property Management System" dated €

December 31, 1998. In addition, we conducted spot €

inventories of 12 randomly selected items stored in the €

contractor's warehouse and matched the items to the €

property records. €

Overall,we found the contractor's warehouse to be €

exceptionally clean and well organized at the time of €

our inventory. We also found that location and item €

numbers were well marked in large bold type, which €

allowed us to find the items quickly and easily. €

RELATED TO SEIZEDAND FORFEITED €

PROPERTY €
Specifically, of the 57 items statistically selected, we 

found no discrepancies in the count quantity. Due to 

timing differences between the property listing and our 

physical inventory, however, 12 of the 57 items were 

no longer at the contractor's warehouse. These 12 

items had been sold, remitted, destroyed, or 

transferred. Nevertheless, we were able to examine 

documentation that permitted us to ve~lfythe quantity 

and disposition of these items. 

For the 12 items randomly selected for spot inventory, 

we found no discrepancies in the count quantities for 

10 items. We were unable to find the remaining two 

items on the SEACATS' property listing. We were 

Wormed that the seizing agency was responsible for 

initially entering property information into SEACATS. 

Since the independent accounting firm reported 

similar accuracy and reliability problems with 

SEACATS data in its 1997 and 1998 financial 

statement audit reports on the Treasury Forfeiture 

Fund and made recommendations that should correct 

the noted condition, this report does not contain a 

recommendation with regard to this matter. 

The COTR and DCOTRs duties associated	with the 

seized and forfeited property contract were assigned in 

accordance with established Treasury policies and 

procedures. 

Discussion 

The Department of the Treasury, Contractzr-zgOfficer's	

TechnicalRepresentatives Handbook (TDP 76-0 1.Dl, 

delineates the duties that the CO may require of the 

COTR. This Handbook states that the COTR is 

nominated in writing by the requirements generating 

organization and notified by a letter signed by the CO. 

The COTR acknowledges the nomination by signing 

and returning a copy of the notification/designation 

letter. This letter is to be tailored specifically for each 

contract. If sub-COTRs are necessary, they will be 

OIG-00-121 	 REVIEW OF CONTRACT PERFORMANCE PAGE 19 

RELAmD TO SEIZED AND FORFEITED 

PROPERTY 
appointed by the CO, with their authorities €

included in the letter of appointment of €

To determine whether duties associated with 

monitoring contractor performance and contract 

administration were properly assigned, we reviewed 

the contract, designation and appoin letters, and 

training certificates. Our review found that the COTR 

and DCOTRs were designated in writing in the 

contract schedule and by individual letter. Letters of 

designation were properly constructed and contained 

detailed listings of the responsibilities and limitations 

for each person so designated. Letters of appointment 

were issued asrequired. In addition, we noted that 

the COTR and DCOTRs met or exceeded required 

procurement training. For example, both DCOTRs had 

obtained Masters of Procurement degreesfrom 

accredited training schools. Consequently, we found 

no operational deficienciesin this area. 

Contract Mo 

Customs prepared and processed all 36 modifications 

to the seized and forfeited property contract in 

accordance with prescribed FAR policies and 

procedures. 

Discussion 

FAR, Part 43, Contract Modifications, provides €

guidelines for preparing and processing contract €

modifications. According to Section 43.102, only COs €

acting within the scope of their authority are €

empowered to execute contract modifications on behalf €

of the Government. €

Contract clause 52.243-2, Changes - Cost 

Reimbursement, permits the CO to make 

modifications, in designated areas, within the scope of 

the contract. These modifications are accomplished by 

issuing written change orders on Standard Form 30, 

Amendment of Solicitation/Modificationof Contract. 

OIG-00-121  REVIEW OF CONTIIACT PERFOFUbUUYCE PAGE 20 €

RELATED TO SEIZEDAND FOFWEITED €

PROPERTY €
To determine whether the 36 contract modifications 


were properly prepared and processed, we obtained 


and reviewed all 36 modifications to contract 


Tc-96-001. Our review indicated that all modifications 


were in accordance with FAR requirements. 


Specifically, we found that all modifications were 


(1)within the scope of the contract, (2)executed by a 


CO, and (3)accomplished on Standard Form 30. 


Internal controls implemented by the contractor 


during the February 4, 1999, auction of seized 


property and general order merchandise were 


adequate to safeguard Government property and 


ensure proceeds of sale were recorded and accounted 


for properly. In addition, the contractor had 


strengthened internal controls with regard to five prior 


audit recommendations related to the auction process. 


Discussion 

The seized and forfeited property contract, SOW, 

Section 3.7.3, Sales and Marketing, states that the 

contractor shall mange and conduct public auctions 

of seized property designated for sale by the seizing 

agency. 

To assess management controls over the auction and 

receipt process, we observed the public auction 

conducted by the contractor at its Edison, New Jersey 

facility on February 4, 1999. In addition, we 

conducted follow-up work on five prior audit 

recommendations with respect to the auction process. 

Based on our observations, we noted the following 

internal controls were in place and functioning: 

Buyers could not bid until they completed a Bidder 

Registration Form (5077);

Each buyer was given a "Bidder Number" that 

identified the buyer; 

OIG-00-121 	 REVIEW OF CONTMCT PERFORMANCE PAGE 2 1 

RELATED TO SEIZED AND FORFEITED 

PROPEEnrY 
All sales activities were recorded on video 

Two Sales Control Log clerks recorded bi 

number and bid amounts to ensure accuracy of 

information: 

Periodic announcements were made 

course of the auction to ensure buye 

necessary deposit or paid in full; 

Four separate cash counts were perfo o verify 

that the correct amount was received from each 

buyer; 

A three-part document was used to provide the 

buyer a receipt and to record the entry into the 

accounting records; and 

Property was not released to a buyer until 

identification was obtained. 

In observing these internal controls, we also confirmed 

that the contractor had implemented five 

recommendations contained in a June 13, 1997,audit 

report. The report was issued by an independent 

accounting firmand it concerned internal control 

weaknesses in the contractor's Edison, New Jersey 

auction process. 

Disposition ofReal Property 

AU real property sold in Calendar Year 1998 at the 

contractor's Edison, New Jersey facility was properly 

processed and proceeds from the sales were deposited 

timely into Treasury's account. 

Discussion 


The seized and forfeited property contract, SOW, 

Section 3.8, Real Property, states that the contractor 

shall provide assistance and property management 

se~cesfor seized real property. When requested, the 

OIG-00-121 €REVIEW OF CQNTFXACT PERFORMANCE PAGE 22 

REMTED TO SEIZED AND FORFESITED 

PROPErn 
contractor is responsible for providing or obtaining 

property management services from licensed 

professionals. These services include, but are not 

limited to, pre-seizure analysis, appraisals, and title 

searches. 

During Calendar Year 1998,the contractor sold four 

pieces of real property at its Edison, New Jersey 

facility. To assess how well the contractor processed 

these properties, we reviewed file documentation and 

verified that proceeds from the sales were received and 

deposited timely into Treasury's account. 

Our review showed that: (1)alI real property was 

appraised by an outside independent appraiser prior 

to sale; (2)Custody Receipts, Disposition Orders, 

Property Appraisals, Title Insurance Certificates, Leadbased Testing Survey Reports, when required, and 

Inventory of Property and Contents were on file; and 

(3)proceeds from the sales were deposited by the 

contractor within 3 business days. We also verified 

that Customs ASD properly posted in the accounting

records the proceeds deposited by the contractor. 

ct of Interest 

In performing our review of the seized and forfeited 

property contract, we found no contract requirements 

that would present an inherent conflict of interest for 

the contractor. Our review indicated that the contract 

provided for adequate separation of duties. For 

instance, the contractor did not receive any form of 

remuneration, award fee, or bonus based on the sale 

of assets above an appraised value established by the 

contractor. 

Discussion 

FAR, Part 3, Improper Business Practices and Personal 

Conflicts of Interest, provides that Government

business shall be conducted in a manner above 

reproach. This part also provides that transactions 

relating to the expenditure of public funds require the 

0 SEIZED AND FORFEITED €
highest degree of public trust. The general rule isto €

strictly avoid any conflict of interest. €

FAR, Subpart 9.5,statesthat each individual €

contracting situation should be examined on the basis €

of its particular facts and the nature of the contract. €

The exercise of common sense, good judgement, and €

sound discretion isrequired in deciding whether a €

significant potential conflict exists. €

Conflict of interest situations that would be prohibited €

would include a situation where the contractor muld €

be allowed to participate substantially in a matter that €

would affect the contractor's financial interest. €

We reviewed the seized and forfeited property contract €

and its 36 modificationsto determinewhether contract €

requirements inadvertentlypresented a conflict of €

interest for the contractor. In addition to a general €

review of the contract, we performed a more focused €

review of the contract requirements pertaining to the €

methods and procedures prescribed for (1)paying or €

rewarding the contractor for services provided, €

(2)establishing appraised and/or fair market value for €

property items, and (3)disposing of items in the €

custody of the contractor. €

Our review showed that this was a Cost Plus Award 

Fee contract. Other than reimbursements for incurred 

cost, the contractor received only a quarterly fee based 

on objectivelymeasured performance criteria. The 

contractor did not receive other types of remuneration, 

award, or bonus. Thus, the contract provided for 

adequate separation of duties and the contractor was 

not in a position to manipulate information that would 

lead to personal gain by the contractor. 

OIG-00-121  REVIEW OF COIVI'MCT PERFORMANCE PAGE 24 €

RELATED TO SEIZEDAND FORFIEITED €

PROPEEnrY €
Appendix 1 

"Funds put to better use" are amounts which could be used more 

efficiently if management implements an action recommended in an OIG 

audit report. The following potential "fundsput to better use" amount 

will be recorded in the Inventory, Tracking and Closure system (ITC) 

upon issuance of our final report. The amount also be iracluded in 

the 016 Semiannual Report to the Congress. 

Potentid Funds 

Recommendation ht 

Number to Better Use 

Arnount 

The potential "funds put to better use" for the above recommendation 

related to cost savings for insurance premiums that might be achieved 

annually by management by adjusting the inventory value of seized 

general property. 

It is the responsibility of Customs and EOAF management to record in 

the ITC the actual amount of "funds put to better use" realized as a 

result of the actions taken in response to the recommendation. 

016-00-121 €REVIEW OF CONTRACT PERFORMANCE PACE 25 

RELATED TO SEIZED AND FORFEITED 

PROPERTY 
Appendix 2 

age 1 of 7 

DATE: €

FILE: AUD-1-OP BAB 

MEMORANDUMFOR DE! ,HINDEL 

ASSISTANT INSPECTORGENERAL 

FROM:  Director, 

Office of Planning 

SUBJECT:  Reviewof ContractPerformanceRelatedto Seized 

and ForfeitedProperty 

Thank you for providinguswith a copy of your draft reportentitled €

"Review of ContractPerformanceRelatedto Seizedand Forfeited €

Property"andthe opportunityto discussthe issuesinthis report. €

Customs hadtakena numberof steps to addressthe issues identified 

duringyour review. These steps, and additionalon-going actions, are 

outlined inthe attached document, as are Customs comments on this 

draft report. Ongoing discussionwith the OIGaudit team has resultedin

Customsmaking several changesto our original comments. Iwould 

appreciatethe substitutionof this documentfor our original 

correspondencerelatedta this draft report. 

We havedeterminedthat the information inthe audit does notwarrant €

protection underthe Freedomof €InformationAd.

Ifyou haveany questions regardingthe attached comments, pleasehave 

a membersof your staff contact Ms. BrendaBrockrnan at (202)927-1507, 

* € Attachment €

SERVICE €

OIG-00-121  REVIEW OF CONTRCICT PERFORMANCE PAGE 26 

RELATED TO SEIZED AND FOWEITED 

PROPErn 
Page 2 of 7 

The following addresses the eight (8) recommendations identifiedin the 

draft report on the Review of Contract Performance Relatedto Seized 

and Forfeited Property: 

Recommendation 1: Customs should modify contract insurance 

requirements for general property. Themodification should nyruire 

the Contractor to adjust the genera! propetty APV, for insunma, 

s, &asedon the inventory adjustments used for financial 

statement mporthg. 

While we do not concur with this recommendation,we do plan to work 

with the Treasury Executive Office for Asset Forfeiture and legal counsel 

to reassess the issue of insurance coverage. Once completed, we will 

take whatever action has been deemed appropriate. Additionally, we 

takeexception to your conclusionthat the "estimated value of (USCS)

seized property was overstated" duringthe period under review. 

Discussion: 

The audit report states that the insurance premiums were about 

$502,500, and the average monWy inventory was vaiued at $170 million. 

Customs records show that during the time of your audit, the figures were 

$452,484 for insurancepremiums, and $227,412,660for the monthty 

inventory. These insurance premiums representcoverage of ail of the 

general property, vehicles, aircraft, vessels, and real property held by the 

contractor. 

Adjusting the general property APV for insurance purposes, based on the 

inventory adjustments used for financial reporting, is not applicable 

consideringthe current valuation process now in effect. Einanciai 

adjustments are based on the historical selling price of forfeited general 

propertythat may have been heldby the contractor for severalyears. 

Customs has a liability to protect seized property until forfeited and /or 

proven to be counterfeit. Any adjustments to the APV and FMV cannot 

be accomplishedbefore the investigation. APV's are not based on what 

the Government is going to get at sale time. In light of the high 

percentage of sdzures that result in the remittance of property, the 

government has a duty to protect and presenre seized property. 

Customs does recognize and agree that there are a number of factors 

that may cause the disparity between "appraisedvalue" and "sales price." 

Import Specialists, who are responsible for determiningthe "domestic 

value" of most seized property, must be able to defend their appraised 

values in court, if necessary. Therefore, Customs has, for the sake of 

uniformity, and in an effort to attain realistic values for seized property, 

OIG-00- 121 	 RE:VIEW OF CONTRACT PERF0 CE PAGE 27 

RELATED TO SEIZED AND FORFEITED 

PROPErn 
Lip$ndix 2 €

Page 3 of 7 €

instructed Import Specialistsand Seizing Officers to use the "domestic 

value" in determining appraisedvalues, keeping in mind that merchandise 

sold at auction is sold in "as is" condition. 

The term "domestic value," which is determinedin accordancewith 

Section 606, Tariff Act 1930, as amended, (19 U.S.C.I606), is defined in 

&on 162.43 (a) of Customs regulations 19CFR 162.43 (a), as "te 

price at which such or similar property is freely offeredfor sale at the time 

and place of appraisement, in the same quantity or quantities as seized, 

and in the ordinary course of trade." In the cases of seized aircraft and 

vessels, the contract requiresthat qualified appraisers be obtained, and 

for seized vehicles, the Regional NADA Official Used Car Guide (Blue 

Book) wttoiesale value will be used instead of the retail value. 

Customs,Treasury ExecutiveOffice for Asset Forfeitureand legal 

counsel have been studyingthe insurance issue since the initial contract 

award in 1985, and have made significant changesto effect cost savings. 

Customs continues to evaluate insurancecoverage in order to find the 

most cost-effective approach. For example, the following changes have 

already been made regarding insurance: 

On September 28,1999, Customs issued Modfication 45, for the 

purposes of claritylng two areas: (1) Section 3.1 3.2, Fair Market Value, 

was modifiedto address that upon receipt and posting of a pending 

destructionstatus to a property, the contractor shall change the FMV of 

the affected propertyto reflect a value of $1 and (2) Section H.15, Other 

Insurance Requirements, was modifiedto state that propertywill be 

insuredbasedon the Fair Market Value of the commodity. 

Retmnmendab'on 2: Customsshould remind its personnel of the 

importance of not enteringinto infonnai agreements with the 

Coniractor. 

We are in total agreement that USCS personnel should not enter into 

informal agreementswith the contractor. Therefore, we will reiteratethe 

requirementthat USCS personnel not enter into any typeof informal 

agreements with the contractor. This wiil be accomplished by means of 

scheduled training, seminars and technical meetings held with the seized 

property contractorand other agencies. Additionally, to effectively 

address this issue, we have issued a policy memorandum reiteratingthis 

policy to all COTRs, deputy field COTRs, and others with tasking 

authority for the contractor. Thispolicy memorandumwas issued on 

March 16,2000. 

I 

OIG-00- 121  REVIEW OF CONTEIACT PERFORIMANCE PAGE 28 €

RIELATED TO SEIZED AND FORFEITED €

PROPERTY €
Appendix 2 

Page 4 of 7 

3: Customs should either modify the contract to 

come into alignment with c practiceor requirethe 

pty with existing insuran~erequiremen%. 

We concur with this recommendation. The contractor is currently 

complying with the existing insurance requirements. Please be advised 

that Customs is researching insurance requirementsfor seized property. 

We are currently in the process of seeking information from other federal 

agencies invohmd in the management of seized property. This effort is 

being coordinatedwith our Offi of Chief Counsel and the Executive 

Office for Asset Forfeiture. Once completed, the resutts of this research 

wiil be evaluated. Section H.15 of the existing seized property contract 

has been revised to clanfy the insurance requirements. This was 

accomplished in Modification Number 50 of the contract effective on 

February 17,2000. 

Recummendation 4: Customs should revise its SOW to include a 

provision for establishing disposWon order cWff dates for placing 

property in an auction sale. 

R8commendatlon 5: Customsshoufd provide clarfficationwith 

respect to the 63-daysale quirement described in the SOW. 

Customsshould consider quifningseked proper?y, excluded from 

an auction sale because thecorrespondingdisposition o&r was 

received after the cut-off date, to be offered for sake no later than the 

next cycle auction. 

Recommendationsnumber four and five are interrelated. We concur with 

both of these recommendations. Please be advised that we are currently 

in the process of recompetingthe seized propertycontract and this issue 

will be addressed in conjunctionwith the awarding of the new contract. In 

the meantime Customs will monitor the sale of forfeited property to 

ensure that it is sold as soon as possible after the property has been 

forfeited. 

Discussion: 

Customs is in the process of changing the SOW to change the 63-day 

requirementfor sale and the issue will be negotiated with the contractor. 

We believe this will remove any ambiguity and still allow the government 

the fiexibility to get forfeited properly into sale as soon as possible. 

Additionally, we are currentty discussingchangesto the contract 

language and proceduresto address such commoditiesas jewelry and 

coins as "specialty items." This designationwould thereby eliminate 

these items from the 63-day sale requirement and allow time for adequate 

marketingactivities. 

I 

016-00-121 REVIEW OF' CONTRACT PERFORMANCE PACE 29 

RELATED TO SEIZED AND FORFEITED 

PROPErn 
Appendix 2 

Page 5 of 7 

We concur with this recommendation. Two new reports are now being 

programmedby OIT and should be in productionby the end of this fiscal 

year. 

Discussion 

We recognizethe weakness of the evaluation of the six areas where 

criteria was not calculated because of lack of data. This was caused by 

the initial SEACATS implementation,and the ongoing processfor the 

final, fully functional version which will providethe requiredtwo reports. 

The contractor is currently inputting backlog data into the system and 

once this process has been completed it will be used for the award fee. 

Although we concur with your recommendation,it does not take into 

consideration the contract period of performance. We are currently in the 

second quarter award fee evaluation period of the final option year. 

Changes of this magnitude require several rounds of negotiationswith the 

contractor. Consideration will be given to the Quarterly Performance 

Evaluation Plan during the preparationof the solicitationsfor the 

recompetition of the seized property contract. 

Recommendation 7: Customs should cktriry Quarterly Performance 

Evaluation Plan criteria or more stnstnctlycomply with the s&rted 

criteria. 

Customs wiH reemphasize and clarify criteria to all those involved in the 

award fee process to ensure continued compliance with the plan. All 

USCS evaluation determinations are based on documentation or rational 

subjective criteria. We feel that the criteria used in the evaluation process 

are consistent with the award fee evaluation plan. Specific data is 

gathered for each situation and thoroughly documents. The policy in 

place allows for the contractor and Governmentto meet and discuss the 

findings and provide responsesto areas identified as deficiencies. 

However, Customs will take the opportunityto reemphasize and clarify 

criteria to all those involved in the award fee process. 

OIG-00-121 	 REVIEW OF CONTMCT PERFORMANCE PAGE 30 €

ELA1TD TO SEIZEDAND FORFEITED €

PROPErn €
Appendix 2 

Page 6 of 7 

R8comm8RdBffon8: Customsshould review the 

submittedby the Contractorin 

Contractor'sinvoices for payment €

We are in general concurrencewith this recommendation. However, your 

draft report does not appear to identify any specific instances andfor list 

any significant questionablecosts or findings where inadequate review of 

contractor invoices has occurred. In addition, the two audits 01G-99-096 

and 016-99-099, listed in the report were audits of two public vouchers 

submitted by the contractor. These reports did not disclose any 

significant questionablecosts. With this understanding, we would 

appreciatethe Inspector General's advice and suggestions as to what 

type of internal audit mechanism could be realistically implemented and in 

addition, advise if we should be pursuing a refund against the contractor 

for any material errors in invoice processing. 

Discussion: 

Customs recognizes that the reconciliationprocess would be timeconsuming, tedious, and complexto review all detailedcharges submitted 

by the contractor, and at the same time execute timely paymentto the 

contractor. The public vouchers Standard Form 1034, Public Vouchers 

for Purchasesand Services Other Than Personnel, are certified for 

provisionalpayment and are subject to later audit. However, Customs 

does perform preaudit reviews of invoices prior to certifying for payment 

to identify that the computations are conect, the goods or se~ces 

performedwere in accordancewith the agreement and the payment 

under the appropriation or fund involved is legal. Inaddition, to ensure 

that all aspscts of the seized property contract functions in a costeffective manner, members of Seizures and Penatties,the Procurement 

Diviion, Accounts Services Division (ASD), and EOAF routinely monitor 

contractor's operations, evaluate and negotiate individualseizure costs, 

and conduct oversight travel to contractorfield locations. Additionally, the 

DefenseContract Audit Agency (DCAA) regularly audits thscontract. 

Customs agreesthat procedures for reviewingcontractor billings must be 

initiatedto provide for thorough testing of the validity and accuracy of 

contractorbilled costs, and to determine allowabili, allocabili and 

reasonableness. 

Custom believesthat third party auditors periodicallyreviewing 

contractorsbilling statements may be the best resolution, and will pursue 

the possibility of acquiring a public accountingfirm to conduct financial 

audits of the contractor in the future. We plan to coordinate with your 

office and EOAF, to develop a procedurefor a review of the detailed 

changes submitted by the contractor in support of the summary invoices. 

OIG-00- 121 €REVIEW OF CONTEU-\,CTPEBFORNLANCE PAGE 31 

RELATED TO SEIZED AND FOFWEITE33 

PROPERTY 
Property Accountability, we were ableto account for all 69seizwl 

property items selected for inventory atthe Contractds wamhoutw 

Jersey. Our rsview, however, 

into the 

Duringthe time of the audit, other agencies were encountering some 

problems with entering data into SEACATS. This resulted in a joint policy 

decision by Customsand EAOF which transferred the responsibility for 

data input to the seized property contractor. This poiicy should eliminate 

any discrepancies betweenthe physicalcount and SEACATS. In 

addition, based on your finding, we believe the SEACATS database, 

which tracks approximately 11,000 line items, is an accurate reflection of 

the seized propertyin the custody of the USCS. 

The report states in page two paragraph two, "Many of these 

deficiencies coneend the accuracy and reliabllltyof seized and 

forfeited property data and relatedtransactions." 

We recommendthat after the word transactionsthefollowing be added, 

"...used beforethe end of the year reconciliation." 

The report ly states that Customs sells or auctions "seized" 


property. For example on page 10 of the €

contractor did not always offer se*Wpr r salewithin 63 €

days..." 


Customs and/or other Treasury agencies do not sell seized property. The 

sale of property occurs only when the property has been forfeited. This 

distinction needs to be clear in the report. 

m 

OIG-00- 121  REVIEW OF CONTRACTPERFOmCE PAGE 32 €

RELATED TO SEIZED AND FORFEITED €

PROPErn €
Appendix 3 

Page 1 of 5 

DEPARTMENT OF THE TREASURY OFFICE OF THE UNDER SECRETARY FOR ENFORCEMENT 

EXECUTWE OFFICE FOR ASSET FORFEITURE 

740 15TH ST. N.W. WASHINGTON, D.C.20220 TELEPHONE: (202)622-9600 

FAX: (202)622-96I0 

MEMORANDUM FOR DENNIS S. SC L 

ASSISTANT GENERAL FOR AUDIT 

P+,--&rn. cC,- - FROM: RAY~ONDM. DINEEN 

ACTING DmCTOR 

SUBJECT: 	 Responseto recommendations presented in "Draft Report of 

Contract Performance Related to Seized and Forfeited 

Property". 

The purpose of this memorandum to provide a response to therecommendations that 

your office put forth within a draft audit report titled Review of Contract Performance 

Related to Seized and Fogeited Proper&. 

This draft report containsthe detailed findingsof an audit your office conducted of the 

Department of Treasury's national seized property contract, which is funded and 

overseen by this office. However, as our executive agent the US.CustomsService is 

responsible for contract administration,and, sincemany of the findingsrelate specifically 

to Customs' administration of the contract, we will defer to Customs for a response to 

those findings. We have limited our detailed responses to those recommendations that 

we do not concur with. With regard to those recommendationsthat we do concur wiih, 

this office has already been in communication with the U.S.Customs Service, 

specifically, Seizures and Penalties Division and the Office of Procurement, to identify 

the appropriate corrective action and timelines for accomplishment. The timelines and 

details of the corrective action to be taken will be provided to your office in the Customs' 

response to this same draft audit report. 

We appreciate the opportunity to provide comments and insight on the findings ofthis 

audit report prior to it being placed into final form and released for public information. 

Should you have any questions or concerns regarding the responses attached, please do 

not hesitate to contact me at 202-622-9600. 

Attachment 

CC: Director, Seizures& Penalties, USCS 

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EOAF responses to draft audit report "Review of Contract 

Petjiormance Related to Seized and Forfeited Property" 

Valuation of Seized Property 

Finding #I. The estimated value of seized property was overstated. As a result, 

insurance premiums for general property in the custody of the Contractor may be 

overstated by as much as $402,000 annually. 

Recommendation 1:Customs should modify contract insurance requirementsfor general 

property. The modification should require the Contractor to adjust the general property 

APV, for insurance purposes, based on the inventory adjustments used for financial 

statementreporting. 

EOAF Response 

We do not concur with this preliminary finding as written in your draft report. 

Discussion: 

The Executive Office for Asset Forfeiture (EOAF)does not see any relevance between 

this finding and the stated objective of the audit review, which was "to determine how 

effectively contracted services were being provided with regard to valued seized and 

forfeited property." We believe the discussion surrounding this iinding is technically 

outside the scope of the audit. However, we believe a brief response is necessary to 

address this finding. First, the seizing agencies are generally responsiblefor assigning an

appraisedvalue to all seized merchandise at the time of seizure. This requirement is 

dictated by laws and regulationswhich govern the administrative andjudicial forfeiture 

processes followed by Federal law enforcementagencies. The aforementioned laws and 

regulationsestablish legal requirements that supercede accounting issues, and any 

subsequent adjustmentsto value do not invalidatethe original values assigned at the time 

of seizure. The appraised values serve multiple purposes including establishing 

jurisdiction over cases and what amounts successfulclaimantsmight be entitled to 

receive when seized property is lost, stolen or destroyed prior to the completionof 

forfeitureproceedings. Liability to claimants is based on the appraised value at the time 

of seizure, and the government must ensure that the full, appraised value is protected

against loss, theft or destruction until property is forfeited. Second, with regard to 

potential savings in annual insurance premiums, we believe the reasoning employed to 

arrive at the estimated savings is flawed because it does not consider the "'risks" 

associatedwith storage of the various categories of property. Risk factors are common 

commercial criteria used in determining insurance premiums. 

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Finding #2: Ourreview indicated that Customs had not revised contract ents for 

property insurance that were out of date. 

Recommendation2: Customs should remind its personnel of the importanw of not 

entering into informal agreements with the Contractor. 

Recommendation 3: Customs should either modify the contract to come into alignment 

with current business practice or require the Contractor to comply with existing insurance 

requirements. 

EOAF Response: 

We concur with this prelmmary finding and have coordinated with Customson 

correctiveaction. 

Discussion: 

It is our understanding that Customs will initiate negotiations with the contractor to 

modifythe current contract to mirror the current businesspractice. Please refer to the 

formal Customs response for action to be taken and timeframes for implementation. 

Seized Property Sales -Other Than Real Property 

Finding # 3: The Contractor did not always offer seized property for salewithin 63 days 

of receipt of a disposition order as required by the contract SOW. 

Recommendation4: Customs should revise its SOW to include a provision for 

establishingdisposition order cut-off dates for placing property in an auction sale. 

Recommendation 5: Customs should provide clarificationwith respect to the 63-day sale 

requirement described in the SOW. Customs should consider requiring seized property, 

excluded fiom an auction sale because the correspondingdisposition order was received 

after the cut-off &te, to be offered for sale no later thanthe next cycle auction. 

EOAF Response: 

Preliminary recommendationsnumber four and five are interrelated. We concur with this 

preliminary finding and have coordinatedwith Customs on corrective action. 

Discussion: 

It is our understanding thatCustoms will initiate negotiations with the contractor to 

identifya realistic performancemeasure to eliminate the 63day requirement. This 

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Appendix 3 

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modification will be implemented prior to the end of the current contract. Please refer to 

the formal Customsresponse for action to be takenand timehes for implementation. 

Pe@omance Award Fee 

Finding # 4: Our review indicated that Customs had not revised contract criteria used to 

determine performance award fees that were no longer applicable. 

Recommendation 6:Customs should identify alternative criteria or methods for 

evaluating the Contractor's performance for the six areaswhere management reports are 

no longer available. 

Recommendation 7: Customs should clarifjl Quality Performance Evaluation Plan criteria 

or more strictly comply with the stated criteria 

EOAF Response: €

We concur with this preliminary finding and have coordinated with Customs on 

correctiveaction. 

Discussion: €

It is our understanding that Customs will take appropriate action to ensure the creation of

the reports with SEACATS. Please refer to the formal Customsresponse for action to be 

taken and timeframesfor implementation. 

Certijicationof invoices 

Finding # 5: Reviews of Contractor invoices were not sufficientlythorough. 

Recommendation 8: Customs should review the detailed charges submitted by the 

Contractor in support of the summary invoices. This review should provide reasonable 

assurancesthat "preaudit" objectivesdelineated in GAO's Policy and Procedures Manual 

for Guidance of Federal Agencies are met prior to certifying the Contractor's invoices for 

payment. 

EOAF Response: €

We concur with this preliminary finding and have coordinated with Customson 

corrective action. 

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Discussion: 

Customs has identified the possible need for the use of an independent auditor to review 

the detailed charges supportingthe summary invoices. This office will coordinatewith 

Customsto review this matter. Should a determination be made based upon this review 

to hire an auditor to perform this function, EOAF will considerproviding fimding to

support this effort. Please refer to the formal Customs response for action to be taken and 

timekes for implementation. 

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Appendix 4 

UTO TO €

Barry Savill, Audit Director 

William S. Schroeder, Audit Manager 

Magdalene Siew, Auditor-in-Charge 

Bridgette Hicks, Auditor 

Heshmat Ansari, Statistician 

OIG-00- 121  REWEW OF CONTRACT PERFORIVV~VCE PAGE 38 

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Appendix 5 €

Assistant Secretary (Enforcement) €

Deputy Assistant Secretary (Enforcement) €

Director, Financial Management €

Office of Strategic Planning and Evaluations €

Office of Accounting and Internal Control €

Office of Budget, Financial Management Division €

Commissioner €

Executive Office for Asset Forfeiture €

Director €

OIG Budget Examiner €

OIG-00- 121  REVIEW OF CON'I'RACT PERFORMANCE PAGE 39 €

REUTED TO SEIZED AND FORFEITED €

PROPErn €