Department of Homeland Security
 

U.S. Citizenship and Immigration Services’ 


Management Letter for FY 2011 DHS Consolidated 


Financial Statements Audit 


OIG-12-54 March 2012
 
Ofjice o/Inspector Ge" eral 

u.s. Department or Homeland s«urity 

Washinglon. DC 20528 

Homeland 

Security 

MAR 1 4 2012 

Preface 

The Department of Homeland Securi ty (DHS) Offi ce of Inspector General (DIG) was 

established by the Homeland Security Act 0[2002 (Public Law 107-296) by amendment 

to the InspeclOr General Act o[ 1978. This is one ofa seri es of audit, inspectio n, and 

special reports prepared as part of our oversight responsibilities to promote economy, 

effi ciency, and effectiveness within the Department. 

This report presents the United States Citizenship and Immigration Services ' 

Management Letter for FY 20 11 DHS Consolidated Financial Statements Audit. It 

contains observations related to internal controls that were not required to be reported in 

the financial statements audit report. The independent public accounting finn KPMG 

LLP (KPMG) perfonned the inte&rrated audit of DHS' FY 20 11 fi nancial statements and 

internal control over fi nancial reporting and prepared this management letter. KPMG is 

responsible for the attached management Ictter dated February 03, 2012 and the 

conclusions expressed in it. We do not express opinions on DHS' fi nancial statements or 

internal control or provide conclusions on compli ance with laws and regulations. 

The observations herein have been discussed in draft with management officials. We 

trust this report will result in more effective, efficient, and economical operations. We 

express our appreciation to all of those who contributed to the preparation of this report. 

Anne L. Richards 

Assistant Inspector General for Audits 
 

 

KPMG LLP 

Suite 12000 

1801 K Street, NW 

Washington, DC 20006 

February 3, 2012 

Office of Inspector General 

U.S. Department of Homeland Security, and 

Chief Financial Officer 

U.S. Department of Homeland Security U.S. Citizenship and Immigration Services 

Washington, DC 

Ladies and Gentlemen: 

We have audited the balance sheet of the U.S. Department of Homeland Security (DHS or 

Department) as of September 30, 2011 and the related statement of custodial activity for the year 

then ended (referred to herein as the “fiscal year (FY) 2011 financial statements”). The objective 

of our audit was to express an opinion on the fair presentation of these financial statements. We 

were also engaged to examine the Department’s internal control over financial reporting of the 

balance sheet as of September 30, 2011, and statement of custodial activity for the year then 

ended, based on the criteria established in Office of Management and Budget, Circular No. A123, Management’s Responsibility for Internal Control, Appendix A. 

Our Independent Auditors’ Report issued on November 11, 2011, describes a limitation on the 

scope of our audit that prevented us from performing all procedures necessary to express an 

unqualified opinion on DHS’ FY 2011 financial statements and internal control over financial 

reporting. In addition, the FY 2011 DHS Secretary’s Assurance Statement states that the 

Department was unable to provide assurance that internal control over financial reporting was 

operating effectively at September 30, 2011. We have not considered internal control since the 

date of our Independent Auditors’ Report. 

A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to 

prevent, or detect and correct misstatements on a timely basis. A material weakness is a 

deficiency, or combination of deficiencies, in internal control such that there is a reasonable 

possibility that a material misstatement of the entity’s financial statements will not be prevented, 

or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a 

combination of deficiencies, in internal control that is less severe than a material weakness, yet 

important enough to merit attention by those charged with governance. In accordance with 

Government Auditing Standards, our Independent Auditors’ Report, referred to in the paragraph 

above, included internal control deficiencies identified during our audit, that individually, or in 

aggregate, represented a material weakness or a significant deficiency. 

The U.S. Citizenship and Immigration Services (USCIS) is a component of DHS. We noted 

certain matters, related to USCIS that are summarized in the Table of Financial Management 

Comments on the following pages, involving internal control and other operational matters that 

are less severe than a material weakness or a significant deficiency, and consequently are reported 

separately to the Office of Inspector General (OIG) and USCIS management in this letter. These 

comments and recommendations, all of which have been discussed with the appropriate members 

of management, are intended to improve internal control or result in other operating efficiencies. 

The disposition of each internal control deficiency identified during our FY 2011 audit – as either 

reported in our Independent Auditors’ Report, or herein – is presented in Appendix A. The 

KPMG LLP is a Delaware limited liability partnership, 

the U.S. member firm of KPMG International Cooperative 

(“KPMG International”), a Swiss entity. 
status of internal control deficiencies identified during our FY 2010 audit is presented in 

Appendix B. Our findings related to information technology systems security have been 

presented in a separate letter to the OIG and the USCIS Chief Financial Officer and Chief 

Information Officer. 

We would be pleased to discuss these comments and recommendations with you at any time. 

This report is intended for the information and use of DHS’ and USCIS’ management, the DHS 

Office of Inspector General, the U.S. Office of Management and Budget, the U.S. Congress, and 

the Government Accountability Office, and is not intended to be and should not be used by 

anyone other than these specified parties. 

Very truly yours, 
APPENDIX 

Appendix Subject Page(s) 

A 

B 

Crosswalk – Financial Management Comments to Active Notices of Finding 

and Recommendation (NFRs) 

Status of Prior Year NFRs 

5 

6 

U.S. Citizenship and Immigration Services 

Table of Financial Management Comments 

September 30, 2011 

TABLE OF FINANCIAL MANAGEMENT COMMENTS (FMC) 

Comment 

Reference Subject Page(s) 

FMC 11-01 

FMC 11-02 

Deficiencies in the Timely Recording of Capital Property Plant & Equipment 

(PP&E) 

Lack of Policies and Procedures over Non-Itemized Invoices for PP&E 

2 

2 

FMC 11-03 

FMC 11-04 

FMC 11-05 

Inadequate and/or Inconsistent Supervisory Review of Personnel Actions 

Inadequate Supervisory Review of the Intra-Departmental Eliminations 

Reconciliation 

Inadequate Documentation and Untimely Capitalization of Internal Use 

Software (IUS) 

3 

3 

3-4 

1
 
U.S. Citizenship and Immigration Services 

Financial Management Comments 

September 30, 2011 

FMC 11-01 – Deficiencies in the Timely Recording of Capital Property Plant & Equipment (PP&E) 

(NFR No. USCIS 11-02) 

During our testwork for the period October 1, 2010 through June 30, 2011, we reviewed the 

property roll-forward files and identified prior period adjustments. In addition, we selected a 

statistical sample of PP&E transactions related to asset additions and noted the following: 

•	 Eight assets were recorded in the first and second quarters of fiscal year (FY) 2011 that were 

purchased and received in the prior fiscal year. These assets all related to equipment (United 

States Standard General Leger (USSGL) 1750) and were from the Office of Information and 

Technology (OIT) and Office of Intake and Document Production. 

•	 Four assets were recorded in the third quarter of FY 2011 that were purchased and received in 

the prior fiscal year. These assets all related to equipment (USSGL 1750) and were from the 

OIT. 

Recommendations: 

We recommend that United States Citizenship and Immigration Services (USCIS) Office of the 

Chief Financial Officer (OCFO), Office of Administration (OA), OIT, and the Office of 

Contracting coordinate to develop policies and procedures that ensure PP&E acquisitions are 

processed in a standardized method and include the following: 

•	 Roles and responsibilities for ordering, purchasing, delivery, receiving, and establishing 

accountability. 

•	 Require that accurate documentation is provided to the appropriate personnel to ensure timely 

and accurate data entry into the Sunflower Asset Management System (SAMS) and Federal 

Financial Management System (FFMS). 

FMC 11-02 – Lack of Policies and Procedures over Non-Itemized Invoices for PP&E (NFR No. 

USCIS 11-03) 

During our testwork for the period October 1, 2010 through March 31, 2011, we reviewed the 

property roll-forward files. Per review of the March property roll-forward, we noted that USCIS 

recorded an entry into FFMS to account for a $25.7 million invoice for OIT assets to be used at 

various data centers. The invoice provided to USCIS was not itemized to accurately identify the 

assets purchased and the cost for each item. As a result, we noted that USCIS recorded the total 

invoice amount in the general ledger prior to the individual assets being identified and recorded in 

SAMS. 

Recommendation: 

We recommend that the USCIS OCFO, OA, OIT, and USCIS Contracting coordinate to develop 

policies and procedures that ensure PP&E acquisitions are processed in a standardized method. 

These processes and procedures should ensure standardized delivery instructions, delivery 

verification and accurate documentation that ensure accurate data entry into SAMS and FFMS. 

2
 
U.S. Citizenship and Immigration Services 

Financial Management Comments 

September 30, 2011 

FMC 11-03 – Inadequate and/or Inconsistent Supervisory Review of Personnel Actions (NFR No. 

USCIS 11-04) 

We noted during interim controls testwork that USCIS did not properly approve several personnel 

actions. 

We examined 35 USCIS SF-52s from the period October 1, 2010 to June 30, 2011, and noted 

that: 

•	 13 of the 35 samples were new hire, extension of appointment or promotion actions that 

require approval by a Funding Official. We noted five instances in which a Funding Official 

did not approve the SF-52. 

•	 23 of the 35 samples were requested and approved by the same individual in the field. 

Recommendation:
 

We recommend that USCIS finalize and implement the Electronic System for Personnel 


Administrative Guide.
 

FMC 11-04 –Inadequate Supervisory Review of the Intra-Departmental Eliminations 

Reconciliation (NFR No. USCIS 11-05) 

We reperformed the March 2011 Intra-Departmental Reconciliation and identified a trading 

partner difference over the Department’s materiality threshold of $3,357,824 for pairing #20 

(non-match liability) with Immigration and Customs Enforcement on the Adjusted DHS Bureau 

Intra-Departmental Transactions by Elimination Pairs Report. The total component difference of 

$4,091,591 was not corrected prior to the final Treasury Information Executive Repository II 

submission, and was not included on the Chief Financial Officer (CFO) Certification for March 

2011. 

Recommendation: 

We recommend that USCIS enhance the reviews of the Intra-Departmental Elimination 

Reconciliation to ensure all differences are identified and either resolved or disclosed on the CFO 

Certification Memo. 

FMC 11-05 – Inadequate Documentation and Untimely Capitalization of Internal Use Software 

(IUS) (NFR No. USCIS 11-08) 

We performed testwork over PP&E additions as of June 30, 2011 and September 30, 2011, and 

noted USCIS did not capitalize Software in Development costs in a timely manner. We examined 

supporting documentation for the third and fourth quarter addition to Electronic Immigration 

System (ELIS)-Release A contract line item number 002AC and noted the following: 

•	 USCIS recorded a third quarter addition to ELIS-Release A of $8.0 million. USCIS included 

in this amount $1.3 million of prior year and $2.0 million of costs from previous quarters 

within the fiscal year. USCIS did not identify the costs in previous quarterly reviews. The 

remaining $4.7 million was correctly capitalized in the third quarter. 

•	 USCIS recorded a fourth quarter addition to ELIS-Release A of $17.7 million. USCIS 

included in this amount $2.5 million of prior year and $4.2 million of costs from previous 

3
 
U.S. Citizenship and Immigration Services 

Financial Management Comments 

September 30, 2011 

quarters within the fiscal year. USCIS did not identify the costs in previous quarterly 

reviews. The remaining $11.0 million was correctly capitalized in the fourth quarter. 

Recommendation: 

We recommend that USCIS improve the process for identifying and reporting software in 

development costs and standardize the procedures for identifying costs to reduce the risk that 

costs will not be identified timely during the quarterly cost allocations and reporting. 

4
 
 

Appendix A 

U.S. Citizenship and Immigration Services 

Crosswalk - Financial Management Comments to Active NFRs 

September 30, 2011 

Disposition1 

IAR FMC 

NFR No. Description MW SD NC No. 

11-01 Lack of Controls over List-to-Floor Manual Processes A 

11-02 Deficiencies in the Timely Recording of Capital Property Plant & 

Equipment (PP&E) 11-01 

11-03 Lack of Policies and Procedures over Non-Itemized Invoices for 

PP&E 11-02 

11-04 Inadequate and/or Inconsistent Supervisory Review of Personnel 

Actions 11-03 

11-05 Inadequate Supervisory Review of the Intra-Departmental 

Eliminations Reconciliation 11-04 

11-06 Untimely Change in Accounting Policies and Practices A 

11-07 Inadequate Data in the Claims 3, Claims 4, and Marriage Fraud 

Amendment Systems A 

11-08 Inadequate Documentation and Untimely Capitalization of Internal 

Use Software 11-05 

1

Disposition Legend: 

IAR	 Independent Auditors’ Report dated November 11, 2011 

FMC	 Financial Management Comment 

MW	 Contributed to a Material Weakness at the Department level when combined with the results of all other components 

SD	 Contributed to a Significant Deficiency at the Department level when combined with the results of all other 

components 

NC	 Contributed to Non-Compliance with laws, regulations, contracts, and grant agreements at the Department level when 

combined with the results of all other components 

NFR	 Notice of Finding and Recommendation 

Cross-reference to the applicable sections of the IAR: 

A Financial Reporting 

B Information Technology Controls and System Functionality 

C Property, Plant, and Equipment 

D Environmental and Other Liabilities 

E Budgetary Accounting 

F Entity-Level Controls 

G Fund Balance with Treasury 

H Grants Management 

I Custodial Revenue and Drawback 

J Federal Managers’ Financial Integrity Act of 1982 (FMFIA) 

K Federal Financial Management Improvement Act of 1996 (FFMIA) 

L Single Audit Act Amendments of 1996 

M Chief Financial Officers Act of 1990 (CFO Act) 

N Antideficiency Act, as amended (ADA) 

O Government Performance and Results Act of 1993 (GPRA) 

5
 
Appendix B 

U.S. Citizenship and Immigration Services 

Status of Prior Year NFRs 

September 30, 2011 

Disposition1 

NFR No. Description Closed2 Repeat 

(2011 NFR No.) 

10-01 Inadequate and/or Inconsistent Supervisor Review of Payroll Transactions X 

10-02 Inadequate and/or Inconsistent Supervisor Review of General Journal Entries X 

10-03 Improper Expensing of Capitalized Equipment X 

10-04 Deficiencies in the Deferred Revenue Quality Assurance Process and the Internal 

Control Environment USCIS-11-07 

10-05 Inadequate Supervisory Review of the Intra-Departmental Eliminations 

Reconciliation USCIS-11-05 

10-06 Leasehold Improvement Costs Were Not Capitalized Timely USCIS-11-02 

10-07 Inadequate and/or Inconsistent Supervisor Review of Personnel Actions USCIS-11-04 

1 KPMG was engaged to perform an audit over the DHS balance sheet and statement of custodial activity as of and for the year 

ended September 30, 2011, and was not engaged to perform an audit over the statement of net cost, statement of changes in net 

position, and statement of budgetary resources for the year ended September 30, 2011. In addition, we were engaged to followup on the status of all active NFRs that supported significant deficiencies reported in our FY 2010 Independent Auditors’ Report. 

2 The scope of our audit was limited to follow-up on NFRs that supported a material weakness or significant deficiency as 

reported in our Independent Auditors’ Report. All other NFRs, e.g., that described insignificant findings, and therefore presented 

to DHS management as observations for consideration, were considered closed. 

6
 
 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff 

Deputy Chief of Staff 

General Counsel 

Executive Secretary 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

Chief Financial Officer 

Chief Information Officer 

U.S. Citizenship and Immigration Services 

Chief Financial Officer 

Audit Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as 

appropriate 
 

 

ADDITIONAL INFORMATION AND COPIES 

To obtain additional copies of this report, please call the Office of Inspector General 

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@dhsoig. 

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