Department of Homeland Security
 

National Protection and Programs Directorate’s 

Management Letter for FY 2012 DHS Consolidated 

Financial Statements Audit 

OIG-13-67 April 2013
 
 

 OFFICE OF INSPECTOR GENERAL 

 Department of Homeland Security 

 Washington, DC 20528 / www.oig.dhs.gov

 

APR 5 2013 

MEMORANDUM FOR: Michael Butcher 

Director of Management 

National Protection and Programs Directorate 

FROM: ards

pector General for Audits 

Anne L. Rich

Assistant Ins

SUBJECT: National Protection and Programs Directorate’s

Management Letter for FY 2012 DHS Consolidated 

Financial Statements Audit

 

Attached for your information is our final report, National Protection and Programs 

Directorate’s Management Letter for FY 2012 DHS Consolidated Financial Statements 

Audit. This report contains observations related to internal control deficiencies that 

were not required to be reported in the Independent Auditors’ Report on DHS’ FY 2012 

Financial Statements and Internal Control over Financial Reporting. Internal control 

deficiencies that are considered significant deficiencies were reported, as required, in 

the Independent Auditors’ Report, dated November 14, 2012, which was included in the 

DHS fiscal year (FY) 2012 Annual Financial Report. We do not require management’s 

response to the recommendations. 

The independent public accounting firm KPMG LLP conducted the audit of DHS’ 

FY 2012 financial statements and is responsible for the attached management letter 

dated March 12, 2013, and conclusions expressed in it. We do not express opinions on 

DHS’ financial statements or internal control, nor do we provide conclusions on 

compliance with laws and regulations. 

Please call me with any questions, or your staff may contact Mark Bell, Deputy Assistant 

Inspector General for Audits, at (202) 254-4100. 

Attachment 

 
 

 

 

 

 

 

 

KPMG LLP 

Suite 12000 

1801 K Street, NW 

Washington, DC 20006 

March 12, 2013 

Office of Inspector General 

U.S. Department of Homeland Security, and 

Chief Financial Officer, 

U.S. Department of Homeland Security National Protection and Programs Directorate 

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, 2012 and the related statements of net cost, changes in net position and custodial activity, 

and combined statement of budgetary resources for the year then ended (referred to herein as the “fiscal 

year (FY) 2012 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 FY 2012 financial statements, based on the criteria established in 

Office of Management and Budget (OMB), Circular No. A-123, Management’s Responsibility for Internal 

Control, Appendix A. 

Our Independent Auditors’ Report, issued on November 14, 2012, describes a limitation on the scope of 

our audit that prevented us from performing all procedures necessary to express an unqualified opinion on 

the DHS’ FY 2012 financial statements and internal control over financial reporting. In addition, the FY 

2012 DHS Secretary’s Assurance Statement states that the Department was able to provide qualified 

assurance that internal control over financial reporting was operating effectively at September 30, 2012. 

We have not considered internal control since the date of our Independent Auditors’ Report. 

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 National Protection and Programs Directorate (NPPD) is a component of DHS. We noted certain 

matters, related to NPPD, 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 NPPD 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 2012 audit – as either reported in our Independent Auditors’ Report, or herein – is 

presented in Appendix A. The status of internal control deficiencies identified during our FY 2011 audit is 

presented in Appendix B. 

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 the DHS’ and NPPD’s management, the DHS OIG, the U.S. OMB, 

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, 

KPMG LLP is a Delaware limited liability partnership, 

the U.S. member firm of KPMG International Cooperative 

(“KPMG International”), a Swiss entity. 
TABLE OF FINANCIAL MANAGEMENT COMMENTS (FMC) 


 

Comment 

Reference Subject Page 

 

FMC 12-01 Inadequate Purchase Request Information System (PRISM) to Federal Financial 2 


Management System (FFMS) Reconciliation
 

FMC 12-02 Federal Protective Services (FPS) Accounts Receivable Allowance 2 


FMC 12-03 Unfilled Customer Orders (UCOs) Not Recorded for Recurring Security Agreements 2 


FMC 12-04 FPS Headquarters Security Billing Review 3 


FMC 12-05 Untimely De-obligation of Undelivered Order (UDO) Balances 3 


FMC 12-06 Accounts Payable Estimate Methodology 3 


 

 

APPENDIX
 

Appendix Subject Page 

A Crosswalk – Financial Management Comments to Active Notices of Finding and 5 


Recommendation (NFRs)
 

B Status of Prior Year NFRs 6 


 

 

National Protection and Programs Directorate 

Table of Financial Management Comments 

September 30, 2012 

1 

 

FMC 12-01 – Inadequate Purchase Request Information System (PRISM) to Federal Financial 

Management System (FFMS) Reconciliation (NFR No. NPPD 12-01) 

National Protection and Programs Directorate (NPPD) uses PRISM – a procurement module 

outside of FFMS – to initiate obligations. Since PRISM does not interface with the general ledger 

(GL) system, FFMS, NPPD financial management personnel manually record obligations from 

PRISM into FFMS. 

During our test of design and implementation of NPPD’s FFMS to PRISM reconciliation, we 

noted that policies and procedures are in place for the reconciliation process; however, NPPD did 

not perform the reconciliation with a regular frequency during fiscal year (FY) 2012. As of the 

date of our walkthrough with NPPD on July 19, 2012, the FFMS to PRISM reconciliation was 

last performed in January 2012. 

Recommendation: 

We recommend that NPPD perform the FFMS to PRISM reconciliation with regular frequency. 

FMC 12-02 – Federal Protective Services (FPS) Accounts Receivable Allowance (NFR No. NPPD 

12-03) 

FPS is responsible for security of government facilities. Through different methods, FPS bills 

customers every month for their portion of the security cost. When a payment is not received, an 

accounts receivable balance is recorded in the GL and a review takes place to identify and attempt 

to collect on these charges. 

During our walkthrough over the March 31, 2012, accounts receivable review process, we noted 

the following: 

•	 Approximately 25 percent of the FPS Accounts Receivable balance, primarily Federal, was 

over 180 days uncollected. 

•	 Open accounts receivable balances ranged from 1 day to 2,298 days uncollected. 

•	 FPS does not have policies and procedures in place to identify, review, and resolve 

uncollected amounts related to Federal accounts receivable. 

Recommendation: 

We recommend that NPPD implement policies and procedures to identify, review, and resolve 

uncollected amounts related to Federal accounts receivable. 

FMC 12-03 –Unfilled Customer Orders (UCOs) Not Recorded for Recurring Security Agreements 

(NFR No. NPPD 12-05) 

NPPD FPS does not record UCOs for recurring agreements because these types of agreements are 

performed within the span of the fiscal year (i.e. annual agreements) and are billed on a 1/12th 

basis whereby 1/12th of the total agreement amount is billed each month. 

Recommendation: 

We recommend that NPPD record and track unfilled customer orders for all security work 

agreements. 

National Protection and Programs Directorate 

Financial Management Comments 

September 30, 2012 

2 

 

National Protection and Programs Directorate 

Financial Management Comments 

September 30, 2012 

FMC 12-04 – FPS Headquarters Security Billing Review (NFR No. NPPD 12-06) 

During our walkthrough over the review of the FPS headquarters security billings file, we noted 

that the current review process is not properly designed to identify and correct misstatements of 

inaccurate billings. 

During our testwork over a sample of 19 security revenue transactions, we identified five 

exceptions. Five FY 2012 sample amounts contained transactions related to FY 2011 revenue 

adjustments. While preparing and reviewing the monthly security charges, these amounts were 

not properly excluded from FY 2012 revenue. Specifically, three of the five sample amounts 

related to an increase in revenue, while the other two sample amounts related to a decrease in 

revenue. 

Recommendation: 

We recommend that NPPD FPS strengthen its current procedures or develop and implement new 

procedures to apply billing adjustments to revenue balances in the proper period. 

FMC 12-05 – Untimely De-obligation of Undelivered Order (UDO) Balances (NFR No. NPPD 12­

07) 

NPPD lacks effective controls over the verification and validation of UDOs which resulted in 

substantive errors. The verification and validation reviews performed by the financial managers 

indicate reliance on responses from field office personnel to determine the validity of open 

obligations which at times are inaccurate, do not indicate a rigorous review of the open 

obligations, or do not contain sufficient information for the financial managers to make an 

informed decision about the balance. 

We selected a statistical sample of 40 items from the population of UDOs as of September 30, 

2012. Based on our review, we noted that for 3 of the 40 UDOs tested, the contract/agreement 

POP had ended and the contract/agreement was no longer valid; however, the unused balances 

had not been properly de-obligated. 

Recommendations: 

We recommend that NPPD: 

•	 Strengthen its verification and validation review of UDOs to adequately consider whether 

balances should be de-obligated. 

•	 Improve communication between financial management and field office personnel during the 

review so that the final determination for each UDO balance is clearly documented. 

FMC 12-06 – Accounts Payable Estimate Methodology (NFR No. NPPD 12-12) 

NPPD’s accounts payable estimation review – as performed by its service provider, Immigration 

and Customs Enforcement (ICE) Office of Financial Management (OFM) – is not designed 

effectively to ensure that the estimate is accurately recorded. Specifically, we noted during FY 

2012 that ICE OFM was limiting the accounts payable estimate in certain budget object 

classifications and Program Codes to the total amounts that were obligated according to the 

obligation balances in those specific combinations. This limitation reduces the estimate amount 

3 

 

National Protection and Programs Directorate 

Financial Management Comments 

September 30, 2012 

without consideration for whether the reduction is necessary or meaningful to the estimate on the 

whole. 

Recommendation: 

We recommend that NPPD and ICE OFM further refine the accrual process to determine and 

accrue for the highest allowable attribute posting in FFMS so that an adequate accounts payable 

accrual is recorded each month. 

4 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix A 

National Protection and Programs Directorate 

Crosswalk – Financial Management Comments to Active NFRs 

September 30, 2012 

Disposition1 

IAR FMC 

NFR No. Description MW SD NC No. 

12-01 Inadequate Purchase Request Information System (PRISM) to Federal 

Financial Management System (FFMS) reconciliation 12-01 

12-02 Inadequate review and write down of Risk Assessment and Management 

Program F 

12-03 Federal Protective Services (FPS) Accounts Receivable Allowance 12-02 

12-04 Number not used Not applicable 

12-05 Unfilled Customer Orders (UCOs) Not Recorded for Recurring Security 

Agreements 12-03 

12-06 FPS Headquarters Security Billing Review 12-04 

12-07 Untimely de-obligation of Undelivered Order (UDO) balances 12-05 

12-08 Potential violation of the Anti-deficiency Act (ADA) L 

12-09 Number not used Not applicable 

12-10 Number not used Not applicable 

12-11 Entity Level Controls (ELCs) F 

12-12 Accounts Payable Estimate Methodology 12-06 

12-13 Property Plant and Equipment (PP&E) Held at Other Agency Not 

Timely Recorded F 

1

Disposition Legend: 

IAR Independent Auditors’ Report dated November 14, 2012 

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 Grants Management 

H Custodial Revenue and Drawback 

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

J Federal Financial Management Improvement Act of 1996 (FFMIA) 

K Single Audit Act Amendments of 1996 

L Antideficiency Act, as amended (ADA) 

5 

 

 

Appendix B 

National Protection and Programs Directorate 

Status of Prior Year NFRs 

September 30, 2012 

Disposition1 

NFR 

No. Description Closed2 Repeat (2011 NFR No.) 

11-01 Inadequate Internal Controls over Reporting of Government Furnished Equipment 

Asset Disposals X 

11-02 Subject to Availability of Funding Agreements Not Obligated in Federal Financial 

Management System (FFMS) at Outset of Agreement X 

11-03 Potential Antideficiency Act (ADA) Violation NPPD-12-08 

11-04 Inadequate Internal Controls over Reporting of Internal Use Software (IUS) 

Projects X 

11-05 Inadequate Internal Controls over Reporting of Equipment NPPD-12-13 

11-06 Untimely Reporting of Leasehold Improvements X 

1 KPMG was engaged to perform an audit over the DHS balance sheet as of September 30, 2012, and the related statements of net 

cost, changes in net position and custodial activity, and combined statement of budgetary resources for the year then ended. In 

addition, we were engaged to follow up on the status of all active NFRs that supported significant deficiencies reported in our FY 

2011 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 

 

 

 

 

 

 OFFICE OF INSPECTOR GENERAL 

Department of Homeland Security 

Appendix C 

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 

Acting Chief Privacy Officer 

National Protection and Programs Directorate 

Under Secretary 

Director of Management 

Liaison 

U.S. Immigration and Customs Enforcement 

Chief Financial Officer 

Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as appropriate 

www.oig.dhs.gov OIG-13-67 
 

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