Justice Assets Forfeiture Fund: Transparency of Balances and Controls over Equitable Sharing Should Be Improved
Published: 2012-07-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Every year, federal law enforcement agencies seize millions of dollars in assets in the course of investigations. The AFF was established to receive the proceeds of forfeiture and holds more than $1 billion in assets. DOJ uses the proceeds from forfeitures primarily to cover the costs of forfeiture activities. DOJ also shares forfeiture proceeds with state and local agencies that participate in joint investigations through its equitable sharing program. GAO was asked to review (1) AFFs revenues and expenditures from fiscal years 2003 through 2011 and DOJs processes for carrying over funds for the next fiscal year, and (2) the extent to which DOJ has established controls to help ensure that the equitable sharing program is implemented in accordance with established guidance. GAO analyzed data on AFF revenues, expenditures, and balances; interviewed DOJ officials; and analyzed a sample of 25 equitable sharing determinations, which included 5 determinations from each relevant DOJ agency. GAOs analysis of the samples was not generalizable, but provided insight into DOJs decisions.
section_title: What GAO Found
paragraphs: Annual revenues into the Assets Forfeiture Fund (AFF) from forfeited assets increased from $500 million in 2003 to $1.8 billion in 2011, in part due to an increase in prosecutions of fraud and financial crimes cases. Expenditures in support of forfeiture activities such as equitable sharing payments to state and local law enforcement agencies and payments to victims also increased over the same 9-year period, growing from $458 million in 2003 to $1.3 billion in 2011. The Department of Justice (DOJ) uses the difference between revenues and expenditures in any year to help cover anticipated expenses in the next fiscal year. Because the AFF uses fund revenues to pay for the expenses associated with forfeiture activities, DOJ carries over funds at the end of each fiscal year to ensure it has sufficient resources to cover expenses that may not be covered by the next years revenues. When determining the amounts to carry over, DOJ reviews historical data on past program expenditures, analyzes known future expenses such as salaries and contracts, and estimates the costs of any potential new expenditures. However, DOJ has not documented the process for determining the amount of funds needed to cover anticipated expenditures in the next fiscal year in its annual budget justifications. Providing more transparent information as part of the AFFs annual budget process would better inform Congress oversight of the AFF. Further, after DOJ obligates funds needed to cover program expenses, any remaining AFF funds identified at the end of a fiscal year may be declared an excess unobligated balance. DOJ has the authority to use these balances for any of the departments authorized purposes. Per Office of Management and Budget guidance, in recent years, DOJ used these excess unobligated balances to help cover rescissions. Rescissions cancel the availability of DOJs previously enacted budget authority, making the funds involved no longer available for obligation. For example, in fiscal year 2011, DOJ used excess unobligated balances to help cover a $495 million AFF program rescission.
DOJ has established guidelines for making equitable sharing determinations, but controls to ensure consistency and transparency could be improved. For example, DOJ agencies responsible for making equitable sharing determinations may make adjustments to sharing percentages when work hours alone do not reflect the relative value of an agencys contribution to an investigation. If a state or local law enforcement agency contributed a helicopter or a drug-sniffing dog to an investigation, its sharing percentage might be adjusted upward from what it would be based on work hours alone. However, DOJs guidance does not include information regarding how decisions about these adjustments to sharing determinations should be made. This is particularly important given that these determinations represent DOJs overall assessment of each agencys unique contributions and are a key component of how DOJ determines how much to award to each agency. Furthermore, key information that serves as the basis for equitable sharing determinationssuch as the work hours contributed by each of the participating agencies in an investigationis not subject to review by approving authorities. Developing guidance regarding how these decisions are to be made, documenting the basis for these decisions, and subjecting them to review and approval would help ensure the consistency and transparency of equitable sharing determinations.
section_title: What GAO Recommends
paragraphs: GAO recommends that, among other things, DOJ clearly document how it determines the amount of funds that will need to be carried over for the next fiscal year, develop guidance on how components should make adjustments to equitable sharing determinations, and ensure that the basis for equitable sharing determinations is documented and subjected to review and approval. DOJ concurred with GAOs recommendations.

section_title: Letter
paragraphs: Every year, federal, state, and local law enforcement agencies seize  millions of dollars in assets that are forfeited through the Department of  Justice’s (DOJ) Asset Forfeiture Program. Forfeited assets can include,  but are not limited to, businesses, cash, bank accounts, automobiles,  boats, airplanes, jewelry, art objects, and real estate. A primary goal of  the program is preventing and reducing crime through the seizure and  forfeiture of assets that were used in or acquired as a result of criminal  activity. The Comprehensive Crime Control Act of 1984 established the  Assets Forfeiture Fund (AFF) within DOJ to receive the proceeds of  forfeitures and the AFF currently holds more than $1 billion in assets.  Revenues generated from forfeitures are used to fund program-related  expenses including payments to victims and lienholders, the costs of  storing and maintaining forfeited assets, and certain law enforcement  activities, such as the payment of awards for information leading to asset  forfeiture. After funds have been obligated for program expenses in the  current fiscal year, any unobligated funds that remain in the AFF at the  end of the fiscal year are then carried forward to the next fiscal year.  Specifically, at the end of each fiscal year, DOJ carries over funds to  ensure it has resources to cover expenses that may not be covered by  the next year’s anticipated revenues. Those funds determined to be in  excess of these requirements (excess unobligated balances) may be  declared as Super Surplus and, after congressional notification, can be  used at DOJ’s discretion for a variety of purposes.
All federal law enforcement agencies within DOJ participate in the Asset  Forfeiture Program including the United States Marshals Service (USMS);  the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF); the Drug  Enforcement Administration (DEA); and the Federal Bureau of  Investigation (FBI) as well as other agencies not part of DOJ such as the  Department of Defense Criminal Investigative Service. Often, state and  local law enforcement agencies participate in joint investigations with  DOJ’s law enforcement agencies. In return, state and local law  enforcement agencies can receive a portion of the proceeds of forfeited  assets resulting from these investigations in the form of cash or property  through DOJ’s equitable sharing program. through 2011, DOJ has shared over $3.2 billion in cash and property with  more than 9,200 state and local law enforcement agencies. You  expressed interest in the management of the AFF and oversight of the  equitable sharing program. Thus, this report addresses the following  questions:  1.  How, if at all, have the AFF’s revenues and expenditures changed  from fiscal years 2003 through 2011 and to what extent does DOJ  have processes in place to ensure transparency when carrying over  funds for the next fiscal year?  2.  To what extent has DOJ established controls to help ensure that the  equitable sharing program is implemented in accordance with  established DOJ guidance?
21 U.S.C. § 881(e)(1)(A) and (e)(3), 18 U.S.C. § 981(e)(2) authorize the Attorney  General to share federally forfeited property with participating state and local law  enforcement agencies. revenues and expenditures by fiscal year. We used information on  revenues and expenditures contained in the department’s financial  accounting systems. We interviewed DOJ officials regarding information  in the financial accounting systems to discuss trends and anomalies in  the revenues and expenditures over this 9-year period. As part of our  review we also determined the extent to which DOJ has processes in  place to ensure transparency when carrying over funds for the next fiscal  year. We reviewed information on unobligated and excess unobligated  balances from DOJ’s annual Congressional Budget Justifications to  Congress, available through DOJ’s public website and also contained in  the AFF’s financial accounting systems.extent to which the Congressional Budget Justifications outlined the  processes for carrying over funds for the next fiscal year. We also  reviewed prior GAO reports on the importance of transparency in federal  budget submissions to Congress. We interviewed DOJ officials from the  Asset Forfeiture Management Staff responsible for oversight of the AFF  regarding their processes for carrying over funds at the end of the fiscal  year. Further, we analyzed data on the AFF’s excess unobligated  balances from fiscal years 2003 through 2011, and interviewed officials  about how excess unobligated balances have been used since 2003,  including how these balances have been used to cover the cost of annual  rescissions over this time period.
Specifically, we assessed the  To assess the reliability of DOJ’s financial accounting system for  providing revenues, expenditures, and excess unobligated balances data,  we reviewed relevant documentation and conducted interviews with  knowledgeable DOJ agency officials to understand how DOJ collects,  categorizes, and tabulates the information and the actions it takes to  ensure its consistency, accuracy, and completeness. We determined  information on the financial accounting system provided by DOJ to be  sufficiently reliable for presenting the total revenues, expenditures, and  excess unobligated balances for fiscal years 2003 through 2011.
To determine the extent to which DOJ has established controls to help  ensure that the equitable sharing program is implemented in accordance  with established guidance, we analyzed the most current guidance  provided to DOJ agencies, including the 2009 Guide to Equitable Sharing  for State and Local Law Enforcement Agencies and the 2008 Asset  Forfeiture Policy Manual, which is also provided to all DOJ agencies. In  the course of our review, DOJ officials informed us that they are in the  process of updating the 2008 Asset Forfeiture Policy Manual and  provided us with a copy of the revised chapter on equitable sharing,  which we also analyzed. We interviewed officials from DOJ’s Asset  Forfeiture Management Staff responsible for managing the AFF, and  officials from the Asset Forfeiture and Money Laundering Section  responsible for establishing the policies and procedures of the fund. In  addition, we discussed equitable sharing guidance, policy, and related  issues with headquarters officials from DOJ’s law enforcement agencies,  including ATF, DEA, FBI, and USMS. We also compared DOJ’s equitable  sharing guidance against criteria included in Standards for Internal  Control in the Federal Government.
We received sample equitable sharing determinations from each of the DOJ agencies  responsible for making equitable sharing recommendations. These were the Asset  Forfeiture Money Laundering Section, ATF, DEA, FBI, and the United States Attorney’s  Office. Although the results of our review of equitable sharing determinations cannot be  generalized to all equitable sharing determinations, we gained a critical understanding of  how each of the DOJ agencies makes sharing recommendations as well as the process  for reviewing and approving final equitable sharing determinations. agencies from these two states because they are two of the states that  received the largest amounts of equitable sharing dollars in fiscal year  2011. While the views of these local law enforcement agencies cannot be  generalized to the population of equitable sharing participants, these  interviews provided insight into the views of select local law enforcement  agencies on the equitable sharing program. As part of our review of the  equitable sharing program, we also analyzed information on equitable  sharing payments by state and by fiscal year. To assess the relationship  between equitable sharing payments and the population of a state, and  per capita equitable sharing payments and arrest rates, we reviewed  equitable sharing payments data from fiscal years 2003 through 2011  provided by DOJ, U.S. Census Bureau data for the U.S. population in  2010, and FBI’s annual uniform crime data on arrest rates for 2010, which  were the most current data available at the time we did our analysis. We  interviewed FBI officials to assess the reliability of the FBI uniform crime  data. In the course of the interview we determined that the arrest data for  Washington, D.C. and Illinois did not capture the entire area, but  determined the data for all other states was sufficiently reliable for the  purposes of our review. Consequently, we excluded Washington, D.C.  and Illinois from our analysis. Because it was out of the scope of our  work, we did not attempt to determine other factors that could explain the  relationship between equitable sharing funds and population or arrests.
We conducted this performance audit from April 2011 through July 2012  in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Asset Forfeiture Program has three primary goals: (1) to punish and  deter criminal activity by depriving criminals of property used or acquired  through illegal activities; (2) to enhance cooperation among foreign,  federal, state, and local law enforcement agencies through the equitable  sharing of assets recovered through this program; and, as a by-product,  (3) to produce revenues in support of future law enforcement  investigations and related forfeiture activities. A number of federal law  enforcement organizations participate in the AFF, including USMS, which  serves as the primary custodian of seized and forfeited property for the  program. See figure 1 for the Asset Forfeiture Program participants.
DOJ’s Asset Forfeiture Management Staff (AFMS) is part of DOJ’s  Justice Management Division and is responsible for managing and  overseeing all financial aspects of the AFF, review and evaluation of  asset forfeiture program activities, internal controls and audit functions,  information systems, and other administrative functions related to the  fund. The Asset Forfeiture Money and Laundering Section (AFMLS) is  part of DOJ’s Criminal Division and is responsible for legal aspects of the  program, including civil and criminal litigation and providing legal advice  to the U.S. Attorneys’ Offices. AFMLS is responsible for establishing the  Asset Forfeiture Program’s policies and procedures, coordinating  multidistrict asset seizures, acting on petitions for remission in judicial  forfeiture cases, and coordinating international forfeiture and sharing.  AFMLS also oversees the AFF’s equitable sharing program. United  States Attorneys’ Offices (USAO) are responsible for the prosecution of  both criminal and civil actions against property used or acquired during  illegal activity.
USMS serves as the primary custodian of seized property for the Asset  Forfeiture Program. USMS manages and disposes of the majority of the  valued property seized for forfeiture. In serving as the primary custodian  of the majority of assets managed by the fund, USMS manages all valued  assets that are not considered evidence, contraband, or targeted for use  by individual law enforcement agencies. ATF enforces the federal laws  and regulations relating to alcohol, tobacco, firearms, explosives, and  arson by working directly and in cooperation with other federal, state, and  local law enforcement agencies. While USMS is the primary custodian  over valued assets, ATF maintains custody over assets seized under its  authority, including firearms, ammunition, explosives, alcohol, and  tobacco. DEA implements major investigative strategies against drug  networks and cartels. DEA maintains custody over narcotics and other  seized contraband. The FBI investigates a broad range of criminal  violations, integrating the use of asset forfeiture into its overall strategy to  eliminate targeted criminal enterprises.
There are several agencies outside the Department of Justice that also  participate in the DOJ Asset Forfeiture Program. Non-DOJ participants  include the United States Postal Inspection Service, the Food and Drug  Administration’s Office of Criminal Investigations, the United States  Department of Agriculture’s Office of the Inspector General, the  Department of State’s Bureau of Diplomatic Security, and the Department  of Defense Criminal Investigative Service.
subsections: section_title: Types of Forfeiture
paragraphs: There are two types of forfeiture: administrative and judicial, and they  differ in a number of ways, including (1) the point in the proceeding,  generally at which the property may be seized; (2) the burden of proof  necessary to forfeit the property; and (3) in some cases, the type of  property interests that can be forfeited.
Administrative forfeiture allows for property to be forfeited without judicial  involvement. Although property may be seized without any judicial  involvement, seizures performed by federal agencies must be based on  probable cause. In administrative forfeitures, the government initiates a  forfeiture action and will take ownership of the property provided that no  one steps forward to contest the forfeiture. Specifically, the administrative  forfeiture procedure requires that those with an interest in the property be  notified and given an opportunity to request judicial forfeiture  proceedings. See below for an example of an administrative forfeiture.
Example of Administrative Forfeiture  DEA initiated a task force investigation into a drug-trafficking organization. Task force  officers received information from a confidential source that the drug-trafficking  organization was using a van with hidden compartments to transport methamphetamine  and drug proceeds, and a drug detection dog gave a positive alert to the presence of  drugs in the van. Officers obtained and executed a search warrant on the vehicle,  which resulted in the discovery and seizure of 149 kilograms of cocaine and $1,229,785  in U.S. currency. Because no party filed a claim contesting the forfeiture, the currency  was administratively forfeited by DEA pursuant to 19 U.S.C. § 1609.
Judicial forfeiture, both civil and criminal, is the process by which property  may be forfeited to the United States by filing a forfeiture action in federal  court. In civil forfeiture, the action is against the property and thus does  not require that the owner of the property be charged with a federal  offense. The government must only prove a connection between the  property and the crime. By contrast, criminal forfeiture requires a  conviction of the defendant before property is subject to forfeiture.
Example of Civil Forfeiture  After obtaining a search warrant, agents searched a residence and the adjoining land  on a 50-acre farm. Agents found firearms and ammunition, along with 60 pounds of  processed marijuana. Agents also found approximately 4,000 marijuana plants growing  outside in the adjacent field, along with approximately 2,500 plants being processed.  While the owner of the farm will be subject to prosecution, because the land was used  for illegal activities, a separate civil forfeiture action was filed against the property. The  farm where the marijuana plants were located was seized and will be forfeited under  civil forfeiture proceedings.
Example of Criminal Forfeiture  According to the United States Attorney, two Philadelphia-based corporations operated  an Internet enterprise that facilitated interstate prostitution activities. The defendants  allegedly developed and operated an Internet website and created an online network  for prostitutes, escort services, and others to advertise their illegal activities to  consumers and users of those services.  The case was investigated by state police, FBI, and the Internal Revenue Service  Criminal Investigations Division. The investigation found that defendants received fees  in the form of money orders, checks, credit card payments, and wire transfers from  users of the website. The funds the defendants allegedly received were the proceeds of  violations of federal laws prohibiting interstate travel in aid of racketeering enterprises,  specifically prostitution, and aiding and abetting such travel. The money-laundering  conspiracy charge alleges that the defendants engaged in monetary transactions in  property of a value greater than $10,000 derived from those unlawful activities.  The defendants entered guilty pleas to the money-laundering conspiracy charge and  agreed to serve a probation term of 18 months and to pay a $1,500,000 fine. In  addition, under the terms of the plea agreement, the defendants agreed to the criminal  forfeiture of $4.9 million in cash derived from the unlawful activity, as well as forfeiture  of the domain name, all of which represent property used to facilitate the commission of  the offenses.
The asset forfeiture process involves a number of key steps, including  necessary planning in advance of the seizure, seizing and taking custody  of the asset, notifying interested parties, addressing any claims and  petitions, and equitable sharing with state and local law enforcement  agencies. According to DOJ, enhancing cooperation among federal,  state, and local law enforcement agencies is one goal of the equitable  sharing program. For more information on how agencies qualify for  equitable sharing, see appendix I.
section_title: AFF Revenues and Expenditures Have Increased since Fiscal Year 2003, and DOJ’s Process for Carrying Over Funds Could Be More Transparent
paragraphs: From fiscal years 2003 through 2011, AFF revenues and expenditures  increased, with annual revenues doubling in fiscal year 2006, due in part  to an increase in forfeitures resulting from fraud and financial crimes  investigations. DOJ estimates anticipated revenues and expenditures  based on prior years’ trends and then carries over funds to help cover  operational expenses and other liabilities in the next fiscal year, including  reserves needed for pending equitable sharing and third-party payments.  However, the transparency of DOJ’s process for carrying over these  funds could be enhanced. Once all expenses have been accounted for  and unobligated funds deemed necessary for next year’s expenses have  been carried over to the next fiscal year, DOJ then reserves funds to  cover annual rescissions.
subsections: section_title: AFF’s Revenues More than Tripled from Fiscal Years 2003 through 2011
paragraphs: In the 9-year period from fiscal years 2003 through 2011, AFF revenues  totaled $11 billion, growing from $500 million in fiscal year 2003 to $1.8  billion in fiscal year 2011. Since 2006, an increase in the prosecution of  fraud and financial crime cases has led to substantial increases in AFF  revenue.involved the misappropriation of funds by the founder of a television cable  company, Adelphia Communications, and resulted in over $700 million in  forfeited assets. As a result of the increase in forfeitures resulting from  money laundering and financial crimes investigations, in 2006, revenues  doubled those of previous years, and for the first time in the AFF’s history,  total annual revenues grew above $1 billion to approximately $1.2 billion.  Since 2006, the AFF’s annual revenues have remained above $1 billion,   For example, a money laundering case in fiscal year 2007  with the highest revenues of $1.8 billion reported in 2011.shows the fund’s revenue growth over time from fiscal years 2003  through 2011.
Moreover, according to DOJ officials, in addition to an increase in the  prosecution of fraud and financial crime cases, the increase in revenues  can also be attributed to an overall increase in the number of forfeiture  cases together with higher-value forfeitures. Across all fiscal years,  forfeited cash income constituted 76 percent or more of the AFF’s  revenue sources. Forfeited cash income includes cash/currency, as well  as financial instruments such as money orders, bank accounts, brokerage  accounts, and shares of stock. The second, and much smaller, source of  revenue is the sale of forfeited property including automobiles, boats,  airplanes, jewelry, and real estate, among others. In fiscal year 2011,  revenues from forfeited cash income and the sale of forfeited property  together accounted for over 84 percent of the total revenues. Other  sources of income may include transfers from the Treasury Forfeiture  Fund (TFF), and transfers from other federal agencies. Additionally,  since fiscal year 2006—when the AFF’s revenues from fraud and financial  crime cases increased—large-case deposits (forfeitures greater than $25  million) of forfeited cash income have contributed an average of 37  percent to total revenues. For example, in 2007, DOJ reported a total of  six large deposits that totaled $842 million, or slightly over 50 percent of  the AFF’s total revenues in that fiscal year. These forfeitures of assets  greater than $25 million involved investigations of misappropriation of  funds, including corporate fraud and the illegal sales of pharmaceutical  drugs. The types of assets that were seized in these investigations were  primarily forfeited cash income.
section_title: AFF’s Expenditures on Forfeiture Activities Also Increased
paragraphs: From fiscal years 2003 through 2011, AFF expenditures totaled $8.3  billion. As revenues have increased, there has been a corresponding  increase in expenditures in support of asset forfeiture activities.  Specifically, expenditures increased from $458 million in fiscal year 2003  to $1.3 billion in fiscal year 2011. Figure 3 shows the expenditures from  fiscal year 2003 through 2011, including the large growth in expenditures  beginning in 2007.
Revenues resulting from forfeitures are used to pay the forfeiture  program’s expenditures in three major categories:  1.  payments to third parties, including payments to satisfy interested  parties such as lienholders, as well as the return of funds to victims of  large-scale fraud;  2.  equitable sharing payments to state and local law enforcement  agencies that participated in law enforcement efforts resulting in the  forfeitures; and  3.  all other program operations expenses that include a total of 13  expenditure categories such as asset management and disposal, the  storage and destruction of drugs, and investigative expenses leading  to a seizure.
Table 1 shows the AFF’s expenditures across all fiscal years, including  payments to third parties, equitable sharing, and all other program  operations expenses.
Equitable sharing payments to state and local law enforcement agencies  have generally increased since fiscal year 2003; in fiscal year 2003,  equitable sharing payments totaled $218 million, and in fiscal year 2011,  equitable sharing totaled $445 million. Moreover, when compared with  DOJ grant programs, equitable sharing is one of the largest DOJ  programs providing funds to recipients in order to support state and local  law enforcement activities. For example, in fiscal year 2010, the Victims  of Crime Assistance (VOCA) Program was DOJ’s largest grant program;  DOJ distributed approximately $412 million in funds through the VOCA  program. By way of comparison, equitable sharing in fiscal year 2010  provided a total of $388 million in equitable sharing payments to state and  local law enforcement agencies. According to state and local law  enforcement officials we met with, because most of their departmental  budgets go toward personnel costs, the equitable sharing program is  extremely important because it helps fund equipment, training, and other  programs that they may otherwise not be able to afford. For example, one  local law enforcement agency stated that salaries make up 96 percent of  its annual budget. As a result, equitable sharing dollars allow them to  purchase equipment they could not otherwise buy with the limited  available annual budget. See appendix I for the total equitable sharing  payments made to each state in fiscal year 2011.
Equitable sharing has generally increased from 2003 through 2011;  however, as a percentage of total expenditures, equitable sharing has  decreased from 48 percent of total expenditures in 2003 to 34 percent in  2011. This percentage decrease began in fiscal year 2006, when another  expenditure category—payments to third parties including lienholders and  victims—increased from 10 to 44 percent of total expenditures. DOJ  officials attribute the shift among these major expense categories in part  to the increase in the prosecution of fraud cases with significant numbers  of victims. Moreover, because large-case deposits are generally the result  of fraud and financial crime cases, they typically have a greater proportion  of payments to victims than equitable sharing, a fact that may also  contribute to the overall percentage decrease in equitable sharing. For  example, in fiscal year 2007, as a result of a non-prosecution agreement  with Adelphia Communications, over $700 million in cash and stocks was  forfeited and liquidated. In fiscal year 2012, the net proceeds from these  forfeitures, which totaled approximately $728 million, were returned to  victims.
In addition to equitable sharing and third-party payments to victims and  lienholders, the AFF is used to pay for a variety of program operations  expenses. According to DOJ, the primary purpose of the AFF is to  provide a stable source of resources to cover the costs of the Asset  Forfeiture Program, including the costs of seizing, evaluating,  inventorying, maintaining, protecting, advertising, forfeiting, and disposing  of property seized for forfeiture. Among the program operations expenses covered by the AFF are costs associated with storing,  maintaining, and disposing of forfeited assets. The AFF also funds case- related expenses including costs of managing paperwork, costs  associated with the prosecution of forfeiture cases, costs associated with  the execution of forfeiture judgments, and the costs of advertising.AFF also funds a variety of investigative expenses associated with  forfeiture, including payments to reimburse any federal agency  participating in the AFF for investigative costs leading to seizures. Other  investigative expenses may include awards for information, purchase of  evidence, and costs to fund joint task force operations. For additional  details regarding expenditure categories, see appendix II.
section_title: DOJ Carries Over Funds Needed to Cover Anticipated Expenditures in the Next Fiscal Year, but Transparency Could Be Improved
paragraphs: At the end of each fiscal year, DOJ carries over funds in order to help  ensure it has sufficient resources to cover all AFF expenses that may not  be covered by the next year’s revenues; however, the process DOJ uses  to determine how much to carry over each year is not documented or  outlined in its Congressional Budget Justifications. While DOJ officials  stated that they cannot predict how much revenue will result from  forfeitures in any given year, they attempt to estimate their anticipated  revenues based on prior years’ trends. They then carry over funds  needed to cover anticipated expenses for the coming year including funds  needed to cover the costs of pending equitable sharing and third-party  payments as well as funds needed to ensure the Asset Forfeiture  Program’s solvency—including the anticipated costs associated with  continuing forfeiture activities—at the start of the next fiscal year. Similar  to the growth in revenues and expenditures, the funds DOJ carries over  to cover these authorized expenses at the end of each fiscal year have  grown since 2003. For example, at the end of fiscal year 2003, DOJ  carried over approximately $365 million both to maintain solvency and to  cover anticipated equitable sharing and third-party payments in fiscal year  2004. In comparison, in fiscal year 2011, DOJ carried over a total of $844  million to cover these expenditures. Additionally, DOJ officials  emphasized that because revenues from fraud and financial crime cases  have increased, the funds needed to make third-party payments,  including payments to victims, have also increased. The flow of funds into  and out of the AFF is complex and involves an interaction among  revenues, expenditures, and funds carried over to manage the AFF. The  following illustrates how DOJ used revenues, expenditures, and carryover  funds to manage the AFF in fiscal year 2010:
At the start of fiscal year 2010, DOJ carried over a total of $634 million  in funds from fiscal year 2009 to maintain the program’s solvency and  for pending equitable sharing and third-party payments. These funds  were used at the start of fiscal year 2010 to continue operations, such  as paying expenses for asset storage, and to cover pending equitable  sharing and third-party payments. In addition to the $634 million, $207  million was reserved to cover DOJ’s fiscal year 2010 rescission. This  rescission was proposed in the President’s budget, and later passed  by Congress and enacted into law. As a result, at the start of fiscal  year 2010, DOJ carried over a total of $841 million in funds from fiscal  year 2009, as shown in table 2 below.
In the course of fiscal year 2010, a total of approximately $1.58 billion  was deposited into the AFF, including revenues received from  forfeitures.
Based on the total of $841 million that was carried over from fiscal  year 2009 plus the $1.58 billion deposited into the AFF in fiscal year  2010, DOJ then had approximately $2.42 billion in total available  resources in fiscal year 2010. Of these resources, DOJ obligated  $1.45 billion in fiscal year 2010 and carried over $975 million into  fiscal year 2011 to maintain solvency and reserves and to cover the  proposed fiscal year 2011 rescission.
While DOJ had obligated $1.45 billion for the three main expenditure  categories; equitable sharing, third-party interests, and all other  program operations expenses, DOJ’s actual expenditures in fiscal  year 2010 totaled $1.29 billion. The difference of $0.16 billion in fiscal  year 2010 represents funds that had been obligated, but had not yet  been spent. According to DOJ officials, there may be a lag between  the funds obligated in a fiscal year and the actual expenditures, and  therefore, it is not uncommon for the total obligations to be higher than  the expenditures in a given fiscal year. Table 2 shows the total funds  available for use in fiscal year 2010.
In order to identify the funds that will need to be carried over to cover  anticipated expenses for the coming year, DOJ officials stated that they  use reports generated from its asset-tracking system to identify pending  equitable sharing and third-party payments. These reports provide DOJ  with information to determine carry over funds needed for the  disbursements that must be paid in the next fiscal year. In addition, DOJ  carries over funds needed to ensure the Asset Forfeiture Program’s  solvency at the start of the next fiscal year. According to DOJ officials,  they consider a number of factors when calculating the funds needed to  maintain solvency, such as historical data including information on the  costs of past contracts, salary costs, and other expenses; known future  expenses including salaries and contracts; and the costs of any potential  new expenditures.
DOJ officials explained the general factors they consider when carrying  over funds needed to cover anticipated expenditures in the next fiscal  year, but they do not specify in the AFF’s Congressional Budget  Justifications how they determine the total amounts carried over each  year. Specifically, the Congressional Budget Justifications do not include  information on how DOJ calculated the amounts carried over nor do they  explain the significant variations from one year to the next in the amount  of funds carried over for solvency. For example, in fiscal year 2007, DOJ  carried over $188 million based on its estimates of what it needed to  cover solvency. The amount carried over to cover solvency then  increased to $402 million in fiscal year 2009 and decreased to $169  million by fiscal year 2011. Figure 4 shows the variation in carryover  funds retained in the AFF at the end of each fiscal year to cover solvency,  equitable sharing, and third-party payments from fiscal years 2003  through 2011.
DOJ officials stated that a number of cost drivers may change the funds  needed for solvency from year to year. These cost drivers include salaries  for government employees, information systems costs, asset  management and disposal contracts, and contracts for administrative  support staff, among other things. According to DOJ, these categories  comprise recurring operational costs of the Asset Forfeiture Program.  While these expenses are generally funded by AFF revenues, DOJ  carries over funds to ensure it has sufficient resources that may not be  covered by the next year’s revenues. Moreover, additional funds may  need to be carried over to account for any number of program  uncertainties. For example, the AFF could be responsible for making  payments related to pending judicial actions, in the event that DOJ were  to lose a forfeiture case in court. Therefore, DOJ may carry over more  funds from one fiscal year to the next in order to cover these types of  liabilities. DOJ officials stated that they estimate needed carryover funds  by reviewing the cost drivers, as well as by assessing the risk that  revenues may be less than projected. DOJ officials further noted that  planning for AFF carryover and the actual carryover can differ due to the  unpredictable dynamics of the fund. According to DOJ officials, there is  no documented process used to determine the amount of funds that are  carried over at the end of each fiscal year.
Our prior work has emphasized the importance of transparency in federal  agencies’ budget presentations to help provide Congress the necessary   The information to make appropriation decisions and conduct oversight. department provides a yearly budget justification to Congress that details  the estimated revenues, expenses, and carryover requirements for the  upcoming fiscal year as well as AFF-related performance information.  Officials further noted that the Congressional Justification includes  discussions of the various categories of fund expenses, but does not  include a detailed discussion of the process used to estimate the amounts  carried over. Without a clearly documented and transparent process that  demonstrates how DOJ determines the amounts that will be carried over  each year, it is difficult to determine whether DOJ’s conclusions regarding  the amounts that need to be carried over each year are well founded.  Providing more transparent information as part of the AFF’s annual  budget process would better inform Congress’ oversight of the AFF, by  making it easier to evaluate whether the funds carried over to maintain  Asset Forfeiture Program solvency and cover pending equitable sharing  and third-party payments adequately reflect the AFF’s needed resources.
section_title: Since 2003, DOJ Has Retained Excess Balances in the AFF to Cover Yearly Proposed Rescissions, and These Rescissions Have Since Accumulated to Over Half a Billion Dollars
paragraphs: After revenues needed to cover expenses in the current and upcoming  fiscal years have been carried over, DOJ reserves funds to cover  rescissions. After these funds have been reserved, any funds determined  to be in excess of these requirements (excess unobligated balances) may  be declared as Super Surplus. While these Super Surplus balances may  be used at DOJ’s discretion for a variety of purposes, in recent years,  these balances have been used as a means to supplement the funds  reserved to cover yearly rescissions proposed in the President’s budget,  and later passed by Congress and enacted into law. Figure 5 provides a  description of the process for identifying Super Surplus balances in any  given fiscal year.
Rescissions are legislative actions to reduce an agency’s budgetary  resources. For example, in fiscal year 2010, $387 million was rescinded  from the AFF, and in fiscal year 2011, the enacted rescission totaled $495  million. Rescinded funds are generally taken from an agency and  returned to the Treasury before they are obligated. However, per Office of  Management and Budget (OMB) guidance, rescinded funds from the AFF  have not been returned to the Treasury. Instead, DOJ has treated the  funds as unavailable for obligation for the remainder of the fiscal year for  which the rescission was enacted. At the beginning of each new fiscal  year, DOJ would have made the rescinded funds available for obligation  again, also in response to OMB guidance, had a new rescission not been  enacted. With the enactment of a new rescission for the subsequent fiscal  year, however, DOJ has continued to treat the rescinded funds as  unavailable for obligation. For example, the $387 million that was  rescinded from the AFF in fiscal year 2010 was treated as unavailable for  obligation in fiscal year 2010, and was then used again to cover part of  the enacted $495 million rescission in fiscal year 2011. To make up the  difference needed to meet the $495 million rescission in fiscal year 2011,  DOJ used unobligated balances in the amount of $233 million. Table 3  shows the enacted rescissions for each fiscal year, as well as the  unobligated balances used by DOJ in order to meet the rescissions.
One effect of these rescissions is to reduce the department’s  discretionary spending in the year in which the rescission was enacted.  This could ultimately decrease the size of the federal deficit, provided the  decreased spending from the rescission is not offset by increased  spending elsewhere. For example, in fiscal year 2012, DOJ’s  discretionary budget authority was reduced to $27.4 billion, due in part to  the $675 million enacted AFF rescission.
section_title: DOJ Could Enhance Controls and Oversight Mechanisms for Its Equitable Sharing Program
paragraphs: DOJ has established guidelines and oversight mechanisms for the  equitable sharing program, but additional controls could enhance the  consistency and transparency of the program. Moreover, DOJ has  recently started conducting reviews of state and local law enforcement  agencies that participate in the equitable sharing program to determine  the extent to which they are complying with program policies as well as  bookkeeping, accounting, and reporting requirements.
subsections: section_title: DOJ Has Established Guidelines for Making Equitable Sharing Determinations, but Additional Controls Could Improve Consistency and Transparency
subsections: section_title: Guidelines Governing the Equitable Sharing Process
paragraphs: DOJ has established written guidelines governing how state and local law  enforcement agencies should apply for equitable sharing. Specifically,  according to the guidelines, state and local law enforcement agencies  must submit an application for equitable sharing in which they outline  identifying information for their agency, information on the asset that was  forfeited, how they intend to use the asset (or the proceeds of the asset),  and the number of work hours their agency contributed to the  investigation.
In addition, DOJ has established mechanisms governing how DOJ  agencies should make equitable sharing determinations. Specifically, the  field office for the DOJ agency that served as the lead federal agency in  the investigation is responsible for making an initial recommendation  regarding the percentage of the proceeds of the forfeited asset that each  participating agency should receive. According to forfeiture statutes  governing the transfer of forfeited property to state and local law  enforcement agencies, equitable sharing determinations must bear a  reasonable relationship to the degree of direct participation of the  requesting agency in the total law enforcement effort leading to the  forfeiture. are to be based on a comparison of the work hours that each federal,  state, and local law enforcement agency contributed to the investigation.  However, according to DOJ guidelines, further adjustments to sharing  percentages may be made when work hours alone do not reflect the  relative value of an agency’s participation in an investigation. For  example, if a state or local law enforcement agency contributed additional  resources or equipment to an investigation, its sharing percentage might  be adjusted upward from what it would be based on work hours alone.
See 21 U.S.C. §881(e)(3); 18 U.S.C. §981(e). of the agencies that participated in the investigation.then required to forward both the application forms completed by state  and local law enforcement agencies and sharing recommendations to  investigative agency headquarters officials for review. The review process  differs depending on the amount and type of the forfeiture, as follows:
For administrative forfeitures less than $1 million, agency  headquarters officials are responsible for reviewing and approving the  final sharing determination.
For judicial forfeitures less than $1 million, agency headquarters  officials are to forward the recommendation to the USAO for final  approval.  In any administrative or judicial forfeiture where the total appraised  value of all forfeited assets is $1 million or more, in multidistrict cases,  and in cases involving the equitable transfer of real property, the  agency headquarters officials forward the recommendation to the  USAO for review, which is then submitted to AFMLS officials for  review.  o  Where the investigative agency, the USAO, and AFMLS concur in  a sharing recommendation, the Assistant Attorney General makes  the final equitable sharing determination.  o  Where the investigative agency, the USAO, and AFMLS do not all  concur in a sharing recommendation, the Deputy Attorney General  (DAG) determines the appropriate share.
Figure 6 shows the steps involved in making equitable sharing  determinations.
While DOJ has established guidance indicating that adjustments to  sharing percentages may be made when a state or local law enforcement  agency’s work hours alone do not reflect the value of its participation in  an investigation, DOJ has not developed guidance regarding how to apply  the qualitative factors that may warrant departures from sharing  percentages. DOJ agencies currently make adjustments to sharing  percentages based on a number of qualitative factors regarding the  additional assistance or contributions state or local law enforcement  agencies may have made during an investigation. According to DOJ’s  written guidelines, DOJ agencies must take these factors into account  when determining whether to adjust an equitable sharing percentage  beyond a strict work hour allocation. For example, according to DOJ  guidelines, the deciding authority should consider such factors as the  inherent importance of the activity, the length of the investigation, whether  an agency originated the information leading to the seizure, or whether an  agency provided unique and indispensable assistance, among others. In  addition, DOJ’s Equitable Sharing Guidelines state that each agency may  use judgment when determining how these qualitative factors should be  used to adjust sharing percentages.
In the course of our review, DOJ officials provided examples of these  qualitative factors. For example, if a state or local law enforcement  agency provided a helicopter, drug-sniffing dog, or a criminal informant to  an investigation, DOJ would consider these contributions to be unique or  indispensible assistance. In one case we reviewed, a local law  enforcement agency that participated in a joint investigation with federal  agents would have received 7.4 percent in equitable sharing based on the  work hours it contributed to the investigation. However, the agency also  provided information obtained from a confidential source that led to the  seizure and provided a helicopter for aerial surveillance. As a result, its  final sharing determination was adjusted upward from 7.4 percent to 12  percent. If the net proceeds of the forfeiture are $1.6 million once all  investigative and forfeiture-related expenses have been paid, the  resulting equitable sharing payment made to the law enforcement agency  will increase from $118,400 to $192,000.
Standards for Internal Control in the Federal Government calls for  significant events to be clearly documented in directives, policies, or  manuals to help ensure operations are carried out as intended. AFMLS  officials report that they have established “rules of thumb” based on  historical knowledge or precedent when applying these qualitative factors  to equitable sharing adjustments that are subject to their review, but have  not issued guidance to the DOJ agencies. Further, headquarters officials  for each of the DOJ agencies emphasized that they follow the guidelines  issued by DOJ when making adjustments to sharing percentages.  However, as previously discussed, these guidelines outline the qualitative  factors that may be considered when making adjustments to sharing  percentages, but they do not include any additional information regarding  how qualitative factors should be used to adjust sharing percentages. As  a result, agency headquarters officials stated that field office staff use  their own judgment when determining how qualitative factors should be  used to adjust sharing percentages. AFMLS officials state that  adjustments to equitable sharing percentages based on qualitative factors  should be made on a case-by-case basis because each investigation is  unique and the facts and circumstances of each case must be considered  in totality before making adjustments to sharing determinations. While we  recognize the inherently subjective nature of evaluating each agency’s  unique contributions to a case based on facts and circumstances,  additional guidance regarding how to apply the qualitative factors could  help to improve transparency and better ensure consistency with which  these qualitative factors are applied over time or across cases. This is  particularly important given that these determinations represent DOJ’s  overall assessment of each agency’s unique contributions to an  investigation and are a key component of how DOJ makes decisions  about how much to award each agency.
DOJ’s written guidance also requires the DOJ agencies that are  responsible for making equitable sharing determinations to use work  hours as the primary basis for calculating sharing percentages; however,  agencies do not consistently document the work hours each agency  contributed to the investigation. According to DOJ officials, the work hours  contributed by each of the local, state, and federal law enforcement  agencies involved in the investigation should be added together by the  DOJ agency leading the investigation to arrive at a total. Each law  enforcement agency’s individual work hours are then divided by the total  in order to determine each agency’s equitable sharing percentage. DOJ’s  guidance states that every agency participating in the investigation should  report work hours on either the application for equitable sharing or on the  equitable sharing decision form. While state and local law enforcement  agencies record their work hours on their applications for equitable  sharing, we found that the DOJ agencies did not consistently record their  own hours or the total hours contributed by all participating agencies. Of  the 25 equitable sharing determinations we reviewed, 5 included  supplemental memos provided by the DOJ agencies detailing the work  hours provided by all of the agencies involved in the investigation.  However, these memos are not required under existing DOJ guidance  and were provided in only those investigations subject to AFMLS review.  For the remaining 20 determinations, DOJ agencies did not document this  information. Specifically, although work hours serve as the primary basis  of calculating equitable sharing determinations, in 20 of the 25  determinations we reviewed, neither the work hours contributed by DOJ  agencies nor the total number of work hours contributed by all of the  agencies involved in the investigation were recorded in the documents  provided to agency headquarters officials for review. According to DOJ  agency headquarters officials responsible for reviewing and approving  equitable sharing determinations, they rely on agents in the field to  calculate sharing percentages and as a result, they do not verify the work  hours contributed by each agency involved in the investigation. In the  absence of documented work hours, it is unclear how deciding authorities  could verify whether equitable sharing determinations involving millions of  dollars in assets were calculated in accordance with established  guidance.
DOJ’s guidance does not explicitly require DOJ agencies to record the  rationale for making adjustments to sharing percentages when work  hours alone do not reflect the value of an agency’s participation in the  investigation. In the 25 equitable sharing determinations we reviewed,  state and local law enforcement agencies often reported basic information  regarding their agency’s role in a particular investigation in their  applications for equitable sharing, but DOJ’s rationale for making  adjustments to sharing percentages was not consistently documented in  each investigation. Specifically, agencies did not consistently document  whether they believed the state or local law enforcement agency made  additional contributions that warranted departures from standard sharing  percentages. Of the 25 determinations we reviewed, 5 included  supplemental memos provided by the DOJ agencies indicating whether  adjustments from standard sharing percentages were warranted. In 3 of  these 5 AFMLS determinations, adjustments to sharing percentages were  made based on the additional contributions of the state and local law  enforcement agencies involved in the investigation and the memos  detailed the rationale for making the adjustment in each case. However,  these memos are not required under existing DOJ guidance and were  provided in only those investigations subject to AFMLS review. For the  remaining 20 investigations, DOJ did not document this information.  Moreover, because work hours were not documented in these cases, it  was not possible to determine whether further adjustments were made  based on additional contributions made by each of the agencies involved  in the investigation.
According to DOJ agency headquarters officials responsible for reviewing  and approving equitable sharing determinations, they rely on agents in  the field to calculate sharing percentages and, as a result, they do not  attempt to verify the adjustments that are made based on each agency’s  additional contributions to the investigation. Specifically, agency  headquarters officials reported that the field is responsible for confirming  state and local law enforcement’s contributions to a case through a  variety of means including face-to-face meetings, telephone  conversations, and e-mails. For example, one agency official noted that  although the rationale for making adjustments to sharing percentages is  not included in the documents provided to headquarters for review and  approval, the field office is most familiar with the investigation and the  contributions that each state and local law enforcement agency may have  made in a given case. Therefore, headquarters considers the field office  to be the best source of information for how qualitative factors should be  taken into account when adjusting sharing percentages. Agency  headquarters officials further noted that it is rare for them to question  equitable sharing recommendations made by the field or to ask for more  information regarding the rationale for adjustments to sharing  percentages. While the field office may have firsthand knowledge of the  contributions of state and local law enforcement agencies in a given  investigation, in the absence of the rationale for adjustments to sharing  percentages being documented, there is limited transparency over how  and why agencies make adjustments to sharing determinations when  work hours alone do not accurately represent an agency’s contribution to  an investigation.
Standards for Internal Control in the Federal Government states that  transactions should be promptly recorded to maintain their relevance and  value to management in controlling operations and making decisions.  This applies to the entire process or life cycle of a transaction or event  from the initiation and authorization through its final classification in  summary records. In addition, control activities help to ensure that all  transactions are completely and accurately recorded. In the absence of  consistently documenting work hours and the rationale for making  adjustments to sharing percentages, it is unclear how the equitable  sharing deciding authorities could evaluate the nature and value of the  contributions of each of the agencies involved in the investigation.  Establishing a mechanism to ensure that this information is documented  by all DOJ agencies responsible for making equitable sharing  determinations could enhance the transparency of equitable sharing  decisions.
In the absence of documenting work hours or the rationale for making  adjustments to sharing percentages, deciding authorities have limited  means to verify the basis for equitable sharing decisions. Agency  headquarters officials responsible for reviewing and approving equitable  sharing determinations report that they review equitable sharing  applications and decision forms to ensure that they are complete and that  sharing determinations appear reasonable. However, headquarters  officials for each of the DOJ agencies reported that they rely on field  office staff to ensure that equitable sharing percentages were calculated  correctly based on the work hours and the qualitative factors that each  federal, state, and local law enforcement agency contributed to the  investigation. However, because the information that serves as the basis  for equitable sharing recommendations—including work hours and the  qualitative factors used to make adjustments to sharing percentages—are  not subject to review by agency headquarters officials, DOJ does not  have reasonable assurance that the equitable sharing determinations are  made in accordance with the established guidance. According to  Standards for Internal Control in the Federal Government, controls should  generally be designed to ensure that ongoing monitoring occurs in the  course of normal operations. Such monitoring should be performed  continually and ingrained in the agency’s operations. This could include  regular management and supervisory activities, comparisons,  reconciliations, or other actions. Developing a mechanism to verify the  work hours and qualitative factors that serve as the basis for equitable  sharing determinations could improve DOJ’s visibility over equitable  sharing determinations and help promote confidence in the integrity of the  equitable sharing program. Agency headquarters officials have reported  that altogether, DEA, ATF, and FBI reviewed a total of 52,034 equitable  sharing requests in fiscal year 2011, and 113 of these requests went to  AFMLS for review and approval. As a result, agency headquarters  officials note that they have limited resources to verify the basis for each  and every equitable sharing determination. We recognize that in the face  of these limited resources, it may not be practical for agency  headquarters officials to review all of the information used in support of all  equitable sharing determinations. However, a spot check approach would  allow headquarters officials to assess the extent to which equitable  sharing decisions are made in accordance with established guidelines to  help address resource constraints.
section_title: DOJ Has Established Requirements Governing the Use of Equitable Sharing Funds and Began Conducting Compliance Reviews of These Agencies in 2011
subsections: section_title: Requirements Governing the Uses of and Controls over Equitably Shared Funds and Property
paragraphs: DOJ has established requirements governing the permissible uses of  equitable sharing funds. Specifically, DOJ’s guidelines state that equitably  shared funds or assets put into official use shall be used by law  enforcement agencies for law enforcement purposes only. Some of the  permissible uses of equitable sharing funds include training, facilities,  equipment, travel and transportation in support of law enforcement  activities, as well as paying for the costs of asset accounting and auditing  functions. Examples of impermissible uses of equitable sharing funds  include payments to cover the costs of salaries or benefits and non-law  enforcement education and training. DOJ’s guidelines also state that  agencies should use federal sharing monies prudently and in such a  manner as to avoid any appearance of extravagance, waste, or  impropriety. For example, tickets to social events, hospitality suites at  conferences, or meals outside of the per diem are all considered  impermissible uses of shared funds.
DOJ’s guidelines further state that equitable sharing funds must be used  to increase or supplement the resources of the receiving state or local law  enforcement agency and should not be used to replace or supplant the  appropriated resources of the recipient. This means that equitable sharing  funds must serve only to supplement funds they would normally receive  and must not be used as a substitute for funds or equipment that would  otherwise be provided by the law enforcement agency. For example, if  city officials were to cut the police department’s budget by $100,000 as a  result of the police department’s receiving $100,000 in equitable sharing  funds, DOJ would consider this to be an example of improper  supplantation, which is not an allowable use of equitable sharing funds.
In addition to establishing requirements governing the permissible uses of  equitably shared funds and property, DOJ has also established  bookkeeping, internal controls, reporting, and audit requirements that  state and local law enforcement agencies must follow in order to  participate in the equitable sharing program. For example, state and local  law enforcement agencies must establish mechanisms to track equitably  shared funds and property, implement proper bookkeeping and  accounting procedures, maintain compliance with internal controls  standards, and meet defined reporting standards. Among other things,  DOJ’s equitable sharing guidance calls for participating agencies to avoid  commingling DOJ equitable sharing funds with funds from any other  source, maintain a record of all equitable sharing expenditures, and  complete annual reports known as Equitable Sharing Agreement and  Certification Forms. These Equitable Sharing Agreement and Certification  Forms require agencies participating in the equitable sharing program to  report annually on the actual amounts and uses of equitably shared funds  and property. Among other things, agencies must detail the beginning  and ending equitable sharing fund balance, and the totals spent on  specific law enforcement activities (e.g., training, computers, weapons,  and surveillance equipment). In submitting the form each year, agencies  must certify that they will be complying with the guidelines and statutes  governing the equitable sharing program.
Office of Management and Budget, “Audits of States, Local Governments and Non-Profit  Organizations,” A-133, June 27, 2003. requirements, the substantial majority of equitable sharing participants  are required to comply with the Single Audit Act. Under a Single Audit,  an auditor must provide his or her opinion on the presentation of the  entity’s financial statements and schedule of federal expenditures, and on  compliance with applicable laws, regulations, and provisions of contracts  or grant agreements that could have a direct and material effect on the  financial statements.
AFMLS officials reported that pilot testing of the compliance review process was started  in December 2010, but the compliance review team did not start on a full-scale basis until  April 2011. beforehand either through news reports or referrals from the U.S.  Attorneys’ Offices.
AFMLS has established guidelines for conducting compliance reviews of  equitable sharing participants in order to determine the extent to which  agencies are following established equitable sharing guidelines. Among  other things, they select a sample of the agency’s expenditures in order to  substantiate the agency’s records and to confirm that the expenditure was  consistent with established DOJ guidelines. AFMLS also determines  whether the agency has established an appropriate system of internal  controls for tracking and recording equitable sharing receipts and  expenditures. Further, AFMLS determines whether the agency was  subject to Single Audit requirements and if so, whether the Single Audit  including reporting on equitable sharing funds was completed as required.
As of December 2011, AFMLS had completed a total of 11 onsite audits  of approximately 9,200 state and local law enforcement agencies that  participate in the equitable sharing program.has limited staff (eight total) and resources to conduct compliance  reviews of equitable sharing participants. As a result, AFMLS reported  conducting risk assessments in order to select agencies for compliance  reviews. In addition to monitoring news briefs regarding the potential  misuse of funds among equitable sharing participants, some of the issues  that AFMLS considers as part of these risk assessments include the  amount of each agency’s equitable sharing expenditures, whether a state  or local law enforcement agency has reported spending a significant  amount of money in a sensitive area, and whether a small law  enforcement agency that may be unfamiliar with the equitable sharing  program suddenly received a large equitable sharing payment. The 11  compliance reviews completed in 2011 revealed that participants do not  consistently follow requirements to properly account for equitable sharing  receipts and expenditures, do not consistently comply with the allowable   AFMLS reports it currently  uses of equitable sharing funds, and do not consistently complete Single  Audits as required. AFMLS identified one or more areas for corrective  action in 9 of the 11 compliance reviews. Two of the state and local law  enforcement agencies were determined to be in full compliance with all of  the equitable sharing requirements. In May 2012, AFMLS officials  reported that all of the agencies had fully addressed the corrective actions  identified by AFMLS. See appendix III for the results of the 11 compliance  reviews AFMLS has completed as of December 2011.
AFMLS has established a mechanism to systematically track and analyze  the results of these reviews. Specifically, the findings from each  compliance review are entered into a tracking report, and follow-up with  each agency is completed to ensure that corrective actions are taken.  AFMLS officials noted that they may follow up with an agency multiple  times to ensure that items identified for corrective action are addressed.  According to AFMLS, tracking frequencies and trends identified in the  course of compliance reviews is an important tool in risk evaluations for  both future audit selections and return audits to specific participants with  particularly troublesome problems. Further, AFMLS officials have stated  that they plan to use the results of compliance reviews in order to identify  larger trends that may need to be addressed across all equitable sharing  participants. For example, AFMLS has found through these reviews that  equitable sharing recipients are not consistently reporting equitable  sharing expenditures on Single Audits. AFMLS has reported that it is  currently working with both equitable sharing recipients and the auditor  community to address this issue. AFMLS’s approach to conducting  compliance reviews of equitable sharing participants is consistent with  standards for internal control, which state that monitoring should assess  the quality of performance over time and ensure that the findings of audits  and other reviews are promptly resolved.
section_title: Conclusions
paragraphs: With more than $1 billion in forfeited assets deposited into the AFF every  year since 2006, the Asset Forfeiture Program generates substantial  revenue for the Department of Justice. These funds are used to cover  annual operating expenses, to compensate crime victims, or are shared  with state and local law enforcement agencies that participate in  investigations resulting in forfeiture. The significant amounts of money  involved as well as the sensitive nature of asset forfeiture mean it is  imperative to be vigilant in maintaining the transparency of the program.  Since the Asset Forfeiture Program’s operations are supported by annual  revenues, DOJ faces a challenging task estimating future revenues and  expenditures each year. The AFF’s annual revenues have consistently  exceeded annual expenditures, allowing DOJ to cover annual rescissions  and to reserve funds for the next fiscal year. This allows DOJ to ensure  that the AFF has sufficient resources at the start of each fiscal year to  cover solvency and pending equitable sharing and third-party payments.  However, the AFF’s Congressional Budget Justification does not clearly  outline the factors that DOJ considers when determining the total  amounts that need to be carried over each fiscal year. As part of the  AFF’s annual budget process, documenting how DOJ determines the  funds that need to be carried over at the end of each year and providing  additional details on that determination to Congress would provide more  transparency over the process and would help Congress make more  informed appropriations decisions.
In addition, the authorization to share federal forfeiture proceeds with  cooperating state and local law enforcement agencies is one of the most  important provisions of asset forfeiture. DOJ has established guidelines  stating that adjustments to equitable sharing percentages should be  based on qualitative factors; however, additional guidance regarding how  to apply these factors could help to improve the transparency and better  ensure consistency with which adjustments to sharing percentages are  made over time or across cases. Additionally, there are gaps in the extent  to which key information that serves as the basis for equitable sharing  decisions is documented. In the absence of documenting the work hours  used to calculate initial equitable sharing percentages—the primary  means to determine each agency’s share of forfeiture proceeds—it is  unclear how equitable sharing deciding authorities could verify the relative  degree of participation of each of the agencies involved in the case.  Similarly, documenting information on DOJ’s rationale for making  adjustments to sharing percentages could help to improve transparency  over whether equitable sharing decisions are being made in accordance  with DOJ’s guidance. Additionally, establishing a mechanism to verify that  equitable sharing determinations are made in accordance with  established guidance would provide DOJ with greater assurance that  there are effective management practices in place to help promote  confidence in the integrity of the equitable sharing program.
section_title: Recommendations for Executive Action
paragraphs: We are making four recommendations to the Attorney General.
To help improve transparency over the AFF’s use of funds, we  recommend that the Attorney General provide more detailed information  to Congress as part of the AFF’s annual budget process, clearly  documenting how DOJ determines the amount of funds to be carried over  into the next fiscal year.
To help improve management controls over the equitable sharing  program, we recommend that the Attorney General direct AFMLS to take  the following three actions:
Develop and implement additional guidance on how DOJ agencies  should apply qualitative factors when making adjustments to equitable  sharing percentages.
Establish a mechanism to ensure that the basis for equitable sharing  determinations—including the work hours contributed by all  participating agencies and the rationale for any adjustments to sharing  percentages—are recorded in the documents provided to agency  headquarters officials for review and approval.
Develop a risk-based mechanism to monitor whether key information  in support of equitable sharing determinations is recorded and the  extent to which sharing determinations are made in accordance with  established guidance.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOJ for its review and comment.  DOJ did not provide official written comments to include in our report.  However, in an e-mail received on June 21, 2012, the DOJ liaison stated  that the department appreciated the opportunity to review the draft report  and that DOJ concurred with our recommendations. DOJ further noted  that the department will develop a plan of corrective action in order to  address the recommendations. DOJ also provided us written technical  comments, which we incorporated as appropriate.
We are sending copies of this report to the Attorney General, selected  congressional committees, and other interested parties. In addition, this  report is also available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any further questions about this report, please  contact me at (202) 512- 9627 or maurerd@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. Key contributors to this report are listed in  appendix IV.
section_title: Appendix I: Equitable Sharing
paragraphs: State and local law enforcement agencies typically qualify for equitable  sharing by participating directly with Department of Justice (DOJ)  agencies in joint investigations leading to the seizure and forfeiture of  property. Agencies may either receive a portion of the proceeds resulting  from the sale of the forfeited asset or may request that a forfeited asset  such as a vehicle be put into official use. Any property other than  contraband or firearms may be transferred to a state or local agency for  official use provided that it is used for law enforcement purposes. State  and local law enforcement can receive equitable sharing payments after  working on a joint case with one or more federal law enforcement  partners or after participating in a case carried out by a federal law  enforcement task force. Approximately 83 percent of all equitable sharing  determinations are the result of joint investigations.
State and local law enforcement agencies can also qualify for equitable  sharing by requesting that federal partners adopt a case initiated at the  state or local level. An adoptive forfeiture occurs when local police  officials effectively hand a case over to federal law enforcement officials  provided that the property in question is forfeitable under federal law.  According to DOJ officials, many state and local law enforcement  agencies will make seizures pursuant to their state laws. However, they  may reach out to federal law enforcement agencies to adopt a forfeiture if  they don’t have a state or local statute that allows them to carry out a  forfeiture. For example, in a particular case, there may be large amounts  of cash involved but no drugs found or seized. Federal statute allows for  the forfeiture of assets based on illegal activity even if there are no drugs  seized, whereas the state or local statute might not allow for this type of  forfeiture. Alternatively, state and local law enforcement agencies may  request that DOJ adopt a forfeiture in those cases where federal  coordination or expertise is needed in the case. Our analysis shows a  slight decrease in adoptive versus non-adoptive equitable sharing  payments since 2003. In 2003, adoptions made up about 23 percent of all  equitable sharing payments, while in 2010, adoptions made up about 17  percent of all equitable sharing payments. According to DOJ, as more  states have established their own forfeiture laws, they may rely less on  DOJ to adopt forfeiture cases and may instead pursue forfeitures under  state law when appropriate. Figure 7 shows the equitable sharing  payments made to each state in fiscal year 2011.
Directions: Place mouse over each state name for the total equitable sharing payments made to that  state in fiscal year 2011.
Ill.
Our analysis shows a strong positive association between the equitable  sharing payments made to each state and the state’s total population.  However, our analysis found no correlation between per capita equitable  sharing payments and arrest rates, once we corrected for population size.  It is important to note that a number of other factors may influence the  amount of equitable sharing payments a state receives in a given year.  For example, if a state or local law enforcement agency participated in a  joint investigation that resulted in a very large forfeiture, the agency might  receive a significant amount of equitable sharing dollars, even if no  arrests were made in conjunction with the case. Alternately, an agency  may work several cases that generate multiple arrests, but no forfeitures,  so no equitable sharing payments would be made. Finally, differences in  equitable sharing between states may be influenced by whether state and  local law enforcement agencies decide to pursue forfeitures under their  state laws versus those cases where federal involvement may be  warranted.
section_title: Appendix II: Assets Forfeiture Fund Expenditure Categories
paragraphs: 1.  Third-Party Payments:  Third-party payments are payments to satisfy third-party interests,  including lienholders and other innocent parties, pursuant to 28 U.S.C.  § 524(c)(1)(D); payments in connection with the remission and  mitigation of forfeitures, pursuant to 28 U.S.C. § 524(c)(1)(E).  2.  Equitable Sharing Payments:  These funds are reserved until the receipt of the final forfeiture orders  that result in distributions to the participants. Equitable sharing  payments represent the transfer of portions of federally forfeited cash  and proceeds from the sale of forfeited property to state and local law  enforcement agencies and foreign governments that directly assisted  in targeting or seizing the property. Most task force cases, for  example, result in property forfeitures whose proceeds are shared  among the participating agencies.
All other program operations expenses  3.  Asset Management and Disposal:  According to DOJ, the primary purpose of the Assets Forfeiture Fund  (AFF) is to ensure an adequate and appropriate source of funding for  the management and disposal of forfeited assets. Also, funding is  required for the assessment, containment, removal, and destruction of  hazardous materials seized for forfeiture, and hazardous waste  contaminated property seized for forfeiture. The United States  Marshals Service (USMS) has primary responsibility for the storage  and maintenance of assets, while the Drug Enforcement  Administration (DEA) and the Bureau of Alcohol, Tobacco, Firearms  and Explosives (ATF) are responsible for the disposal of toxic and  hazardous substances.  4.  Case-Related Expenses:  Case-related expenses are expenses associated with the prosecution  of a forfeiture case or execution of a forfeiture judgment, such as  advertising, travel and subsistence, court and deposition reporting,  courtroom exhibit services, and expert witness costs. In appropriate  cases, the services of foreign counsel may be necessary.  5.  Special Contract Services:  The AFF uses contract personnel to manage the paperwork  associated with forfeiture, including data entry, data analysis, word  processing, file control, file review, quality control, case file  preparation, and other process support functions.  6.  Investigative Expenses Leading to Seizure:  Investigative expenses are those normally incurred in the  identification, location, and seizure of property subject to forfeiture.  These include payments to reimburse any federal agency participating  in the AFF for investigative costs leading to seizures.  7.  Contracts to Identify Assets:  Investigative agencies use these funds for subscription services to  nationwide public record data systems, and for acquisition of  specialized assistance, such as reconstruction of seized financial  records. According to DOJ, these resources are used to identify  assets during the investigative stage of the case, where such  research will enhance effective use of the asset forfeiture sanction.  DOJ officials note that if the government can improve upon the  identification of ill-gotten assets, the nature of the criminal wrongdoing  can be better demonstrated and reinforced before the jury. Such  evidence results in greater penalties for criminals who may have  avoided such penalties in the past by successfully concealing such  assets.  8.  Awards for Information Leading to a Forfeiture:  The Omnibus Consolidated Appropriations Act, 1997, amended the  Justice Fund statute to treat payments of awards based on the  amount of the forfeiture the same as other costs of forfeiture.  Therefore, the amount available each year for expenses for awards  no longer had to be specified in annual appropriations acts.  9.  Automated Data Processing:  Recurring costs include telecommunications support, system and  equipment maintenance, user support and help desk, software  maintenance, user training, equipment, and data center charges in  support of the Consolidated Asset Tracking System (CATS). All asset  forfeiture activity for each asset is recorded in CATS. According to  DOJ, CATS enables access for more than 1,000 locations to a central  database to perform full asset forfeiture life-cycle tasks more  efficiently. The system provides current information to field personnel  on the status of cases, integrates financial analysis capabilities into  the inventory management process, provides the estimation of  program income and expenses, and provides the capability for agency  and department managers to review and assess program activity.  10. Training and Printing:  This category funds expenses for training personnel on aspects of the  federal forfeiture program as well as other training necessary to  maintain the competency of federal and contractor personnel  dedicated to performing federal forfeiture functions. Printing costs  reflect the continuing need to provide current legal advice and  support. Expenses include updating and distributing manuals and  pamphlets directly related to forfeiture issues, policies, and  procedures.  11. Other Program Management:  This category includes several types of expenses in support of the  overall management of the Asset Forfeiture Program, including  management analysis, performance assessment, problem analysis,  requirements analyses, policy development, and other special  projects designed to improve program performance. This funding is to  provide travel and per diem funds for temporary duty assignments  needed to correct program deficiencies. Other activities funded under  this heading include the annual audit of the financial statements of the  Assets Forfeiture Fund and the Seized Asset Deposit Fund by an  independent accounting firm and special assessments and reviews.  This category also finances the Asset Forfeiture Money Laundering  Section (AFMLS), Asset Forfeiture Management Staff (AFMS), and,  since 2001, USMS headquarters administrative personnel and non- personnel costs associated with the forfeiture program. In addition,  the AFF funds Deputy U.S. Marshal salaries to enhance the legal and  fiduciary responsibilities that are inherent in the seizure of personal  and real property during the pendency of a forfeiture action.  12. Storage, Protection, and Destruction of Controlled Substances:  These expenses are incurred to store, protect, or destroy controlled  substances.  13. Joint Federal, State, and Local Law Enforcement Operations:  Under 28 U.S.C. § 524(c)(1)(l), the AFF has authority to pay for  “overtime, travel, fuel, training, equipment, and other similar costs of  state or local law enforcement officers that are incurred in a joint law  enforcement operation with a federal law enforcement agency  participating in the Fund.”  14. Awards for Information and Purchase of Evidence  Awards payable from the AFF directly support law enforcement efforts  by encouraging the cooperation and assistance of informants. The  AFF may also be used to purchase evidence of violations of drug  laws, Racketeering Influenced and Corrupt Organizations (RICO), and  criminal money laundering laws. According to DOJ, payment of  awards to sources of information creates motivation for individuals to  assist the government in the investigation of criminal activity and the  seizure of assets.  15. Equipping of Conveyances:  This category provides funding to equip vehicles, vessels, or aircraft  for law enforcement functions, but not to acquire them. Purchased  equipment must be affixed to and used integrally with the  conveyance. This funding is used for emergency and communications  equipment, voice privacy and surveillance equipment, armoring, and  engine upgrades and avionic equipment for aircraft. According to  DOJ, it is only through AFF resources that many of these surveillance  vehicles are available to the field districts that need them. DEA uses  various surveillance techniques, including stationary and mobile  platforms to conduct surveillance and gather intelligence, the  cornerstone of cases against most major drug violators. In addition,  evidence obtained through the use of such surveillance often provides  the audio and video documentation necessary for conviction.
section_title: Appendix III: Results of Asset Forfeiture and Money Laundering Section Compliance Reviews Completed as of December 2011
paragraphs: DOJ’s Asset Forfeiture and Money Laundering Section completed a total  of 11 compliance reviews of equitable sharing participants in 2011. Table  4 shows the results of the 11 compliance reviews.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Sandra Burrell and Dawn Locke  (Assistant Directors), Sylvia Bascope, Samantha Carter, Raymond  Griffith, Mike Harmond, Shirley Hwang, Valerie Kasindi, and Jeremy  Manion made key contributions to the report. Also contributing to this  report were Lydia Araya, Benjamin Bolitzer, Frances Cook, Katherine  Davis, Richard Eiserman, Janet Temko, Mitchell Karpman, Linda Miller,  Jan Montgomery, Bintou Njie, Robert Lowthian, Cynthia Saunders, and  Jerry Seigler.