DHS Asset Forfeiture: Additional Actions Could Help Strengthen Controls over Equitable Sharing
Released: 2014-03-28T00:00:00

Letter

Background

Treasury Forfeiture Fund

The TFF is a multidepartmental fund and has four primary goals: to (1) deprive criminals of assets used in or acquired through illegal activities; (2) encourage joint operations among federal, state, and local law enforcement agencies, as well as foreign countries; (3) protect the rights of individuals; and (4) strengthen law enforcement. TEOAF is responsible for providing management oversight of the TFF, which is the receipt account for the deposit of nontax forfeitures made by Treasury and DHS participating agencies. DHS components that participate in the TFF contribute revenues through forfeitures made as a result of their investigations and operations. They also receive payments and reimbursements from the fund for expenses incurred during the seizure and forfeiture process, such as investigative or transportation costs. Table 1 shows DHS component activities that contribute to the TFF.

Asset Forfeiture Process

The asset forfeiture process involves a number of steps, including planning the seizure; seizing and taking custody of the asset; notifying interested parties; and addressing any claims and petitions, to include those from third parties. Within the asset forfeiture process, there are two types of forfeiture: administrative and judicial. In administrative forfeitures, a federal agency is permitted to commence forfeiture proceedings on seized assets without judicial involvement. In judicial forfeitures, both civil and criminal, assets may be forfeited to the United In civil forfeitures, States by filing a forfeiture action in a federal court.the action is against the assets and thus does not require that the owner of the assets be charged with a federal offense. The federal government must only prove a connection between the assets and the crime. In contrast, criminal forfeiture requires a conviction of the defendant before assets can be forfeited. According to TEOAF officials, it can take from many months to several years to complete the forfeiture process, depending on a variety of factors, including, among other things, the types of assets seized; number of parties involved; and, if applicable, the litigation process, with judicial forfeitures generally taking more time.

Equitable Sharing

DHS components that have forfeiture authority and are therefore revenue producers—ICE, USSS, and CBP—can conduct equitable sharing on behalf of the TFF with federal, state and local, and other law enforcement State and local law enforcement agencies typically qualify for entities.equitable sharing by participating directly with DHS components in joint investigations leading to the seizure and forfeiture of assets. Although such qualification is less common, state and local agencies can also qualify for equitable sharing by requesting that DHS components adopt a case initiated at the state or local level, provided that the assets in question are forfeitable under federal law. According to TEOAF officials, the equitable sharing of forfeiture proceeds from seizures has proved invaluable in fostering enhanced cooperation among federal, state and local, and other law enforcement entities.

As the management component of the TFF, TEOAF provides guidance on the equitable sharing program, including setting forth policies, procedures, and oversight of the program. Treasury’s most recent guidance, which it issued in 2004, governs how state and local law enforcement agencies should apply for equitable sharing and how DHS components should make equitable sharing determinations. Treasury also established guidance on decision-making authority for equitable sharing. Specifically, the lead federal agency—in this case, the DHS component—is responsible for making equitable sharing determinations when forfeited assets are less than $1 million, which are designated as low-value determinations.making determinations when forfeited assets are $1 million or more, which are designated as high-value determinations. DHS components are responsible for managing equitable sharing in joint investigations with state and local law enforcement agencies and for following the equitable sharing guidance, such as ensuring that sharing in joint investigations reflects the degree of direct participation of the agency in the law enforcement effort resulting in the forfeiture.

Since 2003, DHS Components Have Contributed about $3.6 Billion in Revenues to the TFF and Obligated about $2.6 Billion from the Fund

From fiscal years 2003 through 2013, Treasury reported that DHS components contributed about $3.6 billion to the TFF and obligated about $2.6 billion for costs associated with forfeiture activities. At the end of each fiscal year, a balance of funds remains in the TFF to maintain operations at the start of the next fiscal year, and, as available, to fund additional expenditures including funding law enforcement activities by For example, Treasury reported that from fiscal years TFF members.2003 through 2013, about $348 million of the fund’s remaining balances have been used to fund law enforcement activities and projects by DHS components.

DHS Components Contributed about $3.6 Billion in Revenues to the TFF since 2003, Accounting for More than Half of All Revenues to the Fund

Treasury reported that from fiscal years 2003 through 2013, DHS components contributed approximately $3.6 billion to the TFF’s approximately $7 billion in total revenues, or 52 percent of total revenues. Over this period, the DHS components’ contribution to the TFF fluctuated annually, but generally remained above 50 percent or more of total TFF revenues per year. Among DHS components—ICE, USSS, and CBP—contributing to the TFF, ICE contributed the majority of revenue.approximately $1.1 billion in revenues, of which ICE contributed approximately $1 billion (91 percent) and USSS contributed $52 million and CBP contributed $51 million (approximately 4.5 percent each), as shown in figure 1.

DHS Components Have Obligated about $2.6 Billion from the TFF since 2003; Equitable Sharing Payments Were the Largest Obligation

Treasury reported that from fiscal years 2003 through 2013, DHS component obligations from the TFF totaled approximately $2.6 billion, or 54 percent, of the TFF’s total obligations of approximately $4.8 billion. As revenues have fluctuated annually there generally has been a concurrent increase or decrease in obligations in support of asset forfeiture activities. In fiscal year 2013, DHS component obligations were the highest during this 11-year period, at $476 million, coinciding with an increase in revenues that year. Prior to 2013, obligations by DHS components generally ranged from $123 million to $287 million. As with revenues, ICE is responsible for the majority of obligations among DHS components contributing to the TFF. Figure 2 shows the obligations by each DHS component, as well as by non-DHS members of the fund, from fiscal years 2003 through 2013.

According to TEOAF officials, the TFF in its capacity as a multidepartmental fund collects and uses revenues from forfeitures to focus resources to enhance support of more law enforcement efforts, including the quality of investigations. Accordingly, revenues resulting from forfeitures are used to obligate funds for the forfeiture program’s expenses in four major categories—equitable sharing payments, remission and mitigation payments, seizure investigative costs and asset management expenses, and other expenses.

Equitable sharing payments: Treasury reported that from fiscal years 2003 through 2013, equitable sharing payments constituted the largest TFF obligation by DHS components. During this period, DHS components shared approximately $1.2 billion, or 45 percent of total DHS obligations, with a range of state and local law enforcement agencies across the country—as well as other federal agencies and foreign entities—that participated in law enforcement efforts resulting in forfeitures. Specifically, from fiscal years 2003 through 2012, DHS components’ obligations for equitable sharing payments ranged from $48 million to $136 million per year. However, in fiscal year 2013, DHS components shared approximately $355 million, the highest amount of obligations for equitable sharing payments by DHS components during this 11-year period. Among the three DHS components making equitable sharing payments, ICE made up over 90 percent of total DHS obligations for State and local agencies accounted for the equitable sharing payments.majority of sharing recipients, and accounted for an average of 96 percent of total obligations for equitable sharing payments from fiscal years 2010 through 2012. According to officials at all nine state and local law enforcement agencies we met with, the equitable sharing program has improved the relationship between federal agencies and their offices. Moreover, officials stated that under the current fiscal constraints, these funds are needed by their agencies and have allowed them to purchase equipment such as bulletproof vests, weapons, mobile computers, and police station security cameras. See figure 3 for equitable sharing payments made by DHS components to state and local law enforcement agencies within each state in fiscal year 2013.

Payments for remission and mitigation: According to TEOAF officials, a priority of all TFF members is to return assets to victims of crime, and accordingly, remission and mitigation payments are another major cost category across all DHS components. No funds are shared with state and local law enforcement partners until remission and mitigation payments have been made to address compensating victims or other third parties for their financial losses. Treasury reported that from fiscal years 2003 through 2013, total obligations for DHS remissions and mitigation payments were approximately $477 million, or about 19 percent of total DHS obligations, and varied from 2 to 45 percent of DHS obligations each year. For example, in fiscal year 2008, DHS components made $128 million in obligations for remission and mitigation payments, or 45 percent of total obligations. In contrast, in fiscal year 2013, DHS components made $30 million in obligations for remission and mitigation payments, accounting for 6 percent of total obligations. Moreover, among DHS components, USSS made up between 60 and 90 percent of total DHS obligations for remission and mitigation payments from fiscal years 2010 through 2013. TEOAF officials attribute the variation in total obligations for remission and mitigation payments each year to the different types of investigations that lead to forfeiture from 1 year to the next. According to these officials, higher remission and mitigation payments in a fiscal year may be in part due to high-impact forfeitures resulting from fraud investigations with significant numbers of victims.

Seizure investigative costs and asset management expenses: In addition to carrying out equitable sharing and making payments to victims, DHS components use funds to pay for the costs associated with the seizure of assets. Treasury reported that over this 11-year period, total obligations for seizure investigative costs and asset management expenses were $450 million, or approximately 18 percent of total DHS obligations. These costs included investigative and asset management expenses (e.g., salaries for positions supporting the asset forfeiture program, travel for oversight activities, overtime worked by specialists involved in securing seized merchandise, and equipment and supplies).

For example, one of CBP’s primary responsibilities is to secure the border at and between points of entry. Accordingly, CBP is generally responding to reports and seizures of illegal narcotics and other contraband smuggling, including firearms and ammunition. These seizures result in additional costs, including the storage of assets and disposal or destruction expenses.

Other expenses: All DHS components have a variety of other program operations expenses, including compensation to informants and reimbursement for the cost of training. Treasury reported that from fiscal years 2003 through 2013, DHS components had a total of $483 million in other expenses, or approximately 19 percent of total DHS component obligations, in other program operations expenses. These other expenses include a total of seven expense categories, such as asset-related contract services, funds to compensate the services of experts and consultants, reimbursement to state and local law enforcement agencies for overtime costs incurred during joint special operations, and training.

The TFF Contained Balances of $888 Million in 2013; Excess Balances Have Supported DHS Law Enforcement Activities and Covered Rescissions, among Other Things

At the end of each fiscal year, the TFF maintains a balance from revenue contributions into the fund that exceeds obligations incurred throughout the year. TFF balances at the end of each fiscal year have progressively increased since fiscal year 2003. Treasury reported that TFF balances totaled $75 million in fiscal year 2003 and $888 million in fiscal year 2013. TEOAF carries over funds at the end of each fiscal year to maintain operations including the anticipated costs associated with continuing forfeiture activities at the start of the next fiscal year, before revenue from TEOAF reported that from fiscal years 2003 forfeitures starts coming in.through 2008, it had carried over between $50 million to $70 million at the end of each fiscal year to maintain operations at the start of the next year. Since the end of fiscal year 2009, Treasury reported that a set amount of $100 million has been carried over to fund operations at the start of the next fiscal year.

TEOAF uses balances in excess of this amount—excess unobligated balances—to cover additional obligations. include funding for law enforcement activities by TFF members, rescissions, and other uses. According to TEOAF officials, the balances available to cover these obligations vary each year, as they are determined by a variety of factors including the enacted budgets, negotiations with Congress, and ultimately the enacted rescissions. Figure 4 shows the carryover funds retained in the TFF at the end of each fiscal year to maintain operations, as well as the amounts set aside for additional obligations.

TEOAF officials referred to these balances as Super Surplus, which represents the remaining unobligated balance at the close of the fiscal year after an amount is reserved to fund operations in the next fiscal year. Super Surplus can be used for any federal law enforcement purpose. For the purposes of this review, we refer to Super Surplus funds as excess unobligated balances. 31 U.S.C. § 9703(g)(4)(B).

Balances to Support Law Enforcement Activities

Treasury reported that from fiscal years 2003 through 2013, about $348 million of the excess unobligated balances has been obligated to fund DHS component law enforcement activities and projects. Figure 5 shows the funds received from fiscal years 2003 through 2013 by DHS components—ICE, USSS, CBP, and USCG—as well as the total funds received by other agencies—such as Treasury’s Financial Crimes and Enforcement Network—for law enforcement activities.

DHS, per Treasury’s reported data, has submitted and received approval from Treasury to fund a variety of projects across all four DHS components that participate in the TFF. For example,

CBP received $29.6 million in fiscal year 2010, of which $15 million was obligated to support the construction of Border Patrol facilities in southwest border locations and the purchase of equipment for these facilities; $6.8 million was used for the purchase and installation of Non-Intrusive Inspection equipment; and, the remainder was spread out for smaller purchases such as field and intelligence equipment.ICE received $21.3 million in fiscal year 2011 for a range of activities, including $6 million to defray the costs of Title III court-ordered intercepts, which support investigations related to the southwest border, among other things; $2 million to cover costs of investigative activities with ICE’s HSI, such as translation, transcription, and duplication services; $2 million to support Border Enforcement Security Taskforces; and $2.5 million to purchase a system to conduct multiple undercover operations online, simultaneously. The remainder was spread among other projects and needs such as replacement of an undercover operations database.

USSS received about $27 million in fiscal year 2012, and obligated $11 million for the purchase of equipment and tools to enhance USSS’s protection capabilities, including metal detector equipment and X-ray equipment replacement, and $6 million to acquire desktop and laptop computers to replace the aging inventory of computers for USSS task forces. The remainder was spread among other projects and needs such as investigative software.

USCG received $1.5 million in fiscal year 2013 to fund the upgrade and purchase of fingerprint biometric kits for patrol boats, cutters, and the Deployable Operations Group, allowing USCG to run fingerprints against other federal law enforcement databases.

Overall, the total funds received by DHS components for law enforcement activities varied from year to year. According to TEOAF officials, because of the current fiscally constrained environment, the TFF excess unobligated balances available each year are important, as they help to fund innovative initiatives such as the purchase of equipment, training, and other programs that the fund’s members may otherwise not be able to fund. Additionally, the Deputy Assistant Director of DHS’s Budget Division, Office of the Chief Financial Officer, stated that DHS encourages components to request these funds, particularly to support innovative activities that develop new capabilities or provide proof of concept for new technologies or processes.

Balances to Cover Rescissions

Since 2009, TEOAF has retained excess unobligated balances to cover yearly proposed rescissions. In fiscal year 2009—the first year a TFF rescission was proposed and enacted—$30 million was rescinded from the TFF, which since increased to a $950 million rescission in 2013. The effect of these rescissions has been a reduction in TEOAF’s budgetary resources, thereby decreasing the amount of money TEOAF has available to obligate for allowable purposes. A rescission could potentially decrease the size of the federal deficit, provided the decreased spending from the rescission is not offset by increased spending elsewhere. For annual appropriations, rescinded funds are generally taken from an agency and returned to the Treasury before they are obligated. However, per OMB guidance, from fiscal years 2009 through 2013, rescinded funds from the TFF were not returned to the Treasury.

Rescinded funds are generally permanent and deposited into the General Fund of the Treasury, which is not the same fund as the TFF. result, TEOAF treated the funds as unavailable for obligation for the remainder of the fiscal year for which the rescission was enacted. With the enactment of a new rescission for the subsequent fiscal year, TEOAF continued to treat the rescinded funds as unavailable for obligation and applied the amounts to the rescission in the next fiscal year. For example, the $30 million that was rescinded from the TFF in fiscal year 2009 was treated as unavailable for obligation in fiscal year 2009, and was then obligated again to cover part of the enacted $90 million rescission in fiscal year 2010. To make up the difference needed to meet the $90 million rescission in fiscal year 2010, TEOAF used excess unobligated balances in the amount of $60 million. According to TEOAF officials, one effect of these rescissions is that a larger portion of the balances available for additional obligations is being reserved to cover rescissions and is unavailable to fund other obligations such as law enforcement activities.

In fiscal year 2014, Congress passed two rescissions of TFF funds totaling approximately $1.7 billion. First, the Bipartisan Budget Act of 2013 permanently canceled $867 million of the TFF’s unobligated balances and TEOAF returned the total to the General Fund of the Treasury. Accordingly, unlike in previous years, these funds will not be available for any purpose, including applying to any subsequent rescission. In addition, the Consolidated Appropriations Act of 2014 rescinded $836 million of the TFF’s unobligated balances. As in previous fiscal years, TEOAF did not return these rescinded funds from the TFF to the Treasury, and they are unavailable for obligation in fiscal year 2014. According to TEOAF officials, the TFF received revenues from several large forfeiture cases in the first quarter of fiscal year 2014 that helped enable the fund to operate with these rescissions under its current financial plan.

Additional Controls Could Help Improve the Transparency and Consistency of Equitable Sharing Determinations

DHS components have designed controls to help ensure compliance with Treasury’s equitable sharing guidance, such as designing multiple levels of review for equitable sharing determinations. However, added controls—specifically, full documentation of the basis for determinations and additional guidance on the factors to consider when making determinations—could further enhance transparency and consistency across determinations, among other things. DHS components have taken steps to help ensure the equitable sharing process complies with required time frames.

DHS Components Have Designed Controls to Help Ensure Compliance with Treasury’s Equitable Sharing Guidance

DHS components that conduct equitable sharing—ICE, USSS, and CBP—have designed controls to help ensure compliance with Treasury’s guidance. The guidance requires that sharing in joint investigations reflect the degree of direct participation of the agency in the law enforcement effort resulting in the forfeiture, in accordance with federal Specifically, it directs responsible officials to base equitable sharing law.determinations on the work hours that all participating agencies expended on the investigation and then, if applicable, consider qualitative factors regarding additional contributions that agencies may have made, such as providing unique and indispensable assistance, to adjust percentages.

Equitable Sharing Determination Example HSI initiated a task force investigation of a suspected money-laundering organization, which was identified as being involved in the laundering and transportation of narcotics proceeds from the United States into Colombia. As a result, the organization was found guilty of conspiracy to defraud the government and directed to forfeit $1,000,000. Three police departments and two county sheriffs’ offices participated in the task force and provided assistance in executing the search warrant, conducting interviews, and cataloguing evidence, among other support. Agencies received a share of the forfeiture proceeds based on the percentage of work hours that they contributed to the investigation. TEOAF increased one agency’s share because it provided a Special Assistant United States Attorney to handle the forfeiture, which was considered unique and indispensable assistance. The attorney had expertise in asset forfeiture cases, negotiated the terms of the forfeiture payments to help ensure recovery of the entire forfeited amount, and provided a range of other legal support.

DHS components have designed controls to help ensure that equitable sharing packages contain required information and are reviewed and approved by appropriate component authorities to help ensure compliance with Treasury’s guidance. According to the guidance, state and local law enforcement agencies are to submit an application for equitable sharing in which they outline the asset that was seized, the number of work hours they expended on the investigation, and other contributions. One control to help ensure DHS components comply with guidance is the requirement to prepare and submit an equitable sharing decision form when making determinations. The decision form is to include estimated work hours, recommended and approved sharing percentages, and a narrative section for providing an overview of the case and describing specific agency contributions. Another control involves required signatures on the form documenting submission by field office officials and approval by component headquarters officials.

Moreover, all three DHS components have designed multiple levels of review for equitable sharing packages. First, component field office officials—including the agents leading the investigation, asset forfeiture specialists, and supervisory agents or sector chiefs, among others—are to review equitable sharing applications and provide recommended sharing percentages on the equitable sharing decision form. HSI officials stated that HSI has an asset forfeiture specialist in each special agent in charge field office, and Border Patrol officials stated that Border Patrol has an asset forfeiture officer in each sector. According to USSS’s Asset Forfeiture Liaison, USSS does not have asset forfeiture specialists in its field offices, with the exception of New York, and instead has designated staff that review and process equitable sharing requests as collateral duties. Officials from all nine of the DHS component field offices with whom we spoke said that they review applications to ensure that they are complete and accurate. These officials noted that they work closely with state and local agencies requesting equitable sharing and as a result are knowledgeable about their work hours and other contributions. Officials from all nine of the state and local agencies we interviewed said that component field offices can contact them if they need clarification or additional information regarding their participation.

After field office review, the equitable sharing package—which is to include the decision form, state and local equitable sharing applications, and other relevant documents, such as the forfeiture order—is submitted to component headquarters for approval. Each component has a full-time asset forfeiture liaison who is responsible for reviewing packages and overseeing all interactions with TEOAF on forfeitures and equitable sharing. The review process at the headquarters level varies across components. HSI headquarters officials stated that within the Asset Forfeiture Unit, an asset forfeiture specialist, program manager, section chief, and unit chief review all equitable sharing packages. According to Border Patrol officials, the Assistant Chief of the Asset Forfeiture Program, who is the asset forfeiture liaison to TEOAF, reviews all packages. USSS officials said that the asset forfeiture liaison and an administrative staff person review packages. Component headquarters officials told us that they review packages to ensure that they are complete, include the necessary forms and information, and reflect the degree of agency participation in the seizure. Components then are to submit the packages to TEOAF for payment authorization. DHS asset forfeiture liaisons are to be available to address any questions that TEOAF may have regarding their packages or obtain additional information about sharing determinations from the field offices if needed. Figure 6 shows the steps involved in making equitable sharing determinations.

HSI and Border Patrol have also issued additional guidance to their field offices to help ensure compliance with Treasury’s guidance for making equitable sharing determinations. Specifically, HSI issued a memorandum in January 2013 to remind all offices on the proper procedures to follow when dealing with equitable sharing requests. HSI officials stated that the memorandum was intended to underscore and clarify Treasury’s guidance as it pertained to HSI cases. For example, it outlines time frames for submitting equitable sharing packages to the Asset Forfeiture Unit in HSI headquarters. It also reiterates Treasury’s guidance on how equitable sharing determinations should be made based on investigative work hours and qualitative factors, if applicable. In addition, the memorandum provides additional guidance on what should be considered unique and indispensable assistance. Specifically, it lists an additional example of such assistance—an undercover officer with a special skill or language ability not readily available elsewhere. Border Patrol issued additional guidance in 2006 that outlines the equitable sharing process in detail. The guidance lists the steps that the requesting agency, sector asset forfeiture office, headquarters asset forfeiture office, and TEOAF perform in the process. It also reiterates Treasury’s guidance on factors to consider when making equitable sharing determinations, among other things. USSS has not issued additional guidance because, according to the component’s asset forfeiture liaison, field office staff use Treasury’s guidance and can contact headquarters if they need assistance in making sharing determinations.

HSI and USSS have also provided training to headquarters and field office staff responsible for equitable sharing. HSI headquarters officials said that they began providing training to field office staff in August 2012 and asset forfeiture officials from all 26 field offices have received training. Training sessions addressed the process for equitable sharing, factors to consider when making equitable sharing determinations, and what to include in packages submitted to HSI headquarters, among other things. USSS officials stated that since fiscal year 2011, USSS has provided 37 field office trainings for operational personnel—including a nationwide asset forfeiture training in February 2013—and has conducted 19 training sessions and seminars for field office senior management personnel. According to DHS component and TEOAF officials, both HSI and USSS training were funded by and provided in coordination with TEOAF. Officials from all six HSI and USSS field offices we contacted stated that the training provided useful information on equitable sharing requirements and processes. According to Border Patrol headquarters officials, Border Patrol has not provided training to its sectors because of the limited number of equitable sharing requests they process.

Additional Controls Could Help Improve the Transparency and Consistency of Equitable Sharing Determinations

Documenting the Basis for Equitable Sharing Determinations

According to TEOAF officials, equitable sharing determinations should be clearly supported by the information in the package. TEOAF requires high-value packages (forfeitures of $1 million or more) to include DHS component work hours and justifications for material deviations from work hour calculated percentages due to qualitative factors. This is not, however, required of low-value packages (forfeitures under $1 million). Accordingly, 31 of the 40 low-value equitable sharing packages that we reviewed were missing key information to support the basis for final sharing percentages. Specifically, these 31 packages did not include one or more of the following: DHS component work hours, support for how qualitative factors were applied to make determinations, and the rationale for changes made to sharing percentages recommended by the field offices.value packages that we reviewed were fully supported by the information in the package.

In contrast, the equitable sharing determinations in the 5 high- Component work hours: Treasury’s guidance states that equitable sharing determinations are normally determined by comparing the number of investigative hours expended by state, local, and other requesting agencies and the lead component through the completion of the forfeiture. According to TEOAF officials, work hours should be the primary indicator of agency participation in a case.

Example of How Work Hours Are Used to Determine Equitable Sharing In an HSI-led drug smuggling case, a state police department assisted an HSI field office in executing search warrants and conducting background checks and surveillance on drug-trafficking suspects, among other things, resulting in a seizure and forfeiture of $95,138 in currency. According to documents in the equitable sharing determination package, the state police expended an estimated 671 work hours on the case and HSI expended 670, resulting in a 50 percent share of forfeiture proceeds for the state police.

State and local agency work hours were included in all 40 low-value equitable sharing packages that we reviewed. HSI included its own work hours in all 26 low-value HSI packages that we reviewed, but USSS and Border Patrol did not include this information in any of their packages. Specifically, all 10 USSS and 4 Border Patrol packages that we reviewed did not include lead component work hours or the total work hours contributed by all agencies involved in the case. USSS’s asset forfeiture liaison stated that this information was not included because the lead USSS component does not receive equitable sharing funds and the information is not explicitly required on the equitable sharing decision form. This official said, however, that he has directed field offices to include component work hours in equitable sharing decision forms starting in fiscal year 2014. We reviewed an additional USSS equitable sharing package that was approved by headquarters in fiscal year 2014 and found that the USSS field office included its work hours. Border Patrol’s Asset Forfeiture Liaison said that because most of the component’s seizures occur at checkpoints or while agents are on patrols—unlike HSI and USSS seizures, which result primarily from investigations—work hours can be difficult to measure and are not always used to make equitable sharing determinations. However, state and local agency work hours were included in all 4 Border Patrol equitable sharing packages that we reviewed. Border Patrol’s Asset Forfeiture Liaison stated that it would be useful to include Border Patrol work hours when possible if they are measured consistently across all participating agencies. In the absence of documented component work hours, we could not determine what proportion of total work hours components contributed to the case and how deciding authorities verified whether equitable sharing determinations were calculated in accordance with Treasury’s guidance.

Application of qualitative factors: All 31 low-value packages we reviewed that did not include full support for sharing determinations did not contain clear documentation of how qualitative factors were used to adjust sharing determinations. Treasury’s guidance directs deciding officials to consider additional factors when the work hours do not adequately reflect the degree of agency participation in the investigation. These factors could include, for example, originating the information leading to the seizure or providing unique and indispensable assistance. The decision forms in the packages that we reviewed generally contained narratives that summarized what each agency contributed to the case, which included interviewing suspects, executing search warrants, conducting surveillance, providing a drug-sniffing canine, and a range of other investigative support. However, the forms did not identify which specific agency contributions were used to adjust percentages and what adjustments were made. For example, in 1 HSI equitable sharing package we reviewed, two police departments contributed the same number of work hours, but one received a 10 percent larger share than the other, resulting in a difference of about $48,000 in forfeiture proceeds. Both departments indicated on their application forms that they provided unique or indispensable assistance and originated the information leading to the seizure. HSI’s equitable sharing decision form for this package includes a summary of how each police department participated in the investigation, such as assisting in undercover operations, interviews, and search and surveillance, but does not explicitly state which specific contribution or contributions were used to adjust percentages or why one agency’s contribution was valued more than the other’s.

HSI’s January 2013 guidance memorandum states that when work hours do not adequately reflect the degree of agency participation, it is critical that the narratives contained in the documents submitted to the Asset Forfeiture Unit in headquarters specifically detail the participation of all agencies involved. This helps to ensure that agency contributions outside of work hours are documented in the equitable sharing packages, but does not require field offices to identify which qualitative factors or contributions were used to adjust percentages and how these factors were applied. Moreover, in USSS and Border Patrol equitable sharing packages where component work hours were not documented, it was not possible to determine if adjustments were made to sharing percentages based on qualitative factors. Border Patrol’s Asset Forfeiture Liaison stated that Border Patrol could document this information if required. USSS’s Asset Forfeiture Liaison said that it would be administratively burdensome to specify which, if any, qualitative factors were used to adjust percentages and how they were applied because USSS primarily relies on field office staff to process equitable sharing requests as collateral duties, in addition to their other responsibilities. However, agency contributions are generally already included in the decision form narratives and specifying which contribution was used to adjust percentages could be done by including a short sentence or annotation. For example, in a USSS high-value package that we reviewed, TEOAF documented that a state agency’s percentages were adjusted upward because the agency conducted all key interviews in the investigation. Components could document the same kind of information for low-value packages with minimal additional narrative. Documenting the rationale for making adjustments to sharing percentages based on qualitative factors could improve transparency for approving authorities and officials overseeing equitable sharing regarding how and why adjustments are made when work hours alone do not fully reflect the degree of agency participation in the investigation. Such documentation could also help these officials better assess the extent to which qualitative factors were applied appropriately and consistently in determinations.

Component headquarters changes to sharing percentages: USSS and HSI headquarters made changes to sharing percentages in 8 of the 31 low-value packages we reviewed that did not include full support for determinations, and in all 8 of these instances, the reasons for the changes were not documented. USSS and HSI officials noted that they contact field office staff to discuss any changes, but that the reasons for the changes are generally not included in the packages submitted to TEOAF. USSS headquarters made changes to sharing percentages recommended by field offices in 6 of the 10 USSS packages that we reviewed. For example, in 1 package, USSS headquarters decreased a state agency’s share from 60 to 40 percent—resulting in a difference of about $28,400—but the decision form did not note why the change was made. USSS’s Asset Forfeiture Liaison stated that these changes are primarily due to headquarters taking into account additional work that USSS agents perform to identify victims of financial crimes after the field offices submit the decision forms to headquarters. The liaison said that these additional work hours and resources are not reflected in the field office’s recommended sharing percentages or on the decision forms. According to the USSS liaison, headquarters has only one other official who reviews and approves equitable sharing determinations, and documenting the rationale for changes to sharing percentages would require additional work. However, he noted that including a short annotation would be feasible. HSI officials stated that the reasons for headquarters’ changes to field office sharing percentages are generally documented in HSI review forms and e-mail correspondence with the field and provided examples of such documentation. However, this support is not included in the packages that HSI submits to TEOAF for review and payment authorization. HSI officials said that they could include this Documenting the rationale for information if requested by TEOAF.changes to sharing percentages recommended by the field—by, for example, including a short sentence or annotation—could help enhance transparency regarding why changes were made and how final sharing percentages were determined.

Standards for Internal Control in the Federal Government states that controls are to provide reasonable assurance for compliance with laws and regulations and help ensure that management’s directives are carried out, among other things. To achieve these objectives, it 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, internal control standards state that all transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination. In the absence of consistently documenting component work hours, how qualitative factors are applied to adjust sharing percentages, and the reasons for headquarters’ changes to percentages, it is unclear how equitable sharing deciding authorities evaluated the nature and value of the contributions of each of the agencies involved in the investigation. TEOAF officials said that clearly documenting the basis for equitable sharing determinations in low-value packages would be helpful for approving officials. This is important because, according to TEOAF officials, equitable sharing determinations have grown more complex in recent years as a result of the increase in large investigations that involve multiple agencies. These officials said that it would be feasible for TEOAF—as the manager of the TFF and the equitable sharing program— to issue a memorandum to DHS components to include additional information in equitable sharing packages and work with components as needed to implement it. Establishing a mechanism to ensure that the basis for low-value equitable sharing determinations is fully documented by all DHS components responsible for making determinations could enhance the transparency of decision making and help DHS components and TEOAF better ensure that equitable sharing decisions are made in compliance with Treasury’s guidance.

Guidance on Qualitative Factors

Treasury has established general guidance on the qualitative factors to consider if work hours do not adequately reflect the degree of agency participation in the investigation. The guidance includes three examples of these factors—whether the agency originated all of the information leading to the seizure, provided unique and indispensable assistance, or could have achieved forfeiture under state law—and a short narrative describing each of them. For example, the guidance states that unique and indispensable assistance entails an agency providing support only it can provide, such as seizing assets in a jurisdiction hundreds of miles from where the investigation is being conducted or providing an informant who has access to documents that are essential to securing a conviction. The guidance does not provide specific information on how to apply these examples to adjust sharing percentages. Treasury is in the process of revising its guidance, and as of January 2014, the draft guidance contained a more abbreviated discussion of qualitative factors, with two examples and less detail regarding the contributions to consider. For example, the draft guidance does not provide examples of contributions that could be considered unique or indispensable assistance. TEOAF officials stated that the revised guidance is being finalized and indicated that they do not plan to include more information on qualitative factors in the guidance. The office expects to issue the guidance in 2014, but did not have a more specific time frame, in part because the guidance was undergoing an interagency review. HSI’s January 2013 memorandum includes additional guidance on qualitative factors, such as clarifying what types of activities are considered unique and indispensable assistance. USSS and Border Patrol have not issued similar guidance.

TEOAF and DHS component officials stated that guidance on qualitative factors is general because equitable sharing determinations are made on a case-by-case basis and the facts and circumstances of each case must be considered in totality when making adjustments to sharing percentages. Accordingly, DHS component field office and headquarters officials said that they use their judgment and experience when determining if and how qualitative factors should be applied in making equitable sharing decisions. However, officials from six of the nine field offices we interviewed across all DHS components that conduct equitable sharing stated that additional guidance on qualitative factors would be useful. Specifically, these officials said that additional examples of factors, such as what constitutes extraordinary expenses; clarification of what is considered unique and indispensible assistance; guidance on how to apply factors, including more information on how to adjust percentages based on the type and significance of agency contributions; or illustrations of how factors were applied in real-world cases would be helpful for making equitable sharing determinations. Officials from the remaining three field offices said that additional guidance was not needed because sharing recommendations are made in consultation with requesting agencies or they can contact component headquarters to discuss any questions about qualitative factors. Nonetheless, headquarters officials from all three DHS components that conduct equitable sharing stated that additional guidance could help ensure a more consistent understanding of these factors among headquarters and field offices. For example, HSI officials said that adjustments related to qualitative factors are one of the reasons for headquarters changes to sharing percentages recommended by field offices. These officials noted that any additional guidance should continue to allow for determinations to be based on the facts and circumstances of each case.

Officials from all nine state and local law enforcement agencies with whom we spoke were generally satisfied with the equitable shares that they received. These officials noted that they typically do not have visibility over the equitable sharing process after they have submitted their applications. In addition, the equitable sharing determinations we reviewed indicate that state and local agencies may not have a clear understanding of how some qualitative factors are defined and considered. For example, in 12 of the 15 low-value packages we reviewed where an agency indicated on its application form that it incurred extraordinary expenses during the investigation, the expenses were not clearly described in the narrative. In 1 equitable sharing package we reviewed for a currency-smuggling case, a police department checked that it had incurred extraordinary expenses and stated that its officer had conducted surveillance, assisted in a search of a suspect’s house, and participated in the interview of two individuals who were detained as part of the investigation. However, we could not determine how these activities constituted extraordinary expenses. Treasury’s guidance does not include incurring extraordinary expenses as an example of a qualitative factor, despite this factor being included in the equitable sharing application. In addition, the application includes two other factors to consider when assessing agency contributions that are not included in Treasury’s guidance. Providing guidance on qualitative factors that are listed on the application form, including what they entail and how to apply them, could help officials from state and local agencies, as well as DHS components, have a better and more consistent understanding of these factors.

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. While we recognize the subjective nature of evaluating agency contributions based on the facts and circumstances of each case, additional guidance on qualitative factors could help better ensure consistency with which these factors are applied across cases. Such guidance could also help DHS components better assess agency contributions when making equitable sharing determinations.

Component Actions to Address Equitable Sharing Requirements

TEOAF performs an administrative review of low-value packages to ensure that the required applications and decision forms are included, among other things. TEOAF officials said that because DHS components have decision-making authority for low-value determinations, they primarily rely on the components to ensure that these packages comply with equitable sharing requirements.

The low-value packages that we reviewed did not always comply with certain requirements in Treasury’s guidance. However, HSI and USSS officials have taken steps to address the deficiencies we found in our analysis of these packages. Specifically, the guidance requires that state and local law enforcement agencies submit equitable sharing applications within 60 days after the seizure, and if this deadline is not met, agencies need to submit a written request stating the reasons for the late submission in order for components to waive the requirement. TEOAF officials said that this requirement is in place to ensure that components receive all sharing requests in a timely manner and are aware of all agency contributions before determining equitable shares. HSI and USSS headquarters officials stated that if a state or local agency submitted a request for a waiver, they would include it in the package provided to TEOAF. However, requests for waivers were not included in 8 of the 9 HSI and USSS packages we reviewed where an agency did not meet the 60-day deadline. HSI headquarters officials stated that they began enforcing the waiver requirement in January 2013. The officials said that this requirement may take some time to fully implement. Specifically, because of the potential lengthy forfeiture process, equitable sharing determinations processed after January 2013 may be from applications that were submitted to field offices over a year earlier. USSS’s Asset Forfeiture Liaison stated that in fiscal year 2013, USSS’s asset forfeiture system was programmed to automatically notify field offices when equitable sharing applications are due to meet the 60-day requirement and provided an example of such a notice.

In addition, Treasury’s guidance specifies that final determination of sharing percentages cannot be made until after assets have been forfeited. TEOAF officials said that this requirement is in place so that state and local agencies do not expect equitable shares before forfeitures are finalized, because in some cases, funds may not be available for sharing. However, USSS headquarters officials approved sharing determinations in 5 of the 10 low-value USSS equitable sharing packages we reviewed before assets were forfeited. These 5 packages were all approved by headquarters in 2011. USSS’s Asset Forfeiture Liaison said that with the assignment of a new asset forfeiture specialist in 2012, USSS changed its review process and no longer approves determinations before forfeiture. The 5 packages we reviewed that USSS headquarters approved after 2011 complied with this requirement. We also reviewed 3 additional packages that USSS approved in September 2013 and these complied as well.

DHS Components and TEOAF Coordinate on Many Equitable Sharing Oversight Activities

DHS components and TEOAF coordinate in a variety of ways to oversee the equitable sharing program. For example, DHS and TEOAF have established roles and responsibilities for the processing, review, and approval of equitable sharing determinations, consistent with leading practices on interagency coordination. In addition, each DHS component has an asset forfeiture liaison who is responsible for overseeing interactions with TEOAF on forfeitures and equitable sharing. These liaisons are the primary points of contact between TEOAF and DHS field offices and help facilitate the processing of equitable sharing determinations. Further, according to TEOAF and DHS component officials, TEOAF holds meetings with component asset forfeiture liaisons once every 2 weeks to discuss TFF issues, including equitable sharing and any major forfeiture cases that are expected, among other things. HSI also coordinated with TEOAF to provide equitable sharing training to field office staff. For example, TEOAF officials stated that TEOAF staff worked with HSI to develop an agenda of the areas that needed to be covered during the training sessions. Officials from both HSI and TEOAF USSS and TEOAF officials provided presentations during the training.stated that they coordinated to provide training to USSS field office staff as well.

In addition, TEOAF has collaborated with DHS components to develop equitable sharing guidance. Specifically, as part of the ongoing development of updated Treasury guidance, TEOAF provided a draft of the guidance to DHS components for their review and, according to TEOAF and DHS officials, held meetings with components to discuss revisions. Border Patrol also collaborated with TEOAF to develop additional equitable sharing guidance for its sectors, according to Border Patrol and TEOAF officials. Such actions are consistent with leading practices on interagency coordination that call for agencies to address the compatibility of standards, policies, and procedures that will be used in the collaborative effort through effective communication, among other things. However, HSI did not inform TEOAF that it was planning on issuing additional equitable sharing guidance in January 2013 or provide a draft of the guidance for TEOAF to review before issuance. According to HSI officials, HSI did not take these steps because HSI’s additional guidance was based on Treasury’s guidance and prior discussions in which TEOAF directed HSI to address concerns about HSI allocating large shares of forfeiture proceeds to state and local agencies that were disproportionate to their contributions in investigations and did not retain sufficient revenues to support TFF expenses.

HSI officials stated that this includes overhead-related expenses that HSI incurs, such as administrative and storage costs. The officials said that the 30 percent minimum was based on an analysis of HSI investigative expenses and is intended to help ensure that HSI’s expenses do not exceed its forfeiture revenues. contributions and include required information in the packages they submit.

Conclusions

The authorization to share federal forfeiture proceeds with participating state and local law enforcement agencies is an important component of federal asset forfeiture activities and critical in fostering enhanced cooperation with these agencies. In fiscal year 2013, DHS components obligated about $355 million in equitable sharing payments to state and local agencies—the highest annual amount over the past decade. In addition, equitable sharing determinations have grown more complex in recent years because of the increase in large investigations that involve multiple agencies, according to TEOAF officials. Such developments underscore the need for controls to help ensure compliance with established equitable sharing guidance and federal statutes.

DHS components have designed controls to help ensure compliance with Treasury’s guidance when making equitable sharing determinations. However, there are gaps in the documentation of key information that serves as the basis for making sharing decisions. Without a mechanism to ensure documentation of the number of work hours expended by lead components, how qualitative factors were used to adjust sharing percentages, and the reasons for headquarters’ changes to equitable sharing percentages in low-value packages, it is unclear how equitable sharing deciding authorities could fully evaluate the nature and value of the contributions of each of the agencies involved in an investigation. Further, additional guidance on the qualitative factors to consider when making equitable sharing determinations could help better ensure that they are consistently applied over time and across cases.

Recommendations for Executive Action

As the manager of the TFF and equitable sharing program, TEOAF is best positioned to help ensure that DHS components consistently comply with Treasury’s equitable sharing guidance. To help improve management controls over the equitable sharing program, we recommend that the Director of TEOAF take the following two actions:

Establish a mechanism to ensure that the basis for DHS’s low-value equitable sharing determinations—including component work hours, how qualitative factors are applied to adjust percentages, and the rationale for component headquarters’ changes to percentages—is documented in equitable sharing packages.

Develop additional guidance on qualitative factors to be used when making adjustments to equitable sharing percentages.

Agency Comments

We provided a draft of this report to Treasury and DHS for their review and comment. Treasury provided written comments, which are reprinted in appendix II. Treasury and DHS also provided technical comments, which we incorporated in this report as appropriate.

Treasury concurred with both recommendations in this report in an e-mail provided on March 20, 2014. In its written comments, the department outlined steps that it plans to take to implement them. Specifically, Treasury stated that it plans to implement changes in its equitable sharing forms, policy guidance, and processes to address our recommendation that the basis for DHS’s low-value equitable sharing determinations is documented in equitable sharing packages. For example, Treasury noted that it is to require all equitable sharing packages to include component work hours and emphasize that upward adjustments to a local law enforcement agency’s sharing percentage must include a coherent and compelling explanation of the unique or indispensable assistance provided. Treasury also plans to redesign the equitable sharing decision form to accommodate these and other changes. discuss changes made to the equitable sharing program, including those related to qualitative factors, with components over the next 6 months to address our recommendation that Treasury develop additional guidance on qualitative factors to be used when making adjustments to equitable sharing percentages.

We are sending copies of this report to the Secretary of the Treasury, the Secretary of Homeland Security, selected congressional committees, and other interested parties. In addition, this report is available at no charge on GAO’s 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 III.

Appendix I: Objectives, Scope, and Methodology

This report addresses the following objectives: 1. What have been Department of Homeland Security (DHS) components’ revenues contributed to and obligations from the Treasury Forfeiture Fund (TFF) from fiscal years 2003 through 2013? 2. To what extent have DHS components designed controls to help ensure compliance with the Department of the Treasury’s (Treasury) guidance when implementing the equitable sharing program? 3. To what extent do DHS components coordinate with Treasury in overseeing the equitable sharing program?

Assessing Revenues and Obligations

To determine TFF revenues from and obligations by DHS components from fiscal year 2003—the year in which DHS began operations—through fiscal year 2013, we analyzed Treasury’s reported data on revenues and obligations by fiscal year, by the four participating DHS members of the TFF—U.S. Immigration and Customs Enforcement (ICE), the U.S. Secret Service (USSS), U.S. Customs and Border Protection (CBP), and the U.S. Coast Guard (USCG)—and for the fund as a whole. We used information on revenues and obligations contained in CBP’s National Finance Center’s financial accounting systems. We interviewed officials from the four DHS participating components, DHS’s Office of the Chief Financial Officer, and the Treasury Executive Office for Asset Forfeiture (TEOAF) to discuss trends and variations in the revenues and obligations over this 11-year period. We also reviewed information on unobligated and excess unobligated balances contained in the TFF’s financial accounting systems. We interviewed TEOAF officials who are responsible for oversight of the TFF regarding processes for carrying over funds at the end of the fiscal year. Further, we analyzed Treasury’s reported data on the TFF’s excess unobligated balances from fiscal years 2003 through 2013, and interviewed DHS officials from the four participating components, DHS’s Office of the Chief Financial Officer, and TEOAF officials about how excess unobligated balances have been used since 2003.

Assessing DHS Controls

To determine the extent to which DHS components that conduct equitable sharing—ICE, USSS, and CBP—have designed controls to help ensure compliance with Treasury’s guidance when implementing the equitable sharing program, we analyzed federal statutes and Treasury guidance on making equitable sharing determinations and DHS controls designed to help ensure compliance with guidance. We compared these controls with the overall framework for establishing and maintaining internal control outlined in Standards for Internal Control in the Federal Government.

We

We selected the 40 packages from equitable sharing payments made to state and local agencies from October 1, 2012, to June 30, 2013, to obtain the most recent payments given our timeframes. We selected this sample based on payment amounts and to reflect a range of DHS components and field offices that conduct equitable sharing. We reviewed 26 ICE, 10 USSS, and 4 CBP low-value packages from a range of each component’s field offices across the nation. Within our sample time frame, ICE accounted for 1,902 payments to state and local agencies, USSS accounted for 347, and CBP accounted for 4. Because multiple payments can result from 1 equitable sharing package, we could not determine the number of packages processed during a given time period.

We selected the 5 packages from a list of those approved by TEOAF from October 1, 2012, to June 30, 2013, based on such factors as amounts forfeited and the number of seizures involved.packages approved during this time period, we reviewed 3 from ICE and 2 from USSS investigations.

The results of our analysis of equitable sharing packages are not generalizable to the universe of packages paid or approved within the same time frames. However, they provided information on the extent to which the selected packages adhered to guidance and included documentation of controls, among other things.

We also interviewed officials from TEOAF; ICE, USSS, and CBP in headquarters; and selected field offices of these components in California, New York, and Texas to assess controls established to help ensure compliance with guidance. These three states received the highest amounts of equitable sharing payments on average from fiscal years 2010 through 2012 and composed about 50 percent of total payments nationwide. We selected ICE, USSS, and CBP field offices to interview in each state to include those that processed high amounts and large numbers of equitable sharing payments. In addition, we interviewed officials from three state or local law enforcement agencies in each of these states to obtain their perspectives on the equitable sharing process. We selected these agencies based on the amount and number of payments they received in fiscal year 2012 and to cover a range of government agencies (e.g., state, county, or city). While the results of these interviews are not generalizable to all DHS component field offices and agencies, they provided valuable information and perspectives on the equitable sharing determination process and controls.

Assessing DHS Coordination with Treasury

To determine the extent to which DHS components coordinate with Treasury in overseeing the equitable sharing program, we analyzed guidance and other documents. For example, as part of our review of selected equitable sharing determination packages, we assessed documentation of how DHS components and TEOAF coordinate and communicate when making equitable sharing decisions. In addition, we interviewed officials from ICE, USSS, and CBP in headquarters; selected field offices of these components as discussed above; and TEOAF to obtain information about, among other things, the extent to which DHS and TEOAF coordinate on overseeing the equitable sharing program, including making sharing determinations and developing guidance. We compared DHS and TEOAF coordination mechanisms with leading practices on interagency collaboration.

To assess the reliability of data for revenues and obligations and excess unobligated balances for the first objective and equitable sharing payments used to select our samples of packages to review for the second and third objectives, we reviewed relevant documentation, such as annual financial plans and standard operating procedures related to reporting TFF data in the fund’s financial accounting system, which is maintained by CBP. We also conducted interviews with CBP officials responsible for managing data, as well as Treasury officials who review and work with the data to understand how CBP and Treasury collect, categorize, and tabulate the information and the actions they take to ensure its consistency, accuracy, and completeness. We determined information on the financial accounting system provided by CBP to be sufficiently reliable for presenting Treasury’s reported data on total revenues, obligations such as equitable sharing payment data, and excess unobligated balances by DHS components and as a proportion of the TFF for fiscal years 2003 through 2013.

We conducted this performance audit from April 2013 through March 2014 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.

Appendix II: Comments from the Department of the Treasury

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Eric Erdman, Assistant Director; Sylvia Bascope; Kelly Krinn; and Johanna Wong made key contributions to this report. Also contributing to this report were Phyllis Anderson, Christine Broderick, Susan Hsu, Eric Hauswirth, Cynthia Saunders, and Janet Temko.