Department of Justice: Alternative Sources of Funding Are a Key Source of Budgetary Resources and Could Be Better Managed
Released: 2015-03-23T00:00:00

Letter

Background

Budget Authority and Collections

The congressional “power of the purse” refers to the power of Congress to appropriate funds and to prescribe the conditions governing the use of those funds. Congress exercises this power by providing budget authority, which is authority provided by federal law to enter into financial obligations that will result in immediate or future outlays involving federal government funds.

For the purposes of this report, “alternative sources of funding” refers to collections that are available to DOJ to obligate and expend. Some of these collections, known as offsetting collections, are available for obligation and expenditure without further legislative action. Others, however, called offsetting receipts, cannot be used without being appropriated. Examples of the various types of collections at DOJ include fees from regulated industries, such as fees associated with the federal bankruptcy system collected through the United States Trustee Program; the collection of fines, settlements, and other penalties associated with criminal and civil litigation activities; businesslike transactions such as the Bureau of Prisons’ Federal Prison Industries (FPI) sale of goods and services; and CJIS fingerprint checks fees.

Agency Flexibility Regarding Uses of Funding from Alternative Sources

Congress typically appropriates and conducts oversight of funds for DOJ at the account level, directing that accounts be used for specific purposes, restricting the amount or purpose for which the funds can be used, and at times requiring DOJ to report on activities conducted at the For each alternative source of funding, Congress must account level.provide DOJ authority to (1) collect amounts, (2) conduct the activity in question, and (3) obligate and expend the funds collected on that activity. In each of these three areas, Congress can delegate some flexibility to agencies in how they exercise these authorities, or it can retain control. Regardless of the flexibility Congress provides DOJ regarding alternative sources of funding, it always retains oversight over the funding and associated activities. Figure 1 outlines key characteristics through which Congress may increase or decrease an agency’s flexibility in funding.

Budgetary Resources and Government Financial Statements

The President’s Budget provides agencies’ estimated and actual budget authority, obligations, and unobligated balances, among other things. Total budgetary resources are also reported annually in an agency’s statement of budgetary resources, which is published in either a performance and accountability report, or an agency financial report. Whereas the President’s Budget provides information used by the Office of Management and Budget (OMB) for planning and controls, the financial reports prepared by agencies are required as part of the Chief Financial Officers Act of 1990, as amended.with the financial reports are subject to audit.

About 15 Percent of DOJ’s Total Budgetary Resources Comes from Alternative Sources of Funding, and Laws Specific to Each Source Determine How Funds Should Be Obligated

Seven alternative sources of funding made up approximately 15 percent of DOJ’s total budgetary resources in fiscal year 2013, and different legislative requirements affect the agency’s flexibility in using these funds. Specifically, DOJ had about $4.3 billion in collections from seven major alternative sources of funding in 2013, and generally used this funding for related program costs. In addition, agency flexibility regarding using the seven funding sources varied with laws specifying funding purposes, amounts, and availability.

About 15 Percent of DOJ’s Budgetary Resources Comes from Seven Alternative Sources of Funding

In fiscal year 2013, about 15 percent of DOJ’s total budgetary resources—or $5.8 billion out of $39.5 billion—came from seven major alternative sources of funding. Specifically, during fiscal year 2013, collections for these seven sources totaled about $4.3 billion, which was available to DOJ to obligate. DOJ also brought forward $1.3 billion in unobligated balances from fiscal year 2012 for these seven sources.

In addition to collections that DOJ had the authority to use, in fiscal year 2013, DOJ received deposits of about $1.6 billion from two of the seven alternative sources of funding that were by law not available for the department to obligate, and therefore not counted as a budgetary resource.

The seven major alternative sources of funding are the following:

Assets Forfeiture Fund: The AFF receives monies from the proceeds of forfeiture of assets used in criminal operations. Proceeds deposited in the AFF are used to pay for expenses of the Asset Forfeiture Program, including asset management and disposal, the equity of innocent third parties and lienholders, equitable sharing payments, program investigative expenses, and other authorized expenses of the program.

Crime Victims Fund: Criminal fines and penalties collected from offenders, among other sources, are deposited in the CVF. The CVF funds victims’ assistance programs and provides direct compensation to crime victims.

Criminal Justice Information Services fingerprint checks fees: CJIS, a division of the FBI, collects fees from federal, state, and other authorized entities requesting fingerprint identification records for noncriminal justice purposes such as employment and licensing. Fees collected pay for the costs of providing the service and for the automation of fingerprint identification and other criminal justice information services.

Diversion Control Fee Account (DCFA): Fees paid by Drug Enforcement Administration (DEA) registrants, such as manufacturers, distributors, dispensers (including physicians), importers, and exporters of controlled substances (such as narcotics and stimulants) and certain listed chemicals (such as ephedrine) are deposited in the DCFA. Fees collected are used to recover the full costs of the program, including personnel costs and operation costs such as investigative costs, travel, and the purchase of goods and services.

Federal Prison Industries, Inc.: FPI, a wholly owned government corporation within the Bureau of Prisons (BOP), sells products and services manufactured by federal inmates.for FPI program expenses, such as wages for federal inmates.

Three Percent Fund: DOJ collects 3 percent of most amounts paid resulting from “civil debt collection litigation activities,” including civil judgments in Medicare fraud cases and student loan collections. DOJ uses these funds to defray costs associated with its debt collection activities, such as paying the costs of the Debt Collection Management Staff (DCM) and financial litigation unit personnel and activities at the U.S. Attorneys’ Offices.

United States Trustee System Fund (USTSF): The U.S. Trustee Program (USTP) receives and deposits in the USTSF fees collected generally from four sources: (1) a portion of the filing fee paid at the beginning of each bankruptcy case for chapters 7, 11, 12, and 13; (2) chapter 11 quarterly fees; (3) excess percentage fees collected by chapter 12 or chapter 13 standing trustees; and (4) interest on invested funds. These fees are used by the USTP for expenses, such as salaries and benefits, related to overseeing the bankruptcy process as specified in annual appropriations acts.

To determine collections, obligations, and unobligated balance amounts for the seven alternative sources of funding, we relied on data that were reconciled to DOJ’s audited financial statements. DOJ was able to reconcile the data for six of the seven alternative sources for fiscal years 2009 through 2013. For the CJIS fingerprint checks fees, as part of our procedures, we obtained collections, obligations, and unobligated balances data from the FBI program offices for fiscal years 2009 through 2013. To validate the data provided, we requested that the FBI reconcile these amounts with the FBI’s audited statement of budgetary resources (SBR) for those respective periods. The FBI provided updated amounts for fiscal year 2013 based on its reconciliation to the FBI’s audited SBR. However, the FBI was unable to demonstrate that it could reconcile amounts it provided for fiscal years 2009 through 2012 to the amounts in its audited SBR for each of the respective years. For the purposes of this report, we will be reporting CJIS fingerprint checks fees data for fiscal years 2009 through 2012 as reported to us by the FBI.

Of the seven major alternative sources of funding, the two with the highest amount of deposits were the AFF and the CVF, each receiving deposits of $10.5 billion and $10.4 billion respectively over the 5-year time period, not all of which was available to DOJ to obligate. The remaining five alternative sources of funding brought in collections totaling $9.0 billion during this same time period.

Generally, collections from the seven major alternative sources of funding were obligated to support the associated programs or activities. For example, fees collected and deposited into the DCFA paid for all expenses required to run the Diversion Control Program.

For all seven major alternative sources of funding, DOJ obligated about $22.8 billion, or on average about $4.6 billion a year, from fiscal years 2009 through 2013. Specifically, for five of the seven alternative sources of funding—CJIS fingerprint checks fees, DCFA, FPI, the Three Percent Fund, and USTSF—DOJ obligated about 97 percent of total collections, or about $8.8 billion of $9.0 billion collected. For the two remaining alternative sources of funding—the CVF and the AFF—DOJ obligated about $14.0 billion. The AFF and the CVF included deposits that, pursuant to law, have not been available for obligation. At the end of fiscal year 2013, about $9.7 billion from the AFF and the CVF was unavailable for obligation by DOJ. The majority of this amount came from the CVF, which will be discussed in more detail later in this report.

While the majority of DOJ’s alternative sources of funding came from these seven sources, DOJ has other alternative sources of funding, which are listed in appendix I. In addition, appendix III provides more detail on collections and obligations for the seven major alternative sources of funding, including relevant legal requirements.

DOJ Flexibility to Use Alternative Sources of Funding Varies across the Seven Major Sources of Funding

Congress has used different options to either increase or decrease agency flexibility related to the use of DOJ’s seven major alternative sources of funding. As previously discussed, Congress establishes agency flexibility through the requirements in authorizing legislation, appropriation acts, or other laws that, for instance, require agencies to obligate the funds in a given year or over multiple years, or obligate a certain amount for a certain purpose.

Congress may limit the availability of funds so they are available for obligation only in a given fiscal year—characterized as 1-year funds— such as a portion of the CJIS fingerprint checks fee amounts. In contrast, Congress may establish funding as available for obligation indefinitely—characterized as no-year funds—such as funds deposited in other major alternative sources of funding like the Three Percent Fund, which can be carried over from 1 year to the next.

Congress has imposed additional annual reporting requirements for certain of the seven alternative sources of funding (see app. III). For example, DOJ is required to provide annual reports for the AFF.

Table 1 shows requirements related to authorized purposes and amounts for the seven major alternative sources of funding.

DOJ Can Improve the Management of Unobligated Balances of Selected Alternative Sources of Funding

Selected alternative sources of funding have growing unobligated balances, some of which could benefit from improved management. We conducted case studies for three alternative sources of funding with unobligated balances: the Three Percent Fund, CJIS fingerprint checks fees, and the Crime Victims Fund. DOJ officials responsible for the Three Percent Fund have taken steps to manage the fund such as annually reviewing how much they allocate in the fiscal year. However, they have not, for example, projected collections for the following year when determining the availability of funding for the next fiscal year. In addition, DOJ lacks transparency over how fingerprint checks fees are broken out, and has not evaluated what an appropriate carryover balance should be. Finally, unobligated balances that have been made temporarily unavailable to DOJ in the Crime Victims Fund have continued to grow, and these balances have an increasing impact on DOJ’s reporting of annual discretionary budget authority.

DOJ Has Taken Steps to Manage the Three Percent Fund but Could Better Clarify a Reserve Policy and Estimates of Future Needs

results in a civil judgment. For example, in one case that was resolved in fiscal year 2013, DOJ reportedly collected $13 million from a civil settlement involving fraud against the U.S. Postal Service. Of the $13 million that was awarded to the U.S. Postal Service, DOJ deposited $390,000 into the Three Percent Fund. Amounts from the Three Percent fund are then allocated to DOJ components that requested funds for specified activities, such as tracking civil and criminal debt collection Officials responsible for the Three Percent Fund stated that litigation.they generally review and fund component requests at the beginning of the fiscal year. As shown in figure 2, obligations of the Three Percent Fund have generally risen with increased budgetary resources. Specifically, from fiscal years 2009 through 2013, obligations increased by about $74 million, while collections in the Three Percent Fund have increased by almost $75 million over the same 5 years.

DOJ officials stated that they have taken steps to manage the Three Percent Fund and analyze the availability of funding for obligations such as allocations to components, the costs of managing the systems that collect and disburse civil collections, and administrative support. Specifically, the Collection Resources Allocation Board (CRAB)—the body established by DOJ to allocate collections among eligible components to offset litigation and collection costs—manages the fund in several ways:

The CRAB sets aside funding to operate the Debt Collection Management Staff for the following fiscal year prior to considering annual allocations for other debt–collection related activities. DCM is fully funded through Three Percent Fund collections and receives no other appropriation.

CRAB officials consider the longer-term viability of the program when making funding decisions by, for example, considering whether programs receiving funding may bring in additional Three Percent Fund collections in future years. Programs that have potential to bring in more funding to the Three Percent Fund may be prioritized over programs that bring in less or no funding to the Three Percent Fund.

The CRAB informs components making requests that any employees hired should be term employees and not holders of permanent positions. CRAB officials stated this policy stresses to components that they should not rely on Three Percent Fund allocations in the future, even if funds were allocated for such positions in the past.

CRAB officials consider allocating resources for activities that may span multiple years and set aside more resources at the beginning of the year for these activities instead of funding new activities.

CRAB officials identify a reserve, an amount needed in the Three Percent Fund at the beginning of the following fiscal year.

While CRAB officials have taken steps to manage the Three Percent Fund, according to officials responsible for managing the fund, they do not know how, if at all, changes in unobligated balances affect identified future resource needs because they do not conduct analyses that include projected collections, reserves that align with DOJ priorities and stated needs, or the impact of previous obligation rates on unobligated balances. As shown in figure 3, the CRAB’s rate of allocations has resulted in a 12- point decrease in the percentage of unobligated balances remaining at the end of the following year from fiscal years 2009 through 2013. Specifically, while DOJ’s unobligated balances have marginally increased, the CRAB has had more total budgetary resources available during the fiscal year and has obligated a larger portion of those resources. CRAB officials stated that they conduct analyses to determine how to allocate Three Percent Fund amounts in the following year, but they could not demonstrate how, if at all, increasing obligation rates may have an impact on the availability of funding in future years. Without analyzing trends in unobligated balances, it is difficult to determine if committing larger portions of budgetary resources is sustainable or has an impact on future-year funding.

In response, CRAB officials stated that the CRAB’s typical practice is to obligate only the amount that is carried forward from the previous year, and not to consider any amounts that may come into the Three Percent Fund in the following year. The agency does not conduct analyses of unobligated balances to, for example, help estimate future collections or determine future reserve needs. According to CRAB officials, they do not incorporate estimates for collection amounts from year to year because the CRAB does not have control over how much will be collected in the Three Percent Fund. Collections are determined from civil settlements and other judgments, and CRAB officials believe that soliciting information from litigating units to develop estimates may be viewed as inappropriate pressure on litigators. However, in the 5-year time period we examined, DOJ consistently collected at least $83 million annually, indicating stability in collections.

While we understand DOJ’s concerns about determining precise estimates, these concerns could be mitigated by developing strategies for projecting collections without a negative perception. For example, in lieu of projecting a specific dollar amount, CRAB could determine a range between the potential lowest and highest collection amounts based on historical trends and current collection activities.

Additionally, while CRAB officials identified a reserve to set aside for the following fiscal year, as shown in table 2, the Three Percent Fund’s unobligated balances at the end of the year have been notably higher than DOJ’s identified reserve in each fiscal year from 2009 through 2013. Specifically, in comparing the reserve that officials reported they needed and the unobligated balance, the amount carried over was consistently larger by a factor of at least two. Such a consistent difference between the unobligated balance and the reserve fund needed the following year may indicate that the Three Percent Fund could fund additional activities during the following year. For example, CRAB officials stated that several activities and initiatives either do not receive funding or receive a smaller portion of funding, including funding for more litigative term personnel for civil debt collection activities. Some of these activities, if funded, could result in more collections for the Three Percent Fund.

CRAB officials stated that DOJ has limited discretion for when amounts are received in the Three Percent Fund because many transactions result from judgments from courts and are not controlled by DOJ. As a result, CRAB officials stated that they could not commit more funding during the year because they do not know what amounts may come in the following year and generally make funding decisions only once during the year. If the CRAB has determined that no more funds can be committed in a fiscal year than it currently allocates, then the reported reserve needed in the Three Percent Fund may be too low and not accurately reflect the Three Percent Fund operational needs. However, if the CRAB is confident that the reported reserve for the following year is correct and the reserve is much lower than the beginning unobligated balances as reported in table 2, then the CRAB may be missing opportunities to fund additional activities.

GAO’s Key Questions to Consider When Evaluating Balances in Federal Accounts has emphasized the importance of regularly analyzing these balances by, for example, estimating and managing such balances—such as estimating collections and determining reserve needs—in order to effectively anticipate program needs and ensure the most efficient use of resources. The Key Questions also concluded that if an agency does not have a robust strategy in place for estimating and managing carryover balances, balances may either fall too low to efficiently manage operations or rise to unnecessarily high levels. While DOJ officials disagreed that they may allocate and obligate more because their practice is to allocate only what is in the fund at the beginning of the year, our analysis demonstrated that the Three Percent Fund’s beginning unobligated balances consistently outpace DOJ’s stated reserve needs. This is, in part, because DOJ does not consider estimates of collections in future years as part of its determination of reserve needs. DOJ’s current practice has resulted in increasing balances in the fund as it allocates a larger portion of its total budgetary resources. Without an analysis that includes projected collections, reserves that align with DOJ priorities and stated needs, and the impact of previous obligation rates on unobligated balances, it is difficult to determine the impact of committing funds on unobligated balances in the Three Percent Fund. By developing a policy for conducting regular analyses of unobligated balances by, for example, estimating future collections and determining future reserve needs, DOJ could better ensure it is able to efficiently fund as many programs as possible and best support the fund’s priorities.

DOJ Could Improve Transparency in Fingerprint Checks Fees and Determine Appropriate Size of Unobligated Balances

According to DOJ-provided data, in fiscal years 2009 through 2013, the FBI’s CJIS Division collected on average about $385 million per year in fingerprint checks fees. Of this, on average $154 million was for cost recovery and $231 million was for automation. CJIS determines fingerprint checks fees using three major elements: (1) estimates of the cost to provide the fingerprint checks services—this makes up the cost recovery portion; (2) depreciation of current infrastructure for fingerprint identification, such as the Integrated Automated Fingerprint Identification System, and other criminal justice information services systems—this makes up the automation portion; and (3) the expected volume of individual transactions.

Criminal Justice Information Services (CJIS) Fingerprint Checks Fees Purpose Fingerprint checks fees are paid by entities requesting a fingerprint check for individuals for non-criminal justice purposes. The fee is made up of two parts:

The cost recovery portion covers the cost of providing the service, which includes operational labor cost, support labor cost, and nonlabor costs such as printing, utilities, supplies and equipment.

The automation portion covers expenses for automation of fingerprint identification and criminal justice information services such as the Next Generation Identification, a system that offers biometric identification services. CJIS also uses automation fees for information- sharing technology and for operational support.

The two portions of the fee have different statutory requirements. The cost recovery portion of the fee is 1-year money that must be obligated in the same year it is collected to cover the cost of providing the service. The automation portion of the fee is no-year money that can be carried over from year to year. It is collected for the purpose of helping to defray the cost of any new automation initiative in the future. The law provides the FBI with broad authority to set the automation portion of the fee. According to CJIS officials, CJIS reviews the fingerprint checks fee every year. As shown in figure 4, according to data provided by CJIS, for fiscal years 2009 through 2013, about 40 percent of the total collected in fingerprint checks fees—about $770 million of about $1.93 billion—was from cost recovery collections to cover the costs of providing the service. The automation portion of the fingerprint checks fee composed the other 60 percent, or about $1.16 billion.

Starting in March 2012, the fee for an electronic fingerprint check was $14.50, of which $6.38 was cost recovery and $8.12 was automation. About 64 percent of the volume of fingerprint checks comes from other federal agencies with the remaining 33 percent coming from state, tribal, and local governments, and other entities that submit fingerprint checks.

Unobligated balances in the Crime Victims Fund have continued to grow and have impacted DOJ’s reporting of annual discretionary budget authority. From fiscal years 2009 through 2013, the CVF—which is funded by collections of criminal fines, forfeited bail bonds, penalties, and assessments—collected about $3.3 billion in budgetary resources and received additional deposits not available as a budgetary resource of $7.1 OJP obligated over $3.5 billion, totaling about $10.4 billion in deposits.billion of these funds. When including balances from fiscal years prior to 2009, the CVF had a temporarily unavailable balance—composed of funds received in excess of obligations made—of nearly $9 billion at the end of fiscal year 2013.

Crime Victims Fund (CVF) Administration The Office of Justice Programs (OJP) is the primary component within the Department of Justice (DOJ) responsible for managing DOJ grant programs, with the Office for Victims of Crime being the primary component within OJP that administers and manages CVF funding.

Crime Victims Fund (CVF) Purposes The Victims of Crime Act of 1984 (VOCA), as amended, establishes the CVF and authorizes the fund to be used for specific crime victims assistance purposes and provides formulas for the Department of Justice (DOJ) to allocate funding among those purposes. These include 1. up to $20 million for grants under the Children’s funding for victim assistance services at the U.S. Attorneys’ Offices, the Federal Bureau of Investigation, and for a victim notification system. programs such as $425 million for state-administered victim assistance grants and almost $160 million in state victim compensation grants.

Congress placed limitations on DOJ’s ability to use amounts in the CVF in excess of the annual obligation limits. Specifically, annual appropriations legislation prohibited DOJ from making obligations in excess of the obligation limitation, and as a result, DOJ could not obligate the excess funds during the course of the given fiscal year. For instance, CVF deposits totaled about $1.75 billion during fiscal year 2009. However, because federal law limited DOJ’s allowable CVF obligations to about $640 million that year, DOJ was unable to obligate over $1 billion of CVF deposits during the remaining fiscal year. Figure 5 shows the annual deposits and obligations in the CVF.

In fiscal years 2009 through 2013, annual CVF deposits exceeded the limit in allowable annual obligations. During this time period, funds not available for obligation by DOJ in this account have served as a credit or offset to DOJ’s total discretionary budget, as reported in DOJ’s budget submissions. Specifically, during the annual appropriations process, the CVF balance unavailable for obligation by DOJ during the year counts as a “savings.” Consistent with scorekeeping guidelines used during the congressional budget process, this savings resulted in DOJ reporting a lower level of net budget authority because the unavailable CVF balance For example, is applied as a credit to DOJ’s total discretionary budget.in fiscal year 2013,

DOJ received about $25 billion in enacted total discretionary budget authority according to DOJ’s congressional budget justification. DOJ obligated these funds to pay for the department’s programs and activities.

Balances primarily composed of CVF funds provided a credit of about $10 billion.account and were not spent.

These unavailable balances remained in the CVF

The credit from these balances lowered DOJ’s reported net discretionary budget authority to about $15 billion.

As a result, DOJ’s total discretionary budget authority provided in law of $25 billion was $10 billion higher than the reported net discretionary budget authority of $15 billion.

Since fiscal year 2009, the growing CVF unavailable balance has resulted in increasingly higher offsets to DOJ’s budget authority and has represented a higher percentage of DOJ’s total discretionary budget authority. For example, according to DOJ’s congressional budget justification, in fiscal year 2009, balances composed mostly of CVF funds created an offset of about $2.7 billion, or 10 percent of DOJ’s total discretionary budget authority. However, in fiscal year 2013, the $10 billion offset made up about 39 percent of DOJ’s total discretionary budget authority. For more details, see figure 6.

While the CVF funding has been subject to an obligation limitation each year, OJP officials responsible for managing the programs funded by the CVF have started to take some steps in determining how more of the CVF unavailable balance could be obligated in the future should the limit be increased. Specifically, OJP officials stated that victim assistance stakeholders such as state administrators of crime victims’ grants have told them that the current funding levels provided in law are not adequately addressing the needs of crime victims nationwide. However, OJP officials state that stakeholders have not been able to verify how much funding need exists nationwide, in part because of current restraints on administrative spending in VOCA that limit state administrators’ ability to monitor the effectiveness of grants or evaluate crime victim needs.

In response, OJP has taken steps to determine crime victim needs. For instance, in 2010, OJP developed an initiative called Vision 21, where the goals are to identify recommendations to help OJP adopt a systematic approach in addressing crime victim needs. This culminated in a report released in 2013 that contained recommendations for better addressing crime victim needs, including overcoming challenges related to constraints in CVF funding due to VOCA restrictions. In addition, in 2012, OJP entered into an interagency agreement with the U.S. Bureau of Justice Statistics to conduct a survey of victim assistance administrators and other stakeholders, the purpose of which includes validating crime victim needs nationwide. OJP officials stated that the results of the survey will help determine and validate funding needs and help OJP provide empirically driven policy options to address such needs. OJP officials responsible for CVF funding stated that the results from the survey may be obtained as late as 2016.

Conclusions

The seven major sources of DOJ’s alternative funding bring in more than $3 billion annually. This represents a significant portion of DOJ’s budgetary resources. For example, in fiscal year 2013, 15 percent of DOJ’s total budgetary resources came from alternative sources of funding. DOJ used these resources to support several programs, including funding for victims compensation and assistance, and generally help DOJ fulfill its law enforcement and criminal and civil litigation missions. DOJ’s annual use of billions of dollars from these funds highlights the importance of ensuring program needs are met and resources are used effectively.

In some cases, DOJ brings in significantly more in collections than it obligates, underscoring the importance of properly managing these funds. By developing a policy to analyze unobligated balances from the Three Percent Fund, DOJ could better manage balances to ensure efficient and effective use of resources to support program activities. In addition, CJIS is missing opportunities for meaningful feedback that could affect the outcome of changes in fees and program implementation by not transparently communicating with stakeholders and customers the breakout of cost recovery and automation fees. Finally, by developing a policy to estimate the extent to which carryover balances from CJIS’s fingerprint automation pool of money are appropriate and implementing that policy, CJIS could better ensure that its automation fees are set at a level to avoid excessive revenues.

Recommendations for Executive Action

To help ensure the efficient use of resources for the Three Percent Fund, we recommend that the Attorney General develop a policy and implement procedures to regularly analyze unobligated balances and develop collection estimates in order to determine an appropriate reserve amount and inform estimates of future funding needs.

To improve transparency and ensure the effective use of automation fees for the CJIS fingerprint checks fees, we recommend that the Director of the Federal Bureau of Investigation take the following actions:

Publish in the Federal Register, or other documents such as annual reports, how much is assessed for automation and cost recovery in each transaction to better communicate the cost of the service to customers and stakeholders.

Develop a policy to analyze the unobligated balances coming from the automation portion of the fee to inform program needs, including improving methods for anticipating automation collections, and establishing a range of appropriate carryover amounts to support program needs.

Agency Comments and Our Evaluation

We provided a draft of this report to DOJ for review and comment. We received written comments from DOJ, which are reproduced in full in appendix IV. DOJ also provided technical comments on this report that we incorporated as appropriate.

Our first recommendation directed the Attorney General to develop a policy and implement procedures to regularly analyze unobligated balances and develop collection estimates for the Three Percent Fund in order to determine an appropriate reserve amount. DOJ agreed that it could improve how it estimates the amount of reserve funds needed for the next fiscal year. DOJ stated it is going to adjust the current methodology for improving reserve estimates by, for example, including additional costs such as one quarter of the previous year’s administrative and professional contract costs.

DOJ also provided various reasons why it does not query or calculate revenue estimates. For example, DOJ does not query litigating components for the number of cases that will be settled because the agency does not want to be perceived as inappropriately encouraging larger government civil collections. Additionally, DOJ does not calculate such estimates due to the high level of variability in the civil debt litigation cases that make it difficult to use historical information to estimate reserves. The report recognizes these concerns. Specifically, on page 20, we acknowledge DOJ’s concern about soliciting information from its litigating units. However, we believe that DOJ could develop an estimated range of potential collections based on historical trends and current collection activities. Estimates are not expected to be perfect predictions of the future; however, analyzing historical data can help the agency to identify patterns and anomalies and to understand the magnitude of significant events.

DOJ concurred with our second recommendation and agreed to break out the automation and cost recovery portions of the CJIS fingerprint checks fees more explicitly in the future. DOJ stated it believed the FBI had been transparent with its stakeholders and that this recommendation is consistent with current business practices.

DOJ concurred with our third recommendation, which called for the FBI to develop a policy to analyze the unobligated balances coming from the automation portion of the CJIS fingerprint checks fees and establish a range of appropriate carryover amounts to support program needs. Specifically, DOJ stated it would analyze the balances coming from the automation portion of the fee. DOJ also noted that it does not believe that establishing a range of carryover balances would enhance the current financial business practices of the CJIS fund. We believe the FBI would benefit from assessing what an appropriate range should be to ensure the funds will be available for agreed upon future investments.

In its comments, DOJ also referred to the report’s discussion on the CVF and its associated scorekeeping rules. In particular, DOJ noted that the department reports both net budget authority and total discretionary budget authority. We agree that both numbers can be found in the annual budget materials, appropriately labeled, and we included both in our report on pages 34-35.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send 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 contributions to this reported are listed in appendix V.

Appendix I: Department of Justice (DOJ) Alternative Sources of Funding in Fiscal Year 2013

In fiscal year 2013, according to DOJ-provided data, the department collected approximately $4.9 billion through 21 “alternative sources of funding,” which, for the purposes of this report, refers to collections by DOJ and other agencies that are available to DOJ to obligate and expend. Specifically, DOJ collections for these 21 sources of funding ranged from 0 to about $1.9 billion in fiscal year 2013. For the seven major alternative sources of funding, we used information from DOJ’s annual financial statements in its corresponding performance and accountability reports or agency financial reports. For the remaining 14 alternative sources of funding, which are otherwise not included in this report, we relied primarily on DOJ-reported information from its financial information systems (See app. II for more information on our scope and methodology). Table 3 describes each of the 21 alternative funding sources, as well as total collections and funding availability in fiscal year 2013.

Appendix II: Objectives, Scope, and Methodology

To address the first question, we identified various alternative sources of funding across the Department of Justice (DOJ) accounts or programs by interviewing DOJ officials knowledgeable about the DOJ budget and reviewing various budget documents. We identified 21 accounts or programs that received “alternative sources of funding,” which, for the purposes of this report, refers to collections by DOJ and other agencies that are available to DOJ to obligate and expend. We narrowed our review to seven alternative sources of funding using the following decision criteria: Collections must be at or above $100 million annually in order to focus on the alternative sources bringing in the most money to DOJ, the funds must be managed primarily by DOJ, and the funds must We excluded alternative sources that not be entitlements or trust funds.funded entitlement programs from our review because entitlement authorities are controlled by statute, and DOJ does not have authority to determine eligibility requirements or the amounts provided to recipients.

Further, we excluded alternative sources of funding that are deposited into trust funds—such as the Federal Prison Commissary Fund—because trust funds generally do not impose a fiduciary responsibility on the government. The scope of our review covered funding from fiscal years 2009 through 2013 so that we could include enough years to identify any recent trends in collections, obligations, and unobligated balances. To report the financial information such as collections and obligations related to alternative sources of funding for the 5 years, we analyzed DOJ annual financial statements in its corresponding performance and accountability reports or agency financial report and data provided by DOJ. We compared the amounts in the selected seven alternative sources of funding against DOJ’s statement of budgetary resources using DOJ’s audited information reported in its annual financial statements. For six of the seven alternative sources of funding—the Assets Forfeiture Fund, the Crime Victims Fund, the Diversion Control Fee Account, the Federal Prison Industries, the Three Percent Fund, and the United States Trustee System Fund—we determined that the data on the amounts reported for the years under review DOJ-wide were sufficiently reliable for determining how much of DOJ’s budgetary resources come from these alternative sources of funding. We also determined that for fiscal year 2013, the fingerprint-based Criminal History Record Information checks provided by the Federal Bureau of Investigation (FBI) Criminal Justice Information Services (CJIS) Division (CJIS fingerprint checks fees) were also reliable for our purposes. However, the amounts for fiscal years 2009 through 2012 for the CJIS fingerprint checks fees were provided by DOJ sources and could not be reconciled to the audited financial statements. See the section on DOJ’s total budgetary resources regarding data limitations. To report on DOJ’s flexibility in using alternative sources of funding for DOJ activities, we identified key statutory characteristics that increase or decrease agency flexibility with respect to these funds by reviewing principles of appropriations law and our prior work.statutory language and identified legal requirements applicable to the seven funds in the scope of this objective for each of these key areas: (1) purpose—for what purposes the funds may be obligated, (2) amount— how available amounts are determined and what action triggers the availability of funding, (3) time—what is the period of availability for the funding, and (4) review—what specific reporting requirements apply to the funding. We also interviewed agency officials about the alternative sources of funding to understand their interpretation of the laws.

See GAO, Justice Assets Forfeiture Fund: Transparency of Balances and Controls over Equitable Sharing Should Be Improved, GAO-12-736 (Washington, D.C.: July 12, 2012), and Department of Justice: Working Capital Fund Adheres to Some Key Operating Principles but Could Better Measure Performance and Communicate with Customers, GAO-12-289 (Washington, D.C.: Jan. 20, 2012). guide for federal user fees and (2) our past work identifying fee design options for managing carryover balances in fee accounts. To determine financial activity for the CVF, we compared both reconciled financial information and separate DOJ-provided information on receipts. To report on the impact of unavailable balances from the CVF and the AFF to the department’s annual discretionary budget authority, we used reported information from the President’s Budget for DOJ’s total discretionary budget authority and the scorekeeping credit from the three sources (the Crime Victims Fund, the Assets Forfeiture Fund, and the Working Capital Fund). We used information from the President’s Budget instead of the audited financial information reported in the previous objective because credits provided to DOJ’s discretionary budget authority were not recorded in DOJ’s audited statements. Moreover, the President’s Budget was used by decision makers for determining DOJ’s annual discretionary budget authority.

To list the collections for all 21 sources in fiscal year 2013 as shown in appendix I, we relied primarily on DOJ-reported data for the 14 sources that otherwise were not included in this report. We asked DOJ about the reliability of the data for these 14 sources and determined that the data were sufficiently reliable to convey a description of each funding source and the general magnitude of funding source collections and obligations. In addition, for the 7 major alternative sources of funding in appendix III, we relied primarily on DOJ’s statements of budgetary resources from fiscal years 2009 through 2013. However, in a few instances, we provided additional details that were obtained from other sources. Those sources are discussed, when appropriate, in the particular section of the appendix.

We conducted this performance audit from September 2013 through February 2015 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 that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix III: Information on the Seven Selected Alternative Sources of Funding

This appendix describes background information, funding characteristics, budgetary information, and legal requirements for the seven accounts within the Department of Justice (DOJ) receiving major alternative sources of funding:

Assets Forfeiture Fund;

Crime Victims Fund;

Criminal Justice Information Services fees;

Diversion Control Fee Account;

Federal Prison Industries, Inc.;

Three Percent Fund; and

United States Trustee System Fund.

Assets Forfeiture Fund

Background

Every year, federal, state, and local law enforcement agencies seize millions of dollars in assets that are forfeited through the DOJ Asset Forfeiture Program (AFP). Forfeited assets can include, but are not limited to, businesses, cash, bank accounts, automobiles, boats, airplanes, jewelry, art objects, and real estate.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) to receive the millions of dollars in assets that are forfeited through the AFP.

Legal Requirements

Funds are available for program-related expenses, including payments to victims and lien holders and the costs of storing and maintaining forfeited assets, and certain law enforcement activities, such as the payment of overtime salaries, travel, fuel, among other things, for state and local law enforcement officers when they participate in a joint operation with federal law enforcement agencies participating in the fund. After the AFF sets aside enough to ensure amounts are available in subsequent fiscal years for the specified purposes, it can use the excess generated by that fiscal year’s operations for other purposes. This excess is called the excess unobligated balance. Subject to certain notification procedures to Congress, any excess unobligated balance remaining in the AFF is available to DOJ “for any federal law enforcement, litigative/prosecutive, and correctional activities, or any other authorized purpose of .”

Funding Characteristics

The AFF is financed primarily through the forfeiture of assets that were seized as a result of criminal activity. From fiscal years 2009 through 2013, collections in the AFF totaled about $10.5 billion, which does not include amounts deposited in the AFF and then made unavailable pursuant to law. At the end of fiscal year 2013, about $792 million was temporarily unavailable because of annual enacted temporary rescissions.

From fiscal years 2009 through 2013, obligations from the AFF totaled about $10.6 billion. Obligations made from the AFF cover three major categories: (1) payments to third parties, including payments to satisfy interested parties such as lien holders of forfeited properties, 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 participate in law enforcement efforts resulting in the forfeitures; and (3) all other program operations expenses that include expenditure categories such as asset management and disposal, the storage and destruction of drugs, and investigative expenses leading to a seizure. According to DOJ data, of the funds obligated during this time period, about 44 percent went for payments to third parties, about 26 percent went to equitable sharing, and about 30 percent covered all other program operation expenses.

Trends in Annual Collections, Obligations, and Unobligated Balances From fiscal years 2009 through 2013, obligations have generally tracked closely with collections. Generally, AFF collections have been increasing, with a large spike in fiscal year 2012, and a corresponding spike in obligations, attributable to a $2.2 billion deposit into the AFF related to the Bernard Madoff financial fraud case. End-of-year unobligated balances were over $1 billion for fiscal years 2009 through 2011 and then dropped to about $762 million in fiscal year 2012 and $887 million in fiscal year 2013. As we previously reported, DOJ carries forward unobligated balances in order to ensure solvency, equitable sharing, and third-party payments in the following fiscal year.

Figure 7 shows AFF collections, obligations, and unobligated balances for fiscal years 2009 through 2013.

Crime Victims Fund

Background

The Crime Victims Fund (CVF) was established by the Victims of Crime Act of 1984 (VOCA) to provide assistance and grants for victim services throughout the United States. It is managed by the Office for Victims of Crime (OVC) within the Office of Justice Programs (OJP). The CVF supports several state and federal crime victim assistance–related grants and activities. The VOCA outlines these activities and prescribes specific funding limitations and requirements.

Legal Requirements

Funding from the CVF is allocated for specific purposes outlined in statute: 1. Based on amounts collected, up to $20 million is available to fund programs authorized under the Children’s Justice Act, as amended. Up to $17 million is transferred to the Department of Health and Human Services to administer state grants, while OVC administers up to $3 million to support similar grants benefiting Native American tribal lands. Programs include funding activities to revise tribal codes to address child sexual abuse, providing child advocacy services for children in court proceedings, and developing procedures for reporting, investigating, and prosecuting child abuse cases, among others. 2. Funds required for managing victim assistance programs in the Federal Bureau of Investigation (FBI) and Executive Office for U.S. Attorneys (EOUSA) to improve crime victims services, and for amounts to run the Federal Victim Notification System. The notification system provides victims of crimes computer automated services on the investigative, prosecutorial, and corrections aspects of related cases. It is run by EOUSA, the Federal Bureau of Prisons, and the FBI.

After these activities have been funded, the remaining CVF funding is to be determined as follows. 3. A 47.5 percent share of funds is available for a grant program for states to provide crime victim compensation. The law provides that CVF is available for up to a 60 percent match of what the state provided in compensation. Any remaining funding set aside for victims compensation up to the 47.5 percent may be used to support victim assistance grants. Compensation grants reimburse victims for out-of- pocket expenses such as medical and mental health counseling, lost wages, and funeral and burials costs. 4. Another 47.5 percent is available for a grant program for states to provide victim assistance. Grants are provided to states to administer to domestic violence shelters, rape crisis centers, and child abuse programs, among other advocacy groups that support comprehensive services to victims. 5. Last, 5 percent is available to fund discretionary grant programs to support federal crime victim assistance program evaluation, compliance efforts, and training and technical assistance services, among other things, including services for victims of federal crime. At least half of these funds must be allocated for specified activities, including training, technical assistance, and demonstration or evaluation projects, and improving outreach and services.

In addition to these amounts, DOJ is authorized to maintain a reserve of $50 million for the Antiterrorism Emergency Reserve Fund. These funds are available for grants to states and other entities that provide assistance to victims of crime to provide emergency relief—including crisis response efforts, assistance, and training—to victims of terrorist acts or mass violence occurring outside the United States, as well as for carrying out a program to compensate victims of international terrorism occurring outside the United States. This reserve can be replenished annually.

While VOCA authorizes funds collected in the CVF to be available until expended, annual appropriations acts have included obligation limitations. See table 4 for annual obligation limitations from fiscal years 2009 through 2013.

The CVF is financed primarily by the federal courts, U.S. Attorneys’ Offices, and Federal Bureau of Prisons collections of fines, penalty assessments, and bond forfeitures collected from convicted federal offenders. From fiscal years 2009 through 2013, deposits in the CVF totaled about $10.4 billion.fines are small amounts for bail forfeitures or other criminal fines, larger While DOJ officials stated that most of these amounts have contributed to rising collection amounts. For instance, in fiscal year 2010, the largest single deposit into the CVF was over $1 billion and made up about half of the total deposits during the fiscal year.

From fiscal years 2009 through 2013, DOJ obligated over $3.5 billion in CVF funding. According to DOJ data, the majority of CVF funding was allocated for state grants to victims of crimes assistance and compensation. Specifically, DOJ data show that over $2.9 billion, or over 80 percent of all obligations, was allocated through victim assistance and compensation grant programs. See figure 8 for a breakout of CVF obligations by category.

Trends in Annual Collections, Obligations, and Unavailable Balances As discussed previously in the report, from fiscal years 2009 through 2013, the CVF received deposits of about $10.4 billion in total. Annual deposits varied from year to year, the lowest total occurring in fiscal year 2013 at about $1.5 billion. Fiscal year 2012 marked the year with the largest CVF deposit amount, totaling almost $2.8 billion. Figure 9 illustrates annual deposit totals.

As noted above, annual appropriation acts have included obligations limitations for CVF funds. In accordance with the limits placed on the fund, DOJ obligations have steadily increased from fiscal years 2009 through 2013. DOJ obligations from CVF funding were around $637 million in fiscal years 2009. In 2013, obligations increased by nearly $100 million to $736 million.

As discussed in our report, unavailable balances in the CVF have increased steadily in each year, as deposits into the CVF outpace obligations. CVF balances increased from just over $3 billion in 2009 to about $9 billion in 2013.result of deposits in excess of obligation limits on the fund.

Criminal Justice Information Services Fees

Background

Within the Federal Bureau of Investigation (FBI), the Criminal Justice Information Services Division (CJIS) provides criminal justice information services to state, tribal, federal, local law enforcement, authorized noncriminal justice entities, and intelligence community partners. CJIS also collects fees from authorized users requesting fingerprint-based Criminal History Record Information (CHRI) checks for noncriminal justice purposes. The FBI has collected user fees for fingerprint checks since 1982.

Legal Requirements

The FBI is authorized to establish and collect fees for providing fingerprint-based CHRI checks and other identification services submitted by authorized users for noncriminal justice purposes, including employment and licensing. The FBI may set such fees at a level to include an amount to establish a fund to defray expenses for the automation of fingerprint identification and criminal justice information services and associated costs.

Funding Characteristics

To report collection, obligation, and unobligated balance amounts for the CJIS fingerprint checks fees for fiscal years 2009 through 2013, we requested and received data provided by the FBI. In order to determine that the data were reliable, we requested that the FBI reconcile these amounts with the FBI’s audited statement of budgetary resources (SBR). FBI officials provided updated amounts for fiscal year 2013 based on their reconciliation to the FBI’s SBR; however, officials were unable to demonstrate that they could reconcile amounts for fiscal years 2009 through 2012. Accordingly, in table 5, we are providing the numbers that were given to us by the FBI for fiscal years 2009 through 2012 but we cannot determine if the numbers are reliable. The numbers reported for fiscal year 2013, as seen in table 6, were reconciled to the audited SBR.

Diversion Control Fee Account Background

The Drug Enforcement Administration (DEA) is the primary agency for enforcing the provisions of the Controlled Substances Act that pertain to the diversion of controlled pharmaceuticals, such as narcotics, stimulants, depressants, and regulated chemicals such as ephedrine. DEA’s Office of Diversion Control oversees the Diversion Control Program (DCP), and carries out the mandates of the Controlled Substances Act by preventing the diversion of controlled substances and listed chemicals into the illicit market while ensuring a sufficient supply of the substances and chemicals for legitimate medical, scientific, research, and industrial purposes. The DCP is funded through registration fees that manufacturers, distributors, dispensers (such as physicians), importers, and exporters of controlled substances and certain regulated chemicals pay into an account called the Diversion Control Fee Account (DCFA).

Legal Requirements

The purposes of the funds deposited in the DCFA are for the operation of the DCP. Federal law directs DEA to set the fees at a level that ensures the recovery of the full costs of operating the various aspects of the program. Collections over $15 million are to be deposited in the DCFA, which means that the first $15 million goes to the Treasury and the rest of the fees are available to DEA. Fees charged are periodically refunded by the Treasury to DEA to reimburse expenses incurred in the DCP, in accordance with estimates made in DEA’s budget request. Changes in the amounts designated in the budget requests can be made only after notification to the Appropriations Committees, 15 days in advance.

The DCFA fee schedule is contained in regulations that DEA issues, and when amending the fee amounts, DEA issues a notice of proposed rulemaking describing the process for determining the fee amounts and then issues a final rule setting the fees. DEA’s most recent rule was issued in 2012.

Funding Characteristics

The DCP is fully funded by fees relating to the registration and control of the manufacture, distribution, dispensing, import, and export of controlled substances and listed chemicals. Fees vary based on the registrant class (e.g., researcher, practitioner, distributor, manufacturer, etc.) and range from $244 annually for a researcher, for example, to $3,047 annually for a manufacturer of chemical and controlled substances.2009 through 2013, DEA collected a total of about $1.39 billion in fees.

From fiscal years 2009 through 2013, DEA obligated a total of about $1.37 billion. According to DOJ data, about 58 percent of obligations were for personnel costs of salaries and benefits, and the other 42 percent covered nonpersonnel costs such as rent, equipment, operations and maintenance of equipment, and purchase of goods and services.

Trends in Annual Collections, Obligations, and Unobligated Balances As can be seen in figure 10, collections have been slightly increasing over time. For example, in fiscal year 2009, DEA collected about $235 million in fees and in fiscal year 2013, collected about $328 million in fees. Likewise, obligations have also increased slightly over time. Generally, unobligated balances have remained relatively stable and averaged about $67 million a year. The highest unobligated balance was at the end of fiscal year 2009, at about $88 million, and the lowest was at the end of fiscal year 2011, at about $42 million. DEA maintains an unobligated balance, called the operational continuity fund, in order to avoid operational disruptions throughout the year that might occur because of fluctuations in collections and obligations. Figure 10 shows collections, obligations, and unobligated balances for fiscal years 2009 through 2013.

Federal Prison Industries, Inc. (FPI)

Background

FPI, managed by the Federal Bureau of Prisons (BOP) and governed by a presidentially appointed Board of Directors, is a wholly owned FPI’s mission is government corporation created by federal law in 1934.to protect society and reduce crime by preparing inmates in federal penal and correctional institutions and disciplinary barracks for successful reentry into society through job training. Specifically, FPI provides inmates employment and job skills through the production of market- priced high-quality goods, such as furniture, clothing, electronics, and vehicular and metal products, and through services such as printing, data processing, call centers, and laundry. FPI’s factories are operated by civilian supervisors and managers responsible for training and overseeing the work of inmates.

Federal law generally requires agencies to purchase products from FPI. According to FPI, it was designed to be a “mandatory source” of federal supply for the products it manufactures to help ensure a steady work flow and partially offset some of the competitive disadvantages associated with operating in a correctional environment, such as lower productivity levels. In fiscal year 2013, FPI products were organized into five business sectors: clothing and textiles, electronics, (which includes fleet management and vehicular products), office furniture, recycling, and As of September 30, 2013, FPI had industrial and service services.operations at 78 factories located at 62 prison facilities, and employed about 13,000 inmates.

Legal Requirements

See 18 U.S.C. § 4124 and 48 C.F.R. §§ 8.601-08. administrative costs, including salaries for management personnel, travel expenses, and supplies. FPI funds are generally available until expended without further action from Congress. That is, FPI has the authority to carry over balances from 1 fiscal year to the next.

Funding Characteristics

FPI is fully funded by and operated as a revolving fund—that is, it charges for the sale of products or services and uses the proceeds to finance its spending, usually on a self-sustaining basis—and does not receive an annual appropriation.

The majority of FPI’s funding is derived from the sale of products and services to other federal departments, agencies, and bureaus, and FPI’s sales revenue has declined from fiscal years 2009 through 2013. In addition to sales revenue, FPI received income from the interest earned by investing its carryover balances. In fiscal year 2013, three of FPI’s five business sectors—clothing and textiles, electronics, and office furniture— reported a decline in sales revenue compared with fiscal year 2009 revenue.

Sales revenue from FPI’s activities is obligated to defray all operating costs, including the purchase of raw materials and equipment, staff salaries and benefits, and inmate wages, among other things. For example, factories utilize raw materials and parts purchased from the private sector to produce finished goods, such as office furniture.

Trends in Annual Collections, Obligations, and Carryover From fiscal years 2009 through 2013, FPI’s total proceeds of sales and operation costs decreased each year, and these operating costs have generally decreased at a faster rate than its sales revenues declined. Because FPI’s operating costs have declined at a greater rate than its sales revenues have declined, FPI’s unobligated balance has increased during this time period. Specifically, at the end of fiscal year 2013, FPI’s unobligated balance had increased by more than $139 million compared with its end-of-year balance in fiscal year 2009. According to FPI’s annual financial statements, a decline in overall federal spending, coupled with declining interest rates, has negatively affected FPI’s sources of funding. In addition, the passage of legislation that affected FPI’s designation as a mandatory source of federal supply for the products it manufactures contributed to declines in sales during this time period. For example, before purchasing an item from FPI, agencies are generally required to conduct market research to determine whether the item is comparable to items available from the private sector that best meet the government’s price, quality, and time-of-delivery specifications.FPI’s sales revenues and obligations have generally decreased, while unobligated balances have increased during this time period.

Three Percent Fund

Background

The DOJ Three Percent Fund is an account composed of 3 percent of amounts collected “pursuant to civil debt collection litigation activities.” According to DOJ officials, civil debt litigation activities may include activities such as bringing civil cases to court or conducting administrative activities such as tracking unpaid debts and issuing notices for payments due. Civil debt does not include criminal fines and penalties or forfeiture of properties and assets. Eligible transactions from the payor to the government are assessed a 3 percent fee, which is used to offset costs for DOJ to manage the collection and distribution of funds to federal agencies awarded the civil judgment as well as civil and criminal litigation activities conducted by the department.

Civil debt transactions provided to the Three Percent Fund are managed by the DOJ Justice Management Division Debt Collection Management Staff (DCM). DCM provides the operational, policy, and client support services—including training and reporting—to facilitate the collection of debts owed to the United States government. DCM manages the computer systems used to manage transactions and collections retained in the Three Percent Fund.

DOJ annually disburses Three Percent Fund collections to DOJ components that conduct activities related to civil and criminal debt collections—which, according to DOJ, also include investigatory, litigation, and administrative activities related to obtaining these debts— based on eligibility of costs and DOJ priorities. DOJ established the Collection Resources Allocation Board (CRAB) to review components’ requests for funds based on intended uses, awarding funds to the components to offset costs for activities covered in the requests for funding for the year. Funds are offsetting collections that reduce the costs for conducting these activities, which otherwise do not obtain funding or are funded through other appropriations provided to the DOJ component conducting the activities.

Legal Requirements

Three Percent Fund collections are no-year funds available for paying the costs of processing and tracking civil and criminal debt collection litigation and, thereafter, for financial systems and for debt collection–related personnel, administrative, and litigation expenses. The CRAB is responsible for determining the activities that receive agency funding. Any amounts unobligated at the end of the fiscal year are retained as an unobligated balance in the Three Percent Fund. They are available the following year to DOJ to obligate and expend.

Funding Characteristics

Three Percent Fund collections are received from payors that owe debts resulting from civil settlements, judgments, or referred debt to DOJ.

From fiscal years 2009 through 2013, Three Percent Fund collections totaled more than $623 million. According to DCM officials, debt collections are from private individuals as well as from businesses. DCM officials stated that while most collections are from small debts, single transactions for larger civil debts may provide several million dollars to the fund. For instance, according to information provided by DCM, in 2013, there were over 15,000 separate transactions of funds in the Three Percent Fund. According to these transactional data, fewer than 30 transactions provided collections of $1 million or more. The largest transaction resulted in a deposit of over $22 million to the Three Percent Fund.

The CRAB awards Three Percent funds based on priorities established by the board. According to DOJ officials responsible for the fund, amounts are provided using the following broader priorities: 1. Costs to manage debt collection activities, including full funding for DCM costs and the computer system infrastructure to manage transfers of funds from payors to the various federal agencies receiving civil collections. 2. Debt collection activities such as tracking debtors’ funds, training for properly conducting debt collections and understanding the resources available to federal agencies for obtaining debts, and conducting administrative activities such as sending demand letters to debtors. 3. Costs of conducting civil litigation and investigation where collections are presumed to be obtained. This includes both referred debt where the debt has already been established, and affirmative civil litigation where the debt has not yet been established in court. Such activities include personnel, court costs, and administrative activities that support such litigation. 4. Costs of conducting criminal litigation or investigation where collections are presumed to be obtained from the defendant. Such activities include personnel and administrative activities that support such litigation.

From 2009 through 2013, seven DOJ components have received Three Percent Fund allocations, in addition to DCM being fully funded. Of the total $600 million allocated during that time, about 33 percent—about $200 million—was to the Executive Office for U.S. Attorneys (EOUSA). About 26 percent—over $150 million—was awarded to the Civil Division. Officials responsible for awarding amounts from the Three Percent Fund said that this reflects the prioritization process as the U.S. Attorneys conduct most of the litigation activities for DOJ, and the Civil Division is the component within DOJ that specializes in larger, more complex civil litigation activities. See figure 12 for a breakout of amounts in the Three Percent Fund by the receiving component within DOJ.

Trends in Collections, Obligations, and Unobligated Balances From fiscal years 2009 through 2013, both collections and obligations in the Three Percent Fund generally increased at similar rates, while unobligated balances fluctuated but generally increased during the 5-year period. Specifically, collections increased from $83 million in fiscal year 2009 to $158 million in fiscal year 2013—an increase of about 90 percent over the 5-year period.fiscal year 2009 to about $158 million in fiscal year 2013—an increase of about 88 percent. Over the 5-year period, unobligated balances increased from about $136 million to $161 million. See figure 13 for collections, obligations, and end-of-year unobligated balances from fiscal years 2009 through 2013.

United States Trustee System Fund

Background

The U.S. Trustee Program’s (USTP) mission is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders—debtors, creditors, and the public. The USTP investigates and civilly prosecutes bankruptcy fraud and abuse; refers suspected criminal activity to the U.S. Attorney and other law enforcement partners; monitors and takes action to address the conduct of debtors, creditors, attorneys, credit counselors, and others; oversees private trustees; and ensures compliance with applicable laws and regulations in all bankruptcy cases, from individual consumer filings to large corporate reorganizations. In fiscal year 2013, the USTP oversaw the administration of more than 1 million bankruptcy cases filed by both individual and business debtors in federal judicial districts. The USTP is primarily funded through fees paid by bankruptcy debtors that are deposited into the United States Trustee System Fund (USTSF). According to USTP annual budget justifications, the total number of bankruptcy cases filings increased from fiscal year 2009 to 2010, and has steadily decreased from fiscal years 2010 through 2013. In fiscal year 2013, chapter 7 case filings constituted 69 percent of total bankruptcy cases filed, compared with 30 percent of chapter 13 cases, and 1 percent or less of chapter 11 and chapter 12 filings.

Legal Requirements

The USTP may obligate deposits in the USTSF for specified program- related expenses, such as salaries and benefits, as specified in annual appropriation acts. While amounts deposited in the USTSF remain in the fund until expended, they are not available to the USTP until appropriated. detailed report on the amounts deposited in the USTSF and a description of related expenditures to Congress 120 days after the end of each fiscal year.

The USTP may also invest funds not currently needed for program purposes. 28 U.S.C. § 589a(c).

Funding Characteristics

USTP receives and deposits into the USTSF fees collected generally from four sources: (1) a portion of the filing fee in every bankruptcy case paid at the beginning of each case for chapters 7, 11, 12, and 13, (2) chapter 11 quarterly fees, (3) excess percentage fees collected by chapter 12 or chapter 13 standing trustees, and (4) interest on invested funds. According to USTP data, from fiscal years 2009 through 2013, chapter 11 quarterly fees accounted for about $692 million, or about 57 percent of total fees deposited in the USTSF. In comparison, bankruptcy filing and conversion fees accounted for about $515 million, or about 42 percent of total USTSF fees deposited.

During this time period, the majority of the USTP’s obligations were related to personnel costs. According to USTP data, in fiscal year 2013, personnel pay and benefits accounted for 74 percent of the USTP’s obligations, and rental payments for USTP office space accounted for 13 percent of obligations. According to the USTP, it allocates funding for personnel according to hours used by USTP staff performing bankruptcy enforcement and case administration activities, as well as resources directly related to the performance of these activities.

Trends in Collections, Obligations, and Unobligated Balances USTSF collections and obligations from fiscal years 2009 through 2013 were relatively stable. Specifically, collections totals ranged from $217 million to about $223 million. During the same time, obligations ranged from about $214 million to about $226 million. The smallest collection and obligation totals were both in fiscal year 2013. The end-of-year unobligated balances from fiscal years 2009 through 2013 were also relatively stable, ranging from about $500,000 to about $8.6 million. According to USTP officials, the USTP uses the unobligated balance to meet its obligations to fund the program’s continuing operations.

Appendix IV: Comments from the Department of Justice

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Dawn Locke (Assistant Director), Valerie P. Kasindi and Jeremy P. Manion (Analysts-in-Charge), Thomas Beall, Dean D. Carpenter, Wendy Dye, Cynthia Grant, Eric Hauswirth, Felicia Lopez, Alicia Loucks, Cory A. Mazer, Leah Q. Nash, Jessica S. Orr, Amanda J. Postiglione, and Janet Temko-Blinder made key contributions to this report.