To accomplish our objectives, we reviewed Customs’ accountability reports, including its audited financial statements, for fiscal years 1997 through 2000, and analyzed its CFP receivables and the related allowance for uncollectible accounts, as well as other financial information for the 4- year period. We also obtained an understanding of Customs’ CFP debt collection policies and procedures and of applicable federal rules and regulations. We nonstatistically selected 17 CFP claims from a list of fines and penalty receivables outstanding as of September 30, 1999, at the San Francisco Fines, Penalties, and Forfeitures (FP&F) Office. Our purpose in selecting these claims was to perform a walk-through to confirm our understanding of Customs’ processes for managing and collecting CFP debt. We selected the 17 claims on the basis of several factors, including high dollar value and unpaid CFP receivable balances as of September 30, 1999. From Customs’ Seized Asset and Case Tracking System (SEACATS), we obtained a list of all 7,184 Customs CFP claims still outstanding (open) as of September 30, 82,273 and 95,441 CFP claims during fiscal years 1999 and 2000, respectively, for which cases were canceled or the collection activity was terminated because amounts were paid in full or written off (closed). These 184,898 claims had a total value of approximately $7 billion. We sorted the population of CFP claims into four groups: Group 1 included 2,469 CFP claims for which Customs stopped collection activities during fiscal years 1999 and 2000 and wrote off the receivable amounts totaling approximately $41 million. In addition, we included in group 1 the 173 CFP claims, totaling approximately $28 million, that were written off during fiscal year 1998, since this was the largest amount written off from fiscal year 1997 through fiscal year 2000. From these 2,642 CFP claims, we selected all claims involving write-offs of receivable amounts greater than $1 million. The receivable total for the 8 selected claims in this group equaled about $47 million, or just over two-thirds of the $68 million written off during the 3-year period. We used these 8 claims to test various attributes of Customs’ processes for collecting CFP claims at each of the applicable FP&F offices. Group 2 consisted of 32,675 CFP claims for which Customs represented that collection actions were not necessary or appropriate and had not been performed. According to Customs’ records, these claims, totaling about $4 billion, or 57 percent of the total dollar value of the entire population, involved cases in which (1) Customs decided that the alleged violation did not occur, (2) there was insufficient probable cause to support an alleged violation, (3) substantial mitigating factors caused Customs to decide to remit (forgive) the penalty in full without payment of any mitigated amount, or (4) system input errors occurred, typically resulting in cancellation of the original case and its replacement with a new case. We statistically selected 36 claims from group 2 to confirm that Customs had not performed any collection actions for the reasons noted above. We did not include any of the claims from this group in our population to be selected for testing, since no collection actions were taken and the claims were therefore outside the scope of our audit. Group 3 consisted of 2,052 CFP claims involving various violation codes for which amounts were partially collected or the claims were closed without payment. These claims totaled about $36 million, or less than 1 percent of the total dollar value of the entire population. We did not review the claims in this group because their average dollar amount was about $18,000 and their total dollar amount was deemed immaterial. Group 4 consisted of the remaining 147,702 CFP claims, with a total receivable amount of approximately $3 billion, for which Customs performed collection activities, made collections, and either closed the claims as paid in full or the unpaid amounts were still outstanding as of September 30, 2000. We sorted the population of CFP claims in this group into and performed certain steps for the following five strata: Stratum 1 consisted of individual claims with a receivable amount greater than $2.5 million. The receivable total for the 33 claims in this stratum was about $2 billion, or 68 percent of the receivable total for the entire 147,702 claims in group 4. Because of their high dollar value, we reviewed all 33 claims. We used these 33 claims to test various attributes of Customs’ processes for collecting CFP claims at each of the applicable FP&F offices. Stratum 2 consisted of all claims relating to a Customs broker that went out of business during fiscal year 1999. This broker’s bankruptcy resulted in 422 CFP claims with an original assessed amount of almost $566 million, of which about $484 million was recorded as CFP receivables. The September 30, 2000, receivables balance for these claims was about $484 million, or 16 percent of the dollar value of all 147,702 claims in group 4. We discussed the broker’s bankruptcy with Customs officials and limited our procedures to reviewing related documents to determine whether Customs took appropriate steps, in accordance with its policies and procedures, to assess and resolve CFP claims resulting from the event. Stratum 3 consisted of all claims identified in SEACATS as involving a late paperwork violation for failure to file a timely entry summary, which, in accordance with Customs’ policies, typically results in the payment of a minimal amount. The 50,806 claims in this stratum totaled about $10.6 million, or 0.4 percent of the dollar value of the 147,702 claims in group 4. During our walk-through at the San Francisco FP&F Office, we reviewed 3 claims that involved late paperwork violations and determined that the amount ultimately subject to collection by Customs might be as little as $100 per claim. As agreed with your staff, we performed no further review of this stratum. Stratum 4 consisted of all claims with an assessed amount less than or equal to $5,000. The 73,741 claims in this stratum totaled about $47.5 million, or 1.6 percent of the dollar value of the 147,702 claims in group 4. As agreed with your staff, we did not review the claims in this stratum because the dollar amounts of individual claims were low and the total dollar amount of all 73,741 claims was deemed immaterial. Stratum 5 consisted of the remaining 22,700 CFP claims, some open and some closed, that were not included in one of the first four strata. These claims totaled about $406 million, or 14 percent of the dollar value of the 147,702 claims in group 4. We sorted these claims by FP&F office and selected the four offices that managed the highest number of CFP claims during fiscal years 1999 and 2000. From the 7,747 claims for the four selected offices, we drew a random stratified sample of 179 claims, which totaled about $5.7 million, or 1.4 percent of this stratum’s dollar value and 0.2 percent of the dollar value of the 147,702 claims in group 4. We used these 179 claims to test various attributes of Customs’ processes for collecting CFP claims at the four selected FP&F offices. We nonstatistically selected an additional 20 CFP claims that Customs labeled as fraud violations (fraud claims) at the four selected FP&F offices. The cases were selected from the “FP&F Case Listing Logs for FY 2000” and the “1592/592 Cases Active During 2000” reports that were open as of September 30, 2000. The 20 claims were selected to further evaluate issues related to alleged fraud violations that we found when we tested the sample of CFP claims at the four FP&F offices. We selected the additional claims on the basis of such factors as assessed amounts, receivable amounts, loss of revenue, and expired statute of limitations. We performed detailed reviews of case files for all the CFP claims that we selected. We did not independently verify the completeness or accuracy of the data in the claims population or test information security controls over the systems used to compile the data because such verification was not necessary for the purposes of this request. We interviewed Customs representatives to obtain explanations for any significant trends and instances of noncompliance with Customs’ CFP debt collection policies and procedures, as well as about areas where enhancements could strengthen Customs’ processes. We also interviewed OMB and Financial Management Service officials to determine what roles, if any, OMB and the Financial Management Service play in overseeing and monitoring the government’s collection of CFP debt. We performed our work at Customs’ FP&F offices at five locations; the National Finance Center in Indianapolis, Indiana; and the Office of Regulations and Rulings in Washington, D.C., from September 2000 through March 2002. We conducted our work in accordance with generally accepted government auditing standards. We provided the Commissioners of Customs and the Financial Management Service and the Deputy Director of OMB’s Office of Federal Financial Management with a draft of our report for review and comment. We received general and technical comments from Customs. These comments are discussed in the “Agency Comments and Our Evaluation” section and appendix I of this report and are incorporated in the report as applicable. Customs’ and the Financial Management Service’s letters are reprinted in appendixes I and II, respectively. We did not reprint Customs’ technical comments. OMB stated that it had no comments. Customs, a bureau of the Treasury, provides the nation with its second- largest source of revenue. Customs assesses duties, taxes, and fees on goods brought into the United States from foreign countries. During fiscal year 2000, Customs reported $22.9 billion in collections of duties, taxes, and fees.