DHS Reports on FY 2008 Audit Finding of Weak CBP Financial Controls Affecting Drawback, Info Technology, Etc.
The Department of Homeland Security's Office of Inspector General has issued a report containing an independent audit conducted by KPMG LLP that addresses weaknesses in U.S. Customs and Border Protection's fiscal year 2008 internal controls.
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(KPMG audited the consolidated balance sheets of CBP; considered CBP's internal controls over financial reporting and performance measures; and tested CBP's compliance with certain provisions of applicable laws, regulations, and contracts agreements that could have a direct and material effect on the consolidated financial statements.)
Material Weakness in Drawbacks, Significant Deficiencies in IT, Entry, Etc.
The FY 2008 auditors' report discusses one material weakness1 and three significant deficiencies2 in internal controls. (The report notes that the significant deficiency in drawback of duties, taxes and fees is also considered to be a material weakness.) The report includes the following material weakness and significant deficiencies in FY 2008 (partial list):
Drawback weaknesses in ACS, etc. The report notes material weakness in the process of CBP's drawback of duties, taxes and fees paid by importers during FY 2008, including that the Automated Commercial System (ACS) lacked automated controls to detect and prevent excessive drawback claims and payments, necessitating inefficient manual processes that do not effectively compensate for the lack of automated controls. The report also states that ACS lacked controls to prevent the overpayment of drawback claims at the summary line level, among other things.
IT deficiencies in information security. The report states that during FY 2008, CBP took corrective actions to address prior year IT control weaknesses. However, auditors continued to find significant deficiencies related to IT general and application controls at CBP, the most significant deficiency relating to information security. DHS states that because of the sensitive nature of the issues identified, it will issue a separate restricted distribution report to address those issues in detail.
(The report notes that the IT weakness has been reduced from a material weakness to a significant deficiency from FY 2007.)
Entry process deficiencies in in-bond program, BWH/FTZs, etc. Among internal control deficiencies related to the entry process, the report notes inconsistent procedures followed by the ports for completing compliance reviews/audits of in-bond entries and no formal requirement for ports to maintain documentation evidencing reviews/audits or the overall lack of the completion of such reviews/audits, as well as inconsistent review of required monthly reports related to in-bond activity, among other things.
The report also notes deficiencies in the bonded warehouse (BWH) and foreign trade zone (FTZ) process, including that current BWH and FTZ Compliance Review Manuals lack specific guidance for ports to determine appropriate risk assessment.
The report also discusses deficiencies in CBP's oversight of its Compliance Measurement (CM) program.
Financial reporting deficiencies. The report notes weaknesses in CBP financial reporting on property, plants, and equipment, specifically in its purchase of bulk steel for the construction of a border fence as part of the Secure Border Initiative-Tactical Infrastructure. The report also notes deficiencies in CBP's policies and procedures related to timely deobligation of inactive obligations.
Most of FY 2008 Weaknesses/Deficiencies Were Also Present in FY 2007
The report also provides an exhibit which lists CBP's FY 2007 material weaknesses and significant deficiencies, along with a report on their status as of September 30, 2008. (Note that most FY 2008 weaknesses and deficiencies were also present in FY 2007.)
(See report for complete audit information, including discussion of CBP's noncompliance with the Federal Information Security Management Act of 2002 and the Federal Financial Management Improvement Act of 1996.)
1a material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by CBP's internal control.
2a significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects CBP's ability to initiate, authorize, record, process, or report financial data reliably in accordance with U.S. generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of CBP's consolidated financial statements that is more than inconsequential will not be prevented or detected by CBP's internal control over financial reporting.
DHS Independent Auditors' Report on CBP's FY 2008 Consolidated Financial Staetments (OIG-09-14, dated January 2009) available at http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_09-14_Jan09.pdf