DHS OIG Report on CBP's FY 2010 Financial Controls (Part I)

The Department of Homeland Security's Office of Inspector General has issued a report containing an independent audit conducted by KPMG LLP that addresses the strengths and weaknesses of U.S. Customs and Border Protection's fiscal year 2010 internal controls over financial reporting. The report finds that CBP has improved, in that only drawback is listed as a "material weakness" in terms of internal controls. Five areas are also identified as having internal controls with "significant deficiencies," including CBP's in-bond program, bonded warehouses, foreign trade zones (FTZ) and information technology.

(KPMG audited the consolidated balance sheets of CBP; It also considered CBP's internal controls over financial reporting and tested CBP's compliance with certain provisions of applicable laws, regulations, and contracts agreements that could have a direct and material effect on these consolidated financial statements.)

This is Part I of a multi-part series of summaries of this report and provides an overview of the report's findings, etc. See future issues of ITT for additional summaries.

Audit Only Finds “Material Weakness” in Drawback

The auditor's review of CBP's internal controls over financial reporting resulted in the identification of six significant deficiencies, one of which is considered to be a material weakness. The sole area exhibiting material weakness¹ is:

• Drawback of Duties, Taxes, and Fees

(This is an improvement over last year’s 2009 OIG report, which also found Financial Reporting and Property, Plant, and Equipment (PP&E), to be material weaknesses.)

Less Serious “Significant Deficiencies” in Five Areas

The following five areas have been identified as having significant deficiencies:²:

• Financial Reporting³
• PP&E³
• Entry Process (In-Bond Program, Trade Compliance Management, Bonded Warehouse and Foreign Trade Zones)
• Information Technology
• Inactive Obligations (Not de-obligating or closed out in a timely manner)

Audit Provides Examples of Weaknesses/Deficiencies, Their Cause and Effect, Remedies, Etc.

For the material weaknesses and significant deficiencies listed above, the report contains exhibits which provide a variety of information, including background on the issue, details/examples of the material weaknesses and significant deficiencies found, a description of their cause and effect, and recommendations for remedy.

¹A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.

²A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

³Financial reporting internal controls for both have improved, as they were material weaknesses last fiscal year.

(See ITT’s Online Archives or 03/11/10 news, 10031115, for BP overview of the FY 2009 OIG Report.)

(OIG-11-61, dated 03/25/11)