Federal Emergency Management Agency: Lack of Controls and Key	 
Information for Property Leave Assets Vulnerable to Loss or	 
Misappropriation (15-JUL-04, GAO-04-819R).			 
                                                                 
Prior to the transfer of the functions of the Federal Emergency  
Management Agency (FEMA) to the newly established Department of  
Homeland Security (DHS) within the Emergency Preparedness and	 
Response Directorate (EP&R), FEMA was one of 24 Chief Financial  
Officers (CFO) Act agencies required to obtain annual financial  
statement audits. While DHS obtained a financial statement audit 
covering the period from March 1 through September 30, 2003, no  
financial statement audit was performed for FEMA activities for  
the 5 months prior to March 1, 2003. For fiscal year 2001, FEMA  
received a qualified audit opinion, which was due mostly to the  
auditor's inability to determine the accuracy of the amount	 
reported for FEMA's equipment as well as other property issues.  
Although FEMA received an unqualified opinion from its auditor in
fiscal year 2002, the auditor reported six material weaknesses	 
(one relating to its real and personal property system processes)
and one reportable condition as well as significant year-end	 
adjustments made to property accounts. Furthermore, the audit	 
report noted that FEMA did not have policies and procedures in	 
place to ensure the accuracy of data recorded in its personal	 
property system, the Logistics and Information Management System 
(LIMS). The previously reported weaknesses as well as the very	 
nature of FEMA's mission, disaster response, which entails the	 
acquisition of new personal property, sometimes very quickly,	 
raise the risk that property may have been acquired but not	 
recorded in LIMS and not accounted for by FEMA in the interim 5  
months before the agency functions were transferred to DHS. As	 
such, given the past weaknesses and risks surrounding FEMA's	 
property management, the objectives of our review were to	 
determine (1) whether controls were in place to ensure that	 
property acquired during the 5 months prior to FEMA transferring 
its functions to DHS was properly accounted for in LIMS and (2)  
whether FEMA has corrected previously reported property 	 
management weaknesses.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-819R					        
    ACCNO:   A10955						        
  TITLE:     Federal Emergency Management Agency: Lack of Controls and
Key Information for Property Leave Assets Vulnerable to Loss or  
Misappropriation						 
     DATE:   07/15/2004 
  SUBJECT:   Accountability					 
	     Accounting procedures				 
	     Equipment inventories				 
	     Federal procurement				 
	     Financial management systems			 
	     Financial statement audits 			 
	     Internal controls					 
	     Management information systems			 
	     Property and supply management			 
	     Federal agency reorganization			 
	     Audit reports					 
	     Data integrity					 
	     Personal property					 
	     Systems compatibility				 
	     Policies and procedures				 
	     FEMA Integrated Financial Management		 
	     Information System 				 
                                                                 
	     FEMA Logistics and Information			 
	     Management System					 
                                                                 

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GAO-04-819R

United States Government Accountability Office Washington, DC 20548

July 15, 2004

The Honorable Tom Ridge
The Secretary of Homeland Security

Subject: Federal Emergency Management Agency: Lack of Controls and Key
Information for Property Leave Assets Vulnerable to Loss or
Misappropriation

Dear Mr. Secretary:

As you know, prior to the transfer of the functions of the Federal
Emergency Management Agency (FEMA), effective March 1, 2003, to the newly
established Department of Homeland Security (DHS) within the Emergency
Preparedness and Response Directorate (EP&R), FEMA was one of 24 Chief
Financial Officers (CFO) Act agencies required to obtain annual financial
statement audits.1 While DHS obtained a financial statement audit covering
the period from March 1 through September 30, 2003, no financial statement
audit was performed for FEMA activities for the 5 months prior to March 1,
2003. For fiscal year 2001, FEMA received a qualified audit opinion,2
which was due mostly to the auditor's inability to determine the accuracy
of the amount reported for FEMA's equipment as well as other property
issues. A major contributing factor was the lack of a property management
system that adequately met FEMA's accounting needs or Joint Financial
Management Improvement Program (JFMIP) requirements .3 Although FEMA
received an unqualified opinion from its auditor in fiscal year 2002, the
auditor reported six material weaknesses4 (one relating to its real and
personal property system processes) and one reportable condition5 as well
as significant year-end adjustments made to property accounts.
Furthermore, the audit report noted that FEMA did not have policies and
procedures in place to ensure the accuracy of data recorded in its
personal property system, the Logistics and Information Management System

1See 31 U.S.C. S:S: 901(b), 3515(a), 3521(e) (2000).

2A qualified opinion states that except for the effects of the matter to
which the qualification relates, the financial statements present fairly,
in all material respects, the assets, liabilities, net position, net
costs, changes in net position, budgetary resources, reconciliation of net
costs with budgetary obligations, and custodial activities (if applicable)
in conformity with U.S. Generally Accepted Accounting Principles.

3The Joint Financial Management Improvement Program (JFMIP) is a joint and
cooperative undertaking of the U.S. Department of the Treasury, the
General Accounting Office, the Office of Management and Budget, and the
Office of Personnel Management working with each other and other agencies
to improve financial management practices in government.

4A material weakness is a condition that precludes the entity's internal
control from providing reasonable assurance that misstatements, losses, or
noncompliance material in relation to the financial statements or to the
stewardship information would be prevented or detected on a timely basis.

5Reportable conditions are matters coming to an auditor's attention that,
in their judgment, should be communicated because these represent
significant deficiencies in the design or operation of internal control
that could adversely affect the federal government's ability to meet the
internal control objectives.

(LIMS).6 Appendix I categorizes the weaknesses identified in FEMA's fiscal
year 2002 audit report into nine general areas for which personal property
controls need to be improved.

The previously reported weaknesses as well as the very nature of FEMA's
mission, disaster response, which entails the acquisition of new personal
property, sometimes very quickly, raise the risk that property may have
been acquired but not recorded in LIMS and not accounted for by FEMA in
the interim 5 months before the agency functions were transferred to DHS.
As such, given the past weaknesses and risks surrounding FEMA's property
management, the objectives of our review were to determine (1) whether
controls were in place to ensure that property acquired during the 5
months prior to FEMA transferring its functions to DHS was properly
accounted for in LIMS and (2) whether FEMA has corrected previously
reported property management weaknesses.

To accomplish this work, we reviewed DHS's fiscal year 2003 Performance
and Accountability Report, FEMA's fiscal year 2002 Performance and
Accountability Report, reports by FEMA's Office of Inspector General (OIG)
and Independent Public Accountants; performed walkthroughs of FEMA's
acquisition and property management functions; and conducted interviews
with relevant FEMA officials. FEMA officials provided oral comments to
this report, which are summarized in the agency comments and our
evaluation section. We conducted our review from October 2003 to June 2004
in accordance with U.S. generally accepted government auditing standards.

Results in Brief

FEMA continues to lack the controls and key information necessary to
ensure that personal property is properly accounted for. Accordingly, we
were unable to perform statistically based testing to conclude whether or
not FEMA properly accounted for property acquired during the 5 months
prior to transferring its functions to DHS. We attempted to manually trace
property items from the acquisition system and related documentation to
the property system. Because these systems do not share common data
identifiers such as serial numbers, purchase order numbers, and the like,
we were unable to complete our tests of individual items.

Absent integrated or adequately interfaced systems with the key
information necessary to track and account for property, accountable and
sensitive property is highly vulnerable to loss or misappropriation. For
example, FEMA's current property system, LIMS, does not interface with the
acquisition or financial systems, and lacks a common data identifier, such
as a serial number or invoice number, which would allow managers to track
property from its acquisition to its receipt and entry in the property
system through disposal. In addition, while the original acquisition date
was recorded in LIMS, users of the system were able to change that date
and frequently did so to reflect when items were transferred to other
locations.

6Federal Emergency Management Agency, Annual Performance and
Accountability Report Fiscal Year 2002 (Washington, D.C.: Jan. 24, 2003).

FEMA has not corrected its reported weaknesses related to property and
equipment. Its property system is still not JFMIP compliant. Although new
data fields have been added to address compliance, the systems holding the
data needed to populate those fields are not linked to LIMS and thus, do
not routinely share information. While processes have been developed to
transfer information for certain data fields manually, it has only been
done for capitalized property, which makes up less than 1 percent of
property items and roughly 20 percent or $73 million of the total property
value in LIMS. FEMA's fiscal years 2001 and 2002 auditors reported
material weaknesses related to FEMA's accounting for real and personal
property, and we reiterated these weaknesses in our fiscal year 2003
Performance and Accountability Series.7 In addition, due to the reduced
materiality of FEMA's real and personal property for financial statement
audit purposes, these weaknesses were not included in the DHS's
departmentwide audit report. Instead, the material weaknesses were
included in an observations and recommendations comment provided to EP&R
management. Due to decreased visibility of this issue and the seriousness
of these problems given the nature of FEMA's operations, immediate
corrective actions are warranted, so that these problems do not continue
to grow or assets are not unnecessarily vulnerable to loss or
misappropriation.

This report makes six recommendations for actions, that, if fully
implemented, should help FEMA and, consequently, DHS, better protect and
account for its accountable and sensitive property. We obtained oral
comments on a draft of this report from FEMA officials. They generally
agreed with our conclusions and recommendations, but stated that some of
the actions called for are already in place. As such, we have incorporated
changes to emphasize that the appropriate officials not only receive the
inventory certifications and documentation, but also review, follow-up on,
and maintain them. FEMA officials also provided technical comments, which
we incorporated as appropriate.

Background

Effective March 1, 2003, the functions of FEMA were transferred to the
Department of Homeland Security (DHS) within the Emergency Preparedness
and Response (EP&R) Directorate. Prior to the transfer to DHS, FEMA was
one of the 24 CFO Act8 agencies required to obtain annual financial
statement audits. Now that it is a component of DHS, however, it is no
longer subjected to annual, stand-alone audits. Further, because its real
and personal property issues are much smaller in scope compared to other
agencies and components transferred to DHS, such as the U.S. Coast Guard,
FEMA's property is deemed less material for agencywide financial statement
audit purposes, which results in less rigorous audit procedures and
reviews than when it was a stand-alone agency.

In fiscal years 2001 and 2002, when it was a stand-alone agency, the
auditors reported that, among other things, FEMA did not have policies and
procedures in place to ensure the accuracy of data recorded in its
property system. This system, LIMS, was

7U.S. General Accounting Office, Major Management Challenges and Program
Risks: Federal Emergency Management Agency, GAO-03-113 (Washington, D.C.:
Jan. 24, 2003).

8See 31 U.S.C. S:S: 901(b), 3515(a), 3521(e) (2000).

developed in-house for the special property tracking needs of FEMA's
disasterrelated recovery mission. Since its inception in 1993, the
software has been updated several times, resulting in different versions.
LIMS II, which was implemented in 2001, was the version in place at the
time of FEMA's transfer to DHS. According to FEMA officials, it was run on
obsolete system software, was not JFMIP compliant, and was limited in
functionality. Further, each regional office had its own separate property
database, which meant that there were 31 different databases. Thus,
managers could not effectively oversee the overall property inventory.
According to one FEMA official, the system contained a financial module,
but use of the module was optional because the accounting system of record
was Integrated Financial Management Information System (IFMIS), an
entirely different system; thus, the module was rarely used.

Over the course of fiscal year 2002, FEMA took steps to improve its
property accounting. For example, FEMA hired contractors to conduct an
agencywide inventory of capitalized personal property (property valued at
$25,000 or greater) to ensure the correct reporting of equipment and
related depreciation. Based on inventory results, FEMA recorded prior
period adjustments that increased equipment acquisition costs and related
depreciation by $74.5 million and $71.7 million, respectively. In
addition, FEMA had planned to acquire a new JFMIP-compliant acquisition
system in fiscal year 2002, but plans to do so were placed on hold because
of an OMB moratorium on technology investments for agencies transferring
activities to DHS. Shortly after the transfer to DHS (April 2003), FEMA
installed its next iteration of the LIMS system, LIMS III, which was
designed to be a more complete and accountable system. It is a Web-based
system that combines all of the 31 formerly separate property databases
into one system and includes enhancements, that, if properly implemented,
would allow the system to be JFMIP compliant, according to FEMA officials.

According to FEMA guidance prior to FEMA's transfer to DHS, capitalized
property9 was defined as property over $25,00010 and accountable property
was property costing over $5,000 or that FEMA determined to be
"sensitive."11 FEMA guidance stated that these items are subject to
special control and safeguards and will be accounted for and controlled
through the use of a custody receipt,12 and the agency's property system
(i.e., LIMS). These items include items such as pagers, cellular
telephones, personal digital assistants, electronic test equipment, hand
tools, and personal computers.

9Capitalized property refers to nonexpendable property (excluding
stewardship property, plant, and equipment) with a useful life of 2 years
or more and an acquisition cost above a predetermined dollar value
threshold.

10This threshold was increased to $50,000 by DHS.

11FEMA defines sensitive property as accountable property (regardless of
original acquisition cost), that is highly susceptible to misuse, loss, or
theft, and will be accounted for and controlled through the use of LIMS.
An annual physical inventory and a complete audit trail from receipt to
final disposition are required for sensitive equipment.

12Custody receipts are used when property is issued or delivered to a
recipient, who is to sign for the items, retain a copy, and return the
signed original to the issuer to file.

Scope and Methodology

To determine what controls were in place to ensure that property acquired
during the 5 months prior to FEMA's transfer to DHS was properly accounted
for in LIMS, we obtained property data for fiscal year 2003 from FEMA's
Property Management Unit, which was extracted from LIMS II, the version in
place at the time of transfer. We attempted to verify the completeness and
validity of the property information by comparing purchases recorded in
the acquisition system for the 5-month period prior to its transfer to
DHS, from October 1, 2002 to March 1, 2003 to entries in the LIMS system
for the corresponding period. We determined that FEMA's acquisition and
property systems do not share data and lacked key data we needed to
perform our tests. Therefore, we were unable to validate that purchases
made over the 5-month period were properly recorded into LIMS. As a
result, we narrowed our scope of review to the adequacy of controls over
property management at the time of FEMA's transfer and the status of
previously reported property management weaknesses.

To determine whether FEMA has corrected prior reported weaknesses, we
performed walkthroughs of the purchasing, receiving, and property
management processes; reviewed FEMA's policies and procedures, as well as
GAO's Standards for Internal Control13 and JFMIP Guidance on Property
Management Systems;14 reviewed reports by FEMA's OIG and Independent
Public Accountants, as well as DHS's fiscal year 2003 Performance and
Accountability Report and FEMA's corrective action plans; and interviewed
FEMA staff. FEMA officials provided oral comments to this report, which
are summarized in the agency comments and our evaluation section. Our work
was conducted from October 2003 to June 2004 in accordance with U.S.
generally accepted government auditing standards.

FEMA Did Not Have Controls in Place to Ensure Property Acquired Prior to
Transfer Was Properly Accounted For

GAO's Standards for Internal Control in the Federal Government state that
internal control monitoring should assess the quality of performance over
time and ensure that the findings of audits and other reviews are promptly
resolved. Also, internal control should generally be designed to ensure
that ongoing monitoring such as comparisons, reconciliations, and other
actions, occurs in the course of normal operations, to ensure that known
weaknesses are resolved. FEMA lacks the controls and key information
necessary to ensure property is properly accounted for in LIMS. Due to
this lack of key information, we could not determine whether purchases
made during the 5 months prior to its transfer were accurately recorded.
We attempted to manually trace property items from the acquisition system
and related documentation to the property system, but because these
systems do not share common data identifiers such as serial numbers or
purchase order numbers, we were unable to conduct valid tests. These
weaknesses would summarily preclude FEMA

13U.S. General Accounting Office, Internal Control: Standards for Internal
Control in the Federal Government, GAO/AIMD-0021.3.1 (Washington, D.C.:
November 1999).

14Joint Financial Management Improvement Program, Federal Financial
Management System Requirements: Property Management Systems Requirements,
JFMIP-SR-00-4 (Washington, D.C.: October 2000).

itself from conducting any conclusive internal assessments and therefore,
there is a risk that property may have been purchased but not properly
recorded in LIMS.

FEMA did not perform fundamental internal control activities and track key
information necessary to document and account for property to ensure that
purchases made during the 5 months prior to its transfer to DHS were
properly or accurately recorded. Timely, accurate, and useful financial
information is essential for making day-to-day operating decisions.
Maintaining the government's operations more efficiently, effectively, and
economically; meeting the goals of federal financial management reform
legislation; supporting results-oriented management approaches; and
ensuring accountability on an ongoing basis are also critical. According
to the

Joint Financial Management Improvement Program Property System
Requirements Guide, 15 property management systems must be able to track
an item from acquisition through changes in location to disposal. The
guide also states that the property system must forward physical receipt
information including quantity and date of physical receipt to the
acquisition system and core financial system. Thus, the property system
should be capable of interfacing with other financial or mixed systems.
However, we found that despite FEMA's efforts to improve its current
property system, LIMS III, it still does not interface or share common
data identifiers with any of the other systems, including the financial
and acquisition systems.

Previously Reported Property Management Weaknesses Have Not Been Corrected

We found that FEMA has not corrected material weaknesses related to its
accounting for real and personal property that its auditor reported in
fiscal year 2001 and again in fiscal year 2002; and which we reiterated in
our fiscal year 2003 Performance and Accountability Series.16 Such
weaknesses include noncompliance with JFMIP requirements, key systems
lacking interfaces with each other, and not performing required annual
inventories of accountable and sensitive property. Among the lingering
issues carried over to DHS is that a number of factors have combined to
make FEMA's property control weaknesses less visible from a DHS-wide
perspective, but no less severe from the perspective of FEMA operations.
Therefore, EP&R must recognize the seriousness of these issues as it
impinges on FEMA operations and develop a course of action to resolve or
mitigate the issues.

In fiscal year 2002, the auditor reported that FEMA did not have adequate
accounting systems and processes to ensure that all property, plant, and
equipment were properly recorded, accurately depreciated, and tracked in
accordance with its policies and applicable federal accounting standards.
Specifically, the independent auditor reported that FEMA's personal
property management system, known as LIMS, was not interfaced with its
financial system, IFMIS, thus requiring numerous manual workarounds to
ensure accounting information is accurately recorded. LIMS, used primarily
to track the location and availability of equipment for its mission of
disaster response, cannot perform accounting functions required by JFMIP.
To address this, FEMA officials stated that data fields were added to LIMS
in its most

15JFMIP-SR-00-4.

16GAO-03-113.

recent upgrade (May 2003) so that the system would meet JFMIP
requirements. Having the capability to handle accounting information did
not entirely resolve this problem, however. During our review, we found
that these data fields were not automatically populated because the system
is not linked electronically to, and, thus, not able to routinely share
information with, the acquisition systems or IFMIS. While processes have
been developed to transfer some data manually, it is limited to the data
for capitalized property, which makes up less than 1 percent of property
items and 20 percent or $73 million of the total property value in LIMS as
shown in table 1. Thus, data for FEMA's accountable and sensitive
property, which constitute the majority of the property and which, by
their very nature are more susceptible to theft or pilferage are excluded
from this process.

Table 1: Property Totals in LIMS as of May 31, 2004

Source: GAO analysis of LIMS data.

(1) Property with an initial acquisition cost of more than $50,000 with an
expected service life of 2 years or more.

(2)	Property with an initial acquisition cost of more than $5,000 or
property, which by their nature are vulnerable to theft or pilferage, for
which controls and official property records are maintained and physical
inventories are conducted.

(3)	Property of a low dollar value, which loses its identity when consumed
or when incorporated into another item, or with an expected service life
of less than 1 year.

Another weakness reported in both FEMA's fiscal years 2001 and 2002 audit
reports is that property acquisition dates were changed when items were
transferred within FEMA and among disaster sites to reflect the transfer
dates. Thus, the original purpose of the data field, to show when the item
was purchased, has been altered to cater to the needs of FEMA's mission.

A related problem is that LIMS does not contain data fields to record
purchase order or invoice numbers that can be used to link property items
to accounting-related and acquisition records. The problems outlined above
contribute to weak linkages for substantiating the acquisition date and
valuation of property, which is paramount not only for computing
depreciation, but for overall accountability. These issues can contribute
to financial statement implications, as was the case in fiscal year 2002

when FEMA had to record a prior period adjustment as of September 30,
2001, to increase equipment acquisition cost and accumulated depreciation
by $74.5 million and $71.7 million, respectively. In general, property
items should track to their supporting procurement information, and
accounting records should correlate to any FEMA property located at either
FEMA sites or in the custody of others.

Although FEMA officials had hoped to acquire a new property management
system, plans to do so were deferred in 2002 because OMB issued a systems
purchase moratorium for agency functional areas being transferred to DHS.
To help address its issues regarding accountability over property, FEMA
hired contractors to perform an inventory of its capitalized property in
2002. The contractor found 11 specific areas that they believed "warranted
further attention by FEMA to ensure the completeness and accuracy of the
agency's capital property." One of the areas noted was the need for FEMA
to complete a wall-to-wall inventory of all property. The contractors
reported that a significant number of items were identified during the
inventories that were not in LIMS. According to the report, it "seems that
when headquarters requests an inventory of capitalized equipment,
typically the field simply `prints' what is in LIMS and then validates its
on-site or deployed location."

Such an approach does not account for or help identify noncapitalized
property such as accountable and personal property that is not recorded in
LIMS. FEMA's weak inventory practices were reported on again in FEMA's
fiscal year 2002 audit report, as the auditor noted that some Accountable
Property Officers (APO) did not check property on-site against LIMS
records (i.e., a floor-to-book test) and that some locations did not
provide a current or complete certified inventory17 as part of the
baseline inventory effort. Such inventory practices cast doubt as to the
completeness and reliability of FEMA's property information.

Despite agency guidance requiring annual inventories for capital,
accountable, and sensitive property, as well as its status as an action
item from its fiscal year 2002 audit, inventories for accountable or
sensitive property were not completed by all site locations in fiscal year
2003. One official told us this could be because FEMA wanted to wait until
bar-coding capability was fully functional in LIMS, which would help
provide for better and more accurate tracking of inventory, but that
capability was never fully implemented. Also, since each region is
responsible for doing its own inventory of capitalized and accountable
property and sending a memo to FEMA headquarters certifying that an
inventory was completed; and because the organizational structure for
FEMA's property management section has changed significantly since the
fiscal year 2002 financial statement audit, according to FEMA officials,
there may have been confusion among field staff as to the person
responsible for receiving the memos.

Because FEMA is just a piece of a much larger DHS and no longer receives a
standalone audit, it receives much less audit attention and problems that
are identified are not necessarily material when viewed DHS-wide. For
example, FEMA control weaknesses found during the 2002 audit were not
included in DHS's departmentwide audit report, but instead were included
in an observations and recommendations comment provided to EP&R. In
addition, FEMA's capitalization threshold was raised

17According to FEMA's Personal Property Management guidance, Property
Management Officers (PMO) and APOs must certify that an annual inventory
was accomplished as prescribed.

from $25,000 to $50,000 upon transferring its functions to DHS, which
results in less audit coverage for property on an agencywide basis. This
elevated capitalization level could result in an unintentional lack of
accountability over property that was formerly required to be tracked and
inventoried for financial statement purposes. A prime illustration of this
is the previously mentioned manual transfer of the acquisition dates,
which is currently limited to capitalized property, thus excluding
accountable and sensitive items. Further, due to its relatively decreased
prominence at DHS from an audit perspective, FEMA will not receive the
visibility and oversight afforded the annual financial statement audits,
as it had before transferring its functions to DHS. Thus, it is incumbent
upon FEMA to effectively account for, track, and inventory all of its
property to ensure that it does not lose what it has gained as a result of
its property management improvements.

Conclusions

Federal agency property management systems are critical for establishing
financial accounting and maintaining accountability over property. Such
systems assist property managers in managing their property in accordance
with missions and roles established by Congress. FEMA's lack of adequate
systems and processes to ensure that all property, plant, and equipment
are properly recorded, accurately depreciated, and tracked not only
creates an environment where property is highly susceptible to loss or
misappropriation with little risk of detection, but also affects the
accuracy of the property and financial information used by managers to
make key agency decisions. Even with the improvements made thus far, the
overall lack of transparency in FEMA's acquisition and property management
processes could result in highly sensitive and accountable property not
being entered into the property system and thus not accounted for. If this
situation continues over time, it could affect FEMA's and ultimately DHS's
ability to effectively manage its limited resources and assets. This is
extremely important for an organization such as FEMA whose mission
requires it and its property to be highly versatile and mobile on a
moment's notice. Therefore, it is important that FEMA management establish
adequate financial management systems and internal controls over these
highly vulnerable assets.

Recommendations for Executive Action

In order to establish adequate internal control over property management
and reduce vulnerability to fraud, waste, and abuse, we recommend that the
Secretary of the Department of Homeland Security direct the Under
Secretary for Emergency Preparedness and Response or Under Secretary for
Management to take the following six actions:

o  	Require FEMA's property system to be linked to acquisition and
financial systems so certain key information can be available for
effective property management.

o  Require floor-to-book inventories in addition to current inventory
processes.

o  	Develop a tracking system to ensure that all FEMA locations complete a
comprehensive inventory of all property, including accountable and
sensitive items, on an annual basis.

o  	Reiterate and clarify property management procedures for certifying
and documenting inventories.

o  	Maintain documentation of inventory results and certifications in a
central location at headquarters for management review.

o  	Identify employees responsible for receiving, reviewing, following up
on, and maintaining inventory certifications and results from FEMA's field
and disaster locations.

Agency Comments and Our Evaluation

We obtained oral comments on a draft of this report from FEMA officials.
They generally agreed with our conclusions and recommendations. However,
they stated that some of the actions called for are already in place. As a
result, we have incorporated changes to emphasize that the appropriate
officials not only receive the inventory certifications and documentation,
but also review, follow-up on, and maintain them. Further, we recognize
the fact that some of the actions in our recommendations, namely those
dealing with the need for an integrated property management system and the
issuance of policy, are now under the direction of DHS and will likely
take time to be implemented at the departmental level. FEMA officials also
provided technical comments, which we incorporated as appropriate.

This report contains recommendations to you. The head of a federal agency
is required by 31 U.S.C. 720 to submit a written statement on actions
taken on these recommendations. You should submit your statement to the
Senate Committee on Governmental Affairs and House Committee on Government
Reform within 60 days of the date of this report. A written statement must
also be sent to the House and Senate Committees on Appropriations with the
agencies' first request for appropriations made more than 60 days after
the date of the report.

___________________________________________________________________________

We are sending copies of this report to the Chairs and Ranking Members of
the Senate Governmental Affairs Committee, the House Government Reform
Committee, and other interested congressional committees, as well as the
Director of the Office of Management and Budget, and other interested
parties within DHS. We will provide copies to others upon request. This
report will also be available on GAO's Web site at http://www.gao.gov.

We acknowledge and appreciate the cooperation and assistance provided by
FEMA officials during our review. If you or your staff have any questions
or wish to discuss this report, please contact please contact me at (202)
512-6906 or by e-mail at [email protected] or Casey Keplinger, Assistant
Director, at (202) 512-9323 or by

e-mail at [email protected]. Major contributors to this report were Cary
Chappell, Lisa Crye, and Saurav Prasad.

Sincerely yours,

McCoy Williams
Director, Financial Management and Assurance

In fiscal year 2002, FEMA's independent auditor identified several
weaknesses, which we have categorized into nine general areas for which
personal property controls need to be improved (see table 2).
Additionally, FEMA's corrective actions as of May 19, 2004 have been
included.

Table 2: Reportable Weaknesses from FEMA's Fiscal Year 2002 Performance
and Accountability Report

Appendix I: Reportable Weaknesses from FEMA's Fiscal Year 2002 Performance
                           and Accountability Report
                                                                             LIMS                                                    
                                                                             continues to                                            
                                                                             change                                                  
                                                                             acquisition                                             
                                                                             dates for                  Although FEMA                
                                                                             equipment                  conducted an                 
                                                                             when items                 agencywide                   
                                                                             are                        inventory of    o  FEMA has  
                                                                             transferred                equipment, it   completed an 
                                                                             within FEMA,               has not entered inventory of 
                                                                             and it does                all of the      capitalized  
                                                                             not contain                results into    property  o  
                                                                             data fields,               LIMS. As a      FEMA has     
                                                                             such as                    result,         established  
                                  Officials                                  purchase                   baseline        a schedule   
                                  participated in                            order or                   inventory       for efforts  
                                  DHS's eMerge2                              invoice                    information is  and tasked   
                                  working group                              numbers, that              scattered among APOs to      
                                  November 2003                              link                       LIMS,           update       
                                  to May 2004.    FEMA does not              equipment to               contractor      necessary    
                           FEMA's eMerge2 stands  have a                     the                        reports,        data. In     
                         personal for             property                   accounting    LIMS has     spreadsheets,   addition,    
                         property "electronically management                 records.      been updated and other       FEMA tasked  
                       management Managing        system that                Acquisition   to no longer non-LIMS        the          
                          system, enterprise      meets its                  dates are     allow the    ("cuff")        Automated    
                         LIMS, is resources for   accounting       Officials important for acquisition  records. Unless Inventory    
                              not government      needs and     participated depreciation  date to be   LIMS is fully   Control      
                       interfaced effectiveness   JFMIP             in DHS's calculations. changed      and completely  (AIC) group  
           Corrective with IFMIS, and             requirements.      eMerge2 Equipment     after its    updated and     to assist    
Reportable actions as         and efficiency." It LIMS is used       working needs to be   initial      maintained,     and verify   
weaknesses of May 19,    requires is a            primarily to         group linked to the entry        FEMA is at high data.  o     
                 2004    numerous businessfocused track the         November accounting    without the  risk of losing  Issuance of  
                           manual system that     location and   2003 to May records so    prior        the ability to  regulations  
                      workarounds seeks to        availability         2004. that          approval of  substantiate    is pending   
                        to ensure consolidate and of equipment.              equipment can FEMA's       the baseline    upon         
                       accounting integrate DHS's LIMS cannot                be            Inventory    numbers it has  development  
                      information budget,         perform the                substantiated Management   worked so hard  of eMerge2 , 
                               is accounting,     accounting                 as to         Specialists. to obtain. To   scheduled    
                       accurately cost            functions                  acquisition                ensure accurate for October  
                        recorded. management,     required by                date and                   accounting      2004.  o     
                                  asset           JFMIP.                     valuation. In              records going   AIC verified 
                                  management,                                general,                   forward, FEMA   and          
                                  acquisitions,                              property                   also will need  validated    
                                  and grant                                  items should               to perform      input data   
                                  functions.                                 track to                   reconciliations for          
                                                                             supporting                 and use         completeness
                                                                             procurement                workarounds to  and
                                                                             information,               compensate for  accuracy.
                                                                             and                        LIMS's          Oversight
                                                                             accounting                 inability to    was provided
                                                                             records                    interface with  by the
                                                                             should                     the accounting  Facilities
                                                                             correlate to               records and     
                                                                             any FEMA                   maintain        
                                                                             property                   acquisition     
                                                                             located at                 dates, and to   
                                                                             either FEMA                adjust for      
                                                                             sites or in                property        
                                                                             the custody                acquisitions,   
                                                                             of others.                 disposals,      

             Page 12 GAO-04-819R FEMA Accountability Over Property

                                    Page 13
                 GAO-04-819R FEMA Accountability Over Property
                                                                                                    FEMA does not               
                                                                         Although                   have                        
                                                                         FEMA has                   procedures to               
                                                                         developed                  ensure that                 
                                                                         processes                  equipment is                
                                                                         for                        consistently                
                                                                         identifying,               recorded on                 
                                                                         valuing, and               either a                    
                                                                         tracking                   system or a                 
                                                                         Construction               component                   
                                                                         in Process                 basis. For                  
                                                                         (CIP) and                  example, the                
                                                                         deferred                   auditor found               
                                                                         maintenance,               that some                   
                                                                         these                      regions                     
                                                                         processes                  recorded       o  FEMA has  
                                                                         have not                   servers as a   completed an 
                                                          o  FEMA        been fully                 single unit in inventory of 
                                                          completed the  implemented.               LIMS, while    capitalized  
                                                          Real Property  Reports                    other regions  property.  o 
                                                          Asset          related to                 entered the     Established 
                                                          Management     CIP and                    components of  a schedule   
                                                          Desk Book and  deferred     o  Annual     the server as  for efforts  
                                                          Guide. Updates maintenance  inventory is  individual     and tasked   
                                                          were completed are to be    due by the    items in LIMS. APOs to      
                                                          in May 2004.   submitted by end of fiscal Therefore,     update       
                                                          o  Management  accountable  year 2004.  o servers might  necessary    
                                                          directives are property                   be recognized  data. Tasked 
                                                          now issued by  officers     Participating as a           the AIC      
                                                          DHS. FEMA is   (APOs) and   in DHS        capitalizable  group to     
                                                 FEMA has implementing   facilities   Property      item in one    assist and   
                                                not fully process to     managers on  Council.  o   region but not verify data. 
                                   Management implemented review and     a quarterly  Property      in another      o  Issuance 
                               and    and               a prioritize     basis. FEMA, manuals       because the    of           
                      impairments.  Service   centralized repairs and    however, has issuance on   individual     regulations  
                                    Division   facilities improvements   not          hold pending  components     is pending   
                                    (FMSD).    management to real        implemented  eMerge2       were under the upon         
                                                  system. property under procedures   development.  capitalization development  
                                                          EP&R control.  to ensure    o             threshold.     of eMerge2 ,
                                                          o  Put a       timely       Implemented   Also, the      scheduled
                                                          process in     submission   on a          auditor found  for October
                                                          place for      and proper   quarterly     that equipment 2004.  o 
                                                          planning and   follow-up on basis that    sometimes was  AIC verified
                                                          programming    delinquent   property      recorded twice and
                                                          future years'  or           management    - once as part validated
                                                          budget plan.   inadequate   request and   of a system,   input data
                                                          Fiscal years   reports. For review CIP    and once as a  for
                                                          2005-2009      its fiscal   and deferred  component.     completeness
                                                          developed with year 2002    maintenance   Specifically,  and
                                                          yearly         financial    amounts are   the auditor    accuracy.
                                                          revisions      statements,  identified,   found          FMSD
                                                          planned to     FEMA         validated,    equipment in   provides
                                                          support budget developed    and tracked.  FEMA's mobile  oversight.
                                                          cycle.  o      the deferred Data for      response       
                                                          Identified     maintenance  October 2003  vehicles that  
                                                          budget and     information  - March 2004  was sometimes  
                                                          accounting     through a    is due June   double-counted 
                                                          codes for      onetime      2004.  o      in LIMS-once   
                                                          programming    engineering  Implemented   as part of the 
                                                          into fiscal    assessment   on a          vehicle, and   
                                                          year 2004      provided by  quarterly     once as a      
                                                          spending plan  a contractor basis the     component.     
                                                          and future     on a         review of     This situation 
                                                          year budgeting selected     data for      made it more   
                                                          and planning   number of    accuracy      difficult to   
           Corrective                                     requirements.  FEMA         regarding     obtain an      
           actions as                                     Now under the  locations.   property      accurate       
Reportable of May 19,                                     responsibility              additions and inventory      
weaknesses       2004                                     of FMSD.                    deletions.    valuation.     

                                    Page 14
                 GAO-04-819R FEMA Accountability Over Property
                                                   FEMA does not                                            
                                                   have                                                     
                                                   procedures to                                            
                                                   ensure that                                              
                                                   equipment is                                             
                      FEMA does not                consistently                FEMA does not                
                      have procedures              recorded on                 have procedures              
                      to ensure that               either a                    to ensure that               
                      property                     system or a                 property                     
                      inventories are              component                   inventories are              
                      performed                    basis. For                  performed                    
                      properly. To                 example, the                properly. To                 
                      establish a                  auditor found               establish a                  
                      baseline                     that some                   baseline                     
                      inventory, FEMA              regions         o  FEMA has inventory, FEMA 
                      required its                 recorded       completed an required its    
                      six APOs to                  servers as a   inventory of six APOs to     
                      perform                      single unit in  capitalized perform         
                      equipment                    LIMS, while    property.  o equipment       
                      inventories. A               other regions   Established inventories. A  
                      FEMA contractor              entered the      a schedule FEMA contractor 
                      then validated               components of   for efforts then validated  
                      these                        the server as    and tasked these           
                      inventories.                 individual          APOs to inventories.    
                      During its                   items in LIMS.       update During its      
                      review, the                  Therefore,        necessary review, the     
                      auditor found                servers might  data. Tasked auditor found   
                      that some       Property     be recognized           the that some       Property
                      regional        manuals      as a              Automated regional        manuals
                      inventories     issuance is  capitalizable     Inventory inventories     issuance is
                      were not        on hold      item in one         Control were not        on hold
                      performed       pending      region but not  (AIC) group performed       pending
                      properly, a     further      in another        to assist properly, a     eMerge2
                      finding         eMerge2      because the      and verify finding         development.
                      consistent with development. individual        data.  o  consistent with Further any
                      the validation  Issuance of  components      Issuance of the validation  issuance of
                      contractor's    further      were under the  regulations contractor's    agency
                      findings. For   agency       capitalization   is pending findings. For   directives
                      example, some   directives   threshold.             upon example, some   is now under
                      APOs did not    is now under Also, the       development APOs did not    the purview
                      check property  the purview  auditor found    of eMerge2 check property  of DHS.
                      onsite against  of DHS.      that equipment    scheduled onsite against  
                      LIMS records;                sometimes was   for October LIMS records;   
                      i.e., they did               recorded twice    2004.  o  i.e., they did  
                      not do a                     - once as part AIC verified not do a        
                      "floor-to-book"              of a system,            and "floor-to-book" 
                      test. The                    and once as a     validated test. The       
                      auditor also                 component.       input data auditor also    
                      identified                   Specifically,           for identified      
                      several                      the auditor    completeness several         
                      locations that               found                   and locations that  
                      did not provide              equipment in      accuracy. did not provide 
                      a current or                 FEMA's mobile  Oversight by a current or    
                      complete                     response              FMSD. complete        
                      certified                    vehicles that               certified       
                      inventory as                 was sometimes               inventory as    
                      part of the                  double-counted              part of the     
                      baseline                     in LIMS-once                baseline        
                      inventory                    as part of the              inventory       
                      effort. These                vehicle, and                effort. These   
                      omissions                    once as a                   omissions       
                      indicate that                component.                  indicate that   
                      the required                 This situation              the required    
                      annual                       made it more                annual          
                      inventories                  difficult to                inventories     
           Corrective that APOs are                obtain an                   that APOs are   
           actions as to perform                   accurate                    to perform      
Reportable of May 19, might also be                inventory                   might also be   
weaknesses       2004 incomplete.                  valuation.                  incomplete.     

                                                 Corrective actions as of May 
                          Reportable weaknesses                      19, 2004 
FEMA does not have procedures to ensure that o  Annual inventory is due by 
all equipment is entered into LIMS. Based on the end of fiscal year 2004.  
the auditor's inquiries of the APOs and FEMA o  Participating in DHS       
             management, they verified that two Property Council.  o          
     significant equipment items had never been Property manuals issuance on  
       entered into LIMS, although various FEMA hold pending eMerge2          
            programmatic offices monitored this development.  o  Implemented  
          equipment. As a result, their related on a quarterly basis that     
    acquisition cost, accumulated depreciation, property management request   
    and net book value had never been reflected and review that CIP and       
                in FEMA's financial statements. deferred maintenance amounts  
    Specifically, radio communication equipment are identified, valid, and    
       located throughout the United States, as tracked. Data for October     
part of FEMA's National Radio System (FNARS) 2003 - March 2004 due June    
       and government-furnished equipment (GFE) 2004. Implemented on a        
located at a contractor site, had never been quarterly basis the review of 
     entered into LIMS. The acquisition cost of data for accuracy regarding   
the FNARS and GFE property items were valued property additions and        
     at $27,876,000 and $882,000, respectively. deletions.                    

Source: FEMA Annual Performance & Accountability Report Fiscal Year 2002.

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