Note 1.  Summary of Significant Accounting Policies

A.         Reporting Entity                            

The Department has a wide range of responsibilities which include: detecting, apprehending, prosecuting, and incarcerating criminal offenders; operating Federal prison factories; upholding the civil rights of all Americans; enforcing laws to protect the environment; ensuring healthy competition of business in the United States’ free enterprise system; safeguarding the consumer from fraudulent activity; carrying out the immigration laws of the United States; and representing the American people in all legal matters involving the United States Government.  Under the direction of the Attorney General, these responsibilities are discharged by the components of the Department.

For purposes of these consolidated/combined financial statements, the following components comprise the Department’s reporting entity:

• Assets Forfeiture Fund and Seized Asset Deposit Fund (AFF/SADF)
• Working Capital Fund (WCF)
• Offices, Boards and Divisions (OBDs)
• Bureau of Prisons (BOP)
• U.S. Marshals Service (USMS)
• Office of Justice Programs (OJP)
• Federal Prison Industries, Inc. (FPI)
• Federal Bureau of Investigation (FBI)
• Drug Enforcement Administration (DEA)
• Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)  (Transferred to Department of    Justice effective January 24, 2003)

Transferred to Department of Homeland Security pursuant to the Homeland Security Act of 2002 effective March 1, 2003:

• Immigration and Naturalization Service (INS)

B.            Basis of Presentation

These financial statements have been prepared to report the financial position and results of operations of the Department as required by the Government Management Reform Act of 1994, Public Law 103-356, 108, Stat. 3515.  These financial statements have been prepared from the books and records of the Department in accordance with accounting principles generally accepted in the United States of America issued by the Federal Accounting Standards Advisory Board (FASAB) and presentation guidelines in the Office of Management and Budget (OMB) Bulletin 01-09, “Form and Content of Agency Financial Statements.”  These financial statements are different from the financial reports prepared pursuant to OMB directives which are used to monitor and control the use of the Department’s budgetary resources.  The accompanying financial statements include the accounts of all funds under the Department’s control.

FPI, a reporting component of the Department of Justice, operates as a government corporation and does not receive annual appropriations.  The budgetary accounting data is presented to best represent the budget activity of FPI based solely on proprietary accounting data.

C.           Basis of Consolidation

The consolidated/combined financial statements of the Department include the accounts of the AFF/SADF, WCF, OBDs, USMS, OJP, DEA, FBI, ATF, INS, BOP, and FPI.  All significant proprietary intra-entity transactions and balances have been eliminated in consolidation.  The Statements of Budgetary Resources and Statements of Custodial Activity are combined statements for FYs 2004 and 2003, and as such, intra-entity transactions have not been eliminated.  For FY 2003, the ATF and INS are only presented for approximately eight and five months, respectively.

D.          Basis of Accounting

Transactions are recorded on an accrual and a budgetary basis of accounting.  Under the accrual basis, revenues are recorded when earned and expenses are recorded when incurred, regardless of when cash is exchanged.  Under the budgetary basis, however, funds availability is recorded based upon legal considerations and constraints.  As a result, similar line items on the proprietary financial statements, budgetary financial statements, and notes may not equal.  Examples include, but are not limited to, the following:

• Total Accounts Receivable on the Balance Sheet may not equal Accounts Receivable on the Statement of Budgetary Resources;
• Total Accounts Payable on the Balance Sheet may not equal Accounts Payable on the Statement of Budgetary Resources; and
• Appropriations Received on the Statement of Changes in Net Position may not equal Appropriations Received on the Statement of Budgetary Resources.

Custodial activity reported on the Statement of Custodial Activity is prepared on the modified cash basis.  For example, Civil and Criminal Debt Collections are recorded when the Department receives payment from debtors to the Federal Government.

The financial statements should be read with the realization that they are for a component of the United States Government, a sovereign entity.  One implication of this is that liabilities cannot be liquidated without legislation that provides resources and legal authority to do so.

E.         Revenues and Other Financing Sources

The Department receives the majority of funding needed to support its programs through Congressional appropriations.  The Department receives annual, no-year, and multi-year appropriations that may be used, within statutory limits, for operating and capital expenditures.  Additional funding is obtained through exchange revenues, nonexchange revenues and transfers-in.

Appropriations are recognized as budgetary financing sources at the time the related program or administrative expenses are incurred.  Exchange revenues are recognized when earned, for example, when goods have been delivered or services rendered.  Nonexchange revenues are resources that the Government demands or receives, for example, forfeiture revenue and fines and penalties.

The Department’s exchange revenue consists of the following activities: licensing fees to manufacture and distribute controlled substances; services rendered for legal activities; space management; data processing services; sale of merchandise and telephone services to inmates; sale of manufactured goods and services to other federal agencies; fees for inspecting commercial and/or sea vessel passengers; processing various immigration applications; and other services.  Fees are set by law and are periodically evaluated in accordance with OMB guidance.  The pricing policy for FPI goods and services provided is based on cost plus a predetermined gross margin ratio.

The Department’s nonexchange revenue consists of forfeiture income resulting from the sale of forfeited property, penalties in lieu of forfeiture, recovery of returned asset management cost, judgment collections, and other miscellaneous income.  Other nonexchange revenue includes the OJP Crime Victims Fund receipts, ATF taxes and fees from firearms and ammunition industries, and AFF/SADF interest on investments with the Department of the Treasury (Treasury).

The Department’s deferred revenue includes fees received for processing various applications and licenses with DEA.  Deferred revenue represents monies received to process applications and licenses for which the process was not completed at the end of fiscal year or monies received for licenses that are valid for multiple years.  These monies are recorded as liabilities in the financial statements. Deferred revenue also includes forfeited property held for sale.  When the property is sold, the deferred revenue is reversed and forfeiture revenue in the amount of the gross proceeds of the sale is recorded.

F.         Fund Balance with the US Treasury and Cash

Funds with the Treasury represent primarily appropriated, revolving, and trust funds available to pay current liabilities and finance future authorized purchases.  The Treasury as directed by authorized certifying officers processes cash receipts and disbursements. The Department does not, for the most part, maintain cash in commercial bank accounts.  Certain receipts, however, are processed by commercial banks for deposit into individual accounts maintained at the Treasury.   The Department’s cash and other monetary assets consist of undeposited collections, imprest funds, cash used in undercover operations, cash held as evidence, and seized cash.

G.         Investments

Investments are Federal debt securities issued by the Bureau of Public Debt.  When securities are purchased, the investment is recorded at face value (the value at maturity).  Premiums and/or discounts are amortized through the end of the reporting period.  The Department’s intent is to hold investments to maturity, unless securities are needed to sustain operations.  No provision is made for unrealized gains or losses on these securities because, in the majority of cases, they are held to maturity.

H.         Accounts Receivable

Net accounts receivable includes reimbursement and refund receivables due from Federal agencies and others, less the allowance for doubtful accounts.  Generally, most intragovernmental accounts receivable are considered fully collectible.  The allowance for doubtful accounts for public receivables is estimated based on past collection experience and analysis of outstanding receivable balances at year end.

Inventories consist of new and rehabilitated office furniture, equipment and supplies used for the repair of airplanes, administrative supplies and materials, commission sales to inmates (sundry items), metals, plastics, electronics, graphics, and optics.

The value of new stock is determined on the basis of acquisition cost, whereas, the value of rehabilitated stock is determined on the basis of rehabilitation and transportation costs. Inventory on hand at year end is reported at the lower of original cost (using the first-in, first-out method) or current market value.  Recorded values of inventories are adjusted for the results of physical inventories conducted throughout and at the close of the fiscal year.

An allowance for inventory valuation and obsolescence is recorded for anticipated inventory losses of contracts where the current estimated cost to manufacture the item exceeds the total sales price, as well as estimated losses for inventories that may not be utilized in the future.

J.         General Property, Plant and Equipment

Real property, except for land, and leasehold improvements are capitalized when the cost of acquiring and/or improving the asset is $100 or more and the asset has a useful life of two or more years.  Land is capitalized regardless of the acquisition cost.  Real property is depreciated, based on historical cost, using the straight-line method over the estimated useful lives of the assets.

Except for BOP and FPI, Department acquisitions of personal property, excluding internal use software, $25 and over are capitalized if the asset has an estimated useful life of two or more years.  Personal property is depreciated, based on historical cost, using the straight-line method over the estimated useful lives of the assets.  BOP and FPI capitalize personal property acquisitions over $5.

Internal use software is capitalized when developmental phase costs or enhancement costs are $500 or more and the asset has an estimated useful life of two or more years.  Aircraft are capitalized when the initial cost of acquiring those assets is $100 or more.

K.         Advances and Prepayments

Advances and prepayments, classified as assets on the balance sheet, consist primarily of funds disbursed to grantees in excess of total expenditures made by those grantees to third parties, funds advanced to state and local participants in the DEA Domestic Cannabis Eradication and Suppression Program, and travel advances issued to Federal employees for official travel.  Travel advances are limited to meals and incidental expenses expected to be incurred by the employees during official travel.  Payments in advance of the receipt of goods and services are recorded as prepaid charges at the time of payment and are recognized as expenses when the goods and services are received.

L.         Forfeited and Seized Property

Forfeited property is property for which the title has passed to the US Government.  This property is recorded at the estimated fair market value at the time of forfeiture.  The value of the property is reduced by the estimated liens of record.

Property is seized in consequence of a violation of public law.  Seized property can include monetary instruments, real property, and tangible personal property of others in the actual or constructive possession of the custodial agency.  Most non-cash property is held by the USMS from the point of seizure until its disposition.  This property is recorded at the estimated fair market value at the time of seizure.

M.        Non-Entity Assets

Non-entity assets are not available for use by the Department and consist of restricted undisbursed civil and criminal debt collections, cash bonds, and seized cash and other monetary assets.

N.         Liabilities, Loans and Interest Payable to the US Treasury

Liabilities represent the monies or other resources that are likely to be paid by the Department as the result of a transaction or event that has already occurred.  However, no liability can be paid by the Department absent proper budget authority.  Liabilities that are not funded by the current year appropriation are classified as liabilities not covered by budgetary resources in Note 15.

Congress granted the FPI borrowing authority pursuant to Public Law 100-690.  Under this authority, the FPI borrowed $20,000 from the Treasury with a lump-sum maturity date of September 30, 2008. 

O.        Contingencies and Commitments

The Department is involved in various legal actions, including administrative proceedings, lawsuits, and claims.  A liability is generally recognized as an unfunded liability for those legal actions where unfavorable decisions are considered “probable” and an estimate for the liability can be made.  Contingent liabilities that are considered “possible” are disclosed in the notes to the financial statements.  Liabilities that are considered “remote” are not recognized in the financial statements or disclosed in the notes to the financial statements.

P.         Annual, Sick and Other Leave

Annual and compensatory leave is expensed with an offsetting liability as it is earned and the liability is reduced as leave is taken.  Each year, the balance in the accrued annual leave liability account is adjusted to reflect current pay rates.  To the extent current or prior year appropriations are not available to fund annual and compensatory leave earned but not taken, funding will be obtained from future financing sources.  Sick leave and other types of nonvested leave are expensed as taken.

Q.        Interest on Late Payments

Pursuant to the Prompt Payment Act, 31 U.S.C. § 3901‑3907, Department of Justice pays interest on payments for goods or services made to business concerns after the due date.  The due date is generally 30 days after receipt of a proper invoice or acceptance of the goods or services, whichever is later.

R.         Retirement Plan

With few exceptions, employees hired before January 1, 1984, are covered by the Civil Service Retirement System (CSRS) and employees hired after that date are covered by the Federal Employees Retirement System (FERS).  For employees covered by CSRS, the Department contributes 7% of the employees’ gross pay for regular and 7.5% for law enforcement officers retirement.  For employees covered by FERS, the Department contributes 10.7% of employees’ gross pay for regular and 22.7% for law enforcement officers retirement.  All employees are eligible to contribute to the Federal Thrift Savings Plan (TSP).  For those employees covered by the FERS, a TSP account is automatically established, and the Department is required to contribute an additional 1% of gross pay to this plan and match employee contributions up to 4%.  No matching contributions are made to the TSPs accounts established by the CSRS employees.  The Department does not report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities, if any, which may be applicable to its employees.  Such reporting is the responsibility of the Office of Personnel Management (OPM).  Statement of Federal Financial Accounting Standards (SFFAS) No. 5, “Accounting for Liabilities of the Federal Government,” requires employing agencies to recognize the cost of pensions and other retirement benefits during their employees’ active years of service.  Refer to Note 18—Imputed Financing Sources for additional details.

S.         Federal Employee Compensation Benefits

The Federal Employees Compensation Act (FECA) provides income and medical cost protection to covered Federal civilian employees injured on the job, employees who have incurred a work‑related occupational disease, and beneficiaries of employees whose death is attributable to a job‑related injury or occupational disease. The total FECA liability consists of an actuarial and an accrued portion as discussed below.

Actuarial Liability:  The US Department of Labor (DOL) calculates the liability of the Federal Government for future compensation benefits, which includes the expected liability for death, disability, medical, and other approved costs.  The liability is determined using the paid‑losses extrapolation method calculated over the next 37‑year period.  This method utilizes historical benefit payment patterns related to a specific incurred period to predict the ultimate payments related to that period.  The projected annual benefit payments were discounted to present value.  The resulting Federal Government liability was then distributed by agency.  The Department portion of this liability includes the estimated future cost of death benefits, workers' compensation, medical, and miscellaneous cost for approved compensation cases for the Department employees.  The Department liability is further allocated to component reporting entities on the basis of actual payments made to the FECA Special Benefits Fund (SBF) for the three prior years as compared to the total Department payments made over the same period.

The FECA actuarial liability is recorded for reporting purposes only.  This liability constitutes an extended future estimate of cost, which will not be obligated against budgetary resources until the fiscal year in which the cost is actually billed to the Department.  The cost associated with this liability cannot be met by the Department without further appropriation action.

Accrued Liability:  The accrued FECA liability is the amount owed to the DOL for the benefits paid from the FECA SBF.

T.         Use of Estimates

The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Note 2.  Fund Balance with US Treasury

The Fund Balance with Treasury amount reported in the financial statements represents the unexpended balance on the Department’s books for the entire Department’s Treasury Symbols:

The unobligated balance for annual and multi-year budget authority may be used to incur new obligations for the purpose specified by the appropriation act.  Annual and multi-year budget authority expires at the end of its period of availability.  During the first through the fifth expired years, the unobligated balance becomes unavailable and may be used to adjust obligations and disbursements that were recorded before the budgetary authority expired or to meet a legitimate or bona fide need arising in the fiscal year for which the appropriation was made.  The unobligated balance for no-year budget authority may be used to incur obligations indefinitely for the purpose specified by the appropriation act.  No-year budget authority unobligated balances are still subject to the annual apportionment and allotment process.

Other Funds (With)/Without Budgetary Resources primarily represents the net difference of 1) Investments in short-term securities with budgetary resources, 2) Resources temporary not available pursuant to public law,    3) Custodial liabilities, and 4) Miscellaneous receipts.

Note 3.  Cash, Foreign Currency, and Monetary Assets

Note 4.  Investments, Net

Note 5.  Accounts Receivable, Net

Note 6.  Inventory and Related Property

Note 7.  Forfeited and Seized Property

Equitable Sharing Payments:

The statute governing the use of the AFF (28 U.S.C. §524(c)) permits the payment of equitable shares of forfeiture proceeds to participating foreign governments and state and local law enforcement agencies.  The statute does not require such sharing and permits the Attorney General wide discretion in determining those transfers.  Actual sharing is difficult to predict because many factors influence both the amount and timing of disbursement of sharing payments, such as the length of time required to move an asset through the forfeiture process to disposition, the amount of net proceeds available for sharing, the elapse of time for Departmental approval of equitable sharing requests for cases with asset values exceeding $1 million, and appeal of forfeiture judgments.  Because of uncertainties surrounding the timing and amount of any equitable sharing payment, an obligation and expense are recorded only when the actual disbursement of the equitable sharing payment is imminent.  From FYs 1999 through 2004, equitable sharing allocation levels averaged $232,017.  The anticipated equitable sharing allocation level for FY 2005 is $270,000.

Analysis of Change in Forfeited Property:

Pursuant to Federal Financial Accounting and Auditing Technical Release 4, “Reporting on Non-Valued Seized and Forfeited Property,” the value of forfeited property with no legal market in the United States (e.g., weapons, chemicals, drug paraphernalia, gambling devices, etc.) is not included in the net forfeited property value, although the item count of non-valued items is disclosed.

Fiscal Year Ended September 30, 2004:

During FY 2004, $95,247 of forfeited property was sold, $18,861 was returned to owners, and $33,271 was disposed of by other means.  Other means of distribution include property transferred to other federal agencies for official use or equitable sharing, property distributed to a state or local agency, or property that is destroyed.

The number of items represents quantities calculated using many different units of measure.  Adjustments include property status and valuation changes as a result of fair market appraisals and/or court orders received during FY 2004. 

Fiscal Year Ended September 30, 2003:

During FY 2003, $73,562 of forfeited property was sold, $39,474 was returned to owners, and $22,325 was disposed of by other means.  Other means of distribution include property transferred to other federal agencies for official use or equitable sharing, property distributed to a state or local agency, or property that is destroyed.

The number of items represents quantities calculated using many different units of measure.  Adjustments include property status and valuation changes as a result of fair market appraisals and/or court orders received during FY 2003.  The addition of ATF as a departmental law enforcement participant in the Asset Forfeiture Program (AFP) was effective January 24, 2003.

Analysis of Change in Seized Property and Evidence:

A seizure is the act of taking possession of goods in consequence of a violation of public law.  Seized property consists of monetary instruments, real property and tangible personal property in the actual or constructive possession of the seizing and the custodial agencies.  Such property is not legally owned by the Department until judicially or administratively forfeited.  Seized evidence includes cash, financial instruments, non-monetary valuables and illegal drugs.

Pursuant to Federal Financial Accounting and Auditing Technical Release 4, “Reporting on Non-Valued Seized and Forfeited Property,” the value of seized property with no legal market in the United States (e.g., explosives, chemicals, drug paraphernalia, gambling devices, etc.) is not included in the net seized property value, although the item count of non-valued items is disclosed.  The gross value of seized property, less estimated liens, equals the net seized property value. 

Fiscal Year Ended September 30, 2004:

During FY 2004, $108,898 of seized property was forfeited, $49,703 was returned to owners, and $26,526 was disposed of by other means.  Other means of distribution include seized property that is sold, converted to cash, or destroyed.

Seized cash deposited (see Note 3) in the SADF of $31,550 is not presented in this note.  Also, the number of items represents quantities calculated using many different units of measure.  Adjustments include property status and valuation changes as a result of fair market appraisals and/or court orders received during the FY 2004.

Fiscal Year Ended September 30, 2003:

During FY 2003, $129,071 of seized property was forfeited, $81,349 was returned to owners, and $17,842 was disposed of by other means.  Other means of distribution include seized property that is sold, converted to cash, or destroyed.

Seized cash deposited (see Note 3) in the SADF of $51,115 is not presented in this note.  Also, the number of items represents quantities calculated using many different units of measure.  Adjustments include property status and valuation changes as a result of fair market appraisals and/or court orders received during FY 2003.

Analysis of Drug Evidence:

The DEA, FBI, and ATF have custody of illegal drugs taken as evidence for legal proceedings.  In accordance with Federal Financial Accounting and Auditing Technical Release No. 4, “Reporting on Non-Valued Seized and Forfeited Property,” the Department reported the total amount of seized drugs below by quantity (kilograms) only, as illegal drugs have no value and are destroyed upon resolution of legal proceedings. 

The following table represents the analysis of change in Seized Narcotics Held for FYs Ended September 30, 2004 and 2003.  The amounts presented in the table represent actual laboratory tested classification and weight.

Unanalyzed drug evidence is qualitatively different from analyzed drug evidence because unanalyzed drug evidence includes the weight of packaging and drug categories are based on the determination of Special Agents instead of laboratory chemists.   Unanalyzed drug evidence also includes bulk drugs housed in secured storage facilities of which only a sample is taken for laboratory analysis.   For these reasons, unanalyzed drug evidence is not included in the tables above.

Note 8.  General Property, Plant and Equipment (PP&E), Net

Items are generally depreciated using the straight line method.

Note 9.  Other Assets

Other Assets With the Public primarily consists of farm livestock held by the Bureau of Prisons.

Note 10.  Nonentity Assets

Note 11.  Debt

In FY 1998, Congress granted FPI borrowing authority pursuant to Public Law 100-690.  Under this authority, FPI borrowed $20,000 from the Treasury with an extended lump-sum maturity date of September 30, 2008.  The funds received under this loan were internally restricted for use in the construction of factories and the purchase of equipment.  The loan accrues interest, payable March 31 and September 30 of each year, at 5.5% (the rate equivalent to the yield of Treasury obligations of comparable maturities which existed on the date of the loan extension).  Accrued interest payable under the loan is either fully or partially offset to the extent the non-interest bearing cash deposits are maintained with the Treasury.  In this regard, there is no accrual of interest unless the cash balance, on deposit with the Treasury, falls below $20,000.  When this occurs, interest is calculated on the difference between the loan amount ($20,000) and the cash balance.

The loan agreement provides for certain restrictive covenants and a prepayment penalty for debt retirements prior to FY 2008.  Additionally, the agreement limits authorized borrowings in an aggregate amount not to exceed 25% of the FPI’s net equity.  There were no net interest expenses for the years ended September 30, 2004 and 2003.

Note 12.   Environmental and Disposal Liabilities

The DEA owns a small section of land located in Chicago, Illinois.  Soil samples taken from this land, after removal of underground storage tanks, indicated levels of benzene, ethyl benzene, and lead that were above soil remediation standards.  Phase I of an environmental site assessment was conducted on January 15, 2002, for this site.  The assessment revealed evidence of a potential environmental condition and recommended the study be extended to determine the extent of the contamination.  Phase II of the environmental site assessment was completed in FY 2003 and filed with the Illinois Environmental Protection Agency.  This assessment indicated that the soil contained lead.  There are no clean-up costs reflected in the financial statements at this time because the Illinois Environmental Protection Agency requested further testing in order to define the limits of the impacted soil and groundwater.  The General Services Administration (GSA) is currently in the process of contracting for these additional tests.

Note 13.  Leases

Capital leases include a Federal Detention Center (25 year lease term), an airplane hangar (20 year lease term) in Oklahoma City, Oklahoma, and a training facility (16 year lease term) in Pineville, Louisiana.

Future Payments Due:

Operating Leases:
Future Operating Lease Payments Due:

Operating leases have been established for multiple years.  Many of the operating leases that expire over an extended period of time include an option to purchase the equipment at the current fair market value, or to renew the lease for additional periods.

The majority of space occupied by the Department is leased from the GSA. The space is assigned to the Department by the GSA based on the Department’s square footage requirements. The rent charged to the Department is intended to approximate commercial rates.  Most of these leases may be terminated without incurring termination charges, however, it is anticipated that the Department will continue to lease space from the GSA in future years.  Total future operating lease payments of $7,598,591 include GSA leases.

Note 14.  Other Liabilities

Intragovernmental other liabilities primarily represent civil debt collections where the Treasury General Fund is designated as the recipient of either a portion of a collection or the entire amount of a collection.

Note 15.  Liabilities Not Covered by Budgetary Resources

Generally, liabilities not covered by budgetary resources are liabilities for which Congressional action is needed before budgetary resources can be provided.  However, some liabilities do not require appropriations and will be liquidated by the assets of the entities holding these liabilities.  They include civil and criminal debt collections, seized cash and monetary instruments, and revolving fund operations.

Note 16.  Contingencies and Commitments

The Department is party to various administrative proceedings, legal actions, and claims, including environmental damage claims, equal opportunity matters, and contractual bid protests.  The balance sheet includes an estimated liability for those legal actions where the Chief Counsel considers adverse decisions “probable.”  Management has determined that it is probable that some of these proceedings and actions will result in the incurrence of liabilities, and the amounts are reasonably estimable.  The estimated liabilities for these cases at September 30, 2004 and 2003 were $106,881 and $67,919, respectively, and recorded in the financial statements. 

There are also legal actions pending where adverse decisions are considered to be reasonably possible.  As of September 30, 2004, 58 legal actions were reported as reasonably possible.  Of the 58 legal actions, 37 reported a potential loss in the range of $160,538 to $223,238.  For the remaining 21 legal actions an estimate of potential loss could not be determined.

Note 17.  Relationship Between Liabilities Not Covered by Budgetary Resources and Components Requiring or Generating Resources in Future Periods

Liabilities that are not covered by realized budgetary resources and for which there is not certainty that budgetary authority will be realized, such as the enactment of an appropriation, are considered liabilities not covered by budgetary resources.  These liabilities totaling $2,485,748 and $1,807,839 on September 30, 2004 and 2003, respectively, are discussed in Note 15, Liabilities Not Covered by Budgetary Resources.  These liabilities do not equal Components of Net Cost of Operations Requiring or Generating Resources in Future Periods on the Consolidated Statement of Financing.  Total Components of Net Cost of Operations Requiring or Generating Resources in Future Periods include only current unfunded expense amounts and changes in unfunded exchange revenue receivables from the public, while the unfunded liabilities represent both current and prior year unfunded expense amounts.  The increases and decreases below represent the absolute value of the changes in the various Department components rather than a net number.  Some of those liabilities represent current year activity to be funded by future resources and are comprised of the following:

Note 18.  Imputed Financing Sources

Imputed financing recognizes actual cost of future benefits, the Federal Employees Health Benefits Program (FEHB), the Federal Employees Group Life Insurance Program (FEGLI), and the Federal Pension plans that are paid by other Federal entities.  The Treasury Judgment Fund was established by the Congress and funded at 31 U.S.C. 1304 to pay in whole or in part the court judgments and settlement agreements negotiated by the Department on behalf of agencies, as well as certain types of administrative awards.  Interpretation of SFFAS No. 2, “Accounting for Treasury Judgment Fund Transactions,” requires agencies to recognize liabilities and expenses when unfavorable litigation outcomes are probable and the amount can be estimated and will be paid by the Treasury Judgment Fund.

SFFAS No. 5, “Accounting for Liabilities of the Federal Government,” requires that employing agencies recognize the cost of pensions and other retirement benefits during their employees’ active years of service.  SFFAS No. 5 requires OPM to provide cost factors necessary to calculate cost.  OPM actuaries calculate the value of pension benefits expected to be paid in the future, and then determine the total funds to be contributed by and for covered employees, such that the amount calculated would be sufficient to fund the projected pension benefits.  For employees covered by Civil Service Retirement System (CSRS), the cost factors are 25% of basic pay for regular, 40.3% law enforcement officers, 19.5% regular offset, and 35.7% law enforcement officers offset.  For employees covered by Federal Employees Retirement System (FERS), the cost factors are 12% of basic pay for regular and 25.1% for law enforcement officers.

The cost to be paid by other agencies is the total calculated future costs, less employee and employer contributions.  In addition, other retirement benefits, which include health and life insurance that are paid by other Federal entities, must also be disclosed. 

Imputed Financing Sources:

Note 19.  Consolidated Gross Cost and Earned Revenue by Budget Functional Classification

Consolidated Gross Cost and Earned Revenue by Budget Functional Classification

Intragovernmental Gross Cost and Earned Revenue by Budget Functional Classification

Note 20.  Net Custodial Revenue Activity

WCF collects funds on behalf of Federal Agencies and other aggrieved parties through the financial litigation activities of the Department.  Currently, the primary sources of collections are civil litigated matters (i.e., student loan defaults, health care fraud, etc.).  The Debt Accounting Operations Group (DAOG) also processes certain payments on criminal debts as accommodations for the BOP and the Clerks of the US District Courts. The BOP aggregates inmate criminal debt payments by correction facility, and the DAOG re-sorts the payments by judicial district and disburses these payments to the respective Clerks of the US District Court.  The DAOG also accepts wire transfers or other payments on a criminal debt if a Clerk of the US District Court is unable or unwilling to do so.

OBDs collect civil fines, penalties, and restitution payments that are incidental to its mission.  For the fiscal year ended September 30, 2004, OBDs collected a total settlement fund of $560,000, of which $375,000 and $185,000 were paid by French bank Credit Lyonnais and French company Artemis, respectively.  $110,000 of the settlement fund was disbursed for compensation of benefits lost and $450,000 was held in reserve pending the outcome of the lawsuits.  By court order, OBDs were given the investment authority and the settlement funds must be invested.  OBDs invested these funds with the Department of Treasury, Bureau of the Public Debt.  The settlement funds including the investment revenue were reported as Custodial Liabilities.  The investments for FY 2004 were redeemed at September 30, 2004 and new investments will continue in FY 2005.

DEA collects civil monetary penalties related to violations of the Controlled Substances Act that are incidental to its mission.  DEA has no statutory authority to use these funds and they are transmitted to the General Fund of Treasury upon receipt.

ATF collects civil excise taxes from firearms and ammunition industries, as well as permit and license fees. In addition, Special Occupational Taxes are collected from certain firearms businesses.  Substantially all of the taxes and fees collected by ATF net of related refund disbursements are remitted to the General Fund of the Treasury.  The Treasury further distributes this revenue to Federal agencies in accordance with various laws and regulations.

Collections that INS reported in the Statement of Custodial Activity in FY 2003 are summarized as follows:

• H-IB Nonimmigrant Petitioner Fee - Payments received from nonimmigrant petitioners under INA section 214(9) and collected by INS were deposited into the General Fund of the Treasury.  INS received 4% of the proceeds while the Department of Labor and National Science Foundation share the balance.  The Treasury made distribution form this Special Fund Receipt account quarterly to the respective agencies.
• Miscellaneous Receipts – INS collected monies from a variety of sources.  Collections included interest, fines, penalties, forfeitures, and miscellaneous fees.

September 11th Victim Compensation Fund

The Air Transportation Safety and System Stabilization Act of 2001 (PL 107-42) created the September 11th Victim Compensation Fund (the Fund) to provide compensation to those physically injured or to personal representatives of those killed as a result of the terrorist attacks of September 11, 2001.  A Special Master who was appointed by the Attorney General administers the Fund.  Its mission is to fairly and expeditiously resolve claims, consistent with the Act and associated regulations.  The law required that all claims be filed by December 22, 2003.  By June 2004, all claims had been reviewed and associated award determinations had been accomplished.

The Act established an indefinite appropriation for making payments on approved claims.  The Department of Justice received appropriations of $6,366,000 and $2,700,000 for FYs 2004 and 2003, respectively.  Benefit payments of $6,308,672 and $708,536 were disbursed for in FYs 2004 and 2003, respectively.

OMB Circular No. A-11, “Preparation, Submission and Execution of the Budget,” requires indefinite appropriation accounts to return to the Treasury any unobligated balances as of September 30.  As of September 30, 2004 and 2003, $161,230 and $1,998,211 respectively were returned to the Treasury and recorded as Authority Withdrawn on the following page.  These amounts constitute the majority of the “Other Adjustments” balances presented on the Statement of Changes in Net Position.  The Department will receive an FY 2005 indefinite appropriation to cover any new obligations associated with adjustments to prior determinations.

Summarized financial information about appropriated funds received, benefit payments disbursed and payable, and the Fund balance is presented on the following page:

Radiation Exposure Compensation Program

On October 15, 1990, Congress passed the Radiation Exposure Compensation Act (RECA), 42 U.S.C. § 2210 note (1990), providing for compassionate payments to individuals who contracted certain cancers and other serious diseases as a result of their exposure to radiation released during above-ground nuclear weapons tests or as a result of their exposure to radiation during employment in underground uranium mines.  Implementing regulations were issued by the Department and published in the Federal Register on April 10, 1992, establishing procedures to resolve claims in a reliable, objective, and non-adversarial manner, with little administrative cost to the United States or to the person filing the claim.  Revisions to the regulations, published in the Federal Register on March 22, 1999, served to greater assist claimants in establishing entitlement to an award.

On July 10, 2000, the ‘Radiation Exposure Compensation Act Amendments of 2000,’ PL 106-245, was enacted.  Some of the widespread changes include new claimant populations, additional compensable diseases, lower radiation exposure thresholds, modified medical documentation requirements, and

removal of certain disease restrictions.  Pursuant to the 2000 Amendments, the Department was directed to issue implementing regulations.  The Department published two related rulemakings in the Federal Register to implement the legislation.  Subsequent action by Congress required modification to those rulemakings.  Therefore, the Department published a “final” rule in the Federal Register on March 23, 2004, which went into effect on April 22, 2004.

There are now five categories of claimants: uranium miners, uranium millers, ore transporters, downwinders, and onsite participants.  Each category requires similar eligibility criteria: exposure to radiation and existence of a compensable disease.

The OBDs recognized a $588,617 liability for estimated future benefits payable by the Department at September 30, 2004 to eligible individuals under the Act through FY 2022.  The September 30, 2004 estimated liability is based on historical data collected since the Program commenced operations in 1992, and management’s assumptions concerning receipt and approval of claims in the future.  Key factors in determining future liability are the number of claims filed, the number of claims approved, and estimates for these factors through FY 2022.  These estimates are then discounted in accordance with the discount rates set by the Office of Management and Budget.

Summarized financial information about appropriated funds received, benefit payments disbursed and payable, and the Fund balance is presented below: