B-142694, SEP. 1, 1960

B-142694, SEP. 1, 1960

TO THE SECRETARY OF THE TREASURY:

BY LETTER OF APRIL 21, 1960, THE FISCAL ASSISTANT SECRETARY REQUESTED OUR OPINION CONCERNING THE APPLICABILITY OF EXISTING ACCOUNTING PRINCIPLES, STANDARDS AND RELATED REQUIREMENTS TO PROPERTY SEIZED BY YOUR DEPARTMENT IN CONNECTION WITH ITS RESPONSIBILITIES FOR COLLECTING REVENUES AND ENFORCING LAWS RELATING TO CERTAIN CRIMINAL MATTERS.

PROPERTY SEIZED IN CONNECTION WITH REVENUE MATTERS IS SOLD, AFTER THE APPROPRIATE WAITING PERIOD PRESCRIBED BY LAW, AND THE PROCEEDS APPLIED TO THE ACCOUNT OF THE TAXPAYER. IT MAY BE REDEEMED BY THE TAXPAYER ANY TIME PRIOR TO SALE, BY HIS PAYMENT OF THE TAX LIABILITY. PROPERTY SEIZED IN CONNECTION WITH CRIMINAL MATTERS IS, AFTER THE APPROPRIATE WAITING PERIOD PRESCRIBED BY LAW, EITHER SOLD, CONVERTED TO GOVERNMENT USE, OR IN SOME INSTANCES, RETURNED TO A CLAIMANT ON A PETITION FOR REMISSION OR MITIGATION OF THE FORFEITURE. THE QUESTION POSED BY THE ASSISTANT SECRETARY RELATES TO THE DESIRABILITY OF MAINTAINING MONETARY PROPERTY ACCOUNTING RECORDS AS AN INTEGRAL PART OF THE ACCOUNTING SYSTEM FOR THE PERIOD DURING WHICH THE PROPERTY INVOLVED IS NOT OWNED BY THE GOVERNMENT.

SECTION 113 OF THE BUDGET AND ACCOUNTING PROCEDURES ACT OF 1950, AS AMENDED, 31 U.S.C. 66A, PROVIDES, QUOTING FROM THE CODE, THAT:

"/A) DUTIES OF AGENCY HEADS; INFORMATION AND CONTROLS TO BE COVERED.

"THE HEAD OF EACH EXECUTIVE AGENCY SHALL ESTABLISH AND MAINTAIN SYSTEMS OF ACCOUNTING AND INTERNAL CONTROL DESIGNED TO PROVIDE---

"/3) EFFECTIVE CONTROL OVER AND ACCOUNTABILITY FOR ALL FUNDS, PROPERTY, AND OTHER ASSETS FOR WHICH THE AGENCY IS RESPONSIBLE, INCLUDING APPROPRIATE INTERNAL AUDIT; * * *.'

IN ORDER TO ACCOMPLISH THE OBJECTIVE OF THIS PROVISION OF LAW AND IN ORDER FOR AN ACCOUNTING SYSTEM TO BE FULLY EFFECTIVE, IT SEEMS CLEAR THAT THE SYSTEM SHOULD PROVIDE A RECORD IN MONETARY TERMS OF ALL TRANSACTIONS FOR WHICH THERE IS FINANCIAL RESPONSIBILITY OR ACCOUNTABILITY. IT IS NOT NECESSARY TO OWN PROPERTY IN ORDER TO HAVE FINANCIAL RESPONSIBILITY AND ACCOUNTABILITY FOR SUCH PROPERTY. IN THE CASE OF SEIZED PROPERTY, REPRESENTATIVES OF YOUR DEPARTMENT HAVE A DUAL RESPONSIBILITY--- ONE TO THE INDIVIDUALS OR ORGANIZATIONS FROM WHOM THE PROPERTY WAS TAKEN AND ONE TO THE PUBLIC AT LARGE FOR PROPER DISPOSITION OF SUCH SEIZED PROPERTY AS MIGHT BE FORFEITED TO THE GOVERNMENT. YOUR REPRESENTATIVES THUS HAVE AT LEAST AS GREAT A DEGREE OF RESPONSIBILITY FOR SEIZED PROPERTY AS THEY HAVE FOR PROPERTY OWNED BY THE GOVERNMENT.

ADEQUATE MONETARY RECORDS OF SEIZED PROPERTY MAINTAINED AS AN INTEGRAL PART OF THE ACCOUNTING SYSTEM SHOULD, FOR THE FOLLOWING REASONS, CONTRIBUTE TO MORE EFFECTIVE CONTROL OVER SUCH PROPERTY THAN IS PROVIDED BY INFORMAL MEMORANDUM RECORDS MAINTAINED INDEPENDENTLY OF THE ACCOUNTING YSTEM:

1. THE CONTROL RECORDS WOULD BE MAINTAINED INDEPENDENTLY OF THE INDIVIDUAL OR GROUP RESPONSIBLE FOR THE SEIZURE, CUSTODY, AND DISPOSITION OF THE PROPERTY, THEREBY FULFILLING ONE OF THE ESSENTIALS FOR ADEQUATE INTERNAL CONTROL.

2. BY ASSIGNING A DOLLAR VALUE TO EACH ACCOUNTABLE ITEM OF PROPERTY, THE DETERMINATION THAT THE TOTAL AMOUNT OF ALL INDIVIDUAL RECORDS IS IN AGREEMENT WITH THE CONTROL ACCOUNT AND THAT ALL ITEMS ARE ACCOUNTED FOR IS FACILITATED.

3. THE TRANSACTIONS UNDER MONETARY ACCOUNTING CONTROL ARE GENERALLY SUBJECT TO PROCEDURES AND ROUTINES WHICH ARE MORE RIGID AND EXACTING THAN THOSE APPLICABLE TO THE MAINTENANCE OF INFORMAL RECORDS. ACCOUNTING CONTROLS INVOLVE MECHANISMS OF CAREFULLY DESIGNED CHECKS AND BALANCES WHICH HAVE BEEN THOROUGHLY TESTED THROUGH MANY YEARS OF EXPERIENCE.

FINANCIAL RESPONSIBILITY DISCLOSED FORMALLY IN THE ACCOUNTING RECORDS FACILITATES THE PREPARATION OF MEANINGFUL AND ACCURATE FINANCIAL REPORTS. ALSO TO PLACE UNDER MONETARY ACCOUNTING CONTROL RECORDS WHICH HAVE BEEN MAINTAINED INFORMALLY USUALLY INVOLVES LITTLE OR NO ADDITIONAL WORK ONCE THE CONTROLS HAVE BEEN INITIALLY ESTABLISHED. ACCORDINGLY, WE MUST CONCLUDE THAT SEIZED PROPERTY SHOULD BE PLACED UNDER MONETARY ACCOUNTING CONTROL.

IT IS NOT INTENDED THAT THE FOREGOING APPLY TO CONTRABAND PROPERTY HAVING NO LEGAL MONETARY VALUE WHICH IS EITHER (1) DESTROYED IMMEDIATELY UPON SEIZURE OR (2) HELD TEMPORARILY FOR USE AS EVIDENCE OR FOR OTHER ADMINISTRATIVE PURPOSES PRIOR TO DESTRUCTION. IT IS OUR UNDERSTANDING, HOWEVER, THAT THE TREASURY DEPARTMENT MAINTAINS STATISTICAL RECORDS OF SEIZED PROPERTY. IN VIEW OF THIS, IT WOULD APPEAR TO BE SIMPLER, PROCEDURALLY, TO USE THE SAME SOURCE DOCUMENT FOR REPORTING THE SEIZURE OF PROPERTY DESTROYED OR TO BE DESTROYED AS FOR REPORTING THE SEIZURE OF PROPERTY WHICH IS TO BE SOLD, CONVERTED TO GOVERNMENT USE, OR RETURNED TO THE OWNER. UNDER THIS APPROACH, ONE BASIC FORM COULD BE USED TO REPORT THE SEIZURE OF PROPERTY REGARDLESS OF DISPOSITION.

IN THE IMPLEMENTATION OF THE POLICY OF MONETARY ACCOUNTING FOR SEIZED PROPERTY, A REASONABLE APPROACH SHOULD BE USED IN ASSIGNING MONETARY VALUES. IT SHOULD NOT BE NECESSARY TO RESORT TO ELABORATE, TIME-CONSUMING AND EXPENSIVE APPRAISAL PROCEDURES. THE PROCEDURE UTILIZED WILL, OF COURSE, VARY ACCORDING TO CIRCUMSTANCES, AND CONSIDERATION SHOULD BE GIVEN TO SUCH FACTORS AS THE NATURE OF THE SEIZED PROPERTY, METHOD OF DISPOSAL, AND THE COST OF OBTAINING INFORMATION NECESSARY FOR THE ASSIGNMENT OF VALUES.

SHOULD YOU DESIRE, WE WOULD BE GLAD TO HAVE OUR REPRESENTATIVES CONSULT WITH AND ASSIST YOUR DEPARTMENT IN THE IMPLEMENTATION OF THIS DECISION.