Summary: In connection with GAO's audit of the U.S. Government's financial statement, GAO reviewed the Financial Management Service's (FMS) internal control actions to improve the monitoring of lockbox bank operations.
GAO reported on weaknesses in, and recommended improvements to, FMS' monitoring of lockbox operations related to on-site reviews and lockbox bank audits. GAO noted that: (1) FMS has taken significant steps to strengthen its monitoring of its lockbox bank operations but additional actions are needed to assure that federal collections are adequately safeguarded and properly processed; (2) FMS has addressed GAO's concerns related to on-site reviews; (3) FMS acted on GAO's recommendations related to requiring and providing guidance for lockbox bank audits; however, due to the timing of the bank audits, FMS had not obtained the results of such audits as of the end of GAO's fieldwork; and (4) it was too early to assess the effectiveness of FMS' enforcement of the audit requirement, review of the audit results, and follow-up on weaknesses identified, if any, in lockbox operations, as GAO recommended. In performing the fiscal year 1999 testing, GAO found that additional actions are needed to: (a) follow up on problems at lockbox banks identified by the federal agencies for which the lockbox services are provided; and (b) ensure the sufficiency of collateral pledged by the lockbox banks. While FMS performed some procedures to investigate thefts identified by one agency at its general lockbox bank site, FMS' actions did not include determining what deficiencies at the bank allowed such thefts to occur; therefore, FMS was unable to assess whether the corrective actions taken by the bank were adequate to prevent such thefts from occurring in the future. Once GAO brought this matter to FMS' attention, FMS investigated the thefts further and found that additional controls were needed at the bank to adequately safeguard the collections. FMS had not monitored the sufficiency of the collateral pledged by the lockbox banks since 1995 when it entered into lockbox service agreements with the banks, even though its internal procedures require that reassessments be performed every 2 years. After GAO identified this problem, FMS reassessed the collateral pledged by the banks and found that three of the four lockbox banks were significantly undercollateralized. Without effectively monitoring banks' lockbox operations, FMS does not know whether the banks are adequately safeguarding and properly processing billions of dollars of federal collections.
