WENDY GREUEL

CONTROLLER

June 28,2013

The Honorable Antonio R. Villaraigosa, MayorThe Honorable Carmen A. Trutanich, City AttorneyHonorable Mernbers of the Los Angeles City Council

Today I am releasing the final report of the "Audit of LAPD's Controls Over Seized &Forfeited Assets" that examined the procedures used by LAPD during the entire processof asset seizure and forfeiture.

I am pleased to report that my auditors have concluded that LAPD has sufficient controlsover the assets seized, and we found no malfeasance or misuse of funds and assets orconcerns regarding this high-risk area. However, the audit noted significant weaknessesregarding the overall management of the program, due to an absence of coordination anda bifurcated process between LAPD Divisions, an outdated tracking systern and weakfollow-up and case monitoring of forfeiture cases that had been referred to prosecutorial

...~-agencles,=As-a ....result;AD-perce-(jt::-of::3000=olren=cBSB1>iTac!:b",€m::npen::1'ol':O=oRTIore=years;=...======~and there was a lack of assurance regarding the appropriate disposition of some seizedassets.

LAPD must ensure appropriate oversight and control over the entire process related toasset forfeiture and implement an improved automated system, coupled with definedresponsibilities for involved Divisions, to better coordinate and systematically track allphases of this irnportant process. LAPD has indicated they have begun to implement thereport's recommendations.

Sincerely,

200 N. MAIN STREET, SUITE 300, LOS ANGELES, CA 90012" (213) 978-7200 " HTTP://CONTROLLER.LACITY.ORG

AN EQUAL EMPLOYMENT OPPORTUNITY - AFFIRMATIVE ACTION EMPLOYER

WENDY GREUEL

CONTROLLER

June 28, 2013

Mr. Charlie Beck, Police ChiefLos Angeles Police Department100 E. Temple StreetLos Angeles, CA 90012

Dear Chief Beck:

Enclosed is the final report of the "Audit of LAP D's Controls Over Seized & ForfeitedAssets." The draft report was provided to your Department on June 12, 2013. Commentsprovided by your staff at an exit conference held on June 26, 2013 were considered priorto finalizing the report.

Please review the final report and advise the Controller's Office by July 29, 2013 of theactions planned and/or taken to implement the recommendations. An electronic

.. .-tempJat!LoLth'U;lydit'sELlldiD9§9.0(:LR~<:;()mm~ncLations can be provided toyour staff tofacilitate this process.··· .. ....-.... ..-.- .

AN EQUAL EMPLOYMENT OPPORTUNITY - AFFIRMATIVE ACTION EMPLOYER

If you have any questions or comments, please contact me at (213) 978-7392.

Sincerely,

p/~FARID SAFFAR, CPADirector of Auditing

Enclosure

cc: Richard E. Drooyan, President, Board of Police CommissionersGaye Williams, Chief of Staff, Office of the MayorMiguel A. Santana, City Administrative OfficerGerry Miller, Chief Legislative AnalystJune Lagmay, City ClerkIndependent City Auditors

200 N. MAIN STREET, SUITE 300, LOS ANGELES, CA 90012 e (213) 978~7200 e HTTP://CONTROLLER.LACITY.ORG

City of Los AngelesOffice of the Controller

II1II

Audit of LAPD's Controls OverSeized & Forfeited Assets

June 28, 2013----------------/1--

Wendy GreuelCity Controller

TABLE OF CONTENTS

EXECUTIVE SUMMARY ••••••••••••••••••••••••••••••••••••.••••••••.•••••••••••••••.••••••••••••••••••••••••.••••••....•••••.. 1

CONTROLLER'S ACCOUNTABILITY PLAN •••••.••••••••.••••••..•••••••..••••••••••••••.••••••••••••••••...•••••..••••• 6

BACKGROUND, OBJECTIVES, SCOPE AND METHODOLOGY 11

AUDIT FINDINGS AND RECOMMENDATIONS ••••••••••••••••••••.•••••••••••...•••••....••••••...•••••..••••••...••• 18

SECTION I: MANAGEMENT CONTROL & REPORTING OF PROGRAM OPERATIONS ••••.•••••.••.•••• 18

SECTION II: PROCESS EFFECTIVENESS AND COMPLIANCE •••••••••.••••••••.••••••••.••••••••••••••..•••••• 32

ApPENDIX A •.•••••••••••••.•••••••..•••••••.•••••••••••••...••••••••••••••••••••••••••••••..•••••...••••••...•••••••..•••••..•• 41

EXECUTIVE SUMMARY

The Office of the City Controller has completed an Audit of Controls Over Seized &Forfeited Assets at the Los Angeles Police Department (LAPD). The objectives of theaudit were to determine the effectiveness of current management controls over seizedand forfeited assets, including both cash and property, and to ensure LAPD hasadequate control processes to comply with State and federal laws relating to thedisposition of these assets.

State and federal laws require the confiscation and forfeiture of all contraband-property that is illegal to possess per se. Other laws authorize the seizure and forfeitureof private property that is used in an extensive array of crimes. Therefore, LAPD mayseize real and personal property that is used in a crime, and after a legal forfeitureprocess, may use the proceeds or the property itself to enhance law enforcementactivities. Crimes for which LAPD dedicates staff resources towards pursuing assetforfeitures include only those that involve illegal drugs or money laundering, through thedesignated activities of personnel assigned to the Asset Forfeiture Investigative Detail ofthe Gangs and Narcotics Division.

LAPD works independently or with other local, State, or federal authorities to file------ff,ofl'eiture-Gase8-r:teady.-alLof.....wbicb--..imlOhLe_s.eizur:e.Lo.Leash wjib...1b.e Los Ang,,,.e.!),le"'s'---- _

County District Attorney or with the U.S. Attorney. During 2012 LAPD's Asset ForfeitureInvestigative Detail (AFID) reported the initiation of more than 500 forfeiture casesinvolving nearly $21 million in cash.

Federal guides describe how LAPD may participate in federal asset forfeiture cases andqualify to receive as much as an 80% "equitable share" of the forfeited assets. Assetforfeitures resulting from violations of State law result in LAPD receiving a 65% share offorfeited assets.

While AFID initiates asset forfeiture cases, accounting for the financial proceeds ofasset forfeitures is the task of LAPD's Fiscal Operations Division (FOD). Together,AFID and FOD comprise LAPD's Asset Forfeiture Program (Program), whose activitieswere the focus of this audit. This performance audit was performed in accordance withgenerally accepted government auditing standards and covered LAPD's asset seizureand forfeiture activities during 2011 and 2012. Audit fieldwork was conducted betweenOctober 2012 and March 2013.

SUMMARY OF AUDIT RESULTS

LAPD's Asset Forfeiture Program (Program) lacks a comprehensive reporting processor system that is capable of accurately presenting the results of Program operations.Different LAPD Divisions have various roles in implementing the Program, but none hadsufficient accountability or coordination for oversight of the entire forfeiture process. Asa result, we found that LAPD lacked effective management control over the AssetForfeiture Program.

It should be noted that the issues we identified occurred after the assets were seizedand the forfeiture cases were initiated. Our audit found adequate controls over theseizure process itself, as well as the security of assets while they were in LAPDcustody', Specifically, we found no instances of malfeasance or misuse of the assetsthat were seized by LAPD.

AFID generally focuses on the initial program process of the seizure itself, and filing theforfeiture cases with prosecuting agencies. However, due to an outdated andineffective automated system and insufficient case monitoring and follow-up, there wasno assurance that forfeiture cases were appropriately closed and the proceeds werereceived. No single individual or Unit is responsible for the forfeiture case from initiationto closeout. Also, due to weaknesses in Program accounting, LAPD is at risk ofnoncompliance with federal rules that qualify LAPD to share in the proceeds of jointfederal asset forfeiture cases.

LAPD must ensure appropriate oversight and control over the entire process related toasset forfeiture, and dedicate sufficient resources through an improved automatedsystem and staff with defined responsibilities to appropriately coordinate andsystematically track all phases of the asset forfeiture process.

Key Findings

o LAPD has insufficient controls and information systems to supportadequate reporting on the Asset Forfeiture Program.

LAPD does not have a comprehensive information system that can report on thevalue or description of assets that have been seized over a specified time period;the value or description of the seized assets that are currently in the custody oflaw enforcement pending a forfeiture determination; or the net amount of actualproceeds that it has received on resolved forfeiture cases.

2

Some of this information is kept on various LAPD systems, and AFID trackssome statistics related to the initiation of new forfeiture cases. However, wefound a lack of adequate case management to ensure proper follow-up ormonitoring, and no comprehensive process to ensure appropriate caseresolutions.

1 During the legal forfeiture process, seized cash is transferred to the custody of the prosecutorial agency,while non-cash assets remain with LAPD.

During our audit, AFID's system listed almost 3,000 open cases, with 40% thathad been open for 5 or more years. AFID staff expressed they were aware of thedelinquency of their closure process, and subsequently closed more than sevenhundred case files between October 2012 and January 2013.2 Our audit foundmany cases where cash, cars, boats, real estate or personal property wereerroneously listed as open in AFID's tracking database, sometimes up to tenyears after the prosecuting agency had closed the case.

Due to AFID's primary focus on case initiation rather than proactive casemonitoring and closure, coupled with the inconsistent use of an outdated systemthat is not effective for managing their work, LAPD is prevented from accuratelyreporting the status of asset forfeiture cases and related proceeds at any point intime, or from having sufficient information to measure the outcomes of theProgram as a whole.

o LAPD processes lack assurance regarding the appropriate disposition ofseized assets, including ensuring if proceeds from all forfeited assets areactually received and deposited.

We identified many cases with inaccurate and out-of-date recordkeeping issuesresulting in cases that had been closed by prosecutors years ago, with proceedsthat were paid to LAPD, still showing as open in AFID records. The failure tosystematically track case activity and record case-closure events increases therisk of error and does not provide sufficient assurance that the assets and relatedproceeds are deposited into LAPD's account or retumed to the rightful owner.For example, during our testing we noted that a case that had been dormant formore than ten years promptly became active again based on our queries; with anew filing to close the case by the District Attorney, it produced additionalproceeds to LAPD of approximately $25,000.

Net proceeds received from federal agencies by wire transfer were not alwaysposted to the correct fund, and proceeds from State cases were sent via checkand not adequately controlled. LAPD's process lacks an adequate audit trail toreadily verify if the forfeiture proceeds have been deposited into the City'saccounts. Only by obtaining copies of checks and other payment informationfrorn the prosecuting agency was the auditor able to verify the receipt anddeposit of these funds.

Our audit also found other cases involving non-cash assets (including jewelryvalued at tens of thousands of dollars, and real estate worth millions of dollars)that were listed as open on AFID's systern, even though the prosecutor hadpreviously closed the case and assets were sold with a portion of proceedsremitted to LAPD.

2 AFID indicated that as of the date of this report, all previously outstanding and open forfeiture cases thathad actually been resolved were formally closed in their database.

3

Our audit also disclosed that accurate records of seized vehicles were a problem.During our audit AFID's database listed 107 cases with 195 vehicles in Openstatus, implying that LAPD had custody of 195 vehicles. However, only 15seized vehicles were actually in storage. Although data on vehicle dispositionswas kept manually in a separate spreadsheet, the case tracking system wasinaccurate and unreliable.

The failure to timely record changes in case status, record transactions regardingreceipt of forfeiture proceeds, control cash receipts (both checks and wiretransfers), and follow up on cases left open for more than five years, created asignificant risk that problems may have occurred unnoticed.

o Opportunities exist to improve LAPD processes to identify assets forpotential seizure and forfeiture.

The process for evaluating seizures for forfeiture processing involves outdatedsystems and manual processes. AFID regularly scans information in theProperty Division's tracking system (APIMS) for new cases involving cashseizures over a specified dollar amount with a primary crime code involving anarcotics violation. However, this is a time consuming manual process prone toerror or omission. For example, we noted that some cases that were eligible forasset forfeiture were missed because there were multiple crime codes, and atleast one date was overlooked. We understand that LAPD has begun theprocess to replace APIMS, and with proper coordination, the new system couldmake the screening process more efficient and effective. In the interim, bycoordinating with the Information Technology Division, AFID may improveefficiency by utilizing data from existing LAPD systems.

4

LAPD participates in the High Intensity Financial Crimes Area Task Force led bythe federal Treasury Department, which pursues asset forfeitures related tofinancial crimes and money laundering. Treasury has rolled out new analyticaltools that could enhance processes used to identify potential leads. LAPD couldmaximize the effectiveness of its participation through additional training,coordination with other LAPD Divisions with expertise in financial crimes, and/orby assigning non-sworn personnel with specialized training to assist inperforming analytical procedures.

Many non-narcotic State and federal crimes include assetforfeiture provisions;however, LAPD's Asset Forfeiture Program focuses solely on drug-relatedcrimes. As a unit of the Gangs and Narcotics Division, AFID has specificexpertise in crimes with a narcotics-nexus, and has solely focused on thesetypes of forfeiture cases. Other LAPD Divisions or Units may have pursuedasset forfeitures related to non-narcotics crimes, but AFID was not aware of themor involved in those processes. The number of these cases may be nominal, butLAPD must ensure all asset forfeiture cases comply with applicable forfeiturelaws and regulations regarding initiation, monitoring, reporting and ensuringreceipt and appropriate reporting of net proceeds. Opportunities to identify and

effectively control these functions are better assured if it is handled in acentralized manner.

o Additional efforts are necessary to ensure compliance with administrativerequirements.

The Asset Forfeiture process is highly regulated and LAPD must ensure itcomplies with State law and federal requirements to qualify for an "equitableshare" of asset forfeiture proceeds. Due to weaknesses in Program casetracking and accounting, LAPD is at risk of noncompliance with federal rules thatqualify LAPD to share in the proceeds of joint federal asset forfeiture cases.

LAPD must ensure appropriate oversight over the entire process related to assetforfeiture, and dedicate sufficient resources through an improved automatedsystem and staffing with defined responsibilities to appropriately coordinate andsystematically record all aspects of the asset forfeiture process.

These issues are discussed in more detail within the audit findings andrecommendations section of this report.

REVIEW OF REPORT

On June 12, 2013, a draft report was provided to LAPD management. We held an exitconference with LAPD representatives on June 26, 2013, where LAPD managementindicated their general agreement with the report's findings and recommendations,adding they have begun to implement many of the recommendations. We alsoconsidered LAPD's comments as we finalized the report for issuance. We would like tothank LAPD management and staff for their cooperation and assistance during the

~~~~~audiitt.~~~~--~~~~~~~~~~~~~~~~~~~~~~~~ __

5

CONTROLLER'S ACCOUNTABILITY PLAN

SECTION 1- MANAGEMENT CONTROL & REPORTING OF PROGRAM OPERATIONS

LAPD Executive Management should:

1. Confirm that AFID has primary responsibilityand accountability for controls over theentire Asset Forfeiture process, andestablish necessary procedures and 22 LAPDappropriate coordination among Divisions tosupport effective management and accuratereporting on the results of the AssetForfeiture Program

2. Implement effective processes and controlsfor staff to manage the status of eachforfeiture case, so current information onthe case and related seized assets isaccessible, reliable, and accurate. This 22 LAPDshould include defining the specific dutiesand responsibilities of both sworn andcivilian staff positions regarding ongoingcase management.

3. Direct the Information Technology Divisionto work with AFID to determine the softwareneeds to replace the existing casemanagement system, and provide 22 LAPDnecessary resources to enable a transitionto a more user-friendly, flexible databasesystem that will facilitate reporting andmanagement control.

6

4. Ensure AFID staff utilize the casemanagement system to facilitate their casemonitoring activities and improve controlsover the asset forfeiture process. Thiswould include updating information on each 22 LAPDcase immediately as received, and routinelyquerying the system to determineappropriate follow-up inquiries and/or iffurther actions are necessary to achievetimely case resolution.

LAPD Management should direct AFID to:

5. Review all case and subsidiary recordsnoted as "open" in AFID's database to verifyand update status; for those with sufficientdocumentation available at LAPD (AFID 29 LAPDand/or FOD) to justify case closure and theoutcome, i.e., appropriate disposition of theasset, close the case and update thetracking system.

6. For all remaining open forfeiture cases thatwere initiated prior to 2011, request a

--current-stattJs-fr-em-ti'le""f}F9seeutiflg-agency-. -For those indicated as closed, obtain 30 LAPDnecessary supporting documentation toensure appropriate disposition of the asset,close the case and update the trackingsystem .

7. . Establish standards for requireddocumentation to be maintained in AFIDcase files that is necessary to support the 30 LAPDappropriate disposition of seized assets,i.e., deposit into City's account, or releaseto claima nt.

7

8. Implement procedures to ensure AFIDadheres to the expected documentation 30 LAPDstandards, for both cash and non-cashseized assets.

9. Revise protocols and processes to facilitateinformation sharing between AFID and FODto strengthen controls and ensureaccountability over the proceeds fromforfeited assets, including working towardsimplementing electronic transfers for funds 30 LAPDreceived from all prosecuting agencies andverifying the receipt and appropriaterecording of that receipt, i.e., posting to theappropriate City Fund and updating theAFID log/database.

10. Establish a working group ofrepresentatives from LA County (Auditor-Controller, District Attorney, Treasurer-TaxCollector) and the City (Office of Finance, 30 LAPDCity Controller and LAPD) to pursue astrategy towards implementing electronicpayment of asset forfeitu re proceeds fromLADA to LAPD.

11.Work with the Office of Finance to revisethe automated posting process of wiretransfers from Treasury of net proceeds 30 LAPDfrom asset forfeitures, to ensure proceedsare appropriately recorded in Fund 44E.

12. Establish procedures to ensure that anysubsidiary systems used to track andcontrol non-cash assets in LAPD's custodyare accurate, and that the information 30 LAPDagrees with that noted in AFID's casetracking system.

8

SECTION 11- PROCESS EFFECTIVENESS AND COMPLIANCE

13. Ensure that the APIMS replacement systemhas the capacity to store additional codeviolations, and the ability to flag bookingswith specific attributes (e.g., narcotics-nexus) for customizable search parameters,that will facilitate more automatedprocesses by AFID and other users.

33 LAPD

14. Until the APIMS replacement system isimplemented, direct the InformationTechnology Bureau to work with AFID todevelop automated solutions to improvetheir current manual processes, by queryingmultiple existing systems.

34 LAPD

LAPD Executive Management should:

35

15. Periodically evaluate how the AssetForfeiture Program is achieving LAPD'sgoals and objectives, and determine 35

----+--wl"lether--St[ategic_changes_to_tbeJ:)LO-9(Q~ .. _are necessary.

LAPD

16.Consider expanding the tools and resourcesavailable to a broader Asset ForfeitureProgram, especially as related to non-narcotics forfeiture cases.

LAPD

LAPD Executive Management should direct Fiscal Operations Division to:

17. Reconcile federal receipts posted to 44Dand 44E to independent sources fromUSDOJ and Treasury, prior to submissionof the annual certification report.

39 LAPD

9

LAPD Executive Management should dedicate the necessary resources to:

is. Implement a replacement database systemthat will adequately support AFID's casetracking activities, and meet all federalrequirements for an automated control log 39 LAPDfrom case initiation (seizure of cash orproperty) through the receipt of netforfeiture proceeds. I

19. Make necessary revisions to the AssetForfeiture Manual to ensure compliancewith all federal requirements and provide 39 LAPDsufficient direction to staff to ensureoperations are consistent with managementexpectations.

20. Modify the existing quarterly SPA reportingto the Board by adding a provision todescribe any seized/forfeited property that 39 LAPDwas placed in service by LAPD, andreferencing the appropriate sections ofLAAC.

10

BACKGROUND, OBJECTIVES, SCOPE AND METHODOLOGY

BACKGROUND

The Los Angeles Police Department (LAPD), along with the State and federalgovernment, has the authority to confiscate real and personal property used in certaincrimes, and use the proceeds or the property itself to enhance law enforcementactivities, The National Asset Forfeiture Strategic Plan defines asset forfeiture as "anationwide law enforcement initiative that removes the tools of crime from criminalorganizations, deprives wrongdoers of the proceeds of their crimes, recovers propertythat may be used to compensate victims, and deters crime."

Federal asset forfeiture dates to the earliest smuggling statutes of the eighteenthcentury, In 1970 new asset forfeiture laws targeted the illegal drug trade, Thesubsequent Comprehensive Crime Control Act of 1984 initiated federal sharing of assetforfeiture proceeds with State and local law enforcement agencies,

State and federal laws require the confiscation and forfeiture of all contraband-property that is illegal to possess per se, In addition, federal laws authorize assetforfeitures for many crimes including terrorism, drug trafficking, organized crime, childpornography, alien smuggling, human trafficking, white collar crime, money laundering,etc." California criminal laws authorize forfeitures of vehicles, computers, firearms andother deadly weapons, animals, and other assets related to public nuisances, obscenity,illegal gambling, animal fighting or cruelty, or violations of the fish and game laws, etc,

California asset forfeiture statutes related to narcotics crimes" and criminal enterprises"were substantially revised in 1994,

The taking of private property through the asset forfeiture process is not withoutcontroversy, The Federal Civil Asset Forfeiture Reform Act (CAFRA) of 2000 resultedfrom public pressure, and the California Health & Safety Code (H&S) itself includes thefollowing provision:

Although civil forfeiture is intended to be remedial by removing the tools andprofits from those engaged in the illicit drug trade, it can have harsh effects onproperty owners in some circumstances, Therefore, law enforcement shall seekto protect the interests of innocent property owners, guarantee adequate notice

3 U.S. Department of Justice, Asset Forfeiture Program, National Asset Forfeiture StrategiC Plan 2008-2012, http://www ,justice.gov/criminaliafmls/pubs/pdf/strategicplan,pdf4 http://www,justice.gov/criminal/afmls/pubs/pdf/statutes11 ,pdfs California Health & Safety Codes (H&S) §11469, et. at.6 California Penal Code §186.

11

and due process to property owners, and ensure that forfeiture serves theremedial purpose of the law. 7

During 2012 LAPD's Asset Forfeiture Investigative Detail (AFID) reported the initiationof more than 500 forfeiture cases involving nearly $21 million in cash. Nearly allseizures are cash, but LAPD also participated in the seizure of 11 vehicles that year.AFID implements the asset forfeiture process for LAPD, working independently and withother local, State, or federal agencies to file forfeiture cases with the Los AngelesCounty District Attomey or with the U.S. Attorney. The exhibit below shows a historicaltrend of the number of asset forfeiture cases initiated by AFID, categorized by primaryinvestigative or prosecuting aqency."

Exhibit 1

Asset Forfeiture Cases Initiated by AFID900

800

700

'" 600'"'"..u 500-0 ~DOJ~'" 400..a --TreasuryE'" 300 -~StateZ

200 ----lOa

a

Federal Forfeiture CasesA United States Department of Justice (USDOJ) Guide" describes how LAPD mayparticipate with USDOJ and its related agencies in asset forfeiture cases. Participationis either through a joint investigation in which federal agencies work with local lawenforcement agencies to enforce federal criminal laws; or through the adoption of alocal seizure by a federal agency, where the conduct giving rise to the seizure is in

7 H&S §11469 OJ8 Justice (DOJ) funds include all cash, property, and proceeds that result from investigations with ATF,DEA, FBI, FDA, DCIS, DSS, USDA, and USPIS. Treasury funds include all cash, property, and~roceeds that result from investigations with ICE, IRS, CBP, USCG, and USSS.

Guide to Equitable Sharing for State and Local Law Enforcement Agencies, page 6, USDOJ.

12

violation of a federal law that provides for forfeiture. LAPD indicated that nearly all oftheir federal forfeiture cases are the result of a joint investigation.

For most cases where LAPD works with federal enforcement agencies, those agenciestake possession of the seized assets. Upon completion of the forfeiture process, theCity and other participating agencies receive an "equitable share" of the forfeited assets,as calculated by the federal government. To qualify for an equitable share of forfeitureproceeds, LAPD must adhere to rules established by the U.S. Department of Justice, orsimilar guidelines established by the U.S. Department of the Treasury (Treasury).

State Forfeiture CasesSection 11470 of the California Health & Safety Code'° enables local law enforcernentto seize real estate or personal property (money, vehicles and other personal items)when it can be shown that the asset was either:

• Obtained with "proceeds of a narcotics enterprise,"• Used to "facilitate a narcotics enterprise," or• Given in "exchange" for narcotics.

In addition, California Penal Code (PC) Section 186 provides for the seizure of real orpersonal property in cases involving money laundering, criminal profiteering, and a hostof other offenses. California Vehicle Code (VC) Section 14607.6 authorizes theforfeiture of a vehicle if it is driven on a California highway by a driver with a suspendedor revoked license, or by an unlicensed driver under specified circumstances.

Asset Forfeiture ProgramLAPD's Asset Forfeiture Program (Program) is implemented through the activities of twoseparate units, which were the focus of this audit:

The Asset f'orledure InvesftgatJveDetaln1rt=1DJ-oHlTe-('ffing-aTTd-Narcotics--Bivisi('lrHs~----primarily responsible for initiating the asset forfeiture process by serving as a liaisonbetween LAPD and asset forfeiture prosecutors. AFID is staffed with ten swornpersonnel (Detectives), while 3 civilian employees provide administrative support. OneDetective is the liaison with federal law enforcement agencies for narcoticsenforcement, while another is the liaison with the U.S. Treasury Department for financialcrimes.

The Fiscal Operations Division (FOD) is responsible for accounting, audits, periodicreconciliations, and monthly and end-of-year asset forfeiture proceeds closeout reportsthat are submitted to the federal government. FOD is staffed by civilian employees whoprocess LAPD financial transactions. Among their duties, staff process asset forfeiture-related transactions upon receipt of net proceeds, and assist in reconciling the LAPDPre-Seizure [checking] Account.

10 H&S 11470 [Addendum 1]

13

The Asset Forfeiture Process

Seizure of CashAn asset forfeiture typically begins when sworn officers seize cash during the executionof a narcotics search warrant. When officers discover more than a nominal amount ofcash, under strict protocols officers count and then seal the cash in a Money envelopeand transport it for booking in the Property Division, where it's recorded in the Division'sAutomated Property Information Management System (APIMS).

One or more times each week, an AFID Detective electronically "searches" data inAPIMS for bookings of cash that exceed a specified dollar threshold. If the bookinginvolved a narcotics-related offense, the Detective uses APIMS to place an electronichold on the cash.

Two AFID detectives then retrieve the cash from the Property Division, count the cashin the presence of a Property Officer, reseal it in a money envelope, lock the moneyenvelope in the trunk of their vehicle, drive directly to a specific bank, and deposit thecash into the LAPD Pre-Seizure Account.

Alternatively, if during a crime-scene search, when drugs and cash appearing to total$10,000 or more are found and asset forfeiture appears likely, the LAPD supervisor onscene may request that AFID detectives respond directly to the scene and take controlof the money or other assets. In these cases, cash is secured under strict protocols anddeposited directly into the LAPD Pre-Seizure Account, if the bank is open. During hourswhen the bank is closed, sworn personnel will transport the bag/s to the AFID office,temporarily place it in a safe, and make an entry in the transaction log for that safe.They will transport the money and deposit it in the Pre-Seizure Account the nextbusiness day.

14

According to LAPD, during calendar years 2010 and 2011 deposits to the LAPD Pre-Seizure Account were $4.0 million and $4.4 million, respectively.

Non-Cash SeizuresNon-cash seizures that are small enough to fit on a shelf (e.g., jewelry) are also bookedwith the Property Division. For larger items such as cars, boats, etc., the investigatingofficer will not book the item with the Property Division, but will store it in a securewarehouse. Real estate forfeitures are processed through the courts.

Transfer to the Prosecuting AgencyOnce AFID secures cash or other property in preparation for forfeiture, detectivespresent the case to the U.S. Attorney or to the Los Angeles County District Attorney'sOffice (LADA) for prosecution. Upon acceptance of the case, the prosecutor will issue afiling number, and AFID writes a check to the prosecuting agency for the entire amountof money seized. For LADA cases, AFID deposits the money directly to the LADA bankaccount. For federal cases, if LAPD had seized the cash, AFID writes a check to theUSMS.

In rare cases, an attorney will obtain a court order for LAPD to return the seized cashassets to their owner before AFID deposits the money in the bank account of theprosecuting agency. When retuming money to an arrestee or other claimant, AFID maywrite a check to cash, but if the arrestee agrees, AFID will have the bank prepare abank draft. Either way, AFID takes the cash or the draft to the Property Division, booksit, and informs the arrestee. The arrestee will go to the Property Division to retrieve thecash or the draft. Once the prosecuting agency opens a forfeiture case and haspossession of the money, AFID will refer the attorney to that prosecuting agency.

The Legal Process for Determining Asset ForfeituresProsecutors may file asset forfeiture complaints either as part of a criminal case or as aseparate civil case. As the standard of proof in a criminal case is higher, "beyond areasonable doubt," while for civil cases it is a lower "preponderance of evidence," the"balance of probabilities," or "clear and convincing evidence," nearly all asset forfeituresprocessed by AFID are filed as civil cases.

Civil cases proceed in rem11 against a specific asset-usually a specific amount ofmoney that was seized during an investigation-not against the individual who was inpossession of the asset. For some seizures, asset forfeiture may occur even when aclaimant is found not guilty of the related criminal charge.

When no one contests the asset forfeiture process within a set number of days, anadministrative forfeiture may proceed with no judicial involvement. Certain dollar limitsapply, but most asset forfeitures reportedly occur administratively. For seizures thatexceed specified dollar values or involve real estate, judicial review of the forfeitureprocess occu rs.

Receipt and Processing of Asset Forfeiture ProceedsWhen the legal process for forfeiture is resolved, a portion of the proceeds are remitted

-----'t1:5l:f\PD from me prm,ecating--agency.----cA-BA-am'l-i:JSP6-send-the-Gfty's-l3f{)eeeas-ifl-----the form of a paper check, while the U.S. Departments of Justice and Treasury wiretransfer the City its equitable share of federal proceeds.

Paper Checks: Although LA County has the capability of making electronic payments,LADA mails paper checks to AFID offices 12 where civilian staff files a copy and notes itin AFID records, then hand carries the check to FOD, where someone signs and datesa copy of the check as an AFID receipt.

An FOD accountant retrieves these checks and records them in the Accounting OfficeReceipt (AOR) system database, along with a four-digit "Unit Code," an abbreviation forthe correct department, fund, and revenue source. The accountant scans and depositsthese checks, initially posting them to the "Miscellaneous FOD" fund. Within a day orso, the Senior Accountant reconciles daily AOR records with bank records for the day.After reviewing the Unit Code for accuracy, the Senior Accountant re-posts the deposit

11 From Latin "against or about a thing," referring to a lawsuit or other legal action directed towardproperty, rather than toward a particular person.12 Sometimes AFID detectives will hand-carry paper checks from USPIS to the Unit.

15

from the Miscellaneous FOD Fund to the fund and revenue source appropriate for eachcheck.

Wire Transfers: USDOJ asset forfeiture wire transfers are coded in such a way thatthe City can automate posting of the money. After the money is transferred, anautomated USDOJ email alerts AFID of the payment and the cases related to thepayment. AFID forwards this email to FOD for verification of correct posting.

Treasury asset forfeiture wire transfers were not set up this way and require a manualposting process. These payments require more intervention to ensure FOD posts themoney to the correct fund.

Recording Receipt and Expenditure of Asset Forfeiture ProceedsStrict guidelines govern how the City must account for and how it can use the proceedsfrom asset forfeitures. State and federal law require that the proceeds from forfeitedassets be used to enhance law enforcement resources, without supplanting resourceswhich would have been committed to the same purpose in their absence.

Controls over asset forfeiture proceeds were enhanced in 2000 with the establishmentof three special trust funds within the City Treasury. Division 5, Chapter 120 of the LosAngeles Administrative Code (LAAC) established these three funds: the U.S.Department of Justice Asset Forfeiture Fund (44D), the U.S. Treasury Asset ForfeitureFund (44E) , and the California State Asset Forfeiture Fund (44F). These funds receivemonies forfeited pursuant to Title 21 United States Code Section 881, and CaliforniaHealth and Safety Code Section 11470.

LAPD is required to submit to USDOJ and Treasury an annual certification report notingthe equitable sharing activity for both the Justice Fund (44D) and the Treasury Fund(44E). While the majority of cases pertain to State forfeitures, they are not separatelyreported or included in a certification. Total revenue posted as forfeiture proceeds to allthree funds during FY 2011-12 was $6,211,511; adding interest income and otherrevenues,total revenue was $6.8 million.

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The LAAC also establishes a Supplemental Police Account (SPA) that annually draws$1,500,000 from the total of these funds. The Chief of Police administers the SPA inaccordance with an expenditure plan approved by the Mayor and City Council. Allremaining proceeds received in Funds 44D, 44E, and 44F may be used to fulfill generalneeds of LAPD related to law enforcement.

OBJECTIVES, SCOPE AND METHODOLOGY

The objectives of our audit were to 1) determine the effectiveness of current LAPDmanagement controls over seized and forfeited assets, and 2) ensure LAPD hasadequate controls to comply with State and federal laws relating to these assets.

We conducted this performance audit in accordance with generally acceptedgovemment auditing standards. Those standards require that we plan and perform the

audit to obtain sufficient, appropriate evidence to provide a reasonable basis for ourfindings and conclusions based on our audit objectives. We believe that the evidenceobtained provides a reasonable basis for our findings and conclusions based on ouraudit objectives. To meet the audit objectives, we performed the following keyprocedures:

• Reviewed Documentation including selected AFID case files and related manualchronology logs and transaction documentation; lists of payments from LADA,Treasury, and USDOJ; quarterly SPA reports, etc.;

• Researched State and federal asset forfeiture policies and practices, papersprepared by several organizations, California Attorney General's 2010 report onasset forfeiture, pertinent sections of the 2011 & 2012 City Budgets, [Gang and]Narcotics Division Asset Forfeiture Manual, relevant portions of the LAPDManual, relevant City, State, and federal laws, and USDOJ and Treasury guides;

• Conducted Interviews with LAPD managers and key personnel who provideasset forfeiture and related support services to LAPD, others including severalLA County, State, and federal asset forfeiture officials;

• Identified and reviewed key processes and systems used to administer assetforfeiture activities for LAPD and the associated existing challenges, barriers, andopportunities for improvement. For example, we reviewed the processes foropening new cases and seizing assets, monitoring case activities, and closingcases; and recordkeeping processes for receipts and disbursements. Weobserved data entry to understand the processes used by both AFID and FOD,and the capabilities of their related systems;

_______ ~.---:-R-::e==v:::ieo.:w~e~d;:.=C;.e~rt~ificationssubmitted by the LAPD to USDOJ and Treasury for fiscalyears 2011 and 2-012;

• Verified the accuracy of data in the AFID database by tracing sample data onforfeiture cases back to source documentation such as case files, records ofdeposit, and disposition of physical assets maintained by various Divisions withinLAPD and prosecutorial agencies. Identified reasons for discrepancies.

Our audit fieldwork was conducted between October 2012 and March 2013 and coveredforfeiture activities and existing data for 2011 and 2012; for several of our sampledcases, we reviewed historical activities going back to when the case was initiated.

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SECTION I: MANAGEMENT CONTROLS & REPORTING OF PROGRAM OPERATIONS

LAPD's Asset Forfeiture Investigative Detail (AFID) and Fiscal Operations Division(FOD) work together to implement the Asset Forfeiture Program (Program). However,there is no comprehensive reporting process or single system that is capable ofaccurately presenting the results of Program operations. Though different agencies andLAPD Divisions have various roles in implementing Program processes, LAPD has notensured appropriate oversight of the Program as a whole, from initiation of a forfeiturecase through the ultimate receipt of its share of forfeiture proceeds. This sectiondescribes our audit findings related to management and reporting of programoperations; specifically, the inability of LAPD to report reliable results of the Program orthe current status of forfeiture cases and assets seized, and the resultant lack ofassurance that all seized assets are appropriately dispositioned upon the closure of theforfeiture case.

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Finding #1: LAPD has insufficient controls and information systems to supportadequate reporting on the Asset Forfeiture Program.

Currently, LAPD does not have a comprehensive system that can report on the valueand description of the assets that have been seized over a specified time period; thevalue and description of the seized assets that are currently in the custody of lawenforcement (LAPD or other agencies) pending a forfeiture determination; or the netamount of actual proceeds that LAPD has received on resolved forfeiture cases.

Some information is available from various sources, for example: LAPD's Pre-Seizurechecking account includes the cash seized by LAPD prior to its transfer to theprosecuting agency for forfeiture proceedings; transactions recorded in specified fundswithin the City's Financial Management System note the net forfeiture proceedsreceived by LAPD; electronic and paper logs of non-cash property are maintained byvarious units, and the Automated Property Information Management System (APIMS) isused by LAPD's Property Division to track evidence and other property seized by LAPD.However, the primary system used by AFID to track asset forfeiture activity isincomplete and unreliable, and therefore cannot be used as an effective managementcontrol over the Program or to report on Program results or outcomes.

AFID does track monthly statistics related to the initiation of new cases including thenumber of call-outs, the dollar amount of seizures, the number of other (non-cash)assets seized, and the number of search warrants served. These are workloadindicators related to new cases and can provide useful information to management

regarding staff activities; however, a primary function of the Unit should also be toensure the appropriate resolution of forfeiture cases. Currently, due to inadequateprocesses and controls, no measures are tracked or even reportable regarding thestatus and outcome of cases involving seized and forfeited assets.

Data reliability and validity is essential in the planning and assessment of performanceor Program outcomes. Without this information, LAPD cannot adequately determinewhether the Program is efficiently and effectively accomplishing its mission or achievingreasonable goals.

The primary focus of AFID detectives is preparing asset forfeiture cases for presentationto prosecutors. Support staff assists with a tracking process, but they also primarilyfocus on case initiation. We noted significant and effective controls over the caseinitiation process. However, AFID's processes related to case follow-up, includingmonitoring' the status of open cases and appropriately reporting the receipt of netproceeds, are lacking and insufficient.

AFID could not report the ending inventory of open cases or the number of cases thatclosed during 2011 or 2012 because of inaccurate information reflected in theirdatabase system.

AFID's Asset Forfeiture Manual reflects an emphasis on filing cases, and has very littlemention of after-filing case tracking. The Manual also does not refer to federalguidelines that LAPD and the Mayor annually certify compliance with. FOD becomesinvolved only upon LAPD's receipt of forfeiture proceeds, and has indicated that theyaccount for asset forfeiture transactions in accordance with the federal standards, asfound in the USDOJ Guide.

A recent federal audit of the USDOJ Asset Forfeiture Fund from which payments to-----~It:1\PD~are_[TIllde;_cites--tlTat-ttSl3e;j lias established-I)(~ekk-eepiflfJ,-ifltema/-eefltF0ls'" -----

reporting, and audit requirements that state and local law enforcement agencies mustfollow in order to participate in the equitable sharing program. The audit report alsoreferences a federal standard for internal controls," and reports on several compliancereviews of equitable sharing participants. The control standard requires that:

Transactions should be promptly recorded to maintain their relevance and value tomanagementin controllingoperations and making decisions.This applies to the entireprocess or life cycle of a transaction or event from the initiation and authorizationthrough its final classificationin summary records. In addition, control activities help toensure that all transactionsare completelyand accuratelyrecorded."

Internalcontrol shouldgenerally be designed to assure that ongoing monitoringoccursin the course of normal operations. It is performedcontinually and is ingrained in theagency's operations. It includes regular management and supervisory activities,

13 U.S. General Accounting Office, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1, p. 17, Nov. 1999

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comparisons, reconciliations, and other actions people take in performing theirduties."

Without current updating of case file information upon receipt of forfeiture proceeds, andwithout monitoring or timely execution of the case-closure process, LAPD is unable toreport the Program's current position relative to outstanding cases, or results of itsoverall operations.

As of October 31, 2012, the AFID case tracking system listed more than 2,900 opencases, with close to 40% of the cases open for 5 years or more. A LADA attomeyindicated that only rarely would one of their cases remain open that long. When webrought this matter to AFID's attention, staff expressed awareness of the delinquency oftheir case closure process, and recorded the closure of approximately seven hundredcase files between November 2012 and January 2013.'5

Our audit found many cases where cash, cars, boats, real estate or personal propertywere erroneously listed as open in AFID's tracking database, sometimes five or eventen years after the prosecuting agency had closed the case.

For example, the following cash seizure cases were noted as open as of our auditfieldwork. After examining detailed case files and confirming additional information withthe LADA, we found they should have been noted as closed, along with reflecting andrecording the net proceeds to LAPD, as indicated below:

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AFID# $ Seized Closed Date Proceeds97F0074 $80,826 2009-May-27 $6,39202F0276 $584,323 2005-Feb-28 $17,52002F0309 $22,742 2003-0ct-16 -0-06F0427 $52,612 2008-Jul-03 $28,64906F0638 $24,068 2007 -Jan-23 $8,84606F0988 $839,691 2007-Jan-10 $547,89508F0085 $20,806 2009-Apr-02 -0-10F0171 $210,389 2012-May-03 $2,66711F0138 $40,792 2012-Jul-26 $21,516

Our audit testwork found other cases involving the seizure of non-cash assets that werelisted as open on AFID's system, though LADA had previously closed them. Examplesincluded a case involving two seized watches jointly valued at $18,100 that wereactually retumed to the defendant in April 2008; and a case involving three houses,jointly valued at $4.2 million. While that case closed November 19, 2008, there was noindication in the case file as to the disposition or resolution of the real estate assets.

14 Ibid, p. 2215 AFID indicated that as of the date of this report, they have formally closed all previously outstandingforfeiture cases that had been resolved.

FOD maintains records of the net proceeds from forfeited assets once actually receivedby LAPD, Related process controls effected by FOD staff focus on the appropriaterecording and reporting of proceeds as revenue upon the receipt of funds from LADA orfederal agencies after the forfeiture case is resolved, FOD has no knowledge orresponsibility for monitoring the status of open cases to ensure their timely resolutionand receipt of net proceeds,

Since AFID focuses primarily on case initiation and FOD focuses only on receipt of netproceeds, neither unit is responsible or sufficiently accountable for what occurs betweenthose events, which is a significant portion of the overall process related to seized andforfeited assets,

Detectives' Work and Outdated SoftwareAFID detectives use their training and experience to initiate asset forfeiture cases andensure the chain-of-custody of seized property and other case filing steps meetsprosecutorial and court requirements, Once a case is filed, detectives tum their focusand expertise to the next case, AFID administrative staff support the detectives'priorities; however, there is little emphasis on the importance of timely documentingcase closure data or periodic case monitoring, Best practices require timely reporting ofreconciled case closure numbers and the proceeds of asset forfeiture cases,

Our audit identified an inadequate case tracking database to be the cause of thisproblem, The AFID database used to track forfeiture cases is based on Microsoft MS-DOS, an operating system that became outdated in the 1980s, and does not provideadequate tools/reports for management use, The system lacks print capability in theMicrosoft Windows operating environment, and AFID has limited ability to summarizeany data without exporting it for separate analysis, which is not done,

AFID does not analyze, query, or use the data to facilitate case monitoring or reporting,------Rattler;-,£IJ'llJlIs'es-the-database--as-a-quick-referenee-altefAative-t0-fjulling-a-file--fr0ffil------

the file cabinet As such, the AFID database is inadequate to report Program results,current case status, or summarized outcomes at any point in time, AFID indicated thatprevious attempts to upgrade or replace this system have not been successful due tobudgetary constraints,

Responsibility for case monitoring can be shared between swam and civilian staff withinAFID, and specific roles should be defined to ensure all Unit staff understand theirresponsibilities and are held accountable for actions that are consistent withmanagement expectations, LAPD must develop and implement procedures and systemtools that will provide adequate control and accountability for the critical functions ofmanaging the processes for seized and forfeited assets,

Due to AFID's primary focus on case initiation rather than case monitoring and closure,coupled with the inconsistent use of an outdated system that is not effective formanaging their work, LAPD is prevented from accurately reporting the status of assetforfeiture cases and related proceeds at any point in time, or from having sufficientinformation to measure the outcomes of the Program as a whole,

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Recommendations:

LAPD Executive Management should:

1. Confirm that AFID has primary responsibility and accountability forcontrols over the entire Asset Forfeiture process, and establishnecessary procedures and appropriate coordination among Divisions tosupport effective management and accurate reporting on the results ofthe Asset Forfeiture Program.

2. Implement effective processes and controls for staff to manage thestatus of each forfeiture case, so current information on the case andrelated seized assets is accessible, reliable, and accurate. This shouldinclude defining the specific duties and responsibilities of both swornand civilian staff positions regarding ongoing case management.

3. Direct the Information Technology Division to work with AFID todetermine the software needs to replace the existing case managementsystem, and provide necessary resources to enable a transition to amore user-friendly, flexible database system that will facilitate reportingand management control.

4. Ensure AFID staff utilize the case management system to facilitate theircase monitoring activities and improve controls over the asset forfeitureprocess. This would include updating information on each caseimmediately as received, and routinely querying the system todetermine appropriate follow-up inquiries and/or if further actions arenecessary to achieve timely case resolution.

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Finding #2: LAPD processes lack assurance regarding the appropriatedisposition of seized assets, including ensuring if proceeds from allforfeited assets are actually received and deposited.

Based on the weakness identified in Finding #1, we conducted additional reviews toverify-for cases that had actually been closed but were classified as open in AFID'ssystem-whether the assets had been appropriately dispositioned. That is, for caseswhere the forfeiture was upheld, if the proceeds had reached the City's accounts, or forothers, if the assets had been properly released. We also assessed the processesused by AFID and FOD to record forfeiture proceeds, to identify areas for improvement.

AFID described most State and federal cases that involve a seizure of cash asuncontested and not requiring detective involvement beyond completion of the case-filing process. Once prosecuting agencies accept a case for filing charges, theassigned prosecutor takes over to work through the legal forfeiture process, while AFIDdetectives move on to their next case. Once the case is filed, the next information AFIDtypically receives on that case is a notification of prosecutorial outcome, along with acheck or wire transfer for a share of any asset forfeiture proceeds.

However, neither FOD nor AFID reconciles the notices of cash received, cashdeposited, or case closure status on a monthly basis. Ensuring that the proceedsreceived per internal records agree with the amounts recorded in the City's accounts isa necessary control; however, AFID does not consider it their responsibility to ensurethat information in their case tracking database accurately reports up-to-date open orclosed case status, or the proceeds received.

FOD records proceeds from asset forfeitures in the City's Financial ManagementSystem (FMS). When LADA makes payments by check, FOD manually records them inFOD's Accounting Office Receipt (AOR) system. FOD scans checks using bank

-----'smoftware-that-completes-tfle-dep0sit;--Gf1-a-daily-Oasis~GbLdownloads...bank-deposit. _data and uploads the data into the City's CashWiz system. CashWiz interfaces withFMS to complete the recording process. Wire transfers bypass the AOR and scanningsteps, but otherwise follow the same process. When properly set up and tested, theelectronic wire transfer process facilitates an automatic posting to CashWiz/FMS.

However, FOD has no basis for determining if the amounts received represent whatwas reasonably expected from the case, or if additional proceeds are expected, sinceFOD does not track pending or open forfeiture cases. In addition, for forfeiture casesthat involve non-cash assets, FOD has no involvement unless and until the item is soldand cash proceeds are received.

We reviewed existing LAPD processes and focused our testwork on the lack of controlsover three distinct types of seizures since they involve different processes. Thefollowing presents our conclusions regarding process weaknesses identified for: i) Cash- State Cases; ii) Cash - Federal Cases; and iii) Non-Cash asset seizures.

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i) State Cases - Cash Seizures

AFID does not adequately control cash proceeds from the State cases, which LADAremits by check. AFID joumalizes checks received, but does not compare their cashreceipts journal with deposits reported by the bank or with FMS Fund 44F. In addition,we noted many instances where AFID had no documentation of the receipt of LADAchecks or of the resolution of the related forfeiture case or net proceeds. Due to laxcontrols, AFID could not affirm or report that all LADA payments to LAPD were receivedand deposited.

This is a chronic issue that began before the year 2001. We tested several transactionsto determine whether payments made by LADA were actually deposited to the City'saccount. We initially chose older cases since we questioned whether asset forfeiturecases would routinely remain open for ten or more years.

From AFID's record of open cases, we judgmentally selected three State cases, oneeach from 2000, 2002, and 2004. In response to our inquiries, LADA reported that theyhad closed these cases and paid the proceeds to LAPD in 2000 ($1,858), 2002($34,145), and 2004 ($37,513), respectively. Neither AFID's case tracking system northe case file itself included any record that these amounts had been received. Weattempted to verify if these payments had been received and recorded as revenue byLAPD; however, these unrecorded case closures occurred so long ago LAPD wasunable to determine whether any of proceeds had been deposited in the City's bankaccount.

As previously mentioned, the system lacks an adequate audit trail to readily verify if theforfeiture proceeds have been deposited into the City's accounts. We tested eightadditional State cases (from 2000, 2002, 2006 [x2], 2008, 2010, and 2011 [x2]) thatAFID had listed as still open and found that six had actually been closed by LADA. Ofthe closed cases, two did not result in proceeds to the City, while four had proceedstotaling more than $600,000 that LADA reported to auditors had been paid to LAPD.However, only by obtaining copies of checks and other payment information from theprosecuting agency and tracing the payment into the AOR system or CashWiz, was theauditor able to verify the receipt and deposit of these funds. Neither AFID nor FOD wasable to readily verify the appropriate disposition of the forfeiture case, and receipt of netproceeds.

One of the open cases was unusual in that a partial payment had been made back in2001, but the case had never been formally closed by LADA. Coincident with ourinquiries, LADA discovered they had not filed a final document to forfeit an additionalamount. LADA filed that document during our audit fieldwork and the Court ordered anadditional forfeiture in March 2013 which resulted in an additional payment in May toLAPD of $25,090, including approximately $7,000 of interest.

LADA Check Delivery & ProcessingAFID receives some payments of asset forfeiture proceeds in an uncontrolled manner,creating a risk that payments could be lost or misappropriated. Detectives hand-carry

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some checks to the AFID office. Other checks arrive through the City's intemal mailsystem. Ideally, individuals who control case records would not take possession of arelated check or asset.

These checks can range into the hundreds of thousands of dollars covering multiplecases, yet they were routinely left in someone's desktop inbox. For a time, FaD directlyreceived the paper checks, but AFID changed the mail destination to the AFID office toensure it learned of all asset forfeiture proceeds.

AFID's internal processes include recording check payment information in a ledger andin a spreadsheet, with a check copy filed in a check file. An AFID employee then hand-carries checks to FaD for final processing and deposit. However, the case closureprocess-updating and marking the case file "closed" and updating the case trackingdatabase-is delayed, awaiting a printed receipt from FaD's AOR system.

A less-risky alternative is currently available. Officials with the LA County Auditor-Controller indicated that once set up properly, the process for LADA to pay LAPDelectronically is no more difficult than generating a paper check, and is actuallypreferred as it complies with their green efficiency initiative. FaD has indicatedreticence towards receiving electronic payments from LADA, as they stated that allLADA payments would then have to be made electronically. They are concerned aboutlosing the description of the specific source and purpose for each payment that wouldautomatically hit the account, as they currently rely on the notations that accompany thehardcopy check to ensure appropriate posting upon deposit.

As technology advances, for increased security and efficiency, governments andbusinesses are moving away from paper checks. According to a representative fromthe City Treasurer's Office, with the appropriate unit coding. embedded within theelectronic transfer, City systems will automate the revenue postings to the appropriate

------"accounts/Funds-. -'Fhe-60tmty-AuditcJf-G0ntreller-alse--slJppoFls-ll1ov-ing-te-eleGtroI"l1c,-------payments to LAPD, stating that information can be notated within the "track descriptionfield" available for view on their web-based portal, and a hardcopy remittance advicecan also be sent at the time of payment. FaD should work with the Treasurer andrepresentatives of LA County to pursue a strategy towards implementing electronicpayment of asset forfeiture proceeds from LADA.

Case Closure IssuesAFID changed their case-closure process during our audit. Previously, AFID initiatedthis process after receiving an AOR receipt from FaD; however, FaD gradually stoppedsending AOR receipts. As a result, AFID fell far behind in completing the case closureprocess. Consequently, the AFID database and case files showed many cases as openwith proceeds receivable-sometimes 10 years or more after prosecutors had closedthe case and paid LAPD its share of the proceeds. AFID staff indicated they wereaware of a problem regarding their not receiving AOR receipts, but did not communicatewith FaD or attempt to resolve the issue in a timely manner.

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AFID has sporadically processed large numbers of case files for closure. For example,in July 2012 AFID closed 471 cases; and during our audit between November 2012 andJanuary 2013, AFID completed the closure process on approximately 700 cases. AFIDeffected these case closures by relying on payment information already in theirpossession. However, omitting the AOR receipt step in their process further weakenedAFID's assurance that all checks had actually been deposited in a City bank account.

Since 2000, LADA has paid millions of dollars to LAPD by check with no consistent,reliable deposit verification process. For years preceding 2005, we could not verify if allchecks had been deposited in a City account because records either no longer exist orwere not available for this audit. For 2005 and later we tested a small number oftransactions and traced each of them to their deposit into the City's account.

By not adequately controlling the receipt of checks from LADA, coupled with notcompleting the case closure process timely and not reconciling LADA reports ofpayments with bank deposits, LAPD created a high-risk environment where problemsrelated to forfeited cash receipts could remain undetected.

ii) Federal Cases - Cash Seizures

Case tracking issues arose similarly for federal cases; however, there are differentfinancial risks due to the different processes involved. Federal agencies control andmaintain custody of the cash from seizure or adoption and throughout the adjudicationprocess. At the conclusion of that process, USDOJ and Treasury both pay LAPD its"equitable share" of asset forfeiture proceeds by electronic wire transfer. For USDOJand Treasury payments, wire transfers have eliminated the check handling riskdescribed above. However, LAPD did not adequately control posting of Treasury assetforfeiture proceeds.

Treasurv Posting ErrorsSeveral years ago the U.S. Marshal's Service (USMS) began electronically transferringor "wiring" all USDOJ asset forfeiture proceeds directly to the City's bank account. U.S.Treasury Department (Treasury) wire transfers for most payments began more than tenyears ago.

The City must set up and test the coding for electronic wire transfers to ensure theproceeds are properly recorded in the appropriate fund and accounts when the amountsare received. Without proper set up, the City's bank account would receive the money,but the risk of posting to an incorrect fund or account would be high.

FOD completed a testing process for USDOJ, but not for Treasury asset forfeiturepayments. Our audit found that when Treasury wired asset forfeiture payments to theCity's bank account, the City's system erroneously posted some payments to theGeneral Fund and to Fund 440 instead of to Fund 44E, based on a set up for a differentstream of Treasury payments. This is a violation of federal rules and led in part tosubmissions of incorrect Treasury certifications in 2011 and 2012 that were attested toas accurate and signed by the Mayor and the Chief of Police (See Finding #4).

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Tracking of Treasury PaymentsAFID has not timely recorded most Treasury payments of asset forfeiture proceeds toLAPD at least since July 2010. As of our audit fieldwork, the AFID database listed 34Treasury cases between July 2010 and December 2012. We independently verifiedthat LAPD had received payments on 9 of those cases. However, AFID's case trackingdatabase noted payments had been received on only 4 of the 9 cases.

The combination of the improper setup of the wire transfer process and the untimelyrecording or reconciliation of Treasury payments with the balance of Fund 44E resultedin LAPD recording some Treasury proceeds as deposits to Fund 44D (strictly reservedfor USDOJ proceeds) or to the General Fund. This error occurred undetected, until theauditor brought the matter to FOD's attention for correction.

Federal Required ProceduresLAPD's Fiscal Operations Division provided us a copy of the U.S. Department of Justice(USDOJ) Guide to Equitable Sharing, and asserted that they adhere to it for all Stateand federal asset forfeiture transactions. This guide requires the implementation of"standard accounting procedures and intemal controls."!"

Treasury has a similar Guide to Equitable Sharing,17 and requires participating agenciesto abide by its requirements for all Treasury transactions. This guide also requires theimplementation of "standard accounting procedures and internal controls."!"

It is standard accounting procedure to regularly reconcile cash journals and ledgers withbank or other external documentation of cash balance. FOD and AFID jointly reconciletransactions in AFID's internal Pre-Seizure Account with its related bank statement,providing assurance as to the existence and control over seized cash in LAP D's custodywhile initiating the forfeiture process. However, AFID does not reconcile deposittransactions in Funds 44D (USDOJ), 44E (Treasury), or 44F (State) to records of cash

---------rre-cBive"d;-rrordoihey-consistently-recorcHhe-reeeipt-of-easfj-ifl-feffejt<lfe-Gase-files.~. --------

LAPD Reguirements specified in the Asset Forfeiture ManualThe LAPD Asset Forfeiture Manual includes some accounting procedures for controllingcash transactions, but does not require adherence to established accounting standards,or reconcilinq to the City's Trust Funds that were established to account for assetforfeiture proceeds (44D, 44E, and 44F). Since AFID plays no role in expenditures fromthose funds, a deposit reconciliation is all that would be necessary for AFID's oversightrole in the process. The Manual was last updated in 1999, and we noted that some ofthe procedures and terminology differ from actual practice.

By improving AFID's case tracking and monitoring function as recommended in Finding#1, LAPD can better ensure the appropriate receipt and' recording of all cash proceeds.

16 Guide to Equitable Sharing for State and Local Law Enforcement Agencies, U.S. Department ofJustice, 2009, p. 26.17 Guide to Equitable Sharing for Foreign Countries and Federal, State, and Local Law EnforcementAgencies, U.S. Treasury Department, 2004.16 lbid., p. 30

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iii) Non - Cash Seizures

Our audit also noted other cases involving the seizure of cars, boats, real estate orpersonal property were erroneously listed as open in AFID's tracking database,sometimes five or even ten years after the prosecuting agency had closed the case.We tested the disposition of property related to closed cases including two watchesjointly valued at $18,100; earrings valued at $40,900; and three houses jointly valued at$4.2 million. .

JewelryOne case included two wrist watches jointly valued at $18,100 that AFID's case trackingsystem noted as still open. Our audit found the case was actually closed and the assetshad been released from LAPD custody on April 1, 2008.

An annotation in APIMS, a system unconnected to AFID's and used to track allevidence and property in LAPD's custody, indicated the watches had been releasedfrom the Property Division under the authority of an AFID Detective to a namedindividual who was not the claimant. We reviewed AFID's hardcopy case file, whichincluded some documents noting the resolution of the case, but did not include theCourt Order or an indication of the approved release to the claimant. We followed upwith LADA and after significant effort learned that the watches were releasedappropriately.

However, nowhere in LAPD's various systems or files was there sufficientdocumentation to support the appropriate disposition of the property that had beenseized by LAPD and subject to forfeiture, but was returned to its owner.

Another case involved a pair of earrings appraised at $40,900. The AFID case trackingsystem correctly showed the case had closed, but the subsidiary records for the assetitself listed the earrings in an "open" status. Further audit research showed that AFIDhad recorded the proceeds from the eventual sale of the earrings incorrectly, as intereston the cash that was also seized in the case.

Real EstateIn another case example, AFID seized cash and three residences and filed the forfeiturecase with LADA in 2008. As of our audit fieldwork, AFID's database indicated this casewas open, but included only the cash portion and one.of the three residences without anassociated value. The AFID hardcopy case file documented values on the threeresidences totaling $4.2 million, but it contained no indication of the disposition of thereal estate. LADA indicated that the case closed November 19, 2008 and cashproceeds of $55,378 were remitted to LAPD. Since this amount is greater than the totalcash seized from this case, it is likely that it represents some portion of sales proceedsfrom one or more of the residences. However, no records were available at LAPD toindicate the source of the cash remitted, or the eventual disposition of the seized realestate. Public property records indicate that two of the properties changed ownershipthrough sales in 2008, after their seizure.

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By improving AFID's case tracking and monitoring function, LAPD can better assure theappropriate disposition of all seized assets, including maintaining sufficientdocumentation related to the return or sale of non-cash assets.

VehiclesOur audit disclosed that accurate records of seized vehicles were also a problem.AFID's tracking database listed 107 cases with 195 vehicles in Open status, implyingthat LAPD had custody of 195 vehicles. Furthermore, out of the 107 cases, 22 caseswere listed by AFID's database as closed, but the subsidiary record for the vehicle haderroneously not been marked as closed.

When we asked to observe all 195 vehicles to verify their existence, we learned thatAFID only had 15 of these seized vehicles currently in storage, and that the rest of thevehicles had been dispositioned without updating the case tracking database. Insteadof updating the case tracking database, the detective responsible for tracking seizedvehicles in the storage warehouse maintains a self-updated spreadsheet. While asubsidiary ledger or more detailed listing can be used to augment controls, it should notreplace the need for accurate summary level data, such as that which should be keptcurrent by AFID.

Through physical observation, we verified that the vehicles listed on the detective'sspreadsheet were present in the warehouse. However, we noted a few typographicalerrors in the data, e.g., two vehicles had incorrect license plate numbers listed and onehad an incorrect case number. Both errors would complicate an attempt to reconcilethis subsidiary inventory information with the summary-level information. In addition, weobserved one vehicle stored in the AFID warehouse that was not included in either thesubsidiary spreadsheet or in the AFID database. The detective with oversight of thewarehouse stated that it was overflow from the DEA warehouse, and that AFID hadstored it as a courtesy.

We also reviewed AFID's documentation regarding the last 17 vehicles that had beenremoved from the warehouse to ensure there was appropriate supportingdocumentation related to their disposition (returned to claimant or sale). Though theywere no longer in LAPD custody, 15 of the 17 were still incorrectly listed as "0" for Openstatus of the vehicle in AFID's case tracking database. For ten case files that were notin archival storage, three files had incomplete or no documentation related to thedisposition of the vehicle.

The lack of a unified and coherent repository of data on seized vehicles reduces thetransparency and reliability of the process. While we recognize that a more flexiblesubsidiary system for vehicles may be necessary, current procedures regardingreporting the current status of the assets and the related supporting documentation arenot effective to ensure appropriate control over seized vehicles.

The failure to timely record changes in case status, record transactions regardingreceipt of forfeiture proceeds, control cash receipts (both checks and wire transfers) and

29

non-cash property,and follow up on cases left open for more than five years, created asignificantrisk that problemsmay have occurredunnoticed.

Recommendations:

LAPD Management should direct AFID and/or FODto:

5. Review all case and subsidiary records noted as "open" in AFID'sdatabase to verify and update status; for those with sufficientdocumentation available at LAPD' (AFID and/or FOD) to justify caseclosure and the outcome, i.e., appropriate disposition of the asset, closethe case and update the tracking system.

6. For all remaining open forfeiture cases that were initiated prior to 2011,request a current status from the prosecuting agency. For thoseindicated as closed, obtain necessary supporting documentation toensure appropriate disposition of the asset, close the case and updatethe tracking system.

7. Establish standards for required documentation to be maintained inAFID case files that is necessary to support the appropriate dispositionof seized assets, i.e., deposit into City's account, or release to claimant.

8. Implement procedures to ensure AFID adheres to the expecteddocumentation standards, for both cash and non-cash seized assets.

9. Revise protocols and processes to facilitate information sharingbetween AFID and FOD to strengthen controls and ensureaccountability over the proceeds from forfeited assets, includingworking towards implementing electronic transfe-rs for funds receivedfrom all prosecuting agencies and verifying the receipt and appropriaterecording of that receipt, i.e., posting to the appropriate City Fund andupdating the AFID log/database.

10. Establish a working group of representatives from LA County (Auditor-Controller, District Attorney, Treasurer-Tax Collector) and the City(Office of Finance, City Controller and LAPD) to pursue a strategytowards implementing electronic payment of asset forfeiture proceedsfrom LADA to LAPD.

30

11.Work with the Office of Finance to revise the automated posting processof wire transfers from Treasury of net proceeds from asset forfeitures,to ensure proceeds are appropriately recorded in Fund 44E.

12. Establish procedures to ensure that any subsidiary systems used totrack and control non-cash assets in LAPD's custody are accurate, and

that the information agrees with that noted in AFID's case trackingsystem.

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SECTION II: PROCESS EFFECTIVENESS AND COMPLIANCE

Finding #3: Opportunities exist to improve LAPD processes to identify assets forpotential seizure and forfeiture.

Federal laws authorize asset forfeitures for many crimes including terrorism, drugtrafficking, organized crime, child pornopraphy, alien smuggling, human trafficking,white collar crime, money laundering, etc. California criminal laws authorize forfeituresof vehicles, computers, firearms and other deadly weapons, animals, and other assetsrelated to public nuisances, obscenity, illegal gambling, animal fighting or cruelty, orviolations of the fish and game laws, etc."

Many crimes can trigger asset forfeiture; however, LAPD regularly pursues forfeituresonly for crimes involving 1) controlled substances ("narcotics"), through activitiesconducted by staff assigned to the Asset Forfeiture Investigative Detail of the Gang andNarcotics Division, and 2) structured bank deposits, through LAPD's participation on afederal task force. LAPD offered no formal process to evaluate or change this strategy.

Crimes for which LAPD enforces asset forfeiture statutes require a seizure evaluationprocess. One of the techniques AFID uses to identify probable cause for assetforfeiture is to regularly search the Property Division's tracking system (APIMS) for newcases involving cash seizures.AFID also receives some information directly fromarresting officers or other knowledgeable LAPD personnel.

APIMS DeficienciesThe manual process of searching APIMS to identify potential asset forfeiture cases issubject to system limitations and human error. These issues reduced AFID'seffectiveness.

An AFID detective electronically "searches" data in APIMS every few days to identifycases where asset forfeiture is applicable. Search criteria we observed includedbookings that exceeded a specified dollar threshold and where the primary crime codenoted in APIMS was for a controlled substance ("narcotics") violation. This lattercriterion, known as a "narco nexus," is a prerequisite to AFID's processing an assetforfeiture case (except for certain financial crimes, detailed below).

APIMS has an inherent limitation in that it only stores a "primary" crime code. However,arrests and property bookings may involve a number of crimes, each with a separatecode. For example, if burglary is listed on the police report as the primary crime and anarcotics violation is one of the other crimes, the Property Officer cannot also enter thenarcotics violation code in APIMS. Therefore, the AFID detective will reject the case forlack of a narcotics nexus.

19 California Seizure and Forfeiture Manual, California District Attorney's Association, 2006i

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LAPD makes scanned images of the police reports available in their Integrated Crimeand Arrest Record System (ICARS) a month or two after creation of the police report.However, AFID's filing deadlines of 15 and 30 days after seizure (respectively, for Stateand most federal cases) prevent effective use of ICARS to look up crime codes notstored in APIMS.

A resource that AFID may not be using is the Information & Technology Bureau'scapability to automate a combined search of APIMS and the Consolidated CrimeAnalysis Database (CCAD). By accessing both the primary crime code in APIMS andthe other codes in CCAD, such an automated search may provide a morecomprehensive, consistent, and efficient process to identify potential asset forfeiturecases.

We tested ten cases from 2012 where seized cash exceeding AFID's dollar thresholdwas recorded in APIMS, but the AFID detective did not select the case for assetforfeiture processing. After examining the police reports, we identified one case wherea narco nexus was evident in the police report, but not in API MS. The AFID detectivedid not select the case, because the primary crime code had no narco nexus. Thedetective agreed that the police report supported initiation of an asset forfeitureproceeding, but since APIMS did not it was not pursued by AFID. The cash booked forthat case was $4,593, which could have resulted in asset forfeiture proceeds to LAPD ofapproximately $3,000, had it been pursued and the forfeiture case resolved.

For a separate test, we reviewed APIMS search documentation and found one day thatAFID did not include in their APIMS search: May 5, 2012. On this date, $1,252 wasbooked into evidence with a narcotics nexus listed as the primary crime code. AFIDagreed this property should have been processed for forfeiture, but was overlooked.

APIMS is a relatively old system that has limitations. In addition to the limitation of-----~stefiflg-ooly-{)fle-c-eEle-vi0~ati0fl-AHffiber,tAe-age-ef-tRe-a0ftwar€-anG-its-mainfFafT1&e -----

environment make it impractical to modify the system to automatically alert AFID whenbookings meet AFID criteria. The current manual process used by AFID to review allbookings to identify potential forfeiture cases is prone to error.

LAPD has plans to replace APIMS, and is in the process of developing specifications fora new system. LAPD should ensure a new system has the capacity to store additionaldata fields (e.g., code violations) and allows for customized searches and flexiblereporting.

Recommendations:

LAPD Executive Management should:

13. Ensure that the APIMS replacement system has the capacity to storeadditional code violations, and the ability to flag bookings with specificattributes (e.g., narcotics-nexus) for customizable search parameters,that will facilitate more automated processes by AFID and other users.

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14. Until the APIMS replacement system is implemented, direct theInformation Technology Bureau to work with AFID to develop automatedsolutions to improve their current manual processes, by queryingmultiple existing systems.

Non-narcotics Asset ForfeituresMany non-narcotic State and federal crimes include asset forfeiture provisions. Thefederal government encourages local agencies to help enforce federal statutes.Depending on the circumstances, equitable sharing of federal asset forfeiture proceedscan result in payments of up to 80% of the proceeds of these cases to LAPD. Thecorresponding LAPD share of State cases is lower, at 65%. By law, all proceeds fromasset forfeitures must be used to enhance law enforcement efforts.

Among non-narcotics crimes, LAPD has only dedicated resources towards pursuingasset forfeitures for the crime of "structuring" bank deposits to avoid reporting cashdeposits of more than $10,000. LAPD has assigned two detectives to work with theU.S. Treasury Department (Treasury) on a federal task force to identify potentialcriminal activity. If the IRS accepts the case, it will investigate the matter.

The task force receives approximately a hundred thousand leads each year to evaluatefor potential criminal financial activity. LAPD assigns two detectives to review theseleads and determine which to further evaluate. These investigations have led to morethan 32 cases and $12.5 million in seizures since July 2010. Nine of these casestogether resulted in more than $400,000 in asset forfeiture proceeds paid to LAPD, withnearly all of the other cases, valued at millions of dollars, still pending.

We noted opportunities for improving process effectiveness through additional trainingregarding data analysis techniques; however, LAPD management indicated it was therole of the Treasury Department to determine the appropriate strategy and proceduresfor task force activities. Nevertheless, since Treasury has rolled out new automatedtools, LAPD could maximize the effectiveness of its participation through additionaltraining, coordination with other Divisions with expertise in financial crimes, or byassigning non-sworn personnel with specialized training to assist in the process ofreviewing leads.

Management indicated that other LAPD Divisions or Units may have pursued assetforfeitures related to non-narcotics crimes, but AFID was generally not aware of them orinvolved. Staff indicated that in these cases, the investigating officers who are workingthe criminal case would need to work with the prosecuting agency to also pursue anyrelated forfeiture case, which may involve different processes and requirementsdepending on the statute involved. AFID, as a Unit under the Gang and NarcoticsDivision, has specific expertise related to crimes with a narcotics-nexus, and has solelyfocused on civil forfeitures in these types of cases. While it is not LAPD's primaryobjective to seize assets, all civil forfeiture proceedings that are brought against theasset are intended to enhance law enforcement by removing the tools and profits fromthose who would engage in criminal activity.

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It is unknown how many asset forfeiture cases have been pursued by Units other thanAFID, though management indicated it was thought to be nominal. However,regardless of what Unit may initiate a forfeiture case, LAPD must ensure all assetforfeiture cases comply with applicable forfeiture laws and regulations regardinginitiation, monitoring, reporting and ensuring receipt and appropriate reporting of netproceeds. Control over such functions is better assured if it is handled in a centralizedmanner.

Therefore, LAPD management should consider expanding the scope andresponsibilities of a broader Asset Forfeiture Program to effectively manage andresponsibly control, monitor and report on all asset forfeiture cases pursued by LAPD.

Recommendations:

LAPD Executive Management should:

15.Periodically evaluate how the Asset Forfeiture Program is achievingLAPD's goals and objectives, and determine whether strategic changesto the Program are necessary.

16.Consider expanding the tools and resources available to a broaderAsset Forfeiture Program, especially as related to non-narcoticsforfeiture cases.

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Finding #4: Additional efforts are necessary to ensure compliance withadministrative requirements.

The Asset Forfeiture process is highly regulated and LAPD must ensure it complies withState law and federal requirements to qualify for an "equitable share" of asset forfeitureproceeds.

The USDOJ Guide to Equitable Sharing for State and Local Law Enforcement Agenciesestablishes rules LAPD must follow regarding recordkeeping, the forfeiture process, andallowed uses of the equitable share proceeds from USDOJ cases. The Treasury'sGuide to Equitable Sharing for Foreign Countries and Federal, State, and Local LawEnforcement Agencies defines similar rules for Treasury cases. Both Guidelinesinclude a National Code of Professional Conduct for Asset Forfeiture which definesbroad requirements for the Program. Most of the provisions noted in the National Codeof Conduct have also been codified in the California Health and Safety Code.2o

LAPD's Fiscal Operations Division indicated that it considers USDOJ to have the moststringent rules, and therefore seeks to comply with those requirements. As aprerequisite to receiving a share of the proceeds of assets forfeited under federal laws,LAPD annually certifies that they comply with the USDOJ and Treasury Guides. In fact,the Mayor and Chief of Police sign the certification, under the following affidavit:

Under penalty of penury, the undersigned officials certify that they have read andunderstand their obligations under the Equitable Sharing Agreement ... and thatthe recipient Agency is in compliance with the National Code of ProfessionalConduct for Asset Forfeiture.

Reporting of Federal Sharing Funds ReceivedThe federal Guides prohibit commingling of USDOJ asset forfeiture proceeds withTreasury asset forfeiture proceeds. They also prohibit commingling of the proceeds ofUSDOJ or Treasury asset forfeiture proceeds with revenue from any other source. Tocomply with these requirements, in 2000 the City established separate Trust Funds toaccount for the receipt and expenditure of asset forfeiture proceeds, namely, TrustFunds 44D, 44E, and 44F.21 We also noted that LAPD established stand-alone bankaccounts corresponding to 44D and 44F that do not roll up into the City's primary bankaccounts. We confirmed with asset forfeiture officials from USDOJ and Treasury thatseparate bank accounts are not required, as long as the City's accounting system canaccurately separate transactions by source (Treasury; USDOJ; State) includingallocation of interest to each source, to ensure appropriate segregation and reporting ofasset forfeiture amounts by Source.

The City's accounting system and existing Fund structure, when used correctly, meetfederal requirements; however, our audit found that some Treasury asset forfeitureproceeds were inadvertently commingled with USDOJ asset forfeiture proceeds and the

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20 California Health & Safety Code §1146921 City Ordinance 173345.

General Fund, For example, on October 13, 2011 Treasury transferred $27,772,99 toLAPD on AFID case no, 10F0455, which was recorded in the General Fund,Separately, on December 3,2012, Treasury transferred $177,288,60 to LAPD for AFIDcase nos, 11F0361, 12F0332, and 12F0366, and LAPD posted this cash to Fund 440,which is the Trust Fund reserved only for USDOJ proceeds, Documentation supportingthis latter transfer to Fund 440 showed a misunderstanding of the correct use of Fund44E,

LAPD's 2011 and 2012 Certification Reports, which are required for local agencies'participation in equitable sharing for federal cases, both indicated that LAPD receivedno Treasury equitable share proceeds in those years, However, our audit confirmedthat Treasury reported payments of equitable share proceeds to LAPD totaling $28,444and $63,773 in fiscal years 2011 and 2012, respectively, These amounts may havebeen erroneously included in other categories,

Proceeds from both federal agencies arrive by wire transfer, and for USDOJ the wiretransfers include coding that allow the City's system, with proper setup and testing, toautomatically post the proceeds to the proper fund, FOD must pursue the necessarysetup process for automatic coding for Treasury wire transfers to avoid erroneouspostings to the USDOJ Fund 44D or to the General Fund,

Automating and Ensuring the Accuracy of a LogThe USDOJ Guide requires LAPD to implement standard accounting procedures andinternal controls to track equitably shared monies and tangible property, includingmaintaining a log using a consecutive numbering system for control purposes, The logis to contain seizure type (property or currency), amount, share amount requested,amount received and date received, The log should be updated when the net forfeitureproceeds are received, as that amount will differ from the amount seized, While AFID'scase tracking system could be considered a case log, as shown in Findings 1 & 2, this

-- ~s¥si~wlliains unreliable and incom[l",le"te"--,d,,,a.,.ta__2~2,~ _

While AFID's case database allows for the tracking of dates and amounts received, theinformation is not current and contained numerous errors, Many of the errors couldhave been prevented if the system had been programmed with standard data-validationroutines and information was regularly updated upon case closure and receipt ofproceeds, While updating the DOS-based Paradox database would requireprogramming expertise that is relatively unavailable, a simpler solution would be tocreate the same functionality using a newer database "backend." To ensurecompliance with the federal requirements for maintaining an accurate log, as well as fornecessary management control over the entire asset forfeiture process, any systemmust be effectively utilized to ensure data is accurate and reliable,

22 AFID indicated their manual summary sheet included in each hardcopy forfeiture case file meets DOJ'srequirements for a case log, However, our testwork found that these sheets were not kept current orupdated for amounts received, due to issues with case monitoring or assurance of case closures,

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Inadequate AFID ManualThe Asset Forfeiture Manual (Manual) of the Gang and Narcotics Division contains nomention of the Code of Professional Conduct (CPC) or its requirements. In addition, theprocedures as described in the Manual do not provide assurance that LAPD fullycomplies with the following CPC requirement:

Seizing entities shall have a manual detailing the statutory grounds for forfeiture. Thismanual will include procedures for prompt notice to interest holders, theexpeditious release of seized property where appropriate, and the promptresolution of claims of innocent ownership. [emphasisadded]

AFID indicated that the manual requires that money returned to a claimant or ownerbe transacted through the LAPD Property Division. For returning cash to claimants,the Manual simply requires that:

As soon as possible, checks made out to "Cash" (for release to the claimant), will becashed and the currency booked into Property Division.

However, these are process-related, and do not address the broader requirement forhow LAPD ensures "prompt notice," "expeditious release," or "prompt resolution" ofclaims of innocent ownership.

Reporting to City OfficialsLAAC 7.86 requires LAPD to submit to the Board of Police Commissioners (Board) andto the City Council (Council) a quarterly report of all forfeited assets placed into serviceby LAPD in that quarter. California law prohibits LAPD from placing narcotics-relatedforfeitures into service; however, federal law allows federal agencies to place seizedproperty into service, and authorizes transfer of federally seized property to local lawenforcement agencies. We noted at least one such transfer of seized property duringour audit scope.

LAPD placed a horse trailer into service during the last quarter of 2011 that should havebeen reported to City officials. However, LAPD was unaware of this reportingrequirement, and was unable to provide copies of any previous quarterly asset transferreports. Our understanding is that LAPD rarely places forfeited assets into service, andthat any such report would have reported a zero value for nearly all quarters.

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LAPD does submit a quarterly report to the Board on expenditures from theSupplemental Police Account or "SPA fund." The Supplemental Police Account is anannual allocation by Council and Mayor of $1.5 million that comes from the proceeds offorfeited assets. SPA monies must be spent in accordance with an expenditure planapproved by Council, in the following categories: narcoticslinformants expenses;miscellaneous operational expenses; equipment; and travel and training. Forfeitureproceeds not allocated to SPA may be used for general law enforcement purposes.(Our audit scope did not include a review of the allocation or expenditure of forfeitureproceeds by LAPD.)

The Quarterly SPA reports are regularly filed with the Board of Police Commissionersand are publicly posted, yet they erroneously reference Section 5.115 of the Los

Angeles Administrative Code-a Section that was repealed in May 2000 by the CityOrdlnance'" that established Trust Funds 44D, 44E, and 44F to separately account forasset forfeiture proceeds received from USDOJ, Treasury and State. The revisedOrdinance retained the provisions to establish SPA accounts within each of the threeFunds.

Since LAPD regularly files a quarterly report to Council related to forfeited assets (albeitfocusing only on the uses of SPA funds and results from information/contrabandexpenditures) this report could also include a section on seizures of property placed inservice, meeting the intent of LAAC 7.86. It should also be revised to reflect the currentprovisions of the LAAC.

Recommendations:

LAPD Executive Management should direct Fiscal Operations Division to:

17.Reconcile federal receipts posted to 44D and 44E to independentsources from USDOJ and Treasury, prior to submission of the annualcertification report.

LAPD Executive Management should dedicate the necessary resources to:

18.lmplement a replacement database system that will adequately supportAFID's case tracking activities, and meet all federal requirements for anautomated control log from case initiation (seizure of cash or property)through the receipt of net forfeiture proceeds.

LAPD Management should:

--------~49_;__Mak-e-neeessary---t"ev1sie»s--te...t-he-Asset--F...Ql'feit.ur.e.-Manual....to....ensur.e'- _compliance with all federal requirements and provide sufficientdirection to staff to ensure operations are consistent withmanagement expectations.

20. Modify the existing quarterly SPA reporting to the Board by adding aprovision to describe any seized/forfeited property that was placed inservice by LAPD, and referencing the appropriate sections of LAAC.

23 Ordinance No. 173345 repealed Article 17 of Chapter 5 of Division 5, consisting of Section 5.115 of theLAAC; and Amended Division 5 of the LAAC to add Chapter 120, Asset Forfeiture Trust Funds, includingsections 5.520 (creation and administration of USDOJ Asset Forfeiture Fund - 440), 5.520.1 (creationand administration of US Treasury Asset Forfeiture Fund - 44E); and Section 5.120.2 (creation andadministration of the California State Asset Forfeiture Fund - 44F).

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Respectfully submitted,

T. William Newman, CPA, CFEInternal Auditor III

~Siri Khalsa, CPADeputy Director of Auditing

I-~~Farid Sa ar, CPADirector of Auditing

April 30, 2013

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Appendix A

OFFICE OF THE CONTROLLERAUDIT OF LAPD's CONTROLS OVER SEIZED AND FORFEITED ASSETS

an mq o ecommen a Ions

Finding Description of Finding Ranking RecommendationsNumber Code

SECTION 1- MANAGEMENT CONTROL & REPORTING OF PROGRAM OPERATIONS

LAPD Executive Management should:

1. LAPD has insufficient N 1. Confirm that AFID has primarycontrols and information responsibility and accountability forsystems to support controls over the entire Assetadequate reporting on the Forfeiture process, and establishAsset Forfeiture Program. necessary procedures and appropriate

coordination among Divisions tosupport effective management andaccurate reporting on the results of theAsset Forfeiture Program.

U 2. Implement effective processes andcontrols for staff to manage the statusof each forfeiture case, so current

-- -- ------ ---- - ------ --------- ---

information on the case anarelateaseized assets is accessible, reliable,and accurate. This should includedefining the specific duties andresponsibilities of both sworn andcivilian staff positions regardingongoing case management.

N 3. Direct the Information TechnologyDivision to work with AFID todetermine the software needs toreplace the existing case managementsystem, and provide necessaryresources to enable a transition to amore user-friendly, flexible databasesystem that will facilitate reporting andmanagement control.

R kl fR d f

41

FindingNumber Description of Finding Ranking

Code Recommendations

u 4. Ensure AFID staff utilize the casemanagement system to facilitate theircase monitoring activities and improvecontrols over the asset forfeitureprocess. This would include updatinginformation on each case immediatelyas received, and routinely querying thesystem to determine appropriatefollow-up inquiries and/or if furtheractions are necessary to achievetimely case resolution.

2. LAPD processes lackassurance regarding theappropriate disposition ofseized assets, includingensuring if proceeds fromall forfeited assets areactually received anddeposited.

u 5. Review all case and subsidiaryrecords noted as "open" in AFID'sdatabase to verify and update status;for those with sufficient documentationavailable at LAPD (AFID and/or FOD)to justify case closure and theoutcome, i.e., appropriate dispositionof the asset, close the case andupdate the tracking system.

N 6. For all remaining open forfeiturecases that were initiated prior to 2011,request a current status from theprosecuting agency. For thoseindicated as closed, obtain necessarysupporting documentation to ensureappropriate disposition of the asset,close the case and update the trackingsystem.

N 7. Establish standards for requireddocumentation to be maintained inAFID case files that is necessary tosupport the appropriate disposition ofseized assets, i.e., deposit into City'saccount, or release to claimant.

N 8. Implement procedures to ensureAFID adheres to the expecteddocumentation standards, for bothcash and non-cash seized assets.

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RankingCode

FindingNumber Description of Finding Recommendations

u 9. Revise protocols and processes tofacilitate information sharing betweenAFID.and FOD to strengthen controlsand ensure accountability over theproceeds from forfeited assets,including working towardsimplementing electronic transfers forfunds received from all prosecutingagencies and verifying the receipt andappropriate recording of that receipt,i.e., posting to the appropriate CityFund and updating the AFIDlog/database.

u 10.Establish a working group ofrepresentatives from LA County(Auditor-Controller, District Attorney,Treasurer-Tax Collector) and the City(Office of Finance, City Controller andLAPD) to pursue a strategy towardsimplementing electronic payment ofasset forfeiture proceeds from LADAto LAPD.

N 11.Work with the Office of Finance to-----+----I-----------I----I-~evise...the-automated_p.osting_pLO.c.e.s.s,-I-------.-

of wire transfers from Treasury of netproceeds from asset forfeitures, toensure proceeds are appropriatelyrecorded in Fund44E.

u 12.Establish proceduresto ensure thatany subsidiary systems used to trackand control non-cash assets in LAPD'scustody are accurate, and that theinformation agrees with that noted inAFID's case tracking system.

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FindingNumber Description of Finding Ranking

Code Recommendations

3. Opportunities exist toimprove LAPD processesto identify assets forpotential seizure andforfeiture.

u 13. Ensure that the APIMSreplacement system has the capacityto store additional code violations, andthe ability to flag bookings with specificattributes (e.g., narcotics-nexus) forcustomizable search parameters, thatwill facilitate more automatedprocesses by AFID and other users.

u 14. Until the APIMS replacementsystem is implemented, direct theInformation Technology Bureau towork with AFID to develop automatedsolutions to improve their currentmanual processes, by queryingmultiple existing systems.

N 15. Periodically evaluate how the AssetForfeiture Program is achievingLAPD's goals and objectives, anddetermine whether strategic changesto the Program are necessary.

N 16. Consider expanding the tools andresources available to a broader AssetForfeiture Program, especially asrelated to non-narcotics forfeiturecases.

4. Additional efforts arenecessary to ensurecompliance withadministrativerequirements.

N 17. Reconcile federal receipts postedto 440 and 44E to independentsources from USDOJ and Treasury,prior to submission of the annualcertification report.

N 18. Implement a replacement databasesystem that will adequately supportAFID's case tracking activities, andmeet all federal requirements for anautomated control log from caseinitiation (seizure of cash or property)through the receipt of net forfeiture

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Description of Finding RecommendationsFindingNumber

RankingCode

proceeds.

N 19. Make necessary revisions to theAsset Forfeiture Manual to ensurecompliance with all federalrequirements and provide sufficientdirection to staff to ensure operationsare consistent with managementexpectations.

N 20. Modify the existing quarterly SPAreporting to the Board by adding aprovision to describe anyseized/forfeited property that wasplaced in service by LAPD, andreferencing the appropriate sections ofLAAC.

Description of Recommendation Ranking CodesU- Urgent-The recommendation pertains to a serious or materially significant audit finding or controlweakness. Due to the seriousness or significance of the matter, immediate management attention and

------~appfer>rjate-eer-reetive-aGtjGn-is-wamlnted--------- _

N- Necessary- The recommendation pertains to a moderately significant or potentially serious auditfinding or control weakness. Reasonably prompt corrective action should be taken by management toaddress the matter. The recommendation should be implemented within six months.

D- Desirable- The recommendation pertains to an audit finding or control weakness of relatively minorsignificance or concern. The timing of any corrective action is left to management's discretion.

45