UP IN SMOKE: ATF Loses $127 Million in Cigarettes
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The Fiscal Times
September 25, 2013

We swear we didn't make this up.

Federal agents have no idea what happened to $127 million worth of cigarettes that were supposed to be used in undercover operations, according to a newly released government audit.

Due to a "serious lack of oversight" at the Bureau of Alcohol, Tobacco and Firearms, ATF wasn't able to account for "at least 2.1 million of the more than 9.9 million cartons purchased for investigations," the Justice Department's Inspector General said in a report released Wednesday.

During these "churning" investigations, mainly used in cases involving tobacco tax evaders, federal agents sell cigarettes to criminals and use money from the illegal transactions to offset expenses incurred by the investigations.

The problem is, ATF agents who conduct these investigations often disregard agency guidelines and procedures, causing the proceeds from the sales to sometimes be misused, the auditor said.

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In one case, an informant was allowed to keep at least $4.9 million of the $5.2 million generated by selling cigarettes as part of a churning operation.

"We found that the more than $4.9 million covered more than just the business expenses related to ATF activity including 100 percent of the confidential informant's total business operating overhead and more than $2.3 million in profit," the auditor said.

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The report revealed that despite agency requirements, the Undercover Review Committee--in charge of assessing the merit of proposed investigations-- never reviewed any of the churning investigations that were conducted between February 2005 and January 2012. In fact, the committee never even met between that time period.

"Our audit found that ATF policies then in place, did not clearly establish the permissible uses of churning proceeds, resulting in agents and supervisors making their own determination about which expenditures to approve, leading to inconsistencies in purchases made with churning proceeds," the auditor said. "We also found a material lack of oversight and controls to ensure that cash, cigarettes, equipment, and other assets used in churning investigations were accurately tracked, properly safeguarded, and protected from misuse."

In order to prevent ATF from burning anymore cash, the auditors made 17 separate recommendations to the bureau on how to improve oversight of the undercover operations.

ATF's director B. Todd Jones responded to the report, saying it had already begun taking actions to address the deficiencies, adding that many of the problems had already been corrected. He also accepted responsibility for the "management and oversight lapses." But said the audits findings do not reflect current ATF practices.

"Readers of the report may inaccurately conclude that these historical problems continue to the current day. They do not."

The ATF also had a problem with the IG's estimate of the total value of the missing cigarettes, saying it had accounted for 85 percent of the cartons that the auditors weren't able to locate. It also said that the IG's estimate was misleading because it used the retail value of cigarettes to calculate the cost, but ATF got them at wholesale prices. ATF said its figures showed that 447,000 cigarettes were unaccounted for---with a wholesale value of $7.3 million.

Washington Correspondent Brianna Ehley, based in D.C., covers Congress, government agencies and spending issues, health care, and tax and economic policy for The Fiscal Times.