RM 610 USE PREVIOUSEDITIONS

. D . UNCLASSIFIED -ERNAL

CONVJENTIAL

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ROUTING AND RECORD SHEETSUBJECT: (Optional)

Audit of Operational Activity QRPLUMB)10

-INSPECTOR GENERALFROM: C _.3

Inspector General .)-:------155552 T 21 NHB

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TO: (Officer designation, room number, andbuilding)

DATEOFFICER'S

INITIALSCOMMENTS (Number each comment to show from whomto whom. Draw a line across column after each comment.)

RECEIVED FORWARDED

1 ' C/PPS4 N 53 NHB

Report draft discussed with:C/PPS/SIB, PPS/PMO,PPS/ORPLUMB/CO.

cc: C/SEC/EURCORMSC/OFMCcimptrollerGeneral Counsel

DECLASSIFIED AND RELEASED BY.CENTR U. IN TELLIGENCE AGENCYSOURC E S METHODIEXENPT ION MBNAZI WAR CRIMES 01 ECLOGUE ACTDATE 2007

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SECRET INSPECTOR GENERAL

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26 April 1991

MEMORANDUM FOR: Chief, Political and Psychological Staff

FROM:Inspector Gener-al.

SUBJECT: Audit of Operational Activity QRPLUMB1 January 1989 - 30 September 1990 (Termination)

1. Subject report is attached for your review.

2. We appreciate the cooperation and assistance providedto the auditors by Headquarters and proprietary personnel.

Attachment:As stated

DOC. MICRO. SER.

OCT 1 1 1994

MICROFILMED

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REPORT OF AUDIT

Operational Activity QRPLUMB1 January 1989 - 30 September 1990 (Termination)

Central Intelligence Agency

Office of Inspector General

Audit Staff

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REPORT OF AUDITOperational Activity QRPLUMB

For the Period1 January 1989 - 30 September 1990 (Termination)

SUMMARY

1. During the audit period, except for the weakness incontrols associated with complying with Executive Order (E.0.)12333 restrictions regarding the influence of U.S. domesticopinion or policies, internal controls and procedures for thecustody and use of Agency resources were generally effectiveand in compliance with the applicable laws, regulations, andAdministrative and Liquidation Plan requirements tested duringthe audit. Improvement in conditions reported upon in theprior Report of Audit was due to the engagement of professionalaccountants to maintain the financial records of QRPLUMB.

2. QRPLUMB was terminated 30 September 1990; therefore, weare not making any recommendations concerning QRPLUMB.However, this report contains comments concerning noncompliancewith E.O. 12333 restrictions. We have also addressed thesubject of compliance with E.O. 12333 in a separate memorandumto the Chief, Directorate of Operations/Operations ResourceManagement Staff (DO/ORMS). Administrative problems resolvedduring the audit included the need to obtain the approval ofthe Deputy Director of Central Intelligence for actions takento liquidate QRPLUMB prior to obtaining an approved LiauidationPlan and for payment of a termination settlement of 3

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OBJECTIVES, SCOPE, AND METHODOLOGY

3. The audit, primarily a financial and compliance review,was performed in accordance with generally accepted governmentauditing standards and, accordingly, included such auditingprocedures as we considered necessary. Those standards requirethat we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free ofmaterial misstatement and whether the activity is in compliancewith applicable laws and regulations.

4. Our examination, conducted during the period November1990 - February 1991, included a review of the overt records atthe Newark proprietary office and a review of Political andPsychological Staff's (PPS) QRPLUMB records at Headquarters.

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We held discussions with personnel from PPS, the proprietary,and the outside accounting firm employed by QRPLUMB. Due tothe historically sound condition of the financial records andcontrols at QRPLUMB's Munich office, we did not schedule anaudit of that office. We did schedule an audit of QRPLUMB'sLondon office, but worldwide travel restrictions implemented bythe Agency prevented an audit of that office.

5. The audit included examining, on a test basis, evidencesupporting the amounts and disclosures in the financialstatements of QRPLUMB's Newark office and compliance with E.O.12333, Agency regulations, and the Administrative andLiquidation Plans. Due to the results of the prior audits ofthe Newark office, we placed little reliance on its internalcontrol structure. Consequently, we expanded substantive audittests of the financial records at the Newark office.

BACKGROUND

6. QRPLUMB, a publishing corporation in Newark, NewJersey, with affiliates in Munich and London, was a PPSproprietary activity that published literature in Ukrainian,Russian, and English for distribution in the Soviet Ukraine,the Soviet Union, Eastern and Western Europe, and NorthAmerica. The proprietary's activities were designed to provideintellectual and moral support to Ukrainians who sought socialand political moderation of the Soviet system.

7. As a result of revised U.S. Government policy, theNational Security Council in January 1990 directed the Agencyto terminate the QRPLUMB activity within two to three years.The Agency terminated its ownership of the proprietaryeffective 30 September 1990. The termination included givingall proprietary property and a termination bonus to the QRPLUMBprincipal agents to enable them to operate for one year whileseeking alternative means of support. The principal agentssigned a quitclaim in February 1991 relieving the Agency of anyresponsibility for QRPLUMB after 30 September 1990 andacknowledging the satisfaction of any claims against the Agency.

OPINION

8. In our opinion, the accompanying financial statements,Exhibits A, B, and C, present fairly, in all material respects,the financial position of QRPLUMB's Newark office at 30September 1990, and the results of its operations for the 21months then ended in conformity with generally acceptdaccounting principles.

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FINANCIAL INFORMATION

9. The Agency investment in QRPLUMB's Newark office at 30September 1990 was C: .3 From 1 January 1989 through 30September . 1990, the Newark office received Agency funding of

a reported earned income of $124,150, and recordedexpenses of $2,139,824. Included in Newark's expenses arefundings of $273,438 to the London affiliate and $80,400 to theMunich affiliate. The Munich affiliate also received fundingofC ,Idirectly from the Agency. Additional financialinformation regarding QRPLUMB's Newark office may be found inExhibits A, B, and C, attached. The principal agents receivedall remaining assets of QRPLUMB at 3n Se ptember 1990 andsubsequently received an additional E -3 as the finalterminatiorLsettl pmant. A portion of. the terminationsettlement;-. j was paid in October 1991 and banktransfers for the balance, C 3, were initiated inFebruary 1991.

DETAILED COMMENTS

Compliance with E.O. 12333

10. Internal controls in effect dui . ing the operation ofQRPLUMB were not sufficient to ensure that distribution ofQRPLUMB's journal in the United States would not violate E.O.12333. The prior Report of Audit recommended that PPS obtain awritten opinion from the Office of General Counsel (OGC)regarding United States subscribers to QRPLUMB's journal. TheOGC's written opinion in February 1990 specifically directedPPS to drop as subscribers 'Harvard University and certainUkrainian church-affiliated groups. The opinion also providedthe general guidance that there should be no subscriptions fromuniversities, church-affiliated groups, or members of the U.S.media.

11. Our review of the current subscribers indicates thatduring all or part of the audit period there were 24subscribers that violated the OGC guidelines. We were informedthat PPS did not take action to implement the guidelines setforth in the OGC opinion because the decision to terminateQRPLUMB had been reached prior to receipt of the opinion inFebruary 1990. PPS officials also explained that they wereuncertain how to proceed with implementing the OGC guidelinesand cited cover ramifications that would be inherent in QRPLUMBdropping longtime subscribers while continuing to operate as aviable voice in the Ukrainian community as a reason for not

, implementing the guidelines. We have addressed QRPLUMB's (andother proprietaries') noncompliance with E.O. 12333 in aseparate memorandum to Chief, DO/ORMS.

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$64,8205,919

$87,260

$123,684.-,-(90;933)

.$32,751

$120,011.

SECRETExhibit A

QRPLUMBNewark OfficeBalance Sheet

30 September 1990

Assets

Current Assets

CashEmployee advancesAccounts receivablePrepaid expensesDeposits

Office furniture and equipmentAccumulated depreciation

Total Fixed Assets

Total Assets

Total Current Assets

. Fixed Assets

Liabilities & Agency Investment

Liabilities

Agency Investment, Exhibit C

Total Liabilities and Agency Investment

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:.40;s4v.

30 ,417,

14,5 19

.16757.

6 ,425

SECRETExhibit B

QRPLUMBNewark Office

Income Statement1 January 1989 — 30 September 1990

IncomeAgency funding (Note 1)Subscription income 99,921Interest income 14,319Other income 9,910

Total Income

ExpensesSalary and pensionResearch and interviewSubsidy to London affiliatePublishing and distributionInsurance, employees health and lifeRentTravelSubsidy to Munich affiliatePhotocopying and printingTaxesAccounting servicesOffice suppliesElectionsDepreciationSubsidies to other affiliatesLeased equipmentInsurancePostage and telephoneMiscellaneousConsulting servicesBooks and periodicalsVideoMeetingsRepairs

Total expenses

Net Income (Loss), Exhibit C

$2,139,824

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SECRETExhibit C

QRPLUMBDomestic Operations

Statement of Changes in Agency Investmentin the Proprietary

1 January 1989 — 30 September 1990

Balance 1 January 1989

Additional paid in capital

Transfer from client's fundto income

Net Income

Balance 30 June 1990

a/ Recorded on Overt Records as:Accounts payableCapital stockPaid in capitalRetained earnings

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QRPLUMB1 January 1989 — 30 September 1990

Notes to the Financial Statements

Note 1:

Note 2:

Agency funding presented in both the audit reportand the financial statements does not include the

]termination settlement paidsubsequent to 30 September 1990. Agency fundingincludes E._ in prior period funding receivedand recorded on QRPLUMB's financial records inJanuary 1989.

Agency investment at 30 September 1990 does not includethe reported investment balances for the unaudited Londonand Munich offices. These offices reported respectiveinvestment balances of $23,844 and $10,160 at30 September 1990. The Agency's total investment inQRPLUMB at 30 September 1990, including the Newark, London,and Munich offices, was(.... J.

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