Justice Department auditors discovered a “serious lack of oversight” in a recent review of federal undercover operations that generate revenue for the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).

Cigarettes seized from a tobacco-smuggling operation in the Detroit area. (AP Photo/Michigan State Police). Cigarettes seized from a tobacco-smuggling operation in the Detroit area. (AP Photo/Michigan State Police).

In one case, the agency allowed an informant to keep $4.9 million in tobacco sales to a criminal target, with the money covering all of the individual’s business-operating expenses in addition to $2.3 million in profit, according to a report from the Justice Department inspector general

In another case, the ATF paid two-thirds of the retail value of an SUV just to rent the vehicle for one year, the report said. The agency also failed to properly account for $127 million worth of cigarettes it purchased for investigations.

The analysis looked at 20 of the 36 so-called “churning investigations” that the ATF conducted between 2006 and 2011, during which time the operations brought in nearly $162 million for the agency.

Auditors found that the ATF committee in charge of reviewing the revenue-generating operations had not met in nearly seven years, from 2005 until 2012. The report said oversight issues occurred at the headquarters and field-office levels.

Since 2004, the ATF has been allowed to use proceeds from certain investigations to offset “necessary and reasonable operational expenses” related to the efforts. The Federal Bureau of Investigation and the Drug Enforcement Agency have similar authority. 

But auditors said they found expenditures in the ATF program that appeared “improper, unnecessary, and unreasonable, or made in support of other unrelated AFT investigations.”

“Due to the sensitivity of these investigations and the high risk that proceeds from otherwise illegal business transactions may be misused, it is critically important that ATF and the [Justice Department] have adequate controls to ensure that churning investigations are properly authorized and appropriately managed,” the report said.

The ATF has changed its policies for churning investigations and is working to improve its safeguards as a result of the audit findings, according to the report.

Follow Josh Hicks on TwitterFacebook or Google+. Connect by e-mail at  josh.hicks@washpost.comVisit The Federal Eye, The Fed Page and Post Politics for more federal news. E-mail federalworker@washpost.com with news tips and other suggestions.