The FBI's domestic drone use, costing more than $3 million as of May and starting years earlier than previously acknowledged, is also expected to expand to the Justice Department's Bureau of Alcohol, Tobacco, Firearms and Explosives, the 35-page report by the department's watchdog Office of the Inspector General said.
The ATF has already spent $600,000 to test small unmanned aerial vehicles the FBI uses, the report said.
The unarmed craft, which can weigh up to 55 pounds and fly "in close proximity to a home," cost about $25 an hour to operate, compared with $650 an hour for a helicopter or other piloted aircraft, the report said.
A drone was used by the FBI during a six-day hostage standoff in Midland City, Ala., in late January and early February, the report said.
In that case, the FBI used a drone with a 9-foot wingspan to watch the entrance to a bunker where 65-year-old Vietnam War-era veteran Jimmy Lee Dykes held a 5-year-old boy hostage.
On the afternoon of Feb. 4, law enforcement agents entered the bunker, killed Dykes and rescued the boy.
The U.S. Marshals Service and Drug Enforcement Administration, which also fall under the Justice Department, purchased and tested the small drones but told auditors they had "no plans to deploy them operationally," said the inspector general's report, which can be found at tinyurl.com/UPI-OIG-Drone-Report.
In addition to buying drones for internal use, the Justice Department gave at least $1.2 million to local police departments to purchase the small drones "for reconnaissance, surveillance and crime scene examinations," the report said.
But in most cases the department appeared not to have properly tracked how the money was spent, the audit found.
From 2004 to May 2013, the Justice Department spent almost $5 million on the unmanned aircraft.
While the drones have helped the FBI in cases such as the Alabama hostage crisis, they raise "unique concerns about privacy and the collection of evidence," the inspector general's report said.
Robert Mueller, who retired as FBI director Sept. 4, testified as director before the Senate Judiciary Committee June 19 the bureau employed drones in "a very, very minimal way and very seldom."
"I will tell you that our footprint is very small," he said, responding to a question from Sen. Charles Grassley, R-Iowa. "We have very few and have limited use, and we're exploring not only the use but also the necessary guidelines for that use.
"We already have, to a certain extent, a body of law that relates to aerial surveillance and privacy relating to helicopters and small aircraft ... which could well be adapted to the use of drones," Mueller said. "It's still in its nascent stages ... but it's worthy of debate and perhaps legislation down the road."
But despite the unique concerns and the FBI's seven-year use of domestic drones, the bureau hasn't revised its policies to address drone-surveillance privacy concerns, the auditors said.
Bureau guidelines simply "require that agents request supervisory approval before conducting any aerial surveillance and comply with aviation laws and policies," the report said.
In a footnote, the report says FBI officials told auditors their Office of the General Council was "conducting a privacy review" tied to drone surveillance.
ATF officials told auditors they "did not believe that there was a need to develop additional privacy protocols" because they didn't see much practical difference between using drones or piloted aircraft for surveillance, the report said.
The ATF is developing a standard operational checklist to guide how pilots should use drones, the report said.
But the agency watchdogs said a consistent department policy may be needed for the use of small drones, which can secretly hover in areas where people might expect privacy and remain there far longer than a traditional aircraft could.
The inspector general's office recommended the deputy attorney general's office consider writing new guidelines across the entire Justice Department to curb improper surveillance by law enforcement drones.
American Civil Liberties Union Senior Policy Analyst Jay Stanley said the non-profit rights group was "encouraged by the inspector general's recognition that drones have created a need for privacy policies covering aerial surveillance."
"We urge the Justice Department to make good on its plans to develop privacy rules that protect Americans from another mass surveillance technology," Stanley said.
He added Congress should pass legislation introduced by Reps. Ted Poe, R-Texas, and Zoe Lofgren, D-Calif., that requires law enforcement to get court approval before deploying drones and explicitly forbids the arming of such craft.