I can't seem to find it and it's a file server. I'm trying to prove we don't need to buy an additional Application and use LEM instead. Server is a Windows 2003 R2 SP2. I can use all the help I can get since I lost connection while on SW support and now have been on hold for 15 minutes....
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Out of curiosity, if you open a command prompt and run RSOP (Resultant Set of Policy) on your file server, what comes back? Server 2008 and 2012 have a cool command in auditpol /get /category:* which will list an over-view of Audit Policies, but you can use RSOP there, too. It's a little more in-depth and therefore a lot more to read. On my machine, it looks like this:
Auditpol looks like this:
Does your server return any sort of applied policy information?
Beyond that, what do you mean the server is missing Local Policy? The control panel is missing?
Microsoft's Article on setting local policy in Windows 2003: http://technet.microsoft.com/en-us/library/cc758168(v=ws.10).aspx
You could also try running secpol.msc in the command prompt and see what comes up.