####### `TABLE OF CONTENTS`

*** **[INTRODUCTION]{.underline}**[ ]{.underline}***[ ]{.underline}

The Federal Communications Commission (FCC) is an independent regulatory
agency exercising authority delegated to it by Congress under the
Communications Act of 1934 as amended by the Telecommunications Act of
1996. The FCC is charged with regulating interstate and international
communications by radio, television, wire, satellite and cable. The
FCC\'s jurisdiction covers the fifty states, the District of Columbia,
and U.S. possessions. The mandate of the FCC under the Communications
Act is to make available to all people of the United States a rapid,
efficient, nationwide, and worldwide wire and radio communication
service. The FCC performs four major functions to fulfill this charge:

\" spectrum allocation;

\" creating rules to promote fair competition and protect consumers
where

required by market conditions;

\" authorization of service; and

\" enforcement.

The Chairman and four Commissioners are appointed by the President and
confirmed by the Senate. William E. Kennard was confirmed as Chairman on
October 29, 1997. Harold W. Furchtgott-Roth, Michael Powell, Gloria
Tristani and Susan P. Ness serve as Commissioners. The majority of FCC
employees are located in Washington, DC. FCC field offices and resident
agents are located throughout the United States.

The FCC continues to be actively involved in planning for the
consolidation of the Commission into the Portals facility located at
1250 Maryland Avenue, SW, Washington D.C. Phase 1 of the move is
presently scheduled for the fall of 1998. The Office of Inspector
General (OIG) is tentatively scheduled to occupy space on the second
floor of the Portals. OIG personnel continue to work with responsible
Commission officials to ensure that the unique requirements for both
security and confidentiality of persons wishing to visit the office are
best addressed within the constraints of the open building concept.

The Commission continues to auction spectrum as authorized by the U.S.
Congress in the Omnibus Budget Reconciliation Act of 1993. The OIG
continues to place significant emphasis on evaluating and testing the
security and reliability of automated systems dedicated to the
successful conduct of all phases of spectrum auctions. In this reporting
period, through a comprehensive testing methodology, auditors completed
and issued two auction related Special Review Reports. The first report
entitled [Follow-up Special Review of Auction Site Information
Technology (IT) Security]{.underline} was issued on May 27, 1998. In a
report dated September 16, 1996, the OIG identified the results of our
review of IT security at the primary auction site located at 2
Massachusetts Avenue. The purpose of this follow-up review was to
examine the impact of significant IT infrastructure changes at the
facility. In general, the OIG found that the auction site is progressing
towards a more secure IT infrastructure and that progress had been made
towards mitigating the vulnerabilities previously identified by the OIG.
In FY 1999, the OIG will continue to assess auction related IT security
at the Gettysburg facility and at the new FCC facility to be located at
the Portals.

On September 25, 1998, the OIG issued the final [Special Review of the
FCC Collection System]{.underline}, which addressed the integrity of
data maintained in the existing Collection System. The Commission's
Collection System began as a tracking system on a mainframe computer to
track application and regulatory fees. In order to track the billions of
dollars in payments owed the Federal Government as a result of winning
bids, the FCC had to develop systems to support the auction process. The
purpose of the OIG Special Review was to: (1) assess the existing and
planned abilities of the Collection System, to meet FCC requirements and
recommend alternate commercial-off-the-shelf (COTS) solutions; and (2)
attempt to assess the integrity and validity of data residing in the
existing system before that data can be exported to populate the new
Collection System. The OIG reported that the Collection System does not
provide evidence for all payment transactions, does not provide clear
audit trails for changes made to payment transactions, does not
reconcile to the General Ledger, and supports less than thirty percent
(30%) of desired functionality. Our review further revealed that it
would be cost prohibitive to bring the current in-house system, which
cost over \$4 million dollars, to an acceptable level of functionality.

The OIG continues to provide expertise to the Commission in the
procurement and contracting area. Traditionally, this effort includes
evaluating and testing the accounting systems maintained by FCC
contractors. In this reporting period, OIG contract auditors looked
in-house and examined and reported upon our own internal cost accounting
methodology in the [Final Report on the Follow-up Audit of the FCC
Auction Cost Recovery System]{.underline}. In this report issued on
August 10, 1998, the auditors performed analysis to identify: (1)
whether the recommendations contained in the original subject report
issued on March 18, 1996, had been addressed; and (2) the timeliness,
accuracy and functionality of the current cost accounting system
employed by the FCC. The audit identified that the FCC had adopted the
corrective measures enumerated in the prior report. However, two new
recommendations were contained in the report based upon the findings
that the FCC was not consistently charging Auctions for auction related
work, and that the FCC Auction Cost Recovery Guidelines and Procedures
manual was outdated. Management concurred with both recommendations and
initiated appropriate corrective action.

The OIG continued to monitor and provide input into the final
adjudication of two major investigations concluded during the prior
reporting period. On March 23, 1998, OIG Investigative Report 96-2-A-04
was forwarded to the Chairman. This report identified improper
administrative conduct on the part of FCC employees that established an
environment in which the FCC was highly vulnerable to illicit activity
on the part of a subcontractor. Prompt and decisive intervention by OIG
personnel minimized the financial loss to the FCC and actually resulted
in cost recoveries and withholding of contractor invoice payments
totaling \$315,000 to date. In addition, the OIG supported the Federal
Bureau of Investigation (FBI) and the United States Attorney\'s Office
(USAO) for the District of Columbia, in obtaining a multi-count felony
conviction of the subcontractor and a co-defendant. The Commission is
presently engaged in reaching a determination as to potential
administrative remedies against FCC employees named in the report.

A second significant investigation was concluded on March 31, 1998, with
the release of OIG Investigative Report 97-4-C-08. This report addressed
the improper conduct on the part of FCC employees who used the Internet
to \"surf\" to pornographic sites and, in some cases, download and store
pornographic images and textual depictions of pornographic events on
Commission computers. Such conduct was determined to be in violation of
5 CFR \' 2635.704, entitled \"Use of Government property\" and 5 CFR \'
2635.705, entitled \"Use of official time.\" During this reporting
period, the OIG provided additional input used as a basis for management
imposing disciplinary action against the named FCC employees. Subsequent
to the closure of this investigation, the OIG has opened and is
currently working an investigation focusing upon FCC employees
continuing to access pornographic sites.

On September 10, 1998, Judge Henry Kennedy Jr. approved a settlement
between the Justice Department's Office of Public Integrity and the law
firm of Morrison & Foerster. The case involved a violation of post
employment restrictions by the former Chief, Common Carrier Bureau of
the FCC (18 U.S.C. §207) while employed by Morrison & Foerster. Based
upon allegations received by this office and information developed by
the OIG, the matter was referred to the Justice Department. The firm
made payment of \$12,500 to settle the civil case.

The OIG, in conducting Field Inspections in 1996, had identified to
management that the Commission had not adopted an active posture to stem
the proliferation of Pirate broadcasters operating in violation of
Section 301 of the Communications Act of 1934, as amended, 47 U.S.C.
§301. This condition was most notable in South Florida. At the
invitation of the Chief, Compliance and Information Bureau (CIB), the
Assistant Inspector General for Audits (AIGA) participated in Operation
Gangplank. Operation Gangplank was a coordinated effort by the CIB and
other Federal, State and Local entities to identify and remove
non-licensed or "Pirate" broadcasters from the air. During the week of
July 27, 1998, Operation Gangplank was successful in removing 15 illegal
broadcasters from the air in South Florida and seized illegal broadcast
equipment, ranging from homemade transmitting components to
professionally manufactured equipment illegally imported from foreign
counties.

The OIG has dedicated itself to assisting the Commission as it continues
to improve its efficiency and effectiveness. The Inspector General (IG),
H. Walker Feaster III reports directly to the Chairman. The OIG is
located in Room 752 in the FCC headquarters building at 1919 M Street,
NW, Washington, D.C. 20554. Paul Brachfeld serves as the Assistant
Inspector General for Audits (AIGA) and Charles J. Willoughby serves as
the Counsel and Assistant Inspector General for Investigations (AIGI).
This report includes the major accomplishments and general activities of
the OIG during the period April 1, 1998, through September 30, 1998, in
accordance with Section 5 of the Inspector General Act of 1978, as
amended 5 U.S.C. App. 3, \' 5.

####### [`AUDITS``                                     `]{.underline}

###### `OVERVIEW`

During the reporting period, the OIG issued two Special Review Reports
which focused on the integrity of the Spectrum Auction Program and one
Audit Report which encompassed the timeliness and accuracy of data
maintained in the FCC's cost accounting system. Additionally, OIG
auditors continued to perform contract audit work and dedicated
significant effort to supporting complex investigative activity
addressed in the investigative section of this semi-annual report.

The nature of the work performed at the FCC, and the customers that we
serve, make the security and integrity of our information systems a
paramount consideration. In testimony before the House Subcommittee on
Commerce, Justice, State and the Judiciary on March 25, 1998, Chairman
Kennard addressed the FCC\'s Year 2000 plans and related FY 1999 funding
request of \$5,765,000. The Chairman stated that \"FCC systems which
have been identified as having significant Year 2000 compliance issues
include our applications processing, fees collection, tariff tracking
and public comments filing systems. For each of these systems, we have
completed requirements studies to replace them with restructured and, in
many cases, integrated, state-of-the-art electronic filing and
relational database systems.\" The OIG continues to actively monitor
this effort which is directed towards ensuring that the FCC is prepared
to address issues related to the Year 2000 conversion. In addition to
monitoring the Commission\'s progress in dealing with Year 2000 issues,
an OIG auditor participates in a Commission working group that monitors
the efforts of telecommunications and broadcasting companies addressing
the Year 2000 problem and works with their customers to ensure their
service will not be disrupted.

OIG audit staff continue to monitor the FCC\'s activity related to the
Government Performance and Results Act of 1993 (GPRA). GPRA is intended
to improve efficiency and effectiveness of federal programs through the
establishment of specific goals for program performance. The Office of
Management and Budget (OMB) has called upon Inspector Generals to
\"assess agencies\' technical compliance with the Results Act as well as
their capacity to comply from a data and systems perspective.\"

The OIG continues to dedicate resources toward providing the Commission
with contract audit support services. In a climate of maximizing service
and deliverables to our users while downsizing the size of the Federal
Government work force, increasingly, functions are being contracted out
to the private sector. Furthermore, the Commission is actively involved
in upgrading our automated databases. Related systems development and
implementation activity requires a skill set often attained through
program services contracts with the private sector. The OIG represents
the Commission and the Federal Government in ensuring that required
deliverables are produced in a timely and efficient manner and at a
reasonable and supportable cost. The OIG has worked closely with the
Contracts & Purchasing Center to develop a program to enhance training,
performance and oversight of Contracting Officers' Technical
Representatives (COTR's). A well trained, dedicated and proactive cadre
of COTR's can have a profound and positive impact upon the performance
of a contractor and mitigate the potential for adverse procurement
actions. The FCC has taken major strides in this area and the Contracts
& Purchasing Center is to be commended for their work in this area.

Audit reports can generally be obtained via the Internet at the FCC
website: www.fcc.gov. However, special review and audit reports
containing sensitive or proprietary information will be restricted to
specific individuals and organizations with a need to know.

## SIGNIFICANT AUDIT ACTIVITY

***[1.]{.underline}**[ ]{.underline}***[FOLLOW-UP SPECIAL REVIEW OF
AUCTION SITE INFORMATION TECHNOLOGY (IT) SECURITY]{.underline} (OIG NO.
97-3)

Issued: May 27, 1998

On May 27, 1998, the OIG issued Special Review Report No. 97-3, entitled
[Follow-up Special Review of Auction Site Information Technology (IT)
Security]{.underline}. The purpose of this review was to conduct a
follow-up special review of IT security at the facility whose results
were reported in the [Special Review of Auction Site Information
Technology (IT) Security (OIG 96-6)]{.underline} issued on September 16,
1996. An additional objective was to assess changes which would need to
be considered if a more secure computing environment was required.

In general, our follow-up review indicated that the auction site is
progressing towards a more secure IT infrastructure and that progress
has been made on mitigating the vulnerabilities identified in our August
1, 1996, Special Review Report. For example, we noted marked improvement
in the installation and organization of critical hardware at the auction
site. However, the review team did identify additional control
improvements, which should be instituted. These improvements can be made
in the areas of security documentation, personnel security, security
awareness training, physical security, and the security configuration of
routers, UNIX servers, Windows NT servers and work stations, Windows 95
work stations, and remote access. Many of these control improvements
were being addressed at the time of review completion. In addition, we
observed that Commission employees and contractor personnel managing the
site are committed to continual improvement of security as part of their
operational mission.

[2. FINAL SPECIAL REVIEW OF FEDERAL COMUNICATIONS COMMISSION (FCC)
COLLECTION SYSTEM ]{.underline}(OIG 97-21)

Issued: September 25, 1998

In May 1997, the OIG initiated a special review of on-going development
and enhancement of the Commission\'s collection system. The objectives
of the review were to: (1) examine the current operational system and
assess its ability to meet requirements; (2) assess on-going and planned
system development/modification efforts and determine their effect on
system performance following implementation; and (3) develop recommended
system performance solutions including identification/assessment of
commercially available products.

During the review, the review team became aware of an on-going effort by
the Wireless Telecommunications Bureau (WTB) and the Office of the
Managing Director (OMD) to engage a contractor with government financial
management consulting and system design expertise to evaluate the
current Collections System with respect to: (1) the FCC\'s financial
accounting requirements and (2) operational management and data
requirements of the operating bureaus with emphasis on the Auctions
Division of WTB. Recognizing that, with some exception, the proposed
task order duplicated significant portions of our on-going effort, the
OIG agreed to chair a joint steering Committee comprised of
representatives from OMD and WTB to complete the various review
objectives. In addition, the OIG established a task order with the
accounting firm of Ernst & Young, L.L.P. (hereafter referred to as
\"E&Y\") to evaluate the integrity of Collection System data.

On April 24, 1998, E&Y issued a report summarizing the results of their
Collection System data integrity review. This report, entitled
\"Collection System Agreed-Upon Procedures Report,\" identified a
multitude of data quality issues within the Collection Database. For
example, of the one thousand six-hundred ninety-five (1695) transactions
selected for review, E&Y identified that: data contained in the
collections database differed from source documents for seven-hundred
eleven (711) items representing forty-two percent (711/1695 = 42%) of
selected transactions; and that, of the seven-hundred eleven (711)
transactions for which differences existed, thirty-three (33)
transactions, with a total dollar value of approximately \$39 million,
related to discrepancies in monetary amounts or instances where no check
or wire slip could be located to substantiate the transaction.

On September 25, 1998, the OIG issued the [Special Review of Federal
Communications Commission (FCC) Collection System (OIG
97-21)]{.underline}. In this final report, the OIG made one-hundred
twenty-eight (128) observations in the areas of: internal controls;
audit trails; programming support; database support; security; banking
related matters; business process improvements; policies and procedures,
and systems development lifecycle issues. Of the one hundred
twenty-eight (128) observations, forty-six (46) were considered high and
medium exposure items that should be addressed immediately. OIG auditors
concluded that the Collection System does not evidence all payment
transactions, does not provide clear audit trails for changes made to
payment transactions, does not provide for an adequate level of logical
internal controls, does not reconcile to the General Ledger, and
supports less than thirty percent (30%) of desired functionality. Our
review further revealed that it would be cost prohibitive to bring the
current in-house developed Collection System to an acceptable level of
functionality. The Managing Director and Chief WTB concurred with one
hundred twenty-six (126), and indicated non-concurrence with two (2) of
the one hundred twenty-eight (128) observations and recommendations.

***[3.]{.underline}**[ ]{.underline}***[FINAL REPORT ON THE FOLLOW-UP
AUDIT OF THE FCC AUCTION COST RECOVERY SYSTEM]{.underline} (OIG NO.
98-2)

Issued: August 10, 1998.

On August 10, 1998 the OIG issued the [Follow-up Audit of FCC Auction
Cost Recovery System (OIG-98-02)]{.underline}. The objective of this
audit was to audit the changes the Commission made to its Auction Cost
Recovery System (ACRS) in response to audit recommendations contained in
the March 18, 1996 report entitled [OIG Audit of Fiscal Year 1994
Spectrum Auction Implementation Costs]{.underline}. The audit objectives
included: (1) identifying whether the FCC adopted the four
recommendations contained in the OIG's March 18, 1996, audit report; (2)
determining whether implementation resulted in an improvement in the
FCC\'s ability to accumulate auction reimbursable expenses in a timely,
accurate, and efficient manner; (3) evaluating the validity of expenses
charged as auction reimbursable expenses and reviewing the adequacy of
supporting documentation for fiscal year 1997 through March 31, 1998;
and, (4) examining whether claimed auctions reimbursable expenses comply
with FCC policies and procedures and reflect Congressional language and
intent.

As a result of our audit, the OIG determined that FCC management had
adopted the corrective measures enumerated in the FY 1996 report. In
this follow-up effort, the auditors identified the two areas for which
formal recommendations were made which upon adoption, will result in
improvements to the integrity of the FCC\'s ACRS. The Managing Director
indicated concurrence with both recommendations.

[4. AUDIT OF CONTRACTOR LABOR RELATED POLICIES, PROCEDURES AND
PRACTICES]{.underline} (OIG 98-03)

Issued: May 21, 1998

As part of our on going contract audit activity, OIG contract auditors
performed an unannounced floorcheck of contractor employees and
subcontractors working under FCC contract no. 96-06. This is a Time &
Material (T&M) contract with a value not to exceed \$49 million dollars.
The contractor provides programming analysis and support services under
the contract.

The purpose of the audit was to evaluate the contractor\'s timekeeping
practices, procedures, internal controls, and employee awareness program
using the applicable requirements contained in the Federal Acquisition
Regulations (FAR). In the [Audit of Contractor Labor Related Policies,
Procedures and Practices (OIG 98-03)]{.underline}, OIG auditors reported
upon two (2) unacceptable conditions that required corrective action by
the contractor. The OIG identified that contract employees were not
consistently following written policy concerning the requirement to
complete timesheets on a daily basis. Furthermore, the employees were
not informed of their legal responsibility for accurately completing
their timesheets. Upon receipt of the OIG report, the contractor took
acceptable corrective action.

[5. AUDIT OF CONTRACTOR LABOR RELATED POLICIES, PROCEDURES AND
PRACTICES]{.underline} (OIG 98-11)

Issued: September 30, 1998

As part of a comprehensive audit of a FCC contractor operating under a
T&M contract, a labor floorcheck was performed. Obligations under the
contract for paralegal and financial operations support totaled \$1.4
million at time of this audit. The contractor is responsible for
maintaining records to support claimed costs and establishing and
maintaining an adequate labor timekeeping and reporting system. The OIG
through the conduct of this work seeks to express an opinion based upon
audit results.

The OIG identified several unacceptable conditions that required
corrective action by the contractor. In six separate recommendations,
the OIG noted deficiencies in the contractors accounting system and
internal timekeeping methodology. The contractor concurred with the four
recommendations that addressed timekeeping shortcomings. With regard to
the remaining two recommendations which focused upon accounting system
deficiencies, the contractor identified how they could meet the OIG
audit requirements within the constraints of their existing financial
system. The OIG accepted the contractor proposal and will perform
additional verification at a later date.

######## [`INVESTIGATIONS                          `]{.underline}

###### `OVERVIEW`

Investigative matters pursued by this office are generally initiated as
a result of allegations received through the OIG hotline or from FCC
managers and employees who contact the OIG directly. Investigations may
also be predicated upon audit or inspection findings of fraud, waste,
abuse, corruption, or mismanagement by FCC employees, contractors,
and/or subcontractors. Upon receipt of an allegation of an
administrative or criminal violation, the OIG usually conducts a
preliminary inquiry to determine if an investigation is warranted.
Investigations may involve possible violations of regulations regarding
employee responsibilities and conduct, Federal criminal law, and other
regulations and statutes pertaining to the activities of the Commission.
Investigative findings may lead to criminal or civil prosecution, or
administrative action.

The OIG also receives complaints from the general public, both private
citizens and commercial enterprises, about the manner in which the FCC
executes its programs and oversight responsibilities. All such
complaints are examined to determine whether there is any basis for OIG
audit or investigative action. If nothing within the jurisdiction of the
OIG is alleged, the complaint is usually referred to the appropriate FCC
bureau or office for response directly to the complainant. A copy of the
response is also provided to the OIG.

### `ACTIVITY DURING THIS PERIOD`

During this reporting period, ten complaints were received in the OIG.
Four of the complaints have resulted in the initiation of investigations
or preliminary inquiries, and are still pending. Two of the complaints
were referred to another FCC office for appropriate action, and four
were closed because the allegations were found to be without merit or
the OIG lacked jurisdiction.

Seventeen of the cases pending at the beginning of the period were
closed. Nine of the cases were closed because of determinations that
insufficient evidence existed to find any violations of standards of
conduct by FCC employees. One was closed when appropriate disciplinary
action was taken. Seven of the cases were referred to appropriate law
enforcement agencies because they did not fall within the jurisdiction
of the OIG, and were subsequently closed. Five cases are still pending.

# STATISTICS

#### Cases pending as of March 31, 1998.................................... 22

New
cases....................................................................
10

Cases
closed..................................................................
23

Cases pending as of September 30, 1998..............................\...
9

## SIGNIFICANT INVESTIGATIVE CASE SUMMARIES

***·** ***The OIG continues to monitor and provide information to
management with respect to the matter under Investigative Report
96-2-A-04, concerning FCC employees within the Spectrum Auctions Task
Force who were identified as having exercised poor judgment and possibly
violated provisions of the Federal Acquisitions Regulations (FAR) and
Title 5 of the Code of Federal Regulations (CFR) Part 2635 Standards of
Ethical Conduct for Employees of the Executive Branch. The matter is
pending before management for appropriate disciplinary action.

· The OIG continued to monitor the matter under Investigative Report No.
97-4-C-08, concerning FCC employees who were found to have used their
computer workstations to access pornographic sites on the Internet,
potentially in violation of sections of Title 5 of the Code of Federal
Regulations (CFR) pertaining to the "Use of Government property" and
"Use of official time", and FCC regulations as defined in Directive
FCCINST 1479.1, entitled "FCC Computer Security Program". The matter was
pending before management for appropriate disciplinary action to be
taken. With the imposition of appropriate disciplinary action, the
matter was closed.

· The OIG continued to monitor and coordinate efforts with the Federal
Protective Service (FPS) related to the theft by a former FCC co-op
student of Equalnet calling cards and the use by the student of
Government telephones for personal purposes. The OIG had referred the
matter to the FPS and the subject had agreed to make restitution. The
subject subsequently reneged on the agreement and the OIG closed the
matter when prosecutors refused to prosecute.

· During the period, the OIG conducted preliminary inquiries into
alleged abuse of the transit subsidy program, and allegations of
post-employment conflict of interest violations by two former employees.
The cases were found to be without merit or not to merit further action,
and were closed.

· A matter involving a potential post-employment conflict of interest
violation, which had been referred to the Public Integrity Section of
the Department of Justice, was closed when the case was settled by the
Department.

· In response to a request from the House Committee on Transportation
and Infrastructure dated February 18, 1998, the OIG initiated an
investigation related to the Portals development project. It had been
requested that the OIG examine (1) the leak of a security report
prepared by a Commission contractor to the media and, (2) efforts on the
part of the current FCC landlord to enlist and empower FCC staff to
derail the planned consolidation of the FCC to the Portals site.

After a complete and thorough investigation, which included interviewing
individuals from the FCC, GSA, the contractor and the media who had come
into the possession of the document, the OIG was unable to conclusively
determine the source of the leaked document. With respect to the
efforts, if any, concerning the planned consolidation, the OIG
determined that no FCC employees had been contacted either by the
current landlord of the FCC or anyone on its behalf regarding the
consolidation.

· The OIG referred allegations to the OIG of the General Services
Administration (GSA) of potential improper procurement practices to
include lack of adequate support for change orders related to the
Portals contract. The OIG continues to monitor the GSA audit and
investigation.

· On July 30, 1998, the OIG initiated an investigation based on
allegations of FCC employees utilizing their computer workstations to
access pornographic sites on the Internet in violation of FCC
regulations and provisions of the Code of Federal Regulations concerning
use of Government equipment and use of official time. This investigation
is currently pending.

· On September 9, 1998, the OIG commenced an investigation into
allegations that the credit card of an applicant for a vanity call sign
license had been used to make unauthorized purchases. The applicant
reported to the FCC that he had completed a license application in which
he requested that application fee of \$50 be billed to his credit card
account. The credit card information including the account number was
included on the application, which was transmitted to the Mellon Bank in
Pittsburgh, the processing center for license applications. On August
24, 1998, the applicant's credit card number was used to purchase items
in the Philadelphia area without his permission. An on-going
investigation in coordination with the security division of Mellon Bank
is currently being conducted.

· On September 15, 1998, the OIG initiated a preliminary inquiry into
allegations by a Section 8(a) contractor that his contract was not
renewed because he had complained about having to perform services for
which there was no statement of work, possibly in violation of FCC
regulations. The contractor's services consisted of administrative and
facilities management services that had previously been performed by
Federal employees. Those specific services included manning the
Commission's Help Desk, providing drivers for Commission personnel, and
manning the Commission's Transit Subsidy Office. This preliminary
inquiry is pending.

· On September 28, 1998, the OIG initiated a preliminary inquiry into
allegations by a prospective corporate supplier that a FCC solicitation
for bids was unfairly and improperly biased in favor of another
supplier. The solicitation pertained to the buying out of existing
copier lease agreements and the supplying of new copiers for the Portals
site. This preliminary inquiry is pending.

##### `HOTLINE CALLS`

During this reporting period, the OIG Hotline Technician received
hotline thirty-one (31) calls to the published hotline numbers of (202)
418-0473 and 1-888-863-2244(toll free). The OIG Hotline continues to be
a vehicle by which Commission employees and parties external to the FCC
can contact the OIG to speak with a trained Hotline Technician. Callers
who have general questions or concerns not specifically related to the
missions or functions of the OIG office are referred to the FCC National
Call Center (NCC) at 1-888-225-5322. Examples of calls referred to the
NCC include complaints pertaining to customers phone service and local
cable providers, long-distance carrier slamming, interference, or
similar matters within the program responsibility of other FCC bureaus
and offices

######### [`LEGISLATION                            `]{.underline}

***OVERVIEW***

Pursuant to section 4(a)(2) of the Inspector General Act of 1978 (IG
Act), as amended, our office monitors and reviews existing and proposed
legislative and regulatory items for their impact on the Office of the
Inspector General and the Federal Communications Commis­sion programs and
operations. Specifically, we perform this activity to evaluate their
potential for encourag­ing economy and efficiency and preventing fraud,
waste, and mismanagement.

***ACTIVITY DURING THIS PERIOD***

The Counsel to the IG continued to monitor legislative activities
affecting the activities of the OIG and the FCC.

***[MANAGEMENT AND ADMINISTRATION ]{.underline}***

During the six-month reporting period covered by this report, the FCC
OIG has continued to dedicate staff towards assisting the agency in
areas in which our expertise can provide benefit. As an example, OIG
staff serves on numerous high visibility projects including the Year
2000 (Y2K), Fines and Forfeitures and Universal Licensing System task
forces. The OIG also continues to provide training to new employees
entering the Commission to ensure that they are aware of the
responsibilities of the OIG and the conduct that is expected of all FCC
employees.

In July 1998, a member of the OIG staff was an active participant in
Operation Gangplank. The OIG in conducting Field Inspections in 1996 had
identified to management that the Commission had not adopted an active
posture to stem the proliferation of pirate broadcasters operating in
violation of Section 301 of the Communications Act of 1934, as amended,
47 U.S.C. §301. This condition was most notable in South Florida. At the
invitation of the Chief, Compliance and Information Bureau (CIB), the
Assistant Inspector General for Audits (AIGA) participated in Operation
Gangplank. Operation Gangplank was a coordinated effort by the CIB and
other Federal, state and local entities to identify and remove
non-licensed or "pirate" broadcasters from the air. During the week of
July 27, 1998, Operation Gangplank was successful in removing 15 illegal
broadcasters from the air in South Florida and seized illegal broadcast
equipment ranging from homemade transmitting components to
professionally manufactured equipment illegally imported from foreign
counties.

***`SPECIFIC REPORTING REQUIREMENTS OF `**[`SECTION 5(a) OF THE INSPECTOR GENERAL ACT`]{.underline}***

The following summarizes the Office of Inspector General response to the
twelve specific reporting requirements set forth in Section 5(a) of the
Inspector General Act of 1978, as amended.

*1. A description of significant problems, abuses, and deficiencies
relating to the administration of programs and operations of such
establishment disclosed by such activities during the reporting period.*

No such problems, abuses, or deficiencies were disclosed during the
reporting period.

*2. A description of the recommendations for corrective action made by
the Office during the reporting period with respect to significant
problems, abuses, or deficiencies identified pursuant to paragraph (1).*

No recommendations were made. See the response to paragraph (1).

*3. An identification of each significant recommendation described in
previous semiannual reports on which corrective action has not been
completed.*

No significant recommendations remain outstanding.

*4. A summary of matters referred to prosecutive authorities and the
prosecutions and convictions which have resulted.*

A violation of post-employment restrictions referred to the Public
Integrity Section, Department of Justice, on December 5, 1994, was
settled between the Department and the law firm of Morrison & Foerster
with the payment of a civil fine of \$12,500.

On June 4, 1997, based upon OIG referral, an FCC employee was charged in
the District Court of Maryland for Howard County under Article 27  419A
of the Maryland Code of 1957, entitled \"Child Pornography\", and
Article 27  419B, entitled \"Possession of visual representations of
persons under age 16 engaged in certain sexual acts.\" On January 28,
1998, the case was heard by Judge Neil Axel of the District Court of
Maryland for Howard County. In that proceeding, the former employee was
given probation before judgment on the charge of possession of child
pornography, ordered to pay fines and costs totaling \$305, given
supervised probation for eighteen months, and directed to continue
counseling sessions and to remain on prescribed medications. On March
11, 1998, the former employee was charged under the same statutes in
Baltimore County Maryland for materials recovered from the employee\'s
residence. On June 23, 1998, the former employee was convicted of the
charges and sentenced to a period of probation.

5.* A summary of each report made to the head of the establishment under
section (6)(b)(2) during the reporting period.*

No report was made to the Chairman of the FCC under section (6)(b)(2)
during the reporting period.

*6. A listing, subdivided according to subject matter, of each audit
report issued by the Office during the reporting period, and for each
audit report, where applicable, the total dollar value of questioned
costs (including a separate category for the dollar value of unsupported
costs) and the dollar value of recommendations that funds be put to
better use.*

Each audit report issued during the reporting period is listed according
to subject matter and described in part II, above.

*7. A summary of each particularly significant report.*

Each significant audit and investigative report issued during the
reporting period is summarized within the body of this report.

*8. Statistical tables showing the total number of audit reports with
questioned costs and the total dollar value of questioned costs.*

The required statistical table can be found at Attachment A to this
report.

*9. Statistical tables showing the total number of audit reports with
recommendations that funds be put to better use and the dollar value of
such recommendations.*

The required statistical table can be found at Attachment B to this
report.

*10. A summary of each audit report issued before the commencement of
the reporting period for which no management decision has been made by
the end of the reporting period (including the date and title of each
such report), an explanation of the reasons such management decision has
not been made, and a statement concerning the desired timetable for
achieving a management decision on each such report.*

One audit report meets this criteria. [The Report on Incurred Costs for
Fiscal Years 1995, 1996 and Short Year 1997 (OIG 97-18)]{.underline} was
issued in September 1997. This incurred cost audit identified questioned
costs of \$265,180. The Chief, Acquisitions Branch advised the OIG that
the contractor has indicated the intent to contest the findings
contained in the subject report. Her office will be meeting with the
Office of General Counsel to discuss the FCC\'s recourse should the
contractor adopt this position.

*11. A description and explanation of the reasons for any significant
revised management decision made during the reporting period.*

No management decisions fall within this category.

*12. Information concerning any significant management decision with
which the Inspector General is in disagreement.*

No management decisions fall within this category.