Inspector General’s Semiannual Report to Congress
a a

Executive Council on Integrity and Efficiency Activities

The Executive Council on Integrity and Efficiency (ECIE) was established by Executive
Order 12805 on May 11, 1992, to:

e address integrity, economy and effectiveness issues that transcend individual government

agencies; and

e enhance the professionalism and effectiveness of IG personnel throughout the

government.

To accomplish its mission, the ECIE members participate in interagency and inter-entity
audit, inspection and investigation projects to promote economy and efficiency in Federal programs
and operations and address more effectively government-wide issues of fraud, waste and abuse. The
Council members also develop policies, standards and approaches to aid in the establishment of a
well-trained and highly skilled IG workforce.

The Inspector General and Assistant Inspector General continued to participate in ECIE and
the Federal Audit Executive Council (FAEC) activities. The FAEC is comprised of senior audit
staffs that discuss and coordinate issues affecting the Federal audit community with special emphasis

on audit policy and operations of common interest to FAEC members.

Significant Management Decisions

If the IG disagrees with any significant management decision, Section 5(a)(12) of the
Inspector General Act requires that such disagreement be reported in the semiannual report. Further,
Section 5(a)(11) of the Act requires that any decision by management to change its response to a
significant resolved audit finding must also be disclosed in the semiannual report. For this reporting
period, there were no significant management decisions made on which the IG disagreed and

management did not revise an earlier decision on an OIG audit recommendation.

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Inspector General’s Semiannual Report to Congress
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BACKGROUND

The FMC is an independent agency responsible for the regulation of oceanborne
transportation in the foreign commerce of the United States. The principal statutes or statutory
provisions administered by the Commission are the Shipping Act of 1984, as amended by the Ocean
Shipping Reform Act of 1998; the Foreign Shipping Practices Act of 1988; and Section 19 of the
Merchant Marine Act of 1920.

The FMC is currently headed by four Commissioners nominated by the President and
confirmed by the Senate, each serving five-year terms. In November 2006, the FMC’s Chairman
resigned. A new Chairman has been nominated by the President and is awaiting Senate
confirmation. Until such time, the four Commissioners are jointly serving as the agency’s chief
executive and administrative officer. For Fiscal Year (FY) 2008, the Commission is authorized 127

full-time equivalent positions with a total appropriation of $22,322,000.

Although the majority of the Commission’s personnel are located in Washington, D.C., the
Commission also maintains a presence in Los Angeles, Seattle, New York, New Orleans, Houston
and South Florida, through area representatives who serve the major ports and transportation centers
within their respective geographic areas. In addition, two at-large area representatives operate out of
Washington, D.C.

The FMC’s Office of Inspector General (OIG) was established in 1989 as required by the
Inspector General Act Amendments of 1988 (5 U.S.C. app.). The OIG is an independent audit and
investigative unit headed by an Inspector General (IG) who reports directly to the Chairman of the
FMC. To aid the FMC in accomplishing its mission, the OIG is provided two full-time staff and a
budget of $512,000 for Fiscal Year 2008.

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Inspector General's Semiannual Report to Congress

TABLE II

INSPECTOR GENERAL ISSUED REPORTS

WITH RECOMMENDATIONS

THAT FUNDS BE PUT TO BETTER USE

. For which no management decision has been made
by the commencement of the reporting period

. Which were issued during the reporting period
Subtotal (A +B)

. For which a management decision was made during
the reporting period

@ dollar value of recommendations that were
agreed to by management

(ii) dollar value of recommendations that were
not agreed to by management

. For which no management decision has been made
by the end of the reporting period

. Reports for which no management decision was
made within six months of issuance

October 1, 2007 - March 31, 2008

Number

0

Dollar Value

0

$24,000

$24,000

$24,000

$24,000

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Inspector General’s Semiannual Report to Congress

The Commission’s management addressed these vulnerabilities by (i) consolidating the leave
error correction function in one office, (ii) establishing procedures to review large contracts at year
end to determine whether goods or services have been received and to establish an accrual to record
the value of the goods/services received, and (iii) obligating funds for rent expenses at the beginning
of the fiscal year for all leased properties and implementing controls to ensure that agency funds are

obligated before the next rent cycle begins.

In A08-03, Audit of the Federal Maritime Commission’s Telephone Service, the audit
objective was to assess controls in place to ensure that the agency receives and pays for only those
telephone services that it needs to carry out its mission. The OIG found that many features provided
on agency phones, that add a premium to the cost of each line, such as voicemail and
teleconferencing, were simply not needed on all Commission lines. For example, the agency pays
monthly for voice mail and teleconferencing on several of its fax machines and file room telephone
lines. We also identified unassigned lines and unused modem lines that continue to be billed to, and
paid for by, the agency. Further, the agency pays a premium for data transmission capabilities on its

phone lines even though this capability is not needed nor used by staff.

The audit found that the agency could save between $1,500 - $2,000 monthly by
implementing basic controls and applying minimal best practices. In response, the agency has begun

to identify and terminate wasted lines and phone features.

In A08-04, Review of Expenses to Furnish, Redecorate or Improve the Offices of FMC
Commissioners, the OIG reviewed furniture purchases and renovations pertaining to offices used or
controlled by the FMC’s Presidentially-appointed Commissioners. The review focused on agency
compliance with Section 614 of Public Law 101-136, as amended. The law prohibits departments
and agencies from obligating or expending in excess of $5,000 for furnishing or redecorating offices

of Presidential appointees during their appointment period.

The review found that the FMC complied with applicable laws and regulations regarding
funds expended on office space occupied or controlled by FMC Commissioners. No commissioner

October 1, 2007 - March 31, 2008 Page7


Inspector General’s Semiannual Report to Congress
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Issued Audits and Reviews

Audit Report Number Subject of Audit

A08-01 Review of FMC Implementation of Federal
Information Security Management Act for
FY 2007

A08-02 Audit of the FMC’s FY 2007 Financial
Statements

A08-02A Management Letter to the FY 2007 Audited
Financial Statements

A08-03 Audit of the FMC’s Telephone Services

A08-04 Review of Expenses to Furnish, Redecorate or

Improve the Offices of FMC Commissioners

Summary of Audits Issued During the Current Period

In A08-01, Review of the Federal Maritime Commission’s Implementation of the Federal
Information Security Management Act for Fiscal Year 2007, the review objectives were to assess
compliance with FISMA and related information security policies, procedures, standards and
guidelines, and to test their effectiveness on a representative subset of the agency’s information
systems. Specifically, this review (i) evaluated the implementation of the FMC’s information
security program; (ii) assessed agency progress towards correcting weaknesses addressed in the FY
2007 Plan of Actions & Milestones (POA&M); and (iii) verified and tested information security for

the FMC network and wireless tools.

The FMC continues to make some progress in developing its information security program
and has addressed or begun to address past security vulnerabilities identified by the OIG. Perhaps
most noteworthy is the progress the agency has made in documenting policies and procedures
covering many IT security issues. Also noteworthy is the new computer security on-line training

program introduced in 2007. It is more comprehensive than the prior-year training program and
earn a SE SS
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Inspector General’s Semiannual Report to Congress

The OIG is responsible for conducting audits and investigations relating to the programs and
operations of the FMC. Audits are conducted for the purpose of finding and preventing fraud, waste
and abuse and promoting economy, efficiency and effectiveness within the agency. OIG
investigations seek out facts related to allegations of wrongdoing on the part of FMC employees and
individuals, or entities having contracts with, or obtaining benefits from, the agency. The Inspector
General Act provides that the OIG shall have access to all agency records and may subpoena records

from entities outside of the agency in connection with an audit or investigation.

The IG is required by law to prepare a report summarizing its audits and investigations during
the immediately preceding six-month period. The report is sent to the FMC Chairman, the President
of the Senate, the Speaker of the House and FMC’s appropriating and authorizing committees. This

dual reporting requirement facilitates and ensures the independence of the Office.

AUDITS/EVALUATIONS

During this semiannual period, the OIG issued an audit of the FMC’s FY 2007 financial
statements and a companion report to management on financial-related findings and
recommendations resulting from the audit. We also issued a security evaluation of the agency’s
information technology program pursuant to the Federal Information Security Management Act
(FISMA). Also during the reporting period, the OIG performed an evaluation of how well the
agency manages the telephone services that it needs to perform its mission and assessed controls in
place to monitor Congressional limitations on redecorating the offices of Presidential appointees.
Finally, we initiated a review of various aspects of the Federal Maritime Commission’s (FMC)
process to establish user fees for agency activities that convey special benefits to recipients beyond

those accruing to the general public.

In addition to these completed audits and evaluations, the OIG identified three management
challenges for inclusion in the FY 2007 PAR, initiated planning activities for (i) a review of budget

execution processes within the agency, and (ii) the office’s annual IT security assessment.

October 1, 2007 - March 31, 2008 Page 3


HOTLINE COMPLAINTS

The success of the OIG mission to prevent fraud, waste and abuse
depends on the cooperation of FMC employees and the public.

A ComPLaiNnT CAN BE REPORTED BY CALLING Our 24-Hr DIRECT LINE

(202) 523-5865

E-MAIL ADDRESS:
oig@fmc.gov

To PLacE A ComPLAINT IN WRITING PLEASE MAIL To:

Federal Maritime Commission
Office of Inspector General
Room 1054

800 North Capitol Street, NW
Washington, DC 20573

To Be Opened By the IG Only

THE INFORMATION You PROVIDE Is CONFIDENTIAL AND You CAN BE ANONYMOUS

HOWEVER, CALLERS ARE ENCOURAGED TO ASSIST THE INSPECTOR GENERAL BY
SUPPLYING INFORMATION AS To How THEY MAY Be CONTACTED FOR ADDITIONAL INFORMATION


Inspector General’s Semiannual Report to Congress

The FY 2007 audited statements provide insight into the mission and operations of the
Federal Maritime Commission. The FMC had total assets of $2.9 million and $2.7 million as of
September 30, 2007 and September 30, 2006, respectively. The FMC had a single source of funds,
Salaries and Expenses, funded by an annual appropriation that was available for commitments and
obligations incurred during the fiscal year in which the authority was granted. The FMC’s budget
authority for fiscal year 2007 was $20.7 million. This represents a net increase of $200,000 over
fiscal year 2006 budget authority. Although the FMC collects remittances for “user fees” and “fines
and penalties,” the agency is not authorized to offset any of its budget authority by utilizing these
funds. The collections, totaling just under $2 million in FY 2007, were deposited directly into the
Treasury General Fund.

As part of the audit, the OIG reviewed and tested the Commission’s compliance with laws
and regulations. The review disclosed no instances of noncompliance that are required to be
reported under Government Auditing Standards (GAS) or OMB Bulletin 07-04, Audit Requirements
for Federal Financial Statements (09/04/07). In addition, the OIG examined compliance with the
Federal Financial Management Improvement Act (FFMIA) of 1996. Our review disclosed no
instances in which FMC’ financial management systems did not comply substantially with FFMIA,
GAS or OMB.

The OIG review of internal control over financial reporting did not find any matters involving
the internal control and its operations that were considered material weakness in the systems and
processes we tested. On the other hand, the OIG did identify vulnerabilities in agency financial
systems that warranted some corrective actions. These findings, presented in AO8-02A, FY 2007
Management Letter to the Financial Statements, involved (i) performing insufficient
reconciliations of annual and sick leave balances between employee leave records and payroll system
Time and Attendance Reporting, (ii) implementing ineffective processes to record accounts payable

at year end, and (iii) neglecting to establish a rent obligation for leased property in California.

October 1, 2007 - March 31, 2008 Page 6


Semiannual Report
to the Congress

Covering the Period
October 1, 2007 to March 31, 2008



Inspector General’s Semiannual Report to Congress

a
Audits and Reviews in Process

The OIG initiated its review of various aspects of the FMC’s process to establish user fees for
agency activities that convey special benefits to recipients beyond those accruing to the general
public. OMB Circular A-25, User Charges, requires agencies to set user charges to recover the
Government’s full cost. Full cost includes all direct and indirect costs to any part of the Federal

Government of providing a good or service.

During the initial weeks of the audit, the OIG determined that the agency followed a process
that incorrectly set its user fees for various mission-related services, resulting in user fees that
understated the agency’s costs to provide these services. The OIG reported the finding to
management who then took steps to reexamine its calculations in light of our findings.
Subsequently, we suspended further audit steps until the agency amends its fee-setting calculations.

We plan to revisit this issue during the FY 2008 financial statement audit.

As part of the review of Presidential-appointee limitations on redecorating office space
(discussed above), OIG noted inconsistencies in how the Commission was informed and/or asked to
approve certain financial decisions. Since these issues were outside the scope of that review, the
OIG determined to address them in a separate audit. We are currently establishing the scope of the

review and developing an audit program.

In addition, we held discussions with the OIG’s IT security contractor to begin planning for
the FY 2008 FISMA evaluation at the FMC. While select areas must be reviewed annually, there is
considerable flexibility for IG’s to focus resources on areas where the agency may be particularly
vulnerable. We have begun to identify areas to target in the evaluation and to lay out a plan to
review routinely reviewed areas, to include privacy issues, certification and accreditation, testing and

training.

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Inspector General’s Semiannual Report to Congress

SS
exceeded the $5,000 limitation. All Commissioners told the OIG that they were informed of the
limitation on purchases by the Office of Financial Management and, thus, were aware of the
requirement. Notwithstanding compliance, the FMC needs to do more to track purchases occurring

during the period of appointment for the agency’s Commissioners to prevent unintended violations.

The OIG determined that a September 2007 purchase of furniture for the Chairman’s Office
suite, totaling $36,625, did not violate the $5,000 limitation. We identified several mitigating
circumstances, including our determination that no Presidential appointee played any role in the
purchase of furniture for this vacant office suite. Rather, the agency’s Office of Administration acted
to replace furniture that, in many cases, was over 20 years old and showing signs of wear and age.
On the other hand, we believe the Office of Administration should have worked with the
Commission, to include notifying it of the planned purchase, before making this potentially sensitive

purchase.

Our review of documentation related to this purchase indicated that the agency had violated
Federal Acquisition Regulation (FAR) 13.104, Promoting Competition, which requires soliciting
bids from at least three sources to promote competition to the maximum extent possible. The FMC’s
Office of Management Services relied on one vendor to assist the agency in the Chairman’s Office
furniture procurement. Management also violated its own policy requiring all procurement actions
exceeding $5,000 to be processed by the FMC’s contracted procurement agent in the Bureau of
Public Debt.

As of the closing date of this reporting period, management has implemented the three
recommendations in the report by developing a tracking system to document purchases and
improvements to Presidential appointee office space and by developing a “simplified acquisition

checklist” for procurement staff to use when acquiring goods/services.

October 1, 2007 — March 31, 2008 Page &


Inspector General’s Semiannual Report to Congress

procedures were understood. The agency acquired and installed scan software, enabling the Office
of Information Technology to scan the FMC network for harmful activities and vulnerabilities and
initiated planning for security control implementation at its continuity of operations (COOP) site in

suburban Maryland.

Although progress has been made, the OIG identified areas where improvements are still needed.
Successful FISMA implementation requires that Federal agencies adopt an enterprise-wide security
strategy encompassing a risk-based approach where agency mission and business function drive security
requirements and associated safeguards. The OIG found, in both the current and prior-year FISMA

reviews, that the agency has not yet made the shift to a risk-based approach.

Perhaps most significantly, the FMC’s Certification and Accreditation (C&A) documentation
did not comply with revised NIST and OMB guidance for the three systems we reviewed. C&A
documentation for these systems lacked sufficient information that would provide management with
the assurances required to effectively demonstrate sound information security decisions based on

risk. The OIG identified this as a significant deficiency in the agency’s security posture.

In A07-02, Audit of the Federal Maritime Commission’s Financial Statements for the
Fiscal Year Ending September 30, 2007, the objective was to opine on whether the agency’s
financial statements follow Generally Accepted Accounting Principles and present fairly the
financial position of the agency. The statements audited were the Balance Sheets as of September
30, 2007 and 2006, and the related statements of Net Cost, Statements of Changes in Net Position,
Statements of Budgetary Resources, Statements of Financing and Statements of Custodial Activity
for the years then ended. This was the fourth consecutive year that the FMC submitted financial
statements for audit. As in the three prior years, the agency received an unqualified opinion, the

highest opinion given by independent auditors.

October 1, 2007 — March 31, 2008 Page 5


Inspector General’s Semiannual Report to Congress

EXECUTIVE SUMMARY

This Semiannual Report to the Congress summarizes the activities and accomplishments of
the Federal Maritime Commission (FMC or Commission), Office of Inspector General (OIG), for the
period October 1, 2007 through March 31, 2008. During this period we issued five audits /
evaluations of FMC programs or activities, initiated a review of various aspects of the FMC’s
process to establish user fees for agency activities that convey special benefits to recipients beyond
those accruing to the general public and identified three “management challenges” for inclusion in
the FY 2007 Performance and Accountability Report (PAR). The OIG also began planning for an
audit of budget execution and the annual information security evaluation pursuant to the Federal

Information Security Management Act.

During this reporting period, the OIG did not open any formal investigations into allegations
of wrongdoing by FMC staff and/or individuals doing business with the agency. However, the OIG
forwarded (i) one complaint to law enforcement authorities at the U.S. Coast Guard for disposition,
(ii) two complaints regarding cruise lines to the agency’s Office of Consumer Affairs and Dispute
Resolution Services, and (iii) nine complaints to the FMC’s Bureau of Enforcement concerning
various shipping industry issues. The OIG referred no matters to prosecutorial authorities during the

period.

In addition to these audit and investigative activities and outcomes, the OIG worked with the
agency’s webmaster to enhance the utility of the OIG’s webpage, began work on revising the office’s
investigative manual, responded to a request from the Chairman, House Committee on Oversight and
Reform, for information on OIG recommendations and met with staff from the agency’s authorization

committee in the Senate to discuss agency operations and administration.

Details on these and other activities are provided below.

October 1, 2007 — March 31, 2008 Page 1


Inspector General’s Semiannual Report to Congress
5 SS SS SD

Access to Information

The IG is to be provided with ready access to all agency records, information or assistance
when conducting an investigation or audit. Section 6(b)(2) of the IG Act requires the IG to report to
the agency head, without delay, if the IG believes that access to required information, records or
assistance has been unreasonably refused, or otherwise has not been provided. A summary of each
report submitted to the agency head in compliance with Section 6(b)(2) must be provided in the

semiannual report in accordance with Section 5(a)(5) of the Act.

During the reporting period, the OIG did not encounter any difficulties in obtaining assistance
or access to agency records. Consequently, no report was issued by the IG to the agency head in
accordance with Section 6(b)(2) of the IG Act.

Audit Resolution
As of the end of this reporting period, all OIG audit recommendations for reports issued in
prior periods have been resolved. That is, management and the OIG have reached agreement on

what actions need to be taken.

Contacting the Office of Inspector General
Employees and the public are encouraged to contact the OIG regarding any incidents of

possible waste, fraud or abuse occurring within FMC programs and operations. The OIG telephone
number is (202) 523-5863. To report suspected wrongdoing, employees or the public may call the
OIG Hotline on (202) 523-5865. A confidential or anonymous message can be left 24 hours a day.

Complaints or allegations of fraud, waste or abuse can also be emailed to oig@fmc.gov.

October 1, 2007 - March 31, 2008 Page 12


Inspector General’s Semiannual Report to Congress

TABLEI

INSPECTOR GENERAL ISSUED REPORTS
WITH QUESTIONED COSTS

Dollar Value

Questioned Unsupported

Number Cost Costs
A. For which no management decision has been
made by the commencement of the reporting 0 0 0
period
B. Which were issued during the reporting 0 0 0
period?
Subtotal (A + B) 0 0 0
C. For which a management decision was made 0 0 0
during the reporting period
@ dollar value of disallowed costs 0 0 0
(ii) dollar value of costs not disallowed 0 0 0
D. For which no management decision has been 0 0 0
made by the end of the reporting period
E. Reports for which no management decision 0 0 0

was made within six months of issuance

October 1, 2007 —- March 31, 2008 Page 14


TABLE OF CONTENTS

Transmittal Letter

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Summary of Audits Issued During the Current Period

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Table II. IG Issued Reports with Recommendations
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FEDERAL MARITIME COMMISSION
Office of Inspector General
Washington, DC 20573-0001

April 21, 2008

Office of Inspector General

Dear Commissioners:

The attached report is submitted in accordance with Section 5 of the Inspector
General Act of 1978, as amended. It summarizes the activities of the Office of Inspector
General (OIG) for the period October 1, 2007, to March 31, 2008. The Act requires that
you transmit the report to the appropriate committees of the Congress within 30 days of
receipt. Your transmittal should also include any comments you consider appropriate and
other statistical tables and reports required by law.

During this reporting period, the OIG issued five audits/evaluations of Federal
Maritime Commission (FMC) programs or activities and began fieldwork on a review of
processes used by the agency to set user fees. The OIG also began planning an audit of
budget execution and an evaluation of information security. We did not open any formal
investigations into allegations of wrongdoing by FMC staff and/or individuals doing
business with the agency. However, we forwarded several complaints to FMC
bureaus/offices or maritime enforcement agencies for disposition. The OIG referred no
matters to prosecutorial authorities during the period.

In addition to these audit and investigative activities and outcomes, the OIG
worked with the agency’s webmaster to enhance the utility of the OIG’s webpage and to
comply with legislative requirements, began work on revising the office*s investigative
manual, responded to a request from the Chairman, House Committee on Oversight and
Reform for information on recommendations made by the OIG dating back to 2001 and
met with staff from the Senate Committee on Commerce, Science and Transportation,
Subcommittee on Surface Transportation and Merchant Marine, to discuss agency
operations and administration.

As in the past, management has been responsive in attempting to implement all

OIG recommendations. I appreciate management’s support and I look forward to working
with you in our ongoing efforts to promote economy and efficiency in agency programs.

AC ki

Inspector General


Inspector General’s Semiannual Report to Congress
EE

INVESTIGATIVE ACTIVITIES
The Inspector General Act of 1978, as amended, provides that the IG may receive and

investigate complaints or information concerning possible allegations of fraud, waste and abuse
occurring within FMC programs and operations. Matters of possible wrongdoing are referred to the
OIG in the form of allegations or complaints from a variety of sources, including FMC employees,

other government agencies and the general public.

During this reporting period, the OIG did not open any formal investigations into allegations
of wrongdoing by FMC staff and/or individuals doing business with the agency. However, the OIG
forwarded (i) nine complaints concerning various shipping industry issues to the Bureau of
Enforcement, (ii) two complaints regarding cruise lines to the Office of Consumer Affairs and
Dispute Resolution Services, and (iii) one complaint to law enforcement authorities at the U.S. Coast
Guard for disposition. We also responded to a request for information from a researcher concerning a

prior FMC enforcement action.

The OIG referred no matters to prosecutorial authorities during the period.

OTHER OIG ACTIVITIES

Review of Legislation

As required by the Inspector General Act of 1978, as amended, the Office of Inspector
General routinely reviews proposed legislation and regulations. The purpose of these reviews is to
assess whether the proposed legislation or regulation (1) impacts the economy and efficiency of FMC
programs and operations, and (2) contains adequate internal controls to prevent and detect fraud and
abuse. During this period, a number of Commission Orders/policy guidelines were reviewed by this
Office.

October 1, 2007 - March 31, 2008 Page 10


Inspector General’s Semiannual Report to Congress

SUMMARY OF INSPECTOR GENERAL REPORTING REQUIREMENTS

IG Act
Reference Reporting Requirement Page(s)

Section 4(a)(2) Review of legislation and regulations 10

Section 5(a)(1) Significant problems, abuses and deficiencies None

Section 5(a)(3) Prior significant recommendations on which 12
corrective actions have not been made

Section 5(a)(4) Matters referred to prosecutive authorities 10

Section 5(a)(5) Summary of instances where information was 12
refused

Section 5(a)(6) List of audit reports by subject matter, showing 7
dollar value of questioned costs and funds put to
better use

Section 5(a)(7) Summary of each particularly significant report 4

Section 5(a)(8) Statistical tables showing number of reports and 14
dollar value of questioned costs

Section 5(a)(9) Statistical tables showing number of reports and 15
dollar value of recommendations that funds be put
to better use

Section 5(a)(10) Summary of each audit issued before this reporting None
period for which no management decision was
made by the end of the reporting period

Section 5(a)(11) Significant revised management decisions 11

Section 5(a)(12) Significant management decisions with which the 11

inspector general disagrees

October 1, 2007 - March 31, 2008 Page 13