Inspector General's Semiannual Report to Congress
eR

TABLE II

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

period 0 0 0
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

(i) 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

made by the end of the reporting period 0 0 0
E. Reports for which no management decision

was made within six months of issuance 0 0 0

= a
October 1, 2005 — March 31, 2006 Page 11


Inspector General’s Semiannual Report to Congress

The FMC/OIG is an independent audit and investigative unit with an Inspector General (IG) who

reports directly to the Chairman of the FMC.

The FMC/OIG was established pursuant to P.L. 100-504, the Inspector General Act of 1978 (P.L. 95-
452), as amended in 1988. The OIG was formally established at the Commission on February 26,
1989, The Act states that the IG is responsible for (1) audits and investigations; (2) review of
legislation; (3) recommendation of policies for the purpose of promoting economy and efficiency in
the administration of, or preventing and detecting fraud and abuse in, programs and operations of the
establishment. At the FMC, the IG is responsible for keeping the Chairman and Congress fully
informed about problems and deficiencies in FMC programs and operations and the need for
corrective actions. The IG has authority to inquire into all FMC programs, these inquiries may be in
the form of audits, surveys, investigations, or other appropriate methods. The two primary purposes
of these inquiries are (1) to assist all levels of FMC management by identifying and reporting
problem areas, weaknesses, or deficiencies in procedures, policies, program implementation, and (2)

to recommend appropriate corrective actions.

During the review period, the OIG operated with an Acting Inspector General and one administrative
assistant. A permanent Inspector General joined the office in April 2006. The Office has a
Memorandum of Understanding (MOU) with the FMC’s Office of the General Counsel (OGC)
which provides that an OGC attorney furnish legal services to the OIG on an “as needed” basis. The
Office also has an MOU with the Office of Inspector General at the Social Security Administration

which provides criminal investigative assistance as needed.

October 1, 2005 — March 31, 2006 Page 2


Inspector General’s Semiannual Report to Congress
eS
We recommended that BOE (1) set a standard of using the closing memorandum approval date for
closing cases with settlements and to inform its staff of the process, as well as, (2) enhance its
tracking system to capture the date when moneys are received. We also recommended that the
Office of Administration and its BOE implement the use of Pay.gov as an option to collect moneys

from settlement agreements.

Management agreed with our recommendations and plans to implement the corrective actions.

CORRECTIVE ACTIONS NOT MADE

We reported in our last semiannual report that there were two material weaknesses remaining related
to the FY 2004 Federal Information Security Management Act. During this period the Commission

has mitigated those weaknesses therefore there are no outstanding recommendations.

INVESTIGATIVE ACTIVITIES

The Inspector General Act of 1978, as amended, provides that the IG may receive and investigate
complaints or information concerning the 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 receive any “Hotline” complaints; however, we did
receive a Freedom of Information Act (FOIA) request and a request for information that was referred
to another office within FMC. The OIG also opened two informal investigations that were

subsequently closed. There were no formal investigations opened and none remained pending.

October 1, 2005 — March 31, 2006 Page 7


Inspector General’s Semiannual Report to Congress
a
Balance Sheets as of September 30, 2005 and 2004, 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 second consecutive year
that the FMC prepared financial statements for audit. The agency received an unqualified opinion,

the highest opinion given by independent auditors.

The FY 2005 audited statements provide insight into the mission and operations of the Federal
Maritime Commission. The FMC had total assets of $2.3 million and $2.0 million as of September
30, 2005 and 2004, respectively. The FMC has a single source of funds, Salaries and Expenses,
funded by an annual appropriation that is available for commitments and obligations incurred during
the fiscal year in which the authority was granted. The FMC’s budget authority for fiscal year 2005
was just over $19 million. This represents a net increase in budget authority over fiscal year 2004 of
$561,000. 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

are 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 01-02. In addition, the OIG
examined compliance with the Federal Financial Management Improvement Act (FFMIA) of 1996,
Our review disclosed no instances in which FMC’s 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. On the other hand, the

OIG did identify vulnerabilities in agency financial systems that warranted some corrective actions.

October 1, 2005 — March 31, 2006 Page 4


Inspector General's Semiannual Report to Congress

AUDITS/INSPECTIONS

During this semiannual period, the OIG issued an audit of the FMC’s FY 2005 financial
statements and a companion report to management containing financial-related findings and
recommendations resulting from the audit. The OIG also issued reports to management on
agency compliance with the Federal Information Security Management Act (FISMA) of 2002,
management challenges facing FMC in FY 2005, and data accuracy in the FMC’s Bureau of
Enforcement’s data bases. The OIG also began fieldwork on an audit of agency payroll

transactions.

Completed Audits

Audit Report Number Subject of Audit

A05-03 FY 2005 Financial Statements

A05-03A. FY 2005 Management Letter to the Financial
Statements

A05-04 Audit of FY 2005 FISMA Compliance

A05-05 1G’s Assessment of Management Challenges
Facing the FMC

A06-01 Audit of Data Accuracy of BOE’s
Tracking Systems

Summary of Audits Issued During the Current Period

In A05-03, Audit of the Federal Maritime Commission’s Financial Statements for the Fiscal Year
Ending September 30, 2005, the objective was to determine whether the agency’s financial

statements present fairly the financial position of the agency. The statements audited were the

October 1, 2005 - March 31, 2006 Page 3


Inspector General’s Semiannual Report to Congress
ES
In A05-05, IG’s Assessment of Management Challenges Facing the FMC, the objective of the
assessment was to summarize what the IG considers to be the most serious management and
performance challenges facing the agency and assess the agency’s progress in addressing those
challenges. This report was incorporated into FMC’s FY 2005 Performance and Accountability
Report (PAR).

In the FMC’s first PAR, issued for fiscal year 2004, the OIG identified information technology,
financial management and contract management as “management challenges,” i.e., areas of potential
weakness where management needs to focus its attention. During FY 2005, the OIG audited select
aspects of these areas and made recommendations to address observed vulnerabilities. In this year’s
review, the OIG concluded that the Commission was working diligently in addressing these various

challenges.

In A06-01, Audit of Data Accuracy of Bureau of Enforcement’s (BOE) Tracking Systems, the
objective of the audit was to determine whether information in the two tracking systems used by
BOE is accurate and reliable. The review primarily focused on pending and closed cases and closed
cases with settlements. We also reviewed databases capturing the collection of moneys for closed

cases with settlement arrangements.

We found overall the information in BOE’s tracking systems is accurate and reliable. We found just
one error in the date entered for opening a pending case and the date entered for closing a case. We
found some inconsistencies in the date used to close cases with settlements and in the settlement
amounts. We also found that BOE does not record any information when settlement payments are
received. Finally, the Commission could better comply with the Government Paperwork Elimination

Act (GPEA) by giving entities an option to submit settlement payments electronically.

October 1, 2005 — March 31, 2006 Page 6


Semiannual Report
To the Congress

Covering the Period
October 1, 2005 to March 31, 2006



Inspector General’s Semiannual Report to Congress

SUMMARY OF INSPECTOR GENERAL’S REPORTING REQUIREMENTS

1G Act
Reference Reporting Requirement Page(s)

Section 4(a)(2) Review of legislation and regulations 8

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

Section 5(a)(3) Prior significant recommendations on which 7
corrective actions have not been made

Section 5(a)(4) Matters referred to prosecutive authorities None

Section 5(a)(5) Summary of instances where information was None
refused

Section 5(a)(6) List of audit reports by subject matter, showing 10
dollar value of questioned costs and funds put to
better use

Section 5(a)(7) Summary of each particularly significant report 3-6

Section 5(a)(8) Statistical tables showing number of reports and 11
dollar value of questioned costs

Section 5(a)(9) Statistical tables showing number of reports and 12
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 None

Section 5(a)(12) Significant management decisions with which the None

inspector general disagrees

October 1, 2005 - March 31, 2006 Page 9


Inspector General’s Semiannual Report to Congress

OTHER OIG ACTIVITIES

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 on 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 legislative proposals as well as Commission Orders/policy

guidelines were reviewed by this Office.

Atthe end of the reporting period the Commission’s Acting Inspector General continued to serve on
the Executive Council on Integrity and Efficiency (ECIE). The ECIE serves as a forum for the
exchange of views for the inspector general community and provides a base for the establishment of
joint inspector general projects. She also participated in the Federal Audit Executive Council

(FAEC) and the IG E-Learning initiative.

October 1, 2005 - March 31, 2006 Page 8


Inspector General's Semiannual Report to Congress
el
These findings are presented in A0S-03A, FY 2005 Management Letter to the Financial
Statements. The identified vulnerabilities involved insufficient (i) follow up with service providers
to ensure that security-related vulnerabilities are addressed and (ii) reconciliations between annual

and sick leave balances on employee leave records and System Time and Attendance Reporting.

The Commission’s management addressed these vulnerabilities by (i) sending letters to its service
providers requesting information relating to information security-related weaknesses, and (ii)
instructing its employees to verify their accrued annual and sick leave balances and their pay and
deductions periodically to ensure their accuracy. Also communications were sent to timekeepers and

supervisors to assist them with leave record maintenance and reconciliation.

In A05-04, Audit of FY 2005 Federal Information Security Management Act (FISMA)
Compliance, the OIG evaluated the implementation of the FMC information security program,
assessed agency progress towards correcting weaknesses addressed within the FY 2005 Plan of
Action and Milestones (POA&M) and verified and tested information security access controls for the
FMC network. The review followed National Institute of Science and Technology (NIST) guidance
for Information Systems, OMB Memorandum M-05-15, FY 2005 Reporting Instructions for the
Federal Information Security Management Act (June 13, 2005) and best practices used in the IT

security industry.

In FY 2005, the Commission corrected 55 of 62 previously reported information security
vulnerabilities identified in OIG audit reports and continued to make needed modifications to comply
with federal information security requirements. Penetration tests performed by an OIG-selected IT
security firm (e.g., an “ethical hacker”) found that the agency’s firewall was well maintained and
secured. Attempts to break in to the network were unsuccessful. The IT security audit team

identified other areas for remediation with the agency that have been addressed.

October 1, 2005 —- March 31, 2006 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 |, 2005 through March 31, 2006. During this period we issued three reports and two

management letters to the Commission. We also began fieldwork on one financial-related audit.

BACKGROUND

The Commission 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, 1920.

The FMC is authorized five Commissioners appointed for five-year terms by the President with the
advice and consent of the Senate. The President designates one of the Commissioners to serve as the

Chairman. The Chairman is the chief executive and administrative officer of the Commission.

In Fiscal Year (FY) 2006, the Commission was authorized a total of 126 full-time equivalent
positions with a total appropriation of $20,294,010. The majority of the Commission’s personnel are
located in Washington, DC. The Commission maintains a presence in Los Angeles, South Florida,
Seattle/Tacoma, New York, and New Orleans through area representatives who serve the major port
areas and transportation centers within their respective areas. In addition, two at-large area

representatives operate out of Washington, DC.

—
October 1, 2005 — March 31, 2006 Pagel


Inspector General’s Semiannual Report to Congress

TABLE Ill

INSPECTOR GENERAL ISSUED REPORTS
WITH RECOMMENDATIONS
THAT FUNDS BE PUT TO BETTER USE

Number Dollar Value
A. For which no management decision has been made 0 0
by the commencement of the reporting period
B. Which were issued during the reporting period 0 0
Subtotal (A plus B) 0 0
C. For which a management decision was made during 0 0
the reporting period
(i) dollar value of recommendations that were 0 0
agreed to by management
(ii) dollar value of recommendations that were 0 0
not agreed to by management
D. For which no management decision has been made 0 0
by the end of the reporting period
Reports for which no management decision was 0 0

made within six months of issuance

October 1, 2005 — March 31, 2006 Page 12


Inspector General’s Semiannual Report to Congress

TABLE OF CONTENTS

Transmittal Letter
Executive Summary
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Audits/Inspections.....
Audit of FY 2005 Financial Statement:
Audit of FY 2005 FISMA ......... steeeseseesenes
IG’s Assessment of Management Challenges Facing the FM!
Audit of Data Accuracy of BOE’s Tracking Systems
Corrective Actions Not Made....

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Other OIG Activities ....ccecccecceeceeeceeseseesssnesesnesessesssnesssesacscsssreecsesussesssseerssesesseeesscsesassnearsrsicseesssee

Summary of Inspector General’s
Reporting Requirements ....

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October 1, 2005 — March 31, 2006


FEDERAL MARITIME COMMISSION
Office of the Inspector General
Washington, DC 20573-0001

April 28, 2006

Tel.: (202) 523-5863
Office of Inspector General F (202) 566-0043
E-mail: oig@fme.gov

Honorable Steven R. Blust
Chairman

Federal Maritime Commission
Washington, DC 20573

Chairman Blust:

The attached report covers the Office of Inspector General (OIG) activities for the first half of fiscal
year 2006 and is submitted according to Section 5 of the Inspector General Act of 1978, as amended.

During the six-month reporting period ending March 31, 2006, the OIG issued an audit of the FMC’s
FY 2005 financial statements and a companion report to management containing financial-related
findings and recommendations resulting from the audit. The OIG also issued reports to management
on agency compliance with the Federal Information Security Management Act of 2002, management
challenges facing FMC in FY 2005, and. data accuracy in the Bureau of Enforcement’s data bases.
The OIG also began fieldwork on an audit of agency payroll transactions. Details on these and other
OIG activities are attached herein.

During the period, the OIG did not receive any hotline complaints or referrals from FMC
management regarding misconduct. On the other hand, we did open a preliminary investigative file
on two matters which were subsequently closed. The OJG opened no formal investigations and none
remain pending.

As in the past, management has been responsive in attempting to implement all OIG
recommendations. | appreciate management’s support and I look forward to working with you in
our ongoing efforts to promote economy and efficiency in agency programs.

b

Adam R. Trzeciak
Inspector General

Sincerely,



Inspector General’s Semiannual Report to Congress

TABLE I

SUMMARY OF AUDITS
WITH NON-FINANCIAL RECOMMENATIONS

Non-Financial Recommendations

Audit Report — Report Issue Management Mgt.
No. Date Response Date No. Mgt. Agrees Disagrees
A0S5-03 10/27/05 N/A 0 0 0
A0S-03A 10/27/05 10/27/05 2 2 0
A05-04 10/04/05 10/04/05 8 8 0
A05-05 10/04/05 N/A 0 0 0
A06-01 3/30/06 3/24/06 3 3 0

October 1, 2005 — March 31, 2006 Page 10


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 CompPLAINT 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, EACH CALLER Is ENCOURAGED To Assist THE INSPECTOR GENERAL BY
SUPPLYING INFORMATION AS To How THEY MAY Be CONTACTED For ADDITIONAL INFORMATION