Inspector General’s Semiannual Report to Congress

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.

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. As of the end of this reporting period, there are 17
recommendations that remain open, i.e., management and the OIG agree as to the action that

management needs to take but management has not yet taken the action to close them.

October 1, 2008 — March 31, 2009 "Page 10


Inspector General’s Semiannual Report to Congress

— a

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, 2008, through March 31, 2009. During this period we issued four
audits / evaluations of FMC programs or activities and began five additional audits of agency

operations.

Also during this reporting period, the OIG received 24 complaints and one request for
information. Of the 24 complaints received, we forwarded 20 complaints to the appropriate
FMC program area for disposition and two complaints to other agency OIGs with jurisdiction
over the subject of the complaint. The remaining two complaints were addressed within the
OIG. The OIG opened no new investigations and referred no matters to prosecutorial authorities

during the period.

The OIG implemented several provisions pertaining to the Inspector General Reform Act
of 2008, including revising an internal Commission Order on OIG processes and procedures to
reflect mandated changes, developing a Memorandum of Understanding with a sister OIG for
counsel support and working with the agency’s webmaster to provide a direct link to the OIG’s

website from the FMC’s homepage.

In addition to these audit and investigative activities and outcomes, the Inspector General
visited the New York Area Office as the first of six visits to FMC field locations and briefed the
Commission of the results of the trip. The OIG began planning activities for its annual Federal
Information Security Management Act evaluation and for a peer review of the OIG at the U.S.

Election Assistance Commission.

Details on these and other activities are provided below.

October 1, 2008 — March 31, 2009 Page?


Inspector General’s Semiannual Report to Congress

TABLE II

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

Number Dollar Value
. For which no management decision has been made 0 0
by the commencement of the reporting period
. Which were issued during the reporting period 1 1,500
Subtotal (A +B) 1 1,500
. For which a management decision was made during
the reporting period 1 1,500
@ dollar value of recommendations that
were agreed to by management dl. 1,500
(ii) dollar value of recommendations that 0 0
were not agreed to by management
. 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, 2008 — March 31, 2009 Page 14


Inspector General’s Semiannual Report to Congress

hours of leave used by the four employees in our sample without the leave request documented
in the file.

When leave was requested in advance, we identified several instances where the amount
of leave approved exceeded the leave documented in the payroll system. One explanation for
this observation is that the leave used was less than originally requested. Another explanation is
leave abuse — leave taken but not fully recorded. We could not determine the reason for the
discrepancies in large part due to the breakdown in internal control. Bureau management agreed
with the findings in the report and took immediate steps to implement the OIG recommendations

as soon as it learned of the internal control deficiencies.

In ORO9-01, Inspection of the Agency’s Checkout Process, the objective was to assess
whether controls are in place to remove separated employees from agency systems and
databases, to collect outstanding balances and to retrieve agency-owned materials and

equipment.

Generally speaking, the agency is doing a good job removing separating employees from
agency information systems and controlling agency property. However, we also identified areas
where improvements are possible. The agency needs to coordinate better with outside agencies
and other non-federal employees (e.g., contractors and students) regarding the control of
keycards. We also identified select instances where some former FMC employees retained
access to systems months after leaving the agency. The OIG verified that no former employee
accessed agency systems or accepted agency-funded benefits after separating. Still, the agency

is vulnerable to such abuse when accounts are not closed.

The OIG made eight recommendations to address the observed weaknesses.

Management agreed to implement all recommendations by June 30, 2009.

= wa
October 1, 2008— March 31, 2009 Page 6


Inspector General’s Semiannual Report to Congress

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 of Representatives and FMC’s
appropriating and authorizing committees. This dual reporting requirement facilitates and
ensures the independence of the OIG.

AUDITS/EVALUATIONS
During this semiannual period, the OIG issued an audit of the FMC’s FY 2008 financial
statements and a companion report to management on financial-related findings and
recommendations resulting from the audit. We also issued an audit of the Bureau of
Enforcement’s time and attendance practices and a program inspection of the agency’s checkout
processes. In addition, we began planning the OIG’s annual evaluation of information security

pursuant to the Federal Information Security Management Act.

Issued Audits and Reviews

Audit Report Number Subject of Audit
A09-01 Audit of the FMC’s FY 2008 Financial
Statements
A09-01A. Management Letter to the FY 2008 Audited

Financial Statements

A09-02 Review of the Bureau of Enforcement’s Time
and Attendance Practices

ORO09-01 Operational Review — Inspection of the Agency’s
Checkout Process

‘October 1, 2008 March 31, 2009 Page 3



Inspector General’s Semiannual Report to Congress

BACKGROUND

The FMC is an independent agency responsible for the regulation of ocean-borne
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 headed by five Commissioners nominated by the President and confirmed by
the Senate, each serving five-year terms. For Fiscal Year (FY) 2009, the Commission was

appropriated $22.8 million to fund 124 full-time equivalent positions.

Although the majority of the Commission’s personnel are located in Washington, D.C., it
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 from
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 was provided two full-time
staff, one part-time staff and a budget of $572,000 for Fiscal Year 2009.

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

October 1, 2008 — March 31, 2009 Page 2


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 COMPLAINT CAN BE REPORTED By CALLING OuR 24-HR HOTLINE
(202) 523-5865

To Susmit A COMPLAINT ANONYMOUSLY ONLINE

https://www2.fme.gov/OIGComplaints/

To Susmit A COMPLAINT THROUGH THE U.S. MAIL

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, COMPLAINANTS 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

of 1996 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 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
A09-01A, FY 2008 Management Letter to the Financial Statements, involved (i) erroneous
payments, and (ii) utilization of the agency’s procurement services provider. The Commission’s
management addressed these vulnerabilities by (i) raising the floor on the collection of erroneous
payments, saving the agency time (and resources) by forgiving erroneous payments under $25,
and (ii) using procurement processing services more frequently, as these services are billed at a

flat rate. In addition, the OIG closed two open recommendations from the prior year.

In A09-02, Review of the Bureau of Enforcement’s Time and Attendance Practices, the
objectives were to assess whether the bureau complied with agency policies and government

regulations concerning time and attendance (T/A) reporting.

The OIG found weaknesses in internal control that lead to errors or omissions in the
recording of T/A data. For example, we found a lack of separation of duties that enabled both
the primary and alternate timekeepers to record their leave in the payroll system in violation of
FMC payroll processing procedures and Government Accountability Office internal control
standards. An unscrupulous employee could enter fewer leave hours than were actually used

with little fear of detection.

Further, the payroll file repeatedly lacked required documentation to enable us to identify
work schedules, including “telework” approvals, employee arrival and departure records for

employees on alternative work schedules and employee requests for leave. We identified 265

October 1, 2008 — March 31, 2009 Page 5


Office of Inspector General

Semiannual Report
to the Congress

Covering the Period
October 1, 2008 to March 31, 2009

TIM
get.



Inspector General’s Semiannual Report to Congress

complaints were addressed within the OIG. The OIG opened no new investigations and 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.

During the period, the OIG also revised an internal Commission Order, entitled Inspector
General Activities, to implement provisions of the Inspector General Reform Act of 2008 (P.L.
110-409).

Council of Inspectors General on Integrity and Efficiency Activities
The Council of Inspectors General on Integrity and Efficiency (CIGIE) was statutorily

established as an independent entity within the executive branch by the Inspector General
Reform Act of 2008 (P.L. 110-409 to:

e address integrity, economy, and effectiveness issues that transcend individual
Government agencies; and

e increase the professionalism and effectiveness of personnel by developing policies,
standards, and approaches to aid in the establishment of a well-trained and highly skilled

workforce in the offices of the Inspectors General.

sae
October 1, 2008 —- March 31, 2009 Page 8


Inspector General’s Semiannual Report to Congress

=: _ =

Audits and Reviews in Process

Due to the observed deficiencies associated with T/A practices in one FMC bureau, the
OIG expanded the coverage to include five additional bureaus/offices. The objective of these
audits is to assess whether the bureaus/offices comply with agency policies and government
regulations concerning T/A reporting. To simplify communicating the audit results, the OIG will
report separately on each bureau/office.

The OIG has also initiated planning activities on an evaluation of the FMC’s
implementation of the Federal Information Security Management Act (FISMA) for Fiscal Year
2009. The review objectives are 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 will (i)
evaluate the implementation of the FMC’s information security program; (ii) assess agency
progress towards correcting weaknesses addressed in the FY 2008/2009 Plan of Actions &
Milestones (POA&M); and (iii) verify and test information security for the FMC network and its

wireless tools.

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 received 24 complaints: we forwarded 20
complaints to the appropriate FMC program area for disposition and two complaints to other

agency OIGs with jurisdiction over the subject matter of the complaint. The remaining two

October 1, 2008 — March 31, 2009 Page7


Inspector General’s Semiannual Report to Congress

Summary of Audits Issued During the Current Period

In A09-01, Audit of the Federal Maritime Commission’s Financial Statements for the
Fiscal Year Ending September 30, 2008, 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, 2008 and 2007, 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 fifth consecutive year that the FMC
prepared financial statements for audit. As in the four prior years, the agency received an

unqualified opinion, the highest opinion given by independent auditors.

The FY 2008 audited statements provide insight into the mission and operations of the
Federal Maritime Commission. For example, the FMC had total assets of $4.1 million and $2.9
million as of September 30, 2008 and September 30, 2007, 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 2008 was $22.1 million. This represents a net
increase of $1.4 million over fiscal year 2007 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 $500,000 in
FY 2008, 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 Office of Management and Budget
(OMB) Bulletin 07-04, Audit Requirements for Federal Financial Statements. In addition, the

OIG review of compliance with the Federal Financial Management Improvement Act (FFMIA)

October 1, 2008 —- March 31, 2009 Page 4


TABLE OF CONTENTS

Transmittal Letter

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Background .

Audits/Evaluations
Summary of Audits Issued During the Current Period
Audits and Reviews in Process

Investigative Activities

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Summary of Inspector General Reporting Requirements.
Table I. IG Issued Reports with Questioned Costs .........s:scscscseseseeseseeeneneneeeerenenenentenens 13

Table II. IG Issued Reports with Recommendations
‘(Hat Puiids be Putto Better Use acess ncnnannenaaa 14


Inspector General’s Semiannual Report to Congress

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 directly
to the Inspector General at https://www2.fme.gov/OlGComplaints/, The OIG link on its

webpage enables the sender to remain anonymous.

October 1, 2008 — March 31, 2009 _ Page 11


Inspector General’s Semiannual Report to Congress

TABLE I
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

(ij) 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, 2008 -March 31, 2009 ~~ Page 13


customers. BTA searched the SERVCON database for responsive material and provided research
on several tariff publications to give CID additional information it believed pertinent to CID’s
rate investigation.

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.



a FEDERAL MARITIME COMMISSION
Washington, DC 20573

April 29, 2009

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, 2008, to March 31, 2009. The Act requires that you transmit the report
to the appropriate Congressional committees 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 period the OIG issued four audits / evaluations of FMC programs or activities
and initiated five audits of agency operations. Also during this reporting period, the OIG
received 24 complaints and one request for information. Of the 24 complaints received, we
forwarded 20 complaints to the appropriate FMC program office for disposition and two
complaints to other agency OIGs with jurisdiction over the subject of the complaint. The
temaining two complaints were addressed within the OIG. The OIG opened no new
investigations and referred no matters to prosecutorial authorities during the period.

The OIG implemented several provisions pertaining to the Inspector General Reform Act
of 2008, including revising an internal Commission Order on OIG processes and procedures to
reflect Reform Act requirements, developing a Memorandum of Understanding with a sister OIG
for counsel support and working with the agency’s webmaster to provide a direct link to the
OIG’s website from the FMC’s homepage.

During the period, the Inspector General visited the New York Area Office as the first of
six visits to FMC field locations and briefed the Commission on the results of the trip. The OIG
began planning activities for its annual Federal Information Security Management Act evaluation
and for a peer review of the OIG at the U.S. Election Assistance Commission.

The OIG also coordinated with FMC program staff to provide assistance to other federal
agencies. For example, the OIG arranged for a briefing by FMC staff from the Office of
Operations (to include the Bureau of Enforcement and the Bureau of Certification and Licensing)
to OIG agents from the Export/Import (Ex-Im) Bank. FMC staff assisted the agents to navigate
the myriad rules and document processing requirements involved in importing and exporting
goods overseas by ship. Also during the period, the OIG requested assistance from the Bureau of
Trade Analysis on behalf of the U.S Army Criminal Investigation Division (CID) pertaining to an
ongoing investigation. Specifically, the CID asked BTA to research select service contracts in its
(BTA) confidential filing database between vessel-operating common carriers and their shipper


Inspector General’s Semiannual Report to Congress

The CIGIE is comprised of all Inspectors General whose offices are established under
section 2 or section 8G of the Inspector General Act of 1978 (5 U.S.C. App.), those that are
Presidentially-appointed/Senate Confirmed and those that are appointed by agency heads
(designated federal entities). The Deputy Director for Management of the Office of Management
and Budget is the Executive Chair of the Council.

To accomplish its mission, the 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 CIGIE
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.

During the reporting period, the OIG began preparations to perform a peer review of a
sister OIG at the U.S. Election Assistance Commission. The objectives of a peer review are to
determine whether an effective quality control system has been established in the office and if
policies, procedures and applicable Government Auditing Standards are being followed. All
federal Offices of Inspector General are required by the IG Act to have a peer review performed
on their organization once every three years. These reviews are to be performed only by federal

auditors.

October 1, 2008 - March 31, 2009 Page 9


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 8
Section 5(a)(1) Significant problems, abuses and deficiencies None
Section 5(a)(3) Prior significant recommendations on which 10
corrective actions have not been made
Section 5(a)(4) Matters referred to prosecutive authorities 7
Section 5(a)(5) Summary of instances where information was 10
refused
Section 5(a)(6) List of audit reports by subject matter 3
Section 5(a)(7) Summary of each particularly significant report 4
Section 5(a)(8) Statistical tables showing number of reports and 13
dollar value of questioned costs
Section 5(a)(9) Statistical tables showing number of reports and 14
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 10
Section 5(a)(12) Significant management decisions with which the 9

inspector general disagrees

October 1, 2008 March 31, 2009

=
Page 12