Under the provisions of the Inspector General Act of 1978, Public Law 95-452, as amended, we report twice

yearly to the Congress on the activities of the Office of Inspector General. We describe the major problems, abuses,

and deficiencies identified during audits, inspections, and investigations, along with our recommendations for

corrective action.

Requests for this document, in this form or in an alternative format to meet the needs of persons with

disabilities, should be addressed to Office of Inspector General, U.S. Department of Commerce, Room 7099C

HCHB, 14th & Constitution Ave., NW, Washington, DC 20230. Telephone requesters can call (202) 482-0231

or TDD (202) 482-5897.

An electronic version of this report, as well as electronic versions of most performance audit and inspection

reports issued during the semiannual period, can be obtained via the OIG’s Internet Home Page at

http://www.oig.doc.gov/reports.
IG’s Message for the Secretary

September 1998 Commerce IG Semiannual Report i

October 31, 1998

The Honorable William M. Daley

Secretary of Commerce

Washington, DC 20230

Mr. Secretary:

This report provides a comprehensive overview of Office of Inspector General activities for the second half of fiscal

year 1998. Section 5 of the Inspector General Act requires that you transmit this report, with any comments you

may wish to add, to the appropriate congressional committees within 30 days.

In my first full semiannual reporting period, I am proud to note that the OIG has established its first formal strategic

plan, a top priority of mine once I was appointed as Acting Inspector General. With our strategic plan in place, we

are currently working to develop our biennial performance plan. As part of this process, we are soliciting input from

Commerce officials and from OMB and the Congress. Our plan will focus on the top management challenges facing

the Department, as well as the goals and objectives outlined in both our and the Department’s strategic plans. We

have also implemented a variety of ideas, techniques, and systems to improve OIG work performance and administrative operations, including identifying and correcting any Y2K deficiencies in our internal systems.

We have continued to work closely with departmental and bureau managersto identify and address the major

management challenges facing Commerce and its operating units. This type of cooperation and action on the part of

Commerce managers often makes a real difference between maintaining the status quo and implementing positive

change. During this reporting period, for example, we issued eight audit, inspection, and evaluation reports pertaining

to the 2000 decennial that have been highly influential in improving how the Census Bureau does business. Our

cross-cutting analysis of Commerce’s special agreements, such as memorandums of understanding and interagency

agreements, is finding that although they generally appear to serve important and appropriate functions, they are

frequently not written, approved, and executed properly. And midway through our review of discretionary funding in

financial assistance programs, with individual program audits still underway, our preliminary results indicate that

funding processes and practices can be improved in order to better ensure competition and merit-based selections. In

response to these and most of our reviews, I am pleased to note that the Department’s managers have taken, or

committed to take, substantive actions to address our recommendations.

I am proud of the accomplishments of this office. I look forward to continuing to work with you and your

management team to further improve the Department’s operations.

Sincerely,

Johnnie E. Frazier

Acting Inspector General

Enclosure
Table of Contents

IG’S MESSAGE FOR THE CONGRESS ....................................................................... 1

Foreword .............................................................................................................. 1

Major Challenges for the Department..................................................................... 2

Increase the accuracy and control the cost of the 2000 Decennial Census ......... 2

Obtain a clean opinion on the Department’s consolidated financial statements ... 3

Address Commerce’s year 2000 computer problem .......................................... 4

Manage PTO’s space requirements and lease costs .......................................... 5

Successfully implement NWS’s Advanced

 Weather Interactive Processing System....................................................... 6

Successfully implement a Department-wide financial management system ........ 8

Expand private sector participation in NOAA’s

 marine and aeronautical data gathering ........................................................ 9

Reassess NTIS’s mission and financial viability .............................................. 11

Maximize competition in the Department’s financial assistance programs ........ 12

Emerging challenges for the Department ........................................................ 13

Resolution and Follow-Up ................................................................................... 14

DEPARTMENT OF COMMERCE ORGANIZATION CHART .................................... 16

AGENCY OVERVIEWS .............................................................................................. 17

Economic Development Administration ................................................................ 17

Economics and Statistics Administration ............................................................... 24

International Trade Administration ....................................................................... 35

Minority Business Development Agency .............................................................. 41

National Oceanic and Atmospheric Administration ................................................ 44

National Telecommunications and Information Administration .............................. 63

Patent and Trademark Office ............................................................................... 64

Technology Administration .................................................................................. 68

Departmental Management .................................................................................. 72

OFFICE OF INSPECTOR GENERAL ......................................................................... 79

REPORTING REQUIREMENTS................................................................................. 80

STATISTICAL HIGHLIGHTS ..................................................................................... 84

TABLES AND APPENDIXES ..................................................................................... 85

DEFINITIONS OF TYPES OF OIG REVIEWS AND

FINANCIAL STATEMENT AUDIT TERMS ............................................................... 97

GLOSSARY OF ABBREVIATIONS ............................................................................ 98

OIG ORGANIZATION CHART AND POINTS OF CONTACT ....... (Inside Back Cover)

ii Commerce IG Semiannual Report September 1998
IG’s Message for the Congress

FOREWORD

As we observe the 20th anniversary of the Inspector General Act, I am proud of the contributions that the

Commerce OIG has made over the past two decades in providing leadership and making objective recommendations

for reducing fraud, waste, and abuse, and promoting economy, efficiency, and effectiveness in Commerce programs

and operations. Notwithstanding these significant contributions, I believe there is always room for improvement. We

continue to search for new and better ways to make our work more meaningful and productive and better accomplish our mission, while diligently adhering to the principles embodied in the IG Act.

Directing our efforts toward Commerce activities that offer the greatest potential for improvements and cost

savings has remained one of our greatest challenges. One of the first actions I undertook after assuming my

responsibilities as the Acting Inspector General was to begin developing a strategic plan for the Commerce OIG—the

first such plan since our office was established in 1978. I am pleased to report that we now have a strategic plan in

place and have begun developing a biennial performance plan. Both documents will go a long way toward ensuring

that our resources are properly focused and that we are more effectively achieving our mission goals and objectives.

During this semiannual period, we have continued to provide independent, timely analyses of Commerce

activities, emphasizing early identification of potential problems so that corrections can be made before schedules

have slipped and significant funds have been spent. We have, for example, issued eight reports on various aspects of

the Census Bureau’s preparations for the 2000 Decennial Census. We believe that the observations and recommendations discussed in these reports will be useful to Census and departmental officials as they continue decennial

planning. We also issued our first inspection report on the National Polar-orbiting Operational Environmental Satellite

System acquisition program, a 10-year tri-agency initiative of Commerce, Defense, and the National Aeronautics and

Space Administration.

Likewise, we have been involved in an array of other audits, inspections, and evaluations, the findings and

recommendations of which have contributed to improving the way Commerce does business. Our inspections of

selected operating units’ use of memorandums of understanding and other special agreements have generated

recommendations for improving their handling and management. Our financial statement audits have provided

valuable insights to guide the Department in strengthening its financial management. And our reviews of ITA’s

foreign and domestic operations have identified ways to improve Commerce’s important trade promotion efforts.

Looking ahead, we have initiated two major reviews at the request of the Congress. We recently began

examining the Department’s export licensing controls for dual-use commodities as part of a multi-agency Inspector

General review of export licensing prompted by a request from the Senate Governmental Affairs Committee. We

also are making great progress on our review of the Department’s discretionary financial assistance programs, which

was requested by the Chairman of the Senate Commerce, Science, and Transportation Committee.

We look forward to continuing to work with the Department and the Congress in addressing Commerce’s

current and emerging challenges.

September 1998 Commerce IG Semiannual Report 1
IG’s Message for the Congress

MAJOR CHALLENGES

FOR THE DEPARTMENT

Commerce, with its many important and diverse programs and

missions, is faced with its share of problems, concerns, and difficult issues

that we view as key management challenges. This section highlights what

we consider to be the major challenges for the Department. By addressing

these challenges, the Department and the Congress can improve program

management, eliminate serious operational problems, decrease vulnerability

to fraud and waste, and achieve significant cost savings.

Increase the Accuracy and Control

the Cost of the 2000 Decennial Census

Every 10 years, the Bureau of the Census conducts a census to count

the nation’s people. The decennial census is an enormous and complex

task—one of the most difficult that the federal government has to undertake. The accuracy of decennial census data is critical because it is the

basis for apportioning seats in the House of Representatives and is used to

support a host of other activities, including federal and state redistricting

and the distribution of billions of dollars of federal and state funds.

There is, for a variety of reasons, an unprecedented level of interest

on the part of the public, the Congress, and other 2000 Decennial Census

stakeholders in the bureau’s planning for the 2000 decennial. The

Department recognizes the challenges presented by the decennial and is

providing increased oversight and management support. The decennial has

also remained one of our top priorities during this semiannual period, as

evidenced by our issuance of eight reports on various aspects of the

bureau’s decennial planning efforts. Six of the reports focus on operations

at the three dress rehearsal sites—the city of Sacramento, California; an

11-county area near and including the city of Columbia, South Carolina;

and the Menominee Indian Reservation near Keshena, Wisconsin (see

page 24). A seventh report addresses the bureau’s plans and procedures

for the Local Update of Census Addresses program (see page 30), while

an eighth discusses the adequacy of the bureau’s security measures for the

transmission of sensitive data (see page 33).

Our reviews of dress rehearsal operations disclosed that, as intended,

the dress rehearsal was demonstrating which programs being considered

for use in the decennial census were working well and which were not. We

identified a number of programs and activities that were operating

effectively, and were particularly impressed with the dedication of bureau

2 Commerce IG Semiannual Report September 1998
IG’s Message for the Congress

management and staff. However, we also identified a number of problems

that need to be addressed in order to ensure efficient decennial operations.

The bureau still faces some formidable challenges in completing

preparations for the decennial, which include (1) completing the design,

development, and testing of major automated systems, (2) completing the

development of an accurate master address file, and (3) developing a final

decennial design, incorporating lessons learned from the dress rehearsal.

The bureau plans to use an unprecedented level of automation in the

2000 decennial. Although the bureau is developing a large amount of

software itself, it is contracting out for much of the information

technology, including the design, development, installation, and operation

of a new data capture system that will use electronic imaging to read the

data from census forms and convert it to electronic format for further

processing. Our reviews of the dress rehearsal operations identified

shortcomings in the bureau’s requirements management and software

development processes which produced problems that, if not addressed,

could put the 2000 decennial schedule at risk.

In addition, in accordance with the “dual-track” agreement with the

Congress, the bureau continues to plan for both a sampling and a nonsampling census. Although two recent federal court decisions prohibit the

bureau from using statistical sampling techniques in estimating the

population for the purpose of congressional apportionment, an appeal has

been filed with the U.S. Supreme Court. The requirement to plan for both

alternatives has placed an additional burden on bureau staff resources, and

the continued uncertainty surrounding the ultimate design for the 2000

decennial certainly makes the upcoming decennial census one of the

greatest management challenges to be addressed by the Department.

Obtain a Clean Opinion on the Department’s

Consolidated Financial Statements

The Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994 were designed to improve the financial

management practices of federal agencies. The acts require audited

financial statements that present an entity’s financial position and results of

operations and provide other information needed for the Congress, agency

executives, the public, and others to assess management’s performance

and stewardship. The Department received “disclaimers of opinion” on its

FY 1996 and 1997 consolidated financial statements. The Secretary, the

Deputy Secretary, the Chief Financial Officer and Assistant Secretary for

Administration, the General Counsel, and other senior Commerce officials

September 1998 Commerce IG Semiannual Report 3
IG’s Message for the Congress

have emphasized the importance of the Department’s receiving a clean

opinion on its consolidated statements and have taken steps to ensure that

this happens as soon as possible.

Although the Department has strengthened its financial management

over the prior year, obtaining a clean opinion is not an easy task. In

FY 1997, six bureaus received improved audit opinions, and the Department’s reporting entities reduced the number of material weaknesses in

their audit findings from 37 to 22. However, numerous qualifications on

the balance sheets of NOAA and one for EDA, along with a disclaimer on

ITA and disclaimers on many of the major bureaus’ income statements,

resulted in a disclaimer on the Department’s consolidated statements. Until

NOAA, Census, EDA, and other bureaus, which in aggregate are material

to the Department, receive other than disclaimers on their remaining

statements, the Department will be precluded from receiving a clean

opinion on its consolidated statements. FY 1999 poses additional

challenges with the implementation of new Financial Accounting Standards

Advisory Board standards and OMB Bulletin 97-01, Form and Content of

Agency Financial Statements, which require additional financial

statements and disclosures.

Address Commerce’s Year 2000

Computer Problem

Many of the Department’s program, financial, and administrative

computer systems use two-digit year dates that will become inaccurate

beyond December 31, 1999. Unless this problem is corrected, there is

serious risk that the Department’s mission-critical computer applications

will cease functioning properly. As the year 2000 (Y2K) approaches, there

is an increased demand on the Department’s management to ensure that

critical systems are operational and that contingency plans are in place for

those that will not be ready by the deadline.

Our office, like the General Accounting Office and other OIGs, has

already played a major role in highlighting some of the issues that need to

be addressed. For example, in our October 1997 memorandum, “Observations on the Department’s Year 2000 Efforts,” we reported that the level

of concern and urgency about meeting OMB’s Y2K conversion deadlines

was inadequate throughout the Department. As of August 17, 1998, the

Department reported that 76 percent (348 of 455) of its mission-critical

systems were Y2K compliant. However, our monitoring suggests that this

statistic is neither reliable nor a good indicator of the amount of work

remaining. Moreover, even systems that have been renovated, tested, and

certified as compliant may encounter unanticipated Y2K problems.

4 Commerce IG Semiannual Report September 1998
IG’s Message for the Congress

The Department has recently hired a new Chief Information Officer,

and we are working closely with him to better ensure that Y2K conversion

efforts receive high-level attention. The Secretary, the Deputy Secretary,

and the CFO, along with the Chief Information Officer, have stated their

commitment to ensuring that an independent verification and validation of

mission-critical systems is performed and that business continuity plans are

developed to minimize the potential disruption of services due to the Y2K

problem. The big challenge here is for all involved parties, including the

secretarial officers and senior managers, to take the actions necessary to

gain a reasonable level of assurance that systems with Y2K problems will

operate correctly beyond 1999.

Manage PTO’s Space Requirements

and Lease Costs

The Patent and Trademark Office’s space consolidation project

presents a special challenge for the agency as it contends with the need to

reinvent the way it operates its business practices to make them more

efficient and effective. The project is expected to be one of the largest real

estate ventures that the Department of Commerce, or the federal government, will undertake in the next decade. In October 1995, the agency

received congressional approval to acquire a new or rehabilitated facility of

up to 2.4 million square feet in northern Virginia to consolidate its facilities

and operations and accommodate its future space requirements.

On behalf of PTO, the General Services Administration will award a

contract to a private developer to construct a new facility or renovate an

existing facility and lease it back to PTO for at least 20 years with the

option to buy. The solicitation for offers calls for the construction of the

building shell, to include basic electrical and mechanical systems, which

will be “built out” upon completion of the interior design. The lease

development project is expected to be awarded in December 1998 or

January 1999, with occupancy to begin in November 2001.

Given the size and importance of the planned PTO consolidation

project, we conducted a review to determine whether (1) the project was

justified and (2) PTO was effectively managing the critical acquisition

phase of the project. The review, which was discussed in our March 1998

issue (see page 54), concluded that the project was justified and should

continue. We also found that PTO was managing many aspects of the

lease/development procurement well.

However, we expressed several concerns about PTO’s management

and planning for this major procurement. For example, PTO had failed to

finalize its space requirements or reach agreement with one of its major

September 1998 Commerce IG Semiannual Report 5
IG’s Message for the Congress

unions concerning working conditions related to space requirements in a

timely manner. Also, in determining its requirements, PTO had failed to

factor in potential savings and efficiencies gained from systems

reengineering and automation. Although PTO has since made progress in

defining its requirements, it still has not reached agreement with all of the

employee unions.

In addition, our March 1998 report concluded that the methods used

to pursue the build-out of the facility needlessly exposed the government to

increased cost risk, and recommended a contractual ceiling of $29 million

on the build-out. Recently, the Congress drafted legislation limiting PTO to

a $36-per-square-foot cap for office space and a $29 million ceiling for an

above-standard build-out, which GSA has agreed to manage.

Finally, we reported that PTO lacked an interagency agreement with

GSA, and that the Department had not provided PTO with sufficient real

estate management oversight. On September 4, 1998, PTO and GSA

executed a memorandum of understanding, as we recommended, defining

their working relationship, including the establishment of a fee structure

capped by the terms of the prospectus, PTO’s right to return unneeded

space, and GSA’s continuing role as construction manager.

In response to our report, the Department has increased its real estate

management oversight of the PTO consolidation project. On behalf of the

Department, a consultant reviewed and validated PTO’s approach to its

space requirements. Also, a senior departmental official is serving on the

GSA/PTO Source Selection Board, which will make a recommendation to

GSA’s source selection official on the successful offeror.

In September, the Acting Inspector General testified before the

Subcommittee on Transportation and Infrastructure of the Senate

Committee on Environment and Public Works on our review of the space

consolidation project (see page 67). The Acting IG noted that although

some of the concerns raised in our report have been addressed by PTO

and we remain satisfied that this project should continue, we believe that

continuing management attention and OIG oversight will be needed to

ensure that the project is completed in a timely, cost-effective manner and

within the cost limits prescribed by the Congress.

Successfully Implement NWS’s Advanced

Weather Interactive Processing System

The Advanced Weather Interactive Processing System (AWIPS), the

key integrating element of the National Weather Service’s (NWS) modernization program and an essential ingredient to achieving operational

6 Commerce IG Semiannual Report September 1998
IG’s Message for the Congress

improvements and staff reductions, is also the last major system of the

modernization to be implemented. AWIPS is to provide the capability to

acquire data from advanced observing systems and to give forecasters

tools to rapidly analyze the data, integrate it with the information provided

by the weather service guidance centers, and prepare timely and accurate

warnings and forecasts for dissemination to the public and the media.

AWIPS continues to warrant OIG oversight and departmental

management attention. Amid concerns about escalating costs, discussion

continues on exactly what the system will deliver and when it will be

completed. The Congress, OMB, and Commerce have cause for concern.

In March 1998, the Secretary certified to the Congress that AWIPS would

be completed within the $550 million cap and that the system would

provide sufficient capabilities to replace the aging field office systems.

Before certification, the Department received an independent assessment

of the cost to complete AWIPS, which concluded that development of all

capabilities identified in the requirements baseline would cost more than

$550 million. As a result, NOAA reduced the level of capabilities to be

developed within the cap and created a new baseline, which was to

maintain AWIPS’s ability to replace aging systems. The Department also is

working with NOAA to improve the management and organization of the

program in order to help deliver the needed capabilities within the cap.

Also, in April 1998, the Secretary approved Key Decision Point-4,

allowing NOAA to deploy AWIPS nationwide. This, the last Secretarial

decision point for the program, signifies that the Department is confident

that the system has reached a level of maturity, stability, and supportability

sufficient to commit funds for hardware procurement.

A key certification requirement was that AWIPS should provide

capabilities that are sufficient to replace the aging information processing

systems at NWS field offices. We have had an ongoing concern about

AWIPS’s ability to fully replace Automation of Field Operations and

Services (AFOS), NWS’s primary system, because NOAA has been slow

in identifying what capabilities are needed to do so. NOAA has recently

assured us that these capabilities will soon be identified and that AWIPS

will be able to almost fully replace AFOS. Operational test and evaluation

of AWIPS, scheduled to begin in May 1999, should clearly demonstrate

that AWIPS has the capabilities to allow AFOS, as well as other existing

systems, to be removed from the field.

In addition, NOAA has not implemented the testing improvements that

it committed to at Key Decision Point-4. NOAA recently told us that the

improvements in stress testing and in testing the accuracy of the displayed

meteorological and sensor data for the last incremental software release

September 1998 Commerce IG Semiannual Report 7
IG’s Message for the Congress

will be completed within the legislatively mandated cost cap. However, as

development activities are nearing completion, NOAA is still working to

specify how system testing will be modified and strengthened.

The management challenge is for AWIPS to complete development

and deployment activities within the cost cap. Although NOAA believes

that it will meet the cap, as of September software development was one

month behind schedule, and some planned testing had been modified to

make up for the schedule slip. We are concerned that testing may be

reduced in order to meet the schedule, which could affect software quality.

We are also concerned that capabilities might be reduced due to time

constraints or software development or testing problems. We will continue

to monitor AWIPS’s progress toward fully replacing AFOS.

Successfully Implement a Department-wide

Financial Management System

The Department is not in compliance with the federal requirement for

a single, integrated financial management system. Commerce’s existing

financial systems are seriously outdated and fragmented; unable to provide

timely, complete, and reliable financial information; inadequately

controlled; and costly and difficult to maintain. These systems have not

proven to be effective in preparing and reporting the financial results of the

Department and its bureaus. The Department reported this as a material

weakness in the Secretary’s Annual Statement and Report - Federal

Managers’ Financial Integrity Act, dated December 31, 1997.

Commerce has wrestled with this issue for many years, having begun

developing a Department-wide financial system in 1992. Notwithstanding

large investments of time, money, and effort, implementation of this

system, known as the Commerce Administrative Management System

(CAMS), proved more difficult than anticipated. In October 1997, the

Department implemented a new CAMS implementation strategy, which

consists of focusing implementation efforts at the Bureau of the Census on

a pilot basis before implementing the system Department-wide. Although

some issues remain, an independent verification and validation concluded

in August 1998 that CAMS appeared viable and would provide a

significant improvement over the previous control environment.

In September 1998, the Office of the Chief Financial Officer and

Assistant Secretary for Administration completed its analysis of the CAMS

development and implementation strategy. It examined the benefits, risks,

and costs associated with several potential implementation options. The

strategy identified as the best is continuing CAMS at Census, implementing

8 Commerce IG Semiannual Report September 1998
IG’s Message for the Congress

the system at NOAA and NIST, and having all other bureaus establish

cross-servicing arrangements with other Commerce bureaus or other

government agencies as appropriate. The Department is now working with

NOAA to develop a specific implementation plan with cost, schedule, and

technical performance requirements. This plan will be reviewed by an

independent contractor before it is implemented. NIST intends to move to

CAMS, and other bureaus are considering alternative solutions.

The challenge: Overcoming a history of deployment delays, confronting continuing skepticism, and controlling costs while implementing a

Department-wide financial management system that is capable of

producing accurate, timely, and reliable financial data.

Expand Private Sector Participation in NOAA’s

Marine and Aeronautical Data Gathering

Marine Data

The Congress, OMB, GAO, the Department’s CFO, the OIG, and

others have repeatedly urged NOAA to explore alternatives to its plan to

maintain an agency-designed, owned, and operated fleet for acquiring

marine data. We are pleased to note that NOAA has made some progress

in this regard, namely in the area of nautical charting. NOAA has used

recent increases in appropriations to expand its use of private hydrographic

surveyors, and in March and April 1998, it issued four contracts for data

collection worth $10.8 million. While NOAA has traditionally obtained ship

services from outside its own fleet to support some of its fishery stock

assessments and oceanographic research, opportunities exist for more to be

done, particularly in the area of fishery research.

We remain concerned that NOAA is still trying to buy and operate four

new fishery research vessels (one each year from FY 2000 to 2003)

without thoroughly assessing other viable alternatives. We believe that

NOAA should not focus its efforts on designing, owning, maintaining, or

operating ships. Instead, the agency should clearly articulate its program

needs for ship services to the private sector, academia, and other government ship operators with the goal of identifying modern, more costeffective platforms for its data collection needs. The Secretary and OMB

have also recognized the need for NOAA to explore alternatives for

acquiring marine data. For example, in their budget guidance to NOAA,

they highlighted that the funding provided is for “equivalent fleet”

resources, not necessarily to acquire, build, and operate ships.

While we acknowledge our long-standing disagreement with NOAA’s

approach to relying almost exclusively on its own in-house fleet of ships to

September 1998 Commerce IG Semiannual Report 9
IG’s Message for the Congress

provide program data, NOAA appears to be overlooking some salient

points made in a report it recently requested. The report, completed by a

respected retired Navy admiral after extensive consultation with public and

private sector experts, agrees that NOAA’s aging fisheries research vessels

need to be replaced, but questions NOAA’s intent to acquire and operate

the new fisheries research vessels without:

l a national plan for the use of the new vessels in conjunction with

the nation’s other oceanographic and fishery research and assets;

l a national plan for the development and fielding of technologies

and techniques to improve the nation’s fisheries, oceanography,

and monitoring capabilities;

l an externally oriented approach to the acquisition and operation of

the new vessels that provides for their full, efficient, and effective

use in collaboration with other activities; and

l a commitment by NOAA, the Department, and OMB to request

appropriate resources to fund the above three items, not just the

acquisition of the ships.

It is our understanding that NOAA has prepared a detailed data

acquisition plan for its fisheries mission and intends to acquire the new

vessels through the Naval Sea Systems Command. The retired admiral’s

report describes this strategy as the least desirable approach and details

many preferable competing alternatives, such as combinations of build and

charter, and buying vessels and assigning them to members of the University National Oceanographic Laboratory System for use by academia and

industry when not in use by NOAA. NOAA’s challenge is to thoroughly

assess viable alternative approaches to relying on its own in-house fleet.

Aeronautical Data

Since its establishment in 1983, NOAA’s Aircraft Operations Center

(AOC), now located at MacDill Air Force Base near Tampa, has been

responsible for gathering atmospheric, oceanographic, and other data for

such programs as hurricane and major storm research, nautical and

aeronautical charting, climate and global change, and snow and aerial

surveys. As NOAA’s major flight operations group, AOC operates a fleet

of 14 aircraft, composed of two heavy craft, a mid-size jet, eight light

fixed-wing aircraft, and three helicopters.

In December 1996, the President’s Council on Integrity and Efficiency

reviewed the management of the federal civilian aircraft fleet, including

10 Commerce IG Semiannual Report September 1998
IG’s Message for the Congress

NOAA’s aircraft fleet, and found that it cost the government in excess of

$1 billion annually to operate its aircraft programs. Additional studies of

operational efficiencies, commissioned by GSA, reported opportunities to

reduce costs by $92 million annually if most agencies consolidated their

operations and entered into sharing arrangements.

The OIG conducted an audit to determine whether outsourcing is

more cost-effective than in-house operation in meeting NOAA’s aircraft

requirements. Our audit (see page 44) concluded that the full in-house cost

of operating NOAA’s fleet of eight light fixed-wing aircraft and two

helicopters (the third helicopter was out of service at the time of our audit)

averaged 42 percent more than the cost to operate similar aircraft in the

private sector. In FY 1996, NOAA and interagency programs spent an

additional $1.9 million compared to private sector costs. We recommended

that NOAA privatize its light aircraft operations. NOAA’s challenge is to

find the best way to collect its aeronautical data.

Reassess NTIS’s Mission and Financial Viability

In our September 1997 issue (see page 52), we discussed our concerns

about the proposed conversion of the National Technical Information

Service to a performance-based organization (PBO). At that time, we

included this matter on our list of the Department’s top 10 management

problems, since NTIS lacked the two key prerequisites for becoming a

PBO: (1) a clearly defined mission and (2) the ability to generate sufficient

revenues to support business operations. The Department subsequently

decided not to support NTIS’s conversion to a PBO, and this issue was

removed from our list. Unfortunately, the issue now reappears on our list

because of deepening concerns about NTIS’s operational stability and

financial viability.

Later in this report (see page 68), we discuss the results of our recent

audit of NTIS’s business operations. We found that as the agency continues to lose money, its ability to sustain itself through its traditional clearinghouse operations looks increasingly uncertain. NTIS lost $3.8 million in

FY 1997, and $1.5 million in the first 11 months of FY 1998. If current

trends continue, NTIS will run out of funds in FY 1999. Sales of

publications from its clearinghouse declined from almost 2.3 million units

in FY 1993 to 1.5 million in FY 1997. Moreover, federal agencies are

increasingly bypassing NTIS as a distribution channel, instead offering

their publications directly to the public over the Internet.

NTIS is attempting to curb its losses by raising prices, cutting costs,

and developing new products and services. Although these actions should

produce short-term benefits, we do not believe that they effectively

September 1998 Commerce IG Semiannual Report 11
IG’s Message for the Congress

address the fundamental problem affecting its clearinghouse operations.

We are also concerned that in order to replace lost sales, NTIS is seeking

business opportunities on the perimeter of its statutory mission, where it

risks competing against privately financed businesses.

NTIS’s disappointing operating results highlight the Department’s

challenge because they raise questions not only about NTIS’s ability to be

self-sustaining, but also about the need for a single agency to serve as a

clearinghouse for technical publications. As we recommended, the

Department’s challenge is to undertake a review of NTIS’s operations to

develop a plan for addressing the long- and short-term problems. The

Department recently directed TA to obtain an outside consultant to

perform an independent review of NTIS’s operations.

Maximize Competition in the Department’s

Financial Assistance Programs

Discretionary financial assistance programs involve a significant

portion of the Department’s budget and operations. Six Commerce

agencies administer 71 discretionary financial assistance programs

providing about $1 billion a year to state and local governments,

educational institutions, nonprofit and for-profit organizations, and

individuals. If not properly administered, such programs are susceptible to

fraud, waste, and abuse of funds. For these reasons, we have long

recognized the need to routinely invest OIG resources in the oversight and

evaluation of such programs.

At the request of the Chairman of the Senate Commerce, Science, and

Transportation Committee, we are conducting a review of Commerce’s

discretionary financial assistance programs to examine the processes and

practices used to make funding decisions. The Chairman, who made

similar requests of the IGs of the Department of Transportation, the

National Aeronautics and Space Administration, and the National Science

Foundation, asked that we evaluate the criteria developed, either statutorily

or administratively, to guide Commerce officials in making discretionary

funding decisions, as well as the extent to which such criteria are

appropriately applied.

The use of competitive selection procedures is recognized by the

Department and others as the most effective method of ensuring that

financial assistance awards are made on the basis of merit. Although our

review is still underway, our preliminary observations indicate that there

are opportunities for improving the Department’s discretionary funding

processes and practices to enhance competition and better ensure meritbased selections.

12 Commerce IG Semiannual Report September 1998
IG’s Message for the Congress

On July 21, 1998, the Acting Inspector General and the Chief

Financial Officer and Assistant Secretary for Administration testified

before the Senate Commerce, Science, and Transportation Committee on

the Department’s discretionary financial assistance programs. The Acting

IG discussed the results of the survey phase of our review and some early

observations from the individual program audits then underway.

During this period, we also completed audits of the award processes

for two MBDA financial assistance programs: the Minority Business

Development Center Program and the Native American Business

Development Center Program (see page 42). We plan to issue individual

audit reports on each program selected for review, as well as a capping

report (1) summarizing the results of the individual audits, (2) identifying

cross-cutting issues and highlighting “best practices,” and (3) providing

recommendations for improvement to the Department and its bureaus.

Emerging Challenges for the Department

As we undertake new reviews of Commerce programs and activities,

we recognize that we may identify additional management challenges.

Among these potential challenges are the following:

Ensure the Continued Adequacy of

Export Controls for Dual-Use Commodities

The United States controls the export of certain goods and technologies for national security and foreign policy (including nonproliferation)

purposes. Within Commerce, BXA issues licenses authorizing the export of

certain dual-use commodities—goods and technologies that have both

civilian and military uses. Dual-use export controls are a subject of

continuing controversy, generating a wide range of opinions on how well

U.S. export control policies and practices balance the need to protect U.S.

national security and foreign policy interests with the desire not to unduly

hamper U.S. trade opportunities and competitiveness. Striking this balance

can pose a significant challenge for the parties involved.

The Senate Committee on Governmental Affairs recently tasked us,

along with the OIGs of the Departments of Defense, Energy, State, and

the Treasury and the Central Intelligence Agency, to conduct an

interagency review of the export licensing process. This review, which will

include following up on findings and recommendations from a similar

review completed five years ago (see September 1993 issue, page 15), will

focus on the effectiveness of the Department’s policies, procedures, and

practices in its licensing of dual-use goods and technologies.

September 1998 Commerce IG Semiannual Report 13
IG’s Message for the Congress

Continue to Improve the Department’s Strategic Planning

and Performance Measurement in Accordance with GPRA

The Commerce Department, along with other federal government

agencies, faces many inherent challenges with respect to how to best plan

and measure its performance in accordance with the Government

Performance and Results Act of 1993 (GPRA). The Department’s draft

strategic plan, covering FY 1997 through 2002, drew criticism from GAO,

the Congress, and other stakeholders. The Department substantially

revised the plan to address this criticism before submitting it to OMB and

the Congress in September 1997.

Commerce submitted its first annual performance plan in support of its

strategic plan to OMB and the Congress in February 1998. The FY 1999

plan was criticized for providing an incomplete picture of intended performance across the Department and not adequately demonstrating that the

data to be used in measuring performance would be accurate, complete,

and credible. GAO and the OIG also reviewed the plan and had similar

concerns. The Department plans to prepare an addendum to its FY 1999

plan to address criticisms received. The Department submitted its second

annual performance plan, for FY 2000, to OMB in September 1998. The

plan represents a significant improvement over the FY 1999 plan. It

contains substantially fewer total performance measures, and the measures

are more outcome-oriented, as intended by GPRA.

The challenge for the Department is to continue its efforts to improve

its performance measurement by ensuring that its annual performance

plans (1) present a complete picture of intended performance across the

Department, (2) clearly articulate the strategies and resources to be applied

in achieving the stated performance goals, and (3) provide assurance that

the data to be used to measure performance will be accurate, complete,

and credible. Senior Commerce officials should continue to make this

effort a priority.

RESOLUTION AND FOLLOW-UP

The Inspector General Act Amendments of 1988 require this report to

present those audits issued before the beginning of the reporting period

(April 1, 1998) for which no management decision has been made by the

end of the period (September 30, 1998). The following table presents the

overall status.

14 Commerce IG Semiannual Report September 1998
The OIG and NOAA have met to discuss alternatives for resolving the

one outstanding performance audit, and NOAA is preparing a revised audit

action plan (see page 61). Two of the 11 unresolved financial assistance

audit reports relate to NOAA awards. One of the reports was issued more

than three years ago; the OIG commented on a draft audit resolution

proposal over six months ago and is awaiting NOAA’s final proposal.

NOAA has not yet submitted a resolution proposal for the other audit

report, which was issued six months ago. The other nine unresolved

matters are audits of NIST awards under the Advanced Technology

Program. Audit resolution proposals have been submitted for eight of the

reports; however, discussions between OIG and NIST officials have not

yet succeeded in resolving all issues. The OIG is awaiting a resolution

proposal for the other NIST award. Additional details are presented on

pages 61 and 71. Discussion of the two unresolved preaward contract

audits can be found on page 82.

Department Administrative Order 213-5, “Audit Resolution and

Follow-up,” provides procedures for management to request a

modification to an approved audit action plan, or for a financial assistance

recipient to appeal an audit resolution determination. The following table

summarizes modification and appeal activity during the reporting period.

The eight appeals pending final decisions by the Department include

three EDA, one ITA, and four NIST financial assistance audits.

IG’s Message for the Congress

September 1998 Commerce IG Semiannual Report 15

Report Category Appeals

Actions pending (April 1, 1998)

Submissions

Decisions

Actions pending (September 30, 1998)

9

5

6

8

1

1

0

0

Modifications

Type of Audit Report Unresolved

Performance

Financial Assistance

Financial Statements

Preaward Contract

Postaward Contract

 1

11

 0

 2

 0
Department of Commerce

Organization Chart

16 Commerce IG Semiannual Report September 1998

Office of the

Secretary

National

Telecommunications

and Information

Administration

International

Trade

Administration

Minority Business

Development

Agency

Bureau of

Economic

Analysis

Bureau of

the Census

National Institute

of Standards

and Technology

National

Technical

Information Service

Technology

Administration

Economics and

Statistics

Administration

Bureau of

Export

Administration

Economic

Development

Administration

National Oceanic

and Atmospheric

Administration

Patent and

Trademark

Office

NOAA

Corps

Operations

NESDIS

Oceanic

and Atmospheric

Research

National

Marine Fisheries

Service

National

Ocean

Service

National

Weather

Service
Economic Development

Administration

The Economic Development

Administration was established

under the Public Works and

Economic Development Act of

1965 to generate new jobs, help

protect existing jobs, and stimulate

commercial and industrial growth

in economically distressed areas

of the United States. EDA does

this by providing grants to public

and private nonprofit organizations

in communities with problems that

are stifling economic growth;

planning grants to states, cities,

districts, and Indian reservations;

special economic adjustment

assistance to states and local

governments with recent, severe

problems or long-term economic

deterioration; technical assistance

to communities to build

organizational capacity and solve

specific economic development

problems; and research and

evaluation grants to increase

knowledge about effective

economic development tools.

September 1998 Commerce IG Semiannual Report 17

Better Monitoring of Problem Projects

Needed for Disaster Relief Awards

In August 1992, Hurricane Andrew struck south Florida with winds up

to 170 miles per hour, devastating a 20-mile-wide path across south Dade

County. The Congress responded to this and other natural disasters by

appropriating nearly $1 billion to various federal agencies, including

$80 million to EDA for disaster relief grants. Between 1992 and 1995,

EDA received 69 Hurricane Andrew relief proposals requesting a total of

more than $130 million and funded 28 projects totaling $50.9 million.

The OIG performed an audit to evaluate EDA’s effectiveness and

efficiency in managing its Hurricane Andrew assistance program. In

particular, we examined EDA’s project selection process and its

management and monitoring of the projects funded.

We concluded that EDA did a good job of quickly selecting the

28 hurricane relief projects and, for the most part, chose projects that were

both sound in concept and appeared responsive to the economic recovery

needs of the area. Nevertheless, we found that 9 of 16 construction

projects experienced significant delays. These projects were late in starting

and slow in completion. Several of them may never be finished. As shown

on the following page, four years after the awards, EDA had disbursed

98 percent of the grant funds on the timely projects, while a year later, it

had disbursed only 30 percent on the nine delayed projects. These

problem projects unnecessarily tied up millions of dollars that might have

been put to better use for other disaster recovery purposes. As of

September 30, 1998, three of the nine projects remained incomplete.

Our analysis of the delayed construction projects revealed two

common traits: all but three were located outside the direct path of the

hurricane, and all nine were designed to mitigate or accommodate the outmigration of businesses or encourage tourism, rather than repair or replace

storm-damaged or inadequate buildings and infrastructure. In contrast, all

of the projects that were completed within a reasonable period were

located within the 20-mile-wide path of destruction and were more

traditional “repair-and-replace” public works projects. We concluded that

the location and purpose of the nine delayed projects rendered them less

urgent than the others and therefore more vulnerable to delays because

they lacked sufficient local impetus to proceed on their own.

Although the delays among the nine projects were not attributable to

EDA, the adverse impact of the delays was exacerbated by the agency’s

not taking timely action to eliminate or mitigate them, as required by EDA
Economic Development Administration

policies and procedures for managing and monitoring projects. Had EDA

regional officials recognized the symptoms of problem projects earlier in

the process, they might have been able to better focus the agency’s scarce

resources and financial leverage on assuring that those projects were either

started and completed on time or were terminated in a timely fashion.

Focusing on future disaster assistance efforts, we recommended that

EDA continue its successful use of on-site planning and award selection,

and ensure that existing policies and procedures for managing and

monitoring projects are followed. In addition, we urged EDA to develop

supplemental policies and procedures for managing disaster relief projects

that will assist the agency in identifying and more effectively monitoring

those projects most vulnerable to delays.

EDA accepted our recommendations and agreed to review, and where

appropriate develop, new post-approval procedures for all of its

construction grant portfolio, including disaster projects, to ensure that

projects with higher risks receive special monitoring and assistance.

(Atlanta Regional Office of Audits: ATL-8989-8-0001)

18 Commerce IG Semiannual Report September 1998

Portion of Funds Disbursed During

Five-Year Period After Grant Award

0

20

40

60

80

100

1 2 3 4 5

Time (Years) After Award Date

% of Obligated Funds 

Disbursed

Timely Projects Delayed Projects

Program

Operations

Economic

Development

Administration

Finance and

Administration

Program

Research and

Evaluation
Economic Development Administration

Midwest Flood Program Provides

Lessons for Future Disaster Relief Efforts

In August 1993, the Congress enacted the Emergency Supplemental

Appropriations for Relief from the Major, Widespread Flooding in the

Midwest Act (Public Law 103-75), providing $4.84 billion to federal

agencies to assist victims of the Midwest floods and other disasters. Heavy

flood damage across the Midwest that summer had left about 70,000

people homeless and millions of farm acres too wet to produce crops. The

floods also damaged businesses and related public infrastructure, resulting

in business disruptions, economic losses, and unemployment.

The act provided EDA with $200 million to assist in the economic

recovery of communities, industries, and firms adversely affected by the

flooding. The agency utilized the grant programs of the Public Works and

Economic Development Act of 1965, as amended, in carrying out its flood

relief responsibilities. EDA implemented its flood relief program by

awarding $192.3 million in grants through four programs: technical

assistance ($8.1 million), construction ($169.7 million), revolving loan fund

($10.5 million), and emergency levee repairs ($4.0 million).

The OIG conducted an audit to determine whether the projects

awarded (1) complied with the stated purpose of the act, (2) were funded

efficiently and served the legislative purpose, and (3) were performed in a

timely manner to help mitigate the problems caused by the disaster. We

found that all of the grants awarded complied with the Flood Relief Act

and that the great majority of them mitigated the effects of the flood,

utilized funds efficiently, and were performed in a timely manner.

However, we also identified opportunities for EDA to improve its

management of future disaster assistance programs.

l Technical Assistance Program. Most of the requests for EDA

disaster assistance were generated through 99 technical assistance

grants awarded early in the process. EDA’s use of these grants to

plan RLF and construction projects was a sound approach,

although some of the projects proposed by the technical assistance

grantees appeared unrelated to flood damages.

While encouraging EDA to pursue a similar approach in future

disaster assistance efforts, we recommended that the agency

provide technical assistance grant recipients with guidelines to

better identify and place priorities on projects for disaster funding.

EDA advised us that actions will be taken to provide these

recipients with improved guidelines.

September 1998 Commerce IG Semiannual Report 19
Economic Development Administration

l Construction Program. The construction programs under the

Public Works and Economic Development Act do not contain

clear criteria for applying them to disasters. While the vast

majority of the 160 construction projects funded for disaster relief

have clearly helped mitigate the economic damage caused by the

floods, we questioned the choice of some projects, and found that

slow progress on others raised concerns about their priority.

We recommended that EDA develop construction program

guidelines that will help applicants and decision-makers identify

and appropriately consider projects that have the greatest potential

to mitigate the effects of a disaster. EDA explained its philosophy,

policy, and regulations related to disaster programs and advised

that the grants we questioned were associated with recovering

from the disaster or mitigating future disasters. In subsequent

meetings with EDA officials, we discussed and verified some of

the actions the agency has taken since the 1993 floods to better

manage the selection of construction projects awarded for future

disaster relief efforts.

l RLF Program. We noted that the 16 grants awarded under the

RLF program will remain in place long after the disaster-related

needs cease to exist and that grant funds will then be reused for

other purposes rather than being returned to the U.S. Treasury. In

addition, monies from two RLFs were loaned for purposes unrelated to economic dislocation caused by the flood, and five RLFs

were ineffective because by the time they were implemented, no

disaster-affected businesses attempted to borrow funds.

We recommended that EDA develop an RLF program to provide

aid to disaster-affected businesses only as long as the need for

recovery exists, consider using existing RLFs for disaster relief

through temporary grant revisions, and deobligate $773,000 in

undisbursed disaster funds. EDA generally agreed that the nature

of RLFs warrants additional consideration when awarding them

for disaster mitigation and indicated that it is considering policy

and procedural changes to address this matter.

l Levee Repair and Upgrade Program. The Federal Interagency

Task Force on Midwestern Flood Recovery, established by the

Administration to coordinate 1993 flood relief efforts, directed

EDA to participate in a levee repair program. In implementing the

program, EDA awarded just 12 grants for a total of $4 million,

only 22 percent of the funding requested by the task force. The

difficulty in awarding funds was not the result of inadequate EDA

20 Commerce IG Semiannual Report September 1998
Economic Development Administration

management, but was attributable to the task force’s questionable

strategy to shift responsibility from agencies with experience in

levee repairs to an agency with no such experience. The fact that

EDA reviewed 108 levee grant applications but identified only

12 eligible applicants indicates that this effort was not the most

effective use of EDA’s limited resources. However, we made no

recommendations to remedy this situation because it was clearly

outside EDA’s control. (Denver Regional Office of Audits: DEN8772-8-0001)

West Virginia Awardee Needs to Improve Its

Accounting System and Management Practices

An OIG report issued during the prior semiannual period (see March

1998 issue, page 47) dealt with a West Virginia foundation incorporated in

1993 to promote high-technology industrial and research facilities in the

state. Since its inception in 1993, the foundation has been awarded

15 grants and contracts totaling about $22 million from federal, state, and

private sources. These awards include two EDA grants—a $1.44 million

grant made in 1995 for site development on the foundation’s campus, and

a $976,000 grant made in 1996 to construct an advanced telecommunications laboratory. Commerce became the agency responsible for audit

oversight of the foundation’s federal awards in 1996, with the award of a

$5.85 million NOAA cooperative agreement to the organization.

As noted in our earlier report, we were unable to negotiate an indirect

cost rate for the foundation largely because of deficiencies in its accounting

system and management practices. Although our recommendations relating

to the NOAA project became moot when NOAA and the foundation

agreed to terminate their cooperative agreement in July 1997, the issues

discussed in the report remained viable for other federal awards. Therefore, we issued an audit report this period to EDA that presented our

findings and recommendations for corrective actions.

Specifically, we found that the foundation (1) did not report the use of

rental income to EDA, which violates agency requirements and ignores the

significant federal participation in construction of the foundation’s facilities;

(2) improperly classified land improved with federal funds as investment

property; (3) operated an accounting system that was cumbersome,

inefficient, error prone, and lacking internal controls; and (4) used a

procurement system that conflicted with federal standards requiring free

and open competition.

September 1998 Commerce IG Semiannual Report 21
Economic Development Administration

We made several recommendations aimed at improving the foundation’s accounting system and management practices. The foundation

agreed with most of our recommendations. (Atlanta Regional Office of

Audits: ATL-9259-8-0002)

Review of Applicant’s Complaint About Trade

Adjustment Assistance Certification Process

In response to a congressional request, the OIG reviewed EDA’s

handling of a petition by an Oklahoma company for certification of

eligibility to apply for assistance under the Trade Adjustment Assistance

Program. To be eligible for assistance, a company must demonstrate that

its sales have been adversely affected by imports. The company in this

case complained about the amount of time EDA took to review the

petition.

In a June 30, 1998, letter to the requestor, we reported that EDA had

generally followed applicable regulations and procedures in processing the

complainant’s petition, except that it had failed to complete its determination of applicant eligibility within the 60-day period required by law.

We found that although the company had been engaged in the petition

process for about 12 months, EDA was involved for only about 3 months.

For the other 9 months, the company had been working on its petition with

a nonprofit organization that recruits applicants for the program under a

cost reimbursable cooperative agreement with EDA.

We confirmed that EDA organizational changes, including staff

reductions, contributed to the time it took the agency to process the

petition, which exceeded the statutory time frame by about one month.

However, the amount of time involved was primarily the result of how

long it took the company to obtain, and EDA to verify, historical business

information needed for the company to qualify for assistance. We also

found that the nonprofit organization may have given the company an

overly optimistic picture of its chances of qualifying.

We shared our observations with EDA and recommended that it

emphasize to officials of the recruiting organization that they should give

applicants a clear understanding of the requirements of the program’s

certification process and the fact that there is no guarantee of approval.

EDA officials have since made changes in the petition review process that

should help ensure that the 60-day deadline is met. (Atlanta Regional

Office of Audits)

22 Commerce IG Semiannual Report September 1998
Economic Development Administration

EDA Settles Issues Related to OIG Audit of

Multimillion-Dollar New York State RLF

In the September 1993 issue (page 18), we reported that a New York

State agency had mismanaged a multimillion-dollar EDA revolving loan

fund. Our audit disclosed that the agency had failed in its fiduciary

responsibilities as trustee of the fund and wasted or abused substantial

amounts of the RLF’s capital. As a result, the RLF had been depleted by

at least $12 million and, unless corrective actions were taken, would lose at

least another $9.9 million in future years. Among other things, we recommended that EDA require the agency to replace about $12 million in cash

and other assets improperly removed from the RLF, develop a new RLF

plan, and reinitiate periodic reporting to EDA.

EDA worked diligently to implement the recommendations and, in

April 1998, brought the matter to a successful conclusion when the state

replaced $13 million in cash into the fund, developed a new and acceptable

RLF plan, and reinitiated its reporting on RLF activities. (Atlanta Regional

Office of Audits)

Funds Recovered from North Carolina

County for Missing Equipment

Last year (see September 1997 issue, page 21), we reported the results

of an EDA-requested review of a project partially funded by three EDA

grants totaling $800,000 that were awarded to a North Carolina county to

develop and equip a farmers’ market. We found, among other things, that

more than $179,000 in equipment was inappropriately removed from the

project site and could not be accounted for, and we recommended that

EDA require the county to repay $111,000 to the federal government for

its share of the value of the missing equipment. Based on a number of

factors, including the age and previous use of the equipment, EDA concluded that requiring repayment of half that amount would be equitable.

The county appealed EDA’s decision, but failed to provide any new

information to support a reduction in the repayment. In May 1998, the

agency issued its final determination requiring the county to repay $55,000

to the government. In September, the county remitted that amount to

EDA. (Atlanta Regional Office of Audits)

September 1998 Commerce IG Semiannual Report 23
Economics and

Statistics Administration

Dress Rehearsal Activities Highlight

Improvements Needed for 2000 Decennial

Every 10 years, the Bureau of the Census conducts a population

census to enumerate the entire country. Before each decennial census, the

bureau traditionally performs a dress rehearsal of planned operations.

Although the bureau tested some planned 2000 Decennial Census operations in 1995 and 1996, the 1998 Dress Rehearsal was designed to be the

major test of many of its operations.

The dress rehearsal is being carried out from December 1997 to

December 1998 at three sites—the city of Sacramento, California; an

11-county area including the city of Columbia, South Carolina; and the

Menominee Indian Reservation near Keshena, Wisconsin. The bureau’s

strategy was to combine a large urban site, a small city-suburban-rural site,

and an American Indian reservation to provide a comprehensive environment for testing and refining planned 2000 decennial methodologies and

determine whether the procedures, systems, techniques, and workflow will

work effectively in an operational setting.

To assess whether dress rehearsal operations were efficient and

effective, and met scheduled deadlines, the OIG reviewed operations at all

three sites and issued six reports discussing various aspects of the dress

rehearsal. Our reviews disclosed that, as intended, the dress rehearsal was

demonstrating which aspects of the decennial were working well and

which were not. We identified a number of programs that were operating

effectively, and we were impressed with the commitment of bureau staff

to completing dress rehearsal operations on schedule.

We also identified a number of areas needing improvement to better

ensure a successful 2000 decennial. Below we present some of our more

important findings and observations, divided into two broad areas:

(1) operational and programmatic issues and (2) personnel and

administrative issues.

Operational and Programmatic Issues

l ICM procedures and reporting need improvement. The

integrated coverage measurement (ICM) operation is intended to

act as an independent quality check on information being gathered

by decennial enumerators. It is to accomplish this by creating an

independent list of housing units and their occupants in certain

areas for comparison with the list used for enumeration and by

resolving differences through interviews at ICM housing units.

24 Commerce IG Semiannual Report September 1998

The Economics and Statistics

Administration analyzes

economic developments, develops

policy options, and produces a

major share of U.S. government

economic and demographic

statistics. The Chief Economist

monitors and analyzes economic

developments and directs studies

that have a bearing on the

formulation of economic policy.

ESA has two principal agencies:

Bureau of the Census. Census is

the country’s preeminent statistical

collection and dissemination

agency. It publishes a wide variety

of statistical data about people and

the economy of the nation,

conducting approximately

200 annual surveys, in addition to

the decennial census of the U.S.

population and the decennial

census of industry.

Bureau of Economic Analysis.

BEA’s goal is to provide a clear

picture of the U.S. economy by

preparing, developing, and

interpreting the national income

and product accounts

(summarized by the gross

domestic product) as well as

aggregate measures of

international, regional, and state

economic activity.
Economics and Statistics Administration

Economics and

Statistics

Administration

Bureau

of the

Census

Bureau of

Economic

Analysis

The resulting information will be used to estimate the number of

people and housing units missed or double-counted during the

2000 decennial.

For ICM to succeed as a quality check, it must be kept

independent of the regular enumeration operation because the

design of the estimation procedure is predicated on the assumption

that data collection activities of one operation have not affected

the results of the other. To accomplish this, the ICM operation

was to be conducted by staff involved only in ICM work at

locations separate from the local enumeration offices.

We identified situations at Sacramento that appeared to jeopardize

the independence of ICM operations from enumeration activities

being carried out at local census offices. At that site, ICM staff

were shipping materials from the local office, local office space

was used for an ICM workstation, and ICM staff worked on

hiring and testing census personnel at the local office between

assignments. We believe that the bureau needs to implement strict

guidance during the decennial to ensure that the two operations

remain independent.

l Many problems arose with enumerator maps. Staff from all

three dress rehearsal sites experienced serious problems with the

maps they were provided. Among the problems were (1) inconsistencies between the maps and their associated address list

printouts, (2) maps not drawn to a useful scale, and (3) delays in

map production.

l The quality and effectiveness of enumerator training and

instructional materials could be improved. Student training

manuals contained errors and confusing acronyms, and lacked

indexes. As a result, in observing non-response follow-up

enumeration in Columbia and Sacramento, we found that

enumerators were often unaware of required procedures and

unprepared to handle questions and problems that arose.

l Bureau software did not generate accurate information about

“special places” at both Columbia and Sacramento. The

deficiencies in the software must be eliminated to ensure that

enumerators have all relevant information about these sites, which

include group quarters and other locations with people who lack

traditional residences, such as homeless shelters, nursing homes,

college dormitories, and migrant worker camps. In addition, the

bureau must require more information to be collected at special

September 1998 Commerce IG Semiannual Report 25
Economics and Statistics Administration

places to ensure easier identification of duplicate responses, and

must decide whether to enumerate outdoor locations containing

only a few people.

l The “Be Counted” program and the questionnaire assistance

centers need management attention. At both Sacramento and

Columbia, these programs experienced problems with their

accessibility to respondents and ineffective implementation in the

field. The bureau needs to evaluate the results and examine the

cost-effectiveness of the Be Counted forms and the questionnaire

assistance centers.

l Menominee dress rehearsal operation was working as

intended, but it was not necessarily representative of 2000

decennial operations. Dress rehearsal operations were generally

working as intended, and when problems arose, management and

staff were able to handle them effectively. It is important to note,

however, that the Menominee and regional center operation and

lines of authority are different from those planned for the 2000

decennial and that this site was undoubtedly receiving much more

management support than a local office will receive in 2000.

Therefore, any extrapolations of lessons learned from Menominee

to the 2000 decennial must be made carefully.

l Advertising campaign at Menominee experienced some

difficulties. Television and radio spots and some print advertisements tested in the Menominee dress rehearsal were generally well

received by Keshena staff, focus groups of local citizens, and the

local complete count committee, a group appointed by the

Menominee tribal chairman. But some advertising products,

particularly paid print advertising, had content problems and were

not placed as effectively as possible. Moreover, there was no prior

consultation and coordination by the prime contractor and the

subcontractor with the tribal chairman and the committee, which

may have contributed to the content and placement problems.

l Menominee partnership effort needs to be sustained

throughout dress rehearsal activities. The 2000 decennial will

incorporate partnerships with state and local governments,

businesses, community organizations, religious congregations, and

the media to increase participation and reduce the undercount (see

page 30). The partnership effort made significant early contributions to Menominee dress rehearsal operations. However, most

members of the local complete count committee believed that their

job was done after enumeration in April 1998 and were not aware

26 Commerce IG Semiannual Report September 1998
Economics and Statistics Administration

of the extent of dress rehearsal operations that would continue

until mid-December. As a result, the committee was slow to

support non-response follow-up and did not adequately

understand ICM operations. The bureau needs to advise local

complete count committees to continue their efforts throughout all

decennial operations.

Personnel and Administrative Issues

l Payroll/personnel system for 2000 decennial needs

management attention. This system was designed to support

payroll and personnel processing and to provide information

required by the bureau’s management and operational personnel.

During the decennial, the system will process about 4 million

personnel actions and about 30 million time and expense forms,

provide management reports, and maintain historical data.

However, during the Menominee dress rehearsal, scanning of

payroll and personnel forms did not accurately capture data,

forcing clerks to manually correct too much data and sometimes

scan the same batch of forms more than once.

l Payroll processing needs to be improved. The Sacramento

office’s payroll processing system experienced several problems.

The most serious was that the system accepted and processed

duplicate time sheets and made duplicate payments to the

employees involved, a problem also experienced by the Columbia

office. In addition, documentation of employee time spent on

training, overtime, and travel was not in compliance with bureau

procedures. Also at Columbia, because Friday and Saturday time

sheets from outlying rural areas were often not submitted on time

for the main payroll run, a second run had to be made each week,

increasing the workload for payroll processing personnel.

l Supplemental payment process was slow and confusing. This

employee incentive program rewards field staff for achieving and

maintaining a certain productivity level in completing questionnaires. Problems noted at either Sacramento or Columbia, or both,

included the following: the program was not well understood by

regional or local office staff, the automated system did not identify

all employees eligible for payments, payments were made slowly

and may have been inaccurate, and quality control procedures

were not completely implemented. Unclear instructions and

computer system problems were identified as the causes of the

program’s inefficient operations.

September 1998 Commerce IG Semiannual Report 27
l Employee evaluations were not done. Of the 900 employees

hired for the Sacramento dress rehearsal, many worked in several

operations and will have the opportunity to be rehired for decennial 2000 work. But because the local office did not complete

employee evaluations, the bureau cannot easily identify who are

the best candidates for rehiring and who should not be rehired.

l The reasons that employees separated or were terminated

from employment at Columbia were not adequately

documented. Having accurate, complete information on why

employees leave is important for adequately handling

unemployment claims. A 1994 OIG review found that inadequate

documentation was a common problem in the 1990 Decennial

Census. The bureau received more than 100,000 requests for

wage and separation information related to 1990 decennial

employment, and the government paid $64 million in claims for

1990 decennial-related unemployment compensation.

l Problems were experienced by late delivery of supplies and

office materials. Preparations for non-response follow-up were

hampered by late delivery of supplies in Columbia and

Sacramento. In addition, computer equipment at Columbia had

insufficient memory to print files of address lists received from

bureau headquarters via the regional census center. At the

Keshena and Chicago offices, (1) training manuals and initial

supplies for new activities were not delivered until just as the

operation was beginning, (2) some equipment, furniture, and

supplies were delivered without advance notice, (3) estimates of

supplies needed were incorrect, and (4) supplies sent by vendors

to the Chicago census offices were not always routed to the

correct office or person.

We made numerous recommendations to the bureau to address our

concerns. The bureau agreed with the majority of our findings and

recommendations, and we commend it for its responsiveness in taking

quick action to address most of our concerns. Many of the issues we

raised have already been resolved, and for others, implementing actions

are planned. Among the few issues that the bureau disagreed with were the

following, which are presented with the bureau’s comments followed by

our response:

Economics and Statistics Administration

28 Commerce IG Semiannual Report September 1998
Economics and Statistics Administration

l While acknowledging the need to correct the software problems

that reduced the effectiveness of special place listings, the bureau

disagrees with our finding that procedures for identifying special

places should be reevaluated because it believes that the current

procedures are sound. We believe that the problems the bureau

had in identifying special places demonstrate the need to both

correct its software and reevaluate its procedures.

l The bureau believes that questionnaire assistance centers provide

important assistance to individuals without telephones and that

cost savings from reducing reliance on these centers would be

minimal because space, and in some cases staffing, are normally

provided on a volunteer basis by the local community. We believe

that because the questionnaire assistance center locations are not

publicized, respondents are not aware of them. Moreover, it may

be easier for respondents without telephones to use a pay phone

rather than arrange for transportation to a center. Finally, the

bureau plans to use paid staff in the centers in 2000, which would

increase their cost.

l The bureau believes that eliminating the flexibility of a second

payroll run would impede its ability to pay its employees on time.

We continue to believe that the bureau should consider the alternative actions we recommended to avoid a second payroll run.

l The bureau disagreed with our recommendations concerning

performance evaluations. It pointed out that it had received

approval from the Department and the Office of Personnel

Management to exclude decennial field workers from the appraisal

system to free temporary supervisors from the responsibility of

evaluating employee performance that otherwise meets standards.

The bureau added that guidance is available for supervisors on

dealing with problem employees. We are not recommending that

the bureau implement additional systems for evaluating temporary

employees, only that it use an existing data field in a current form

to document evaluation comments for all employees. We believe

that the benefits—identifying good and poor performers and

documenting information critical to unemployment calculations—

are much greater than the cost of entering the data.

(Economics and Statistics Audits Division: ESD-10783-8-0001, ESD10784-8-0001, ESD-10784-8-0002; Atlanta Regional Office of Audits:

ATL-11050-8-0001; Seattle Regional Office of Audits: STL-11052-8-

0001; and Office of Inspections and Program Evaluations: IPE-10753)

September 1998 Commerce IG Semiannual Report 29
Economics and Statistics Administration

Additional Steps Needed to Improve

Partnership Program for 2000 Decennial

The accuracy of decennial census data is critical because it is the basis

for apportioning seats in the House of Representatives and is used to

support a host of other activities, including the distribution of billions of

dollars of federal and state funding each year.

In conducting the decennial census, the bureau attempts to deliver a

questionnaire to every household, a task that requires determining the

address of each housing unit in the nation. To accomplish this, the bureau

compiles the addresses of housing units into its Master Address File (MAF)

database for both “city-style” and “non-city-style” areas. City-style areas

have addresses that contain a street name and a house number for mail

delivery, while non-city-style areas generally have rural route numbers or

postal box numbers. After analyzing data from a 1995 census test, the

bureau discovered that MAF had both an under-coverage problem (missed

units) and an over-coverage problem (duplicate and nonexistent

addresses).

To deal with the MAF issues, one of the bureau’s approaches for its

address list building strategy for the 2000 decennial involves establishing

partnerships with local and tribal governments through a program that is

designed to take advantage of those governments’ knowledge of actual

address data: the Local Update of Census Addresses (LUCA) program.

Under LUCA, the bureau provides its address list to such governments for

review and revision.

In 1997 the bureau developed a reengineered address list building

strategy for the 2000 decennial that included major changes to the

partnership effort. The schedule for LUCA, which was tested successfully

in 1995 and was already underway for the dress rehearsal in the fall of

1997, was advanced by nine months in city-style areas, to begin in early

1998. Block canvassing was expanded to cover 100 percent of city-style

address areas and will be used to verify address data obtained from local/

tribal review.

An OIG inspection of the plans and procedures for the partnership

effort found that the bureau appeared to have procedures for preparing the

city-style part of LUCA, but had not formally defined many of the

procedures for accomplishing local/tribal review of the non-city-style part

of the address list. We also made observations in the following three areas:

30 Commerce IG Semiannual Report September 1998
Economics and Statistics Administration

l LUCA’s start was slowed by reengineering efforts and budget

constraints resulting from continuing resolutions. With the

nine-month advancement of the LUCA schedule, the bureau had

to mail invitations to participate in the review of city-style

addresses before the program had been fully defined or dress

rehearsal feedback thoroughly evaluated. In addition, bureau staff

responsible for LUCA planning were involved in the dress

rehearsal, and little time and few resources were available for

planning the decennial LUCA. Planning was also disrupted by the

budget constraints imposed by a series of continuing resolutions

that delayed the hiring and training of outreach staff and the hiring

of temporary staff at the bureau’s data processing center.

l Resource planning and management can be improved. The

reengineered design has created a high demand for the services of

both outreach and technical staff in the bureau’s regional census

centers during the early phases of local review operations.

Outreach staff (called partnership specialists) contact local/tribal

government officials to encourage them to participate, while

technical staff train local/tribal staff in how to use the address lists

and provide ongoing technical assistance.

However, the resources for these activities are not being

distributed to the regions in proportion to their likely startup

workloads. For LUCA activities, each regional center has roughly

the same number of outreach and technical staff, despite large

variances in the number of government units they contain. (The

graph on the following page shows the workload variance among

regions for partnership specialists.) Some regional officials believe

that this situation will lead to disparate treatment of governmental

units across regions.

September 1998 Commerce IG Semiannual Report 31
Economics and Statistics Administration

l Additional steps are needed to ensure equitable treatment of

suggestions for additions to city-style LUCA address lists.

The reengineered MAF strategy includes block canvassing to

record the mailing address and physical location of every housing

unit in areas with city-style addresses. The cost of this operation,

scheduled for January through May 1999, is estimated to be as

high as $95 million. Given slippages in the LUCA program, it is

unlikely that all suggestions for additions to LUCA address lists for

city-style areas will be received in time to be verified during block

canvassing. Thus, if the bureau relies solely on the block canvassing operation to provide verification data for LUCA suggestions,

the quality of the bureau’s decisions to accept or reject the

suggestions may vary depending on when the suggestions are

received. We believe there are steps the bureau can take to ensure

that local review suggestions are treated equitably.

We made several recommendations to the bureau to address our

concerns. The bureau agreed with our recommendations. It also

(1) provided a list of the operations that would be potentially affected by

funding delays or restrictions in possible continuing resolutions for

FY 1999 or 2000, (2) described outreach and technical staff increases

planned for FY 1999, and (3) outlined its progress with LUCA for the

2000 decennial. (Office of Inspections and Program Evaluations: IPE10756)

32 Commerce IG Semiannual Report September 1998

Variance in Workload of

Partnership Specialists by Region

0

100

200

300

400

500

600

700

800

AtlantaBoston

Charlotte

Chicago

Dallas

Denver

Detroit

Kansas City

Los Angeles

New York

Philadelphia

Seattle

Region

Government Units per 

Partnership Specialist
Economics and Statistics Administration

Computer Security over the Transmission of

Sensitive Census Data Needs Strengthening

Under Title 13 of the U.S. Code, the Census Bureau is responsible for

protecting from disclosure the data it collects about individuals and

establishments. Disclosure of Title 13 data could be seriously damaging to

the 2000 Decennial Census—as well as to other bureau work—because

securing the cooperation of people and organizations depends on an

assurance of data confidentiality. Therefore, the computer and

telecommunications systems that handle decennial data must have security

measures to prevent unauthorized access. Because the bureau’s operations

are geographically dispersed, Title 13 data is routinely transmitted over

telecommunications media.

The OIG recently conducted an evaluation of the adequacy of the

security measures that the bureau uses in transmitting Title 13 data over its

dedicated circuits (wide area network) and dial-up lines. Our evaluation

identified several concerns about the bureau’s protection of transmissions

of Title 13 data, and we made recommendations to reduce the risk of

disclosure of this sensitive data. Recognizing the importance of these

matters, bureau officials were extremely responsive to our recommendations and began taking actions to implement them as soon as the security

weaknesses were brought to their attention. (Office of Systems Evaluation:

OSE-10773)

Resource Improvements Recommended

for CAMS Pilot Implementation

As part of our ongoing monitoring of the Census Bureau’s financial

management activities, we reviewed the bureau’s pilot implementation of

the Commerce Administrative Management System. The bureau was

selected for the CAMS pilot partly because of its pressing need to support

the 2000 Decennial Census with an updated, capable accounting system.

We focused our monitoring efforts on the components designated by the

Department for the pilot, specifically the core financial system, purchase

card, and small purchases modules.

In a May 29, 1998, memorandum to the Department and the bureau,

we concluded that the June 1998 deadline for completing the CAMS pilot

at Census was achievable. Despite missing some milestone deadlines, the

Department had been successful in restructuring its management of CAMS

and redirecting resources to the pilot implementation. We did, however,

highlight several key areas that needed focused attention by the bureau and

the Department to promote the continued success of the pilot’s

September 1998 Commerce IG Semiannual Report 33
Economics and Statistics Administration

34 Commerce IG Semiannual Report September 1998

implementation: system development methodology, capacity planning,

system architecture and performance, problem/deficit tracking, software

configuration management, and service continuity planning.

Implementation of the CAMS pilot was successfully completed by the

June deadline, and the Department is exploring its options for wider

implementation of the system. (Financial Statements Audits Division)
International

Trade Administration

OIG Reviews Assess the Effectiveness

of US&FCS’s Overseas Posts

The OIG has undertaken a series of reviews of selected Commerce

overseas posts, which are under the direction of ITA’s U.S. and Foreign

Commercial Service (US&FCS). The reviews are designed to evaluate the

posts’ operational effectiveness and determine whether they are efficiently

accomplishing their mission: to assist U.S. companies, especially small and

medium-sized ones, with export assistance. In reporting the results of these

reviews, we divide our findings into three broad areas: (1) general management and organizational issues, (2) program activities and performance

measurement, and (3) internal control environment. In the following

sections, we summarize the results of two audit reports issued during this

semiannual period.

Japan

Japan, representing 75 percent of the entire Asian economy, is the

United States’ largest overseas trading partner. Consequently, US&FCS

has dedicated more resources to Japan than to any other overseas post. In

the 1980s, when the United States emphasized opening up the Japanese

market, US&FCS’s Japan post focused more on helping other federal

agencies in trade negotiations and policy formulation than on assisting

individual U.S. exporters. More recently, while continuing its efforts to

gain access to the Japanese market, the United States has placed greater

emphasis on increasing exports through trade promotion activities. At the

time of our audit, US&FCS Japan employed 60 people at five offices (in

Tokyo, Osaka, Nagoya, Fukuoka, and Sapporo), and had a FY 1997

operating budget of $8.4 million.

Our review of US&FCS operations in Japan found that during the

years preceding our review, the post had done an exemplary job in the

areas of deregulation, market access, major projects, government

procurement, advocacy, and other policy-type matters. Notwithstanding

these accomplishments, we identified the following issues that warrant

management attention:

l General management and organizational issues. US&FCS

Japan’s management and organizational environment need

improvements. Current resource allocation, particularly the heavy

concentration of staff in Tokyo, appears to reflect US&FCS’s

former priorities, which focused on gaining market share in a

relatively closed market. The agency should consider reducing

The International Trade

Administration is responsible for

most nonagricultural U.S. trade

issues and works with the Office of

the U.S. Trade Representative in

coordinating U.S. trade policy. ITA

has four principal units:

Market Access and Compliance.

MAC develops and implements

international economic policies of

a bilateral, multilateral, or regional

nature. It promotes trade,

investment, and commercial

relations, and maintains

comprehensive commercial and

economic data on countries and

regions of the world.

Trade Development. TD advises

on international trade and

investment policies pertaining to

U.S. industrial sectors, carries out

programs to strengthen domestic

export competitiveness, and

promotes U.S. industry’s

increased participation in

international markets.

Import Administration. IA

defends American industry against

injurious and unfair trade practices

by administering the antidumping

and countervailing duty laws of the

United States, and enforcing other

trade laws and agreements

negotiated to address such trade

practices.

U.S. & Foreign Commercial

Service. US&FCS promotes the

exports of U.S. companies and

helps small and medium-sized

businesses market their goods and

services abroad. It has 98 domestic offices and 138 overseas posts

in 75 countries.

September 1998 Commerce IG Semiannual Report 35
International Trade Administration

resources in Tokyo and Osaka and increasing them in Sapporo,

Fukuoka, and Nagoya to more fully take advantage of exporting

opportunities.

l Program activities and performance measurement. Because of

its emphasis on policy matters, US&FCS Japan’s trade promotion

efforts have suffered. The post has reduced its contact with some

types of businesses, especially small and medium-sized exporters,

by contracting out some of its core products and services.

US&FCS Japan needs to be reoriented to better serve U.S.

exporters by reintroducing core products and services so that staff

maintain close contact with the U.S. business community. The

post should also pay increased attention to serving firms that are

just beginning to export or are new to the Japanese market. Post

management also needs to develop a strategic commercial plan

that includes a countrywide marketing plan. As part of that effort,

the post needs to reassess the value of its trade center in Tokyo.

l Internal control environment. US&FCS Japan’s internal

controls need to be improved. Specifically, we observed significant

redundancies within the administrative units and a lack of

coordinated oversight by management. In addition, there is no

effective internal control structure to separate critical administrative functions, and account balances were not fully reconcilable

between ITA, State Department, and Treasury Department

records. Finally, in a matter that affects reporting requirements

under the Chief Financial Officers Act, the post had accumulated

over $2.3 million in unfunded liabilities for personnel benefits for

its foreign service national employees.

We made a number of recommendations to ITA to address the

identified deficiencies. The bureau did not expressly disagree with any of

our findings or recommendations, but it did question several conclusions

and some of the data in the report. Most specifically, ITA questioned

whether the audit team had requested, obtained, and reviewed all of the

pertinent documentation regarding the report findings. We were able to

assure ITA that the OIG team interviewed all US&FCS Japan personnel

and reviewed all pertinent documentation concerning the matters

discussed. (International Audits Division: IAD-10218-8-0001)

Spain

Enjoying excellent bilateral relations with Spain, the United States

during 1996 achieved a $3.4 billion trade surplus with that country,

resulting from $7.7 billion in exports and $4.3 billion in imports. Yet U.S.

36 Commerce IG Semiannual Report September 1998

Import

Administration

Market

Access and

Compliance

Trade

Development

U.S. and Foreign

Commercial

Service

International

Trade

Administration
International Trade Administration

companies continue to face obstacles to doing business there, including

higher import tariffs than those imposed on European firms. At the time of

our audit, US&FCS Spain maintained two offices, in Madrid and Barcelona, and employed 4 foreign commercial officers and 15 foreign service

nationals. It had an operating budget of about $1.2 million in FY 1997.

Our review of the post’s operations covered the following areas:

l General management and organizational issues. The senior

commercial officer who arrived at the post in 1996 effected

several positive changes, such as strengthening interagency

relationships, reasserting program controls, and redesigning

strategic planning. Nevertheless, further improvements are needed

in several areas, most notably the post’s organizational structure,

which fragments the responsibilities and supervision of

administrative staff. The absence of a clear assignment and

supervision hierarchy for administrative functions hampers the

post’s ability to effectively support operations.

l Program activities and performance measurement. The post’s

FY 1997 focus on addressing internal staff problems and improving its coordination with other U.S. agencies resulted in a lack of

attention to US&FCS customers. To remedy this weakness, the

post needs to place greater emphasis on generating and documenting “success stories,” US&FCS’s primary performance

measure. In addition, the post needs to better exploit opportunities

for small and medium-sized firms in the Spanish economy and to

improve its market research reporting to make it a more effective

trade promotion tool.

l Internal control environment. Although US&FCS Spain had

adequate controls in place, many of these controls should be

strengthened to better meet the requirements of the Federal

Managers’ Financial Integrity Act of 1982. For example, improved

communication and information flow are needed between

US&FCS and the State Department’s budget and finance section,

especially in light of increasing administrative support costs.

We made recommendations to address the weaknesses we identified.

ITA generally agreed with our findings and conclusions, and the actions it

has planned or taken should begin to address many of our concerns.

(Business and Trade Audits Division: IAD-10593-8-0001)

September 1998 Commerce IG Semiannual Report 37
International Trade Administration

Dallas USEAC Is Rebuilding to More

Aggressively Provide Trade Services

ITA’s U.S. and Foreign Commercial Service, the federal government’s

most visible export promotion agency, operates an export assistance center

network of 19 U.S. Export Assistance Centers (USEACs) connecting

100 smaller EACs in a series of “hub and spoke” arrangements. The

primary objective of the USEACs is to enhance and expand federal export

marketing and trade finance services through greater cooperation and

coordination between federal, state, and local partners. USEACs are the

hubs: “one-stop shops” that offer U.S. businesses a single point of contact

for federal export promotion and finance programs operated by US&FCS,

the Small Business Administration, and the Export-Import Bank.

The OIG conducted an inspection of the Dallas USEAC to assess the

quality of its services and its effectiveness in delivering those services to

business clients. We also focused on how well the USEAC coordinates

activities with state and local organizations involved in export promotion

and how well the staff of the various agencies at the USEAC interact and

jointly assist business clients. In addition, we assessed the adequacy of

internal controls and the USEAC’s compliance with selected departmental

and ITA policies and procedures.

Our review found that clients are generally satisfied with the quality of

the services provided. The proximity of the office to federal, state, and

local partners—one of US&FCS’s primary objectives for the USEAC

concept—allows for close cooperation, and the partners generally have a

positive impression of the services provided by the USEAC.

However, several deficiencies affecting USEAC operations need to be

addressed by management: (1) staff were not aggressively pursuing new

clients or trade promotion activities, (2) staffing vacancies were adversely

affecting operations, (3) recent computer upgrades were not completed

properly and have caused problems, and (4) user fee collection procedures

lack independent reconciliation and funds were not adequately secured.

Among our recommendations were that US&FCS develop a plan for

the Dallas USEAC to more aggressively pursue initiatives and activities,

minimize delays in filling vacant positions, ensure that the newly installed

information technology is operating properly, provide staff training on the

new computer technology, improve internal controls over user fee collections, and reconcile bank statements with collection transaction records.

38 Commerce IG Semiannual Report September 1998
International Trade Administration

In response to our report, US&FCS outlined steps it is taking to

comply with the intent of most of our recommendations. (Office of

Inspections and Program Evaluations: IPE-11006)

Improvements Are Needed in ITA’s Management

of Interagency and Other Special Agreements

As part of its Department-wide review, the OIG performed an

inspection of ITA’s management of interagency and other special

agreements. We reviewed and selected 73 out of 164 agreements that ITA

entered into with various agencies, including MBDA, BEA, the Small

Business Administration, the Environmental Protection Agency, the

Export-Import Bank, and the U.S. Agency for International Development.

We found that these agreements supported ITA’s mission to promote

U.S. exports and to coordinate the export promotion efforts of other

federal agencies. However, the bureau has some shortcomings in its overall

management of agreements. Specifically, we observed that (1) ITA has no

formal written policy for handling agreements, (2) it has no central

repository for agreements, and (3) there were inconsistencies among U.S.

Export Assistance Centers as to whether they use and how they process

agreements in their trade promotion coordination efforts.

We recommended that ITA develop internal policies and procedures

for its operating units that outline steps for preparing and implementing

agreements and include coordination with ITA’s Office of Financial

Management and the Department’s Office of Acquisition Management and

Office of General Counsel (OGC); distribute relevant guidance and

information for preparing and processing agreements through its computer

network and at appropriate conferences; provide training to staff on how

to properly prepare, process, and administer agreements; and establish a

centralized system to adequately inventory, track, and control its

agreements.

ITA concurred with most of our findings and recommendations and is

drafting administrative guidance to its operating units to aid them in preparing interagency agreements. OGC agreed with the recommendations and is

working with ITA to resolve the issues identified. (Office of Inspections

and Program Evaluations: IPE-10752)

September 1998 Commerce IG Semiannual Report 39
International Trade Administration

Employee’s Telephone Misuse

Results in Theft Conviction

In April 1998, an international trade specialist was convicted of theft in

U.S. District Court for the District of Columbia after an OIG investigation

disclosed that he had made more than $17,000 of personal telephone calls

over a two-year period using his office telephone and his governmentissued calling card. In July 1998, he was sentenced to three years’

probation and 100 hours of community service, and ordered to make full

restitution to the government. (Washington Field Office of Investigations)

40 Commerce IG Semiannual Report September 1998
Minority Business

Development Agency

Community-Based Enhanced Services

Pilot Project Not Effectively Monitored

The OIG audited MBDA’s monitoring and management of its

$240,000 cooperative agreement with a nonprofit organization, and its

subrecipient, for the establishment of a comprehensive minority business

development program in a Maryland metropolitan area. This award was a

pilot project of the Community-Based Enhanced Services initiative—a

pilot to test alternative ways to deliver management and technical

assistance services to a specific minority business community. Our earlier

audit of the cooperative agreement (see September 1997 issue, page 30)

found that the recipient had not fully met its responsibilities to provide

high-quality services to minority-owned businesses.

In this second audit, we concluded that MBDA’s monitoring and

assessment of the pilot project was ineffective because the agency did not

fully comply with its own written policies and procedures for oversight.

For example, MBDA (1) did not adequately communicate with

subrecipient officials, (2) ensure that its monitors prepared and submitted

quarterly performance assessment reports, (3) perform source sampling

verification of the subrecipient’s documentation, or (4) adequately review

the subrecipient’s progress in completing supplemental performance goals

established by senior MBDA management. The lack of effective oversight

caused confusion on the part of subrecipient officials about MBDA’s

reporting and documentation requirements and led to MBDA officials’ not

being aware of the extent of the subrecipient’s lack of performance.

With respect to the oversight of future awards under the initiative, we

recommended that MBDA (1) assign staff with technical and business

experience who will, at a minimum, provide the level of oversight and

monitoring outlined by the agency, (2) ensure that future pilot projects are

effectively assessed and evaluated in a timely and thorough manner to

ascertain whether they should be continued, and (3) develop projectspecific performance measures and reporting requirements to reflect the

nature of the business development assistance.

MBDA generally agreed with our findings and conclusions, but took

exception to our observation that it did not effectively monitor the project

and outlined a number of monitoring actions it had taken. In our opinion,

these actions did not constitute sufficient and effective oversight. However,

after the end of the semiannual period, MBDA submitted an audit action

plan that will implement our recommendations. (Business and Trade

Audits Division: EDD-9406-8-0002)

The Minority Business

Development Agency was

created to help minority-owned

and operated businesses achieve

effective and equal participation in

the American free enterprise

system, and overcome the social

and economic disadvantages that

have limited their participation in

the past. MBDA provides

management and technical

assistance to minority firms upon

request, primarily through a

network of business development

centers. It also promotes and

coordinates the efforts of other

federal agencies in assisting or

providing market opportunities for

minority businesses.

September 1998 Commerce IG Semiannual Report 41
Minority Business Development Agency

Finance and

Administration

Strategic

Planning

Program

Development

External

Affairs

Minority Business

Development

Agency

Awards in Discretionary Funding Programs

Followed Departmental Procedures

The OIG performed audits of MBDA’s solicitation, review, and

selection processes for discretionary grants under its Native American

Business Development Center and Minority Business Development Center

programs for FY 1997. The two MBDA programs provide business

development services to clients to aid in the creation, expansion, and

preservation of Native American- and minority-owned enterprises. During

FY 1997, the Native American program awarded 2 new cooperative

agreements and 8 continuations or renewals of prior awards, totaling about

$2 million, and the Minority program awarded 12 new cooperative

agreements and 29 renewals, totaling about $9 million.

Our two audits were part of our ongoing Department-wide review of

discretionary financial assistance programs, which was prompted by a

request from the Chairman, Senate Committee on Commerce, Science,

and Transportation (see page 12). He requested that the Inspectors

General of the Departments of Commerce and Transportation, the

National Aeronautics and Space Administration, and the National Science

Foundation review their agencies’ discretionary funding programs to assess

how funding decisions are made. Discretionary funding programs are those

for which federal agencies have the authority to independently determine

the recipients and the funding levels of the awards made.

We found that MBDA’s procedures and practices for awarding the

cooperative agreements under both programs met the Department’s

requirements and were generally adequate. Specifically, MBDA followed

established procedures in soliciting and reviewing applications, and has

adequate procedures and practices for selecting awardees and renewing

prior awards. Yet we also identified several opportunities for improving the

programs’ award procedures and practices, such as:

l Expanding the solicitation process, through announcements in

additional media outlets and in target population areas, to obtain a

larger pool of eligible applicants.

l Including officials from outside MBDA and the Department as

proposal reviewers to increase the independence and objectivity of

the review panels involved in the merit-based selection process.

MBDA agreed with our recommendations and is modifying its award

process to implement them along with other improvements. (Business and

Trade Audits Division: BTD-10955-8-0001 and BTD-10956-8-0001)

42 Commerce IG Semiannual Report September 1998
Minority Business Development Agency

Awardee Found Not Financially Responsible,

Postaward Costs Should Be Disallowed

In September 1994, MBDA awarded a $188,000 cooperative

agreement to a Connecticut company to operate a Minority Business

Development Center during FY 1995. The award required the company to

provide a $37,000 cash match. When MBDA proposed to fund the center

for a second year, the Department declined to approve the award for

several reasons: the company had failed to disclose a federal tax

delinquency in its original application, had received Dun and Bradstreet’s

worst business risk ranking, and faced potential bankruptcy. However, the

company continued to operate the center without an agreement for six

months until the proposed award was formally declined in March 1996.

The Department also declined to approve MBDA’s proposed

retroactive award to compensate the company for the additional six

months of operation. The award would have included a $94,000 federal

share and a $16,000 combined cash and non-cash recipient match. The

Department then requested an OIG audit to determine the extent to which

the company should be reimbursed for the entire 18 months that it

operated the center.

We concluded that the company should be reimbursed for the federal

portion of the center’s allowable first-year costs; however, it is not entitled

to any federal funds for the last six months, and is due no additional disbursements. The company incurred the second period costs at its own risk

and did not perform as a financially responsible federal award recipient.

We recommended that the Department disallow $113,000 in

questioned costs and fees for the first year, disallow the full $75,000 in

claimed costs and fees for the last six months, and recover $88,000 in

unearned federal disbursements. The company asserts that the questioned

costs are too high and that it is due an additional $73,000 in federal funds

earned, based in part on its contention that all personnel and related fringe

benefit costs should be allowed because the center operated at a “good” to

“commendable” level. (Atlanta Regional Office of Audits: ATL-8923-

8-0001)

September 1998 Commerce IG Semiannual Report 43
National Oceanic and

Atmospheric Administration

NOAA Should Privatize Light Aircraft

Operations and Pursue Full Cost Recovery

Since its establishment in 1983, NOAA’s Aircraft Operations

Center, now located at MacDill Air Force Base near Tampa, has been

responsible for gathering atmospheric, oceanographic, and other data for

such programs as hurricane and major storm research, nautical and

aeronautical charting, climate and global change, and snow and aerial

surveys. As NOAA’s major flight operations group, AOC operates a

fleet of 14 aircraft, composed of two heavy craft, a mid-size jet, eight

light fixed-wing aircraft, and three helicopters.

In December 1996, the President’s Council on Integrity and

Efficiency reviewed the management of the federal civilian aircraft fleet,

including NOAA’s fleet, and found that it cost the government in excess

of $1 billion annually to operate its aircraft programs. Additional studies

of operational efficiencies, commissioned by the General Services

Administration, reported that costs could be reduced by $92 million

annually if most agen-cies consolidated their operations and entered into

sharing arrangements.

The OIG conducted an audit to determine whether outsourcing is a

more cost-effective alternative to in-house operation in meeting NOAA’s

aircraft requirements. We excluded from our comparison four aircraft

that either were not in service or had unique capabilities not available

elsewhere. We found that the full in-house cost to operate NOAA’s fleet

of eight light fixed-wing aircraft and two helicopters (the third helicopter

was out of service at the time of our audit) averaged 42 percent more

than the cost to operate similar aircraft in the private sector, as shown in

the chart on the next page. As a result, in-house inefficiencies during FY

1996 cost NOAA and interagency programs an additional $1.9 million,

or 1,840 flight hours, compared to private sector costs.

To restructure its aircraft operations, ensuring more cost-effective

aircraft services support, we recommended that NOAA:

l Retain the two heavy craft and the mid-size jet.

l Discontinue operating the eight fixed-wing light aircraft and the

three helicopters and release them, in accordance with OMB

Circular A-126, along with related parts.

l Fully comply with the established policy that program offices

are to rely on the private sector, when economically

advantageous, to provide aircraft services support.

44 Commerce IG Semiannual Report September 1998

The National Oceanic and

Atmospheric Administration

studies climate and global change;

ensures protection of coastal

oceans and management of

marine resources; provides

weather services; and manages

worldwide environmental data. It

does this through the following

organizations:

National Weather Service. NWS

reports the weather of the United

States and provides weather

forecasts and warnings to the

general public.

National Ocean Service. NOS

issues nautical and aeronautical

charts; performs geodetic surveys;

conducts research; and develops

policies on ocean mining and

energy.

National Marine Fisheries

Service. NMFS conducts a

program of management,

research, and services related to

the protection and rational use of

living marine resources.

National Environmental

Satellite, Data, and Information

Service. NESDIS observes the

environment by operating a

national satellite system.

Office of Oceanic and

Atmospheric Research. OAR

conducts research related to the

oceans and inland waters, the

lower and upper atmosphere,

space environment, and the Earth.

Office of NOAA Corps

Operations. The Corps is the

nation’s seventh uniformed

service. Its ships, aircraft, and

personnel support NOAA’s

activities throughout the world.
National Oceanic and Atmospheric Administration

National

Weather

Service

National

Ocean

Service

National

Marine Fisheries

Service

NESDIS

NOAA

Oceanic and

Atmospheric

Research

NOAA

Corps

Operations

l Transfer AOC base funding for aircraft support to NOAA’s line

organizations, and implement procedures to ensure that they

procure aircraft support from the most cost-effective privatesector sources.

l Pending release of aircraft and transfer of funding, report the full

cost of each aircraft to GSA in accordance with federal

accounting guidelines.

Implementation of our recommendations will put up to $11.8 million

of government funds to better use. These funds will involve cost

avoidance of $3.8 million through program procurement of light aircraft

services from the most cost-effective sources over a two-year period, and

up to $8 million from the sale of the light aircraft and helicopters.

Our review also disclosed that AOC is not recovering the full cost of

work that it performs under reimbursable agreements with outside

government agencies. As a result, in FY 1996, NOAA appropriations in

effect subsidized over half the total cost of most sampled interagency

reimbursable agreements, resulting in a cost underrecovery of $573,000

and the diverting of essential resources from its core mission.

September 1998 Commerce IG Semiannual Report 45

Difference Between NOAA Cost and

Contractor Cost for Light Aircraft

-20

0

20

40

60

80

100

120

140

Citation II

Commander

Renegade No. 1Renegade No. 2

Shrike No. 1Shrike No. 2

Twin Otter No. 1Twin Otter No. 2

Bell 212 Helicopter No. 1Bell 212 Helicopter No. 2

AVERAGE

% That NOAA Cost Is Higher/

Lower Than Contractor Cost

Light

Aircraft
National Oceanic and Atmospheric Administration

To remedy these concerns, we recommended that NOAA

discontinue interagency reimbursable work related to the NOAA-owned

light aircraft and helicopters. Pending the discontinuance of

reimbursable work, NOAA should (1) complete current agreements in

accordance with its policy of full cost recovery, (2) revise AOC’s billing

practices to be consistent with, and achieve, full cost recovery, and (3)

seek reimbursement of the unrecovered full cost balances on all current

reimbursable projects.

NOAA disagreed with most of our conclusions and

recommendations because it believes that the report contained

incomplete data, excluded costs that should have been included, and did

not take into account the benefits derived by NOAA and its partners

from federal cooperative projects. Specifically, NOAA did not agree

with our principal conclusion that its group of light aircraft are

significantly more costly to operate when their true or full costs are

compared with the private sector. Regarding recovering the costs on

reimbursable agreements, NOAA asserts that although its policy calls for

full cost recovery, the policy also permits the agency to waive certain

costs when reimbursable projects are beneficial to it. After careful

review of NOAA’s comments, we reaffirmed our conclusions regarding

both matters. (Science and Technology Audits Division: STD-9952-8-

0001)

Satellite Acquisition Well Planned, but

Some Life-Cycle Cost Estimates Overstated

Since 1994, the Department of Commerce, the Department of

Defense, and the National Aeronautics and Space Administration have

been working to develop the National Polar-orbiting Operational

Environmental Satellite System (NPOESS), the nation’s first polarorbiting system that will meet both civilian and defense environmental

data needs. NPOESS is expected to save $1.3 billion over 10 years by

reducing the number of U.S.-owned operational satellites from four to

two, increasing the useful life of each satellite from 42 to 84 months, and

combining support functions. The acquisition is being managed by an

Integrated Program Office (IPO), which reports to an Executive

Committee consisting of representatives of the three agencies’ senior

management.

To reduce overall program costs and risk, in 1996 program managers

and agency decision-makers developed a restructured program, called

“optimized convergence,” that delayed the date that the first satellite

would be needed from 2004 to 2007. A key aspect of the new program is

46 Commerce IG Semiannual Report September 1998
National Oceanic and Atmospheric Administration

early risk reduction for critical payload sensors and algorithms. Sensors

are the components of meteorological satellite instruments that convert

input signals into quantitative information, and algorithms are

computational procedures used to process this information. As part of

the risk reduction effort, in July 1997 IPO awarded multiple contracts for

the competitive design of the sensors and algorithms.

In an evaluation of IPO’s acquisition process and NPOESS life-cycle

cost estimates, the OIG found that the requirements process, the

acquisition strategy, and satellite availability planning were well defined

and should reduce program risk. We also found, however, that IPO

awarded the contracts for the preliminary design and risk reduction of

the sensors and algorithms for significantly less than its budgeted cost,

largely because of certain inflated factors contained in its life-cycle cost

estimates.

We recommended that NOAA begin working with the Executive

Committee and IPO as soon as possible to produce new baseline cost,

schedule, and goals that correct the identified life-cycle cost estimating

anomalies. NOAA agreed that its short-term estimates were inaccurate,

but believes that its cost estimating difficulties are not related to its longterm estimates. (Office of Systems Evaluation: OSE-9593)

Additional Cost Reductions Identified

for Proposed Goddard Facility

Since 1991 NOAA has been planning to build a world class science

center that would consolidate certain operations and research functions

of NWS’s National Centers for Environmental Prediction and the

National Environmental Satellite, Data, and Information Service. These

NOAA components are currently located at the World Weather Building

in Camp Springs, Maryland, and Federal Building 4 (FB-4) in Suitland,

Maryland. NOAA’s latest requirements analysis, completed in May

1997, called for a 365,000-square-foot facility, designed to house nearly

1,300 personnel, at a cost of $97.6 million. NOAA wanted to construct

the facility, called the Operations and Research Center, at the National

Aeronautics and Space Administration’s Goddard Space Flight Center in

Greenbelt, Maryland.

An OIG audit of plans to build the Goddard center found that the

project’s justification did not provide convincing evidence of the need to

consolidate the two environmental prediction components to improve

productivity or efficiency of operations. In addition, SSMC-1 had

sufficient vacant space to accommodate the staff and equipment of the

September 1998 Commerce IG Semiannual Report 47
National Oceanic and Atmospheric Administration

World Weather Building, and GSA had determined that earlier environmental problems with SSMC-1 had been fixed and that it was safe for

occupancy.

We were not opposed to constructing a Goddard facility, but

believed that NOAA could have significantly reduced the cost by

reexamining its staffing projections and the amount of raised-floor space

and the floor loading capacity it needs for automated data processing

equipment. We were planning to recommend that NOAA (1) reexamine

SSMC-1 as a possible site, (2) reduce the square footage of the proposed

Goddard facility by using supportable staff projections, and (3) reduce

the raised floor space and floor-loading requirements. These actions

would have resulted in tens of millions of dollars in savings.

NOAA was proposing to finance construction through direct appropriations. However, because the Congress did not appropriate FY 1998

funding for an architectural and engineering study and directed that

planning efforts be suspended, NOAA is no longer pursuing the project.

Thus, our planned recommendations dealing with reducing the size and

cost of the facility could not be implemented, and we did not include

them in our report. Nevertheless, should the Congress provide future

funding for the facility, NOAA will need to consider the ways to reduce

the size and cost of the facility that were identified in our report.

Although the facility project is no longer being pursued, NOAA

commented on some of our findings. Specifically, it claimed that we

failed to consider information concerning serious infrastructure problems

and threats to personal security at the World Weather Building and FB-4.

Although we agree that the infrastructure of the buildings is dated, we

found no evidence that it posed a threat to operations. Moreover, despite

NOAA’s concerns about security problems, it was unable to provide any

documentation substantiating its concerns. NOAA did not comment on

the issue of reevaluating SSMC-1 as a possible site for World Weather

Building staff because it plans to keep the staff in their current location.

(Science and Technology Audits Division: NAD-9574-8-0001)

New Supercomputer to Be Located at

Federal Building 4 in Suitland, Maryland

The OIG conducted an audit of NOAA’s proposal to locate a new

Class VIII supercomputer at the Goddard Space Flight Center in

Greenbelt, Maryland, where it also proposed to build its new Operations

and Research Center (see page 47). NOAA wanted to install the Class

VIII in Building No. 28 at Goddard, rather than FB-4 in Suitland,

48 Commerce IG Semiannual Report September 1998
National Oceanic and Atmospheric Administration

Maryland, where its current Class VII supercomputer is located, because

the bureau’s cost proposal indicated that it would be less expensive to do

so. The Class VII, which is used exclusively by the National Weather

Service and is critical to its mission of protecting life and property, is

about five years old, and its lease will expire in February 1999. The

Class VIII, the next generation of supercomputers, will provide NWS

with continuous on-line weather information.

The OIG audit found that FB-4 and Goddard were the only federal

sites in the Washington, D.C., area that could accommodate the

supercomputer. We also found that NOAA’s time line for making the

transition to the Class VIII was reasonable. NOAA awarded the contract

for the supercomputer on October 9, 1998, and hopes to have it fully

operational by August 1, 1999.

However, NOAA’s comparison of the costs of locating the supercomputer at Goddard versus FB-4 was flawed because it overestimated

the total life-cycle costs of the FB-4 site by as much as $1.1 million.

Although the initial installation costs at FB-4 are higher, its leasing,

renovation, and maintenance contract costs are lower. As a result, we

estimate that NOAA could save about $780,000 over five years by

locating the supercomputer at FB-4. That building has adequate space

and infrastructure to house the supercomputer once upgrades are made to

the electrical and cooling systems. And we found no evidence, based on

an assessment made by GSA at our request, that the electrical upgrades

will necessitate the removal of asbestos, as NOAA originally thought.

After we completed our field work, NOAA advised us that it was

suspending its planning efforts for a new Operations and Research

Center because of a lack of FY 1998 funding, and was now focusing on

FB-4 as the site for the Class VIII supercomputer. We recommended that

NOAA take the necessary actions to initiate installation of the Class VIII

supercomputer in FB-4.

Although NOAA agreed with our recommendation to locate the

supercomputer at FB-4, it did not agree with the attendant findings on

costs associated with the infrastructure, including space, asbestos, and

equipment. NOAA also stated that it has engaged GSA in discussions

concerning adequate facility support to ensure the continuous operation

of the supercomputer during the transition, including the provision of

backup electrical and cooling systems until upgrades can be completed.

These discussions are to be finalized in a memorandum of

understanding. (Science and Technology Audits Division: STD-10925-8-

0001)

September 1998 Commerce IG Semiannual Report 49
National Oceanic and Atmospheric Administration

NMFS Should Divest Itself of

the Seafood Inspection Program

The National Marine Fisheries Service’s (NMFS) voluntary, fee-forservice seafood inspection program, operated by the Inspection Services

Division (ISD), provides quality assurance services to approximately

2,200 fishery product companies through both in-plant quality assurance

testing and product lot inspections and certifications. In 1995 ISD

estimated that it inspected more than 1 billion pounds of seafood products,

representing about 23 percent of the fishery products consumed in the

United States.

A new inspection methodology, the Hazard Analysis Critical Control

Point (HACCP), was developed during the 1980s. NMFS instituted its

own HACCP-based system in 1992. HACCP reduces the need for ongoing

inspections and allows the processor to monitor its own operations, while

inspectors periodically ensure compliance. Under the HACCP program, a

plant needs only 480 hours of inspection services during the first year, and

potentially as few as 116 hours annually in later years. The full in-plant

inspection program requires 2,080 hours or more annually. NMFS reports

that many plants have converted from ongoing inspections to the new

system, creating a shortage of revenue that contributed to financial losses

for the program. ISD’s losses for FY 1994-97 were more than

$1.7 million.

Several years ago, NOAA and the Department were proposing to

convert ISD to a performance-based organization. In December 1996, the

OIG informed NMFS of several deficiencies that needed to be corrected

before the proposed PBO was established (see March 1997 issue, page

50). Since then, discussions have taken place between NOAA and officials

of the Food and Drug Administration regarding the establishment and

transfer of the proposed PBO to that agency.

In response to a request from NOAA’s Assistant Administrator for

Fisheries, the OIG conducted an audit of ISD’s operational and financial

management. As a result of our review, we reached two primary

conclusions:

50 Commerce IG Semiannual Report September 1998
National Oceanic and Atmospheric Administration

l NMFS should divest itself of the seafood inspection program.

The program has little, if any, relationship to NMFS’s other

responsibilities and functions, and would be better privatized or

placed within another federal or state agency. A voluntary

program to determine the quality of seafood by inspecting,

measuring, testing, and certifying its wholesomeness is not an

inherently governmental function. We recommended that NOAA

propose legislation to immediately divest NMFS of ISD.

l ISD should correct program mismanagement. This

mismanagement has resulted in large fund losses, misdirection

of efforts, and a serious lack of control over internal functions.

Specific management deficiencies were observed in the areas of

training policies, services and payments, and foreign travel and

billing. We recommended that, until the division is divested,

NOAA require that ISD set rates so that it recovers full costs;

eliminate foreign travel that is not fully reimbursed; follow

established policies for billing and travel; and ensure that

adequate contractual procedures are followed for all training

services.

NOAA agreed with our recommendations that NMFS divest itself of

the seafood inspection program and recover full costs until that point.

(Seattle Regional Office of Audits: STL-9607-8-0001)

Management Improvements Needed

in NMFS Enforcement Office

The OIG conducted an audit of the National Marine Fisheries

Service’s Office of Law Enforcement to evaluate its operations and its

coordination efforts with related agencies. The mission of the

enforcement office is to achieve an acceptable level of compliance with

statutes and regulations affecting the living marine resources and marine

habitat of the nation. To accomplish its mission, the office conducts

investigations, patrols, and inspections throughout the United States and

its territories, and on the high seas; engages in public outreach to

increase understanding of marine laws; provides coordination and

support to states, tribes, and territories enforcing regulations that protect

marine resources; and provides training to other federal and state officers

who participate in fisheries enforcement.

During our review, the enforcement office was implementing

numerous management improvements. However, we identified several

areas where additional improvements are warranted. For example,

September 1998 Commerce IG Semiannual Report 51
National Oceanic and Atmospheric Administration

(1) NMFS needs to provide the office with more specific policy guidance

to assist it in addressing its goals and objectives and allocating its

resources, (2) the office should establish more specific performance

measures, and (3) a recent office-sponsored “role and deployment” study

did not evaluate all options due to planning constraints placed on the

study.

We recommended that NMFS develop specific agency priorities and

outcome-related goals for the enforcement office for FY 1999. We also

recommended that NMFS direct the enforcement office to develop

performance measures for FY 1999 that link strategic goals, resources,

and daily activities; evaluate the impact of the predetermined constraints

on the role and deployment study and determine if they are appropriate

before implementing its recommendations; and initiate a deployment

staffing plan that includes all 164 personnel for FY 1999.

NOAA agreed with our findings and recommendations. (Seattle

Regional Office of Audits: STL-9835-8-0001)

OAR Needs Additional Management

Processes to Meet the Intent of GPRA

The Office of Oceanic and Atmospheric Research (OAR) conducts

and directs NOAA research programs in coastal, marine, and

atmospheric sciences through its own laboratories and offices, networks

of university-based programs throughout the country, and international

activities. OAR has three major components: Environmental Research

Laboratories, the National Sea Grant College Program, and the National

Undersea Research Program.

We reviewed OAR’s managerial organization to determine if its

current systems and processes meet the intent of the Government

Performance and Results Act of 1993. We identified three areas where

the current structure is inadequate and developed guidelines for OAR to

use in developing the necessary systems and processes. Specifically:

l OAR has no strategic plan to clarify its mission, goals, and

objectives; to formally communicate agency priorities to the

field level; and to use as a basis for resource allocation plans.

Several attempts to create a plan failed because formal strategic

planning has not been an OAR priority. Sound management

practices, as embodied in GPRA, require agencies to use a

strategic planning process.

52 Commerce IG Semiannual Report September 1998
National Oceanic and Atmospheric Administration

l OAR needs to integrate its budgeting process with a strategic

planning process. This will allow the agency to comprehensively

analyze its planning goals and funding needs, and present a

clearer picture of its operations. Currently, OAR develops its

budget in response to the NOAA planning and budget process. A

compre-hensive, integrated approach to planning and budgeting

will result in a more complete description of how OAR’s goals

and objectives are to be achieved and how it can meet the intent

of GPRA.

l OAR lacks a unified management information system to

evaluate project performance. Such a system is necessary to

allow managers to more effectively define and communicate

project objectives, report on progress, and track resource

expenditures.

We made recommendations to OAR for establishing the needed

systems and the links between them. NOAA concurred with our

recommendations and stated that it plans to implement them through (1)

its strategic plan reporting system, (2) improved crosswalks between

NOAA’s strategic planning structures and OAR’s program structure, and

(3) better strategic plan linkages in the budget development process.

(Seattle Regional Office of Audits: STL-8519-8-0001)

As Sea Grant Program Changes,

Administrative Improvements Needed

The National Sea Grant College program is designed to address

marine and coastal issues and practical problems by applying both the

natural and social sciences and by transferring technology. The program,

established in 1967, provides annual “umbrella” grants to 29 primary

member universities, which in turn manage projects at more than 300

educational institutions. Sea Grant is a cost-sharing program, with the

primary universities contributing one-third of the total cost of the

project. During FY 1997, these universities received $52 million in

federal sea grant funding, provided $32 million in matching funds, and

accepted another $10 million in pass-through funds, which are provided

by NOAA line offices or other federal agencies. The program is

administered by a 17-person National Sea Grant Office (NSGO) in OAR.

After initiating an inspection of the Sea Grant program, the OIG

found that widespread changes were underway, as NSGO was

implementing a number of recommendations of a 1994 National

Research Council (NRC) study. Therefore, we focused our review on

September 1998 Commerce IG Semiannual Report 53
National Oceanic and Atmospheric Administration

certain administrative issues, and postponed a full-scale review until the

agency was further along in implementing the NRC recommendations.

Our observations and recommendations included:

l Sea Grant program is making progress in implementing

NRC recommendations. As a result of the NRC study, NSGO

is shifting its efforts away from a project selection role to a more

results-oriented review of the program. While implementing this

and a number of other NRC recommendations, NSGO has

undergone a 26-percent reduction in staff. We question whether

NSGO will be able to fulfill its oversight responsibilities under a

five-percent cap on administrative expenses and are concerned

that its diminished role could result in NSGO’s abdicating its

responsibility to ensure that program funds are spent

appropriately and directed to NOAA’s overall objectives.

l Marine extension program should benefit from the new

results-oriented program review process. A NSGO evaluation

process is underway to look at “best practices” across all the sea

grant universities. NSGO needs to ensure that the evaluation

focuses on the effectiveness of marine extension programs, and

recommends improvements at the sea grant universities whose

organizational arrangements and techniques have not been

identified as being the most effective.

l Improved coordination between the Sea Grant program and

other line offices must become a NOAA priority. Sea Grant

needs to be more deeply involved in bringing scientific talent

from the universities to bear on the management problems of the

nation’s coastal areas and adjacent oceans. To accomplish this,

more effective coordination is needed between Sea Grant and the

NOAA line offices devoted to resource management—the

National Ocean Service and NMFS.

l Grant processing workload can be better managed. Because

all 29 sea grant awards are made on February 1 or March 1,

NOAA’s grants management division (GMD) and NSGO must

process all sea grant university proposals from November

through February, with much of the division’s work having to be

completed during the December-January holiday season. For

better management of the grants processing workload, grants

need to be received by NSGO on time, properly reviewed, and

forwarded to GMD on a staggered basis.

54 Commerce IG Semiannual Report September 1998
National Oceanic and Atmospheric Administration

l GMD’s oversight role needs to be strengthened. Each sea grant

award is a four-year grant that covers numerous university

projects, is often amended to include new projects, and draws on

multiple funding sources. As a result, it is difficult for NSGO and

GMD to track the obligation of funds from the multiple sources to

the individual projects. NSGO must take steps to ensure that the

sea grant universities are spending Sea Grant program and passthrough funds appropriately. Possible steps to strengthen oversight

include issuing pass-through funds as separate grants and including

GMD staff on the topical assessment teams.

l Policy on grantee matching funds needs to be clarified. A sea

grant proposal must identify how its nonfederal share will be met.

NSGO, however, has no written policy on the nonfederal match

and does not provide a convenient summary of matching

information. As a consequence, it is difficult to determine whether

match requirements have been properly met. To ensure a more

accurate, traceable recording and accounting for matching funds,

NSGO should issue written guidance clarifying its matching policy.

In both its response to our report and its recently submitted action

plan, NOAA has cited actions taken or planned that will satisfy seven of

our eight recommendations. For an eighth recommendation, regarding

pass-through funds, OAR has proposed to conduct an analysis of steps to

be taken to strengthen oversight of these funds. (Office of Inspections and

Program Evaluations: IPE-10150)

Further Changes Needed to Improve

NMFS’s Agreement Procedures

The National Marine Fisheries Service’s mission is to build sustainable

fisheries, recover protected species, and sustain healthy coasts. To

accomplish its mission, NMFS undertakes special projects, reimbursable

activities, and programmatic efforts with other governmental and nongovernmental entities. The agency frequently employs interagency and

other special agreements to formalize the terms of these arrangements.

We examined 49 out of 243 NMFS agreements as part of an OIG

Department-wide review of interagency and other special agreements.

Unlike our reviews of other bureaus’ agreements, however, we did not

evaluate NMFS’s financial, managerial, and programmatic oversight of

agreements because new policies and procedures for agreements were

being implemented by NOAA at that time. NOAA issued its final guidance

for NMFS agreements on January 28, 1998, in response to a previous

September 1998 Commerce IG Semiannual Report 55
National Oceanic and Atmospheric Administration

audit we performed (see September 1995 issue, page 54). NMFS and the

Department’s Office of General Counsel reported notable improvements to

the agreements that were prepared after the draft guidance was issued in

June 1997.

Since the new guidance was not fully implemented at the time of our

review, we limited the scope of our inspection to determining (1) the

appropriateness and advisability of the agreements as funding mechanisms

for specific projects, (2) the extent to which NMFS offices are supported

through and rely on these agreements, (3) the relevance of these

agreements to departmental goals and objectives, and (4) the degree to

which any of these agreements may have circumvented procurement or

financial assistance regulations.

We supported NMFS’s new guidance for the review and clearance of

interagency agreements and memorandums of agreement or understanding.

However, we found several problems in existing agreements that need to

be addressed:

l Legal review requirements are unclear and not periodically

evaluated.

l NMFS does not always recover full costs.

l More than a dozen agreements do not cite legal and/or funding

authority.

l Four agreements are invalid because they lack authorizing

signatures.

l Eight agreements are not regularly reevaluated.

l The duration of agreements is not always defined.

In addition, NMFS does not maintain a comprehensive database or

tracking system for its agreements.

We recommended that NOAA (1) regularly monitor the effectiveness

and efficiency of NMFS’s guidance on agreements, including conducting a

comprehensive review one year from implementation of the new guidance,

to ensure that adequate management controls are in place, (2) in consultation with OGC, revise NMFS’s guidance to clarify which agreements

require legal review and clearance, (3) in coordination with OGC, evaluate

the full impact of the OGC review process and thresholds no more than

56 Commerce IG Semiannual Report September 1998
National Oceanic and Atmospheric Administration

one year from implementation, and revise those thresholds as necessary,

(4) amend NMFS’s current guidelines to ensure that agreements are

reviewed, at least every three years, to determine whether they should be

revised, renewed, or canceled, and (5) develop a centralized database of all

NMFS agreements.

NMFS agreed with our findings and noted that some of the

recommendations will be resolved as a matter of course by continuing its

implementation of the newly developed policy and procedures on

interagency agreements, while others will be the focus of an action plan to

be developed in response to our report. In addition, OGC agreed with the

majority of our findings and recommendations. (Office of Inspections and

Program Evaluations: IPE-10775)

OAR Agreement Practices

Require Additional Improvements

As part of our review of interagency and other special agreements, we

also reviewed 99 out of 506 agreements finalized by the Office of Oceanic

and Atmospheric Research from June 1996 to September 1997. Agreements are one method for OAR to formalize relationships through which it

shares information, provides needed services, or coordinates its programs

with other federal agencies and non-federal organizations in fulfilling its

mission.

The purpose of our inspection was to evaluate policies, procedures,

and practices being followed at OAR headquarters and field locations in

carrying out the agency’s responsibilities under these agreements. Overall,

we found that OAR does appropriately use agreements to support its

mission. Procedurally, OAR has made some improvements in how it

prepares, reviews, approves, and administers agreements. However,

additional changes are needed to comply with federal, departmental, and

agency guidance.

Specifically, we recommended that OAR develop policies and

procedures for preparing and processing agreements that are consistent

with forthcoming departmental guidance. In addition, formal procedures

should be developed to notify other agencies of what terms are required in

OAR agreements and to modify or amend incomplete agreements. Once

the policies and procedures are finalized, OAR should provide training to

all appropriate staff on how to properly prepare and process agreements.

We also recommended that OAR, in consultation with OGC, draft policies

and procedures for obtaining legal review of its agreements. In addition,

September 1998 Commerce IG Semiannual Report 57
National Oceanic and Atmospheric Administration

OAR should develop (1) standard language or form agreements for use by

its programs, and (2) a centralized database of all of its agreements.

NOAA concurred with our findings and recommendations and noted

that, in some cases, OAR has taken preliminary steps to develop policies

and procedures for preparing and processing its agreements and to work

with OGC to outline guidelines for legal review of the agreements. (Office

of Inspections and Program Evaluations: IPE-10310)

West Virginia Awardee Needs to Improve

Its Handling of Indirect Costs

In March and May 1998 (see March 1998 issue, page 47, and this

issue, page 21), we provided audit reports to NOAA and EDA,

respectively, describing inadequacies we found in the accounting and

financial management system of a West Virginia foundation, which

prevented us from negotiating an indirect cost rate for FY 1997. Instead,

we audited the foundation’s actual indirect costs and their allocation to its

various cost centers.

In July 1997, NOAA and the foundation agreed to terminate their

cooperative agreement for the convenience of both parties. The foundation

submitted its termination settlement proposal to NOAA in September

1997. At NOAA’s request, we are also auditing the foundation’s cost

claims, including its termination settlement claim, and will report our

findings later.

Our audit of the foundation’s indirect costs found that the organization

did not identify, as a separate cost center, affiliate services (such as personnel, printing, and postage) that it provides to its members. Instead, the

expenses related to such services were being inappropriately accumulated

as part of the indirect cost pool, resulting in an overcharge to federal

agencies. We questioned more than $110,000 of the indirect cost pool, and

determined that the foundation owes the government about $166,000 for

unallowable or unallocable costs.

We recommended that NOAA require the foundation to establish

affiliate services as a separate cost center, allocate to this center its fair

share of indirect costs, and refund to the appropriate federal agencies the

$166,000 in excess indirect costs claimed for FY 1997. (Atlanta Regional

Office of Audits: ATL-10792-8-0001)

58 Commerce IG Semiannual Report September 1998
National Oceanic and Atmospheric Administration

Financial Expertise Needed to

Improve Personal Property Reporting

Because Property, Plant, and Equipment is the largest account on

NOAA’s balance sheet, representing nearly 65 percent of the bureau’s total

assets as of September 30, 1997, it is imperative that adequate resources

are devoted to this account. NOAA’s personal property team, composed of

about 10 employees, is responsible for ensuring that all accountable and

capitalizable personal property is accurately reported in the National

Finance Center database, where NOAA maintains its personal property

data. However, NOAA has received disclaimers in each of its past audits in

part due to unsupported property balances, and its lack of adequate

controls over property has been deemed a material weakness.

An OIG limited-scope audit of NOAA’s capitalized personal property

files disclosed that the bureau had made a significant effort to improve its

accounting for and reporting of personal property, and that it had begun to

take the steps needed to effectively track and account for capitalizable

personal property. However, we identified two areas where further

improvements are needed:

l Financial manager is needed for NOAA’s personal property

team. Staff on the personal property team are trained in acquiring

and maintaining physical accountability for personal property, but

none of them has the experience to account for personal property

in accordance with applicable accounting standards. Given the

importance of personal property accountability and the complex

accounting issues that NOAA faces on a daily basis, we

recommended that the bureau either hire a full-time accounting or

financial manager or use a contractor or personnel from its finance

office to help compile property data for the financial statements.

l Capitalization and bulk purchase thresholds needed

attention. We found that by using the Department’s $25,000

capitalization threshold, the personal property team was expending

more than 75 percent of its effort to account for less than

7 percent of its property, in terms of acquisition value. Moreover,

NOAA did not have a specific bulk purchase policy to capitalize

significant acquisitions of property and equipment items

individually costing less than the capitalization threshold.

September 1998 Commerce IG Semiannual Report 59
National Oceanic and Atmospheric Administration

NOAA agreed with our observations and recommendations, stating

that corrective actions will be taken. In particular, NOAA has (1) obtained

a departmental waiver to implement a $200,000 capitalization threshold

and (2) used our analysis to establish a bulk purchase threshold of

$1 million. While supporting NOAA’s actions, we also recommended that it

issue written policies and procedures concerning the thresholds and

provide training on applying them. (Financial Statements Audits Division:

FSC-10875-8-0001)

NOS Should Further Expand Use of Alternative

Methods in Its Hydrographic Survey Program

As a follow-up evaluation to our 1996 review of NOAA’s fleet

replacement and modernization plan, which concluded that private

contractors could begin accommodating the bureau’s hydrographic needs

(see March 1996 issue, page 43), we reviewed the National Ocean

Service’s activities and strategies for building an effective partnership with

private sector hydrographic survey firms and ensuring the quality of survey

data collected under contracts by those companies.

We found that NOS has begun to more actively engage the private

sector hydrographic surveying community in an attempt to better examine

how best to perform its mission of promoting safe navigation. In addition,

we are encouraged by many of the steps NOS has pledged to take during

the next year, as it prepares to complete a long-term hydrographic data

acquisition plan by April 1, 1999. Likewise, we are pleased that NOS has

recently awarded several contracts for hydrographic survey data.

Because of the progress over the last year and NOS’s planned actions

in the coming year, we made no recommendations. However, we

encouraged NOS to continue to explore and expand its use of alternative

methods, including contracts for data, to meet its nautical charting needs

and reduce its survey backlog. In addition, the critical issue that NOS must

address as it develops its long-term plan is how best to maintain the inhouse expertise necessary to ensure the quality of hydrographic data. We

believe that there are alternative ways for NOS to provide the quality

assurance necessary to contract for data without retaining its current level

of in-house resources. (Office of Inspections and Program Evaluations)

60 Commerce IG Semiannual Report September 1998
National Oceanic and Atmospheric Administration

Former Employee Convicted

of $70,000 Imprest Fund Theft

A former NOAA budget analyst was convicted of theft after an OIG

investigation confirmed that she had obtained more than $70,000 from

various departmental imprest funds by submitting a series of fraudulent

claims for reimbursement of small purchase and travel expenses. In August

1998, she was sentenced in U.S. District Court for the District of

Columbia to six months’ imprisonment and three years’ probation, and

was ordered to make restitution of $73,767 to the government. (Silver

Spring Field Office of Investigations)

Audit Reports Unresolved for Over Six Months

As of September 30, 1998, one performance audit report, two

financial assistance audit reports, and two preaward contract audit reports

had recommendations unresolved for more than six months.

NMFS Laboratory Structure

The performance audit report, NMFS Laboratory Structure Should Be

Streamlined, STL-8982-8-0001 (see March 1998 issue, page 39) identified

several opportunities for NMFS to streamline its field structure. Specifically, we recommended closing six laboratory facilities and transferring

their programs and personnel to other NMFS laboratories. In another

instance, we recommended that a laboratory and most of its programs be

transferred to the State of Maryland. We also recommended that the

proposed Santa Cruz, California, facility be expanded to accommodate

programs and personnel from another of the California laboratories. In

addition, we disagreed with NMFS’s plans to transfer some programs from

a Seattle laboratory to the proposed Auke Cape facility in Alaska. NOAA

disagreed with our findings and recommendations. We have discussed

alternatives for audit resolution with NOAA, and we are awaiting a revised

audit action plan.

University of Hawaii

This financial assistance audit report, ATL-9999-5-0753 (see

September 1995 issue, page 99) was an OMB Circular A-133 audit that

questioned $1.1 million of claimed costs. We provided comments on

NOAA’s draft audit resolution proposal in January 1998 and are now

awaiting its response.

September 1998 Commerce IG Semiannual Report 61
National Oceanic and Atmospheric Administration

62 Commerce IG Semiannual Report September 1998

Northeastern Coastal Zone Management Project

The second financial assistance audit report, ATL-10278-8-0001 (see

March 1998 issue, page 43) covered the two-year performance period of a

cooperative agreement with a Northeastern state to assist in the

development and implementation of a coastal zone management program.

We concluded that the state did not accurately and completely report its

federal expenditures and cash disbursements to NOAA. The report also

questioned $48,275 in claimed costs, and recommended deobligating the

remaining $26,465 in award funds. We are awaiting NOAA’s response.

Preaward Contract Audit Reports

The two preaward contract audit reports are discussed on page 82.
National Telecommunications

and Information Administration

Supporting Documentation Lacking for Costs

Claimed Under Telecommunications Grant

In September 1995, NTIA awarded a $225,000 grant to a nonprofit

organization that provides advocacy and direct services to people with

certain disabilities. The grant agreement required about $372,000 in

matching funds, bringing the total project budget to almost $600,000. As

of October 1996, the end of the project period, the total cost claimed was

more than $612,000, and the total federal amount disbursed was nearly

$225,000.

The purpose of the grant was to provide funding for an experimental

telecommunications network, which was to be implemented with the

assistance of six contractors approved in the award agreement. The project

consisted of establishing a disability information bulletin board network

with sites in Alaska, Colorado, Iowa, Maine, Nebraska, and North

Carolina.

By the end of the project period, the grantee had enlisted only about

half of its goal of 6,000 subscribers. Based on the high cost per subscriber

and various other factors, NTIA officials concluded that the project was

not a good choice for replication, and grantee officials decided that such a

network could be better achieved by partnering with existing Internet

service providers.

An OIG audit disclosed that the grantee’s financial management

system did not comply with federal standards in that it did not provide

adequate assurance that only reasonable, allowable, and allocable costs

were claimed. Largely because of this, we questioned about $298,000 in

project costs, attributable primarily to a lack of supporting documentation

for more than $273,000 in contract costs. We also questioned certain

indirect, equipment, and travel costs. We recommended that the

Department disallow the questioned costs and recover about $106,000 in

excessive grant disbursements.

In response to our findings, the grantee contended that the contracted

work was performed and that the price paid was reasonable, but did not

provide any additional documentation to support the questioned costs.

(Atlanta Regional Office of Audits: ATL-10378-8-0001)

The mission of the National

Telecommunications and

Information Administration is to

(a) serve through the Secretary of

Commerce as the principal

executive branch advisor to the

President on domestic and

international communications and

information policies, (b) ensure

effective and efficient federal use

of the electromagnetic spectrum,

(c) develop with other federal

agencies policies for international

communications and standardssetting organizations, (d) serve as

the federal telecommunications

research and engineering center,

and (e) administer grants under

the Information Infrastructure

Grants Program and the Public

Telecommunications Facilities

Program.

September 1998 Commerce IG Semiannual Report 63

Spectrum

Management

Policy

Analysis and

Development

Telecom. and

Information

Applications

Institute for

Telecom.

Sciences

International

Affairs

NTIA
Patent and

Trademark Office

Effectiveness of Appeal Process Threatened

by High Inventory and Inadequate Monitoring

PTO’s Board of Patent Appeals and Interferences decides appeals

from adverse decisions of patent examiners concerning applications for

patents and makes determinations concerning interferences, which are

questions concerning the priority of invention and patentability. The

board’s administrative judges may affirm or reverse an examiner’s decision

or remand the application for further consideration. The board had

43 patent judges and 40 support personnel at the end of FY 1997, and had

an FY 1998 operating budget of about $9.5 million.

In a performance audit of the board’s operations, we found two major

areas of concern:

High inventory has resulted from productivity and staffing

problems. In the past five years, the number of pending appeal and

interference cases at the board has increased by more than 350 percent—

from 2,668 to 9,649, an average increase of almost 1,400 cases per year

(see graph below). The growing caseload is attributable primarily to patent

judges’ not maximizing their productivity, declines in the quality of

decisions appealed to the board, unclear case review policies, and

inadequate resource planning. Despite recent initiatives to combat the

growing inventory, the effectiveness of the appeals process is threatened,

posing a greater risk of patent infringement. PTO needs to (1) develop a

strategy to reduce the inventory to a manageable level within five years,

The Patent and Trademark Office

administers the nation’s patent and

trademark laws. Patents are

granted, and trademarks

registered, under a system

intended to provide incentives to

invent, to invest in research, to

commercialize new technology,

and to draw attention to inventions

that would otherwise go unnoticed.

PTO also collects, assembles,

publishes, and disseminates

technological information disclosed

in patents.

64

Inventory of Pending Patent

Appeals and Interferences

0

2000

4000

6000

8000

10000

1993 1994 1995 1996 1997

Fiscal Years

No. of Pending Appeals

and Interferences
Patent and Trademark Office

(2) clarify its case review policies, (3) pursue the planned hiring of

additional judges, and (4) develop a professional track for examiners to

become judges.

Case monitoring has been inadequate. The board is not adequately

tracking and assigning cases or maintaining a reliable filing and retrieval

system. As a result, the board’s ability to manage its workload efficiently

and effectively is being compromised. The board needs to (1) process all

cases on a first-in, first-out basis and develop a rationale for assigning new

cases and (2) conduct an annual physical inventory of case files, giving the

highest priority to active cases and archiving inactive ones. These and

other factors led us to conclude that the board should hire a Chief

Administrator to better manage its workload.

In response to our report, PTO agreed to or has initiated action

consistent with 12 of the report’s 16 recommendations. PTO has begun to

address many of the issues cited in the report through the creation of the

Board of Patent Appeals and Interferences Strategic Plan, which outlines

several strategies to reduce the high inventory and eliminate other risks that

threaten the effectiveness of the appeal process. PTO recently informed us

that the inventory was slightly reduced during FY 1998. However, significant reductions will result only if PTO implements the recommendations.

(Business and Trade Audits Division: BTD-10628-8-0001)

Complaints Against Practitioners

Must Be Investigated More Expeditiously

PTO regulates the recognition and ethical conduct of individuals

practicing before it. Although only attorneys can practice in trademark

cases, patent practitioners may be either attorneys or non-attorneys, called

agents. The Office of Enrollment and Discipline (OED) was created in

1985 to administer the rules for admission to practice before PTO. OED’s

responsibilities include (1) determining the qualifications of individuals

applying for registration to practice before PTO, (2) administering the

examination for registration and maintaining a roster of registered

practitioners, and (3) investigating complaints of unethical conduct by

practitioners and taking disciplinary action when appropriate. OED has

seven full-time and one part-time staff plus three vacant positions.

In an audit conducted to evaluate OED’s effectiveness and to identify

any factors that might be affecting its performance, the OIG found that

complaints against PTO practitioners are not pursued expeditiously

enough. The number of completed OED investigations declined from 45 in

FY 1995 to 4 in FY 1997. By the end of 1997, the inventory of pending

complaints and investigations was 296, up from 145 at the end of 1995.

September 1998 Commerce IG Semiannual Report 65

Assistant

Commissioner

for Patents

Assistant

Commissioner

for Trademarks

Associate

Commissioner

and CFO

Chief

Information

Officer

Patent and

Trademark

Office
Patent and Trademark Office

The delays in pursuing violators are caused primarily by the tremendous growth in the enrollment workload, which has “crowded out” much

of OED’s discipline work in recent years. This workload growth is being

driven by the rising number of candidates who take the registration examination. Since 1986, that number has increased from 722 to 3,162, while

the number of OED enrollment staff—three—has remained the same.

We also identified other problems that affect satisfactory program

performance. For example, relying on the Solicitor’s Office to prosecute

disciplinary cases tends to complicate and prolong OED’s investigative

process. In addition, OED’s practice requirements and disciplinary rules

have loopholes that allow attorneys disciplined by state bars to continue to

practice at PTO. Finally, highly graded OED staff attorneys spend much of

their time reviewing test applicants’ technical requirements, a task that

does not require legal skills.

We recommended that PTO (1) dedicate three personnel to discipline

work, (2) immediately fill three vacant OED positions, (3) allow OED to

hire an attorney to prosecute disciplinary actions, (4) change its rules

regarding attorneys who are disciplined by the states, and (5) assign the

review of applicants’ technical qualifications to non-attorneys. PTO has

submitted an audit action plan, which we approved, for implementing our

recommendations. (Business and Trade Audits Division: PTD-10627-

8-0001)

New Cost Accounting System Appropriately

Considers Reporting Requirements

In 1996, PTO hired a contractor to perform an agencywide cost

management initiative. The objective of this initiative was to implement an

activity-based cost accounting system throughout the bureau. The new

cost accounting system was used to provide expenses by program in the

“Supplemental Information” section of PTO’s FY 1997 financial

statements. Since that time, modifications have been made to the system

to enhance the accuracy of the financial data, and provide management

with the ability to make key decisions related to setting fees, recovering full

costs, and improving customer satisfaction. Data from the cost accounting

system will be used to create the FY 1998 financial statements.

The OIG conducted an audit of the methodologies used by PTO’s

contractor to develop the new cost accounting system. We found that PTO

has undertaken a significant effort to develop and implement the system

and believe that it has taken the needed steps to begin to effectively

identify and manage costs related to its business lines.

66 Commerce IG Semiannual Report September 1998
Patent and Trademark Office

We made recommendations to PTO to enhance the accuracy and

reliability of its financial data, including that (1) new program codes be

linked to activities to facilitate direct input into the cost system, (2) proper

prevention and detection controls be developed and monitored regularly to

validate time and attendance data, (3) procedures surrounding the

implementation and use of the cost accounting system be adequately

documented, and (4) the new system be in compliance with federal and

departmental regulations and guidance. PTO officials have agreed with our

findings and recommendations, and have already taken some corrective

actions. (Financial Statements Audits Division: FSD-10782-8-0001)

Bureau Should Proceed with Consolidation

Project While Emphasizing Cost Containment

The Acting Inspector General recently testified before the Subcommittee on Transportation and Infrastructure of the Senate Committee on

Environment and Public Works to discuss the OIG’s review of PTO’s plan

to consolidate its facilities and operations and accommodate its future

space requirements (see March 1998 issue, page 54). This space

consolidation project, expected to be one of the largest federal real estate

ventures in the next decade, involves acquiring a new or renovated facility

of more than 2 million square feet in northern Virginia and leasing it for at

least 20 years at a total cost of about $1.3 billion.

In his testimony, the Acting IG reiterated the review’s conclusion that

the project was justified and that PTO was managing many aspects of it

well. But he also noted that the OIG had found that (1) PTO had not

finalized its space planning, (2) its strategy for “building out” the facility

from a shell to finished form exposed the government to potential cost

overruns and program delays, (3) the roles and responsibilities of PTO and

GSA had not been defined in a memorandum of understanding, and

(4) the Department needed to improve its oversight of the project.

In the six months since the review’s completion, PTO has taken some

corrective actions to address the OIG’s concerns. Among other things, it

has accelerated its space planning efforts and issued draft space planning

documents, executed a memorandum of understanding with GSA, and

made progress in mitigating the build-out risk. Moreover, the Department

has become much more involved in overseeing the project.

The Acting IG concluded by stating that although challenges remain,

the greatest risk now lies in delaying the project. It is therefore in the best

interests of the government and the inventing public to proceed with the

consolidated facilities development, while paying close attention to

containing costs. (Office of Inspections and Program Evaluations)

September 1998 Commerce IG Semiannual Report 67
Technology

Administration

NTIS May Lack Revenues and

Reserves to Operate in FY 1999

The OIG conducted an audit to determine if the National Technical

Information Service, a component of the Technology Administration,

would have sufficient revenue and cash reserves to cover the cost of its

operations for FY 1998 and beyond. This issue was initially raised when,

at the request of the Department, we evaluated NTIS’s August 1997

proposal to become a performance-based organization (see September

1997 issue, page 52). That evaluation found that NTIS was experiencing

serious financial difficulties to the extent that we questioned whether it

could remain self-sustaining.

NTIS operates a central clearinghouse that collects and disseminates

scientific, technical, and engineering information from international and

domestic sources. Its operations include three core lines of business:

clearinghouse operations, FedWorld on-line services, and production and

brokerage services for other federal agencies. NTIS is required by law to

cover the costs of these lines of business through revenues generated by

the sale of its products and services.

Our review found that because of a decline in sales for its clearinghouse products and services, the fees collected no longer are sufficient to

cover costs. Consequently, NTIS has incurred revenue shortfalls for two

of the past three years. The loss was almost $4 million for FY 1997 and

over $1.5 million for the first 11 months of FY 1998.

To help eliminate its operating loss, NTIS has developed new products

and services, raised prices, and taken cost-cutting steps, such as reducing

staffing levels and closing one of its warehouses. These steps may help

reduce the size of the loss in the short-run; however, we do not believe

these actions will be effective in the long term because they do not address

the fundamental problems associated with the clearinghouse business. The

decline in sales of its publications is caused by a general decrease in the

number of publications issued by federal agencies, and agencies’ increasing

use of the Internet to disseminate information at no charge.

While we believe NTIS has sufficient cash reserves to carry it through

the remainder of FY 1998, we question whether it will have enough cash

to operate in FY 1999. Yet because it is required by law to provide

clearinghouse services, NTIS cannot simply close its doors when the

money runs out. In a September 1997 memorandum providing our

comments on NTIS’s draft PBO proposal, we recommended that NTIS

senior managers develop a business plan to address the agency’s short- and

long-term program and financial operations. We had been advised,

The Technology Administration

serves the needs of technologybased industry, advocates federal

actions and policies to speed the

transfer of technology from the

laboratory to the marketplace, and

removes barriers for commercializing new technologies by

industry. It includes three major

organizations:

Office of Technology Policy. OTP

works to raise national awareness

of the competitive challenge,

promotes industry/government/

university partnerships, fosters

quick commercialization of federal

research results, promotes

dedication to quality, increases

industry’s access to and participation in foreign research and

development, and encourages the

adoption of global standards.

National Institute of Standards

and Technology. NIST promotes

U.S. economic growth by working

with industry to develop and apply

technology, measurements, and

standards. NIST manages four

programs: the Advanced Technology Program, the Manufacturing

Extension Partnership Program, a

laboratory-based measurement

and standards program, and the

National Quality Program.

National Technical Information

Service. NTIS is a self-supporting

agency that promotes the nation’s

economic growth and job creation

by providing access to voluminous

information that stimulates

innovation and discovery. NTIS

accomplishes this mission through

two major programs: information

collection and dissemination to the

public, and information and

production services to federal

agencies.

68 Commerce IG Semiannual Report September 1998
Technology Administration

however, that NTIS officials were unable to agree on a course of action.

Consequently, we believe that the Technology Administration should step

in to assist the agency in addressing its problems.

We recommended that TA obtain an independent comprehensive

review of NTIS’s operations with an emphasis on (1) developing a

business plan for NTIS that addresses both its short- and long-term

financial and business problems, and (2) seeking relief from legislative

mandates as appropriate. This business plan should be completed as soon

as possible to ensure that NTIS will have sufficient funds to pay its

liabilities for FY 1999. TA agreed and has arranged for an independent

review of NTIS’s operations as we recommended. (Science and

Technology Audits Division: STD-10592-8-0001)

NIST Needs Tighter Controls in

Working with Non-Federal Researchers

The OIG reviewed NIST’s use of interagency and other special

agreements to encourage and formalize its collaborations with other

parties. We found that NIST has established and maintains a reliable

process, with the necessary policies and procedures, to monitor its

agreements. Specifically, NIST has a comprehensive set of guidelines for

processing agreements and maintains databases of its agreements that

provide such information as party, dollar amounts, and relevant dates.

In conducting our review, however, we did identify a related issue that

warrants management attention: NIST’s policy of allowing informal shortterm collaborations with non-federal researchers without a signed, written

agreement. We believe that the main risks identified by NIST—protecting

individual property rights, safeguarding proprietary information, and

avoiding liability for personal and property damages—that led to written

agreements for long-term researchers also apply to short-term researchers.

In addition, because NIST does not keep a log or other record of visitors

working without a written agreement, it cannot determine whether it is in

compliance with its own requirement to enter into written agreements with

researchers who stay longer than 10 days.

We recommended that NIST require its laboratories to document

informal interactions with non-federal researchers where work is

performed in its laboratory facilities without a written agreement. Data

should be collected at the division level and consolidated at the laboratory

level. This additional data should be used by NIST to periodically evaluate

its policy of not requiring formal agreements for these short-term

researchers. NIST agreed with our recommendation. (Office of

Inspections and Program Evaluations: IPE-10854)

September 1998 Commerce IG Semiannual Report 69

NIST

Technology

Administration

Technology

Policy

NTIS
Technology Administration

Accounting System Surveys and Audits

of NIST Financial Assistance Recipients

As noted in earlier issues of this report, the OIG has been performing a

series of accounting system surveys of first-time recipients of financial

assistance awards under NIST’s Advanced Technology and Manufacturing

Extension Partnership programs (see, for example, March 1998 issue,

page 62). During this semiannual period, key aspects of our work on NIST

financial assistance programs involved conducting surveys and audits of

the accounting systems of recipients under both programs.

Advanced Technology Program

During the period, we reported on 11 NIST-requested audits

performed pursuant to a memorandum of understanding. We conducted

audits of two joint venture partners and nine single recipients. In its effort

to improve the financial management of the multibillion-dollar ATP

program, NIST requested that we perform seven accounting system

surveys and interim cost audits, and four final cost audits of specific

cooperative agreements. The cooperative agreements we reviewed

averaged about $2 million each. Accounting system surveys and interim

cost audits are intended to prevent future problems of noncompliance with

the terms and conditions of NIST cooperative agreements. Final cost

audits provide information to enable NIST to close out agreements in a

timely fashion.

The surveys and the interim and final cost audits disclosed only minor

costs questioned and adequate compliance with NIST financial requirements. (Denver Regional Office of Audits: DEN-10689-8-0001, DEN10831-8-0001, DEN-10904-8-0001, DEN-10912-8-0001, DEN-10922-

8-0001, DEN-10941-8-0001, DEN-10975-8-0001, DEN-10981-8-0001,

DEN-11020-8-0001, DEN-11085-8-0001, DEN-11087-8-0001).

Manufacturing Extension Partnership Program

The six surveys reported on during this semiannual period covered

projects that had award periods of two to three years, and total estimated

costs exceeding $15.3 million, with a federal share that could ultimately be

as much as $8.3 million. Five of the surveys identified weaknesses in the

recipients’ financial management and accounting systems—most

commonly the failure to supply or document matching share funds, to

properly claim and document allowable costs, and to implement adequate

administrative policies and procedures.

70 Commerce IG Semiannual Report September 1998
Technology Administration

Almost without exception, the recipients concurred with our findings

and agreed to take prompt corrective actions. Identifying these weaknesses

early in the award periods will help prevent future problems and avoid

questioned costs in later audits. (Denver Regional Office of Audits: DEN9618-8-0001, DEN-9955-8-0001, DEN-10112-8-0001, DEN-10552-8-

0001, DEN-10632-8-0001, and DEN-10648-8-0001)

Audit Reports Unresolved for Over Six Months

As of September 30, 1998, there were nine NIST financial assistance

audit reports with recommendations unresolved for more than six months.

Seven of the nine reports involve joint venture ATP awards,

concerning which we questioned a total of $9.8 million in claimed costs

generally involving transactions by software development companies that

provided licenses, software maintenance and support, or other items from a

commercial product line for use on the projects (DEN-9752-7-0001, DEN9760-7-0001, DEN-9767-7-0001, DEN-9774-7-0001, DEN-9776-7-0001,

DEN-9779-7-0001, and DEN-9827-7-0001—see September 1997 issue,

page 50).

The main issue concerns the valuation of commercial products,

particularly software, that are contributed to a joint venture by one of its

participants. Although we have worked closely with NIST officials to

develop a new rule that affects the valuation of transfers of good and

services between separately owned joint venture members, we have been

unable to reach agreement on the disposition of the questioned costs in

these reports. We will continue to work with NIST officials to resolve these

reports.

Another joint venture ATP award audit disclosed that a New York

corporation undercharged the award by $311,133 in compensation costs

and $56,565 in fringe benefits, but also questioned $274,066 in travel,

materials, and indirect costs. NIST submitted an audit resolution proposal

with which we did not concur. We are awaiting NIST’s revised response.

In the remaining joint venture ATP award audit report, the certified

public accounting firm that conducted the audit questioned a net $92,924

as undercharges to the award. The net amount is a result of $220,271 in

undercharges to direct labor, fringe benefits and other direct costs and

$127,347 in overcharges to equipment and software purchases, material

and supplies, and subcontracts. We are awaiting an audit resolution

proposal from NIST.

September 1998 Commerce IG Semiannual Report 71
Departmental Management

Stronger Oversight Needed of Both Bureau

and Office of the Secretary Agreements

As part of the OIG’s Commerce-wide review of interagency and other

special agreements, we specifically addressed the Department’s management and oversight of the bureaus’ agreements, as well as its own

agreements processed through the Office of the Secretary. In FY 1997,

Commerce had more than 4,700 agreements, involving approximately

$1.1 billion in funds received for reimbursable activities or obligated to

acquire goods or services from other parties. We analyzed more than 250

of those agreements and found that they appear to serve important and

appropriate functions. However, while the agreements may be appropriate,

they are frequently not written, approved, or executed properly. Specifically, we identified five major deficiencies in the agreements, including the

failure to cite the proper or any legal authority, inadequate justifications,

incomplete budget information, lack of signatures of authorized officials,

and no clear or defined termination or review periods.

Early in our review, we found that the Department does not have a

comprehensive set of policies and procedures to guide the bureaus in

undertaking and formulating agreements. As a result, many agreements are

improperly assembled. In addition, agreements often do not receive

adequate budget, procurement, legal, and programmatic review. We also

found that few Commerce bureaus are able to adequately track and control

their agreements.

We recommended and the Department agreed to prepare formal

policies and procedures outlining the types of agreements that can be

entered into by Commerce bureaus; the minimum necessary content and

steps for preparing agreements; standard language or form agreements; and

the review, approval, and renewal policies and procedures that should be

followed by all bureaus. We also recommended that the Department

disseminate all guidance and other information relevant to preparing and

processing agreements through Commerce’s intranet and at departmental

conferences; upgrade or change the format of OGC’s and the bureau

counsels’ tracking systems to ensure that legal reviews of agreements are

timely and to provide information about the status of the legal review; and

establish a new Department-wide database for all agreements.

In our sample of 32 Office of the Secretary agreements, which did not

include any of the 109 Office of Computer Services agreements, we found

that, generally, they covered appropriate activities, were properly funded

under applicable laws and legal authorities, and were not used to

circumvent procurement or financial assistance guidelines. We did,

72 Commerce IG Semiannual Report September 1998

Budget,

Management

and Information

Security and

Administrative

Services

Exec. Budgeting

and Assistance

Management

Financial

Management

CFO and

Asst. Secretary

for Administration

Systems and

Telecom.

Management

Human

Resources

Management

Acquisition

Management

Civil

Rights
Departmental Management

however, find that over 60 percent of the 32 agreements had at least one

of the five major deficiencies cited above. In addition, the office’s review

process for agreements was inadequate, resulting in poor oversight,

incomplete agreements, and other deficiencies. Finally, no unit within the

office has established an automated database for tracking its agreements.

We recommended and the Office of the Secretary agreed to prepare

internal polices and procedures for its offices that outline the contents and

steps for preparing and implementing agreements; distribute relevant

information for preparing and processing agreements through its network

and at internal conferences; provide training to all program and

administrative staff responsible for agreements; and establish a centralized

system to adequately inventory, track, and control its agreements. This

system should be compatible with the proposed Department-wide

database. The Department and OGC generally agreed with our findings

and recommendations. The Department’s CFO was especially quick to

recognize the need for stronger Department-wide guidance and oversight

for the agreements and is committing resources to address our concerns.

(Inspections and Program Evaluations: IPE-10418)

Concerns About Commercial Law Development

Program’s Use of USAID Funds Unfounded

Because of allegations concerning the use of U.S. Agency for

International Development (USAID) funds by OGC’s Commercial Law

Development Program, the OIG conducted a review of the handling of

those funds. While our review uncovered no evidence to support the

contention that program officials misused USAID funds, we did find that

OGC did not follow proper procedures in the awarding of cash bonuses to

program employees. We also found that communication between program

officials and State and USAID officials with regard to program progress

reports and expenditures was inadequate. Finally, we questioned the

program’s use of personal service contracts to hire staff. (Inspections and

Program Evaluations: IPE-11027)

OMB Bulletin 97-01 Requires

Greater Departmental Attention

The OIG performed a limited-scope audit to assess the Department’s

early efforts to implement OMB Bulletin 97-01, Form and Content of

Agency Financial Statements, which relates to the preparation of the

FY 1998 statements. The new bulletin will present challenges to the

Department and its bureaus because it requires modifications to the

September 1998 Commerce IG Semiannual Report 73
Departmental Management

presentation of financial information, including the preparation of six

statements as opposed to the two previously required under OMB Bulletin

94-01. Recognizing the challenges involved in implementing the bulletin,

we provided briefings to senior management at the various bureaus on the

bulletin’s requirements.

Our review disclosed that because the Department and the bureaus

had focused their financial management resources on completing the

FY 1997 financial statements, adequate attention had not been devoted to

implementing the bulletin. We found that (1) the bureaus were unclear on

how to prepare the statement of net cost, (2) the Department had not

provided them with comprehensive written guidance on the FY 1998

statements, (3) some bureaus were uncertain about the Department’s

request for interim statements, and (4) cost accounting systems and

processes were not well documented. Although the Department has

recently started demonstrating the leadership essential to preparing

consolidated financial statements by issuing preliminary and supplemental

guidance on preparing the FY 1998 statements and arranging for training

on the new bulletin, a number of issues still needed to be addressed.

Specifically, we recommended that the Department (1) perform

immediate follow-up reviews of the bureaus’ plans to prepare the

statement of net cost, and (2) evaluate the bureaus’ interim financial

statements for compliance with the bulletin’s reporting requirements and

the Department’s guidance, and provide written feedback. In addition, we

recommended that the Department issue a written memorandum reminding

the bureaus of the need to document cost accounting activities, processes,

and procedures related to the preparation of the statement of net cost. The

Department expressed its intent, and has already taken some actions, to

implement our recommendations. (Financial and Performance Analysis

Division: FPD-10876-8-0001)

Audit of Office of Administrative Services

Found No Major Problems

The OIG conducted a performance audit of the operations of three

components of the Department’s Office of Administrative Services: the

Offices of Administrative Operations, Budget and Procurement Services

(since eliminated as a separate office), and Real Estate Policy and Major

Programs. Our field work revealed no significant issues warranting the

issuance of an audit report, but did identify two issues warranting

management attention, which we reported to the Department in a

memorandum: (1) Three Working Capital Fund activities were not

managed at their break-even positions during the period audited. (2) The

74 Commerce IG Semiannual Report September 1998
Departmental Management

Office of Administrative Services unnecessarily allowed significant

unliquidated obligations of procurement funds of its clients, components of

the Office of the Secretary, to accumulate. The Department replied to our

memorandum by noting that (1) the three Working Capital Fund projects

are now operating at a break-even level, and (2) almost $3.4 million has

been deobligated, of which approximately $2.8 million was in the Office of

Administrative Services. (Business and Trade Audits Division)

Preaward Financial Assistance Screening

We continue to work with the Office of Executive Assistance

Management, NOAA and NIST grant offices, and EDA program offices to

screen all of the Department’s grants, cooperative agreements, and loan

guarantees before award. Our screening (1) provides information on

whether the applicant has unresolved audit findings and recommendations

on earlier awards, and (2) determines whether a name check or investigation has revealed any negative history on individuals or organizations

connected with a proposed award.

During this period, we screened 1,760 proposed awards. On 27 of

these awards, we found major deficiencies affecting the ability of the

proposed recipients to maintain proper control over federal funds. On the

basis of information we provided, the Department denied or delayed the

awards, inserted special conditions in the award agreement, or designated

certain recipients as “high risk” and required that the disbursement of

federal funds be on a cost reimbursement basis. (Office of Audits)

Indirect Cost Reviews

OMB has established a policy whereby a single federal agency is

responsible for the review, negotiation, and approval of indirect cost rates

for federal programs. Normally, the federal agency providing the most

direct funding is the cognizant agency. OMB has designated Commerce as

September 1998 Commerce IG Semiannual Report 75

Preaward Screening Results

Results

Awards denied/delayed

Special award conditions

Amount

$14,864,038

7,736,886

19

 4

Number

Cost reimbursement basis 4 2,028,367
Departmental Management

the cognizant agency for 280 economic development districts. In turn, the

Department authorized the OIG to negotiate indirect cost rates and review

cost allocation plans for each of its agencies. The OIG reviews and

approves the methodology and principles used in pooling indirect costs and

establishing an appropriate base for distributing those costs to ensure that

each federal, state, and local program bears its fair share.

During this period, we negotiated 26 indirect cost rate agreements with

nonprofit organizations and governmental agencies, and reviewed and

approved 18 cost allocation plans. We also provided technical assistance to

recipients of Commerce awards regarding the use of rates established by

other federal agencies and their applicability to our awards. Further, we

worked closely with first-time for-profit recipients of Commerce awards to

establish indirect cost proposals that are acceptable for OIG review.

(Atlanta Regional Office of Audits)

Nonfederal Audit Activities

In addition to OIG-performed audits, the Department’s financialrelated awards are audited by state and local government auditors and by

independent public accountants. OMB Circular A-133, Audits of States,

Local Governments, and Non-Profit Organizations, sets forth the audit

requirements for most of these entities. Entities that are for-profit

organizations and receive ATP funds from NIST are audited in accordance

with Government Auditing Standards and NIST Program-Specific Audit

Guidelines for ATP Cooperative Agreements, issued by the Department.

(Before June 30, 1996, when the requirements for nonfederal audits were

consolidated in the new OMB Circular A-133 referenced above, such

audits were subject to the requirements of Circular A-128, Audits of State

and Local Governments, and the former Circular A-133, Audits of

Institutions of Higher Education and Other Non-Profit Institutions. Some

of the audits discussed below were conducted in accordance with these

earlier circulars.)

A tool for assessing the quality of work performed by independent

public accountants is the quality control review. The purpose of such a

review is to determine that audits were conducted in accordance with

applicable standards and requirements.

76 Commerce IG Semiannual Report September 1998
Departmental Management

During this semiannual period, our office participated in a multi-agency

quality control review of a report by an independent public accountant on

its audit of a major metropolitan city. Although we are not the cognizant

federal agency for the city, the Department of Commerce was responsible

for conducting a program-specific review of the working papers relating to

internal control and compliance testing of Commerce programs. We found

a problem concerning the city’s reporting on one Commerce program that

we brought to the city’s attention. In our review of the accountant’s

working papers for internal control and compliance testing, we found no

deficiencies in its testing of Commerce programs. We plan to conduct at

least five such quality control reviews of non-federal audits each year.

We examined 157 reports during this semiannual period to determine

whether they contained audit findings on any Department programs. For

89 of these reports, the Department is the cognizant agency and monitors

the auditee’s compliance with the applicable OMB circular and NIST

program-specific reporting requirements. The other 68 reports are from

entities for which other federal agencies have oversight responsibility.

September 1998 Commerce IG Semiannual Report 77

Report Category

OMB

A-133

Audits

Pending (March 31, 1998)

Received

Examined

Pending (September 30, 1998)

55

94

119

30

ATP

ProgramSpecific

Audits Total

43

26

38

31

98

120

157

61
The following table shows a breakdown by bureau of the $76 million in

Commerce funds audited.

We identified a total of $642,684 in questioned costs. In most

reports, the Department’s programs were considered non-major,

resulting in limited transaction and compliance testing against laws,

regulations, and award terms and conditions. The 19 reports with

Commerce findings are listed in Appendix B-1. (Atlanta Regional Office

of Audits)

78 Commerce IG Semiannual Report September 1998

Departmental Management

Includes $37,920,969 in ATP program-specific audits.

Bureau Funds

EDA

ITA

MBDA

NIST

$12,792,946

497,261

1,377,230

51,698,130

NOAA

NTIA

NTIS

Total

2,070,841

$75,657,652

PTO

Agency not identified

52,621

859,754

a

a

13,926

6,294,943
Office of

Inspector General

Quality Assurance

External Peer Review of Audit Operations

A team from the Department of Justice OIG completed an external

peer review of our audit operations. In its report, the Justice team concluded that our Office of Audits has an adequate internal quality control

system. More important, the team reported that as designed, our quality

control system complied with the standards established by the President’s

Council on Integrity and Efficiency and that we were materially complying

with professional standards in the conduct of our audits.

The Justice team performed a comprehensive review, including both

an examination of our policies and procedures and a critique of the internal

quality assurance program managed by our Office of Compliance and

Administration. The team evaluated a number of completed audit assignments and the audit files at Office of Audits divisions in the Washington,

D.C., area and regional offices in Denver and Seattle.

The final report’s recommendations centered on updating the OIG

manual to reflect changes to the standards since the last peer review and

encouraging the Office of Audits to thoroughly document adherence to

established policies. The Office of Audits has already responded, and the

Office of Compliance and Administration will emphasize these areas during

future internal quality reviews.

During this semiannual period, we completed a similar peer review of

the audit activities of the Social Security Administration OIG. Our final

report, presented in July, concluded that the agency’s OIG also had a

quality control system that complied with professional standards, which

constituted a validation of the quality of its operations and audit reports.

GAO Review of Financial Statement Audit Work

Also during this semiannual period, the General Accounting Office

completed a review of our financial statement audit work. GAO reviewed

computer controls, the Department’s consolidated financial statements

audit, and selected individual bureau audits. In the area of computer

controls, GAO concluded that all major general control areas were

properly covered and the procedures to monitor contractor performance

contributed to the completion of a full-scope review of these controls. In

addition, GAO noted its acceptance and reliance on the work performed in

our audits for use in its government-wide financial statement audit.

September 1998 Commerce IG Semiannual Report 79
INDEX

 The Inspector General Act of 1978, as amended (1988), specifies reporting requirements for

 semiannual reports. The requirements are listed below and indexed to the applicable pages.

Section Topic Page

4(a)(2) Review of Legislation and Regulations 81

5(a)(1) Significant Problems, Abuses, and Deficiencies 17-78

5(a)(2) Significant Recommendations for Corrective Action 17-78

5(a)(3) Prior Significant Recommendations Unimplemented 81

5(a)(4) Matters Referred to Prosecutive Authorities 17-78

5(a)(5) and 6(b)(2) Information or Assistance Refused 82

5(a)(6) Listing of Audit Reports 90-96

5(a)(7) Summary of Significant Reports 17-78

5(a)(8) Audit Reports—Questioned Costs 86, 89

5(a)(9) Audit Reports—Funds to Be Put to Better Use 87, 88

5(a)(10) Prior Audit Reports Unresolved 14, 82

5(a)(11) Significant Revised Management Decisions 15, 83

5(a)(12) Significant Management Decisions with Which the OIG Disagreed 83

The OIG is also required by section 804(b) of the Federal Financial Management Improvement Act of 1996

to report on instances and reasons when an agency has not met the dates of its remediation plan. We will

discuss this matter in the March 1999 issue as part of our financial statement audit reporting.

Reporting Requirements

80 Commerce IG Semiannual Report September 1998
Reporting Requirements

Section 4(a)(2): Review of Legislation

and Regulations

This section requires the Inspector General of each agency to review

existing and proposed legislation and regulations relating to that agency’s

programs and operations. Based on that review, the Inspector General is

required to make recommendations in the semiannual report concerning

the impact of such legislation or regulations on the economy and efficiency

in the administration of programs and operations administered or financed

by the agency or on the prevention and detection of fraud and abuse in

those programs and operations. Our recommendations on legislative and

regulatory initiatives affecting Commerce programs are discussed

throughout the report.

Section 5(a)(3): Prior Significant

Recommendations Unimplemented

This section requires an identification of each significant

recommendation described in previous semiannual reports on which

corrective action has not been completed. Section 5(b) requires that the

Secretary transmit to the Congress statistical tables for audit reports for

which no final action has been taken, plus a statement that includes an

explanation of the reasons final action has not been taken on each such

audit report, except when the management decision was made within the

preceding year.

Prior Inspector General semiannual reports have explained that to

include a list of all significant unimplemented recommendations in this

report would be duplicative, costly, unwieldy, and of limited value to the

Congress. Any list would have meaning only if explanations detailed

whether adequate progress is being made to implement each agreed-upon

corrective action. Also, as this semiannual report is being prepared,

management is in the process of updating the Department’s Audit Tracking

System as of September 30, 1998, based on semiannual status reports due

from the bureaus in mid-October. An up-to-date database is therefore not

available to the OIG for reference here. However, additional information

on the status of any audit recommendations may be obtained through the

OIG’s Office of Audits.

September 1998 Commerce IG Semiannual Report 81
82 Commerce IG Semiannual Report September 1998

Reporting Requirements

Sections 5(a)(5) and 6(b)(2): Information or

Assistance Refused

These sections require a summary of each report to the Secretary when

access, information, or assistance has been unreasonably refused or not

provided. There were no such instances during this semiannual period, and

no reports to the Secretary.

Section 5(a)(10): Prior Audit Reports Unresolved

This section requires a summary of each audit report issued before the

beginning 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.

As of September 30, 1998, 1 performance audit, 11 financial

assistance audits, and 2 preaward contract audits were in this category, as

discussed below.

Performance Audit

The unresolved report addresses the NMFS laboratory structure. This

report is discussed on page 61.

Financial Assistance Audits

The 11 unresolved audits relate to financial assistance awards made by

NIST (9) and NOAA (2). Audit resolution proposals have been submitted

in response to nine of the final audit reports; however, the OIG and the

bureaus were not able to resolve the reports on a timely basis. The OIG is

awaiting audit resolution proposals for the other two reports. Additional

details are presented on pages 61 and 71.

Preaward Contract Audits

The Department’s Audit Tracking System recorded two preaward

contract audits unresolved in excess of six months. The audits, based on

Defense Contract Audit Agency reviews of contract proposals, are

resolved when a contracting officer takes final action on the pending

procurement, such as awarding a contract or issuing a contract

modification.
Reporting Requirements

The unresolved preaward contract audits are:

l ARA-08350-6-0082, August 6, 1996

l OCA-08350-7-0025, June 13, 1997

Section 5(a)(11): Significant Revised

Management Decisions

This section requires a description and explanation of the reasons for

any significant revised management decision made during the reporting

period. Department Administrative Order 213-5, Audit Resolution and

Follow-up, provides procedures for revision of a management decision.

For performance audits, the OIG must be consulted and must approve, in

advance, any modification to an audit action plan. For financial assistance

audits, the OIG must concur with any decision that would change the audit

resolution proposal in response to an appeal by the recipient.

During the reporting period, one modification was submitted to the

OIG for review. The modification did not involve an issue with current

significance, and the OIG concurred with the proposed adjustment.

The decisions issued on the six appeals of audit-related debts were

finalized with the full participation and concurrence of the OIG.

Section 5(a)(12): Significant Management

Decisions with Which the OIG Disagreed

This section requires information concerning any significant

management decision with which the Inspector General is in disagreement.

Department Administrative Order 213-5 provides procedures for the

elevation of unresolved audit recommendations to higher levels of

Department and OIG management, including an Audit Resolution Council.

During this period, no audit issues were referred to the Council.

September 1998 Commerce IG Semiannual Report 83
Statistical Highlights

84 Commerce IG Semiannual Report September 1998

Audit

Statistical Highlights

Questioned costs this period........................................... $2,411,214

Value of audit recommendations made

this period that funds be put to better use........................ $15,332,863

Value of audit recommendations agreed

to this period by management ......................................... $3,395,219

Allegations Processed

by OIG Investigators

Accepted for investigation ...................................... 30

Referred to operating units .................................... 41

Evaluated but not accepted for

investigation or referral........................................... 38

Total ........................................................................109

In addition, numerous other allegations and complaints were forwarded to

the appropriate federal and nonfederal investigative agencies.

In addition

OIG HOTLINE

Telephone: (202) 482-2495 or (800) 424-5197

Internet E-Mail: oighotline@doc.gov

Investigative

Statistical Highlights

Indictments and informations ............................................................ 2

Convictions ...................................................................................... 2

Personnel actions* ........................................................................... 6

Administrative actions** .................................................................... 6

Fines, restitutions, judgments, and other civil

and administrative recoveries ............................................... $91,347

** Includes removals, suspensions, reprimands, demotions, reassignments, and resignations

** or retirements in lieu of adverse action.

** Includes actions to recover funds, new procedures, and policy changes that result from

** investigations.
TABLES PAGE

1. Audits with Questioned Costs 86

2. Audits with Recommendations That Funds Be Put to Better Use 87

3. Preaward Contract Audits with Recommendations That Funds Be Put to Better Use 88

4. Postaward Contract Audits with Questioned Costs 89

APPENDIXES

A. Office of Inspector General Reports 90

 A-1. Performance Audits 90

 A-2. Inspections 92

 A-3. Financial Assistance Audits 93

B. Processed Reports 95

 B-1. Processed Financial-Related Audits 96

DEFINITIONS

The term questioned cost refers to a cost that is questioned by the OIG because of (1) an alleged violation of a

provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the

expenditure of funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate documentation;

or (3) a finding that an expenditure of funds for the intended purpose is unnecessary or unreasonable.

The term unsupported cost refers to a cost that, at the time of the audit, is not supported by adequate documentation.

Questioned costs include unsupported costs.

The term recommendation that funds be put to better use refers to a recommendation by the OIG that funds could

be used more efficiently if Commerce management took action to implement and complete the recommendation,

including (1) reductions in outlays; (2) deobligation of funds from programs or operations; (3) withdrawal of interest

subsidy costs on loans or loan guarantees, insurance, or bonds; (4) costs not incurred by implementing recommended

improvements related to Commerce, a contractor, or a grantee; (5) avoidance of unnecessary expenditures identified in

preaward reviews of contracts or grant agreements; or (6) any other savings that are specifically identified.

The term management decision refers to management’s evaluation of the findings and recommendations included in

the audit report and the issuance of a final decision by management concerning its response.

Tables and Appendixes

September 1998 Commerce IG Semiannual Report 85
Table 1: Audits with Questioned Costs

Report Category Number

Questioned

Costs

Unsupported

Costs

A. Reports for which no management decision had been

 made by the commencement of the reporting period 35 $9,523,703 $1,576,577

B. Reports issued during the reporting period 22 2,411,214 1,247,580

C. Total reports (A+B) requiring a management decision

C. during the reporting period 57 11,934,917 2,824,157

C. Reports for which a management decision was made

C. during the reporting period 32 3,508,795 1,643,701

 ii. Value of disallowed costs 1,499,166 696,692

 ii. Value of costs not disallowed 2,030,272 955,540

D. Reports for which no management decision had been

D. made by the end of the reporting period 25 $8,426,122 $1,180,456

Notes and Explanations:

In Category C, lines i and ii do not always equal the total on line C since resolution may result in values greater

than the original recommendations.

Five audit reports included in this table are also included in the reports with recommendations that funds be

put to better use (see Table 2). However, the dollar amounts do not overlap.

No postaward contract audits are included in this table; instead, any such audits are listed in Table 4.

86 Commerce IG Semiannual Report September 1998

Tables and Appendixes
Table 2: Audits with Recommendations

Table 2: That Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the

A. commencement of the reporting period 5 $8,571,588

B. Reports issued during the reporting period 6 15,332,863

C. Total reports (A+B) requiring a management decision during the

B. reporting period 11 23,904,451

C. Reports for which a management decision was made during the

C. reporting period 4 2,394,588

 ii. Value of recommendations agreed to by management 1,873,378

 ii. Value of recommendations not agreed to by management 521,210

D. Reports for which no management decision had been made by the

D. end of the reporting period 7 $21,509,863

Notes and Explanations:

In Category C, lines i and ii do not always equal the total on line C since resolution may result in values greater

than the original recommendations.

Five audit reports included in this table are also included in the reports with questioned costs (see Table 1).

However, the dollar amounts do not overlap.

No preaward contract audits are included in this table; instead, any such audits are listed in Table 3.

September 1998 Commerce IG Semiannual Report 87

Tables and Appendixes
Table 3: Preaward Contract Audits with Recommendations

Table 3: That Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the

A. commencement of the reporting period 3 $537,340

B. Reports issued during the reporting period — —

C. Total reports (A+B) requiring a management decision during the

B. reporting period 3 537,340

C. Reports for which a management decision was made during the

C. reporting period 1 16,075

 ii. Value of recommendations agreed to by management 22,675

 ii. Value of recommendations not agreed to by management —

 iii. Value of reports on proposals that were not awarded contract —

D. Reports for which no management decision had been made by the

D. end of the reporting period 2 $521,265

Notes and Explanations:

Preaward audits of contracts include results of audits performed for the OIG by other agencies.

When there are multiple proposals for the same contract, we report only the proposal with the lowest dollar value

for funds to be put to better use; however, in Category C, lines i-ii, we report the value of the awarded contract.

In Category C, lines i-iii do not always equal the total on line C since resolution may result in values greater

than the original recommendations.

Tables and Appendixes

88 Commerce IG Semiannual Report September 1998
Table 4: Postaward Contract Audits

Table 4: with Questioned Costs

Report Category Number

Questioned

Costs

Unsupported

Costs

A. Reports for which no management decision had been

 made by the commencement of the reporting period — — —

B. Reports issued during the reporting period — — —

C. Total reports (A+B) requiring a management decision

C. during the reporting period — — —

C. Reports for which a management decision was made

C. during the reporting period — — —

 ii. Value of disallowed costs — —

 ii. Value of costs not disallowed — —

D. Reports for which no management decision had been

D. made by the end of the reporting period — — —

Notes and Explanations:

As noted in the September 1997 issue (page 58), the OIG transferred certain audit-related activities to the

Department’s contracting officers, allowing them to request audits directly from the cognizant audit offices. As a

result, data on contract audit savings is now maintained by the cognizant audit office rather than by the OIG.

Tables and Appendixes

September 1998 Commerce IG Semiannual Report 89
Appendix A. Office of Inspector General Reports

Type Number Appendix

Performance Audits 24 A-1

Inspections 12 A-2

Financial Assistance Audits 21 A-3

Total 57

Appendix A-1. Performance Audits

Agency Subject Number Date

Funds to

Be Put to

Better Use

EDA Hurricane Andrew Disaster Assistance: EDA Made

Fast, Sound Project Selections but Could Have

Better Managed Problem Projects

ATL-8989-8-0001 09/98 $2,200,000

Midwest Flood Program: Opportunities Exist to

Improve Management of Future Disaster Programs

DEN-8772-8-0001 09/98 773,000

ESA Columbia Dress Rehearsal Experience Suggests

Changes to Improve Results of the 2000 Decennial

Census

ESD-10783-8-0001 09/98 —

Columbia Dress Rehearsal Identifies Needed

Improvements in Personnel Administration

ATL-11050-8-0001 09/98 __

Quality Check Survey Should Be Kept Independent

of Other Decennial Operations

ESD-10784-8-0002 09/98 —

Sacramento Dress Rehearsal Experience Suggests

Changes to Improve Results of the 2000 Decennial

Census

ESD-10784-8-0001 09/98 —

Sacramento Dress Rehearsal Identifies Needed

Improvements in Personnel Administration

STL-11052-8-0001 09/98 —

ITA US&FCS Spain’s Leadership Has Improved

Operating Environment, but Some Program

Activities Need More Emphasis

IAD-10593-8-0001 07/98 —

US&FCS Japan Should Be Restructured to Better

Meet the Needs of U.S. Exporters

IAD-10218-8-0001 09/98 —

Tables and Appendixes

90 Commerce IG Semiannual Report September 1998
Tables and Appendixes

Appendix A-1. Performance Audits — Continued

Agency Subject Number Date

Funds to

Be Put to

Better Use

MBDA Community-Based Enhanced Services Pilot Project

Not Effectively Monitored

EDD-9406-8-0002 06/98 —

Discretionary Funding Decision Process: Minority

Business Development Center Program

CFDA No. 11.800

BTD-10956-8-0001 09/98 —

Discretionary Funding Decision Process: Native

American Business Development Center Program

CFDA No. 11.801

BTD-10955-8-0001 09/98 —

NOAA Light Aircraft Fleet Should Be Privatized STD-9952-8-0001 08/98 $11,800,000

NMFS Office of Law Enforcement Needs

Management Improvements

STL-9835-8-0001 09/98 —

NMFS Seafood Inspection Program Should Be

Divested

STL-9607-8-0001 09/98 462,000

NWS’s New Supercomputer Should Be Located at

Federal Building 4 in Suitland, MD

STD-10925-8-0001 09/98 —

OAR Needs Additional Management Systems to

Meet the Intent of the Results Act

STL-8519-8-0001 09/98 —

Personal Property Balance Requires Significant

Attention to Be Properly Stated in Financial

Statements

FSC-10875-8-0001 09/98 —

Proposed Goddard Facility Presented Cost

Reduction Opportunities

NAD-9574-8-0001 09/98 —

O/S OMB Bulletin 97-01 Implementation Requires

Additional Efforts by the Department

FPD-10876-8-0001 09/98 —

PTO New Cost Accounting System Appropriately

Considers Reporting Requirements

FSD-10782-8-0001 06/98 —

Office of Enrollment and Discipline Must Conduct

More Timely Investigations of Complaints Against

Practitioners

PTD-10627-8-0001 06/98 —

Board of Patent Appeals and Interferences: High

Inventory and Inadequate Monitoring Threaten

Effectiveness of Appeal Process

BTD-10628-8-0001 09/98 —

TA - NTIS Operations Jeopardized by Revenue Shortfall STD-10592-8-0001 09/98 —

September 1998 Commerce IG Semiannual Report 91
Tables and Appendixes

Appendix A-2. Inspections

Agency Subject Number Date

Funds to

Be Put to

Better Use

ESA Additional Steps Needed to Improve Local Update of

Census Addresses for the 2000 Decennial Census

IPE-10756 09/98 —

Computer Security for Transmission of Sensitive

Data Should Be Strengthened

OSE-10773 09/98 —

Dress Rehearsal Activities at Menominee Indian

Reservation and Chicago Regional Census Center

Show That Improvements Are Needed for Census

2000

IPE-10753 09/98 —

ITA Dallas USEAC Is Rebuilding to More Aggessively

Pursue Export Promotion Activities

IPE-11006 09/98 —

Improvements Are Needed in ITA’s Management of

Interagency and Other Special Agreements

IPE-10752 09/98 —

NOAA OAR’s Interagency and Other Special Agreements

Require Additional Improvements for Compliance

IPE-10310 05/98 —

Administrative Improvements in the National Sea

Grant College Program Should Accompany

Program Changes

IPE-10150 07/98 —

NMFS’s Interagency and Other Special Agreements

Require Additional Improvements

IPE-10775 09/98 —

NPOESS Acquisition Well Planned, but Life-Cycle

Cost Estimates for Critical Sensors Are Overstated

OSE-9593 09/98 —

O/S Concerns About the Commercial Law Development

Program Largely Unfounded

IPE-11027 09/98 —

Interagency and Other Special Agreements Require

Better Management and Oversight

IPE-10418 09/98 —

TA - NIST Policy of Allowing Informal Collaborations with NonFederal Researchers Requires Additional ControlsIPE-10854 09/98 —

92 Commerce IG Semiannual Report September 1998
Appendix A-3. Financial Assistance Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

EDA West Virginia High

Technology Consortium

Foundation

ATL-9259-8-0002 05/98 — — —

MBDA W&R Associates, CT ATL-8923-8-0001 09/98 $95,199 $2,735 $94,434

NOAA West Virginia High

Technology Consortium

Foundation

ATL-10792-8-0001 09/98 166,101 — —

NTIA United Cerebral Palsy

Associations, Inc., DC

ATL-10378-8-0001 09/98 112,243 103,380 —

TA - NIST Vermont Technological

College

DEN-9955-8-0001 05/98 57,438 57,438 —

CNgroup, Inc., CA DEN-10689-8-0001 06/98 — — —

Boise State University, ID DEN-10648-8-0001 08/98 — — —

Calmac Manufacturing

Corporation, NJ

DEN-10975-8-0001 08/98 — — —

Consilium, Inc., CA DEN-10831-8-0001 08/98 — — —

Data Access

Technologies, Inc., FL

DEN-10922-8-0001 08/98 — — —

DeMaria ElectroOptics

Systems, Inc., CT

DEN-10912-8-0001 08/98 — — —

Galileo Corporation, MA DEN-10904-8-0001 08/98 6,693 6,693 —

Isis Pharmaceuticals, CA DEN-10941-8-0001 08/98 — — —

Lamb Technicon, MI DEN-11085-8-0001 08/98 — — —

Puerto Rico

Manufacturing Extension,

Inc.

DEN-10112-8-0001 08/98 — — —

Alexion Pharmaceuticals,

Inc., CT

DEN-10981-8-0001 09/98 — — —

Delaware Valley Industrial

Resource Center, PA

DEN-9618-8-0001 09/98 993,532 947,942 —

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

Tables and Appendixes

September 1998 Commerce IG Semiannual Report 93
Tables and Appendixes

Appendix A-3. Financial Assistance Audits — Continued

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

TA - NIST Industrial Technology

Institute, MI

DEN-10632-8-0001 09/98 — — 3,429

Iterated Systems, Inc.,

GA

DEN-11087-8-0001 09/98 12,085 — —

Maxygen, Inc., CA DEN-11020-8-0001 09/98 — — —

West Virginia

Manufacturing Extension

Partnership

DEN-10552-8-0001 09/98 325,239 116,865 —

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

94 Commerce IG Semiannual Report September 1998
Tables and Appendixes

Appendix B. Processed Reports

The Office of Inspector General reviewed and accepted 157 financial-related audit reports

prepared by independent public accountants and local, state, and other federal auditors.

The reports processed with questioned costs, recommendations that funds be put to better

use, and/or nonfinancial recommendations are listed in Appendix B-1.

Agency Audits

Economic Development Administration 42

International Trade Administration 1

Minority Business Development Agency 8

National Institute of Standards and Technology 48

National Oceanic and Atmospheric Administration 5

National Telecommunications and Information Administration 6

Multi-Agency 11

Agency Not Identified 36

Total 157

* Includes 38 ATP program-specific audits.

*

September 1998 Commerce IG Semiannual Report 95
Appendix B-1. Processed Financial-Related Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

EDA Heart of Georgia Altamaha

Regional Development Center

ATL-9999-8-0193 09/98 — — —

City of Fremont, MI ATL-9999-8-0340 09/98 $81,195 — —

Del Norte Economic

Development Corporation, CA

ATL-9999-8-1039 09/98 — — —

MBDA All Indian Pueblo Council, NM ATL-9999-8-0309 09/98 7,257 $7,257 —

NTIA Urban League of Metropolitan

Seattle, WA

ATL-9999-8-0209 09/98 30,177 1,461 —

TA - NIST Real-Time Innovations, Inc., CA ATL-9999-8-0009 06/98 6,307 — —

ATx Telecom Systems, Inc., IL ATL-9999-8-0021 06/98 24,273 — —

Vysis, Inc., IL ATL-9999-8-0026 06/98 3,704 3,704 —

Vysis, Inc., IL ATL-9999-8-0027 06/98 10,237 — —

Honeywell, Inc., MN ATL-9999-8-0043 06/98 5,799 — —

FED Corporation, NY ATL-9999-8-0050 06/98 4,011 — —

The Black Emerald Group,

Inc., MA

ATL-9999-8-0087 06/98 6,339 — —

International Cancer Alliance

for Research and Education,

MD

ATL-9999-8-0037 07/98 10,430 — —

Allied Signal, Inc., NY ATL-9999-8-0049 07/98 7,171 — —

M&M Precision Systems

Corporation, OH

ATL-9999-8-0057 07/98 13,924 105 —

Cerner Corporation, MO ATL-9999-8-0004 09/98 — — —

Molecular Dynamics, Inc., CA ATL-9999-8-0010 09/98 431,860 — —

Advanced Modular Solutions,

Inc., MA

ATL-9999-8-0029 09/98 — — —

Thomas Electronics, Inc., NJ ATL-9999-8-0048 09/98 — — —

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

Tables and Appendixes

96 Commerce IG Semiannual Report September 1998
Definitions of Types of OIG Reviews

and Financial Statements Audit Terms

Audits

Performance Audits — These audits look at the

efficiency, effectiveness, and economy of the

Department’s programs, activities, and information

technology systems. They may check a unit’s

compliance with laws and regulations, and evaluate

its success in achieving program objectives.

Financial-Related Audits — These audits review

the Department’s contracts, grants, cooperative

agreements, loans, and loan guaranties. They assess

compliance with laws, regulations, and award terms;

adequacy of accounting systems and internal

controls; allowance of costs; and the degree to

which a project achieved the intended results.

Financial Statements Audits — The CFO Act, as

amended by Government Management Reform Act,

requires federal agencies to prepare annual financial

statements and to subject them to audit. The OIG is

responsible for conducting these audits and reporting the results to the Secretary.

Inspections

Operational Inspections — These are reviews of

an activity, unit, or office, or a contractor or organization that receives funds from the Department.

They focus on an organization, not a whole program, and are designed to give agency managers

timely information about operations, including

current and foreseeable problems.

Program Evaluations — These are in-depth

reviews of specific management issues, policies, or

programs.

Systems Evaluations — These are reviews of system development, acquisitions, operations, and

policy in order to improve efficiency and effectiveness. They focus on Department-wide computer

systems and other technologies and address all

project phases, including business process

reengineering, system definition, system development, deployment, operations, and maintenance.

OIG Reviews

Financial Statements Audit Terms

Overview — This required component of financial

statements is to provide a clear, concise description

of the entity’s programs, activities, and results. It

contains the entity’s performance measures and

serves as a link between the statements and the

requirements of GPRA.

Trend Analysis — This analysis of performance

data from multiple years allows conclusions to be

drawn about an entity’s progress over time in

improving its results. To facilitate this analysis, the

entity should present data from several prior years,

projected data for the following year, and a

comparison of actual versus targeted performance.

Unqualified Opinion — The financial statements

present fairly, in all material aspects, the entity’s

financial position and results of operations.

Qualified Opinion — Except for the effects of the

matter(s) to which the qualification relates, the

financial statements present fairly, in all material

respects, the entity’s financial position and results of

operations.

Adverse Opinion — The financial statements do

not present fairly the entity’s financial position or

results of operations.

Disclaimer of Opinion — The auditor does not

express an opinion on the financial statements.

September 1998 Commerce IG Semiannual Report 97
Glossary of Abbreviations

AFOS................................................................................................. Automation of Field Operations and Services

AOC ............................................................................................................................. Aircraft Operations Center

ATP .......................................................................................................................Advanced Technology Program

AWIPS........................................................................................Advanced Weather Interactive Processing System

BEA ..........................................................................................................................Bureau of Economic Analysis

BXA .................................................................................................................... Bureau of Export Administration

CAMS............................................................................................Commerce Administrative Management System

EDA........................................................................................................... Economic Development Administration

ESA .......................................................................................................... Economics and Statistics Administration

FB-4 .......................................................................................................................................... Federal Building 4

GAO ............................................................................................................................. General Accounting Office

GMD ........................................................................................................................... grants management division

GPRA ................................................................................................... Government Performance and Results Act

GSA ...................................................................................................................... General Services Administration

HACCP........................................................................................................ Hazard Analysis Critical Control Point

ICM .................................................................................................................... integrated coverage measurement

IPO ................................................................................................................................Integrated Program Office

ISD ............................................................................................................................. Inspection Services Division

ITA ....................................................................................................................International Trade Administration

LUCA ...............................................................................................................Local Update of Census Addresses

MAF ....................................................................................................................................... Master Address File

MBDA ...................................................................................................... Minority Business Development Agency

NIST...............................................................................................National Institute of Standards and Technology

NMFS ................................................................................................................. National Marine Fisheries Service

NOAA........................................................................................ National Oceanic and Atmospheric Administration

NOS................................................................................................................................... National Ocean Service

NPOESS ........................................................... National Polar-orbiting Operational Environmental Satellite System

NRC ............................................................................................................................. National Research Council

NSGO ............................................................................................................................ National Sea Grant Office

NTIA ........................................................................National Telecommunications and Information Administration

NTIS.......................................................................................................... National Technical Information Service

NWS ............................................................................................................................... National Weather Service

OAR ................................................................................................. Office of Oceanic and Atmospheric Research

OED ................................................................................................................ Office of Enrollment and Discipline

OGC .............................................................................................................................. Office of General Counsel

OIG ............................................................................................................................. Office of Inspector General

OMB................................................................................................................. Office of Management and Budget

PBO...................................................................................................................... performance-based organization

PTO .......................................................................................................................... Patent and Trademark Office

RLF ......................................................................................................................................... revolving loan fund

TA ................................................................................................................................ Technology Administration

US&FCS ...................................................................................................... U.S. and Foreign Commercial Service

USAID ................................................................................................. U.S. Agency for International Development

USEAC ....................................................................................................................U.S. Export Assistance Center

Y2K ....................................................................................................................................................... year 2000

98 Commerce IG Semiannual Report September 1998
Office of Inspector General

Organization Chart

OIG Points of Contact

Inspector General .....................................(202) 482-4661

Congressional Liaison ..............................(202) 482-3052

Office of Audits .........................................(202) 482-1934

Office of Compliance and Admin..............(202) 482-0231

TDD Number .................................... (202) 482-4948

Media Inquiries .................................. (202) 482-5992

REQUESTS FOR REPORTS:

Telephone.......................................... (202) 482-0231

Internet E-Mail ................................... oigreports@doc.gov

OIG HOTLINE:

Telephone.......................................... (202) 482-2495 or (800) 424-5197

Internet E-Mail ................................... oighotline@doc.gov

Office of Counsel ......................................(202) 482-5992

Office of Inspections and Program Eval...(202) 482-2754

Office of Investigations .............................(202) 482-0934

Office of Systems Evaluation ...................(202) 482-6186

OIG Internet Home Page

http://www.oig.doc.gov

Inspector

General

Financial

Statements

Audits

Atlanta

Regional

Office

Denver

Field

Operations

Washington

Field

Operations

Silver Spring

Field

Operations

Deputy

Inspector General

Regional

Audits

Headquarters

Audits

Financial Statements

Audits

Office of

Investigations

Office of

Audits

Office of

Systems Evaluation

Office of

Counsel

Office of

Compliance and

Administration

Office of

Inspections and

Program Evaluations

Special Activities

Section

Financial Fraud

Unit

Investigative

Operations

Seattle

Regional

Office

Denver

Regional

Office

Financial

Statements Contract

Audits

Financial

and Performance

Analysis

Science

and Technology

Audits

Economics

and Statistics

Audits

Business

and Trade

Audits