IG’s Message for the Secretary

April 30, 2000

The Honorable William M. Daley

Secretary of Commerce

Washington, DC 20230

Mr. Secretary:

I am pleased to provide you with the Office of Inspector General’s semiannual report to the Congress for

the first half of fiscal year 2000. 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 of its receipt.

During this semiannual period, we have devoted considerable effort to addressing the varied and complex

issues facing Commerce, its programs, and its managers. Most notably, this has included reviewing and

monitoring the Department’s efforts to address three of the most visible and immediate of its top 10

management challenges—improving the accuracy and controlling the cost of the 2000 Decennial Census,

achieving an unqualified opinion on its consolidated financial statements, and addressing the Y2K computer problem. I am now pleased to report that two of these challenges have been met, and we are

removing them from our top 10 list.

Specifically, the Department received its first ever unqualified opinion on its FY 1999 consolidated

financial statements, and Commerce’s computer systems handled the rollover to the year 2000 without

major problems. You should be proud of these noteworthy achievements. The Department’s success in

meeting these challenges is directly attributable to the cooperative efforts of managers and staff from the

Office of the Secretary, Commerce operating units, and the OIG.

This report also describes the substantial progress made to address other major issues, most notably the

challenges of expanding private sector participation in NOAA’s marine and aeronautical data gathering,

implementing the Advanced Weather Interactive Processing System, and maximizing competition in the

Department’s discretionary financial assistance programs.

Sincerely,

Johnnie E. Frazier

Enclosure

UNITED STATES DEPARTMENT OF COMMERCE

The Inspector General

Washington, D.C. 20230

i

Commerce OIG Semiannual Report

March 2000
Table of Contents

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

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

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

Obtain an unqualified opinion on all of the Department’s consolidated

financial statements ................................................................................... 2

Address Commerce’s year 2000 computer problem .......................................... 3

Increase the accuracy and control the cost of the 2000 Decennial Census......... 4

Successfully implement NWS’s Advanced Weather Interactive Processing

System................................................................................................. 6

Expand private sector participation in NOAA’s marine and aeronautical

data gathering ........................................................................................... 6

Maximize competition in the Department’s financial assistance programs .......... 8

Successfully implement a Department-wide financial management system......... 9

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

Continue to improve the Department’s strategic planning and performance

measurement in accordance with GPRA .................................................. 11

Manage PTO’s space requirements and lease costs ........................................ 12

Other Issues of Concern ...................................................................................... 14

Resolution and Follow-Up ................................................................................... 19

DEPARTMENT OF COMMERCE ORGANIZATION CHART ................................. 20

AGENCY OVERVIEWS............................................................................................ 21

Bureau of Export Administration .......................................................................... 21

Economic Development Administration ................................................................ 27

Economics and Statistics Administration ............................................................... 30

International Trade Administration ....................................................................... 38

Minority Business Development Agency .............................................................. 50

National Oceanic and Atmospheric Administration ................................................ 51

National Telecommunications and Information Administration .............................. 65

Patent and Trademark Office ............................................................................... 67

Technology Administration .................................................................................. 71

Departmental Management .................................................................................. 80

REPORTING REQUIREMENTS............................................................................... 94

STATISTICAL HIGHLIGHTS.................................................................................... 98

TABLES AND APPENDIXES ................................................................................... 99

DEFINITIONS OF TYPES OF OIG REVIEWS AND

FINANCIAL STATEMENTS AUDIT TERMS ......................................................... 109

GLOSSARY OF ABBREVIATIONS....................................................................... 110

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

Commerce OIG Semiannual Report

March 2000 ii
FOREWORD

Notwithstanding our serious budgetary constraints at a time of increasing demands and expanding

requirements, we have worked judiciously to achieve the maximum impact from our limited resources and

respond appropriately to the wide range of issues affecting Department of Commerce operations. In the

pages immediately following this foreword, we describe the Department’s success in addressing several of

what we view as its top 10 challenges, provide updates on the status of the remaining challenges, and

highlight other issues of concern. In the sections organized by Commerce operating unit, we discuss a broad

spectrum of reviews completed by our office during this semiannual period. For example:

l In the first of a series of annual reviews required by the National Defense Authorization Act for

FY 2000, we assessed the adequacy of BXA’s efforts to help prevent the illicit transfer of sensitive

U.S. technology to countries of concern.

l As the Census Bureau was making final preparations for the 2000 Decennial Census, we completed

reviews of selected aspects of the bureau’s personnel and payroll system, its controls over accountable property at regional centers, and pay problems experienced by temporary employees in the

Atlanta region.

l We continued our comprehensive inspections of Commerce’s overseas operations, reporting on our

work at U.S. and Foreign Commercial Service posts in France, Hong Kong, and Vietnam.

l As part of our congressionally requested examination of Commerce discretionary financial assistance programs, we completed reviews of 1 ITA and 3 NOAA programs, bringing the total number

of programs reviewed to 26.

l We reported on two aspects of the National Institute of Standards and Technology’s Advanced

Technology Program—its intramural and focused research efforts—and evaluated its proposal for a

ballistics testing facility.

l In the financial management area, we expanded the work of the independent public accounting

firms that conduct the audits of the Department’s and its reporting entities’ financial statements to

include security reviews of each financial management system to identify vulnerabilities that could

hamper the production of accurate financial data.

As always, our primary objective is to provide congressional and departmental decision-makers with

objective analyses and recommendations aimed at ensuring that Commerce programs and activities are

operated as efficiently and effectively as possible.

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Commerce OIG Semiannual Report

March 2000

IG’s Message for the Congress
MAJOR CHALLENGES

FOR THE DEPARTMENT

2

Major Challenges for the Department

Commerce OIG Semiannual Report

March 2000

In pursuing its programs and missions, the

Department of Commerce is faced with a number of

problems, concerns, and difficult issues, including

some that we view as major management challenges. This section highlights what we consider to

be the top 10 management challenges facing the

Department.

We have identified these issues as the top 10

challenges because they meet one or more of the

following criteria: importance to the Department’s

mission or the nation’s well-being, complexity,

sizable expenditures, or need for significant management improvements. By addressing these challenges,

the Department and the Congress can enhance

program effectiveness, eliminate serious operational

problems, decrease vulnerability to fraud and waste,

and achieve substantial savings. Given the dynamics,

diversity, and complexity of Commerce programs

and activities, we maintain this top 10 list on an

ongoing basis, and as challenges are met, we plan to

remove them from the list and replace them with

other challenges.

We are pleased to report that the Department

generally recognizes these challenges and has made

considerable progress in addressing them. In fact,

two of the Department’s challenges—obtaining a

clean opinion on its consolidated financial statements

and addressing its Y2K problem—have been met,

and we have removed them from our top 10 list as

of March 31, 2000. Substantial progress has also

been made on three other challenges—namely,

implementation of the Advanced Weather Interactive

Processing System, NOAA marine and aeronautical

data gathering efforts, and competition in discretionary financial assistance programs. Given the management attention being paid to these issues, we are

hopeful that we can remove them from the list

during our next update at the end of the fiscal year.

In the following sections, we describe the

progress made on these major challenges, highlight

issues that are likely to move into the top 10 list in

our next semiannual report, and discuss other

significant issues of concern for the Department.

Obtain an Unqualified Opinion on

All of the Department’s

Consolidated Financial Statements

The Chief Financial Officers Act of 1990, the

Government Performance and Results Act of 1993,

the Government Management Reform Act of 1994,

and the Federal Financial Management Improvement

Act of 1996 were designed to improve the financial

management practices of federal agencies. The

statutes require audited annual financial statements

that present an entity’s financial position and results

of operations, as well as other information needed

by the Congress, agency executives, and the public

to assess management’s performance.

With the passage of the CFO Act, we recognized that to obtain an unqualified opinion on its

consolidated statements, the Department would need

to make major investments of time, effort, and

resources, and achieve an unprecedented level of

leadership and cooperation from senior Commerce

officials, bureau managers, and the OIG. We were

not overly optimistic, given the Department’s track

record on financial management, its shortage of

qualified financial managers and staff, and the

absence of a single integrated financial management

system.

IG’s Message for the Congress
3

Commerce OIG Semiannual Report

March 2000

Despite these obstacles, we are pleased to

report that the Department received an unqualified

opinion on its FY 1999

consolidated financial

statements. This is the

first year that the Department has received a

“clean” opinion on all of

its financial statements—

an achievement largely

attributable to the leadership and commitment that

the Secretary has demonstrated in working with

our office to address this

major challenge. The

Department’s Chief

Financial Officer and

other senior management

officials also deserve to

be commended on the

significant improvements

made in financial management during FY 1999.

To receive unqualified opinions on their

FY 1999 financial statements, the Department and

all of its reporting entities overcame significant

obstacles, including the correction of many of the

material weaknesses that in the past have undermined the reliability of some financial management

information and precluded unqualified opinions.

(Material weaknesses are serious flaws in the design

or operation of an internal control component that

increase the risks that errors, fraud, or noncompliance in material amounts may occur and not be

readily detected.) This is evidenced by the substantial decrease in the number of material weaknesses

between 1998 and 1999 at both the departmental

and reporting entity levels—from 6 to 1 for the

Department and from 12 to 7 for its reporting

entities.

tems, the improvement of financial management,

and the receipt of unqualified opinions on all of its

financial statements. As a

result, obtaining an

unqualified opinion on its

financial statements is no

longer considered a major

challenge for the Department. However, the

Department and its

reporting entities must

continue to emphasize

financial management

improvements—including

the necessary resources

and management commitment—to correct the

material weaknesses and

other deficiencies identified in the FY 1999 audits

and to maintain clean

opinions in future years.

Address Commerce’s Year 2000

Computer Problem

In our September 1998 issue, we identified the

year 2000 (Y2K) computer problem as a major

challenge for the Department. While 76 percent of

the Department’s mission-critical systems were

reported as being Y2K compliant at that time, our

analysis suggested that the statistic was neither

reliable nor a good indicator of the amount of work

remaining. Given the importance of these diverse

systems to the Department’s operations and their

major contributions to the nation’s well-being, we

were concerned that this matter receive prompt,

thorough attention. The Department had recently

hired a new Chief Information Officer, who along

with the Secretary, Deputy Secretary, and Chief

Financial Officer, expressed his commitment to

ensuring that Y2K preparation efforts received highlevel attention.

IG’s Message for the Congress

Major Challenges for the Department

The Department has demonstrated its commitment to the establishment of sound financial sys-
4

Major Challenges for the Department

Commerce OIG Semiannual Report

March 2000

Working closely with the Chief Information

Officer and the bureaus, we reviewed conversion,

testing, and business continuity planning activities,

identified key issues that warranted management’s

attention, and recommended actions to mitigate the

risk of Y2K failures. We are pleased to report that

Commerce’s computer systems

handled the rollover

to the year 2000, as

well as the leap year

rollover, without

major problems.

Departmental and

bureau officials and

their staffs are to be

commended for the

cooperation and

assistance they

provided us during

our reviews and,

more importantly, for

accomplishing a

smooth transition to

the new century by

successfully addressing the Y2K computer problem.

Increase the Accuracy and

Control the Cost of the

2000 Decennial Census

The decennial census is an enormous and

complex task—certainly one of the most difficult

that the federal government has to undertake. The

accuracy of the data produced by the decennial is

critical because it is the basis for apportioning seats

in the House of Representatives and is used by state

legislatures for redistricting purposes. The data is

also used to distribute billions of dollars of federal

funds to state and local governments. The Department recognizes the challenges presented by the

2000 Decennial Census and is clearly providing

increased oversight of and management support to

the Census Bureau for this important mission.

Given the

complexity and importance of the 2000

decennial, we continue

to make oversight of

decennial planning and

execution one of our

top priorities. We have

issued more than 20

audit and inspection

reports on various

aspects of the Census

Bureau’s decennial

preparation efforts and

have made numerous

recommendations

aimed at helping to

improve the accuracy

of the decennial and

control its cost. We

have also conducted

audits and inspections

of bureau activities and operations that may indirectly affect the bureau’s ability to conduct the

decennial efficiently, effectively, and economically.

And, finally, we are actively monitoring the bureau’s

actions to address our recommendations for correcting identified weaknesses and are continuing to

mount an aggressive effort to audit, inspect, and

investigate issues relevant to the accuracy and cost

of the decennial census.

In reviews completed during this semiannual

period, we identified and reported on a number of

concerns that need to be addressed in preparing for

and conducting the 2000 decennial. Specifically:

IG’s Message for the Congress
5

Commerce OIG Semiannual Report

March 2000

l Our review of the Pre-Appointment

Management System/Automated Decennial

Administrative Management System

(PAMS/ADAMS), the personnel and payroll

system for the decennial, disclosed that the

bureau did not use a well-managed software

development process. Therefore, the

accuracy, completeness, and performance

of the system could not be assessed through

a review of test results or other independent

testing—activities usually associated with a

systematic software development effort.

However, because of extensive operational

use of the system since the dress rehearsal,

the bureau has been able to correct

problems and achieve reasonable assurance

that the system can support the decennial.

We urged the bureau to make a concerted

effort after the decennial to improve

software development for all future

programs, decennial and non-decennial alike

(see page 30).

l Our review of accountable property in three

regional centers disclosed weaknesses in

internal controls. We found that the bureau

had not properly recorded hundreds of

items in its property books or automated

system, had not conducted the required

annual physical inventories of accountable

property, and had not always adequately

controlled transfers of such property. We

are pleased to note that the bureau has

taken prompt action to address our concerns

(see page 32).

l Our review of the Atlanta Regional Census

Center’s payroll operations revealed that the

center had encountered a variety of problems in paying its temporary employees.

Although the problems pertained directly to

payroll problems experienced by that region,

we concluded that many of the same

circumstances could also exist in the other

regions. For example, our review of PAMS/

ADAMS found that the way in which daily

payroll forms were being processed during

the 1998 Dress Rehearsal allowed

employees to be paid multiple times for the

same hours worked. The bureau took

appropriate actions to correct the problems

with the Atlanta regional center employees’

payroll (see page 33).

The Department continues to face challenges

related to logistical, technical, and other issues

involved in conducting the 2000 decennial. As of

March 31, 2000, the bureau had completed the

delivery of census questionnaires to 120 million

households and was processing millions of completed questionnaires at its four data capture centers

located across the country. In addition, outreach and

promotion efforts had peaked, the bureau’s temporary workforce was approaching maximum levels,

and certain coverage improvement programs, such

as those aimed at hard-to-count populations, were

nearing completion.

As might be expected with any undertaking of

this magnitude and complexity, our office is receiving a significant number of complaints relating to

decennial operations through the OIG Hotline and

other sources. These complaints cover a wide range

of issues, from routine payroll concerns to charges

of mismanagement or discrimination at local census

offices. We are working with the bureau, congressional offices, and other federal oversight agencies to

ensure that these allegations are thoroughly reviewed

and appropriately addressed.

The success of the operations that have been

launched will have a major impact on the results of

the decennial. In addition to evaluating these ongoing

efforts, we will continue our reviews of various

other aspects of the bureau’s efforts to address the

challenge of increasing the accuracy and controlling

the cost of the 2000 decennial. For example, our

IG’s Message for the Congress

Major Challenges for the Department
6

Major Challenges for the Department

Commerce OIG Semiannual Report

March 2000

ongoing and planned work includes reviews of the

bureau’s efforts to process completed questionnaires

and follow up on nonresponding households, and to

use sampling methods to measure and adjust for the

expected undercount. We will also assess recurring

complaints, monitor critical logistical operations, and

examine selected decennial contracts.

Successfully Implement NWS’s

Advanced Weather Interactive

Processing System

The Advanced Weather Interactive Processing

System (AWIPS) is the key integrating element of

the National Weather Service’s modernization

program and the last major system of the modernization to be implemented. AWIPS provides 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 weather service guidance centers, and

prepare timely and accurate warnings and forecasts

for dissemination to the public.

As a result of its history of escalating costs and

schedule delays, the AWIPS program has been

subject to a legislatively mandated cost cap of

$550 million. The legislation required that AWIPS

be developed within the cost cap with sufficient

capabilities to replace NWS’s aging field office

systems, most importantly the Automation of Field

Operations and Services (AFOS). At the time of our

last semiannual report, deployment to all NWS sites

had been completed, but NOAA was continuing to

correct deficiencies that would have prevented

AWIPS from replacing AFOS and from being

commissioned (that is, being used officially as the

primary system for preparing and distributing NWS

data products). Since then, NOAA has corrected the

deficiencies and reports that it has completed

AWIPS within the cap.

In monitoring NWS’s progress in meeting this

important challenge, we have been tracking AWIPS

commissioning progress. Commissioning began this

January, and as of April 25, 73 systems had been

commissioned. NWS had planned to commission 86

systems by the end of April, but is now projecting

that only 77 will be completed by that time because

additional time was needed to perform certain

commissioning activities at several sites. According

to NWS, there are no outstanding obstacles or

issues related to commissioning, and it expects to

complete commissioning of all 139 systems (121

weather forecast offices, 13 river forecast centers,

and 5 national centers) by the end of August.

The commissioning of AWIPS at 73 sites and

aggressive efforts to implement it at the remaining

sites represent significant progress in completing the

NWS modernization. We will continue our monitoring and assess any issues that arise during commissioning and operational use. If commissioning

progresses as planned and no major issues arise, we

expect that NOAA and the Department will have

met the AWIPS implementation challenge by the

end of the next semiannual reporting period in

September.

Expand Private Sector

Participation in NOAA’s Marine

and Aeronautical Data Gathering

The Congress, the OIG, the General Accounting Office, and others have long been concerned

about how NOAA can most efficiently and effectively obtain its marine and aeronautical data. While

the debate continues, there is a general recognition

that NOAA should expand the private sector’s

participation in this effort.

IG’s Message for the Congress
7

Commerce OIG Semiannual Report

March 2000

Marine Data

While NOAA has made progress in expanding

private sector participation in acquiring hydrographic

data, we remain concerned that it has focused its

efforts on designing, owning, and operating four new

fishery research vessels without thoroughly assessing

and aggressively pursuing other alternatives for

meeting its fisheries data collection needs. NOAA

plans to acquire these new vessels in FYs 2000-03.

As we have said many times before, we believe that

NOAA 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 cost-effective platforms

for its data collection needs.

NOAA has prepared a detailed data acquisition

plan for its fisheries mission, which outlines its

approach for acquiring the four fishery research

vessels. Funding for one vessel has been approved

by the Congress; however, NOAA’s plan does not

address the possibility that the bureau will not

receive follow-on funding for the remaining vessels

in FYs 2001-03. Nor does it indicate how the data

needed by the various fisheries programs would be

collected if the additional vessels are not acquired.

The absence of such a contingency plan may put

NOAA’s fisheries programs at risk. NOAA’s challenge is to thoroughly assess viable alternative

approaches to acquiring marine data instead of

relying so heavily on its in-house fleet.

Aeronautical Data

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

composed of 2 heavy craft, 1 mid-size jet, 8 light

fixed-wing aircraft, and 3 helicopters.

In December 1996, the President’s Council on

Integrity and Efficiency reviewed the management

of the federal civilian aircraft fleet, including

NOAA’s, and found that it costs the government in

excess of $1 billion annually to operate its aircraft

programs. Additional studies commissioned by the

General Services Administration reported that costs

could be reduced by up to $92 million annually if

agencies consolidated their aircraft operations and

entered into sharing arrangements.

We conducted an audit of NOAA’s light

aircraft fleet to determine whether outsourcing is

more cost-effective than in-house operation in

meeting the bureau’s aircraft requirements (see

September 1998 issue, page 44). Our audit concluded that the full in-house cost of operating

NOAA’s light fixed-wing aircraft and helicopters

averaged 42 percent more than the cost of operating

similar aircraft in the private sector. We recommended that NOAA privatize its light aircraft

operations.

NOAA did not agree with our position and

believes that the cost data it has collected indicates

that its light aircraft are cost competitive and that no

savings would be achieved by using other sources to

meet its data collection needs. NOAA recently hired

a consultant to review its light aircraft costs and the

cost of contracting with the private sector for aircraft

services. The consultant’s analysis supports many of

our conclusions and recommendations, such as our

recommendation that NOAA seek alternatives to

some of its current operating practices. These

alternatives include greater use of private-sector

contractors to provide light aircraft services and the

potential disposal of its costly and underutilized

aircraft. We believe that the results of the study will

assist NOAA and the OIG in resolving the outstanding recommendations and meeting this challenge.

IG’s Message for the Congress

Major Challenges for the Department

surveys. The center operates a fleet of 14 aircraft,
8

Major Challenges for the Department

Commerce OIG Semiannual Report

March 2000

Maximize Competition in the

Department’s Financial

Assistance Programs

In previous issues, we have reported on the

progress of our comprehensive review of the

criteria, procedures, and practices used to make

funding decisions under the Department’s discretionary financial assistance programs. Discretionary

programs involve a significant portion of the

Department’s budget and operations. Seven Commerce operating units administer 72 financial

assistance programs that provide a total of about

$1 billion a year to state and local governments,

educational institutions, other organizations, and

individuals.

Our review focused on the FY 1997 awards

processes of 33 programs we classified as “full

discretion” programs. For the purpose of our review,

we defined full discretion programs as those whose

authorizing legislation places no significant limitations on the Department’s ability to independently

determine the recipients or funding levels of the

awards made under the programs. These programs

accounted for more than 1,700 awards and

$801 million in FY 1997 funding. We have completed audits of all 33 programs, issued final reports

on 26, and are in the process of preparing a report

that will summarize the results of the individual

audits; identify crosscutting issues; highlight “best

practices”; identify weaknesses in departmental

policies, procedures, and practices; and offer

recommendations for improvement.

Our Department-wide review found that most

Commerce discretionary financial assistance programs are competitively administered and employ

decision processes that are designed to result in

merit-based awards. Competition is generally

recognized as the most effective method of ensuring

that financial assistance awards are made on the

basis of merit. The Federal Grant and Cooperative

Agreement Act encourages the use of competition to

the maximum extent practicable in order to fairly

and objectively identify and fund the best possible

projects proposed by applicants, and thereby more

effectively achieve program objectives.

As shown in the following table, among the

33 full discretion programs we examined, 21—or

nearly two-thirds—were administered competitively

using appropriate merit-based evaluation criteria and

award procedures. The nearly 1,500 awards made

by those 21 programs accounted for about 86 percent of the total discretionary awards made by the

Department in FY 1997, and about 92 percent of

the total funds obligated. The other 12 programs,

representing only 236 awards and $63 million in

obligations, did not use competitive procedures.

Instead, they disbursed program funds through one

or more noncompetitive awards, which were often

inappropriately or inadequately justified as “sole

source awards.”

IG’s Message for the Congress

Number of

Awards

1,477

 236

1,713

Obligations

$738 million

 63 million

$801 million

OIG Assessment

Competitive

Not competitive

Total

21

12

33

Number of

Programs

Commerce Discretionary Financial Assistance Programs Reviewed
9

Commerce OIG Semiannual Report

March 2000

Although our findings were generally positive,

we did identify opportunities for improvement in

specific aspects of the various awards processes. For

example, we determined that several of the programs could enhance the integrity of or bring more

discipline to their award processes by:

l Expanding proposal solicitation efforts to

provide greater awareness of available

financial assistance.

l Including outside participants on proposal

review panels to ensure greater objectivity

in the process.

l Adequately documenting justifications for

deviations from review panel recommendations.

We are encouraged by the Department’s and

bureaus’ constructive responses to our findings and

recommendations, as well as their immediate efforts

to make improvements. The Department is well on

its way to maximizing competition in its financial

programs, and we expect that this major challenge

will soon be met.

Successfully Implement a

Department-Wide Financial

Management System

Since FY 1989, the Department’s lack of a

single, integrated financial system has been reported

as a material internal control weakness in the

Secretary’s annual reports to the President under the

Federal Managers’ Financial Integrity Act. The

weakness is stated in the reports as follows:

“Many of the Department’s financial

systems are seriously outdated and

fragmented; they are unable to provide

timely, complete and reliable financial

information; they are inadequately controlled; and they are costly and difficult to

maintain. The financial systems, taken as a

whole, are not compliant with GAO principles and standards, nor with requirements of

the CFO Act, the Joint Financial Management Improvement Program (JFMIP), or

OMB.”

To correct this weakness, Commerce began

planning for the acquisition and development of a

Department-wide financial system in 1992 and

awarded a contract for system development in 1994.

However, notwithstanding large investments of time,

money, and effort, implementation of the system,

known as the Commerce Administrative Management System (CAMS), proved more difficult than

anticipated. The difficulties occurred, in part,

because established milestones were not met and

departmental requirements were not satisfied. These

factors caused the Department to delay and revise

its implementation strategy several times.

In FY 1997, to improve the reliability of the

system development effort, the Department added

contractor support outside of the original prime

contractor. Assisted by a private consulting firm, the

Department also conducted a review of CAMS to

address concerns about costs incurred and schedule

delays. In FY 1998, based on the results of the

review, the Department redefined the composition

and functionality of CAMS and drastically revised

the CAMS implementation strategy. The Department also reorganized its systems development

project management structure.

The revised strategy called for pilot implementation and testing of the redefined CAMS (core

CAMS) at the Census Bureau before implementing

the system at other bureaus. The pilot implementation of core CAMS at Census was completed in

June 1998. An independent verification and validation of the system, as implemented at Census,

concluded that it met departmental requirements and

IG’s Message for the Congress

Major Challenges for the Department
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Major Challenges for the Department

Commerce OIG Semiannual Report

March 2000

was as good as or better than other core financial

management systems that have been implemented at

other large federal agencies.

The Department’s current strategy is to replace

non-compliant systems with ones that are compliant,

and develop a Department-wide financial database

that will integrate financial data from all reporting

entities and produce the consolidated financial

statements, as required by OMB. During FY 1999,

the Department began developing the database,

commonly referred to as the Corporate Database.

The Department’s Office of Financial Management

has completed the development of functional

requirements, basic programming, and draft user

instructions for the Corporate Database, and expects

to begin pilot testing during FY 2000. The database,

when successfully implemented by the Department,

will comply with OMB’s requirements.

As we have frequently pointed out, serious

difficulties were encountered with the implementation of CAMS. However, for a variety of reasons,

we believe that FY 1999 marked a turning point for

the Department in its efforts to improve its financial

management systems and resolve this major management challenge. Most notably:

l The Bureau of the Census continued full

production of core CAMS; deployed access

to regional and decennial census sites;

implemented additional modules for travel,

budget, and inventory functions; and

deployed a data warehouse, making access

to financial information easier and more

timely for program managers.

l After determining that the Department of

the Interior’s National Business Center

could not provide financial services at a

lower cost and risk than could be achieved

through the implementation of CAMS,

NOAA continued with its CAMS

implementation efforts. However, because

NOAA did not receive all of the funding it

requested for CAMS implementation for

FY 2000, it has revised its target date for

full implementation until FY 2003.

l ITA entered into a cross-servicing

agreement with Interior’s National Business

Center for full-scope accounting services.

This changeover started in July 1999 and

was completed in August. The center’s

accounting system is compliant with OMB

and JFMIP requirements. ITA’s prior

accounting system was not compliant with

these requirements and contributed to the

bureau’s inability to produce auditable

financial statements in 1998.

l EDA began using CAMS as the official

accounting system for its financial assistance

programs on October 1, 1999.

l NIST intends to determine its requirements

and finalize a plan for implementing CAMS

at one of its current Financial Accounting

and Reporting System clients, the Office of

the Secretary. An accelerated schedule is

planned under which that office would be

operational on CAMS starting on October 1,

2000. After successful operation of CAMS

there during the first half of FY 2001, NIST

plans to implement CAMS at its remaining

client sites during the remainder of the fiscal

year, so that all clients would be operational

on CAMS by October 1, 2001. NIST will

defer completion of its detailed plan for

implementing CAMS at NIST until the first

half of FY 2001, but still plans to complete

CAMS implementation by the end of

FY 2003.

Despite these noteworthy accomplishments,

future improvements require both significant resources and the continued attention of senior

management. By FY 2004, the Department plans to

IG’s Message for the Congress
11 Commerce OIG Semiannual Report

March 2000

IG’s Message for the Congress

have all 14 of its reporting entities operating under

compliant financial management systems integrated

with the Corporate Database.

Given the large amounts of time and money

that have already been invested in CAMS implementation, the critical need for a reliable financial

management system, and the remaining obstacles to

be overcome in implementing the system, we are

continuing to monitor and review selected aspects of

the Department’s progress in implementing core

CAMS in its reporting entities. For example, OIG

representatives attend NOAA’s monthly status

meetings on CAMS implementation and participate

in the Department’s meetings to discuss progress in

developing the Corporate Database. Later this fiscal

year, we also plan to initiate a review of CAMS’s

software configuration management and change

controls at the CAMS Support Center.

Until the Department is in compliance with the

federal requirement for a single, integrated financial

system, we will view the Department’s efforts to

develop such a system as a major challenge warranting the close attention of senior officials and continued oversight by our office.

Evaluate NTIS’s Mission

and Financial Viability

 In recent years, questions have arisen about

NTIS’s future. In our last issue (see September

1999 issue, page 7), we discussed our concern that

disappointing operating results continued to call into

question NTIS’s ability to be self-sustaining. In

FY 1999, total revenue dropped by $3.4 million to

$33.3 million, and only by taking aggressive costcutting actions, such as transferring some of its staff

to other Commerce agencies, was NTIS able to

avert a loss and report a surplus of $652,000 at the

end of the year. While such drastic cost-cutting

measures may resolve NTIS’s problems in the shortrun, they cannot help NTIS solve its major problem—a steady decline in the sales of its products

and services caused by fundamental changes in the

marketplace.

To address NTIS’s problems, the Department

formed a working group made up of senior managers from the Department and the Technology

Administration. Based on the group’s efforts, the

Department developed a legislative proposal that

would provide for closing NTIS by the end of

FY 2000 and transferring its collection of scientific,

technical, business, and engineering publications to

the Library of Congress to ensure permanent public

access to such documents.

The U.S. National Commission on Libraries

and Information Science is also studying the issue of

NTIS’s future, and has issued a position paper and

held three public hearings on the matter. The

Commission’s anticipated recommendations include

keeping NTIS in Commerce for another year so that

the Department’s plans and other alternatives can be

further studied, providing $5 million in appropriations to pay for NTIS’s archiving functions, and

appropriating an additional undetermined amount so

that NTIS can begin a program for supplying the

depository libraries with federal publications. The

continuing challenge for the Department is to work

closely with the Congress and other stakeholders to

reach agreement on the future of NTIS.

Continue to Improve the

Department’s Strategic Planning

and Performance Measurement

in Accordance with GPRA

Despite the inherent difficulties in determining

how to best plan and measure its performance in

accordance with the Government Performance and

Results Act of 1993 (GPRA), the Department has

continued to make progress in meeting this challenge. More specifically, the Department submitted

to OMB and the Congress its second Annual

Major Challenges for the Department
12 Commerce OIG Semiannual Report

March 2000

Major Challenges for the Department

IG’s Message for the Congress

Performance Plan, for FY 2000, in February 1999

and its third plan, for FY 2001, in February 2000.

Also, the Department submitted its initial Accountability Report, which reports both financial and

performance results, for FY 1999, on March 1,

2000. The submission of the Department’s first

Annual Program Performance Report for FY 1999,

in March 2000, brought to a close the first full cycle

of GPRA activity that began in 1996.

While the Congress, GAO, and the OIG all

agreed that the Department’s FY 2000 Annual

Performance Plan was significantly better than its

FY 1999 plan, it was also recognized that there was

room for additional improvement. Of particular

concern is the need for the Department to ensure

that the data to be used in measuring performance is

accurate, complete, and reliable. In preparing its

FY 2001 Annual Performance Plan, the Department

made concerted efforts to address concerns expressed about its earlier plans. Continued management attention is essential, however, not only to

satisfy GPRA requirements, but to measure and

report on performance.

We have regularly provided advice and

assistance to the Department on the implementation

of GPRA, as well as on the linkage between the

act’s required performance reporting and the

financial reporting contained in the annual financial

statements. We have made presentations to the

Department on the importance of ensuring that the

information related to performance results can be

relied upon, and have provided informal comments

on various GPRA-related documents. We have

continued to work with the Department’s offices for

strategic planning and financial reporting on financial

and performance reporting issues. These efforts

have yielded positive results, two of which are

evident in the Department’s FY 1999 Accountability

Report: a statement of net cost that accurately

reflects the Department’s activities, and a management discussion and analysis that reports its most

significant performance results.

Another substantial challenge for the Department will be to ensure that its second strategic plan,

which is due to the Congress by September 30,

2000, provides appropriate focus and direction for

its future actions. The Department’s initial strategic

plan, covering FY 1997-2002, drew criticism from

both the Congress and GAO.

We will continue to monitor the Department’s

efforts to implement GPRA, provide advisory

comments on GPRA-related documents, and, where

resources permit, perform targeted reviews. For

example, we are currently performing an audit to

identify the best practices for verifying and validating performance measures at business centers

operated by EDA, ITA, MBDA, and NIST. Several

other audits, while not necessarily directed at GPRA

implementation, have identified issues related to the

identification of performance measures and the

reporting of performance information.

Manage PTO’s Space

Requirements and Lease Costs

The Patent and Trademark Office’s space

consolidation project is expected to be one of the

largest real estate ventures that the federal government will undertake in the next decade. On March

29, 2000, PTO officially became a performancebased organization (PBO). As a PBO, PTO will

assume almost sole responsibility for its day-to-day

management and operations. PTO’s space consolidation project will be one of many major challenges

that the agency’s managers will have to tackle as it

completes the transition to a PBO and revamps its

business processes for greater efficiency and

effectiveness (see page 17).

On behalf of PTO, the General Services

Administration (GSA) has issued a solicitation to

award a contract to a private developer to construct

a new facility or renovate an existing one and lease it

to PTO for at least 20 years with two 5-year options
13 Commerce OIG Semiannual Report

March 2000

IG’s Message for the Congress

Major Challenges for the Department

and the option to buy. The solicitation calls for the

construction of the building shell, to include basic

electrical and mechanical systems, with the interior

to be “built out” later. The project has been delayed

for more than a year by challenges raised in two

separate federal court actions. GSA and PTO hope

to award the contract by early June 2000, with

occupancy of the computer facility to begin in 2003,

and full occupancy of the building expected in 2004.

Given the size and importance of the planned

PTO consolidation project, we conducted a review

of the project in 1998 to determine whether it was

justified and whether PTO was effectively managing

its critical acquisition phase (see March 1998 issue,

page 54). Our review concluded that the project was

justified and should continue. We further concluded

that PTO was managing many aspects of the lease/

development procurement well, although we also

made a number of recommendations to improve

PTO’s management and planning for this major

procurement.

Since completion of our 1998 review, we have

continued to monitor the status of the PTO project.

We are pleased that all of the outstanding issues

related to the implementation of our report recommendations have been successfully resolved,

including placement of a legislative cap on the costs

of the above standard build-out. PTO’s challenge is

to continue to work with the numerous interested

parties to obtain space that best meets its needs at

the best possible value. This will involve aggressively holding the line on all project costs, including

remaining within the legislatively mandated cap on

build-out costs. For our part, we will conduct

follow-up reviews in order to stay abreast of the cost

control measures PTO plans to put in place for all

project-related costs, including building structure,

interior build-out, and new furniture.
OTHER ISSUES OF CONCERN

In the following sections, we discuss other serious challenges warranting management attention and

OIG oversight. The first three issues, related to information security, acquisition reform, and export controls,

are leading candidates to join the top 10 list in our next semiannual report.

Strengthen Department-wide Information Security

Protecting the Department’s computer systems from cyber-attack is a significant challenge today and

will continue to be so in the future. The number of cyber-attacks on our nation’s computer systems has

grown dramatically over the last few years and is projected to grow at an even faster rate in the future. In

addition, the sophistication of such attacks continues to increase, posing a severe threat to computer system

security. Industry and government research has shown that cyber-attacks are carried out not just by

hackers, but by foreign governments, and organized criminal and terrorist groups with harmful intent.

An increasing number of interconnected, widely distributed computer systems support vital Commerce

operations and provide essential services to the public. As the Department’s systems have become more

widely distributed and interconnected, security vulnerabilities have also increased, creating a need to improve procedural and technical security measures. Strong computer security measures are vital to protect the

secrecy and privacy of information, the integrity of computer systems and their networks, and the availability of services to users.

We are conducting an assessment of the Department’s implementation of Presidential Decision

Directive 63, which was created in part to address the growing cyber-threat. This directive establishes a

national program to assure the security of cyber-based systems essential to the operations of the U.S.

economy and government. We are in the first phase of a planned two-phase assessment in which we are

reviewing the Department’s critical infrastructure protection plan, the prioritized list of computer systems

identified as critical to the Department, system security plans, and system security vulnerability assessments.

During the second phase, we will evaluate the Department’s plans and strategies for mitigating system

security vulnerabilities, responding to a coordinated cyber-attack, obtaining additional resources if needed to

implement vulnerability mitigation plans, and recruiting, retaining, and educating information security

personnel. We plan to report our findings and recommendations during the next semiannual period.

Also, as part of the Department’s FY 1999 financial statements audits, we contracted for and oversaw

security reviews of each of Commerce’s financial management systems and their related networks, using as

a guide GAO’s Federal Information System Controls Audit Manual. The reviews disclosed security weaknesses that, if not corrected, could adversely affect the ability of the Department and its operating units to

produce accurate data for their financial statements. For example, we discovered security plans that were

outdated or not finalized, security risk assessments that were outdated or nonexistent; inadequate systems

administration of user accounts; inadequate controls over the powerful system administrator account; and a

lack of security monitoring to detect unauthorized access. Beginning with the FY 2000 financial statements

audits, we plan to expand the security reviews to include intrusion detection analysis.

14 Commerce OIG Semiannual Report

March 2000

IG’s Message for the Congress
Successfully Implement Acquisition Reform Initiatives

Since the 1980s, various commissions and review panels have cited the need to streamline and simplify the federal procurement system. In 1986 the Packard Commission concluded that procurement laws

needed to be recodified to create one simplified procurement statute. In 1993 the National Performance

Review recommended decentralizing government management and introducing competition and market

forces into the delivery of government products and services to create a government “that works better and

costs less.” To implement these improvements, major acquisition reform legislation was enacted.

The Federal Acquisition Streamlining Act of 1994 provided for a major overhaul of the laws governing

federal acquisition. In 1996 the Federal Acquisition Reform Act and the Clinger-Cohen Act continued these

reforms by substantially altering the way the government acquires and manages information technology.

Implementation of these laws necessitated changes in the way government contracting officers did their

jobs. The following are examples of these reforms:

l Commercial Items Acquisition. Acquisition reform regulations encourage the purchase of

commercial items and greatly simplify their acquisition.

l Past Performance. Under current regulations, a contractor’s performance under prior contracts is

considered relevant information in evaluating that contractor for new contracts.

l Performance-Based Service Contracting. This approach focuses on the intended results of a

service contract and the manner in which the work is performed, and provides for the development

of performance standards and the use of quality assurance and oversight plans.

l Simplified Acquisition Tools. Acquisition reform legislation recommends the use of innovative

approaches, such as the expanded use of the purchase card and establishment and use of

government-wide agency contracts (GWACs), and permits agencies to make purchases from other

agencies’ contracts, which results in time and cost savings.

The Department of Commerce—which annually procures goods and services in excess of $1 billion—

has been an active participant in implementing federal acquisition reform initiatives. For example, Commerce

has developed and implemented a streamlined acquisition process known as CONOPS, which has reduced

procurement lead times. The Bureau of the Census has also used performance-based service contracting in

acquiring services and equipment for the 2000 Decennial Census. More recently, the Department awarded

the Commerce Information Technology Solutions contract, the only GWAC for information technology

services set aside for small, disadvantaged, and women-owned businesses.

However, GAO recently identified some common problems in federal agencies’ implementation of

GWACs. For example, agencies have sometimes used various devices to avoid holding vendor competitions,

and have tended to make awards to large rather than small and disadvantaged businesses. The Office of

Federal Procurement Policy is also planning to evaluate the effectiveness of federal acquisition reform,

specifically agencies’ use of GWACs, because it has concerns that many agencies are not focusing on results

15 Commerce OIG Semiannual Report

March 2000

IG’s Message for the Congress
when contracting for services. In past reports, we have identified problems with the administration of the

purchase card program, improper use of task order contracts, and inadequate documentation of market

surveys.

Implementing acquisition reform and its various streamlining initiatives necessitates changing old ways

of acquiring goods and services. The emphasis on past performance and performance-based contracting

requires a more focused way of monitoring contractor performance through the use of performance measurement tools. It also requires contracting offices to develop new skills. Given the concerns cited by other

oversight agencies and our office, we believe that the Department’s implementation of acquisition reform

initiatives warrants extra scrutiny. The challenge facing the Department is to achieve the benefits of the

acquisition reform initiatives while still maintaining the necessary controls and oversight to ensure that the

government is getting what it pays for.

Maintain Effective 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. To strengthen the U.S. government’s export licensing and

enforcement process, new legislative authority is needed to replace the expired Export Administration Act of

1979 and implement effective export control policies. The Export Administration Act was passed during the

Cold War primarily to help block the export of critical goods and technologies to the Communist bloc countries for national security reasons. In the post-Cold War era, there are new threats to U.S. national security

and foreign policy goals posed by rogue countries and international terrorist groups who seek to acquire

weapons of mass destruction and weapons delivery systems.

BXA is working with the Administration and the Congress on legislation to renew the act and address

the challenge of balancing the need to protect U.S. national security and foreign policy interests with the

desire to not unduly hamper U.S. trade opportunities and competitiveness. Reauthorization of the act is also

needed to strengthen BXA’s regulatory authority and penalties, which have been weakened under interim

export control regulations, and to demonstrate that the United States is firmly committed to maintaining

strong export controls as it encourages other countries to do the same.

Given the importance of export licensing controls to national security, we have devoted considerable

attention to the challenges facing BXA in issuing licenses authorizing the export of certain goods and technologies that have both civilian and military uses. In 1993 we participated in a special interagency review of

export licensing processes for munitions and dual-use commodities (see September 1993 issue, page 15). The

1993 report highlighted the need for more transparency in the dual-use export licensing process. In response

to this need, in 1995 the President issued Executive Order 12981, which expanded the authority of the

Defense and State Departments and other involved federal agencies to review all export license applications.

In October 1998, in response to a request from the Senate Governmental Affairs Committee, the OIGs

of the Departments of Commerce, Defense, Energy, State, and the Treasury, and the Central Intelligence

Agency, began a follow-up review to evaluate the status of actions taken to implement the recommendations

from the 1993 review. We also evaluated the effectiveness of the Department’s current policies, procedures,

and practices for licensing dual-use goods and technologies. In our report, issued in June 1999, we stated our

16 Commerce OIG Semiannual Report

March 2000

IG’s Message for the Congress
conclusion that the multi-agency licensing process for U.S. dual-use exports is balanced and appropriately

considers divergent policy views and information in deciding on export license applications (see September

1999 issue, page 17).

While our report described significant areas of improvement in export controls since our 1993 work, it

also identified some weaknesses in the licensing process that still need to be addressed. Specifically, we

found that (1) more transparency is needed in the commodity classification and license appeals processes,

(2) the intelligence community does not review all dual-use export license applications or always conduct a

comprehensive analysis of applications it does review, (3) license applications need to be screened against a

key database maintained by the U.S. Customs Service, (4) BXA needs to improve its monitoring of license

conditions with reporting requirements, and (5) BXA needs a new automated system to process export

license applications efficiently and effectively.

In October 1999, the National Defense Authorization Act for FY 2000 directed the same six OIGs to

report to the Congress by March 30, 2000, on the adequacy of current export controls and counterintelligence measures to prevent the acquisition of sensitive U.S. technology and technical information by countries and entities of concern. To meet this requirement, each OIG reviewed its agency’s export controls and

counterintelligence measures and reported on the results. Two interagency reports highlighting crosscutting

issues were also prepared. Our report focused on three activities that the Commerce Department, principally

through BXA, carries out or participates in to help prevent the illicit transfer of sensitive U.S. technology:

deemed export controls, the Visa Application Review Program, and the Committee on Foreign Investment in

the United States (see page 21).

The challenge for BXA, as well as the Administration and the Congress, will be to pass a new Export

Administration Act and to focus the federal government’s licensing and enforcement efforts on targeting

those exports that present the greatest proliferation and national security risks and on streamlining or eliminating controls that unnecessarily hamper trade. Through our various export control reports, we strive to

play a useful role in current and future congressional and public debates on the reauthorization of the Export

Administration Act and the revamping of the nation’s export controls. We will continue to monitor BXA’s

efforts to improve dual-use export controls through annual reports required until 2007 under the Defense

Authorization Act.

Successfully Implement PTO’s Transition

to a Performance-Based Organization

The American Inventors Protection Act of 1999 (P.L. 106-113), which was signed into law on

November 29, 1999, establishes PTO as a performance-based organization with greater flexibility and

independence to be run more like a business. As a PBO, PTO has increased authority and hence the

responsibility for decisions regarding the management and administration of its operations and exercises

more independent control of its budget allocations and expenditures, personnel decisions and processes, and

procurement. PTO’s transition to a PBO officially began on March 29, 2000.

17 Commerce OIG Semiannual Report

March 2000

IG’s Message for the Congress
PTO management views the passage of the act and the transition to a PBO as critical in addressing

two challenges, both of which have been the subject of recent OIG reviews. First, PTO has experienced a

massive increase in patent and trademark filings and appeals, leading to the hiring of hundreds of new

examiners and administrative judges. Second, PTO has plans to consolidate its operations in northern

Virginia (see page 12). According to PTO management, the PBO transition will enable it to make the rapid

decisions needed to process the increased number of patent and trademark filings and appeals in a timely

manner, while maintaining high quality, and to more efficiently manage its resources.

Despite the act’s potential benefits, the transition is a formidable undertaking. PTO must formulate the

necessary personnel, procurement, and administrative policies and develop a performance-based process

with standards for evaluating cost-effectiveness, while meeting its performance goals under GPRA.

PTO already faces enormous challenges in trying to deliver essential information technology capabilities. With its increased focus on operational efficiency and new provisions requiring information technology

solutions, the act will intensify the demands placed on automated systems and further strain PTO’s ability to

deliver systems. For example, under the new law, patent applications that have been filed abroad must be

published within 18 months of their U.S. filing date, and PTO has decided to publish the applications in

electronic form. Yet implementation of this and other provisions of the law will require new and enhanced

systems.

Increase the Effectiveness of Fishery Management

Ensuring healthy stocks of fish and other marine animals in the coastal waters beyond each state’s

jurisdiction is a federal responsibility carried out principally by NOAA’s National Marine Fisheries Service

(NMFS) and eight regional fishery management councils under the Magnuson-Stevens Fishery Conservation

and Management Act of 1976, as amended. Among other things, NMFS and the councils track the condition of these species, determine the levels of catch that will provide the greatest benefit to the nation, and

measure the economic impacts of fishery regulations and policies. Measures to manage fish and marine

species are usually developed by the councils, reviewed by NMFS, and approved by the Secretary of

Commerce. These measures are controversial because they impose fish quotas that affect both the survival

of a species and the economic health of the fishing industry and many coastal communities.

A recent GAO report concluded that NMFS appears to be using the best available scientific information to determine the condition of fish and other marine species, appropriately considers the economic

impacts of conservation and management measures on fishing communities, and has technically met the

requirements of the Magnuson-Stevens Act by identifying essential fish habitats and developing a consultative process for addressing potential adverse impacts to those habitats. However, GAO concluded that

improvements were needed in all three areas and made recommendations to strengthen NMFS’s data

collection efforts, improve communications between the government and the fishing industry, improve

economic analysis, and identify the costs of achieving compliance with the act’s fish habitat provisions.

We are completing a review that focuses on the regional fishery management councils and is aimed at

identifying the management practices that have proven most effective in achieving fisheries management

goals and determining where improvements are needed.

IG’s Message for the Congress

18 Commerce OIG Semiannual Report

March 2000
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 (October 1, 1999) for which no management decision had been

made by the end of the period (March 31, 2000). The following table presents the overall status.

Report Category Appeals

Actions pending (October 1, 1999)

Submissions

Decisions

Actions pending (March 31, 2000)

1

1

0

0

Modifications

IG’s Message for the Congress

The two performance audits deal with the NMFS laboratory structure and NOAA’s light aircraft

operations. While both audits have been unresolved for more than a year, we have continued to explore

alternative approaches to resolution with NOAA (see page 63).

The two unresolved financial assistance audits involve EDA grant awards. We did not agree with

EDA’s response to our final report on one of the audits and are reviewing the agency’s revised audit resolution proposal. With respect to the second audit, EDA has requested clarifying information from the grantee

(see page 29).

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.

All seven appeals pending final decision by the Department involve NIST financial assistance audits.

Type of Audit Report Unresolved

Performance

Financial Assistance

2

2

19 Commerce OIG Semiannual Report

March 2000

 16

3

 7

12
Department of Commerce

Organization Chart

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

20 Commerce OIG Semiannual Report

March 2000
Bureau of

Export Administration

The Bureau of Export

Administration is primarily

responsible for the administration

and enforcement of the nation’s

system for controlling exports of

sensitive dual-use goods and

technologies. Under the Export

Administration Act and regulations,

BXA’s major functions include

formulating and implementing

export control policy; processing

export license applications;

conducting various policy,

technical, and economic analyses;

promulgating regulations;

conducting industry outreach; and

enforcing the act and regulations.

Export Administration

implements U.S. export control and

nonproliferation laws and policies

through export licensing,

commodity classifications, and

advisory opinions; technical,

economic, foreign availability, and

policy analyses; promulgation of

regulations; and industry outreach.

It also conducts various defense

industry base activities.

Export Enforcement participates

in reviews of export license

applications and conducts criminal

and administrative investigations of

the export control portions of the

Export Administration Act and

regulations. It also administers and

enforces the antiboycott provisions

of the act and regulations.

Actions Needed to Help Prevent Transfer of

Sensitive Technology to Countries of Concern

The National Defense Authorization Act for Fiscal Year 2000

directed the OIGs of the Departments of Commerce, Defense, Energy,

State, and the Treasury, and the Central Intelligence Agency to assess the

adequacy of current export controls and counterintelligence measures to

prevent the acquisition of sensitive U.S. technology and technical information by countries and entities of concern. The legislation mandates that the

OIGs report to the Congress annually until 2007.

To meet the first annual reporting requirement of the act, the Commerce OIG focused on three activities that the Department, principally

through BXA, carries out or participates in to help prevent the illicit

transfer of sensitive U.S. technology: deemed export control activities, the

Visa Application Review Program, and efforts in support of the Committee

on Foreign Investment in the United States (CFIUS). Our specific observations follow:

Deemed Export Control Regulations and

Compliance Need to Be Reviewed

Any release to a foreign national of technology or software subject to

the Export Administration Regulations is deemed to be an export to the

home country of the foreign national. Such “deemed exports” may involve

the transfer of sensitive technology to foreign visitors or workers at U.S.

research laboratories and private companies. In a June 1999 report on the

export licensing process, we concluded that not only are the deemed export

control policy and regulations ill-defined and poorly understood by many,

but the implementation of the regulations and compliance with them by

federal agencies and private companies appeared lax (see September 1999

issue, page 17). The lack of understanding by industry and federal agencies regarding the applicability and requirements of deemed export control

regulations could result in a transfer of sensitive technology to inappropriate end users.

We believe that some of the noncompliance with the deemed export

rule stems from ambiguity in the policy and the regulations. For example,

the term “fundamental research” needs to be better defined, and some of

the regulatory exemptions that affect national security need to be further

examined by policymakers.

21 Commerce OIG Semiannual Report

March 2000
Bureau of Export Administration

Export

Administration

Bureau of

Export

Administration

Export

Enforcement

22 Commerce OIG Semiannual Report

March 2000

To help determine whether U.S. high technology companies are

complying with the deemed export regulations, we sought to obtain a

reasonable estimate of what the level of license applications would be with

good compliance. But, because BXA was unable to provide such an

estimate, we instead compared the number of deemed export license

applications submitted to BXA during FY 1999 (783) with the number of

“high technology” employment visas issued to foreign nationals during the

same period (115,000). High technology visas are issued under a temporary visa category that includes such occupations as architects, engineers,

doctors, college professors, and computer programmers. Although clearly

not all such visa applicants would require export licenses, the tremendous

gap between the two numbers does indeed raise questions about U.S.

companies’ knowledge of and compliance with the regulations. We believe

that BXA needs to be more proactive in “getting the word out” to high

technology companies and industry associations.

In addition, evidence suggests that some federal agencies and

research facilities may not be in full compliance with the deemed export

regulations. For instance, when we provided BXA officials with the names

of a limited sample of 16 foreign nationals working on projects at NIST,

the officials made a preliminary determination that 3 of these individuals

might require deemed export licenses. In fact, we found that only two

federal agencies had submitted a total of five deemed export license

applications during FY 1999. This number appears low given the number

of foreign visitors and workers at federal research facilities that might have

access to export-controlled technology.

Visa Application Review Program Shows

Promise, but Refinements Are Needed

In 1998 BXA restructured its Visa Application Review Program to

better target applications of individuals who might be involved with

products and technologies most often needed for weapons of mass

destruction. From our review of a sample of 74 visa application referrals,

we conclude that the program is showing potential for helping achieve the

agency’s export enforcement mission. For example, some referrals to

BXA’s Office of Export Enforcement resulted in investigations aimed at

preventing illegal exports of sensitive technologies, and one referral to the

State Department resulted in a visa being denied.

Yet the program can be further improved. For example, the process

for reviewing visa applications would be enhanced by having checklists for

BXA’s analysts. In addition, the process for referring problematic applications to the Office of Export Enforcement could be made more efficient by
23 Commerce OIG Semiannual Report

March 2000

Bureau of Export Administration

making certain changes to the enforcement database to improve the way in

which referrals into existing open cases are routed to BXA field offices.

Improvements are also needed in the timeliness of referrals of potential

visa fraud cases to the State Department.

The Visa Application Review Program is part of a larger U.S.

government review of visa applications under the State Department’s Visas

Mantis program. The Visas Mantis program is an effort to prevent foreign

nationals from countries or entities of concern from gaining access to U.S.

high technology by having various federal agencies review visa applications. However, some of the agencies that receive the Visas Mantis cables

have curtailed their reviews because of resource shortages and limited

results from referrals to State. There is also a need for improved coordination and clearer delineation of each agency’s responsibilities under the

program. Furthermore, State officials say that they are limited in their

ability to deny visas because the Immigration and Nationality Act is vague

about when a visa may be denied. Also, State is not providing feedback to

the agencies involved in the program as to what action is taken on their

referrals. We suggested that BXA work with the other involved agencies to

formalize the Visas Mantis review program in a memorandum of understanding to help correct these problems.

Federal Efforts to Monitor Foreign

Investment Need to Be Reviewed

CFIUS, the interagency committee that reviews foreign investment in

U.S. companies for national security implications, is another mechanism

intended to assist in the federal government’s efforts to counter the loss of

sensitive technologies. Based on our limited survey work, we have concerns about the effectiveness of CFIUS, including the lack of mandatory

foreign investment reporting, the low number of investigations conducted

on company filings, and the appearance of a conflict of interest on the part

of the Treasury office that is charged with overseeing CFIUS in that it has

the dual responsibilities of “promoting” foreign investment as well as

“preventing” such investment when it could result in the loss of sensitive

technologies.

Therefore, we are suggesting that the interagency OIG review team

undertake a study to determine the scope of the problem regarding foreign

investment in U.S. companies with sensitive technologies by countries and

entities of concern, and to review CFIUS’s effectiveness and recommend

improvements, as necessary, to the way the federal government monitors

foreign investment in U.S. companies.
We are also highlighting two issues involving Commerce’s process for

reviewing CFIUS filings that warrant further assessment: (1) Should

Commerce’s lead responsibility for this program remain with the International Trade Administration, the Department’s primary trade promotion

agency, or be moved to BXA, the Department’s primary national security

agency? (2) Should BXA’s export enforcement and export licensing units

play a larger role in reviewing CFIUS notifications?

BXA agreed with most of the recommendations we made to address

our concerns, but said that current budget shortfalls would inhibit its ability

to implement some of them. BXA claimed that we did not thoroughly

assess the problems with deemed exports or demonstrate that our recommended remedies are appropriate. BXA also questioned the usefulness of

our comparison of the number of high technology visas to the number of

deemed export licenses. We believe that the number of such visas is a valid

indicator of the possible universe of deemed export license applications,

and we note that BXA used an increase in such visas as a justification for

requesting additional funding and positions for FY 2001.

BXA also questioned our recommendations that it both work to

clarify the deemed export regulations, and proceed with programs to

ensure compliance with the regulations. While we believe that the regulations would benefit from clarification, which we first recommended in our

June 1999 report, we also recognize that they are not so ambiguous that

they cannot be effectively enforced as is. (Office of Inspections and

Program Evaluations: IPE-12454)

Audit of FY 1999 Financial Statements

In accordance with the CFO Act, as amended by the Government

Management Reform Act of 1994, an audited financial statement must be

prepared covering all accounts and activities of each office, bureau, and

activity of the Department. For the audit of BXA’s FY 1999 financial

statements, as well as the audits of the statements of the other Commerce

reporting entities, the OIG contracted with independent public accounting

(IPA) firms. We defined the audit scope, selected the contractors, and

oversaw the performance of the audits and the delivery of the audit results.

An IPA firm issued an “unqualified” opinion on BXA’s FY 1999

financial statements for the second consecutive year. Financial statements

audits are a key measure for evaluating a bureau’s progress in meeting the

goals and objectives of the CFO Act. An unqualified opinion indicates that

Bureau of Export Administration

24 Commerce OIG Semiannual Report

March 2000
BXA and NOAA, which provides accounting support services to BXA,

have been successful in establishing an internal control structure that

facilitates the preparation of reliable accounting and financial information.

Although the IPA firm’s report did not identify any material weaknesses, it did cite two reportable conditions in BXA’s internal control

structure:

l Interagency agreement policies and procedures should be

implemented and followed.

l Accounts receivable balances should be supported.

BXA concurred with the facts, findings, and recommendations

contained in the audit report. (Financial Statements Audits Division:

FSD-11883-0-0001)

Y2K Preparations Were Effective, but Further

Risk Mitigation Was Recommended

The OIG reviewed the readiness of BXA’s critical systems for the

arrival of the year 2000. Our review involved assessing the bureau’s

preparations and recommending practical risk mitigation and contingency

planning activities. We focused primarily on BXA’s business continuity and

contingency plan (BCCP), which included strategies for dealing with any

Y2K-related disruptions, and its Day One plan, which covered the days

surrounding the century change.

At the time of our review, BXA operated two mission-critical information systems: the Export Control Automated Support System and the

Communications Infrastructure system. A third mission-critical system, the

Chemical Weapons Convention Information Management System, was to

become operational in calendar year 2000.

Our review revealed that BXA’s two existing mission-critical systems

had been successfully modified for Y2K compliance and that its new

system had been developed with Y2K-compliant software and hardware.

Moreover, BXA had initiated independent verification and validation in

October 1998 and reported in July 1999 that all three systems were Y2K

compliant. On this basis, we concluded that it was reasonable to expect

that the systems would function properly after December 31, 1999.

Bureau of Export Administration

25 Commerce OIG Semiannual Report

March 2000
We also found, however, that although BXA had developed a

thorough BCCP to identify contingencies for performing its core business

processes in the event that critical systems were not available, the bureau

had not tested its contingency plans, which were based primarily on

alternative manual processes. The Department had requested all of its

bureaus to follow GAO’s BCCP guidance, which stated that contingency

plans need to be tested to validate that they will satisfy the bureaus’ needs.

We recommended that BXA validate its BCCP by conducting tests

and rehearse its Day One plan with the team responsible for responding to

Y2K-related failures. BXA responded that it did not plan to test the BCCP

because alternative core business processing methods had been used

successfully during the 1996 furloughs. BXA also stated that there was

insufficient time before the end of the year to run the recommended test

and that the marginal gains to be achieved from testing would not justify

the resources expended.

In response, we pointed out that during furloughs, systems were not

disabled, as they could be as a result of Y2K problems, and observed that

only export license applications submitted in paper format were processed

during those furloughs, whereas 60 percent of applications were now

submitted electronically. Ultimately, however, BXA opted not to perform

the recommended testing before the century change, and fortunately

experienced no Y2K-related problems. (Office of Systems Evaluation:

OSE-12551)

Employee Retired to Avoid Facing Disciplinary

Action for False Representation

A BXA employee retired from federal service in the face of proposed

disciplinary action stemming from an OIG investigation that found he had

leased office space for personal use by falsely representing that it was to

be used for official government business. (Denver Field Office of Investigations)

Bureau of Export Administration

26 Commerce OIG Semiannual Report

March 2000
Economic Development

Administration

The Economic Development

Administration was established

under the Public Works and

Economic Development Act of

1965, as amended, including the

comprehensive amendments by

the Economic Development

Administration Reform Act of 1998,

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.

27

Audit of FY 1999 Financial Statements

EDA received an unqualified opinion on its FY 1999 financial

statements for the second consecutive year. However, the IPA firm under

contract to us that conducted the audit identified two reportable conditions,

the first of which is a material weakness:

l EDA did not collect actual data from grantees to estimate its

accrued grant expense.

l EDA’s financial management systems contained control

weaknesses.

This performance represented an improvement from FY 1998, when

the auditors identified four reportable conditions, one of which was a

material weakness.

Under the Federal Financial Management Improvement Act of 1996,

auditors are required to report on whether the bureau’s financial management system substantially complies with federal financial management

system requirements, applicable accounting standards, and the U.S.

Government Standard General Ledger at the transaction level. The firm

identified two instances of material noncompliance with the act:

l The financial management system used by EDA for its grant

accounting does not comply with the Standard General Ledger at

the transaction level.

l The financial management system used by EDA for salaries and

expenses does not comply with certain system requirements.

Although progress has been made in strengthening financial management, EDA must continue its efforts to resolve the identified material

weakness and reportable condition. Of particular importance is the need to

address EDA’s methodology for determining accrued grant expense.

(Financial Statements Audits Division: FSD-11885-0-0001)

Defense Adjustment Implementation

Grant Was Properly Administered

In July 1995, EDA awarded a $3 million Title IX Defense Adjustment Implementation grant to a private organization to renovate several

buildings at the former Castle Air Force Base in California to create a U.S.

Commerce OIG Semiannual Report

March 2000
Economic Development Administration

Program

Operations

Economic

Development

Administration

Cong. Liaison,

Program

Research and

Evaluation

Finance and

Administration

28

Aviation Discovery Exposition. The project was part of an intense coordinated response to negative economic conditions in the state, long-term

poverty and unemployment in Merced County, and the September 1995

closure of the base and the consequent loss of its combined civilian and

military annual payroll of over $225 million. In 1998, because of changed

conditions, EDA provided the agency with an additional $1.3 million in

federal funds to complete the project. The amendment brought the EDA

share of the award to $4.3 million, or about 90 percent of the total estimated project cost of nearly $4.8 million.

The EDA-funded project was officially completed in July 1999. An

OIG audit of the project revealed no significant deficiencies or adverse

findings. No problems came to our attention during the audit; the organization complied with the award terms and conditions, accomplished the

scope of work of the award, accounted properly for project expenditures,

and claimed the appropriate share of federal costs. Accordingly, we made

no recommendations. (Seattle Regional Office of Audits: STL-12659-0-

0001)

Quality Control Review of Nonfederal

Audit Found Minor Deficiencies

The OIG performed a quality control review of an audit conducted

by an independent public accountant of a Massachusetts nonprofit organization responsible for implementing a trade adjustment assistance program

for manufacturing firms located in the New England States. The

organization’s primary support is an EDA award to assist firms that have

experienced a decline in revenue due to foreign competition. During 1998

the organization spent approximately $1.8 million under the award, of

which $1.1 million was federal funds. As the oversight agency for the

organization, we performed our review to determine whether the audit was

conducted in accordance with government and generally accepted auditing

standards, and whether the audit report meets the requirements of OMB

Circular A-133, Audits of States, Local Governments, and Non-Profit

Organizations.

Our review found that the auditor’s working papers supported the

audit report and that the audit complied with audit standards. However, we

identified certain deficiencies that, although not material, needed to be

addressed. To address these minor deficiencies, we recommended that the

auditor provide sufficient information on the effect of each audit finding

reported, verify that information on the data collection form submitted to

the audit clearinghouse is accurate, and obtain all appropriate management

Commerce OIG Semiannual Report

March 2000
Economic Development Administration

29

representations related to federal awards that are recommended by the

American Institute of Certified Public Accountants. (Atlanta Regional

Office of Audits: ATL-12073-0-0001)

Audit Reports Unresolved for Over Six Months

As of March 31, 2000, two financial assistance audit reports had

recommendations that have remained unresolved for more than six

months.

The first report, DEN-10586-9-0001 (see March 1999 issue,

page 28), has been carried over from the last two reporting periods. The

audit found that a nonprofit grantee in Texas had disregarded procurement

standards in awarding a $244,250 contract to a consulting firm. The audit

also questioned $258,838 in salary costs and in-kind contributions because

of inadequate supporting documentation. We did not concur with EDA’s

initial audit resolution proposal, and we are continuing to work with EDA

to resolve our disagreement.

In the second report, ATL-09999-9-0031, the auditors found that the

grantee had not complied with procurement standards. In February 2000,

EDA requested that the grantee provide clarification of the applicable grant

numbers. EDA is awaiting that clarification before submitting an audit

resolution proposal.

Commerce OIG Semiannual Report

March 2000
Economics and

Statistics Administration

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.

Commerce OIG Semiannual Report

March 2000 30

Decennial Personnel and Payroll System Appears

Adequate, but Better Software Practices Needed

As the largest peacetime civilian mobilization in the United States, the

2000 Decennial Census will process over 3 million applicants for more

than 860,000 temporary jobs. The Census Bureau will rely on the PreAppointment Management System/Automated Decennial Administrative

Management System (PAMS/ADAMS) for all applicant processing,

personnel actions, and payroll functions for temporary employees during

the decennial. PAMS/ADAMS, initially deployed to support the 1998

Dress Rehearsal, has been in use since then and has undergone significant

changes.

The OIG conducted an evaluation to determine whether PAMS/

ADAMS would provide accurate, timely hiring and payroll processing

during the decennial. Because an earlier OIG review found that the way in

which daily payroll forms were being processed during the dress rehearsal

allowed employees to be paid more than once for the same hours worked,

we also checked to see whether the bureau had solved this problem. As a

consequence of other dress rehearsal problems, the bureau is developing

an alternative data entry system, called PAMS/ADAMS Data Entry

(PADE). At the bureau’s request, we also assessed its approach to testing

PADE.

In developing PAMS/ADAMS, the bureau did not follow a wellmanaged software development process. As a result, the bureau did not

have current and complete requirements and test documentation. Consequently, the accuracy and completeness of PAMS/ADAMS cannot be

determined by reviewing the bureau’s documentation or by independent

testing, activities normally associated with a systematic software development effort. However, we believe that the extensive operational use of

PAMS/ADAMS since the dress rehearsal, which has allowed the bureau to

identify and correct errors and to evaluate changes, provides reasonable

assurance that the system can support decennial operations.

The bureau addressed the duplicate pay issue by implementing procedures that required local census office (LCO) payroll clerks to request a

report from PAMS/ADAMS identifying employees who submitted multiple

payroll forms for a particular day and then review the report to check for

duplicate reporting of hours worked. The possibility of duplicate pay

remained, however, because the approach relied on human action to

request the report. A more effective approach would be for the PAMS/

ADAMS software to automatically check for multiple payroll forms and

produce the report.
31 Commerce OIG Semiannual Report

March 2000

The new data entry system, PADE, was developed without requirements, design, or testing documentation; therefore, we were unable to

assess the adequacy of testing. In addition, the software that transfers the

data from LCOs to regional census centers has serious performance

problems, so this component is being redesigned. Nonetheless, operational

testing and use of PADE in the field suggest that it processes data correctly

and has the potential to significantly improve the efficiency of payroll and

applicant processing operations. Therefore, we concluded that the bureau

should continue to develop PADE, test it at headquarters, and use it

operationally, with the goal of having it ready for use in all LCOs in time

for the February 2000 update/leave operation. Based on PADE’s performance in that operation, the bureau could decide whether it should be used

as the principal system during the decennial.

Although the operational use of PAMS/ADAMS provided assurance

that the system would work as intended, a well-managed software development process would have increased the bureau’s and our confidence by

producing documentation and applying techniques to allow issues regarding

accuracy, completeness, and performance to be identified and corrected

during development rather than in operation. Moreover, such a process

would have prevented disruptive problems during the dress rehearsal,

obviated the need for the late redesign of the data entry component, and

reduced cost.

We have found similar problems with software development for

other decennial information processing systems, and we reported that

while the bureau has software engineering standards, their use is not

required, nor are they widely used. Better software management practices

would improve timeliness, quality, and user satisfaction and reduce

development and maintenance costs for all census systems. Although it is

too late to attain significant improvements for the 2000 Decennial Census,

the bureau should make a concerted effort to improve software development for all future programs, decennial and nondecennial alike.

We recommended that the bureau strengthen its procedures for

identifying and avoiding duplicate pay; continue development, testing, and

field evaluation of PADE; and ensure that the capability to use the nonPADE version of PAMS/ADAMS is retained in every LCO in the event

that PADE cannot be deployed for the decennial. The bureau has agreed

with and implemented all of our recommendations. After we issued our

report, PADE was used successfully for the update/leave operation, and it

is now being used for the remaining applicant processing and payroll

functions. (Office of Systems Evaluation: OSE-11684)

 Economics and Statistics Administration

Economics and

Statistics

Administration

Bureau

of the

Census

Bureau of

Economic

Analysis
Economics and Statistics Administration

32 Commerce OIG Semiannual Report

March 2000

Accountable Property Used for the Decennial

Census Needs Improved Controls

In preparation for the 2000 Decennial Census, the Census Bureau

has established temporary field offices throughout the United States and in

Puerto Rico. At the close of 1999, there were 12 regional census centers

(RCCs), a Puerto Rico area office, 520 local census offices, and four data

capture centers in operation. Over $60 million in personal property will be

placed in these temporary field offices for the decennial.

The OIG conducted an audit of the adequacy of controls over

accountable personal property in the Boston, Dallas, and Los Angeles

RCCs. Accountable personal property includes capitalized personal

property, equipment with a unit cost of $2,500 or more, sensitive items

(those that are easily convertible to personal use or have a high potential

for theft), borrowed or leased property, and contractor or grantee accountable or sensitive property. We also conducted physical inventories at the

three RCCs, the Puerto Rico office, and six local census offices, two in

each of the three regions visited. Finally, we reviewed bankcard transactions at the three RCCs and Puerto Rico. Our audit of bankcard transactions disclosed that the bureau was properly administering the bankcard

program, and that regional personnel were following appropriate internal

control procedures and exercising sound management practices in the

order, receipt, and recording of purchases.

However, we identified the following areas where the bureau needs

to better manage its accountable personal property:

l Property recording. Bureau personnel did not properly record

hundreds of items in the property books or in its automated

property management system. Much of the accountable personal

property located at the RCCs was not on the headquarters’ or the

RCCs’ inventory lists. We recommended that the bureau require

each RCC and area office to designate staff specifically to receive

personal property and maintain adequate accountability.

l Physical inventories. The bureau requires that complete physical

inventories of accountable personal property be conducted regularly, generally once a year. But physical inventories had not been

conducted at any of the RCCs we visited, although they had been

open for more than a year. Moreover, bureau capitalizable property records were not reconciled with financial records in a timely

manner. We recommended that the bureau ensure that required
Economics and Statistics Administration

33 Commerce OIG Semiannual Report

March 2000

inventories of accountable property are conducted annually and

that property and accounting records are adjusted to reflect the

inventory results.

l Transferred property. Bureau personnel did not adequately

control transferred personal property. Specifically, approval for

transferring property was not always documented, and transferred

property was not always posted on property records. In addition,

personnel did not obtain approval for and improperly documented

a loan of accountable property to another agency. We recommended that the bureau strengthen controls and oversight of the

property management system to ensure that transfers and loans of

accountable personal property are approved and documented in

accordance with procedures.

The bureau concurred with our recommendations, and we commend

it for its responsiveness in taking quick action to address our concerns. For

example, the bureau has now conducted full physical inventories in all 12

regions, and has designated staff to be responsible for receiving and

recording personal property. (Economics and Statistics Audits Division:

ESD-11781-0-0001)

Decennial Employees in Atlanta Region

Experienced Problems with Late Pay

In late 1998, the Census Bureau made certain policy and procedural

changes for the 2000 Decennial Census on the basis of lessons learned

from the 1998 Dress Rehearsal. Among these changes was to forgo

scanning forms for payroll processing and instead rely on keypunching for

data entry. As the bureau’s regional offices began their initial decennial

work in late 1998, the OIG’s Hotline began receiving complaints from

temporary decennial employees about late pay. Of the 204 late pay

complaints received by either the OIG or the bureau as of January 1999,

82 (40 percent) came from the Atlanta region. We therefore conducted an

audit of that region’s payroll operations to determine if the region’s temporary decennial employees were being paid promptly and accurately.

Our audit disclosed that during late 1998 and early 1999, the Atlanta

Regional Census Center experienced a variety of pay problems that led

employees to complain that they either had not been paid or had received

late or incorrect pay. We were concerned that, if not corrected, these

problems could undermine the bureau’s ability to hire and retain qualified

employees for the decennial. The specific problems experienced are

discussed below.
Economics and Statistics Administration

34 Commerce OIG Semiannual Report

March 2000

l Earnings statements were not received on time. Seventy

percent of the sampled resolved pay complaints received by the

Atlanta center involved misunderstandings about pay, rather than

actual late or incorrect pay. Starting in September 1998, earnings

statements were generated by the bureau’s national processing

center, rather than by the regions, as had been the case before.

Because the Atlanta center was late in providing its input to the

national processing center during the first month after the change,

employees did not receive their earnings statements on time. As a

result, they had difficulty reconciling the amount of their pay with

their records of hours worked and contacted Atlanta center payroll

personnel for further information.

l Employee pay was delayed. In examining pay records for 30

Atlanta region employees from October through December 1998,

we found that records for 27 (90 percent) showed instances of late

pay. Employee pay was delayed for two reasons. First, focusing

more on data production than personnel administration, crew

leaders did not always collect daily work records from their

employees and did not always provide daily records in time for

forwarding to the Atlanta center to meet payroll cutoff dates.

Second, employees’ failure to provide sufficient payroll information (such as bank routing symbols, bank account numbers, or

mailing addresses) caused automated payroll deposits to be

rejected or paychecks to be returned as undeliverable.

l Some employees received duplicate pay. When they became

concerned about not receiving their pay for certain days, some

employees resubmitted work records or submitted new work

records for those days, which resulted in their being paid twice for

the same work. In response to an earlier OIG recommendation

about this problem, the bureau added a “flag edit” to the pay

system, which is designed to generate an exception report when

multiple work records are submitted for the same date.

We made several recommendations to address the identified pay

problems. The bureau agreed with our recommendations and has taken

steps to implement them. (Atlanta Regional Office of Audits: ATL-11640-

0-0001)
Census Bureau Y2K Preparations Effective,

but Improved Contingency Planning Needed

The OIG reviewed the readiness of the Census Bureau’s critical

systems for the Y2K century change. Our review involved assessing the

bureau’s preparations and recommending practical risk mitigation and

contingency planning activities. At the time of our review, the bureau had

successfully replaced and tested its systems in preparation for Y2K and

had made progress in developing a business continuity and contingency

plan. The bureau reported that all of its mission-critical systems were Y2K

compliant.

We found, however, that further actions were needed to ensure the

continuity of critical business processes in the event of Y2K-related

systems failures. The following were our specific observations:

l Contingency plans needed further development, and test

plans and tests were needed for critical systems included in

the September draft BCCP. Our review disclosed that the bureau

had not developed detailed contingency plans, and therefore

implementation of its BCCP could not ensure the continued

delivery of minimally acceptable levels of outputs or services in

the event of Y2K failures. Moreover, test plans needed to be

developed, test teams established, business resumption teams

rehearsed, and tests executed to validate contingency plans.

l Contingency plans, test plans, and tests were needed for

November additions to the BCCP. The bureau originally

excluded all decennial systems from its BCCP because most

would not begin production until March 2000 or later. But three

mission-critical systems were operating in preparation for the

decennial, and at our suggestion, the bureau added them to the

November 1999 draft of its BCCP. Because they were added late

in the process, these important systems were not supported by

detailed contingency or test plans.

We made recommendations to address our concerns. Responding

after the start of the new century, the bureau stated that all of its systems,

including the three added to the November BCCP, had been tested and

that no Y2K-related errors had been found, and that all operations were

functioning properly in the year 2000. (Office of Systems Evaluation:

OSE-12200)

35 Commerce OIG Semiannual Report

March 2000

Economics and Statistics Administration
Audit of Census’s FY 1999 Financial Statements

For FY 1999, the Census Bureau received an unqualified opinion on

its financial statements. This is an especially noteworthy accomplishment,

considering that the bureau received a disclaimer of opinion on its FY 1998

Statements of Net Cost, Changes in Net Position, Budgetary Resources,

and Financing.

While we commend the bureau for achieving an unqualified opinion,

it still needs to address deficiencies in its internal controls. The IPA firm

conducting the audit under contract to us identified three reportable

conditions in the bureau’s internal control structure, all of which are

material weaknesses:

l Financial management and reporting. The bureau continued to

experience significant difficulties and delays in producing

complete, accurate financial statements in accordance with

departmental guidelines. Moreover, it did not provide sufficient

financial management oversight and supervisory review of the

financial statements throughout the year-end reporting process,

nor did it prepare timely financial statements throughout the year.

Bureau management, at the highest level, must make financial

management improvement a top priority. Addressing the material

weaknesses is a prerequisite to improving financial responsibility.

Concerted efforts are needed to improve the internal control

structure and promptly implement corrective actions for the

preparation of financial statements for FY 2000.

l Account reconciliations. The firm found that many key financial

statement account balances were not reconciled in a timely

manner throughout the fiscal year and at year-end. Specifically,

account reconciliations and accompanying journal vouchers for

Fund Balance with Treasury, Fixed Assets, Deferred Revenue,

Accounts Payable, Other Liabilities, and Budgetary Accounts were

not adequately supported or properly reviewed, and required

extensive follow-up and revisions.

l Information system reporting and controls. In connection with

the FY 1999 audit, the bureau worked diligently to improve its

routine reporting functions and information system requirements.

However difficulties still existed in its ability to routinely produce

timely reports.

36 Commerce OIG Semiannual Report

March 2000

Economics and Statistics Administration
In conjunction with the audit, the IPA firm conducted a general and

environmental controls review of the bureau’s information systems in

accordance with applicable sections of GAO’s Federal Information System

Controls Audit Manual. The review identified weaknesses in five of the

six review areas set forth in the GAO Manual: (1) entitywide security program planning and management, (2) access control, (3) system software

control, (4) segregation of duties, and (5) service continuity. Together,

these weaknesses, if not resolved, could adversely affect the security of

the data, programs, and hardware maintained at the bureau and have a

negative impact on both the bureau’s financial statements and the Department’s consolidated statements. The firm considered the aggregation of

these weaknesses, coupled with the lack of compensating controls, to be a

material internal control weakness and included this issue in its Report on

Internal Control, as discussed above.

The IPA firm discussed these weaknesses, and made recommendations for correcting them, in a separate report on systems issues. The

bureau generally agreed with the accountants’ recommendations for

addressing the identified weaknesses and stated that corrective actions

would be taken. Issues with which the bureau disagreed relating to system

deficiencies will be addressed in detail during the FY 2000 financial

statements audit. (Financial Statements Audits Division: FSD-11884-0-

0001, FSD-11884-0-0002)

Audit of ESA and BEA’s

FY 1999 Financial Statements

An IPA firm under contract to us issued an unqualified opinion on the

FY 1999 consolidated financial statements of the Economics and Statistics

Administration and the Bureau of Economic Analysis. This was the fifth

consecutive year that these bureaus had received a clean (unqualified)

opinion. Moreover, for the first time, the accountants identified no material

weaknesses or reportable conditions in ESA and BEA’s internal control

structure, and no instances of noncompliance with laws and regulations.

This represented a substantial improvement over the FY 1998 audit, which

identified two reportable conditions and one instance of material noncompliance with laws and regulations. (Financial Statements Audits Division:

FSD-11886-0-0001)

37 Commerce OIG Semiannual Report

March 2000

Economics and Statistics Administration
38 Commerce OIG Semiannual Report

March 2000

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. Its main objectives are to

obtain market access for American

firms and workers and to achieve

full compliance by foreign nations

with trade agreements signed with

the United States.

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 105

domestic offices and 138 overseas

posts in 75 countries.

International Trade

Administration

Audit of FY 1999 Financial Statements

An IPA firm under contract to us issued an unqualified opinion on

ITA’s FY 1999 financial statements. This notable achievement, the first

“clean” opinion received by ITA, was largely the result of significant

financial management improvements made by the bureau, including a

number of organizational and managerial reforms, such as hiring managerial staff, outsourcing accounting processing, and working to clean up its

financial records.

The firm, however, did identify three reportable conditions, all of

which were considered to be material weaknesses. The weaknesses were

in (1) the control environment, (2) the financial reporting process, and

(3) financial management systems.

In reviewing ITA’s compliance with laws and regulations, the firm

also found that ITA’s financial management systems did not substantially

comply with the Federal Financial Management Improvement Act. Specifically, the bureau’s accounting system, which was replaced near the end of

FY 1999, was not compliant with Joint Financial Management Improvement Program requirements. In addition, ITA grants were processed by

EDA’s non-JFMIP compliant system for a significant part of the year. In

both cases, ITA has begun using the Department of the Interior’s JFMIPcompliant accounting system. Because the new system is to be fully

operational for FY 2000, no remedial actions were recommended.

Other matters discussed included ITA management’s representation

that certain budgetary authority was used for other than intended purposes,

and the IPA firm’s inability to determine whether ITA was in full compliance with the requirements of OMB Circular A-25, User Charges. The

firm recommended that ITA resolve the user charges issue by September

30, 2000. (Financial Statements Audits Division: FSD-11887-0-0001)

MDCP Award Procedures Promote Merit-Based

Decisions, but Practices Need More Discipline

Through its Market Development Cooperator Program (MDCP),

ITA provides financial assistance to nonprofit industry organizations, trade

associations, state departments of trade, and other industry groups for

projects that develop, maintain, and expand foreign markets for U.S.

nonagricultural goods and services. In FY 1997, ITA officials received 41

applications seeking program funding of over $10 million, selected 38 for

review, and ultimately awarded 6 grants, totaling about $1.8 million.
Import

Administration

Market

Access and

Compliance

Trade

Development

U.S. and Foreign

Commercial

Service

International

Trade

Administration

International Trade Administration

As part of our Department-wide review of discretionary financial

assistance programs, we examined ITA’s criteria, procedures, and practices

for soliciting, reviewing, and selecting MDCP awards. Our review disclosed that ITA’s application solicitation and selection processes complied

with statutory, departmental, and ITA requirements. ITA’s application

review practices, however, did not fully meet those requirements. Specifically, we found that ITA:

l Developed and published merit-based technical and public policy

criteria that were consistent with the program’s objectives.

l Conducted application solicitation efforts that exceeded the

Department’s and ITA’s requirements for an annual notice in the

Federal Register and were sufficient to obtain a widespread

response from eligible applicants.

l Evaluated applications using a review panel that did not fully meet

the Department’s independence requirement and could not provide

documentation to verify that the panel reviewed all eligible

applications.

l Contrary to published review procedures, allowed program staff to

review and rank FY 1998 applications.

We recommended that ITA (1) discontinue the prescreening of

applications by program staff and ensure that all eligible applications are

reviewed by an independent review panel, (2) ensure that the review

process is adequately documented and that documentation is retained for

seven years, as required, and (3) ensure that the review and selection

process is consistent with the public announcement.

ITA agreed with our second and third recommendations, but disagreed with our first recommendation, that it discontinue its practice of

allowing applications to be initially reviewed and ranked by program staff.

ITA considers program staff comments to be an invaluable part of the

application review process. Our recommendation was not intended to

prohibit ITA from considering the comments of program staff, but rather

to prevent program staff from effectively eliminating eligible applications

from an independent panel review. We are currently reviewing ITA’s action

plan submitted in response to our report. (Atlanta Regional Office of

Audits: ATL-10999-0-0001)

39 Commerce OIG Semiannual Report

March 2000
OIG Overseas Work Continues with

Reviews of Three US&FCS Posts

During this semiannual period, the OIG continued its reviews of

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

and Foreign Commercial Service (US&FCS). Our reviews are generally

designed to evaluate the posts’ operational effectiveness and determine

whether they are efficiently accomplishing their mission of providing U.S.

companies, especially small and medium-sized ones, with export assistance. In the following sections, we summarize the reports we issued on

three US&FCS posts—Hong Kong, Vietnam, and France.

Hong Kong

On July 1, 1997, Hong Kong reverted to Chinese sovereignty after

more than 150 years of British rule. The island has long been economically

integrated with China due to its proximity and cultural ties. The strong

economic relationship that Hong Kong has with the United States is

evident in the over 1,100 U.S. businesses represented in Hong Kong, the

$19 billion in U.S. direct investment in the island, and two-way trade of

more than $23 billion in 1998. Hong Kong is both a major destination for

U.S. exports and a springboard for trade with southern China.

The US&FCS post in Hong Kong had a FY 1998 operating and

administrative budget of nearly $2 million and a staff of 4 foreign commercial officers, 10 foreign service nationals, and 14 personal services

contractors. An OIG inspection of the post found that it was fulfilling its

trade promotion mission and appeared to be meeting the needs of U.S.

businesses. However, we identified the need for improvements in strategic

planning, coordination, and internal controls. Some of our specific findings

are discussed below.

l Post was meeting clients’ needs with high-quality products

and services, but better targeting was needed. Clients whom we

interviewed rated the post’s services quite highly, and our review

of a sample of products and services confirmed that favorable

opinion. For example, the post had developed an innovative faxback and on-line system to enable U.S. companies to obtain

weekly up-to-date commercial and economic reports that outline

business opportunities in the Asia-Pacific region. However, we

found that the Industry Sector Analyses relied excessively on

standardized sections, and the Agent/Distributor Service and the

Gold Key Service need better targeting.

40 Commerce OIG Semiannual Report

March 2000

International Trade Administration
l Reporting of success stories was insufficient in FY 1998, but

improved in FY 1999. US&FCS Hong Kong reported only 32

success stories in FY 1998 (its average number of success stories

per staff member was about half the average for the East AsiaPacific region). But the post had increased its number of success

stories to 46 in just the first quarter of FY 1999 as a result of staff

training and an emphasis by the Senior Commercial Officer (SCO)

on reporting such accomplishments.

l Coordination was excellent with the consulate and nonfederal

trade promotion organizations, but could be improved with

other ITA units. Officials from the U.S. consulate gave high

marks to the work of US&FCS Hong Kong. The SCO was

meeting regularly with his counterparts in the economic and

political sections and cooperating with them on export control

activities, trade shows, and other events. Officials of nonfederal

trade promotion organizations in Hong Kong complimented the

post on its efforts to coordinate activities and help their member

companies. The degree of coordination with other ITA units was

mixed, however. Although the post worked well with some Trade

Development offices, coordination with Market Access and

Compliance was limited to high-level visits, and the post did not

fully utilize the US&FCS domestic teams.

l BXA end-use checks were being conducted properly and in a

timely fashion. In compliance with export control regulations,

US&FCS Hong Kong completed 12 post-shipment verifications

and 1 pre-license check in FY 1997 and routinely coordinated

both types of end-use checks with most other consulate sections,

such as the economic and political sections and the U.S. Customs

Service. The post agreed with our suggestion that it also

coordinate these checks with the consulate’s defense attaché.

l Better regional planning was needed. The US&FCS Regional

Director for East Asia-Pacific in Washington, who is charged with

management oversight of the region, had not provided the

necessary guidance and support to the post on programmatic

planning issues. Washington had not developed a regional plan for

US&FCS Hong Kong and other closely linked markets that

identified joint projects and events for the posts to work on. We

suggested that headquarters build on the excellent draft plan for

the China Economic Area that the current SCO in Hong Kong

developed when he was the post’s deputy.

41 Commerce OIG Semiannual Report

March 2000

International Trade Administration
l The SCO should develop a strategic plan. Although it was too

soon to thoroughly evaluate the post’s new management at the

time of our visit, it was nonetheless clear that US&FCS Hong

Kong needed a formal strategic plan to effectively define,

prioritize, and analyze its goals to better serve U.S. firms. The

post’s input into Consulate Hong Kong’s Mission Program Plan

was the only planning document the post produced.

l Budget was closely monitored, but some areas needed more

attention. US&FCS Hong Kong’s budget was closely monitored

because of sound management practices established by the former

SCO, systems implemented by the administrative assistant, and

good service provided to the post by staff of the consulate’s

Budget and Fiscal Office. However, we questioned whether some

representational expenses were used effectively to promote U.S.

commercial interests and whether some expenditures for recruiting

job candidates were justified.

l Post should improve internal controls. More documentation

was needed to support justifications for representational funds,

time and attendance records, and use of the official vehicle. The

SCO should also exercise greater control over the authorization of

overtime. Moreover, the post needed to officially document all

property purchased for officers’ residences to ensure that property

and other assets are safeguarded against fraud, waste, and abuse.

Duties related to the deposit of user-fee collections needed to be

separated, and a foreign commercial officer should be approving

deposits of funds and ensuring that they were made weekly.

l ICASS was working well at Hong Kong Consulate. The

International Cooperative Administrative Support Service

(ICASS), the State Department system for distributing overseas

support costs to federal agencies overseas based on the services

received, appeared to be working well in Hong Kong. US&FCS

was actively participating in the ICASS Council, which had a

positive relationship with the service providers. In addition, the

council’s formation of working groups composed of foreign

service officers and foreign service nationals who have expertise in

and knowledge of the specific service issues was a “best practice”

that we hope to see adopted by other ICASS Councils.

l Environmental Partnership program was cooperating well

with US&FCS Hong Kong staff, but coordination with other

ITA units was inadequate. The United States-Asia Environmental Partnership, an interagency program led by the U.S.

42 Commerce OIG Semiannual Report

March 2000

International Trade Administration
Agency for International Development, is well integrated with the

US&FCS Hong Kong commercial operation. The program and

US&FCS jointly recruit for and sponsor seminars and trade

missions and share client databases. However, the program, which

provides market research and promotes U.S. environmental

technology exports, has little interaction with Trade Development’s

Office of Environmental Technologies Exports. The program

could also benefit from working more with ITA’s domestic field

offices.

US&FCS generally agreed with our recommendations, and described

actions already taken or planned to implement some of them. For some of

our recommendations, the agency either said it would consider them

further or offered alternative suggestions to meet their intent. We will

continue to monitor US&FCS’s actions to correct the weaknesses we

identified. (Office of Inspections and Program Evaluations: IPE-11330)

Vietnam

During most of the 1990s, Vietnam had one of the fastest growing

economies in the world, with an 8-percent average annual GDP growth

rate fueled primarily by direct investment from its Asian neighbors. During

the recent financial crises in Southeast Asia, however, traditional sources

of capital in Vietnam dried up, and opportunities increased for other

foreign sources to enter the market. With an educational emphasis on

applied sciences and vocational training and a literacy rate near 90 percent,

Vietnam’s labor force remains attractive to foreign enterprises seeking to

develop their own manufacturing facilities in Vietnam.

However, many challenges remain for Vietnam and for firms choosing to do business there. For example, the government requirement that

domestic laborers working in foreign-owned manufacturing plants be paid

in foreign currency exposes foreign firms to a greater foreign exchange rate

risk on their production costs than they would face elsewhere. Corruption,

threats to intellectual property rights, and burdensome product licensing

requirements also pose obstacles for foreign firms considering entry into

the market.

Soon after the United States normalized relations with Vietnam in

1995, US&FCS sent an officer to Hanoi. In February 1997, the Hanoi

US&FCS office officially opened, and in September 1998, a constituent

post opened in Ho Chi Minh City, formerly known as Saigon. At the time

of our inspection, the staffing in Vietnam included 4 foreign commercial

43 Commerce OIG Semiannual Report

March 2000

International Trade Administration
officers, 14 foreign service nationals, and 2 personal services contractors.

In FY 1998, US&FCS Vietnam’s total operating expenses were

$1.82 million.

Our inspection of US&FCS Vietnam operations disclosed that both

posts were generally well run. Each post was engaged in innovative

initiatives that may be appropriate for adoption elsewhere. For example, in

Ho Chi Minh City, management developed and conducted a seminar that

was effective in educating Vietnamese businesses on the resources available to develop trade between the two countries. Management also started

a program in which its local staff share their expertise with one another

through in-house training courses. In addition, the Hanoi post has taken the

initiative to organize regional Gold Key Services for American companies.

At the same time, however, we found administrative oversight and controls

lacking in important areas that, if left unaddressed, could diminish the

posts’ efficiency and effectiveness. Our specific findings were as follows:

l US&FCS Vietnam is taking appropriate steps to build its

commercial program. During its first four years in Vietnam,

US&FCS has carried out much of the activity needed to establish

an effective commercial service presence in a new market. It has

focused resources on key program activities, including developing

contacts with local government officials, helping to establish

complementary U.S. government programs in Vietnam, and

starting to deliver core US&FCS program services. However,

many challenges remain for US&FCS to become an effective,

sustainable presence in Vietnam.

l Greater cooperation is needed in partnering efforts. US&FCS

has developed good working relationships with Vietnamese trade

promotion organizations in Hanoi and Ho Chi Minh City, and has

used them to develop contacts with local businesses and

government officials. In addition, in Ho Chi Minh City, US&FCS

has used the local commercial trade group to recruit Vietnamese

business representatives to participate in the International Buyer

Program and the post’s education seminar. Furthermore, US&FCS

has formed a partnership with the state of Florida, whereby a

contractor works for the state out of the Hanoi post and serves

US&FCS interests part-time. While the relationship between the

US&FCS staff and the state representative is good, the parties’

roles and responsibilities need to be more clearly defined.

44 Commerce OIG Semiannual Report

March 2000

International Trade Administration
l Weak internal control systems raise concern over the use of

funds and government property. US&FCS Vietnam has

developed a good system to track its finances, but it has not implemented proper internal controls to prevent fraud, waste, and abuse

of government funds and property. We found examples of waste

and abuse with operating and administrative funds, especially with

respect to charges for telephone calls. Specifically, in response to

our questioning, more than $10,000 worth of telephone calls were

identified as being personal calls, and reimbursements to the

government were made. Loose controls over the multiple financial

tracking systems in place at post—those of the State Department,

US&FCS, and ITA—create problems reconciling revenue from

the sale of products and services. In addition, more oversight of

administrative charges levied under ICASS is needed to ensure

that US&FCS is paying appropriate costs for the services it

receives. Finally, lack of controls over vehicles and cellular phones

has led to questionable use of government property.

l Underutilized Space in Hanoi and Ho Chi Minh City is of

concern. Each post has more office space than it uses or intends

to use within the next few years. Both facilities were designed and

built-out under a “business center” concept, justified by expectations that U.S. businesses and other partners would collocate with

US&FCS under various short-term arrangements. Such expectations have not been realized, and no planning for further recruiting

is underway. In addition, US&FCS’s decision to relocate its Hanoi

operation could have resulted in unnecessary facility costs had we

not questioned some of these costs, causing US&FCS to renegotiate its space requirements. In the future, US&FCS needs to

better assess and justify office space requirements overseas when

moving into commercial buildings, especially when it bases its

requirements on plans to share space with potential partners.

We made a number of recommendations to address our concerns.

US&FCS generally agreed with our recommendations and said that it

appreciated our balanced assessment of the strengths and weaknesses of

one of its newest posts. Acknowledging the lapses in the day-to-day

management of post operations, US&FCS said it had begun taking corrective actions to address our concerns. (Office of Inspections and Program

Evaluations: IPE-11798)

45 Commerce OIG Semiannual Report

March 2000

International Trade Administration
France

France, with the world’s fourth largest industrial economy, is one of

the United States’ most important political, cultural, and economic partners. In 1998 U.S. exports to France totaled about $18 billion, and imports

were valued at about $24 billion. France is the United States’ ninth largest

trading partner and its third largest market in Europe (after the United

Kingdom and Germany).

US&FCS’s eighth largest post is in France, with a budget of

$1.9 million in FY 1999. At the time of our review, the post employed

6 American officers, 22 foreign service nationals, and 8 personal services

contractors. According to US&FCS senior officials, until recently

US&FCS France had been considered a productive export promotion post,

with a dedicated and professional staff.

In late September 1999, however, the US&FCS Director General

asked the OIG to conduct a limited, quick-response review of US&FCS

France, due to management’s concerns about administrative, financial, and

management problems that had developed in Paris.

Our review focused on identifying the key management, administrative, and financial problems in Paris that needed to be addressed immediately by the interim SCO, who was temporarily assigned to the post from a

nearby US&FCS post, and by the new SCO and Deputy SCO, who were

to arrive at the post in the coming months. Because of the need for swift

action, the scope of our review did not include the post’s program operations or effectiveness.

We found that the US&FCS office in Paris had a very serious morale

problem, had been operating with an ineffective organizational structure,

and was beset with financial and administrative problems. By most

accounts, the problems were attributable to the ineffective management

styles and lack of leadership and appropriate oversight of two previous sets

of senior managers. Our specific observations were as follows:

l Administrative and financial problems and errors were

widespread. Our review of US&FCS France’s administrative and

financial practices, transactions, and procedures uncovered a

significant pattern of errors since FY 1998. Specifically, adequate

internal controls were not in place; policies, procedures, and

regulations were not adhered to; multiple errors occurred in the

FY 1999 trust fund data; questionable expenditures were made;

46 Commerce OIG Semiannual Report

March 2000

International Trade Administration
unliquidated obligations were not deobligated; personnel matters

were not handled appropriately; and relationships with the

embassy’s Budget and Fiscal Office and Personnel Office

deteriorated. These problems had two primary causes: First,

successive management groups paid little or no attention to

administrative and financial operations. Second, the absence of

staff due to long-term leave and the inadequate training of the

remaining staff left the post’s administrative group temporarily

short-handed.

l Controls and oversight for credit card purchases were

inadequate. ITA has not implemented adequate controls over the

use of credit cards to ensure that overseas posts stay within funds

authorization limits, expenditures are charged against the

appropriate accounts, only acceptable expenditures are charged,

and procurement regulations are followed. Recent changes by

ITA’s Office of Financial Management, instructing posts to

forward credit card statements directly to the processing center in

Denver, thus bypassing Washington, leave serious oversight gaps.

Without receiving post credit card statements, neither the Office of

Financial Management nor US&FCS headquarters can ensure that

correct accounting classifications have been applied to itemized

expenditures and that posts have not exceeded authorizations. In

reviewing statements for US&FCS France, we found many

expenditures that had not been authorized by headquarters for

payment by credit card.

l Reorganization needed to account for vacancies and officer

reassignment. US&FCS France needed to reorganize its personnel and functions in light of resignations, extended vacancies in

key positions, current overstaffing in the administrative group, and

the reassignment of one of the US&FCS Paris officers to

Toulouse. Other staffing adjustments were needed to address the

attrition of staff within the industry groups, the SCO’s and Deputy

SCO’s offices, and the Commercial Information Center. Finally,

staff at US&FCS France’s three constituent posts (Lyon,

Marseilles, and Strasbourg) were being underutilized. Given these

factors, we proposed a reorganization of the post’s personnel,

functions, and reporting relationships. US&FCS France has since

expanded, improved upon, and implemented our proposal.

l Post staff morale and credibility with other embassy elements

have been damaged. US&FCS headquarters took a number of

interim steps to try to deal with some of the management

47 Commerce OIG Semiannual Report

March 2000

International Trade Administration
problems at the post. However, considerable damage had already

been done to staff morale and the post’s credibility with the

embassy’s budget, finance, and personnel offices, and with top

embassy officials. According to post staff, junior officers, and

headquarters officials, previous management groups were

inadequately engaged in post operations and, when they were

engaged, set unrealistic goals, communicated poorly with the staff,

and failed to provide adequate guidance. While US&FCS

headquarters’ actions were ultimately unsuccessful, they were

measured responses that eventually supported more serious steps

taken later. We made a number of recommendations to address

the remaining management problems, including measures designed

to improve the new post leadership’s communication with the

staff, strengthen its planning and performance measurement, and

increase US&FCS headquarters’ near-term monitoring of the

post’s internal operations.

US&FCS officials said that our draft report was a useful, comprehensive review of the post’s recent problems and an excellent tool for new

post management and headquarters to use in addressing the problems. The

agency agreed with most of our recommendations and noted that significant progress had been made in implementing them. (Office of Inspections

and Program Evaluations: IPE-12428)

Y2K Risk of Interrupted Operations Was Low,

but Day One Planning Needed Improvements

The OIG conducted a review of ITA’s efforts to reduce the risk of

business interruptions in the event that its computer systems’ were unable

to accommodate the Y2K century change. Specifically, we examined ITA’s

Day One plan for managing the critical period from December 30, 1999,

through January 4, 2000, and its contingency plans for continuing operations in the event of computer system failures. Our review reached the

following conclusions:

l The risk of interrupted service was low. ITA’s risk of business

interruption due to Y2K system failures was generally low because

most of the activities supported by computers were not time

critical and, for most potential failures, bureau staff could revert to

other computers or manual operations without significantly

degrading performance.

48 Commerce OIG Semiannual Report

March 2000

International Trade Administration
49 Commerce OIG Semiannual Report

March 2000

International Trade Administration

l The Message Processing System contingency plan needed to be

completed. This system, which sends and receives cables via the

State Department’s cable services, is an important means of

communication for ITA headquarters and worldwide offices.

Contingency plans for this system involved relying on the services of

two other federal telecommunications facilities. Yet, at the time of our

review, a memorandum of understanding with these facilities to

formalize the contingency arrangements had not been completed.

l The Day One plan needed to be updated and validated. ITA’s

plan did not contain the level of detail necessary to carry out an

effective Day One strategy, although the bureau said it was updating

its plan with more details. Moreover, ITA needed to validate its plan

through an independent review to ensure that it would work properly.

We made several recommendations to address the weaknesses we

identified. ITA agreed to implement our recommendations before the Y2K

century change, and its information technology systems experienced no Y2Krelated problems. (Office of Systems Evaluation: OSE-12550)

Two Former US&FCS Employees Convicted

of Scheme to Defraud the Government

Two former employees of US&FCS’s Eastern Regional Office in

Baltimore were convicted of making false statements to the government after

an OIG investigation revealed their participation in a scheme to defraud the

government by submitting nearly $12,000 in false travel vouchers and falsifying documents in an attempt to obtain $1,500 cash awards. Both employees

resigned from federal service during the investigation. They were each

sentenced in the U.S. District Court for the District of Maryland to 3 years’

probation, and ordered to make full restitution to the Department. (Washington Field Office of Investigations)

ITA Employee Reprimanded for Accepting Gifts

An international trade specialist received an official reprimand when an

OIG investigation disclosed that over a two-year period he had repeatedly

accepted meals and gifts from individuals whose business interests were

subject to his official actions. (Silver Spring Field Office of Investigations)
50 Commerce OIG Semiannual Report

March 2000

Audit of FY 1999 Financial Statements

An IPA firm under contract to us issued an unqualified opinion on

MBDA’s FY 1999 financial statements, the fourth consecutive year for

which an unqualified opinion was received. The firm’s audit disclosed no

material weaknesses in MBDA’s internal control structure, but did identify

the following two reportable conditions:

l Controls over the preparation of the statement of budgetary

resources need improvement to ensure that the amounts reported

in the financial statements are accurate and supported.

l Controls over grant expenditure accruals need improvement to

ensure that amounts are properly identified and computed.

The firm did not identify any instances of noncompliance with laws

or regulations. (Financial Statements Audits Division: FSD-11888-0-

0001)

Internal Controls over Bankcard Use Are Sound

As part of its periodic reviews of Commerce units’ use of bankcards,

the OIG conducted an audit to determine whether MBDA was using its

bankcards in accordance with federal and departmental requirements.

During FY 1998, MBDA headquarters completed 462 bankcard transactions for a total of $361,192. We selected a random sample of 60

transactions, or 13 percent of the total, to test for errors in cardholder

records.

We found no prohibited transactions or other improper actions.

Cardholders stayed within their purchase limits, approvals were properly

documented, no transactions were split to avoid single purchase limits,

competitive bidding was sought when required, and cardholders properly

secured their cards to prevent unauthorized use.

We also found, however, that during FY 1998, MBDA’s acting head

contracting officer did not conduct the full annual review of card use

required under the Commerce Acquisition Manual. Instead, he performed

only limited procedures to determine whether authorizing officials had

properly approved selected transactions. We recommended that in the

future, complete annual reviews of bankcard use be conducted. MBDA

agreed to implement our recommendation. (Business and Trade Audits

Division: BTD-12022-0-0001)

Minority Business

Development Agency

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.

Finance and

Administration

Strategic

Planning

Program

Development

External

Affairs

Minority Business

Development

Agency
National Oceanic and

Atmospheric Administration

The National Oceanic and

Atmospheric Administration

studies climate and global change;

ensures the protection of coastal

oceans and the 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 Marine and Aviation

Operations. OMAO operates

NOAA’s ships and aircraft and

provides NOAA programs with

trained technical and management

personnel from the nation’s

seventh uniformed service.

51

Audit of FY 1999 Financial Statements

For FY 1999, NOAA received, for the first time, an unqualified

opinion on all of its financial statements. This is an especially noteworthy

achievement considering that in FY 1998 the bureau had received a

disclaimer of opinion on the Statements of Net Cost, Changes in Net

Position, Budgetary Resources, and Financing.

We commend NOAA management and staff on the significant

progress made in strengthening financial management. The results of the

FY 1999 audit, which identified only 4 reportable conditions and no

material weaknesses, are in marked contrast to the results of the FY 1997

audit, which identified 17 reportable conditions, 6 of which were material

weaknesses, and the FY 1998 audit, which identified 7 reportable conditions, of which 2 were material weaknesses.

The four reportable conditions were as follows:

l Accounting for construction work-in-progress should be improved.

l Information technology processing access control weaknesses and

other financial system deficiencies should be addressed.

l Controls over monitoring the budget should be improved.

l Interagency agreement policies and procedures should be

followed.

The IPA firm conducting the audit under contract to us also identified

two instances of material noncompliance with laws and regulations:

l Capital leases were not fully funded during the year.

l The bureau’s financial accounting system does not substantially

comply with the Federal Financial Management Improvement Act

of 1996 in that its financial management system does not support

the preparation of timely, accurate financial statements.

We recognize NOAA’s commitment to preparing high quality, reliable, and meaningful financial statements. While progress has been made

in many areas, NOAA needs to address the remaining reportable conditions. We encourage NOAA’s management to maintain concerted efforts to

improve the internal control structure and the timely implementation of

corrective action.

Commerce OIG Semiannual Report

March 2000
National Oceanic and Atmospheric Administration

National

Weather

Service

National

Ocean

Service

National

Marine Fisheries

Service

NESDIS

NOAA

Oceanic and

Atmospheric

Research

Marine and

Aviation

Operations

52

In connection with the FY 1999 audit, the IPA firm reviewed the

general controls related to the information technology processing environment associated with NOAA’s financial management systems in accordance with applicable sections of GAO’s Federal Information System

Controls Audit Manual. The review identified weaknesses in five of the

six review areas set forth in the GAO Manual: (1) entitywide security

program planning and management, (2) access control, (3) application

software development and change control, (4) segregation of duties, and

(5) service continuity. Together, these weaknesses, if not resolved, could

adversely affect the security of the data, programs, and hardware maintained at NOAA and have a negative impact on both NOAA’s financial

statements and the Department’s consolidated statements. These weaknesses, and the firm’s recommendations for correcting them, were discussed in a separate report on systems issues. NOAA agreed with the IPA

firm’s recommendations for addressing the identified weaknesses and

stated that corrective actions would be taken. (Financial Statements

Audits Division: FSD-11890-0-0001, FSD-11890-0-0002)

NOAA Can Do More to Ensure Competition

in Its Discretionary Funding Programs

During this semiannual period, the OIG issued reports on its audits of

the criteria, procedures, and practices for soliciting, reviewing, and selecting applications in FY 1997 for awards under three NOAA discretionary

financial assistance programs:

l Coastal Services Center (National Ocean Service).

l Undersea Research Program (Office of Oceanic and Atmospheric

Research).

l Climate and Atmospheric Research Program (Office of Oceanic

and Atmospheric Research).

The audits were conducted as part of a Department-wide review of

Commerce’s discretionary financial assistance programs. As discussed

below, the three programs did not consistently follow competitive procedures in their awards processes.

Coastal Services Center

Through the Coastal Services Center, the National Ocean Service

(NOS) provides financial assistance to universities, state and local governments, and public nonprofit organizations to support projects aimed at

Commerce OIG Semiannual Report

March 2000
National Oceanic and Atmospheric Administration

developing a science-based, multidimensional approach to improving

environmental quality and promoting the economic growth of the nation’s

coasts. During FY 1997, the center awarded a total of $2 million in three

program areas through seven new grants and one renewal to an existing

cooperative agreement.

We found that NOS’s criteria, procedures, and practices for the

solicitation, review, and selection of applications for funding under its

information resources program area and its coastal and environmental

technology commercialization program area did not comply with statutory,

departmental, or NOAA requirements. Specifically, NOS did not:

l Develop and publish merit-based evaluation criteria against which

applications for financial assistance could be reviewed.

l Publish the required notice in the Federal Register announcing the

availability of funding, soliciting applications, and specifying the

criteria and process to be used in selecting awardees.

l Comply with the requirements that all awards be made through a

competitive review process, unless a waiver is obtained, and that

the process meet certain minimum departmental standards.

In addition, the two awards made in these areas were made on a sole

source basis without appropriate supporting documentation.

NOS generally followed competitive procedures in making six awards

in FY 1997 under the coastal management fellowship program area,

although it failed to maintain panel members’ review forms and other

documentation as required.

Not following required competitive procedures increases the potential

for NOS to make questionable or inappropriate noncompetitive awards.

The agency also risks forgoing the receipt of research proposals from a

broad range of eligible applicants and may thereby miss out on opportunities to improve the quality and effectiveness of its programs.

We also found that NOAA’s Grants Management Division did not

question either NOS’s lack of competitive award procedures or the

appropriateness of the justifications for its noncompetitive awards.

One of our recommendations was that NOS ensure that Coastal

Services Center awards are made through a competitive, merit-based

process, unless otherwise mandated by law or adequately justified. We

53 Commerce OIG Semiannual Report

March 2000
provided specific guidance on the elements that should be included in such

a process. We also recommended that panel members’ review forms and

other important aspects of the selection process be adequately documented. Finally, we recommended that the Grants Management Division

require that grants officer reviews of proposed noncompetitive awards

include procedures designed to objectively determine compliance with

Department and NOAA competitive requirements.

NOAA generally agreed with our recommendations and stated that it

is reviewing all financial assistance programs to determine which noncompetitive awards can be competed. (Atlanta Regional Office of Audits:

ATL-11000-0-0001)

Undersea Research Program

Through its Undersea Research Program, the Office of Oceanic and

Atmospheric Research (OAR) funds advanced undersea exploration,

sampling, observation, and experimentation to promote the wise use of

oceanic, coastal, and large lake resources. During FY 1997, the program

awarded four new grants and nine renewal and supplemental amendments

to existing grants, for a total of nearly $10.9 million. All 1997 awards were

made noncompetitively in response to unsolicited proposals.

We found that OAR’s criteria, procedures, and practices for the

solicitation, review, and selection of Undersea Research Program award

recipients did not fully comply with departmental requirements. Instead of

administering the program as a competition-based financial assistance

program, as required by departmental guidance, OAR selected the awards

on a sole-source, noncompetitive basis without the required justifications

to support such actions. Our primary findings were similar to those

discussed above in reference to the Coastal Services Center program.

Specifically, OAR did not:

l Develop and publish merit-based evaluation criteria against which

applications for financial assistance could be reviewed.

l Publish the required notice in the Federal Register, specifying the

criteria and process to be used in selecting awardees.

l Comply with the requirements that all awards be made through a

competitive review process that meets departmental standards.

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The effects of OAR’s failure to follow competitive procedures are

the same as those discussed above—namely, an increase in the potential

for making questionable awards and a loss of the opportunity to increase

the program’s effectiveness.

And we again found that the Grants Management Division did not

question OAR’s lack of competitive procedures or the validity of the

noncompetitive awards.

Our major recommendation for the Undersea Research Program was

the same as for the Coastal Services Center: OAR should ensure that

program awards are made through a competitive merit-based process,

unless otherwise mandated by law or adequately justified, and that the

award process complies with Department policies and procedures. Moreover, we again recommended that the NOAA Grants Management

Division’s reviews of proposed noncompetitive awards include procedures

designed to determine compliance with competitive requirements.

In response to our report, NOAA expressed its commitment to

ensuring that its discretionary programs are consistent with departmental

policy, and agreed with our recommendation that proposed noncompetitive

awards be effectively reviewed. It disagreed, however, with our conclusions and recommendations regarding awards made under the Undersea

Research Program, contending that the program does not operate as a true

discretionary program because its existence is entirely attributable to

congressional action. In addition, the agency stated that such factors as an

applicant’s specialized facilities or equipment, or substantial project

investment, are valid reasons for noncompetitive selection.

With respect to NOAA’s assertions, we note that the FY 1997

appropriations process did not allocate program funds to any specific

recipients, which indicates that the agency’s authority to independently

determine the recipients and funding levels for program awards was not so

severely limited as to effectively eliminate its discretion. At the same time,

we recognize that departmental policy allows for noncompetitive awards

under certain circumstances. However, the awards we questioned were not

justified by such circumstances, but by the unsupported rationale that each

recipient was the only source that could meet program requirements.

(Atlanta Regional Office of Audits: ATL-11654-0-0001)

55

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Climate and Atmospheric Research Program

Through the Climate and Atmospheric Research Program, OAR

provides financial assistance to improve the nation’s ability to observe,

understand, predict, and respond to changes in the global environment. In

FY 1997, OAR made 169 awards for $35.1 million. We examined 92 of

these awards, totaling $28.8 million. On a positive note, we found that

OAR had appropriate merit-based procedures for evaluating proposals that

were consistent with the objectives of the competitive program, used an

application solicitation process that was adequate to obtain a nationwide

response, and developed review and selection procedures that, if followed,

were sufficient to provide a competitive, independent, and qualified review

of each application. However, we also noted that OAR:

l Treated letters of intent like full proposals by evaluating them

against established criteria, but did not ensure that each letter of

intent received an independent, objective review by one or more

review panels consisting of at least three people.

l Did not consistently follow established procedures in evaluating

and documenting application reviews, including the requirement to

adequately justify decisions to fund lower-rated proposals over

higher-rated ones.

l Did not provide adequate written justifications for funding two

specific noncompetitive awards.

As a result, OAR cannot provide reasonable assurance that financial

assistance awards made under the program were merit based or that

NOAA’s policy of seeking maximum competition was met.

We recommended that OAR ensure that (1) all proposals, including

letters of intent, are independently and competitively evaluated, with

selection decisions justified and adequately documented in the proposal

files, (2) reasons for selecting lower-ranked proposals are thoroughly

explained and documented, and (3) documented market searches are

performed to verify that there is only one source for anticipated sole

source awards. Finally, having again found the NOAA Grants Management

Division’s oversight of the program to be inadequate, we made the same

recommendation that grants officer reviews of proposed noncompetitive

awards include procedures designed to determine compliance with competitive requirements.

56

National Oceanic and Atmospheric Administration

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March 2000
NOAA agreed that its reviews of proposed awards under this program should determine compliance with Department and NOAA competitive requirements. However, it disagreed with our findings on application

review procedures and award justifications. It believes that OAR’s actions

were in compliance with NOAA and Department policy and responsive to

the research needs of the program. (Seattle Regional Office of Audits:

STL-10949-0-0001)

Internal Controls Over User Fees

Needed Improvement

NOAA receives most of the funding needed to support its programs

from no-year appropriations and user fees, which are levied on individuals

or businesses directly benefitting from, or subject to regulation by, a

government program or activity. User fees are levied under the principle

that those who receive benefits from governmental services beyond those

that accrue to the general public should bear the cost of providing the

services. For example, the National Ocean Service sells nautical charts to

mariners, the National Weather Service sells weather data to the private

sector, and the National Marine Fisheries Service charges the seafood

industry for voluntary inspection and certification services.

The OIG conducted an audit to determine whether NOAA was

appropriately reviewing, charging, and reporting its user fees. However,

because NOAA could not provide accurate and complete accounting

information about its user fee activities, we limited our audit to an evaluation of the bureau’s accounting controls for its user fees and its biennial

review process. Our specific findings were as follows:

l NOAA needs to ensure that it has accurate, complete

information on user fees. NOAA could not provide information

from a central source on all of its products and services subject to

user fees. Instead, the information was provided piecemeal from

10 organizations within four or five of NOAA’s line offices, and

much of the information provided was incomplete and inaccurate.

Without accurate, complete, and timely accounting information

regarding its user fee activities, NOAA can neither ensure that

decisions affecting the efficiency and effectiveness of its operations are made on a sound basis nor adequately disclose the extent

of its user fee activities in such decision-making tools as its annual

financial statements.

57

National Oceanic and Atmospheric Administration

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l NOAA needs to enforce its biennial review policies and

procedures. The CFO Act and OMB Circular A-25 require

federal agencies to review their user fees biennially and make

recommendations on revising the fees to reflect costs incurred.

Our audit revealed that the NOAA line offices reporting user fees

either did not perform thorough reviews or could not provide

adequate documentation that they had done so. The offices did

not comply with NOAA’s requirement that they submit to the

bureau’s Finance Office complete lists of the special products and

services subject to user fees, and the Finance Office did not

conduct the required random audits of unit prices included on the

lists submitted by the line offices. Unless these policies and

procedures are followed, NOAA, the administration, and the

Congress cannot be assured that the bureau’s user fees are

sufficient to recover the full cost to the government of providing

the products or services.

We recommended that NOAA revise its policies and procedures to

require each line and staff office to submit annually to the Finance Office a

list of all special products and services, as well as certain information

concerning such products and services, and a statement certifying the

accuracy and completeness of the information. We also recommended that

NOAA enforce federal and bureau requirements regarding the biennial

reviews of user fees, lists of products and services subject to user fees,

and random audits. NOAA generally agreed with our recommendations

and stated that the Finance Office is revising its policies and procedures to

ensure compliance with requirements. (Science and Technology Audits

Division: STD-11881-0-0001)

Former Senior Executive Convicted

of Witness Tampering in EEO Matter

In October 1999, a senior NOAA employee was convicted of two

misdemeanor counts of tampering with a witness, after he paid $1,000 to

the complainant in a sexual harassment matter in an effort to persuade her

to withdraw her equal employment opportunity complaint against him.

Under the terms of a plea agreement, the employee also agreed to resign

immediately from federal service.

The conviction was the result of a joint OIG/FBI investigation,

initiated when the complainant reported to the OIG that the senior

employee had offered to give her whatever she wanted if she would tell

the EEO counselor handling her complaint that she had lied about the

alleged harassment. When he contacted her again about the matter, the

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National Oceanic and Atmospheric Administration

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March 2000
complainant agreed to accept $1,000, and a meeting was arranged. Immediately after passing the cash to the complainant, the senior employee was

arrested by OIG and FBI agents who were monitoring the transaction.

Further investigation revealed that he had also attempted to dissuade

another employee from testifying against him in the EEO proceeding. On

February 14, 2000, he was sentenced in U.S. District Court for the District

of Columbia to 5 years’ probation, 6 months’ monitored home detention, a

$2,000 fine, and 100 hours of community service. (Silver Spring Field

Office of Investigations)

National Weather Service Had Low Risk

of Y2K Disruptions and Was Well Prepared

In reviewing the National Weather Service’s efforts to prepare its

computer systems for the Y2K century change, we found that its risks of

Y2K-induced interruptions were low for three reasons: First, weather

systems rarely use data that includes a year. Second, NWS had experience

in using its well-documented, in-depth contingency plans for maintaining

continuous operations. Third, NWS had adequately tested its ability to

receive and send weather data both internally and with the domestic and

international partners with whom it exchanges data. Moreover, NWS’s

eight national mission-critical systems—which had undergone thorough

testing and retesting—were not due for upgrades before the end of the

year, and the four systems it uses to notify the public of severe weather

conditions had been confirmed to be Y2K compliant.

The greatest Y2K risk that we identified was the possible loss of

international weather data from countries at risk of Y2K failures. However, NWS had developed contingencies, including alternate data sources

and transmission paths, to compensate for the loss of this data. Because

we found no significant weaknesses in NWS’s Y2K program, we made no

recommendations. (Office of Systems Evaluation: OSE-12313)

Internal Controls over Research Facilities’

Bankcard Programs Need Improvement

As part of its periodic review of Commerce units’ use of bankcards,

the OIG conducted audits of the bankcard programs of several NOAA

research facilities. One audit examined bankcard transactions at the

Southeast Fisheries Science Center sites in Miami and Panama City,

Florida. A second audit looked at transactions at two environmental

59

National Oceanic and Atmospheric Administration

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March 2000
research laboratories in Boulder, Colorado—the Space Environment

Center and the Environmental Technology Laboratory. We reviewed a

random sample of FY 1998 transactions at both sets of facilities.

Our audits found deficiencies in each of the facilities’ implementation

of the bankcard program, resulting in weaknesses in internal controls and

instances of noncompliance with federal and departmental requirements.

The following deficiencies were noted both at the fisheries science center

sites and at the Boulder labs:

l Not all cardholders were using the required purchase order log for

bankcard transactions.

l Cardholders were not always obtaining or documenting the

required preapproval of bankcard purchases.

l Cardholders were not always properly controlling and accounting

for accountable property purchased with bankcards.

l Not all cardholders were storing their bankcards in a secure

location.

l Many cardholders had not received the required training on the

use of bankcards.

At the fisheries science center sites, the controls over accountable

property were so seriously inadequate that officials could not account for

65 pieces of computer equipment worth a total of $293,000. We also

found that some of the center’s cardholders had allowed unauthorized

persons to use their bankcards, some bankcard purchase records were

missing, and some cardholders had failed to routinely request a sales tax

exemption. Moreover, the center needed to reassess the status of 10

cardholders who did not use their bankcards during FY 1998.

The Boulder labs lacked controls to prevent cardholders from

splitting bankcard purchases, as well as controls for bankcard purchases

related to contracts with other federal agencies.

We made recommendations to address the internal control weaknesses we identified. NOAA agreed with all of our findings and recommendations. It also reported that the 65 pieces of unaccounted for computer

equipment had been located and the property records reconciled. (Atlanta

Regional Office of Audits: ATL-11860-0-0001; Denver Regional Office of

Audits: DEN-11627-0-0001)

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National Oceanic and Atmospheric Administration

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March 2000
Nonfederal Audit Did Not Disclose

Certain Reportable Conditions

The OIG performed a quality control review of an audit conducted

by a nonfederal auditor of a Florida nonprofit organization that conducts

scientific research to promote the development of commercial fisheries in

the Gulf of Mexico and South Atlantic Ocean. The organization’s primary

support consists of NOAA awards and contracts, which totaled approximately $892,000 in the year ended June 30, 1998. As the oversight agency

for the organization, we performed our review to determine whether the

audit was conducted in accordance with government and generally

accepted auditing standards and whether the audit report met the requirements of OMB Circular A-133.

Our review found that although the auditor’s working papers supported the audit report, the audit did not disclose certain reportable conditions relating to the administration of federal awards and federal financial

reporting. Specifically, the auditor did not disclose that the organization had

an ineffective cost allocation system; had an ineffective time tracking

system; and did not properly identify the various awards and contracts

received from NOAA and failed to make an accounting distinction between

the financial assistance awards and fixed-price contracts.

We recommended that, in future audits, the auditor disclose reportable conditions for all ineffective internal controls over major programs

and financial reporting, and evaluate whether the reportable conditions

should be classified as material weaknesses. The auditor did not agree that

there were any reportable conditions concerning the organization’s internal

controls over financial reporting. The auditor asserted that, based on the

terms incorporated in the NOAA awards and contracts, the funds were

properly expended and outcomes were accomplished and reported to the

satisfaction of NOAA. We continue to maintain that the inadequate cost

allocation and time tracking systems were reportable conditions that should

have been disclosed.

We also recommended that NOAA (1) decide whether to fund the

organization’s indirect costs, which are being inaccurately reported as

direct costs, and (2) direct the organization to submit an indirect cost

allocation plan to the OIG for approval and require that effective systems

for allocating costs and tracking employees’ time be implemented before

making any future awards to the organization. (Atlanta Regional Office of

Audits: ATL-11936-0-0001)

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62 Commerce OIG Semiannual Report

March 2000

National Oceanic and Atmospheric Administration

NOAA Cooperates with Other Agencies in

Hurricane Research and Forecasting

The OIG conducted a survey to determine the breadth of coordination and cooperation among federal and nonfederal agencies in hurricane

research and forecasting. Specifically, we sought to determine whether the

results of hurricane research being conducted outside of NOAA are being

used to improve the accuracy and timeliness of National Weather Service

forecasts.

In reviewing the activities of NOAA’s Office of the Federal Coordinator for Meteorological Services and Supporting Research, we found that

coordination and cooperation do exist between NOAA and the other three

major federal agencies that conduct hurricane research and forecasting—

the National Science Foundation, the National Aeronautics and Space

Administration, and the Navy.

The Office of the Federal Coordinator oversees the implementation

of hurricane research through the National Hurricane Operations Plan and

hosts the annual Interdepartmental Hurricane Conference to provide a

forum for federal agencies and representatives of user communities to

review the nation’s hurricane forecast and warning program. Other conferences, such as the National Hurricane Conference, provide forums for

federal and nonfederal agencies to share information. In addition, federal

agencies have representatives on the Office of the Federal Coordinator’s

committees, and both federal and nonfederal agencies are represented on

working groups of NOAA’s U.S. Weather Research Program.

Because our survey revealed no significant problems, we closed out

the assignment without issuing an audit report. (Denver Regional Office of

Audits)

Employee Sentenced for Imprest Fund Theft

In the September 1999 issue (see page 54), we reported on the theft

conviction of a former NOAA employee who had obtained more than

$7,000 from an agency imprest fund by submitting 57 false vouchers for

payment. On December 17, 1999, she was sentenced in U.S. District

Court for the District of Maryland to 3 years’ probation, and ordered to

make restitution to the Department in the amount of $7,175. (Financial

Fraud Division)
Meteorologist Suspended for

Conducting Private Business at Work

An NWS supervisory meteorologist was suspended without pay for

two weeks as the result of an OIG investigation which found that he was

conducting a private business on official time using government computer

equipment. (Denver Field Office of Investigations)

Audit Reports Unresolved for Over Six Months

As of March 31, 2000, two performance audit reports had recommendations unresolved in excess of six months.

Light Aircraft Operations

The first performance audit report, Light Aircraft Fleet Should Be

Privatized, STD-9952-8-0001 (see September 1998 issue, page 44),

recommended that NOAA cease operating its eight fixed-wing light aircraft

and three helicopters and release them, along with related spare parts. We

also recommended that NOAA discontinue all interagency reimbursable

work related to NOAA-owned fixed-wing light aircraft and helicopters. We

added that, pending discontinuance of the reimbursable work, NOAA

should complete current interagency agreements in accordance with its

policy of full cost recovery, revise its billing practices to achieve full cost

recovery, and seek reimbursement of the unrecovered full cost balances on

all pending reimbursable projects.

NOAA did not concur with most of our findings and recommendations. NOAA believes that discontinuing use of the aircraft would compromise its ability to continue uninterrupted data collection efforts required to

protect lives and property, and would increase the risk of accidents and the

cost of aircraft support. In addition, NOAA did not agree with our recommendation to recover full costs, noting that cost sharing and waiving of

overhead costs are appropriate for interagency agreements that are beneficial to NOAA, and that interagency agreements have proved to be costeffective in meeting some of its data collection needs. NOAA also believes

that our audit report overstated its aircraft costs by $1.3 million and that its

light aircraft are cost-competitive.

After thoroughly reviewing NOAA’s audit action plan prepared in

response to our final report, we reaffirmed our conclusion that the full inhouse cost to operate NOAA’s fleet of 10 light aircraft averaged 42 percent

63 Commerce OIG Semiannual Report

March 2000

National Oceanic and Atmospheric Administration
more than the cost to contract for similar private-sector aircraft that can

provide equivalent services. We also reaffirmed our conclusion that

NOAA’s Aircraft Operations Center is not recovering the full cost of work

that it performs under reimbursable agreements with non-Commerce

government agencies.

NOAA officials subsequently entered into a consulting contract to

obtain an analysis of its aircraft fleet. The analysis included a review of

light aircraft costs and the costs to contract for similar private-sector

aircraft services and support. We have continued to work closely with

NOAA to resolve this matter, including providing comments on the

contractor’s draft report and meeting with the Director, Office of Marine

and Aviation Operations. Based on our meetings and the contractor’s

report, NOAA is redrafting its audit action plan.

NMFS Laboratory Structure

The second unresolved performance audit report, NMFS Laboratory

Structure Should Be Streamlined, STL-8982-8-0001 (see March 1998

issue, page 39), recommended closing several laboratory facilities and

transferring their programs and personnel to other NMFS laboratories in

order to streamline operations and achieve related cost savings. We also

recommended that one laboratory and most of its programs be transferred

to the state of Maryland, and that the proposed Santa Cruz, California,

facility be expanded to accommodate programs and personnel from

another California laboratory. In addition, we differed 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. At our

request, NOAA submitted a revised audit action plan in November 1998,

but did not change its initial position. We have continued to explore options

to resolve our differences. With one exception, we have agreed that it is

not feasible at this time for NOAA to implement our original recommendations. As appropriate, we will revisit the issue of enhancing the efficiency

of the NMFS laboratory structure. For one laboratory, the La Jolla Laboratory, we continue to be concerned about its structural safety. NOAA has

agreed to have the Department’s Office of Real Estate Policy and Major

Programs make an assessment of that facility. We are awaiting the results

of the assessment, which is scheduled for April 2000.

64 Commerce OIG Semiannual Report

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National Oceanic and Atmospheric Administration
National Telecommunications

and Information Administration

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 Telecommunications and

Information Infrastructure

Assistance Program and the

Public Telecommunications

Facilities Program.

Audit of FY 1999 Financial Statements

In an audit conducted by an IPA firm under contract to us, NTIA

received an unqualified opinion on its FY 1999 financial statements,

representing the bureau’s sixth straight year of unqualified opinions. The

audit identified no reportable conditions or instances of material noncompliance with laws or regulations. (Financial Statements Audits Division:

FSD-11891-0-0001)

Tribe Violated Procurement Procedures in

Managing Award to Establish Radio Station

In 1995 NTIA awarded a Public Telecommunications Facilities

Program grant for $297,985 to a Native American tribe to establish a

noncommercial, educational FM broadcast station on a reservation in

Wyoming. The award period was from September 1, 1995, through

July 31, 1999, at the time of our review, but was later extended to

October 31, 2000. The grant required the tribe to provide a $99,329

matching share, bringing the total estimated project cost to $397,314.

An OIG audit of the grant found that the tribe’s accounting and

financial management systems were insufficient to properly administer the

award. Our specific findings were as follows:

l Violations of procurement procedures resulted in questioned

costs. We questioned a total of $84,404 because the tribe (1) did

not use competitive procurement procedures for selecting the

project engineer or justify why such procedures were not used,

(2) purchased equipment from sole source vendors without

justification, (3) purchased equipment from other than the low

bidder without a documented justification, and (4) paid for a radio

tower that has not yet been erected.

l Inadequate disbursement controls. The tribe made two disbursements totaling $181,228 without supporting documentation.

These actions contradicted the internal control policies set forth in

the tribe’s personnel and procurement manual.

l Inadequate equipment controls. Contrary to its manual, the

tribe did not conduct an annual inventory of project equipment

and did not have adequate internal controls to safeguard the

equipment. In fact, we observed that most of the equipment was

in the possession of a construction company that was owed

money by the tribe under a contract, and some of the equipment

65 Commerce OIG Semiannual Report

March 2000
was exposed to the elements, at risk of damage. NTIA later

informed us that the equipment had been installed and was in use

at the radio station.

We recommended that NTIA disallow $84,404 of questioned costs and

seek recovery of $63,303 of excess federal disbursements. Because of the

deficiencies in the tribe’s internal control structure, we also recommended

that any remaining grant funds be disbursed only through the reimbursement method of payment. Finally, we recommended that NTIA, as a

condition for any future award, require the tribe to use its documented

system of internal controls. (Denver Regional Office of Audits: DEN10736-0-0001)

66 Commerce OIG Semiannual Report

March 2000

National Telecommunications and Information Adminstration

Spectrum

Management

Policy

Analysis and

Development

Telecom. and

Information

Applications

Institute for

Telecom.

Sciences

International

Affairs

NTIA
Patent and

Trademark Office

Audit of FY 1999 Financial Statements

In an audit conducted by an IPA firm under contract to us, PTO

received an unqualified opinion on its FY 1999 financial statements,

marking the sixth straight year of unqualified opinions for the bureau. The

firm found no reportable conditions related to PTO’s internal control

structure, and its tests of compliance with laws and regulations disclosed

no instances of noncompliance.

In connection with the FY 1999 audit, the firm performed a followup review of the general controls related to the information technology

processing environment associated with PTO’s Revenue Accounting and

Management System in accordance with applicable sections of GAO’s

Federal Information System Controls Audit Manual. The review identified

additional opportunities for improvement, as weaknesses continued to exist

in four of the six review areas set forth in the GAO Manual: (1) entitywide

security program planning and management, (2) access control, (3) system

software, and (4) service continuity.

These types of weaknesses would normally affect the security of the

data, programs, and hardware maintained at PTO and have a negative

impact on both PTO’s financial statements and the Department’s consolidated statements. However, PTO has strong controls to compensate for

these weaknesses, so the firm did not consider them to constitute a

reportable condition in its Report on Internal Control.

The weaknesses, and the IPA firm’s recommendations for correcting

them, were discussed in a separate report on systems issues. PTO agreed

with the recommendations for addressing the identified weaknesses and

stated that corrective actions would be taken. (Financial Statements

Audits Division: FSD-11893-0-0001, FSD-11893-0-0002)

Y2K Continuity and Contingency Plan Was

Sound, but More Risk Mitigation Was Needed

In December 1999, the OIG issued the second of two reports on

PTO’s Y2K readiness efforts. The first report addressed PTO’s renovation, replacement, and testing of selected critical systems (see September

1999 issue, page 60). The second report examined the bureau’s business

continuity and contingency plan.

BCCPs are designed to safeguard an agency’s ability to produce a

minimum acceptable level of outputs and services in the event of failures

of mission-critical information systems and services. They also link risk

Commerce OIG Semiannual Report

March 2000 67

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.
68 Commerce OIG Semiannual Report

March 2000

Patent and Trademark Office

management and mitigation efforts to the agency’s Y2K program and help

to identify alternative resources and methods needed to operate the

agency’s core business processes.

We concluded that PTO had prepared a comprehensive Y2K BCCP,

but the plan needed several additional elements to better ensure continuity

of operations and services should Y2K problems arise. Specifically we

found that:

l Minimum acceptable levels of outputs and services needed to be

documented.

l Specific sources and milestone dates for acquiring BCCP

resources needed to be identified.

l Test plans needed to be further developed, test teams established,

and tests executed to validate contingency plans.

l Risk mitigation procedures were needed for high-risk periods.

l The BCCP needed to be reviewed for potential legal issues.

PTO took actions to implement all of our recommendations for

strengthening its BCCP. (Office of Systems Evaluation: OSE-11693-2)

Trademark Trial and Appeal Board Is Taking

Actions to Reduce Its Large Case Inventory

The OIG conducted an audit of PTO’s Trademark Trial and Appeal

Board to assess how well it has managed its caseload and determine how

best to reduce its large inventory of cases. As of May 1999, pending cases

at the board totaled 12,300, up from about 8,000 at the end of FY 1995.

Meanwhile, the time taken to process a case had increased from 22.5 to

43 weeks. The large case inventory resulted from several factors, including

an increase in issued trademarks, case requirements and workload assignments, performance standards for board attorneys, and the quality of

administrative assistance.

Board officials had already initiated or considered corrective actions

on these issues, in part based on the actions taken by PTO’s Board of

Patent Appeals and Interferences in response to a 1998 OIG audit (see

September 1998 issue, page 64). Among these actions were hiring more

judges and attorneys, delegating signatory authority to lower level staff,

delegating some work done by attorneys to paralegals, having certain

Assistant

Commissioner

for Patents

Assistant

Commissioner

for Trademarks

Associate

Commissioner

and CFO

Chief

Information

Officer

Patent and

Trademark

Office
Patent and Trademark Office

actions adjudicated by one judge rather than a three-judge panel, developing mechanisms to obtain performance data on legal assistants, and hiring a

manager to relieve the Chief Judge of some of his considerable administrative duties.

As a result of the comprehensive actions being taken by the board,

we concluded our audit without issuing a report. In a December 16, 1999,

memorandum to the PTO Commissioner, we did, however, make two

suggestions to expand on actions already in progress:

l A lack of specific performance standards had contributed to a high

inventory of cases involving motions for summary judgment,

which are complex, time-consuming matters for attorneys to

handle. Because their performance plans did not dictate which

type of motion takes priority, attorneys have tended to concentrate

on processing simpler uncontested motions, thus delaying the

disposition of summary judgment motions. We suggested that the

board consider modifying attorney performance plans to promote

the expeditious resolution of summary judgment cases.

l The board’s strategic plan did not include specific goals for

reducing the inventory to a manageable level. The Government

Performance and Results Act specifies that an agency’s annual

performance goals should define an objective, measurable target

level of performance for each program activity. We suggested that

the board modify its strategic plan to include specific goals for

reducing the inventory and identify additional measures needed to

meet the goals. (Business and Trade Audits Division)

Large Patent Preexamination Backlog

Eliminated and Cycle-Time Goal Met

In an audit of the effectiveness of PTO’s Office of Initial Patent

Examination (OIPE), the OIG focused on determining the size of the

backlog of patent applications awaiting examination and the reasons for the

substantial increases in that backlog in late 1997. Our audit disclosed that

OIPE had completely eliminated the backlog as of December 1998,

thereby meeting its cycle-time goal of 30 days for the first time since 1995.

This represented a considerable achievement for OIPE since the backlog

had swelled to 90,000 applications as of November 1997, resulting in an

average cycle time of 141 days. Because of this dramatic improvement in

OIPE’s operations, we did not issue an audit report.

69 Commerce OIG Semiannual Report

March 2000
Patent and Trademark Office

70 Commerce OIG Semiannual Report

March 2000

In a December 7, 1999, memorandum to the PTO Commissioner,

we did identify several minor issues that warranted management attention.

To address these issues, we suggested that PTO strengthen the OIPE

quality assurance program and increase customer satisfaction with the

preexamination process by:

l Establishing quality goals, increasing employee accountability and

incentives for quality, and reporting employee errors separately

from production levels.

l Improving the output reporting and filing receipt correction

processes to quickly analyze and correct errors when they occur,

and devoting sufficient personnel to detecting and correcting

errors.

l Improving communications with customers through an enhanced

OIPE page on the PTO web site and upgrades to the OIPE

telephone system. (Business and Trade Audits Division)
Technology

Administration

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.

ATP Focused Program Needs Better

Documentation of Selection Process

Investments under NIST’s Advanced Technology Program (ATP)

are intended to help U.S. companies accelerate the creation and commercialization of highly innovative technologies with strong potential for

generating broad-based economic benefits for the nation. ATP relies on

companies to submit proposals for technology development projects in

response to two types of announced competitions: general competitions,

open to proposals in all areas of technology, and focused program competitions, which support specific, predefined technology and business goals.

During FYs 1994-98, most ATP funding was awarded through focused

program competitions. In FY 1998, ATP made 23 awards totaling

$50 million in general competitions and 56 awards totaling $184.5 million

in focused program competitions.

Under the focused program, ATP solicits “white papers” (proposed

ideas) from companies and industry groups on technology areas for

consideration. When ATP identifies increasing interest from industry in a

particular area, an ATP manager is assigned to develop the proposed ideas

into a plan for a focused program that addresses four criteria: (1) potential

for U.S. economic benefit, (2) good technical ideas, (3) strong industry

commitment, and (4) the opportunity for ATP funds to make a difference.

When the program manager decides that a proposal is sufficiently well

developed, it is presented for consideration to a group of external reviewers, who help ATP senior management decide which programs to fund.

The final decision is made by the ATP director.

After the OIG began its audit of the ATP focused program, NIST

decided to suspend focused competitions in FY 1999 in favor of holding

one general competition open to all areas of technology. Nevertheless, we

completed our audit because ATP indicated that it might resume focused

competitions in the future.

Our audit revealed that although ATP has improved its focused

program selection process over time, it needs to do a better job of documenting it. Specifically:

l It was not always possible to trace the documentation for selected

programs back to the original white papers. As a result, we were

unable to determine whether all white papers received were given

appropriate consideration.

71 Commerce OIG Semiannual Report

March 2000
Technology Administration

NIST

Technology

Administration

Technology

Policy

NTIS

72

l Although ATP management uses outside reviewers to help select

the best focused programs, not all reviewers were required to

formally rank or score the program presentations. A formal

ranking and assessment of the four selection criteria are essential

to provide assurance that ATP has objectively evaluated the

program proposals.

l The ultimate decision to establish a focused program is made

solely by the ATP director with no documentation to show why

one proposal was chosen over another. ATP should document its

justification for selecting a focused program to improve internal

controls and provide credibility to the selection process.

We made recommendations to address our concerns about the lack

of documentation. In response to our draft report, NIST disagreed that

documentation of white papers and reviewer evaluations was lacking, but

provided no evidence to refute our finding. As a result, we reaffirmed our

original findings and recommendations in the final report. (Science and

Technology Audits Division: STD-11113-0-0001)

Management of ATP Intramural

Research Program Can Be Strengthened

Through cooperative agreements, NIST’s Advanced Technology

Program assists private companies in carrying out research on high-risk

technologies that will enable them to develop products, services, and

manufacturing techniques. The ATP statute allows the program to use up

to 10 percent of its appropriation internally for intramural projects, which

consist of standards development and technical activities in support of

ATP’s mission. In FY 1998, ATP’s appropriation was $192.5 million, and

it funded 114 intramural projects for $13.8 million.

An OIG audit of the ATP intramural research program found that the

criteria, procedures, and practices for the solicitation, review, and selection

of intramural projects appear to be designed to result in funding decisions

that meet the ATP legislative requirements. One of these requirements is

that program managers avoid any projects that give undue advantage to

specific companies. To meet this requirement, ATP officials revised the

project selection criteria in FY 1997 to emphasize generic research that is

not directed toward solving a specific company’s problems, but rather

toward producing industrywide benefits.

Our review of the 114 FY 1998 project files identified the following

opportunities for improving the intramural research program:

Commerce OIG Semiannual Report

March 2000
73

Technology Administration

l Formal policies and procedures for intramural projects

should be updated. The program’s written guidance, which dates

back to 1993, does not reflect the current process. Moreover, to

ensure that all NIST scientists are aware of the availability of

intramural funds, the updated guidance should be included in the

NIST Administrative Manual.

l Policies and procedures emphasizing generic research and

requiring approval of collaboration should be followed. We

found that for 14 projects, the research appeared to be closely

linked to a specific ATP grant, and for 15 projects, NIST scientists

did not obtain approval for their outside collaborations.

l Project performance should be evaluated. We found little

evidence that ATP is evaluating the performance of its intramural

projects. Without such evaluations, performance problems cannot

be adequately addressed, and managers cannot assess the

effectiveness of their decisions.

l More effective methods for disseminating research results

could increase program impact. For example, two of the three

ATP grantees we contacted were unaware of potentially beneficial

research. Although this small sample is not statistically significant,

it raises concerns about the adequacy of ATP’s practice of relying

on workshops and conferences to publicize the results of intramural projects.

l Project files should contain documentation of management

decisions and significant events, as well as copies of needed

approvals. Without such documentation, ATP managers cannot

demonstrate that they are properly monitoring the projects and

ensuring that all approvals have been obtained before funds are

released.

We made a number of recommendations to address our concerns.

NIST agreed that it needed to clarify which types of collaborations need

approval, provide additional training to scientists on the policies and

procedures governing generic research and collaborations, and ensure that

all final reports include information needed to evaluate performance.

However, with regard to the remaining recommendations, NIST did not

agree or disagree, but stated that it would take them under advisement. We

will address these issues further during the audit resolution process.

(Science and Technology Audits Division: STD-11551-0-0001)

Commerce OIG Semiannual Report

March 2000
NIST Needs to Reevaluate Its Plans to

Support Its Ballistics Testing Program

Since the early 1970s, NIST has conducted ballistics testing of

ammunition, weapons, and protective equipment in support of its reimbursable agreement with the Department of Justice. While the agency has

conducted some testing in old storage pits on its Annex Site—a former

anti-aircraft missile installation near its main Gaithersburg, Maryland,

campus—it has been searching for a more suitable site. NIST asserts that

the current facility is inadequate for certain types of ballistics research and

is not in compliance with health and safety standards. Although the agency

has contracted out some of its testing work while searching for a replacement site, it rejects contracting as a permanent solution because it views

contractor laboratories as being insufficiently responsive and prohibitively

expensive.

As further justification of its requirement for a replacement facility,

NIST cited the need for a firing range for its approximately 22 police

officers, claiming that it was too difficult and costly for its officers to

continue to qualify with their firearms on a quarterly basis at outside firing

ranges. Although NIST management acknowledged that it would not be

cost-effective to construct a firing range alone, they argued that it made

sense to include a range in a new ballistics testing facility.

As a result, during the last two years, NIST began developing plans

for a ballistics testing and firing range facility to be located in an abandoned

barracks building—called Building 530—on the Annex Site. The building

has not been used for more than 25 years and would require extensive

interior and exterior renovations. NIST received approval and comments

from the National Capital Planning Commission for the project and

awarded a contract to a design team, which completed the designs,

technical specifications, and cost estimates in May 1999.

NIST had planned to award a contract to renovate Building 530 in

FY 1999 and complete the project in FY 2000. The specifications for the

facility would have provided for either a basic renovation for use as a

ballistics facility or an expanded renovation to accommodate a firearms

qualification range, as well as offices, a conference room, storage areas,

and bathroom/locker facilities. At the time of our review in June 1999, the

blueprints for the facility were complete.

Our review confirmed that the existing facility is inadequate to

support NIST’s ballistics testing. However, we did not believe that renovating Building 530 was the most cost-effective option to meet this need,

Technology Administration

74 Commerce OIG Semiannual Report

March 2000
nor did we believe that the building should be expanded to include space

for a firearms qualification range. NIST did not adequately justify the extra

cost associated with accommodating additional firing range requirements,

given the availability of outside ranges.

We were also concerned that NIST evaluated its need for a ballistics

testing facility/firing range without adequately considering other options.

Had NIST determined earlier that it could not justify an on-campus firing

range, it would likely have concluded that a much smaller facility was

needed and therefore explored options other than renovating Building 530.

Moreover, had NIST prepared better documentation and explored other

options, it might have identified more cost-efficient options earlier, instead

of spending significant staff time and about $115,000 to create detailed

architectural drawings and plans for a project that was ultimately rejected.

During our review, NIST abandoned plans to renovate Building 530

and, because of cost considerations, began reviewing options for accommodating its ballistics testing needs on its main campus. NIST also

dropped plans to construct a firing range for its police officers and will

instead continue to have them qualify at off-campus ranges.

We are pleased that NIST has reconsidered its plans and decided not

to proceed with plans to renovate Building 530. We recommended that,

before designing and constructing or renovating any future facilities to

support its ballistics testing program, NIST carefully weigh the costs and

benefits of all viable options (including contracting) and document them

adequately. NIST agreed with our recommendation. Based on our work in

this area, we believe that NIST will ultimately construct a facility for its

ballistics testing needs only, which will be smaller in scope and less expensive to construct and maintain. As a result, funds that would have been

spent on a larger facility will be available to be put to better use elsewhere

at NIST. (Office of Inspections and Program Evaluations: IPE-11923)

Audit of TA’s FY 1999 Financial Statements

As it had in the previous three fiscal years, TA received an unqualified opinion on its FY 1999 financial statements. The IPA firm under

contract to us that conducted the audit did not identify any material

weaknesses, reportable conditions, or instances of noncompliance with

laws or regulations. (Financial Statements Audits Division: FSD-11894-

0-0001)

Technology Administration

75 Commerce OIG Semiannual Report

March 2000
Audit of NIST’s FY 1999 Financial Statements

An IPA firm under contract to us issued an unqualified opinion on

NIST’s FY 1999 financial statements, representing the seventh straight

year of clean opinions for the bureau. While the IPA firm found no

material weaknesses, it did identify one reportable condition in NIST’s

internal control structure. This condition involved the need for NIST to

strengthen its information systems’ general control procedures.

Because of the weakness in general control procedures, the IPA firm

noted that NIST did not substantially comply with the Federal Financial

Management Improvement Act of 1996. Under the act, the auditors are

required to report on whether the bureau’s financial management systems

substantially comply with federal financial management systems requirements, applicable accounting standards, and the U.S. Government Standard General Ledger at the transaction level.

OMB Circular A-130, Management of Federal Information Resources, Appendix III, “Security of Federal Automated Information

Resources,” establishes guidelines for control procedures to be used by

federal agencies in developing and operating automated information

systems. The firm reviewed the general controls related to NIST’s information technology processing environment in accordance with applicable

sections of GAO’s Federal Information System Controls Audit Manual.

The review identified weaknesses in all six review areas set forth in the

GAO Manual: (1) entitywide security program planning and management,

(2) access control, (3) application software development and change

control, (4) system software, (5) segregation of duties, and (6) service

continuity. Together, these weaknesses, if not resolved, could adversely

affect the security of the data, programs, and hardware maintained at

NIST and have a negative impact on NIST’s financial statements, the

financial statements of the other reporting entities that are supported by

NIST (TA and NTIA), and the Department’s consolidated statements.

These weaknesses, and the firm’s recommendations for correcting

them, were discussed in a separate report on systems issues. NIST

generally agreed with the firm’s recommendations for addressing the

identified weaknesses. The agency stated that corrective actions had been

initiated for the recommendations it considered feasible and cost effective,

and it proposed acceptable alternative actions to address the other recommendations. (Financial Statements Audits Division: FSD-11889-0-0001,

FSD-11889-0-0002)

76 Commerce OIG Semiannual Report

March 2000

Technology Administration
Audit of NTIS’s FY 1999 Financial Statements

NTIS received an unqualified opinion on its FY 1999 financial

statements, as it had for FY 1998. The IPA firm under contract to us that

conducted the audit identified no reportable conditions, material weaknesses, or instances of noncompliance with laws or regulations.

In connection with the FY 1999 audit, the firm reviewed the general

controls related to the information technology processing environment

associated with NTIS’s financial management systems in accordance with

applicable sections of GAO’s Federal Information System Controls Audit

Manual. The review identified weaknesses in four of the six review areas

set forth in the GAO Manual: (1) entitywide security program planning and

management, (2) access control, (3) application software development and

change control, and (4) service continuity. Together, these weaknesses, if

not resolved, could adversely affect the security of the data, programs, and

hardware maintained at NTIS and have a negative impact on both NTIS’s

financial statements and the Department’s consolidated statements. The

firm, however, did not consider this deficiency to constitute a reportable

condition in its Report on Internal Control.

These weaknesses, and the firm’s recommendations for correcting

them, were discussed in a separate report on systems issues. NTIS agreed

that the report accurately reflected conditions at the time of the audit and

stated that corrective actions had been initiated. (Financial Statements

Audits Division: FSD-11892-0-0001, FSD-11892-0-0002)

Inspector General Testifies on Audit

and Inspection Work at TA Agencies

On March 9, 2000, the Inspector General appeared before the House

Science Subcommittee on Technology to discuss aspects of the OIG’s

audit and inspection work related to the Technology Administration’s

programs and operations. He first noted that we have continued to monitor

NIST’s construction and renovation efforts at its Gaithersburg, Maryland,

and Boulder, Colorado, facilities. We have generally supported NIST’s

plans for constructing Advanced Chemical Sciences and Advanced Measurement Laboratories in Gaithersburg and addressing critical safety,

capacity, and maintenance deficiencies at both locations. However, we are

unable to evaluate the efficacy of approximately $593 million in long-term

projects whose plans are still indefinite, and we believe that NIST should

continue to reassess the need for and prioritize these projects.

77 Commerce OIG Semiannual Report

March 2000

Technology Administration
In addition, our security concerns about short-term visiting researchers at NIST facilities are being addressed. In response to our expressed

concerns about the lack of adequate controls over visitors who worked at

NIST facilities for less than 10 days a year, the agency began requiring a

written agreement for all nonfederal researchers.

As part of our review of Commerce discretionary financial assistance

programs, we found that all but one of NIST’s programs were administered competitively, and concluded that the agency’s use of outside peer

reviewers constitutes a best practice that can be used in other funding

programs. We also continued our financial-related audits of recipients of

financial assistance awards under NIST’s ATP and Manufacturing Extension Partnership programs.

The Inspector General also highlighted a number of issues that are

discussed in detail elsewhere in this report. These issues included the

“clean” opinions received in recent audits of of TA’s, NIST’s, and NTIS’s

FY 1999 financial statements (see pages 75-77); the U.S. Library

Commission’s review of the Department’s plans for NTIS (see page 11);

our inspection of NIST’s proposed small ballistics testing facility (see

page 74); and our audits of NIST’s administration of its ATP focused and

intramural research programs (see pages 71 and 72).

Award Recipient Had Inadequate Financial

Management System, Double-Billed Costs

In September 1997, NIST awarded a cooperative agreement under

its Manufacturing Extension Partnership Program to a West Virginia

organization that provides manufacturing extension services to small and

medium-sized manufacturers in its designated service region. The award

was for a 24-month period from October 1, 1997, through September 30,

1999, and had estimated costs of $1,182,721, with the federal share not to

exceed $529,932. For the award period, the recipient claimed costs of

$1,352,104, which exceeded the agreement’s estimated costs by $169,383.

An OIG final incurred cost audit of the cooperative agreement

determined that the recipient’s financial management system did not

comply with OMB standards. Specifically, the recipient’s system did not

compare program outlays with budgeted amounts, reported transactions in

incorrect expense categories, did not account separately for unallowable

costs, and double-billed costs. Moreover, the organization lacked written

procedures for determining the reasonableness, allocability, and allowability

of costs in accordance with federal cost principles and the award terms and

conditions.

78 Commerce OIG Semiannual Report

March 2000

Technology Administration
We also questioned $169,383 in claimed costs, of which $119,821

consisted of double-billed costs that had been claimed for a prior Manufacturing Extension Partnership award. The balance consisted of $19,058 in

other direct costs that were incurred without NIST’s prior approval and

$30,504 in unallowable costs. However, because it had claimed costs in

excess of the award amount, the recipient incurred sufficient allowable

costs to offset the questioned costs, and we did not recommend recovery

of any funds.

In response to our draft report, the recipient asserted that it had

established an adequate financial management system, and included

correspondence from an IPA firm certifying that compliance efforts were

being implemented. We recommended that NIST monitor the recipient’s

implementation of its new system and verify that it performs periodic

comparisons of budgeted and actual costs, and establishes written accounting policies and procedures. (Denver Regional Office of Audits: DEN12499-0-0001)

Nonfederal Auditor’s Work Met

All Auditing and Reporting Standards

The OIG performed a quality control review of an audit conducted

by a nonfederal auditor of a New Mexico nonprofit organization that

provides and facilitates assistance to small and medium-sized manufacturers in five western states. The organization matches consultants with

manufacturers to help them apply new technologies, boost productivity

and quality, and gain access to broader markets. The organization’s

primary support comes from NIST’s Manufacturing Extension Partnership

Program. During the 18 months ended on December 31, 1997, the organization spent approximately $14.1 million for NIST-sponsored projects,

which included about $8.6 million in federal funds.

As the oversight agency for the organization, we performed our

review to determine whether the audit was conducted in accordance with

government and generally accepted auditing standards and whether the

audit report met the requirements of OMB Circular A-133. Our review

found that the auditor’s working papers support the audit and that the audit

complied with all applicable standards. (Denver Regional Office of Audits:

DEN-12072-0-0001)

79 Commerce OIG Semiannual Report

March 2000

Technology Administration
Departmental Management

Chief

Information

Officer

Security

Financial

Management

CFO and

Assistant Secretary

for Administration

Management

and

Organization

Human

Resources

Management

Acquisition

Management

Civil

Rights

Budget

Administrative

Services

Small and

Disadvantaged

Business Util.

Exec. Budgeting

and Assistance

Management

Audit of the Department’s FY 1999

Consolidated Financial Statements

For the first time, the Department received an unqualified opinion on

its FY 1999 consolidated financial statements. The Department deserves to

be commended for the significant progress it has made in improving its

financial management during the past year, as evidenced by the unqualified

opinions received by both the Department and all of its audited reporting

entities on their FY 1999 statements. These “clean” opinions are especially

noteworthy considering the obstacles that the Department and several

entities had to overcome. There was also a reduction in the number of

departmental and entity-level material weaknesses and reportable conditions, and no new weaknesses or conditions were identified at the departmental level.

However, five previously identified reportable conditions continue to

exist. Although the Department has made progress in correcting these

conditions, further improvements are needed in the following areas:

l Financial management systems. The Department needs to

integrate financial systems and improve general controls to provide

assurance that the data used to prepare financial statements is

reliable. The Department’s financial management systems

continue to be ineffective tools for preparing and reporting its

financial results and those of its reporting entities. In addition,

audits of the FY 1999 financial statements of the Department’s

entities included reviews of the general controls associated with

the major financial management systems. These reviews,

conducted at the six locations that provide data processing support

for the systems, revealed weaknesses in all general control areas,

which could hamper the Department’s ability to produce accurate

data for the financial statements.

l Financial management. Several entities need to improve the

timeliness and accuracy of their financial statements and provide

sufficient financial management oversight and supervisory review

of the statements. The entities also need to strengthen the overall

control environment, monitor the budget execution process,

properly analyze capital asset transactions, and better record and

document property additions and deletions.

l Controls surrounding property. One entity needs to fully

implement policies and procedures over accounting for

construction work-in-progress. In addition, entities need to

80 Commerce OIG Semiannual Report

March 2000
Departmental Management

improve the year-end reconciliation process and properly analyze

capital asset transactions, as well as improve the process of

recording and documenting property additions and deletions.

l Controls surrounding accounts payable and accrued grant

expenses. Four entities need to improve policies and procedures

related to estimating year-end accounts payable amounts. In

addition, the entities need to monitor cut-off dates for accounts

payable transactions and improve the methodology used to

estimate grant expenses unpaid at year-end.

l Performance of timely and accurate reconciliations. Several

entities need to improve their account reconciliation processes.

Specifically, reconciliations need to be performed on a timely basis

for all applicable accounts, and differences and errors identified

need to be investigated and resolved promptly. In addition, the

entities need to maintain supporting documentation for all

reconciling items and perform thorough supervisory reviews.

We consider the first reportable condition, related to financial management systems, to be a material weakness. It is applicable to the Department as well as its reporting entities. The other four reportable conditions

represent internal control deficiencies at various reporting entities.

In performing tests of compliance with selected provisions of applicable laws and regulations, we noted five instances of noncompliance:

l The Department was not in substantial compliance with the

Federal Financial Management Improvement Act of 1996 in that it

does not meet the requirements for a single integrated financial

system. Furthermore, four of its financial management systems

did not fully comply with federal requirements in FY 1999, and

one system did not comply with the U.S. Government Standard

General Ledger at the transaction level.

l NOAA did not fully fund its capital leases. OMB Circular A-11,

Preparation and Submission of Budget Estimates, requires

agencies to have sufficient budgetary resources immediately

available to cover the present value of the lease payments for

capital assets and lease purchases.

l For certain of its activities, ITA has not complied with OMB

Circular A-25, User Charges, which requires federal agencies to

recover the full cost of providing goods and services.

Commerce OIG Semiannual Report

March 2000 81
Departmental Management

l ITA also has not complied with 31 U.S.C. 1301(a), which states

that public funds may be used only for the purpose for which they

are appropriated. During FY 1999, ITA used certain budgetary

authority for other than its intended purpose. ITA officials report

that they have since acted to ensure that the funds will be used

only for their intended purpose.

l The Working Capital Fund and the Franchise Fund reported a

negative “Fund Balance with Treasury” as of September 30, 1999.

As a result, these entities may not be in compliance with OMB

Circular A-34, Instructions on Budget Execution, which precludes

revolving funds from disbursing into a negative cash position in

anticipation of receiving reimbursable funds. Although management does not believe that a violation exists, it has agreed to

eliminate this negative balance in FY 2000 as a matter of

improving business practices.

Department and reporting entity management generally concurred

with the findings and recommendations in the report and have agreed to

take corrective actions. (Financial Statements Audits Division: FSD11911-0-0001)

Section 803 of Federal Financial Management Improvement Act

requires agencies to determine whether they are in substantial compliance

with the act. If not, they are required to prepare a remediation plan

outlining the actions to bring them into compliance. Based partly on our

audit of its FY 1998 financial statements, the Department concluded it was

not in substantial compliance with the act’s three requirements. Accordingly, a plan was developed to correct the material weaknesses, with the

goal of obtaining an unqualified opinion on the FY 1999 financial statements.

In FY 1999, the Department forwarded to OMB an updated plan

based on the FY 1998 audit results. The Department made significant

progress with its implementation by meeting target implementation dates.

Specifically, the Department was found to be in compliance with federal

accounting standards. Although at the end of FY 1999, one financial

system did not meet compliance with the Standard General Ledger at the

transaction level, this problem has now been corrected and is not expected

to be reported in future years. The Department’s financial management

systems requirement under the act will be corrected with the implementation of the Core Financial System.

82 Commerce OIG Semiannual Report

March 2000
Departmental Management

Under Section 804(b) of the act, the OIG is required to notify the

Congress when the Department does not meet intermediate target dates in

the remediation plan. We did not identify any instances that would necessitate our notifying the Congress. The Department plans to update its remediation plan based on progress made and the results of the FY 1999 audit.

Lessons to Be Learned from Fire and

PCB Accident at Commerce Building

Early in the morning of Friday, October 1, 1999, two fires occurred

in the basement of the Commerce Department’s Herbert C. Hoover

Building in Washington, D.C. Both fires were contained in boxes that

house metal capacitors, which are part of the electrical system that controls

the building’s clock system. It was soon determined that oil in the capacitors contained polychlorinated biphenyls (PCBs), a dangerously toxic

chemical. As a result, 43 people (employees, contractors, and firefighters)

who came into contact with the fire’s smoke or the oil leaking from the

capacitors underwent a decontamination process that began on the building

grounds and ended at a nearby hospital.

The Hoover Building was closed on that Friday and throughout the

weekend as testing and cleanup began. The above-ground floors of the

building were determined to be safe to occupy by Monday, October 4, and

the basement reopened the following day. The environmental cleanup

process continued until December 3. Because the fire-damaged materials

were removed and incinerated shortly after the incident, the cause of the

fire is uncertain. However, building managers and General Services

Administration personnel surmise that the fire was caused by an electrical

overload of the capacitors.

The OIG performed a review to assess the circumstances surrounding the October 1 incident. We hope that our observations will serve as

“lessons learned” for the Department in dealing with future incidents of

this nature, and will provide a useful checklist of safety and environmental

concerns that need to be addressed. Our observations were as follows:

l Use of the capacitors was permitted, but other issues

involving PCBs need to be addressed. The use of the PCBcontaining capacitors was legally permitted, and there was no

requirement to mark them as containing PCBs. However, other

sources of PCBs in the building, including fluorescent light ballasts

and exterior floodlights, were not well inventoried or marked. In

addition, vaults in the basement that have floors that were

Commerce OIG Semiannual Report

March 2000 83
contaminated with PCBs before the fire either were not marked as

required or had misleading signs, and the protective footgear

required to work in these vaults was not being provided.

l Building safety issues were highlighted due to the fire. For

example, the fire alarm rang for only nine minutes because

someone turned it off prematurely, and we found that there is no

departmental policy covering who is allowed to turn off a fire

alarm and when. In addition, the building does not have a public

address system to communicate with occupants in an emergency,

a stairwell designated as an exit route was locked at the first floor

level, and at least one exterior door was not unlocked for use as an

exit during the evacuation.

l Building security concerns need attention. Although the

building had been evacuated, employees were still able to enter,

unchallenged, through certain key card entrances. In addition, we

learned that the doors to the basement vaults, which contain

critical electrical equipment, were not routinely locked. Finally, the

sign-in/sign-out logs that are used outside normal working hours

are not an accurate representation of who is in the building

because not everyone was being required to sign in or sign out.

l Inaccurate information and noncompliance with regulations

led to problems during environmental cleanup. Certain

assumptions about where smoke traveled and where people with

potentially contaminated footwear walked during the incident were

made with little or no input from eyewitnesses. These assumptions

had a direct impact on the decisions about what environmental

tests to perform and where to clean up. In addition, in some

instances, environmental regulations were not followed with regard

to securing the cleanup areas.

l More attention should have been paid to employee relations.

Employees and contractors praised both the assistance provided

by departmental staff at the hospital and the support provided by

the Department’s workers’ compensation program. However,

relations and communications with employees could have been

better in some areas. Specifically, employees involved in the

incident were not offered counseling, an informational meeting

with the affected employees and contractors was not held until 25

days after the incident, and little information about the incident

was shared with other building occupants.

Departmental Management

84 Commerce OIG Semiannual Report

March 2000
l A Commerce command center is needed to better ensure

communication and continuity of operations. Several

organizations and individuals tried to contact the Department on

October 1 to provide expert assistance, but they were unable to do

so because the building had been evacuated. Many of the external

communication problems could have been prevented had the

Department made provisions for a command center.

l An assessment is needed to determine what type of environmental program is needed at Commerce. Some departmental

officials and employees expressed concern that the Department

had to rely on the General Services Administration for guidance on

environmental regulations because Commerce does not have its

own environmental program. At the Department level, an assessment should be performed to ensure compliance with all statutory

requirements, executive orders, and departmental orders, as well

as provide adequate protection for the Department and its

employees.

We offered a number of recommendations to address our concerns.

The Department has taken action on most of the issues identified, and we

are generally satisfied that these actions meet the intent of our recommendations. (Office of Inspections and Program Evaluations: IPE-12453)

Audit of the WCF’s and S&E Fund’s

FY 1999 Financial Statements

An IPA firm under contract to us issued an unqualified opinion on the

FY 1999 financial statements of the General Administration’s Working

Capital Fund (WCF) and Salaries and Expense Fund (S&E). The WCF

and S&E are operated by one management team under the same internal

control structure and procedures for compliance. While the firm did not

identify any material weaknesses, it did identify one reportable condition in

WCF’s and S&E’s internal control structure, namely that controls over the

preparation of the Statement of Budgetary Resources need improvement.

The firm’s report also discussed two other significant matters that

need to be addressed:

l The basis for WCF’s “negative fund balance with Treasury” needs

clarification. Although management does not believe that a

violation exists, it has agreed, as a matter of improving business

practices, to put procedures into place to eliminate the negative

cash balances.

Departmental Management

Commerce OIG Semiannual Report

March 2000 85
l Controls surrounding the Financial Accounting System need

improvement. (Financial Statements Audits Division: FSD11895-0-0001)

Audit of the General Controls of the

Office of Computer Services’ FARS

The OIG contracted with an IPA firm to perform a general controls

review of the information systems environment of the Department’s Office

of Computer Services. This office maintains the hardware and software

used to process transactions and data within the Financial Accounting and

Reporting System (FARS). NIST uses FARS to provide accounting

services to WCF and S&E, EDA, ESA/BEA, MBDA, and the Franchise

Fund. The firm’s review was conducted in accordance with GAO’s

Federal Information System Controls Audit Manual.

The review identified weaknesses in five of the six review areas set

forth in the GAO Manual: (1) entitywide security program planning and

management, (2) access control, (3) application software development and

change control, (4) segregation of duties, and (5) service continuity. These

weaknesses could adversely affect the security of the office’s data,

programs, and hardware and have a negative impact on the financial

statements supported by FARS, as well as the Department’s consolidated

statements. The firm discussed these weaknesses, and made recommendations for correcting them, in a separate detailed report on systems issues.

The Office of Computer Services agreed with the firm’s recommendations

and stated that corrective actions had been initiated. (Financial Statements

Audits Division: FSD-12196-0-0001)

Audit of the General Controls

of the CAMS Support Center

The Department established the CAMS Support Center, in Gaithersburg, Maryland, to facilitate the system’s implementation. Because of the

support center’s significant role in the development and implementation of

CAMS, the OIG reviewed its general controls. Effective controls help

ensure that only authorized changes are made to CAMS.

Given the support center’s initial mission of implementing CAMS, it

was not created to function as a data center. As a result, many of the

security features associated with a data center were lacking. Over time,

however, the support center has evolved into a software development

organization that is responsible for modifying and maintaining CAMS.

Departmental Management

86 Commerce OIG Semiannual Report

March 2000
The support center’s expanded role necessitated a significant expansion of its data processing environment. With this change in data processing capability, support center management recognized the need to improve

both computer and physical security. Lacking sufficient in-house resources

to properly assess potential risks and identify vulnerabilities, the support

center contracted with a consulting firm to perform this assessment. The

firm was tasked to assess risks and identify vulnerabilities, propose actions

to minimize them, and develop contingency of operations and disaster

recovery plans.

During our audit, we coordinated with the firm and reviewed the

outcome of its security work. Our audit assessed the general controls

designed to ensure the integrity, confidentiality, and availability of information associated with the support center. We used GAO’s Federal Information System Controls Audit Manual as a guide in performing this audit.

The review identified weaknesses in five of the six review areas set

forth in the GAO Manual: (1) entitywide security program planning and

management, (2) access control, (3) system software, (4) segregation of

duties, and (5) service continuity. (We did not review the sixth area—

application software development and change control—as we plan to

review it later this fiscal year.) Together, the weaknesses we identified, if

not resolved, could adversely affect the security of the data, programs, and

hardware maintained at the support center and have a negative impact on

the Department’s consolidated financial statements. The Department

agreed with our recommendations for addressing the identified weaknesses

and stated that corrective actions had been initiated. (Financial Statements

Audits Division: FSD-11846-0-0001)

Additional Efforts Needed to Strengthen

Management of Delinquent Debt

As part of the President’s Council on Integrity and Efficiency’s

governmentwide review of non-tax delinquent debt, the OIG conducted an

audit of the Department’s efforts to comply with the Debt Collection

Improvement Act of 1996 (DCIA). As of September 30, 1998, Commerce

had assets of $8.8 billion, of which $253.2 million represented receivables

from nonfederal entities; of this amount, $94.5 million represented debt

that was delinquent over 180 days. Approximately 98 percent of the

delinquent debt balance related to NOAA, EDA, and MBDA.

DCIA was passed in response to congressional concerns about

federal agencies’ efforts to collect non-tax delinquent debt, such as civil

penalties, amounts owed for goods and services provided to the public,

Departmental Management

Commerce OIG Semiannual Report

March 2000 87
and costs disallowed by audits of financial assistance awards. The act

designates the Treasury Department’s Financial Management Service

(FMS) as the government’s debt collection center. To facilitate collection,

bureaus are to transfer all non-tax delinquent debt older than 180 days,

with certain exceptions, to FMS.

Our audit found that most of the Department’s effort to comply with

DCIA took place in FY 1999. As of September 30, 1998, only $23,000

out of $13,600,000 eligible for FMS collection servicing had been transferred, whereas by June 30, 1999, about $13,000,000 had been transferred. Despite the Department’s substantial progress during FY 1999, we

found that:

l Additional efforts were needed to strengthen delinquent debt

management. The Department needed to improve its guidance on

debt management, improve its reports on the age of delinquent

debts, perform reconciliations between Commerce and FMS

records, take prompt action on delinquent debts, and submit

taxpayer identification numbers to FMS.

l Action was needed to avoid the misstatement of receivables.

To avoid a misstatement of accounts receivable as of September

30, 1999, thorough reviews of existing receivables were needed to

identify those that should be written off and to promptly recognize

disallowed costs from financial assistance audits as receivables.

Periodic reviews of this nature represent a basic internal control.

To address the weaknesses identified, we recommended that the

Department finish revising its debt management handbook to reflect DCIA

and Treasury implementation guidance, issue a memorandum encouraging

the bureaus to prepare or update bureau-specific written procedures, and

reconcile bureau reports of debt submitted to FMS with FMS records

quarterly. We also recommended that the bureaus develop and maintain

updated procedures relating to debt management, perform monthly reconciliations between their records and FMS’s, and perform a thorough review

of accounts receivable to identify those that should be written off. Further,

we recommended that the bureaus provide taxpayer identification numbers

to FMS and, should they find collecting the numbers to be administratively

burdensome, discuss possible alternative procedures with FMS.

The Department stated that, on the whole, our report was balanced

and provided recommendations that will strengthen its financial management, and the bureaus generally agreed with our recommendations.

(Financial Statements Audits Division: FSD-11882-0-0001)

88 Commerce OIG Semiannual Report

March 2000

Departmental Management
OIG Provides Comments on Proposed

Government Information Security Act

In response to a request by Chairman Fred D. Thompson and

Ranking Minority Member Joseph I. Lieberman of the Senate Committee

on Governmental Affairs, we commented on a bill introduced in the

Senate, S. 1993, the Government Information Security Act, which is

intended to protect federal information systems from cyber-attack by

strengthening information security practices throughout the government.

We fully support the objectives of the bill. The Department of

Commerce has a vast array of information systems that are critical,

complex, sensitive, and diverse, including those that support the nation’s

decennial census and other census and survey activities, patent and

trademark functions, weather services and environmental protection, and

principal economic indicators. The task of ensuring the security of these

and a multitude of other Commerce information systems presents an

enormous challenge to Department officials and oversight organizations

alike.

Among other things, the bill would require each agency to establish a

program containing procedures for detecting, reporting, and responding to

security incidents. The agency would be required to mitigate risks associated with such incidents before substantial damage occurs and to notify

and consult with law enforcement officials and other offices and authorities

concerning security incidents. We recommended that the bill also explicitly

require the agency to establish procedures for notifying and consulting with

the agency’s Inspector General.

Another provision of the bill would require annual independent

evaluations to be performed by the OIG or by an independent external

auditor, as determined by the Inspector General. We commented that with

the increasingly decentralized and networked computer environment and

growing use of the Internet, information security has become extremely

complex and is undergoing continual and rapid change. As a result, our

resources are no longer adequate to provide the necessary oversight even

in the absence of this bill, and the bill’s annual evaluation requirement

would further increase our shortfall. We believe that it is appropriate and

desirable for the OIGs to conduct the independent evaluations, but we

emphasized that for us to do so effectively would require additional staff,

training, tools, and contractor support and therefore additional budgetary

resources. We also noted that most other OIGs have similar budget issues.

Commerce OIG Semiannual Report

March 2000 89

Departmental Management
Finally, we noted that just as OIGs are struggling to bring adequate

resources to information security oversight, agency chief information

officers and program officials, including those at Commerce, frequently

lack the necessary technical and budgetary resources to ensure that

systems and information are secure. Without additional resources, they will

not be able to adequately strengthen their information security practices.

OIG Assisting Department in Establishing

Steel and Oil/Gas Guaranteed Loan Program

On August 17, 1999, President Clinton signed legislation creating two

loan guarantee programs under P.L. 106-51. The Emergency Steel Loan

Program Act of 1999 provides guaranties for up to $1 billion to qualified

steel and iron ore companies. The Emergency Oil and Gas Guaranteed

Program Act provides guaranties for up to $500 million to qualified oil and

gas companies. Both programs provide for a guaranty of up to 85 percent

of the loan’s principal amount.

The goal of the legislation is to assist steel and oil and gas firms that

were adversely affected by the recent import crises while adequately

protecting the government’s funds by providing sound loan guaranties. The

law established two Loan Guarantee Boards, each made up of the Chairman of the Board of Governors of the Federal Reserve System (as Board

Chair), the Secretary of Commerce, and the Chairman of the Securities

and Exchange Commission to oversee the programs. Funds were appropriated to the Department of Commerce to implement and administer the

program, at the direction of the two Boards.

To assist Commerce in fulfilling its responsibilities, we worked with

various groups in the Department, as well as representatives of the Federal

Reserve, the SEC, and the Treasury Department, to promptly but prudently address this new legislation. We briefed the Department on our

office’s extensive experience conducting audits and investigations of prior

loan guaranties made by the Department, with an emphasis on “lessons

learned.” We reviewed the legislation, commented on the proposed

implementing regulations, attended public meetings, participated in conference calls with several potential lenders, and offered suggestions on the

structure and content of the guarantee agreements.

Implementing regulations for each program were issued on October

27, 1999. At the application deadline of February 28, 2000, 13 applications

had been received under the steel program and 23 under the oil/gas program. We continue to work with the Department in fulfilling its evolving

role under this important legislation. (Financial Fraud Division)

90 Commerce OIG Semiannual Report

March 2000

Departmental Management
Preaward Financial Assistance Screening

We continue to work with the Office of Executive Budgeting and

Assistance Management, NOAA and NIST grant offices, and EDA

program offices to screen all of the Department’s proposed grants, cooperative agreements, and loans before award. Our screening serves two

purposes: It provides information on whether the applicant has unresolved

audit findings and recommendations on earlier awards, and it 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 434 proposed awards. On 10 of the

awards, we found major deficiencies that could affect the ability of the

proposed recipients to maintain proper control over federal funds. On the

basis of the information we provided, the Department delayed the awards

until concerns were satisfactorily resolved or established special award

conditions to adequately safeguard federal funds. (Office of Audits)

Indirect Cost Rates

Under OMB policy, a single federal agency—the “cognizant

agency”—is responsible for the review, negotiation, and approval of

indirect cost rates for public and private entities receiving funds under

various federal programs. Normally, the federal agency providing the most

direct funding to an entity is designated as its cognizant agency. OMB has

designated Commerce as the cognizant agency for 280 economic development districts, as well as a number of state and local government units.

From time to time, the Department also has oversight responsibilities for

other recipient organizations. The Department has authorized the OIG to

negotiate indirect cost rates and review cost allocation plans on its behalf.

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.

Commerce OIG Semiannual Report

March 2000 91

Departmental Management

Preaward Screening Results

Results

Awards delayed to resolve concerns

Special award conditions established

Amount

$5,762,892

4,921,872

9

1

Number
During this period, we negotiated 20 indirect cost rate agreements

with nonprofit organizations and governmental agencies, and reviewed and

approved 16 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

have 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, certain of the Department’s

financial assistance programs are sometimes 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 requirements for most of these audits. Forprofit organizations that receive ATP funds from NIST are audited in

accordance with Government Auditing Standards and NIST ProgramSpecific Audit Guidelines for ATP Cooperative Agreements, issued by the

Department. (Before June 30, 1996, 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.)

We examined 181 audit reports during this semiannual period to

determine whether they contained audit findings on any Department

programs. For 126 of these reports, the Department acts as the cognizant

agency and monitors the auditee’s compliance with the applicable OMB

circulars or the NIST program-specific reporting requirements. The other

55 reports are from entities for which other federal agencies have oversight

responsibility.

92 Commerce OIG Semiannual Report

March 2000

Departmental Management

Report Category

OMB

A-133

Audits

Pending (October 1, 1999)

Received

Examined

Pending (March 31, 2000)

9

147

141

15

ATP

ProgramSpecific

Audits Total

61

75

40

96

70

222

181

111
The following table shows a breakdown by bureau of the

$205 million in Commerce funds audited.

Commerce OIG Semiannual Report

March 2000 93

Departmental Management

Bureau Funds

EDA

ITA

MBDA

NIST

$58,253,562

415,358

311,573

95,610,954

NOAA

NTIA 2,041,837

Agency not identified

Total $204,712,243

41,108,007

6,970,952

*

* Includes $77,494,457 in ATP program-specific audits.

We identified a total of $1,527,552 in questioned costs. In most

reports, the Department’s programs were considered nonmajor, resulting in

limited transaction and compliance testing against laws, regulations, and

grant terms and conditions. The eight reports with Commerce findings are

listed in Appendix B-1. (Atlanta Regional Office of Audits)
94 Commerce OIG Semiannual Report

March 2000

Reporting Requirements

Section Topic Page

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 of this report.

INDEX

5(a)(1)

5(a)(2)

5(a)(3)

5(a)(4)

5(a)(5) and 6(b)(2)

5(a)(6)

5(a)(7)

5(a)(8)

5(a)(9)

5(a)(10)

5(a)(11)

5(a)(12)

21-93

21-93

95

21-93

96

103-108

21-93

100

101

19, 96

19, 96

97

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

discuss this matter on page 82.

4(a)(2) 95

Audit Reports—Funds to Be Put to Better Use

Significant Problems, Abuses, and Deficiencies

Significant Recommendations for Corrective Action

Prior Significant Recommendations Unimplemented

Matters Referred to Prosecutive Authorities

Information or Assistance Refused

Listing of Audit Reports

Summary of Significant Reports

Audit Reports—Questioned Costs

Prior Audit Reports Unresolved

Significant Revised Management Decisions

Significant Management Decisions with Which the OIG Disagreed

Review of Legislation and Regulations
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 comments concerning

legislative and regulatory initiatives affecting Commerce programs are

discussed in appropriate sections of the report. For example, during this

semiannual period, we commented on S. 1993, the Government Information Security Act (see page 89).

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 an explanation of the reasons final action has not

been taken on each such report, except when the management decision

was made within the preceding year.

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 was being prepared,

management was in the process of updating the Department’s Audit

Tracking System as of March 31, 2000, based on semiannual status

reports due from the bureaus in mid-April. An accurate database was

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.

95 Commerce OIG Semiannual Report

March 2000
Reporting Requirements

96 Commerce OIG Semiannual Report

March 2000

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 March 31, 2000, two performance audits and two financial

assistance audits were in this category, as discussed below.

Performance Audits

The two NOAA unresolved reports address the bureau’s light aircraft

operations and NMFS’s laboratory structure. These reports are discussed

on page 63.

Financial Assistance Audits

The unresolved audits relate to two financial assistance awards made

by EDA. We did not agree with EDA’s response to one of the final reports

and are reviewing its revised audit resolution proposal. On the second

report, EDA has requested clarifying information from the grantee. Additional details are presented on page 29.

Section 5(a)(11): Significant Revised

Management Decisions

This section requires an 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,
Reporting Requirements

97 Commerce OIG Semiannual Report

March 2000

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.

The decisions issued on the12 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.
Statistical Highlights

Audit

Statistical Highlights

Questioned costs this period ........................................... $1,590,855

Value of recommendations agreed

to this period by management ......................................... $1,586,583

Investigative

Statistical Highlights

Arrests ............................................................................................. 1

Indictments and informations ............................................................. 3

Convictions ....................................................................................... 3

Personnel actions*............................................................................ 12

Fines, restitutions, judgments, and other civil

and administrative recoveries ................................................ $20,799

 * Includes removals, suspensions, reprimands, demotions, and resignations or retirements in

lieu of adverse action.

Allegations Processed

by OIG Investigators

Accepted for investigation........................................ 22

Referred to operating units ...................................... 50

Evaluated but not accepted for

investigation or referral ............................................ 70

Total ........................................................................142

Note: Numerous other allegations and complaints were forwarded

to the appropriate federal and nonfederal investigative agencies.

OIG HOTLINE

Telephone: (202) 482-2495 or (800) 424-5197

Internet E-Mail: oighotline@doc.gov

98 Commerce OIG Semiannual Report

March 2000
Tables and Appendixes

Commerce OIG Semiannual Report

March 2000 99

TABLES PAGE

1. Audits with Questioned Costs 100

2. Audits with Recommendations That Funds Be Put to Better Use 101

APPENDIXES

A. Office of Inspector General Reports 102

 A-1. Performance Audits 103

 A-2. Inspections 104

 A-3. Financial Statements Audits 105

 A-4. Financial Related Audits 106

B. Processed Reports 107

 B-1. Processed Financial Related Audits 108

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.
100 Commerce OIG Semiannual Report

March 2000

Tables and Appendixes

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

17 $2,038,460 $1,168,737

B. Reports issued during the reporting period 9 1,590,855 121,960

C. Total reports (A+B) requiring a management decision

C. during the reporting period

26 3,629,315 1,290,697

C. Reports for which a management decision was made

C. during the reporting period

17 3,170,946 989,350

i. Value of disallowed costs 1,586,583 951,192

ii. Value of costs not disallowed 2,006,966 298,234

D. Reports for which no management decision had been

D. made by the end of the reporting period

9 $458,369 $301,347

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.

In Category C, line i contains one report that had disallowed costs identified during the resolution process.
Tables and Appendixes

101 Commerce OIG Semiannual Report

March 2000

Table 2: Audits with Recommendations

That Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the .

commencement of the reporting period

3 $18,631,904

B. Reports issued during the reporting period — —

C. Total reports (A+B) requiring a management decision during the B.

reporting period

3 18,631,904

C. Reports for which a management decision was made during the C.

reporting period

1 654,904

 i. Value of recommendations agreed to by management —

 ii. Value of recommendations not agreed to by management 654,904

D. Reports for which no management decision had been made by the

D. end of the reporting period

2 $17,977,000

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.
Commerce OIG Semiannual Report

March 2000

Tables and Appendixes

102

Appendix A. Office of Inspector General Reports

Type Number Appendix

Performance Audits 13 A-1

Inspections 12 A-2

Financial Statements Audits 22 A-3

Financial Related Audits 6 A-4

Total 53
Tables and Appendixes

103 Commerce OIG Semiannual Report

March 2000

Appendix A-1. Performance Audits

Agency Subject Number Date

Atlanta Region Experienced Late Pay Problems for Census

2000 Employees

ESA ATL-11640-0-0001 12/99

Accountable Property Used for the Decennial Census

Needs Improved Controls; Bankcard Program Is Well

Managed

ESD-11781-0-0001 03/00

ITA Market Development Cooperator Program Award Process

Promotes Merit-Based Decisions, but Practices Need More

Discipline, CFDA No. 11.112

ATL-10999-0-0001 12/99

MBDA Internal Controls over Bankcard Use Are Sound BTD-12022-0-0001 12/99

Internal Controls over ERL’s Bankcard Program Need

Improvement

DEN-11627-0-0001 10/99

NOS’s Coastal Services Center Awards Were Not

Competitively Selected, CFDA No. 11.473

ATL-11000-0-0001 03/00

OAR’s Undersea Research Program Awards Were Not

Competitively Selected, CFDA No. 11.430

ATL-11654-0-0001 03/00

Internal Controls over Southeastern Fisheries Science

Center Bankcard Purchases Need Improvement

ATL-11860-0-0001 03/00

Internal Controls over User Fees Need Improvement STD-11881-0-0001 03/00

NOAA

Opportunities Exist to Improve the Competitive Review

Practices of OAR’s Climate and Atmospheric Research

Program, CFDA No. 11.431

STL-10949-0-0001 03/00

O/S Additional Efforts Necessary to Strengthen Department’s

Management of Its Delinquent Debt

FSD-11882-0-0001 12/99

External Reviewers Help with ATP Focused Program

Selection Process, but Key Steps in the Selection Process

Were Not Documented

TA-NIST STD-11113-0-0001 03/00

ATP’s Management of Intramural Research Can Be

Strengthened

STD-11551-0-0001 03/00
Commerce OIG Semiannual Report

March 2000

Tables and Appendixes

104

Appendix A-2. Inspections

Agency Subject Number Date

BXA’s Year 2000 Preparations Are Effective, but

Additional Risk Mitigation Is Needed

BXA OSE-12551 12/99

Improvements Are Needed in Programs Designed to

Protect Against the Transfer of Sensitive Technologies to

Countries of Concern

IPE-12454 03/00

Year 2000 Preparations Were Effective, but Business

Continuity and Contingency Planning Needed

Improvement

ESA OSE-12200 02/00

PAMS/ADAMS Should Provide Adequate Support for the

Decennial Census, but Software Practices Need

Improvement

OSE-11684 03/00

ITA Y2K Risk of Interrupted Operations Is Low, But Some

Improvements Needed in Day One Planning

OSE-12550 12/99

US&FCS Hong Kong Is a Strong Operation with Minor

Management Issues

IPE-11330 01/00

US&FCS Vietnam Is Fully Operational, but Some Areas

Need Improvement

IPE-11798 03/00

ITA

US&FCS France: Leadership in Post Management and

Administrative Matters Needs to Be Reestablished

IPE-12428 03/00

NOAA NWS Y2K Risks Are Low and Agency Is Well Prepared OSE-12313 12/99

O/S There Are Lessons to Be Learned from the October 1999

Fire and PCB Accident in the Herbert C. Hoover Building

IPE-12453 03/00

PTO Year 2000 Business Continuity and Contingency Plan Is

Comprehensive, but Additional Risk Mitigation Is Needed

OSE-11693(2) 12/99

TA NIST Needs to Reevaluate Plans to Support Its Ballistics

Testing Program

IPE-11923 03/00
Commerce OIG Semiannual Report

March 2000 105

Tables and Appendixes

Appendix A-3. Financial Statements Audits

Agency Subject Number Date

BXA Financial Statements for FY 1999 FSD-11883-0-0001 03/00

EDA Financial Statements for FY 1999 FSD-11885-0-0001 03/00

Census Bureau’ s Financial Statements for FY 1999 FSD-11884-0-0001 03/00

Improvements Needed in the General Controls Associated with

Census Bureau Financial Management Systems

FSD-11884-0-0002 03/00

ESA

Economics and Statistics Administration and Bureau of Economic

Analysis’s Combined Financial Statements for FY 1999

FSD-11886-0-0001 03/00

ITA Financial Statements for FY 1999 FSD-11887-0-0001 03/00

MBDA Financial Statements for FY 1999 FSD-11888-0-0001 03/00

NOAA Financial Statements for FY 1999 FSD-11890-0-0001 03/00

Improvements Needed in the General Controls Associated with

NOAA’s Financial Management Systems

FSD-11890-0-0002 03/00

NTIA Financial Statements for FY 1999 FSD-11891-0-0001 03/00

Improvements Needed in the General Controls at the Commerce

Administrative Management System Support Center

FSD-11846-0-0001 02/00

Department of Commerce’s FY 1999 Consolidated Financial

Statements

FSD-11911-0-0001 02/00

Improvements Needed in the General Controls Associated with

the Office of Computer Services/Financial Accounting and

Reporting System

FSD-12196-0-0001 02/00

General Administration’s Working Capital Fund and Salaries and

Expense Fund Financial Statements for FY 1999

FSD-11895-0-0001 03/00

O/S

FY 1999 Federal Agencies’ Centralized Trial-Balance System

Data Verification Agreed-Upon Procedures

FSD-11911-0-0002 03/00

PTO Financial Statements for FY 1999 FSD-11893-0-0001 03/00

Follow-up Review of the General Controls Associated with the

Revenue Accounting and Management System

FSD-11893-0-0002 02/00
Commerce OIG Semiannual Report

March 2000

Tables and Appendixes

106

Appendix A-3. Financial Statements Audits—Continued

Agency Subject Number Date

NIST’s Financial Statements for FY 1999 FSD-11889-0-0001 03/00

Improvements Needed in the General Controls Associated with

NIST’s Financial Management Systems

FSD-11889-0-0002 03/00

NTIS’s Financial Statements for FY 1999 FSD-11892-0-0001 03/00

Improvements Needed in the General Controls Associated with

NTIS’s Financial Management Systems

FSD-11892-0-0002 03/00

TA

TA’s Financial Statements for FY 1999 FSD-11894-0-0001 03/00

Appendix A-4. Financial Related Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

EDA Castle Joint Powers Agency, CA STL-12659-0-0001 03/00 — —

Quality Control Review of Daniel

Dennis & Company, LLP, for the Audit

of the New England Trade Adjustment

Assistance Center

ATL-12073-0-0001 03/00 — —

NOAA Quality Control Review of Bollenback &

Forret, P.A., for the Audit of the Gulf

and South Atlantic Fisheries

Development Foundation, Inc.

ATL-11936-0-0001 03/00 — —

NTIA Northern Arapaho Tribe, Wind River

Reservation, WY

DEN-10736-0-0001 02/00 $63,303 —

Quality Control Review of Mackie, Reid

& Company, P.A., for the Audit of

Industry Network Corporation

TA-NIST DEN-12072-0-0001 03/00 — —

West Virginia Manufacturing Extension

Partnership

DEN-12499-0-0001 03/00 — —

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

107 Commerce OIG Semiannual Report

March 2000

Appendix B. Processed Reports

The Office of Inspector General reviewed and accepted 181 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 68

International Trade Administration 1

Minority Business Development Agency 2

National Institute of Standards and Technology 49 *

National Oceanic and Atmospheric Administration 10

National Telecommunications and Information Administration 8

Multi-Agency 17

Agency Not Identified 26

Total 181

* Includes 40 ATP program-specific audits.
Commerce OIG Semiannual Report

March 2000

Tables and Appendixes

108

Appendix B-1. Processed Financial Related Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

City of Charleston, SC ATL-9999-0-0123 01/00 $1,368,873 —

Mercer County, MO ATL-9999-0-0160 01/00 8,476 $8,476

World Trade Association of Florida, Inc. ATL-9999-0-0228 03/00 10,597 —

EDA

Montachusett Regional Planning

Commission, MA

ATL-9999-0-0230 03/00 26,122 —

ITA Garment Industry Development

Corporation, NY

ATL-9999-0-0118 02/00 12,266 12,266

NOAA State of Alaska ATL-9999-0-0101 01/00 6,266 6,266

Mount Washington Observatory, NH ATL-9999-0-0224 03/00 42,302 42,302

TA-NIST Hudson Valley Technology

Development Center, NY

ATL-9999-0-0119 02/00 52,650 52,650

 Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.
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.

109 Commerce OIG Semiannual Report

March 2000
Glossary of Abbreviations

AFOS..........................................................................................................................Automation of Field Operations and Services

ATP .....................................................................................................................................................Advanced Technology Program

AWIPS ............................................................................................................... Advanced Weather Interactive Processing System

BCCP ................................................................................................................................ business continuity and contingency plan

BEA ......................................................................................................................................................Bureau of Economic Analysis

BXA ................................................................................................................................................Bureau of Export Administration

CAMS ................................................................................................................... Commerce Administrative Management System

CFIUS ........................................................................................................Committee on Foreign Investment in the United States

CFO .................................................................................................................................................................Chief Financial Officer

DCIA ..............................................................................................................................Debt Collection Improvement Act of 1996

EDA.....................................................................................................................................Economic Development Administration

ESA ................................................................................................................................... Economics and Statistics Administration

FARS ............................................................................................................................ Financial Accounting and Reporting System

FMS .................................................................................................................................................... Financial Management Service

GAO ......................................................................................................................................................... General Accounting Office

GPRA ..............................................................................................................................Government Performance and Results Act

GSA .................................................................................................................................................General Services Administration

GWAC ........................................................................................................................................... government-wide agency contract

ICASS .................................................................................................... International Cooperative Administrative Support Service

IG ..............................................................................................................................................................................Inspector General

IPA .......................................................................................................................................................independent public accounting

ITA ................................................................................................................................................ International Trade Administration

JFMIP ............................................................................................................. Joint Financial Management Improvement Program

LCO ........................................................................................................................................................................local census office

MBDA............................................................................................................................... Minority Business Development Agency

MDCP ............................................................................................................................ Market Development Cooperator Program

NIST ........................................................................................................................ National Institute of Standards and Technology

NMFS ........................................................................................................................................... National Marine Fisheries Service

NOAA ...............................................................................................................National Oceanic and Atmospheric Administration

NOS ................................................................................................................................................................ National Ocean Service

NTIA..............................................................................................National Telecommunications and Information Administration

NTIS .....................................................................................................................................National Technical Information Service

NWS ............................................................................................................................................................National Weather Service

OAR ..........................................................................................................................Office of Oceanic and Atmospheric Research

OIG ..........................................................................................................................................................Office of Inspector General

OIPE .......................................................................................................................................... Office of Initial Patent Examination

OMB ............................................................................................................................................Office of Management and Budget

PADE.........................................................................................................................................................PAMS/ADAMS Data Entry

PAMS/ADAMS ................................................................................................Pre-Appointment Management System/Automated

Decennial Administrative Management System

PBO ..................................................................................................................................................performance-based organization

PCBs .......................................................................................................................................................... polychlorinated biphenyls

PTO ........................................................................................................................................................Patent and Trademark Office

RCC .................................................................................................................................................................. regional census center

SCO ......................................................................................................................................................... Senior Commercial Officer

TA ............................................................................................................................................................. Technology Administration

US&FCS ................................................................................................................................ U.S. and Foreign Commercial Service

WCF .................................................................................................................................................................. Working Capital Fund

Y2K ....................................................................................................................................................................................... year 2000

110 Commerce OIG Semiannual Report

March 2000
Office of Inspector General

Organization Chart

OIG Points of Contact

Inspector General .....................................(202) 482-4661

Congressional/PCIE 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

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

Investigative

Services

Financial Fraud

Unit

Investigative

Operations