U.S. DEPARTMENT OF COMMERCE

Office of Inspector General

Semiannual Report

to the Congress

March 31, 1998
Under the provisions of the Inspector General Act of 1978, Public Law 95-452, as amended, we report twice

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

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

corrective action.

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

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

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

or TDD (202) 482-5897.

An electronic version of this report, along with all performance audit and inspection reports issued during the

semiannual period, can be obtained via the OIG’s Internet Home Page at http://www.oig.doc.gov/reports.
Message for the Secretary

April 30, 1998

The Honorable William M. Daley

Secretary of Commerce

Washington, DC 20230

Mr. Secretary:

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

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

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

In December 1997, Francis D. DeGeorge retired after many years of dedicated service as Inspector General.

Mr. DeGeorge came to Commerce as the Department’s first Deputy Inspector General in June 1982 and was sworn

in as Inspector General on April 18, 1988. The OIG extends its appreciation to Mr. DeGeorge for his commitment

to promoting economy and efficiency in the Department of Commerce.

Since January 1998, when I became the Acting Inspector General, our office has reemphasized and devoted

significant additional resources to our ongoing reviews of the Department’s major management issues, such as the

2000 decennial census and financial management. We have also undertaken several new initiatives. Two of these

initiatives are focused on cross-cutting issues within the Department. One involves a review of the use of memorandums of understanding and interagency agreements to assess the relevance of projects done under these agreements

to Commerce’s goals and objectives, as well as the effectiveness and efficiency of the processes for undertaking

such projects. A second initiative involves a review of all Commerce financial assistance programs to assess

whether funding decisions for discretionary awards are being made properly, in accordance with statutory and

administrative criteria.

I am excited by the opportunities and challenges I face as Acting Inspector General. My primary goal is to

ensure an independent, impartial, and accurate assessment of the most important issues confronting the Department.

Sincerely,

Johnnie E. Frazier

Acting Inspector General

Enclosure

March 1998 Commerce IG Semiannual Report i
ii Commerce IG Semiannual Report March 1998

Table of Contents

MESSAGE FOR THE CONGRESS ................................................................................... 1

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

Major Areas of Concern ............................................................................................ 2

2000 Decennial Census ....................................................................................... 2

NOAA Fleet and NOAA Corps ........................................................................... 4

PTO Management and Program Issues............................................................... 5

NWS Modernization ........................................................................................... 6

Financial and Administrative Management .......................................................... 7

Facilities Planning and Laboratory Consolidation .............................................. 10

Department-wide Review of Interagency and Other Agreements...................... 12

Financial Managers’ Financial Integrity Act ............................................................. 13

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

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

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

Bureau of Export Administration ............................................................................. 17

Economic Development Administration ................................................................... 19

Economics and Statistics Administration .................................................................. 23

Bureau of Economic Analysis

Bureau of the Census

International Trade Administration........................................................................... 31

Minority Business Development Agency ................................................................. 36

National Oceanic and Atmospheric Administration .................................................. 38

National Telecommunications and Information Administration ................................ 50

Patent and Trademark Office .................................................................................. 54

Technology Administration ...................................................................................... 60

National Institute of Standards and Technology

National Technical Information Service

Departmental Management ...................................................................................... 66

REPORTING REQUIREMENTS .................................................................................... 77

STATISTICAL HIGHLIGHTS ......................................................................................... 81

TABLES AND APPENDIXES ......................................................................................... 82

DEFINITIONS OF OIG REVIEWS AND

FINANCIAL STATEMENTS AUDIT TERMS................................................................ 94

GLOSSARY OF ABBREVIATIONS ................................................................................ 95

OIG ORGANIZATION CHART AND POINTS OF CONTACT........ (Inside Back Cover)
Message for the Congress

March 1998 Commerce IG Semiannual Report 1

FOREWORD

This year marks the 20th anniversary of the Inspector General Act. It seems an appropriate time for us not only

to reflect on our accomplishments but also to examine our current activities to ensure that we are still meeting the

Act’s mandate to provide leadership and coordination and make objective recommendations for reducing waste,

fraud, and abuse, and promoting economy, efficiency, and effectiveness in Commerce programs and operations.

Consistent with the IG Act, early on the Commerce OIG embraced the concept of “up-front” auditing and other

mechanisms to better “prevent” problems. Rather than solely waiting until projects are completed, much of our

work is conducted while projects are still underway, so that potential problems can be identified and corrections

made before schedules have slipped and considerable funds have been expended. We have, for example, operated a

highly successful inspections and program evaluations program, which has enabled us to meet the need for timely

feedback to program managers on a wide range of issues. In addition, recognizing the need for effective OIG

oversight of the Department’s many mission-critical systems, we established an Office of Systems Evaluation,

which focuses exclusively on information systems and technology issues.

During this semiannual period, our work has continued to emphasize those programs and activities that we

believe offer the greatest potential for improvements and cost savings. For example, we issued reports on the 2000

Census Master Address File, PTO’s space consolidation project, the National Marine Fisheries Service laboratory

structure, and the financial statements of each Commerce operating unit. We also continued to work closely with

senior departmental and bureau officials in monitoring NOAA’s efforts to modernize and restructure the National

Weather Service and to explore private sector alternatives to owning and operating an in-house fleet of ships.

During the next six months, our work will increasingly focus on such major initiatives as the 2000 decennial

census, the Year 2000 computer problem, and the Department’s efforts to achieve its goal of an unqualified audit

opinion on the Commerce FY 1999 consolidated financial statements.

We look forward to continuing to provide the Department and the Congress with independent, timely analyses to

support decision-making.

Johnnie E. Frazier

Acting Inspector General
Message for the Congress

2 Commerce IG Semiannual Report March 1998

MAJOR AREAS OF CONCERN

This section highlights what we consider to be the major areas of

concern for the Department. By addressing these areas, the Department

and the Congress can improve program management, eliminate serious

operational problems, decrease vulnerability to fraud and waste, and

achieve significant cost savings.

2000 Decennial Census

In our November 1995 report on the Census Bureau’s readiness for

the 2000 decennial census and in our subsequent work, we have encouraged the bureau to prioritize, assess, and simplify the major components of

the 2000 decennial census design to reduce risks. In December 1997, at

the request of Senate Commerce Committee Chairman John McCain, we

provided the Committee with an analysis of key decennial census milestones and their associated risks for its use in monitoring the bureau’s

progress in planning for the decennial census (see page 23).

We expressed concern that the bureau’s fundamental problem is that it

simply may not have enough time to plan and implement a design that

achieves the bureau’s dual goals of containing cost and increasing accuracy. We concluded that as a result of its lack of time to complete various

aspects of the design, the bureau may have to request additional funding,

reprogram funds, or experience quality shortfalls. We suggested that the

bureau immediately (1) prioritize and assess the readiness of its major

design components, (2) simplify the design, (3) realistically reassess costs,

(4) communicate results both internally and externally, and (5) redirect the

dress rehearsal accordingly.

However, it is apparent that the design process has been complicated,

rather than simplified, by the “dual-track” agreement with the Congress,

which requires the bureau to plan for both a sampling and a non-sampling

census. And there is an additional burden placed on staff resources in

order to plan for both alternatives. Calendar year 1998 is a critical time in

Census 2000 preparations. The bureau will be implementing and evaluating

the dress rehearsal and finalizing plans for 2000. These preparations

require continued support from staff assigned to these tasks.

Since our 1995 report, we have issued four reports related to decennial

census planing. Our July 1996 report on the acquisition of a data capture

system for the 2000 census found that the bureau’s planned approach of

selecting two contractors to design and test prototype systems was not

justified and, due to the relatively short development time frames allowed,
Message for the Congress

March 1998 Commerce IG Semiannual Report 3

would add risk to the program (see September 1996 issue, page 27). We

recommended that the bureau select a single contractor and work with it to

develop the data capture system. The bureau agreed with our recommendation and awarded a single development contract in March 1997.

In our September 1997 report on the expanded targeted questionnaire

program, we recommended that the bureau reevaluate the effectiveness of

the various elements of the program and make changes as necessary (see

September 1997 issue, page 24). We found that test results indicated that

the current targeted questionnaire program was not likely to substantially

improve coverage for hard-to-count populations, but that the bureau was

continuing to pursue the program as a means of promoting local partnerships. To contain costs and promote a more accurate decennial, we

recommended that the bureau define the targeted questionnaire program

with regard to cost, schedule, performance, and public perception. Further,

we recommended that the bureau discuss program details and justification

with local partners as soon as possible.

In November 1997, we issued an inspection report on the bureau’s

headquarters information processing systems for the 2000 decennial

census (see page 26). During the decennial, data must be processed within

severe time constraints, and statistical results must be correct. We found

that the bureau was using an ad hoc software development process that did

not provide adequate controls, testing, or documentation. Census management has agreed with our findings and has moved to implement our recommendation that it strengthen its procedures for software development.

In March 1998, we issued a report on the 2000 Census Master

Address File (MAF) building program (see page 24). Our review focused

on the results of the bureau’s July 1997 assessment of the MAF-building

program, which centered on partnerships with the U.S. Postal Service and

local governments. Finding that the program was complex, risky, and could

not provide an adequate final product, the bureau concluded that a 1990-

style, 100-percent field canvass is essential.

Despite these conclusions and the associated need for an additional

$108.7 million to fund the canvass and other redesign improvements, the

bureau developed performance measures related to the percentage of local

governments that participate in MAF building. These participation

measures appeared to be on an equal footing with quality measures. This

emphasis on participation rates was troubling because evidence suggests

that, on balance, unverified local lists add more error than they correct.

Unless the emphasis on local participation is focused on quality concerns,

it could either further increase cost and complexity or decrease MAF
Message for the Congress

4 Commerce IG Semiannual Report March 1998

accuracy. Our report made recommendations for addressing these issues.

The Census Bureau generally agreed with our conclusions and

recommendations.

In recent months we have developed an oversight strategy that will

provide broad coverage of the remaining risks related to Census 2000

planning. For example, we plan to monitor the bureau’s dress rehearsal

operations at each of the three sites—Sacramento, California; Columbia,

South Carolina; and the Menominee Indian Reservation in Wisconsin.

We also plan to evaluate the bureau’s approach to matching and

unduplicating census responses. Moreover, we will assess the bureau’s

procedures for local updates to the MAF; review the bureau’s contracting

strategy for printing the forms to be used in the decennial, as well as other

procurement issues; and evaluate selected information systems.

NOAA Fleet and NOAA Corps

The Commerce legislative proposal and transition plan for eliminating

the NOAA Corps has gone to the Congress, where no further action has

been taken. We continue to believe that the transition plan for the Corps

should be implemented by (1) retiring all officers with at least 15 years of

service, (2) identifying the most critical positions in the line offices and

support activities and filling as many as possible with non-retiring officers,

(3) determining which of the critical positions cannot be filled immediately

by such officers, and (4) hiring qualified temporary personnel for such

positions until these officers can be trained. This process will provide fair

treatment for all officers, minimize disruptions in essential services, and

allow NOAA greater flexibility in increasing its use of outsourcing options

for ship- and aircraft-related activities.

We also continue to believe that NOAA should not be in the business

of designing, owning, maintaining, and operating ships. Instead, NOAA

should clearly articulate its programs’ requirements for ship-based services

to the private sector, academia, and other government ship operators that

can provide more cost-effective and modern research vessels.

We are currently completing an audit to determine whether

outsourcing is a more cost-effective alternative than in-house operation in

meeting NOAA’s aircraft requirements. Our review has focused on the

bureau’s light aircraft and helicopters, excluding aircraft that possess

unique capabilities related to hurricane research. We expect to issue a final

report during the next semiannual period.
Message for the Congress

March 1998 Commerce IG Semiannual Report 5

PTO Management and Program Issues

As the Congress continues to consider legislation to establish PTO as a

performance-based organization, we have concerns about many aspects of

the agency’s current operations that could affect its ability to function in

that role. The patent application backlog is growing, and productivity is

static. This past year, patent pendency exceeded 20 months for the first

time in nine years, apparently because of such factors as the decreased

time examiners spend on patent examination and the increased complexity

of patent applications (see page 58).

In addition, PTO’s heavy investments in automation and business

process reengineering have not led to significant productivity

improvements. The Patent Application Management system, now called

Electronic Patent Application Processing, is one of the few components of

the Automated Patent System (APS) plan that is expected to improve

productivity. However, the concept of electronic processing has been on

the drawing board for more than 15 years, has been repeatedly postponed,

and is now not scheduled to be fully deployed until the year 2003. We

have recently begun an evaluation of PTO’s progress in planning and

implementing this component.

In February 1997, PTO replaced its long-standing principal systems

contract for APS with a new systems development and maintenance

contract, which was awarded to two contractors in an effort to improve

their performance by maintaining ongoing competition for specific tasks. In

December 1997, we issued an inspection report on the progress of PTO’s

transition to the new contractors (see page 55). We found that although

progress had been made, the transition had not been receiving the attention

it required and that PTO needed to take full advantage of the period of

overlap between the old and new contractors. PTO accepted our

recommendation to extend the old contract by three months, giving the

original contractor more time to transfer information to the new

contractors. PTO also agreed to quickly finish developing configuration

management procedures so that the new contractors would be able to

access and manipulate application software in an efficient, orderly fashion.

In addition, PTO is involved in a more than $1 billion project, along

with the General Services Administration (GSA), to consolidate the

bureau’s facilities and operations and accommodate space expansion needs

in a 2 million-square-foot facility. This project is expected to be one of the

largest real estate ventures that the federal government will undertake in

the next decade.
Message for the Congress

6 Commerce IG Semiannual Report March 1998

The basic procurement strategy is sound, and PTO and GSA are

performing adequately to complete the effort. Nonetheless, we are

concerned that PTO has not finalized its space requirements for the new

facility or completed some of the critical milestones, which may delay the

project and expose the government to increased cost risk. We have also

recommended that the bureau apply a contractual ceiling to its “build-out”

costs associated with the internal design of the proposed facility and

incorporate any beneficial effects of its reengineering and automation

initiatives in finalizing its space requirements. Finally, we believe that PTO

needs to complete a written interagency agreement with GSA to define the

critical rights and obligations of each agency and allocate the underlying

project risk between them (see page 54).

NWS Modernization

The FY 1998 Appropriations Bill (Public Law 105-119) required the

Secretary of Commerce to certify that the Advanced Weather Interactive

Processing System (AWIPS) could be completed within the funding cap of

$550 million before FY 1998 funds for the project could be spent.

AWIPS, the key integrating element of NWS’s $4.5 billion modernization

program, processes meteorological data and distributes it to NWS facilities.

On March 30, 1998, the Secretary made this certification in a letter to the

Congress, which included a discussion of changes being made to the

program in order to contain costs within the cap. Previously, the program

was to deliver all of the capabilities needed to replace existing, outdated

information processing systems and reduce staffing at NWS field offices to

target levels. Because of cost and schedule overruns, however, the

advanced forecast preparation capabilities cannot be delivered within the

cap, resulting in a smaller-than-planned reduction in staffing.

With certification completed, NOAA requested and in mid-April

received approval from the Secretary to proceed with nationwide

deployment of AWIPS. This acquisition milestone is known as Key

Decision Point-4 (KDP-4). KDP-4, the last Secretarial decision point for

this program, signifies the Department’s confidence that the system has

reached a level of maturity, stability, and supportability sufficient to

commit program funds for hardware procurement.

Based on our analysis, evaluation, and hands-on testing of AWIPS

during the System Acceptance Test and the Operational Test and

Evaluation conducted last fall, and our review of the AWIPS Program

Management Plan, we concluded that NOAA needed to address several

important technical and management problems before KDP-4. These

issues include the quality of system testing, the instability of the system,

the need to redesign and reimplement certain software and hardware
Message for the Congress

March 1998 Commerce IG Semiannual Report 7

components, the problematic performance of the facility for centrally

controlling AWIPS systems in the field, and the incomplete development

schedule and budget estimate to finish AWIPS.

Since the time of our review, some steps have been taken to improve

the central control facility, although issues remain. However, NOAA has

focused primarily on AWIPS cost issues and a management realignment,

giving less attention to technical issues. Nonetheless, the request for the

recent KDP-4 decision does acknowledge the technical issues that remain

and expresses a commitment to dealing with them. We will continue to

monitor the progress of this important program.

Financial and Administrative Management

In the following sections, we discuss a number of critical areas related

to the Department’s financial and administrative management. Among

these are the Department’s efforts to address the year 2000 (Y2K) computer problem, to overcome schedule delays and rising costs in implementing the critically important Commerce Administrative Management

System (CAMS), to work with the bureaus in continuing to improve their

financial statements, and to implement the financial management and

performance reporting requirements of the Federal Financial Management

Improvement Act and the Government Performance and Results Act.

Year 2000 Computer Problem

In February 1998, based on information provided by individual

Commerce bureaus, the Department reported that 298 out of 470 missioncritical computer applications are already year 2000 compliant, that all

bureaus will meet the March 1999 deadline for full compliance, and that

no system has fallen behind schedule by two months or more. However,

the Department has not performed work to verify the accuracy of the

information supplied by the bureaus. Until such work is performed, the

Department will not have assurance that it is receiving and reporting

accurate information.

Converted systems must undergo comprehensive testing procedures to

ascertain their compliance. We believe that software testing tools and

expert help must be available to support and accelerate the conversion

process. The Department must monitor and assist the bureaus as much as

possible, and help them perform verification and validation of converted

systems.

More specifically, the Department must assist the bureaus in

developing cross-project standards for consistency of measures, resource
Message for the Congress

8 Commerce IG Semiannual Report March 1998

identification, and reporting; work with the bureaus to prioritize and

determine levels of effort for critical projects and then assess resource

shortages; and procure Y2K conversion and testing tools for the bureaus to

use. The Department must also develop contingency plans for major

systems, including those believed to be compliant. Failure to take these

actions could result in widespread system failures and risk potentially

undermining Commerce’s ability to conduct business. We will continue to

monitor and assess the Department’s progress in converting its systems to

be Y2K compliant.

Commerce Administrative Management System

The Department is looking to CAMS to provide an effective internal

control environment that meets the CFO Act’s requirement for a single

integrated financial management system. Despite noteworthy progress, the

Department continues to face significant challenges and experience considerable delays in deploying CAMS. Due to schedule delays and rising costs,

the Department has revised its strategic plan and approach to CAMS

implementation. Resources are now focused on completing a pilot project

at the Census Bureau to assess the system’s viability before implementing

it at three other bureaus, as previously planned.

Census is on schedule to complete the pilot by the end of June 1998,

and CAMS should provide it with an updated accounting system to

support the 2000 decennial census. However, given the long history of

increased costs, extended deadlines, and diminished time frames to

implement CAMS Department-wide, we continue to have concerns. Any

delays will most likely extend CAMS deployment dates for bureaus other

than Census into 2000. Clearly, CAMS needs close, top-level

departmental oversight.

Financial Statements Audits

During this semiannual period, the Department prepared its second

consolidated financial statements, on which the OIG disclaimed an opinion

(see page 68). We also issued an individual audit report for each bureau.

Our audits revealed that the Department has strengthened its financial

management, with six bureaus receiving improved audit opinions. In

addition, the overall number of audit findings has decreased in recent

years. Although much remains to be done, we congratulate the Department

for its commitment to improving its financial management, and encourage

it to continue working toward the Secretary’s goal of an unqualified audit

opinion on the Commerce FY 1999 consolidated statements.
Message for the Congress

March 1998 Commerce IG Semiannual Report 9

For FY 1997 statements, unqualified opinions were received by BEA/

ESA, MBDA, NIST, NTIA, PTO, TA, the Department’s Working Capital

Fund, and the Department’s Salaries and Expenses Fund. BXA, Census,

and NTIS received unqualified opinions on their balance sheets with

disclaimers on their income statements. EDA and NOAA received qualified

opinions on their balance sheets with disclaimers on their income

statements. Disclaimers of opinion were received by the Department’s

Franchise Fund and ITA (for details, see page 66 and the individual bureau

sections). For definitions of some of the terms used in financial statements

audits, see page 94.

Federal Financial Management Improvement Act

Compliance with applicable laws and regulations is the responsibility of

the Department’s management. As part of obtaining reasonable assurance

about whether the financial statements are free of material misstatements,

the individual bureaus were tested for compliance with certain provisions

of laws and regulations, noncompliance with which could have a direct and

material effect on the determination of financial statement amounts, and

certain other OMB-designated laws and regulations, including the requirements of the Federal Financial Management Improvement Act of 1996.

Under the act, we are required to report on whether the Department’s

financial management systems substantially comply with federal requirements, applicable accounting standards, and the U.S. Standard General

Ledger at the transaction level. To meet this requirement, we performed

tests of compliance using the act’s implementation guidance, issued by

OMB in September 1997.

The Department was not in substantial compliance with all of the act’s

requirements. Specifically, as indicated in the Secretary’s Annual Statement

and Report - Federal Managers’ Financial Integrity Act, dated December

31, 1997, the Department is not in compliance with central agency

requirements for a single, integrated financial system. Additionally, our

report on internal control structure that was included in the Department’s

Consolidated Financial Statements identified 10 reportable conditions, of

which 7 were material weaknesses related to the Department’s and its

bureaus’ internal controls. As a result, the Department and bureaus were

not in compliance with the guidance issued by the Federal Accounting

Standards Advisory Board. Finally, BXA, ITA, and NOAA, representing

approximately 60 percent of the Department’s operations, did not record

transactions at the Standard General Ledger level. These bureaus were

unable to adequately perform a crosswalk between the general ledger and

the financial statements.
Message for the Congress

10 Commerce IG Semiannual Report March 1998

Government Performance and Results Act

The Government Performance and Results Act of 1993 requires that

the Department maintain a strategic plan, prepare annual performance

plans, and prepare performance reports comparing results with target levels

of performance. The Department submitted its first strategic plan, for

FYs 1997-2002, in September 1997 and its first annual performance plan,

for FY 1999, in February 1998. The Department will prepare its first

performance report in the year 2000.

We reviewed the annual performance plan before it was submitted to

OMB and the Congress. We compared the plan with recent OMB and

General Accounting Office guidance on what information should be

included, and we provided suggestions for improvement. Among the areas

that we believed needed strengthening were verification and validation of

data reliability, strategies for achieving targeted performance goals, and the

presentation of targeted performance measures. The final plan submitted

to OMB and the Congress reflected many of our suggestions. We will

continue to work with the Department in its efforts to prepare information

that will be useful both to management and to oversight groups such as

OMB and the Congress.

Facilities Planning and

Laboratory Consolidation

In a March 16, 1998, memorandum, the Deputy Secretary announced

a Department-level initiative to review the structure and organization of

Commerce’s domestic field offices. We endorse this initiative, the

objectives of which are to (1) improve service delivery, (2) reduce the total

number of field offices, (3) make better use of current technologies, and

(4) build a Department-wide, integrated approach. The initiative will

involve five Commerce bureaus with extensive field structures—BXA,

EDA, ITA, MBDA, and NOAA.

During recent years, the OIG has conducted many reviews that have

either evaluated the proposed acquisition of new facilities or identified

opportunities for using various streamlining or restructuring options, such

as consolidation, collocation, or closure (see, for example, March 1994

issue, page 31; March 1995, page 39; September 1995, pages 45 and 55;

March 1996, pages 33 and 48; and September 1996, page 33). Our recent

work on the National Marine Fisheries Services (NMFS) laboratory

network and NIST construction issues is described below.
Message for the Congress

March 1998 Commerce IG Semiannual Report 11

NMFS Laboratory Structure

NMFS relies on a laboratory network of 29 facilities nationwide,

divided into five regions. In a recent audit, we concluded that, in general,

the NMFS laboratories are conducting high-priority research in wellutilized facilities (see page 39).

However, we also identified several opportunities for NMFS to

streamline its field structure, including closing some laboratories and

transferring their functions to other, underutilized facilities. By

implementing our recommendations, NMFS could put approximately

$6 million to better use. NOAA has submitted its audit action plan but

disagrees with our findings and recommendations, as well as the funds to

be put to better use. We will be addressing NOAA’s objections through the

audit resolution process. We believe that our recommendations should be

implemented in a manner that supports the streamlining initiative discussed

in the Deputy Secretary’s March 16 memorandum.

Follow-up on NIST Construction Issues

Beginning in 1991, the National Institute of Standards and Technology

embarked on a 10-year, $540 million plan to upgrade its laboratory

facilities at both its Gaithersburg, Maryland, and Boulder, Colorado,

campuses. NIST’s Capital Improvements Facilities Plan (CIFP), now

estimated to cost at least $900 million due to inflation and added elements,

includes a mix of new construction and renovations of existing buildings.

Over the last two years, we conducted a comprehensive four-part

review of the CIFP. While acknowledging that NIST has effectively met

many of its capital improvement program challenges, we detailed a number

of concerns in the four reports (see March 1996 issue, page 59; September

1996 issue, page 56; and March 1997 issue, page 61). We have also

emphasized the need for NIST and departmental managers to work

together to more effectively manage this large, expensive capital

development program.

Since the issuance of our fourth report, we are pleased that NIST, the

Department, and OMB have all agreed on the importance of pursuing

funding for unified construction of the Advanced Measurement Laboratory

in Gaithersburg. The President’s FY 1999 budget includes a request for

such funding. Receiving funding for unified construction will enable NIST

to build the laboratory more efficiently, and for less money, than possible
Message for the Congress

12 Commerce IG Semiannual Report March 1998

under traditional funding mechanisms. We strongly support this request. In

addition, the Department has improved its oversight of the CIFP. It has

taken a more active role in determining if CIFP budget requests are

reasonable and justified, and it has coordinated a successful effort to

obtain current, reliable information on NIST’s facilities needs and plans.

However, we have continuing concerns about the latest version of

NIST’s CIFP. While an improvement over earlier versions, it still includes

nearly $220 million for renovations to NIST’s metrology, physics, and

chemistry buildings in Gaithersburg that we believe have not been

adequately justified. Although some renovations are clearly needed, NIST

has not provided sufficient documentation to justify their estimated cost.

Further, by leasing one building, and constructing another, that were not in

its original plans, NIST has greatly increased its total space without

developing plans to cease using older, less useful space or to vacate its

leased space in Gaithersburg in the near term. NIST should take budget

implications into greater account when making and changing its facilities

plans. And the Department should scrutinize current and future facilities

plans to ensure that all construction and renovation costs are fully justified.

In addition, although NIST no longer plans to build a $92 million

Advanced Measurement Laboratory in Boulder, it now plans to construct a

$20 million “clean room” there. Construction of the clean room is

scheduled to begin in FY 2000 and be completed in FY 2003. NIST has

not, however, completed a benefit-cost analysis to justify the building.

Department-wide Review of

Interagency and Other Agreements

Earlier OIG reviews of the bureaus’ use of interagency and other

agreements found significant deficiencies, such as improper accounting for

project costs and undercharging for services provided. Concerned that

such agreements were being, or could be, used to circumvent procurement

guidelines or to improperly inflate budgetary resources, we have initiated a

Department-wide review of interagency and other agreements.

During the initial stages of this review, it became evident that the

Department did not have a comprehensive set of policies and procedures

to guide its bureaus in undertaking and formulating agreements. We found

that Commerce agencies also lack bureau-specific guidelines for preparing,

reviewing, and administering agreements; lack centralized databases; do

not consistently recover full costs under reimbursable agreements;

sometimes use an agreement when a contract or grant would be more

appropriate; and do not fully justify their use of certain legal authorities.
Message for the Congress

March 1998 Commerce IG Semiannual Report 13

As part of our Department-wide review, we have looked at how each

major departmental bureau handles its agreements. Commerce agencies

have over 4,700 agreements in effect, involving approximately $1.1 billion

in funds for reimbursable activities or obligations to other parties to acquire

goods or services. Upon completion of this review, we will have issued

reports on the agreements process for most Commerce bureaus or line

offices, as well as a cross-cutting report that will bring together all of the

major issues we have identified.

The one report we issued during this semiannual period dealt with

MBDA’s use of joint project agreements for its Minority Business

Opportunity Committee (MBOC) program (see page 36). During our

review, discussions with MBDA, the Office of the Secretary, and the

Office of General Counsel led us to conclude that cooperative agreements

were a better mechanism for managing the MBOC program. MBDA has

agreed to switch to cooperative agreements for funding program operators.

This should improve the award process and strengthen departmental

oversight and monitoring of the program. The remainder of the reports on

agreements will be issued during the next semiannual period.

FEDERAL MANAGERS’ FINANCIAL

INTEGRITY ACT

The Federal Managers’ Financial Integrity Act of 1982 (Public Law

97-255) requires the heads of executive agencies to report annually to the

President and the Congress on the adequacy of their accounting and

management control systems. The annual report identifies material

weaknesses and actions being taken to correct them.

The staffs of the OIG and the Department’s CFO work together to

assist bureaus in identifying their material weaknesses. This year, the

Secretary reported the four material weaknesses listed below, all of which

were reported in previous years. Progress has been made in each of these

areas; nevertheless, they remain areas of serious concern for the

Department.

! Modernization of the National Weather Service (NOAA).

! Fleet Modernization (NOAA).

! Financial Systems (Department-wide).

! Management of the Design and Implementation of the

2000 Decennial Census (Census).
Message for the Congress

14 Commerce IG Semiannual Report March 1998

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, 1997) for which no management decision has been made by

the end of the period (March 31, 1998). The following table presents the

overall status.

The number of unresolved financial assistance audit reports has

increased from 3 to 10. One of these reports involves a NOAA award and

remains unresolved after two years. NOAA is preparing a final audit

resolution proposal based on OIG comments on a draft proposal. A second

audit, involving an EDA grant, remains unresolved after one year. Resolution is pending the issuance of a report by state auditors. The other eight

audits involve NIST awards under the Advanced Technology Program.

Audit resolution proposals have been submitted; however, OIG-NIST

discussions have not yet succeeded in resolving the reports. Additional

details are presented on pages 22, 49, and 64.

Discussion of the three unresolved preaward contract audits can be

found on page 79.

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 letter. The following

table summarizes the activity during the reporting period.

Type of Audit Report Unresolved

Performance

Financial Assistance

Financial Statements

Preaward Contract

Postaward Contract

 0

10

 0

 3

 0
Message for the Congress

March 1998 Commerce IG Semiannual Report 15

Report Category Appeals

Actions pending (October 1, 1997)

Submissions

Decisions

Actions pending (March 31, 1998)

6

7

4

9

5

5

0

0

Modifications

The nine appeals pending final decisions by the Department include

one NIST, six EDA, and two MBDA financial assistance audits.
Department of Commerce

Organization Chart

16

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
Bureau of

Export Administration

Audit of FY 1997 Financial Statements

The OIG contracted with a certified public accounting (CPA) firm to

audit BXA’s FY 1997 statement of financial position, and the related

statement of operations and changes in net position. The firm issued an

unqualified statement of financial position, and disclaimed an opinion on

the related statement of operations and changes in net position because

opening year balances were not audited.

We commend BXA for its significant progress in addressing prior year

internal control findings of eight material weaknesses (see March 1997

issue, page 18). For FY 1997, the auditors identified one material

weakness in BXA’s internal control structure, relating to the need for

proper recording and liquidation of accounts payable and undelivered

orders, and one reportable condition, relating to the need for adequate

review of the financial statements overview, which is to provide a

description of the bureau’s programs, activities, and results.

In its report on compliance with laws and regulations, the CPA firm

identified two instances of non-compliance: BXA did not report the above

material weakness in its 1997 Federal Managers’ Financial Integrity Act

report, as required, and its financial system does not substantially comply

with the Federal Financial Management Improvement Act.

The auditors recommended that BXA improve its financial operations

by: (1) establishing procedures for reviewing account balances on a regular

basis, and for obtaining a complete list of all accruals to be recorded at the

end of the fiscal year; (2) working closely with NOAA’s finance office,

which provides BXA with financial and accounting support, regarding

implementation of accrual policies and procedures; and (3) continuing to

support the implementation of the Commerce Administrative Management

System, which is expected to replace NOAA’s financial management

system. In its comments on the audit report, BXA detailed the actions it

plans to take to address these issues. Those proposed actions are fully

responsive to the auditors’ recommendations.

We reviewed a draft version of BXA’s overview to its financial

statements and shared our observations and recommendations with BXA

management in a discussion paper. BXA revised its FY 1997 overview and

indicated it will make additional improvements in future years. We have

highlighted the need for BXA to continue to improve its future overviews

by increasing its use of outcome and cost-effectiveness measures, listing an

additional year’s worth of data to facilitate the analysis of trends in performance over time, and strengthening its discussion of results. (Financial

Statements Contract Audits Division: FSC-9859-8-0001)

March 1998 Commerce IG Semiannual Report 17

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.
Bureau of Export Administration

18 Commerce IG Semiannual Report March 1998

In Brief

Reprimands. In October 1997, six BXA employees and three employees

of an agency contractor received letters of reprimand after an OIG

investigation confirmed allegations that an illegal sports gambling pool was

being operated in a BXA office using government time and equipment. In

addition, the agency invoked the Department’s alternative discipline

initiative and directed the employees to make contributions to charity as

part of their punishment. (Washington Field Office of Investigations)

Export

Administration

Bureau of

Export

Administration

Export

Enforcement
Economic Development

Administration

Audit of FY 1997 Financial Statements

A contractor CPA firm audited EDA’s statements of financial position

as of September 30, 1997, and 1996, and the related statements of

operations and changes in net position for the years then ended. The firm

expressed a qualified opinion on the statement of financial position because

EDA had not established procedures to ensure that accrued grant expenses

were recorded accurately in the financial statements and the firm was

unable to obtain sufficient evidence to form an opinion regarding the basis

on which these expenses were stated. EDA received a disclaimer of

opinion on its statements of operations and changes in net position because

of the carryover effect of the prior year disclaimer of opinion.

In its report on compliance with laws and regulations, the firm identified one instance of noncompliance: EDA’s financial accounting system

did not substantially comply with the Federal Financial Management

Improvement Act of 1996 in that the bureau has not established an

accounting system that conforms with applicable federal accounting

standards with respect to accurately recording accrued grant expenses.

In its report on internal control structure, the firm identified five

reportable conditions, which involved the need for EDA to (1) accurately

record accrued grant expenses (material weakness), (2) strengthen the

financial management control environment, (3) separate incompatible

duties relating to computer program changes, (4) improve controls over

access to, as well as changes made to, automated data systems, and

(5) reconcile annual leave on a timely basis.

EDA has made substantial progress in improving its financial management. The decrease in the number of material weaknesses from four in

FY 1996 to only one in FY 1997, and the receipt of a qualified opinion on

its statement of financial position, are indications of EDA’s commitment to

improving its financial management. Nevertheless, EDA needs to resolve

the remaining conditions, particularly its methodology for determining

accrued grant expenses. This issue will have to be resolved before EDA

can receive an unqualified opinion.

In examining the overview to EDA’s financial statements, we found

that it appropriately (1) links EDA’s programs with the Department’s

Strategic Plan, (2) identifies management actions taken to address internal

control deficiencies, and (3) reflects EDA’s progress in meeting GPRA

requirements. However, our review of the overview also found that

improvements are needed. Specifically, EDA needs to better report on

performance results and improve the presentation of performance data to

March 1998 Commerce IG Semiannual Report 19

The Economic Development

Administration was established

under the Public Works and

Economic Development Act of

1965 to generate new jobs, help

protect existing jobs, and stimulate

commercial and industrial growth

in economically distressed areas

of the United States. EDA does

this by providing grants to public

and private nonprofit organizations

in communities with problems that

are stifling economic growth;

planning grants to states, cities,

districts, and Indian reservations;

special economic adjustment

assistance to states and local

governments with recent, severe

problems or long-term economic

deterioration; technical assistance

to communities to build

organizational capacity and solve

specific economic development

problems; and research and

evaluation grants to increase

knowledge about effective

economic development tools.
20 Commerce IG Semiannual Report March 1998

Economic Development Administration

facilitate trend analyses and assessments of whether target levels of

performance are being achieved. (Financial Statements Contract Audits

Division: FSC-9861-8-0001)

Massachusetts Fisheries Grant

Produced Limited Program Results

In July 1994, EDA made a $1.5 million grant to a Massachusetts city

under the Northeast Fisheries Initiative Program to assist the depressed

fisheries industry in the Northeast States. The grant provided funds to

capitalize two revolving loan funds (RLFs) and provide technical assistance

related to the fishing industry. The grant terms required the city to provide

a $500,000 cash match.

The purpose of the RLF portion of the grant was to provide fishermen

and businesses in the city with low-interest loans to (1) convert and retrofit

commercial fishing vessels to harvest underutilized species and other

seafood products, (2) purchase new equipment, (3) support existing and

new marine-related businesses, and (4) assist start-up or expansion of nonfishing-related businesses.

The OIG performed an audit of the entire grant period from July 1994

through June 1997 to determine the status of the RLFs, the type of technical assistance received, and the program results achieved. We found that,

although the city generally used project funds appropriately, it achieved

only limited program results from the grant award because it had not made

available to potential borrowers, or had not used, nearly two-thirds of the

$2 million in project funds. Specifically, the city (1) did not make its

required $500,000 cash match, (2) retained about $716,000 in unloaned

RLF cash, and (3) did not use $107,000 in technical assistance funds.

Due to the seriousness of these problems, we requested EDA to

suspend further grant activity until our findings could be resolved. EDA

agreed and so notified the city in November 1997. We also found that the

subgrantees operating the RLFs on behalf of the city had incurred

$12,500 in questioned administrative costs and failed to comply with

EDA’s requirements regarding financial and performance reports, annual

RLF plan certifications, and loan file documentation.

We recommended that EDA reduce the federal portion of the city’s

grant through a partial termination for convenience, reduce the city’s

matching requirement in the same ratio as the federal share reduction, and

require the city to reimburse the $12,500 in questioned costs. EDA and the

city agreed to the partial termination, resulting in $629,000 in funds to be

put to better use. (Atlanta Regional Office of Audits: ATL-10253-8-0001)

Program

Operations

Economic

Development

Administration

Finance and

Administration

Program

Research and

Evaluation
Economic Development Administration

March 1998 Commerce IG Semiannual Report 21

Flood Act Grantee Lacked Adequate Accounting

Records and a Plan for Using Program Income

In 1993 the Congress provided emergency supplemental

appropriations to EDA to award disaster assistance grants to help in the

economic recovery of communities, industries, and firms harmed by

widespread flooding in the Midwest that spring. In November 1994, EDA

awarded a flood act grant to a small Missouri town of 400 people to

construct four industrial buildings in order to relocate flood-damaged

businesses outside the flood plain. In addition to damage to businesses, the

town was forced to relocate. The total approved project amount was

$2,775,000, including a federal share of over $2,000,000 and a local

matching share of nearly $700,000. The town claimed total costs above

the project amount, and EDA disbursed all the federal grant funds.

An OIG audit disclosed that the town had inadequate accounting

records that did not support all costs claimed, resulting in more than

$190,000 in questioned project costs. We also found that the town failed

to submit for EDA approval a plan for using program income, as required

by the grant’s terms and conditions, and improperly disbursed income

without an approved plan.

We recommended that EDA disallow $190,879 in questioned costs

and recover $103,549 in excess federal disbursements. We also recommended that EDA not award future grants to the town until it establishes

an adequate fund accounting system, and require the town to develop a

satisfactory plan for using program income or return 75 percent of all

income to EDA. EDA and the town disagree. (Denver Regional Office of

Audits: DEN-9651-8-0001)

Idaho RLF Used Funds Improperly and

Did Not Maximize Private Investment

In 1989 EDA awarded a $451,000 Title IX grant to an Idaho

economic development association to capitalize a business development

RLF. In 1994 the grant was amended to add another $400,000 to the

fund’s capitalization. The RLF was intended to assist in stabilizing and

diversifying the area’s economy and employment base, which the

association strove to do by establishing an active business development

financing program. As of March 1997, the association had loaned out all

but $138,000 of the fund’s $851,000 initial capital, earning nearly

$360,000 in loan interest income, and had more than $690,000 in

outstanding loans.
22 Commerce IG Semiannual Report March 1998

Economic Development Administration

The OIG initiated a joint investigative/audit effort in response to

allegations that RLF funds had been embezzled or otherwise diverted for

improper purposes. No evidence of criminal activity was found, but the

financial portion of our audit disclosed that the association improperly used

RLF principal totaling $12,327 to pay for administrative expenses, and

incurred $4,000 in questioned costs by charging the full purchase price of

equipment, instead of depreciation costs, to the RLF. We also found

deficiencies in the association’s internal controls in the areas of fidelity

bonding of employees, separation of duties, and frequency of bank

deposits.

In addition, the audit concluded that the association could improve

RLF management by maximizing private dollar investment leveraging with

its loans. The Title IX Economic Adjustment Program RLF Administrative

Manual requires RLF loans to leverage private investment of at least $2 for

every $1 of RLF investment, but the association was able to attain only a

1.65-to-1 ratio of private dollars to RLF dollars.

We recommended that EDA direct the association to (1) maximize the

use of private dollars in making RLF loans, (2) correct the identified

internal control deficiencies, and (3) replenish the RLF with $16,327 for

the improper use of RLF funds and the questioned costs. The association

agreed with our first two recommendations, but disagreed with our

financial findings, claiming that RLF principal had not been used for

administrative expenses and that depreciation had been properly recorded

and supported. (Denver Field Office of Investigations and Seattle

Regional Office of Audits: STL-9830-8-0001)

Audit Reports Unresolved for Over Six Months

A financial assistance audit report, DEN-7037-7-0001 (see March

1997 issue, page 25), found that a Texas Title IX grant recipient could not

support its project cost claims because it submitted inaccurate claims,

commingled federal and state funds with local funds, made duplicative cost

claims, and used some of the funds for ineligible or non-project-related

purposes. As a result, we questioned over $760,000 in costs claimed

against the EDA grant, and nearly $600,000 in costs claimed against state

funds.

Resolution is pending the receipt of a report on a state audit of the

grantee’s financial records. EDA, State of Texas, and OIG officials will

meet to resolve the cost-sharing issues once the state audit report is issued.
Economics and

Statistics Administration

Senate Committee Chairman Seeks IG Views

on Key Decennial Census Milestones and Risks

Beginning with the issuance of our November 1995 report on the

Census Bureau’s readiness for the 2000 decennial census and in our

subsequent audit and inspection work, we have encouraged the bureau to

prioritize, assess, and simplify the major components of the decennial

design to reduce risks. During an oversight hearing on the Department’s

operations, the Chairman of the Senate Committee on Commerce,

Science, and Transportation asked the OIG to provide the Committee with

its views on what milestones need to be accomplished by what dates in

order to ensure a successful 2000 decennial census. The Committee

intended for this information to be used as a benchmark to track the

bureau’s progress in planning for the census.

In response to this request, in December 1997, we provided the

Chairman with an analysis of key decennial census milestones and their

associated risks. We concluded that although the 2000 decennial design

was risky, the Census Bureau’s fundamental problem was that it simply

might not have enough time to plan and implement a census that achieves

its dual goals of containing cost and increasing accuracy. The problem was

amply evidenced by the tightness of the Master Activity Schedule—the

primary decennial program management tool. The schedule’s tightness was

due to changing design details, lagging progress in some critical activities,

less than full implementation of strategies and procedures, and a continuing

lack of agreement between the administration and the Congress on the

appropriate use of sampling. We noted that our analysis had not taken into

account the recent congressional directive for dual-track planning.

A recurring theme of our analysis was that as a result of its lack of

time to complete various aspects of the design, the bureau would have to

ask for additional funding, reprogram funds, or experience potential quality

shortfalls. To minimize the need for such actions, we concluded that the

bureau would need to immediately prioritize and assess the readiness of its

major design components, simplify the design, realistically assess costs,

communicate results both internally and externally, and redirect the 1998

dress rehearsal accordingly. In recent months, we have developed an

oversight strategy that will enable us to assess the remaining risks associated with the 2000 decennial census. In March 1998, we responded to

questions posed by the Ranking Minority Member of the House Government Reform and Oversight Subcommittee on the Census, on the decennial census risks discussed in our December 1997 analysis. (Economics

and Statistics Audits Division)

March 1998 Commerce IG Semiannual Report 23

The Economics and Statistics

Administration analyzes

economic developments, develops

policy options, and produces a

major share of U.S. government

economic and demographic

statistics. The Chief Economist

monitors and analyzes economic

developments and directs studies

that have a bearing on the

formulation of economic policy.

ESA has two principal agencies:

Bureau of the Census. Census is

the country’s preeminent statistical

collection and dissemination

agency. It publishes a wide variety

of statistical data about people and

the economy of the nation,

conducting approximately

200 annual surveys, in addition to

the decennial census of the U.S.

population and the decennial

census of industry.

Bureau of Economic Analysis.

BEA’s goal is to provide a clear

picture of the U.S. economy by

preparing, developing, and

interpreting the national income

and product accounts

(summarized by the gross

domestic product) as well as

aggregate measures of

international, regional, and state

economic activity.
Economics and Statistics Administation

24 Commerce IG Semiannual Report March 1998

Census Address-Building Program May Become

More Complex, Costly, and Counterproductive

In March 1998, the OIG issued an audit report on the Census

Bureau’s 2000 decennial address list, known as the Master Address File.

The address list that was used in conducting the 1990 decennial was a

source of millions of errors and, therefore, a good candidate for reengineering. It was also a matter of great interest to local officials, who

believed that they could help to improve the list. Partly in response to this

interest, in October 1994, the Congress passed Public Law 103-430, which

required the bureau to allow local governments to review the MAF before

the 2000 decennial takes place.

Concerned about difficulties encountered in implementing the MAF, in

1997 the bureau initiated an assessment of the address-building program,

which centered on partnerships with the U.S. Postal Service and

39,000 local governments. Finding that the program was complex and

risky, and could not provide an adequate final product, the assessment

team concluded that a 1990-style, 100-percent field canvass is essential for

ensuring that the MAF is accurate.

Despite these conclusions and the associated need for an additional

$108.7 million for the canvass and other redesign improvements, the team

identified the percentage of local governments that participate in MAF

building as a measure of program success. While recognizing the value of

achieving a high level of local government involvement, we were

concerned that this participation measure appeared to be on equal footing

with more important measures that focus on final MAF accuracy rates.

We concluded that by placing great emphasis on local participation, the

bureau was putting MAF accuracy at risk. Although we recognize that the

bureau is legally required to give local governments the opportunity to

review their portions of the MAF and that such partnerships can be a

helpful way to foster local cooperation, the bureau’s goals of an accurate

census and address list tend to conflict with local officials’ desire for as

high a count as possible. Using a more substantive measure, such as costeffectiveness or a percentage of valid additions or deletions, could mitigate

the conflict while acknowledging the role of local lists.

The bureau’s emphasis on partnerships and the outcome of its

assessment demonstrate its desire to satisfy local officials, who will likely

expect to play an important role in the address-building process. Yet the

bureau needs to strike the right balance among accuracy, cost, and local

involvement. Clearly, accuracy must take precedence, give MAF’s

centrality to the decennial.

Economics and

Statistics

Administration

Bureau

of the

Census

Bureau of

Economic

Analysis
Economics and Statistics Administation

However, if accuracy and local involvement take precedence, costs

may spiral upward because of the complexity involved in reconciling

multiple lists and verifying thousands of discrepancies, especially if a 100-

percent canvass does not occur. On the other hand, if cost and local

involvement take precedence, quality is likely to suffer. For these reasons,

the bureau must move forward with MAF refinements, communicating the

results to its local partners soon.

The risk to the program is clearly diminished if a 100-percent canvass

is conducted, because that operation can “clean up” any deficiencies

before the decennial. However, we question whether the numerous initial

operations designed to preclude extensive field work, which were designed

to operate in tandem with targeted canvassing, are now needed in the

current plan, which involves expanding some elements of local participation and conducting a 100-percent canvass. The possible savings from

curtailing earlier MAF-building operations or plans to expand local review

may partially offset the funding increase requested for canvassing.

We recommended that the Census Bureau:

! Conduct a review of initial local address updates submitted

through the reengineered MAF-building program to ascertain the

cost-effectiveness of including local address data in the MAF.

! Reexamine components of MAF building initially designed to

obviate the need for field work to determine whether savings are

possible to partially offset the cost of the new canvassing

operation.

! Adjust the MAF program accordingly and communicate the

adjustments, and the justifications for them, to local partners as

soon as possible.

The bureau generally agreed with our conclusions and recommendations. (Economics and Statistics Audits Division: ESD-9608-8-0001)

March 1998 Commerce IG Semiannual Report 25
Economics and Statistics Administation

Bureau’s Information Processing System Unit

Lacks Plans and Procedures for the 2000 Census

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

for apportioning seats in the Congress and for distributing billions of dollars

in federal assistance. The processing systems unit within the Census

Bureau’s Decennial Systems and Contracts Management office is

responsible for the information processing systems at headquarters. The

office is involved in all stages of decennial census operations, starting with

the collection of census information, proceeding through the analysis and

tabulation of census data, and ultimately, with the preparation of census

results for dissemination.

During a survey of information processing systems, the OIG observed

that the requirements for systems to support headquarters processing were

not clearly defined, and we were unable to confirm that mechanisms

required to manage software development were being implemented and

that adequate progress was being made. We, therefore, conducted an

inspection to (1) evaluate the appropriateness of the system requirements,

(2) assess the system implementation strategy and plan, (3) evaluate the

readiness and capabilities of the development organization and the planned

use of support contractors, and (4) identify system development risks.

Our inspection report disclosed several deficiencies in the software

development approach for headquarters processing systems:

! Software was not being developed in accordance with any

well-defined process. Despite the significant capabilities and

experience of managers and software developers within the office,

a well-defined software development process based on software

engineering principles was not being followed. The approach

employed was not based on standards for (1) documenting and

reviewing software specifications and design, (2) ensuring that

rigorous, independent testing is carried out, and (3) ensuring the

uniform and effective use of development and evaluation methods

and tools. A software development process based on at least this

minimal set of elements is necessary to better ensure accurate

census results.

! Estimates of software development schedules and resources

for the 1998 dress rehearsal and the 2000 census were not

realistic. The bureau developed a master activity schedule that

identifies activities, their interrelationships, and expected durations

necessary to accomplish the dress rehearsal and the decennial

26 Commerce IG Semiannual Report March 1998
Economics and Statistics Administation

census. Durations specified in the plan for software development

activities, however, did not indicate the expected effort required,

but rather represented “windows of opportunity” or the time

available for development. Without estimates of activity duration,

management cannot reliably determine whether software

development schedules are achievable or whether requests for

staffing levels to support software development are realistic.

! Requirements for headquarters processing are incomplete,

subject to change, and likely to be late. As planned, the dress

rehearsal and the decennial census will rely on statistical processes

that have not been used in previous censuses. Therefore, decisions

concerning the details of these processes should be documented in

requirements specifications for software that must still be

developed. However, at the time of our review, statistical research

was still being conducted, and important decisions concerning the

details of some of these processes were not being made in a timely

manner. Consequently, important specifications cannot be

prepared within the required time frame. Developing software

without specifications, or with frequently changing specifications,

increases the risk that costly and time-consuming modifications

will be needed later to accommodate changes in requirements. The

bureau should focus on defining and refining requirements, rather

than risk having to modify prematurely designed and developed

software.

Our report contained recommendations to address these deficiencies.

During our inspection, we discussed our concerns with bureau managers,

who identified actions they would take to address the concerns. We found

their proposed approach in agreement with our recommendations. (Office

of Systems Evaluations: OSE-10034)

Audit of Census’ FY 1997 Financial Statements

The contractor CPA firm that performed an audit of the Census

Bureau’s financial statements expressed an unqualified opinion on the

combined statement of financial position as of September 30, 1997. This

represents an improvement over the qualified opinion expressed on the

FY 1996 statement of financial position. The auditors disclaimed an

opinion on the related combined statement of operations and changes in

net position for the year ended on September 30, 1997. The firm was

unable to express an opinion on the latter statement because it could not

readily extend its auditing procedures sufficiently to satisfy itself as to the

balances of assets, liabilities, and net position as of October 1, 1996.

March 1998 Commerce IG Semiannual Report 27
Economics and Statistics Administation

The auditors’ report on internal controls identified three reportable

conditions, the first of which is a material weakness:

! Reconciliations between Census’ financial information system and

its subsidiary records were not performed in a timely manner and

did not sufficiently document and account for all reconciling items.

! No policies or procedures are in place for determining the actual

cost of items held in inventory for sale to other government

agencies and the public.

! The unbilled accounts receivable balance as of September 30,

1997, was not reviewed to determine if outstanding receivable

amounts were collectible.

The report on compliance with laws and regulations disclosed that

Census’ financial management systems did not substantially comply with

federal requirements.

After we reviewed the draft overview to Census’ financial statements,

the bureau made a number of improvements we suggested. However, in

future years, the bureau needs to make further improvements by

strengthening reported results of program performance and improving the

presentation of results to facilitate analyses of trends and the assessment of

the bureau’s success in meeting its goals and objectives.

We commend Census’ efforts in its role as pilot bureau for the

Commerce Administrative Management System. This project required

significant bureau resources in FY 1997 and will continue to do so until it

is fully implemented. CAMS is critical because it is to provide (1) the

Department with a single integrated financial management system, as

required by the CFO Act, and (2) Census with an updated accounting

system for the 2000 decennial. We encourage Census management to

continue to devote the resources needed to implement CAMS on schedule.

(Financial Statements Contract Audits Division: FSC-9860-8-0001)

Audit of BEA’s and ESA’s Consolidated

Financial Statements as of September 30, 1997

A contractor CPA firm performed an audit of BEA’s and ESA’s

Consolidated Statement of Financial Position as of September 30, 1997,

and the related consolidated statements of operations and changes in net

position. The firm was able to render unqualified opinions on the

statements, indicating that significant improvements had been made to

BEA’s and ESA’s financial and accounting practices over the past years.

28 Commerce IG Semiannual Report March 1998
Economics and Statistics Administation

Although the firm’s report on internal controls contained no material

weaknesses, it did identify one reportable condition related to controls over

NIST’s Financial Accounting and Reporting System, which is used in

preparing BEA’s and ESA’s financial statements. Since BEA and ESA

management are not responsible for the general controls over this system,

recommendations related to the system controls were directed to the

Department’s Office of Computer Services, which maintains the system’s

hardware and software used to process transactions and data.

The firm also identified one instance of material non-compliance in its

report on compliance with laws and regulations regarding BEA’s and ESA’s

core financial management system. NIST’s Office of Financial Management performs a significant portion of the financial transaction processing

and reporting for BEA and ESA. However, its Financial Accounting and

Reporting System does not maintain adequate commonality of data

elements or transaction processing sufficient to ensure timely, accurate,

and effective financial reporting, as required by federal regulations.

The OIG also reviewed a draft version of the joint BEA-ESA

overview to the consolidated financial statements, and we shared our

observations and recommendations in a discussion paper and subsequent

meeting with management. We recommended that BEA and ESA improve

their discussion of results by strengthening performance measures and

improving the presentation of information to facilitate trend analyses and

assessment of the bureau’s success or failure to achieve performance

targets. Management was responsive to our comments, adding language

related to planned performance measures by goal and objective, while

stating that additional improvements will be made in future overviews.

(Financial Statements Contract Audits Division: FSC-10113-8-0001)

Census’ Atlanta Office Needs to Improve

Internal Controls over Bankcards

In conjunction with an OIG plan to periodically review Commerce

units’ use of bankcards, we conducted an unannounced audit of bankcard

transactions at the Census Bureau’s Atlanta Regional Office for the

12-month period ended July 1997 to determine whether the purchases

were made in compliance with applicable federal and departmental requirements. The objectives of the bankcard program are to reduce administrative procurement costs, improve cash management by expediting and

simplifying small purchases, and strengthen internal controls to eliminate

the vulnerabilities to fraud and abuse of other small purchase methods.

March 1998 Commerce IG Semiannual Report 29
Economics and Statistics Administation

We identified a number of minor deficiencies in the regional office’s

internal control practices, including: (1) bankcard activity was never

reviewed by the contracting office head, (2) bankcards were not always

stored in a secure location, (3) unauthorized card use was permitted and

prohibited items were purchased, (4) purchases were not preapproved,

receipt of goods was not documented, and property transaction forms

were not completed, (5) records were not properly maintained, and

(6) mandatory training was not performed. We also found that the office

did not promote competition for purchases over $2,500, as required.

We recommended that Census ensure that the Atlanta office follows

effective internal control procedures, and that the bureau conduct a followup review of the office’s bankcard activity within 18 months of our report

and provide us with the results of that review. We also recommended that

the office be required to use competitive procedures for purchases over

$2,500. Census officials generally agreed with our recommendations,

stating they will ensure that our recommendation on internal controls is

carried out and that cardholders will be reminded in a formal memorandum

of the importance of the issues we addressed. (Atlanta Regional Office of

Audits: ATL-10316-8-0001)

30 Commerce IG Semiannual Report March 1998
International

Trade Administration

Audit of FY 1997 Financial Statements

Under the OIG’s direction, a contractor CPA firm audited ITA’s

statements of financial position as of September 30, 1997, and 1996, and

the related statements of operations and changes in net position for the

years then ended. The firm was unable to determine the amounts of the

adjustments that may be necessary to fairly state the financial statement

balances in accordance with OMB guidance. As a result, the scope of the

audit was not sufficient to enable the firm to express an opinion on the

statements.

The firm was also unable to audit material account balances because

of deficiencies in internal controls and automated systems. The nature and

extent of these deficiencies indicate serious problems in ITA’s financial

management. The material weaknesses in internal controls involved the

need for ITA to (1) provide adequate support for financial statement

balances and sufficient reconciliations of those balances, (2) establish an

effective personnel structure to ensure proper financial management

control over its operations, (3) address the risk of its financial statements

being interrupted at the end of FY 1998 should the accounting systems

provider decide to discontinue servicing the system, (4) provide for sufficient segregation of functions, (5) establish adequate financial systems to

identify and record overseas activity, and (6) perform key reconciliations

to ensure that all cash collections are properly deposited and recorded.

The firm also reported several instances of material noncompliance

with applicable laws and regulations that affected its decision to disclaim an

opinion. Among these were ITA’s failure to meet the requirements of

Section 2 of Federal Managers’ Financial Integrity Act in regard to material

weaknesses in its financial management system; correct deficiencies in its

internal control and financial management system in order to comply with

OMB Circular No. A-127; transfer to its trust fund an amount equal to the

current accrual for voluntary foreign service national separation pay; and

adopt indirect cost allocation practices that enable it to ascertain whether

its activities are operating on a full-cost-recovery basis. In addition, ITA

did not adhere to other OMB guidance and did not substantially comply

with the Federal Financial Management Improvement Act.

At ITA’s request, we had developed a blueprint in July 1997 to

improve the bureau’s financial management and the quality of its financial

statements by identifying critical areas needing immediate corrective

actions (see September 1997 issue, page 29). The late date of the blueprint, however, limited ITA’s ability to correct most of these weaknesses

before September 30, 1997.

March 1998 Commerce IG Semiannual Report 31

The International Trade

Administration is responsible for

most non-agricultural U.S. trade

issues and works with the Office of

the U.S. Trade Representative in

coordinating U.S. trade policy. ITA

has four principal units:

Market Access and Compliance.

MAC develops and implements

international economic policies of

a bilateral, multilateral, or regional

nature. It promotes trade,

investment, and commercial

relations, and maintains

comprehensive commercial and

economic data on countries and

regions of the world.

Trade Development. TD advises

on international trade and

investment policies pertaining to

U.S. industrial sectors, carries out

programs to strengthen domestic

export competitiveness, and

promotes U.S. industry’s

increased participation in

international markets.

Import Administration. IA

defends American industry against

injurious and unfair trade practices

by administering the antidumping

and countervailing duty laws of the

United States, and enforcing other

trade laws and agreements

negotiated to address such trade

practices.

U.S. & Foreign Commercial

Service. US&FCS promotes the

exports of U.S. companies and

helps small and medium-size

businesses market their goods and

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

in 75 countries.
International Trade Administration

In reviewing the draft overview to ITA’s financial statements, we

found numerous strengths, such as definitions of the performance

measures being used and a discussion of financial management challenges

and plans, but also some deficiencies that require attention. Specifically,

ITA needs to include several years worth of data, a comparison of actual

results to target performance levels, a stronger discussion of performance

results and plans for corrective action, and better linkage of results to goals

and objectives.

Finally, although ITA appointed a Chief Financial Officer in early

FY 1998, the appointment of a Deputy CFO is still pending. We recommend that the person appointed to this position have the strong financial

background that is needed to resolve the accounting challenges facing ITA.

(Financial Statements Contract Audits Division: FSC-9862-8-0001)

Trade Event Planning and

Management Need Improvement

ITA supports the administration’s export promotion strategy through

its three components that are involved in trade events—Trade

Development (TD), U.S. and Foreign Commercial Service (US&FCS),

and Market Access and Compliance. ITA defines a trade event as “any

organized activity that places U.S. exporters in contact with foreign

markets.”

In 1993 ITA established a Trade Events Board to provide policy

direction on trade event planning, management, and financial matters. An

interagency working group, the Trade Events Planning Committee, reviews

trade event planning and management. The Trade Events Management

System (TEMS), an ITA-wide system located within US&FCS, serves as

ITA’s planning and financial data system for trade events.

An OIG audit of trade events focused primarily on TD events held in

FY 1996. Of the 419 ITA trade events held during that year, TD was

responsible for 83. However, because most of ITA’s trade events are

carried out by US&FCS, we also evaluated certain aspects of US&FCS’s

FY 1996 events. Our audit identified a number of deficiencies that hamper

ITA’s ability to pursue its trade event activities.

! Communication and coordination between TD offices and

US&FCS posts need improvement. TD event officers should give

posts necessary information sufficiently in advance of events to

allow for adequate preparation and increase the potential for

success.

32 Commerce IG Semiannual Report March 1998

Import

Administration

Market

Access and

Compliance

Trade

Development

U.S. and Foreign

Commercial

Service

International

Trade

Administration
International Trade Administration

! Internal controls are needed throughout ITA to ensure that trade

events, when canceled, are canceled in a proper and timely

manner. Having the greatest percentage of canceled trade events,

TD should establish an internal quality review procedure to

evaluate its proposed events.

! The end-of-show data in TEMS is incomplete and does not

provide the kind of management information that would be most

useful for ITA. Moreover, ITA management needs to decide what

role TEMS will have in providing performance measures.

! US&FCS trade event performance measures presented in ITA’s

budget submission relied on data from the posts, and not on

TEMS, but the basis for the data used could not be explained by

ITA’s Office of Financial Management. Performance measures

need to be clearly defined, and if ITA management intends to rely

on TEMS for performance data, guidelines and internal controls

are needed to ensure that this data is entered on a timely basis.

! Neither TEMS nor Office of Financial Management records can

be used to determine the financial status of individual trade events,

as TEMS lacks final obligation reports for most events, and many

events do not have unique project numbers in Financial Management’s records.

! The effectiveness of TD’s principal types of trade event activities

has not been assessed to determine if they represent an effective

use of ITA resources.

We made a number of recommendations to correct these deficiencies. ITA

generally agreed with our findings and recommendations. (International

Audits Division: IAD-9714-8-0001)

Award Recipient Did Not Meet Goals or

Provide Required Cash Contribution

In 1994 ITA awarded a $420,000 cooperative agreement to a New

England nonprofit organization as the federal share of a $4 million project

to develop a web site to serve as an electronic environmental business and

technology information source. The project’s goals were to establish and

strengthen links between Mexican and American companies for marketing

U.S. environmental technology to Mexico. The award, which was for a

three-year period ending September 30, 1997, was later supplemented with

another $38,000 in ITA funds.

March 1998 Commerce IG Semiannual Report 33
International Trade Administration

We audited the project for the first two years of the award period and

determined that, although the recipient had drawn down $434,571 of

federal funds to develop the web site, it had failed to provide its required

matching share or to meet projected financial and programmatic goals.

Specifically, we found that the recipient did not:

! Provide any cash contributions to the project. In-kind

contributions were provided, but the award required one-half of

the non-federal match to be in cash.

! Meet its revenue goals. Although it had proposed paying for

$2 million of the project with program income, it had not

generated any income during the period we reviewed.

! Include all the information originally proposed for the web

site. Moreover, the information that was included was widely

available from other sources.

We recommended that the Department disallow $919,061 in

questioned costs, recover the entire $434,571 of disbursed federal funds,

terminate the award, and deobligate the remaining $23,429 of undisbursed

federal funds. The recipient has provided no substantive response to our

findings. (Atlanta Regional Office of Audits: ATL-10082-8-0001)

Import Administration Needs to Identify and

Correct Causes of Errors in AD/CVD Program

At the request of the Assistant Secretary for Import Administration

(IA), we reviewed the Antidumping/Countervailing Duty (AD/CVD)

program to evaluate the quality of the work performed on antidumping

investigations and administrative reviews. Concerned about the quality of

the work performed in AD/CVD cases, he asked for our independent

evaluation and any recommendations for improvement.

In an October 1997 memorandum to the Assistant Secretary, we

identified one issue that warranted his attention: IA calculation errors that

resulted in inaccurate duty margin determinations. In conducting our

evaluation, we selected a random sample of 27 of 198 antidumping

investigations and administrative reviews that had final determinations in

1996 and 1997. We then analyzed the changes in duty margins between

the preliminary and final determinations to see if the changes were the

result of IA errors.

34 Commerce IG Semiannual Report March 1998
In more than half of the cases in our sample, calculation errors by IA

analysts had resulted in inaccurate determinations. Moreover, these errors

were identified not by IA’s review process, but by attorneys for

respondents and petitioners. IA’s correction of these errors in some cases

resulted in significant changes to the duty margin determinations. The

number of IA errors, and the fact that they were not identified during the

internal review process, indicated a serious problem.

We suggested that IA categorize and summarize errors made in

investigations and reviews to help identify which of its units are performing

well or poorly, determine the frequency and types of errors made, and

implement solutions to correct the causes of the errors. Because of steps

IA has already taken to improve quality, we will wait to see the results of

the actions it takes to implement our suggestions before deciding whether

to do additional audit work in this area. (International Audits Division)

International Trade Administration

March 1998 Commerce IG Semiannual Report 35
Minority Business

Development Agency

Using Cooperative Agreements

Will Strengthen MBOC Program

As part of the OIG’s Department-wide review of interagency and

other agreements, we reviewed MBDA’s use of joint project agreements

for its Minority Business Opportunity Committee program. MBOCs are a

collaboration between MBDA and other federal, local, or quasigovernmental organizations that are responsible for planning, creating,

coordinating, and delivering resources to promote U.S. minority businesses

in the national and global economies. Currently, there are 10 MBOCs

operated by city, regional, and federal organizations.

We recommended that MBDA begin using cooperative agreements,

instead of joint project agreements, to provide financial assistance to

MBOCs. The use of cooperative agreements should improve the award

process, and strengthen MBDA and departmental oversight and monitoring

of MBOCs, especially as the program continues to grow.

We also recommended that MBDA take other actions to improve the

MBOC program that include introducing competition into the award

process; implementing and retaining a one-year, multiple award system;

and eliminating irregular award or renewal actions, such as retroactive

extensions. MBDA agreed with our observations and is taking steps to

implement our recommendations. (Office of Inspections and Program

Evaluations: IPE-10309)

Audit of FY 1997 Financial Statements

The OIG contracted with a CPA firm to audit MBDA’s statements of

financial position as of September 30, 1997, and 1996, and the related

statements of operations and changes in net position for the years then

ended. The firm expressed an unqualified opinion on the statements,

indicating the existence of an internal control structure that facilitates the

preparation of reliable accounting and financial information.

The auditors’ report on internal controls did, however, cite two

reportable conditions, which identified the need for MBDA to:

! Review year-end financial reporting, including the estimation

of accrued grant expenditures. EDA is responsible for accruing

MBDA’s unreimbursed grant expenses based on a percentage of

the balance of unliquidated grant obligations at the end of each

year. Because it did not consider the effect of late and unliquidated

obligations in its calculations, EDA over-accrued MBDA’s grant

expenses payable by about $1 million.

36 Commerce IG Semiannual Report March 1998

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.
Minority Business Development Agency

! Improve controls over the Financial Accounting and

Reporting System. The firm identified one reportable condition

related to controls over the Financial Accounting and Reporting

System administered by NIST, which provides accounting services

for MBDA. Since MBDA is not responsible for the general

controls over this system, recommendations related to the system

controls were directed to the Department’s Office of Computer

Services, which maintains the system’s hardware and software

used to process transactions and data.

The CPA firm’s report on compliance with laws and regulations

identified one instance of material noncompliance. MBDA’s core financial

management system does not comply with certain Federal Financial

Management Improvement Act requirements for federal financial

management systems; for example, the Financial Accounting and

Reporting System does not maintain adequate commonality of data

elements and transaction processing.

In response to OIG suggestions, MBDA made a number of

improvements to its financial statements overview. However, MBDA

needs to strengthen its reported results of program performance to

facilitate trend analyses and the assessment of whether target performance

levels are being achieved. (Financial Statements Contract Audits

Division: FSC-9863-8-0001)

Internal Disagreement Over Questioned Costs

Resolved, but Recipient Appeals Decision

In the prior two issues of this report (see March 1997 issue, page 38,

and September 1997 issue, page 32), we reported on a financial assistance

audit, ATL-8882-7-0001, that questioned $675,000 of costs claimed by a

for-profit consulting firm operating a minority enterprise growth assistance

center. In the resolution process, the OIG and the Department’s Office of

Executive Assistance Management agreed to disallow $455,325 of the

questioned costs. However, agreement could not be reached on an

additional $129,671 in questioned costs, and the matter was elevated to the

Deputy Secretary for decision. The Deputy Secretary determined to allow

$112,811 of the disputed costs, which related to personnel, and to disallow

the other $16,860, which related to equipment.

In February 1998, an audit resolution determination letter was sent to

the recipient, informing it of the decision. In March, the recipient

submitted an appeal, which is in process.

March 1998 Commerce IG Semiannual Report 37

Finance and

Administration

Strategic

Planning

Program

Development

External

Affairs

Minority Business

Development

Agency
National Oceanic and

Atmospheric Administration

Audit of FY 1997 Financial Statements

A contractor CPA firm audited NOAA’s consolidated statement of

financial position as of September 30, 1997, and the related consolidated

statement of operations and changes in net position for the year then

ended. The firm expressed a qualified opinion on the statement of financial

position because NOAA (1) had no system to accurately and completely

account for all of its capitalizable property and equipment, (2) was unable

to support the classification of net position balances between appropriation

categories, and (3) received later than expected an actuarial valuation

relating to the NOAA Corps’ liability for retirement benefits. NOAA

received a disclaimer of opinion on its statement of operations and changes

in net position because of the effects of the disclaimer in the previous year.

We commend NOAA management and staff on the significant

progress made since the prior year’s audit. Whereas the FY 1996 audit

resulted in a disclaimer and identified 21 reportable conditions, of which

11 were material weaknesses, the FY 1997 audit expressed a qualified

opinion and identified 17 reportable conditions, of which 6 were material

weaknesses. The material weaknesses related to the need for NOAA to

(1) improve the preparation, analysis, and monitoring of financial information, (2) make the financial reporting structure consistent with the bureau’s

organizational structure, (3) support and reconcile “on-top” adjustments to

the financial statements, (4) support and reconcile budgetary execution

transactions, (5) correct property, plant, and equipment detail records, and

(6) improve the monitoring of grant recipients.

In its report on compliance with laws and regulations, the CPA firm

identified three instances of noncompliance: NOAA did not fully fund its

capital leases; it did not report all of the above-mentioned material

weaknesses in its 1997 Federal Managers’ Financial Integrity Act report;

and its financial management systems do not substantially comply with the

Federal Financial Management Improvement Act.

Our review of the management discussion and analysis (similar to an

overview) to NOAA’s financial statements identified a number of strengths.

For example, the document identifies the seven NOAA goals, with

associated performance measures, that support the Department’s mission

statement; discusses financial results and conditions; and presents output

and outcome measures. However, NOAA could still make improvements

by further strengthening reported performance measures, definitions of

measures, and discussion of results; and providing additional discussion of

trends.

38 Commerce IG Semiannual Report March 1998

The National Oceanic and

Atmospheric Administration

studies climate and global change;

ensures protection of coastal

oceans and management of

marine resources; provides

weather services; and manages

worldwide environmental data. It

does this through the following

organizations:

National Weather Service. NWS

reports the weather of the United

States and provides weather

forecasts and warnings to the

general public.

National Ocean Service. NOS

issues nautical and aeronautical

charts; performs geodetic surveys;

conducts research; and develops

policies on ocean mining and

energy.

National Marine Fisheries

Service. NMFS conducts a

program of management,

research, and services related to

the protection and rational use of

living marine resources.

National Environmental Satellite,

Data, and Information Service.

NESDIS observes the environment

by operating a national satellite

system.

Office of Oceanic and

Atmospheric Research. OAR

conducts research related to the

oceans and inland waters, the

lower and upper atmosphere,

space environment, and the Earth.

Office of NOAA Corps

Operations. The Corps is the

nation’s seventh uniformed

service. Its ships, aircraft, and

personnel support NOAA’s

activities throughout the world.
National Oceanic and Atmospheric Administration

March 1998 Commerce IG Semiannual Report 39

To work toward improving its financial management, we encourage

NOAA to continue its efforts to recruit a Chief Financial Officer. Emphasis

should also be placed on hiring additional financial management personnel

to facilitate the prompt resolution of internal control deficiencies. Finally,

we encourage NOAA management to continue its efforts to make the

improvements to the internal control structure that are essential for

preparing its FY 1998 statements. (Financial Statements Contract Audits

Division: FSC-9865-8-0001)

NMFS Laboratory Network Needs Streamlining

The National Marine Fisheries Service strives to ensure the

conservation and management of the nation’s living marine resources

through a laboratory network of 29 facilities located within five regions:

Northeast, Southeast, Southwest, Northwest, and Alaska. These facilities

perform research, data collection, and analysis to assist NMFS in

accomplishing its goals. Many of these facilities are greatly in need of

repair, and several renovation and new construction projects are planned

or underway.

The OIG conducted a performance audit to assess streamlining and

reconfiguration opportunities within the NMFS laboratory network. We

evaluated the need for each facility to be at its current location, the overall

condition of each facility, and the utilization of both current and planned

facilities. We also explored any special considerations related to individual

facilities.

We concluded that, in general, the NMFS laboratories are conducting

high-priority research in well-utilized facilities. We also identified several

opportunities for NMFS to streamline its field structure that could result in

a savings of approximately $6 million over two years, the period normally

used by this office to calculate savings for purposes of reporting under the

IG Act. However, believing that a five-year period offers a more useful

analysis for studies of this nature, we note that projected savings over five

years would be more than $25 million. We made the following recommendations based on our observations of the five individual regions (see

illustration on the following page):

! Northeast. We recommended closing the Milford, Connecticut,

laboratory and transferring its programs to the new James J.

Howard Marine Sciences laboratory in Sandy Hook, New Jersey.

National

Weather

Service

National

Ocean

Service

National

Marine Fisheries

Service

NESDIS

NOAA

Oceanic and

Atmospheric

Research

NOAA

Corps

Operations
National Oceanic and Atmospheric Administration

40 Commerce IG Semiannual Report March 1998

! Southeast. We recommended closing the National Seafood

Inspection Laboratory in Pascagoula, Mississippi, and transferring

the laboratory in Oxford, Maryland, and most of its programs to

the State of Maryland. Programmatic work being done at Oxford

that would continue to be NMFS’s responsibility should be

transferred to its Beaufort, North Carolina, laboratory. We also

recommended moving the programs and personnel from the Bay

St. Louis, Mississippi, and Panama City, Florida, laboratories into

space to be vacated at the Pascagoula laboratory.

! Southwest. We recommended vacating the Tiburon, California,

laboratory, as planned by NMFS, and the La Jolla, California,

laboratory due to safety reasons, and transferring their programs

and personnel to Honolulu; Sand Point, Washington; Newport,

Oregon; and a proposed Santa Cruz, California, facility. As part of

this recommendation, the proposed Tiburon replacement facility at

Santa Cruz should be expanded to accommodate programs and

personnel from La Jolla.

OIG Recommended Changes

to NMFS Laboratory Network
National Oceanic and Atmospheric Administration

March 1998 Commerce IG Semiannual Report 41

! Northwest. We considered the option of moving the programs for

the Seattle-based Montlake laboratory to the Sand Point facility, in

conjunction with the potential NMFS recommendation to relocate

some of Sand Point’s programs to Auke Cape. Our analysis

revealed that this option should not be implemented because of

inadequate types and amounts of space available at Sand Point.

! Alaska. We disagreed with NMFS’s plans to transfer some

programs from the Sand Point laboratory to the proposed Auke

Cape, Alaska, facility due to potential programmatic, utilization,

and cost inefficiencies.

In its recently submitted audit action plan, NOAA essentially disagreed

with all of our findings and recommendations, as well as our calculations

of the associated costs and benefits. We found NOAA’s arguments

unpersuasive and urged it to reassess its position and submit a revised

action plan. We noted that our recommendations should be acted on in a

manner that supports the Deputy Secretary’s March 16 memorandum on

the Department’s field office review. (Seattle Regional Office of Audits:

STL-8982-8-0001)

CZM and NERRS Programs Require

Management Attention to Increase Effectiveness

NOAA’s Coastal Zone Management (CZM) and National Estuarine

Research Reserve System (NERRS) programs are federal/state

partnerships through which the federal government, specifically NOAA’s

National Ocean Service, assists the states in exercising their responsibilities

in the coastal zone and adjoining estuarines. The states’ role is to protect

and promote the wise use of land and water resources in the coastal zone.

Currently, 32 of the 35 coastal states, including those of the Great Lakes

and U.S. territories, have CZM programs that have been approved by

NOAA. Two additional state programs are in various stages of development, and officials from the one remaining coastal state have expressed

interest in participating in the program.

An OIG evaluation of the CZM and NERRS programs found that

while NOAA was successful in getting the programs off the ground in the

1970s, the next decade was a difficult one, particularly for the CZM

program. During the 1980s, the executive branch made several attempts to

dismantle the program, but support and continued funding from the

Congress and the coastal states kept the program intact. In the 1990s, the

CZM program made a strong comeback with support from the current

administration, Congress, and states. The program’s service to and
National Oceanic and Atmospheric Administration

42 Commerce IG Semiannual Report March 1998

relationships with state CZM managers and staffs have improved

dramatically, and collaborative outreach was extended to other NOAA

offices and federal agencies that have responsibilities in the coastal zone.

Although improvements have been made in the management and

operation of the CZM and NERRS programs, we found several issues and

concerns that warrant management attention:

! NOAA coordination to aid coastal management is deficient.

NOAA has not effectively provided coastal zone decision-makers

with objective science and evaluative techniques needed to make

critical decisions. In addition, the National Ocean Service’s Office

of Ocean and Coastal Resource Management (OCRM) and the

newly created Coastal Services Center need to work more closely

together to improve service to coastal constituents.

! Administration of CZM cooperative agreements warrants

attention. We found several cooperative agreement administration

areas that offer opportunities for streamlining, thereby permitting

more cooperative agreement funds to be spent on programmatic

rather than administrative duties. These include: (1) using multiyear cooperative agreements, instead of the current annual

awards; (2) permitting oversight costs to overlap award periods;

and (3) improving the processing time on requests for no-cost

extensions of time on awards.

! Current coastal nonpoint source pollution provisions are

unworkable. In 1990 a new section was added to the Coastal

Zone Management Act to address the impacts of nonpoint source

pollution on the water quality of the coast. The new section’s

ambitious scope and time frame have generated significant

controversy, and the states are having problems developing coastal

nonpoint pollution programs under the statute. The current

requirements of the statute are not workable without

improvements, such as extending the time frames for program

implementation.

! The effectiveness of the CZM program has not been

measured. OCRM and the states have been unable to measure or

evaluate “on-the-ground” outcomes of the CZM program because

the necessary data has not been collected. OCRM needs to

develop a strategy to measure the effectiveness of the CZM

program, in order to understand what activities are best helping to

achieve the goals of the act and to make effective future decisions.
National Oceanic and Atmospheric Administration

March 1998 Commerce IG Semiannual Report 43

! The full potential of the NERRS program is not being

realized. The NERRS program faces a number of challenges in

meeting its potential: (1) federal assistance has become inadequate

to support the program’s ambitious goals; (2) NOAA has not fully

supported the use of NERRS sites for NOAA-funded research;

(3) the NERRS program needs to play a greater role in the

scientific community and achieve better utilization of its sites; and

(4) key education and research coordinator positions have been

left vacant, in some cases for several years, after the start-up of

new NERRS sites.

! An initiative to develop a coastal and marine management

computer information system lacks sufficient resources. The

lack of a computerized information tracking system hampers the

ability of OCRM and the grants management division to process

grant applications and evaluate performance reports from the

states. A new system is being developed to electronically process

grant applications and performance reports. However, this promising new system has suffered setbacks because of insufficient

resources.

NOAA agreed with all of the report’s recommendations. The bureau

either has taken steps that satisfy the intent of the recommendations or will

implement changes or procedures in the near future. (Office of Inspections

and Program Evaluations: IPE-9044)

State Deficient in Federal Reporting

on Coastal Zone Management Program

In July 1995, NOAA awarded a $2.3 million cooperative agreement to

a Northeastern state to assist in the development and implementation of an

effective coastal zone management program. The agreement required a

$2.1 million matching contribution from the state, bringing the total project

budget to more than $4.4 million.

The OIG conducted an audit of the project’s two-year performance

period, which ended June 30, 1997. We found that the state (1) submitted

quarterly financial status reports to NOAA that did not accurately and

completely report its federal expenditures, (2) did not submit required

monthly federal cash transaction reports to NOAA, and (3) charged more

than $48,000 in questioned personnel, fringe benefit, and indirect costs,

including about $39,000 not allocable to the project and about $9,000 of

indirect costs that exceeded the approved budget.
National Oceanic and Atmospheric Administration

44 Commerce IG Semiannual Report March 1998

The state’s failure to accurately and completely report its federal

expenditures and cash disbursements has restricted NOAA’s ability to

monitor compliance with the award’s financial provisions. When we

brought this matter to the state’s attention, it acknowledged the reporting

deficiencies and immediately addressed some of them by revising the

previously submitted quarterly reports to correctly report federal

expenditures. Nevertheless, we recommended that NOAA direct the state

to accurately and completely report its federal expenditures in financial

status reports for current and future CZM awards, and submit all required

federal cash transaction reports. We also recommended that NOAA

disallow questioned costs totaling $48,275, disburse $84,930 to the state as

its final award payment, and deobligate the remaining award funds of

$26,465. (Atlanta Regional Office of Audits: ATL-10278-8-0001)

Improvements Needed in NWS Severe Storm

Verification Process and Statistics

The National Weather Service helps protect the nation’s people and

property from the dangerous effects of severe and hazardous weather by

issuing severe weather and flood warnings, public forecasts, and

advisories. It measures the effectiveness of its forecasting and severe

storm warnings through its verification process—a quality control process

that essentially matches warnings to actual weather observations and

compiles statistical results of forecasting performance.

NWS has made major advancements in the 1990s with new

technology and modernized operations. Advanced radars, new computer

systems, and other technological advances associated with NWS’s

modernization efforts have substantially improved its access to critical data

and its ability to forecast weather events. In fact, today NWS issues twice

as many severe thunderstorm and tornado warnings as it did in 1990.

Unfortunately, NWS’s severe storm verification process, which has

remained largely unchanged since its inception in 1979, does not reflect

NWS’s modernized technology and field office structure, staffing, and

workload requirements.

The OIG conducted an inspection of the severe storm verification

system to assess whether the verification process and statistics are valid

and reliable measures of NWS severe storm forecasting performance, and

to determine whether NWS’s modernization efforts have improved the

accuracy of forecasting.

As part of our evaluation, we conducted a comprehensive survey of all

forecast office warning coordination meteorologists—the primary liaisons
National Oceanic and Atmospheric Administration

March 1998 Commerce IG Semiannual Report 45

between weather forecast offices (WFOs) and the user community. Our

survey questionnaire, developed in consultation with senior and cognizant

NWS personnel, provided considerable insight into the NWS process and

procedures for verifying severe and hazardous weather.

We found that NWS’s modernization initiatives have resulted in more

accurate forecasting; its verification statistics are vital indicators and, for

the most part, valid measures of performance; and non-technological

developments have also resulted in better forecasting and verification.

However, based on the results of our survey, which had a 91-percent

return rate, and other evaluation efforts, we concluded that the verification

of severe and hazardous weather forecasting can be done more efficiently.

We believe that with certain key changes and improved internal controls,

NWS can significantly enhance its verification data credibility and

dependability. Specifically, we recommended that NWS:

! Increase quality control to reduce the subjectivity of

verification information. We found that WFO information is

susceptible to inaccuracies and uneven quality. In addition, WFOs

lack a standardized review process, local storm reports are not

consistently entered correctly, verification training is inadequate,

and automated data checks are incomplete.

! Implement a verification system that provides immediate

feedback and reduce the backlog of unpublished data on

severe weather events. NWS is not providing rapid feedback to

WFOs, eliminating redundant data input of local storm reports and

event information, or reducing the large backlog of unissued

publications that serve as NWS’s historical climatological record.

! Reassess wind and hail warning thresholds to see if the

number of marginally severe storm warnings can be reduced

without any increased danger to public safety. From 1990 to

1996, the number of warnings that just meet the minimum

threshold level for verification more than doubled. This increase

represents a disproportionately high percentage of the NWS/WFO

verification workload.

! Strengthen its headquarters and regional office oversight

roles and responsibilities. NWS’s Office of Meteorology should

reestablish its National Verification Committee to evaluate all of its

verification programs, revise its verification manual to include new

techniques, and update the requirements and goals of each

verification program area in its National Verification Plan.
National Oceanic and Atmospheric Administration

46 Commerce IG Semiannual Report March 1998

! Expand the National Hurricane Center’s verification efforts

and test its emergency backup preparedness. The Center needs

to systematically (1) verify and document the portion of each

warning area that did or did not receive hurricane force winds, and

(2) verify its hurricane model wind radii forecasts. In addition, the

Center’s backup plan should be tested during the next off-season

to ensure its effectiveness in an emergency.

NOAA agreed with the report’s findings and recommendations, and

has taken several steps to address our concerns. (Office of Inspections and

Program Evaluations: IPE-9255)

NOAA Did Not Properly Record

Indirect Costs for Superfund Programs

Under an interagency agreement with the Environmental Protection

Agency, NOAA receives approximately $2 million annually from EPA’s

Hazardous Substance Response Trust Fund, commonly known as the

Superfund, to provide technical assistance and research on the risk to

coastal resources and ecosystems from hazardous waste sites and spills.

The Superfund Amendment and Reauthorization Act of 1986 requires

the OIG to conduct audits of all payments, obligations, reimbursements,

and other uses of the Superfund. We reviewed NOAA’s Superfund

interagency agreements for FYs 1995 and 1996 and found that costs billed

to EPA under the agreements were properly and accurately recorded, with

the exception of indirect costs.

We determined that NOAA is not in compliance with EPA policy

regarding allowable indirect costs. Billings to EPA contain charges for

general, agencywide indirect costs, which is in conflict with the terms and

conditions of the agreements and EPA policy guidance. We also

determined that the audit of the Superfund interagency agreements could

be incorporated into the scope of NOAA’s annual financial statement audit.

Past audit requirements under the Superfund statutes were superceded by

passage of the Chief Financial Officers Act of 1990. Current EPA policy is

to include tests of Superfund transactions within the scope of the annual

audit of financial statements required by the CFO Act.

We recommended that NOAA (1) clarify EPA’s policy regarding

allowable indirect charges, and modify either the agreements or the billing

practices, and (2) request that future audits of NOAA’s financial statements

include sufficient testing of NOAA/EPA Superfund transactions to satisfy

Superfund audit requirements. Following the end of the reporting period,
National Oceanic and Atmospheric Administration

March 1998 Commerce IG Semiannual Report 47

NOAA agreed with our recommendation that testing of Superfund

transactions be included in future audits of its financial statements. (Seattle

Regional Office of Audits: STL-10140-8-0001)

Accounting System and Management Practices

Prevented Negotiation of Indirect Cost Rate

A nonprofit foundation was incorporated in West Virginia in 1993 to

facilitate economic development in the state by promoting high-technology

industries and research facilities. The foundation’s activities focus on

research, education, and economic development. It has also constructed a

$12 million, 110,000-square-foot office and business incubator facility,

financed in part with EDA grant funds.

Since its inception, the foundation has been awarded 15 grants and

contracts totaling about $22 million from federal, state, and private

sources. The Department of Defense was the foundation’s cognizant

federal agency until October 1996, but did not audit or negotiate indirect

cost rates for the organization. At that time, Commerce became the

cognizant agency as a result of a $5.85 million NOAA cooperative

agreement made to the foundation to help the agency meet accelerating

demands for storage and retrieval of data maintained at national

environmental data centers. NOAA requested that the OIG review the

foundation’s indirect cost proposal and negotiate an indirect cost rate to be

used for the award. We also performed a survey to assess the adequacy of

the foundation’s financial management system.

The foundation’s accounting system and management practices, along

with unforeseen delays, prevented the negotiation of an indirect cost rate

for FY 1997. We found that the accounting system was not integrated and

was cumbersome and prone to error, and that the foundation’s procurement practices limited free and open competition. In addition, the

foundation did not report to EDA on its use of rental income earned on the

federally financed facility, and it improperly classified land improved with

federal funds as investment property.

In July 1997, NOAA and the foundation agreed to terminate the

cooperative agreement for the convenience of both parties. Under the

circumstances, the report recommendations with respect to the NOAA

project are now moot; however, our findings remain viable in connection

with the EDA funding and other federal awards, and we plan to address

them in a separate audit report to EDA. At NOAA’s request, we are also

conducting an audit of the foundation’s termination claim and its actual

indirect costs. (Atlanta Regional Office of Audits: ATL-9259-8-0001)
National Oceanic and Atmospheric Administration

48 Commerce IG Semiannual Report March 1998

Government Obtains $3.15 Million Settlement

of Potential False Claims Act Suit

In March 1998, a NOAA contractor and its successor company agreed

to pay the United States $3.15 million to settle claims that the contractor

sold the government spare parts for the Next Generation Weather Radar

(NEXRAD) system at greatly inflated prices. The settlement resulted from

an OIG investigation which concluded that the contractor knew that prices

paid to a subcontractor for the parts were inflated when it passed on those

prices to the government in connection with the cost reimbursable portion

of its NEXRAD contract. We found that the contractor had agreed to pay

the inflated prices in exchange for receiving discounts from the subcontractor on other items it was purchasing under the fixed-price portion of the

contract.

Three months earlier, the United States filed suit against the

subcontractor in U.S. District Court for the Eastern District of Virginia,

charging the company with multiple violations of the False Claims Act

arising out of the same series of transactions. The lawsuit cites the quid

pro quo arrangement between the subcontractor and contractor, and also

alleges that the subcontractor represented to the government that it did not

discount spare parts, when, in fact, it had previously offered and granted

such discounts to the contractor. A pretrial conference is scheduled for

July and it is anticipated that a trial date will be set at that time. (Financial

Fraud Unit)

Federal Contractor Indicted for

False Statements and Conspiracy

A two-year investigation of a California manufacturer and distributor

of electronic components has resulted in indictments against the firm and

three of its employees for making false statements to the United States,

conspiracy, and mail fraud. A related company and one of its employees

were also charged. According to the indictments, the firm contracted to sell

high-reliability semiconductors to the government under a series of

contracts and subcontracts that required the semiconductors to be built and

tested according to various specifications. Instead of conducting required

tests and inspections, however, the firm directed that they be skipped,

altered, or falsified. This conduct was allegedly part of a conspiracy to

defraud the government by providing non-conforming parts which were

falsely certified as meeting all requirements. Some of the improperly tested

semiconductors were placed in units of the Department’s NEXRAD

system; others were used by the Department of Defense, Federal Aviation

Administration, and National Aeronautics and Space Administration.
The indictments grew out of a joint investigative effort by the

Commerce and NASA OIGs, the Defense Criminal Investigative Service,

the Defense Contract Management Command, and the Army Criminal

Investigative Command. (Denver Field Office of Investigations)

In Brief

Conviction and Sentencing. In December 1997, a former NWS

employee was convicted of theft in U.S. District Court for the District of

Maryland after an OIG investigation disclosed that she had used an agency

bankcard to make personal purchases totaling more than $1,000. In March

1998, she was sentenced to two years’ probation and 50 hours of

community service, fined $150, and ordered to make full restitution to the

government. (Silver Spring Field Office of Investigations)

Reprimand. A senior NOAA official received a letter of reprimand as the

result of an OIG investigation which found that he had used frequent flier

miles earned on official business for personal travel. (Washington Field

Office of Investigations)

Audit Reports Unresolved for Over Six Months

As of March 31, 1998, one financial assistance audit report and three

preaward contract audit reports had recommendations unresolved for more

than six months.

University of Hawaii

This financial assistance audit report, ATL-9999-5-0753 (see

September 1995 issue, page 99) was an OMB Circular A-133 audit that

questioned $1.1 million of claimed costs. NOAA requested that resolution

be deferred until a final determination of the allowability of costs has been

made by the Defense Contract Audit Agency (DCAA). NOAA has

received the DCAA report and has submitted a draft audit resolution

proposal for OIG review. We have provided comments to NOAA and are

awaiting its response.

Preaward Contract Audit Report

The three NOAA preaward contract audit reports are discussed on

page 79.

National Oceanic and Atmospheric Administration

March 1998 Commerce IG Semiannual Report 49
National Telecommunications

and Information Administration

Audit of FY 1997 Financial Statements

The OIG contracted with a CPA firm to audit NTIA’s combined

statements of financial position as of September 30, 1997, and 1996, and

the related combined statements of operations and changes in net position

for the years then ended. The firm expressed an unqualified opinion on the

financial statements. The firm’s report on internal controls identified no

material weaknesses or reportable conditions. The results of the audit

clearly indicate that NTIA has taken major strides in improving its financial

and accounting practices in recent years.

Our review of the overview to the financial statements found that it

details how NTIA supports the three themes contained in the Department’s

strategic plan and identifies performance measures, lists many accomplishments by activity, and includes some discussion on financial position and

results. NTIA could improve its discussion of results by strengthening

reported performance measurement data and enhancing the presentation of

information to facilitate trend analyses and assessments of whether target

levels of performance have been achieved. (Financial Statements

Contract Audits Division: FSC-9866-8-0001)

Awardee Did Not Complete Some Grant

Tasks and Incurred Questioned Costs

In October 1994, NTIA awarded a grant for approximately $400,000

to a regional government association in California to support its program of

planning and organizing a government information network using the

Internet. The total project budget, including local matching funds, was

nearly $800,000.

In June 1995, an OIG investigation was initiated based upon an

anonymous allegation that the association had misused federal grant funds

by directing employees to charge time to the grant when they were working on other projects. While the allegations were not substantiated, we did

discover that the association was using questionable accounting methods

during the grant period.

The OIG conducted a financial audit of the award and found that the

association had incurred questioned costs of more than $138,000 because

it did not accumulate costs in categories that matched categories in the

grant award budget. In addition, although the association met overall grant

goals by establishing an information network on the Internet, it failed to

complete two minor project tasks. We recommended that the Department

disallow the questioned costs and recover $65,000 in excess grant

50 Commerce IG Semiannual Report March 1998

The mission of the National

Telecommunications and

Information Administration is to

(a) serve through the Secretary of

Commerce as the principal

executive branch advisor to the

President on domestic and

international communications and

information policies, (b) ensure

effective and efficient federal use

of the electromagnetic spectrum,

(c) develop with other federal

agencies policies for international

communications and standardssetting organizations, (d) serve as

the federal telecommunications

research and engineering center,

and (e) administer grants under

the Information Infrastructure

Grants Program and the Public

Telecommunications Facilities

Program.
National Telecommunications and Information Administration

disbursements; assess the significance of the tasks not completed, and

either modify the grant to eliminate the tasks or require the association to

complete them; and advise the grantee to use cost categories for

accounting purposes that parallel cost items in federal awards.

The association stated that requirements for project goals were

fulfilled, and that adequate management control was maintained by

tracking the actual and budgeted costs for each expense category. The

Department decided that the association’s failure to complete the two

minor tasks was acceptable, but agreed that the association should change

its cost categories. (Denver Field Office of Investigations and Seattle

Regional Office of Audits: STL-9491-8-0001)

Allegations of Unallowable

Lobbying Costs Unfounded

NTIA requested the OIG to perform an audit of an October 1995

grant to a West Coast organization, based on allegations of unallowable

lobbying that had been raised by a congressman, by a private organization,

and in hearings before a House subcommittee. NTIA awarded the

$400,000 grant, with a 50-percent matching share requirement, as part of

its Telecommunications and Information Infrastructure Assistance

Program. The grant was made to help the non-profit, member-funded

organization broaden access to its on-line membership network via the

Internet, establish a national training program, and conduct a national

outreach campaign.

We concluded that the grantee had not used grant funds to lobby, as

defined in the applicable laws and federal regulations, and that its

performance was in accordance with NTIA grant requirements. We did

find some minor unallowable costs charged to the NTIA project; however,

the charges were offset by amounts overmatched by the grantee and

additional valid project costs incurred but not charged to the project.

Accordingly, no costs were questioned, and our report was issued without

recommendations. (Seattle Regional Office of Audits: STL-10522-8-0001)

March 1998 Commerce IG Semiannual Report 51

Spectrum

Management

Policy

Analysis and

Development

Telecom. and

Information

Applications

Institute for

Telecom.

Sciences

International

Affairs

NTIA
National Telecommunications and Information Administration

Staffing and Funding for the Office of

Spectrum Management Need Reevaluation

The OIG conducted an audit of the performance of NTIA’s Office of

Spectrum Management (OSM), which included a detailed review of its

funding, fee collection, and staffing practices. Although our field work

revealed no significant conditions meriting the issuance of an audit report,

we found several issues warranting management’s attention, which we

discussed in an October 1997 memorandum to the Assistant Secretary for

Communications and Information.

Specifically, resource assessments essential for effective long-range

spectrum planning have not been performed; hardware and software have

not been maintained to meet current and future needs; and inadequate

support has been provided for national and international policy

development and execution. OSM also lacks the personnel to fulfill its

responsibility of ensuring that other federal agencies are complying with

the conditions of their spectrum authorizations and using the limited

spectrum efficiently, or that radio interference problems are quickly

detected and corrected. We noted that these deficiencies may be

exacerbated because a large percentage of the OSM work force will

become eligible for retirement within the next three years. Furthermore,

Interdepartment Radio Advisory Committee member agencies have not

promptly paid their FY 1997 spectrum management fees to NTIA.

We suggested that NTIA (1) evaluate the work that OSM has been

unable to perform, determine priorities within the context of the agency’s

strategic plan, and begin planning to replace OSM staff who might retire

within the next three years; and (2) take appropriate action to collect

FY 1998 spectrum management fees in a timely fashion. (Economic

Development Audits Division)

Office of Spectrum Management Acted Properly

in Relocation and Licensing Decisions

The OIG conducted an audit of the role of OSM in the Federal

Communications Commission’s (FCC) decisions to relocate Digital

Electronic Messaging Service licenses and award a license to a specific

company. We conducted a detailed review of OSM’s actions to determine

whether NTIA met its statutory responsibilities for federal spectrum

management with respect to these decisions.

52 Commerce IG Semiannual Report March 1998
National Telecommunications and Information Administration

Our audit work revealed no significant conditions meriting the issuance

of an audit report. We found that OSM officials acted properly and

protected government interests by offering spectrum for the FCC to use in

the Messaging Service relocation. OSM officials also followed established

procedures for consulting with the Interdepartment Radio Advisory

Committee on the use of federal spectrum.

We noted, however, that an FCC licensing bureau had issued

Messaging Service licenses without the knowledge of FCC headquarters or

OSM officials, even though the technology interfered with existing licenses

for federal government satellite operations in two geographic areas. It also

interfered with planned use by private-sector satellite communications

systems for which the U.S. government had negotiated an international

agreement. In a November 1997 memorandum to the Assistant Secretary

for Communications and Information, we suggested that NTIA work with

the FCC to establish a real-time licensing information system between FCC

licensing bureaus and OSM that would reduce the likelihood of issuing

licenses that interfere with federal spectrum use. (Economic Development

Audits Division)

March 1998 Commerce IG Semiannual Report 53
Patent and

Trademark Office

Better Space Planning Needed

for Proposed Consolidated Facility

In October 1995, PTO was granted congressional authorization to

procure up to a 2.4 million-square-foot facility in northern Virginia to

consolidate its facilities and operations and accommodate space expansion

needs. In conjunction with the General Services Administration, PTO

plans to award a contract to a private developer to construct a new facility

or renovate an existing facility and lease it back to PTO for a period of at

least 20 years. The solicitation for offers calls for the construction of the

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

will be “built out” upon completion of the interior design. It is anticipated

that the lease development contract will be awarded in October 1998, with

occupancy to begin in November 2001.

The OIG conducted an inspection to determine whether PTO is

effectively managing the acquisition project, and if the facility and space

expansion are justified. We found that PTO is managing many aspects of

the lease/development procurement well: The PTO/GSA procurement

strategy and its execution have generally been successful, and PTO has

supported the basic requirements for and benefits of the new lease

development based on its needs for modern, contiguous space.

However, we are concerned about the following aspects of PTO’s

planning and management of this major procurement:

! Space Planning. We found that PTO has failed to (1) finalize its

space requirements, (2) reach an agreement with one of its major

employee unions over working conditions related to space requirements, and (3) factor in the potential savings and efficiencies

possible through systems reengineering and automation.

! Build-Out Risk. We are concerned that the methods PTO used

to pursue the build-out of the facility needlessly expose the

government to increased cost risk. PTO’s strategy calls for a pool

of $88 million to be set aside for the build-out, funded through the

lease with the developer. However, the bureau also is planning to

spend at least $29 million in additional funds for upgraded building

systems and interiors. This process is flawed because the lease

development project lacks a defined cost ceiling. Also, build-out

specifications must be developed and issued by PTO upon award

of the lease in order to limit the government’s exposure to

schedule risk and the likelihood of costly delays and numerous

change orders because of incomplete specifications.

54 Commerce IG Semiannual Report March 1998

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.
Patent and Trademark Office

! Lack of Interagency Agreement and Department Oversight.

We also found that PTO does not have a formal interagency

agreement with GSA. Without such an agreement, there are a

number of important undefined factors that could adversely affect

the project, including the fee structure for GSA’s efforts, PTO’s

rights to turn back unneeded space, and GSA’s role as construction manager. In addition, the Department has not provided PTO

with sufficient real estate management oversight. In particular, the

Department failed to foresee PTO’s late start and the slow

progress of its union discussions, which may delay award of the

contract.

We provided numerous recommendations to address our concerns.

PTO agreed to most of our findings and recommendations, but disagreed

strongly with others. Specifically, PTO agreed to incorporate space savings

in its draft Space Allocation Plan and execute an interagency agreement

with GSA. In addition, the Department has greatly increased its oversight

of the PTO facility project and recently added a chapter to its real property

management manual describing its policy regarding major facility projects.

However, PTO disagreed that the solicitation for offers, as drafted, does

not set a limit on the government’s liability for the build-out. PTO also

disagreed that failure to establish a contractual ceiling would increase the

project cost to the government. We find PTO’s arguments concerning

these two issues to be unpersuasive. (Office of Inspections and Program

Evaluations: IPE-9724)

PTO’s Information Systems Acquisition

Lacked Proper Transition Plans

In February 1997, PTO awarded a $511 million, eight-year System

Development and Maintenance (SDM) contract to two contractors, ending

its 13-year Automated Patent System contract effective December 30,

1997. The purpose of the SDM contract was to consolidate APS and

various non-APS system contracts and to improve contractor performance

by maintaining ongoing competition for specific tasks. Crucial to PTO’s

business of examining and disseminating patents, APS allows examiners,

attorneys, and the public to electronically search patent databases and

enables PTO to service orders for patent and trademark documents. PTO

had relied on the previous contractor for almost every aspect of planning,

development, deployment, and maintenance of APS. The two SDM

contracts officially began on May 15, 1997.

March 1998 Commerce IG Semiannual Report 55

Assistant

Commissioner

for Patents

Assistant

Commissioner

for Trademarks

Associate

Commissioner

and CFO

Chief

Information

Officer

Patent and

Trademark

Office
Patent and Trademark Office

The OIG performed an inspection during the transition period to

evaluate whether PTO had made adequate preparations for the SDM

contractors to assume the previous contractor’s APS development and

maintenance activities. Specifically, we reviewed three aspects of the

transition that were directly related to system development and

maintenance: (1) transfer of APS materials, (2) training of the SDM

contractors, and (3) preparation for configuration management.

During our review, we found that although progress had been made

during the transition period, sufficient time and attention were not given to

the transfer of SDM activities to the new contractors. In addition, the lack

of a configuration management plan had impeded APS development and

maintenance. We recommended that PTO:

! Extend the APS contract for a limited period to ensure that all

systems were transferred appropriately.

! Develop and implement a configuration management plan that

included a final determination of which configuration management

system the SDM contractors would use immediately after the APS

contract expired.

! Apply lessons learned to improve the transition process for nonAPS systems.

! Increase training of the new SDM contractors for software

development and maintenance.

! Improve the quality control of transferred material and ensure that

documentation deficiencies were remedied.

! Improve transition management through the development of an

internal transition team.

PTO concurred with our first three recommendations. Most

importantly, the APS contract was extended from September 30 to the end

of December 1997, giving the SDM contractors more time to learn about

APS from the original contractor and fix APS problems. PTO also agreed

to rapidly complete developing APS configuration management procedures

so that the SDM contractors were able to access and manipulate the APS

application code in an efficient, orderly fashion.

56 Commerce IG Semiannual Report March 1998
Patent and Trademark Office

PTO disagreed with our other three recommendations, contending that

the SDM contractors have received adequate APS training, that the cost of

reviewing documentation for quality control is too high, and that its current

transition management approach is adequate. (Office of Systems

Evaluation: OSE-10084)

Audit of FY 1997 Financial Statements

In its audit of PTO’s financial statements as of September 30, 1997,

and 1996, the OIG issued an unqualified opinion on the FY 1997 principal

statements, indicating that the bureau has an internal control structure that

facilitates the preparation of reliable accounting and financial information.

Our tests of PTO’s compliance with selected provisions of applicable

laws and regulations disclosed no instances of material noncompliance.

Our review of the bureau’s internal control structure, however, disclosed

three matters that we deemed reportable conditions. The conditions

involved the need for PTO to improve procedures related to property,

strengthen the analysis and monitoring of financial information, and deposit

cash receipts more promptly.

The fact that two of these reportable conditions had been categorized

as more serious material weaknesses in the prior year audit represents a

substantial improvement in internal controls. Despite this improvement, we

are concerned that several key financial management positions have yet to

be permanently filled, most notably the Associate Commissioner and Chief

Financial Officer and the Director of the Office of Budget.

To continue to meet its commitment to preparing high-quality,

meaningful financial statements, PTO, like other agencies, will need to pay

particular attention to the accounting requirements set forth in OMB

Bulletin 97-01 and GPRA. We commend PTO’s initial efforts to meet

these new requirements. Besides participating as a pilot for the preparation

of a strategic plan, PTO has begun to implement an activity-based costing

methodology to capture costs in a way that should enable it to compile

financial and performance data in compliance with both the bulletin and

GPRA. For example, the overview to the FY 1997 financial statements

effectively presented performance and financial measures indicating the

bureau’s successes and challenges. (Financial Statements Audits

Division: FSD-9755-8-0001)

March 1998 Commerce IG Semiannual Report 57
Patent and Trademark Office

Increased Costs and Patent Pendency

Are Hampering Agency Productivity

As part of an OIG audit survey, a business analysis of PTO was

conducted to develop an overview of agency finances and operations in

order to evaluate its future prospects. In performing the analysis, we

focused extensively on financial and operational information included in

PTO’s audited financial statements and budgets.

We identified a number of critical issues facing PTO and concluded

that significant problems related to the patent business do not appear to be

adequately addressed. Three primary deficiencies were highlighted in our

analysis—rising costs, increased patent pendency, and a disappointing

effort to automate and reengineer the patent process. The principal

conclusions of our analysis are as follows:

! PTO is fully recovering its costs. In the three years we have

audited its financial statements, PTO has shown revenues in

excess of expenses.

! PTO’s overall financial condition is good, but its net position

(equity) is overstated. The agency maintains a bank account with

a balance of more than $500 million. However, we believe that

PTO’s net position is overstated because it includes the cumulative

amount of surcharge revenue withheld by the Congress, and such

funds are unlikely to be returned to PTO.

! The cost of processing a patent application has increased and

could eventually require PTO to raise its fees above the

inflation rate. The cost of processing a patent application

increased at an estimated annual rate of 10 percent between 1992

and 1996, apparently due to patent automation and declining

productivity.

! PTO’s overhead is significant and growing. Although PTO

officials maintain that administrative costs have been cut sharply,

some elements of overhead, such as mailroom services, have

merely been contracted out, and others, such as administration

and executive direction, have actually grown.

58 Commerce IG Semiannual Report March 1998
Patent and Trademark Office

! The productivity of patent examiners is declining, further

increasing the cost of processing a patent. The number of

hours required to examine a patent has increased from 18.1 to

18.8 over the past five years. PTO attributes this decline in

productivity primarily to the increasing complexity of technological

patent applications.

! Bottlenecks have developed in the pre-exam and post-exam

process, contributing to the increase in pendency. The

backlogs of applications awaiting processing in the pre-exam and

post-exam areas have grown more rapidly than those awaiting

actual examination. PTO management states that low FTE

ceilings have prevented it from hiring additional staff to handle the

growing number of applications.

! Automation efforts have been disappointing. PTO’s strategy to

solve its operational problems through automation and reengineering has been ineffective. Many examiners still prefer paper files to

the automated system, and few reengineering projects have shown

results.

! Trademark operations are more sound than patent

operations. Trademarks’ costs of processing an application have

been level, and it also has less overhead to support than patents as

its automation plans have been more modest. However, new

trademark applications are growing rapidly, making pendency a

potential problem.

We will use our analysis to plan future work, and we suggested that

PTO management use it to identify areas most in need of management

attention as it works to improve patent and trademark operations. (PTO

Audits Division)

March 1998 Commerce IG Semiannual Report 59
Technology

Administration

Audit of TA’s FY 1997 Financial Statements

The OIG contracted with a CPA firm to audit TA’s statements of

financial position as of September 30, 1997, and 1996, and the related

statements of operations and changes in net position for the years then

ended. The firm expressed an unqualified opinion on the statements, and

reported no material weaknesses in its report on internal controls or

instances of noncompliance in its report on compliance with laws and

regulations. The results of the audit indicate that TA has been successful in

establishing internal controls that facilitate the preparation of reliable

accounting and financial information.

We reviewed a draft version of TA’s overview to its financial

statements, and provided management with a discussion paper highlighting

our recommendations. Specifically, we noted that TA could improve its

discussion of results by (1) improving the linkage of its results to its goals,

objectives, and target performance levels, (2) strengthening its

performance measures, and (3) improving the presentation of information

to facilitate trend analyses and assessments of whether target levels of

performance have been achieved. TA management was responsive to our

comments, making some changes, while stating that additional improvements will be made in future overviews. (Financial Statements Contract

Audits Division: FSC-9868-8-0001)

Audit of NTIS’s FY 1997 Financial Statements

Under a contract with the OIG, a CPA firm audited NTIS’s statement

of financial position as of September 30, 1997, and the related statements

of operations and changes in net position and cash flows for the year then

ended. The firm expressed an unqualified opinion on the statement of

financial position. However, NTIS received a disclaimer of opinion on its

statements of operations and changes in net position and cash flows

because of the carryover effect of the qualified opinion expressed on the

prior year statement of financial position.

The fact that NTIS received an unqualified opinion on its statement of

financial position represents a marked improvement in the bureau’s

financial management. However, in their report on NTIS’s internal control

structure, the auditors identified five reportable conditions, all of which

have been reported in prior audits. These conditions dealt with the need

for NTIS to improve controls over inventory (material weakness), improve

controls over cash disbursements, properly prepare and review reconciliations with Treasury Department records, develop standard policies and

procedures concerning elimination entries, and consistently apply policies

related to the recording of fees, revenues, and advances.

60 Commerce IG Semiannual Report March 1998

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.
Technology Administration

The firm’s report on compliance with laws and regulations noted two

instances of noncompliance: (1) NTIS’s financial management systems

were not in compliance with the requirements of the Federal Financial

Management Improvement Act of 1996, and (2) NTIS did not report

certain reportable conditions, including a material weakness, in its

1997 Federal Managers’ Financial Integrity Act report.

We reviewed a draft of the overview to NTIS’s financial statements

and made a number of recommendations for improvement, some of which

the bureau implemented for the FY 1997 overview. Nevertheless, further

improvements could be made in future overviews by including several

years worth of data to facilitate trend analyses, comparing actual results to

target levels of performance, and strengthening discussions of performance

and financial results, as well as the performance measures themselves.

Because of our concerns about NTIS’s financial position at year end

and prior year trends, the CPA firm expanded its audit scope to determine

whether the bureau could continue to operate as a going concern through

FY 1998. Although the firm concluded that NTIS will be “in the black” at

the end of FY 1998, we believe that the bureau’s financial position needs

to be closely monitored by management. If NTIS continues to lose money

at the current rate, it may not have sufficient funds to sustain operations

through FY 1999. (Financial Statements Contract Audits Division:

FSC-9867-8-0001)

Audit of NIST’s FY 1997 Financial Statements

A CPA firm audited NIST’s combined statements of financial position

as of September 30, 1997, and 1996, and the related combined statements

of operations and changes in net position for the years then ended. The

firm expressed an unqualified opinion on the financial statements, which

indicates the agency’s progress in meeting the goals and objectives of the

CFO Act.

The auditors’ report on internal controls identified no material

weaknesses, but one reportable condition: the need to appoint a Chief

Financial Officer. During FY 1997, the CFO position was filled on a

temporary basis by two individuals, and the appointment of a permanent

CFO is still pending. The auditors also identified a number of weaknesses

in the security of NIST’s information systems. These significant financial

management challenges will require the attention and leadership of a

permanent CFO.

March 1998 Commerce IG Semiannual Report 61

NIST

Technology

Administration

Technology

Policy

NTIS
Technology Administration

We reviewed a draft of the overview to NIST’s financial statements and

made a number of recommendations for improvement. In particular, NIST

can still strengthen its presentation of performance results. NIST was

responsive to our recommendations, making some changes to the FY 1997

overview and indicating a willingness to make further changes in future

years. (Financial Statements Contract Audits Division: FSC-9864-8-0001)

Accounting System Surveys and Audits

of NIST Financial Assistance Recipients

As noted in earlier issues of this report, the OIG has been performing a

series of accounting system surveys of first-time recipients of financial

assistance awards under NIST’s Advanced Technology and Manufacturing

Extension Partnership programs (see, for example, September 1997 issue,

page 49). During this semiannual period, key aspects of our work on NIST

financial assistance programs involved conducting surveys of MEP

recipients’ accounting systems, responding to a congressional request

seeking information on potential “double billing” in federal research and

technology programs, and conducting a closeout audit of a recipient of an

ATP cooperative agreement.

Manufacturing Extension Partnership Program

The 11 surveys reported on during this semiannual period covered

projects that had award periods of two to three years and total estimated

costs exceeding $51 million, with a federal share that could ultimately be as

much as $24 million. Eight of the surveys identified weaknesses in the

recipients’ financial management and accounting systems, most commonly

the failure to supply or document matching share funds, to properly claim

and document allowable costs, and to implement adequate administrative

policies and procedures.

Almost without exception, the recipients concurred with our findings

and agreed to take prompt corrective actions. Identifying these weaknesses

early in the award periods will help prevent future problems and avoid

questioned costs in later audits. (Denver Regional Office of Audits: DEN9365-8-0001, DEN-9555-8-0001, DEN-9556-8-0001, DEN-9641-8-0001,

DEN-9858-8-0001, DEN-9945-8-0001, DEN-9957-8-0001, DEN-10061-8-

0001, DEN-10070-8-0001, DEN-10071-8-0001, and DEN-10116-8-0001)

Congressional Request Related to Double Billing

At the request of the Chairman of the House Science Committee, we

provided information on the operations of three Department programs: ATP,

62 Commerce IG Semiannual Report March 1998
Technology Administration

MEP, and the Small Business Innovation Research program. The first two

programs are unique to the Department of Commerce, while the third

operates governmentwide. The Committee’s concern was that companies

might be receiving financial assistance from more than one federal source

for the same or similar proposals, thereby increasing the risk of illegal

double billing.

In examining NIST records, we found that no companies had received

awards from all three programs and that only four had received awards in

the same fiscal year from two of the programs. Our audits of these four

small businesses found no double billing. (Denver Regional Office of

Audits: DEN-10128-8-0001, DEN-10129-8-0001, DEN-10130-8-0001,

and DEN-10131-8-0001)

Advanced Technology Program

At NIST’s request, we also conducted a final closeout audit of an ATP

cooperative agreement that had a total estimated federal share of nearly

$2 million. We recommended that NIST disallow about $103,000 in

questioned costs and deobligate about $1.4 million of unexpended funds

under the award. (Denver Regional Office of Audits: DEN-8970-8-0001)

Acting IG Testifies on Audit and

Inspection Work at NIST and NTIS

On February 26, 1998, the Acting Inspector General testified at a

hearing held by the House Science Committee’s Subcommittee on

Technology on the Technology Administration’s budget. His statement

focused on three important TA program areas: NIST’s Capital Improvements Facilities Program, NIST’s Advanced Technology Program, and

NTIS’s plans to become a performance-based organization.

In discussing the CIFP, the statement described the series of major

reports we have issued in recent years and provided the current status of

NIST’s construction and renovation program (see page 11). The statement

also highlighted the OIG’s recent work on NIST accounting system

surveys (see page 62); NIST’s processes for selecting, monitoring, and

evaluating awards (see September 1995 issue, page 71, and March 1996

issue, page 60); the accounting practices of joint ventures (see September

1997 issue, page 50); and NIST’s administration of its authority to issue

multi-year awards (see September 1997 issue, page 48). Also discussed

were our concerns about NTIS’s ability to meet the prerequisites of

becoming a performance-based organization—a clearly defined mission

and the ability to generate sufficient revenues to support business

operations (see September 1997 issue, page 52).

March 1998 Commerce IG Semiannual Report 63
Technology Administration

NIST Properly Handled Superfund

Interagency Agreement with EPA

Under interagency agreements with the Environmental Protection

Agency, NIST conducts technical research to develop methods to

counteract the effects of toxic waste spills. Funds appropriated for these

agreements are made available through the Hazardous Substance Response

Trust Fund, known as the Superfund, which is used to identify the nation’s

hazardous waste sites, assign priorities to the risks they create, and work to

eliminate those risks.

The Superfund Amendments and Reauthorization Act of 1986

requires the OIG to audit all Department of Commerce payments,

obligations, reimbursements, and other uses of the Superfund annually to

ensure that it is being properly administered. During this semiannual

period, we conducted an audit to determine whether NIST had properly

managed the financial aspects of its one Superfund agreement entered into

with EPA during FY 1997.

We determined that NIST had accurately accumulated, documented,

and charged the Superfund for reimbursable costs under the agreement;

funds had been received in advance for all work performed; the agency

was in compliance with the relevant financial provisions of the legislation

that created the Superfund and the terms and conditions of the interagency

agreement; and controls over Superfund activities were adequate. As a

result, we made no recommendations. (Economic Development Audits

Division: EDD-10268-8-0001)

Audit Reports Unresolved for Over Six Months

As of March 31, 1998, there were eight financial assistance audit

reports with recommendations unresolved for more than six months.

Seven of the eight reports are on joint venture ATP awards, in which

we questioned a total of $9.8 million in claimed costs generally involving

transactions by software development companies that provided licenses,

software maintenance and support, or other items from a commercial

product line, for use on the projects (DEN-9752-7-0001, DEN-9760-7-

0001, DEN-9767-7-0001, DEN-9774-7-0001, DEN-9776-7-0001, DEN9779-7-0001, and DEN-9827-7-0001—see September 1997 issue,

page 50).

64 Commerce IG Semiannual Report March 1998
Technology Administration

The main issue concerns federal cost reimbursement rules that do not

permit financial assistance award recipients to be reimbursed for previously

invested development costs, corporate interest expenses, or profit—all of

which can be significant ingredients of software commercial prices. We

worked closely with NIST grant and program officials to develop a new

rule, effective December 9, 1997, that addresses prospectively the

valuation of transfers of goods and services, including computer software,

between separately owned joint venture members. On March 27, NIST

submitted audit resolution proposals for the seven audits, and we are in the

process of evaluating the proposals.

One financial assistance interim audit of a Texas joint venture

participant questioned a $125,655 “cost of money” cost because it was not

specifically identified in a cost proposal relating to the award under which

this cost was claimed (DEN-9768-7-0001). NIST presented its views in an

audit resolution proposal received at the close of this reporting period. We

are reviewing the proposal.

March 1998 Commerce IG Semiannual Report 65
Departmental Management

Financial Statements Audits

The OIG is responsible for the financial statements audit of the

Department of Commerce in accordance with the CFO Act, as expanded

by the Government Management Reform Act. During this semiannual

period, the Department prepared its second consolidated financial

statements, on which we disclaimed an opinion (see page 68).

In addition to reporting on the Department’s consolidated financial

statements, we issued an individual audit report for each bureau.

Unqualified opinions were received by BEA/ESA, MBDA, NIST, NTIA,

PTO, TA, the Department’s Working Capital Fund, and the Department’s

Salaries and Expenses Fund. BXA, Census, and NTIS received unqualified

opinions on their balance sheets with disclaimers on their income

statements. EDA and NOAA received qualified opinions on their balance

sheets with disclaimers on their income statements. Disclaimers of opinion

were received by the Department’s Franchise Fund and ITA.

The Department has strengthened its financial management over the

prior year as indicated by six bureaus receiving improved audit opinions, as

shown in the chart on the following page. In addition, the overall number

of audit findings has decreased over the past several years. Despite this

improvement, we remain concerned with the Department’s ability to reach

an unqualified opinion on its consolidated statements, given the upcoming

reporting requirements included in GPRA and OMB Bulletin 97-01.

We reviewed the FY 1997 financial statement overviews prepared for

the Department and its individual bureaus, and offered suggestions for

improvement, many of which were incorporated. Our reviews found that

the overviews generally did not provide sufficient performance and

financial measures to provide clear descriptions of program and financial

results. While some bureaus have made progress in developing performance measures and presenting performance results, further improvements

are needed. Areas identified for improvement include (1) expanded usage

of outcome and cost-effectiveness measures, (2) improved discussion of

financial performance and results, (3) closer linkage to strategic goals and

objectives, and (4) additional discussion of management plans to address

identified deficiencies. Bureaus could also improve their presentation of

performance results to facilitate trend analyses and assessments of whether

target levels of performance have been achieved.

We will work with the Department and the bureaus to ensure that their

corrective action plans address their internal control weaknesses. In

addition, we will continue to assess the Department’s and the bureaus’

progress in addressing the new reporting requirements.

66 Commerce IG Semiannual Report March 1998

Budget,

Management

and Information

Security and

Administrative

Services

Exec. Budgeting

and Assistance

Management

Financial

Management

CFO and

Asst. Secretary

for Administration

Systems and

Telecom.

Management

Human

Resources

Management

Acquisition

Management

Civil

Rights
Entity FY 1992 FY 1993 FY 1994 FY 1995 FY 1996 FY 1997

Department Disclaimer Disclaimer

BEA Survey Balance Sheet

Disclaimer

Balance Sheet

Unqualified

Unqualified Unqualified Unqualified

BXA Survey Disclaimer Disclaimer Balance Sheet

Unqualified; Income

Statement Disclaimer

Census Survey Limited Scope Disclaimer Balance Sheet

Qualified

Balance Sheet

Qualified; Income

Statement Disclaimer

Balance Sheet

Unqualified; Income

Statement Disclaimer

EDA Limited Scope Balance Sheet

Disclaimer

Disclaimer Disclaimer Disclaimer Balance Sheet

Qualified; Income

Statement Disclaimer

ESA Survey Balance Sheet

Disclaimer

Balance Sheet

Unqualified

Unqualified Unqualified Unqualified

Franchise Fund Disclaimer

Gifts &

Bequests

Disclaimer *

ITA Survey Limited Scope Disclaimer Disclaimer Disclaimer Disclaimer

MBDA Survey Balance Sheet

Unqualified

Unqualified Unqualified

NIST Limited Scope Balance Sheet

Unqualified

Unqualified Unqualified Unqualified Unqualified

NOAA Survey ** Disclaimer Disclaimer Disclaimer Balance Sheet

Qualified; Income

Statement Disclaimer

NTIA Survey Balance Sheet

Unqualified

Unqualified Unqualified Unqualified Unqualified

NTIS Unqualified Unqualified Unqualified Unqualified Balance Sheet

Qualified; Income

Statement Disclaimer

Balance Sheet

Unqualified; Income

Statement Disclaimer

PTO Survey Balance Sheet

Unqualified

Unqualified Unqualified Unqualified Unqualified

S&E Disclaimer Balance Sheet

Qualified; Income

Statement Disclaimer

Unqualified

TA Balance Sheet

Unqualified

Unqualified Unqualified

WCF Survey Balance Sheet

Disclaimer

Balance Sheet

Unqualified

Unqualified Unqualified Unqualified

Note: Definitions of the types of opinions appear on page 94.

* An audit could not be performed.

** In FY 1993, we performed balance sheet audits of two NOAA entities — the Coastal Zone Management

 Revolving Fund and the Fishing Vessel Obligation Guarantee Program.

Departmental Management

March 1998 Commerce IG Semiannual Report 67
Departmental Management

Audit of the Department’s FY 1997

Consolidated Financial Statements

The OIG issued a disclaimer of opinion in its audit of the Commerce

FY 1997 consolidated financial statements because of management’s

inability to support certain account balances and deficiencies noted in the

Department’s internal control environment. Our internal control review of

the Department disclosed 10 reportable conditions, of which 7 were considered material weaknesses. The conditions dealt with the need for the

Department to improve its financial management, systems, reconciliations,

preparation of the consolidated financial statements, and procedures for

the overview section of the statements. Improvements are also needed in

controls over property; inventories; cash receipts and accounts receivable;

obligations/undelivered orders, accounts payable, and expenses; and the

identification of potential contingent liabilities and unasserted claims.

Implementation of Statement of Federal Financial Accounting

Standards No. 5 and Interpretation of Federal Financial Accounting

Standards No. 2 required the Department and its bureaus, beginning in

FY 1997, to report all contingent liabilities associated with their operations,

including transactions that are chargeable to the Treasury Department’s

Judgment Fund. However, departmental and bureau management were not

sufficiently prepared for implementation of this standard. A significant,

coordinated effort among the Office of General Counsel, the Office of

Financial Policy and Assistance, and the OIG was initiated to address the

challenge of meeting this new reporting requirement. This issue was a

major factor contributing to the Department’s inability to meet OMB’s

March 1, 1998, deadline for the issuance of audited financial statements.

In performing tests of compliance with selected provisions of

applicable laws and regulations that may materially affect the consolidated

statements, we noted several material instances of noncompliance.

Specifically, we found that the Department was not in compliance with the

Federal Financial Management Improvement Act of 1996, in part because

it does not meet the requirements for a single, integrated financial system.

Moreover, it is not in compliance with the Information Technology

Management Reform Act of 1995, in part because a permanent Chief

Information Officer has not been designated. In addition, similar tests of

the individual bureaus disclosed material instances of noncompliance at

ITA (see page 31) and NOAA (see page 38).

The Department concurred with our findings and our recommendations for corrective action and will prepare an audit action plan to address

those recommendations.

68 Commerce IG Semiannual Report March 1998
Departmental Management

To achieve an unqualified opinion in future years, the Department

must meet the requirements set forth in OMB Bulletin 97-01. The bulletin

poses tremendous challenges for the Department, particularly in its

requirement that costs be reported in a new way—by suborganizations and

programs, which are to be based on the missions and outputs described in

the Department’s strategic and annual plans and its budget structures.

(Financial Statements Audits Division: FSD-9753-8-0001)

Audit of the WCF and S&E Fund

FY 1997 Financial Statements

The OIG performed audits of the General Administration’s Working

Capital Fund (WCF) and Salaries and Expenses Fund (S&E) financial

statements for the year ended September 30, 1997. We issued unqualified

opinions on the financial statements for both funds. The statements were

prepared by NIST’s Office of Comptroller, which provides accounting

services for the funds. Both funds are managed by the Department’s

Office of Executive Budgeting under the same internal control structure

and procedures for compliance. Thus, the findings in our reports on

internal control structure and on compliance with laws and regulations

apply to both funds, unless otherwise specified.

Although progress continues to be made to improve the quality,

usefulness, and timeliness of the funds’ financial and performance

reporting, our review of the internal control structure identified seven

reportable conditions related to (1) controls over property (material

weakness); (2) controls over inventory for the WCF; (3) the basis for cost

allocation rates and supporting documentation for the WCF; (4) controls

surrounding obligations/undelivered orders, accounts payable, and

expenses; (5) the analysis, monitoring, and review of financial information;

(6) procedures for the overview section of the financial statements; and

(7) controls over the Financial Accounting and Reporting System at the

Office of Computer Services (OCS). Five of the seven reportable

conditions, including the material weakness, were repeat conditions from

prior audits. We also identified one material instance of noncompliance

with laws and regulations, in that the funds were not operating in

conformance with the Federal Financial Management Improvement Act.

In addition, we were concerned that the funds’ overviews to the

financial statements were lacking sufficient financial performance measures

to comply with GPRA requirements. For example, the few measures that

were included were not presented in a manner that adequately reflects the

funds’ successes or challenges. (Financial Statements Audits Division:

FSD-9754-8-0001)

March 1998 Commerce IG Semiannual Report 69
Departmental Management

Audit of the Franchise Fund’s

FY 1997 Financial Statements

The Franchise Fund was established under the Government

Management Reform Act of 1994 as a pilot program to provide common

administrative services. The program’s goal is to promote entrepreneurial

business activities in common administrative services throughout the

federal government, leading to a more competitive environment, which

should in turn result in lower cost, higher quality, and more timely services.

The services are to be provided on a full-cost-recovery basis, with no

start-up appropriations.

In May 1996, OMB approved the Department as one of the six

Franchise Fund pilot programs. The pilot involves projects in two

Commerce entities—NOAA’s Administrative Support Centers and the

Office of the Secretary’s Office of Computer Services. GMRA requires

that the pilot program be audited; our audit of the FY 1997 statements was

the first audit of the Fund. We expressed a disclaimer of opinion on the

financial statements as of September 30, 1997, and for the year then

ended. As explained in the report on internal control structure, significant

internal control matters need to be addressed by the Franchise Fund’s

management to achieve the financial management objectives of the

CFO Act, as amended by GMRA.

Our internal controls review of the Fund for the FY 1997 audit

disclosed six reportable conditions, of which four are considered material

weaknesses. The material weaknesses include the lack of an effective

management structure to establish proper financial management control

over Fund operations; inadequate controls over obligations/undelivered

orders, accounts payable, and expenses; inadequate controls over cash

receipts, accounts receivables, and revenues; and inadequate controls over

capital assets. The remaining two weaknesses include the need to improve

controls over automated data processing security and to strengthen the

overview section of the financial statements.

We also found two material instances of noncompliance with

applicable laws and regulations: (1) Certain aspects of OCS’s procurement

process were under review by the OIG and, at the time, we were unable to

assess the impact of that issue on the financial statements; and (2) the

Fund was not in substantial compliance with the Federal Financial

Management Improvement Act of 1996, in that the Department’s financial

management systems are inadequate.

70 Commerce IG Semiannual Report March 1998
Departmental Management

We made recommendations to address the above deficiencies.

Management agreed with our findings and recommendations and expressed

its intent to take the necessary actions to obtain an unqualified opinion.

(Financial Statements Audit Division: FSD-10240-8-0001)

Office of Computer Services Needs

Stronger Operational Controls

The Department’s Office of Computer Services, located in Springfield,

Virginia, provides data processing support for several financial application

systems, including the Financial Accounting and Reporting System. Various

Commerce entities utilize this system to produce their fiscal year-end

financial statements.

As part of the OIG’s FY 1997 consolidated audit of the Department,

we performed a review of OCS operations to evaluate the effectiveness of

general controls surrounding the Financial Accounting and Reporting

System and Commerce financial data processing. The review focused on

evaluating the adequacy and effectiveness of controls for mainframe

system logical and physical security; computer center management and

operations; software configuration management; and backup, recovery,

and contingency planning.

We found several control issues that, if not resolved, could adversely

affect the Department’s ability to record and report financial data

consistent with management’s assertions. We identified controls needing

improvement in OCS’s entity-wide security program, access to the system,

segregation of duties, system software, and service continuity.

We made numerous recommendations to OCS management to

improve operations. Management concurred with our findings and

recommendations and has provided a draft audit action plan detailing its

planned corrective actions. (Financial Statements Audits Division:

FSD-10021-8-0001)

Review of the Department’s

Discretionary Funding Programs

The Chairman of the Senate Committee on Commerce, Science, and

Transportation requested that the OIG conduct a review of all of the

Department’s funding programs to assess how discretionary funding

decisions are made. Specifically, he asked that we review and report on

March 1998 Commerce IG Semiannual Report 71
Departmental Management

what criteria have been developed to guide Department officials in making

such decisions and the extent to which the criteria are being applied. The

Chairman was particularly interested in learning of discretionary funding

programs that either have no formal merit-based criteria or have criteria

that are not being properly applied.

Technically, all Commerce financial assistance programs are

discretionary, rather than entitlement, programs. Six Commerce agencies—

EDA, ITA, MBDA, NIST, NOAA, and NTIA—administer 71 categorical

grant programs providing about $1 billion a year in financial assistance to

state and local governments, nonprofit and for-profit organizations, and

individuals. Authorizing program legislation and agency policies,

regulations, and solicitation, review, and selection procedures provide for

varying degrees of discretion in making awards under the programs.

The OIG plans to meet the Chairman’s request by systematically

reviewing and reporting on all 71 grant programs. The review methodology

will initially entail identifying (1) all programs for which competition or

merit-based selection is significantly limited by the authorizing legislation,

and (2) all earmarked projects, in order to determine their significance and

impact in limiting competition or merit-based selection for program funds.

For each program for which the authorizing legislation or earmarks do

not significantly limit competition or merit-based selection, we will evaluate

agency procedures for soliciting, reviewing, and selecting proposals to

determine if they comply with legislative intent and criteria, and evaluate

whether they are designed to result in competitive or merit-based

selections. We will issue a survey report during the next semiannual period

on the results of this work.

For the programs that have solicitation, review and selection

procedures which, if followed, should result in competitive or merit-based

selections, we will review a representative sample of the solicitation,

review, and selection practices for FY 1997 awards to determine if the

procedures were followed. As for the programs that do not have competitive or merit-based procedures or have inadequate procedures, we will

review a representative sample of the FY 1997 awards to determine how

the funded proposals were selected. We will issue individual reports on the

various agency programs, followed by a capping report summarizing the

results of our overall review. (Office of Audits)

72 Commerce IG Semiannual Report March 1998
Departmental Management

OIG Completed Project on Procedures for

Prescreening Financial Assistance Recipients

As discussed in our previous report (see September 1997 issue,

page 57), the Commerce OIG was instrumental in completing a survey

report highlighting the procedures used by Offices of Inspector General

and their respective agencies to prescreen federal financial assistance

recipients. The survey report was an initiative of the President’s Council

on Integrity and Efficiency’s Inspection and Evaluation Committee. The

objective of the report was to identify the best practices used by individual

organizations, so that other OIGs and agencies will have an opportunity to

adopt such practices in their review procedures for federal assistance

awards.

We were responsible for conducting a survey to identify successful

techniques used by OIGs and their respective agency grant and loan

offices to identify and screen out potentially problematic recipients of

federal grants, loans, loan guarantees, or cooperative agreements before

they receive federal funding.

Although most OIGs that participated in the survey do not have an

active prescreening process, they expressed strong support for greater

coordination in identifying problem recipients of federal financial assistance. We recommended that the President’s Council conduct a review to

determine the feasibility of the IG community developing an interagency

database to facilitate the exchange of information on problem grantees and

loan recipients. (Office of Inspections and Program Evaluations)

Preaward Financial Assistance Screening

We continue to work with the Office of Executive Assistance

Management, NOAA and NIST grant offices, and EDA program offices to

screen all of the Department’s grants, cooperative agreements, and loan

guarantees before award. Our screening (1) provides information on

whether the applicant has unresolved audit findings and recommendations

on earlier awards, and (2) determines whether a name check or investigation has revealed any negative history on individuals or organizations

connected with a proposed award.

During this period, we screened 707 proposed awards. On the basis of

information we provided, the Department delayed the awards, or designated certain recipients as “high risk” and required that the disbursement

of federal funds be on a cost reimbursement basis. (Office of Audits)

March 1998 Commerce IG Semiannual Report 73
Departmental Management

Indirect Cost Reviews

OMB has established a policy whereby a single federal agency is

responsible for the review, negotiation, and approval of indirect cost rates

for federal programs. Normally, the federal agency providing the most

direct funding is the cognizant agency. OMB has designated Commerce as

the cognizant agency for 280 economic development districts. In turn, the

Department authorized the OIG to negotiate indirect cost rates and review

cost allocation plans for each of its agencies. The OIG approves the

methodology and principles used in pooling indirect costs and establishing

an appropriate base for distributing those costs to ensure that each federal,

state, and local program bears its fair share.

During this period, the OIG negotiated 18 indirect cost rate agreements

with nonprofit organizations and governmental agencies, and reviewed and

approved 21 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)

74 Commerce IG Semiannual Report March 1998

Preaward Screening Results

Results

Awards delayed

Cost reimbursement basis

Amount

$14,352,284

1,311,500

4

3

Number
Departmental Management

Nonfederal Audit Activities

In addition to OIG-performed audits, the Department’s financial

assistance programs are audited by state and local government auditors and

by independent public accountants. OMB Circulars A-128, Audits of State

and Local Governments, and A-133, Audits of Institutions of Higher

Education and Other Non-Profit Institutions, set forth the audit

requirements for most of these entities. Entities that are for-profit

organizations and receive ATP funds from NIST are audited in accordance

with Government Auditing Standards and NIST Program-Specific Audit

Guidelines for ATP Cooperative Agreements, issued by the Department.

Circular A-133 was revised in June 1997. The revised circular, Audits

of States, Local Governments, and Non-Profit Organizations, rescinds the

previous Circular A-128 and incorporates that circular’s requirements and

previous A-133 requirements into one document. It also raises the

threshold for requiring an audit, and directs that entities submit reports

directly to a federal clearinghouse instead of the Department. The revised

Circular A-133 is effective for fiscal years beginning after June 30, 1996.

During this semiannual period, we received a total of 278 audit reports

prepared by nonfederal auditors. All reports received during this period

were prepared under the previous Circular A-128 and Circular A-133

requirements. We also had 84 unprocessed reports from the last semiannual period. For 177 of these reports, the Department is responsible for

monitoring compliance with the two OMB circulars and NIST’s requirements applicable to its financial assistance. The other 185 reports are from

entities for which other federal agencies have oversight responsibility. We

examined 264 reports during this period to determine whether they contained audit findings on any Department programs.

Report Category Number

Pending (October 1, 1997)

Received

Examined

Pending (March 31, 1998)

84

278

264

98

March 1998 Commerce IG Semiannual Report 75
Departmental Management

The following table shows a breakdown by bureau of the $168 million

in Commerce funds audited.

We identified a total of $1,333,820 in questioned costs. In most

reports, the Department’s programs were considered non-major, resulting

in limited transaction and compliance testing against laws, regulations, and

grant terms and conditions. The 18 reports with Commerce findings are

listed in Appendix B-1. (Atlanta Regional Office of Audits)

Bureau Funds

EDA

ITA

MBDA

NOAA

$72,248,781

607,153

765,053

34,320,137

NTIA

TA

 NIST

Total

4,625,515

8,421,336

46,913,574

$167,901,549

76 Commerce IG Semiannual Report March 1998
INDEX

 The Inspector General Act of 1978, as amended (1988), specifies reporting requirements for

 semiannual reports. The requirements are listed below and indexed to the applicable pages.

Section Topic Page

4(a)(2) Review of Legislation and Regulations 78

5(a)(1) Significant Problems, Abuses, and Deficiencies 17-76

5(a)(2) Significant Recommendations for Corrective Action 17-76

5(a)(3) Prior Significant Recommendations Unimplemented 78

5(a)(4) Matters Referred to Prosecutive Authorities 17-76

5(a)(5) and 6(b)(2) Information or Assistance Refused 79

5(a)(6) Listing of Audit Reports 87-93

5(a)(7) Summary of Significant Reports 17-76

5(a)(8) Audit Reports—Questioned Costs 83, 86

5(a)(9) Audit Reports—Funds to Be Put to Better Use 84, 85

5(a)(10) Prior Audit Reports Unresolved 15, 79

5(a)(11) Significant Revised Management Decisions 15, 80

5(a)(12) Significant Management Decisions with Which the OIG Disagreed 80

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. Our

discussion of the act appears on page 9.

Reporting Requirements

March 1998 Commerce IG Semiannual Report 77
Reporting Requirements

Section 4(a)(2): Review of Legislation

and Regulations

This section requires the Inspector General of each agency to review

existing and proposed legislation and regulations relating to that

agency’s programs and operations. Based on that review, the Inspector

General is required to make recommendations in the semiannual report

concerning the impact of such legislation or regulations on the economy

and efficiency in the administration of programs and operations

administered or financed by the agency or on the prevention and

detection of fraud and abuse in those programs and operations. Our

recommendations on legislative and regulatory initiatives affecting

Commerce programs are discussed throughout the report.

Section 5(a)(3): Prior Significant

Recommendations Unimplemented

This section requires an identification of each significant

recommendation described in previous semiannual reports on which

corrective action has not been completed. Section 5(b) requires that the

Secretary transmit to the Congress statistical tables for audit reports for

which no final action has been taken, plus a statement that includes an

explanation of the reasons final action has not been taken on each such

audit report, except when the management decision was made within the

preceding year.

Prior Inspector General semiannual reports have explained that to

include a list of all significant unimplemented recommendations in this

report would be duplicative, costly, unwieldy, and of limited value to the

Congress. Any list would have meaning only if explanations detailed

whether adequate progress is being made to implement each agreed-upon

corrective action. Also, as this semiannual report is being prepared,

management is in the process of updating the Department’s Audit

Tracking System as of March 31, 1998, based on semiannual status

reports due from the bureaus in mid-April. An accurate database is

therefore not available to the OIG for reference here. However,

additional information on the status of any audit recommendations may

be obtained through the OIG’s Office of Audits.

78 Commerce IG Semiannual Report March 1998
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 commencement 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, 1998, 10 financial assistance audit and 3 preaward

contract audits were in this category, as discussed below.

Financial Assistance Audits

The 10 unresolved audits relate to financial assistance awards made

by EDA (1), NOAA (1), and NIST (8). Audit resolution proposals have

been submitted in response to all the final audit reports; however, OIG

and the bureaus were not able to resolve the reports on a timely basis.

Additional details are presented on pages 22, 49, and 64.

Preaward Contract Audits

The Department’s Audit Tracking System recorded three preaward

contract audits unresolved in excess of six months. The audits, based on

DCAA reviews of contract proposals, are resolved when a contracting

officer takes final action on the pending procurement, such as awarding a

contract or issuing a contract modification.

The unresolved preaward contract audits to be reported are listed

below.

! ARA-08350-6-0082, August 6, 1996

! OCA-08350-7-0025, June 13, 1997

! OCA-08350-7-0030, August 14, 1997

Reporting Requirements

March 1998 Commerce IG Semiannual Report 79
Section 5(a)(11): Significant Revised

Management Decisions

This section requires a description and explanation of the reasons for

any significant revised management decision made during the reporting

period. Department Administrative Order 213-5, “Audit Resolution and

Follow-up,” provides procedures for revision of a management decision.

For performance audits, the OIG must be consulted and must approve, in

advance, any modification to an audit action plan. For financial

assistance audits, the OIG must concur with any decision that would

change the audit resolution proposal in response to an appeal by the

recipient.

During the reporting period, five modifications were submitted to the

OIG for review. None of the modifications involved issues with current

significance, and the OIG concurred with the proposed adjustments.

The decisions issued on the four 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

manage-ment 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, one audit issue was referred to the Deputy

Secretary (see page 37).

Reporting Requirements

80 Commerce IG Semiannual Report March 1998
Statistical Highlights

March 1998 Commerce IG Semiannual Report 81

Audit

Statistical Highlights

Questioned costs this period ............................................ $2,600,928

Value of audit recommendations made

this period that funds be put to better use ......................... $8,571,588

Value of audit recommendations agreed

to this period by management .......................................... $2,348,787

Investigative

Statistical Highlights

Arrests .................................................................................................. 1

Indictments and informations ................................................................ 5

Convictions ........................................................................................... 1

Personnel actions* ............................................................................... 24

Administrative actions**........................................................................ 10

Fines, restitutions, judgments, and other civil

and administrative recoveries ..................................................$3,152,245

** Includes removals, suspensions, reprimands, demotions, reassignments, and resignations

** or retirements in lieu of adverse action.

** Includes actions to recover funds, new procedures, and policy changes that result from

** investigations.

Allegations Processed

by OIG Investigators

Accepted for investigation...................................... 28

Referred to operating units .................................... 37

Evaluated but not accepted for

investigation or referral .......................................... 35

Total ..................................................................... 100

In addition, numerous other allegations and complaints were

forwarded to the appropriate federal and nonfederal investigative

agencies.

In addition

OIG HOTLINE

Telephone: (202) 482-2495 or (800) 424-5197

Internet E-Mail: oighotline@doc.gov
TABLES PAGE

1. Audits with Questioned Costs 83

2. Audits with Recommendations That Funds Be Put to Better Use 84

3. Preaward Contract Audits with Recommendations That Funds Be Put to Better Use 85

4. Postaward Contract Audits with Questioned Costs 86

APPENDIXES

A. Office of Inspector General Reports 87

 A-1. Performance Audits 87

 A-2. Inspections 88

 A-3. Financial Statements Audits 89

 A-4. Financial Assistance Audits 90

B. Processed Reports 92

 B-1. Processed Financial Assistance Audits 93

DEFINITIONS

The term questioned cost refers to a cost that is questioned by the OIG because of (1) an alleged violation of a

provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the

expenditure of funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate documentation;

or (3) a finding that an expenditure of funds for the intended purpose is unnecessary or unreasonable.

The term unsupported cost refers to a cost that, at the time of the audit, is not supported by adequate documentation.

Questioned costs include unsupported costs.

The term recommendation that funds be put to better use refers to a recommendation by the OIG that funds could

be used more efficiently if Commerce management took action to implement and complete the recommendation,

including (1) reductions in outlays; (2) deobligation of funds from programs or operations; (3) withdrawal of interest

subsidy costs on loans or loan guarantees, insurance, or bonds; (4) costs not incurred by implementing recommended

improvements related to Commerce, a contractor, or a grantee; (5) avoidance of unnecessary expenditures identified in

preaward reviews of contracts or grant agreements; or (6) any other savings that are specifically identified.

The term management decision refers to management’s evaluation of the findings and recommendations included in

the audit report and the issuance of a final decision by management concerning its response.

Tables and Appendixes

82 Commerce IG Semiannual Report March 1998
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 42 $10,002,583 $1,606,366

B. Reports issued during the reporting period 27 2,600,928 853,910

C. Total reports (A+B) requiring a management decision

C. during the reporting period 69 12,603,511 2,460,276

C. Reports for which a management decision was made

C. during the reporting period 34 3,079,808 883,699

 ii. Value of disallowed costs 1,591,589 467,549

 ii. Value of costs not disallowed 1,488,219 416,150

D. Reports for which no management decision had been

D. made by the end of the reporting period 35 $9,523,703 $1,576,577

Notes and Explanations:

In Category C, lines i and ii do not always equal the total on line C since resolution may result in values greater

than the original recommendations.

Five audit reports included in this table are also included in the reports with recommendations that funds be

put to better use (see Table 2). However, the dollar amounts do not overlap.

No postaward contract audits are included in this table; instead, any such audits are listed in Table 4.

Tables and Appendices

March 1998 Commerce IG Semiannual Report 83
Table 2: Audits with Recommendations

Table 2: That Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the

A. commencement of the reporting period 6 $46,697,819

B. Reports issued during the reporting period 5 8,571,588

C. Total reports (A+B) requiring a management decision during the

B. reporting period 11 55,269,407

C. Reports for which a management decision was made during the

C. reporting period 6 46,697,819

 ii. Value of recommendations agreed to by management 757,198

 ii. Value of recommendations not agreed to by management 45,940,621

D. Reports for which no management decision had been made by the

D. end of the reporting period 5 $8,571,588

Notes and Explanations:

In Category C, lines i and ii do not always equal the total on line C since resolution may result in values greater

than the original recommendations.

Five audit reports included in this table are also included in the reports with recommendations that funds be

put to better use (see Table 1). However, the dollar amounts do not overlap.

No postaward contract audits are included in this table; instead, any such audits are listed in Table 3.

Tables and Appendices

84 Commerce IG Semiannual Report March 1998
Table 3: Preaward Contract Audits with Recommendations

Table 3: That Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the

A. commencement of the reporting period 4 $1,062,459

B. Reports issued during the reporting period — —

C. Total reports (A+B) requiring a management decision during the

B. reporting period 4 1,062,459

C. Reports for which a management decision was made during the

C. reporting period 1 525,119

 ii. Value of recommendations agreed to by management —

 ii. Value of recommendations not agreed to by management —

 iii. Value of reports on proposals that were not awarded contract 525,119

D. Reports for which no management decision had been made by the

D. end of the reporting period 3 $537,340

Notes and Explanations:

Preaward audits of contracts include results of audits performed for the OIG by other agencies.

When there are multiple proposals for the same contract, we report only the proposal with the lowest dollar value

for funds to be put to better use; however, in Category C, lines i-ii, we report the value of the awarded contract.

In Category C, lines i-iii do not always equal the total on line C since resolution may result in values greater

than the original recommendations.

Tables and Appendices

March 1998 Commerce IG Semiannual Report 85
Table 4: Postaward Contract Audits

Table 4: with Questioned Costs

Report Category Number

Questioned

Costs

Unsupported

Costs

A. Reports for which no management decision had been

 made by the commencement of the reporting period — — —

B. Reports issued during the reporting period — — —

C. Total reports (A+B) requiring a management decision

C. during the reporting period — — —

C. Reports for which a management decision was made

C. during the reporting period — — —

 ii. Value of disallowed costs — —

 ii. Value of costs not disallowed — —

D. Reports for which no management decision had been

D. made by the end of the reporting period — — —

Notes and Explanations:

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.

Tables and Appendices

86 Commerce IG Semiannual Report March 1998
Appendix A. Office of Inspector General Reports

Type Number Appendix

Performance Audits 6 A-1

Inspections 6 A-2

Financial Statements Audits 16 A-3

Financial Assistance Audits 24 A-4

Total 52

Appendix A-1. Performance Audits

Agency Subject Number Date

Funds to Be

Put to Better

Use

Economics and

Statistics

Administration

2000 Decennial Census: Address-Building

Program May Become More Complex,

Costly, and Counterproductive

ESD-9608-8-0001 03/98 __

Atlanta Bankcard Purchases Need Improved

Internal Controls

ATL-10316-8-0001 03/98 —

International Trade

Administration

Trade Events: Improvements Needed in

Planning and Management

IAD-9714-8-0001 03/98 —

National Oceanic

and Atmospheric

Administration

NMFS Laboratory Structure Should Be

Streamlined

NOAA/EPA Interagency Agreements for

Support of Ongoing Superfund Activities -

FY 1995 and FY 1996

STL-8982-8-0001

STL-10140-8-0001

11/97

02/98

$6,028,000

—

Technology

Administration

FY 1997 Superfund Charges to the

Environmental Protection Agency

EDD-10268-8-0001 02/98 —

Tables and Appendices

March 1998 Commerce IG Semiannual Report 87
Appendix A-2. Inspections

Agency Subject Number Date

Funds to Be

Put to Better

Use

Economics and

Statistics

Administration

Headquarters Information Processing

Systems for the 2000 Decennial Census

Require Technical and Management Plans

and Procedures

OSE-10034 11/97 —

Minority Business

Development Agency

Use of Cooperative Agreements Will

Improve Management and Oversight of the

Minority Business Opportunity Committee

Program

IPE-10309 03/98 —

National Oceanic

and Atmospheric

Administration

Coastal Zone Management and National

Estuarine Research Reserve System

Programs Require Management Attention to

Increase Effectiveness

IPE-9044 12/97 —

NWS’s Verification System for Severe and

Hazardous Weather Forecasting Needs

Modernization

IPE-9255 01/98 —

Patent and

Trademark Office

Inadequate Contractor Transition Risks

Increased System Cost and Delays

OSE-10084 12/97 —

PTO Needs to Refine Its Space

Consolidation Planning

IPE-9724 03/98 —

Tables and Appendices

88 Commerce IG Semiannual Report March 1998
Appendix A-3. Financial Statements Audits

Agency Subject Number Date

Funds to Be

Put to Better

Use

Bureau of Export

Administration

Financial Statements for FY 1997 FSC-9859-8-0001 03/98 —

Economic

Development

Administration

Financial Statements for FY 1997 FSC-9861-8-0001 03/98

—

Economics and

Statistics

Administration

BEA’s and ESA’s Consolidated Financial

Statements for FY 1997

Census’ Financial Statements for FY 1997

FSC-10113-8-0001

FSC-9860-8-0001

03/98

03/98

—

—

International Trade

Administration

Financial Statements for FY 1997 FSC-9862-8-0001 03/98 —

Minority Business

Development Agency

Financial Statements for FY 1997 FSC-9863-8-0001 03/98 —

National Oceanic

and Atmospheric

Administration

Financial Statements for FY 1997 FSC-9865-8-0001 03/98 —

National

Telecommunications

and Information

Administration

Financial Statements for FY 1997 FSC-9866-8-0001 03/98 —

Office of the

Secretary

Office of Computer Services

General Controls

FSD-10021-8-0001 02/98 —

General Administration’s Franchise Fund's

Financial Statements as of Sept. 30, 1997

FSD-10240-8-0001 02/98 —

Department of Commerce’s Consolidated

Financial Statements for FY 1997

FSD-9753-8-0001 03/98 —

General Administration’s WCF and S&E

Financial Statements as of Sept. 30, 1997

FSD-9754-8-0001 03/98 —

Patent and

Trademark Office

Financial Statements as of Sept. 30, 1997

and 1996

FSD-9755-8-0001 03/98 —

Technology

Administration

TA’s Financial Statements for FY 1997

NIST’s Financial Statements for FY 1997

FSC-9868-8-0001

FSC-9864-8-0001

03/98

03/98

—

—

NTIS’s Financial Statements for FY 1997 FSC-9867-8-0001 03/98 —

Tables and Appendices

March 1998 Commerce IG Semiannual Report 89
Appendix A-4. Financial Assistance Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

Economic

Development

Administration

Clearwater Economic

Development Association, ID

City of Pattonsburg, MO

STL-9830-

8-0001

DEN-9651-

8-0001

02/98

02/98

$3,055

143,159

—

$99,740

$12,327

—

City of Gloucester, MA ATL-10253-

8-0001

03/98 12,500 — 629,310

International Trade

Administration

International Environmental

Business and Technology

Institute, Inc., MA

ATL-10082-

8-0001

03/98 105,049 — 352,951

National Oceanic

and Atmospheric

Administration

Massachusetts Coastal Zone

Management Office

West Virginia High

Technology Consortium

ATL-10278-

8-0001

ATL-9259-

8-0001

03/98

03/98

25,393

—

—

—

—

—

National

Telecommunications

and Information

Administration

Association of Bay Area

Governments, CA

HandsNet, Inc., CA

STL-9491-

8-0001

STL-10522-

8-0001

11/97

03/98

69,078

—

7,094

—

—

—

Technology

Administration - NIST

Physical Optics

Corporation, CA

DEN-10129-

8-0001

10/97 — — —

Reliable Software

Technologies, VA

DEN-10128-

8-0001

10/97 — — —

Rhode Island Manufacturing

Extension Services

DEN-10070-

8-0001

10/97 — — —

WestCAMP, Inc., UT DEN-9945-

8-0001

10/97 — — —

Industry Network

Corporation, NM

DEN-9555-

8-0001

12/97 28,047 9,058 —

Florida Manufacturing

Extension Partnership

DEN-9365-

8-0001

01/98 106,552 104,763 —

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 Appendices

90 Commerce IG Semiannual Report March 1998
Appendix A-4. Financial Assistance Audits — Continued

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

Technology

Administration - NIST

Manufacturing Extension

Partnership of New

Hampshire, Inc.

DEN-10116-

8-0001

01/98 — — —

Arkansas Science and

Technology Authority

DEN-9556-

8-0001

02/98 358,596 358,596 —

Montana State University DEN-9858-

8-0001

02/98 30,373 — —

New Jersey Manufacturing

Extension Program, Inc.

DEN-10061-

8-0001

02/98 186,944 186,944 —

Wisconsin Center for

Manufacturing and

Productivity, Inc.

DEN-9641-

8-0001

02/98 — — —

A.L. Philpott Manufacturing

Center, VA

DEN-10071-

8-0001

03/98 62,630 62,630 —

Cubicon Corporation, CA DEN-8970-

8-0001

03/98 103,008 17,252 1,400,000

Deltronic Crystal Industries,

Inc., NJ

DEN-10130-

8-0001

03/98 1,538 1,538 —

Maine Science and

Technology Foundation

DEN-9957-

8-0001

03/98 31,186 — —

SDL, Inc., CA DEN-10131-

8-0001

03/98 — — —

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.

Tables and Appendices

March 1998 Commerce IG Semiannual Report 91
Appendix B. Processed Reports

The Office of Inspector General reviewed and accepted 264 financial assistance

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

OMB A-128

and A-133

Audits

Economic Development Administration 88

International Trade Administration 6

Minority Business Development Agency 1

National Oceanic and Atmospheric Administration 14

Technology Administration 19

 National Institute of Standards and Technology * 53

Multi-Agency 26

Agency Not Identified 57

Total 264

* Includes ATP program-specific audits.

Tables and Appendices

92 Commerce IG Semiannual Report March 1998
Appendix B-1. Processed Financial Assistance Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

Economic

Development

Administration

Georgia Mountains Regional

Development Center

Bonneville County, ID

ATL-9999-8-0942

ATL-9999-8-0243

10/97

03/98

$399,136

6,913

—

—

—

—

National Oceanic

and Atmospheric

Administration

State of Idaho

Woods Hole Oceanographic

Institution, MA

ATL-9999-8-0046

ATL-9999-8-0250

12/97

03/98

25,000

21,339

—

—

—

—

Technology

Administration -

NIST

Soane BioSciences, Inc., GA

Westinghouse Electric

Corporation, FL

ATL-9999-8-0011

ATL-9999-8-0019

03/98

03/98

2,319

16,845

—

—

$3,204

—

Micron Optics, Inc., GA ATL-9999-8-0020 03/98 — — —

Caterpillar Inc., IL ATL-9999-8-0023 03/98 3,091 $3,091 —

The Ingersoll Milling

Machine Company, IL

ATL-9999-8-0025 03/98 457,975 — —

Intelligent Automation

Systems, Inc., MA

ATL-9999-8-0033 03/98 98,244 — —

Norton Diamond Film, MA ATL-9999-8-0035 03/98 13,620 — —

Chrysler Corporation, MI ATL-9999-8-0039 03/98 — — —

Ford Motor Company, MI ATL-9999-8-0040 03/98 — — —

General Motors Corp., MI ATL-9999-8-0041 03/98 — — —

International Business

Machines Corporation, NC

ATL-9999-8-0045 03/98 — — —

Sunquest Information

Systems, Inc., PA

ATL-9999-8-0050 03/98 228,332 — —

International Business

Machines Corporation, NY

ATL-9999-8-0052 03/98 — — —

Advanced Product

Development, Inc., PA

ATL-9999-8-0077 03/98 61,006 — —

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 Appendices

March 1998 Commerce IG Semiannual Report 93
Definitions 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 GMRA, 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, acquisition, 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.

94 Commerce IG Semiannual Report March 1998
Glossary of Abbreviations

AD/CVD ........................................................................................................................... Antidumping/Countervailing Duty

APS .............................................................................................................................................. Automated Patent System

AWIPS......................................................................................................Advanced Weather Interactive Processing System

BEA ........................................................................................................................................ Bureau of Economic Analysis

BXA .................................................................................................................................. Bureau of Export Administration

CAMS......................................................................................................... Commerce Administrative Management System

CFO .................................................................................................................................................. Chief Financial Officer

CIFP ..................................................................................................................... Capital Improvements Facilities Program

CPA ............................................................................................................................................ certified public accounting

CZM ............................................................................................................................................ Coastal Zone Management

EDA........................................................................................................................ Economic Development Administration

EPA...................................................................................................................................Environmental Protection Agency

ESA ....................................................................................................................... Economics and Statistics Administration

FCC ...........................................................................................................................Federal Communications Commission

GMRA ....................................................................................................................... Government Management Reform Act

GPRA .................................................................................................................. Government Performance and Results Act

GSA ....................................................................................................................................General Services Administration

IA .......................................................................................................................................................Import Administration

ITA................................................................................................................................... International Trade Administration

KDP-4 ................................................................................................................................................ Key Decision Point-4

MAF ......................................................................................................................................................Master Address File

MBDA ................................................................................................................... Minority Business Development Agency

MEP ............................................................................................................................Manufacturing Extension Partnership

MBOC ............................................................................................................... Minority Business Opportunity Committee

NERRS ............................................................................................................National Estuarine Research Reserve System

NEXRAD............................................................................................................................. Next Generation Weather Radar

NIST ............................................................................................................. National Institute of Standards and Technology

NMFS .............................................................................................................................. National Marine Fisheries Service

NOAA..................................................................................................... National Oceanic and Atmospheric Administration

NTIA ..................................................................................... National Telecommunications and Information Administration

NTIS ........................................................................................................................ National Technical Information Service

NWS..............................................................................................................................................National Weather Service

OCRM .................................................................................................. Office of Ocean and Coastal Resource Management

OCS ......................................................................................................................................... Office of Computer Services

OIG............................................................................................................................................ Office of Inspector General

OMB ............................................................................................................................... Office of Management and Budget

OSM .................................................................................................................................. Office of Spectrum Management

PTO .......................................................................................................................................... Patent and Trademark Office

RLF .........................................................................................................................................................revolving loan fund

S&E ............................................................................................................................................ Salaries and Expenses Fund

SDM ......................................................................................................................... System Development and Maintenance

TA ............................................................................................................................................... Technology Administration

TD .......................................................................................................................................................... Trade Development

TEMS ...............................................................................................................................Trade Events Management System

US&FCS.....................................................................................................................U.S. and Foreign Commercial Service

WCF ................................................................................................................................................... Working Capital Fund

WFO ................................................................................................................................................. weather forecast office

Y2K ...................................................................................................................................................................... Year 2000

March 1998 Commerce IG Semiannual Report 95
Office of Inspector General

Organization Chart

OIG Points of Contact

Inspector General ...................................(202) 482-4661

Congressional Liaison ............................(202) 482-3052

Office of Audits.......................................(202) 482-1934

Office of Compliance and Admin. ........... (202) 482-0231

TDD Number ..................................(202) 482-4948

Media Inquiries ................................(202) 482-5992

REQUESTS FOR REPORTS:

Telephone .......................................(202) 482-0231

Internet E-Mail .................................oigreports@doc.gov

OIG HOTLINE:

Telephone .......................................(202) 482-2495 or (800) 424-5197

Internet E-Mail .................................oighotline@doc.gov

Office of Counsel ...................................(202) 482-5992

Office of Inspections and Program Eval.. (202) 482-2754

Office of Investigations ........................... (202) 482-0934

Office of Systems Evaluation ................. (202) 482-6186

OIG Internet Home Page

http://www.oig.doc.gov

Inspector

General

Business

and Trade

Audits

Economics

and Statistics

Audits

Science

and Technology

Audits

Financial

Statements

Audits

Financial

Statements Contract

Audits

Financial

and Peformance

Analysis

Denver

Regional

Office

Atlanta

Regional

Office

Seattle

Regional

Office

Denver

Field

Operations

Washington

Field

Operations

Silver Spring

Field

Operations

Deputy

Inspector General

Regional

Audits

Headquarters

Audits

Financial Statement

Audits

Office of

Investigations

Office of

Audits

Office of

Systems Evaluation

Office of

Counsel

Office of

Compliance and

Administration

Office of

Inspections and

Program Evaluations

Special Activities

Section

Financial Fraud

Unit

Investigative

Operations