IG’s

Semiannual Report

to Congress

September 2005
UNITED STATES DEPARTMENT OF COMMERCE

The Inspector General

Washington, D.C. 20230

September 2005

The Honorable Carlos M. Gutierrez

Secretary of Commerce

Washington, D.C. 20230

I am writing to submit to you, in accordance with the Inspector General Act of 1978, this semiannual report outlining the 

work and activities of the Office of Inspector General for the 6-month period April 1, 2005, through September 30, 2005. 

The act requires that we prepare this report twice each year to summarize our assessments of Commerce operations and 

that you transmit it, with any comments you may wish to add, to Congress within 30 days of receiving it.

This report highlights issues that continue to warrant management’s attention. At the same time, I am pleased to relate to 

you that a number of our reviews of departmental operations and activities have found that Commerce has made progress 

in addressing some of its management challenges. For example, the Department has improved its financial management 

and maintained unqualified opinions on its consolidated financial statements for the past 6 consecutive years. Likewise, 

USPTO continues its efforts to address human resources management problems.

As you know, during this reporting period, we issued From Vision to Action, our final work plan for 2005-2007. This is the 

blueprint we intend to follow as we monitor the Department’s most critical activities and address statutory and other special 

requirements over the next 2 years to fulfill the mandate of the Inspector General Act to prevent and detect fraud, waste, 

and abuse. However, we always maintain an element of flexibility in order to respond quickly to congressional requests 

and emerging issues.

There is no doubt, for example, that Commerce will play an important role in the rebuilding and economic recovery of 

the Gulf Coast region as the nation reconstructs that area of the country. We anticipate working closely with you and other 

senior Commerce managers to ensure the funds allocated for that vast effort are properly and effectively used.

And finally, you can be assured that we maintain our deep commitment to assist the Department as it addresses these and 

other top management challenges. I also extend my personal thanks to you and other Commerce officials for joining us in 

this endeavor in a spirit of cooperation and partnership. It is always my goal that the work performed and the reports issued 

by the Office of Inspector General serve to ensure that the Department fulfills its many and varied roles both efficiently 

and effectively. 

Sincerely,

Johnnie E. Frazier
CONTENTS

IG’s Message to Congress.......................................................................................................................................................................1

Major Challenges for the Department..................................................................................................................................................3

Strengthen Department-Wide Information Security ..........................................................................................................................3

Effectively Manage Departmental and Bureau Acquisition Processes ..............................................................................................4

Enhance USPTO’s Ability to Manage and Operate Its Own Processes ............................................................................................5

Control the Cost and Improve the Accuracy of Census 2010 ............................................................................................................5

Monitor the Effectiveness of NOAA’s Ocean and Living Marine Resources Stewardship ..............................................................6

Promote Fair Competition in International Trade ..............................................................................................................................7

Enhance Export Controls for Dual-Use Commodities ......................................................................................................................7

Enhance Emergency Preparedness, Safety, and Security of Commerce Facilities and Personnel ....................................................8

Continue to Strengthen Financial Management Controls and Systems .............................................................................................9

Continue to Improve the Department’s Strategic Planning and Performance Measurement in Accordance with GPRA .................9

Agency Overviews

Economic Development Administration ..........................................................................................................................................11

Economics and Statistics Administration ........................................................................................................................................13

International Trade Administration ..................................................................................................................................................15

Minority Business Development Agency .......................................................................................................................................17

National Oceanic and Atmospheric Administration ........................................................................................................................21

Technology Administration .............................................................................................................................................................27

United States Patent and Trademark Office .....................................................................................................................................33

Department-Wide Management .......................................................................................................................................................37

Office of Inspector General ..................................................................................................................................................................41

Office of Investigations ....................................................................................................................................................................42

Tables and Statistics .........................................................................................................................................................................46

Reporting Requirements ..................................................................................................................................................................53

Acronyms...............................................................................................................................................................................................55

Types of OIG Work Products ..............................................................................................................................................................57

September 2005/Semiannual Report to Congress 1

When we began this semiannual period, our office had a plan 

for the work that would be done through the spring and summer 

of 2005. Indeed, we were even preparing for the next 2 years 

and about to publish our 2005–2007 work plan, From Vision to 

Action. But, as so often happens, unexpected events altered our 

course in some ways. Congressional requests, natural disasters, 

and the unpredictable nature of investigative activities required 

us to respond quickly. 

The very mission of the Office of Inspector General requires that 

we must expect the unexpected and incorporate an element of 

flexibility in all our planning. I am proud to present this report 

detailing the important work performed by the employees in this 

organization over the past 6 months. I continue to be humbled by 

the dedication they exhibit as they endeavor to preserve the ideals 

of good, sound government, and to save taxpayer dollars, prevent 

waste, and combat fraud and abuse.

In the 26 years since enactment of the Inspector General Act, 

audits, inspections, and investigations have consistently resulted 

in significant return on the government’s investment in OIGs. 

This return can be measured in a number of ways—direct money 

returned to the U.S. Treasury and federal agencies, systemic improvements in programs and operations resulting in better delivery 

of services to American taxpayers, and increased efficiency and accountability. During this semiannual period, our office has fulfilled 

the mission of the act by identifying millions in savings, making 

recommendations to improve programs, and pursuing those who 

have betrayed the trust of their federal positions.

Our work during this period covered the wide range of the 

Department’s mission-critical activities. Continuing our emphasis 

on acquisition management, we conducted an audit of procurement and procedures at NIST and noted deficiencies in planning, 

legal review, and open competition, among other issues. We also 

examined the Census Bureau’s acquisition of the handheld computers critical to the 2010 decennial and found that shortcomings in 

planning and management of this effort threatened the program’s 

success. On a more positive note, our follow-up audit on the litany 

of problems associated with a major purchase in 2002 showed 

NOAA has taken significant steps to improve its overall acquisition procedures.

Our continued oversight of procurement and acquisition will be 

particularly critical as Commerce’s bureaus increasingly play essential roles in rebuilding and safeguarding economic infrastructure and assisting business recovery in the Gulf Coast region. In 

my recent September 2005 testimony before the U.S. House of 

Representatives Energy and Commerce Oversight and Investigations Subcommittee, I noted that procurement is particularly 

prone to waste, fraud, and abuse. My office has overseen activities 

related to hurricane relief and recovery before, and our evaluation of the Economic Development Administration’s handling of 

the Hurricane Andrew assistance program in the 1990s provides 

valuable insight and guidance to help direct the response to Hurricane Katrina.

Another prominent area of concern is the Department’s readiness in the event of emergency. With thousands of employees 

in facilities around the world, Commerce must be prepared to 

protect its people and its assets, come what may. In our report on 

the state of the Department’s emergency preparedness, you will 

note that while the Department’s actions have greatly improved 

its emergency response capabilities, more needs to be done in the 

future, particularly in the categories of emergency planning and 

implementation guidance, oversight of bureau compliance with 

policies and procedures, and key security upgrades. We made more 

than a dozen recommendations of specific actions the Department 

should take to address the identified weaknesses.

 In another effort, we surveyed 30 of the International Trade Administration’s Commercial Service overseas offices to help identify 

any security vulnerabilities. We did find issues to be addressed, 

and we also determined that some important security upgrades 

have not been handled in a timely manner. We recommended that 

management take quick action to address the security exposure and 

management issues and also fully implement recommendations 

from our previous assessment in 2000. 

During this semiannual period, we also concluded work stemming 

from the October 2004 request by 19 members of the U.S. House 

of Representatives to review whether the Bureau of Reclamation undermined the environmental review process regarding the 

biological opinion issued by NOAA’s National Marine Fisheries 

Service (NMFS) on a water project in California’s Central Valley. 

Our job was to identify what review process NMFS used and to 

determine whether NMFS followed its policies, procedures, and 

normal practices for consultations when it issued the biological 

opinion. This office did not seek to evaluate the science involved, 

but rather the integrity of the process, and the findings were not 

favorable. We determined that the NMFS southwest regional office 

did not handle the consultation for the opinion the way it normally 

handles such procedures, and it failed to comply with two significant management controls in its usual review process. Our findings 

Inspector General’s 

Message to Congress
2 U.S. Department of Commerce/Office of Inspector General

emphasize how critical it is for NOAA to have a meaningful and 

open process that yields sound science and maximum integrity of 

these types of opinions.

I look forward to continuing to work with Secretary Gutierrez, 

Congress, and senior Department officials as they tackle these and 

other important challenges facing Commerce. Meeting the goals of 

the Inspector General Act requires ongoing collaboration in order 

to provide the American people the highest quality and highest 

functioning government possible. I am confident that working 

together, we shall come as close as humanly possible to achieving 

that lofty standard.

IG’s Message to Congress
September 2005/Semiannual Report to Congress 3

This section highlights OIG’s Top 10 Management Challenges 

that faced the Department at the close of this semiannual period. 

Each challenge meets one or more of the following criteria: (1) it is 

important to the Department’s mission or the nation’s well-being, 

(2) it is complex, (3) it involves sizable resources or expenditures, 

or (4) it requires significant management improvements. Because 

of the diverse nature of Commerce activities, these criteria sometimes cut across bureau and program lines. Experience has shown 

that by aggressively addressing these challenges the Department 

can enhance program efficiency and effectiveness; eliminate serious operational problems; decrease fraud, waste, and abuse; and 

achieve substantial savings.

Challenge 1

STRENGTHEN DEPARTMENT-WIDE 

INFORMATION SECURITY

Safeguarding the numerous Commerce computer systems holding 

nationally significant data is one of the Department’s most critical 

challenges. Commerce undertook a major certification and accreditation (C&A) improvement effort during this fiscal year and has 

made considerable progress. However, OIG’s evaluations under 

the Federal Information Security Management Act (FISMA) have 

revealed significant problems in C&A of some of Commerce’s 

national- and mission-critical systems. 

As we discussed in our March 2005 Semiannual Report, the 

Department’s Chief Information Officer issued a plan last February to eliminate the IT security material weakness by producing 

acceptable quality C&A packages for all national-critical systems 

and some mission-critical systems by fiscal year-end and for all 

systems by the end of fiscal year 2006. It included schedules that 

were developed in collaboration with the operating units and plans 

of action and milestones to track progress. It also provided for increased oversight by the Department and bureau CIOs. Given the 

plan, our approach to the C&A portion of our FISMA evaluation 

was to review all improved packages available by August 31. Using 

this approach, we reviewed five improved C&A packages—three 

from NOAA and two from Census.1 (The Department’s CIO 

subsequently reported that by September 30, C&A packages for 

all national-critical systems and over half of the mission-critical 

systems had been improved.)

Clearly, we saw noteworthy improvements in the packages we 

reviewed. NOAA had significantly improved risk assessments, 

security plans, and testing, while Census’s security plans were 

more comprehensive. In light of the few packages available for 

review, however, and the testing deficiencies we still found in most 

TOP 10 MANAGEMENT CHALLENGES

 1. Strengthen Department-wide information security. 

 2. Effectively manage departmental and bureau acquisition processes.

 3. Enhance USPTO’s ability to manage and operate its 

own processes. 

 4. Control the cost and improve the accuracy of Census 

2010.

 5. Monitor the effectiveness of NOAA’s ocean and living 

marine resources stewardship.

 6. Promote fair competition in international trade.

 7. Enhance export controls for dual-use commodities.

 8. Enhance emergency preparedness, safety, and security 

of Commerce facilities and personnel.

 9. Continue to strengthen financial management controls 

and systems.

10. Continue to improve the Department’s strategic planning and performance measurement in accordance with 

GPRA.

1

 Based on schedules provided by the Department’s CIO Office in June, we expected 

more than 20 C&A packages to be available by August 31.

Major Challenges for the Department

Federal agencies face numerous threats to the security of information 

stored in computer systems, because attack methods are increasingly 

sophisticated.

Source: May 2005 GAO report, Emerging Cybersecurity Issues Threaten Federal 

Information Systems. http://www.gao.gov/new.items/d05231.pdf.
4 U.S. Department of Commerce/Office of Inspector General

of the packages, we concluded that the Department’s C&A process has not yet improved to the point where authorizing officials 

throughout the Department have sufficient information about the 

vulnerabilities remaining in their systems when it is time to make 

the accreditation decision.

Last year we reported that USPTO had a good C&A process; as a 

result, this bureau was not part of the C&A improvement effort. 

Our review of two USPTO packages this year found shortfalls in 

the continuous monitoring phase of C&A. Major changes had been 

made to these systems since they were certified and accredited in 

2004, but the potential impact on the security of the systems had not 

been assessed, nor had the need to reaccredit been evaluated. 

As part of our FISMA work during this semiannual period, we also 

examined USPTO’s IT service contracts to determine whether they 

contained required security clauses and whether related security 

requirements were being implemented. (See page 33.) We found 

most of the contracts do contain the security clauses, but since certain 

key requirements are not being properly implemented and enforced, 

background screenings for some contractor employees are conducted 

at too low a level and no contractor IT systems have been certified 

or accredited. This could place restricted information at risk. 

Challenge 2

EFFECTIVELY MANAGE 

DEPARTMENTAL AND BUREAU 

ACQUISITION PROCESSES

Commerce spends nearly $2 billion each year on goods and 

services—roughly a third of its budget. It also relies more and 

more on contractor support to continue its mission-critical work. 

Adequate oversight of the Department’s acquisitions is essential 

to ensure taxpayer dollars are spent effectively and efficiently and 

that procurement laws and regulations are followed. 

In addition, how and when the Department and its bureaus plan 

and conduct acquisitions can determine whether or not projects 

of all sizes are successful. For example, OIG’s Office of Systems 

Evaluation surveyed the Census Bureau’s Field Data Collection 

Automation program, which is planned to provide field staff with 

handheld mobile computers to gather information for the decennial 

census. Census had originally intended to develop this program 

internally with contractor support but determined in early 2004 

that it lacked the management and technical resources to develop 

the system in-house. 

The Census Bureau’s late decision to use a contractor to handle the 

automation project and provide support services during the decennial

and the initial slow pace in planning the acquisition put the program’s 

development at risk. We believe the delays in seeking an outside 

contractor and in finding vendors could affect the preparation for 

the dress rehearsal, although Census now reports that it has taken 

actions to address shortcomings we identified. (See page 13.)

NPOESS. We recently initiated an audit of the award fee process 

being used in the National Polar-orbiting Operational Environmental Satellite System (NPOESS). The NPOESS system is being funded by the Department of Defense and NOAA, with each 

contributing half of the estimated cost of $8 billion. As such, this 

satellite system is one of the costliest activities undertaken by 

NOAA. 

Follow-up on Flawed NEXRAD Power Source Acquisition. 

Our follow-up audit of NOAA’s efforts to address the problems 

we cited in our September 2003 report, Acquisition of NEXRAD 

Transition Power Source Marred by Management, Technical, 

and Contractual Problems (OSE-15676), found that the agency 

has for the most part taken the corrective actions it said it would 

in its action plan. Although some improvements are needed to its 

acquisition handbook, NOAA’s conscientious steps to bolster its 

procurement processes should help prevent problems in contract 

negotiation, review, and oversight that—in the NEXRAD procurement—ultimately added $4.5 million to project costs. 

Census Bureau IT Services Contracts. This semiannual report 

summarizes the findings of the second in a series of audits of 

Census Bureau IT services contracts. Our March 2005 semiannual 

report mentioned an audit of three task orders under an IT services 

contract in which we found $8.5 million of the $17.6 million 

charged to be questionable. In the current reporting period, we 

audited two task orders under another Census IT services contract. 

We found that the contractor had made more than $10.7 million in 

questionable charges to the government out of the total of $31.7 

million billed. (See page 14.) We plan to continue our series of 

audits of Census Bureau contracts and will report our findings in 

subsequent semiannual reports.

Major Challenges for the Department

Commerce spends nearly $2 billion per year on goods and services in a 

variety of categories.

Source: U.S. Department of Commerce, Systems Acquisition Division.
September 2005/Semiannual Report to Congress 5

Challenge 3

ENHANCE THE U.S. PATENT AND 

TRADEMARK OFFICE’S ABILITY TO 

MANAGE AND OPERATE ITS OWN 

PROCESSES

Our work at USPTO continues to focus on critical aspects of its 

functioning as a performance-based organization as the agency 

implements budget, procurement, and personnel operations that 

provide the flexibility to adapt to changing market forces and meet 

the needs of customers. Our previous work at USPTO assessed 

patent examiner production goals, performance appraisal plans 

and awards, the agency’s move to its new headquarters complex, 

and reports of improper personnel practices. (See September 2004 

Semiannual Report to Congress, pages 38-40.) 

This latter issue has been long-standing. Since 1999 we have received repeated complaints that management of USPTO’s Office 

of Human Resources (OHR) has allowed or encouraged unfair 

personnel practices and activities that undermine the integrity 

of that office and of USPTO in general. Our work in response 

to the complaints confirmed numerous problems. Resolution of 

these issues is particularly critical: USPTO has received authority to hire hundreds of examiners. It must have an effective HR 

operation that adheres to federal regulations, is guided by sound 

policies and procedures, and affords all employees the rights and 

protections required by law.

During this semiannual period, we reemphasized this point to 

senior Department and USPTO officials, noting several issues 

identified at USPTO that remain unresolved. These include the 

need to uphold merit system principles, establish human resource 

policies and procedures to guide decision-making, and ensure those 

policies and procedures are followed. In addition, the agency’s 

HR staff needs appropriate training in the Standards of Ethical 

Conduct for Employees of the Executive Branch. (See page 35.) 

It is imperative that USPTO bring stability to its human resources 

operation and ensure that its employees have the appropriate skills 

and experience to perform the jobs to which they are assigned. 

To its credit, the bureau has taken action to address the problems OIG found in the past. In early 2005, the Office of General 

Counsel conducted an ethics training course for USPTO’s human 

resources department. Subsequently, USPTO split the position of 

chief financial officer and chief administrative officer into two 

positions, each with its own organization, and hired experienced 

human resources professionals to be OHR director and deputy 

director, rather than continuing to rely on detailing other staff to 

those positions. USPTO also created a Comprehensive Human 

Capital Improvement Plan intended to address long-standing 

problems in human resources.

While we are pleased that USPTO has been receptive to our 

recommendations and has implemented numerous changes, the 

problems we identified are serious and long-standing. The actions 

PTO has taken to date are strong steps in the right direction, but 

the ultimate resolution of these issues will require the sustained 

commitment of senior management. 

Challenge 4 

CONTROL THE COST AND IMPROVE 

THE ACCURACY OF CENSUS 2010

At an estimated cost of more than $11 billion, the decennial 

census will be one of the most costly and critical operations the 

Department has ever undertaken. There are two field tests and a 

dress rehearsal to be managed in addition to the actual census, 

so the Census Bureau and the Department face some formidable 

challenges in both controlling costs and improving the accuracy 

of the data collected. 

During this reporting period, we concluded a review of the bureau’s 

progress in planning and managing the automation of formerly 

paper-based field data collection activities, scheduled for roll-out 

in the 2008 dress rehearsal. (See page 13.) Census expects the automated process to improve data quality and operational efficiency 

and reduce overall decennial costs by as much as $900 million. 

The plan is to have a contractor handle the automation project and 

provide support services for more than 450 local census offices 

and 500,000 temporary field staff at the peak of the decennial. But 

we are concerned that the contractor may not have enough time 

to adequately prepare for the 2008 decennial dress rehearsal, as 

Major Challenges for the Department
mentioned previously. We note that Census has taken measures 

to steer the project back on track, but have recommended Census 

develop a sound project plan that includes objective measures of 

progress and intensive management oversight 

We have initiated our review of the 2006 field test beginning with 

the address listing operation. Among other things, we are assessing the bureau’s progress in improving the accuracy of address 

lists and maps and its partnership program, which is designed to 

improve the response of historically undercounted populations, 

and its resource management and planning. Our objectives in this 

assessment also include follow-up on our review of the 2004 test 

and the problems we identified with data transmissions, technical 

field support, lister training, and various other issues. 

Challenge 5

MONITOR THE EFFECTIVENESS OF 

NOAA’S STEWARDSHIP OF OCEAN 

AND LIVING MARINE RESOURCES 

As the lead agency for marine resource protection, the National 

Oceanic and Atmospheric Administration (NOAA) is charged with 

not only monitoring the health of our nation’s ocean and coastal 

resources but also administering a large number of civilian ocean 

programs, and these responsibilities are likely to expand. NOAA 

already is assessing a broad range of the recent hurricanes’ effects 

on habitat and fisheries in the Gulf—from testing for toxins in 

seafood and Gulf waters to recording the diminished numbers and 

redistribution of native species and the damage to coastal wetlands. 

The agency may have to deal with the storms’ impacts on Gulf 

Coast aquatic ecosystems for many years to come. 

In addition to monitoring NOAA’s response to hurricane damage 

as a steward of marine resources, OIG plans to focus on a number 

of other NOAA activities in the future, which may include the 

Integrated Ocean Observing System and marine debris responsibilities. 

During this reporting period, in response to a request from 19 

members of Congress, we audited the National Marine Fisheries 

Service’s (NMFS) preparation of a biological opinion for California’s Central Valley Project, one of the largest water projects in the 

nation. (See page 21.) We sought to determine if NMFS’ southwest 

regional office, which issued the biological opinion, adhered to 

policies, procedures, and standard practices. We concluded that 

NMFS deviated from its established process for initiating the 

consultation and ensuring the quality of the biological opinion.

We recommended that NOAA objectively evaluate whether the 

regional office’s questionable handling of the opinion impaired the 

opinion’s scientific integrity. We also made several recommendations to NOAA to ensure that future opinions are sound and have 

maximum scientific and procedural integrity.

We also continued our series of reviews of salmon recovery programs during this semiannual period, auditing three more programs 

funded by NOAA’s Pacific Coastal Salmon Recovery Fund. As 

with the audits we detailed in our March 2005 semiannual report 

(pages 31-32), we questioned costs and noted some administrative weaknesses.

Major Challenges for the Department

A census worker with a handheld computer shows official identification card 

during a practice for the 2006 census test.

Source: U.S. Census Bureau.

Erstwhile inhabitants of the Florida Keys National Marine Sanctuary.

Source: www.photolib.noaa.gov/sanctuary/sanc0201.htm.

6 U.S. Department of Commerce/Office of Inspector General
Challenge 6

PROMOTE FAIR COMPETITION IN 

INTERNATIONAL TRADE 

The Department of Commerce is charged with promoting trade, 

opening overseas markets to American firms, and ensuring compliance with U.S. laws designed to protect U.S. industry from unfair 

competition from imports. It is also specifically tasked to address 

market access issues and barriers, unfair trade practices, trade 

disputes with foreign firms, noncompliance with or violations of 

trade agreements, inadequate intellectual property protection, and 

other impediments to trade. Commerce accomplishes these goals 

through the work of the International Trade Administration. During 

this semiannual period, we focused our efforts on the security status 

of Commercial Service’s overseas offices, which are responsible 

for assisting U.S. exporters. Commercial Service maintains more 

than 150 overseas offices. We also began a full-scale review of 

Commerce’s trade-related activities in China.

We reviewed the Commercial Service’s overseas security program 

to determine if the 30 CS offices located outside of an embassy 

or consulate compound are in compliance with security standards 

and whether sufficient financial controls were in place over funds 

for security upgrades. The agency has made progress since a 2000 

OIG review revealed a number of troubling weaknesses, but we 

found that CS needs to do more work to ensure those overseas 

offices meet security standards and to confirm exactly how much 

funding remains for upgrades.

We also are continuing with our focus on the Department’s efforts 

to increase U.S. market opportunities and overcome trade barriers 

in difficult foreign markets. An inspection of CS’ post in China 

is in progress now, and we will detail our findings in our March 

2006 Semiannual Report. As part of this inspection, we expect 

to address issues of coordination and cooperation among several 

Commerce bureaus with operations in China and management of 

the post’s five offices in Beijing, Shanghai, Guangzhou, Chengdu, 

and Shenyang. We will also address export successes, efforts in 

the area of intellectual property rights and market access, the new 

American Trading Center initiative, and other issues.

Additionally, ITA has informed us that it is addressing issues identified in our previous reviews of posts. Our past reports highlighted 

problems with overstated or unverifiable export successes—a key 

measure of performance. Since that time, CS took several steps to 

improve reporting, such as the adoption of new reporting requirements including the requirement to directly confirm or verify the 

details of each export success, and appointing a quality control 

officer, among others. We will continue to monitor this area and 

report on the Department’s efforts to resolve issues we identify. 

Challenge 7

ENHANCE EXPORT CONTROLS 

FOR DUAL-USE COMMODITIES

The Department’s Bureau of Industry and Security oversees the 

federal government’s export licensing system for dual-use commodities and technology and is charged with advancing U.S. 

national and economic security interests by enforcing those export 

controls. The primary goal of the licensing and enforcement system is to prevent hostile nations and terrorist groups who might 

threaten global security from acquiring technologies and materials 

that have both civilian and military applications by controlling 

their export.

Major Challenges for the Department

The International Trade Administration provides constant information on 

nearly every aspect of international trade through easily accessible web 

site pages. 

Source: http://tse.export.gov.

COORDINATOR FOR 

INTERNATIONAL INTELLECTUAL 

PROPERTY ENFORCEMENT

To combat intellectual property violations and better coordinate government efforts, a senior position was created 

within the Department of Commerce in July 2005. This 

official will serve as the head of the National Intellectual 

Property Law Enforcement Coordination Council, coordinate with relevant federal agencies, including the Justice 

Department, the U.S. Trade Representative’s Office, 

U.S. Customs and Border Protection, State, Agriculture, 

and within the Department of Commerce, the Patent and 

Trademark Office and the International Trade Administration. In addition, the coordinator will develop policies to 

help protect intellectual property rights, and enforce intellectual property laws, and implement strategies for promoting American intellectual property rights overseas. 

September 2005/Semiannual Report to Congress 7
8 U.S. Department of Commerce/Office of Inspector General

The National Defense Authorization Act (NDAA) for FY 2000 

directs the inspectors general of Commerce, Defense, Energy, 

and State, in consultation with the directors of the Central Intelligence Agency and Federal Bureau of Investigation, to report to 

Congress each year through 2007 on the adequacy of these export 

controls and whether they are effectively preventing entities of 

concern from acquiring sensitive U.S. technologies. The OIGs 

have completed six reviews of export controls. Earlier this year 

to meet NDAA’s FY 2005 requirement, Commerce OIG assessed 

BIS’ licensing process for chemical and biological commodities 

to determine whether the process was timely and in compliance 

with statutory and regulatory requirements. We also examined the 

status of recommendations from prior reviews and concluded that, 

while action on some recommendations has not been completed, 

BIS has made progress on a number of them since our last semiannual report. We are still doing the follow-up work and have not 

verified any of BIS’ claims of recent progress.

To meet the NDAA’s FY 2006 requirement, Commerce OIG is 

examining whether current licensing and enforcement practices 

are consistent with relevant laws, regulations, and national security 

and foreign policy objectives with respect to exports to China. 

In addition, we are evaluating the effectiveness of coordination 

between the various federal agencies for China-related export 

license applications that have been escalated in the dispute resolution process.

There is no doubt that BIS must remain vigilant in enforcing the 

nation’s dual-use export control laws to protect U.S. national 

security, while at the same time, ensuring our economic competitiveness. Legislation to replace the expired Export Administration 

Act is essential to those efforts, because BIS’ regulatory authority 

should be strengthened in order to achieve these goals. We will 

continue to monitor BIS’ efforts to address our previous NDAA 

recommendations.

Challenge 8

ENHANCE EMERGENCY 

PREPAREDNESS, SAFETY, AND 

SECURITY OF COMMERCE 

FACILITIES AND PERSONNEL

OIG first identified the Department’s emergency preparedness 

weaknesses in a 2002 review that revealed serious security vulnerabilities. Since then, we have reported on the Department’s efforts 

to address the concerns raised in that report. We have continued to 

spotlight areas where Commerce should apply resources to protect 

its 35,000+ employees and hundreds of facilities worldwide. 

Major Challenges for the Department

EXCERPT: EXPORT ADMINISTRATION 

REGULATIONS

730.6 CONTROL PURPOSES. The export control provisions of the EAR are intended to serve the national security, foreign policy, nonproliferation, and short supply interests of the United States and, in some cases, to carry out 

its international obligations. Some controls are designed to 

restrict access to dual use items by countries or persons 

that might apply such items to uses inimical to U.S. interests. These include controls designed to stem the proliferation of weapons of mass destruction and controls designed 

to limit the military and terrorism support capability of 

certain countries. The effectiveness of many of the controls 

under the EAR is enhanced by their being maintained as 

part of multilateral control arrangements. Multilateral export 

control cooperation is sought through arrangements such 

as the Nuclear Suppliers Group, the Australia Group, and 

the Missile Technology Control Regime. The EAR also 

include some export controls to protect the United States 

from the adverse impact of the unrestricted export of commodities in short supply. 

Source: www.access.gpo.gov/bis/ear/ear_data.html.

The members of the Department’s emergency response team are easily 

recognizable in brightly colored vests.

Source: OIG.
September 2005/Semiannual Report to Congress 9

During this reporting period, we completed a follow-up assessment of Commerce’s emergency preparedness status. Although 

the Department has dedicated significant resources and attention to 

emergency preparedness, our review noted the need for improvements in several areas, including Commerce-wide guidance and 

oversight for emergency preparedness, the risk assessment process, 

development and oversight of occupant emergency plans, security 

for critical assets, and oversight of security guard forces.

As a complement to our domestic review, we also surveyed the 

Commercial Service’s 30 overseas offices that are located outside 

of U.S. embassies or consulates to determine, among other things, 

whether (1) any security vulnerabilities exist, (2) upgrades are 

timely, and (3) management tools and administrative controls 

for the overseas security program and assessment process are 

adequate. We found that some security vulnerabilities exist and 

that security upgrades are not always handled in a timely manner. In addition, we found that emergency preparedness issues at 

overseas offices have not always been addressed and that there 

is insufficient oversight by headquarters managers and staff and 

senior commercial officers at posts to ensure that emergency 

preparedness issues are adequately handled by the embassy or 

consulate regional security officer.

Challenge 9

CONTINUE TO STRENGTHEN 

FINANCIAL MANAGEMENT 

CONTROLS AND SYSTEMS

In recent years, the Department has improved its financial management, as evidenced by achieving and maintaining unqualified 

opinions on its consolidated financial statements for the past 6 

consecutive years, implementing Commerce Business Systems 

(CBS), and substantially complying with the Federal Financial 

Management Improvement Act. Still, there is more to be done.

Under the revised OMB Circular A-123, agencies must assess 

internal controls over financial reporting, document those controls 

and the assessment process, and provide an assurance statement 

on the effectiveness of internal control over financial reporting 

beginning in FY 2006. Reliable financial reporting and effective, 

efficient program operations depend on strong internal controls. 

OIG will continue to monitor a range of financial management 

issues, including Commerce’s efforts to implement the new A-123 

requirements, improve internal financial controls, and achieve 

other operating efficiencies.

The Department also is in the process of working on a detailed 

implementation plan consolidating several IT servers that process 

financial information at six locations into a centralized consolidated location supporting the Department’s financial management 

system. The Department has decided to consolidate CBS and its 

associated feeders at the Office of Computer Services in Springfield, Virginia. This will occur in a phased-in approach. The consolidation will achieve hardware standardization, reduce redundant 

responsibilities and data center costs, and position the Department 

for the next-generation financial system. Further, the Department 

will be in the best possible position to maximize long-term benefits 

and support future upgrades with the least technological impact. 

This major system development will provide an additional challenge to the Department in maintaining its green score in financial 

management on the President’s Management Agenda Scorecard.

Challenge 10

CONTINUE TO IMPROVE THE 

DEPARTMENT’S STRATEGIC 

PLANNING AND PERFORMANCE 

MEASUREMENT IN ACCORDANCE 

WITH THE GOVERNMENT 

PERFORMANCE AND RESULTS ACT

Collecting and reporting accurate performance data required by the 

Government Performance and Results Act (GPRA) is a challenge 

for most federal agencies, and the Department of Commerce is 

no exception. It is imperative for the Department to have accurate 

Major Challenges for the Department

Source: Department of Commerce. 
10 U.S. Department of Commerce/Office of Inspector General

program measures and reliable data supporting these measures 

in order to determine whether programs are accomplishing their 

intended purpose. 

OIG audits of performance measure reporting by some Commerce 

bureaus have repeatedly identified the need to ensure that individuals who collect and use performance data understand what is being 

measured. Prior audits also have consistently shown a need for 

improved management controls over performance data, particularly where verification and validation of information is required. 

The bureaus we have audited have generally made improvements 

in response to issues raised, and the Department has established 

a process by which it will review each of the 115 performance 

measures over a 5-year cycle.

Although the Department has substantially strengthened its 

performance reporting in the past few years, as evidenced in our 

ongoing review of performance measurement at the Department, 

OIG reviews continue to identify the need for enhanced management controls. For example, a recent review of performance 

results reported by the Minority Business Development Agency 

for FY 2004 showed a number of instances in which success 

rates were overstated. The basic tenet of GPRA is that measuring 

performance will inform funding decision-making and ultimately 

improve government programming and spending. Every Commerce bureau should be reporting performance measures that 

are appropriate and understandable, and reported data should be 

accurate and reliable.
September 2005/Semiannual Report to Congress 11

ECONOMIC DEVELOPMENT 

ADMINISTRATION

The Economic 

Development 

Administration was 

established by the Public Works 

and Economic Development Act of 

1965 to generate new jobs, help retain 

existing jobs, and stimulate commercial and industrial growth in economically 

distressed areas of the United States. EDA 

continues to fulfill this mission under the authority of the Economic Development Administration 

Reform Act of 1998, which introduced the concept 

of Comprehensive Economic Development Strategies, a local planning process designed to guide the 

economic growth of an area. Based on these locally 

and regionally developed strategies, EDA works in 

partnership with state and local governments, regional 

economic development districts, public and private 

nonprofit organizations, and Indian tribes to help 

distressed communities address problems associated 

with long-term economic deterioration and recent, 

severe economic dislocations, including recovery 

from the economic impact of natural disasters, the 

closure of military installations and other federal 

facilities, changes in trade patterns, and the 

depletion of natural resources. EDA provides 

eligible recipients with technical assistance, 

as well as grants for public works and 

economic development, planning, 

training and research, and economic 

adjustment.

Audit Recommends New York Economic 

Development Organization Restore $1.1 Million 

to Revolving Loan Fund

Between 1979 and 1983, an Erie County, New York, economic development organization 

received a $7 million EDA grant to establish a revolving loan fund (RLF). The organization had been formed in 1970 by the New York state legislature to promote economic 

welfare for Erie County residents, primarily through job development but also through 

encouraging commerce and preventing economic deterioration. The grant required 

$2,950,000 in total matching funds. The grantee provided a match of more than 

$4 million.

A February 1989 OIG audit had revealed several problems with the development agency’s use of RLF funds, but recommendations from that audit were 

resolved satisfactorily. Our recent financial and compliance audit, covering 

the 3-year period from October 2000 through September 2003, sought to 

determine the financial status of the RLF, the propriety of the administrative 

costs charged to the fund, and whether the development agency had complied 

with the grant’s terms and conditions and federal regulations. As of September 

2003, the agency had made 437 RLF loans totaling more than $70 million. Of 

these, 115 remained active and were either current, delinquent, or in default, 

with a total outstanding principal balance of more than $10 million. 

Our Findings

The development agency had maintained almost $1.7 million in excess cash. 

Federal regulations require RLF operators to have at least 75 percent of RLF 

capital loaned out or committed at all times to achieve the goals of job creation and 

retention. Development agency officials said that EDA had approved a revised capital 

utilization schedule, submitted in March 2000, which allowed the agency to maintain 

more than 25 percent of its RLF cash on hand. EDA said the approval was a mistake, and 

the result of an oversight on its part.

The audit also disclosed that the organization had overstated loan commitments by more than 

$5 million for two consecutive reporting periods, gave five companies a total of nearly $1.3 million 

in ineligible loans, and charged more than $352,000 in unallowable overhead costs and rental payments 

against the grant. Additionally, the grantee had not submitted required plan certifications, properly described its 

loan servicing and operational procedures in its RLF plan, or thoroughly documented borrowers’ eligibility in loan files.
12 U.S. Department of Commerce/Office of Inspector General

Development Agency Response

Development agency officials agreed that the organization had 

maintained excess cash and overstated its loan commitments. 

However, they also stated that loans to eliminate the excess 

cash were made subsequent to the audit period and the method 

for reporting loan commitments has been corrected. Officials 

disagreed that $1.3 million in loans were ineligible and submitted information they believe justifies the loans. Officials agreed 

that personnel costs were arbitrarily marked up, rental payments 

were made to an affiliated company, and loan file documentation 

needed improvement.

Our Recommendations

We recommended that EDA require the organization to (1) restore 

to the RLF the roughly $1.1 million in principal balance that 

remained in the five ineligible loans and the $352,058 in unallowable costs, (2) update its RLF plan to fully comply with EDA 

guidelines, (3) submit required plan certifications, and (4) fully 

document the RLF loan files. (Atlanta Regional Office of Audits: 

ATL-16533)

Economic Development Administration
September 2005/Semiannual Report to Congress 13

ECONOMICS 

AND STATISTICS 

ADMINISTRATION

The Economics and Statistics Administration

analyzes economic developments, formulates 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 is the country’s preeminent statistical collection and dissemination 

agency. It publishes a wide variety of statistical 

data about the nation’s people and economy, 

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 prepares, 

develops, and interprets the national 

income and product accounts (summarized by the gross domestic product), 

as well as aggregate measures of 

international, regional, and 

state economic activity.

Slow Start for FDCA Program May Endanger 

Decennial Dress Rehearsal

In the fall of 2004, we began an inspection survey of the bureau’s progress in planning and 

acquiring a contractor to develop, implement, and manage the systems for the Field Data 

Collection Automation (FDCA) program. FDCA is an $800 million effort to automate 

field data collection and provide logistics, training, and help desk support for 12 regional 

centers, more than 450 local census offices, and up to 500,000 field staff who will be 

charged with conducting the 2010 decennial census. Our survey sought to determine 

if the Census Bureau is positioned to complete the FDCA program in time for the 

2008 dress rehearsal and the 2010 decennial census.

FDCA is meant to automate paperbased field data collection processes 

to reduce overall 2010 census costs 

by as much as $900 million (compared to the cost of the paper-based 

processes used in 2000) and improve 

data quality and operational efficiency. The key technology component of 

FDCA is a handheld mobile computing 

device equipped with Global Positioning System (GPS) capabilities that field 

staff will use to accurately locate housing 

units, update address lists and maps, and 

collect questionnaire data. 

Census had intended to develop FDCA internally 

with contractor support, but the bureau determined 

early in 2004 that it did not have the management or technical resources to develop the field data collection systems 

for the dress rehearsal and 2010 census while simultaneously 

supporting its 2004 and 2006 site tests. Instead, the bureau decided to 

enlist an integration contractor for the entire program. 

A Slow Start

When we began our survey in fall 2004, FDCA lacked a project management plan and project organization. By the end of 2004, key 

acquisition milestones had been missed. Then in January 2005, Census reorganized the entire FDCA program, establishing a project 

management office, appointing a new project manager, and developing an acquisition strategy to address the shortened schedule. The 

bureau now appears to be on track to acquire the needed technology.

The Census Bureau plans to automate 

much of the data gathering function of the 

decennial census with handheld computers.

Source: U.S. Census Bureau.
14 U.S. Department of Commerce/Office of Inspector General

Economics and Statistics Administration

However, the initial slow pace in planning the acquisition and the 

late decision to use an integration contractor reduced the amount 

of time available to award the contract and develop FDCA. This 

increased the risk that systems and services will not be ready by 

April 2007 for address canvassing, which is the first major field 

operation in the dress rehearsal. Our survey revealed Census 

needed to develop a sound project management plan, formulate and 

report objective measures of progress for bureau and Department 

oversight, and develop procedures and training for the technical 

interchanges that will take place between Census and potential 

technology vendors. 

Prototype Systems Being 

Developed During Source Selection

The Census Bureau’s strategy to acquire the technology needed for 

FDCA was to have a limited number of vendors build prototype 

systems for address canvassing as part of the source selection 

process. FDCA officials believe developing prototypes as part 

of the contractor selection process provides a better chance of 

having a working system ready for address canvassing, better 

information for identifying the most qualified contractor, and 

more accurate cost proposals. But this approach also extends the 

source selection schedule by about 4 months and requires more 

technical communication between Census staff and prospective 

vendors. It further reduces the time to complete preparations for 

and begin dress rehearsal. 

Our Recommendations

We recommended the Census Bureau director take the following 

actions: 

1. Formulate a sound project management plan and track 

program progress against the project management plan.

2. For future complex IT projects, consider contracting for 

the entire effort early in the capital asset planning process 

and assign responsibility for managing complex IT projects to Census organizations with appropriate experience. 

3. Establish specific procedures for how Census staff will 

communicate with vendors during prototype development and make sure any potential vendors are informed 

if system requirements change during the process of 

developing the prototype.

Agency Response

The Census Bureau agreed with our findings and recommendations 

and stated the bureau has taken actions to correct the deficiencies 

noted in our report. The bureau also indicated that additional 

project documentation is being developed, including a project 

management plan, and notes that the bureau has met all of its 

acquisition milestones since January 2005. Census disputed our 

assessment that acquisition milestones had been missed in 2004 

and that the address canvassing prototype extended the source 

selection schedule. (Office of Systems Evaluation: OSE-17368)

Latest Round of Census Contract 

Audits Questions More Than 

$10.7 Million

We continued our audits of Census IT services contracts this 

semiannual period, reviewing task orders issued under another 

indefinite delivery/indefinite quantity contract awarded to a Virginia firm.

The contract, issued in 1999, was to provide up to $150 million 

worth of information technology services to all Commerce operating units. Census awarded 21 task orders totaling $44.5 million 

under the contract through April 2005.

We audited two of the 21 task orders to determine whether the firm 

had complied with contract terms and conditions and federal regulations, and had billed Census for work performed in accordance 

with the specifications of the task order. One order was awarded 

in 2000 and the other in 2001. Both were amended several times, 

extending the period of performance to 2005 and increasing combined funding for the two orders to approximately $32 million.

In both audits, we found the firm had failed to comply with numerous contract and federal requirements, which caused us to question 

more than $10.7 million in direct labor and other reimbursable 

costs. We recommended that Census disallow and seek recovery 

of the entire amount we questioned and take various other actions to rectify the noncompliance that led to the unallowable 

billings. (Denver Regional Office of Audits: DEN-17445-5-0001 

and 0002)

Audits Unresolved for More 

Than 6 Months

ITS Services, Inc.

In the March 2005 Semiannual Report (page 19), we reported that 

three of the 32 task orders awarded under a Virginia IT services 

contract were audited to determine whether the costs billed by the 

firm were reasonable, allowable, and allocable under the contract 

terms and conditions and federal regulations. We found that the 

firm had failed to comply with numerous contract and federal 

requirements, and we questioned more than $8.5 million in direct 

labor and reimbursable costs. We have suspended audit resolution 

pursuant to an agreement with Census.
September 2005/Semiannual Report to Congress 15

INTERNATIONAL TRADE 

ADMINISTRATION

Overseas Security Program Needs Improvements

As the trade promotion arm of the International Trade Administration, the U.S. Commercial Service 

(CS) maintains more than 150 overseas offices. Thirty CS overseas offices are “noncollocated,” 

meaning they are not located in a building or compound with a State Department office, 

embassy, or consulate. The State Department’s Diplomatic Security (DS) is primarily 

responsible for the security of these offices 

and all Commerce personnel assigned to 

them, but Commerce is responsible for 

funding security upgrades. CS’ Office 

of International Operations (OIO) 

staffs a four-person security team 

to oversee security upgrades at 

noncollocated CS offices. 

We conducted a review to follow up on our September 2000 assessment 

of CS’ overseas security program at the agency’s request. This followup also complements our recent evaluation of emergency preparedness 

and security at Commerce’s domestic facilities. (See page 37.) We 

surveyed CS’ 30 noncollocated offices to determine, among other 

things, whether any security vulnerabilities exist, upgrades are timely, 

and management tools and administrative controls for the overseas 

security program and assessment process are adequate.

While we noted improvements since our 2000 review, we found that the 

tracking of security funds had not improved. Our request that security 

funds be reconciled resulted in the identification of $290,737 in security funds that were deobligated and could be put to better use. We also 

found some security vulnerabilities at several offices and that upgrades 

are not always handled in a timely manner. CS needs to (1) implement a 

project tracking system, (2) improve management of records, security funds, 

the security assessment process (and follow-up), and (3) better coordinate 

its security activities with DS. We made 14 recommendations to address the 

identified vulnerabilities and management issues, and reiterated that ITA should 

implement outstanding recommendations from our assessment conducted in 2000. 

(Office of Inspections and Program Evaluations: IPE-17446).

The International Trade Administration is 

responsible for trade promotion and 

policy issues associated with most nonagricultural goods and services. ITA works 

with the Office of the U.S. Trade Representative to coordinate U.S. trade policy. ITA has 

four principal units:

Market Access and Compliance develops and implements international economic policies of a bilateral, 

multilateral, or regional nature. Its main objectives are to 

obtain market access for American firms and workers and 

to ensure full compliance by foreign nations with trade 

agreements signed with the United States. 

Manufacturing and Services undertakes industry trade 

analysis, shapes U.S. trade policy, participates in trade 

negotiations, organizes trade capacity building programs, 

and evaluates the impact of domestic and international 

economic and regulatory policies on U.S. manufacturers 

and service industries.

Import Administration 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. Commercial Service promotes the 

export of U.S. products and helps small and 

medium-sized businesses market their 

goods and services abroad. It has 105 

domestic offices and 157 overseas posts in serving more 

than 80 countries.

September 2005/Semiannual Report to Congress 17

MINORITY BUSINESS 

DEVELOPMENT AGENCY

Audit Reveals MBDA 2004 Performance 

Results Are Unreliable

Created in 1971, the Minority Business Development Agency (MBDA) is supposed to foster 

the establishment and growth of minority-owned businesses in America. MBDA’s primary 

mission is to achieve entrepreneurial parity. MBDA defines entrepreneurial parity as a 

benchmark whereby minority business enterprises are contributing to the U.S. economy 

at a rate comparable to the percentage of the U.S. minority population. MBDA programs 

foster the establishment and growth of minority-owned businesses in the U.S. 

Performance Measure Showed 

Dramatic Increase

We audited MBDA’s official FY 2004 performance measures after concerns surfaced 

about an unexplained dramatic increase in the number of clients the agency assisted. 

Despite a decrease in its FY 2004 appropriation from FY 2003, the number MBDA reported in the “Clients Assisted” category jumped from 7,228 in FY 2003 to 29,387 in FY 

2004—a 300+ percent increase. Our audit assessed the process MBDA uses to measure, 

monitor, report, and verify its performance. 

Pattern of Overstated Performance

The FY 2004 “Clients Assisted” number would have been enough of a curiosity in itself. But MBDA’s 

performance reporting has been questionable before.

In 2003, OIG reviewed MBDA’s performance reporting in the Department’s FY 2002 Performance & 

Accountability Report (PAR), finding, among other things, that the agency had overstated its FY 2002 performance under one 

measure, and did not verify some reported measures until after the FY 2002 PAR was issued. The 2003 review also found that OMB’s 

2002 evaluation of MBDA’s submission for the Program Assessment Rating Tool (PART) relied on data from the FY 2001 PAR, which 

was inaccurate for similar reasons. In response to these earlier reviews, MBDA officials acknowledged the need to strengthen their 

performance measure oversight and reporting. 

In our most recent review, we looked at four of seven performance measures reported by MBDA in the FY 2004 PAR. Our audit revealed that the agency inappropriately combined performance results for significantly different programs, thus inflating the numbers 

reported for those measures. We also found the reliability of results reported for Minority Business Operating Committees (MBOCs) to 

be questionable because of unclear definitions, inconsistent guidance, inadequate verification, and poorly supported claims of reported 

dollar values of awards at four of five MBOCs visited.

Claiming questionable awards and lacking adequate support for reported claims misrepresents program results, a violation of the agency’s 

own quality standards as well as the data consistency standards set by GAO.

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.
18 U.S. Department of Commerce/Office of Inspector General

Recommendations

We recommended the MBDA director take concrete steps to ensure 

that the agency defines and reports its results clearly and accurately, with unambiguous definitions of terms and distinct types 

of information, and that all MBOCs document their performance 

claims. We also recommended that MBDA regional offices and 

headquarters implement effective verification monitoring and 

oversight to ensure the reliability of performance results. 

Agency Response

MBDA’s national director concurred with our recommendations 

and described actions either already taken or planned to improve 

management controls for MBDA performance measures. MBDA 

believes that MBOC-related concerns raised by the audit have 

been addressed with its new solicitation for the MBOC program. 

In its response, MBDA wrote that OIG assisted in the development, review, and approval of the new MBOC program prior to 

competition. MBDA disagreed with the OIG position that in the 

case of multiple year awards, MBDA should not claim the full 

contract value in the year the contract was signed.

We are encouraged by actions that MBDA has taken and other actions that MBDA is planning. With regard to OIG’s involvement 

in the revision of the MBOC program, while our auditors shared 

the problems they found with MBOC performance reporting with 

MBDA senior management during the course of our review, we 

did not otherwise assist in the development, review or approval 

of the new program. 

We stand by our conclusion that the agency should not claim 

amounts for option years under a contract until those options are 

exercised because it is not prudent to assume that all anticipated 

option years of multiple year contracts will be exercised. Claiming the entire amount of the contract in the first year might be 

defensible if MBDA (1) disclosed that its reported dollar value 

amount included such anticipated amounts, (2) tracked the actual 

outcomes of such contracts, and (3) made correcting adjustments 

for amounts claimed in the first year but not actually received in 

later years. (Office of Audits, Financial Statements and Accountability Audits: FSD-17252)

MBOCs in Florida and 

Wisconsin Working Well, 

Audits Find

The Minority Business Development Agency is the only federal 

agency created specifically to foster the establishment and growth 

of minority-owned businesses in America. The agency’s mission 

is to actively promote the growth and competitiveness of minority 

business enterprises of all sizes by coordinating and leveraging 

public and private resources and encouraging strategic alliances 

in support of its mission. Among other things, MBDA administers 

the Minority Business Opportunity Committee (MBOC) program, 

which is designed to provide minority business enterprises with 

enhanced access to markets, capital, and information. 

Florida. In February 2003, MBDA awarded a 3-year cooperative 

agreement to the National Minority Supplier Development Council 

of Florida to operate the Florida MBOC.

We audited the first 2 years of the Florida MBOC cooperative 

agreement to determine whether the program was meeting performance goals, claiming appropriate costs, and meeting the terms and 

conditions of the award. The audit did not reveal any adverse findings. In fact, we determined that the Florida MBOC is performing 

its duties and meeting its requirements well. The committee met 

the required performance goals for both 2003 and 2004 calendar 

years, claimed only reasonable and allowable costs, and complied 

with the terms and conditions of the original award. Accordingly, 

we did not recommend any corrective actions. (Atlanta Regional 

Office of Audits: ATL-17363)

Wisconsin. In February 2003, MBDA awarded a 3-year annually 

funded cooperative agreement to the Wisconsin Business Resource 

Center to operate the Wisconsin MBOC. 

We audited the Wisconsin MBOC for the period beginning February 2003 through December 2004 to determine whether the Wisconsin Business Resource Center achieved or had made sufficient 

progress toward accomplishing performance objectives; claimed 

costs that are reasonable, allowable, and allocable to the project; 

and complied with the terms and conditions of the cooperative 

agreement. 

Minority Business Development Agency

Source: OIG
September 2005/Semiannual Report to Congress 19

Economics and Statistics Administration

Our audit showed that the Wisconsin Business Resource Center 

met its performance targets with one minor exception that the 

agency corrected when we pointed it out. Our draft audit report 

had questioned $170,988 of in-kind costs and $7,900 of costs 

without documentation of payment. In its response to the draft 

audit report, the center revised its in-kind cost claim to comply 

with applicable regulations and provided documentation of previously undocumented costs. The audit revealed the center claimed 

costs that are reasonable, allowable, and allocable to the project; 

and it complied with the terms and conditions of the cooperative 

agreement. We found the resource center to be a valuable center 

of influence comprised of local, state, and county executives as 

well as private business leaders. (Denver Regional Office of Audits: DEN-17423)

September 2005/Semiannual Report to Congress 21

NATIONAL OCEANIC 

AND ATMOSPHERIC 

ADMINISTRATION

Audit Finds NMFS Deviated from 

Established Procedures

In October 2004, 19 members of the U.S. House of Representatives wrote to the 

inspectors general of Commerce and the Department of the Interior requesting 

a review into whether Interior’s Bureau of Reclamation undermined the environmental review process of NOAA’s National Marine Fisheries Service 

(NMFS) for a water project in California’s Central Valley. Earlier in 

the year, a controversy had erupted when NMFS issued a biological 

opinion under Section 7 of the Endangered Species Act (ESA) stating 

that California’s long-term Operations, Criteria, and Plan (OCAP) 

for the Central Valley Project and the State Water Project to manage the water supply would not jeopardize endangered species. 

The biological opinion was an element of a complex process 

to evaluate what impacts changes in the Central Valley Project 

would have on populations of endangered fish, such as salmon 

and steelhead trout.

In response to the congressional request, we conducted an audit 

to identify what review process NMFS used to issue the OCAP 

opinion. We also sought to determine whether NMFS followed 

its policies, procedures, and normal practices for consultations 

when it issued the OCAP biological opinion. Our purpose was 

not to evaluate the science involved, but rather the integrity of the 

process. Our findings are detailed below:

NMFS Deviated from Its Norm

Our assessment of the process leading to the biological opinion revealed 

the NMFS southwest regional office did not follow its normal procedures 

in handling the OCAP consultation and failed to comply with two significant 

controls in its review process. Rather than suspend the review until the Bureau 

of Reclamation provided all the information needed to begin a consultation under 

ESA, NMFS went forward. In fact, biologists who worked on the project said the 

Bureau of Reclamation was changing the project description even after the opinion had 

been issued, and that working on the OCAP opinion had been frustrating because it was like 

“trying to hit a moving target.”

Of the 10 cases OIG reviewed, audit staff found no other cases in which the southwest regional office of NMFS 

initiated a formal consultation without sufficient information. In this instance, it began its analysis 4 months before the Bureau 

of Reclamation provided the information normally needed to begin such a case. This raised a question as to whether the final analysis 

was really based on the best scientific information available.

The National 

Oceanic and Atmospheric Administration

studies climate and global change, 

ensures the protection of coastal oceans 

and the management of marine resources, provides weather services, and manages worldwide 

environmental data. NOAA does this through the 

following organizations:

National Weather Service reports the weather of the 

United States and provides weather forecasts and warnings 

to the general public.

National Ocean Service issues nautical charts, performs geodetic surveys, conducts research, and develops policies on ocean 

mining and energy.

National Marine Fisheries Service 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 observes the environment by operating a national 

satellite system.

Office of Oceanic and Atmospheric Research conducts 

research related to the oceans and inland waters, the 

lower and upper atmosphere, space environment, and 

the Earth.

Office of Marine and Aviation Operations

operates NOAA’s ships and aircraft and 

provides NOAA programs with trained 

technical and management personnel from the nation’s seventh 

uniformed service.
22 U.S. Department of Commerce/Office of Inspector General

The southwest regional office also did not follow the policies and 

procedures in place that are intended to ensure that biological 

opinions are sound. For example, the designated regional Section 

7 coordinator did not clear the OCAP opinion, a key management 

control normally required prior to issuing opinions. The coordinator told us she did not clear the opinion because the assistant 

regional administrator sent it out while she was away from the 

office conducting training. She also said that given the opportunity, she would not have cleared the opinion because she believed 

its conclusion did not match the scientific analysis. In addition, 

the Office of General Counsel never cleared the opinion, and the 

regional general counsel could not explain why.

No Evidence that “Jeopardy” Draft 

Was Provided to Interior

Because allegations that an earlier draft had been altered sparked 

the interest of legislators and led, ultimately, to OIG’s review, we 

sought to determine whether this was true. Was there an earlier 

“jeopardy” draft that had been issued to the Bureau of Reclamation 

and subsequently improperly changed? 

NMFS staff who worked on the opinion initially told us that Bureau of Reclamation regional staff received a partial draft with a 

transmittal letter stating a “jeopardy” conclusion in early August 

2004. But we found no evidence that the Bureau of Reclamation 

was ever actually provided such documents. The administrative 

record only documented delivery of a “no jeopardy” draft to the 

Bureau of Reclamation in late September 2004.

Recommendations and Agency 

Response

These types of biological opinions are clearly environmentally 

important and politically sensitive. NOAA must have a meaningful 

and open process based on sound science and maximum integrity 

to yield such pivotal opinions. With that and the results of our 

review in mind, we recommended that NOAA objectively evaluate whether the southwest regional office’s questionable handling 

of the OCAP opinion undermined its scientific integrity. We also 

recommended the bureau review existing policies and directives 

for Section 7 consultations, clarify the legal review process, issue these policies and procedures to staff, and submit them for 

inclusion in NOAA Delegations of Authority, which are part of 

the agency’s directives.

NOAA first responded to our report with the assertion that the 

southwest regional office had followed the process required under 

1995 guidelines and asked us to reconsider our recommendations. 

After consulting with our office, the bureau promised to evaluate 

its policies and directives within 6 months, and we altered our 

recommendations to reflect that commitment. We believe if NOAA 

fails to complete its evaluation of the delegations, policies, and 

directives for biological opinions within 6 months, then all such 

delegations should be revoked. 

NOAA also said it does not subject its biological opinions to peer 

review, but in light of OIG’s recommendation to evaluate the scientific integrity of the NMFS opinion in the California case, it is 

working on an agreement with an outside organization to review 

the science underlying the OCAP opinion.

In NOAA’s action plan for addressing the findings and recommendations in our final audit report, agency officials stated that they 

have completed their review of existing delegations, policies, and 

directives for Section 7 consultations and an interim delegation 

was issued August 15, 2005. Agency officials stated that a single 

comprehensive national policy for delegation of authority for Section 7 consultations will be approved and issued by December 15, 

2005. The action plan also stated that by October 30, 2005, NMFS 

California’s Central Valley Project was begun in 1935 by the federal 

government to irrigate the state’s central valley and protect it from floods. 

As California’s largest water project, it provides water to irrigate 3.7 million acres, and its power plants can produce up to 1.4 million kilowatts of 

electricity. 

Source: http://esrpweb.csustan.edu/gis/maps/cvp_swp_sjv.jpg.

National Oceanic and Atmospheric Administration
September 2005/Semiannual Report to Congress 23

would have completed development of a Section 7 training plan 

for employees, and by November 30, 2005, the agency would have 

implemented an oversight strategy for Section 7 consultations.

Although we concurred with these planned actions, we did not 

concur with NOAA’s plan for objectively evaluating whether 

the regional office’s questionable handling of the OCAP opinion 

impaired the opinion’s scientific integrity. The organization selected by NOAA to conduct the evaluation did not appear to be an 

objective party. We therefore requested that NOAA select another 

organization—one that is objective—to evaluate the opinion. 

(Seattle Regional Office of Audits: STL-17242)

Minor Internal Control Issues 

Noted in Improper Payment 

Review 

Each year the federal government loses approximately $20 billion 

through improper payments2—payments made in duplicate; for 

incorrect amounts or vendors, unsupported claims, or services not 

rendered; or as a result of fraud. Congress passed two laws in recent 

years in an effort to ameliorate this problem. The National Defense 

Authorization Act for Fiscal Year 2002 requires agencies entering 

into contracts valued at more than $500 million per fiscal year to 

identify and recover erroneous payments made to contractors. The 

Improper Payments Information Act requires that, beginning in 

FY 2004, agency heads conduct annual reviews of all programs 

and activities to identify those that are susceptible to significant 

erroneous payments,3 and for those programs and activities that 

are, further analyze and report on any such payments.

In response to these legislative initiatives, Commerce asked its 

bureaus in FY 2003 to assess their risks for making erroneous payments and evaluate the effectiveness of their internal controls for 

preventing them. The resulting assessment from NOAA concluded 

that the agency had appropriate internal controls in place to keep 

such payments to a minimum, but did identify the need for better 

oversight of the payments process. 

Our audit looked at NOAA’s FY 2003 payments made against 

contracts and purchase orders to determine whether the number 

or dollar amounts of improper payments were significant and to 

assess whether, as NOAA believed, its internal controls successfully prevented, detected, and corrected such payments.

Internal Controls Were Effective

We confirmed that NOAA’s internal controls were effective, finding only 68 improper transactions in our entire review sample of 

1,680 disbursements. But circumstances related to the 68 erroneous payments suggested opportunities for further strengthening 

controls. For example, nearly all of the improper transactions were 

the result of processing errors that NOAA staff failed to detect 

during prepayment audits—reviews conducted by financial staff 

to ensure payments are properly authorized and meet processing 

requirements. In a few other instances, the erroneous payments 

resulted from inadequate oversight by the contracting officer’s 

representative managing the contract. NOAA agreed to review the 

circumstances surrounding the payments and strengthen internal 

controls as appropriate.

We also found that NOAA does not systematically retain all payment-related records, despite federal and Department regulations 

for doing so. Specifically, it discards a key payment certification 

document (the PM101A report) that it does not consider to be an 

official record. But this document verifies completion of the prepayment audit and contains other information that could protect 

the government’s interests in the event of litigation. The document 

therefore is subject to records retention requirements. NOAA said 

that the certified copies of the payment document are retained in 

compliance with federal and Department requirements.

We concurred with NOAA’s responses to both of the opportunities identified. (Office of Audits, Business and Science Division: 

BSD-16186)

National Oceanic and Atmospheric Administration

Facts About Improper Payments

• Federal agencies completed risk assessments of 

all programs and dollars spent and determined that 

more than 60% of government outlays for fiscal year 

2004, or $1.4 trillion out of $2.3 trillion, is at risk for a 

significant level of improper payments. 

• Of the $1.4 trillion in outlays at risk for improper payments, only $1.2 trillion of this amount could be measured for improper payments. The largest program 

without an improper payment rate is Medicaid, which 

makes annual outlays of more than $175 billion.

• Of the $1.2 trillion in outlays for which improper 

payments were measured, agencies found a total 

of $45.1 billion in improper payments in fiscal year 

2004. 

• Approximately 92% of these improper payments are 

overpayments with the remainder being underpayments. 

Source: http://reform.house.gov/GMFA/News/DocumentSingle.

aspx?DocumentID=30678.

2

 U.S. Government Accountability Office, GAO-03-750T, May 13, 2003.

3

 The threshold is at least 2.5 percent of annual program payments and 

$10 million. 
24 U.S. Department of Commerce/Office of Inspector General

Pacific Coastal Salmon 

Recovery Fund

In 2004, the Office of Inspector General began a series of audits 

on projects operating under the Pacific Coastal Salmon Recovery 

Fund. This multimillion dollar fund provides federal grants to 

Alaska, California, Idaho, Oregon, and Washington and their 

resident Native American tribes to conserve populations of wild 

salmon. The program supports habitat restoration, research, 

recovery planning, and enhancement projects for endangered 

and threatened salmon species. The program was established by 

Congress and is administered by the National Oceanic and Atmospheric Administration. 

In our September 2004 semiannual report (pages 31-32) we detailed our interim audits of projects conducted by an Oregon state 

board and two Washington tribes. In our March 2005 report (page 

27), we detailed the results of audits of three additional tribes. 

During this semiannual period, we completed interim audits of 

three more tribes. 

All of these tribes are operating programs through subagreements 

with a Washington state Native American commission that received 

a 5-year, $27.3 million recovery fund award to finance salmon 

projects. The commission allotted an equal share of the grant 

(roughly $1.3 million) to each of its 20 member tribes. 

In our 3 most recent audits, we looked at costs invoiced to the 

commission during the period April 2000 through September 2003. 

Here is a brief synopsis of what we found and recommended:

Audits Recommend Recovery 

of More Than $1.8 Million from 

Washington Tribes

Our audit of one tribe conducting projects to recover several 

salmon species looked at a total of $853,659 in costs billed to the 

commission. Of that amount, we questioned and sought recovery of 

$695,868 in unsupported labor, fringe benefits, indirect costs, contract expenses, unapproved project expenditures, and overcharges. 

We also found the tribe’s financial management, procurement, and 

property management systems did not meet federal standards.

A second tribe submitted costs totaling $935,000. This tribe is 

assessing habitat and stock in a tributary of its traditional fishing 

area, and conducting a spawning survey and stream assessment 

of a smolt trapping program. Our audit questioned $761,785 in 

unsupported labor and related fringe benefits, undocumented expenses, indirect costs, and subcontract costs not allocable to the 

program. We also found the tribe had inadequate time distribution 

procedures and documentation. 

The third tribe invoiced costs totaling $839,243, and we questioned $382,060 of that amount. The bulk of the questioned 

costs—$366,772—reflected unsupported transfers of costs from 

its general fisheries grant to the salmon recovery projects. The 

tribe also had more than $9,000 in questionable payroll costs, 

$3,759 in unallowable travel expenses, and $2,455 in associated 

indirect costs. 

We recommended that the director of NOAA grants management 

(1) disallow and recover questioned costs totaling $1,839,713, 

from the three tribes, and (2) direct the commission to take specific action to remedy the internal control and other weaknesses 

we identified in each tribe’s administration of its projects. (Seattle 

Regional Office of Audits: STL-16657-5-0005, -0007 and -0008)

National Oceanic and Atmospheric Administration

Lake Quinault is a source of salmon brood stock for one tribe’s salmon 

recovery program. 

Source: OIG.

Salmon eggs from brood stock at a tribal hatchery.

Source: OIG.
September 2005/Semiannual Report to Congress 25

Inspection Finds Few 

Problems at River Forecast 

Center

The National Weather Service has 13 river forecast centers (RFCs) 

across the country that monitor water levels in river basins and 

issue hydrometeorological forecasts and guidance to weather forecast offices (WFOs) and water management organizations. RFCs 

forecast when rivers are expected to reach flood stage, timing of 

flood crests, and when a flooded river is expected to recede. This 

service is vital, especially considering NWS’ own estimates that 

90 percent of all natural disasters in the United States involve 

some degree of flooding. 

We conducted an inspection of NWS’ Northeast River Forecast 

Center in Taunton, Massachusetts, from December 2004 to February 2005. The center is one of the smallest in the NWS system 

and is located in the same building as the Boston weather forecast 

office. 

We found the northeast center to be a well-functioning and generally well-managed facility. The office works well as a team to 

issue the best possible river forecasts. We also found that staff from 

NWS’ Eastern Region headquarters conduct semiannual internal 

reviews and regularly communicate with and visit the northeast 

center. However, we did find some areas that could benefit from 

program and administrative improvements.

Some Program Improvements 

Needed 

The forecast center is not taking full advantage of new Geographic 

Information Systems (GIS) software, although NWS is exploring 

the possibility of transitioning to new GIS products. We recommended the assistant administrator for weather services develop 

a timeline to implement GIS capability.

We also found there are no well-defined procedures for verifying 

river forecasts that will provide enough detail to make river basin model and forecaster skill improvements possible. Work has 

begun to implement such a system. We recommended that NWS 

develop, document, and implement a timeline and action plan for 

completing the comprehensive river forecast verification system 

as soon as practicable.

Facility Needs Maintenance and 

Repair Work 

The northeast center and the Boston WFO are located in an aging leased building that needs work. The lease states the owner 

is responsible for maintenance and repairs, but at the time of our 

review, 46 work orders had been submitted since April 2004 and 

only 4 had been completed. In addition, metallic filaments called 

“zinc whiskers” that break free from aging floor tiles and lodge 

in circuits may have caused some serious computer equipment 

failures in the past 5 years. 

We recommended that the assistant administrator for weather 

services, in conjunction with the director of NOAA’s Facility and 

Acquisition Management Division, (1) ensure that repairs and 

maintenance at the Taunton facility are completed in a timely manner and (2) instruct the Eastern Region Headquarters to document 

the northeast center’s handling of the zinc whisker problem and 

make that information available to other NWS facilities. 

Agency Response

NOAA concurred with all our recommendations and said an 

integrated work team is being formed to identify NWS-wide 

information needs and systems architecture to support GIS. The 

team will use an Operations and Service Improvement Process to 

prioritize requirements and identify solutions. NOAA also is developing an outreach plan for FY 2006, which includes partnered 

RFC-weather forecast office outreach activities for the purpose of 

educating NWS users, and NOAA’s Hydrologic Services Program 

is currently developing a timeline and action plan to implement the 

National River Forecast Verification System. In addition, NOAA’s 

Real Property Division and NWS Eastern Region officials have 

met with a representative of the owner and discussions to resolve 

facility issues have begun. NOAA also agreed to prepare a document regarding the center’s experience and solution for the metallic 

whisker problem and make it available to other NWS facilities. 

(Office of Inspections and Program Evaluations: IPE-17259)

National Oceanic and Atmospheric Administration

The Northeast River Forecast Center team works well together, but the 

building needs maintenance.

Source: OIG.
26 U.S. Department of Commerce/Office of Inspector General

NEXRAD Audit Follow-up 

Shows NOAA Has Completed 

Action Plan

During this semiannual period, we followed up on the status of 

NOAA’s actions to address recommendations from our 2003 review of a modification to a contract for acquiring power sources 

to support the NEXRAD system. That report, Acquisition of 

NEXRAD Transition Power Source Marred by Management, 

Technical, and Contractual Problems (OSE-15676), concluded 

that poor handling of the contract change increased costs of the 

procurement by $4.5 million and that NWS paid for defective 

equipment. Specifically, the contract modification was executed 

without sufficient evaluation, serious consideration of any other 

alternatives, adequate negotiation, and proper review and oversight 

by NOAA’s Acquisition and Grants Office. Our recommendations 

addressed such areas as program office management, contracting 

officer representatives’ technical management responsibilities, 

acquisition office responsibilities, and professional training. 

In November 2003, NOAA submitted a plan outlining seven actions for implementing our recommendations by the end of calendar year 2004. These included, among other things, developing an 

acquisitions handbook and procurement policy directive; ensuring 

acquisition staff are adequately trained to do their jobs; improving 

coordination with its federal partners (Defense and Transportation) in operating NEXRAD; and establishing a board to review 

proposed solicitations. Our follow-up found that NOAA has taken 

these actions, but needs to improve the acquisition handbook to 

include provisions regarding:

1. Alternatives—how all reasonable alternatives are analyzed, 

evaluated, and documented;

2. Technology reviews—what is necessary in establishing the 

acquisition plan; how trade-offs are evaluated; how the 

technical evaluation is to be conducted and documented; 

and how the technical performance, schedule, and cost risk 

are presented; and

3. Contract changes—how post-award changes will be 

handled, related costs considered, and proposed decisions, 

findings, and recommendations be documented.

(Office of Audits: BSD-17613)

National Oceanic and Atmospheric Administration

A hilltop NEXRAD tower in San Diego stands out in front of a cloud 

bank.

Source: www.wrh.noaa.gov/Sandiego.
September 2005/Semiannual Report to Congress 27

TECHNOLOGY 

ADMINISTRATION

NIST Procurement Practices Have Improved but 

Improvements Are Still Needed 

In keeping with our focus on acquisition management, we concluded a performance audit 

of NIST procurement policies and procedures—assessing their effectiveness and compliance with federal laws and regulations, and determining whether the agency’s 

acquisition workforce is trained to handle the huge and often complex business 

of purchasing goods and services from outside vendors. 

In FY 2004, NIST spent some $276 million—more than a third of its annual 

budgetary resources—on such purchases. Congress has enacted a series 

of laws over the past 30 years to both simplify the government procurement process, maximize competition, and protect the government’s 

interest in these transactions (see box). The latest reform came in 

2003, when the president issued an open competition initiative to help 

small businesses compete more effectively for government contracts. 

While bringing greater efficiency to the acquisition process, these 

initiatives have reduced management oversight, given contracting 

officers greater latitude in choosing the method of procurement 

and in justifying their decision, and created new opportunities for 

mismanagement and abuse. 

In our review at NIST, we focused on contract actions whose total 

dollar value exceeded $100,000, and looked for instances in which 

single acquisitions might have been split into two or more transactions 

to circumvent spending limits. We reviewed a sample of contract actions from fiscal years 2002 and 2004.

OUR FINDINGS

NIST’s acquisition policies and procedures generally comply with federal regulations and Department guidance, but the agency does not always apply them properly. 

The net effect is that procurement activities at times do not meet the intention of federal 

and Commerce requirements. In particular, we noted these problems:

Greater emphasis on opportunities for full and open competition is needed. By federal 

law and executive order, agencies must aggressively promote competition and limit noncompetitive 

solicitations. NIST’s internal guidance requires bids from at least three vendors for orders costing more than 

$2,500 and made under General Services Administration (GSA) federal supply schedules. Open market purchases costing 

more than $100,000 must be awarded using full and open competitive procedures. More than half of the contracts we reviewed were 

awarded noncompetitively with NIST possibly missing out on savings and other benefits that competition promotes. We learned that 

program staff members are not always open to competition, preferring instead to work with contractors they know or have dealt with 

before. Although NIST has improved its use of competition from FY 2002 to FY 2004, continuing efforts are needed. The agency has 

committed to taking actions to reinforce the proper use of competitive and noncompetitive procedures. 

The Technology Administration serves the needs of 

technology-based 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. It includes three 

major organizations: 

Office of Technology Policy works in partnership with 

the private sector to develop and advocate national policies and initiatives that use technology to build America’s 

economic strength, promote the creation of high-wage jobs, 

and bring about improvements in our quality of life.

National Institute of Standards and Technology promotes 

U.S. economic growth by working to develop and apply technology, measurements, and standards. NIST manages four 

programs: the Advanced Technology Program, the Manufacturing Extension Partnership program, the Baldridge National Quality Program, and NIST Research Laboratories. 

National Technical Information Service is a self-supporting agency that promotes the nation’s economic 

growth and job creation by providing access to information that stimulates innovation and discovery. 

NTIS accomplishes this mission through information collection and dissemination to the public 

and through information and production 

services to federal agencies.
28 U.S. Department of Commerce/Office of Inspector General

NIST requires that when contracts are awarded noncompetitively, 

the reasons must be documented on form CD-492, “Justification 

for Other than Full and Open Competition.” We found that of 53 

noncompetitive contracts reviewed, there were 26 instances where 

the lack of competition was either inadequately justified or there 

was inadequate documentation. NIST has stated that it will promote 

competition and ensure that when noncompetitive procurements 

are necessary, the reasons are adequately documented.

We also found that the agency historically has contracted noncompetitively on a sole-source basis for scientific and technical 

expertise with leading scientific experts including former NIST 

employees. NIST has taken steps to attempt competition by issuing a basic ordering agreement with a consulting firm tasked to 

provide the requested resources. However, since the government 

provides the contractor with the name of a “government-referred” 

individual capable of accomplishing the task, we questioned the 

adequacy of competition. NIST has reported it is currently taking 

steps to issue a new contract or contracts that will create competition when contracting for technical or scientific expertise. 

NIST does not properly plan for acquisitions. According to 

NIST’s Acquisition Management Division director, the program 

staff who request goods and services are typically scientists who 

are not attentive to the administrative details of procurement or the 

need to plan ahead. We believe that inadequate planning explains 

the lack of full competition for many of the 53 noncompetitive 

contracts in our sample. Advance planning would have allowed 

NIST the time to conduct a thorough search of all potential contractors. To resolve this problem, the agency now requires managers to 

prepare annual spending plans that identify upcoming purchasing 

and allow for proper planning. 

Market research and legal review are lacking. For procurement 

contracts valued at more than $100,000, federal regulations require 

agencies to conduct market research to determine whether needed 

goods are available commercially or if the use of noncompetitive 

procedures is warranted. Eleven of the 39 FY 2002 contracts we 

reviewed that were awarded under negotiated or simplified acquisition procedures—with a total value of $3.1 million—were 

awarded without adequate market research.

Commerce requires legal review of proposed contract awards that 

may leave the government vulnerable, including certain noncompetitive procurements and large-dollar competitive procurements. 

We found four instances in which required legal review under 

these criteria was not performed. Although the Department does 

not require review of federal supply schedule contracts or of orders 

made against indefinite delivery/indefinite quantity contracts, these 

can pose monetary and performance risks to the government and 

we believe should be subject to legal review. Using these criteria, 

we identified 33 orders totaling $22.8 million that should have 

been submitted for legal review. 

The Department’s Office of General Counsel agreed that these 

orders pose a potential risk to the government and that they should 

be subjected to legal review. 

NIST does not consider past performance. Agencies must 

consider a contractor’s past performance in evaluating offers and 

awarding new contracts, yet sufficient consideration was lacking in 

30 of the awards in our sample (23 from FY 2002 and 7 from FY 

2004). The value of these contracts totaled $22.9 million. Although 

the Federal Acquisition Regulation requires consideration of past 

performance when making awards, neither the Department nor 

NIST offers guidance as to how past performance is to be used.

Government estimates are not properly documented. The 

Federal Acquisition Regulation requires agencies to prepare their 

own independent estimates of the cost of a planned acquisition, 

but neither the Department nor NIST offers guidance for how they 

should be developed and documented. The contracts in our sample 

had government estimates, but only the estimates for construction-type contracts were adequately documented. In 14 cases, the 

government estimate was the same as the vendor’s quoted price. 

In 11 of these, the award amount exactly matched the estimate 

and the contractor’s quote.

NIST is not doing enough to stop unauthorized procurements. 

An unauthorized procurement is an agreement that is not binding 

because the government representative who made it lacked the 

authority to enter into the agreement on the government’s behalf. 

In FY 2002, NIST processed 46 unauthorized procurement actions 

totaling $412,065, and in FY 2004, it processed 28 such actions 

totaling $1,071,143. Unauthorized purchases are serious matters 

and the practice should be discontinued. 

Training for acquisition staff is not tracked and documented.

The Commerce Acquisition Career Management Program implements training requirements for procurement staff, as stipulated by 

the Office of Federal Procurement Policy. As part of the program, 

Technology Administration

Federal Procurement Regulations and 

Legislation

• Federal Acquisition Regulation established uniform policies and procedures that cover all aspects of procurement.

• Competition in Contracting Act of 1984 stipulates seven 

circumstances under which noncompetitive contracting 

is permitted.

• Federal Acquisition Streamlining Act of 1994 and the 

Clinger-Cohen Act of 1996 promoted performancebased contracts.
September 2005/Semiannual Report to Congress 29

agency points of contact must report on courses completed by 

employees. At the time of our review, NIST’s point of contact kept 

a log of completed training as reported by individual employees 

but NIST did not maintain supporting documentation to verify the 

training had actually been completed. Additionally, the agency had 

no written procedures for managing the training program. Since the 

completion of the audit, the agency has reported that it has issued 

procedures that outlined the NIST training program.

OIG Recommendations

We recommended that NIST take a series of steps to improve 

its procurement activities, among them that the agency subject 

acquisitions to full and open competition whenever possible; 

improve acquisition planning; fully justify noncompetitive procurements on form CD-492; revise market research guidelines; 

update guidelines for legal review of contract actions; develop 

procedures for conducting past performance reviews and preparing independent government estimates; establish a tracking and 

monitoring system for acquisition staff training; eliminate unauthorized procurement actions; and that the agency director ensure 

program managers actively support initiatives to improve agency 

procurement activities.

NIST’s Response

NIST agreed that its leaders need to ensure that program managers 

actively support initiatives to improve procurement activities, and 

stated that the agency is committed to ensuring that good, sound 

procurement practices are implemented. NIST commented that the 

competition results included in the report would be more balanced 

had we included transactions between $25,000 and $100,000 with 

our sampled transactions exceeding $100,000. The agency disagreed with the recommendation to develop legal review criteria 

for Federal Supply Schedule orders and orders placed on indefinite 

delivery or indefinite quantity contracts. NIST also disagreed with 

our recommendations to establish internal guidance for developing independent government estimates and for documenting past 

performance reviews because it considered this to be the responsibility of the Department to offer Department-wide policy. (Office 

of Audits, Business and Science Division: BSD-16656)

Minimal Costs Questioned 

in ATP Awards Audits

New York. A New York City firm received an Advanced Technology Program (ATP) award to develop affordable software for 

generating precise 3-D computer models of buildings and major 

structures. The software is intended to help emergency responders 

locate people more quickly in a disaster and to help architects design safer structures in the 

aftermath. Total estimated 

direct costs of the 3-year 

award were $2 million, to 

be fully paid by the federal 

government. NIST set the 

maximum funding limit for 

direct costs at $690,000 for 

the first year of the project 

(October 2003 through 

September 2004). The firm 

received reimbursement 

for total claimed costs of 

$607,027.

Our interim financial audit 

of these first-year costs 

questioned $1,506 in fringe 

benefits paid to an employee for time not allocable to 

the ATP project. We recommended that NIST seek full 

reimbursement of this amount. We found the firm was otherwise in 

compliance with all federal regulations and ATP requirements for 

the award. (Denver Regional Office of Audits: DEN-17247)

Massachusetts. In September 2003, NIST awarded a 2-year ATP 

cooperative agreement to a Massachusetts firm to develop realtime video technology that will broadcast 3-D holographic images. 

The government’s total estimated direct costs are $1,666,468. No 

matching funds from the company are required.

For the first year, federal reimbursement was capped at $755,399. 

The firm sought and received reimbursement of $401,800. We 

questioned $2,855 of that amount in non-ATP payroll and fringe 

benefits, but noted that during the same time frame, the firm had not 

claimed $1,778 of project-related expenses. We credited the recipient for this amount, which reduced questioned costs to $1,077.

Our audit also revealed that the firm had violated federal procurement regulations and ATP award terms by executing contracts that 

did not contain required provisions and by failing to establish 

written procurement procedures. Further, the company’s written 

accounting procedures fell far short of complying with federal 

financial management regulations, and it failed to consistently 

implement the few policies that were in place. For example, most 

of the timesheets we looked at had not been signed by both the 

employee and the supervisor, as required. 

We recommended that NIST (1) disallow and fully recover the 

$1,077 in questioned costs, and (2) direct the firm to establish and 

enforce the required written procurement and accounting procedures. (Denver Regional Office of Audits: DEN-16980) 

NIST’s Advanced 

Technology Program

As part of its efforts to spur 

technological development, 

NIST administers the Advanced Technology Program 

(ATP) to provide financial assistance through cooperative 

agreements, with the goal 

of transferring cutting-edge 

technology to industrial uses. 

Between 1990 and September 2004, ATP awarded 

$2.3 billion in funding to 

companies to develop promising, high-risk technologies. 

Industry has matched this 

funding with $2.3 billion in 

cost-sharing. 

Technology Administration
30 U.S. Department of Commerce/Office of Inspector General

No Compliance Issues Noted 

in Audit of North Carolina 

Project

We audited the costs claimed by a firm that received a 3-year ATP 

award to develop software that accurately predicts the efficacy 

and effects of drugs in development. The goal of the project is to 

greatly reduce the time and cost of bringing new drugs to market 

(currently 12 years and $800 million, respectively) by identifying 

potential successes and failures during drug design rather than 

in clinical trial. Total estimated direct costs of the project are 

$1.9 million, with federal funding for the first year capped at 

$654,000. The agreement requires no matching funds from the 

company, nor does it provide reimbursement for indirect costs. For 

the first 12 months of the project, the recipient claimed $558,482 

in direct costs and received $556,988 in federal reimbursement. 

Our interim audit disclosed no instances of noncompliance with 

ATP award terms and conditions, and found the firm had an adequate accounting system for the purposes of the award. However, 

its financial management system did not meet minimum federal 

requirements because the recipient had not developed written procurement procedures. The firm subsequently produced evidence 

that such procedures are in place, and we considered the matter 

resolved. (Denver Regional Office of Audits: DEN-17248)

OIG Assistance Strengthens 

Grant Program

The NIST Hollings Manufacturing Extension Partnership (MEP) 

program is a model for federal-state partnerships designed to 

leverage public and private resources to make a comprehensive 

range of services and assistance available to small manufacturers. 

Centers receive one-third of their funding from the federal government, one-third from state and local organizations, and one-third 

from fees for services. The program began in 1989 with centers in 

three states and today it comprises a national network of affiliated 

manufacturing extension centers and field offices serving small 

manufacturers in all 50 states and Puerto Rico. In the past 16 years, 

the program has provided services to more than 184,000 clients.

The Office of Inspector General has issued 90 reports of audits 

of NIST-funded centers and program operations since MEP’s 

inception. MEP centers often have a difficult time meeting the 

nonfederal matching share requirement, which can be as large as 

two-thirds of the total annual cost of the center. As a result, centers 

sometimes made claims for matching share contributions that we 

found questionable. NIST’s unclear direction to centers on what 

constitutes acceptable matching share contributions sometimes 

exacerbated the problem.

In April 2005, NIST issued operating plan guidelines for the program, in part to address the continuing OIG concern regarding 

matching share claims under the program. The new guidelines 

took effect July 1, 2005, and were formulated with input from the 

Department’s Office of General Counsel and OIG. The guidelines 

more clearly define both acceptable and unacceptable types of nonfederal matching share and require many matching share arrangements to be reviewed and approved in advance by the NIST grants 

officer. This guidance should significantly reduce or eliminate 

the types of matching share claims that OIG has rejected during 

numerous past audits. We plan to monitor the implementation and 

effectiveness of the new guidelines through future audits.

The financial assistance awards process of the Department of Commerce.

Source: OIG

Technology Administration
September 2005/Semiannual Report to Congress 31

AUDITS UNRESOLVED FOR 

MORE THAN 6 MONTHS

Massachusetts MEP

We are continuing to work with NIST officials toward resolution of 

an audit we reported on in our September 2004 Semiannual Report 

(page 37). In that report, we detailed an audit of an MEP cooperative agreement as being unresolved for more than 6 months. Our 

audit had recommended that NIST disallow questioned costs of 

$8,177,606, recover the federal share of $1,599,349, and require 

the recipient to implement improvements to its financial reporting 

system. In its audit resolution proposal, NIST disallowed $715,097 

and reinstated $7,462,509 in costs questioned in the audit report. 

In July 2004, after detailed analyses of NIST’s audit resolution 

proposal and other documents provided by NIST and the recipient, 

we advised NIST that we concurred with its decision to disallow 

$715,097, but did not concur with reinstatement of the remaining 

$7,462,509. OIG is currently reviewing a revised audit resolution 

proposal that NIST submitted in June 2005.

Computer Aided Surgery Inc., 

New York

An OIG audit of this NIST cooperative agreement (see September 

2004 issue, page 35, and March 2005 issue, page 33—ATL-16095) 

questioned costs totaling $547,426 in inappropriately charged rent, 

utilities, and certain salary, fringe benefit, and other expenses, because these costs were unallowable, in excess of budgetary limits, 

or incorrectly categorized. We have postponed NIST’s submission 

of an audit resolution proposal.

Technology Administration

September 2005/Semiannual Report to Congress 33

UNITED STATES PATENT 

AND TRADEMARK OFFICE

FISMA Review Finds Inadequate Enforcement of 

Contractor Information Security Requirements 

To meet our FY 2005 reporting requirements under the Federal Information Security Management Act (FISMA), we evaluated USPTO’s efforts to implement IT security requirements for 

contractor employees and systems. USPTO relies heavily on contractors to accomplish its 

mission and enable electronic processing of patents and trademarks. Because patent and 

trademark application information is extremely confidential, the systems processing it 

must be highly secure. 

The Department of Commerce issued two contract clauses containing IT security 

requirements in 2003, in response to OIG findings reported in a review of Department-wide information security.4

 USPTO adopted these clauses to protect information and IT systems from risks posed by contractors who connect to its network or 

process or store sensitive agency data. The clauses require contractors to comply 

with USPTO’s IT security handbook, get their IT systems certified and accredited,5

and have their employees undergo appropriate background screening. The agency 

advised its contracting officers to begin using these clauses in new and certain existing 

service contracts beginning in late 2003.

We evaluated 10 IT service contracts currently in force at USPTO to determine whether 

and how effectively the agency has implemented the clauses. The maximum estimated 

value of our sample over the life of the contracts was $1.7 billion. 

We found that USPTO has incorporated the clauses, but noted several weaknesses in their 

implementation:

Contract risk levels are low and employee background screenings inadequate. The level of risk to the 

government posed by a contract determines how closely a contractor is screened. USPTO designated all contracts 

in our sample as low risk—meaning contract employees undergo minimal background investigations. But guidance in the 

Commerce Acquisition Manual (CAM) suggests that some of these contracts should be designated as high or moderate risk, in which 

case contractor employees should receive more rigorous background screenings. 

The low-risk designation assigned to our sample contracts is not an anomaly. The agency gives low-risk designations to nearly all 

contracts and employee positions. Even its IT security handbook favors low-risk designations and does not even mention what would 

require high or moderate designations.

The United 

States 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, 

invest in research, commercialize 

new technology, and draw attention to inventions that would 

otherwise go unnoticed. USPTO 

also collects, assembles, 

publishes, and disseminates 

technological information 

disclosed in patents.

4

 U. S. Department of Commerce Office of Inspector General, May 2002. Information Security Requirements Need to be Included in the Department’s Information 

Technology Service Contracts. Report No. OSE-14788.

5 Certification is the comprehensive assessment of the management, operational, and technical controls of an information system to determine if the controls are implemented correctly, operating as intended, and producing the desired outcome. Accreditation is management’s formal authorization to allow a system to operate and acceptance of remaining system vulnerabilities.
34 U.S. Department of Commerce/Office of Inspector General

Contractor systems are not certified or accredited. Contractors 

have 14 days from the time they connect to a USPTO network to 

submit C&A packages. None of those in our sample had done so, 

though the deadline had long passed.6 Consequently, none of their 

systems has undergone certification testing or received accreditation. So while most systems in our sample are either connected 

to the USPTO network or contain sensitive agency data, USPTO 

has no assurance that they are adequately secure. We believe this 

noncompliance reflects USPTO’s failure to convey the importance, 

magnitude, and cost of meeting the C&A requirement; enforce 

the deadline and consequences for missing it; and coordinate the 

roles of agency personnel responsible for implementing contractor IT security. 

OIG Recommendations 

In summary, we recommended that USPTO 

1. Develop a plan and schedule for certifying and accrediting contractor systems that connect to the USPTO network, or process 

or access sensitive agency information. The plan should provide 

cost estimates and a method for improving communication 

about and compliance with C&A requirements.

2. Certify and accredit contractor systems in accordance with 

FISMA, make the appropriate USPTO program officials 

responsible for accrediting these systems, and test security 

controls at a level that corresponds to associated risks.

3. Incorporate IT security clauses into all new task orders under 

government-wide service contracts, and develop a plan and 

schedule for reviewing existing contract risk designations and 

modifying them as appropriate.

4. Review and modify the IT security handbook guidance that 

establishes roles and responsibilities for implementing IT 

security in acquisitions.

United States Patent and Trademark Office

6

 After we completed our fieldwork for this report, we met with officials from the Department’s Office of the Chief Information Officer and Office of Acquisition Management to raise concerns about the feasibility of the 14-day deadline. They told us that the Department is considering ways to improve implementation of the C&A 

requirement and are aware that 14 days to complete a certification and accreditation package is unreasonable.

USPTO Risk-Level Designation Compared to CAM Criteria

Description of Contract Work USPTO Risk Level CAM Risk Level Relevant CAM Criteria

System Design and Integration (SDI) contracts–System design and development, allowing access to operational systems and 

underlying IT infrastructure. (2 contracts in 

our sample)

Low High

Designing and operating a computer 

system that includes ADP hardware, 

software, and/or data communications, regardless of the sensitivity of 

the data.

Access to a computer system that 

could result in grave damage or in 

personal gain.

Patent Data Capture contract–Managing patent applications, allowing access 

to pre-publication patent applications, 

confidentiality required by 35 USC 122. 

(1 contract in our sample) 

Low

High

Moderate

Access to a computer system during the operation or maintenance 

process that could result in grave 

damage or in personal gain.

Work involving access to sensitive 

information.

System Engineering and Technical Assistance contract (SETA)–Developing and 

implementing USPTO IT security program, allowing access to security plans, 

and proprietary/confidential information. 

(1 contract in our sample)

Low High

Planning and implementing a 

computer security program
September 2005/Semiannual Report to Congress 35

Agency Response

USPTO generally concurred with our findings and agreed to implement all of our recommendations. (Office of Systems Evaluation: 

OSE-17455)

Inspector General Urges 

Department Officials to 

Address Personnel Problems 

at USPTO

In 2004, allegations that the United States Patent and Trademark 

Office had used improper hiring practices to install a new human 

resources director prompted OIG to audit the bureau’s human 

resource processes. For many years prior to 2004, we had also 

received repeated complaints that USPTO management had allowed unfair personnel practices and activities that undermined 

the integrity of the bureau’s human resources operation. Our June 

2004 report, USPTO Needs Strong Office of Human Resources 

Management Capable of Addressing Current and Future Challenges (BTD-16432), detailed troubling findings, such as a flawed 

hiring process and USPTO’s failure to adhere to merit system 

principles. In that report, we advised the bureau to promptly create 

an effective HR office that implements management controls to 

ensure it adheres to merit system principles and establishes sound 

HR policies and procedures.

USPTO officials agreed with our findings and promised to make 

reforms, but this year we again found the bureau has problems 

with compliance with merit system principles and hiring practices. 

Since USPTO has authority to hire hundreds of examiners, it is 

critical that USPTO addresses the problems in its personnel practices. In May 2005, the Inspector General sent a memorandum to 

then-Acting Deputy Secretary of Commerce David A. Sampson 

summarizing the problems we had earlier identified along with 

some new issues that had come to our attention and asking the 

Department to work with USPTO senior management to properly 

address them. 

The memorandum listed several actions USPTO should take 

immediately to solve its seemingly intractable HR problems, 

including:

1. Establish and follow appropriate HR policies and procedures 

to guide decision-making.

2. Train OHR staff in the Standards of Ethical Conduct for 

Employees of the Executive Branch.

3. Stabilize OHR and ensure people detailed to jobs have the 

appropriate skills and experience to perform those jobs.

The bureau has taken some actions to address the problems OIG 

found in the past, including providing ethics training to its human 

resources department staff, splitting the post of chief financial 

officer/chief administrative officer into two positions, hiring 

experienced human resources professionals to be OHR director 

and deputy director, and creating a plan to address long-standing 

HR problems. (Memorandum from Inspector General Johnnie 

E. Frazier to Acting Deputy Secretary of Commerce David A. 

Sampson, dated May 6, 2005, “Ongoing Issues in USPTO’s Office 

of Human Resources”)

United States Patent and Trademark Office

The public search room at USPTO’s new building in Alexandria, Virginia.

Source: USPTO.
September 2005/Semiannual Report to Congress 37

DEPARTMENT-WIDE 

MANAGEMENT

Improvements in Commerce Emergency 

Preparedness Have Been Made but Additional 

Department-wide Guidance and Oversight 

Are Needed

Three years ago, in the wake of the September 11 terrorist attacks, OIG evaluated the 

state of the Department’s emergency preparedness. We noted vulnerabilities in the 

safety and security of many Commerce facilities. (See March 2002 Semiannual 

Report to Congress, page 77.) During this past semiannual period, we followed 

up on this review to identify and evaluate enhancements the Department has 

introduced in the intervening years, and determine the overall status of emergency preparedness. A separate review also was completed on security of ITA’s 

overseas offices (see page 15).

In the 3 years since our initial evaluation, Commerce has made great strides in 

improving its emergency preparedness. For example, it has installed public address and voice over Internet protocol (VoIP) notification systems, implemented 

shelter-in-place programs and 

enhanced evacuation procedures, 

purchased escape hoods and other 

emergency equipment, and tightened 

access to and security of its facilities 

around the country. To better manage 

Department-wide security initiatives, 

Commerce consolidated responsibility 

for overseeing and coordinating emergency 

preparedness under its Office of Security (OSY), 

while leaving the bureaus responsible for implementing specific measures and programs to safeguard 

their own personnel and facilities.

While the Department has greatly improved its emergency response capabilities and issued much guidance on continuity of operations plans, it has issued relatively 

little Commerce-wide guidance on implementing effective preparedness programs. There 

also has been inadequate oversight of bureau compliance with established policies and 

procedures. This void has undercut the effectiveness of the Department’s efforts, and 

some bureaus and facilities may be ill prepared to handle an emergency. OSY’s risk assessments of Commerce sites—while thorough and more frequent than in the past—offer inconsistent recommendations, and OSY does not always follow up with bureaus 

to see whether recommended actions are being implemented. Key security upgrades to 

protect certain critical assets remain unimplemented, and OSY has acknowledged that 

some proposed, more costly upgrades still are pending. The quality of security guard 

forces—though improved since our 2002 review—still varies among locations, with 

some much better prepared than others to handle the specific risks and potential threats 

to Commerce personnel and property. 

The United 

States Department of Commerce

promotes job creation and 

improved living standards for all 

Americans by creating infrastructure 

that fosters economic growth, technological competitiveness, and sustainable growth. 

The Department has three strategic goals: 

Goal 1: Provide the information and the framework to enable the economy to operate efficiently 

and equitably. 

Goal 2: Provide the infrastructure innovation to 

enhance American competitiveness. 

Goal 3: Observe and manage the Earth’s environment to promote sustainable growth. 

The Department has also established a Management Integration Goal that is equally 

important to all bureaus: Strengthen 

management at all levels.

OSY’s Responsibilities:

• Develop security policies and procedures.

• Safeguard classified and sensitive 

documents and information.

• Analyze threats and assess security 

risks.

• Coordinate emergency actions and 

preparedness efforts.

• Conduct security operations, education, awareness, and training.

• Oversee compliance with security 

policies and procedures.

• Coordinate, establish, and maintain 

a Department occupant emergency 

program.

• Help establish and maintain a 

Department-wide emergency action 

program.

• Conduct administrative investigations.

• Specify and enforce the security elements of the Office of Administrative 

Services’ management policy.
38 U.S. Department of Commerce/Office of Inspector General

We recommended 13 specific actions to eliminate the weaknesses 

we identified in the Department’s emergency preparedness policies 

and oversight, risk assessment process, and guard services, and 

thereby improve its response capabilities and the overall safety 

and security of Commerce staff and assets nationwide. 

The Department’s Chief Financial Officer and Assistant Secretary 

for Administration fully concurred with most of our recommendations, and noted actions Commerce is taking to address them. He 

acknowledged that improvements are needed in communication, 

oversight, and guidance related to the Department’s security and 

emergency preparedness programs. Though disagreeing with some 

of the weaknesses we identified with risk assessments, security 

guard forces, and other areas, the CFO described departmental 

initiatives under way that respond to a number of these concerns. 

(Office of Inspections and Program Evaluations: IPE 17198)

PREAWARD FINANCIAL 

ASSISTANCE SCREENING

As part of our ongoing emphasis on prevention of fraud, waste, 

and abuse, we continue to work with the Office of Acquisition 

Management, NOAA and NIST grant offices, and EDA program 

offices to screen the Department’s proposed grants and cooperative 

agreements before they are awarded. Our screening serves two 

functions: it provides information on whether the applicant has 

unresolved audit findings and recommendations on earlier awards, 

and it identifies any negative financial or investigative history on 

individuals or organizations connected with a proposed award. 

On January 1, 2004, we implemented new policies and procedures 

for our preaward screening process. OIG and the Department determined that there are several categories of recipients for whom 

the costs and administrative burden of the screening process may 

well outweigh the government’s risk of financial loss. Our new 

policies exempt from review, recipients who (1) receive awards in 

amounts of $100,000 or less; (2) have received financial assistance 

from the Department for 3 or more consecutive years without any 

adverse program or audit findings; or (3) are units of a state or 

local government. 

During this period we screened 273 proposed awards. For 38 

of the awards, we found major deficiencies that could affect the 

ability of the prospective recipients to maintain proper control 

over federal funds. On the basis of the information we provided, 

the Department delayed 13 awards and established special award 

conditions for 25 awards. (Office of Audits)

Preaward Screening Results

Award

Results Number Amount

Awards delayed to 

resolve concerns 13 $15,652,706

Special award 

conditions established 25 $20,362,666

NONFEDERAL AUDIT 

ACTIVITIES 

In addition to undergoing OIG-performed audits, certain recipients 

of Commerce financial assistance are periodically examined by 

state and local government auditors and by independent public accountants. OMB Circular A-133, Audits of States, Local 

Governments, and Non-Profit Organizations, sets forth the audit 

requirements for most of these audits. For-profit organizations 

that receive Advanced Technology Program 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. 

We examined 157 audit reports during this semiannual period to 

determine whether they contained any audit findings related to 

Department programs. For 88 of these reports the Department acts 

as oversight agency and monitors the audited entity’s compliance 

with OMB Circular A-133 or NIST’s program-specific reporting 

requirements. The other 69 reports are from entities for which other 

federal agencies have oversight responsibility. We identified 17 

reports with findings related to the Department of Commerce.

OMB ATP 

A-133 ProgramReport Category Audits Specific Audits Total

Pending 

(April 1, 2005) 10 98 108

Received 83 52 135

Examined 83 74 157

Pending 

(September 30, 2005) 10 76 86

Department-wide Management
September 2005/Semiannual Report to Congress 39

The following table shows a breakdown, by bureau, of the nearly 

$548 million in Commerce funds audited.

Bureau Funds

EDA $ 22,053,804

NIST* 116,797,267

NOAA 12,608,159

NTIA 308,986

Multiagency 393,584,076

Agency not identified 2,786,532

Total $548,138,824

* Includes $116,692,322 in ATP program-specific audits.

We identified a total of $2,694,768 in questioned costs and $31,233 

in funds to be put to better use. In most reports the subject programs 

were not considered major programs; thus the audits involved limited transaction and compliance testing against laws, regulations, 

and grant terms and conditions. The 17 reports with Commerce 

findings are listed in Appendix B-1. (Atlanta and Denver Regional 

Offices of Audits)

Department-wide Management

September 2005/Semiannual Report to Congress 41

OFFICE OF 

INSPECTOR GENERAL

Commerce Inspector General Joins Other IGs in 

Hearing on Hurricane Katrina Spending

With billions of federal dollars flowing into the Gulf Coast region, the 

U.S. House of Representatives’ 

Subcommittee on Oversight and 

Investigations, Committee on 

Energy and Commerce, called 

six inspectors general and representatives from the Government Accountability Office to 

describe plans for monitoring 

their agencies’ use of these 

funds. Inspector General 

Johnnie E. Frazier of Commerce joined IGs from Energy, 

Defense, Homeland Security, 

HHS, and EPA in testifying 

before the subcommittee. 

At the time of the September 28 hearing, Congress had appropriated an unprecedented $63 

billion for Katrina relief, and Commerce bureaus are actively supporting the relief effort. 

Under the President’s National Response Plan, the Department is charged with supporting 

the Department of Homeland Security in helping the nation prepare for, respond to, and recover 

from major natural disasters. As a result, the focus and level of funding Commerce dedicated to 

post-Katrina activities could be substantial.

Mr. Frazier noted that the large infusion of federal resources accompanied by spending flexibilities that agencies may 

adopt inevitably increases the potential for waste, fraud, and abuse. For example, Commerce has raised spending limits for certain NOAA 

purchase cardholders to $15,000 and the ceiling for simplified acquisitions from $100,000 to $250,000 for Katrina-related buying. 

“Huge infusions of dollars, coupled with more flexible rules, create an environment ripe for possible waste, fraud, and abuse,” Mr. 

Frazier stated. But he added that inspectors general are well-positioned to monitor the appropriate use of such funding and flexibilities 

because in identifying the top challenges facing their agencies every year, IGs are well aware of their operational and programmatic 

weaknesses and know where to look for problems.

“Across all agencies and departments, the areas of procurement, financial and grants management, and information security have been 

consistently cited as vulnerable to waste, fraud, and abuse,” Mr. Frazier stated. “Not surprisingly, these are some of the key areas and 

means by which government agencies will deliver and manage their relief efforts.”

Mr. Frazier noted that his office began working closely with Department officials almost immediately after Katrina to identify funds 

being spent on related activities. He reported that the Commerce Chief Financial Officer has established internal controls to identify 

and monitor Katrina spending. OIG will evaluate the effectiveness of those controls, assess whether funded projected are targeting the 

most crucial needs and meeting their objectives, review contract administration, and pay close attention to financial assistance projects 

that are permitted to operate under nontraditional funding terms and conditions. 

The mission 

of the Office of 

Inspector General is 

to promote economy, efficiency, 

and effectiveness and detect and 

prevent waste, fraud, abuse, and 

mismanagement in the programs and 

operations of the U.S. Department of 

Commerce. Through its audits, inspections, performance evaluations, and investigations, OIG proposes innovative ideas and 

constructive solutions that lead to positive 

changes for the Department. By providing timely, useful, and reliable information 

and advice to departmental officials, the 

administration, and Congress, OIG’s work 

helps improve Commerce management 

and operations as well as its delivery of 

services to the public

On September 28, Johnnie E. Frazier (left), inspector 

general of the U.S. Department of Commerce, and six 

other inspectors general gave the U.S. House of Representatives’ Subcommittee on Oversight and Investigations, Committee on Energy and Commerce, information about their plans for monitoring their agencies’ use 

of funds designated for the Gulf Coast region. 

Source: OIG.
42 U.S. Department of Commerce/Office of Inspector General

Lessons Learned from 

Hurricane Andrew

Mr. Frazier spoke of his office’s experience monitoring the Department’s recovery efforts after Hurricane Andrew in the 1990s and 

of lessons learned that can inform Commerce’s involvement with 

Katrina. The scope of that disaster and related federal support was 

much smaller—roughly $1 billion was shared by various federal 

agencies, $80 million of which went to Commerce’s Economic 

Development Administration to fund long-term economic recovery and growth projects. OIG reviews of these projects revealed 

that the successful ones rebuilt or replaced critical buildings and 

infrastructure, and were located within a 20-mile path of the hurricane. The unsuccessful ones were in areas less impacted by the 

hurricane and focused on developing tourism and new business 

ventures. Had EDA applied the following guidelines in every case, 

unsuccessful projects could have been identified and their funding 

transferred to better prospects: 

• Target communities directly impacted.

• Focus immediate rebuilding efforts on vital infrastructure 

and commercial concerns.

• Enforce standard monitoring procedures.

• Provide consistent, ongoing oversight both on-site and from 

agency headquarters.

• Quickly rehabilitate or terminate projects that are failing 

to meet milestone goals and transfer funds to other disaster 

recovery purposes.

“It is critical that agencies not overlook the need to give close attention to shortcomings in project oversight in light of the monumental 

rebuilding effort required post-Hurricane Katrina,” Mr. Frazier 

stated. “If officials recognize the symptoms of problem projects 

early on, they can promptly act to fix them, where possible, or 

terminate the award and redeploy the remaining funds.”

OFFICE OF INVESTIGATIONS

During this semiannual period, we achieved a significant measure 

of success and substantially enhanced the impact of our work 

by focusing our limited resources in several areas that currently 

make up the greatest part of our caseload: fraud and corruption 

involving contractors, grantees, and other private parties dealing 

with the Department; employee fraud, corruption, and misconduct; 

and criminal and administrative misuse of government 

computer resources. The 

investigations highlighted 

below are representative 

of our accomplishments 

during this period in these 

areas of critical concern. 

Our investigative results are 

grouped by subject matter 

into three distinct areas: 

external and program fraud, 

internal misconduct, and 

computer crime.

CONTRACTOR, 

GRANTEE, AND OTHER EXTERNAL 

FRAUD AND CORRUPTION

Commerce disburses millions of dollars each year in financial assistance awards and government contracts. With large sums of money 

being entrusted to thousands of different recipients across the nation, it is unfortunately not uncommon for unscrupulous individuals 

to attempt to exploit bureaucratic vulnerabilities for professional or 

personal gain. Addressing fraud by contractors and grantees (as well 

as other forms of external fraud and corruption) is a high priority 

for OIG, and the Office of Investigations has markedly increased 

its attention to these issues over the past several years. 

Economic Development Commission 

Officials Convicted on Program Fraud and 

False Statement Charges

In our September 2004 Semiannual Report (page 19), we reported 

the indictment of two former directors of a regional rural economic 

development commission for conspiracy, program fraud, and false 

statements in connection with their administration of federal grant 

funds, including funds awarded by EDA to operate a revolving 

loan fund. A joint OIG/FBI investigation disclosed that the defendants had used nearly half a million dollars in federal funds 

to make unauthorized loans and payments to benefit themselves 

and companies they controlled. On May 17, 2005, both defendants 

entered guilty pleas on single counts of the indictment in U.S. 

District Court for the Western District of Missouri. The former 

executive director of the commission pleaded guilty to federal 

program fraud, which could subject him to a sentence of up to 10 

years in prison without parole, plus a fine of up to $250,000. The 

former assistant director pleaded guilty to using false documents 

and was sentenced in September 2005 to 3 years’ probation and a 

$5,000 fine. (Denver Resident Office)

Office of Inspector General
September 2005/Semiannual Report to Congress 43

Census Contractor Ordered to Make 

Restitution to the Government for Credit 

Card Fraud

Under the terms of a pretrial diversion agreement with the State’s 

Attorney’s Office in Kane County, Illinois, on June 15, 2005, a 

Census vendor was ordered to pay $23,225 in restitution and perform 500 hours of community service over a 36-month probationary period for fraudulently billing a credit card account issued to 

the bureau. As previously reported (see March 2005 Semiannual 

Report, page 19), an OIG investigation found that in addition to 

legitimate charges for services rendered to Census by his company, 

the vendor had billed a government purchase card for more than 

20 fraudulent charges over an 8-month period in 2004. By admitting his culpability and complying with all terms and conditions 

of the pretrial agreement, the defendant will be eligible to have the 

charges dismissed at the completion of his probationary period. 

(Alexandria Resident Office)

Joint Investigation Reveals Extortion 

Scheme in Connection with Federally 

Funded Projects

On September 30, 2005, a construction company subcontracting 

on an EDA-funded public works project and the company’s owner 

were charged with bribery in connection with an extortion scheme 

executed by a Philadelphia city official. A joint investigation involving the FBI, IRS, and OIGs of the departments of Commerce, 

Labor, and Transportation disclosed that the official was accepting 

bribes from private companies in exchange for issuing minority 

business certificates for use in obtaining construction contracts 

on city projects, including several projects funded by the federal 

government. The city official pleaded guilty to extortion in U.S. 

District Court for the Eastern District of Pennsylvania and was 

sentenced in May 2005 to 36 months’ probation and a $600 fine. 

The charges filed against the construction company and its owner 

could result in fines of up to $500,000 each, and a 13-year maximum term of imprisonment for the owner. (Alexandria Resident 

Office)

Assignment of Fictitious Census Contract 

Results in Conspiracy Conviction

A Louisiana businessman was convicted of conspiracy to commit bank fraud as the result of a joint OIG/FBI investigation. As 

reported in our March 2005 Semiannual Report (page 19), the 

defendant had pledged his company’s interest in the proceeds of 

an $18.5 million contract with the Census Bureau as collateral for 

a $6 million loan from a New Orleans bank. We established that 

documents he submitted to support the assignment were forged 

and no contract with Census actually existed. On April 21, 2005, 

the defendant entered a guilty plea in U.S. District Court for the 

Eastern District of Louisiana. Sentencing was scheduled for October 2005. (Alexandria Resident Office)

Local Government Officials Debarred

In April 2005, the former manager and former accountant of a municipal economic development organization in Massachusetts were 

debarred from receiving federal contracts or financial assistance 

awards for periods of 10 and 3 years, respectively. As noted in our 

March 2005 Semiannual Report (page 16), the debarred individuals 

are two of four local officials convicted of conspiracy and fraud 

in connection with the administration of grant funds awarded to 

the organization by the Economic Development Administration 

and other federal agencies. The other two officials were previously 

debarred. (Alexandria Resident Office)

EMPLOYEE FRAUD, CORRUPTION, 

AND MISCONDUCT

Investigation of criminal activities and misconduct by Commerce 

employees has long been the province of OIG, and it remains a 

staple of the Office of Investigation’s work. During this semiannual 

period, OI successfully prosecuted one employee for bribery and 

resolved allegations of unethical conduct by two senior officials. 

We also pursued multiple cases of time and attendance fraud and 

theft of government property.

USPTO Employee Convicted on Bribery 

Charges

On June 23, 2005, a former supervisory engineering draftsman 

at USPTO was indicted for bribery in violation of 18 USC § 201 

after an OIG investigation disclosed that she had solicited payment 

from patent applicants in exchange for drafting work to be performed by employees under her supervision. In September 2005, 

the defendant entered a guilty plea to all charges in U.S. District 

Court for the Eastern District of Virginia. Sentencing has not yet 

been scheduled. (Alexandria Virginia Resident Office)

Unethical Hiring Practices in USPTO’s 

Office of Human Resources Result in 

Removal of Senior Employee

A supervisory patent examiner was removed from her position in 

August 2005 as the result of an OIG investigation into allegations 

of misconduct and mismanagement in USPTO’s Office of Human 

Resources. The inquiry was prompted by a series of complaints 

alleging improper hiring practices, improper use of employee 

details, and violations of merit hiring principles in the office. The 

complaints had earlier resulted in an OIG audit of a questionable 

OHR recruitment that found USPTO did not have sufficient HR 

policies and procedures in place to guide its personnel function. 

(See our September 2004 Semiannual Report, page 40.) Our 

multidisciplinary follow-up effort included both investigation of 

specific instances of alleged misconduct and an analysis of OHR 

operations from a functional and management perspective.

Office of Inspector General
44 U.S. Department of Commerce/Office of Inspector General

With respect to the allegations of misconduct, we found that 

the patent examiner had violated employee ethical standards of 

conduct by actively participating in the hiring of a close family member as a human resources specialist working under her 

supervision. She was personally involved in the hiring process 

from its inception and took various actions to influence the result 

up through and including the selection phase. Because of the 

nepotism involved in the hiring, the relative was notified that her 

appointment would be cancelled. 

Our inquiry also confirmed a wide variety of problems, including improper document handling, inappropriate hiring practices, 

misuse of details to place unqualified employees in positions, and 

violations of the agency’s performance recognition procedures. 

Of greatest concern, we identified an organizational culture that 

overlooked violations of required merit system procedures and 

controls and exhibited widespread ignorance or disregard of basic 

ethical requirements. 

In response to the recommendations generated by our inquiry, 

OHR is in the process of implementing significant changes to its 

policies, procedures, and office structure. In addition, USPTO 

management requested that the Office of General Counsel provide 

ethics training to all OHR staff members. (Silver Spring Resident 

Office; Office of Audits; Office of Counsel)

Procurement Official Counseled for 

Misconduct

An OIG investigation found that a senior procurement official who 

was involved in a personal relationship with an executive employed 

by a DOC contractor failed to notify all necessary parties of the 

relationship as part of the recusal process, thereby creating the 

appearance of a conflict of interest. The official was counseled 

and reminded of departmental expectations in this area. (Silver 

Spring Resident Office)

Former NWS Employee Sentenced for 

$100,000 Time and Attendance Fraud

A former National Weather Service employee pleaded guilty to 

one count of theft of government property in April 2005 after an 

OIG investigation disclosed that she had used her position as a 

timekeeper to process and transmit false timesheets over a 2-year 

period to claim more than $100,000 in overtime pay for hours she 

had not worked. In July 2005, the defendant was sentenced in U.S. 

District Court for the Eastern District of New York to 6 months’ 

home detention, 3 years’ probation, and 300 hours of community 

service. The employee resigned from government service in August 

2005 upon receiving notice of her proposed removal; restitution 

to NOAA for the full amount of her theft had been made prior 

to sentencing. As a result of our investigation, various policy 

changes have been implemented in the defendant’s former office. 

Specifically, timekeepers are no longer allowed to process their 

own timesheets, and transmission file listings are now required for 

all time and attendance information transmitted to the National 

Finance Center. In addition, each supervisor has access to an 

overtime/compensatory time report for his or her office on a pay 

period basis, and the region’s deputy director reviews individual 

overtime data at least once a month. (Washington Field Office)

Theft Conviction in Time and Attendance 

Fraud Case

An OIG investigation disclosed that over a span of four pay periods 

in late 2004, an office automation assistant at the National Ocean 

Service embezzled more than $5,000 by using her position as alternate timekeeper to falsify her time in the T&A database, claiming 

236 hours of overtime she had not worked. In September 2005, 

she pleaded guilty to theft in U.S. District Court for the District of 

Maryland and was sentenced to 12 months’ probation, a $500 fine, 

and ordered to pay $5,151 in restitution. (Atlanta Field Office)

Crackdown on Time and Attendance 

Fraud at USPTO

Between April and September 2005, OIG uncovered evidence 

that five USPTO employees, including a patent examiner and 

several legal instruments examiners, were engaged in time and 

attendance fraud on a recurring basis, falsely claiming hundreds 

of hours of work time to obtain a total of more than $25,000 in 

unearned salary payments. Two of the employees immediately 

resigned their positions when confronted with evidence of their 

misconduct. Three employees were arrested on state theft charges. 

On September 22, 2005, one of the three was convicted of felony 

theft in the Circuit Court of the City of Alexandria for embezzling 

more than $14,000 by claiming approximately 400 hours of work 

he had not performed. His sentencing date is pending. (Alexandria 

Resident Office)

Census Employee Pleads Guilty to Theft 

of Debit Cards

A Census employee was charged in July 2005 with theft and making false statements in a Census matter after an OIG investigation 

established that she had improperly negotiated 47 debit cards worth 

almost $2000 that were intended for distribution to the public as 

an incentive to participate in Census surveys. The debit cards were 

cashed in at least 21 different locations in southern Ohio, western 

West Virginia, and northern Kentucky. In the process, the employee 

submitted falsified survey forms to account for the missing cards. 

On September 15, 2005, the employee pleaded guilty to theft of 

government property in U.S. District Court for the Southern District of Ohio. Sentencing is pending. (Denver Resident Office)

Office of Inspector General
September 2005/Semiannual Report to Congress 45

Census Employee Arrested for Theft of 

Debit Cards

In July 2005, OIG agents arrested a Census employee in New 

York City on theft charges after an investigation established that 

she had stolen and cashed approximately 73 survey debit cards, 

valued at $40 each, at various ATM locations throughout the city. 

The employee was responsible for maintaining and distributing the 

debit cards to field representatives for use in completing surveys. 

Prosecution is pending in U.S. District Court for the Southern 

District of New York. (Washington Field Office)

CRIMINAL USE AND MISUSE OF 

GOVERNMENT COMPUTERS

The Office of Investigations has dedicated considerable resources 

to improving its capabilities in the area of information technology security and integrity of government computer systems. Our 

Washington Field Office now has a full-time, well-equipped, and 

highly trained Computer Crimes Unit under its own assistant special agent-in-charge. This unit has aggressively and successfully 

pursued investigations into the criminal misuse of government 

computers, particularly in the area of Internet child pornography. 

During this semiannual reporting period, there were significant 

developments in several such investigations and criminal prosecutions. Each of these cases represents a sizable but necessary 

investment of time and resources to eliminate destructive and 

unacceptable conduct through successful prosecution and effective deterrence.

Former Census Employee Convicted on 

Child Pornography Charge

In May 2005, a former statistical mathematician at the Bureau of 

the Census was convicted in U.S. District Court for the Southern 

District of Indiana on one count of possessing child pornography 

in violation of 18 USC 2252, after an OIG investigation established 

that he had used his government computer to download sexually 

explicit images of children. When OIG investigators examined 

the employee’s computer, they discovered several hundred pornographic images of children and more than 200 web e-mail links 

relating to the acquisition of logins and passwords for sites that 

hosted child pornographic images. In addition, e-mail and other 

documents stored on his computer hard drive contained confirmations of the employee’s subscriptions to various child pornography 

websites and evidence of child molestation. Because the employee 

was acting as a foster parent to two small children, we also alerted 

local Child Protective Services, which initiated appropriate followup actions. The individual resigned his position at Census in 2004 

after initiation of our investigation. His sentencing was pending at 

the close of the reporting period. (Washington Field Office)

Former USPTO Employee Sentenced on 

Child Pornography Conviction

In our March 2005 Semiannual Report (page 35), we reported 

the conviction of a former patent examiner for possession of 

child pornography, which resulted from an OIG investigation 

that found he had downloaded hundreds of child pornographic 

images to both his government and home computers. On April 

22, 2005, the defendant was sentenced in U.S. District Court for 

the Eastern District of Virginia to 30 months’ incarceration, followed by 5 years’ supervised probation. Upon release, he will also 

be required to register as a sex offender in his state of residence. 

(Washington Field Office)

OIG special agents move seized computers and documents to the 

evidence room.

Source: OIG.

Office of Inspector General
46 U.S. Department of Commerce/Office of Inspector General

TABLES AND STATISTICS

Statistical Overview

TABLES PAGE

1. Investigative Statistical Highlights for this Period .................................................................................................................46

2. Audit Resolution Follow-Up ..................................................................................................................................................47

3. Audit and Inspection Statistical Highlights for this Period ....................................................................................................47

4. Audits with Questioned Costs ................................................................................................................................................47

5. Audits with Recommendations that Funds Be Put to Better Use ...........................................................................................48

APPENDIXES 

A. Report Types this Period .......................................................................................................................................................49

 A-1. Performance Audits ........................................................................................................................................................49

 A-2. Financial Assistance Audits ...........................................................................................................................................50

 A-3. Inspections and Systems Evaluations ............................................................................................................................51

B. Processed Audit Reports .........................................................................................................................................................51

 B-1. Processed Reports with Audit Findings .........................................................................................................................52

Table 1. Investigative Statistical Highlights 

for this Period

Criminal Investigative Activities

Arrests 6

Indictments and informations 10

Convictions 9

Personnel actions 4

Fines, restitutions, judgments, and other civil 

and administrative recoveries $141,885

Allegations Processed

Accepted for investigation 45

Referred to operating units 51

Evaluated but not accepted for 

investigation or referral 

Total 

18

114

Audit Resolution and Follow-up

The Inspector General Act Amendments of 1988 require us to 

present in this report those audits issued before the beginning of 

the reporting period (April 1, 2005) for which no management 

decision had been made by the end of the period (September 30, 

2005). Five audit reports remain unresolved for this reporting 

period (see pages 14 and 31).

Department Administrative Order 213-5, Audit Resolution and 

Follow-up, provides procedures for management to request a 

modification to an approved audit action plan or for a financial 

assistance recipient to appeal an audit resolution determination. 

The following table summarizes modification and appeal activity 

during the reporting period.

Office of Inspector General
September 2005/Semiannual Report to Congress 47

Office of Inspector General

Table 2. Audit Resolution Follow-Up

Report Category Modifications Appeals

Actions pending (April 1, 2005) 0 9

Submissions 1 5

Decisions 1 4

Actions pending (September 30, 2005) 0 10

Table 3. Audit and Inspection Statistical 

Highlights for this Period

Questioned costs $15,510,326*

Value of audit recommendations 

that funds be put to better use 734,951

Value of audit recommendations 

agreed to by management 1,223,803

Value of inspection recommendations 

that funds be put to better use 290,737

*This number includes costs questioned by state and local government auditors 

or independent public accountants.

Table 4. Audits with Questioned Costs

Report Category Number Questioned Costs Unsupported Costs

A. Reports for which no management decision had been made 

by the beginning of the reporting period 25 $ 18,188,059 $ 6,451,608

B. Reports issued during the reporting period 23 15,510,326 2,735,230

 Total reports (A+B) requiring a management decision 

during the reporting period1 48 33,698,385 9,186,838

C. Reports for which a management decision was made 

during the reporting period2 21 6,429,166 3,228,585

 i. Value of disallowed costs 1,059,407 259,993

 ii. Value of costs not disallowed 5,369,759 2,968,592

D. Reports for which no management decision had been 

made by the end of the reporting period 27 27,269,219 5,958,253

1

Four audit reports included in this table are also included among reports with recommendations that funds be put to better use (see table 5). However, the dollar amounts 

do not overlap.

2

In Category C, lines i a�
48 U.S. Department of Commerce/Office of Inspector General

Table 5. Audits with Recommendations that Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made 

by the beginning of the reporting period 3 $421,340

B. Reports issued during the reporting period 3 734,951

Total reports (A+B) requiring a management decision 

during the reporting period1 6 1,156,291

C. Reports for which a management decision was made 

during the reporting period2 4 446,157

i. Value of recommendations agreed to by management 164,396

 ii. Value of recommendations not agreed to by management 281,763

D. Reports for which no management decision had been made 

by the end of the reporting period 2 710,134

1

Four audit reports included in this table are also included in the reports with questioned cost (see table 4). However, the dollar amounts do not overlap.

2

In Category C, lines i a�

Definitions of Terms Used 

in the Tables

Questioned cost: a cost questioned by 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.

Unsupported cost: a cost that, at the time of the audit, is not 

supported by adequate documentation. Questioned costs include 

unsupported costs.

Recommendation that funds be put to better use: an OIG 

recommendation 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 

specifically identified.

Management decision: 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.

Office of Inspector General
September 2005/Semiannual Report to Congress 49

APPENDIX A. REPORT TYPES THIS PERIOD

Type Number of Reports Appendix Number

Performance audits 5 A-1

Financial assistance audits 11 A-2

Inspections and systems evaluations 6 A-3

Total 22 

APPENDIX A-1. PERFORMANCE AUDITS

 Funds to 

 Be Put to

Report Title Report Number Date Issued Better Use

Minority Business Development Agency

Value of MBDA Performance Measures is Undermined by 

Inappropriate Combining of Program Results and Unreliable 

Performance Data from MBOC Program FSD-17252-5-0001 09/30/05 —

National Oceanic and Atmospheric Administration

Opportunities to Strengthen Internal Controls 

Over Improper Payments BSD-16186-5-0001 07/08/05 —

The NMFS Review Process for the California Central 

Valley and State Water Projects’ Biological Opinion 

Deviated from the Region’s Normal Practice STL-17242-5-0001 07/08/05 —

Follow-up Audit of Inspection Report OSE-15676 Acquisition 

of NEXRAD Transition Power Source Marred by Management,

Technical, and Contractual Problems BSD-17613-5-0001 09/30/05 —

National Institute of Standards and Technology

NIST’s Procurement Practices Have Improved But Additional 

Challenges Remain BSD-16656-5-0001 09/30/05 —

Office of Inspector General
50 U.S. Department of Commerce/Office of Inspector General

APPENDIX A-2. FINANCIAL ASSISTANCE AUDITS

 Value of 

 Funds to Federal Federal 

Date Be Put to Amount Amount

Report Title Report Number Issued Better Use Questioned Unsupported

Bureau of the Census

Computer & Hi-Tech 

Management, Inc., VA DEN-17445-5-0002 09/30/05 $ 1,486,234 $ 85,936

Computer & Hi-Tech 

Management, Inc., VA DEN-17445-5-0001 09/30/05 9,263,559 608,953

Economic Development Administration

Erie County Industrial 

Development Agency, NY ATL-16533-5-0001 09/27/05 703,718 221,691 105,218

Minority Business Development Agency

National Minority Supplier 

Development Council of Florida ATL-17363-5-0001 09/29/05 

Wisconsin Business 

Resource Center, Inc. DEN-17423-5-0001 09/30/05 

National Institute of Standards & Technology

BRAINSTORM 

Technology, LLC, NY DEN-17247-5-0001 08/05/05 1,506 

Targacept, Inc., NC DEN-17248-5-0001 08/24/05 

Actuality Systems, Inc., MA DEN-16980-5-0001 09/13/05 2,855 624

National Oceanic & Atmospheric Administration

Northwest Indian Fisheries 

Commission, Audit of Subgrant 

with the Nisqually Tribe, WA STL-16657-5-0005 07/21/05 695,868 695,868

Northwest Indian Fisheries 

Commission, Audit of Subgrant 

with the Quinault Tribe, WA STL-16657-5-0007 09/30/05 382,060 366,772

Northwest Indian Fisheries 

Commission, Audit of Subgrant 

with the Quileute.Tribe, WA STL-16657-5-0008 09/30/05 761,785 750,141

Office of Inspector General
September 2005/Semiannual Report to Congress 51

APPENDIX A-3. INSPECTIONS AND SYSTEM EVALUATIONS

Funds to

 Be Put to

Agency Report Title Report Number Date Issued Better Use

Census FDCA Program for 2010 Census Is 

Progressing, but Key Management and 

Acquisition Activities Need to Be Completed OSE-17368 08/05/05 —

NOAA The Northeast River Forecast Center Is Well 

Managed, But Some Improvements Are Needed IPE-17259 08/01/05 —

ITA Better Management of the Overseas Security 

Program and Security Funds Is Needed IPE-17446 09/30/05 $290,737

Office of the Commerce’s Emergency Preparedness Efforts 

Secretary Are Improving, but Additional Management 

Guidance and Oversight Are Needed IPE-17198 08/19/05 —

FY 2005 FISMA Evaluation OSE-17131 10/07/05 —

USPTO Information Security in Contracts Needs 

Better Enforcement and Oversight OSE-17455 09/30/05 —

APPENDIX B. PROCESSED AUDIT REPORTS

The Office of Inspector General reviewed and accepted 157audit reports prepared by independent public accountants and local, state, 

and other federal auditors. The reports processed with questioned costs, recommendations that funds be put to better use, and/or nonfinancial recommendations are listed in Appendix B-1. 

Agency Audits

Economic Development Administration � 23

National Institute of Standards and Technology* ........................................................................................................................76

National Oceanic and Atmospheric Administration .....................................................................................................................13

National Telecommunications and Information Administration ....................................................................................................3

Multiagency ..................................................� 38

Agency not identified .....................................� 4

Total 57

*Includes 74 ATP program-specific audits.

Office of Inspector General
52 U.S. Department of Commerce/Office of Inspector General

APPENDIX B 1. PROCESSED REPORTS WITH AUDIT FINDINGS

 Value of 

 Funds to Federal Federal 

Date Be Put to Amount Amount

Report Title Report Number Issued Better Use Questioned Unsupported

Economic Development Administration

Native American Development 

Corporation, MT ATL-09999-5-2077 08/23/05 $15,350 

Seneca County Industrial Development 

Agency, Inc., NY ATL-09999-5-2192 09/22/05 59,772 

Southwestern Wisconsin Regional 

Planning Commission ATL-09999-5-2099 09/28/05 25,352 

National Institute of Standards and Technology

CombineNet, Inc., PA DEN-09999-5-1741 04/01/05 

GSE, Inc., NV ATL-09999-5-1939 06/10/05 $24,817 

Evergreen Solar, Inc., MA DEN-09999-5-1825 06/30/05 493,969 

E.I. duPont de Nemours & Co., 

CR&D, DE ATL-09999-5-2019 07/06/05 1,265,851 

Gene Network Sciences, Inc., NY ATL-09999-5-1924 07/06/05 179,795 

Immerge BioTherapeutics, Inc., MA ATL-09999-5-1948 07/06/05 6,275 

Xradia, Inc., CA ATL-09999-5-1929 07/06/05 6,416 10,688 

IBM T.J. Watson Research Center, NY ATL-09999-5-1968 08/03/05 297,809 

Teranex, Inc., FL ATL-09999-5-2027 08/03/05 34,622 

Agility Communications, Inc., CA ATL-09999-5-1977 08/23/05 45,967 

Imaging Systems Technology, Inc., OH ATL-09999-5-1948 09/09/05 46,242 

RheoGene, Inc., PA ATL-09999-5-2163 09/09/05 121,718 $121,718

Cabot Superior MicroPowders, NM DEN-09999-5-1654 09/14/05 22,300 

Alfred University, NY ATL-09999-5-2182 09/28/05 69,058 

Office of Inspector General
September 2005/Semiannual Report to Congress 53

REPORTING REQUIREMENTS

The Inspector General Act of 1978, as amended, specifies reporting requirements for semiannual reports. The requirements are listed 

below and indexed to the applicable pages of this report.

Section Topic Page

4(a)(2) ............................Review of Legislation and Regulations ........................................................................................53–54

5(a)(1) ............................ Significant Problems, Abuses, and Deficiencies ............................................................................ 11–39

5(a)(2) ............................ Significant Recommendations for Corrective Action ..................................................................... 11–39

5(a)(3) ............................ Prior Significant Recommendations Unimplemented ..........................................................................53

5(a)4 .............................. Matters Referred to Prosecutive Authorities ........................................................................................46

5(a)(5) and 6(b)(2) .........Information or Assistance Refused .....................................................................................................54

5(a)(6) ............................Listing of Audit Reports ................................................................................................................46–52

5(a)(7) ............................ Summary of Significant Reports ................................................................................................... 11–39

5(a)(8) ............................ Audit Reports—Questioned Costs ......................................................................................................47

5(a)(9) ............................ Audit Reports—Funds to Be Put to Better Use ....................................................................................48

5(a)(10) .......................... Prior Audit Reports Unresolved ..........................................................................................................54

5(a)(11) .......................... Significant Revised Management Decisions ........................................................................................54

5(a)(12) .......................... Significant Management Decisions with which OIG Disagreed .........................................................54

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 this 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 of the management 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. Comments concerning legislative and 

regulatory initiatives affecting Commerce programs are discussed, 

as appropriate, in relevant sections of the report.

Section 5(a)(3): Prior Significant 

Recommendations Unimplemented

This section requires identification of each significant recommendation described in previous semiannual reports for which 

corrective action has not been completed. Section 5(b) requires 

that the Secretary transmit to Congress statistical tables showing 

the number and value of audit reports for which no final action has 

been taken, plus an explanation of the reasons why recommended 

action has not occurred, except when the management decision 

was made within the preceding year.

To include a list of all significant unimplemented recommendations in this report would be duplicative. Information on the status 

of any audit recommendations can be obtained through OIG’s 

Office of Audits.

Office of Inspector General
54 U.S. Department of Commerce/Office of Inspector General

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 instances during this 

semiannual period and no reports to the Secretary.

Section 5(a)(10): Prior Audit Reports 

Unresolved

This section requires a summary of each audit report issued before 

the beginning of the reporting period for which no management 

decision has been made by the end of the reporting period (including the date and title of each such report), an explanation of why a 

decision has not been made, and a statement concerning the desired 

timetable for delivering a decision on each such report. There were 

three Census and two NIST reports more than 6 months old.

Section 5(a)(11): Significant Revised 

Management Decisions

This section requires an explanation of the reasons for any significant revision to a management decision made during the reporting 

period. Department Administrative Order 213-5, Audit Resolution 

and Follow-up, provides procedures for revising a management 

decision. For performance audits, OIG must be consulted and must 

approve in advance any modification to an audit action plan. For 

financial assistance audits, OIG must concur with any decision 

that would change the audit resolution proposal in response to an 

appeal by the recipient. The decisions issued on one modification 

and four appeals of audit-related debts were finalized with the full 

participation and concurrence of OIG.

Section 5(a)(12): Significant Management 

Decisions with Which OIG Disagreed

This section requires information concerning any significant 

management decision with which the inspector general disagrees. 

Department Administrative Order 213-5 provides procedures for 

elevating unresolved audit recommendations to higher levels of 

Department and OIG management, including their consideration 

by an Audit Resolution Council. During this period no audit issues 

were referred to the council.

Office of Inspector General
September 2005/Semiannual Report to Congress 55

ACRONYMS

ATP ...........................................................................................................................................................Advanced Technology Program

BEA .............................................................................................................................................................Bureau of Economic Analysis

BIS .......................................................................................................................................................... Bureau of Industry and Security 

CAM ........................................................................................................................................................ Commerce Acquisition Manual

CAMS ............................................................................................................................Commerce Administrative Management System

CBS ..............................................................................................................................................................Commerce Business Systems

C&A ............................................................................................................................................................ certification and accreditation

CIO ...................................................................................................................................................................... chief information officer

CS ...............................................................................................................................................................................Commercial Service

DS .............................................................................................................................................................................. Diplomatic Security 

EAR.....................................................................................................................................................Export Administration Regulations

EDA ............................................................................................................................................Economic Development Administration

ESA ............................................................................................................................................Economics and Statistics Administration

ESA ......................................................................................................................................................................Endangered Species Act

FDCA ................................................................................................................................................... Field Data Collection Automation

FISMA .............................................................................................................................Federal Information Security Management Act

GAO .................................................................................................................................................... Government Accountability Office

GIS .........................................................................................................................................................Geographic Information Systems

GPS ..................................................................................................................................................................Global Positioning System

GSA ................................................................................................................................................................Government Printing Office

GPRA ...................................................................................................................................... Government Performance and Results Act

IG .................................................................................................................................................................................... inspector general

IT ........................................................................................................................................................................... information technology

ITA ...................................................................................................................................................... International Trade Administration

MBDA ....................................................................................................................................... Minority Business Development Agency

MBOC ....................................................................................................................................... Minority Business Operating Committee
56 U.S. Department of Commerce/Office of Inspector General

MEP ................................................................................................................................................Manufacturing Extension Partnership

NDAA ............................................................................................................................................... National Defense Authorization Act

NIST ................................................................................................................................ National Institute of Standards and Technology

NMFS ...................................................................................................................................................National Marine Fisheries Service

NOAA ........................................................................................................................National Oceanic and Atmospheric Administration

NPOESS ......................................................................................... National Polar-orbiting Operational Environmental Satellite System

NTIA .......................................................................................................National Telecommunications and Information Administration

NWS ...................................................................................................................................................................National Weather Service

OCAP .......................................................................................................................................................... Operations, Criteria, and Plan

OHR ............................................................................................................................................................... Office of Human Resources

OIG .................................................................................................................................................................Office of Inspector General

OMB ................................................................................................................................................... Office of Management and Budget

OSY ................................................................................................................................................................................ Office of Security

RFC .............................................................................................................................................................................river forecast center

RLF ............................................................................................................................................................................. revolving loan fund

USPTO ................................................................................................................................... United States Patent and Trademark Office

VoIP ................................................................................................................................................................voice over Internet Protocol

WFO ....................................................................................................................................................................... weather forecast office

Acronyms
September 2005/Semiannual Report to Congress 57

TYPES OF OIG WORK PRODUCTS

The various kinds of audits, evaluations, inspections, and investigations at our disposal enable the IG’s office to assess Commerce 

programs and operations from a range of perspectives. Thus we 

are able to provide program managers with reviews and recommendations that are either narrowly focused or comprehensive, as 

needed, to aid them in ensuring the most efficient and effective 

use of taxpayer dollars.

AUDITS

Performance Audits address 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. They may also involve reviewing the 

Department’s financial assistance awards by assessing an award 

recipient’s compliance with laws, regulations, and award terms; 

allowance of costs; and the degree to which projects achieved 

intended results.

Financial Audits determine whether (1) a reporting entity’s 

financial statements are presented fairly and in accordance with 

generally accepted accounting principles; (2) the entity has an 

internal control structure that provides reasonable assurance of 

achieving the control objectives set forth by OMB; and (3) the entity complied with laws and regulations that could have a direct and 

material effect on the financial statements, the Federal Financial 

Management Improvement Act, and other laws and regulations.

Attestation Engagements involve examining, reviewing, or 

performing agreed-upon procedures on a subject matter or an assertion about a subject matter and reporting the results. Attestation 

engagements can have a broad range of financial or nonfinancial 

focuses, such as an entity’s compliance with laws and regulations; 

management’s discussion and analysis presentations; and allowability and reasonableness of final grant and contract costs.

INSPECTIONS

Inspections are reviews of an activity, unit, or office, or a contractor or other nonfederal entity that receives funds from the 

Department. They focus on an organization, not a whole program, 

and are often designed to give agency managers timely and useful 

information about operations, including current and foreseeable 

problems.

EVALUATIONS

Program Evaluations are in-depth reviews of specific management issues, policies, or programs.

Systems Evaluations review system development, acquisitions, 

operations, and policy, focusing on computer systems and other 

technologies.

INVESTIGATIONS

Investigations are conducted based on alleged or suspected 

wrongdoing by Department employees, contractors, recipients of 

financial assistance, and others responsible for handling federal 

resources. Investigations that expose violations of Department 

rules and regulations or acts of fraud committed against the U.S. 

government can result in administrative sanctions and/or criminal 

or civil prosecution.

Office of Inspector General
58 U.S. Department of Commerce/Office of Inspector General