Table of Contents

IG’S MESSAGE FOR THE CONGRESS

Foreword

Major Challenges for the Department

 Successfully implement a Department-wide financial management system

Strengthen Department-wide information security

Successfully transition USPTO to a performance-oriented organization

Increase international compliance with trade agreements and expand market access

for American exporters

Enhance export controls for dual-use commodities

Increase the effectiveness of fishery management

Continue to improve the Department’s strategic planning and

performance measurement in accordance with GPRA

Strengthen financial management controls to maintain a “clean”

opinion on the Department’s consolidated financial statements

Successfully implement acquisition reform initiatives

Ensure effective management of major facilities renovation and construction

projects

 Update on a Former Top 10 Challenge

 Charting Our Course for the Twenty-First Century

DEPARTMENT OF COMMERCE ORGANIZATION CHART

AGENCY OVERVIEWS

Bureau of Export Administration

Economic Development Administration

Economics and Statistics Administration

International Trade Administration

National Oceanic and Atmospheric Administration

National Telecommunications and Information Administration

Technology Administration

Departmental Management

INVESTIGATIVE HIGHLIGHTS

OFFICE OF INSPECTOR GENERAL

REPORTING REQUIREMENTS

STATISTICAL HIGHLIGHTS

TABLES AND APPENDIXES

DEFINITIONS: TYPES OF OIG REVIEWS

ACRONYMS

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

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 Commerce OIG Semiannual Report September 2001 4

MAJOR CHALLENGES

FOR THE DEPARTMENT

IG’s Message for the Congress

Top 10 Management Challenges

1. Successfully implement a Department-wide financial management

system.

2. Strengthen Department-wide information security.

3. Successfully transition the U.S. Patent and Trademark Office to a

performance-oriented organization.

4. Increase international compliance with trade agreements and expand

market access for American exporters.

5. Enhance export controls for dual-use commodities.

6. Increase the effectiveness of fishery management.

7. Continue to improve the Department’s strategic planning and

performance measurement in accordance with the Government

Performance and Results Act.

8. Strengthen financial management controls to maintain a

“clean” opinion on the Department’s consolidated financial

statements.

 9. Successfully implement acquisition reform initiatives.

10. Ensure effective management of major facilities renovation and

construction projects.

This section highlights the Top 10 Management Challenges that faced the Department at the close of this

semiannual period. We view these issues as Commerce’s challenges because they meet one or more of the

following criteria: They are important to the Department’s mission or the nation’s well-being; they are

complex; they involve sizable expenditures; or they require significant management improvements. Given

the diverse nature of Commerce activities, many of these issues cut across bureau and program lines. We

believe that by addressing these challenges the Department can enhance program effectiveness; eliminate

serious operational problems; decrease fraud, waste, and abuse; and achieve substantial savings.
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IG’s Message for the Congress

Successfully Implement a

Department-Wide Financial

Management System

The Department has spent nearly 7 years and an

estimated $150 million developing the Commerce

Administrative Management System (CAMS). It

plans to spend an additional $92 million over the

next 2 years to complete the system. Considerable

work remains before the Department is in

compliance with OMB Circular A-127, which

requires federal agencies to have a single,

integrated financial management system with

standard information and electronic data exchange

formats. Without this capability, federal agencies

have difficulty managing financial resources;

protecting federal assets; and providing timely,

reliable, and consistent information to decisionmakers and the public.

When planning for CAMS began in 1992,

Commerce’s financial systems were outdated and

fragmented, could not provide reliable financial

information, and did not comply with federal

financial management requirements. In December

1994, the Department contracted for an off-theshelf accounting software package and related

implementation and administrative services.

In 1997, after the vendor had difficulty modifying

its accounting software to meet Commerce’s

requirements, the Department took responsibility

for the package and hired a new contractor to

complete the modifications. In 1998, to address

continuing cost growth and schedule delays, the

Department reviewed the CAMS program and

decided to initially implement a reduced set of

core functions, revise the implementation strategy,

and reorganize the project management structure.

The revised strategy called for pilot

implementation of CAMS at the Census Bureau,

to be followed by implementation for most

operating units cross-serviced by NIST, the

National Oceanic and Atmospheric

Administration, and the National Institute of

Standards and Technology. The Census pilot was

completed in June 1998. An independent review

of the pilot concluded that the CAMS accounting

software could support federal accounting and

management functions and was as good as or

better than other federal accounting packages

available at that time.

CAMS is now the official accounting system for

the Census Bureau and the operating units crossserviced by NIST, which include the Office of the

Secretary, Office of Inspector General, Office of

Computer Services, Economic Development

Administration, Minority Business Development

Agency, Economics and Statistics Administration,

and the Bureau of Economic Analysis. The

Department-wide financial database is scheduled

for completion in time to produce legally required

consolidated financial reports by the end of this

calendar year.

The cureent plan is to complete implementation of

CAMS at NOAA by October 2002, at which

time it will begin cross-servicing the Bureau of

Export Administration. NIST will complete

implementation a year later when it adds the

National Telecommunications and Information

Administration to the list of agencies it crossservices. By October 2003, Commerce expects

all of its operating units to be using financial

management systems that comply with federal

requirements and integrate with the Departmentwide financial database. Twelve units will use

CAMS. The remaining three—the International

Trade Administration, U.S. Patent and Trademark

Office, and the National Technical Information

Service—will be cross-serviced by the

Department of Interior; however, ITA and NTIS

are exploring alternatives.
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IG’s Message for the Congress

In our March 2001 semiannual report, we

expressed concern about the Department’s ability

to (1) manage CAMS development and

maintenance, (2) complete the Commerce-wide

financial database in a timely manner, and

(3) determine the efficiency and economy of

operating CAMS at four locations. During this

semiannual period, we found that the Department

has addressed some of these concerns. It has

assigned liaisons to work with the operating units,

taken responsibility for defining Department-wide

financial reporting requirements and year-end

closing procedures, and instituted a study of best

practices for CAMS operations and maintenance.

Also, the Deputy Chief Financial Officer and

Assistant Secretary for Administration substituted

a commercial off-the-shelf software package for a

custom-coded application, which meets the

requirements for the Department-wide financial

database without utilizing scarce resources at the

CAMS Support Center. Although this major

strategy change came late, the Department

believes the project is on schedule.

During this semiannual period, we also completed

a review of CAMS contracting at the Support

Center, specifically focusing on the contracts for

system development, implementation, and

administration. We found that contract

management has improved steadily since late

1999, when it was reassigned to NOAA’s

Systems Acquisition Office. However, we also

found the following:

1. The lack of clarity in the base contract

hampers the ability of contract

administration and program offices to

effectively administer the contract and

2. The use of performance-based contracting

needs to be substantially increased.

3. Price and cost analysis must be

documented.

4. Communications with and training of

contract technical representatives at the

operating units need improvement.

5. The appearance that CAMS contracts are

personal service contracts must be

avoided.

See page 69 for more details on these findings.

During the next semiannual period, we plan to

further review and report on the status and

management of the CAMS program. Until the

Department’s financial management systems

comply with Office of Management and Budget

requirements, CAMS will continue to warrant the

close attention of senior Department officials and

our office.

Strengthen Department-Wide

Information Security

Information security is vital to Commerce: The

Department operates many complex computer

systems that provide essential public services and

support critical mission activities, such as provision

of the nation’s weather forecasting services;

stewardship of the environment; and promotion of

trade and economic growth, scientific research,

and technological development. Weaknesses in

information security throughout Commerce have

prompted us to identify this problem as a top monitor results. management challenge.
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IG’s Message for the Congress

During this semiannual period, the Inspector

General testified at a hearing before the

Subcommittee on Oversight and Investigations,

House Committee on Energy and Commerce,

about Department-wide information security

weaknesses. At the same hearing, the General

Accounting Office described its penetration testing

of information systems and networks based in

Commerce headquarters, noting pervasive

weaknesses that place sensitive systems at serious

risk. The Deputy Secretary of Commerce

discussed information security improvements that

the Department is undertaking.

Under the Government Information Security

Reform Act (GISRA), each federal agency must

review its information security program annually,

and each OIG must perform an annual

independent evaluation of that review. Both of

these assessments were to be included in the FY

2003 budget materials transmitted to OMB.

However, the U.S. Patent and Trademark Office

submitted its budget materials and information

security review separate from the Department’s:

USPTO has the freedom to do so under the

American Inventors Protection Act of 1999,

which gives it greater independence and flexibility

to meet federal mandates. We submitted the same

evaluation for both USPTO and the Department

because it addresses issues associated with

Commerce as a whole. Since USPTO is

undertaking its own actions to manage information

security, we will review its program separately

next year.

Our first evaluation under GISRA was based on

OIG reviews and audits of information security

issues conducted during the past 2 years (including

this semiannual period), as follows:

 The Department’s information security

program functions assigned to the Chief

Information Officer (see March 2001

issue, page 69).

 Implementation of the Critical

Infrastructure Protection Program (see

September 2000 issue, page 75).

 The general controls associated with the

information technology (IT) processing

environment at various operating units,

conducted as part of our FY 2000

financial statements audits (see March

2001 issue, page 72).

 The use of persistent “cookies” and “web

bugs” on departmental Internet sites (see

page 62 of this report).

 Security of the Census Bureau’s Advance

Retail Sales Principal Federal Economic

Indicator (see page 36 of this report).

We determined that the Department is striving to

improve information security and make it an

integral component of Commerce’s business

operations. Nevertheless, we concluded that

because information security has not received

adequate attention in the past, substantial efforts

are required to develop and oversee an effective

security program. Certain fundamental

responsibilities are frequently not carried out.

These include identifying, assessing, understanding,

and promoting awareness of the risks related to

the Department’s IT assets; determining

appropriate levels of security; planning,

implementing, and testing controls that adequately

address risk; and continually monitoring the

effectiveness of information security policies and

practices.

Our review of the use of Internet cookies and web

bugs, conducted during this semiannual period,
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IG’s Message for the Congress

The American Inventors Protection Act of 1999

established the U.S. Patent and Trademark Office

as a performance-oriented organization, giving it

greater flexibility and independence to operate

more like a business. As such, USPTO has

greater responsibility for managing its operations

and expanded control over its budget allocations

Successfully Transition USPTO

to a Performance-Oriented

Organization

was mandated by Public Law 106-554. This act

requires OIGs to examine whether federal Internet

sites use devices that collect information about any

individual’s access or viewing habits, and to report

their findings to the Congress. We found that

only a few of the Department’s Internet sites were

using cookies or web bugs. We also found that

the privacy statements on many Commerce sites

failed to include all the information required by the

Department’s privacy policy. Commerce’s Chief

Information Officer agreed with our

recommendations for addressing these issues,

took immediate actions to eliminate the use of

cookies, and began working to eliminate web

bugs.(See page 62.)

Because of the importance and sensitivity of the

Advance Retail Sales economic indicator, we

reviewed the processes used by ESA and the

Census Bureau to prepare and release this data.

Our concern was whether adequate internal

controls are in place to prevent the premature or

unauthorized disclosure or use of the data. We

found appropriate controls in some areas, but

found other areas in which controls needed

strengthening, such as guidance for personnel

access to offices while the indicator is being

prepared, monitoring of changes to application

software, and use of auditing software. ESA and

the Census Bureau are taking steps to implement

our recommendations for improving these matters.

(See page 36.)

This review also revealed that appropriate

background investigations had not been conducted

on some ESA and Census employees who have

advance knowledge of sensitive information, and

that risk levels associated with their positions have

not been properly assigned. (Levels of risk

correlate to the potential harm an individual in a

position of public trust could cause to the

efficiency and integrity of government programs

and operations —the higher the level, the greater

the risk.)

We noted that these security weaknesses stem

from a lack of guidance on how to determine risk

levels and conduct associated background checks

from the Department’s Office of Human

Resources Management and Office of Security.

We became concerned that other operating units

may be assigning inappropriate risk levels and

performing inadequate checks as well. So we

addressed these problems in an evaluation of the

Department-wide program for designating

positions according to their risk and sensitivity.

The Department has accepted and begun to

implement our recommendations for strengthening

this program. (See page 63.) At the same time,

ESA and Census are shoring up their own

processes for assigning risk and conducting

background checks.

In the next semiannual period, we will plan and

begin conducting evaluations for next year’s

reporting under GISRA. We will also share the

results of our ongoing evaluation of the Office of

Security’s information security functions that are

associated with classified systems.
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IG’s Message for the Congress

and expenditures, personnel decisions and

processes, and procurement operations.

Despite the act’s potential benefits, the

transformation it allows is a formidable one.

USPTO must develop the necessary personnel,

procurement, and administrative policies, as well

as performance-oriented processes and standards

for evaluating cost-effectiveness, while meeting its

performance goals under the Government

Performance and Results Act (GPRA) and the

timeliness standards of the American Inventors

Protection Act. USPTO management views the

passage of the act and the successful transition to

a performance-oriented organization as critical to

the operating unit’s success at addressing other

challenges identified by OIG in recent years, as

described below.

Meeting staffing needs to handle increases in

patent activity. The number of patent application

filings has skyrocketed in recent years, leading

USPTO to hire hundreds of new patent

examiners and administrative judges. Trademark

filings, on the other hand, have been on the

decline. In FY 2000, for example, USPTO

received more than 326,000 applications for

patents—an increase of 12 percent over

FY 2000. However, 296,000 trademark requests

were received in FY 2001, a decrease of 21

percent. To address the expanding workload of

patent applications, USPTO hired 789 patent

examiners, but lost 706 through attrition during

FY 2000 and 2001. In this same period, USPTO

hired 134 trademark examiners, but lost 112

through attrition.

Our prior audits of the Office of Patent

Publications and the Board of Patent Appeals and

Interferences reported on some of the challenges

facing USPTO in recruiting and training examiners

and in hiring additional administrative judges to

hear appeals. As a performance-oriented

organization, USPTO will have greater flexibility

to design incentives to attract and retain these

highly skilled employees. USPTO management

believes that the operating unit will be able to

manage its resources more efficiently and to make

the quick decisions required to process patent and

trademark filings and appeals in a timely yet highquality manner.

Managing construction of new facility. As it

moves through this transition, USPTO, along with

the General Services Administration, must oversee

one of the largest real estate ventures that the

federal government will undertake this decade—

the construction of USPTO’s new 2.4 millionsquare-foot office complex in Alexandria, Virginia.

When completed in 2005, the 5-building complex

will provide space for USPTO employees and

operations currently scattered among

approximately 18 buildings in nearby Crystal City.

Now that GSA has awarded the construction

contract, USPTO must aggressively hold the line

on project costs and stay within the legislatively

mandated cap on the cost of completing the buildout of the building’s interior.

Maintaining state-of-the-art information

technology capabilities. USPTO continues to

face significant challenges in delivering essential IT

capabilities. The American Inventors Protection

Act requires greater operational efficiency, further

intensifying the demands placed on IT solutions

and USPTO’s ability to develop new and upgrade

existing systems. OIG’s earlier evaluation of

USPTO’s new search system found flaws in its

system development process (see March 2001,

page 54). USPTO agreed that improvements

were needed and is implementing our

recommendations. USPTO will have to

continually evaluate and improve its system
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To compete effectively in today’s global

marketplace, U.S. companies need help

addressing unfair trade practices or violations of

trade agreements, inadequate intellectual property

protection, and other barriers to the export of

U.S. goods and services. Commerce must

ensure that its trade compliance and market

access efforts adequately serve U.S. companies

by expanding trade and opening world markets,

and by eliminating unfair competition from imports

priced at less than fair market value.

Commerce, through various International Trade

Administration offices, works with the Office of

the U.S. Trade Representative, the Departments

of State and Agriculture, and numerous other

federal agencies to monitor and enforce trade

agreements. The number and complexity of

agreements have increased substantially in recent

years.

To help in its compliance efforts, ITA created the

Trade Compliance Center in 1996. The center

monitors U.S. trade agreements and reviews

complaints from a variety of sources. When

warranted, it forms a compliance team to bring a

case to satisfactory conclusion. Team members

are drawn from center staff and other ITA

operating units including Market Access and

Compliance, Trade Development, U.S. and

Foreign Commercial Service, and other offices, as

Increase International Compliance

with Trade Agreements and Expand

Market Access for American

Exporters

appropriate. In addition to the activities

coordinated by the center, a substantial amount of

market access and trade compliance work is

performed by ITA’s other operating units. Overall,

ITA’s approach to trade compliance and market

access is to solve problems quickly and at the

lowest level possible—avoiding formal dispute

settlement structures such as the World Trade

Organization, which can take years to resolve

cases.

On the import side, unfair foreign pricing and

government subsidies can disrupt the free flow of

goods and adversely affect U.S. companies’

global competitiveness. ITA’s Import

Administration (IA) works with the International

Trade Commission to enforce the nation’s

antidumping and countervailing duty laws. IA

investigates complaints from U.S. industries

regarding foreign producers and governments to

determine whether dumping or subsidization has

occurred and, if so, to what extent. The

commission determines whether U.S. industry is

suffering material injury as a result of the dumped

or subsidized products. If both agencies

determine that dumping and injury have occurred,

IA instructs the U.S. Customs Service to assess

duties against imports of those products.

In January 2001, GAO identified monitoring and

enforcement of trade agreements as major

management issues for Commerce, citing two main

reasons: (1) the Department’s shortage of qualified

staff who possess the expertise to monitor

compliance with trade agreements, and (2) its

difficulty interfacing with and getting support from

other federal agencies and the private sector

regarding trade agreements.

The Secretary of Commerce has taken steps to

address the concerns of both the Congress and

IG’s Message for the Congress

development process to deliver essential IT

capabilities efficiently and economically.
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GAO by making monitoring and enforcement of

trade agreements a top priority for ITA and for the

Department as a whole. Commerce received

additional funding for trade compliance activities in

FY 2001, under the administration’s Compliance

Initiative.

Based on our work to date, we agree that a more

coordinated federal effort is needed to improve

compliance. Our recent review of ITA’s trade

agreement compliance process, as managed by

the Trade Compliance Center, found that ITA

needs to enhance its coordination and tracking of

trade compliance and market access activities.

The results of this review will be described in our

next semiannual report.

We intend to review various aspects of ITA’s

approach to market access and trade compliance,

as well as key import administration issues. In the

meantime, ITA must work closely with U.S.

companies and other federal agencies to identify

trade compliance problems, develop workable

solutions to them, and thus enhance American

firms’ access to foreign markets.

government’s export licensing and enforcement

system for dual-use commodities (goods and

technologies that have both civilian and military

uses).

Strengthening the dual-use export licensing and

enforcement process requires new, comprehensive

legislative authority to replace the expired Export

Administration Act of 1979 and appropriately

address current export control needs and realities.

Passed during the Cold War, the Export

Administration Act sought to prevent the export of

critical goods and technologies to Communist bloc

countries. In today’s political climate, rogue

countries and terrorist groups seeking weapons of

mass destruction and the systems to deliver them

pose new threats to U.S. national security and

foreign policy goals. Legislation is needed to

address these threats, as well as to bolster BXA’s

regulatory authority, stiffen penalties, and

demonstrate America’s commitment to maintaining

strong export controls while encouraging other

countries to do the same.

Given the importance of export controls to national

security, we have devoted considerable attention to

the challenges facing BXA. Specifically, we

responded to a request from the Senate

Governmental Affairs Committee to follow up on a

1993 interagency OIG review of the export

licensing process: along with the OIGs from the

Central Intelligence Agency and the Departments of

Defense, Energy, State, and Treasury, we issued a

special interagency report in June 1999 on the

export licensing process for dual-use commodities

and munitions.

Subsequently, the National Defense Authorization

Act for Fiscal Year 2000 directed the same six

OIGs to report to the Congress by March 30,

2000, and annually until the year 2007, on the

Enhance Export Controls

for Dual-Use Commodities

The adequacy of export controls is an ongoing

concern, especially in light of September 11.

Opinions vary on how well the government’s

export control policies and practices balance the

need to protect U.S. national security and foreign

policy interests with the desire to promote U.S.

trade opportunities and competitiveness. Striking

this balance is a significant challenge for the parties

involved, particularly for Commerce’s Bureau of

Export Administration, which oversees the federal

IG’s Message for the Congress
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IG’s Message for the Congress

adequacy of export controls and counterintelligence measures to prevent the acquisition of

sensitive U.S. technology and technical information

by countries and entities of concern. In addition,

the legislation requires the OIGs to describe in

their semiannual reports the status or disposition of

recommendations made in earlier reports

submitted in accordance with the act. To date, we

have completed two additional reviews of export

controls in compliance with the act and are

currently working on a third.

Overall, we found the licensing of U.S. dual-use

exports to be a balanced multiagency

collaboration among Commerce, Defense, Energy,

State, Justice, and the CIA that attempts to bring

divergent policy views and information to bear on

the decision-making process. In addition, we

found that the four-level escalation process for

resolving license disputes among the referral

agencies was working relatively well.

While our assessments have identified significant

improvements in export controls since 1993, we

have also found weaknesses in licensing

procedures. First, commodity classification and

jurisdiction processes are not timely and do not

clearly specify the role of each agency. Second,

the intelligence community does not review all

dual-use export license applications or consistently

conduct a comprehensive analysis of applications

it does review, and license applications are not

screened against a key database maintained by the

U.S. Customs Service. Third, there are some

recurring problems with BXA’s monitoring of

licenses that have reporting requirements.

In addition, BXA needs to clarify licensing policy

and regulations regarding the release of controlled

technology to foreign nationals working in federal

and private research facilities—commonly referred

to as deemed exports. The Bureau must also improve

its management of the list of controlled dual-use

commodities and technologies, known as the

Commerce Control List. We have recommended that

BXA make the list more user-friendly, improve the

timeliness with which it implements agreed-upon

multilateral changes to the list, and address the

inappropriate use of national security controls on some

items.

Furthermore, we have several concerns about the

overall effectiveness of the interagency Committee on

Foreign Investment in the United States (CFIUS), as

follows:

 The lack of mandatory foreign investment

reporting.

 The low number of investigations conducted

on company filings.

CFIUS Membership

Department of the Treasury

 (Committee Chair)

Department of Commerce

Department of Defense

Department of Justice

Department of State

Office of Management and Budget

U.S. Trade Representative

Director of the Office of Science

 and Technology Policy

Chairman of the Council

 of Economic Advisors

Assistant to the President

 for Economic Policy

Assistant to the President

 for National Security Affairs
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IG’s Message for the Congress

 The role of Treasury in overseeing CFIUS

activities.

 The division of responsibilities between

BXA and ITA for the CFIUS program

within Commerce.

The interagency OIG review team has agreed to

conduct an in-depth examination of the

Committee’s effectiveness as part of its future

work under the National Defense Authorization

Act.

Currently, we are evaluating BXA’s efforts to

upgrade its automated licensing and enforcement

systems. This improvement is an important one

for the Department because BXA needs a more

efficient system for processing export license

applications. It also needs to coordinate its

system development efforts with other export

licensing agencies. In addition to our review of

Commerce’s system, the interagency OIG review

team is looking at the various automated export

licensing systems maintained by these other

agencies to determine how the systems interact

and whether it is feasible to develop a single

federal automated export licensing network.

The challenges for BXA, as well as for the

administration and the Congress, remain (1) the

passage of a new Export Administration Act,

(2) the targeting of federal licensing and

enforcement efforts on those exports that present

the greatest proliferation and national security

risks, and (3) the streamlining or elimination of

controls that unnecessarily hamper trade. We will

continue to monitor BXA’s efforts to improve

dual-use export controls through the annual

reviews required by the National Defense

Authorization Act.

Increase the Effectiveness

of Fishery Management

The primary mission of NOAA’s National Marine

Fisheries Service (NMFS) is to protect and

preserve living marine resources through scientific

research, fisheries management, law enforcement,

and habitat conservation. Ensuring healthy stocks

of fish and other marine animals in the coastal

waters beyond each state’s jurisdiction is a federal

responsibility carried out principally by NMFS

and eight regional fishery management councils

under the Magnuson-Stevens Fishery

Conservation and Management Act of 1976, as

amended.

NMFS and the councils track the condition of

marine species, determine the levels of catch that

will provide the greatest benefit to the nation, and

gauge the economic impact of fishery regulations

and policies. Measures to manage various species

are generally developed by the councils, reviewed

by NMFS, and subject to approval by the

Secretary of Commerce. These measures are

often controversial because they impose quotas on

fishing that simultaneously affect the survival of a

species and the economic health of the fishing

industry and many coastal communities.

NMFS is also responsible for the recovery of

species protected under the Endangered Species

Act of 1973, including anadromous species, such

as salmon, which migrate between the ocean and

inland waterways. NMFS plays a central role in

the Northwest Salmon Recovery Effort—a

combined response by various federal agencies,

state and tribal governments, and other

organizations to restore salmon runs in the

Columbia River Basin.
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IG’s Message for the Congress

In its Federal Columbia River Power System 2000

Biological Opinion, NMFS set performance

standards and recovery actions that guide

operations of 29 federally owned dams. These

requirements are incorporated in the broader

Basinwide All-H Salmon Recovery Strategy issued

by the Federal Caucus—the nine federal agencies

that have responsibilities for natural resource

management under the Endangered Species Act.

This strategy covers areas essential to recovery—

harvest, hatcheries, hydropower, and, most

important, habitat.

NMFS will assess implementation in each of these

areas and periodically review whether the

basinwide strategy of improvements, research, and

evaluation is meeting performance standards to

halt species decline within 10 years and enable

population growth thereafter. If performance

standards are not met, the Federal Caucus intends

to accelerate recovery measures or consider new

actions.

We are currently assessing the NMFS Northwest

Science Center’s role in supporting the Salmon

Recovery Effort. In the future, we also plan to

review NMFS’s stewardship role and related

developments concerning the conservation of

fisheries for which it is responsible under the

Magnuson-Stevens Act.

Sound oversight of federal programs by the

Congress and agency managers requires relevant

performance measures and credible performance

Continue to Improve the

Department’s Strategic Planning

and Performance Measurement in

Accordance with GPRA

data. Like other federal agencies, the Department

faces the challenge of producing such data that is

accurate, appropriate, reliable, and useful.

Commerce is operating under its second strategic

plan, covering FY 2000 to FY 2005. Earlier this

year, the Department published its fourth Annual

Performance Plan, which outlined goals for

FY 2002, and its second Annual Program

Performance Report, which detailed performance

outcomes for FY 2000.

OIG has been involved with Commerce’s efforts

to implement GPRA since 1997 and has taken the

following steps to help ensure the collection and

reporting of reliable performance information to

decision-makers:

 Provided implementation advice and

assistance.

 Monitored the limited review by certified

public accounting firms of performance

data contained in the annual financial

statements.

 Made presentations to departmental

officials on the importance of ensuring that

performance-related information is

reliable.

 Provided informal comments to the

Department on various GPRA-related

documents.

 Audited internal controls for selected data

on operating unit performance.

We believe the Department continues to progress

toward meeting the challenge of how best to plan

and measure its performance. GAO concurs with
Major 

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Commerce OIG Semiannual Report September 2001 15

IG’s Message for the Congress

our opinion: It reported in June 2001 that

Commerce’s FY 2000 Annual Program

Performance Report and FY 2002 Performance

Plan are significantly better than those from

previous years. However, GAO noted that

weaknesses in performance measurement

processes make it difficult to determine whether

Commerce is moving closer to achieving certain

key goals.

With passage of the Reports Consolidation Act of

2000, the Congress also demonstrated its interest

in the value of performance information. This act

requires an assessment by the Secretary of

Commerce of the completeness and reliability of

performance information in reports containing such

data. We worked with the Department to ensure

that its FY 2000 Accountability Report included a

statement that properly noted the limited reliability

of current performance information.

We will continue to monitor Commerce’s efforts to

implement GPRA, provide advisory comments on

GPRA-related documents, and, where resources

permit, perform targeted reviews of GPRArelated issues. We have ongoing audits of

performance measurement and reporting at NIST

and USPTO, which—like those conducted last

year for BXA and NTIA—will recommend ways

to improve such reporting and to strengthen

internal controls. Where warranted, we will

continue to make recommendations to the

Department and its operating units regarding the

accuracy and reliability of performance data. We

believe that while the Department has been

responsive to past criticisms of its efforts to meet

GPRA requirements, it must continue to focus

management’s attention on further improvements in

performance measurement and reporting.

Strengthen Financial Management

Controls to Maintain a “Clean”

Opinion on the Department’s

Consolidated Financial Statements

The Chief Financial Officers Act of 1990, the

Government Performance and Results Act of

1993, the Government Management Reform Act

of 1994, and the Federal Financial Management

Improvement Act of 1996 were designed to

improve financial management and accountability

in the federal government. These statutes require,

among other things, the preparation and audit of

agency financial statements that present an entity’s

financial position and results of operations, as well

as other information needed by the Congress,

agency executives, and the public to assess

management’s performance and stewardship. The

audit report must state whether an agency’s

financial management systems comply substantially

with federal requirements.

The Department received its second unqualified

(clean) opinion on its FY 2000 consolidated

financial statements (see March 2001 issue, page

71) despite continuing obstacles—including the

absence of a single, integrated financial

management system. Despite substantial

improvements in financial management, maintaining

a clean audit opinion on Commerce’s consolidated

statements remains a major challenge. Further

improvements are essential to enable the

Department and its reporting entities to correct the

material weaknesses and other deficiencies

identified in the audits of FY 2000 statements.

Material weaknesses are serious flaws in the

design or operation of an internal control

component that increase the risk that errors, fraud,

or noncompliance in material amounts may occur

and not be readily detected.
Major 

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Department

 Commerce OIG Semiannual Report September 2001 16 15

IG’s Message for the Congress

The audits of the FY 2000 statements identified six

material weaknesses, seven reportable conditions,

and several instances of noncompliance with laws

and regulations. Of these, three material

weaknesses, three reportable conditions, and one

instance of noncompliance were new matters.

This number of deficiencies is lower than in

previous years, but still represents an obstacle the

Department must overcome to avoid jeopardizing

future clean opinions.

The Department recognizes the need for ongoing

efforts to create a financial management

environment that provides timely, accurate financial

and performance information and complies with

federal laws and regulations, and it continues to

focus on strengthening financial management

controls. We have retained an independent

certified public accounting firm to audit the

Department’s FY 2001 consolidated financial

statements. We will discuss the findings of this

audit in the March 2002 semiannual report.

Acquisition reform is intended to reduce the time

and money spent in purchasing needed goods and

services. To accomplish this goal, reform

initiatives (1) rely on performance-based service

contracting, (2) consider past performance in

awarding contracts, and (3) make increased use of

commercially available products. Experienced

acquisition teams with business management skills

are important components of these initiatives—not

only do team members provide management

expertise, but, because they are public servants,

they are responsible for spending taxpayer dollars

wisely and in accordance with applicable laws and

regulations. Performance-based measurement

Successfully Implement Acquisition

Reform Initiatives

tools such as earned value and risk management

are also key features of acquisition reform efforts.

As the Department of Commerce increases its

reliance on contractor-provided goods and

services, the challenge of monitoring the

effectiveness of the acquisition process grows as

well. Each year, the Department spends more

than $1 billion, or about one-quarter of its

appropriation, through large contracts and other

procurement vehicles. Acquisition reform

legislation has attempted to ease the restrictive,

time-consuming process by which the government

formerly purchased goods and services, as well as

reduce dollars spent, by making greater use of the

competitive marketplace. The challenge for

Commerce is to balance the desire to streamline

the procurement process with the need to ensure

that taxpayer dollars are wisely spent and that

applicable laws and regulations are followed.

The Federal Acquisition Streamlining Act of 1994

substantially revised federal procurement law,

encouraging the use of commercial items,

performance-based service contracting, and past

performance as the major evaluation criterion for

awards. The act reduced paperwork and raised

the threshold for simplified acquisition procedures

from $25,000 to $100,000. It also promoted use

of the Internet for processing acquisitions, or

e-procurement.

The Clinger-Cohen Act of 1996 combined two

other 1996 laws—the Federal Acquisition Reform

Act and the Information Technology Management

Reform Act. Clinger-Cohen provided for

governmentwide acquisition reform, including

repeal of the Brooks Act (which covered

automated data processing procurements). It

shortened the time allowed for GAO to issue bid

protest decisions and prompted revision of the
Major 

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Department

Commerce OIG Semiannual Report September 2001 17

Procurement Integrity Act. It also emphasized

results-based acquisition and promoted life-cycle

management of information technology as a capital

investment.

Although these laws aim to improve and streamline

procurement practices, government oversight

organizations, such as GAO and OMB’s Office of

Federal Procurement Policy, along with the OIG

community, continue to report problems with

agencies’ implementation of reform initiatives. For

example:

 GAO has reported problems with the use

of governmentwide agency contracts

(GWACs), described weak internal

controls over some agencies’ use of the

purchase card, and highlighted

problematic federal procedures for the

acquisition of services.

 The Office of Federal Procurement Policy

has expressed concerns about GWACs as

well as other multiple award contracts and

service contracting, criticizing in particular

many agencies’ lack of focus on results.

To address this latter concern, OMB has

directed all agencies to include in their FY

2002 performance plans the goal of using

performance-based methodology to

award a minimum of 20 percent of service

contracting dollars.

Oversight agencies are also concerned about the

human capital crisis occurring throughout the

federal government and its potential impact on the

acquisition workforce.

We continue to have concerns about service

contracting within the Department. In recent

reports we have identified the problems of

inadequate use of performance-based service

contracting and the lack of security provisions in

contracts for IT services. Improper use of task

order contracts, insufficient planning for contract

administration and monitoring, and inadequate

management of the purchase card program within

the Department remain problematic.

However, Commerce is actively implementing

various reform initiatives. Its Office of Acquisition

Management has automated the procurement

process, emphasized career development of

contracting employees, and partnered with the

Office of the Chief Information Officer and the

Commerce budget office to integrate budgeting

and planning for IT acquisitions. It has taken steps

to provide oversight and performance

measurement of acquisition activities and has

launched a risk management program to monitor

the effectiveness of the reform initiatives

Department-wide. For example, the risk

management program will examine the results of

Acquisition Management’s recent review of the

procedures used by operating units to issue task

and delivery orders under GSA Federal Supply

Schedules, other multiple award contracts, and

GWACS, and will share best practices. We will

continue to periodically assess the status of

Commerce’s efforts to implement acquisition

reform initiatives.

IG’s Message for the Congress
Major 

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Department

 Commerce OIG Semiannual Report September 2001 18

In FY 2001, the Department identified plans for

several major construction projects that will likely

be subject to OIG monitoring and review:

 NOAA has 16 renovation and

construction projects scheduled or

under way to ensure that its facilities

remain state of the art and thus fully

support its missions of environmental

monitoring and protection. These include

modernization of the National Weather

Service facilities in Alaska, the National

Ocean Service’s Marine and

Environmental Health Research lab in

South Carolina, and theNational Marine

Fisheries Service lab in Hawaii.

 NIST will continue its multimillion-dollar

program to maintain existing laboratories

in Gaithersburg, Maryland, and Boulder,

Colorado, and construct a new

laboratory in Gaithersburg, Maryland.

 USPTO’s billion-dollar plan to consolidate

employees and operations in a single, new

facility in Alexandria, Virginia, will be one

of the largest real estate ventures

undertaken by the federal government in

this decade.

 Commerce headquarters in Washington,

D.C., is scheduled to undergo complete

modernization.

 The Census Bureau will construct two

buildings at its headquarters in Suitland,

Maryland, to provide employees with

safe, modern facilities.

IG’s Message for the Congress

Construction is under way for a new laboratory at the

National Institute of Standards and Technology in

Gaithersburg, Maryland. Source: NIST

Artist rendering of the new Patent and Trademark Office

under construction in Alexandria, Virginia.

Source: Kidmore, Owings & Merrill LLP, Washington, D.C.

Ensure Effective Management of

Major Facilities Renovation and

Construction Projects
Major 

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the 

Department

Commerce OIG Semiannual Report September 2001 19

Source: Commerce Office of Real Estate Policy and Major Programs

We have added the critical challenge of effective

renovation/construction management to our top 10

list because of the numerous inherent risks

involved in the Department’s planning and

management of large, costly, and complex capital

improvement and construction projects.

Departmental leadership and OIG oversight are

needed to maximize Commerce’s return on its

investment in these projects. Past OIG reviews

of major renovation and construction ventures

have demonstrated that up-front oversight—that is,

close monitoring during planning and

development—is essential. Detecting and

addressing potential problems during the

developmental stages rather than after a project’s

completion saves untold time and money. For this

reason, we plan to actively monitor the progress of

some of the Department’s ongoing construction

projects.

Operating Unit Number Estimated Costs

 of Projects (in millions)

 NOAA 16 $330-400

 NIST 1 235

 USPTO 1 1,200

 1 285 Office of the Secretary

 

Census Bureau 1 340

IG’s Message for the Congress

Estimated Costs of Current

 and Planned Construction Projects
Major 

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Department

 Commerce OIG Semiannual Report September 2001 20

IG’s Message for the Congress

UPDATE ON A FORMER TOP 10 CHALLENGE

Given the dynamics and complexity of Commerce

activities, we maintain the top 10 list on an ongoing

basis. As challenges are met or their significance is

reduced, we remove them from the list and

replace them with new ones. One former

challenge—relating to the decennial census—

continues to warrant management attention as

planning begins for 2010.

of the U.S. population that attempts to measure

the undercount and overcount in the decennial and

determine whether a statistical adjustment is

needed. After examining A.C.E. results, the

Bureau was unable to conclude that the adjusted

data would be more accurate than the unadjusted

data. Therefore, in March 2001, the unadjusted

census counts were released to the states for use

in redistricting. Census subsequently reevaluated

the A.C.E. survey to determine if the adjusted data

should be used for allocating billions of dollars in

federal funds, but recommended using the

unadjusted data for this purpose as well. The

Bureau is currently evaluating A.C.E. to improve

its functionality for the next decennial.

During this semiannual period, we assessed the

Bureau’s management of two A.C.E. operations—

automated matching and person follow-up—to

determine their efficiency and effectiveness in the

field.

Overall, we found that these two operations

worked well. Specifically, the percentage of

persons matched by the automated process

exceeded Bureau estimates, and person follow-up

was completed on time.

However, we did find some problem areas: A

difference in the definition of group quarters used

by A.C.E. and the decennial census may have

resulted in missed coverage by A.C.E.; A.C.E.

requirements were not always defined; testing of

the automated matching software was not

documented; information printed on person

follow-up forms was not sufficiently reviewed; and

the quality assurance tracking of person follow-up

at regional offices was too labor- and paperAt an estimated cost of $6.5 billion, the 2000

decennial was the most expensive ever. Yet the

Census Bureau believes that this decennial was

among its most successful, mainly because the

percentage of questionnaires returned by mail

increased and the accuracy of the overall count

improved over 1990.

The nation’s 22nd decennial census counted

approximately 281 million people living in about

116 million housing units. An accurate population

count is enormously important to the Congress

and the administration, as well as to state

governments and local communities because,

among other things, it determines how many

seats each state will have in the House of

Representatives, and it is used to develop state

redistricting plans and allocate federal funds.

To assess the reliability of the 2000 population

count, the Bureau conducted an Accuracy and

Coverage Evaluation (A.C.E.)—a sample survey

Increase the Accuracy and Control

the Cost of the 2000 Decennial

Census: Applying Lessons Learned

to Planning for 2010
Major 

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Department

Commerce OIG Semiannual Report September 2001 21

intensive. We suggested strategies to address

these shortcomings. We will detail the Bureau’s

response to our recommendations in our next

semiannual report.

The 2000 decennial involved a number of costly,

complex, and high-risk operations. The obvious

question for the next decennial is, can anything be

done to contain costs and minimize risks? We

believe the answer is yes, and we recently began

identifying lessons learned over the last decade.

We plan to reexamine key aspects of the more

than 30 reports issued by our office on the 2000

decennial. In particular, we will look at ways to

link the planning and funding cycles, develop a

more accurate address list and more capable

mapping system, improve the management of

information technology, enhance contracting and

program management capabilities, improve the

quality assurance of nonresponse follow-up

results, increase response rates through paid

advertising and other outreach efforts, and

promote information technology security.

We believe that the lessons of the 2000 decennial

can help Census contain the costs and minimize

the risks of future decennials. For example, in the

early 1990s, our office was concerned about the

Bureau’s ability to gain funding for early planning

of the 2000 decennial. Adequate funding and

responsible planning are closely linked because

long lead times are needed to make design

changes, develop software, and procure and

evaluate systems. By 1995, we were reporting

that mid-decade tests were insufficient and that

planning was behind schedule, partly because of

inadequate funding and uncertainties about the

overall design. If the Congress had not

dramatically increased funding in the years

immediately preceding the decennial, many of the

problems with the 1990 census might have

recurred.

Early planning is particularly important for critical

operations, such as development of the Master

Address File (MAF) and the associated geographic

information system known as TIGER (Topologically

Integrated Geographic Encoding and Referencing).

We believe that MAF is the backbone of any

decennial, and have thus issued several reports on it

during the last decade. We were concerned about

the accuracy and completeness of the address file,

especially the problem of duplicate addresses. We

also noted that some TIGER maps were difficult to

work with, not appropriate for their intended use,

and in need of updating.

We have also issued numerous reports on the

Bureau’s information technology management

capabilities. Without exception, our IT-related

reports issued throughout the decade have

recommended that the Bureau restructure its

software development efforts to employ a rigorous

process and accepted engineering standards. We

reported that the Bureau’s development approach

was not based on standards for documenting and

reviewing software specifications and design;

performing rigorous, independent testing; and

ensuring the uniform and effective use of

development and evaluation methods and tools.

Contracting for information technology has also

been a problem. Before the 2000 decennial, the

Bureau developed many of its large systems inhouse. However, to improve efficiency, for the 2000

census it contracted out the development of some

key systems. The Bureau’s acquisition of the

system to capture data from census forms was

hampered initially by delays in preparing an

acquisition plan, appointing a project manager, and

IG’s Message for the Congress
Major 

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Department

 Commerce OIG Semiannual Report September 2001 22

IG’s Message for the Congress

establishing a program office, as well as by

inexperienced contract management.

We were also concerned about the level of quality

control at certain local census offices. We believe

that in several offices nonresponse follow-up may

have been affected by enumerators’ failure to

follow established procedures for collecting

questionnaire data. In one case, the Bureau had

to recount more than 67,000 households. In

1990, Census had similar problems with

enumerators failing to collect complete household

information, which necessitated a resurvey of

129,000 households.

In the decennial just completed, the Bureau

conducted a multifaceted public awareness

campaign to increase the response rate. This

effort consisted principally of two major activities:

the first-ever paid advertising campaign and a

comprehensive partnership program with local

governments and tribal leadership. OIG

conducted an audit of these activities and the

coordination between them, and found that both

contributed positively to the decennial.

With the projected increased use of the Internet,

along with the Census Bureau’s own expanded

use of various telecommunications devices to

transmit questionnaire data, information security

planning will be paramount for the 2010 decennial.

Under Title 13 of the U.S. Code, the Bureau must

prevent disclosure of the data it collects. Such

disclosure could seriously damage future

decennials by undermining public confidence in the

Bureau’s ability to keep information confidential.

For the 2000 decennial, we recommended several

measures to reduce the risk of disclosure of

sensitive information. Census will need to

implement even stronger safeguards for 2010.

Looking toward the next decennial, the Bureau

reports that it has begun to develop a

“comprehensive, timely, integrated, and wellplanned strategy—a sharp contrast to the Census

2000 approach.” Key components of the 2010

strategy are (1) a modernized and continuously

updated address list and associated geographical

information system (state-of-the-art MAF/TIGER

systems); (2) more timely collection and

dissemination of long-form demographic and

socioeconomic data throughout the decade (full

implementation of the American Community

Survey); and (3) a well-planned and -tested 2010

decennial census design (a simplified short-formonly design).

Because of the cost and risk involved in

conducting a full count of individuals residing in the

United States, our office plans to periodically

evaluate the Bureau’s progress in planning for the

2010 decennial and its readiness for conducting

mid-decade testing.
Major 

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Commerce OIG Semiannual Report September 2001 23

The Top 10 Management Challenges addressed in

this report continue to rank high on this list of

priorities. However, they have been amplified and

further refined by our planning process. Other key

areas include human capital, procurement, system/

capital acquisitions, and information technology/

data management.

We are preparing to publish this audit and

inspection plan as a ready reference to keep our

focus and efforts on track. However, the plan is a

“living document” that we will periodically revisit

and revise to ensure that it continues to reflect the

needs of the country and the Department’s role in

accommodating them.

IG’s Message for the Congress

We began this first year of the new millennium

having resolved to take careful stock of the status

of departmental programs and functions, and

precisely set our course for the future. With these

goals in mind, OIG designed and implemented an

extensive survey and planning process to evaluate

Commerce activities and determine those areas

most in need of our attention.

The process was comprehensive and multifaceted.

OIG interoffice work groups conducted extensive

research on individual operating units—examining

the state of the unit; reviewing a range of materials

that included budget requests, legislative

documents, GPRA-related plans and reports, and

relevant congressional testimony; analyzing issues

that cut across and impact the missions of several

units at once; and interviewing OIG employees

whose experience reviewing departmental

activities was a valuable source of ideas and

information.

OIG senior officials broadened the scope of the

work groups’ activities by holding discussions with

congressional staff, departmental managers, and

other stakeholders to solicit their suggestions on

potential topics for review.

Following these efforts, OIG convened a planning

conference at which managers and work group

members presented their findings. Each work

group identified 10 areas that it deemed to be

most significant for the Commerce units it had

examined. From these discussions, senior

managers developed a list of more than 40

priorities that will guide OIG audit and inspection

activities for the years 2002-03 and beyond.

CHARTING OUR COURSE FOR THE TWENTY-FIRST CENTURY
 Commerce OIG Semiannual Report September 2001 2 4

Department of Commerce

Organization Chart

Office of the

Secretary

National

Telecommunications

and Information

Administration

International

Trade

Administration

Minority Business

Development

Agency

Bureau of

Economic

Analysis

Bureau of

the Census

National Institute

of Standards

and Technology

National

Technical

Information Service

Technology

Administration

Economics and

Statistics

Administration

Bureau of

Export

Administration

Economic

Development

Administration

National Oceanic

and Atmospheric

Administration

U.S. Patent and

Trademark

Office

Marine

and Aviation

Operations

NESDIS

Oceanic

and Atmospheric

Research

National

Marine Fisheries

Service

National

Ocean

Service

National

Weather

Service
Commerce OIG Semiannual Report September 2001 25

Bureau of Export Administration

The Bureau of Export

Administration is primarily

responsible for administering and

enforcing the nation’s system for

controlling exports of sensitive

dual-use goods and technologies.

BXA’s major functions include

formulating and implementing

export control policy; processing

export license applications; conducting various policy, technical,

and economic analyses; promulgating regulations; conducting

industry outreach; and enforcing

the Export Administration Act and

regulations. BXA is divided into

two units:

Export Administration implements U.S. export control and

nonproliferation laws and policies

through export licensing, commodity classifications, and advisory

opinions; technical, economic,

foreign availability, and policy

analyses; promulgation of regulations; and industry outreach. It

also conducts various defense

industry activities.

Export Enforcement participates

in reviews of export license applications and conducts criminal and

administrative investigations

relating to the export control

portions of the Export

Administration Act and regulations.

It also administers and enforces

the antiboycott provisions of the

act and regulations.

Follow-Up Review Determines Status of

Earlier Export Control Recommendations

Besides mandating annual reports on the adequacy of U.S. government

export controls and counterintelligence measures, the National Defense

Authorization Act for Fiscal Year 2000 requires that we provide annual

updates to the Congress on the status of recommendations made in

earlier reports submitted under the act. This year’s follow-up assessed

the actions that Commerce operating units, principally BXA, had taken to

implement the recommendations from our March 2000 and March 2001

reports.

 In March 2000 we focused on three activities that BXA carries

out or participates in to help prevent the illicit transfer of sensitive

U.S. technology: deemed export controls, the Visa Application

Review Program, and efforts to support the interagency

Committee on Foreign Investment in the United States (see

March 2000 issue, page 21). Overall, we concluded the

following: (1) Deemed export control regulations needed greater

clarity, and compliance with them by federal agencies and private

companies needed improvement; (2) the Visa Application Review

Program showed promise but needed refinement; and (3) federal

efforts to monitor foreign investment in U.S. companies for

national security implications should be examined by the

interagency OIG review team. We made 24 recommendations to

address our specific findings.

In last year’s follow-up, we determined that BXA’s actions for 16

of our 24 recommendations met our intent, but that its actions for

the other 8 were inadequate (see March 2001 issue, page 19).

This year’s review concluded that 6 of those 8 recommendations

remain open. All 6 deal with deemed export controls and the

Visa Application Review Program.
 Commerce OIG Semiannual Report September 2001 26

Bureau of Export Administration

Export

Administration

Export

Enforcement

Bureau of

Export

Administration

 In March 2001 we focused on the Commerce Control List, which is

maintained by BXA, and the U.S. Munitions List, which is maintained

by the State Department (see March 2001 issue, page 16). We

found that the Commerce list could be made more user-friendly, that

BXA should be referring munitions-related commodity classifications

to the appropriate federal licensing agencies, and that the Bureau

needed to expedite the classification process. We also noted that

commodity jurisdiction requests are not being handled through

automated systems or on a timely basis, and that there was a

breakdown in the interagency process for resolving certain

jurisdictional disputes among the Departments of Commerce,

Defense, and State. The report contained 14 recommendations.

Our follow-up review determined that only 2 of the 14 have been

fully implemented. Although BXA has given some attention to the

remaining 12 recommendations, its actions to date have not

adequately addressed them.

Given BXA’s central role in administering the dual-use export control

process, we believe that the agency must implement the open

recommendations from both reports as soon as possible.

(Office of Inspections and Program Evaluations: IPE-14246-2)
Commerce OIG Semiannual Report September 2001 27

Economic Development elopment

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

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.

A Large Portion of Grant Dollars Awarded

To Revolving Loan Funds Were Not Needed

EDA awards grants to local economic development organizations to

capitalize loan pools that finance business activities in economically

distressed areas. Loan repayments, including interest, create a revolving

source of capital intended to finance other business enterprises.

In the past year, we have conducted audits of certain revolving loan fund

(RLF) grants made by EDA (see, for example, March 2001 issue, page

24). The grants were awarded either to capitalize new RLFs or to

recapitalize existing ones.

We continued our efforts during this semiannual period, auditing another

10 RLF awards. We determined that most of the award recipients had

substantial funds that were not needed or used within 3 or more years of

the award date, and that seven of them had used none of the grant

funds. Overall, the unused funds represented more than $3.7 million (or

81 percent) of the nearly $4.6 million in awards.

We found a variety of reasons for recipients’ failure to use grant funds as

envisioned and approved, including the following:

 A lack of demand for loans.

 Sufficient existing or alternative funding sources to meet loan

demand.

 An inability to obtain matching funds.

 Insufficient administrative resources.

Under the RLF program, recipients generally have 3 years to complete

the initial lending cycle, although EDA can extend the period for good

cause. By law, grant funds that are not drawn down within 5 years of the

award are automatically deobligated, unless otherwise specified in the

appropriations language.
 Commerce OIG Semiannual Report September 2001 28

Economic Development Administration

Program

Operations

Finance and

Administration

Economic

Development

Administration

Cong. Liaison,

Program

Research and

Evaluation

Regional

Offices

Many of the recipients we reviewed were nearing the statutory deadline

for automatic deobligation but had used little or none of their funding.

Under the circumstances, we were concerned that they might be

motivated to make improper or imprudent loans to draw down the

remaining grant funds rather than risk deobligation. To prevent this

potential waste of federal dollars, we recommended in most cases that

EDA immediately terminate the award and deobligate all unused funds.

(Atlanta Regional Office of Audits: ATL-14220, ATL-14299, ATL14300, and ATL-14301; Denver Regional Office of Audits: DEN13740 and DEN-14156; Seattle Regional Office of Audits: STL13442, STL-14122, STL-14141, and STL-14142)

EDA-Funded Public Works Projects

Experienced Significant Delays

During this semiannual period, OIG completed audits of four EDA

public works grants awarded to local governments and related agencies.

Our purpose was to assess the reasons for delays in completing

construction projects and determine whether the grantees had complied

with the terms of their awards. We found that the delays were due to a

variety of factors: late project starts, impermissible changes in scope,

continuing design changes, and inability to obtain needed rights of way.

We also discovered that some grantees received excessive

reimbursements and incurred unnecessary contract costs. We are

reporting a total of $2.3 million in questioned costs and funds to be put

to better use. Following are summaries of the four audit reports issued.

California Project for Construction of

Sewer Line, Rail Spur, and Loading Dock

EDA awarded a $1,237,500 grant in 1996 to a redevelopment agency

that is closely affiliated with a California city. The grant, which required

local matching funds of $825,000, was for construction of a sewer line,

rail spur, and loading dock to serve industrially zoned land. At the time

of our audit fieldwork in May 2001, only the sewer line had been

completed. The rail project was completed on July 30, 2001.
Commerce OIG Semiannual Report September 2001 29

Economic Development Administration

We uncovered the following areas of noncompliance with the grant’s

provisions:

 The rail spur, as designed and built, did not include the loading

dock and related improvements described in the grant

application. Without these key components, the project’s

economic benefits will not be realized.

 A conflict of interest existed: Acting in the capacity of city

officials, three principals in a consulting firm under contract to

provide public works, economic development, and planning

services to the city participated in the award of $266,229 in

grant funds to their own firm to supply design, engineering, and

other services for the project.

 Because of delays in securing a site for the rail project,

consultant costs escalated as the city awarded more contracts

to redesign plans and conduct additional environmental

studies. As of May 31, 2001, the city had spent $403,021, or

about 40 percent of the total costs incurred, for consultant

services.

Because of these deficiencies, we recommended that EDA terminate

the rail portion of the project for cause, deobligate $624,484 of

undisbursed grant funds, and recover all funds expended for that

portion. We also recommended that EDA recover $159,737 for the

federal share of the improperly awarded contracts to the city officials’

consulting firm and require the grantee to refund EDA’s share of any

reimbursed costs associated with unfeasible rail project sites.

The grantee did not concur with our findings and recommendations,

stating that even without the loading dock and other improvements, the

rail spur as constructed satisfies the objectives of the project. The

grantee also contended that there was no conflict of interest in the

award of consulting work to the city officials’ own firm. We

disagreed. (Seattle Regional Office of Audits: STL-14258)
 Commerce OIG Semiannual Report September 2001 30

Economic Development Administration

Tennessee Project for

Construction of Building Complex

In September 1995, EDA awarded a $900,000 public works grant to a

Tennessee town and a private association for construction of a fourbuilding complex to house the association. The Appalachian Regional

Commission awarded an additional $700,000 for the project, and the

grantees provided $750,000 in matching funds. In April 2000, the

grantees contributed another $600,000 in matching funds, bringing the

total project budget to $2.95 million.

The project’s performance period was from September 1995 to March

1998. However, EDA granted two extensions, which lengthened the

period to May 2000. When it became apparent that the project could

not be completed by the September 30, 2000, deadline for expiration

of the funds, EDA and the grantees terminated the award for

convenience, and EDA disbursed the balance of the grant money.

Our audit revealed that the grantees materially violated the terms and

conditions of the award by the following actions:

 Failing to complete the project within the required time

frame. Because of a change in architects and substantial design

revisions as construction progressed, the grantees could meet

neither the original completion date nor the extended deadlines.

 Certifying that the project was complete when it was not.

On September 12, 2000, the grantees submitted their final

reimbursement request to EDA and certified that the project

was 100 percent complete. However, during our review 2

months later, we learned that the project was still only about 60

percent complete and not scheduled to be finished until June

2001.

 Using an incorrect rate to calculate reimbursement

requests. The grantees received $419,184 in advance

payments using the wrong federal participation rate. When the

grant was made, the federal rate was 68 percent; the grantees’

contribution of an additional $600,000 in matching funds in

April 2000 reduced the federal rate to 54 percent. However,
Commerce OIG Semiannual Report September 2001 31

Economic Development Administration

the grantees continued to use the original rate when claiming

reimbursements.

We recommended that EDA require the recipients to complete

construction of the EDA portion of the project by October 31, 2001,

establish an accounts receivable for $419,184 in unearned federal grant

funds, and permit the grantees to reduce this amount by submitting

substitute costs through October 31. We also recommended that EDA

recover about $15,000 in imputed interest from the grantees, which

was attributable to the premature drawdown of grant funds. In the

event the grantees are unwilling or unable to comply with these

recommendations, we advised EDA to recover the prematurely

disbursed grant funds plus interest.

Although the recipients acknowledge that the project was not

completed as scheduled, they claim that termination of the project for

convenience and disbursement of the remaining grant funds was entirely

proper. (Atlanta Regional Office of Audits: ATL-13966)

Arkansas Project for Improvements

to Water Treatment Plant

In April 1996, EDA awarded a public works grant to an Arkansas city

for improvements to its water treatment plant. The purpose of the

project was to encourage industrial development and save local jobs.

The total approved cost was $1,670,000 with EDA providing

$1,002,000, or 60 percent, and the city contributing the balance. At

the completion of our review in June 2001, EDA had disbursed

$858,637 to the city.

The city encountered serious delays in acquiring its share of project

funds. As a result, construction began late and was not scheduled for

completion until November 20, 2001—well beyond the September 30,

2001, statutory expiration date of the grant funds.

Our audit reached the following conclusions:

 EDA’s 60 percent reimbursement rate to the city was too high

and resulted in excess disbursements of $324,134. The 60
 Commerce OIG Semiannual Report September 2001 32

Economic Development Administration

percent rate was based on the city’s originally approved

contribution to the total project budget. However, a cost

overrun increased the total project cost, thereby reducing the

reimbursement rate to 37.42 percent.

 Because the project would not be completed before the grant

funds expired, the city would not earn $155,091 of those funds.

We recommended that EDA use the 37.42 percent federal rate for

future disbursements under the grant and direct the city to return the

excess $323,134, along with interest earned on the advance payments.

EDA should also withhold $155,091 from disbursements as of

September 30, 2001, and should deobligate the expired funds. The city

disagreed with our findings, defending its use of the 60 percent rate and

contending that the EDA portion of the project is complete. (Denver

Regional Office of Audits: DEN-13739)

Texas Project for

Construction of Rail Spur

In September 1996, EDA awarded a Title IX defense conversion grant

to a Texas city for development of a rail spur that would connect a

major rail line to an industrial park at the local airport. The assistance

was provided to help the city recover jobs lost when a nearby Air

Force base closed. The total grant amount was $1,695,000, consisting

of $1,271,250 in federal dollars and a $423,750 match from the city.

Before construction of the rail spur could begin, the city needed to

acquire about 2 miles of right-of-way and execute a land swap with a

university and private property owners. At the time of OIG’s audit,

EDA had not disbursed any grant funds.

We found that the city had not diligently pursued completion of the

project and had asked EDA in August 1999 to defer construction of the

rail spur and authorize use of the grant funds to pay for roadway

improvements. The request was not approved, however, when EDA

subsequently determined that the proposal would unacceptably alter the

scope of the project.
Commerce OIG Semiannual Report September 2001 33

Economic Development Administration

At the time of our audit in April 2001, the city had still not acquired the

needed rights-of-way, received other necessary permits, or awarded

the construction contract. We concluded that the city was unlikely to

complete the project before the EDA funds expired on September 30,

2001.

Moreover, after completion of our fieldwork, we learned that because

the city could not secure some rights-of-way, it had altered its plans for

the rail spur. Instead of extending rail service to the industrial park, the

city now proposes to have the spur terminate on vacant land outside the

airport. We believe this proposal deviates so substantially from the

original purpose of the award that it constitutes an impermissible

change in the scope of the project.

We recommended that EDA obtain a legal opinion as to whether the

city’s actions constitute an impermissible change of scope. We also

recommended that no EDA funds be disbursed to the city absent

evidence that the project can be completed before the expiration of

grant funds on September 30, 2001. Otherwise, EDA should terminate

the grant for cause and deobligate the funds. (Denver Regional

Office of Audits: DEN-13742)

Trade Adjustment Assistance Centers Need

Stronger Controls over Contract Compliance

The Trade Act of 1974, as amended, authorized the President to

negotiate international trade agreements. To date, the legislation has

resulted in three free trade agreeements.

While free trade policy is a central component of economic expansion

and can result in more jobs for the overall economy, it also can lead to

temporary economic disruption in individual communities and regions of

the country. To mitigate these negative effects, the act also created the

Trade Adjustment Assistance program, under which EDA funds 12

regional centers (TAACs) that offer a range of business advisory

services. The centers help affected companies diagnose their problems

and develop recovery strategies. Technical assistance with

implementing recovery plans is primarily provided through contractual

arrangements with private consulting firms.
 Commerce OIG Semiannual Report September 2001 34

Economic Development Administration

Under a cooperative agreement with EDA, each center receives

between $600,000 and $1 million annually, which covers administrative

expenses and a portion of technical assistance costs. The centers and

clients share the cost of consulting contracts and other technical

assistance costs on a 50-50 or 75-25 basis, up to a limit of $20,000

per client.

Within the past year, the Northwest TAAC in Seattle experienced two

problems involving the cost-sharing arrangement for consultant

contracts: one in which a consultant failed to provide the agreed-upon

services, and one in which a client company failed to pay its share of the

technical assistance costs. At EDA’s request, the center reported these

problems to OIG, and we conducted a review to determine whether

these failures were due to inadequate internal controls at the center.

Under the procedures used by the Northwest TAAC, the center’s share

of a consultant’s invoice would be paid when the client provided a

photocopy of its check for payment of services. Accordingly, the

Seattle

Los Angeles

Lee’s Summit

Boston

Boulder

San Antonio

Chicago

Ann Arbor

Atlanta

Binghamton

Trenton Blue Bell

Seattle

Los Angeles

Lee’s Summit

Boston

Boulder

San Antonio

Chicago

Ann Arbor

Atlanta

Binghamton

Trenton Blue Bell

Trade Adjustment Assistance Centers

Source: OIG
Commerce OIG Semiannual Report September 2001 35

Economic Development Administration

process relied on consultants to report instances of client nonpayment

and on clients to report dissatisfaction with consultant services. Center

officials acknowledged that this system hindered timely notification of

noncompliance, required significant staff time for follow-up, and resulted

in threats of legal action by both consultants and clients.

We expanded the scope of our review to include the other 11 TAACs

and found that most were employing procedures that failed to

adequately ensure contract compliance. Eight of these centers relied on

verbal notification of compliance from consultants or clients. The other

three—the Western, Mid-America, and New England centers—had

more effective controls: They required written certification that

consulting services were adequate and that client payments were made.

We determined that this method provides greater assurance of

compliance by both consultants and clients without placing burdensome

requirements on either party or the centers. The written documentation

may also reduce the need for follow-up by the centers and lessen the

likelihood of legal actions.

We recommended that EDA develop a uniform system of controls for

all TAACs as part of the contract monitoring process. This system

should include both certifications from clients that consultant work is

satisfactory and written evidence that consultants have received client

payments. EDA agreed with our recommendation, and proposed

revising the standard scope-of-work statement for future TAAC awards

to require appropriate controls. In the interim, EDA will advise all

existing TAACs of the impending change and encourage immediate

implementation of the new procedures. (Seattle Regional Office of

Audits: STL-14322)
 Commerce OIG Semiannual Report September 2001 36

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.

Additional Security Measures Needed for

Advance Retail Sales Economic Indicator

Two ESA bureaus, the Census Bureau and the Bureau of Economic

Analysis, develop and disseminate the Principal Federal Economic

Indicators—major series of statistics that describe the condition of the

nation’s economy. Maintaining the security of these indicators

throughout the preparation and release process is of utmost importance:

The indicators have significant commercial value, may affect the

movement of commodity and financial markets, and may be taken as a

measure of the impact of government policies. In addition, many are

based on confidential data voluntarily provided by businesses. For these

reasons, no information associated with the indicators should be

disclosed before their official release time.

The Census Bureau develops the Advance Retail Sales indicator. When

initial estimates of this indicator become available, Bureau staff operate

in a “lockup,” or secure, mode to safeguard them as they are refined

and finalized over several days.

ESA is responsible for releasing all of the indicators to the public.

Thirty minutes before the official release time, it provides the indicator

information to reporters in a secure pressroom (lockup facility) and

allows them to prepare their news stories. At the release time, reporters

may transmit the stories to their organizations, and the information is

then also made available on the ESA and Census Bureau web sites.

The chart on the following page depicts the time line for development

and release of the Advance Retail Sales indicator.

OIG conducted an evaluation to determine whether ESA and the

Census Bureau have adequate internal controls to prevent premature

disclosure or use of the Advance Retail Sales indicator data. We

selected this indicator for scrutiny because of its importance and

sensitivity. We looked at the effectiveness of (1) application controls on

information technology resources used to prepare the indicator and

(2) management controls over personnel security for ESA and Census

staff who have advance knowledge of the indicator. Bureau

of the

Census

Bureau of

Economic

Analysis

Economics and

Statistics

Administration
Commerce OIG Semiannual Report September 2001 37

Economics and Statistics Administration

We determined that access controls appropriately establish individual

accountability and limit users’ processing privileges (these privileges

determine which computer-based information and activities a user can

access). We also found that physical controls for servers used to

develop the indicator are reasonable but that other aspects of these

controls need strengthening, as do management controls over personnel

security. Among our specific findings were the following:

 Guidance for personnel access to offices is inadequate.

The procedures for access to offices during lockup do not

explicitly state that office personnelmust use the designated

controlled-access door; nor do they address measures to

protect information when personnel who are not authorized

access to sensitive data require admittance to lockup areas. We

recommended that the procedures be modified to rectify these

omissions.

Note: All days refer to workdays. All activities are performed by the Census Bureau, with the exception of release by ESA.

End of reporting month

Mail or fax Advance Retail

Sales Survey forms to the

4,100 participating businesses.

Key response data.

Follow up by phone, if

needed.

2nd - 6th day of the following

 (compiling) month

Edit and tabulate data.

Develop preliminary indicator values.

Prepare preliminary public release

reports.

Review preliminary indicator values.

Validate final indicator values.

Prepare final public release reports.

7th - 8th day of the following (compiling) month

Send report to Council of

Economic Advisors.

Officially release indicator (ESA).

Post reports on public ESA and

Bureau web sites.

Begin secure operations “lockup”

Time Line for Development and Release of Advance Retail Sales Indicator

5th - 6th day of the following

 (compiling) month

7th day of the following

(compiling) month

8th day of the following

 (compiling) month

9th day of the following

 (compiling) month
 Commerce OIG Semiannual Report September 2001 38

Economics and Statistics Administration

 Application software change control is informal and lacks

documented procedures. Although a process exists for

requesting changes to the application software, there are no

written procedures for making the changes or for performing

and documenting tests on the modified software to ensure that

only authorized changes are made. We advised that procedures

be developed for controlling software change.

 Auditing software has not been regularly used during

lockup. When audit logs were available, they were not used

regularly to monitor access to the indicator data. A recent

upgrade to the operating system of the server that stores the

data does not accommodate the format for audit logs that is

required by the auditing software. We recommended that a

commercially available audit software program be installed as

soon as possible, and that procedures for and training on its

use be provided.

 Employees have not had appropriate background

investigations, and risk levels have not been properly

assigned. Risk designations correlate to the potential damage

an individual in a position of public trust could cause to the

efficiency and integrity of government programs and operations.

The level of background investigation required on an employee

is determined by the level of risk assigned to the employee’s

position.

Of three employees in Advance Retail Sales-related positions

classified as moderate risk, only one had undergone the

required level of background check. Moreover, the

Department’s Office of Security could not identify what type of

investigation, if any, had been conducted on staff in most of the

positions classified as low risk in another Census unit. Two

persons designated as alternate ESA pressroom lockup

directors had not undergone appropriate background checks,

and risk designations assigned to some positions were

inconsistent with their levels of responsibility and trust. We

recommended that appropriate background investigations be

completed for all employees who have prerelease knowledge of
Commerce OIG Semiannual Report September 2001 39

Economics and Statistics Administration

economic indicator data and that risk classifications be

reassessed to ensure that they reflect the appropriate level of

responsibility and trust.

 Guidance concerning legal and ethical restrictions on

market investments based on advance knowledge needs

to be supplemented. Census Bureau and ESA employees

who have access to prerelease indicator data did not receive

adequate written guidance regarding the legal and ethical

restrictions on investing in financial markets based on their

advance knowledge of this information. We recommended that

specific details be provided on how the government’s ethics

standards restrict these employees from engaging in certain

financial transactions.

ESA and the Census Bureau agreed with and are taking steps to

implement all of our recommendations. (Office of Systems

Evaluation: OSE-12754)

In identifying criteria used to determine appropriate risk levels and

associated background investigations, we also noted a lack of guidance

on these matters from the Department’s Office of Human Resources

Management and Office of Security. This finding suggested that the

problems with risk assessment and background investigations found at

Census might exist in other Commerce operating units, and prompted us

to undertake another evaluation to address this issue. (See page 63.)
 Commerce OIG Semiannual Report September 2001 40

The International Trade

Administration is responsible for

the 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.

Trade Development advises on

international trade and investment

policies pertaining to U.S.

industrial sectors, carries out

programs to strengthen domestic

export competitiveness, and promotes U.S. industry’s increased

participation in international

markets.

Import Administration 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. and Foreign 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 84 countries.

International Trade

Administr Administration

Visits to Two US&FCS China Posts Find

Progress Made on 1999 Recommendations

Earlier this year, OIG conducted limited on-site reviews of two U.S.

and Foreign Commercial Service posts in China (Beijing and Shanghai)

to assess the status of efforts to implement recommendations from our

1999 inspection report (see September 1999 issue, page 35). In a

May 30 memorandum to US&FCS, we reported our observations.

Among the more significant were the following:

 New Beijing office. In our 1999 report, we recommended

that US&FCS study the feasibility of moving its Beijing post to

another location to provide for a less crowded, more

productive working environment. The agency has relocated the

post to new office space in the city’s business district—a site

that provides a much more efficient, professional-looking

environment than the former embassy location. However, we

noted a flaw in the design of the new office. US&FCS

management is taking action to correct the problem.

 Regional strategic plan. Our earlier report recommended

that the senior commercial officer in Beijing develop a regional

plan for the China Economic Area. The officer is developing

such a plan, which will identify projects to be conducted jointly

by the China, Hong Kong, and Taiwan posts.

 Fiscal management. We recommended several actions aimed

at ensuring that US&FCS China establish a reliable system to

monitor its budgets, track financial disbursements, verify

records, and strengthen internal controls over financial matters.

Our follow-up visit found that a new web-based financial

reporting system has made the post’s financial system more

functional and easier to use. For example, the Beijing post’s

budget analyst is now able to directly access the reporting

systems of other China posts, allowing for better oversight of

their financial status.
Commerce OIG Semiannual Report September 2001 41

International Trade Administration

Import

Administration

Market

Access and

Compliance

Trade

Development

U.S. and Foreign

Commercial

Service

International

Trade

Administration

 Staff rotation, language requirement, and turnover. We

recommended in1999 that US&FCS do the following to

address staffing issues in China: (1) create incentives to attract

more experienced officers, and (2) develop a plan to support

higher graded foreign national employees. During our recent

visit, we found that for the first time, US&FCS had waived the

language requirement for a few officer positions. We later

learned that the agency had lined up replacements for all six

officers who were scheduled to leave during the summer of

2001. The agency is attempting to minimize the loss of foreign

national staff to higher paying positions by obtaining Chinese

government approval to hire such staff directly—a move that

would enable US&FCS to increase employees’ take-home pay.

US&FCS is also exploring ways to retain and promote qualified

individuals, for example, by expanding their duties and thus

elevating their positions to higher pay levels.

 IT upgrades and Internet service. In our earlier report, we

recommended that US&FCS develop a coordinated policy on

information technology and provide greater Internet access to

facilitate market research. Subsequently, the posts have

received new computer equipment and have expanded their use

of IT resources. Although Internet service in China is still

unreliable, access in the new office in Beijing is much better than

it was in the former location.

 Commercial center partners. We had recommended that the

commercial center in Shanghai improve cooperation with its

collocated partners, which include representatives of three

states, one city, and two industry associations. During our

recent visit, the collocated partners expressed general

satisfaction with the facility and the cooperation received from

US&FCS staff, but also voiced a desire for a more formal

communication system at the center. After our visit, we learned

that post management was taking steps to meet regularly with

the partners.

 Lease renegotiation. In our 1999 report, we recommended

that US&FCS Shanghai renegotiate its costly lease for the

commercial center facility. The center subsequently did so and

thus reduced its annual rent significantly—from $574,000 to
Commerce OIG Semiannual Report September 2001 43

National Oceanic and

Atmospheric Administration

The National Oceanic and

Atmospheric Administration

studies climate and global change;

ensures the protection of coastal

oceans and the management of

marine resources; provides

weather services; and manages

worldwide environmental data.

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.

OIG Continues Its Inspections

of Weather Forecast Offices

The National Weather Service (NWS) has 121 weather forecast offices

(WFOs) nationwide, each of which issues local forecasts as well as

warnings of severe conditions (tornadoes, floods, hurricanes, and other

events) for its assigned counties. OIG is inspecting WFOs in various

regions. During this semiannual period, we completed our second and

third inspections, which covered the WFOs in San Angelo, Texas, and

Missoula, Montana.

We sought to determine how effectively the WFOs (1) deliver warnings,

forecasts, and other information to their customers; (2) coordinate their

activities with state and local emergency managers; and (3) manage their

network of observers and volunteer spotters. We also assessed the

adequacy of each office’s management and internal controls; its

compliance with Department, NOAA, and NWS policies and

procedures; and the quality of NWS’s regional oversight.

San Angelo, Texas

The San Angelo WFO, 1 of 31 in NWS’s Southern Region, has a staff

of 22 and services a warning area that covers 24 counties in westcentral Texas. Our inspection found that the WFO performs well in

some important areas, as follows:

 The office provides most services to the public

effectively. Performance statistics show that, for the most

part, San Angelo does a good job of issuing weather forecasts,

warnings, and other information. The only area of concern with

the office’s forecasting is that its Probability of Precipitation

statistics were less accurate than those provided by computer

models.

We also found that the office’s outreach efforts to local users

were effective. All of the local public officials and emergency

managers we spoke with had favorable comments about their

interactions with WFO staff and about the quality of services

received.
 Commerce OIG Semiannual Report September 2001 44

National Oceanic and Atmospheric Administration

National

Weather

Service

National

Ocean

Service

National

Marine Fisheries

Service

NESDIS

Oceanic and

Atmospheric

Research

Marine and

Aviation

Operations

NOAA

 Most administrative activities were well controlled. Office

policies and procedures for inventory, supplies, bankcards,

procurement, time and attendance, travel, and security have

adequate controls and well-maintained documentation.

Our review did uncover a number of managerial, administrative, and

operational deficiencies that require prompt attention:

 The WFO has conducted few local studies. Of the five

research studies completed during the last 2 years, three were

prepared by one staff member, even though all meteorologists

are required to perform research, according to their

performance plans. The office did not have an adequate

research plan or a detailed outline for studies to be completed.

WFO management should continue to encourage staff to

participate in local studies, work with them to develop research

topics, and provide needed guidance and constructive criticism.

 Until just before our visit, the WFO did not have a

structured training program. While some office employees

said they have received sufficient training, most wanted a more

systematic, individual training approach. WFO management

needs to ensure that all staff members understand how the new

professional development plans will be used and interpreted.

Management must also ensure access to appropriate training

that is based on employees’ plans.

 Air Force radar does not meet availability standards. San

Angelo uses both NWS and Air Force radar to monitor its

warning area. However, Air Force radar does not meet the

standards for availability set by NWS and the Departments of

Defense and Transportation, primarily because of repair delays.

NWS must continue to work with Defense officials to facilitate

the timely repair of radar equipment.

 NWS’s policies for information technology security had

only recently been implemented. The WFO had not

designated an information technology security officer or

prepared security, risk analysis, and disaster recovery plans until

shortly before our visit. WFO management needs to take steps

to comply with the new security plan.

Texas WFOs’ County Warning Areas

Source: National Weather Service
Commerce OIG Semiannual Report September 2001 45

National Oceanic and Atmospheric Administration

 New station duty manual can be improved. After we

announced our inspection, San Angelo personnel updated the

March 1994 station duty manual. Before this update, the office

lacked a current manual to address operational and emergency

needs. After reviewing the new manual, some employees told

us that they still did not understand how to perform several

critical tasks. The manual should be reviewed to determine

how to define staff roles and responsibilities more clearly and to

identify other needed improvements.

 Focal point responsibilities have not been effectively

communicated to staff. All WFO personnel perform or

support key office activities via “focal point” duties, such as fire

weather forecasting, property management, information

technology security, and forecast quality control. San Angelo

personnel had not been officially tasked with all primary and

secondary focal point duties until shortly before our inspection.

We found during our visit that some staff were still unclear about

which responsibilities were theirs and about who was assigned

as their backup. WFO management needs to maintain an

updated list of focal point duties and ensure that staff are

prepared to handle them.

 Quality control needs to be more systematic. San Angelo

staff were not consistently performing quality control reviews of

forecasts, research studies, and other office products. As a

result, some products have been released with incorrect

information. While the overall quality of products appeared

adequate, staff acknowledged that accuracy and completeness

could be improved. WFO management needs to implement an

ongoing quality control system and emphasize to all forecasters

and technicians that products must be reviewed.

 Greater regional oversight of the WFO is needed.

Regional officials, although aware of some of the problems we

identified, had not adequately addressed them. We believe that

when regional managers visit weather forecast offices, they

should not only review programs, but should also address other
 Commerce OIG Semiannual Report September 2001 46

National Oceanic and Atmospheric Administration

priorities, such as management and employee concerns, and

take appropriate corrective actions.

NOAA generally agreed with our observations. However, it took

exception to a number of them, believing that the recommended actions

were already in place. (Office of Inspections and Program

Evaluations: IPE-13531)

Missoula, Montana

The Missoula WFO, 1 of 24 in NWS’s Western Region, has a staff of

25 and services a warning area that covers 14 counties (11 in

northwestern Montana and 3 in central Idaho). The office’s fire

weather program, considered its most critical activity, provides

meteorological support to fire management agencies for wildfire

suppression and the protection of life and property. This support

includes providing warnings, forecasts, on-site services during wildfires,

and meteorological training for fire management officials.

We found that the office provided most services to the

public effectively and was generally well managed.

 Missoula has done a good job of issuing

most weather forecast and warning

products. The office’s programs for fire

weather, winter weather, hydrology, and

aviation have been generally effective, but the

severe storm program needs management

attention. In addition, the office should

strengthen its fire weather program by

conducting annual postseason analyses of fire

weather seasons beginning with the year 2000

to identify program strengths and weaknesses—

a best practice developed by the Great Falls,

Montana, WFO.

Missoula WFO County Warning Area

Source: National Weather Service

Missoula WFO Radar at

the top of Point Six

Source: OIG
Commerce OIG Semiannual Report September 2001 47

National Oceanic and Atmospheric Administration

 Office outreach efforts to emergency managers and other

users are effective. Missoula has developed excellent

relationships with state and local officials, the media, and area

schools. We spoke with many public officials and emergency

managers, all of whom had favorable comments about their

interaction with WFO staff and about the quality of services

received.

 Regional oversight appears adequate. We looked at how

often regional managers made station inspections and general

visits to address questions and provide oversight of WFO

operations, management, and administrative support. We also

assessed the effectiveness of regional support during the

transition of three new employees into key positions at

Missoula. We concluded that regional oversight is adequate,

and that the Western Region’s close involvement with the WFO

has helped the office operate its programs effectively.

 Actions are being taken to improve the office’s training

program. Missoula has a structured program of biannual

training for the office as a whole and for each staff member.

The science operations officer, who is responsible for the

WFO’s training and research, plans to enhance training by using

research studies as tools to broaden staff’s knowledge in key

areas. However, the officer agreed with our finding that

individual development plans for each staff member need to be

completed and that training checklists need to be reviewed and

updated.

In addition to highlighting Missoula’s many strengths, our review found a

number of managerial, administrative, and operational deficiencies that

require prompt attention.

 Although the Cooperative Observer and Skywarn

programs are generally well run, there is room for

improvement. The WFO’s Cooperative Observer and

Skywarn programs primarily use volunteer observers to report

on weather events. Although these programs are well run, their

future is of concern to staff, who believe that maintaining

observers for both programs could get more difficult as the

current volunteers lose interest and give up their involvement.
 Commerce OIG Semiannual Report September 2001 48

National Oceanic and Atmospheric Administration

Staff members report having difficulty recruiting and replacing

observers in isolated locations. They are concerned about a

lack of NWS direction and support for the Cooperative

Observer Program and are uncertain about its future direction.

 Several resource allocation issues need to be addressed.

Although the Missoula WFO is a fairly efficient operation, the

following areas require attention: (1) The office risks losing

incident meteorologists, who provide on-site support to

firefighters, to higher paying positions at interagency Geographic

Area Coordination Centers; (2) many WFO personnel

consider certain forecast products to be redundant or

unnecessary; (3) electronic technicians spend too much time

traveling to repair distant weather observation equipment.

NWS has addressed the third item by agreeing to ensure that

the WFO’s repair kits contain all necessary spare parts, thereby

saving technicians from having to make extra trips to repair

equipment.

 Internal controls are generally adequate, but several

high-cost items are not properly regulated. Because of

recent improvements in administrative controls, Missoula

performs most administrative functions efficiently. However,

inventory procedures need tightening: The office does not

include some expensive items, such as all-terrain vehicles,

snowmobiles, and trailers, on its inventory because they cost

less than $5,000—the threshold amount for listing such items.

 Quality control needs to be more systematic. Like their

San Angelo counterparts, Missoula staff did not consistently

perform quality control reviews of office products. As a result,

a few office products have been released with incorrect

information. The overall quality of the products we reviewed

appeared acceptable, but staff emphasized that the accuracy

and completeness of products need improvement. WFO

management needs to implement an ongoing quality control

system and emphasize to all forecasters and technicians that

products must be reviewed.
Commerce OIG Semiannual Report September 2001 49

National Oceanic and Atmospheric Administration

NOAA generally agreed with the recommendations we made to address our concerns. (Office of Inspections and Program

Evaluations: IPE-14225)

NMFS Must Take Steps to Improve Salmon

Recovery Efforts in the Columbia River Basin

The Endangered Species Act of

1973 provides for the

conservation of species that are

approaching endangerment or

extinction throughout all or a

significant portion of their range,

as well as conservation of the

ecosystems on which they

depend. NOAA’s National

Marine Fisheries Service

implements the act for marine

and anadromous fish, such as

salmon, which migrate between

the ocean and inland waterways.

OIG reviewed certain aspects of

NMFS’s role in salmon recovery

in the Columbia River Basin. In

this effort, the agency interacts

with a number of organizations,

such as the Federal Caucus

(which is composed of NMFS

and eight other federal agencies)

and various groups representing

state and local governments,

Indian tribes, and private citizens.

Since 1991, under a process defined in the act, NMFS has determined

that 12 evolutionarily significant units (ESUs) in the Columbia Basin are

threatened or endangered. An ESU is a segment of a species that is

reproductively isolated and contributes substantially to the species’

Source: http://www.salmonrecovery.gov
 Commerce OIG Semiannual Report September 2001 50

National Oceanic and Atmospheric Administration

genetic diversity. NMFS also issues the regulations and permits

required by the act to provide for the protection of the identified ESUs.

Our review found that NMFS could improve its salmon recovery efforts

in the Columbia Basin by taking the following actions:

 Completing detailed recovery plans for each ESU. As

required by the act, NMFS consulted with other federal

agencies and reviewed their biological assessments of the

causes of population declines and the mitigation measures

necessary to reverse those declines. NMFS then developed

and issued biological opinions on the activities proposed by

these agencies. Although the agency has helped move the

Federal Caucus toward a comprehensive strategy of

coordinated ecosystem management, it must still develop

detailed recovery plans for each ESU, as required by the act.

These plans need to include site-specific management actions;

estimates of the time and cost required to carry out these

actions; and objective, measurable criteria that, when met, will

allow an ESU’s removal from the endangered or threatened list.

 Improving its communication and collaboration with

stakeholders. Developing an ecosystem management process

for salmon is complicated because this effort involves many

jurisdictions and affects stakeholders who have competing

interests. As a result, NMFS must ensure that it communicates

and collaborates effectively with the involved government

entities, tribal authorities, and other stakeholders. Many

participants in the salmon recovery effort whom we interviewed

expressed concerns about NMFS’s interactions with them.

Some criticized NMFS for failing to establish an effective local

outreach program, and others stated that NMFS has been

unable to develop the network needed to help build a

consensus among interested parties. Stakeholders were

particularly concerned about what they perceived as NMFS’s

unwillingness to collaborate with them on the sharing and use of

scientific data and the development of recovery options.

In an April 27, 2001, memorandum to the Acting Assistant

Administrator for Fisheries, we recommended that NMFS (1) complete

the detailed recovery plans required by the act, and (2) carefully assess
Commerce OIG Semiannual Report September 2001 51

and, as appropriate, address the concerns expressed by stakeholders

about its communication and collaboration with them. NMFS advised

us that it has formed teams to begin working on the detailed recovery

plans. In addition, the agency officials with whom we discussed

stakeholder concerns appeared to recognize that improved outreach

and collaboration are needed. (Seattle Regional Office of Audits)

NOAA Weather Radio Has a Reasonable

Expansion Strategy and an Effective Outreach Effort

The mission of the National Weather Service is to provide weather,

hydrologic, and climate forecasts and warnings for the United States

and its territories for the protection of life and property and the

enhancement of the national economy. One way that NWS

disseminates weather information is through NOAA Weather Radio.

This nationwide network of more than 600 stations broadcasts weather

warnings, watches, forecasts, and other information directly from

nearby WFOs 24 hours a day. NOAA Weather Radio is provided as a

public service and currently reaches approximately 90 percent of the

U.S. population.

OIG performed an audit survey of the proposed expansion of the radio

network to evaluate the following: (1) NWS’s strategy and plans for

deploying new transmitters to achieve its goal of increasing network

coverage to 95 percent of the U.S. population, and (2) its outreach

program for developing partnerships with private groups and state and

local governments to encourage organizations and homeowners to install

weather radio receivers.

In an August 24, 2001, memo to NOAA, we reported our conclusion

that the Weather Radio network has both a reasonable strategy for

selecting station sites and an effective outreach program. Because we

did not identify any issues that warranted further attention, we closed

out our work in this area. (Science and Technology Audits Division)

National Oceanic and Atmospheric Administration
 Commerce OIG Semiannual Report September 2001 42

International Trade Administration

$273,000, a figure that is comparable to the rent for similar

properties in the local market.

Overall, we are pleased with the actions taken to implement many of

our 1999 recommendations and plan to continue monitoring

US&FCS’s progress in this area. (Office of Inspections and

Program Evaluations)

Audit Reports Unresolved

for More Than Six Months

Software and Information Industry Association

A financial assistance audit that we reported on in March 2001 (page

42) looked at three cooperative agreements awarded to an industry

trade association. For the first agreement, we recommended that

$597,914 in questioned costs be disallowed because of inadequate

support documentation. We also recommended recovery of $116,466

in disbursements that exceeded allowable costs.

In the second case, we recommended that $17,654 in costs be

disallowed and that approximately $5,000 in excess disbursements be

recovered. In the third case, we recommended that the awardee

(1) establish a detailed activity report to support personnel costs and

(2) obtain fidelity bonds covering any personnel authorized to disburse

federal funds.
 Commerce OIG Semiannual Report September 2001 52

National Telecommunications

and Information Administration

The mission of the National

Telecommunications and

Information Administration is to

(1) serve through the Secretary of

Commerce as the principal

executive branch advisor to the

President on domestic and

international communications and

information policies, (2) ensure

effective and efficient federal use

of the electromagnetic spectrum,

(3) develop with other federal

agencies policies for international

communications and standardssetting organizations, (4) serve as

the federal telecommunications

research and engineering center,

and (5) administer grants under the

Telecommunications and

Information Infrastructure

Assistance Program and the

Public Telecommunications

Facilities Program.

Table Mountain Research Site in Colorado

Needs To Be Upgraded and Maintained

The Institute for Telecommunication Sciences (ITS), in Boulder,

Colorado, provides research and engineering support for NTIA’s

policymaking activities. ITS offers these services to other federal and

nonfederal entities on a reimbursable basis. OIG recently audited

selected efficiency and effectiveness issues at ITS. Our review covered

a variety of matters, but we concluded that the only one requiring

immediate attention was the management of the Table Mountain Radio

Quiet Zone research site.

The Table Mountain site is located on roughly 1,700 acres in a rural

area about 11 miles north of Boulder. The site’s physical isolation and

its status as one of only two radio quiet zones in the United States

minimize disruptions to experiments and the collection of atmospheric

and terrestrial data. The site has 10 users that conduct ongoing

research—5 NOAA units, the U.S. Geological Survey, a university, two

private companies, and a nonprofit organization. ITS has no current

Three Geostationary Operational Environmental Satellites (GEOS) at

the Table Mountain Radio Quiet Zone monitor solar activity.

Source: OIG
Commerce OIG Semiannual Report September 2001 53

Spectrum

Management

Policy

Analysis and

Development

Telecom. and

Information

Applications

Institute for

Telecom.

Sciences

International

Affairs

NTIA

ongoing experiments at the site, but uses it periodically for radio

equipment calibration and wave propagation measurements and testing.

When we began our review in 2000, the Table Mountain site was in

disrepair and had several health, safety, structural, and environmental

deficiencies that threatened its users, nearby residents, and federal

property. An earlier report by the Mountain Administrative Support

Center (MASC)—the Commerce unit that provides real property

management services to departmental facilities in the region—had

estimated that the site needed $360,000 in repairs to correct

deficiencies related to safety, structural stability, electrical systems, and

environmental liability. Since we began our review, relatively low-cost

actions have been taken to address some of the deficiencies that

required immediate attention, but periodic monitoring is needed to

prevent these problems from recurring. Other, more costly matters still

need remedial action.

Managing Table Mountain involves overseeing technical programs,

administrative functions, and maintenance and security operations. ITS

National Telecommunications and Information Administration

This 60-foot steerable satellite dish is one of two at Table Mountain

that tracks the movement of quasars, pulsars, satellites, and the Space

Shuttle. Source: OIG
 Commerce OIG Semiannual Report September 2001 54

currently provides overall program management of the site by

determining who will use the site and whether activities conducted by

current or potential users are compatible. User organizations typically

manage their individual technical programs and provide maintenance

and security for the structures in which they operate. However, no

organization oversees overall management of the site. In addition, the

quality of building management is inconsistent and not well coordinated;

maintenance of common areas and unused facilities has been neglected,

as has general security. The administrative duties associated with the

site, most of which are handled by MASC, include preparing

environmental and safety reports required by law and regulations,

completing property utilization surveys and other reports required by the

General Services Administration, and dealing with the public.

Our consideration of who should be responsible for managing Table

Mountain revealed that although the property belongs to the

government, no legal document exists to indicate that any particular

agency owns the site or is responsible for its management. The

property was originally acquired for use by the Department of

Commerce. Federal Property Management Regulations delegate to

Commerce the authority for real property management of laboratories

used for instrument calibration and for oceanic and atmospheric

research. However, we found no delegated authority for real property

management in relevant Department Organization Orders that would

establish the scope of such authority for NTIA and ITS.

Authority for real property management in the Department is delegated

to regional administrative support centers, which were established in the

early 1980s. Typically, a Commerce operating unit enters into an

agreement with the support center in its region to provide real property

management services for its research sites on a reimbursable basis.

However, the unit retains financial and decision-making authority for

managing the site so that relevant technical and scientific needs of the

site’s users are addressed. In this case, NTIA maintains that the

Department’s Real Property Management Manual provides sufficient

authority for ITS to continue its real property management

responsibilities at the Table Mountain site.

National Telecommunications and Information Administration
Commerce OIG Semiannual Report September 2001 55

Table Mountain is a valuable resource that should be upgraded and

properly maintained to reduce the Department’s risk of loss resulting

from health, safety, structural, and environmental deficiencies and to

provide current and future users with a facility that can support highquality research.

We recommended that NTIA and MASC (1) enter into a formal

arrangement to clearly designate responsibility for overall management

of the Table Mountain site, (2) ensure that recent progress to improve

the site continues and that steps are taken to prevent the problems from

recurring, and (3) meet periodically with all users to coordinate activities

at the site. Both organizations generally agreed with our

recommendations. (Denver Regional Office of Audits: DEN-11928)

National Telecommunications and Information Administration
 Commerce OIG Semiannual Report September 2001 56

Technology Administration

Manufacturing Extension Partnership

Centers Fail to Report All Program Income

During this semiannual period, OIG completed three audits of

cooperative agreements under NIST’s Manufacturing Extension

Partnership (MEP) program. MEP assists small and medium-sized

manufacturers via a nationwide network of 61 centers serving 400

locations.

The major finding of each audit was that none of the three recipients

had fully reported program income. In fact, each recipient had program

revenues, including income, local grants, and NIST funds, far in excess

of the amount needed to cover eligible project expenses; as a result,

they were accumulating large amounts of cash. We concluded that

under federal regulations, project revenues in excess of eligible

expenditures should be reported as excess program income and used to

reduce NIST’s share of costs. Our specific findings were as follows:

A Connecticut center entered into three MEP cooperative agreements

to support businesses by identifying and supplying new sources of

technical and business expertise and advanced technology, including

providing Y2K computer compliance assistance. The 4-year project

period of the awards had total estimated costs of $12,660,713, with the

federal share not to exceed $4,853,731. The recipient reported

incurred costs totaling $12,634,978 under the three agreements and

requested reimbursement of $4,836,304. Our audit found that the

recipient had earned about $4.47 million in program income that was

not reported to NIST. Even though the recipient also underreported its

costs, we calculated that it had earned $675,712 in income above its

costs, none of which was credited to NIST. We recommended that

NIST recover $529,582 in excess disbursements. (Denver Regional

Office of Audits: DEN-13992)

A Wisconsin center was awarded a cooperative agreement to provide

direct technical assistance and other educational and training services to

manufacturers. The 68-month award period had total estimated costs

of $26,733,146, with the federal share not to exceed $10,783,710.

For the 59-month period through November 2000 covered by our

audit, the center claimed costs of $18,808,097 and submitted

reimbursement requests totaling $8,044,001. Our audit revealed that

the center had earned $2.23 million in program income under the

The Technology Administration

serves the needs of technologybased industry, advocates federal

actions and policies to speed the

transfer of technology from the

laboratory to the marketplace, and

removes barriers for commercializing new technologies by

industry. It includes three major

organizations:

Office of Technology Policy

works to raise national awareness

of the competitive challenge,

promotes industry/government/

university partnerships, fosters

quick commercialization of federal

research results, promotes

dedication to quality, increases

industry’s access to and participation in foreign research and

development, and encourages the

adoption of global standards.

National Institute of Standards

and Technology promotes U.S.

economic growth by working with

industry to develop and apply

technology, measurements, and

standards. NIST manages four

programs: the Advanced Technology Program, the Manufacturing

Extension Partnership program, a

laboratory-based measurement

and standards program, and the

National Quality Program.

National Technical Information

Service is a self-supporting

agency that promotes the nation’s

economic growth and job creation

by providing access to information

which stimulates innovation and

discovery. NTIS accomplishes this

mission through two major

programs: information collection

and dissemination to the public,

and information and production

services to federal agencies.
Commerce OIG Semiannual Report September 2001 57

Technology Administration

agreement, but did not report it to NIST. We recommended that NIST

recover or be credited for the excess disbursements, which amounted

to $641,182. (Denver Regional Office of Audits: DEN-14103)

A Pennsylvania center was awarded an MEP cooperative agreement

to fund its manufacturing extension efforts, as well as to provide Y2K

assistance. For the 2-year award period ending in June 2001, the total

estimated project cost was $2.33 million, with the federal share not to

exceed $610,000. As of February 2001, the center had submitted

reimbursement requests for the first year of the award totaling

$572,418. We found that the center did not report to NIST a

$129,229 carryover of program income earned under a previous NIST

award or any of the $412,163 in program income generated under the

audited award. Although the center also underreported its costs, it

nevertheless had $328,887 in excess program income. We

recommended that NIST recover $63,256 in excess federal

disbursements. (Denver Regional Office of Audits: DEN-14046)

OIG Audit Questions Equipment Costs

Charged to Award Without NIST Approval

NIST awarded an Advanced Technology Program cooperative

agreement to a private firm to act as lead administrator of a joint venture

for conducting research on the development of a new technology. The

award was for the period from November 1, 1995, through October

31, 2000. It had total estimated costs of $17,699,654, with the federal

government’s share not to exceed $8,849,819, or 49.9 percent of

allowable costs.

The firm requested early termination of the award, effective September

11, 1998, because of the venture’s inability to meet the project’s

research goals. NIST approved the request. The budget was amended

to reduce total estimated costs to $8,418,876, with the federal share

not to exceed $4,209,171, and the project closeout period was

extended to August 9, 1999. The firm ultimately claimed total project

costs of $8,227,507, and was reimbursed $4,112,931 by NIST.

We audited the award to (1) determine whether the firm’s accounting

and financial management system complied with federal regulations and

program requirements; (2) calculate final incurred costs, concentrating

NIST

Technology

Policy

NTIS

Technology

Administration
 Commerce OIG Semiannual Report September 2001 58

Technology Administration

on equipment and depreciation charges; and (3) identify any instances in

which the recipient failed to comply with the award terms and

conditions.

We determined that the firm’s accounting and financial management

system was generally adequate and that the firm was materially in

compliance with the award terms and conditions. However, we

questioned $364,339 of the claimed costs, almost all of which involved

equipment costs charged to the award without NIST’s required

approval.

We recommended that NIST disallow the questioned costs and recover

disbursed federal funds of $182,633. The firm disagreed with most of

our questioned costs, claiming that the equipment costs were allowable.

(Denver Regional Office of Audits: DEN-14032)

Audit Reports Unresolved

for More Than Six Months

Illinois Manufacturing Extension Center

Our March 2001seminannual report (page 62) detailed the findings of

an interim financial assistance audit of a cooperative agreement under

NIST’s Manufacturing Extension Partnership program in which we

questioned $2.5 million of claimed costs, mainly because of insufficient

support documentation. We recommended that NIST (1) require the

award recipient to reduce its total claimed costs by the amount of the

questioned costs, and (2) direct subrecipients to revise their accounting

procedures to claim only supported and allowable costs.
Commerce OIG Semiannual Report September 2001 59

Departmental Management

OIG Conducts Independent Evaluation Under

Government Information Security Reform Act

OIG recently completed an independent evaluation of the Department’s

information security program, as required by the Government

Information Security Reform Act. Our objective was to determine

whether the Department’s security program and practices comply with

the requirements of the act, which seeks to ensure proper management

and security for federal information resources. We based our evaluation

on the results of previous OIG security-related audits and inspections,

GAO’s recent examination of Commerce security, and selected

security assessments contracted for by individual operating units.

Information security weaknesses throughout Commerce have

prompted us to identify this problem as one of the Department’s Top

10 Management Challenges. In addition, GAO’s recently completed

penetration testing of information systems and networks based in

Commerce headquarters revealed pervasive computer security

weaknesses that place sensitive systems at serious risk.

The Department recognizes the severity of this issue and is addressing it

aggressively. In July, the Secretary directed senior managers to give

the task of improving information security high priority, sufficient

resources, and their personal attention. His recent restructuring of

information technology (IT) management is designed to increase the

authority and effectiveness of chief information officers throughout the

Department. Commerce has also formed an IT security task force to

develop a comprehensive information security program. These are

important steps toward making the security of systems, networks, and

data Department-wide a fundamental component of Commerce’s

business operations.

We must note, however, that because this area has not received

adequate attention in the past, developing and overseeing an effective

information security program will require substantial effort.

 IT security deficiencies should be reported as material

weaknesses as appropriate. OMB Circular A-130 requires

operating units to identify such deficiencies pursuant to Circular

Security

Financial

Management

Management

and

Organization

Human

Resources

Management

Acquisition

Management

Civil

Rights

Budget

Administrative

Services

Small and

Disadvantaged

Business Util.

Exec. Budgeting

and Assistance

Management

CFO and

Assistant

Secretary for

Administration

Legislative and

Intergovernmental Affairs

Policy and

Strategic

Planning

Chief

Information

Officer

General

Counsel

Office of

the Secretary

Staff Offices

Business

Liaison Public Affairs
 Commerce OIG Semiannual Report September 2001 60

Departmental Management

A-123 and the Federal Managers’ Financial Integrity Act

(FMFIA) if it is determined that there is no assignment of

security responsibility, no security plan, or no accreditation. We

have confirmed that deficiencies related to these elements exist

throughout the Department. Commerce must work with its

operating units to ensure that the existence of such material

weaknesses are appropriately identified and reported under

FMFIA.

 Additional efforts are needed to improve risk assessment,

security planning, and test and evaluation. Commerce IT

systems frequently lack risk assessments and security plans; and

vulnerability assessments have been completed for less than 10

percent of the IT assets deemed to be part of the nation’s

critical infrastructure. When these elements do exist, they

frequently have not been finalized or approved by management.

Techniques for information security control are not tested and

evaluated periodically. Some positions that involve access to

sensitive data and systems do not have the necessary risk

designations, which can lead to inadequate background

investigations.

 Additional efforts are needed to establish an acceptable

Department-wide security program, evaluate

performance, and ensure employee training. Commerce’s

information security policy is out of date. It needs to be

revised and expanded. While the Department has recently

improved its oversight of information security, it performs few

information security reviews. As a result, many Commerce

systems lack adequate procedures and control techniques, a

situation that puts both information and equipment at risk.

Moreover, rigorous and ongoing security training is not

conducted.

 Procedures for detecting, reporting, and responding to

security incidents should be improved. Only 4 of 15

Commerce operating units have a formal incident response

capability, and most have not installed intrusion detection

systems. In addition, most units have weak or nonexistent

auditing capabilities. The lack of auditing, coupled with weak
Commerce OIG Semiannual Report September 2001 61

Departmental Management

intrusion detection systems, makes it difficult for operating units

to know when a security incident has occurred or who caused

it.

 Capital asset plans should identify security requirements

more explicitly and link them to security cost estimates.

While most fiscal year 2002 capital asset plans addressed

security, several did not, and most failed to identify security

costs. These costs were also omitted from the OMB budget

request for several projects having capital asset plans. The FY

2003 plans tend to have more detailed discussions of security,

although most still do not identify costs. Moreover, many plans

do not clearly identify their security requirements, and those that

estimate costs do not discuss the basis of the estimate.

 Critical asset identification needs refinement. The

reliability of the inventory of critical assets—those assets

deemed essential to the minimal functioning of the economy— is

questionable because of weaknesses in the methodology used

to gather asset data, and because of operating units’ failure to

consider the risks inherent in their network connections with

external systems. New criteria developed by the federal Critical

Infrastructure Assurance Office identify critical assets by

determining how quickly such assets would have to be

reconstituted in an emergency. Using the new criteria, the CIO’s

office expects to significantly reduce the number of assets on the

inventory list from the current number of 241, allowing attention

to be focused on the most critical.

 The Department needs to give guidance and develop

procedures to ensure the security of contractor-provided

IT services. Outsourcing of IT services, such as network

support and web site operations, is widespread. Commerce

must ensure that contracts for IT services require contractors to

comply with security regulations, guidance, and policy.

However, because Department policies contain little instruction

for integrating security into acquisitions, many contracts are

devoid of security provisions.
 Commerce OIG Semiannual Report September 2001 62

Departmental Management

 Information security plans are frequently not carried out

throughout the life cycle of agency systems. Information

security has yet to become an integral component of Commerce

business operations, and as a result, fundamental responsibilities

are frequently not carried out as systems are designed,

developed, and operated. The Department’s recent efforts to

improve information security—if accompanied by continued

executive-level attention and adequate resources—are important

steps toward building a more effective security program.

Because our evaluation was based primarily on previous work, our

report contained no recommendations. (Office of Systems

Evaluation: OSE-14384)

Use of Internet “Cookies” and “Web Bugs”

Raises Privacy and Security Concerns

Persistent Internet cookies are data devices stored on web users’ hard

drives that can identify users’ computers and track their browsing

habits. Web bugs are software codes that monitor who is reading a

web page. In addition to tracking browsing habits, web bugs can

download files from and upload files to a user’s computer. These

technologies can be employed in ways that would violate the privacy of

individuals visiting web sites. In addition, web bugs can pose security

threats.

OIG evaluated the use of persistent Internet cookies and web bugs by

Commerce Internet sites, as well as the adequacy of the privacy

statements posted on the main web pages of the Department and its

operating units. We conducted our evaluation in response to Public

Law 106-554, the Consolidated Appropriations Act of 2001. This law

requires the Inspector General of each agency to submit a report to the

Congress disclosing any activity that collects information relating to any

individual’s access or viewing habits on the agency’s Internet sites.

We found that most of the Department’s Internet sites do not use

persistent cookies or web bugs. However, we also discovered the

following:

 In several instances, persistent cookies were being used without

a compelling reason or the approval of the Secretary of

Commerce, as required by Department and OMB policy.
Commerce OIG Semiannual Report September 2001 63

Departmental Management

 A number of web pages were using web bug technology. At the

time of our fieldwork, the Department did not have a policy

regulating web bug use. On April 24, the Chief Information

Officer issued a memorandum that established a web bug policy

similar to that for persistent cookies.

 Many of the operating units’ privacy statements do not provide

all of the information required by the Department’s privacy

policy.

We recommended that the Department’s Chief Information Officer

direct CIOs and senior management at the operating units to implement

a strategy for controlling the use of persistent cookies and web bugs

and to certify annually that the unit is complying with the Department’s

applicable policies. We further recommended that they be instructed to

revise their privacy statements to comply with Commerce policy.

The Department’s CIO agreed with our findings and quickly

promulgated a policy that addressed the use of web bugs. The CIO

also took action to help ensure that the cookies we had identified were

removed, and began working to eliminate the web bugs and develop a

uniform privacy statement. (Office of Systems Evaluation: OSE14257)

Program for Designating Risk and

Sensitivity Needs To Be Strengthened

OIG evaluated the Department’s program for designating positions

according to their level of risk and sensitivity. Risk designations reflect

the potential damage an individual in a position of public trust could

cause to the efficiency and integrity of government programs and

operations. Sensitivity designations reflect the potential adverse impact

on national security associated with a position. This evaluation was

prompted in part by our recent review of security measures for the

Census Bureau’s Advance Retail Sales Principal Federal Economic

Indicator. Our findings in this review suggested that inadequate

procedures for assigning appropriate risk and sensitivity designations,

and for conducting associated background investigations may exist

elsewhere in Commerce.
 Commerce OIG Semiannual Report September 2001 64

Departmental Management

We issued the following findings and recommendations:

 Departmental guidance for designating positions is out of

date, and positions are designated incorrectly. Department

Administrative Order (DAO) 202-731 and the Personnel

Security Manual are the official Department-level documents

that provide guidance for designating levels of risk and

sensitivity associated with Commerce positions and for

conducting appropriate background investigations. These

documents were issued in 1989 and 1988, respectively, and

thus do not address important governmentwide changes to

guidance for designating positions and conducting related

investigations.

Therefore, Commerce operating units have no current, official

Department-level instruction for designating public trust and national

security positions and for conducting adequate background

investigations. As a result, some positions of public trust are designated

according to their level of sensitivity rather than their level of risk—a

situation that can lead to inappropriate background investigations. Also,

risk designations are sometimes inconsistent with a position’s level of

responsibility and trust. Moreover, the duties and authority of personnel

involved in the designation process are not clearly defined; and human

resources, security, and management officials are often unsure of their

responsibilities.

We advised the Department to assess the responsibilities and authorities

associated with sensitivity and risk designations, including the role of

managers. Commerce must determine how those responsibilities and

authorities will be allocated and make certain that management,

personnel, and security officials understand their duties.

We also recommended that the Department ensure the following actions

occur:

1. Managers and staff from both the Office of Security and

the Office of Human Resources Management attend

training approved by the Office of Personnel

Management (OPM) for designating risk and sensitivity
Commerce OIG Semiannual Report September 2001 65

Departmental Management

levels and determining appropriate background

investigations.

2. The DAO and the manual are updated to include

OPM’s latest guidance and clear delineation of the roles

and responsibilities of heads of operating units, other

managers and supervisors, servicing personnel officers,

and security officers.

3. Revised departmental guidance is distributed to all

operating units.

4. Human resources and security personnel in the

operating units receive appropriate training to implement

the new guidance.

The Department’s Office of Security and Office of Human Resources

Management are coordinating efforts to update the DAO and the

manual so that they reflect current governing regulations.

 Records of personnel security investigations are

incomplete, and employees are not appropriately

investigated. Commerce lacks up-to-date, complete

information on employee risk or sensitivity levels and on the

type and currentness of associated investigations. During our

review of the Advance Retail Sales indicator, we found that the

the Office of Security’s investigation records for many Census

Bureau employees did not indicate the type of background

investigation performed. The office uses two automated

systems to track investigations, but in many cases, neither

contains the needed information. We also found that some

employees did not have the level of background investigation

required by the risk associated with their positions.

We later reviewed a sample of investigation records provided by the

Office of Security for staff of BXA, NIST, and NOAA, and found

additional instances in which employees did not have the background

investigation required by the sensitivity or risk designation of their

positions. In some cases, the level of investigation was too low to

assure that employees could be trusted with the information to which
 Commerce OIG Semiannual Report September 2001 66

Departmental Management

they have access. In other cases, the level was too high and hence

unnecessarily expensive and intrusive.

We recommended that the Office of Human Resources Management

and the Office of Security (1) improve record keeping to maintain

accurate background investigation data for all employees, and

(2) develop a plan to determine whether current positions within the

Department are properly designated according to risk and whether

reinvestigations are being conducted as necessary.

The Chief Financial Officer and Assistant Secretary for Administration

agreed with our findings and recommendations. The Deputy Assistant

Secretary for Security and the Director of Human Resources

Management are coordinating development of a plan to address them.

(Office of Systems Evaluation: OSE-14486)

CAMS Contract Administration Has

Improved, but Further Actions Are Needed

The Department is developing the Commerce Administrative

Management System (CAMS)—a single, integrated financial

management system that complies with OMB requirements. In 1994, a

contract was awarded for an accounting software package, known as

the Core Financial System, as well as for program management,

development, testing, maintenance, and implementation. This contract

also provided for support to implement functional systems, including

payroll, personnel, procurement, property, travel, and grants

management. The period of performance was 1 year, with options for

9 additional years. Total life-cycle costs of the contract were estimated

at $31.9 million.

In fiscal year 1997, problems with the software provided by a

subcontractor prompted the Department to take responsibility for the

Core Financial System and retain a new contractor for software

development. Concerned with increased costs and schedule delays,

Commerce redefined CAMS to exclude many of the planned functional

systems, leaving intact the Core Financial System, three integrated

functional modules—labor/time and attendance interfaces with the

National Finance Center, bankcard, and small purchases—and the

Core Financial System data warehouse. In August 1999, NOAA’s
Commerce OIG Semiannual Report September 2001 67

Departmental Management

Systems Acquisition Office assumed responsibility for administering the

CAMS contracts.

The original contractor provides most of its services through labor-hour

task orders issued against the base contract. Software development

and maintenance services from the second contractor are obtained

under contracts and delivery orders against General Services

Administration (GSA) schedule contracts, mostly on a labor-hour basis.

CAMS is now operational at the Census Bureau, Office of the

Secretary, EDA, ESA, MBDA, OCS, OGC, and OIG. Implementation

is under way at NOAA and NIST. As of April 2001, total funds

awarded to the two contractors amounted to more than $85 million.

CAMS is scheduled to be fully operational by the end of FY 2003.

OIG recently reviewed the effectiveness of CAMS contract

administration and found that it has improved under the Systems

Acquisition Office. However, we also identified a number of areas

where improvements are needed:

 The original contract should be restructured and

renegotiated. When the contract was awarded, the statement

of work was vague and undefined, and the terms and conditions

were unclear. Since then, the strategy for developing and

implementing CAMS has changed significantly, substantial cost

increases and schedule revisions have occurred, and numerous

modifications have been issued. The contract does not

accurately reflect the CAMS strategy or the responsibilities of

the contractor or the government. This lack of clarity hampers

the Department’s ability to administer the contract and monitor

results. The CAMS program office,in consultation with the

Office of General Counsel, needs to thoroughly evaluate the

costs and benefits of restructuring and renegotiating the original

CAMS contract.

 Contracts and task orders should be performance based

and results oriented. Contract types that maximize contractor

performance and lessen risk to the government are essential to

the integrity of the contracting process. Performance-based

service contracting—which emphasizes results rather than

methods—helps ensure that the government receives what it
 Commerce OIG Semiannual Report September 2001 68

Departmental Management

requires. Instead of using performance-based contracting to

obtain services from CAMS contractors, however, the

Department has used time-and-material or labor-hour

contracts, both of which increase the chances that costs will

escalate and services will not be received. Since our review,

the contracting officer has taken steps to use performanceoriented approaches. We urge the Department to make use of

all such approaches that maximize outcomes whenever possible.

 Price and cost analysis should be documented. We found

inadequate documentation for price and cost analysis of new

orders and contracts, as well as for significant change order

modifications. The reasonableness of prices must be determined

before contracts, task orders, and delivery orders are awarded.

This determination should be supported by price and cost

analysis, as well as by advice from the program’s technical

experts. The requirement for price and cost analysis also

applies to delivery orders for services placed against a GSA

schedule, as is done for the CAMS software contract.

 Communications with and training of bureau technical

representatives need improvement. To simplify contract

monitoring efforts, the CAMS contracting officer has designated

technical representatives at the larger bureaus. During our

review, Census, NIST, and NOAA representatives expressed a

desire for better communications about monitoring and

reporting procedures with the CAMS contracting office. We

believe that regular meetings should be held with these parties to

discuss common concerns and provide consistent direction.

The use of performance-based service contracting will increase

the need for such communication, as well as for training for all

involved staff.

 Appearance of personal services contracts should be

avoided. Because the government is normally required to hire

employees through accepted civil service procedures, the use of

personal services contracts is generally prohibited. Such

contracts imply an employer-employee relationship between the

government and the contractor’s personnel. Our review

revealed that there is at least the appearance of such a

relationship with the CAMS contractors’ staff. Commerce
Commerce OIG Semiannual Report September 2001 69

Departmental Management

needs to ensure that personal services contracts do not exist,

and must minimize even the appearance of such contracts.

The Department concurred with four of the six recommendations we

made to address the weaknesses we identified. It did not agree with our

recommendations to evaluate the costs and benefits of restructuring the

contract or to provide additional training in performance-based

contracting to the alternate contracting officer’s technical representatives

(ACOTRs).

We continue to believe, however, that the numerous changes made to

the contract increase the risk should disputes or disagreements arise

between the contractor and the government. In addition, the training

currently provided to the ACOTRs on performance-based service

contracting is limited to preparing work statements. It should be

expanded to cover the preparation and use of quality assurance and

surveillance plans. (Office of Systems Evaluation: OSE-14086)

Department Is Taking Actions to

Bolster Management of Trade Missions

In early April 2001, we reported the results of our review of the

Department’s March 1997 trade mission policy and its implementation.

The significance of the issues addressed in that review prompted us to

provide a detailed discussion of our findings and recommendations in

our previous semiannual report (see March 2001 issue, page 67).

We concluded that the policy has greatly improved the Department’s

management of trade missions. In particular, it has bolstered trade

mission planning, the recruitment and selection of private sector

participants, and the clarity of the process. However, we

recommended additional steps to increase the policy’s effectiveness and

further improve the Department’s management of trade missions. In

response to our report, the Department and ITA indicated they would

collaborate on an action plan to address our recommendations.

In September, we met with officials from the Department’s Office of

Business Liaison (OBL), the Office of General Counsel, ITA, and

US&FCS to discuss progress made in implementing our

recommendations. At the time of our meeting, the first senior-level
 Commerce OIG Semiannual Report September 2001 70

trade mission under the current administration (scheduled for midOctober 2001) had not yet occurred, but excellent progress was being

made to strengthen the Department’s management of missions. Both

OBL and ITA were drafting more specific and improved guidelines and

procedures for managing the trade mission process and for developing

other tools to ensure that each mission is carried out in accordance with

Commerce policy. Departmental officials report the following actions:

 OBL has set up automated databases to better track participant

applications and is ensuring that more detailed records of

decisions on participants are being kept.

 OBL has hired a contractor to help make participant

applications accessible online and to enable electronic

information collection and transfer to a central database.

 US&FCS has developed a series of documents, checklists, and

procedures for use by trade mission organizers to ensure that

missions are managed consistently and documented

appropriately, and that compliance with the policy is thus

demonstrated.

 Also in our April report, we suggested that the Department take the

following actions to strengthen the trade policy’s implementation and

application to future missions: (1) Determine whether the policy is

appropriate for all “reverse” trade missions, which bring foreign buyers

to visit U.S. companies; (2) clarify the “diversity” criterion on the trade

mission application and specify how it should be used in the selection

process; (3) reexamine the requirement regarding membership of the

second-level selection panel to determine whether it poses an

appearance problem for the Department. The Office of the Secretary

stated that it is studying these issues and will soon decide whether and

how it will revise the trade mission policy and related procedures.

(Office of Inspections and Program Evaluations: IPE-13934)

Departmental Management
Commerce OIG Semiannual Report September 2001 71

Departmental Fund Management

Practices Need Improvement

OIG conducted an audit survey of selected aspects of the Department’s

practices in managing three major funds: the Salaries and Expenses

Fund (S&E), which, supported by a direct appropriation, is used

primarily to fund the personnel costs of senior departmental officials and

their key staff; the Working Capital Fund (WCF)—an

intragovernmental fund for support services that can most efficiently be

provided centrally (security, human resources, and legal counsel, for

example); and the Gifts andBequests Fund (G&B), which consists of

donations made to Commerce that can be used in carrying out its work.

Our review of the Salaries and Expenses Fund included an in-depth

look at the Advances and Reimbursements Program (A&R).

Twenty-one offices and operations are supported by these funds,

whose costs totaled approximately $194 million in FY 2000. Over the

past 5 years, the costs of the S&E, G&B, and A&R have remained

relatively constant, but those of the WCF have increased by about 50

percent.

Our survey sought to determine whether (1) charges to the funds are

consistent with the funds’ stated purposes, (2) recent increases in

charges to the operating units appear reasonable and justified, and

(3) methods for allocating charges to the units are reasonable and

properly applied. We reached the following conclusions:

 Charges within the funds appear consistent with each

fund’s stated purpose. The Department seems to have a

reasonable basis for segregating costs among the funds.

However, it lacks clear, written operating policies and

procedures for administering the funds, and in some instances,

the description of the basis of charge in the relevant guidance

did not accurately state the method used to allocate costs.

 Recent increases in charges to the operating units appear

justified. We reviewed billings for 6 of the 21 offices that are

supported through these funds, inquiring about any significant

fluctuations. The explanations for all such fluctuations appeared

reasonable. In addition, our comparison of operating estimates

Departmental Management
 Commerce OIG Semiannual Report September 2001 72

with actual total charges to Commerce units revealed no

instances of unexplained costs.

 Procedures for allocating costs to Commerce operating

units appear reasonable and properly applied. We did not

note any instances in which the procedures for allocating costs

unfairly burdened or benefited any operating unit. Nor did we

identify any instances of the procedures being improperly

applied.

 Operating unit concerns, cost containment efforts, and the

role of the WCF Advisory Committee need management

attention. Although the Department is aware of operating unit

concerns regarding fund management, no formal mechanism

exists to ensure that such concerns are addressed. In addition,

our survey did not reveal any effective internal control measures

to contain WCF costs. The WCF Advisory Committee, which

is composed of representatives from the Department and each

operating unit, was established in March 2000 to communicate

and disseminate WCF information to the units, as well as to

obtain their input. We found that the committee lacks a formal

charter and a clear mission, and does not appear to track and

address specific concerns of the units or provide input on the

impact of departmental office budgets on a unit’s funding.

Our primary recommendation was that the Department more clearly

define the role of the WCF Advisory Committee. The committee could

provide oversight to the fund and thus accomplish the following:

(1) ensure that WCF operations are transparent and accountable to

operating unit customers, (2) make certain that adequate financial

management controls are established, (3) review and provide feedback

on annual WCF budgets, and (4) communicate with and address

concerns raised by the operating units.

In response to a briefing we provided on our survey results, the

Department prepared an audit action plan detailing the steps it intended

to take to address our recommendations. One of the Department’s

planned steps is to replace the advisory committee with an executive

board that has decision-making authority. We believe that the planned

actions will meet the intent of our recommendations. (Financial

Statements Audits Division: FSD-14271)

Departmental Management
Commerce OIG Semiannual Report September 2001 73

Preaward Financial Assistance Screening

As part of our ongoing emphasis on prevention of fraud and

mismanagement, we continue to work with the Office of Executive

Budgeting and Assistance Management, NOAA and NIST grant

offices, and EDA program offices to screen the Department’s proposed

grants and cooperative agreements before award. Our screening serves

two functions: It provides information on whether the applicant has

unresolved audit findings and recommendations on earlier awards, and it

determines whether a name check or investigation has revealed any

negative history on individuals or organizations connected with a

proposed award.

During this period, we screened 1,926 proposed awards. For 34 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

awards until concerns were satisfactorily resolved, and established

special conditions for one award to adequately safeguard federal funds.

(Office of Audits)

Departmental Management

Preaward Screening Results

 Results Number Amount

 Special award conditions established 1 $863,120

 Awards delayed to resolve concerns 33 $12,867,490
 Commerce OIG Semiannual Report September 2001 74

Indirect Cost Rates

Under OMB policy, a single federal agency—the “cognizant”or general

oversight agency— is responsible for reviewing, negotiating, and

approving indirect cost rates for public and private entities that receive

funds under various federal programs. Normally, the federal body that

provides the most direct funding to an entity is chosen as its cognizant or

general oversight agency. OMB has designated Commerce as the

cognizant agency for about 280 economic development districts, as well

as for a number of state and local government units. From time to time,

the Department also has oversight responsibilities for other recipient

organizations.

Commerce has authorized the Office of Inspector General to negotiate

indirect cost rates and review cost allocation plans on its behalf. OIG

reviews and approves the methodology and principles used to pool

indirect costs and establish an appropriate base for distributing those

costs to ensure that each federal, state, and local program bears its fair

share.

During this period, we negotiated 12 indirect cost rate agreements with

nonprofit organizations and government agencies, and reviewed and

approved 19 cost allocation plans. We also provided technical

assistance to recipients of Commerce awards regarding the use of rates

established by other federal agencies and their applicability to our

awards. We continued to work closely with first-time for-profit and

nonprofit recipients of Commerce awards to establish indirect cost

proposals that are acceptable for OIG review. (Atlanta Regional

Office of Audits)

Departmental Management
Commerce OIG Semiannual Report September 2001 75

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 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 159 audit reports during this semiannual period to

determine whether they contained any findings related to Department

programs. For 73 of these reports, the Department acts as oversight

agency and monitors the audited entity’s compliance with the OMB

circular or NIST’s program-specific reporting requirements. The other

86 reports are from entities for which other federal agencies have

oversight responsibility.

Departmental Management

 Report Category OMB A-133 ATP Program- Total

 Audits Specific Audits

Pending (April 1, 2001) 11 37 48

Received 130 79 209

Examined 105 54 159

Pending (September 30, 2001) 36 62 98

Nonfederal Audit Activities
 Commerce OIG Semiannual Report September 2001 76

Departmental Management

The following table shows a breakdown by bureau of the $233 million

in Commerce funds audited.

We identified a total of $2,921,117 in questioned costs. In most

reports, the Department’s programs were considered nonmajor,

resulting in limited transaction and compliance testing against laws,

regulations, and grant terms and conditions. The 10 reports with

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

Office of Audits)

Bureau Funds

 EDA $ 32,917,275

 MBDA 188,867

 NIST 86,119,042*

 NOAA 8,349,887

 NTIA 767,699

 Multiagency 103,696,285

 Agency not identified 1,105,186

 Total $233,144,241

* Includes $77,367,568 in ATP program-specific audits.

Breakdown by Bureau
Commerce OIG Semiannual Report September 2001 77

Investigative Highlights

OIG’s Office of Investigations (OI) investigates allegations of fraud or

other wrongdoing that impacts Commerce programs and operations,

including criminal or otherwise prohibited activities engaged in by

employees, contractors, or recipients of financial assistance. Staffed by

special agents located in Washington, D.C., Denver, and Silver Spring,

Maryland, OI works closely with the Department of Justice and with

U.S. Attorneys’ offices throughout the country to prosecute criminal and

civil actions in order to punish offenders and recover losses suffered by

the government as a result of fraud and misconduct.

Like their counterparts in most OIG offices, our special agents have full

law enforcement powers as special deputy U.S. marshals under a

deputation agreement with the Department of Justice. We also work

with the FBI and other federal law enforcement agencies to investigate

matters of mutual interest. The results of OIG investigations of

employee misconduct are provided to agency officials to support

appropriate disciplinary and administrative actions.

During this semiannual period, OIG investigations led to two convictions

and the filing of either indictments or criminal informations against two

individuals. Six matters were referred to the Department of Justice for

prosecution. In addition, the Department took five personnel actions as

a result of OI casework. Below are highlights of our investigative

activity during the past 6 months.

OIG Investigators Participate in

National Counterterrorism Effort

Commerce OIG special agents from our three field offices volunteered

their assistance in the combined law enforcement effort to investigate the

attacks on the World Trade Center and the Pentagon. Our agents

joined with the FBI, fellow members of the IG community, and other

federal agencies to mobilize a massive, unprecedented investigative

response to this attack on our nation. This effort included the processing

of crime scenes and evidence, investigation of suspected terrorists and

terrorist organizations, and implementation of programs and activities

designed to thwart or prevent future terrorist acts.

After completing search and recovery operations at the Pentagon, OIG

agents helped FBI and Department of Defense investigators collect
 Commerce OIG Semiannual Report September 2001 78

Investigative Highlights

forensic evidence and classified material, working in teams to sift

through the wreckage for documents, weapons, aircraft parts, personal

effects, and other evidentiary material. Despite the inherent difficulties

posed by the biohazardous working environment, and the severe

physical and emotional toll these duties exacted, agents worked

multiple shifts of 10 to 12 hours a day, and completed the operation in a

little more than a week’s time.

Our special agents also worked in New York for 4 weeksto help the

FBI Terrorist Task Force process the extraordinary volume of

information it has received. Along with law enforcement personnel from

the FBI, the Immigration and Naturalization Service, various Inspector

General organizations, and other federal agencies, our agents conducted

interviews, reviewed documents, and otherwise followed up

investigative leads concerning the September 11 attacks. We expect to

continue our work with the task force through the months to come.

Finally, Commerce OIG is assisting with the government’s efforts to

increase the safety and security of U.S. air travel by temporarily

providing investigative personnel to augment the FAA’s Federal Air

Marshal program.

NOAA Administrative Officer Is

Convicted of Embezzlement

On September 28, 2001, a former NOAA administrative officer was

convicted in U.S. district court for the Western District of Missouri of

one felony count of violating 18 USC §641, having embezzled more

than $33,000 from the government over a period of nearly 2 years.

The offense carries a maximum penalty of 10 years’ imprisonment and a

$250,000 fine. Under the terms of a plea agreement, the defendant

agreed to make full restitution of the amount embezzled and refrain from

seeking further employment with the Department of Commerce.

The plea resulted from an OIG investigation in which we established

that, in his capacity as administrative officer, the former employee had

written numerous checks on a government account and deposited them
Commerce OIG Semiannual Report September 2001 79

Investigative Highlights

into his personal account after altering the names of payees and

falsifying underlying invoices and receipts. As of the end of this

reporting period, a date for sentencing had not been set. (Denver

Field Office of Investigations)

Former Employee Receives Prison Sentence for

Personal Use of Government Purchase Card

In our last semiannual report (see page 81), we detailed the theft

conviction of a former employee of the Office of Acquisition

Management who made nearly $50,000 in inappropriate charges on her

government purchase card—buying clothing, jewelry, and other luxury

items, and paying her rent and fees for various personal services. On

April 20, 2001, the defendant was sentenced in U.S. district court for

the District of Columbia. She received 6 months’ imprisonment,

followed by 2 months’ home detention and 3 years’ probation, and was

ordered to make restitution of the full amount of the government’s loss.

(Washington Field Office of Investigations)

Contract Employee Is Sentenced

for Theft of Government Property

A former USPTO contract employee convicted in January 2001 of

using a government purchase card to make nearly $700 worth of

personal charges (see March 2001 issue, page 81) was sentenced on

April 10, 2001, in U.S. district court for the Eastern District of Virginia.

She received 1 year probation, 100 hours of community service, and a

$1,400 fine. She was also ordered to make restitution to the

government for the full amount of its loss. (Silver Spring Field Office

of Investigations)
 Commerce OIG Semiannual Report September 2001 80

Investigative Highlights

Conspiracy to Falsify Payroll

Records Ends in Two Convictions

During this reporting period, a former NOAA employee was sentenced

in U.S. district court for the District of Columbia on her previous

conviction for conspiracy to defraud the government. In this case, the

former employee had arranged to falsify payroll records that enabled a

second employee to receive more than $9,800 in pay to which she was

not entitled. The second employee then paid $1,500 of the illicit

proceeds to the defendant (see March 2001 issue, pages 81-82). On

May 31, 2001, the defendant was sentenced to 5 years’ probation and

50 hours of community service, and was ordered to make restitution to

the government in the amount of $9,800. In accordance with the terms

of a plea agreement, the coconspirator pleaded guilty to one count of

conspiracy on July 3, 2001; she was scheduled for sentencing in

October 2001. (Silver Spring Field Office of Investigations)

NOAA Employee Receives 30-Day Suspension

for Misuse of Government-Leased Space

A senior NOAA employee was suspended for 30 days after an OIG

investigation revealed that, for approximately 9 months, he parked his

personal vehicle in commercial garage space leased for the use of

official vehicles while the government vehicles were parked on the street

or elsewhere. (Silver Spring Field Office of Investigations)
Commerce OIG Semiannual Report September 2001 81

Office of Inspector General

Audit Resolution and Follow-up

The 1988 amendments to the Inspector General Act require us to

present in this report those audits issued before the beginning of the

reporting period (April 1, 2001) for which no management decision had

been made by the end of the period (September 30, 2001). For this

past 6-month period, two financial assistance audits of cooperative

agreements remain unresolved: one for ITA and the other for NIST.

Department Administrative Order 213-5, Audit Resolution and Followup, provides procedures for management to request modifications to an

approved audit action plan, or for a financial assistance recipient to

appeal an audit resolution determination. The table below summarizes

modification and appeal activity during the reporting period.

 Report Category Modifications Appeals

Actions Pending (April 1, 2001) 0 7

Submissions 0 14

Decisions 0 7

Actions Pending (September 1, 2001) 0 14

Audit Resolution Follow-up
 Commerce OIG Semiannual Report September 2001 82

Reporting Requirements

Section Topic Page

The Inspector General Act of 1978, as amended (1988), specifies reporting requirements for semiannual

reports. The requirements are listed below and indexed to the applicable pages of this report.

INDEX

5(a)(1)

5(a)(2)

5(a)(3)

5(a)(4)

5(a)(5) and 6(b)(2)

5(a)(6)

5(a)(7)

5(a)(8)

5(a)(9)

5(a)(10)

5(a)(11)

5(a)(12)

The OIG is also required by section 804(b) of the Federal Financial Management Improvement Act of 1996

to report on instances and reasons when an agency has not met the dates of its remediation plan. We

discuss this matter in the March 2002 issue as part of our financial statement audit reporting.

4(a)(2)

Audit Reports—Funds To Be Put to Better Use

Significant Problems, Abuses, and Deficiencies

Significant Recommendations for Corrective Action

Prior Significant Recommendations Unimplemented

Matters Referred to Prosecutive Authorities

Information or Assistance Refused

Listing of Audit Reports

Summary of Significant Reports

Audit Reports—Questioned Costs

Prior Audit Reports Unresolved

Significant Revised Management Decisions

Significant Management Decisions with Which the OIG Disagreed

Review of Legislation and Regulations 83

25-80

25-80

83

77-80

84

91-94

25-80

88

89

42, 58, 84

84

85
Commerce OIG Semiannual Report September 2001 83

Reporting Requirements

Section 4(a)(2): Review of Legislation

and Regulations

This section requires the Inspector General of each agency to review

existing and proposed legislation and regulations relating to that

agency’s programs and operations. Based on 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 the 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 such 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, costly, unwieldy, and of limited value

to the Congress. Any list would have meaning only if explanations

detailed whether adequate progress is being made to implement each

agreed-upon corrective action. Also, as this semiannual report was

being prepared, management was in the process of updating the

Department’s Audit Tracking System as of September 30, 2001, based

on annual status reports due from the bureaus in mid-October. An

accurate database was therefore not available to OIG for reference

here. However, additional information on the status of any audit

recommendations can be obtained through OIG’s Office of Audits.
 Commerce OIG Semiannual Report September 2001 84

Reporting Requirements

Sections 5(a)(5) and 6(b)(2): Information or

Assistance Refused

These sections require a summary of each report to the Secretary when

access, information, or assistance has been unreasonably refused or not

provided. There were no such instances during this semiannual period,

and no reports to the Secretary.

Section 5(a)(10): Prior Audit Reports Unresolved

This section requires a summary of each audit report issued before the

beginning of the reporting period for which no management decision has

been made by the end of the reporting period (including the date and

title of each such report), an explanation of why such decision has not

been made, and a statement concerning the desired timetable for

delivering a decision on each such report.

As of September 30, 2001, two financial assistance audits relating to

cooperative agreements were in this category—one for ITA and the

other for NIST. The audit resolution proposals requested reinstatement

of questioned costs. OIG disagreed with this approach.

Section 5(a)(11): Significant Revised Management

Decisions

This section requires an explanation of the reasons for any significant

revised management decision made during the reporting period.

Department Administrative Order 213-5, Audit Resolution and

Follow-up, provides procedures for 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 the seven appeals of audit-related debts were

finalized with the full participation and concurrence of OIG.
Commerce OIG Semiannual Report September 2001 85

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.

Reporting Requirements
 Commerce OIG Semiannual Report September 2001 86

Audit and Inspection

Statistical Highlights

Statistical Highlights Statistical Highlights

Investigative

Statistical Highlights

Matters referred for prosecution 6

Indictments and informations 2

Convictions 2

Personnel actions* 5

Fines, restitutions, judgments, and

other civil and administrative recoveries $63,715

* Includes removals, suspensions, reprimands, demotions, reassignments, and resignations

 or retirements in lieu of adverse action.

Questioned costs this period $3,893,825

Value of audit recommendations made

this period that funds be put to better use $6,549,846

Value of audit recommendations agreed

to this period by management $6,574,879

Value of inspection recommendations made

this period that funds be put to better use $0

Accepted for investigation 19

Referred to operating units 29

Evaluated but not accepted for

investigation or referral 54

Total 102

Allegations Processed

by OIG Investigators

Note: Numerous other allegations and complaints were forwarded to the appropriate

 federal and nonfederal investigative agencies.

OIG Hotline

(202) 482-2495

(800) 482-5197

hotline@oig.doc.gov
Commerce OIG Semiannual Report September 2001 87

Tables and Appendixes

TABLES PAGE

1. Audits with Questioned Costs 88 

2. Audits with Recommendations That Funds Be Put to Better Use 89 

APPENDIXES

A. Office of Inspector General Reports 90 

 A-1. Performance Audits 91 

 A-2. Inspections 92 

 A-3. Financial-Related Audits 93-94 

B. Processed Reports 95 

 B-1. Processed Financial-Related Audits 96 

DEFINITIONS

A questioned cost is a cost that is questioned by the OIG because of (1) an alleged violation of a provision 

of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the 

expenditure of funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate 

documentation; or (3) a finding that an expenditure of funds for the intended purpose is unnecessary or 

unreasonable.

An unsupported cost refers to a cost that, at the time of the audit, is not supported by adequate 

documentation. Questioned costs include unsupported costs.

A recommendation that funds be put to better use refers to a recommendation by the OIG that funds 

could be used more efficiently if Commerce management took action to implement and complete the 

recommendation, including (1) reductions in outlays; (2) deobligation of funds from programs or operations; 

(3) withdrawal of interest subsidy costs on loans or loan guarantees, insurance, or bonds; (4) costs not 

incurred by implementing recommended improvements related to Commerce, a contractor, or a grantee; (5) 

avoidance of unnecessary expenditures identified in preaward reviews of contracts or grant agreements; or 

(6) any other savings that are specifically identified.

A management decision refers to management’s evaluation of the findings and recommendations included 

in the audit report and the issuance of a final decision by management concerning its response.
 Commerce OIG Semiannual Report September 2001 88

 Questioned Unsupported

Report Category Number Costs Costs

A. Reports for which no management decision 18 $6,744,585 $2,782,829

 had been made by the commencement of

 the reporting period

B. Reports issued during the reporting period1 15 3,893,825 420,330

 Total reports (A+B) requiring a management 33 10,638,410 3,203,159

 decision during the reporting period

C. Reports for which a management decision 16 6,448,651 2,695,869

 was made during the reporting period2

 i. Value of disallowed costs 4,578,996 1,007,396

 ii. Value of costs not disallowed 1,880,925 1,688,473

D. Reports for which no management decision 17 4,189,759 507,290

 had been made by the end of the reporting

 period

Notes:

1 Three audit reports included in this table are also included in the reports with recommendations that funds be put

 to better use (see table 2). However, the dollar amounts do not overlap.

2 In Category C, lines i and ii do not always equal the total on line C because resolution may result in values

 greater than the original recommendations.

Audits with Questioned Costs

Table 1
Commerce OIG Semiannual Report September 2001 89

Report Category Number Value

A. Reports for which no management decision 8 $7,638,948

 had been made by the commencement of

 the reporting period

B. Reports issued during the reporting period1 13 6,549,846

 Total reports (A+B) requiring a management 21 14,188,794

 decision during the reporting period

C. Reports for which a management decision 8 7,638,948

 was made during the reporting period2

 i. Value of recommendations agreed to 1,995,883

 by management

 ii. Value of recommendations not agreed 5,643,127

 to by management

D. Reports for which no management decision 13 6,549,846

 had been made by the end of the reporting

 period

Notes:

1 Three audit reports included in this table are also included in the reports with questioned costs (see table 1).

 However, the dollar amounts do not overlap.

2 In Category C, lines i and ii do not always equal the total on line C because resolution may result in values

 greater than the original recommendations.

Audits with Recommendations

That Funds Be Put to Better Use

Table 2
 Commerce OIG Semiannual Report September 2001 90

Office of Inspector General Reports

Appendix A

Type Number Appendix

Performance Audits 3 A-1

Inspections 10 A-2

Financial-Related Audits 18 A-3

Total 31
Commerce OIG Semiannual Report September 2001 91

Performance Audits

Appendix A-1

 Funds To

 Be Put to

Agency Subject Number Date Better Use

EDA Trade Adjustment Assistance Centers’ STL-14322 09/01 N/A

Internal Controls Over Consultant

Services Need Strengthening

NTIA Table Mountain Research Site DEN-11928 09/01 N/A

Needs Attention

O/S Departmental Fund Management FSD-14271 09/01 N/A

Practices Need Improvement
 Commerce OIG Semiannual Report September 2001 92

 Funds To

 Be Put to

Agency Subject Number Date Better Use

BXA Annual Follow-Up Report on Previous IPE-14246(2) 09/01 - -

Export Control Recommendations, as

Mandated by the National Defense

Authorization Act for Fiscal Year 2000

ESA Additional Security Measures Needed for OSE-12754 09/01 - -

Advance Retail Sales Economic Indicator

NOAA San Angelo Weather Forecast Office Performs IPE-13531 09/01 - -

Its Core Responsibilities Well, but Office

Management and Regional Oversight Need

Improvement

Missoula Weather Forecast Office Generally IPE-14225 09/01 - -

Provides Quality Service to Its County

Warning Area

O/S Implementation of Commerce’s Trade Mission IPE-13934 09/01 - -

Policy Has Strengthened Management of the

Missions, but More Improvements Can Be

Made

Independent Evaluation of the Department’s OSE-14384(1) 09/01 - -

Information Security Program Under the

Government Information Security Reform Act

Program for Designating Positions According OSE-14486 09/01 - -

to Their Risk and Sensitivity Needs To Be

Updated and Strengthened

Improvements Made in CAMS Contract OSE-14086 09/01 - -

Management but Additional Actions Needed

Use of Internet “Cookies” and “Web Bugs” OSE-14257 09/01 - -

on Commerce Web Sites Raises Privacy

and Security Concerns

USPTO Independent Evaluation of the Department’s OSE-14384(2) 09/01 - -

Information Security Program Under the

Government Information Security Reform Act

Inspections

Appendix A-2
Commerce OIG Semiannual Report September 2001 93

 Funds To

 Questioned Unsupported Be Put to

Agency/Auditee Number Date Costs Costs Better Use

EDA

Monterey County’s Contractor STL-13442 07/01 N/A N/A $350,000

Revolving Loan Program, CA

Panhandle Area Council, ID STL-14141 07/01 N/A N/A $350,000

Hennepin and Ramsey DEN-13740 07/01 N/A N/A $880,954

Counties, NM

Affiliated Tribes of STL-14142 08/01 N/A N/A N/A

Northwest Indians, WA

City of Lubbock, TX DEN-13742 09/01 N/A N/A $1,271,250

Cumberland Plateau Planning ATL-14220 09/01 N/A N/A $503,417

District Commission, VA

Gulf Coast Economic ATL-14300 09/01 N/A N/A $500,000

Development District, TX

Eastern Oklahoma ATL-14301 09/01 N/A N/A $350,000

Development District

Miami Area Economic ATL-14299 09/01 N/A N/A $265,250

Development Service, Inc., OK

Town of Jonesborough, ATL-13966 09/01 N/A N/A $434,218

Tennessee, and Storytelling

Foundation International

City of Magnolia, AR DEN-13739 09/01 N/A N/A $155,091

The Cities of East Chicago, DEN-14156 09/01 $37,500 N/A N/A

Gary, and Hammond, IN

Southeast Idaho Council STL-14122 09/01 N/A N/A $255,000

of Governments

Beaumont Redevelopment STL-14258 09/01 $159,737 N/A $623,484

Agency, CA

Financial-Related Audits

Appendix A-3
 Commerce OIG Semiannual Report September 2001 94

 Funds To

 Questioned Unsupported Be Put to

Agency/Auditee Number Date Costs Costs Better Use

NIST

Sun Company, Inc., PA DEN-14032 09/01 $182,633 $8,185 N/A

Connecticut Technology DEN-13992 09/01 $529,582 N/A N/A

Associates, Inc.

Northeastern Pennsylvania DEN-14046 09/01 $63,256 N/A N/A

Industrial Resource Center, Inc.

Wisconsin Center for DEN-14103 09/01 N/A N/A $641,182

Manufacturing and

Productivity, Inc.

Financial-Related Audits

Appendix A-3 (Continued)
Commerce OIG Semiannual Report September 2001 95

Processed Reports

Appendix B

The Office of Inspector General reviewed and accepted 159 financial-related audit

reports prepared by independent public accountants and local, state, and other federal auditors. The reports processed with questioned costs, recommendations that

funds be put to better use, and/or nonfinancial recommendations are listed in Appendix B-1.

Agency Audits

Economic Development Administration 50

Minority Business Development Agency 1

National Institute of Standards and Technology 61*

National Oceanic and Atmospheric Administration 8

National Telecommunications and Information Administration 4

Multiagency 30

Agency Not Identified 5

Total 159

*Includes 54 ATP program-specific audits.
 Commerce OIG Semiannual Report September 2001 96

Processed Financial-Related Audits

Appendix B-1

 Questioned Unsupported

Agency/Auditee Number Date Costs Costs

EDA

City of East Palo Alto, CA ATL-09999-1-0788 09/01 $558,217 N/A

Town of Talihina, OK ATL-09999-1-0799 09/01 $177,873 N/A

Crawford County ATL-09999-1-0881 09/01 $22,708 N/A

Development Corporation, IA

Terrebonne Parish ATL-09999-1-0914 09/01 $673,800 N/A

Consolidated Government, LA

NIST

E.I. DuPont de Nemours ATL-09999-1-0195 09/01 $974,324 $16,756

and Company,

Engineering Polymers, DE

Supertex, Inc., CA ATL-09999-1-0685 09/01 $23,072 $145

BCL Computers, CA ATL-09999-1-0765 09/01 $60,830 N/A

BusinessBots, Inc., CA ATL-09999-1-0770 09/01 $53,214 $22,540

NonLinear Dynamics Incorporated, MI ATL-09999-1-0682 09/01 $305,905 $301,530

NOAA

State of Louisiana ATL-09999-1-0791 09/01 $71,174 $71,174
Commerce OIG Semiannual Report September 2001 97

Definitions: initions: Types of ypes of OIG Reviews

Audits

Performance Audits—These audits look at the

efficiency, effectiveness, and economy of the

Department’s programs, activities, and information

technology systems. They may check a unit’s

compliance with laws and regulations, and evaluate

its success in achieving program objectives.

Financial-Related Audits—These audits review

the Department’s contracts, grants, cooperative

agreements, loans, and loan guarantees. They

assess compliance with laws, regulations, and

award terms; adequacy of accounting systems and

internal controls; allowance of costs; and the degree

to which a project achieved the intended results.

Financial Statements Audits—These audits

determine whether a reporting entity’s financial

statements are presented fairly in accordance with

generally accepted accounting principles, the entity

has an internal control structure that provides

reasonable assurance of achieving the control

objectives set forth by OMB, and 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 as prescribed by OMB.

OIG Reviews

Inspections

Operational Inspections—These are reviews of

an activity, unit, or office, or a contractor or

organization that receives funds from the

Department. They focus on an organization, not a

whole program, and are designed to give agency

managers timely information about operations,

including current and foreseeable problems.

Program Evaluations—These are in-depth reviews

of specific management issues, policies, or

programs.

Systems Evaluations—These are reviews of

system development, acquisitions, operations, and

policy in order to improve efficiency and

effectiveness. They focus on Department-wide

computer systems and other technologies and

address all project phases, including business process

reengineering; system definition; system

development, deployment, operations, and

maintenance.
 Commerce OIG Semiannual Report September 2001 9 8

Acronyms

A.C.E..........................................................................................................Accuracy and Coverage Evaluation

ACOTR ......................................................................Alternate Contracting Officer’s Technical Representative

A&R...................................................................................................Advances and Reimbursements Program

ATP...................................................................................................................Advanced Technology Program

BXA................................................................................................................Bureau of Export Administration

CAMS.....................................................................................Commerce Administrative Management System

CFIUS..............................................................................Committee on Foreign Investment in the United States

CIO...........................................................................................................................Chief Information Officer

DAO..............................................................................................................Department Administrative Order

EDA.......................................................................................................Economic Development Administration

ESA......................................................................................................Economics and Statistics Administration

ESU.....................................................................................................................Evolutionarily Significant Unit

FAA..................................................................................................................Federal Aviation Administration

FMFIA...............................................................................................Federal Managers’ Financial Integrity Act

GAO........................................................................................................................General Accounting Office

G&B............................................................................................................................Gifts and Bequests Fund

GISRA.........................................................................................Government Information Security Reform Act

GPRA...............................................................................................Government Performance and Results Act

GSA.................................................................................................................General Services Administration

GWAC..........................................................................................................Governmentwide Agency Contract

IA....................................................................................................................................Import Administration

IG..........................................................................................................................................Inspector General

IT..................................................................................................................................Information Technology

ITA................................................................................................................International Trade Administration

MASC..................................................................................................Mountain Administrative Support Center

MAF..................................................................................................................................Master Address File
 Commerce OIG Semiannual Report September 2001 9 9

MBDA.................................................................................................Minority Business Development Agency

MEP..........................................................................................................Manufacturing Extension Partnership

NESDIS...............................................................National Environmental Satellite Data and Information Service

NIST...........................................................................................National Institute of Standards and Technology

NMFS............................................................................................................National Marine Fisheries Service

NOAA...................................................................................National Oceanic and Atmospheric Administration

NTIA.....................................................................National Telecommunications and Information Administration

NTIS......................................................................................................National Technical Information Service

NWS.........................................................................................................................National Weather Service

OBL.........................................................................................................................Office of Business Liaison

OCS......................................................................................................................Office of Computer Services

OGC.........................................................................................................................Office of General Counsel

OHRM..............................................................................................Office of Human Resources Management

OI.................................................................................................................................Office of Investigations

OIG.........................................................................................................................Office of Inspector General

OMB............................................................................................................Office of Management and Budget

OPM..............................................................................................................Office of Personnel Management

OSY......................................................................................................................................Office of Security

RLF..................................................................................................................................Revolving Loan Fund

TA............................................................................................................................Technology Administration

TAAC........................................................................................................Trade Adjustment Assistance Center

TIGER................................................................Topologically Integrated Geographic Encoding and Referencing

US&FCS..................................................................................................U.S. and Foreign Commercial Service

USPTO.........................................................................................................U.S. Patent and Trademark Office

WCF................................................................................................................................Working Capital Fund

WFO...........................................................................................................................Weather Forecast Office

Acronyms
Office of Inspector General

Organization Chart

OIG Points of Contact

Inspector General .................................. (202) 482-4661

Legislative and

Intergovernmental Affairs ....................... (202) 482-3052

Office of Audits ....................................... (202) 482-1934

Office of Compliance and Admin. .......... (202) 482-0231

REQUESTS FOR REPORTS:

Telephone ....................................... (202) 482-0231

TDD Number .................................. (202) 482-4948

Internet E-Mail ................................. reports@oig.doc.gov

Office of Counsel .................................... (202) 482-5992

Office of Inspections and Program Eval. . (202) 482-2754

Office of Investigations ............................ (202) 482-0934

Office of Systems Evaluation ................. (202)482-6186

Media Inquiries ........................... ......... (202) 482-5992

OIG Internet Home Page

http://www.oig.doc.gov

Inspector

General

Deputy

Inspector General

Regional

Audits

Headquarters

Audits

Financial Statements

Audits

Office of

Investigations

Office of

Audits

Office of

Systems Evaluation

Office of

Counsel

Office of

Compliance and

Administration

Office of

Inspections and

Program Evaluations

Investigative

Services

Financial Fraud

Unit

Investigative

Operations

OIG HOTLINE:

Telephone .......................................(202) 482-2495

 or (800) 424-5197

Internet E-Mail ................................. hotline@oig.doc.gov