IG’s Message to the Secretary

UNITED STATES DEPARTMENT OF COMMERCE

The Inspector General

Washington, D.C. 20230

April 30, 2002

The Honorable Donald L. Evans

Secretary of Commerce

Washington, D.C. 20230

Mr. Secretary:

I am pleased to provide you with the Office of Inspector General’s Semiannual Report to Congress

for the first half of fiscal year 2002. Section 5 of the Inspector General Act requires that you transmit

this report, with any comments you may wish to add, to the appropriate congressional committees

within 30 days of your receiving it.

The work detailed here builds on the course we set during our last semiannual reporting period, made

all the more urgent by events that have so deeply shaken our sense of national and personal safety.

You will note in these pages a strong emphasis on assessing the security of the Department’s most

critical operations, systems, and assets—including its people. Thus, we have completed

comprehensive reviews of emergency preparedness, physical and information security, the export

licensing process, and trade compliance activities, to name a few. We have identified some

deficiencies that must be rectified to keep the Department strong in its operations and ever ready to

meet the unexpected challenges that lie ahead.

Given the Department’s highly visible role in matters of national and international consequence, the

need to monitor these security-related concerns will likely be ongoing. I look forward to working

closely with you and your senior officials to ensure that these and all other challenges confronting

Commerce are met head-on and resolved—for the good of the Department, the public, and the

nation.

Sincerely,

Johnnie E. Frazier
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

Effectively manage major facilities renovation and construction

projects

DEPARTMENT OF COMMERCE ORGANIZATION CHART

AGENCY OVERVIEWS

Bureau of Industry and Security

Economic Development Administration

Economics and Statistics Administration

International Trade Administration

National Oceanic and Atmospheric Administration

Technology Administration

U.S. Patent and Trademark Office

Department-wide Management

INVESTIGATIVE HIGHLIGHTS

OFFICE OF INSPECTOR GENERAL

STATISTICAL HIGHLIGHTS

REPORTING REQUIREMENTS

TABLES AND APPENDIXES

DEFINITIONS: TYPES OF OIG REVIEWS

ACRONYMS

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

1

3

4

5

8

10

11

13

14

16

17

18

20

21

27

37

50

57

62

71

77

90

95

96

100

113

112

94
1

IG’s Message to Congress

Commerce OIG Semiannual Report March 2002

FOREWORD

This semiannual reporting period has been one of introspection

unlike any other in the 24 years that Offices of Inspector

General have been fulfilling their mandate. Given the events of

the past year, federal agencies have rededicated themselves to

ensuring the integrity of their operations, the protection of their

employees, and their best service to the American public.

OIGs, for their part, have looked with new vigor at their

responsibilities beyond ensuring that taxpayer dollars are well

spent, as they evaluated the success of their agencies’ efforts

to protect their people, their assets, and their core mission

activities.

This intensified focus has had special resonance at the

Department of Commerce and in our work of the last 6

months. Many of the Department’s missions have implications

for the integrity of the nation as a whole and for the well-being of each of its citizens. Thus, we have

redoubled our efforts to ensure the security of Commerce data, systems, and programs; to uncover

lapses in accountability and inefficiencies in financial management; and to assess human capital needs

that are crucial to maintaining a strong, well-functioning Department. We have also worked with other

OIGs to ensure that interagency efforts achieve these same ends. Of particular relevance is our work in

the following areas:

Homeland/Physical Security.We conducted four reviews of the integrity of Commerce’s critical

systems and physical space: an interagency assessment of the export licensing process for dual-use

commodities and munitions (see page 11); an evaluation of BIS’ effort to modernize its export licensing

operations via the Export Control Automated Support System (see page 21); a study of USPTO’s

information security program (see page 74); and an examination of emergency preparedness and

physical security at selected Commerce facilities (see page 77). All of these reviews revealed varying

degrees of weaknesses in existing policies, procedures, facilities, and operations. And in all cases, we

recommended actions to correct the deficiencies.

Performance Measurement/Financial Accountability. We continued during this semiannual period

to evaluate efforts by Commerce operating units to implement effective performance measures, as

mandated by the Government Performance and Results Act—examining measures used by NIST and

USPTO (see pages 6 and 7, respectively). We were pleased to find that both bureaus have made a

serious effort to establish comprehensive performance measurement systems. We found that their

“Given the events

of the past year, federal

agencies have rededicated

themselves to ensuring the

integrity of their

operations, the protection

of their employees, and

their best service to the

American public.”
2

IG’s Message to Congress

 Commerce OIG Semiannual Report March 2002

systems require only minor improvements, and both bureaus have already implemented many of our

recommendations.

We also report in this issue on the results of our annual financial statements audits. The Department and the

individually audited units continue to receive unqualified opinions on these statements, although they still must

overcome weaknesses in controls on related reporting and information technology systems. Sound financial

management is key to sound operations. We are pleased with the strides the Department and its entities

have made toward achieving stability in this regard. (Findings from the Department’s consolidated audit

appear on page 83. Findings from our financial audit of the Census Bureau appear on page 47; of NIST, on

page 63; of NOAA, on page 59; and of USPTO, on page 76.)

Other Areas of Focus.Other pertinent activities included the following:

 A special evaluation of Census 2000 (page 37). In a departure from our typical audit and

inspection work, we issued a report that shares the lessons we gleaned from our nearly 10 years of

monitoring and assessing the preparation for and execution of Census 2000. Our purpose was to

provide meaningful and user-friendly guidance for improving census planning and operations. The

report Improving Our Measure of America: What Census 2000 Can Teach Us in Planning for

2010 highlights a series of management and operational issues that need careful attention in

preparing for the next decennial and suggests ways for addressing them.

 Reviews of 15 financial assistance awards made by EDA (page 37) and NIST (page 62).

Financial assistance awards are a key tool used by the Department to promote economic growth

and productivity, and awardees’ proper use of these funds must be assured. Our examination of 15

financial assistance recipients resulted in our questioning more than $2.6 million in federal claimed

costs and in recommending $2.3 million in funds to be put to better use as well as identifying

opportunities to improve the management and operation of these financial assistance programs.

 An assessment of ITA’s trade agreement compliance activities(page 51). Several units within

ITA handle market access and compliance work, as does the Trade Compliance Center—a

component of ITA’s Market Access and Compliance unit created in 1996. Our review of the

compliance-related activities of these units and the center revealed the need for better coordination

among them, as well as for improved reporting and tracking systems and a reexamination of the

measures they use to evaluate their performance.

These activities and the others detailed in the pages of this Semiannual Report to Congress convey the

broad approach we have taken toward fulfilling our responsibility for monitoring the efficiency and

effectiveness of Commerce programs and operations. Mindful of the new set of exigencies that guide our

efforts and those of the Department, we respectfully submit this report and press ahead with work in

progress for the next.
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 3

MAJOR CHALLENGES

FOR THE DEPARTMENT

IG’s Message to 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. Effectively manage major facilities renovation and

construction projects.

This section highlights OIG’s list of Top 10 Management Challenges that faced the Department at the

close of this semiannual period. We view these issues as Commerce’s top challenges because they meet

one or more of the following criteria: they are important to the Department’s mission or the nation’s wellbeing; 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.
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 4

IG’s Message to Congress

Successfully Implement a

Department-Wide Financial

Management System

In 1992 the Department of Commerce began

planning the development of the Commerce

Administrative Management System (CAMS), an

ambitious effort to improve and unify financial

management throughout the Department. At that

time, Commerce’s financial systems were outdated

and fragmented, could not provide reliable

financial information, and did not comply with

federal financial management requirements.

CAMS is a major capital investment for the

Department. Expenditures for developing CAMS

from 1995 through the end of fiscal year 2002 will

reach an estimated $195 million, and the

Department plans to spend an additional

$42 million in FY 2003 to complete the system.

However, additional work remains before

Commerce is in compliance with OMB Circular

A-127, which requires federal agencies to have a

single, integrated financial system with standard

information and electronic data exchange formats.

CAMS is scheduled to be fully deployed by the

beginning of FY 2004. The cost of operating and

maintaining the completed system is expected to

exceed $25 million annually.

Commerce has faced considerable difficulties in

pursuing the Department-wide implementation of

CAMS. In December 1994, it contracted for an

off-the-shelf 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 continuing cost

growth and schedule delays prompted the Department

to review the CAMS program and revise the

implementation strategy, implement a reduced set of

core functions, and reorganize the project management

structure.

The revised strategy called for four separate

implementations of CAMS to service the varying

financial management needs of the operating units: the

first—a pilot implementation at the Census Bureau—

would be followed by implementation for the units

whose accounting functions are handled by the

National Institute of Standards and Technology, then

for the National Oceanic and Atmospheric

Administration, and finally for NIST’s own financial

management functions. 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

Census and several units serviced by NIST, which

include the Bureau of Economic Analysis, Economic

Development Administration, Economics and Statistics

Administration, Minority Business Development

Agency, Office of the Secretary, and Office of

Inspector General. Commerce has also installed a

Department-wide financial database, into which all

operating units submit financial statement data for

consolidated reporting. The current plan is to

complete implementation of CAMS at NOAA by

October 2002. NIST will complete implementation a

year later. Commerce expects that by October 2003,

all of its operating units will be using integrated

financial management systems that comply with federal

requirements. Twelve units will use CAMS. The

remaining three—the International Trade

CHALLENGE 1
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 5

IG’s Message to Congress

Administration, U.S. Patent and Trademark

Office, and National Technical Information

Service—will not be using CAMS, but will submit

financial data to the Department-wide financial

database.

Since 1995 the Office of Inspector General has

conducted reviews of the CAMS program,

assessed the operational system in its annual

financial statements audits, and monitored program

progress on a continuing basis. In recent

semiannual reports, we expressed concern about

the management of CAMS development and

maintenance as well as the efficiency and economy

of four CAMS implementations.

In the last semiannual period, we reviewed CAMS

contracting at the CAMS Support Center (see

September 2001 issue, page 66). We found that

although contract administration has improved

steadily since late 1999, additional actions are

needed such as greater use of performance-based

task orders, documented analyses of prices and

costs, additional training for contracting officer

technical representatives, and avoidance of

contracts that appear to provide personal services.

The Department is implementing an action plan to

address these recommended improvements.

The Department has already taken steps to

address many of our recommendations. For

example, the Department has increased its

oversight of the operating units’ budget requests

for CAMS and obtained contractor support to

provide a longer-term assessment of financial

systems development, operations, and

management.

During this semiannual period we continued our

review of program management controls at the

CAMS Support Center. In our draft report to

senior officials, we highlighted needed planning and

management improvements. Although the

Department had not officially responded to our draft

report in this semiannual period, we understand that,

consistent with our recommendations, it is working

to improve the budget process as CAMS moves

into the operations and maintenance phase, has

begun tracking actual costs as of this fiscal year, and

is working toward a performance-based

management system. Nonetheless, because of the

importance of CAMS to improving the

Department’s financial management and the

significance of the work remaining, CAMS will

continue to warrant the close attention of senior

Department officials and our office.

Strengthen Department-Wide

Information Security

CHALLENGE 2

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 national

and local weather forecasting; environmental

stewardship; 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

management challenge.

During this semiannual period, OIG began its

second year of security evaluations under the

Government Information Security Reform Act

(GISRA). GISRA requires each federal agency to

review its information security program annually,
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 6

IG’s Message to Congress

and each OIG to perform an annual independent

evaluation of that program. Agency heads must

provide both of these assessments to OMB along

with their annual budget submission.

In last year’s GISRA evaluation, we reported that

the Department is striving to improve information

security and make it an integral component of

Commerce’s business operations. Nevertheless,

we concluded that inadequate attention to this

issue in the past has required substantial efforts by

the Department to develop and oversee an

effective security program (see September 2001

issue, page 59). The Department identified

inadequate information technology (IT) security

controls as a material weakness in its FY 2001

statement on financial and management controls

prepared pursuant to the Federal Managers’

Financial Integrity Act (FMFIA).

As required by OMB under GISRA, the

Department has developed a plan and schedule

for improving information security. For this year’s

evaluation, we will assess the Department’s

progress in implementing this plan, review the

information security programs of selected

operating units, and hold discussions with chief

information officers and senior IT security

managers at all units. We will also examine the

assessments of IT security controls that were

conducted as part of our audits of FY 2001

financial statements (see page 83). We are

currently evaluating the information security

program at the National Institute of Standards and

Technology, using NIST’s Security SelfAssessment Guide for Information Technology

Systems, as recommended by OMB.

GISRA REVIEW FOR USPTO

Last year the U.S. Patent and Trademark Office

submitted its budget materials and 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 GISRA

evaluation for USPTO and the Department

because the issues it addressed were applicable to

both. However, because USPTO has initiated its

own actions to manage information security, we

conducted a separate review of its information

security policies and procedures this year.

This evaluation covered the management,

technical, and operational control areas identified

in the NIST IT security self-assessment guide,

focusing on the controls for which implementation

could be evaluated on a bureau-wide basis. We

found that although USPTO generally has policies

and procedures that are consistent with accepted

security practices, many are not implemented.

Thus, the bureau lacks assurance that its

operational systems and sensitive data are

adequately protected. We noted that senior

management’s awareness, support, and proactive

involvement are essential to establishing the

environment and ensuring the commitment of

resources to promote an effective information

security program. In responding to our report,

USPTO agreed with all of our recommendations

and, more important, described in detail actions it

is taking or plans to take to implement them. The

Under Secretary and Director of USPTO

expressed his commitment to developing a strong

information security program, and significant

efforts are under way to address the weaknesses

we identified. These include providing increased

attention and resources to upgrading security
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 7

IG’s Message to Congress

awareness training, improving planning and

budgeting for information security requirements,

and hiring personnel with information security

expertise. (See page 74.)

Currently, we are assessing USPTO’s

implementation of system-specific security

controls, particularly focusing on the Patent

Application Capture and Review System (PACR).

The bureau relies on PACR for day-to-day

operations and has identified it as a high-security

system. We will report the results of this review in

the next semiannual period.

BUREAU AND DEPARTMENT-WIDE IT SECURITY

WEAKNESSES

The system security reviews conducted as part of

the audits of FY 2001 financial statements of

NOAA, Census, NTIS, and USPTO, as well as

of the Department’s consolidated financial

statements, disclosed weaknesses in information

security controls over major financial management

systems. Taken together, these deficiencies are

considered a material weakness—a serious flaw in

the design or operation of an internal control

component that increases the risk that errors,

fraud, or noncompliance in material amounts may

occur and not be readily detected (see page 74).

Specifically, our system security reviews found that

some locations need to improve in the following

areas:

 entitywide security program planning and

management,

 access controls,

 application software development and

change controls,

 system software,

 segregation of duties and responsibilities,

 and

 service continuity plans.

Our audit reports made recommendations to

correct the control weaknesses identified at each

location. Responsible entities are required to

prepare audit action plans to address these

recommendations.

CONTRACT SECURITY WEAKNESSES

In last year’s GISRA report, we identified

problems with information security in IT service

contracts. In particular, we noted a lack of

sufficient policy and guidance to ensure that

contract documents for IT services contain

adequate information security provisions. In this

semiannual period, we examined this weakness in

greater detail: we reviewed 40 of the

Department’s IT service contracts and found that

security provisions to ensure the safeguarding of

sensitive but unclassified systems and information

were either insufficient or nonexistent. While some

contracts contained minimal coverage, none had

adequate provisions to safeguard the

Department’s computer systems and networks

from unauthorized access and its data from

unauthorized disclosure or modification. All but

two lacked evidence that information security was

considered during the acquisition planning process.

Based on the results of this review, we concluded

that the majority of IT service contracts throughout

the Department likely lack needed information

security provisions. In the next semiannual period,

we will issue a report discussing these findings and

recommending actions that the Department should

take in the areas of policy, contract requirements,

and training to help ensure that adequate

provisions are included in contracts. Our next

semiannual report will also detail the results of our

other GISRA reviews, including our ongoing

evaluation of the information security functions

associated with classified systems.
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 8

IG’s Message to Congress

Successfully Transition USPTO to a

Performance-Oriented Organization

CHALLENGE 3

The American Inventors Protection Act of 1999

established the U.S. Patent and Trademark Office

as a performance-based organization, giving it

greater flexibility and independence to operate

more like a business. As such, USPTO has

broader responsibility for managing its operations

and expanded control over its budget allocations

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 2001, for example, USPTO received more

than 326,000 applications for patents—an

increase of 11 percent over FY 2000. However,

296,000 trademark requests were received in

FY 2001, a decrease of 21 percent. To address

the expanding patent application workload,

USPTO hired 789 patent examiners, but lost 706

through attrition during fiscal years 2000 and

2001.

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 has greater flexibility to

design incentives to attract and retain these highly

skilled employees. During this semiannual period,

we completed a review of attrition problems in

two patent examiner work groups (see page xx).

We made a number of recommendations for

improving the screening and hiring process and

thereby ultimately improving retention.

Managing construction of new facility. During

these next few years, USPTO and the General

Services Administration must oversee one of the

largest real estate ventures that the federal

government will undertake this decade—

construction of USPTO’s new 2.4 million-squarefoot office complex in Alexandria, Virginia. When

completed in 2005, the 5-building complex will

provide space for USPTO employees and

operations currently scattered among 18 buildings

in nearby Crystal City. Now that construction has

begun, 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 facility’s shell.

Maintaining state-of-the-art information

technology capabilities. USPTO continues to

face significant challenges in delivering essential IT

capabilities. The American Inventors Protection
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 9

IG’s Message to Congress

Act of 1999 requires greater operational efficiency

from the bureau, further intensifying the demands

placed on IT solutions and USPTO’s ability to

develop new and upgrade existing systems. Our

March 2002 evaluation of USPTO’s information

security program found that in general, USPTO’s

documented policies and procedures are

consistent with accepted security practices, but

many important security requirements are not

implemented, and fundamental responsibilities are

frequently not carried out (see page 71). USPTO

concurred with our findings and has already begun

working to implement our recommendations.

While the results of our evaluation suggest that

information security has yet to become an integral

part of USPTO’s business operations, the

bureau’s response to our recommendations

indicates genuine concern about the security of its

IT systems and commitment to a stronger security

program.

Trends in Patent Applications

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1990 1992 1994 1996 1998 2000 2002 2004 2006

Fiscal Year

Applications

USPTO’s patent workload is projected to increase by roughly 30 to 50 percent annually from FY

2002 through FY 2006. Historically high turnover among patent examiners has made it difficult for

the bureau to process applications in a timely and efficient manner.

Source: USPTO Business Plan February 2002. 2001. Washington, D.C.: United States Patent and

Trademark Office. Accessed at http://www.uspto.gov/web/menu/fin03presidbudg1.doc.
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 10

Increase International Compliance

With Trade Agreements and Expand

Market Access for American

Exporters

CHALLENGE 4

To compete effectively in today’s global

marketplace, U.S. companies need help

addressing unfair trade practices and 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 helping

expand trade, open world markets, and eliminate

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, the U.S. and

Foreign Commercial Service, and other

Commerce agencies, as appropriate. In addition

to the activities coordinated by the center, ITA’s

other operating units perform a substantial amount

of market access and trade compliance work.

Overall, ITA’s approach to trade compliance and

market access is to try to solve problems 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 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 2001 GAO identified monitoring and

enforcement of trade agreements as a major

management issue for Commerce. It cited two

main reasons for this problem: (1) the

Department’s shortage of staff with the expertise

to monitor compliance with trade agreements, and

(2) its difficulty obtaining balanced, comprehensive

input from the private sector.

The Secretary of Commerce has taken steps to

address the concerns of both Congress and GAO

by making the 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 Compliance Initiative.

IG’s Message to Congress
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 11

IG’s Message to Congress

Enhance Export Controls

for Dual-Use Commodities

We agree that a more coordinated federal effort is

needed to improve compliance. Our review of

ITA’s trade agreement compliance process, as

managed by the Trade Compliance Center, found

that the bureau needs to enhance its coordination

and tracking of trade compliance and market

access activities within ITA. The results of this

review are described on page 50.

In the future, we intend to review other aspects of

ITA’s approach to market access and trade

compliance, as well as key import administration

issues. In the meantime, ITA must continue to

work closely with U.S. companies and other

federal agencies to identify trade compliance

problems, develop workable solutions for them,

and thus enhance American firms’ access to

foreign markets.

CHALLENGE 5

The adequacy of export controls is a continuing

concern. 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 Industry

and Security (BIS), which oversees the federal

government=s export licensing and enforcement

system for dual-use commodities (goods and

technologies that have both civilian and military

uses).

Strengthening dual-use export licensing and

enforcement 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 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 BIS’ 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 BIS. 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. At the conclusion of that followup work, we, along with OIGs from the Central

Intelligence Agency and the Departments of

Defense, Energy, State, and the Treasury, 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 (NDAA) for Fiscal Year 2000, as amended,

directed the inspectors general of the Departments

of Commerce, Defense, Energy, and State, in

consultation with the directors of the CIA and

FBI, to report to Congress by March 30, 2000,

and annually until the year 2007, on the adequacy

of export controls and counterintelligence
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 12

IG’s Message to Congress

measures to prevent the acquisition of sensitive

U.S. technology and technical information by

countries and entities of concern. In addition, the

NDAA for Fiscal Year 2001 requires the OIGs to

discuss in their annual interagency report the status

or disposition of recommendations made in earlier

reports submitted in accordance with the act. To

date, we have completed three additional reviews

of export controls in compliance with the act, as

well as two separate follow-up reports.

Overall, our 1999 report described the licensing of

U.S. dual-use exports as a balanced multiagency

collaboration that attempts to bring divergent

policy views and information to bear on the license

decision-making process. In addition, we found

that the four-level escalation procedure for

resolving license disputes among the referral

agencies was working relatively well.

While our assessments have identified significant

improvements in export controls since 1993, the

1999 report detailed some weaknesses in the

licensing process. First, the processes for

commodity classification and commodity

jurisdiction were not timely and did not clearly

specify the role of each agency. Second, the

intelligence community did not review all dual-use

export license applications or consistently conduct

a comprehensive analysis of applications it did

review, and license applications were not screened

against a key database maintained by the U.S.

Customs Service. Third, there were some

recurring problems with BIS= monitoring of

licenses that had reporting requirements.

Subsequent reviews have added items to the list of

areas that need BIS’ attention: the bureau needs to

clarify the licensing policy and regulations

regarding the release of controlled technology to

foreign nationals—commonly referred to as

“deemed exports.” It also needs to conduct more

outreach to federal and private research facilities

to ensure that they are cognizant of this regulation

and apply for deemed export licenses, when

appropriate.

The bureau also needs to improve its management

of the list of controlled dual-use commodities and

technologies, known as the Commerce Control

List. We have recommended that BIS 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 Committee on Foreign

Investment in the United States (CFIUS),

specifically CFIUS’ lack of mandatory foreign

investment reporting and low number of

investigations conducted on company filings; the

role of the Treasury in overseeing CFIUS

activities; and—within Commerce—the division of

responsibilities between BIS and ITA for the

CFIUS program.

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.

UPGRADES TO AUTOMATED SYSTEMS

During this reporting period, we completed a

review of BIS’ efforts to upgrade its automated

licensing and enforcement systems. These

enhancements are important for the Department

because BIS needs a more efficient system for

processing export license applications. Our review

found that BIS has made some progress on its

redesign effort. For example, two components of
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 13

IG’s Message to Congress

Increase the Effectiveness

of Fishery Management

the system are expected to be ready for

implementation in 2002. However, our review also

highlighted several areas needing improvement to

ensure the long-term success of the project,

including (1) planning, (2) implementation of

established information technology management

best practices, and (3) coordination with the

interagency export licensing community.

In addition to our assessment of Commerce’s

system, the interagency OIG review team looked

at the various automated dual-use and munitions

export licensing systems maintained by

Commerce, Defense, Energy, and State to

determine whether the systems could better

interact and whether system modernization

initiatives were in accordance with federal policies

and regulations (See page 21).

FOCUSED PRIORITIES

The challenges for BIS, as well as for the

administration and Congress, remain (1) passing a

new Export Administration Act, (2) targeting

federal licensing and enforcement efforts on those

exports that present the greatest proliferation and

national security risks, and (3) streamlining or

eliminating controls that unnecessarily hamper

trade. We will continue to monitor BIS’ efforts to

improve dual-use export controls through the

annual reviews required by the National Defense

Authorization Act.

6

For nearly 30 years, the National Marine Fisheries

Service (NMFS) has had to balance two

competing interests: promoting commercial and

recreational fishing as vital elements of our national

economy and preserving populations of fish and

other marine life. The Marine Mammals Protection

Act of 1972 and the Endangered Species Act of

1973 gave NMFS responsibility for preventing the

extinction of marine fish, mammals, and turtles, as

well as anadromous fish, such as Pacific salmon,

which migrate between the ocean and inland

waterways. The Magnuson-Stevens Act of 1976

made NMFS the primary federal agency for

managing marine fisheries and established a

regional fishery management system to help the

agency carry out its mission. A 1996 amendment

Source: NOAA

The Northwest Fisheries Science Center in Seattle,

Washington—one of five research facilities operated by

NOAA’s National Marine Fisheries Service—provides

scientific and technical support for management,

conservation, and development of the Pacific Northwest’s

anadromous and marine fishery resources.

CHALLENGE
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 14

IG’s Message to Congress

to the act strengthened NMFS’ role in protecting

and sustaining fisheries.

The Department has reported that billions of

dollars in economic growth, thousands of jobs,

and countless fishing opportunities have been lost

as a result of overfishing and overcapitalization in

commercial and recreational fisheries. While

certain fisheries appear to be well managed and

produce positive benefits, others are severely

depleted and must therefore be restored and

properly managed to realize their long-term

potential. At the same time, fish species listed as

threatened or endangered need to be recovered.

Among 52 distinct groups of Pacific salmon, for

example, 26 are threatened or endangered.

NMFS has recently taken steps intended to help

restore Pacific salmon runs. The agency’s specific

interest under the Endangered Species Act is to

manage protected species through conservation

programs and recovery plans. Its Federal

Columbia River Power System 2000 Biological

Opinion and the broader Federal Caucus Basinwide Salmon Recovery Strategy established

performance standards to guide recovery of

Pacific salmon in the Columbia River Basin.

NMFS has also put together teams to develop

recovery plans for threatened and endangered

Pacific salmon species.

We are currently evaluating the role of NMFS’

Northwest Fisheries Science Center in supporting

salmon recovery efforts. Specifically, we are

assessing the Center’s implementation of its

Salmon Research Plan, which established priorities

to ensure that the most important scientific work is

conducted. If our review identifies deficiencies in

the process the center uses to guide its research,

we will recommend appropriate corrective action.

We are also completing a review of NMFS’ plans

to design and construct the first of possibly four

acoustically quiet, state-of-the-art fisheries

research vessels. These ships will be used to

perform a wide variety of scientific activities, such

as implementing advanced technologies for

assessing fish stocks. We are assessing

management controls on the acquisition to ensure

the vessels are procured on schedule and within

cost and that they meet NMFS’ requirements. We

will detail our findings for both of these reviews in

the next Semiannual Report to Congress.

Continue to Improve the

Department’s Strategic Planning

and Performance Measurement in

Accordance with GPRA

CHALLENGE 7

Sound oversight of federal programs by Congress

and agency managers requires relevant

performance measures and credible performance

data. The Government Performance and Results

Act of 1993 was designed to ensure the

availability of such data by mandating that agencies

set goals for program performance and report

outcomes measured against those goals. As the

administration moves toward integrating budget

and performance information and using

performance data to make funding decisions, the

credibility of reported performance results will be

even more critical.

Like other federal agencies, the Department of

Commerce faces the challenge of producing data

that is accurate, appropriate, reliable, and useful.

To this end, OIG has been involved with
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 15 15

Commerce’s efforts to implement GPRA since

1997 and has taken the following steps to ensure

the collection and reporting of such information to

decision makers:

 provided implementation advice and

assistance,

 monitored reviews 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, and

 audited internal controls for selected data

on bureau performance.

Commerce is operating under its second strategic

plan, which covers fiscal years 2000 to 2005.

While we believe the Department has made

progress toward meeting the challenge of how

best to plan and measure its performance,

significant opportunities for improvement remain.

Our most recent audits of performance

measurement and reporting at two Commerce

bureaus, NIST and USPTO, confirmed the need

for additional improvements in the reporting of

performance results—and improvements have

followed. For example, NIST responded to our

findings of inadequate reporting by providing a

more informative discussion of performance results

in the Department’s FY 2001 Accountability

Report and correcting reported results from prior

years to reflect our audit findings.

We are currently evaluating performance

measurement and reporting at NOAA and, if

warranted, will make recommendations to the

Department and its operating units regarding the

accuracy, appropriateness, reliability, and

usefulness of its performance data.

FY 2001 Annual Program Performance

Bureau Number

of Goals

Number

 of Measures

Measures

Met

Measures

Not Met

Source: Department of Commerce FY 2001 Annual Program Performance Report and FY 2003 Annual Performance

Plan. Commerce operating units continue to improve their performance track record.

EDA

ESA

ITA

Totals

Departmental

Management

TA

NTIA

USPTO

MBDA

NOAA

BIS

3

2

4

4

7

3

6

3

3

37

2

 8

12

 7

10

29

 7

12

 3

20

111

 3

 7

10

 2

 4

22

 4

 7

 2

17

77

 2

1

 2

5

6

7

3

5

1

3

34

1
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 16

IG’s Message to Congress

8

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 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 with federal

requirements.

The Department received an unqualified (clean)

opinion on its FY 2001 consolidated financial

statements—the third consecutive year for this

accomplishment despite continuing obstacles,

including the absence of a single, integrated

financial management system. During FY 2001,

the Department and its reporting entities made

significant progress toward resolving a previously

reported material weakness regarding prompt

recognition and recording of appropriations, and

this weakness has thus been eliminated. In

addition, some improvement in accounting balance

reconciliations eliminated that matter as a separate

reportable condition; the remaining weaknesses

associated with that condition are now addressed

in the reportable condition on financial

management and reporting. Notwithstanding

substantial improvements in financial management,

maintaining a clean audit opinion remains a major

challenge, especially under the accelerated

financial reporting dates mandated by OMB for

FY 2002 and beyond. Further improvements are

essential to enable the Department and its entities

to correct the material weaknesses and other

deficiencies identified in the audits of FY 2001

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.

The audits of the Department’s FY 2001

statements identified two reportable conditions

(one of which is considered a material weakness)

and several instances of noncompliance with laws

and regulations, none of which was a new matter

(See page 83). The number of deficiencies is

lower than in previous years, but still represents an

obstacle Commerce 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; it continues to focus

on strengthening financial management controls.

CHALLENGE
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 17

IG’s Message to Congress

Successfully Implement Acquisition

Reform Initiatives

CHALLENGE 9

Acquisition reform initiatives, such as the Federal

Acquisition Streamlining Act of 1994 and the ClingerCohen Act of 1996, were 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) promote greater use of commercially available

products. They also emphasize results-based

acquisition and promote life-cycle management of IT

as a capital investment. Performance-based

measurement tools such as earned value and risk

management are key features of acquisition reform

efforts.

With the implementation of acquisition reform

initiatives well under way in the Department of

Commerce, OIG’s focus is shifting to the effectiveness

of the overall acquisition process. The Department

annually spends more than $1 billion, or about onequarter of its appropriation, through large contracts

and other procurement vehicles. The challenge for

Commerce is to balance the desire to streamline the

acquisition process with the need to ensure that

taxpayer dollars are wisely spent and laws and

regulations are followed. A streamlined process should

not neglect basic acquisition principles: careful

planning, appropriate levels of competition, adept

negotiations, well-structured contracts, and effective

contract management.

Federal oversight organizations, such as GAO and

OMB’s Office of Federal Procurement Policy

(OFPP), along with the OIG community, continue to

identify deficiencies in agencies’ acquisition

practices. For example,

 GAO and various OIGs have reported

problems with some agencies’ use of

purchase cards, primarily weak internal

and administrative controls, improper

purchases, lack of proper accountability,

and inadequate training for card users and

the officials who approve their purchases.

 OFPP, GAO, and others have expressed

concerns about the use of governmentwide agency contracts and other multipleaward agreements, such as failure to

obtain competitive quotes when using

GSA schedule contracts.

 With federal spending on services

exceeding $87 billion in fiscal year 2000,

GAO and OFPP have criticized the way

the government buys services, noting in

particular the failure of many agencies to

focus on results.

We, too, have had ongoing concerns about service

contracting within the Department, and in recent

reports have identified problems with

performance-based service contracting. Issues

include failure to use performance-based task

orders where they would be beneficial, insufficient

planning for contract administration and

monitoring, and the need for increased training of

contract technical representatives.

In this semiannual period, we completed the

fieldwork for a review of IT service contracts

throughout the Department to determine whether

they contain information security provisions that

adequately safeguard sensitive but unclassified

systems and information. We found that such
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 18

IG’s Message to Congress

provisions were either inadequate or nonexistent.

We recommended that the Department develop

policy, incorporate appropriate contract

requirements, and require training to help ensure

that contracts contain adequate information

security provisions, and that acquisition, program,

and technical personnel are knowledgeable about

how to plan, implement, and manage such

contracts. We also have continuing concerns with

management of the purchase card program within

the Department and are conducting a series of

audits of that program.

The complex nature of certain streamlining

initiatives such as performance-based service

contracting increases the importance of using a

multidisciplinary team approach to procurement.

Teams should include not only experienced

contracting and procurement staff, but also

program, technical, budget, financial, logistics, and

legal personnel. We believe that the lack of

adequate security provisions in IT service

contracts is attributable, in part, to insufficient

involvement of program managers and IT

personnel during acquisition planning, requirements

definition, and contract award.

Commerce has continued to implement various

acquisition reform initiatives and has taken steps to

improve procurement procedures and oversight.

Its Office of Acquisition Management (OAM) has

automated the procurement process and

conducted an analysis of the acquisition

workforce, focusing on the quality of that

workforce within the Department and its need for

tools and training. The office has taken steps to

provide oversight and measure performance of

acquisition activities, using a risk management

program to monitor the effectiveness of reform

initiatives Department-wide. It has also reviewed

procedures used by operating units to issue task

and delivery orders under GSA Federal Supply

Schedules and other multiple-award contracts,

and is reviewing interagency agreements and

memorandums of understanding, as well as

purchase card policy. Finally, OAM is working

with the Office of the Chief Information Officer

and the Commerce budget office to integrate

budget and planning for IT acquisitions. We will

continue to periodically assess the status of these

efforts.

CHALLENGE 10

Effectively Manage Major Facilities

Renovation and Construction

Projects

The Department has plans for several major

construction projects that warrant OIG monitoring

and review:

 NOAA has 33 renovation and

construction projects scheduled or in

process 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

a National Weather Service facility in

Alaska, the National Ocean Service’s

Marine and Environmental Health

Research lab in South Carolina, and a

National Marine Fisheries Service lab in

Hawaii.

 NIST will continue its multimillion-dollar

program to upgrade existing laboratories

in Gaithersburg, Maryland, and Boulder,

Colorado, including construction of the

advanced measurement laboratory in

Gaithersburg.
Major Challenges for the Department

 Commerce OIG Semiannual Report March 2002 19

IG’s Message to Congress

 USPTO is implementing its billion-dollar

plan to consolidate employees and

operations in a new facility under

construction in Alexandria, Virginia. This is

one of the largest real estate ventures to

be undertaken by the federal government

in this decade.

 The Census Bureau intends to construct

two buildings at its headquarters in

Suitland, Maryland, to provide employees

with safe, modern facilities.

 Future Commerce plans include efforts to

completely modernize its headquarters in

Washington, D.C.

Effective renovation/construction management is a

critical challenge for the Department because of

the numerous inherent risks involved in the

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 implementation—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 current and

planned construction projects.

Current and Planned Construction Projects

Source: Commerce Office of Real Estate Policy and Major Programs

Operating Unit Number of

Projects

Estimated Costs

(in millions)

NOAA 33 $625

NIST 1 235

USPTO 1 1,200

Census Bureau. 1 340

Office of the 1 285

Secretary
 Commerce OIG Semiannual Report March 2002 2 0

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

Industry and

Security

Economic

Development

Administration

National Oceanic

and Atmospheric

Administration

U.S. Patent and

Trademark

Office

Marine

and Aviation

Operations

Oceanic

and Atmospheric

Research

National

Marine Fisheries

Service

National

Ocean

Service

National

Weather

Service

National

Environmental Satellite,

Data, and Information

Service
Commerce OIG Semiannual Report March 2002 21

Bureau of Industry and Security

The Bureau of Industry and

Security1 is primarily responsible

for administering and enforcing the

nation’s system for controlling

exports of sensitive dual-use

goods and technologies. BIS’

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.

BIS’ activities also include

promoting federal initiatives and

public-private partnerships across

industry sectors to protect the

nation’s critical infrastructures. BIS

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 and enforces

industry compliance with arms

control treaties.

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.

JOINT REVIEW BY FIVE IG OFFICES CALLS FOR

GREATER INTERAGENCY COOPERATION ON

EXPORT LICENSE SYSTEMS DEVELOPMENT

To prevent countries and entities of concern from acquiring militarily sensitive

U.S. technology and technical information, the Departments of Commerce,

Defense, Energy, Justice, and State review export license applications for

approval or denial. The National Defense Authorization Act for Fiscal Year

2000 directs the Inspectors General of Commerce, Defense, Energy, and

State, in consultation with the

Directors of the Central Intelligence

Agency and the Federal Bureau of

Investigation, to assess the adequacy

of export controls and

counterintelligence measures and

submit a report to Congress by

March 30 of each year through 2007.

In 2002, to comply with the thirdyear requirement of the act, the OIGs

conducted an interagency review of

the automated systems that support

the export licensing and enforcement

processes. The objective was to

determine how effective the systems

are and how well they interact, and

whether it is feasible to develop a single federal automated export licensing

network or other alternatives.

Review Results

Dual-use export licensing involves multiple automated systems owned and

operated independently by the licensing and review agencies. Many of

these systems were developed prior to some of today’s informationsharing technologies, so are not optimally effective given present-day

information-processing capabilities. Dual-use licensing agencies have

1

In April 2002, the Bureau of Export Administration (BXA) changed its name to the

Bureau of Industry and Security (BIS).
 Commerce OIG Semiannual Report March 2002 22

Bureau of Industry and Security

made progress in modernizing their automated systems; however, current

systems limitations include (1) differing security standards among

agencies, (2) cumbersome manual and paper-based processes, and

(3) lack of a comprehensive export-information database that can be

used to assess the cumulative effect of multiple exports. Improvement

alternatives, beyond enhancing existing system interfaces, may not have

been adequately considered. Commerce is the agency primarily

responsible for licensing dual-use exports.

Munitions export licensing, like dual-use licensing, involves multiple,

independently owned and operated, and nonintegrated automated

systems. State, the agency primarily responsible for munitions licensing,

has taken steps to upgrade aspects of its automated internal processes,

but much of the licensing process remains manual or paper based. In

addition, State’s inspector general found that the agency’s systems

development approach does not include adequate risk management,

identification of requirements, or coordination with industry and other

federal agencies involved in the licensing process.

U.S. Export Systems (USXPORTS), a Defense initiative, was established

in 2000 to address interoperability concerns across agency lines.

Partnering with Commerce, the USXPORTS Interagency Program

Management Office has planned and implemented significant

improvements in the export licensing processes for dual-use commodities.

However, USXPORTS has been unable to fully address inefficiencies,

identify requirements, and streamline the munitions export licensing

process. As a result, its original goal—to modernize the entire federal

export licensing process by providing participating agencies with

electronic access to pertinent export data—has not yet been achieved.

Recommendations Summary

The interagency report recommended that the Secretary of Commerce, in

conjunction with the Secretaries of Defense, Energy, State, and the

Treasury, establish accountability for developing, integrating, and

modernizing federal automated dual-use export licensing systems without

unnecessary duplication. Establishing accountability would include forming

a senior-level organizational structure, such as an interagency steering

committee, to oversee the development effort.

Export

Administration

Export

Enforcement

Bureau of

Industry and

Security
Commerce OIG Semiannual Report March 2002 23

For munitions export licensing, the team recommended that the

Secretary of State develop a memorandum of understanding with the

Secretaries of Defense, Energy, and the Treasury to develop integrated

and modernized automated munitions licensing systems without

unnecessary duplication and with an organizational structure to oversee

the development effort.

For both dual-use and munitions licensing, it was recommended that the

Secretary of Defense continue to work with Commerce, Energy, and

State to better integrate Defense’s role in reviewing and processing

licenses.

For the USXPORTS Interagency Program Management Office, the

recommendation was that the Secretary of Defense redirect

USXPORTS’ primary focus to automating, integrating, and modernizing

Defense’s processes for disseminating and reviewing export license

applications and associated technical documentation within that agency.

(Offices of Inspector General of the Departments of Commerce,

Defense, Energy, State, and the Treasury: IPE-14977; Department

STRENGTHENING ECASS MODERNIZATION

EFFORTS WOULD HELP ENSURE THE PROJECT’S

LONG-TERM SUCCESS

In addition to the multiagency review, each OIG looked at its own

agency’s efforts to modernize its export licensing system. We reviewed

BIS’ Export Control Automated Support System (ECASS) to

determine whether BIS had (1) adequately considered business process

changes and appropriate resources for the life of the project;

(2) established an infrastructure capable of monitoring project costs,

schedule, and deliverables; (3) developed a realistic, achievable systemdesign schedule; and (4) implemented previous OIG recommendations

pertaining to modernization of the export licensing system and other

internal control issues.

Bureau of Industry and Security

of Defense: D-2002-074)
 Commerce OIG Semiannual Report March 2002 24

What We Found

Since 1998, when the ECASS 2000+ redesign began, BIS has made

progress in four key areas. First, appointing a project manager in March

2000 brought direction and stability to the project. Second, BIS is

working with Defense’s USXPORTS office to develop a “front-end”

licensing subsystem, called the Simplified Network Application

Processing (SNAP)2/Electronic Support Documentation (ESD) system

that allows export license applicants to submit all types of applications

and supporting documentation on-line. Third, BIS’ new export

enforcement investigative tracking system is scheduled to be

implemented in June 2002. Fourth, during its fiscal year 2003 budget

planning cycle, BIS established a Capital Planning Team to coordinate

its strategic planning, annual budgeting, and information technology

functions. Still, there is much to be done.

EVALUATION REVEALS ISSUES REQUIRING

RENEWED ATTENTION

Planning, Resources, and Oversight by BIS Management and

the Department

BIS’ business process reengineering (BPR) study, completed in 1998, is

too narrow in scope; this deficiency was not adequately addressed by

BIS management. A BPR study yields information used to define or

redefine requirements that must be met by an automated system. A

flawed BPR study can mean a flawed benefit-cost analysis. Also, the

ECASS redesign is based on a benefit-cost analysis that is outdated in

terms of both cost and proposed requirement changes. Complicating

this issue is the fact that BIS increased its baseline for ECASS from $6

million in 1998 to $7.5 million in 2001 without preparing adequate cost

estimates. As a result, BIS does not know what funding levels are

needed or whether the $7.5 million will be sufficient to complete

ECASS 2000+ by fiscal year 2006. Another planning issue concerns

stakeholder participation. Not all ECASS 2000+ users’ specific needs

and requirements have been adequately specified and documented. We

found minimal user involvement in the preparation of requirements for

the licensing subsystem, and the information technology security

requirements had not been specified.

Bureau of Industry and Security

2

SNAP is currently being beta tested at http://www.bxa.doc.gov/SNAP/default.htm; it is

scheduled for release in mid 2002.
Commerce OIG Semiannual Report March 2002 25

Bureau of Industry and Security

Documentation of Security Requirements and Implementation of

IT Best Management Practices

Although the ECASS 2000+ project officially began in March 2000, as

of September 30, 2001, BIS had not completed the design of key

system management processes or the documentation needed to better

manage the redesign. At that time, ECASS 2000+ lacked adequate

management tools, including (1) a configuration management process,

(2) a risk management process, (3) a software acquisition training

program for its project team members, (4) a project management plan,

and (5) a target architecture. OMB, GAO, and the Department’s Office

of Chief Information Officer have all noted that these management tools

are requisite for systems development.

Interagency Cooperation on Planning, Design, and Development

Our 1999 export licensing report raised concerns about the multiple,

discrete automation efforts under way by the various export licensing

agencies and recommended that BIS coordinate its system development

efforts with the other agencies to maximize efficiencies and savings as

well as acquire a more integrated licensing system. Since then, BIS has

been involved in some interagency modernization efforts but has not

involved the other agencies in its own redesign effort beyond SNAP/

ESD. Also, BIS may not be adequately considering system

improvement alternatives beyond enhancing interfaces with the existing

licensing systems.

Recommendations Summary

As a result of our findings, we made 13 recommendations to the Under

Secretary for Industry and Security, essentially suggesting that BIS do

the following:

 Determine whether changes proposed in the 1998 business

process reengineering study, as well as those in a 2001 internal

licensing task force report, should be factored into ECASS

2000+ design and requirements.

 During the second quarter of FY 2002 (January-March 2002),

implement the ECASS 2000+ configuration management and

risk management processes, revise and approve the program
 Commerce OIG Semiannual Report March 2002 26

Bureau of Industry and Security

management plan, complete the target architecture, and select

the location for ECASS.

 Develop a central multiagency data repository for records

pertaining to all applications reviewed, ensuring that the

repository has appropriate access controls yet permits agencies

to retain control of their respective databases.

 For FYs 2002 through 2005, determine what resources are

needed and how to secure adequate funding for them, and

whether it is necessary to extend the project time frame. Also,

document security requirements and determine how to fund

them.

 Ensure that relevant interagency stakeholders validate system

requirements. Also, determine whether Defense can use

ECASS 2000+ for its export licensing needs. To promote the

accord essential to developing an effective decision-making

process for export licensing and security policy, document the

responsibilities of all dual-use licensing agencies, including

Treasury and the Central Intelligence Agency, and the best

approach to coordinating the ECASS 2000+ redesign effort

with each agency’s automation initiatives. (Office of

Inspections and Program Evaluations: IPE-14270)
Commerce OIG Semiannual Report March 2002 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.

During this reporting period, we completed audits of five EDA revolving

loan funds and four public works projects. Our findings of improper and

excess claims, noncompliance with funding regulations, and lack of need

resulted in recommendations for funds to be put to better use totaling

about $1.9 million and questioned costs totaling approximately

 $1.7 million.

NONCOMPLIANCE AND QUESTIONABLE COSTS

FOUND IN AUDIT OF UTAH CORPORATION’S

DEFENSE CONVERSION GRANT

In our March 2001 issue (page 28), we reported on our interim audit of

a defense conversion grant awarded to a Utah city in 1996 to help

redevelop a closed army depot for commercial use. The EDA-funded

project included construction of both a sewer line from the depot to the

city’s new wastewater treatment plant and collector sewers at the depot.

The total approved project cost was $5,371,000: $2,500,000 in federal

funds (47 percent) and $2,871,000 as the city’s matching share (53

percent).

In our interim audit report, we questioned $3,416,014 in costs claimed

under the EDA award as unsupported. As part of the audit resolution,

we agreed to perform a final cost audit of the grant in coordination with

a Department of the Interior audit of a related Bureau of Reclamation

grant.

Our final audit, completed this period, revealed that the city (1) did not

complete the original grant project because it failed to construct the

collector sewers, (2) used project underrun funds to impermissibly

expand the scope of the project,(3) claimed unbudgeted and

unsupported in-kind land costs, (4) allocated excessive wastewater

treatment plant costs to the EDA grant, and (5) failed to maintain an

adequate financial management system, which resulted in duplicative

cost claims to the EDA and Bureau of Reclamation awards. We

questioned a total of $3,042,324 in claimed project costs, which

included approximately $2,500,000 in costs also billed to the Bureau of

Reclamation grant.

We recommended that EDA (1) provide no additional funds to finance

the incomplete portion of the grant, (2) disapprove any expansion of the

grant scope through the use of underrun funds, (3) disallow unsupported
 Commerce OIG Semiannual Report March 2002 28

Economic Development Administration

Program

Operations

Finance and

Administration

Economic

Development

Administration

Cong. Liaison,

Program

Research and

Evaluation

Regional

Offices

in-kind contributions of land and excessive allocations of wastewater

treatment plant costs, (4) require the city to maintain an adequate

financial management system for future awards, and eliminate duplicative

project costs from its claims on the EDA and Bureau of Reclamation

grants, and (5) seek recovery of EDA’s share of questioned costs.

(Denver Regional Office of Audits: DEN-14874-2)

RLF IN PUERTO RICO WAS NOT RECORDING

PROGRAM INCOME

We performed a financial and compliance audit of an RLF established in

1987 through a $500,000 EDA grant to an institution in Puerto Rico.

EDA recapitalized the RLF twice, providing an additional $1 million for

the fund in both 1989 and 1990. When combined with the recipient’s

required matching contribution of $1.75 million, total capitalization for

the RLF was $4.25 million. In 1999 EDA awarded another $1 million to

the RLF; however, use of these funds was restricted to providing

assistance to businesses adversely impacted by Hurricane Georges,

which hit Puerto Rico the previous year.The primary objective of our

audit was to determine the institution’s compliance with applicable

federal laws and regulations, EDA guidelines, and grant terms and

conditions in administering the RLF.

We issued two reports on the audit: one dealing with the 1999

recapitalization award and a second addressing the overall

administration of the RLF under the three earlier awards. At the time of

our audit, no funds had been drawn down on the 1999 award and no

loans had been made. Under the circumstances, we recommended that

EDA terminate the grant and deobligate the $1 million in undisbursed

federal funds. The agency agreed and subsequently implemented our

recommendation. (Atlanta Regional Office of Audits: ATL-13955-1)

We reported jointly on the other three awards because they shared the

same general purpose and were administered as one RLF project. Our

audit determined that $204,276 in cumulative RLF income had not been

recorded, which caused the institution to understate the fund’s actual

balance and may have unnecessarily restricted its RLF lending over the

years. We also found instances of improper lending; unsupported

administrative charges; inaccurate loan, income, and cost data in reports

to EDA; and failure to file required annual RLF plan certifications.
Commerce OIG Semiannual Report March 2002 29

Economic Development Administration

The recipient took steps to resolve certain of the audit findings after we

issued our draft report. In view of these developments, our final

recommendations were that EDA require the institution to (1) record

and deposit into the RLF account an additional $51,988 in income,

(2) record all future income in accordance with grant regulations,

(3) annually submit a properly executed RLF plan certification, and

(4) ensure that future status reports to EDA are accurate. (Atlanta

Regional Office of Audits: ATL-13955-2)

UNCERTAINTIES, QUESTIONED COSTS DISCLOSED

IN AUDIT OF ARIZONA WATER SYSTEM PROJECT

In August 1999, EDA awarded a public works grant to a town in

Arizona for construction of the second phase of a five-phase water

distribution master plan. Phase II was intended to provide a new

infrastructure to replace contaminated portions of the existing water

system in the town’s commercial section.

The total cost of phase II was $2,584,500, of which the EDA grant

would fund a maximum of $1.2 million, with the balance to be covered

by $1,384,500 in local matching funds. EDA asked us to conduct an

interim audit of the project to determine whether the town had sufficient

funds for the match, had obtained required easements and rights-ofway, and had claimed only those project costs allowed under the terms

of the grant. Our audit examined project activities and costs claimed

under the award for the period of August 25, 1999, through January 11,

2001.

We verified that the town had the easements and rights-of-way for part

of the construction contract that was under way. However, it was still

trying to secure the easements necessary to complete the current

contract and obtain approval to start the remaining two contracts for

phase II.

We also determined that the town had failed to comply with federal

procurement and financial management standards, and with federal cost

principles applicable to the award. Specifically, we found the town had

(1) selected the town engineer to serve as the phase II project engineer

rather than submit the architectural engineering contract to competitive

bidding, (2) developed an incomplete and inconsistent engineering

agreement, and (3) failed to implement procedures to adequately
 Commerce OIG Semiannual Report March 2002 30

Economic Development Administration

manage the contract. We also found that the town’s financial

management system could not generate accurate data about results of

the award. This noncompliance weakened the recipient’s control over

EDA funds and caused us to question almost the entire amount of costs

claimed through the interim audit cutoff date—$212,388 of $214,398.

Finally, we concluded that the town had the required matching funds, as

well as sufficient funds, to complete the remaining three phases of the

master plan, if actual costs stayed within the January 1999 estimate of

$5.3 million. We cautioned, however, that further delays in obtaining

easements and rights-of-way and EDA’s determination regarding

questioned costs could jeopardize completing the project within budget.

Based on our findings, we recommended that EDA disallow the

questioned costs, offset the federal share of disallowed costs against the

recipient’s future requests for reimbursement, and take several

additional actions including the following:

1. Prohibit the town from advertising future contracts until it

obtains all required easements and rights-of-way.

2. Advise town officials that all costs incurred under the

project engineering agreement are unallowable for EDA

participation, and offset the federal share of all engineering

expenses claimed subsequent to the interim audit against

future reimbursement requests.

3. Determine whether the town has sufficient funds to

complete the EDA portion of the project once it deals with

our recommendations. If it does not, EDA should

terminate the award and recover all federal funds

disbursed.

In general, the town agreed with the findings of our audit and took

action on several recommendations. Although it agreed with our

questioning of $212,388 in claimed costs, it disagreed with our

recommendation that EDA disallow these costs and recover the federal

share, citing mitigating circumstances. EDA sustained our findings and

recommendations. (Seattle Regional Office of Audits: STL-14253)
Commerce OIG Semiannual Report March 2002 31

Economic Development Administration

AUDIT OF LOUISIANA RLF REVEALS FAILURE TO

COMPLY WITH AWARD TERMS AND CONDITIONS

EDA awarded a $500,000 Long-Term Economic Deterioration (LTED)

grant to a Louisiana economic development organization in 1989 to

establish a revolving loan fund to assist businesses and support

economic development in the local area. In 1996 the organization

received a second EDA grant to recapitalize the RLF. We issued an

audit report, in March 2001 Atlanta Regional Office of Audit: ATL13214-1 that addressed the lack of need for the recapitalization award.

(See March 2001 issue, page 26.) As a result, in September 2001,

EDA deobligated the unused grant balance of $253,388.

During this semiannual period we issued a second report addressing the

organization’s financial management of the RLF and its compliance with

applicable administrative requirements. We found that the organization’s

cost allocation plan was incomplete and failed to meet technical

requirements and that annual organizational audits were not performed

as required. In addition, our review of RLF loan files revealed that they

were not always documented in accordance with EDA requirements and

that loans may have been made to unqualified borrowers.

We recommended that EDA require the organization to implement

procedures to remedy these deficiencies. The organization generally

agreed with our findings, noting that actions were already under way to

ensure future compliance. (Atlanta Regional Office of Audits: ATL13214-2)

AUDIT CONFIRMS MULTIPLE COMPLIANCE

ISSUES AT SOUTH CAROLINA RLF

In April 2001, EDA suspended the lending authority of an RLF operated

by a South Carolina city, based on the city’s failure to comply with

various grant terms and RLF administrative requirements. At that time,

EDA also requested that our office audit the fund. We performed a

financial and compliance audit to review the issues cited in EDA’s audit

request and to determine the current financial status of the RLF. Our
 Commerce OIG Semiannual Report March 2002 32

Economic Development Administration

audit confirmed that the city was not complying with numerous

administrative requirements. Specifically we found the following:

 The RLF had more than $47,000 in excess cash reserves

resulting from a lack of loan activity in recent years.

 Three loans were made during 1998 and 2000 that violated

provisions of the city’s RLF plan and were not properly

documented.

 The city’s RLF plan did not meet EDA guidelines, and its most

recent RLF plan certification was incomplete and inaccurate.

 The status of the RLF loan portfolio was materially

misrepresented in the city’s latest semiannual report to EDA.

 A minor amount of unallowable administrative costs were

charged to the EDA RLF and two other federally funded RLFs.

To remedy these problems, we recommended that EDA require the city

to do the following:

 Use the excess cash to make new RLF loans within 6 months

or remit all excess cash on hand to the U.S. Treasury.

 Ensure that future loans strictly comply with the RLF plan and

document RLF loan files in accordance with EDA requirements.

 Revise the RLF plan to comply with EDA’s December 1998

plan guidelines and ensure that future annual plan certifications

are complete and correct.

 Ensure that future semiannual RLF reports submitted to EDA

are complete and accurate.

 Reimburse the federally funded RLFs for their respective shares

of the unallowable administrative costs.

City officials have agreed to correct the problems noted and have

already reimbursed the EDA RLF for its share of unallowable costs.

(Atlanta Regional Office of Audit: ATL-14690-1)

COSTS QUESTIONED IN AUDIT OF GRANT TO

NEW YORK ECONOMIC DEVELOPMENT

ORGANIZATION

A $1,240,000 Defense Economic Adjustment grant was awarded to a

local economic development organization in New York in 1995 to help

fund the renovation of an industrial facility to create incubator space for
Commerce OIG Semiannual Report March 2002 33

Economic Development Administration

small start-up companies and develop job opportunities for workers

displaced by defense industry downsizing in the area.

In March 1997, the grantee advised EDA that it could not continue with

the project as planned and requested the agency’s permission to use the

award to develop an industrial park and multi-tenant industrial building.

EDA denied the request and subsequently notified the grantee that the

award would be terminated. The Economic Development Reform Act

of 1998, however, provides relief for projects obligated with FY 1995

funds, specifically giving grantees the opportunity to modify a project’s

scope of work. In August 1999, the organization requested an

amendment to the award that would permit it to use the grant proceeds

to develop a countywide training program. EDA approved the request

in February 2000, but by August 2000 it was clear that the project

could not be completed before the funds expired on September 30,

2000. EDA closed the award, effective on the expiration date.

Our audit of the award found that the recipient had improperly claimed

costs totaling $194,657, including an inadequately supported in-kind

costs claim of $157,415 for salaries and fringe benefits, and operations

and maintenance. The corporation also violated the terms and

conditions of the award by failing to return, on a timely basis, interest

earned on EDA disbursements.

Before we issued our final report, the grantee remitted $165,889 to

EDA: $159,137 in grant funds and $6,752 in earned interest. Based on

the questioned costs, however, we determined that an additional

$42,011 was owed to the federal government. We recommended that

EDA disallow the full amount of questioned costs and recover the

$42,011 balance of excess disbursements. (Atlanta Regional Office of

Audits: ATL-14033-1)

AUDIT OF WASHINGTON RLF DISCLOSES

ADMINISTRATIVE ISSUES AND FAILURE TO

COMPLY WITH MATCHING SHARE

REQUIREMENTS

In September 1998, EDA awarded a Washington nonprofit association

a $300,000 grant, to be matched by $100,000 in recipient funds, to

establish an RLF intended to provide increased resources to low- and
 Commerce OIG Semiannual Report March 2002 34

Economic Development Administration

moderate-income persons expanding or creating businesses in the area.

More than 2 years after the award was made, however, 50 percent of

the grant funds remained undisbursed.

We performed a limited-scope, financial-related audit of the award to

determine why fund disbursement had been delayed and to assess

whether a valid need for the RLF continued to exist. We found that

despite having missed two interim disbursement milestones, the

association had sufficient projects in the pipeline to use the remaining

funds and meet the final disbursement deadline, and that the original

justification for the award remained valid. Our audit did, however,

disclose a number of significant administrative issues that jeopardized

RLF operations and required action by the association. We also

determined that the recipient had failed to comply with award provisions

and EDA guidance governing the nonfederal share by claiming funding

sources that were restricted or otherwise ineligible for that purpose.

We recommended that EDA disallow $75,000 in claimed nonfederal

matching funds and recover $53,500 in excess disbursements. We also

recommended that the agency do the following:

1. Require the association to submit evidence of the availability

of sufficient eligible matching funds to complete the award

disbursement phase within a reasonably revised deadline, or

terminate the award and deobligate the unused award funds

if those conditions are not met.

2. Require the association to promptly hire a full-time,

experienced loan officer and develop contingency plans to

protect and manage the RLF should its president/CEO

become unavailable or incapacitated.

After reviewing the recipient’s response to our report, EDA sustained

the audit findings and recommendations. The association is currently

working on corrective actions to preserve the full award. (Seattle

Regional Office of Audits: STL-14140-2)
Commerce OIG Semiannual Report March 2002 35

Economic Development Administration

ILLINOIS RLF NEEDS TO IMPROVE ITS

ACCOUNTING AND REPORTING OF FUNDS

In September 1996, EDA awarded an Illinois local development

organization a $375,000 grant to create a $500,000 RLF to help

mitigate unemployment caused by a sharp decrease in the area’s

industrial sector and a 25-year dearth of investment in the local

community. The RLF was to be used to award low-interest, gap

financing loans to small industrial and commercial businesses located

within the organization’s 10 square-mile service area.

We performed an interim financial and compliance audit during June

2001 to evaluate the recipient’s financial management of the RLF and

determine whether it was complying with applicable RLF administrative

and loan documentation requirements. Our audit disclosed that the

organization (1) was not properly accounting for RLF funds because

assets, liabilities, and balances had been commingled with accounts of

similar loan programs; (2) was charging the RLF with estimated

administrative expenses rather than actual costs incurred; and (3) had

not achieved any of the grant disbursement milestones specified in the

award.

We recommended that EDA direct the organization to separately

account for each asset, liability, income, and expense comprising the

RLF fund and claim only actual, supportable RLF administrative costs,

in accordance with grant requirements. The organization proposed to

correct its inadequate record keeping by establishing a separate account

solely for RLF funds effective January 1, 2002; and when its 2001

calendar year audit is complete, will deposit $3,953 into the RLF

account to correct the charge for administrative expenses. As for the

required disbursement milestones, the organization worked with EDA to

develop a realistic time schedule extension and by September 30, 2001,

had disbursed and obligated the entire grant. (Denver Regional Office

of Audit: DEN-14321-2)
 Commerce OIG Semiannual Report March 2002 36

NO DEFICIENCIES FOUND IN WASHINGTON STATE

PORT PROJECT’S HANDLING OF EDA FUNDS

A port in Washington State was established in 1966 after

local authorities acquired an Air Force base from the federal

government during base closures in 1965. The port operates

a small airfield, a foreign trade zone, and an industrial park

of about 5,000 acres. In September 1998, EDA awarded a

grant to the port to construct a wastewater collection,

storage, and disposal system to permit future industrial

expansion at the facility. The total project cost was estimated

at $4,014,000, with the EDA award contributing about 37

percent of the project (not to exceed $1.5 million). The

award period was from September 1998 to September

2000.

Our audit did not disclose any deficiencies. All project

costs claimed through December 2000 were supported

and appeared reasonable and necessary for the project.

Although a problem with pump station monitoring caused

a delay in project completion, the problem was resolved

and the project is now functioning as designed. The port

was in compliance with federal award requirements and

with EDA award terms and conditions.

Most of the project costs had been claimed for reimbursement at the

time of our review, and the project was 87 percent complete. There

appear to be sufficient funds available to cover the construction contract

retainage and miscellaneous project closing costs. Therefore, unless

EDA has reason to question the final reimbursement claim on project

closeout, we consider the award closed for audit purposes. (Seattle

Regional Office of Audits: STL 14790-2)

Economic Development Administration

Source: Washington State Port

Four runways meet to form the “X” in

this aerial photograph of a port in

Washington state that includes an

international airport, an industrial

park, and a foreign trade zone. The

port used EDA funding to construct an

on-site system for collecting, storing,

and disposing of industrial wastewater,

thereby relieving an overburdened

municipal treatment system.
Commerce OIG Semiannual Report March 2002 37

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.

Bureau

of the

Census

Bureau of

Economic

Analysis

Economics and

Statistics

Administration

SPECIAL OIG REPORT EMPHASIZES THAT CENSUS BUREAU

NEEDS TO CAPITALIZE ON SUCCESSES OF CENSUS 2000 AND

IMPROVE WEAKNESSES AS IT PREPARES FOR 2010

At an estimated cost of $6.5 billion, the 2000

decennial census was the most expensive to

date. Yet it is generally considered a

success—participation was higher than

anticipated, especially among the historically

undercounted, and operations concluded on

time. Census 2000 counted approximately

281 million people living in 116 million housing

units.

OIG monitored the bureau’s planning of

Census 2000 through the decade preceding

it and has since evaluated its execution: we

issued more than 30 reports and memorandums regarding the 2000

decennial; listened to the concerns and insights of Census Bureau officials

and Commerce managers; conferred with census enumerators and

managers; talked with congressional members and staff, as well as state

and local elected officials; and sought input from census experts both within

and outside the government. During this semiannual period, we issued our

report, entitled Improving Our Measure of America: What Census 2000

Can Teach Us in Planning for 2010, which summarizes the findings of

this work, organized around 10 lessons learned, to help the bureau

capitalize on its successes, improve areas of weakness, and anticipate

emerging challenges as it plans for Census 2010.

Lesson 1: Reach Early Consensus on the 2010 Design to

Facilitate Effective Planning and Obtain Sufficient

Funding.

An undertaking as huge and complex as the decennial census requires

long lead times to allow for proper development and testing of the

overall design and to define and procure systems. Therefore, an agreedupon design with sufficient funding to support its development must be

in place early. The drawn-out dispute over sampling precluded early

agreement on Census 2000’s design and increased problems in its

execution.
 Commerce OIG Semiannual Report March 2002 38

Economics and Statistics Administration

Our review of the bureau’s readiness to conduct the 2000

decennial revealed that as late as 1995 Census still did not have

a design that was sufficiently finalized to undergo full-scale testing.

In 1998, as the dress rehearsal approached, many in Congress

were opposed to the use of sampling and required the bureau to

test two census designs—one that relied on sampling and one

that did not. A final decision on the design did not come until

1999, when the United States Supreme Court ruled that sampling

could not be used to apportion the House of Representatives, in

effect, telling Census that it must concentrate on the traditional

approach of enumerating every household in the nation.

Eager to avoid the design-related problems experienced during

Census 2000, the bureau is already developing its plan for 2010,

which includes a reengineered address file and associated maps,

as well as a design that collects data using only the short form questionnaire.

The bureau currently intends to replace the decennial long form with data

collected from a continuous measurement system called the American

Community Survey (ACS). We commend the bureau for these early

planning efforts, but are concerned about its intention to rely on this new

design because of the uncertainty of funding for it: if the bureau does not

receive sustained ACS funding throughout the decade, it may be unable

to eliminate the long form for 2010. We believe that Census’ plan for the

next decennial should (1) standardize the long form and ACS questionnaires

so that they are compatible in content and

layout, sample design, and data collection,

capture, and processing methods and

technologies; and (2) include a contingency plan

for use of the long form.

Lesson 2: Produce Accurate,

Complete Address Lists and

Maps.

Knowing where the nation’s people are and

how to reach them is fundamental to the

decennial census. The Master Address File

(MAF) is the bureau’s primary tool for

accomplishing this task. Accuracy and

Source: U.S. Census Bureau

The huge increases in population and

number of households requiring

enumeration from decade to decade have

increased the complexity—and costs—of

conducting the decennial census. Total

costs for the 2000 decennial reached

$6.5 billion—roughly five times the

$563 million spent on the 1960 census.
Commerce OIG Semiannual Report March 2002 39

Economics and Statistics Administration

completeness are vital to the reliability of the MAF and associated

maps; hence, the bureau’s ongoing planning must include special efforts

to create a more reliable address file and mapping system. Over the

course of the last decade, we issued several reports on these critical

operations; some of these reports identified serious problems with the

MAF, such as missing, duplicate, and inaccurate addresses, and noted

that maps were often neither current nor drawn to appropriate scale. To

help avoid these problems in the next decennial, the bureau should

continue working to improve the MAF and mapping system throughout

the decade, establishing performance measures for accuracy and

completeness, testing against these goals, and reporting to decision

makers on the progress made toward meeting performance objectives.

Lesson 3: Conduct a Carefully Targeted and Aggressive

Public Awareness Campaign.

The bureau had set goals for Census 2000 of increasing public

awareness and improving the mail response rate. To achieve these

goals, Census conducted a two-part publicity campaign: (1) national

paid advertisements began 6 months before census forms were mailed

out; and (2) partnerships between the bureau and state and local

organizations developed community-specific initiatives to publicize the

decennial. Both components were designed to educate individuals about

the census and encourage them to return census forms. The 2000

response rate of 67 percent surpassed that of 1990 (65 percent) and

far exceeded the projected rate of 61 percent. Considering the general

downward trend in return rates from one census to the next, we

commend the bureau for having done an excellent job in motivating the

American public to participate. The higher-than-anticipated response

rate in 2000 also reduced the overall cost of the decennial because

enumerators had to visit fewer households for nonresponse follow-up.

We reviewed the bureau’s public awareness campaign prior to kickoff

of the 2000 decennial. We found that the advertising message was

developed using a sound methodology and that the partnership effort

had resulted in a comprehensive, effective nationwide program of

education aimed at increasing the mail response rate and thereby

reducing the undercount. Given the apparent success of these programs

at getting people to respond, we believe the bureau should incorporate

similar components into its 2010 decennial design.
 Commerce OIG Semiannual Report March 2002 40

Economics and Statistics Administration

Lesson 4: Strengthen Quality Control of Nonresponse

Follow-up.

For 2010, Census must do a better job of overseeing data collection at

local offices to avoid costly reenumeration and ensure the public’s

confidence in census results. More specifically, the Census Bureau

needs to improve its quality assurance efforts to better identify

inaccurate or falsified information. Inaccurate or falsified data submitted

by enumerators threatens the integrity of the entire census and when

identified, results in the costly exercise of having to reenumerate the

affected area. Highly questionable data and shortcuts used to collect

census information were problems at a number of local census offices,

particularly at three Florida locations where suspect data required the

bureau to reenumerate much of the coverage areas. The negative

publicity surrounding these events raised the public’s concern about the

accuracy of the census.

Lesson 5: Implement Clear Policies and Guidance for

Managing Temporary Staff.

The bureau hired more than 950,000 temporary workers to conduct

various field operations at its 520 local census offices. Hiring and

managing large numbers of temporary employees was a challenge for all

these offices, and created some significant problems at a few. Although

the task of recruiting, training, and effectively managing a large number

of people during the decennial census is inherently difficult, our findings

and observations suggest nonetheless that the process can be improved.

The bureau needs to examine and strengthen personnel policies and

procedures regarding such matters as employee safety, overtime,

termination for cause, and reassignment of staff among census offices.

Lesson 6: Determine Whether Sampling Has a Role

Beyond Measuring Coverage.

The proposed use of sampling to improve coverage was perhaps the

most controversial aspect of Census 2000. In 1999, after the United

States Supreme Court ruled that sampling could not be used to

apportion the House of Representatives for the upcoming decennial, the

bureau proceeded with sampling operations for other potential uses,

such as allocating federal funds and redistricting. The bureau initially

believed it could improve the accuracy of census counts by adjusting

them via sampling. But extensive data analysis has not demonstrated
Commerce OIG Semiannual Report March 2002 41

that the statistically adjusted counts are more accurate than the

unadjusted ones. As early as possible for 2010, we believe the bureau

must determine whether sampling has a purpose beyond providing a

quality check to measure coverage.

Lesson 7: Implement Rigorous System and Software

Development Processes and Effective Information

Security Measures.

The bureau needs to strengthen its management of information

technology and its approach to software development. Data collected

from the decennial must be processed within severe time constraints,

and results must be accurate. During Census 2000, the bureau often

used an ad hoc approach to software development that provided

inadequate controls, insufficient testing, and poor or no documentation.

In several instances, these unsystematic methods led to disruptive errors

that had to be corrected as the census was being conducted.

In addition, with the inevitable expansion of Internet use and the

bureau’s plans to increase electronic transmission of census

questionnaire data, information security will be ever more critical in

2010. Title 13 of the U.S. Code prohibits the Census Bureau from

disclosing data it collects about individuals and establishments.

Unintentional disclosure of this data could seriously damage the

decennial by undermining confidence in the bureau’s ability to keep

information confidential and thus diminishing the public’s willingness to

respond. The bureau, with its unique mission, must incorporate strong

security mechanisms that will safeguard its census-related computer

systems and networks from unauthorized access and its data from

unauthorized disclosure or modification.

Lesson 8: Upgrade and Maintain Contracting and

Program Management Expertise.

For Census 2000, the bureau contracted out various important projects

including development and operation of its largest, most complex IT

systems and its advertising campaign. However, it did not have sufficient

contracting and program management staff with the training and

experience to properly acquire systems and manage the contracts.

Ultimately, the contracts supported decennial census operations but at a

Economics and Statistics Administration
 Commerce OIG Semiannual Report March 2002 42

higher cost than necessary. For 2010, when contractors will likely play

a larger role, the bureau must have a sufficient number of highly skilled

and properly trained personnel who are dedicated to the planning and

management of decennial contracts.

Lesson 9: Generate Timely, Accurate Management and

Operational Information.

In a program as time sensitive as the decennial census, the importance

of having timely and accurate information about management activities

and operational functions cannot be overstated. Without such data,

Census management is unable to effectively oversee and evaluate

performance, make informed management decisions, and improve the

execution of future censuses. For example, the bureau failed to track

and analyze proxy questionnaire data—thus depriving itself of a critical

management tool for assessing the integrity of nonresponse follow-up

operations. Had the bureau monitored proxy data, perhaps it would

have recognized enumeration irregularities in Hialeah, Florida, where

local management sanctioned inappropriate use of proxy questionnaires

and other procedural abuses. As a result of these actions, Census had

to completely reenumerate the Hialeah district. The number of LCOs

that experienced similar improprieties will never be known because data

from proxy questionnaires is unavailable. In 2010, the bureau must

closely monitor this data collection operation to avoid repetition of these

abuses.

Furthermore, providing timely information to the unprecedented number

of organizations that tracked the progress of the census, including GAO,

the Census Monitoring Board, and our office, proved difficult. For

2010, the bureau should be prepared for the scrutiny and interest of

outside parties and therefore should ensure effective procedures for

providing them with accurate, timely data while the decennial is being

conducted.

Lesson 10: Mitigate Potential Disruptions and

Distractions to the Work Environment and Workforce.

Although the decennial is the bureau’s most costly and labor-intensive

function, Census has other important initiatives and responsibilities that it

must handle as well. The bureau must be prepared to overcome

Economics and Statistics Administration
Commerce OIG Semiannual Report March 2002 43

challenges that affect all of its operations. Time and again, the bureau

has proven its ability to do so, and its handling of one potential problem

for the 2000 decennial showed particular foresight. The bureau needed

to hire nearly 1 million temporary employees to support decennial

operations at a time when unemployment was at historically low levels.

Concerned that it would have difficulty hiring sufficient personnel, the

bureau increased wage levels across the country. As a result of this and

other efforts, Census successfully hired enough temporary workers.

During this decade of preparation for 2010, Census must handle at least

two major challenges that could impact decennial activities. (1) The

bureau could lose, through retirement, up to half of its current decennial

staff. As soon as possible it must have strategies in place to retain

institutional knowledge and expertise so as to ensure the smooth

continuity of decennial management and operations. (2) Census is

scheduled to move into its new headquarters building in 2008. Given the

timing of the move, which is set for the same year as the planned dress

rehearsal, and the frequent delays associated with many construction

projects, the bureau must have a solid relocation plan to minimize

disruptions to its operations, and to identify and ameliorate potential

problems while keeping costs in check and decennial preparations on

track. (Office of Audits: OIG-14431)

ASPECTS OF ACCURACY AND COVERAGE EVALUATION NEED

IMPROVEMENT BEFORE 2010

During a decennial census, the Census Bureau attempts to gather

information about every resident in the country. Inevitably, some

enumerations that should be excluded (like duplicates or people

enumerated at incorrect addresses) are included, and some that should

be included are missed. The first error leads to an overcount; the

second, to an undercount. To measure these coverage errors, the

bureau conducts a separate survey known as the Accuracy and

Coverage Evaluation (A.C.E.). A.C.E. obtains an independent sample

of the population and matches it with census enumerations to identify

persons missed or incorrectly counted in the census. It is important that

the A.C.E. enumerations, or “person records,” be correctly matched

with census person records because even small mistakes can affect the

bureau’s ability to measure the overcount and undercount precisely.

Economics and Statistics Administration
 Commerce OIG Semiannual Report March 2002 44

Although the U.S. Supreme Court ruled that sampling could not be used

for congressional apportionment, it was silent on its use for state

redistricting and allocation of federal funds. The Census Bureau

therefore conducted A.C.E. and evaluated the data to determine

whether it could be released to the states for redistricting. It

subsequently recommended that the unadjusted counts be used for

redistricting and allocating federal funds because of disparities in data

from two sources: A.C.E. and population counts from the prior census,

adjusted by subsequent births, deaths, and immigration statistics.

OIG reviewed two A.C.E. components that are critical to the integrity

of the survey’s outcome: computer matching of A.C.E. enumerations

with those from the 2000 decennial (“person computer matching”) and

follow-up in the field (“person follow-up”) to attempt to resolve any

discrepancies revealed in the computer matching that analysts could not

explain. We sought to determine how efficient and effective these

operations were and how well the systems supporting them worked.

Our review revealed a number of weaknesses.

The A.C.E. independent sample may have omitted residents of

retirement homes. A.C.E. included people living in individual housing

units, such as houses, apartments, or mobile homes, but excluded

people living in group quarters (nursing homes, dormitories, prisons, and

other communal facilities). However, A.C.E. and census definitions of

group accommodations for the elderly differed, and that difference

could have skewed A.C.E. results. The census definition of group

quarters includes “nursing homes or convalescent homes” but not

“homes for the elderly.” Under this definition, a retirement home that

had separate accommodations for its occupants and direct access from

the outside of the building or through a common or public hall would

have been considered an apartment building—as containing individual

housing units—and enumerated as such in the census. A.C.E.

specifically included “homes for the elderly” in its definition of group

quarters, and thus did not enumerate them. As a result, retirement home

residents counted in the census would not have been counted in A.C.E.

We recommended that Census evaluate whether residents of retirement

homes were systemically omitted from the A.C.E. independent sample

and if so, what impact this had on estimates of the elderly population.

We also recommended that the definition of housing units, group

Economics and Statistics Administration
Commerce OIG Semiannual Report March 2002 45

quarters, and all nontraditional living situations (“special places”) be

standardized for both surveys.

The process for defining A.C.E. requirements should be

improved. Many systems designed to support various headquarters

and field operations were subsequently defined and developed for

A.C.E. However, the bureau did not always take steps to ensure that all

requirements for A.C.E. were appropriate, sufficiently defined, and

clearly communicated. Specifically, the bureau did not always follow its

own standards for developing software requirements, and sometimes

relied on dress rehearsal specifications that did not adequately define

requirements for A.C.E. In one case, it did not adequately define and

communicate the schedule for delivering census enumeration data to

A.C.E., which meant that follow-up operations were conducted late in

some high-risk areas and required extra staff to accomplish. In a second

case, the bureau provided field supervisors overseeing A.C.E. followup with laptops programmed for other surveys but not updated to

adequately support A.C.E. Finally, we found that certain requirements

for the computer matching operation could have been better defined

and documented.

We recommended that for future A.C.E. operations, the bureau

document and clearly communicate IT requirements for systems needed

to support both the census and A.C.E., improve planning for A.C.E.

field operations among its divisions and regions, better define and

document computer matching requirements, and update laptops to fully

support user needs.

Automated tools need better testing, documentation, and quality

assurance. The bureau’s use of a trusted, much-used software tool

(the “computer matcher”) and a questionnaire printing system enhanced

the efficiency of matching enumerations and producing person follow-up

questionnaires. Although the computer matcher was not newly

developed software, the bureau was using it in a new way and should

have documented the results of its testing. With respect to the

questionnaire printing system used for person follow-up, errors

occurred in production that we believe resulted from an insufficient

verification of printed questionnaire data after last minute software

changes.

Economics and Statistics Administration
 Commerce OIG Semiannual Report March 2002 46

In the future, the bureau should ensure that computer systems are

developed and modified in accordance with rigorous, documented

system and software engineering standards that, at a minimum, address

requirements specification, design and development, testing,

documentation, and quality assurance.

Quality assurance for person follow-up needs to be

automated.The bureau conducted quality assurance on selected person

follow-up questionnaires to detect interviewing problems, including data

falsification, but the system, which was added after the 1998 census

dress rehearsal, was not tested before being used in the decennial.

Tracking the quality assurance workload was paper—and labor—

intensive. For A.C.E., the bureau had planned to conduct the person

follow-up operation using a computer-assisted system similar to that

used to collect the A.C.E independent sample, but lacked the resources

to develop and appropriately test such a system.

For the 2010 decennial, the bureau should ensure the efficiency of

quality assurance procedures by integrating them into an automated

person follow-up operation.

AGENCY RESPONSE

The bureau generally agreed with all but one of our recommendations—

that A.C.E. results should be examined to determine whether retirement

home residents were systematically omitted. Bureau officials stated that

cross-checking A.C.E. data for the elderly against census data would

be difficult because the census data did not identify whether a specific

housing unit was in fact in a retirement home, and because residents

may no longer live in the housing units in question, given that 2 years

have elapsed since the decennial was conducted. The bureau added

that it is considering including group quarters in the A.C.E. for Census

2010, which should reduce the potential for this error.

We still maintain that not knowing the extent to which missed coverage

of retirement homes impacted this population’s net undercount

diminishes confidence in the A.C.E. results for the elderly. (Office of

Inspector General: OIG-14226)

Economics and Statistics Administration
Commerce OIG Semiannual Report March 2002 47

AUDIT OF THE CENSUS BUREAU’S FY 2001 FINANCIAL

STATEMENTS

For the third consecutive fiscal year, the Census Bureau received an

unqualified opinion on its financial statements. However, as in years

past, this success was tempered by continuing deficiencies in the

bureau’s internal control structure and its failure to develop and maintain

financial management systems that substantially comply with federal

requirements for such systems.

Our audit, conducted by an independent certified public accounting

firm, identified three reportable conditions, the first two of which are

material weaknesses. These same three conditions were identified as

problems in the audit of FY 2000 statements and have yet to be

resolved.

Financial systems, management, and reporting. The two material

weaknesses were in the following areas:

 Financial reporting and management. It is important to note

that Census improved its financial management and reporting

over the previous year. However, it continues to experience

significant difficulties in using CAMS to produce routine and

timely reports that meet the bureau’s internal management and

audit requirements. In addition, Census did not conduct a

sufficient, detailed supervisory review of the FY 2001 financial

statements to detect potential errors and omissions and to

ensure the statements and related footnotes were prepared in

accordance with OMB guidelines.

To correct these deficiencies, Census must continue to work

closely with the Department to fully implement Hyperion (a

software for financial reporting) and produce timely reports

from CAMS. It must also perform a more detailed supervisory

review of the financial statements.

 Account reconciliations.Certain key account balances in the

FY 2001 financial statements were not properly reconciled, and

bureau-specific feeder systems were not fully integrated or

electronically interfaced with CAMS. These weaknesses

required the bureau to conduct extensive manual account

Economics and Statistics Administration
 Commerce OIG Semiannual Report March 2002 48

reconciliations. Specifically, deferred revenue and accounts

receivable were not properly reconciled throughout the fiscal

year and at year-end, and subsidiary ledgers for undelivered

orders and accounts payable contained debit balances at a

summary fund level and offsetting credit balances at a detailed

transaction level. Census has begun eliminating these entries in

FY 2002, but further cleanup is needed.

To correct these weaknesses, the auditors recommended,

among other things, that Census perform accurate and timely

account reconciliations, and review and support these on a

monthly basis; reconcile all deferred revenue and accounts

receivable financial transactions to the general ledger on a timely

basis throughout the year; purge unmatched transactions from

the undelivered orders and accounts payable balances; and

inventory all open obligations to determine if any should be

deobligated or accrued. The auditors also recommended that

Census personnel receive training in how to determine, estimate,

and document accrued liabilities.

Information technology controls. The third repeat condition was

identified during the audit’s separate review of general controls against

the six criteria outlined in GAO’s Federal Information System

Controls Audit Manual (FISCAM): entitywide security program

planning and management; access controls; application software

development and change control; system software; segregation of

duties; and service continuity. The auditors continued to report certain

control deficiencies and identified two new weaknesses—entitywide

security planning and management, and access controls. If not resolved,

these weaknesses could adversely affect the accuracy and security of

Census data as well as the security of its programs and hardware, and

could negatively impact financial statements for both the bureau and the

Department.

Compliance with laws and regulations. The FY 2001 audit revealed

one instance of noncompliance with applicable laws and regulations:

Census’ financial management systems do not comply with system

requirements and accounting standards stipulated in the Federal

Financial Management Improvement Act of 1996. In fact, many of the

deficiencies noted in the bureau’s financial management and reporting

processes and account reconciliations (above) are the same conditions

Economics and Statistics Administration
Commerce OIG Semiannual Report March 2002 49

that rendered its financial systems noncompliant with federal

requirements.

The bureau concurred with the audit findings and recommendations

regarding general control weaknesses and reported that corrective

action is under way. However, it disagreed with the findings regarding

financial management and reporting, account reconciliations, and

noncompliance with federal laws and regulations. (Financial

Statements and Audits Division: FSD-14473-2)

Economics and Statistics Administration
 Commerce OIG Semiannual Report March 2002 50

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

ITA OPERATING UNITS NEED TO BETTER

COORDINATE TRADE COMPLIANCE ACTIVITIES

U.S. companies that want to compete effectively in today’s global business

arena often need assistance to address unfair trade practices or violations

of trade agreements, inadequate protection of intellectual property, or other

barriers to the export of goods and services. The Department of Commerce

provides such assistance through various offices in the International Trade

Administration that work with other federal agencies to monitor and

enforce trade agreements. Overall, ITA endeavors to settle trade

compliance and market access problems quickly and at the lowest level

possible, in order to avoid formal dispute settlement structures such as the

World Trade Organization, which can take years to resolve cases.

Market access and compliance work is handled by three units within

ITA: Market Access and Compliance (MAC), Trade Development, and

the U.S. and Foreign Commercial Service (US&FCS), with other

offices involved as appropriate. In response to a substantial increase in

the number and complexity of trade agreements over the years, the

Department reorganized its international economic policy staff in July

1996 to give greater focus to market access and trade compliance

issues. It created the MAC unit, and housed within that unit a new

Trade Compliance Center (TCC). The center coordinates access and

compliance efforts throughout ITA, monitors trade agreements, and

reviews compliance complaints from a variety of sources. When

warranted, the center forms a compliance team to work to resolve

complaints and achieve a satisfactory outcome for U.S. exporters.

Team members are drawn from the center and various other ITA

components.

We examined ITA’s trade compliance efforts, with a specific focus on

the activities of the TCC, to determine whether the trade agreement

compliance process, as managed by the center, was efficient, effective,

and responsive to client needs. We analyzed how the compliance

activities of the various units and the TCC could best be coordinated

and tracked so as to avoid duplication and ensure full reporting of

compliance work. We also examined whether ITA’s compliance efforts

were successful at promoting adherence to trade agreements and
Commerce OIG Semiannual Report March 2002 51

International Trade Administration

Import

Administration

Market

Access and

Compliance

U.S. and Foreign

Commercial

Service

International

Trade

Administration

addressing market access problems. Specifically, we found the

following:

Trade agreement compliance work needs better coordination

within ITA.To ensure the success of compliance activities, ITA’s

operating units must collaborate. Each has unique areas of expertise that

are important to the positive resolution of trade compliance complaints.

We found, however, that many staff members did not understand the

role of the center and thus were not making effective use of its services

in working trade compliance complaints. Moreover, organizational

rivalries among the various ITA units further hindered collaboration, as

did the lack of written guidance about the need for and importance of

working together to ensure that U.S. exporters receive complete, timely,

and accurate responses to compliance complaints. In addition, we

pointed out that the TCC lacked the authority to require cooperation

from the units, and managers in the various units did not make use of

ITA’s incentive awards program, which encourages and rewards

interunit cooperation and teamwork.

We recommended a number of actions that ITA management should

take to address these problems, including development of guidance that

clearly delineates the role of the TCC and defines the types of

complaints and issues that overseas and domestic staff from the other

ITA units should bring to the center’s attention or should coordinate

with the center to resolve. We also recommended that the center

market itself as a resource for other ITA units, and that ITA managers

use all available awards and incentives to encourage collaboration

among employees from the various components that handle compliance

work. Subsequent to our fieldwork, ITA agreed to expand its use of

awards programs to recognize team performance, and the TCC

developed a trade compliance manual and distributed it to all ITA staff.

The manual does a good job of explaining how the compliance program

works and of defining the roles of the various ITA components.

However, it does not provide clear direction on what types of

complaints require coordination between a component and the TCC.

We asked ITA to address this important issue in its action plan.

A central database of trade compliance work is needed. The TCC

is responsible for tracking ITA-wide compliance-related activities and

reporting this work monthly to the Secretary. The center relies on the

Trade

Development
 Commerce OIG Semiannual Report March 2002 52

International Trade Administration

individual units to provide information about their activities, but the units

often fail to report all of their compliance work. As a result, the reports

are incomplete. There is no single database for tracking ITA-wide

compliance activity; the units use several databases to record their own

work. Therefore, ITA should establish a single database that tracks all

compliance work conducted by the center and other ITA staff.

Subsequent to our fieldwork, MAC created a compliance database that

became operational on February 1, 2002. However, the database is

primarily used by MAC units—the country desks and the TCC; its use

in tracking market access and compliance work performed by

US&FCS and Trade Development was unclear. We asked ITA to

address this issue in its action plan.

ITA’s compliance performance measures should be reexamined.

ITA proposed two measures for assessing the effectiveness of its trade

compliance activities: (1) the number of market access and compliance

cases initiated, and (2) the dollar value of trade barriers addressed. We

understand that ITA came up with the first measure in part to encourage

staff to focus more on compliance issues, on the theory that people will

follow through on actions that are being measured. We questioned,

however, what bearing the number of initiated cases has on ITA’s goal

of ensuring fair competition in international trade. As for the second

measure, we noted that this data is difficult to collect and the values

obtained may not be reliable. In addition, US&FCS may already be

collecting and reporting this data, which would make the center’s efforts

duplicative. We recommended that ITA reexamine its market access

and trade compliance measures, with an eye to developing and

implementing measures that clearly focus on the results of compliance

efforts and the agency’s goal of ensuring fair competition in international

trade.

The TCC complaint process has improved over time, but some

aspects still require adjustment. We found that TCC’s process for

reviewing trade compliance work has improved since the center began

handling such matters in 1997. Over time, the staff’s knowledge and

experience have grown, and the results achieved by the compliance

teams have enhanced ITA’s efforts to increase access to foreign markets

and improve compliance with trade agreements. In addition, TCC staff

does a good job of tracking compliance issues and complaints, ensuring

work is accomplished, and meeting deadlines. However, we found that
Commerce OIG Semiannual Report March 2002 53

International Trade Administration

some aspects of the center and its operations require adjustment. For

example, the Rapid Response Team initiative, which calls for TCC staff

members to travel to overseas US&FCS posts to help with market

access and compliance issues, was developed without a clear plan. ITA

should reevaluate the initiative in 9 to 12 months to determine whether it

should be continued. In addition, we made recommendations to

improve the TCC web site. Some of our concerns have been addressed

by the site’s recent redesign.

US&FCS ITALY POST IS WELL RUN, BUT

NEEDS TO IMPROVE SEVERAL MANAGEMENT AND

PROGRAM PRACTICES

Italy is one of America’s most important trade partners. Its market is

mature, highly competitive, and open to innovative U.S. products,

services, and technologies. However, a sizeable trade imbalance exists

between the two countries. In 2000, for example, the United States

exported approximately $11 billion in goods to Italy, but imported

$25 billion.

US&FCS Italy is the agency’s eleventh largest overseas post, in terms of

operating budgets. The post’s resources are focused in Rome and Milan,

with smaller offices located in Florence, Naples, and Genoa. US&FCS

provides a range of assistance to American firms interested in the Italian

market, such as trade events, technical assistance, and market research.

The Omnibus Trade and Competitiveness Act of 1988 requires OIG to

periodically evaluate US&FCS overseas operations. Under this authority,

we inspected the agency’s Italy post, conducting our fieldwork from April

to June 2001. We examined the post’s management, program, financial,

and administrative practices and its coordination with other trade-related

organizations and agencies. Specifically, we sought to determine whether

the post was using its resources efficiently and effectively, meeting the

needs of U.S. exporters, helping increase U.S. export levels and market

access, and using appropriate financial management procedures.

In general, we found that US&FCS Italy is a well-run, effective

overseas operation. It delivers high-quality products and services to its

clients and has good working relationships with the U.S. embassy and
 Commerce OIG Semiannual Report March 2002 54

International Trade Administration

consulates and American

organizations located there,

such as the American Chambers

of Commerce. We did note

some weaknesses, however.

These were in certain aspects of

the post’s strategic planning

process, reporting procedures,

client follow-up, financial

operations, and information

technology infrastructure. Our

key findings and

recommendations are

summarized below.

Strategic direction and

resource management. We

noted three strategic and

resource management

processes that inhibit the post’s

efficiency and productivity. (1) The one-page strategic plan that guides

post operations, although required to be so brief by US&FCS

headquarters, lacks sufficient detail to be very useful for post

management or staff. We recommended that the post include more

specifics about how it intends to attain its goals. (2) US&FCS Italy

currently uses an ad hoc approach to allocating resources. It needs to

develop a countrywide strategy for resource allocation that is based on

strategic goals and priorities. (3) The post has not developed ways to

deal with the explosive growth in e-mail requests for information and

assistance from outside entities. Post management claimed that this

workload increase has hurt the post’s core services and quality control

over work products. US&FCS Italy must develop policies and

strategies to deal with the e-mailworkload efficiently and maintain

quality operations overall.

Reporting of export successes. US&FCS Italy’s procedures for

reporting activities, particularly export successes, do not meet

established agency criteria, and reports are often inconsistent and

inaccurate. For example, 19 percent of the export success entries in the

post’s Client Management System (CMS) database that we reviewed

did not meet US&FCS criteria, and the post’s tallies of its performance

US&FCS Italy

Source: OIG

US&FCS Italy’s five offices are

strategically located throughout

the country to provide support to

U.S. firms seeking access to the

Italian market.
Commerce OIG Semiannual Report March 2002 55

International Trade Administration

often differed from those contained in headquarters’ databases. CMS

may therefore not be a reliable gauge of the post’s performance—a

problem we suspect is primarily the result of weak internal controls or

inadequate oversight of export success reporting by both the post and

US&FCS headquarters.

Systematic client follow-up. US&FCS Italy does not systematically

follow up with clients, as required by US&FCS policy, to track their

satisfaction with services rendered, monitor the outcome of their export

activity, and determine whether they require further assistance. Post staff

indicated that other, higher priorities generally take the time that might

otherwise be spent following up with clients. By failing to conduct

systematic client follow-up, US&FCS Italy may be overlooking

opportunities to capture valuable customer feedback on the post’s

products and services, and may be missing potential “export

successes”—a key measure of the post’s performance.

Collections management. The US&FCS Rome office does not make

weekly deposits of revenue from trade services or product sales, as

required by ITA policy and U.S. Treasury regulations. Instead, the

office accumulates this revenue until it totals $100 in order to minimize

processing costs. Although the practice makes sense, the post should

request a waiver from the current ITA and Treasury policy rather than

simply ignore it.

Also, to comply with ITA regulations, US&FCS Rome must further

segregate collection responsibilities among staff to safeguard against

misuse of receipts and ensure accurate reporting of income.

Use of trade event funds to purchase capital assets. The post used

some funds generated from trade events to purchase capital assets

without proper authorization to do so. ITA does permit these funds to

be used in this way—as long as the purchase supports the post’s trade

events program—but has specific authorization policies for capital

equipment purchases. We found that the Italy post did not consistently

follow these policies, although all purchases did support the trade events

program. Post management must ensure that requests to use these funds

for capital equipment purchases are submitted to the appropriate

headquarters officials.
 Commerce OIG Semiannual Report March 2002 56

International Trade Administration

Cost allocation system. US&FCS Milan does not have an effective

cost allocation system to identify and allocate direct and indirect costs

between fee-for-service expenditures and operations and administration

costs. Without such a system, US&FCS Italy cannot determine the full

cost of trade events and, by extension, whether fees collected recover

the full cost of those events, as required.

Information technology. The post has a myriad of IT support and

infrastructure problems that could hinder operations. For example, the

Client Management System frequently malfunctions, and there is

inadequate local technical support for IT systems.

A fully functioning information technology infrastructure and support

system are critical to maintaining the post’s operations and ensuring its

peak performance. US&FCS Italy must work with the ITA Office of

the Chief Information Officer to find viable, cost-effective solutions to

the multitude of IT problems it faces.

We made a total of 34 recommendations to address these and other

deficiencies we noted. The director general of US&FCS generally

concurred with them, cited many instances in which the post and

US&FCS headquarters have already taken action, and noted other

areas in which corrective action is planned. (Office of Inspections and

Program Evaluation: IPE-14243)
Commerce OIG Semiannual Report March 2002 57

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 oceans and

inland waters, Earth’s lower and

upper atmosphere, and space

environment.

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—

NOAA’s Commissioned Corps.

OIG INSPECTIONS OF WEATHER FORECAST

OFFICES CONTINUE

The National Weather Service’s 121 weather forecast offices (WFOs)

provide weather information services and products for local, national,

and international users. Through a variety of technologies (including

radar, satellites, and automated surface observing systems) and

programs, WFOs provide warnings and continuous updates of weather

conditions and impacts, particularly in relation to severe weather—

tornadoes, severe thunderstorms, floods, hurricanes, extreme winter

weather, and intense summer heat.

Since 2000, OIG has been conducting inspections of WFOs

nationwide. The first three were conducted at Raleigh, North Carolina

(see September 2000 issue, page 52), Missoula, Montana, and San

Angelo, Texas (see September 2001 issue, pages 43-49). During this

semiannual period, OIG completed its fourth WFO inspection, this one

in Minnesota.

Chanhassen, Minnesota

The Chanhassen, Minnesota, WFO staff of 25 is responsible for a

warning area covering 51 counties in southern and central Minnesota

and west central Wisconsin. In May 2000, NWS implemented the

Advanced Weather Interactive Processing System in Chanhassen to

integrate NWS’s meteorological and hydrological data with its satellite

and radar data, enabling forecasters to prepare and issue more accurate

and timely forecasts and warnings.

From August through November 2001, we conducted an inspection of

the Chanhassen WFO to determine how effectively it (1) delivers

warnings, forecasts, and other information to its service users;

(2) coordinates its activities with state and local emergency managers;

and (3) supervises its network of observers and volunteer spotters. We

also assessed the office’s management and internal controls; its
 Commerce OIG Semiannual Report March 2002 58

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

compliance with Department, NOAA, and NWS policies and

procedures; and the effectiveness of NWS’ regional oversight.

We found that the Chanhassen office generally provides excellent

weather products and drew the following conclusions:

 the WFO’s weather forecasts and warnings are timely and accurate,

except that, in general, lead time for flash-flood warnings is

significantly shorter than times provided by other area weather

offices;

 the Outreach Program to emergency managers, the media, local

schools, and community groups is effective and popular;

 the Skywarn and Cooperative Observer Programs are well run and

particularly successful as a result of staff outreach to the community,

but the Cooperative Observer Program may, because of staff

attrition, face a future decline in support;

 information technology resources are well maintained; and

 Chanhassen’s statewide forecast contains

information that is readily available from other

sources.

We also, however, found managerial and

administrative deficiencies that need prompt

attention by NWS and WFO managers:

 the office’s training program could be

improved by giving staff a more comprehensive

list of available training and ensuring that all staff

have a completed individual development plan;

 administrative operations lack adequate internal

controls to ensure proper use of purchase cards

and convenience checks, and accurate

inventories of accountable property; and

 regional oversight should be improved by

having the Central Region Headquarters in

Kansas City conduct on-site reviews of

management, program, technical, and

administrative operations.

Source: www.nws.noaa.gov

CHANHASSEN, MINNESOTA,

WFO SERVICE AREA
Commerce OIG Semiannual Report March 2002 59

National Oceanic and Atmospheric Administration

Recommendations Summary

To address the deficiencies we noted, we recommended that the

assistant administrator for NWS instruct the regional director to (1)

work with Chanhassen forecasters and Central Region staff to

determine how best to increase the lead time for flash-flood warnings;

(2) ensure that the Cooperative Observer Program is adequately

supported by trained staff, given anticipated attrition; (3) ensure that the

meteorologist-in-charge, the administrative support assistant, and all

appropriate staff receive necessary training in the use of purchase cards

and convenience checks, and in tracking accountable property;

(4) develop a schedule to periodically visit the Chanhassen and other

Central Region WFOs to comprehensively review their programs,

management, and technical and administrative operations; and

(5) evaluate the costs and benefits of producing the statewide forecast

and decide how or whether it should be continued.

In addition, we recommended that the regional director instruct the

meteorologist-in-charge to (1) implement individual development plans

for all Chanhassen employees and ensure that all have access to and

information about appropriate training courses; (2) ensure that adequate

internal controls are in place regarding the use of purchase cards and

convenience checks and that all uses are in accordance with

departmental and NOAA guidelines; (3) evaluate reducing the number

of purchase card holders; and (4) secure sensitive property and

maintain an accurate, complete, and official inventory.

NOAA concurred with all of our recommendations and has already

acted on three of them. Specific to the question of duplicative statewide

forecasts, Chanhassen canvassed its users and found that its forecast is

still a valued product it should continue to produce. NOAA has

developed an implementation plan for the remaining six

recommendations. (Office of Inspections and Program Evaluations:

IPE-14423)

AUDIT OF NOAA’S FY 2001 FINANCIAL

STATEMENTS

For the third year running, NOAA received an unqualified opinion on its

consolidated financial statements. The FY 2001 audit was conducted by

an independent certified public accounting firm under contract with OIG.
 Commerce OIG Semiannual Report March 2002 60

National Oceanic and Atmospheric Administration

The auditor’s assessment of internal control (including IT controls) over

financial reporting identified one new condition and two repeat

conditions, none of which is a material weakness.

Financial Systems, Management, and Reporting

The two conditions identified in this portion of the audit are as follows:

 Accounting for construction work in progress (CWIP)

should be improved (new). NOAA has made improvements

in its accounting for CWIP over the past few years; however,

we noted certain deficiencies in FY 2001 regarding NOAA’s

monitoring and accounting for CWIP that need to be resolved.

During FY 2001, NOAA did not receive detailed spreadsheets

for certain construction projects to complete year-end

reconciliation of costs; many of those it did receive were late

and incomplete, and often contained inconsistent information

from one to another. The auditing firm and the NOAA Finance

Office had to conduct extensive research to resolve

discrepancies and collect complete information, and ultimately

had to make numerous adjustments to the financial statements.

To avoid this situation in the future, the independent auditor

recommended that NOAA take steps to ensure that CWIP

managers enforce policies and procedures for providing

complete documentation and improve their oversight of these

processes.

 Controls over monitoring the budget should be improved

(repeat). Although NOAA has implemented certain manual

procedures to detect overobligations, it needs to automate

procedures or system controls within its accounting system

(known as the Financial Management System, or FIMA) to

prevent overobligation of apportioned funds. Currently, NOAA

relies on budget officers and program managers to detect

overobligations by reconciling entries in FIMA against available

funds—which means that the overobligation is only revealed

after the fact. An automated system would allow for features to

alert budget officers to a given entry or request that would

exceed available funds before the funds are promised.
Commerce OIG Semiannual Report March 2002 61

National Oceanic and Atmospheric Administration

Information technology controls

The repeat condition identified in the assessment of IT controls was the

failure of NOAA’s accounting system (including CAMS) to meet five of

the six criteria outlined in GAO’s Federal Information System

Controls Audit Manual (FISCAM): entitywide security program

planning and management; access controls; application software

development and change control; segregation of duties; and service

continuity. No deficiencies were noted in system software.

Compliance with laws and regulations

The review of NOAA’s compliance with applicable laws and regulations

identified two matters, both of which were cited in the prior-year audit:

(1) NOAA again did not fully fund its capital leases during FY 2001;

and (2) its financial management systems still do not comply with federal

requirements for such systems because they do not adequately support

the budget execution process or the preparation of timely and accurate

financial statements via an integrated system.

NOAA’s Response

NOAA concurred with the findings and recommendations contained in

the audit report and commented that certain of them will be resolved as

CAMS implementation proceeds. The agency is taking action to correct

other deficiencies. (Financial Statements and Audits Division: FSD14475-2)
 Commerce OIG Semiannual Report March 2002 62

Technology Administration

The Technology Administration

serves the needs of technologybased industry, advocates federal

actions and policies to speed the

transfer of technology from the

laboratory to the marketplace, and

removes barriers for commercializing new technologies by

industry. It includes three major

organizations:

Office of Technology Policy

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

that stimulates innovation and

discovery. NTIS accomplishes this

mission through two major

programs: information collection

and dissemination to the public,

and information and production

services to federal agencies.

By partnering with industry, NIST seeks to tap private sector creativity to

bring promising innovations to market swiftly and helps firms modernize,

improve productivity, and enhance efficiency to achieve or maintain a

competitive advantage.

The Advanced Technology Program (ATP)

and the Manufacturing

Extension Partnership

(MEP) program

both support this

collaborative relationship.

ATP uses an early

stage investment strategy to accelerate development of innovative

technologies that offer

significant commercial payoffs and widespread benefits for the nation.

MEP—a nationwide network of more than 400 nonprofit centers—

provides small and medium-sized manufacturers with the technical and

business assistance they need to succeed.

During this semiannual reporting period, we conducted audits of four

ATP awards and two MEP cooperative agreements. Our findings of

inadequate financial management and improper claims resulted in our

questioning $900,000 in federal claimed costs and recommending

$400,000 in funds to be put to better use.

ADVANCED TECHNOLOGY PROGRAM (ATP)

AWARDEE’S FINANCIAL MANAGEMENT SYSTEM FAILED TO

MEET MINIMUM REQUIREMENTS

An ATP cooperative agreement to fund a 3-year research project was

awarded to a Massachusetts firm in September 2001. The budget

called for federal funding of $1,890,596 for direct costs of the project,

with first-year funding of $570,449.

Percent of Technologies Funded 

of First 50 Completed Projects

Information technology

12%

Manufacturing

22%

Biotechnology

14%

Advanced materials/chemicals

14%

Electronics/computer 

hardware/communications

38%

Source: www.atp.nist.gov/eao/factsheet/facts-01.htm

 Commerce OIG Semiannual Report March 2002 64

date, and (3) identify any instances of noncompliance with the award

terms and conditions. We determined that the firm’s financial

management system was not adequate for purposes of the award. We

also questioned $61,465 in claimed costs.

We recommended that NIST require the firm to implement a project

cost accounting system that segregates the cost of each project and

allocates indirect costs to research projects, disallow questioned costs

of $61,425, and recover $30,425 in excess federal disbursements.

(Denver Regional Office of Audits: DEN-14403)

QUESTIONED COSTS TOTALING NEARLY $400,000 AND

COMPLIANCE ISSUES ARE UNCOVERED DURING AUDIT

In September 2000, NIST awarded an ATP cooperative agreement to

a California company. Total estimated costs for the 3-year project were

$7,926,506, with the total federal funding not to exceed $2,000,000,

and a first-year limit of $1,246,549. The company submitted two

requests to NIST for reimbursement totaling $493,551.

We conducted an interim audit of the award and found that the

company’s accounting system was generally adequate for purposes of

the award and that the firm was adhering to award terms and conditions

in all material respects. Our audit disclosed, however, $395,208 of

questioned costs, including $393,937 for general and administrative

costs not applicable to the ATP award. We also noted several

compliance issues that needed to be corrected, including the failure to

have adequate agreements in place for three subcontractors.

We recommended that NIST disallow the $395,208 in questioned

costs, recover disbursed federal funds totaling $182,780, and require

the firm to correct its current subcontract agreements. (Denver

Regional Office of Audits: DEN-14516-2)

AUDIT OF ADMINISTRATOR OF $10 MILLION JOINT VENTURE

PROJECT DISCLOSES NO COST OR COMPLIANCE ISSUES

We audited the operations and records of the joint venture administrator

for a $4.8 million ATP cooperative agreement awarded in 1997 to a

consortium located in California. The award was intended to partially

fund a proposed 2-year, $10,155,543 project. The original project

Technology Administration
Commerce OIG Semiannual Report March 2002 65

period was extended to June 30, 2000, at no additional cost to the

federal government.

Our audit verified that the records were adequate to support the major

elements of costs claimed and did not find any cost issues. We noted no

other audit issues related to award compliance or project performance.

(Seattle Regional Office of Audits: STL-14370-2)

MANUFACTURING EXTENSION PARTNERSHIP

(MEP)

MORE THAN $2.5 MILLION IN QUESTIONED COSTS FOUND

An MEP cooperative agreement was awarded to a nonprofit

corporation in 1999 to provide manufacturing extension services to

small and mid-size businesses in a designated service area in Utah.

Total estimated costs for the 2-year award period were $6,670,892

with federal funding not to exceed $2,240,713 or 33.6 percent of

allowable costs. The award recipient is located on a college campus,

and all project costs are processed through the institution’s accounting

system.

In April 2000, we received a request from the NIST Grants Office to

examine the recipient’s use of the college’s indirect cost rate. During the

course of our limited-scope audit, it became apparent that the

organization had not based its claimed costs on actual costs incurred for

the program. When we advised corporation officials of our concerns in

this regard, they elected to amend their claims. In August 2001, the

recipient submitted two revised requests for reimbursement, claiming

total costs of $7,271,330 including a federal share of $2,240,713.

In November 2001, we returned to complete our original review and to

conduct a cost and compliance audit of the award. We determined that

program income had not been reported accurately and that the

recipient’s revised claims included questioned costs of $2,538,305

including (1) $1,482,551 in costs that were not adequately supported,

Technology Administration
 Commerce OIG Semiannual Report March 2002 66

(2) $1,003,854 in contract costs that were outside the scope of the

NIST award, (3) $4,380 in unapproved foreign travel costs,

(4) $20,700 in duplicate claims, and (5) $26,820 in other unallowable

costs.

We recommended that NIST disallow the questioned costs and recover

$650,417 in excess federal disbursements. (Denver Regional Office of

Audits: DEN-13088)

MEP RECIPIENT’S IMPROVED FINANCIAL MANAGEMENT

SYSTEM GENERALLY COMPLIES WITH REGULATIONS AND

REQUIREMENTS

In December 1995, NIST awarded a 5-year MEP cooperative

agreement to a nonprofit corporation located in Puerto Rico to provide

manufacturing assistance to small and medium-sized manufacturers.

Estimated costs for the award period—January 1, 1996, through June

30, 2001—were $5,345,774 with the federal share not to exceed

$2,312,186.

We conducted an interim financial and compliance audit of costs

claimed during the fifth year and found that the recipient’s financial

management system generally complied with federal regulations and

MEP requirements. Three areas, however, required improvement:

(1) unnecessary general ledger expense accounts, (2) overdue accounts

payable, and (3) program income reporting. Based on the organization’s

response to our draft audit report, we are satisfied that appropriate

actions were under way to improve its financial management system,

and we made no recommendations in that regard in our final report. We

did, however, question a total of $38,425 in claimed costs, and

recommended that NIST recover $27,485 in excess federal

disbursements. (Denver Regional Office of Audits: DEN-14275-2)

OIG REVIEWS ATP PROGRAM-SPECIFIC AUDITS

PERFORMED BY PUBLIC ACCOUNTANTS

During this semiannual period, OIG reviewed 83 audit reports from

independent public accountants that performed program-specific audits

of ATP research and development awards made to for-profit

companies. The audited dollars in these reports totaled $121,213,193.

Technology Administration
Commerce OIG Semiannual Report March 2002 67

Ten of the 83 reports we examined had questioned costs totaling

$3,778,301. The federal portion of the questioned costs amounted to

$1,648,457 and resulted from violations of cost principles established

by federal acquisition regulations and other terms and conditions of the

ATP awards. A complete list of the audit reports is included in

Appendix B-1. Below are summaries of some of the significant findings:

 A Delaware company charged $639,834 in indirect costs to the

project in excess of the approved indirect cost budget.

 A California company incurred $1,066,617 in subcontracting

costs without obtaining required approvals from the NIST

Grants Office.

 A Pennsylvania company overstated its direct costs by

$533,468 because direct labor was charged at average rates

and not actual rates. The company also overstated indirect

costs by $368,841 by using previously approved rates rather

than current rates.

 A Massachusetts company overstated direct salary and fringe

benefit costs by $124,012 because it charged too great a

percentage of certain employees’ time to the award.

In addition to the 10 reports that had questioned costs, we reviewed and

informed NIST of another 19 that included administrative findings. The

two most common administrative findings reported by the independent

public accountants were (1) failure to maintain written procurement policies

and procedures that conform to federal procurement standards and

(2) failure to include provisions in subcontracts requiring subcontractors

to adhere to federal laws and regulations. The remaining 54 audit reports

reviewed did not include any findings.

NIST’S REPORTING OF PERFORMANCE

MEASURES NEEDS IMPROVEMENT

Our evaluation of NIST’s procedures for measuring and reporting

performance was the second of two such audits we completed during this

semiannual period, in assessing the Department’s efforts to comply with

the Government Performance and Results Act. (See USPTO, page 71.)

Technology Administration
 Commerce OIG Semiannual Report March 2002 68

We conducted fieldwork from July to

December 2001 and submitted our final

report in March 2002.

Commerce submits NIST’s performance

information as part of its Departmentwide performance and accountability

reports. The Department includes in

those reports the following goals that are

specific to NIST:

 Provide technical leadership for

 the nation’s measurement and

 standards infrastructure and ensure

 the availability of essential

 reference data and measurement

 capabilities.

 Accelerate technological innovation and development of new

 technologies that will underpin economic growth.

 Improve the technological capability, productivity, and

 competitiveness of small manufacturers.

NIST has implemented a comprehensive set of performance measures

that include a range of indicators to assess progress in meeting bureau

goals: output and outcome measures, peer reviews, and impact studies,

to name a few. NIST collects data and reports on 15 measures,

including (1) the number of technical publications produced,

(2) cumulative number of technologies under commercialization,

(3) cumulative number of patents filed, and (4) increased sales

attributed to assistance from the Manufacturing Extension Partnership

(MEP) program. We limited our review to these four measures as they

pertain to MEP, NIST laboratories, and the Advanced Technology

Program (ATP). We evaluated NIST’s reporting of performance

information in documents submitted to meet GPRA requirements as well

as the adequacy of internal controls for ensuring the data’s accuracy,

consistency, and reliability.

While we found that the bureau had a comprehensive approach to

reporting results, we noted several deficiencies.

Technology Administration

Source: www.nist.gov/public_affairs/

budget/budgetpiechart.htm

OIG assessed performance measures that

pertain to NIST laboratories, MEP, and

ATP. These three operations account for

nearly three-fourths of NIST’s budgetary

resources. *Baldrige National Quality

Award Program
Commerce OIG Semiannual Report March 2002 69

MEP. NIST’s reporting of MEP performance to quantify its assistance

to small manufacturers includes data for clients of all sizes, and the data

it collects regarding increased sales attributable to MEP assistance is

unverifiable. The bureau must restate its performance goal to reflect the

data reported and clearly articulate which percentages of claimed results

do not come from small manufacturers, or report only the data that

pertains to the goal. It must also implement procedures for ensuring that

sales information collected from program awardees is verified.

NIST laboratories. The labs slightly understate the number of

technical publications they produce because for certain years, they do

not include documents produced at two of their locations. Also, the

measure’s use of the term “publication” is misleading because the

manuscripts counted have not necessarily been published. The bureau

must improve its collection methods to ensure that data is consistently

gathered from all labs, and revise the discussion of the measure with

terminology that reflects the fact that unpublished documents are

included in the count.

ATP.Reported results for cumulative numbers of patents filed for fiscal

years 1998 and 1999 were slightly overstated because the results

included copyrights. Additionally, the bureau reports cumulative

numbers of patents and cumulative technologies under

commercialization on a multiyear rather than a current-year basis, which

does not permit comparison against its annual budget. Again, the bureau

should either revise its reporting procedures to include cumulative ATP

expenditures that match the multiyear accounting of patents and

technologies or provide single-year totals for these measures.

The director of NIST generally agreed with our recommendations and

noted that the bureau was already exploring ways to improve

performance measurement and reporting systems, and had taken steps

to revise the text of performance reports to accurately reflect the data

collected. (Financial Statements and Audits Division: FSD-14430)

Technology Administration
 Commerce OIG Semiannual Report March 2002 70

AUDIT OF NTIS’ FY 2001 FINANCIAL

STATEMENTS

NTIS received an unqualified opinion on its fiscal year 2001 financial

statements—the ninth year in a row for this accomplishment. The

independent certified public accounting firm that performed the audit

found no material weaknesses in the bureau’s internal controls over

financial reporting and no instances of noncompliance with laws and

regulations.

INFORMATION TECHNOLOGY CONTROLS

In conjunction with the review of financial statements, the auditors

assessed the adequacy of IT controls associated with NTIS’

information systems against the six criteria outlined in GAO’s Federal

Information System Controls Audit Manual: entitywide security

program planning and management; access controls; application

software development and change control; system software;

segregation of duties; and service continuity. While it found no new

weaknesses in the integrity of these controls, it reissued four outstanding

findings still unresolved from FY 1999 in the areas of access control,

application software development and change control, and service

continuity.It reiterated its FY 1999 recommendations for correcting

these weaknesses, with modifications to reflect changes in the bureau’s

computing environment.

These internal control weaknesses continue to pose a threat to the

security of NTIS’ data, programs, and hardware, and could have a

negative effect on the financial statements of both the bureau and the

Department. (Financial Statements and Audits Division: FSD14476-2)

Technology Administration
Commerce OIG Semiannual Report 71 March 2002

United States Patent

and Trademark Office

The United States Patent and

Trademark Office administers the

nation’s patent and trademark

laws. Patents are granted, and

trademarks registered, under a

system intended to provide

incentives to invent, to invest in

research, to commercialize new

technology, and to draw attention

to inventions that would otherwise

go unnoticed. USPTO also

collects, assembles, publishes, and

disseminates technological

information disclosed in patents.

WHILE PATENT APPLICATIONS INCREASE,

EXAMINERS NEEDED TO PROCESS THEM

DECREASE

The number of patent applications filed has been growing rapidly for

several years, and this trend is expected to continue. In FY 2000,

USPTO received 293,244 patent applications, a 12.3 percent increase

over FY 1999. For fiscal year 2001, the number of patent applications

rose another 11 percent, roughly the same as is expected in fiscal year

2002. To keep up with the increasing number of patent applications,

USPTO is attempting to increase the number of patent examiners.

However, high attrition rates have been a concern for the agency for

some time. They rose steadily from 6.8 percent in FY 1993 to

13.4 percent in FY 2000. Of particular concern is

the number of examiners who leave during their first

few years of USPTO employment. Between fiscal

years 1990 and 2000, 56 percent of attrition was

among examiners in their first 3 years with the

agency; 30 percent left within their first year. The

loss of these employees within such a short period is

especially troubling because USPTO makes a

sizable investment in training new employees.

In December 2001, we completed an audit to

determine whether USPTO’s attrition rates could be

reduced through improved hiring and retention

practices. Our review focused on two patent

examiner work groups: the group with the lowest

attrition rate and another that had a rate among the

highest during FY 2000.

Our review confirmed what other studies had shown—that job

dissatisfaction, poor performance, and higher pay are the primary

reasons why patent examiners leave USPTO. Patent examination

requires individuals with a variety of unique skills, particularly technical

expertise in such areas as engineering, computer science, and law.

Competition from private industry and other federal agencies for this

highly skilled group is strong, and the pool of eligible workers is

Rate of Patent Examiner Attrition 

FY 1990-2000

0%

2%

4%

6%

8%

10%

12%

14%

16%

FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00

Source: USPTO

Unacceptably high rates of attrition among

patent examiners plagued USPTO throughout the1990s and continue unabated. The

bureau is attempting to counter the problem with better screening methods, flexible work schedules, and more competitive

salaries and benefits.
Commerce OIG Semiannual Report 72 March 2002

United States Patent and Trademark Office

 Patents Trademarks

 CFO/Chief

Administrative

Officer

Chief

Information

Officer

U.S. Patent and

Trademark

Office

External

Affairs

 General

Counsel

Quality

Management

and Training

relatively small. USPTO’s ability to retain highly skilled patent

professionals is also hampered by lower-than-private-sector salaries and

job pressure, including the need to meet rigorous production standards.

The agency has begun a series of initiatives to improve patent examiner

recruitment and retention. For example, the Office of Personnel

Management has authorized special salary rates for patent examiners,

and USPTO has implemented numerous family friendly programs, such

as more flexible work hours, to encourage examiners to stay. A special

pilot telework program is also being evaluated.

Although not much more can be done to reduce the number of

employees leaving for higher pay, we believe that attrition resulting from

job dissatisfaction and terminations resulting from poor performance can

be reduced through an improved screening process during the hiring

phase. We therefore recommended that the agency reexamine its

process and determine whether recruiting techniques can be developed

to (1) better identify applicants best suited for examiner positions and (2)

better inform applicants about USPTO’s production-oriented work

environment. (Business and Trade Audits Division: BTD-14432-2)

MINOR IMPROVEMENTS NEEDED IN REPORTING

PERFORMANCE RESULTS

GPRA was enacted to improve federal programs’ effectiveness,

efficiency, and accountability to Congress and to the American public. It

requires federal agencies to set goals for program performance and to

annually compare their performance against those goals and report the

results. Each year, all agencies gather from their units and bureaus the

measurement data to be used to quantify and qualify their previous year’s

accomplishments. To be useful, however, the data has to be accurate,

timely, comprehensive, and credible.

To ensure that the data users, such as Congress and OMB, can have

confidence in the reported performance information, GPRA requires data

verification and validation as quality control measures. During this last

reporting period, we examined USPTO’s efforts to ensure that its

reported performance results are reliable.
Commerce OIG Semiannual Report 73 March 2002

We performed our audit from July to September 2001. Our final report,

issued in March 2002, notes USPTO’s strong commitment to report

accurate data but also recommends that the bureau take additional

steps to enhance the credibility of its data.

For example, one area of responsibility on which USPTO is measured

is its outreach efforts to developing countries. USPTO conducts

seminars and provides technical training to officials from those countries

on how to reform their intellectual property structures to comply with

World Trade Organization provisions. Measurements used to quantify

these training/technical assistance activities include the number of (1)

sessions performed at USPTO, (2) sessions performed in developing

countries, (3) radio or televised broadcasts to developing countries, and

(4) instances of legal advice provided.

Yet, USPTO has no clear criteria for determining which countries

qualify as “developing.” USPTO’s list of developing countries for a

given reporting period may come from one of a variety of sources—the

United Nations, the World Bank, the Department of State—and varies

year to year depending on the source and the country’s development

status. Because no one source was consistently used, and because

USPTO did not consistently use the most current list from any of the

sources, the reported data could have been misinterpreted.

As a result of our finding, we recommended that USPTO ensure that

criteria used to measure technical assistance to developing countries

clearly document and update on a regular basis those countries eligible

to be on USPTO’s developing countries list.

In responding to our report, USPTO agreed with our recommendation,

and the agency’s Office of Legislative and International Affairs is now

updating the list of developing countries on a regular basis and

documenting additions or deletions as needed.

United States Patent and Trademark Office
Commerce OIG Semiannual Report 74 March 2002

GUIDANCE FROM SENIOR MANAGEMENT COULD

STRENGTHEN USPTO’S INFORMATION

SECURITY PROGRAM

USPTO’s day-to-day operations increasingly depend on information

technology: patent and trademark applications are filed, fees are paid,

and some USPTO employees telework via the Internet, and these are

only a few examples of the impact IT has on the agency. Information

technology promises to improve and expand delivery of USPTO

services, but expanded delivery also increases the vulnerability of and

risk to USPTO’s computer systems and networks. Greater access

escalates the risk of unauthorized access and exposure of USPTO’s

data to improper disclosure or modification.

Under GISRA, each agency head is charged with ensuring the security

of information and information systems by promoting security as an

integral component of that agency’s business operations. From October

through December 2001, we evaluated USPTO’s information security

program for unclassified systems to determine whether it complies with

GISRA, which mandates that federal agencies have effective security

for the information resources supporting their operations and assets.

Our findings suggest that information security has not yet become an

integral part of USPTO’s business operations. As a result, fundamental

responsibilities are frequently not carried out.

We evaluated USPTO’s information security policies and procedures,

roles and responsibilities, and adherence to applicable laws, regulations,

and guidance and found that although USPTO generally has

documented policies and procedures in place that are consistent with

accepted security practices, many other important security requirements

are not satisfied. Our evaluation identified the following issues:

 Eighty-two percent of USPTO’s 78 operational systems do not

have documented risk assessments, 30 percent of its security plans

are outdated, and none of its operational systems have current

accreditation3

 as required by OMB. Lack of accreditation means

that USPTO management has not officially authorized any of these

systems for use. Moreover, USPTO officials do not conduct

periodic reviews of information policies and security controls and

techniques.

3Accreditation is the formal

authorization by management for

system operation, including an

explicit acceptance of risk.

United States Patent and Trademark Office
Commerce OIG Semiannual Report 75 March 2002

 USPTO provides information security-awareness training to new

employees, but does not have a program to provide appropriate

training and education to personnel who need specialized security

skills and competencies. Thus, USPTO cannot ensure that

employees who have significant security responsibilities understand

or apply effective information security practices.

 USPTO’s incident response procedures do not include any

requirement to report incidents to GSA, as required by GISRA and

OMB.

 USPTO’s funding requests for information

security do not appear to be based on a

thorough analysis of its security needs or the

cost of satisfying them.

 Although senior management’s awareness

and support are essential to establishing the

environment and ensuring the resources

needed to promote an effective information

security program, such awareness and

support have been minimal and senior

management’s proactive involvement is

absent.

We made numerous recommendations for improving information

security at USPTO. Most important is our recommendation that the

Under Secretary of Commerce for Intellectual Property and Director of

USPTO ensure that senior management officials give information

security high priority, sufficient resources, and their personal attention

and that they work closely with their CIO to improve information

security at the agency.

In response, USPTO agreed with all of our recommendations and

described corrective actions it is taking or has planned. The Under

Secretary affirmed the agency’s commitment to develop a strong

information security program to protect the information assets of

USPTO and its customers. As regards accreditation, the response

indicated that whether the agency can complete system accreditations

according to the timetable we recommended depends on the resources

required and their availability. Because of the importance of

0%

20%

40%

60%

80%

100%

Risk

Assessments

Security

Plans

Systems

Accredited

% Incomplete

% Completed

Source: OIG. Status of USPTO’s

Key Infor-mation Security

Management Controls. Lack of

documented risk assessments,

outmoded security plans, and no

accreditation leave USPTO’s 78

systems’ vulnerability in question.

United States Patent and Trademark Office
Commerce OIG Semiannual Report 76 March 2002

accreditation in ensuring that operational systems are adequately

protected, we urge USPTO, when allocating resources, to give this

matter high priority. Since our evaluation, the agency has been making a

concerted effort to improve information security, devoting increased

management attention and resources to this area and taking steps to

implement policies and procedures to enhance the integrity and

confidentiality of its information assets. (Office of Systems

Evaluations: OSE-14816)

Audit of USPTO’s FY 2001 Financial

Statements

In FY 2001, USPTO received an unqualified opinion on its financial

statements from the independent certified public accounting firm that

conducted the audit. The audit identified no reportable conditions in its

internal controls over financial reporting or instances of noncompliance

with laws and regulations. USPTO has received clean opinions for the

last 8 years.

INFORMATION TECHNOLOGY CONTROLS

As part of the overall audit, the auditors conducted separate reviews of

the bureau’s IT controls. The first review assessed USPTO’s financial

management systems against the six criteria outlined in GAO’s Federal

Information System Controls Audit Manual (entitywide security

program planning and management; access controls; application

software development and change control; system software; segregation

of duties; and service continuity). The review identified one new

weakness in entitywide security program planning and management, and

noted that two weaknesses identified in the FY 2000 audit remained

unresolved. These were in the areas of access control and service

continuity.

In the second IT review, the auditors assessed whether the financial

management systems were vulnerable to unauthorized access. They

identified two new weaknesses in access controls and made five

recommendations to address them. (Financial Statements and Audits

Division: FSD-14477-2)

United States Patent and Trademark Office
Commerce OIG Semiannual Report March 2002 77

Department-wide Management

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

VULNERABILITIES IN EMERGENCY

PREPAREDNESS AND PHYSICAL SECURITY ARE

EVIDENT AT MANY COMMERCE FACILITIES

The intensified national focus on personal and homeland security has

prompted all federal agencies to reconsider the safety of their facilities

and the adequacy of their emergency procedures. During this

semiannual period, OIG evaluated emergency preparedness and

physical security measures at 27 Commerce facilities (see map on the

following page), including the Department’s headquarters (Herbert C.

Hoover Building) in Washington, D.C., to quickly determine the

following for each site:

1. The level of emergency preparedness. We ascertained whether

facilities had viable Continuity of Operations Plans (COOPs),

Occupant Emergency Plans (OEPs), or similar guidance, and

emergency response structures in place.

2. The status of physical security. We assessed the extent to which

each site conforms to the minimum standards for physical

security established by the Department of Justice in 1995

(designed to ensure that federal facilities prevent unauthorized

access and protect personnel, assets, and sensitive

information). We identified specific vulnerabilities in security

frameworks at individual locations.

3. Agency and facility responses to the events of September 11,

2001, including changes in and new initiatives for emergency

preparedness and physical security. We also looked to see

whether there were any best practices or specific lessons

learned from the Department’s handling of the events on

September 11 and emergency preparedness initiatives taken

since then.
 Commerce OIG Semiannual Report March 2002 78

Department-wide Management

Source: OIG

Commerce sites surveyed by OIG inspection teams. Every facility—from NOAA ships to Department

headquarters—had some physical security weaknesses, and many had emergency preparedness

vulnerabilities.
Commerce OIG Semiannual Report March 2002 79

Department-wide Management

We found that, to a greater or lesser degree, all sites we visited have

devoted more attention and resources to emergency procedures and

physical security since September 11. However, there were often

inconsistencies from site to site within the same agency or among sites

within the same geographic location.

SUMMARY OF FINDINGS

Continuity of operations plans. Most of the agencies we visited

reported that prior to September 11, they either had no COOP or had

put a low priority on developing one, although most have since

increased efforts to complete these plans. The majority of sites reported

that they have backup plans for protecting critical information

technology systems.

After September 11, the Chief Financial Officer and Assistant Secretary

for Administration established an interdisciplinary team to coordinate the

finalization of COOP plans for the Department and its bureaus. From

November 2001 through February 2002, this group worked with

bureau staff to review existing plans and make appropriate refinements.

A consolidated plan for the Department has been prepared and

reviewed by the Federal Emergency Management Agency, which has

found it to be responsive to and in compliance with Federal

Preparedness Circular 65. However, Department officials agreed that

no bureau’s COOP is deemed complete until its management has

identified specific resources to test and implement the plan and until

plans for the bureau’s field offices are included.

Emergency and evacuation planning. Most sites had emergency

evacuation plans; however, many plans dealt only with fire emergencies.

Some facilities have expanded their plans to address a wider range of

potential emergencies since September 11. Many sites have established

formal emergency and evacuation teams as well as training to implement

their plans. Some sites had no plans to evaluate or upgrade their current

procedures. In addition, many employees were not aware of specific

evacuation plans, nor could they identify the members of their

emergency support team.
 Commerce OIG Semiannual Report March 2002 80

Department-wide Management

The operating units and their individual sites typically have emergency

plans for people with disabilities. But some sites need to establish

procedures for quickly locating those with special needs and to evaluate

the adequacy of equipment for evacuating these employees.

Physical security. Some deficiencies in physical security were evident

at every Commerce operation we visited.

SUMMARY OF SUGGESTED IMPROVEMENTS

Our review revealed a number of important principles that we believe

should form the foundation of a responsible security and emergency

preparedness program for the Department.

Management support and leadership are crucial.Agencies need to

develop clearly stated emergency preparedness and security policies

that have unambiguous goals and the visible involvement of top

management. We found that in the most effective programs, senior

managers had prominent roles.

Employees should be involved. Employee involvement in the

development and implementation of emergency preparedness and

security programs complements management leadership and promotes

staff commitment to these initiatives. Management should encourage

employee involvement in related decision making and operations, and

must clearly assign and communicate staff responsibilities for program

implementation. Employee awareness of and support for emergency

preparedness/security efforts are best reinforced through periodic

training, e-mail reminders, posting of security tips, distribution of

relevant materials, and participation on building evacuation teams.

Hiring and termination practices should enhance security.

Security and emergency preparedness briefings should be mandatory

for all new hires. In addition, management must retrieve keys and

identification badges from departing employees and contractors, change

their computer passwords, and block key-card access to ensure that

they cannot access Department facilities and IT systems after leaving

Commerce employment.
Commerce OIG Semiannual Report March 2002 81

Department-wide Management

Plans and facilities need to be reassessed periodically. Because

conditions affecting security and emergency preparedness can change,

managers should examine security measures regularly by updating risk

assessments and site surveys, reviewing employee/contractor

compliance with security protocols, and regularly testing and maintaining

security and emergency plans and procedures. (Office of Inspections

and Program Evaluations: IPE-14825)

Beyond these general observations, we provided a number of specific

suggestions to improve Department-wide emergency preparedness and

physical security.

SAFETY VULNERABILITIES IDENTIFIED AT

DEPARTMENT HEADQUARTERS AND NOAA

SEATTLE

Our review of emergency preparedness and security at Commerce

facilities also uncovered a number of safety concerns at the

Department’s headquarters (Herbert C. Hoover Building) and NOAA’s

Seattle facilities. We brought these concerns to the attention of

departmental and NOAA management, and are pleased to report that

corrective action is being taken.

HERBERT C. HOOVER BUILDING

We observed numerous safety vulnerabilities that could endanger

occupants, including the following:

 Fire and health hazards. Parts of the building’s basement and

subbasement were littered with cigarette butts, empty food and

soda containers, uneaten food, and other trash, indicating that

people were using these areas for eating, smoking, loitering, and

possibly lodging. One unlocked subbasement storage room

contained paint, painting equipment, unidentified solvents, and

other potentially hazardous materials scattered about. The

condition of these areas poses significant health and fire hazards.
 Commerce OIG Semiannual Report March 2002 82

Department-wide Management

 Security of basement areas.In a number of locations,

property and equipment were not properly secured.

 Isolated office space. Offices in some parts of the building are

very isolated and poorly monitored, and—in the event of an

emergency—it may be difficult to communicate with staff

located in these areas.

We presented this list of safety issues to the Department’s managers,

who swiftly moved to address most of our concerns.(Memorandum to

the Deputy Secretary and the Chief Financial Officer, January 24, 2002)

NOAA SEATTLE

In February 2001, an earthquake measuring 6.8 on the Richter scale

rocked NOAA’s Seattle facilities. The quake damaged NOAA’s

Western Regional Center and Northwest Fisheries Science Center.

Although critical repairs were immediately made to protect employee

health and safety, the buildings needed a thorough

assessment by a qualified seismic engineer to ensure

that they were in fact safe for occupancy and able to

withstand future earthquakes.

When we visited the site, lingering damage to the

buildings was readily apparent: concrete walls and

foundations had fissures; roofs had twisted rafters;

rivets and bolts were missing from equipment repair

facilities.

Cost of the seismic survey was estimated at $261,000.

Seattle management requested this funding from NOAA headquarters

and, after our report was issued, received the funding in February 2002.

The current plan is to award a contract for the survey in June 2002 and

receive the contractor’s draft damage report the following September.

The seismic survey will assess the structural integrity of the buildings,

identify safety issues that need to be resolved, and prioritize and

estimate the cost of required and recommended repairs or demolition.

(Memorandum to the Deputy Secretary and NOAA Deputy Under

Secretary, January 18, 2002)

Source: OIG

NOAA’s Western Regional Center,

Seattle, Washington (pictured) and

several ancillary facilities sustained

varying amounts of damage in a

February 2001 earthquake that

measured 6.8 on the Richter scale.

 Commerce OIG Semiannual Report March 2002 84

Department-wide Management

the audit. The Department responded that, as implementation of

CAMS progresses, this condition will be resolved.

 Financial management and reporting. Weak management

and reporting capabilities persist at several entities and hamper

the Department’s efforts to produce accurate and timely

financial reports. These weaknesses, which constitute a

reportable condition, were noted in reporting processes at three

operating units (Census, EDA, and NIST), in data

reconciliations at two (Census and NOAA), and in procedures

for producing information to support financial data at one

(NOAA). The auditors recommended that the Department’s

Office of Financial Management monitor the entities’ efforts to

resolve the cited conditions and ensure timely and effective

implementation of corrective actions. The firm also made

specific recommendations to two of the bureaus (EDA and

NIST) for addressing the reportable condition as it specifically

pertains to them.

INFORMATION TECHNOLOGY CONTROLS

The review of the Department’s IT controls over major financial systems

against the six criteria outlined in GAO’s Federal Information System

Controls Audit Manual revealed problems in all six areas: entitywide

security program planning and management; access controls; application

software development and change control; system software; segregation

of duties; and service continuity. These deficiencies combine with the

lack of a single, integrated financial system, noted above, to constitute

the material weakness.

COMPLIANCE WITH LAWS AND REGULATIONS

As part of the audit, the Department’s financial management procedures

and systems were assessed for compliance with select provisions of

applicable federal laws and regulations. Several instances of

noncompliance were, in fact, identified:

 NOAA’s failure to fully fund its capital leases (see page 60) is

contrary to requirements in OMB Circular A-11, Preparation
Commerce OIG Semiannual Report March 2002 85

Department-wide Management

and Submission of Budget Estimates, which mandates that

agencies have sufficient budgetary resources up-front to cover

the present value of lease payments for capital assets and lease

purchases.

 ITA’s failure to fully recover the total cost of providing goods

and services is contrary to OMB Circular A-25, User Charges,

which requires that federal agencies recover the total cost of

providing goods and services.

 The Department’s lack of a single, integrated financial

management system rendered Commerce noncompliant with

federal requirements for financial management systems

stipulated under the Federal Financial Management

Improvement Act (FFMIA) of 1996.

The appropriate departmental managers reviewed all of the findings and

recommendations contained in the consolidated audit report as well as

those in the separate audit reports for Census, NIST, and NOAA. They

generally concurred with the findings, although they took exception to

the weakness in financial reporting noted at NIST and the determination

of FFMIA noncompliance for Census. (Financial Statements and

Audits Division: FSD-14474-2)

Section 803 of FFMIA requires agencies that are not in compliance

with the act to prepare a remediation plan outlining actions to achieve

compliance. The Department prepared such a plan in FY 2001 to

address noncompliance issues identified in the FY 2000 audit. It intends

to update the plan to reflect its progress in moving toward compliance.

Section 804(b) requires OIG to notify Congress when the Department

does not meet the plan’s intermediate target dates for implementing

actions. We did not identify any instances in which Commerce failed to

meet these dates.
 Commerce OIG Semiannual Report March 2002 86

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 803 proposed awards. For 8 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 the

awards until concerns were satisfactorily resolved, and established

special conditions for two awards to adequately safeguard federal

funds. (Office of Audits)

Department-wide Management

Preaward Screening Results

 Results

 Special award conditions established 2 $1,092,119

 Awards delayed to resolve concerns 6 $3,723,500

 Number Amount

Award
Commerce OIG Semiannual Report March 2002 87

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 governments receiving federal funds.

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 partnering federal, state, and local program

bears its fair share.

During this period, we negotiated 36 indirect cost rate agreements with

nonprofit organizations and government agencies, and reviewed and

approved 45 cost allocation plans. To recipients of Commerce awards,

we also provided technical assistance 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)

Department-wide Management
 Commerce OIG Semiannual Report March 2002 88

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 NonProfit 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 162 audit reports during this semiannual period to

determine whether they contained any findings related to Department

programs. For 130 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

32 reports are from entities for which other federal agencies have

oversight responsibility.

Department-wide Management

 Report Category OMB A-133 ATP Program- Total

 Audits Specific Audits

Pending (October 1, 2001) 36 62 98

Received 49 78 127

Examined 79 83 162

Pending (March 31, 2002) 6 57 63

Nonfederal Audit Activities
Commerce OIG Semiannual Report March 2002 89

Department-wide Management

The following table shows a breakdown by bureau of the $225 million

in Commerce funds audited this period.

We identified a total of $2,225,201 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 20 reports with

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

Office of Audits)

Bureau Funds

 EDA $ 41,838,121

 MBDA 2,486,259

 NIST 131,385,815*

 NOAA 13,798,627

 NTIA 1,442,197

 Multiagency 33,343,631

 Agency not identified 961,198

 Total $225,255,848

* Includes $121,213,193 in ATP program-specific audits.

Breakdown by Bureau
 Commerce OIG Semiannual Report March 2002 90

Investigative Highlights

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

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, Colorado, 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 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 one arrest, two

convictions, and the filing of indictments, informations, or criminal

complaints against four individuals. Two other matters were referred to

the Department of Justice for prosecution. In addition, there were four

personnel actions taken by the Department as a result of OI case work.

The following are highlights of our investigative activity over the past 6

months.

SECOND NOAA EMPLOYEE SENTENCED ON CONSPIRACY

CONVICTION

In previous issues, we reported the conspiracy convictions of two

former NOAA employees, stemming from an OIG investigation that

uncovered their arrangement to falsify payroll records to enable one of

them to receive more than $9,800 in unearned pay, a portion of which

she kicked back to the second employee. (See March 2001 issue,

pages 81-82, and September 2001 issue, page 80.) As noted in our

last semiannual report, one defendant was sentenced in May 2001. On

October 10, 2001, her co-conspirator was sentenced in U.S. District

Court for the District of Columbia to 2 years’ probation, and ordered to

make restitution to the government. (Silver Spring Field Office of

Investigations)
Commerce OIG Semiannual Report March 2002 91

Investigative Highlights

MISUSE OF GOVERNMENT PURCHASE CARD RESULTS IN THEFT

CONVICTION

On January 2, 2002, a former employee of an NWS regional office in

Alaska was convicted of theft of government property after an OIG

investigation confirmed that she had engaged in at least 50 unauthorized

transactions on a government purchase card, charging nearly $7,500 in

goods and services for her personal use. Sentencing is scheduled for

early April 2002 in U.S. District Court for the District of Alaska.

(Denver Field Office of Investigations)

FORMER CENSUS EMPLOYEE SENTENCED FOR THEFT OF

GOVERNMENT PROPERTY

A clerk with access to an automated banking system that enables

Census customers to purchase publications by credit card used the

system to issue nearly $6,200 in credits to her personal debit card.

Under the terms of a plea agreement, she was convicted of one count of

theft of government property in December 2001. On February 15,

2002, she was sentenced in U.S. District Court for the Eastern District

of Virginia to 2 years’ probation and ordered to make full restitution to

the government. (Washington Field Office of Investigations)

CENSUS EMPLOYEES CHARGED WITH THEFT OF DEBIT CARDS

On March 27, 2002, a former Census field representative was arrested

by an OIG special agent and local law enforcement officials in Santa

Ana, California, for cashing debit cards provided to her for use as

incentive payments to participants in a Census survey. The former

employee failed to perform any survey-related work, but cashed 16

cards with a total value of more than $1,100. She has been charged

with grand theft and embezzlement by the district attorney in Santa Ana,

and was arraigned in Orange County Superior Court on March 29,

2002.

In a similar case, 11 debit cards were stolen from the Detroit Regional

Census office and cashed at various ATM machines in and around the

city. An OIG investigation identified a recently retired Census employee

and a current employee as the responsible parties. In March 2002, the

retired employee entered into a 1-year pretrial diversion agreement in
 Commerce OIG Semiannual Report March 2002 92

Investigative Highlights

Detroit municipal court, conditioned upon her agreement to make full

restitution to the government. Charges are pending against the other

employee, who repaid the government for the value of the cards and

resigned from federal service.

As a result of these investigations, OIG recommended new security

measures for the Census debit card program, which both the Los

Angeles and Detroit regional offices have since implemented. (Denver

Field Office of Investigations)

FORMER MASC EMPLOYEE INDICTED FOR WIRE FRAUD

A warrant has been issued for the arrest of a former finance accounting

technician at NOAA’s Mountain Administrative Support Center, who

was indicted on March 12, 2002, in the District of Colorado on six

counts of wire fraud, based on her manipulation of the Commerce

Administrative Management System (CAMS) to make personal credit

card payments with government funds. An OIG investigation revealed

that between November 2000 and June 2001, the employee transferred

a total of approximately $19,000 to her government travel card account

to cover improper personal charges. The employee stopped reporting

to work when she learned of management’s suspicions; she was

subsequently removed from federal service for absence without official

leave and misappropriation of government funds. As a result of the

investigation, MASC has implemented new procedures for daily review

of vendor payments reported in CAMS. (Denver Field Office of

Investigations)

THIRTY-DAY SUSPENSION FOR PERSONAL USE OF GOVERNMENT

TELEPHONE

A patent examiner was suspended for 30 days and ordered to repay the

government more than $500 after an OIG investigation revealed that he

had run up nearly 200 hours of personal long distance charges on his

office telephone over a 1-year period. (Washington Field Office of

Investigations)
Commerce OIG Semiannual Report March 2002 93

Investigative Highlights

SENIOR BIS EMPLOYEE SUSPENDED FOR FAILURE TO FILE

COMPLETE ACCIDENT REPORT

A senior BIS employee was suspended for 5 days based on the filing of

an incomplete and misleading report on an accident in a governmentowned vehicle. An OIG investigation found that the employee had

reported the accident, but failed to provide the agency with a copy of

the police report, which assigned responsibility for the collision to her.

Her supervisor received a written reprimand for approving the report

even though he had witnessed the accident and knew the report was

incomplete. (Washington Field Office of Investigations)
 Commerce OIG Semiannual Report March 2002 94

Office of Inspector General

Audit Resolution and Follow-up

The Inspector General Act Amendments of 1988 require us to present in

this report those audits issued before the beginning of the reporting

period (October 1, 2001) for which no management decision had been

made by the end of the period (March 31, 2002). We are pleased to

report that there are no audit reports that have been unresolved over 6

months.

Department Administrative Order 213-5, “Audit Resolution and Followup,” provides procedures for management to request a modification to an

approved audit action plan or for a financial assistance recipient to

appeal an audit resolution determination. The following table summarizes

modification and appeal activity during the reporting period.

 Report Category Modifications Appeals

Actions Pending (October 1, 2001) 0 14

Submissions 2 14

Decisions 2 12

Actions Pending (March 31, 2002) 0 6

Audit Resolution Follow-up
Commerce OIG Semiannual Report March 2002 95

Audit and Inspection

Statistical Highlights

Statistical Highlights Statistical Highlights

Investigative

Statistical Highlights

Matters referred for prosecution 1

Indictments, informations, and criminal complaints 4

Convictions 2

Personnel actions* 4

Fines, restitutions, judgments, and

other civil and administrative recoveries $14,166

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

 or retirements in lieu of adverse action.

Questioned costs this period $4,859,584

Value of audit recommendations made

this period that funds be put to better use $2,297,145

Value of audit recommendations agreed

to this period by management $7,865,531

Value of inspection recommendations that

funds be put to better use made this period $0

Accepted for investigation 12

Referred to operating units 26

Evaluated but not accepted for

investigation or referral 76

Total 114

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 March 2002 96

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)

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 statements 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 OIG Disagreed

Review of Legislation and Regulations 97

21-93

21-93

97

90-93

99

104-111

21-93

101

102

94

94

94
Commerce OIG Semiannual Report March 2002 97

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 Congress statistical tables showing the number and value of

audit reports for which no final action has been taken, plus an

explanation of the reasons why recommended action has not occurred,

except when the management decision was made within the preceding

year.

To include a list of all significant unimplemented recommendations in

this report would be duplicative, costly, unwieldy, and of limited value

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

whether adequate progress is being made to implement each agreedupon corrective action. Management updates the Department’s Audit

Tracking System on an annual basis, based on annual status reports due

from the bureaus in mid-October. The last update was as of

September 30, 2001. However, additional information on the status of

any audit recommendations can be obtained through OIG’s Office of

Audits.
 Commerce OIG Semiannual Report March 2002 98

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 March 31, 2002, there were no audit reports unresolved over 6

months.

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 Followup, 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 12 appeals of audit-related debts were

finalized with the full participation and concurrence of OIG.
Commerce OIG Semiannual Report March 2002 99

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 100 March 2002

Tables and Appendixes

TABLES PAGE

1. Audits with Questioned Costs 101 

2. Audits with Recommendations That Funds Be Put to Better Use 102 

APPENDIXES

A. Office of Inspector General Reports 103 

 A-1. Performance Audits 104 

 A-2. Inspections 105 

 A-3. Financial Statements Audits 106 

 A-4. Financial Related Audits 107 

B. Processed Reports 109 

 B-1. Processed Financial Related Audits 110 

DEFINITIONS

The term questioned cost refers to a cost that is questioned by OIG because of (1) an alleged violation of a provision of 

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

funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate documentation; or (3) a finding 

that an expenditure of funds for the intended purpose is unnecessary or unreasonable.

The term unsupported cost refers to a cost that, at the time of the audit, is not supported by adequate documentation. 

Questioned costs include unsupported costs.

The term recommendation that funds be put to better use refers to a recommendation by 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 specifically identified.

The term management decision refers to management’s evaluation of the findings and recommendations included in 

the audit report and the issuance of a final decision by management concerning its response.
Commerce OIG Semiannual Report 101 March 2002

Audits with Questioned Costs

Table 1

 Questioned Unsupported

Report Category Number Costs Costs

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

 had been made by the commencement of

 the reporting period

B. Reports issued during the reporting period 29 4,859,584 806,815

 Total reports (A+B) requiring a management 46 9,049,343 1,314,105

 decision during the reporting period1

C. Reports for which a management decision 18 4,289,581 514,913

 was made during the reporting period2

 i. Value of disallowed costs 1,802,827 480,975

 ii. Value of costs not disallowed 3,158,237 361,316

D. Reports for which no management decision 28 4,759,762 799,192

 had been made by the end of the reporting

 period

Notes:

1 Ten 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.
Commerce OIG Semiannual Report 102 March 2002

Audits with Recommendations

That Funds Be Put to Better Use

Table 2

Report Category Number Value

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

 had been made by the commencement of

 the reporting period

B. Reports issued during the reporting period1 8 2,297,145

 Total reports (A+B) requiring a management 21 8,846,991

 decision during the reporting period2

C. Reports for which a management decision 19 7,669,846

 was made during the reporting period3

 i. Value of recommendations agreed to 6,062,704

 by management

 ii. Value of recommendations not agreed 2,605,303

 to by management

D. Reports for which no management decision 6 1,177,145

 had been made by the end of the reporting

 period

Notes:

1 One report was resolved last reporting period but inadvertently missed in our calculations.

2

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

 However, the dollar amounts do not overlap.

3

 In Category C, four reports had funds to be put to better use identified during the resolution process. Also, 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.
Commerce OIG Semiannual Report 103 March 2002

Office of Inspector General Reports

Appendix A

Type Number Appendix

Performance Audits 4 A-1

Inspections 7 A-2

Financial Statements Audits 12 A-3

Financial -Related Audits 16 A-4

Total 39
Commerce OIG Semiannual Report 104 March 2002

Performance Audits

Appendix A-1

 Funds to

 Be Put to

Agency Subject Number Date Better Use

ESA-CENSUS Improving Our Measure of America: ESD-14431 03/02 - -

What Census 2000 Can Teach Us in

Planning for 20101

TA-NIST Reporting of Performance Measures FSD-14430 03/02 - -

Needs Improvement

USPTO Minor Improvements Needed in Reporting FSD-14429 03/02 - -

Performance Results

Patent Examiner Hiring Process Should BTD-14432 03/02 - -

Be Improved

1

Multi-unit review that includes the work of auditors, inspectors, system evaluators, and investigators.
Commerce OIG Semiannual Report 105 March 2002

Inspections

Appendix A-2

 Funds to Be

 Put to

Agency Subject Number Date Better Use

BIS BXA Needs to Strengthen its ECASS IPE-14270 02/02 - -

(formerly BXA) Modernization Efforts to Ensure

Long-Term Success of the Project

Interagency Review of Federal Automated IPE-14977 03/02 - -

Export Licensing Systems

ESA-CENSUS Selected Aspects of Census 2000 Accuracy OIG-14226 03/02 - -

and Coverage Evaluation Need Improvements

Before 2010

ITA Trade Agreement Compliance Process IPE-14282 03/02 - -

Needs Better Coordination Within ITA

US & FCS Italy’s Effectiveness Can be IPE-14234 03/02 - -

Further Enhanced by Focusing on

Management and Program Improvements

NOAA Chanhanssen Weather Forecast Office IPE-14423 03/02 - -

Generally Provides Effective Forecasts, but

Office Management and Regional Oversight

Need Improvement

USPTO Additional Senior Management Attention OSE-14846 03/02 - -

Needed to Strengthen USPTO’s Information

Security Program
Commerce OIG Semiannual Report 106 March 2002

Financial Statements Audits

Appendix A-3

Agency Subject Number Date

CENSUS Improvements Needed in the General FSD-14473(1) 02/02

Controls Associated with

Census’ Financial Management Systems

Financial Statements for FY 2001 FSD-14473(2) 02/02

NOAA Improvements Needed in the General Controls FSD-14475(1) 02/02

Associated with Financial Management

Systems

Financial Statements for FY 2001 FSD-14475(2) 02/02

TA-NTIS Improvements Needed in the General Controls FSD-14476(1) 02/02

Associated with NTIS’ Financial Management

Systems

Financial Statements Fiscal Year 2001 FSD-14476(2) 02/02

O/S Department of Commerce Consolidated FSD-14474(2) 02/02

Financial Statements for FY 2001

Improvements Needed in the General Controls FSD-14474(1) 02/02

Associated with the Department’s Financial

Management Systems

FY 2001 Agreed-upon Procedures Federal FSD-14474(3) 03/02

Agencies’ Centralized Trial-Balance System

Data

USPTO Financial Statements for FY 2001 FSD-14477(2) 02/02

Improvements in the General Controls FSD-14477(1) 02/02

Associated with USPTO’s Financial

Management Systems

Network Vulnerability Assessment: FSD-14477(3) 03/02

Improvements Needed in the General

Controls Associated with USPTO’s

Financial Management Systems
Commerce OIG Semiannual Report 107 March 2002

Financial-Related Audits

Appendix A-4

 Funds to

 Questioned Unsupported Be Put to

Agency/Auditee Number Date Costs Costs Better Use

EDA

Town of Quartzsite, AZ STL-14253 10/01 $99,822 $7,623 - -

Washington Association of STL-14140 10/01 53,500 - - - -

Minority Entrepreneurs

Port of Moses Lake, WA STL-14790 01/02 - - - - - -

Economic Development Bank ATL-13955(1) 01/02 - - - - 1,000,000

for Puerto Rico

City of Lake City, SC ATL-14690 02/02 111 - - 193,405

Dutchess County Economic ATL-14033 03/02 134,703 134,703 - -

Development Corporation, NY

Jefferson Parish Economic ATL-13214 03/02 - - - - - -

Development Commission, LA

Economic Development Bank ATL-13955(2) 03/02 22,283 22,283 204,276

for Puerto Rico

Greater North-Pulaski Local DEN-14321 03/02 2,965 - - 500,000

Development Corporation, IL

City of Tooele, UT DEN-14874 03/02 1,429,892 166,726 - -

TA-NIST

Commerce One, Inc., CA STL-14370 12/01 - - - - - -

Office of Inspector General ATL-14928 12/01 - - - - 120,000

Survey of Selected Aspects

of Advance Technology

Program Awarded to ACT

Group, Inc., MA

Puerto Rico Manufacturing DEN-14275 02/02 27,485 - - 72,741

Extension, Inc.
Commerce OIG Semiannual Report 108 March 2002

 Funds to

 Questioned Unsupported Be Put to

Agency/Auditee Number Date Costs Costs Better Use

TA-NIST

SurroMed, Inc., CA DEN-14403 03/02 30,425 - - - -

Etec Systems, Inc., CA DEN-14516 03/02 182,780 - - 30,000

WestCAMP, Inc., UT DEN-13088 03/02 650,417 295,683 176,723

Financial-Related Audits

Appendix A-4 (Continued)
Commerce OIG Semiannual Report 109 March 2002

Processed Reports

Appendix B

The Office of Inspector General reviewed and accepted 162 financial-related audit reports prepared by independent public accountants and local and state auditors, and federal auditors.

The reports processed with questioned costs, recommendations that funds be put to better use,

and/or nonfinancial recommendations are listed in Appendix B-1.

Agency Audits

Economic Development Administration 42

Minority Business Development Agency 5

National Institute of Standards and Technology 87*

National Oceanic and Atmospheric Administration 8

National Telecommunications and Information Administration 4

Multiagency 14

Agency not identified 2

Total 162

*Includes 83 ATP program-specific audits.
Commerce OIG Semiannual Report 110 March 2002

Processed Financial-Related Audits

Appendix B-1

 Questioned Unsupported

Agency/Auditee Number Date Costs Costs

EDA

Trade Task Group, WA ATL-09999-2-0826 03/02 $85,041 $85,041

Benton-Franklin Council ATL-09999-2-0987 03/02 231,000 - -

of Governments, WA

Northeast Council of Governments ATL-09999-2-0966 03/02 83,128 - -

Development Corporation, SD

Armstrong County Industrial ATL-09999-2-1016 03/02 20,567 - -

Development Authority, PA

Northwest Regional Planning ATL-09999-2-1052 03/02 27,652 - -

Commission, WI

TA-NIST

True North Composites, LLC, AZ DEN-09999-2-0316 02/02 497,629 22,430

UTC-Carrier Corporation, CT DEN-09999-2-0339 02/02 19,776 - -

Extrude Hone Corporation, PA ATL-09999-2-0957 03/02 348,506 11,042

Organogenesis, Inc., MA ATL-09999-2-0980 03/02 83,001 - -

MicroDexterity Systems, Inc., MI ATL-09999-2-0850 03/02 16,284 - -

New England Aquarium Corporation, MA ATL-09999-2-1000 03/02 - - - -

PE Biosystems, CA DEN-09999-2-0378 03/02 561,794 - -

E.I. duPont de Nemours and Company, ATL-09999-2-0482 03/02 18,212 - -

High Performance Materials, OH

Acorda Therapeutics, Inc., NY ATL-09999-2-0364 03/02 27,622 - -

PerkinElmer Optoelectronics, CA ATL-09999-2-0830 03/02 61,009 - -

Praxair, Inc., CT ATL-09999-2-0868 03/02 14,624 - -
Commerce OIG Semiannual Report 111 March 2002

Processed Financial-Related Audits

(Continued) Appendix B-1

 Questioned Unsupported

Agency/Auditee Number Date Costs Costs

NOAA

North Pacific Marine ATL-09999-2-0430 03/02 $63,331 $2,326

Science Foundation, WA

South Carolina State Budget ATL-09999-2-0996 03/02 7,067 - -

and Control Board

New England Aquarium ATL-09999-2-1000 03/02 - - - -

Corporation, MA

State of Alaska ATL-09999-2-1069 03/02 58,958 58,958
 Commerce OIG Semiannual Report March 2002 112

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.

Investigations

These are investigations conducted to collect facts

needed to resolve an allegation that someone has

violated a federal criminal or civil law or

administrative regulation.

If an investigation discloses employee misconduct or

evidence of waste or abuse, the facts are reported to

agency officials for appropriate disciplinary or

administrative actions. If criminal or civil

wrongdoing is found, the case is referred to the U.S.

Department of Justice.
 Commerce OIG Semiannual Report March 2002 113

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

BIS...................................................................................................................Bureau of Industry and Security

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 March 2002 114

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