Commerce OIG Semiannual Report i March 2001

IG’s Message for the Secretary

UNITED STATES DEPARTMENT OF COMMERCE

The Inspector General

Washington, D.C. 20230

April 30, 2001

The Honorable Donald L. Evans

Secretary of Commerce

Washington, DC 20230

Mr. Secretary:

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

for the first half of fiscal year 2001. Section 5 of the Inspector General Act requires that you transmit

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

within 30 days of its receipt.

In your initial months as Secretary, I’m sure you have been impressed by the breadth of the Department’s important missions and the variety of the issues confronting its managers. This diversity is

clearly reflected in our discussion of what we view as the major challenges facing the Department.

Some of the challenges, such as those dealing with export controls, the decennial census, and fishery

management, primarily involve one Commerce operating unit. Others, like those related to financial

management, information security, and acquisition reform, cut across operating units. But these

challenges all have something in common; namely, that they will be met only through strong leadership

and a commitment to cooperative action by the Department, the operating units, the OIG, and other

stakeholders.

I look forward to working with you and your senior managers to address these challenges and the

many other issues facing the Department. I am confident that through a sustained, coordinated effort,

we can continue to make substantial improvements in Commerce operations.

Sincerely,

Johnnie E. Frazier
Commerce OIG Semiannual Report ii March 2001

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 implement USPTO’s transition to a performance-oriented organization

 Increase the accuracy and control the cost of the 2000 Decenial Census

 Address the issues related to NTIS’s mission and financial viability

 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 in order to maintain a “clean”

opinion on the Department’s consolidated financial statements

 Successfully implement acquisition reform initiatives

DEPARTMENT OF COMMERCE ORGANIZATION CHART

AGENCY OVERVIEWS

Bureau of Export Administration

Economic Development Administration

Economics and Statistics Administration

International Trade Administration

Minority Business Development Agency

National Oceanic and Atmospheric Administration

National Telecommunications and Information Administration

United States Patent and Trademark Office

Technology Administration

Departmental Management

INVESTIGATIVE HIGHLIGHTS

OFFICE OF INSPECTOR GENERAL

REPORTING REQUIREMENTS

STATISTICAL HIGHLIGHTS

TABLES AND APPENDIXES

DEFINITIONS OF TYPES OF OIG REVIEWS

GLOSSARY OF ABBREVIATIONS

OIG ORGANIZATION CHART AND POINTS OF CONTACT Inside Back Cover)

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 Commerce OIG Semiannual Report March 2001 2

Major Challenges for the Department

MAJOR CHALLENGES

FOR THE DEPARTMENT

IG’s Message for the Congress

Top 10 List

1. Successfully implement a Department-wide financial management

system

2. Strengthen Department-wide information security

3. Successfully implement USPTO’s transition to a performanceoriented organization

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

Census

5. Address the issues regarding NTIS’s mission and financial viability

6. Enhance export controls for dual-use commodities

7. Increase the effectiveness of fishery management

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

performance measurement in accordance with GPRA

9. Strengthen financial management controls in order to maintain a

“clean” opinion on the Department’s consolidated financial

statements

10. Successfully implement acquisition reform initiatives

In pursuing its programs and missions, the Department of Commerce is faced with a number of

problems, concerns, and difficult issues, including

some that we view as major management challenges. In this section, we highlight what we

consider to be the Top 10 Management Challenges

facing the Department at the close of this semiannual period.

We have identified these issues as the top 10

challenges because they meet one or more of the

following criteria: importance to the Department’s

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

sizable expenditures, or need for significant management improvements. Given the diverse nature of

Commerce activities, a number of these challenges

cut across bureau and program lines. We believe

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

serious operational problems, decrease vulnerability

to fraud and waste, and achieve substantial savings.
Commerce OIG Semiannual Report March 2001 3

Major Challenges for the Department

IG’s Message for the Congress

Successfully Implement a DepartmentWide Financial Management System

The Department has long been working to develop

and implement a single, integrated financial system

that is in compliance with OMB requirements. For

more than 10 years, Commerce’s lack of such a

system has been of great concern to us and others

and has been reported as a material internal control

weakness in the Secretary’s annual reports to the

President under the Federal Managers’ Financial

Integrity Act.

To correct this weakness, Commerce began

planning for the acquisition and development of a

Department-wide financial system in 1992 and

awarded a contract for a federal accounting

software package and development services in

1994. However, development of the Commerce

Administrative Management System (CAMS)

progressed slowly, in part because of the

contractor’s inability to produce an accounting

package that met Department requirements.

In 1997 the Department released the original

contractor, took responsibility for the accounting

package, and hired a different contractor to reprogram the software to meet Commerce’s requirements. In FY 1998, to address continuing cost

growth and schedule delays, the Department

reduced the functionality of CAMS (calling it core

CAMS), revised the implementation strategy, and

reorganized the project management structure.

The revised strategy called for pilot implementation

and testing of core CAMS at the Census Bureau

before implementing it at NOAA, NIST, and the

operating units cross-serviced by NIST. The

Census CAMS pilot implementation was completed

in June 1998. An independent verification and

validation review of the pilot, performed by a

consulting firm, concluded that core CAMS would

meet departmental requirements and was as good

as or better than financial management systems

that had been implemented at other large federal

agencies.

The Department’s current plan is to complete

implementation at the various Commerce operating

units serviced by NIST by the end of FY 2001, at

NOAA by October 2002, and at NIST by October

2003. The Department-wide financial database

(Corporate Database) is scheduled for completion

this calendar year and is expected to give the

Department the capability to generate consolidated

financial statements, as required by OMB, for

FY 2001. The Department intends for all 14 of its

reporting operating units to be using financial

management systems that are compliant with OMB

requirements and integrated with the Corporate

Database by FY 2004.

During this semiannual period, we surveyed the

Department’s overall management of the CAMS

program and suggested actions that it should take to

gain better control of the program. We believe, and

the Department also recognizes, that the Office of

the Secretary, under the leadership of the Chief

Financial Officer and Assistant Secretary for Administration, needs to take a more prominent role in

managing the program to ensure that Commerce’s

goals for CAMS are met. Specifically, we have

identified the need for the Department to:

 Review its authority and the resources it

has available to manage the CAMS

program.

 Develop an integrated master program plan

to better define, prioritize, standardize, and

control its CAMS-related work.

 Develop a management control system for

tracking work against budget and schedule.

 Improve the CAMS Support Center’s

process for developing software.

 Review the Support Center’s staffing to

ensure that the center has the right number

people with the right mix of skills.
 Commerce OIG Semiannual Report March 2001 4

Major Challenges for the Department

IG’s Message for the Congress

 Complete the Corporate Database by

December 2001, consistent with the current

schedule.

 Review the CAMS distributed operating

approach to assess its efficiency and

economy.

We are currently conducting a review of the

administration and management of the two principal

CAMS contracts. We will report on our review

results during the next semiannual period. Until the

Department is in compliance with the OMB

requirements for a single, integrated financial

system, we will view the CAMS effort as a major

challenge warranting the close attention of senior

officials and continued oversight by our office.

Strengthen Department-wide

Information Security

Numerous interconnected, widely distributed

computer systems support vital Commerce operations and provide essential services to the public. As

the Department’s systems have become more

widely distributed and interconnected, security

vulnerabilities have also increased, creating a need

to improve procedural and technical security

measures. Effective computer security is critical for

protecting the secrecy and privacy of information,

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

In March 2001, we completed a review of the

effectiveness of the CIO’s policy and oversight of

the Department’s IT security program (see page

69). We found that the IT security policy needs to

be updated and that additional procedures for

ensuring compliance with the policy need to be

implemented.

The Department’s security policy was developed

before the security-related portion of OMB Circular

A-130, Management of Federal Information

Resources, was significantly revised in 1996.

Moreover, it has not kept pace with recent trends in

technology usage and related security threats.

Because it is the foundation of the security policies

of its operating units, the Department’s security

policy must be current and complete.

Although the CIO has recently made significant

improvements in ensuring compliance with OMB’s

IT security policy, departmental oversight was

minimal for several years. As a result, IT security

for many of the Department’s systems has not been

adequately planned, and security reviews have not

been performed. In addition, several operating units

do not have adequate security awareness training

programs or adequate capabilities for responding to

IT security lapses.

The audits of the Department’s FY 2000 financial

statements included systems security reviews of

Commerce’s financial management systems and

their related networks. These reviews used as a

guide GAO’s Federal Information System Controls Audit Manual and included intrusion detection

analysis—also called penetration testing—of

selected bureaus. The GAO Manual provides

guidance on assessing the reliability of computergenerated data that supports financial statements,

including physical security and logical access

controls designed to prevent or detect unauthorized

access or intrusion into systems and networks.

In the report on our audit of the Department’s

FY 2000 Consolidated Financial Statements, we

noted that these systems security reviews disclosed

weaknesses in controls over major financial management systems at the seven locations that provide

data processing support (see page 71). Specifically,

these reviews found that:

 Entity-wide security program planning and

management need improvement at five

locations.
Commerce OIG Semiannual Report March 2001 5

Major Challenges for the Department

IG’s Message for the Congress

 Access controls for both operating systems

and the financial management systems

need strengthening at all seven locations,

and monitoring of external and internal

access to systems needs strengthening at

four locations.

 Application software development and

change control need improvement at two

locations.

 System software improvements are needed

at two locations.

 Duties and responsibilities need to be

segregated at three locations.

 Contingency plans and/or disaster recovery

plans need to be prepared, updated, or

improved at four locations.

We issued audit reports with recommendations to

correct the control weaknesses identified at each of

the seven data processing locations. Responsible

entities are required to prepare audit action plans to

address each of the recommendations.

As required by the Government Information

Security Reform Act, we are performing the annual

evaluation of the Department’s information security

program and practices. This evaluation is using

information from our own security reviews, as well

as the results of related evaluations performed by

bureaus, agencies, GAO, and contractors.

The American Inventors Protection Act of 1999

(P.L. 106-113) established the U.S. Patent and

Trademark Office as a performance-oriented

Successfully Implement USPTO’s

Transition to a PerformanceOriented Organization

organization, providing it with greater flexibility and

independence to be run more like a business. As

such, USPTO has increased authority and responsibility for decisions regarding the management of its

operations and exercises greater control over its

budget allocations and expenditures, personnel

decisions and processes, and procurement operations. USPTO’s transition to a performanceoriented organization officially began last year.

Despite the act’s potential benefits, the transition is

a formidable undertaking. USPTO must formulate

the necessary personnel, procurement, and administrative policies and develop a performance-oriented

process and standards for evaluating cost-effectiveness, while meeting its performance goals under

GPRA. USPTO management views the passage of

the act and the successful transition to a performance-oriented organization as critical in addressing three primary challenges, which have been the

subject of OIG reviews in recent years.

First, USPTO has experienced a massive increase

in patent and trademark filings and appeals, leading

to the hiring of hundreds of new examiners and

administrative judges. In FY 2000, USPTO received more than 293,000 patent applications and

375,000 trademark applications, representing 12-

percent and 27-percent increases, respectively, over

FY 1999, and continuing a trend of double-digit

percentage increases in recent years. To address

this increased workload, USPTO hired 1,173 patent

examiners and 210 trademark examiners during

FY 1999 and 2000. However, during that same

period, the agency lost 801 patent examiners and

108 trademark examiners through attrition.

In prior audits of the Office of Patent Publications

and the Board of Patent Appeals and Interferences,

we reported on some of the challenges facing

USPTO in hiring and training examiners and

additional administrative judges to hear examination

appeals. USPTO’s status as a performanceoriented organization will allow it greater flexibility

to design performance and retention programs with
 Commerce OIG Semiannual Report March 2001 6

Major Challenges for the Department

IG’s Message for the Congress

incentives for these highly skilled employees, who

are often recruited by private sector firms. According to USPTO management, the transition to a

performance-oriented organization will enable it to

more efficiently manage its resources and make the

rapid decisions needed to process the increased

number of patent and trademark filings and appeals

in a timely manner, while maintaining high quality.

Second, as it moves through this transition, USPTO,

along with the General Services Administration, will

also face the challenge of overseeing one of the

largest real estate ventures that the federal government will undertake in this decade—the construction of USPTO’s new 2.4 million-square-foot, fivebuilding office complex in Alexandria, Virginia.

When completed in 2004, the new complex will

provide space for USPTO employees and operations now scattered among approximately 18

buildings in nearby Crystal City.

Now that the General Services Administration has

awarded the construction contract, USPTO’s

challenge is to aggressively hold the line on project

costs, including remaining within the legislatively

mandated cap on the cost of completing the buildout of the building’s interior once the structure is in

place. Construction is scheduled to begin once the

city of Alexandria has approved the project plans, in

August or September 2001. We plan to monitor the

project during construction in order to stay abreast

of USPTO’s project management and the cost

control measures it plans to put in place for the

building structure, interior build-out, and new

furniture.

Third, USPTO continues to face significant challenges in delivering essential information technology

capabilities. With its increased focus on operational

efficiency and the new provisions requiring information technology solutions, the 1999 legislation has

intensified the demands placed on automated

systems and further strained the organization’s

ability to deliver systems.

We recently completed an evaluation of the implementation of USPTO’s new search system (see

page 54). We found that the system performed

poorly when it was first put into operation, providing

slow response times and crashing frequently.

Although USPTO management responded quickly

to resolve many of the problems, this experience

illustrated why it is essential for the organization to

improve its systems development process.

USPTO recognizes this and has begun implementing many of our recommendations, including

(1) developing a life-cycle metrics process for

evaluating program progress and system quality;

(2) changing requirements development procedures

to improve the quality of requirements specifications; (3) strengthening test procedures; (4) increasing end users’ involvement early and throughout the

system life-cycle; and (5) providing additional

opportunities for end-user training. These actions

should lower system development costs, improve

system quality, and promote end user acceptance of

new systems in the future.

Increase the Accuracy and Control the

Cost of the 2000 Decennial Census

On December 31, 2000, the Census Bureau

released the nation’s population count: 281,421,906.

This number resulted from the information collected

when approximately 77 million households returned

their census forms and approximately 42 million

households were subsequently visited by enumerators to collect census information. Having a reliable

population count is of enormous importance to the

Congress and the Administration, as well as the

various state governments and local communities,

because, among other things, it is the basis for

determining how many seats each state will have in

the House of Representatives and for developing

state redistricting plans.
Commerce OIG Semiannual Report March 2001 7

Major Challenges for the Department

IG’s Message for the Congress

As part of the census design, the bureau embarked

on a program referred to as the Accuracy and

Coverage Evaluation (A.C.E.) to sample the

population of the United States in an attempt to

measure the potential undercount and overcount in

the decennial and, if appropriate, increase the

accuracy of the counts through statistical adjustment for redistricting purposes. However, on March

1, 2001, the Acting Director of the Census Bureau,

in consultation with the bureau’s Executive Steering

Committee for A.C.E. Policy, recommended against

using statistically adjusted numbers for redistricting,

and on March 6, 2001, the Secretary announced

that the unadjusted data would be released as the

official redistricting data.

According to the Acting Director, the committee

reached this recommendation because it was

unable to conclude, based on the information

available and within the time available before the

statutory deadline, that the adjusted data would be

more accurate than the unadjusted data. The

primary reason for arriving at this conclusion was

the disparity in population growth estimates from

two sources: the recently completed A.C.E. and the

ongoing demographic analysis. The bureau is

continuing to study the inconsistencies between the

demographic analysis estimates and the A.C.E.

estimates and plans to release the results of the

study by the end of 2001.

During this semiannual period, we evaluated the

bureau’s handling of suspected duplicate enumerations in the decennial as they may have affected the

A.C.E. (see page 32). As the decennial progressed,

the bureau became increasingly concerned about

address duplication and developed a process to

resolve the problem, with the goal of producing

more accurate apportionment numbers. However,

the bureau concluded that there was not enough

time to resolve the status of the suspected duplicates before the census results were needed for the

tightly scheduled operations of the A.C.E. and

decided to remove all suspected duplicates from

A.C.E. processing.

After the bureau determined which of the suspected duplicates to remove from the decennial, it

incorporated the remaining records into the final

A.C.E. calculations using the bureau’s established

approach for dealing with late census data. According to the bureau, treating the reinstated records as

late data introduced little or no error into the A.C.E.

results if certain assumptions held true. We were

concerned about the validity of the assumptions;

however, the bureau subsequently satisfied our

concerns by performing various analyses, which it

discussed in its reports supporting the adjustment

recommendation.

We have made oversight of the decennial one of

our top priorities over the past several years. Since

1998, for example, we have issued some two dozen

audit and inspection reports on various aspects of

the bureau’s decennial efforts and have made

numerous recommendations aimed at helping to

improve the accuracy of the decennial and control

its cost. We have also actively monitored the

bureau’s actions to address our recommendations.

Although we are continuing to address remaining

decennial-related issues as the 2000 decennial

draws to a close, the enormous operational challenges of the decennial have been met, and this

issue is receding as a top management challenge

for the Department. Because of the tremendous

difficulties and high cost of the just-completed

census, the bureau is planning to significantly

change its approach to the 2010 decennial. We

intend to monitor this effort and, more importantly,

work with the bureau, the Department, and the

Congress to ensure that the many important lessons

of the current decennial are not overlooked in

planning for 2010.

Major Challenges for the Department
 Commerce OIG Semiannual Report March 2001 8

Major Challenges for the Department

IG’s Message for the Congress

Address the Issues Related to NTIS’s

Mission and Financial Viability

In recent years, questions have been raised about

NTIS’s role and mission in the 21st century and

whether it will be able to remain self-supporting as

currently required. Partly as a result of actions

taken in response to previous OIG reports that

focused on NTIS’s serious financial problems, the

agency is now financially solvent and expects to

record a net profit of more than $1 million for

FY 2001. However, questions concerning its role

and mission in the 21st century remain.

A working group of senior Commerce officials

proposed closing NTIS by the end of FY 2000 and

transferring its collection of scientific, technical,

business, and engineering publications to the Library

of Congress to ensure permanent public access to

such documents. However, due to congressional

concerns, the closure was delayed pending the

outcome of both a GAO review of NTIS’s functions and a comprehensive study by the U.S.

National Commission on Libraries and Information

Science of the federal government’s information

dissemination activities.

The Library Commission released its study on

January 26, 2001. Although the majority of Commission experts believed that NTIS’s fundamental

mission remains valid, they concluded that the

agency needs a new vision and business model to

provide for expanded public access to its information and annual appropriations to help pay for the

associated costs. The Commission also concluded

that NTIS’s focus should be on its statutory mission

of acquiring, preserving, and disseminating federally

sponsored science, technology, and engineering

information, noting that the agency has expanded

the scope of its coverage well beyond that primary

mission in order to remain self-sustaining.

While NTIS no longer faces an immediate financial

crisis, questions concerning its role and mission and

its ability to continue to support itself as currently

authorized still exist. Accordingly, we believe that

the current management challenge is to ensure that

the Department continues working on the broader

policy issues that face NTIS.

Enhance Export Controls

for Dual-Use Commodities

The United States controls the export of certain

goods and technologies for national security and

foreign policy purposes. Within Commerce, the

Bureau of Export Administration issues licenses

authorizing the export of certain dual-use commodities—goods and technologies that have both civilian

and military uses. The adequacy of controls for

dual-use commodities is a subject of continuing

controversy, generating a wide range of opinions 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 not to unduly hamper U.S. trade opportunities and competitiveness. Striking this balance can

pose a significant challenge.

New comprehensive legislative authority is needed

to replace the Export Administration Act of 1979

and implement effective export control policies in

order to strengthen the federal government’s export

licensing and enforcement process. The act was

passed during the Cold War primarily to help block

the export of critical goods and technologies to

Communist bloc countries for national security

reasons. In the post-Cold War era, there are new

threats to U.S. national security and foreign policy

goals posed by rogue countries and terrorist groups

who seek to acquire weapons of mass destruction

and weapon delivery systems.
Commerce OIG Semiannual Report March 2001 9

Major Challenges for the Department

IG’s Message for the Congress

A comprehensive revision of the act is also needed

to demonstrate that the United States is firmly

committed to maintaining strong export controls, as

it encourages other countries to do the same, by

strengthening BXA’s regulatory authority and

penalties, which have been weakened under interim

export control regulations.

Given the importance of export licensing controls to

national security, we have devoted considerable

attention to the challenges facing BXA in controlling

exports of dual-use commodities. In 1993 we

participated in a special interagency review of

export licensing processes for munitions and dualuse commodities. The 1993 report highlighted the

need for more transparency in the dual-use export

licensing process. To meet this need, in 1995 the

President issued Executive Order 12981, which

expanded the authority of the Defense and State

Departments and other involved federal agencies to

review all export license applications.

In October 1998, at the request of the Chairman of

the Senate Governmental Affairs Committee, the

OIGs of the Departments of Commerce, Defense,

Energy, State, and the Treasury, and the Central

Intelligence Agency, undertook a follow-up review

to evaluate the status of actions taken to implement

the recommendations from the 1993 review. We

also evaluated the effectiveness of the Department’s current policies, procedures, and practices

for licensing dual-use commodities. In our report,

issued in June 1999, we stated our conclusion that

the multi-agency export licensing process for dualuse commodities is balanced and attempts to bring

divergent policy views and information to bear on

decision-making for export licenses.

While our follow-up review identified significant

areas of improvement in export controls since the

1993 review, it also found that some weaknesses in

the licensing process identified in the earlier review

still needed to be addressed. Specifically, we found

that (1) more transparency was needed in the

commodity classification and license appeals

processes, (2) the intelligence community was not

reviewing all dual-use export license applications or

always conducting a comprehensive analysis of

applications it did review, (3) license applications

needed to be screened against a key database

maintained by the U.S. Customs Service, (4) BXA

needed to improve its monitoring of license conditions with reporting requirements, and (5) BXA

needed a new automated system to process export

license applications efficiently and effectively.

The National Defense Authorization Act for

FY 2000 directed the same six OIGs to report to

the Congress by March 30, 2000, and annually until

the year 2007, on the adequacy of current export

controls and counterintelligence measures to

prevent the acquisition of sensitive U.S. technology

and technical information by countries and entities

of concern.

In response to the first-year reporting requirement,

each OIG reviewed selected aspects of its

agency’s export controls and counterintelligence

measures and reported on the results. Two interagency reports highlighting cross-cutting issues

among federal agencies were also prepared. Our

report focused on three activities that the Commerce Department, principally through BXA,

carries out or participates in to help prevent the

illicit transfer of sensitive U.S. technology: deemed

export controls, the Visa Application Review

Program, and the Committee on Foreign Investment

in the United States.

To meet the act’s second-year requirement, a

recently completed interagency OIG review

focused on the Commerce Control List, which is

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

which is maintained by the State Department (see

page 16). Our review looked at BXA’s policies and

procedures for the design, maintenance, and application of the Commerce Control List. Specifically,

our objectives were (1) to examine how the Commerce list is managed, including whether it is userfriendly and how commodities and technologies are
 Commerce OIG Semiannual Report March 2001 10

Major Challenges for the Department

IG’s Message for the Congress

added to or removed from it; (2) to determine

whether there is still a need for greater transparency in BXA’s commodity classification process, as

stated in our June 1999 export control report; and

(3) to determine whether there is a need for more

transparency in State’s commodity jurisdiction

process. Our report on the Commerce Control List

and the multi-agency OIG report on the Commerce

list and the Munitions List were issued in March

2001.

However, the challenge continues for BXA, as well

as for the Administration and the Congress, to pass

a comprehensive revision of the Export Administration Act and to focus the federal government’s

licensing and enforcement efforts on targeting those

exports that present the greatest proliferation and

national security risks and on relaxing or eliminating

controls that unnecessarily hamper trade. Through

our export control reports, we hope to play a useful

role in congressional and public debates on the

reauthorization of the Export Administration Act

and the revamping of the nation’s export controls.

We will continue to monitor BXA’s efforts to

improve dual-use export controls through the annual

reviews required by the National Defense Authorization Act for FY 2000.

Increase the Effectiveness

of Fishery Management

Ensuring healthy stocks of fish and other marine

animals in the coastal waters beyond each state’s

jurisdiction is a federal responsibility carried out

principally by NOAA’s National Marine Fisheries

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

Conservation and Management Act of 1976, as

amended, the Marine Mammal Protection Act of

1972, the Endangered Species Act of 1973, and

other legislation. Among other things, NMFS and

the councils track the condition of fish and other

marine species, determine the levels of catch that

will provide the greatest benefit to the nation, and

measure the economic impact of fishery regulations

and policies. Measures to manage various species

are generally developed by the councils, subject to

review by NMFS and approval by the Secretary of

Commerce. These measures are often controversial because they impose fish quotas that affect

both the survival of a species and the economic

health of the fishing industry and many coastal

communities.

NMFS is also responsible for the recovery of

certain species protected under the Endangered

Species Act. These include both marine and

anadromous species, such as salmon, which migrate

between the ocean and inland waterways. NMFS

plays a central role in the Northwest Salmon

Recovery Effort—a combined response by various

federal agencies, state and tribal governments, and

other organizations to restore salmon runs in the

Columbia River Basin that have been listed for

protection under the Endangered Species Act.

In its Federal Columbia River Power System 2000

Biological Opinion, NMFS set performance standards and recovery actions that guide the operations of 29 federally owned dams. These guidelines

are incorporated in the Basinwide “All-H” Salmon

Recovery Strategy issued by the Federal Caucus in

December 2000. The strategy covers areas essential to recovery—harvest, hatcheries, hydro power,

and most importantly, habitat. NMFS will assess the

implementation of each of these strategy areas and

periodically review whether the basinwide strategy

of improvements, research, and evaluation is

meeting performance standards to halt species

decline within 10 years and enable population

growth thereafter. If performance standards are not

met, the Federal Caucus intends to accelerate

recovery measures or consider new actions.

When the Basinwide Salmon Recovery Strategy

was issued, we were in the process of completing a

review of certain aspects of NMFS’s role in the

Columbia River Basin recovery effort. While

NMFS has helped move the Federal Caucus
Commerce OIG Semiannual Report March 2001 11

Major Challenges for the Department

IG’s Message for the Congress

toward a comprehensive strategy of coordinated

ecosystem management, we believe, as reported to

NMFS in a management memorandum, that NMFS

needs to (1) complete detailed recovery plans for

each Evolutionarily Significant Unit, which is a

segment of a species that is reproductively isolated

and contributes substantially to the species’ genetic

diversity, and (2) strengthen its collaboration with

federal agencies, states, tribes, and other stakeholders in fulfilling its responsibilities under the Endangered Species Act.

With regard to the recovery plans, NMFS needs to

ensure that they include site-specific management

actions, estimates of the time and cost needed to

carry out the actions, and objective, measurable

criteria that, when met, will result in the Evolutionarily Significant Units being removed from the

endangered or threatened list. With regard to

collaboration, many stakeholders in the salmon

recovery effort, including some members of the

Federal Caucus, have been critical of NMFS’s

performance in this area. NMFS needs to carefully

assess and, as appropriate, address concerns

expressed by stakeholders in strengthening its

collaborative efforts.

The importance of fishery management to NOAA

and the Department, the sheer complexity of the

issue, and the significant resources involved makes

this a formidable challenge. We will continue to

monitor developments concerning the management

and conservation of fisheries for which NMFS has

responsibilities under the various acts.

Continue to Improve the

Department’s Strategic Planning and

Performance Measurement in

Accordance with GPRA

The Department continues to make progress in

meeting the challenge of how to best plan and

measure its performance in accordance with the

Government Performance and Results Act of 1993

(GPRA). The Department submitted to the Congress its revised strategic plan for FY 2000 to

FY 2005 in January 2001 and its second Accountability Report, which reports both financial and

performance results for FY 2000, in March 2001.

In its FY 2001 Annual Performance Plan and

FY 1999 Annual Program Performance Report, the

Department made efforts to address concerns

raised by the Congress, GAO, and the OIG about

its previous GPRA implementation efforts. However, reviews of these documents found that the

Department needed to improve its system for

scoring and communicating performance results, its

description of actions to be taken to address the top

10 management challenges, and its discussion of

performance targets not met and efforts to improve

performance. Also, in our judgment, the Department needed to continue to take actions to ensure

that the data used to measure performance is

accurate, complete, and reliable. The Department

worked to address these concerns in its combined

FY 2000 Annual Program Performance Report and

FY 2002 Annual Performance Plan, which were

submitted to the Congress after the close of the

semiannual period.

We have regularly provided advice and assistance

to the Department on the implementation of GPRA,

as well as on the linkage between the act’s required

performance reporting and the financial reporting

contained in the annual financial statements. As

part of an incremental approach to reviewing the

Department’s performance data, we also have

issued reports offering recommendations for

improving the reporting of performance information

and, more recently, for strengthening internal

controls at two Commerce bureaus. In addition, we

have made presentations to departmental officials

on the importance of ensuring that the information

related to performance results can be relied upon,

and have provided comments and suggestions on

various planning and reporting documents prepared

in support of GPRA.
 Commerce OIG Semiannual Report March 2001 12

Major Challenges for the Department

IG’s Message for the Congress

Strengthen Financial Management

Controls in Order 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 the

We worked with the Department to ensure that its

Accountability Report for FY 2000 contained a

statement of net cost that accurately reflected the

Department’s activities and a management discussion and analysis that contained required information and reported its most significant performance

results. Our audit of the Department’s FY 2000

financial statements included an evaluation of the

consistency between the Accountability Report and

the revised Strategic Plan. We also ensured that

performance data contained within the report were

subjected to basic review procedures. In our Report

on Compliance with Laws and Regulations, we

noted that the Department had failed to submit its

revised strategic plan by the date required by

GPRA and OMB.

We will continue to monitor the Department’s

efforts to implement GPRA, provide advisory

comments on GPRA-related documents, and,

where resources permit, perform targeted reviews

of GPRA-related issues. A major challenge for the

Department is to ensure that concerns raised about

its initial annual performance report and its prior

annual performance plans are addressed in its

combined FY 2000 performance report and

FY 2002 performance plan. While the Department

has been responsive to past criticisms of the

documents it has produced to meet GPRA requirements, continued management attention is needed to

produce further improvements in performance

planning and reporting.

financial management practices of federal agencies. The statutes require audited financial statements that present an entity’s financial position and

results of operations, as well as other information

needed by the Congress, agency executives, and

the public to assess management’s performance.

Despite continuing obstacles—including the absence of a single, integrated financial management

system—the Department received its second

unqualified (clean) opinion on its FY 2000 consolidated financial statements (see page 69).

Although substantial improvements have been

made in financial management, further improvements are essential in order for the Department and

its reporting entities to correct the material weaknesses and other deficiencies identified in the audits

of the FY 2000 statements and to maintain their

clean opinions in future years. 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 FY 2000 statements identified six

material weaknesses, seven reportable conditions,

and several instances of noncompliance with laws

and regulations that need to be resolved, of which

three material weaknesses, three reportable

conditions, and one instance of noncompliance

were new matters. Despite the decrease in the

total number of deficiencies from previous years,

they still represent obstacles that the Department

must overcome to avoid jeopardizing future clean

opinions.

The Department recognizes that ongoing efforts

are needed to create a financial management

environment that provides timely, accurate financial

and performance information and complies with

federal laws and regulations, and we are pleased

with the Department’s continued focus on strengthening financial management controls. However,

maintaining clean audit opinions on Commerce’s
Commerce OIG Semiannual Report March 2001 13

Major Challenges for the Department

IG’s Message for the Congress

Successfully Implement

Acquisition Reform Initiatives

The Department of Commerce and other federal

agencies are increasingly relying on contractors to

provide the goods and services essential to their

operations. The Department spends more than

$1 billion each year, or about one-quarter of its

annual appropriations, through large contracts and

other procurement vehicles.

The Federal Acquisition Streamlining Act of 1994

substantially revised federal procurement law. The

act encouraged the use of commercial items,

performance-based service contracting, and past

performance as a major evaluation criterion for

award. It also reduced paperwork, permanently

raised the threshold for the use of simplified

acquisition procedures from $25,000 to $100,000,

and promoted using the Internet for acquisition

processing.

The Federal Acquisition Reform Act of 1996

provided for governmentwide acquisition reform,

including the repeal of the Brooks Act (which

covered automated data processing procurements);

shortened the time allowed for GAO to issue bid

protest decisions; and revised the Procurement

Integrity Act. The Information Technology Management Reform Act of 1996 emphasized resultsbased acquisition and life-cycle management of

information technology as a capital investment.

These two laws were subsequently combined and

renamed the Clinger-Cohen Act of 1996.

Although these new laws aim to promote greater

efficiency and uniformity in procurement practices

among government agencies, GAO has reported

some concerns about the implementation of acquisition reform, including problems with the use of

government-wide agency contracts (GWACs). The

consolidated financial statements, as well as on all

reporting entity statements, remains a major

challenge.

Office of Federal Procurement Policy, within the

Office of Management and Budget, has also expressed concerns about the use of GWACs and other

multiple award contracts, as well as about service

contracting, criticizing in particular many agencies’

lack of focus on results. For FY 2002, OMB has

directed all agencies to include in their performance

plans the goal to award not less than 20 percent of

service contracting dollars using performance-based

methodology. Likewise, we have identified specific

problems at Commerce concerning improper use of

task order contracts, inadequate documentation of

market surveys, insufficient planning for contract

administration and monitoring, and inadequate

administration of the purchase card program (see, for

example, pages 48 and 59).

The Department has actively participated in the

implementation of acquisition reform. Commerce

developed a streamlined acquisition process known

as CONOPS, which has reduced procurement lead

times. In addition, performance-based service

contracting was used in acquisitions for the 2000

Decennial Census. The Department also awarded

the Commerce Information Technology Solutions

contract (known as COMMITS), the only GWAC for

information technology services set aside for small,

disadvantaged, and women-owned businesses.

The laudable purpose of acquisition reform and its

streamlining initiatives is to reduce the time and

money spent in acquiring needed goods and services.

At the same time, the new focus on considering past

performance in awarding contracts, including the use

of performance-based service contracting, requires

innovative approaches in monitoring contractor

performance, including the use of performance-based

measurement tools, such as earned value and risk

management. It also requires acquisition teams

(including the contracting officer and the contracting

officer’s technical representative) to develop specialized business management skills. Given the general

concerns expressed by GAO and the Office of

Federal Procurement Policy, and the specific concerns identified by our office, we believe that suc-
 Commerce OIG Semiannual Report March 2001 14

Major Challenges for the Department

15

IG’s Message for the Congress

cessful implementation of acquisition streamlining

initiatives within the Department of Commerce

remains a major challenge and warrants extra

scrutiny.

In recognition of the challenges facing acquisition

reform and our concerns, the Department’s Senior

Procurement Executive briefed us in January on the

risk management program being executed by the

Office of Acquisition Management concerning

several of the office’s initiatives, including the

ongoing implementation of acquisition reform

initiatives, automation of the Department’s procurement process, priority emphasis on career development for contracting employees, partnering with the

Department’s Chief Information Officer and the

Budget Officer to integrate the budgeting and

planning activities for information technology

acquisitions, and oversight and performance

measurement of acquisition activities. The Office of

Acquisition Management has initiated a review of

how the Department is using the General Services

Administration Schedule and GWACs. We will

periodically review the results of these initiatives.
Commerce OIG Semiannual Report 16 March 2001

Bureau of Export Administration

Management of the Commerce Control List

and Related Processes Should Be Improved

The National Defense Authorization Act for Fiscal Year 2000 directed the

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

Treasury, and the Central Intelligence Agency, in consultation with the

Federal Bureau of Investigation, to assess the adequacy of export

controls and counterintelligence measures to prevent the acquisition of

militarily sensitive U.S. technology and technical information by countries

and entities of concern. The OIGs are mandated to report to the Congress by March 30 each year until 2007.

For the current year, the Commerce, Defense, Energy, and State OIGs

conducted an interagency review of the Commerce Control List and the

U.S. Munitions List. The Control List, maintained by BXA, specifies the

commodities, software, and technology that are subject to the Export

Administration Regulations, as well as the controls that are placed on

these items, depending on the country to which they are to be exported.

Each item on the Control List is grouped by type of commodity and

assigned an Export Control Classification Number (ECCN). The Munitions List, administered by the State Department, specifies items subject

to the International Traffic in Arms Regulations. Businesses use both lists

to determine whether they need to apply for an export license for items

they want to export.

The Commerce OIG review focused on BXA’s policies and procedures

covering the design, maintenance, and application of the Control List.

Specifically, we examined how the Control List is managed and determined whether there is a need for greater transparency in BXA’s commodity classification process and in State’s commodity jurisdiction

process. Our observations are as follows:

Improvements Are Needed in

BXA’s Management of the Control List

We found several areas in which BXA could improve its management of

the Control List:

 BXA has taken a long time—from 6 months to over a year—to

update the Control List with changes agreed to at meetings of the

multilateral regimes to which the U.S. government belongs.

The Bureau of Export

Administration is primarily

responsible for the administration

and enforcement of the nation’s

system for controlling exports of

sensitive dual-use goods and

technologies. Under the Export

Administration Act and regulations,

BXA’s major functions include

formulating and implementing

export control policy; processing

export license applications; conducting various policy, technical,

and economic analyses; promulgating regulations; conducting

industry outreach; and enforcing

the act and regulations.

Export Administration implements U.S. export control and

nonproliferation laws and policies

through export licensing, commodity classifications, and advisory

opinions; technical, economic,

foreign availability, and policy

analyses; promulgation of regulations; and industry outreach. It

also conducts various defense

industry base activities.

Export Enforcement participates

in reviews of export license applications and conducts criminal and

administrative investigations of the

export control portions of the

Export Administration Act and

regulations. It also administers and

enforces the antiboycott provisions

of the act and regulations.
Commerce OIG Semiannual Report 17 March 2001

Bureau of Export Administration

 Some items covered by several ECCNs are being included on the

Control List for national security reasons, yet they are not

controlled by the multilateral regime from which the largest

number of ECCNs are derived. BXA generally does not have the

authority to unilaterally impose national security controls for items

not controlled by the multilateral regimes.

 While numerous users we spoke with reported that the Control

List was easier to use than the Munitions List, they cited many

examples of how it could be made easier to navigate, such as by

removing some outdated terminology from the list.

The Commodity Classification Process

Continues to Cause Concerns

Through the commodity classification process, BXA advises exporters on

whether an item is subject to the Control List and, if so, which ECCN it

falls under. In a 1999 export licensing review (see September 1999 issue,

page 17), we identified two weaknesses in the process: (1) the processing

of classification requests was too slow, a problem that could delay U.S.

exporter shipments, and (2) the process was not transparent (that is,

visible to all involved parties) because BXA was not referring all munitions-related classifications to Defense and State, thereby creating the

potential for incorrect classifications. Our current review found that slow

processing was still a problem, as 84 percent of the classification requests

processed in FY 2000 exceeded the legislatively mandated deadline of 14

days (see figure below). Moreover, while BXA agreed in 1999 to develop

specific criteria and procedures for the referral of munitions-related

classifications, it has not yet done so.

Source: BXA Office of Administration

320

124

738

487

201

89 90

0

100

200

300

400

500

600

700

800

0-14 15-20 21-40 41-60 61-80 81-100 100+

Processing Time for

Commodity Classification

Requests (FY 2000)

Number & Percentage of Cases

Number of Days

16%

6%

36%

24%

10%

4%

4%

Export

Administration

Export

Enforcement

Bureau of

Export

Administration

1
Commerce OIG Semiannual Report 18 March 2001

Commodity Jurisdiction

Process Needs Improvement

Exporters who need assistance in determining whether an item is subject

to the Munitions List can request a commodity jurisdiction determination

from the State Department, which has export licensing jurisdiction for

items on that list. As part of its review process, State is to refer all such

requests to BXA and Defense to obtain their views about whether the

item involved is covered by the Munitions List or the Control List. We

found that, contrary to 1996 National Security Council guidance, the

determination requests are not being processed in a timely manner by any

of the involved agencies. In addition, these requests are being processed

manually, which inhibits the efficient exchange of information between

agencies. Finally, we are concerned that State may be making incorrect

determinations because it does not always consult with BXA or Defense.

Other OIG Concerns Related

to the Commerce Control List

Our review revealed a breakdown in the interagency process for resolving jurisdictional disputes involving night vision equipment and “space

qualified” items, which are used in satellites and other high-altitude

systems. The issue concerning the night vision equipment is whether it

should be licensed as a dual-use item by BXA, as was agreed to by the

licensing agencies in a 1992 memorandum of understanding, or licensed

by State as munitions. Because the agencies have been unable to resolve

this issue, license applications are being delayed, and exporters are

confused as to which agency they should be dealing with. Moreover,

BXA and State disagree about which of them has jurisdiction for certain

space qualified items currently on the Control List. The National Security

Council, which was tasked with resolving this dispute, was expected to

rule in May 2000, but had not done so as of March 2001.



We made a number of recommendations to BXA to address our concerns. BXA generally agreed with those related to the Control List, but

did not agree with most of those related to the commodity classification

process. BXA’s position on the latter recommendations is troubling

because it concurred with similar recommendations we made in a 1999

report, and since that time, neither the timeliness nor the transparency of

the process has improved.

Bureau of Export Administration
Commerce OIG Semiannual Report 19 March 2001

BXA agreed with most of our recommendations related to the commodity

jurisdiction process, but said that efforts to improve the timeliness of the

process were hampered by resource and staffing shortages. We contend

that if BXA needs additional staff for this purpose and lacks the resources

to fund or reallocate the needed positions, it should justify this need in its

budget submissions. BXA also asserted that many of our recommendations

should have been addressed to other federal agencies. We maintain that

although many of our recommendations require BXA to work in concert

with other agencies, BXA is the appropriate agency to initiate our recommended actions. (Office of Inspections and Program Evaluations:

IPE-13744)

Follow-up Review Determines That Most Prior

Year Recommendations Are Being Implemented

In addition to requiring annual reports on the adequacy of U.S. government

export controls and counterintelligence measures (see previous section),

the National Defense Authorization Act requires us to report annually on

the status of recommendations made in earlier reports submitted under the

act.

Our report for 2000 focused on three activities that the Department,

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

illicit transfer of sensitive U.S. technology: deemed export control initiatives, the Visa Application Review Program, and efforts in support of the

Committee on Foreign Investment in the United States (see March 2000

issue, page 21). In that report, we concluded, in general, that deemed

export control regulations needed to be better defined and compliance

improved, that the Visa Application Review Program showed promise but

needed to be refined, and that federal efforts to monitor foreign investment

should be reviewed. We made a series of recommendations to address our

specific findings.

Our follow-up review determined that for 16 of the 24 recommendations

made in our 2000 report, the actions that BXA either was taking or had

completed met the intent of the recommendations. However, we reported

that BXA’s actions for the remaining 8 recommendations, particularly in

the deemed export control area, were not adequate. Given BXA’s central

role in administering the dual-use export control process, we believe that

the agency needs to implement the open recommendations as soon as

possible. (Office of Inspections and Program Evaluations:

IPE-14246-1)

Bureau of Export Administration
Commerce OIG Semiannual Report 20 March 2001

Most Allegations Concerning Nonproliferation

Export Control Cooperation Program Unfounded

BXA’s Nonproliferation Export Control Cooperation (NEC) program was

established in 1993 to help Russia and the Newly Independent States

develop export control programs by providing them with training and

technical assistance on export controls and advice on drafting export

control laws and regulations. BXA has since expanded the program to

include the support of initiatives that prevent the proliferation of nuclear,

biological, and chemical weapons and the diversion of weapons-related

scientific and technical information and expertise of the independent

states to countries and entities of concern. The State Department is the

program’s primary funding source, but the Defense Department and the

Customs Service have also provided funding.

In December 1999, the OIG received an anonymous letter containing

numerous allegations of irregularities in the NEC program, including

alleged mismanagement by senior BXA officials. After conducting a

review of the matters raised in the letter, we concluded that most of them

could not be supported, but that some improvements could be made in

BXA’s management of the program, as summarized below:

 Oversight and controls over NEC funds should be improved. BXA’s policy guidance covering funds for official

entertainment and representation needs to be clarified and should

provide more examples of allowable and unallowable expenditures. In addition, BXA needs to more closely monitor its expenditures of federal funds for NEC conferences and technical

exchanges.

 BXA’s agreement with State regarding program activity

with China should be modified. Documentation supporting an

interagency agreement between BXA and the State Department

mistakenly includes references to BXA’s future bilateral and

multilateral export control work with China, although there are no

plans to conduct such work. BXA should work with State to

modify the agreement to exclude China from the list of countries

with which BXA will work using State funding.

BXA agreed with all of our recommendations for corrective action and

reported that it had already implemented some of them. (Office of

Inspections and Program Evaluations: IPE-13313)

Bureau of Export Administration
Commerce OIG Semiannual Report 21 March 2001

Audit of FY 2000 Financial Statements

BXA made significant progress in addressing prior internal control

deficiencies during FY 2000 and received an unqualified opinion on its

financial statements for the third consecutive year. The certified public

accounting (CPA) firm conducting the audit did, however, identify one

reportable condition, which involved the need to improve controls over

undelivered orders. Undelivered orders represent the amount of goods

and services ordered by a BXA account from another federal government account or the public, but not yet received. The firm’s test of a

sample of undelivered order documents identified a number of inaccuracies, which required a corrective adjustment in the financial statements.

In addition, because BXA’s accounting transactions are processed on

NOAA’s automated system, two deficiencies identified in NOAA’s

system also affect internal controls over BXA’s accounting and financial

data and resulting reports. Specifically, NOAA’s Financial Management

System and subsystems do not conform with the Federal Financial

Management Improvement Act of 1996, and the auditors determined that

these systems do not support the preparation of timely, accurate financial

statements.

BXA concurred with the facts, findings, and recommendation contained in

the audit report. (Financial Statements Audits Division: FSD-12848)

Bureau of Export Administration
Commerce OIG Semiannual Report 22 March 2001

Economic Development elopment

Administration

Financial Assistance Award Programs Would

Benefit from More Competitive Procedures

As part of its Department-wide review of Commerce’s discretionary

financial assistance programs, the OIG conducted an audit of the FY 1997

criteria, procedures, and practices for soliciting, reviewing, and selecting

applications for funding under EDA’s public works, technical assistance,

and other economic development programs.

In FY 1997, EDA received more than 770 proposals from all 50 states,

American Samoa, Guam, Micronesia, Puerto Rico, and the District of

Columbia and made a total of 657 awards under the five programs

covered by our audit, as shown below:

Our audit found that EDA’s criteria for reviewing award applications and

its procedures and practices for soliciting award recipients generally

complied with statutory, departmental, and agency-specific requirements

and appeared designed to result in merit-based funding decisions. To

evaluate applications for financial assistance, EDA developed and published merit-based technical and public policy criteria that were consistent

with its mission and program objectives. In addition, the agency exceeded

the Department’s minimum requirement for public notice by issuing

solicitations and holding six regional conferences for current and prospective applicants that were sufficient to obtain a nationwide response from

nearly 800 applicants.

Program Award Funding

Technical Assistance 145 11.1

Public Works Impact 8 4.6

Total 657 $339.2

State and Local

Development Planning 47 3.5

State Economic Development

Adjustment Assistance 267 159.8

(Millions)

Public Works 190 $160.2

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 recovering from

the economic impact of natural

disasters, the closure of military

installations and other federal

facilities, changing trade patterns, and the depletion of

natural resources. To accomplish

this, EDA provides eligible

recipients with technical assistance, as well as grants for

public works and economic

development, planning, training

and research, and economic

adjustment.
Commerce OIG Semiannual Report 23 March 2001

Economic Development Administration

Program

Operations

Finance and

Administration

Economic

Development

Administration

However, we also identified opportunities for improving EDA’s procedures

and practices. Specifically, we found that EDA:

 Needed to improve its review and selection processes by directing

regional project review committees to keep better minutes of their

proceedings, retaining for the required 3-year period proposals

that are rejected for funding, and ranking competitive proposals

for the Technical Assistance Program and the State and Local

Development Planning Program.

 Compromised the independence of the regional review process by

allowing the regional directors to chair regional review

committees and also serve as selecting officials for their regions’

awards.

 Awarded certain technical assistance renewal awards without

competition and certain noncompetitive awards without adequate

written justification.

We made a number of recommendations aimed at improving EDA’s

documentation of the awards process and promoting greater competition

in the review and selection of applications for funding. Although EDA did

not fully agree with all of our recommendations, its response indicated its

willingness to take actions to significantly improve aspects of its awards

processes. (Denver Regional Office of Audits: DEN-11580)

Audit of FY 2000 Financial Statements

For FY 2000, the third consecutive year, EDA received an unqualified

opinion on its financial statements. While commending the agency for this

accomplishment, we also noted that the CPA firm that conducted the audit

identified three reportable conditions in EDA’s internal control structure,

the first of which is deemed to be a material weakness:

 Policies and procedures for the year-end closing and financial

statement preparation need improvement.

 Implementation of EDA’s financial system caused delays in the

year-end closing and financial statement preparation.

 General and environmental controls over automated systems need

improvement.

Cong. Liaison,

Program

Research and

Evaluation

Regional

Offices
Commerce OIG Semiannual Report 24 March 2001

Economic Development Administration

The third reportable condition was identified during a review by the CPA

firm of the general controls associated with EDA’s information processing

environment—specifically, the Commerce Administrative Management

System and the Loan Billing and Management System. The firm identified weaknesses in entitywide security program planning and management, access control, segregation of duties, and service continuity. These

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

data, programs, and hardware maintained at EDA and have a negative

effect on EDA’s financial statements and those of the Department. The

weaknesses, and the firm’s recommendations for correcting them, were

discussed in a separate report on systems issues.

The firm also identified one instance of material noncompliance with laws

and regulations. Specifically, the firm found that the financial system that

EDA uses for salaries and expenses does not comply with certain system

requirements. Moreover, the financial accounting and reporting system

used to process some accounting transactions does not maintain sufficient

commonality of data elements and transactions processing to ensure

timely, accurate, and effective financial reporting. Although it has made

progress in improving its financial management, EDA must continue to

address the identified deficiencies, particularly its documentation for the

financial statements preparation process.

EDA agreed with the findings and recommendations in both of the firm’s

reports and reaffirmed its commitment to improving financial systems and

internal controls. (Financial Statements Audits Division: FSD-12851-1

and FSD-12851-2)

Audits Examine Need for Grants to

Recapitalize Revolving Loan Funds

Four OIG audits completed during this semiannual period were conducted

largely to determine whether grants awarded by EDA to local economic

development organizations to recapitalize revolving loan funds (RLFs)

were needed.

Texas Economic Development Organization

A nonprofit economic development organization promotes economic

growth in two east Texas counties by assisting local businesses in diversifying the economic base and creating new job opportunities. In September 1992, EDA awarded the organization a $500,000 grant to establish an

RLF. A second grant, also for $500,000, was awarded in March 1996 to

recapitalize the fund.
Commerce OIG Semiannual Report 25 March 2001

As of August 2000, more than four years after the second award, the

awardee had not drawn down any funds from the recapitalization grant.

Our audit of the RLF found that the grantee had not made any drawdowns because the original grant and subsequent loan repayments

provided more than enough money to meet the RLF’s loan demand.

Under federal law and the terms of the grant agreement, any grant funds

not disbursed by the end of the fifth fiscal year after the award date—in

this case, September 30, 2001—will be automatically deobligated.

Even if a demand for loans were to develop before that date, the grantee

would have limited time to adequately evaluate loan applications and

ensure that any loans made would be prudent and consistent with program objectives. We therefore recommended that EDA immediately

terminate the recapitalization grant and deobligate the $500,000 in grant

funds. In addition, because the organization had failed to follow all EDA

and OMB requirements in administering its RLF program, we questioned

more than $34,000 in claimed grant administration costs and recommended that EDA disallow those costs and require the organization to

reimburse the RLF in that amount.

Contending that the recapitalization funds would, in fact, be needed, in

response to our draft report, the grantee presented information about

recent and prospective loan activity, as well as information concerning the

reasonableness of the questioned costs. However, because the grantee

did not provide a sufficiently detailed explanation of when the loans would

be made and the funds would be drawn down or any documentation to

support the questioned costs, we reaffirmed our original recommendations. (Atlanta Regional Office of Audits: ATL-13734)

Ohio Nonprofit Corporation

A nonprofit organization created to help retain, expand, and attract new

business investment in an Ohio county also uses an EDA-funded RLF as

a means of accomplishing its mission. In 1987 the organization received a

$650,000 grant to establish the RLF, of which $480,000 was provided by

EDA. In 1996, in response to the grantee’s determination that the RLF

needed additional capitalization, EDA awarded a $500,000 recapitalization

grant, of which $250,000 was federal funds.

Again, our audit determined that the grantee had not demonstrated a need

for the recapitalization grant. The funds added by the grantee and subsequent loan repayments from the initial grant had provided more than

enough money to meet the RLF’s loan demand, and as of September 30,

2000, the grantee had not made any drawdowns on the recapitalization

grant. In fact, since the grantee had added capital to the RLF before the

Economic Development Administration
Commerce OIG Semiannual Report 26 March 2001

award of the second grant, we question whether there was a pressing

need for the recapitalization grant in 1996. At any rate, because we

projected that the grantee would not need the recapitalization grant funds

by September 30, 2001, when all of the funds from the grant would

automatically be deobligated, we recommended that EDA terminate the

recapitalization grant and recover the $250,000 in federal funds.

Concurring with our recommendation, the grantee indicated that after it

requested the recapitalization grant, higher than expected income from

the RLF provided enough funds to operate the RLF so that the recapitalization grant would not be needed. (Denver Regional Office of Audits:

DEN-13741)

Louisiana Local Government Agency

A Louisiana local government agency uses a federal RLF to promote

economic growth in its geographic area by attracting, creating, and

retaining quality jobs and by promoting entrepreneurship. EDA awarded

the organization a $500,000 grant to establish the RLF in 1989 and

another $286,686 grant to recapitalize the fund in 1996.

As in the above audits, we concluded that because the original grant and

loan repayments provided more than enough money to meet the RLF’s

loan demand, recapitalization grant funds were not needed. As of June

2000, almost four years after the second grant award, the grantee had not

made any drawdowns of the grant’s funds, and any of the recapitalization

funds not disbursed by September 30, 2001, will automatically be deobligated. Even if a demand for loans should arise before then, the grantee

would have limited time to adequately evaluate loan applications. Therefore, we recommended that EDA immediately terminate the recapitalization grant and deobligate the $286,686 in grant funds.

In response to our draft report, the grantee asserted that it could use most

of the grant funds by September 30, and provided a list of prospective

borrowers. However, because the grantee did not provide a sufficiently

detailed explanation of when the loans would be made and the funds

would be drawn down, we did not alter our original recommendation.

(Atlanta Regional Office of Audits: ATL-13214)

Economic Development Administration
Commerce OIG Semiannual Report 27 March 2001

Texas Economic Development District

The objective of an economic development district covering 16 Texas

counties is to promote economic growth by assisting in commercial and

industrial expansion and providing adequate financing capital for area

businesses. Among the district’s programs is an EDA-funded RLF. In

1986 EDA awarded the district a $350,000 grant, which was reduced in

1989 to about $125,000, to create the RLF. In 1993 and 1996, EDA

awarded two additional $500,000 grants to recapitalize the RLF.

Our audit determined that the repayments from loans funded through the

original grant and the first recapitalization grant had provided most of the

money needed to meet the district’s loan demand. As a result, the district

had used only $210,000 of the $500,000 second recapitalization grant as

of August 2000. In this case, however, we concluded that the district’s

prospects for making more loans were encouraging, and that it might

have a need for the remaining grant funds before they are automatically

deobligated on September 30, 2001. Accordingly, we made no recommendations regarding the grant funds.

Our audit also found that because the district did not follow all of EDA’s

RLF administrative requirements, it submitted inaccurate financial reports

and failed to fully document loan files or to ensure that annual audits were

correctly performed. We recommended that EDA require the district to

correct these administrative deficiencies. (Atlanta Regional Office of

Audits: ATL-13735)

Audit Confirms Mismanagement, Recommends

Termination of Revolving Loan Fund Grant

In 1995 EDA awarded an RLF grant to a regional development organization to assist five flood-distressed counties in Georgia in their recovery

from Tropical Storm Alberto. The grant involved $500,000 in federal

funds and required a local match of $166,667. The OIG conducted an

audit of the grant at the request of EDA, which had been alerted to

potentially serious problems by an earlier review by the Georgia Department of Community Affairs.

We found that the grantee’s management of the RLF had been marked

by pervasive problems, poor business judgment, and hundreds of thousands of dollars in inappropriate loans. Our specific findings were as

follows:

Economic Development Administration
Commerce OIG Semiannual Report 28 March 2001

 As of December 1999, the grantee had awarded six RLF loans

totaling more than $700,000. One loan for $200,000 was ineligible

for funding under the program because it was made primarily to

refinance a prior debt; it also involved a possible conflict of

interest, as did two other loans, totaling $220,000. Another loan

for $200,000 was made without adequate documentation to justify

the lending decision. In addition, three of the loans, totaling

$420,000, were either in default or seriously delinquent at the time

of our review.

 The grantee failed to provide more than $54,000 of its required

matching share.

 The grantee’s loan files were lacking numerous required

documents.

 The grantee could not demonstrate that it had effectively

marketed the RLF program.

Concluding that it was not in the Department’s best interest to allow the

grantee to continue operating the RLF, we recommended that EDA

terminate the grant for cause and require the grantee to refund more than

$575,000, representing the total dollar amount of the RLF award plus

interest. (Atlanta Regional Office of Audits: ATL-12618)

Utah City Claimed Millions of

Dollars of Unallowable Costs

In September 1996, EDA awarded a Title IX Sudden and Severe Economic Dislocation Defense Conversion Grant to a Utah city for the

construction of a sewer line from a recently closed Army installation to a

new wastewater treatment plant so that the installation could be developed for commercial use. The total approved project cost was $5,371,000,

including a $2,500,000 federal share. Principal construction funding for

the new treatment plant was to be provided by a federal Bureau of

Reclamation grant, matched by the proceeds of a loan from the state and

a general revenue bond.

Economic Development Administration
Commerce OIG Semiannual Report 29 March 2001

As of July 31, 2000, the city had claimed total project costs of roughly

$4.8 million on the EDA grant. An interim OIG audit of the award

questioned $3,416,014 of the costs on the basis that they either duplicated

the city’s claims under the Bureau of Reclamation grant or were not

traceable to supporting documentation. We recommended that EDA

disallow the questioned costs and direct the city to remove them from its

cost claims. (Denver Regional Office of Audits: DEN-13104)

EDA Needs to Closely Monitor

Grantee’s Progress in Making New Loans

In 1992 EDA awarded a grant to a southern California county agency for

the operation of an RLF as part of a larger award made with Department

of Defense adjustment moneys to help mitigate the effects of Defense

downsizing in the county. The $1 million RLF grant was designated as a

subgrant to a local economic development organization. In 1995, however,

recognizing that the RLF was not achieving its intended purpose, the

county agency petitioned EDA to have the RLF transferred back to the

county. Through no fault of the agency, the transfer was not ultimately

effected until 1999, at which time the award balance was $737,500. At

that point, the agency redesignated the RLF as a technology loan program

and revised the administrative plan to target high-technology start-ups.

An OIG audit found no significant deficiencies with the RLF project.

Nevertheless, we noted that because of administrative delays in the

transfer of the RLF back to the county agency, no loans had been made

for 4 years. We also raised concerns about whether the RLF could be

effectively used under the revised administrative plan because after three

loans were made by the agency shortly after the transfer in mid-1999, it

was unable to attract viable loan applications. The effective use of the

RLF would depend in part on EDA’s approving the agency’s proposal to

explore “equity financing” in addition to traditional debt financing.

After we issued our draft report, there was evidence of increased

demand for loans from the RLF, and some loans were being processed.

In addition, EDA determined that the RLF is viable under the revised

administrative plan and extended the schedule for disbursing the remaining grant funds. We recommended that EDA closely monitor the agency’s

progress in using the remaining funds, and that, if new loans are not

expeditiously funded, EDA deobligate the unused balance of the RLF and

put the funds to better use. (Seattle Regional Office of Audits:

STL-13176)

Economic Development Administration
Commerce OIG Semiannual Report 30 March 2001

EDA-Funded Agricultural Facilities in Puerto Rico

Found to Be Severely Underutilized

In conjunction with an audit of an RLF in Puerto Rico, the OIG was

asked by EDA to review the status of two projects funded by EDA

grants to a Puerto Rico government agency—a coffee processing and

storage facility and an agricultural exchange and services center, which

houses several facilities used to promote and market agricultural goods.

In a March 19 management memorandum to EDA, we reported that both

projects were severely underutilized and not accomplishing their intended

purposes. Specifically, we found that:

 The coffee processing plant had been shut down for almost a

year, although many bags of coffee beans were were awaiting

processing in a building adjacent to the plant. Project officials

estimated that the project had been operating at only 30 percent

of capacity, but expected an increase in demand for coffee by the

end of the year. Officials attributed the low demand to competition from other coffee processors and a large loss of coffee

crops due to the devastation caused by Hurricane Georges.

 Several of the facilities of the agricultural exchange and services

center had not operated since the EDA grant was awarded in

1993. For example, neither the facility that stores and markets

incoming cattle nor the center’s cafeteria was being used. In

addition, project officials stated that they were using the center’s

exhibition hall only about 25 percent of the time on weekends for

agricultural competitions and exhibitions.

In response to our observations, which we discussed in a March 19

memorandum to EDA, and other EDA concerns, the head of the government agency administering the grants wrote to EDA detailing various

actions planned to remedy the underutilization of the agricultural facilities.

EDA has requested that the agency submit quarterly progress reports,

and has advised us that it will closely monitor the agency’s actions.

(Atlanta Regional Office of Audits)

Economic Development Administration
Commerce OIG Semiannual Report 31 March 2001

Economic Development Administration

No Major Problems Found with Grantee’s

Management of Two Revolving Loan Funds

A southern California community development organization, whose

mission is to serve low-income distressed communities, was awarded two

EDA grants to fund RLFs. The first, awarded in September 1980, was a

Long-Term Economic Deterioration implementation grant that provided

$500,000 in EDA funds to capitalize one of the RLFs. The other grant,

awarded in September 1994, provided $5.4 million under the Financial

Restructuring Assistance Program to capitalize a second RLF to provide

targeted assistance to businesses harmed by the Northridge earthquake,

which struck earlier that year.

OIG audits of the grants took no major exceptions to the grantee’s loan

origination practices, servicing, or accomplishments under the RLFs. We

did note some minor problems relating to the capital utilization rate, the

level of working capital loans, and various reporting issues.

The grantee agreed with our findings and stated that it had already begun

to work with EDA to implement our recommendations. (Seattle Regional

Office of Audits: STL-13178-1 and STL-13178-2)

Northern California Organization

Complied with Grant Requirements

EDA awarded four grants totaling $8.3 million to a northern California

nonprofit corporation, which was established in 1988 to help offset the

economic impacts of military base closures and the decline in the defense

and aerospace industries in its region. One grant was intended to assist

local communities in reducing the impact of 11 military base closures by

encouraging the expansion of competitive growth industries and the

generation of new jobs. The other three grants were intended to offset

the effects of defense downsizing by expanding international trade

opportunities and increasing exports in selected industries.

An OIG audit identified no problems with the organization’s administration

of the grants. An evaluation of its internal control system identified no

material weaknesses; the amount of matching funds exceeded requirements; and most contracts had been awarded on a competitive basis. As

a result, we made no recommendations. (Seattle Regional Office of

Audits: STL-13173)
Commerce OIG Semiannual Report 32 March 2001

Economics and

Statistics Administration

The Economics and Statistics

Administration analyzes

economic developments, develops

policy options, and produces a

major share of U.S. government

economic and demographic

statistics. The Chief Economist

monitors and analyzes economic

developments and directs studies

that have a bearing on the

formulation of economic policy.

ESA has two principal agencies:

Bureau of the Census. Census is

the country’s preeminent statistical

collection and dissemination

agency. It publishes a wide variety

of statistical data about people and

the economy of the nation, conducting approximately 200 annual

surveys, in addition to the decennial census of the U.S. population

and the decennial census of

industry.

Bureau of Economic Analysis.

BEA’s goal is to provide a clear

picture of the U.S. economy by

preparing, developing, and

interpreting the national income

and product accounts (summarized by the gross domestic

product), as well as aggregate

measures of international,

regional, and state economic

activity.

Bureau Addresses OIG Concerns About

Handling of Possible Duplicate Census Records

The Constitution mandates that a census of the nation’s population be

taken every 10 years for the purpose of congressional apportionment. In

counting the population during the decennial census, the Census Bureau

relies on its Master Address File (MAF) to identify where people reside.

To overcome the historical undercoverage of housing units for the 2000

decennial, the bureau devised an inclusive approach for retaining addresses in the MAF and used a wider variety of sources to obtain MAF

addresses. In a report on the MAF issued last year, we found that these

factors had resulted in an unknown number of duplicate addresses, which

could result in some people being counted twice (see September 2000

issue, page 26).

As the decennial progressed, the bureau became increasingly concerned

about address duplication and developed a process for resolving the

problem, with the goal of producing more accurate apportionment numbers. The bureau used this process to identify 6 million people in 2.4

million housing units as potential duplicates. However, the bureau concluded that there was not enough time to resolve the status of the suspected duplicates before the census results were needed for the tightly

scheduled operations of the Accuracy and Coverage Evaluation, and

decided to remove all suspected duplicates from A.C.E. processing.

The A.C.E. is a statistical survey of a sample of the population, the

results of which are compared with decennial records to determine

people missed or counted erroneously. The A.C.E. uses a process called

“dual system estimation” to estimate the net undercount of various

demographic groups of the population and to calculate factors that can be

used to adjust the decennial counts. Although the U.S. Supreme Court

had ruled that statistical sampling could not be used for congressional

apportionment, the Court did not prohibit sampling for other purposes,

including redistricting. By law, the Secretary of Commerce was required

to report redistricting data from the 2000 decennial to the states by

April 1, 2001. The Census Bureau was responsible for recommending to

the Secretary whether the redistricting data should be the unadjusted

decennial data or the decennial data as adjusted by the A.C.E.

Once the bureau decided which of the suspected duplicate records to

remove from the decennial, the remaining records were incorporated into

the A.C.E. final calculations using the bureau’s usual approach for dealing

with late census data. The decision on the duplicates resulted in the
Commerce OIG Semiannual Report 33 March 2001

Economics and Statistics Administration

Bureau

of the

Census

Bureau of

Economic

Analysis

Economics and

Statistics

Administration

removal of approximately 3.6 million people in 1.4 million housing units

from the decennial and the reinstatement of approximately 2.4 million

people in 1 million housing units. According to bureau officials, treating

the reinstated records as late census data introduced little or no error into

the A.C.E. results if certain implicit assumptions held true.

The OIG conducted an evaluation to determine whether the bureau’s

approach for handling the reinstatement of the 2.4 million people into the

decennial was effective in minimizing the impact on the accuracy and

reliability of the A.C.E. We reported our major concern—whether the

assumptions implicit in the approach were valid for the reinstated

people—to senior bureau officials during meetings held in January and

February 2001. We recommended that they prepare an analysis of the

likely impact of their method for handling the reinstated person records.

We also recommended that they ensure that the impact was considered

in the bureau’s process for reviewing the decennial and A.C.E. results in

order to make a recommendation to the Secretary of Commerce about

whether the decennial counts should be statistically adjusted for redistricting.

The bureau’s actions were responsive to our concerns and recommendations, considering the short time frame available for reviewing the data

and making the recommendation on whether to adjust. It considered the

likely impact of their method for handling the reinstated person records in

its analyses and reports supporting its recommendation. The bureau plans

to perform further evaluation studies to assess the impact of the reinstatements.

We believe that such studies are appropriate to better understand both the

impact on dual system estimation in the 2000 decennial and the impact of

similar late data requirements in future censuses and surveys because

dual system estimation is an important bureau methodology for measuring

data quality. Further, to help avoid similar problems with the MAF in the

future, we reaffirmed the recommendations presented in our earlier

report regarding approaches for addressing housing unit overcoverage

and undercoverage.

The bureau ultimately recommended that the unadjusted data be released

as its official redistricting data because the information available at that

time was insufficient to conclude that the adjusted data would be more

accurate. On March 6, 2001, the Secretary announced that the unadjusted data would be used. (Office of Systems Evaluation: OSE-13812)
Commerce OIG Semiannual Report 34 March 2001

Economics and Statistics Administration

Audit of the Census Bureau’s

FY 2000 Financial Statements

The CPA firm conducting our audit of the Census Bureau’s FY 2000

financial statements rendered an unqualified opinion for the second

consecutive year. While acknowledging this accomplishment, we emphasize that deficiencies in internal controls still need to be addressed. The

firm identified three reportable conditions in the bureau’s internal control

structure, the first two of which are material weaknesses.

 Financial management and reporting. The bureau continued

to experience significant difficulties and delays in producing

complete, accurate financial statements in accordance with

departmental requirements.

 Account reconciliations. A number of key financial statement

account balances were not reconciled in a timely manner.

 Information system reporting and controls. Partly because

of the accelerated deployment of systems and procedures to

support the decennial census, many bureau improvements in the

design and implementation of general and application-level

controls were not completed by the end of FY 2000. As a result,

a series of management, technical, and cost risks were not

adequately mitigated.

In conjunction with its audit of the financial statements, the firm conducted a review of the general controls associated with the bureau’s

information systems. The firm identified weaknesses in entitywide

security program planning and management, and access control. If not

resolved, these weaknesses could adversely affect the security of the

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

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

Department. The weaknesses, and the firm’s recommendations for

correcting them, were discussed in a separate report on systems issues.
Commerce OIG Semiannual Report 35 March 2001

The firm identified no instances of material noncompliance with laws and

regulations, nor any instances in which the bureau’s financial management systems did not comply with applicable federal requirements.

The bureau agreed with the findings and recommendations in both of the

firm’s reports and described some actions planned to address the recommendations. (Financial Statements Audits Division: FSD-12850-1 and

FSD-12850-2)

Economics and Statistics Administration
Commerce OIG Semiannual Report 36 March 2001

The International Trade

Administration is responsible for

the trade promotion and trade

policy issues associated with most

nonagricultural goods and

services, and works with the Office

of the U.S. Trade Representative in

coordinating U.S. trade policy. ITA

has four principal units:

Market Access and Compliance.

MAC develops and implements

international economic policies of

a bilateral, multilateral, or regional

nature. Its main objectives are to

obtain market access for American

firms and workers and to achieve

full compliance by foreign nations

with trade agreements signed with

the United States.

Trade Development. TD advises

on international trade and

investment policies pertaining to

U.S. industrial sectors, carries out

programs to strengthen domestic

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

participation in international

markets.

Import Administration. IA

defends American industry against

injurious and unfair trade practices

by administering the antidumping

and countervailing duty laws of the

United States, and enforcing other

trade laws and agreements

negotiated to address such trade

practices.

U.S. & Foreign Commercial

Service. US&FCS promotes the

exports of U.S. companies and

helps small and medium-sized

businesses market their goods

and services abroad. It has 105

domestic offices and 157 overseas

posts in 84 countries.

International Trade

Administr Administration

Further Improvements Possible in the On-Line

Delivery of Export Information and Services

Technology—and, in particular, the Internet—is changing how the

government conducts its business and how it communicates, both internally and externally. In recognition of this, Commerce is planning to move

from being a paper-based bureaucracy to a “Digital Department,” in

order to obtain, process, produce, and provide information using a variety

of formats and delivery mechanisms to meet the diverse needs of its

employees and customers. An OIG review examined how well the

Department, through ITA, is using the Internet to provide export promotion information and services to the public.

ITA has made considerable progress in improving access to its on-line

information through recent efforts to make its web sites more userfriendly. However, we identified a number of weaknesses that still need

to be addressed. A summary of our findings follows:

 Progress has been made in improving ITA’s web sites.

While many ITA units have good web sites, we identified four

sites as particularly noteworthy (1) The Trade Information

Center’s web site is one of ITA’s first customer resource and

referral centers. (2) The U.S. and Foreign Commercial Service

has standardized the format of its web site and placed a common

logo and banner on the web pages of its 262 domestic and foreign

offices. (3) ITA has reorganized its home page so that users can

readily access information by topic instead of by organization.

(4) The bureau has also developed a portal that will provide

access to all federal agency export promotion efforts.

 Increased coordination is needed to better integrate ITA’s

web sites. Although coordination within ITA has improved

because of the recent redesign of the home page, more needs to

be done to present a cohesive, integrated web presence. Each

ITA unit has its own web site, information, and services, and

duplication and inconsistencies can be found across many of the

sites. To address these problems, increased coordination among

these units is needed. Coordination among federal agencies with

trade promotion responsibilities is also needed. ITA should

establish a permanent governing board for Internet operations to

coordinate web site activities, both internally and with other

federal trade agencies.
Commerce OIG Semiannual Report 37 March 2001

International Trade Administration

 Better planning is essential to provide more products and

services on-line. The 1998 Government Paperwork Elimination

Act requires that, by October 2003, federal agencies provide the

public, when practicable, the option of submitting, maintaining,

and disclosing information electronically. To date, ITA’s on-line

offerings are limited, and the planning for placing information

on-line has not been comprehensive. ITA needs to revisit

decisions not to put some information on-line, as well as expand

its efforts to identify opportunities for new and improvements to

existing on-line products.

 More customer feedback should be sought and used to

improve web sites. ITA has not adequately sought web site

users’ input regarding their needs. E-mail comments, complaints,

and suggestions are solicited and managed haphazardly, and other

types of feedback mechanisms have not been used. ITA should

establish a formal process to collect and manage customer e-mail

messages, use focus groups to pre-test changes and new pages,

obtain real-time feedback about content, and use aggregate usage

data to improve web sites.

 Guidance is needed for the construction and maintenance

of ITA’s web sites. Because ITA lacks official standards for

managing and controlling the production of its estimated 300-plus

web publishers and content providers, the quality of the web

pages varies significantly. Among the problems we identified

were pages that contain outdated or undated information, are

indefinitely “under construction,” or contain dead links. ITA

should establish standards to provide a consistent level of

maintenance and quality across its web sites.

 Compliance with departmental standards is necessary.

While most ITA web sites are in compliance with the Department’s standards, some units had pages that were not. Since

there are few incentives for the staff in charge of the web sites

to implement the standards, ITA must take responsibility for

ensuring prompt compliance.

 Guidance and oversight are needed to ensure compliance

with federal law. The Paperwork Reduction Act seeks to

minimize the public’s burden in responding to government

information requests by requiring that information collections be

approved by OMB. However, we found unapproved collections

on ITA’s site. ITA should prepare appropriate guidance and

Import

Administration

Market

Access and

Compliance

Trade

Development

U.S. and Foreign

Commercial

Service

International

Trade

Administration
Commerce OIG Semiannual Report 38 March 2001

International Trade Administration

monitor web sites for compliance with the law. In addition,

Section 508 of the 1998 amendments to the Rehabilitation Act

requires federal agencies to provide people with disabilities equal

access to agency electronic and information technologies, unless

the agency can demonstrate an “undue burden.” ITA should

ensure compliance with Section 508 once it becomes effective in

June 2001.

We were pleased with ITA’s willingness to respond to the concerns we

raised during our review. In response to our report, the agency agreed

with our findings and began or continued taking actions to implement our

recommendations. However, ITA also expressed concern about the

timing of our review, given that the agency is in the process of redesigning its web presence. We believe that the timing of our review was

beneficial because ITA can address our concerns as part of its redesign

process. (Office of Inspections and Program Evaluations:

IPE-13213)

US&FCS Mexico Post Needed Better

Financial and Administrative Management

Mexico is a natural market and its firms are natural partners for companies in the United States. In addition to sharing a 2,000-mile border, the

two countries are bound by the North American Free Trade Agreement,

under which all tariffs are scheduled to be phased out by January 2004.

The U.S. share of the Mexican import market is nearly 85 percent. In

1999 the United States had a $22.8 billion trade deficit with Mexico, its

second leading trading partner, with nearly $200 billion in total trade.

To assist U.S. exporters seeking to penetrate this market, ITA’s U.S. and

Foreign Commercial Service (US&FCS) established offices in Mexico

City, Tijuana, Guadalajara, and Monterrey. As of October 31, 1999,

US&FCS Mexico employed 11 American officers, 34 foreign service

nationals, and 31 personal services contractors, as well as a number of

part-time trade aides on an as-needed basis. The post’s FY 1999 operating budget was just over $2 million.

An OIG inspection in the summer of 1999 found that US&FCS Mexico

was generally responsive to the needs of its export promotion clients and

maintained an active trade event schedule. Nevertheless, we identified a

number of areas needing management attention:
Commerce OIG Semiannual Report 39 March 2001

International Trade Administration

The existence of the trade center, rather than exporter needs,

was driving the post’s activities. US&FCS Mexico was overemphasizing trade shows and events, in part because it resides in a U.S. government-owned trade center building and has historically maintained a heavy

events schedule. The post had not developed an adequate strategic plan

to identify other areas where it could focus its efforts. In addition, several

of the post’s partners indicated that its market research was deficient.

The trade center has beneficial relationships with its collocated

partners, but the relationships were lacking in other areas. Although benefits were achieved through the interaction between US&FCS

staff and the non-Commerce occupants of space, the agreements signed

by US&FCS staff in Mexico with the partners were inadequate in several

respects.

US&FCS Border initiatives needed to be better coordinated. The

growth of economic activity along both sides of the U.S.-Mexico border

has focused US&FCS’s attention on business opportunities for U.S.

exporters in the region. However, US&FCS needed to better coordinate

the efforts of its domestic and international offices on border initiatives in
Commerce OIG Semiannual Report 40 March 2001

order to avoid overlap and duplication, as well as the potential waste of

resources or confusion on the part of U.S. exporters facing multiple

US&FCS points of contact.

Trade aides are not appropriately used. Trade aides, foreign nationals

hired on a part-time basis to provide basic support to the office’s trade

promotion efforts, were inappropriately producing a large part of the core

products and services that are typically handled by trade specialists.

Moreover, the post was inappropriately using a blanket purchase agreement to hire trade aides, lacked a formal assignment and evaluation

system for these staff, and inappropriately assigned some of them to the

state trade offices.

Post staffing needed to be reexamined. In FY 2000, US&FCS

planned to have 13 American officers and 60 locally employed staff

throughout Mexico, with 85 percent of all employees located at the trade

center in Mexico City. In our view, US&FCS may have more staff than it

needs in Mexico City.

Some administrative matters needed attention. Although certain

administrative areas were being adequately handled, we questioned

(1) the post’s procedures for documenting inventory, gifts and bequests,

and security certifications; (2) the disorganization of the post’s warehouse

and the potential fire, safety, and theft hazards it presented; and (3) staff

members’ use of official vehicles for non-business purposes, as well as

the need for five vehicles in Mexico City.

Management of deposit fund was problematic. Our review of the

deposit fund account revealed inadequate record-keeping, unidentified

embassy-posted transactions, unliquidated obligation balances dating back

to FY 1996, an absence of trade event final obligation reporting, and

inadequate reporting of purchase card expenses. The post also lacked an

effective system to rationally identify and assign costs, both direct and

overhead, associated with activities conducted in the US&FCS facility in

Mexico City.

Border conference problems suggest a need for better handling of

high profile trips and travel expenses. Concerns were raised by

embassy staff regarding several US&FCS expense vouchers related to a

June 1999 Tijuana conference attended by senior Department officials.

Our review of the conference-related documentation, including authorization cables and travel vouchers, revealed a number of irregularities.

International Trade Administration
Commerce OIG Semiannual Report 41 March 2001

Effectiveness of constituent offices varied. In reviewing the activities

of the three constituent offices outside of Mexico City, we concluded that

the staff in Monterrey were productive, but appeared overburdened;

Guadalajara’s lagging productivity and poor consulate and business

relations needed attention; and although Tijuana had produced a number

of successes, the level of activity at the office may not warrant a fulltime, on-site officer.

We made a number of recommendations to address our concerns.

US&FCS generally agreed with our observations and outlined corrective

actions being taken. Among these actions was the deobligation of

$762,028 in both the operations and administration account and the trust

fund account. We commended US&FCS and the post for their plans for

addressing our recommendations. (Office of Inspections and Program

Evaluations: IPE-11844)

Audit of FY 2000 Financial Statements

For FY 2000, the second consecutive year, ITA received an unqualified

opinion on its financial statements. Nevertheless, the CPA firm conducting the audit identified two reportable conditions, both of which were

considered to be material weaknesses.

 Financial management processes. The firm concluded that

ITA needed to do more to ensure that its financial statements are

prepared on a timely basis from complete, accurate information.

Specifically, certain property transactions were not accurately

recorded, and certain payroll-related transactions were not

promptly approved or recorded.

 Potential for misstatement on the consolidating statements

of net cost. Initially, ITA allocated the same percentages of

expenses and revenues to its four goals in FY 2000 that it had in

the prior year, without verifying that the FY 1999 percentages

were still appropriate. After the financial statements had been

prepared and we brought this matter to its attention, ITA

performed verification procedures, which resulted in a change in

the revenues and expenses allocated to one of the goals.

International Trade Administration
Commerce OIG Semiannual Report 42 March 2001

Upon testing ITA’s compliance with certain provisions of laws and

regulation, the firm identified one instance of material noncompliance:

 User charges. Because ITA lacks adequate procedures

to ensure compliance with OMB’s policy on user charges, there is

a significant risk that revenues from its trade events may not be

sufficient to cover costs.

On a positive note, the firm did not identify any instances in which ITA’s

financial management systems did not substantially comply with applicable federal requirements. Moreover, in conjunction with its audit of the

financial statements, the firm conducted a review of the general controls

associated with the Department of the Interior’s National Business

Center, which provides accounting services for ITA. The firm concluded

that the risk was low that any material misstatement of ITA’s financial

statements would be caused by improperly designed or ineffectively

applied information technology controls. (Financial Statements Audits

Division: FSD-12854-1 and FSD-12854-2)

OIG Reviews Cooperative Agreements

Awarded to a Trade Association

The OIG conducted audit work related to three ITA cooperative agreements awarded to an industry trade association:

 The first agreement, with an award period of October 1994

through September 1998, had a total project budget of about

$1.5 million, with a federal share of $440,000. The purpose of the

agreement was to establish a U.S. Information Technology

Office in Beijing, China. Our audit of the agreement questioned

$597,914 out of total claimed costs of about $1.2 million. Of the

questioned costs, $367,454 consisted of unsupported or unallocable personnel costs, and $230,460 involved nonsalary costs

lacking supporting documentation. We recommended that ITA

disallow the questioned costs and recover $116,466 disbursed in

excess of allowable costs.

 The second agreement, with an award period of October 1995

through December 1996, had a total budget of about $260,000,

with a federal share of about $50,000. Its purpose was to

produce a training course on software asset management for use

throughout Central and South America. Out of total claimed costs

of about $250,000, we questioned $17,654, which consisted

International Trade Administration
Commerce OIG Semiannual Report 43 March 2001

primarily of nonsalary costs lacking supporting documentation.

Again, we recommended that ITA disallow the costs and recover

about $5,000 in excess disbursements.

 The trade association also has a third cooperative agreement with

ITA, with an award period of October 1999 through September

2001, and a total budget of roughly $400,000, of which ITA

intends to provide about $130,000. The purpose of this agreement

is to further develop an electronic commerce website to help

U.S. businesses generate increased exports through the Internet.

Our accounting system survey of the award determined that the

awardee’s accounting and financial management systems were

generally adequate to safeguard government assets. However,

we recommended that the awardee establish a detailed activity

report to support personnel costs and obtain fidelity bonds

covering any personnel authorized to disburse federal funds.

(Business and Trade Audits Division: BTD-12650)

International Trade Administration
Commerce OIG Semiannual Report 44 March 2001

Minority Business Minority Business

Development elopment elopment Agency

The Minority Business

Development Agency was

created to help minority-owned

and operated businesses achieve

effective and equal participation in

the American free enterprise

system, and overcome the social

and economic disadvantages that

have limited their participation in

the past. MBDA provides

management and technical

assistance to minority firms upon

request, primarily through a

network of business development

centers. It also promotes and

coordinates the efforts of other

federal agencies in assisting or

providing market opportunities for

minority businesses.

Puerto Rican Bank Did Not Provide

Adequate Support for Personnel Costs

MBDA’s Minority Business Opportunity Committee program is designed

to identify and coordinate local business resources to benefit minority

business development. A bank in Puerto Rico received two MBDA

cooperative agreement awards under the program. The first was a oneyear $207,640 award for calendar year 1998 that required a $146,183

matching share. The second was an award for the 3-year period 1999-

2001 that is funded annually. The award agreement called for $234,333 in

MBDA funds and a $247,946 matching share for 1999, and $239,874 in

MBDA funds and a $243,821 matching share for 2000.

The OIG conducted an audit of the completed 1998 award, and an interim

audit covering the first two years of the second award. According to

MBDA, the bank had achieved its quantitative project goals and performed at a satisfactory level. However, our audit found that the bank:

 Claimed $534,395 in questioned costs, including over $500,000 in

inadequately supported salary and fringe benefit costs for

employees who worked part time on the project.

 Reported a combination of budgeted and actual costs, instead of

only actual costs, on its quarterly status reports and submitted

most of the reports late.

 Did not include the MBDA awards on its schedule of expenditures of federal awards, which resulted in the awards being

excluded from testing for federal compliance during two annual

organization-wide audits.

We recommended that the Department direct the bank to maintain

detailed time records for all bank employees who work part time on the

project, report only actual project costs on its status reports and submit

the reports on time, and include the MBDA award on its annual schedule

of expenditures of federal awards for inclusion in future annual audits.

We also recommended that the Department disallow the questioned costs

and recover and deobligate $246,168 in excess federal funds disbursed.

The bank did not dispute our findings, but did disagree with our recommendation regarding the questioned costs. (Atlanta Regional Office of

Audits: ATL-13950)

Minority Business

Development

Agency

Management Programs
Commerce OIG Semiannual Report 45 March 2001

National Oceanic and

Atmospheric Administration

The National Oceanic and

Atmospheric Administration

studies climate and global change;

ensures the protection of coastal

oceans and the management of

marine resources; provides

weather services; and manages

worldwide environmental data. It

does this through the following

organizations:

National Weather Service. NWS

reports the weather of the United

States and provides weather

forecasts and warnings to the

general public.

National Ocean Service. NOS

issues nautical and aeronautical

charts; performs geodetic surveys;

conducts research; and develops

policies on ocean mining and

energy.

National Marine Fisheries

Service. NMFS conducts a

program of management,

research, and services related to

the protection and rational use of

living marine resources.

National Environmental Satellite,

Data, and Information Service.

NESDIS observes the environment

by operating a national satellite

system.

Office of Oceanic and

Atmospheric Research. OAR

conducts research related to the

oceans and inland waters, the

lower and upper atmosphere,

space environment, and the Earth.

Office of Marine and Aviation

Operations. OMAO operates

NOAA’s ships and aircraft and

provides NOAA programs with

trained technical and management

personnel from the nation’s

seventh uniformed service.

Work on Electronic Charting

Database Should Be Recompeted

The Federal Technology Transfer Act of 1986, as amended, authorizes

the government to enter into cooperative research and development

agreements (CRADAs) with nonfederal partners to conduct research or

development that is consistent with governmental missions. CRADAs are

intended to promote the commercialization of federally developed technology by providing the private sector with access to federal research.

Under CRADAs, both partners may exchange personnel, services,

facilities, equipment, and intellectual property, but only the nonfederal

partner may contribute funds to the project. Because a CRADA is not a

procurement instrument, the public notice and competition requirements

of the Competition in Contracting Act do not apply.

In 1993 NOAA decided to solicit non-federal partners for work on its

electronic charting database and, in October 1994, entered into a

CRADA with a private firm to perform research and development on

electronic nautical charts and related data, systems, and software. The

CRADA granted the partner firm exclusive access to the NOAA data

files that are used to produce the charts, and the exclusive right to sell the

agency’s official electronic nautical charts. The CRADA requires the

partner firm to pay to NOAA 5 percent of the net revenues derived from

the sale of products produced under the agreement.

The CRADA was scheduled to expire on April 6, 2001, but would

automatically renew for 4 years unless either party opted not to renew by

February 5. A NOAA review panel was convened in September 2000 to

consider the CRADA, as well as alternatives to it, and to make a recommendation to NOAA management for renewal, recompetition, or termination.

However, a coalition of private sector nautical charting firms complained

that they believed NOAA was improperly using its CRADA authority to

create an anti-competitive, sole-source monopoly with its partner. Specifically, the coalition asserted that the nautical charts to be created under

the CRADA already existed in the private sector and that there was no

need for NOAA to expend tax dollars to duplicate this capability. The

coalition also argued that NOAA’s policy limiting access to hydrographic

data to the partner must be changed to stimulate competition, which

should lead to better products at lower prices.
Commerce OIG Semiannual Report 46 March 2001

National Oceanic and Atmospheric Administration

National

Weather

Service

National

Ocean

Service

National

Marine Fisheries

Service

NESDIS

Oceanic and

Atmospheric

Research

Marine and

Aviation

Operations

The OIG conducted an audit of the CRADA that focused on determining

whether NOAA should renew the CRADA, and reported the following:

 NOAA should recompete the work on its database. To

ensure delivery of the best value product to chart purchasers, we

recommended that NOAA recompete the work on its electronic

nautical charting database before the CRADA was automatically

renewed. We also recommended that NOAA determine whether

a CRADA is still the most appropriate legal instrument for

continuing such work. Although NOAA is not required to

compete work conducted through a CRADA, it should strengthen

its CRADA policy by including periodic reassessments of

whether the work should be recompeted, in order to ensure that it

is providing electronic nautical charts with the highest quality, in a

timely manner, and at the lowest cost to chart purchasers.

 NOAA should strengthen internal controls over partner

research payments. We concluded that if NOAA determined

that a CRADA was still the most appropriate instrument for

continuing the work on its charting database, it should strengthen

internal controls over partner research payments by regularly

verifying the underlying basis for those payments. Although

allowed to do so under the terms of the CRADA, NOAA had not

reviewed the partner’s accounting records to verify reported

revenues. As a result, it could not ensure that the partner was

paying the full amount to which NOAA is entitled.

 NOAA should retain and enforce the CRADA’s reporting

requirement. We further concluded that if NOAA determined

that a CRADA was still the most appropriate instrument for the

project, it should ensure that both parties fully comply with the

agreement’s reporting requirement. We found that the parties had

failed to exchange written progress reports, as required by the

CRADA. NOAA believes the requirement is unnecessary and is

planning to remove it from the agreement, but we believe such

reports are essential for complying with federal internal control

standards.

NOAA
Commerce OIG Semiannual Report 47 March 2001

National Oceanic and Atmospheric Administration

NOAA agreed with all but one of our recommendations. It disagreed that

it should compete its electronic nautical charting work as soon as possible. NOAA stated that it had determined that a CRADA remains the

best legal instrument for continuing the development of its electronic

nautical charting work. However, it restricted the scope of the CRADA

to address some of the concerns raised by the private-sector nautical

charting firms. In addition, NOAA plans to take certain actions to promote competition for the production of the next-generation electronic

nautical charts. We continue to believe that seeking competition for all of

the charts would have been in NOAA’s best interests. (Science and

Technology Audits Division: STD-13440)

Audit of FY 2000 Financial Statements

As it had in FY 1999, NOAA received an unqualified opinion on its

FY 2000 financial statements. In addition, the CPA firm conducting the

audit found no material weaknesses in the agency’s internal control

structure. However, the following two reportable conditions were

identified:

 Controls over fund monitoring should be improved.

 Information technology processing access control weaknesses

and other financial system deficiencies should be addressed.

In a separate review of the general controls associated with NOAA’s

information systems, the firm identified weaknesses in access control and

service continuity. If not resolved, these weaknesses could adversely

affect the security of NOAA’s data, programs, and hardware and have a

negative effect on both the agency’s and the Department’s financial

statements. The weaknesses, and the firm’s recommendations for

correcting them, were discussed in a separate report on systems issues.

In evaluating NOAA’s compliance with laws and regulations and with

federal financial management system requirements, the firm identified

several instances of noncompliance. Specifically, NOAA did not fully

fund its capital leases during FY 2000; its financial management system

neither complies with all applicable requirements nor adequately supports

the budget execution process; and its financial accounting system does

not support the preparation of timely, accurate financial statements

through an integrated system.
Commerce OIG Semiannual Report 48 March 2001

National Oceanic and Atmospheric Administration

NOAA concurred with the findings and recommendations in both of the

firm’s reports. NOAA’s and the Department’s corrective action for

certain of the identified deficiencies will be addressed through the continued implementation of the Commerce Administrative Management

System. (Financial Statements Audits Division: FSD-12855-1 and

FSD-12855-2)

Evaluation of the National Data Buoy Center’s

Technical Services Contract Was Inadequate

The National Data Buoy Center, located at the Stennis Space Center in

Mississippi, operates a system of approximately 130 weather observing

buoys and land-based stations for the National Weather Service. The

system is operated by a contractor, whose technical services are purchased through a 5-year cost-plus-award-fee contract that gives NOAA

the right to recompete it annually. The center’s previous contract ran

from July 1995 through June 2000 and had an estimated value of about

$33.7 million as of October 1999. In May 2000, the center awarded a

new 5-year cost-plus-award-fee contract to a different contractor. The

contract, which has an estimated value of $32.4 million, became effective

on July 1, 2000.

The OIG conducted an audit to follow up on NOAA’s actions to implement the recommendations we made in a July 1995 report on the Data

Buoy Center’s contract (see September 1995 issue, page 59). In that

earlier audit report, we recommended that NOAA convert the contract to

a performance-based contract, to the extent practicable, reevaluate the

contract type and consider converting all or parts of it to a firm fixedprice format, and then consider recompeting the contract before it expired

if the benefits of such a conversion appeared to outweigh the costs.

NOAA agreed with our 1995 recommendations.

NOAA’s audit action plan called for it to reevaluate the contract and

consider converting all or part of it to a performance-based contract and

to conduct an extensive contract review to determine if the contract

should be converted, in whole or in part, to a firm fixed-price format.

NOAA subsequently reported that it had fully implemented the audit

action plan as of September 1997, and based on NOAA’s reported

actions, the audit recommendations were closed.
Commerce OIG Semiannual Report 49 March 2001

National Oceanic and Atmospheric Administration

However, our follow-up audit found that the center:

 Had reviewed only the relatively minor support services area of

the contract, which accounts for just 15 percent of the estimated

cost, and excluded from its review more significant contract

areas, such as operations and maintenance.

 Had conducted only a cursory contract review instead of the

extensive review described in the audit action plan.

 Did not document its review findings and could not show that

NOAA’s Office of Finance and Administration, which has

expertise in procurement issues and reportedly assisted the

center in implementing the audit action plan, had reviewed and

approved the findings.

Because of these deficiencies, the center’s limited contract review does

not convincingly demonstrate that performance-based contracting techniques cannot be effectively incorporated into the contract and that a

fixed-price contract should not be used to perform some, if not all, of the

center’s technical services work.

Various studies and experience suggest that converting the center’s

technical services contract could produce significant savings. For example, based on the Department of the Navy’s experience, OMB found

that between 20 and 40 percent of a contract’s cost can be saved through

conversion to a performance-based contract. Applying OMB’s most

conservative 20-percent estimate means that if NOAA were to convert

the contract as of June 30, 2001, the end of the contract’s first year, it

could save $5.2 million over the remaining four years of the contract.

We recommended that NOAA direct center officials to (1) conduct an

analysis of the contract to determine which portions can be converted to

a performance-based contract, (2) conduct an analysis to determine

which portions should be converted to a fixed-price format, (3) provide

documentation of the analyses to NWS headquarters and the Office of

Finance and Administration for review, (4) consider recompeting the

contract at the end of the first year if the analyses show that the benefits

of recompeting outweigh the costs, and (5) if the contract is not

recompeted at the end of the first year, convert the appropriate portions

of it to a performance-based contract and/or firm fixed-price format

when the contract expires. We also recommended that the Office of

Finance and Administration review the center’s analyses and direct that

the contract be converted to the extent appropriate at its expiration if it is

not recompeted at the end of the first year.
Commerce OIG Semiannual Report 50 March 2001

National Oceanic and Atmospheric Administration

In response to our report, NOAA asserted that the center had conducted

an in-depth review of all contract areas and concluded that the work

required of the contractor was generally unpredictable and could not be

converted to a performance-based or fixed-price contract. However, the

documents that NOAA provided did not support its assertion that the

review was sufficiently comprehensive. Moreover, NOAA’s arguments

against a fixed-price contract strongly suggest that the current contract is

being administered as an inappropriate personal services contract; that is,

a contract that by its express terms or as administered makes it appear

that contractor personnel are acting as government employees. (Atlanta

Regional Office of Audits: ATL-12319)

NOAA Laboratory’s Decisions Related to

Supercomputer Acquisition Were Proper

NOAA’s Geophysical Fluid Dynamics Laboratory engages in research in

the fields of meteorology, oceanography, hydrology, physics, fluid dynamics, chemistry, applied mathematics, and numerical analysis. Among the

laboratory’s important research tools is a supercomputer, which recently

reached the end of a five-year lease. To replace the supercomputer, the

laboratory procured an enhanced computer system for use from FY 2000

through FY 2006. The contract was awarded on September 27, 2000, for

a total cost of approximately $67 million.

The OIG conducted a review to determine whether the need for the

supercomputer was properly justified, whether laboratory officials had

performed an appropriate analysis of the various lease and purchase

options, and whether the resulting contract incorporates the laboratory’s

preferred terms. Because of time constraints imposed by the contracting

schedule, we could not conduct a complete cost audit of the firm-fixedprice proposals and resulting contract before its award. Instead we

reviewed the available financing options that would comply with the

laboratory’s contractual requirements without compromising its technological needs.

In a March 2001 management memorandum to NOAA, we reported that

the laboratory’s decision and the resulting contract, which provides for

leasing substantially all of the supercomputer components, appeared to be

in the best interests of the laboratory and the government. For example,

the laboratory adequately justified its need for the supercomputer and

properly performed analyses comparing lease versus purchase. In

addition, the contract incorporates the laboratory’s preferred terms,

including leasing major components while purchasing other components
Commerce OIG Semiannual Report 51 March 2001

National Oceanic and Atmospheric Administration

and related maintenance. Since the funding for the supercomputer will be

awarded annually over 6 years, leasing major components allows the

laboratory to terminate the contract if its annual appropriation is not

available and to upgrade the system as technological advances are made.

(Denver Regional Office of Audits)

Allegations of Improper Use of Federal Funds

at Washington Fish Hatchery Unsubstantiated

The Mitchell Act (16 U.S.C. §755 et seq.) provides funds to the states of

Washington, Oregon, and Idaho for the enhancement and conservation of

anadromous fish species (those that ascend rivers from the sea to breed).

Among activities authorized by the act are constructing and maintaining

fish hatcheries, conducting research, clearing streams, and building and

maintaining devices and structures for the fish.

NOAA awarded about $5.6 million in Mitchell Act funds to the Washington State Department of Fish and Wildlife primarily for the operation and

maintenance of six fish hatcheries along the Columbia River from October 1997 through September 1999. An anonymous letter to the OIG

alleged improper use of funds at one of the hatcheries. The specific

allegations were that personnel costs were improperly charged to the

hatchery, fish food purchased for the hatchery was not used there,

hatchery funds were “borrowed” until the beginning of a new fiscal year,

equipment and tools were missing or were taken to other hatcheries,

travel costs were improperly charged, vehicles purchased with Mitchell

Act funds were not used or were not available to hatchery personnel, and

funds were transferred from the hatchery to an over-budget construction

project.

In response to the letter, we performed a limited-scope review of the

allegations of misuse of funds, which included testing Department of Fish

and Wildlife financial records and reviewing state audit reports to determine whether the alleged activities took place and, if so, whether they

violated the Mitchell Act or the financial terms and conditions of the

award.

Our review revealed no corroborating evidence to support the anonymous

allegations of misuse of hatchery funds. In some cases, the complainant’s

lack of specificity prevented us from identifying the particular actions

being criticized as improper. Moreover, the Mitchell Act and the terms of

the award to the state are sufficiently broad to allow a wide range of

activities to conserve and enhance anadromous fish resources on the
Commerce OIG Semiannual Report 52 March 2001

National Oceanic and Atmospheric Administration

Columbia River. Because we found no evidence of misuse of federal

funds, we made no recommendations. (Seattle Regional Office of

Audits: STL-13177)
Commerce OIG Semiannual Report 53 March 2001

National Telecommunications

and Information Administration

Grantee Failed to Provide Matching Share

and Adequately Safeguard Equipment

In October 1997, NTIA awarded a $614,701 Telecommunications and

Information Infrastructure Assistance grant to a city agency in Pennsylvania to develop an integrated information database linking agencies that

deliver human services in low-income communities. The grant agreement

required $663,379 in matching funds, bringing the total project budget to

$1,278,080. A March 1999 amendment extended the grant period and

increased the matching share requirement to $857,642, for total project

funding of $1,472,343. The amended grant period was from October 1997

to September 1999.

An OIG audit of the award revealed that the grantee had failed to meet

the grant’s matching share requirement. We questioned $256,821 claimed

as a matching share, including $207,109 from another federal agency that

was unallowable as a match under the NTIA grant. We also found that

the grantee had violated the terms and conditions of the award by failing

to adequately safeguard equipment in its possession, maintain accurate

equipment records, or submit timely quarterly progress reports.

We questioned a total of $394,873 claimed costs, which included $243,202

for salaries and fringe benefits, $52,976 for equipment, $41,489 for

contracts, and $57,206 for travel, supplies, and other costs. The grantee

had been reimbursed $471,406, which exceeded the amount of federal

funds earned by $164,860. In addition, grant funds totaling $308,155 could

be deobligated. We recommended that the Department’s grants office:

 Disallow the $394,873 questioned costs and recover the $164,860

excess federal disbursements.

 Deobligate the remaining $308,155 in grant funds.

 Require the grantee to conduct a complete inventory of all

equipment costing $500 or more that was purchased with grant

funds and to submit the required inventory report to the

Department.

The grantee disagreed with our findings, but did not supply sufficient

documentation to support its position. (Atlanta Regional Office of

Audits: ATL-13174)

The mission of the National

Telecommunications and

Information Administration is to

(a) serve through the Secretary of

Commerce as the principal

executive branch advisor to the

President on domestic and

international communications and

information policies, (b) ensure

effective and efficient federal use

of the electromagnetic spectrum,

(c) develop with other federal

agencies policies for international

communications and standardssetting organizations, (d) serve as

the federal telecommunications

research and engineering center,

and (e) administer grants under

the Telecommunications and

Information Infrastructure

Assistance Program and the

Public Telecommunications

Facilities Program.

Spectrum

Management

Policy

Analysis and

Development

Telecom. and

Information

Applications

Institute for

Telecom.

Sciences

International

Affairs

NTIA
Commerce OIG Semiannual Report 54 March 2001

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.

Search System Problems Being Addressed,

but Improvements Needed for Future Systems

Patent examiners determine the uniqueness of an invention submitted

for patent by searching previously granted U.S. and foreign patents, as

well as other technical documents. Since USPTO introduced its first

computerized patent search system in 1986, examiners have increasingly relied on automated searching, which is designed to improve patent

quality and maintain examiner productivity as the volume of patent

filings increases.

In 1994 USPTO decided to replace its primary search system because

the technology was becoming obsolete, the system had severe capacity

limitations, and making it year 2000 compliant would not be economical.

USPTO planned to remove the system from operation by September 30,

1999, at which time a new search system had to be ready. The Patent

Commissioner and USPTO’s Chief Information Officer (CIO) were the

designated “decision authorities” for the new system, with responsibility

for monitoring progress and approving key decisions.

The OIG conducted an evaluation of the development and operation of

USPTO’s new search system to determine whether it is adequately

supporting patent application processing and to identify improvements

that can be applied to future systems acquisitions. We found that the

fixed deadline, coupled with schedule delays, put a great deal of pressure on the program and contributed to a number of problems. When it

began operating, the system performed poorly, providing slow response

times and crashing frequently, causing examiners to lose work and time

and making it more difficult for them to meet their production quotas.

Compounding these problems was the fact that examiners were not

adequately trained on the new system.

USPTO management acted quickly to resolve these problems, fixing

most of the system’s slow response time and instability problems,

relaxing examiners’ work rules to mitigate the impact on their production

rates, and increasing communications with examiners. The new system’s performance has improved, and it has largely fulfilled its primary

goal of overcoming the former system’s limitations. Nevertheless, we

identified the following steps that should be taken to improve future

systems development efforts:
Commerce OIG Semiannual Report 55 March 2001

United States Patent and Trademark Office

 Decision authorities need to be more involved and have

better information. Although the decision authorities were

monitoring progress, they were not involved in some key

decisions and did not have the information they needed to

effectively assess progress and risks. Consequently, they missed

opportunities to mitigate problems. USPTO should strengthen the

role of the decision authorities at the end of each system lifecycle phase and provide them with quantitative information

(metrics) about program progress so that they can better manage

major information systems acquisitions.

 System requirements need to be fully specified. Two critical

requirements were not adequately addressed in the requirements

specifications for the new search system: Text search response

time was not fully specified, and stability requirements were not

specified at all. Because specifications are the basis for system

design, development, testing, and acceptance, we believe that the

incomplete specifications contributed to the system’s initial

problems. USPTO should strengthen its process for defining and

documenting requirements to ensure that all requirements are

fully delineated in requirements specifications.

 Acceptance testing needs to be improved. USPTO conducted tests to determine if the new search system was ready to

be placed into operation, but significant problems with stability

and response times were overlooked. USPTO should strengthen

its acceptance testing procedures in order to improve its ability to

field systems that are ready for operation.

 Communication with end users needs to be improved.

Although examiners participated in some system life-cycle

activities, many stated that they were not adequately involved in

the process and expressed dissatisfaction with the new system.

We believe that the examiners’ dissatisfaction stems from

inadequate communication with the program manager and

developers and lack of a significant, formalized role in the

development process. USPTO should involve the examiners

throughout the life-cycle process and formally define their roles in

order to increase the likelihood that their needs will be met.

 Users’ proficiency needs to be ensured before systems

become operational. Despite delays in completing examiners’

training on the new search system, USPTO believed that they

were proficient enough to use it. However, training proved to be

 Patents Trademarks

 CFO/Chief

Administrative

Officer

Chief

Information

Officer

U.S. Patent and

Trademark

Office

External

Affairs

 General

Counsel

Quality

Management

and Training
Commerce OIG Semiannual Report 56 March 2001

United States Patent and Trademark Office

insufficient, and examiners had difficulty using the system. USPTO

should evaluate the proficiency of examiners before new systems are

placed into operation and adjust training accordingly.

USPTO agreed with our findings and all but two of our recommendations, and

has begun implementing many of the recommendations. Specifically, it has

begun making substantive changes to its system life-cycle management

methodology that should lower development costs, improve system quality, and

enhance end user acceptance of new systems. The recommendations that

USPTO disagreed with concerned the role of the program decision authorities.

USPTO believes that they are adequately involved in system programs through

regular briefings from program mangers and quarterly progress meetings. We

believe that they should be required to approve, and have the accountability

associated with signing off on, the completion of each life-cycle phase of major

information systems. (Office of Systems Evaluation: OSE-12679)

Audit of FY 2000 Financial Statements

In FY 2000, for the seventh consecutive year, USPTO received an unqualified

opinion on its financial statements. The CPA firm conducting the audit identified no reportable conditions in USPTO’s internal control structure, nor did it

identify any material instances of noncompliance with laws and regulations or

with other federal financial management requirements. As a result, the firm

made no recommendations.

In conjunction with its audit of the financial statements, the firm’s review of

the general controls associated with USPTO’s information systems identified

weaknesses in four areas: entitywide security program planning and management, access control, system software, and service continuity. If not resolved,

these weaknesses could adversely affect the security of USPTO’s data,

programs, and hardware and have a negative effect on the financial statements of both USPTO and the Department. The weaknesses, and the firm’s

recommendations for correcting them, were discussed in a separate report on

systems issues. USPTO agreed with the findings and recommendations in both

of the firm’s reports and expressed its intent to take the necessary corrective

actions. (Financial Statements Audits Division: FSD-12858-1 and FSD12858-2)
Commerce OIG Semiannual Report 57 March 2001

Technology Administration

The Technology Administration

serves the needs of technologybased industry, advocates federal

actions and policies to speed the

transfer of technology from the

laboratory to the marketplace, and

removes barriers for commercializing new technologies by

industry. It includes three major

organizations:

Office of Technology Policy. OTP

works to raise national awareness

of the competitive challenge,

promotes industry/government/

university partnerships, fosters

quick commercialization of federal

research results, promotes

dedication to quality, increases

industry’s access to and participation in foreign research and

development, and encourages the

adoption of global standards.

National Institute of Standards

and Technology. NIST promotes

U.S. economic growth by working

with industry to develop and apply

technology, measurements, and

standards. NIST manages four

programs: the Advanced Technology Program, the Manufacturing

Extension Partnership Program, a

laboratory-based measurement

and standards program, and the

National Quality Program.

National Technical Information

Service. NTIS is a self-supporting

agency that promotes the nation’s

economic growth and job creation

by providing access to voluminous

information that stimulates

innovation and discovery. NTIS

accomplishes this mission through

two major programs: information

collection and dissemination to the

public, and information and

production services to federal

agencies.

NIST’s Research Agreement with Nonprofit

Organization Should Receive Greater Scrutiny

In November 1994, NIST entered into a 10-year cooperative research

and development agreement with a nonprofit professional organization to

establish a joint infrared spectral database. Infrared spectra, commonly

regarded as the “fingerprint” of chemical substances, are used in a wide

range of applications, such as identifying substances and determining their

composition to solve problems encountered in the work of forensic or

crime laboratories.

To develop the database, approximately 10,000 spectra in paper format

(see example below) owned by the organization were provided to NIST

for conversion into an electronic format. These spectra are to be combined with approximately 10,000 spectra in NIST’s possession to form the

database, which NIST planned to sell to the public beginning in early

spring 2001. Over time, NIST and the organization had planned to enlarge

the collection by soliciting contributions of spectra from the many laboratories—private, government, and academic—where infrared spectra are

measured.

In May 2000, the House Committee on Science referred to the OIG a

complaint from a private sector firm that the infrared spectral database to

be created under the CRADA would unfairly compete with one sold by

the firm. We conducted an inspection to determine whether NIST is

unfairly competing with the private sector by entering into this CRADA
Commerce OIG Semiannual Report 58 March 2001

Technology Administration

NIST

Technology

Policy

NTIS

and whether the CRADA being used is consistent with the law and an

appropriate instrument for the project. In conducting our review, we

received technical assistance from the National Science Foundation OIG.

A summary of our findings follows:

Competition with Private Sector Firms Is Not

Prohibited, but Projects Must Be Scrutinized

Two legislative mandates, the Standard Reference Data Act and NIST’s

organic legislation, authorize the agency to provide high-quality standard

reference data to the scientific community. While neither mandate

expressly prohibits the creation of databases that compete with the

private sector, both contain terms that could be interpreted as discouraging NIST from duplicating reference data available elsewhere.

Our review concluded that the database under this CRADA would

compete with the databases of private sector vendors because both

NIST, in its capacity as a database vendor, and the private sector database firms meet most of the same customer needs for infrared spectral

databases. We also found that, before proceeding with the project, NIST

did not adequately assess whether the database was needed or whether it

would duplicate or compete with data already available from other

sources.

We recommended that, before the database is made available to the

public, NIST perform the planning and analysis that it should have

performed before entering into the CRADA. In addition, because of the

plan to add spectra to the database in the future, we believe that NIST

should develop policies and procedures to ensure that any substantial

additions are sufficiently publicized and analyzed before proceeding.

NIST should also submit a project expansion, as well as any future

projects of this nature, to a peer review.

A CRADA Was Not the Appropriate

Instrument for the Project

The key criterion for entering into a CRADA—the transfer of technologies for future commercial application—was not met in this instance

because no technology transfer is taking place under this CRADA.

Accordingly, we believe that another type of legal agreement would have

been preferable for this project. For any future database collaborations

with outside entities, NIST should carefully assess its options to ensure

that it employs the most appropriate legal instrument.

Technology

Administration
Commerce OIG Semiannual Report 59 March 2001

Technology Administration



NIST stated that it generally agreed with our findings and recommendations, and we concurred with its proposed corrective actions. We are

pleased that NIST has agreed to establish policies and procedures to

ensure that future additions to the database, as well as any future projects

of this nature, are sufficiently evaluated before proceeding. We look

forward to reviewing the policies and procedures when they are completed. (Office of Inspections and Program Evaluations: IPE-13200)

Internal Controls over NIST’s Bankcard

Program Need Improvement

As part of its periodic review of Commerce units’ use of bankcards, the

OIG conducted an audit of bankcard program implementation and usage

during FY 1998 by the four NIST laboratories in Boulder, Colorado.

Although our audit found no misuse of NIST funds, we did identify

internal control weaknesses in four areas. Specifically, NIST needs to:

 Improve cardholders’ performance by requiring them to use

competitive procurement procedures, use the required purchase

order log, avoid purchases of prohibited items and obtain required

approvals, prevent use of bankcards by noncardholders, obtain

management pre-approval of purchases of significant and

sensitive items, avoid splitting purchase transactions, and obtain

required training.

 Better control property purchased with bankcards by

improving property recording procedures and recording

accountable property built from parts bought with bankcards.

 Improve procedures by requiring approving officials to obtain

cardholders’ records upon termination of employment, documenting alternate approving officials, maintaining bankcard reports in

order to monitor cardholder accounts every six months, requiring

certification of bankcard statements before payment, and

improving separation of duties over transactions.

 Improve payment practices by requiring that the original

certified and approved bankcard statement packages be

submitted to the servicing NIST finance office before payment.
Commerce OIG Semiannual Report 60 March 2001

Technology Administration

NIST generally agreed with our findings, and its proposed corrective

actions appear responsive to our recommendations. (Denver Regional

Office of Audits: DEN-11787)

NIST User Fee Programs

Are Generally Well Managed

User fees are levied on classes of individuals or businesses directly

benefiting from, or subject to regulation by, a government program or

activity. User fees are based on the principle that identifiable individuals

or businesses that receive benefits from a governmental service beyond

those that accrue to the general public should bear the cost of providing

the service.

The OIG performed an audit survey to assess how NIST identifies,

reviews, charges, and reports user fees and how it maintains control over

its user fee programs. For our sample period, FY 1999, user fee collections accounted for only about 3.1 percent of total NIST funding, but

almost 19 percent of the agency’s working capital fund. In that year, the

five programs that were the focus of our survey collected over

$23 million, which represented 99 percent of all NIST user fee collections.

Our survey revealed no material weaknesses in the way NIST identifies,

charges, collects, reviews, or reports user fees. However, we identified

three areas in which NIST could improve its management of user fees:

 When its programs do not price their products or services to

recover full costs, either because they are exempt from the

requirement or the amounts involved are deemed immaterial,

NIST should disclose this fact in its biennial reports to the

Department.

 NIST should ensure that collections from federal sources are

excluded from its biennial reports on user fee income.

 NIST should periodically reassess its programs’ departures from

full-cost recovery in the event of changes in circumstances.

Because of NIST’s substantial compliance with major user fee requirements, we made no recommendations. (Science and Technology Audits

Division)
Commerce OIG Semiannual Report 61 March 2001

Technology Administration

Audit of TA’s, NIST’s, and NTIA’s

FY 2000 Financial Statements

The CPA firm conducting the audit rendered an unqualified opinion on the

FY 2000 combined financial statements of TA, NIST, and NTIA. In prior

years, the financial statements of the three entities had been reported

individually. However, because TA and NTIA receive accounting services

from NIST using NIST’s accounting system, it was decided to combine

their reporting for FY 2000 in order to improve audit efficiency and

reduce duplication of effort.

The firm identified no material weaknesses, but did identify one reportable condition in NIST’s internal control structure; namely, that the

agency needed to strengthen its information systems’ general controls

procedures. This condition was identified during the firm’s review of the

general controls associated with NIST’s information processing systems.

The firm identified weaknesses in four areas: entitywide security program

planning and management, access control, application software development and change control, and segregation of duties.

These weaknesses could adversely affect the security of the data,

programs, and hardware maintained at NIST and have a negative effect

on the financial statements of NIST, TA, NTIA, and the Department. The

weaknesses, and the firm’s recommendations for correcting them, were

discussed in a separate report on systems issues. Because of these

weaknesses, NIST did not substantially comply with the Federal Financial

Management Improvement Act of 1996.

NIST generally agreed with the firm’s findings and recommendations in

both reports and has begun taking corrective actions. (Financial Statements Audits Division: FSD-12859-1 and FSD-12859-2)

Audit of NTIS’s FY 2000 Financial Statements

NTIS again received an unqualified opinion on its financial statements.

The CPA firm conducting the audit identified no reportable conditions in

NTIS’s internal control structure, nor any material instances of noncompliance with laws and regulations or with other federal financial management requirements. As a result, the firm made no recommendations.

In conjunction with its review of the financial statements, the firm’s

review of the general controls associated with NTIS’s information

systems identified weaknesses only in access control. These weaknesses,

however, could adversely affect the security of NTIS’s data, programs,
Commerce OIG Semiannual Report 62 March 2001

Technology Administration

and hardware and have a negative effect on both NTIS’s and the

Department’s financial statements. The weaknesses, and the firm’s

recommendations for correcting them, were discussed in a separate

report on systems issues. NTIS agreed with the firm’s findings and

recommendations and indicated that it had implemented corrective actions

for the systems weaknesses. (Financial Statements Audits Division:

FSD-12857-1 and FSD-12857-2)

Millions of Dollars of MEP Award Costs

Questioned as Unallowable or Unsupported

In 1996 NIST awarded a cooperative agreement under its Manufacturing

Extension Partnership (MEP) program to an organization whose mission

is to provide manufacturing extension services to small and medium-sized

manufacturers throughout Illinois. The award covered the period from

October 1996 through June 2000 and had total estimated costs of approximately $20 million. The organization is divided into three regions, each of

which is responsible for covering a portion of the state through a

subagreement.

The OIG performed an interim audit of the Northern Region subagreement covering the period from October 1996 through September 1999.

This subagreement, which is administered by a local college as subrecipient, had estimated costs of $4.2 million, with the federal share not to

exceed approximately $1.7 million. For the 3-year award period, the

subrecipient claimed total costs of about $4.9 million.

Our audit questioned a total of $2,480,335 in costs, most of which fell into

the following three categories:

 Training expenses. We questioned $972,917 in costs claimed

for training services that were inappropriately billed at a flat rate,

and were not supported by payroll and time distribution records.

 Third-party expenses. We questioned $790,726 in third-party

in-kind contributions, which consisted of consulting fees paid by

various clients of the subrecipient directly to outside consultants

for services purportedly brokered by the subrecipient. The subrecipient had no demonstrable involvement in these transactions:

It did not collect money for the services, perform the services, or

ensure the quality of the services. In addition, the consultants did
Commerce OIG Semiannual Report 63 March 2001

Technology Administration

not contribute any services to the program or to clients, since

they charged their full fee, making claimed “in-kind” contributions

incorrect.

 Indirect costs. We questioned $570,575 in claimed indirect costs

because the subrecipient did not have a negotiated and approved

indirect cost rate.

We also questioned $60,913 paid for services performed by a consultant

that were not allowable project costs, $50,998 in unsupported personnel

costs, and $34,206 in undocumented contractual and construction costs.

We recommended that NIST require the award recipient to reduce its

total program cost claims by the amount of the questioned costs and

direct the subrecipient to revise its accounting procedures to claim only

supported and allowable costs.

In response to our draft report, the subrecipient agreed to reduce its cost

claims by a total of $378,066, which included all of the unsupported

personnel costs, all of the undocumented contractual and construction

costs, and $292,862 of the costs for third-party expenses. It asserted,

however, that the remainder of the costs that we questioned should be

allowed. We continue to question those costs. (Denver Regional Office

of Audits: DEN-12525)

NIST and MEP Award Recipient Take

Actions to Eliminate Questioned Costs

A cooperative agreement awarded under NIST’s MEP program to a

Louisiana university in 1996 was amended in 1999 to include as corecipient another organization that provides manufacturing extension

services to small and medium-sized manufacturers. The amended agreement covered the period from September 1996 through December 2000

and had estimated costs of approximately $7 million, with the government’s share not to exceed $3.2 million. As of June 17, 2000, the corecipient had claimed total costs of $6.6 million, including a federal share

of $2.7 million.

At NIST’s request, the OIG conducted an audit of the award to the corecipient covering the period from September 1996 through May 2000.

The purpose of our audit was to determine whether the co-recipient’s

accounting and financial management systems complied with federal

requirements, evaluate the claimed costs, and identify any instances of

noncompliance with award terms and conditions. We also looked into
Commerce OIG Semiannual Report 64 March 2001

Technology Administration

issues raised in a state auditor’s report, which reported several violations

of federal regulations, including an inadequate financial management

system and weaknesses in internal controls.

Our audit found that the co-recipient had corrected the deficiencies in its

financial management system and internal controls to bring them into

compliance with federal regulations. However, we questioned $59,628 in

claimed costs, consisting of $29,094 in costs incurred before the award

period, $26,794 in costs that lacked supporting documentation, and $3,740

in indirect costs calculated using an incorrect rate. In response to our

draft report, the co-recipient deducted from its claim the costs questioned

for lack of supporting documentation and the improperly calculated

indirect costs. In addition, NIST amended the award to accept virtually all

of the costs incurred before the award period. As a result, our final report

contained no recommendations. (Denver Regional Office of Audits:

DEN-13102)

Millions of Dollars of Costs Claimed Under

ATP Cooperative Agreement Are Questioned

In 1992 NIST awarded an Advanced Technology Program (ATP) joint

venture cooperative agreement to two firms to conduct research on the

visible spectrum. For the 5-year award period of October 1992 through

September 1997, the project had estimated costs of $18,030,000, with the

federal government’s share not to exceed 49.5 percent of allowable

costs. One of the firms in the venture served as project administrator, and

its portion of the project budget was $6,859,971, with a proposed federal

share of $3,911,953. The total joint venture cost claim for the award was

$20,789,490, of which the administrator firm’s share was $9,618,095.

Based on the cost claims, NIST disbursed $8,735,364 in federal funds, of

which $3,721,809 went to the administrator firm.

NIST requested that the OIG perform an audit of the costs claimed by

the administrator firm under the award. As a result of our audit, we

questioned more than $6.3 million (or about two-thirds) of the firm’s

claimed costs. The questioned costs involved improper claims of commercial sales of the firm’s products, fees claimed for management of the

venture in violation of the approved cost structure, costs for which the

firm did not provide evidence of allocability to the award, and indirect

costs claimed in excess of approved rates.
Commerce OIG Semiannual Report 65 March 2001

Technology Administration

We recommended that NIST disallow the questioned costs and recover

from the firm the resulting excess federal disbursements of over

$1.8 million. (Denver Regional Office of Audits: DEN-12590)

Audits of ATP Joint Venture Cooperative

Agreements Identify Questioned Costs

Two other OIG audits of ATP cooperative agreements also identified

questioned costs.

A Massachusetts firm that was a member of a joint venture had claimed

$1,018,227 in costs under an ATP cooperative agreement. Our audit found

that the firm’s accounting system was adequate to meet federal requirements and that it was generally in compliance with the agreement’s terms

and conditions. However, we questioned $240,106 in costs, including

$68,925 of material costs obligated shortly before or immediately after the

expiration date of the award, and $171,181 of indirect costs that were

related to the questioned material costs or calculated using incorrect

rates. We recommended that NIST disallow the questioned costs and

recover $102,853 of excess federal disbursements.

The firm agreed that most of the material costs should not be allowed, but

claimed that some of these costs were necessary to continue the ATP

project after the award period. We note, however, that costs incurred for

continuing a project after award expiration are expressly unallowable

under applicable criteria. The firm also asserted that the indirect costs

exceeding the negotiated rate should be allowed because they were

included only in the matching share, and not in the federal share. However, indirect costs in excess of approved rates are not allowable regardless of how they are claimed. (Denver Regional Office of Audits:

DEN-13532)

We also audited the costs claimed by a New Mexico firm that was a

member of a second joint venture. The firm’s portion of the total project

budget was $1,799,911, with a proposed federal share of $899,956. The

firm withdrew from the joint venture during the second year and claimed

a total of $215,967 in incurred costs. Our audit questioned $67,413 of the

claimed costs related to equipment costs the firm charged as direct costs,

but later improperly transferred to its depreciable equipment account. We

recommended that NIST disallow the questioned costs and recover

excess federal disbursements of $33,757.
Commerce OIG Semiannual Report 66 March 2001

Technology Administration

Although the firm changed its treatment of the equipment costs in response to our draft report, it continued to assert that the transfer of the

costs from direct expense to depreciation was justified. We believe that

the firm’s position is not only without merit, but also contradicts its

auditors’ previous treatment of the equipment as a direct expense, and we

reaffirmed our original recommendation. (Denver Regional Office of

Audits: DEN-13965)
Commerce OIG Semiannual Report 67 March 2001

Departmental Management

Policy Has Strengthened Management of Trade

Missions, but More Improvements Can Be Made

The Department of Commerce, primarily through the Office of the

Secretary and ITA, organizes and leads trade missions, on which U.S.

business leaders travel overseas with the Secretary or other senior

departmental officials to meet with foreign business leaders, companies,

and government officials. The missions are designed to open markets,

identify and secure export and investment opportunities for U.S. companies, showcase American products and technology, and further U.S.

commercial and foreign policy objectives.

Until 1997, Commerce did not have a written policy governing trade

missions or their management, and it was subjected to sharp criticism

from various parties claiming that political considerations were a factor in

the recruitment and selection of private sector participants for the missions. In March 1997, the Department unveiled a comprehensive policy

covering the trade mission authorization process, the recruitment and

selection of private sector participants, mission costs, and post-mission

reports. The policy explicitly prohibits considering referrals from political

parties or references to political contributions or activities in the recruitment and selection of participants.

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

1. Trade Mission 

Applications filed out by 

potential participants.

2. Applications mailed or 

faxed to the Department 

of Commerce

Trade Mission Application and Selection Process

3. Applications reviewed by Tier I panel 

members against trade mission 

participation criteria.

4. Panel recommends inviting some 

applicants, not inviting others, and/or 

collecting additional information on 

applications prior to recommendation 

decisions.

5. Recommendations on applicants 

forwarded to Tier II panel.

6. Applicants recommended by the Tier I 

panel for participation are vetted through 

the Department to determine if there is any 

information that raises questions about 

their participation.

7. Tier I recommendations and vetting 

information are considered by the Tier II 

panel.

8. Final decision are made by the panel 

on which applicants to invite on the 

trade mission.

9. Letters of invitation to chosen 

applicants and letters to unsuccessful 

applicants are sent out.

10. Accepted applicants participate 

on the trade mission.

1. Trade Mission 

Applications filed out by 

potential participants.

2. Applications mailed or 

faxed to the Department 

of Commerce

Trade Mission Application and Selection Process

3. Applications reviewed by Tier I panel 

members against trade mission 

participation criteria.

4. Panel recommends inviting some 

applicants, not inviting others, and/or 

collecting additional information on 

applications prior to recommendation 

decisions.

5. Recommendations on applicants 

forwarded to Tier II panel.

6. Applicants recommended by the Tier I 

panel for participation are vetted through 

the Department to determine if there is any 

information that raises questions about 

their participation.

7. Tier I recommendations and vetting 

information are considered by the Tier II 

panel.

8. Final decision are made by the panel 

on which applicants to invite on the 

trade mission.

9. Letters of invitation to chosen 

applicants and letters to unsuccessful 

applicants are sent out.

10. Accepted applicants participate 

on the trade mission.

CFO and

Assistant

Secretary for

Administration
Commerce OIG Semiannual Report 68 March 2001

Departmental Management

The OIG conducted a review of the Department’s March 1997 trade

mission policy and its implementation. In a report issued shortly after the

end of the semiannual period, we concluded that the policy has provided a

more disciplined and consistent approach to the conduct of Commerce

trade missions. However, we also identified actions that can be taken to

increase the policy’s effectiveness and further improve the Department’s

management of trade missions. Following are our specific findings:

 Policy has strengthened management of trade missions.

Our review of all 20 trade missions led by either the Secretary or

other high-level Commerce officials from March 1997 to October

2000 showed that many of the objectives and requirements of the

trade mission policy were met. We noted, for example, that for

each of the missions, trade mission statements were prepared

that specifically defined the goals of the missions and the criteria

for participation. In addition, recruitment efforts appeared to be

broad-based, as required by the policy. Most importantly,

decisions as to which private sector individuals went on the

missions, where documented, appeared to be appropriate and

based on objective criteria.

 Improvements are needed in the policy and its implementation. We identified areas in which the policy could be improved

and its application to future trade missions could be strengthened.

For example, the policy may not be appropriate for all “reverse”

trade missions, which bring foreign buyers to visit U.S. companies, and the “diversity” criterion used on the trade mission

application and in the selection process needs clarification. In

addition, documentation of trade missions has not been

consistently maintained. Key documents related to trade mission

planning were well maintained, but documents related to the

participant recruitment and selection processes, mission results,

and cost reports were not present in all files. Maintaining

appropriate documentation is key to demonstrating that the

missions are being managed in a fair, objective manner.

 The application process could be made more efficient. The

Department has not taken full advantage of opportunities to

reduce the paper-intensive nature of the trade mission application

process and improve its efficiency through wider use of

information technology. Although the Office of the Secretary had

used the Internet for the receipt and delivery of some trade

mission applications, ITA had not used it at all. Considering the

widespread use of the Internet by ITA and the Department to

promote exporting, and the Department’s role in promoting
Commerce OIG Semiannual Report 69 March 2001

Departmental Management

e-commerce nationwide, we believe that the trade mission

application process and payment transactions could be more

efficiently handled electronically.

 Certain policy areas need additional implementing

guidelines and procedures. The topics covered by the trade

mission policy run the gamut from broad policy goals and

objectives to specific implementing steps. Although the policy is

clear on how to implement some of its steps and criteria, it is less

clear on others, such as documentation requirements. Therefore,

we believe that the policy needs to be refined and supported by

specific implementing guidelines to help ensure full and consistent

compliance. In our view, a revised policy statement, along with a

set of implementing guidelines, would help both Commerce

officials and trade mission applicants more readily understand

what information and steps are required to successfully conduct

trade missions.

We made a number of recommendations to further strengthen the trade

mission policy and its implementation. In response to our report, the

Secretary indicated that he is committed to following a process of evaluation and action to ensure that trade missions serve their intended public

purpose. (Office of Inspections and Program Evaluations)

Additional Focus Needed on Information

Technology Security Policy and Oversight

Information technology (IT) security is an increasing concern in government as vulnerabilities, threats, and attacks grow with the dramatic rise in

the number of government networks and use of the Internet. Although no

network can be guaranteed to be completely secure, agencies can take

steps to mitigate risk, such as developing and overseeing an effective

security program based on sound policy.

Commerce’s Chief Information Officer (CIO) is responsible for developing and implementing a departmental IT security program to ensure the

confidentiality, integrity, and availability of information and IT resources.

The CIO’s responsibilities include developing policies, procedures, and

directives for IT security and providing oversight of the IT security

programs of the Department’s operating units.

During this semiannual period, the OIG conducted an inspection to assess

the effectiveness of the CIO’s policy and oversight of the Department’s
Commerce OIG Semiannual Report 70 March 2001

Departmental Management

IT security program. We did not examine classified systems, which are

the responsibility of the Office of Security. Our review focused on the

CIO’s compliance with laws and regulations governing IT security and

the CIO’s actions in recent years to oversee the Department’s IT security program.

We found that over the past several years, the CIO’s office has expanded

its focus on and increased the resources devoted to IT security. For

example, the office conducted its first Department-wide assessment of IT

security planning in 1999 and reviewed operating unit self-assessments in

2000, which resulted in increased compliance with security requirements.

However, because IT security did not receive enough attention in the

past, policy and oversight need further improvements, as discussed in the

following sections:

IT Security Policy Needs to Be Revised and Expanded

The Department’s IT security policy is out of date because it was

developed in 1993 and 1995, prior to a significant revision of Appendix III

to OMB Circular A-130, which deals with the security of federal automated information resources. The policy is also missing important components because it has not kept pace with recent trends in technology and

related security threats. The Department’s policy must be kept current

and complete because the operating units use it as the foundation of their

general policies and to write system-specific policies.

The major areas of the policy that need to be revised are IT security

planning, certification of system controls, periodic reviews of individual

systems, security incident reporting, risk assessment, contingency and

disaster recovery planning, security awareness and training, authorization

of systems to process sensitive information, and referencing of related

federal requirements. In addition, issue-specific policy regarding Internet

usage, e-mail, Web security, and communications needs to be added. We

recommended that the CIO revise the outdated program policy and

incomplete issue-specific policies for the Department’s IT security

program as soon as possible.

Additional IT Security Compliance Procedures Are Needed

Although the CIO has recently made strides in improving IT security

compliance, for several years Departmental oversight was minimal. As a

result, security for many of the Department’s systems has not been

adequately planned, and security reviews have not been performed. In

addition, several operating units do not have adequate awareness and
Commerce OIG Semiannual Report 71 March 2001

Departmental Management

training programs or adequate capabilities for responding to IT security

incidents.

The Government Information Security Reform Act requires the CIO to

conduct annual reviews of IT security in 2001 and 2002 similar to the

2000 self-assessments it oversaw. We recommended that the CIO

commit to a program of operating unit reviews that extends beyond the

act’s 2-year review requirement. The reviews should determine whether

all operating unit policy is in compliance with federal criteria, IT security

awareness and training programs have been developed, and formal

incident response capabilities have been implemented.

Moreover, the CIO should work with the Department’s acquisition and

budget managers to ensure that IT-related procurement specifications

include security requirements and that the requirements are included in

operating unit budgets. The CIO should also ensure that deficiencies in IT

security are reported as material weaknesses pursuant to OMB Circular

A-123 and the Federal Managers’ Financial Integrity Act.

The program should also include sampling of operating unit IT security

documents to ensure that IT security planning for the Department’s most

critical systems is complete, systems are properly approved for processing information, the security controls in each system are reviewed

periodically, and a mechanism exists for ensuring that only legal copies of

software are being used.



The CIO agreed with all of our recommendations for further improving

IT security and cited a number of corrective actions planned to implement

them. Specifically, the CIO agreed to revise, expand, and update the

Department’s IT security policy; continue the compliance review program

beyond the 2-year period required by the act; begin security reviews as

soon as possible; and make specific security improvements at the operating unit level. (Office of Systems Evaluation: OSE-13573)

Audit of the Department’s FY 2000

Consolidated Financial Statements

For the second consecutive year, FY 2000, the Department received an

unqualified opinion on its consolidated financial statements, and all of its

reporting entities also received clean opinions.
Commerce OIG Semiannual Report 72 March 2001

Departmental Management

Moreover, during FY 2000, sufficient progress was made to warrant

removing from the consolidated report on internal control, the reportable

conditions dealing with controls surrounding property and accounts

payable and accrued grant expenses.

Nevertheless, our audit of the consolidated statements identified four

reportable conditions, of which three are repeat conditions from the prior

year and one—involving prompt recognition and recording of appropriations—is new. Although the Department made progress in correcting

certain aspects of these conditions during the year, further improvements

are needed in the following areas:

 Financial management systems. The Department needs to

integrate its financial systems and improve general controls to

provide assurance that the data used to prepare financial

statements is reliable. While progress is being made, much

remains to be done. In addition, the audits of Commerce reporting

entities’ FY 2000 financial statements included reviews of the

general controls associated with the major financial management

systems. These reviews disclosed system security weaknesses in

all six major review areas identified by the General Accounting

Office’s Federal Information System Controls Audit Manual.

These weaknesses, if not resolved, could adversely affect the

entities’ ability to produce accurate data for financial statements.

 Reporting entities’ financial management and reporting.

Several entities need to improve the timeliness and accuracy of

their financial statements, and provide better financial

management oversight and supervisory review of the statements.

Specifically, three entities, representing more than half of the

Department’s budgetary resources, had material weaknesses

identified in their financial management and reporting processes.

In addition, the entities need to strengthen statement of net cost

preparation, improve implementation of financial systems, and

more closely monitor the budget execution process to reduce the

possibility that funds are overobligated.

 Prompt recognition and recording of appropriations.

Appropriations need to be promptly recognized when enacted into

law and promptly recorded in the appropriate accounting period.

Appropriated amounts relating to the Emergency Steel Loan

Guarantee Program and the Emergency Oil and Gas Loan

Program were not recorded in the general ledger in FY 1999, and

as a result were excluded from the FY 1999 financial statements.
Commerce OIG Semiannual Report 73 March 2001

Departmental Management

The appropriations were not recorded in a departmental accounting system until almost six months into FY 2000. Reportedly,

confusion existed as to whether or where the appropriations had

been recorded.

 Reconciliations. The Department and its reporting entities need

to strengthen their procedures related to reconciliations. Consistent with the prior year, internal control deficiencies continued to

be identified in some reporting entities’ reconciliation process.

Reconciliations were identified as a material weakness at one

reporting entity and as a component of a material weakness at

another reporting entity. In addition, the Department did not

complete the required reconciliations of intragovernmental

balances with other federal and non-federal entities.

We consider the first three reportable conditions described above to be

material weaknesses, and we made recommendations to the Department

to address all four conditions.

In performing tests of the Department’s compliance with selected

provisions of applicable laws and regulations that could materially affect

the FY 2000 consolidated financial statements, we noted four instances of

noncompliance:

 The Department was not in substantial compliance with the

requirements of the Federal Financial Management Improvement

Act of 1996 in that it did not meet the requirements for a single,

integrated financial management system. In addition, three of the

Department’s financial management systems did not fully comply

with federal financial management systems requirements.

 The Department did not comply with the Government Performance and Results Act of 1993 and the implementation guidance in

OMB Circular A-11. Specifically, it did not submit its Strategic

Plan for FY 2000-05 to the Congress until more than 3 months

after the mandated deadline.

 NOAA did not fully fund its capital leases, a practice that is

contrary to OMB Circular A-11, which requires agencies to have

sufficient budgetary resources up front to cover the present value

of the lease payments for capital assets and lease purchases.
Commerce OIG Semiannual Report 74 March 2001

Departmental Management

 ITA has not fully complied with OMB Circular A-25, which

requires federal agencies to recover the full cost of providing

goods and services unless it has received a waiver from OMB.

All of the findings and recommendations included in this report and the

individual reporting entity reports have been reviewed by appropriate

departmental managers. They generally concurred with our audit findings

but did not agree that the deficiency related to the prompt recognition and

recording of appropriations should be considered a material weakness.

(Financial Statements Audits Division: FSD-12849)

Section 803 of the Federal Financial Management Improvement Act

requires agencies to determine whether they are in substantial compliance

with the act. If not, they are required to prepare a remediation plan

outlining the actions to bring them into compliance. The Department of

Commerce determined that it is not in compliance with the act and has

prepared a remediation plan.

Under Section 804(b) of the act, the OIG is required to notify the Congress when the Department does not meet intermediate target dates in its

remediation plan. We did not identify any instances that would necessitate

notifying the Congress. The Department plans to update its remediation

plan on the basis of progress made and the results of the audit of its

FY 2000 statements.

Audit of the FY 2000 Combined Financial

Statements of Several Departmental Entities

An unqualified opinion was received on the FY 2000 combined financial

statements of ESA and BEA, MBDA, and the Department’s Working

Capital and Salaries and Expense Funds and its Emergency Steel Loan

Guarantee and Emergency Oil and Gas Guaranteed Loan Programs. All

of these entities receive accounting services from NIST, which uses the

Financial Accounting and Reporting System, operated by the

Department’s Office of Computer Services. Therefore, in an effort to

improve audit efficiency and reduce duplication of effort, the financial

statement reporting for these entities was combined.

The CPA firm conducting the audit identified one material weakness in

the combined entities’ internal control structure involving the recording of

the beginning balances of the unexpended appropriations for the two loan

guarantee programs. The audit revealed that the appropriated amounts

for these programs—totaling $270 million—were not recorded in the
Commerce OIG Semiannual Report 75 March 2001

Departmental Management

general ledger in FY 1999, and as a result, the FY 2000 beginning balances for the two programs were not in the accounting system. Appropriations need to be promptly recognized when enacted into law and

promptly recorded in the appropriate accounting period. The firm also

determined that the reporting entity’s financial management systems did

not substantially comply with applicable requirements, as required by the

Federal Financial Management Improvement Act.

In addition, the firm conducted a review of the general controls associated with the Financial Accounting and Reporting System. Following up

on a number of recommendations made in prior years, the firm found that

most had been implemented. It also made two new recommendations

involving entitywide security program planning and management and

access control. The Office of Computer Services agreed with the

systems-related findings and recommendations and began implementing

corrective actions. (Financial Statements Audits Division:

FSD-12852-1 and FSD-12852-2)

Preaward Financial Assistance Screening

As part of our continuing emphasis on prevention, 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 485 proposed awards. On 17 of the

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

proposed recipients to maintain proper control over federal funds. On the

basis of the information we provided, the Department withdrew some

awards, delayed other awards until concerns were satisfactorily resolved,

and established special conditions for one award to adequately safeguard

federal funds. (Office of Audits)
Commerce OIG Semiannual Report 76 March 2001

Departmental Management

Indirect Cost Rates

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

responsible for the review, negotiation, and approval of indirect cost rates

for public and private entities receiving funds under various federal

programs. Normally, the federal agency providing the most direct funding

to an entity is designated as its cognizant agency. OMB has designated

Commerce as the cognizant agency for about 280 economic development

districts, as well as a number of state and local government units. From

time to time, the Department also has oversight responsibilities for other

recipient organizations. The Department has authorized the OIG to

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

The OIG reviews and approves the methodology and principles used in

pooling indirect costs and establishing an appropriate base for distributing

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

fair share.

During this period, we negotiated 18 indirect cost rate agreements with

nonprofit organizations and governmental agencies, and reviewed and

approved 16 cost allocation plans. We also provided technical assistance

to recipients of Commerce awards regarding the use of rates established

by other federal agencies and their applicability to our awards. Further,

we continued to work closely with first-time for-profit recipients of

Commerce awards to establish indirect cost proposals that are acceptable

for OIG review. (Atlanta Regional Office of Audits)

Nonfederal Audit Activities

In addition to OIG-performed audits, certain of the Department’s financial

assistance recipients are periodically audited by state and local government auditors and by independent public accountants. OMB Circular A133, Audits of States, Local Governments, and Non-Profit OrganizaPreaward Screening Results

Results Number Amount

Awards withdrawn 7 $140,000

Awards delayed to resolve concerns 9 5,425,515

Special award conditions established 1 370,000
Commerce OIG Semiannual Report 77 March 2001

Departmental Management

tions, sets forth the audit requirements for most of these audits. Forprofit 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 155 audit reports during this semiannual period to determine

whether they contained any audit findings related to Department programs. For 117 of these reports, the Department acts as oversight agency

and monitors the auditee’s compliance with the applicable OMB circulars

or the NIST program-specific reporting requirements. The other 38

reports are from entities for which other federal agencies have oversight

responsibility.

The following table shows a breakdown by bureau of the $243 million in

Commerce funds audited.

Report

Category

OMB

 A-133 Audits

ATP ProgramSpecific Audits Total

Pending

(October 1, 2000) 7 34 41

Received 76 86 162

Examined 72 83 155

Pending

(March 31, 2001) 11 37 48

Bureau Funds

EDA $25,766,231

MBDA 262,753

NIST 162,595,856*

NOAA 22,904,165

NTIA 333,679

Multi-Agency 31,085,872

Agency not identified 339,063

 Total $243,287,619

*Includes $154,887,994 in ATP program-specific audits.
Commerce OIG Semiannual Report 78 March 2001

Departmental Management

We identified a total of $645,391 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 15 reports with Commerce findings are listed in

Appendix B-1. (Atlanta Regional Office of Audits)
Commerce OIG Semiannual Report March 2001 79

Investigative Highlights

The OIG’s Office of Investigations (OI) is responsible for investigating allegations of fraud and other wrongdoing that affect Commerce Department programs and operations, including criminal or

otherwise prohibited activities engaged in by employees, contractors,

or recipients of financial assistance. Staffed by special agents

located in Washington, D.C., Denver, and Silver Spring, Maryland,

OI works closely with the Department of Justice and with U.S.

Attorneys’ offices throughout the country to prosecute criminal and

civil actions in order to punish offenders and recover losses suffered

by the government as a result of fraud and misconduct.

Like their counterparts in most OIG offices, OI special agents are

authorized to exercise full law enforcement powers as special

deputy U.S. marshals under a deputation agreement with the Justice

Department. We also work cooperatively with the Federal Bureau

of Investigation and other federal law enforcement agencies on a

regular basis to investigate matters of mutual interest. The results of

OIG investigations of employee misconduct are provided to agency

officials to support disciplinary and administrative actions.

During this semiannual period, OIG investigations led to six convictions and the filing of either indictments or criminal informations

against seven individuals. There were also six personnel actions

taken by the Department as a result of OI case work. The following

are highlights of our investigative activity over the past six months.

Former Census Employee

Indicted for Accepting Bribes

On October 13, 2000, a former community partnership specialist in

the Dayton regional office was indicted by a federal grand jury in

the Southern District of Ohio on charges of wire fraud and bribery

after a joint OIG/FBI investigation disclosed that he had misused his

position to solicit and receive at least $1,750 from four local vendors

in exchange for favorable treatment in purchasing promotional items,

such as t-shirts and mugs, for the 2000 Decennial Census campaign.

The six-count indictment charges the defendant with one count of

wire fraud and five counts of bribery. Bribery offenses carry a

maximum penalty of 15 years’ imprisonment and a $250,000 fine;

wire fraud carries a maximum penalty of 5 years’ imprisonment and

a $250,000 fine. As of the end of this reporting period, a trial date

had not been set. (Washington Field Office of Investigations)
Commerce OIG Semiannual Report March 2001 80

Investigative Highlights

NOAA Employee Convicted for

Conflict of Interest Violation

In December 2000, a NOAA employee pleaded guilty to a violation

of 18 U.S.C.§208 after an OIG investigation revealed that he had

engaged in a scheme to obtain rebates from a computer vendor

under a secret “self-servicing” agreement for warranted repairs to

government computers. The terms of the agreement allowed the

employee—rather than the vendor’s technicians—to repair equipment that was under warranty, in return for which the vendor issued

rebate checks to the government in care of the employee. Over a

period of approximately 4 years, the employee received and appropriated checks totaling $5,229 that were intended as credits to the

government’s account.

On March 13, 2001, the employee was sentenced in U.S. District

Court for the Eastern District of Virginia to 10 days in jail with 2

years’ supervised probation, and was ordered to pay a $1,000 fine

and make full restitution to the government. He remains on an

indefinite suspension without pay, which NOAA had imposed

following his indictment last October. (Silver Spring Field Office

of Investigations)

Census Employee Pleads Guilty to

Downloading Child Pornography

A joint Commerce OIG/U.S. Customs Service investigation resulted

in the December 2000 conviction of a Census employee for possession of child pornography, which he had downloaded onto his

government computer. On February 28, 2001, the subject was

sentenced in U.S. District Court for the District of Maryland to

3 years’ probation, mandatory psychiatric counseling, and a $2,500

fine. (Washington Field Office of Investigations)

Employee Receives 30-Day Suspension

for Misuse of Government Equipment

A NOAA employee was suspended for 30 days after an OIG

investigation disclosed that he had used agency photographic

equipment for personal purposes on multiple occasions, and had
Commerce OIG Semiannual Report March 2001 81

Investigative Highlights

downloaded approximately 400 sexually explicit pictures and stored

them in a password-protected file on his government computer.

(Silver Spring Field Office of Investigations)

Felony Theft Conviction for Personal

Use of Government Purchase Card

On December 12, 2000, a former employee in the Office of Acquisition Management entered a guilty plea on one count of theft of

government property after an OIG investigation disclosed that she

had charged about $50,000 on her government purchase card to

make numerous purchases of clothing, jewelry, and other luxury

items, and to pay her rent and fees for various personal services.

Sentencing has been scheduled for April 2001 in U.S. District Court

for the District of Columbia. (Washington Field Office of Investigations)

Bench Trial Results in Guilty

Verdict on Theft Charge

A former USPTO contract employee was convicted of theft of

government property on January 4, 2001, after trial before a U.S.

district judge in the Eastern District of Virginia on charges that she

had used a government purchase card to make nearly $700 worth

of purchases for personal use. An OIG investigation revealed that a

departing USPTO employee had surrendered her governmentissued purchase card to the defendant in the course of completing

agency separation procedures. The defendant and a companion

then used the card to charge various items of apparel at a women’s

clothing store in Virginia. Sentencing was scheduled for April 2001.

(Silver Spring Field Office of Investigations)

Conspiracy to Defraud the Government

Leads to Conviction of NOAA Employee

On March 14, 2001, a NOAA employee was convicted of conspiracy to defraud the government based on an arrangement with

another employee to falsify the latter’s payroll records to reflect

regular and overtime hours that were not actually worked. For five
Commerce OIG Semiannual Report March 2001 82

Investigative Highlights

pay periods when the second employee was on leave without pay,

the defendant entered false information into the payroll system,

which enabled the absent employee to receive more than $9,800 in

pay to which she was not entitled; she then paid $1,500 of the

proceeds to the defendant. Both employees have resigned from

federal employment, and further action against the second employee is pending. The defendant’s sentencing is scheduled in U.S.

District Court for the District of Columbia for May 31, 2001.

(Silver Spring Field Office of Investigations)

Former USPTO Employee Convicted of

Theft of Government Property

On October 26, 2000, a former USPTO employee pleaded guilty

to one count of theft of government property after a search

warrant executed during the course of a U.S. Secret Service

credit card/identity fraud investigation turned up numerous Commerce personnel and payroll records at her residence. On

January 9, 2001, she was sentenced in U.S. District Court for the

Eastern District of Virginia to one year of supervised probation.

(Silver Spring Field Office of Investigations)

Two Senior Managers

Reprimanded for Misconduct

A senior executive was issued a letter of reprimand based on the

results of an OIG investigation that found he had used his position

to pressure another senior manager into accepting the reassignment of an employee to his division, and then later pressured the

same manager into authorizing a cash award for the transferred

employee. The manager who made the award also received a

letter of reprimand for making the improper award, as well as for

awarding the employee two additional bonuses that were not

appropriate under the agency’s performance award program.

(Silver Spring Field Office of Investigations)
Commerce OIG Semiannual Report March 2001 83

Investigative Highlights

Employee Suspended for

Misuse of Government Equipment

A patent examiner received a 5-day suspension after an OIG

investigation revealed that he had used government equipment to

make nearly 500 personal telephone calls and telefax transmissions

over a five-month period, many of which were in furtherance of

his private business ventures. (Washington Field Office of

Investigations)

MBDA Employees Cited for Ethics Violation

An MBDA employee was admonished and required to attend

supplemental ethics training after an OIG investigation established

that she had solicited subordinate employees to contribute to the

purchase of a gift for a senior agency official in violation of the

standards of ethical conduct. The senior official was reminded of

the prohibitions regarding acceptance of gifts, and required to

reimburse the employees for the cost of the gift. (Denver Field

Office of Investigations)
Commerce OIG Semiannual Report March 2001 84

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, 2000) for which no management decision had been made by

the end of the period (March 31, 2001). We are pleased to report that

there are no audit reports that have been unresolved over six 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.

During this semiannual period, a team from the Department of State OIG

completed an external peer review of our audit operations. In its report,

the State team concluded that the system of quality controls for our audit

function has been designed in accordance with the quality standards

established by President’s Council on Integrity and Efficiency and was

being complied with in a manner that provides reasonable assurance of

conforming with professional standards in the conduct of our audits.

The State team performed a comprehensive review of our audit operations, including both an examination of our policies and procedures and a

critique of the internal quality assurance program managed by our Office

of Compliance and Administration. The team evaluated a number of

completed assignments and the audit files at Office of Audits divisions in

the Washington, D.C., area and regional offices in Atlanta and Denver.

Report Category Modifications Appeals

Actions Pending (October 1, 2000)

Submissions

Decisions

Actions Pending (March 31, 2001)

0

0

0

0

5

5

3

7

External Peer Review Finds OIG Audit

Operations in Compliance with Standards
Commerce OIG Semiannual Report March 2001 85

Office of Inspector General

The final report’s recommendations centered on updating the OIG manual

and encouraging the Office of Audits to adhere more closely to established policies. The Office of Audits has already responded, and we will

emphasize these areas during future internal quality reviews.

During this semiannual period, we completed a similar peer review of the

audit activities of the National Aeronautics and Space Administration

OIG. Our final report, presented in January, concluded that the agency’s

OIG also had a quality control system that complied with professional

standards.
Commerce OIG Semiannual Report 86 March 2001

Reporting Requirements

Section Topic Page

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

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

INDEX

5(a)(1)

5(a)(2)

5(a)(3)

5(a)(4)

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

5(a)(6)

5(a)(7)

5(a)(8)

5(a)(9)

5(a)(10)

5(a)(11)

5(a)(12)

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

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

discuss this matter on page 74.

4(a)(2)

Audit Reports—Funds to Be Put to Better Use

Significant Problems, Abuses, and Deficiencies

Significant Recommendations for Corrective Action

Prior Significant Recommendations Unimplemented

Matters Referred to Prosecutive Authorities

Information or Assistance Refused

Listing of Audit Reports

Summary of Significant Reports

Audit Reports—Questioned Costs

Prior Audit Reports Unresolved

Significant Revised Management Decisions

Significant Management Decisions with Which the OIG Disagreed

Review of Legislation and Regulations 87

16-83

16-83

87

79-83

88

94-101

16-83

91

92

84, 88

84, 88

88
Commerce OIG Semiannual Report 87 March 2001

Reporting Requirements

Section 4(a)(2): Review of

Legislation and Regulations

This section requires the Inspector General of each agency to review

existing and proposed legislation and regulations relating to that agency’s

programs and operations. Based on that review, the Inspector General is

required to make recommendations in the semiannual report concerning

the impact of such legislation or regulations on the economy and efficiency in the administration of programs and operations administered or

financed by the agency or on the prevention and detection of fraud and

abuse in those programs and operations. 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 an identification of each significant recommendation

described in previous semiannual reports on which corrective action has

not been completed. Section 5(b) requires that the Secretary transmit to

the Congress statistical tables for audit reports for which no final action

has been taken, plus an explanation of the reasons final action has not

been taken on each such report, except when the management decision

was made within the preceding year.

To include a list of all significant unimplemented recommendations in this

report would be duplicative, costly, unwieldy, and of limited value to the

Congress. Any list would have meaning only if explanations detailed

whether adequate progress is being made to implement each agreedupon corrective action. Also, as this semiannual report was being prepared, management was in the process of updating the Department’s

Audit Tracking System as of March 31, 2001, based on semiannual status

reports due from the bureaus in mid-April. An accurate database was

therefore not available to the OIG for reference here. However, additional information on the status of any audit recommendations may be

obtained through the OIG’s Office of Audits.

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
Commerce OIG Semiannual Report 88 March 2001

Reporting Requirements

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

and no reports to the Secretary.

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

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

beginning of the reporting period for which no management decision has

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

of each such report), an explanation of the reasons such management

decision has not been made, and a statement concerning the desired

timetable for achieving a management decision on each such report.

There were no reports for this period.

Section 5(a)(11): Significant

Revised Management Decisions

This section requires an explanation of the reasons for any significant

revised management decision made during the reporting period. Department Administrative Order 213-5, Audit Resolution and Follow-up,

provides procedures for revision of a management decision. For performance audits, the OIG must be consulted and must approve, in advance,

any modification to an audit action plan. For financial assistance audits,

the OIG must concur with any decision that would change the audit

resolution proposal in response to an appeal by the recipient.

The decisions issued on the three appeals of audit-related debts were

finalized with the full participation and concurrence of the OIG.

Section 5(a)(12): Significant Management

Decisions with Which the OIG Disagreed

This section requires information concerning any significant management

decision with which the Inspector General is in disagreement. Department Administrative Order 213-5 provides procedures for the elevation of

unresolved audit recommendations to higher levels of Department and

OIG management, including an Audit Resolution Council. During this

period, no audit issues were referred to the Council.
Commerce OIG Semiannual Report 89 March 2001

Audit and Inspection

Statistical Highlights

Statistical Highlights Statistical Highlights

Investigative

Statistical Highlights

Matters referred for prosecution 10

Indictments and informations 7

Convictions 6

Personnel actions* 6

Fines, restitutions, judgments, and

other civil and administrative recoveries $9,714

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

or retirements in lieu of adverse action.

Questioned costs this period $6,744,585

Value of audit recommendations made

this period that funds be put to better use $7,638,948

Value of audit recommendations agreed

to this period by management $3,070,943

Value if inspection recommendations made

this period that funds be put to better use $762,028

Accepted for investigation 22

Referred to operating units 48

Evaluated but not accepted for

 investigation or referral 67

Total 137

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

oighotline@oig.doc.gov
Commerce OIG Semiannual Report 90 March 2001

Tables and Appendixes

TABLES PAGE

1. Audits with Questioned Costs 91 

2. Audits with Recommendations That Funds Be Put to Better Use 92 

APPENDIXES

A. Office of Inspector General Reports 93 

 A-1. Performance Audits 94 

 A-2. Inspections 95 

 A-3. Financial Statements Audits 96 

 A-4. Financial Related Audits 98 

B. Processed Reports 100 

 B-1. Processed Financial Related Audits 101 

DEFINITIONS

The term questioned cost refers to a cost that is questioned by the OIG because of (1) an alleged violation of a 

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

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

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

The term unsupported cost refers to a cost that, at the time of the audit, is not supported by adequate documentation. 

Questioned costs include unsupported costs.

The term recommendation that funds be put to better use refers to a recommendation by the OIG that funds could be 

used more efficiently if Commerce management took action to implement and complete the recommendation, including 

(1) reductions in outlays; (2) deobligation of funds from programs or operations; (3) withdrawal of interest subsidy costs 

on loans or loan guarantees, insurance, or bonds; (4) costs not incurred by implementing recommended improvements 

related to Commerce, a contractor, or a grantee; (5) avoidance of unnecessary expenditures identified in preaward 

reviews of contracts or grant agreements; or (6) any other savings that are specifically identified.

The term management decision refers to management’s evaluation of the findings and recommendations included in 

the audit report and the issuance of a final decision by management concerning its response.
Commerce OIG Semiannual Report 91 March 2001

Audits With Questioned Costs

Table 1

 Questioned Unsupported

Report Category Number Costs Costs

A. Reports for which no management decision 22 $4,675,622 $1,641,276

 had been made by the commencement of

 the reporting period

B. Reports issued during the reporting period 18 6,744,585 2,782,829

 Total reports (A+B) requiring a management 40 11,420,207 4,424,105

 decision during the reporting period

C. Reports for which a management decision 22 4,675,622 1,641,276

 was made during the reporting period

 i. Value of disallowed costs 2,912,954 1,646,820

 ii. Value of costs not disallowed 1,787,401 98,790

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

 had been made by the end of the reporting

 period

Notes and Explanations:

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

than the original recommendations.

Four 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.
Commerce OIG Semiannual Report 92 March 2001

Audits With Recommendations

That Funds Be Put to Better Use

Table 2

Report Category Number Value

A. Reports for which no management decision 2 $157,989

 had been made by the commencement of

 the reporting period

B. Reports issued during the reporting period 8 7,638,948

 Total reports (A+B) requiring a management 10 7,796,937

 decision during the reporting period

C. Reports for which a management decision 2 157,989

 was made during the reporting period

 i. Value of recommendations agreed to 157,989

 by management

 ii. Value of recommendations not agreed - -

 to by management

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

 had been made by the end of the reporting

 period

Notes and Explanations:

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

than the original recommendations.

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

However, the dollar amounts do not overlap.
Commerce OIG Semiannual Report 93 March 2001

Office of Inspector General Reports

Appendix A

Type Number Appendix

Performance Audits 4 A-1

Inspections 9 A-2

Financial Statements Audits 19 A-3

Financial Related Audits 19 A-4

Total 51
Commerce OIG Semiannual Report 94 March 2001

Performance Audits

Appendix A-1

 Funds to

 Be Put to

Agency Subject Number Date Better Use

EDA Financial Assistance Programs’ Award DEN-11580 12/00 - -

Processes Promote Merit-Based Selection

Decisions, CFDA Nos. 11.300, 11.303-

11.305, and 11.307

NOAA NWS National Data Buoy Center’s ATL-12319 03/01 $ 5,200,000

Evaluation of Technical Services Contract

Was Inadequate

Work on Electronic Charting Database STD-13440 03/01 - -

Should Be Re-competed

TA Internal Controls Over NIST’s Bankcard DEN-11787 03/01 - -

Program Need Improvement
Commerce OIG Semiannual Report 95 March 2001

Inspections

Appendix A-2

 Funds to Be

 Put to

Agency Subject Number Date Better Use

BXA Most Allegations of Irregularities in IPE-13313 02/01 - -

Nonproliferation Export Control

Cooperation Program Could Not

Be Supported

Management of the Commerce Control IPE-13744 03/01 - -

List and Related Processes Should Be

Improved

Annual Follow-up Report on Previous IPE-14246(1) 03/01 - -

Export Control Recommendations, as

Mandated by the National Defense

Authorization Act for Fiscal Year 2000

ESA Actions to Address the Impact on the OSE-13812 03/01 - -

Accuracy and Coverage Evaluation of

Suspected Duplicate Persons in the 2000

Decennial Census

ITA US&FCS Mexico Requires Better Financial and IPE-11844 01/01 $762,028

Administrative Management as It Undertakes

an Ambitious Export Promotion Program

Although Progress Has Been Made, More IPE-13213 03/01 - -

Needs to Be Done to Deliver On-Line Export

Promotion Information and Services

O/S Additional Focus Needed on Information OSE-13573 03/01 - -

Technology Security Policy and Oversight

USPTO Search System Problems Being Addressed, OSE-12679 03/01 - -

but Improvements Needed for Future Systems

TA CRADA with the Coblentz Society Should IPE-13200 02/01 - -

Receive Greater Scrutiny
Commerce OIG Semiannual Report 96 March 2001

Financial Statements Audits

Appendix A-3

Agency Subject Number Date

BXA Financial Statements for FY 2000 FSD-12848 03/01

EDA Improvements Needed in the General FSD-12851(1) 01/01

Controls Associated with

Financial Management Systems

Financial Statements for FY 2000 FSD-12851(2) 03/01

ESA Improvements Needed in the General FSD-12850(1) 01/01

Controls Associated with Census Bureau

Financial Management Systems

Census Bureau’s Financial Statements FSD-12850(2) 03/01

for FY 2000

ITA Review of General and Application System FSD-12854(1) 01/01

Controls Associated with the FY 2000

Financial Statements

Financial Statements for FY 2000 FSD-12854(2) 03/01

NOAA Improvements Needed in the General Controls FSD-12855(1) 12/00

Associated with Financial Management

Systems

Financial Statements for FY 2000 FSD-12855(2) 03/01

O/S Department of Commerce’s Consolidated FSD-12849(1) 03/01

Financial Statements for FY 2000

FY 2000 Federal Agencies’ Centralized FSD-12849(2) 03/01

Trial-Balance System Data Verification

Agreed-Upon Procedures

Follow-up Review of the General Controls FSD-12852(1) 01/01

Associated with the Office of Computer

Services/Financial Accounting and Reporting

System
Commerce OIG Semiannual Report 97 March 2001

Agency Subject Number Date

O/S ESA and BEA, MBDA, WCF, S&E, and ELGP FSD-12852(2) 03/01

FY 2000 Combined Financial Statements

USPTO Improvements Needed in the General FSD-12858(1) 12/00

Controls Associated with Financial

Management Systems

Financial Statements for FY 2000 FSD-12858(2) 03/01

TA Improvements Needed in the General FSD-12859(1) 02/01

Controls Associated with NIST Financial

Management Systems

TA, NIST, and NTIA Combined Financial FSD-12859(2) 03/01

Statements for FY 2000

Improvements Needed in the General Controls FSD-12857(1) 01/01

Associated with NTIS Financial Managemnt

Systems

NTIS Financial Statements for FY 2000 FSD-12857(2) 03/01

Financial Statements Audits

Appendix A-3 (continued)
Commerce OIG Semiannual Report 98 March 2001

Financial Related Audits

Appendix A-4

 Funds to

 Questioned Unsupported Be Put to

Agency/Auditee Number Date Costs Costs Better Use

EDA

Bay Area Economic Forum, CA STL-13173 01/01 - - - - - -

Community Development STL-13176 03/01 - - - - - -

Commission, Los Angeles

County, CA

East Los Angeles Community STL-13178(1) 03/01 - - - - $45,000

Union, CA

East Los Angeles Community STL-13178(2) 03/01 - - - - - -

Union, CA

Jefferson Parish Economic ATL-13214 03/01 - - - - 286,686

Development Commission, LA

Lower Chattahoochee Regional ATL-12618 03/01 - - - - 575,247

Development Center, GA

North East Texas Economic ATL-13735 03/01 - - - - - -

Development District

Stark Development Board Finance DEN-13741 03/01 - - - - 250,000

Corporation, OH

Tooele City Corporation, UT DEN-13104 03/01 $1,605,527 $1,605,527 - -

Tyler Economic Development ATL-13734 03/01 - - - - 534,582

Council, TX

ITA

Software and Information BTD-12650 03/01 163,494 - - - -

Industry Association, DC

MBDA

Economic Development Bank ATL-13950 03/01 268,927 266,405 297,592

for Puerto Rico
Commerce OIG Semiannual Report 99 March 2001

 Funds to

 Questioned Unsupported Be Put to

Agency/Auditee Number Date Costs Costs Better Use

NOAA

Review of Allegations of STL-13177 02/01 - - - - - -

Improper Use of Mitchell Act

Funds at the Ringold Hatchery

NTIA

Philadelphia Mayor’s Office ATL-13174 02/01 164,860 65,738 449,841

of Community Services, PA

TA-NIST

Manufacturing Extension DEN-13102 11/00 - - - - - -

Partnership of Louisiana

SDL, Inc., CA DEN-12590 02/01 3,627,336 675,314 - -

Genome Therapeutics DEN-13532 03/01 102,853 - - - -

Corporation, MA

Illinois Manufacturing DEN-12525 03/01 132,440 86,960 - -

Extension Center

TPL, Inc., NM DEN-13965 03/01 33,757 - - - -

Financial Related Audits

Appendix A-4 (Continued)
Commerce OIG Semiannual Report 100 March 2001

Processed Reports

Appendix B

The Office of Inspector General reviewed and accepted 155 financial-related audit reports prepared by independent public accountants and local, state, and other federal auditors. The

reports processed with questioned costs, recommendations that funds be put to better use,

and/or nonfinancial recommendations are listed in Appendix B-1.

Agency Audits

Economic Development Administration 42

Minority Business Development Agency 1

National Institute of Standards and Technology 89*

National Oceanic and Atmospheric Administration 11

National Telecommunications and Information Administration 3

Multi-Agency 6

Agency Not Identified 3

Total 155

*Includes 83 ATP program-specific audits.
Commerce OIG Semiannual Report 101 March 2001

Processed Financial Related Audits

Appendix B-1

 Questioned Unsupported

Agency/Auditee Number Date Costs Costs

EDA

Kenai Peninsula Borough ATL-09999-1-0661 03/01 $37,500 - -

Economic Development

District, AK

NOAA

The Jason Foundation ATL-09999-1-0295 12/00 - - - -

for Education, MA

TA-NIST

General Motors Corporation, MI ATL-09999-1-0066 10/00 - - - -

General Motors Corporation, MI ATL-09999-1-0067 10/00 - - - -

Allied Signal, Inc., Ceramic ATL-09999-1-0186 11/00 33,273 - -

Components, CA

Design Evolution 4, Inc., OH ATL-09999-1-0188 01/01 98,909 - -

The Black Emerald Group, Inc., MA ATL-09999-1-0189 03/01 6,226 - -

Pepin Associates, Inc., ME ATL-09999-1-0191 01/01 37,856 - -

General Motors Corporation, MI ATL-09999-1-0199 11/00 - - - -

General Motors Corporation, MI ATL-09999-1-0200 11/00 - - - -

Osmonics, Inc., MN ATL-09999-1-0342 03/01 11,070 - -

Brunswick Technologies, Inc., ME ATL-09999-1-0359 03/01 316,393 - -

E.I. DuPont de Nemours and Company ATL-09999-1-0481 03/01 12,304 - -

Microcircuit & Component Materials, OH

 Lincoln Electric Company, Inc., OH ATL-09999-1-0547 12/00 85,414 $ 82,885

 CommerceNet Consortium, Inc., CA ATL-09999-1-0652 01/01 6,446 - -
Commerce OIG Semiannual Report 102 March 2001

Definitions of initions of 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 guaranties. They assess

compliance with laws, regulations, and award terms;

adequacy of accounting systems and internal controls; allowance of costs; and the degree to which a

project achieved the intended results.

Financial Statements Audits—These audits

determine whether a reporting entity’s financial

statements are presented fairly in accordance with

generally accepted accounting principles, the entity

has an internal control structure that provides

reasonable assurance of achieving the control

objectives set forth by OMB, and the entity complied with laws and regulations that could have a

direct and material effect on the financial statements, the Federal Financial Management Improvement Act, and other laws as prescribed by OMB.

OIG Reviews

Inspections

Operational Inspections—These are reviews of

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

organization that receives funds from the

Department. They focus on an organization, not a

whole program, and are designed to give agency

managers timely information about operations,

including current and foreseeable problems.

Program Evaluations—These are in-depth reviews

of specific management issues, policies, or

programs.

Systems Evaluations—These are reviews of

system development, acquisitions, operations, and

policy in order to improve efficiency and

effectiveness. They focus on Department-wide

computer systems and other technologies and

address all project phases, including business process

reengineering, system definition, system

development, deployment, operations, and

maintenance.
Commerce OIG Semiannual Report 103 March 2001

Glossary of Abbreviations

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

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

BEA.....................................................................................................................Bureau of Economic Analysis

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

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

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

CPA........................................................................................................................Certified Public Accounting

CRADA..............................................................................Cooperative Research and Development Agreement

ECCN.......................................................................................................Export Control Classification Number

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

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

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

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

GWAC.........................................................................................................Government-wide Agency Contract

IG..........................................................................................................................................Inspector General

IT..................................................................................................................................Information Technology

ITA................................................................................................................International Trade Administration

MAF..................................................................................................................................Master Address File

MBDA.................................................................................................Minority Business Development Agency

MEP..........................................................................................................Manufacturing Extension Partnership

NEC...............................................................................................Nonproliferation Export Control Cooperation

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

OI.................................................................................................................................Office of Investigations

OIG.........................................................................................................................Office of Inspector General

OMB............................................................................................................Office of Management and Budget

RLF..................................................................................................................................Revolving Loan Fund

TA............................................................................................................................Technology Administration

US&FCS..................................................................................................U.S. and Foreign Commercial Service

USPTO.........................................................................................................U.S. Patent and Trademark Office
Office of Inspector General

Organization Chart

OIG Points of Contact

Inspector General ................................... (202) 482-4661

Congressional/PCIE Liaison ................... (202) 482-3052

Office of Audits ....................................... (202) 482-1934

Office of Compliance and Admin. ............ (202) 482-0231

TDD Number ................................... (202) 482-4948

Media Inquiries ................................. (202) 482-5992

REQUESTS FOR REPORTS:

Telephone ........................................ (202) 482-0231

Internet E-Mail ................................. oigreports@oig.doc.gov

OIG HOTLINE:

Telephone ........................................ (202) 482-2495 or (800) 424-5197

Internet E-Mail ................................. oighotline@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

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