IG’s


Semiannual


Report


to Congress


March 2007


y 

Washington, D.C. 20230 

I am pleased to submit this Semiannual Report to Congress, which details the work and activities of the O

of Inspector General for the 6-month period October 1, 2006, through March 31, 2007. The Inspe

General Act of 1978 requires that we prepare this report twice each year to summarize our assessment

Commerce operations and that you transmit it, with any comments you may wish to add, to Congress wi

30 days of receiving it. 

During this reporting period, we began a number of key reviews and concluded others that address some of 

top operational priorities my office shares with you and Deputy Secretary Sampson. These include our ne

completed assessments of (1) the causes and impacts of lost laptops at the Census Bureau, initiated at y

request, and (2) the bureau’s 2006 test of its planned approach for enumerating historically undercoun

American Indian reservations. We detail our audit of EDA’s multimillion-dollar revolving loan fund progr

We also report on three of the Department’s trade-related activities—Commerce’s interagency trade promo

efforts, the Bureau of Industry and Security’s export control program for India, and Commercial Service’s t

operations in Brazil. And we recount our reviews of various NIST and NOAA operations, including the se

weather warning procedures at NOAA’s National Weather Service in relation to a deadly tornado that stru

Minnesota city and killed a young girl. 

This Semiannual Report also summarizes the outcome of the Department’s FY 2006 financial statements au

I commend your senior officials for maintaining a clean opinion once again and for the improving statu

internal IT controls over financial reporting systems. 

Finally, we report on our prevention efforts—among them our work helping NTIA ensure a proposed g

recipient has the proper systems and procedures in place to carefully manage some $30 million in federal fu

And we detail the results of several internal control reviews and audits of financial assistance programs, as 

as our latest investigations. 

Please accept my thanks for your continued support of the work of my office, and for the willingness of y

senior managers to partner with us in pursuit of strong, sound operations Department-wide. 

Sincerely, 

Johnnie E. Frazier 

y gpq

Strengthen Internal Controls over Financial, Programmatic, and Business Practices . . . . . . . . . . . . . . 

Ensure that USPTO Uses Its Authorities and Flexibilities as a Performance-Based


Organization to Achieve Better Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Effectively Manage the Development and Acquisition of Environmental Satellites . . . . . . . . . . . . . . . 

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

Effectively Manage NOAA’s Stewardship of Ocean and Living Marine Resources . . . . . . . . . . . . . . . 

Aggressively Monitor Emergency Preparedness, Safety, and Security Responsibilities . . . . . . . . . . . . . 

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

Agency Overviews 

Bureau of Industry and Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

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

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

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

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

Technology Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

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

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

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

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

Other OIG Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

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

Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

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

Additional Photography and Graphics Credits/Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Department Organization Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

OIG Organization Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

inspectors general have consistently shown the 

combined annual impact of our work to be in the 

billions of dollars. 

But these numbers tell only part of the story. What 

they don’t convey is the harder to quantify effect of 

our proactive collaboration with our respective 

agency officials: working together up front to ensure 

proposed policies and programs are sound, we avert 

the potential loss or misuse of perhaps billions more. 

And this effect can reach beyond federal coffers to 

include protection of individual citizens’ resources. 

completed during this semiannual period, we 

already seeing the promise of huge paybacks in te

of dollars saved or more effectively spent as Comm

officials respond to our findings with a commitmen

shoring up weaknesses and implementing change. O

such finding that has emerged as a theme in sever

our reviews, past and present, is the need for str

leadership direction and oversight in some of 

Department’s most critical and costly endeavors. 

reported in our September 2006 Semiannual Rep

how poor oversight from top officials responsible 

NOAA’s National Polar-orbiting Operatio

I have had the privilege of serving as IG at the Department of Commerce for nearly a decade, a

in all that time—though challenges and priorities have shifted focus—one thing has remain

constant: the commitment to ensuring sound departmental operations and providing excell

public service that my office and senior Commerce officials have always shared. 

Our evaluation of laptop security and accountability— 

initiated during this semiannual period at Secretary 

Gutierrez’s request—is a good example of this latter 

point. These days, maintaining the confidentiality of 

personal data has become a paramount concern for 

public and private organizations alike, as data breaches 

and identity theft have reached inconceivable levels. At 

Commerce, the disappearance of several hundred 

Census laptop computers, many of which contained 

sensitive data, has raised concerns on two fronts: first, 

where was the breakdown in personal property 

accountability that allowed these losses to occur? 

Second, did the laptops have adequate data access 

controls to prevent compromise of the information 

they carried? Our evaluation of these issues, when 

completed, will offer the Secretary, Department 

officials, and Congress a set of actions for preventing 

future losses of both the physical equipment and the 

sensitive data. In the case of information security, these 

actions must promote a computing environment that 

Environmental Satellite System contributed to h

cost overruns and delays. 

Leadership issues are without question at the hea

the ineffective management of EDA’s revolving 

fund program. We detail in this semiannual re

the findings of our comprehensive review of 

program, in which we documented long-stand

systemic failings in regional and headquar

management and oversight that have translated in

history of recipients’ poor accountability for fu

noncompliance with reporting and audi

requirements, and gross underutilization of avail

capital, among other things. We also uncovere

huge discrepancy between the value of the R

portfolio as reported by EDA in 2003 and the v

documented by available records. (See page 27.) 

EDA officials have long been aware that this prog

is seriously troubled and have worked in good fait

1 
Export Controls. We completed our final export 

control review, as mandated by the National Defense 

Authorization Act of FY 2000, this time evaluating the 

effectiveness of dual-use controls over exports to India. 

(See page 19.) We identified several areas of concern 

that could inadvertently facilitate the transfer of 

controlled items to unacceptable end users or for 

prohibited purposes. We reported our findings to 

agency officials and Congress in both classified and 

unclassified documents for their consideration as the 

nation continues to relax its trade policies with India. 

Interagency Trade Coordination. In response to a 

request from Congress, we reviewed Commerce’s 

efforts to promote trade and coordinate these 

activities with other agencies, identifying a number of 

areas in which improved collaboration would likely 

enhance overseas trade prospects for U.S. exporters. 

(See page 37.) 

Commercial Service Operations in Brazil. 

Continuing our series of Latin American post 

inspections, we assessed the effectiveness of 

Commercial Service posts in Brazil. (See page 33.) 

While finding sound operations overall, we noted the 

same weaknesses in performance reporting that were 

prevalent at the bulk of overseas and domestic trade 

offices we have visited during the past 5 years. ITA 

and Commercial Service must fine-tune their metrics 

for export success reporting to ensure the data conveys 

an accurate picture of an individual post’s effectiveness 

in expanding U.S. commercial interests abroad. 

Assessing Policies, Procedures, and 

Internal Controls 

Finally, during this reporting period, we concluded a 

number of audits, such as those described below, 

We audited the Department’s internal controls 

“premium class” (i.e., first and business class) 

travel and noted numerous policy and proced

deficiencies that require management attention. 

page 55.) 

And in response to a request from Congress, 

reviewed the National Weather Service’s handlin

its tornado warning responsibilities in relation 

deadly tornado that struck Rogers, Minnesota, 

fall. (See page 41.) Overall, we found that N

followed policies and procedures but noted a 

factors that may have adversely affected 

performance in dealing with the complex wea

conditions that existed on the day in question. 

Sharing a Commitment to Excellence 

I have had the privilege of serving as IG at 

Department of Commerce for nearly a decade, an

all that time—though challenges and priorities h

shifted focus—one thing has remained constant: 

commitment to ensuring sound departme

operations and providing excellent public service 

my office and senior Commerce officials have alw

shared. This is evident in the Department’s traditi

willingness to work with us, its track record 

accepting and implementing the vast majority of 

recommendations, and its openness to alterna

solutions for those instances in which we disagree. 

The work contained in this Semiannual Rep

reaffirms our shared commitment. I thank Secre

Gutierrez, Commerce managers at all levels, 

Congress for their support of this partnership an

promise of good government. 

2 
Department’s mission or the nation’s well-being, (2) 

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

expenditures, or (4) it requires significant 

management improvements. Because of the diverse 

nature of Commerce activities, these criteria 

sometimes cut across bureau and program lines. 

Experience has shown that by aggressively addressing 

these challenges, the Department can enhance 

program efficiency and effectiveness; eliminate 

serious operational problems; decrease fraud, waste, 

and abuse; and achieve substantial savings. 

Top 10 Management Challenges 

1. Control the cost and improve the accuracy 

of the decennial census. 

2. Strengthen Department-wide


information security.


3. Effectively manage departmental and bureau 

acquisition processes. 

4. Strengthen internal controls over financial, 

programmatic, and business processes. 

5. Ensure that USPTO uses its authorities and 

flexibilities as a performance-based 

organization to achieve better results. 

6. Effectively manage the development and


acquisition of environmental satellites.


7. Promote fair competition in


international trade.


8. Effectively manage NOAA’s stewardship of 

ocean and living marine resources. 

9. Aggressively monitor emergency preparedness, 

safety, and security responsibilities. 

10. Enhance export controls for 

dual-use commodities. 

of the Decennial Census 

At an estimated cost of $11.5 billion, the 2

census will be the country’s most expensive decen

ever, both per capita and overall. The Census Bure

redesigned decennial plan, established after the 2

census, is heavily dependent on automating cri

field operations to accurately count the nati

population within budget. The bureau 

established an ambitious testing schedule to mon

development and implementation of the strat

identify problems, and incorporate solutions in t

for 2010. 

During the past year, we reviewed various aspect

the bureau’s 2006 test held in Travis County, Te

and the Cheyenne River Reservation and O

Reservation Trust Land in South Dakota. 

Automating Address Canvassing 

In our March 2006 Semiannual Report (page 19)

described our review of Census’s test of autom

address canvassing—an operation designed to k

the bureau’s address file and digital map data

current and complete. During address canvass

temporary staff equipped with handheld compu

go into the field to verify, update, add, or rem

addresses; add and delete streets to correct comp

maps; and annotate address locations on the m

The information they collect has a direct bearing 

the bureau’s ability to accurately count the populat

We found several problems that undercut the valu

the canvassing test, most notably, unreli

handheld computer functions, including the G

capabilities; inaccurate maps; insufficient qu

3 
household in the country in 2010. 

The Census Bureau concurred with some of our 

findings and recommendations, but took issue with 

others. In particular, the bureau disagreed that 

valuable learning opportunities were missed, that 

unreliable handheld computers interfered with the 

test, and that an analysis of the costs and benefits of 

100 percent address canvassing should be performed 

and less costly alternatives considered. 

Improving Group Quarters Enumeration 

Although most U.S. residents live in residential 

housing units such as single-family houses, 

apartments, and mobile homes, more than 7 million 

people live in college dormitories, nursing homes, 

prisons, and group homes, collectively known as 

group quarters. In our September 2006 Semiannual 

Report (page 21), we reported on our review of the 

group quarters testing operation in Travis County, 

Texas—an ideal test location because it is home to 

four universities and colleges, a state prison, and 

numerous other group living facilities. 

We found that the bureau continues to face a number 

of challenges in enumerating group quarters. For 

example, (1) nontraditional student housing, such as 

private dorms and student cooperatives, did not 

easily fit into any of Census’s group quarters 

definitions, and so some were not enumerated; 

(2) 42 percent of the validation workload was 

associated with large apartment complexes 

erroneously identified as potential group quarters 

during address canvassing, which caused problems in 

group quarters validation and nonresponse followup; (3) a number of group quarters were not on the 

management attention. 

Counting American Indians 

on Reservations 

We recently concluded fieldwork on one final 2

test operation: update/enumerate at the Cheye

River Reservation—an effort designed to reduce 

historic undercount of American Indians liv

on reservations. Update/enumerate is used 

communities where residents are less likely to ret

a completed questionnaire, so enumerators go d

to door to collect census information in person 

update the address lists and maps. 

U.S. Census B

In 2005 some 4.5 million people—or 1.5 percent of the total U

population—identified themselves as American Indian and 

Alaskan Native (either alone or in combination with other rac

These populations have been historically undercounted in decen

censuses. The Census Bureau is modifying its traditional approa

to enumerating Native Americans for the 2010 census in hopes 

getting a more accurate count. 

4 
py 

successfully conduct its other surveys. But most 

people are willing to cooperate only if assured that 

the sensitive personal information they share is 

protected. Unfortunately, the recent, well-publicized 

loss of hundreds of Census laptops and unauthorized 

release of personal data on a bureau web site is likely 

to undermine trust. 

Our office, at the request of Secretary Gutierrez, is 

assessing the bureau’s property management policies 

and practices as well as its controls for protecting 

sensitive personal information in light of the laptop 

losses. We will report our findings during the next 

semiannual period. 

OIG Planning: 2008 Census Dress 

Rehearsal and 2010 Decennial Census 

The bureau has one final opportunity to test and 

improve its decennial design and methods before 

conducting the 2010 census—the 2008 dress 

rehearsal. Slated for Stockton, California, and 

Fayetteville, North Carolina, and a number of 

surrounding counties, the dress rehearsal will execute 

nearly all planned operations and procedures under 

conditions as close to those of the actual decennial as 

possible. This is a huge and critical undertaking, and 

key to the success of 2010. 

The Office of Inspector General has undertaken a 

comprehensive planning effort to determine how to 

best utilize our limited resources in conducting 

effective oversight and providing Census with the 

most meaningful feedback on dress rehearsal 

operations during the time remaining in this 

decennial cycle. We began the decade by first 

review, including various Census operations, l

contracts, internal controls, new major systems, 

budgetary matters. We will seek input from 

Department, the Census Bureau, and Congres

finalizing our agenda for the remainder of the dec

and look forward to further contributing, thro

our work, to a successful 2010 decennial census. 

Challenge 2 

Strengthen Department-Wide 

Information Security 

Information security remains at the forefront of 

challenges facing most federal agencies, as 

endeavor to protect critical assets and sensi

information in the ever-changing online world. 

year, 19 federal agencies reported IT security brea

and loss of sensitive personal information in incid

dating back to 2003, the result of unauthor

system access or—in the case of stolen laptops—

personal property controls.1 Increasing use of mo

devices and expanding remote access privileges 

but two of the trends reshaping the way governm

conducts business that require vigilant, proactive, 

ever-more creative security solutions. 

Since enactment of the Federal Information Secu

Management Act (FISMA) in 2002, agencies h

spent millions of dollars to improve the securit

information stored on their computer systems 

shared via the Internet. Yet weaknesses persist 

1 http://oversight.house.gov/Documents/20061013145352­

82231.pdf 

5 
and meeting the security requirements for the 

system. Through the formal assessment of 

controls, the system certifier identifies any 

vulnerabilities that have not been eliminated by 

security controls. 

Accreditation is management’s formal 

authorization to allow a system to operate. It 

includes an explicit acceptance of the risks posed 

by any identified remaining vulnerabilities. 

Through accreditation, senior agency officials 

take responsibility for the security of systems they 

manage and for any adverse impacts should a 

breach in security occur. 

The Department’s certification and accreditation 

(C&A) process is the reason for the material 

weakness. According to NIST guidance, authorizing 

officials must have complete, accurate, and 

trustworthy information on a system’s security status 

in order to make timely, credible, risk-based decisions 

on whether to authorize its operation. This 

information is produced by the system security 

certification process. Our reviews of the 

Department’s C&A packages continue to find a 

C&A process that does not adequately identify and 

assess needed management, operational, and 

technical security controls. As a result, authorizing 

officials do not have the information they need to 

make sound accreditation decisions. 

To improve C&A, Commerce’s Office of the Chief 

Information Officer (OCIO) began reviewing C&A 

packages in FY 2005, working with the bureaus to 

improve noted deficiencies and forwarding packages 

considered acceptable for high- or moderate-impact 

requirements of Commerce’s IT security policy 

applicable NIST standards and guidance. 

This fiscal year, we have redoubled our effort

convey C&A problems and needed fixes to CI

senior officials, authorizing officials, and sys

owners throughout the Department. This dialo

has already begun to pay off by prompting gre

management attention to IT security and be

understanding of C&A requirements, challenges, 

responsibilities. Senior officials better appreciate 

rigor of the C&A process and the need to ensure 

government personnel developing the packages

well as the contractors supporting them, have 

necessary knowledge and skills. 

Lost Laptops Prompt Department-wid

Security Fix 

In September 2006, the Department reported 

1,138 laptop computers had been lost or stolen 

the past 5 years, and more than 20 percent contai

sensitive personal data. In October it reported 

297 instances of compromise had occurred s

2003, involving laptops, handheld devices, 

thumb drives. Publicized breaches in the securit

personally identifiable information have promp

2 In accordance with NIST’s Federal Information Processing 

Standards (FIPS) Publication 199, agencies must categorize 

their IT systems and data as high, moderate, or low impact 

according to the potential harm to an agency’s mission that 

system compromise or unauthorized data disclosure would 

cause. For example, a system that processes routine, nonpriv

administrative information is considered low impact. A syst

that processes statistical data based on personally identifiabl

information is considered moderate impact, and a system th

is used for emergency or disaster response is considered 

high impact. 

6 
(page 3) on the decennial census describes the work 

we are doing in response to the Secretary’s request to 

assess the security controls on Census laptop 

computers and other mobile devices. This evaluation 

is near completion and will be discussed in detail in 

our next Semiannual Report. 

In January, Commerce began a Department-wide 

project to encrypt all laptops as quickly as possible. 

By mid-March, four operating units (including OIG) 

had encrypted their entire inventory of laptops; two 

had requested waivers; and the remaining agencies 

had various completion dates, the latest being June 1. 

The Department has also instituted procedures for 

reporting security incidents involving sensitive data 

to US-CERT within the 1-hour deadline. 

Finally, responding to OMB requirements, 

Commerce is working toward “two-factor 

authentication” for accessing agency IT systems, 

which would use a biometric identifier, such as a 

fingerprint, along with a password, and would 

require that sensitive data extracted from agency 

databases be erased from the downloading computer 

within 90 days of the download. 

Challenge 3 

Effectively Manage Departmental 

and Bureau Acquisition Processes 

With Commerce spending nearly $2 billion a year 

on goods and services, the potential for waste, fraud, 

or abuse looms large within the Department. OIG 

continues to closely monitor procurement processes 

and oversight are essential to ensuring 

government gets what it pays for in these comp

costly acquisitions—and that services are deliv

on time and within budget. But the obstacle

achieving these goals are steadily increasing, and w

them, the demands on contracts personnel. 

Department needs a plan to replace the lost ta

and develop and retain staff already on board 

provide the high-level management expertise 

consistency needed. 

New Contract Audits Division 

To enhance our oversight of Commerce’s acquisi

activities, we have established a contract au

division to focus on them. The division will a

individual contracts and look at crosscut

acquisition issues to identify opportunities 

improve departmental and bureau procurem

policies and to minimize the likelihood of fr

waste, and abuse. It will also look for and repor

best practices and innovative approaches that can 

adopted Department-wide. 

The division’s initial area of emphasis will be 

Census Bureau’s procurement of products 

services to support the 2010 decennial census. 

bureau estimates that 17 percent ($1.9 billion) o

2010 budget will be spent on contracts 

information technology systems, advertising, 

leases for local office space. Contract audits sta

currently monitoring Census’s efforts to pro

advertising and other communications servi

These are considered essential to the bureau’s eff

to lower operational costs by obtaining a high ret

rate for mailed questionnaires and ther

7 
measures the contractor’s performance and whether it 

uses award fees appropriately. 

Other contracts of interest to OIG include one issued 

by NOAA’s National Data Buoy Center, a part of the 

National Weather Service that designs, develops, 

operates, and maintains a network of data-collecting 

buoys and coastal stations. In 2005 the center 

awarded a 10-year contract worth up to $500 million 

for technical services support for its marine 

observation network. OIG plans to review NOAA’s 

management of this contract, as well as its oversight 

of the associated tasks performed to maintain and 

repair data buoys and other observation platforms for 

marine weather forecasting. 

www.ndbc.noaa.gov/ 

pg 

and assets are safeguarded from waste, loss, 

misappropriation. 

Under OMB’s revised Circular A-123, agencies in 

2006 began implementing new internal accoun

controls and since FY 2004 have had to issue aud

financial statements within 45 days of the fiscal y

close. Commerce has met this deadline both ye

and has continued to receive a clean opinion on 

consolidated statements (see page 57). 

These are no small accomplishments. In the y

since passage of the 1990 Chief Financial Offi

Act, Commerce has been chipping away at finan

management problems, overhauling accoun

practices, and consolidating an array of leg

financial systems into one. The result has been a m

integrated system designed to give agency mana

current, accurate information with which 

make decisions. 

The next step is government-wide integration

2006, under an initiative known as Finan

Management Line of Business, OMB be

requiring all agencies—when upgrading t

financial systems—to consolidate their core finan

operations (accounting, payments, and record

with those of other agencies, either by using sh

service providers or becoming shared ser

providers themselves. The goals of the initiative ar

standardize systems, promote seamless data excha

improve the quality and efficiency of finan

operations, reduce costs, and eliminate redundan

Agencies have until 2015 to move to or bec

shared service providers. They must begin repor

in June 2007 how well their financial serv

perform as part of the Financial Management Lin

8 
The Department outlined its strategy for implementing the 

Financial Management Line of Business initiative in its FY 2006 

Performance & Accountability Report. 

Planning for the transition at Commerce is under way. 

The Department is, among other things, upgrading its 

financial applications software and consolidating these 

applications to one data center using a common 

hardware platform. It is seeking contractor support for 

a comprehensive financial management modernization 

project3 that will achieve Line of Business goals, 

including those for facilitating strong internal controls, 

reducing costs, standardizing systems and business 

processes, and allowing seamless data exchange with 

other federal agencies. This is a huge, critical 

undertaking that we plan to carefully monitor. 

3 www.fbo.gov/spg/DOC/OS/OAM-OSBS/Reference%2D 

Number%2DMARKET%2DRESEARCH%2D02232007/ 

SynopsisR.html 

Departments smaller agencies, is slated to manag

to nine new programs, two of which have poten

combined budgets totaling $2.5 billion (a g

program for interoperable communications an

converter box coupon program). 

Successfully implementing these new programs 

constitute a significant management challenge for 

Department. We are sharing our expertise w

NTIA to help it design strong, well-structu

programs that minimize opportunities for fr

During this period, we examined certain aspect

the accounting system and financial records o

broadcasting consortium slated to receive 

$30 million grant under the act. We provided age

management with information it could use to en

the grantee’s accounting structure complied w

federal requirements and supported appropriate 

of federal funds prior to the funds’ disbursem

(See page 47.) We are also monitoring the agen

implementation of the converter box program 

the interoperable communications grant progr

Evaluating Program and Accountable 

Property Controls 

Commerce also needs to strengthen internal cont

for select programs and administrative operati

For example, a recent review of the Departme

Federal Employees Compensation Act prog

found a variety of problems caused by poor inte

controls, including people who were overpaid or w

remained on workers’ compensation rolls for y

without medical justification. 

During this semiannual period, our audits of ED

revolving loan fund program and the Departme

9 
Challenge 5 

Ensure that USPTO Uses Its 

Authorities and Flexibilities as a 

Performance-Based Organization 

to Achieve Better Results 

USPTO’s operations and practices have been a 

strong focus of our work since March 2000, when 

the Patent and Trademark Office Efficiency Act 

transformed the agency into a performance-based 

organization that operates like a private corporation. 

We have issued nearly a dozen reports since that 

time, examining a host of administrative, program, 

and operational issues. One particularly troubling 

area has been human resources: our reviews of the 

agency’s HR office have identified some questionable 

practices and the need for improved management 

controls and policies. 

Strong HR operations are essential at an agency 

hiring hundreds of new patent examiners each year to 

reduce a backlog of unexamined patent applications 

that has reached historic proportions, and pursuing 

alternative work arrangements to enhance 

productivity and improve staff retention. These 

initiatives raise other areas of concern. For example, 

USPTO continues to expand its telework program, 

allowing hundreds of patent examiners to use laptops 

to work at offsite locations. The findings of lost 

laptops and data security problems at other 

Commerce bureaus underscore the need for strong 

policies, procedures, and controls at USPTO to avoid 

U

Patent examiners at USPTO use a dual-monitor setup to 

improve efficiency. 

The long-standing and growing backlog highli

other issues for USPTO and OIG attention: the n

to expedite a fully electronic patent examina

process and to carefully monitor the agency’s bill

dollar investment in high-risk time and materials 

award fee contracts for related informa

technology services. Our review last year of NOA

multibillion-dollar award fee contract for satel

revealed the pitfalls of these arrangements and 

potential for huge cost overruns. (See Septem

2006 Semiannual Report, page 29.) OIG 

conduct reviews of selected USPTO contract

ensure vendors are complying with contract te

and conditions, containing costs, and delivering 

required services on time. 

During this semiannual period, we revie

USPTO’s procurement process to learn whether 

agency’s acquisition criteria have changed since 

Patent and Trademark Office Efficiency Act t

effect. We noted several areas that could benefit f

improved guidance, particularly with regard 

applying the Patent and Trademark Office Acquisi

Guidelines. We also found data input errors 

could have been prevented with better cont

(See page 53.) 

10 
ypy 

Environmental Satellite, Data and Information 

Service (NESDIS), collect data to provide short- and 

long-range weather forecasts and a variety of other 

critical environmental and climate information. 

GOES-R Costs, Schedule, and 

Capabilities Are Being Redefined 

In the next decade, the geostationary operational 

environmental satellite R series (GOES-R) will 

replace the existing GOES satellites. The new series 

will have enhanced sensing capabilities that are 

expected to offer an uninterrupted flow of highquality data to support weather forecasting, severe 

storm detection, and climate research vital to public 

safety. GOES-R is a multicontract, multiyear 

program wholly funded by Commerce, though the 

new satellites will be developed and acquired with 

help from NASA Goddard Space Flight Center. 

The Department’s investment for GOES-R for fiscal 

years 2006 to 2010 is projected to be about 

$2 billion. Planning for the new series has been under 

way for the past 6 years. During this semiannual 

period, we conducted fieldwork in conjunction with 

our joint review of the GOES-R program with 

NASA’s Office of Inspector General. Our shared 

objective is to determine whether the Department 

and NASA have created a management structure to 

ensure effective oversight of the many risks associated 

with the GOES-R program. At Commerce, the 

oversight component of our work is looking at the 

Department and NOAA’s efforts to establish effective 

monitoring organizations, policies, and procedures 

and the mechanisms NOAA will use to leverage 

NASA’s oversight expertise. We are also examining 

promote excellent performance. 

www.photolib.noaa.gov/htmls/spac010

Over the next 5 years, NOAA will spend several billion dollars 

in contracts for the purchase, construction, and modernization 

environmental satellites. Above, the predawn launch of a 

NOAA satellite. 

NASA OIG plans to determine whether NA

program management councils effectively iden

and review program issues and progress, and whe

procedures and processes are in place to recogn

mitigate, and report technical risks in accorda

with NASA policy. 

The Department, NOAA, and NASA, as par

detailed risk reduction activities, have b

11 
■	 A revised acquisition strategy that, instead of 

having one prime contractor with end-to-end 

responsibility for the entire system, now 

awards separate contracts for the spacecraft and 

ground segments and relies on the government 

to furnish the instruments. 

NOAA and NASA have also been negotiating a 

memorandum of understanding defining the 

authorities and responsibilities of each organization 

for the management, development, acquisition, and 

integration of GOES-R, which they had expected to 

complete by the end of last calendar year. A draft 

was provided for departmental review in early 

January. It offers a high-level outline of 

responsibilities but defers the specifics to the 

GOES-R management control plan, which is to be 

approved by NESDIS and Goddard within 90 days 

of the memorandum’s signing. 

We are concluding our fieldwork and expect to report 

recommendations for improving the Department’s 

satellite acquisition processes and oversight in the 

next semiannual period. 

NPOESS Problems Increase Pressure 

for Strong Agency Oversight 

Our September 2006 Semiannual Report (page 29) 

detailed the findings of our audit of the National 

Polar-orbiting Operational Environmental Satellite 

System (NPOESS). Our findings revealed how far 

afield satellite procurement projects can run when 

management oversight slides. This has put new 

pressure on agency officials and program planners to 

have strong mechanisms in place for tracking every 

estimates—triggering congressional recertificatio

the program under the Nunn-McCurdy provisio

the FY 1982 National Defense Authorization Ac

addition to the staggering cost increases, the prog

was running 17 months behind schedule yet 

contractor had received $123 million in incen

payments. Our audit uncovered two overarch

management and contract weaknesses 

contributed to the unchecked cost and sche

overruns: first, the NPOESS Executive Committe

top leaders from the three agencies charged w

overseeing the project—never challenged optim

assessments of the impact of technological proble

Second, the contractor received excessive award 

despite problems. 

In June 2006, the House Science Commi

accepted a triagency proposal to continue 

program, but with four satellites instead of six. 

first satellite will launch in 2013 rather than 2010

proposed in the original program. Total acquisi

costs were revised from the original estimate 

$6.4 billion to $11.5 billion to support NPO

satellite coverage through 2026. 

As a result of our audit, NOAA agreed to insti

regular internal program reviews as well as ann

and ad hoc independent program assessments, re

the award fee plan to better link award fees w

desired outcomes, and assign responsibility 

determining fee awards to an official who does 

directly manage the NPOESS program. 

12 
also works with USPTO and NIST to assist U.S. 

companies with intellectual property rights and 

standards. Over the past several years, OIG has 

focused a number of reviews on the Department’s 

efforts to increase U.S. market opportunities, provide 

assistance to U.S. exporters, and overcome trade 

barriers in difficult foreign markets. 

In September 2006, ITA’s 

Commercial Service (CS) 

responded to OIG 

r ecommendations 

regarding U.S. trade 

promotion efforts in China and India by announcing 

extensive changes in its procedures for verifying 

export success claims, its primary performance 

measure. CS stated that the new procedures were 

necessary because, in a significant number of cases, 

OIG had found discrepancies in the reported export 

successes. These discrepancies raised doubts about 

the integrity of the data CS reports to Congress and 

the administration on its accomplishments. The new 

CS procedures require improved documentation, 

supervisory confirmation of a sample of export 

success reports, and verification that CS provided 

value-added assistance. 

Interagency Trade Coordination 

In response to a request from members of the U.S. 

House of Representatives, including the thenchairman of the Small Business Committee, we 

reviewed various aspects of Commerce’s trade 

promotion efforts and the coordination of those 

efforts among various offices within Commerce and 

with other federal and state agencies and other trade 

partners. We found effective collaboration on trade 

(See page 37.) 

U.S. Trade Promotion in Latin Americ

During this semiannual period, we issued our re

on CS’ posts in Brazil and received an action plan 

our report about its posts in Argentina and Urug

(About half of the recommendations we made h

been satisfied. Only seven remain open, and we h

asked for a follow-up status report by June 

Significant export opportunities are opening in t

countries as Brazil’s large economy continues 

steady growth, Argentina recovers from its 20

2002 economic crisis, and Uruguay pursues cl

trade relations with the United States. 

inspections focused on the management, prog

operations, and financial and administrative pract

of these three South American posts. 

Our review of CS operations in Brazil found that 

post provides valuable assistance to U.S. compa

in the complex Brazilian business environment 

collaborates well with other trade promo

agencies, including key U.S. government offices 

nongovernmental organizations. The report discu

challenges posed by the post’s management struc

and allocation of office resources, and the need 

develop measurable long-term goals for the stand

and intellectual property attachés recently poste

Brazil. We found that the post responded to bu

cuts by adjusting its programmatic priorities, and 

are concerned that this may impact its ov

performance and delivery of products and service

In general, we found the post’s financial 

administrative operations are sound. However, 

report identifies some discrepancies in ITA and 

13 
www.geology.com/world/brazil-map.gif 

During the upcoming semiannual period, OIG plans 

to continue its review of Commerce’s trade 

promotion efforts, including the Department’s 

preparation of the National Export Strategy and the 

involvement of other federal agencies in that effort. 

We will also continue our review of Commerce’s 

actions taken in response to the recommendations of 

our recent reports on CS operations at Asian and 

South American posts. We may also look at the 

Department’s efforts to increase exports to countries 

that have recently signed trade promotion agreements 

with the United States. 

g pg

protecting and preserving the nation’s living ma

resources through scientific research, fishe

management, enforcement, and habitat conservat

NOAA spends billions of dollars each 

supporting a vast array of programs designed 

protect and enhance these resources that “are cri

to the very existence and well-being of the nation 

its people.”4 These are programs that require lo

term commitments and years of funding to s

their full effect. During this semiannual period 

continued our look at one such program, salm

recovery, wrapping up a series of audits of NO

funded projects operating in the Pacific Northwe

We reviewed the administration of a 5-y

$27.4 million grant to fund salmon recovery proj

in Washington state to assess whether the grantee 

properly managing a number of project subgra

Our initial fieldwork disclosed inadequate pol

and procedures for awarding subgrants 

monitoring funded projects, which prompted u

conduct audits of nine project subgrants. 

recently concluded audit of the grantee revealed 

some processes had improved, but serious deficien

remain, particularly in the area of f

administration. (See page 45.) 

Along the same lines, during the next semiann

period, we plan to initiate additional audits of NO

financial assistance programs and award recipie

For example, we will look at the Fisheries Fina

Loan Program, operated by NOAA’s National Ma

Fisheries Service. This program provides finan

for the purchase or reconstruction of used fish

vessels that will not add capacity to regul

fisheries. Our audit will evaluate NM

4 U.S. Commission on Ocean Policy 

14 
www.nwr.noaa.gov/Salmon-Recovery-Planning/PCSRF/upload/ PCSRF-Rpt-2006.pdf 

We are also preparing to initiate reviews of programs 

in other stewardship areas, as follows: 

National Marine Sanctuary Program 

This program is charged with managing areas of the 

marine environment that have special national 

significance because of their conservation, historical, 

or scientific qualities. It encompasses one coral reef 

ecosystem reserve and 13 marine sanctuaries, 

including the Northwestern Hawaiian Islands 

Marine National Monument, which is the world’s 

largest marine conservation area. Managing the 

sanctuaries presents significant challenges to NOAA, 

as it must balance commercial interests with 

conservation and research activities, and coordinate 

its efforts with the Coast Guard, the Department of 

Interior, and others. We are initiating a 

comprehensive review of the program during the next 

semiannual period. 

plan to follow up on actions NOAA has taken 

improve its review process. 

Challenge 9 

Aggressively Monitor Emergenc

Preparedness, Safety, and Securi

Responsibilities 

The Department of Commerce has more t

35,000 employees and hundreds of facilities it m

keep safe. As a cabinet-level Department, it also h

number of programs critical to national prepared

and recovery efforts, and it must support U.S. eff

to prepare for, respond to, and promote reco

from major disasters. 

We continue to monitor Commerce’s progres

resolving departmental emergency preparedness 

security weaknesses. As of February 2007, 

Department had addressed virtually all of 

outstanding recommendations from our 2002 

2005 reviews of its emergency preparedness effo

Despite this progress, a dynamic security environm

will continue to challenge the Department as it s

to maintain effective oversight of emergency progr

and plans, identify and mitigate secu

vulnerabilities, and protect critical assets. 

During this semiannual period, we worked clo

with the Defense Intelligence Agency to develo

guide for evaluating emergency prepared

programs for the Inspection and Evalua

Committee of the President’s Council on Integ

15 
Also during this period, we responded to a request 

from then-Senator Mark Dayton (D-Minnesota) to 

examine NWS’ actions in connection with a 

powerful tornado in Rogers, Minnesota, that killed a 

child and injured six other people in September. We 

were also asked to evaluate the agency’s policies and 

technological capabilities for forewarning the public. 

In our response to the Senator’s inquiry, we reported 

that the Chanhassen Weather Forecasting Office, the 

NWS Central Region Office, and the Storm 

Prediction Center generally followed agency policies 

for handling severe weather events and have what is 

considered to be the best available technology for 

reading weather conditions. But at the same time, we 

noted several factors that may have adversely 

impacted Chanhassen’s handling of the situation 

and that warrant close management attention. 

(See page 41.) 

September is traditionally a month of little tornadic activity in 

Minnesota. But the unannounced F-2 tornado that hit Rogers 

severely damaged scores of homes, such as the one above, and lef

one child dead. 

During the next 6 months, we plan to rev

NOAA’s National Data Buoy Center and 

National Weather Service’s other buoy and coa

monitoring station operations that are part of 

nation’s weather monitoring and forecasting syst

Such operations play a critical role in 

Department’s efforts to enhance the United St

emergency preparedness by supporting NWS’ ab

to provide advance notification of severe wea

events to state and local officials and the public. 

Challenge 10 

Enhance Export Controls for 

Dual-Use Commodities 

Protecting U.S. national and economic secu

through export controls is a challenge that gr

constantly more complex for federal agencies suc

Commerce’s Bureau of Industry and Security. BI

responsible for the federal government’s exp

licensing and enforcement system for goods 

technologies with both civilian and military uses

During this semiannual period, we completed 

final National Defense Authorization Act review, 

time looking at the effectiveness of U.S. control

dual-use exports to India—a country that pres

unique challenges for U.S. commercial interests 

export control policy. Although India is recognize

16 
Edgewood Chemical Biological Center, U.S. Army 

This nuclear magnetic resonance imager is among a host of 

advances made possible by nuclear technologies that have 

revolutionized medical diagnostics and treatment. With greater 

access to such technologies from the U.S., India plans to expand its 

nuclear medicine capacity and a variety of other civilian programs. 

weaknesses in BIS’ administration of export cont

for India and recommended a series of action

resolve them. (See page 19.) 

Although this review concludes our statu

reporting requirements under NDAA, we 

continue to monitor BIS’ efforts to implement 

enforce dual-use export controls, follow up on 

previous NDAA recommendations, and report 

BIS’ progress in implementing them. 

17 

The Bureau of Industry and Security is primarily responsible for administering and enforcing the nati

system for controlling exports of sensitive dual-use goods and technologies. BIS’ major functions incl

formulating and implementing export control policy; processing export license applications; conduc

various policy, technical, and economic analyses; promulgating regulations; conducting industry outreach; 

enforcing the Export Administration Act and regulations. BIS is divided into two units: 

Export Administration implements U.S. export control and nonproliferation laws and policies thro

export licensing, commodity classifications, and advisory opinions; technical, economic, for

availability, and policy analyses; promulgation of regulations; and industry outreach. It also cond

various defense industry activities and enforces industry compliance with arms control treaties. 

Export Enforcement participates in reviews of export license applications and conducts criminal 

administrative investigations relating to the export control portions of the Export Administration Act 

regulations. It also administers and enforces the antiboycott provisions of the act and regulations. 

Final NDAA Review Highlights 

Some Concerns About Export 

Control Program with India 

To meet the FY 2007 (and final) requirement of 

the National Defense Authorization Act of 2000, 

we evaluated the effectiveness of dual-use controls 

over exports to India. Specifically, we assessed 

whether BIS’ export control policies, practices, 

and procedures regarding India are clear, 

documented, and prevent the export of U.S. 

products that could contribute to India-sponsored 

nuclear weapons or missile programs; whether BIS 

personnel follow the policies and procedures; and 

how well the agency detects and prevents the 

diversion of sensitive commodities to programs 

weapons of mass destruction. 

In 2001, the United States eliminated econo

sanctions against India and committed to broaden

economic ties and expanding bilateral cooperation 

counterterrorism, security, space and scien

pursuits, and civilian nuclear safety. To foster 

cooperation, BIS established the U.S.-India H

Technology Cooperation Group in 2002 as a fo

for discussing high-tech issues of mutual interest

2004, the United States and India announced 

Next Steps in Strategic Partnership (NSSP)—

agreement to increase cooperation in civilian nuc

activities, space programs, and high-tech trade

well as expand the U.S.-Indian dialogue on mi

19 
license requirements, applications for exports to India 

dropped by 19 percent between 2005 and 2006, after 

years of being on the rise. 

Our review of U.S.-India export control activities 

found that BIS’ interagency license application 

review process was working adequately, but we 

identified the following concerns: 

Dual-Use Export Control Policies 

and Procedures for India Are Not 

Fully Transparent 

Though the NSSP has officially concluded, some 

U.S. nonproliferation experts question whether the 

government of India ever fully implemented two of 

the export control-related steps. And we found that 

subsequent changes to the way BIS presents Indian 

organizations on its Entity List have made it difficult 

to identify some of them. As a result, these entities 

could mistakenly receive controlled dual-use items 

from U.S. exporters who did not realize the 

transaction required a license. 

End-Use Check Program in India Needs to 

Be Improved 

End-use checks are intended to verify the legitimacy 

of dual-use export transactions controlled by BIS. 

There are two types of checks: pre-license checks 

determine if an overseas person or firm is a suitable 

recipient for the item; post-shipment verifications 

determine whether U.S. exports were actually 

received by the party named on the license and are 

being used in accordance with the license provisions. 

Our review of BIS’ India end-use check program 

identified several weaknesses: the End-Use Visit 

cancelled two pre-license checks instead of classify

them as unfavorable. And the agency did 

adequately target post-shipment verifications to h

determine whether diversions were occurring. 

www.geology.com/world/india-m

BIS Needs to Better Ensure Compliance w

License Conditions 

The Export Administration Regulations allow BI

place conditions on an export license when 

agency has specific concerns about the exporter, 

use, or end user. These conditions offer an additi

means for monitoring certain shipments as 

agency checks to see that license holders comply w

all requirements. BIS’ Export Administration 

20 
■	 For 5 of 13 India licenses with reporting 

conditions that we reviewed, licensing officers 

within Export Administration did not properly 

mark them for follow-up to verify that the 

conditions were met. 

■	 Licensing officers are not required to review a 

license’s technical documentation when the 

Defense Department—not BIS—is the source 

of the reporting conditions. However, BIS has 

authority to enforce Export Administration 

Regulations and is ultimately responsible for 

monitoring all conditions, regardless of who 

establishes them. Ten of the 13 licenses that 

required the submission of technical 

documentation were not marked for and did 

not receive licensing officer review because 

Defense had placed the technical reporting 

condition on the license. 

Export Administration staff were not fully aware of 

which reporting requirements they were supposed to 

monitor and were not referring noncompliant 

exporters to Export Enforcement. 

Our Recommendations 

We made numerous recommendations to address our 

concerns related to the Entity List and BIS’ license 

monitoring and enforcement efforts, among them 

the following: 

■	 Revise the Entity List to present all Indian 

entities by name, or determine some other way 

to ensure that exporters know which Indian 

entities are meant to be captured on the list. 

■	 Improve Export Enforcement’s license-rel

efforts by requiring the Office of Enforcem

Analysis to closely monitor licenses at speci

follow-up points in the process, docum

these activities in its Conditions Follow

database, and recommend rejecting fu

license applications from exporters w

are required to submit shipper’s exp

declarations as a condition of existing lice

but do not. 

Agency Response 

In its response to the unclassified section of 

report, BIS commented that it believes India 

fulfilled its commitments under the strat

partnership agreement. The bureau said it will as

the categorization of Indian entities on the En

List to determine how to provide additio

information to exporters. BIS disagreed with sev

of our findings concerning end-use visits, but 

agree to complete a review by April 30, 2007, of 

seven recommended ways to improve lice

monitoring efforts. 

BIS also stated it was reviewing our recommenda

related to Export Enforcement’s license monito

and enforcement efforts to determine whether it 

be implemented using the current license proces

system (ECASS), or if some alternative approac

necessary. The response also noted that there 

many factors that need to be considered be

determining whether an exporter should be h

accountable (i.e., subsequent licenses denied 

investigative referrals made) for not fully comply

with license conditions. In addition, BIS prov

comments on the findings and recommendation

21 
report annually to Congress on the status of export 

control recommendations made in prior-year OIG 

reviews. This year’s follow-up covered annual reviews 

dating back to 2000. We found that the Department 

closed several recommendations during the past year, 

but a total of 20 remain open, including 1 we 

reopened from our March 2003 report. Only the 

March 2000 and 2001 reports have no outstanding 

recommendations. 

March 2006 

This review examined (1) BIS’ export control 

policies, practices, and procedures regarding China to 

determine if they are consistent with relevant laws 

and regulations; (2) coordination among federal 

agencies during the dispute resolution process for 

export license applications involving China; (3) the 

potential for diversion of sensitive commodities from 

Hong Kong to China; and (4) BIS’ end-use check 

program in China and Hong Kong. We also looked 

at what activities Commerce bureaus are engaged in 

pursuant to the 1979 U.S. and China Science and 

Technology Agreement and whether they are 

adhering to export control regulations. We made nine 

recommendations to address the issues we identified. 

Eight remain open. 

March 2005 

We evaluated the U.S. export licensing process for 

chemical and biological commodities to determine 

whether current practices and procedures deter the 

proliferation of chemical and biological weapons. 

We looked at whether the process is timely, complies 

with statutory and regulatory requirements, and 

takes the cumulative effect of prior technology 

transfers into consideration. We also assessed 

Prior NDAA Reviews 

March 2000, Improvements Are Needed 

Programs Designed to Protect Against the Transfer 

Sensitive Technologies to Countries of Conce

(IPE-12454) 

March 2001, Management of the Commer

Control List and Related Processes Should 

Improved (IPE-13744) 

February 2002, BXA Needs to Strengthen 

ECASS Modernization Efforts to Ensure Long-Ter

Success of the Project (IPE-14270) 

March 2002, Interagency Review of Feder

Automated Export Licensing Systems (D-2002-07

March 2003, Improvements Are Needed to Bett

Enforce Dual-Use Export Control La

(IPE-15155) 

March 2004, Deemed Export Controls May N

Stop the Transfer of Sensitive Technology to Foreig

Nationals in the U.S. (IPE-16176) 

March 2005, The Export Licensing Process f

Chemical and Biological Commodities Is Genera

Working Well, But Some Issues Need Resoluti

(IPE-16946) 

March 2006, U.S. Dual-Use Controls for Chi

Need to Be Strengthened (IPE-17500) 

March 2004 

This review looked at whether current deemed ex

control laws and regulations adequately pro

22 
NOAA took action to close its remaining 

recommendation. NIST and the Office of the 

Secretary each have one unresolved recommendation. 

March 2003 

This review made 55 recommendations to BIS and 4 

to ITA regarding their efforts to enforce export 

control laws and regulations, including those 

involving investigative processes, interactions with 

other law enforcement agencies and the intelligence 

community, license determinations, monitoring of 

compliance with license conditions, outreach to U.S. 

exporters, and end-use checks. As of last year, all ITA 

recommendations were closed, and BIS had resolved 

53 recommendations. This year, BIS took action to 

resolve 1 of the remaining 2, which dealt with 

dissemination of pre-license check results to licensing 

referral agencies. We do not believe that BIS’ actions 

fully met the intent of our recommendation, but 

agreed to close it because the referral agencies have 

access to the information through other means. In 

addition, information we uncovered during our FY 

2006 follow-up prompted us to reopen a 

recommendation we had closed last year relating to 

BIS’ cooperation with the U.S. Postal Service to 

preclude use of the mail to circumvent export control 

laws. Because we have reinstated this 

recommendation, BIS still has 2 issues to resolve. 

February 2002 

In this report, we focused on BIS’ plans for and 

progress toward modernizing its Export Control 

Automated Support System for dual-use export 

licensing. Three of our 13 recommendations remain 

open. These involve identifying and securing 

Evaluations: IPE-18546) 

OIG Revisits March 2000 

Findings on Committee on 

Foreign Investment in the 

United States 

The highly publicized purchase by Dubai P

World of a British firm that managed key U.S. p

was one of several recent events that rene

congressional scrutiny of the Committee on For

Investment in the United States (CFIUS)

multiagency body chaired by the Secretary of 

Treasury that monitors foreign investment in U

companies. Our March 2000 NDAA rep

examined CFIUS activities, among other things, 

raised questions about the effectiveness of the ov

CFIUS decision-making process. Our prim

concerns at that time were the lack of manda

foreign investment reporting—notifying CFIUS 

an acquisition or investment was voluntary—and 

small number of investigations conducted 

company filings. We also noted the potential f

perceived conflict of interest in the control 

committee actions because Treasury’s Office 

International Investment, which oversees CFIUS, 

dual responsibility for promoting foreign investm

and preventing it when national security conc

arise. Finally, our report highlighted some is

involving Commerce’s process for reviewing CF

filings, including (1) whether the lead responsib

for the program should remain in ITA, 

Department’s primary trade promotion agency, o

moved to BIS, our primary national security age

23 
Committee on Foreign Investment 

in the United States 

CFIUS was established by Congress in 1975 for 

the purpose of monitoring and evaluating the 

impact of foreign investment in the United States. 

A 1988 amendment to the Defense Production 

Act of 1950 expanded the committee’s 

responsibilities and gave the President authority 

to suspend or prohibit any foreign acquisition, 

merger, or takeover of a U.S. company that 

threatens national security. 

Twelve agencies sit on the committee: 

■ U.S. Treasury (chair) 

■ Department of Commerce 

■ Department of Defense 

■ Department of Justice 

■ State Department 

■ Office of Management and Budget 

■ Department of Homeland Security 

■ Council of Economic Advisors 

■ National Economic Council 

■ National Security Council 

■ Office of Science and Technology Policy 

■ U.S. Trade Representative 

is still voluntaryneither Congress nor 

administration has proposed mandatory filing s

2000. And despite the increased number of fili

we still question whether CFIUS is receiv

information—and whether that information 

timely—about all acquisitions and mergers that p

potential security concerns, especially those involv

small or medium-sized U.S. companies 

manufacture or conduct research on sensi

U.S. technologies. 

Few Investigations 

The number of investigations has increased since 

March 2000 report—from 1 percent of filing

2000 to 6 percent in 2006. But because the num

of filings nearly doubled between 2005 and 2006

statistics alone cannot tell us whether the incr

signifies greater vigilance by the committee or me

an expected proportional rise in investigations. 

Potential for Perceived Conflict of Interest 

While the lead responsibility for CFIUS remains w

Treasury’s Office of International Investment, b

Treasury and Commerce officials reported that 

committee now operates on a consensus basis

addition, CFIUS now reports all decisions 

Congress, though it is only required to report th

made by the President. 

Change in CFIUS Responsibility 

Within Commerce 

We recommended in 2000 that lead responsibility 

CFIUS within Commerce move from ITA to 

given the latter agency’s national security miss

While we still believe that this arrangement is m

24 
enforcement experts are reviewing notifications 

involving entities of concern and has developed 

written procedures to reflect this protocol. During our 

follow-up, we also found that BIS will be responsible 

for monitoring the export control provisions of two 

mitigation agreements involving sensitive acquisitions 

that it helped negotiate. Our update report 

recommends that BIS finalize and implement written 

procedures that outline how it will monitor and 

enforce the dual-use export control provisions of 

mitigation agreements entered into by CFIUS. 

Interagency Review 

Our March 2000 report suggested that an 

interagency review of the CFIUS process, conducted 

by OIGs from the departments of Commerce, 

Defense, and the Treasury, may be warranted, as a 

part of our responsibilities under the FY 2000 

National Defense Authorization Act. The Treasury 

and Defense IGs concurred with our suggestion, but 

other priorities prevented this review from taking 

place. We still believe such a review is necessary to (1) 

identify problems posed by investments involving 

countries and entities of concern and U.S. companies 

with sensitive technologies; (2) assess the overall 

effectiveness of CFIUS; and (3) recommend 

improvements, as necessary, to the way the U.S. 

government monitors foreign investment in these 

companies. (Office of Inspections and Program 

Evaluations: IPE-18546) 

improvements at several of the participating agen

At Commerce, our assessment focused on B

involvement in regulating exports to China. 

March 2006 Semiannual Report to Congress, page 

We determined that the bureau’s related con

policies, practices, and procedures needed to 

strengthened, as did end-use checks and monito

of compliance with licensing conditions. 

The Defense, State, and CIA inspectors general no

weaknesses in various aspects of their agen

licensing process: Defense does not adequa

document its analysis of license applications 

related decisions. State’s licensing policies 

25 
26 
The Economic Development Administration was established by the Public Works and Econo

Development Act (PWEDA) of 1965 to generate new jobs, help retain existing jobs, and stimu

private investment in economically distressed regions of the United States. EDA continues to fulfill 

mission under the authority of PWEDA, as amended by the Economic Development Reauthorization 

of 2004. Based on local and regional comprehensive economic development strategies, EDA work

partnership with state and local governments, regional economic development districts, public and pri

nonprofit organizations, and Indian tribes to help distressed communities address problems associated w

long-term economic deterioration and sudden and severe economic dislocations, including recovery f

the economic impact of natural disasters, the closure of military installations and other federal facili

changes in trade patterns, and the depletion of natural resources. EDA provides eligible recipients w

technical assistance, as well as grants for public works, planning, training and research, and econo

adjustment assistance. 

Revolving Loan Fund Program: 

Weak Agency Oversight, 

Persistent Problems, and Millions 

in Funds to Be Put to Better Use 

In the summer and fall of 2006, we audited EDA’s 

revolving loan fund (RLF) program—which since 

1975 has given millions of dollars in grants to state, 

local, and regional development entities that in turn 

offer low-interest business loans to generate jobs in 

distressed communities. Huge sums of money are 

involved in the program: in June 2003, EDA 

estimated that there were more than 600 active RLF 

grants whose combined federal and nonfederal 

investment totaled approximately $1 billion.5 

5 RLF funds retain their federal character in perpetuity. In other 

words, the grant recipient’s obligation to the federal government 

continues as long as the RLF assets exist. 

But the RLF program has had a troubled history

50 audits of individual recipients conducted by O

since 2001, we found the same problems repeate

grantees retained too much cash in their loan fu

did not comply with federal auditing and repor

requirements, charged unallowable costs to the R

did not adequately document lending decisions, 

filed inaccurate financial reports. EDA managem

has long recognized the program’s deficiencies, an

1999 had established a task force to study 

problems and recommend improvements. 

The task force found that the RLF reporting pro

needed major improvements because it 

cumbersome for grantees and not particul

effective for EDA in tracking program activity. 

task force also found that grantee reports often 

not receive ample scrutiny at the regional l

because staff was spread too thin. These find

27 
critical management reforms. 

Systemic Management Weaknesses, 

Funding Discrepancies Remain 

Unresolved 

Our current work looked at the overall RLF program 

to determine what, if any, improvements have been 

made. We assessed EDA’s handling of the problems 

identified in our audits of individual recipients, its 

record of general oversight, and the effectiveness of 

program administration by EDA regional offices. We 

also analyzed current levels of cash in RLFs, and the 

extent to which EDA uses single audit reports to 

monitor grantees’ RLF administration. Our audit 

period covered RLF operations and related activity 

occurring from September 2004 through September 

2005 in six EDA regions, with a limited look at 2006 

data on recipients’ annual reporting and EDA’s 

sequestration of unused funds. 

We found that little has changed in the RLF 

program. EDA management continues to be 

EDA requires grantees to keep a certain percen

(typically 75 percent) of total RLF dollars loa

out. When grantees routinely fail to meet t

capital utilization rates, EDA may direct 

recipient to sequester the excess funds—that 

deposit the funds in an interest-bearing acco

periodically remit the government’s portion of 

interest to the U.S. Treasury, and obtain E

approval to withdraw sequestered funds from 

account. In cases of persistent noncompliance, E

may terminate the fund and transfer the asset

other RLF recipients or back to Treasury. Despite 

importance of this process, agency regulations 

not contain clear criteria for making many of 

determinations necessary for sequestration decisi

As a result, practices are inconsistent across E

regions, ranging from recovery of funds without 

period of sequestration to sequestration for exten

periods of time. 

Using the 75 percent utilization rate, we calcul

excess cash from the reported fund balances and 

available amounts in all grantee financial rep

submitted for the period ending September 30, 20

Table 1. RLF Excess Cash and Fund Balance at September 30, 2005 

28 
EDA Does Not Ensure Grantee Compliance 

with Reporting Requirements and Does Not 

Have an Adequate Tracking System 

RLF grantees are required to submit annual or 

semiannual reports detailing loan activities 30 days 

after the end of the reporting period. These reports 

are one of the critical tools EDA has for monitoring 

the status of the program. But of the 607 grantees we 

examined with reports due September 30, 2005, 78 

were never received and 126 of those received were 

filed late by anywhere from 31 to more than 90 days. 

Because EDA has no standard procedures for 

monitoring grantee compliance, regional offices have 

different practices and different levels of 

commitment to ensuring they receive the reports on 

time or at all. All regional offices had problems with 

late reporting. Atlanta, which developed its own 

tracking system, had the best recipient reporting 

record—receiving all 90 reports due. But 33 percent 

were submitted late. Philadelphia had the worst 

record—receiving only 121 of 178. And 36 percent 

of those received were late. When EDA does not get 

required reports or receives them late, it lacks critical, 

timely information needed to manage the RLF 

program effectively. 

EDA also lacks an effective, practical data system that 

gives its headquarters and regional office staffs the 

ability to track the status of individual RLFs and 

oversee the RLF program. Its current database, the 

Operation Planning and Control System (OPCS), 

contains some information related to RLFs, but does 

not have all of the data needed to manage the 

program. We examined OPCS data as of May 2006, 

and found that 25 of the 78 nonreporting RLFs, 

which were being tracked in the database in 2001, 

had been subsequently removed from OPCS without 

prepared by independent auditors and filed with 

Federal Audit Clearinghouse for RLFs whose ann

federal expenditures are $500,000 or more. E

should review all single audit reports prepared 

RLF grant recipients, both to check the status 

stability of individual RLFs, and to verify that 

audits are being conducted as required. 

Recommendations 

We recommended, among other things, that 

Assistant Secretary for Economic Development 

EDA senior officials enhance the RLF progr

effectiveness by developing the following: 

■	 A strategy and plan of action for identify

and resolving problems plaguing the R

program, which assigns overall responsib

for the program to an individual who can 

held accountable for its operation. 

■	 Policies and procedures that promot

uniform approach to sequestering excess ca

■	 A database that contains a standard gra

reporting and monitoring system to pro

the critical information EDA needs to man

the RLF program and protect its assets. 

We also recommended that EDA consistently co

and evaluate required financial reports; determine 

status of the 47 RLFs that had not submitted rep

as of September 30, 2005; and ensure that R

recipients undergo required single audits and 

reports with the Federal Audit Clearinghouse. E

staff should actively use single audit reports 

improve agency monitoring of grantee operation

29 
EDA’s Response 

EDA accepted our audit findings, acknowledging 

that the deficiencies in the RLF program are serious 

and demand immediate attention. Agency officials 

committed to aggressive implementation of our 

recommendations and stated that EDA managers will 

pursue additional mechanisms necessary to 

strengthen management and fiduciary oversight 

while maximizing the effectiveness of the intensive 

resources required to administer the program. (Office 

of Audits: OA-18200) 

Ohio City Has Not Managed 

RLF Well 

In September 1980, the Economic Development 

Administration awarded a city in Ohio a long-term 

economic development implementation grant of 

$1 million to establish a revolving loan fund. In 

September 1983, EDA awarded the city an 

additional $500,000 and required a matching share 

of $166,666, increasing the RLF’s total capitalization 

to $1,666,666. 

This particular city was ranked by the U.S. Census 

Bureau as the poorest large city in the nation in both 

2004 and 2006. The city’s economic base was 

traditionally centered in steel and automobile 

manufacturing. But 4 decades of decline in those 

industries, combined with a large population flight to 

the suburbs and unsuccessful attempts at urban 

renewal, have made it difficult for the city to attract 

new investment and retain existing businesses. 

regulations. Our audit disclosed many of the s

poor fund management practices that we h

identified time and again among RLF recipi

nationwide. 

Excess Cash 

As of September 30, 2006, the city had $1,451,

of excess cash in the fund. The RLF reported 

active loans with an outstanding principal balanc

$1,116,015, loan commitm

of $200,000, and fu

available for new loan

$2,374,307. The cap

utilization rate 

36 percent. 

The city has maintai

unallowable excess c

reserves for multiple repor

periods and has only closed five valid loans s

2000. (Four other loans were closed during 

period, but had to be reallocated to other fu

because they violated the city’s RLF plan.) C

officials claim there is a need for RLF loans, but 

shortages have made it difficult to give the prog

much attention. They plan to hire more loan offi

to aggressively market the fund. 

We recommended that the EDA Chicago regi

director require the city to sequester $1,451,72

excess cash in an interest-bearing account and re

the interest to the U.S. Treasury. 

30 
submit a corrected semiannual report for September 

2006, submit the missing March 2006 report, and 

make sure that all future reports are filed with EDA 

on time. 

Improper Independent Audit, 

No RLF Certifications 

We also found that the city did not include the RLF 

in its single audit for 2005 or file annual certifications 

for its RLF plan for at least 2 years. The absence of 

certifications caused us to question whether the city 

has reviewed the RLF to determine whether it is 

operating according to plan and in a way that most 

effectively supports the economic adjustment 

strategy. We recommended that the city include the 

RLF in future single audits and provide annual 

certification that it is following the RLF plan. 

Funds to Be Put to Better Use 

Implementing our recommendation to sequester 

funds will put $1,451,726 to better use. 

$

summer 2007 through the end of 2009. 

According to the response, the city has rece

approval to increase staffing from 12 to 22, which 

enable it to better market the fund and incr

lending over the next 2 years. It has also hired a f

manager, whose duties include overseeing exte

reporting requirements, and a divisional contro

whose duties include the completion and submis

of RLF semiannual reports. Finally, the 

represented that the RLF will be included in its 

2007 single audit and the RLF plan will be certifie

required. We were encouraged by the actions descr

in the city’s response, but reaffirmed our orig

findings and recommendations in the final rep

(Denver Regional Office of Audits: DEN-18389) 

31 

The International Trade Administration is responsible for trade promotion and policy issues associ

with most nonagricultural goods and services. ITA works with the Office of the U.S. Trade Representa

to coordinate U.S. trade policy. ITA has four principal units: 

Market Access and Compliance develops and implements international economic policies of a bilat

multilateral, or regional nature, and participates in trade negotiations. Its main objectives are to ob

market access for American firms and workers and to ensure full compliance by foreign nations with t

agreements signed with the United States. 

Manufacturing and Services undertakes industry trade analysis, shapes U.S. trade policy, participate

trade negotiations, organizes trade capacity building programs, and evaluates the impact of domestic 

international economic and regulatory policies on U.S. manufacturers and service industries. 

Import Administration defends American industry against injurious and unfair trade practices 

administering the antidumping and countervailing duty laws of the United States and enforcing other t

laws and agreements negotiated to address such trade practices. 

U.S. Commercial Service seeks to promote economic prosperity, enhance U.S. job creation, 

strengthen national security through a global network of international trade professionals. Comme

Service promotes and protects U.S. commercial interests abroad and delivers customized solution

help U.S. businesses, especially small and medium-sized enterprises, compete effectively in 

global marketplace. 

Brazil Post Needs Management 

Attention to Overcome Some 

Challenges of Geography and 

Reduced Travel Budget 

Over the past few years, Commerce OIG has 

inspected a number of U.S. Commercial Service’s 

overseas posts. Most recently, we reviewed operations 

at CS’ five offices in China (see March 2006 

Semiannual Report, page 23) and the South Amer

posts of Argentina and Uruguay (September 20

pages 25-27). In this reporting period, we compl

a comprehensive review of CS’ post in Br

focusing on management structure, financial 

administrative practices, and program effectiven

We also examined security at the post and 

handling of export control end-use checks. T

matters were discussed in two “Official Use O

appendixes to the report. 

33 
iron ore, soybeans, 

footwear, coffee, 

and autos 

Leading imports machinery, electrical and 

transport equipment, 

chemical products, 

and oil 

Largest Economy in Latin America 

Brazil has the largest economy in Latin America and 

is the 14th largest U.S. trading partner.

6 In 2005, the 

United States exported a total of $15.3 billion in 

products and services to Brazil while its imports 

from Brazil totaled $24.4 billion.7 Brazil’s GDP is 

$1.556 trillion, according to the CIA’s World 

Factbook, and it has well-developed agricultural, 

mining, manufacturing, and service industries. The 

country’s economy is growing but vulnerable to 

economic risks and international disputes over illegal 

activities in the tri-border area of Argentina, Brazil, 

and Paraguay.

8 

Our review found the CS Brazil post does a generally 

good job of providing assistance to U.S. companies 

and that it collaborates well with most other relevant 

trade promotion agencies, key U.S. government 

6 U.S. Census Bureau, Top Trading Partners (Total Trade, Exports, 

Imports) as of June 2006, http://www.census.gov/foreigntrade/statistics/highlights/toppartners.html, August 31, 2006. 

7 U.S. Census Bureau, Foreign Trade Statistics, Trade in Goods 

(Imports, Exports, and Trade Balance) with Brazil, 

http://www.census.gov/foreign-trade/balance/c3510.html, 

September 8, 2006. 

8 CIA, The World Factbook - Brazil, 

www.cia.gov/cia/publications/ factbook/print/br.html, 

August 31, 2006. 

g

We identified some areas that could benefit f

increased management attention and made a tota

47 recommendations to improve post operati

Some of our specific findings are as follows: 

CS Brazil’s Management Structure 

Is Challenging 

CS Brazil is a large, diverse post with about 55 

members in five offices spread over several hund

thousand miles. The post’s senior commercial off

is stationed in Sao Paulo, Brazil’s business hub. 

deputy senior commercial officer is in Bras

Brazil’s capital and the location of the U.S. emb

As a result, the senior officer primarily perfo

outreach with the Sao Paulo business commun

while his deputy manages day-to-day relations w

the ambassador and other U.S. embassy officials. 

principal commercial officer in Sao Paulo overse

majority of CS’ core programs and services in Br

largely because Sao Paulo produces the majorit

products and services. In most posts, this is 

responsibility of the senior and deputy se

commercial officers. 

Another management challenge involves the effec

deployment of regional standards and intellec

property experts located in Brazil. CS recently po

a new South American regional standards exper

Sao Paulo, and a new intellectual property ri

attaché arrived in October 2006. However, t

roles in Brazil and the region have not b

fully developed. 

We recommended that CS evaluate and clarify 

roles and responsibilities of the CS Brazil senior 

deputy senior commercial officers and the Sao P

34 
northeast Brazil. At the 

time of our review, 

however, CS had not yet 

taken action on that 

request, continuing to rely 

on its Belo Horizonte 

office to serve that area of 

the country. We also 

found that CS’ offices in 

Belo Horizonte, Brasilia, 

and Porto Alegre experience some difficulty 

CS Brazil attracting U.S. exporters 

In 2004 the CS Brazil and promoting comBelo Horizonte office mercial opportunities in 

developed Como Importar these regions even though Dos Estados Unidos,


a Portuguese language together they produce


brochure for Brazilians nearly one-third of Brazil’s 

about importing goods gross domestic product. 

from the U.S. The booklet Our report recommended is distributed during 

trade events. that CS management 

develop a strong marketing plan to increase U.S. business awareness of CS 

Brazil offices and export opportunities in these 

three cities. 

CS Brazil is responsible for 50 industry sectors and 

subsectors, which it manages through teams. But we 

found poor coordination, rivalry among team 

members, and a limited focus on specific sectors. We 

recommended that CS management assess the 

existing team structure and the number and 

assignment of industry sectors to CS Brazil staff, and 

consider implementing changes that may improve 

productivity and foster a spirit of cooperation among 

team members. 

OIG’s previous reviews of CS posts around the w

have found that export success reporting is o

mishandled. CS Brazil reported it had increased 

export success numbers by 161 percent in on

years, from 276 in FY 2001 to more than 720 in 

2005. The post generated the second highest num

of export success stories of all CS overseas posts 

both fiscal years 2004 and 2005, claiming credit e

year for more than 5 percent of the total numbe

export success stories generated by CS worldwide

However, the post was not really doing as well 

claimed. In our analysis of FY 2005 records, 

identified 61 invalid and 136 questionable ex

successes, which reduces the post’s export successe

523. This makes CS Brazil’s performance 

impressive and drops its ranking from second to 

place among CS posts. By the end of FY 2006, 

Brazil had reported only 565 export successes, ab

150 fewer than the 2005 level. 

We found at least 72 invalid export successes out 

sample of 907 that CS Brazil reported in fiscal y

2005 and 2006. An additional 162 export succe

appeared questionable as to whether they met 

intent of CS’ mission. Specifically, CS Brazil claim

137 export successes for renting booths to Brazi

companies at U.S. trade shows, even though the fi

primarily sought to sell their Brazilian products at 

shows. The remaining 25 questionable exp

successes combined booth sales with training serv

or claimed airline ticket sales without any indica

of CS value-added service. 

We recommended that CS revise the CS Operat

Manual’s definition of an invalid export succes

include claims that directly foster foreign export

was the case of the booth rentals at U.S. trade sho

35 
Program Priorities 

From FY 2004 to 2006, CS Brazil’s operating and 

administrative budget increased from $2.3 million 

to $2.8 million because of rising fixed expenditures 

and a fluctuating exchange rate. To offset the cost 

increases, CS headquarters reduced the post’s 

discretionary budget by more than 60 percent, from 

$689,496 to $254,921, during the same period. 

This affected spending for direct program support 

(travel and supplies), furniture and equipment, and 

hospitality. The post’s travel budget alone was 

reduced from $169,156 to approximately $83,443 

in FY 2006. However, only $26,443 of the FY 2006 

budget was actually available to fund travel for 

outreach and program support because the 

remaining amount was designated for the CS Brazil 

all-hands meeting ($42,800) and officer training 

($14,200). As a result of these budget changes, the 

post’s outreach to other regions in Brazil was 

limited. The post is now using fees collected from 

adequate resources, and develop a more effec

strategy to increase or maintain trust fund collect

while also increasing the number of core prod

and services provided to U.S. clients. 

Financial and Administrative Operations A

Generally Sound, but a Few Areas Require 

Additional Attention 

In general, CS Brazil’s financial and administra

operations appear sound, but some areas n

improvement. The post closely monitors 

use of State Department-provided Internatio

Cooperative Administrative Support Services (ICA

tracks its obligations and liquidations in eMenu, 

funds and purchase cards appropriately, and uses 

vehicles only for official business. But we 

difficulty tracking the post’s financial data becaus

the many discrepancies between financial rep

located on eMenu, accounting reports obtained f

ITA, and various other documents. There is 

CS Worldwide Export Success Rankings for FYs 2004 and 2005 

Source: eMenu, Commercial Service, December 22, 

36 
receive required acquisition training. 

Agency Responses 

ITA officials generally agreed with our 

recommendations and provided a detailed response 

to our report. Among other things, the agency’s 

response noted that CS is moving the deputy senior 

commercial officer from the Brasilia office to the Sao 

Paolo location because both the senior commercial 

officer and deputy positions must be located in the 

commercial capital to effectively manage CS 

operations in Brazil. The Sao Paolo principal 

commercial officer position will be moved to Brasilia. 

CS also plans to place an employee in Recife at the 

U.S. consulate if the State Department waives ICASS 

fees for an office there. 

In addition, ITA reports the CS Brazil post is 

working on a revised strategic plan and has come up 

with a strategy to expand market presence across 

Brazil. The post has also developed a new industry 

team structure that consolidates a number of the 

teams and clarifies roles and responsibilities. 

ITA also stated that CS Brazil will work with the 

agency’s Office of Strategic Planning to remove all 

invalid and questionable export successes. CS Brazil 

management was to reiterate the latest CS guidance 

on export success reporting at the post’s all-hands 

meeting in April 2007. 

Finally, CS reported that it has increased the post’s 

discretionary travel budget to $107,079 for FY 2007, 

an addition of more than $20,000. 

Review Finds Commerce 

Can Enhance Its Trade 

Coordination Efforts 

In August 2006, members of the U.S. House 

Representatives asked the Commerce Inspe

General and six other IGs to review certain aspec

their agency’s efforts to promote export opportun

for small businesses and coordinate trade promo

efforts among themselves, with other governm

agencies, and with the private sector. 

Congress established the Trade Promo

Coordinating Committee (TPCC) in 1992 

provide a unifying framework for federal ex

promotion and financing efforts. Among its o

activities, the TPCC is required to submit an ann

National Export Strategy to Congress.9 The Secre

of Commerce serves as the chairman of the TP

which also includes 18 other federal agencies w

responsibility for some aspect of promoting U

business overseas. The TPCC secretariat curre

reports to the U.S. Commercial Service, which is 

chief export promotion organization of I

Commerce OIG helped coordinate all the IG rev

as they relate to the National Export Strategy and 

TPCC’s role. 

CS has a network of trade specialists located in 

U.S. cities and more than 80 countries to assist U

9	 OIGs from several other TPCC agencies have identified 

concerns with the current process of drafting The National E

Strategy. We have highlighted those concerns in a sep

memorandum report to the Department, which will be i

during the next semiannual reporting period. 

37 
of export promotion with federal and state agencies 

and other stakeholders, and the Department’s efforts 

to identify and communicate specific export 

opportunities or trade leads and other export-related 

information using the Internet. We found Commerce 

could enhance its trade promotion efforts in a 

number of areas and made 19 recommendations. 

Our Findings 

Commerce works closely with many partners, 

including other federal, state, and local government 

agencies, and private sector organizations. 

Commerce’s domestic U.S. export assistance centers 

(USEACs) maintain active partnerships with local 

and national organizations. The TPCC secretariat 

actively works with other agencies on various trade 

promotion priorities. But despite these cooperative 

relationships, we found that the TPCC agencies do 

not regularly communicate on specific trade 

promotion issues and that doing so would strengthen 

interagency collaboration. 

Such issues include identifying and communicating 

trade leads, delivering information and services for 

exporters via the Internet, providing trade finance 

assistance to U.S. companies, and developing trade 

capacity-building programs. The TPCC has not 

developed any working groups or other forums that 

regularly meet to improve interagency coordination 

on these issues. CS also should do more to increase 

cooperation with state trade offices around 

the country. 

In addition, Commerce should seek to further engage 

the national network of 58 district export councils, 

which have more than 1,600 members with 

pppp 

In countries where CS does not maintain an of

the State Department is responsible for represen

U.S. commercial interests and assisting U

exporters. The countries served by State’s econo

section in the U.S. embassy, commonly referred t

partnership posts, are generally smaller, more diffi

export markets. These posts can best serve U

exporters by actively collaborating with the ne

CS post that has regional responsibility for 

partnership post’s territory and with USEACs, wh

work directly with companies that may be intere

in pursuing business opportunities in coun

served by partnership posts. 

Many partnership posts provide assistance to U

exporters and work closely with some USEA

However, Commerce and State have never form

agreed on how the program should be coordin

and what their respective responsibilities are 

supporting the commercial function of these po

Without such an agreement, CS and State offi

often are uncertain about their responsibilities w

regard to this support. 

In November 2006, State’s Bureau of Economic 

Business Affairs conducted its regular biannual su

of the 94 U.S. embassies and consulates that pro

some form of commercial assistance to U

companies but do not have a CS presence. B

Commerce OIG and State OIG provided input 

the design of the survey to ensure it gath

information relevant to our ongoing reviews of 

partnership post program. As of January 2007

posts had responded to the survey. The res

reinforce the need for Commerce-State agreemen

the role of CS posts in supporting the partner

posts. The majority (68 percent) of the S

38 
partnership posts are satisfied with the support of 

their CS regional counterparts. A number of posts 

requested additional support from CS. The State 

Department, in its summary of the survey results, 

specifically mentioned 5 posts that could benefit 

from more active partnerships with their local CS 

post and 3 posts that were not partnered with a local 

CS post but should be. 

Our report concluded that CS management needs to 

provide its posts with clear guidance on their role in 

supporting partnership posts and should include this 

in its performance measures. CS also could provide 

State’s posts better access to CS’ information 

technology resources, integrate CS and State’s 

commercial web sites, and coordinate market 

research efforts. CS and State need to develop a joint 

planning mechanism for partnership post operations, 

payment procedures and quality standards for the 

services they provide, clear export success reporting 

procedures, and an appropriate training program for 

partnership post staff. CS should also provide 

additional information on partnership post services 

to USEAC staff and open communication channels 

between CS’ Office of Domestic Operations and 

State’s Bureau of Economic and Business Affairs. 

ITA Should Improve Internet Resources, 

Identification and Communication of 

Trade Leads 

ITA has several overlapping web sites, which m

potential U.S. exporters have to check numerous 

for specific information. In addition, export.gov, 

TPCC’s federal Internet portal managed by ITA, 

only limited information from other TPCC agen

Commerce needs to better coordinate fed

Internet resources for exporters and consolidate 

own multiple web sites. 

We also found that CS could make trade leads m

useful by improving the processes and techno

used to collect leads from federal agencies 

communicate them to exporters. The TPCC Inte

portal mainly contains trade leads from CS over

offices and from some State Department partner

posts. Several other TPCC agencies as well as s

other Commerce organizations have information 

substantive export opportunities that could 

included in the TPCC trade lead database. Instea

aggregating these leads on one federal web 

however, these other organizations are posting t

leads on their own web sites, making it difficult 

U.S. exporters to search for all relevant tr

opportunities. In addition, the TPCC database d

39 
pjpg 

investment guarantees that might be beneficial to 

U.S. companies. Financing assistance may be offered 

by a bank alone or in conjunction with financing and 

investment guarantees offered by the Small Business 

Administration, the Export-Import Bank of the 

United States, the Overseas Private Investment 

Corporation, other multilateral development banks, 

or private banks. 

While most CS officers and many state trade agencies 

and other federal agencies were aware that CS 

maintains personnel at five multilateral development 

banks, we found that many USEACs, state trade 

agencies, and exporters did not fully understand the 

trade finance, consulting, and other procurement 

opportunities at the banks. CS should provide more 

information to key stakeholders on trade finance and 

direct procurement opportunities available at the 

banks and coordinate future exporter outreach efforts 

with USEACs. 

Agency Response 

ITA agreed with most of our recommendations, and 

in its response to our report, outlined several efforts 

before it implements the guidance and fina

the memorandum. 

The agency agreed to improve its Internet resources 

consolidate other agencies’ trade leads into export

and outlined plans to address our recommendati

ITA’s response also provided additional informa

regarding its multilateral development bank operati

but did not directly address all our recommendation

enhance those operations. We asked the bureau 

provide an action plan detailing how it will implem

our recommendations. 

Three other Commerce bureaus also responded 

specific recommendations in our report. The Un

Secretary for Economic Affairs agreed that ST

USA and ITA should evaluate ways to improve t

coordination in identifying trade leads. N

concurred with our recommendation for enhan

cooperation between its Manufacturing Exten

Partnership and CS. And MBDA agreed with 

recommendation for better MBDA-CS coordinat

(Office of Inspections and Program Evaluati

IPE-18322) 

40 
’

The National Oceanic and Atmospheric Administration studies climate and global change; ensures 

protection of coastal oceans and the management of marine resources; provides weather serv

and manages worldwide environmental data. NOAA does this through the following organizations: 

National Weather Service reports the weather of the United States and provides weather forecasts 

warnings to the general public. 

National Ocean Service provides products, services, and information that promote safe navigat

support coastal communities, sustain marine ecosystems, and mitigate coastal hazards. 

National Marine Fisheries Service conducts a program of management, research, and services relate

the protection and rational use of living marine resources. 

National Environmental Satellite, Data, and Information Service observes the environment 

operating a national satellite system. 

Office of Oceanic and Atmospheric Research conducts research related to the oceans and Great La

the lower and upper atmosphere, space environment, and the Earth. 

Office of Program Planning and Integration develops and coordinates NOAAs strategic plan, supp

organization-wide planning activities, guides managers and employees on program and performa

management, and integrates policy analyses with decision making. 

NWS Followed Most Severe 

Weather Policies During 

Deadly Tornado 

On September 16, 2006, a few minutes before 10:00 

p.m. local time, a tornado struck the city of Rogers, 

Minnesota, killing a 10-year-old girl, injuring six 

others, and damaging dozens of structures. Although 

the area was under both a tornado watch and severe 

thunderstorm warning at the time, the National 

Weather Service did not issue a tornado warning 

before the tornado hit. NWS’ Chanhas

Minnesota, weather forecast office (WFO) 

responsible for issuing tornado and se

thunderstorm warnings for Hennepin County, wh

includes the city of Rogers. 

During the 12 minutes the tornado was on 

ground, the Chanhassen office received no repor

tornado sightings from public safety officials 

trained weather spotters.10 But the WFO’s dam

10 An individual trained by the National Weather Service to r

on local observed weather conditions. 

41 
hour when it touched down, but it quickly gained 

strength. Wind speeds had reached an estimated 113­

157 mph when it hit Rogers. The storm’s intensity 

diminished as it moved into adjacent Anoka County. 

In response to a request from then-Senator Mark 

Dayton (D-Minnesota), we examined NWS’ actions 

in connection with the Rogers tornado as well as 

agency policies and technological capabilities for 

forewarning the public. Our purpose was to assess 

whether NWS policies and procedures are adequate 

and were followed before and during the Rogers 

tornado, whether the Chanhassen WFO has state-ofthe-art severe forecasting and observations 

technology, and if that equipment was operating 

properly on September 16, 2006. 

Our Findings 

We found that the Chanhassen WFO, NWS Central 

Region, and Storm Prediction Center for the most 

part followed agency policies for handling severe 

weather events and have equipment in place that is 

considered to be the best available technology for 

reading weather conditions. But we noted several 

factors that may have adversely impacted 

Chanhassen’s handling of the situation and warrant 

close management attention: 

11	 F2 tornadoes cause considerable damage—roofs torn off frame 

houses; mobile homes demolished; boxcars overturned; large 

trees snapped or uprooted; light-object missiles generated; cars 

lifted off ground. Fujita Scale wind estimates are as follows: 

F0 (<73 mph); F1 (73-112 mph); F2 (113-157 mph); 

F3 (158-206 mph); F4 (207-260 mph); F5 (261-318 mph). 

The high winds from the unannounced tornado tore off roofs a

demolished whole sections of homes. 

Dividing Staff to Monitor Conditions Left 

Rogers with Reduced Coverage 

Shortly before the tornado hit, Chanhassen assig

warning responsibility for a region southwest 

Minneapolis/St. Paul to two forecasters on dut

the time, because this area appeared most likel

spawn tornadoes. One other forecaster was assig

warning responsibility for an area north of the T

Cities, which included Rogers. Three minutes l

the WFO issued a severe thunderstorm warning 

Hennepin and a neighboring county, and 9 min

12 See NWS Instruction 10-511 at 

www.weather.gov/directives/sym/pd01005011curr.pdf. 

42 
after that, the tornado touched down near Rogers. 

The theory behind dividing staff—to allow 

forecasters to focus on more limited areas during 

volatile weather conditions—is normally a best 

practice. But the events in Rogers underscore the 

unpredictability of severe weather: in this case, a 

rapidly developing event that may have warranted 

coverage by two forecasters. 

Notice from Storm Prediction Center 

Suggested Improving Conditions 

At 9:54—as the tornado was on the ground in the 

vicinity of Rogers—the NWS Storm Prediction 

Center in Norman, Oklahoma, issued a notice 

stating that the risk for tornadoes was diminishing 

across northern and central Minnesota, including 

Hennepin County. While this notification did not 

state that the possibility for tornadoes had ended, it 

appeared to send a message that conflicted with 

actual conditions. Its intention was to notify 

forecasters of the beginning of an hours-long period 

of atmospheric evolution during which tornadoes 

would normally become less likely. 

Weather Spotter’s Report Was Misinterpre

But Did Not Impact Performance 

At 10:13 p.m., a weather spotter en route thro

Rogers from Albertville, Minnesota, called 

Chanhassen WFO to report encountering hai

Albertville at 9:55 p.m. and seeing storm damag

Rogers. The Chanhassen technician who took the 

did not ascertain the spotter’s point of departure 

erroneously assumed she was traveling in the oppo

direction—from Rogers to Albertville. A

calculating the driving distance between the 

cities, the technician logged the time of the Ro

observation at 9:45—10 minutes before the torn

actually struck the city. This erroneous time, ent

as the official time of the damage observation 

NWS’ storm reporting system, made it appea

though NWS knew about the tornado 13 min

before the forecaster reported observing torn

conditions on radar and 19 minutes before issuin

tornado warning. This misinterpretation 

subsequent logging of the report was a major fa

in the controversy surrounding NWS’ role 

connection with the deadly Rogers tornado. 

43 
technology for reading weather conditions, 

NEXRAD has some limitations—for example, in 

reading precipitation, it has limited ability to 

distinguish between rain, hail, sleet, birds, snow, and 

other airborne materials. Additionally, some weather 

conditions can cause the radar beam to bend up or 

down, creating false images on the screen. There is no 

evidence to suggest, however, that any of these 

conditions played a part in the events surrounding 

the Rogers tornado. NWS advised us that technology 

known as dual polarization is currently under 

development. With planned implementation from 

late 2007 through 2012, dual polarization should 

greatly enhance NEXRAD’s ability to distinguish 

between various types of radar reflections. 

To augment its radar capabilities in some locations, 

NWS also uses the Federal Aviation Administration’s 

Terminal Doppler Weather Radar (TDWR), which is 

designed for use at major airports. TDWR has several 

technical differences from NEXRAD, including 

lower peak power and a shorter maximum Doppler 

range. TDWR scans low levels of the atmosphere at 

1-minute intervals to provide important weather data 

for approaching and departing aircraft. Though 

TDWR is available in the Minneapolis/St. Paul area, 

the Chanhassen office is not connected to it. 

Subsequent analysis of TDWR data after the Rogers 

tornado found that the radar showed indicators of a 

possible tornado on or near the ground about 3 

minutes sooner than NEXRAD, primarily because 

NEXRAD was scanning a higher elevation at the 

time of the TDWR scan. TDWR information, in 

combination with NEXRAD data, might have 

13 NEXRAD radar is often referred to as WSR-88D, which stands 

for Weather Surveillance Radar 1988 Doppler, in reference to the 

radar’s 1988 design date. 

■ Reinforces through ongoing forecaster train

NWS requirements for preparing wea

products such as watches and warnings so 

weather field offices provide the public wit

required information. 

■	 Researches methods to automate the inclu

of required information in weather produc

ensure they are issued in accordance w

NWS policies. 

■	 Explores ways to improve coordina

between the Storm Prediction Center and 

weather field offices so that communiq

clearly distinguish between current 

anticipated future weather conditions. 

■	 Assesses alternative staffing models 

practices that will permit WFOs to assig

least two forecasters to monitor indivi

areas of severe weather when condit

necessitate dividing warning responsibilitie

■	 Develops a standard protocol for field o

staff to follow when collecting spo

observations to ensure they ascertain accu

time frames, precise locations and direct

and all other pertinent details. 

■	 Assesses the feasibility of connecting Chanha

and other weather field offices to FAA’s Dop

radar systems, where available, and deployin

available technology upgrades. 

44 
Weaknesses Persist in Native 

American Commission’s 

Management of Salmon 

Recovery Fund Award 

In 2004 the Office of Inspector General initiated a 

performance audit of a Native American commission 

in Washington that received a 5-year, $27.34 million 

grant under the Pacific Coastal Salmon Recovery 

Fund. This multimillion-dollar fund provides federal 

grants to Alaska, California, Idaho, Oregon, and 

Washington and their resident Native American tribes 

to support local salmon conservation efforts. 

Established by Congress and administered by NOAA, 

the fund supports habitat restoration, research, 

recovery, and enhancement projects for endangered 

and threatened salmon species. It is NOAA’s 

largest financial assistance program for salmon 

recovery, receiving $530 million14 in congressional 

appropriations from 2000 through 2006. 

The commission allotted the award funds to each of 

its 20 member tribes in equal, no-match subgrants of 

roughly $1.3 million. Because we identified a range 

of management and compliance problems at the 

commission, we also conducted individual audits of 

nine tribal subgrants before completing our audit of 

the commission. These audits confirmed the 

commission’s administrative failings and caused us to 

question $4 million in costs claimed by the tribes. 

As a result, we recommended a series of actions 

to improve the commission’s administration of 

program funds. 

14 http://www.nwr.noaa.gov/Salmon-Recovery-Planning/PCSRF/ 

upload/PCSRF-Rpt-2006.pdf 

Rob McFarlane, Northwest Indian Fisheries Comm

This map shows locations of the Washington state Native Amer

commission’s member tribes. 

Follow-up Site Visit Finds Continuing 

Poor Management 

We returned to the commission in March 2006 

assess whether it had improved its management of 

NOAA award. We found that the commission 

has a fisheries biologist review project proposal

inform its funding decisions and has implemen

some monitoring procedures. But most of 

weaknesses in fund administration we noted in 2

remain. The commission still has no written inte

control policies and procedures; does not fully inf

recipients of their obligations with respect to awa

awards funds to the tribes equally, rather t

according to a proposal’s merits and costs; 

reimburses tribes for claimed costs with

determining whether the costs are allowable. 

We recommended that NOAA require 

commission to document in writing its inte

controls for managing all phases of the subg

process; give recipients full written disclosure o

applicable grant terms and conditions; f

proposals according to their merit and proje

costs; and closely monitor projects to ensure 

tribes comply with federal guidelines. 

45 
OIG 

A tribal commission employee displays trays holding salmon eggs. 

not change our original recommendation. (Sea

Regional Office of Audits: STL-16657) 

46 
’

INFORMATION ADMINISTRATION

The National Telecommunications and Information Administration serves through the Secretar

Commerce as the executive branchs principal advisor to the President on domestic and internati

telecommunications and information policy issues. NTIA manages the federal use of the electromagn

spectrum; provides grants for national information and public broadcasting infrastructure projects; 

performs telecommunications research and engineering. It works to enhance citizens’ access to cable televis

phone, and other telecommunications services; and educates state and local governments and other entitie

ways to use information technology and telecommunications more effectively. 

Television Alliance Needs Better 

Accounting Procedures, Policies 

to Manage Grant 

The Metropolitan Television Alliance (MTVA) is a 

consortium of 11 New York City television stations 

formed after September 11, 2001, when the analog 

and digital transmission facilities of most major New 

York City broadcasters were destroyed in the collapse 

of the World Trade Center. After losing their primary 

broadcast facilities, the members of MTVA set up 

temporary facilities at the Empire State Building. For 

various technical reasons, the Empire State Building 

reportedly is not suitable as a long-term digital 

television broadcasting platform. The Freedom Tower, 

which will be built at the former World Trade Center 

site, will ultimately serve as home to the MTVA 

members’ permanent digital transmission platform. 

Freedom Tower has a 2011 completion date. 

The Digital Television Transition and Public Sa

Act of 2005 sets a February 2009 deadline 

conversion of all over-the-air full-power televi

station broadcasts from analog to digital format. 

critical that broadcasters in New York City, one of 

nation’s largest media markets, have the ability 

provide digital over-the-air coverage by that date. 

act authorizes Commerce’s Assistant Secretary 

Communications and Information to m

payments in fiscal years 2007 and 2008 

exceeding $30 million to reimburse MTVA for c

incurred in the design and deployment o

temporary television broadcast system that 

provide adequate over-the-air digital televi

coverage to the New York metropolitan 

from February 2009 until the completion 

permanent digital facilities in Freedom To

To implement this provision of the act, 

National Telecommunications and Informa

Administration will make a grant to MTVA.

15 

15 Because NTIA does not have an internal grants administr

staff, the NIST grants office will administer the grant. 

47 
pg, p, g

parameters; and quality of broadcast reception. 

MTVA estimates a total cost of $7,855,000 for the 

first phase of the project, which includes equipment 

purchases, consultant costs, and antenna site rentals 

for deploying, testing, and operating the prototype 

system. 

The second phase involves deploying, testing, and 

operating a full-scale network of up to 20 sites that 

will provide over-the-air digital broadcasting service 

to the entire New York City metropolitan area. 

MTVA’s proposal estimates total costs for the second 

phase of the project to be $21,645,000. 

MTVA’s cost estimates do not include salaries, fringe 

benefits, or indirect costs. Salaries and associated 

fringe benefits are not included because MTVA has 

no permanent employees. Both its president and 

chief technical officer serve as consultants to the 

alliance, and they will charge their work under the 

grant as independent contractors. MTVA also does 

not have office facilities. MTVA’s application does 

not request reimbursement of indirect costs 

associated with the NTIA-funded project as part of 

its cost claims under the grant. Instead, the alliance’s 

proposal includes only those costs that are directly 

associated with the development, testing, and 

operation of its prototype and full-scale interim 

digital broadcasting systems. 

Since MTVA has never received grants from the 

federal government, NTIA requested assistance from 

OIG to ensure the necessary accounting and internal 

controls were in place prior to award. In October and 

November 2006, we conducted a limited scope 

survey of MTVA’s accounting system and examined 

MTVA’s records of costs already incurred. 

Ana Schaeffer/www

MTVA members installed temporary broadcasting facilities at t

Empire State Building after the World Trade Center’s twin tow

collapsed from the September 11, 2001, terrorist attack. Howe

for various technological reasons, the Empire State Building is 

suitable as a long-term digital television broadcasting platform

Freedom Tower, which will be built at the former World Trade 

Center site and is currently scheduled for completion in late 20

will serve as the permanent digital transmission platform. 

What We Found 

We had determined prior to our survey that MT

did not have adequate written accounting pol

and procedures. Subsequently, MTVA develo

written procedures, which we reviewed and fo

did not properly reference applicable federal 

principles. As a first-time recipient of federal finan

assistance, MTVA needs a clear understanding of 

types of costs eligible for reimbursement. N

should clearly articulate the cost principles MT

should use to determine what costs are allow

under the grant. 

48 
Preaward Costs Need Careful Review 

According to federal regulations, certain costs 

incurred prior to the award date are allowable. We 

reviewed records supporting $152,069 in costs 

MTVA incurred prior to our site visit and for which 

it intends to seek reimbursement under the award. 

Included in those costs are certain expenditures 

related to the preparation of MTVA’s grant proposal 

to NTIA. 

The records we reviewed lacked sufficient detail to 

determine the exact costs MTVA incurred preparing 

its proposal, but federal cost principles require bid 

and proposal costs to be accumulated and allocated 

across a company’s operation as an indirect cost item. 

Since the grant will not reimburse MTVA for indirect 

costs, the proposal costs would not be recoverable 

under the award. We also found that $11,850 of 

intended preaward costs are for a consultant’s 

preparation of written comments to NTIA on 

another program. This work is outside the scope of 

design, construction, and implementation of an 

interim digital transmission network for the New 

York City metropolitan area and as such would not 

appear to be an allowable expense under the grant. 

Government Interest in Equipment Acquired 

with Award Funds Needs to Be Recognized 

MTVA plans to acquire millions of dollars worth of 

digital broadcasting equipment with the grant money. 

However, the equipment will no longer be needed 

when the Freedom Tower is completed in late 2011. 

Although title to such equipment vests in the 

MTVA’s proposal did not include provisions 

periodic audits of the costs incurred on the pro

Given the size of the award and MTVA’s lack 

experience with federal grant requirements, 

believe that audit coverage will help ensure that 

award funds are used for the intended purpose. 

discussed this issue with MTVA officials during 

site visit, and they volunteered to submit to ann

audits of expenditures under the grant, beginn

with the period ending December 31, 2007. 

Our Recommendations 

We recommended that the Assistant Secretary 

Communications and Information require MTVA 

correct the deficiencies in its accounting policies 

procedures, and obtain a detailed accounting 

proposed preaward costs from MTVA and assess e

item for allowability under the grant. We 

recommended that NTIA take steps to ensure 

MTVA is aware of and in compliance with fed

regulations relating to equipment purchased w

grant funds. In addition, we recommended 

NTIA include in the award a requirement fo

program-specific audit for the year ending Decem

31, 2007, for every successive year that aw

expenditures exceed $500,000, and at the comple

of the project. 

NTIA subsequently informed us that all 

recommendations have been incorporated in 

MTVA grant’s special award conditions. (Den

Regional Office of Audits: DEN-18401) 

49 

’

’

The Technology Administration serves the needs of technology-based industry, advoc

federal actions and policies to speed the transfer of technology from the laboratory 

the marketplace, and removes barriers for commercializing new technologies. It includes th

major organizations: 

Office of Technology Policy works in partnership with the private sector to develop and advocate nati

policies and initiatives that use technology to build Americas economic strength, promote the creatio

high-wage jobs, and bring about improvements in our quality of life. 

National Institute of Standards and Technology promotes U.S. innovation and indus

competitiveness by advancing measurement science, standards, and technology in ways that enha

economic security and improve quality of life. NIST manages four programs: the Advanced Techno

Program, the Manufacturing Extension Partnership program, the Baldrige National Quality Program, 

NIST Laboratories. 

National Technical Information Service is a self-supporting agency that promotes the nations econo

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

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

through information and production services to federal agencies. 

NIST Logistics Group Operations 

Are Mostly Sound but Need 

Attention in Some Areas 

In late 2006, we conducted a review of the Logistics 

Group unit of the National Institute of Standards 

and Technology’s Administrative Services Division. 

This was part of our ongoing work in the area of 

strengthening internal controls in the Department. 

The Logistics Group unit handles personal property 

management and disposal, oversees shipping and 

receiving, arranges household moves for select 

employees and researchers, and operates a supply 

storeroom at NIST’s Gaithersburg, Maryland, 

headquarters. In conjunction with the fina

division, the unit also conducts an annual inven

of the precious metals used by NIST researchers. 

Although we found that the Logistics Gro

operations and procurement activities were gene

sound, our report described the need 

management attention and some improvement

the areas of precious metals inventory maintena

shipping and receiving, and storeroom operati

We recommended that NIST improve its guida

and training for precious metals custodians; en

adequate staff resources within the Logistics Gro

address several safety concerns involving d

operations that were brought to our attent

improve the shipping and receiving guida

51 
y 

found during our review. (Office of Inspections and 

Program Evaluations: IPE-18321) 

OIG 

NIST researchers use precious metals in a number of forms, 

including solid, liquid, and powder. 

totaling $547,426 in inappropriately charged r

utilities, and certain salary, fringe benefit, and o

expenses because these costs were unallowable

excess of budgetary limits, or incorrectly categori

This audit remains unresolved because we reque

that NIST postpone its submission of an a

resolution proposal. 

FastVDO LLC, Maryland 

An audit of this NIST cooperative agreement 

March 2006 issue, page 35, DEN-174

recommended that NIST disallow $51,838 

questioned costs, recover excess federal disbursem

of $29,409, and ensure that the recipient, am

other things, (1) implements an adequate method 

capturing time directly spent on the ATP project

bills only for that time, (3) develops written finan

management procedures, and (4) tracks 

inventories grant-funded purchases as required 

federal regulations and ATP program terms. T

audit remains unresolved because we have postpo

NIST’s submission of an audit resolution propos

52 
’

The United States Patent and Trademark Office administers the nations patent and trademark l

Patents are granted and trademarks registered under a system intended to provide incentives to inv

invest in research, commercialize new technology, and draw attention to inventions that would otherwis

unnoticed. USPTO also collects, assembles, publishes, and disseminates technological information disclo

in patents. 

USPTO Acquisition 

Operations Could Benefit 

from Improved Guidance 

We reviewed the procurement process at USPTO to 

gain an understanding of the systems used to manage 

the process and to determine if the agency’s 

acquisition criteria have changed since the Patent and 

Trademark Efficiency Act took effect in March 2000. 

USPTO’s use of the flexibilities and authorities 

provided by that act has been on OIG’s list of Top 10 

Management Challenges since 2001. 

We did not issue any recommendations, but did note 

several areas that could benefit from improved 

guidance. For example, we learned the procurement 

staff needs guidance for determining when to use the 

Patent and Trademark Office Acquisition Guidelines. 

We also found data input errors in the Federal 

Procurement Data System that could have been 

prevented with better controls. (Business and Science 

Division: BSD-17779) 

FY 2006 Financial Statements 

Audit: Clean Opinion and 

Improved IT Controls 

Independent auditor KPMG rendered an unquali

opinion on USPTO’s FY 2006 financial stateme

finding them fairly presented, free of mate

weaknesses, and in compliance with all applic

laws and regulations. KPMG reported that USP

continues to maintain a sound internal con

structure that enables the agency to prepare reli

financial and performance information. 

As part of the financial statements audit, KP

assessed information technology general controls 

USPTO systems used to process and maintain 

financial data against criteria in GAO’s Fed

Information System Controls Audit Manual (FISCA

KPMG found that USPTO had resolved six of e

FISCAM weaknesses reported in FY 2005. The 

remaining weaknesses are in the areas of ac

controls and service continuity. (Financial Statem

and Accountability Audits: FSD-18003-1 and -2) 

53 

’

The United States Department of Commerce creates the conditions for economic growth and opportu

by promoting innovation, entrepreneurship, competitiveness, and stewardship. The Department has t

stated strategic goals: 

GOAL 1: Provide the information and tools to maximize U.S. competitiveness. 

GOAL 2: Foster science and technological leadership by protecting intellectual property, 

enhancing technical standards, and advancing measurement science. 

GOAL 3: Observe, protect, and manage the Earths resources to promote 

environmental stewardship.


The Department has also established a Management Integration Goal that is equally important to all bure

Achieve organizational and management excellence. 

The Department Needs 

to Tighten Controls, 

Update Guidance for 

Premium-Class Travel 

Government workers on official travel are a lucrative 

source of income for the travel industry. According to 

the General Services Administration, federal 

spending on travel totaled $15.4 billion in fiscal year 

2005. And the largest share of the spending— 

$3.4 billion—went toward airfare.16,17 

To keep airfare costs in check, the Federal Travel 

Regulation (FTR) requires government employees to 

fly coach for official domestic and international 

16 www.govexec.com/story_page.cfm?articleid=35888&sid=3 

17 www.govexec.com/features/0806-15/0806-15s6.htm 

travel, unless their agencies approve the m

costly first- or business-class (“premium-cla

accommodations. The FTR allows premium-clas

travel under a variety of circumstances, for exam

when a seat in coach class is unavailable, w

international flight time exceeds 14 hours, 

when the upgrade is needed to accommodat

traveler’s disability. 

At Commerce, the DOC Travel Handbook details 

agency-specific policies and requirements trave

must follow to comply with the FTR. During 

semiannual period, we examined a sample of 

premium-class flights taken by Commerce emplo

in fiscal years 2005 and 2006 to determine 

well the Department enforces its policies 

FTR requirements. 

55 
The DOC Travel Handbook, the Departments 

primary source of comprehensive travel policy, 

contains premium-class travel guidance dating back 

to 1990 and 1992. This guidance stipulates that the 

Chief Financial Officer and Assistant Secretary for 

Administration must authorize premium-class travel. 

But in 1993, the acting CFO/ASA at the time 

delegated this authority to Secretarial officers for 

their respective bureaus, allowing them to, in turn, 

pass on the authority to the bureau official of their 

choice. The handbook was never revised to reflect 

this new structure. In 2002 the Department 

conducted an internal review of the premium-class 

approval process and found confusion within its own 

travel management center (known as SATO) about 

who had authority to approve premium-class travel. 

It also found that the Department had not regularly 

provided SATO with a list of individuals authorized 

to approve premium-class air accommodations. 

The 2002 internal review recommended changes 

to resolve these problems but they were never 

implemented, so the confusion remains. In our 

review, we found that travel policy is still 

inconsistently applied Department-wide: for 

example, some bureaus do not require documented 

justification for premium-class travel, others do not 

enforce the requirement for agency approval. 

Poorly Implemented Internal Controls 

Before a bureau’s travel management center issues a 

premium-class airline ticket, it must receive a Request 

for Approval of Extra Fare Air Accommodations 

(Form CD-334), signed by the designated approving 

official. These are submitted to Commerce’s Travel 

Management Division, which is supposed to verify 

the forms’ proper authorization. But we found that 

neither the bureau centers nor the Travel 

Management Division routinely follows this 

consistently applied. While basic controls are 

place, their poor implementation increases 

opportunity for wasteful travel spending. 

www.osec.doc.gov/oas/travel/default.htm 

Our Recommendations and 

Department Response 

We recommended that the Department, am

other things, update the DOC Travel Handboo

reflect all current policies and requirements, 

ensure requirements for documenting the n

for premium-class travel and for approving s

requests are complied with across all bureaus 

regional operations. 

Department officials concurred with our find

and detailed corrective action they have already ta

to strengthen internal controls over premium-c

56 
for FY 2006 Consolidated 

Financial Statements 

IT Control Weaknesses Remain a 

Reportable Condition 

For the 8th consecutive year, the Department 

received an unqualified opinion on its consolidated 

statements, and its financial management systems 

were in full compliance with the Federal Financial 

Management Improvement Act of 1996. However, 

the independent auditors (KPMG) noted continuing 

deficiencies in information technology controls that 

together constitute a reportable condition. 

Commerce was also cited for one instance of 

noncompliance with the Anti-Deficiency Act. 

Reportable Condition Reflects Persistent 

FISCAM Weaknesses 

The auditors assessed general IT controls over the 

Department’s major financial reporting systems 

against the six criteria in GAO’s Federal Information 

System Controls Audit Manual, finding weaknesses in 

all six areas—entity-wide security, security access 

controls, application software development and 

change control, system software, segregation of 

duties, and service continuity. Effective general IT 

controls are essential to ensuring the integrity and 

reliability of data used to prepare and report financial 

information. Weaknesses in these controls have been 

a problem for Commerce since 1998, though each 

year the Department has reduced the number of 

deficiencies and strengthened these controls. 

Prompted by this finding, NOAA reviewed 2,

other agreements and identified 80 that contai

indemnification clauses or provisions involv

questionable liability. The Department’s Office 

General Counsel determined that these agreem

also constituted violations of the Anti-Deficie

Act. The Secretary reported these violations to 

President, Congress, and the Comptroller Gener

required by 31 USC § 1517(b). NOAA subseque

identified another agreement, for a total of 

containing such clauses. 

Our FY 2006 audit found that 75 of th

agreements have been amended, terminated, 

allowed to expire, and NOAA is taking action 

correct the remaining 7. 

Economics and Statistics Administration. A

during FY 2005, ESA identified seven 1-

agreements that contained indemnification clause

violation of the Anti-Deficiency Act. The Secre

reported these, as required, in June 2006, and 

seven had expired by fiscal year-end. 

“Special Purpose” Statements Also 

Receive Clean Opinion 

As part of the FY 2006 consolidated audit, KM

examined Commerce’s statements of net cost 

changes in net position (i.e., “special purp

financial statements), and its reporting 

intragovernmental activity and related payments 

balances. These reviews assessed the Departme

compliance with financial reporting requirem

stipulated in the Treasury Financial Manual. 

auditors rendered an unqualified opinion on 

57 
Census Bureau 

ITS Services, Inc. 

In March 2005, we reported that 3 of the 32 task 

orders awarded under an IT services contract were 

audited to determine whether the costs billed by 

the firm were reasonable, allowable, and allocable 

under contract terms and conditions and 

federal regulations. We found that the firm had 

failed to comply with numerous contract and 

federal requirements, and questioned more 

than $8.5 million in direct labor and 

reimbursable costs. 

Computer & High Tech Management, Inc. 

We reported in our September 2005 Semiannual 

Report (page 14) the results of audits of 2 of the 21 

task orders for another firm providing IT services to 

Census. We sought to determine whether the firm 

had complied with contract terms and conditions 

and federal regulations and had billed Census for 

work performed in accordance with specifications of 

the task order. We found that the firm failed to 

comply with numerous contract and federal 

requirements, which caused us to question more 

than $10.7 million in direct labor and other 

reimbursable costs. 

We have suspended audit resolution on both of 

these contract audits pursuant to an agreement 

with Census. 

information on whether the applicant has unreso

audit findings and recommendations on ea

awards, and it identifies any negative financia

investigative history on individuals or organizat

connected with a proposed award. 

On January 1, 2004, we implemented new pol

and procedures for our preaward screening proc

OIG and the Department determined that there 

several categories of recipients for whom the c

and administrative burden of the screening pro

may well outweigh the government’s risk of finan

loss. Our new policies exempt from review, recipi

who (1) receive awards in amounts of $100,000 

less; (2) have received financial assistance from 

Department for 3 or more consecutive years with

any adverse program or audit findings; or (3) 

units of a state or local government. 

During this period we screened 61 proposed awa

For 8 of the awards, we found major deficiencies 

could affect the ability of the prospective recipien

maintain proper control over federal funds. On 

basis of the information we provided, 

Department delayed 7 awards and established spe

award conditions for 1. (Office of Audits) 

58 
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 203 audit reports during this 

semiannual period to determine whether they 

contained any audit findings related to Department 

programs. For 146 of these reports, the Department 

acts as oversight agency and monitors the audited 

entity’s compliance with OMB Circular A-133 or 

NIST’s program-specific reporting requirements. 

The other 57 reports are from entities for which 

other federal agencies have oversight responsibility. 

We identified 17 reports with findings related to the 

Department of Commerce. 

* Includes $117,854,774 in ATP program-specific audits. 

We identified a total of $504,542 in fed

questioned costs and $242,279 in funds to be pu

better use. In most reports the subject programs w

not considered major programs; thus the au

involved limited transaction and compliance tes

against laws, regulations, and grant terms 

conditions. The 17 reports with Commerce find

are listed in Appendix B-1. (Atlanta Regional Of

of Audits) 

59 

The mission of the Office of Inspector General is to promote economy, efficiency, and effectiveness 

detect and prevent waste, fraud, abuse, and mismanagement in the programs and operations of the U

Department of Commerce. Through its audits, inspections, performance evaluations, and investigations, O

proposes innovative ideas and constructive solutions that lead to positive changes for the Department

providing timely, useful, and reliable information and advice to departmental officials, the administration, 

Congress, OIG’s work helps improve Commerce management and operations as well as its delivery of serv

to the public. 

Office of Investigations 

During this semiannual period, the Office of 

Investigations continued to pursue allegations of 

fraud, waste, and abuse affecting Commerce 

programs and operations, and other cases of 

corruption or fraud that negatively impacted the 

Department, the federal government, or 

U.S. taxpayers. 

Discussed below are recent developments in several 

investigations that were detailed in previous 

Semiannual Reports and representative highlights of 

other investigative accomplishments during the past 

6 months. 

Additional Convictions and Recovery 

of $1.4 Million in Telemarketing 

Fraud Investigation 

In our last Semiannual Report (page 47), we detailed 

the progress of our joint investigation of a major 

international telemarketing fraud scheme perpetrated 

by callers identifying themselves as employees of the 

Commerce Department and other federal agencies, 

who told victims they had won huge sweepstakes 

prizes in a national lottery sanctioned by the U.S. 

government. The victims were instructed to 

commercial wire transfer services to send paymen

$1,500 to $4,500 to Costa Rica, purportedly 

insurance and customs fees that were required 

retrieve their winnings. Many of those defrau

made multiple transfers to the telemarket

resulting in more than $30 million in identified lo

to U.S. residents. 

During this semiannual period, authorities h

made eight additional arrests of U.S., Canadian, 

Costa Rican citizens in connection with 

telemarketing scheme, and six more defendants 

awaiting extradition to the United States from C

Rica. To date, nine defendants have been convi

in the Western District of North Carolina on var

charges, including wire fraud and conspiracy 

commit wire fraud. 

One of the first arrested in the investigation w

Costa Rican attorney, whose conviction for mo

laundering was reported in our September 2

Semiannual Report (page 48). On January 19, 20

he was sentenced to 27 months’ incarceration, 

months’ probation, and a fine of $200. In addit

he was ordered to pay restitution of $1,385,997—

bulk of which will be returned to the vict

Sentencing is pending for the other eight defenda

61 
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status in the U.S. A total of 21 individuals were 

subsequently charged in connection with the scheme. 

All defendants have since entered guilty pleas and 

been sentenced in U.S. District Court for the Eastern 

District of Virginia. On October 2, 2006, the former 

patent examiner—who resigned from USPTO 

following his arrest—was convicted of one count of 

conspiracy to commit immigration fraud, sentenced 

to 40 months’ incarceration and 3 years’ probation, 

and ordered to forfeit $200,000 in assets, including 

his house and the proceeds of his federal Thrift 

Savings Plan. Another principal defendant was 

sentenced to 27 months’ incarceration and asset 

forfeiture of $89,000. The foreign nationals 

implicated in the scheme have all been ordered 

deported. (Alexandria Virginia Resident Office) 

Brother of Convicted NOAA Employee 

Sentenced for Aiding Fugitive’s Flight 

Our September 2006 Semiannual Report (page 48) 

reported the conviction and sentencing of a former 

NOAA employee for possession and production of 

child pornography following an OIG investigation 

that found he had been using government and 

personal computers to download sexually explicit 

images of children for at least a decade. The 

defendant fled the country prior to his arrest, 

traveling first to his brother’s home in California and 

then to various locations in Canada and Europe. 

After a costly, 3-week search requiring the resources 

of numerous law enforcement agencies in the United 

States and abroad, OIG finally located him in Italy 

where he surrendered to U.S. officials and was 

returned to the District of Maryland for trial. 

The defendant’s brother was subsequently indicted 

for helping him evade arrest by warning him that 

In November 2006, a former patent examiner 

employed at another federal agency was indicte

the Eastern District of Virginia on four count

making false statements and one count of thef

government property after an OIG investiga

revealed that the defendant had falsely claimed m

than $60,000 in salary payments over a 1-year pe

prior to her May 2006 resignation from USPT

The defendant has been placed on administra

leave pending resolution of the case. (Alexan

Resident Office) 

Contract Employee Charged with Theft from 

NOAA Facility 

A former contract employee hired to restore a 

damaged NOAA facility in Seattle was charged w

second-degree theft in Superior Court of K

County, Washington, after an OIG investiga

disclosed that he had stolen a government cell ph

from the facility and made more than $800 in c

A warrant was issued for his arrest on March 

2007, when he failed to appear in court to answer 

charges. (Seattle Resident Office) 

These are just a few of the items seized by OIG special agents i

one government credit card fraud investigation. 

62 
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case was declined for criminal prosecution by the 

U.S. Attorney’s Office for the District of Columbia in 

deference to administrative action. In March 2007, 

the employee returned approximately $1,800 worth 

of purchases to ITA, along with a cashier’s check in 

the amount of $988.76. Her current agency has been 

notified so that appropriate administrative action 

may be taken. (Washington Field Office) 

Other OIG Activities 

Office of Investigations Shares 

Computer Forensics Expertise 

with South American Law 

Enforcement Agencies 

On March 25, 2007, OIG’s Office of Investigations 

hosted a delegation of 10 police officers and 

investigators from two Colombian law enforcement 

agencies—Fiscalia (Colombia’s equivalent to the U.S. 

based crimes. 

The Colombian law enforcement agenc

headquartered in Bogotà, are building comp

crimes labs in several locations to handle 

country’s growing problem of Internet cri

Internet access, though still a relatively modest 

percent in 2005, is growing exponentially 

Colombia, and with it, the types and incidenc

Internet crime. Participants came to hear how 

computer forensics team operates, what crime

most frequently deals with, how the comp

forensics lab is equipped and operated, and 

investigators process, store, and manage dig

evidence. The special agent-in-charge of the O

Computer Crimes Unit gave the Colombian visi

a tour of OIG’s computer forensics facility. 

described the computer equipment we use and w

and detailed the minimum standards and capac

required for computer equipment that can reli

support the often voluminous forensic data collec

that must be imaged and documented to successf

prosecute computer criminals. 

Willy Straubhaar, State Depa

Police officers and investigators from two Colombian law enforcement agencies visited OIG’s cyber crimes unit on March 25 (left). The v

was sponsored by the State Department as part of its Cyber Terrorism Training Program, which is operated by State’s Office of Antiterror

Assistance. The office provides technical training to international law enforcement agencies and government institutions to help them dev

the skills to detect, prevent, and investigate cyber terrorism and other computer-based crimes. Right, Assistant Inspector General for 

Investigations Edward Blansitt welcomed the Colombian visitors to OIG in fluent Spanish. 

63 
growing quickly as we continue to support their 

investigative capacity through training and 

equipment grants.” 

Quality Control Review of 

Social Security Administration OIG 

Shows Positive Practices and 

Professional Standards 

We conducted a peer review of audit operations at the 

Social Security Administration (SSA) Office of 

Inspector General during this semiannual period— 

evaluating reports that the office published from 

April 1, 2005, through March 31, 2006, which 

included the FY 2005 SSA financial statements audit, 

and assessing its internal quality control reviews and 

relevant policies and procedures. 

We determined that SSA OIG’s audits function 

complied with professional auditing and quality 

control standards for the federal government and that 

the agency has implemented a number of positive 

practices and controls. (Office of Audits) 

Office of Investigations. Commerce OI will 

evaluated in the fall of 2007. 

Our review took place from December 2006 

March 2007. A team of OIG investigators undert

a detailed review of investigative facilities, person

policies, and procedures, including site visits to O

headquarters in Washington, D.C., and field of

in San Diego and Laguna Niguel, California. 

interviewed 18 of the OIG’s total force of 26 crim

investigators, as well as a number of supp

personnel, and reviewed 25 cases, complaints, 

proactive projects selected from OPM’s inventor

78 matters closed during FY 2006. 

Our peer review resulted in a finding of 

compliance with the professional standards set 

investigations by the President’s Council on Integ

and Efficiency and the Department of Justice. 

made a number of suggestions for improving OP

investigative program and operations and highligh

several subject areas in which OPM’s investiga

program showed notable excellence. (Office 

Investigations) 

64 
Table 1. Investigative Statistical Highlights for this Period


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, 2006) for which no management 

decision had been made by the end of the period 

(March 31, 2007). Seven audit reports remain 

unresolved for this reporting period (see pages 52 

and 58). 

Department Administrative Order 213-5, A

Resolution and Follow-up, provides procedures 

management to request a modification to 

approved audit action plan or for a finan

assistance recipient to appeal an audit resolu

determination. The following table summar

modification and appeal activity during 

reporting period. 

65 
Table 3. Audits and Inspection Statistical Highlights for this Period 

* This number includes costs questioned by state and local government auditors or independent public accountants. 

Table 4. Audits with Questioned Costs 

NOTES: 1 Seven audit reports included in this table are also included among reports with recommendations that funds be put to better use 

(see table 5). However, the dollar amounts do not overlap. 2 In Category C, lines i and ii do not always equal the total line C because resolution may result in values greater than the original 

recommendations. 

66 
NOTES: 1	 Seven audit reports included in this table are also included among reports with questioned costs (see table 4). However, the dollar amo

do not overlap. 2 In Category C, lines i and ii do not always equal the total line C because resolution may result in values greater than the original 

recommendations. 

Definitions of Terms Used in 

the Tables 

Questioned cost: a cost questioned by OIG because 

of (1) an alleged violation of a provision of a law, 

regulation, contract, grant, cooperative agreement, or 

other agreement or document governing the 

expenditure of funds; (2) a finding that, at the time 

of the audit, such cost is not supported by adequate 

documentation; or (3) a finding that an expenditure 

of funds for the intended purpose is unnecessary or 

unreasonable. 

Unsupported cost: a cost that, at the time of the 

audit, is not supported by adequate documentation. 

Questioned costs include unsupported costs. 

Recommendation that funds be put to better 

an OIG recommendation that funds could be u

more efficiently if Commerce management t

action to implement and complete 

recommendation, including (1) reductions 

outlays; (2) deobligation of funds from program

operations; (3) withdrawal of interest subsidy c

on loans or loan guarantees, insurance, or bo

(4) costs not incurred by implemen

recommended improvements related to Commer

contractor, or a grantee; (5) avoidance of unneces

expenditures identified in preaward reviews 

contracts or grant agreements; or (6) any o

savings specifically identified. 

Management decision: management’s evaluatio

the findings and recommendations included in 

audit report and the issuance of a final decision 

management concerning its response. 

67 
Appendix A-1. Performance Audits 

Appendix A-2. Financial Assistance Audits 

68 
Appendix A-4. Inspections and Systems Evaluations


69 
* Includes 80 ATP program-specific audits. 

70 
71

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

and Regulations 

This section requires the inspector general of each 

agency to review existing and proposed legislation 

and regulations relating to that agency’s programs 

and operations. Based on this review, the inspector 

general is required to make recommendations in the 

semiannual report concerning the impact of such 

legislation or regulations on the economy and 

efficiency of the management of programs and 

operations administered or financed by the agency or 

on the prevention and detection of fraud and abuse 

in those programs and operations. Comments 

concerning legislative and regulatory initiatives 

affecting Commerce programs are discussed, as 

appropriate, in relevant sections of the report. 

Section 5(A)(3): Prior Significant 

Recommendations Unimplemented 

This section requires identification of each significant 

recommendation described in previous semiannual 

reports for which corrective action has not b

completed. Section 5(b) requires that the Secre

transmit to Congress statistical tables showing 

number and value of audit reports for which no f

action has been taken, plus an explanation of 

reasons why recommended action has not occur

except when the management decision was m

within the preceding year. 

To include a list of all significant unimplemen

recommendations in this report would 

duplicative. Information on the status of any a

recommendations can be obtained through O

Office of Audits. 

Sections 5(A)(5) and 6(B)(2): 

Information or Assistance Refused 

These sections require a summary of each repor

the Secretary when access, information, or assista

has been unreasonably refused or not provided. T

were no instances during this semiannual period 

no reports to the Secretary. 

72 
decision on each such report. There were five Census 

and two NIST reports more than 6 months old. 

Section 5(A)(11): Significant Revised 

Management Decisions 

This section requires an explanation of the reasons 

for any significant revision to a management decision 

made during the reporting period. Department 

Administrative Order 213-5, Audit Resolution and 

Follow-up, provides procedures for revising a 

management decision. For performance audits, OIG 

Section 5(A)(12): Significant 

Management Decisions with Which 

OIG Disagreed 

This section requires information concerning 

significant management decision with which 

inspector general disagrees. Departm

Administrative Order 213-5 provides procedures 

elevating unresolved audit recommendations 

higher levels of Department and OIG managem

including their consideration by an Audit Resolu

Council. During this period no audit issues w

referred to the council. 

73 
AUDITS 

Performance Audits address the efficiency, 

effectiveness, and economy of the Department's 

programs, activities, and information technology 

systems. They may check a unit's compliance with 

laws and regulations, and evaluate its success in 

achieving program objectives. They may also involve 

reviewing the Department's financial assistance 

awards by assessing an award recipient’s compliance 

with laws, regulations, and award terms; allowance of 

costs; and the degree to which projects achieved 

intended results. 

Financial Audits determine whether (1) a reporting 

entity's financial statements are presented fairly and 

in accordance with generally accepted accounting 

principles; (2) the entity has an internal control 

structure that provides reasonable assurance of 

achieving the control objectives set forth by OMB; 

and (3) the entity complied with laws and regulations 

that could have a direct and material effect on the 

financial statements, the Federal Financial 

Management Improvement Act, and other laws and 

regulations. 

Attestation Engagements involve examining, 

reviewing, or performing agreed-upon procedures on 

a subject matter or an assertion about a subject 

matter and reporting the results. Attestation 

engagements can have a broad range of financial or 

nonfinancial focuses, such as an entity’s compliance 

with laws and regulations; management’s discussion 

and analysis presentations; and allowability and 

reasonableness of final grant and contract costs. 

INSPECTIONS 

Inspections are reviews of an activity, unit, or of

or a contractor or other nonfederal entity 

receives funds from the Department. They focu

an organization, not a whole program, and are o

designed to give agency managers timely and us

information about operations, including current 

foreseeable problems. 

EVALUATIONS 

Program Evaluations are in-depth reviews of spe

management issues, policies, or programs. 

Systems Evaluations review system developm

acquisitions, operations, and policy, focusing 

computer systems and other technologies. 

INVESTIGATIONS 

Investigations are conducted based on alleged 

suspected wrongdoing by Department employ

contractors, recipients of financial assistance, 

others responsible for handling federal resour

Investigations that expose violations of Departm

rules and regulations or acts of fraud commi

against the U.S. government can result 

administrative sanctions and/or criminal or 

prosecution. 

74 
g 

New York Harbor courtesy 

1WTC, LLC 

Page 50 1. Photo by Barry Gardner 

NIST mechanical engineer Herb Bandy 

uses a coordinate measuring machine to 

measure the dimensions of a cylinder-shaped 

machined part. 

2. Copyright Robert Rathe 

High temperature furnaces are used to grow 

thin oxide layers on silicon wafers, dope the 

wafers with boron or phosphorus, and anneal 

the wafers. 

3. Copyright Geoffrey Wheeler 

NIST materials research engineer Tammy 

Oreskovic deposits smooth muscle cells onto a 

polymer scaffold. 

5. Copyright Robert Rathe 

Mechanical engineer Jon Pratt makes 

an adjustment to the prototype NIST 

Electrostatic Force Balance designed to 

measure nanoscale forces. 

6. Copyright Geoffrey Wheeler 

NIST physicist Sae Woo Nam holds a 

circuit used to amplify signals from the new 

photon detector. 

Page 54	 Photos courtesy DOC Photographic Servic

and ITA 

Page 60	 Photos courtesy DOC Photographic Servic

and OIG staff 

75 
76

77