IG’s Message for the Secretary

UNITED STATES DEPARTMENT OF COMMERCE

The Inspector General

Washington, D.C. 20230

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Commerce OIG Semiannual Report

September 2000

October 31, 2000

The Honorable Norman Y. Mineta

Secretary of Commerce

Washington, DC 20230

Mr. Secretary:

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

the second half of fiscal year 2000. Section 5 of the Inspector General Act requires that you transmit this

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

30 days of its receipt.

During this semiannual period, we continued to devote considerable resources to reviewing the

Department’s efforts to address what we view as its top 10 management challenges. Our major focus was

on the most visible and immediate challenge—improving the accuracy and controlling the cost of the 2000

Decennial Census. As the Census Bureau completes its remaining work over the coming months, we will

monitor its efforts and make recommendations aimed at ensuring that this decennial produces the most

accurate results possible and that the lessons learned are applied in planning for the next decennial.

We also report on the Department’s progress in meeting its other major challenges, describe three challenges on which progress has been so substantial that we are removing them from the top 10 list, and

discuss the challenges being added to the list to replace those being removed.

Finally, I want to note that in addition to our reviews designed to identify fraud, waste, and abuse, we also

continue to emphasize work aimed at preventing problems and promoting efficiency and effectiveness in

Commerce programs and activities. For example, this report summarizes the findings of two comprehensive reviews of the processes by which the Department’s operating units make discretionary financial

assistance awards and manage their interagency and other special agreements. It is my belief that by

adopting our recommendations for improving these processes, the Department can prevent problems often

associated with individual financial assistance awards and interagency agreements.

Sincerely,

Johnnie E. Frazier

Enclosure
Table of Contents

Commerce OIG Semiannual Report

September 2000 ii

IG’S MESSAGE FOR THE CONGRESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Top 10 Management Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase the accuracy and control the cost of the 2000

Decennial Census . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Successfully implement a Department-wide financial management

system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Strengthen Department-wide information security . . . . . . . . . . . . . . . . . . . . .

Successfully implement USPTO’s transition to a performance-based

organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Enhance export controls for dual-use commodities . . . . . . . . . . . . . . . . . . .

Increase the effectiveness of fishery management . . . . . . . . . . . . . . . . . . . .

Continue to improve the Department’s strategic planning and

performance measurement in accordance with GPRA . . . . . . . . . . . . . .

Strengthen financial management controls in order to maintain a “clean”

opinion on the Department’s consolidated financial statements . . . . . .

Successfully implement acquisition reform initiatives . . . . . . . . . . . . . . . . .

Update on Former Top 10 Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Resolution and Follow-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DEPARTMENT OF COMMERCE ORGANIZATION CHART. . . . . . . . . . . . . . .

AGENCY OVERVIEWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

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

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

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

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

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

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

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

Departmental Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REPORTING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

STATISTICAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TABLES AND APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DEFINITIONS OF TYPES OF OIG REVIEWS . . . . . . . . . . . . . . . . . . . . . . . . . .

GLOSSARY OF ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

FOREWORD

Operating in an environment of severe budget constraints, we have, more than ever, had to carefully focus

our efforts to achieve the greatest possible impact. A large portion of our resources have been targeted at

evaluating the Department’s success in addressing its top 10 management challenges, which are discussed in

detail in the pages immediately following. Among our major projects were reviews of the Census Bureau’s

management of the 2000 Decennial Census and “capping” reports summarizing our reviews of two major

issues that cut across multiple Commerce operating units: maximizing competition in discretionary financial

assistance programs and properly managing interagency and other special agreements.

ò We completed half a dozen reviews of decennial activities, including development of the critically

important Master Address File, warehousing and leasing operations, and the telephone questionnaire

assistance program. In addition, mindful of the need to maintain public confidence in the integrity of

the population count, we are looking into a number of allegations of fraud and other improprieties in

the conduct of the enumeration.

ò In a comprehensive review of the Department’s discretionary financial assistance programs that

grew out of a request by the Chairman, Senate Committee on Commerce, Science, and Transportation, we assessed whether the criteria, procedures, and practices used to make awards were

designed to result in merit-based funding decisions. After completing audits of 33 individual

programs operated by Commerce bureaus, we issued a capping report summarizing the results of

the audits, identifying cross-cutting issues, highlighting best practices, identifying weaknesses, and

recommending corrective actions.

ò In another capping report, we summarized the findings of 10 reviews that examined how

Commerce bureaus manage their interagency and other special agreements. In FY 1997, the

Department had more than 4,700 such agreements, involving more than $1 billion. We concluded

that although most of the agreements appeared to serve important functions related to departmental

missions, increased oversight is needed to prevent or minimize problems. Among the problems we

identified were bureaus using agreements when procurement contracts or financial assistance

awards would have been more appropriate, failing to adequately track and control agreements, and

failing to account for or recover the full costs incurred under agreements.

Through these reviews, and the many others discussed throughout this report, we have attempted to provide

objective analyses of the management and performance of Commerce programs and activities, and offer

practical, constructive recommendations aimed at ensuring that the Department operates efficiently and

effectively.
MAJOR CHALLENGES

FOR THE DEPARTMENT

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Major Challenges for the Department

Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

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

problems, concerns, and difficult issues, including

some that we view as major management challenges. In this section, we highlight what we consider to be the “Top 10 Management Challenges”

facing the Department. We also highlight the current

status of other management challenges that have

been met or, for one reason or another, are being

removed from the top 10 list.

TOP 10 MANAGEMENT

CHALLENGES

We have identified these issues as the top 10

challenges because they meet one or more of the

following criteria: importance to the Department’s

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

sizable expenditures, or need for significant

management improvements. Given the diverse

Top 10 List

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

Census

2. Successfully implement a Department-wide financial management

system

3. Strengthen Department-wide information security

4. Successfully implement USPTO’s transition to a performancebased organization

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

6. Enhance export controls for dual-use commodities

7. Increase the effectiveness of fishery management

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

performance measurement in accordance with GPRA

9. Strengthen financial management controls in order to maintain a

“clean” opinion on the Department’s consolidated financial

statements

10. Successfully implement acquisition reform initiatives
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Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Major Challenges for the Department

nature of Commerce activities, a number of these

challenges cut across bureau and program lines. We

believe that, by addressing these challenges, the

Department can enhance program effectiveness,

eliminate serious operational problems, decrease

vulnerability to fraud and waste, and achieve

substantial savings.

Increase the Accuracy and

Control the Cost of the

2000 Decennial Census

As it nears completion, the 2000 Decennial Census

remains an enormous and complex undertaking.

Some 77 million households have returned their

census forms, and follow-up attempts have been

made with another 42 million households to collect

the census data. The Census Bureau is in the

process of checking the data and preparing the

population count to be released by December 31,

2000. The accuracy of the count is crucial because,

among other things, it serves as the basis for determining how many seats each state will have in the

House of Representatives.

The bureau has also embarked on a program to

sample the population of the United States in an

attempt to measure the undercount and overcount in

the decennial and to increase the accuracy of the

counts through statistical adjustment. The bureau

proposes to make the adjusted counts available for

states to use for redistricting and for other purposes

by April 2001. In recognition of the immense challenge posed by the decennial census and its related

operations, the Administration, the Department, and

the Congress continue to provide significant oversight and management support.

Similarly, oversight of the decennial remains one of

our top priorities. Since 1994 we have issued nearly

30 audit and inspection reports on various aspects of

the bureau’s decennial efforts and have made

numerous recommendations aimed at helping to

improve the accuracy of the decennial and control

its cost. We have also conducted audits and

inspections of bureau activities and operations that

may indirectly affect the bureau’s ability to conduct

the decennial efficiently, effectively, and economically. And finally, we are actively monitoring the

bureau’s actions to address our recommendations

for correcting identified weaknesses, and are

continuing to mount an aggressive effort to audit,

inspect, and investigate issues relevant to the

accuracy and cost of the decennial. Some of the

many sites we visited during our fieldwork are

depicted on the following page.

In reviews completed during this semiannual period,

we identified and reported on a number of problems

that need to be addressed in completing the current

decennial and beginning to plan for the 2010

decennial. Specifically:

ò An evaluation of the Master Address File,

the address list used to support decennial

operations, found that the bureau’s

reengineering of the file was not completed

in time to ensure high-quality address data

for labeling questionnaires. The bureau also

needs to take additional steps to increase

data quality, improve its software engineering standards, and report on its success in

meeting housing unit accuracy and completeness goals through the mechanisms

provided for under the Government Performance and Results Act of 1993 (GPRA).

(See page 26.)

ò In response to an anonymous complaint, we

looked into allegations that decennial

workers trained at the Hialeah, Florida, local

census office had falsified data and used

inappropriate procedures while working at

three local offices in southern Florida. Our

review revealed that (1) at one office, some

enumerators had not made the required

number of visits and telephone calls to

households, (2) at another, some crew

leaders had not adequately reviewed
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Major Challenges for the Department

Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

questionnaires, and (3) at the third, quality

control procedures had not been properly

implemented. When informed of our

findings, the bureau took decisive action by

re-enumerating the questionnaires involved

to ensure the integrity of the data collected

by these offices. (See page 28.)

ò An audit of decennial warehousing

operations concluded that the bureau

needed to address two problem areas:

First, because of delays in finalizing the

contents of kits used to conduct various

field operations, items needed for the kits

were often not in stock and the delivery of

kits to the field was delayed. Second, two

bureau offices involved in specifying the

contents of the various kits had differences

in their kit specification lists. We reported

that both of these problems had the

potential to cause disruptions and delays in

field office operations. (See page 30.)

ò An inspection of decennial leasing

operations found that notwithstanding some

operational problems, the partnership

between the Census Bureau and the General

Services Administration successfully established a network of more than 1,000 decennial offices. However, the bureau needs to

thoroughly assess its overall leasing costs,

benefits, and results to determine whether a

similar partnership should be used in 2010.

In terms of lessons learned for future

decennials, we noted, among other things,

that telecommunications system planning

should have been better coordinated and file

management should have been standardized

across regions. (See page 32.)

ò A review of the Telephone Questionnaire

Assistance program, under which a

contractor developed a system to allow

respondents to call toll-free to ask questions

or complete the form over the telephone,
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Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Major Challenges for the Department

found that the bureau had not developed a

contract administration and surveillance

plan. Such a plan ensures that the government receives the quality of services called

for under the contract and pays only for

services received. (See page 34.)

ò Following the 1990 decennial, we reported

that millions of dollars in unemployment

benefits may have been unnecessarily paid

to employees because their terminations

were not adequately documented, and we

recommended corrective action. In a recent

inspection, we found that, for the 2000

decennial, in the vast majority of cases, the

bureau was doing an adequate job of

documenting the bases for such

terminations. (See page 36.)

ò Our review of the decennial special

population enumerations and questionnaire

assistance centers identified several issues to

be considered in planning for the 2010

decennial. Specifically, too little time was

allowed for enumerator training, late

delivery of supplies caused problems, some

homeless shelters and soup kitchens were

not visited by enumerators, and the

effectiveness of the assistance centers

varied. (See page 40.)

As might be expected with any undertaking of this

magnitude and complexity, our office has received a

significant number of complaints and allegations of

wrongdoing relating to decennial operations through

the OIG Hotline and other sources. These

complaints and allegations covered a wide range of

issues, from routine payroll concerns to charges of

mismanagement, discrimination, and fraudulent

enumeration. (See page 41.)

The Department continues to face challenges in

completing the 2000 decennial. As of September 30,

2000, the bureau had completed the enumeration

phase for the 120 million households in the United

States. The bureau has also completed interviews of

314,000 households selected for its Accuracy and

Coverage Evaluation operation, a quality check

survey designed to measure the accuracy of the

census through the use of statistical sampling. Over

the next few months, the bureau will, among other

things, finish processing completed questionnaires,

match the quality check results to those of the

decennial, and reconcile any differences between the

two. In addition to evaluating these ongoing efforts,

we will continue to review various other aspects of

the bureau’s efforts to address the challenge of

increasing the accuracy of the 2000 decennial.

Successfully Implement

a Department-Wide

Financial Management System

The Department has had an extremely difficult time

developing and implementing a single, integrated

financial system. For more than 10 years,

Commerce’s lack of such a system has been

reported as a material internal control weakness in

the Secretary’s annual reports to the President under

the Federal Managers’ Financial Integrity Act. It has

generally been reported that:

“Many of the Department’s financial

systems are seriously outdated and

fragmented; they are unable to provide

timely, complete and reliable financial

information; they are inadequately

controlled; and they are costly and difficult

to maintain. The financial systems, taken as

a whole, are not compliant with GAO

principles and standards, nor with

requirements of the CFO Act, the Joint

Financial Management Improvement

Program (JFMIP), or OMB.”

To correct this weakness, Commerce began

planning for the acquisition and development of a

Department-wide financial system in 1992 and

awarded a contract for system development in 1994.
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Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

However, notwithstanding large investments of time

and resources, implementation of the system, known

as the Commerce Administrative Management

System (CAMS), progressed slowly.

To improve the reliability of the system development effort, in FY 1997 the Department added

contractor support to augment the work of the

original prime contractor. Assisted by a private

consulting firm, the Department also conducted a

review of CAMS to address concerns about costs

incurred and schedule delays. In FY 1998, based on

the results of the review, the Department redefined

the composition and functionality of CAMS and

drastically revised the CAMS implementation

strategy. The Department also reorganized its

systems development project management structure.

The revised strategy called for pilot implementation

and testing of the redefined CAMS (core CAMS) at

the Census Bureau before implementing the system

at other bureaus. The pilot implementation of core

CAMS at Census was completed in June 1998. A

consulting firm under contract with the Department

to perform verification and validation of the system

at Census concluded that it met departmental

requirements and was as good as or better than

other core financial management systems that have

been implemented at other large federal agencies.

The Department’s current strategy is to replace noncompliant systems with ones that are compliant, and

develop a Department-wide financial database

(commonly referred to as the Corporate Database)

that will integrate financial data from all reporting

entities and produce the consolidated financial

statements, as required by OMB. During FY 1999,

the Department began developing the database and

completed the development of functional

requirements, basic programming, and draft user

instructions. The Department expects that the

database, when implemented, will comply with

OMB’s requirements.

Despite the serious difficulties that were encountered

with the implementation of CAMS, we believe that

FY 1999 marked a turning point for the Department

in its efforts to improve its financial management

systems and resolve this major management

challenge. Most notably:

ò The Bureau of the Census continued full

production of core CAMS; deployed access

to regional and decennial census sites;

implemented additional modules for travel,

budget, and inventory functions; and

deployed a data warehouse, making access

to financial information easier and more

timely for program managers.

ò After determining that the Department of

the Interior’s National Business Center

could not provide financial services at a

lower cost and risk than could be achieved

through the implementation of CAMS,

NOAA continued with its CAMS implementation efforts. Despite funding shortfalls

for CAMS, NOAA has restructured its

implementation schedule so that a line office

will be fully operational in October 2001,

with full implementation expected in 2003.

ò ITA entered into a cross-servicing

agreement with Interior’s National Business

Center for full-scope accounting services

that took effect in August 1999. The

center’s accounting system is compliant

with OMB and JFMIP requirements. ITA’s

prior accounting system was not compliant

with these requirements and contributed to

the bureau’s inability to produce auditable

financial statements in 1998.

ò EDA began using CAMS as the official

accounting system for its financial assistance

programs on October 1, 1999.
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Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Major Challenges for the Department

ò The Office of the Secretary, which is

serviced by NIST, will implement CAMS

early in FY 2001. After successful operation

of the system there during the first half of

FY 2001, NIST plans to implement CAMS

at its remaining client sites by October 1,

2001. NIST plans to complete system

implementation by the end of FY 2003.

Future improvements will require both significant

resources and the commitment and continued

attention of senior management. By FY 2004, the

Department plans to have all 14 of its reporting

entities operating under compliant financial

management systems integrated with the Corporate

Database.

Given the large amounts of time and money that

have already been invested in CAMS implementation, the critical need for a reliable financial

management system, and the remaining obstacles to

be overcome in implementing the system, we believe

that it is important to closely monitor and review

selected aspects of the Department’s progress in

implementing core CAMS in its reporting entities.

For example, during this semiannual period, we

conducted a review of the application change

controls in place at the CAMS Support Center, and

determined that improvements were necessary (see

page 77). Department officials generally agreed with

our assessment, and we will continue to coordinate

with them to resolve these issues. Additionally, in

the coming fiscal year, we plan to review CAMS

management and the issues associated with the

system’s full deployment.

Until the Department is in compliance with the

federal requirement for a single, integrated financial

system, we will view the Department’s efforts to

develop such a system as a major challenge

warranting the close attention of senior officials and

continued oversight by our office.

Strengthen Department-wide

Information Security

Protecting the Department’s computer systems from

cyber-attack is a significant challenge today and will

continue to be so in the future. The number of

cyber-attacks on our nation’s computer systems has

grown dramatically over the last few years and is

projected to grow at an even faster rate in the

future. The sophistication of such attacks also

continues to increase, posing a severe threat to

computer system security. Research has shown that

cyber-attacks are carried out not just by hackers, but

by foreign governments and organized criminal and

terrorist groups with harmful intent.

A large number of interconnected, widely distributed

computer systems support vital Commerce

operations and provide essential services to the

public. As the Department’s systems have become

more widely distributed and interconnected, security

vulnerabilities have also increased, creating a need to

improve procedural and technical security measures.

Strong computer security measures are vital to

protect the secrecy and privacy of information, the

integrity of computer systems and their networks,

and the availability of services to users.

In August we completed a review of the

Department’s initial implementation of Presidential

Decision Directive 63, which was created in part to

address the growing cyber-threat (see page 75). This

directive establishes a national program to assure the

security of cyber-based systems essential to the

operations of the U.S. economy and government.

The review was the first of a planned two-phase

assessment of cyber-related critical infrastructure

protection performed under the auspices of the

President’s Council on Integrity and Efficiency.

The first phase covered the Department’s critical

infrastructure protection plan, the prioritized list of

computer systems identified as critical to the
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Major Challenges for the Department

Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Department, and system security vulnerability

assessments. The second phase will evaluate the

Department’s plans and strategies for mitigating

system security vulnerabilities, responding to a

coordinated cyber-attack, obtaining any additional

resources needed to implement vulnerability

mitigation plans, and recruiting, retaining, and

educating information security personnel.

In addition, we are currently evaluating the

Department’s information technology security

program policy and management. Included in the

evaluation are selected operating units’ program-,

issue-, and system-level policy and management.

We will report on the results of this review in our

next semiannual report. We are also evaluating the

security of the Department’s preparation and release

of the Principal Economic Indicators.

The reliability of computerized data and of the

systems that process, maintain, and report financial

data is also a major concern. Therefore, as part of

the Department’s FY 2000 financial statements

audits, we contracted for and are continuing to

oversee security reviews of each of Commerce’s

financial management systems and their related

networks. These reviews include “intrusion

detection analysis”—also called “penetration

testing”—of selected bureaus and use as a guide

GAO’s Federal Information System Controls Audit

Manual.

The GAO manual provides guidance on control

objectives that auditors should consider when

assessing and evaluating the reliability of computergenerated data that supports financial statements.

This assessment includes a review of the physical

security and logical access controls designed to

prevent or detect unauthorized access or intrusion

into systems and networks. Strong systems security

controls are considered essential for protecting the

integrity and confidentiality of sensitive files and

data. We will report on the findings of these systems

security reviews during the next semiannual period.

Successfully Implement

USPTO’s Transition to a

Performance-Based Organization

The American Inventors Protection Act of 1999

(P.L. 106-113), which was signed into law on

November 29, 1999, established the U.S. Patent and

Trademark Office as a performance-based

organization (PBO), which provides it with greater

flexibility and independence so that it can be run

more like a business. As a PBO, USPTO has

increased authority and responsibility for decisions

regarding the management and administration of its

operations, and it exercises more independent

control of its budget allocations and expenditures,

personnel decisions and processes, and procurement

operations. USPTO’s transition to a PBO officially

began on March 29, 2000.

Despite the act’s potential benefits, the transition is a

formidable undertaking. USPTO must formulate the

necessary personnel, procurement, and administrative policies and develop a performance-based

process with standards for evaluating costeffectiveness, while meeting its performance goals

under GPRA. USPTO management views the

passage of the act and the transition to a PBO as

critical in addressing two primary challenges, both of

which have been the subject of OIG reviews in

recent years.

First, USPTO has experienced a massive increase in

patent and trademark filings and appeals, leading to

the hiring of hundreds of new examiners and

administrative judges. In FY 1999, USPTO received

more than 272,000 patent applications and 297,000

trademark applications, representing 13-percent and

27-percent increases, respectively, over FY 1998,

and continuing a trend of double-digit percentage

increases in recent years. To address this increased

demand on its human resources, USPTO hired more

than 1,500 patent examiners and 200 trademark

examiners during FY 1998 and 1999.
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Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Major Challenges for the Department

In prior audits of the Office of Patent Publications

(see September 1999 issue, page 58) and the Board

of Patent Appeals and Interferences (see September

1998 issue, page 64), we reported on some of the

issues facing USPTO in connection with the hiring

and training of these examiners and additional

administrative judges to hear examination appeals.

USPTO’s new status will allow it greater flexibility

to design performance and retention programs with

incentives for these highly skilled employees, who

are often recruited by private sector companies, law

firms, and search firms. According to USPTO

management, the PBO transition will enable it to

more efficiently manage its resources and make the

rapid decisions needed to process the increased

number of patent and trademark filings and appeals

in a timely manner, while maintaining high quality.

Second, as they move through this transition,

USPTO managers, along with the General Services

Administration, will also have the formidable

challenge of overseeing one of the largest real estate

ventures that the federal government will undertake

in this decade—the construction of USPTO’s new

2.4 million-square-foot, five-building office complex

in Alexandria, Virginia. When completed in 2004,

the new complex will provide space for USPTO

employees and operations currently scattered among

approximately 18 buildings in nearby Crystal City.

Now that GSA has awarded the development

contract, USPTO’s challenge is to aggressively hold

the line on project costs, including remaining within

the legislatively mandated cap on the cost of completing the build-out of the building’s interior once

the structure is in place. After construction starts in

early calendar year 2001, we will conduct follow-up

work in order to stay abreast of USPTO’s project

management and the cost control measures it plans

to put in place for the building structure, interior

build-out, and new furniture.

USPTO faced enormous challenges in trying to

deliver essential information technology capabilities

before the enactment of the PBO legislation. With

its increased focus on operational efficiency and new

provisions requiring information technology solutions, the act will intensify the demands placed on

automated systems and further strain USPTO’s

ability to deliver systems.

For example, under the new law, patent applications

that have been filed abroad must be published within

18 months of their U.S. filing date, and USPTO has

decided to publish the applications in electronic

form. Implementation of this and other provisions of

the law will require new and enhanced systems. We

are currently completing an evaluation of the implementation of USPTO’s new search systems. As we

will report during the next semiannual period,

USPTO’s experience with these systems offers

important lessons for improving systems acquisition

and development in the future.

Address the Issues Related

to NTIS’s Mission and

Financial Viability

In recent years, questions have been raised by

various sources about NTIS’s future—namely:

ò What should the agency’s role and

mission be in the 21st century?

ò Can it support itself as currently authorized

and, if not, what should be done?

In our September 1999 issue (see page 7), we

discussed our concern that disappointing operating

results continued to call into question NTIS’s ability

to be self-sustaining. In FY 1999, total revenue

dropped by $3.4 million to $33.3 million, and only

by taking aggressive cost-cutting actions, such as

transferring some of its staff to other Commerce

agencies, was NTIS able to avert a loss and report a

surplus of $652,000 at the end of the year. NTIS is

projecting a surplus of over $2 million for FY 2000,

which agency officials attribute primarily to reduced

spending on key information technology.
10

Major Challenges for the Department

Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

While drastic cost-cutting measures may resolve

NTIS’s problems in the short-run, they cannot help

the agency solve its major problem—a steady

decline in the sales of its products and services

caused by fundamental changes in the marketplace.

To address these NTIS-related issues, the

Department formed a working group made up of

senior managers from the Department and the

Technology Administration. Based on the group’s

efforts, the Department developed a legislative

proposal that would provide for closing NTIS by the

end of FY 2000 and transferring its collection of

scientific, technical, business, and engineering

publications to the Library of Congress to ensure

permanent public access to such documents.

Due to congressional concerns, the closure was

delayed pending the outcome of both a GAO review

of NTIS’s functions and a comprehensive study by

the U.S. National Commission on Libraries and

Information Science of overall U.S. government

public information dissemination. The results of the

GAO review are scheduled to be provided to the

Congress by mid-February 2001, and the results of

the Commission’s review are scheduled to be

released on December 15, 2000. The Commission

has already issued one position paper and held

public hearings on the matter. The continuing

challenge for the Department is to work closely with

the Congress and other stakeholders to reach

agreement on the future of NTIS.

Enhance Export Controls for

Dual-Use Commodities

The United States controls the export of certain

goods and technologies for national security and

foreign policy (including nonproliferation) purposes.

Within Commerce, the Bureau of Export

Administration issues licenses authorizing the export

of certain dual-use commodities—goods and

technologies that have both civilian and military

uses. Dual-use controls are a subject of continuing

controversy, generating a wide range of opinions on

how well the government’s export control policies

and practices balance the need to protect U.S.

national security and foreign policy interests with the

desire not to unduly hamper U.S. trade opportunities

and competitiveness. Striking this balance can pose a

significant challenge.

To strengthen the U.S. government’s export

licensing and enforcement process, new

comprehensive legislative authority is needed to

replace the Export Administration Act of 1979 and

implement effective export control policies. The act

was passed during the Cold War primarily to help

block the export of critical goods and technologies to

the Communist bloc countries for national security

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

threats to U.S. national security and foreign policy

goals posed by rogue countries and terrorist groups

who seek to acquire weapons of mass destruction

and weapon delivery systems.

A comprehensive revision of the act is also needed

to strengthen BXA’s regulatory authority and

penalties, which have been weakened under interim

export control regulations, and to demonstrate that

the United States is firmly committed to maintaining

strong export controls as it encourages other

countries to do the same.

Given the importance of export licensing controls to

national security, we have devoted considerable

attention to the challenges facing BXA in issuing

licenses authorizing the export of certain goods and

technologies that have both civilian and military

uses. In 1993 we participated in a special interagency review of export licensing processes for

munitions and dual-use commodities (see September

1993 issue, page 15). The 1993 report highlighted

the need for more transparency in the dual-use

export licensing process. In response to this need, in

1995 the President issued Executive Order 12981,

which expanded the authority of the Defense and

State Departments and other involved federal

agencies to review all export license applications.
11 Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Major Challenges for the Department

In October 1998, in response to a request from the

Senate Governmental Affairs Committee, the OIGs

of the Departments of Commerce, Defense, Energy,

State, and the Treasury, and the Central Intelligence

Agency, undertook a follow-up review to evaluate

the status of actions taken to implement the

recommendations from the 1993 review. We also

evaluated the effectiveness of the Department’s

current policies, procedures, and practices for

licensing dual-use goods and technologies. In our

report, issued in June 1999, we stated our conclusion that the multi-agency licensing process for U.S.

dual-use exports is balanced and appropriately

considers divergent policy views and information in

deciding on export license applications (see

September 1999 issue, page 17).

While our report described significant areas of

improvement in export controls since our 1993

work, it also identified some weaknesses in the

licensing process that still need to be addressed.

Specifically, we found that (1) more transparency is

needed in the commodity classification and license

appeals processes, (2) the intelligence community

does not review all dual-use export license

applications or always conduct a comprehensive

analysis of applications it does review, (3) license

applications need to be screened against a key

database maintained by the U.S. Customs Service,

(4) BXA needs to improve its monitoring of license

conditions with reporting requirements, and (5) BXA

needs a new automated system to process export

license applications efficiently and effectively.

In October 1999, the National Defense Authorization Act for FY 2000 directed the same six OIGs to

report to the Congress by March 30, 2000, on the

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

sensitive U.S. technology and technical information

by countries and entities of concern. The act also

requires a similar report to be provided annually until

the year 2007.

To meet the first year reporting requirement, each

OIG reviewed its agency’s export controls and

counterintelligence measures and reported on the

results. Two interagency reports highlighting crosscutting issues were also prepared. Our report

focused on three activities that the Commerce

Department, principally through BXA, carries out or

participates in to help prevent the illicit transfer of

sensitive U.S. technology: deemed export controls,

the Visa Application Review Program, and the

Committee on Foreign Investment in the United

States (see March 2000 issue, page 21).

To comply with the second year requirement of the

act, the current interagency OIG review is focused

on the Commerce Control List and the U.S. Munitions List (maintained by the State Department). In

Commerce, we plan to assess BXA’s policies and

procedures for developing, maintaining, and revising

the dual-use Commerce list in order to adequately

protect against the export of militarily sensitive

technologies and commodities. In particular, we will

evaluate the process for determining whether an

item goes on the Commerce Control List or the U.S.

Munitions List, as well as the policies and procedures for considering amendments and revisions to

the Commerce list. In addition, we will determine

whether there is still a need for greater transparency

in Commerce’s commodity classification process, as

noted in our June 1999 report. Finally, we will

determine whether there is a need for transparency

in State’s commodity jurisdiction process.

However, the challenge continues for BXA, as well

as the Administration and the Congress, to pass a

comprehensive revision of the Export Administration

Act and to focus the federal government’s licensing

and enforcement efforts on targeting those exports

that present the greatest proliferation and national

security risks and on streamlining or eliminating

controls that unnecessarily hamper trade. Through

our export control reports, we hope to play a useful

role in congressional and public debates on the

reauthorization of the Export Administration Act and

the revamping of the nation’s export controls. We
12 Commerce OIG Semiannual Report

September 2000

Major Challenges for the Department

IG’s Message for the Congress

will continue to monitor BXA’s efforts to improve

dual-use export controls through the annual reports

required under the Defense Authorization Act.

Increase the Effectiveness

of Fishery Management

Ensuring healthy stocks of fish and other marine

animals in the coastal waters beyond each state’s

jurisdiction is a federal responsibility carried out

principally by NOAA’s National Marine Fisheries

Service (NMFS) and eight regional fishery

management councils under the Magnuson-Stevens

Fishery Conservation and Management Act of 1976,

as amended. Among other things, NMFS and the

councils track the condition of fish and other marine

species, determine the levels of catch that will

provide the greatest benefit to the nation, and

measure the economic impacts of fishery regulations

and policies. Measures to manage various species

are generally developed by the councils, subject to

review by NMFS and approval by the Secretary of

Commerce. These measures are often controversial

because they impose fish quotas that affect both the

survival of a species and the economic health of the

fishing industry and many coastal communities.

A recent GAO report concluded that NMFS appears

to be using the best available scientific information

to determine the condition of fish and other marine

species, that it appropriately considers the economic

impacts of conservation and management measures

on fishing communities, and that it has technically

met the requirements of the Magnuson-Stevens Act

by identifying essential fish habitats and developing a

consultative process for addressing potential adverse

impacts to those habitats. However, GAO concluded

that improvements were needed in all three areas

and made recommendations to strengthen NMFS’s

data collection efforts, improve communications

between the government and the fishing industry,

improve economic analysis, and identify the costs of

achieving compliance with the act’s fish habitat

provisions.

We are currently focusing our attention on NMFS’s

leadership role in the Northwest Salmon Recovery

Effort—a combined response by various federal

agencies, state governments, tribal governments, and

other organizations to restore salmon runs in the

Columbia River Basin that have been listed for

protection under the Endangered Species Act of

1973. The primary objective of our review is to

assess how well NMFS has fulfilled its leadership

responsibility under the act and how effectively it

has communicated and collaborated with the other

participants.

Continue to Improve the

Department’s Strategic Planning

and Performance Measurement in

Accordance with GPRA

Despite the inherent difficulties encountered in

determining how to best plan and measure its

performance in accordance with GPRA, the

Department has continued to make progress in

meeting this challenge. The Department submitted

its third Annual Performance Plan, for FY 2001, in

February 2000 and its first Annual Program

Performance Report, for FY 1999, in March 2000.

The submission of the Department’s first Annual

Program Performance Report brought to a close the

first full cycle of GPRA activity that began in 1996.

Also, the Department submitted its initial Accountability Report, which reports both financial and

performance results, for FY 1999, on March 1,

2000.

While the Congress, GAO, and the OIG all agreed

that the Department’s FY 2000 Annual Performance

Plan was significantly better than its FY 1999 plan,

it was also recognized that there was room for

additional improvement. Of particular concern was

the need for the Department to ensure that the data

to be used in measuring performance is accurate,

complete, and reliable. The FY 2001 plan and

FY 1999 performance report reflect the
13 Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Major Challenges for the Department

Department’s continued efforts to improve strategic

planning. Additional improvements could be made

to ensure that reported data is credible, modify the

system for scoring and communicating performance

results, and more fully discuss performance targets

not met and efforts to improve performance. While

the Department has been responsive to past

criticisms of the documents it has produced to meet

GPRA requirements, continued management

attention is essential.

We have regularly provided advice and assistance to

the Department on the implementation of GPRA, as

well as on the linkage between the act’s required

performance reporting and the financial reporting

contained in the annual financial statements. We

have made presentations to departmental officials on

the importance of ensuring that the information

related to performance results can be relied upon,

and have provided informal comments on various

GPRA-related documents. We worked with the

Department in its efforts to develop an Accountability Report that contains a statement of net cost

that accurately reflects the Department’s activities,

and a management discussion and analysis that

reports its most significant performance results. In

response to a May 2000 request, we provided our

analysis of the Department’s FY 1999 GPRA

Annual Performance Report and related

performance plans to the Chairman of the Senate

Committee on Governmental Affairs.

A substantial challenge for the Department is to

ensure that its second strategic plan provides

appropriate focus and direction for its future actions.

The Department’s initial strategic plan drew criticism

from both the Congress and GAO. Also, the

Department needs to address concerns raised about

its initial annual performance report.

We will continue to monitor the Department’s

efforts to implement GPRA, provide advisory

comments on GPRA-related documents, and, where

resources permit, perform targeted reviews of

GPRA-related issues. We recently completed audits

of performance measurement and reporting at BXA

and NTIA, offering recommendations for improving

the reporting of performance information and for

strengthening internal controls (see pages 21 and

58). We also have ongoing an audit designed to,

among other things, identify the best practices for

verifying and validating performance measures at

business centers operated by EDA, ITA, MBDA,

and NIST. Several other reviews, while not

necessarily directed at GPRA implementation, have

identified issues related to the identification of

performance measures and the reporting of performance information (see, for example, pages 26

and 61).

Strengthen Financial Management

Controls in Order to Maintain a

“Clean” Opinion on the

Department’s Consolidated

Financial Statements

The Chief Financial Officers Act of 1990, the

Government Performance and Results Act of 1993,

the Government Management Reform Act of 1994,

and the Federal Financial Management Improvement

Act of 1996 were designed to improve the financial

management practices of federal agencies. The

statutes require audited financial statements that

present an entity’s financial position and results of

operations, as well as other information needed by

the Congress, agency executives, and the public to

assess management’s performance.

Despite many obstacles—including the absence of a

single, integrated financial management system—the

Department received its first-ever unqualified (clean)

opinion on its FY 1999 consolidated financial statements. This was a noteworthy achievement, largely

attributable to the leadership and commitment that

the Secretary, the Deputy Secretary, and the Chief

Financial Officer demonstrated in working with

bureau managers and our office.
14 Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Although substantial improvements have been made

in financial management, further improvements are

essential in order for the Department and its

reporting entities to correct the material weaknesses

and other deficiencies identified in the FY 1999

audits and to maintain their clean opinions in future

years. (Material weaknesses are serious flaws in the

design or operation of an internal control component

that increase the risk that errors, fraud, or noncompliance in material amounts may occur and not

be readily detected.)

The FY 1999 audits identified 7 material

weaknesses, 12 reportable conditions, and several

instances of noncompliance with laws and regulations that need to be resolved at the reporting entity

level. Though these numbers represent a significant

decrease from previous years, these matters still

represent obstacles that the Department must

overcome to avoid jeopardizing the clean opinions.

The Department recognizes that ongoing efforts are

needed to create a financial management

environment that provides timely, accurate financial

and performance information and complies with

federal laws and regulations. In its FY 1999

Accountability Report, the Department describes its

three major financial management initiatives:

ò Improving financial accountability by

strengthening the integrity of financial

operations and providing guidance to

reporting entities.

ò Improving financial management

systems through the CAMS development

project.

ò Developing human resources by

establishing financial leadership positions at

all bureaus and developing a professional

education program.

We are pleased with the Department’s continued

focus on strengthening financial management controls. However, maintaining clean audit opinions on

the Department’s consolidated financial statements,

as well as all reporting entity statements, is a major

challenge.

Successfully Implement

Acquisition Reform Initiatives

The Department of Commerce and other federal

agencies are increasingly relying on contractors to

provide the goods and services essential to their

operations. The Department spends more than

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

appropriations, through large contracts and

simplified acquisitions.

The Federal Acquisition Streamlining Act of 1994

substantially revised federal procurement law. The

act encouraged the use of commercial items;

performance-based service contracting; and past

performance as a major evaluation criterion for

award. It also reduced paperwork, permanently

raised the threshold for simplified acquisition

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

promoted electronic commerce.

The Federal Acquisition Reform Act of 1996

provided for governmentwide acquisition reform,

including the repeal of the Brooks Act (covering

automated data processing procurements), shortened

the time allowed for GAO to issue bid protest

decisions, revised the Procurement Integrity Act,

and fostered the professionalism of acquisition

personnel. The Information Technology Management Reform Act of 1996 provided new guidance

on the procurement of information technology

resources. These two laws were combined and

renamed the Clinger-Cohen Act of 1996.

Major Challenges for the Department
15 Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Major Challenges for the Department

Although these new laws aim to promote greater

efficiency and procurement uniformity among

government agencies, GAO recently reported some

concerns about the implementation of acquisition

reform. Specifically, GAO reported problems in the

use of government-wide agency contracts

(GWACs), finding that agencies have often

employed various tactics to avoid holding required

vendor competitions, essentially making sole-source

awards. In addition, agencies have exhibited a

tendency to make awards to large businesses,

thereby reducing the number of awards to small and

disadvantaged businesses.

In an ongoing study, the Office of Federal

Procurement Policy has also identified weaknesses

in procurement rules that have enabled some

agencies to avoid competition, particularly in the use

of GWACs and other multiple award contracts. That

office has serious concerns about service contracting, particularly many agencies’ lack of focus on

results. Likewise, we have identified specific

problems at Commerce concerning improper use of

task order contracts, inadequate documentation of

market surveys, insufficient planning for contract

administration and monitoring, and inadequate

administration of the purchase card program.

The Department has actively participated in the

implementation of acquisition reform. Commerce

developed a streamlined acquisition process known

as CONOPS, which has reduced procurement lead

times. In addition, performance-based service

contracting has been used in acquisitions for the

2000 Decennial Census, and we recently completed

a review of one such contract for telephone

questionnaire assistance (see page 34). The purchase

card program was piloted by the Department of

Commerce in 1986, and the Department continues

to be a major participant in the program. More

recently, the Department awarded the Commerce

Information Technology Solutions contract (known

as COMMITS), the only GWAC for information

technology services set aside for small,

disadvantaged, and women-owned businesses.

The purpose of acquisition reform and its

streamlining initiatives is to reduce the time and

money spent in acquiring needed goods and services

by relying on the competitive marketplace. At the

same time, the added focus on past performance

and performance-based service contracting requires

a new approach to monitoring contractor

performance by relying on performance-based

measurement tools, such as earned value and risk

management. It also requires acquisition teams

(including the contracting officer and the contracting

officer’s technical representative) to develop

specialized skills as business managers. Given the

general concerns expressed by GAO and the Office

of Federal Procurement Policy, and the specific

concerns voiced by our office, we believe that the

implementation of acquisition streamlining initiatives

within the Department of Commerce warrants extra

scrutiny.

UPDATE ON FORMER

TOP 10 CHALLENGES

Given the dynamics, diversity, and complexity of

Commerce programs and activities, we maintain the

top 10 list on an ongoing basis, and as challenges are

met or greatly reduced in significance, we remove

them from the list and replace them with other

challenges. It should be noted, however, that even

though a challenge is removed from the top 10 list, it

may still warrant management attention. We are

pleased to report that the three challenges discussed

in the following sections have been removed from

our top 10 list as of September 30, 2000.
16 Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Major Challenges for the Department

Implementation of AWIPS Marks

the Completion of NWS’s

Modernization Program

With the successful implementation of the Advanced

Weather Interactive Processing System (AWIPS) in

August, the National Weather Service (NWS)

completed its modernization effort, resulting in

dramatic improvements in weather services and to

its radar systems, surface observing systems,

information systems, and communication networks,

as well as consolidation of its field office structure

with reductions in staffing levels. Throughout this

$4.5 billion modernization program, NWS has faced

daunting technical and management challenges.

Consequently, we have performed continuing

oversight and reported on NWS modernization

issues on an ongoing basis in our semiannual reports.

Progress on the other aspects of the modernization

allowed us to narrow our focus to successful

AWIPS implementation in 1998.

AWIPS provides the capability to acquire data from

advanced observing systems and to give forecasters

tools to rapidly analyze the data, integrate it with the

information provided by weather service guidance

centers, and prepare timely and accurate warnings

and forecasts for dissemination to the public and the

media. NWS completed AWIPS with the commissioning of the Anchorage river forecast center on

August 17. Beginning in January of this year, 139

AWIPS systems were commissioned at 121 weather

forecast offices, 13 river forecast centers, and 5

national centers. As a result of NWS’s achieving this

milestone, we are removing AWIPS as a top 10

management challenge.

The primary commissioning goals were to confirm

that AWIPS provides each NWS site with the

functionality and support needed to conduct weather

and river forecasting operations and to confirm that

AWIPS can replace older and obsolete operational

systems. As AWIPS was commissioned at each site,

it became the official system for supporting office

operations. Additionally, older systems, including the

aging Automation of Field Operations and Services,

ceased to be used operationally and could be

removed from the field.

Due to protracted AWIPS development, which

resulted in significant cost growth and deployment

delays, a congressional spending cap was imposed.

NWS management concluded that the development

and deployment of some of the planned capabilities,

including advanced meteorological capabilities, could

not be completed within the spending cap. Thus, the

capabilities needed to achieve office staff reduction

goals and to replace the Next Generation Weather

Radar user workstations are now under development. These capabilities are currently scheduled for

incremental deployment beginning in 2001 and

ending in 2002.
17 Commerce OIG Semiannual Report

September 2000

IG’s Message for the Congress

Major Challenges for the Department

Private Sector Participation

in NOAA’s Marine and

Aeronautical Data Gathering

Has Increased

The Congress, the OIG, the General Accounting

Office, and others have long been concerned about

how NOAA can most efficiently and effectively

obtain its marine and aeronautical data. In recent

years, NOAA has made considerable progress in

expanding the private sector’s participation in this

effort. As a result, this challenge has been removed

from our top 10 list as of September 30, 2000.

However, it is important that all interested parties,

including NOAA management, departmental officials, and our office, continue monitoring NOAA’s

actions to ensure continued private sector participation in marine and aeronautical data gathering.

While recognizing that NOAA has made progress in

expanding private sector participation in acquiring

hydrographic data, we will, for example, continue to

monitor its acquisition of four new fishery research

vessels. We remain concerned that NOAA’s detailed

data acquisition plan for its fisheries mission does

not specifically indicate how the data needed by the

various fisheries programs would be collected if the

additional vessels are not acquired. Rather, NOAA

has focused its efforts on designing, owning, and

operating the new vessels potentially at the expense

of thoroughly assessing or aggressively pursuing

other alternatives for meeting its fisheries data

collection needs. Funding for one vessel was

approved by the Congress in FY 2000; however,

NOAA’s plan does not address the possibility that

the bureau will not receive follow-on funding for the

remaining vessels in FYs 2002-04. We believe that

the absence of such a contingency plan may put

NOAA’s fisheries programs at risk.

NOAA’s Aircraft Operations Center, which is

responsible for gathering atmospheric, oceanographic, and other data for various of the agency’s

programs, operates a fleet of 14 aircraft, composed

of 2 heavy craft, 1 mid-size jet, 8 light fixed-wing

aircraft, and 3 helicopters. An OIG audit of

NOAA’s light aircraft fleet concluded that the full inhouse cost of operating NOAA’s light fixed-wing

aircraft and helicopters averaged 42 percent more

than the cost of operating similar aircraft in the

private sector (see September 1998 issue, page 44).

We recommended that NOAA privatize its light

aircraft operations.

NOAA did not agree with our position, believing that

its light aircraft are cost competitive and that no

savings would be achieved by using other sources to

meet its data collection needs. For more than three

years, we have worked with NOAA officials to

reach an agreement on an approach for addressing

our concerns. We are pleased to report that NOAA

has provided us with its action plan, with which we

concur, for resolving the outstanding recommendations. The plan includes actions promoting greater

use of private sector contractors and the potential

disposal of costly and underutilized aircraft.
18

Major Challenges for the Department

IG’s Message for the Congress

Most Commerce Discretionary

Financial Assistance Programs

Are Administered on a

Competitive Basis

In the last several issues of this report, we identified

maximizing competition in Commerce bureaus’

discretionary financial assistance programs as a

major challenge for the Department. We are pleased

to report that this challenge is close to being met as a

result of the Department’s and the bureaus’ constructive actions in response to the findings and

recommendations we made in a series of individual

reports on bureaus’ discretionary financial assistance

programs, and the Department’s commitment to

issue a comprehensive grants and cooperative

agreements manual that will institutionalize the

recommended improvements.

Discretionary financial assistance programs involve a

significant portion of the Department’s budget and

operations. Seven Commerce operating units

administer 72 financial assistance programs that

provide a total of about $1 billion a year to state and

local governments, educational institutions, other

organizations, and individuals. Over the past two

Commerce OIG Semiannual Report

September 2000

years, we have conducted a comprehensive review

of the criteria, procedures, and practices used to

make funding decisions under discretionary financial

assistance programs. Our review focused on the

FY 1997 awards processes of 33 programs we

classified as “full discretion” programs, which we

defined as those whose authorizing legislation places

no significant limitations on the Department’s ability

to independently determine the recipients or funding

levels of the awards made under the programs.

These programs accounted for more than 1,700

awards and $801 million in FY 1997 funding.

Our review found that most Commerce discretionary financial assistance programs are competitively

administered and employ processes that are designed

to result in merit-based funding decisions. We issued

reports on our audits of the 33 programs, as well as

a “capping” report, which summarized the results of

the individual audits; identified cross-cutting issues;

highlighted “best practices”; identified weaknesses in

departmental policies, procedures, and practices; and

offered recommendations for improvement.

Because we believe that the Department’s challenge

of maximizing competition is being met by its

planned improvements, we now intend to shift our

focus by increasing the number of our audits and

evaluations of financial assistance recipients and

programs. These audits will determine whether costs

claimed by recipients are reasonable, allowable, and

allocable, and will measure program outcomes in

order to determine whether the benefits being

derived from these programs are commensurate with

the substantial funds being invested in them.

92% of Commerce discretionary financial

assistance funds were awarded under

competitive programs in FY 1997

Competitive

Non-competitive
19

IG’s Message for the Congress

Commerce OIG Semiannual Report

September 2000

RESOLUTION AND FOLLOW-UP

The Inspector General Act Amendments of 1988 require this report to present those audits issued before the

beginning of the reporting period (April 1, 2000) for which no management decision had been made by the

end of the period (September 30, 2000). The following table presents the overall status.

The performance audit deals with our review of NOAA’s discretionary financial assistance awards made

under OAR’s Climate and Atmospheric Research Program. We have reviewed NOAA’s audit action plan,

but do not concur with some of the proposed actions (see page 56).

The financial assistance audit, which has been unresolved for more than a year, involves an EDA grant

award. Because regional EDA and OIG offices have been unable to reach agreement on the issues raised by

this audit, we have requested that the matter be forwarded to headquarters for resolution (see page 25).

Department Administrative Order 213-5, “Audit Resolution and Follow-up,” provides procedures for

management to request a modification to an approved audit action plan, or for a financial assistance recipient to appeal an audit resolution determination. The following table summarizes modification and appeal

activity during the reporting period.

 Type of Report Unresolved

 Performance 1

 Financial Assistance 1

Actions Pending (April 1, 2000) 0 7

Submissions 0 5

Decisions 0 7

Actions Pending (September 30, 2000) 0 5

Report Category Modifications Appeals
Department of Commerce

Organization Chart

Office of the

Secretary

National

Telecommunications

and Information

Administration

International

Trade

Administration

Minority Business

Development

Agency

Bureau of

Economic

Analysis

Bureau of

the Census

National Institute

of Standards

and Technology

National

Technical

Information Service

Technology

Administration

Economics and

Statistics

Administration

Bureau of

Export

Administration

Economic

Development

Administration

National Oceanic

and Atmospheric

Administration

U.S. Patent and

Trademark

Office

Marine

and Aviation

Operations

NESDIS

Oceanic

and Atmospheric

Research

National

Marine Fisheries

Service

National

Ocean

Service

National

Weather

Service

20 Commerce OIG Semiannual Report

September 2000
Bureau of

Export Administration

The Bureau of Export

Administration is primarily

responsible for the administration

and enforcement of the nation’s

system for controlling exports of

sensitive dual-use goods and

technologies. Under the Export

Administration Act and regulations,

BXA’s major functions include

formulating and implementing

export control policy; processing

export license applications; conducting various policy, technical,

and economic analyses; promulgating regulations; conducting

industry outreach; and enforcing

the act and regulations.

Export Administration implements U.S. export control and

nonproliferation laws and policies

through export licensing, commodity classifications, and advisory

opinions; technical, economic,

foreign availability, and policy

analyses; promulgation of regulations; and industry outreach. It

also conducts various defense

industry base activities.

Export Enforcement participates

in reviews of export license applications and conducts criminal and

administrative investigations of the

export control portions of the

Export Administration Act and

regulations. It also administers and

enforces the antiboycott provisions

of the act and regulations.

21 Commerce OIG Semiannual Report

September 2000

Reporting of Performance Measures

Needs Improvement

Under the requirements of GPRA and the CFO Act, as amended by the

Government Management Reform Act of 1994, the Department, and its

operating units, such as BXA, report on their performance. The Department’s FY 1999 Annual Program Performance Report was its initial effort

to report and comment on the performance of its components. The

Department’s FY 2001 Annual Performance Plan, which sets targets for

performance, was its third annual plan. BXA’s performance data was

presented in both of these documents, as well as in the Department’s

FY 1999 Accountability Report and in the bureau’s financial statements.

As the Department’s principal adviser on export control policy issues,

BXA promotes U.S. national and economic security, public safety, and

foreign policy interests by managing and enforcing the Department’s

security-related trade and competitiveness program. BXA included 10

performance measures in the Department’s FY 1999 performance report

and FY 2001 performance plan, and 2 of these measures were also

included in the FY 1999 Accountability Report (see table below).

Performance Measure

FY 1999

Accountability

Report

FY 1999

Performance

Report

FY 2001

Performance

Plan

High-risk transactions deterred P P P

Processing time for license

applications P P P

International cooperative exchanges P P

Investigations completed P P

End-use visits P P

License decisions P P

Export assistance

conferences/seminars

P P

Enforcement outreach visits P P

Investigations accepted P P

Strategic industry analyses P P
Bureau of Export Administration

Export

Administration

Bureau of

Export

Administration

Export

Enforcement

22 Commerce OIG Semiannual Report

September 2000

To be useful to the Congress, OMB, and the public, reported performance

data must be credible. The OIG conducted an audit of BXA’s efforts to

ensure that its reported performance results were accurate, consistent, and

reliable. Our findings are summarized as follows:

ò Reporting of performance data can be improved. We found

that performance results were not always reported consistently in

different documents. Among the reasons for this lack of

consistency were insufficient coordination between the offices

responsible for preparing the various documents, inadequate

review of documents before publication, and the extraction of data

from automated systems before all relevant data had been

captured. In addition, when there were valid reasons for changing

performance results between reports, such differences and the

reasons for them were not disclosed.

ò Improvements in internal controls are needed. We also

found that supporting documentation for performance results

needed strengthening. During our testing of 5 of the 10 BXA

performance measures, we found that supporting documentation

needed to be strengthened for 2 measures and that procedures

such as reconciliations were needed to ensure the accuracy of

performance data for a 3rd measure.

We recommended that BXA establish procedures to ensure that performance results are reported accurately and consistently and that any

differences between reports are disclosed and explained. We also

recommended that BXA establish an effective internal control structure to

ensure that adequate documentation is maintained to support performance

results and that reconciliations are performed between source documents

and various GPRA documents. BXA agreed with our findings and

recommendations, noting that corrective actions had already been taken.

(Financial Statements Audits Division: FSD-12847)
Economic Development

Administration

The Economic Development

Administration was established

under the Public Works and

Economic Development Act of

1965, as amended, including the

comprehensive amendments by

the Economic Development

Administration Reform Act of 1998,

to generate new jobs, help protect

existing jobs, and stimulate

commercial and industrial growth

in economically distressed areas

of the United States. EDA does

this by providing grants to public

and private nonprofit organizations

in communities with problems that

are stifling economic growth;

planning grants to states, cities,

districts, and Indian reservations;

special economic adjustment

assistance to states and local

governments with recent, severe

problems or long-term economic

deterioration; technical assistance

to communities to build

organizational capacity and solve

specific economic development

problems; and research and

evaluation grants to increase

knowledge about effective

economic development tools.

23 Commerce OIG Semiannual Report

September 2000

Change in Borrower Under Revolving

Loan Fund Leads to Grant Termination

In 1995 EDA awarded a grant to two organizations to establish a revolving

loan fund (RLF) to encourage iron ore processing related business and job

development in northeastern Minnesota. The award totaled $2.95 million,

with EDA providing $1.95 million and one of the recipients providing the

remaining $1 million. The grant required the initial loan to be made to a

steel company to fund part of a $40 million capital improvement project

for the production of an improved iron product. At the time we conducted

an audit of the grant, the recipient had not awarded the initial loan, and no

grant funds had been disbursed by EDA.

Our audit revealed that the grantee had replaced the initial borrower, which

impermissibly changed the scope of the grant. The proposed replacement

loan would have financed a much smaller project that involved only

upgrades to equipment and lacked the sizable private investment of the

original project. In addition, the project provided no demonstrable economic impact, and would have required EDA to waive certain basic RLF

requirements and resolve or acquiesce in several unacceptable contingencies. Our specific findings were as follows:

ò Private Investment. The initial loan was to provide for an

economic expansion with a total cost of $40 million, while the

replacement loan would involve only $4.5 million. Although the

replacement project is only 11 percent of the size of the original

project, the RLF investment of $2.95 million would remain the

same. Moreover, the initial loan called for a private commitment

of $33 million, compared to only $765,000 for the replacement

loan.

ò Economic Impact. The borrower involved in the original project

estimated that it would create 89 new jobs and retain 450 existing

jobs in the area. The company slated to receive the replacement

loan made no formal declaration of any jobs to be created or

saved as a result of the project.

ò Requirements and Contingencies. Certain EDA loan requirements would need to be waived before EDA could approve the

loan, and the prospective borrower had contingencies to be

resolved before EDA could make the loan decision. Specifically,

the proposed loan did not meet the requirement that RLF loans

leverage at least $2 of private investment for every $1 of RLF
Economic Development Administration

Program

Operations

Economic

Development

Administration

Cong. Liaison,

Program

Research and

Evaluation

Finance and

Administration

24 Commerce OIG Semiannual Report

September 2000

investment or the requirement that one job be created or saved for

every $10,000 of investment; a lawsuit filed by the proposed

borrower against the RLF administrator created a potential conflict

of interest that could compromise administration of the loan; and

the likely sale of the borrower company could increase the risk

incurred under the loan.

We discussed the deficiencies in the proposed loan with EDA officials

during our audit, and recommended that EDA not approve the replacement

loan. With our concurrence, EDA terminated the grant, citing deficiencies

in the proposed loan, including inadequate private leveraging and failure to

provide sufficient protection for EDA grant funds. (Denver Regional

Office of Audits: DEN-13441)

Grants to California City

Were Properly Administered

EDA awarded two grants to a California city in connection with a redevelopment project to revitalize the city’s downtown harbor area. One element

of the waterfront development was the construction of an aquarium, along

with an associated parking garage and roadway access improvements. The

first EDA grant, awarded in March 1996, contributed $1.5 million to the

roadway improvements, which represented 57 percent of the total

estimated project costs of approximately $2.6 million. The second grant,

awarded in November 1996, contributed $6 million to the design and

construction of the parking garage, which represented 50 percent of the

estimated $12 million in costs.

The OIG conducted audits of both awards to determine whether project

costs claimed were reasonable, award objectives were achieved, and management controls provided assurance that the awards were administered

efficiently and effectively and resulted in acceptable final products. Our

audits revealed no significant deficiencies: in each case, the city complied

with the award terms and conditions, accomplished the specified scope of

work, accounted properly for project funds, and claimed the appropriate

federal share of project costs. Accordingly, we made no recommendations.

(Seattle Regional Office of Audits: STL-12658-1 and STL-12658-2)
Economic Development Administration

25 Commerce OIG Semiannual Report

September 2000

Quality Control Review of

Nonfederal Audit Conducted

The OIG performed a quality control review of the 1997 organizationwide

audit of a Michigan county conducted by an independent public accountant. EDA awarded the county an economic adjustment grant to establish a

revolving loan fund following military base closures in the county. The

grant provided about $2.4 million, which equated to nearly 20 percent of

the county’s total 1997 revenues. The county also received a total of

roughly $300,000 under various grants from several other federal agencies.

As the oversight agency for the county, we performed our review to determine whether the audit was conducted in accordance with government and

generally accepted auditing standards, and whether the audit report met the

requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Our review found that the auditor’s

working papers supported the audit report and that the audit complied with

audit standards. (Denver Regional Office of Audits: DEN-12071)

Audit Reports Unresolved

for Over Six Months

As of September 30, 2000, an OIG financial assistance audit report, DEN10586 (see March 1999 issue, page 28), had recommendations that had

remained unresolved for more than one year. The audit found that a

nonprofit grantee in Texas had disregarded procurement standards in

awarding a $244,250 contract to a consulting firm. The audit also

questioned $258,838 in salary costs and in-kind contributions because of

inadequate supporting documentation. Because regional EDA and OIG

offices have been unable to reach agreement on the issues raised by this

audit, we have requested that the matter be forwarded to headquarters for

resolution.
Economics and

Statistics Administration

The Economics and Statistics

Administration analyzes

economic developments, develops

policy options, and produces a

major share of U.S. government

economic and demographic

statistics. The Chief Economist

monitors and analyzes economic

developments and directs studies

that have a bearing on the

formulation of economic policy.

ESA has two principal agencies:

Bureau of the Census. Census is

the country’s preeminent statistical

collection and dissemination

agency. It publishes a wide variety

of statistical data about people and

the economy of the nation, conducting approximately 200 annual

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

and the decennial census of

industry.

Bureau of Economic Analysis.

BEA’s goal is to provide a clear

picture of the U.S. economy by

preparing, developing, and

interpreting the national income

and product accounts (summarized by the gross domestic

product), as well as aggregate

measures of international,

regional, and state economic

activity.

A Better Strategy Is Needed for Managing

the Nation’s Master Address File

A vital component of the 2000 Decennial Census is the Master Address

File (MAF), which supplies addresses used to support such operations as

mailing out questionnaires, enumerating nonresponding households, and

controlling the collection and tabulation of data. The quality of the MAF

address data directly affects the accuracy, completeness, and cost of the

decennial. In the 1990 decennial, one-third of the people not counted were

missed because data for their housing units was missing from the address

file. Moreover, the bureau spent an estimated $317 million during that

decennial on operations to identify 4.8 million nonexistent and 8.6 million

vacant housing units and to remove the former from the address file.

To address questions raised about how well programs to create the MAF

for the 2000 decennial were working and what its quality would be, the

bureau decided in 1997 to reengineer the MAF-building strategy. The OIG

conducted an evaluation to determine if steps taken to improve the MAF

before the decennial worked as planned, assess steps taken to identify and

correct MAF data quality problems as the decennial progressed, determine

whether the software development approach ensured high-quality data,

and evaluate whether the MAF data quality standard provides a meaningful

benchmark for decision-makers. Our evaluation focused on city-style

addresses, which make up more than 80 percent of the nation’s addresses.

The MAF addresses represent the nation’s estimated 112.5 million housing

units (as of July 1998) and, together with each address’s geographic

location found in the Topologically Integrated Geographic Encoding and

Referencing (TIGER®) mapping system, provide an essential tool for

collecting residents’ responses and counting people where they are located.

Unless found to be nonexistent or duplicate, an address equates to a

housing unit in the decennial. For the 2000 decennial, the bureau created

the decennial MAF, which contains all MAF addresses that meet decennial

eligibility requirements, such as being an address that links to a unique

geographic location in TIGER®.

To build and maintain the MAF, the bureau has implemented operations

designed to decrease undercoverage (missed housing units) and overcoverage (duplicate, nonexistent, or other erroneous addresses). The bureau’s

reengineered strategy for city-style addresses allowed local governments

more time to review MAF address lists and submit corrections. A key

component of the strategy was 100-percent block canvassing, in which

bureau employees canvass all blocks in an assigned area to confirm

existing MAF addresses and add new ones.

Commerce OIG Semiannual Report

September 2000 26
 Economics and Statistics Administration

Economics and

Statistics

Administration

Bureau

of the

Census

Bureau of

Economic

Analysis

Our evaluation reached the following conclusions:

ò Too little time was available to ensure high-quality address

data. Reengineering of the MAF had to be completed in the two

years before the addresses were needed for labeling questionnaires; this did not leave enough time to deal with difficulties in

receiving addresses from local governments in time to verify them

by block canvassing. We found that incomplete address lists were

used in block canvassing, reducing its effectiveness in improving

address quality. Moreover, the bureau did not have enough time

to resolve questions about the accuracy of over 5 million

addresses, choosing to include them and an unknown number of

duplicate addresses in the decennial until more information

became available.

ò Additional steps are needed to improve data quality. Although

the bureau has taken steps to improve address quality and has

potentially identified 10.2 million nonexistent or duplicate

addresses as of June 2000, the policy for determining the

addresses to be used in several operations has not been well

defined, and at the time of our fieldwork, the decision about

which addresses to include in the final decennial results had not

been made. Rather than being presented explicitly in the bureau’s

decennial policy documents, address eligibility rules are implicit in

software specifications, which are often not finalized until data

processing is imminent or underway.

ò Better software engineering standards could improve data

quality. MAF addresses must be linked to unique geographic

locations to ensure that the bureau can count persons in their

correct locations and that users of the data can correctly redraw

legislative district lines. Because the MAF and TIGER® were

developed separately and are not integrated, maintaining

consistency between them is not easy. Because TIGER® can be

modified without ensuring such consistency and some decennial

addresses do not have locations in TIGER®, as of April 2000,

4.5 million decennial addresses did not have a current link to

TIGER® and risked being located inaccurately. The bureau needs

to take steps to ensure that decennial addresses are geocoded

accurately. To help ensure overall data quality, the bureau needs

to follow rigorous software engineering standards in the planned

modernization of the systems that support the MAF geocoding

process.

27 Commerce OIG Semiannual Report

September 2000
28 Commerce OIG Semiannual Report

September 2000

ò Success in meeting housing unit accuracy and completeness

goals should be reported. The bureau has set a housing unit

coverage performance standard, which is to miss not more than

2.5 percent of housing units and include not more than 1.5 percent

in error, for a net undercoverage rate of 1 percent. The bureau has

not, however, clearly stated how it will report the standard and its

success in meeting the standard. The annual performance report

and program performance report mandated by GPRA are

appropriate mechanisms for reporting on this important data

quality standard, including its separate under- and overcoverage

components.

For the 2000 decennial, we recommended that the bureau issue an eligibility policy for the addresses to be included in the final decennial count,

ensure that any further TIGER® changes made during the decennial are

verified with the MAF, and report evaluation results measuring housing

unit coverage, including both under- and overcoverage. We made

additional recommendations for future censuses and surveys designed to

improve the accuracy and completeness of the MAF and promote a

rigorous engineering approach to the modernization of the MAF and

TIGER®. Finally, we recommended that the bureau provide housing unit

coverage standards and report on its progress in meeting them in future

GPRA reporting documents.

The bureau concurred with virtually all of our recommendations and

indicated that actions had already been taken to implement some of them.

(Office of Systems Evaluation: OSE-12065)

Use of Inappropriate Procedures Results

in Re-enumerations in Southern Florida

On May 30, 2000, Representative Carrie Meek forwarded to the OIG an

anonymous complaint that decennial employees trained at the Hialeah,

Florida, local census office had falsified data and used inappropriate procedures while working at three census offices in southern Florida—Hialeah,

Homestead, and Broward South. To determine whether there was any

merit to the allegations, we examined non-response follow-up procedures,

questionnaires completed by Hialeah enumerators, and quality control

documentation for completed questionnaires.

Economics and Statistics Administration
29 Commerce OIG Semiannual Report

September 2000

Our review revealed that some enumerators trained at the Hialeah office

had used improper procedures for collecting data. Our findings related to

each of the three local census offices were as follows:

ò Homestead: Hialeah-trained enumerators did not follow

proper procedures. We found that enumerators transferred from

the Hialeah office to assist Homestead were taking shortcuts with

some of the 7,200 questionnaires they had been assigned. For

example, they apparently were not making the required number of

unsuccessful visits and telephone calls to a household before contacting a neighbor for proxy information. Moreover, our review of

questionnaires completed by Hialeah enumerators revealed that,

contrary to bureau guidelines, the enumerators were simply

entering names such as “John Doe,” along with approximate ages

and birth dates, when the actual names and ages of residents could

not be provided by neighbors.

Economics and Statistics Administration
Economics and Statistics Administration

30 Commerce OIG Semiannual Report

September 2000

ò Broward South: Serious irregularities identified in work done

by Hialeah-trained crews. We found that numerous questionnaires containing errors and irregularities were submitted to the

Broward South office for processing without having been properly

reviewed by Hialeah crew leaders. For example, some questionnaires were certified as complete and accurate by a crew leader

before an enumerator had even completed them. These problems

were first identified by Broward South office staff who reviewed

the questionnaires for accuracy and completeness before transmitting them to the bureau’s data processing center.

ò Hialeah: Quality control was insufficient to ensure a reliable

enumeration. We were unable to review the 63,000 questionnaires completed at the Hialeah office because they had already

been transmitted to the data processing center. Instead, we

reviewed Hialeah’s quality control documents, and concluded that

controls designed to detect data falsification had not been properly

implemented. For example, the re-interview process—a key

quality control designed to detect data falsification—did not

function as intended at Hialeah.

We made recommendations designed to ensure that the data collected at

the three local census offices was in compliance with decennial quality

standards. Recognizing the seriousness of the situation, bureau officials

took decisive action to ensure the integrity of the data at these three

offices. Specifically, at Homestead, all of the nearly 1,400 questionnaires

for which improper procedures had been used were re-enumerated, and a

sample of questionnaires for each enumerator was put through the reinterview process to check for data falsification; at Broward South, all

3,200 questionnaires completed by Hialeah enumerators were reenumerated; and at Hialeah, the entire workload of approximately 63,000

housing units was re-enumerated. (Economics and Statistics Audits

Division: ESD-13215)

Problems Found in Decennial

Census Warehousing Operations

In preparation for the 2000 Decennial Census, the Census Bureau

established more than 500 temporary field offices throughout the United

States and Puerto Rico. To complete the decennial accurately and on

schedule, field offices had to have sufficient quantities of various printed

forms, supplies, and other materials. The bureau’s National Processing

Center stored approximately 1,500 different decennial forms and other

items, prepackaged the items into 323 different types of kits, and shipped

the kits to the field offices for use in various decennial field operations.
31 Commerce OIG Semiannual Report

September 2000

Economics and Statistics Administration

An OIG audit of the center’s decennial warehousing operations concluded

that the bureau needed to address the following two problem areas:

Understocked Inventory Items

All 106 kits scheduled for shipment to the field offices by November 1,

1999, were delayed because as many as 87 items needed for the kits were

not in stock. The items were understocked because the kit specifications,

which are provided by the bureau’s Field Division, were finalized too late

for purchase orders to be placed with vendors for shipment to the center

by the scheduled date. Bureau officials said that the kit specifications were

finalized late because many bureau offices are involved in the process, and

a failure by any one of them to provide specifications on time may delay

the division’s communication of specifications to the center.

Late receipt of items from vendors created a burden for the center because

it then had to rush to assemble and ship the kits when the understocked

items eventually arrived. To quickly complete the task, the center sometimes had to pay employees overtime or hire additional kit assemblers,

thereby increasing decennial costs. The field offices were also affected by

this problem because the center sometimes sent incomplete kits, then

shipped the remaining items in bulk later for the field offices to complete

kit assembly. Moreover, as we noted during the dress rehearsal, field

offices sometimes did not have enough time to complete assembly of the

kits, which prevented some enumeration teams from starting operations on

time.

We recommended that the bureau finalize all kit specifications as soon as

possible and aggressively pursue acquisition of all understocked items. The

bureau agreed with our recommendation, but we are concerned that its

response did not adequately address the fundamental question of why the

inventory was understocked. Although it was too late to correct the

problem for the 2000 decennial, the bureau needs to develop plans to

address similar understocked inventory problems for the next decennial

and other related operations.

Kit Specification Differences

For the 14 percent of the kits that had at least partial specifications, we

noted differences between the center’s and the Field Division’s specifications, such as which items, and how many of each, should be included

in certain kits. These differences existed because the center maintains

specifications in its automated kit specification/schedule system, whereas

the division’s specifications are simply listed in a series of memorandums.

As specifications become available from various bureau offices, the
32 Commerce OIG Semiannual Report

September 2000

Economics and Statistics Administration

division communicates them via memorandums to the center, which enters

the information into its system. Differences between the center’s and the

division’s specifications can occur if the data is entered incorrectly or if the

system is not updated to reflect the division’s revisions to an earlier

memorandum.

The center developed its automated system specifically to plan for and

manage the complex operations of kit assembly and shipping—tasks that

cannot be adequately managed by a series of memorandums. Clearly, only

one system should be maintained, and that should be the center’s more

reliable kit specification system. The Field Division ought to be inputting its

data directly into that system, since it has ultimate responsibility for the

correctness of the kits. If left uncorrected, the differences in kit specifications could have caused kits to be assembled and shipped incorrectly,

thereby disrupting and delaying field operations.

We recommended that the bureau reconcile the differences between the

Field Division’s kit specification lists and the center’s system and, for

future census operations, have division staff enter updates to specifications

directly into the center’s system. The bureau agreed with our recommendation. But we again had a concern about its response; namely, that it did

not indicate whether the differences in kit specifications had been resolved.

In addition, we were disappointed that the bureau did not act to consolidate the two kit specification systems into one when we pointed out the

problem in both a November 1999 memorandum and a meeting later the

same month. (Denver Regional Office of Audits: DEN-11950)

Lessons Learned in Census Leasing Operations

Should Be Applied to Future Decennials

To handle the data collection and processing for the 2000 decennial, the

Census Bureau opened and operated a network of more than 1,000 offices

throughout the nation. Among these were 520 local census offices,

occupying a total of more than 3.9 million square feet of space, which

represented the largest proportion of the space acquired by the bureau.

Each local office had to be outfitted with telecommunications, security and

office equipment, furniture, and supplies. The space and the related equipment and supplies were acquired through a partnership with the General

Services Administration (GSA).

The OIG conducted an evaluation to determine whether the acquisition of

space, equipment, and supplies was carried out properly, effectively, and

on time. Our findings are summarized below. We raised a number of our
33 Commerce OIG Semiannual Report

September 2000

Economics and Statistics Administration

concerns in an interim memorandum early in our review (see September

1999 issue, page 32).

Partnership was successful, but an evaluation of leasing program is

needed. Despite difficulties in a few regions, the bureau and GSA worked

reasonably well together to complete this massive project. However, the

partnership was a complex and occasionally cumbersome effort, creating

some strains between the two agencies. The bureau needs to assess the

overall costs, benefits, and results of the effort soon after the decennial is

completed to help determine whether a similar partnership should be used

in 2010.

Lessons can be learned from the real estate operations. For example,

some leases in the initial phase of local office openings were awarded

without adequate competition because the area of market search was too

narrowly drawn, thereby limiting the number of bidders. As a result, lease

offers for those offices were more expensive than anticipated, and the

bureau lost valuable time in trying to find more affordable space. In the

second phase of leasing, the bureau made a concerted effort to broaden its

market search areas to ensure greater competition.

Better planning is needed for decennial leasing and office preparations. Because the bureau was late in finalizing its programmatic plans, it

developed incomplete requirements and sometimes made changes that disrupted operations. For example, planning for the telecommunications system was not adequately coordinated or focused on overall requirements,

and as a result, significant changes had to be made to the requirements,

which increased costs and delayed the opening of some local offices.

The bureau needs to expand its use of formal business case analyses.

The bureau used a systematic approach—known as formal business case

analysis—to guide its decisions for the leasing and related operations;

however, we found that the analyses were sometimes incomplete or the

options studied were limited. Nevertheless, we believe that such analyses

have great potential as a management tool to improve the bureau’s

decision-making.

The interagency agreement for the space leasing partnership still

needed to be signed. Although the partnership generally worked well, we

found shortcomings in the arrangement between the bureau and GSA.

First, the agreement for the second phase of the leasing operation was still

unsigned at the time of our review. Second, the agreement did not cover

the responsibilities of commercial brokers, the extent of their authority, the

estimated cost of using them, or the responsibilities of the bureau and GSA

in managing them.
Greater use could have been made of lump-sum build-out financing.

Most local offices had to undergo interior alterations (“build-out”) to

configure them to bureau specifications. Lessors had the option of either

including the build-out cost (plus a finance charge of about 12 percent) in

the rent or receiving a lump-sum payment upon completion of the buildout. While the lump-sum payment is generally more advantageous to the

government, the bureau made relatively few such payments early in the

project in order to conserve resources. During our review, we noted that

fully committing build-out funds could aid in lease negotiations, eliminate

the finance charge, encourage more timely alterations, and maximize cost

savings. The bureau agreed and, in the final series of lease agreements,

took greater advantage of lump-sum build-out financing, spending

approximately $10 million on it, and saving more than $980,000 in the

process, including $476,000 in funds to be put to better use since we

brought this matter to the bureau’s attention in April 1999.

We made a number of recommendations, most of which involved applying

the lessons learned from the current decennial to the 2010 effort. The

bureau agreed with all of our recommendations, and indicated that it plans

to initiate an independent evaluation of its partnership with GSA and to use

the evaluation findings as the primary planning tool for the 2010 space and

leasing program. (Office of Inspections and Program Evaluations:

IPE-11573)

Telephone Questionnaire Assistance Contract

Lacked Administration and Surveillance Plan

In an effort to increase the questionnaire response rate in the 2000

Decennial Census, the Census Bureau provided the public with assistance

in filling out the census form and a choice of ways to respond. One of

these ways was through the Telephone Questionnaire Assistance (TQA)

program, which enabled respondents to call toll-free to complete the

questionnaire over the telephone or to simply ask questions about the

form.

The TQA program also involved an outbound component, which enabled

the bureau to call households to resolve count inconsistencies, such as a

difference between the number of household members reported and the

number for whom information was provided, and to obtain information for

households with more than six members, as the questionnaire has space to

report information for only six people.

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Commerce OIG Semiannual Report

September 2000 34
In December 1998, the bureau awarded a performance-based services

contact for the design, development, testing, operation, and maintenance

of the TQA system. The contractor used a complex network of 23

integrated call centers with interactive voice response capability and live

operators to meet the contract requirements. The call center network was

designed to handle an estimated 11 million incoming calls during a 14-week

period and an estimated 3 million outgoing calls during a 12-week period.

The contract covered a two-year period, and had a cost ceiling of

$100 million. Calling operations were completed in August 2000.

In a review made to evaluate the administration of the TQA contract, the

OIG made the following observations:

Contract Administration and

Surveillance Plan Needed

According to the Office of Federal Procurement Policy, an important

requirement for performance-based services contracts is an administration

and surveillance plan that describes how the contractor’s performance will

be measured against standards. However, because the bureau did not

prepare such a plan for the TQA contract, its ability to measure contractor

performance and manage contract changes may have been hampered.

Although the TQA program office implemented various processes to assist

in monitoring performance, there was no formal mechanism for providing

feedback to the contractor on its performance or for providing immediate

notice of deficient performance and monitoring corrective action. We

believe that the fact that the program office had a very small staff with

limited experience with large-scale contracts led to the omission of this

important management mechanism.

Another important aspect of contract administration is a change control

process, which provides for a thorough evaluation of proposed changes,

including analyzing costs, determining how the schedule will be affected,

and assessing whether performance will be affected. When the TQA contract was awarded in December 1998 and the task order for development

was issued the following month, the bureau had not yet identified its detailed requirements for outbound calling, and the requirements for inbound

calling were still subject to change. As development progressed, changes

were made informally, through discussions with the contractor, without

formal consideration of their cost and schedule impacts, and without the

authority of the contracting officer. By the time a change control process

was established in August 1999, eight months after contract award, the

task order cost had increased by $2.3 million.

Economics and Statistics Administration

35 Commerce OIG Semiannual Report

September 2000
Schedule Slippages Caused Testing Delays,

but Operations Began on Schedule

Significant slippages in the contract’s schedule resulted in revised testing

strategies for the TQA network. For example, the live test demonstration,

a major contract milestone designed to demonstrate the functioning of the

entire system, was scheduled to begin on October 1, 1999, but testing for

the inbound operations did not begin until February 14, 2000, and did not

end until February 25, only one week before the start of operations.

Among the factors causing the schedule slippages were delays in site

selection, changes to requirements, and underestimation of system

complexity.

Delays in completing testing of such a complex system could have had a

significant impact on TQA’s performance because little time was available

between the completion of testing and the beginning of operations to

correct problems and conduct retesting. Despite the delays, inbound

operations began as planned on March 3, 2000. However, correcting

problems identified during testing and conducting retesting delayed the start

of outbound operations until early May. As a result, call centers were

opened simultaneously, rather than on a staggered basis as planned, so that

the decennial census schedule would not be affected.

* * * * *

We recommended that the bureau (1) develop a contract administration

and surveillance plan covering the remaining months of program operation

and (2) prepare a “lessons-learned” report at the completion of TQA

operations so that the experience gained in developing and managing the

system can benefit contracting in both the next decennial and nondecennial census operations. The bureau agreed to implement our

recommendations, but disagreed with certain aspects of our observations.

Specifically, the bureau asserted that it had not made any unauthorized

contract changes and that the changes made were not the result of changed

requirements. (Office of Systems Evaluation: OSE-12376)

Improved Documentation Should Result in

Fewer Unemployment Compensation Claims

Unemployment costs related to the 1990 Decennial Census totaled

approximately $64 million. In 1994 the OIG reported that potentially

millions of dollars of these costs could have been avoided had the

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Commerce OIG Semiannual Report

September 2000 36
separation and removal of temporary decennial census workers been

adequately documented (see September 1994 issue, page 30). Specifically,

a termination for cause must be properly documented so that, should the

individual later apply for unemployment compensation, the Census Bureau

can provide sufficient evidence to sustain a finding of ineligibility due to

poor performance or misconduct.

In 1998, during our review of dress rehearsal activities, we reviewed the

policies and procedures put in place to better manage unemployment

compensation for the 2000 decennial and reported that they appeared to be

adequate (see September 1998 issue, page 24). However, we also suggested that additional management attention was warranted in order to

ensure that Census supervisors comply with those policies and procedures.

In a recent inspection, we examined how documentation was handled for

temporary employees terminated for cause during the 2000 decennial. We

did not examine the merits of individual terminations or attempt to determine whether additional employees should have been terminated for cause.

Based on our review of termination documents at 16 local census offices

around the country, however, we concluded that, in the vast majority of

cases, the bureau was adequately documenting the termination of

problematic employees.

We did find some minor problems. For example, in 9 out of 56 cases at

one local office, employees were listed as being terminated for lack of

work, when they were actually terminated for cause, because the appropriate form had not been filled out at the time of their dismissal. And, in

another 32 out of 322 cases at eight other offices, the form for documenting a termination for poor performance or conduct problems was not filled

out or was missing. As a result, should the terminated employees involved

apply for unemployment compensation, the bureau would be unable to

refute the claim.

We recommended that for any additional terminations for cause made

during the current decennial fieldwork, local office managers be reminded

to ensure that all information is correctly entered onto termination forms

and that all supporting documentation is maintained in the files. The

bureau was encouraged by our finding that nearly 9 out of 10 cases had

sufficient documentation, but acknowledged that documentation could be

improved. It agreed with our recommendation and took specific actions to

ensure that managers and supervisors were aware of the procedures for

documenting conduct and performance-based actions for employees.

(Office of Inspections and Program Evaluations: IPE-13212)

Economics and Statistics Administration

37 Commerce OIG Semiannual Report

September 2000
Decennial Software Specification and

Development Processes Need Improvement

Accurate, reliable software is critical for every major operation of the 2000

Decennial Census. Several software errors occurred and were resolved

during the decennial. As a result of these errors, we had planned to

conduct further evaluation work on headquarters software development

and processing. Because not all of the headquarters software work for the

decennial had been completed, we intended to identify areas needing

improvement and recommend corrective actions.

Based on our preliminary fieldwork, conducted in May and June, we

ascertained that the bureau had already begun to implement a number of

improvements, which we supported. Moreover, recognizing that the

bureau’s software work was occurring under a tight schedule, we were

concerned that our evaluation might cause additional disruptions. As a

result of these factors and of our own resource limitations, we decided to

continue monitoring the bureau’s activities, rather than conduct a formal

evaluation.

In lieu of a formal evaluation, in July we sent a memorandum to the

bureau’s deputy director identifying the principal headquarters decennial

software issues, providing our views on the actions being taken to address

them, and making suggestions for further improvements. We discussed our

concerns and suggestions with bureau officials, who generally agreed with

them.

Over the past four years, we have evaluated and monitored various aspects of information technology for the decennial. In November 1997, we

reported that the development approach used for headquarters software

was not based on standards for documenting and reviewing software

specifications and design; ensuring that rigorous, independent testing is

carried out; and ensuring the uniform, effective use of development and

evaluation methods and tools. We recommended that the bureau adopt a

software development process based on at least this minimal set of

elements. (See March 1998 issue, page 26.)

In September 1999, we reiterated the need for improved specifications and

testing practices and the use of software engineering standards. (See September 1999 issue, page 26.) Although the bureau made improvements

Economics and Statistics Administration

Commerce OIG Semiannual Report

September 2000 38
based on our recommendations, as well as those of the Chief Information

Officer, significant issues remained, including late, changing, and

ambiguously specified requirements; lack of formal requirements reviews;

insufficient control over software changes; and inadequate testing of

developed software. Our preliminary fieldwork showed that decennial

officials had already started to deal with most of these issues through such

process improvements as requirements specification reviews, more

rigorous testing, and end user reviews of processing outputs.

While these changes will help ensure that requirements are complete,

accurate, and clearly understood and will also improve testing, we believe

that additional requirements and testing areas need further emphasis. With

regard to the specifications, completing them as early as possible is critical

in order to maximize the time available for their review, as well as for

software development and testing. As for testing, we believe that test cases

should be developed by the users whenever possible and that testing

should demonstrate that all requirements have been met. Moreover, testing

should be performed by an organization independent of the developers.

We were aware of one error related to an area that the bureau had not yet

addressed—insufficient control of software changes. The error occurred

when a last minute change to software was not thoroughly tested.

Fortunately, the bureau identified this error early enough to avoid affecting

decennial operations. Nevertheless, effective software change control is

needed to prevent future problems. This issue was not part of the planned

process improvements and needed additional attention. Bureau officials

recently told us that they now provide management oversight of software

changes.

As we have noted in our previous work, better software development

practices would improve timeliness, quality, and user satisfaction and

reduce development and maintenance costs on all decennial systems. We

encouraged the bureau to continue to focus on improving the decennial

software development process, emphasizing production of timely, clearly

specified requirements and rigorous independent testing. After the

decennial, the bureau should make a concerted effort to improve software

development for all of its programs, decennial and nondecennial alike.

(Office of Systems Evaluation)

Economics and Statistics Administration

39 Commerce OIG Semiannual Report

September 2000
Review of Certain Decennial Operations

Identifies Issues for Future Consideration

The OIG conducted a review of the effectiveness of the Census Bureau’s

special population enumerations and questionnaire assistance centers.

Special population enumerations attempt to count people who live in

nontraditional housing or have no usual residence. Questionnaire assistance

centers provide the public, especially those with little or no Englishspeaking ability, with help in completing their census forms. Our review

included observing enumerator training for special enumerations, as well as

the actual conduct of certain enumerations, visiting questionnaire assistance centers, and interviewing enumerators and assistance center staff.

Our review revealed no significant conditions meriting recommendations in

addition to those made in earlier reports on the 1998 Dress Rehearsal (see

September 1998 issue, page 24). However, we did identify several issues

warranting management attention:

ò Too little time was allowed for training. Just four hours was

scheduled for enumerator training for special population

enumerations, and much of this time was used to complete

preemployment paperwork. As a result, local offices had to

arrange for last-minute unscheduled training or send enumerators

into the field inadequately trained.

ò Late delivery of supplies caused problems. Training materials

often arrived at the training sites the day before the training was to

begin, which did not allow instructors enough time to familiarize

themselves with the materials. Moreover, at the four sites we

visited, local offices had not received the quantity of supplies and

forms they needed. As a result, the offices had to spend the time

and money to photocopy forms or borrow supplies from other kits

in order to complete enumerations, and in the case of long forms,

had to later copy responses from the photocopies onto original

questionnaires.

ò Some homeless shelters and soup kitchens were missed by the

special population enumerations. The bureau had worked with

local governments and community-based organizations, such as

homeless advocacy groups, in identifying sites to be enumerated,

yet several such organizations said they were never given an

opportunity to identify sites and, as a result, their facilities had

been missed. The director of one organization that ran a homeless

Economics and Statistics Administration

Commerce OIG Semiannual Report

September 2000 40
shelter said that although she had called the local census office

repeatedly to request that the shelter be enumerated, no

enumerators visited the facility.

ò The effectiveness of questionnaire assistance centers was not

evident. We found that usage varied widely among assistance

centers: some were heavily visited, while others were shut down

ahead of schedule for a lack of customers. Centers located in

neighborhoods with high minority populations received the most

traffic. Staff at some centers said they were busy in the first few

weeks after opening, but had few clients thereafter.

Although we made no recommendations to address these issues in the

2000 decennial, we believe that the Census Bureau should consider our

observations in planning for the 2010 decennial. (Economics and Statistics

Audits Division: ESD-12593)

2000 Decennial Generates Numerous

Complaints from Workers and the Public

Along with the upsurge in 2000 Decennial Census activities over the past

six months came a concomitant increase in the volume of complaints

received by our Office of Investigations regarding various aspects of

decennial operations. During this semiannual period alone, nearly 500

people lodged complaints through the OIG Hotline and other means, which

covered a variety of topics ranging from concerns about hiring, payroll,

training, and management practices to allegations that decennial results

were being falsified by crew leaders and enumerators.

All complaints were evaluated in accordance with established OIG

investigative intake procedures. As is our practice, complaints that involved

routine administrative and management issues were referred to the Census

Bureau or the Department for appropriate action, while allegations of

fraud, criminal conduct, and other matters within our statutory jurisdiction

were added to the OIG investigative caseload.

For example, we are currently investigating serious allegations of data

falsification by census workers in several local census offices, and are

pursuing a bribery charge against a former community partnership

specialist. We are also looking into a number of complaints that decennial

employees defrauded the government by making false claims for overtime

pay or telephone or mileage reimbursement, or otherwise diverted

government resources to their personal use.

Economics and Statistics Administration

41 Commerce OIG Semiannual Report

September 2000
In addition, we are following up on a number of complaints from the

public regarding the conduct of the decennial, including several reports of

individuals attempting to obtain financial or other confidential information

from citizens by posing as census workers.

One matter successfully resolved during this period was a complaint

received by the OIG that decennial promotional items and official materials

bearing the Census 2000 logo were being offered for sale on the eBay

Internet auction website. After identifying several of the sellers offering

this merchandise, and learning that the materials had been obtained at

decennial events, local census offices, and flea markets, we advised bureau

officials of the problem and put them in contact with an attorney at eBay,

who agreed that the company would prohibit the sale of Census 2000

materials through its website. (Denver Field Office of Investigations)

OIG Assesses Accuracy of the

Federal Audit Clearinghouse Database

At the request of OMB, the OIG assessed the accuracy of the Federal

Audit Clearinghouse Database, which is operated by the Census Bureau,

for FY 1998 single audit reports. A single audit is one performed by state

or local government auditors or independent public accountants covering

all of the federal financial assistance provided to one recipient. To implement the Single Audit Amendments of 1996, OMB issued Circular A-133,

Audits of States, Local Governments, and Non-Profit Organizations. The

circular authorized the bureau to operate the Clearinghouse, which serves

as a repository for single audit reports and an audit processing service and

data dissemination system for the entire federal grant community.

In conducting our assessment, we performed procedures to (1) verify the

completeness of audit reporting packages, (2) compare the information in

the database with the information provided to the Clearinghouse on a

standard data collection form and in the reporting package, and (3) verify

that all audit findings contained in the reports were also included in the

database. We used a two-stage sampling plan developed by the Department of Labor OIG to derive a sample that was representative of the

universe of 1998 single audit reports and the Catalog of Federal Domestic

Assistance (CFDA) program entries in the database.

The results of the procedures we performed were as follows:

ò Of the 150 audit reports sampled to test the completeness of the

reporting package, we found 2 reports in which the auditor failed

to include a required element.

Economics and Statistics Administration

Commerce OIG Semiannual Report

September 2000 42
ò In the 22,563 data elements sampled in our comparison of the

information in the database with that on the data collection form

and in the reporting package for the reports and the CFDA

program entries, we found 370 errors—126 attributable to the

Clearinghouse and 244 to the auditors and auditees.

ò In verifying that all audit findings in the 150 sampled reports were

included in the database, we found that findings for 4 reports were

omitted from the database.

The bureau agreed with our findings. Considering the complexities of the

electronic system and related operating procedures involved in this effort,

the bureau was pleased to learn of the overall accuracy of its work, and it

stated that actions were underway to correct the isolated errors identified.

(Atlanta Regional Office of Audits: ATL-12556)

OIG Looks Into Apparent Premature

Release of Trade Deficit Data

At the request of the Under Secretary for Economic Affairs, the OIG

looked into concerns that a news organization had prematurely released

trade deficit data on its Internet web site. A representative of the organization had participated in an information release session (or “lockup”), in

which journalists in a locked room are provided with economic data by

ESA officials, given time to compose their news stories, then allowed to

transmit the stories simultaneously to their organizations at the official

release time, which is determined by a clock synchronized to the U.S.

Naval Observatory Master Clock. These procedures are followed to

prevent the premature release of sensitive economic data.

In this case, the trade deficit information was cleared for release at

8:30 a.m. on April 19, 2000, but when the story appeared on the news

organization’s web site, its time stamp was 8:27 a.m. Responding to the

Under Secretary’s concerns, we first spoke to the ESA officials

responsible for coordinating the lockup, then contacted the journalist who

had filed the story in question. She cooperated fully, returning to the

Department of Commerce with her notebook computer, which enabled us

to compare the time on her computer’s clock with the time on the Naval

Observatory’s Master Clock.

Through this comparison, which also involved having the journalist

transmit “test” stories to her organization’s web site, we concluded that

because the clock on her computer was set to an earlier time than was the

Naval Observatory clock, the stories posted on the web site carried an

Economics and Statistics Administration

43 Commerce OIG Semiannual Report

September 2000
erroneous time, several minutes earlier than the actual time of the

transmission. We were able to satisfy ourselves, and report to the Under

Secretary in an April 24, 2000, memorandum, that the situation resulted

from the discrepancy between the time on the computer and Naval

Observatory time, and that there had been no premature release of the

trade deficit data.

As a result of our assessment, we advised the journalist, in the future, to

always set her computer’s clock to Naval Observatory time when she

enters the lockup, and suggested that she advise her organization to modify

its software to use the time stamp generated by its web server, rather than

that generated by her notebook computer, for the associated stories. We

also understand that as a result of this incident, ESA has added a rule

stating that it is a violation of lockup procedures to have an early time

stamp on any story released from the lockup. (Office of Systems

Evaluation)

Review of Special Census of Illinois Village

Finds Problems, but No Large Undercount

When local officials believe that their community has experienced a

significant increase in population since the previous decennial census, they

may request the Census Bureau to certify the population increase through

a special census. During the past decade, the bureau received about

$11.3 million from local governments to conduct 437 special censuses.

In December 1997, the Village of Machesney Park, Illinois, a community

of about 20,000 people located 90 miles northwest of Chicago, contracted

to pay the bureau $86,000 for a special census, which was conducted in

June 1998 by staff hired from the local community. After reviewing the

initial results of the special census, the mayor of the village alleged that

various illegal and improper activities had taken place, resulting in a serious

undercount of the village’s population. In May 1999, Representative

Donald A. Manzullo requested that the OIG look into the mayor’s

allegations.

The mayor specifically alleged that (1) the census supervisor had

instructed enumerators to “just put down ‘one’ if you don’t know” who

lives in a household, (2) census workers had falsified data, (3) Machesney

Park’s special census results were inconsistent with those of adjacent

communities, (4) a gross undercount in the initial special census was

validated by a follow-up study, and (5) the bureau’s regional director had

admitted that the census was illegally closed out.

Economics and Statistics Administration

Commerce OIG Semiannual Report

September 2000 44
We did not find evidence of a significant undercount in the Machesney

Park special census. After analyzing all 103 enumeration books and

interviewing special census and other bureau personnel, we concluded that

special census employees followed most, but not all, special census procedures, and that the enumeration books were generally well documented

and complete. Enumerators properly listed 97 percent of the total

households and all but two residential streets.

However, we did find some support for the first two of the five allegations.

The key problem affecting this special census was that enumerators

improperly listed 434 houses as having “one” occupant when the actual

number of occupants was unknown. As a result, some households may

have been undercounted.

Based on our analysis, it is very unlikely that 2,000 people were missed, as

alleged by village officials. We projected a possible undercount of closer to

320 persons. However, we emphasized that this figure was only an

estimate, and that it could not be used to adjust the village’s official count.

We believe that the Census Bureau’s Chicago Regional Office could have

been more vigilant in overseeing the special census. It should have been

aware of the large number of “one-person” households sooner, and it

should have provided better guidance and supervision to the village on its

advertising campaign.

At the time we issued our report, we expressed our belief that a special

census recount of some or all households in Machesney Park was not

warranted or feasible at that point. It had been two years since the special

census was completed, and more importantly, the bureau had completed

its 2000 decennial enumeration of Machesney Park. Given the issues

raised in this special census, however, we recommended that the bureau

work closely with village officials to address any coverage issues before

releasing the final decennial counts for Machesney Park.

We also recommended that for future special censuses, the bureau

reinforce and revise, if necessary, some of its policies and procedures and

develop new policies and procedures to preclude the types of problems

that arose during the Machesney Park special census. In addition, the

bureau needs to clarify and emphasize compliance with its policies and

procedures during future training of special census workers.

Economics and Statistics Administration

45 Commerce OIG Semiannual Report

September 2000
In response to our report, the bureau agreed to adopt all of our recommendations, except one related to improving its advertising guidance to

local officials. The bureau agreed that advertising for special censuses is

extremely useful, but stated that each local community has the

responsibility to promote its own special census. We believe that although

the local role is important, it is equally important for the bureau to ensure

that the community maximizes its advertising efforts. (Office of Inspections and Program Evaluations: IPE-12045)

Personal Charges to Government Purchase

Card Result in Theft Conviction

A secretary at the Census Bureau was convicted of one count of theft of

government property after an OIG investigation revealed that she had used

a government purchase card to buy more than $800 worth of clothing,

jewelry, electronic equipment, and other items for her personal use. In

July 2000, she was sentenced in U.S. District Court for the District of

Maryland to 6 months’ incarceration in a community corrections facility

and 2 years’ probation, and was ordered to make full restitution to the

government. (Washington Field Office of Investigations)

Economics and Statistics Administration

Commerce OIG Semiannual Report

September 2000 46
47 Commerce OIG Semiannual Report

September 2000

The International Trade

Administration is responsible for

the trade promotion and trade

policy issues associated with most

nonagricultural goods and

services, and works with the Office

of the U.S. Trade Representative in

coordinating U.S. trade policy. ITA

has four principal units:

Market Access and Compliance.

MAC develops and implements

international economic policies of

a bilateral, multilateral, or regional

nature. Its main objectives are to

obtain market access for American

firms and workers and to achieve

full compliance by foreign nations

with trade agreements signed with

the United States.

Trade Development. TD advises

on international trade and

investment policies pertaining to

U.S. industrial sectors, carries out

programs to strengthen domestic

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

participation in international

markets.

Import Administration. IA

defends American industry against

injurious and unfair trade practices

by administering the antidumping

and countervailing duty laws of the

United States, and enforcing other

trade laws and agreements

negotiated to address such trade

practices.

U.S. & Foreign Commercial

Service. US&FCS promotes the

exports of U.S. companies and

helps small and medium-sized

businesses market their goods

and services abroad. It has 105

domestic offices and 157 overseas

posts in 84 countries.

International Trade

Administration

Overseas Security Program Needs

Better Management and Results

Recognizing the need to focus more attention on improving the security of

U.S. overseas facilities, the Congress in 1997 appropriated $24.8 million to

the State Department for security improvements. US&FCS received

$9.4 million of that supplemental appropriation to improve the security of

its 45 overseas facilities located outside embassies and consulates (referred

to as non-collocated facilities). After the bombing of the U.S. embassies in

Kenya and Tanzania in August 1998, State received another $627 million

in FY 1999 emergency funding for reconstructing the embassies and

conducting other security-related activities. US&FCS received $8 million

of the funding for its overseas facilities.

The OIG conducted an inspection of US&FCS’s overseas security

program, including the accounting for the use of the FY 1997 and 1999

funds, after questions were raised about how those funds were spent. Our

review identified weaknesses in ITA’s and the Department’s management

of the program, as well as in the management of and accounting for

program funds. Our concerns are discussed in the following sections.

Better cooperation and planning are needed to improve US&FCS’s

overseas security. Although US&FCS received a total of $17.4 million in

supplemental security funds in FY 1997 and 1999, we found that securityrelated upgrades to overseas facilities had fallen behind schedule because

of (1) a lack of action by the State Department, US&FCS, and the

Commerce Office of Security in completing upgrades and (2) inadequate

cooperation between the three entities in implementing US&FCS’s

overseas security program.

Security funds need to be better managed. We found that at the end of

FY 1999, ITA’s Office of Financial Management inappropriately used

some of the security funds to cover alleged shortages in US&FCS’s

operating and administrative budget. The two parties disagreed as to the

cause of the problem, and the funds were restored by ITA to the security

fund by January 2000, but the incident demonstrated that ITA

management had failed to establish adequate internal controls to ensure

that expenditures complied with requirements. ITA has already

implemented controls to help prevent this from recurring. In addition,

although most expenditures paid for out of security funds appeared

appropriate, some either did not appear to be security related or may not

have represented an effective use of security funds.
Import

Administration

Market

Access and

Compliance

Trade

Development

U.S. and Foreign

Commercial

Service

International

Trade

Administration

International Trade Administration

48 Commerce OIG Semiannual Report

September 2000

Financial management and oversight of security funds need improvement. We determined that of the $17.4 million provided to US&FCS for

overseas security during FY 1997 and 1999, as of March 31, 2000,

approximately $9.6 million remained—nearly $5.0 million from the 1997

allotment and about $4.6 million from 1999. However, we were unable to

determine the accurate balances because the status of obligations and

disbursements was not being adequately monitored and not all accounting

data pertaining to overseas security transactions was being entered

promptly into ITA’s accounting system.

We made a number of recommendations aimed at achieving better

cooperation and planning between the parties involved in US&FCS’s

overseas security program, more management oversight to ensure that

security fund expenditures are security related, and better oversight of and

accounting for security funds.

ITA and the Security Office agreed to implement all of our recommendations. Most significantly, they agreed to form a US&FCS Security

Upgrade Project Oversight Committee, which will oversee the agency’s

security efforts and will develop an annual strategic plan for facility

upgrades. (Office of Inspections and Program Evaluations:

IPE-12708)
49 Commerce OIG Semiannual Report

September 2000

Minority Business

Development Agency

Minority Business Development Center

Poorly Managed by Award Recipient

At MBDA’s request, the OIG performed an audit of a cooperative

agreement awarded to an economic development organization to operate a

minority business development center in a West Coast city. The award

was for the 25-month period from October 1, 1996, to October 31, 1998,

and had a total project budget of $1,363,480, consisting of a $818,088

federal share and a $545,392 recipient share. Federal funds disbursed

through December 1998 totaled $792,896.

In July 1998, MBDA’s project monitor identified numerous discrepancies

in the project records, including indications of falsified time sheets,

fabricated documents supporting claimed performance, and the potential

diversion of project funds. The monitor’s findings contributed to the

recipient’s decision to terminate the center’s entire staff without notice.

The recipient later discovered that project computer records had been

destroyed before the center’s offices were vacated.

Our audit confirmed the problems noted in the project monitor’s evaluation and identified other areas of noncompliance and misrepresentation.

We also concluded that the recipient was negligent in failing to maintain

required project oversight and controls that might have prevented the

problems discussed below or at least identified them earlier. Our major

findings were as follows:

ò Recipient’s administration of the project was deficient.

Because the award recipient failed to exercise adequate controls

over the project, the project director gained complete control of

the project and was able to avoid meaningful oversight by the

recipient and MBDA. The director, who prepared the proposal to

MBDA, did not implement the project as proposed and did not

obtain the required approvals from the recipient, MBDA, or the

Department for deviations from the proposal. The project director

and deputy director had previously held similar positions in

another MBDA-funded center that had a history of management

problems.

ò Center did not meet award performance requirements. The

programmatic accomplishments reported to MBDA were misleading in several respects, and performance data was manipulated

to obscure the fact that the award’s intent to provide consulting

services to minority clients in the required service area was not

being met. Specifically, most clients claimed were ineligible for

The Minority Business

Development Agency was

created to help minority-owned

and operated businesses achieve

effective and equal participation in

the American free enterprise

system, and overcome the social

and economic disadvantages that

have limited their participation in

the past. MBDA provides

management and technical

assistance to minority firms upon

request, primarily through a

network of business development

centers. It also promotes and

coordinates the efforts of other

federal agencies in assisting or

providing market opportunities for

minority businesses.
assistance under the award, most performance claims were

unrelated to the center’s services and some were fabricated, time

claimed was spent on many questionable activities, and supporting

time records were fabricated or altered.

ò Project’s claimed costs were not supported. We questioned all

costs claimed under the award because of the aforementioned

nonperformance and for noncompliance with federal cost principles

and requirements. Neither the recipient nor the center had an

accounting system to properly record and control project expenditures. After reconstructing the financial results from the records that

were available, we found, among other things, that project funds

were diverted to the recipient’s general accounts, the recipient’s

cost share was not met, time distribution records were unreliable,

and financial reports were late, inaccurate, and inconsistent.

We questioned $1,320,974 in claimed costs, representing the total

reconstructed expenditures, and recommended that the Department disallow

those costs, recover the $792,896 in federal funds disbursed, and deobligate

the remaining $25,192 in undisbursed federal funds and put them to better

use. We also recommended that the project director, deputy director, and

their private consulting firm be debarred from receiving future federal

funding and that the recipient be designated as a high-risk recipient and have

special award conditions applied to any future funding it may receive.

The recipient disagreed with our findings and conclusions, and with our

recommendations related to questioned costs and designation as a high-risk

recipient. The recipient claimed that it had provided adequate oversight of

the project, that MBDA was responsible for many of the problems, and that

many statements in our report were untrue. (Seattle Regional Office of

Audits: STL-11406)

Minority Business Development Agency

Commerce OIG Semiannual Report

September 2000 50

Finance and

Administration

Strategic

Planning

Program

Development

External

Affairs

Minority Business

Development

Agency
National Oceanic and

Atmospheric Administration

The National Oceanic and

Atmospheric Administration

studies climate and global change;

ensures the protection of coastal

oceans and the management of

marine resources; provides

weather services; and manages

worldwide environmental data. It

does this through the following

organizations:

National Weather Service. NWS

reports the weather of the United

States and provides weather

forecasts and warnings to the

general public.

National Ocean Service. NOS

issues nautical and aeronautical

charts; performs geodetic surveys;

conducts research; and develops

policies on ocean mining and

energy.

National Marine Fisheries

Service. NMFS conducts a

program of management,

research, and services related to

the protection and rational use of

living marine resources.

National Environmental Satellite,

Data, and Information Service.

NESDIS observes the environment

by operating a national satellite

system.

Office of Oceanic and

Atmospheric Research. OAR

conducts research related to the

oceans and inland waters, the

lower and upper atmosphere,

space environment, and the Earth.

Office of Marine and Aviation

Operations. OMAO operates

NOAA’s ships and aircraft and

provides NOAA programs with

trained technical and management

personnel from the nation’s

seventh uniformed service.

51 Commerce OIG Semiannual Report

September 2000

Small Business Innovation Research Program

Award Procedures Need Improvement

During this semiannual period, the OIG reported on its audit of the criteria,

procedures, and practices for soliciting, reviewing, and selecting applications in FY 1997 for awards under NOAA’s Small Business Innovation

Research (SBIR) program. The audit was conducted as part of a

Department-wide review of Commerce’s discretionary financial assistance

programs.

The SBIR program is designed to stimulate technological innovation in the

private sector, strengthen the role of small business in meeting federal

research and development needs, increase the commercial application of

innovations derived from federal research, and improve the return on

investment from federally funded research for the nation’s economic

benefit. SBIR is a three-phase program: Phase 1 determines the scientific

and technical merit and the feasibility of ideas submitted for consideration;

Phase 2 is the research and development phase of proposals identified as

having commercial potential; and Phase 3 is the commercialization of the

research. Only firms that have received Phase 1 awards may compete for

Phase 2 funding, and no SBIR funding may be used for Phase 3.

In FY 1997, NOAA awarded five Phase 1 grants, for a total of $249,000,

and two Phase 2 grants totaling $399,000. NOAA also provided $1.6 million in SBIR funding in the form of procurement contracts. Because our

review was focused on the award of discretionary financial assistance, we

limited our work to an examination of NOAA’s process for making SBIR

grants.

Although our audit found that NOAA’s procedures and practices for

awarding grants under the SBIR program were generally designed to result

in merit-based funding decisions, we also found areas in which the

procedures and practices failed to meet departmental requirements for

competition. Specifically:

ò The Department’s program solicitation did not contain the

required statement that cost sharing is not required and will not be

considered in the evaluation of proposals.

ò NOAA used only two evaluators for Phase 1 proposals, even

though departmental policy requires at least three.
National Oceanic and Atmospheric Administration

National

Weather

Service

National

Ocean

Service

National

Marine Fisheries

Service

NESDIS

NOAA

Oceanic and

Atmospheric

Research

Marine and

Aviation

Operations

52 Commerce OIG Semiannual Report

September 2000

We believe that NOAA could enhance the independence and objectivity of

future SBIR competitions by inviting reviewers from outside the agency

and the Department to participate. In addition, two of NOAA’s Phase 2

grants appeared to have been awarded noncompetitively, because they

were not included on either on the list of Phase 2 applicants provided to us

or the rank-order list of projects scored by the Phase 2 selection process.

NOAA later informed us that the two grants were selected competitively

by a separate selection panel that we had not been told about earlier.

We recommended that NOAA ensure that (1) future SBIR program

solicitations include appropriate language concerning cost sharing, (2) all

SBIR proposals are evaluated by at least three reviewers, (3) reviewers

from outside the agency and the Department are invited to participate in

evaluating applications, and (4) either a single competitive selection process

is used for all Phase 2 awards or the fact that certain projects will be

selected through a different process is fully disclosed in all published

material. NOAA agreed to implement our recommendations and submitted

an audit action plan that adequately addressed them. (Denver Regional

Office of Audits: DEN-11001)

NWS Raleigh Office Provides Valuable Services

but Needs Better Management and Controls

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

nationwide that issue local forecasts and warnings of severe weather. The

WFO in Raleigh, North Carolina, located on the Centennial Campus of

North Carolina State University, is responsible for a warning area that

covers 31 counties in the central part of the state.

The OIG conducted an inspection to determine how effective the Raleigh

WFO is in delivering forecasts, warnings, and other information to users;

how well it coordinates its activities with state and local emergency

managers; and how well it manages its networks of volunteer spotters and

observers. We also assessed the adequacy of the office’s management

practices, internal controls, and administrative procedures.

We spoke with numerous state and county officials concerning their

interactions with the Raleigh WFO and the quality of service it provides.

Without exception, they had favorable comments about the WFO’s

performance. Moreover, based on NWS Eastern Region verification

statistics, the WFO had one of the region’s best records in delivering

accurate forecasts and warnings during the 1999 severe weather season.
National Oceanic and Atmospheric Administration

53 Commerce OIG Semiannual Report

September 2000

Nevertheless, our review identified a number of administrative and

operational deficiencies that require prompt management attention:

The Cooperative Observer and Skywarn programs need attention.

The Raleigh WFO has only two staff members working part-time on the

Cooperative Observer program, which is an important component of

NWS’s data collection and national observing capability. The office should

be able to reallocate resources to strengthen support for this program. In

addition, the office’s Skywarn network, which relies on trained volunteer

spotters to provide severe weather reports, does not provide adequate

coverage of certain remote parts of the WFO’s warning area.

Actions are needed to strengthen management of information

technology. The WFO has neither designated a systems security officer

nor implemented NWS’s information technology security policies, which

were issued to maintain appropriate levels of security and foster greater

security awareness among NWS staff. In addition, we found disjointed and

inadequate oversight of the office’s information systems, with different

personnel managing different aspects of the systems and software. The

electronic systems analyst, the office’s designated systems administrator,

should be handling these responsibilities.

Greater use of engineering management reporting system is needed.

WFO personnel did not understand how to use NWS’s engineering

management reporting system, which helps managers track the operational

reliability and maintenance of 35,000 pieces of equipment at 3,000 sites.

Raleigh personnel stated that they are unaware of the system’s capabilities,

have not been regularly inputting repair information into the system, and

have not proactively managed the office’s equipment.

More consistent quality control over WFO products is needed.

Because the WFO lacks a structured method to review forecasts,

warnings, and other products to ensure accuracy and completeness, some

office products containing improper information have been issued.

Although the overall quality of the office’s products appears adequate,

many office personnel believed that it could be improved.

A structured staff training program is needed. Some Raleigh personnel

complained that meteorological and hydrological training has been inconsistent and unresponsive to their needs. They believe that training has been

a low office priority, as evidenced by the lack of a structured training program for both experienced forecasters and interns. Operational demands

should not preclude the WFO from having a structured training program.
54

National Oceanic and Atmospheric Administration

Commerce OIG Semiannual Report

September 2000

Improvements are needed in key administrative areas. The WFO lacks

adequate internal controls over inventory, official vehicles, and credit card

purchases. In addition, because the office does not maintain a spreadsheet

to track its expenditures against its budget, the meteorologist-in-charge is

not aware of the current status of funds and cannot effectively manage the

office’s fiscal resources.

Savings can be realized by eliminating some leased storage space. In

addition to its main office, the WFO leases storage space on the university

campus and rents space in a public storage facility nearby. Because the

office has more storage space than it needs and the public storage space is

much less expensive than the on-campus space, the office could save

about $13,700 by disposing of unneeded items, vacating the on-campus

space, and consolidating all storage items in the off-campus facility.

Local and regional management should be more attentive to office

problems. Inattentive management, personality conflicts, and resentment

over staffing decisions have combined to hurt office morale, especially

among electronics technicians. These problems have in turn negatively

affected equipment repairs, IT management, and administrative operations.

The meteorologist-in-charge needs to implement a more effective

management system, including holding staff accountable for performing

their assigned responsibilities, and regional management needs to provide

greater oversight to ensure that this is accomplished.

We made a number of recommendations to address these deficiencies.

NWS agreed with all but four of our recommendations and outlined steps

it was taking to address them. For each of the recommendations with

which NWS did not concur, it stated that the action being recommended

was already in practice at the Raleigh WFO. We disagreed in all but one

instance, but commended NWS for its aggressive plan of remedial actions

to address most of our concerns. (Office of Inspections and Program

Evaluations: IPE-12661)

Internal Controls over Science Center’s

Bankcard Program Need Improvement

As part of its periodic review of Commerce units’ use of bankcards, the

OIG conducted an audit of the bankcard program of the National Marine

Fisheries Service’s Northwest Fisheries Science Center. The audit

examined bankcard transactions at the center’s headquarters in Seattle and

at its field sites in Manchester and Pasco, Washington. During the audit,

we interviewed 55 of the 227 cardholders and examined 773 bankcard

transactions, based on a judgmental sampling of about 10,000 FY 1998

transactions totaling approximately $2.5 million.
55

National Oceanic and Atmospheric Administration

Commerce OIG Semiannual Report

September 2000

Our audit revealed the following internal control deficiencies that needed

attention:

ò Of the 55 cardholders interviewed, 48 had not viewed the required

training video in the previous two years, 47 did not keep their

cards secure in a locked drawer or cabinet, 24 did not maintain the

required purchase order log, 5 had purchased prohibited items,

and 3 had made purchases of over $2,500 without obtaining

competitive quotations or preparing a sole-source justification.

ò Of the 773 transactions examined, only 19 had been preapproved

as required. Moreover, 49 transactions were not supported by

adequate documentation, 13 lacked signatures of approving officials, and for 7 that involved purchases of accountable property,

the required property transaction forms were not completed.

We also concluded that the number of cardholders needed to be reevaluated because 17 of the 55 cardholders (about 31 percent) had used the

card infrequently—fewer than four times during the year. This suggested

that the number of cardholders was much higher than needed, given the

administrative burden of maintaining proper oversight of card use.

NOAA concurred in all of our findings and described specific steps taken

or planned to implement our recommendations. For example, after our

audit, the center held several training sessions and canceled the bankcards

of cardholders who committed purchase violations. The center also

planned to review bankcard use to determine whether the number of

cardholders should be decreased. (Seattle Regional Office of Audits:

STL-12555)

Restitution Ordered for False Claims

Made to Fishermen’s Contingency Fund

More than eight years after his conviction for filing a false claim for nearly

$7,000 against the Fishermen’s Contingency Fund, a fisherman from Lake

Arthur, Louisiana, was apprehended and sentenced. The fisherman had

been convicted on the charge in November 1991, but fled the country

prior to his sentencing. He was arrested in Florida shortly after his return

to the United States this past spring, and was sentenced in July 2000 in

U.S. District Court for the Western District of Louisiana to 24 months’

imprisonment and 200 hours of community service, and ordered to make

full restitution to the government.
56

National Oceanic and Atmospheric Administration

Commerce OIG Semiannual Report

September 2000

In a second matter, another Louisiana fisherman acknowledged filing two

false claims for loss of fishing gear under the Fishermen’s Contingency

Fund program, and agreed to make restitution of $15,800 to the

government during the three-year probationary period established by his

pretrial diversion agreement. (Denver Field Office of Investigations)

Former Employee Ordered to

Repay Purchase Card Charges

A former NOAA secretary entered into a pretrial diversion agreement to

settle charges that she had used a government credit card to make more

than $4,300 of personal purchases. A Massachusetts state court ordered

the former employee to repay the money to the government within one

year and complete 25 hours of community service or face a sentence of up

to 2 years’ imprisonment and a $25,000 fine for the theft. (Silver Spring

Field Office of Investigations)

Two Employees Disciplined

for Misuse of Official Vehicles

An NMFS employee was suspended for 30 days for misuse of a

government vehicle. Although the vehicle was observed at his residence on

multiple occasions, the employee claimed that he had only stopped there

briefly while working in the field. An OIG investigation revealed, however,

that there was no work-related reason for him to have been driving in the

area of his residence at any of the times in question.

An NWS employee resigned from federal service in the face of his

proposed demotion and reassignment for use of a government vehicle for

other than official purposes, including home-to-work transportation on a

regular and recurring basis. (Denver Field Office of Investigations)

Audit Reports Unresolved

for Over Six Months

As of September 30, 2000, one performance audit report related to NOAA

had recommendations unresolved for more than six months: Opportunities Exist to Improve the Competitive Review Practices of OAR’s Climate

and Atmospheric Research Program, CFDA No. 11.431, STL-10949 (see

March 2000 issue, page 56). The audit was one of a series that focused on

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

selecting applications under Commerce discretionary financial assistance

programs.
57

National Oceanic and Atmospheric Administration

Commerce OIG Semiannual Report

September 2000

The audit report recommended that the Office of Atmospheric Research

ensure that (1) all proposals, including letters of intent, are independently

and competitively evaluated, with selection decisions justified and

adequately documented in the proposal files, (2) reasons for selecting

lower-ranked proposals are thoroughly explained and documented, and

(3) documented market searches are performed to verify that there is only

one source for anticipated sole-source awards.

We have reviewed NOAA’s audit action plan, but do not concur with

some of the proposed actions. We plan further discussions with NOAA in

an effort to resolve these issues.
Reporting of Performance Measures

Needs Improvement

Under the requirements of GPRA and the CFO Act, as amended by the

Government Management Reform Act of 1994, the Department, and its

operating units, such as NTIA, report on their performance. The Department’s FY 1999 Annual Program Performance Report was its initial effort

to report and comment on the performance of its components, including

NTIA. NTIA’s performance data was also presented in the Department’s

FY 1999 Accountability Report.

As the Department’s principal adviser on telecommunications and

information policy issues, NTIA promotes the efficient and effective use of

telecommunications and information resources in order to create job

opportunities, enhance U.S. competitiveness, and raise the standard of

living. NTIA included five performance measures in the Department’s

FY 1999 Performance Report and the FY 2001 Annual Performance Plan,

and three of those measures in the Accountability Report. NTIA’s

performance measures are depicted in the following table. The first

performance measure shown replaces an FY 1999 measure on “lessons

learned” packages completed for foreign governments.

To be useful to the Congress, OMB, and the public, the reported

performance data must be credible. The OIG conducted an audit of

NTIA’s efforts to ensure that its reported performance results were

accurate, consistent, and reliable. Our audit reached the following

conclusions:

Performance Measure

FY 1999

Accountability

Report

FY 1999

Annual

Program

Performance

Report

FY 2001

Annual

Performance

Plan

Filings, testimony, and speeches P

Authorized spectrum assignments P P P

Internet accessibility and use P P P

Telephone subscription rates P P

Models/grants available for nonprofit or

public sector organizations

P P P

Commerce OIG Semiannual Report

September 2000

National Telecommunications

and Information Administration

The mission of the National

Telecommunications and

Information Administration is to

(a) serve through the Secretary of

Commerce as the principal

executive branch advisor to the

President on domestic and

international communications and

information policies, (b) ensure

effective and efficient federal use

of the electromagnetic spectrum,

(c) develop with other federal

agencies policies for international

communications and standardssetting organizations, (d) serve as

the federal telecommunications

research and engineering center,

and (e) administer grants under

the Telecommunications and

Information Infrastructure

Assistance Program and the

Public Telecommunications

Facilities Program.

58
Spectrum

Management

Policy

Analysis and

Development

Telecom. and

Information

Applications

Institute for

Telecom.

Sciences

International

Affairs

NTIA

ò Reporting of performance information needs to be improved.

We found adequate linkage between the first, second, and fifth

performance measures listed above and NTIA programs and

activities. However, NTIA needs to improve its reporting of the

performance measures on Internet accessibility and use and

telephone subscription rates because these measures are not

directly linked to its program and activities. In neither the

performance report nor the accountability report did NTIA

disclose this lack of direct linkage. We recommended that NTIA

either revise these measures to address outputs and outcomes

more directly linked to NTIA programs or activities or provide

adequate disclosure that the bureau is not directly responsible for

the results.

ò Improvements in internal controls needed. The number of

authorized spectrum assignments was not accurately reported in

either the performance report or the accountability report because

the data reported was as of November 26, 1999, rather than as of

September 30, 1999, the end of the fiscal year. In addition, data

on increased Internet accessibility and use was reported only for

the first quarter of the fiscal year, a limitation that was disclosed in

the accountability report but not in the performance report. We

recommended that NTIA establish procedures for coordination

between the office responsible for performance data in the

accountability report and the office responsible for the data in the

GPRA reports to ensure accurate, consistent reporting.

NTIA agreed with our findings and has taken action to implement our

recommendations. Specifically, in the latest drafts of the Department’s

2000-05 Strategic Plan, NTIA has replaced the performance measures on

Internet accessibility and telephone subscription rates with measures more

directly linked to its programs and activities. In addition, NTIA has emphasized to the two offices involved in preparing performance data the need to

report clear, consistent information on agency performance. (Financial

Statements Audits Division: FSD-12856)

National Telecommunications and Information Adminstration

59 Commerce OIG Semiannual Report

September 2000
60 Commerce OIG Semiannual Report

September 2000

National Telecommunications and Information Adminstration

University Did Not Comply with

Grant Terms and Conditions

In October 1995, NTIA awarded a $249,988 grant to a Southwestern

university to develop a multilevel interactive telecommunications model for

providing health- and education-related support to two rural underserved

communities. The grant agreement, which covered the period from

October 15, 1995, through April 14, 1998, required $279,659 in matching

funds, bringing the total project budget to $529,647.

An OIG audit of the grant found that the university had inadequately

supported $216,967 of in-kind costs claimed, which included $177,447 for

salaries and $39,520 for fringe benefits. The university also violated the

terms and conditions of its award by failing to (1) properly report on the

status of government property in its possession, (2) maintain accurate

equipment records, (3) submit quarterly progress reports on time, and

(4) promptly notify the program office of significant developments

affecting the award. After we completed our review, the university

provided the required inventory of government property.

We questioned a total of $248,285 in project costs, including the in-kind

costs mentioned above, as well as $31,318 for equipment purchases made

before the start of the award period. The recipient has been reimbursed

$137,304, which is $30,217 more than the amount of federal funds

earned. The Department closed out the grant and deobligated $25,709 in

grant funds in April 1998.

We recommended that the Department disallow the questioned costs and

recover the $30,217 in excess disbursements, deobligate the remaining

$117,192 in grant funds, and ensure that the grantee’s inventory of its

government property contains all the required information. The university

agreed with all of our recommendations. (Atlanta Regional Office of

Audits: ATL-12645)
United States Patent

and Trademark Office

Commerce OIG Semiannual Report

September 2000 61

The United States Patent and

Trademark Office administers the

nation’s patent and trademark

laws. Patents are granted, and

trademarks registered, under a

system intended to provide

incentives to invent, to invest in

research, to commercialize new

technology, and to draw attention

to inventions that would otherwise

go unnoticed. USPTO also

collects, assembles, publishes, and

disseminates technological

information disclosed in patents.

Protection of U.S. Intellectual Property

Rights Overseas Should Be Strengthened

The Intellectual Property and Communications Omnibus Reform Act of

1999 requires USPTO to advise the President on certain international

intellectual property policy issues and to advise other federal agencies on

intellectual property protection overseas. Through its Office of Legislative

and International Affairs (OLIA), USPTO works closely with the U.S.

Trade Representative and other federal agencies to expand the protection

of U.S. intellectual property throughout the world. The United States

maintains a large surplus of international trade in intellectual property, with

receipts of $36.8 billion, versus payments of $11.3 billion, in 1998.

However, these figures do not reflect trade losses due to piracy. The

International Intellectual Property Alliance, a coalition of seven trade

associations, estimated that five U.S. copyright-based industries suffered

trade losses due to piracy of more than $12 billion in 62 selected countries

in 1998. Developing countries were responsible for almost $8.8 billion of

these estimated losses.

OLIA provides technical assistance to developing countries that are setting

up or trying to improve their intellectual property protection systems. This

assistance, which was provided to more than 70 countries in FY 1999,

includes training programs in the United States, on-site assistance, and

reviews of foreign laws and regulations related to implementing intellectual

property enforcement regimes. OLIA has also cosponsored training

programs with the World Intellectual Property Organization (WIPO) and,

in FY 1999, developed a new intellectual property enforcement training

format to be used by other U.S. agencies and WIPO.

The OIG conducted an audit of OLIA’s international training and technical

assistance activities and its communication and coordination with other

federal agencies involved in protecting intellectual property rights. We also

examined OLIA’s efforts to monitor compliance with the Agreement on

Trade-Related Aspects of Intellectual Property Rights (TRIPS), which

requires all World Trade Organization members to provide certain

standards of protection for intellectual property rights.

We found that OLIA is highly respected for its expertise in international

intellectual property protection issues and its critical involvement in the

negotiation of treaties and the drafting of implementing legislation and

regulations. Recipients of OLIA’s advice and assistance, including officials

of other federal agencies, trade associations, and foreign governments,

expressed great satisfaction with OLIA’s global activities. However, we

identified a few issues that warrant management’s attention in order to

maximize OLIA’s efficiency and effectiveness:
62 Commerce OIG Semiannual Report

September 2000

United States Patent and Trademark Office

Assistant

Commissioner

for Patents

Assistant

Commissioner

for Trademarks

Associate

Commissioner

and CFO

Chief

Information

Officer

U.S. Patent and

Trademark

Office

OLIA’s international training efforts need improvement. Although

OLIA officials indicated that they receive more requests for training than

they can handle, they have not kept records to document the disposition of

training requests. Because such requests are expected to increase now that

the January 2000 deadline for World Trade Organization developing

country members to comply with the TRIPS Agreement has passed, it is

even more important for OLIA to establish controls to ensure that all

requests receive appropriate attention. OLIA also needs to maximize the

impact of its limited training resources by considering alternative training

methods, such as conducting joint sessions with WIPO or industry

associations, and using contractors or the Internet for training. Moreover,

OLIA should develop procedures to measure the results of its efforts to

protect intellectual property rights, as required by GPRA.

OLIA needs to improve its controls over federal agencies’ requests

for advice and analysis. Although OLIA provides a great deal of advice

and analysis to other federal agencies, it has not adequately controlled and

documented this workload. Moreover, many of the requests are urgent

oral requests, yet priorities are not established for them, and there are no

controls to ensure that they are responded to promptly. With requests

expected to increase, OLIA should ensure that they are adequately

controlled, and should document the results of its analyses of proposed

foreign laws and regulations governing intellectual property rights.

OLIA should initiate discussions toward a strategy for monitoring

and reporting on TRIPS compliance by developing countries. In the

absence of a legal requirement that it systematically monitor and report on

compliance before the TRIPS Agreement deadlines of January 1, 2000,

for developing countries and January 1, 2006, for least-developed countries, OLIA has reviewed developing countries on a country-by-country

basis on request, but has not assessed overall compliance since the

agreement’s implementation in 1995. As a result, OLIA was unable to

provide a status report on these countries’ compliance at any given time.

Such a report, though not legally required, would provide a stronger basis

for making policy determinations and for efficiently allocating training and

enforcement resources, and would enable USPTO to better fulfill its

advisory mission as mandated in the 1999 act.

We made a number of recommendations aimed at strengthening OLIA’s

efforts to protect U.S. intellectual property rights overseas. USPTO

generally agreed with our findings, and has already planned or taken some

actions to implement our recommendations. For example, OLIA has

established a system to track due dates and completion dates for responses

to requests for advice and analysis from other federal agencies. (Business

and Trade Audits Division: BTD-11747)
United States Patent and Trademark Office

63 Commerce OIG Semiannual Report

September 2000

Improved Internal Controls Needed

for Office of Human Resources

USPTO’s workload has grown by almost 75 percent since 1992, and to

keep pace, the agency has increased the size of its examining and associated support staff. USPTO’s recruitment and retention needs have placed

heavy demands on its Office of Human Resources (OHR). New staff hired

totaled 976 in FY 1998, 1,187 in FY 1999, and 208 during the first six

months of FY 2000. Separations, which also require OHR services, have

also been significant: 252 employees left the agency between October

1998 and March 11, 2000.

The OIG conducted an audit of OHR, focusing on its internal controls

over hiring actions, including background investigations, and over recorded

personnel actions and employees’ official personnel files. USPTO had

already identified these as problem areas and, just before we began our

audit, undertook a series of initiatives designed to improve OHR operations. We found that, despite these changes, issues remain that warrant

continued management attention.

Improved System for Processing

Background Investigations Is Needed

Background investigations, required for each new employee, have not

always been properly performed and documented. As a result, there is no

assurance that all personnel hired for certain examination and administrative functions with access to sensitive proprietary business data have

passed the required investigations. As of May 2000, OHR had not

submitted the forms necessary to request background investigations for

113 employees hired since October 1997. Moreover, documentation of

investigations for 1,626 employees hired since 1970—400 of whom were

hired since 1990—is not in the USPTO security database.

The absence of documentation could be the result of either an investigation

not being requested or documentation of the investigation results not being

recorded in the security database. Among the reasons offered by USPTO

for the situation were the large number of employees processed by OHR in

recent years, the 1:61 servicing ratio of OHR specialists to employees, and

the multiple demands, including special projects, that have been placed on

OHR resources.

USPTO’s Associate Commissioner and Chief Financial Officer, who has

management responsibility for OHR, has initiated actions to address the

lapses in OHR’s processing of requests for background investigations.
United States Patent and Trademark Office

64 Commerce OIG Semiannual Report

September 2000

First, a schedule has been established to clear up the backlog of investigations. Second, responsibility for processing requests has been transferred

to USPTO’s Office of Security, and three new security specialists are

being hired to handle this workload. Finally, preappointment checks will be

conducted before an employee comes on board.

Internal Controls over Personnel Documents

and Official Files Are Inadequate

Several conditions in OHR’s file room indicate a lack of adequate internal

controls over personnel action documents and official personnel files.

Specifically:

ò Thousands of Personnel Action Forms Unfiled. An estimated

40,000 to 50,000 forms documenting personnel actions were

unfiled. Without properly filed forms, a formal record does not

exist to support personnel actions.

ò Insufficient File Room Security. We observed that the OHR file

room is not locked when employees leave the room, there are no

controls over who is allowed to see personnel files, and certain

employees are allowed to remove personnel files from the room

without signing them out.

ò 10 percent of Personnel Files Not Located. Selecting a random

sample of official personnel files, we found that 10 percent of

them could not be located. Projecting from our sample, we

estimate that personnel files of between 108 and 121 employees

hired between October 1998 and March 2000 cannot be located.

OHR has begun to draft procedures to address these conditions, and is

considering hiring contract employees to file the backlogged personnel

action forms.

We endorsed the measures that USPTO has planned to address the

identified deficiencies. However, because of the severity and long history

of the problems and the sensitivity of background investigations, personnel

action documents, and official personnel files, we recommended that

USPTO’s Associate Commissioner and Chief Financial Officer periodically

report to the Under Secretary on the progress being made to address the

problems. USPTO concurred. (Business and Trade Audits Division:

BTD-12830)
Technology

Administration

The Technology Administration

serves the needs of technologybased industry, advocates federal

actions and policies to speed the

transfer of technology from the

laboratory to the marketplace, and

removes barriers for commercializing new technologies by

industry. It includes three major

organizations:

Office of Technology Policy. OTP

works to raise national awareness

of the competitive challenge,

promotes industry/government/

university partnerships, fosters

quick commercialization of federal

research results, promotes

dedication to quality, increases

industry’s access to and participation in foreign research and

development, and encourages the

adoption of global standards.

National Institute of Standards

and Technology. NIST promotes

U.S. economic growth by working

with industry to develop and apply

technology, measurements, and

standards. NIST manages four

programs: the Advanced Technology Program, the Manufacturing

Extension Partnership Program, a

laboratory-based measurement

and standards program, and the

National Quality Program.

National Technical Information

Service. NTIS is a self-supporting

agency that promotes the nation’s

economic growth and job creation

by providing access to voluminous

information that stimulates

innovation and discovery. NTIS

accomplishes this mission through

two major programs: information

collection and dissemination to the

public, and information and

production services to federal

agencies.

65 Commerce OIG Semiannual Report

September 2000

NIST Can Do More to Ensure Competition

in Its Research and Standards Program

During this semiannual period, the OIG reported on its audit of the criteria,

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

in FY 1997 for awards under NIST’s Measurement and Engineering

Research and Standards Program (MERS). The audit was conducted as

part of a Department-wide review of Commerce’s discretionary financial

assistance programs.

The objective of MERS is to provide scientific research for measurement

and engineering research and standards. During FY 1997, NIST processed

172 financial assistance awards for a total of $26.9 million under MERS.

Of these 172 awards, 1 (for $6.5 million) was legislatively mandated, 46

(totaling $2.8 million) were awarded competitively, but the remaining 125

(totaling $17.6 million) were awarded noncompetitively, on a sole-source

basis, without appropriate justification. The sole-source awards consisted of

66 new awards, for a total of $8.1 million, and 59 renewals of or amendments to existing awards, totaling $9.5 million.

The competitive awards were made under three MERS subprograms: the

Fire Research Grants program, the Precision Measurement Grants program,

and the Materials Science and Engineering Laboratory Grants program. For

each of these subprograms, NIST has established and followed procedures

that are designed to result in merit-based funding decisions and that generally comply with the Department’s minimum requirements for financial

assistance awards.

However, we found some areas needing improvement in these subprograms’ procedures and practices. Specifically, NIST (1) in solicitation

notices for two of the subprograms, failed to specify the single type of

funding instrument to be used, (2) in the notice for one of the subprograms,

published misleading information about the duration of award proposals that

would be accepted, (3) allowed the selecting official for one subprogram to

also participate in proposal review panels, and (4) provided an unfair

advantage to certain grant renewal applicants under one subprogram. We

also found that the agency could enhance the independence and objectivity

of future grant competitions by inviting reviewers from outside NIST and

the Department to serve on the panels.
Technology Administration

NIST

Technology

Administration

Technology

Policy

NTIS

66 Commerce OIG Semiannual Report

September 2000

The three competitive subprograms, however, represent a relatively small

portion of overall MERS funding. Most of the awards under the program

were awarded noncompetitively, on a sole-source basis. We found that

although NIST’s procedures governing sole-source awards require a

determination that the proposed recipient is the only responsible source

that could accomplish the work, the written justifications for the solesource awards did not cite any factual support for such determinations,

such as the results of published solicitation notices. In addition, NIST’s

Grant Office did not take adequate steps to verify these determinations.

NIST’s extensive use of sole-source awards appears to conflict with

departmental policy, which encourages competition in awarding financial

assistance. We also found that certain sole-source awards under one of the

MERS subprograms did not comply with departmental guidance which

states that awards made in response to an unsolicited proposal can be

made noncompetitively only if the project falls outside the goals of a

competitive program.

Finally, because NIST does not have written procedures for renewing solesource awards, no determination of a project’s continuing worthiness is

made before renewal. We believe that NIST needs to establish minimum

standards to guide technical personnel in assessing whether sole-source

awards should be renewed and, if renewal is warranted, whether it should

be done on a noncompetitive basis. These standards will help bring

consistency to NIST’s sole-source renewals and provide a means for it to

document that the renewals are merit based and appropriate.

NIST agreed with 7 of the 10 recommendations we made to address our

findings. However, it did not agree to (1) specify in its solicitation notices

for the two subprograms the single type of funding instrument to be used,

(2) include at least one proposal review panel member outside the supervisory chain of command of the selecting official for future competitions

for one subprogram, or (3) publicly announce proposed sole-source

awards, request proposals from interested parties, evaluate any applications submitted, and make the selection using competitive, merit-based

procedures. After considering NIST’s comments, we reaffirmed our

recommendations. (Denver Regional Office of Audits: DEN-10958)
67

Technology Administration

Commerce OIG Semiannual Report

September 2000

OIG Briefs the Congress

on NIST Activities

In response to a request from the House Committee on Science’s Technology Subcommittee, on August 2, 2000, OIG staff briefed Subcommittee

staff on two issues related to NIST: Planned construction and renovations

at its Boulder, Colorado, campus and its support for the development of

national building and fire codes for Saudi Arabia.

Construction/Renovations

at Boulder Campus

First, the Committee asked us to determine the status and the specific

planned use of a proposed reprogramming of $8 million of Advanced

Technology Program funds to be put toward NIST’s Boulder campus

renovations. Second, we were asked to determine the purpose of a

$500,000 request in NIST’s FY 2001 budget for study or design of an

electrical system upgrade on its Boulder campus.

We found that NIST planned to spend the $8 million for renovations on

two of its highest priority projects in Boulder—an electrical power upgrade

project and the renovation of Building 4. The electrical project, projected

to cost $5.9 million, is designed to address persistent power problems by

replacing the current system, which is partly above ground and prone to

disruptions, with a buried, secure line. The other $2.1 million was to be

spent to begin renovating Building 4 to accommodate the instruments

shop, which is currently occupying prime laboratory space in Building 1.

The remainder of the estimated $3.7 million needed to complete the

renovations would be funded from future appropriations.

The $500,000 request for FY 2001 is related to the electrical project

described in the preceding paragraph, and would provide for the design for

laying the underground line to the campus. Had the $8 million reprogramming been approved, this funding would have no longer been needed.

Although the Department determined that no funds were available for the

reprogramming, our limited initial review led us to conclude that NIST’s

plans for the use of the funds involved in the reprogramming request

appeared reasonable in that the electrical project would have provided a

more reliable source of power, and renovating Building 4 would have freed

up 12,200 square feet of prime laboratory space for programs that need it.

Boulder, the older of the two NIST campuses, has significant renovation,

construction, safety, and maintenance needs. The agency estimates that
Technology Administration

68 Commerce OIG Semiannual Report

September 2000

Boulder has $64.4 million in deferred maintenance projects, and as the site

ages, items continue to be added to the list. However, we also

acknowledged that we had not recently assessed NIST’s total construction

needs, its prioritization of those needs, and any spending plan to address

them.

Building and Fire Code Activities

with the Kingdom of Saudi Arabia

Under a 1996 memorandum of understanding (MOU), NIST provided

$625,000 to a U.S. building code organization to help promote the sale and

use of U.S. construction industry products and services in foreign

countries. The Subcommittee asked that we inquire into how the funds

were spent. Related to this was a dispute with Saudi Arabia on building

codes work under the MOU (roughly half the $625,000 was spent on the

Saudi Arabia project; most of the balance was spent on building code

projects in the Caribbean). We were also asked to report on the nature of

the dispute and provide the current status.

Our limited review of the available documentation indicated that most of

the funds spent under the MOU went for salaries and travel on projects in

Saudi Arabia and the Caribbean. The documentation lists what appear to

be legitimate activities conducted with these funds under the MOU. NIST

believes the MOU’s purposes were accomplished—namely, assisting the

U.S. construction industry in gaining access to global markets by cooperating with the governments of other nations and private organizations to

adopt U.S. construction codes, standards, and practices. The ultimate

value of this project will not be known for several years until it is clear

whether U.S. firms in fact have greater access to those markets.

In February 1999, a dispute arose between Saudi Arabia and another U.S.

building code organization involved in the project over the payment of

licensing and royalty fees for the draft building and fire codes. As a result,

at one point Saudi Arabia suggested that it might abandon the MOU and

instead adopt European or Japanese building codes. On June 5, 2000, after

strenuous efforts by Department and NIST officials, an agreement was

reached under which the U.S. organization agreed to a compromise,

receiving only its direct costs for the project and giving up any licensing or

royalty payments in order to resolve the dispute. The codes were delivered

to Saudi Arabia in July 2000, and the MOU has been renewed for another

3 years. (Office of Inspections and Program Evaluations)
Technology Administration

69 Commerce OIG Semiannual Report

September 2000

NIST Scientist Pays $30,000

to Settle Government’s Claim

A senior NIST scientist agreed to pay the United States $30,000 to resolve

charges that he had violated the False Claims Act and federal conflict of

interest law in connection with the development of a robotic device by his

division. An OIG investigation found that the scientist owned a patent for a

stabilized lifting platform, which was an integral part of a robotic crane

being developed at NIST. During 1993 and 1994, he committed government funds allocated to his division to develop and fine-tune the crane and

thereby enhance the value of his own patent, without disclosing his

financial interest in the platform to the Department.

When the scientist’s ownership of the platform patent came to the

Department’s attention, he agreed to sell the patent to the government.

OIG investigators concluded that, by failing to disclose that he had used

government resources to develop the platform, the scientist made false

statements to the Department’s Office of General Counsel when he was

negotiating the sale of his patent. The scientist disputed the OIG’s findings,

but entered into a settlement agreement after being notified of the

government’s intention to prosecute its claims through a civil lawsuit.

(Financial Fraud Division)
Departmental Management

Chief

Information

Officer

Security

Financial

Management

CFO and

Assistant Secretary

for Administration

Management

and

Organization

Human

Resources

Management

Acquisition

Management

Civil

Rights

Budget

Administrative

Services

Small and

Disadvantaged

Business Util.

Exec. Budgeting

and Assistance

Management

70 Commerce OIG Semiannual Report

September 2000

Most Discretionary Funding Decisions Are

Merit-Based, but Processes Can Be Improved

Seven Commerce operating units administer 72 discretionary financial

assistance programs providing more than $1 billion a year, or about a

quarter of the Department’s budget, to state and local governments,

nonprofit and for-profit organizations, and individuals. At the request of

the Chairman, Senate Committee on Commerce, Science, and Transportation, the OIG conducted a comprehensive audit of the Department’s

discretionary funding programs to identify the laws, regulations, and

procedures established to guide officials in making discretionary spending

decisions, to evaluate the policies and procedures applicable to Commerce

financial assistance programs, and to determine to what extent the policies

and procedures were being followed.

We classified each of the 72 financial assistance programs as being either a

“full discretion” or “limited discretion” program, based on the extent to

which its authorizing legislation limited the operating unit’s authority to

independently determine the recipients and amounts of the awards. We

classified 34 of the programs as limited discretion programs, and the other

38 as full discretion programs. Because 5 of the full discretion programs

had been inactive in recent years, we conducted individual audits of the

remaining 33 and issued a report on each.

A primary purpose of the Federal Grant and Cooperative Agreement Act is

to encourage competition in the award of federal financial assistance to the

maximum extent practicable, in order to ensure that financial assistance

awards are made on the basis of merit. We therefore evaluated the 33

programs on their adherence to the following three critical elements that

OMB has identified as being essential to ensuring effective competition:

ò Widespread solicitation of eligible applicants and disclosure of

essential application and program information in written

solicitations.

ò Independent application reviews that consistently apply written

program evaluation criteria.

ò Written justification for award decisions that deviate from

recommendations made by application reviewers.

After reporting on each of the 33 programs, we then issued a “capping”

report, summarizing the results of the individual audits; identifying crosscutting issues; highlighting best practices; identifying weaknesses in
Departmental Management

Commerce OIG Semiannual Report

September 2000 71

departmental policies, procedures, and practices; and offering recommendations for correcting them.

We found that of the 33 full discretion programs, 21 (or nearly two-thirds),

accounting for about 92 percent of the total obligations made for financial

assistance programs in FY 1997, were administered competitively using

evaluation criteria designed to result in merit-based funding decisions.

Nevertheless, we found opportunities for the operating units to improve

aspects of their awards processes. Our findings related to the three critical

elements identified by OMB are summarized below.

Solicitation and disclosure. All but 3 of the 21 competitive programs

were meeting the Department’s minimum requirement of placing a notice

in the Federal Register soliciting applications for funding and clearly

stating the criteria to be used in evaluating applications. We noted,

however, that many of the programs could improve the effectiveness of

their solicitations by adopting other programs’ best practices, such as

soliciting through Internet announcements, mailing lists, and trade

publications.

Independent application reviews. Eighteen of the 21 competitive

programs used written competitive procedures and merit-based criteria in

evaluating applications for funding, but most of these programs could

enhance the integrity of their review processes by increasing the independence of review panels and better documenting the results of the reviews.

For example, only 7 of the 21 programs used panels that included at least

one member from outside of the chain of command of the selecting

official, and only 12 of the 21 adequately documented their application

reviews.

Justification for decisions that deviate from recommendations. In

only 8 of the 21 competitive programs did selecting officials’ decisions

deviate from panel recommendations. But the reasons for the deviations

were not adequately documented in 5 of the 8 programs.

Twelve of the 33 full discretion programs did not use competitive

procedures in making award decisions, but instead obligated program funds

through inadequately or inappropriately justified sole-source awards.

Although departmental and other federal guidelines recognize that

individual proposals may be justified for noncompetitive funding on an

exception basis, an entire program should generally not be administered on

a noncompetitive basis, as these 12 were, unless authorized by law. Absent

such legislative direction, there should be an appropriate basis and adequate written justification for individual noncompetitive awards.
Departmental Management

72 Commerce OIG Semiannual Report

September 2000

Although the Department has policies and procedures in place to

encourage competition in the award of financial assistance, we believe

that improvements can be made by institutionalizing best practices and

strengthening Department-level technical assistance. Accordingly, to

augment the recommendations we made in our reports on the 33 individual

program audits, our capping report contained a series of recommendations

to the Department aimed at helping its operating units improve their

financial assistance award processes by clarifying minimal departmental

expectations for competition and providing appropriate leadership and

training.

Agreeing that opportunities exist to improve the financial assistance award

processes, the Department concurred in all of our recommendations. We

are pleased by the Department’s concurrence and, in particular, by its

agreement to institutionalize the recommended improvements by incorporating them into the departmental grants and cooperative agreements

manual that is currently under development. (Atlanta Regional Office of

Audits: ATL-10835)

Improvements Are Needed in the Handling

of Interagency and Other Special Agreements

The Department of Commerce relies heavily on interagency and other

special agreements to perform its mission. In FY 1997, for example, Commerce had more than 4,700 agreements, involving more than $1 billion in

funds received for reimbursable activities or obligated to acquire goods or

services from other parties. (The table on the following page shows, by

bureau, the number of agreements identified and their estimated value.)

These agreements can be between Commerce bureaus or between a

bureau and another federal agency, a state or local government agency, an

educational institution, a nonprofit organization, or a private party.

Although agreements involve significant federal resources, they are not

subject to the same administrative controls as procurement contracts,

grants, or cooperative agreements.

The OIG recently issued the last in a series of reports on its Departmentwide review of interagency and special agreements. The report summarized cross-cutting issues we identified during our reviews of the handling of

such agreements at 10 Commerce bureaus and during earlier reviews. In

addition to identifying common problems that Commerce bureaus have

experienced in preparing and administering agreements, we also highlighted

several “best practices” that may be helpful to the bureaus. A summary of

our findings follows:
Departmental Management

Commerce OIG Semiannual Report

September 2000 73

Most of the agreements appeared to serve important and appropriate

functions. Most bureaus are using agreements to cover activities that

should be funded by an agreement and that further Commerce’s varied

missions. Nevertheless, it is important to maintain diligent oversight of

such agreements to prevent potential problems. For example, accepting too

much reimbursable work can divert a program from its primary mission,

and operating a program in Commerce that is funded and guided mostly by

another agency can prevent the government from realizing the efficiencies

that can be gained by properly placing the function in that agency.

Some bureaus have entered into informal arrangements without a

written agreement. During our reviews, we came across instances in

which bureaus improperly performed work for other parties without the

benefit of a written agreement. Conducting such activities without a

written agreement violates departmental and agency policies and puts the

U.S. government’s interests and credibility at risk.

Agreements have sometimes been used when a procurement contract

would have been more appropriate. Several bureaus circumvented

procurement laws and regulations by using agreements instead of procurement contracts to acquire goods and services. Program officials need to be

informed, through training or other guidance, about how to best determine

when a procurement contract, rather than an agreement, is the most

appropriate instrument for an anticipated funds transfer to a private entity.

 FY 1997 Agreements Bureau

 Number Value

BXA $2,342,000

EDA 14,929,000

ESA 213,509,000

ITA 36,209,000

MBDA 3,591,000

NOAA 470,015,000

NTIA 30,780,000

Office of the Secretary 23,970,000

TA 267,070,000

USPTO 49,215,000

Total $1,111,630,000

15

33

756

109

23

2,038

120

206

1,400

55

4,755
Departmental Management

74 Commerce OIG Semiannual Report

September 2000

Agreements have sometimes been used when financial assistance

awards would have been more appropriate. During our reviews, we

questioned whether some officials and staff were inappropriately using

agreements in lieu of grants or cooperative agreements to provide financial

assistance. In one bureau, agreements were used instead of financial

assistance awards to fund an entire program, although the nature of the

activity better fit the definition of a cooperative agreement or a grant. We

pointed out that switching to a financial assistance award would improve

the funding process and strengthen the bureau’s ability to monitor projects.

The bureau in question agreed, and has since switched to using cooperative agreements for this program. The Department needs to provide clear

instructions and oversight to ensure that agreements are not used when the

appropriate funding instrument is a grant or cooperative agreement.

The Department is improving the process for preparing and monitoring agreements. In an earlier report, we urged the Department to take

a stronger role in overseeing how the bureaus draft, implement, and

administer agreements (see September 1998 issue, page 72). That report

also discussed the most common deficiencies found during our reviews,

including a failure to comply with federal requirements and to receive

necessary programmatic, administrative, and legal reviews. We are pleased

to note that the Department has made it a priority to develop Departmentwide guidance for agreements in the form of a handbook, which is to be

issued as soon as possible.

Bureaus generally do not adequately track and control agreements. A

common problem we observed was that few bureaus adequately tracked

and controlled their agreements. Different bureaus had different ways of

classifying agreements, they frequently overlooked agreements made with

other Commerce entities, and some tracked expired and inactive agreements. As a result, we found inconsistent reporting of agreements among

bureaus. In earlier reports, we recommended that both the Department and

the bureaus develop databases to track and control their agreements.

Although some progress has been made in implementing our recommendations, this matter warrants additional management attention.

Some bureaus need to better ensure full cost recovery under reimbursable agreements. Considering the significant amount of reimbursable

work performed by the bureaus, full cost recovery is a serious concern. A

bureau’s failure to recover actual costs or to equitably apportion costs

under joint agreements could result in its undercharging or overcharging

the sponsoring organization in circumvention of the appropriations process.

Unfortunately, we found many examples of Commerce bureaus not

adequately accounting for or recovering the full costs of reimbursable

activities. To correct this problem, bureau chief financial officers and other
Departmental Management

Commerce OIG Semiannual Report

September 2000 75

senior managers need to be held accountable for implementing reliable systems for identifying and recovering the full costs of reimbursable activities.

We made a number of recommendations to the Department to address the

cross-cutting concerns raised in our report. These recommendations were

in addition to those made in our 10 earlier reports covering individual

bureaus. The Department agreed with our findings and recommendations

and said that corrective actions were underway. (Office of Inspections and

Program Evaluations: IPE-9460)

Critical Infrastructure Protection: Early

Strides Were Made, but Progress Has Slowed

Presidential Decision Directive 63, issued in May 1998, called for a

national effort to ensure the security of the nation’s critical infrastructures,

also known as minimum essential infrastructure (MEI), which are the

physical and cyber-based assets essential to the minimum operations of the

economy and the government. Advances in information technology have

caused infrastructures to become increasingly automated and interlinked,

thereby creating new vulnerabilities to human error, natural disasters, and

physical and cyber-attacks.

The Department has responsibility for planning and executing a program

for protecting the assets it manages, and the Chief Information Officer

(CIO) is responsible for that program. To comply with the directive, the

CIO has developed a critical infrastructure protection (CIP) plan, identified

the Department’s critical infrastructure assets, and conducted vulnerability

assessments of some of those assets.

The OIG conducted a review to evaluate the Department’s CIP plan,

identification of assets, and vulnerability assessments of its cyber-based

assets. We focused on the CIO’s management of the CIP program, with

emphasis on the seven operating units containing the most critical assets:

NOAA, the Census Bureau, USPTO, BXA, NIST, BEA, and NTIA. Our

review was conducted as part of a joint review involving 20 other federal

Offices of Inspector General.

We found that the Department had made initial progress in implementing

the directive by developing a Department-wide CIP plan, identifying critical infrastructure assets, and initiating vulnerability assessments. However,

we also identified several areas that warrant management attention:

ò The Department’s CIP plan needs to be revised. Several

elements of the plan are outdated or missing, and important
Departmental Management

76 Commerce OIG Semiannual Report

September 2000

milestones have slipped. The asset inventory, vulnerability

assessment framework, and budget estimates included in the plan

are not current. Among the omissions are requirements for

reviewing new assets to determine whether they should be

included as MEI, periodically updating vulnerability assessments,

developing a system for responding to infrastructure attacks, and

notifying the OIG of such attacks. Progress in implementing the

directive has been slower than expected because of a lack of

funding. The CIO informed us that his office plans to revise the

CIP plan by November 2000. We recommended that the revised

plan include the updated and omitted components.

ò The MEI asset inventory should be reevaluated. Although a

systematic process was applied in compiling the inventory, the

data gathering had significant limitations. In most cases, asset

managers were neither interviewed nor given adequate guidance

before filling out complex questionnaires used to gather asset

information. Officials most knowledgeable about the assets were

seldom interviewed because of logistical problems and the limited

resources available for the inventory. Establishing a reliable MEI

inventory is important because it forms the basis for later

activities, such as selecting the highest risk assets for vulnerability

assessments and taking remedial actions. We recommended that

the Department reevaluate its MEI assets using a revised

methodology that includes improved guidance and increased

interaction with the operating units.

ò Vulnerability assessments, remediation plans, and budget

justifications need to be completed. OMB will not provide

funding for CIP activities without detailed budget requests based

on vulnerability assessments and remediation plans. Due to

resource constraints, however, the Department has current

vulnerability assessments for less than 10 percent of MEI assets

and has not developed any remediation plans. As a result, it has

received no funding for CIP activities. Because of the importance

of protecting the Department’s critical assets and the need for CIP

funding, we recommended that the CIO form assessment teams of

personnel from the Department and the bureaus, and hold operating units—supported by these teams—accountable for completing

vulnerability assessments, remediation plans, and improved CIP

budget justifications.

The CIO recognized the merit of our recommendations, but reiterated that

the lack of funding for CIP activities impedes the Department’s progress in
Departmental Management

Commerce OIG Semiannual Report

September 2000 77

implementing the directive. He stated that the Department’s focus will be

on the broad spectrum of information technology security, which

emphasizes assets critical to the Department’s mission and includes most

cyber-based MEI assets.

He also reported that short-term actions were being taken to implement

several of our recommendations, including improving guidance to operating

unit personnel involved in vulnerability assessments and increasing their

involvement in the MEI asset inventory, revising the MEI asset list,

revising target dates for completing CIP-related tasks, evaluating new

assets to determine whether they should be included as MEI, and

developing a mechanism for notifying the OIG of infrastructure attacks.

The CIO will make major revisions to the CIP plan and incorporate the

remaining outdated or missing elements as resources permit. In addition,

the Department plans to prepare remediation plans as assets are assessed

for vulnerabilities and use these plans to develop budget projections.

(Office of Systems Evaluation: OSE-12680)

Controls over Approvals for and Testing

of CAMS Software Need Improvement

During this semiannual period, the OIG reported on the adequacy of

controls over application software development and change control of the

Commerce Administrative Management System Support Center. Application software development and change control, which helps prevent the

implementation of unauthorized programs or modifications to existing

programs, is one of six areas identified for review by GAO’s Federal

Information System Controls Audit Manual. The other five areas were

addressed in an OIG report issued last February (see March 2000 issue,

page 86).

The Department undertook the development of CAMS to address its lack

of a single, integrated financial system. CAMS is currently functional at the

Census Bureau, and certain system modules are being used by EDA and

NOAA. The system is projected to be fully implemented by FY 2004. The

Support Center, located in Gaithersburg, Maryland, is responsible for

making changes to CAMS as part of its software development and

implementation activities.

Our audit revealed that although the Support Center issued new software

development and maintenance procedures in May 2000 and has taken

other steps to improve its operations, additional improvements were

needed in the controls over approvals of software features and modifications, and the testing of new and revised software. Specifically:
78 Commerce OIG Semiannual Report

September 2000

Departmental Management

ò One person was serving as the director of two Support Center

divisions with conflicting responsibilities. Allowing one person

to have responsibility over conflicting duties decreases effective

planning and management and increases risk.

ò Decisions to change CAMS have not been adequately

documented. Failing to document approvals of software changes

limits management’s ability to support and justify its decisions.

ò System testing is not performed for most CAMS modules. A

lack of complete system testing reduces the Support Center’s

assurance that the software will operate as intended.

ò System documentation does not reflect the current state of

CAMS software. The lack of up-to-date documentation increases

the risk that the software may not meet operational needs, and

could result in significant delays and unnecessary costs when

future modifications are made to the software.

We recommended that the Department segregate duties having conflicting

internal control responsibilities, document all decisions that support

approved changes to CAMS, perform system testing of all CAMS modules

and document the results, and update system documentation to reflect the

current version of the software.

The Department generally agreed with our findings and described actions

that had been initiated to implement our recommendations. Specifically,

the Support Center has hired a new director for one of the two divisions to

correct the problem of conflicting responsibilities, required that documentation be maintained for all decision bodies associated with CAMS, taken

steps to have all CAMS modules be subject to full system testing by May

2001, and begun an assessment of the state of systems documentation.

(Financial Statements Audits Division: FSD-12940)

Employee Receives 14-Day Suspension

for False Statement in OIG Investigation

An Office of Security employee was suspended for 14 days for making a

false statement during an official inquiry. During an OIG investigation, the

employee provided a sworn statement in which he falsely asserted that he

had not been paid for administratively uncontrollable overtime, although he

had, in fact, received overtime payments during the relevant time period.

(Washington Field Office of Investigations)
Commerce OIG Semiannual Report

September 2000 79

Departmental Management

Preaward Financial Assistance Screening

We continue to work with the Office of Executive Budgeting and Assistance Management, NOAA and NIST grant offices, and EDA program

offices to screen the Department’s proposed grants and cooperative

agreements before award. Our screening serves two functions: It provides

information on whether the applicant has unresolved audit findings and

recommendations on earlier awards, and it determines whether a name

check or investigation has revealed any negative history on individuals or

organizations connected with a proposed award.

During this period, we screened 1,488 proposed awards. On 13 of the

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

proposed recipients to maintain proper control over federal funds. On the

basis of the information we provided, the Department either delayed the

awards until concerns were satisfactorily resolved or established special

award conditions to adequately safeguard federal funds.

Indirect Cost Rates

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

responsible for the review, negotiation, and approval of indirect cost rates

for public and private entities receiving funds under various federal

programs. Normally, the federal agency providing the most direct funding

to an entity is designated as its cognizant agency. OMB has designated

Commerce as the cognizant agency for 280 economic development

districts, as well as a number of state and local government units. From

time to time, the Department also has oversight responsibilities for other

recipient organizations. The Department has authorized the OIG to

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

The OIG reviews and approves the methodology and principles used in

pooling indirect costs and establishing an appropriate base for distributing

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

fair share.

Preaward Screening Results

Results

Awards delayed to resolve concerns

Special award conditions established

 Amount

$34,065,802

680,632

12

1

Number
80 Commerce OIG Semiannual Report

September 2000

Departmental Management

During this period, we negotiated 23 indirect cost rate agreements with

nonprofit organizations and governmental agencies, and reviewed and

approved 22 cost allocation plans. We also provided technical assistance to

recipients of Commerce awards regarding the use of rates established by

other federal agencies and their applicability to our awards. Further, we

have worked closely with first-time for-profit recipients of Commerce

awards to establish indirect cost proposals that are acceptable for OIG

review. (Atlanta Regional Office of Audits)

Nonfederal Audit Activities

In addition to OIG-performed audits, the Department’s financial assistance

recipients are periodically audited by state and local government auditors

and by independent public accountants. OMB Circular A-133, Audits of

States, Local Governments, and Non-Profit Organizations, sets forth the

audit requirements for most of these audits. For-profit organizations that

receive Advanced Technology Program (ATP) 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 350 audit reports during this semiannual period to determine

whether they contained any audit findings related to Department

programs. For 236 of these reports, the Department acts as oversight

agency and monitors the auditee’s compliance with the applicable OMB

circulars or the NIST program-specific reporting requirements. The other

114 reports are from entities for which other federal agencies have

oversight responsibility.

Report Category

OMB

A-133

Audits

Pending (April 1, 2000)

Received

Examined

Pending (September 30, 2000)

15

180

188

7

ATP

ProgramSpecific

Audits Total

96

100

162

34

111

280

350

41
Commerce OIG Semiannual Report

September 2000 81

Departmental Management

Bureau Funds

EDA

ITA

MBDA

NIST

$75,909,682

576,678

2,269,914

266,624,602

NOAA

NTIA 3,799,918

Agency not identified

Total $510,704,502

133,905,971

27,617,737

*

The following table shows a breakdown by bureau of the $511 million in

Commerce funds audited.

* Includes $228,123,958 in ATP program-specific audits.

We identified a total of $3,578,891 in questioned costs. In most reports,

the Department’s programs were considered nonmajor, resulting in limited

transaction and compliance testing against laws, regulations, and grant

terms and conditions. The 23 reports with Commerce findings are listed in

Appendix B-1. (Atlanta Regional Office of Audits)
82 Commerce OIG Semiannual Report

September 2000

Reporting Requirements

Section Topic Page

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

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

INDEX

5(a)(1)

5(a)(2)

5(a)(3)

5(a)(4)

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

5(a)(6)

5(a)(7)

5(a)(8)

5(a)(9)

5(a)(10)

5(a)(11)

5(a)(12)

21-81

21-81

83

21-81

83

 91-95

21-81

88

89

19, 84

19, 84

85

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

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

discuss this matter in the March 2001 issue as part of our financial statement audit reporting.

4(a)(2) 83

Audit Reports—Funds to Be Put to Better Use

Significant Problems, Abuses, and Deficiencies

Significant Recommendations for Corrective Action

Prior Significant Recommendations Unimplemented

Matters Referred to Prosecutive Authorities

Information or Assistance Refused

Listing of Audit Reports

Summary of Significant Reports

Audit Reports—Questioned Costs

Prior Audit Reports Unresolved

Significant Revised Management Decisions

Significant Management Decisions with Which the OIG Disagreed

Review of Legislation and Regulations
Reporting Requirements

83 Commerce OIG Semiannual Report

September 2000

Section 4(a)(2): Review of

Legislation and Regulations

This section requires the Inspector General of each agency to review

existing and proposed legislation and regulations relating to that agency’s

programs and operations. Based on that review, the Inspector General is

required to make recommendations in the semiannual report concerning

the impact of such legislation or regulations on the economy and

efficiency in the administration of programs and operations administered

or financed by the agency or on the prevention and detection of fraud and

abuse in those programs and operations. Our comments concerning

legislative and regulatory initiatives affecting Commerce programs are

discussed in appropriate sections of the report.

Section 5(a)(3): Prior Significant

Recommendations Unimplemented

This section requires an identification of each significant recommendation

described in previous semiannual reports on which corrective action has

not been completed. Section 5(b) requires that the Secretary transmit to

the Congress statistical tables for audit reports for which no final action

has been taken, plus an explanation of the reasons final action has not

been taken on each such report, except when the management decision

was made within the preceding year.

To include a list of all significant unimplemented recommendations in this

report would be duplicative, costly, unwieldy, and of limited value to the

Congress. Any list would have meaning only if explanations detailed

whether adequate progress is being made to implement each agreed-upon

corrective action. Also, as this semiannual report was being prepared,

management was in the process of updating the Department’s Audit

Tracking System as of September 30, 2000, based on semiannual status

reports due from the bureaus in mid-October. An accurate database was

therefore not available to the OIG for reference here. However, additional

information on the status of any audit recommendations may be obtained

through the OIG’s Office of Audits.

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

or Assistance Refused

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

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

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

and no reports to the Secretary.
Reporting Requirements

84 Commerce OIG Semiannual Report

September 2000

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

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

beginning of the reporting period for which no management decision has

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

of each such report), an explanation of the reasons such management

decision has not been made, and a statement concerning the desired

timetable for achieving a management decision on each such report.

As of September 30, 2000, one performance audit and one financial

assistance audit were in this category, as discussed below.

Performance Audit

The unresolved report addresses the need for NOAA to improve the

competitive review practices of OAR’s Climate and Atmospheric Research

Program. This report is discussed on page 56.

Financial Assistance Audit

The unresolved audit relates to an EDA award to a nonprofit grantee in

Texas. The report is discussed on page 25.

Section 5(a)(11): Significant Revised

Management Decisions

This section requires an explanation of the reasons for any significant revised management decision made during the reporting period. Department

Administrative Order 213-5, Audit Resolution and Follow-up, provides

procedures for revision of a management decision. For performance

audits, the OIG must be consulted and must approve, in advance, any

modification to an audit action plan. For financial assistance audits, the

OIG must concur with any decision that would change the audit resolution

proposal in response to an appeal by the recipient.

The decisions issued on the seven appeals of audit-related debts were

finalized with the full participation and concurrence of the OIG.
Reporting Requirements

85 Commerce OIG Semiannual Report

September 2000

Section 5(a)(12): Significant Management

Decisions with Which the OIG Disagreed

This section requires information concerning any significant management

decision with which the Inspector General is in disagreement.

Department Administrative Order 213-5 provides procedures for the elevation of unresolved audit recommendations to higher levels of Department

and OIG management, including an Audit Resolution Council. During this

period, no audit issues were referred to the Council.
Statistical Highlights

Audit

Statistical Highlights

Questioned costs this period ........................................... $4,488,978

Value of audit recommendations made

this period that funds be put to better use ..................... 2,107,989

Value of audit recommendations agreed

to this period by management ......................................... 13,927,695

Value of inspection recommendations made

this period that funds be put to better use .................. .... 489,701

Investigative

Statistical Highlights

Indictments and informations ............................................................. 6

Convictions ....................................................................................... 3

Personnel actions*............................................................................ 7

Fines, restitutions, judgments, and other civil

and administrative recoveries ................................................ $86,013

 * Includes removals, suspensions, reprimands, demotions, and resignations or retirements in

lieu of adverse action.

86 Commerce OIG Semiannual Report

September 2000

Allegations Processed

by OIG Investigators

Accepted for investigation ....................................... 34

Referred to operating units ...................................... 406

Evaluated but not accepted for

investigation or referral ............................................ 159

Total ........................................................................ 599

Note: Numerous other allegations and complaints were forwarded

to the appropriate federal and nonfederal investigative agencies.

OIG HOTLINE

Telephone: (202) 482-2495 or (800) 424-5197

Internet E-Mail: oighotline@doc.gov
Tables and Appendixes

Commerce OIG Semiannual Report

September 2000 87

TABLES PAGE

1. Audits with Questioned Costs 88

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

APPENDIXES

A. Office of Inspector General Reports 90

 A-1. Performance Audits 91

 A-2. Inspections 92

 A-3. Financial Related Audits 93

B. Processed Reports 94

 B-1. Processed Financial Related Audits 94

DEFINITIONS

The term questioned cost refers to a cost that is questioned by the OIG because of (1) an alleged violation of a

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

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

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

The term unsupported cost refers to a cost that, at the time of the audit, is not supported by adequate documentation.

Questioned costs include unsupported costs.

The term recommendation that funds be put to better use refers to a recommendation by the OIG that funds could be

used more efficiently if Commerce management took action to implement and complete the recommendation, including

(1) reductions in outlays; (2) deobligation of funds from programs or operations; (3) withdrawal of interest subsidy costs

on loans or loan guarantees, insurance, or bonds; (4) costs not incurred by implementing recommended improvements

related to Commerce, a contractor, or a grantee; (5) avoidance of unnecessary expenditures identified in preaward

reviews of contracts or grant agreements; or (6) any other savings that are specifically identified.

The term management decision refers to management’s evaluation of the findings and recommendations included in

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

September 2000

Tables and Appendixes

Table 1: Audits with Questioned Costs

Report Category Number

Questioned

Costs

Unsupported

Costs

A. Reports for which no management decision had been

made by the commencement of the reporting period

9 $458,369 $301,347

B. Reports issued during the reporting period 22 4,488,978 1,454,632

C. Total reports (A+B) requiring a management decision

C. during the reporting period

31 4,947,347 1,755,979

C. Reports for which a management decision was made

C. during the reporting period

9 271,725 114,703

i. Value of disallowed costs 177,695 114,392

ii. Value of costs not disallowed 94,030 311

D. Reports for which no management decision had been

D. made by the end of the reporting period

22 $4,675,622 $1,641,276

Notes and Explanations:

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

original recommendations.

Two audit reports included in this table are also included in the reports with recommendations that funds be put to better

use (see table 2). However, the dollar amounts do not overlap.
Tables and Appendixes

89 Commerce OIG Semiannual Report

September 2000

Table 2: Audits with Recommendations

That Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the .

commencement of the reporting period

2 $17,977,000

B. Reports issued during the reporting period 3 2,107,989

C. Total reports (A+B) requiring a management decision during the B.

reporting period

5 20,084,989

C. Reports for which a management decision was made during the C.

reporting period

3 19,927,000

 i. Value of recommendations agreed to by management 13,750,000

 ii. Value of recommendations not agreed to by management 6,177,000

D. Reports for which no management decision had been made by the

D. end of the reporting period

2 157,989

Notes and Explanations:

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

the original recommendations.

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

the dollar amounts do not overlap.
Commerce OIG Semiannual Report

September 2000

Tables and Appendixes

90

Appendix A. Office of Inspector General Reports

Type Number Appendix

Performance Audits 13 A-1

Inspections 9 A-2

Financial Related Audits 6 A-3

Total 28
Tables and Appendixes

91 Commerce OIG Semiannual Report

September 2000

Appendix A-1. Performance Audits

Agency Subject Number Date

BXA Reporting of Performance Measures Needs Improvement FSD-12847 09/00

Agreed-Upon Procedures and Results Assessment of Federal Audit

Clearinghouse Database: Fiscal Year 1998 Audit Reports

ATL-12556 07/00

Decennial Census Warehousing Operations Needed Attention DEN-11950 07/00

Review of Special Population Enumerations and Questionnaire

Assistance Centers

ESD-12593 09/00

ESA

Re-enumeration at Three Local Census Offices in Florida: Hialeah,

Broward South, and Homestead

ESD-13215 09/00

Improvements Are Needed in the Northwest Fisheries Science Center

Use of Bankcards

NOAA STL-12555 06/00

Small Business Innovation Research Program Award Procedures Need

Improvement, CFDA No. 11.476

DEN-11001 08/00

NTIA Reporting of Performance Measures Needs Improvement FSD-12856 09/00

Most Departmental Discretionary Funding Decisions Are Competitive

and Merit-Based, but Opportunities Exist to Further Improve the Awards

Processes

O/S ATL-10835 09/00

Improvements Needed in Controls Over Approvals for and Testing of

CAMS Software

FSD-12940 09/00

Efforts to Protect U.S. Intellectual Property Rights Overseas Should Be

Strengthened

USPTO BTD-11747 08/00

Improved Internal Controls Needed for Office of Human Resources BTD-12830 09/00

TA-NIST Measurement and Engineering Research and Standards Program

Should Expand Use of Competitive Award Procedures

DEN-10958 09/00
Commerce OIG Semiannual Report

September 2000

Tables and Appendixes

92

Appendix A-2. Inspections

Agency Subject Number Date

Funds to Be

Put to Better

Use

Telephone Questionnaire Assistance Contract Needs

Administration and Surveillance Plan

OSE-12376 08/00 - -

Local Census Offices Were Successfully Opened, but Some

Lessons Can Be Learned From Decennial Leasing Operations

IPE-11573 09/00 $476,000

Review of the Special Census of the Village of Machesney

Park, Illinois

IPE-12045 09/00 - -

A Better Strategy Is Needed for Managing the Nation’s Master

Address File

OSE-12065 09/00 - -

ESA

Unjustified Decennial Census Unemployment Compensation

Claims Should Be Reduced Because Terminations for Cause

Were Mostly Well Documented

IPE-13212 09/00 - -

ITA US&FCS Overseas Security: Results and Improved

Management Are Needed

IPE-12708 08/00 - -

NOAA Raleigh Weather Forecast Office Provides Valuable Services,

but Needs Improved Management and Internal Controls

IPE-12661 09/00 13,701

Improvements Are Needed in Commerce Agencies’

Implementation and Oversight of Interagency and Other

Special Agreements

O/S IPE-9460 09/00 - -

Critical Infrastructure Protection: Early Strides Were Made, but

Planning and Implementation Have Slowed

OSE-12680 08/00 - -
Commerce OIG Semiannual Report

September 2000 93

Tables and Appendixes

Appendix A-3. Financial Related Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Funds to

Be Put to

Better Use

Quality Control Review

of Rehmann Robson,

CPAs & Consultants, for

the Single Audit of the

County of Iosco, MI

DEN-12071 04/00 - - - - - -

City of Long Beach, CA STL-12658(1) 06/00 - - - - - -

City of Long Beach, CA STL-12658(2) 06/00 - - - - - -

EDA

Iron Range Resources

and Rehabilitation

Board, MN

DEN-13441 09/00 - - - - $1,950,000

MBDA San Francisco Minority

Business Development

Center, operated by the

Urban Economic

Development Corp., CA

STL-11406 09/00 792,896 - - 25,192

NTIA University of New

Mexico

ATL-12645 09/00 117,191 102,408 132,797

Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the

reports.
Commerce OIG Semiannual Report

September 2000

Tables and Appendixes

94

Appendix B. Processed Reports

The Office of Inspector General reviewed and accepted 350 financial-related audit

reports prepared by independent public accountants and local, state, and other federal

auditors. The reports processed with questioned costs, recommendations that funds be

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

Agency Audits

Economic Development Administration 86

International Trade Administration 1

Minority Business Development Agency 4

National Institute of Standards and Technology 177*

National Oceanic and Atmospheric Administration 18

National Telecommunications and Information Administration 6

Multi-Agency 38

Agency Not Identified 20

Total 350

* Includes 162 ATP program-specific audits.

Appendix B-1. Processed Financial Related Audits

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Franklin County Area Development

Corporation, PA

ATL-9999-0-0269 06/00 - - - -

Economic Development Bank for Puerto

Rico

ATL-9999-0-0306 08/00 $24,675 - -

EDA

Jackson County, MS ATL-9999-0-0397 06/00 - - - -
Tables and Appendixes

95 Commerce OIG Semiannual Report

September 2000

Appendix B-1. Processed Financial Related Audits—Continued

Agency Auditee Number Date

Questioned

Costs

Unsupported

Costs

Calstart, Inc., CA ATL-9999-0-0434 08/00 79,407 - -

Black Hawk County, IA ATL-9999-0-0436 08/00 205,113 - -

Northern Hills Community Development,

Inc., SD

ATL-9999-0-0511 09/00 166,500 - -

City of Rio Grande City, TX ATL-9999-0-0541 08/00 41,625 $41,625

EDA

MassDevelopment, MA ATL-9999-0-0575 09/00 - - - -

Qualicon, Inc., DE ATL-9999-0-0006 08/00 32,757 - -

Vitria Technology, Inc., CA ATL-9999-0-0016 08/00 269,461 148,163

SI Diamond Technology, Inc., TX ATL-9999-0-0017 07/00 147,285 63,152

Utah Health Informatics Company ATL-9999-0-0057 08/00 575,490 413,197

BusinessBots, Inc., CA ATL-9999-0-0064 08/00 165,458 77,420

Integra LifeSciences Corporation, NY ATL-9999-0-0072 09/00 79,520 48,445

Solectria Corporation, MA ATL-9999-0-0090 06/00 7,485 7,485

NCR Corporation, Parallel Systems,

Inc., CA

ATL-9999-0-0091 09/00 139,165 - -

Ceramatec, Inc., UT ATL-9999-0-0143 08/00 929,060 - -

Computer Associates International, Inc.,

OH

ATL-9999-0-0202 09/00 185,748 145,480

Applied Sciences, Inc., OH ATL-9999-0-0247 06/00 21,031 - -

Rhode Island Manufacturing Extension

Services, Inc.

ATL-9999-0-0307 08/00 138,527 97,294

United States Surgical, MA ATL-9999-0-0362 08/00 6,621 - -

Johnson & Johnson, Corporate

Biomaterials Center, NJ

ATL-9999-0-0451 08/00 207,000 153,000

TA-NIST

Arkansas Science and Technology

Authority

ATL-9999-0-0484 08/00 156,963 156,963

 Note: The questioned costs and unsupported costs include only the federal share of the total questioned and unsupported costs cited in the reports.
Definitions of Types of OIG Reviews

Audits

Performance Audits—These audits look at the

efficiency, effectiveness, and economy of the

Department’s programs, activities, and information

technology systems. They may check a unit’s

compliance with laws and regulations, and evaluate

its success in achieving program objectives.

Financial Related Audits—These audits review the

Department’s contracts, grants, cooperative agreements, loans, and loan guaranties. They assess

compliance with laws, regulations, and award terms;

adequacy of accounting systems and internal controls; allowance of costs; and the degree to which a

project achieved the intended results.

Financial Statements Audits—The CFO Act, as

amended by Government Management Reform Act,

requires federal agencies to prepare annual financial

statements and to subject them to audit. The OIG is

responsible for conducting these audits and reporting

the results to the Secretary.

Inspections

Operational Inspections—These are reviews of an

activity, unit, or office, or a contractor or organization that receives funds from the Department. They

focus on an organization, not a whole program, and

are designed to give agency managers timely information about operations, including current and

foreseeable problems.

Program Evaluations—These are in-depth reviews

of specific management issues, policies, or

programs.

Systems Evaluations—These are reviews of

system development, acquisitions, operations, and

policy in order to improve efficiency and

effectiveness. They focus on Department-wide

computer systems and other technologies and

address all project phases, including business

process reengineering, system definition, system

development, deployment, operations, and

maintenance.

OIG Reviews

96 Commerce OIG Semiannual Report

September 2000
Glossary of Abbreviations

97 Commerce OIG Semiannual Report

September 2000

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

AWIPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advanced Weather Interactive Processing System

BEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bureau of Economic Analysis

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

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

CFDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Catalog of Domestic Financial Assistance

CFO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Financial Officer

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

CIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . critical infrastructure protection

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

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

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

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

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

GWAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . government-wide agency contract

IG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inspector General

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

JFMIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joint Financial Management Improvement Program

MAF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Master Address File

MBDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority Business Development Agency

MEI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . minimum essential infrastructure

MERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Measurement and Engineering Standards and Research

MOU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . memorandum of understanding

NIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Institute of Standards and Technology

NMFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Marine Fisheries Service

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

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

NTIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Technical Information Service

NWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Weather Service

OHR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office of Human Resources

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

OLIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office of Legislative and International Affairs

OMB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office of Management and Budget

PBO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . performance-based organization

RLF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . revolving loan fund

SBIR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Small Business Innovation Research

T A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technology Administration

TIGER® . . . . . . . . . . . . . . . . . . . . . . . Topographically Integrated Geographic Encoding and Referencing

TRIPS . . . . . . . . . . . . . . . . . . . . . . . . Agreement on Trade-Related Aspects of Intellectual Property Rights

TQA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telephone Questionnaire Assistance

US&FCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. and Foreign Commercial Service

USPTO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Patent and Trademark Office

WIPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . World Intellectual Property Organization

WFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . weather forecast office
ƒIn Memoriam„

The Office of Inspector General dedicates this Semiannual Report to the memory of Douglas

Powell and Charles Rodgers.

Douglas L. Powell (1946-2000) was a senior auditor in the headquarters

office of our Office of Audits. He spent his entire 30-year career auditing

Department of Commerce activities, and was one of the original staff

members of the OIG. He is survived by his wife Audrey, a son, a daughter,

and two stepchildren.

Charles L. Rodgers (1958-2000) was a senior auditor in our Atlanta

Regional Office of Audits. After working several years with the Department

of the Army, he joined the Commerce OIG in 1979. He is survived by his

wife Judiette and a son.

Both Doug and Charles made invaluable contributions to the OIG and devoted a large portion

of their many years of public service to addressing the major management challenges facing

the Department of Commerce. Most recently, they were key members of the team that

conducted the comprehensive review of the Department’s discretionary financial assistance

programs that is highlighted in this report. Their efforts contributed to the significant improvements being made in these programs.

Both of these fine men will be sorely missed by their many friends and colleagues in the OIG.

Commerce OIG Semiannual Report

98 September 2000
Office of Inspector General

Organization Chart

OIG Points of Contact

Inspector General .....................................(202) 482-4661

Congressional/PCIE Liaison.....................(202) 482-3052

Office of Audits .........................................(202) 482-1934

Office of Compliance and Admin..............(202) 482-0231

TDD Number .................................... (202) 482-4948

Media Inquiries .................................. (202) 482-5992

REQUESTS FOR REPORTS:

Telephone .......................................... (202) 482-0231

Internet E-Mail ................................... oigreports@doc.gov

OIG HOTLINE:

Telephone .......................................... (202) 482-2495 or (800) 424-5197

Internet E-Mail ................................... oighotline@doc.gov

Office of Counsel ......................................(202) 482-5992

Office of Inspections and Program Eval...(202) 482-2754

Office of Investigations .............................(202) 482-0934

Office of Systems Evaluation ...................(202) 482-6186

OIG Internet Home Page

http://www.oig.doc.gov

Inspector

General

Deputy

Inspector General

Regional

Audits

Headquarters

Audits

Financial Statements

Audits

Office of

Investigations

Office of

Audits

Office of

Systems Evaluation

Office of

Counsel

Office of

Compliance and

Administration

Office of

Inspections and

Program Evaluations

Investigative

Services

Financial Fraud

Unit

Investigative

Operations