IG’s

Semiannual Report

to Congress

September 2004
Office of Inspector General

Organization Chart

OIG Points of Contact

Inspector General ................................. (202) 482-4661

Legislative and

Intergovernmental Affairs ...................... (202) 482-2187

Office of Audits ...................................... (202) 482-1934

Office of Compliance and Admin. .......... (202) 482-2637

Office of Counsel................................... (202) 482-5992

Office of Inspections and Program Eval. (202) 482-2754

Office of Investigations .......................... (202) 482-0934

Office of Systems Evaluation ................ (202) 482-6186

Media Inquiries ...................................... (202) 482-5992

REQUESTS FOR REPORTS

Telephone ............................................. (202) 482-5348

Internet E-Mail ............................... reports@oig.doc.gov

OIG HOTLINE

Telephone ............................................. (202) 482-2495

.......................................................... or (800) 424-5197

TDD Number ......................................... (202) 482-5923

Internet E-Mail ............................... hotline@oig.doc.gov

OIG Internet Home Page

http://www.oig.doc.gov

Inspector

General

Deputy

Inspector General

Office of

Compliance and

Administration

Office of

Inspections and

Program Evaluations

Office of

Audits

Office of

Counsel

Office of

Systems Evaluation

Office of

Investigations

Business &

Science Division

Financial Statements

& Accountability

Audits

Regional

Audits

Investigative

Services

Investigative

Field Offices

Investigative

Resident Offices
December 2004

The Honorable Donald L. Evans

Secretary of Commerce

Washington, DC 20230

Dear Mr. Secretary:

I am pleased to submit to you, in accordance with the Inspector General Act of 1978, this semiannual report on the work and

activities of the Department’s Office of Inspector General (OIG) for the 6-month period ending September 30, 2004.

Our work reflects the legislative mandate of the Inspector General Act to identify fraud, waste, and abuse and to recommend

appropriate corrective actions. Many of the issues we examine cannot be resolved quickly and require the Department’s

sustained attention. This semiannual report demonstrates our shared commitment to improving the Department’s programs

and protecting their integrity.

Our review of a number of departmental operations and activities found progress on Commerce’s part toward meeting many

of the key management challenges we have identified. For example, Census preparations for the 2010 decennial are proceeding well, and we believe the issues noted in our review of the 2004 site test can be resolved through prompt and proper

attention from management officials. As a result of its success in resolving deficiencies in financial management systems

and other issues we have identified over the years, Commerce has received an unqualified audit opinion on its financial

statements for the past 5 years. Similarly, while our required evaluations of IT systems security again identified this area as

a Commerce material weakness, we noted steady improvement. We hope to find this material weakness resolved in our next

year’s evaluation.

We have noted that although Commerce has made progress in addressing key management challenges such as improving

financial accountability, our audits of its financial assistance programs continue to find financial irresponsibility by some

recipients of Department funds. For example, as a result of extensive OIG audit and investigative work, a research firm in

Pennsylvania recently agreed to a $1.75 million settlement to resolve questioned costs and allegations of false claims

arising from its administration of a large NIST award. Such situations highlight the importance of the Department and its

bureaus providing the highest management oversight of their financial assistance programs.

Finally, I would like to acknowledge that your senior officials have worked cooperatively with us, both during the conduct

of our reviews and in addressing our findings. For example, the Census Bureau’s early attention to concerns we raised

during our review of the 2004 Census test demonstrates the value of our interaction. ITA and its Commercial Service

officials’ efforts and cooperation have been critical to the success of our trade-related work both domestically and overseas.

And one additional example of many cooperative efforts is the way in which EDA officials have worked with us to expeditiously address problems identified during audits and investigations of EDA grantees.

UNITED STATES DEPARTMENT OF COMMERCE

The Inspector General

Washington, D.C. 20230
The results of the cooperation between our office and the Department are evident in the operations that have improved over

the years and in the Department’s commitment to resolving issues we identify.

The Inspector General Act requires you to transmit this report within 30 days to the appropriate congressional committees

and subcommittees, together with a report containing any comments you wish to make. Your report must also include the

statistical tables specified in sections 5(b)(2) and (3) of the act, and a statement with respect to audit reports on which

management decisions have been made, but final action has not been taken as specified in section 5(b)(4).

I look forward to continuing to work with senior officials and Department managers to ensure that Commerce programs and

operations serve the nation’s taxpayers with efficiency, effectiveness, and integrity.

Sincerely,

Johnnie E. Frazier

Inspector General
September 2004/Semiannual Report to Congress

Contents

IG’s Message to Congress ...................................................................................................................................................................... 1

Major Challenges for the Department.................................................................................................................................................. 3

Strengthen Department-Wide Information Security ......................................................................................................................... 3

Effectively Manage Departmental and Bureau Acquisition Processes ............................................................................................. 5

Successfully Operate USPTO as a Performance-Based Organization .............................................................................................. 6

Control the Cost and Improve the Accuracy of Census 2010 ........................................................................................................... 7

Increase the Effectiveness of Marine Resource Management ........................................................................................................... 8

Promote Fair Competition in International Trade ............................................................................................................................. 9

Enhance Export Controls for Dual-Use Commodities .................................................................................................................... 10

Enhance Emergency Preparedness, Safety, and Security of Commerce Facilities and Personnel .................................................. 11

Continue to Strengthen Financial Management Controls and Systems .......................................................................................... 11

Continue to Improve the Department’s Strategic Planning and Performance Measurement in Accordance with GPRA .............. 12

Department of Commerce Organization Chart................................................................................................................................. 13

Agency Overviews

Bureau of Industry and Security...................................................................................................................................................... 14

Economic Development Administration ......................................................................................................................................... 16

Economics and Statistics Administration ........................................................................................................................................ 20

International Trade Administration ................................................................................................................................................. 25

National Oceanic and Atmospheric Administration ........................................................................................................................ 29

National Telecommunications and Information Administration ..................................................................................................... 33

Technology Administration ............................................................................................................................................................. 34

United States Patent and Trademark Office .................................................................................................................................... 38

Department-Wide Management ...................................................................................................................................................... 42

Office of Inspector General ................................................................................................................................................................. 48

Tables and Statistics ........................................................................................................................................................................ 50

Reporting Requirements .................................................................................................................................................................. 59

Acronyms............................................................................................................................................................................................... 61

Types of OIG Work Products .............................................................................................................................................................. 63
September 2004/Semiannual Report to Congress 1

As this semiannual period concluded, the United States

Attorney’s Office for the Western District of Pennsylvania

announced a $1.75 million civil settlement to resolve

questioned costs and allegations of false claims resulting from a

medical research firm’s misuse of a financial assistance award

from the Department of Commerce. (See page 34.)

I mention this case because it is a good and simple example of the

IG Act at work—after 25 years, still very capably fulfilling its

mission of detecting fraud, waste, and abuse in government programs and operations, as well as in the activities of organizations

outside of government to whom we entrust public funds. My counterparts throughout the IG community can point to similar successes involving hundreds of billions of taxpayer dollars. Both

Congress and the administration have rightly pushed for greater

accountability in the use of these financial assistance funds—which

total some $360 billion government-wide1—and this focus remained a key priority in our work of the last 6 months.

Commerce has reported the goal of improving administration of

federal grants programs in its past several Performance & Accountability Reports. Our office—by identifying the circumstances that

permit misuse of financial assistance funds—hopes to inform the

Department’s efforts to achieve its goal and enhance its management of financial assistance programs.

Our 12 audits of financial assistance awards, detailed in this report, disclosed numerous findings of questioned costs and other

fiscal and operational weaknesses. We worked closely with program officials to address and resolve the problems that led to these

shortcomings. In one case, an OIG audit has already prompted

the Economic Development Administration (EDA) to terminate a

$6.44 million public works award. Our recommendation to terminate another EDA grant with questioned costs of $2.9 million is

pending a determination by the agency.

NATIONAL AND

INTERNATIONAL WORK

This semiannual report also details important reviews of a diverse

range of Commerce’s national and international activities. With

time ticking away toward the 2010 decennial census, we are agIG’s Message to Congress

gressively monitoring the Census Bureau’s preparations. During

this reporting period, we assessed its 2004 testing of automated

nonresponse follow-up and related operations (see page 20). The

bureau’s effort to conduct an accurate, cost-effective decennial

remains a top challenge for the Department. We were encouraged

by the outcome of the 2004 test and believe that management officials will focus attention on the issues we identified. The bureau

is making positive strides, and it is our view that prompt and sustained attention can avoid shortcomings that occurred in the 2000

Census.

Information security—another top challenge for Commerce—received considerable focus during this reporting period, as we completed our annual reviews of the Department’s IT security status

in accordance with the Federal Information Security Management

Act (pages 23 and 42). Despite steady progress by the Department, these evaluations continue to find persistent areas of weakness in Commerce’s efforts to secure its numerous national- and

mission-critical systems, and we are working closely with the

Department’s chief information officer to resolve them.

Our review of the U.S. Patent and Trademark Office’s (USPTO’s)

patent examiner production goals, performance appraisal plans,

and awards (page 38) focused on how to better enhance patent

examiner productivity. The speed with which quality patents are

issued can impact the pace of technological progress in the U.S.

The tools of the patent examiner trade have greatly improved over

the years, and we looked at areas that offer opportunities for improvement in patent examiner production. The Department and

USPTO, in striving to meet the challenge of successfully operating USPTO as a performance-based organization, must see that

the agency effectively employs the means and mechanisms required to operate at peak efficiency and meet the needs of its customers with utmost timeliness.

Another example of the diverse range of work featured in this

semiannual report is our review of Commercial Service’s overseas operations in India (page 26). These international posts play

a critical role in promoting U.S. trade, and we have made it a

practice to review them with regularity. As detailed later in this

report, this huge post is doing a good job of promoting U.S. exports in India. However, some management weaknesses we noted

there echo those found at other overseas posts, as well as at some

domestic U.S. export assistance centers. We welcome the opportunity to work with Commercial Service, the International Trade

Administration, and the Department to resolve the recurring prob- 1

 http://www.grants.gov/SecretaryWelcome, accessed October 3, 2004.
2 U.S. Department of Commerce/Office of Inspector General

lems our inspections have identified, and thereby maximize the

success of trade promotion activities.

COLLABORATING FOR

SOUND GOVERNMENT

Achieving the goals of the Inspector General Act is a collaborative enterprise that requires partnership and open dialog among

IGs, their department’s senior officials, Congress, and the administration. I look forward to continuing that partnership in the months

and years ahead and reaping the benefits it holds for the sound

operation of this Department.

We have performed work that cuts across the broad spectrum of

Commerce activities and their attendant strengths and weaknesses

to help inform your decision making with regard to this Department. Moreover, we will in the coming months be sharing our

pending draft work plan with Congress to ensure that much of our

agenda for this Department is compatible with yours.

IG’s Message to Congress
September 2004/Semiannual Report to Congress 3

The Office of Inspector General, in assessing its work at the

close of each semiannual period, develops its list of Top

10 Management Challenges the Department faces. Each

challenge meets one or more of the following criteria: (1) it is

important to the Department’s mission or the nation’s well-being,

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

or (4) it requires significant management improvements. Because

of the diverse nature of Commerce activities, these criteria sometimes cut across bureau and program lines. Experience has shown

that by aggressively addressing these challenges the Department

can enhance program efficiency and effectiveness; eliminate serious operational problems; decrease fraud, waste, and abuse; and

achieve substantial savings.

Challenge 1

STRENGTHEN DEPARTMENT-WIDE

INFORMATION SECURITY

Many of Commerce’s information technology systems and the

data they contain have national significance. Loss of or serious

damage to any of these critical systems could have devastating

impacts. Therefore, identifying weaknesses in them and recommending solutions is a continuing top priority for the Office of

Inspector General. The Federal Information Security Management

Act of 2002 (FISMA) provides a comprehensive framework for

ensuring that information resources supporting federal operations

and assets employ effective security controls. FISMA requires

OIGs to perform independent security evaluations of their agencies annually.

During this fiscal year the Department has continued to focus on

improving information security. On June 29, 2004, the Secretary

issued a memorandum highlighting the need for giving high priority to information security: he directed secretarial officers and

heads of operating units to allocate sufficient resources for this

purpose, support their unit’s chief information officer (CIO) in

managing information security, and ensure that senior program

officials who authorize systems to operate have received sufficient training in the certification and accreditation (C&A) process. When implemented properly, certification is a powerful tool

for helping ensure that appropriate security controls are in place,

functioning as intended, and producing the desired outcome.

Through accreditation, agency officials formally accept responsibility for the security of the systems over which they have management, operational, and budget authority and for any adverse

impacts to the Department if a breach of security occurs.

The Department’s CIO has continued to push completion of system certifications and accreditations; updated Commerce’s information security policy on such topics as managing the IT system

inventory, assessing security controls, and preparing plans of action and milestones for remediating security weaknesses; and developed a policy on peer-to-peer file sharing.2 But similar to last

year’s FISMA review, our FY 2004 evaluation found that the Department still faces considerable challenges in adequately safeguarding the hundreds of Commerce systems, particularly with

regard to effectively conducting these critical activities: (1) asMajor Challenges for the Department

TOP 10 MANAGEMENT CHALLENGES

1. Strengthen Department-wide information security.

2. Effectively manage departmental and bureau

acquisition processes.

3. Successfully operate USPTO as a performance-based

organization.

4. Control the cost and improve the accuracy of Census

2010.

5. Increase the effectiveness of marine resource

management.

6. Promote fair competition in international trade.

7. Enhance export controls for dual-use commodities.

8. Enhance emergency preparedness, safety, and

security of Commerce facilities and personnel.

9. Continue to strengthen financial management controls

and systems.

10. Continue to improve the Department’s strategic

planning and performance measurement in

accordance with GPRA.

2 Peer-to-peer file sharing allows individual users of the Internet to connect directly through the Internet to each other so as to transfer or exchange computer files.
4 U.S. Department of Commerce/Office of Inspector General

Source: http://csrc.nist.gov/organizations/fissea/conference/2004/

presentations.html, accessed October 5, 2003.

sessing risk and determining appropriate security controls, (2) testing and evaluating these controls, (3) certifying and accrediting

systems, and (4) ensuring that personnel with specialized information security responsibilities receive the necessary training. (See

page 42.)

The Census Bureau is a case in point. Our review of the bureau’s

information security program (page 23) found significant deficiencies in its C&A documentation and processes, such as risk assessments that did not sufficiently identify system vulnerabilities, and

security plans that assigned improper and inconsistent sensitivity

levels to systems and did not adequately describe the controls that

were in place or needed. The documentation also did not identify

residual risks in the certified and accredited systems, and thus provided no evidence that the accrediting official understood the level

of risk being assumed in authorizing system operations.

For the past 3 fiscal years, the Department reported information

security as a Federal Management Financial Integrity Act (FMFIA)

material weakness in its Performance & Accountability Report in

part because our reviews of the C&A documentation for numerous national- and mission-critical systems reported as certified

and accredited have continued to identify significant deficiencies.

This year we again reviewed the C&A documentation for a sample

of the Department’s national-critical and mission-critical systems

reported as certified and accredited. Although we observed some

improvements, our review found serious shortcomings in the risk

assessments, security plans, contingency plans, and testing to ensure that security controls are implemented and working as intended. Thus, we recommended that information security should

remain a material weakness for FY 2004. Nevertheless, we were

pleased to note some progress. In particular, based on our review

of C&A documentation, we found the C&A processes of the Bureau of Economic Analysis and Office of the Secretary provide

reasonable assurance that their national- and mission-critical systems are adequately protected.

MATERIAL WEAKNESS

AT USPTO RESOLVED

Like the Department, USPTO reported information security as a

material weakness in prior-year Performance & Accountability Reports, which it submits separately. However, USPTO has reported

all of its critical systems as certified and accredited, and we are

pleased to report that our review of a sample of C&A materials

confirmed the adequacy of its C&A process and documentation.

We therefore consider USPTO’s material weakness resolved.

DEPARTMENT-WIDE CONTRACT

SECURITY DEFICIENCIES REMAIN

We noted in our FY 2003 FISMA report that inadequate security

provisions in Commerce IT service contracts also place systems

at risk. The Department continued to rely heavily on contractors

to provide IT services, spending 65 percent of its IT contract dollars in this area in FY 2003. Last year’s FISMA evaluation found

that while progress had been made in incorporating security proMajor Challenges for the Department

EXAMPLES OF CRITICAL DATA

PROCESSED BY

COMMERCE IT SYSTEMS

• The Bureau of Industry and Security’s export license

data helps control the release of dual-use commodities

to countries and entities of concern.

• The National Oceanic and Atmospheric Administration’s

satellite, radar, and weather forecasting data and

systems provide information used to protect lives and

property.

• The Economics and Statistics Administration’s economic

indicators have policymaking implications that can affect

the movement of global commodity and financial

markets.

• The U.S. Patent and Trademark Office’s patent and

trademark information is essential to administering

patent and trademark law, promoting industrial and

technical progress, and strengthening the national

economy.

Framework for an

Information Security Program

Risk

Assessment

Security

Planning

Security

Control &

Implementation

Categorization

of Information

& Information

Systems

Security

Authorization

(Accreditation)

Security

Control

Assessment

(Certification)

Agency

Information &

Information

Systems
September 2004/Semiannual Report to Congress 5

visions into recent IT service contracts, provisions for controlling

contractor access to Department systems and networks were generally absent, and there was little evidence of contract oversight

or of coordination among contracting, technical, and information

security personnel in developing appropriate contract security. This

year we provided additional analysis of the contract security issues as well as recommendations to further ensure that information and information systems are adequately secure when contractor-provided services are used. Specifically, we recommended

that Commerce take steps to ensure that its service contracts contain the new security clauses, issued in November 2003, and that

appropriate contract oversight occurs. (See page 43.)

COMPUTER INCIDENT RESPONSE

WEAKNESSES NOTED

As part of our FISMA work, we evaluated Commerce’s computer

incident response capability and found that its decentralized structure is appropriate for the Department’s diverse and multiunit organization. (See page 43.) However, we identified numerous weaknesses:

• No centralized entity to promote information sharing and

consistency in response processes.

• Inadequate incident response procedures.

• Incomplete and inconsistent incident reporting by the

operating units.

• The need for better intrusion detection approaches and

specialized tools and training.

The Department CIO concurred with our findings and is taking

action to improve Department-wide incident detection and response.

Challenge 2

EFFECTIVELY MANAGE

DEPARTMENTAL AND BUREAU

ACQUISITION PROCESSES

Federal acquisition legislation in the 1990s mandated sweeping

changes in the way federal agencies buy goods and services. The

intent was to reduce the time and money spent on purchasing and

improve the efficiency of the process. The latest legislative effort

to streamline acquisition is the Services Acquisition Reform Act

of 2003, whose provisions further push for performance-based

service contracting: the act provides that service contracts under

$25,000 may be treated as “commercial” if certain performancebased criteria are met and thereby be eligible for simplified acquisition procedures. As the Department’s reliance on contractor-provided services increases, so does the challenge to effectively manage the streamlined acquisition processes these initiatives fostered,

while ensuring that taxpayer dollars are wisely spent and laws

and regulations followed.

This balance is best maintained by adhering to basic acquisition

principles: careful planning, promotion of competition, prudent

review of competitive bids, adept contract negotiations, well-structured contracts, and effective contract management and oversight.

These are essential to ensuring that sound contracting decisions

are made and contracts successfully executed. Problems we have

identified with service contracting in the past include failure to use

performance-based task orders where they would be beneficial,

inadequate training in the use of performance-based service contracting, insufficient planning for contract administration and

monitoring, and failure to ensure that adequate security provisions

are included and enforced in IT service contracts.

The Department has recently taken a number of steps to improve

management of Commerce acquisition processes. In March 2004,

it mandated the use of standardized clauses for IT security for all

applicable solicitations and contracts, and as part of the

Department’s annual IT security compliance review, its Office of

Acquisition Management (OAM) worked with the CIO’s office to

determine whether such clauses are being included in IT service

contracts. Additionally, OAM has established a board to review

the Department’s major acquisitions, competitive sourcing opportunities, and interagency agreements; and it reports having achieved

the goal of using performance-based acquisitions to award not

less than one-half of the total dollar amount the Department expends on service contracts.

OIG ACQUISITION REVIEWS CONTINUE

The serious consequences of poor contract management were evident in our review last year of a NOAA/NWS contract modification for a transition power source for the NEXRAD weather radar, which resulted in NWS paying for defective equipment, contract costs increasing by an estimated $4.5 million, and the purchase of a product that may not have been the best choice for

NEXRAD. (See September 2003 Semiannual Report, page 25.)

OIG continues to monitor the corrective action plan being implemented as a result of this review and is working with NOAA’s

director of acquisitions and grants to improve the consistency and

thoroughness of NOAA’s acquisition process. NWS has also taken

actions in response to OIG’s recommendations, including issuing

a policy directive on acquisition management, and indicates that a

critical element on procurement has been added to the performance

plans of staff involved in the acquisition process.

Currently, we are reviewing NIST’s contract administration process. Our objectives are to determine whether NIST has (1) effective policies and procedures for processing and managing procurement actions in accordance with pertinent laws and regulations, (2) an acquisition workforce that is adequately trained and

Major Challenges for the Department
6 U.S. Department of Commerce/Office of Inspector General

skilled to handle NIST’s procurement actions, and (3) a system

for effectively and efficiently processing procurements in accordance with Commerce/NIST policies and procedures.

MAJOR CONSTRUCTION AND

RENOVATION PROJECTS

Contracts for large, costly, and complex capital improvement and

construction projects carry numerous inherent risks. This is an

area of particular vulnerability for the Department, given the many

construction and/or renovation projects it has planned or under

way for Commerce facilities. For this reason, we continue to monitor the progress of some of the Department’s key current and

planned construction projects.

We have just concluded a review of USPTO’s progress in completing, furnishing, and occupying its new headquarters complex

in northern Virginia (see Challenge 3 and page 39). We also plan

to keep abreast of other major Commercerenovation and construction projects, such as Census’s construction of its new Suitland,

Maryland, headquarters; the Department’s planned renovation of

its headquarters (the Herbert C. Hoover Building in Washington,

D.C.); and NOAA’s construction of a Pacific Region Center in

Hawaii and a fisheries research facility in Juneau, Alaska.

Challenge 3

SUCCESSFULLY OPERATE THE U.S.

PATENT AND TRADEMARK OFFICE

AS A PERFORMANCE-BASED

ORGANIZATION

The United States Patent and Trademark Office’s operation as a

performance-based organization continues to warrant special attention. USPTO maintains that the efficiency with which it issues

patents has a huge impact on the pace of technological advancement worldwide. The prompt registration of trademarks protects

commercial investment, informs consumer choices, and promotes

the availability of new goods and services.

USPTO has assumed responsibility for certain operational functions that were once controlled or monitored at the departmental

level, and it is essential that the bureau effectively use its expanded

authority over budget allocations and expenditures, personnel decisions and processes, procurement, and information technology

operations to support the issuance of patents and trademarks.

Since 2002, USPTO

has been working to

implement its 21st

Century Strategic

Plan. The 5-year plan

was intended to help

the agency overcome

the challenges accompanying its transition to performance-based operations, successfully

develop necessary

personnel policies, establish procurement and administrative policies as well as performance-oriented processes and standards for

evaluating cost-effectiveness, and meet its performance goals under the Government Performance and Results Act (GPRA).

According to the agency, the plan provides a roadmap for major

changes in patent and trademark processes. These include steps to

(1) improve and maintain patent and trademark quality, (2) move

to a paperless environment and promote e-government, (3) enhance employee development, and (4) explore competitive sourcing. The plan also calls for the agency to work with international

intellectual property offices to create a global framework for enforcing intellectual property rights.

Our office recently performed three reviews at USPTO. First, we

reviewed patent examiner production goals, performance appraisal

plans, and awards to determine their effect on the output of the

patent examiner corps. We found that patent examiner goals have

Major Challenges for the Department

Artist’s rendering of planned NOAA Fisheries research facility in

Juneau. Source: http://www.fakr.noaa.gov/lena/renderings.htm,

accessed October 15, 2004.

KEY USPTO PATENT

STATISTICS

2003

Patent Examiners 3,579

Applications Filed 333,452

Applications Granted 173,072

Backlog 457,254

First Actions 283,111

Final Disposals 284,470

Average Pendency 26.7mos.

Source: USPTO
September 2004/Semiannual Report to Congress 7

not changed since 1976 to reflect efficiencies in work processes;

patent examiners’ performance appraisal plans are not linked to

their supervisors’ goals or those of USPTO; and patent examiner

awards do not appear to be having their intended impact of stimulating examiner production. (See page 38.)

Second, we reviewed progress on construction of the agency’s

new, state-of-the-art headquarters complex in Alexandria, Virginia,

and its relocation to these facilities. This project is one of the federal government’s largest real estate ventures. When completed in

2005, the 5-building complex will bring together the majority of

USPTO employees and contractors, who are currently scattered

among 18 buildings in Crystal City, Virginia. USPTO has already

occupied 3 of the new buildings and expects to take occupancy of

the remaining 2 earlier than anticipated. We found, among other

things, that USPTO and GSA have provided adequate management and financial oversight of the project; USPTO successfully

planned and executed its recent move of 2,093 employees to the 2

buildings completed at the time of our review; and cost increases

that have occurred are due primarily to project delays beyond

USPTO’s control, as well as to new requirements, such as information technology changes and security upgrades. (See page 39.)

Third, in response to complaints and a request from the agency’s

chief financial officer/chief administrative officer, we reviewed

certain aspects of the Office of Human Resources (OHR). We found

among other things that the recruitment process for the human

resources director position was flawed and that USPTO, in collaboration with the Department, needed to clarify its relationship

with the Office of Personnel Management and establish sufficient

human resources policies and procedures. (See page 40.)

Challenge 4

CONTROL THE COST AND

IMPROVE THE ACCURACY OF

CENSUS 2010

Few Commerce activities have more ambitious goals, higher costs,

or more intensive resource requirements than the constitutionally

mandated decennial census, and with each decade, this undertaking becomes more costly, complex, and challenging. Costs of

$2.2 billion in 1980 rose to $3.3 billion in 1990 and to $6.6 billion

in 2000. They have been estimated to be $9.3 billion in 2010 (in

constant 2000 dollars).

Achieving an accurate population count has become more difficult

and costly over the past 3 decades because the nation’s population

has increased and diversified dramatically. And much has changed

in the methods and technologies used for decennial census taking

during that time. But the primary weaknesses we noted in monitoring the 1980, 1990, and 2000 decennials have remained the same

and are at least partially responsible for the ballooning costs: insufficient planning and lack of upfront funding for an undertaking

that by its very nature requires long-term vision and development,

as well as appropriate testing at key points along the way.

The Census Bureau has taken numerous steps toward improving

2010 operations and controlling costs. In September 2002 it

adopted a reengineered framework for conducting the decennial:

an American Community Survey to collect and tabulate long-form

data throughout the decade; an enhanced address list and geographic information database; and a program of early planning,

development, and testing for a short-form-only census. The threepronged strategy is ambitious and intended to capitalize on the

latest technology, such as handheld computers equipped with global positioning system capabilities for field operations, including

address canvassing and nonresponse follow-up data collection.

In this semiannual period,

we assessed the 2004 census test (see page 20), in

which the bureau tested,

among other things, the

feasibility of using

handheld computers to

automate nonresponse follow-up (NRFU). The test

was conducted in a portion of New York City and

in three rural counties in

south central Georgia. We

found that the handheld

computers and related automation are promising

Major Challenges for the Department

Artist’s rendering of USPTO’s five-building complex in Alexandria,

Virginia, clockwise from lower left: Remsen, Jefferson, Madison,

Knox, and Randolph. Source: USPTO

The palm-sized handheld computer

used for the 2004 NRFU operation.
8 U.S. Department of Commerce/Office of Inspector General

replacements for paper-based processes, and the enumerator

workforce was able to use the handhelds.

However, the test exposed issues that will have to be addressed

for future tests and the 2010 census, including problems with data

transmissions, technical support to the field, and the bureau’s system and software engineering practices. Among other areas we

noted in need of improvement were enumerator training, planning for tests of revised group quarters definitions, and several

management and administrative activities.

We will continue our focus on the bureau’s planning for the 2010

decennial, including its preparation for the 2006 site test, as well

as review other issues and related matters that could have an impact on the decennial.

Challenge 5

INCREASE THE EFFECTIVENESS

OF MARINE RESOURCE

MANAGEMENT

The National Marine Fisheries Service (NOAA Fisheries) must

balance two competing interests: (1) promoting commercial and

recreational fishing as vital elements of our national economy and

(2) preserving populations of fish and other marine life. The

Magnuson-Stevens Act of 1976, the Marine Mammal Protection

Act of 1972, and the Endangered Species Act of 1973 gave NOAA

Fisheries responsibility for rebuilding and maintaining sustainable fisheries and promoting the recovery of protected marine species. The Magnuson-Stevens Act also made NOAA Fisheries the

primary federal agency for managing marine fisheries and established a regional fishery management system to help the agency

carry out its mission. The 1996 amendments to the act strengthened NOAA Fisheries’ role in protecting and sustaining fisheries

and their habitats.

PACIFIC COASTAL SALMON

RECOVERY FUND

Established by Congress in 2000 at the request of the states of

Washington, Oregon, California, and Alaska, the Pacific Coastal

Salmon Recovery Fund provides grants to these states and their

resident Native American tribes to support local salmon conservation efforts. The fund is the third largest source of federal support for salmon recovery efforts and the largest financial assistance program in this area administered by NOAA.

Major Challenges for the Department

PLANNED DECENNIAL CENSUS TESTS

Site Tests 2004 Census Test

2006 Census Test

National Tests 2003 National Census Test

2005 National Census Test

Overseas Tests 2004 Overseas Census Test

2006 Overseas Census Test

Dress Rehearsal 2008

Source: U.S. Census Bureau

PACIFIC COASTAL SALMON RECOVERY FUNDING

ADMINISTERED BY NOAA (IN MILLIONS)

FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 Totals

Washington $18.0 $30.2 $34.0 $27.8 $26.0 $136.0

Alaska $14.0 $19.5 $27.0 $21.9 $20.6 $103.0

California $9.0 $15.1 $17.0 $13.9 $13.0 $68.0

Oregon $9.0 $15.1 $17.0 $13.9 $13.0 $68.0

Idaho $.00 $.00 $.00 $.00 $4.9 $4.9

Pacific Coastal Tribes $6.0 $7.4 $11.0 $8.9 $8.4 $41.7

Columbia River Tribes $2.0 $2.5 $4.0 $3.0 $3.1 $14.6

Total $58.0 $89.8 $110.0 $89.4 $89.0 $436.2

Source: FY 2000-2004 figures at http://webapps.nwfsc.noaa.gov/servlet/page?_pageid=1292&_dad=portal30&_schema=

PORTAL30, accessed October 15, 2004; totals provided by OIG.
September 2004/Semiannual Report to Congress 9

Given the millions of dollars at stake and the importance of the

NOAA program, we turned our attention this semiannual period

to salmon recovery fund awards, concluding the first three in a

series of planned audits.

Our initial reviews focused on programs operated by an Oregon

state agency and a Washington state Indian commission. In each

case, we questioned significant portions of costs claimed by the

recipients and recommended recovery of federal funds. We are

keeping NOAA advised of the results of our ongoing audits so

that the agency is able to address common issues through strengthened grants management.

U.S. COMMISSION ON

OCEAN POLICY

In September 2004, the U.S. Commission

on Ocean Policy presented its final report—

An Ocean Blueprint for the 21st Century—

detailing its findings regarding the state of

our nation’s ocean and coastal resources

and offering recommendations for building

a coordinated and comprehensive national

ocean policy. The last comprehensive review of U.S. ocean policy

was conducted 35 years ago. Since then, our oceans and coasts

have changed drastically—more than 37 million people, 19 million homes, and countless businesses have been added to coastal

areas.

In its report, the commission called for, among other things, a

review of all federal agencies with ocean-related responsibilities,

with an eye toward eliminating redundant programs, and recommended greatly expanding NOAA’s environmental stewardship

activities. The areas identified in the commission’s report, especially those concerning NOAA’s broader environmental stewardship responsibilities, will draw our attention in the future.

Challenge 6

PROMOTE FAIR COMPETITION IN

INTERNATIONAL TRADE

To compete effectively in today’s global marketplace, many U.S.

companies need help accessing new or expanded export market

opportunities as well as addressing unfair trade practices, trade

disputes with foreign firms, noncompliance with or violations of

trade agreements, inadequate intellectual property protection, and

other impediments to fair trade. Commerce must ensure that its

export promotion assistance and trade compliance and market

access efforts adequately serve U.S. exporters, and its enforcement of U.S. trade laws helps eliminate unfair competition from

imports priced at less than fair market value or subsidized by foreign governments.

To help meet the challenges in highly competitive world markets,

Commerce and its International Trade Administration (ITA) work

with the Office of the U.S. Trade Representative, the Departments

of State and Agriculture, and numerous other federal agencies to

monitor and enforce trade agreements. The number and complexity of those agreements have increased substantially in recent years,

and the Secretary of Commerce has made monitoring and enforcing trade agreements and laws a top priority for ITA and the Department as a whole. Over the years, Commerce has received additional funding for trade compliance activities, such as placing

compliance officers overseas in several key markets. Increased

funding has enabled ITA to attract needed staff without having to

request special hiring authority or offer recruitment incentives (see

March 2003 Semiannual Report, page 20).

Commerce’s many overseas posts and domestic U.S. export assistance centers (USEACs) help U.S. companies identify specific

export marketing opportunities and trade leads and offer other trade

promotion and export finance counseling services, especially to

small and medium-size firms that are new to exporting or seeking

to expand their overseas markets. During this past year, we reviewed three USEAC networks—Chicago, Pacific Northwest, and

Philadelphia—that comprise 28 individual centers operated by

ITA’s Commercial Service. We evaluated their management operations and ability to provide value-added export counseling to

U.S. companies (see March 2004 Semiannual Report, page 24).

During this semiannual period, we released a crosscutting report

on strengths and weaknesses common to the networks (see page

25). In each network, we found that client satisfaction was high,

strong relationships existed with local partners, and financial and

administrative operations were generally sound. However, we also

noted inconsistencies in reporting and oversight that led to overstated export success dollar values—a key barometer of performance. Since we first identified problems with export success reporting, ITA and Commercial Service have taken a number of

steps to improve related quality controls and oversight of the process, and they are working to train managers and staff in correct

reporting procedures. However, further improvements are needed

in the reporting guidelines and management accountability.

Our USEAC findings mirrored those of our recent reviews of overseas operations. Inspections of Commercial Service posts in Greece

and Turkey revealed that, again, most customers were satisfied

with the products and services they received, but both posts had

overstated the value of their export successes. (For more detail on

Greece, see September 2003 Semiannual Report, page 22. For

Turkey, see the March 2003 issue, page 19.)

Major Challenges for the Department
10 U.S. Department of Commerce/Office of Inspector General

We also report in this issue the findings of our inspection of Commercial Service’s post in India (see page 26). We found that the

post is generally doing a good job of providing export assistance

to U.S. companies and collaborates well with its trade partners,

other components of the U.S. mission and ITA, and other government agencies. But as at the USEACs and other overseas posts we

have inspected, the India post’s reported export successes were

problematic. In many cases we could not verify the link between

Commercial Service assistance and the reported export success,

and we identified several that did not meet the criteria of an export success. Although, as noted earlier, Commercial Service and

ITA have taken steps to improve management oversight of reporting, we are concerned that Commercial Service’s new, written FY

2004 reporting guidelines have reduced management accountability for ensuring the accuracy and integrity of export success reports. We will continue to monitor these areas and report on the

Department’s efforts to resolve issues we identify.

Challenge 7

ENHANCE EXPORT CONTROLS

FOR DUAL-USE COMMODITIES

The National Defense Authorization Act (NDAA) for Fiscal Year

2000, as amended, directed the inspectors general of the Departments of Commerce, Defense, Energy, and State, in consultation

with the directors of the Central Intelligence Agency and the Federal Bureau of Investigation, to report to Congress by March 30,

2000, and annually until the year 2007, on the adequacy of export

controls and counterintelligence measures to prevent the acquisition of sensitive U.S. technology and technical information by

countries and entities of concern. In addition, NDAA for FY 2001

requires the IGs to discuss in their annual interagency report the

status or disposition of recommendations made in earlier reports

submitted in accordance with the act.

Our FY 2004 NDAA work dealt with the effectiveness of dualuse deemed export regulations and policies,3 including their implementation by BIS, and compliance with the regulations by U.S.

industry, Commerce agencies, and academic institutions. (See

March 2004 Semiannual Report, page 14.) We found that certain

aspects of BIS’ deemed export outreach program are working well,

but we also identified problems that hamper the efforts of both

BIS and the U.S. government to more effectively prevent the transfer of sensitive technology to foreign nationals from countries or

entities of concern while they are in the United States. In addition, our most recent follow-up report on prior OIG recommendations noted closure of all outstanding issues from 2000, but numerous recommendations from subsequent years are still open.

(See March 2004 Semiannual Report, page 17.) BIS has since

submitted an action plan to address our deemed export recommendations and notes that it is developing a deemed export compliance program and deciding whether to modify its regulations

and public guidance. It also reports having increased its deemed

export educational outreach to companies, universities, and research institutions.

For the 2004 interagency report, the IG review team (Commerce,

Defense, Energy, State, and the CIA) and the Department of Homeland Security’s OIG4 completed a crosscutting review of the adequacy and effectiveness of government-wide efforts to promote

compliance with deemed export control laws and regulations and

to determine whether they protect against the transfer of controlled

U.S. technologies and technical information. (See page 14.)

REVIEW OF THE EXPORT LICENSING

PROCESS FOR CHEMICAL AND

BIOLOGICAL COMMODITIES

To comply with NDAA’s FY 2005 requirement, we are reviewing

the export licensing process for chemical and biological commodities to determine whether current licensing and enforcement practices are consistent with relevant laws and regulations, as well as

established national security and foreign policy objectives, such

Major Challenges for the Department

Commerce has numerous mechanisms to monitor and

help enforce U.S. trade agreements and review trade

complaints. When warranted, its Trade Compliance Center

forms teams to follow up on complaints and bring them to

satisfactory conclusion. ITA’s overseas offices, operated

by the Commercial Service, and its other operating units

perform a substantial amount of market access and trade

compliance work. Overall, ITA’s approach to trade

compliance and market access is to engage the issue at

the working level wherever possible, thus avoiding formal

dispute settlement structures such as the World Trade

Organization, which can take years to resolve trade

disagreements. The Department and ITA pursue important

matters of policy—such as intellectual property rights

protection, standards development, trading rights, and

distribution services—in government-to-government

negotiations.

3

 According to the Export Administration Regulations, any release to a

foreign national of technology or software subject to the regulations is

deemed to be an export to the home country of the foreign national. These

exports are commonly referred to as “deemed exports” and may involve

the transfer of sensitive technology to foreign visitors or workers at U.S.

research laboratories and private companies.

4

 Homeland Security participated in the 2004 assessment because of the

nature of the review topic.
September 2004/Semiannual Report to Congress 11

as those set forth in the President’s National Strategy to Combat

Weapons of Mass Destruction (December 2002). In addition, we

are assessing the effectiveness of coordination between the various federal agencies during the export licensing process for these

commodities.

While BIS, the administration, and Congress work to target federal licensing and enforcement efforts on exports that present the

greatest proliferation and national security risks, and streamline

or eliminate controls that hamper trade and are not necessary to

address national security or foreign policy concerns, congressional

enactment of a new Export Administration Act is vital to the success of the U.S. government’s efforts to enhance export controls.

We will continue to monitor BIS’ efforts to improve the effectiveness of dual-use export controls.

Challenge 8

ENHANCE EMERGENCY

PREPAREDNESS, SAFETY, AND

SECURITY OF COMMERCE

FACILITIES AND PERSONNEL

Since our March 2002 report on the status of emergency preparedness and security programs at a cross-section of Commerce facilities, the Department has made significant improvements, but

the challenge remains. Heightened security requires a variety of

measures: infrastructure risk assessments, emergency backup sites,

upgraded physical security, and employee awareness and training, to name a few. Despite progress in these areas, the Department needs to regularly reassess its security status to ensure it

provides adequate protections for employees and operations, and

must make modifications as needed.

Commerce has reported a number of actions to enhance security

thus far this year. These include drafting a new Department Administrative Order relating to foreign national visitors and guest

researchers in Commerce facilities, which is currently being reviewed by Commerce bureaus. The Department also reported that

it has conducted numerous risk assessments of Commerce facilities and compliance reviews of security containers5 and classified

documents to help ensure the safety of Commerce personnel and

national security information. Commerce’s Office of Security is

also working with bureaus to develop or update their continuity

of operations and emergency operations plans.

Given the size of its workforce and the geographical spread of its

hundreds of facilities nationwide and at more than 150 overseas

Major Challenges for the Department

locations, complying with recent security-related guidance is a

complex, resource-intensive undertaking for Commerce. Our inspections of overseas posts and domestic U.S. export assistance

centers operated by the Commercial Service identified the need

for more timely security upgrades, improved oversight of security

operations, and in some cases, specific security improvements.

We believe Commerce is making progress on many emergency

preparedness, safety, and security fronts, but the challenge is massive. OIG is currently conducting a follow-up review of the

Department’s emergency preparedness efforts to ascertain the status of these activities and to identify other areas that may still

need to be addressed.

Challenge 9

CONTINUE TO STRENGTHEN

FINANCIAL MANAGEMENT

CONTROLS AND SYSTEMS

Federal law requires agencies to prepare and disseminate financial information, including audit reports on their financial statements, to enable Congress, agency executives, and the public to

assess an agency’s operational and program management and to

determine whether its financial management systems comply with

legislative mandates.

The Department has now implemented the Commerce Administrative Management System, achieved and maintained unqualified opinions on its consolidated financial statements, and come

into substantial compliance with the Federal Financial Management Improvement Act—all significant accomplishments. These

successes reflect management’s commitment to and success at

addressing the findings of deficient internal controls and financial

management systems identified in our audits and other reviews

over the past decade.

Nevertheless, maintaining sound financial management controls

and systems remains a challenge, given the Department’s size,

the diversity of its mission-related activities, its complex mix of

financial systems and operations, and the billions of dollars it must

account for each year. We will continue to monitor a range of

financial management issues, including Commerce’s progress in

meeting the accelerated financial reporting dates required by OMB

for the FY 2004 financial statements audit—now due just 45 days

after year-end; the effectiveness of the Department’s internal controls; the International Trade Administration’s progress toward

implementing full cost recovery to comply with OMB Circular

A-25; and the Department’s maintenance and operation of financial systems, including change management for updating software.

5 Security containers are secure receptacles (e.g., safes) or holding areas

for classified documents and materials.
12 U.S. Department of Commerce/Office of Inspector General

Challenge 10

CONTINUE TO IMPROVE THE

DEPARTMENT’S STRATEGIC

PLANNING AND PERFORMANCE

MEASUREMENT IN ACCORDANCE

WITH THE GOVERNMENT

PERFORMANCE AND RESULTS ACT

Congress and agency managers require relevant performance measures and credible performance data to effectively oversee federal

programs. The Government Performance and Results Act of 1993

was designed to ensure the availability of such data by mandating

that agencies set goals for program performance and report outcomes measured against them. Accurate performance results are

essential to agencies’ ability to develop integrated budget and performance information and to make sound funding decisions.

Over the past several years, we have reviewed the collection and

reporting of performance data by eight of Commerce’s largest

operating units. Our audits have identified the need for (1) stronger internal controls to ensure that reported data is accurate,

(2) measures that clearly articulate what is being assessed, and

Major Challenges for the Department

(3) improved explanations and disclosures to clarify and enhance

the usefulness of the results.

During this past semiannual period, these same issues emerged in

our audit of NOAA performance measures supporting the agency’s

goals of building sustainable fisheries, recovering protected species, and predicting and assessing decadal to centennial climate

change. We found that reporting for all three of the goals was

problematic: in some cases, titles of measures did not clearly convey what was being assessed; in others, explanations and verification details were incomplete, or supporting documentation

was inadequate. To correct these deficiencies, NOAA needs to

(1) revise or otherwise clarify certain performance measures,

(2) strengthen internal controls to ensure that reported data is fully

supported and adequately explained, and (3) provide complete and

appropriate detail in discussions of results. (See page 29.)

The operating units for which we have completed performance

measure audits have been responsive to our recommendations:

they have developed action plans to address identified deficiencies and have revised previously reported performance information accordingly. As each unit takes such steps, we are confident

that performance data will become more reliable and useful, and

thus better serve the purpose and intent of GPRA.
September 2004/Semiannual Report to Congress 13

Department of Commerce Organization Chart
14 U.S. Department of Commerce/Office of Inspector General

INTERAGENCY REPORT ECHOES DEEMED

EXPORT CONTROL FINDINGS AT BIS

To meet the fifth-year requirement of the National Defense Authorization Act, the inspectors general of the Departments of Commerce, Defense, Energy, Homeland Security, and State and the CIA assessed

whether U.S. industry, federal agencies, and academic institutions are

complying with deemed export

laws and regulations to prevent

the transfer of sensitive U.S.

technologies to foreign nationals from countries and entities

of concern, and whether the

regulations are thus having the

desired effect. At Commerce,

our assessment of BIS’ implementation of deemed export regulations and policies, detailed in

our March 2004 Semiannual Report to Congress (page 15), noted

that some licensing policies and exemptions may inadvertently affect national security, and require further examination. The interagency report, issued during this semiannual period, identified these

same concerns at the various other departments involved in administering the regulations.

REVIEW RESULTS

U.S. ORGANIZATIONS LACK AWARENESS AND

UNDERSTANDING OF DEEMED EXPORT REGULATIONS

The agency IGs noted that companies and academic institutions often are unaware of or

unclear about their obligations under federal law for safeguarding sensitive technology from

foreign nationals who work with or visit them. The OIGs also found an acute lack of awareness that

export control regulations apply to the technology associated with the use of controlled equipment,

even when it is used by foreign nationals to conduct fundamental research. Federal agencies with export

control responsibilities must expand their outreach and educational activities to improve awareness of and compliance

with the regulations, and thereby reduce opportunities for the unauthorized transfer of export-controlled technology or commodities.

AGENCIES DO NOT SUFFICIENTLY MONITOR COMPLIANCE

Four of the six agencies reviewed did not conduct on-site compliance inspections or audits, or have other acceptable policies or procedures in place for promoting and verifying compliance with deemed export controls.

BUREAU OF INDUSTRY

AND SECURITY

The

Bureau of

Industry and Security

is primarily responsible for

administering and enforcing the nation’s

system for controlling exports of sensitive

dual-use goods and technologies. BIS’ major

functions include formulating and implementing

export control policy; processing export license

applications; conducting various policy, technical,

and economic analyses; promulgating regulations;

conducting industry outreach; and enforcing the

Export Administration Act and regulations.

BIS is divided into two units:

Export Administration implements U.S. export control

and nonproliferation laws and policies through export

licensing, commodity classifications, and advisory

opinions; technical, economic, foreign availability, and

policy analyses; promulgation of regulations; and

industry outreach. It also conducts various defense

industry activities and enforces industry compliance

with arms control treaties.

Export Enforcement participates in reviews of

export license applications and conducts criminal

and administrative investigations relating to the

export control portions of the Export

Administration Act and regulations. It also

administers and enforces the antiboycott

provisions of the act and regulations.
September 2004/Semiannual Report to Congress 15

MANY FOREIGN NATIONALS ARE

EXEMPT FROM REGULATIONS

As noted in past reviews, both the Export Administration Regulations and the International Traffic and Arms Regulations exempt

a large number of foreign nationals from deemed export licensing

requirements and thus raise the potential for the inappropriate transfer of sensitive U.S. technology: licenses are not required for foreign nationals who are permanent U.S. residents or who wish to

access publicly available technology and software that is already

published or will be published, or is educational. In addition, the

fundamental research exemption, while it does not provide a blanket exemption for technology transfers to foreign nationals involved in fundamental research, does apply to technology that

arises during, or results from, fundamental research. With regard

to the first issue, the IGs noted that permanent residents may pose

a risk because they can freely travel to and from their home country and potentially transport controlled technology without scrutiny. As for the second issue, publicly available, sensitive technology and research that is not published may ultimately be deemed

too sensitive for unrestricted availability and withdrawn from the

public domain. In the meantime, foreign students or researchers

at U.S. academic and research facilities would have the access

and opportunity to convey the information to countries or entities

of concern. The Commerce and Defense OIGs were also concerned

that the definition of fundamental research may be unclear.

FOLLOW-UP ON

RECOMMENDATIONS

The interagency team made no joint recommendations in this year’s

report, but as required by NDAA, we followed up on prior-year

interagency recommendations: our FY 2002 report, Interagency

Review of Federal Automated Export Licensing System, had a total of seven recommendations. Four of these were addressed to

the Secretaries of Commerce, Defense, Energy, State, and Treasury, and to date, two remain open: one calling on the Secretaries

to create a charter outlining the responsibilities of each agency in

developing and operating a dual-use licensing system and in coordinating their individual efforts to improve their automated licensing systems; the other, to create a central repository for all

unclassified data records pertaining to export license review and

approval. (Offices of Inspector General of the Departments of

Commerce, Defense, Energy, Homeland Security, and State, and

the Central Intelligence Agency: IPE-16177)

Bureau of Industry and Security
16 U.S. Department of Commerce/Office of Inspector General

ECONOMIC DEVELOPMENT

ADMINISTRATION

TThe

Economic

Development

Administration was established

by the Public Works and Economic

Development Act of 1965 to generate

new jobs, help retain existing jobs, and

stimulate commercial and industrial growth in

economically distressed areas of the United

States. EDA continues to fulfill this mission

under the authority of the Economic Development

Administration Reform Act of 1998, which

introduced the concept of Comprehensive Economic

Development Strategies, a local planning process

designed to guide the economic growth of an area.

Based on these locally and regionally developed

strategies, EDA works in partnership with state and

local governments, regional economic development

districts, public and private nonprofit organizations,

and Indian tribes to help distressed communities

address problems associated with long-term economic

deterioration and recent, severe economic

dislocations, including recovery from the economic

impact of natural disasters, the closure of military

installations and other federal facilities, changes in

trade patterns, and the depletion of natural

resources. EDA provides eligible recipients

with technical assistance, as well as grants for

public works and economic development,

planning, training and research, and

economic adjustment.

PUBLIC WORKS PROGRAM

EDA’s Public Works Program empowers distressed communities in economic decline to

revitalize, expand, and upgrade their physical infrastructure to attract new industry,

encourage business expansion, diversify local economies, and generate or retain

long-term, private sector jobs and investment. In many cases, public works

projects are used to upgrade or expand an area’s economic infrastructure to

support the next generation of industry or commerce. Whenever possible,

this program seeks to redevelop existing facilities and industrial/commercial locations. EDA encourages such projects because they promote sustainable economic development by taking advantage of readily available infrastructure and markets. During this reporting period, we conducted audits of three public works grant awards, recommending that

two of the three be terminated.

Audit Results in Termination of

California Incubator Project

A northern California nonprofit organization received a $6.44 million public works grant in September 2002 to construct a 40,000-

square-foot business incubator for start-up biotech firms. The

project proposed to launch as many as 40 companies within 5 years,

attract nearly a billion dollars in venture capital, and create 3,000

new jobs. The recipient was required to provide a matching share

of $1.61 million, bringing the total estimated cost of the project to

$8.05 million. Under the special terms and conditions of the 4-year

award, construction had to start by September 30, 2004.

In May 2004, EDA’s mounting concerns regarding the grantee’s financial

stability prompted us to conduct an interim, limited-scope audit of the award

to assess the organization’s ability to complete the project, and to determine

whether disbursed grant funds had been spent for nonproject purposes.

Based on information developed during the audit, we concluded that the organization

was on the brink of insolvency and sustaining its day-to-day operations only through the

improper use of EDA project funds. The recipient’s most recent financial statements reflected

a net deficit position. In addition, our analysis of monthly cash flow demonstrated that operating

expenditures were routinely exceeding revenues, and that EDA construction funds were being used to

cover the ongoing cash shortfalls. As of April 30, 2004, EDA had disbursed nearly $2.5 million to the

grantee, most of which was earmarked for purchase of the land on which the incubator would be built. We calculated that

the organization should have had more than $2 million in project funds on hand at the time of our audit, but only $1.7 million remained

because some $300,000 had been used to cover nonproject expenses. We also found that the grantee’s financial management system did

not meet federal requirements: accounting records did not separately account for EDA project costs, and controls over project funds

were inadequate.
September 2004/Semiannual Report to Congress 17

We considered these financial and administrative deficiencies to

be so serious that we recommended that EDA designate the recipient as a high-risk organization, immediately suspend the award,

and require the grantee to deposit all remaining project funds into

a separate, interest-bearing account. We further recommended that

EDA terminate the award if, within 60 days, the recipient failed to

reimburse all funds spent for nonproject purposes and demonstrate its financial and administrative capability to complete the

project. The agency accepted our recommendations and suspended

the award in July 2004.

In response to our report, the grantee admitted that it had improperly spent more than $300,000 in EDA funds in order to keep its

organization afloat, and acknowledged its inability to repay the

misspent funds within 60 days. Nonetheless, the organization asserted that its fiscal woes would soon be remedied, claiming to

have put in place an operating plan to achieve financial stability,

which relied on the infusion of significant revenue from various

public and private funding sources. In our view, however, the

recipient’s plan was speculative at best: it provided no credible

assurances that the projected funding was actually forthcoming

or that it would be available to cover the routine operating expenses of the organization. Moreover, the response failed to demonstrate that the organization was a responsible recipient of federal funds or that it had the financial and administrative capability

to complete the incubator project in accordance with the terms

and conditions of the EDA award.

In September 2004, EDA notified the recipient that the award

would be terminated for cause, and directed repayment of more

than $2 million in grant funds disbursed for the construction

project. (Atlanta Regional Office of Audits: ATL-16838)

Audit of Grant to Ohio City

Discloses Material Violations and

$2.9 Million in Questioned Costs

In September 1998, a city in Ohio received a public works grant

for infrastructure improvements to a parcel of land being developed as an industrial park. The three-phase project, initiated in

1996, was being developed by the property owner on the city’s

behalf. At the time of the EDA award, the developer—a for-profit

company—had completed phase I using a $1.4 million municipal

grant. The EDA grant was to augment city funding for phases II

and III. Total estimated cost of the remaining two phases was

$2.3 million, with the federal share not to exceed $900,000.

In May 1999, EDA suspended the grant pending the outcome of a

lawsuit by the Environmental Protection Agency: EPA had charged

that the city’s wastewater treatment facilities did not meet federal

environmental requirements and could not handle additional industrial users. Though EDA advised the city to defer work on the

project while the award was suspended, the developer proceeded

with construction and completed the project in October 2000. In

late 2001, the city requested that the grant be reinstated, noting

that the lawsuit had been settled and the project concluded. In

2003 the city submitted a claim for total project costs of $2.9 million, at which point EDA learned that administration of the project

had been transferred to the developer—an ineligible recipient of

public works funds. Despite concerns about this transfer and

completion of the project without EDA approval, the agency disbursed $900,000 in grant funds with the caveat that all claims

would be subject to an OIG audit.

AUDIT DISCLOSES SERIOUS

NONCOMPLIANCE ISSUES

• Project transferred to ineligible recipient. Under the

terms of EDA’s public works program, for-profit concerns may not receive grant funds. The city—in awarding

a subgrant to the developer—transferred project management to a for-profit entity, and thereby effectively passed

EDA funds through to an ineligible recipient. Additionally, as owner of the property under development, the

company was the primary beneficiary of the publicly

funded project.

• Conflicts of interest. As project manager, the developer

executed contracts with prohibited parties—one, for

excavation work by a company it controlled; the other for

landscaping services from a firm owned by the

developer’s son-in-law, who was also employed by the

development company as project manager of the industrial park.

• Improper procurement procedures. The city, through

the developer, failed to ensure full and open competition

in procuring materials and services for the project. It

awarded contracts without seeking competitive bids or

Aerial view of industrial park project.

Source: OIG

Economic Development Administration
18 U.S. Department of Commerce/Office of Inspector General

conducting formal price comparisons. It also failed to

obtain required EDA approvals or maintain adequate

procurement records.

• Noncompliant financial management system. The city

did not track and record EDA-funded project costs

separately from those paid for with city funds, and

therefore could not adequately document costs claimed

as allocable to the EDA grant.

• Inadequate audits. Annual audits of the city’s financial

statements were not conducted in accordance with the

Single Audit Act.

We questioned all costs claimed by the city because one or more

violations of the terms and conditions of the grant award were

found with respect to each of the transactions comprising the claim.

Given the seriousness of the violations we identified, we recommended that EDA terminate the grant for cause, disallow the entire $2.9 million of claimed costs, and recover the federal share of

$900,000. EDA’s response to this recommendation is pending.

(Denver Regional Office of Audits: DEN-16511)

Matching Share, Development

Agreement, and Project Safety

at Issue in Illinois Audit

In September 2001, EDA awarded a public works grant to a village in southwest Illinois for infrastructure improvements to an

abandoned limestone mine slated for development as an underground business complex that would provide space for cold storage and other warehousing operations. The project includes installation of water, sewer, and electric lines; roof and portal reinforcement; and construction of a concrete access roadway. Total

estimated costs of the project are $3,156,755, of which the EDA

grant will fund a maximum of $1,894,053. The $1,262,702 balance is to be covered by matching funds from the state of Illinois,

which are contingent upon a certification that the project will create 60 jobs.

The village contracted with a private developer to oversee the

improvements and market the space to commercial prospects. In

January 2004, EDA suspended the award because the project had

no committed tenants and the state’s matching share had been

withheld.

We performed an audit to assess whether the funds necessary to

complete the project would be available. We also reviewed the

village’s agreement with the developer to determine whether it

complied with grant requirements, and examined the safety and

physical viability of the project. At the time of our audit, no construction contracts had been awarded and no EDA funds disbursed.

MATCHING SHARE IS AVAILABLE

Subsequent to the completion of our audit fieldwork in April 2004,

the state obtained a certification that a company owned by the

developer had committed to constructing a commercial facility in

the underground complex that would create 60 jobs. As a result,

state matching funds were made available to the village. Based on

the earlier problems experienced, we recommended that EDA

monitor the project to ensure that matching funds are paid out at

the same general rate as federal funds, and that the promised job

creation actually occurs.

PROBLEMS WITH DEVELOPMENT

AGREEMENT REMEDIED

The village’s original agreement with the developer afforded the

developer the right of first refusal to purchase the mine property.

In our draft report we noted that exercise of this provision would

have the effect of passing through the public works grant to an

ineligible recipient—a for-profit company—that would also become the primary beneficiary of the EDA-funded project. In response, the city terminated the developer’s right of first refusal. In

our final report, we recommended that EDA make clear to the city

that, should it sell the mine after improvements are made, it must

reimburse EDA for its share of the proceeds, based on the agency’s

participation in the cost of the project.

STEPS TAKEN TO ENSURE

PROJECT SAFETY

During our review, we examined a report from a geological engineering firm that had surveyed the mine’s stability and concluded

that loose rock in the roof posed an unacceptable risk to public

safety. It proposed a three-step process for shoring up the roof and

thus minimizing the risk. In its response to our draft report, the

village confirmed its intention to adhere to the three-step plan.

We recommended that EDA condition release of grant funds on

the village’s compliance with the engineering firm’s recommendations.

FUNDS PUT TO BETTER USE

By ensuring that agreements between the project developer and

the city adhere to grant requirements, mine safety conditions are

met, and matching funds are contributed, project funds amounting to $3,156,755 will be put to better use. (Denver Regional Office of Audits: DEN-16837)

Economic Development Administration
September 2004/Semiannual Report to Congress 19

INVESTIGATIONS

RLF Administrators Convicted of

Conspiracy and Program Fraud

In our March 2004 Semiannual Report (page 43), we reported

that two of four officials of an EDA-funded revolving loan fund

(RLF) pleaded guilty in U.S. District Court for the District of Massachusetts to program fraud, money laundering, and conspiracy.

In June 2004, one of the defendants was sentenced to 41 months’

incarceration and 3 years’ probation, and was ordered to pay a

fine of $300 and restitution to the government in the amount of

$723,553. The other defendant who entered a guilty plea is scheduled for sentencing in October 2004.

The two remaining defendants were found guilty in April 2004 of

multiple fraud and conspiracy charges. In July 2004, one defendant was sentenced to 6 months’ home detention, 3 years’ probation, and 300 hours of community service, and ordered to pay

restitution of $29,000 and a fine of $5,000. In August 2004, the

other defendant was sentenced to 6 months’ home detention, 4

years’ probation, and 300 hours of community service, and ordered to pay restitution of $68,000 and a fine of $5,000. (Arlington Resident Office of Investigations)

RLF Directors Indicted for Public

Corruption and Program Fraud

In September 2004, a federal grand jury in the Western District of

Missouri charged the former executive director and former assistant director/community planner of a regional rural economic development commission with a 19-count indictment that included

charges of conspiracy, federal program fraud, and making false

statements. A separate nonprofit corporation, for which one of the

defendants also served as executive vice president, was created

by the development commission to receive federal grant funds,

and received funding from a number of agencies, including EDA,

the Small Business Administration, and the Departments of Housing and Urban Development, Labor, and Agriculture. The EDA

funds were disbursed through a grant to capitalize an economic

development revolving loan fund administered by the corporation. A joint OIG/FBI investigation disclosed that the defendants

used federal funds to make unauthorized loans and payments totaling more than $900,000 to benefit themselves and the companies they operated and controlled. We also determined that annual

certifications provided by the defendants to EDA regarding the

disposition of RLF funds contained false statements concealing

the fraudulent activity and false certifications that EDA policies

had been followed. (Denver Resident Office of Investigations)

Economic Development Administration
20 U.S. Department of Commerce/Office of Inspector General

ECONOMICS AND STATISTICS

ADMINISTRATION

The

Economics

and Statistics

Administration analyzes

economic developments,

formulates policy options, and

produces a major share of U.S.

government economic and demographic

statistics. The Chief Economist monitors

and analyzes economic developments and

directs studies that have a bearing on the

formulation of economic policy. ESA has two

principal agencies:

Bureau of the Census is the country’s preeminent statistical collection and dissemination agency.

It publishes a wide variety of statistical data about

the nation’s people and economy, conducting approximately 200 annual surveys, in addition to the

decennial census of the U.S. population and the

decennial census of industry.

Bureau of Economic Analysis prepares, develops, and interprets the national income

and product accounts (summarized by the

gross domestic product), as well as aggregate measures of international, regional, and state economic activity.

CENSUS 2004 TEST: REENGINEERED

NONRESPONSE FOLLOW-UP IS PROMISING,

BUT PROBLEMS REMAIN

The Census Bureau put its reengineered decennial strategy to the first major test this

past spring, conducting automated nonresponse follow-up (NRFU) using handheld

computers (HHCs). The testing occurred at two fully operational local census

offices (LCOs) established to evaluate the functionality of new NRFU systems

and procedures under rural and urban conditions. The urban LCO served a

portion of the New York City Borough of Queens; the rural office served

three counties in south central Georgia.

Nonresponse follow-up is the most labor-intensive and costly operation in

the decennial: temporary Census employees (enumerators) visit addresses

from which the bureau did not receive a completed questionnaire. For the

test, enumerators visited more than 120,000 households.

Automating NRFU’s paper-based processes is a key feature of the bureau’s

redesign for Census 2010, and if successful, should enhance operational

efficiency, data quality, and enumerator productivity, while containing costs.

The transformation is built around an HHC designed to allow enumerators

to manage their housing assignments, locate housing units using electronic

maps and global positioning system (GPS) technology, interview household

occupants via an automated questionnaire with English and Spanish text, and

exchange data with Census headquarters. A major objective of the 2004 test

was to determine whether HHCs could effectively support nonresponse followup activities and whether enumerators could ably use them to perform their work.

A multidisciplinary team from OIG’s Offices of Audits, Inspections and Program

Evaluations, and Systems Evaluation assessed selected aspects of the 2004 test:

(1) the HHCs and associated systems involved in automating NRFU; (2) enumerator

hiring, training, and quality control processes; (3) revised definitions and methods for

distinguishing between group quarters and housing units; and (4) management, administrative, and logistical support. Our key findings are detailed below.

AUTOMATED NONRESPONSE FOLLOW-UP APPEARS FEASIBLE, BUT

TECHNICAL ISSUES NEED TO BE RESOLVED

The test demonstrated that HHCs and related automation are promising replacements for paper-based NRFU. The enumerator workforce—

recruited, hired, and trained using the bureau’s traditional practices—was able to use the handheld computers. HHC assignment and

questionnaire functions generally appeared to work well, as did the Operations Control System (OCS) used for assigning cases to

enumerators’ HHCs, processing their questionnaire data, and providing other critical management functions.
September 2004/Semiannual Report to Congress 21

However, the test exposed numerous weaknesses: transmission

problems and inadequate help desk support seriously disrupted

enumerator training and NRFU operations, as did the delivery

of inadequately tested HHC software and the consequent need

to transmit improved software during training. In the field, the

handheld computers often crashed, disrupting the interview and

sometimes losing data. Finally, the HHCs’ electronic maps were

generated so slowly that enumerators often opted not to use them,

leaving the bureau with little data for assessing this and related

navigation aids.

NRFU TRAINING NEEDS IMPROVEMENT

Curriculum Modifications. The bureau has traditionally trained

enumerators using a rigidly scripted “verbatim” methodology.

Some problems we observed with NRFU operations—such as

enumerators omitting or rewording questions, or ineptly handling

reluctant respondents—appeared to be systemic, long term, and

linked to weaknesses in training. Introduction of the handheld

computer has made training even more difficult, particularly because many trainees have various levels of expertise, and sometimes no experience with computers and related terminology. The

bureau’s verbatim curriculum needs to be augmented with other

methods to better address the systemic and technical learning issues we observed. To improve training, the bureau should consider preparing alternative scripts or explanations for asking awkward questions, and adopting more dynamic training methods such

as multimedia and computer-based instruction.

Site Selection. The addition of the handheld computer component

to the training curriculum has changed the bureau’s training space

needs—classes are now longer and sites must have adequate infrastructure, such as telephone lines capable of handling HHC transmissions. Given that the bureau tries to use free or low-cost space,

finding sites that have the necessary features may be more difficult

than in the past. The bureau, through its site selection process, must

verify that facilities can accommodate technology requirements or

that they can otherwise adequately support the training.

INSUFFICIENT PLANNING HAMPERED

TEST OF REVISED GROUP QUARTERS

DEFINITIONS

The 2004 test did not further the bureau’s goals of distinguishing

hard-to-identify group homes from housing units and of improving enumeration of students living off campus. First, the revised

definitions for group quarters were ambiguous and late in coming—they became available only after training materials for determining a structure’s type had been prepared. The materials therefore did not provide adequate instruction on differentiating and

properly categorizing certain types of group homes.

Second, the newly added off-campus, university-leased housing

category was not adequately tested because neither site contained

such housing. As the bureau has already selected the 2006 sites, it

should determine whether these locations contain the defined housing situations, and if they do not, consider expanding site boundaries to include such housing or find an alternative for testing this

new category.

NEW QUALITY ASSURANCE OPERATION

SUPPORTS DATA INTEGRITY

To ensure the accuracy of data collected during NRFU, each local

census office conducts “reinterviews,” during which quality assurance enumerators contact a sample of previously enumerated

households. This operation is designed to detect and deter data

falsification. In Census 2000, the reinterview process was handled

1. Each day the enumerator selects assignments from his or her HHC

assignment list, goes into the field, and uses the HHC to locate

addresses and conduct interviews.

2. Each evening the enumerator initiates a transmission to exchange

data with Census headquarters. The enumerator connects the HHC to

the home telephone jack and sets up the HHC to connect to the

Census telecommunication (Telecom) system.

3. During the transmission, the enumerator’s HHC uploads collected

questionnaire data to the telecommunication system at headquarters

and headquarters downloads new assignments to the HHC.

4. During the transmission, the OCS Database Server at headquarters

receives questionnaires from the telecommunication system and

sends new assignments to the telecommunication system. The OCS

Database Server automatically accepts completed questionnaires or

flags partially completed ones for supervisory review.

5. Throughout the day, supervisors and crew leaders review reports

generated by the OCS (Database Server and desktop Client) about the

status of assignments. Then they allocate new or partially completed

assignments to enumerators. These assignments are entered into the

OCS Client and stored in the OCS Database Server.

Economics and Statistics Administration

Source: OIG
22 U.S. Department of Commerce/Office of Inspector General

We found that ambiguities in quality assurance training manuals

could compromise the AMQA’s independence. For example,

though the manuals give this assistant manager authority for investigating possible falsification or poor-quality enumeration, the

procedures for doing so often require the AMQA to seek answers

regarding irregularities from field operations management rather

than from crew leaders and enumerators—a process that makes it

possible for field managers to minimize problems.

SOME MANAGEMENT AND

ADMINISTRATIVE ISSUES NEED

ATTENTION

While we found that the Queens LCO systematically tested and

documented what did and did not work, the Georgia staff did not

do so and had less of an understanding of the purpose of the test.

AGENCY RESPONSE

The bureau had no substantial disagreements with our observations, and noted that it would consider our suggestions in looking

for ways to improve the 2006 census test, the 2008 dress rehearsal,

and the 2010 decennial. (Offices of Audits, Inspections and Program Evaluations, and Systems Evaluation: OIG-16949)

REVIEW OF FEDERAL AUDIT

CLEARINGHOUSE DATABASE

FINDS FEW PROBLEMS

During this period, the Office of Inspector General assessed the

accuracy of the Federal Audit Clearinghouse Database—the repository and distribution mechanism for single audit reports.7

Roughly 30,000 new reports are added to the database each year,

according to OMB, and since our last review of the clearinghouse

in 2000, the process for entering and accessing database information has moved from a manual to Internet-based system.

Our FY 2004 review analyzed a representative sample of 200 audit reports and related database entries. We assessed the completeness of audit reporting packages submitted to the clearinghouse

and compared and verified database information against that contained in the reports and other documents in the packages. We

tested the utility of the database’s Internet search function and the

BEYOND THE 2004 TEST:

PREPARING FOR THE

2010 DECENNIAL CENSUS

To meet performance and cost goals for the 2010 decennial,

the Census Bureau should develop and implement plans that

accomplish the following:

2006 Test

• Balance the dual objectives of managing a test and

conducting a census, including complete documentation

of test problems and operations.

• Confirm that test sites support test objectives (e.g.,

select representative group quarters housing to test

university-leased, off-campus definition) or find an

alternative for testing the objective.

• Explore and test alternative methodologies to train

enumerators.

Automated Operations

• Reevaluate and improve data transmissions.

• Reevaluate and improve field operations technical

support.

• Define complete and verifiable specifications that

address functional, performance, and human factor

requirements for further system development and

acquisition.

• Improve system and software engineering practices to

ensure the deployment of thoroughly tested automated

capabilities before training and operations begin.

• Plan contingencies for essential NRFU components

whose failure would jeopardize field operations.

• Improve performance of and further test map functions.

• Upgrade selection criteria for crew leaders to reflect

higher level skill requirements.

• Ensure HHC training can be effective in facilities lacking

functional and accessible electrical outlets and

telephone lines.

• Establish better inventory controls for reclaiming HHCs

from departing employees.

Other Considerations

• Gain consensus for new definitions (e.g., group

quarters) prior to applying them in an operation.

• Reinforce Census hiring policies to LCO staff.

• Continue to emphasize partnership efforts to recruit

staff and publicize the census (i.e., increase

participation).

• Verify that the quality assurance operation supports

data integrity.

Source: OIG

6 Department of Commerce Office of Inspector General. Re-enumeration

at Three Local Census Offices in Florida: Hialeah, Broward, and Homestead, ESD-13215-0-0001, September 2000.

7 “Single audits” are audits of federal financial assistance recipients performed by state and local government auditors or independent public

accountants, in accordance with OMB Circular A-133.

Economics and Statistics Administration

by the assistant manager for field operations. However, problems

with data falsification6 prompted the bureau to separate the

reinterview process and its management from NRFU field operations. The process is now under an assistant manager for quality

assurance (AMQA), who reports directly to the LCO manager.
September 2004/Semiannual Report to Congress 23

accuracy and accessibility of web site information. In a related

audit, we conducted limited tests of the database’s information

technology controls to determine their effectiveness in protecting

the integrity of clearinghouse information.

REVIEW FINDINGS

Our review of the hard-copy reports found that only 3 of 200 were

incomplete: one was missing a corrective action plan detailing how

the auditee planned to resolve the audit findings, and two did not

contain the required Summary Schedule of Prior Audit Findings.

The comparison of the reports with their database entries revealed

the following:

• Missing findings—the database did not contain findings

for 7 of the 200 reports because auditors had not entered

the findings on the data collection forms in the audit

packages.

• Erroneous data elements—159 elements (from a universe

of 14,800) were incorrect. Of these errors, 138 were the

fault of the auditors or auditees, who provided incorrect

or incomplete information in the reporting packages; the

remaining 21 were bureau errors resulting from either

programming problems or incorrect data entry. For the

bureau’s part, this is a vast improvement over our FY

2000 findings, in which 244 of 370 errors were attributable to the clearinghouse.

Tests of the web site’s functionality and the related accuracy of

specific searches and information available to users found only

minor data errors, largely due to delays in updating web site information. The clearinghouse is correcting the programs that generate this information.

Our analysis of IT general controls, issued in a separate report,

found weaknesses in five areas: entity-wide security program planning and management, access controls, application software development and change control, system software, and service continuity. Specifically, we noted that the clearinghouse system lacked

(1) current, accurate technical documentation; (2) adequate policies and procedures for implementing changes; and (3) a centralized source of management and technical expertise.

The Census Bureau generally agreed with the results of our review and the recommendations in our IT report. (Atlanta Regional

Office of Audits: ATL-16202-1 and -2)

WEAKNESSES IN

CERTIFICATION AND

ACCREDITATION PROCESS

LEAVE SECURITY OF CRITICAL

BUREAU INFORMATION

SYSTEMS IN QUESTION

As part of our FY 2004 Department-wide FISMA review (see

page 42), we evaluated the security of Census’s national-critical

systems and elements of its mission-critical systems to determine

whether the bureau’s related policies and procedures complied

with the act as well as with OMB requirements and Commerce’s

IT security policy.

Our evaluation found that the bureau’s IT security program generally conformed in structure and intent with requirements of the

Department’s IT security program policy and other mandates, but

that those requirements were not always appropriately applied,

with the result that critical systems may not be adequately protected. Among our specific findings were the following:

C&A PROCESSES AND DOCUMENTATION

WERE SIGNIFICANTLY DEFICIENT

Certification and accreditation processes and documentation did

not comply with either Department or FISMA requirements in a

number of areas: risk assessments did not sufficiently identify

system vulnerabilities; security plans assigned improper and inconsistent sensitivity levels to systems and did not adequately

describe the controls that were in place or needed; and one package lacked a complete contingency plan for a certified and accredited national-critical system. The documentation also did not

identify residual risks in the certified and accredited systems, and

thus provided no evidence that the accrediting official understood

the level of risk being assumed in authorizing system operations.

SECURITY TESTING OF NATIONALCRITICAL SYSTEMS IS INADEQUATE

The bureau’s national-critical systems are part of the federal

government’s critical infrastructure and must therefore be protected from major disruptions. The bureau has not designated its

national-critical systems as having the highest sensitivity for purposes of certification and accreditation and thus does not test their

security controls as rigorously as the Department’s IT security

policy requires. In the event of a national security emergency, these

OMB CIRCULAR A-133, Audits of States, Local Governments, and Non-Profit Organizations, designates the

Bureau of the Census as the federal agency responsible

for maintaining the clearinghouse. The clearinghouse

processes incoming reporting packages and related data

collection forms, maintains a governmentwide database of

audits, distributes reports with audit findings to individual

federal agencies for audit resolution, and maintains an

archival copy of all reports.

Economics and Statistics Administration
24 U.S. Department of Commerce/Office of Inspector General

systems—as currently defined—may not have the capability to

perform required processing.

DESIGNATED APPROVING AUTHORITY

SHOULD BE AN OFFICIAL WITH

MANAGEMENT, OPERATIONAL, AND

BUDGET AUTHORITY OVER SYSTEM

Departmental and OMB policy specify that designated approving

authorities or accrediting officials must be program officials who

have management, operational, and budget authority for the system, and that they may not be system owners (i.e., division or

office chiefs). Census’s policy, however, names its chief information officer as the designated approving authority for all systems,

even though this official does not have the required authority over

the bureau’s entire inventory.

PLANS OF ACTION AND MILESTONES DO

NOT ACCURATELY REFLECT SYSTEM

SECURITY DEFICIENCIES

Contrary to OMB and the Department’s security policy, Census is

not using POA&Ms to list all identified security weaknesses and

track and manage efforts to resolve them. POA&Ms did not identify residual risks for which additional controls are needed, the

lack of contingency plans, or the need for additional testing to

ensure that systems are certified at a level commensurate with

their sensitivity.

BUREAU RESPONSE

Census officials generally agreed with our findings and described

actions being taken or planned to implement our recommendations. However, its actions for correcting the C&A deficiencies

did not fully address our concerns: they did not ensure that

(1) only an acceptable level of risk remains in accredited systems, (2) testing is commensurate with the level of each system’s

sensitivity, and (3) all known information security weaknesses

are included in POA&Ms. (Office of Systems Evaluation: OSE16519-1 and -2)

INVESTIGATIONS

Former Census Manager

Convicted and Sentenced in

Payroll Scam

In our March 2004 Semiannual Report (page 43), we reported

that a former Census assistant field manager was indicted for

theft in the U.S. District Court for the Western District of Michigan. An OIG investigation revealed that the individual created a

payroll account in the name of another former Census employee,

forged endorsements on the paychecks, and deposited the funds

into a personal bank account. In August 2004, the former assistant manager pleaded guilty to one count of theft and was sentenced to 4 months’ imprisonment, 4 months’ home detention,

and 3 years’ probation, and ordered to pay restitution in the amount

of $14,254. (Arlington Resident Office of Investigations)

Certification is the formal testing of the security

safeguards and controls implemented in a computer

system to determine whether they meet applicable

requirements and specifications.

Accreditation is management’s formal authorization to

allow systems to operate. It includes an explicit acceptance

of the identified residual risks.

System sensitivity refers to FISMA’s three security

objectives for information and information systems:

confidentiality, integrity, and availability. System owners must

assign a sensitivity level of high, medium, or low to each

objective to reflect the impact that a system’s compromise

would have on the agency’s mission, and must justify the

level assigned.

Economics and Statistics Administration
September 2004/Semiannual Report to Congress 25

The

International

Trade Administration is

responsible for trade promotion and

policy issues associated with most

nonagricultural goods and services. ITA

works with the Office of the U.S. Trade

Representative to coordinate U.S. trade policy.

ITA has four principal units:

Market Access and Compliance develops and implements international economic policies of a bilateral, multilateral, or regional nature. Its main objectives are to obtain market access for American firms and workers and to

ensure full compliance by foreign nations with trade agreements signed with the United States.

Trade Development advises on international trade and investment policies pertaining to U.S. industrial sectors, carries out programs to strengthen domestic export competitiveness, and promotes U.S. industry’s increased participation in

international markets.

Import Administration defends American industry against

injurious and unfair trade practices by administering the

antidumping and countervailing duty laws of the United

States and enforcing other trade laws and agreements

negotiated to address such trade practices.

U.S. Commercial Service promotes the export

of U.S. products and helps small and mediumsized businesses market their goods and

services abroad. It has 106 domestic

offices and more than 157 overseas

posts.

INTERNATIONAL TRADE

ADMINISTRATION

SHARED STRENGTHS AND WEAKNESSES

NOTED AT THREE U.S. EXPORT

ASSISTANCE CENTER NETWORKS

The U.S. Commercial Service (CS) operates 106 domestic U.S. export assistance centers (USEACs)—one-stop shops intended to bring together a range

of federal and nonfederal trade-related agencies to provide local export assistance to small and medium-sized firms.The USEACs are grouped geographically into 12 networks across the country.

In FY 2003 and 2004, OIG inspected three USEAC networks (Chicago, Pacific Northwest, and Philadelphia), which comprise 28 separate USEAC offices, to evaluate their management, program operations, and financial and administrative practices. We reported the

findings of our individual reviews in our March 2004 Semiannual

Report(page 24). During this semiannual period, we issued a crosscutting report that identified strengths and weaknesses common

to the three networks and recommended actions to resolve them.

USEACS HAVE GENERALLY SOUND

OPERATIONS AND WORK WELL WITH

TRADE PARTNERS AND CLIENTS ALIKE

Each of the three USEAC networks is doing a good job of providing export assistance to U.S. companies and has fairly sound financial and administrative operations. Relationships with trade partners at the federal, state, and local level are strong and mutually

beneficial. In some centers, Commercial Service is collocated with

one or more trade partners, such as the Small Business Administration, Export-Import Bank, state trade agencies, and universities. These

collaborative relationships better enable the USEACs to provide U.S. companies with one-stop shopping for their export counseling, market research,

and trade financing needs.

Clients at all three networks reported satisfaction with the USEACs’ assistance and

products, and generally found USEAC staff to be innovative, knowledgeable of overseas markets, and well connected to trade partners and government contacts abroad. Some

believed the USEACs needed to better promote their services. Others believed the centers could

offer more specialized trade assistance and market information.

OVERSTATED PERFORMANCE DATA AND OTHER DEFICIENCIES SUGGEST THE

NEED FOR IMPROVED MANAGEMENT OVERSIGHT

The networks failed to comply with CS guidelines on the reporting of export successes—the organization’s key performance measure—

and thus overstated their performance data for the period we reviewed: Chicago’s reported export value of $42.1 million was overstated
26 U.S. Department of Commerce/Office of Inspector General

by $4.3 million (10 percent); Pacific Northwest’s reported export

value of $263 million was overstated by $156 million (59 percent);

and Philadelphia’s export value of $145.1 million was overstated

by $14.5 million (10 percent).8 We also found export success reports that failed to clearly demonstrate the link between the outcome and the assistance provided, and client records that did not

sufficiently demonstrate the chain of events leading to the success.

Further, we noted that despite a CS strategic goal to expand the

number of U.S. exporters, Commercial Service does not accurately

track USEAC assistance to firms that are new to exporting.

Coupled with these common problems, we noted some operational,

financial, and administrative weaknesses unique to each network,

which, in combination with the shared deficiencies, suggest that

Commercial Service needs to improve its oversight of domestic

field operations.

ACTIONS NEEDED TO BRING ITA INTO

COMPLIANCE WITH OMB CIRCULAR A-25

At the time we conducted our USEAC reviews, we found that

Commercial Service’s user fee policy—to recover just some of its

direct costs—conflicted with OMB Circular A-25, which requires

full cost recovery for goods and services agencies provide when

such resources convey benefits beyond those enjoyed by the general public. ITA asked OMB to waive the requirement, but OMB

denied the request.

AGENCY RESPONSE

Both ITA and Commercial Service agreed that oversight of export

success reporting, fee collections, and compliance with CS policies

could be strengthened. To that end, ITA noted that it has appointed

a quality control officer to monitor export success reporting worldwide, and is working to revise its client management database to

capture assistance provided to new exporters. Commercial Service

noted that it has developed and implemented new reporting guidelines that should minimize reporting errors and improve compliance, and it is working to train CS managers and staff on correct

reporting procedures. We evaluated the guidelines and recommended

that Commercial Service revise them to include instructions for

(1) reporting export successes with financial institutions, and

(2) determining how soon after interacting with a client, staff should

create a formal client record in Commercial Service’s client management database. The agency is evaluating our suggested revisions.

Finally, ITA reported that it is taking steps to comply with OMB

Circular A-25: it is acquiring a new accounting system that should

be implemented in 2006 and developing product pricing templates

to capture the full direct and indirect costs for its products. The

agency also submitted a Circular A-25 compliance plan to OMB

in September 2004. We note that, in addition to these actions,

ITA staff will need guidelines and training on the need to charge

for government services and on calculating and collecting appropriate fees. (Office of Inspections and Program Evaluations: IPE16728)

CS INDIA GENERALLY

OPERATES WELL, BUT

CLOSER ATTENTION TO

EXPORT SUCCESS

REPORTING AND TRADE

EVENTS IS NEEDED

With offices in seven cities, Commercial Service’s post in India is

one of its largest overseas operations. India is the world’s 12th

largest economy and one of the fastest growing as well. It has

more than 1 billion residents, a huge and expanding middle class

(currently some 200 million), and a demand for U.S. consumer

goods that is strong and expected to remain so. The United States

is India’s single largest trading partner: U.S. exports to that country in 2003 were $5 billion, up 22 percent from the previous year.

Corresponding imports from India to the U.S. totaled $13.1 billion, up 10.4 percent.

We conducted an inspection of CS India in May and June 2004,

visiting all seven offices: Ahmedabad, Bangalore, Calcutta,

Chennai, Hyderabad, Mumbai, and New Delhi. We assessed the

post’s management, program, financial, and administrative operations, as well as its coordination with other organizations in achieving ITA and Commerce goals. Our purpose was to determine

whether the post plans, organizes, and controls its work and resources effectively; meets the needs of U.S. exporters; is helping

increase U.S. export levels and market access; and has appropriate internal controls and financial management procedures.

We found that the post is generally well run and doing a good job

of providing export assistance to U.S. companies: clients we spoke

with are generally satisfied with CS India’s products and services,

and the post collaborates well with its trade partners, other components of the U.S. mission and ITA, and other government agencies. However, we identified a number of issues that warrant Commercial Service’s attention, as follows: 8 For the Chicago network, we reviewed the 273 export success records

approved from October 1, 2002, to July 9, 2003. For the Pacific Northwest and Philadelphia networks, we examined a random sample of approximately 20 percent of the export success records approved during

FY 2003—761 and 489, respectively.

International Trade Administration
September 2004/Semiannual Report to Congress 27

POST MANAGEMENT HAS

RESTRUCTURED AND STRENGTHENED

OPERATIONS, BUT EXPORT SUCCESS

REPORTING REMAINS PROBLEMATIC

The current senior commercial officer (SCO), who arrived at post

in July 2003, has set a strong management tone, instituted a number of measures to enhance staff interactions with customers and

trade partners, and refocused staff energies on Commercial

Service’s core mission of assisting U.S. exporters. He set an FY

2004 goal of doubling the number of export successes achieved in

the prior year. As of June 2004, the post had already reported 505

successes—a 241 percent increase over the FY 2003 total of 148.

However, our review of FY 2004 export successes reported by three

offices (Bangalore, Chennai, and Hyderabad) found that many did

not meet CS guidelines. In a number of cases we could not verify

the link between CS assistance and the reported success, and identified several that did not meet export success criteria. As a result,

the SCO reviewed export successes and either removed, withdrew,

or combined 50 of them in the CS database, and some additional

deletions may still be needed. Although ITA and Commercial Service have taken steps to highlight the importance of accurate export success reports and to improve quality controls and oversight of performance reporting, we are concerned that Commercial Service, in revising its reporting guidelines this past

fiscal year, may have reduced management accountability

for ensuring the accuracy of export success reports. This may

explain some of the reporting errors. We thus recommended

that current CS performance measure guidelines be revised

to include the specific oversight responsibilities delineated

in prior guidelines.

FEE ARRANGEMENTS AND SUPPORT

PROVIDED FOR SEVERAL TRADE

EVENTS WERE INAPPROPRIATE

For several trade fairs held during FY 2003-2004, CS India

inappropriately collected or agreed to accept fees that were

based on the cost per square meter of space rented by participants the post recruited, rather than on the cost of the CS

services provided. In addition, these events were not certified by the Department of Commerce, and as such, we questioned whether the post’s involvement in them was greater

than it should have been. (See box next page.)

MISMANAGED TRADE PROGRAM

LEAVES $25,000 IN FUNDS

AVAILABLE FOR BETTER USE

USA Day Events was a series of trade events initiated in

FY 2001, planned for 12 cities in western India, and financed with

$93,000 from companies agreeing to sponsor the series. Plagued

by financial and management problems, USA Day Events was

discontinued in FY 2002, but financial-related issues remained

unresolved at the time of our inspection in 2004. Commercial

Service and ITA had intended to disburse approximately $25,000

to the event organizer to cover the cost of the six events that had

been held before the program’s cancellation, with the expectation

that the organizer would refund all sponsor contributions. However, we advised ITA and Commercial Service that there was no

written agreement with the organizer requiring that it refund sponsor donations and hence no guarantee that it would, and further,

that it was uncertain whether the organization still had the remaining $68,000 needed to make a full refund. We recommended that

the agencies therefore not make the $25,000 payment. They agreed,

which resulted in $25,000 to be put to better use. We also recommended that ITA do the following: (1) ask the Department’s Office of General Counsel to clarify whether Commercial Service

can collect promotional fees from non-U.S. government event

organizers; (2) oversee post trade events to help ensure that finances for these activities are handled appropriately; and (3) ensure that commercial officers worldwide receive training on ITA

policies regarding trade fairs and trade event financing, as well as

Commerce guidelines on interoffice and other special agreements.

International Trade Administration

Source: http://www.mapsofindia.com, accessed July 19, 2004.
28 U.S. Department of Commerce/Office of Inspector General

GENERALLY SOUND POST OPERATIONS

HAVE A FEW AREAS OF WEAKNESS

In general, CS India’s financial and administrative operations were

sound, but several issues need to be resolved:

• Questionable resource utilization. The post’s business

information centers are underutilized and ill equipped,

and in some instances occupy an inordinate amount of

office space. Nearly half of all foreign service nationals

perform a mix of non-trade-related functions rather than

core mission duties. Two offices are located in luxury

hotel space rather than readily available commercial

space. And finally, CS New Delhi is paying $66,000 per

year in rent on space that is much larger than needed. We

recommended that Commercial Service evaluate staffing

allocation and utilization throughout India and explore

options for reducing CS India’s rent obligations.

• Inconsistent handling of currency collections. CS India

sometimes deposited payments from clients with the

State Department, rather than in its lockbox, as required,

and failed to charge associated service fees, largely

because of conflicting written guidance on the matter.

• Untimely completion of performance appraisals. Post

management was sometimes late in providing personnel

evaluations, and pay increases for some foreign service

nationals were delayed as a result.

AGENCY RESPONSE

ITA and Commercial Service concurred with most of our recommendations and, among other things, agreed to do the following:

1. Review current staffing patterns and resource allocations

in India and recommend appropriate changes.

2. Evaluate the post’s office space allocations and rent

obligations, and address issues pertaining to the business

information centers.

3. Provide appropriate financial and administrative training

to CS India officers and foreign national staff.

4. Continue to improve the post’s record for completing

timely personnel evaluations.

Both agencies disagreed with our finding that its FY 2004 export

success reporting guidelines have reduced management accountability for ensuring the quality and integrity of reported successes.

(Office of Inspections and Program Evaluations: IPE-16808)

International Trade Administration

CERTIFIED VS. NONCERTIFIED EVENTS

Each year the Department of Commerce selects trade

fairs in prime markets worldwide and certifies them via the

Trade Fair Certification Program. This program is a

cooperative arrangement between U.S. private sector

trade show organizers and Commerce through which the

Department aids organizers’ efforts to recruit U.S. exhibitors and manage an official U.S. government-sponsored

pavilion, and arranges for support from Commercial

Service’s domestic offices and posts.

According to an official from CS’ Trade Certification

Program, post support for certified fairs involves actively

recruiting exhibitors and arranging support services from

domestic CS offices. For noncertified fairs, CS support is

supposed to be limited to information sharing, e.g., market

briefings and public relations duties. This official noted that

when posts provide the same level of services for certified

and noncertified fairs, they dilute the value of certification

and of Commerce’s endorsement.
September 2004/Semiannual Report to Congress 29

LATEST AUDIT OF NOAA PERFORMANCE

MEASURES IDENTIFIES CONTINUED

WEAKNESSES IN REPORTING

PROCEDURES

Our focus on NOAA’s annual performance reporting continued this past semiannual period with an audit of its procedures for collecting, verifying, and

presenting data for another three performance goals: (1) build sustainable

fisheries, (2) recover protected species, and (3) predict and assess decadal

to centennial climate change. The first two goals are supported by National Marine Fisheries Service (NOAA Fisheries) activities; the third

goal, by the Office of Oceanic and Atmospheric Research (OAR) and

the National Environmental Satellite, Data, and Information Service

(NESDIS).

We assessed the collection and reporting of information and documentation supporting performance data contained in the

Department’s FY 2002 Performance and Accountability Report

to determine whether NOAA had internal controls of sufficient

quality to ensure that data is accurate, consistent, and reliable. The

findings in this audit mirrored those of the two we concluded in

FY 2003.9 Once again, we found that for each goal, the usefulness

of the reported data was compromised by unclear measures, weak

procedures for ensuring data reliability, insufficient documentation,

and inadequate explanations.

Imprecise Wording. As currently worded, certain measures under these

goals do not clearly or accurately convey the reported activity. For example, FY 2001 results reported under “recover protected species” incorrectly imply that NOAA Fisheries is assessing its successes at improving individual species to the point where they move from the threatened or

endangered categories. However, this is not the case. NOAA Fisheries officials

explained the measures are intended to report any success at stabilizing or improving the status of a species, though it might remain in the threatened or endangered categories.

OAR and NESDIS reporting under “predict and assess decadal to centennial climate change”

is flawed as well. For example, the measure for long-term changes in temperature and precipitation does not convey that data is collected from the contiguous United States only.

The

National

Oceanic and

Atmospheric Administration

studies climate and global change;

ensures the protection of coastal oceans and

the management of marine resources; provides

weather services; and manages worldwide

environmental data. NOAA does this through the

following organizations:

National Weather Service reports the weather of the

United States and provides weather forecasts and

warnings to the general public.

National Ocean Service issues nautical charts; performs

geodetic surveys; conducts research; and develops policies

on ocean mining and energy.

National Marine Fisheries Service (NOAA Fisheries)

conducts a program of management, research, and services

related to the protection and rational use of living marine

resources.

National Environmental Satellite, Data, and

Information Service observes the environment by

operating a national satellite system.

Office of Oceanic and Atmospheric Research

conducts research related to the oceans and inland

waters, the lower and upper atmosphere, space

environment, and the Earth.

Office of Marine and Aviation Operations

operates NOAA’s ships and aircraft and

provides NOAA programs with trained

technical and management

personnel from the nation’s

seventh uniformed

service.

NATIONAL OCEANIC

AND ATMOSPHERIC

ADMINISTRATION

9 Department of Commerce, Office of Inspector General, Improvements Needed in Reporting of Performance Measures Related to Promoting Safe

Navigation and Sustaining Healthy Coasts, Report No. FSD-14998, February 2003; and Improvements Needed in the Reporting of Performance

Measures Related to Goals for Advancing Short-Term Warnings and Implementing Seasonal to Interannual Climate Forecasts, Report No. FSD15643, September 2003.
30 U.S. Department of Commerce/Office of Inspector General

Problematic Baseline Data. For measures under the sustainable

fisheries and protected species goals, NOAA Fisheries uses

baseline fish stock data that, for some measures, precludes accurate assessment: not only is the data always changing but the

changes may reflect a worsening condition for a species as well

as an improvement. For example, in reporting its FY 2001 performance under “reduce the number of overfished major stocks,”

NOAA Fisheries compared the number of species listed as overfished in the FY 2000 baseline against its performance with these

species in FY 2001 and indicated a significant improvement. However, nine species in the FY 2000 baseline had actually been moved

to worse categories in FY 2001.

Inadequate and Inaccurate Documentation and Explanations. The responsible NOAA agencies did not maintain appropriate documentation for many of the measures under the three

goals. In some cases, documentation did not support reported

data, and in others it was simply not available. Explanations often did not include details essential to understanding the data or

the agency’s real impact on reported outcomes; contained erroneous or incomplete information; described verification procedures that ascertained the scientific quality of the data rather

than the accuracy of the numbers; or did not explain that the

data was cumulative.

Insufficient Oversight. For the goal, “predicting and assessing

decadal to centennial climate changes,” NOAA does not have procedures or an established chain of command at the program level

for verifying the accuracy of collected data and related explanations, a deficiency that permitted the reporting of incorrect information. To ensure data reliability, management must give greater

attention to the reporting process and see that performance measures clearly represent what is being reported, appropriate supporting documentation is maintained, and explanations contain

sufficient and accurate details.

NOAA’S RESPONSE

NOAA generally concurred with our recommendations for improving performance measures and reporting and identified actions taken or planned to address them. (Financial Statements and

Accountability Division: FSD-15989)

INQUIRY INTO HIRING FOR

SENIOR EXECUTIVE POSITION

FINDS ROOM FOR

IMPROVEMENT

We received a complaint charging that NOAA, in filling the position of assistant administrator for weather services, chose an applicant who was not a meteorologist and therefore did not meet

the advertised qualifications for the job. The complainant further

charged that NOAA’s human resources management (HRM) director circumvented the selection process by improperly adding

names to the list of candidates that the screening panel referred to

the selecting official.

Our inquiry found that the occupational series under which the

position was advertised does require a degree in meteorology, but

only for general schedule employees. The assistant administrator

for weather services is a senior executive service position, and as

such was exempt from this educational requirement. In fact, the

professional and technical qualifications contained in the announcement did not include a degree in meteorology or any other

science. The candidate ultimately chosen met all stated requirements for the position and was rated well qualified or higher by

all members of the screening panel.

However, we did find that NOAA failed to fully comply with its

own selection procedures, as stipulated in its Executive Resources

Merit Staffing and Recruitment Plan:

• The plan calls for screening panel members to rate and

rank each applicant, and sign an overall rating form for

all candidates. The panel never signed off on that form.

National Oceanic and Atmospheric Administration

NOAA GOALS

AND MEASURES ASSESSED

Performance

Goals Associated Measures

Build • Reduce the number of overfished major

Sustainable stocks of fish from 56 to 45 by FY 2007

Fisheries • Reduce the number of major stocks with

an “unknown” stock status to no more

than 98 by FY 2007

• Increase the percentage of plans to

rebuild overfished major stocks to

sustainable levels

Recover • Reduce by 10 (from a FY 2000 baseline

Protected of 27) by FY 2007, the number of

Species threatened species at risk

• Increase the number of commercial

fisheries that have insignificant marine

mammal mortality

• Reduce by 11 (from a FY 2000 baseline

of 29) by FY 2007, the number of

endangered species at risk of extinction

Predict and • Assess and model carbon sources and

Assess sinks throughout the United States

Decadal to • Assess and model carbon sources and

Centennial sinks globally

Climate • Determine actual long-term changes in

Change temperature and precipitation

throughout the United States
September 2004/Semiannual Report to Congress 31

• The plan also requires the panel to reach consensus on a

list of best-qualified candidates for referral to the

selecting official and document its choices. The panel did

not prepare such documentation.

Should panel members fail to reach consensus on the best-qualified candidates, the plan is silent on how to resolve their disagreement. The Department’s Executive Personnel Policy

Manual, for example, gives the director of human resources authority for resolving such matters. The NOAA plan does not.

Rather than try to facilitate consensus, NOAA’s HRM director

simply referred to the selecting official all candidates deemed

by the panel to be either highly qualified (one) or well qualified

(five). Though we concluded that it would have been prudent for

the HRM director to reconvene the screening panel and attempt

to obtain consensus, we believe that—given the small pool of

highly and well-qualified candidates—the director’s decision to

refer them all was reasonable.

To avoid similar problems in the future, we recommended that

NOAA require panel members to thoroughly document their decisions, and revise its recruitment plan to be consistent with the

Department’s Executive Personnel Policy Manual and to include

clear procedures for resolving panel member disagreements.

NOAA agreed to implement our recommendations. (Office of Inspections and Program Evaluations: IPE-16823)

PACIFIC COASTAL

SALMON RECOVERY FUND

Between 2000 and 2004, NOAA provided more than

$68 million in salmon recovery fund grants to the state of

Oregon and $136 million to the state of Washington to support approximately 1,500 state and local projects in salmon

recovery and watershed assessment. During these same

years, resident tribes in Oregon, Washington, California, and

Idaho received $56.3 million in funding for salmon

habitat restoration and enhancement programs.

Grants awarded to states require a 25 percent

match. Grants to tribes require no match.

The Office of Inspector General began a series of

audits of salmon recovery fund awards this semiannual period, looking at the administration of the

subgrant program operated by the state of Oregon,

and two tribal projects in Washington funded under a grant to a nonprofit Indian commission. The

results of our initial audits are summarized here.

Nearly $670,000 in

Administrative Costs

Questioned in Oregon Salmon

Recovery Program

An Oregon state board received a multiyear salmon recovery fund

grant in June 2000 for projects to eliminate waterway barriers to

fish passage, enhance in-stream habitats, and conduct other salmon

recovery efforts. Estimated costs of the program totaled $30 million, including $24 million in federal funds and a 25 percent state

match. Under the terms of the grant, the agency was permitted to

use no more than 3 percent of the federal share to administer

$29,293,265 in subgrants to project participants.

Our interim audit examined $671,463 in administrative costs claimed

through March 2003. Of that amount, we questioned $669,369 consisting of unsupported personnel costs and related fringe benefits,

and costs that were not included in the approved program budget.

We also determined that the recipient’s interim claim for administrative costs exceeded the 3 percent limit by $216,355.

National Oceanic and Atmospheric Administration

Source: http://www.co.clackamas.or.us/wes/sr/main.htm, accessed October 15, 2004.
32 U.S. Department of Commerce/Office of Inspector General

We recommended that the director of NOAA grants management,

among other things,

• disallow questioned costs of $669,369 and

• require the recipient to implement controls to support and

properly account for grant-related expenses, adhere to

administrative cost ceilings, and restrict spending to

approved budget categories.

(Seattle Regional Office of Audits: STL-15727)

Audit Recommends

Recovery of $871,000 from

Washington Tribes

In April 2000, NOAA awarded a $5 million salmon recovery fund

grant to a Native American commission representing 20 Washington state tribes. Subsequent amendments to the 5-year award

brought the total to $27.3 million. No matching funds were required.

The commission entered into a memorandum of understanding with

NOAA, which gave it responsibility for administering the grant—

reviewing, approving, and funding projects proposed by its 20 members. The commission in turn executed subgrants with its member

tribes, allotting each an equal share (roughly $1.3 million) of grant

funds for tribal projects and establishing project parameters and

reporting and cost reimbursement requirements.

During this semiannual period, we completed interim audits of

salmon recovery fund projects conducted by two tribes to determine whether they were complying with the terms and conditions

of the NOAA award and the subgrants; claimed costs were reasonable, allowable, and allocable to the project; and program objectives were being achieved. Our audit covered the period from

April 2000 though September 2003.

While we determined that both tribes were making sufficient

progress toward their program goals, our audits disclosed administrative deficiencies in each case that resulted in our questioning

costs and recommending several other remedies, as follows:

Tribes Owe the Government a Combined Total of $870,982.

During our audit period, one tribe submitted costs to the commission totaling $868,834. Of that amount, we questioned $599,506

in labor and related fringe benefits and indirect costs because the

tribe failed to adhere to federal cost principles and uniform administrative requirements. In addition, the tribe had not implemented the minimum property management standards required

under the award and did not have fidelity bonding on its contract

accounting staff to safeguard award assets from loss or misappropriation.

The second tribe submitted costs totaling $922,912, of which we

questioned $271,476 as unsupported, again because the recipient

did not comply with federal cost principles and uniform administrative requirements. Also, the tribe was often either seriously delinquent in submitting required progress reports or did not provide them at all.

Audit Recommendations. We recommended that the director of

NOAA grants management disallow the questioned costs identified in both audits, recover the combined federal share of $870,982,

and direct the commission to take specific actions to resolve the

internal control and other management weaknesses we noted in

each tribe’s administration of its project. (Seattle Regional Office

of Audits: STL-16657-1 and –3)

INVESTIGATIONS

Former NOAA Intern Convicted

of Interstate Communication

of a Threat

In our March 2004 Semiannual Report (page 44), we reported

that a former NOAA intern was indicted on one count of interstate communication of a threat for transmitting an e-mail message threatening bodily harm to another NOAA employee. In June

2004, the former intern pleaded guilty in U.S. District Court for

the District of South Carolina, and was sentenced to 12 months’

probation and ordered to pay a $500 fine. (Atlanta Field Office of

Investigations)

NOAA Manager Reprimanded

for Accepting Gratuity and

Attempting to Interfere

with Investigation

An OIG investigation disclosed that a NOAA manager solicited

and accepted a gratuity from a prohibited source when he requested and received the assistance of a contract employee in

making design improvements to his personal residence, including redesign of the family room. During the course of our investigation, the manager made statements to the investigating agents

that were apparently intended to interfere, obstruct, or impede

the inquiry. As a result, in July 2004, the employee received a

Letter of Reprimand for his misconduct. (Washington Field Office of Investigations)

National Oceanic and Atmospheric Administration
September 2004/Semiannual Report to Congress 33

TheNational

Telecommunications and

Information Administration

serves through the Secretary of

Commerce as the executive branch’s

principal advisor to the President

on domestic and international

telecommunications and information

policy issues. NTIA manages the

federal use of the electromagnetic

spectrum, provides grants for national

information and public broadcasting

infrastructure projects, and performs

telecommunications research and

engineering. It works to enhance

citizens’ access to cable television,

telephone, and other

telecommunications services;

and educates state and

local governments and other

entities on ways to use

information technology and

telecommunications

more effectively.

MINOR NONCOMPLIANCE FOUND IN AUDIT

OF FLORIDA GRANTEE

In September 2001, NTIA awarded an $807,687

Public Telecommunications Facilities Program

grant to a public broadcasting TV station in

central Florida operated by a community

college that, in partnership with a local

network station, planned to build a digital transmission facility the two would

share. The grant, which expired in

September 2003, required matching

funds of roughly $2.4 million, for

total project costs of $3.2 million.

The stations serve a combined population of 3.4 million.

We audited the award to determine whether the grantee had complied with applicable

federal laws and regulations and NTIA grant terms and conditions. Our audit disclosed

that the college had not complied with certain federal and departmental administrative

reporting requirements, as follows:

• Final inventory lists. Federal regulations require recipients to submit complete

inventory lists of purchased equipment at a project’s conclusion. The college’s initial

list contained inaccurate pricing information. At the time of our audit, it had not

provided a corrected version.

• Timely financial and performance reporting. The Department requires financial assistance

recipients to submit semiannual reports on a project’s financial status and quarterly reports on

performance within 30 days of the end of the reporting period. The college was late in submitting two of its four financial reports and one performance report.

• Project closeout. Once a project is concluded and costs determined, recipients must report final costs. The college submitted a

closeout report that detailed costs of more than $3.3 million, representing all costs incurred on the project. However, approved

project costs totaled only $3,250,750, and the college did not submit a new closeout report reflecting the lower amount.

In response to our audit, the college agreed to submit corrected inventory and financial reports. (Atlanta Regional Office of Audits: ATL16806)

NATIONAL

TELECOMMUNICATIONS AND

INFORMATION ADMINISTRATION

The Public Telecommunications Facilities

Program is NTIA’s competitive grants

program designed to help public broadcasting stations, state and local governments, Indian tribes, and nonprofit

organizations construct broadcasting

facilities that offer educational and cultural

programming. In conjunction with the

Corporation for Public Broadcasting, the

program provides grants to public

broadcasters to fund conversion to digital

transmission, maintain existing equipment, and expand broadcasting services.
34 U.S. Department of Commerce/Office of Inspector General

PENNSYLVANIA FIRM AGREES TO PAY

$1.75 MILLION TO SETTLE AUDIT FINDINGS

AND FALSE CLAIMS ACT ALLEGATIONS

A Pennsylvania medical research firm has agreed to pay the government

$1.75 million to resolve outstanding audit findings and allegations of False

Claims Act violations arising from the firm’s administration of a $21.3 million award under NIST’s Advanced Technology Program (ATP). The award

was intended to fund a joint venture to develop a searchable multimedia

database for the healthcare industry.

The civil settlement was the result of nearly 3 years of OIG audit and

investigative work that identified millions of dollars of questioned

costs charged to the project, and uncovered substantial evidence

that the firm had submitted multiple false claims to NIST between

June 1999 and September 2000 in order to satisfy a portion of its

required $6.7 million cost share. We found that employees of the

firm had created false time records for two physicians

unassociated with the project—forging the signature of one of

them—and charged the project for the purchase of medical equipment that was never used, resulting in NIST’s reimbursement to

the firm for approximately $280,000 in fraudulent claims. The

firm denied the government’s allegations of wrongdoing, but

agreed to settle the matter in order to finally resolve all outstanding issues between the parties.

The civil settlement agreement was reached between the firm, NIST,

and the U.S. Attorney’s Office for the Western District of Pennsylvania. Under the terms of the settlement agreement, NIST will receive

about $1.6 million, with the balance of the funds to be returned to the

U.S. Treasury. (Atlanta Regional Office of Audits and Atlanta Field Office of Investigations)

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. It includes

three major organizations:

Office of Technology Policy works to raise national

awareness of the competitive challenge, promotes

industry/government/ university partnerships, fosters

quick commercialization of research results, promotes

dedication to quality, increases industry’s access to and

participation in foreign research and development, and

encourages adoption of global standards.

National Institute of Standards and Technology

promotes U.S. economic growth by working to develop

and apply technology, measurements, and standards.

NIST manages four programs: the Advanced Technology

Program, the Manufacturing Extension Partnership

program, and the Baldridge National Quality Program.

National Technical Information Service is a selfsupporting agency that promotes the nation’s

economic growth and job creation by providing

access to information that stimulates innovation

and discovery. NTIS accomplishes this mission

through information collection and

dissemination to the public and through

information and production services

to federal agencies.

TECHNOLOGY

ADMINISTRATION

ADVANCED TECHNOLOGY PROGRAM

As part of its efforts to spur technological development,

NIST administers the Advanced Technology Program to

provide financial assistance through cooperative

agreements, with the goal of transferring cutting-edge

technology to industrial uses. During this semiannual

period, we audited costs claimed under five ATP awards.

We questioned costs in all five projects, for a total of

$781,782. In addition, we recommended that $102,489 in

federal funds from one project be put to better use.
September 2004/Semiannual Report to Congress 35

AWARD SUSPENSION

REAFFIRMED BY FOLLOW-UP

AUDIT

In September 2001, NIST awarded a $2 million ATP cooperative

agreement to a New York City firm that engineers technologies

for computer-aided surgery. The purpose of the project was to

enhance the usability of computerized anatomic models for testing cancer treatment surgeries. The 3-year agreement required the

firm to contribute $110,500 in direct costs, bringing total estimated direct costs of the project to $2,110,500.

In July 2003, we issued a limited scope audit report (see September 2003 Semiannual Report to Congress, page 33) informing

NIST that the company had failed to contribute any of its matching share ($54,084 was due at that point), had drawn down

$205,125 in excess of the federal share of project costs, and had

overstated expenses in its financial reports to justify the excess

drawdowns. At our recommendation, NIST suspended the award

pending the firm’s repayment of $205,126 and its submission of

corrected financial status reports.

Subsequent to our July 2003 audit, the recipient revised its financial status reports and hired a new accounting firm (its third on

this project) to review project expenditures and adjust its books

accordingly. We conducted a follow-up audit to review the revised records and other documentation provided by the firm in

support of its claimed costs.

We found that the company’s revised financial reports were still

inaccurate. We questioned costs totaling $547,426 in inappropriately charged rent, utilities, and certain salary, fringe benefit, and

other expenses. We determined that these costs were either

(1) unallowable under ATP award terms, (2) in excess of budgetary limits, or (3) expenses that should have been categorized as

indirect costs and therefore the firm’s responsibility. The improper

claims occurred, in part, because the recipient’s financial management system did not meet federal standards for identifying and

separating direct and indirect costs.

We recommended that NIST disallow the questioned amount of

$547,426 and recover $582,222 in excess federal disbursements,

including the $205,126 in improper drawdowns identified in our

July 2003 audit, which has not yet been repaid. (Atlanta Regional

Office of Audits: ATL-16095)

UNDOCUMENTED COSTS

AND EXCESS FEDERAL

DISBURSEMENTS FOUND IN

GEORGIA-BASED BIOTECH

PROJECT

In October 2000, NIST awarded a $1.97 million ATP cooperative

agreement to a Georgia-based biotechnology company to develop

genetic-transfer processes for enhanced chicken breeding. NIST

subsequently reduced the award amount to $1.95 million and required a $400,838 match from the recipient, bringing total project

funds to roughly $2.36 million.

At NIST’s request, we conducted an audit in January 2004 to determine the propriety of selected costs charged to the award, and

the recipient’s compliance with applicable federal laws and regulations and award terms and conditions.

We questioned $101,887 in costs claimed for equipment leasing,

salaries, fringe benefits, and travel: the leasing costs were incurred

after the award’s expiration date, the salary costs were not adequately documented, and the travel costs should have been

charged to an unrelated project.

The cooperative agreement expired in October 2003, and the final

closeout payment was made by NIST in December 2003. Our closeout audit determined that the recipient had received $84,566 in reimbursements beyond the allowable federal amount. We recommended that NIST disallow all questioned costs, recover the excess

federal disbursements of $84,566, and deobligate the remaining

$102,489 in award funds, which will allow the agency to put those

funds to better use. (Atlanta Regional Office of Audits: ATL-16672)

QUESTIONED COSTS IN

PENNSYLVANIA JOINT

VENTURE PROJECT DUE TO

NONCOMPLIANT FINANCIAL

SYSTEMS

A Pennsylvania manufacturer of diabetes equipment received an

ATP award as administrator of a joint venture formed to develop

an optical blood glucose monitor that could be implanted under

the skin. Total estimated costs of the 3-year project were

$5.7 million, with the government’s share not to exceed $2.8 million, or 49 percent of allowable costs.

Our interim financial audit examined the firm’s requests for reimbursement submitted during the project’s initial 17 months (October 2001 to March 2003): the administrator submitted costs on

Technology Administration
36 U.S. Department of Commerce/Office of Inspector General

behalf of the joint venture of $721,672 and received federal reimbursement of $354,000. It retained $197,264 as its share and disbursed the remaining $156,736 to its joint venture partner.

We questioned $89,103 of the administrator’s claimed costs—the

majority of which were for fringe benefits—because the administrator improperly included company overhead costs in its fringe

benefit allocation. We recommended that NIST disallow all questioned costs and recover excess federal funds of $44,170. (Denver

Regional Office of Audits: DEN-16669)

AUDIT FINDS UNSUPPORTED

COSTS, IMPROPER LOAN,

AND INADEQUATE INTERNAL

CONTROLS

In May 2002, NIST awarded an ATP cooperative agreement to a

New York information technology firm to develop an e-mail program for secure data transfer as an alternative to web-based security architectures. The 3-year award, which will run through June

2005, has total estimated costs of $2.1 million, including $99,053

in direct and indirect costs to be absorbed by the recipient. The

federal government’s share is not to exceed $2.0 million of allowable direct costs.

For the period July 1, 2002, through December 31, 2003, the recipient submitted project costs of $943,223 to NIST, which included $482,609 in subcontractor expenses. Federal disbursements

as of that date were $952,500.

We conducted an interim financial audit to determine the

allowability of the claimed costs and to assess the firm’s compliance with federal regulations and ATP award terms and conditions.

We questioned $27,801 in unsupported subcontractor costs—the

difference between the subcontractor’s expense reports (which

documented costs of $454,808) and the amount billed to NIST by

the recipient ($482,609). We recommended that NIST disallow

questioned costs and recover a total of $37,533 in excess federal

disbursements, based on the following calculations:

Our audit also disclosed that the firm had improperly borrowed

$17,000 in ATP funds. Although the money was subsequently repaid, the use of project funds for nonproject purposes is strictly

prohibited by the terms of the award. In addition, we found that

the firm did not have the required procedures for managing federal funds and project-related property.

In response to our draft audit report, the recipient submitted written policies and procedures addressing these findings, which we

reviewed and found to be adequate. We recommended that NIST

take action to ensure the recipient implements them. (Denver Regional Office of Audits: DEN-16591)

COST AND COMPLIANCE

ISSUES IN DELAWARE JOINT

VENTURE PROJECT

A joint venture is conducting a $5.4 million ATP project to develop new, more efficient technologies for purifying natural gas.

Federal funding for the 48-month project is limited to $2.7 million (49.9 percent) of allowable costs, and the award period is

November 2000 through October 2004.

We conducted an audit of $3,054,875 in costs claimed by the joint

venture from the project’s inception through June 2003. We also

assessed the joint venture administrator’s accounting and financial management systems and compliance with ATP award terms

and conditions.

Our audit disclosed $15,565 of questioned costs for materials and

supplies that were used for research activities not attributable to

the NIST project, and a $100 overcharge in a reimbursement claim

for equipment that was purchased for the project. In addition,

(1) the joint venture did not have an approved indirect cost rate,

yet had charged $267,881 in indirect costs; and (2) subcontract

agreements did not specify the obligation of subcontractors to

adhere to federal laws and regulations in project-related work.

We recommended that NIST disallow questioned costs of $15,665

and recover the federal share of $7,816. We further advised that—

should the administrator fail to obtain an indirect cost rate and

amend subcontract agreements—NIST should disallow all related

costs as well. (Denver Regional Office of Audits: DEN-16651)

Direct costs claimed ........................................... $ 942,768

Less questioned costs ............................................. 27,801

Direct costs accepted ............................................ 914,967

Federal funds disbursed ..................................... $ 952,500

Less accepted costs .............................................. 914,967

Amount due to NIST $37,533

Technology Administration
September 2004/Semiannual Report to Congress 37

NEW DEPARTMENTAL

GUIDANCE AND NIST SELFASSESSMENT ADDRESS OIG

CONCERNS ABOUT

REIMBURSABLE

AGREEMENTS

Federal agencies’ management of interagency agreements and

other intragovernmental transactions has been historically problematic, prompting GAO to classify accounting for such transactions as a material weakness in FY 2001 and FY 2002. The National Institute of Standards and Technology relies heavily on such

agreements for operating revenue: in FY 2002, for example, more

than a quarter of the $405.5 million in federal funding received by

NIST laboratories came from other federal agencies; the balance

was from direct appropriations.

We initiated an audit to determine whether NIST was properly

recording and recovering costs of its reimbursable work. However, during our review the Department issued draft guidance addressing known problems with the administration of reimbursable agreements and NIST completed its own internal assessment,

which made recommendations for resolving issues similar to those

we were identifying. We therefore suspended our audit and reported the problems we had noted thus far, for NIST’s use in implementing corrective actions.

We reviewed 30 interagency agreements active in FY 2002. However, we could not determine whether NIST was recovering full

costs on any of them because the agency was not properly recording and tracking related program and cost data, and could not provide adequate documentation of agreements, including proposals

and statements of work. In the absence of information on work

required, work performed, and the total amount spent, external

reviewers and NIST managers cannot assess whether full costs

are being recovered. We also found that, contrary to NIST guidance, some agreements had been approved without statements of

work and none showed evidence of legal review.

As a result of its internal assessment, NIST revised its policies

and procedures for handling reimbursable agreements. We believe

the revised guidance, in conjunction with the Department’s new

guidance, will address our concerns. (Business and Science Division: STD-14439)

AUDITS UNRESOLVED FOR

MORE THAN 6 MONTHS

MASSACHUSETTS MEP

Our March 2004 Semiannual Report (page 36) detailed an audit

of an MEP cooperative agreement as being unresolved for more

than 6 months. Our audit had recommended that NIST disallow

questioned costs of $8,177,606, recover the federal share of

$1,599,349, and require the recipient to implement improvements

to its financial reporting system. After detailed analyses of NIST’s

audit resolution proposal and other documents provided by NIST

and the recipient, we advised NIST of our substantial nonconcurrence with its audit resolution proposal. We continue to work with

NIST to resolve our differences.

TEXAS MEP

Our March 2004 issue (page 36) also reported another MEP cooperative agreement audit as being unresolved for more than

6 months. Our audit had recommended that NIST disallow questioned costs of $1,954,279 and recover $771,555 in resulting excessive disbursements. We also found that elimination of questionable items from subsequent financial reports would result in

$3,360,000 being put to better use during the remainder of the

cooperative agreement period. We have not responded to NIST’s

audit resolution proposal, pending the outcome of our work with

NIST in resolving our audit of the Massachusetts MEP, described

above, which has similar outstanding issues.

Technology Administration
38 U.S. Department of Commerce/Office of Inspector General

PATENT EXAMINER GOALS AND PERFORMANCE

APPRAISAL SYSTEM ARE OUTDATED

Patent examination is a labor-intensive process: individual examiners compare an applicant’s

claimed invention against statutory requirements and prior art (previous patents, databases, or

journals) to determine whether the invention is indeed new and warrants a patent. The process

over the years has changed as examination tools and technologies have advanced. At the

same time, emerging technologies have dramatically increased the number of patent applications, further straining an already overburdened patent processing system: for example,

patent application filings since 1998 have risen by 39 percent. In fiscal year 2003, USPTO

received 333,452 new applications, on top of the 362,612 applications already backlogged.

USPTO’s 21st Century Strategic Plan offers a

blueprint for overhauling its patent and trademark

processes to boost productivity, substantially reduce the backlog of applications, and grant patents of the highest quality (as measured by their

legal patentability and other criteria). It proposes a

variety of initiatives, including expanding automated

processing (e-government), sharing search results with

foreign patent offices, improving quality assurance, and

outsourcing patent searches. However, GAO reports that

such initiatives can take years to implement, and USPTO recognizes that it must pursue improved

productivity through available means—production goals, performance plans, and incentive awards, as

appropriate.

During this semiannual period, OIG completed a comprehensive review of USPTO’s production goals, performance appraisal plans, and employee awards to assess their impact on the output of the patent examiner corps. Our key

findings are as follows:

PATENT EXAMINER GOALS HAVE NOT CHANGED SINCE 1976,

DESPITE ENHANCED WORK PROCESSES AND IMPROVED TECHNOLOGY

We found that examiner production goals have not been reevaluated in light of the efficiencies in work processes and improvements in

technology that have occurred over the years. Our review of fiscal year 1999-2003 production statistics reported by seven of USPTO’s

eight patent technology centers revealed that all seven processed applications in less time than allotted, suggesting that examiner

production goals may be too easily obtainable. Examiners told us that they could do more work, but there is no incentive for producing

more. We recommended that USPTO reevaluate current patent examiner goals and consider revising them to reflect efficiencies in and

changes to work processes resulting from automation and other enhancements.

PATENT EXAMINER PERFORMANCE APPRAISAL PLANS ARE

NOT LINKED TO MANAGEMENT AND AGENCY GOALS

The American Inventors Protection Act of 1999 establishes specific time frames within which USPTO should complete each major step

of the application review process. USPTO also sets goals of its own, which are more aggressive than those of the act. However, examiner

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, invest in

research, commercialize new

technology, and draw attention to

inventions that would otherwise

go unnoticed. USPTO also

collects, assembles, publishes,

and disseminates technological

information disclosed in

patents.

UNITED STATES PATENT AND

TRADEMARK OFFICE

USPTO’s patent corps has

8 technology centers that

process patents. Together, the

centers have 271 art units,

each with a staff of examiners

that specializes in a unique

technology, scientific method,

or classification.
September 2004/Semiannual Report to Congress 39

appraisal plans do not link an individual’s performance to agency

goals. Rather, examiners can set their own annual production goals

according to the awards they want to receive.

We noted that USPTO recently proposed revisions in appraisal

plans for GS-13 and -14 trademark attorneys so as to align their

productivity goals with overall agency objectives for trademark

output. However, implementation of these changes is pending thirdparty arbitration with its union. We believe USPTO should consider similarly revising performance plans for patent examiners,

linking them to agency goals for production and overall pendency,

as well as to measures of examiners’ success at processing applications within specified time periods.

AWARD SYSTEM IS NOT

WELL STRUCTURED

USPTO offers examiners three cash incentives—gain sharing,

special achievement, and pendency reduction awards—all of which

are tied to examiners’ production or workflow management. We

found the gain sharing and special achievement awards—both of

which require examiners to attain 110 percent or better of their

production goals for specified periods—offer little incentive to

aim higher: while most examiners achieve the 110 percent, few

obtain the higher level awards that are offered at 120 percent and

130 percent of their production goals. Examiners reported that

the potential reward is not worth the extra effort.

Eligibility for the pendency reduction award is tied to, among other

things, the workflow management element of examiners’ appraisal

plans, but this element has only a marginal impact on the duration

of pendency. Again, examiners told us that the payout is minimal

in comparison with the additional work required. Hence, few examiners ever qualify for this award. We recommended that USPTO

evaluate its current patent examiner award system to determine

whether there is a more effective and efficient way to stimulate

increased production.

AGENCY RESPONSE

UPSTO concurred with our three recommendations, agreeing to

reassess patent examiner goals, performance appraisal plans, and

the awards system, and the effectiveness of these measures in

achieving the objectives of its 21st Century Strategic Plan. (Office

of Inspections and Program Evaluations: IPE-15722)

MOVE TO NEW

HEADQUARTERS COMPLEX

IS ON TRACK, BUT

ADDITIONAL SPACE NEEDS

MUST BE ADDRESSED

In December 2003, USPTO began its planned move of personnel

and equipment from 18 buildings in Crystal City, Virginia, to 5

newly constructed buildings in Alexandria, Virginia. When the

move is completed in 2005, the agency will have relocated approximately 7,350 employees and contractors to the new site—

the culmination of a long and rigorous process to replace the 33

Crystal City leases with a single comprehensive lease agreement

and a modern, consolidated campus. USPTO expects the consolidation will improve work processes, security, and employee amenities; and over the next 20 years, will shave approximately

United States Patent and Trademark Office

USPTO’S ACTUAL AND ESTIMATED PATENT PRODUCTION

FOR FISCAL YEARS 1998-2009
40 U.S. Department of Commerce/Office of Inspector General

$72.4 million from its current space costs. The complex is being

built for GSA by a private developer, and USPTO will occupy it

under an operating lease with GSA.

During this period, OIG evaluated USPTO’s efforts thus far to

monitor construction and execute the relocation.

OUR FINDINGS

USPTO HAS ADEQUATELY MANAGED THE

PROJECT AND BUDGET, BUT ADDITIONAL

COSTS HAVE BEEN INCURRED

Both USPTO and GSA are adequately managing the project, including providing sufficient oversight of construction and lease

costs. Though overall project costs have risen from an initial estimate of $223 million to $251.5 million,10 most of the increase is

due to project delays beyond USPTO’s control as well as to modifications, such as building redesign to comply with city requirements, information technology changes, and security upgrades.

To help cover the extra expenses, GSA added $9.93 million to

USPTO’s above standard build-out allowance, which will be amortized over the 20-year lease period.

USPTO AND GSA NEED TO FINALIZE AN

OCCUPANCY AGREEMENT

Because the buildings are being completed and accepted ahead of

schedule, GSA has sought $6 million from USPTO in additional

rent for fiscal years 2004 and 2005. In September 2004, USPTO

agreed to pay GSA $3.3 million, an amount based on the lost Crystal City rent that GSA had expected to collect from USPTO had

the new buildings been delivered on schedule. This settlement of

the rent dispute should allow the two agencies to finalize the longdelayed, federally required occupancy agreement for the new headquarters complex. We recommended that USPTO sign an agreement with GSA as soon as possible to document each agency’s

financial, management, and operational responsibilities for the new

buildings.

USPTO NEEDS TO PLAN FOR

FUTURE GROWTH

The agency moved 2,093 employees to the first two completed

buildings in early 2004, and anticipates moving 5,257 workers

into the remaining three buildings and nearby townhouse offices

in late 2004 and early 2005, thus occupying all newly leased space.

However, it needs to find space for 100 employees still in Crystal

City and for the 650 new employees it hopes to hire in fiscal year

2006. We recommended that USPTO determine its future space

needs and submit the appropriate documentation to GSA to obtain the additional space needed for employees and contractors

who cannot be accommodated at the new complex.

AGENCY RESPONSE

USPTO concurred with our two recommendations, agreeing to

proceed toward finalizing an occupancy agreement with GSA and

to submit the required documentation for additional space to accommodate future staff growth. (Office of Inspections and Program Evaluations: IPE-16268)

USPTO NEEDS TO CLARIFY

ITS RELATIONSHIP WITH

OPM AND ESTABLISH

ADEQUATE HR POLICIES AND

PROCEDURES

Allegations that USPTO used improper hiring practices to recruit for a new human resources director and a related request

for review from USPTO’s chief financial/chief administrative

officer prompted our audit of that recruitment effort. As we

sought to determine the validity of the complaints, we also attempted to identify systemic weaknesses that might be fostering problems.

USPTO suspended the recruitment effort, pending the outcome

of our audit. We ultimately determined that the hiring process for

this position was flawed and that USPTO does not have sufficient

HR policies and procedures in place to guide its personnel function. In light of these and other findings, we questioned the agency’s

ability to ensure adherence to merit system principles.

SUMMARY OF FINDINGS

The Patent and Trademark Office Efficiency Act of 1999 granted

USPTO independent control of its personnel function, which includes developing and administering personnel management policies and programs. We found that USPTO had not obtained delegated examining authority from the Office of Personnel Management (OPM)—a prerequisite for filling federal jobs with

nonfederal applicants—contending that, under the Efficiency Act,

this authority had been transferred to it from the Department.

United States Patent and Trademark Office

10 The original budget of $223 million, established in 1995, consists of

$88 million in standard building costs amortized in USPTO’s rent plus

$135 million for build-out, transition, and moving costs. Current estimated costs of $251.5 million represent $98 million in standard building

costs amortized in USPTO’s rent plus $153.5 million of build-out, transition, and moving costs.
September 2004/Semiannual Report to Congress 41

director’s position was reclassified from human resources management to miscellaneous administration prior to the recruitment

effort. Outside classification experts we consulted indicated that

the position, as described, should have remained in the human

resources occupational series.

RECOMMENDATIONS AND

AGENCY RESPONSE

We advised USPTO to promptly create an effective Office of Human Resources with strong leadership that implements management controls to ensure it adheres to merit system principles, seeks

delegated examining authority from OPM, and establishes sound

HR policies and procedures to guide its operations and decision

making.

USPTO was generally receptive to our findings and recommendations. It has, for example, been working with OPM to recruit

and hire a new HR director, and taken a number of other positive

steps to address some of the conditions that have contributed to its

HR problems over the years. These include hiring a contractor to

assess its Office of Human Resources organization and staff, and

to develop short- and long-term improvement strategies. (Business and Science Division: BTD-16432)

Further, when we asked for copies of the policies and procedures

used to carry out HR responsibilities at the agency, USPTO officials stated that they relied on departmental policies and procedures,11 Title 5 of the United States Code, and “some of their own”

guidance. During our review, we did identify some USPTO-specific HR policies and procedures, such as the telework policy and

the merit assignment program. However, we found that USPTO

had not completed agency administrative orders, organizational

descriptions for aspects of HR operations, and other standard operating procedures that would provide the basis for management

actions. Given that USPTO anticipates hiring hundreds of new

examiners in a very short time frame, it is essential that the appropriate hiring policies and procedures be in place and understood

by all involved.

Title 5 requires that agencies classify and assign grades to positions under their jurisdiction according to standards set by OPM.

These standards link job definitions to specific work functions

and responsibilities, thereby providing the basis for assigning a

title, series, and grade to each position. We found that the HR

11 Prior to enactment of the Efficiency Act, the Department had oversight

responsibility for USPTO’s HR operations.

United States Patent and Trademark Office
42 U.S. Department of Commerce/Office of Inspector General

DEPARTMENT-WIDE FISMA REVIEWS

DOCUMENT IT SECURITY IMPROVEMENTS

AND PERSISTENT WEAKNESSES

Our FY 2004 independent evaluation of Commerce’s information security program, as

mandated by the Federal Information Security Management Act, looked at a total of

24 systems and 5 programs in place at various bureaus and at the Department level.

Among our primary areas of focus were the status of (1) system certifications

and accreditations (C&As), (2) incident response, and (3) efforts to include

security provisions in IT service contracts. Overall, we documented continued improvements in the security status of critical IT systems and contract

documents as well as progress in the Department’s efforts to implement an

effective incident response capability. However, in each area we also noted

weaknesses of varying severity that, until resolved, leave the security of

Commerce IT systems and data at risk. The details of our three Department-wide FISMA reports follow. (See page 23 for the results of our

Census FISMA evaluations.)

Certification and Accreditation

Problems Still Constitute a

Material Weakness

Commerce has complied with the requirements of FISMA in many areas.

For example, it requires operating units to obtain the Department CIO’s

review and approval of all major IT investments; it regularly updates its

inventory of major systems; it has established a process for documenting

known IT security weaknesses; and it provides security awareness training to

virtually all employees.

However, in the critical area of certification and accreditation, we noted serious

and persistent weaknesses. Our review of C&A documentation for 21 systems (not

including USPTO’s) deemed national critical (part of the critical infrastructure) and

mission critical identified deficiencies in risk assessments, security plans, and testing and

evaluation of security controls. Specifically, (1) 10 had risk assessments that do not sufficiently identify threats and vulnerabilities; (2) 8 had security plans that do not adequately describe

the system environment, interconnections, or sensitivity of the data being processed; (3) 18 did not

provide evidence that certification assessment and testing were adequate to ensure that security controls are

implemented properly and functioning as intended; and (4) 5 did not have contingency plans that are complete and

provide adequate recovery procedures. We also noted that weaknesses documented in the C&A materials for 15 systems were

not included in plans of action and milestones—the Department’s primary tool for tracking the status and resolution of vulnerabilities.

We found many of these same shortcomings in our FY 2003 review and advised the Department to report information security as a

material weakness under the Federal Managers’ Financial Integrity Act, which it has done since 2001. Because these deficiencies

persist, we believe information security remains a material weakness and should be reported as such again this year.

The

United States

Department

of Commerce promotes job

creation and improved living

standards for all Americans by

creating infrastructure that fosters

economic growth, technological

competitiveness, and sustainable

growth. The Department has three

strategic goals:

Goal 1: Provide the information and the

framework to enable the economy to operate

efficiently and equitably.

Goal 2: Provide the infrastructure innovation

to enhance American competitiveness.

Goal 3: Observe and manage the Earth’s

environment to promote sustainable growth.

The Department has also established a

Management Integration Goal that is equally

important to all bureaus: Strengthen

management at all levels.

DEPARTMENT-WIDE

MANAGEMENT
September 2004/Semiannual Report to Congress 43

USPTO’S MATERIAL WEAKNESS RESOLVED

Beginning in FY 2003 we incorporated our review of USPTO’s

IT security program into our Commerce-wide review, in keeping

with OMB’s consolidation of the two in its annual report to Congress on federal information security reform. We noted in our FY

2003 FISMA report that USPTO was using a disciplined C&A

process that provided rigorous testing of security controls. But

because it was unable to certify and accredit all mission-critical

systems by fiscal year-end, the bureau—at our recommendation—

reported IT security as a material weakness. Our review of its

status this year found that USPTO has completed certifying and

accrediting all systems using this same disciplined approach. We

therefore consider its material weakness resolved. (Office of Systems Evaluation: OSE-16954)

Information Security in IT Service

Contracts Is Improving, but

Additional Efforts Are Needed

In our September 2002 Semiannual Report to Congress (page 51),

we reported the results of our review of security provisions contained in a sample of the Department’s IT service contracts: most of

the 40 contracts we examined had either insufficient security provisions or none at all, and we concluded that federal and departmental

policy and guidance for incorporating such provisions were lacking.

We followed up in FY 2003 by assessing the Department’s new

security policy, issued at our recommendation, and reported that

it contained appropriate requirements for contractors and other

government agencies that support Commerce in the IT services

area (see September 2003 Semiannual Report to Congress, page

37). The Department had also drafted standard contract security

provisions for safeguarding sensitive but unclassified systems involving contractor connections to Commerce networks or storage

of Commerce data on contractor-owned systems.12 However, the

contract actions we reviewed still lacked adequate provisions for

controlling access. We also found little coordination among the

contracting, technical, and security staff responsible for developing contract-specific security requirements and minimal oversight

of contractors’ compliance with those requirements.

During the intervening year, the contract clauses have been finalized and their use mandated. In light of these events, we revisited

the issues we identified in our FY 2003 assessment and recommended that—to further ensure that information and information

systems are adequately secure when contractor-provided services

are used—the Department should (1) periodically review a sample

of contracts in each operating unit to confirm that they contain the

appropriate security provisions; (2) implement procedures to

strengthen communication among contracting officers, contracting officer’s technical representatives, and information security

staff to foster consistent integration of security in IT contracts;

and (3) establish procedures and accountability for reviewing contractor compliance with security procedures and controls.

The Department agreed with our recommendations and is taking

steps to implement them. (Office of Systems Evaluation: OSE-16513)

Weaknesses Noted in

Commerce’s Computer Incident

Response Capability

Commerce’s information security policy requires all operating units

to have a computer incident response capability (CIRC), defined as

a set of formal mechanisms and procedures that allow an organization to react quickly, decisively, and consistently when an incident

occurs. Any operating unit personnel may perform CIRC duties as

needed. A unit may also establish its own computer incident response team (CIRT) that formally monitors IT intrusions and handles

incidents and associated reporting. An operating unit that does not

REPORTABLE IT SECURITY INCIDENTS

The Department’s policy defines a reportable incident as

any act that violates an explicit or implied security policy

within the Department or its operating units. It further states

that an incident is any adverse event that threatens the

security of information resources. The policy states that

incidents may include but are not limited to the events

described below.

Event Description

Compromise A virus infects a system or

of integrity network.

Denial of An attacker has disabled a

service attack system or a network worm has

used all available network

bandwidth.

Loss of An intruder or insider uses an

accountability/ account or a system for unaumisuse thorized or illegal purposes.

Damage to any A virus or disgruntled employee

part of the system destroys data.

Compromise of An unauthorized outsider gains

confidentiality/ access to your IT resources.

intrusion

Source: IT Security Program Policy and Minimum Implementation

Standards, U.S. Department of Commerce, January 24, 2003.

12 At the time of our fiscal year 2003 FISMA report, the contract provision was under departmental review. It was finalized in November 2003.

Department-wide Management
44 U.S. Department of Commerce/Office of Inspector General

have its own CIRT receives support from the Department of Commerce CIRT, which resides in the Office of the Secretary.

We assessed the Department’s computer incident response capability with a focus on its organizational structure, roles and responsibilities, and operating unit procedures for identifying, analyzing, responding to, and reporting incidents. Overall, we found

that the structure—in allowing units to either formalize their own

response capability or rely on the Department’s—is appropriate

for Commerce’s decentralized organization but lacks a means to

give the Department CIO a Commerce-wide view of vulnerabilities and threats. As such, it may be undercutting the efficiency

and effectiveness of incident response throughout Commerce. Our

specific findings are as follows:

A MECHANISM FOR COORDINATING

INCIDENT RESPONSE ACROSS

COMMERCE IS NEEDED

NIST guidance on computer security incident handling points out

that distributed teams should be part of a single centralized entity

so that the incident response process is consistent across the organization and information is shared among teams. The Department

CIO intended to establish a “CIRT federation” to support coordination and communication by July 2002, but had not done so at

the time of our review. Thus, coordination and communication

regarding incident prevention and response do not occur systematically, and the CIO’s ability to have an accurate Commerce-wide

view of incidents and capabilities is hampered.

SOME OPERATING UNITS LACK

ADEQUATE INCIDENT RESPONSE

PROCEDURES AND MOST LACK THE

REQUIRED APPROVALS

The Department’s policy requires all operating units to have formal response procedures and to submit them to their own CIO

and to the Department for review and approval. Four of the 10

operating units we reviewed—including the Office of the Secretary, which houses the Department’s CIRT—did not have procedures that were complete enough to support effective incident response, 6 had not received their CIO’s approval for their procedures, and only 1 had procedures approved by the Department

CIO’s office.

BUREAUS’ INCIDENT REPORTING IS

INCOMPLETE AND INCONSISTENT

Analyzing reported incidents is an important way for the Department to gain a better understanding of its threats and vulnerabilities, and, consequently, both FISMA and Department policy require that incidents be reported to the Federal Computer Incident

Response Center (FedCIRC). However, the operating units report

few detected incidents, partly because some units are unfamiliar

with the Department’s reporting requirements, and the Department has not enforced them.

SYSTEMS AND IT SECURITY STAFF NEED

BETTER INTRUSION DETECTION

APPROACHES, TOOLS, AND TRAINING

Intrusion detection systems and regular reviews of network logs

facilitate incident prevention and detection. However, we found

instances in which (1) log information was reviewed too infrequently or not at all, and (2) large quantities of data were examined visually rather than via automated tools. Commerce personnel who are responsible for responding to incidents and reviewing

log information receive some specialized security training, but it

is not systematic and does not ensure that staff members have the

requisite knowledge and skills.

OIG RECOMMENDATIONS AND

AGENCY RESPONSE

We recommended, among other things, that the Department CIO

define and implement an approach for establishing coordination

and communication among the distributed incident response teams,

develop and enforce a formal process through which operating

units promptly report incidents to both Commerce and FedCIRC,

enforce Department policy for reviewing systems activity logs,

and ensure operating unit personnel have the appropriate automated tools and training needed to effectively monitor and detect

incidents. The Department concurred with our recommendations

and described actions that, when implemented, should improve

incident detection and response. (Office of Systems Evaluation:

OSE-16522)

INVESTIGATIONS

Former Commerce Employee

Convicted and Sentenced

for Theft

In our March 2004 Semiannual Report (page 43), we reported

that a timekeeper in the Office of the Secretary was indicted for

fraud and theft in Superior Court for the District of Columbia for

obtaining approximately $3,300 by claiming overtime hours she

never worked. In May 2004 she pleaded guilty to one count of

misdemeanor theft and was sentenced to 180 days’ incarceration.

The sentence was suspended, conditioned on her completion of

2 years’ probation and payment of $750 in restitution. As part of

Department-wide Management
September 2004/Semiannual Report to Congress 45

the plea agreement, the individual resigned from her federal position. (Arlington Resident Office of Investigations)

Office of Public Affairs

Employee Convicted and

Sentenced for Conflict

of Interest

An OIG investigation established that an employee in the Office

of the Secretary’s Office of Public Affairs had used his official

position to obtain a government contract for his private production company. In April 2004 the individual pleaded guilty to one

felony count of conflict of interest and in July was sentenced to

1 year supervised probation and 100 hours of community service,

and ordered to pay a $900 fine. The individual resigned his position with the Department in March 2004 as part of the plea agreement. (Arlington Resident Office of Investigations)

PREAWARD FINANCIAL

ASSISTANCE SCREENING

As part of our ongoing emphasis on prevention of fraud, waste,

and abuse, we continue to work with the Office of Acquisition

Management, NOAA and NIST grant offices, and EDA program

offices to screen the Department’s proposed grants and cooperative agreements before they are awarded. Our screening serves

two functions: it provides information on whether the applicant

has unresolved audit findings and recommendations on earlier

awards, and it identifies negative financial or investigative history

relating to individuals or organizations connected with a proposed

award.

On January 1, 2004, we implemented new policies and procedures for our preaward screening process. OIG and the Department determined that there are several categories of recipients for

whom the costs and administrative burden of the screening process may well outweigh the government’s risk of financial loss.

Our new policies exempt from review, recipients who (1) receive

awards in amounts of $100,000 or less, (2) have received financial assistance from the Department for 3 or more consecutive

years without any adverse program or audit findings, or (3) are

units of a state or local government.

During this period we screened 426 proposed awards. For 105 of

the awards, we found major deficiencies that could affect the ability of the prospective recipients to maintain proper control over

federal funds. On the basis of the information we provided, the

Department delayed 56 awards and established special conditions

for 49 awards. (Office of Audits)

NONFEDERAL AUDIT

ACTIVITIES

In addition to undergoing OIG-performed audits, certain recipients of Commerce financial assistance are periodically examined

by state and local government auditors and by independent public

accountants. OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, sets forth the audit requirements for most of these audits. For-profit organizations that

receive Advanced Technology Program funds from NIST are audited in accordance with Government Auditing Standards and NIST

Program-Specific Audit Guidelines for ATP Cooperative Agreements, issued by the Department.

We examined 157 audit reports during this semiannual period to

determine whether they contained any audit findings related to Department programs. For 96 of these reports, the Department acts as

oversight agency and monitors the audited entity’s compliance with

the OMB circular or NIST’s program-specific reporting requirements. The other 61 reports are from entities for which other federal agencies have oversight responsibility. We identified 22 reports with findings related to the Department of Commerce.

ATP

OMB Program

A-133 -Specific

Report Category Audits Audits Total

Pending (April 1, 2004) 17 61 78

Received 104 64 168

Examined 104 53 157

Pending (September 30, 2004) 17 72 89

PREAWARD SCREENING RESULTS

Awards

Results Number Amount

Awards delayed to resolve concerns 56 $50,639,368

Special award conditions established 49 $36,048,786

Department-wide Management
46 U.S. Department of Commerce/Office of Inspector General

The following table shows a breakdown, by bureau, of the roughly

$436 million in Commerce funds audited.

Bureau Funds

EDA $ 28,965,131

NIST* 99,118,235

NOAA 30,240,915

NTIA 982,280

Multiagency 270,318,103

Agency not identified 6,508,000

Total $436,132,664

* Includes $99,118,235 in ATP program-specific audits.

We identified a total of $2,171,730 in questioned costs and

$215,361 in funds to be put to better use. In most reports the subject programs were not considered major programs; thus the audits involved limited transaction and compliance testing against

laws, regulations, and grant terms and conditions. The 22 reports

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

Denver Regional Offices of Audits)

QUALITY CONTROL REVIEWS

OF SINGLE AUDITS DISCLOSE

FAILURES TO MEET FEDERAL

REQUIREMENTS

The Single Audit Act requires that state and local governments

and nonprofit organizations expending $500,000 or more in federal financial assistance in a single year be audited in accordance

with the act and its implementing regulations, OMB Circular A133. Single audits are generally conducted by either state audit

agencies or private certified public accounting firms and play an

integral role in the government’s efforts to provide oversight and

ensure accountability for federal assistance funds. As the audit

oversight agency for the Department of Commerce, we conduct

quality control reviews (QCRs) of selected single audits performed

on organizations that receive most of their funding from the Department. The objective of a QCR is to determine whether the

nonfederal audit was conducted in accordance with Government

Auditing Standards and A-133.

During this semiannual period, we conducted quality control reviews of four single audit engagements for organizations that administer EDA revolving loan funds, as RLFs are particularly vulnerable to fraud, waste, and abuse. In each case, we found the

single audits had not been properly conducted for 5 or more years.

Summaries of our findings for the QCRs follow.

Audit Fails to Disclose Conflict

of Interest in RLF Loan

Our quality control review of the fiscal year 2003 single audit of a

southwestern Oklahoma nonprofit organization noted that the

public accounting firm—in failing to identify the RLF as a major

program and include it in the schedule of expenditures of federal

awards—did not report and question a substantial loan made to

the son of a member of the recipient’s board of directors. EDA

grant terms and conditions expressly prohibit loans to board members’ relatives or business associates. This is the fifth consecutive

year in which the CPA firm has failed to conduct an acceptable

single audit, as it has consistently excluded the RLF from the schedule of expenditures and the additional audit procedures required

of major programs. We recommended that the CPA firm reissue

the 2003 single audit report to include the EDA revolving loan

fund as a major program, and question the related-party loan. (Denver Regional Office of Audits: DEN-16870)

Inadequate Audits of Central

Oklahoma Organization Span

6 Years

The fiscal year 2003 single audit conducted for a central Oklahoma economic development organization was technically deficient because the CPA firm omitted revolving loan fund activity

of $676,786 in its calculation of federal award expenditures. As a

result, the RLF was not subject to the additional audit procedures

required for major programs. Single audits of the organization

dating back to 1998 have not reflected RLF activity in the schedule of expenditures of federal awards, and have hence failed to

meet A-133 standards. (Denver Regional Office of Audits: DEN16871)

Two Iowa CPA Firms Failed to

Comply with Single Audit Act

for Multiple Years

Southern Iowa. Our QCR of a public accounting firm’s fiscal

year 2002 audit of an EDA grantee in Iowa found that, while the

firm had conducted audits according to generally accepted auditing standards, they did not meet Single Audit Act and A-133 requirements, which prescribe additional procedures to (1) assess

the adequacy of internal controls over federal funds and (2) substantively test the support for costs charged to major federal programs. The firm failed to perform any of the required procedures

as part of its FY 2002 audit, and has not done so in any audit of

the organization since 1997. (Denver Regional Office of Audits:

DEN-16583)

Department-wide Management
September 2004/Semiannual Report to Congress 47

South Central Iowa. Our QCR of the FY 2003 single audit report for a south central Iowa planning commission disclosed that

the public accounting firm conducting the audit had not included

RLF activity in its calculation of the commission’s federal expenditures. By failing to include the RLF, the firm did not properly

prepare and present the schedule of expenditures of federal awards

and did not test the RLF as a major program. We also determined

that—as the auditors had not included the RLF in the schedule of

expenditures since 1998—the EDA recipient did not obtain an

acceptable single audit between 1998 and 2002. (Denver Regional

Office of Audits: DEN-16584)

Department-wide Management
48 U.S. Department of Commerce/Office of Inspector General

OIG CONDUCTS QUALITY ASSESSMENT

REVIEW OF TENNESSEE VALLEY AUTHORITY

OIG OFFICE OF INVESTIGATIONS

All OIGs granted statutory law enforcement authority under the Homeland Security Act

are required by the Attorney General’s Guidelines for such organizations to participate

in a regular program of quality assessment review. Pursuant to this program, the

investigative operations of each OIG are subject to a peer review by a fellow OIG

every 3 years. The purpose of the review is to ascertain whether adequate internal

safeguards and management procedures exist to ensure that the law enforcement

power conferred by the 2002 amendments to the Inspector General Act are properly exercised. The results of these reviews are communicated to the Attorney

General and the reviewed OIG, and are intended to ensure compliance with

applicable guidelines established by the President’s Council on Integrity and

Efficiency and the Attorney General, as well as to facilitate substantive communications within the OIG investigative community regarding efficient procedures and best practices.

During this reporting period, we conducted a quality assessment review of the

Tennessee Valley Authority (TVA) Office of Inspector General and concluded

that TVA’s Office of Investigations was in full compliance with established guidelines. We based our findings on an assessment of that OIG’s compliance with its

own system of internal policies and procedures, interviews with criminal investigators and administrative and management personnel, and evaluation of investigations

completed by the OIG during the 12-month period ending February 1, 2004.

INVESTIGATIVE ACTIVITIES

In addition to the bureau-related investigations detailed throughout this semiannual report, our Office of

Investigations assisted other OIGs and law enforcement agencies with the following two operations:

CENSUS EMPLOYEE AND SPOUSE ARRESTED FOR DEFRAUDING THE GOVERNMENT;

GUILTY PLEA FOLLOWS

A Census employee and her spouse were arrested in June 2004 by special agents from the Commerce OIG and the Department of

Agriculture (USDA) OIG in connection with a fraud investigation initiated by USDA OIG. The employee, arrested at Census headquarters, was charged with attempting to defraud the government of approximately $39,000, after an investigation found that she had falsely

reported the amount of income she received as a Commerce employee in order to qualify for and receive food stamps and child care

benefits from USDA and the Department of Housing and Urban Development. In September 2004, the employee pleaded guilty in U.S.

District Court for the District of Maryland to one felony count of theft. Sentencing is set for December 2004. The employee’s spouse

is scheduled for trial in November 2004. This is a joint investigation with USDA OIG. (Washington Field Office of Investigations)

TThe

mission of

the Office of

Inspector General is to

promote economy, efficiency,

and effectiveness and detect and

prevent waste, fraud, abuse, and

mismanagement in the programs and

operations of the U.S. Department of

Commerce. Through its audits,

inspections, performance evaluations, and

investigations, OIG proposes innovative

ideas and constructive solutions that lead

to positive changes for the Department.

By providing timely, useful, and reliable

information and advice to departmental

officials, the administration, and

Congress, OIG’s work helps improve

Commerce management and operations

as well as its delivery of services to

the public.

OFFICE OF INSPECTOR

GENERAL
September 2004/Semiannual Report to Congress 49

FUGITIVE DETAINED DURING FRAUD

INVESTIGATION

In August 2004, while conducting a fraud investigation, special

agents learned that the subject of their investigation was also the

subject of numerous investigations in Arizona and was a known

fugitive, wanted in Michigan since December 2001 for stealing

more than $20,000 from a private business. Special agents located

and detained the individual in Mesa, Arizona. With their assistance, the Mesa Police Department arrested the individual and

charged her with multiple state felonies, including 25 counts of

forgery, 2 counts of identity theft, and 1 count of embezzlement.

(Arlington Resident Office of Investigations)

Office of Inspector General
50 U.S. Department of Commerce/Office of Inspector General

TABLES AND STATISTICS

STATISTICAL OVERVIEW

TABLES PAGE

1. Investigative Statistical Highlights for this Period ...................................................................................................................... 50

2. Audit Resolution Follow-Up ....................................................................................................................................................... 51

3. Audit and Inspection Statistical Highlights for this Period ......................................................................................................... 51

4. Audits with Questioned Costs ..................................................................................................................................................... 51

5. Audits with Recommendations that Funds Be Put to Better Use................................................................................................ 52

APPENDIXES

A. Report Types this Period ............................................................................................................................................................ 52

A-1. Performance Audits ............................................................................................................................................................ 53

A-2. Financial Assistance Audits ............................................................................................................................................... 54

A-3. Quality Control Reviews .................................................................................................................................................... 55

A-4. Inspections and Systems Evaluations ................................................................................................................................ 56

B. Processed Reports ...................................................................................................................................................................... 57

B-1. Processed Reports with Audit Findings ............................................................................................................................. 58

TABLE 1. INVESTIGATIVE STATISTICAL

HIGHLIGHTS FOR THIS PERIOD

Allegations Processed

Accepted for investigation 32

Referred to operating units 54

Evaluated but not accepted for investigation or referral 11

TOTAL 97

Investigative Activities

Matters referred for prosecution 10

Matters accepted for prosecution 10

Arrests 3

Indictments and informations 5

Convictions 7

Personnel actions 5

Fines, restitutions, judgments, and other

 civil and administrative recoveries $2,598,257

AUDIT RESOLUTION AND

FOLLOW-UP

The Inspector General Act Amendments of 1988 require us to

present in this report those audits issued before the beginning of

the reporting period (April 1, 2004) for which no management

decision had been made by the end of the period (September 30,

2004). Two audit reports remain unresolved for this reporting period (see page 37).

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.
Office of Inspector General

September 2004/Semiannual Report to Congress 51

TABLE 3. AUDIT AND INSPECTION

STATISTICAL HIGHLIGHTS FOR THIS

PERIOD

Questioned costs $5,436,699

Value of audit recommendations that

funds be put to better use 5,484,163

Value of audit recommendations

agreed to by management 13,715,745

Value of inspection recommendations

that funds be put to better use 25,000

TABLE 2. AUDIT RESOLUTION FOLLOW-UP

Report Category Modifications Appeals

Actions pending (April 1, 2004) 0 9

Submissions 0 7

Decisions 0 8

Actions pending (September 30, 2004) 0 8

TABLE 4. AUDITS WITH QUESTIONED COSTS

Report Category Number Questioned Costs Unsupported Costs

A. Reports for which no management decision had been

made by the beginning of the reporting period 31 $10,401,983 $3,605,407

 B. Reports issued during the reporting period 28 5,436,699 1,805,765

Total reports (A+B) requiring a management decision

during the reporting period1 59 15,838,682 5,411,172

C. Reports for which a management decision was made

during the reporting period2 31 6,994,367 3,605,407

i. Value of disallowed costs 1,715,266 623,094

ii. Value of costs not disallowed 5,279,178 2,982,577

D. Reports for which no management decision had been

made by the end of the reporting period 28 8,844,315 1,805,765

1 Ten audit reports included in this table are also included among reports with recommendations that funds be put to better use (see table 5).

However, the dollar amounts do not overlap.

2

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

recommendations.
Office of Inspector General

52 U.S. Department of Commerce/Office of Inspector General

TABLE 5. 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 beginning of the reporting period 10 $10,000,360

B. Reports issued during the reporting period 7 5,484,163

Total reports (A+B) requiring a management decision during the reporting period1 17 15,484,523

C. Reports for which a management decision was made during the reporting period2 10 8,649,918

i. Value of recommendations agreed to by management 12,000,479

ii. Value of recommendations not agreed to by management 657,058

D. Reports for which no management decision had been made by the end of the reporting period 7 6,834,605

1 Ten audit reports included in this table are also included in the reports with questioned costs (see table 4). However, the dollar amounts do not

overlap.

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

DEFINITIONS OF TERMS

USED IN THE TABLES

Questioned cost: a cost questioned by OIG because of (1) an

alleged violation of a provision of a law, regulation, contract, grant,

cooperative agreement, or other agreement or document governing the expenditure of funds; (2) a finding that, at the time of the

audit, such cost is not supported by adequate documentation; or

(3) a finding that an expenditure of funds for the intended purpose

is unnecessary or unreasonable.

Unsupported cost: a cost that, at the time of the audit, is not

supported by adequate documentation. Questioned costs include

unsupported costs.

Recommendation that funds be put to better use: an OIG recommendation that funds could be used more efficiently if Commerce management took action to implement and complete the

recommendation, including (1) reductions in outlays; (2)

deobligation of funds from programs or operations; (3) withdrawal

of interest subsidy costs on loans or loan guarantees, insurance,

or bonds; (4) costs not incurred by implementing recommended

improvements related to Commerce, a contractor, or a grantee;

(5) avoidance of unnecessary expenditures identified in preaward

reviews of contracts or grant agreements; or (6) any other savings

specifically identified.

Management decision: 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.

APPENDIX A. REPORT TYPES

THIS PERIOD

Number of Appendix

Type Reports Number

Performance audits 5 A-1

Financial assistance audits 12 A-2

Quality control reviews 4 A-3

Inspections and systems evaluations 12 A-4

Total 33
Office of Inspector General

September 2004/Semiannual Report to Congress 53

APPENDIX A-1. PERFORMANCE AUDITS

Funds to

Be Put to

Report Title Report Number Date Issued Better Use

Economic and Statistics Administration

Results Assessment of Federal Audit Clearinghouse ATL-16202-4-0001 05/21/04

Database Utilizing Agreed-Upon Procedures

Federal Information Systems Controls Audit Manual Review of the ATL-16202-4-0002 05/21/04 —

Federal Audit Clearinghouse Database for Fiscal Year 2003

National Oceanic and Atmospheric Administration

Improvements Needed in the Reporting of Performance for FSD-15989-4-0001 09/07/04 —

NOAA Goals – Build Sustainable Fisheries, Recover

Protected Species, and Predict and Assess Decadal to

Centennial Climate Change

National Institute of Standards and Technology

NIST’s Management of Interagency Agreements STD-14439-4-0001 09/30/04 —

United States Patent and Trademark Office

USPTO Needs Strong Office of Human Resources Management

Capable of Addressing Current and Future Challenges BTD-16432-4-0001 06/16/04 —
Office of Inspector General

54 U.S. Department of Commerce/Office of Inspector General

APPENDIX A-2. FINANCIAL ASSISTANCE AUDITS

Value of

Funds to Federal Federal

Date Be Put to Amount Amount

Report Title Report Number Issued Better Use Questioned Unsupported

Economic Development Administration

Advancing California’s

Emerging Technologies ATL-16838-4-0001 07/15/04 $2,009,558

Village of Valmeyer, IL DEN-16837-4-0001 08/25/04 3,156,755

City of Toledo, OH DEN-16511-4-0001 09/30/04 $1,147,250 $23,044

National Institute of Standards and Technology

Umbanet, Inc., NY DEN-16591-4-0001 08/18/04 27,801 27,801

Computer Aided Surgery, Inc., NY ATL-16095-4-0002 08/25/04 547,426

AviGenics, Inc., GA ATL-16672-4-0001 09/30/04 102,489 84,556 16,429

MEDAL, L.P., DE DEN-16651-4-0001 09/30/04 7,816 7,816

Animas Corp., PA DEN-16669-4-0001 09/30/04 43,643

National Oceanic and Atmospheric Administration

Oregon Watershed Enhancement Board STL-15727-4-0001 09/30/04 535,495 454,981

Northwest Indian Fisheries

Commission, Audit of the Subgrant

with the Puyallup Tribe, WA STL-16657-4-0001 09/30/04 599,506 599,506

Northwest Indian Fisheries

Commission, Audit of Subgrant with

the Lower Elwha Klallam Tribe, WA STL-16657-4-0003 09/30/04 271,476 29,882

National Telecommunications and Information Administration

Daytona Beach Community

College, FL ATL 16806-4-0001 09/24/04
Office of Inspector General

September 2004/Semiannual Report to Congress 55

APPENDIX A-3. QUALITY CONTROL REVIEWS

Report Title Report Number Date Issued

Economic Development Administration

Ted Willets CPA for the Audit of Southern Iowa Council of Governments

for the year ended September 30, 2002 DEN-16853-4-0001 09/22/04

Peak & Gerdes, LLP, for the Audit of Area 15 Regional Planning

Commission for the year ended June 30, 2003 DEN-16854-4-0001 09/22/04

Carlson & Cottrell, CPAs PLC, Audit of South Western Oklahoma

Development Authority for the year ended September 30, 2003 DEN-16870-4-0001 09/30/04

Becky Fleming, C.P.A., Inc., Audit of Central Oklahoma Economic

Development District for the year ended June 30, 2003 DEN-16871-4-0001 09/30/04
Office of Inspector General

56 U.S. Department of Commerce/Office of Inspector General

APPENDIX A-4. INSPECTIONS AND SYSTEMS EVALUATIONS

Funds to Be

Put to

Report Title Report Number Date Issued Better Use

Bureau of Industry and Security

Interagency Review of Foreign National Access to

Export-Controlled Technology in the United States IPE-16177 04/16/04 —

Economics and Statistics Administration

Improving Our Measure of America: What the 2004

Census Test Can Teach Us in Planning for the 2010

Decennial Census OIG-16949 09/30/04 —

Weaknesses in Census Bureau’s Certification and

Accreditation Process Leave Security of Critical

Information Systems in Question OSE-16519-1 09/28/04 —

The Census Bureau Should Redefine Its National-Critical Systems OSE-16519-2 07/30/04 —

International Trade Administration

USEACs Are Meeting Client Needs, But Better

Management Oversight Is Needed IPE-16728 09/30/04 —

CS India: Challenges Remain for a Large and

Economically Diverse Post IPE-16808 09/30/04 $25,000

National Oceanic and Atmospheric Administration

Complaints Surrounding the Recent Selection of the

Assistant Administrator for Weather Services IPE-16823 04/30/04 —

United States Patent and Trademark Office

USPTO Should Reassess How Examiner Goals,

Performance Appraisal Plans, and the Award System

Stimulate and Reward Examiner Production IPE-15722 09/30/04 —

USPTO’s Move to Alexandria, Virginia, Is Ahead of

Schedule, But Some Key Issues Need to Be Resolved IPE-16268 09/30/04 —

Office of the Secretary

FY 2004 Independent Evaluation of the Department of

Commerce’s Information Security Program Under the

Federal Information Security Management Act for FY 2004 OSE-16954 09/30/04 —

Information Security in Information Technology Service

Contracts Is Improving, But Additional Efforts Are Needed OSE-16513 09/29/04 —

Management Attention Is Needed to Assure Adequate

Computer Incident Response Capability OSE-16522 09/28/04 —
Office of Inspector General

September 2004/Semiannual Report to Congress 57

APPENDIX B. PROCESSED REPORTS

The Office of Inspector General reviewed and accepted 157 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 ........................................................................................................................................ 43

National Institute of Standards and Technology* ........................................................................................................................... 60

National Oceanic and Atmospheric Administration ....................................................................................................................... 15

National Telecommunications and Information Administration ....................................................................................................... 3

Multiagency .................................................................................................................................................................................... 35

Agency not identified ........................................................................................................................................................................ 1

Total .............................................................................................................................................................................................. 157

*Includes 53 ATP program-specific audits.
Office of Inspector General

58 U.S. Department of Commerce/Office of Inspector General

APPENDIX B 1. PROCESSED REPORTS WITH AUDIT FINDINGS

Value of

Funds to Federal Federal

Date Be Put to Amount Amount

Report Title Report Number Issued Better Use Questioned Unsupported

Economic Development Administration

Cornell Agriculture and Food

Technology Park Corp., NY ATL-09999-4-1653 09/13/04 $12,020 $12,020

Operation Hope, CA ATL-09999-4-1883 09/13/04 175,662

National Association of

Development Organizations

and NADO Research Foundation, DC ATL-09999-4-1715 09/14/04 28,969 17,143

Northwest Wisconsin Business

Development Corp. ATL-09999-4-1753 09/14/04 189,374

National Institute of Standards and Technology

Allvac, NC DEN-09999-4-1485 04/02/04 4,869

Palo Alto Research Center, CA ATL-09999-4-1828 05/12/04 84,666

Isogenis, Inc., CO DEN-09999-4-1744 06/16/04 107,084 42,491

IndX Software Corp., CA ATL-09999-4-1496 06/23/04 391,317 281,572

MicroDexterity Systems, Inc., NM ATL-09999-4-1528 06/23/04 381,243 335,571

GlycoFi, Inc., NH DEN-09999-4-1808 07/07/04 4,548

Baan USA, Inc., VA ATL-09999-4-1132 07/08/04 295,827

Black Pearls, Inc./Kona Blue

Water Farms, HI ATL-09999-4-1293 08/03/04 26,747

Honeywell International, Inc., MN ATL-09999-4-1967 08/05/04 29,325

Apelon, Inc., CT ATL-09999-4-1963 08/11/04 40,000 30,148

ISTO Technologies, Inc., MO ATL-09999-4-1306 09/10/04 16,419

Mendel Biotechnology, Inc., CA ATL-09999-4-1322 09/10/04 146,300

Physical Optics Corp., CA ATL-09999-4-1641 09/10/04 105,708

Timken US Corp., MI ATL-09999-4-1687 09/10/04 24,708

STEP Tools, Inc., NY ATL-09999-4-0902 09/13/04 51,858 178,445

Maine Manufacturing

Extension Partnership ATL-09999-4-1889 09/14/04

Manufacturing Extension Partnership

of New Hampshire, Inc. ATL-09999-4-1854 09/30/04

National Oceanic and Atmospheric Administration

Mid-Atlantic Fishery Management

Council, DE ATL-09999-4-1882 09/13/04 19,363
September 2004/Semiannual Report to Congress 59

REPORTING REQUIREMENTS

The Inspector General Act of 1978, as amended, specifies reporting requirements for semiannual reports. The requirements are listed

below and indexed to the applicable pages of this report.

Section Topic Page

4(a)(2) ......................................... Review of Legislation and Regulations .............................................................................. 59–60

5(a)(1) ......................................... Significant Problems, Abuses, and Deficiencies ................................................................. 14–47

5(a)(2) ......................................... Significant Recommendations for Corrective Action ......................................................... 14–47

5(a)(3) ......................................... Prior Significant Recommendations Unimplemented .............................................................. 59

5(a)4 ............................................ Matters Referred to Prosecutive Authorities ............................................................................. 50

5(a)(5) and 6(b)(2) ...................... Information or Assistance Refused ........................................................................................... 60

5(a)(6) ......................................... Listing of Audit Reports ..................................................................................................... 50–58

5(a)(7) ......................................... Summary of Significant Reports ......................................................................................... 14–47

5(a)(8) ......................................... Audit Reports—Questioned Costs ............................................................................................ 51

5(a)(9) ......................................... Audit Reports—Funds to Be Put to Better Use ........................................................................ 52

5(a)(10) ....................................... Prior Audit Reports Unresolved ................................................................................................ 60

5(a)(11) ....................................... Significant Revised Management Decisions............................................................................. 60

5(a)(12) ....................................... Significant Management Decisions with which OIG Disagreed .............................................. 60

4(A)(2): REVIEW OF LEGISLATION

AND REGULATIONS

This section requires the inspector general of each agency to review existing and proposed legislation and regulations relating to

that agency’s programs and operations. Based on this review, the

inspector general is required to make recommendations in the semiannual report concerning the impact of such legislation or regulations on the economy and efficiency of the management of programs and operations administered or financed by the agency or

on the prevention and detection of fraud and abuse in those programs and operations. Comments concerning legislative and regulatory initiatives affecting Commerce programs are discussed, as

appropriate, in relevant sections of the report.

SECTION 5(A)(3): PRIOR SIGNIFICANT

RECOMMENDATIONS UNIMPLEMENTED

This section requires identification of each significant recommendation described in previous semiannual reports for which corrective action has not been completed. Section 5(b) requires that the

Secretary transmit to Congress statistical tables showing the number and value of audit reports for which no final action has been

taken, plus an explanation of the reasons why recommended action has not occurred, except when the management decision was

made within the preceding year.

To include a list of all significant unimplemented recommendations in this report would be duplicative, costly, unwieldy, and of
Office of Inspector General

60 U.S. Department of Commerce/Office of Inspector General

limited value to Congress. Any list would have meaning only if it

explained whether adequate progress is being made to implement

each agreed-upon corrective action. Management updates the

Department’s Audit Tracking System annually, most recently as

of July 2004. Information on the status of any audit recommendations can be obtained through 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 instances during this semiannual period and no reports to the Secretary.

SECTION 5(A)(10): PRIOR AUDIT REPORTS

UNRESOLVED

This section requires a summary of each audit report issued before the beginning of the reporting period for which no management decision has been made by the end of the reporting period

(including the date and title of each such report), an explanation

of why a decision has not been made, and a statement concerning

the desired timetable for delivering a decision on each such report. There were two NIST reports more than 6 months old.

SECTION 5(A)(11): SIGNIFICANT REVISED

MANAGEMENT DECISIONS

This section requires an explanation of the reasons for any significant revision to a management decision made during the reporting period. Department Administrative Order 213-5, Audit

Resolution and Follow-up, provides procedures for revising a

management decision. For performance audits, OIG must be consulted and must approve in advance any modification to an audit

action plan. For financial assistance audits, OIG must concur with

any decision that would change the audit resolution proposal in

response to an appeal by the recipient. The decisions issued on

the eight appeals of audit-related debts were finalized with the

full participation and concurrence of OIG.

SECTION 5(A)(12): SIGNIFICANT

MANAGEMENT DECISIONS WITH WHICH

OIG DISAGREED

This section requires information concerning any significant management decision with which the inspector general disagrees. Department Administrative Order 213-5 provides procedures for elevating unresolved audit recommendations to higher levels of

Department and OIG management, including their consideration

by an Audit Resolution Council. During this period no audit issues were referred to the council.
September 2004/Semiannual Report to Congress 61

ACRONYMS

AMQA ......................................................................................................................................... assistant manager for quality assurance

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

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

C&A ........................................................................................................................................................... certification and accreditation

CIO ..................................................................................................................................................................... chief information officer

CIRC .............................................................................................................................................. computer incident response capability

CIRT ...................................................................................................................................................... computer incident response team

CPA .................................................................................................................................................................. certified public accountant

CS .............................................................................................................................................................................. Commercial Service

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

EPA .......................................................................................................................................................Environmental Protection Agency

ESA.............................................................................................................................................. Economics & Statistics Administration

FedCIRC .............................................................................................................................. Federal Computer Incident Response Center

FFMIA ......................................................................................................................... Federal Financial Management Improvement Act

FISCAM ............................................................................................................................ Federal Information System Controls Manual

FISMA ............................................................................................................................. Federal Information Security Management Act

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

FOAM ........................................................................................................................................................first office action on the merits

GPS .................................................................................................................................................................... global positioning system

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

HHC ............................................................................................................................................................................. handheld computer

HRM .......................................................................................................................................................... human resources management

IG .................................................................................................................................................................................... inspector general

IT .......................................................................................................................................................................... information technology
62 U.S. Department of Commerce/Office of Inspector General

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

LCO .............................................................................................................................................................................. local census office

MEP .................................................................................................................................................... Manufacturing Extension Program

NDAA ............................................................................................................................................... National Defense Authorization Act

NEXRAD ................................................................................................................................................Next Generation Weather Radar

NIST ............................................................................................................................... National Institute of Standards and Technology

NMFS .................................................................................................................................................. National Marine Fisheries Service

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

NRFU .................................................................................................................................................................... nonresponse follow-up

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

NWS .................................................................................................................................................................. National Weather Service

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

OMB ................................................................................................................................................... Office of Management and Budget

OCS ................................................................................................................................................................ Operations Control System

PAR................................................................................................................................................ Performance & Accountability Report

POA&M....................................................................................................................................................... plan of action and milestones

QAR .................................................................................................................................................................. quality assessment review

QCR .........................................................................................................................................................................quality control review

RLF ............................................................................................................................................................................. revolving loan fund

SCO ...................................................................................................................................................................senior commercial officer

USEAC ......................................................................................................................................................... U.S. export assistance center

USDA ...................................................................................................................................................... U.S. Department of Agriculture

US&FCS .......................................................................................................................................... U.S. & Foreign Commercial Service

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

Acronyms
September 2004/Semiannual Report to Congress 63

TYPES OF OIG WORK PRODUCTS

The various kinds of audits, evaluations, inspections, and investigations at our disposal enable the IG’s office to assess Commerce

programs and operations from a range of perspectives. Thus we

are able to provide program managers with reviews and recommendations that are either narrowly focused or comprehensive, as

needed, to aid them in ensuring the most efficient and effective

use of taxpayer dollars.

AUDITS

Performance Audits address the efficiency, effectiveness, and

economy of the Department’s programs, activities, and information technology systems. They may check a unit’s compliance with

laws and regulations, and evaluate its success in achieving program objectives. They may also involve reviewing the

Department’s financial assistance awards by assessing an award

recipient’s compliance with laws, regulations, and award terms;

allowance of costs; and the degree to which projects achieved intended results.

Financial Audits determine whether (1) a reporting entity’s financial statements are presented fairly and in accordance with generally accepted accounting principles; (2) the entity has an internal

control structure that provides reasonable assurance of achieving

the control objectives set forth by OMB; and (3) the entity complied with laws and regulations that could have a direct and material effect on the financial statements, the Federal Financial Management Improvement Act, and other laws and regulations.

Attestation Engagements involve examining, reviewing, or performing agreed-upon procedures on a subject matter or an assertion about a subject matter and reporting the results. Attestation

engagements can have a broad range of financial or nonfinancial

focuses, such as an entity’s compliance with laws and regulations;

management’s discussion and analysis presentations; and

allowability and reasonableness of final grant and contract costs.

INSPECTIONS

Inspections are reviews of an activity, unit, or office, or a contractor or other nonfederal entity that receives funds from the

Department. They focus on an organization, not a whole program,

and are often designed to give agency managers timely and useful

information about operations, including current and foreseeable

problems.

EVALUATIONS

Program Evaluations are in-depth reviews of specific management issues, policies, or programs.

Systems Evaluations review system development, acquisitions,

operations, and policy, focusing on computer systems and other

technologies.

INVESTIGATIONS

Investigations are conducted based on alleged or suspected wrongdoing by Department employees, contractors, recipients of financial assistance, and others responsible for handling federal resources. Investigations that expose violations of Department rules

and regulations or acts of fraud committed against the U.S. government can result in administrative sanctions and/or criminal or

civil prosecution.