IG’s


Semiannual Report


to Congress


March 2006 
Office of Inspector General

Organizational Chart

Office of 

Compliance and 

Administration 

Office of 

Inspections and 

Program Evaluations 

Inspector 

General 

Deputy 

Inspector General 

Office of 

Systems Evaluation 

Office of 

Counsel 

Office of 

Audits 

Business &

 Science Division 

Financial Statements 

& Accountability 

Audits 

Regional 

Audits 

Office of 

Investigations 

Investigative 

Resident Offices

Investigative 

Field Offices

Investigative 

Services 

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 

OIG Internet Home Page 

www.oig.doc.gov 

OIG HOTLINE: 

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

 or (800) 424-5197 

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

Internet e-mail....................................hotline@oig.doc.gov 

REQUESTS FOR REPORTS: 

Telephone................................................ (202) 482-1243 

Internet e-mail..................................oigweb@oig.doc.gov 
UNITED STATES DEPARTMENT OF COMMERCE 

The Inspector General 

Washington, D.C. 20230 

March 2006 

The Honorable Carlos M. Gutierrez 

Secretary of Commerce 

Washington, D.C. 20230 

Dear Mr. Secretary: 

In accordance with the Inspector General Act of 1978, I am pleased to submit our Semiannual Report to Congress for the first 

half of fiscal year 2006. This report outlines the work and activities of my office for the 6-month period October 1, 2005, through 

March 31, 2006. The act requires that we prepare this report twice each year to summarize our assessments of Commerce 

operations and that you transmit it, with any comments you may wish to add, to Congress within 30 days of receiving it. 

This reporting period has been especially productive for my office, as we have concluded reviews of several critical, largescale departmental operations that I know are of particular interest to you. Most notably, we focused on Commerce’s mission, responsibilities, and opportunities in China with a comprehensive inspection of the Commercial Service’s China post 

and the Bureau of Industry and Security’s export control processes for that country. For the most part, these operations are 

sound, but both have issues that require senior management’s attention to best achieve Commerce’s goals for balancing 

trade between our countries without compromising our national security. 

We also reviewed the Census 2006 test of address canvassing and noted several key operational and logistical issues that 

the bureau chose not to focus on, and thus, we believe, missed the opportunity to enhance related operations for 2010. 

With our comprehensive evaluation of the Department’s management of the Federal Employees’Compensation Act program, 

we found many serious shortcomings. But I must tell you that your senior officials in this—and most other instances—have 

responded promptly with actions that should ameliorate many of the long-standing problems we uncovered. 

I also am pleased to tell you that the Department achieved a major milestone during this semiannual period: our most 

recent work involving our reviews of GPRA implementation—which has been a top management challenge for the past 7 

years—showed that Commerce has made great strides in improving the quality and reliability of its performance data and 

associated reporting, thanks in large part to the increased attention your senior managers have given this issue. We have 

therefore removed it from the challenge list, and in its place, we have added the need for closely monitoring development 

and acquisition of environmental satellites—an enormously expensive and important activity that requires the attention of 

senior Department officials. 

As always, I am grateful for your open support of the work of my office. I look forward to another productive period that 

will result in still stronger operations and greater efficiencies throughout Commerce and its bureaus. 

Sincerely, 

Johnnie E. Frazier 
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..............................................................................................4

Strengthen Internal Controls over Financial, Programmatic, and Business Processes......................................................................5

Ensure that USPTO Uses Its Authorities and Flexibilities as a Performance-Based Organization to Achieve Better Results.........6

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

Effectively Manage the Development and Acquisition of Environmental Satellites ........................................................................8

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

Effectively Manage NOAA’s Stewardship of Ocean and Living Marine Resources ......................................................................10

Aggressively Monitor Emergency Preparedness, Safety, and Security Responsibilities ................................................................11

Enhance Export Controls for Dual-Use Commodities ....................................................................................................................11

Agency Overviews 

Bureau of Industry and Security......................................................................................................................................................13

Economic Development Administration..........................................................................................................................................17

Economics and Statistics Administration ........................................................................................................................................19

International Trade Administration..................................................................................................................................................23

Minority Business Development Agency ........................................................................................................................................27

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

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

Technology Administration..............................................................................................................................................................35

United States Patent and Trademark Office.....................................................................................................................................37

Department-Wide Management.......................................................................................................................................................39

Office of Inspector General .................................................................................................................................................................47

Office of Investigations....................................................................................................................................................................48

Tables and Statistics.........................................................................................................................................................................52

Reporting Requirements ..................................................................................................................................................................60

Acronyms ..............................................................................................................................................................................................63

Types of OIG Work Products ..............................................................................................................................................................65
The vintage images that appear throughout the book 

show the Commerce Herbert C. Hoover Building in 

various stages of construction during the 1930s. 
IG’s Message to Congress


The 21st century, though barely half a decade old, has confronted 

government at all levels with challenges of unprecedented scope 

and complexity: the constant call to diffuse new threats to our 

security coupled with catastrophic natural events at home and 

abroad are but two of the more obvious realities of recent years 

that have pushed federal agencies to redefine the methods by 

which they accomplish their mission-critical activities efficiently 

and effectively. Ours is a world of unpredictability. And in this 

environment, “business as usual” in government has come to mean 

a continual reexamination and readjustment of priorities to ensure 

the integrity of operations and best service to the public. 

I am pleased to report that the work of my office during this first 

semiannual period of fiscal year 2006 has uncovered numerous 

instances in which the Department of Commerce has risen to the 

challenge of adjusting its priorities to meet new needs even as it 

pursues longer standing issues. This is evident in the strides it 

has made in improving an array of critical activities during these 

past months and in addressing the top management challenges 

we have identified. At the same time, Secretary Gutierrez has laid 

out what he sees as the key issues of consequence requiring the 

Department’s sustained attention, several of which complement 

our list of management challenges. He has continued to underscore 

the need for active collaboration with us in addressing areas of 

mutual concern. 

Significant Improvement Noted 

in Performance Reporting 

The Department’s performance reporting under the Government 

Performance and Results Act has been problematic for years and 

on our list of top challenges since 1999. Accurate performance 

measures and reliable data are imperative. Without them, Commerce cannot know whether programs are accomplishing their 

intended purpose, nor can it make informed funding decisions. Our 

reviews of performance reporting at various bureaus over the past 5 

years identified numerous deficiencies that rendered reported data 

of minimal use in assessing the true value or success of activities 

and operations. During this semiannual period, we followed up 

on this work and found that although there are still opportunities 

for further improvements, the Department and its bureaus have 

restructured their performance measurement process and practices 

so significantly that GPRA no longer warrants a place on our top 

challenge list. Commerce officials deserve to be commended for 

their dedicated attention to this issue and the resulting success. 

The Secretary’s Policy Priorities 

•	 Competitiveness and Innovation

•	 Intellectual Property Rights

•	 Trade

•	 China

•	 Environmental Stewardship

•	 Gulf Coast Rebuilding

•	 Immigration

Greater Coordination Recommended for 

Commerce’s China Operations 

The Department has an important mission, key responsibilities, and 

a major presence in China, with staff from three bureaus assigned 

to what by many accounts is one of our most controversial trading 

partners. China is the second largest foreign supplier of goods to 

the U.S.1 and the source of a significant trade imbalance. Its open 

aspirations for nuclear capabilities further complicate trade relations and underscore the need for effective export controls. 

Our inspection of Commercial Service operations in China in 

tandem with our review of the Bureau of Industry and Security’s 

export control policies and procedures for that country provided a 

comprehensive look at the strengths and weaknesses of these operations and related activities. (See pages 23 and 13, respectively.) 

We found that overall, the Department’s trade operations in China 

are sound, but would benefit from better coordination among the 

Commerce agencies stationed there. Secretary Gutierrez has made 

trade policies and operations with China a priority of his tenure. 

To address the weaknesses in coordination we noted, the Secretary 

has directed his Deputy Secretary to convene quarterly meetings 

of the Department’s principal officials who have staff in China as 

“a forum for the exchange of information, to identify emerging 

issues, and to improve overall coordination of our China operations.” I believe this action will go a long way toward ensuring that 

Commerce fully leverages trade opportunities with China while 

protecting national security interests. 

1 U.S. Government Accountability Office, April 2006. China Trade: Challenges 

and Choices to Apply Countervailing Duties to China, GAO-06-608T. Washington, 

D.C.:GAO. 

March 2006/Semiannual Report to Congress 
IG’s Message to Congress 

Swift Action Needed to Bolster FECA 

Program Oversight 

During this past year, the Inspection and Evaluation (I&E) Committee of the President’s Council on Integrity and Efficiency established 

a working group to coordinate efforts among OIGs to evaluate their 

agency’s handling of the Federal Employees’ Compensation Act 

(a.k.a., workers’ compensation) program. As chairman of the I&E 

Committee, I welcomed this opportunity to promote inter-OIG collaboration on this multibillion program that—in the absence of strict 

oversight—is so susceptible to fraud, waste, and abuse. 

The scope of inattention to the FECA workload we noted in our 

review at Commerce was disturbing and mirrored findings by 

other IGs. By not aggressively monitoring the status of claimants, 

Commerce failed to bring work-ready employees back on the job, 

refer suspected cases of fraud to our office, or identify incorrect 

or excessive benefit payments. (See page 39.) 

The Department responded to our findings immediately by greatly 

enhancing its management of the program. It has also instituted training for departmental personnel who oversee the FECA program, is 

seeking ways to return employees to work as soon as possible, and 

has strengthened its interaction with the Labor Department. 

OIG Investigations: Numerous Cases 

Successfully Concluded, Large 

Recoveries Made 

Our Office of Investigations was extremely productive during this 

reporting period, pursuing numerous cases of fraud and criminal 

conduct by Commerce employees, recipients of federal funds, and 

other parties, which resulted in the recovery of $7.5 million in fines, 

restitution, and other sanctions. (See page 48.) Our state-of-the-art 

Computer Crimes Unit focuses on uncovering instances of criminal 

use of government computers, particularly in the area of Internet 

child pornography. We have seen the number of prosecutions in 

this area significantly expand, thanks in part to increased vigilance 

by agency IT security specialists, who routinely refer instances 

of suspected criminal conduct to us. One example of the positive 

results achieved through departmental cooperation was the highly 

publicized case of a NOAA employee indicted for sexual exploitation of children and possession of child pornography. 

Other Areas of Interest 

You will find in the pages of this report the details of numerous other 

reviews completed during this semiannual period. For example: 

• Financial Accountability This year’s financial statements 

audits rendered clean opinions for the Department and 

United States Patent and Trademark Office. This is the 7th 

consecutive year Commerce has received a clean opinion 

and the 13th year for USPTO. (See pages 43 and 37.) 

A follow-up audit of NOAA user fees suggested further 

enhancements to improve control of these funds (page 

29), and audits of Commerce financial assistance recipients identified millions in questioned costs and funds to 

be put to better use. (See pages 30, 33, and 35.) 

•	 Missed Opportunities in Census Decennial Testing 

With the 2006 test of address canvassing, the Census 

Bureau marked a second major milestone in its efforts 

to automate processes for the 2010 decennial, this time 

attempting to update its address lists and associated maps 

using handheld computers. The units suffered from many 

of the same reliability problems that surfaced in the 2004 

test of nonresponse follow-up. We also noted weaknesses 

in training, outreach, and several other logistical and administrative procedures that must be resolved before the 

2008 dress rehearsal, and raised questions about the costs 

and benefits of conducting 100 percent address canvassing. (See page 19.) 

Continued Department-wide 

Collaboration Assured 

I began this message discussing the need for agencies to constantly 

reassess priorities and redirect their efforts. Secretary Gutierrez—in 

issuing his list of top concerns for the Department—has taken stock 

of current and emerging global situations that impact Commerce’s 

many critical roles and has adjusted its priorities as necessary. My 

office has done the same with regard to the top management challenges facing the Department: we evaluated Commerce’s progress 

in addressing the challenges and considered new areas that warrant 

careful, ongoing attention. As noted earlier, we removed GPRA 

implementation from the list. We refocused the challenge on 

financial management controls and systems to encompass more 

broadly the need for strong internal controls over all Department 

processes—financial, program, and business.And finally, we added 

a new challenge for monitoring development and acquisition of 

environmental satellites—an area in which Commerce will make 

huge investments over the next 4 years to support missions that are 

critical to the well-being of the nation and the world. 

I have shared these new priorities with the Secretary, and many of 

them complement those on his list: strong trade operations, sound 

business processes and investment, and aggressive stewardship 

of marine and environmental resources, to name a few. He has 

assured me that he and his senior officials will support our work 

in all the challenge areas and collaborate with my office to make 

recommended improvements, with the goal of retiring each of 

these challenges as soon as possible. 

I look forward to sharing with you the positive impact on Commerce operations that I know will result from this collaboration. 

And I welcome your continued input on our work to ensure that 

our focus addresses your priorities as well. 

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


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 

In the 4 years since enactment of the Federal Information Security 

Management Act (FISMA), government agencies have devoted 

significant resources to improving the security of information 

stored on their computer systems. The problem is long-standing: 

GAO has identified information security as a government-wide 

high-risk issue every year since 1997. At Commerce, it is the 

number one challenge, and has been a material weakness since 

2001. 

To eliminate the material weakness, Commerce has emphasized 

improving its certification and accreditation (C&A) process for 

IT systems. In initiating an effort in February 2005 to enhance the 

quality of its C&A packages, its chief information officer issued a 

plan to produce acceptable quality C&Apackagesfor all nationalcritical systems and some mission-critical systems by the end of 

FY 2005 and for all other systems by the end of FY 2006. Given 

the plan, our approach to the C&A portion of our 2005 FISMA 

evaluation was to review all improved packages available by August 31, 2005. Only five were ready—three from NOAA and two 

from Census2—but these showed some noteworthy improvements. 

2 The schedules provided by the Department’s CIO Office in June indicated that 

more than 20 C&A packages would be available by August 31, 2005. The CIO 

subsequently reported that by September 30, C&Apackages for all national-critical 

systems and over half of the mission critical-systems had been improved. 

TOP 10 MANAGEMENT CHALLENGES 

1. Strengthen Department-wide information security.

2. Effectively manage departmental and bureau acquisition processes.

3. Strengthen internal controls over financial, programmatic, and business processes.

4. Ensure that USPTO uses its authorities and flexibilities

as a performance-based organization to achieve better

results.

5. Control the cost and improve the accuracy of the decennial census.

6. Effectively manage the development and acquisition of

environmental satellites.

7. Promote fair competition in international trade.

8. Effectively manage noaa’s stewardship of ocean and

living marine resources.

9. Aggressively monitor emergency preparedness, safety,

and security responsibilities.

10. Enhance export controls for dual-use commodities.

NOAAhad significantly enhanced risk assessments, security plans, 

and testing, while Census’s security plans were more comprehensive than in the past. 

However, because of the testing deficiencies we still found and 

the few packages available for review, we have concluded that 

the Department’s C&A process has not improved to the point 

where authorizing officials have sufficient details about remaining system vulnerabilities to make fully informed accreditation 

decisions. Therefore, we concluded that the IT security material 

weakness remains. 

Our forthcoming report on our review of NOAA will contain recommendations for improving that agency’s C&A packages and its 

process for managing the correction of security weaknesses. These 

recommendations may inform efforts Department-wide. 

Commerce officials have continued to make clear their commitment to working with us to strengthen the C&A process. At the 

request of the Department’s acting CIO, we presented the findings 

from our 2005 FISMAevaluation of C&A packages at the December CIO Council meeting. The meeting gave us the opportunity 

March 2006/Semiannual Report to Congress 
Major Challenges for the Department 

Excerpt: Management of 

Federal Resources, OMB 

Circular A-130 

Safeguards. agencies shall:

(a) Ensure that information is protected commensurate

with the risk and magnitude of the harm that would

result from the loss, misuse, or unauthorized access

to or modification of such information;

(b) Limit the collection of information which identifies

individuals to that which is legally authorized and

necessary for the proper performance of agency

functions;

(c) Limit the sharing of information that identifies

individuals or contains proprietary information to that

which is legally authorized, and impose appropriate

conditions on use where a continuing obligation to

ensure the confidentiality of the information exists;

(d) Provide individuals, upon request, access to

records about them maintained in Privacy act

systems of records, and permit them to amend such

records as are in error consistent with the provisions

of the Privacy act.

to discuss the deficiencies, offer technical advice, and answer 

questions from the Department, bureau CIOs, and IT security 

officers. Our hope is that this interchange will continue and will 

enable Commerce to eliminate the problems with testing we have 

consistently noted, and to produce packages that fully support 

system accreditation decisions. The acting CIO is working with 

the operating units to identify the packages that will be available 

for our FY 2006 FISMA review. 

C&A Weaknesses at USPTO 

In a separate FISMA review, we looked at two packages from the 

United States Patent and Trademark Office (USPTO). In FY 2004, 

we had found this agency’s C&A process to be strong. However, 

our FY 2005 assessment noted shortfalls in USPTO’s monitoring of certified and accredited systems. The two systems in our 

review had undergone major changes since their certification 

and accreditation in 2004, but the agency had not considered the 

potential impact of the changes on the security of the systems, or 

evaluated the need to reaccredit. In addition, our examination of 

USPTO’s IT service contracts (see September 2005 Semiannual 

Report, page 33) found, among other things, that no contractor IT 

systems have been certified or accredited, a situation that could 

place restricted information at risk. 

FISMA Focus on Authenticating 

Remote Users 

Another focus of our FY 2005 work was e-authentication risk 

assessments for selected Department systems. E-authentication 

is the process of electronically verifying the identities of users 

accessing government services over the Internet and is crucial to 

the Department’s ability to properly authorize access to data and 

hold users accountable for their actions. 

As part of our review, we evaluated the quality of NOAA’s eauthentication risk assessment process for its Search and Rescue 

Satellite Aided Tracking System (SARSAT)—the U.S. portion of 

an international program that uses satellites to coordinate search and 

rescue activities. We identified a number of problems with the risk 

assessment as well as ways to strengthen the process and minimize 

the potential for unauthorized access to critical systems such as 

SARSAT, while improving user accountability. We will detail our 

findings and recommendations in our next semiannual report. 

Challenge 2 

Effectively Manage 

Departmental and Bureau 

Acquisition Processes 

Commerce spends nearly $2 billion annually on goods and services—roughly a third of its annual appropriation—and each year 

relies more on contractors to support its mission-critical work. 

Adequate oversight of acquisition planning and execution is essential to ensuring that taxpayer dollars are spent effectively and 

efficiently and procurement laws and regulations are followed. 

The Census Bureau’s contracting for products and services to support 

2010 decennial operations continues to bear watching. The bureau 

estimates that 17 percent ($1.9 billion) of its 2010 budget will be 

spent on contracts for information technology systems, advertising, and leases for local office space.

3 One key IT program—Field 

Data Collection Automation (FDCA)—will develop the handheld 

mobile computers that field staff will use to collect 2010 decennial 

information. This is a critical piece of the bureau’s reengineered 

strategy. Census originally planned to develop this equipment inhouse but determined in early 2004 that it lacked the management 

and technical resources to do so. It set a late-March 2006 date for 

selecting a contractor to develop the system, and planned to use 

information gained during field tests last summer and fall to refine 

3 http://frwebgate.access.gpo.gov/cgi-bin/useftp.cgi?IPaddress=162.140.64.21&fil 

ename=d06465t.pdf&directory=/diskb/wais/data/gao. Accessed April 7, 2006. 

 U.S. Department of Commerce/Office of Inspector General 
contract requirements. However, bureau officials had no process for 

transferring relevant information from the tests to the contract or 

identifying needed changes. So the contract was awarded without 

being modified to reflect lessons learned in the field tests. Should the 

need for changes to requirements emerge as the contract progresses, 

the bureau’s costs for this key program are likely to grow. 

We are also reviewing USPTO’s acquisition management procedures and guidelines, looking at a sample of contracts worth 

nearly $2.2 billion. Past work by our office and GAO has noted 

that—in the critical area of automation—the agency sometimes 

took an ad hoc approach to planning and managing acquisition of 

systems, and failed to sufficiently analyze needs, alternatives, and 

costs. Preliminary findings from our in-progress work indicate that 

while USPTO has high-level acquisition policies, it lacks specific 

guidance for contracting officers. 

Challenge 3 

Strengthen Internal Controls 

Over Financial, Programmatic, 

and Business Processes 

Internal controls are the steps agencies take to make sure their 

operations are effective, efficient, and in compliance with laws 

and regulations. Internal controls also ensure that financial reporting is reliable, and assets are safeguarded from waste, loss, 

or misappropriation, according to the Office of Management and 

Budget (OMB). Two documents, the Federal Managers’Financial 

Integrity Act (FMFIA) and the 2004 revision of OMB Circular 

A-123 (Management’s Responsibility for Internal Control), set out 

internal control requirements for the federal government: Commerce and all federal agencies must define and document major 

financial internal control processes and test key financial controls 

to determine whether they are effective as of June 30, 2006. 

In addition, CircularA-123 requires management to provide an assurance statement on the internal controls over financial reporting 

in its annual Performance and Accountability Report, including a 

Without effective controls, “fraud, waste, and abuse

in federal activities and programs lead to loss of

billions of dollars of government funds, erode public

confidence, and undermine the federal government’s

ability to operate effectively.”

—McCoy Williams, Director, GAO Financial Management and

Assurance, April 15, 2004, in testimony before the Subcommittee

on Government Efficiency and Financial Management Committee

on Government Reform, House of Representatives

Major Challenges for the Department 

conclusion on whether the internal controls are effective, a statement on identified material weaknesses, and management’s actions 

to correct the weakness. This is no small task. Today’s automated 

environments require rethinking what constitutes effective controls, how they should be designed and implemented, and whether 

additional or alternative documentation and records are needed. 

OIG is participating in an advisory capacity in the assessment. 

Although we noted recent improvement in the Department’s 

management and financial accountability as well as in program 

and operational effectiveness, our audits continually indicate 

more work is needed to strengthen internal controls over programs, operations, and administrative areas. Past reviews have 

identified management and general control weaknesses, such as 

lack of guidelines for using travel and purchase cards; failure to 

recover full costs for reimbursable projects; fiscal and operational 

weaknesses disclosed in findings of questioned costs in financial 

assistance awards; and deficiencies in planning, legal review, and 

open competition in acquisition management. 

Performance Measures 

and Internal Controls 

In this semiannual period, we completed an assessment of the 

Department’s progress implementing the 1993 Government Performance and Results Act (GPRA). (See page 41.) Commerce first 

began implementing GPRAin 1997, and in March 1999, we identified it as a top management challenge for the Department. From 

September 2000 to September 2004, OIG issued eight separate 

audit reports covering 45 performance measures reported by six 

Commerce bureaus. Those audits uncovered repeated instances 

of ambiguous measures that either did not establish clear links 

between the activity being measured and the agency’s actions or 

were stated in terms that did not appropriately represent performance results. We also found cases of inadequate disclosure, and 

we identified insufficient management controls and procedures 

for verifying performance information. 

Over the past several years, the Department has improved both the 

utility and integrity of performance information. Because of this, 

we determined that Commerce and its bureaus had collectively 

taken sufficient steps to warrant the removal of GPRA implementation from the list of Top 10 Management Challenges, although 

we cautioned that management should continue to give attention 

to performance reporting. 

We expect the new federal emphasis on strong internal controls 

to create a number of new demands for OIG reviews in the coming years. For example, new legislation passed in 2005 puts one 

of the Department’s smaller agencies in a position of having to 

manage an enormous national project with an even larger budget 

than had been anticipated. 

March 2006/Semiannual Report to Congress 
Major Challenges for the Department 

Source:	nTIa

New Law Will Alter NTIA’s Future 

The Digital Television Transition and Public Safety Act of 2005 

requires the FCC to auction recovered analog spectrum and deposit 

the proceeds into a special fund, which is to be used for programs 

within the National Telecommunications and Information Administration. Funding for the programs authorized by the act exceeds 

$2.5 billion, an overwhelming responsibility for an agency of 

NTIA’s size. NTIA’s FY 2006 budget allows a little over $18 million for salaries and $22 million for existing grant programs. 

Successfully implementing the act will constitute a significant 

management challenge for the Department. Managing this level 

of budgetary growth in a short time period and establishing the 

programs required by the act will be difficult. NTIA will also 

have to oversee the work of contractors who assist in the design 

and implementation of the programs. OIG will work closely with 

NTIA as it begins to implement the requirements of the act. We 

will share lessons learned from our work in other areas to help 

the agency design strong, well-structured programs and minimize 

opportunities for fraud. 

Challenge 4 

Ensure that USPTO Uses Its 

Authorities and Flexibilities 

as a Performance-based 

Organization to Achieve 

Better Results 

Since March 2000 when the Patent and Trademark Office Efficiency 

Act transformed USPTO into a performance-based organization 

designed to operate more like a private corporation than a government agency, OIG has paid close attention to a number of aspects 

of the organization’s internal management structures. USPTO now 

is responsible for operational functions that once were controlled or 

monitored at the departmental level. To its credit, the bureau reports 

it accomplished 75 percent of its key performance measures in FY 

2005, and it has had clean audit opinions for 13 consecutive years. 

But USPTO faces numerous challenges, such as a continuing 

increase in applications, training about 1,000 newly hired examiners in Patents and Trademarks, and transitioning to an electronic 

processing environment. In addition, USPTO’s expanded authority 

over personnel decisions and processes, procurement, and information technology operations needs to be fully utilized. 

GAO and OIG Reports 

Highlight Concerns 

Two reports issued by the Government Accountability Office in 

June 2005 raised a number of management concerns. GAO reported 

that USPTO does not have a fully integrated, electronic patent process planned despite spending more than $1 billion on the project 

Newly hired patent examiners attend an orientation class. USPTO is hiring about 1,000 new patent examiners to handle increases in applications. 

Source: USPTo

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

from 1983 through 2004.

4 In addition, recent increases in both the 

complexity and volume of patent applications have lengthened 

the time it takes to process patents and raised concerns about the 

validity of the patents USPTO issues.

5 The report also concluded 

that USPTO’s difficulty attracting and retaining qualified staff stems 

from an ineffective management strategy for communicating and 

collaborating with examiners, outdated assumptions about production quotas and performance awards, and a lack of mandatory 

continued technical training for patent examiners. 

OIG has issued nearly a dozen reports examining problems at 

USPTO since 2001. We have delved into systemic human resources 

and program issues, and have examined USPTO’s computer systems security. A recent OIG evaluation found that while most 

USPTO contracts include information technology security clauses, 

important requirements are not implemented properly or are not 

enforced.

6 Our office is currently reviewing procurement criteria 

and procedures that USPTO has been using because it is exempted 

by the Patent and Trademark Office EfficiencyAct from provisions 

of the Federal Property and Administrative Services Act of 1949. 

The bureau has taken decisive action to address some problems we 

identified in the past, and we have been pleased that USPTO has 

been receptive to our recommendations. But ultimately, we believe 

the problems USPTO suffers are serious and require the sustained 

commitment of senior managers to resolve. OIG will continue to 

monitor the bureau’s progress in this transition. 

Challenge 5 

Control the Cost and 

Improve the Accuracy of the 

Decennial Census 

At an estimated cost of $11.3 billion, the 2010 census will be the 

most expensive decennial to date, even after adjusting for inflation. Key to the Census Bureau’s ability to conduct an accurate, 

comprehensive population count within budget is its reengineered 

design, which relies heavily on automating critical field operations. 

The bureau established a rigorous testing schedule to monitor development and implementation of the strategy’s key components, identify problems, and incorporate solutions in time for the decennial. 

4 U.S. Government Accountability Office, June 17, 2005. Intellectual Property: 

Key Processes for Managing Patent Automation Strategy Need Strengthening, 

GAO-05-336. Washington, D.C.: GAO. 

5 U.S. GovernmentAccountability Office, June 2005. Intellectual Property: USPTO 

Has Made Progress in Hiring Examiners, but Challenges to Retention Remain, 

GAO-05-720. Washington, D.C.: GAO. 

6 Department of Commerce, Office of Inspector General, Office of Systems Evaluation, September 2005. U.S. Patent and Trademark Office: Information Security 

in Contracts Needs Better Enforcement and Oversight, OSE-17455. Washington, 

D.C.: Department of Commerce OIG. 

A “lister” with a mobile computer waits at a door for respondents during the 

Census Bureau’s 2006 field test in Austin, Texas. 

Source: oIG

This semiannual report details our review of Census’s test of automated address canvassing—an operation designed to keep the 

bureau’s address file and digital map database current and complete 

(see page 19). During address canvassing, temporary staff (called 

“listers”) equipped with handheld computers go into the field to 

verify, update, add, or remove addresses; add and delete streets 

to correct computer maps; and annotate address locations on the 

maps. The information they collect has a direct bearing on the 

bureau’s ability to accurately count the population. 

Our review disclosed several problems that undercut the value of 

the canvassing test, most notably, unreliable handheld computer 

functions, including its GPS capabilities; inaccurate maps despite 

an effort to correct them nationwide; insufficient quality control, 

training, and information sharing; and an inadequate focus on 

outreach. In addition, Census had not sufficiently developed procedures for deleting nonexistent streets, fully canvassing complicated 

blocks, updating mobile home sites, identifying rural addresses, 

and manually placing map locations on the handheld units when 

GPS could not be accessed. 

Also tested was a new quality control process that incorporates 

the verification of address deletions made by listers into the 

March 2006/Semiannual Report to Congress 
Major Challenges for the Department 

canvassing operation, rather than performing this check after the 

operation concludes, as has been the practice. Using this new 

procedure, corrections can be made to the address list and maps 

prior to Census Day. 

Despite this and other enhancements, we concluded that the 

bureau only partially achieved its test objectives. Census could 

have earned a better return on its investment if it had fielded 

more reliable handheld computers, tested areas where the postal 

service (rather than the bureau) could deliver questionnaires to 

reduce costs, and evaluated outreach efforts aimed at the hard-toenumerate American Indian population. Based on our observation 

of this test, we believe the bureau should assess the viability and 

cost-benefits of its decision to canvass nearly every household in 

the country in 2010. 

We are looking at several more 2006 test operations including 

update/enumerate at the Cheyenne River Reservation and OffReservation Trust Land in South Dakota. During this operation, 

which is used in communities where residents are less likely to 

return a completed questionnaire, enumerators update the address 

lists and maps, and interview a resident to complete a questionnaire 

for each housing unit. We are also assessing the bureau’s progress 

in improving the method for designating which communities 

require this type of enumeration. Finally, we are reviewing the 

group quarters operation in Travis County, Texas, which enumerates individuals residing in group facilities, such as dormitories, 

prisons, and nursing homes. 

Challenge 6 

Effectively Manage the 

Development and Acquisition 

of Environmental Satellites 

Over the next 5 years, the Department, through the National Oceanic and Atmospheric Administration, will spend several billion 

dollars in contracts for the purchase, construction, and modernization of environmental satellites.

7 Two of these systems, operated by 

NOAA’s National Environmental Satellite, Data and Information 

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

weather forecasts and a variety of other critical environmental and 

climate information. Geostationary Operational Environmental 

Satellites (GOES) generate near-term data for the continental 

United States and Hawaii. Polar Operational Environmental Satellites (POES) provide full global data for short- and long-range  forecast models, climate modeling, and various other purposes. 

7 http://www.osec.doc.gov/bmi/Budget/05APPR/PAR05.pdf, page 210. 

8

 http://science.hq.nasa.gov/missions/satellite_64.htm. 

NOAA, NASA, and Defense share oversight of NPOESS as members of the 

executive committee and manage specific aspects of satellite development, 

acquisition, and integration within the Integrated Program Office. 

Source: http://www.esipfed.org/business/library/meetings/th_fed_meeting/documents/Mike_Haas_Pres.ppt#283,5,Tri-Agency Management Structure

The National Weather Service is the main customer for the satellite 

data, which it uses to provide weather, hydrologic, and climate 

forecasts and warnings that can be used by other governmental 

agencies, the private sector, and the global community. 

Since 1994 the Department of Commerce, Department of Defense, and National Aeronautics and Space Administration have 

been working to develop the National Polar-orbiting Operational 

Environmental Satellite System (NPOESS), the nation’s first polar 

orbiting system that will meet both civilian and defense environmental data needs. Slated to replace POES, NPOESS is considered 

critical to the United States’ ability to maintain the continuity of 

data required for weather forecasting and global climate monitoring through the year 2020. 

Complex, high-cost acquisitions such as these are extremely difficult to manage within cost and schedule goals. Given the billions 

of dollars at stake in the NOAA satellite projects and their importance to public safety and economic stability, we believe these 

programs require continuous scrutiny. We have therefore added 

satellite development and acquisition to our list of top challenges 

facing the Department. 

NPOESS Program Well Over Budget 

and Behind Schedule 

We are currently conducting an audit of the NPOESS program, 

which focuses on how the contractor and program managers 

identify and communicate problems to NOAA senior officials, 

and whether the contract’s award fee structure is appropriate and 

effective. 

 U.S. Department of Commerce/Office of Inspector General 
Problems developing new sensors for NPOESS have inflated costs 

and delayed the schedule significantly. The original cost estimate 

of $6.9 billion now stands at $9.7 billion, according to a GAO estimate. When the contract for integrating the satellite systems was 

awarded in 2002, the delivery date for the first NPOESS satellite 

was March 2008; the current projection is late 2011, at best. 

The Nunn-McCurdy provision of the FY 1982 National Defense 

Authorization Act requires the Secretary of Defense to notify 

Congress when unit costs for a major acquisition program such 

as NPOESS grow by 15 percent9 over original baseline estimates. 

Should costs grow by 25 percent, the act requires the Secretary 

to certify in writing that the program is essential to national security and the most cost-effective option, the new cost estimate is 

reasonable, and a management structure is in place to adequately 

control unit costs. 

In November 2005, an estimate prepared for NPOESS by Defense 

showed that cost growth had exceeded 25 percent, triggering the 

Nunn-McCurdy certification requirement. Failure to provide the 

certification will terminate DOD’s involvement in the program 

and have a devastating impact, given that DOD provides half the 

program’s funding. 

Despite these huge cost and schedule overruns, the prime contractor has collected millions of dollars in incentive payments 

(“award fees”). Our initial audit findings suggest that the award 

fee structure is seriously flawed because it allows the contractor to 

collect incentive payments even for unsatisfactory performance, 

and that management failed to question optimistic program assessments when progress reports indicated serious cost and schedule 

overruns. 

Oversight of GOES-R 

Development Under Way 

GOES-R is the next-generation Geostationary Operational Environmental Satellite series scheduled for initial launch in 2012. 

This new series will have enhanced sensing capabilities that offer an uninterrupted flow of high-quality data to support weather 

forecasting, severe storm detection, and climate research vital to 

public safety. The fiscal year 2006 through 2010 cost is projected 

to be about $2 billion. 

Building a new satellite series within schedule and budget constraints requires a structured acquisition process. When key steps 

are skipped, schedule and cost can dramatically increase. In acquiring the GOES I-M series in the 1980s and 1990s, NOAA made 

technical assumptions without assessing ways to reduce risks—a 

major reason why completing the acquisition took twice as long 

as expected and cost an additional $1 billion. 

9

 10 USC § 2433. 

Major Challenges for the Department 

For GOES-R, NOAA is following a three-phase acquisition process—concept development, program definition and risk reduction, and acquisition and operations. Another big change is that 

NOAA is issuing and managing the prime system contract—a 

role NASA handled in the GOES I-M and follow-on GOES N-P 

acquisition. For GOES-R, NASA will continue to focus on the 

technical aspects of the acquisition as the manager of contracts 

for satellite sensors. The Department will monitor the program 

and has approval authority for advancing to the next acquisition 

phase. GOES-R is currently in the program definition and risk 

reduction phase, with contract award for acquisition and operations 

scheduled for late 2007. 

In October 2005, NOAA awarded three contracts for the program 

definition and risk reduction phase. Each contractor will refine 

the GOES-R concept, design strategies for managing risk, and 

develop baseline plans for implementation. We intend to monitor 

contract activities, identify key early stage program challenges, 

and determine whether NOAA is taking appropriate measures to 

meet them. 

Challenge 7 

Promote Fair Competition 

in International Trade 

The Department of Commerce accomplishes its goals of promoting 

trade, opening overseas markets to American firms, and protecting U.S. industry from unfair competition by imports primarily 

through the work of the International Trade Administration. Over 

the past several years, OIG has focused a number of reviews on 

the Department’s efforts to increase U.S. market opportunities, 

provide assistance to U.S. exporters, and overcome trade barriers 

in difficult foreign markets. 

U.S. Trade with China 

China has one of the world’s fastest growing economies, making 

its market an attractive one for U.S. businesses. While U.S. exports 

to China have increased rapidly in the past 3 years, this growth 

has not kept pace with the growth in Chinese imports. Between 

2002 and 2005, the U.S. trade deficit with China almost doubled, 

reaching $201.6 billion in calendar year 2005.10 This deficit is a 

major concern of the U.S. government and business sectors, both 

of which find that China’s intellectual property rights enforcement, 

currency valuation, technical barriers to trade, restrictions on 

10 U.S. Census Bureau, Trade in Goods (Imports, Exports and Trade Balance) 

with China, see www.census.gov/foreign-trade/balance/c5700.html, accessed 

February 13, 2006. 

March 2006/Semiannual Report to Congress 
Major Challenges for the Department 

Source: http://www.export.gov/china/images/mainpic.gif

trading and distribution rights, and closed regulatory environment 

contribute to the continuing U.S.-China trade imbalance. 

During this semiannual period, we focused on Commerce’s 

trade-related activities in China. (See page 23.) We visited China 

in September 2005 to review the U.S. Commercial Service (CS) 

offices in Beijing, Shanghai, Guangzhou, Chengdu, and Shenyang. 

We evaluated the effectiveness of CS’ coordination with other 

Commerce bureaus operating in China, as well as its cooperation 

with other governmental and nongovernmental stakeholders. We 

also reviewed the post’s claimed export success statistics, efforts 

in the area of intellectual property rights and market access, the 

new American Trading Center initiative, and other programmatic 

and administrative issues. 

Overall, 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, the Department, and other government agencies, but we did 

identify a number of issues that warrant management attention. 

We issued 3 recommendations to the Secretary and more than 32 

to the Under Secretary for International Trade and Assistant Secretary and Director General of CS that we believe will improve 

Commerce’s operations in China. 

Challenge 8 

Effectively Manage NOAA’s 

Stewardship of Ocean and 

Living Marine Resources 

The National Oceanic and Atmospheric Administration is charged 

with monitoring the health of our nation’s ocean, coastal, and Great 

Lakes resources; administering civilian ocean programs; and protecting and preserving the nation’s living marine resources through 

scientific research, fisheries management, enforcement, and habitat 

conservation. NOAA also will have to deal with impacts from the 

2005 storms on Gulf Coast aquatic ecosystems for many years to 

come, from assessing the hurricanes’effects on habitat and fisheries 

to recording the diminished numbers and redistribution of native 

species and damage to coastal wetlands. 

During this semiannual period, we followed up on our audit of 

the National Marine Fisheries Service’s (NMFS’) preparation of 

The California Central Valley Project is one of the largest water projects in 

the nation. Begun in 1935 by the federal government to irrigate and protect 

California’s central valley, it provides water to irrigate 3.7 million acres and 

its power plants can produce up to 1.4 million kilowatts of electricity. 

Source: http://esrpweb.csustan.edu/gis/maps/cvp_swp_sjv.jpg

10 U.S. Department of Commerce/Office of Inspector General 
a biological opinion for California’s Central Valley Project, one of 

the nation’s major water conservation efforts (see September 2005 

Semiannual Report, page 21). In response to our audit recommendations, NOAAcommissioned two independent scientific reviews 

of the opinion, both of which found the scientific information 

used in the biological opinion was not the best available. In light 

of these findings, we asked NOAA officials to submit to us a plan 

that identifies actions they will take to address the deficiencies and 

implement the related recommendations made by the independent 

review organizations. 

We also continued our series of reviews of salmon recovery programs, auditing a tribal subgrantee funded by NOAA’s Pacific 

Coastal Salmon Recovery Fund. Much like the audits we detailed 

in our 2004 and 2005 semiannual reports, we questioned costs and 

noted some administrative weaknesses. (See page 30.) 

Future challenges include NOAA’s efforts as a steward of marine 

resources, the agency’s consultation process, and its management 

of fisheries and marine mammals. 

Challenge 9 

Aggressively Monitor 

Emergency Preparedness, 

Safety, and Security 

Responsibilities 

The damage and disruption 

caused by the Gulf Coast hurricanes last summer intensified 

scrutiny of federal preparedness 

to a level not seen since 9/11. 

These disasters rightly raised serious questions about the nation’s 

readiness to respond to emergencies—whether natural or manmade—given the attention and 

resources dedicated to security 

and preparedness by all levels 

of government over the past 4 

years. They underscored the need 

for and responsibility of agencies 

to maintain robust emergency 

preparedness programs and disaster recovery plans to protect 

their employees, facilities, and 

critical operations. 

Source: http://www.dhs.gov/interweb

/assetlibrary/nRP_Brochure.pdf

Major Challenges for the Department 

The Department of Commerce has a dual responsibility in this 

arena: not only must it be ready to protect 35,000+ employees and 

hundreds of facilities, but because several Commerce programs 

are critical to national preparedness and recovery efforts, it must 

support U.S. efforts to prepare for, respond to, and promote recovery from major disasters. The President’s National Response 

Plan assigns responsibilities to several Commerce agencies. For 

example, NTIA gives on-call support to the federal emergency 

communications coordinator and keeps radio frequencies open 

during emergencies. NOAA issues long- and short-term forecasts 

about severe weather events and assesses areas of greatest marine 

or atmospheric hazard in their aftermath. The Economics and 

Statistics Administration assesses the economic impacts of major 

natural and manmade disasters. 

We continue to monitor Commerce’s progress in resolving departmental emergency preparedness and security weaknesses 

we identified in assessments conducted in 2002 and 2005 (see 

March 2002 and September 2005 semiannual reports, pages 77 

and 37, respectively). Although Commerce has made significant 

improvement in emergency preparedness to address vulnerabilities, 

we found, among other things, the need for better departmental 

guidance and oversight of emergency programs, risk assessments, 

occupant emergency plans, and security forces at its domestic 

operations, as well as better oversight of security upgrades and 

greater attention to security at its overseas offices. 

Challenge 10 

Enhance Export Controls 

for Dual-use Commodities 

The Bureau of Industry and Security (BIS) administers the U.S. 

dual-use export licensing and enforcement system designed 

to prevent hostile nations and terrorist groups from acquiring 

technologies and materials that have both civilian and military 

applications. But how effective are existing export controls? And 

how can we prevent export control policies and practices from 

hampering U.S. trade opportunities and competitiveness but still 

protect U.S. national security and foreign policy interests? Striking an appropriate balance remains a significant challenge for BIS 

and Commerce. 

The National Defense Authorization Act (NDAA) for FY 2000 

directed the inspectors general of Commerce, Defense, Energy, and 

State, in consultation with the directors of the Central Intelligence 

Agency and Federal Bureau of Investigation, to report to Congress each year through 2007 on the adequacy and effectiveness 

of existing export controls and whether they effectively prevent 

entities of concern from acquiring sensitive U.S. technologies. 

(The Office of Inspector General at the Department of Homeland 

March 2006/Semiannual Report to Congress 
Major Challenges for the Department 

Components of the high-tech Neutron Spin Echo Spectrometer at the NIST 

Center for Neutron Research in Gaithersburg, Maryland, are controlled for 

national security reasons, but they are tightly encased and could not be 

easily observed. 

Source:	nIST

Security also has participated since its establishment in 2003.) In 

addition, NDAA for FY 2001 required the inspectors general to 

report on the status or disposition of recommendations made in 

prior NDAA reports. 

China’s Military Plans Cause Concerns 

About Export Controls 

With six of the eight required reviews completed, Commerce 

OIG turned its attention to an area of immense concern to meet 

the NDAA’s FY 2006 requirement—evaluating the effectiveness 

of U.S. controls on exports of dual-use goods and technology to 

China.According to the former acting Under Secretary for Industry 

and Security, the security concerns the U.S. has about China stem 

from the risk of diverting sensitive dual-use items and technology 

to Chinese military programs as the country carries out its stated 

plan to modernize its conventional military forces. He further stated 

that the prospect of “immense potential benefits from expanding 

trade” heightens such concerns and intensifies the challenges to 

U.S. dual-use export controls, which were never intended to be 

connected to economic policy.

11 

Our 2006 review also assessed whether (1) the federal agencies 

that handle the dispute resolution process for review of license 

applications for exports to China coordinate effectively, (2) there 

is potential for diversion of sensitive commodities from Hong 

Kong to China, and (3) the end-use check program is effective. 

The 2006 review also examined what activities Commerce bureaus 

are engaged in pursuant to the 1979 U.S. and China Science and 

Technology Agreement and whether they are adhering to export 

control regulations. (See page 13.) 

Our review determined that the various federal export licensing 

agencies coordinate adequately during the dispute resolution 

process for China export license applications, but we identified a 

number of weaknesses in BIS’ administration of export controls 

involving that country. We recommended some actions we believe 

will address these weaknesses. The bureau generally agreed and 

outlined some of the work it already is doing to improve them. 

As part of our follow-up, we also examined the status of recommendations from our six prior reviews and determined that 24 

recommendations remain open, but BIS and other Commerce 

bureaus have made significant progress on a number of them since 

our March 2005 report. We will continue to monitor BIS’efforts to 

improve dual-use export controls in FY 2007, when we complete 

the last of these reviews. 

11 Testimony of former Acting Under Secretary for Industry and Security Peter 

Lichtenbaum at the U.S.-China Economic and Security Review Commission Hearing, June 23, 2005. Accessed April 4, 2006, at http://www.bis.doc.gov/news/2005/ 

USChinaReview.htm. 

 U.S. Department of Commerce/Office of Inspector General 
March 2006/Semiannual Report to Congress 13

NDAA Review Examines Controls Over Dual-Use 

Exports to China

To comply with the FY 2006 reporting requirement of the National Defense Authorization Act 

for FY 2000, the inspectors general from the departments of Commerce, Defense, Energy, 

Homeland Security, and State, and the Central Intelligence Agency agreed to conduct a 

review of U.S. export controls for China.12 The U.S. government has serious concerns 

about China’s record of proliferating weapons of mass destruction, the adequacy of its 

export control policies, and its efforts to obtain sensitive technologies to advance its 

military capabilities. In light of those issues, it is critical that the U.S. government 

implement effective controls over U.S. exports to China.

Within Commerce, we evaluated (1) BIS’ export control policies, practices, and 

procedures regarding China to determine if they are consistent with relevant 

laws and regulations; (2) coordination among federal agencies during the 

dispute resolution process for export license applications involving China; 

(3) the potential for diversion of sensitive commodities from Hong Kong to 

China; and (4) BIS’ end-use check program in China and Hong Kong. We 

also looked at what activities Commerce bureaus are engaged in pursuant to 

the 1979 U.S. and China Science and Technology Agreement and whether 

they are adhering to export control regulations.13 

Our review found that the coordination between the various federal export 

licensing agencies is adequate during the dispute resolution process for export 

license applications involving China. We identified some concerns related to 

U.S.-China export control activities in the areas of BIS regulations and policies, 

end-use check programs in China and Hong Kong, and efforts to ensure compliance with license conditions. We made nine recommendations to address the issues 

we identified.

We also reviewed the National Institute of Standards and Technology’s and the National 

Oceanic and Atmospheric Administration’s active protocols under the 1979 agreement and 

found that, overall, both appear to be complying with export control regulations.

Bureau Response

In its response to our report, BIS generally agreed with our recommendations and indicated it is taking steps to 

implement changes and make improvements in a number of areas. NOAA also agreed overall with OIG’s findings although 

the report contained no specific recommendations for NOAA. (Office of Inspections and Program Evaluations: IPE-17500)

12 Although not mandated by the NDAA for FY 2000, the Department of Homeland Security Office of Inspector General participated in this year’s review. 

13 The NDAA for FY 2003 [Public Law 106-398, Section 1207(d)(2)(F)] requires the Commerce Office of Inspector General to assess the extent to which programs and 

activities conducted under the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China on Cooperation in Science and Technology, signed in Washington, D.C., on January 31, 1979, as amended and extended are carried out in compliance with U.S. export control laws 

and regulations, especially those governing deemed exports. 

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.
Bureau of Industry and Security 

Cargo traffic crosses from Hong Kong into Shenzhen, China, at the Lok Ma Chau border control point. 

Source: OIG 

Export Control follow-up 

Review Identifies Remaining 

Open Recommendations 

The FY 2001 National Defense Authorization Act requires the 

Office of Inspector General to report annually to Congress on the 

status of export control recommendations made in prior-year OIG 

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

to 2000.14 A total of 24 recommendations, including 17 to BIS, 

remain open from all but the March 2000 report. This represents 

good progress by the Department. 

March 2005 

This review evaluated the U.S. export licensing process for 

chemical and biological commodities to determine whether current 

practices and procedures deter the proliferation of chemical and 

biological weapons. We looked at whether the process is timely, 

14 All recommendations from our March 2000 review, Improvements Are Needed 

in Programs Designed to Protect Against the Transfer of Sensitive Technologies to 

Countries of Concern (IPE-12454), have been addressed. Open recommendations 

remain in the following reports: March 2001, Management of the Commerce Control List and Related Processes Should Be Improved (IPE-13744); February 2002, 

BXA Needs to Strengthen its ECASS Modernization Efforts to Ensure Long-Term 

Success of the Project (IPE-14270); March 2002, Interagency Review of Federal 

Automated Export Licensing Systems (D-2002-074); March 2003, Improvements 

Are Needed to Better Enforce Dual-Use Export Control Laws (IPE-15155); March 

2004, Deemed Export Controls May Not Stop the Transfer of Sensitive Technology 

to Foreign Nationals in the U.S. (IPE-16176); March 2005, The Export Licensing 

Process for Chemical and Biological Commodities Is Generally Working Well, 

But Some Issues Need Resolution (IPE-16946). 

complies with statutory and regulatory requirements, and takes 

the cumulative effect of prior technology transfers into consideration. We also assessed whether the various agencies involved 

in the export license review process share data and information 

and whether the dispute resolution process between the agencies 

works. We reviewed BIS’ interactions with the Australia Group, 

and procedures for placing newly controlled items on the Commerce Control List (CCL). We made 11 recommendations to BIS 

and 5 remain open. Those open involve providing clear guidance 

and more information for licensing officers, developing a method 

to track the cumulative effect of dual-use exports, adding items to 

the CCL, requiring entities registered under other U.S. government 

agencies to comply with Export Administration Regulations, and 

doing more outreach to chemical exporters. 

March 2004 

This review looked at whether current deemed export control laws 

and regulations adequately protect against the transfer of controlled 

U.S. technologies to foreign nationals from countries and entities 

of concern while they are in the United States. We made a total of 

20 recommendations: 7 each to BIS and NIST, 5 to NOAA, and 

1 to the Office of the Secretary. These mainly pertained to recommended revisions in export control regulations and policies, as well 

as bureau compliance with licensing requirements. During this 

reporting period, two recommendations made to BIS were closed. 

After studying the country of birth recommendation concerning 

BIS’ deemed export licensing policy for certain foreign nationals, 

BIS decided not to adopt it and we agreed. We also closed our 

recommendation concerning BIS’deemed export-licensing policy 

for certain foreign nationals because it was no longer applicable. 

Additionally, partially as a result of OIG recommendations, BIS is 

14 U.S. Department of Commerce/Office of Inspector General 
formalizing a consultative process to review the deemed exports 

policy and the other open recommendations. 

NIST completed action on three recommendations during this 

reporting period. Neither NOAA nor the Office of the Secretary 

has completed action on the recommendations pertaining to them. 

However, both have made progress toward closure. 

March 2003 

This review made 55 recommendations to BIS and 4 to ITAregarding their efforts to enforce export control laws and regulations, 

including those involving investigative processes, interactions with 

other law enforcement agencies and the intelligence community, 

license determinations, monitoring of compliance with license 

conditions, outreach to U.S. exporters, and end-use checks. All 

but two BIS recommendations have been resolved. Those open 

deal with unfavorable pre-license check results and automating 

license determination referrals. All ITA recommendations have 

been resolved. 

february 2002 

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

modernizing its Export Control Automated Support System for 

Bureau of Industry and Security 

dual-use export licensing. Four of our 13 recommendations remain 

open. These involve identifying and securing adequate funding, 

determining system and security requirements, completing the 

target architecture, and selecting a location to house the system. 

March 2002 

In addition to the February report we issued on BIS, the interagency 

OIG review team issued a report that contained four recommendations for the bureau. One involving establishing a common repository for all unclassified licensing data records remains open. 

March 2001 

Two of 14 recommendations remain open from our review of 

BIS policies and procedures for designing and administering the 

Commerce Control List: work with the National Security Council 

to assess and possibly revise commodity classification guidance 

and procedures, and provide State with copies of the final determinations on commodity classifications that it reviews. (Office of 

Inspections and Program Evaluations: IPE-17935) 

March 2006/Semiannual Report to Congress 15 

March 2006/Semiannual Report to Congress 17

Audit Reveals Problems with Vermont 

Revolving Loan Fund

In 1978 a Vermont economic development council received a $720,000 revolving loan 

fund (RLF) grant to address long-term economic deterioration. No matching funds were 

required. In July 1999, EDA amended the grant and transferred the assets and administration of the RLF to a nonprofit development corporation. As of December 2004, 

the RLF had 15 loans outstanding, with principal balances totaling $274,911.

We audited the RLF records covering 2002 through 2004. We found that the 

corporation had failed to comply with a number of grant requirements.

Conflicts of Interest

As fund administrator, the corporation extended a $10,000 line of credit 

to the RLF’s executive director. EDA regulations and award terms and 

conditions strictly prohibit loans to program employees and officials. 

Corporation officials did not agree that the loan violated EDA conflict of 

interest rules, noting that the executive director is not an employee but is 

under contract to the RLF program to provide part-time services as needed. 

Employee or not, his position as executive director and his membership 

on the corporation’s governing board preclude him from benefiting from 

the RLF program.

Also during the audit period, a company owned by the executive director 

charged $1,200 to the RLF for his services to the program, and a firm owned 

by the fund’s president charged more than $24,000 for secretarial services and 

office space. The corporation did not have written contracts supporting the services, 

but did have a written agreement for the office space. In all three cases, however, 

it lacked the required written approvals from EDA allowing these arrangements and 

certifying that the benefits to RLF officials were inconsequential. 

Excess Cash Reserves and Administrative Noncompliance

We found the corporation, as fund administrator, had excess cash reserves in each of the 3 years covered 

by our audit: more than $94,000 in 2004 and $149,000 for calendar years 2002 and 2003. The corporation sometimes extended loans without requiring borrowers to complete formal loan applications and failed to comply with numerous 

EDA and federal reporting requirements. For example, it did not require formal loan applications in all cases, adequately document loan 

packages in RLF files, prepare annual plan certifications, obtain required annual (“single”) audits of RLF funds, or submit semiannual 

reports on time, if at all. 

Economic

Development 

Administration

The Economic 

Development 

Administration

was established by the Public 

Works and Economic Development 

Act (PWEDA) of 1965 to generate 

new jobs, help retain existing jobs, and 

stimulate private investment in economically 

distressed regions of the United States. EDA 

continues to fulfill this mission under the authority of PWEDA, as amended by the Economic 

Development Reauthorization Act of 2004. Based 

on local and regional comprehensive economic 

development 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 longterm economic deterioration and sudden and 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, planning, training 

and research, and economic adjustment 

assistance.
Economic Development Administration 

Recommendations 

We recommended that EDA require the grant administrator to (1) 

deposit $94,013 into a separate interest-bearing account and remit 

any unused excess funds remaining in the account after 6 months 

to the U.S. Treasury; (2) provide written documentation that the 

RLF line of credit extended to the executive director has been 

terminated and the loan repaid in full; (3) obtain EDA approval of 

all related party contracts or repay the RLF for expenses charged 

under those agreements; (4) ensure all RLF loans have formal 

written loan applications including appropriate supporting documents and complete files; (5) obtain single audits as required by 

OMB CircularA-133; and (6) correct other administrative findings. 

(Atlanta Regional Office of Audits: ATL-17285) 

Pennsylvania RLfs Had $4 

Million in Excess Cash 

Between August 1982 and January 1994, EDA awarded three 

grants to the Commonwealth of Pennsylvania to establish revolving loan funds that would address actual or threatened economic 

dislocations and promote business development throughout the 

state. Grant amounts ranged from $1 million to $2.5 million and 

required equal match amounts from the Commonwealth. 

EDA amended all three RLF 

grants in 1997 to name the 

state’s economic development 

department as the grantee, 

and again in early 2005 to 

relax lending requirements and 

Source: http://www.pachamber.org/ba/ 

expand the pool of targeted images/dced-global.gif 

beneficiaries and businesses 

eligible for loans. As of June 

2005, the RLFs had a combined total of 26 outstanding loans with 

principal balances totaling $1.3 million. 

We conducted a financial and compliance audit of the three RLFs 

to determine their financial status including fund balance, capital 

utilization, matching funds, program income, and loan collections. 

We also assessed whether the grantee had complied with applicable federal laws and regulations and RLF terms and conditions, 

charged allowable administrative costs, and had achieved RLF 

performance goals. 

Huge Cash Balances and Little Loan 

Activity 

For the 3 years covered by our audit (July 2002 through June 2005), 

each RLF carried excess cash reserves that had grown to a total of 

$4 million—well in excess of the 25 percent maximum allowed 

by EDA regulations. During the same period, the funds generated only five new loans. In response to this finding, the grantee 

reported that EDA has since allowed it to combine the three RLFs 

and that as of March 2006, it had approved 23 new loans totaling 

$3.8 million, which reduced cash on hand to less than $200,000. 

EDA, however, said the funds must be maintained and reported 

separately and the grantee did not document the new loans or the 

RLF against which they were made. 

We recommended that EDA direct the Commonwealth to deposit 

$4,002,983 into a separate interest-bearing account and remit 

the interest to the U.S. Treasury; use its cash reserves within 6 

months to make direct loans or loan guaranties; and return any 

unused funds remaining after 6 months to the federal government. 

Implementing this recommendation will put more than $2 million 

in federal funds to better use. 

Noncompliance with RLf Administrative 

Requirements 

Our audit also disclosed that the Commonwealth consistently failed 

to comply with numerous federal and EDAgrant requirements over 

the past 3 years: it did not submit three of six semiannual reports, 

submitted the remaining three late, did not subject the RLFs to 

single audits or annually certify that the loan programs are operating in accordance with grant terms and conditions. The grantee 

could not document its handling of three defaulted loans nor the 

number of jobs saved and created as a result of four active loans. 

We did, however, find that the grantee had exceeded its goals for 

leveraging private investment for each fund by 100 percent. 

To correct the administrative deficiencies noted, we recommended 

that EDA direct the Commonwealth to submit timely semiannual 

reports and annual plan certifications as required; document its 

efforts to collect the three defaulted loans; and include the RLFs 

in the Commonwealth’s single audit report. (Atlanta Regional 

Office of Audits: ATL-17545) 

18 U.S. Department of Commerce/Office of Inspector General 
March 2006/Semiannual Report to Congress 19

2006 Site Test Produces Mixed Results

Handheld Computer Technology, Training Among 

Problem Areas Noted

The Census Bureau tested another critical component of its reengineered decennial strategy 

for the 2010 decennial during this past semiannual period—automated address canvassing—in two locations: a portion of Travis County, Texas, which included parts of the city 

of Austin and its suburbs, and the Cheyenne River Reservation and Off-Reservation 

Trust Land in South Dakota. 

Address canvassing is designed to keep the bureau’s address file and digital map 

database current and complete. The operation involves sending temporary staff 

(called “listers”) equipped with handheld computers into the field to verify, update, add, or remove addresses; add and delete streets to correct computer maps; 

and annotate address locations on the maps. The information collected during 

canvassing has a direct bearing on the bureau’s ability to accurately count the 

population. Census planned to use lessons learned from the 2006 test to gage 

the feasibility and cost of automating the operation, evaluate its impact on data 

quality, and refine requirements of the Field Data Collection Automation (FDCA) 

contract before awarding it in March 2006.

A multidisciplinary team from our offices of Audits, Inspections and Program Evaluations, and Systems Evaluation reviewed selected aspects of the address canvassing 

operation. We assessed the functionality of the handheld computers and associated 

systems involved in automating the operation, methods for correcting the address lists 

and maps, quality control processes, outreach activities, and various management, administrative, and logistical issues. 

We concluded that the bureau only partially achieved its test objectives while missing valuable learning opportunities that might have enhanced preparations for and execution of the 2010 

decennial. We also noted that several operational weaknesses we had identified in the 2004 test15 were 

problems in the address canvassing effort as well.

Unreliable Handheld Computers

Census had great difficulty developing the handheld computer software for address canvassing. It could not complete software testing 

in time to keep to the original canvassing schedule, so it delayed the operation by 1 month to continue pursuing improvements, but still 

could not eliminate several serious problems. Bureau officials decided to proceed with canvassing to learn as much as possible about using the handheld units. As in the 2004 test of automated nonresponse follow-up, the handheld computers suffered from frequent crashes, 

data loss, slow performance, and other problems. Because of inadequate software development, the handheld units lacked some key 

capabilities—for example, maps on the devices could not be updated to add missing streets, an important function in a rapidly growing 

15 U.S. Department of Commerce Office of Inspector General, September 2004. Improving Our Measure of America: What the 2004 Census Test Can Teach Us in Planning for the 2010 Decennial Census, Report No. OIG-16949. Washington, D.C.: Commerce OIG.

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.

Economics 

and Statistics 

Administration
Economics and Statistics Administration 

area such as Travis County. And last minute changes to the units 

rendered some of the training material out of date, which added 

to the listers’ difficulties using the units. As a result, neither test 

site reached its production numbers and canvassing was extended 

an additional 10 days in an attempt to make the address list as 

complete as possible for subsequent 2006 test operations. 

GPs Problems 

The global positioning system functions for collecting address 

coordinates worked only intermittently and were often slow to 

activate. The bureau’s preliminary test results suggest that the 

coordinate collection software on the handheld units may have 

incorrectly calculated address coordinates. This problem, in conjunction with the unreliability of the handhelds, diminishes what 

the bureau can learn from the test. GPS functionality needs to be 

fixed and tested under real operating conditions before the 2010 

decennial to see whether it meets performance and procedural 

requirements. 

Uncertain Contract Requirements 

Amajor purpose of the 2006 site test was to firm up FDCArequirements for producing the handheld computers. As part of the source 

selection process, contractors built prototypes that have basic 

address canvassing capabilities and delivered them to Census in 

December 2005. Bureau officials believe that requiring prototypes 

as part of the contract award process increases the likelihood of 

having a working system in place by the start of the dress rehearsal 

for address canvassing, which begins in April 2007. The chosen 

contractor will have to make needed changes to the prototype in 

the year between contract award (March 2006) and the kickoff of 

dress rehearsal a year later. 

The FDCA contract was awarded on March 30, before bureau 

officials had established a process for transferring relevant 2006 

test information to the contract or identifying needed changes 

to the contract resulting from the test. Thus, the opportunity for 

competitively negotiating the cost of changes to address canvassing 

requirements prior to contract award has passed. 

Map Errors and Inadequate Canvassing 

Procedures 

Inaccuracies in the handheld computer maps, such as nonexistent 

or misplaced roads, caused problems in 9 of the 44 canvassing 

efforts we observed: listers in these instances spent excessive time 

trying to locate their routes and often did not fully canvass their 

assignment area, may have missed housing units, and failed to 

correct maps. Ambiguous and incomplete procedures for updating 

maps as well as complex block configurations further compromised 

listers’ ability to revise address lists. 

In this square-mile block in South Dakota (outlined), several 

roads shown on the map did not exist. 

Source: American FactFinder 

test site Limitations 

The bureau’s evaluations of the 2000 decennial suggest that tens 

of millions of dollars could potentially be saved by increasing 

the number of questionnaires provided through routine mail delivery rather than hand delivery. The evaluations recommended 

researching the expansion of post office delivery of questionnaires, 

especially outside cities in the Southeast and Midwest and in entire 

states such as Iowa, Wisconsin, Michigan, Ohio, North Carolina, 

and Virginia. Because it may not be feasible for the same area to 

have both hand delivery and postal service delivery, Census needs 

to determine which addresses are sufficiently clustered to shift 

bureau delivery of questionnaires to postal service delivery. The 

impact of such shifts should be tested in the 2008 dress rehearsal 

to make sure that postal delivery systems and procedures do not 

inadvertently contribute to the undercount (by missing people who 

had received hand-delivered questionnaires) or the overcount (by 

delivering to the same address more than once). 

20 U.S. Department of Commerce/Office of Inspector General 
Weaknesses in Quality Control, training, 

and Administrative Policies 

Quality control. Census tested a new quality control process designed to update the address list more quickly. In the past, address 

deletions and house number changes were verified after address 

canvassing concluded. In the 2006 test, verification occurred as 

part of the canvassing operation—as soon as an individual assignment area was canvassed, quality control listers using handheld 

computers verified the data collected. Despite technical difficulties 

with the handheld units, the new procedure worked. But weaknesses in lister training and management reporting, as well as the 

bureau’s failure to analyze quality control data during the operation, undercut the overall success of the process. 

Training methodology and guidance. We noted a number of 

other training-related issues, such as the following: (1) the bureau 

used its traditional training approach for temporary staff, in which 

an instructor reads the training manual word-for-word to trainees. 

Past evaluations found problems with this approach and suggested 

enhancements to better prepare decennial workers to do their jobs. 

(2) Census gave no guidance on how the test sites could compress 

the 35-hour daytime training into night classes that encompassed 

fewer hours. (3) Less than 5 percent (10 of 216) of listers were 

assigned to training classes taught by their crew leaders in Travis 

County. Listers who were not taught by their own crew leader 

oftentimes had trouble starting fieldwork because their leader was 

teaching another class and had not organized team assignments. 

Some Census blocks sprawled across multiple physical streets 

and landscapes. 

Source: American FactFinder 

Administrative policies. The overtime policy as implemented in 

the 2006 test was unclear and may have hampered the effectiveness 

of the operation. The policy for cell phone reimbursement made it 

difficult for staff to fully recoup the cost of work-related calls. As 

in the 2004 test, field supervisors often used more minutes than 

were eligible for reimbursement. 

Economics and Statistics Administration 

Inadequate focus on Outreach 

The partnership program—a public awareness effort between Census and public and private organizations—is a key component of 

outreach for the decennial. In Census 2000 the bureau hired some 

690 “partnership specialists,” who worked with more than 140,000 

organizations to increase participation among hard-to-reach 

groups. Census spent $142.9 million on the program (2 percent of 

the total cost of the 2000 decennial)16 and expects to implement a 

similar program for the 2010 decennial. But Census has yet to assess new methods for increasing response amongAmerican Indians 

and other hard-to-enumerate populations, even though the 2006 

test sites contained such groups. It also has not identified ways to 

collect quantifiable data for evaluating the success of its outreach 

efforts and lacks a fully functional database containing historical 

and logistical details about Census partners—an important resource 

for partnership specialists looking to develop new or reestablish 

old relationships for publicizing the 2010 decennial. 

Unclear Rationale for 100 Percent 

Canvassing 

Problems with the address canvassing operation also raise questions about the merits of the bureau’s plan to canvass all housing 

units—an estimated 115 million addresses—in 2010 to update 

the master address file. Census originally intended to target selected areas for canvassing but abandoned this strategy with little 

explanation. Canvassing the entire nation will increase life-cycle 

costs of the decennial by an estimated $38 million as compared 

to Census’s original plan for 2010.17 Census needs to analyze the 

costs and benefits of 100 percent canvassing and consider whether 

alternative, less costly strategies are feasible for developing the 

address list for the 2010 decennial. 

Missed Opportunities for Improving 2010 

Operations 

The bureau only partially achieved its 2006 test objectives for 

address canvassing: it gained only limited information about 

automation and related decennial procedures, which diminished 

the value of the test as a tool for enhancing 2010 operations. We 

believe the bureau could have earned a better return on its investment in the test if the handheld computers had been more reliable 

and if it had evaluated other aspects of address canvassing, such as 

options for reducing hand delivery of questionnaires, quantifying 

the impact of its partnership efforts, or improving approaches to 

16 Costs are from October 1997 through September 2000, with $65.1 million spent 

on salaries and benefits and the remainder for nonpayroll expenditures such as 

travel, training, supplies, and postage. From Review of Partnership Program 

Highlights Best Practices for Future Operations, GAO-01-579, August 2001. 

17 Teresa Angueira, March 1, 2004. “Estimated Life Cycle Costs for the Reengineered 2010 Census of Population and Housing,” 2010 Census Planning Memoranda Series No. 27. Washington, D.C.: U.S. Census Bureau. 

March 2006/Semiannual Report to Congress 21 
Economics and Statistics Administration 

training. In addition, the bureau should have collected relevant cost 

and benefit data and considered other alternatives to 100 percent 

address canvassing. 

Bureau Response 

Census officials concurred with some of our findings and recommendations, but strongly disagreed with others. In particular, the 

bureau disagreed that the unreliable handheld computers interfered 

with the test—maintaining that the 2006 test was intended to assess 

the feasibility of the concept of automated address canvassing and 

that reaching certain production numbers and receiving updates 

for all aspects of address canvassing were not the real objective. 

Census officials also disagreed with our findings that valuable 

learning opportunities were missed during the address canvassing operation and that an analysis of the costs and benefits of 100 

percent address canvassing is needed. In some cases, Census asked 

that we add more context to sections of our report to provide a 

broader picture of the situation for those not familiar with the 

matters discussed. 

We stand by our finding that the unreliable handheld computers 

interfered with the 2006 address canvassing operation and consequently diminished what the bureau could learn from the test. The 

Census 2006 Test Project Management Plan described research 

questions that, if answered, would provide essential information 

for 2010 census planning—including the degree to which automation reduces the time required to collect and process the address 

canvassing data. The poorly performing handheld units prevented 

the bureau from answering these questions. 

With regard to 100 percent canvassing, we believe the bureau 

has an obligation to identify the most cost-effective method for 

maintaining an address list of requisite quality to support the 2010 

decennial goals for accuracy and cost containment. We therefore 

reiterate the need for thorough analysis of its decision to canvass 

the entire nation. (Offices of Audits, Inspections and Program 

Evaluations, and Systems Evaluation: OIG 17524) 

Audits Unresolved for More 

than 6 Months 

Its services, Inc. 

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

under a Virginia IT services contract were audited to determine 

whether the costs billed by the firm were reasonable, allowable, and 

allocable under contract terms and conditions and federal regulations. We found that the firm had failed to comply with numerous 

contract and federal requirements, and we questioned more than 

$8.5 million in direct labor and reimbursable costs. 

Computer & High tech 

Management, Inc. 

We reported in our September 2005 Semiannual Report (page 14) 

the results of audits of 2 of the 21 task orders for another Virginia 

firm providing IT services to Census. We sought to determine 

whether the firm had complied with contract terms and conditions 

and federal regulations and had billed Census for work performed 

in accordance with specifications of the task order. We found that 

the firm failed to comply with numerous contract and federal requirements, which caused us to question more than $10.7 million 

in direct labor and other reimbursable costs. 

We have suspended audit resolution on both of these contract 

audits pursuant to an agreement with Census. 

22 U.S. Department of Commerce/Office of Inspector General 
March 2006/Semiannual Report to Congress 23

CS China Post Presents Challenges, 

Opportunities for Commerce

Over the last decade, China has rocketed to the status of third largest trading nation in 

the world and is the United States’ fifth largest export market. China’s average growth 

rate has been 10 percent since 1993, and the country’s economic and geopolitical 

importance has increased dramatically. Although U.S. exports to China totaled 

only $41.8 billion in 2005, Chinese imports to the United States exceeded 

$243.5 billion,18 resulting in a U.S. trade deficit with China of approximately 

$201.6 billion. Both the U.S. government and business sectors have great 

concerns about this trade deficit, as well as China’s intellectual property 

rights enforcement, currency valuation, technical barriers to trade, marketplace inequities, restrictions on trading and distribution rights, and 

closed regulatory environment.

The Department of Commerce has a major presence in China, with 

staff from three of its bureaus assigned to that country. The U.S. 

Commercial Service (CS), which is responsible for providing export 

assistance to U.S. firms and protecting U.S. business interests, has 

its largest operation in China, with offices in Beijing, Shanghai, 

Guangzhou, Chengdu, and 

Shenyang. The post employs 17 

officers and 89 local staff, and 

its budget in fiscal year 2005 was 

approximately $8.5 million.

We conducted an on-site inspection of CS’ China post in September 

2005, focusing primarily on the 

post’s management, program operations, and financial and administrative practices. During our inspection, we also met with representatives of 

other Commerce organizations in China, including officers representing 

the Bureau of Industry and Security, Market Access and Compliance, Import 

Administration, and the U.S. Patent and Trademark Office. In addition, we 

spoke with other U.S. embassy officials, U.S. companies doing business in China, 

and nongovernmental business organizations that are among Commercial Service’s 

trading partners in China. 

Overall, we found 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, the Department, and other government agencies. However, we also identified a number of issues, 

challenges, and opportunities that warrant the attention of senior CS and departmental managers.

18 U.S. Census Bureau, Trade in Goods (Imports, Exports and Trade Balance) with China, see www.census.gov/foreign-trade/balance/c5700.html, accessed February 

13, 2006.

International Trade

Administration

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, and participates 

in trade negotiations. 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. 

Manufacturing and Services undertakes industry trade 

analysis, shapes U.S. trade policy, participates in trade 

negotiations, organizes trade capacity building programs, 

and evaluates the impact of domestic and international 

economic and regulatory policies on U.S. manufacturers 

and service industries.

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 medium-sized businesses market 

their goods and services abroad. It 

has 108 domestic offices and 

146 overseas posts in 80 

countries.

Source: Commercial Service
International Trade Administration 

Commerce’s China Mission faces 

Unique Management Challenges and 

Opportunities 

Commerce must be able to depend on a seamless team effort from 

its staff in China and its various headquarters units that deal with 

China-related issues. Policy disagreements, confusing lines of 

authority, logistics issues, and conflicting objectives can hinder 

the effectiveness of Commerce’s efforts in China, especially as 

the Department’s presence in China and the post’s extremely 

high workload and stream of visitors increase. To deal with this 

challenge, we recommended the Department develop appropriate management lines of authority to ensure that Commerce 

organizations cooperate effectively. We also recommended that 

Commerce bureaus with positions in China develop effective 

human resource strategies that forecast future staffing needs and 

provide a continuous supply of qualified officers with adequate 

China-specific expertise. 

the American trading Center Program Is 

New and Largely Untested 

CS is implementing its American Trading Center (ATC) initiative 

in 14 major commercial centers throughout China in order to provide CS products and services in these cities, which do not have 

CS offices. The ATC program was developed in partnership with 

the American Chamber of Commerce in Beijing and the Chinese 

Council for the Promotion of International Trade, a state-sanctioned Chinese trade organization. At the time of our inspection, 

the Shanghai consular district had made the most progress on 

this initiative. Several of the other offices were not yet ready to 

provide services to American companies, and work remains to be 

done to build the program. We recommended CS complete the 

program’s implementation in the Beijing, Chengdu, Shenyang, and 

Guangzhou consular districts, following the successful model of 

Shanghai.Additionally, in the Shanghai and Guangzhou offices, CS 

needs to clearly define the role of all staff that support CS China’s 

trade show initiative, an effort associated with the ATC program. 

We also recommended CS develop Chinese-language marketing 

materials for the ATC program and establish clear procedures to 

process refunds for unsatisfied ATC customers. 

CS also should closely monitor the efforts of the Chinese Council, 

its primary partner for the ATC program, to ensure that the local 

subcouncils provide quality services to U.S. companies, because 

promoting U.S. imports is not one of that organization’s main 

objectives. CS should also make sure that U.S. companies using 

ATC services have realistic expectations of what the service can 

achieve and are given the opportunity to use CS’ export counseling services. 

China is CS’ largest post, with offices in Beijing, Shanghai, Guangzhou, 

Chengdu, and Shenyang. The post employs 17 officers and 89 local 

staff, and its budget in FY 2005 was approximately $8.5 million. 

Source: http://www.export.gov/china/contactusmap.asp 

Cs should Evaluate the future of the 

Commercial Center Program 

The commercial center in Shanghai opened in July 1996 and was 

one of four commercial centers created under the Jobs Through 

Exports Act of 1992.19 The centers were intended to promote public-private cooperation on trade promotion and create synergies 

by collocating CS personnel with federal, state, and private sector 

trade partners in the centers. The Shanghai Commercial Center 

has six trade partners collocated in its facilities—three states, one 

city, and two trade associations. We found that CS Shanghai is not 

working closely with most of its collocated partners and has not 

integrated them into the post’s operations. CS has closed two of the 

original four centers, and the Shanghai center is expected to close 

when the CS office moves into a new U.S. consulate compound 

in approximately 3 years. We recommended that CS management 

determine a long-term strategy for the entire commercial center 

program and improve cooperation with its current commercial 

center partners. 

Cs’ Unsupported Performance Results 

Reporting Is a Recurring Problem 

CS’ primary performance goal is to “expand [the] U.S. exporter 

base.” Measuring progress toward that goal relies on verified 

numbers of export transactions facilitated by CS among new and 

existing U.S. exporters. We found CS China, with the exception 

of its Shanghai office, has few verification procedures in place 

19 15 USC § 4723a. 

24 U.S. Department of Commerce/Office of Inspector General 
International Trade Administration 

to support its claimed performance results, which show dramatic 

yearly increases. Our analysis of 126 export success stories for 

CS China revealed approximately 44 percent were not adequately 

supported by written documentation. Documentation and success 

story verification issues are not new. This is a recurring problem 

OIG has noted in its last three CS overseas post inspections—CS 

Turkey,

20 CS Greece,21 and CS India22

—and its review of the Pacific 

Northwest export assistance center network.23 

Before performance statistics are presented to Congress and OMB, 

CS must confirm they are reliable and meet the reporting guidelines 

outlined in the CS Operations Manual. However, the guidelines in 

the manual are not specific enough to provide adequate guidance 

on maintaining supporting documentation of the export success 

stories prepared by CS trade specialists. We recommended CS 

revise the CS Operations Manual to present clear and precise 

requirements for written documentation and verification of each 

element of an export success, including written verification from 

the client confirming CS assistance, and the reported benefit to the 

exporter, the date of the success, and any reported dollar value, 

and inform all staff of the changes. We also recommended that 

CS enhance the first- and second-level review process for export 

successes and require each individual and office receiving credit 

for one to maintain documentation supporting the claim of valueadded assistance. 

Cs Products and services satisfy Most 

Clients 

CS has multiple products and services to help U.S. exporters reach 

the global market, including customized services and market 

research, trade events, international partner matching, and oneon-one counseling. During fiscal years 2004 and 2005, CS China 

provided clients more than 600 products and services. We reviewed 

customer satisfaction surveys for its products and services, and 

CS China’s market research reports and marketing materials 

used to reach prospective U.S. exporters to China and expand its 

potential client base. We found these efforts are satisfying most 

of CS’ clients, but CS should continue to monitor the quality of 

its products and services. 

20 U.S. Department of Commerce Office of Inspector General, March 2003. The 

Commercial Service Needs to Improve Management of its Operations in Turkey, 

IPE-15370. Washington, D.C.: Commerce OIG. 

21 U.S. Department of Commerce Office of Inspector General, September 2003. 

Generally Sound Operations at Commercial Service Greece Are Compromised by 

Key Weaknesses, IPE-15804. Washington D.C.: Commerce OIG 

22 U.S. Department of Commerce Office of Inspector General, September 2004. 

Commercial Service India: Challenges Remain for Management of a Large and 

Economically Diverse Post, IPE-16808. Washington, D.C.: Commerce OIG. 

23 U.S. Department of Commerce Office of Inspector General, March 2004. 

Pacific Northwest USEAC Network Generally Operates Well, but Export Success Reports Need More Management Scrutiny, IPE-16507. Washington D.C.: 

Commerce OIG. 

Commerce Must Address Language and 

Communications Issues in China 

CS China’s success largely relies on its human resource capabilities 

and its ability to effectively utilize those resources and adequately 

plan for the future of Commerce operations in China. Adequate 

language training for Commerce’s foreign service officers and its 

foreign service national employees is critical to effective communication at the post and with U.S. exporters. The complex nature 

of business in China also requires that CS staff have in-depth 

knowledge of industry sectors, as well as standards and intellectual 

property rights, in order to effectively serve U.S. exporters. We 

recommended CS provide extended Mandarin language training 

to CS officers prior to their arrival at the post and provide time 

for in-country language training. CS also should offer regularly 

scheduled training in English writing, industry sectors, and U.S. 

business practices to the foreign national staff to improve customer 

service. 

Growing Number of Visitors Is a Major 

Challenge 

In 2005, CS China cohosted 219 major events, including more 

than 50 trade missions. CS officers and staff are nearly always 

required to provide logistical support for these events, which distracts from CS’ core products and services. CS does a tremendous 

job of accommodating its visitors and organizing events while still 

accomplishing its core export-promotion mission. But CS should 

make several improvements to help the post manage visitors and 

events more efficiently, such as evaluating its logistical support 

for major events and visits to ensure the most efficient use of resources, and recovering all costs it incurs in supporting certified 

trade missions. 

Cs China should Use the Established 

Hiring Process for temporary Workers 

CS China, particularly in Beijing and Guangzhou, frequently 

uses temporary workers to help with the post’s special events, 

such as single company promotions and trade delegations. These 

workers typically work for a short period of time—a few days to 

a few weeks—and perform such tasks as recruiting attendees, issuing invitations, setting up appointments, arranging receptions, 

and managing RSVP lists. In some cases, temporary workers 

are used to update CS’ databases and assist permanent staff with 

general administrative support. The process now used to employ 

temporary workers is problematic because proper security and 

human resources procedures are generally not being followed. 

We recommended CS China use the established hiring process, in 

particular the Personal Services Agreement-Temporary authority, 

for hiring temporary workers to better protect both CS and the 

temporary employees. 

March 2006/Semiannual Report to Congress 25 
International Trade Administration 

financial and Administrative Management 

of the Post Is Generally sound but Could 

Be Improved 

CS China’s financial and administrative operations are generally 

managed well, but there are several areas where management and 

oversight should be improved. The staff has done a good job of 

keeping up with the increasing workload. In addition, CS China 

hired an administrative manager in Beijing in July 2005 who is 

improving coordination and management of financial and administrative activities at all CS China posts. However, CS does not 

always follow proper procedures for petty cash and collections, 

and CS officers do not always properly authorize all critical financial and administrative documents. We also found that the post’s 

inventory records were not adequately managed and reconciled, 

and few people use the commercial libraries in Shanghai and 

Guangzhou. We recommended CS require the post to follow petty 

cash and collection procedures prescribed in the CS Operations 

Manual or obtain written policies from the Embassy Management 

Section on local policies and guidance for collections to support 

why it cannot send currency to ITA’s lockbox. In addition, it should 

ensure officers sign and date all documents in accordance with 

policies and procedures, and update inventory records. We also 

recommended CS evaluate the costs and benefits of maintaining 

commercial libraries in CS Shanghai and CS Guangzhou, and if 

the costs are not justified, close them. 

Response from the secretary and 

ItA 

In his response to our report, the Secretary of Commerce addressed 

the need to improve coordination and cooperation between the various Commerce bureaus with operations in China, stating that he 

has asked the Deputy Secretary to chair a quarterly meeting of the 

Department’s principal officials who have staff in that country. 

In response to our draft report and in subsequent communications, 

ITAindicated that it concurred with most of our recommendations 

and discussed numerous actions it has taken or plans to take to 

address our concerns. On the issue of performance reporting, ITA 

stated that Commercial Service will be revising its verification 

procedures in the CS Operations Manual and has reiterated to its 

staff the importance of maintaining adequate Client Management 

System records and other documents that substantiate CS services 

provided. Specifically, CS outlined four methods of verification 

for export successes and eliminated an element of confusion introduced by the April 2005 guidance, which stated that “the primary 

record is the export success itself.” ITA stated subsequently that 

CS’ export successes will have to be substantiated by one of the 

four verification methods, including client confirmation. If one of 

the options cannot be satisfied, ITAnoted, the reviewing supervisor 

may not approve a draft export success report. ITA also stated that 

CS intends to create standard operating procedures concerning 

export success writing, the linkage between service provided and 

the benefit to the exporter, and other issues. ITA’s response to the 

draft report further stated that CS will make changes to the export 

success reporting form and take steps to clarify its export success guidelines at upcoming conferences with senior commercial 

officers. ITA anticipates that changes to the form will reinforce 

export success record-keeping requirements and integrate them 

with other verification elements. ITA and CS’ planned actions 

should adequately address our concerns. 

USPTO also commented on our draft report, stating that it would 

provide intellectual property rights training for CS officers and 

staff. (Office of Inspections and Program Evaluations: IPE17546) 

26 U.S. Department of Commerce/Office of Inspector General 
March 2006/Semiannual Report to Congress 27

Audits Unresolved for More Than 6 Months

Value of MBDA Performance Measures Is 

Undermined by Inappropriate Combining of 

Program Results and Unreliable Performance 

Data from MBOC Program

We audited four of MBDA’s seven FY 2004 performance measures (see September 

2005 Semiannual Report, page 17). We recommended that the MBDA director take 

concrete steps to ensure that the agency define and report its results clearly and 

accurately, by using unambiguous definitions of terms, by not combining results 

from different programs, and by having minority business operating committees 

document their performance claims. We also recommended that MBDA regional 

offices and headquarters implement effective verification monitoring and oversight 

to ensure the reliability of performance results. 

The agency agreed with all but one of our recommendations—the OIG position that 

in the case of multiple-year awards, MBDA should not claim in its performance results 

the value of option years in the year of the initial contract award. We have reaffirmed 

our recommendation and are currently reviewing MBDA’s revised audit action plan.

minority business 

development agency

The Minority Business Development Agency was created to 

help minority-owned and operated businesses achieve effective and 

equal participation in the American 

free enterprise system, and overcome 

the social and economic disadvantages 

that have limited their participation in 

the past. MBDA provides management 

and technical assistance to minority 

firms upon request, primarily through a 

network of business development centers. It also promotes and coordinates 

the efforts of other federal agencies 

in assisting or providing market 

opportunities for minority businesses.

March 2006/Semiannual Report to Congress 29

Follow-up Audit Recommends Further 

Management Enhancements for NOAA 

User Fees

Each year, NOAA collects millions of dollars from the sale of special products 

and services to businesses and the public. During fiscal year 2004, for example, the agency sold $23.1 million worth of goods and services, such 

as permits, aerial photographs, ocean records, hydrographic surveys, 

and access to computer databases or files. OMB Circular A-25, User 

Charges, requires agencies to charge fees that cover their costs of 

providing the good or service, review and revise those fees as 

necessary, and implement strong internal controls to carefully 

manage this revenue. 

In March 2000, we audited NOAA’s handling of user fees and 

identified a number of weaknesses in its related internal controls.24 We revisited this issue during this semiannual period 

to see whether NOAA had implemented the recommendations 

we made in our 2000 audit report.

Poor Record Keeping, Fee Review Noted 

in 2000 Audit

We found in our 2000 review that NOAA did not maintain accurate, complete information about the user fees it collected. The 

agency also did not enforce its policies for periodically evaluating 

these fees and did not randomly audit fees to ensure they fully cover 

costs. We recommended that NOAA require its line offices to annually 

submit a list of products and services they sell, the corresponding unit 

prices, and date of last price review. We also recommended that NOAA 

conduct random audits of these prices and associated cost computation 

information to ensure they are accurate and result in full cost recovery, and 

that the agency document this review, as required by OMB. 

Latest Audit Finds Progress but Room for Improvement 

In our follow-up audit, we found that NOAA has implemented our recommendations, but in two 

areas has not been stringent enough to optimize internal controls: 

Conducting audits. NOAA began conducting random audits in fiscal year 2001 and has repeated them every 2 years since. But its FY 

2005 audit did not look at charges for two programs that accounted for $19.5 million, or 84 percent, of its FY 2004 user fee income: 

Seafood Inspections ($15.9 million, or 69 percent) and Sablefish Individual Fishing Quotas (IFQ) ($3.6 million, or 15 percent). The 

24 U.S. Department of Commerce Office of Inspector General, March 2000. Internal Controls Over User Fees Need Improvement, STD-11881. Washington, D.C.: Commerce OIG.

National Oceanic

and Atmospheric

Administration

The National 

Oceanic and Atmospheric Administration

studies climate and global change, 

ensures the protection of coastal oceans 

and the management of marine resources, provides weather services, and manages worldwide 

environmental data. NOAA does this through the 

following organizations:

National Weather Service reports the weather of the 

United States and provides weather forecasts and warnings 

to the general public.

National Ocean Service issues nautical charts, performs 

geodetic surveys, conducts research, and develops policies on 

ocean mining and energy.

National Marine Fisheries Service conducts a program of 

management, research, and services related to the protection and 

rational use of living marine resources.

National Environmental Satellite, Data, and Information 

Service observes the environment by operating a national 

satellite system.

Office of Oceanic and Atmospheric Research conducts 

research related to the oceans and Great Lakes, 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 

intent of our recommendation was to ensure that NOAA verified—through adequate audit coverage—the consistency of its user 

fees and their compliance with federal policy and legislation. But 

by omitting the sources that account for almost the entire user fee 

income, the agency can hardly be sure that these fees are either 

consistent or compliant. NOAA finance officials told us they use 

statistical sampling to select the user fee documentation they audit 

and that forms for these two programs have not yet been included 

in their selections. We believe the Finance Office should modify its 

sampling methodology to ensure it draws from both programs. The 

results of its audits would then be more meaningful and provide 

greater assurance that user fees are consistent and comply with 

federal policy and legislation. 

Documenting cost computation reviews. NOAA has taken several steps to document cost computation reviews that budget and 

line office personnel perform. In August 2000, it issued revised 

user fee policies and procedures directing its offices to document 

their final review of unit prices charged for individual products 

and services, and to include in the documentation a brief summary 

that describes the scope and results of the review along with any 

issues that have or need to be resolved. In May 2001, the Finance 

Fishing charts, nautical charts, and underwater surveys are among the 

products NOAA sells to recreational and commercial seafarers. 

Sources: 

Nautical chart: chartmaker.ncd.noaa.gov/staff/Mtsgeneral.ppt, accessed April 12, 

Fishing chart: http://www.oceangrafix.com/images/fullsize.jpg 

Multibeam sonar survey image: http://www.ngdc.noaa.gov/mgg/image/nos3d.jpg 

Office issued a revised Product/Service Cost Computation form 

that makes documentation easier: it provides space in the line management and budget office review section to document the price 

review and summarize the scope, results, and issues resolved. Line 

offices were directed to use the form and NOAA placed an electronic version online to make it easily available to all employees. 

In our follow-up audit, we noted that NOAA has been enforcing 

compliance with its revised procedures and checking the forms to 

see whether they contain the required review documentation. 

But even this improved oversight has not enhanced reporting by 

NMFS—the line office that collects user fees for the Seafood Inspection Program. During fiscal year 2004 NMFS did not provide 

the summary on the cost computation form. And the forms were 

not signed and dated by either the preparer’s supervisor or the 

NMFS budget office reviewer, as is required. 

NOAA should shore up these internal control weaknesses by 

(1) requiring the Finance Office to modify its random audit sampling methodology to include the Seafood Inspection and Sablefish 

IFQ programs, (2) instructing NMFS budget officials to withhold 

approval of user fees for any special product or service that lacks 

a documented review summary on the standard Product/Service 

Cost Computation form or approved alternate form, and (3) ensuring NMFS Cost Computation forms or alternatives are signed and 

dated by both the preparer’s supervisor and appropriate reviewing 

official. (Office of Audits, Business and Science Division: BSD17612) 

salmon Recovery fund Audit 

Recommends Washington 

tribe Return More than 

$500,000 

In 2004 the Office of Inspector General launched a series of audits 

of projects operating under the Pacific Coastal Salmon Recovery 

Fund. This multimillion dollar fund provides federal grants to 

Alaska, California, Idaho, Oregon, and Washington and their 

resident Native American tribes to recover populations of wild 

salmon. Established by Congress and administered by the National 

Oceanic and Atmospheric Administration, the program supports 

habitat restoration, research, recovery planning, and enhancement 

projects for endangered and threatened salmon species. 

In September 2004, we reported the results of our first two audits 

of projects operated by member tribes of a Washington state Native American commission that received a 5-year, $27.34 million 

recovery fund award to finance salmon projects. The commission 

allotted equal, no-match subgrants (roughly $1.3 million) to each 

of its 20 member tribes. In our March and September 2005 semi30 U.S. Department of Commerce/Office of Inspector General 

2006 
North fork of the Skokomish River below Cushman Dam. 

Source: http://wa.water.usgs.gov/realtime/gage_photos.html, accessed April 12, 2006. 

annual reports (pages 27 and 24, respectively), we detailed audits 

of projects operated by six additional tribes. 

During this semiannual period, we completed an audit of a tribal 

subgrant that is funding projects to restore salmon habitat and 

promote recovery of several species throughout the Skokomish 

River Basin—once one of the largest and most productive salmon 

habitats in the northwest. One key strategy in the tribe’s plan is to 

restore a large tract of wetlands bordering the Skokomish River 

to natural salmon habitat. Though the tribe’s award has expired, 

tribal officials have said they will continue to work with its project partners (cities, counties, other tribes, state agencies, private 

parties, and regional fisheries enhancement groups) to implement 

the salmon recovery plan. 

Inadequate financial systems Prompt 

Questioned Costs 

We found that, in general, the tribe’s work during the 5 years of 

the subgrant (2000-2005) complied with NOAA grant objectives 

and the intent of the Pacific Coastal Salmon Recovery Program. 

But the tribe failed to administer the subgrant in accordance with 

federal cost principles and uniform administrative requirements. 

For example, its financial management system could not produce 

current, accurate financial data for the project’s first 3 years or 

reconcile costs charged to the subgrant. The tribe only invoiced 

the commission six times in 5 years, often for time frames that did 

not match the periods of performance. These and other financial 

reporting deficiencies caused us to question a total of $559,900, 

consisting of $369,789 in personnel expenses, $81,684 in fringe 

National Oceanic and Atmospheric Administration 

benefits, and $108,427 in related indirect costs. 

Our audit also revealed that the tribe 

did not conduct periodic inventories of 

personal property acquired with award 

funds, which we estimated to be worth 

more than $14,000. It had not submitted four of six performance reports and 

was late with the remaining two. And 

finally, its system for handling procurements did not meet minimum federal 

requirements: the tribe did not have a 

procurement policy or manual detailing 

required standards governing purchases, 

maintained incomplete and poorly 

documented acquisition files and histories, and did not sufficiently administer 

contracts to ensure contractors complied 

with all terms and conditions. 

We recommended that NOAA recover 

the questioned $559,900 and direct the 

commission to ensure the tribe improves its financial and other 

management systems and complies with reporting requirements. 

(Seattle Regional Office of Audits: STL-16657) 

Biologists “walk the stream” to survey both the number and types of 

spawning salmon in the tributaries of the Skokomish River in Washington 

state. 

Source: OIG 

March 2006/Semiannual Report to Congress 31 

March 2006/Semiannual Report to Congress 33

Audit of Mississippi Educational TV Grant 

Recommends Recovering $1.3 Million

An educational television authority in the state of Mississippi received a $1.8 million Public 

Telecommunications Facilities Program grant to convert five public television stations 

from analog to digital technology in 2001. The grant required a matching share of 

$2.7 million and covered the purchase of transmitters, antennas, feed line, and encoding, monitoring, and routing equipment. 

NTIA amended the grant in April 2003, increasing the federal share to 

$2.9 million, and the authority’s match to $4.3 million, bringing total project 

costs to $7.2 million. The project was completed under budget in December 

2004, with $454,232 in federal funds remaining. NTIA amended the grant again 

after Hurricane Katrina, allowing the grantee to use the remaining funds for 

repairing hurricane damage, with a completion date of June 30, 2006.

We audited grant activity that occurred between October 2001 and December 

2004 to determine whether the recipient had claimed allowable costs, met performance goals, and complied with 

applicable federal laws and regulations, and grant terms and conditions. 

Total costs claimed for the period were 

$6,096,403.

We questioned $3,346,957 in costs resulting 

from unapproved contract change orders that 

each exceeded $100,000 and therefore required 

NTIA concurrence; and another $144,066 for work not 

documented as occurring within the grant period. Though 

the grantee took exception to these findings, it could not produce 

evidence to refute them. 

Our audit also noted one minor instance of noncompliance with NTIA requirements for 

labeling equipment and found that the recipient did not consistently file performance 

reports within required time frames. The grantee produced evidence that the equipment 

in question was in fact properly labeled and stated its intent to file progress reports on 

time. 

We recommended that the NTIA grants officer disallow $3,346,957 in questioned costs, 

recover the federal share of $1,327,739, and ensure performance reports are filed on time. 

(Atlanta Regional Office of Audits: ATL-17529)

Grant funds were used to purchase and 

install the top-mounted DTV antenna 

on this 1,000-foot tower in Greenwood, 

Mississippi. The tower itself was erected 

years earlier to broadcast analog TV and 

radio signals. 

Source: OIG

National

TELECOMMUNICATIONS

AND INFORMATION 

Administration

The National 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, phone, and other telecommunications services; and educates state and local 

governments and other entities on ways 

to use information technology and telecommunications more effectively.

March 2006/Semiannual Report to Congress 35

Audit Seeks Return of Nonproject Personnel 

Costs

In April 2004, NIST awarded a 3-year ATP cooperative agreement to a Maryland 

company to develop video compression technology for recording high-definition content on standard DVDs. Total estimated costs of the project are nearly 

$2.8 million. The federal government’s share is capped at $1,656,466, or 

81.4 percent of allowable direct costs. The company received reimbursement of $310,117 for direct costs claimed during the project’s first 7 

months (May through December 2004). 

Our interim financial audit questioned $51,644 in claimed salary and 

fringe benefits that were either for hours not allocable to the ATP 

project; spent on indirect project tasks, such as general and administrative activities; or otherwise improperly charged. We also questioned $194 in costs incurred prior to the project’s initiation. 

In addition, we found that the recipient’s financial and property 

management systems did not comply with federal regulations for 

maintaining written procedures, tracking purchases, and taking 

inventory of equipment purchased with federal dollars. 

We recommended that NIST disallow $51,838 in questioned costs, 

recover excess federal disbursements of $29,409, and ensure the 

recipient, among other things, (1) implements an adequate method 

for capturing time directly spent on the ATP project, (2) bills only for 

that time, (3) develops written financial management procedures, and 

(4) tracks and inventories grant-funded purchases as required by federal 

regulations and ATP program terms. (Denver Regional Office of Audits: 

DEN-17410)

Audit Shows New Mexico Company 

Should Return More Than $16,000

We audited costs claimed by a New Mexico startup 

firm that received a 3-year ATP award to develop optical technology for fabricating low-cost fiber network components and subsystems. 

Total estimated costs of the project were $1,994,346, to be fully paid by 

the government.

The project ran from October 2001 through September 2004, during which time the company received federal reimbursement for the 

entire award amount. We questioned $21,255 of costs claimed for salaries, fringe benefits (including relocation costs for a new employee), 

travel, supplies, and other expenses that were unsupported or otherwise unallowable under ATP terms and conditions.

Technology 

Administration

The Technology Administration serves the needs of 

technology-based 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 in partnership with 

the private sector to develop and advocate national policies and initiatives that use technology to build America’s 

economic strength, promote the creation of high-wage jobs, 

and bring about improvements in our quality of life. 

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, the Baldrige National 

Quality Program, and NIST Research Laboratories.

National Technical Information Service is a self-supporting agency that promotes the nation’s economic 

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

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

and through information and production 

services to federal agencies.
Technology Administration 

We also found the recipient did not tag equipment purchased 

with project funds and that its financial management system, 

though generally adequate, did not meet federal requirements for 

the following reasons: the company lacked written standards of 

employee conduct and written procedures for (1) minimizing the 

time between receipt and disbursement of federal funds; (2) determining whether costs are reasonable, allowable, and allocable to 

the project; and (3) handling purchases made with federal funds. 

Without such procedures, the government cannot ensure the recipient has effective control over program-related funds, property, 

and other assets. 

We recommended that NIST disallow $21,255 in questioned costs, 

recover $16,414 in excess federal funds disbursed, and direct the 

firm to develop the required written procedures and tag equipment purchased with project funds to indicate federal ownership. 

(Denver Regional Office of Audits: DEN-17496) 

NIST’s Advanced Technology Program 

As part of its efforts to spur technological development, NIST administers the Advanced Technology 

Program (ATP) to provide financial assistance through 

cooperative agreements, with the goal of transferring 

cutting-edge technology to industrial uses. Between 

1990 and September 2004, ATP awarded $2.3 billion* 

in funding to companies to develop promising, high-risk 

technologies. Industry has matched this funding with 

$2.1 billion in cost-sharing. 

Source: *http://www.atp.nist.gov/factsheets/3-a-1.pdf, accessed April 17, 

2006 

Audits Unresolved for More 

than 6 Months 

Massachusetts MEP 

We are continuing to work with NIST officials toward resolution of an MEP cooperative agreement, which we reported on 

in our September 2004 Semiannual Report (page 37) 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. In its audit 

resolution proposal, NIST disallowed $715,097 and reinstated 

$7,462,509 in costs questioned in the audit report. In July 2004, 

after detailed analyses of NIST’s audit resolution proposal and 

other documents provided by NIST and the recipient, we advised 

NIST that we concurred with its decision to disallow $715,097, 

but did not concur with reinstatement of the remaining $7,462,509. 

OIG is reviewing a revised audit resolution proposal that NIST 

submitted in June 2005. 

Computer Aided surgery Inc., New 

york 

An OIG audit of this NIST cooperative agreement (see September 

2004 issue, page 35, and March 2005 issue, page 33—ATL-16095) 

questioned costs totaling $547,426 in inappropriately charged rent, 

utilities, and certain salary, fringe benefit, and other expenses, 

because these costs were unallowable, in excess of budgetary 

limits, or incorrectly categorized. This audit remains unresolved 

because we have postponed NIST’s submission of an audit resolution proposal. 

36 U.S. Department of Commerce/Office of Inspector General 
March 2006/Semiannual Report to Congress 37

Auditor Gives Financial Statements a Clean 

Opinion

Independent auditor KPMG rendered an unqualified opinion on USPTO’s FY 2005 financial 

statements, finding them fairly presented, free of material weaknesses, and in compliance 

with all applicable laws and regulations. KPMG reported that USPTO continues to 

maintain a sound internal control structure that enables the agency to prepare reliable 

financial and performance information.

As part of the financial statement audit, KPMG assessed information technology 

general controls for USPTO systems used to process and maintain key financial 

data against criteria in GAO’s Federal Information System Controls Audit Manual

(FISCAM). Weaknesses were identified in the areas of entity-wide security program 

planning and management, access controls, application software development 

and change control, and service continuity. The auditor also found that USPTO 

had resolved three of six outstanding problems identified in the FY 2004 financial 

statements audit. (Financial Statements and Accountability Audits: FSD-17434-1 

and -2)

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

March 2006/Semiannual Report to Congress 39

OIG Finds Serious Deficiencies in Commerce’s 

Management of the Federal Employees’ 

Compensation Act Program

The Federal Employees’ Compensation Act (FECA) pays medical and salary benefits 

for federal civilian employees, temporary employees, and some contractors and 

volunteers who suffer job-related injuries or illnesses that prevent them from 

working. In fiscal year 2005, federal agencies spent more than $2.3 billion in 

salaries and medical bills for employees hurt on the job—up 10 percent from 5 

years ago—and lost roughly 2 million production days.25 Efforts in the federal 

IG community to resolve concerns regarding the government-wide FECA 

program are discussed on page 47 of this report.

The Department of Labor administers the FECA program government-wide—

determining eligibility and distributing benefits—but individual agencies bear 

the costs for their workers’ compensation recipients and are responsible for 

supplying Labor with pertinent details about claims, monitoring the status of 

their claimants, and bringing employees back to work as soon as possible. Labor 

bills agencies for reimbursement annually via “charge-back” reports that cover 

benefits disbursed over a 12-month period (July 1 through June 30). The basic 

rate of compensation for injured employees with no dependents is 66.67 percent 

of gross wages and 75 percent for those with dependents. 

For the period July 1, 2004, through June 30, 2005, Commerce paid more than 

$14.4 million in workers’ compensation benefits and had roughly 1,275 employees on 

the rolls. Combined FECA costs for Census and NOAA ($5.59 million and $5.45 million, 

respectively) generated about 76 percent of the Department’s total.

Commerce’s Office of Human Resources Management (OHRM) and its Office of Occupational Safety 

and Health (“workers’ compensation office”) administer the program for all bureaus except USPTO.26 Since 

October 2002, a contractor has managed a portion of the FECA workload, and at the time of our review handled approximately 686 short-term claims and 74 long-term claims. The workers’ comp office is responsible for taking all appropriate steps to obtain 

benefits for eligible employees and their survivors, and for working closely with beneficiaries, bureau personnel, and Labor to monitor 

cases and return employees to work.27 These activities impact Labor’s decisions on claims, distribution of funds, and ultimately, the 

Department’s annual FECA bill. 

Our review considered, among other things, how well Commerce (1) minimizes FECA costs by bringing claimants back to work as soon 

as possible, (2) verifies the accuracy of benefit payments charged by Labor, (3) oversees its workers’ compensation contractor, and (4) 

coordinates its safety and workers’ compensation programs to eliminate workplace conditions that contribute to costly injuries. 

25 http://www.federaltimes.com/index2.php?S=1174163, accessed April 7, 2006.

26 Since March 2000, USPTO has managed its own workers’ compensation personnel and duties under authority of the 1999 American Inventors Protection Act.

27 Department Administrative Order (DAO) 202-810, Workers’ Compensation for Federal Employees, November 24, 2004.

Source: OIG

Department-Wide

Management

The United 

States Department of Commerce 

creates the conditions for economic growth and opportunity by 

promoting innovation, entrepreneurship, 

competitiveness, and stewardship. The 

Department has three strategic goals: 

Goal 1: Provide the information and tools to 

maximize U.S. competitiveness. 

Goal 2: Foster science and technological 

leadership by protecting intellectual property, 

enhancing technical standards, and advancing 

measurement science. 

Goal 3: Observe, protect, and manage the 

Earth’s resources to promote environmental 

stewardship. 

The Department has also established a 

Management Integration Goal that is 

equally important to all bureaus: 

Achieve organizational and 

management excellence.
Department-wide Management 

Source: OIG 

Our findings 

Commerce’s Management of the fECA 

Program Has Been Inadequate 

Our review of 231 workers’compensation cases revealed that both 

OHRM and its workers’ comp office have not actively managed 

the program during at least the past 3 years, and even longer for 

some cases. These offices failed to challenge questionable charges, 

adequately track cases, or refer instances of possible FECA fraud 

or misconduct to our office. Neither Commerce nor its workers’ 

compensation contractor has routinely pursued claims involving 

third party liability. OHRM has not given adequate guidance or 

comprehensive training to bureau supervisors to help them handle 

employee claims, and the Department has no program that focuses 

on returning claimants to work. 

Much of the poor oversight we noted was rooted in the program’s 

organizational structure and staff resources. From 2002 through 

August 2005, only one employee oversaw the Department’s contractor and related caseload while handling several hundred cases 

directly—including hundreds of long-term claims. (Commerce 

only transferred a portion of the long-term claims to the contractor in April 2004.) This employee was responsible for maintaining Department records, serving as a resource to departmental 

supervisors and employees, and monitoring and evaluating the 

contractor’s performance. Frequent changes in top leadership 

at the Office of Occupational Safety and Health (the workers’ 

compensation specialist had six different supervisors in 5 years) 

further diminished OHRM’s ability to manage the FECA program 

in the Department’s best interest. 

Instead, OHRM has relied on the Department of Labor and a contractor to oversee cases and make long-term financial decisions on 

departmental claims. It has not adequately monitored the contractor, maintained proper files, or implemented internal controls. As a 

result, we identified instances in which Commerce had continued 

making payments to claimants who had been certified as able to 

work, made substantial overpayments to some recipients, and 

continued issuing payments to several claimants who had died. 

40 U.S. Department of Commerce/Office of Inspector General 
Department-wide Management 

Bureaus’ Attention to Workers’ Comp 

Program Has Been Equally Deficient 

Department Administrative Order 202-810 assigns specific FECA 

oversight responsibilities to the individual bureaus, in support of 

OHRM. But five Commerce bureaus that together account for 89 

percent of the Department’s 2005 workers’ compensation costs, 

have relied on the workers’ compensation office to manage their 

cases, believing this office had total responsibility for doing so. 

Many bureaus also failed to routinely monitor charge-back reports 

they received from the workers’ comp office and the Labor Department, even though these reports are a key tool for analyzing 

and minimizing FECA costs. As a result, we found instances in 

which claimants were able to work, but remained on the rolls unnecessarily for years. 

We discovered that even our own office had failed to manage 

several workers’ compensation cases adequately. 

Other bureau-related management and operational problems we 

identified include the following: 

Census. Census hires nearly 1 million temporary employees to 

conduct the decennial census each decade. Though these workers 

are Commerce employees for a limited time only, they are eligible 

for workers’compensation benefits if injured while on the job until 

they can return to work. Our review identified 44 active claims 

from the 1990 decennial and 183 from the 2000 decennial. Census 

and OHRM need to develop a proactive plan for managing future 

decennial claims and bringing eligible long-term claimants from 

previous decennials back to work on 2010 decennial activities 

or sooner. 

USPTO. The United States Patent and Trademark Office has 

independently processed and managed its workers’ compensation claims since it became a performance-based organization 

in March 2000. We found that USPTO’s case management is 

inconsistent and the agency needs policies, guidance, and training 

for supervisors and a detailed performance plan for its workers’ 

compensation specialist. 

the Department’s fECA Contractor Has a 

Record of strong Performance 

We evaluated the contractor’s performance in meeting 10 of 11 

contract deliverables and found that it had met expectations in 

all but 1 area. The contractor has instituted sound operating procedures and has capable, well-trained staff handling Commerce 

FECA claims. However, the workers’ comp office did little to 

monitor the contractor’s performance until we brought this issue 

to management’s attention during our review. 

In addition, we believe OHRM needs to modify the 2002 contract 

to include required metrics for evaluating the contractor’s performance and clarify a 2004 amendment related to the long-term 

cases maintained by the contractor. 

Department Response 

Commerce’s Chief Financial Officer and Assistant Secretary for 

Administration stated that the Department has taken a number of 

actions since November 2005 to improve management of the FECA 

program. It now provides training to departmental personnel who 

oversee the program, is developing a FECA handbook for supervisors, identifies claims that may involve third party responsibility, 

is seeking ways to return employees to work as soon as possible, 

and has strengthened its interaction with the Labor Department. 

The Census Bureau concurred with the recommendations specific 

to its FECA caseload, but reiterated the position that Commerce 

bureaus have a limited role in managing these cases and that the 

Department is largely responsible for handling them. 

USPTO generally agreed with our findings specific to its FECA 

program, accepted our recommendations, and listed a number of 

actions it is taking to strengthen program management. (Office of 

Inspections and Program Evaluations: IPE-17536) 

Comprehensive Review 

shows Commerce Has Made 

Progress Implementing GPRA 

The 1993 Government Performance and Results Act (GPRA) was 

intended to improve the effectiveness, efficiency, and accountability of federal programs. Reporting valid, accurate information 

is key to that goal, and we have been tracking the Department’s 

efforts to capture and report reliable performance data since Commerce first began implementing GPRAin 1997. In March 1999, we 

identified GPRA implementation as a top management challenge 

for Commerce, and the issue has been on the list of management 

challenges ever since. 

The Department has worked diligently to improve the validity of performance results reported by all of its bureaus over the past 7 years. 

In 2005 we determined the issue deserved a thorough review to see 

whether GPRAstill represents a major challenge for Commerce. We 

initiated a comprehensive audit to summarize the results of audit 

reports and other OIG work and assess the status of the Department’s 

efforts to report useful, reliable performance results. 

Eight Reviews in 4 years 

From September 2000 to September 2004, OIG issued eight separate audit reports covering six bureaus’ efforts to report accurate 

March 2006/Semiannual Report to Congress 41 
Department-wide Management 

and reliable performance information in accordance with GPRA. 

The audits covered a total of 45 performance measures reported 

by the Bureau of Industry and Security, the Census Bureau, the 

National Telecommunications and InformationAdministration, the 

National Institute of Standards and Technology, the U.S. Patent 

and Trademark Office, and the National Oceanic andAtmospheric 

Administration. In addition, for this comprehensive audit, we 

included International Trade Administration performance measurement data reviewed by our Office of Inspections and Program 

Evaluations. 

Recurring Problems Have Been Corrected 

Our earlier audits had uncovered repeated instances of ambiguous 

measures that either did not establish clear links between the activity being measured and the agency’s actions or were stated in terms 

that did not appropriately represent performance results. We found 

cases of inadequate disclosure in which language accompanying 

performance data was insufficient to place performance results in 

an appropriate context. And we identified inadequate management 

controls and procedures for verifying performance information. 

Our comprehensive audit found the Department and its bureaus 

have improved both the utility and integrity of performance information by 

•	 Eliminating or rewording performance measures that either 

did not demonstrate a clear link between the activity being 

measured and the agency’s actions or did not clearly demonstrate what was being measured. For example, of the 26 

performance measures identified as unclear during our eight 

earlier audits, 9 (35 percent) have been discontinued and 10 

(38 percent) have been revised or reworded. 

•	 Improving explanations of performance measures, results, 

and data limitations in Performance and Accountability 

Reports and Annual Performance Plans submitted by the 

Department to satisfy GPRA requirements. 

•	 Instituting quarterly performance reviews during which 

bureau heads and the Deputy Secretary meet to discuss 

performance targets and accomplishments. 

•	 Validating and verifying the performance measure data 

provided by the bureaus quarterly. 

In addition, explanations of how performance measures are verified have been improved in GPRA documents. For example, bureaus have clarified their methods for verifying performance data 

in Annual Performance Plans. Several bureaus have improved 

management controls to ensure the reliability of performance data, 

including documenting verification procedures and establishing 

requirements for maintaining support documentation. The DepartAUDIT REPORTS ISSUED ON GPRA 

Bureau of Export Administration, Final Audit Report 

No. FSD-12847, September 2000 

National Telecommunications and Information 

Administration, Final Audit Report No. FSD-12856, 

September 2000 

U.S. Patent and Trademark Office, Final Audit Report No. FSD-14429, March 2002 

National Institute of Standards and Technology, Final 

Audit Report No. FSD-14430, March 2002 

National Oceanic and Atmospheric Administration, 

Final Audit Report No. FSD-14998, February 2003 

National Oceanic and Atmospheric Administration, 

Final Audit Report No. FSD-15643, September 2003 

U.S. Census Bureau, Final Audit Report No. FSD15990, March 2004 

National Oceanic and Atmospheric Administration 

Audit Report No. FSD-15989, September 2004 

Minority Business Development Agency, Final Audit 

Report No. 17252, September 2005 (This audit was 

not included in the scope of the comprehensive audit because it was outside the defined time frame.) 

ment also now rigorously reviews performance information with 

bureau managers quarterly. 

GPRA Implementation Removed from List 

of top Management Challenges 

We are encouraged by these improvements and have determined 

that Commerce and its bureaus have collectively taken sufficient 

steps to warrant the removal of GPRA implementation from the 

list of Top 10 Management Challenges facing the Department. We 

caution that, despite Commerce’s significant progress in this area, 

management attention to performance reporting remains imperative, particularly as the Department continues to move toward 

reporting more outcome-oriented accomplishments. 

There are still many areas where the Department and its bureaus 

can work to enhance the quality of performance information. To 

42 U.S. Department of Commerce/Office of Inspector General 
that end, we recommend the Department and its bureaus use easily understandable language in measures; have strong, effective 

management controls over collection and reporting to ensure the 

integrity of performance data; and continue to discuss data reliability at quarterly performance reviews. 

Department Response 

The Department’s chief financial officer concurred with our 

recommendations and noted that Commerce managers intend to 

work with the bureaus to implement internal controls that ensure 

the integrity of performance data in a manner that provides for 

suitable degrees of consistency and flexibility within each bureau, 

recognizing the wide variation of programs and measures. (Office 

of Audits: FSD-17444) 

Department’s fy 2005 

Consolidated financial 

statements: 

Commerce Maintains Clean 

Opinion, But Audit finds Control 

and Noncompliance Issues 

The Department received an unqualified opinion on its consolidated statements for FY 2005, but the independent auditors 

(KPMG) identified two reportable conditions and one instance of 

noncompliance with the Anti-Deficiency Act. 

Reportable Conditions 

Information technology Controls 

Effective general IT controls provide assurance that data used to 

prepare and report financial information is complete, reliable, and 

uncompromised. Maintaining such controls has been an ongoing 

challenge for Commerce since 1998. During FY 2005, Commerce 

took several positive steps to improve internal controls and address 

previously noted weaknesses. The Department continued to focus 

on improving the information security management and technical control process, and published a major revision of its security 

program policy and implementation standards. 

Despite these improvements, the auditors again identified weaknesses in all six general IT control areas outlined GAO’s Federal 

Information System Controls Audit Manual—entity-wide security, 

access controls, application software development and change 

control, system software, segregation of duties, and service 

continuity. Together these weaknesses constitute a reportable 

condition. As part of the FY 2005 evaluation under the Federal 

Department-wide Management 

Managers Financial Integrity Act, Commerce determined (and 

OIG confirmed) that a material weakness related to IT information 

security still exists. 

Accounting for NIst Construction in 

Progress 

During the FY 2005 audit, NIST notified the auditors that its 

construction work-in-progress account was overstated by approximately $127 million against the actual value of active projects. 

NIST arranged for independent consultants to analyze the account in order to calculate and propose an appropriate adjusting 

entry. KPMG, as part of its audit procedures, reviewed the work 

performed by the consultants, made additional revisions to their 

proposed adjusting entry, and issued recommendations to NIST 

addressing controls on management and reporting of construction 

work-in-progress costs. 

Noncompliance with Anti-Deficiency Act 

NOAA. We reported in last year’s audit that two reimbursable 

agreements NOAAhad entered into with nonprofit entities contained 

indemnification clauses. These proved to be in violation of theAntiDeficiency Act because they constituted open-ended obligations 

of government funds. The Department reported these violations to 

Congress, the President, and the Comptroller General. 

Prompted by these findings, NOAA reviewed 2,130 other agreements during this past fiscal year and identified 80 that contained 

indemnification clauses or provisions involving questionable liability. The Department’s Office of General Counsel determined that 

these agreements also constituted violations of theAnti-Deficiency 

Act. They were submitted to OMB for review and referral to the 

President. Once OMB has notified the President, Commerce will 

report the violations to Congress and the Comptroller General as 

required by 31 USC § 1517(b). 

Economics and Statistics Administration. Also during FY 

2005, the Economics and Statistics Administration identified 

a 1-year agreement it had entered into with a foreign government that contained an indemnification clause. As a result of 

this discovery, ESA conducted an investigation and located six 

prior 1-year agreements with the same government containing 

the same clause. The Department’s Office of General Counsel is 

reviewing the agreements to determine whether they violate the 

Anti-Deficiency Act. 

Additional Reporting Requirements 

In addition to the FY 2005 consolidated audit, KPMG audited 

Commerce’s closing package financial statement reports and accompanying notes (i.e., “special purpose” financial statements), 

March 2006/Semiannual Report to Congress 43 
Department-wide Management 

and assessed the Department’s compliance with financial reporting 

requirements stipulated the by Treasury Financial Manual. The 

auditors rendered an unqualified opinion on the special purpose 

statements and found no material weaknesses in internal control 

over financial reporting and no compliance matters. 

KPMG also performed procedures over intragovernmental balances reported in the Department’s financial statements, identifying differences in balances reported by Commerce and the 

Governmentwide Financial Reporting System. The Department 

attributed the differences in some cases to its shifting of amounts 

into categories required by Treasury, and in other cases, to omissions in that system or in the records of agencies with which it 

did business. (Financial Statements and Accountability Audits: 

FSD-17433-1, -2, -3, -4) 

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 any negative financial or investigative history on 

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 80 proposed awards. For 8 of the 

awards, we found major deficiencies that could affect the ability of 

the prospective recipients to maintain proper control over federal 

funds. On the basis of the information we provided, the Department delayed 3 awards and established special award conditions 

for 5 awards. (Office of Audits) 

PREAWARD sCREENING REsULts 

Award 

Results Number Amount 

Awards delayed to resolve concerns 3 $558,005

Special award conditions established 5 $7,583,712

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 137 audit reports during this semiannual period to 

determine whether they contained any audit findings related to 

Department programs. For 99 of these reports the Department acts 

as oversight agency and monitors the audited entity’s compliance 

with OMB Circular A-133 or NIST’s program-specific reporting 

requirements. The other 38 reports are from entities for which other 

federal agencies have oversight responsibility. We identified 17 

reports with findings related to the Department of Commerce. 

ATP

Report Category

OMB 

A-133 

Audits 

ProgramSpecific

Audits Total 

Pending (October 1, 2005) 10 79 89 

Received 91 108 199 

Examined 68 69 137 

Pending (March 31, 2006) 33 118 151 

The following table shows a breakdown, by bureau, of the $179 

44 U.S. Department of Commerce/Office of Inspector General 
Department-wide Management 

million in Commerce funds audited. 

Bureau Funds 

EDA $27,224,217 

NIST* 86,627,493 

NOAA 11,944,561 

NTIA 822,746 

Multiagency 49,770,733 

Agency not identified 2,675,870 

Total $179,065,620 

* Includes $81,220,475 in ATP program-specific audits. 

We identified a total of $1,933,802 in federal questioned costs 

and $697,108 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 17 reports 

with Commerce findings are listed in Appendix B-1. (Atlanta and 

Denver Regional Offices of Audits) 

March 2006/Semiannual Report to Congress 45 

March 2006/Semiannual Report to Congress 47

Symposium Held to Coordinate IG Community’s 

Oversight of FECA Program

On March 22, Commerce Inspector General Johnnie E. Frazier and Department of Labor Inspector General Gordon S. Heddell hosted a half-day symposium on work being done by 

federal inspectors general (IGs) on the Federal Employees’ Compensation Act program. 

Titled “Building a Coordinated Approach to the IG Community’s FECA-Related Work,” 

the symposium drew about 150 auditors, inspectors, evaluators, and investigators from 

inspector general offices across the government and featured speakers from Labor’s 

Office of Workers’ Compensation Programs (OWCP) and Office of Inspector General, 

and the Commerce OIG. 

Shelby Hallmark, director of OWCP, and Stephanie Semmer, chief of OWCP’s Branch 

of Technical Assistance, talked about the office’s efforts to better manage FECA cases 

and return people to work, proposed FECA reform legislation, and the roles and responsibilities of both OWCP and employing agencies in containing FECA costs.

Elliot P. Lewis, assistant inspector general for audit at the Department of Labor, outlined 

a proposed protocol to encourage a coordinated approach to conducting FECA-related 

work and to promote collaboration among the various federal offices of inspector general. 

The idea stemmed from ongoing FECA program work by the Federal IG Investigators 

Forum and current or proposed audit and inspection work by IGs from Commerce, Interior, 

the Social Security Administration, 

Veterans Affairs, and the U.S. Postal 

Service. Commerce OIG recently released a 

comprehensive report that detailed serious management deficiencies in the agency’s FECA program. 

(See page 39.) 

The proposed protocol sets up a clearinghouse review process in which the Federal 

Audit Executive Council’s audit committee would review potential OIG audits 

and evaluations of the FECA program that may be crosscutting or that could result 

in recommendations to officials outside the employing agency, such as OWCP. 

The protocol outlines suggested roles and responsibilities for OIGs, the type of 

FECA program data currently available to federal agencies, OWCP’s rules and 

process for releasing FECA program data to outside agencies, and procedures 

for how OIGs can request information. When finalized, the protocol will apply 

to all OIG FECA-related work beginning in July 2006.

During his opening remarks, Frazier said he had initially been somewhat skeptical about pursuing work on the FECA program, but he now has no doubt that 

it is a real problem at the Department of Commerce as well as at other federal 

agencies. He said Commerce staff did not effectively manage the program and 

that supervisors did not understand their responsibilities. “There is plenty of 

blame to go around, (but) there are also solutions,” Frazier said. He added that 

before IGs conclude that problems in the FECA program are the fault of Labor’s 

OWCP, they should first look at how the program operates in their agencies and 

their own offices.

Department of Commerce Inspector General 

Johnnie E. Frazier delivered opening and closing 

remarks at the March 22 symposium on the Federal 

Employees’ Compensation Act (FECA) program, 

which is commonly called “Workers’ Comp.” 

Source: OIG

The 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
Office of Inspector General 

Office of Investigations 

Our investigative work during this semiannual period focused on 

three major areas that continually make up the greatest part of our 

caseload: fraud and corruption involving contractors, grantees, and 

other parties outside the Department; employee fraud, corruption, 

and misconduct; and criminal misuse of government computer 

resources. The investigations highlighted below are representative 

of the results achieved during the past 6 months in these areas of 

critical concern. 

Contractor, Grantee, and Other 

External fraud and Corruption 

Preventing and detecting fraud and abuse in agency programs and 

operations is a key component of the inspector general mission. 

Commerce awards millions of dollars each year in federal contracts, grants, and cooperative agreements to organizations across 

the country. With so much at stake, investigating and prosecuting 

fraud by contractors and grantees is and always has been a high 

priority for the Office of Investigations. In recent years, we have 

also seen a notable increase in cases involving other forms of 

external corruption that negatively impact the Department. Our 

success in these areas during this semiannual period includes 

the bribery conviction of a subcontractor on a federally funded 

construction project and the indictment of a major participant in 

an international telemarketing scheme. 

subcontractor on EDA Project Convicted 

of Bribery 

In our September 2005 Semiannual Report (page 43), we reported 

that bribery charges had been filed against a construction company 

and its owner in connection with an extortion scheme executed 

by a Philadelphia city official. The official was accepting bribes 

in exchange for issuing minority business certificates for use in 

obtaining contracts on city construction projects. A joint investigation conducted by the FBI, IRS, and inspectors general of the 

departments of Commerce, Labor, and Transportation disclosed 

that the company used a certificate provided by the official to 

qualify for subcontract work on various construction projects, 

including an EDA-funded public works project administered by 

the city’s mass transit agency. On October 15, 2005, under the 

terms of a plea agreement, the owner of the construction company 

was convicted in U.S. District Court for the Eastern District of 

Pennsylvania on one count of bribery and one count of submitting a false tax return. Sentencing was scheduled for May 2006. 

(Alexandria Resident Office) 

Attorney Indicted in telemarketing fraud 

In October 2005, an attorney practicing in Costa Rica was arrested 

and indicted in the Southern District of Florida on 45 counts of wire 

fraud and money laundering for his role in a bogus telemarketing 

scheme in which callers identified themselves as employees of the 

Department of Commerce and other federal agencies. An ongoing 

investigation, conducted jointly with the U.S. Postal Inspection 

Service and the Bureau of Immigration and Customs Enforcement 

of the Department of Homeland Security, has developed evidence 

of an international confidence scheme that defrauded individuals 

using the premise that they had won multimillion dollar cash 

prizes in a national lottery. Targets of the scam were instructed to 

make bank-to-bank wire transfers to a bank in Florida so that offshore accounts could be set up for deposit of their winnings. The 

defendant maintained accounts in a Costa Rican bank that had a 

relationship with the U.S. bank. Once funds reached Florida, he 

was able to make withdrawals from his local accounts. To date, 

identified victims have given more than $3.5 million to the fraud 

perpetrators. (Atlanta Field Office) 

former Executive Director of Missouri 

Economic Development Commission 

sentenced on Program fraud Conviction 

In our September 2005 Semiannual Report (page 42), we reported 

the convictions of two former directors of a regional rural economic 

development commission for crimes related to their administration of federal grant money, including funds awarded by EDA 

to operate a revolving loan fund. A joint OIG/FBI investigation 

disclosed that the defendants had used about a half million dollars in federal funds to make unauthorized loans and payments to 

benefit themselves and companies they controlled. On November 

18, 2005, the former executive director of the commission was 

sentenced in U.S. District Court for the Western District of Missouri to 24 months’ incarceration and 3 years’ probation, and was 

ordered to pay $479,557 in restitution to the federal government. 

His former assistant director had been previously sentenced to 

3 years’ probation and a $5,000 fine for using false documents. 

(Denver Resident Office) 

Louisiana Businessman sentenced for 

Conspiracy Involving Assignment of 

fictitious Census Contract 

As reported in our September 2005 Semiannual Report (page 43), 

a Louisiana businessman was convicted of conspiracy to commit 

bank fraud after a joint OIG/FBI investigation revealed that he 

had pledged his company’s interest in the proceeds of a fictitious 

$18.5 million contract with the Census Bureau as collateral for 

a $6 million loan from a New Orleans bank. On December 1, 

2005, the defendant was sentenced in U.S. District Court for the 

48 U.S. Department of Commerce/Office of Inspector General 
OIG special agents place seized evidence in a secure storage 

area. 

Source: OIG 

Eastern District of Louisiana to 12 months’ imprisonment followed by 3 years’ probation, and was ordered to make restitution 

of $6,775,344. (Alexandria Resident Office) 

Grantee Official Agrees to Pretrial 

Diversion and Restitution for false travel 

Claims 

An investigation we conducted jointly with the Office of Inspector 

General of the Department of Housing and Urban Development 

revealed that between April 1998 and December 2000, the executive director of a NativeAmerican tribe’s community development 

program made eight duplicative claims for travel reimbursement 

from DOC and HUD grant funds. As a result, he received nearly 

$4,000 in fraudulent payments. In December 2005, the U.S. Attorney for the District of Wyoming executed a pretrial diversion 

agreement with the defendant in which he acknowledged his 

responsibility for the false claims and agreed to abide by certain 

conditions and pay restitution in the amount of $3,779 over a 6-

month probationary period. (Denver Resident Office) 

Office of Inspector General 

Employee fraud, Corruption, and 

Misconduct 

Investigating criminal activities and misconduct by Department 

employees is a staple of the Office of Investigation’s work. During 

this semiannual period, OI successfully prosecuted multiple cases 

of time and attendance fraud and theft of government property, and 

obtained the conviction of one employee for his role in a bribery 

scheme. In addition, a joint investigation with the Department of 

Labor OIG resulted in forfeiture of more than $195,000 in workers’ 

compensation benefits by a Commerce beneficiary who failed to 

report outside earnings. 

Patent Office Bribery scheme Participants 

Convicted and sentenced 

Our last Semiannual Report (page 43) detailed the September 

2005 bribery conviction of a former supervisory engineering 

draftsman at USPTO. An OIG investigation had found she had 

solicited payment from patent applicants in exchange for drafting 

work to be performed by employees under her supervision. On 

December 5, 2005, the defendant was sentenced in U.S. District 

Court for the Eastern District of Virginia to 2 years’ probation 

and a $1,000 fine. 

In January 2006, one of her former assistants pleaded guilty to a 

violation of 18 USC §209 (unlawful supplementation of salary) 

for his part in the bribery scheme. Sentencing was scheduled for 

April 2006. (Alexandria Resident Office) 

two former Employees sentenced for 

theft of Census Debit Cards 

In our September 2005 Semiannual Report (page 44), we reported 

the conviction of a former Census Bureau employee for theft of 

government property, based on the results of an OIG investigation 

that found she had improperly negotiated 47 debit cards that were 

intended for distribution to the public as an incentive to participate 

in Census surveys. On January 19, 2006, the defendant was sentenced in U.S. District Court for the Southern District of Ohio to 

3 years’ probation and was ordered to pay the government $1,966 

in restitution. (Denver Resident Office) 

The same issue of our Semiannual Report (page 45) noted the 

arrest of another Census employee for stealing debit cards valued 

at nearly $2,800. On October 14, 2005, the defendant entered 

into a pretrial diversion agreement in U.S. District Court for the 

Southern District of New York. Under the terms of the agreement, 

all pending charges will be dismissed if she successfully completes 

1 year of probation and makes full restitution to the government. 

(Washington Field Office) 

March 2006/Semiannual Report to Congress 49 
Office of Inspector General 

Investigation of time and Attendance 

fraud at UsPtO Leads to Multiple 

Convictions 

During the last reporting period, three USPTO employees were 

arrested in Virginia on state theft charges as the result of an OIG 

investigation into time and attendance fraud at the agency. (See 

September 2005 Semiannual Report, page 44.) All three resigned 

from federal service and have now entered guilty pleas and been 

sentenced on felony convictions in the Circuit Court of the City 

of Alexandria. 

In September 2005, a patent examiner pleaded guilty to charges that 

he had falsely claimed approximately 400 hours of time worked. 

On November 10, 2005, the defendant was sentenced to 2 years 

in jail (all but 45 days suspended) and was ordered to perform 

100 hours of community service and make restitution of $14,393 

to the government. 

A legal instruments examiner was convicted of grand larceny in 

October 2005 for obtaining nearly $4,000 in salary from USPTO by 

falsifying his time and attendance records. On December 8, 2005, 

he was sentenced to 2 years’incarceration (23 months suspended) 

followed by 2 years’probation and ordered to pay the government 

$3,974 in restitution. 

In November 2005, a second legal instruments examiner was convicted of embezzlement, based on his fraudulent receipt of $7,988 

in unearned salary payments. On January 19, 2006, the defendant 

was sentenced to 3 years’incarceration, with 30 months suspended 

on the condition that he successfully complete 3 years’supervised 

probation and make full restitution to the government. 

On March 23, 2006, two additional USPTO employees were arrested for time and attendance fraud. After initial appearances in 

Alexandria Circuit Court, they were both released on their own 

recognizance pending further proceedings. (Alexandria Resident 

Office) 

false Voucher Results in Pretrial Probation 

for NOAA Employee 

On February 17, 2006, an employee of the National Oceanic and 

Atmospheric Administration agreed to serve 12 months’ probation and immediately repay $5,913 to the government to resolve 

theft charges filed in District Court for Montgomery County, 

Maryland, as the result of an OIG investigation that found he had 

falsely claimed reimbursement for costs unrelated to his permanent change of duty station. The employee’s transfer entitled him 

to reimbursement for certain relocation expenses. However, in 

addition to claiming costs paid to move his personal property, he 

submitted receipts and received reimbursement for shipping items 

belonging to a friend. (Silver Spring Resident Office) 

Workers’ Compensation Investigation 

Leads to Recovery of Benefits 

Asupervisory meteorological technician with the National Weather 

Service was ordered to repay more than $195,000 in workers’ 

compensation benefits as the result of a joint investigation with 

the Department of Labor OIG, which found that the employee 

had failed to report nearly $25,000 in outside earnings on annual 

certifications filed over a 5-year period when he was receiving 

benefits. In January 2006, the Department of Labor determined 

that all benefits received during that period should be forfeited 

because the employee had knowingly accepted compensation to 

which he was not entitled. (Atlanta Field Office) 

senior NtIs Official Reprimanded for 

Ethics Violations 

A senior official with the National Technical Information Service 

received a written reprimand for violating the Standards of Ethical Conduct for Employees of the Executive Branch after an OIG 

investigation found that he had direct involvement in the award and 

oversight of a contract with a company that employed his brother 

and assigned him to provide contract services to NTIS. In addition 

to participating in the evaluation process for the procurement, the 

official authorized payment of 12 separate invoices over an 11-

month period, which included more than $25,000 in contract work 

completed by his brother. Our investigation also established that 

the official failed to complete the conflict of interest certification 

required of employees involved in the award or administration of 

contracts. (Washington Field Office) 

Census Employee Demoted for 

Unauthorized Possession of Government 

Property 

An information technology specialist at the Census Bureau was 

demoted from a GS-12 to a GS-11 after government computers 

and printers previously reported as lost or stolen were found at his 

residence during an OIG investigation. Over the course of about 

a year, the employee had removed the equipment from his office 

without authorization for his personal use and the use of his family. 

(Alexandria Resident Office) 

Criminal Misuse of Government 

Computers 

The Office of Investigation’s Computer Crimes Unit continues to 

enhance the security and integrity of information technology systems in the Department by aggressively investigating IT security 

breaches and criminal misuse of government computers, particularly in the area of Internet child pornography. In addition, the unit 

regularly lends its technical expertise to other OI units, providing 

forensic media analysis and support in connection with ongoing 

50 U.S. Department of Commerce/Office of Inspector General 
investigations. Among the unit’s considerable accomplishments 

this semiannual period was its successful pursuit of two child 

pornography cases, one of which received national attention. 

NOAA Employee Indicted on Child 

Pornography and Exploitation Charges 

On December 21, 2005, a 32-year NOAA employee was indicted 

in the District of Maryland for sexual exploitation of children 

and possession of child pornography after an OIG investigation 

disclosed that he had used government computers to download 

sexually explicit images of children. The crime was initially 

detected during the course of routine network security checks by 

NOAA computer security specialists who identified hundreds of 

thousands of images of nude and seminude children that had been 

downloaded across agency networks. 

OIG’s subsequent forensic examination of the employee’s home 

and office computers revealed more than a million pornographic 

images of children, and a search of his residence uncovered evidence that he was personally involved in the production of child 

pornography. During the course of the investigation, we shared 

a portion of the data seized with the National Center for Missing 

and Exploited Children, which identified 16 known child victims 

depicted in the materials and added the victim we had identified 

to its national database. 

Rather than face arrest, the defendant fled the country after his 

indictment, traveling from his brother’s home in California to 

various locations in Canada and Europe. His case was featured 

on the January 21, 2006, broadcast of the national television show 

America’s Most Wanted. Two days later, he contacted theAmerican 

Embassy in Rome and made arrangements to surrender. He was 

Office of Inspector General 

transported back to the United States and transferred to the custody 

of the U.S. Marshal’s Service upon his arrival at New York’s JFK 

Airport. Following a hearing in federal court in Brooklyn, he was 

returned to Maryland for trial. The defendant remains in custody 

and has been suspended without pay from his position at NOAA 

pending the outcome of his case. 

On February 16, 2006, the defendant’s brother was indicted in the 

Eastern District of California for violations of 18 USC §3 (accessory after the fact) and 18 USC §1001 (false statements to a law 

enforcement officer) for helping the defendant evade arrest by 

warning him that we had traced his movements to Canada. Further 

proceedings are pending. (Computer Crimes Unit) 

former Census Employee sentenced on 

Child Pornography Charge 

In our September 2005 Semiannual Report (page 45), we reported 

the conviction of a former statistical mathematician at the Bureau 

of the Census on one count of possessing child pornography. An 

OIG investigation found that the employee had used his government computer to download hundreds of sexually explicit images 

of children. On December 9, 2005, he was sentenced in U.S. 

District Court for the Southern District of Indiana to 27 months’ 

incarceration followed by 3 years’ probation and was ordered to 

participate in a sex offender treatment program. Upon release 

from prison, the defendant will also be required to register as a 

sex offender. (Computer Crimes Unit) 

March 2006/Semiannual Report to Congress 51 
Office of Inspector General 

TABLES AND STATISTICS

 Statistical Overview 

TABLES	 PAGE

1. Investigative Statistical Highlights for this Period...................................................................................................................52

2. Audit Resolution Follow-Up ....................................................................................................................................................53

3. Audit and Inspection Statistical Highlights for this Period ......................................................................................................53

4. Audits with Questioned Costs..................................................................................................................................................53

5. Audits with Recommendations that Funds Be Put to Better Use.............................................................................................54

APPENDIXES	

A. Report Types this Period .........................................................................................................................................................55

A-1. Performance Audits........................................................................................................................................................55

A-2. Financial Assistance Audits ...........................................................................................................................................56

A-3. Financial Statements Audits...........................................................................................................................................57

A-4. Inspections and Systems Evaluations.............................................................................................................................58

B. Processed Reports....................................................................................................................................................................58

B-1. Processed Reports with Audit Findings .........................................................................................................................59

Table 1. Investigative Statistical Highlights 

for this Period 

Criminal Investigative Activities

Arrests 

Indictments and informations 

Convictions 

Personnel actions 

Fines, restitutions, judgments, and other civil 

5 

7 

8 

3 

and administrative recoveries $7,493,818 

Allegations Processed

Accepted for investigation 40 

Referred to operating units 30 

Evaluated but not accepted for investigation or referral 23 

Total	 93

Audit Resolution and Follow-up 

The Inspector General Act Amendments of 1988 require us to 

present in this report those audits issued before the beginning of 

the reporting period (October 1, 2005) for which no management 

decision had been made by the end of the period (March 31, 2006). 

Eight audit reports remain unresolved for this reporting period (see 

pages 22, 27, and 36). 

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. 

52 U.S. Department of Commerce/Office of Inspector General 
Table 2. Audit Resolution Follow-Up 

Report Category Modifications Appeals 

Actions pending (October 1, 2005) 0 10 

Submissions 1 4 

Decisions 0 4 

Actions pending (March 31, 2006) 1 10 

Table 4. Audits with Questioned Costs 

Report Category	

A. Reports for which no management decision had been made 

by the beginning of the reporting period 

B. Reports issued during the reporting period 

Total reports (A+B) requiring a management 

decision during the period1

C. Reports for which a management decision was made 

during the reporting period2

i. Value of disallowed costs

ii. Value of costs not disallowed 

D. Reports for which no management decision had been made 

by the end of the reporting period 

Office of Inspector General 

Table 3. Audit and Inspection Statistical 

Highlights for this Period 

Questioned Costs	 $4,654,257*

Value of audit recommendations 

that funds be put to better use 2,975,478 

Value of audit recommendations 

agreed to be management 1,266,151 

Value of inspection recommendations 

that funds be put to better use 54,591 

*This number includes costs questioned by state and local government auditors 

or independent public accountants. 

Number Questioned Costs	 Unsupported Costs

27 $ 27,269,219 $ 5,958,253 

18 4,654,257 1,545,891 

45 31,923,476 7,504,144 

26 4,980,032 2,078,569 

685,342 418,408 

4,294,690 1,660,161 

19 26,943,444 5,425,575 

1

 Four audit reports included in this table are also included among reports with recommendations that funds be but to better use (see table 5). However, the dollar 

amounts do not overlap. 

2

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

March 2006/Semiannual Report to Congress 53
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 2 $ 710,134 

B. Reports issued during the reporting period 7 2,975,478 

Total reports (A+B) requiring a management decision 

during the period1 9 3,685,612

C. Reports for which a management decision was made during 

the reporting period2 2 710,134 

i. Value of recommendations agreed to by management 580,809 

ii. Value of recommendations not agreed to by management 187,445 

D. Reports for which no management decision had been made 

by the end of the reporting period 7 2,975,478 

1 Four audit reports included in this table are also included among 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 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. 

54 U.S. Department of Commerce/Office of Inspector General 
Office of Inspector General 

Appendix A. Report Types this Period 

Type	 Number of Reports	 Appendix Number

Performance audits 2 A-1 

Financial assistance audits 8 A-2 

Financial statements audits 6 A-3 

Inspections and program evaluations 5 A-4 

Total 21 

Appendix A-1. Performance Audits 

Funds to

Be Put to

Report Title Report Number Date Issued Better Use

National Oceanic & Atmospheric Administration

Opportunities to Further Enhance Controls Over User Fees BSD-17612-6-0001 01/09/06 — 

Office of the Secretary 

Department of Commerce Has Made Significant Progress, 

but Additional Opportunities Exist to Improve the Reporting 

and Utility of Performance Results FSD-17444-6-0001 03/31/06 — 

March 2006/Semiannual Report to Congress 55
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

The EDC Fund, Inc., VT ATL-17285-6-0001 01/11/06 $ 94,013 — — 

The Commonwealth of Pennsylvania ATL-17545-6-0001 03/28/06 2,001,492 — — 

National Institute of Standards & Technology

FastVDO LLC, MD DEN-17410-6-0001 12/20/05 — $ 51,838 — 

Kiara Networks, Inc., NM DEN-17496-6-0001 03/15/06 — 21,255 $ 12,590 

House of Artful Expression, NY ATL-17744-6-0001 03/31/06 182,865 607,345 607,345 

National Oceanic & Atmospheric Administration

Northwest Indian Fisheries Commission, 

Skokomish Indian Tribe, WA STL-16657-6-0009 02/13/06 — 559,900 559,900 

National Telecommunications & Information Administration

Mississippi Authority for 

Educational Television ATL-17529-6-0001 03/31/06 — 1,327,738 — 

Suquamish Indian Tribe, WA STL-17482-6-0001 03/31/06 — 152,379 28,138 

56 U.S. Department of Commerce/Office of Inspector General 
Office of Inspector General 

Appendix A-3. Financial Statements Audits 

Report Title	 Report Number Date Issued

Office of the Secretary 

Agreed-Upon Procedures on the FY 2005 Intragovernmental 

Activity and Balances FSD-17433-6-0004 12/02/05 

Assessment of Information Technology Controls Supporting 

Department of Commerce’s Financial Management Systems 

FY 2005 Financial Statement Audit FSD-17433-6-0003 12/12/05 

Department of Commerce’s FY 2005 Consolidated 

Financial Statements FSD-17433-6-0001 11/10/05 

Department of Commerce’s FY 2005 Special-Purpose 

Financial Statements FSD-17433-6-0002 11/22/05 

United States Patent and Trademark Office 

Assessment of Information Technology Controls Supporting 

United States Patent and Trademark Office’s Financial 

Management Systems FSD-17434-6-0002 01/12/06 

USPTO’s FY 2005 Financial Statements FSD-17434-6-0001 11/07/05 

March 2006/Semiannual Report to Congress 57
Office of Inspector General 

Appendix A-4. Inspections and System Evaluations 

Funds to Be

Report Title Report Number Date Issued Put to Better Use

Bureau of Industry and Security

U.S. Dual-Use Export Controls for China Need to Be Strengthened IPE-17500 3/30/06 — 

Annual Follow-Up Report on Previous Export Control 

Recommendations, as Mandated by the National Defense 

Authorization Act for Fiscal Year 2000 IPE-17935 3/30/06 — 

Census Bureau

Valuable Learning Opportunities Were Missed

in the 2006 Test of Address Canvassing OIG-17524 3/31/06 — 

International Trade Administration

CS China Generally Performs Well, But Opportunities Exist 

for Commerce to Better Coordinate Its Multiple China Operations IPE-17546 3/31/06 — 

Office of the Secretary 

Management of Commerce’s Federal Workers’Compensation 

Program Needs Significant Improvements IPE-17536 3/31/06 $54,591 

Appendix B. Processed Audit Reports 

The Office of Inspector General reviewed and accepted 137 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 ......................................................................................................................................35

National Institute of Standards and Technology* ........................................................................................................................75

National Oceanic and Atmospheric Administration.....................................................................................................................10

National Telecommunications and Information Administration ....................................................................................................2

Multiagency.................................................................................................................................................................................. 11

Agency not identified .....................................................................................................................................................................4

Total	 137

*Includes 69 ATP program-specific audits. 

58 U.S. Department of Commerce/Office of Inspector General 
Office of Inspector General 

Appendix B-1 - Processed Reports with Audit Findings 

Value of

Funds to

Date	 Be Put to	 Amount	 Amount

Report Title	 Report Number Issued	 Better Use	 Questioned	 Unsupported

Economic Development Administration

City of Aurora, CO ATL-09999-6-2345 03/07/06 $ 413,000 — — 

Municipality of San German, PR ATL-09999-6-2429 03/07/06 — — — 

City of Mullins, SC ATL-09999-6-2433 03/08/06 — $ 200,000 — 

Great Falls Development Authority, MT ATL-09999-6-2352 03/08/06 185,639 — — 

Operation Hope, Inc., CA ATL-09999-6-2279 03/29/06 — 68,173 — 

National Institute of Standards & Technology

Chesapeake PERL, Inc., MD ATL-09999-6-2170 10/26/05 — 28,913 — 

Chiral Photonics, Inc., NJ ATL-09999-6-2029 10/26/05 — 40,135 — 

HandyLab, Inc., MI ATL-09999-6-2127 10/26/05 — 47,258 — 

VorCat, Inc., MD ATL-09999-6-2037 10/26/05 — 49,884 — 

AMTEK Research International , OR ATL-09999-6-2173 12/30/05 — 16,587 — 

Branson Ultrasonics Corporation, CT ATL-09999-6-2129 01/13/06 — 38,228 $ 38,228 

CombiSep, Inc., IA ATL-09999-6-2268 01/13/06 — 61,164 — 

Sonobond Ultrasonics, Inc., PA ATL-09999-6-2131 01/13/06 — 4,793 — 

QuantumDot Corporation, CA ATL-09999-6-2293 03/07/06 23,209 — — 

mVerify Corporation, IL ATL-09999-6-1979 03/08/06 75,260 — — 

National Oceanic & Atmospheric Administration

The JASON Foundation for Education, VA ATL-09999-6-2350 03/07/06 — 441,942 299,690 

Seacoast Science Center, Inc., NH ATL-09999-6-2489 03/27/06 — 936,725 — 

March 2006/Semiannual Report to Congress 59
Office of Inspector General 

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 .........................................................................................60–61

5(a)(1)............................ Significant Problems, Abuses, and Deficiencies ............................................................................13–44

5(a)(2)............................ Significant Recommendations for Corrective Action.....................................................................13–44

5(a)(3)............................ Prior Significant Recommendations Unimplemented ..........................................................................60

5(a)4............................... Matters Referred to Prosecutive Authorities........................................................................................52

5(a)(5) and 6(b)(2).........Information or Assistance Refused ......................................................................................................61

5(a)(6)............................Listing of Audit Reports ................................................................................................................52–59

5(a)(7)............................ Summary of Significant Reports ...................................................................................................13–44

5(a)(8)............................ Audit Reports—Questioned Costs ......................................................................................................53

5(a)(9)............................ Audit Reports—Funds to Be Put to Better Use....................................................................................54

5(a)(10).......................... Prior Audit Reports Unresolved ..........................................................................................................52

5(a)(11).......................... Significant Revised Management Decisions........................................................................................61

5(a)(12).......................... Significant Management Decisions with which OIG Disagreed .........................................................61

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

Regulations 

This section requires the inspector general of each agency to 

review existing and proposed legislation and regulations relating 

to that agency’s programs and operations. Based on this review, 

the inspector general is required to make recommendations in the 

semiannual report concerning the impact of such legislation or 

regulations on the economy and efficiency of the management of 

programs and operations administered or financed by the agency 

or on the prevention and detection of fraud and abuse in those 

programs and operations. Comments concerning legislative and 

regulatory initiatives affecting Commerce programs are discussed, 

as appropriate, in relevant sections of the report. 

Section 5(A)(3): Prior Significant 

Recommendations Unimplemented 

This section requires identification of each significant recommendation described in previous semiannual reports for which 

corrective action has not been completed. Section 5(b) requires 

that the Secretary transmit to Congress statistical tables showing 

the number and value of audit reports for which no final action has 

been taken, plus an explanation of the reasons why recommended 

action has not occurred, except when the management decision 

was made within the preceding year. 

To include a list of all significant unimplemented recommendations in this report would be duplicative. Information on the status 

of any audit recommendations can be obtained through OIG’s 

Office of Audits. 

60 U.S. Department of Commerce/Office of Inspector General 
Office of Inspector General 

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 8 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. DepartmentAdministrative 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 four 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. 

March 2006/Semiannual Report to Congress 61

ACRONymS


ATC....................................................................................................................................................................American Trading Center

ATP...........................................................................................................................................................Advanced Technology Program

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

C&A............................................................................................................................................................ certification and accreditation

CIO...................................................................................................................................................................... chief information officer

CCL.......................................................................................................................................................................Commerce Control List

CS...............................................................................................................................................................................Commercial Service

EAR.....................................................................................................................................................Export Administration Regulations

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

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

FDCA................................................................................................................................................... Field Data Collection Automation

FECA............................................................................................................................................ Federal Employees’ Compensation Act

FISMA..............................................................................................................................Federal Information Security Management Act

GAO.................................................................................................................................................... Government Accountability Office

GOES .......................................................................................................................Geostationary Operational Environmental Satellites

GPS ..................................................................................................................................................................Global Positioning System

GPRA...................................................................................................................................... Government Performance and Results Act

IFQ...................................................................................................................................................................... individual fishing quotas

IG .................................................................................................................................................................................... inspector general

IT...........................................................................................................................................................................information technology

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

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

MBOC........................................................................................................................................Minority Business Operating Committee

MEP ................................................................................................................................................Manufacturing Extension Partnership

NDAA............................................................................................................................................... National Defense Authorization Act

NIST................................................................................................................................ National Institute of Standards and Technology

March 2006/Semiannual Report to Congress 63
Acronyms 

NMFS...................................................................................................................................................National Marine Fisheries Service

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

NPOESS.........................................................................................National Polar-orbiting Operational Environmental Satellite System

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

OHRM...................................................................................................................................... Office of Human Resources Management

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

OMB ................................................................................................................................................... Office of Management and Budget

OWCP...................................................................................................................................Office of Workers’ Compensation Programs

POES......................................................................................................................................Polar Operational Environmental Satellites

RLF .............................................................................................................................................................................revolving loan fund

SARSAT...................................................................................................................Search and Rescue Satellite Aided Tracking System

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

64 U.S. Department of Commerce/Office of Inspector General 
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. 

March 2006/Semiannual Report to Congress 65

U.S. Department of Commerce

The U.S. Department of Commerce creates the conditions for economic growth and opportunity by 

promoting innovation, entrepreneurship, competitiveness, and stewardship. The Department 

accomplishes its mission by providing national and local weather services, developing key economic and demographic data (including the decennial census), and working to advance technological 

and scientific innovation, protect and restore environmental resources, promote international trade, 

and support local, regional, and national economic development. These activities impact U.S. business and industry daily and play a critical role in the nation's economic well-being. 

Bureau of


Industry and


Security


OFFICE OF THE 

SECRETARY 

International 

Trade 

Administration 

Economic 

Development 

Administration 

U.S. Patent and


Trademark


Office


Economics and 

Statistics 

Administration 

Technology 

Administration 

Bureau of the 

Census 

National 

Institute of 

Standards and 

Technology 

Bureau of 

Economic 

Analysis 

National 

Technical 

Information 

Service 

Minority Business 

Development 

Agency 

National Oceanic 

and Atmospheric 

Administration 

National 

Telecommunications 

and Information 

Administration 

National 

Marine 

Fisheries 

Service 

National 

Ocean Service 

National 

Weather 

Service 

Marine and 

Aviation 

Operations 

National 

Environmental 

Satellite, Data,

and 

Information 

Service 

Oceanic and 

Atmospheric 

Research