Semiannual

Report

to Congress

March 2003

OFFICE OF INSPECTOR GENERAL

U.S. DEPARTMENT OF COMMERCE

March 2003

The Honorable Donald L. Evans

Secretary of Commerce

Washington, D.C. 20230

Dear Mr. Secretary:

I am pleased to provide you with the Inspector General’s Semiannual Report to Congress for the first half of fiscal year 2003.

Section 5 of the Inspector General Act requires that you transmit this report, with any comments you may wish to add, to the

appropriate committees within 30 days of your receiving it.

Once again during these past months, Commerce’s involvement in support of a range of national priorities—from assisting

with recovery efforts for the Columbia shuttle and crew to providing vital weather information to our troops overseas—has

underscored the great diversity and importance of this agency. We in the Office of Inspector General have done our part to

ensure that the Department is well positioned to effectively handle its many roles. We note the strides it has made in addressing

the challenges my office has determined to be most pressing and have provided recommendations for areas where more work

is needed. 

Our emphasis on high performance mirrors the expectations of both Congress and the administration and has prompted their

ever-increasing scrutiny of the management and cost-effectiveness of Commerce programs and operations. We commend the

Department for having fared well in the Office of Management and Budget’s first use of the Program Rating Assessment Tool

to inform FY 2004 budget decisions: Commerce demonstrated results for 8 of 10 programs evaluated, and none of the 8 was

found to be ineffective. Our own performance assessments—which tend to probe more deeply—have also found successes

but have raised questions about the reliability of some measures and, by extension, about related performance reporting. To

ensure the validity of performance data, we believe this area requires continuing, careful attention from both our office and

senior Commerce officials.

We believe the work of our office detailed in this semiannual report further supports your efforts to eliminate inefficiencies in

management, programs, and operations. We look forward to assisting you and your senior managers in implementing changes

we recommend and to keeping you apprised of the outcomes of those efforts. 

Sincerely,

Johnnie Frazier
March 2003/Semiannual Report to Congress v

CONTENTS

IG’s Message to Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii

Major Challenges for the Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Strengthen Financial Management Controls and Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Strengthen Department-Wide Information Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Enhance Export Controls for Dual-Use Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

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

Enhance Emergency Preparedness, Safety, and Security of Commerce Facilities and Personnel . . . . . . . . . . . . . . . . . . . . . . . . .6

Successfully Operate USPTO as a Performance-Based Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Increase International Compliance with Trade Agreements and Expand Market Access for American Exporters . . . . . . . . . . . . .7

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

Continue to Improve the Department’s Strategic Planning and Performance Measurement in Accordance with GPRA . . . . . . . .9

Effectively Manage Major Commerce Renovation and Construction Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Department of Commerce Organization Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Agency Overviews

Bureau of Industry and Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

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

International Trade Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

National Oceanic and Atmospheric Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Technology Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

United States Patent and Trademark Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Department-Wide Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Office of Inspector General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

Office of Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Tables and Appendixes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Events of this semiannual period have again highlighted the

Department of Commerce’s very visible role in the affairs

of our nation, the widespread reach of its activities, and

the imperative for the sound, reliable conduct of its operations.

The work of the Office of Inspector General during these months

has supported that imperative, as we have evaluated many of the

Department’s critical functions and pointed out, where

warranted, needed improvements. 

National security has remained a foremost concern, as conflict

and tensions abroad have renewed fears of terrorist repercussions

here at home. The Department of Commerce plays a significant

role in advancing the nation’s efforts to thwart such activity, and

we have looked closely at its efforts in this regard. Together with

the inspectors general of the departments of Defense, State, and

Energy, and in consultation with the CIA and FBI, this office is

responsible for reporting annually on the adequacy of export

controls and counterintelligence measures aimed at preventing

countries and entities of concern from acquiring sensitive U.S.

technology and technical information, including weapons of mass

destruction. In addition to participating in an interagency review,

we assessed activities of the Bureau of Industry and Security

(BIS), Commerce’s primary agency involved in the export control

process, and found a number of weaknesses in BIS’ operations and

system for enforcing controls (see page 12) and in its methods for

overseeing and tracking firearms use and inventory (see page 14).

Financial soundness and accountability provide the foundation

for proficient operations, and this area, too, has received much of

our scrutiny. We are pleased to report that Commerce’s FY 2002

consolidated financial statements—which were audited during

this semiannual period—received an unqualified (clean) opinion

for the fourth year in a row (see page 33). The auditors found that

the Department had successfully resolved most of the financial

management and reporting weaknesses noted in last year’s audit

and had made significant progress in implementing the

Commerce Administrative Management System (CAMS). The

Department maintains its focus on strengthening financial

management by implementing CAMS both to comply with

federal laws for a single, integrated financial management system

and to generate accurate, timely, and reliable financial

management and performance information. 

In line with our emphasis on financial accountability, we

conducted quality control reviews of selected audits of recipients

of Commerce financial assistance (page 35). These audits,

performed by either state auditors or certified public accounting

firms (CPAs), are intended to identify financial management and

reporting weaknesses in a recipient’s administration of federal

funds. We chose five CPA audits of organizations operating EDA

revolving loan funds and two audits involving NIST funding. We

found that five of the seven audits were substandard and two

were technically deficient, in that they did not meet the federal

government’s guidelines as detailed by the Office of

Management and Budget (OMB). Depending on the nature of

our findings, we either required the firms to conduct additional

work on the audit we reviewed, to correct and reissue the related

reports, or to submit subsequent audits to us for evaluation—

before issuing them—so that we can ensure they comply with

OMB requirements. In addition EDA has instituted procedures to

ensure that its regional offices, officials, and RLF operators are

fully aware of OMB’s auditing guidelines.

The public rightfully demands assurance that it can rely on the

capabilities and integrity of these CPAs who audit the vast majority

of Commerce and other federal financial assistance recipients. Our

efforts to monitor this work serve not only the interests of the

Department, but also those of all taxpaying citizens.

We also conducted audits of eight EDA (page 16) and three NIST

(page 28) financial assistance awards that resulted in our

questioning more than $6.7 million in claimed costs and

recommending that more than $14 million be put to better use. 

Performance measurement continues to require departmental

attention, as the government moves toward using performance

data to make funding decisions. Although we believe the

Department has made progress toward meeting the challenge of

how best to plan and measure its performance, our series of

audits in this area indicates that significant opportunities for

improvement remain. Commerce must implement procedures to,

among other things, ensure that (1) reported information is

reconciled against supporting data and (2) only data from the

appropriate time period is included in performance results. These

issues have emerged time and again in our evaluations of

performance measures, most recently in that of selected measures

used by NOAA. We are concerned that—for the measures we

evaluated—NOAA still needs to (1) improve internal controls,

(2) restate data that was incorrectly reported in the past, (3)

provide additional disclosures and explanations of performance

results, and (4) assess the value of certain measures to determine

whether they should be dropped or revised (see page 24). We also

vii March 2003/Semiannual Report to Congress

IG’S MESSAGE TO CONGRESS
found problems with the export success performance data

reported by the US&FCS post in Turkey (see page 19). We will

continue to evaluate performance measurement and reporting at

Commerce bureaus and, as warranted, make recommendations

regarding the accuracy, appropriateness, reliability, and

usefulness of performance data.

Management and internal control weaknesses in varying

degrees of severity perhaps are the most pervasive problems we

noted in departmental programs and operations, as evidenced in

the following sample of our other recent work:

■ NOAA’s Corporate Costs NOAA, with its five line

offices and varied and complex set of program responsibilities, is the largest agency in Commerce. To manage

the line offices and the many constituent divisions,

NOAA has centralized much of the administrative work.

"Corporate costs" refers to expenses associated with central executive management, administrative support, and

policy setting. We conducted a performance audit to

assess the process and practices NOAA used to develop

and administer its corporate-costs budget for FYs 2000

and 2001. The audit identified numerous matters related

to the policies, procedures, and cost-assessment methods

that warrant management’s attention (see page 21).

■ National Marine Fisheries Service’s Enforcement

of Regulations NMFS’ Office for Law Enforcement

(OLE) and the U.S. Coast Guard share responsibility for

enforcing federal fishery regulations that result from the

fishery management council process. While the Coast

Guard primarily handles enforcement at sea, OLE focuses on shoreside enforcement, which includes dockside

monitoring and investigative work. Our findings suggest

that by taking a more proactive approach, OLE could

help make fishing management measures more understandable and enforceable and improve federal fisheries

enforcement (see page 25). 

■ Travel Card and Purchase Card Weaknesses Our

work at the National Weather Service (see page 23) and

the Office of the Secretary (see page 32) revealed that

stronger management controls would eliminate deficiencies and greatly improve compliance with both

Department and government-wide guidelines on the use

of these cards. 

Investigations of suspected fraud and other illegalities have

rounded out our audit and inspection work during these past

months, as we have uncovered various instances of fraudulent

activity involving Commerce funds and programs and have

followed the cases through to resolution with consistently

positive results (see page 39). We have also successfully

collaborated with the FBI and other law enforcement groups on

several investigative operations (see page 41). 

I

am pleased to say that this same spirit of cooperation has

marked much of our interaction with the Department during

this semiannual period, as Commerce managers and staff have

been generally open and responsive to addressing the findings

and recommendations we have made. 

Further, we appreciate the interest shown by Congress in the

work we have done, for your attention facilitates the process of

improvement. During this past reporting period, we have had

numerous opportunities to brief you on our work in such diverse

areas as export controls and procurement; follow up on concerns

you have expressed regarding fishery management, government

employee improprieties, and a range of other issues; and respond

to requests for reports and information about Commerce

financial assistance awards. We will continue to keep you

apprised of the Department’s performance in the full range of

critical activities in which it is involved, with confidence that

each issue resolved will strengthen Commerce operations and

enhance its service to the public. 

viii

IG’s Message to Congress

U.S. Department of Commerce/Office of Inspector General
At the close of this semiannual period the Top 10

Management Challenges the Department faces, as

determined by OIG, comprise issues that (1) are

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

(2) are complex, (3) involve sizable expenditures, or (4) require

significant management improvements. Given the diverse nature

of Commerce activities, many of these issues cut across bureau

and program lines. We believe that by 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

FINANCIAL MANAGEMENT

CONTROLS AND SYSTEMS

The Chief Financial Officers Act of 1990, the Government

Performance and Results Act of 1993, the Government

Management Reform Act of 1994, and the Federal Financial

Management Improvement Act of 1996 were designed to

improve financial management and accountability in the federal

government. These statutes require the preparation of

information needed by Congress, agency executives, and the

public to assess management’s performance and stewardship of

federal programs and operations. Required information includes

the findings of audits of agency financial statements, which

present the entity’s financial position and results of operations.

Among other things, these audits must determine whether an

agency’s financial management systems comply with federal

requirements.

Independent nonfederal auditors gave the Department an

unqualified (clean) opinion on its FY 2002 consolidated financial

statements—the fourth consecutive year for this accomplishment

despite continuing obstacles, including the absence of a single,

integrated financial management system. In FY 2002 the

Department was successful in resolving most of the financial

management and reporting weaknesses noted in the previous

year’s audit. Also it made significant progress in implementing

the Commerce Administrative Management System (CAMS).

CAMS is a software package based on a commercial off-the-shelf

accounting system application that has been extensively modified

and substantially augmented with new capabilities to support

departmental accounting and financial management needs as well

as individual Commerce unit requirements. Census, NIST, and

NOAA have already begun using CAMS as their financial system

of record; NOAA used CAMS to close out and report for the first

time its FY 2002 financial data. When fully deployed in 2003

CAMS will be the single system of record; NOAA used CAMS

to close out and report for the first time its FY 2002 financial

data. When fully deployed in 2003 CAMS will be the single

system of record for Census, NIST, NOAA, and eight of the

Department’s operating units whose accounting functions are

handled by either NIST or NOAA. The units serviced by NIST

are the Bureau of Economic Analysis, Economic Development

Administration, Economics and Statistics Administration (ESA),

March 2003/Semiannual Report to Congress 1

MAJOR CHALLENGES

FOR THE DEPARTMENT

TOP 10 MANAGEMENT

CHALLENGES

1. Strengthen financial management controls and systems.

2. Strengthen Department-wide information security.

3. Enhance export controls for dual-use commodities.

4. Effectively manage departmental and bureau 

acquisition processes. 

5. Enhance emergency preparedness, safety, and security 

of Commerce facilities and personnel.

6. Successfully operate the U.S. Patent and Trademark 

Office as a performance-based organization.

7. Increase international compliance with trade agreements and expand market access for American 

exporters.

8. Increase the effectiveness of marine resource 

management.

9. Continue to improve the Department’s strategic planning and performance measurement in accordance 

with the Government Performance and Results Act.

10. Effectively manage major Commerce renovation and

construction projects.
Minority Business Development Agency, National

Telecommunications and Information Administration,

Technology Administration, Office of the Secretary, Office of

Computer Services, and Office of Inspector General. NOAA

services BIS.

The Department as a whole has made substantial improvements

in financial management; nonetheless, maintaining a clean audit

opinion remains a major challenge, especially under the

accelerated financial reporting dates mandated by the Office of

Management and Budget (OMB). The audit of the Department’s

FY 2002 statements identified two reportable conditions (one of

which is considered a material weakness1

) and several instances

of noncompliance with laws and regulations, all of which are

repeat findings (see page 34). Further improvements in financial

management systems and operations are essential to enabling the

Department and its entities to correct the material weakness and

other deficiencies identified in the audit of FY 2002 statements

and to produce timely, useful financial information.

The Department recognizes the need for a financial management

environment in which the reliability of financial and performance

information and compliance with federal laws and regulations are

assured. Therefore, Commerce continues to focus on

strengthening its financial management systems by implementing

CAMS, both to comply with federal laws and regulations and to

provide Commerce with accurate, timely, and reliable financial

management and performance information.

Full implementation of CAMS, completely replacing

Commerce’s outdated and fragmented systems, is expected by

October 2003. Although most of the Department’s operating

units will use CAMS, three will not—International Trade

Administration, U.S. Patent and Trademark Office, and National

Technical Information Service. Those bureaus will submit data,

along with other units, into a Commerce-wide database that

serves as the source for the Department’s consolidated financial

reports. The Department expects that CAMS, in conjunction

with the database, will bring Commerce into compliance with

federal financial systems requirements, including that for a

single, integrated financial management system.

CHALLENGE 2: STRENGTHEN

DEPARTMENT-WIDE

INFORMATION SECURITY

The security of Department of Commerce information

technology systems and data is important to not only the

Department but also the entire nation: BIS’ export license data

helps control the release of dual-use commodities to countries

and entities of concern; NOAA’s satellite, radar, and weather

forecasting data and systems provide information used to protect

lives and property; ESA’s economic indicators have policymaking implications that can affect the movement of global

commodity and financial markets; and USPTO’s patent and

trademark information is essential to administering patent and

trademark law, promoting industrial and technical progress, and

strengthening the national economy.

Loss of or serious damage to any one of Commerce’s critical

systems could have devastating impacts; nevertheless,

weaknesses in IT persist throughout Commerce. Thus,

identifying those weaknesses and recommending solutions

continue to be top priorities for the Office of Inspector General.

In December 2002 the Government Information Security Reform

Act (GISRA) was replaced by the Federal Information Security

Management Act (FISMA) of 2002. Like its predecessor, FISMA

continues the requirements that each federal agency review its

information security program annually and that each OIG

perform an annual independent evaluation of that program.

Agency heads must continue to provide both of these

assessments to OMB; under FISMA, however, they are also

required to provide the assessments to Congress. 

The Department, continuing to focus on information security,

recently issued two new policies—Information Technology

Program Policy and Minimum Implementation Standards and

Policy and Implementation Standards for Remote Access

Security—to enhance its IT security foundation. These policy

directives provide comprehensive rules and practices for

protecting departmental systems and data. In addition the

program policy establishes clear and specific requirements for

accrediting departmental systems—accreditation being

management’s formal authorization to operate a system,

including its explicit acceptance of risk. 

As we reported in our last semiannual, most of the Department’s

operational systems have not been accredited; for those that have

been, evidence of the requisite security testing and evaluation is

frequently lacking, thus diminishing the assurance that

accreditation is intended to impart. We reassert our position that

the Department should continue to monitor systems

implementation Commerce-wide to ensure that all have

2

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General

1 Material weaknesses are serious flaws in the design or operation of an internal

control component that increase the risk that errors, fraud, or noncompliance in

material amounts may occur and not be readily detected.
approved security plans and are put through rigorous

certification and accreditation processes, as specified by the new

program policy. 

In its last two Accountability Reports, the Department reported

information security as a material weakness. Until systems that

are part of the nation’s critical infrastructure, as well as those that

are mission critical, have been accredited, we believe that

information security at the Department should continue to be

reported as a material weakness.

SEPARATE INFORMATION SECURITY

REVIEW FOR USPTO

As a performance-based organization, USPTO has conducted its

own information security review and submitted its report

separately from the Department. OIG therefore has conducted a

separate assessment of USPTO. 

As part of our FISMA evaluation for this fiscal year, we will again

assess USPTO’s progress in improving its information security

organization and the measures it has taken to address the system

security weaknesses we identified in our 2002 evaluations. 

CONTRACT SECURITY WEAKNESSES

As we reported in our September 2002 semiannual report,

provisions to safeguard the security of sensitive but unclassified

systems and information were either insufficient or nonexistent

in Department IT service contracts. We recommended that the

Department (including USPTO) establish standard contract

provisions to effectively protect the security of unclassified

systems and disseminate a clear, detailed policy for acquiring

these systems and services. We further recommended that the

Department determine whether current contracts need to be

modified to include information security provisions, recognizing

that in some cases contract costs could increase as a result of

such changes.

The Department is in the process of implementing our

recommendations. Contract provisions have been written and are

now undergoing departmental review. After the provisions are

approved, Commerce plans to facilitate their implementation by

providing appropriate training to acquisition staff. An

assessment of current contracts found that more than 350 need

modification to address the new security provisions. The

Department is working to ensure that all future contracts include

appropriate security provisions before being awarded.

CHALLENGE 3: ENHANCE

EXPORT CONTROLS FOR

DUAL-USE COMMODITIES

The adequacy of export controls is a continuing concern.

Opinions vary on how well the government’s export control

policies and practices balance the need to protect U.S. national

security and foreign policy interests with the desire to promote

U.S. trade opportunities and competitiveness. Striking this

balance is a significant challenge for the parties involved,

particularly for Commerce’s Bureau of Industry and Security,

which oversees the federal government’s export licensing and

enforcement system for dual-use commodities (goods and

technologies that have both civilian and military uses).

Strengthening dual-use export licensing and enforcement

requires new, comprehensive legislative authority to replace the

expired Export Administration Act of 1979 and appropriately

address current export control needs and realities. Passed during

the Cold War, the act sought to prevent the export of critical

goods and technologies to Communist bloc countries. In today’s

political climate, hostile countries and terrorist groups seeking

weapons of mass destruction and the systems to deliver them

pose new threats to global security and U.S. foreign policy goals.

Legislation is needed to address these threats, as well as to bolster

BIS’ regulatory authority, stiffen penalties for violations, and

demonstrate America’s commitment to maintaining strong export

controls while encouraging other countries to do the same.

Given the importance of export controls to national security, we

have devoted considerable attention to the challenges facing BIS.

The National Defense Authorization Act (NDAA) for Fiscal Year

2000, as amended, directed the inspectors general of the

Departments of Commerce, Defense, Energy, and State, in

consultation with the directors of the Central Intelligence Agency

and the FBI, to report to Congress by March 31, 2000, and

annually until the year 2007, on the adequacy of export controls

and counterintelligence measures to prevent the acquisition of

sensitive U.S. technology and technical information by countries

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

requires the IGs to discuss in their annual interagency report the

status or disposition of recommendations made in earlier reports

submitted in accordance with the act. To date, we have completed

four reviews of export controls in compliance with the act as well

as three separate follow-up reports. Together with the other IGs,

we have also issued four interagency reports on export controls. 

ENFORCEMENT OF DUAL-USE

EXPORT CONTROLS

During the current reporting period we completed a review of

BIS’ export enforcement program, including its efforts to prevent

the illegal export or diversion of dual-use items and investigate

March 2003/Semiannual Report to Congress 3

Major Challenges for the Department
and assist in the prosecution of violators of Export

Administration Regulations. To be effective, export controls must

be enforced, and companies or individuals who conspire to evade

those controls or illegally divert exports must be detected and

prosecuted accordingly. Our report highlights weaknesses in

Export Enforcement’s investigative process and outlines specific

issues that negatively impact the organization’s ability to achieve

its mission. To address those issues we recommended (1)

stronger management oversight of the investigative process and

cases, (2) better coordination between Export Enforcement and

Export Administration as well as with other federal law

enforcement and intelligence agencies (including the U.S.

Customs Service,2 the FBI, U.S. Attorney Offices, the CIA, and

U.S. Postal Service), (3) better monitoring of license conditions,

(4) strategically planned outreach efforts to U.S. exporters, and

(5) better end-use checks to attempt to verify the legitimacy of 

dual-use export transactions controlled by BIS. According to

BIS, efforts to address these issues are already under way. 

In addition to our assessment of Commerce’s enforcement

program, the interagency OIG review team (composed of

Commerce, Defense, State, and the CIA) completed a crosscutting review of the adequacy and effectiveness of the U.S.

government’s efforts to enforce controls on export of both dualuse items and munitions. Due to the nature of the review topic,

both the Treasury and U.S. Postal Service OIGs participated in

this year’s assessment. The interagency OIG report was issued in

early April 2003.

FOCUSED PRIORITIES

The challenges for BIS, as well as for the administration and

Congress, remain (1) passing a new Export Administration Act,

(2) targeting federal licensing and enforcement efforts on exports

that present the greatest proliferation and national security risks,

and (3) streamlining or eliminating controls that unnecessarily

hamper trade and do not augment national security or foreign

policy concerns. We will continue to monitor BIS’ efforts to

4

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General

2 On March 1, 2003, the Bureau of Customs and Border Protection (CBP)

became an official agency of the Department of Homeland Security, combining

employees from the Department of Agriculture, the Immigration and

Naturalization Service, the Border Patrol, and the U.S. Customs Service.

Customs Service is used in this report because the transition took place after

our reporting period.

Federal Agencies Participating in the Dual-Use Licensing Program
improve dual-use export controls through the annual reviews

required by the National Defense Authorization Act.

CHALLENGE 4: EFFECTIVELY

MANAGE DEPARTMENTAL

AND BUREAU ACQUISITION

PROCESSES

Federal acquisition legislation in the 1990s mandated sweeping

changes in the way federal agencies buy goods and services.

Today acquisition reform initiatives are well under way, and the

task before Commerce has shifted from successfully

implementing reform initiatives to effectively managing the

processes those initiatives have fostered. 

Effective acquisition processes are critical to the Department:

Commerce annually spends more than $1 billion through

contracts and other procurement vehicles. The Department must

balance the desire to streamline the acquisition process with the

need to ensure that taxpayer dollars are wisely spent and laws and

regulations followed.

Acquisition reform was intended to reduce the time and money

spent purchasing needed goods and services and improve the

efficiency of the process. To accomplish these goals, reform

initiatives encourage contracting officers to (1) rely on

performance-based service contracting and use performancebased measurement tools such as earned value and risk

management, (2) consider past performance as a criterion for

selecting contractors, and (3) make increased use of

commercially available products. The initiatives emphasize

results-based acquisition and promote life-cycle management of

information technology as a capital investment. For high-volume,

low-dollar purchases, they call for using the government

purchase card whenever possible to eliminate lengthy

procurement lead times.

The resulting streamlined processes must, however, include basic

acquisition principles: careful planning, prudent review of

competitive bids, adept contract negotiations, well-structured

contracts, and effective contract management. These are the

principles we focus on in evaluating the Department’s

performance in meeting this top 10 challenge.

PERFORMANCE-BASED CONTRACTING

With that focus in mind, and given the increasing reliance on

contractors to provide services within the Department, we remain

concerned about service contracting. We have identified

problems with the use of performance-based service contracting:

specifically, failure to use performance-based task orders where

they would be beneficial; insufficient planning for contract

administration and monitoring; and the need for increased

training of contracting officers/technical representatives

(COTRs). We have also become increasingly aware of the need

to conduct more audits of individual contracts to ensure that

services and products provided under contract are cost-effective. 

Last semiannual period, we completed a review of IT service

contracts throughout the Department to determine whether they

contain information security provisions that adequately

safeguard sensitive but unclassified systems and information.

(See September 2002 issue, page 51.) We found that such

provisions were either missing or inadequate and recommended

that the Department develop policy, incorporate appropriate

contract provisions, and require training to help ensure that

contracts provide for adequate information security and that

acquisition, program, and technical personnel know how to plan,

implement, and manage such contracts. The Department

concurred with our recommendations and is taking actions to

address them.

The Department agrees that acquisition planning, formulation of

contract strategies, and contract administration need greater

emphasis. According to the Department, efforts by its Office of

Acquisition Management (OAM) to improve procurement

management include (1) establishing an acquisitions review

board to oversee all major acquisitions and (2) evaluating

Commerce’s delegation and warrant program. The program is

intended to establish contracting authority and accountability,

with the goal of realigning contracting authorities to increase

overall effectiveness and accountability throughout the

Department’s procurement community. OAM has reportedly also

launched an initiative to restructure the Department-wide

certification program for COTRs. This initiative includes a new

training plan to enhance COTR performance and the addition of

a performance plan element to improve their accountability. We

have not evaluated the effectiveness of these actions.

PURCHASE CARD PROGRAM

The Commerce Department’s purchase card program, established

more than 15 years ago, is intended to expedite and simplify

small purchases by reducing procurement-related administrative

costs and improving management and internal controls. Over the

years, purchase card use at the Department has increased

significantly: in FY 2001, 91.1 percent of Commerce’s 364,345

small purchases were made with purchase cards. As a result, we

are continuing our Department-wide audit of the purchase card

program in accordance with our audit goals for 2002-2003.

Based on our reviews to date, we believe the vast majority of

Commerce’s 6,000 cardholders are using the cards responsibly

March 2003/Semiannual Report to Congress 5

Major Challenges for the Department
and adhering to guidelines. However, we also know that our

work, along with that of Commerce officials and managers, must

continue as we look for ways to improve the program and

implement best practices to resolve problems, prevent and detect

fraud, and encourage efficiencies. 

During this semiannual period, we issued our final audit report on

the Office of the Secretary’s (O/S) purchase card program,

assessing its compliance with departmental policies and

procedures, and federal laws and regulations. While we noted no

evidence of cardholder misuse of funds, we did find, as in past

reviews of other departmental operating units, instances of

noncompliance with provisions of the Commerce Acquisition

Manual: cardholders failing to (1) document competitive bids for

transactions exceeding $2,500, (2) maintain a log of all purchase

card transactions, (3) keep their cards properly secured, (4)

purchase from specified vendors ("mandatory sources"), or (5)

submit required documentation for purchases of accountable

property (sensitive items such as computers, or any item costing

$5,000 or more). O/S generally agreed with our

recommendations to remedy these problems and has initiated

action to address our concerns.

In response to increased scrutiny from Congress, OMB, and OIG

and in light of Commerce’s increasing use of purchase cards,

OAM is implementing a purchase card improvement plan to

ensure the integrity and prudent use of the purchase card by

departmental cardholders. One aspect of this plan involves

mandatory refresher training for all cardholders and approving

officials. In addition an intra-departmental cross-functional team

has been formed under the auspices of the Chief Financial Officer

and Assistant Secretary for Administration (CFO/ASA) to

evaluate future options for further strengthening the

Department’s purchase, travel, and fleet card programs.

CHALLENGE 5:

ENHANCE EMERGENCY

PREPAREDNESS, SAFETY,

AND SECURITY OF

COMMERCE FACILITIES

AND PERSONNEL

As the threat of terrorism against U.S. interests remains high at

home and abroad, the need to strengthen security and emergency

preparedness in both the public and private sectors remains

urgent. Federal agencies have rededicated themselves to ensuring

the integrity of their operations, the protection of their people,

their ability to continue essential services and operations during

a crisis, and the suitability of risk and sensitivity designations for

personnel and positions. As part of this national effort, the

Department has identified and begun to address many of the

vulnerabilities in its emergency preparedness plans and

procedures and in the physical security of its facilities. It is also

working to correct identified vulnerabilities in its procedures for

designating positions according to risk and sensitivity and for

conducting appropriate background investigations of the people

hired to fill sensitive and security positions. Strengthening

policies and procedures to ensure the thoroughness of personnel

background checks is an important step that must be taken as

departmental managers strive to improve Commerce security.

Homeland Security Presidential Directive-3 (HSPD-3), dated

March 12, 2002, established a Homeland Security Advisory

System for the nation and requires executive branch agencies to

implement protective physical security measures to reduce

vulnerability and increase response capability during periods of

heightened alert. Subsequently the Department issued a

memorandum to all Commerce operating units directing senior

officials to survey their current safety status and implement any

measures required by the directive that are not already in

place, along with supplementary measures that local conditions

may necessitate.

In addition Presidential Decision Directive 67, dated October

1998, directs federal agencies to develop continuity of operations

plans (COOPs) to ensure the performance of essential functions

during any situation that may disrupt normal operations. The

chaos of September 11 highlighted the need for each federal

agency to have a COOP in place that details the orderly transition

to emergency operations and ensures that essential services and

functions continue during a crisis, be it generated by terroristrelated incidents, natural disasters, or other events.

In our March 2002 report on the status of emergency

preparedness and security programs at a cross-section of

Commerce facilities in the Washington, D.C., area and across the

nation, we concluded that significant improvements had been

made since September 11 in the Department’s readiness to deal

with future emergencies. 

Complying with Directive 67 and other recent security-related

guidance is a complex, resource-intensive undertaking for

Commerce, given the size of its workforce, its diverse and

important missions, and the geographical spread of its

approximately 500 facilities across the 50 states and 160 overseas

locations. In recent inspections of overseas posts operated by the

U.S. and Foreign Commercial Service, we identified the need for

more timely security upgrades, improved oversight of security

operations, and better management of resources. Heightened

security requires a variety of measures: infrastructure risk

assessments, emergency backup sites, upgraded physical

security, and employee awareness and training, to name a few.

The Department’s personnel are being asked to safeguard life and

6

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General
property under emergency circumstances and to ensure that

essential functions continue during any of a broad spectrum of

emergencies. We believe Commerce is making progress on many

of these fronts, but the challenge is massive.

Given the heightened awareness of our vulnerability to acts of

terrorism, the Department will have to regularly revisit its

procedures for ensuring the safety and security of its employees

and operations, and modify them as needed. We will

continue to monitor its efforts in this regard and report our

findings accordingly.

CHALLENGE 6:

SUCCESSFULLY OPERATE

THE U.S. PATENT AND

TRADEMARK OFFICE AS

A PERFORMANCE-BASED

ORGANIZATION

The American Inventors Protection Act of 1999 established the

U.S. Patent and Trademark Office as a performancebased organization, giving it greater flexibility and

independence to operate more like a business. As such, USPTO

has not only broader responsibility for managing its

operations but also expanded control over its budget

allocations and expenditures, personnel decisions and

processes, and procurement operations.

In June 2002 the bureau responded to concerns of its many

stakeholders by issuing its 21st Century Strategic Plan, which it

believed would help guide the way to meeting the many

challenges that have accompanied its transition to performancebased operations. The bureau must continue to develop the

necessary personnel, procurement, and administrative policies,

as well as performance-oriented processes and standards for

evaluating cost-effectiveness, while meeting its performance

goals under the Government Performance and Results Act

(GPRA) and the timeliness standards of the American Inventors

Protection Act.

USPTO recently revised this 5-year strategic plan. According to

the agency, the plan is still aggressive and far-reaching in that it

provides a roadmap for major changes in patent and trademark

processes, including steps to (1) move to a paperless environment

and promote e-government, (2) enhance employee development,

(3) explore competitive sourcing, and (4) improve and maintain

quality assurance. USPTO’s strategic plan also calls for the

agency to work with worldwide intellectual property offices to

create a global framework for enforcing intellectual property

rights. However, it anticipates that by 2008 patent pendency will

be 27 months rather than the 18 months projected in the original

plan. USPTO now anticipates it will need at least a decade to

reach an 18-month pendency.

We plan to review some of the operational changes proposed in

USPTO’s plan. We view completion of USPTO’s transition to a

performance-based organization as critical to its operating

success and ability to address other challenges we identified in

recent years. Our office is currently reviewing whether and how

the productivity of patent examiners can be improved to help

decrease patent pendency. Specifically we are evaluating the

effectiveness and efficiency of current production levels and

goals and USPTO’s awards system. 

CHALLENGE 7:

INCREASE INTERNATIONAL

COMPLIANCE WITH TRADE

AGREEMENTS AND EXPAND

MARKET ACCESS FOR

AMERICAN EXPORTERS

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

companies need help addressing unfair trade practices, violations

of trade agreements, inadequate intellectual property protection,

and other impediments to the import and export of goods and

services, as well as trade disputes with foreign firms operating in

U.S. markets. Commerce must ensure that its trade compliance

and market access efforts adequately serve U.S. companies by

helping expand trade, open world markets, and eliminate unfair

competition from imports priced at less than fair market value or

subsidized by foreign governments.

Commerce, through various offices within the International

Trade Administration (ITA), works with the Office of the U.S.

Trade Representative, the Departments of State and Agriculture,

and numerous other federal agencies to monitor and enforce trade

agreements. The number and complexity of agreements have

increased substantially in recent years.

To help in its compliance efforts, ITA created the Trade

Compliance Center in 1996. The center monitors U.S. trade

agreements and reviews complaints from a variety of sources.

When warranted, it forms a compliance team to bring a case to

satisfactory conclusion. ITA operating units perform a

substantial amount of market access and trade compliance

work. Overall ITA’s approach to trade compliance and market

access is to try to solve problems at the lowest level

possible—avoiding formal dispute settlement structures such as

March 2003/Semiannual Report to Congress 7

Major Challenges for the Department
the World Trade Organization, which can take years to resolve

trade disagreements.

On the import side, unfair foreign pricing and government

subsidies can disrupt the free flow of goods and adversely affect

U.S. companies’ global competitiveness. ITA’s Import

Administration (IA) works with the International Trade

Commission to enforce the nation’s antidumping and

countervailing duty laws.

In 2001 GAO identified monitoring and enforcement of trade

agreements as a major management issue for Commerce, citing

two main reasons—one, the Department’s shortage of staff with

the expertise to monitor compliance with trade agreements, and

two, its difficulty obtaining balanced, comprehensive input from

the private sector. To address these issues the Secretary of

Commerce has made monitoring and enforcing trade agreements

a top priority for ITA and for the Department as a whole.

Commerce received additional funding for trade compliance

activities in FY 2001, and a recent audit found that with the

increased funding, ITA’s Market Access and Compliance unit

was able to effectively recruit and hire sufficient staff for critical

trade and compliance positions (see page 20).

To improve compliance with trade agreements, ITA also needs to

promote a more coordinated federal effort. We noted that the

bureau’s trade agreement compliance process, as managed by the

Trade Compliance Center, needs to better coordinate and track

trade compliance and market access activities within ITA (see

page 50 of our March 2002 Semiannual Report to Congress).

In the future, we intend to review other aspects of ITA’s

approach to market access and trade compliance, as well

as its administration of the antidumping and countervailing

duty regulations.

CHALLENGE 8: INCREASE THE

EFFECTIVENESS OF MARINE

RESOURCE MANAGEMENT

For nearly 30 years the National Marine Fisheries Service

(NMFS) has had to balance two competing interests: promoting

commercial and recreational fishing as vital elements of our

national economy and preserving populations of fish and other

8

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General

Boundaries for NMFS regions and fishery management councils.

Source: OIG. 
marine life. The Marine Mammal Protection Act of 1972 and the

Endangered Species Act of 1973 gave NMFS responsibility for

rebuilding and maintaining sustainable fisheries, promoting the

recovery of protected marine species, and protecting the health of

coastal marine habitats. The Magnuson-Stevens Act of 1976

made NMFS the primary federal agency for managing marine

fisheries and established a regional fishery management system

to help the agency carry out its mission. A 1996 amendment to

the act strengthened NMFS’ role in protecting and sustaining

fisheries.

Eight regional fishery management councils, along with NMFS,

are responsible for preparing plans to govern domestic fisheries

in federal waters. These plans set forth conservation and

management measures to prevent overfishing and rebuild

overfished stocks and to protect, restore, and promote the longterm health and stability of the fishery. 

COMPLEXITY OF REGULATIONS

CONSTRAINS ENFORCEMENT

OIG recently evaluated the enforceability of fishing regulations in

fishery management plans and the enforcement methods used by

NMFS’ Office for Law Enforcement (OLE). We found that the

complexity of the regulations resulting from the fishery

management process constrains the ability of OLE and the U.S.

Coast Guard to enforce them. Although we recognize that the

councils and NMFS must meet multiple challenges and

requirements in developing fishery management plans, we believe

that improving the clarity and, thus, the enforceability of

management measures will enhance the overall effectiveness of

both fishery management and enforcement efforts. We also found

that NMFS’ joint enforcement initiative with coastal states and

territories is beneficial in supplementing federal enforcement

efforts. However, priorities and funding guidelines for the joint

enforcement agreement program, and a process to verify and

document state performance, are needed. Finally, fishery

enforcement efforts would benefit from greater information sharing

within NOAA and among federal and state enforcement agencies. 

STOCK ASSESSMENTS ARE

OFTEN CONTROVERSIAL 

Fish stock assessments—the collecting, analyzing, and reporting

of demographic information about fish populations—are used to

help develop conservation and management measures in fishery

management plans. Stock assessments are a key element of the

fishery management process because they are used to determine

whether additional regulations are necessary to rebuild fish

stocks or whether greater fishing opportunities can be allowed.

Because of their potential impact on commercial and recreational

fishing, these assessments are often controversial. The methods

used to create the estimates typically undergo intense scrutiny by

fishers and conservation groups.

We are working on two reviews related to fish stock assessment.

The first is in response to a congressional request to review the

adequacy of NMFS’ process to ensure equipment it uses to

collect independent survey data is properly maintained and

calibrated. Congressional concern stemmed from allegations of

problems with the trawling equipment used to conduct NMFS’

survey of New England groundfish. The second is a review of the

NMFS observer program. Fishery observers are deployed on U.S.

commercial fishing vessels to collect catch data, monitor bycatch

and protected species interactions, and perform biological

sampling. The data is used to supplement research and aid in the

management of living marine resources. We are reviewing how

NMFS ensures data quality and whether the data is meeting

research and fishery management needs. 

CHALLENGE 9:

CONTINUE TO IMPROVE

THE DEPARTMENT’S

STRATEGIC PLANNING

AND PERFORMANCE

MEASUREMENT IN

ACCORDANCE WITH

THE GOVERNMENT

PERFORMANCE AND

RESULTS ACT

Congress and agency managers require relevant performance

measures and credible performance data to effectively fulfill their

oversight responsibilities with respect to federal programs. The

Government Performance and Results Act of 1993 was designed

to ensure the availability of such data by mandating that agencies

set goals for program performance and report outcomes

measured against those goals. As the government moves toward

integrating budget and performance information and using

performance data to make funding decisions, the validity of

reported performance results will be increasingly important.

Although we believe the Department has made progress toward

meeting the challenge of how best to plan and measure its

performance, significant opportunities for improvement remain

for meeting GPRA and other reporting requirements. One such

opportunity concerns data quality. Commerce should clearly

articulate the level of reliability that can be placed on the

performance data it provides in its annual Performance &

Accountability Report.

March 2003/Semiannual Report to Congress 9

Major Challenges for the Department
10

Major Challenges for the Department

U.S. Department of Commerce/Office of Inspector General

Another opportunity for improvement involves performance

measures: our audits of several such measures used by

departmental units (BIS, NIST, NTIA, and USPTO) indicate a

widespread need for stronger internal controls to ensure accurate

reporting of performance data and improved explanations and

disclosures of results. For example, procedures should be

established to ensure that (1) reported information is reconciled

against supporting data and (2) only data from the appropriate

time period is included in performance results.

These issues again emerged in our recent audit of selected

performance measures at NOAA. We are concerned that—for the

measures we evaluated—NOAA may need to (1) improve

internal controls, (2) restate data that was incorrectly reported in

the past, (3) provide additional disclosures and explanations of

performance results, and (4) assess the value of certain measures

to determine whether they should be dropped or revised.

We will continue to evaluate performance measurement and

reporting at NOAA and other bureaus and, as warranted, make

recommendations to the Department and its operating units

regarding the accuracy, appropriateness, reliability, and

usefulness of performance data used.

CHALLENGE 10:

EFFECTIVELY MANAGE

MAJOR COMMERCE

RENOVATION AND

CONSTRUCTION PROJECTS

USPTO and GSA are currently undertaking one of the federal

government’s largest real estate ventures—construction of

USPTO’s state-of-the-art office complex in Alexandria, Virginia.

When completed in 2005, the 5-building complex will consolidate

USPTO employees and operations currently scattered among 18

buildings in nearby Crystal City, Virginia. With construction well

under way, USPTO must aggressively hold the line on project

expenditures to stay within the legislatively mandated cap on the

cost of completing the build-out of the facility’s shell. It must also

monitor construction progress to help ensure the project stays on

schedule, and carefully implement the relocation of its facilities to

minimize costs and adverse effects on operations, employees,

patent applicants, and the public. We will be monitoring this major

challenge and will follow up on issues we identified during the

project’s planning and design, such as space planning and

allocation, relocation strategies, and actual versus target costs and

completion schedules.

In addition to USPTO’s complex, the Department has plans for

numerous major3 renovation and construction projects:

■ NOAA has 20 projects scheduled or in process including

the National Ocean Service’s Marine and Environmental

Health Research laboratory in South Carolina, a National

Marine Fisheries Service laboratory in Hawaii, and a

satellite operations facility in Suitland, Maryland.

■ NIST will continue its multimillion-dollar program to

upgrade existing laboratories in Gaithersburg, Maryland,

and Boulder, Colorado, and to complete construction of

the Advanced Measurement Laboratory building in

Gaithersburg and a central utilities plant in Boulder.

■ Included in the President’s budget is the Census Bureau’s

construction of two new buildings at its Suitland,

Maryland, headquarters, which will provide employees

with safe, modern facilities.

■ Commerce plans to modernize its headquarters, the

Herbert C. Hoover Building in Washington, D.C.

Effective renovation and construction management is a critical

challenge for the Department because of the numerous inherent

risks involved in planning and managing large, costly, and

complex capital improvement and construction projects.

Departmental leadership and OIG oversight are needed to

maximize Commerce’s return on its investment in these projects.

Past OIG reviews of major renovation and construction ventures

have demonstrated that up-front oversight—that is, close

monitoring during planning and implementation—is essential.

Detecting and addressing potential problems during the

developmental stages rather than after a project is begun or

completed saves time and money. For this reason, we continue to

actively monitor the progress of the Department’s current and

planned construction projects.

3 According to the U.S. Department of Commerce’s Office of Real Estate Policy

and Major Programs, as of fiscal year 2004, “major” projects are those costing

$2.3 million or more.

The $1.2 billion projected cost of USPTO’s five-building complex

represents more than 40 percent of the total planned major construction

budget estimated for Commerce’s five largest bureaus. Although USPTO’s

cost is proportionately larger, all these amounts represent sizeable

expenditures of taxpayer dollars, emphasizing the importance of closely

monitoring both project schedules and expenditures for all such projects.

Source: Commerce Office of Real Estate Policy and Major Programs.
March 2003/Semiannual Report to Congress 11

Department of Commerce

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

EXPORT CONTROL REVIEW REVEALS

WEAKNESSES IN BIS’ INVESTIGATIVE/

ADMINISTRATIVE PROCESSES

The inspectors general of the Departments of Commerce, Defense, and State, the

Central Intelligence Agency, and the U.S. Postal Service marked the fourth-year

requirement of the National Defense Authorization Act for Fiscal Year 20004 by

conducting an interagency review of government-wide efforts to enforce

export controls. They each, in turn, examined their own agency’s

enforcement activities. 

At Commerce, we reviewed the Bureau of Industry and Security’s (1)

conduct of investigations, (2) interactions with the law enforcement and

intelligence community, (3) monitoring of license conditions, (4)

outreach to exporters, and (5) end-use checks. These activities are

handled by BIS’ two primary divisions—Export Enforcement and

Export Administration. We found a number of deficiencies in each of

these areas, several of which we had identified in our 1999 export

licensing review.5

INVESTIGATIVE PROCESS NEEDS GREATER

MANAGEMENT ATTENTION TO INCREASE

CRIMINAL PROSECUTIONS AND

ADMINISTRATIVE SANCTIONS

The Office of Export Enforcement (OEE) endeavors to identify,

investigate, and apprehend violators of the Export Administration

Regulations (EAR) and to obtain criminal and administrative sanctions

against them. We uncovered systemic weaknesses at key points in the

investigative process that, cumulatively, have negatively impacted Export

Enforcement’s ability to achieve its mission. In FY 2002, for example, just 3 of

an average yearly caseload of 1,038 cases resulted in convictions, 25 were closed

with administrative sanctions, and 208 were closed with warning letters—an

informal action that imposes neither fines nor restrictions on export privileges but

advises exporters that the warning may affect how OEE pursues any future violations. 

BUREAU OF INDUSTRY

AND SECURITY

4 NDAA mandates that the inspectors general, in consultation with the directors of Central Intelligence and the Federal Bureau of Investigation, assess the adequacy

of export controls and counterintelligence measures for preventing countries and entities of concern from acquiring militarily sensitive U.S. technology and technical

information. The legislation further mandates that the inspectors general report their findings to Congress by March 30 of each year until 2007.

5 Improvements Are Needed to Meet the Export Licensing Requirements of the 21st Century, U.S. Department of Commerce Office of Inspector General, IPE-11488,

June 1999.

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.
Some of the investigative weaknesses are the result of factors

outside of BIS’ control. For example, the bureau must rely on

U.S. Attorneys to criminally prosecute its cases. We were told

that some of them are reluctant to accept these cases because of

their complexity, lack of jury appeal, and difficult enforceability

in the absence of strong export control legislation. Regardless,

we noted deficiencies in the following areas that warrant BIS’

attention and improvement: 

■ case management and guidance,

■ management oversight of the investigatory process, 

■ processing of license determinations,

■ the administrative remedy process,

■ collection of delinquent administrative penalties,

■ agent training, and

■ cooperation with other federal law enforcement and intelligence agencies. 

EXPORT ADMINISTRATION AND EXPORT

ENFORCEMENT ARE NOT ADEQUATELY

MONITORING LICENSES OR

STRATEGICALLY CONDUCTING

OUTREACH TO U.S. EXPORTERS

We noted deficiencies in the following areas: 

■ Licenses with Reporting Conditions EAR allows BIS

to further limit transactions and monitor shipments

authorized under an export license by placing conditions

on the license itself. There are 54 possible conditions, 7

of which have reporting requirements—that is, the licensee must provide BIS with various types of export

documentation on the shipment. Export Administration is

responsible for monitoring 6 of the 7 conditions, and

Export Enforcement the remaining one. We found that

Export Administration and Export Enforcement are not

adequately monitoring licenses with reporting conditions—a problem we identified in our 1999 report.

When license conditions are not carefully monitored, BIS

cannot be certain that goods were not diverted to unauthorized end users or that exporters who fail to comply

with conditions are denied subsequent licenses. 

■ Outreach While BIS does contact U.S. exporters to educate them about export controls, OEE has neither a

national plan for proactively identifying and conducting

outreach with manufacturers and exporters of critical

commodities nor formal guidance for helping agents

identify such firms. Export Enforcement did conduct

nationwide outreach to chemical manufacturers in the

immediate aftermath of September 11, 2001.

Nonetheless, without an established, proactive, national

program, BIS may miss opportunities to prevent export

violations through education and detect violations via

company leads.

BIS SHOULD CONTINUE TO IMPROVE THE

END-USE CHECK PROCESS

End-use checks, an important part of the license evaluation and

enforcement process, verify the legitimacy of dual-use export

transactions controlled by BIS. A pre-license check is used to

validate information on export license applications by

determining whether an overseas party is suitable for

involvement in the transaction. Post-shipment verifications

determine whether the exported goods were in fact received by

the party named on the license and are being used in accordance

with license provisions. Commerce’s U.S. and Foreign

Commercial Service (US&FCS) officers stationed at overseas

posts conduct most pre-license checks, while OEE agents

conduct most post-shipment verifications under the Safeguards

Verification Program. BIS export control attaches stationed at

Abu Dhabi, Beijing, and Moscow also conduct end-use checks. 

Our evaluation found that end-use checks are a valuable tool but,

despite improvements to the process, a number of the problems

we identified in 1999 remain unresolved. 

■ US&FCS checks Officers have not received training

needed to conduct effective end-use checks and can be

slow to complete them—problems made worse by BIS’

failure to sometimes provide adequate product information in its formal requests for end-use checks. In

addition, the end-use check handbook needs to be revised

to include instructions for coordinating checks with other

U.S. agencies at a particular overseas post and made

available on-line to ensure that officers have easy access

to the most recent guidance. 

■ Safeguards team checks Overall we believe the

Safeguards Verification Program is working reasonably

well. However, improvements in several areas—such as

the writing and dissemination of trip reports and coordination with other U.S. government agencies at

post—would likely make the program more effective. 

■ Pre-license checks BIS and licensing referral agencies

rely on the results of pre-license checks to determine the

ultimate disposition of a license application. We identified instances in which Export Enforcement

recommended rejection of license applications, but

Export Administration returned them to applicants without action—neither approval nor denial. The two offices

did not always attempt to reach consensus on license recommendations via the dispute resolution process outlined

in a 1996 memorandum of understanding. 

March 2003/Semiannual Report to Congress 13

Bureau of Industry and Security
EXPORT ADMINISTRATION’S

PROCESSING OF LICENSE

DETERMINATIONS FOR CUSTOMS

IS UNTIMELY

The Export Administration Act6 allows Customs to detain a

shipment for up to 20 days, after which it must formally seize or

release the goods. Within this 20-day window, Customs

must ascertain whether the commodity requires a valid license

for export and—for dual-use items—will request a license

determination from Export Administration. As in 1999 we found

that Export Administration is slow to process these requests: less

than 50 percent of the FY 2002 requests we examined were

processed within 20 days. We also found that the determination

referral process is not automated and that the two agencies had

insufficient guidance on the standard procedures and format for

(1) submitting license determination requests, (2) processing

them in a timely manner, and (3) providing recourse when they

are late. 

BIS indicated that bureau managers had already identified many

of the issues raised in our report and either had addressed them or

were in the process of doing so. Specifically BIS indicated that it

will be devoting greater management attention to the

investigatory process by tracking caseloads through its new

Investigative Management System and conducting periodic

caseload reviews, ensuring that license determinations are

completed on a more timely basis through BIS tiger teams,7

streamlining case processing, reviewing and taking appropriate

actions on delinquent accounts, and strengthening case

management procedures. BIS has said it will also improve its

monitoring of license conditions by programming automated

license reminders in its Export Control Automated Support

System to follow up on licenses with post-shipment verification

conditions 1 year after issuance and send automated reminders to

exporters. To improve the end-use check process, and consistent

with funding availability, BIS will provide training to US&FCS

officers at seminars in the United States and through regional 

training programs and individual briefings overseas. BIS will

also place the end-use check handbook on US&FCS’s protected

intranet site.

As indicated in our report, BIS management has been

consistently receptive to our concerns and recommendations, had 

begun some of the recommended corrective actions before

completion of the reviews, and is committed to taking vigorous

action to enforce federal dual-use export control laws. (OFFICE

OF INSPECTIONS AND PROGRAM EVALUATIONS:

IPE-15155)

STRONGER MANAGEMENT

CONTROLS ARE NEEDED FOR

EXPORT ENFORCEMENT’S

FIREARMS 

As part of our review of the Bureau of Industry and Security’s

enforcement of dual-use export controls, we looked at OEE’s

handling of firearms used by its special agents to determine

whether the bureau (1) complies with established laws,

regulations, and directives; (2) maintains adequate internal

controls; and (3) operates its firearms program with proper

management oversight and accountability. 

We found the physical security of firearms to be generally

satisfactory at the four field offices we visited. However, we

uncovered several systemic weaknesses resulting from

ineffective management controls and lack of accountability over

possession and use of BIS weapons at both headquarters and

field locations. 

■ Outdated Guidance OEE’s firearms policies and

procedures are codified in its Special Agent Manual,

which was issued in 1989. Although much of the

manual was revised in 2002, the firearms section was

not updated. Thus, some of its guidance is inconsistent

with current law enforcement requirements as well as

with recent directives put forth by the OEE director.

During our review we briefed OEE about our findings,

and it has recently drafted new firearms guidance to be

incorporated into the Special Agent Manual, which we

believe addresses most of the internal control weaknesses

we identified. 

■ Lax Inventory Controls Neither the current nor previous national firearms coordinator could provide us with

up-to-date inventory records or document to whom specific firearms were assigned. We identified other lapses

as well, such as instances in which weapons’ transfers

among offices were not reflected in inventory records,

and weapons listed in inventory records could not be

readily located. In some instances special agents in

charge (SACs) or their designated alternates claimed to

have conducted the required weapons inspections and

spot-checks and to have updated inventories accordingly

but could not document these actions.

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

Bureau of Industry and Security

6 Although the Export Administration Act is expired, the President’s executive

order invoking emergency authority under the International Emergency

Economic Powers Act directs the executive branch to continue to comply with

the provisions of EAA to the extent possible.

7 A “tiger team” is a group of users who volunteer or are hired to expose errors

or security holes in new systems, programs, processes, software, etc., or to find

out why a system’s security is being broken. In the U.S. military, a tiger team

is a group charged with trying to break through security around a military base

or special restricted area.
March 2003/Semiannual Report to Congress 15

■ Unreported Lost or Stolen Weapons We found two

instances in which an OEE field office reported a lost or

stolen weapon to the local police department but failed to

report it to the National Crime Information Center

(NCIC)—considered the primary nationwide system for

tracking stolen or recovered firearms. In response to this

finding, BIS did report one of the weapons to NCIC.

However, failure to report the incidents in a timely manner exposed OEE to negative publicity, had the missing

weapons been misused, and disclosed weaknesses in

OEE’s internal controls. 

■ Failure to Meet Weapon Qualification Requirements

Records covering the period October 2000 through June

2002 showed that 16 of 89 special agents (18 percent)

did not consistently qualify with their weapons and that

OEE did not remove weapons from those who failed to

qualify. In its comments on our draft report, BIS noted it

believes this is misleading in that agents are authorized a

30-day make-up period and, in the vast majority of cases,

all special agents qualified within that 30-day period.

However, BIS could not provide us any supporting documentation that such a 30-day grace period was BIS

policy or that the agents we identified had, in fact, qualified within the 30 days.

■ Use of Unauthorized Firearms We identified a need for

improvement in the following areas:

● Firearms used for official duty did not always

(1) conform to equipment standards or

(2) have approval for use or documentation to support that approval. 

● Some OEE agents were carrying personal weapons

without documented approval.

■ Excess Firearms Were Neither Surplused nor

Destroyed OEE issued new weapons to agents in

February 1998 but retained 135 of the retired

weapons as backups or replacements. We found that

103 of these remain unused and should therefore be

surplused or destroyed.

We made a number of recommendations to improve the firearms

program. BIS has since reported that it took action on all of them,

noting that it has properly authorized and documented all OEEissued or personally owned firearms, is now maintaining a

comprehensive list of firearms that agents are authorized to carry,

and is destroying unused backup weapons; and is issuing a

comprehensive, new firearms policy consistent with best

practices in the law enforcement community. (OFFICE OF

INSPECTIONS AND PROGRAM EVALUATIONS:

IPE-15155-1) 

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

REVOLVING LOAN FUNDS 

EDA’s Economic Adjustment Program provides, among other things, grants to capitalize revolving

loan funds (RLFs). Currently more than 600 RLFs are operating throughout the country, with

a total capital base of about $1 billion. This includes EDA’s share of the initial investment

and matching funds contributed by state and local governments, nonprofit organizations,

and other eligible recipients that operate RLFs. The program focuses on communities

and regions that have experienced or are threatened by serious structural damage to

their underlying economic base. The purpose of an RLF is to leverage other public

and private investment in key sectors of the local economy and to stimulate

employment for the local workforce. RLFs offer loans to local businesses that

otherwise cannot secure sufficient private financing, providing a continuous

infusion of economic development funds into the affected community. 

Because RLFs manage cash and other liquid assets, they are particularly

susceptible to fraud, waste, and abuse if not adequately managed and

monitored. Recognizing the sizable federal investment in these funds, we

have worked cooperatively with EDA over the past 2 years to identify

high-risk investments and have conducted a series of RLF audits targeting

projects on the basis of a variety of factors that typically suggest

heightened vulnerability. Such factors include minimal use of grant funds,

large uncommitted cash balances, and lack of single audit coverage. Our

audits have identified several recurring issues, the most serious of which are

■ unneeded funds from recapitalization grants,

■ excessive cash reserves,

■ inappropriate loans,

■ inadequate accounting for RLF assets (cash and loans), and

■ inadequate audit coverage.

Based on findings in individual audits, we have made recommendations, as

appropriate, to recoup unused grant funds, remedy fiscal and administrative

deficiencies, and ensure compliance with applicable laws and program requirements.

In all cases, EDA has required grant recipients to take prompt corrective action. 

Summarized below are the results of the eight RLF audits we conducted this semiannual period,

which include recommendations that more than $14 million of revolving loan funds be put to better

use. EDA is reviewing the audit findings and recommendations to develop corrective action plans.

AUDIT RECOMMENDS TERMINATION OF

SOUTH CAROLINA RLF THAT DUPLICATES EXISTING FUNDS

In the aftermath of 1989’s Hurricane Hugo, EDA awarded a $1 million RLF grant to a South Carolina economic development

organization, intended to create long-term employment opportunities for workers displaced by the hurricane by increasing the inventory

ECONOMIC DEVELOPMENT

ADMINISTRATION

The

Economic

Development

Administration was

established by the Public Works

and Economic Development Act

of 1965 to generate new jobs, help

retain existing jobs, and stimulate

commercial and industrial growth in

economically distressed areas of the United

States. EDA continues to fulfill this mission

under the authority of the Economic

Development Administration Reform Act of

1998, which introduced the concept of

Comprehensive Economic Development

Strategies, a local planning process designed to

guide the economic growth of an area. Based on

these locally and regionally developed strategies,

EDA works in partnership with state and local

governments, regional economic development

districts, public and private nonprofit

organizations, and Indian tribes to help distressed

communities address problems associated with

long-term economic deterioration and recent,

severe economic dislocations, including

recovery from the economic impact of natural

disasters, the closure of military installations

and other federal facilities, changes in trade

patterns, and the depletion of natural

resources. EDA provides eligible

recipients with technical assistance, as

well as grants for public works and

economic development, planning,

training and research, and

economic adjustment.
March 2003/Semiannual Report to Congress 17

of industrial buildings in rural areas of the state. The RLF

provided first mortgage loans to nonprofit local development

corporations to finance the speculative construction of industrial

buildings in the 24 South Carolina counties declared a disaster

area after the hurricane. Seven loans totaling $2,599,771 were

made between 1991 and 1996 to finance the construction of

seven buildings. 

At the request of the recipient, EDA amended the grant in July

2001 to modify the original RLF plan and eligibility area. The

amendment increased the number of counties covered by the

RLF to 41 of the state’s 46 counties and changed the lending

strategy from construction loans for speculative industrial

buildings to loans for business expansion and the acquisition of

fixed assets—a purpose routinely employed by EDA-funded

RLFs to meet long-term economic development objectives.

Our audit found that the RLF, as modified, unnecessarily

duplicates and competes with 13 existing RLF projects that

collectively cover the entire state of South Carolina and have

sufficient capital available to meet lending needs. The RLF has

made only two loans under its new operating plan—both of

which could have been made by one of the other funds—and has

failed to meet EDA’s 75 percent capital utilization standard for at

least 3 years, resulting in an excess cash balance of $713,637 as

of March 31, 2002. 

Based on the RLF’s apparent inability to make loans and the lack

of need for its services, we recommended that EDA terminate the

award, transfer administration of the two outstanding loans to the

RLFs serving the borrowers’ areas, and recover EDA’s $606,790

share of the fund balance. (ATLANTA REGIONAL OFFICE OF

AUDITS: ATL-14915)

CONTINUING PATTERN OF

MISMANAGEMENT REQUIRES

TERMINATION OF

WASHINGTON, D.C., RLF

An economic development corporation established to raise

educational, social, and economic levels of residents of southeast

Washington, D.C., received a $500,000 grant from EDA in 1979

to capitalize an RLF. Since its inception, the RLF has been

plagued by poor performance and inadequate financial

management. Problems such as inaccurate records, improper

loans, and questionable administrative expenses were previously

documented by this office in audit reports issued as early as 1985

(OIG report no. 5AD-5-0469). In a 1990 report (FMD-0022-0-

0008), we recommended that EDA terminate the award and take

action to recover $204,357 in fund assets used to make improper

loans and pay for undocumented administrative expenses. The

final audit determination required the economic development

corporation to repay $50,000 to the RLF over a period of 3 years. 

No payments were made during the agreed-upon period, and in

March 2002, EDA sent the recipient a payment demand and

requested an OIG audit of the project. Our audit revealed that

corporation officials had engaged in a continuing pattern of

neglect and mismanagement warranting termination of the award

for cause. In addition to the dereliction with respect to the

$50,000 reimbursement, we found that the fund administrators

were remiss in pursuing collections of defaulted loans, were

unable to properly account for RLF assets, and had otherwise

failed to meet their fiduciary responsibilities to the RLF.

Based on these findings, we calculated the amount due to the

federal government as follows:

Fund cash balance as of March 29, 2002 . . . . . . .$ 21,816

Defaulted loans unaccounted for . . . . . . . . . . . . . .519,010

Balance due from 1990 audit . . . . . . . . . . . . . . . . . .50,000

Interest on $50,000 through 12/31/02 . . . . . . . . . . . .10,792

Amount to be refunded to EDA . . . . . . . . . . . .$ 601,618

We recommended that EDA take immediate action to terminate

the grant and recover $601,618 from the corporation.

(ATLANTA REGIONAL OFFICE OF AUDITS: ATL-15124)

NEW YORK RLF HAS MILLIONS IN

EXCESS CASH RESERVES 

A 1993 OIG audit of a $10 million RLF grant to a New York

State agency (ATL-4603) revealed substantial waste and misuse

of the RLF capital, and the state was required to reimburse the

fund for $13 million. By July 2002 the RLF’s capital balance

had grown to $25 million, distributed between two subsidiary

funds administered by the two counties intended to benefit from

the award.

Our 2003 audit of the RLF found that it had a total of almost $6.3

million of uncommitted cash on hand. While permissible under

EDA’s 75 percent capital utilization standard, we concluded that

a portion of this amount could be put to better use by increasing

capital utilization. This action is consistent with EDA guidelines

for RLFs with capital bases in excess of $4 million, which are

expected to maintain a proportionately higher percentage of their

funds loaned out. The 90 percent standard we recommended

would result in an additional $3.8 million committed to loans,

while still leaving $2.5 million as allowable cash on hand.

The audit also disclosed multiple instances of noncompliance

with applicable RLF administrative requirements on the part of

the state and both beneficiary counties. (ATLANTA REGIONAL

OFFICE OF AUDITS: ATL-15390)

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

SIGNIFICANT DEFICIENCIES FOUND IN

ADMINISTRATION OF CALIFORNIA RLF

Our audit of an RLF serving three California cities disclosed

significant management deficiencies and multiple instances of

noncompliance with grant requirements, including the award of

prohibited loans and loans to ineligible borrowers; failure to

maintain adequately documented loan files and an approved RLF

plan; a $1.9 million leveraging shortfall for the loan portfolio;

and failure to properly account for fund expenditures or to ensure

required audit coverage. (DENVER REGIONAL OFFICE OF

AUDITS: DEN-15181)

INADEQUATE MANAGEMENT OF

RLF IN ALASKA 

During this semiannual period, we audited two RLFs operated by

a nonprofit organization in Alaska, finding serious indications of

inadequate management. Excess cash reserves totaling $256,000

were being maintained in the funds, and both loan portfolios have

performed poorly: 41 loans representing 93 percent of the funds’

total outstanding loan principal were in default, and there was

little evidence of collection efforts. In addition, loan files lacked

proper documentation; loans had been made in violation of

applicable conflict of interest provisions; the RLF plan was

obsolete; and required organizational audits did not properly

report RLF expenditures. (DENVER REGIONAL OFFICE OF

AUDITS: DEN-15182)

EXCESS CASH RESERVES AND

UNDERREPORTING OF INTEREST

INCOME AT CALIFORNIA RLF

Our audit of an RLF operated by a major California city disclosed

that the city had not met EDA’s capital utilization standard for the

fund during the past 4 years, resulting in nearly $1.2 million in

excess cash reserves. In addition, the city did not properly

account for RLF cash and underreported program income by

failing to credit the RLF with all interest earned. (DENVER

REGIONAL OFFICE OF AUDITS: DEN-15183)

EXCESS CASH RESERVES AND

INADEQUATE AUDIT COVERAGE 

OF ILLINOIS RLF

Our audit of a 1984 RLF grant to a city in Illinois revealed that

the recipient had not met EDA’s 75 percent capital utilization

standard for several reporting periods and was maintaining nearly

$1.7 million in excess cash reserves. We also found that annual

audits of the city’s financial statements were not conducted in

accordance with the Single Audit Act and OMB Circular A-133,

and that $95,000 in administrative expenses had been improperly

charged to the RLF on the basis of estimates rather than actual

costs incurred. (DENVER REGIONAL OFFICE OF AUDITS:

DEN-15183)

WISCONSIN RLF MADE

INAPPROPRIATE LOANS 

We audited an RLF grant awarded to a Wisconsin regional

planning commission in 1983 and found that the recipient had

made loans totaling $250,000 to obtain an equity position in an

affiliated venture capital company, which violates program

proscriptions on conflicts of interest and the use of RLF funds to

acquire an interest in a business. We also found that the recipient

had failed to contribute its full matching share to the fund.

(DENVER REGIONAL OFFICE OF AUDITS: DEN-15308)

Economic Development Administration
MANAGEMENT WEAKNESSES AT US&FCS

OFFICES IN TURKEY REQUIRE ATTENTION 

The U.S. Foreign and Commercial Service (US&FCS) post in Turkey is the 21st

largest of its overseas offices, in terms of operating budget ($1.34 million in fiscal

year 2002). US&FCS Turkey maintains offices in Ankara, Istanbul, and Izmir,

and constituent posts in Armenia and Turkmenistan. It has a diverse portfolio of

programs, including one of the agency’s most active advocacy programs for

helping U.S. firms compete for large projects.

We conducted an inspection of US&FCS Turkey operations from July

through November 2002, focusing on post operations during fiscal years

2001 and 2002. We assessed the post’s management, program,

financial, and administrative practices as well as its coordination with

other organizations in achieving ITA and Commerce goals. Our

purpose was to determine whether the post plans, organizes, and

controls its work and resources effectively; meets the needs of U.S.

exporters; is helping increase U.S. export levels and market access;

and uses appropriate internal controls and financial management

procedures. We also sought to identify best practices that could be

useful for other Commercial Service posts, assess US&FCS Turkey’s

participation in trade compliance efforts, and evaluate infrastructure

issues such as information technology and physical security.

WHAT WE FOUND

Our inspection revealed a post in transition in the face of key management

changes and economic uncertainties: a new senior commercial officer had

recently arrived in Ankara and a new principal commercial officer in Istanbul.

They faced an array of weaknesses in post operations. We believe that US&FCS

Turkey’s future success will depend on strong post management and administration

by both the senior commercial officer in Ankara and the Commercial Service’s Office

of International Operations (OIO) in Washington. Our key findings and

recommendations are summarized below. 

Management of the Post Needs to Be Strengthened 

Ineffective management practices and oversight in recent years had fostered a number of problems: products and

services were sometimes untimely and inadequate, reports of export successes were inaccurate, and some performance

appraisals were not prepared in a timely manner. OIO oversight also had been lacking in that the office did not address post problems

or provide sufficient training and development for senior officers. 

The

International

Trade Administration

is responsible for trade promotion

and policy issues associated with

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

Trade Representative to coordinate U.S. trade

policy. ITA has four principal units:

Market Access and Compliance develops and

implements international economic policies of a

bilateral, multilateral, or regional nature. Its main

objectives are to obtain market access for American

firms and workers and to ensure full compliance by

foreign nations with trade agreements signed with the

United States. 

Trade Development advises on international trade and

investment policies pertaining to U.S. industrial sectors,

carries out programs to strengthen domestic export

competitiveness, and promotes U.S. industry’s

increased participation in international markets.

Import Administration defends American industry

against injurious and unfair trade practices by administering the antidumping and countervailing duty

laws of the United States and enforcing other trade

laws and agreements negotiated to address such

trade practices. 

U.S. and Foreign Commercial Service promotes the export of U.S. products and

helps small and medium-sized businesses market their goods and services

abroad. It has 105 domestic

offices and 157 overseas posts

in 84 countries. 

March 2003/Semiannual Report to Congress 19

INTERNATIONAL TRADE

ADMINISTRATION
US&FCS Turkey Is Meeting the Needs of

Most Customers but Could Do Better

Many of the clients we spoke with during our inspection were

pleased with the post’s efforts to support U.S. trade and business

interests in Turkey. Even so, we found that (1) some services and

market research products were delivered late and did not meet

guidelines in the Commercial Service Operations Manual and

(2) reporting on market developments in Turkey was poor—

particularly in key sectors like telecommunications and energy,

which are being privatized. 

Financial Operations and Administrative

Matters Are Generally in Order but

Identified Problems Require Attention 

US&FCS Turkey’s financial management and administrative

operations are functioning effectively, but we did note

deficiencies such as the following: (1) representation

(entertainment) funds may have been used for nonofficial

entertainment, (2) government vehicles may have been used

inappropriately and logs of their use not properly maintained, and

(3) oversight of the travel card program was inadequate and

procedures not always followed. We also noted problems with

management of Izmir’s petty cash fund and some costs associated

with International Cooperative Administrative Support Services

(ICASS)8 that could be reduced.

US&FCS Describes Actions Taken

The Commercial Service concurred with all but one of our

recommendations and described actions it is taking to strengthen

oversight of its Turkey operations as well as to address the

potentially systemic problems we identified with senior

commercial officer training and development. At the close of the

semiannual period it was still considering the one remaining

recommendation—that it revise its Operations Manual to

explicitly require posts to provide U.S. client confirmation of

export successes. (OFFICE OF INSPECTIONS AND

PROGRAM EVALUATIONS: IPE-15370)

MARKET ACCESS AND

COMPLIANCE SUCCESSFULLY

INCREASED STAFF CAPACITY

TO IMPROVE MONITORING

AND ENFORCEMENT 

In response to growing concern over ITA’s ability to monitor and

enforce trade agreements, Congress authorized a significant

increase in funding for trade compliance activities in FY 2001.

With these additional funds, ITA’s Market Access and

Compliance (MAC) unit added 35 full-time equivalent positions

under the Trade Compliance Initiative to help monitor and

enforce trade compliance agreements. 

We conducted an audit to determine whether MAC was able to

recruit, hire, and retain staff to fill these positions. Overall, we

found that MAC was able to do so—attracting staff with varying

degrees of experience and expertise without having to request

special hiring authority and without having to offer any other

type of recruitment incentives. 

To fill the 35 new vacancies, the agency promoted internal

candidates; hired from outside the federal government;

reassigned current ITA staff; hired employees from other federal

agencies; and reinstated prior career civil service employees. By

the end of the fiscal year, selections had been made to fill all 35

job vacancies. (ECONOMICS AND STATISTICS AUDITS

DIVISION: ESD-15499)

20

International Trade Administration

U.S. Department of Commerce/Office of Inspector General

8 ICASS is the State Department’s system for providing administrative

services—on a cost-sharing basis—to U.S. agencies’ overseas operations.
ADDITIONAL IMPROVEMENTS NEEDED IN

NOAA’S "CORPORATE COSTS" PROCESS 

NOAA is the largest agency in the Department of Commerce and has a varied and

complex set of program responsibilities. The agency’s combined environmental

mission—to predict atmospheric changes and manage coastal marine resources—

helps ensure sustainable economic opportunities. NOAA’s "corporate costs"

refer to expenses associated with central executive management and policy

setting and to costs associated with administrative services provided by the

Office of Finance and Administration (OFA). 

Within OFA, the Office of Budget’s Business Management Fund

Division is responsible for managing corporate costs. NOAA’s

Corporate Board—composed of the Deputy Undersecretary for Oceans

and Atmosphere, NOAA’s chief financial officer, and the deputy

assistant administrators of the National Marine Fisheries Service;

National Ocean Service; Office of Oceanic and Atmospheric

Research; National Weather Service; National Environmental

Satellite, Data, and Information Service; and Office of Marine and

Aviation Operations—is responsible for reviewing and approving the

corporate-costs budget. 

Corporate costs are funded from a variety of sources: the Procurement,

Acquisition and Construction account; the Operations, Research and

Facilities account; line office appropriated funds; and an overhead

charge applied to NOAA’s reimbursable projects as a percentage of total

reimbursements. In FY 2000 corporate costs totaled $153 million—$92.5

million came from either assessments or direct billings to the line office

appropriations; $50 million from the Operations, Research and Facilities

account Program Support appropriation; and $10.9 million from overhead

charges applied to NOAA’s reimbursable projects.

PROCESS AND PRACTICES USED TO

DEVELOP THE BUDGET

We conducted a performance audit of the process and practices NOAA used to develop its corporatecosts budgets for fiscal years 2000 and 2001, focusing on NOAA’s management and funding of costs for

centrally controlled administrative services. Our objectives were to determine whether (1) the methodologies used

to distribute the corporate-costs budget throughout NOAA were systematic and rational, (2) the planning process for developing the

annual corporate-costs budget was reasonable, and (3) the deficiencies identified in previous studies had been addressed through

corrective action.

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

inland waters, the lower and upper atmosphere,

space environment, and the Earth.

Office of Marine and Aviation

Operations operates NOAA’s ships and

aircraft and provides NOAA

programs with trained technical

and management personnel

from the nation’s seventh

uniformed service.

March 2003/Semiannual Report to Congress 21

NATIONAL OCEANIC

AND ATMOSPHERIC

ADMINISTRATION
Distribution of Cost Assessments Are

Based on an Inappropriate Methodology 

According to its Budget Handbook, NOAA should be funding

most corporate-costs activities by assessing line offices

according to "direct labor rates," that is, the number of full-time

employees. Our audit showed, however, that assessments were

based on what could best be described as a hybrid of historical

practices and direct labor assessments. Unfortunately, neither the

prescribed direct labor methodology nor the hybrid approach is

appropriate because neither results in a fair and transparent

correlation between costs assessed and services provided. 

"Direct Billing" Algorithms Are Not

Always Reasonable 

NOAA also funds a portion of corporate-costs activities by

directly billing line offices for special services. A proper direct

billing methodology should trace the services provided to the

actual associated costs and bill the specific entity benefiting from

those services. Under NOAA’s system, various allocation

methodologies are used to distribute the "direct" costs to the line

offices, in some cases to offices that may not have derived any

benefit from the services at issue. Also, the methodologies

applied different algorithms depending on the services

provided—algorithms that were sometimes inequitable,

unreasonable, or inappropriate as well as inconsistent in

correlating costs to services received. Consequently there was

questionable assurance that the line offices were paying an

appropriate and reasonable portion of the costs. 

No Formal Policies and Procedures

Exist for Governing the Corporate-Costs

Budget Process

We found that NOAA had no formal, documented policies and

procedures for managing the corporate-costs process. Without

such policies and procedures, there can be no assurance that these

costs are developed and managed in a consistent and equitable

manner throughout the budget cycle; also, internal controls are

inadequate to ensure that the corporate-costs budget is properly

developed and consistently managed and that costs are

effectively contained. In addition, because there are no formal

requirements to create and maintain supporting documentation,

there is no assurance that the information the Corporate Board

uses to make funding decisions is accurate and fully supported.

Another issue concerning the board involves its lack of a charter.

Although established in 1999 to provide oversight for the

corporate-costs process, no charter identifying board

membership, responsibilities, objectives, or activities was

developed. A formal, well-defined charter is key to effective

internal controls that address cost containment responsibilities

and outline the issues the board must address. 

Previous Studies Identified Problems That

Have Yet to Be Fully Addressed 

NOAA, aware of many of the problems with its budgetary and

financial systems, commissioned several studies of these issues.

Between 1996 and 1998 several NOAA internal studies resulted

in recommendations regarding accountability and operational

issues affecting the corporate-costs process such as tying

assessments to services received, increasing the involvement of

top NOAA officials in the process, and enhancing customers’

involvement in the process. In 2000 the National Academy of

Public Administration (NAPA), at NOAA’s request, reviewed

NOAA’s budget and financial management processes. Its report

addressed accountability issues, incorporated issues from

NOAA’s previous studies, and made consolidated

recommendations to address the problems. 

NOAA’S CORRECTIVE ACTIVITIES 

NOAA responded to some of the recommendations by

undertaking important improvements including 

■ creating and filling the position of deputy chief financial

officer/ director of budget at the Senior Executive

Service level, 

■ involving the line offices in the budget process, 

■ establishing a budget office division to oversee the corporate-costs process, 

■ restructuring NOAA’s budget to fund executive management and policy direction from Program Support

appropriation funds and not from line office assessments,

and 

■ issuing revised indirect cost policies and procedures. 

In addition, so that activity-based costing can be used as a

methodology for distributing the costs, NOAA contracted with a

private firm to define the central administrative services provided

to line offices and their associated service costs. The agency has

also taken action to establish a Business Management Fund,

structured as a working capital fund, as the financing mechanism

for the costs. 

Despite this progress, NOAA has more to do. In addition to

addressing the issues outlined in our audit report, the agency

should develop a formal plan to address, as appropriate, each of

the as-yet unresolved NAPA report recommendations, which

were designed to improve accountability, ensure a clear and

formal requirements process, develop a methodology to

correlate costs to services provided, and convert nonservice

activities, currently funded by assessments, to appropriationsbased funding. 

22

National Oceanic and Atmospheric Administration

U.S. Department of Commerce/Office of Inspector General
RECOMMENDATIONS AND THE

AGENCY’S RESPONSE

Overall, NOAA concurred with the findings and

recommendations of our audit, but stated that the report does not

adequately acknowledge all the work currently under way and

near completion. The response noted that many of the problems

identified in our report covering FYs 2000 and 2001 had been

corrected for the FY 2002 process and that the Business

Management Fund division is now guided by principles that will

result in converting cost allocation from an assessment-based

methodology to an activity-based methodology. NOAA further

stated that it is developing a clear and formal requirements

process for FY 2004 and had

■ established an open corporate-cost development process

in which customers participate and support proposals;

■ created a charter for the Corporate Board (currently

under review by NOAA senior management);

■ improved its Corporate Board review process so that it

now culminates in final decisions early in the fiscal year;

■ developed a funds-control process in OFA that includes

monthly budget reports, adherence to a table of organization encompassing OFA’s authorized personnel as well as

publicly reported year-end closeouts; and

■ completed a comprehensive activity-based costing review

of all of OFA’s services that will align services to customer needs and bill for them accordingly. 

(SCIENCE AND TECHNOLOGY AUDITS DIVISION:

STD-14427)

TIGHTER MANAGEMENT

CONTROLS NEEDED FOR

NWS’ TRAVEL CARD

PROGRAM 

The Travel and Transportation Reform Act of 1998 and the

Federal Travel Regulation (FTR) mandate that federal

employees use a contractor-issued travel card to pay expenses

related to official government travel, unless an employee is

otherwise exempted.

The Department of Commerce maintains two types of travel card

accounts: (1) centrally billed accounts are used by Commerce

agencies to obtain travel services from a commercial travel

contractor, and the government is liable for these charges; (2)

individually billed accounts are issued directly to employees,

who are personally responsible for all charges and payments. 

We audited a sample of individually billed accounts in

NWS headquarters—evaluating transactions made during the 13-month period

from February 2001 through

March 2002—to determine

whether cardholders were

complying with the FTR, the

DOC Travel Handbook, and

NOAA-issued travel regulations and policies, and

whether NWS’ internal controls for the travel card program were adequate and fully

implemented. We concluded that most cardholders used their

travel cards properly and paid their bills promptly. We did, however, identify several instances of misuse and a number of internal control weaknesses in NWS’ oversight of the program, and

we made recommendations to resolve these deficiencies.

■ Unallowable Uses Our examination of records for 73

cardholders identified 8 who had taken cash advances

when not on official travel, including one who obtained

advances totaling $20,600, and another who had withdrawn $14,300. We also identified 14 employees who

used their cards for personal expenses—ranging from

dinner to dog kennel fees. 

■ Delinquencies The DOC Travel Handbook requires

cardholders to pay monthly balances in full no later than

25 calendar days from the closing date of the statement.

As of October 1, 2000, 5 of the 536 NWS headquarters

accounts were 61 days or more past due, with delinquent

balances totaling $7,863. Between October 2000 and

December 2001, 15 headquarters cardholders were 61

days or more past due on amounts ranging from $6 to

$3,500. However, during our review NWS’ chief financial officer revised existing procedures for review of

delinquent accounts with the result that by December

2001, only 2 NWS accounts were 61 days or more in

arrears (with a total balance due of $615).

NWS concurred with our recommendations that, among other

things, it reinforce the importance of adhering to the FTR and the

DOC Travel Handbook, take steps to ensure that employees fully

comply with these requirements and take action against those

who do not, and require cardholders and their supervisors to

annually complete refresher training. The agency subsequently

issued a memorandum instructing cardholders and their

supervisors to follow travel card regulations, including those for

new card applications and those for assessing penalties for card

misuse. NWS noted that the Department, per the DOC Travel

Card Program Remedial Action Plan, is revising the existing

table of penalties and that NWS will require its financial

March 2003/Semiannual Report to Congress 23

National Oceanic and Atmospheric Administration

NOAA—Commerce’s

largest agency—had

10,275 travel cardholders

in December 2001.

Forty-two percent of

these (4,320) were

NWS employees whose

annualized cash advances

and travel expenses were

estimated at $6.4 million.
management centers to use the revised table once it is issued.

(BUSINESS AND TRADE AUDITS DIVISION: BTD-14972)

ACCURACY AND

RELIABILITY OF SOME

NOAA PERFORMANCE

MEASURES ARE

QUESTIONABLE

In pursuing its strategic goal to "observe and manage the Earth’s

environment to promote sustainable growth," the Department of

Commerce relies on the work of the National Oceanic and

Atmospheric Administration. To support the Department’s goal,

NOAA established seven performance goals of its own that focus on

a range of environmental research, management, and stewardship

activities. Within each of its goals are measures for assessing

performance of NOAA programs. Commerce includes the results

of these assessments in its annual Performance & Accountability

Report, which is prepared, in part, to meet requirements of the

Government Performance and Results Act of 1993.

As part of our continuing series of performance measurement

audits, we evaluated measures for two NOAA goals during this

last semiannual period—(1) promote safe navigation and (2)

sustain healthy coasts. We assessed NOAA’s methods for

collecting and reporting performance information and sought to

determine whether internal controls over data collection ensured

accurate, consistent, and reliable reporting. We found that

existing internal controls could not always provide such

assurance and noted several other deficiencies common to the

measures, including lack of enough relevant detail to make the

data clear and useful to interested parties. 

24

National Oceanic and Atmospheric Administration

U.S. Department of Commerce/Office of Inspector General

Performance Goals

Promote Safe Navigation Sustain Healthy Coasts

Measure Measure

Common Problems 

Results include nonuniform data ● ●

Results include data from outside 

reporting period ● ●●

Results not reconciled with 

supporting documentation ● ●●● ●

Supporting documentation lacking ●● ●

Standard verification/validation 

procedures not documented ● ●●● ●

Cumulative resources not linked 

with annual funding ● ●●●

Discussion of verification 

procedures unclear ● ●●● ●

Additional disclosures needed ● ●●● ●

Percent

reduction in

hydrographic

survey backlog

(cumulative)

Percent of

National Spatial

Reference System

completed

(cumulative)

Number of

acres of

coastal habitat

benefited

(cumulative)

Percent of

U.S. shoreline/

inland areas with

improved ability

to reduce coastal

hazard impacts

Reduced

introductions and

effects of invasive

species in a total

of six regions

within the U.S.
We also identified a number of weaknesses specific to each

measure—for example, NOAA’s FY 2001 reporting of critical

backlog reductions under "promote safe navigation" included

miles surveyed outside the backlog area, did not make clear that

the results were based on a revised backlog, and counted areas

designated for survey by contractors before the surveys were

completed. 

Because the accuracy and reliability of reported information is

largely a function of adequate internal controls, NOAA needs to

promptly correct internal control weaknesses and inaccurately

stated results. In doing so, it will enhance the credibility and

usefulness of the performance information it reports to Congress,

OMB, and other stakeholders. NOAA concurred with our

recommendations. (FINANCIAL STATEMENTS AUDITS

DIVISION: FSD-14998)

PROACTIVE MEASURES

NEEDED TO IMPROVE

FEDERAL FISHERIES

ENFORCEMENT 

The Magnuson-Stevens Fisheries Conservation and Management

Act of 1976 placed under federal jurisdiction all living and

nonliving marine resources within 200 miles of the U.S. coastline

in what is now known as the U.S. Exclusive Economic Zone

(EEZ). The act instituted a regional system for allocating

harvesting rights to domestic fisheries, and gave responsibility

for fisheries management to the Secretary of Commerce (through

the National Marine Fisheries Service) and eight regional

councils. The councils, along with NMFS, prepare management

plans that govern domestic fisheries in the EEZ.

The U.S. Coast Guard and NMFS’ Office for Law Enforcement

(OLE) share responsibility for enforcing federal fishery

regulations that result from the fishery management council

process. The Coast Guard primarily handles enforcement at sea.

OLE focuses on shoreside enforcement, which includes dockside

monitoring and investigative work. 

We assessed not only OLE’s methods of enforcing fishery

management plans developed by the councils but also the

enforceability of the measures. We examined OLE’s role in the

council process; the emerging role of coastal states and territories

in federal fisheries enforcement; and the status and importance of

information sharing within NMFS and across federal and state

enforcement agencies. Within each area, we identified a number

of concerns that, taken together, may compromise the

effectiveness of fisheries enforcement. 

SUMMARY OF FINDINGS

Enforceability of fishery management measures. The

Magnuson-Stevens Act sets 10 national standards for fishery

management plans, but many of the standards address competing

interests. For example, the councils and NMFS are charged with

preventing overfishing—usually accomplished by limiting some

type of fishing activity—while minimizing the economic impacts

of restrictions on fishing communities. In trying to meet the

national standards and regional fishery priorities, the councils

often develop complex plans that contain numerous regulatory

exemptions, which both confuse fishers and complicate

enforcement.

OLE involvement in the council planning process. Given

OLE’s substantial fisheries enforcement expertise, its

involvement in the council planning process is essential to

ensuring that enforcement issues are adequately considered early

on. Although OLE representatives are not permitted to sit on a

council, they may seek membership on a council subgroup: each

has an advisory panel or law enforcement committee or both.

However, the role and influence of these groups vary from one

council to the next: some meet sporadically, some do not give

enough focus to enforcement, and some do not consult with the

full council early enough to impact final decision making. By

encouraging these groups to meet regularly, seek out multiagency

membership, adopt a charter to document their purpose, and

request a standing time slot on the full council’s meeting agenda,

OLE can help enhance their effectiveness—and its own—in

communicating enforcement concerns to the full councils. 

Use of vessel monitoring systems to police closed areas.

Closing areas to certain fishing activities and equipment has

proven to be a successful strategy for rebuilding stocks. A

number of council plans require fishing vessels to carry a vessel

monitoring system (VMS) so that OLE can monitor fishing

activity electronically 24 hours a day, 7 days a week. VMS is

implemented differently across the country. We noted that NMFS

needs to provide leadership to ensure that lessons are learned and

VMS best practices are shared across the councils and NMFS

regions. In addition, the high cost of VMS, a general industry

aversion to such electronic monitoring, and the inequitable

distribution of VMS costs have generated some continuing

resistance to using the technology. Fishers are well aware that

NMFS shares VMS costs in some areas, pays them entirely in

others, and looks to fishing vessels to bear all costs in still other

fisheries. We also raised the issue that scientific interest in VMS

data is growing. Because guidelines for collecting research data

are less stringent than those for gathering enforcement

information, we were concerned that ships might wind up

carrying two sets of VMS equipment—one to collect research,

one to collect enforcement information. 

March 2003/Semiannual Report to Congress 25

National Oceanic and Atmospheric Administration
26

National Oceanic and Atmospheric Administration

U.S. Department of Commerce/Office of Inspector General

Enforceability of Selected Fishery Management Measures

Methods of Fisheries Enforcement

KEY

✕ Impossible or Impractical 

● Reasonable

★ Excellent

FISHERY MANAGEMENT MEASURES

Closed Seasons - Specific times of the year during which fishing is prohibited. ★ ● ● ●●

Days -At-Sea - A specified number of days that a fishing vessel is absent from port to

fish for, possess, or land regulated species. ✕ ✕ ● ★★

Fully Closed Area - Areas of the sea where all vessels are prohibited. ★ ★ ✕ ✕★

Gear-Restricted Areas - Areas where the use and/or possession of specific fishing gear

is prohibited. ● ● ✕ ✕✕

Gear Regulations - Prohibitions or requirements related to gear. "Gear" includes the

methods and tools to harvest the resource, vessels, horsepower, number of traps, and

gear modifications used to protect certain marine species (e.g., turtle excluder devices). ★ ✕ ● ●✕

Individual Fishing Quota - Allocation of a specified amount of particular fish species to

an individual, vessel, or group of vessels. ✕ ✕ ★ ●✕

Limiting Amount/Percent Bycatch Landed - Limits on the amount or percentage of

nontargeted species allowed on board a fishing vessel. ✕ ✕ ✕ ✕✕

Permits - Prohibits fishing for specific species unless authorized by the issuance and

possession of a permit. ★ ✕ ★ ★✕

Prohibiting Bycatch Retention - Prohibits the retention of nontargeted species aboard

fishing vessels. ● ✕ ★ ●✕

Prohibited Species - Prohibits possession or retention of specific species. ● ✕ ★ ●✕

Record Keeping and Reporting - Tracks fishing effort and catch as input to future

management decisions (e.g., vessel logbooks). ● ✕ ● ★✕

Size Restrictions - Prohibits possession of fish below or above a specified size. ★ ✕ ★ ●✕

Bag/Possession Limits - Specifies amount of a particular species that may be landed

per trip. Low volumes are generally measured by numbers of fish that can be easily

counted on-board. ● ✕ ★ ●✕

Trip Limits - Specifies amount of a particular species that may be landed per vessel

per trip. ✕ ✕ ● ★✕

Vessel Monitoring System - Requires vessels to keep a positioning transmitter

(transponder) on board. ★ ✕ ● ★★

Source: OLE responses to OIG questionnaire, documentation from the Coast Guard and Atlantic States Marine Fisheries Commission, and interviews. At-sea vessel At-sea air Dockside

Complex investigationsVMS
We recommended that NMFS become more proactive in

addressing fishers’ concerns, develop a strategy for implementing

VMS in the various NMFS regions, and establish minimum

standards that would satisfy both scientific and enforcement

needs for future VMS applications.

Joint enforcement agreements. Congress gave NMFS $15 million in fiscal year 2001 to fund state assistance with federal

fisheries enforcement in the EEZ. OLE transferred these funds to

participating states via joint enforcement agreements and currently

has such agreements with 20 coastal states and territories. OLE

relies on joint agreements to fill some gaps left by shifting federal

enforcement priorities. OLE had to develop the program and

allocate funding under considerable time constraints and now

needs to prepare clear and specific guidance about the program,

including federal fishery enforcement priorities and funding

options and processes. It also needs to adequately verify and

document state-submitted performance information. 

Inter- and intra-agency information sharing and cooperation. To have maximum impact on enforcement efforts,

fisheries data should be available to and circulated among all

relevant management and enforcement organizations, including

the various components of NMFS and federal and state

agencies.

NMFS’ regional offices, science centers, and fishery observer

programs collect a wealth of fishery data within each region—

an important resource for identifying potential violations.

However, OLE agents cannot quickly access and analyze this

data because NMFS’ numerous data collection systems do not

interface, and some observer program managers are reluctant

to share data collected for scientific purposes with enforcement

officials. Data sharing between NMFS and the Coast Guard is

also hampered by incompatible IT systems. And information

exchange between these agencies and their state enforcement

counterparts is significantly limited by the Magnuson-Stevens

Act. 

NOAA fully concurred with our recommendations and is taking

a number of actions to address our concerns. (INSPECTIONS

AND PROGRAM EVALUATIONS: IPE-15154)

March 2003/Semiannual Report to Congress 27

National Oceanic and Atmospheric Administration
NATIONAL INSTITUTE OF STANDARDS

AND TECHNOLOGY 

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.

During this semiannual period we audited costs claimed under three ATP awards.

Two of the audits questioned a total of $11.5 million in costs claimed, of which

$6.5 million were federal funds. The remaining audit recommended that

$300,000 in federal funds be put to better use. Summarized below are the

results of the audits. 

Audit of California Joint Venture

Questions $9.5 Million in Costs

Claimed by the Administrator 

NIST awarded an ATP cooperative agreement to a San Jose,

California, semiconductor manufacturing corporation as the

administrator of a five-member joint venture established to develop a

special technology for next-generation lithography. The 4-year award

period was from May 1999 through May 2003; total estimated costs

for the project were $41,596,073, with the federal government’s share

not to exceed $18,143,595, or 43.6 percent of allowable costs.

We conducted an interim audit of the first 3 years of the award, for which

total joint venture costs of $29,453,333 were claimed, including

$27,538,680 claimed by the administrator. 

Our audit questioned $13,127,470 of the administrator’s costs, consisting of

$9,497,053 claimed for equipment produced by the corporation, which was

charged to the award at commercial sales prices instead of actual production cost;

$3,599,707 in indirect costs that were calculated using an unreasonable

allocation method; and $30,710 in material and supplies costs that were not

adequately supported.

We also found that the administrator’s financial management system did not comply with federal

requirements. The primary deficiency of the system involved inconsistent treatment of project costs

within the division performing work on the project, which resulted in the nearly $3.6 million of questioned

indirect costs noted above. We recommended that NIST disallow all questioned costs, recover $5,705,751 in

excess federal disbursements, and take appropriate action to ensure that the administrator implements an adequate financial

management system. (DENVER REGIONAL OFFICE OF AUDITS: DEN-14219)

28 U.S. Department of Commerce/Office of Inspector General

The

Technology

Administration

serves the needs of technologybased industry, advocates federal

actions and policies to speed the

transfer of technology from the

laboratory to the marketplace, and

removes barriers for commercializing

new technologies. It includes three

major organizations: 

Office of Technology Policy works to raise

national awareness of the competitive challenge,

promotes industry/government/ university

partnerships, fosters quick commercialization of

research results, promotes dedication to quality,

increases industry’s access to and participation in

foreign research and development, and encourages

adoption of global standards. 

National Institute of Standards and Technology

promotes U.S. economic growth by working to

develop and apply technology, measurements, and

standards. NIST manages four programs: NIST

Laboratories, the Advanced Technology Program, the

Manufacturing Extension Partnership program, and

the Baldrige National Quality Program. 

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
$2 MILLION IN INDIRECT COSTS

QUESTIONED IN AUDIT OF JOINT

VENTURE ADMINISTRATOR

In 1995 NIST made a $21.3 million ATP award to a Pittsburgh

nonprofit corporation acting as administrator of a joint venture

developing a searchable multimedia database for the healthcare

industry. The award required a combined cost share of $30

million from joint venture members, bringing total estimated

project costs to $51.3 million. Over the 5-year award period, the

administrator claimed $11.7 million as its total project

expenditure, consisting of $8.6 million in direct costs and $3.1

million in indirect costs. 

A September 2002 OIG audit report (ATL-13993-1, see

September 2002 Semiannual Report to Congress, pages 41-42)

addressed the administrator’s claim for direct costs: we

questioned approximately $3.3 million of the $8.6 million

claimed. During this semiannual period, we audited the

administrator’s indirect costs for the award period, finding that of

the $3.1 million charged to the award, more than $2 million in

indirect costs was improperly claimed. We also found that the

administrator had claimed indirect costs on its reimbursement

requests to NIST that it knew to be greater than the actual costs

incurred. Our specific audit findings were as follows:

■ For the 3-year period from July 1996 to June 1999, the

administrator claimed indirect costs using a provisional

rate that resulted in higher claims than its actual costs

could support. We questioned costs of $1,887,150 for

this period.

■ For the balance of the award period, the administrator

used indirect cost rates approved by the Department of

Health and Human Services. However, in our September

2002 audit report we reduced the total direct cost base

used to calculate indirect costs for that period, resulting

in additional questioned indirect costs of $145,563.

We recommended that NIST disallow a total of $2,032,713 in

questioned indirect costs and recover $869,268 in excess federal

funds disbursed to the administrator corporation. (ATLANTA

REGIONAL OFFICE OF AUDITS: ATL-13993-2)

$300,000 IN FEDERAL FUNDS

PREMATURELY DRAWN DOWN

BY ATP RECIPIENT 

In October 2001 NIST awarded a $1.9 million ATP cooperative

agreement to a California engineering firm to develop a unique

high-speed manufacturing process for a new generation of

electrical conductors for power transmission lines.

Our limited-scope audit of the award revealed that the firm had

drawn down approximately $781,000 in award funds between

October and December 2002, but used only $475,000 to cover

project costs and could not account for the $306,000 balance. 

We recommended that NIST require the company to immediately

repay the government for $306,447 in award funds that were

prematurely drawn down and designate the company as a “highrisk” organization, thereby allowing it to obtain funding only on

a reimbursement basis. (ATLANTA REGIONAL OFFICE OF

AUDITS: ATL-15922)

AUDIT OF NTIS’ FY 2002

FINANCIAL STATEMENTS

The audit of NTIS’ FY 2002 financial statements marked the 10th

consecutive year of unqualified opinions for the bureau and

showed continued improvements in financial management: there

were no reportable conditions in the bureau’s internal control

over financial reporting and no instances of noncompliance with

laws and regulations. 

WEAKNESS IN GENERAL

IT CONTROLS

The auditors’ assessment of IT controls associated with NTIS’

information systems found that NTIS had resolved four of five

weaknesses identified in FY 2001 but noted new weaknesses in

five of the six areas noted in the Federal Information Systems

Controls Audit Manual (FISCAM). Those areas are entitywide

security program planning and management, access control,

application software development and change control, system

software, and service continuity. 

These internal control weaknesses threaten the security of NTIS’

data, programs, and hardware, and could have a negative

effect on the financial statements of both the bureau and

the Department. (FINANCIAL STATEMENTS AND AUDITS

DIVISION: FSD-15212)

COST-BENEFITS OF NTIS’

NEW BUSINESS MODEL

REMAIN QUESTIONABLE

As a self-supporting agency, the National Technical Information

Service must generate revenue to cover its operating costs. To do so,

it leases its database of unclassified scientific, technical, engineering,

March 2003/Semiannual Report to Congress 29

Technology Administration
and business-related information to vendors, and charges users for its

products and services. In an effort to increase demand for, access to,

and income from its products, NTIS developed a new business

model (see figure) that expands products and services available on

the Internet via a “virtual library.” This new component offers

abstracts and downloads of reports dated 1997 and later. 

We reviewed the financial viability of the new business model

and the soundness of its cost and revenue projections, and

determined that the model itself was built on assumptions derived

from intuitive estimates rather than verifiable forecasting

methods. As a result, NTIS had no hard data to support its

projections. Even so, anticipated revenue from the virtual library

during its first 3 years of operation is so low that it will do little

to improve NTIS’ overall financial position in the short term.

Whether the new virtual library will have the anticipated or any

positive impact in the long run remains unclear. 

In response to our concerns, NTIS has established procedures for

monthly assessments of the success of the model and feasibility

of its projections. (FINANCIAL STATEMENTS AUDITS

DIVISION: FSD-15100)

30

Technology Administration

U.S. Department of Commerce/Office of Inspector General

OLD BUSINESS MODEL NEW BUSINESS MODEL

NTIS Help Desk: Accepts mail, phone, fax, or e-mail 

orders from the general public.

Database lease arrangements: 

a. Commercial entities that pay NTIS annual lease fees and 

40% of its customer usage fees.

b. Commercial entities that pay NTIS 60% of its customer 

usage fees. No annual lease fees paid.

c. Government agencies that have free access to the 

database for internal use. 

d. Universities that use the database for internal use only. 

Pay NTIS annual lease fees only.

Web access to database: Citations and ordering information 

on holdings from 1990 to present are available at the 

NTIS web site. 

Same

Same

Same

Same

Same

Same

NEW SERVICE: Virtual library on NTIS’ web site.

Fully annotated post-1996 portion of the NTIS

collection provides downloads of reports available in

electronic format and links to actual reports offered for

free at other agencies’ web sites.
AUDIT OF USPTO’S FY 2002

FINANCIAL STATEMENTS

UPSTO received an unqualified opinion on its FY 2002 financial statements from the independent

certified public accounting firm that conducted the audit. The audit identified no reportable

conditions in its internal control over financial reporting or instances of noncompliance with laws

and regulations. USPTO has received clean opinions for the last 9 years.

INFORMATION TECHNOLOGY CONTROLS 

The auditors’ review of the bureau’s IT controls against the six FISCAM criteria identified

two new weaknesses in entitywide security program planning and management and one

unresolved issue from FY 2001. A total of six new weaknesses were noted in the areas of

access control, change control, and service continuity. (USPTO had fully resolved the other

two IT issues from FY 2001, which were in the areas of security controls and unauthorized

access.) (FINANCIAL STATEMENTS AND AUDITS DIVISION: FSD-15213) 

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. 

March 2003/Semiannual Report to Congress 31

UNITED STATES PATENT AND

TRADEMARK OFFICE
OFFICE OF THE SECRETARY’S PURCHASE CARD

PROGRAM NEEDS STRONGER MANAGEMENT

OVERSIGHT, IMPROVED COMPLIANCE 

The Commerce Department’s purchase card program, established more than 15 years ago,

is intended to expedite and simplify small purchases by reducing procurement-related

administrative costs and improving management and internal controls. Over the years,

purchase cards at the Department have become the primary vehicle for making small

purchases: in FY 2001, for example, 91.1 percent of Commerce’s 364,345 small

purchases were charged to these cards. However, with the simplified process has

come greater opportunity for fraud and abuse, as staff who monitor these

purchases now scrutinize them after the fact rather than approve them in advance. 

The Department’s Office of Acquisition Management is charged with overseeing

administration of the purchase card program within Commerce and, in turn, has

delegated that authority to the Head of the Contracting Office (HCO) for each of

its operating units. The Commerce Bankcard Center, in Kansas City, Missouri,

is responsible for maintaining purchase card data for all Commerce units,

reporting on Department-wide program activity, and administering other

program oversight and support functions. HCOs, the Commerce Bankcard

Center, approving officials, and cardholders all share responsibility for ensuring

that purchase card use complies with requirements of the Federal Acquisition

Regulation (FAR) and Commerce Acquisition Manual. 

From January through August 2002 we audited the Office of the Secretary’s (O/S)

purchase card program to assess its compliance with departmental policies and procedures and federal laws and regulations. While we noted no evidence of cardholder misuse

of funds, we did find instances of noncompliance with provisions of the Commerce

Acquisition Manual. Taken together, these weaknesses increase the program’s vulnerability to

fraud and abuse. 

O/S generally agreed with the

recommendations we made to address our

concerns and has initiated action in response to

them. Mandatory refresher training for all purchase card holders

and approving officials will be provided to ensure they

understand the various requirements of the Commerce

Administrative Manual. In addition, among other things, O/S

will review random samples of cardholder accounts on a

quarterly basis and report findings of noncompliance; conduct

annual reviews of the program; and adopt procedures to ensure

that purchases made for entertainment purposes receive prior

written approval. Finally, O/S has taken the lead in establishing

an intra-departmental cross-functional team intended to further

strengthen not only the Department’s purchase card program, but

32 U.S. Department of Commerce/Office of Inspector General

DEPARTMENT-WIDE

MANAGEMENT

The

United

States

Department of Commerce

promotes job creation and

improved living standards for all

Americans by creating

infrastructure that fosters economic

growth, technological competitiveness,

and sustainable growth. The Department

has three strategic goals:

Goal 1: Provide the information and the

framework to enable the economy to

operate efficiently and equitably. 

Goal 2: Provide the infrastructure

innovation to enhance American

competitiveness. 

Goal 3: Observe and manage the Earth’s

environment to promote sustainable

growth. 

The Department has also established

a Management Integration Goal

that is equally important to all

bureaus: Strengthen

management at all

levels.

Source: FY 2002 Performance & Accountability Report: American Jobs, American

Values. 2002. U.S. Department of Commerce, p. 381.
also its travel and fleet card programs. (BUSINESS AND

TRADE AUDITS DIVISION: BTD-14971)

AUDIT OF DEPARTMENT’S

FY 2002 CONSOLIDATED

FINANCIAL STATEMENTS

The Department received an unqualified opinion on its

consolidated financial statements9 for FY 2002—the fourth

consecutive year for this achievement. The independent certified

public accounting firm that performed the audit noted continuing

improvements in Department-wide financial management and

progress toward eliminating weaknesses identified in prior years. 

The auditors found that the Department had resolved weaknesses

in financial reporting capabilities identified at several operating

units in FY 2001 and had moved closer to an integrated financial

system, having made substantial progress in deploying CAMS at

NOAA. However, they noted several problems in the

Department’s internal control over financial reporting that, taken

together, constitute one material weakness and one reportable

condition. And they cited several instances of noncompliance

with laws and regulations. 

INTERNAL CONTROL OVER

FINANCIAL REPORTING 

The conditions that constitute the material weakness are

as follows:

■ General IT Controls Despite corrective actions to

address IT vulnerabilities, the auditors noted that significant weaknesses still exist in Commerce’s IT control

environment—most notably related to information security. As was the case in last year’s audit, the Department’s

IT controls over financial systems are vulnerable in the

six areas outlined in GAO’s Federal Information System

Controls Audit Manual: entitywide security program planning and management; access controls; application

software development and change control; system software; segregation of duties; and service continuity.

These weaknesses threaten the integrity, confidentiality,

and availability of financial data processed by

departmental systems. 

■ Integrated Financial Management System Commerce

still does not fully comply with OMB requirements for a

single, integrated financial management system, although

progress was made during FY 2002, most notably by

NOAA, which converted its legacy system to CAMS in

October 2002. However, its accounting system for the

audit period, as well as that operated by NIST, was not

integrated and required numerous manual adjustments.

These two systems process their own financial transactions and those of three other bureaus (NOAA handles

BIS; NIST handles NTIA and the Technology

Administration). Together, these bureaus accounted for

72 percent of the Department’s total consolidated assets

as of September 2002. The auditors noted that improving

overall system integration will be key to the

Department’s ability to meet expedited financial reporting due dates in future years. Commerce expects to have

CAMS fully implemented by October 2003 and expects

that CAMS, when interfaced with the Commerce

Corporate Database, will bring the Department into substantial compliance with federal requirements for a

single, integrated financial management system. 

■ Automated Budgetary Controls The legacy systems

operated by NOAA and NIST did not have procedures or

controls to prevent bureau officials from overobligating

funds. The bureaus therefore monitored funding availability manually but at points in the process that did not

prevent overobligations. 

In addition to the material weakness in internal control, the

auditors noted the following reportable condition:

■ Accounting for Personal Property NOAA, which

maintains $3.8 billion of the Department’s $4.5 billion

in personal property, was found deficient in the

following areas: 

● Construction work in progress (CWIP)—NOAA

identified $171.5 million in project costs that had

been incorrectly reported as expenses in prior

years; failed to adjust its CWIP balances by $2.6

million to reflect overhead costs; included two

projects in both the CWIP and real property

accounts; failed to transfer a completed project

from the in-progress account and to remove an

abandoned project from its CWIP balance; classified as CWIP, projects that were not; and for six

projects, did not adequately explain or correctly

post CWIP reconciliations. 

● Personal property ledgers—Unexplained differences totaling approximately $3 million existed

between NOAA’s general and personal property

subsidiary ledgers, as did inaccuracies in schedules that roll forward personal property balances. 

March 2003/Semiannual Report to Congress 33

Department-Wide Mangement

9 The consolidated statements cover all reporting entities within Commerce.

However, two of those entities—NTIS and USPTO—were also audited seperately; they recieved unqualified opinions on their FY 2002 financial statements

as well (see pages 29 and 31, respectively).
● Capital leases—NOAA revised its lease determination worksheets for existing capital asset leases

but did not maintain adequate documentation to

support the adjustments or properly review the

lease calculations. It thus recorded incorrect values

of assets acquired through capital leases that ultimately required adjustments of $1.7 million to

personal property capital lease accounts and $4

million to capital lease liabilities.

COMPLIANCE WITH LAWS

AND REGULATIONS 

During FY 2002, the Department’s financial management

procedures and systems were noncompliant with the following

federal laws and regulations: 

■ OMB Circular A-11, Preparation and Submission of

Budget Estimates NOAA again did not fully fund its

capital leases during FY 2002, which is contrary to OMB

requirements that agencies have sufficient budgetary

resources up-front to cover the present value of lease

payments for capital assets and lease purchases.

■ OMB Circular A-25, User Charges As noted in prioryear audits, ITA did not fully recover the total cost of

providing certain goods and services.

■ Federal Financial Management Improvement Act

(FFMIA) of 1996 The Department’s lack of a single,

integrated financial management system, inadequate

budgetary controls, and weaknesses in IT controls rendered Commerce noncompliant with FFMIA’s

requirements for financial management systems.

The appropriate departmental managers reviewed and agreed

with all of the findings and recommendations contained in the

consolidated audit report. 

Section 803 of FFMIA requires agencies that are not in compliance

with the act to prepare a remediation plan outlining actions to

achieve compliance. The Department prepared such a plan in FY

2002 to address noncompliance issues identified in the FY 2001

audit. It intends to update the plan to reflect its progress in moving

toward compliance. Section 804(b) requires OIG to notify Congress

when the Department does not meet the plan’s intermediate target

dates for implementing actions. We did not identify any instances in

which Commerce failed to meet these dates. (FINANCIAL

STATEMENTS AND AUDITS DIVISION: FSD-15214) 

34

Department-Wide Mangement

U.S. Department of Commerce/Office of Inspector General

Reported Issue in FY 2001 Status in FY 2002

Material Weakness

Lack of a single, integrated financial 

management system and weak IT controls. Both issues continue to constitute a material weakness.

Reportable Condition

a. Weak financial reporting capabilities at Census, EDA, 

and NIST.

b. Extensive reconciliations needed to resolve errors in 

NOAA (CWIP) and Census data provided for inclusion in 

departmental financial sheets.

c. Nonautomated budget controls.

a. Resolved.

b. For Census, no longer a reportable condition. For NOAA,

weakness persists and combines with other property-related

matters to constitute a reportable condition.

c. Weaknesses persist and combine with the material weakness

regarding the financial management system.
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 Executive

Budgeting and Assistance Management, NOAA and NIST grant

offices, and EDA program offices to screen the Department’s

proposed grants and cooperative agreements before 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. 

During this period we screened 525 proposed awards. For 20 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 the 20 awards. (OFFICE OF AUDITS)

Preaward Screening Results

Award

Results Number Amount

Awards delayed to resolve concerns 20 $6,316,699

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 142 audit reports during this semiannual period to

determine whether they contained any audit findings related to

Department programs. For 115 of these reports the Department

acts as oversight agency and monitors the audited entity’s

compliance with OMB Circular A-133 or NIST’s programspecific reporting requirements. The other 27 reports are from

entities for which other federal agencies have oversight

responsibility. We identified 18 reports with findings related to

the Department of Commerce.

ATP 

OMB ProgramA-133 Specific 

Report Category Audits Audits Total

Pending (October 1, 2002) 42 52 94

Received 70 78 148

Examined 95 47 142

Pending (March 31, 2003) 17 83 100

The following table shows a breakdown, by bureau, of the nearly

$138 million in Commerce funds audited.

Bureau Funds

EDA $ 48,417,099

MBDA 597,874

NIST* 68,628,281

NOAA 3,643,497

Office of the Secretary 337,606

Multiagency 15,125,738

Agency not identified 802,428

Total $ 137,552,523

* Includes $62,352,799 in ATP program-specific audits.

We identified a total of $2,513,392 in questioned costs. 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 18 reports with Commerce findings are listed in

Appendix B-1. (ATLANTA AND DENVER REGIONAL

OFFICES OF AUDITS)

QUALITY CONTROL REVIEWS

OF SINGLE AUDITS

The Single Audit Act requires that state and local governments

and nonprofit organizations expending $300,000 or more in

federal financial assistance in a single year be audited in

accordance with the act and its implementing regulations, OMB

Circular A-133. Single audits are generally conducted by either

state audit agencies or private certified public accounting firms

and play an integral role in the government’s efforts to provide

oversight and ensure accountability for federal assistance funds.

As the audit oversight agency for the Department of Commerce,

March 2003/Semiannual Report to Congress 35

Department-Wide Mangement
we conduct quality control reviews (QCRs) of selected single

audits performed on organizations that receive most of their

funding from the Department. The objective of a QCR is to

determine whether the nonfederal audit was conducted in

accordance with Government Auditing Standards and Circular A133 requirements.

Responding partly to recent revelations of serious lapses on the

part of public accounting firms, we expanded our QCR program

during this semiannual period, conducting quality control

reviews of seven single audit engagements. We selected for

review the audits of five organizations that administer EDA

revolving loan funds because RLFs are particularly vulnerable to

fraud, waste, and abuse. The remaining two QCRs examined

single audits performed for recipients of NIST Manufacturing

Extension Partnership funds.

We found serious deficiencies in the quality of the single audits

performed by the CPA firms and made appropriate

recommendations to remedy them. The following summarizes

our findings for each of the QCRs.

CPA Firm Performs Substandard Audits of

Nebraska Organization 

A quality control review of a public accounting firm’s fiscal year

2000 and fiscal year 2001 audits of an EDA grantee in Nebraska

found that, while the firm had conducted the audits according to

generally accepted auditing standards, the audits were

substandard for purposes of meeting the Single Audit Act and A133 requirements. Single audits require additional audit

procedures to assess the adequacy of internal controls over

federal funds and to conduct substantiative testing of support for

costs charged to major federal programs. The firm failed to

perform any of the required procedures. (DENVER REGIONAL

OFFICE OF AUDITS: DEN-15506)

Inadequate Audits of South Dakota

Grantee Fail to Disclose Federal Reporting

Deficiencies

Our quality control review of the fiscal year 2000 and fiscal year

2001 single audits of a South Dakota organization supported by

grants from EDA and NTIA found that, although the independent

auditing firm’s working papers supported its audit reports, the

audits were technically deficient in two respects: (1) the

schedules of federal awards expenditures were prepared

improperly and did not reconcile to the organization’s financial

statements; and (2) the firm had not conducted a sufficient

assessment of the organization’s compliance with federal

reporting requirements, and therefore failed to detect or disclose

violations in fiscal year 2000. (DENVER REGIONAL OFFICE

OF AUDITS: DEN-15507)

Single Audits Not Performed Because CPA

Firm Miscalculated Federal Expenditures 

Our QCR of the fiscal years 2000 and 2001 audits for an EDA

grantee in Central Texas disclosed that the public accounting firm

had incorrectly calculated federal expenditures for an EDA

revolving loan fund and, consequently, did not conduct the

required single audits. As a result, (1) the Schedule of

Expenditures of Federal Awards was not prepared and presented,

(2) the RLF was not tested as a major program or for adequate

internal controls, (3) no risk assessment was conducted, and (4)

the audits were not submitted to the Federal Audit Clearinghouse.

(DENVER REGIONAL OFFICE OF AUDITS: DEN-15508-1)

The same CPA firm audited an economic development

organization with geographic boundaries crossing the Arkansas

and Texas state line, which was the recipient of an EDA revolving

loan fund grant. Once again, we found that the firm had

incorrectly calculated the organization’s RLF federal

expenditures and did not include the RLF in its single audit,

resulting in the same auditing and reporting deficiencies

discussed above. (DENVER REGIONAL OFFICE OF

AUDITS: DEN-15508-2)

CPA’s Deficient Internal Controls Review

Fails to Detect Significant Problems

Our QCR of the fiscal year 2001 single audit for an EDA grantee

in Western Pennsylvania found that the CPA firm auditing the

corporation did not properly evaluate internal controls for 2 of

the 14 compliance requirements, resulting in internal control

deficiencies not being identified as either reportable conditions or

material weaknesses. In addition, the CPA firm failed to use the

required A-133 Compliance Supplement to plan and conduct the

audit, so that significant audit findings were not appropriately

identified or disclosed. We also determined that the CPA firm’s

working papers required significant improvements to be fully

compliant with the standards of both the American Institute of

Certified Public Accountants and Government Auditing

Standards. (ATLANTA REGIONAL OFFICE OF AUDITS:

ATL-15546)

Substantial Questioned Costs Go

Unreported Because of Deficient Audit 

Our quality control review disclosed that a CPA’s audit of a

Minnesota nonprofit organization operating a NIST MEP

36

Department-Wide Mangement

U.S. Department of Commerce/Office of Inspector General
project was substandard and contained significant audit

deficiencies, including the failure to disclose certain reportable

conditions involving federal financial reporting. Specifically,

the audit failed to disclose the organization’s improper cost

allocation and labor distribution system—which resulted in

more than $1.3 million in questioned costs—or its unreported

income—which amounted to more than $300,000. In addition,

the CPA firm did not comply with all applicable review

requirements set forth in the Circular A-133 Compliance

Supplement. (DENVER REGIONAL OFFICE OF AUDITS:

DEN-15500)

Substandard Audit Fails to Disclose

Noncompliance with Federal Regulations

A quality control review of a Connecticut nonprofit corporation’s

fiscal year 2000 single audit revealed that the CPA firm’s audit

was substandard and did not disclose multiple instances of

noncompliance with federal regulations, including the

corporation’s failure to report $1,830,577 of program income,

inaccurate reporting of program costs, inaccurate accounting for

$177,736 in service provider discounts, and an unallowable

$50,000 stock purchase. (DENVER REGIONAL OFFICE OF

AUDITS: DEN-15501)

March 2003/Semiannual Report to Congress 37

Department-Wide Mangement
OIG LOGO UNVEILED

This Semiannual Report to Congress is the first

to carry the Office of Inspector General

emblem—our newly developed visual

identifier that symbolizes our duty

to promote economy, efficiency,

and effectiveness, and prevent

and detect fraud and abuse in

programs and operations of all

the bureaus and units of the U.S.

Department of Commerce. We

chose the emblem’s design, which

differs markedly from other Commerce

bureau emblems, to convey our unique role within

the Department and our combined auditing, evaluative, and investigative duties.

Commerce activities encompass the gamut of public and economic interests

worldwide—from measuring population growth and well-being to monitoring natural

resource management to supporting national and global commercial and manufacturing

endeavors. Our emblem depicts this all-encompassing range of activities and our

responsibility for assessing them. The emblem will appear on our publications and other

OIG media to readily distinguish our work from that of other Commerce entities.

IN THIS SECTION 

The audits and inspections detailed throughout this semiannual report were complemented by a vigorous

investigative agenda, which resulted in numerous judicial and administrative actions. We discuss those activities

in the following pages. We also summarize the reporting requirements for this report, as specified by the Inspector

General Act of 1978, as amended (page 42), and present tables and appendixes listing the statistical details of our work (page 44).

38 U.S. Department of Commerce/Office of Inspector General

OFFICE OF

INSPECTOR GENERAL

OFFICE OF INSPECTOR GENERAL

U.S. DEPARTMENT OF COMMERCE

The

mission of

the Office of

Inspector General is to to

promote economy, efficiency,

and effectiveness and detect

and prevent waste, fraud, abuse,

and mismanagement in the

programs and operations of the

Department of Commerce. Through

its audit, inspection, performance

evaluation, and investigative efforts,

OIG proposes innovative ideas and

constructive solutions that lead to

positive internal and external changes

for the U.S. Department of Commerce.

By providing timely, useful, and

reliable information and advice to

departmental officials, the

administration, Congress, and the

public, OIG's work helps improve

the Department's management

and operations as well as its

delivery of services to the

public.

OFFICE OF INSPECTOR GENERAL

U.S. DEPARTMENT OF COMMERCE
OFFICE OF

INVESTIGATIONS 

OIG’s Office of Investigations (OI) investigates

allegations of fraud and other wrongdoing that

impact Commerce programs and operations, including criminal

or otherwise prohibited activities engaged in by employees,

contractors, or recipients of financial assistance. Staffed by

special agents located in Washington, D.C.; Silver Spring,

Maryland; Denver, Colorado; and Atlanta, Georgia, OI works

closely with the Department of Justice and with U.S. Attorney

Offices throughout the country to prosecute criminal and civil

actions to punish offenders and recover losses suffered by the

government as a result of fraud and misconduct.

Like their counterparts in most OIG offices, our special agents

have full law enforcement powers as special deputy U.S.

marshals under a deputation agreement with the Department of

Justice. We also work with the FBI and other federal law

enforcement agencies to investigate matters of mutual interest.

The results of IG investigations of employee misconduct are

provided to agency officials to support appropriate disciplinary

and administrative actions. 

During this semiannual reporting period, OIG investigations led

to seven arrests, seven convictions, and the filing of indictments,

informations, or criminal complaints against nine individuals. In

addition, there were nine personnel actions taken by the

Department as a result of OI casework. 

Investigative Statistical Highlights

Criminal Investigative Activities

Arrests 7

Indictments/informations 9

Convictions 7

Personnel actions* 9

Fines, restitutions, judgments, and other

civil and administrative recoveries $39,762

*Includes removals, suspensions, reprimands, demotions,

reassignments, and resignations or retirements in lieu of

adverse action.

Allegations Processed

Accepted for investigation 62

Referred to operating units 47

Evaluated but not accepted for

investigation or referral 45

Total 154

INVESTIGATIVE HIGHLIGHTS

Following are some of the highlights of our investigative activity

over the past 6 months.

RLF Grant Fund Administrators Indicted

On March 24, 2003, special agents from Commerce OIG, the

Federal Bureau of Investigation, the Small Business

Administration OIG, and Internal Revenue Service Criminal

Investigations arrested four individuals in Massachusetts

following their indictment for misuse of EDA and other federal

grant funds administered by a municipal economic development

organization. Among other activities, the organization operates

an EDA-funded revolving loan fund and a Small Business

Administration loan program. The organization’s two

administrators and a board member, along with its outside

auditor, were charged in an 88-count indictment with conspiracy,

federal program fraud, false statements, and money laundering.

According to the indictment, the four conspired to embezzle

organization funds through a variety of schemes, including the

diversion of funds from the EDA RLF to the administrators and

their business associates. The indictment also charged that an

auditor hired by the fund administrators provided false

statements to the government to conceal the illegal activities of

the fund administrators. (WASHINGTON FIELD OFFICE OF

INVESTIGATIONS)

Former Census Employee Enters Guilty

Plea for Accepting a Bribe 

In our March 2001 semiannual report (page 79), we reported on

the indictment of a former community partnership specialist in

the Census Bureau’s Dayton, Ohio, regional office, which arose

out of a joint OIG/FBI investigation: the partnership specialist

had misused his position to solicit and receive $1,700 from four

vendors in exchange for favorable treatment in purchasing

promotional items for the 2000 Decennial Census campaign.

Under the terms of a plea agreement, on November 8, 2002, the

defendant was convicted in U.S. District Court for the Southern

District of Ohio on one count of violating 18 U.S.C. § 201, based

on his acceptance of an illegal gratuity. Sentencing is scheduled

for spring of 2003. (WASHINGTON FIELD OFFICE OF

INVESTIGATIONS) 

Commercial Service Foreign National

Employee Removed 

OIG, the FBI, and Department of State Diplomatic Security

Service jointly investigated allegations that a foreign service

national (FSN) employee of the U.S. and Foreign Commercial

March 2003/Semiannual Report to Congress 39

Office of Inspector General
Service at a U.S. embassy in Europe had solicited and accepted

cash payments from an American company as consideration for

the official act of organizing a promotional activity to market the

company’s services in the country. The investigation disclosed

that the employee had solicited and accepted an $1,100 cash

payment in violation of embassy procedures for the receipt and

disbursement of funds. When subsequently interviewed, the

employee admitted accepting the cash, and claimed that he had

used it to pay another national, not employed by the U.S.

government, to participate in promotional activities for the

company. As a result of the investigation, the employee was

terminated in December 2002 under Department of State

procedures for the removal of FSN employees. The grounds

supporting the termination included indiscretions affecting the

conduct of the embassy’s mission, misappropriation and

improper disbursement of funds, misrepresentation or

concealment of material facts, and misuse of official authority.

(WASHINGTON FIELD OFFICE OF INVESTIGATIONS)

Former ITA Employee Arrested for Misuse

of Government Purchase Card 

In February 2003 a former ITA employee was arrested and

charged in the Superior Court of the District of Columbia with

credit card fraud. The charge was based on OIG investigative

findings, which documented that the employee had used her

government purchase card to acquire goods and services for

personal use worth more than $2,000. On March 17, 2003, the

former employee entered into a pretrial diversion agreement, by

which she agreed to perform 40 hours of community service and

make restitution to the government. The employee resigned from

the Department of Commerce in January 2003. (WASHINGTON

FIELD OFFICE OF INVESTIGATIONS) 

Former NOAA Employee Convicted

on Wire Fraud Charges 

In our September 2002 semiannual report (page 37), we reported

the arrest of a former finance accounting technician at NOAA’s

Mountain Administrative Support Center following her

indictment in the District of Colorado on six counts of wire fraud.

The charges were based on an OIG investigation, in which it was

disclosed that the individual had manipulated the accounting

system to make it appear that approximately $19,000 of

legitimate agency expenses were being paid, when in reality, the

payments were made to cover her personal credit card charges.

The defendant pleaded guilty to all six counts in October 2002.

On February 21, 2003, she was sentenced to 4 years’ probation

and ordered to make full restitution to the government.

(DENVER FIELD OFFICE OF INVESTIGATIONS) 

NOAA Contract Employee Arrested in

Connection with Misuse of Fleet Card 

On March 7, 2003, special agents from the Commerce and

General Services Administration OIGs arrested a contract

employee at the NOAA facility in Silver Spring, Maryland. The

arrest was made after discovery of a scheme through which the

contract employee allegedly charged more than $6,000 in

fraudulent purchases to a GSA Fleet Vehicle Fuel Card. As part

of the scheme, a number of people obtained gasoline for their

personal vehicles at the government’s expense. The contract

employee was charged in the U.S. District Court for the District

of Maryland with one count of theft of government property.

(SILVER SPRING FIELD OFFICE OF INVESTIGATIONS)

Former National Weather Service

Employee Pleads Guilty to Misusing

a Government Purchase Card 

In February 2003, a former NOAA employee pleaded guilty in

U.S. District Court for the Eastern District of Virginia to one

count of theft of government property. The plea followed a joint

OIG/FBI investigation into allegations that the employee, while

an administrative assistant with the National Weather Service,

had misused a government purchase card to acquire items for

personal use. Records obtained in the investigation showed a

long-term pattern of government credit card abuse, resulting in

the unauthorized purchase of more than $70,000 worth of

personal items. The employee has resigned from government

service. Sentencing is scheduled for spring of 2003.

(WASHINGTON FIELD OFFICE OF INVESTIGATIONS)

Fraudulent Use of Government Purchase

Card Ends in Theft Conviction 

On January 29, 2003, a former USPTO automation clerk pleaded

guilty in U.S. District Court for the Eastern District of Virginia to

a one-count criminal information charging her with theft of

government property. The plea was the result of an OIG

investigation, which disclosed that the former employee had used

her supervisor’s government purchase card number to make

unauthorized purchases totaling more than $2,000 for her

personal benefit. Sentencing is scheduled for spring of 2003.

(SILVER SPRING FIELD OFFICE OF INVESTIGATIONS)

40

Office of Inspector General

U.S. Department of Commerce/Office of Inspector General
Falsified Time and Attendance Records

Result in Theft Conviction 

In the last issue (September 2002, page 48) we reported the filing

of a criminal complaint against a former USPTO employee based

on the results of an OIG investigative disclosure that, in her role

as office timekeeper, she had inflated her reported hours of work

over a 7-month period to obtain approximately $7,000 in salary

payments to which she was not entitled. On November 18, 2002,

the defendant was convicted in U.S. District Court for the Eastern

District of Virginia on one count of theft of government property.

On February 11, 2003, she was sentenced to 1 year supervised

probation, conditioned on 20 days’ incarceration, and 4 years’

unsupervised probation. In addition, the court ordered her to pay

restitution to the government in the amount of $5,930. (SILVER

SPRING FIELD OFFICE OF INVESTIGATIONS)

OCIO Supervisor Reminded of Policy

on Referrals to OIG 

We investigated allegations that a supervisor in the Office of the

Chief Information Officer (OCIO) had directed her subordinates

not to contact OIG regarding herself or another supervisor, and

had attempted to learn the source of an anonymous allegation

previously made to OIG. During our investigation it was

disclosed that the supervisor had made comments that could be

interpreted by OCIO employees as threats of retaliation for

reporting matters to OIG, in violation of statutory and

administrative prohibitions. Based on the results of the

investigation, the supervisor was reminded that employees are

not to restrict other employees’ communications with OIG.

(WASHINGTON FIELD OFFICE OF INVESTIGATIONS)

Misrepresentation of Status as OIG

Employee Leads to Conviction 

On January 6, 2003, a former OIG employee, now working in

private industry, pleaded guilty to a one-count misdemeanor

charge of violating 18 U.S.C. § 712 (misuse of names, words,

emblems, or insignia) after our investigation confirmed that he

had falsely represented himself as an OIG employee in telephone

conversations and e-mail in an attempt to obtain proprietary

information from a business competitor. Sentencing is scheduled

for spring of 2003 in U.S. District Court for the District of

Columbia. (SILVER SPRING FIELD OFFICE OF

INVESTIGATIONS)

ADDITIONAL INVESTIGATIVE

ACTIVITIES

During the past 6 months OI has conducted outreach activities

within Commerce that focused on informing Department

personnel about our investigative role and educating employees

to recognize and report suspected fraudulent activity related to

their programs. OI is also planning to conduct proactive

investigative activities to identify fraud and program

weaknesses. This approach is consistent with our statutory

responsibility to detect and prevent fraud and promotes

interaction with the Department’s operating components. In

addition, OI is continuing to partner with the various

operating units in Commerce and OIG to ferret out fraud and

address systemic problems that impede the efficacy of

departmental programs.

In addition to conducting criminal, civil, and administrative

investigations that directly impact the Department of Commerce,

OIG special agents have assisted other law enforcement agencies

in a variety of ways this year, as highlighted below.

OIG Participates in Sniper Investigation

During the fall of 2002 the Washington, D.C., metropolitan

area was plagued by what appeared to be random shootings by

a serial killer. In response to the killings, the FBI established

a Sniper Tip-Line that received, documented, and promptly

forwarded leads and other intelligence to the appropriate

investigating agencies. The Tip-Line enabled the public to

quickly report information that would lead to the identification

and apprehension of those responsible for the shootings.

Commerce OIG and other federal, state, and local law

enforcement personnel staffed the FBI Sniper Tip-Line in

support of what has been described as the most intensive

multiregional investigation ever undertaken in the

metropolitan area.

Carjacking Suspect Apprehended

by OIG and FBI Agents

In December 2002 local law enforcement authorities notified OIG

and FBI agents working in Florida that a suspect in a recent

carjacking had been last seen in their vicinity. While driving in

the identified area, the agents observed an individual fitting the

suspect’s description and apprehended and detained the individual

March 2003/Semiannual Report to Congress 41

Office of Inspector General
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.

42 U.S. Department of Commerce/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 42

5(a)(1) Significant Problems, Abuses, and Deficiencies 12-37

5(a)(2) Significant Recommendations for Corrective Action 12-37

5(a)(3) Prior Significant Recommendations Unimplemented 42

5(a)4 Matters Referred to Prosecutive Authorities 12-37

5(a)(5) and 6(b)(2) Information or Assistance Refused 43

5(a)(6) Listing of Audit Reports 44-50

5(a)(7) Summary of Significant Reports 12-37

5(a)(8) Audit Reports—Questioned Costs 45

5(a)(9) Audit Reports—Funds to Be Put to Better Use 46

5(a)(10) Prior Audit Reports Unresolved 43

5(a)(11) Significant Revised Management Decisions 43

5(a)(12) Significant Management Decisions with which OIG Disagreed 43

Office of Inspector General

until local law enforcement authorities arrived to take custody.

The local authorities reported that the suspect was a known gang

member and had several outstanding felony warrants.

Robbery Suspect Arrested

An OIG investigation of an individual suspected of theft

disclosed that the individual had an outstanding robbery warrant

in Georgia. Using a variety of traditional and sophisticated

investigative techniques, the OIG agent assigned to the case

located the suspect and advised the Atlanta Police Department of

the suspect’s whereabouts. The police arrested the individual on

the robbery warrant without incident.

OIG is also required by section 804(b) of the Federal Financial

Management Improvement Act of 1996 to report instances in

which and reasons why an agency has not met the dates of its

remediation plan. We discuss this matter in this issue as part of

our financial statements audit reporting.
To include a list of all significant unimplemented

recommendations in this report would be duplicative, costly,

unwieldy, and of limited value to Congress. Any list would have

meaning only if it explained whether adequate progress is being

made to implement each agreed-upon corrective action.

Management updates the Department’s Audit Tracking System

annually, based on status reports due from the bureaus in

mid-October. The last update was as of September 30, 2002.

However, additional information on the status of any

audit recommendations can be obtained through OIG’s Office

of Audits.

SECTIONS 5(a)(5) AND 6(b)(2):

INFORMATION OR

ASSISTANCE REFUSED

These sections require a summary of each report to the Secretary

when access, information, or assistance has been unreasonably

refused or not provided. There were no such instances during this

semiannual period and no reports to the Secretary.

SECTION 5(a)(10): PRIOR AUDIT

REPORTS UNRESOLVED

This section requires a summary of each audit report issued

before the beginning of the reporting period for which no

management decision has been made by the end of the reporting

period (including the date and title of each such report), an

explanation of why a decision has not been made, and a statement

concerning the desired timetable for delivering a decision on

each such report. 

As of March 31, 2003, the following single audit report was

unresolved for more than 6 months:

Questioned Costs for State of Nebraska

Total $616,611

An OIG review of the FY 2001 single audit report for the state

of Nebraska (listed in our September 2002 report, page 69,

ATL-09999-2-1114) questioned a total of $616,611 in costs

charged to a NIST cooperative agreement. The costs were

questioned because the state did not report actual expenditures

on federal reports and, as a result, received excess federal

funds. The report also contained some nonfinancial findings.

NIST and OIG are actively working to resolve this audit as

expeditiously as possible.

SECTION 5(a)(11):

SIGNIFICANT REVISED

MANAGEMENT DECISIONS

This section requires an explanation of the reasons for any

significant revision to a management decision made during the

reporting period. Department Administrative Order 213-5, Audit

Resolution and Follow-up, provides procedures for revising a

management decision. For performance audits, OIG must be

consulted and must approve in advance any modification to an

audit action plan. For financial assistance audits, OIG must

concur with any decision that would change the audit resolution

proposal in response to an appeal by the recipient. The decisions

issued on the eight appeals of audit-related debts were finalized

with the full participation and concurrence of OIG.

SECTION 5(a)(12): SIGNIFICANT

MANAGEMENT DECISIONS WITH

WHICH OIG DISAGREED

This section requires information concerning any significant

management decision with which the inspector general disagrees.

Department Administrative Order 213-5 provides procedures for

elevating unresolved audit recommendations to higher levels of

Department and OIG management, including their consideration

by an Audit Resolution Council. During this period no audit

issues were referred to the council.

March 2003/Semiannual Report to Congress 43

Office of Inspector General
AUDIT RESOLUTION AND

FOLLOW-UP

The Inspector General Act Amendments of 1988 require us to

present in this report those audits issued before the beginning of

the reporting period (October 1, 2002) for which no management

decision had been made by the end of the period (March 31,

2003). One NIST audit report remains unresolved for this

reporting period (see page 43).

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.

Table 1. Audit Resolution Follow-Up

Report Category Modifications Appeals

Actions pending

(October 1, 2002) 0 8

Submissions 0 13

Decisions 0 8

Actions pending

(March 31, 2003) 0 13

44 U.S. Department of Commerce/Office of Inspector General

TABLES AND STATISTICS

TABLES PAGE

1. Audit Resolution Follow-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

2. Audit and Inspection Statistical Highlights for this Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

3. Audits with Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

4. Audits with Recommendations that Funds Be Put to Better Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

APPENDIXES

A. Report Types this Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

A-1. Performance Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

A-2. Financial-Related Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

A-3. Financial Statements Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

A-4. Quality Control Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

A-5. Inspections and Systems Evaluations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

B. Processed Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

B-1. Processed Financial-Related Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

Office of Inspector General
Table 2. Audit and Inspection Statistical

Highlights for this Period

Questioned costs $9,246,105

Value of audit recommendations that

funds be put to better use $14,454,402

Value of audit recommendations agreed

to by management $15,827,347

Value of inspection recommendations that

funds be put to better use $323,366

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.

March 2003/Semiannual Report to Congress 45

Office of Inspector General

Table 3. Audits with Questioned Costs

Report Category Number Questioned Costs Unsupported Costs

A. Reports for which no management decision had been made by

the beginning of the reporting period 30 $ 10,742,091 $ 4,742,041 

B. Reports issued during the reporting period 19 9,246,105 2,202,809

Total reports (A+B) requiring a management decision

during the reporting period1 49 19,988,196 6,944,850

C. Reports for which a management decision was made during

the reporting period2 33 11,523,494 5,271,005

i. Value of disallowed costs 7,401,692 2,838,929

ii. Value of costs not disallowed 4,668,417 2,455,201

D. Reports for which no management decision had been made by

the end of the reporting period 16 8,464,702 1,673,845

1 Five audit reports included in this table are also included among reports with recommendations that funds be put to better use (see

table 2). However, the dollar amounts do not overlap.

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

recommendations.
46

Office of Inspector General

U.S. Department of Commerce/Office of Inspector General

Table 4. Audits with Recommendations that Funds Be Put to Better Use

Report Category Number Value

A. Reports for which no management decision had been made by the

beginning of the reporting period 10 $ 9,904,829

B. Reports issued during the reporting period 9 14,454,402

Total reports (A+B) requiring a management decision during

the reporting period1 19 24,359,231

C. Reports for which a management decision was made during the

reporting period2 10 9,904,829

i. Value of recommendations agreed to by management 8,425,655

ii. Value of recommendations not agreed to by management 1,567,723

D. Reports for which no management decision had been made by the

end of the reporting period 9 14,454,402

1

Five audit reports included in this table are also included in the reports with questioned cost (see table 1). However, the dollar

amounts do not overlap.

2

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

recommendations.
March 2003/Semiannual Report to Congress 47

Office of Inspector General

Appendix A. Report Types this Period

Number of Appendix

Type Reports Number

Performance audits 6 A-1

Financial-related audits 18 A-2

Financial statements audits 6 A-3

Quality control reviews 7 A-4

Inspections and

systems evaluations 5 A-5

Total 42

Appendix A-1. Performance Audits

Funds to Be Put

Report Title Report Number Date Issued to Better Use

International Trade Administration

International Trade Administration's Market Access and

Compliance Unit Successfully Recruited for Trade

Compliance Positions ESD-15499-3-0001 3/31/03 —

National Oceanic and Atmospheric Administration

Improvements Needed in the Reporting of Performance

Measures Related to Promoting Safe Navigation and

Sustaining Healthy Coasts FSD-14998-3-0001 2/28/03 —

NOAA's "Corporate-Costs" Process Needs Improvement STD-14427-3-0001 3/10/03 —

Travel Card Program at National Weather Service

Headquarters Needs Additional Management Controls BTD-14972-3-0001 3/18/03 —

National Technical Information Service

National Technical Information Service's

New Business Model FSD-15100-3-0001 12/31/02 —

Office of the Secretary

Office of the Secretary's Oversight of Its Purchase Card

Program Needs Heightened Monitoring and Enforcement BTD-14971-3-0001 3/28/03 —
48

Office of Inspector General

U.S. Department of Commerce/Office of Inspector General

Appendix A-2. Financial-Related Audits

Federal Federal Funds to

Amount Amount Be Put 

Date Questioned Unsupported to Better 

Auditee Report Number Issued Costs Costs Use

Economic Development Administration

Community Investment Corporation

of Decatur, Inc., IL DEN-15184-3-0001 2/6/03 $ 44,536 $ 44,536 $ 1,689,393

City and County of San Francisco, CA DEN-15183-3-0001 2/7/03 2,027,326 

Northwest Regional Planning Commission, WI DEN-15308-3-0001 3/7/03 260,236 

South Carolina Jobs-Economic

Development Authority ATL-14915-3-0001 3/25/03 606,790 

City of Baldwin Park, CA DEN-15181-3-0001 3/28/03 708,711 

Alaska Village Initiatives DEN-15182-3-0001 3/28/03 324,587 

Anacostia Economic Development

Corporation, DC ATL-15124-3-0001 3/31/03 601,618 

Empire State Development Corporation, NY ATL-15390-3-0001 3/31/03 145,583 7,929,294 

National Institute of Standards and Technology

Allegheny-Singer Research Institute, PA ATL-13993-3-0002 3/27/03 832,145 832,145 

W. Brandt Goldsworthy & Associates, Inc., CA ATL-15922-3-0001 3/27/03 306,447 

KLA-Tencor Corporation, CA DEN-14219-3-0001 3/31/03 5,710,499 13,359 

Appendix A-3. Financial Statements Audits

Report Title Report Number Date Issued

National Technical Information Service 

Improvements Needed in the General Controls Associated with

NTIS’ Financial Management Systems FSD-15212-3-0001 12/30/02

Financial Statements Fiscal Year 2002 FSD-15212-3-0002 1/9/03

Office of the Secretary

Department of Commerce’s Fiscal Year 2002 Consolidated

Financial Statements FSD-15214-3-0002 1/16/03

Review of IT Controls to Support the FY 2002 Consolidated

Financial Statement Audit FSD-15214-3-0001 1/21/03

United States Patent and Trademark Office

Improvements Needed in the General Controls Associated

with USPTO’s Financial Management Systems FSD-15213-3-0001 12/30/02

Financial Statements Fiscal Year 2002 FSD-15213-3-0002 1/9/03
March 2003/Semiannual Report to Congress 49

Office of Inspector General

Appendix A-4. Quality Control Reviews

Report Title Report Number Date Issued

Economic Development Administration 

Hanigan Bjorkman Ecklund LLP, for audit of Nebraska

Economic Development Corporation for the years ended

September 30, 2001 and 2000 DEN-I5506-3-0001 3/12/03

McGladrey & Pullen, LLP, for audit of Black Hills

Community Economic Development, Inc., for years

ended June 30, 2001 and 2000* DEN-15507-3-0001 3/12/03

Pattillo, Brown & Hill, LLP, for audit of Central Texas

Economic Development District for years ended

December 31, 2001 and 2000 DEN-15508-3-0001 3/14/03

Pattillo, Brown & Hill, LLP, for audit of Ark-Tex

Council of Governments for the year ended

September 30, 2001 DEN-15508-3-0002 3/14/03

Maher Duessel, CPAs for the single audit of the Regional

Development Funding Corporation for fiscal year ended

September 30, 2001 ATL -15546-3-0001 3/24/03

National Technical Information Service 

Kostin, Ruffkess & Company, LLC, for the single audit

of Connecticut Technology Associates, Inc., for year ended

June 30, 2000 DEN-15501-3-0001 3/26/03

KPMG, LLP, for single audit of Minnesota Technology, Inc.,

for fiscal year ended June 30, 2001 DEN-15500-3-0001 3/27/03

* Black Hills Community Economic Development, Inc., was funded by both EDA ($1,024,106) and NTIA ($505,061) for years

ended June 30, 2001 and 2000. However, this report is listed under EDA because all the findings were related to EDA funding.

Appendix A-5. Inspections and Systems Evaluations

Report Title Report Number Date Issued

Bureau of Industry and Security 

Improvements Are Needed to Better Enforce Dual-Use

Export Control Laws IPE-15155 3/31/03

Stronger Management Controls Are Needed for BIS’

Export Enforcement Firearms Program IPE-15155-1 3/14/03

Memo on CIA-Export Enforcement Issues IPE-15155-3 3/17/03

International Trade Administration

The Commercial Service Needs to Improve Management

of its Operations in Turkey IPE-15370 3/14/03

National Oceanic and Atmospheric Administration

NMFS Should Take a Number of Actions to Strengthen

Fisheries Enforcement IPE-15154 3/31/03
50

Office of Inspector General

U.S. Department of Commerce/Office of Inspector General

Appendix B. Processed Reports

The Office of Inspector General reviewed and accepted 142 financial-related audit reports prepared by independent public accountants

and local, state, and other federal auditors. The reports processed with questioned costs, recommendations that funds be put to better

use, and/or nonfinancial recommendations are listed in Appendix B-1. 

Agency Audits

Economic Development Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62

Minority Business Development Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

National Institute of Standards and Technology* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51*

National Oceanic and Atmospheric Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Office of the Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Multiagency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Agency not identified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142

*Includes 47 ATP program-specific audits.

Appendix B-1. Processed Financial-Related Audits

Federal Federal

Amount Amount

Date Questioned Unsupported

Auditee Report Number Issued Costs Costs

Economic Development Administration

City of Swainsboro, GA ATL-09999-3-1195 11/21/02 $ 105,791

Skagit Council of Governments, WA ATL-09999-3-1193 1/31/03 674,857

Northwest Regional Planning Commission, WI ATL-09999-3-1273 1/31/03 13,320

The Quileute Tribe, WA ATL-09999-3-1374 3/31/03 26,267 26,267

National Institute of Standards and Technology 

eCollege.com, CO ATL-09999-3-1159 10/24/02 1,145,575 1,145,575

Engelhard Corporation, NJ DEN-09999-3-0782 10/30/02 113,051

Apex Medical, Inc., MA DEN-09999-3-1067 11/20/02 105,321

General Motors Corporation, Ml ATL-09999-3-0553 11/21/02

General Motors Corporation, Ml ATL-09999-3-0554 11/21/02

lnfigen, Inc., WI ATL-09999-3-1206 11/21/02 33,597

Imation, Corp., MN DEN-09999-3-1018 12/19/02 149,612 102,312

Imation, Corp., MN DEN-09999-3-1019 12/19/02

AviGenics, Inc., GA DEN-09999-3-1075 2/19/03 8,596

UOP LLC, IL DEN-09999-3-0768 3/12/03 14,616

Arkansas Science and Technology Authority ATL-09999-3-1175 3/31/03 56,662 38,615

St. Jude Medical, Inc., MN DEN-09999-3-0766 3/31/03 25,627

Office of the Secretary

Minority Access, Inc., MD ATL-09999-3-1383 3/31/03 24,348

Minority Access, Inc., MD ATL-09999-3-1384 3/31/03 16,152
March 2003/Semiannual Report to Congress 51

ACRONYMS USED IN THIS REPORT

ATP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Advanced Technology Program

BIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Bureau of Industry and Security (formerly Bureau of Export Administration)

CAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Commerce Administrative Management System

CFO/ASA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chief Financial Officer and Assistant Secretary for Administration

COOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .continuity of operations plan

COTR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .contracting officers’ technical representative

CPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .certified public accountant

CWIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .construction work in progress

DOC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Department of Commerce

EAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Export Administration Regulations

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

EEZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exclusive Economic Zone

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

FAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Federal Acquisition Regulation

FFMIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Federal Financial Management Improvement Act

FISCAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Federal Information Systems Controls Audit Manual

FISMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Federal Information Security Management Act

FMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Fisheries Management Council

FSN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .foreign service national

FTR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Federal Travel Regulation

GAO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .General Accounting Office

GISRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Government Information Security Reform Act

GPRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Government Performance and Results Act

GSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .General Services Administration

HCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Head of Contracting Office

HSPD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Homeland Security Presidential Directive

IA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Import Administration

ICASS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .International Cooperative Administrative Support Services

IG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .inspector general

IT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .information technology

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

MAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Market Access and Compliance

NAPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Academy of Public Administration
52

Acronyms Used in This Report

U.S. Department of Commerce/Office of Inspector General

NCIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Crime Information Center

NDAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Defense Authorization Act

NIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Institute of Standards and Technology

NMFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Marine Fisheries Service

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

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

NTIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Technical Information Service

NWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .National Weather Service

OAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Acquisition Management

OCIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Chief Information Officer

OEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Export Enforcement

OFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Finance and Administration

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

OIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of International Operations

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

OLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Law Enforcement

OMB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of Management and Budget

O/S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Office of the Secretary

QCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .quality control review

RLF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .revolving loan fund

SAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .special agent in charge

US&FCS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.S. and Foreign Commercial Service

USPTO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.S. Patent and Trademark Office

VMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vessel monitoring system
March 2003/Semiannual Report to Congress 53

Types of OIG Audits

For the federal government, OIGs must ascertain program viability from a variety of perspectives. The various kinds of audits,

evaluations, inspections, and investigations at our disposal afford the IG’s office a comprehensive view of Commerce programs

and operations. Thus we are able to provide program managers with reviews and recommendations that are both objective and

inclusive and can be used 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.

Financial-Related Audits review the Department’s contracts, grants, cooperative agreements, loans, and loan guarantees. They assess

compliance with laws, regulations, and award terms; adequacy of accounting systems and internal controls; allowance of costs; and the

degree to which projects achieved the intended results.

Financial Statements 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.

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

Criminal/Civil/Administrative 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 violation

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.
This semiannual report is dedicated to the memory of Special AgentRobert A. Brent. Bob came to the Department of Commerce Office ofInspector General in 1987 from the General Services Administration, andin his 16 years with OIG he proved himself to be a loyal, dedicated, andthoroughly dependable employee and friend. As a special agent for OIG,he performed complex investigations in virtually all Department ofCommerce bureaus. His work took him to locations all across thecountry—from Alaska to Montana to Louisiana. After the tragic eventson September 11th, Bob spent several weeks in New York Cityinvestigating leads and assisting with evidence recovery at ground zero,the World Trade Center. In March 2003 we recognized Bob with thehighest award the Inspector General can bestow—a Bronze Medal—forhis successful completion of an embezzlement investigation thatuncovered systemic vulnerabilities in the Department's financial controlsand resulted in the conviction of a former Commerce employee andrestitution of more than $30,000 to the federal government.